A Plan for Financial Success

This second commentary was originally posted March 9, 2009.

The nation was firmly entrenched in the recession but by no means headed for depression. I remember the little quip: a recession is when your neighbor loses his job; a depression in when you lose yours.

When asked by a Senate subcommittee, Ron Blue provided a straightforward “plan” for financial success given the current economy. Think long term, spend less than you earn, maintain emergency savings, and minimize debt.

In reality, Mr. Blue simply provided four sound, timeless financial principles. They were true going into the depression, in the midst of it, climbing out of it, into today and far into the future.

Those who followed these principles thrived. They thrive today. They will thrive tomorrow. Are you following them?

If you are in crisis, there is no better time to start then now.

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What if you had a plan for financial success?

Ron Blue recently testified before a Senate subcommittee conducting hearings on “Solutions for a New Era: Jobs and Families.” Mr. Blue was appearing based on his solid reputation of financial expertise.

A Senator asked him what the average American family should do in the current economy. Ron Blue said that the American family could benefit from following a four-part financial plan:

• Think long-term with goals and investing
• Spend less than you earn
• Maintain liquidity (or emergency savings)
• Minimize the use of debt

Think Long Term: The longer term your perspective, the better financial decisions you will make.

Spend Less Than You Earn: You need to know what you are earning, what you are spending, have a plan and monitor it. Over the long term, this will contribute to financial success.

Maintain Emergency Savings: A reserve will help you ride out the surprises of life and avoid debt.

Minimize and Eliminate Debt: Debt may allow you to have more now, but it reduces your ability to have more in the future. Debt is an obligation on your future income, and because of compounding, it may represent the single most important factor influencing your future financial success.

These four principles work in concert. Together, they represent a formula for financial success.

These principles are so timely to today’s economic climate. Perhaps because they are timeless. They are by no means new; they trace back for thousands of years.

The principles have endured the test of time. They are independent of the economy - recession or boom. They are insensitive to oil prices and the real estate market. Many rich people, and likely many more poor people, can attest to them.

Those that have followed this path in recent years are comfortably surviving - some thriving - in the economic concerns of today. If you have been following them, continue. You will continue to thrive.

If you are in crisis, there is no better time to start then now. You cannot establish a strong financial foundation without them. They will lead you out of your crisis, and help you prevent them in the future.

Note - reference source “Surviving Financial Meltdown” by Ron Blue and Jeremy White.

The Middle Class is Shrinking

A business colleague just sent me a very kind note.

Our recent discussions had centered on financial literacy, more specifically the lack of it. Both of us were amazed at the state of our economy. Our national economy. Our world economy. The personal economies of most everyone who will share a candid conversation on the topic. Without a doubt, the same holds true for many not willing to address it (talk or action) as well.

In his note, my colleague reminded me of several blogs I had posted over the past years on the subject of financial literacy and complimented the fact that the insights were as relevant today as they were in the financial climate in which they were written.

My response? Principles are timeless.

He encouraged me to re-post a few of these blogs and see if they inspire thought and action today. I invite you consider what I wrote, from several perspectives… how they reflected the time in which they were written, how they apply today, and what lessons may apply looking forward.

This first commentary below was originally posted December 5, 2008. One CNN Money article of the day used terms like “indicators in a tailspin” and “very severe recession.” Thankfully, no one was worried about a depression.

Almost seven years later, would you agree that the middle class was shrinking and continues to do so at an even faster pace? What are your thoughts? What actions did you take then? What actions do you plan to take today?

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Wealth, poverty, and the group in the middle. There is a distinct division within our society. Though we may debate the actual numbers, don’t miss the point.

We find the wealthy at one end of the spectrum. I reference Robert Kiyosaki and the Cashflow Quadrant for my definition of the wealthy, and the estimate that it‘s about 5% of the population.

On the other end are those below the poverty line. A year or so ago, that was about 15%. What would you think has happened to that number in the last few months?

For now, that leaves the remaining 80% in what would be called the middle class.

Kiyosaki and others have documented what we can see clearly. The middle class is shrinking. Jobs are going away by downsizing and outsourcing. Those reductions have recently accelerated through business failures and store closings. For those that remain, wages are dropping. Add global competition and a transformation of the business world, the rate of change is staggering.

Much of this change, and the impact, is outside of our direct sphere of influence. But not all of it.

I submit that where we find ourselves now (and the direction we move) relates directly to our ability to compete on an individual level. And it’s far beyond tactical execution. As an example, did you know that 80% of people that lose their jobs do so because of people skills rather than technical skills or expertise?

More than anything else, it's actually our thinking, the information that we obtain and leverage, that drives our results.

What I’ve learned is that, for me, I have to constantly develop myself to remain competitive. I have to grow to simply keep pace. As an employee, as an entrepreneur or as a business owner, the story is the same. Stop learning, and you start dying. In this case, that’s financial death and all that comes with it.

So what will you do with this information?

Do you agree that there is a 5/80/15 split?

Do you agree that the middle is shrinking?

Are they moving up to the 5% or down to the 15%?

By default or inaction, most are moving down to the 15%.

Will you follow them...

or will you chart a course towards the 5% instead?

Where are you now…

and which direction are you planning on going?

Will you take action?

What will happen if you don’t?

A Lesson From The Kid

What did you dream about when you were a kid?

Bruce Willis plays the adult Rusty (Russ) Duritz in the movie, “The Kid”. Giving credit to the Internet Movie Database (www.imdb.com) the main premise reads:

"Russ Duritz is a wealthy L.A. image consultant, but as he nears 40, he's cynical, dogless, chickless, estranged from his father, and he has no memories of his childhood. One night he surprises an intruder, who turns out to be a kid named Rusty, almost 8 years old."

That kid is Russ himself. I love his eight year old summary of his 40 year old self.

“So, I'm forty, I'm not married, I don't fly jets, and I don't have a dog? I grow up to be a loser.”

Are you the person you imagined you would be? Are you living the life you dreamed when you were a kid? Would the eight year old “you” say you grew up to be a loser?

What did you dream about back then? Did you have a poster of a minivan (black light poster, of course!) on your bedroom wall? Did they even make posters of cubicles and credit card debt? Did you surround yourself with such images? NO!

Most guys had the Ferrari - or your favorite Italian car ending in a vowel - along with sports heroes, a favorite band, and perhaps a dream girl or two.

The girls rooms? Perhaps posters of the latest teen heart throb, perhaps a hero. Maybe the room was filled with dolls, princesses, cheerleading trinkets and prom bouquets. Perhaps a musical instrument or a favorite sport.

Memories intertwined with dreams for the future. Not to belittle where life led us, but does it match the life we imagined? Is it a life we actively created, or what simply happened? What would you tell the eight year old you?

Looking back doesn’t change anything. Unless we learn something, and it changes our thinking. And if we leverage that new thinking to take different actions.

If you stay on your current course, where will you be in five years? Do you like those results? What does that mean ten years will look like? If you could shape that future self, create your dream life, what would you do?

If the “you” five years from now could speak into your life today, what would you say? What would you tell yourself to do, starting today? What would you beg yourself to stop doing, today?

Do you hear what you are saying?

The Incentive to Succeed

One of my network connections sent out a weekly commentary today. Great information to spur thought and conversation.

"Lyndon Johnson declared a War on Poverty, some 40+ years ago. Based on proposals I've seen, it appears that a War on Prosperity is on its way.

Current proposals would increase the top federal income tax rate to 39.6% for those with $200,000 in AGI, or $250,000 in AGI for joint filers.

In addition, about one-third of these earner's deductions would be disallowed, and we can expect payroll (FICA) taxes to be applied to all income over $250,000.

This combination of benefits will increase taxes for taxpayers in this bracket by about half. Finally, capital gains tax rates are expected to increase to 20%.

The beauty of this strategy is that the 2% of taxpayers affected cast only about 4% of the votes."

I was drawn to the final line about "votes" represented by the impacted taxpayers. I recall the recent elections and the campaign platforms, and put the entirety of this commentary in that perspective. It suggests that the slim minority of the voting public, affected by these proposals, lack the power to respond with any force in the ballot box.

I think that a review of history and a comparison of other national economies have both shown, however, that the general prosperity intended by this redistribution would eventually drive the opposite results. The incentive to succeed, to work towards prosperity, becomes a negative incentive when the fruits of those efforts are taken away. Over time, when the rewards diminish, the incentive to prosper fades as well.

I welcome your comments and insights.

History Lesson... or is that an Economy Lesson?

"All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation."

John Adams

A Plan for Financial Success

What if you had a plan for financial success?

Ron Blue recently testified before a Senate subcommittee conducting hearings on “Solutions for a New Era: Jobs and Families.“ Mr. Blue was appearing based on his solid reputation of financial expertise.

A Senator asked him what the average American family should do in the current economy. Ron Blue said that the American family could benefit from following a four-part financial plan:

Think long-term with goals and investing
Spend less than you earn
Maintain liquidity (or emergency savings)
Minimize the use of debt

Think Long Term: The longer term your perspective, the better financial decisions you will make.

Spend Less Than You Earn: You need to know what you are earning, what you are spending, have a plan and monitor it. Over the long term, this will contribute to financial success.

Maintain Emergency Savings: A reserve will help you ride out the surprises of life and avoid debt.

Minimize and Eliminate Debt: Debt may allow you to have more now, but it reduces your ability to have more in the future. Debt is an obligation on your future income, and because of compounding, it may represent the single most important factor influencing your future financial success.

These four principles work in concert. Together, they represent a formula for financial success.

These principles are so timely to today’s economic climate. Perhaps because they are timeless. They are by no means new; they trace back for thousands of years.

The principles have endured the test of time. They are independent of the economy - recession or boom. They are insensitive to oil prices and the real estate market. Many rich people, and likely many more poor people, can attest to them.

Those that have followed this path in recent years are comfortably surviving - some thriving - in the economic concerns of today. If you have been following them, continue. You will continue to thrive.

If you are in crisis, there is no better time to start then now. You can not establish a strong financial foundation without them. They will lead you out of your crisis, and help you prevent them in the future.

Note - reference source “Surviving Financial Meltdown” by Ron Blue and Jeremy White.

Spreading the Wealth

I received this in an e-mail recently. I welcome your comments!

You cannot legislate the poor into freedom by legislating the wealthy out of freedom.

What one person receives without working for, another person must work for without receiving.

The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation.

You cannot multiply wealth by dividing it.

Prosperity?

"I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Winston Churchill

The Middle Class is Shrinking

Wealth, poverty, and the group in the middle. There is a distinct division within our society. Though we may debate the actual numbers, don’t miss the point.

We find the wealthy at one end of the spectrum. I reference Robert Kiyosaki and the Cashflow Quadrant for my definition of the wealthy, and the estimate that it‘s about 5% of the population.
On the other end are those below the poverty line. A year or so ago, that was about 15%. What would you think has happened to that number in the last few months?

For now, that leaves the remaining 80% in what would be called the middle class.

Kiyosaki and others have documented what we can see clearly. The middle class is shrinking. Jobs are going away by downsizing and outsourcing. Those reductions have recently accelerated through business failures and store closings. For those that remain, wages are dropping. Add global competition and a transformation of the business world, the rate of change is staggering.

Much of this change, and the impact, is outside of our direct sphere of influence. But not all of it.

I submit that where we find ourselves now (and the direction we move) relates directly to our ability to compete on an individual level. And it’s far beyond tactical execution. As an example, did you know that 80% of people that lose their jobs do so because of people skills rather than technical skills or expertise?

More than anything else, it's actually our thinking, the information that we obtain and leverage, that drives our results.

What I’ve learned is that, for me, I have to constantly develop myself to remain competitive. I have to grow to simply keep pace. As an employee, as an entrepreneur or as a business owner, the story is the same. Stop learning, and you start dying. In this case, that’s financial death and all that comes with it.

So what will you do with this information?
Do you agree that there is a 5/80/15 split?
Do you agree that the middle is shrinking?
Are they moving up to the 5% or down to the 15%?
By default or inaction, most are moving down to the 15%.
Will you follow them...
or will you chart a course towards the 5% instead?
Where are you now…
and which direction are you planning on going?
Will you take action?
What will happen if you don’t?