Archive for June 2006

A rant on changing …

I was working with my leadership coach today and during our discussion, he stated something that was profound to me.

He stated that when it comes to making change happen, incentives work, fear may help, but making it part of a cause really makes it happen.

Let me break it down as it applies to personal finances.

Incentives work in helping you change your finances. If you have a 401(k) retirement fund (or something similar like a 403(b)) at work, your organization will many times offer to match a portion of your contribution. Because of this incentive, you company hopes that you may be more inclined to change your finances and contribute toward your retirement fund. The government also provides an incentive to contribute toward your retirement by offering to not tax your money until you begin withdrawing it during retirement. This allows you to utilize the tax dollars to gain additional growth.

Fear helps by driving you toward some other decision just because the other alternative is just so bad. You may have gotten into deep debt in the past. As a result, you nearly lost your house to foreclosure. Fear of that situation may drive you to avoid obtaining debt again.

I propose that really changing your personal finances happens when it becomes part of a cause. If your wife really wants to stay home and raise the children, but you really need to make a change in your financial management to make it happen, you have a cause to fight for. If you really want to pursue a job as a teacher, but it makes way less income than you currently make, you have a cause to fight for. If you want to go to college, but you do not want debt, you have a cause to fight for. If you have a very sick child who needs a lot of expensive medicine, you really have a cause to fight for.

When you have a true cause to fight for, that is what makes true change happen. Why? Because while incentives and fear help drive some change, it is generally temporary because external events are driving the behavior. With a cause, however, an internal desire drives the behavior. When it becomes internal to your very being, change will happen.

What cause are you managing your finances for?

Stop living from paycheck to paycheck!

A recent study from ACNielsen revealed that about 1 in 4 Americans say that they do not have any spare cash. No wiggle room. No room for an error. No room for an emergency. No room for life to happen.

Question: That new car – is it worth being broke over?
Question: That student loan – is it worth the degree you will receive?
Question: That furniture – is it really so important that you could not save up and pay cash for it?
Question: What would you be able to do if you had cash available to you?

I just completed reading the story in ESPN The Magazine (June 19, 2006 edition) about PGA Tour Pro John Daly. He states that when he showed up to St. Andrews for the British Open Major Championship in 1995, he was in debt almost $4,000,000. He states, “The only way I’d been able to keep my head above water was to turn all my quarterly endorsement income over to the casinos (his debtors), and then run myself ragged by playing all over the world for appearance fees and doing too many corporate outings, all because I needed the money to feed the beast. The British Open saved me. Not because of the winner’s purse – it was only … $200,000 back then. But when you throw in the bonuses from all my sponsors, I took at $1 million-plus haul away from the Old Course. All that went to the casinos.”

Paycheck to paycheck even when making millions. It is a VERY SIMPLE math equation.

INCOME – OUTGO = EXACTLY ZERO

OUTGO needs to include savings for emergencies and otherwise unexpected financial needs. If not, you will continue to live paycheck to paycheck.

Living paycheck to paycheck robs you of your ability to dream. It shoots down hope. It leads to depression and despair. It can lead to a feeling of inadequacy. It will force you to turn to debt when any small issue arises. It drives a wedge between husband and wife – between parents and children. It leads to increased stress and high blood pressure. It prevents people from following their dreams. It paralyzes you.

You may think I am overstating this, but I don’t think so. I have seen it with my own eyes. I have stared hopeless persons in the eye. I have heard the despair in their voices. I used to live paycheck to paycheck and was in debt up to my eyeballs. No more. There is no house, no furniture, no car, no vacation, no investment scheme, no student loan, no … NOT ANYTHING that can ever get me to live paycheck to paycheck again. Life is just way too short to spend all of my time worrying about how I will pay this month’s bills.

Make a commitment to change NOW!

Need help? Contact me.

Keep investing!

OK, so the market has went down for four straight days. It has went down quite a lot. Should you stop investing in the stock market?

My vote is no.

Here are my reasons:
1. Dollar cost averaging – this means you continue to invest at a set interval regardless of price. It is like the mutual fund is on sale at a lower price when it drops in value.
2. For well-chosen mutual funds – steady returns over the long-haul (20+ years) – you can look at historical evidence – it is actually verifiable!
3. World demand is growing – China, India, and Eastern Europe are all entering into the new world market stage. All of them want infrastructure such as roads, electricity, utilities in order to have the appliances and other items that help make life easier (dryers, washers, stoves, can openers, etc.). Invest in companies that are on the forefront in these developing markets, and it should result in a handsome return.
4. Just like the marathon I have been ranting about, you are in this for the long haul!

Have a great weekend!

What is Financial Peace?

I am going to attempt to put together my definition of financial peace. If you have other thoughts, please send them to me or comment on them below.

Financial Peace
n. a condition where one does not have to continuously worry about their ability to meet their financial obligations; they have financial peace
adj. a position where one is financially set; that couple has a financial peace mindset
n. a financial position that allows one to pursue doing exactly what they were made to do regardless of its income potential; because he has financial peace, he is able to pursue his dream of being a major league baseball player even though he never even played high school or college baseball

How did I do?

WOW! More ways that personal finances are like a marathon!

I know that I have blogged before about how personal finances are like a marathon, but I have to do it again. You see, I have now completed a marathon!

1. Both require endurance.

  • I started out with a pace group that was very close to the pace I wanted to run the marathon at. The leader of the pace group was running his 148th marathon! He was nailing the exact pace every single mile. How did he do that? Endurance.
  • I was running with this pace group. Mile marker 5 was great. Mile marker 10 was great. The 1/2-way point of 13.1 miles was great. Mile 15 was great. Mile 17 was good. Mile 18 was OK. Mile 19 was … miserable. You see, they stuck a 2-mile uphill run in between mile markers 17 and 19. It took a lot out of me. I went from feeling great to feeling awful in less than 20 minutes. By Mile 19, I was walking!
  • Did I stop? NO!!! After a couple minutes of walking, I felt good enough to run again (some observers may have called it something other than running).
  • Personal finances DEMAND endurance. You will have great times, but you will also have tough times. Medical bills are going to happen. The car is going to break down. Unexpected tax bills are going to show up. Fuel prices are going to double. In those times, should you just give up? NO WAY! You may not make the progress you were making, but keep up what you were doing.

2. Things will not go according to our planned schedule.

  • A close friend of mine who ran the race with me had trained diligently for the past four months. He was in great shape. He had completed the extra long runs very well. He passed out from dehydration at mile marker 22 and was unable to complete the race. What a disappointment!!! Or was it? You see, 22 miles was farther than he had ever run before!
  • If you have a goal of having $1,000,000 in your retirement account by 55, will you be disappointed with having only $800,000 by 55? So what if you don’t hit the goal perfectly. In either case, you have substantially changed your life by focusing on your finances early and often.

3. It is GOOD to have friends who are doing it too!

  • Although none of my friends in my home state were training for a marathon, I did have friends from South Carolina who were training. Just knowing that others were training at the exact same time as I was on Saturday mornings was awesome. Just knowing that we were all going to San Diego to run the actual race was great! It also motivated me to not skip training. Why? I knew that the race would reveal whether or not I had skimped on training. ACCOUNTABILITY – The world’s most-despised 14 letter word!
  • In your personal finances, if you hang out with friends who shop all the time, watch out! If you hang around with people who must have the latest and greatest car, TV, sound system, RV, lake house, vacation, education, … and they are doing it all with debt … WATCH OUT! This can seriously damage your ability to stay committed to your sound financial principles! Here’s an idea – get them onto a budget. I recommend Dave Ramsey’s Financial Peace University!!!

So I have completed my first marathon. It feels good to accomplish one of my major life goals. Life is good … all of the time.