A non-violent defense of your personal economy
By Jeffrey Reeves MA
America needs neither the terrifying tsunami of new programs overwhelming it from the White House nor the violent volcanic eruption of legislative magma and ash under which the Congress is burying us. Can you say "debt?"
Some Americans voted for "change" during last year's presidential sweepstakes, clearly a gamble. However, a very small but not inconsequential minority of far left politicians, union bosses at the helm of sinking ships loaded with American workers' gold they claim as their own, a seemingly unending parade of "czars," and cabinet-members-turned-bureaucrats conspire to take over the U.S. economy.
There are other contributors to and beneficiaries of these catastrophic changes:
- ACORN: A vile organization that manipulates good-hearted Americans for the benefit of its intentionally obscure ideology and the financial benefit of its dishonest leaders.
- AARP: Americas largest insurance seller masquerading as the voice of older citizens while it lobbies for programs that will enhance its bottom-line and increase the political power it wields in the White House and on Capitol Hill.
- Al Gore's army of uninformed global warming crusaders who would willingly weaken the U.S. economy -- and therefore the personal economy of every U.S. citizen -- while China, India, the Oil States and other economic powerhouses buy America with money made by ignoring the same unrealistic and unnecessary protocols the dolts in D.C. impose on American citizens and businesses.
- Other vocal interests in the non-profit and for profit sectors that hope to benefit from the "re-interpretation" of the U.S. Constitution, the restructuring of the U.S. economy, and the re-definition of what it means to be an American.
The answer: Change their mind about money. Americans have been taught to compartmentalize money issues. They've been led to believe that they can fix personal economic problems by focusing on one issue at a time: the mortgage, the 401(k), creating the mythical six months savings account, and taxes. As an example, a TV commercial running currently suggests that one can fix the monthly budget by changing from an existing satellite TV company to theirs -- a savings of a few dollars per month.
Personal economies don't work that way.
Personal economic success results from adopting a personal economic model that allows your clients to address all of the challenges they face during their lifetimes; that allows them to flexibly and creatively deal with the challenges as they arise without losing focus of the big picture.
Here's how: Focus on four -- and only four -- uses of money.
Myth No. 1: Ready cash. There is a myth in America that one should have three to six months of expenses set aside to deal with emergencies. Bunk!
Consider how many American families today are facing foreclosure, repossession of their cars and furniture, and bankruptcy; all because they believed in the myth and ran out of money way too soon. Consider how many of these same folks would have spent the Fourth of July worry-free, sitting on the patio, drinking beer and watching the kids play if they had based their personal economies on cash instead of credit.
Americans need to base their personal economies on cash money and not monthly interest charges that make others wealthy from their repayments of borrowed money. In addition, they need enough ready cash to deal with life's surprisingly unsurprising surprises, not just emergencies.
There's another myth that plays into the failure of personal economies:
Myth No. 2: Income you don't have to work for and you won't outlive. Most American's are convinced that retirement is both desirable and achievable. Bunk!
Most Americans believe that they are saving for retirement by putting money into a tax qualified retirement plan like a 401(k), IRA, or the like.
First of all, chances are better than even that money in a tax qualified plan will not produce the income it was projected to deliver when it was sold 20, 30, or 40 years earlier. (Yes, it is the purchase of an investment that guarantees only that it guarantees nothing, and it is not a savings plan). Moreover, it is equally likely that the taxes on that future income will be higher than those shown in the hypothetical illustration from decades earlier.
Everyone dies. People who retire ( i.e., dissolve into inactivity) die sooner. Life expectancy has increased dramatically throughout the past 50 years. If your clients are in decent health, and don't engage in stupid life-threatening activities, they can expect to live to be 100 years old -- or older.
What's the point? Most retirement income plans -- including tax-qualified plans -- use life expectancy tables to determine how your clients should allocate their resources from the time they retire until the date of their death at average life expectancy, which is most likely a decade or two less than their actual life span will be. Sounds like bad planning to me.
Better to have a proven model that makes sure your clients have the income they need, whether they work or not but doesn't strap them with the limitations and probable failures of a hypothetical plan that neither guarantees nor promises specific results.
Myth No. 3: Freedom from debt. There are pundits and advisors who would have you believe that there is such a thing as "good debt." Bunk!
It is essential to reduce and eliminate debt to others. This may not be the first item on the to-do list if your clients have a mortgage, auto loans, credit card debt, etc. but is equally as important as the others.
A recent USA Today article illustrates that America is "in debt up to [its] eyeballs" and has no reasonable chance of escaping the dungeon it's creating for itself. As Peggy Lee sang a few decades ago, "Is that all there is? If that's all there is, my friend, then let's keep dancing. Let's bring out the booze and have a ball, if that's all there is..."
Reliance on debt for the essentials and perks of living in the U.S. is financial nihilism; keep using it until it runs out, embrace failure, and start again. Unfortunately, there are thousands of homeless Americans that discovered it's nearly impossible to regain what they lost to debt. There are millions more that find themselves in diminished circumstances or relying on public assistance and charitable largess.
None of the above denies that there are occasions when incurring debt can be useful. Our economy permits it and encourages it when there are no other reasonable alternatives; the home mortgage being the prime example. However, relying on debt to build your clients' personal economies is just as silly as relying on a poor diet to assure their health.
Myth No. 4: Your clients' legacy. There is a class of Americans that believe you should die broke and leave no legacy to your heirs or anyone else. Bunk!
I personally feel that leaving a legacy of wisdom and wealth (if you have it) is one of the main reasons we are here.
Creating family wealth has allowed America to grow into the most powerful economy in history. The simple truths found in the financial admonitions of Benjamin Franklin, Alexander Hamilton, and other lesser-knowns are why Americans have amassed more wealth in 200 years than the rest of the world did in two millennia.
Perhaps those who have received no legacy find it difficult to comprehend these ideas. If that's the case, ask them to imagine their lives had they received the guidance of wise counsel and the benefit of a financial foundation. If they do so honestly, they will recognize the value of legacy -- and do something about it.
These four pillars are essential to every successful personal economy. Money is the essential foundation for that success. Debt may play a role, but it erodes the foundation and weakens the structure so must be used sparingly and cautiously.
Remember the paradox of frugality: when individuals strengthen their personal economies by following the practices of the Money for Life Model, they weaken the hold of the Debt Paradigm economy promoted in Washington and on Wall Street.
The "soulution" to the thrift paradox may be as elusive as Nessie (the Loch Ness monster) to the dolts in D.C. and the Wonks on Wall Street, so I expect the U.S. economy to muddle along until we replace them with representatives that actually understand economics and have a modicum of wisdom.
In the meantime, take care of yourself and your clients. Build their personal economy on a solid foundation that supports the four pillars.
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