January 2011 - MONEY SMART

Timely updates and reminders on personal money management. Seeing to it that you always have the up-to-the-minute information you need to win the game.
January 31, 2011

For many American’s debt seems like a way of life. For over fifty years the relentless message that debt is “normal” and “acceptable” has brainwashed the public to believe that to achieve the American Dream it’s okay to go into debt. Nothing could be further from the truth. These have been tough times for many hard-working Americans who still unfortunately believe they must borrow to live. But let me be clear, you absolutely must live within your means to succeed financially and to insure a good quality of life –there is just no way around it.

Most who have a debt problem falsely believe that something will happen in the future to solve it and all will be well. A common assumption is that income will grow faster than spending, but that is very seldom the case. Even those that end up making more are by then usually well conditioned to just keep spending more, and end up going deeper into debt.

Debt reduction and eventual debt elimination are very achievable goals. My debt elimination plan has three key elements: attitude, action, and persistence. Of course it can feel overwhelming to start a debt reduction plan, but once a plan is in place and early efforts begin to turn out results, momentum and the feeling of success build. Not only will debt be eliminated; the money that is saved will reduce stress, increase enjoyment of daily life and create financial stability. When does debt elimination begin? Today! Start today with these steps:

  • Openly admit you have a serious problem, one that you must solve.
  • Every member of the household must agree to reduce spending until your family has solved this problem for good.
  • Immediately stop all borrowing! Do not borrow any more money for any reason other than for a true emergency, such as a job loss or large unexpected medical bills. Not one penny, not for any reason. The minute you stop taking on new debt you are absolutely on your way.
  • Cut up every credit card and every department store charge card. No exceptions! Use only a debit Visa or MasterCard tied to your checking account for your non-cash purchases. For your cash purchases, take a pre-set amount of money from the bank every week or every two weeks.
  • Make no new purchases of significance until your debt is eliminated.
  • Write down every single expenditure, every day for thirty days. It only takes two or three minutes a day and the results can be quite amazing. Well before the month is up, your mistakes, problems, and most importantly, the solutions, should start becoming clear.
  • Buy and read Money Smart. You will learn a lot that will help you, especially when it comes to the Rules of Money, the Rules of Spending Wisely, and of Investing Successfully. Once you stop breaking the rules of money and start spending wisely you will find that the results can be nothing short of amazing.
  • Have a written Spending and Saving Plan that you follow and update monthly. Money Smart walks you through this process step by step with advice along the way.
  • If you’re still not making enough progress, go back to writing down every single expenditure, every day and stop using your debit card. Make cash envelopes for each spending category on your spending and saving plan and start doing all your spending in cash.
  • Understand that you almost certainly make enough money. The only true exceptions to this are things like loss of your job, being hit with huge medical bills, or having a large family depending on you, and you are the only breadwinner. If your income is not enough to cover your lifestyle, adjust your lifestyle.
  • If you need to repair your credit and feel you cannot work things out on your own, contact the National Foundation for Credit Counseling (NFCC) at www.nfcc.org. The charges involved will be very modest and fair and they will work with you regardless of the level of debt involved.

Getting out of debt is a very achievable goal. Over a million people do it every year, and this is the moment to add your name to the list. Eliminating a sizeable amount of debt takes time and discipline but whatever temporary sacrifices you make will be well worth it for a better tomorrow.


January 26, 2011

What does a casino do? How does it operate? The key to its profitability is to ensure that enough money comes in the door, stays to play, the odds are hidden, and that the house gets a small percentage of the money in play, whether the patrons win or lose.

Now let’s look at Wall Street. Think it’s different? Well look at how that system is built and operates. To be profitable, Wall Street must convince people that:

  • Money management is very complicated. “Let us experts handle your money. We can do it better than you”, say Wall Street insiders. (Get money in the door.)
  • The stock market is the answer when it comes to retirement and financial freedom. (Essential to keeping money coming in the door.)
  • The only way to invest successfully is to invest for the long run. (Make sure the money stays to play.)
  • Wall Street experts know what they’re doing. (Complete investment track records are never shared = keep your odds hidden.)
  • Pay us a small percent of the money invested. (The house always wins, even if the client loses.)

Sure sounds like a casino to me. And every one of these Wall Street assertions is absolutely untrue! They are myths, spun for decades, for the sole purpose of enriching Wall Street’s financial services industry and its supporters.

Unfortunately, it’s been far too easy for consumers to buy into these myths. Starting in the mid-80s, the globalization of the economy, the dot com explosion, and 401(k) accounts going from non-existent to over 70 million accounts, all combined to fuel the greatest stock market boom in history. The industry known as “Wall Street”, and the vast majority of the financial “experts” associated with it– the stockbroker’s financial advisors, financial media people, et al—never understood that the boom was just a moment in time, one peak in the endless cycles that markets always go through. In confusion, experts mistook being in the right place at the right time with actually knowing what they were doing. For them, it really didn’t matter. By then they had created their Wall Street system.

As a Wall Street insider all though the 90′s, I witnessed this first hand. In December of ’99, I told all my clients that the stock market had become terribly overpriced and that I was selling my business and most of my own stock holdings. I advised everyone to get out of the stock market because there wasn’t any money to be made there for a long time to come. The Dow and S&P were over 150% overpriced. It was a no-brainer, and yet with rare exception, the expert stockbrokers, financial advisors, and the stars of the financial media did just the opposite, telling consumers to keep right on buying stock and to always invest for the long run.

After I left, I continued to look on in frustration as the futures of millions of hardworking Americans were in the process of being destroyed. Watching as the “experts” failed warn people not to buy a home during the worst overpricing in history, and watching millions of families lose their homes, and watching as it became clear that tens of millions of baby boomers would not be able to retire, that’s when I decided to do something about it.

I understand money. I learned what I know the hard way from over 60 years of real world trial and error, and I realized I could explain successful personal money management to anyone who cared to listen. It didn’t matter what they did or didn’t know, whether they were a PhD in economics or a high school dropout. Smart money management is something that absolutely everyone can do, provided it’s explained properly. Unfortunately, this hasn’t happened, at least not on any significant scale. So, I decided to provide the information that is needed by writing Money Smart: How to Spend, Save, Eliminate Debt, and Achieve Financial Freedom and creating a supporting website, www.MoneySmartOnline.com.

Money Smart starts by making it clear that you–and only you– must manage your money, then goes on to show you exactly how to do it–how to spend, save, invest, and achieve financial freedom. What you’ll find is that there really is a better approach to personal money management, an approach that works.

The bottom line is that it’s your money. Don’t be gamed by the old financial system. Learn what you need to know, and be in control of your finances from now on.


January 21, 2011

So I was reading some of the endless spin put out by the financial services industry, in this case a NY Times article that I encountered three months ago, and then saw reposted by Yahoo Finance’s Advisor’s Corner on January 5, 2011 called “3 Schools of Thought on Wealth Management“. The financial services industry is scrambling for a new way to package their message to get a hold of your money, but the last thing you need right now is a new sales pitch. What you need is performance and results. The article breaks down the new approach to client management. It says, “In this climate, advisers face a challenge, and, once again, they have had to develop new ways of presenting their services. Speaking broadly, three approaches seem to have emerged”.

And what are those three approaches by which the industry seeks to re-invent itself, in response to its failure?

  • The “Caring Approach” (meaning to hold the client’s hand)
  • The “Technical Approach” ( meaning unclear, but perhaps to allocate well and charge smaller fees)
  • The “Retirement Focused” approach (meaning to fall back on the standard advice of always invest for the long run with its implied promise that it will all work out in the end, because of course this fairy tale must have a happy ending)

It’s a long article that drones on and on, but fails to address what matters most – performance and results! Yet this is the primary reason people hire a financial pro – to grow their money better than they can grow it themselves.

Sadly, the industry track record on their ability to grow their client’s money is incredibly clear at this point. They do not know how to do it, and based on this article and many more like it, they sure don’t want to talk about their track record. After all, why should they? The financial services industry is setup to insure that they always make money, whether or not their clients do. So, now they are focusing on reinventing their approach, without actually changing their performance and so long as they can continue to pull that off, they won’t need to.

While performance in not relevant to the industry, it sure is to the people who have trusted the industry with their hard-earned dollars. In 2000-2001, and again in 2008 when the stock market was terribly overpriced, most of the so-called financial experts continued to repeat their standard advice: “Keep on investing. Invest for the long run”. They urged their clients to keep buying those crazily overpriced stocks.

Well, the game is beginning to change. The industry’s failure to perform has cost Americans a fortune and now people are beginning to look at the practices of the financial services industry with a critical eye. Check out the comments posted below the article I described. There were lots of them and they were scathing. People are starting to see the truth and demand better and that’s exactly what Money Smart was created for: To share a better approach to personal finance and investing, an approach that has been proven to work.


January 16, 2011

As a former owner of a real estate business and a stockbrokerage firm I am often asked to give investment advice. With interest rates at almost zero and a stock market that’s gone nowhere for the last 10 years, people are under tremendous pressure to make more money on their investments. There are many options to conside, but not all of them are in your best interest. So what can potential investors do to avoid getting taken? It is an amazingly simple common-sense rule: If it seems too good to be true, then it’s too good to be true—so don’t invest!

The world is full of people who want to ‘help’ you get rich, translation: They want to get their hands on your money. Protect yourself by looking out for certain words and phrases that can be warnings. Some of the most common “magic words” used to describe an investment opportunity are: free, secret, sure-fire, anyone can do it, always, no-risk, foolproof, insider, confidential, the smart money is on, nothing down, easy money, magic, not a get-rich-quick scheme, become a millionaire, just a few hours of your spare time, almost nothing to do, and makes-you-money-while-you-sleep. Even one of these words or phrases should be taken as a red flag warning to walk away. If you see more than one, run!

You don’t get high rewards at low risks, or for little effort – and there are no secrets. In the stock market, by the time a stockbroker calls to tell you the ‘smart money is on’ buying a particular fund or stock, you’re either too late or they’re just saying what it takes to sell it to you.


January 10, 2011

There are periods of time where there is almost no reliable way to invest money; where the risk of losing money is just too high. So, how do you invest in an uncertain market? Choosing not to invest is usually the best investment choice during such difficult financial times. Unfortunately, not investing in any of the traditional options (like U.S. stocks, overseas stocks, real estate, commodities, fixed income) is a good-looking alternative in the short term. The stock market is about 20–25% overpriced and major yet-to-be-resolved problems in real estate, jobs and in government debt make investing at this time unreliable.

Given these elements, the best bet is to be primarily in cash for now—no-load money market funds and very short term CDs. Temporarily taking a defensive position and saving as much as possible is likely to turn out a lot better than the losses involved if the stock market drops. Sometimes it’s best to be patient and wait for the next opportunity. For now, making the choice not to invest may be your best investment.

Read more detailed advice and my current take on the stock market, real estate market, and more in my Market Evaluations section of www.MoneySmartOnline.com.


January 6, 2011

If I told you a way to save money that was quick, simple and almost always works, would you do it? What if I told you it was negotiating a better price? Is your answer still the same?

Amazingly, most people don’t negotiate. One of the reasons I wrote Money Smart was to give everyone the skills to effectively manage their money. Make it a habit to always ask for a better price. Knowing just the basics about how to negotiate can result in saving money. According to a 2007 Consumer Reports National Research Center study, when people asked for a better price, they received it more than two-thirds of the time. The study also showed that over 70 percent of the time, consumers simply don’t ask.

Everyone can negotiate a better price for cell phone plans, bank account fees, credit card interest rates, furniture, appliances, costs for hotels and airfare, and even doctor bills. All you need are three simple key steps: Asking, Turns (as in taking turns) and Silence.

Ask. Asking is the most powerful tool of all. Always be friendly, but ask for a better price. Take the scenario of calling a credit card company to negotiate a reduced interest rate: Be courteous and simply ask for a better rate. If appropriate, tell the representative that the current rate is more than can be found elsewhere and make receiving a better rate a condition for maintaining your account with their company.

For purchases of items like furniture, ask the sales person for their best price and then tell them you will think about it, and act like you are going to leave. To most salespeople “think about it” is a kiss of death and there’s a good chance they’ll sweeten the deal. If you do actually end the call or leave, you can always come back. Remember, the pressure is usually greater on the sales person than it is on you. You can almost always buy elsewhere, but for them it’s a sale and a commission that will be lost for good.

The next key tool is taking turns. Most negotiation involves taking turns. It is really rather simple, you go, and then I go. This frequently results in the two parties ending up in the middle between their respective starting positions. The trick is to try to get the sales person to go twice. This can often be accomplished by responding to their offer by saying that it’s more than you had hoped to pay and then waiting for them to speak again.

This leads to the third tool – silence. Silence is very powerful. In most negotiations there will be a critical make-or-break moment. Be on the lookout for it and remember that he who speaks first usually loses. In the above example where the sales person and the customer are taking turns, by keeping quiet the customer creates pressure on the sales person to bring the price down, or risk losing the sale.

Negotiating is a must-have financial tool. Making it a habit to always ask for a better price and knowing at least a little bit about basic negotiating can save you a lot of money. Use these 3 simple tools and you will end up saving a lot of money quickly. Negotiate and start saving money today.


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