Financial Literacy

When you choose to sell an item of value, there is a natural tendency to over value its worth to others.  If you reject reasonable offers and refuse to make a counter offer, then you’re likely to be left without any buyer. Without a buyer, you may watch your item fall in value from age, obsolescence, or market changes.

I have observed this phenomenon on countless occasions, even among professionals:

• A friend rejected a $31,000 offer for her car, only to accept a $23,000 offer a year later. A needless loss of 25%
• An acquaintance rejected a $120,000 offer for her home, only to accept a $79,000 offer 18 months later. A needless loss of 34%
• A friend is a business analyst. One of his clients has been actively trying to sell his business for a long time. Three years ago, the owner rejected an offer for his business of $128 million, and has not received an offer since then. My analyst friend doesn’t think anyone would offer more than $45 million today because of increased competition. A needless loss of 65%
• A relative priced his used car worth $3,000 at $6,000 so he didn’t get a single offer in 2 years. Then the engine-timing belt failed, breaking all of the engine valves. With a useless engine, the most he could recover for his car was $400 from the junkyard, minus the tow fee. A needless loss of 88%

I could list many more stories like these with different assets, but hope that you are beginning to see the pattern. An overly optimistic valuation leads to rejecting reasonable offers. Rejecting reasonable offers likely leads to giant financial losses and delays. The delay is the time period it takes for the seller to accept the reality of the marketplace. But this is unnecessary – if you do this work upfront. Instead of being offended by a perceived low offer, make a counter offer. I know one couple unwilling to accept reality for 17 years and going. Every few years they put their home on the market at a price 30-40% higher than what it is worth. After a year of no offers, they take it off the market. They have done this many, many times and just removed their “For Sale” sign after no interest for 10 months. Meanwhile, the homes around them have been selling like hot cakes.

Please do not create your own similar story of needless financial loss to this list. Price your item reasonably and always make a counter-offer; which includes considering how long it might be before you receive another offer.

The banking industry would like you to borrow money from them, as much as possible and in as many ways as possible, and then make payments to them for as long as you live. This is how they can maximize earning interest from you. It is your role in this Debt Game to minimize the number and amount of loans, and making the interest rate charge as low as possible.

The banking industry wants you to believe:

• It is fine to borrow money to purchase a car.
• It is Ok to borrow a colossal amount for a bachelor’s degree.
• It is normal not to pay your credit cards off each month.
• Everybody borrows for boats, jewelry, and vacations.

The only way for you to win the Debt Game is:

• Never borrow money for anything but an affordable home.
• Maintain the highest credit rating to qualify for the lowest interest rates.
• The only favorable scenario to borrow money is when purchasing a business or asset that earns enough money to make all of the debt payments for you.

The money that you have to pay in interest is money that you have earned but can never: spend, save, invest, or donate. It is your financial assignment to perform better in the Debt Game so that you possess more of your money at the end of each month, and not your lender. So how are your relatives and friends doing in the Debt Game so far? (A family friend with an average income leased a brand new car right after I showed her precisely how much money is wasted by doing that.) How are you doing in the Debt Game so far? What can you start doing this month to improve your performance in the Debt Game?

Each year, the U.S. Social Security Administration (SSA) erroneously declares 5,000 Americans deceased, who are actually alive and well. The result quickly cascades across your finances, creating a paperwork mess that needs to be reversed. (The rate used to be 12,000 a year but system checks have reduced it to 5,000 a year).

So what happens when the government declares you dead? They automatically notify:

• Credit Bureaus
• Banks
• Credit Card Companies
• Health Insurance Providers
• Life Insurance Providers
• Medical Doctors
• Social Security Retirement and Disability
• Medicare
• Medicaid

Your first sign of trouble may be that your credit cards and ATM card no longer work. If SSA has erroneously classified you as deceased, you’ll need to go to an SSA office in person. You’ll need to bring your: birth certificate, passport, driver’s license, or other IDs to prove who you are. You need a written letter from SSA stating that you are NOT deceased. Make many copies of the letter because you’ll need to present it to all of the institutions listed above, or any other that is denying that you are alive. Going forward, you will likely need this letter for any new institutions that you may want to deal with, because they may also have the erroneous notice that you are deceased. So you need to be able to prove that you are not some scammer or identity thief.

Everyone says money doesn’t make you happy – so why do financial planners push it so much? That is easy to answer: sooner or later, something will occur for which you’ll have a critical need for money. And if you haven’t saved for this expense, there will likely be some unpleasant or expensive consequences. Let’s go through a few common ones:

• A relationship can be challenging, being broke can break it.
• Losing your job can be tough, being broke makes it a crisis.
• Your car breaking down is inconvenient, being broke makes you immobile.
• Needing some dental work can be painful, being broke makes you toothless.
• An illness is a bad break, being broke prolongs it or allows it to worsen.
• Having children can be expensive, being broke reduces their opportunity.
• Sometimes family members need financial assistance, being broke means you cannot help.
• Losing a loved-one is a tragedy, being broke can make it more difficult.
• Having a talent or aptitude is a blessing, being broke may prevent you from expressing it.
• Most people want to retire at some point, being broke makes that nearly impossible.
• Getting accepted to a great university is fantastic, being broke may mean you’ll have to turn them down for a cheaper school.
• Having a business idea is great, being broke may mean watching others profit from it.
• Needing money is stressful, being broke means you may have to borrow it and become poorer.
• Requiring a nursing home is disappointing, being broke means your only option is the worst state-run institutions.

Whatever your situation, having savings set aside is the best source of funds for:

• Necessary maintenance
• Repairs
• Opportunity
• Financial support
• Or for any unexpected event that requires money

Whenever something adverse occurs, being broke makes it worse. Having extra money may not make you any happier, but having some savings can solve your financial problems.

In personal finance, there are numerous ways to fall behind, get into trouble, make mistakes, or incur expenses that you could not avoid. You can’t do anything about the past, but you can start putting out your current financial fires before larger troubles arise on the horizon.

What are a few red alarms that your finances are headed toward serious trouble?

• A credit card is maxed out
• Fail to pay-off your credit card balance each month
• Have not opened a Roth IRA, even though you are working
• There are people financially relying up you, but you have no life insurance
• Routinely use payday or car-title lenders
• Getting divorced without a financial expert to split pensions and assets
• Have borrowed money from family and friends
• Student loans have gone into forbearance
• Your bad credit rating requires that someone else co-signs for your loan
• You have a variable interest-rate mortgage
• Prematurely taking money from retirement accounts
• Routinely gamble or buy lottery tickets
• Have clothing, shoes, or accessories that you never wear
• Overspend at restaurants and bars
• Do not monitor risky investments, doing nothing as they collapse in value
• Have money secrets that you keep from your spouse
• When you refinance your mortgage, you take out extra money
• Borrowing money from your 401(k) account
• Fail to set aside money for income taxes
• Have no estate planning – Will, Power of Attorney, or trusts

Some of these arise from not knowing what you can afford or living above your means, and others are from a lack of financial literacy. However, if you have run into anything similar to what is on this list, please use it as a trigger that you need to actively make some immediate changes in your life to create financially stability.

The state where you reside has an incredible impact on your lifetime expenses. The total tax burden on residents varies greatly between the states. But that is only a part of the cost-of-living equation. Housing, food, and even the price of gasoline, has prompted many people to move to a cheaper location. Of course, most people are tethered to their extended family or current job, but you may want to make the evaluation anyway. The cost of living between different states is so large it can make the difference between retiring early and never being able to retire.

GoBankingRates performs an annual study for retirees that are over age 65 and indexed the states for cost of living. In general, the Southeast, the band from Texas to Georgia is cheaper to live than the Northeast or Farwest states. Here are the top 5 most expensive states in which to live; along with the average annual expense:

1. Hawaii $83,887
2. California $60,887
3. Alaska $58,733
4. New York $58,264
5. Massachusetts $57,795

The cheapest 5 states for retirees are:

1. Mississippi $37,984
2. Arkansas $39,260
3. Oklahoma $39,820
4. Michigan $39,974
5. Tennessee $40,084

Although some cities (like New York City and San Francisco) have salary inflation to help compensate for their high cost of living, most areas do not. As a result, the money available for saving and investing is consumed by high rent and food costs. It is a lifestyle decision for you to make, but be aware that if you have financial goals, they will be delayed and impaired in high-cost of living areas.

When a hurricane hit Puerto Rico a few weeks ago, the north west side of the island didn’t have electricity for many weeks. How can you buy anything in a cashless world without electricity?

• Banks are closed
• ATMs are down
• Credit cards couldn’t be used
• No internet access
• No cellphone service
• No access to cryptocurrencies

There were only two ways to purchase anything: cash or barter.

The only people with cash had it prior to the hurricane.

In barter transactions, people were only getting 5-10 cents on the dollar; meaning you will lose 90-95% of the fair value of your items that you sell. Only gold and silver at coin shops had the smallest discount from fair market value.

When backup generators eventually powered the ATM machines, banks limited withdrawals to just $50/day per person.

When the electricity went down, items that suddenly became very valuable:

• Candles
• Gasoline and Gas containers
• Water (for example, 30 avocados for 1 gallon of water)
• Cigarettes (2 packs of cigarettes for labor/help)
• Canned food
• Chainsaws

Another note for emergency preparation:

1. Unarmed elderly were the first targets of theft and looting.
2. The second targets for theft were gun-free zones like schools and daycare centers.
3. Portable generators were frequently stolen – they must be chained or guarded.
4. Most of the casualties from the hurricane were at the hospitals due to no electricity: people needing emergency care (no dialysis, no insulin, no electrical life support machines, anything requiring refrigeration or freezing, etc.)

So when disasters strike and the electricity goes out, if you’re cashless then you are broke!

Please use this article to prepare for what you may need to survive for a month if the electricity goes out.