Financial Literacy

Exactly like Aesop’s fable, The Tortoise and the Hare, billionaire stock investor, Warren Buffett, says, “The stock market is a device for transferring money from the impatient to the patient.” Understand that this same concept applies to all kinds of industries, activities, and transactions. Naturally, this also includes personal financial planning.

How far into the future do you manage your personal cash flow?

A day, a week, a month, a year, 5 years, 10 years, a lifetime, several generations?

The shorter the time frame for your decisions, the more money you are giving to others who operate on a longer time frame. Let’s examine your spending habits:

1. Do you wait and watch prices to buy and sell assets at the best time?

The patient will wait for prices to bottom before they purchase and wait for prices peak in order to sell. The impatient lose money by purchasing and selling without concern over the price movement. (There are many more examples of this: the patient buy items off season, the impatient at peak season).

2. Do you borrow money to buy personal items?

The patient will wait to save the money for an item before they purchase it. The impatient will pay interest charges and other fees to take possession immediately.

3. Are you too impatient to set long-term career goals and map out the steps to achieve them?

The patient set career goals and do the work to make them happen. The impatient do not set any goals and find themselves in the exact same career spot 10 years later, or flitting from job to job, never advancing.

4. Are you too impatient to set financial goals and plan out how to achieve them?

The patient routinely adds to savings and investments, and increases their financial knowledge. The impatient spend all of their money now and are shocked to learn that many of their income peers have a far greater net worth.

Here are two very recent examples that highlight different time-frame thinking. I was talking to a lease-renewal agent for rental homes. She said that, “Although a renter may remain for many years, they consider a 1-year lease an eternity and a 2-year lease is unfathomable. Not surprisingly, the property owners think in 10-year increments.” In another example, a teenage acquaintance buys some consumable items for just $26 on eBay. She re-sells them on Amazon for double the price she paid. How? She buys a large quantity and re-sells them in a smaller quantity. She has repeat buyers that could have bought the larger quantity at a lower price, but for whatever reason, they do not do it.

While most public companies look out 3-18 months for making decisions, visionaries perform better. For example, Jeff Bezos, the founder of Amazon (the largest retailer in the world today), doesn’t care about the next 5 years – he’s focused on the next 50 years. As a result, local retailers are struggling while Bezos’ personal net worth just passed $140 billion.

The longer your decision-making viewpoint, the more options you have for making better financial decisions. The masses are mostly about instant gratification and they struggle financially. It is my best advice that you evaluate the long-term for all of your important decisions, because all of them are also financial decisions as well.

If you, or someone you know, is nearing retirement age with no savings, no investments, and no home equity, then what are some retirement options? No: Do not buy lottery tickets or put $25 into the next hot cryptocurrency. Those are not Hail Marys, those are fantasies – let’s deal in reality by utilizing 9 ideas that may work for you.

So if there is no money at all, then there must be some big adjustment and sacrifice from your current living situation in order to survive on social security retirement benefits alone. Let’s go through them:

1. One scenario is to find part-time work for semi-retirement. Many businesses take on elderly workers for low-stress, low-skilled, low-effort positions. The Sacrifice = lower pay and you’re still working. Be sure to match your employment to your physical ability, because even part-time work can make an enormous financial difference in making ends meet.

2. Ask kids or relatives for help. For example, in exchange for living in one of their bedrooms, you agree to make contributions with either money or effort to the household that is agreeable to the other relatives involved. The Sacrifice = lack of privacy, there is no guarantee of permanence, it is difficult to ask for assistance, and you must abide by their household rules and situation.

3. Examine the details of public welfare at all levels: city, county, state, and federal. You may qualify for subsidized housing, exemption from property taxes, food benefits, lower utility rates, and too many others to mention. The Sacrifice = it takes research upfront, ongoing effort to remain qualified, and you may need to sharply downsize your lifestyle or move to another jurisdiction that offers more benefits to create a financially stable situation.

4. Move to a low cost-of-living locale. If you’re no longer working then you don’t need to live in an expensive area with lots of employers. Small townships, likely far from airports, are possible candidates for low cost-of-living. There are new lists of these places every year from retirement publications, along with low/no-tax states and cities for retirees. The Sacrifice = you’re living in the middle of nowhere, access to healthcare and transportation may be more challenging.

5. Move abroad to a low cost-of-living country. There are affordable towns in Ecuador, Panama, Malaysia, Vietnam, Spain/Portugal, along with Peru and Costa Rica, which Americans have turned to for a cheaper retirement. A modest social security income can put you in the middle class or slightly upper-middle class, depending upon which city you choose. There are books and publications that specialize in information about where to live abroad as an ex-patriot in retirement. The Sacrifice = leaving family and friends, learning a new language, learning a new set of laws and bureaucracy for banking, healthcare, travel visa, and more.

6. Reduce your largest expense, housing, by housesitting. Unlike years ago, there are housesitting platforms that match people needing house sitters with people willing to do it. As a bonus, you can get paid to do so. For some people, this is their full-time income along with getting paid per dog walk (there is another platform that matches up dog owners to dog walkers). The Sacrifice = you live out of a small suitcase, move a lot, and may not have a sitting gig 100% of the time, so you’ll need a cheap backup plan for those days.

7. Sell nearly everything and move into an RV to dramatically cut your cost of living. You’ll be able to travel on a whim, and enjoy communities of other full-time RVers. There are numerous publications and online resources for the RV lifestyle, seasonal employment, and cutting costs to the bone. The Sacrifice = cabin fever from a small living space, noise from weekend partiers at RV parks, inconvenient to run errands or wash clothes, no permanent community.

8. Create a living situation with roommates. Just like after high school or college, get a 2 or 3 bedroom apartment and rent out the other bedrooms to divide up the rent and utilities. The Sacrifice = privacy, inconvenience, and possibly conflict/drama.

9. Some cities are desperate to increase their declining population and are willing to pay people to move there. This list and their qualifications changes over time, but here are a few valid today: New Haven, Connecticut will pay new homeowners up to $80,000 to move there; Detroit Challenge will pay $1,000 to $20,000 with various programs to move there; Kaitangate, New Zealand will give you a quarter acre of land with a home worth $165,000; and Candela, Italy will pay $2,350 to lure you to live there. There are other government benefit programs if you’re willing to build a new home, start a business, or start farming.

10. Delaying social security will increase your monthly payment. However, there are hundreds of ways to play social security retirement benefits: file and suspend, rely on your spouse for optimal timing, and many other provisions. An expert will have software to map out the best filing strategy for your situation. Important Note: Do not claim retirement social security until you have gone through all the possible scenarios with an expert. Once you’ve chosen, it is irreversible and choosing poorly can cost you thousands a year in missed money for the decades to come. The Sacrifice = to delay filing, you’ll likely have to continue to work in some capacity.

Of course, if there is zero money as you face retirement, it is HIGHLY recommended that you take immediate and drastic actions to reduce your expenses and/or increase your pay, or get a side income. You’re in a crisis and this requires crisis behavior to turn things around so you’ll have a few bucks to explore or fund a change in your life going forward.

If you’re not at retirement age then now is the best time to learn the lesson: you cannot make up for lost time when accumulating money. This is why it is critical to:

• Start saving now and continue saving every time you receive any income
• Never gamble for a high return
• Never allow a large loss
• Never use money assigned for retirement on anything else
• Protect your bankroll

Before reducing your student loan debts, naturally, it is best not to incur an imprudent amount of debt in the first place. There are too many student loan horror stories already of colossal debt that can never be paid off, or having your Social Security Retirement benefits garnished for decades-old student loans that were ignored. There are countless books, publications, courses, advisors, and online resources for tuition assistance, scholarships, grants, and other financial aid. Plus, there are directories of tuition-free colleges and tuition waiver programs from state universities across the country. If you do choose to use student loans, here are two rules to follow to avoid building up an overwhelming level of debt: Never borrow any money in the first year of school and never borrow more than 75% of the annual salary you expect with your degree from your school. There are nuances for special situations (for example, a medical degree where your expecting income will grow sharply over time, however there are debt limits for every degree, including medical and law degrees.) So you must budget your degree and expected earnings to avoid being saddled with far too much debt for your degree.

Whether you have a small or colossal student debt load, the big question is, “How do I get out of this as fast as possible?” Below are tasks, assignments, and goals to make this happen.

1. Administration

• Get all of your loan contracts to learn the exact details: rate, balance, due date, consequences for late payment, possible pre-payment penalties, and deferment rules. And thoroughly understand your monthly statements. (Some lenders offer a slight rate discount if you setup automatic payments, choose paperless billing, or adding a savings account at the bank).
• Keep your contact information current with all of your lenders and/or servicers so you don’t miss important notices.
• Understand and confirm payments are being made correctly. For example, you may intend to make an additional principal payment, but the lender may process that as a payment for the following month instead.
• Follow the IRS guidelines for deducting the interest on your income taxes.

2. Loan Balance Forgiveness, Discharge, Cancellation, Waiver, etc.

• Many companies and non-profits offer some form of student loan forgiveness if you agree to work for a certain number of years; and some federal student loans qualify for cancellation through public service.
• Some special situations allow for a loan balance discharge; for example: veterans, disabled, teachers, and sometimes withdrawing from school without a degree. There are online databases that track many types of student loan forgiveness programs.

3. Loan Terms

• It may be beneficial to refinance to lower interest rates, consolidate loans, or get a longer repayment term. There are many payment plans: Standard, Extended, Graduated, Income-Contingent, and Pay As You Earn – the best plan offers you the option of a small monthly payment. This is beneficial in the event something happens, plus it allows you the most freedom to target a particular loan with extra principal payments.
• To evaluate any refinancing, you need to first list out the loan balances, rates, and minimum payments so you can employ the April 8^th blog post tactic titled, “How to choose which debt to attack.” Then map out your payment schedule to determine the date at which all of your loans will all be paid off.

4. Decide How Quickly You Want to Be Free – Maximize Extra Principal Payments

• You can make minimum payments and take a couple decades to pay your loans off, but this extracts the most interest charges from your income – money that could be used for your lifestyle spending, savings, or investing. Paying for interest represents money that you earned that you can never spend, it was pre-spent. So minimizing interest charges by paying down the principal balance on your loans is an important financial goal.
• So how aggressive with extra principal payments do you want to go? Live with parents, relatives, have lots of roommates to split costs; cut your budget to the bone; pick-up a side gig; apply 100% of any raise to principal payments; eliminate recurring monthly charge plans for movies, cellphones, gaming; apply any unexpected income, bonus, or tax refund to your principal balance.

5. Begin Payments Immediately

• Some students get a head start by making loan payments long before they graduate with extra money or part-time jobs. The faster you can hit principal payments, the faster you stop the clock on interest charges it is accruing. Tiny payments while you’re in school add up over time. You do not have to wait the 4-6 months after you graduate to begin making payments.
• Some graduates make two half-payments a month instead of one at the end. Making these bi-weekly payments will slightly reduce the interest charge each month, but you have to check with your lender to determine if they permit this type of payment (some will allow weekly payments which is even better).

6. Other Considerations

• Since you’re trying to get yourself out of debt, do not incur additional debts with credit card balances for which you’ll be charged interest.
• Don’t sink money into a new car, keep your junker or replace it with an affordable used car without a loan.
• Track your loan balances each month to watch them melt, keeping your motivation high and momentum going to extinguish all of them.
• Do not make extra principal payments until you have $1,000 set aside in an emergency fund to give you some breathing room if there is an unexpected expense.

If I had included website links on this post, it would be 16 pages long. Plus, they change as companies and rules change. But expert websites are easy to find, for example, if you’re unsure about consolidation? Look up, “student loan consolidation tips.” One great website resource to start with is StudentLoanHero.com that offers a lot of information and links to others.

Nobody wants to live within their means, but that is the financial reality in order to have financial stability. Even wealthy people can easily blow through their income. Ken Cage is a high-end repo man. He confiscates expensive assets for banks, such as private jets and luxury yachts when owners fail to pay for a few months. Cage’s best advice, “Don’t let your ego make financial decisions. Purchase what you can easily afford, don’t try to impress others and lose sight of financial reality.”

Most people equate frugality with denial – but the middle-ground is to find a cheaper substitute. This is a topic too vast to explore in a blog post, but it is easy to research for your specific needs. Use an internet search wording similar to, “How to ______ on a budget,” or “Affordable way to ______.” You’ll find endless articles, advise, and candidates for you to consider. Here is one example: Most people have a smart phone and the average person pays $120 per month. To drop that bill by a potential 80%, you could evaluate if these substitute carriers match your needs: mintmobile.com or cricketwireless.com. Instead of paying $70-$120/month, you could drop your bill to $15 per month and pocket over $600/year.

Substitutes run from DIY gifts, room makeovers, to filling out your wardrobe for cents on the dollar. Everybody has to eat, but the further out in time you meal plan, the more you can save. You can prepare your meal components and then freeze them until you’re ready for them. You can knock out preparing a bunch of meals at a time and then have portions of them once-a-week for a month. This will save you time and money to batch your preparation, buying cheaper in bulk when they are on sale. Everybody wears clothes, and it is likely that you may be able to find a local thrift store for clothing. I know a mother that outfits her family from quality brands at the thrift store but also makes a part-time income buying baby clothes on their 50%-Off day and then re-selling them on eBay for a profit. If there isn’t a local thrift store, more of them are online such as ThredUp.com. Most people need transportation, and lots of people use lease or loans to purchase a car that is more expensive than they can afford. Meanwhile, there are online communities of people that specialize in finding vehicles that you can drive for free. They do research to determine that a particular car model, a certain number of years old, with certain milage, and they are able to drive it for a year or two and then sell it for around the same price that they bought it for – making their use of it nearly free. (Many times these candidates are luxury cars that are 5-7 years old.I know one person that almost pulled the trigger on doing this with a 12-year old convertible Bentley for a year. Although it was in perfect condition, he was too afraid afraid that a single repair at the dealership might cost him over $2,000). 

So before you go straight to denying yourself for lifestyle spending, do a little research to see if there is a substitution that will fit your needs. This way you can keep the enjoyment and satisfaction while making it affordable to your budget.

In Depp’s career, he has earned an unbelievable $650 million from his movies (plus more from endorsements). Sadly, Rolling Stone reported in a June 21^st interview where he admits that he is broke. So Depp is another one of this year’s celebrity financial implosions. Naturally, there are some allegations of financial mismanagement by his advisors that will play out in court (but he’s only suing for $25 million). Nevertheless, it is a spectacular example to prove the timeless rule: there is no amount of income that can’t be outspent.

So where did his money go? A few expenditures include:

• $150 million payment to long-term ex-girlfriend Vanessa Paradis in 2012
• $75 million for 14 residences
• $7 million payment to ex-wife Amber Heard in 2016
• $5 million lost on his own record label company
• $3 million to shoot his deceased friend’s ashes from a cannon (Hunter S. Thompson)
• Plus hundreds of notable artwork and 45 luxury vehicles

Some of Depp’s annual expenses:

• $2.4 million on private travel
• $1.8 million for security
• $1.2 million for on-call doctor
• $400,000 on wine

While a fall from great heights is a titillating story, the lessons it provides are important to those on any level of income. Lessons such as spending less than you earn, saving money, financial stability, managing your money or managing your money managers. (Although, this is more difficult if the rumors are true from Depp’s former staff that his life is a storm of illegal drugs, alcohol, and chaos).

Thankfully, Depp has been doing something about his financial predicament with touring income with his band (Hollywood Vampires), attempting to continue his Pirates of the Caribbean movie franchise, and getting some better financial advisers.