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Money 101: Getting Back to Basics

on March 8 | in Issue 19, Money | by | with No Comments

In America, we go to school for 12 to 16 years to learn reading, writing, and arithmetic. All very important, but perhaps they should have taught us three other things—like how to stay married, how to raise children, and how to manage our money. As a former athlete, I look at life through a sports paradigm and I believe it to be a good lens regarding our money.

In the money race of life, there are three hurdles that will trip you up: debt, inflation, and taxes.

Debt: There is good debt (low interest payments on cars, houses, or student loans) and bad debt (credit cards). If you are funding your lifestyle at 10-20% on credit cards while making 1% at the bank or 4% on average in the stock market over the last 15 years, then the math just doesn’t work in your favor. For example, $5,000 invested at 8% for 40 years will become approximately $120,000 at retirement. Meanwhile, $5,000 on a credit card at 18% over 40 years becomes $5,120,000. We must eradicate bad debt to win the money race of life.


Inflation: In 1971, my mother could buy a loaf of bread for approximately 25¢. Present day, that same loaf of bread costs a minimum of $2.50. In another 40 years, it could be as high as $16. If a loaf of bread costs $16 in 2055, what will a car or house cost? We need to find financial products which out-earn inflation while preserving and protecting principal.

Taxation: Middle-income Americans spend their time trying to make more money. The wealthy in our country spend their time figuring out ways to reduce their taxes. If we want to become wealthy, we need to study what the wealthy do. Currently, they keep 80% or more of their assets in “tax deferred” vehicles.

deferred tax words on digital screen with world map

Evaluating the financial landscape in 2015 is a vastly different animal from 20 years ago. In the 80s and 90s, Americans put their money inside the market, mostly into mutual funds within their company retirement accounts (i.e. 401Ks). (In 1980, approximately 4.5 million (6%) of households owned mutual funds. In 2007, the number was approximately 50 million (44%). In 1980, there were there were 564 funds. By 2007, there were 8,029 mutual funds available for purchase. Total assets under management went from $134 million in 1980 to $12 trillion in 2007. – The Mutual Fund Industry by R. Glenn Hubbard)

In 2015, many believe we have two choices: put your money “at risk” inside vehicles like individual stocks, mutual funds, or commodities (gold) OR put your money into “safety” inside vehicles like CDs, money market, or savings accounts.

However, there is a middle ground. Financial product manufacturers created “indexed” accounts back in the 90s, giving clients the upside potential of the market with no downside risk. The concept provides the American public with a long-term savings vehicle that has a floor of 0%. Yes, I know what you are thinking, 0% is terrible. However, 0% is your hero in the years when the stock market drops. Would you have liked to get 0% in 2001 or 2008 rather than watching your money evaporate?

In building a financial future, there are three stages: protection (CDs, savings, money markets, insurance, etc.), accumulation (vehicles that try to “beat the market”), and distribution (how does your money get back to you). Of these stages, distribution is the most important. We are so programmed to think we must pay taxes at retirement. However, learning concepts like “tax-free retirement” may guarantee your retirement years remain golden.

In addition, longevity regarding our life span is becoming problematic. Very simply, we are starting to “outlive” our money. If you work for 40 years (480 paychecks), then live 30 years in retirement, that is another 360 paychecks you must self-fund. We need to consider financial strategies that create a guaranteed income for life.

The rising cost of health care is crippling Americans—literally and figuratively. My grandmother lived the last 8 years of her life in confinement (assisted living, nursing care, and hospice). After her passing, I learned this cost approximately $800,000 of my grandfather’s estate. To me, the son of two retired music teachers, that is an astronomical sum of money.

Over two decades ago, a new financial concept was built called living benefits. It’s a vehicle that mitigates the rising costs of illness in America. Currently, 49% of small businesses fail, 48% of foreclosures, and 62% of bankruptcies are due to an unforeseen illness.

My question: “If you are going to have an illness, do you want to pay for it with your money or somebody else’s money?”

With money, step one is education, but step two is implementation. Knowledge without action is meaningless. I hope this article was thought-provoking and pushes you to take the necessary steps in creating financial freedom in your life!


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