Living With Money, Keys to Financial Health

Middle America Takes A Hit, (again)

2011-06-12T20:43:00.000-07:00

The Federal government is poised to make several changes to the rules for the "working man's" investment, the IRA.

One of the changes is to raise the minimum amount required to open an IRA. Currently anyone can open an IRA with an initial deposit of $250. The government wants to make the minimum amount $25,000. That is correct. If the rule goes into effect you can't open an IRA unless you are one of those few that happen to have $25,000 just "laying around". The average middle class wage earner will have to save up for several years, just to get started on their retirement program.

Right now you can open an IRA account with $250 and deduct that and ongoing deposits from your income**. If you have to save up for several years to get enough money together for the initial deposit, you have to pay taxes on that money, and the interest it earns, until you are able to get enough to open an IRA. (no, you don't get "retro" deductibility)

This simply is a scheme to allow the Federal Government to impose more taxes on the lower and middle class.

Some of the other proposed changes will require the company that manages your IRA to provide additional, (and unneeded), services that will add to the cost of the management fees charged to the depositor, (you). This means that your money probably won't grow as fast as before because more of your investment "profits" are going to be eaten up in fees.

It almost looks like the Federal Government is trying to fix it so that more people are dependent on Social Security rather than encouraging them to become financially independent.

I urge you to contact your representatives in Washington, DC and express your displeasure about the proposed changes.

** (Consult your tax professional for deduction rules and tax return preparation assistance.)

The True Cost of a Guarantee

2011-06-02T22:04:00.000-07:00

Risk is a part of our lives. But understanding risk and knowing how to use is something that few people are willing to learn. Coming next will be a series of posts discussing risk and how most peoples faulty perception of risk can affect your financial health.

The article: The True Cost of a Guarantee talks about one component of risk, the impression that we need to have a guarantee to "protect" us.

When Does $10,000 equal $9,900 ?

2011-04-30T07:45:00.000-07:00

There is a simple piece of information that will continually separate those who are financially healthy and the rest of the people: The effect that “inflation” has on the purchasing power of money. The average American’s failure to learn and accept this principle will guarantee that they will forever be locked out of enjoying the benefits of financial health.

When I speak of inflation, I am not referring to one of the complicated financial models and formulas used by the Federal Government, investment firms, or what is often talked about in the media. The “inflation” that I am talking about is how the value, (purchasing power), of money decreases as time goes by.

Remember when you could buy a full sized candy bar for 10 Cents? How about a loaf of bread for 35 Cents? How about the commercial where a large hamburger chain advertised that you could buy a “burger, fries, and a drink” and get “change back for your dollar”?

So why are candy bar prices now approaching $2.00 and fast food “value meals” are getting into the $4 and $5 range? That is the long term loss of purchasing power caused by Inflation.

If you attempt to measure inflation over short periods of time, (1 – 4 years), it is very hard to predict it’s effect on your money. But measured over a longer period of time, (10 – 20 years), we find it’s effect is essentially constant. Over the last 30 years in America, the purchasing power of your money has been decreasing at a rate of about 3% per year on average.

The reason this is important is if you are trying to save or invest money to use at a future time, (such as retirement), you need to understand how inflation affects your money. If your money is not growing at a rate that is faster than inflation, you are losing purchasing power.

If you retired at age 65 and were living on $50,000 a year income. After 20 years, at age 85, your money would purchase a lifestyle equivalent to about $25,000 a year.

Imagine taking what you earn today, cut it in half, and then trying to live on that reduced amount. This is what is happening to so many Americans now.

I hope you aren’t one of them.

Proposal to Santa Paula City Council

2011-03-07T22:51:00.000-08:00

Here is the text of the proposal that was blocked tonight by the city attorney.

Santa Paula Water LLC, PERC Water, and PERC Solar are interested in negotiating with the City of Santa Paula in order to accomplish the following objectives:

§ Provide liquidity to the City

§ Identify new revenue sources for the City

§ Reduce costs for the City without impacting City jobs

Santa Paula Water LLC, PERC Water, and PERC Solar propose the following:

Make available up to $2.5 million in cash for the City to use in the general fund. This money would come from the purchase of the City’s hard assets, i.e, property, buildings, infrastructure, and vehicles. The purchase would include provisions for the city to lease back the purchased assets. The city would also repurchase the assets by a specified date. The amount of the lease payment and the repurchase price would be negotiated and based on available cash-flows within the City.

PERC Solar would like to negotiate a 20-year lease of the property next to the water recycling facility currently under a ground lease with Santa Paula Water. PERC Solar would build and operate a solar electric generation facility. The electricity produced by the facility would be purchased by the City for use in the wastewater treatment facility. The lease payments would be accelerated and paid “up front”. Depending on the nature of the agreement the accelerated lease payment could be as much as $500,000. At the end of 20 years, the City would own the solar generation facility.

PERC Water will review the operating and maintenance costs of the City’s sewer collection system to identify cost savings and efficiencies for the City, including the possible purchase of the City’s vactor truck. Santa Paula Water would also review the existing collection system for a potential concession agreement that could include an upfront concession payment.

PERC Water would partner with the City to develop customers and infrastructure to allow for the sale of reclaimed water generated by the water recycling facility. The City and PERC Water would share in the income and profit.

Santa Paula Water understands that the City of Santa Paula has a problem with excessive amounts of chlorides present in the water. It is currently not clear when and how the chlorides are being introduced into the water. Although, Santa Paula Water and PERC Water recognize that the City of Santa Paula is responsible for resolving the problem, they propose to help the city with this issue in the following way:

First: Santa Paula Water could fund a study to determine the source and cause of the high levels of chlorides currently found in the water that is entering into the City’s wastewater collection system.

Second: Santa Paula Water and PERC Water would work with the city to develop a program so the City can offer to exchange resident’s old water softener systems with new modern systems. Note: This exchange/maintenance program has the potential to become a monthly revenue source for the city.

Third. Santa Paula Water and PERC Water would work with the City to implement a program of reducing chloride levels at the source of water supply, thereby providing better quality water to residents and reducing the overall level of chlorides in the water supply.

Santa Paula Water has the opportunity to purchase and bank large quantities of fresh water at extremely discounted rates. They would like to work with the city to take advantage of the lower cost of water. This is a short-term opportunity that would allow the city to realize a financial benefit.

PERC Solar would work with the city to develop a program to install solar generation on the rooftops of city-owned buildings. This would provide revenue for the City.

Santa Paula Water and PERC Water would work with the City to ease the stress of payment for the outstanding change orders on the water recycling facility by financing such change orders over time..

Santa Paula Water LLC, PERC Water, and PERC Solar may also consider ways they could assist Santa Paula to finance the construction of:

A police firearms training and practice facility. Such a facility’s services would be made available to other agencies in the area and would generate revenue for the City.

An animal shelter/holding facility. Such a facility’s services would be made available to other cities in the area and would generate revenue for the City.

Llama-nomics 101

2010-10-10T20:11:00.000-07:00

An interesting story about the investment lesson learned by one man's desire to become a llama tycoon. Let's follow my hypothetical friend, Fred, as he pursues his lifelong dream of having a large llama ranch and find out what he learns about investing in the constantly changing llama market.

It all starts one cool, gray, November morning when Fred decided to start a llama ranch. His plan? Spend $100 each month buying as many llamas as he can until he gets a large herd. This month llamas cost $50 each. Fred has $100 to spend, so he buys 2. He is on his way, the first steps toward the wealth and freedom that only a herd of llamas can provide.

It's December now, time to buy more animals. The llama market is just booming and prices have gone up. It seems that everyone wants to buy llamas. They cost $100 each now. Not to be deterred from his quest, Fred buys one more to add to his herd.

January rolls around and llama prices are still at $100 each, and the news media is buzzing about the exciting and wonderful llama market boom we are having. No matter where you go, people are talking about the exciting growth in the llama market. Television commercials play every few minutes with some guy proclaiming, "I expect llama prices to go to $200 in the next few months!" Other wiser and more even-tempered llama analysts warn that the current market is overpriced and the llama "bubble" will burst soon. "Llama prices will fall dramatically", they say. In fact, some even predict that the llama market could collapse completely.

Fred just smiles, and staying true to his original plan, he purchases one more in January.

But then February brings bad news for the llama market. Apparently somebody mixed some risky armadillo futures with some unstable alpaca loans and sold them to investors on the llama market. In a "crash" that happens almost overnight, the price for llamas has plummets to a mere $5 each.

Everybody's herd is now worth 1/20th of what it was in December and January. Now, most llama ranchers would be jumping out of windows at this point, but Fred is undaunted and remains focused on his goal of becoming a llama mogul. He takes the $100 he budgeted and buys several more.

In March, the price has recovered a little bit, but the llama market is still looking bad. Llamas are only selling for $10 each. "Onward!" Fred declares, and he spends another $100.

April rolls around and the llama market has improved a little more. Llama prices have risen to $20 each, so Fred buys some more to add to his growing herd.

Now it's May. Fred has had enough. Those llamas are tearing up the place and they are really smelly, so he decides to RETIRE and sell the whole heard. The problem is that the llama market still hasn't returned to those glorious "Boom Market" prices of last November, December and January. Right now Fred can only sell his animals for $25 apiece. Remembering those glorious days of $100 llama prices, Fred sighs. "Oh well," he thinks. "You can't win them all." So off they go to be sold.

Then Fred gets his check from selling the llamas. Wait a minute! "I made a profit?" Fred exclaims. How'd that happen? Let's take a closer look:

Over a six-month period Fred spent $100 each month purchasing llamas for a total cash outlay of $600.

Fred purchased llamas at various prices.

In May, Fred sold his 39 animals at $25 each for a total of $975. Subtract the original $600 investment, and Fred walks away with a tidy profit of $375.

Congratulations! Fred has discovered the power of "Time and Consistency" coupled with the principle of "Llama Cost Averaging". (Dollar Cost Averaging)

Legal disclaimer: No llamas were hurt or injured in writing this story. This article is for educational purposes only and is not a solicitation to buy, sell, or transact any type of investment, (llama or otherwise).

When Does $35,000 Equal $190,000?

2010-06-14T21:20:00.000-07:00

Here is an illustration of the high cost of waiting to start a simple saving program.

Bob is 21 years old and he decides to begin saving for his retirement. He starts putting $5000 each year into some type of account, (a IRA, for example). He does that for 7 years until he turns 28 and then he decides to quit and spend his money on other things. He lets the money in his account sit and earn interest until he retires at age 65.

Fred, who is also 21 years old, decides that he will start saving later. He spends all his money and doesn't have any left over to put in savings. Then, when he turns 28, Fred decides he had better start putting money away for his retirement. He begins to put $5000 a year away just like Bob did, only Fred faithfully puts $5000 in every year starting at age 28 until he turns 65.

At age 65, which one has the most money?

Remember they are both using the same type of savings program and they both realize the same rate of return. Since Fred has put a total $190,000 in his account, compared to Bob's $35,000, it would be reasonable to assume that Fred will have more money.

In truth Bob will have more money than Fred when they reach age 65.

Because Bob started earlier, his money has had more time to "compound", (doubling periods). Using an example rate of 10%, Bob's $35,000 will grow to $1,944,326 by the time he is 65. Meanwhile, Fred's $190,000 will have only grown to $1,820,217. That is a difference of over $100,000 !

This simple illustration underscores the importance of time and consistency when saving money for future needs.

Disclaimer: The above is for illustrative purposes only and is not representative of any specific type of investment, and is not a solicitation to conduct any type of business or investment transaction.

What They Didn't Tell You About Prop 14

2010-06-06T15:42:00.000-07:00

Proposition 14 is being advertised as making the primary process more open by allowing voters of any party to vote for any candidate on the ballot. I like the sound of that, BUT, it is the other things that they don't tell you about that have me concerned.

First: Once the primary is over, the only people who will be on the ballot in the general election will be the two people who got the most votes in the primary, no one else. That means that the smaller political groups will not be allowed to participate in the general election. To me that seems wrong.

Currently in the general election we are allowed to vote for anybody we want and we have the opportunity to choose between many different candidates. If this passes, we only get to choose between two.

I know that for a candidate from a smaller party, such as the "Peace and Freedom" or "Green" parties, the chances of winning a general election may be small, but just having the candidate on the ballot means that I can vote for him or her if I want. Not if Prop 14 passes. Also, just having such a candidate on the ballot makes the other candidates address the issues they raise.

Second: Under the new law, none of the candidates have to tell you what their party affiliation is. How can you have a election and not know a candidate's party affiliation? We could end up with two candidates on the ballot, both from the same party, and never know it until after the election is over.

This whole thing just doesn't seem right.

The Big Lie of California's Proposition 17

2010-06-06T14:50:00.000-07:00

The commercials say that this proposition will give people the option of taking their "longevity discount" with them when they change auto insurance carriers. They tout this as something we cannot do right now. In reality the current law specifically allows this discount.

Here is the text of the current law about the discount: "...insureds are able to claim a discount for regular purchases of insurance from any carrier offering this discount irrespective of whether or not the insured has previously purchased from a given carrier...". That means you can get a discount for "persistency" from any auto insurance company that is willing to offer one, even if your "longevity" was with another company.

The wording in Prop 17 says essentially the same thing: "...an insurer may offer applicants or insureds an additional discount for a policy...based on the length of time the applicant or insured has been continuously insured for bodily injury liability coverage with one or more insurers, affiliated or not."

So what is the difference between what is now on the books and the new law?

It will actually be harder to qualify for any "longevity discount" under the new law. In other words, it will be easier for an insurance company to say that you DON'T qualify for the discount and charge you a higher rate. But then, considering the fact that proposition 17 is backed by a major auto insurance company, why am I not surprised?

Under the current law, you could let your policy lapse up to 90 days for any reason, (including not paying your premium), and still qualify for the discount.

Under Prop 17, if your policy lapses for non-payment of premium, FOR ANY LENGTH OF TIME, (even just one day), the insurance carrier can disallow the discount and charge you a higher rate.

Under the current law, if you serve in the armed forces outside of the state of California, you can come back to California and buy auto insurance within two years and still qualify for the discount.

Under Prop 17, if you serve in the armed forces, the only way you can qualify to get the discount when you get back is if you are deployed OUTSIDE THE US. That means our military personnel that serve even part of their time at a posting in the United States would NOT be allowed to have this discount when they return to California.

I don't know about you, but I don't think our members of the military should be penalized because they are required to serve their country.

The four ways to earn income

2010-05-16T21:57:00.000-07:00

Trading time for money
Earn income when others work, (override)
Earn residual income, (sometimes called "passive" income)
Investment income, (your money makes money)

1. Trading time for money
There is nothing inherently wrong with getting your money this way. The drawback is that there is a limit to how much time you can sell for money and therefore a limit to your income potential. Another drawback with this method is that once you have sold your time, it is no longer available to use for yourself, your family, or any other activities. And finally at some stage of our lives, we reach a point where we are no longer able to sell our time for money, (poor health for example).

2. Earn income when others work
This is the basic tenant of business, have a system that generates income, even when you are not directly involved. If you are the owner of a restaurant that sells hamburgers, you personally don't have to be cooking the hamburger, running the cash register, etc for the money to come to you. You hire others to do the work for you. You put people into your system of making and selling hamburgers, and the system generates the income.

The simplest of businesses to start and run is a business that operates on the Broker/agent business model. When agents provide services to the clients, you as the "broker" get a split, (portion), of the income generated. To increase your income, you only need to increase the number of agents in your "brokerage".

3. Earn residual income, (work once and get paid again and again).
This is sometimes referred to as passive income. People usually think of artist's royalties when I mention residual income, but in reality there are many other types of income that came from passive sources. A common type is the management fees earned by Brokers on the assets they maintain under their management. Although the percentages are usually small, the potential volume is essentially unlimited and so is the income potential.

4. Investment income, (your money is making money)
When your money is making money, you can eventually reach the point where you don't have to trade time for money.

This fourth principle is not nearly so complex as many people think. Now, if you need to manage a portfolio of several hundred thousand dollars or more, things may get a little more complex. But, since 43% of American workers have less than $10,000 saved for retirement, (more than half of American workers have less than $25,000), simple, easy to understand and follow investment principles will make the difference between a lifetime of financial stress or confidence.

53% of Americans have not even tried to calculate what they will need for retirement. That is both scary and sad, because it really is a simple thing to sit down with one of the 100,000 financial coaches who will, for free, put together a customized personal financial program for any person or family.

Having a clear, easy to follow, personal financial plan can allow anyone to have the opportunity to go from selling time for money, to having money flowing to you from multiple sources with little or no effort on your part.

A Disturbing Statistic

2010-03-22T21:45:00.000-07:00

I hope you will not be offended by this posting. I write this because I feel it is so important, and I feel so strongly about the subject, that I cannot hold back.

First let's do a hypothetical situation. Suppose your doctor told you that he had a service that would provide a comprehensive medical screening, using state of the art diagnostic technology, that would give you a clear concise report of your health and potential problems, including an clear indicator of whether or not you had any cancer cells anywhere in your body. And, on top of that, the entire service was free of charge. That's right, absolutely no cost to you.

If your doctor told you that, would you, (in your right mind), say to his face, "No, that's all right. I feel fine right now so I don't think I need that". Of course not.

A survey was done by a reputable financial news outlet that had several disturbing statistics about American's financial health, and their attitude about their financial health.

It turns out that 54% of American workers have not even tried to calculate what they need for retirement. The survey also showed that 43% of American workers have less than $10,000 in savings.

These are the same people who, when offered a free no obligation analysis of their financial health, would respond, "No thanks, I'm doing fine". How do I know? Because my colleagues and I have spoken to a lot of people during our careers and that is exactly the answer we get.

Tell me, how can they know that they are doing fine if they have not even thought about their financial future? (Let alone the present)

I am going to ask you a question, and you need to really, honestly, answer it: If your primary source of income, (job, etc.), were cut off today, how long before you would experience financial disaster?

How many house payments or rent payments could you make?
How long could you go on buying groceries like you normally do?
How long before the phone, gas, electricity, cell, internet, etc., are cut off, or threatened to be shut off?
How long before the car is repossessed?
How long before the credit card companies start calling?

If you honestly answered these questions with anything less than 1 year, (two would be better), you are like a person with cancer who tells his doctor, "don't bother treating me because I feel fine". I believe that deep down, these people really know in their heart of hearts that they need help but are so much in denial, they can't allow themselves to look at their finances with the stark daylight of reality.

A short while ago I had someone come to me in a panic. This person was about three years away from retirement and had finally admitted to themselves that they had a problem because they still had 20 years worth of debt. I am happy to say that my colleagues and I were able to help them out so that their financial picture isn't quite so bleak, but they won't be retiring when they thought they would.

What makes these statistics even more sad is that I know of over 100,000 trained, experienced professionals, through out the US and Canada, who would, with no charge, provide a comprehensive analysis of your financial health and provide clear, concise, easy to follow recommendations, and yet there are millions of Americans who, with their head in the sand, say to themselves, "I'm just fine, thank you".

Four ways to earn income

2010-01-18T20:09:00.000-08:00

3. Residual Income - Work once and get paid again and again.

If trading time for money can be considered as "today's income" then residual income would be "tomorrow's income".

What is residual income? Simply put, it is income that is created from work that you have done sometime in the past. Common examples of this are the performance & intellectual property businesses, (books, CDs, Movies, Computer programs, etc.), and is often referred to as "mail box money". When an author or an artist creates something, they usually get a royalty; a payment for each time their creation is purchased or performed. In most cases, as time passes, the amount of income received will diminish and eventually ends.

Now, most of us are probably not going to create a blockbuster book, CD, or movie that will provide us with royalties, but there are other ways to build up a residual income that will continue, and even increase), as time passes.

One way is to become securities licensed as an agent or broker. Financial services companies need agents and brokers to met one on one with clients and help them with their investment portfolios. A portion of the management fees earned by the company is paid to the agents each year. As the size of the portfolio grows, through both the increase in value, and influx of new clients, the amount of the commissions grows.

When an agent or broker helps a new client, they often get paid a commission for setting up the account or investment, and then they receive a portion of the annual management fees as each year goes by.

For example, I am aware of one company where, for a portfolio of $10 million, (that's not really all that much), the management fee paid to the agents ranges from about $60,000 to $112,000 a year, (depending on if they are part time or full time with the company).

Interestingly enough, the process to become a licensed agent is relatively simple and inexpensive. So for all of us that don't have a blockbuster movie or book, we still have the opportunity to earn a significant residual income, by helping other people find the financial solutions that they are seeking.

If you are interested in becoming an agent and getting licensed, fill out the information below, (click on "Referral Form" link below), and we will find an office in your area that can help you become a licensed agent or broker.

Referral Form

The above information is for illustrative and educational purposes only and does not constitute any type of promise or guarantee. Not all licensed individuals earn the above noted income.

Four Ways to Earn Income

2010-01-03T16:35:00.000-08:00

2. Earn income when others work

The word for this is “over-rides”. The concept is simple. Every time someone else does something to earn money, (work, sell, construct), you earn some of the income they generated. Now before you get upset and say that is somehow immoral or dishonest, let me explain.

Let’s say that you own a hot dog cart and sell hot dogs downtown during lunch hours. On an average day, (about 4 hours work), you sell 100 hot dogs for a total income of $250. After you deduct the cost of the dogs, buns, toppings, etc., your net income for the day is $160. Not a bad income, ($40 an hour).

(Side note: If you are the business owner and have to be at the business to earn income, then you are just trading time for money, see "Trading Time for Money").

One day you want to take your kids to the zoo, (to see the llamas), but you don’t want to lose out on a whole day’s income. So you find a person who needs to earn some extra cash and offer to pay her $60 to operate the cart for the day. I would say that is a pretty fair deal. She gets a $15 hour job and you get $100 and weren’t even there.

Congratulations, you have just discovered the power of over-rides, making money when someone else works by using a basic business model: hiring someone to sell your product to the public. (Now tell me, how was that dishonest?) The person you hired is making money they need and you are getting a return on your financial investment, (the cart and inventory). It doesn’t take long to realize that if you had two, three, or more carts, you can make some very good income, all without having to trade your own time for money.

Let go a step further. You like the person you hired to run your cart and want to give her a chance to run her own business. Here is your offer. You will buy another cart and let her run it herself, all she has to do is give you $20 each day and 50 cents of every hot dog she sells. Our friend now has a chance to earn $160 for herself, (or she can do like you did and hire someone to run the cart for her). You make about $70 each day without having to worry about managing inventory or running a business.

Find three or four other people that want to run a hot dog cart and now you are making a great income without having to worry or care about employees, inventory, dealing with customers, etc. This is the basis for what is called “Franchising”.

The bottom line: our entire economy is built on this simple financial principal, every time a product is sold or someone is paid a wage, there is someone who gets paid an override. It can be a person, or an entity, (company, stock holders, etc.), but that is how it works.

What you may not realize is how easy it is to become someone who earns money via over-rides. The reason most people don’t feel that the average person can build a business for themselves is simply because they don’t know where to look, or what to look for, (more about that later).

Next Post: The third way to earn income

When Does $28,000 equal $148,000?

2009-11-21T20:06:00.000-08:00

A Tale of Two Investors

Bob is 21 years old. He starts saving money in what is called a “qualified” retirement investment, (an IRA for example). He puts away $4000 each year, without fail, until he is 28 years old. At that point he stops and never puts another dime in his account. He just lets it sit until he is 65 and plans to retire.

Dave is 21 years old. He is busy with life and things and he doesn’t save any money. Then on his 28th birthday, he realizes that he had better get with it and start saving for retirement. He starts putting $4000 each year into the exact same type of retirement investment that Bob has. He keeps making his deposits every year from age 28 until he retires at age 65.

How will it turn out for these two gentlemen? Bob has put away a total of $28,000. Dave, a total of $148,000. Who will come out on top of the retirement game? Would you be surprised if I told you that Bob would have more money?

Let’s look at what happened.

Just to keep things simple I will use a flat 10% rate of return. Now we all know that life and the world of investing doesn’t work quite like that, but for this exercise it is an easier formula to work with than a more complex algorithm and it will adequately illustrate my point.

That said, we calculate that Bob’s investment of $28,000 could grow to $1,616,310.30 by the time he reaches age 65. Meanwhile Dave’s investment of $148,000 could grow to $1,566,251.85 by the time he retires at age 65. That is a $50,000 difference. That means that in order for Dave to get essentially the same result as Bob, he has to invest $120,000 more than Bob does.

Waiting for 7 years will cost Dave more than $17,000 each of those years.

This simple illustration shows just how powerful an ally time can be when you make it your companion in your personal investment program. It also shows us the high cost of waiting.

Time and Consistency are your friends.

(Disclaimer: This is an illustration for educational purposes only and is not an attempt to project or guarantee any particular investment performance, nor is it intended to advocate any particular type of investment method or product)

A Llama Story

2009-11-13T19:00:00.000-08:00

You decide to start a llama ranch. Your plan? Spend $100 each month buying as many llamas as you can until you get a large herd. This month llamas cost $50 each, you have $100 to spend, so you by 2 llamas.

It’s December now, time to buy more llamas. The llama market is just booming and llama prices have gone up. They cost $100 each now. January rolls around and llama prices are still at $100 each, and everyone is talking about the exciting and wonderful llama market boom we are having.

But then February brings bad news for the llama market, and in an crash that happened almost overnight, the price for llamas has plummeted to a mere $5 per llama. Everybody’s llama herd is now worth 1/20th of what it was in December and January. Now, most llama ranchers would be jumping out of windows at this point, but you are undaunted and remain focused on your goal of becoming a llama mogul, so you use the $100 you budgeted to buy more llamas.

In March, although the price has recovered a little bit, the llama market is still looking bad. Llamas are only selling for $10 each. “Onward!” you declare, and spend another $100.

April rolls around and the market is looking better. Llama prices have risen to $20 each, so you buy some more to add to your growing herd.

Now it’s May. You have had enough. Those llamas are tearing up the place and they are really smelly, so you decide to RETIRE from the llama business and sell the whole heard. The problem is that the llama market still hasn’t returned to those glorious “Boom Market” prices of last November, December and January. Right now you can only sell your llamas for $25 apiece. Oh well, I guess you can’t win them all, so off they go to the market.

Then you get your check from selling your llamas. Wait a minute! You made a profit? How’d that happen? Let’s take a closer look:
Over a six-month period you spent $100 each month purchasing llamas for a total cash outlay of $600.

You purchased llamas at various prices.

      Month    Cost            # of Llamas
                 per Llama        purchased
       Nov           $ 50.00                 2
       Dec           $ 100.00                 1
       Jan            $ 100.00                 1
       Feb            $    5.00               20
       Mar           $ 10.00               10
      April           $ 20.00                 5

Total number of Llamas purchased: 39

In May you sold 39 llamas at $25 each for a total of $975. Subtract your original $600 investment, and you walk away with a tidy profit of $375.

Congratulations! You have just discovered the power of “Time and Consistency” coupled with the principle of “Dollar Cost Averaging”.

(Legal disclaimer: No llamas were hurt or injured in writing this story)

Next Post: When does $28,000 equal $148,000 ?

Four Ways to Earn Income

2009-11-08T16:55:00.000-08:00

4. Investment Income, (your money earns money)

Trading time for money, (see post from Nov. 3rd), doesn’t provide the long lasting financial comfort and abundance most of us are seeking. To achieve this you must couple trading time for money with at least one other method of earning income, “Investing”.

When you invest money, you become the beneficiary of multiplication. You tap into what Einstein called “the most powerful force in the universe”, Compounding Interest. Every dollar that you have invested is a small “clone” of you earning income.

If I offered to pay you 10 cents each year that wouldn’t be all that exciting, but if there were a million copies of you, and I paid each one of them 10 cents a year, now that would be something! ($100,000 per year) “But”, you say, “I don’t have a million dollars to invest”. You could. If you knew and applied a few basic principles, a million dollars would not be difficult to achieve at all.

Did you know that most people in the U.S. will earn more than a million dollars in their working lifetime? If you earned $22,300 each year of your working life, (age 20 – 65), a million dollars will have passed through your hands during that time period. If you set aside $50 each month during that same time period, it is possible to accumulate over a million dollars. 50 dollars a month!

The average American family spends $250 a month on fast food, (not counting their normal grocery bill). Last year I met a nice young couple who were spending $1400 a month eating out and they were not putting anything away for the future.

The truth is, you can save $25, $50, $75 each month. It has been my experience that most people who say they don’t have any extra money to save, basically are not aware of where the money is “leaking” to. Try this, for just one week, write down everything you spend your money on; every last cent. (Be honest). I have found that having a self-awareness of your behaviors is the first step toward personal change.

Once you made it through the week, go for a second, then a third. By the time you begin the second month, you will have made some important discoveries about you and your family’s spending habits that will surprise you. The only thing standing between you and financial abundance, is commitment.

Next Post: A story about llamas

Four ways to earn income

2009-11-03T21:35:00.000-08:00

1. Trade time for money

This is the most common way the average person gets income. We sell our personal time to an employer and receive money in return. This method of getting income has several drawbacks.

First: Limited supply of “product” for sale. You only have a certain number of hours each day that can be traded for money, i.e. there is a limit to the number of hours you can work. Also, there will come a time when no one will want to purchase your time from you. And what if you become ill and can’t work? You won’t have any time to sell to an employer and so, the income stops.

You may think, “if I could just get enough money for each hour that I sell, then I would be financially comfortable”. That may be so, (for awhile), but I guarantee that there will come a point when either no one will want to buy your time, or you won’t want to sell it anymore, then the income stops. If you don’t sell your time to someone, you don’t have any income.

Another drawback is, once you have sold your time, if you want to use any of it for yourself, you have to ask permission to get it back. The owner of your time, (your boss), tells you what you can and can’t do with the time he/she bought. For example, if you want to go home early to be with your children, friends, go to the doctor, etc., you have to ask for permission to use some of the time that you sold.

But what if I am self-employed, I am the boss of my own time, right? Yes, but, (and it is a biggie), once you agree to sell your time to a client or customer, they become the owner of your time and you have an obligation to them as to how you use your time. Also, you still have the problems of a limited supply of “product” and situations that prevent you from being able to sell your time, (illness, etc.).

The bottom line is this, most of us have to sell our time for money. That in and of itself isn’t what causes financial discomfort. To have financial abundance, you must also use at least one of the other three methods of earning income, (using all four is the best, of course).

Next post: The 4th way to earn income. (#2 & 3 will come later)

Living With Money

2009-10-30T20:00:00.000-07:00

The difference between those who are comfortable financially and those who aren’t, all comes down to one key concept:

Those who are comfortable financially know about, understand, and apply, the precepts and rules pertaining to the accumulation and management of money. The rest, don’t. It is that simple.

These rules and precepts are relatively simple to follow and put into action. So why are there so many people out there that don’t experience a financially comfortable lifestyle?

Three reasons:
A) They don’t know these fundamental precepts and rules, (but some people think they know them).
B) They know the fundamental precepts and rules, but don’t use them.
C) Lack of patience. They don’t stick with it, or are inconsistent in their application.

It has been my experience that the most common challenge for people is the lack of knowledge. Why?

First: because of the abundance of information available and the media hype that bombards us every day, many people feel that money accumulation and management is too complex to understand. They get conflicting and distorted information and essentially give up, feeling like they could never be able to even start.

Second: Ego. These people refuse to admit that they are in financial trouble. Like an ostrich with its head in the sand, they deny the very existence of their problems, even as their financial house of cards tumbles around them. (They call me after it has gone too far and my available options for helping them are very limited).

There is another side to the problem of lacking knowledge. It is the fact that there people who think they know all about money accumulation and management, (and are willing to share their knowledge with you at the drop of a hat), but the knowledge they have is often faulty, (or just plain useless). Just ask these folks what you should do with your $10,000 UGMA from your grandparents and they have all sorts of sage advice, (usually gleaned from the television).

Over the course of the next few weeks, I will post short articles about the fundamental principals of management and accumulation of money.

In my next post I will begin a series of articles about the “Four Ways to Earn Income”