Your Retirement and Why Social Security Reform Is Not the Solution

All throughout the last national election and during the first Bush administration we have been bombarded by political jargon in regards to Social Security. One side wants American taxpayers to have control of their money whether it be within stock options or the current social security program. The other side thinks there is nothing wrong with the current system and that we should leave it alone. Wherever you stand on the issue, I have one thing to say: Social Security reform is not the solution.

Why? Because we started off asking the wrong question. Why are we asking about changing, or not changing, a government program that affects our retirement? Why aren't we taking control of our own retirement options? Wouldn't you and I be better off come retirement not depending on the government? The answer is yes. Unfortunately, no one is doing anything about it.

Most of the hardworking folks in this country have options through their jobs to participate in some sort of retirement plan like 401ks and IRAs. Yet few are participating in such programs. According to USA Today, "the saving rate was minus 0.4% last month, after bottoming at a minus 1.8% in August." Why are Americans not saving? In September alone consumer spending rose 0.5%. America is a nation full of hyperspenders (Thomas Stanley, The Millionaire Next Door). Simply, we spend all or more of our income and don't save.

In May, Forbes Magazine highlited an article, Retirement Doomsday by Dan Ackman, in which Ben Stein spoke out in regards to Social Security and our current retirement situation. Stein believes "this is the greatest crisis facing the country that people can do something about," but they're not. What's even more amazing is that it can be easily remedied. How? Start saving now.

Four ways to help us start saving today:

1. Make saving a priority. If it doesn't come off the top, you won't do it. You will only save money when it becomes very important!
   
2. Pay yourself first. Before you pay any bills or spend money, put 10% of your income into savings.
3. Give, save, then pay bills. Give to charity, non-profit groups or churches.
4. You must start now!

Compound Interest and What It Means To Your Retirement
The key to saving for retirement is discipline. We have to be consistent over time. This is a great example of compound interest at work:

Forty (40) years of saving $100 per month, every month, at 12% will build to $1,176,477.00

$100 per month is more than feasible for most Americans, so start saving today!

"In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."
Proverbs 21:20 (NIV)

FICO Overrated

If any of you read my post a while back titled "Why FICO Stinks", you are aware of where I stand on the issue of credit scores and such. Well, apparently, Dave Ramsey was on the CBS Early Show last Tuesday discussing our good ole' friend Fair Isaac. If you happened to catch the show, it was an excellent explanation as to how consumers have been brainwashed, er, i mean, sold debt and the debt lifestyle.

Dave also went into how the scores are calculated and where it lacks to tell a lending institution about the individual and their personal situation. Most just look at the score and say yea or nay. Dave compared it to monkeys sitting behind the desk, oooohoooo, high score, yes.....oooohoooo, low score, no. It was quite entertaining to say the least.

Think about this for a second, in order to have a high score, one must have debt. Apparently, debt shows lenders that you are fiscally responsible. I don't think I have heard anything more absurd in my life. Let's see, I don't know how to live within my means so I have a handful of credit cards, a car payment, a mortgage, and Lord knows what else, and that is being fiscally responsible? Give me a break!

Have you seen that commercial for FreeCreditReport.com? You know, "I'm think of a number between 700 and 8oo." He goes on to say that his score is, uh, I don't know, high, and because it is high he is able to save a lot of money. I laugh every time I see it and then think about all the people that have fallen for that trap. How in the world can you save money when you are knee-deep in debt? By getting a good interest rate for borrowing more money, to go further into debt? Yeah, that's intelligent and no thanks. Dave says that the "only way to have a good credit score is to have debt and stay in debt for the rest of your life and it is not an indicator of wealth. Now, I'm not gonna go and trash it. But all this, "I'm gonna make all of these moves and I'm going to continuall pay the bank for the rest of my life so I can have a high FICO score"...that sounds like a great plan...for the bank."

Dave also mentioned in the interview that the FICO score is not an indicator of wealth as some have assumed. "You can have $1 million given to you or make $1 million a month and have a crummy score. It's not a wealth indicator." In fact, The Millionaire Next Door tells us that the majority of the millionaires in America became millionaires because they didn't have debt.

So, if you have a crummy FICO score because you don't have debt (not because you mis-managed your credit), and want to buy a house go to a lender that offers manual underwriting according to FHA, VA, and FannieMae underwriting guidelines. If you've paid your rent early (or on time) for two years, if you've had a steady job for two years, have nothing on your credit score except for your name and social security number, you qualify for the best mortgage rates around.

It'll take some work finding a lender that does manual underwriting though. About one in five lenders still does it and that means they actuall do the work. "They look at the human being involved. See you could walk in again with $1 milion in the bank and $1 million a month income and a crummy FICO score and not get a mortgage at some of these places."

Closing thought from Dave Ramsey:
"If you are making all of your financial moves to please the bank, it's gonna please the bank." Instead of trying to find ways to raise your FICO score, think about finding ways to buy the things you want, as well as need, with money you already have. Why is it that Americans, when they want or need something, first look to borrow before they look to see if and how they can afford it? Ironically, we're a rich nation full of poor people.

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I ran into another post about credit scores over at MoneyPants.com called Keeping Score. A good read.

If You Can Conceive It, You Can Achieve It

After several days of reading Think and Grow Rich, I have finally completed it from cover-to-cover. Not that it's difficult book to read, but a bit more challenging than the plain written Rich Dad Poor Dad and Total Money Makeover. I think of Napoleon Hill's book as a guidebook toward self achievement and the role our mind plays in our pursuit of success.

The book is broken down into 12 keypoints or steps as Hill refers to them toward a life of riches:

Step #1: Desire is the starting point of all achievement. It creates a mentality that sees no pursuit as impossible or unattainable and accepts not failure.

Step #2: Faith (visualization and belief) that you will be successful. "Faith removes limitations!"

Step #3: Influencing the subconscious mind by way of autosuggestion. Autosuggestion refers to all forms of stimuli that are absorbed mentally with the use of the five senses.

Step #4: Specialized knowledge to creates opportunities for success. Knowledge is not power, however, it creates an opportunity to attain it.

Step #5: Imagination gives shape, form and action to our desires. "It has been said that man can create anything which he can imagine."

Step #6: Develop a plan of success. Use a Master Mind alliance to develop a plan that will work. If it doesn't work at first, devise another plan.

Step #7: Grab procrastination by the gills. The ability to make timely decisions is crucial. Procrastination and doubt will only deter progress.

Step #8: By combining your desire for success with will-power, you insure attainment your goal. Persistance "is to the character of man what carbon is to steel."

Step #9: Use your Master Mind alliance to 'attract' power. Whatever knowledge you lack, your core group should be used, as a tool, where you lack to attain power.

Step #10: Harness the power of sex and transform it as a driving force toward your goal(s). "Far from being geniuses because of great sex desires, the majority of men lower themselves, through misunderstanding and misuse of this great force, to the status of the lower animals."

Step #11: Feed your subconscious mind with plans and desires that you want to take physical form.

Step #12: Step up the receptive process of your brain through positive emotions. When the braing functions at higher rates, it attracts more ideas and thoughts.

Step #13: Using your sixth sense by developing your mind from within through meditation.

"The ladder of success is never crowded at the top."

Babylonian Parables for Financial Planning

The Richest Man in Babylon: The Success Secrets of the Ancients by George S. Clason offers creative success stories in the form of parables for sound financial planning. Below are the keypoints from the book which Clason deems the Seven Cures for a Lean Purse:

Cure #1: Start thy purse to fattening. Save 10% of your earnings.
Cure #2: Control thy expenditures. Create a budget to live within your means.
Cure #3: Make thy gold multiply. Invest your savings from Cure #1.
Cure #4: Guard thy treasures from loss. Invest only when your principle is safe.
Cure #5: Make of thy dwelling a profitable investment. Own your home.
Cure #6: Insure future income. Plan for retirement and have life insurance.
Cure #7: Increase thy ability to earn. Continue to educate and respect yourself.

"Go thou forth and practice these truths that thou mayest prosper and grow wealthy, as is thy right."

Rich Dad Poor Dad, en breve

The following is a breakdown of Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That The Poor and Middle Class Do Not!, authored by Robert Kiyosaki, into major keypoints. The main concept to take away from the book is that it is absolutely crucial to teach financial literacy in schools.

Lesson #1: The Rich Don't Work for Money
Don't work for money, make money work for you.

Lesson #2: Why Teach Financial Literacy?
Understand the difference between assets and liabilities.

• The rich buy assets
• The poor only have expenses
• The middle class buys liabilities they think are assets
  

Lesson #3: Mind Your Own Business
Build your asset column with income generating purchases.

Lesson #4: The History of Taxes and The Power of Corporations

• Taxing only the rich doesn't work
• The rich understand taxes and the law, so the taxes trickle down to the poor and middle class
• How corporations are used for tax advantages

Lesson #5: The Rich Invent Money
The rich understand financial statements, investment strategies, a sense of the market, and the laws. Those who are trained financially will recognize opportunities.

Lesson #6: Work to Learn--Don't Work for Money

• Balance specialization and diversification of skills in the workplace
• If you specialize and are unwilling to learn something new, make sure your employer is unionized
• The rich groom their kids to gain overall knowledge of business operations and the relationship between departments within a company
  

Taking Action!
We are given two gifts in life: our mind and our time. We are responsible for what we do with these gifts. We have the ability to control our destiny with every dollar we earn. If you choose to spend it foolishly, you have chosen to be poor. If you choose to buy liabilities, you have chosen to be middle class. If you choose to educate yourself and to acquire assets, you have chosen to become wealthy. The choice is yours.

"Every day with every dollar, you decide to be rich, poor or middle class."

Knowledge Is Power, Or Is It?

According to Naopleon Hill, Think and Grow Rich, the fourth step to riches is specialized knowledge. What is specialized knowledge?

Hill says that there are two types of knowledge, general and specialized. General knowledge deals with what I like to call 'book smarts.' A great example of this would be in the college/university arena. There is an abundance of intelligent professors that are making little. Why is it that some of the smartest people in the country are some of the poorest? It is not because of the field they have chosen, but do to the fact that they don't know how to use that knowledge.

"Knowledge will not attract money, unless it is organized, and intelligently directed through practical plans of action, to the definite end of accumulation of money." This is an outright contradiction to the popular belief that knowledge is power.

How then can one take advantage of knowledge to attain wealth? By taking using that knowledge to develop an organized and definitve plan to get rich. This is specialized knowledge.

I think that education is crucial to the development of one's thoughts. It is not about the amount of general or specialized knowledge you posess, but about drawing out or developing your thought processes in an organized manner.

"An educated man is one who has so developed the faculties of his mind that he may acquire anything he wants, or its equivalent, without violating the rights of others."
Napoleon Hill, Think and Grow Rich

Why FICO Stinks

I was listening to Dave Ramsey the other day and he was talking about FICO. For those that don't know what FICO is, it is simply your credit score. FICO was developed by Fair Isaac & Company as a 'method of determining the likelihood that credit users will pay their bills'.

Your FICO score is determined by five factors:

1. On-time and early payments, 35%
2. Debt level, 30%
3. Length of credit, 15%
4. Type of credit, 10%
5. New credit, 10%

The only way to have a really high FICO score is to go into debt and stay there perpetually. Dave said it should be renamed the "I Love Debt" score. The majority of the people concerned about their FICO score are those people who spend most of their income on payments and interest as opposed to wealth building.

Your FICO score is determined by your willingness to go into debt and stay in debt. Is this your main goal in life?

"The rich rules over the poor, and the borrower is servant to the lender."
Proverbs 22:7 NKJV

Ideas To Ponder

It seems as though I am blowing through the list of books on the recommendation list. Truly I am devouring every nuance in each book in an attempt to engrave in my mind the mentality and attitude to which one becomes wealthy. I am wealthy in a sense already with a loving husband, beautiful daughter, two mongrel muts, and a deep-seeded faith in my Lord and Savior Jesus Christ. My aim at the moment is to develop the 'rich' mentality so that my childrens' education and our retirement are more than feasible.

Currently, I have read Rich Dad Poor Dad and just completed The Richest Man In Babylon last night. If you are reading this, I highly recommend these books to aid in your financial and personal endeavors, whatever they may be. I started reading Think and Grow Rich today, and I have to clarify that the book doesn't deal simply with acquiring wealth but of adopting a mentality to which you are able to attain anything you desire.

Many of the limitations we encounter are self-induced and can be overcome. "It is essential for you to encourage the positive emotions as dominating forces of your mind, and discourage-and eliminate negative emotions" describes Napoleon Hill in Think and Grow Rich.

It seems as though normal people like you and I, have conjured up excuses or alibis to our misfortunes or lack of progress in certain areas of our lives. Not too long ago my husband and I sat in our little pity-party about our financial progress, or lack thereof. But those days are behind us and now, we both look forward to the possibilities.

In merely four months, with much planning and hard work, we paid off over $10,000 of debt, including 3 credit cards and our truck. We sit down together every month and plan our budget. We've all heard that saying "if you fail to plan, you plan to fail" and I agree wholeheartedly that it is so. Robert Kiyosaki, George Clason and Napoleon Hill were adamant about this very thing in their books. They didn't believe in such a thing as luck, and now, I don't either. Remember that "luck is what happens when preparation meets opportunity."

To Be Or Not To Be Normal

Forbes Magazine, a business and financial publication, released the Forbes 400 last week. If you don't know what the Forbes 400 is, well, it's a list of the 400 wealthiest people in America. You can take a look at the list here.

Did you know that 69% of the top 400 men and women on the list, that's 7 out of 10, started with nothing. The top 5 of these are self-made billionaires and only 4 had college degrees. Simply, they started out just like you and me, with nothing. But, these people were able to take opportunity by the hand and create prosperity for themselves and generations that follow.

What does that mean to you and me? It means that we have the same opportunities and potential to generate the type of wealth that these 400 individuals enjoy today. When surveyed, 64% of these 400 individuals said the number one key to building wealth in America was to get out of debt and stay out of debt.

Normal Americans
The majority of Americans are normal, middle class, hard-working people. Normal Americans have six credit cards, a car payment, and loans. Normal is broke, but that can change.

There are two barriers that keep Americans from realizing their financial dreams: debt and taxes. If we were able to keep a large portion of our tax payments and combine that with the money freed up from debt, we would be in a position to flourish financially and do the things we were meant to do. The only thing holding us back, is the decision to be or not be normal.

Challenge
We live in the wealthiest country the world has ever known. The challenge is this, what are you going to do about it?

"Success comes to those who work smarter."
Unknown

If You Want To Be Rich, Follow These Seven Steps

Warning: This is not a get-rich-quick scheme. These steps, if practiced, will bring prosperity and wealth, guaranteed. They require patience and consistency. Do you have what it takes? If so, read on.

Step One: Pay yourself first.
To put it simply, save. Take out one-tenth of your monthly income and save it. You can put your savings in a money market account temporarily and later use it to invest.

There are three basic reasons to save, 1) emergency fund, 2) purchases, and 3) wealth building.

Step Two: Control your expenses.
One word: budget. Budget your expenses so you will have the means to pay for necessities first and enjoyments second. Remember that the purpose of your budget is to make saving possible. Note: Managed money goes farther.

Step Three: Make your money work.
Once you have disciplined yourself to save and manage your income, you will be able to multiply your savings. Saving is only the beginning, multiplying your savings is just as important. This can be done through real estate, stocks, or mutual funds. The key to remember here is to utilize compound interest.

Example: Did you know that the average car payment in the United States is $370.00? If you had no car payment and invested that $370 in a good growth stock mutual fund from age 20 to 65 you will have accumulated $4.4 million. That is the power of compound interest at its best!

Step Four: Protect your money.
Protecting your money or investments involves two principles: 1) security, and 2) wise counsel.

Security
Invest only when your principle is safe and can be reclaimed when needed.

Wise Counsel
Seek advice from individuals who have experience in making and managing profits, not from the poor or middle class who have debt.

Step Five: Own your home.
Be smart about the type of mortgage you take out. The most common type of mortgage in America is 30-years. The most common income group in America is the middle class.

When you own your home, your cost of living will be reduced and the ability to purchase "things" or invest increases.

Step Six: Leave a legacy.
It is of great importance for you to prepare for the future. What will you leave behind when you pass? There are two important things to remember: 1) have a will, and 2) have life insurance. Recommendation: Purchase a term-life policy that equals ten times your income.

Beware of whole/universal life policies. These benefit your financial planner and are not guaranteed to cash out when you die. Your family will be left with nothing. The allure is the "cash-savings", but, you already have a proper investment strategy and savings so you don't need it.

Step Seven: Better yourself.
There are four principles inherent with this last step:
1) pay your debts promptly and don't buy things you can't afford,
2) take care of your family,
3) leave a legacy, and
4) give to charity, organizations and churches, or volunteer.