6 Steps to Financial Freedom

1. Increase Cashflow

1. Earn additional income
2. Manage Expenses

Manage Debt

1. Consolidate Debt
2. Strive to Eliminate Debt

Create an Emergency Fund

1. Save for at least 3 months income
2. Prepare for Emergency Expenses

Ensure Proper Protection

1. Protect against Loss of Income
2. Protect Family Assets
3. Protect against Death

Long Term Asset Accumulation

1. Outpace Inflation
2. Reduce Taxation

Preserve Your Estate

1. Reduce Estate Taxes
2. Build a Family Legacy

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World Shift

The world stands at the edge of a cataclysmic financial abyss, and no i am not talking about the current housing and liquidity crisis, i am talking of something a little further away and somewhat grayer (excuse the pun).

The financial timebomb that is the graying population of the industrialized world.

We live longer, live better, consume more and expend more. If you sit down and read the social security/ welfare document sent each year to every tax paying american, you will also see that the US welfare system is budgeting to run out of money within the next 20-30 years!

yes

thats correct, they admit their funds will have run dry and they will not be able to provide for anyone after that time without a drastic increase in taxes (probably to a scandanavian style 60%) Why is this, because the baby boomers will mature, the first of them passed 59 1/2 in 2005 and thus over the next 10-15 years there will be more people claiming social security pensions than people working and paying into the system, creating an insurmountable deficit.

What do i propose or advocate as a solution, don’t just throw stones, give solutions, provide answers that spark debate and could ultimately lead to some kind of resolution. So lets try this, Romania “i believe” recently told its populace they would not be paying for their retirement, people had to plan for it themselves! I think that the social security system is somewhat archaic and grotesquely mismanaged and rather that continue it, make everyone more that 25 years out responsible for their own retirements!!! These people must take financial responsibility and accountability now and start saving.

Several things that need to happen to help society survive;

The government find ways to become more financially efficient and stop or even reverse inflation.

reduce dependency on oil as it is a finite supply and prices will continue to rise even on the exaggeration on the speed of reduction of this decreasing supply. Like Diamonds, it isnt as scarce as prices would indicate, but neither is its supply going to last out our lifetimes!

My solution will have several consequences, many of which i think are inevitable either way, that will be interesting;

The first being that as a collective generation, those that come after the baby boomers will probably be poorer than their parents!

The second that property values will fall significantly as more housing stock is returned to the open market with less inhabitants!

Immigration will increase from countries such as China and India that will become overly populous and lower more affordable prices will draw people in. These countries will ultimately come to resemble Japan and Tokyo in terms of density and expense.

Our generation will have significantly fewer children than our parents as we will simply not be able to afford them.

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The Ultimate Gift

Every once in a while there comes a movie that embraces or harness the power of human goodness, lifts us to want for or strive for more and to do better. “Pay it Forwards” ” Forrest Gump” “Meet Joe Black” “God Grew Tired Of Us” are good examples of this inspiring genre. I was blessed to watch such a movie recently, “The Ultimate Gift” which incorporated and embodied so many values that I personally aspire to hold true.

If you haven’t seen the movie then don’t read on!

The 12 gifts are:

The Gift of Family
The Gift of Love
The Gift of Dreams
The Gift of Laughter
The Gift of Giving
The Gift of Friends
The Gift of Learning
The Gift of Work
The Gift of Money
The Gift of Problems
The Gift of Gratitude
The Gift of A Day

Take a little time and watch this movie, allow it to inspire you, don’t be afraid!

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Saving Plan

I was asked last week about how to save money in the current economic situation and where to invest.

My answers surprised them, as I am a staunch property supporter……… Don’t buy anything yet – the bottom isn’t even close, I returned to my old adage that when we see rents covering the mortgage payments and all associated costs and the property is entirely self cash flowing, buy, but until then look for some solid mutual fund performance (American/ Global Growth and Income funds, Franklin Templeton etc) but try holding them somewhere different. Inside a Variable Life Insurance Policy. Why…… Tax free growth, long term disability riders, easy borrowing and the immediate net worth it provides you will all come in handy when the housing market is full of bargains!

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Diamonds Are A Girls Best Friend – Or Are They

I regularly end up having conversations with people who oooh and ahhh over diamonds, possibly the best marketed commodity on the planet. People have connotations of rarity and value when they look at diamonds and one cannot but applaud DeBeers (the cartel that makes Microsoft’s anti competitive litigation with Netscape look like small children throwing rocks in the middle of a war zone) for having achieved this highly deceptive position within the precious stone marketplace.

Rubys are the rarest of the precious stones with Emerald and Sapphires close behind, Diamonds are actually one of the more common stones (resulting in DeBeers billion dollar vaults of stones) they have just been marketed well over the past century, to the point where one wouldn’t give a different stone for an engagement!

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Comment e-mailed to me

Regarding your marveling at DeBeers marketing, I have to marvel even more at the psychology inside the brain of the recipients of those diamonds (women). To them, especially the 20-30 somethings, the truest expression of the love of their fiance is to buy them something worth the down payment on a house that serves no useful purpose except that one can cut your way out of a phone booth with it if trapped inside….too bad their are no phone booths anymore thanks to cell phones ! Would the money for a diamond not be better spent on the beginnings of a retirement portfolio ?

Food for thought…..diamonds are the ultimate form of nature sequestering carbon…cant burn em to release their carbon content.

Credit Card Credit Crisis

It is only a few month since I was discussing the impact of credit card and consumer debt on the economy and that everyone saying American Express etc would not be impacted by the sub prime meltdown was crazy. If you aren’t paying your mortgage and are establishing bad credit , why would you pay your credit card bill. If you are going to go bankrupt as a method to protect any money you do have, why not throw the cards in it.

It is unfortunate too reflect that Greenspan’s reduction of interest rates was so extreme to recover the markets in 2001-2003 that another bubble came about. No one believed interest rate would rise ever again and they would never have to pay more interest on their principal. This short term-ism is rife throughout society and is probably one of the most significant parts of this crisis. America demands instant gratification.

Bankers looking for short term gains, their year end bonuses more critical to their lives than the long term business profitability. This is why renumeration is so important and has to be reviewed more carefully. The requirements placed on CEO’s for short term stock market gains are compounded by the fact that businesses take time to change and may not necessarily benefit from the constant demands of shareholders for faster and faster growth.

This always brings me back to the anomally that is Google. With its valuation climbing past $200bn with only $4.23bn of profit on about $10bn in revenue. The price has taken into account all possible growth for the next 5-10 years. Brin and Schmit should be selling stock like crazy and investing in someone like Microsoft with a similar company valuation but over $50bn in revenue.

Which brings us full circle, analysts are all telling you:

1) Bank stocks look cheap, buy them now!!!

I say don’t bother, they still haven’t priced in the full extent of the crash yet as no one realizes how bad it will be.

2) Credit card company stock has been adversely affected by the housing crisis and is unfairly impacted.

I think not, they are the next to topple in the house of cards. This also has a very bad knock on impact to GM and Ford who really are a credit company now more than a car manufacturer. Expect Ford to weather the storm better on strong European sales, bt neither will be doing well in the medium term.

3) Flight to gold for safety

I think not, $800 plus is unsustainable long term and whilst you might see $900-1000 in short term hysteria, long term expect somewhere around $500.

4) Oil at over $100 a barrel.

I think this is price gouging, whilst supply is not indefinite, $65-70 per barrel is a real figure. The answer is to force manufacturer’s to sell fuel efficient diesels in the US and the work on hydrogen powered cars and a distribution network that will allow them to become popular and utilitarian!

Overall expect a global depression of epic 1929 proportions, position yourself to weather a storm. Also ho0pe that Bernanke doesn’t continue with his insanity and hope that the cutting has stopped, even a 1% interest rate cannot shore up the economies current messes at some point we have to turn into the storm and ride through it, perpetually running in front of the wave means it grows larger and larger making it scarier and scarier to turn into it and get through to the balmy waters on the other side.

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The Power Of Music

One of the biggest changes that occurred during that last century was the progression of music and its impact upon society.

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Diesel Vrs Hybrid Vrs Petrol Cars – The great deception

I love to hear people talking about hybrids and buying them at many thousands of extra dollars! But do these people really understand what they are doing.

a) MPG from EPA. To calculate the fuel economy of a vehicle in the US to the best of my knowledge the EPA uses a rolling road and essentially eradicated the factors of wind resistance/ aerodynamics,
vehicle weight, tire width etc. This give highly inaccurate figures. This system is reputedly being changed during 2008 to give fuel economy figures that come in line with European and Japanese testing methods. I am certain that you will see a dramatic fall in the quoted average fuel economy of all cars, but hybrid in particular! The battery weighs a lot!!!!

b) Cost of ownership. Do you know what it costs to replace the battery on a hybrid car (if you keep you car 7-8 years then lease it don’t buy it) if you are buying a used car then it is a ticking time bomb as you could end up paying as much or more than the value of the car to replace the battery.

c) Disposing of the battery. Batteries are a combination of acids, lead and other toxic material, review a short article on what it takes to dispose of batteries and how dangerous they are and you will get the idea here.

d) Diesel. Diesel engines are not what they used to be, blutech and other technologies produce engines that have significantly lower emissions than older petrol cars and also get far better fuel economy. With fewer moving parts they are a lot cheaper to maintain and have longer service intervals (this is one of the biggest revenue centers for car manufacturers so they don’t want this)

e) California. California is seem as the progressive state, yet in this arena it is archaic, by pushing hybrids harder and harder (with access to hov (high occupancy vehicle) lane and free parking downtown they have created a boon for Toyota in particular with its prius and other hybrid manufacturers.)

f) Celebrity endorsement. Celebrities have been seen turning up to all kind of event in Prius’ to show their concern for the environment! However check the license plate and you will invariably see a LCS tag which means they hired it and don’t own it!!!!

g) Alternative. Greenland has gone hydrogen, Brazil is using biodiesel. UK uses gas. Whilst these are the technology of the future American car manufacturer and oil companies have a strangle hold on the economy and political decision makers. Don’t expect to see these technologies until oil starts to dry up, (they love gouging you at the pump.) or significant pressure is applied. Gas stations would have to carry these alternate fuels and have supply system and infrastructure in place which will involve considerable expense and therefore loss of profit to all important shareholders!

h) Electric cars. Have you seen how an electric power station generates power (baring solar etc) they spew coal or nuclear waste out to generate the electricity, I rather use the diesel thanks!!!!

So what am I saying with all this, don’t buy a Hybrid, the Europeans have it right, get yourself a state of the art diesel for the next car and save the environment and you pocket with significantly reduced expense!

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Everybody wants to be an instant millionaire these days! Here’s a fairly easy way to achieve it in far less time than you would imagine!

Everybody wants to be an instant millionaire these days! Here’s a fairly easy way to achieve it in far less time than you would imagine!

Guess what, you don’t have to be a football player, a “pop idol” or win the lottery to become a millionaire, you can just do it the old fashion way (saving).

The answer to this myth of how to get rich quick is that you can’t, everything in life requires hard work, dedication and nothing comes easily. I am fortunate enough to know many millionaires and several billionaires and every one of their overnight successes was preceded by at least 5 years of hard work and graft (and in many cases 10-20)! However you can increase your net worth and therefore directly affect your ability to create greater returns form existing investments as well as to accrue wealth faster.

How do you do this, it is very simple, if you want to become a millionaire, write a $1 million whole life insurance policy. This will require some effort on your part, nothing in life worth having is easy. If you get a borrowing/ cash value rider then you can borrow, often upto 90% of the policy cash value. The principal appreciates tax free. Once you have used up your tax free allowance into IRA and pension funds this is the next place you should look to put some money so it can at least grow tax free.

What doors will such a policy open for you and why will it increase the probability of you becoming rich!

If you go to any major banking/ investment institution they will have a varied range of financial products. Many of these offerings though are limited to high net worth individuals and accredited investors. Derivatives, Notes, Structured Products, Hedge Funds and other vehicles for generating double digit annual returns (sometimes with capital protection) are considered speculative or are only available to experienced investors with “suitable experience” to make such investment. A $1,000,000 whole life policy will provide you with access to many of these deals.

Why is the gulf between rich and poor widening?

For exactly the reasons mentioned above, the wealthier you are, not only do you have greater investable assets but you have access to better asset classes. Banks such as Merrill Lynch, UBS, Deutsche Bank regular issue complex derivative products that have double digit returns with capital protection through the utilization of options, hedging etc. A money market CD offer 5% per annum whilst a “sophisticated investor will have access to a principal protect barrier note with 210-230% the upside and 100% principal protection based upon the Deutsche Bank Currency Returns Index (Bloomberg Ticker: DBCRUSI Index). Sound complex, well it is, the brightest minds in the world are constantly trying to figure out new ways to make rich people richer and with a million dollar net worth you will have access to such products. As a result a $10,000 account can earn as much as a $43,000 Cd over a 5 years. Now do the maths and use the whole $43,000 and you will see what i am getting at! (its over 100k) The other huge factor this accumulation of wealth is compounding, were interest in accreted!

Why are the baby boomers so wealth and why will the next generation be poorer?
What happened to home equity and property value as Americas saving method for retirement?

This is a fascinating question and the answers are inextricably linked. During the 50-70’s people were encouraged to adopt the American dream and buy their own home. At the time people were paying capital and interest so with every payment they reduced the principal owed on the house and built their equity value. The property appreciated as it almost does over any 25 year period and the home owner was left with what had essentially been a tax deductible savings account containing a considerable and valuable asset.

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50 Basis Points

With the fed cutting 50 basis points today we have to wonder what the long term effects will be.

1. The dollar has taken a quick response and devalued further.
2. Gold is rising in value letting everyone know that the dollar is getting worth less daily. It seems only yesterday that gold sat at $350 instead of the mid to high 700’s.
3. Countrywide may survive too by slight of hand and balance sheet

Does this mean the real estate problems are resolved? Not at all, now they will get dragged out for longer with no true bottom of the market in sight, everyone will still be shy of CMO’s, ABS’s etc so lending will be lax, but interest rates will be lower for those that can refinance. All the subprime borrowers will still not be able to obtain their refinance. Therefore we should still enter a recession, just a few months later!

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