What's Missing in Your Education: The Fourth “R”: Financial Returns
Posted: Monday, November 07, 2011
by Jeff Brown
Inner Projection
This is an outtake from my book Education: A Waste of Time? 7 Critical Elements Needed to Fill Key Gaps in Your Education That Waste 10 to 15 Years and 100s of Thousands of Dollars
Chapter Two: The Fourth “R” Beyond Reading, Writing, Arithmetic: Financial Returns
What Exactly Is Savings?
The federal Bureau of Economic Analysis, or BEA, states that savings is "disposable personal income less personal outlays" or, more specifically, add up after-tax income and subtract expenses. If you do this for everyone in the U.S., the amount leftover is the national savings rate.
The BEA states that the national annual savings rate “fell in 2005 to its lowest point since the Great Depression: negative 0.4 percent. Since then, it has continued to fall, registering at negative 1.6 percent in May 2006 and negative 1.5 percent in June. Compare those numbers with 1985 when the national savings rate hit a record 11.1 percent and it is clear why economists are raising the warning flag” (Bankrate.com ).
And of course with what has happened in 2007, 2008 one is lucky to have a savings. The brother of a friend of mine had been setting aside 35K for five years and had half a million put away. He was supposed to be set for life. But his promoter used a Ponzi scheme and my friend’s brother will be lucky to get back a penny on the dollar. Another reason to be alert, self-accountable and learn how to use the SDP System for greater insight and understanding.
But some people like Robert Kiyosaki feel that people get too caught up in saving or getting little return for their money and that they need to invest. Others have believed the same. We will shortly talk more about how you can get better returns on your money than those from standard savings. Experienced investors say it’s not safe to play it safe (or the way most do in allegedly safe 401k’s, CDs, etc.) and that only by taking slightly more risky or non-standard investments will one have enough to put them through retirement.
The real problem lies in the economy. What with a marked rise in the cost of living, an alarming increase in divorce creating the need for dual-household income, outsourcing, multinationals that are richer than most countries creating CEOs that earn 1500% more than their generational predecessors, and so on. It's just gotten downright ugly.
It used to be that with one job you could buy a house, a couple cars, and provide the essentials for your family. Now with both parents working in 70% of U.S. homes, it still doesn't provide financial security. Like the get-a-college-degree-job-security myth that many still feed in to, even with both parents working the safety-in-numbers myth provides little security as well.
Why?
Consider this, the top three reasons why there are over two million foreclosures in the U.S. are divorce, job loss, and illness. Regardless that it was a 40-year low in interest rates that got most there, outside of this there lies another, more deep-seeded problem. One income cannot do it anymore. Even two are struggling to get by. Here's a sobering report from Elizabeth Warren, author of "The Middle Class on the Precipice" (Harvard Magazine, Jan. / Feb 2006).
"By 2004, the family budget looks very different. As noted earlier, although a man is making nearly $800 less than his counterpart a generation ago, his wife's paycheck brings the family to a combined income that is $73,770-a 75 percent increase. But higher expenses have more than eroded that apparent financial advantage. Their annual mortgage payments are more than $10,500. If they have a child in elementary school who goes to daycare after school and in the summers, the family will spend $5,660. If their second child is a preschooler, the cost is even higher-$6,920 a year. With both people in the workforce, the family spends more than $8,000 a year on its two vehicles. Health insurance costs the family $1,970, and taxes now take 30 percent [total tax, including income tax, about 40 to 50%] of its money.
The bottom line: today's median-earning, median-spending middle-class family sends two people into the workforce, but at the end of the day they have about $1,500 less for discretionary spending than their one-income counterparts of a generation ago."
More and more middle-class citizens are falling into the lower class, many by way of foreclosure. I was watching the news last night with my wife at a friend's house. A man and woman had just lost their home and were sitting outside their new trailer home with transplanted lawn jockey, pots, and planters. Through tearing sobs, the man explained how disheartening it was to work so hard for a dream only to see it lost with little chance of recovery.
What is the solution? Well, instead of going to a job factory (university / college) to learn a craft or skill only to end up working for the government (40 to 50% taken in taxes), banks (student loan, car loan, furniture loan, etc.), and credit card companies (average American owes $10,000) students should be learning about finances, more specifically, certainly investment vehicles, but more importantly how to own a business.
Time and time and time again, I have gone to wealth seminars and heard former mortgage brokers, insurance agents, Kentucky Fried Chicken managers, teachers, the homeless (sometime the same--I know!), talk about dire times, skimming for nickels and dimes in the change jar to pay for groceries.
Personally, after I graduated from college with my advanced degree and began teaching college, my wife and I didn’t have much money. And over the years as a highly educated college instructor, the money didn’t improve all that much. However, at the beginning it was really bad. There were times when my wife and I had to collect bottles and cans to have enough money for any given month. Yes, education is certainly not the end-al and the cure-all people think it its. Many of my students had no clue either. When I told one of my bottles and cans story, he told me that he thought professors make good money. Well, they do, relatively. Most make better than close to 70% of the public, but that’s not saying much. Even if you make $100,000 you’re doing better than 90% but that money level of money barely afford you to live comfortably never mind to live a luxurious life style.
But what and or who are we to rely on? It is a sad state of affairs, and some, like Hillary Clinton, feel that the government needs to do something about it. Well, if you know how the government moves, I'm not waiting. So what do we do?
Instead of thinking in outmoded terms of working for a company for life, one which tells you when to come, when to go, how much you are worth, and whether or not you'll be working; instead of never even seeing 45% of your income; instead of being caught in the education matrix; instead of relying on the pain of scrimp and save to no safe solution; the only alternative is to let your money and the government work for you. Here's how.
Consider the following trend. Most micro-business (small business) owners represent:
99% of all employers
50% of all employees
44% of all payroll dollars
70% of all net new jobs
Today, one out of six people that you meet are taking matters into their own hands and have joined the ranks of the "better-off," if not secure.
If you want to get your taxes down to single digits, start a business. It can even be a part-time online business selling knitting techniques. Really! The tax write offs alone are worth it. Here are a few examples:
Home Office Deduction: You no longer have a non-deductible commute. All of your mileage is now business related.
Pay your child up to $5000 to help you run your business and pay no taxes (fica, fed., state) and get$2500 back from Uncle Sam.
Convert other medical expenses from itemized deductions to business expenses. Convert limited health insurance deductions into fully deductible business expenses. You save not only on federal income taxes but reduce self-employment taxes as well. Save up to 45% by deducting payments that you are already making.
For retirement, up to $45,000 / year can be deferred. Invest in your future and the IRS will reward you with lower taxes.
Why let your Bad Uncle take your money when your Good Uncle is only a business idea away?
How else can you win the money game? Real estate. The government wants you to do two things: start a business to create jobs and feed the economy and to provide affordable housing. And you don't have to be "The Don" when it comes to real estate. But keep in mind that 7 out of 10 millionaires own real estate. It's the safest and most profitable way to make passive or leveraged income. And by the way, the government is dying to give away money, provide the down payment, even forgive loans (yes, there are forgivable loans that don't have to be paid back; hell, they're forgiven!).
Need a home? Here's a possibility. Try the 203 (b). It's the purchase of a four-plex, where you move in to manage for a year before selling or keeping as an investment. And the good part? You live for free as you build equity.
Bottom line, the government wants you to help out, and if you do, they'll help you, in a big way. There's many ways of getting ahead. The limit is only in your ability to imagine. Beginning with a degree is essential, for the experience, focus and discipline gained as well as the accomplishment are lessons that often go beyond the mere course-work knowledge. And after some years in the workforce you will begin to get a feel for where you want to be, but don’t limit yourself to only working as an employee. Keep your options open.
So even though there's a lot of bad news out there (foreclosures, job loss, cost of living increase, market collapse), if you keep your eyes open there's always a way out. With a little shift in thinking, a willingness to change, you can not only get to the top but rise higher than most and stay there.
Need More to Get You Motivated For Greater Financial Independence?
Here's the sad truth about your retirement. (I know you’re young now, but many, way too many, waited until it was too late to invest or think about their future. The statistics of those retiring unprepared is frightening. Don’t be a part of the frightened. Be prepared! )
If you pared down the current population of those retiring at 65 to 100 people, this is what it would look like: 26 dead, 51 relying on the government for more than 50% of their retirement money, 17 relying on family for the majority of the money, 6 are financially independent.
Upon retirement, where will you be?
Hopefully, alive. If you are, and you have great trust in the government or the wealth of your family, then you aren't too worried.
Your family I don't know about, but if you have great trust in the government, you'd better think again. Consider the following.
"Social Security provides only a portion of . . . income needed for retirement," and that portion is getting smaller and smaller. With baby boomers--the largest segment of society--beginning to retire, many are concerned"that the government [will] not be able to pay all of its Social Security obligations without either reducing benefits or raising payroll taxes." (adapted from Outline of the U.S. Economy (Conte & Carr) by the U.S. Department of State)
What they don't tell you in the article is how big a portion Social Security provides for retirement. It's not a significant amount. Along with the possibility that little money will be left for the baby boomers, the retirement picture is not a rosy one.
But as we know, you're not a worrier. After all, you've got your pension.
Well, think again.
"Many employers . . . stopped offering traditional ‘defined benefit' plans, which provide guaranteed monthly payments to retirees based on years of service and salary. Instead, employers increasingly offer ‘defined contribution' plans . . . where the employer is not responsible for how pension money is invested and does not guarantee a certain benefit. Instead, employees control their own pension savings . . . The amount of money available to employees upon retirement, then, depends on how much has been contributed and how successfully the employees invest their own the funds." (from Outline of the U.S. Economy (Conte & Carr), adapted by the U.S. Department of State)
From 1965 to 1997 the number of "defined benefit" plans dropped from 170,000 to only 53,000. And another point to consider is that the government only "encourages" companies to back pension plans, mostly through generous tax breaks.
But let's cut to the chase, there's a lot of unfunded and mismanaged public and government pensions: "Like many of the remaining traditional defined-benefit pension plans in the private sector, government pension plans are swimming in red ink" (Adam B. Summers, and George Passantino, The Gathering Pension Storm: How Government Pension Plans are Breaking the Bank and Strategies for Reform).
What's the bottom line?
More Than Ever, YOU Are Responsible for Your Financial Future.
Personally, I have been told by friends and acquaintances time and again that they’ve lost their pensions, retirement money, investments, or didn’t do enough to prepare for retirement and will have to work, ask their family for money, go to the government or seek money elsewhere. This is a sad state of affairs but a reality that happens all too often. And my experience is similar to the statistics stated in this chapter.
And please, don’t think that just because you’re young and not even close to retirement that you don’t have to worry about anything now. Now is the time to do something and to do a lot of something. The information offered here and on InnerProjection’s website is critical and essential and will save you a lot of aggravation at a time in your life when you’re looking toward relaxation not more stress.
So what do you do? Where do you go?
Some say all you have to do is find a 401(k) or a 403(b), an IRA or CD and park your money at a low yield average of 5%. Is this a good option? What about inflation and other factors? How much money will you need to retire on when you reach 65 in 15, 20, 30, 40 years? Let's find out.
If you are 50 years old today, you will need over $1,000,000 for retirement.
40 years old? $1,500,000.
30 years old? $2,000,000.
20 years old? $2,500,000.
OK, let's say you're 35 years old today, and you have a couple of CDs that you opened up five years ago with $500 at an interest rate of 6.5% What will you have in 30 years for your retirement? You'll have about $130,000. Well, you'll still need an additional $1,870,000. So you've got some work cut out for you in finding additional retirement vehicles.
You get the picture.
What Do you Do? Let's Take a Look at Some Retirement Vehicles.
Choice 1: Invest $20,000 in a mutual fund that earns 5 percent a year. After seven years, your $20,000 should have grown to $28,142, assuming no market fluctuations.
Choice 2: Invest $20,000 and borrow $180,000 from the bank for a $200,000 rental property, and let your equity compound. Assume rental income only breaks even with expenses and the property appreciates at a rate of 5 percent a year. After seven years, the property will be worth $281,000 and your equity (the $281,000 minus what you still owe the bank) is $101, 420, assuming no market fluctuations.
Choice 3: Invest $20, 000 and borrow $180,000 from the bank for a $200,000 rental property. Rather than letting the equity compound, you borrow out the appreciation ever two years and invest it in a new property at 10 percent down. After seven years, your four properties will be worth $2,022,218 and your net equity will be $273,198, assuming no market fluctuations.
Net Equity After Seven Years Average Annual Return
Choice 1: $28,142 5.8%
Choice 2: $101,420 58.2%
Choice 3: $273,198 180.9%
(from Rich Dad's Real Estate Advantages: Tax and Legal Secrets of Successful Real Estate Investors; Sharon L. Lechter, C.P.A & Garrett Sutton, Esq.)
In these super inflated, high cost of living, disappearing pension, unstable times, our choices are limited. You actually only have two: #2 or #3. Real estate is the only safe vehicle to retirement. Job security, including the pension, is a myth. Considering the economy, downsizing, outsourcing, the shrinking of the middle class (mostly going into the lower class), there are few alternatives. Even with dual-income households, it's not enough. But there is an alternative.
According to Larry Loftis, Esq., author of Investing in Duplexes, Triplexes, & Quads: The Fastest and Safest Way to Real Estate Wealth, "With its advantages of cash flow, appreciation, tax benefits, equity buildup, and leveraging, real estate may be the only vehicle that can carry the average person to retirement wealth" (back cover blurb).
For those opposed to wealth or who have no desire to be wealthy, I think we need to look at the definition of wealth before we move on. There's the dictionary definition, but it's rather vague, an indicator that wealth is somewhat of a relative term. For example, my son thought I was wealthy when the last year I had a salary it was $84,000. Based on that dollar figure he thought I was Daddy Warbucks. Considering cost of living, such a salary alone will not put you on easy street.
Let's look at another definition of wealth. Rich Dad's philosophy is defined by how long one can live on savings and passive income before going broke. If at any time, you are able to stop working and live comfortably through retirement, then you are wealthy. This is the definition of wealth I'm using here.
Why is knowing what wealth means important?
Keeping Rich Dad's definition of wealth in mind, read on.
Time and time and time again, I've heard stories of hard working, well-educated people losing their jobs late in their careers and / or lose or have their pensions limited.
My father, an Ivy League educated mechanical engineer, lost a good portion of his pension because of the Cold War coming to an end limiting the number of defense contracts and need for engineers. He got some of it back, but at the age of 76, he's working two part time jobs to make ends meet.
This is the problem of a “job” (just over broke) being able to provide for the American Dream. Maybe it used to, but today it can’t. This is a new day. But even in the old day one had to scrimp and save for a house, a vacation, college savings for the kids, retirement. Would you rather continue that mentality of limitation or a new one of abundance where you know there is money out there, plenty of it, and you have the right and privilege to it. All you need to do is adjust your thinking. So much of life is about adjusting your thinking.
The great motivational thinker Earl Nightingale told his listeners and readers, if you see the majority of people doing something, just do something else. His idea being that if so many people are doing something after a while it’s not going to work. Do something else. And just because it’s popular doesn’t mean it’s the right thing, either. Slavery and the oppression of women were popular one time in the U.S. I rest my case. This is an issue I speak to often in this book; the number of matrices we get caught up in that are full of lies. But let’s move on.
I know of a man who worked as a journalist who lost his job at the age of 50. The reason? His company was laying off people who had reached the age of 50.
Recently, I was at a wealth seminar when a man from the audience mentioned he had just lost his job, and because of his age and financial situation, he had to find an "alternative" way to make money. It was too late for him to begin another career. These things are happening more frequently and more often, a key reason to read this book, know the material and acquired mindset needed in this new global job market. Let’s get back to the point.
Not that your goal needs to entail quitting your job to become a real estate mogul. No. But you do have to consider how much money you'll need now and for retirement and what is the best source to provide that income. You can still have a job and invest.
I know of a firefighter who loves his job but realized early on that he needed to take control of his financial situation. What did he do? He began investing in real estate and now owns 40 properties. He only works because he chooses to.
Investing in a tax write off situation, business or real estate has almost become a necessity. For your financial and emotional fitness, I suggest you take a serious look into what these options can do for you.
More than ever, people have to rely on themselves to make sure they have enough to live on now (regardless of what happens to their job) to retirement so that they are not a burden to family or society.
With a little bit of work and dedication, it can be done.
This Article has been viewed 318 times. (Not updated in real-time.)
Top-level comments on this article: (2 total)good jobThanks Arlene. Appreciate the 'long' read. ;o)
You got an excellent book there. Even though its an out take. It is powerful information.Thanks Chris.
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.