1. History of Economic Failure

Image by Byzantine K

If you have ever studied American history one thing is perfectly clear.  Most economic problems for the past two hundred years were caused by banks and speculators.  From the bank panics of the 1800s to the Great Depression, banks have contributed to economic hardship for millions of hard-working Americans.  After the great depression, sound banking reforms, such as the Glass-Steagall Act, ensured economic stability and prosperity for over 70 years.  Unfortunately, these reforms were quietly gutted in a bi-partisan effort, which lead to the financial collapse of 2008.  Some of these reforms were restored under the Dodd-Frank law of 2010.  But, they haven’t been fully implemented and regulated.  Banks are still ignoring and undermining these reforms, which means we are all still at risk for future economic problems.

2. JP Morgan Chase Lost $2 Billion

Just in case you haven’t seen the financial news lately, JP Morgan Chase bank may have lost 2 billion dollars on some extremely complex hedges.  It’s unclear even to management and regulators how much money was lost or how they lost it.  But, it has something to do with credit default swaps.  If you don’t know what a credit default swap is, it’s the financial instrument that caused AIG to lose $100 billion dollars during the financial crisis of 2008.  Of course, the taxpayers of America were kind enough to bail out AIG and Goldman Sachs for 100% of every dollar they lost.  The funny thing is that Jamie Dimon, the CEO of JP Morgan Chase, has been railing against all of the new “unnecessary” banking regulations at the same time his bank was hedging with these dangerous derivatives.

3. U.S. has Exposure in Europe

There is a reason the U.S. stock market tumbles every time bad news comes out of Europe.  Investment banks and hedge funds know the U.S. has huge exposure to the banks and currencies in Europe, while most taxpayers have no idea.  The Fed and Treasury both recently testified the European crisis was “contained”, but this is similar to the statements they released about investment banks, right before Bear Stearns went bankrupt.  During the financial crisis of 2008, the Fed lent $16 trillion in emergency funds, $3 trillion of which went to foreign banks.  Since the Fed has no transparency, Americans have no idea what type of monetary guarantees or exposure we have to European nations and currencies.  EU nations can’t be kicked out of the union for being reckless and insolvent.  That equals a blank check and the debtor nations have figured this out.  If Spain, Italy, Portugal and Ireland follow Greece into insolvency, America could be drug down with the EU.

4. Derivatives are too Risky

There are some legitimate business reasons to sell commodity futures.  There are legitimate reasons to hedge positions.   But many of the new derivatives and instruments are so complex and dangerous, they should be made illegal.  And, they should only be traded on regulated exchanges, never over-the-counter in private.  The continuous fallout from credit default swaps, Collateralized Debt Objects (CDOs) and synthetic CDOs highlight the need shut down the gambling by financial institutions.  These instruments are so complex it often takes months to figure out how much was lost and where the money went.  The risk is way too high and their business purpose is dubious.

5. Extreme Leverage is Legal

Back when I took economics in college, I was taught banks could lend $10 for every $1 in deposits.  Now, because of over-the-counter derivatives and other synthetic instruments, it’s obvious banks, hedge funds and other financial institutions are using much higher leverage to maximize profits.  One example is the recent collapse of MF Global, where $1.6 billion of its customer’s deposits went missing.  Estimates of MF Global’s leverage ratio were around 40:1 at the time of their bankruptcy.  According to Forbes, their leverage ratio was 80:1 back in 2007.  This much risk and leverage should be illegal.

6. The Fed is Unaccountable

Most Americans believe the Federal Reserve is a government agency, accountable to Congress and the President.  This is not true whatsoever.  The Federal Reserve is an independent central bank, who is mostly accountable to member banks.  Although they testify regularly in front of Congress, they are self-funded and virtually unaccountable to voters or the government.  They have become increasingly secretive and uncooperative, while trillions of treasury dollars flow around the world.

7. Money is Practically Free

Another thing I learned in college Economics is that banks never wanted to borrow at the Discount Window of the Fed, because they didn’t want anyone to know they were having liquidity problems.  Since the Fed no longer discloses who is borrowing money or how much they are borrowing, it’s a virtually unlimited source of money for banks.  Many of these are foreign banks who are borrowing our money at near zero interests rates.  Yet, taxpayers don’t seem to have the right to know who our money is being lent to.

8. Too Big to Obey the Law

Big banks have vigorously resisted consumer and financial reforms, before and after they were passed.  They stifled loan modifications and used robo-signers to illegally foreclose on homeowners.  They re-ordered transactions in order to collect billions in overdraft fees from customers.  Basically, they act as though the law doesn’t apply to them.  Who can blame them, since they rarely receive anything more than a slap on the wrist.  Until bank executives are sent to jail for breaking the law, they will continue to do it.

9. Lobbying is Unlimited

Ever since the Supreme Court struck down campaign finance limits as a violation of free speech, the amount of special interest money going to candidates has exploded.  The overwhelming majority of contributions from the banks are going to Mitt Romney.  They are upset with President Obama for his banking reforms and hope to have most of them overturned after the next election.  Until reasonable reforms and limits are placed on campaign finance, voters will never have a voice that equals the deep-pockets of special interests.

10. Bailouts are Inevitable

For all of the tough talk coming from politicians in an election year, there is virtually no chance they won’t support the banking agenda in times of a crisis.  Most of the key political posts in the Fed and Treasury are held by bankers, with strong ties to the banking community.  Congress and the President will likely fold again, under the pressure of a financial collapse.  The only way to avoid future bailouts is to establish solid regulations that keep banks from taking extreme risks.

The Bottom Line

The bottom line is that banks can’t be trusted to regulate themselves and there are no free market forces to contain them.  Bankers and traders receive massive bonuses for taking extreme risks, which are borne by the depositors and taxpayers.

As the nation’s central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

Source: FederalReserve.gov

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Who Wants to be a Billionaire?

Image by Shine 2010

With all of the Facebook IPO fever, it seems like everyone wants to become the next billionaire.  For me, that is probably my worst nightmare.  I can’t think of anything more stressful than managing a huge financial empire.  Sure, I could do a lot of good in the world with that kind of money, but it would come with a lot of personal sacrifices.  I can’t imagine needing private security or consulting with lawyers regularly.  I can’t imagine everyone wanting something from me.  I would much rather fly coach, live in a modest house and own my life.

I bought lottery tickets with a group of people from work and I found myself hoping we didn’t win.  I know that sounds ridiculous, but that’s how I felt.  Instead of envisioning all of the things I could buy, I started thinking about the media attention and people hounding me.  It seemed like more of a problem than a solution.  I was glad when someone else finally won.

Truths about Money

Money doesn’t always buy happiness and it can bring misery.

As I was writing this post, I heard the tragic news of the apparent suicide of Junior Seau.  It’s too early to speculate whether money problems contributed to his death, but money problems and divorce seem to plague most professional athletes.  I remember an interview with Junior many years ago when he spoke about how simple life was when he had little money and drove a Pinto.  After becoming successful, he had to worry about his Mercedes getting scratched or stolen.  Money can be a blessing and a curse.

No matter how much money some people have, it’s never enough.

One thing I can’t understand about athletes, entertainers, bankers and executives is why they never seem satisfied with their incredibly high incomes.  There always seems to be a squabble over the number.  Players hold out for an extra million, when they are already making ten.  CEOs make more getting fired than ten workers make in their lifetimes.  Is it all about ego at some point?  Or, do they really feel they need the money?  True happiness doesn’t come from a massive paycheck.

Money doesn’t always bring the security people think it will.

One of the things that drive people to accumulate wealth is to provide financial security.  In the awesome book The Millionaire Next Door, one of the things discovered that drives successful people is the search for security.  The odd thing is that security never becomes assured when someone reaches a certain level of wealth or income.  In fact, the leveraged nature of some investments and the uncertainty of business can increase the risk.  Peace of mind comes from enjoying our lives.  That doesn’t come with a dollar figure.

The Stealth Millionaire

My dream is to become a stealth millionaire.  I want to walk around in flip-flops like many of the other millionaires in my town and concern myself with health, happiness, experiences and relationships.  The less I have to think and worry about money the happier I will be.  I would like to have enough money to fund my life, without controlling it.  What’s the sense of rising above the drudgery of employment only to be consumed by managing wealth?  True happiness comes from being content with what we have.

The Bottom Line

The bottom line is that everyone has their own dreams and goals when it comes to money.  Those dreams may or may not conflict with reality.  Be careful what you wish for and consider yourself fortunate.

“Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.”

Warren Buffett – American Billionaire

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Getting the Maximum Refund

Image by QRRTY

One thing I had always suspected was that I wasn’t getting the maximum refund when I did my own taxes.  That was confirmed this year when I got a much bigger refund than last year.  So, I had my 2010 taxes reviewed by the Second Look program and I will probably get more back.  Even though it cost quite a bit to have my taxes done, I was losing considerably more money by trying to do it myself.

The biggest mistake I was making was by taking the personal deduction, instead of itemizing.  I didn’t think I had enough deductions to itemize, but the H&R Block agent showed me a number of items I didn’t realize were deductible.  This boosted my refund quite a bit and made me realize how much money I had lost.  I own a house, have investments and a family, so it’s a lot of work to do my taxes.  There are a lot of schedules and forms and it’s easy to mess up.  I should have gone to a professional years ago.

Taxes are Way Too Complex

I’m a pretty sharp guy and was the top student in my college Algebra class.  I program computers all day and solve dozens of difficult problems in a typical week.  But, I made a couple of errors on my past taxes that created problems for me with the IRS.  Luckily, I didn’t owe them any money, but I had to fill out extra forms to straighten things out.  I am so glad I had my taxes done this year, to reduce the chances of errors.  The last thing I need is to waste time dealing with the IRS.

The IRS is Antiquated

The IRS should create an online tax filing website, like most of the sates have.  Instead, they have fill-in PDF forms, which are difficult to follow and easy to make mistakes.  If they weren’t stuck in the stone ages with their technology, it would be easier for individuals to do their own taxes.  I honestly think they are keeping accountants, tax preparers and the post office in business.  The IRS spent billions of dollars trying to upgrade their computer systems a while back, but that was a colossal failure.  They have no incentive to modernize or make things easier for taxpayers.

The Bottom Line

The bottom line is that there are some things you should have done and some things you should do yourself.  If you are spending too much time with taxes and you aren’t getting the maximum refund, you should have your taxes done by a professional.

“The taxpayer – that’s someone who works for the federal government but doesn’t have to take the civil service examination.”

Ronald Reagan – 40th President of the United States

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We’re Getting Ripped Off

Image by Kevin Dooley

I read an article last week that estimated 15% of gas prices are caused purely by speculators.  So, even though domestic use of gasoline in this country is down from 2008, oil prices aren’t.  Investment banks and hedge funds are bidding up the prices and taking a tidy profit, even though they have no use for the oil futures.  Oil companies are making record profits based on the speculation, so they are happy with the scam.  Don’t expect them to give up any of this money anytime soon.

Another way we are getting ripped off is by retail control of pricing.  Oil companies are quietly forcing out independent filling station owners and running the stations themselves.  This allows them to set the retail prices, which is why gasoline prices remain high even after oil drops.  Plus, they have consolidated the number of refineries, which gives them control of the supply of gasoline.

The government is a big part of the problem.  Not only do they need the tax revenue from energy, they have misguided energy policies that hurt consumers.  President Bush was an oil man and everything his administration did benefited the oil companies.  President Obama is for alternative energy and his administration believes high gas prices will move consumers away from oil.  Either way, they are picking winners and losers.  We are the losers.

What about Peak Oil?

There are some estimates that Peak Oil (the maximum amount that can be produced per year) may come as soon as 2015.  I don’t know if this date is accurate and to be quite honest nobody really knows when peak oil will hit.  But, there are major production drops in some of the world’s largest oilfields, including those in Mexico and Iran.  The major oilfields in Kuwait and Saudi Arabia have been pumping for over 60 years, so they will likely run dry, just as they did in Texas.  This could be offset by oil shale and deep-water reserves, but this oil is much more expensive to produce.

Peak oil doesn’t mean the world’s oil fields will suddenly run dry creating a panic, but it does mean oil will start to get very expensive.  With a lot of the world rapidly developing, high demand for oil could come at the same time as dwindling supply.  In 10-20 years, long-distance commuting by car may become too expensive for the average worker.  This could shift populations away from suburbs and bedroom communities, back to urban centers.

Combustion will Become Obsolete

It’s probably impossible for most Americans to imagine life without gasoline, but that’s where we are headed.  In my opinion, we are at the end of the era of burning things for energy.  Combustion is simply too toxic and inefficient.  Just as electric light bulbs made oil lamps obsolete, electric cars will one day make gasoline cars obsolete.  Once the cost, range and technology improve, more and more people will choose plug-in vehicles.  Future combustion cars will mostly be hybrids or extended range EVs.  Even diesel trucks will become hybrids, just like locomotives.

It won’t happen overnight, but it will definitely happen.  It has to.  There is simply no possible way for billions of people around the world to all drive combustion automobiles.  Not only would the environment suffer intolerably, there simply won’t be enough oil for everyone.  Developing nations aren’t going to allow us to consume most of the world’s oil, as we have in the past.  Something definitely has to change and I believe it will be the combustion vehicles.

The Bottom Line

The bottom line is that it takes a courageous mind to predict and embrace the future.  The majority will resist change until it is forced upon them.  The good news is that the future looks bright when it comes to energy and automobiles.

“Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe.”

Steven Chu – U.S. Energy Secretary

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My Million Dollar Dream

Image by Eperales

I’ve had a written goal to become a millionaire since 1992.  That was 20 years ago and I’m still a long way off.  But, I have made a lot of progress.  At my current rate of savings and return, I estimate I will have around $1.6 million saved for retirement in 20 years.  Of course, $1.6 million will only be worth around $888 thousand of today’s dollars in 2032.  But, it’s close enough to a million to make me happy and I should be able to live on it.

One important factor in reaching my million dollar retirement goal is that I must get at least a 4% average annual return from my investments.  It will take a 7.2% return to reach the projected $1.6 million.  If I average 2% return for the next 20 years, I would only end up with $817 thousand dollars.  That’s still nothing to sneeze at, but it’s shy of a million, especially after inflation.  This is why I invest primarily in stocks and mutual funds, to obtain the higher yield.

Check Out: Why I Invest in Mutual Funds

It’s Within Your Reach

I believe one of the biggest reasons there aren’t more millionaires is because most people think it’s impossible.  Whenever I talk to people about saving and investing, they don’t think they could save up a million dollars.  In their mind, millionaires are high income people and that leaves them out.  They don’t realize how much money grows over a long period of time at a decent rate of return.  They don’t realize how little money it takes with the right savings plan.

Monthly Savings Required to Become a Millionare

Source: TimeValue.com

Start Saving Now

The single most important thing anyone can do for their financial future is to start saving as soon as they start working.  Even saving a very small amount from each paycheck in your 20s makes a huge difference over the course of a career.  Waiting just five or ten years could mean you will have to save twice as much to accumulate the same amount.  I began saving and investing when I was 21 years old, even though it was just $25 per month to start.  If I had of waited until I could afford to save, I wouldn’t have my house or my million dollar dream.

Don’t despair if you are getting up there in years and haven’t started saving yet.  It’s way better to retire with a couple thousand dollars than to retire broke.  Plus, when you get in the habit of saving, you are living on less than you earn.  That means you will be able to live on a lower income more comfortably in retirement.  There really is no excuse to not save at least some portion of your income, whether you aspire to be a millionaire or not.

Be an Owner, Not a Loaner

It’s easy to see how some people become millionaires on a modest income.  They own businesses, properties and equity investments.  They are rarely the people who work for a paycheck and then put some away in a savings account.  You can become a millionaire that way, but it’s a long and drawn out process.  It’s much more profitable to own equity investments, than to loan your money to a bank and let them make all of the profit.  Owning stocks and real estate come with some big risks.  But, they also offer greater rewards.  People need those higher yields from equities to power their portfolio over the million mark.

CDs, savings accounts and treasury bonds are yielding less than the current rate of inflation right now.  It’s what I call a guaranteed money loser.  Even though they yield a small profit, you would be losing purchasing power, every month.  These kinds of investments are fine for preserving capital, but they aren’t suitable for accumulating wealth.  Unless you are nearing retirement or will need the money within a few years, being too conservative with your investments can cost you a lot of money.

It’s very difficult to save up a million dollars in TIPS, CDs or savings accounts.

The Bottom Line

The bottom line is that it’s not that hard to save up a million dollars.  In fact, that’s how most people become millionaires.  The people who run into millions rarely hang onto it.  Have faith; see yourself as a millionaire and you will likely become one.

“The amount of money you have has got nothing to do with what you earn.  People earning a million dollars a year can have no money and people earning $35,000 a year can be quite well off.  It’s not what you earn, it’s what you spend.”

Paul Clitheroe – Australian Financial Analyst

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What does this all of this mean for investors?

Happy Days are Here Again

Image by Jason Rogers

For millions of people who remained invested during the 2008 crash, this means our investments are finally back near where they should be.  Sure, we have lost four years, but at least the value has returned to our portfolios.  In my case, I kept investing the entire time, so I dollar-cost-averaged my way to a tidy little profit.  It’s also a little vindication for having faith in the market while others were bailing out with huge losses.  It was hard for me to even watch the news in those days.

There is Nowhere Else to Go

One important factor propping up the stock market is the lack of other investment opportunities.  Deposit investments, such as CDs and Money Markets, often yield below the rate of inflation.  Treasuries and other bonds are so low, they could devalue significantly when interest rates rise.  Gold and other precious metals are very high by historical standards.  Right now, stocks are one of the best bets for investors looking for returns.  This has a lot of income investors chasing dividend stocks.

Is the Bubble about to Burst?

Although investors seem to be getting nervous at these higher levels, the market is in pretty good shape.  Unlike the bubble markets before 2000 and 2008, stocks have reasonable values based on their earnings.  The P/E ratio of the S&P composite is right now around 21%, compared to the historical average of around 15.  So, it’s little higher than normal, but nowhere near the P/E bubble territory above 44 in 2000.  If earnings keep growing at their current rate, the stock prices will be justified.  If not, you can count on a correction.  But, there is no bubble waiting to pop.

The Bottom Line

The bottom line is that you need a plan and some discipline to invest in the stock market.  If you can’t hold tight when your portfolio drops 20% you should probably leave your money safely in the bank.

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

George Soros – Billionaire Investor

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1. Theft is Common

Courtesy of Santa Monica P.D.

Daniel Becerril II was arrested last week as a suspect in the stabbing death of Alexander Merman, a Santa Monica elementary school teacher.  While investigating the homicide, which occurred in 2008, police discovered the financial advisor owed Mr. Merman a quarter million dollars.  They also discovered $300,000 was missing from Merman’s accounts and deposited into accounts belonging to Becerril and his firm.  There are dozens of other victims in this case and potentially millions in fraud, including a lady who was evicted from her own house, after it was illegally resold by Becerril and his associates.

Although they rarely lead to murder, theft of customer deposits by financial firms happens way too often.  In my opinion, customer deposits should be guaranteed by regulators, just as they are in banks.  But, they aren’t.  FINRA (Financial Industry Regulatory Authority) has a stated mission of Investor Protection and Market Integrity.  They have regulations against improper use of customers’ securities or funds.  But, they don’t require their members to be bonded or audited.  Customers who are defrauded rarely recover their deposits.

Never count on the integrity of a money manager.

2. Disclosure is Opaque

Allen Stanford was convicted of fraud Tuesday in a $7 Billion Ponzi scheme.  Most of Stanford’s depositors haven’t received any of their investments back.  There is some money in offshore accounts that may be recovered.  But, most of the money was spent on Stanford’s lavish lifestyle.  It’s amazing how he was able to convince depositors for so long that their money was safely invested, while he was using their deposits like a personal ATM.  It helps to have your own bank in Antigua.  It also helps to print up your own fake statements.  I’m sure they were filled with colorful charts and projections.

Even when firms report deposits and earnings accurately, the disclosure requirements are often inadequate.  Hedge funds and private equity firms have just recently been required to report to depositors by the recent Dodd-Frank law.  The SEC quickly relaxed those requirements so that medium-sized funds only have to report annually and small firms aren’t required to report at all.  These requirements don’t take effect until March 30, 2012, so existing investors have been in the dark.

Never trust reports or statements, unless they are audited.

3. Oversight is Lacking

MF Global plans bonuses for three of the executives who ran the company during its collapse.  The former chief executive Jon Corzine hasn’t been charged despite the fact that $1.6 Billion was improperly removed from customer’s accounts prior to the bankruptcy.  Corzine claims he never gave anyone authorization to commingle depositor’s funds, but it’s hard for me to believe the CEO wouldn’t be aware of transactions this large.  Just prior to the collapse, Corzine was shopping for a chateau in France.  A Chicago grand jury is investigating and may finally bring charges against MF Global executives.  Much of the depositor’s money is still missing.

In the case of massive fraud, such as Stanford, Madoff and Corzine, regulators have usually received tip-offs or complaints and failed to protect depositors.  The SEC received five separate credible complaints against Bernie Madoff and they investigated four times prior to the collapse.  But, they never audited his books to ensure depositor’s funds were safe.  They simply walked away, even though they discovered inconsistencies.

Never believe regulators will safeguard your investments.

The Bottom Line

The bottom line is that it’s risky turning your money over to a firm or an individual who isn’t audited regularly.  Even the big firms who are audited have been known to misuse funds.  The safest policy is to pay an advisor for financial advice and deposit money in your own investment accounts that are audited or insured.

“In limited professions there’s boundless theft.”

William Shakespeare – English Poet & Author

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My Humble Beginnings

Image by Y

My first job was working for a company who pumped out cesspools and chemicals from local factories.  My paychecks said Inland Empire Waste, but the company was more commonly known as Stinky Inc.  They even had a logo of a skunk holding a flower on their trucks.  I’m not joking.  I couldn’t make this stuff up.  Anyway, I was only 16, so I wasn’t allowed to work near any chemicals or feces.  Basically, I was the “Yard Dog”.  I washed the trucks, trimmed the trees, assisted the mechanic and cleaned up after the Rottweiler Hercules.  On weekends, I would dig up cesspools.  The truck driver would find the lid on the box and I would dig it up.  As soon as I cleared the dirt off the lid, I would jump out of the hole and start digging on the next one while the driver drained the box.

For all of my hard work I made $3 per hour.  On a good day, I rode 20 miles and worked for eight hours to make $24 before taxes.  Even way back in 1980 this wasn’t a lot of money.  Most kids today wouldn’t clean their room for twenty bucks.  Back then, we hustled for every dollar we got.  Even though I realized it would take forever to get a car at the rate I was going, I didn’t care.  I knew it would happen and I was on my way.  Little did I know I was about to get laid off.  Work got slow and I was the low man on the totem pole.  The effort I put out made no difference.  It was a business decision to them, but it was very personal to me.

What I learned

Choose Jobs Wisely – One thing I figured out while I was digging holes for $3 per hour was that some jobs were much better than others.  So, for my next job I chose a union supermarket and showed up twice a week until they hired me.  I spent six months trying to get that job but it was worth it.  By the time I left five years later, I was making $12.35 per hour with full benefits.  That was a lot of money back in 1985.

Loyalty Works Both Ways - Getting laid off was a slap in the face to me.  I was very naive and I thought the company would appreciate all of my hard work.  It was a big eye-opener to realize it was all about profit and had very little to do with loyalty.  Most companies feel they can get someone else to do your job and they are usually right.  On the other hand, employees can usually get a better job, if the company doesn’t take care of them.  It works both ways.

Look for Opportunity – One good thing about manual labor is that it gives you plenty of time to think.  While I was digging holes, I realized I didn’t want to become a Pump Truck Driver.  Although I was happy to be employed, I knew it was a dead-end job and I didn’t see any future there.  Today, I read about a man in Ohio that started out working as a janitor in a factory and ended up owning the company.  Keep an open mind and always look for opportunity.  But, be realistic about your chances.

Protect Your Health – It’s one thing to be overworked, underpaid and unappreciated.  It’s quite another to get sick or injured on the job.  The drivers ran a heavy risk of catching hepatitis and other illnesses from pumping the waste.  They also worked around some very nasty chemicals.  Two drivers were killed in a crash on a mountain road when I worked there.  There is risk in everything, but the high risks at some jobs aren’t worth the paycheck.

Times have Changed

One thing I have noticed after working for the past 31 years is people seem less enthusiastic about employment.  From the kids who would rather play with their cell phones than help a customer, to the adults who would rather live on food stamps than punch a clock, people don’t seem as interested in getting and keeping a job.  At the same time, a lot of good paying jobs are disappearing and being replaced by low paying part-time jobs.

Here is what I see today:

• Teenagers seem apathetic towards working
• Young adults don’t feel obligated to pay their way
• Millions are happy to live on public assistance
• Working parents are burnt-out and lacking sleep
• The career path is no longer stable, even for Professionals

On a more positive note, people are paying much more attention to the work-life balance.  They don’t want to work long hours to climb the ladder or blindly move wherever the company transfers them.  Most kids have seen their parents overworked and then downsized a couple of times.  They don’t believe in loyalty to a company, because companies are no longer loyal to employees.  I know a number of people who were transferred across the country and then laid off.  Some of them had sold their houses.  I know a guy who moved across the state and his job was eliminated by the time he got there.  He had to pay all of his own moving expenses both ways.

The Bottom Line

The bottom line is that employment no longer offers any guarantees.  You effort towards success can turn a job into a dead-end or an opportunity.  Your attitude towards work can turn a job into drudgery or a blessing.

“The best preparation for good work tomorrow is to do good work today.”

Elbert Hubbard – American Writer and Philosopher

Recommended Reading

Bucksome Boomer - A Part-Time Job: The Secret to Success
Squirrelers - Keep Learning to Keep Making Money
Wealth Informatics – How to Negotiate Salary even in a Tough Economy

This post was featured on the Carnival of Personal Finance over at Sense to Save.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s full of fascinating stories and great advice.

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Dream vs. Reality

Image by Mykl Roventine

I think the biggest problem with sudden wealth is that the dream is very different from the reality.  People who dream of winning the lottery think it will solve all of their money problems, when it often creates more problems than it solves.  Instead of a happy life of leisure they are now tasked with the responsibility of managing this wealth.  Or, they quickly squander it and wind up in worse financial condition than before.

The reality is that wealth is a lot more difficult to manage than a humble paycheck.  Finding the proper types of investments and avoiding unnecessary tax liability is complex and difficult.  It can bring a lot of stress and pressure.  I know someone who recently inherited some money and spent it before paying the taxes to the IRS.  Needless to say, he is in a lot of trouble and way worse off than if he had never inherited the money.

Moochers & Opportunists

Another thing that happens to athletes, entertainers and lottery winners is they are overrun by people looking for a piece of their fortune.  Soon, there are salesmen, agents and financial advisers contacting the recipient at their most naive and vulnerable time.  They know the longer someone holds onto their money the less like they are going to give it up.  But, if they can catch the athlete that just signed or the lottery winner who just cashed their check, they have a great opportunity to convince them to part with their money.

Another huge problem is that friends and family feel entitled to the good fortune of others.  They have the same lottery mentality as the actual winner and see it as a way to end their own financial problems.  Unfortunately, helping others in need often discourages them from helping themselves.  The good deed soon becomes expected and the financial assistance becomes an ongoing liability.  People with money are expected to pay for the meals, drinks and other expenses of those who don’t.  Soon, there is an entourage.

Shiny Things & Divorce

Mansions, boats, exotic cars and jewelry can quickly deplete millions of dollars in income.  In addition to the cost to buy them, there are very high taxes, insurance, operating and maintenance costs.  Houses can become a huge liability for people who move often or lose part of their income.  Shiny things lose a lot of their value the minute someone buys them.  Purchasing baubles and liabilities can evaporate a lot of money in a hurry.  Looking rich can make someone poor.

It’s a well known statistic that 85% of professional athletes are either bankrupt or divorced within five years of their final paycheck.  Child and spousal support is a big part of this equation.  Kobe Bryant just got divorced and it’s estimated that it will cost him $75 million.  I’m pretty sure Kobe will rebound from this financial setback, but others aren’t so lucky.  Getting divorced near the end of their career can be devastating.  Child support is another huge problem, since a career in professional sports rarely lasts 18 years, but the child support payments do.

The Bottom Line

The bottom line is that it’s far better to accumulate and enjoy wealth over time.  If someone is fortunate enough to suddenly become wealthy, they will need a lot of wisdom and discipline to turn it into a positive experience.

“Who is rich?  He who rejoices in his portion.”

The Talmud

Recommended Reading

Len Penzo - Why it Pays to Keep it Simple Stupid
Don’t Quit Your Day Job - It’s the Spending Stupid
Invest it Wisely – Sudden Bankruptcy Syndrome

This post was featured on the Carnival of Personal Finance over at Girls Just Wanna Have Funds.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s full of fascinating stories and great advice.

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