Savings Matter

In my last post, I talked about so called financial experts and how often they seem wrong. I’ve also written about these “experts” here and here. At the end of the post I said that I’d show you how my savings and investing strategy has allowed me to be aggressive when I wanted to and cautious when I needed.

piggybankThe key to finances is having options. If you buy a new car every couple of years, go on really expensive vacations, and otherwise live at or above your means, you’re not leaving yourself many options. If, on the other hand, you save aggressively you will have many options when opportunity arises.

Deciding to change

In 2006 I decided to change my career from television to financial planning. I had the option, the ability, to spend the $5,000 for tuition and an additional $2,000 for networking by traveling to financial planning conferences. I saved aggressively in anticipation of the transition knowing that I’d be leaving behind a good salary to start over.

But what does it mean to save aggressively. Well in 2006, the year I decided to go back to school, Julie and I saved 31.71% of our gross, not net, income. In 2007 the middle year of this transition we saved 42.18% of our gross income. And in 2008, the year I passed the CFP® exam, we saved 34.2% of our gross income. Another important aspect of finances is tracking your money. Without tracking my finances I couldn’t tell you with such specifics how much I saved each year.

A New New Course

In 2009, having no luck finding the right fit in financial planning (another option I had was to be picky with my choice of employer), I decided not to pursue this plan any further. What then was I going to do with the money I had saved?

Two things happened that year. First I wanted to renovate a rental property I own on the Jersey Shore. That plan was also abandoned when the local zoning laws were too much to deal with. Once again I had a large amount of savings with no plan for it.

Option 2

That’s when a friend mentioned that her sister owned a rental property in our favorite part of California, The Coachella Valley. That’s when we decided, just after the real estate market had crashed and was continuing its slide, to buy an investment property. The years of saving meant we could explore other options and this one has turned out pretty good. Our savings in 2009 were just 0.47%! That’s less than 1% but it was because we had saved that we had the option for an investment with the possibility of a big return. This investment is part of a long term plan that we are able to add to every few years because we save when we need to and spend when it’s wise.

Maybe we could have had a little more fun and a little more things but It comes down to sacrificing in the short term for long term gains.

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Recapping 2012 Part 3 of ??

BeALeader Tweet ChatIn honor of last night’s #BeALeader tweetchat (Thursdays at 7pm ET) hosted by a leader I look up to @gingerconsult, I’ve chosen a more recent blog post for my look back at my favorites of 2012. The topic of the chat was “make a plan, work the plan” and that is exactly what the post below is about. It’s rare that a plan goes according to…well, according to plan and that is why you have to keep working it.

This particular post was about a lease negotiation that had taken months to nail down nearly falling apart at the very end. The important lesson was that I had other options, other plans as backups but also that I didn’t give up and kept working toward a solution. We finally came to an agreement and we’re currently constructing our latest What Next, A Hand and Stone Massage and Facial Spa.

Whatever Happens

Preparation isn’t just about a goal, isn’t a task that is only completed when you have something planned. Preparation is about weathering a storm and expecting the unexpected.

Be Prepared For AnythingIn What Next I write that “it’s not the plan for the expected outcome that saves you, it’s the plan for the unexpected outcome that does.” This is what preparation is all about and why I often have a plan B, C, D, E, and F.

I haven’t written many blog posts in a while because I’ve been busy working on my latest What Next venture, my current priority.

The reason I’m writing this is that two months of planning, two months of high expectations, may end badly. I will be sad, upset, worried, and yes even angry, if this falls through, but one thing I won’t be is beaten. I won’t be much worse off even if it goes terribly wrong because of the preparation I’ve done, not just for this one thing but throughout my life.

As you live your life, are the things you’re doing now putting you in a stronger position later? It’s worth asking so you’ll be able to succeed no matter what happens.

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Whatever Happens

Preparation isn’t just about a goal, isn’t a task that is only completed when you have something planned. Preparation is about weathering a storm and expecting the unexpected.

Be Prepared For AnythingIn What Next I write that “it’s not the plan for the expected outcome that saves you, it’s the plan for the unexpected outcome that does.” This is what preparation is all about and why I often have a plan B, C, D, E, and F.

I haven’t written many blog posts in a while because I’ve been busy working on my latest What Next venture, my current priority.

The reason I’m writing this is that two months of planning, two months of high expectations, may end badly. I will be sad, upset, worried, and yes even angry, if this falls through, but one thing I won’t be is beaten. I won’t be much worse off even if it goes terribly wrong because of the preparation I’ve done, not just for this one thing but throughout my life.

As you live your life, are the things you’re doing now putting you in a stronger position later? It’s worth asking so you’ll be able to succeed no matter what happens.

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Action Plan

A recent post of mine (Are You Crazy???) was written in frustration. There is a lot of good financial advice out there but it doesn’t seem like anyone is listening. Maybe they are listening but they aren’t taking action, they’re not asking What Next and doing anything to improve their future. So I decided to write this action plan for success. Will you follow it?

The past

The past is over. The best you can do is learn from it because you can’t change it. You’re in debt? Ok, just don’t continue doing the same thing that got you there. You haven’t progressed in your career as quickly as you would have liked? Ok, but change what you’re doing. You haven’t saved enough for retirement? Ok, start now.

The Present

This is your moment. The present is here to bring about the future so get to work.


                If finances are a problem you first have to understand the cause of those problems and that means having a clear idea of where your money is going. This means you have to track every penny you spend. It’s not as hard or time consuming as it sounds. I talked about one way to do that in this post. Another thing you have to do is stop spending, for a short period of time. Change your habits. I wrote about that topic in this post, and encourage you to take the three week challenge. Make the commitment now and stick with it.


                This isn’t a pleasant word but success requires sacrifice. At the very least success requires restraint. My car is nearly ten years old and I would love a new one, a rather expensive Audi R8 to be exact and I could probably figure out a way to afford it but I’d have to sacrifice a lot to do it. I’d rather sacrifice the Audi for a secure future. That’s the kind of sacrifice, restraint, I’m talking about. So if you already have the fancy car with an expensive monthly payment, sacrifice may mean giving it up for a far less expensive car. You’ll be trading status for security. Make this decision now and follow through with it.


                Maybe you feel you deserve a raise, then ask for it. Don’t just ask for it, pitch it, explain exactly why you deserve a raise. If you can’t come up with a strong enough case then make yourself indispensable, become the best employee ever and create the strong case. If that doesn’t work look for another job, if nothing else you will learn that maybe your salary is pretty good after all.

                Even if you are satisfied with your job, you should have a resume ready to go at a moment’s notice, that’s being prepared for the unexpected, or go on interviews just to stay fresh. This is What Next thinking and those who master that will be more flexible, more successful.

                Can’t get the raise? Can’t find a new job at a higher salary? Then sell things on ebay, turn a hobby into extra money, pick up side jobs in something you’re good at. Have a goal you want to reach, like paying off a particular credit card and figure out how to make the extra money to achieve it. Without a goal, a clear objective, you’ll delay taking action.

The Future

On a tv show I watch called Till Debt Do Us Part, the host, Gail Vaz-Oxlade shows the financially struggling couple that if they continue on their current path they will be in serious debt. In one typical episode the couple would have $500,000 of debt in five years if they didn’t change their habits. By the end of the program, if they follow Gail’s new plan, they would have $1,000,000 saved by the time they retire. Gail’s advice emphasizes the word action in “action plan.”

Such a transformation is the power of making the right decisions in the present for a better future. It is the benefit of being proactive.

My angry post borne out of frustration was about the many people who aren’t willing to plan for the future but you’re not one of them, are you?

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Opportunity and Action

Success is not easy, it takes work. Success comes at the intersection of opportunity and action. Opportunity and ActionThere are a lot of people who were at the right place at the right time but didn’t take action, they let the opportunity slip through their fingers. The sad part is that many people may not even realize it.

The first step to success is recognizing potential.

When I was planning to make the transition into financial planning as a career I volunteered to speak and answer questions at informational sessions for National Guard troops and their families that were being deployed overseas. While these men and women, both the soldiers and their families, were sacrificing for their country, they were also being offered unique benefits. (Not that they were enough compensation but at least it was something).

Soldier in DesertOne benefit was that the soldier’s income while overseas was tax free. Even better than that is the fact that they could also contribute to a Roth IRA – that was huge. Why? Because normally Roth IRA contributions are after tax, meaning you pay tax before contributing. When you withdraw the money in retirement it is not taxed so you get the benefit of tax free growth. What these soldiers were being offered was an opportunity to invest money and have it grow without ever, let me repeat, ever, paying taxes.

I was standing at the back of the room when my colleague was making this presentation. A soldier and his wife were standing next to me and the wife pointed out this unusual and generous benefit. “I don’t care about that,” the soldier said. He was in the right place at the right time but unless he acted on that information, the opportunity would be lost. I wonder how many of the people we owe so much took advantage of that benefit.

Taking action is the second component of success.

The other aspect of success is that once you recognize an opportunity, you have to be willing to sacrifice to get the benefit. The soldiers aren’t paid well for their service and diverting $4,000 (the maximum at the time) into a Roth IRA could be a hardship. If they looked far enough into the future, however, they would have seen the benefit of this action but I suspect that many did not.

Are you open to opportunities? Are you constantly on the lookout? Would you be willing to sacrifice, now, for a benefit that is years in the future? Then why aren’t you?


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The Three Month Test

While my current job is considered white collar, I’ve worked my way up to this position including seven years as a union member. Until actually joining a union I was a big supporter of the concept. I was, however, completely unsatisfied with the union experience. In 1998 the company I worked for locked my union out for 11 weeks.

Locked OutJulie and I lived together, she had a good job so we weren’t too concerned with the lack of income. But without knowing how long this would last or even if I’d have a job after it was all over, we decided to plan for the worst.

You can’t always live in fear that the worst will happen but you can’t live as if nothing bad will ever happen either. You have to find balance between being prepared and enjoying life. At the time of the lockout I decided to test my will. I decided that other than fixed costs such as my mortgage and utilities, I wouldn’t spend any money on discretionary items. That meant no eating out, no take-out, no movies or even video rentals (it was a long time ago). The lockout occurred just as winter was beginning and I had recently begun skiing, but until we were allowed back to work, there would be no skiing for me. I didn’t buy any music or take any trips. I didn’t spend money on anything unless I absolutely had to. This was not the easiest thing to do, to deny myself the little pleasures in life, especially with all the free time I had. 

Over those 11 weeks, almost three months, I lost over $13,000 in income but when it was over and we returned to work, my bank accounts were lower by only $4,000. By the end of the lockout one co-worker declared bankruptcy and others were precariously close to calamity. I also know people who counted on the union winning an arbitration award that would give us back pay, but that never happened, and those who expected back pay were in much worse shape than those who assumed the money would never come.

The greatest lesson from this event was that I realized that I could live much farther below my means, that a sudden shock to my income such as a job loss, wouldn’t be the end of the world. Can you say the same thing?

If you’re serious about being prepared for the future, serious about doing what it takes to get much farther ahead in life, then you have to make a commitment to do whatever is necessary. You can get rich no matter what your income but the less income you have the more you’ll have to do. Keeping track of your income and expenses is crucial, spending less than you earn is an absolute requirement. Discipline can be learned.

I found that the three months I was locked out, and my subsequent choice to eliminate discretionary spending, gave me the discipline I needed to really concentrate on building wealth. I call this time my three month test and I suggest that you might want to try the same thing.Days pass

That’s right I’m asking you to stop spending money on anything other than essential items for three months. You obviously have to pay for your mortgage or rent, your utilities, groceries, and other necessities, but if you’re serious then you have to give up everything else for three months.

Ok. I’ll stop here and give you permission to do a trial run. Three months might be too much to ask and could just set you up for failure, but how about three weeks? Are you willing to try this out for three weeks to see if you have what it takes to really build wealth?

The rules are fairly simple. You can keep the services you currently have like cable, cell phone or magazine subscriptions. You can keep any recurring bills but you can’t upgrade those services like the cable, for example. You can’t add any channels, subscribe to any new websites, magazines or newspapers.

This test is not meant to see if you can live like Scrooge but it’s also not meant to be easy. You’ve seen in the news the low paid worker who dies leaving behind millions of dollars? Well how do you think they got all that? Ok, you’re right, they probably lived like misers but there can be a balance if you just try. After all, what good did that money do them now that they’re dead?

This test might crimp your social life but that’s the challenge. How can you still enjoy yourself for less money? That’s the key to the test. Once you see that you can do it, you’ll think twice before getting together with friends at a bar and instead invite them over to your place where the alcohol and food costs significantly less.

If you choose to take this test, and treat it seriously, you can find out a lot about your spending habits. You’ll see how much that coffee at Starbucks is really costing you. You’ll notice that stopping to get a donut on your way to work is a significant amount of money (and fat) over even three weeks. Oh yeah did I mention the other benefit? You might lose weight (if that’s something you want) since you’ll be either eating at home or not eating because even a quick stop at McDonalds is out the question for those three weeks.

Do you have what it takes to commit to a better future? Are you up to the challenge? I did it because I felt the pressure of not having an income for an unknown period of time but it turned out to be a great test. Now it’s your turn – you can do it.

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Making a Move

I feel myself becoming scattered. It’s a common problem for people like me, people with lots of ideas, lots of thoughts running through our heads. It’s difficult to maintain focus but the ones who can, who can limit their attention to two or three priorities, are more likely to be successful.

My focus should be on the book and the message in the book, so while I reserve the right to drift a bit, I’m going to write a series of posts highlighting the various concepts from the book. I’ve written about curiosity, an important part of What Next, often mentioning hiking, or the benefits of meeting new and interesting people. I’ve written about a concept called coasting and the need to become unstuck, all of which can be referred to as procrastinating.

Today the concept I want to pick apart is the broad notion of being proactive, it’s part of the book’s title after all.

The first part of being proactive is deciding that you need to take action. This action could be a new idea such as a business you’d like to start or a hobby you want to begin. The action can also be a situation you want to correct, which is really a reaction, such as deciding that being in debt is holding you back, or that your job has become unbearable and it’s time for change. I believe the first type of action, born from your ideas, is a much stronger position to be in than the second type of action, a reaction to something that has already occurred.

“I would rather be prepared and have a plan than have to react to the unexpected,” I write. I’d rather do that but it’s not always possible. The vital part of being proactive is doing something once the decision to act is made. That’s the part I’ve been having trouble with lately. I can’t seem to decide on a plan and without a plan I’m just winging it, a position of weakness.

The problem I’m having is a lot like the idea of inspiration, I’m inspired to act but can’t seem to get moving. Inspiration without action is just a good intention, and good intentions don’t accomplish goals.

This post is my first step toward implementing my plan, such as it is. What is your first step toward what next? What action are you going to take now? I have a page on this blog called “Share Your What Next With the World” because I feel it’s important to make your dreams real by sharing them with others, forcing yourself to get moving. Not everyone shares that view but I’m convinced you’ll be held accountable, by yourself or by others, if you share your what next.

Tomorrow’s post will provide two examples of being proactive. One was a reaction to another event, the other was created from nothing.

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Sticking with the Plan

PlanningWhat Next is more than just searching for new ideas, new challenges. What next is also about planning and preparation. I write “It’s not the plan for the expected outcome that saves you, it’s the plan for the unexpected outcome that does.” Planning for the unexpected means leaving yourself options for almost any circumstance.

Financial decisions play a large role in our lives (which is why I became interested in Going Downfinancial planning) and with the recent market mayhem, planning has proven its worth. But this insanity in the market pales in comparison to 2008. From May 2008 until March 2009 stocks lost around 50% or more of their value. A lot of people couldn’t handle watching their retirement nest egg dwindle away so they sold. They sold because they reacted, because they had no plan.

A new study by Fidelity Investments has some important information about what happened to those people who panicked and what happened to those who had a plan, who didn’t react without thinking.

401k investors who reduced their stock allocations to zero between October 1, 2008 and March 31, 2009 and kept it that way until June of 2011, saw an increase in their 401k of only 2%. The investors who reduced stocks to zero but began investing again sooner than June 2011 saw an increase of 25%, much better. But the people who stuck with stocks, and continued investing, in spite of the precipitous decline, saw their 401k balance increase by – are you ready for this – 64%!

These people had a plan and they stuck with it. Warren Buffett’s Berkshire Hathaway has had a large amount of cash available and they’ve done nothing with it for years. Now, however, Buffett says he’s buying stocks that are “on sale.” “Be fearful when others are greedy, and be greedy when others are fearful,” says Buffett. His plan was, and is, to buy stocks that he feels are undervalued and that doesn’t happen when the economy is doing great.

I did not expect stocks to decline as much and as quickly as they have but my planning has allowed me to do two very important things. First I’ve increased the amount of money I’m contributing to my 401k. Increased, not decreased! And second, I’ve used money I didn’t invest as the market went up to buy stocks that are now “on sale.” I’m no Warren Buffett but I have a plan and I’m sticking with it.

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