3. The Journey
The Journey
As I start a chronology of my journey, I think that life is truly the journey of lessons learned. It is only after taking a reflective moment that you start to “connect the dots” of varying events to start seeing the greater picture of the event called life.
As we all know, we all want it our way, and we tend not to learn from the knowledge of people that we have been in contact with over our life span. Some people “get it” at a young age, and some “get it” at a later age. However, there are those that unfortunately never quite get it, but we can only hope someday they will.
Early in life……………….
My journey started over a half a century ago. As a son of parents that experienced the 1930’s depression, I was constantly reminded not to waste money, rather save it. Did I listen? Most of the time not, but as I progressed through life there were many financial angels giving me friendly advise. The question was, did I take action at the time of the advice or did the advice ring a bell later in life. As you can imagine, it was the latter circumstance that prevailed. Below are some antidotes that have been the backbone of my “lessons learned” journey.
Bubble gum that went stale
When I was a child, my mother took us downtown to go shopping at the department stores. Our last stop would be to buy a treat at the local drug store. We were given 25 cents to use it on anything we wanted. I would always choose chewing gum. I liked the flavor and I could collect all sorts of flavors in a box for safe keeping. Over the years, I saved my chewing gum.
However, after many years, I thought I would start chewing the gum I had saved over the years. As it turned out, the gum had gone stale! The chewing gum just crumbled.
Lessons learned: Save, but also enjoy the fruits of your savings by enjoying what you have accumulated keeping in mind the theory of “keeping a balanced lifestyle”.
I will buy you whatever you want as long as there is a purpose
Years ago, my friends’ mother who was a wife of a prominent local physician, said, “I will buy you anything you want as long as you put it to good use”. This was an early lesson on ROI (Return On Investment).
Whatever you buy during your lifetime, make sure that you get an ROI. ROI can be joyful emotions generated from the purchase, or a feeling of gratitude for the gift you purchase. Just look in your closet or garage. How much ROI did you get from those purchases?
Lesson learned: With every purchase, be prudent in your selection. Are you getting the best price? What utilitarian value are you gaining through the purchase? Is there a long term value generated from the purchase? Are you just going to donate the item to charity or dump it in the garbage?
Live off of one salary
One day I thought it would be really “cool” to have dual exhaust on my 1974 Chevy Camero. Was this purchase going to generate a good ROI? Absolutely not. It was probably one of the many wasteful things I did over my lifetime. However, while I was waiting for my car to be completed, a lady said the following to me. “I have been married for over 35 years and we have always lived on my husband’s salary” while saving my own salary for the both of us to enjoy in retirement.
Lessons learned: Always be aware that every situation may provide you with a message from one of your financial angels. At the time I was wasting money, someone was teaching me a valuable financial lesson. Always listen carefully.
Save for retirement
My parents always said, plan for your retirement. At that time, pensions and social security were the primary sources of income during retirement. 401K programs did not even exist. Retirement seemed so far off, however as we all know you have to save a lot more when you older, than when you are younger. When you are younger, you can take advantage of the benefits of compounding.
Lessons learned: Regardless of current or future plans by your employer or the US government, you must take control of your life by saving and investing for your future. You should contribute the maximum amount to your 401K program or any program that is similar as soon as you can.
Gifts from parents and relatives
Being from conservative parents, monetary gifts were not to be used to spend on lavish things or events, rather invested for the future. One day, a sibling of mine asked if I was going to by a Ferrari with some of my pre-inheritance. It was one of those, hmmmm what are you up to questions. The obvious answer to the question was no. As we all know, cars depreciate the day you drive it off the lot. When you think about it, a car is to get you from point A to point B. Plus there are speed laws in all 50 states. Do I rest my case? The better thing to do is buy the stock of the company that manufactures Ferraris. Your initial investment will not only grow due to appreciation of the stock, but also any dividends that the company may produce. That being said, guess what I did.
Lessons learned: Use the power of “compound interest” to make you financial situation a comfortable one. Only invest or spend money on things that appreciate in value.
Buy the cheapest and smallest house in a nice neighborhood
My uncle would say, you may not have the money to buy the nicest house in the nicest neighborhood, but you do have the money to purchase a small, but nice house in a great neighborhood. One house that I purchased was in a community that had multi-million dollar homes. It was a guard gated community with gates for access into the community, gates for sub-divisions, and gates for individual homes that were multi-million dollar homes. The multi-million dollar homes kept the properties of the less expensive home up and created an exclusive image to the general public. Having two 18-hole professional golf courses also helped to keep real estate prices up.
Lessons learned: Purchased houses or townhouses in nice neighborhoods, but not the nicest house on the block. When I latter sold the house, all of the capital gains were tax free. Only in America!
Make saving an “expense item” in your budget
When I was working with a young couple several years ago, budgeting for savings came up. During the discussion, the couple had mentioned about how their parents had separate envelops for different items of their budget. When there was no money in the envelope that meant that there was no money for that budget item. Using that same theory, putting in an envelope one’s savings and “not” touching it is an easy way to “pay yourself first”. People say they don’t have enough money to save. However, if you automatically deposit X dollars per month into your savings account, you can always pay yourself first. Believe me, it works.
Lessons learned: If I don’t pay myself, who will?
Annual reports sitting on the coffee table
Growing up I would see annual reports from Heinz, GM, IBM, etc. I could not figure out why they were sitting on the coffee table. As it turns out, my father was investing for not only himself, but also for the kids.
Lessons learned: Invest early in your life. You will not regret it. Time is on your side.
Latter in life……………….
Avoid the knee jerk reaction
In 1987, 2000, and 2009 my father said, get out of the market (he got out quicker than I did). The fact was, it was too late for me to pull out in 1987, In 2000 I stayed in the market and everything worked out. The same held true for 2009.
Lessons learned: Don’t panic.
Why not get free money from your employer?
One day I read one of those brochures your company gives to you but most of us ignore. When does any one or company give you 3-6% of your salary for your future? Well….if you work for a fortune 500 company most likely your employer is giving money away.
Lessons learned: Pay attention to those financial angels, even if it is a piece of paper.
Don’t try to beat the market
Only 20% of the mutual funds beat the market. That being said, why not just invest in mutual funds, ETFs, etc. that mimic the market?
Lessons learned: Don’t try to beat the market because it will most likely beat you.
Always readjust your asset allocation
During the years, I would go to various financial institutions to see if they could manage my money. What I wanted to hear or see was a common denominator to all the recommendation I was getting. Regarding a specific stock or mutual fund recommendation, there were no correlations. I met with people at UBS, Smith Barney, Fidelity, E-Trade, Wachovia, Fisher Investment, etc. The only reoccurring theme was asset allocation.
When one asset class is doing well, sell it at a profit. While the other asset classes are not doing well, buy them on the cheap. This theory is counter-intuitive, because we are all so “greedy”. We always want to keep our winners, and get rid of our losers.
Lessons learned: Sell high and buy low.
Do things seem unfair? Do the rich get richer?
During a time of unemployment, I was informed that if you work part-time, the money you earn would be deducted from you monthly unemployment checks. This seemed strange to me because people are trying to make ends meet and the government is punishing you for finding a part-time job while you are looking for a “real” job. The whole concept is based upon “earned income”. Meaning income generated by your efforts.
Ironically, if you had X amount of money invested, and where able to generate Y dollars you could theoretically meet or exceed what your unemployment benefits are. However, you would not be affected by the rule of deducting from your unemployment check what you earn part-time since your income is non-earned income. Example: If you had $1,000,000 earning 10% per year generating $100,000, you could still collect your full unemployment benefits. On the other hand, if you earned at a part time-job the amount equal to your unemployment benefits, you would not qualify for any monetary unemployment benefits. Sounds unfair, but this is America! Take away……stash away as much as possible in your investment accounts.
Lessons learned: Always have money invested. No one can take that money away from you and it is working for you while you are in transition. Investments give you a sense of security and well being. Priceless.
Dishwasher never used, needs repairing.
Years ago, I thought I would save money by hand washing dishes. I believe I hand washed dishes for 5 years instead of using a brand new dishwasher in a brand new house. As it turned out, when I went to sell the house, the buyers hired a person to do a house inspection and they found that the dishwasher did not work properly. Apparently, dish washer need to be run from time to time to keep the mechanism working properly….just like a car.
Lessons learned: You might think you are doing the right thing, but often times, “Murphy’s law” takes over.
When are you really retired?
One day I was reading something, or listening to something, but what caught my eyes or ears, was the question, when are you really retired. The short answer and obvious answer is, you need enough to at least cover your monthly expenses. It is a pretty scary to think that your investments must generate enough income to cover your monthly expenses.
Let’s say your monthly expenses are $3,000 / month. At a rate of return of 3%, you would need principal of $1.2 million.
Lessons learned: Better start saving and investing.
Have you noticed that there are a lot of elderly working at fast food restaurants, Home Depot, etc?
I remember years ago, people saying I don’t have enough to retire. One would think, you can retire at anytime. Right? Well….the long story short, accumulating 1 million dollars plus based upon savings alone is almost impossible, unless you have been making a 6-figure salary for many years.
Lessons learned: You got to save and invest early on in your life. If you have not started, then start.
If someone were to ask me to sum up the major points of my journey that would make the most meaningful impact on their future, I would say the following.
- Save early in your life
- Invest early in your life
- Use an asset allocation strategy, but always re-adjust every 6- months to a year. (Buy low and sell high)
- Reinvest all dividends if you are investing in mutual funds, or purchase stocks directly from the company you are investing in.
- Buy a home or condo (you will avoid paying taxes on possibly hundreds of thousands of dollars in the profits you make on your real estate investment)….only in America.
- Carefully monitor your monthly expenses.
- Don’t depend on anyone helping you out financially.
- Give-back to people that maybe less fortunate than you. The payback will be more than you expect.
- Save, save, save….
- Invest, invest, invest…..
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