Could You Be One Paycheck Away From Financial Disaster?

Of course you couldn’t be, right? You’re educated, on top of your game, and have a good job or business! The people who fall victim to financial disaster live extravagantly, lost their jobs and couldn’t find work for longer than a year or perhaps took too much risk and bet the farm on a get rich quick scheme.

Well, I’ve recently been given the honor of serving as a Board Member for The Drake House which is near my home in Roswell, GA. The Drake House offers transitional crisis housing for single mothers and their children. The residents must adhere to some very strict rules, including zero tolerance for drugs and alcohol, as well as mandatory programming and planned savings. For meeting these requirements, the women and their children receive free housing for 90 days with up to 3 – 30-day extensions, as well as access to a food bank and laundry facilities.

As part of the mandatory programming, the women take a 9-week course on basic finances. I was honored to run week 3 of the last series and got a chance to meet the 15 women currently residing at The Drake House.  We talked openly about our relationship with money, and some of the women shared specifics on how they found themselves teetering on homelessness.

I was BLOWN AWAY by what I learned! I assumed they would be a room full of uneducated, lower class, inner city women who simply never earned enough to make ends meet. Boy was I surprised! The group was diverse, including Caucasians, African Americans and Latinos, and the ages were from mid 20’s to upper 50’s. What was really mindboggling was the number of women who had gone to and completed college, held upper-level jobs, and come from relatively affluent upbringings.

The stories were across the board; many including broken marriages. However, they all shared the common thread of how our relationship with money greatly affects our spending behavior and thus the inability to live within our means. Bar none, the group admitted to the emotional attachments they have to money and stuff, and the sense of entitlement that being an American fosters! It’s hard to live in one of the most affluent countries in the world and not feel somewhat entitled.

It made me realize that many of us, our families or dearest friends could be one paycheck away from a financial train wreck! Here are a few basic tips to help prevent you and yours from becoming the next casualty:

  • Don’t just live WITHIN your means, live BENEATH your means.
  • Have a MINIMUM of 6 months expenses as an Emergency fund, but 12 months is better.
  • NEVER EVER spend money you haven’t already earned.
  • Know your budget intimately and be prepared to slash discretionary expenses, BEFORE things get really bad.
  • Don’t SKIMP on insurance. One bad claim can destroy your financial plan if you aren’t adequately covered.
  • If you are already in trouble with debt, seek debt consolidation help IMMEDIATELY.

As I have said for over 2 decades, Financial Planning is the science and art of planning for the worst, and praying for the best. I hope that each of you gets everything you hope and dream for, but you must prepare for the worst case scenario. As we have all now experienced since 2008 – 2009, things can get really bad, really quickly. Believe it or not, you can navigate even the worst financial storm if you are set up correctly.

Plan for the Future Without Looking to the Past: The Importance of Retirement Planning

The financial metaphor of a three-legged stool, representing Social Security, pension and personal savings, which was the theory when I went into Financial planning, is far outdated.

First you have the debate about whether the Social Security bank will be depleted. But that argument isn’t worth having as it was never intended to be a person’s full source of retirement income. I meet an occasional person, who grew up in the Depression, who is able to live on this very small amount.  But today’s Boomers and their children are used to a much higher standard of living. As for pensions, they are a thing of the past, especially for people in their 20s. More than half of people now in their 40s will not get any pension benefits. With that in mind, I suggest the following:

Save as if your personal savings are 100 percent of what you will retire on. My mantra is: Save ten percent of every paycheck, you ever earn, for the rest of your life, no matter what and make no excuses! There will be lean times where you will think you can’t do it, but if you can stick to that credo and never waver, you will never have to worry about retirement. You will have enough money.

Never sacrifice saving to pay debts. Saving is like a bell curve. Even when the initial 10 percent amounts to very little, over time, your money will double and quadruple. Make sure to  save another 10 percent for emergency funds of at least six to 12 months of living expenses.

Take advantage of 401(k) benefits at work. Remember that any matched amounts are free money. Due to the recent downturn in the economy, many workers actually have stopped putting money into a 401(k). This is the time to be unwavering in your long-term savings commitment.

Combined wealth in stocks, bonds and other investments also falls under the personal-savings category. Although “investment” sounds intimidating, I don’t believe it takes a genius to work with stocks and bonds. It is not rocket science. You can learn what you need to through a financial adviser, college classes, books or on the Internet by reading various mutual-fund families’ information.

If you have 10 years until retirement, you can still make money. I’ve learned that it’s not about how much you make, it’s about how much you save. That’s how I came to be a millionaire by the age of 37. The key is constantly investing an appropriate amount throughout a long period of time so it can grow exponentially.

Married couples often struggle  with retirement plans if they don’t agree with the importance of saving money. Many parents want to give their children non-essential, expensive things, better than they had during their childhood. Often one partner becomes the money manager and has the burden of dealing with the finances: frustrations and resentments can be a consequence of that arrangement.

This stress can lead to a marriage’s demise. Communication is essential. Everybody has been brought up differently when it comes to dealing with money. People’s view of what to spend their money on and how much to save can vary greatly. Have a sit-down as early as possible in a marriage or joint-fund relationship. Even if it’s uncomfortable, a middle ground must be reached in respect to budgeting, and saving.

My book “It’s Just Money, So Why Does It Cause So Many Problems?” covers these topics and more using examples, stories and practical planning guidelines. It is available at Amazon.com