A couple of weeks ago the police started calling. It started with my cell phone which is unusual. Anyone who knows me knows I never answer my cell phone; I actually keep it on mute most of the time. Calls from my phone generally are from my youngest daughter, Mrs. Accountant, or Tabatha at the office. The best way to reach me for business matters is by calling the office and speaking with Karen; for personal matters call Mrs. Accountant. By calling me directly you will not get through. Yes, I write a blog, but I have also weaned myself from most modern instant communication stuff. I think it is unhealthy to be tuned in and turned on non-stop.
The police are a persistent bunch. The officer calling left several messages. It was important. He had to speak with me and only me, but would not indicate what it was about. I ignored the calls; I knew what it was about. Then he moved on to the office and started leaving messages there. I’ve been down this road before. When a police officer calls outside his jurisdiction something is up and it is less than honest. The police from a small town in a different county do not call for “official” business with only a vague “important” message.
I have noticed a trend involving wealth building that is all wrong. I see it in comments on other personal finance blogs a lot lately. I am sure it has been there all the while and it only jumped out at me recently for whatever reason. The misinformation is so important it needs clarification.
The comment goes something like this: I am not saving right now because I am paying off student loans/credit cards/car loans/making extra mortgage payments. When you pay down debt you ARE saving and also building your net worth. The real question is: How can you balance debt reduction with retirement savings for maximum net worth building?
Paying down debt removes the most caustic item on your balance sheet holding back wealth creation. Debt interest is an expense you can only slay by destroying the debt (paying it off). Debt is not a bad thing in and of itself when used as a tool, but most consumer debt is bad. Mortgages are the exception if used properly.
Let’s take some time to explore the best way to reduce debt and maximize return and net worth.
Pecking Order of Debt Reduction
We will address retirement savings in a moment; for now we will focus on debt only. My opinion is built on maximum return for each action you take which is different from other personal finance gurus like Dave Ramsey. Ramsey teaches you should pay the smallest debt balances first (snowball effect) so you reduce the number of bills quickly, giving you a mental boost. I was a Dave Ramsey Endorsed Local Provider (ELP) for years; I am very familiar with his teachings. My advice is slightly different.
I assume we are all adults and understand LESS debt (especially consumer debt) is better. You don’t need hand-holding or mental tricks to act like a responsible adult. You are here because you want to grow your financial understanding and increase your net worth.
The debt with the highest interest rate should be paid down first! Eliminating the highest interest debt does give a psychological boost as interest is reduced at the fastest rate. It also allows for faster net worth accumulation.
Debt payoff IS saving! Think of it this way. Example: You have several loans and a mortgage with payments of $2,000 per month of which $1,600 is interest. Making the minimum payment will increase your net worth $400. Do you get it? You made $2,000 in payments which included $1,600 of interest and $400 loan principle. The $400 reduces your balance, thereby increasing your net worth. Any extra payment will all go to paying down the debt eliminating interest on that part of the liability forever.
Millennials, loosely defined as young adults age 18 to 35 as I write this, are everywhere and messing up the machinery. Like a plague of locusts or alien invasion, Millennials are taking over the world with their opinions, ideology, work ethic, worldview, and their value systems. The old school is taking notice and whining about it plenty. Darn kids!
I disagree with my generation when it comes to bitching about Millennials. These young people do things different in some ways, but generally do a great job, even better than my generation in many instances. The slightly older (ahem) crowd needs to remember a few years back when we were the recipients of complaints from The Greatest Generation. We were asked why we were not so great. Pissed us off then, pisses us off now. So why do we pass the same BS to the Millennials?
The Millennial generation has the same issues previous generations had when cutting their teeth. Moving out and starting life is hard. Figuring out what to do when so many options are available is daunting. Times change, but people remain the same. More Millennials live at home with parent/s or rent than prior generations even if they earn enough to afford home ownership. It is too easy to paint Millennials as lacking commitment when seeing these statistics. Instead, look deeper. Our world is more decentralized than ever before. Mobile communications allow us to work and play almost anywhere on the planet without losing touch. Home ownership ties a person down who plans on traveling a lot. Working from home or on the road is easy and common in our modern world. Lucky us.
Gone are the days of lifetime careers. Today we think of multiple income streams as our safety net. Job security is an illusion. Accountants become farmers or bloggers on the side; plumbers become landlords; police officers offer fitness training on the weekend. Today we live in the world of slash careers.
Empowerment comes from educating ourselves in multiple disciplines. The accountant/blogger brings experience from the slash career back to her office providing clients with a better understanding of their personal tax and accounting needs.
So what is a slash? A slash is a professional person with mixed identity. Therefore, the professional can be an accountant slash blogger. People cannot settle on a single career path as safety nets disappear. Families cannot count on the government as their sole source of survival when things head south. The new paradigm has created mixed professionals with skills and experience crossing professional fields. Sometimes there is a correlation between the professions, but it is not necessary.
The world looks different from my side of the desk. Three decades working with clients dreaming of retirement and the good life has revealed things you can’t fully understand unless you see it with your own eyes. We hear crazy talk like 70 is the new 50, indicating people at age 70 are as active as people once were at 50. Bullshit! I would be happy as hell if I could pry some people’s asses off the couch for more than a trip to the fridge at age 20. The noises they make is a tell; they are ready for the nursing home by 30. But I digress.
There is good news, however. Twenty is the new 50. It goes like this: the same people return to my office year after year as broke as they were in prior years. This goes on for decades. Then one day they hit 50 and realize, “Holy shit! I only have 15 years until retirement.” Spending slows and investing increases. Now they are open to the Wealthy Accountant’s advice. Fifteen years later my happy client reaches retirement with a nice nest egg. Now image how soon they could have retired if they had their “Holy shit!” moment a bit earlier in life.
The New Age Paradigm
Make no mistake; the pattern is still firmly in place. Convincing a client to slow spending and max out retirement accounts is an uphill battle. The excuses have remained consistent over the years: I earned a Hummer, SUV, 4-wheeler, boat, and on ad nauseam; I deserve a vacation; I work hard so I deserve an over-sized home; after a long week of work I need to party all weekend to unwind. Giving up bowling would be a cold day in hell until age 50 arrives.
You did everything right. You found a job you enjoyed, saved half your income, maxed out your retirement plans, and built a nice nest egg. You are well on your way to financial independence. Then the inevitable happens. The economy slows or the boss retires or the company downsizes and you are unemployed. The nest egg you built is now providing a cushion to live, but you are no longer running towards financial independence. Your day of early retirement is slowly slipping into the future.
The great news is that you are better off than over 95% of the people. Most people suffer severe financial hardship when life throws a curve. Today I will show you how to reduce the chances of unemployment and stay firmly on the path to financial independence and early retirement.
Life Hack: Employees
At a recent company meeting I decided to ask a few questions. If you want answers you first need to ask questions. I wanted to know if my employees, my team, understood why I hired them. If they could understand my reasons for bringing them into the fold they would be in a better position to help clients understand the same.
Does anyone here know why I hired any of you? I asked. The question was simple. My team looked back and forth to each other wondering where I was going with this. Then a litany of answers came. “To get work done.” “To make clients happy.” I shook my head with each answer. My office manager finally hit on one of the correct answers when she said, “To make you money.”
Everything I am I owe to the world and people around me. Motivation and inspiration are the necessary ingredients to build the person you want to be. Reading good books every day is a must; listening to awesome people share their story is a must; learning every day is a must. Today I want to share part of my personal life. From a young age I started listening to Zig Ziglar; I have a picture on my wall at the office with Zig and I shaking hands. It was a highlight of my young life. Later I immersed myself in Tony Robbins. The internet, especially YouTube, allowed me to listen to massive numbers of happy, successful, achievers on a regular basis. Today I will share some of those videos I start and end my day with.
This blog owes its existence to Pete, the blogger at Mr. Money Mustache. My writing has been prolific for decades, but this is a blog with a far more consistent and serious undertone than what I have written before. My novels and short stories tend to be very dark. I mean, so dark you want to get a rope when you are done reading the story. I am not my fiction writing which is why I rarely share who I am as a fiction writer. In my personal life I am very optimistic and positive.
Grandpa told us stories of how they increased fuel economy during World War II rationing years. The technology has advanced over the years, but the goal is the same: increase the miles traveled on a gallon of gas. Today we call this behavior: hypermiling. Rationing is no longer the motivation. Saving money and reducing our personal impact on the planet are the two main drivers (pun intended) behind hypermiling today. I will share the best methods I use to achieve 46 miles per gallon in a 2007 Toyota Camry. If you are willing to work the technology harder your results will probably be even better.
The Toyota Camry is estimated to get 24 mpg city and 34 mpg highway. Moving the fuel efficiency from 24/34 to 46 mpg blended requires a few modifications to your driving and proper maintenance of your vehicle. Remember, hypermiling is a lot of fun, especially if you are competitive. Beating your best performance is addictive. Incremental progress is normal. Colder weather hurts performance as does winter gasoline blends in the northern U.S. Hot summer days without a breeze can really send your fuel efficiency through the roof. Awesome!