Tag: financial independence

002, Big Rocks

Paw Paw

058BC788-067F-4722-BB35-77DB7C211317

The Big Rocks of Finance

Get the Big Rocks right and you’ll be well on your way for financial success. The Big Rocks are assets, liabilities, and net worth. More on those later.

When I first joined the Air Force I really thought I was doing okay. Oh, ignorance is bliss. The reality was as a young Air Force airman basic (yes, that’s a real military rank) I was only making about $700 – $900 per month with two kids. I was really poor and had little to no savings. My family was getting food stamps, eating deer meat and government cheese. The kids were on a government program called Women, Infants and Children (WIC). That program provided formula, milk etc. for the kids. The driving car, a Bronco II, was financed, so I didn’t own it even though when you finance a car everyone says things like “Hey, I like YOUR car”. It was the bank’s car that I was driving. If I stopped paying for that Bronco, they would come get it. I did have another car, but it rarely ran. It was a hot rod that was a money pit and not practical at all. While financially it was tough, we were able to get by with help from the government and an occasional family gift. The household net worth was negative.

By the time I was in my mid 30s, or 60% of my life to date, I thought I knew a few things about finance. Nice cars were in the driveway, silk curtains hung on the walls, big HD TV complete with an upgraded audio video system, antiques from my tour in Italy. I had some mutual funds, a couple of shares of Pepsi Co, a little bit of savings, savings bonds, a car and a truck. But I also had way more debt than that young airman basic above. I had more and better stuff in my possession, but again, just like my first car, most of it was financed. My family had tens of thousands of credit card debt. Financially speaking, I was not much better off than I was when I first joined the Air Force! It was not readily apparent, but the debt was killing me financially. There was more nice stuff, but it would only take a month or two without income and we would be on the streets and the nice stuff would have to be sold. The household net worth was still negative.

I’m sure we’ve all heard financial terms before like assets, liabilities, net worth, investment, insurance, trusts, and the list goes on. There’s no shortage of advice from numerous sources and especially advertisers. Commercials on the television are frequent. Brokers, advisors, banks, credit cards, insurance, annuities and more. Why are there so many commercials coming your way? Because they are all trying to get a piece of your finances! There’s lots of money being made by handling your money. I sure paid my fair share to those companies.

There are literally thousands of financial products out there. Which ones do you choose? How do you even begin? It’s easy to get overwhelmed by trying to learn about these products. It can be difficult to figure out which one you need to meet your financial needs. If you are not well versed in these topics, there’s lots of information to learn about them even before you can make a decision as to which one is right for you. Right? Don’t get overwhelmed. Navigating them doesn’t have to be overly complicated.

You can make finances as complicated as you like. Universities offer associates, bachelors, masters and even doctorate degrees just in finance. But even then, you can further specialize within specific areas of finance. However, folks managed to live happy, healthy, and whole lives before these fancy degrees came along and will continue to do well without them. Education is definitely important in finances, but a fancy degree is not always necessary. There are plenty of resources that can help you along the way. Hopefully this blog can help navigate through the maze.

Some of the wealthiest family members that I know who left an inheritance for their children and their children’s children only had high school diplomas! So, it it possible to gain financial independence without a fancy degree or certification. Cynthia’s parents only had a nice house, a bit of land, a rental house, some land down the street and about a year’s worth of expenses in the bank. My Aunt Terry passed away fairly early in my Air Force career with a few hundred thousand dollars worth of AT&T and South Western Bell stocks in her retirement portfolio. She had always been a saver and started teaching me about savings when I was young. She was the first person who actually got me thinking about money. All three of these people had a few things in common when it came to finances. They had very modest incomes, lived below their means, had no debt, and used what was left to ensure they always had money to live well into retirement. When they left this broken world, they passed some wealth on to their heirs. Oh yea, one more thing…they all only had a high school diploma and no fancy financial degree. They also tithed 10% and gave more hard earned income to church and were generous to family members or others in need.

It’s all about putting the big rocks first. If you learn the big rocks of finance, you can surely make smart decisions that will align with your financial goals. So, what are those big rocks? The big rocks are what make up the foundation for you to build your financial life upon. With the correct perspective as to what type of rocks you are dealing with, you can look at all of the small decisions you make daily with a different perspective. You’ll look at it and understand how it fits into either moving forward to gain a little ground, moving backwards or away from your direction, or maybe it’s a neutral and insignificant decision that doesn’t really matter much.. But by consistently making small decisions that push you forward, you’ll go far. Rest assured, however, there are no shortcuts.

I’m happy to report that my net worth today is positive. Very comfortably positive that will take me to an early retirement and still leave something for the children’s children. I have funds available for emergencies. If there was a break in income for six months the emergency funds would be available to replace income. I’m also looking towards retirement no later than 59 and a half or sooner (I just turned the big 5-0h). So, if you don’t waste as much time as I did doing what everyone else does, you can be better off and retire even earlier than I do!! Hopefully reading this blog will help you avoid some of the mistakes I made.

Get the Big Rocks right and you’ll be well on your way for financial success. The Big Rocks are assets, liabilities, and net worth. I’ll cover assets next post.

Here’s an old, yet relevant, video on finance. (It’s short for the ADD generation). It lays out one of the most important concepts of financial independence. It shows you how to avoid the biggest mistakes the average american makes and teaches you efficiency in spending money. It’s complicated, but I’m sure this crowd will be able to boil down the complex issues into something useful. Enjoy and let me know your thoughts. Here’s the link: Complex Financial Video.

Paw Paw

001, What do you Value?

Paw Paw

IMG_0277

Everything has Value!
What exactly is value. Simply put, it’s how much are you willing to give or get for something. It’s the price you pay for something or the price you would take for someone to buy it from you. Value is transferred by these transactions. But what unit of measure are you using?
As the old saying goes, money can’t buy everything! It does have value. Money isn’t the most valuable thing for sure. It can’t buy life, time, happiness, friendship, love your parents, or repair a broken relationship. It can’t buy many material things like the ring that my mother gave my father that he passed down to me. Often I figure that money can’t buy the things that are most important to me. It seems like it can at times, but it really can’t. All of the things mentioned above are valuable. But there’s no dollar or monetary value anyone can assign to them. How much would you pay for another special day with someone who passed like: my mother, grandparents, cousins, or maybe a best friend?

Money is simply one measure of value built on Trust
Our US dollar is so strong in the world market because it has the full backing of our great nation. Back in the day, it was backed by bars of gold and silver, but not anymore. Now it’s just based on the fact that if you have one dollar, the US government will always ensure it’s legal tender for a transaction. But what if our government was not trustworthy? I’m only saying it’s trustworthy in backing the dollar, there are many things that they may not be trustworthy on, but backing the economy is one they stand out on.
In my years in the military I’ve seen worthless money from governments that have failed for one reason or another. When in Italy, I found a 100,000 Austrian Lira note under the drawer in an old end table I found from Austria, Slovenia, or somewhere over there. It was obviously very old. So, I got excited because in my young mind 100,000 of anything old had to be worth something pretty big now. Right? Nope. The dude on the front of the currency was one of the many dictators who rolled through. His “iron fist” ruling cost his country’s collapse. The value of the 100,000 Lira? It got me a scowl from a foreigner for even having something with the dudes face on it! I couldn’t get anything of value for it. Another example of useless currency I experienced when I was in Turkey. While eating lunch, I noticed a 1,000,000 (yep 1 million) Turkish Lira bill in the tip jar. Turkey had been plagued by roaring inflation for years (over 38% for several years). Inflation was so bad that the currency was ridiculous. I bought the 1,000,000 Turkish Lira for the grand total of $1 US Dollar! Then in 2003, the Turkish government reset their notes. They just literally slashed 6 zeros off of the currency and created the “New Turkish Lira”. So, I was a Turkish millionaire from 2000 until 2003. At that point, my 1,000,000 Lira was valued at 1 New Turkish Lira or approximately 75 Us Cents. I valued the million lira note more than 75 cents, so I never sold it. I valued having that little piece of history, and the cool factor, more. But the lack of trust in the Turkish ability to control inflation cost them the entry into the European Union. They just couldn’t be trusted to not draw down the larger Union based on their recent history. So, trust in money is very important. Without trust, you money is not as valuable to others who trade with you.

Time is Valuable, But Much Harder to Evaluate
We tend to be here and now centered frequently when asked what is our time worth. Today I make $10 per hour. So my time is worth $10 per hour. That’s a typical first thought process that has some validity. But it surely doesn’t encompass the entire picture. For example, if you are going to college, a movie, or concert are you paying for your time. Say you paid $100 for some concert tickets for a 2 hour concert. Using the above logic, your time is worth -$50 per hour since you gave away $50 for every hour of your life you spent doing that task? Is the entertainment value worth the 10 hours of work it took you to make the $100 (for simplicity, I’m ignoring deductions for tax, social security, insurance, etc. ). What about your entertainment value? How does that come into play?
So, what does all that mean? It means your time, just like your money, does have value. Placing a value on time is complicated, yet simple too. You’ll only have so many seconds, minutes, hours, days, weeks, months, years, or decades alive to do stuff. Time is finite and waits for no one. Whichever of the units of measure for time you choose, once it’s past or wasted you can never go back. Sure, there are things you may be able to do with the remainder of your finite time to get more efficient, get more effective, get more stuff, more money, or more family time. But you can’t go back to a missed birthday party, a missed birth, a missed funeral, or even a missed conversation. Sure, you can use some of your remaining finite time to apologize, make excuses, or whatever. But you can’t go back.
You also don’t control how much time you have. Only God knows that answer. We all have heard of the stories. Uncle so-and-so smoked every day, drank every day, and never slept. He really didn’t take care of him self. But that dude lived for over 80 years. You’ve also heard of the ones who are in picture perfect shape. Great athlete. Made all the right “sacrifices” in the name of a long healthy life. Then dies in his early thirties. Or your buddy from high school who died in a car accident. Then there’s the sudden infant syndrome stories. You just never know the time or the place of your end.

Increasing the Things You Value
So, the take away is to use your valuable resources wisely. Spend the your time on the things that are most valuable to you. Each of us are different and have different things we value. I’m at a time in my life of reflection. I look back on past mistakes and am trying to make sure I don’t repeat them. I’m looking forward to how to avoid mistakes in the future. I’m also trying to explain some things that may help y’all avoid some of the mistakes, or missed opportunities,
The best way to maximize your resources to increase things that you value is long term consistent progress. There are no shortcuts. In order to get things you value, you’ll have to trade something else of value. You trade time for hourly wages or a salary. You trade your valuable time doing other things. Maybe playing video games, hunting, fishing, watching movies, reading, Facebook, formal education, informal education like library or internet research.
Is what you doing consistently moving you forward. Do things that move your closer to the goal adding value (no, not just money). Day after day, week after week, month after month, and year after year you move forward and avoid moving backwards. Do the right things for the right reasons, keep moving, keep learning new ways to maximize ways to get more of the things. Then after time, when you look back, you’ll be amazed by how far you’ve come.
Here’s a couple of examples. I value gardening. I have grapes, blackberries, raspberries, basil, onions, garlic, asparagus, peppers, a peach tree, a plum tree, and a fig tree. That’s only the edible stuff. I also have Mexican Petunias (from Taylor), Hen and Pecs (PePaw), DayLillies (Gene), 4 O’Clocks (PePaw), Iris (PePaw), Purple Beans (Margie), and many others. That’s quite a lot of plants for the little bit of yard we have. But it was all part of a plan. I wanted things that I valued. I value the edible stuff for obvious reasons. I also value the flowers and other plants because it reminds me of the people I love that were generous enough to give me a little piece of them (their plants). If done in one effort, it would be overwhelming. It would be a lot of effort. But I didn’t do it all in one effort. I built up my valuable (to me) garden often only one plant at a time. I brought home a hunk of Mexican Petunia’s from a trip to Lockhart at Taylor & Austin’s first house. I brought home a clump of dirt with 4 O’clocks from PePaw and MeMaw’s from a trip to visit them a couple of years ago. Each time I was gifted or bought something, I’d think of a place in the yard with the most chance of success, or where it could be enjoyed, or some other reason that made sense to me at the time. Another thing that makes my garden valuable is that none of the things have to be replanted. In many cases, they are even propagating where I have more than was originally given to me or more than I bought. I can now literally share the “fruits” of my labor with people I value. I can give a cutting or plant to someone I value for them to enjoy. So, I have a valuable garden that I built up over time. It was built in baby steps, over a long period of time, and consistently. A small effort, over a long time, of things that increase in value (or quantity) allow me to be more generous each year because now my garden provides more than I can possibly use.

Please leave you comments here for everyone to see. I’ll take inputs for future blog posts. If you don’t leave comments, you’ll just get whatever I feel like posting.
Paw Paw