Budgeting Tricks for Retirement

This post Budgeting Tricks for Retirement appeared first on Daily Reckoning.

Retirement is an exciting thing to look forward to, but it does come with its own set of challenges when it comes to preparing for this next step in life. Once you retire; most likely, you will have to live on a fixed income. This can be an adjustment for many people, but with the right frame of mind, you’ll be able to prepare for any unexpected expenses.

According to the U.S. Bureau of Labor Statistics, the average retired household has about 22% lower costs than the average working household and spends about $14,000 less per year. It also reports that the typical senior spends about $46,000 a year in retirement. Because the average retirement length in the country is 18 years, we can project that the typical retiree will need an $828,000 nest egg to pay the bills upon leaving the workforce.

I know these are big numbers, but not to fear. Let’s go through the major expenses you can expect to encounter in retirement so you are as prepared as possible!

1. Health Care

Health Care is often times a seniors greatest expense in retirement. You may even begin your retirement in good health, but develop medical issues later in life. You can expect your spending on healthcare to rise from the working average of $4,000 to the retiree average of $6,500.

Many retirees do qualify for Medicare; however, many fail to realize that Medicare is not completely free. Basic Medicare costs $135 a month. It’s also important to remember that Medicare doesn’t cover many additional medical expenses such as dental work, glasses, or hearing aids. You may also want to consider purchasing an additional plan for prescription drugs and supplemental healthcare.

Thankfully there are steps you can take to lower your healthcare spending! Consider a Medicare Advantage plan; an alternative to traditional Medicare, Medicare Advantage is an all-in-one health and drug plan, and it typically offers a wider range of coverage than original Medicare will give you. You can also opt for cheaper generic prescription drugs and review your plan each year so you can be sure you’re paying for the plan that best fits your life.

2. Housing

Housing is another of the largest expenses for retired people. A large percentage of seniors, around 80%, enter retirement mortgage free; however, spending on housing can come as a surprise to many retirees. As houses age, they tend to require more upkeep and repairs which leads to more spending on maintenance, as you may be unable to complete housing work on your own. Property taxes also have a tendency to rise over time, even if home values decrease.

You may want to consider downsizing in your retirement. A smaller house will ultimately cost less to maintain and result in a lower property tax bill and reduced homeowners insurance. Another option is to rent in your retirement; this will also help eliminate many of the expenses associated with homeownership, like property taxes, maintenance, and repairs.

3. Transportation

Transportation costs decline on average from about $10,000 per year for working people to around $7,500 annually among retirees. This happens because retired people no longer have to commute to work and tend to travel fewer miles. However, if you choose to keep your car in retirement, AAA estimates it costs $8,849 a year, on average to cover the cost of insurance, maintenance and repairs.

It may make more financial sense to sell your car in retirement if you’re only using it a few times a week. With the convenience of rideshare options and public transportation, it may be a great way to save some money to get rid of your car.

In addition, retirees often qualify for senior discounts on public transportation. For example, people age 65 and over qualify for discounted rates on public transportation in Boston, Washington and San Francisco. In the Philadelphia metro area, seniors are eligible to ride public transportation for free.

4. Food

At the end of the day, everyone needs to eat. Food costs for retirees are 23% less than for working people, usually because there are less mouths to feed, however you should still expect to spend around $483 a month, on average, for food expenses.

There are a ton of ways to keep food costs down in retirement. One of the best ways is to cut down on eating out. Restaurants tend to mark up prices by 300%, so if you do choose to dine out, make sure you are budgeting that out and taking advantage of early bird specials whenever possible.

Take advantage of your extra time by putting more effort into bargain and bulk shopping. It’s also important to make thorough shopping lists to avoid unnecessary spending once you’re in the store.

5. Entertainment

The last major area of spending in retirement is entertainment. Now that you aren’t working every day, you have a lot of extra time on your hands to fill. The average senior today spends $197 a month on leisure, but remember this does not include any extensive traveling.

There are tons of ways to cut costs on activities in retirement. Many museums, movie theaters, and national parks offer senior discounts. Check out your local senior center for free events or further discounts. You can also save money on these costs by volunteering. With some of your extra time, picking up volunteer work at a museum; for example, will often allow you free access to the space.

If you are a senior who wants to travel, make sure you are doing extensive research and budgeting. Consider traveling at off-peak times of year or exploring domestic locations. Additionally, it’s wise to plan big trips for the early part of your retirement when you are most financially and physically able to enjoy them the most.

I hope you found these expense breakdowns helpful! Planning financially for retirement can be stressful, but don’t forget all the good that comes with being prepared. You deserve to make the most of your retirement so start making your plans today.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Budgeting Tricks for Retirement appeared first on Daily Reckoning.

The Secret to a Healthy, Happy, Stress-Free Retirement

This post The Secret to a Healthy, Happy, Stress-Free Retirement appeared first on Daily Reckoning.

Did you know retirement ranks 10th on the list of life’s 43 most stressful events?

I have to say, I was a little surprised.

If you’re not familiar with the Holmes and Rahe Stress Scale, it was invented in 1967 as a way for doctors to predict whether certain stressors in a patient’s life could increase their risk of serious illness.

Two researchers by the name of Thomas Holmes and Richard Rahe came up with the scale after combing through 5,000 medical records. What they found was a strong correlation between life’s most stressful events and illness. Surprise.

Since then the scale has been retested for reliability and it still holds true today.

Like I said, retirement ranks 10th on the list!

Here are Holmes and Rahe’s 10 most stressful life events (you can see the full list here):

  1. Death of a spouse (or child): 100
  2. Divorce: 73
  3. Marital separation: 65
  4. Imprisonment: 63
  5. Death of a close family member: 63
  6. Personal injury or illness: 53
  7. Marriage: 50
  8. Dismissal from work: 47
  9. Marital reconciliation: 45
  10. Retirement: 45

The numbers next to each life event are called “Life Change Unit” scores — and when added up over the span of a year, the total predicts your likelihood of illness.

Here’s how the scoring works:

  • 80% likelihood of illness for scores over 300
  • 50% likelihood of illness for scores between 150-299
  • 30% likelihood of illness for scores less than 150

Is Retirement Good or Bad for Your Health?

Researchers have been trying to answer this question for awhile now. More recently, the Harvard School of Public Health ran a study that looked at rates of heart attack and stroke among men and women in the ongoing U.S. Health and Retirement Study.

Out of 5,422 participants in the study, those who had retired were 40% more likely to have had a heart attack or stroke than those who were still working. The increase was highest during the first year after retirement, and leveled off after that.

Other studies have reported the opposite effect. Some people actually showing improvements in their overall health once into retirement.

But the most interesting study, in my opinion, on retirement as it relates to health and happiness was conducted out of Taiwan University and published in Applied Research in Quality of Life.

The study looked at how time management affects retirees levels of happiness and overall quality of life. Specifically, how you manage your free time.

According to the study, free time refers to those periods when people are under no obligation and can decide for themselves what to do.

What the study found was effective management of free time has a far greater impact on a retiree’s quality of life than the amount of time the person actually has available for leisure activities.

“Individuals who manage their free time well enjoy a higher quality of life, whereas those who gain free time but do not use it properly gain little benefit,” the authors wrote.

The Secret to a Happy Retirement — Goals!

If you think you need to block out every minute of your day to enjoy your golden years, it’s not that drastic. The study found that retirees gained the most benefit by simply setting a few daily or weekly goals and priorities for their free time.

A goal could be simply “I want to maintain relationships with my friends by joining in at least two recreational groups and programs.”

The study’s author concluded the paper by saying that governments, community centers and service organizations should consider programs that teach people how to manage and schedule their free time better to make the most out of retirement.

I must admit, it’s not a bad idea. If you consider your life before retirement, you likely had a predictable routine. Work took priority, and you scheduled everything else around it.

Your daily and weekly goals might have been taking the kids to baseball practice or getting your car oil changed. But you had events and activities you were working towards that kept you sharp.

I think keeping a routine is a necessary part of retirement. It might seem like you have nothing but time in retirement — and you do — but without some structure, you’ll quickly find the days, months, and years start slipping away.

Building a routine you enjoy and setting a few weekly goals is a simple recipe to follow for a happy and stress-free retirement.

The last thing I’ll say about building a routine is it comes with one other added benefit.

By knowing what you’ll do and when, you can project more accurately your expenses. If you plan on going out for brunch every weekend, you can budget for that kind of expense.

The same goes for any recreational memberships or leagues you join. With more free time on your hands, you might end up starting an expensive hobby.

Getting your routine dialed in will help you predict how your free time will impact your retirement spending.

And, if you’re not yet retired but close, practicing your retirement routine is another good way of figuring out what you like and if your budget can sustain it.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Secret to a Healthy, Happy, Stress-Free Retirement appeared first on Daily Reckoning.

My Mysterious Invitation

This post My Mysterious Invitation appeared first on Daily Reckoning.

Dear Rich Lifer,

We spent last Thanksgiving on Kauai, trading Black Friday and turkey for surfing Hanalei Bay and eating poke.

The weather was terrific. The waves were great. And at the risk of being heretical, I like Hawaiian shave ice more than pumpkin pie.

So you can imagine what I was thinking when this invitation showed up in my mailbox …

RLR

It was sent from The Westin in Princeville, a hotel that we ate at a couple times during our stay. In fact, their bar’s macadamia-nut old fashioned quickly became one of my all-time favorite cocktails.

Perched straight above the area’s most iconic surf spot, it’s an epic place to stay… though I opted for a more economical Airbnb elsewhere.

Which brings me back to the invitation.

An Enticing Proposal

It was offering me:

  • Six days and five nights in a private villa at the aforementioned Westin.
  • A six-day car rental through Avis (or at least up to $185 in prepaid credit toward a mid-sized vehicle).
  • My choice of a $75 resort credit for food and other items or 15,000 reward points (supposedly worth $185).

The price? $649 and roughly $20 a day for parking a car during my stay.

Beyond a deadline to respond and a window to book the actual trip, there were just two additional catches.

The first one entailed certain blackout dates and other availability requirements.

The second one was that I would have to sit through a sales presentation. My wife would have to as well. It would take about two hours.

Now, considering that particular hotel runs at least several hundred a night, the value of this package was pretty spectacular.

For someone living in California, where direct flights to Kauai can be had relatively cheaply, it’s especially attractive.

And since I work out of a home office and my daughter is homeschooled, our family could pretty much go whenever we wanted.

What to Do, What to Do

I started thinking more about the additional pros and cons, even reading up on the nature of these sales presentations, consumer rights during them, and the experiences of others who had already done this type of thing in the past.

Here are some of the things I learned.

First off, it is a good deal and fairly straightforward.

There aren’t any real hidden “gotchas” with this particular offer. If you want to go to Kauai and stay at a nice place for a good overall price, it’s a solid way to do it.

The same might be true of other similar offers you receive in the mail. Or it might not be.

Examining the scope of every individual timeshare/condo/vacation home pitch out there is way beyond the scope of this article. (Though it may be something I cover in the future.) As is debating the actual merits of what this particular sales presentation would be about – an ownership interest in the Westin Vacation Club.

The real issue for most people gets down to that sales presentation itself – especially if they don’t really have an interest in, or the money to commit to, any type of vacation home ownership program.

Heck, I would estimate 0.01% of the people who agree to attend a sales presentation are even remotely interested in buying something ahead of time.

And I would almost guarantee that a higher percentage than that do end up buying something, including many people who shouldn’t.

Navigating the Sales Pitch

What are some general guidelines and considerations then?

First off, you probably DO have to attend the sales meeting.

While I’ve read cases where it wasn’t required, my particular invitation was very clear: If you don’t attend, you will get charged high-season rates for the accommodations and suffer other financial penalties.

At the same time, you definitely don’t have to do more than that.

If the advertisement says the pitch is approximately two hours, then you should restate that the minute you arrive to the presentation and hold the sales people to that commitment if things are starting to go over.

In fact, it is entirely fine to tell the person right up front exactly what your expectations are.

There’s no reason to be rude, but you can certainly be honest and direct.

For example, you might simply say something like, “I agreed to attend this sales presentation for a killer discount on my vacation. I don’t have any interest at all in buying anything. I understand it’s your job to make a presentation and I’m happy to let you do that over the next two hours as outlined in the advertisement. But I want to repeat that I won’t be buying anything and I will understand if you don’t want to waste any further time on me. I am also only willing to give you the two hours. If things go longer than that, I will leave.”

If you go this route, expect the salesperson to still do his or her job.

In some cases, they might simply go through the motions or perform everything with a “wink, wink.”

On the other end of the spectrum, I’ve also heard some supervisors require their people to hear “no” seven times (or more!) before taking it literally.

There are plenty of stories online about salespeople using extremely aggressive tactics.

You have to be ready for any approach, and comfortable enough in yourself to not let any of it raise your blood pressure.

Speaking of which …

While I do love those macadamia-nut old fashioneds, I would recommend NOT drinking any alcoholic beverages if they’re provided.

It should be fairly obvious why: Nothing lubricates the mental “yes” machine like a couple of beers or cocktails!

You should also become familiar with your legal rights ahead of time. For example, here’s a brochure from Hawaii that outlines the state’s consumer rights.

Should You Feel Bad About “Gaming the System”?

Some people don’t feel right enjoying the benefits when they know they aren’t interested in buying anything.

Here’s my stance …

You don’t ask to look at billboards.

You don’t ask to watch TV commercials.

You don’t ask for banner ads on the websites you visit.

And you definitely don’t ask for telemarketers to call your cellphone.

They are the (largely unspoken, but understood) tradeoffs that we accept for getting free TV programming or a powerful Internet search engine.

Nobody is forcing you to act on any of the advertisements you see or hear. They are simply part of doing business for the companies involved.

It’s the same thing with incentives to listen to vacation ownership pitches.

The companies understand that a small number of people are truly interested, and an even smaller number will actually agree to buy anything.

They are happy to cast a wide net to viable prospects and let the math do its thing.

So if you receive a solicitation like the one I got, seriously consider what I’ve said today.

It could end up being a great trip at a terrific price.

Heck, in some instances, certain vacation ownership arrangements might even make sense for certain people (though the pitfalls are typically huge and a return on your investment takes many years).

Me?

Ultimately, I didn’t get around to booking the trip by the specified deadline but I’m pretty sure they would still honor it if I called.

Maybe I should go and report the results back to you. You know, in the name of “science”.

To a richer life,

Nilus Mattive

Nilus Mattive

The post My Mysterious Invitation appeared first on Daily Reckoning.

The Big 4 Retirement Worries and How to Beat Them

This post The Big 4 Retirement Worries and How to Beat Them appeared first on Daily Reckoning.

The #1 concern most Americans have when it comes to retirement is paying for health care.

According to a recent survey from Merrill Lynch and Age Wave, those age 65 and over ranked health as their greatest source of worry.

With rising health care costs and longer life expectancies, it’s no wonder covering medical expenses tops most retirees list of retirement worries.

Add to that an unpredictable future for our Social Security system, market corrections, and uncertain taxes, it’s reasonable to feel a bit on edge these days.

However, Americans do retire successfully. Studies tend to show current retirees being less concerned about these issues than those approaching retirement. They have the benefit of experience, I guess.

Although I can’t predict your future, a bit of insight and planning can still go a long way to help ease some of your retirement worries.

So today, I’m going to debunk four of the biggest worries nearly all retirees have on their mind.

Retirement Worry #1: Health Care

You see healthcare top many retirement lists and studies as a major concern because many health issues are age related.

While you can’t control your genetic makeup, you can make good choices when it comes to eating healthy and exercising regularly. In addition, I find simply giving people their options when it comes to healthcare coverage can ease a lot of the uncertainty.

Here are the basics…

Most people become eligible for Medicare when they turn 65. Medicare is made up of several parts.

Medicare Part A is hospital coverage. It’s generally free, with some exceptions.

Medicare Part B is medical insurance, and you pay a premium for coverage.

Medicare Part C, aka Medicare Advantage, is an optional replacement for traditional Medicare. You might pay more for an optional Part C plan.

Medicare Part D is your prescription drug coverage. Pard D costs will vary.

So unless your prior employer has your health insurance covered for life, you’ll most likely go onto Medicare.

Choosing the right plan depends on your health status, family history, and budget. It’s also not a bad idea to consider a Medicare Supplement plan, or a Medigap policy.

A major reason to consider a Medigap policy is if you plan on traveling.

Traditional Medicare doesn’t cover you when you travel outside the U.S. But, most Medigap policies do.

The last thing you should consider is long-term care insurance. The data isn’t pretty. Coverage is expensive and your alternative of no coverage can be worse.

The main things to consider here are whether or not your assets are needed for someone else to maintain a certain standard of living. And, whether or not you’re looking to leave a legacy.

Those are two major questions you need to ask before you consider long-term care insurance.

Retirement Worry #2: Outliving Your Money

The second biggest worry is fear of running out of money. With longer life expectancies and rising costs, the amount of money it takes to maintain a comfortable standard of living in retirement is significant.

Step one is to figure out how much you’ll need saved to retire comfortably. You can do this a number of ways but my suggestion would be to find a few different retirement calculators and run the numbers.

Once you have a few different sets of numbers, choose the worst case scenario and build your savings plan around that number.

The sooner you know how much you should have saved the better. Sometimes it can seem like a pension, Social Security and some modest savings will be enough. But that isn’t always the case.

Inflation and other uncontrollable factors can quickly eat away at your savings. It’s important to keep your spending to a minimum early in retirement, this way you give your money time to grow and you’ll have extra saved should you run into trouble later on.

Retirement Worry #3: Not Enough Cash Flow

This worry might seem similar to the second, but it comes from a different place. A lot retirees worry that their income won’t be enough to cover basic living expenses.

The fate of Social Security is up in the air. It likely won’t disappear but it could be significantly reduced, leaving a lot of retirees struggling to pay their bills.

The fix here is putting in place a solid drawdown strategy. The most common strategy is the 4% rule, where you withdraw 4% of your savings in the first year of retirement, and each year after that you take out the same dollar amount, plus an inflation adjustment.

For example, if you have $1,000,000 in retirement savings, the first year you would withdraw $40,000. Then, over the course of that year, inflation runs 3%. The next year, you’d withdraw $41,200.

There are a number of different drawdown strategies, the point being that having a sufficient cash flow is critical in retirement.

Retirement Worry #4: Debt

The last big worry is paying down debt. This worry probably wouldn’t have topped the list 20 years ago. But today retirees carry a lot more debt.

Bigger mortgages, multiple credit cards — it’s a major issue that retirees face. It’s not that you can’t ever have debt in retirement, but you need to be able to manage it.

If you can, pay off your credit cards before you retire. You don’t want your retirement savings getting eaten up by high-interest payments.

In some cases, you’ll want to go into debt. Maybe you need to replace your vehicle and the interest payments are low enough that it makes sense to take out a car loan.

You might also downsize or buy a second vacation property with a mortgage. So long as you’re not relying on debt to fund your retirement and you have a plan in place to manage the debt you owe, you can overcome this worry.

The bottom line is that it’s natural to feel some anxiety about retirement. With the right plan is place and a grasp on what’s to come, you can mitigate most of your fears fairly easily.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Big 4 Retirement Worries and How to Beat Them appeared first on Daily Reckoning.

The Big 4 Retirement Worries and How to Beat Them

This post The Big 4 Retirement Worries and How to Beat Them appeared first on Daily Reckoning.

The #1 concern most Americans have when it comes to retirement is paying for health care.

According to a recent survey from Merrill Lynch and Age Wave, those age 65 and over ranked health as their greatest source of worry.

With rising health care costs and longer life expectancies, it’s no wonder covering medical expenses tops most retirees list of retirement worries.

Add to that an unpredictable future for our Social Security system, market corrections, and uncertain taxes, it’s reasonable to feel a bit on edge these days.

However, Americans do retire successfully. Studies tend to show current retirees being less concerned about these issues than those approaching retirement. They have the benefit of experience, I guess.

Although I can’t predict your future, a bit of insight and planning can still go a long way to help ease some of your retirement worries.

So today, I’m going to debunk four of the biggest worries nearly all retirees have on their mind.

Retirement Worry #1: Health Care

You see healthcare top many retirement lists and studies as a major concern because many health issues are age related.

While you can’t control your genetic makeup, you can make good choices when it comes to eating healthy and exercising regularly. In addition, I find simply giving people their options when it comes to healthcare coverage can ease a lot of the uncertainty.

Here are the basics…

Most people become eligible for Medicare when they turn 65. Medicare is made up of several parts.

Medicare Part A is hospital coverage. It’s generally free, with some exceptions.

Medicare Part B is medical insurance, and you pay a premium for coverage.

Medicare Part C, aka Medicare Advantage, is an optional replacement for traditional Medicare. You might pay more for an optional Part C plan.

Medicare Part D is your prescription drug coverage. Pard D costs will vary.

So unless your prior employer has your health insurance covered for life, you’ll most likely go onto Medicare.

Choosing the right plan depends on your health status, family history, and budget. It’s also not a bad idea to consider a Medicare Supplement plan, or a Medigap policy.

A major reason to consider a Medigap policy is if you plan on traveling.

Traditional Medicare doesn’t cover you when you travel outside the U.S. But, most Medigap policies do.

The last thing you should consider is long-term care insurance. The data isn’t pretty. Coverage is expensive and your alternative of no coverage can be worse.

The main things to consider here are whether or not your assets are needed for someone else to maintain a certain standard of living. And, whether or not you’re looking to leave a legacy.

Those are two major questions you need to ask before you consider long-term care insurance.

Retirement Worry #2: Outliving Your Money

The second biggest worry is fear of running out of money. With longer life expectancies and rising costs, the amount of money it takes to maintain a comfortable standard of living in retirement is significant.

Step one is to figure out how much you’ll need saved to retire comfortably. You can do this a number of ways but my suggestion would be to find a few different retirement calculators and run the numbers.

Once you have a few different sets of numbers, choose the worst case scenario and build your savings plan around that number.

The sooner you know how much you should have saved the better. Sometimes it can seem like a pension, Social Security and some modest savings will be enough. But that isn’t always the case.

Inflation and other uncontrollable factors can quickly eat away at your savings. It’s important to keep your spending to a minimum early in retirement, this way you give your money time to grow and you’ll have extra saved should you run into trouble later on.

Retirement Worry #3: Not Enough Cash Flow

This worry might seem similar to the second, but it comes from a different place. A lot retirees worry that their income won’t be enough to cover basic living expenses.

The fate of Social Security is up in the air. It likely won’t disappear but it could be significantly reduced, leaving a lot of retirees struggling to pay their bills.

The fix here is putting in place a solid drawdown strategy. The most common strategy is the 4% rule, where you withdraw 4% of your savings in the first year of retirement, and each year after that you take out the same dollar amount, plus an inflation adjustment.

For example, if you have $1,000,000 in retirement savings, the first year you would withdraw $40,000. Then, over the course of that year, inflation runs 3%. The next year, you’d withdraw $41,200.

There are a number of different drawdown strategies, the point being that having a sufficient cash flow is critical in retirement.

Retirement Worry #4: Debt

The last big worry is paying down debt. This worry probably wouldn’t have topped the list 20 years ago. But today retirees carry a lot more debt.

Bigger mortgages, multiple credit cards — it’s a major issue that retirees face. It’s not that you can’t ever have debt in retirement, but you need to be able to manage it.

If you can, pay off your credit cards before you retire. You don’t want your retirement savings getting eaten up by high-interest payments.

In some cases, you’ll want to go into debt. Maybe you need to replace your vehicle and the interest payments are low enough that it makes sense to take out a car loan.

You might also downsize or buy a second vacation property with a mortgage. So long as you’re not relying on debt to fund your retirement and you have a plan in place to manage the debt you owe, you can overcome this worry.

The bottom line is that it’s natural to feel some anxiety about retirement. With the right plan is place and a grasp on what’s to come, you can mitigate most of your fears fairly easily.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Big 4 Retirement Worries and How to Beat Them appeared first on Daily Reckoning.

Are You Ready for Another Recession

This post Are You Ready for Another Recession appeared first on Daily Reckoning.

Dear Rich Lifer,

Although the U.S. economy continues to grow and add jobs, talk of the dreaded “R” word is on the rise due to a number of worrying signs.

Yes, I’m talking about a “Recession”.

Between the ongoing trade war with China, an inverted yield curve, and the Federal Reserve lowering short-term borrowing costs, investors are starting to get spooked.

A question I get asked a lot is what should retirees do with their money when a recession is looming?

When the market crashed in 2008, an estimated $2.4 trillion disappeared almost overnight from Americans’ 401(k)s and IRAs.

The fear of losing everything to another recession is sending a lot of investors running for the hills.

However, there are steps you can take today to minimize losses during a recession, no matter your age or financial situation.

Here’s a checklist you can follow so that your investments and savings can weather any financial storm.

1. Start tracking your cash flow.

Step one in preparing for a recession is knowing where you stand. The best way to figure this out is by calculating your cash flow, or how much money you have coming in versus going out.

Knowing what your fixed and variable costs are each month as well as where your income is coming from will relieve some of the uncertainty should there be an economic downturn.

If you’re employed, there’s a high chance that you might get laid off during a recession, so you’ll want to know exactly how long your savings will last.

An easy way to begin tracking cash flow is with free mobile apps, like Mint or Personal Capital. You simply connect your bank accounts to these apps and the software tracks your transactions and categorizes your spending.

This way you know where your money is going each month and you can start setting budget goals or identifying expenses that can easily be cut in the future.

2. Top up your emergency fund.

Your best defense against economic hardship will be a well-funded emergency fund. Rather than rack up high-interest debt, you can tap your savings to cover basic living expenses.

As a general rule-of-thumb, I recommend building an emergency fund of 3-6 months worth of expenses. With talk of a nearing recession, however, it’s best to err on the conservative side.

The reason why an emergency fund is critical is because you’ll need liquid money to keep paying your bills. If you or your spouse lose your job, an emergency fund will come in handy to keep you afloat.

If you’re retired, you won’t have to worry about getting laid off, but you’ll still need an adequate amount of accessible cash in case your retirement accounts or pension take a hit.

3. Pay off outstanding debt.

With talk of a recession happening in the next year or so, it’s a good time to start aggressively paying down any bad debts you owe.

Should a recession strike, you’ll want your income going toward monthly living expenses and not paying the bank.

Plus, if you miss too many payments you could end up wrecking your credit score, which will make your life even more challenging when the economy recovers.

Also, whatever you do, don’t dip into your 401(k) to pay off debt, especially if you’re not yet retired. Start with high-interest debt first, like credit cards and build debt payments directly into your budget so you don’t forget.

4. Rebalance your investment portfolio.

Once you’ve taken care of your emergency fund and paid down any outstanding debts, it’s time to review your investments.

If you’re already retired or close to retirement, you’ll want to mitigate as much risk as possible but still maintain enough growth in your portfolio to pay for living expenses and outpace inflation.

Traditional wisdom of maintaining a 60/40 mix of stocks and bonds is no longer enough diversification.

The reason being that retirees are now living longer, which means your portfolio needs more room for growth. Look to diversify your portfolio to include a wide range of asset classes, like foreign stocks and bonds, this will put you in a better position to endure a downturn.

5. Manage your 401(k) wisely

If times get really tough, it can be tempting to want to sell or make significant alterations to your 401(k). My advice: don’t touch it.

Most likely, your 401(k) is part of your long-term financial plan, which means economic downturns are part of the deal. You don’t want to jeopardize any long-term gains by panic-selling the moment markets start dropping.

Lastly, if you’re not already maxing out your 401(k) contributions or taking advantage of any employer-match programs, make sure you do. That’s your money to keep.

Finally, understand that recessions are a normal part of the economy. They’re cyclical in nature and notoriously hard to predict. Control what you can by heeding the warning signs and preparing best you can.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Are You Ready for Another Recession appeared first on Daily Reckoning.

The Democratic Debate Dilemma

This post The Democratic Debate Dilemma appeared first on Daily Reckoning.

Right before last week’s Democratic debate, Elizabeth Warren revealed her plan to greatly expand Social Security.

And then, during opening remarks, Andrew Yang said he wanted to pay 10 Americans “freedom dividends” worth $1,000 a month as a way of demonstrating his larger plan to do the same thing for everyone in the country.

Now, both of these proposals are attempts to create larger social safety nets.

Both are also attempts to buy votes.

And both, in my opinion, miss the mark.

Let’s start with Elizabeth Warren.

The Headline Promise

Warren wants to pay all current and future Social Security recipients an extra $200 a month.

Promising seniors, the group of Americans who always vote come rain or shine, an extra $2,400 a year in Social Security benefits is a pretty good way to garner their support.

In addition, her plan:

  • Changes the measure of inflation used for Social Security adjustments to make it more tailored to what seniors experience
  • Provides Social Security credits to non-earning caregivers
  • Allows disabled widows and widowers to claim survivor benefits earlier
  • Creates special minimum benefit rules that would guarantee checks worth 125% of the federal poverty line
  • Finally, it allows public sector employees to avoid negative adjustments for various pension benefits

Warren would pay for all of these changes with two new taxes:

  1. A 14.8% combined payroll tax on all wages above $250,000
  1. A 14.8% net investment income tax for individual filers making $250,000+ and joint filers making $400,000+. (This is in addition to an existing 2.9% net investment income tax.)

For the vast majority of Americans, this tradeoff sounds pretty good – higher Social Security checks, a better safety net for some, and all the costs being paid by the highest 2% of earners.

Personally, the individual line items sound like a mixed bag to me.

But there are really two big objections to be considered here:

A Philosophical Shift

Social Security was never intended to be an overtly progressive program. So this proposal would represent a marked philosophical shift.

When Social Security was first instituted, it covered about half of the population. Many teachers, nurses, librarians, and other workers were excluded from coverage.

Today, Social Security covers virtually everyone and the average American is living to age 76. Other features like disability insurance have also been added to the equation as well.

To accommodate this widening gap of money coming in and money going out, the initial payroll tax rate of 2 percent — which was and still is split between employer and employee — has already risen to a combined 12.4 percent.

But the idea was always providing a basic retirement benefit for all Americans … funded by their own contributions over time … with well-defined parameters on the top end (both maximum benefits and maximum contributions).

Warren’s plan is substantially different in spirit.

It places a lot more financial burden on a lot less people at the top of the income scale.

Whether you agree with her assessment that those people should bear the cost is up to you. That brings us to the second objection.

The Math Is Against Her.

It’s quite likely that Warren’s math wouldn’t pencil out in reality.

According to an analysis by Mark Zandi of Moody’s Analytics, Warren’s proposal would pay for itself and extend Social Security’s solvency out another 19 years.

Of course, one of the big assumptions is that wealthier Americans will take zero action to avoid the new taxes that Warren is proposing.

Newsflash: They will take actions to avoid the new taxes that Warren is proposing.

I have no idea to what extent or how, obviously.

But it’s foolish to think that America’s richest citizens won’t reconfigure their businesses … shift income sources … go through various legal restructurings … or use many other tactics to minimize the impact of these new policies.

Therefore, we can’t take any analysis at face value.

What About Yang’s Plan?

For someone who touts his ability at math, Yang’s proposal looks pretty ridiculous once you dig a little deeper.

I really like Yang. He’s funny. He’s intelligent. He also seems fairly reasonable.

I also thought his “freedom dividend” idea was somewhat palatable – or at least more palatable than Warren’s Social Security plan – until I read the fine print.

Okay, so one of Yang’s biggest ideas is a universal basic income program for all Americans.

Here’s the explanation from his website:

“Andrew would implement the Freedom Dividend, a universal basic income of $1,000 a month, $12,000 a year, for every American adult over the age of 18. This is independent of one’s work status or any other factor. This would enable all Americans to pay their bills, educate themselves, start businesses, be more creative, stay healthy, relocate for work, spend time with their children, take care of loved ones, and have a real stake in the future.

“Other than regular increases to keep up the cost of living, any change to the Freedom Dividend would require a constitutional amendment.

“It will be illegal to lend or borrow against one’s Dividend.”

How would we pay for this?

This is the answer from Yang’s website:

“Andrew proposes funding the Freedom Dividend by consolidating some welfare programs and implementing a Value Added Tax of 10 percent. Current welfare and social program beneficiaries would be given a choice between their current benefits or $1,000 cash unconditionally – most would prefer cash with no restriction.

“A Value Added Tax (VAT) is a tax on the production of goods or services a business produces. It is a fair tax and it makes it much harder for large corporations, who are experts at hiding profits and income, to avoid paying their fair share. A VAT is nothing new. 160 out of 193 countries in the world already have a Value Added Tax or something similar, including all of Europe which has an average VAT of 20 percent.

“The means to pay for the basic income will come from four sources:

“1. Current spending: We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of the Freedom Dividend because people already receiving benefits would have a choice between keeping their current benefits and the $1,000, and would not receive both.

“Additionally, we currently spend over 1 trillion dollars on health care, incarceration, homelessness services and the like. We would save $100 – 200+ billion as people would be able to take better care of themselves and avoid the emergency room, jail, and the street and would generally be more functional. The Freedom Dividend would pay for itself by helping people avoid our institutions, which is when our costs shoot up. Some studies have shown that $1 to a poor parent will result in as much as $7 in cost-savings and economic growth.

“2. A VAT: Our economy is now incredibly vast at $19 trillion, up $4 trillion in the last 10 years alone. A VAT at half the European level would generate $800 billion in new revenue A VAT will become more and more important as technology improves because you cannot collect income tax from robots or software.

“3. New revenue: Putting money into the hands of American consumers would grow the economy. The Roosevelt Institute projected that the economy will grow by approximately $2.5 trillion and create 4.6 million new jobs. This would generate approximately $800 – 900 billion in new revenue from economic growth.

“4. Taxes on top earners and pollution: By removing the Social Security cap, implementing a financial transactions tax, and ending the favorable tax treatment for capital gains/carried interest, we can decrease financial speculation while also funding the Freedom Dividend. We can add to that a carbon fee that will be partially dedicated to funding the Freedom Dividend, making up the remaining balance required to cover the cost of this program.”

So, a little wordy but, here’s the thing.

I’m the last person who wants to support another tax. But I could have at least argued that a VAT affects people who spend money rather than people who earn money.

Moreover, if the proceeds were going to be redistributed to all Americans on an equal basis and regardless of their income or net worth, then “freedom dividends” are certainly a lot more fair than Warren’s proposal.

The real problem is that, based on Yang’s numbers, a 10% VAT would only produce $3,200 a year for every American adult. Which leaves about $8,800 unaccounted for.

I repeat: We would all pay an extra 10% on most of the purchases we make, and yet that would only cover a bit more than one-quarter of the income Yang wants to give back to us.

That’s why he’s also going to completely remove the cap on payroll taxes – a far worse blow to higher-earning Americans (particularly those earning between $140,000 and $250,000) than what Warren proposes.

There’s also another tax on financial transactions …

He would end a tax break on capital gains and carried interest …

Another tax – okay, a carbon fee – on some undefined people or entities …

Plus, all this nebulous stuff that essentially amounts to back-of-the-envelope guesswork. Streamlining existing welfare programs? Sure…

But the other claims of economic growth and institutional avoidance can’t be proven out until we’re years into the experiment.

So, math… Sure.

Heck, the very way Yang counts the things it will take to produce $12,000 a year for every adult American is a lot more than four sources.

At the end of the day, I don’t really like either of the two proposals we covered today.

But as much as I wanted to support Yang’s more than Warren’s, at least hers somewhat adds up.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Democratic Debate Dilemma appeared first on Daily Reckoning.

Are Your Retirement Expenses Out of Control?

This post Are Your Retirement Expenses Out of Control? appeared first on Daily Reckoning.

We’ve all seen the commercials with the gray-haired couple sipping champagne on the beach or the grandfather teaching his grandkids how to fish at the lake house.

But financially speaking, how realistic are these depictions of retirement?

According to the latest Consumer Expenditure Survey, produced every year by the U.S. Bureau of Labor Statistics, “older households” – defined as those run by someone 65 and older – spend an average of $45,550 a year, or roughly $3,795 a month.

Obviously, what you spend in retirement will depend on different variables, including the annual property taxes on that lake house, the price of your preferred champagne, and a number of other individual factors, but you get the point.

If I’m being honest, I think spending $45,550 a year after-tax in retirement seems a bit high. Based on a 20% effective tax rate, $45,550 is equivalent to $54,660 a year in gross income.

To generate $54,660 a year in gross income, you would need an investment portfolio of $1,366,500 generating 4% a year.

Is the average 65+ year-old retiree in America a millionaire?

We know that the average 60-69 year-old American has only about $195,500 saved in their 401(k) and only $62,000 if we look at the median 401(k) account balance, so something seems a bit off…

If we take a more optimistic view, however, we can assume that current retirees over the age of 65 likely have some form of pension income as well as a healthy Social Security check, averaging out at around $1,461 a month. Add to that a little financial help from your adult kids and it should all work out in the end.

But the question I’m most concerned with is where is this $45,550 being spent? With less mouths to feed, no daily commute, it seems surprising to me that retirement expenses are this high.

If we dig into the BLS data a little more, we see a monthly breakdown of how households spend their money, on average. Here are the seven major categories you need to plan for:

Housing: $1,399

Surprisingly, housing is the largest expense for the average retiree. With the median American home price at $226,800, spending $1,399 a month on housing is high.

If your house is paid off by the time you retire, you should only be paying property taxes, insurance, maintenance, and utilities. Therefore, it’s obvious that the average retiree still has a mortgage to pay.

With no mortgage, your average housing expenses would tally up to more like $350 a month based on the median home price today. Point being, paying off your mortgage before you retire is going to save you a LOT of money.

Transportation: $615

$615 a month for transportation is another surprisingly high number, especially given the fact that most seniors get discounts on public transportation.

For example, discounts usually start at 50% of the regular adult fare and go up from there. Some cities, like Chicago, even offer free transportation to all senior citizens.

As a senior, spending $7,380 a year on transportation means you either still have an auto loan you’re paying off or it’s a sign you need to find a more trustworthy mechanic. The average transportation expense across all consumers last year totalled $9,761.

Although seniors are paying less on transportation per year than most, it still seems high in my opinion. Most Americans could do with paying less for transportation. Overpaying for a car is one of the biggest financial killers.

Healthcare: $557

It’s nice to see that health care cost averages only $557 a month or $6,684 a year. The average healthcare cost for a working American is closer to $20,000 a year, which is heavily subsidized by the employer.

The horror stories you hear about health care costs skyrocketing in old age are a bit exaggerated, so long as you have Medicare or some type of subsidized health insurance program.

Food: $539

$539 a month for food is not bad compared to the $600 a month for the average individual. With all the early-bird specials and seniors discount shopping days, retirees should be saving money in this category. My advice, stay away from food delivery apps if you want to maintain a reasonable budget here.

Personal Insurance/ Pensions: $283

It’s a bit unclear why this category even exists. 65+ year-olds should mostly be retired, however, the BLS explains this category as households who are still employed, paying Social Security tax, and contributing to Social Security.

In other words, the secret to a prosperous retirement is to keep your spouse working as long as possible! Seriously, having one spouse work late into retirement means you can typically afford more and live better. It just needs to be a situation you’re both happy with.

Cash Contributions: $210

$210 a month or $2,520 a year in cash contributions (aka charitable donations) accounts for around 4.2% of annual gross spend. 4.2% is a respectable amount since the average American contributes roughly 3% of their gross income to charity each year.

Studies have shown that making charitable contributions can improve happiness. Seeing the effect your contribution has made can be powerful so donate while you’re still alive to enjoy it.

Entertainment: $233

$233 a month for entertainment seems a bit on the low end. But when you consider all the discounts and deals that retirees get for being able to attend movies, plays, and museums during non-peak hours, it makes sense.

Not every retiree is taking an around-the-world cruise or flying to the Mediterranean for a weekend. What most retirees are saying is their newfound freedom provides much of their day-to-day happiness versus having to spend money on expensive experiences.

Overall, the average retiree lives a pretty good life. Being able to spend $45,550 a year after-tax is a decent sum given that the median household gross income last year was $63,179. That means the average retiree got to spend close to 87% of the median household income without having to work. Not a bad deal.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Are Your Retirement Expenses Out of Control? appeared first on Daily Reckoning.

The Power of Good Debt

This post The Power of Good Debt appeared first on Daily Reckoning.

There are financial gurus out there that teach the best way to retire rich is to pay off debt. Their lessons usually suggest that debt is bad or even evil. They preach that it is smart to pay off your debt and to stay out of debt. And to an extent they are right.

There is good debt and bad debt. It is wise to pay off bad debt—or not get into it in the first place. Simply said, bad debt takes money out of your pocket, and good debt puts money into your pocket.

A credit card is often bad debt because people use it to buy depreciating items like big screen TVs, cars, and vacations. Conversely, a loan for an investment property that you rent out can be good debt if the asset’s cash flow covers the debt payment and puts money in your pocket.

The people who preach the evils of debt do not understand that debt is essential to the American economy. Whether that is good or bad is debatable, but what is not debatable is that without debt, our entire economy would collapse. Our entire economy is based on steady inflation. And the way in which we encourage that inflation is through debt.

Unfortunately, the way the rich use debt and the way the poor and middle classes use debt are vastly different.

How The Poor Use Debt

As mentioned above, the poor and middle class use debt to generally buy liabilities like a car or a vacation. Even the things they consider to be investments, such as their own personal home, are not assets.

Why? Because the very simple definition of an asset is that it puts money into your pocket. A liability takes money out. A personal home only takes money out of your pocket.

This method of using bad debt to attain things that generally lose value over time keeps most people financially enslaved to debt for most of their lives.

And when they do finally decide to get off the drug of bad debt, they often spend years working harder and harder to pay it off. It’s a lot of lost time and opportunity.

How The Rich Use Debt

The rich use good debt to grow their worth, and they invest in cash flowing assets using Other People’s Money (OPM)—both the bank’s and investors’.

OPM was a fundamental concept of my rich dad and a sign of high financial intelligence. By using both good debt and OPM, you can dramatically increase your Return on Investment (ROI)—and you can even achieve infinite returns.

Good debt is a type of OPM. The downside to debt is that you can generally only borrow a certain percentage of an asset’s purchase price. In keeping with our real estate example from my previous post on good debt, that is generally around 70 to 80% of the purchase price.

Because of this, you have two choices when you find a worthy investment: use your own money or use other people’s money. Provided you structure the deal well, the more you can use other people’s money, the higher your return will be.

Many people think it’s a fantasy world that people would just give you money to invest, but that couldn’t be further from the truth. The reality is that most people don’t have time to find good deals. Instead, they rely on people with the proper financial education, skill set, and drive to bring deals to them.

My real estate advisor has perfected using OPM. His company, MC Companies, buys apartment buildings. He does all the hard work of finding deals, doing the due diligence, negotiating with owners and lenders, and handling management. In return, people line up hoping to invest their money with him.

Today, Ken does big deals that require a certain type of investor. Not just anyone can invest with Ken. But he started with small deals, like the ones I’m writing about today and worked his way up to big deals.

The Power of Good Debt

Here’s an example of why using good debt is a powerful investment tool for the rich.

Using the bank to leverage my investments, I can leverage my money.

Using simple math, let’s assume I have $100,000 and am looking to invest it in a $100,000 property that rents for around $800 per month. You can find many properties like this if you look diligently.

I could use all my money to purchase one property for $100,000, or I could use good debt to buy five $100,000 properties.

The bank would lend me $80,000 for each property and I would divide my $100,000 into five $20,000 down payments.

At 5% interest, the payment on the loans would be around $500, including taxes and insurance. So, my cash flow on each property would be $300 a month ($800 in rent – $500 in debt payment = $300 per month) for a total of $1,500 ($300 x 5 = $1,500) per month—an 18% annual return.

The Power of OPM

Now, here’s an example of why using good debt, coupled with OPM, is an even more powerful investment tool for the rich.

Using OPM, I can increase my return and secure even more assets. Let’s say that instead of having to put down 20% on five properties, I can use my $100,000 to put down 5% on 20 properties. I can do this by finding 20 great deals and lining up investors to invest in them.

Here’s how the math works out.

The bank would lend $80,000 for each property, and I would divide my $100,000 into twenty $5,000 segments, using OPM to raise the other $15,000 needed for each property. Again, at 5% interest, the payment on the loans would be around $500 per month.

Let’s assume that we’ll pay a little more for our investors’ money and give them 7% interest. The money owed to them would be a little less than $100 per month—but we’ll go with $100 to make it simple. So, our total costs would be about $600 per month.

That means we’ll have a cash flow of about $200 per month, which we’ll split with our investors 50/50. We’ll pocket $100 per month, or $1,200 per year, and our investors will pocket $100 per month, or $1,200 per year.

Adding up the total return for all 20 deals, that’s $24,000 per year cash flow, a return of 24%. Not only am I making 6% more per year than if I just used my money, but I also have ownership in 20 assets instead of just 5.

Later I can refinance these properties, pay off my investors, get my investment back, and continue to receive cash flow from the 20 properties—an infinite return.

Again, I’m using very simple math here. In real life, the numbers are more complicated and much larger. But the principles are the same.

Investing with OPM takes a high level of financial intelligence. But my advisor and I both started small and worked into the big apartment deals we do today. You can do the same.

Be diligent. Continue to increase your financial education.

Work hard. And master the fundamentals of good debt and OPM, and you will become wealthy.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

The post The Power of Good Debt appeared first on Daily Reckoning.

The 1 Budget Change to Make You Rich 

This post The 1 Budget Change to Make You Rich  appeared first on Daily Reckoning.

Even more than our education, our habits reflect our lives. Habits are very easy to develop and very hard to break, and once they’re developed, they control our behavior—sometimes in ways that we don’t even recognize. Often these bad habits lead to other bad habits. It’s a vicious cycle.

For instance, many people want to be in shape. In fact, we’re only a few weeks away from that time of year when people start making resolutions to go to the gym and get fit. Emboldened, they go sign up for a membership and begin working out. Soon they realize that working out is hard and that it hurts.

That’s when the bad habits they’ve developed over the years creep in. They start hitting the snooze button. “Just ten more minutes and then I’ll get up and go to the gym,” they say.

Then ten minutes turns into an hour. “I’m running late for work! I can’t go this morning, but I’ll go at lunch,” they say.

At lunch, a friend wants to go get hot wings. “I’ll skip just this once,” they say. And so on. Before long, they’ve canceled the gym membership, and they’re back to their old unhealthy ways.

You can’t afford not to take action when it comes to your finances. And as I write today’s letter, a colleague of mine is gearing up for the biggest interview of his life. He’s going to show you exactly how you can break your bad money habits at 1pm EST today. And has blueprint to follow is not nearly as difficult as sticking to your workout plan.

When It Comes to Money, Most People Have Bad Habits

Many people I talk to want to be rich. They even read my books and understand what it would take for them to reach their financial goals.

But they lack the discipline to become rich. They may come to a seminar and leave excited about, and committed to, building their asset column and financial education, only to have their bad financial habits derail them.

For instance, they may want to set aside money for investing every month, but then they see a sale on some shiny new object they’ve wanted for a while.

“I’ll start investing next month,” they say. “I need to get this now so that I’ll save money.” Then, when the next month rolls around, they realize that they’ve gone out to eat a little too much and that they won’t have any money left over after paying their bills.

“I have to pay my bills,” they reason. “I’ll start investing next month.” Then another month comes and they’re in the same predicament. “I should adjust my budget,” they think.

But then they remember their favorite TV show is on. “I’ll do it tomorrow.” Before long, they give up on their goal of investing and let their bad habits win.

Rich Dad said that the rich had a very simple way of breaking bad money-habits. “The poor pay themselves last, and that is why they’re poor,” he said. “But the rich pay themselves first, and that is why they’re rich.”

The Difference Between Rich Dad’s Budget and Yours

Rich dad’s budget was different than most people’s because he treated his asset column as an expense—and his most important expense. Every month, no matter what, he put money aside for his investments, even if he didn’t have enough money for his other bills. As a young man, I didn’t quite understand.

“Are you saying you don’t pay your bills?” I asked.

“Of course not,” said rich dad. “I firmly believe in paying my bills on time. I just pay myself first…before I even pay the government.”

“What if you don’t have enough money?” I asked.

“I still pay myself first,” said rich dad.

“But don’t they come after you?”

“Yes,” said rich dad. “That’s why I always find a way to pay.”

How Budgeting Motivates the Rich

For rich dad, paying himself first motivated him to work harder and smarter to make sure to pay his bills and creditors. He used the fear of not being able to pay his bills, sometimes a situation created by paying himself first, to motivate him to make more money.

He worked extra jobs, started companies, traded in the stock market—anything he could to make sure he met his obligations. After paying himself first, he used the pressure from creditors to form good money habits.

“If I’d paid myself last,” said rich dad. “I would have felt no pressure…but I’d also be broke.”

Kim and I put rich dad’s advice into practice early in our marriage. We found that, just as he had promised, we learned to get motivated to find creative ways to make money. In the process, we learned more about ourselves and how to make money out of thin air.

What Does it Take to Get Rich?

Anyone who says that money isn’t important obviously has not been without it for very long.

The year 1985 was the longest and hardest of my life. Kim and I were homeless; we were unemployed, had little-to-nothing left in our savings, our credit cards were maxed out, and we were living in an old, brown Toyota.

After three weeks of that, a friend found out about our financial situation and invited us to stay in a basement room. We stayed there for over nine months.

During those times, Kim and I often fought and argued. Fear, hunger, and uncertainty has a way of shortening our emotional fuse, and we usually end up fighting with the one we love the most. Yet, love held us together through those hard times.

Get a Job?

We kept our financial woes quiet for the most part, but when a friend or family member found out about our struggles, the first question they always asked was, “Why don’t you get a job?”

At first, we attempted to explain ourselves, but it didn’t do much good. To someone who values a job, it’s difficult to explain why you might not want one. We had a few odd jobs here and there, but those were only to keep us fed and gas in the tank.

At the time, the idea of a safe, secure paycheck was certainly tempting. But we didn’t want safety and security. We wanted to be completely independent in the financial aspect of our lives.

By 1989, we were millionaires.

By 1994, we were in a position to never work another day in our lives.

No Money, No Problem

I often hear people say, “It takes money to make money.” This is not true. For Kim and me to go from homeless in 1985 to millionaires in 1989, and then to independence, money-wise, in 1994, it didn’t take money. We had no money when we started, and we were deeply in debt.

It also didn’t take a formal education. I have a degree, and I can tell you that achieving independence financially had nothing to do with what I learned in college.

I didn’t find much demand for my skills in calculus, spherical trigonometry, chemistry, physics, French, and English literature in the real world.

What Does It Take to Get Rich?

I’m often asked, “If it doesn’t take money to make money and schools don’t teach you how to become independent, money-wise, then what does it take?”

My answer: It takes a dream, a lot of determination, a willingness to learn quickly, the ability to use your God-given assets properly, and to understand how money works and can work for you.

All of the qualities necessary for getting rich, start with financial education—a type of education that you can’t get in a traditional school.

My financial education started with my rich dad, my best friend’s dad, and continues today through books, seminars, learned lessons, and mentors. From all these sources, I learned about cash flow, debt, business and investing, taxes, and more—and how to use each to make myself rich.

If you want to be rich, I can’t stress the importance of starting your financial education today. Take some classes, read a book, attend a seminar, and find a great coach.

It’s the most important investment you can make.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

The post The 1 Budget Change to Make You Rich  appeared first on Daily Reckoning.