Financial Diet by Will Marre - Will Marre believes most American households need to get on a financial diet. A typical American household spends 140% of what it earns, which means a typical household borrows money to support its spending. Obviously, we need to spend less than we earn. It takes discipline and, very likely, investing in yourself -- your main income engine. Borrowing for school (instead of for that HD Plasma TV) makes sense, because that investment in education will likely lead to higher income. Money borrowed for the TV will not. Thinking like that is "production" based because you're invest your money in the production engine--YOU!
If link dies, read cached copy below...
2008 Diet and Investment Plan @ American Dream Project
by Will Marre
There is nothing you can buy that is worth the price of peace of mind. If you want a dream life, live in a place you can afford, working at a career you love, now. Not twenty years from now.
Last August I wrote about the upcoming ďfinancial winter.Ē Well, itís evidently arrived. Suddenly everyone is talking about inflation, job losses, foreclosures, and a drop in consumer spending. This is a big deal. The ratio of household debt to income is now 130%. Fifteen years ago it was 80%. Gulp. In my view, all of this was avoidable, but when we have policies that promote endless borrowing and buying instead of producing and saving, weíre bound to be hit by a blizzard of woe. A consumer economy simply creates a culture of dependence, a producer economy a culture of self-sufficiency. So why not create your own economic world in 2008? One that is largely self-sufficient and independent of the hand-wringing whining of policy makers.
Hereís how I think about it. Get on a healthy financial diet. Financial adviser Ann Morosy (http://www.moneta.com.au) says your fixed costs (mortgage or rent, credit card, car, and personal loan payments, insurance, taxes, etc.) ought to be no more than 40% of your income. Variable expenses (food, clothing, cell-phone, gas, repairs, etc.) ought to be no more than 30%. Fun expenses (vacations, entertainment, presents, jewelry, etc.) ought not to exceed 20%. And savings, 10%. Sounds great, right? But in our consumer economy an increasing number of people pay nearly 50% of their income to housing related costs alone! Throw in gas and medical insurance, and it seems hopeless. Thatís exactly what many forces in our economy would like you to do. Surrender to the inevitable. Itís called debt slavery. Wait for 100-year mortgages. It will be part of the ďsolutionĒ to our mortgage crisis. The idea is like modern sharecropping. All your work will go to pay minimum payments on debt that never disappears. Live different.
The first part of the solution is a healthy financial diet. Get serious about reducing variable and fun expenses to pay down fixed expenses. Be aggressive, steady, and consistent. But even then your financial mountain may seem too huge to save your way to sanity. If thatís true, invest in yourself. Thatís right; your best investment is usually in the economic opportunity you have the most control over. Thatís you. Thatís where the second part of the solution comes in.
Invest in your own earning power. In todayís global workplace you really have no choice but to become an expert at something. It should be something that youíre naturally good at and that holds your interest. It could be nearly anything from being a bookkeeper, tailor, sales person, project manager, and dog groomer. It doesnít matter much what you choose if you are absolutely great at it. Even in depressions there is a wealthy class that will pay for the great, the unique, and the dependable. When I say expert, I am not saying merely good; I mean you devote yourself to excellence. To be great requires intelligent effort. The formula is learn-do-teach. Be an eager student of your interests and a constant developer of your gifts. Never settle for a final plateau. Next, be excellent on the doing. And finally, teach others what you know. Write, blog, lecture, publishójust tell the world. It doesnít matter what it is; there is always room at the top of any profession. Hey, the world still needs cowboys. Ty Murray makes millions being a rodeo star. The world also needs train engineers, nannies, diesel mechanics, and copywriters. And the people who are great and dependable at nearly all of these jobs often make close or better than $100,000 a year. (Yes, even world-class nannies. And if youíre already making $100 K but are still broke, donít despair. My experience is that nearly anyone can triple their income if they are willing to become a truly amazing expert and be dependable.)
The point is itís easy to get derailed by stress when gas is $5 bucks a gallon and politicians are calling for bailouts for this and that. But donít be distracted. No one is going to bail us out. At best they can help change economic and trade policy to foster a production economy instead of a consumer one. And thatís what we need to do with our personal economy. Become a producer of your maximum value. And donít waste money on stuff whose true cost is your own piece of mind.
|Your Dreams on Fire - by William MarrŤ|