Tempted to Buy the Big House by Jon Acuff

This article really jumped out at me because my wife and I are currently house shopping. Dave Ramsey publishes a monthly newsletter and here was an article in the most recent edition:

Tempted to Buy the Big House
By Jon Acuff

The television show, "International House Hunters," should actually be called, "30 Minutes of Television That Will Make You Hate Your Life." That's certainly a little longer than the original title, but I feel it's far more accurate.
The theme of the show is pretty simple. A couple looks at three homes in an exotic locale and then picks one to buy at the end. It's usually an attractive couple who tells this story:

"We're inexplicably wealthy and felt like we wanted to buy a house in Italy. We won't visit much, but will use it mostly as a place to store our shoes and go-carts. We both have jobs we can do remotely from Florence while we eat cheeses you can't pronounce, Jon Acuff."

They rarely use my full name to insult me in the show, but that's the gist. Having watched it for a few years, I've started to pick up on a common theme. I missed it at first, but now that I see it, it's so obvious.
In every episode, the couple is shown three homes. Prior to filming, they give the production staff a list of their needs. They specify how many bedrooms they want, how many square feet, where they would like it located and how much they can afford to spend.
Two of the three houses they are shown always meet that criteria.

But one house is always the "wild card." Sure, it may have a roof, but other than that, this house is nothing at all like the one the couple initially described they needed. If they specified two bedrooms, this one has five. If they asked for 2,000 square feet, this one has 4,000. If they said they wanted to be near the beach, this one is actually on the beach. And the kicker? This house is always at least $100,000 outside their price range.
Can you guess which of the three houses the couples tend to pick?

Can you guess which one of the houses "just stole our heart!"? If I put those houses in a police lineup, could you pick out which one closes the most deals?
You guessed it, the reach house. The stretch house. The "this is twice as much as we intended to buy, we'll have to sell plasma at blood donation centers," house.
It's amazing how elastic our budgets become when we go house shopping. Whether you're on a reality show or not, we all find ways to wiggle a little bit when it comes to picking out a home. And I'm just as guilty as anyone else.
As I write this, my wife and I are looking for a new home in Franklin, Tennessee. Over the last few weeks, we've really started to enjoy a new park. It's got soccer fields and playgrounds and miles upon miles of bike trails. There's even one portion where a friendly horse walks over from a local farm and will let you pet him while you pedal through the woods.

It's like Norman Rockwell meets Thomas Kinkade.

We love this park, so it makes perfect sense that my wife would say, "We should try to buy our house near here." That's not a bad idea, that's a great idea! Imagine riding our bikes directly to the park instead of jamming them in our car?
But even a great idea like that can warp your spending perspective.

My wife hasn't said as much and neither have I, but inside I can already feel a part of me thinking, "If we have to spend a little extra to be near that park, we will. Oh, we will." If I listen closely, I can already hear our budget expanding and stretching just a little bit at the very thought of having direct access to that park.
That's how it happens. You fall in love with an idea, or a detail or a view and bit by bit, all sense of reality starts to fade. Your price range, your budget, your ability to actually pay for that mortgage go right out the window.
Think of the sun-drenched trails through the woods. 
Think of feeding apples to a horse in the middle of a fall day.
Think of the memories!
Think of the foreclosure procedure and losing your house because the bills washed over you like a tidal wave. That's less fun to think of, but at the end of the day, that horse isn't going to help me and my wife with our bills if we decide to live outside our limits.
I've never seen a couple on "International House Hunters" say, "We really liked the house right on the beach, but we just don't have the money for that. We decided to live below our means."
That's something I've never heard on TV, but I hope that the next time you go house shopping you'll be bold enough to find a house you love at a price you love just as much. Because it can be done and it should be done, and you'd be surprised how many horses live in affordable neighborhoods after all.

Leading Change: The Budget

Well let’s be honest. You can have all the accountability and passion in the world but if you don’t have a starting point and some goals you’re not going to get very far. I know most of you read the word budget and immediately thought about flipping over to your favorite celebrity gossip site or ESPN. Budgets have some bad connotations – but bear with me!

While working on family budgets here are some statements that I have heard:

• Living on a budget makes me feel poor.
• I feel like living on a budget stifles my freedom.
• Why would I want more rules in my life?

To be honest guys – these are the same things I feel when I do my own family budget. But the reason we feel these things is because we need a mindset change. If you are going to successfully change your family finances it starts with your attitude. A budget is all about 3 attitudes. If you get these ideas ingrained in your psyche you will be successful.

Attitude 1: A budget is a plan for each dollar you have at your disposal.

You only have two choices, you can manage your money or you can let your money manage you. There is no in-between. It is not about rules or restrictions it is a self directed plan for how the month will progress financially.

You create the budget, if you don’t like it, change it!

I recently heard a personal fitness trainer say “The best exercise plan is the one that is completed.” Guys, it’s not about the number of reps or how many miles you ran. It’s about finishing the workout. Your budget is the same story, it’s not about how many dollars you allocate to saving or how much extra debt you paid down this month – it’s about taking the time to complete the plan.

Attitude 2: Living with a budget creates wealth, living without a budget wreaks havoc.

The first few months will be hard. I can’t soften the blow or sugar coat it, you are embarking on a lifestyle change. But time and time again I hear it from the people we work with. When you get the budgeting process figured out, it will feel like you got a pay raise. Suddenly you won’t look back and wonder where that annual bonus went, or wonder why there is more month left at the end of your money. You already had a plan for the month and you controlled where the money went. As you gain control over the money you can put it to work by paying down your debt and then investing for the future.

Attitude 3: True freedom comes when you are no longer living paycheck-to-paycheck.

Financial freedom is not when you work for your money. True freedom is when your money works for you. Until you take control and put together a plan for your finances you will not find the freedom you’re looking for. The only way I know how to take control is through the budgeting process. Whether you make $1,000 per month or $20,000 per month a budget is essential. It’s not something you do only when you’re broke – it’s a lifestyle!

Winning the Lottery – Not All That It’s Cracked Up to Be.

I love to share articles with you guys. Laura Rowley writes for Yahoo Finance and puts out some interesting articles. Ronny and I have talked about winning the lottery several times in various presentations and now there is finally some research to back up our assertions! Check out the article.

Jackpot Winners Just as Likely to Go Bust

by Laura Rowley Wednesday, September 1, 2010

In the new movie "Lottery Ticket," the rapper Bow Wow plays a sneaker salesman from a poor part of town who has to survive a three-day weekend after his neighbors find out he's holding the winning numbers.

But for financially troubled consumers, the size of the jackpot may not matter: Five years out, people who win $150,000 are just as likely to declare bankruptcy as those who win less than $10,000.

That's according to a new study by researchers at the University of Kentucky, the University of Pittsburgh and the Vanderbilt University Law School. The paper appears in a forthcoming issue of the Review of Economics and Statistics.

"I've always been interested in whether you could solve people's problems to some extent by giving them additional cash," says Mark Hoekstra, assistant economics professor at Pittsburgh, who co-authored the paper with Kentucky's Scott Hankins and Vanderbilt's Paige Marta Skiba. "And anecdotally you always hear these things about lottery winners -- someone wins a bunch of money and the story doesn't end very well. But we weren't aware of any real empirical evidence on whether this was true."

The researchers identified 35,000 people who won between $600 and $150,000 in Florida's Fantasy 5 lottery game from April 1993 through November 2002. (They eliminated the 153 people who won more than $150,000). They cross-referenced that list with people who filed Chapter 7 or Chapter 13 petitions in Florida five years prior to winning the lottery and five years afterward. Then they compared people who received $50,000 to $150,000 to those who won less than $10,000.

They found 1,943 winners -- or 5.5 percent -- declared bankruptcy within five years of taking home the jackpot. While the bigger winners were 50 percent less likely than small winners to file for bankruptcy within 24 months, they were more likely to file for bankruptcy three to five years after winning. The net result is that within five years, large winners were just as likely to file for bankruptcy as small winners.

'Found Money'

Moreover, when people who won $25,000 to $150,000 did file for bankruptcy, their net assets were just $8,000 higher than those who had won less than $1,500. Bottom line: The median big winner took home $65,000 in cash. That would be enough, on average, to pay off all unsecured debt or to boost the equity in new or existing assets. Instead, the big jackpots simply evaporated.

"The fact that winning a large sum of money only postponed bankruptcy rather than prevented it didn't surprise me too much," says Hoekstra. "But I was struck by the fact that when the recipients of large sums did file for bankruptcy, they didn't have much of anything to show for the winnings they had received. It didn't go toward a house, paying down debts or buying assets that were worth something a few years later. We couldn't find any evidence that five years earlier, these people had received what would be, for many people, a life-changing amount of money."

What happened? Hoekstra says he can only speculate. "We know quite a lot about lottery winners' finances once they file for bankruptcy, but we certainly don't know what they were thinking when they won the money," he says. "It's possible that people in our sample weren't used to dealing with large sums of money, and thus they may not have used it wisely."

Mental accounting may also play a role. "We treat 'found money' differently than money we earn. So if you find $20 on the sidewalk, you may decide to blow it on a nice dinner, whereas if you earned it you wouldn't have done that," Hoekstra says. (And lottery winnings are the ultimate "found money.") Other possible suspects: A lack of financial literacy or a surplus of impatience -- some people would rather have fun today than be financially secure five years in the future.

The researchers also found that while large winners lived in somewhat more expensive houses than small winners, they were no more likely to own a home outright, and had no more equity in their homes than small winners. This suggests that larger winners were not strategically planning their bankruptcies and gaming the homestead exemption in Florida bankruptcy law, which allows filers to keep their primary residence. If this were the case, winners would have bought a home for cash or paid off their existing mortgage prior to filing, in order to keep some of their assets out of bankruptcy.

What Policy Makers Can Learn

The study has policy implications for governments deciding how to help heavily indebted people who are struggling during economic downturns, Hoekstra says. It appears the simplest solution -- giving them cash -- doesn't enhance longer-term financial stability, and only postpones, rather than avoids, bankruptcy. The lottery findings are consistent with a 2007 research paper that showed consumers initially used their 2001 federal rebate checks to reduce debt, but eventually debt returned to its pre-rebate level.

"Our research suggests that perhaps there is something more systematic about the types of people who get themselves into financial trouble -- and the appropriate policy prescription for helping them out is going to be considerably more complex than giving them additional resources," says Hoekstra.

In addition, the findings challenge the assumption that bankruptcy is caused primarily by major financial shocks.

"Winning the lottery undid any negative shock (that previously occurred) for the large winners, and they still ended up filing for bankruptcy," Hoekstra says. "That is inconsistent with the idea that the only people who file for bankruptcy are those with negative shocks such as divorce, job loss or health issues."

Finally, if you're one of those people who fantasizes that winning the lottery will fix your financial woes, it's time to stop dreaming and get a real handle on your money. "Our results suggest that people in financial trouble shouldn't expect that winning $100,000 will cause a lasting impact in their finances," Hoekstra says. "On average, that doesn't appear to happen."

Leading Change: Passion Required

“Not until the pain of the same is greater than the pain of change will you embrace change." – Dave Ramsey

I am a passionate person, there are very few things that I do not have an opinion about. Ask my wife.

In my experience the largest hurdle to implementing financial change in your house is getting passionate enough to start. Let’s be real, it is usually not a lack of knowledge that keeps us from changing – it’s the lack of motivation. Dave put’s it best with the quote up above. You will simply not change if your current situation doesn’t hurt bad enough. That’s why people talk about  hitting “rock bottom” before they change their lifestyle.

I am not here to tell you that you need to hit the lowest of lows before you will be able to turn things around. In fact my goal is to help you avoid getting there. I have seen rock bottom, it’s ugly, that’s probably why I am passionate about helping you change.

Passion is a large factor in what drives motivation. You don’t see too many pro athletes hitting the gym in their late 30s without some serious passion for their sport.

Brett Farve doesn’t need the money, he needs the game!

It is not something that comes to you because you think about it all the time. Passion doesn't hit you because you read the latest motivational book. It’s not from a weekend conference or a guest speaker at work. It comes from discipline and success.

I am a terrible golfer but I really like to play. I wouldn’t go so far as to say that I am passionate about the sport but I am certainly motivated to keep trying. If I am terrible why would I still want to play? It’s really a simple answer – it’s because of that one good shot I had last round. That one good shot is all I need to be motivated enough to keep coming back.

Let’s pull it all together here. Passion is what is going to motivate you to change your family. You do not get passion through osmosis – you cannot absorb it! You will find passion by starting your journey and your passion for change will increase with each success that you have.

True story:

We work with a man who filed for bankruptcy 15 years ago. He would be the first to tell you that he certainly was not passionate about his finances when he hit “rock bottom.” That bankruptcy is what changed his motivation. Our friend changed his life, he adopted habits like maintaining an emergency fund and living with a budget.

Today, he has a credit score in the high 700’s and is a model of financial turnaround. More importantly, he is changing his family legacy. Not only has he impacted his nuclear family but now he is reaching out to his extended family to teach them the lessons he learned the hard way. Passion oozes from his body– even his co-workers notice that he is different.

You can find the passion to change your financial future. The first step is simply to get started. Ask your accountability partner to help you make a verbal commitment with you to take the first step.

Leading Financial Change in Your House

John Kotter wrote a book called Leading Change that is a business school standard and I happen to have it on my book shelf here in the office. I was thinking about what I wanted to share with you this week and I glanced over and saw the title. All I could think is, “boy that’s timely.”

We are in our third week of facilitating Financial Peace University here on campus. As I said in my post Why Is It So Hard To Talk About This Stuff, we are attempting to equip the folks in the class with information that will help them lead change in their house and here at the Riverfront. So in that vein I am going to start a series of posts about leading financial change in your house.

Leading Change: The Power of Accountability

How many times have you started a diet or a new-year’s resolution only to leave it in the dust a few weeks later? I know it’s almost an annual occurrence for me. It seems like every January I make a list of personal “resolutions” that I have completely forgotten by the middle of March! Isn’t that how it is with nearly everything? – We just get caught in the daily grind and forget about what we wanted to accomplish.

In business we create structure to keep us accountable. At both of our businesses, Gallup FCU and Guide Rock, we have a board of directors. One of their major responsibilities of the board is to keep us accountable for the goals we set. We have to report to them every month about the progress of our projects. It might seem simple but when you know that you have to explain your progress, or lack there of, to a group of people you respect – it seems to light the motivation fire. The board also offers a wealth of experience and input to the business. When we run into road blocks or need some advice, their collective experience often gives us insight on how to approach the problem.

In my opinion the most valuable part of our board is having a group to celebrate success with. The board can get excited about accomplishments because they know how hard we have worked to reach our goals. They have been a part of the process since the very beginning!

Guys, you will never be able to implement the financial change you desire until you have an accountability system in place.

Have you ever heard of having a “Personal Board of Directors?” It is nearly identical to the board of directors for a business, except it is for you personally. Your board can be made up of anyone you want - it might include  your spouse, parents, boss, friends, pastor, or any other individual (both Ronny and I have filled these types of rolls in the past). The idea is not to necessarily tell all these people that they are on your “board”, you could if you wanted to. It is simply to have a group of people you trust and could go to for accountability, advice, and celebration.

In my opinion you should be very deliberate to include someone on your board with whom you can be accountable with for your finances. This part is important, no matter who you choose, make sure you pick someone who really cares about you… that’s not necessarily your spouse.

You need to pick someone who will be firm with you when necessary and will care enough about you to push you toward success even when it is hard for them.  Everyone has a different personality. You know if you need someone who will be a tough, no-nonsense coach or if you need someone who will be a softer, doctor Phil kind of counselor. 

The bottom line is that you need to find the person who will help you achieve success. Think hard about who that is and then take that person out for a cup of coffee to see if they are willing to take the journey with you. If they are the right person for the board seat – they will be excited to get involved.

Rich or Drive Rich? – Thomas J. Stanley Ph.D

This week is a re-post from Thomas Stanley, author of The Millionaire Next Door and Stop Acting Rich:

Rich or Drive Rich Posted on July 29th, 2010

People often contact me asking for special dispensation because they drive expensive prestige makes of motor vehicles. They maintain that this is an effective way to show others [especially prospective customers/clients] as well as themselves that they are successful. And every one of them tells me that they either got a great lease deal or purchased their motor vehicle at cost, at dealer's cost. . . .   But should you be bragging about the deal you cut if you're driving around in $80,000 worth of sheet metal?

Sorry but I don't give special dispensation!  I do tell these people, however, that 86% of those who drive prestige makes of motor vehicles are not millionaires [having an investment portfolio of $1M or more-see Stop Acting Rich]. Also, I mention the median price paid for the most recent motor vehicle purchased by a millionaire was $31,367 [for decamillionaires-$41, 997].  It is understandable why so many people relate wealth with the price tag of a motor vehicle.  In a study of more than 2,000 respondents, The Wall Street Journal  found that 35% believed that in order to qualify as being rich a person must drive a car that costs $75,000 or more.  If I applied this $75,000 threshold to the millionaires whom I surveyed, more than 90% would fail to qualify.

I also mention the case studies about two decamillionaires who drive anything but prestigious automobiles.  One of these men invented the "dumpster"; he drives a Honda Civic.  In sharp contrast, a trial lawyer who works in Boston commutes everyday in his Ford 250 super duty pick-up truck.  Clients judge his success on his track record in the courtroom, not on the basis of his choice of motor vehicle!

The key here is simple:  focus your energy on becoming an economic success not on acquiring the pseudo symbols of success.

Interest Rates: 3rd Grade Expert

Which would you rather have $2000 at 1% or $500 at 5%? Well, I don’t know about you, but I would rather have the two grand. The kicker is that some of you are yelling at the monitor right now:

“BUT ANDREW, YOU’RE MISSING OUT ON 5%!” (even if you didn’t yell it, you probably thought it)

Herein lies the problem.  You see, from the time we are but wee children, interest rate concepts are repeated to us over and over.  Higher interest rates on your savings is better, lower interest rates on loans is the sweet spot… and by the time we reach high school  - time to give out the gold stars you’re an expert. But somehow in all of our expert wisdom we missed the larger, more important concept.

You can’t earn interest on the money you don’t have and time is more important than rate.

I may have just dropped a scud missile on everything you once new and loved, I’m sorry.

It feels so good to be able to complain about how low interest rates are. After all, the expert wisdom that Ms. Williams shared with me in 3rd grade tells me that higher is better! Most of the time the folks that are complaining about rates are those with the $500. Do you know what the annual difference between 5% and 1%  on $500 is?  - 20 bucks (duh, Andrew I’m an expert). So who cares!?

Guys, we have got to start focusing on what matters. Cash balances matter, saving while you are young matters and paying down debt sooner rather than later matters. We have a tendency to forget these things and we make excuses as to why we are not doing this. Almost everyday I talk with someone who is taking cash equity out of their house because interest rates are so low. Or someone who is putting saving on hold because after all, what’s the point? Interest rates are so low!

The point is that increasing your debt and taking on 5 more years to your mortgage will cost you more in real dollars over the long term. Postponing your saving will drive you toward credit card debt and keep you awake at night. I look at this journey up the tall mountain of financial independence as a race, not a hike. What’s going to get me there the fastest? I’ll give you a hint, it’s not more debt.

Why Is It So Hard To Talk About This Stuff?

We have had several discussions over the past few weeks about getting people excited to increase their financial Wellbeing. We find ourselves often comparing and envying the success of the fitness center here at the Gallup riverfront office. There has really been a grassroots enthusiasm about getting physically fit here on campus.

There are many similarities between financial fitness and physical fitness. Things like creating accountability, routine, discipline etc. But one thing that does not cross over is the cultural stigma associated with talking about personal finances.

It’s pretty easy to notice someone who has lost a few pounds and say “Hey, you look great!” It’s not so easy to notice someone who is getting their finances in order.

People are more than willing to talk about how they have “fallen off the wagon” on their diet over the past few days,  but it’s not so easy to talk about blowing a couple hundred dollars on credit cards at the mall last weekend. There is just something taboo about discussing your finances. The truth is that just like exercising with a partner, you are far more likely to be successful if you have a partner keeping you accountable with your finances. And you know what? - It feels pretty darn good to have someone notice your success and pay a compliment.

How can we encourage this type of community? Ronny and I love being accountability partners with people and we have several relationships just like that. But we are only two guys, think about how powerful it will be when folks take it upon themselves to have financial accountability relationships with their friends and those friends have relationships with their friends, and on and on.

Getting inspired and equipped are the first steps to starting this trend.

We know a guy – Dave Ramsey, who has put together an inspiring and equipping class that can help get you started. It’s called Financial Peace University and we are going to offer it here. If you have a desire to go from good to great, get back on the path to financial freedom, or be an accountability partner you should sign up for this class.

It’s thirteen weeks, two hours one time a week, and costs $99. Here is a video preview of the class:

If you are interested contact us by sending an e-mail to credit_union@gallup.com or call us 402-938-6800.

“How do we know a corporate hero when we see one?”

One of my corporate heroes is Arkadi Kuhlmann, founder of ING Direct, so I like to keep an eye out for mentions of ING or Kuhlmann. As I have mentioned before, I also love Harvard Business Review. So when Kuhlmann was mentioned in a HBR article I just had to share!

Where Have all the Business Heroes Gone?

Who are your corporate heroes? What have they done to earn your admiration or respect? 

 

The Best Audience In Weeks

I have been at speaking engagements all around Lincoln and Omaha over the last few weeks but none was better than the presentation today.

Today Ronny and I had the opportunity to speak to a group of 60 junior high students at the annual Gallup Kid’s Day. Our topic was of course, Financial Wellbeing but we took a refreshing approach from the usual content meant for adults.

We covered the 3 S’s and the importance of the order that the mnemonic translates to:

• Saving
• Sharing
• Spending

The kids guessed the saving and spending pieces of the 3 S’s right away. The sharing “S” was quite a bit harder to prompt the kids to guess. We also talked about saving first and foremost as well as making sure to take every dollar that you earn and decide where the money will be allocated t0 among the three options before doing anything else.

The best part was when I talked about the power of compound interest. I used a story of a girl who saved every month from the time she was 20 until she was 65. When I told the kids how much money she ended with, over 2 Million, one girl threw her pen in surprise and another boy burst out “No way! Is this for Real!?”

Guys, I had a chance to share a secret today - I had the  opportunity to spread the good news I learned way back in high school. Watching the eyes of the kids light up today when they heard about the power of compounding interest felt like I was watching them take their first steps toward financial freedom.

Albert Einstein called the compounding power of interest “The eighth wonder of the world” – I couldn’t agree more.

Check Out Our Free Member Appreciation Event!

Member Appreciation Day at Rosenblatt.

Date:  Saturday, July 24th
Time:  Tailgate open from 3:00 PM to 7:30 PM.  First pitch at 5:35 PM.
Where: Rosenblatt Stadium
Who: Omaha Royals vs New Orleans Zephyrs (double header)

Please RSVP to credit_union@gallup.com

Yes, Sometimes Fees Are For Being Naughty

Nobody likes to pay fees, especially not to the bank. After all, you are giving them your hard earned money. All they have to do is keep it safe! Right? Well, yes… but we also have to try to do more. For example, here at the credit union we are not too terribly concerned with turning huge profits. We prefer to use the money we earn to add valuable services for our membership. These services also take some money.

Traditionally we have tried to keep our fees to a minimum and attempt to make money the old fashioned way – through interest rate spread. This is the difference between what we pay you on your deposit and what we earn on a loan. If you want to know more about that, read a post I wrote last year called “The Fundamental Benefits of a Credit Union”. The truth is most financial institutions don’t operate this way any more.

Banking dates back to the Roman Empire and for the first time in its history, most banks do not make their money with the traditional interest rate spread model. They now make their profit through fees.

As I have said before, I hate fees - most of the fees being charged are useless and downright dirty.

There are fees that have to be charged – I call these the “Naughty Fees”. Unfortunately, these fees are a necessary part of doing business. Naughty Fees include NSF fees, stop payment fees, deposit item return fees, etc.

Believe it or not, I have conversations with people almost daily explaining why we have to charge a fee for these types of things. What it comes down to is that  if you do choose to be naughty (by abusing your account) we have to give you an incentive to stop. However, we also know that sometimes mistakes happen. If our member rarely has a problem with their account we will often work with them to help get their account back on track.

We don’t just charge Naughty Fees because we like being big brother or some other wild reason. If you think in very black and white terms, when you overdraw your account, you are taking money that is not yours. You wouldn’t take a few dollars out of the cash drawer at McDonalds would you?  - No  way!

Friends, if you are paying NSF fees, please change your ways.

Not only for the moral reasons I mentioned above but more so because it is literally making you poor. The credit union recently conducted an audit of the fees we have collected and we found that some folks are paying in excess of $2000 per year in Naughty Fees! That takes my breath away! That’s an extreme example, but think about it, if your salary was $40,000 last year now it is only $38,000 – for no reason other that bad financial management.

If you need to get back on the path to financial independence, sometimes it takes some help. If you are ready to change, we are ready to help. Please contact us and we will sit down with you to put together a plan.

Go Check Out This Book!

Dr. Thomas J Stanley wrote a book back in 1996 called The Millionaire Next Door - an earth shattering research study on America’s wealthy. Stanley performs an intriguing analysis on how wealth is built in this country – not with inheritance or advanced degrees. If you like this blog, you have got to read this book!

Dr. Stanley authored a new book last year called “Stop Acting Rich: And Start Living like a Real Millionaire”. It is a fantastic read that describes keeping up with the Joneses like you would not believe. I think Stanley’s writing is extremely refreshing, perhaps because rather than simply sharing his opinion he uses research to deliver the message.

Check out this review from The Washington Post and go pick up a copy tonight!

There Was a Moment When I Thought This Business Ruined My Life – Among Other Things

I have an acquaintance who is living the high life in a big west-coast city. Recently they were forced to make a decision that nearly all of us face at one point or another. The 2008 vehicle they were driving no longer cut it, obviously they needed to up-grade. After all, what do you have if you don’t have appearances? <I hope you are catching my sarcasm, I’m  lay’n it on pretty thick>

Oh decisions, decisions! Will it be the Range Rover? The BMW, the Mercedes, what about an Audi? Ultimately, after long debate, they ended up with the Mercedes.

I have to be honest, I heard about this and I was more than a little jealous.

After all, I am a red blooded man and I happen to have an affinity for automobiles! I started asking myself that age old question that everyone has asked once or twice. I said, “I work hard, how is it that they can get a sweet new car and I can’t?!” It’s not that I didn’t know the answer. The truth is, I know exactly how they can afford it. It’s called a lease.

At this point I was fairly certain that being in the business of wealth coaching had pretty much sucked all the potential happiness out of my life. I can’t go sign a lease because I know it is one of the worst financial mistakes a young person can make!

About the only time a person should ever lease a vehicle is if they can roll up hundred dollar bills and throw them out the window of their leased car while speeding down the highway.

I was feeling bad because I couldn’t use ignorance as an excuse to make bad financial decisions any more. I couldn’t live “the high life” with cool leased toys… I have to own the toys now. I think most of you know why leasing is raw deal. However, If you want to see the math on why a lease is less than wise, let me know. As always, I would be more than happy to break it down for you.

After I stopped wallowing in self pity, the clouds cleared and I realized:

HEY! Knowledge is power! 

Who am I kidding, I have a great life and very nice stuff. Do I have a brand new Mercedes? No but better yet, I get to spread the good news about finding peace with your finances and improving your financial Wellbeing.

If you guys are interested in increasing your knowledge I would love to help. We going to start offering some How-To classes and Financial Peace University here at the office later this summer. I would love to hear from you if you are interested in getting involved in something like this. Let me know!

What if I do Nothing?

I was recently turned on to entrepreneur/writer/speaker Jonathan Fields. He is a former private equity attorney turned lifestyle-entrepreneur and wrote a book in 2009 called Career Renegade: How to Make a Great Living Doing What You Love. Check out his website and read his blog at www.JonathanFields.com.

Obviously Jonathan Fields focuses on entrepreneurship, which I think is cool – but you might be asking yourself what does that have to do with personal finance? A lot actually! You are all entrepreneurs with your finances, think of your financial situation as a small business!

Fields spoke last week at TEDx - Carnegie Mellon University, on turning fear into fuel. Pay close attention to the section where he answers the question “What if I do nothing?” Here is the video of his presentation:

What if you doing nothing about your financial future? It will be a disaster! I love Fields’ quote: “Life applies friction, there is no sideways; there is up and down.”

Project out what life will be like if you do nothing with your finances for 5, 10, and 15 years. Is that scary? You bet it is!

Don’t let your fear of failure, or even your fear of success paralyze you from getting started. Take the first step and start making changes with your personal finances!

Developing Future Leaders

Stew Friedman of the Wharton School posted a fantastic article this morning on the Harvard Business Review blog:

How Are You Developing Future Leaders?

Go check it out!

Learning Algebra

“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.”

-Leo Tolstoy

I recently started reading “The Big Short” by Michael Lewis, a book about the collapse of the American economy in 2008. The quote above is found on the first page. It really blew me away, it is so simple yet terribly profound.

I remember my first day of Algebra in 7th grade. Mr. Nylin, who still teaches at my old school, melted my mind with ideas of polynomial functions and quadratic equations. Before Algebra all I knew was arithmetic, I had mastered the multiplication tables and I could do long division with the best of them. All these new rules were completely foreign to me! My mind was moldable and I could accept the information that was being taught because I had no prior understanding of what was going on.

It’s too bad that they don’t start teaching personal financial management in 7th grade.

I got my first job in 8th grade, I was a bagger at the local grocery store. It was the first time I had my own money – it wasn’t much, but it was mine. This was where my first experience managing money started.

They didn’t offer a class at school on how to set up a budget, no one told me why I should save some of the money that I earned, and I didn’t have the internet to get some tips on improving my financial position. Until I was in college, everything I knew about money, I learned from making my own mistakes and watching other people make mistakes.

I get to chat with people everyday about their financial decisions. It has become clear that, in general, when someone has some experience managing their finances they become set in their ways - even when a change could serve them well. It is a challenge to convince people that it would be a good idea to change the way they have been managing their money… for the last 20 years.

It is important to know what you know and know that you know it - but the world wasn’t flat.

Be moldable, when someone is presenting you with some new information that contradicts what you have thought or done for the last 20 years, give it a chance. At a minimum you will be able to get a better understanding on your current process and who knows, maybe you will be able to improve your current situation! 

We Want Your Feedback!

People have been knocking down the door to have Gallup FCU come present about Financial Wellbeing. It’s awesome! If your group would like us to come present about Financial Wellbeing feel free to shoot me an email.

Wellbeing is about more than saving a few dollars and having an adequate insurance plan. It’s about finding peace in your financial situation and using your money to create memories.

We have had the opportunity to chat with a couple of different groups over the last week. From our conversations it has become pretty clear that you guys understand the basics of what Financial Wellbeing is all about. What you have asked for, are more solutions to help you get there.

I would love your input, try answering these questions:

• What do you expect from a financial institution that is improving your Wellbeing?
• What is Gallup FCU doing that helps you improve your Wellbeing?
• What could Gallup FCU do better to improve your Wellbeing?
• What can you be doing to improve your own Financial Wellbeing?

Think about these questions and leave a comment!

A Second Career – At Age 50

I was reading an article this week at www.Inc.com by John Brant called “How I Did It: Bob Moore, Bob’s Red Mill” and it really made me think. Bob Moore recently retired from his second career at 81. The kicker is, his second career was as the owner of a start up that generates $70 million a year in revenue. That’s awesome!

So often when we think about retirement we tend to picture quitting that ball-in-chain job at 65 and cruising the open road in a magnificent 40-foot  RV… for the next 20 to 30 years? I don’t know about you, but I don’t think that driving around the country or any leisure activity for that matter, would be enough to fill my time for  all of retirement.

Is it really appropriate to plan for retirement as if you were never going to work another day in your life? I don’t think so, at least not for me. Bob Moore’s ideal retirement was about being an entrepreneur and grow a business that he loves until he reached a point where he could give it away. 

What will you do in retirement? The funny thing is, we spend all our adult lives saving and dreaming about getting there but once it finally arrives often people don’t know what to do! For most of you retirement could be 15 or more years away but that doesn’t mean you can’t or shouldn’t start thinking about what will fill your time. Try answering these questions:

In retirement will your life be the same or very different?

Will you live where you are now or far, far away?

What will consume your time work or leisure?

Will your days be scheduled or spontaneous?

Will you prefer to be home or traveling?

To have success at saving for the future you must have an end point. If you don’t know what you are going to spend the money on, how will you know if you are saving enough? Take an hour and read about Bob and how he did it, and then dream about how you will do it.

The 15 Year Mortgage – Why It Makes Sense

I think most people know that a 15 year mortgage is a good deal. But I think a lot of folks don’t know how great of a deal it really is. I think there are two good reasons why you should consider a 15 year instead of a 30 year mortgage.

First, the math works - let me break it out for you:

The 30 year $150,000 mortgage at 6.00%:

Monthly payments of principal and interest = $899.86

Total interest cost over the life of the loan = $173,944.96

The 15 year $150,000 mortgage at 6.00%:

Monthly payments of principal and interest = $1266.31

Total interest cost over the life of the loan = $77,924.92

As you can see, the 15 year mortgage saves the borrower almost $100,000 in interest cost over the life of the loan! This example is even a little unrealistic – a 15 year mortgage will have a lower interest rate than a 30 year mortgage, which saves even more money! What is the extra cost to you? It only requires approximately $350 extra a month.

The second reason I like the 15 year mortgage is simple. How cool would it be to own your home free and clear in just a few short years? From that point on, all you have to pay are the taxes and insurance! Wow, I don’t know about you, but that gets me all kinds of excited.

So after you decide that this is the route you want to go, the natural question is: how much house should you buy? Well there is a simple rule of thumb we use in the industry. Your total housing expense (principle, interest, taxes and insurance) should not exceed more than 25% of your monthly take home pay. So here are two calculations to help you determine what that is for you.

If your household makes $70,000 annually and your monthly take-home pay is about $4650 (assuming a 20% tax rate) then:

$4650 x .25 = $1,162.50 total monthly housing expense

Conversely, if you are looking at a house and the monthly estimated costs of the home on a 15 year mortgage total $1600 per month. Your monthly take home pay would need to be:

$1600/.25 = $6400 total monthly take home pay

This is a very conservative way to determine how much house is affordable for you. Some other people might say that this is too conservative, but in my opinion I would rather be in a house I can afford with a few extra dollars to spare than the alternative. Once you start looking at mortgages and the costs associated with closing on a property it might get confusing. If you have any questions give us a call, we would be happy to help.

Want to be a Star? 10,000 Hours of Practice

I hope you read the Harvard  Business Review. It is fantastic.

Back in November 2009 Peter Bregman, CEO of Bregman Partners, Inc. published a guest post entitled “How Not Achieving Something Is the Key to Achieving It”. Bergman makes the age old argument that practice makes perfect. He references the Book Outliers by Malcolm Gladwell  that gives some really great insight on practice.

“Gladwell discusses research done at the Berlin Academy of Music. Researchers divided violin students into three categories: the stars, the good performers, and the ones who would become teachers but not performers. It turns out that the number one predictor of which category a violinist fell in was that number of hours of practice.

The future teachers had practiced 4,000 hours in their lifetime. The good performers, 8,000 hours. And those who were categorized as stars? Every single one of them had practiced at least 10,000 hours.

And here’s the compelling part: There wasn’t a single violinist who had practiced 10,000 hours who wasn’t a star. In other words, 10,000 hours of practice guaranteed you’d be a star violinist. According to Gladwell, 10,000 hours of practice is the magic number to become the best at anything.”

This excerpt really made me think. How much time do I give to practicing personal financial success? Better yet, which category do I want to be in? A teacher, good performer, or a star? Bergman states that he believes that anyone can do anything as long as three conditions exist:

1. You want to achieve it

2. You believe you can achieve it

3. You enjoy trying to achieve it

I agree with Bergman when I say that by far, the most important condition is the third.  You want to be debt free, you believe you can achieve freedom from debt – but unless you enjoy trying to get there, the brutal truth is that you probably won’ t.

To be successful at anything you have got to put in the time. You can want and believe with all your might, but until you try you will not have the opportunity to succeed – that includes achieving your financial dreams.

“Keeping Up With The Proverbial ‘Joneses’”

One of the really cool things that we get to be a part of here at Gallup is new science in the making. The latest and greatest research going on in the building is on Wellbeing.

A new book from Gallup Press called “Well Being: The Five  Essential Elements” by Tom Rath and Jim Harter will be released on May 4, 2010. I strongly recommend you go out and pick up a copy or pre-order it.

One of the five elements covered in the book is Financial Wellbeing - which just so happens to be up my alley. Here is an excerpt from the book:

“For years, traditional economists have assumed that people make rational decisions that are in their best interests. But the relatively new discipline of behavioral economics is proving otherwise. Consider the following two scenarios. and assuming the same purchasing power in both, which one would you choose?

A. An annual income of $50,000, while the people around you earn $25,000 a year.

B. An annual income of $100,000, while the people around you earn $200,000 a year.

Using a classic economic model, everyone should choose an income of $100,000 over $50,000. Instead, nearly half the people presented with these options pick the lower salary of $50,000 a year. They choose to make half the total income as long as it is double the income of their peers. It seems that the amount of money we make or the size of our home is less relevant than how they compare to others’ income and possessions. This plays out in the decisions we make every day, and that poses a real dilemma.”

Wow, that puts keeping up with the “Joneses” in an whole new light. Comparing yourself to the neighbors isn’t new by any means - in fact I would say that it’s a tail as old as time, biblical even! Cain and Abel for example, Cain kills Abel because he wants what Abel has.

Why is it that we are willing to make economic decisions that do not maximize our potential benefit? Why on earth would you take $50,000 a year when you could have $100,000?! That is absurd people!

Ok I get it, some of us are competitive by nature and beating your  neighbor with the latest 3-D television makes you feel good about yourself. But what if every time you spend a dollar, you started asking yourself: “What is this doing for my personal Wellbeing?” I think if you were to sit back and think about the purchases you made last month, you might start to become disgusted by how much money you are throwing away on “stuff”.

For my family, “stuff” is definitely fast food.  When I looked at our spending last month, I just shook my head in disgust. Did I add any memorable moments or improve my Wellbeing by stopping at Taco Bell 5 times last month… I don’t think so. I might have even made my physical Wellbeing worse!

I don’t think that improving your financial Wellbeing is about becoming a minimalist or taking a vow of poverty. It’s about using your resources in a way that creates stability and value in your personal situation. You can keep up with the “Joneses” for a lifetime and not ever improve your Wellbeing.

This is good stuff, more later.

Free Tools For Your Success: Mint.com

Last week I mentioned a couple of my favorite free on-line resources: Mint.com and Wesabe.com. After I posted, several of you asked me about how these work and what is so cool about them. So I’ll tell you a little about my experience with Mint.

At it’s core, Mint.com is an account aggregator. Basically that means that the Mint site pulls in the information from all of your accounts, that you give it access to. But the coolness doesn’t stop there, some intelligence is built into the site that automatically categorizes your transactions. Let’s say that you go to Starbucks twice a week for a latte – Mint is smart enough to recognize when you swipe your debit card for the purchase and it will automatically categorize the transaction as a “Coffee Shop” expenditure. Obviously some transactions won’t be recognized by Mint and you have to manually categorize them but it is surprisingly accurate.

This categorizing feature is really cool for two reasons. First, you can input your monthly budget into the site and then compare your actual spending to your budget. Since Mint catches most of the transactions with the auto categorization there is really not much work for you. Second, the site automatically generates money saving tips based on your spending and saving habits. If you carry a credit card balance it will give you ideas for ways to pay down your balance and save some money.

So you are probably asking yourself: “This site sounds sweet! How do they offer such a cool product for free?” Well, Mint also offers information from for-profit financial institutions like banks about their products example: high yield savings accounts and investment services. So essentially Mint.com keeps the lights on by selling advertising.

Some of you may have tried to use Mint in the past but found that it did not pull in your information from Gallup FCU, I am pleased to announce that we are now compatible with Mint.com! So try it out and let me know what you think!

Know What it Costs

I have been on a kick lately to encourage all of you to really understand what you are doing with your money. Where are you spending your hard earned dollars? What is affordable given your current income situation? Are you saving enough? etc.

Here are two great web sites you should check out that can help you have a better understanding of where your money is going:

Mint.com and Wesabe.com – The best part is it’s FREE (which also happens to be my favorite price)!

True story:

Like any good finance guy I personally started a Roth IRA as soon as I had earned income. I eagerly plopped down my hard earned money and took advice from a guy who I thought was an expert. Looking back I now realize that several “Not Cool” things took place and I understand that I was taken for a ride.

“Not Cool” Event #1: The advisor told me that I was investing in an international mutual fund. I really wanted to be investing in an international fund and I specifically wanted to be exposed to the asian markets. The reality was that he sold me a Large Cap Blend fund that has less than 15% in the international market – nice. I am a young man and I have a relatively aggressive investment profile so it makes me especially annoyed to now know that the fund he sold me also has nearly 6% in cash and fixed income! This was a completely inappropriate pick for me. 

“Not Cool” Event #2: The advisor sold me the most fee-heavy class of shares possible. For a long term investor, aka every young person who opens a Roth IRA such as myself, the suitable mutual fund classes are “A” shares and “B” shares. “B” shares are by far the best choice for a long term holder but are often unavailable. Really in no-event is the “C” share class appropriate for a retirement investor, unless of course the guy who is selling the product wants to make more money. Guess what? This advisor sold me “C” shares, the average annual cost of my investment: 2.43% – Outrageous!

“Not Cool” Event #3: Since we met for the very first time several years ago, this “advisor” has contacted me 1 time. So much for being an advisor.

My take away: I clearly did not understand what I was doing with my money.

I now have some more knowledge, experience and understanding of the investment world and can evaluate the quality of securities. The problem is, I already made the mistake back when I didn’t understand!

My experience is just one of what I am sure many of you have had dealing with less than scrupulous financial “professionals”. The guy that I worked with not only blew it with me but now has the pleasure of giving me content to blog about my terrible experience.

This is just one example of the type of stuff we are trying to help you avoid. I don’t think that I can say it enough: you have to understand what you are doing with your money! We are here to help fill in the gaps and give you insight into the decisions you are about to make. Stop by, give me a call or shoot us an email. 

The Unofficial Start of Spring: April Fool’s Day

This was Ronny’s office this morning courtesy of yours truly. Happy April Fool’s day!

For me, April Fool’s day is the unofficial start of spring. Temperatures are in the 70’s and the days are longer, only a few more weeks before summer! It’s about time for some spring cleaning but not just around the house, it’s time for spring cleaning of your personal finances too.

Ron Lieber recently published and article in the “Your Money” section of the New York Times online. His article includes a great checklist of things you should be doing to “tune up” your personal finances this spring.

The checklist includes topics such as Investments and Retirement, Loans, Credit, Planning, Insurance and Consumer issues. This is such a powerful tool that covers areas of life that you might overlook otherwise. Take an hour this weekend to work through the list, it will give you some really nice pointers for change and hopefully energize you to get back on the path to financial freedom.

Call me this week if you want to set up a time to talk about your financial checklist.