Rat Race Exit StrategyFreedom from the grind!
In order to have a ... Honest, ethical money ... of course!
The Singular Secret of Your Financial Future In fact, watch the stock market have at least a mini-crash very soon. I've mentioned in Coffee for three consecutive weeks that I don't like the looks of what I'm seeing. I don't want to be alarmist, but the numbers look disconcerting to me. I don't like anything except precious metals and maybe short term, the dollar. (I'll explain in Coffee next week.) The money you've put in your 401 k is dwindling as we speak... (International Readers: A 401k is an investment vehicle that provides tax deductions now. Recent changes in US law allow individuals to shift their 401k to any plan provider in the United States, but no one does because...well... people are lazy. The 401 k is a fabulous supplemental income plan for people's retirement...for which people often eliminate the word "supplemental." Everyone in the U.S. should have a 401k and put the maximum's allowed by law into the vehicles...and they should almost always get providers outside of their company to hold the money...) There is one singular road to financial freedom. It has nothing to do with your 401k which will crash with the market when it crashes. It has nothing to do with investing, nothing to do with debt or "The Secret" or anything you'd think.... And I have the numbers for you to prove it to your friends, compliments of Uncle Snoopy Nose Sam.... The answer to your security over the next 1,3,5,10,20 years isn't in an "investment plan," it isn't in your "retirement account," your 401K, in fact, that false sense of security very well could be the undoing of MOST people's financial future. Here's the scoop... Go to your company website and look what has happened to your 401k in the first few weeks of 2008. It's erased the pittance that was gained in 2007. I'm not psychic but I don't see the market going up or even holding steady this year. A lot of companies don't have this feature available for their employees because they are scared to death you'll find out the reality... oh by the way...are you sure YOUR company is actually investing all of your 401k money in your 401k? Did you know you can have any of millions of financial providers take care of that money for you? You don't have to stick with your companies crummy investment choices.... When you look at your 401K account this week for the balance you'll notice that once again, it's worth less than when you put your hard earned money into it a year or two ago. Don't misunderstand. 401K is a VERY GOOD thing. Even if the stock market does crash (and it will eventually), having something in a 401 k is better than having nothing in a 401 k, and you did get the tax deduction. The problem is that people believe that their company retirement "plans" are going to make them money...enough money to retire on. And that...is disastrous thinking. Wealth won't come from a 401K for all but about 0.5% of Americans. It's a nice thing, but darned unreliable if you come to believe it is your future in and of itself... Honest, how many people do you know that are wealthy because of their 401K and the geniuses that invested the money for them? Answer: Zero. But it's an excellent thing to have to supplement your income someday, and a good thing to use as a deduction on your taxes and have a little something...like a vitamin at the end of the day. So what IS the answer? There is ONE key decision you need to make for yourself to have any kind of wealth that YOU can be in control of... There is ONE key decision you need to make for your kids to help them to do the same. I'll get to both in a minute. First a very quick and cursory background check for today. All the individual and family/household income numbers came in this week for the United States. The pictures that emerge are crystal clear. No ambiguity. I want to show you how much your neighbor earns, the income of people with various levels of education, how much your neighbor is worth and which group of people is the ONLY group of people that make any real money. (And you as an individual make this ONE choice TODAY!) But first, scan through this then continue...
The median (half higher, half lower) income for a family (household) in the USA is now at $48,200. 113,000,000 households 7% have a net worth of 1,000,000...not bad. The top 6.37% of all households in the U.S. earn 1/3 of the money. 19% of households top $100,000 in annual income. Top 5% earn $157,000+ annually. Bottom 20% <$23,000 Middle quintile ("middle class") $36,000--58,000 Highest quintile $88,000+ The average income in the USA is now at $70,700. An MBA averages 88,000 base salary. Doctorate Degree 81,000 average, half that for a PhD in Psychology. High school dropouts average 19,000 High school grads average 29,000 College grads average 45,000 Professional degrees (m.d., d.o., j.d., d.v.m., d.d.s. 99,000 average) That means that if you are in the bottom half (under $43,200 for your family) there is opportunity at hand. People in the upper half, of the
upper half....make a lot of money. Notice how much higher the average income is vs. the median. A lot of people are doing things right. The bad news is that these incomes just reported by the Fed are DOWN from three years ago! In the midwest and south, both income measures went down over the last 3 years. In the northeast, both went up. In the west, the median (which is more important when looking at the wealth of a nation's individuals) went up...but people still averaged less. (The wealthier half got less wealthy.)
The government tells you flat out what will make you wealthy, so continue... Here are the annual income averages and medians for a household in various groups:
0-20%
11.1 10.8 So if you earned $100,000 last year, you just missed being in the upper 20%, and you suffer the fate of being in the upper-middle class.
KEY: Send your kids to college. Get them to graduate and they make twice as much as their non College Grad friends. This is not optional, they
ARE going. That's the first key. The second key for them and for you is ultimately going to be the SAME.
Current income by WORK STATUS for head of household
Group
Median Household Income Mean
Net worth. Group Median Household Worth in thousands of dollars 25th
percentile
13.3 It's fascinating that even people at the 90th percentile barely have enough money to take care of them for the rest of their life. But they can make it for about 15 years past retirement at 65 on that...now before we get to the FINAL FACTOR, let's just check out those education numbers for NET WORTH. The numbers on the left are the median (middle), the numbers on the right are averages for all households in the US. Family net worth by education of head of household High School Only
68.7 196.8
The chart below is very simple. The numbers on the left are median (middle) numbers. The numbers on the right are average numbers, in thousands. There is only one group of people that can live beyond retirement and it's the SELF EMPLOYED. Only the self employed group is worth more than a million dollars on average. (The very necessary retirement figure for people who will live normal life spans or more)
Self employed are WORTH FIVE-SIX times what "normal people" are both at the median (middle) AND average! Continue with the SINGLE BIGGEST FACTOR in WEALTH... If you work for yourself, you are worth 6 TIMES what someone who works for someone else is worth. WOW! 1.4 million dollars.... Self employed net worth on average, 1.4 MILLION dollars. Self employed... sounds so iffy on an application. Self employed ==> Wealth It is the SINGLE BIGGEST FACTOR by far. NOTHING comes close. Every person who works for someone else should seriously consider having a small business on the side. Internet, brick and mortar, something where you determine your own income. There is nothing wrong with having a "job." It's fine. BUT there is a LOT WRONG with believing that the average person can live 15 years on 268,000 dollars when these numbers are DECREASING. (Even if they weren't decreasing....I guess what, 268 k is about 10 years living in a tiny apartment, 5 years in a modest home with some degree of comfort. Looking at the consumer's big picture, the median net worth of a family in America is a skimpy $93,000. Half the families in the USA are worth less than $93,000. One bad thing goes wrong and the family is done, usually for life. It's very scary. The median net worth of the top 10% in the USA raised to $924,100. (assets minus debt). BUT the bottom 20% in net worth in the USA dropped by more than 10% to $7,500. The poorest people are not saving anything. They are building no equity and accumulating junk debt (toys) instead of quality debt (things that go up in value like real estate, education, career related expenses). More bad news. The net worth of the group from the 20% to 40% (lower middle class) had a huge drop of 13% to $34,300. A shred of good news: Middle class America (40%-60%) had a teeny tiny increase in income and net worth. What is the ongoing problem? Why is this happening? It's because of TWO reasons: First, people are afraid to be responsible for their own income. Second, they require the IOB.
They are self-sabotaging their lives. Someone once told me that they wanted to be "successful" and live a "balanced life." I asked what a balanced life was. It came down to having time each day for their job, time for entertainment, time for friends, family, leisure, and relaxation. I asked if they liked their current job. They did not. It's a good recipe for a really crummy life. The core problem is that there are *very few* "jobs" that provide enough income to offset future financial hardship in someone's life. In other words, when someone in the family gets disabled, divorced, sick, dies, gets fired (downsized, sorry) everything exponentially gets worse. All of these things devastate families and remove "achievement" from any picture. Survival becomes the issue. Credit becomes stretched and becomes extinguished. Because someone had a leisurely non-work life, they didn't have further education to prepare them for their next career, education which is necessary in the 21st century. (Most non-service, non-sales jobs are able to be done much cheaper in India or China. Smart companies are hiring highly-educated Asians to replace modestly educated Americans.) They didn't have $50,000 stored for the "rainy day," the problem of which usually lasts a minimum of six months and often the rest of the person's life. The rainy day requires replacing lost income as well as the additional enormous expenses that go with the rainy day. One singular event can cause a mess....Remember how much the divorce cost you, not only for the attorney's but what happened afterward when you had to live by yourself?! (Hospital bills, rebuilding the house that burned down, etc.) So in the present, the person/family lives a life of hating their job then going home and vegging out. They go putter in the garden or go golfing or go to the club... Then they have to leave their job or are forced out when the rainy day hits. They can't get a new job that pays what the old one did. The entire family suffers and usually for years. What was a seemingly OK tradeoff (the job you hate for the leisure time), the "balance" is actually a short term illusion. When the disaster hits, no one is going to be home long with the child that needs help because both parents (if there are both parents) will now be working two jobs to replace the one better paying job they had. The parents essentially can replace their income if they are still together but they will rarely see their children or watch a TV show again. It's the illusion of "balance." How many people does this happen to?
Continue the article to find out if it's likely to happen to you... About 77% of adults living in the United States. In other words, it is going to happen to you. How do you know if YOU are safe? How do you know if you are safe at least for 12 months? You really don't *know* but you have a margin of error if your liquid assets (your savings not including retirement or your home equity) minus your credit card debt + vehicle debt is greater than $50,000. This is why I tell people they MUST start or buy a small business, preferably one they love. Something that is fun, or rich with meaning for them. Most small businesses cost litte to start and can cause an income much higher than any job they ever had, in just a few years time...sometimes faster. The only expenses you want to make in your younger years (pre 60's) are tax deductible expenses (home, business, and educational programs, which can include college though as you can see the self-employed does much better than college on average. Optimal? Programs that will pay off shortly after the expense is incurred). That's it. Today's balanced life (9 hours of hell balanced by a 1/2 hour commute and home time later) is truly a David Copperfield illusion.... But let's look at today. If someone loves their job, they are in a potentially good life situation. Work that is meaningful that is secured by the individual's overwhelming skills that make them almost irreplaceable is a nice beginning. Of course, that still only looks at today. And most of these people don't have the "liquid assets - debt" problem attended to. What's missing? Focus. Life doesn't need to be balanced if it is focused. If it is focused, it is self-balancing both short, medium and long term. A focused life is one where the person (family) can take care of the rainy day today while they love what they do. They know that life is short. Sometimes unfairly so. They take care of their family today and have a tiny cushion (that $50,000 dollar number I've been mentioning...and that is a very, very tiny cushion) for the rainy day. Additionally they have their retirement taken care of. I'll spare you the pain of that subject for another day so we can get back to focus.... The focused life is self-balancing because ALL DAY you are engaged in meaningful, important, fun, and/or interesting activity that is taking care of you and your family today and into the future. You are living the life of YOUR choosing. (This can include working at a job you love and find important, or, your own business.)
Continue The Focused Life... This is the ONLY life that leads to achievement. It's the only life that brings people stability, security, safety and long-term happiness. Someone who strives for balance is trying to balance good and bad, and that result *always* ultimately loses. (It's simple math.) People who live a focused life, *almost always* win and have a fulfilled and meaningful life. Both lives will have their disasters and devastations, but the focused life will weather it. The person who strives for balancing bad and good is unlikely to do well at any level. To achieve you must have focus. Focus causes achievement. Achievement most easily happens when you are working for yourself, for your family. There is NOTHING wrong with working for someone else. In many respects we all do. But to not protect yourself and give yourself a chance at building safety, security and financial freedom when it is so easy is ...well...you know. In researching this article, I also came across the most recent data by State by State as far as household income. The dramatic difference between the top and bottom is fascinating but even this is only fractionally important. The Singular Success Predictor is you learning to work for you.... Sign up for Dr. Hogan's newsletter ... best investment you'll ever make! Go to the home page -> RatRaceExitStrategy <- and check out the last business you'll ever need! The U.S. Government is funding the BIG CATS ... let them fund your business. State Rank Median household income (2006 dollars) New
Jersey 1 66,752
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I thought long and hard about whether I should I don't want to distract you from the Rat Race Hence ... I have a special place in my heart for innocence. Good people that do the right thing can help Thank You Very Much for Your Time and Courtesy.
P.S.
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