I want to address the President’s Inaugural Address to assist in ‘doing the math’ as it were.  I will highlight the key phrases that have a bearing on where we are currently and where I think we will be in the future should we choose to relinquish our current anchors. 

President Obama started out with ‘our collective failure to make hard choices; our schools fail too many.’  The phrase points to two glaring challenges that we as Americans are facing but not necessarily addressing.  We are a nation of instant gratification; we have to have it all now, today, if not yesterday.  We are too busy spending instead of investing…time, money and ourselves.  We are choosing to bury our heads as opposed to taking responsibility for our one and only life; an entitlement mentality paired with the victim mentality is a dangerous concoction. 

‘The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation; the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness.  In reaffirming the greatness of our nation, we understand that greatness is never given.  It must be earned.’  I came to America when I was almost eight for the reasons mentioned above.  I remember my parents telling me I could be whatever I chose to and set my mind to, especially in this great country.  I believed them and have willingly taken my chances.  The other thing I was told was that I needed to do things seven times better than the Americans and thought ‘fair enough’.  The word legacy is bandied about like a neat toy but it seems most have forgotten that it has to be built and earned, it is not found.

This country was built by entrepreneurs… ‘It has been the risk-takers, the does, the makers of things who have carried us up the long, rugged path towards prosperity and freedom.’         It is going to be the entrepreneurs who will put America back up on its feet.  It won’t be the government for lack of fiscal literacy and it certainly will not be big business, they’re too busy laying people off.   If each American can take it upon themselves to invest in the proper education which will allow them to create their own jobs as well as for others; in turn learn to pay themselves first as the wealthy do, then and only then can we find ourselves as a whole country on the road to recovery.   Too many Americans in times of crisis are going about it partially correct.  They are investing in education, the type of education that will put them right back in the same position they were before – working for someone else. 

When they get laid off again, the complaints will return.  My question is this….if you made a conscious decision to put your future as well as your family’s future in the hands of someone else and it doesn’t turn out as promised, whose fault is it?  You’ve entrusted your future in the hands of someone else in the form of a 401K and it evaporates within a few months that which has taken a few years to build, whose fault is it?  Look in the mirror.  America has lost its identity – most of America has put their value or self worth in the hands of someone else; as well as their net worth. 

‘But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions – that time has surely passed.  Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.’   I agree.  My father always said, sometimes when you want something done right, you’ve got to do it yourself.  You can’t blame big business, their doing what’s best for their stockholders.  That’s how it works…try starting your own company and see for yourself.  Why don’t you – you can’t do any worse.  In fact, what if you found out that you could provide yourself with a better and more comprehensive medical and retirement plan – and doing so would benefit you not only financially but literally? 

‘For everywhere we look, there is work to be done.  The state of economy calls for action, bold and swift, and we will act – not only to create new jobs, but to lay a new foundation for growth.’  What does a flight attendant say before the plane starts or the runway?  ‘In the event of an emergency….place the mask on yourself before you place it on your neighbor.’  It’s great to act, but let’s make sure we aren’t just ‘swinging at the wind’.  Taking a cue from the wealthy, you cannot take care of anyone else unless you take care of yourself first.  Get the right education that includes fiscal literacy, create your own job and lay that foundation; for good intentions are just that, good – and the road to hell is paved with it.

‘And we will transform our schools and colleges and universities to meet the demands of a new age.  All this we can do.  And all this we will do.’  Again, all this sounds good but first and foremost, fiscal literacy.  If you don’t start there – you are nowhere and most importantly, you go nowhere.  It has to start at fiscal literacy….has to.  So how about getting it to our children sooner rather than later?

Why fiscal literacy?  It will afford each and every one the avenue of becoming a entrepreneur by leveling the playing field if not starting at an advantage because of the lack of fiscal literacy.  By becoming an entrepreneur, one can ‘extend opportunity to every willing heart – not out of charity, but because it is the surest route to our common good.’  Why fiscal literacy?  Fiscal literacy provides wisdom and with wisdom comes understanding, and with understanding comes compassion, and with compassion comes doing good and what’s right.

‘What the cynics fail to understand is that the ground has shifted beneath them.’  If the map doesn’t agree with the ground, the map is wrong.  Folks the map is wrong and has been wrong!  How much longer can we go on as a country operating with the wrong map?  Too many lives are at stake to continue using the axiom ‘fake it ‘til we make it’.  The world has caught up if not passed us, it’s become a global world and market in all aspects of the word.  But we still have an edge…we are still Americans. 

‘For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which the nation relies.  They have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.’  I haven’t forgotten…all I have to do is to look back at the rich history this country provides in a short amount of time.  It can take your breath away.  It deserves boldness and authority from each one of us – I believe in an idea that a single individual who has the right heart and right mind, consumed with a single purpose – give that same individual a group of people with the same conviction – they change the world. 

I tell my two year old son, that he is my hero; that much is expected of him, that he will do great things and change the world.  The torch has been passed…not too long ago, my dad was my hero.  You see, the legacy has to continue – but it has to be earned first while it is being added on to.  America, where and what is our legacy today?  God has blessed America like no other country, so much is expected.  Let’s get to work and do what the world always expects from us – to persevere, manifest our destiny and make a difference.

How does it work…to benefit you?

Interest rate works both ways on a decreasing balance (amortized) and on an increasing balance (Compounding) at the same time. What??

Everything you do is being financed, either by your own money or by an institution such as a bank, in the form of loans, mortgage, etc.

In an example of purchasing a $30,000 car in Jan 1 2009 @ 5%/annum, paid off in 5 years;

$566.14 - Monthly Principal & Interest   
$33,968.22 -Total of 60 Payments (all gone to the bank)
$3,968.22 - Total Interest Paid   

While on the receiving end (the Bank) making a mere 4% yearly on your repayment

Year 1 - $566.14×12x1.04 = $7,065.43
Year 2 - ($566.14×12 + Year 1) x 1.04 = $14,413.47
Year 3 - ($566.14×12 + Year 2) x 1.04 = $22,055.44
Year 4 - ($566.14×12 + Year 3) x 1.04 = $30,003.09
Year 5 - ($566.14×12 + Year 4) x 1.04 = $38,268.64

So go figure…The power of compounding interest vs amortized.

The bank in the end makes more money from you though earning at a lower interest rate.

Now imagine you having your own “Bank” in this situation. You lend $30K to yourself at 5% to buy the car and then you pay yourself back $566.14 monthly into your own “Bank” that earns 4% a year.

At the end of 5 years, you made $4,300.42 (by the way, it’s tax free) on your repayment sum, and that’s a 14.3% / 5 years = 2.9% return a year to yourself while you drive a new car? Can you say its great to have your own bank, and is it legal & is it possible? Absolutely and absolutely.

Learn more in my next workshop in Bellevue (Date TBA) on ‘How to become your own banker’. Write to me if you need to be posted.

Plus, if this loan was structured as a finance to your business as a car “lease”, you can write off the whole thing towards your taxable income. I believe I just saved you some more money there.

Now why haven’t your MBA or Finance school teach you that? Have your CPA talk to you lately concerning strategies that would help you keep most of your own money? What about your financial planner?

Always do the math. If your map doesn’t agree with the ground, your map is wrong.

For more information regarding IRS Code Section 1031 Exchange, please visit here

Some applications are:

·         80% of the defects caused 20% of the problems.

·         Focusing the top 20% of your customer will generate 80% of your income.

·         80% of your sales comes from 20% of your clients.

·         Fixing the top 20% of the bug will create a bug-free environment for 80% of the computer users.

·         20% of your workers will cause 80% of your problems.

·         80% of customer complains comes from 20% of your products.

·         Of all the things you do during the day, only 20% matters.

As you can see, the rule of 80-20 is applicable almost everywhere. For your personal development, think and start to recognize what are the top 20% that matters to you. Start to cut down on things that are just taking a lot of your time. By focusing only on the 20% of the things that matter, you will reap 80% of the results. If you follow this principle everyday, you will become a more productive person than you are yesterday.

The recommending agency believes the current system encourages the services to keep too many people they don’t need while losing too many people with critical skills to early retirement.  20 year retirement is too short a period for the agency who asserts that statistics show that less than 50% of officers and 15% of enlisted personnel stay long enough to retire in the current system. 

The new plan would apply to active duty and reserve component service members and consist of 4 major features:

Defined benefit annuity – 2.5% of base pay for the 3 highest years x number of years served.  Vesting occurs at 10 years but not paid before age 57 after completing 20 years or more.

Defined Contribution – Gov’t funded Thrift Savings Plan (TSP) that would begin in year 2 at 2% of base pay, 3% in years  3  & 4, 4% in year 4, and 5% from year 5 and beyond. TSP vesting occurs after  year 10.

Gate Pays - at year 12 and year 18 equal to 15% of base pay used to entice members to stay.

Separation Pay – equal to 1 year’s base pay who retire between 20 to 26 years of service.

Stay tuned for the next installment to highlight some of the thought processes that went into developing these retirement plan guidelines.

Your credit score (FICO) plays an important role in your financial life. The lenders use credit score to determine your credit worthiness, how much money they are willing to lend you. There are many misconceptions out there about how credit score works. Just as in sports, you need to know the rules in order to win the game. Let’s look at how credit score works and learn how to improve your credit score.

Anatomy of Credit Score

The following is the break down on how your credit score is calculated

35% - Payment history and/or past delinquencies

30% - Revolving debt ratio

15% - Average age of file/length of history

10% - Mix of credit (installment, revolving, etc.)

10% - Inquiries

Myths: Always pay your credit card balance in full

Facts: No balance means no payment history

First of all, be sure to pay your bills on time, especially those revolving debts such as mortgage and car payments. The lender will consider you high risk if you’re consistently late in paying your mortgage or missing payment(s). Take advantage of automatic payments for these revolving debts. Although credit card bills are weighted less, be sure to pay them on time too.

Secondly, you want to use your credit cards and leave small balance on the pay cycle to establish payment history. Installment payments such as student loan can also affects the payment history.

Myths: Always max out the credit card with the smallest APR first before using other credit cards

Facts: Your credit card balance should always be less than 30% of credit limit

Let’s say you have 3 credit cards with $10,000 credit limit each (and no balance) and you’re planning to spend $4,500 on vacation.

Scenario #1: Put $4,500 on one credit card and leave the other two at zero balance. Your debt-to-credit-limit ratio on the first credit card is at 45%. Any ratio greater than 30% is a red flag in the lender’s eyes and they will consider you as at a higher risk.

Scenario #2: Put $1,500 on each credit card. Your ratio is now 15% on each credit card. This will not raise any flag in lender’s eyes.

Be sure to keep your balance to be 30% or less.

Myths: Close your old credit card when you apply for a new one

Facts: Never close your Visa, Master Card, AMEX, or Discover

The lender looks at average age of file/length of history. The longer it is, the better it is. So, never close your credit card. Simply use them once every six month to keep payment history.

Myths: Each inquiry will hurt my credit score

Facts: Six inquires in the last 90 days is ok

Let’s say you have 4 credit inquires in January, 1 inquiry in February, and 1 inquiry in March. When it comes to April, the lender will only see 2 inquiries (since the 4 inquiries in January will drop out).

If you have to apply for multiple credit cards to increase your available balance, do it within 3 days. The lender usually consider these inquiries as “soft pull”

Each credit inquiry over 6 will decrease credit score by a small amount (less than 10 points each).

Myths: My mortgage broker can use the credit report I obtain from my annual free credit report

Facts: Your annual credit report is weighted differently than the lender’s credit report

Tips: You want to see the same report as what the lender sees. Don’t be surprised if you find out that your free credit report’s score is off by 30-40 points comparing to the one that the lender pulls. It typically costs $25-$30 to pull your credit report from lender’s eyes. It’s worth your investment to get an accurate credit report to see which loan works best for you and the lender usually requires a fresh one.

Remember, you’re borrowing hundreds of thousands, if not millions of dollars. Don’t let the $25 charge hinder you from getting the best loans/options.

Summary

If you follow these rules, you will likely to improve/maintain a high credit score. Please contact us at info@team803.com if you have further questions on how credit score works and any tips to increase your ability to borrow money.

Thus, money today is worth more than money in the future; when you have the money in your hand right NOW, you will be able to do what ever you want with it NOW.

Further into the future it goes, the less it’s worth.  $100 today is preferred over $100 in 6 months, and $100 in 6 months is preferred over $100 in 6 years.

This is why if you borrow money, you have to pay interest for using the money NOW.  If you deposit money into banks, they have to pay you interest for using your money.

It’s this simple!

The consumer price index is a measure of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor).