Steve the Owl's Blog

Hi, everyone. Recently, I wrote about the importance of understanding Social Security’s role in determining one’s retirement picture. As I thought about this trend, another issue with it is that leads to despair in some that they may have waited too long to have a decent retirement. (After all, if someone is ten years from retirement,Social Security won’t be there as the doomsayers say, and one needs 75% of income to survive, this is going to be difficult, if not impossible.) With that being said, I don’t want you to think that I am against investing in your retirement. I have an IRA, and I think that these are vital programs to add to, but not replace, Social Security in order to build a stable retirement income.

Now or Later

Dave Ramsey argues that the most important thing that someone should do is pay off all debt except for home ownership (mortgage is something that can wait in his formulation and payments should simply be made until other things are taken care of). Once this happens, one should take all of that debt money and then start to build for retirement. He says that this is so vital that one should use every spare penny for this purposes even going so far as refusing a matching funds from a 401(k) because he feels that the key to financial freedom is a total focus on each part of the plan. However, most investment advisors argue that the most important thing to do is to pay yourself first. I’ve seen some say 15 or 20% is what is required, and others that say that 10% will do the trick. (I personally think that the answer to this question depends on the age of the person building the account.)

The ultimate problem with this way of thinking is the way compound interest works. Ultimately, when one is truly financially independent, the best way to make money is to get out of the way, and just keep breathing. In his book The Slight Edge, Jeff Olson gives an example of compound interest working for someone vs. against someone. He gives as an example a story of two friends at the age of 24 who decide that they want to invest $2000 a year into an IRA that has a yield of 12%. They decide to invest until they have enough money that they will have $1 million by their 66th birthday. The first friend starts right away, and he makes the annual $2000 investment every year for six years. He stops because he already has enough in savings to get to his goal. The second friend finds out about this at the age of 30 and decides that he’d better get started after putting it off. He finds out, much to his shock, that he will have to invest for thirty-three years in order to get to $1 million by his 66th birthday.

But what happens if someone decides to keep investing? My wife and I each have money in an IRA. I have a little bit more because I started six months earlier. We have decided to, as long as our health permits, hold off until the age of 67 (our full retirement age) to start cashing in our IRA. However, I turn 67 in October 2046, and she turns 67 in February 2054. Based on the kind of money that we should be able to earn right out of college, I did some math and decided to see what happen if I invested at $350/month and she invested at $200/month out of college, if we both invested $50/month until then. Well, by the time I turn 67, I would have over $1.9 million in my IRA. This isn’t a bad amount. However, by the time my wife turns 67, even investing 30% less than I would, she would have a total of a little more than $2.7 million in her account. This is basically the difference between investing for 36 1/4 years vs. investing for 43 years.

So, what does that mean about debt reduction? I think that debt reduction is a good thing, but it has to be a part of the total picture of financial health. Flipping through the TV over the weekend, I saw Suze Orman talking to someone who was amortizing her house to the tune of an extra $1500/month in order to pay it off a lot sooner. Suze said that her goal was noble, but she noted that she wasn’t putting nearly enough money in her IRA because of this strategy. Granted, the “get rid of all your debt first” strategy I mentioned above excludes home ownership, but this means that it is operating at the expense of time. I know, using myself as an example, that I will have a lot of student loan debt, as will my wife, once we get out of school. If it takes us five years of laser focus to get rid of our debts, and we hold off on building our IRA’s, how would that look? If we simply held onto them for five years and invested the same amount, my IRA would be less than $1.1 million, and my wife’s would be less than $1.7 million. So, combined, those five years of staying on the sidelines would cost us a total of $1.8 million. How much would our monthly payment to our IRA have to be in order to make up for those five years on the sidelines? My $350 monthly contribution would have to go to $646, and her $200 contribution would have to go to $341.

I think that this as an example of a good idea that goes too far. Debt reduction is good, but there is a reason why people like David Bach, George Clason (in The Richest Man in Babylon) and Suze Orman advise you to pay yourself first. The other advantage to starting young is that the farther out you are, the more you can afford to take risks that lead to higher yields (example: my IRA is 89% stocks, and my wife’s is 91%) which adds even more importance to the value of time.

How do you make time work for you?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

Hi, everyone. I hope you had a good weekend. In some ways, I must admit that I was saddened by two e-mails that I saw Friday, but a lot of people in the business world said that it was a matter of when I would get it rather than if. The reason why I say this is because I receive e-mails from the second-largest book retailer in the United States, Borders Books & Music.

This spring, Borders filed for Chapter 11, and started to look for someone to buy the 40-year old book chain. They also closed some of their stores in an effort to become more lean and mean. However, I knew that things were pretty bad when I noticed that one of the stores that was on the chopping block this spring was the location in Center City Philadelphia. (This is the part of town a lot of places would call their “downtown” area, but it is to the north of South Philadelphia, whose big business is the Sports Complex; hence, the name.) This was usually where you’d see the big book signings, and considering that they had just released a new version of their eReader, I thought that they were in good shape to restructure and that they just decided to focus on the suburbs and shopping centers to cut down on rent.

Changing with the Times

It was with this background that I was saddened as I saw an e-mail from the CEO of Borders thanking people for their 40 years of loyalty and the chance to serve us. The second advertised a going out of business sale at all locations. (I saw a news story that they were closing the stores, so I thought that it might have simply meant that they were switching to an online format, but this was not the case.)

As I read the e-mail, it explained what a lot of people saw as the demise of Borders was complete: they simply couldn’t compete with online bookstores. In some ways, this was true, but I think that part of it was because they couldn’t see what happened with online books until it was too late. A lot of people thought that the fact that Amazon didn’t turn a profit for several years meant that they would ultimately have to raise their prices, and they would ultimately lose their biggest advantage. This did not happen. By the time Borders realized this, they struck a deal with Amazon that would direct people to their online store, but Amazon was not really interested in helping Borders out, and they didn’t really do a good job with this.

What They Had

In this way, Borders ultimately ended up behind the curve, and they paid dearly for this mistake. However, I come not to bury Borders, but to praise it. While it is true that the business world changed and they couldn’t keep up, the simple fact is that their efforts made things like Amazon possible, because Borders was the first high-volume bookseller. Some in the world of independent books probably see this as poetic justice (After all, a lot of independent bookstores couldn’t keep up with the economy of scale of Borders.) but there were a lot of good things that Borders did that other booksellers both large and small copied. After Borders, it became far more common to see bookstores that had places to sit as people browsed through the books or waited for friends and family at the store. Even a lot of independent bookstores serve coffee, which would’ve been unthinkable before Borders did it.

This leads to the ultimate question of whether Amazon and eReaders have killed the bookstore. In some ways, there will always be bookstores, but they are far different than what they once were. As long as people love actual books and reading for its own sake, there will still be brick-and-mortar bookstores.

People say that independent bookstores are dead, but there are at least two within a two-mile radius of my house. I think that there will always be a place for bookstores because they still provide a service people like. Sometimes, I’ve gone into a bookstore not having any idea what I wanted, but just started looking around, and I found some great books this way. Paperback publishers have admitted that this is where they get a lot of their sales, because people search engines for online bookstores tend to reward newer books (and thus hardback books) when people are just looking in general. So, for this reason, while Borders may be gone, their legacy will survive, even by the companies that beat them in business.

How have you enjoyed things that many have declared dead or learned to adapt with the times?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

This is the West. When the legend becomes fact, you print the legend.- from The Man Who Shot Liberty Valance

Hi, everyone. Lately, I’ve been thinking about the question of authenticity in life. One of the popular sentences in the world of network marketing is, “Fake it until you make it.” However, I think that Jim Rohn is far more on base whenever he says that it is better to live an authentic life, and that whatever you affirm should be the truth. However, I’ve wondered about what happens when some of the people who actually live an inauthentic life seem to have success in the world where they travel. This made me think about the Great American Male, John Wayne, and how his life did not match the one in his movies.

This is a Tough Guy?

I will be the first to admit that I do not fit the stereotypical image veteran. I stand 5’5 and I have a small frame. (However, this does put me at roughly the same size as Army Airborne veteran who served during World War II, Rod Serling, of later fame as the creator of The Twilight Zone.) So, needless to say, I can understand that someone with my size and build would not be a major figure in movies as a war hero. John Wayne, who was 6’4, and wore lifts to look even taller, became known for his work in Westerns and war movies playing the tough guy. He was 34 years old at the time of the attack on Pearl Harbor, younger or of a similar age to many Hollywood stars who left for war (Clark Gable was 41 when he enlisted in the Army and volunteered for combat), but this tough guy never served a day in the military.

The Consequences of an Inauthentic Life

So, why does John Wayne have this image as the Great American Male? It is clearly because of the roles he played in movies. Ironically, the man who was a frequent director of movies with John Wayne as the leading man, John Ford, filmed documentaries during World War II (many including actual scenes of battle) for the precursor of the CIA. As you could imagine, John Ford was not happy about this, and he frequently berated Wayne for, among other things, not knowing how to salute. During World War II, when Wayne did USO shows, he was often greeted with silence by actual servicemembers, and he got into frequent fistfights with actual military members who questioned him for refusing to enlist.

What is the even sadder consequence of someone like John Wayne is the real-world consequences of the stereotypical tough guy whose only experience being a hero was on celluloid who later became known as a “superpatriot.” The image of Wayne as a hero was used to rally military engagement in movies such as The Green Berets, which even the Army wanted toned town because they saw it as nothing more than a cheap propaganda piece. Wayne was an ardent supporter of wars and he regularly called into question the courage and the masculinity of anyone who opposed sending others to war, even those who had actually been to war. Because of his past, almost everyone around him knew (and said that he probably would’ve admitted in rare moments of honesty) that he was wracked with guilt over his avoidance of military service. However, if that is the case, wouldn’t his penance have been to not try to send others to something he wasn’t willing to do himself, especially considering that World War II is still considered the most justified war ever entered into by the United States (anyone whose ever gone to seminary can tell you that this is the war that is most commonly cited by defenders of the just war theory) was one that he was too busy making movies to serve in?

Ironically, the most decorated Hollywood actor (not including Audie Murphy, who was a highly-decorated veteran who became an actor later) was not the stereotypical hero. Jimmy Stewart, who stood 6’3 and weighed all of 138 lbs. (five pounds under the limit, he convinced the doctor to ignore his low weight) enlisted at the age of 32, a year before Pearl Harbor, because he saw the war coming, and he eventually earned the rank of colonel in the Army Air Force during the war and brigadier (one-star) general in the Air Force Reserve, flying in 23 combat missions. He was not the kind to brag about his service, although some noticed the darker tinge to some of his later roles. In The Man Who Shot Liberty Valance, Stewart entered into a role reversal with Wayne’s real life personality, getting to great fame as a pretend hero. However, even though he saw some horrible things and didn’t want to talk about it, he had no need to prove himself because he did when he had the chance. I mention this not as a political argument (both were conservative Republicans), but as a defense of authenticity.

What things do you do to make sure that you live an authentic life?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

Hi, everyone. I hope you have had a good week. Lately, I’ve read a few books that talk about investment and retirement. A lot of the advice I read was some pretty good advice, but I’ve noticed one trend that is disturbing as I read these books: a lot of these books tend to overestimate how much you need for a secure retirement by completely ignoring Social Security, or outright trying to scare people about the 76-year-old program that may be the most popular government program in history.

The Truth About Social Security

Social Security was passed in 1935 in response to the fact that two-thirds of Americans over the age of 65 lived in poverty. The first checks went out on January 1, 1937, as a transition program of a one-time check for the amount of withholding tax the retiree paid into the system. Five years later, Social Security took its now familiar pay-as-you-go system. However, there has always been a section of the population that think Social Security is a bad thing, either because they don’t think it is sustainable, or they don’t think it is something the government should be doing. Unfortunately, these people have lied about the system in order to make it seem to be worse than it is, and (based on different reasons) a lot of financial planners have gone along with this.

The truth is that Social Security has never missed a check. There have been concerns about its long-term viability, but minor changes to the payroll tax or the payout have made sure that the program pays out. At the point where the doomsday people say that Social Security “goes broke” or “goes bankrupt,” even if nothing is done, the absolute worst-case scenario is a 25% reduction in benefits. However, small changes to the system (such as raising or eliminating the cap on the payroll tax, as has happened many times before) will make sure that this doesn’t happen. So, when you get those letters three months before your birthday (mine comes in a few days), you can count on the number that they are giving you for your projected benefits.

Why Does This Fear Campaign Continue?

With the exception of Suze Orman, I’ve never seen a major book on investment that is not written from a point of view that is critical of the retirement-investment industry that tells people to factor in their Social Security in the amount of money they need for retirement. (She argues that the retirement age may go up, but the program will still be there. I am inclined to believe her because of the popularity of the program.) So, why do these financial planners (some, who are otherwise very good, are even willing to nickname the program “Social Insecurity”) continue to scare people on this issue and tell them not to count Social Security?

The book Retire on Less Than You Think by Fred Brock gives what I think is a good explanation for why this happens: a lot of retirement planners receive a commission, which makes it financially advantageous for them to convince you to keep the absolute largest amount they can talk you into putting in your account. Another assumption that is somewhat suspect is the “75% rule,” where one needs 75% of pre-retirement income to live. However, if you plan right, this is not the case. The most expensive thing for people in their working years is their mortgage, which most senior citizens already have paid off. Another major one is student loans which are, again, usually gone by this time. Finally, unless your Social Security check is at least $25,000 for the year as an individual or $32,000 (with the median monthly check of $1840, the majority are below this level), instead of paying into the system, you are now receiving from the system without paying taxes on that money. For this reason, it is better to instead look for a more individualized plan that is based on current cost of living rather than income, which for many people is actually closer to 60-70% of their income, and Social Security tends to pay out about 20-30% of pre-retirement income, which means that someone may only need closer to 40-50% of his/her pre-retirement income.

A More Rational Path Forward

Am I suggesting that someone tries to build a smaller nest egg? Absolutely not! Instead, I am asking you to think of a more balanced asset approach. An intriguing idea from Dave Ramsey (who does make the Social Security mistake, but has a lot of good ideas) is to, rather than simply focusing on retirement as the end-all, be-all of asset management, to use money that used to go to things like the mortgage and debt to truly build a fortune on top of retirement in order to be truly financially independent. Also, adding Social Security to the mix will mean that there is a much lower yield needed in those later years, which will provide peace of mind for those who always think they are not saving enough.

Then again, you may decide that you want to save and invest enough so your Social Security check doesn’t matter, and that’s fine, too. As Suze Orman reminds us, we need to stand in our truth. If we can do this, we will have a fuller picture of our investment goals, which will give us true financial peace of mind and help us plan in a way that helps us provide for our future and our legacy.

How does learning all of the details help you make better decisions for your life?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

Hi, everyone. One of the things that I have been thinking about lately is the nature of setting priorities. This was reinforced to me as I watched the movie Click on the Fourth of July. For those of you who haven’t seen this movie, it came out six years ago and stars Adam Sandler as a workaholic who can’t seem to find his way to have enough time for everything in life. When going to a Bed, Bath, and Beyond, he meets a mysterious man named Morty who offers him “a universal remote control to control your universe.” There are a few requisite jokes once he figures out what he has, such as pausing his boss to slap him around after he orders him to work over the Fourth of July weekend, and hitting the slow-motion button when a woman is running. However, if you think of this movie only in terms of the joke, you will miss the larger point.

What Are Your Priorities?

The lead character has a family that wasn’t rich, but one that was full of love growing up. Seeing other kids enjoy the material things in life, he decides to try to work to make for a better life for his kids. This takes the form of hitting the “skip” button to avoid dinner with his parents so he can focus on designing his next project. Later, he has a fight with his wife, and he fast-forwards through the whole thing.

*SPOILER ALERT* Ultimately, when he gets passed over for a promotion, and gets frustrated after having to take his kids’ bicycles back, he decides to skip to his promotion. He finds out that it takes him forward one year. *END SPOILER ALERT*

One of the key elements of the story is that, eventually, the remote starts to program itself based on the preferences of the user. Thinking that he was getting the life he wanted, he realizes how much he misses along the way, but he learns this lesson at a huge cost.

Hollow Success

This reminds me of the concept of hollow success. No matter how much people think that financial success is the end-all, be-all of existence, it is something that must take its place in a well-rounded life. After all, what good is having all of the money in the world if there is no one to share your life with? As Jim Rohn reminds us, when we neglect one area of our life, it tends to show itself in other areas of our life. So, rather than focus on only one thing in life, it is important to become a well-rounded individual. Rather than focusing on only one thing, be sure to spend time with the people who love you, and improving as a person.

What things do you do to make sure that you aren’t fast-forwarding your way through life?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

Hi, everyone. I hope that you are enjoying this Independence Day, or for my international readers, Monday. Today marks the 235th anniversary of the signing of the US Declaration of Independence from Great Britain, one of the most important events in Western history. This would redefine the previous 14 1/2 months of fighting not as a battle against imperial powers, but one where nothing less than total victory would be acceptable. Regardless of your national loyalties, the first victory by a colonial force over an imperial power since long before Columbus sailed the ocean blue is a monument that has had a lot of effects since. However, rather than look at what our Founders did, which is extremely important, I decided to spend today looking at some of the heroes in our country today who are currently under fire.

Public Servants or Greedy Leeches?

As some of my regular readers may remember from earlier this spring, I wrote about the battle to fund the government for my adopted home state of Pennsylvania. However, this fight is not limited to one state, but a microcosm of a battle that is being fought all over the United States. While the battle over the US debt ceiling may be getting all of the attention now, a lot of the more immediate battles are being held at the state level, with all but one state (New Hampshire) bound by law to submit a balanced budget.

I have argued then, as I argue now, that this is really a question of priorities for a people. However, one thing that I didn’t mention in the original post is the way that public workers, including teachers, police, and firefighters, have been so demonized in this budget process. In my job working with labor, I heard a lot of complaints from people as I walked door to door to convince people of the need to take action to fight these cuts that public sector workers are greedy and somehow getting by with a lot more than workers in the private sector. Perhaps the most notorious example of effort to turn public workers into villains comes from our neighbors to the east, New Jersey, and their combative Governor, Chris Christie.

A lot of people tend not to openly admit hostility towards people like teachers, firefighters, police, and military personnel, but this is really what is at stake in this battle over budgets. We tend to say that these people are true American heroes, and I would be inclined to agree. Unfortunately, I have noticed a cognitive dissonance with too many of my fellow citizens. The very same people who villainize public workers still insist that teachers, police, and firefighters are doing important work for the American people. However, these are the very same public workers who they are demonizing. If we really feel that these people are the heroes of American society, shouldn’t they be paid like them?

After all, as I noted last week, we tend to have a lot more willingness to do things that are rewarded. Then again, there are people who don’t realize how much these heroes actually make. I’ll take my war experience as an example. I happened to mention in an off-hand comment on a message board after I came home from Iraq that I managed to save over $20,000 while I was overseas. One of the people on the message board insisted that this was an example of the extravagant salaries we pay our military personnel. What this really meant was that I barely spent any money for the year. This “extravagant” salary that I earned while I was overseas? $1900 a month after taxes, with my bonuses. And I was a sergeant who had been in the military for three years. (Before I hit my three-year anniversary of enlistment nearly three months into my activation, my pay was only about $1700 a month after taxes.) Based on cost-of-living adjustments (COLA’s) over the last eight years, this would now be about $2400 a month. Does anyone honestly think that this is our country’s way of saying that its military personnel are its highest priority? (I noticed in my six years in the military just how much money was wasted on expensive weapons systems while things for foot soldiers were severely neglected. Our country could easily find the money for our servicemen and -women simply by taking money from some of these programs that were either designed to protect against an enemy that no longer exists or weapons systems that do not and have never worked.)

For a humorous look at this situation, I remember a bit I saw Bill Maher do in an HBO comedy special called Victory Begins at Home. It was based on his 2002 book When You Ride Alone, You Ride with Bin Laden. The book was based on WWI- and WWII-era posters made by the government and released as a call to the American people to rise to a bigger vision than shopping as a response to the 9/11 attacks. One of the posters shows a schoolteacher, a police officer, and a firefighter, and it says, “We Say They’re Our Heroes” on top, but on the bottom, it says, “But We Pay Them Like Chumps.” This turned into a one-minute bit for the comedy special that is the most poignant piece, even more so today with these budget battles where the idea of paying more taxes is “off the table.” Here is a clip from the special:

The part I’m referring to starts at 4:20 and lasts until 5:19 or 5:20. Warning: some parts of the video may be NSFW. I don’t agree with every single part of the special, which includes pet causes that are not ones that I agree with, but I think that he really hit the nail on the head with this one.

What do you do to make our heroes a priority?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.

Hi, everyone. I hope you are having a good day today. Lately, I’ve been thinking about the question of traders and investors in the world of business. This thought came to mind while reading The Way of the Turtle by Curtis Faith. Based on the title, I thought that this was going to be a book about a slow and steady approach to investing. However, it was a book explaining how someone can ride the waves by becoming a trader. With this in mind, I decided to compare and contrast these two mindsets and show why one is far more important than the other in the world of business and, more specifically, network marketing.

The Trader

The trader is someone who tries to ride the trends and the fads out there. In the world of the stock market, this is someone who will see when he/she thinks that a price is going up or going down, and make all actions based on this principle. The biggest example of this person in pop culture is the day trader. Because of the short-term nature of his/her enterprise, the eyes are usually focused on CNBC or some other business channel to see whether things are going up or going down.

The Investor

The most famous investor in the world today (maybe ever) is Warren Buffett. The Oracle of Omaha’s most famous quote when it comes to the world of investing is, “If you aren’t willing to invest in a company for ten years, you shouldn’t invest in it for ten minutes.” He looks for companies that have some sort of short-term hiccup that the rest of the market overreacts to in a company with long term value, buys into it with the attitude of actually owning the business, and holds onto it for years. (One example is holding onto stock in the Washington Post for over 35 years, buying $11 million worth of stock that has turned into $2 billion over that time.) His way involves persistence and deciding whether or not something will work for decades, selling only when the company has become overheated or when the fundamentals change.

Application in Network Marketing

How many people do you know who seem to jump from company to company over the course of months? I’m talking about people who put in an initial investment (especially in a company in “pre-launch” phase) and have a lot of enthusiasm, but the instant that they feel that the trends have changed, they will go to another company. Unfortunately, as we all know, there is a learning curve with any business.

I’m not saying that there is never a time to leave. After all, even Buffett sells stocks once in a while. However, there are times when the fundamentals change. For example, I left a company when the compensation plan changed. Sometimes, the leadership changes in a company, and it is also possible that the industry goes out from under people’s feet. (For example, I hear that long-distance phone cards used to be a popular network marketing business, but with the popularity of cell phones and even land lines with unlimited long distance, this has obviously fallen by the wayside.)

How do you tell whether you are being an investor or a trader with your business?

If you like what you read, please leave your comments below and share with your friends using the buttons above.

If you would like to learn more about the principles of personal development that have stood the test of time, please fill out the form for my Seven Day eBook Giveaway in the upper right-hand corner of this page.