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Warning Signs

As with any type of failure, it is very difficult to point the finger at one particular cause. When I meet with couples after years of frustration in their marriage, there is never just one thing that caused the marriage to spiral downward – and ultimately out of control. After a long season of college basketball, there is never just one thing that caused the team not to win a national championship. Most likely, there was a series of errors; missed shots, poor passes, turnovers, and missed opportunities adding up to a loss. 

Likewise, if you are on the brink of financial failure, there is not just one thing that you can identify to be the root cause of your circumstances. There are probably several things including poor financial habits and training, inadequate financial knowledge, reckless spending habits, bad debts, mismanagement of credit, etc. Although there are many things that lead to financial failure, there is some commonality in each scenario. If there was ever a simple answer to the cause of failure in general, it would have to be poor financial planning and lack of preparation. Perhaps the best skill set to hone is that of preparation and planning because it can affect the outcome of every aspect of our lives. Preparation and planning do not require any type of educational degree, but they do require effort. They are not necessarily spiritual gifts, yet they do require wisdom. Careful execution can create the subtle difference between being rich and being wealthy. Christ also placed emphasis on the importance of planning. In Luke 14:28- 30 (NIV), His example transcends the barriers of time. The passage reads, “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, ‘This fellow began to build and was not able to finish…’” 

Isn’t this what happens when we fail to plan? When viewed from God’s perspective, the lack of planning seems to be quite careless, let alone costly. Later on, we will talk about the importance of setting goals as this is the all-important start to preparation and planning.

Assessing Our Needs

Without question, everyone needs somewhere to stay, but does each child really need his or her own private suite or wing in the home? It’s amazing to me to hear people that grew up years ago with four brothers and sisters in a 1,400-square-foot home now tell me they need a 10,000-square-foot mansion because they have two children and one on the way. As opposed to viewing a home as a dwelling place, many families bought into the idea that they would invest in their homes and use them for financial leverage. Unfortunately for millions of people, they didn’t do all the necessary research and legwork to make sure they could legitimately afford the house they purchased. There was no emergency reserve fund in place. There was no savings account, and there was no contingency plan in case one or both spouses lost their jobs. Though there are a thousand different variations of that story, the end result is often the same: failure to plan for the worst resulted in planning to fail the home ownership test. Who said that you have to own a McMansion? Who are you trying to impress… and why?

Wardrobe is another area where people tend to spend excessively. No one is questioning whether or not clean, warm clothing is essential, however designer labels are not necessities. Clothing can be a big budget buster. 

I have studied books about frugal millionaires who live like paupers; eventually growing too old or decrepit to enjoy their wealth. I’ve also read articles and books asserting that Christians are not supposed to have, enjoy, and maintain wealth. I disagree. I believe that Christians are supposed to have all that God has made available for us. We see examples from the Old Testament to the New Testament (from Solomon’s regal raiment to Jesus’ seamless robe) that indicate quality clothing is important, but it has its proper place. Yes, looking good and having nice quality clothing may not be cheap, but there are things you can do to minimize wasteful spending on clothes: 1. buy sale items. 2 clip coupons 3. save where you can by spending less on general items like socks or pantyhose, or purchasing them in quantity for discount savings. If you are willing to look for a solution, there is always a way to save more money.

Listening and Learning…

Notes from The Financial Shepherd: Why Dollars + Change = Sense

There are some people who just get it right. They read, study, listen, and learn everything they can about finances and then put that knowledge to work and allow the money they save and the power of compound interest to work wonders for them. 

One client in particular comes to mind. He is single and has saved on his own for years. He earns approximately $150,000 per year and saves 50 percent of his income. At age 40, he had already amassed more than $1 million. He invested most of his money on his own by reading various books about the “buy and hold” strategy and diversification. However, when the market dropped in October 2008, he sold at the market’s lowest point and didn’t get back in the game. When we met to discuss his finances, he shared with me that he knew that he should not have sold, but emotionally he could not stomach that level of risk. Fortunately, he gave me permission to take over his investments, since I had no personal or emotional attachments to his money. 

In March 2009, we noticed that the market was beginning to turn around, so we bought several investments on his behalf. When he received the online statement, he immediately called me to confirm that the information was accurate. It was. Six months later his entire portfolio had increased by 400 percent. While this clearly doesn’t happen everyday, listening and learning from others can certainly help. When you build your financial future on a solid foundation, the potential is unlimited.

The Power of Compound Interest

When it comes to money, think of it in terms that every decision you make in life is also an economic decision that can inflate or deflate your financial future. In the world of finance, it is often said that the greatest invention in mankind is compound interest, which is the interest calculated on both the principal and the accrued interest of an investment. Compound interest means that each time interest is paid, it is added to or compounded into the principal amount and thereafter earns interest also. The ability to have your assets actually work for you is amazing. One of many lessons we can all learn from wealthy individuals is how to stop working for money, and let our money work for us. 

I worked for a big financial services firm before I started Worth Financial. Next door there was a very successful mortgage company. I remember the senior broker/owner telling me that he made about $400,000-$500,000 per year in profit.  We talked from time to time, and he said he would use our firm’s services to do some financial planning, but he never did.  

One day we were having a conversation, and I remember he told me that he would never have a car note; rather, he would always borrow against his home. So he bought expensive cars by taking equity out of his home. In actuality, by doing this, he was unfortunately financing his car for 30 years. So instead of paying $84,153 ($60,000 purchase at 7% for 5 years—which is high enough), he ended up paying $456,735 ($60,000 at 7% for 30 years)! When I saw him a few years later, he informed me that he had closed the mortgage company and filed for bankruptcy because he didn’t save enough money and had taken on too much debt. It’s no surprise that the story ends that way because that is one of the familiar traps many people fall into without a solid financial plan. Personally, I don’t want anyone else to go through a situation like that. The key to unlocking the door of compound interest is to use it for good and not for evil (i.e., building a solid investment portfolio versus pouring money down the drain of depreciable goods).

New Purpose, New Relationships, & New Habits

Excerpt Adapted From: The Financial Shepherd®
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Without question, we know the key first step in financial planning is goal-setting. By setting new goals, one acquires a new sense of purpose. We routinely encourage our clients to consider and develop a plan for their life dreams – and most importantly – to dream big. As believers, when we put our dreams in God’s hands, we are able to observe and experience the miraculous.  

One of the other resulting consequences of setting goals is that we are forced to establish new relationships and develop new financial habits. New relationships provide us with greater opportunities and better results. I remember the first time I wanted to get in shape. I had never exercised a day in my life, but once I started, it felt great and I lost 10 pounds. I loved my lighter self, so I continued to do the same thing over and over until I hit a plateau. So then I decided that I needed to increase my goal and lose 10 more pounds. I didn’t know how I would do it, but I knew I wanted to do it because I was still vastly overweight. So I prayed about it, and literally the next week, a friend of mine who I considered to look like the Incredible Hulk told me he was moving to my side of town and asked me if there was a good gym nearby. I told him my gym was great, and I asked if I could train with him sometime. He agreed and three months later I lost an additional 25 pounds. I was in the best shape of my life. My friend gave me the support I needed to reach my new goals. The development of that new relationship forced me to establish a new routine and adopt new, healthy habits that helped achieve my fitness and weight loss goals. The same principles that applied to health and wellness also apply to financial fitness. 

New personal habits allow us to obtain higher levels of achievement. By changing old habits, you tend to leave the old complexities of life behind. In order to work out with my friend, I had to wake up at 4:30 in the morning. I normally slept until 6:30 everyday, so this was quite an adjustment. After I decided to do that, I found myself benefiting in many other ways. First, I lost weight and I felt more confident. Second, I became more disciplined in other ways, like how I ate. It even enhanced my work ethic. I was now the first person at work every day and I really got a lot done before my employees arrived at the office in the morning. Previously, I had been working on weekends just to keep up, but now I was able to have my weekends to myself and not have to think about work. I didn’t make time to stop at the doughnut store before work any longer, instead I made smoothies and other healthy snacks at home. As a result, I saved money and calories. This extra time, energy, and confidence allowed me to be in places and meet people that I probably would not have encountered if I hadn’t set specific goals and then created a detailed plan to follow them based on renewed relationships and habits.  

When setting goals, we must be careful to avoid measuring our success against the attainments of others. In our respective practices, we counsel and encourage our clients to ‘Measure From Behind’ – that means to look back and see just how far you’ve come, and how far God has brought you, based upon your own accomplishments. Our recommended strategy is to measure your own progress by your own progress and growth – not by anyone else.

Be Prepared

Excerpt Adapted From: The Financial Shepherd®
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Abraham Lincoln once said, “If I had eight hours to chop down a tree, I’d spend six sharpening my ax[e].” The point is that the will to prepare is as important as the will to succeed because success comes when preparation meets opportunity. 

Our goal through this book is to prepare you for your future role as a Financial Shepherd and to help you gain the following characteristics: 

a. Confidence- The ability to lead, and not just blindly follow; to finally feel refreshed and full of faith that your financial future will be better than it has ever been. 

b. Direction- For many this will be the first time that you are fully aware of where you’re going and how to get there. This financial map will provide direction and guidance and give instruction on how to navigate the hills and valleys that lead to success.  

c. New capabilities- Many people cannot obtain wealth because they are unaware of all the blessings of God. Ignorance is no longer an excuse. Stocks, options, derivatives, and mutual funds are available to God’s children to bless His people. It is time for us—that means you too—to openly receive this information and prosper. We believe that many millionaires will be created from reading this book.

The Road to Financial Independence

Excerpt Adapted From: The Financial Shepherd®
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Years ago, retirement was almost considered a time to die. Now it is considered the optimal time to live – and for much longer. According to the National Center of Health Statistics (2007 report), a child born in 1900 had a life span of 47.3 years versus a contemporary child born in 2007 now has an expected lifespan of 77.9 years.  Therefore, many people in professional careers will live just as long in retirement as they did in the workforce. The question is: How will they survive?

Word to the wise, retirement should be a major consideration from the first day you enter the workforce—or as one colleague says—begin with the end in mind. In mapping out a strategy for retirement planning, be sure to ask (and answer) the following questions in conjunction with a financial planner who’s qualified to advise you on various options for long-term retirement investment plans:

  1. When do I want to retire?
  2. What does retirement mean to me (full-time travel and leisure, part-time work, full-time volunteer/service/missions, etc.)
  3. How much money do I need to fund my ideal retirement?
  4. How will I pay for retirement?  
  5. How will I cover health care expenses or unexpected medical costs?
  6. What is my lifestyle going to be like; will I increase or decrease my standard of living? 
  7. Where do I want to live? e.g. closer to family, in a warmer climate, or near specialty medical centers?
  8. Do I want to keep my home, purchase my dream home, or downsize to something smaller and more economically feasible?
  9. How would I like to manage the estate planning process to bequeath my possessions after I die?
  10. What professionals do I have in place that can assist me with retirement and estate planning to accomplish my long-term financial goals?

As you think about how to answer these questions, keep in mind that there are three primary ways to pay for retirement:

  1. Employer-based plans (retirement savings plans, company matching retirement funds, etc.)
  2. Government-based plans (Social Security)
  3. Personal plans (independent wealth, residual income, inheritance, etc.)

Learn the Lingo

Excerpt Adapted From: The Financial Shepherd®
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

Many times we hear that the market trades up 40 points or down 40 points on any given day. These comments reflect the importance of the overall stock market in determining the price behavior of individual stocks or bonds. Some experts feel that this is the key and major factor in determining the securities selection (buying or selling). They feel that the stock market is what matters most, not individual securities. Others feel that the individual company is the only factor when buying a security. Analyzing these various forces in the stock market is known as technical analysis.

We feel that studying the market is only one element in the security analysis process and it is helpful in making decisions.

For example, think about the fall of 2008. There were some companies that remained profitable and their outlooks remained bright. In fact, there were even a few banks that hardly felt the “financial meltdown.” However, their stock prices still fell because the overall stock market fell. Therefore, it is important to watch the overall outlook of our economy; it’s important to see the big picture and keep both short-term and long-term goals in mind. 

There are many types of technical analyses available, but here is a list of the most common ones: 

  • Charting
  • Market Volume
  • Breadth of the Market
  • Short Interest
  • Odd Lot Trading*

I could write a book on technical analysis because of its profound effect on stock market determinations. However, we will cover that topic at another time – I just want you to be familiar with the term and its relevance to the industry. 

Odd lot trading is a term that you need to know. As a matter of fact, the impact of this phrase is one of my motivations for writing this book. I remember early in my career speaking to a seasoned veteran Wall Street trader, and he told me he used odd lot trading as a way to diversify or sell a security all together.

Understand that many people and most institutional investors buy stocks in even lots (multiplies of 100). However, small investors may not be able to afford even lots so they but in lots smaller than that multiple – which are called “odd lots.”  For example, if you wanted to buy stock in XYZ company, and it costs $203 per share, usually an investor would buy at least multiples of 100 shares; so let’s say 500. That would cost ($203 x 500) $101,500 plus trading costs. But what if you wanted this stock and only had $2,000; then you could only buy nine shares ($1,827 + trading costs). That would be considered an odd lot trade which frequently works against small investors and puts them at a disadvantage. 

Adding insult to injury, small investors are notoriously wrong in their timing of buying a security for a couple of reasons:

  1. Small investors usually get crucial information last (too late).  
  2. They usually wait until the news is great before they buy.

Remember, when it comes to investing, the goal is to buy low and sell high.  When the news is great, it’s usually about something that has already happened – and that is too late. As a Financial Shepherd, your responsibility is to get in the game, learn the lingo, and stay in the game until you win. 

As we said previously, what goes up must come down. Conversely, what goes down will also eventually come back up. Decades upon decades, we’ve seen that the market ultimately corrects itself – even in the face of huge trade and financial deficits and uncertain economic times. It is fairly certain that there will be more down days ahead, but when these days arrive, they open up huge opportunities to invest. The lesson I want you to remember is to keep saving so that you can invest like the professionals and take advantage of these good opportunities when they come along. When the market corrects itself, the pros win and win big – and you can too! 

Looking for an Advisor? …Seek Quality

Excerpt Adapted From: The Financial Shepherd®
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

The person needs to know more than you about a particular area of expertise, otherwise, you could do it on your own. The individual should have more than just training from a company, but also should have some type of designation. There are many designations that advisors can simply pay a fee for and have it on paper to make them look more credible. You want to make sure that they have accreditation and designations where extensive training and continuing education are involved. Within the financial realm, the most creditable designation is the CFP, or Certified Financial Planner. In addition, if someone is going to manage your money, they should also be a registered investment advisor. Another designation is the RFC which stands for Registered Financial Consultant and requires more continuing education than most others. Regarding finances, the point is not just about getting a designation, it’s about continuing to learn and evolve as the financial world around us evolves. If you want to hire an accountant, then they need to be a signed fiduciary, or a Certified Public Accountant (CPA).  If you need an attorney, make sure that individual specializes in the area of law that you need. For instance, you should not use a personal injury attorney to complete your estate planning or a defense attorney to close your real estate transactions.

Most people think that all financial planners are “certified,” but this isn’t true. Anyone can call himself or herself a “financial planner.” Only those who have fulfilled the certification and renewal requirements of the CFP Board can display the CFP® certification marks. When selecting a financial planner, you need to feel confident that the person you choose to help you plan for your future is competent and ethical. The CFP® certification provides that sense of security by allowing only those who meet the following requirements the right to use the CFP® certification marks.

Here is some helpful information to know: CFP® professionals must develop their theoretical and practical financial planning knowledge by completing a comprehensive course of study at a college or university offering a financial planning curriculum approved by the CFP Board. CFP® practitioners must pass a comprehensive two-day, 10-hour CFP® Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits and retirement planning, estate planning, investment management, and insurance. Finally, CFP® professionals must have three years minimum experience in the financial planning process prior to earning the right to use the CFP® certification marks. As a result, CFP® practitioners possess financial counseling skills in addition to financial planning knowledge. As a final step to certification, CFP® practitioners agree to abide by a strict code of professional conduct, known as CFP Board’s Code of Ethics and Professional Responsibility, that sets forth their ethical responsibilities to the public, clients and employers. The CFP Board also performs a background check during this process, and each individual must disclose any investigations or legal proceedings related to their professional or business conduct. (Certified Financial Planner – Board of Standards, Inc. website. www.cfp.net)

Building and/or Restoring Credit

Excerpt Adapted From: The Financial Shepherd-
Why Dollars + Change = Sense by Glen Wright and Sy Pugh

In building or restoring credit, the goal should not be to have no credit at all, but rather to use your credit wisely. Use credit as a resource, not as an emergency reserve fund. Credit not only affects your purchasing power but it can affect getting a new job or getting life insurance to protect your loved ones. The goal is to achieve a high credit score of 720 or above. There are several easy ways to help build up your score.

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