The Missing Link to accumulating wealth

“OK people, listen up!” screamed my drill instructor at the top of his lungs. We knew we better pay attention.

I recently interviewed Michael Dubrow of Moneytips.com about research they have done in conjunction with their book, The Retiree Next Door. Michael’s response to one question really got my attention.

“Most people know what they should do: plan, save more, and spend less. The challenge is actually getting it done.”

If folks are not saving enough for retirement, yet they can easily spell out what they should be doing, what is the real problem? The steps are simple, yet many people get to the end of the line and don’t have any money. When we were young we joked, “how come there is so much month left at the end of the money?” It is not funny to reach retirement age and say, “How come there is so much life left at the end of the money?” It’s not like retirement snuck up on anyone; heck you have 40+ years or more to figure it out. Even Gomer Pyle knows that.

If you know what you should do, but are not doing it, the problem is motivation. To motivate is to cause action, in some cases causing people to change their behavior.

I cranked back the handle of my Lazy-Boy chair, closed my eyes and decided to have a mental conversation with the greatest motivator I ever met, SSgt. T.R. Phoebus, USMC.

He was well renowned as the top drill instructor at Parris Island. When I told him he was the greatest motivator I had ever seen, he simply said, “Private, motivation is just a matter of how you explain things.”

As I closed my eyes I imagined how SSgt. Phoebus, with his Smokey the Bear hat pulled down to his eyebrows, would have explained building wealth and saving for retirement in today’s world.

Screaming, “OK PEOPLE, LISTEN UP”, sure gets your attention. “This is a simple four-step process.

1. Earning money. Get off your butt and work! Mommy, daddy, and the government have cut off your allowance. If you want something, find a way to earn the money. If you want more money, improve your skills and work harder. If you remain on the dole you will never be independent and self-sufficient.

Mark your retirement date on a calendar, when do you want to quit working full time? Estimate how much money you will earn between now and then.

2. Control your spending. If you spend more than you make you are doomed to a lifetime of economic slavery. If you don’t have the money, don’t buy it! How hard is it to understand the one thing you can control is your spending? If you are up to your eyeballs in debt, it is because of choices you made. You dug the hole, now you dig yourself out by making smart choices. You never learn how to manage money until you don’t have any.

How soon can you pay your home off and get out of debt? Compare that cost to your earning estimate. If you don’t have much left over, find ways to earn more and don’t waste money on things you don’t need.

Get out your checkbook and credit cards and make a list of where your money went last year. How much “stuff” did you buy that you really don’t need? Over a five-year period had you invested that money, how much would you have accumulated? Quit dumping your car or electronics when the old one works fine. Upgrade your TV every 3 years, why not 6? You just saved $2,000 or more.

3. Saving is spending less that you earn. Any questions? When you are working you trade time for money. When you retire you trade money for time. If you want to retire at 65, you need enough money to live for 30 years or more. Don’t be a fool and wait until you are 60 before you start thinking about it. If you save 10% of what you earn from your very first job, you will have plenty of retirement money. What’s so hard to understand about that?

Pay yourself first and learn to live on the rest, just that simple. Do it two ways. Maximize your IRA and 401 (k) contributions. If you don’t see the money you won’t spend it. Save even more. Take $2,000 out of your checking account and invest it. Now take $100 out and have a nice dinner, you just saved $2,000. Make it fun. Set savings goals, increase them yearly, then celebrate. Sure you may have less “stuff” but who needs it?

4. Learn to invest wisely. You can earn money two ways. Working your butt off and earning it. Interest is rent being paid for someone else’s money. Bankers get rich for a reason. Become your own money landlord; let others pay you to use your assets. That is called working smart.

5. Instead of wasting your life away watching TV, do something productive, learn about money and how to make it work for you.

US News and World Report and Yahoo Finance report on a study Steve Siebold made of 1,200 wealthy people and what they have in common:

“Their personality styles vary: ….But their belief systems around money are the same…. They think about money in terms of freedom….

They self-educate by reading…. The middle class reads novels, tabloids, and entertainment magazines. Rich people would rather be educated than entertained.”

People, this is not some complicated formula. It is called self-discipline, thinking and acting differently. Having enough money to retire gives you freedom and independence. Money is like ammunition, you never want to run out. Get with the program NOW and by the time you are ready to retire you will have more than enough to enjoy the next third of your life.”

My imaginary journey was interrupted by the telephone. Maybe someday in the future we can communicate again.

I’ve seen many people who get #1, they work their butts off, but have little to show for it. It’s the points that follow that get neglected. Too many don’t recognize the danger until they get in their late 50’s or early 60’s and have to play catch up and get out of debt. With programs like IRA’s and 401 (k)’s you don’t want to tell SSgt. Phoebus you are unable to save. He would start with “Pansy-ass” and it would go downhill from there.

Once you realize you need to do something, there is nothing wrong with getting some professional help. You don’t have to go it alone, there are experts to help you through the process. If you need a little more motivation, imagine SSgt. Phoebus standing in front of you with the brim of his Smokey the Bear hat pressing against your forehead, as he screams, “What’s your problem? Get it done!”

On the Lighter Side

While we knew the market was flying high and due for a correction, the recent turbulence does not make it any easier.

As I wrote recently, “I will continue to warn readers to take some profits, tighten up your stop losses, rebalance now, and keep ample cash in reserves until I am blue in the face.” Personally I was stopped out of 3-4 positions Monday. Every time I get stopped out, I am disappointed; but also realize the system works. Trying to ride out the market and seeing
profits disappear is gut wrenching. Many “buy and hold” advocates hold on as long as they can emotionally stand it, then finally capitulate at just the wrong time. Stop losses prevent that. Remember, in 1929 it took 25 years for the market to come back.

What will the Fed do? What’s with China? What will the government do with elections looming on the horizon? What’s going on in the Middle East?

Margin calls will force more selling. Short sellers are pouring into the market and that will cause prices to drop even further. If you think prices are irrational now, just wait, it could easily get worse. Don’t buy the hype to “buy now stocks are on sale”. Trying to time the market with retirement money is much too risky for me to recommend.

If your systems are in place to prevent catastrophic losses, it’s better to just ride it out than make emotional, spur of the moment decisions, in the middle of a meltdown.

And finally…

Looks like this week’s Lighter Side was anything but light. Perhaps some perspective is in order.

Our youngest grandson Brock turned 6 over the weekend. I can’t adequately describe the fun it is to have an excited little boy telling you all about his birthday celebration. He is still young enough to crawl up in your lap and fall asleep.

As my grandmother used to lecture me, “Always remember to count your blessings!”

Until next time…