My Financial Guide to Success: What You Should Have Learned in School and at Home

By Tim Smith

This book was created to help people open their eyes and see what problems lay ahead for their future and what can be done about it. It will go over the housing crises and why you will not be able to afford a house now or in the years to come if you make a certain income and what you need to do to change this situation. It will also go over why the advice you have been given by your financial planner/advisor or financial news program(s) many no longer be viable in today's economy. This book will give you an insight into what new technologies mean for your career and what jobs may be eliminated or combined.

• Language: English
• Publisher: AuthorHouse
• Release date: Jan 7, 2011
• ISBN: 9781456719012

Tim Smith

Tim Smith graduated from "Hofstra University" with a "BBA in management" and a four year minor in psychology. He has been in the tech field for over 15 years working for financial institutions and have seen the changes taken place that will forever change businesses and careers in the future.

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© 2010 Tim Smith. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

First published by AuthorHouse 1/03/2011

ISBN: 978-1-4567-1075-0 (sc)

ISBN: 978-1-4567-1900-5 (hc)

ISBN: 978-1-4567-1901-2 (e)

Library of Congress Control Number: 2011900030

Printed in the United States of America

Any people depicted in stock imagery provided by Thinkstock are models,

and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

This book is printed on acid-free paper.

Because of the dynamic nature of the Internet, any Web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Forward:

It amazes me how people still have the same view about their finances even in these economic times. They still think that working hard at a job and saving their money can help you buy a home. These are no longer the days of mom and dad where the down payment and the homes are cheap whether you bought a Cherry Wood or Levittown home the way my parents bought their home after my father returned from WWII. The homes are quadruple the price and the American dollar is becoming less valuable and salaries have not risen to match these changes; especially where I live on Long Island in New York. According to the website [1]What Things Cost in 1950, (See footnote for website), the average home cost $15,000 dollars back in the 1950’s and they are now $350,000 to $700,000 + in 2010. Unless you make close to six figures or better most people will not be able to afford a home in a nice neighborhood with a good school district. Even if you can make the down payment you still may not be able to afford the other expenses on top of the mortgage. Taxes alone for an average house on Long Island cost around $8,000 to $9,000 plus per year with a range of $5000 and up to $11,000 +. In addition to this expense, most people don’t take into consideration the cost of water, gas, heat and electric and daily living expenses such as gas for their car, insurance, maintaining the lawn, pools for those that have them, food – because you will need to eat, personal hygiene, clothing and child expenses as well as decorating and repairing the home to suit your needs. This is what Robert Kyosaki, which he learned from his Rich Dad, calls the Rat Race. And it is true. Most people on a fixed salary have more months at the end of the money instead of more money at the end of the month. Let’s face it. Say you make $40,000 dollars a year. You still could not afford a house that was not less than $80,000 with at least a 10% down; depending on the interest rate. I figured out the yearly salary you need to make in order to own a $400,000 dollar home with a loan at 4.875% interest rate with 10% down for 30 years; it is cutting it close if you want to have money left over to Invest for retirement or even have six to nine months saved for an emergency (e.g. car repair or maintenance, medical, home repair, day care, etc.). In addition, the interest rate is based on current rates and if it goes any higher it would make it even less affordable. You need to make at least $91,500 dollars a year minimum to be able to afford the mortgage, taxes, gas, water and electric and meet daily living expenses. This would have to be either spouse making this salary or both spouses combined income. There is one thing wrong with either the prior or the later and that is if the one spouse loses his/her job then who is going to pay to keep this house from being foreclosed on. Then you have to consider, if you are going to be or are already married, the cost of having children and I do not just mean diapers, clothing and baby food. I mean when your wife has to go out on maternity leave and someone takes over for her. Will she be welcomed back with open arms and it is business as usual or could the person taking over do a better job than her and the bosses like him/her better. There are very few companies today that show loyalty to their employees. This is why when people buy a home they should both have a salary that can sustain the house they desire in case the other either loses their job or become infirmed. This last remark is the reason why Cash Flow is very important for every person’s survival. I have created an Excel Spreadsheet that will allow you to calculate whether or not you can afford a house on your salary. It will automatically calculate your cash flow after all your expenses and deductions are entered into their appropriate cell on the spreadsheet. It also has the Bracket Creep table for the United States, but it can be changed to your country by looking on the web for the table your government uses and adjust accordingly. Thus, you know how much is actually taken from your salary and can change that percentage in the formula for the bracket creep to your own specific situation. This spread sheet is a snap shot of your finances, your spending habits and to let you know how much money is left over at the end of the month for investing as well as to save for emergency fund. You are the money maker and if you cannot work then where are you going to get the money to survive. This is the reason why I am writing this book. This is a guide for anyone who wants to point their lives in the right direction financially via investing and entrepreneurship. I have read and listened to many books from many authors that tout themselves as financial gurus. They claim they are able to give anyone Financial Freedom and Success. A lot of these books I read seem like a lot of self-flatulence and seem like lip service to get you to buy their books, tapes as well as other products. The added products, sometimes unbeknownst to you, are to get you to sign-up for their expensive monthly websites that they conveniently create wording on their agreement where they can start charging your credit card monthly and make it hard for you to not only contact them but cancel once you find out that you have been getting scammed out of your money. They usually hide this wording in the EULA, End User License Agreement, which most people don’t read and just click through right to check-out where you purchased their product on-line or over the phone. They usually put in the purchase that when you buy their book you are automatically entered to either receive for the first month(s) free their e-mail subscription to their website, magazine, e-zine or to receive more books, tapes, CD’s or DVD’s monthly for a small fee. This is how they create cash-flow for themselves but not you. That is why you have to take action today and create your own luck by taking the time to organize your life in such a way that you will succeed. That is what I am hoping to accomplish in this book. This book has been created to get you thinking about investing in the right way that makes sense for today’s world. It is also created for you to get organized and focused in the right direction that meets the immediate needs and to guide you to your ultimate goal; financial freedom.

Table of Contents

CHAPTER 1 Change the Way You Think About Money/Wealth

Psychological Point of View

Write Down Your Fears About Having Money:

What Beliefs Were You Taught About Money

Write down your new beliefs about money and how it will change the old world ideas you were taught

Write down what an abundance of money can do for you and how it will change your life

Retraining your Brain

Creating a Mantra (a phrase to keep on you to repeat to yourself daily)

Write Down the Goals you want to Achieve in Your Life

CHAPTER 2 Think and Grow Rich: Why Napoleon Hill’s Book Works

Ideas and Imagination (Applied knowledge is power)

Why his philosophy works

What must you do (brainstorming)

The book The Secret (Where it originated and adds the science of quantum physics)

CHAPTER 3 Kyosaki’s View is Right!

Rich Dad Philosophy ( TV Financial Advisor conflicts but when to listen to her; my opinion)

Why Cash Flow Instead of Capital Gains

House Prices and Salary Comparison

Can you afford the House (Listing of all salaries from poor $10,000 to Well off $373,000 per year and compare to home prices with living expenses?

Past Prices & Today’s Prices:

Greater Gap between the Rich and the Poor

Why Kyosaki Dislikes Mutual Funds and Similar Investment Vehicles

We Must Change Spending Habits

Education: What Should be Taught in Schools

Why we Struggle

CHAPTER 4 Vocation in Life

Stanley and Danko (Millionaire Next Door)

Comparison of Authors Views

CHAPTER 5 Beware of Information and Who you Get It From

Richest Man in Babylon

Lawyers: Who Needs Them (Different Lawyers for different jobs; one size does not fit all)

Patent Lawyers (Necessary or Not & Where to obtain one)

CPA’s are a must (Beware of Personal Agenda’s and so called experts)

Friends and Family (Why not to listen to them and when you should)

How you should handle advice (Richest Man in Babylon)

CHAPTER 6 How to Start and Where to Start

Assembling Ideas: Passions (Brain Storming, Write them down and keep in a safe place from prying eyes)

Document and Date Everything (How to cover yourself and your intellectual property)

Protecting your ideas (Why it pays to be neat)

Frugality from the start (Not being pennywise and pound foolish)

Shuffling your assets for maximum benefits

Allocating resources (Funds, Bookkeepers and other tasks)

Choosing your business to start; What Industry (Why large dreams may need to be put on hold)

Structuring your businesses (Pyramid of Success)

Initial outlay (Angel Investors, OPM – Other People’s Money; Pros & Cons)

Building your business; Systems (Grow Slow & Win Long Term)

Vision for the company’s future

Choosing your product and/or service

Marketing (Packaging, etc.)

Research and Development

Creating Policies to meet the needs of your company

Keeping the eye on the ball

Donating to charities

When it pays to let go and allow someone to take the reigns while you pursue the next investment

Why Warren Buffett is the Ultimate Capitalist

CHAPTER 7 The Future and What I See Ahead

Changes to certain industries that reduce/eliminate jobs

CHAPTER 8 Preparing for Retirement and Pursuing the Things You Love

If you followed the new rules of investing you will be on top

Are you structured for the best tax benefit

Now you can pursue the things you love

CHAPTER 9 Manual for Excel Spreadsheet Cash Flow for Purchasing Real Estate

The IRA Contribution Spreadsheet Manual

Introduction

This book is meant for anybody that is looking for a practical guide to achieve financial freedom. I spent a few decades starting my own businesses, watching financial TV programs on investing, business and DVD’s as well as reading and listening to many different books on success, wealth and finances. In addition, I have a BBA in management and a four year minor in psychology which covers the gambit of running a small business to a large corporation as well as handling your financial emotions. You may be asking yourself the question, what does he mean by financial emotion. It is that impulse side of our nature where we leap before we think about what we are doing and because of our emotions we tend to lack financial well being. However, I will not get into more details until later on. So, I am writing this book because I am getting sick of these so called financial gurus that want you to buy their books and tapes as well as providing the new trend of coaching programs that are meant to help their customers succeed. These coaching programs makes them look like miracle workers as well as providing them with extra added income from those that did not have any business training or formal schooling. This does not mean that I am totally against coaching. Let us face it the majority of the people out there believe they have all the answers but they don’t and sometimes, where appropriate, you need another pair of eyes and ears to see what you may not. The majority of the financial gurus got their ideas from certain well known books and put their own spin on them and call them their own. The majority of them seem like the author is just giving you lip service but not providing you with anything substantial. There are those authors that actually provide a new concept to get you looking and thinking about investing differently. Then there are those authors that are giving you a practical step-by-step guide, beside me. Lastly you have those angel investors that help you, as well as themselves, get started with OPM (Other People’s Money). The OPM is their own money that you get to use to fund the investment and they get someone, meaning you, as another set of eyes that are looking for investment deals. The angel investor, of course, will get the lion’s share of the investment and profits since he/she is providing the funding. In addition, if you purchase the investment with their money then they get a money machine, cash flow, from your business. This is the reason why they will work hard to see you succeed because it provides them with a cash machine. Either way they are in a win-win situation. If you do well they get paid monthly and if you fail they can always take over your percentage of the investment for themselves. If you want to know about investors that would be interested in your business then you should watch the ABC show Shark Tank. I think this show is a must see for those who are thinking of finding investors and what they will be looking for in your business. If you do not get the gist of their motives then maybe you need to stay away from angel investors but you will gain insight as to whether your business is worth while pursuing. You will also realize that they are not interested in products; just a cash machine business that can fill their coffers every month or every quarter. Another thing you need to know about investing and that is not to depend on certain news media and their affiliated financial investment programs to be the gospel on investment vehicles. I was just reading the Weekend USA Today, August 15, 2010, which comes in News Day newspaper about teaching your kids to save money. The Financial Expert, as the writer calls herself in the article, tells how she teaches her kids about saving money to buy that iPod or clothing, etc. The whole thing was to teach your kids to work hard for money and to let them know that it took them two days worth of work to be able to buy that product they wish to purchase and to maximize that 401k when they get out of college and start to work. She talked about how she told her kids to be responsible and stay out of credit card debt. Meanwhile at the end of the article she states how she partnered with American Express and to direct you to their website to get information. This is the perfect example of what I am about to talk about. The news media programs depend on sponsors and marketing dollars that are going to provide you with financial advice that favor those companies that provide the usual financial instruments that most people blindly buy from their local bank or financial institution. In those wonderful words said by Dave Ramsey in his Financial Peace book, Banks are not non-profit organizations. The worst part is that most people do not know that the so called experts out there are providing them with the worst financial advice when it comes to financial instruments such as mutual funds, bonds, CD’s, maximizing the 401k, etcetera. In my opinion these are some of the worst financial instruments out there for a return on your money and they are only in one asset class as you will read in the following chapters in this book. I will be giving you a list of some of the financial instruments out there so you can judge for yourself; (See Chapter 3, pg.39). So get ready to change your life for the better and good luck. This book is meant as a guide and not a complete hand-holding step by step guide because life and business environments change and you will need to adapt and change as your business will adapt and change as you grow it. You will have to do your homework provided inside and make the ultimate decision as to what business suites you most and can you financially afford the initial outlay of cash for that business. Granted, some businesses will not need the startup capital as other businesses will and if you are a fan of the OPM rule sometimes you will not need any money at all if someone else funds you. Be ready for some truths and possible eventualities, such as your backer pulling funding or your angel investor wanting a controlling share of your business. In this latter case you will still own part of the business just a smaller share of the profits and no control over how the business is run. These are just a few of the items I will be covering in more detail. I will also go over the different forms of investing and asset classes: Paper Assets, Commodities (such as precious metals, pork bellies, etc.), Real Estate and Business. Remember this one phrase as you read my book, it is from one of my favorite why guys of personal development and achievement that states: Instead of making a living, why not design a life?

Pay Scale and the Lie of Old World View of Money

Have you ever heard your parent spew out this phrase about money, You have to work hard for money? I am sure there are many of us that have heard it from either our parents or grandparents. This phrase is an old world phrase in thinking. The reason why they were taught this way is because they did not know anything else, except those that had their own business knew this was not so after they got the business setup properly. At the beginning it is true that starting certain businesses is hard but once a system is in place it gets easier. The true business owner will get the business running smoothly and eventually groom someone else to run it for him/her; this is why 20% of the money is held by 80% of the people and 80% of the money is held by 20% of the people. Some knew that with their own business they could make a hell of a lot more and that working for someone else was a delusion put into the minds of men and women that were not financially intelligent enough to see the trap they were in. In this section I will demonstrate with a list of salary ranges and how hard you work.

When I first started working hard for money, because I did not know any better other than what my middle class parents taught me about money. I realized after two years that companies pay you very little for busting your ass. For example, my boss told me on my yearly review when I worked as a stock clerk for a major bank, which is now #1. He told me that I did my job but I did not exceed above and beyond my daily duties so I am only receiving a 4% raise for the year. Now let’s do the math. I was making $20,000 a year which equates to about $9.62 an hour. Now multiply this $20,000 times the 4%, which looks like this on you calculator 20,000 x .04 and you will get a total of $800 dollars a year extra. This amount now gets divided by 52 weeks that is in a year and now you have $15.38 a week extra. Does this whet your appetite and get you excited about working hard for a living now; however, as the voice on the infomercials say, But wait there’s more. Now take the $15.38 and divide that by the regular 40 hour work week and you get a total of .38¢ per hour extra a week. Wow a whole .38¢ per hour extra a week. Now for the real joke! We did not even figure in tax on the raise. So, let us take the $15.38 a week and then multiply it by the tax rate. I will use the bracket creep table on page 36 that states a person making $20,000 a year, either jointly or single, will be taxed .15%. So $15.38 x .15 will give you about $13.07 a week which now gets divided by the 40 hour work week; thus $13.07 ÷ 40 = .33¢ an hour extra after tax. I bet you want to work hard for money now. During some of our mother’s and father’s time this was a lot of money for someone that was born before 1930’s but not now. You would think that my mother who did bookkeeping for her father’s construction business would know this but she did not. It is this simple truth that most people bust their ass for a few cents and or dollars extra an hour rather than a few million extra dollars a year. Now this is just $20,000 dollars a year without over time, if there is OT. Now let us look at a job offer I received from a man at a job fair when I got out of college that offered me $21,000 dollars a year as a salaried employee for a manager’s position of a shoe store (e.g. Al Bundy from the show Married with Children). He saw that I was a student at a particular university and offered me the job right away but the catch was that I had to work at least 60 hours a week; let’s do the math folks. Take $21,000 a year and divide that by 52 weeks a year and then divide that by the 60 hour work week, which a normal worker would only work 40 hours a week, and then you get $6.73 an hour. This amount per hour is even less when you subtract the amount for this tax bracket; .15%. You then have $5.72 per hour for all your hard work. This guy obviously thought I did not know how to do math. I was insulted by his offer and turned him down immediately and said, If you figure it out I would make less than a ‘Fry Boy’ at McDonalds, which was close to the truth at the time. He was deflated that I thought his offer sucked and said, Does that mean you won’t take the position. It was more like assuming the position to get screwed. So, do you still want to work hard for money or have money work hard for you? Still not convinced yet you say; then continue reading the rest of the book and maybe you will change your mind.

Let us look at pay scales from the average middle class worker to the upper middle class worker, executives, etc. The pay scales are as follows rounding off to the nearest $5000; in other words 20,000 – 25,000 - 30,000, etc: The pay scale % of raises listed below are based on the average most people that work hard for their money receive, yearly, minus bonuses for those that are lucky to even get a bonus and other deductions such as compensation benefits and taxes. The formula is as follows: (Your Yearly Salary x the % raise ÷ 52 weeks in a year ÷ 40 hour work week = the raise amount added to your hourly pay); this neither takes into consideration salaried employees that work extra hours for nothing nor your tax bracket. Use bracket creep table on page 36 to figure out the exact amount for your own situation.

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Remember the nation’s average salary earned is $45,000 and less, so if a raise of .87¢ cents up to a $1.95 an hour increase, which is .04% to .09% respectively before taxes, gets you excited to work hard for money then knock yourself out. I rather have a $1,000,000, $2,000,000 or higher increase a year from selling a product or service I created than just receiving a lousy increase based on a squalid salary. The funny thing is that there are people that actually believe this is great and think you were crazy for not wanting a job that paid this well. The thing I have to say to you is this, Whether you are an Employee, Doctor, Lawyer, Dentist or a Pharmacist, whatever your profession that requires your presence, if you get sick and your career requires you to physically be at the job in order to make that salary, which you worked so hard for, and you cannot be there, then you are screwed. If you cannot work you will have to go onto disability. Believe me when I say that disability will not cover your family’s expenses. I was without a job for two years and homeless for part of those two years. I was living out of my car and in a tent when I applied for disability benefits at DSS [Department of Social Services] they told me that I had to have less than $2,000 dollars in the bank in order to be eligible for $400 dollars a month for rent and to receive food stamps. Now tell me where in the hell can I get a place to sleep on Long Island for $400 dollars a month. I can tell you; nowhere. I will tell you this though about not working for those two years and travelling across the country. I absolutely loved the freedom to come and go as I pleased