Grab the Dream: Your Step-By-Step Guide to Wealth Management

By David W. Engen

Are you broke? Are you drowning in debt and have no idea how to escape the debt trap? Have you ever thought that there needs to be a class called ‘Life’ where someone teaches basic financial principles?

In this comprehensive book written in a humorous, down-to-earth, easy-to-understand language you will learn why some people get ahead in life while others are either just scraping by or falling behind.

The American Dream will not be handed to you. It is there. You just have to grab it. You must navigate financial challenges, question preconceptions, and make life choices which increase your chances for success.

This book is a must read for every age group. Teenagers will learn how to start life on the right foot. Young adults will learn how to get out of debt, and older adults will learn how to provide a prosperous future for themselves. This book lays out a step-by-step guide to serve as your roadmap to financial independence.

• Language: English
• Publisher: iUniverse
• Release date: Jun 17, 2019
• ISBN: 9781532072611

David W. Engen

David W. Engen has lectured locally as well as nationally. He has taught at multiple colleges and universities and is passionate about passing on to others the good financial advice he learned early in life. He is married to his wife of twenty-five years and has three beautiful children. He lives in Spokane, Washington.

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Copyright © 2018 David W. Engen.

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews.

The information, ideas, and suggestions in this book are not intended to render professional advice. Before following any suggestions contained in this book, you should consult your personal accountant or other financial advisor. Neither the author nor the publisher shall be liable or responsible for any loss or damage allegedly arising as a consequence of your use or application of any information or suggestions in this book.

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ISBN: 978-1-5320-7260-4 (sc)

ISBN: 978-1-5320-7261-1 (e)

Library of Congress Control Number: 2019904328

iUniverse rev. date: 06/17/2019

DISCLAIMER

The content of this book is provided as general information only and should not be taken as investment advice. All book content, including mentions of specific companies or individuals, shall not be construed as a recommendation to buy or sell any security or financial instrument or to participate in any particular trading or investment strategy. The author may or may not have a position with any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement in this book is ultimately your responsibility. Consult your investment adviser before making any investment decisions. The author is not an investment adviser and tries to not make investment decisions. He tries to provide some useful information, especially concerning lifestyle choices, and add his own analysis. All the content in this book is solely an expression of the author’s personal opinion. Nothing here is intended as investment advice. If you seek investment advice, consult a registered, qualified investment adviser.

CONTENTS

0.   INTRODUCTION

Section 1:   Welcome to the Real World

1.     The Nature of Work

a.   Stuff

b.   My American Dream

c.   Engenomics

2     Lifetime Earnings

a.   Lifetime Earnings Defined

b.   Education and Lifetime Earnings

c.   Effects of Parenthood on Earnings

d.   Lifetime Earnings Tables

Section 2:   Debt

3.     Debt, Interest, and the Theft of Your Money

4.     Bad Debt

a.   Credit Card Debt

b.   Car Debt

c.   Breaking the Car-Loan Cycle

d.   New vs. Used Cars

5.     Good Debt

a.   Home Mortgage Debt

b.   Other Good Debts

6.     Pay Off Your Debts

a.   Stop Digging

b.   Payoff Strategy

Section 3:   Good Life Decisions

7.     College

a.   Expectations for Your Children

b.   Scholarships

c.   Community Colleges

d.   Military

e.   College Isn’t for Everyone

8.     Five Ways to Not Be Poor

9.     Credit History and Credit Freeze

a.   Credit History

b.   Credit Freeze

10.   Big, Beautiful Budgets

a.   Known Unknowns (a.k.a. Emergencies)

b.   The Envelope Budget Technique

c.   Visualize Your Long-Term Horizon

d.   Priorities

11.   CYA: Insurance and Wills

a.   How Does Insurance Work?

i.   Auto Insurance

ii.   Home Insurance

iii.   Health Insurance

iv.   Dental Insurance

v.   Life Insurance

vi.   Disability Insurance

b.   Wills

Section 4:   We’re from the Government, and We’re Here to Help!

12.   Why the Government Can’t Help You

13.   How to Navigate Social Security and Medicare

a.   Social Security

b.   Medicare

Section 5:   Let’s Make Some Money!

14.   Savings Basics

a.   You’ve Lost That Savings Feeling

b.   How Much Should You Have Saved?

c.   Rules to Live By

d.   Iceberg Right Ahead!

15.   Savings Vehicles

a.   Savings vs. Investing

b.   Every Little Bit Counts

c.   Live Below Your Means

d.   Emergency Fund

e.   Savings Accounts

f.   Certificates of Deposit (CDs)

g.   Bonds

16.   Real Estate

a.   Real Estate as an Investment

b.   Real Estate Investment Trusts (REITs)

17.   Wall Street

a.   Stocks

b.   Mutual Funds

c.   Target Retirement Funds

d.   Exchange Traded Funds (ETFs)

e.   Timing the Market

f.   When to Start Investing

18.   Stick It to the Man

a.   Individual Retirement Accounts (IRAs)

b.   Simplified Employee Pension IRA (SEP-IRA)

c.   Roth IRAs

d.   401(k)s

e.   Defined Benefit Plan (DBP)

f.   Defined Benefit Plans for the Self-Employed

g.   Life Insurance

h.   Annuities

i.   The 4 Percent Rule vs. Annuities

j.   College Savings (529s)

k.   Health Savings Accounts (HSAs)

l.   Estate Planning (Trusts and Dispersion)

19.   A True Story

20.   Grab the Dream Bottom Line Edition

21.   Acknowledgments

22.   Notes

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INTRODUCTION

Circa 1990

I am going to make so much money! I said, rubbing my hands together expectantly.

It was the summer of 1990, and I had just completed my freshman year at Purdue University. I was home for the summer ready to take on a summer job and save up some money for the most important thing in the world to any twenty-year-old, red-blooded American male. It really is the quintessential motivation that can get us out of bed every morning. I was going to buy a supercool, high-powered muscle car and impress the ladies! After all, what item more accurately reflects your status in society or your place among your peers than a cool set of wheels? I could see it clearly: It would be red and sleek, have two doors and leather seats, and get real crummy gas mileage. When I drove down the road, people would shoot me the thumbs-up and say, Nice ride, man! Girls would respect me, and guys would envy me. It was going to be great.

My parents had informed me that it would be a cold day in hell before they bought me a car. To their credit they stood by this declaration. They were, however, willing to allow me to use the family car for the summer to amass my fortune. It was more or less the car of my dreams. Instead of being red, it was silver. Instead of having two doors, it had four. Instead of having leather seats, it had gray velour-covered seats that could be mistaken for sofas. And instead of saying Corvette, Mustang, or Challenger, it proudly flew the flag of Oldsmobile Cutlass Ciera.

I don’t want to paint an unfair picture of the car they so generously entrusted me with. To be clear, it was just about as righteous as a four-door family car could be. Not all the paint was peeling off the hood, and the squeal from the alternator belt wasn’t totally deafening each time I depressed the gas pedal. Two of the power windows still worked, and I could crank that baby up to fifty miles per hour in about a minute flat. It had a kickin’ tape deck and ample trunk space. Truth be told, it really didn’t leak all that much oil. As for checking off all the boxes of my dream car criteria, the Oldsmobile did fulfill one objective: it got really crummy gas mileage.

The deal was simple: I was responsible for all costs of the car. Gas, oil changes, maintenance, and insurance were all my responsibility.

No worries, I thought. Nothing will stand in the way of my objective of obtaining the ultimate status of American success. I set out looking for a summer job worthy of my talents and skills. CEO of a major company would work! I quickly learned that one year of introductory biology didn’t quite qualify me to run a major corporation for three months during the summer. I ended up working three part-time jobs that summer. My first job was at J. C. Penney Optical, where I assisted customers in picking out and sizing frames after they emerged from their exam with the optometrist. I would later deliver the finished glasses to the customer and make any minor adjustments to ensure a proper fit. My second job was working as a teller at a bank, assisting customers with deposits and withdrawals. And finally job three was employment in the theater industries (I was the popcorn boy). It took a lot of careful scheduling and long hours, but I was able to hold down all three jobs at the same time.

I was diligent in saving my hard-earned proceeds. I didn’t really spend much on entertainment; I wasn’t really the partying type, and I never ate out. By the time I got to the end of the summer and dropped the keys of the family sedan back into Father’s hands, I reflected on what I was able to accomplish that summer. It was disheartening. I opened my heart to my father looking for empathy, and in exasperation I explained to him, Dad, I’ve worked three jobs all summer long, I haven’t spent any money irresponsibly, and almost everything I’ve earned has gone into supporting that stupid car!

Dad paused, thought introspectively for a moment, and looked me square in the eye as a smile slowly crept across his face. He laughed while he told me, Welcome to the real world!

Circa 2017

My nineteen-year-old daughter was returning home from her first year at college. She was a high school valedictorian, all-city athletic scholar, and accomplished gymnast, as well as a runner in cross-country and track. She had earned a 4.0 GPA in her first year at college and by all rights was feeling very proud of her accomplishments. She now needed to bide her time until school resumed in the fall.

We have been blessed with three wonderful children brought into this world in well-planned three-year intervals. As with all good, pushy helicopter parents, our kids were constantly involved in sports and other afterschool activities. It took ingenious, well-crafted, time-in-motion flowcharts for my wife and me to map out who would take which child, where and when handoffs would occur, and how we ultimately would all end up in the same home at the end of the evening. There were some nights when I would crawl into bed and poke my wife just so I could see her face once before the day was up. I found myself yearning for holidays, such as Thanksgiving and Christmas, so we could all sit down at the same table if even for one brief moment in time.

Our house is in the countryside away from pretty much everything. Carpooling was out of the question. We both had large gas-guzzling SUVs to maximize our gas-burning opportunities. At one point we had three kids in three different schools involved in gymnastics, Boy Scouts, soccer with two different clubs, and dance class. We were exhausted. In a departure from my upbringing, my wife and I did not adopt the philosophy of a cold day in hell before buying a car for our children. We looked our older daughter in the eye and told her in no uncertain terms, When you turn sixteen, you’re getting a car!

At the time we elected to get a nicer-than-average Subaru Forester for the kids. The idea was logical enough. Our oldest would drive it for three years, and she would go off to college. Then the next child would turn sixteen, and he could drive it for three years, go off to college, and pass it along to our youngest. As parents we were looking out for our own needs as much as we were for our children’s. We paid for their insurance, maintenance, and gas. In our minds their primary focus was always academics and getting to and from their afterschool activities.

The system worked great. My daughter drove to and from school, got to gymnastics practice, and from time to time would pick up a gallon of milk or even her siblings from a friend’s houses. The time came when she went off to college, and my son inherited the Subaru.

My daughter had worked part-time jobs and managed to save an impressive $5,500. She was very proud of herself, as few kids her age have managed to show so much discipline. She was feeling downright rich. She was buying generous birthday gifts for her friends, taking them out to dinner, and otherwise feeling pretty good about life.

When she came home after the first year of college, she talked about getting a summer job. Excellent. It was just what her mother and I would expect her to do during her time off. When I asked her how she planned to get around, she said matter-of-factly, I’ll just share the Subaru with Danny. We had to politely tell her that the Subaru was Danny’s and for his needs.

She looked at me in exasperation and asked, Well, what am I supposed to do?

I told her she needed to go buy a car.

With what money? she inquired.

With the money you saved, I informed her.

She was devastated. She went from feeling rich to sheer panic that all the money she had saved over the years would be gone in the blink of an eye just to buy a stupid car. She didn’t think that was fair.

I paused, thought introspectively for a moment, and then looked her square in the eye. A smile slowly crept across my face, and I laughed when I told her, Welcome to the real world!

The American Dream

It saddens me to say that most Americans are financially illiterate. It’s probably not a smart move to start out insulting your audience, but it is true. It’s shocking how little people know about basic things, and by the time they figure them out, they find themselves trapped in a hole that is sometimes impossible to get out of.

Just as in the movie Back to the Future, my daughter learned that the problems and issues she is encountering today are the same problems and issues I encountered twenty-seven years ago. They are also the same problems encountered by my parents and my parents’ parents.

The American dream is as old and timeless as our nation. We want the next generation to do better than the one before it. That fundamental hope and dream is in jeopardy as many younger Americans feel they will be left behind.

Compared to the generation before them, the baby boomers in general are less educated, less wealthy, and less likely to qualify for retirement benefits, and they have more debt. It saddens me that so many Americans have such a poor understanding of money.

Gen Xers and millennials probably cannot fathom how families used to live on only one income back in the olden days. We accept dual-income households as the norm. Many are resigned to the notion that their future is already predetermined and that they will be the first generation to not do as well as their parents.

To this, I say wrong! It doesn’t have to be like that. We live in the greatest country on earth. For all our problems, the US still offers more opportunity to achieve anything you want to achieve. That’s what this book is all about. We will discuss how you can succeed, how you can win, and how you can grab the American dream for you and your family.

The Recipe

Far too many people think the American dream is a secret investment or that it is just for a few high-income professions. Again, I say wrong! There is no one thing you need to do. There really is no secret. If you truly desire to live your American dream, you must first understand the problem, change your perspective and preconceptions of what you thought you knew, and make the necessary life choices to increase your chances of your desired outcome. No one will hand you the American dream. You are not entitled to it. You need to build it for yourself.

Let me elaborate. My wife makes the best chocolate chip cookies. I’m serious. They really are in a league of their own. She starts out with butter-flavored Crisco. Think about that. They took Crisco … and added butter to it! She then mixes half chocolate chips and half butterscotch chips, and she just slightly undercooks them so they are warm, gooey, and delicious when they come off the tray. Oftentimes the kids and I will team up and distract her while the others grab dough balls off the tray. Yeah, they are that good.

Why are her cookies so good? Because she follows the recipe. She adds the right ingredients in the right order and bakes them in just such a way. The cookies are much more than just the sum of the ingredients. They are the result of an interaction of many parts, which make for a final product that melts in your mouth in a way that none of the ingredients could do by themselves.

That is what this book is about. It is not about just getting a list of individual ingredients but rather about showing how all of these ingredients can be mixed together in one giant financial mixing bowl to bake a successful, stuff-filled life for you and your family.

There are probably some younger readers out there who think this stuff doesn’t apply to them right now. They are just starting out in life, they are buried in student loan debt, they don’t have a great income yet, and they think this book is for someone much older, like thirty (heavy sarcasm). Actually, the principles we discuss in this book apply more so to a younger audience because the decisions you make as a young adult have a greater impact on your lifestyle than any hot investment tip I could give you.

It all begins with changing how you think about money. When most people think of money, they envision big houses and hot cars. They think financial planning applies only to the rich and famous. This is completely backward. Only when you view money and wealth differently will you be able to change your approach to financial independence. We will introduce you to a concept called the lifetime earnings model, which will forever alter your perception of money and how you spend it.

Once you understand the lifetime earnings model, you will alter your behavior toward something every American knows about: debt. Debt is something we all assume that we just have to live with. Rather than having debt control you, you need to control your debt. We will discuss the difference between good debts (yes, there really is such a thing) and bad debts.

How do we avoid bad debts? You avoid bad debts by doing what most people (or governments) fail to do, and that is having a budget. The vast majority of people would define a budget as to stop spending once you are out of money. In reality, a budget is a proactive, premade plan on how you will control your money, rather than having your life controlled by poor financial decisions.

I do a lot of bike riding. I can tell you that the hardest part of doing a long-distance bike ride is not lack of strength, insufficient stamina, or even scaling steep hills. The hardest part of bike riding is sitting on that damn bike seat! I remember coming in from a forty-five-mile bike race and my friend asked how my legs were feeling. I told him my legs were fine but my butt was killing me! I learned to wear padded bike shorts and to get a cushion for my bike seat. Why am I sharing this with you? Because I’m trying to illustrate the point that you need to cover your a——. The way we do this in our financial lives is to have insurance (car, home, health, etc.). It is also important to have a plan for that day when we depart this earth for that cloud with a view. That plan comes in the form of a will.

Well, so far, this doesn’t sound sexy at all! Just give me the secret so I can go out and get rich.

I’m sorry to tell you, but there is no one secret. Just as Michelle’s cookies need all the ingredients to create that chocolaty goodness, your financial lives need all the ingredients to create a complete profile.

Okay, perhaps I need to throw you a bone here. Truth be told, there are five things you need to do in order to not be poor. Follow these five things, and there is a significantly reduced chance you’ll be poor. I’m going to teach you these five things … but not yet. If you are one of those people who skips to the last page of a murder-mystery book, or you’re the one who snuck downstairs at three in the morning to shake the Christmas presents, then you can skip right to the chapter titled Five Ways to Not Be Poor.

For those of you who think you don’t need to worry about the early steps—and you are just interested in savings and investing—I’m happy to tell you that we have an extensive overview of savings and investing in homes, real estate, stocks, mutual funds, and ETFs. My favorite part of the book, however, is a section devoted to keeping your money away from the taxman and more for yourself. I call this section Stick It to the Man!

While the investing section is the fun and exciting stuff most people think about in a financial help book, I would counsel the reader that the first half of the book is probably more important than the last half. Once you embrace all the aspects discussed, you will have the recipe for financial success.

Would you like to know the most amazing part? Much of what we discuss doesn’t cost you a dime. We are talking about attitude changes, lifestyle changes, and priority changes. These are things that can apply to anybody regardless of where you come from or what socioeconomic state you start in.

A Call to Action

This book is different because it is not written in technospeak. I do not assume you have an MBA and an intimate understanding of complex financial concepts. This book is written in a plain, easy-to-understand manner so you can relate to the concepts being shared. This book is not written for someone else—it is written for you!

This information is for younger generations just getting started in life, for young families, and for those who may have made some mistakes and are now trying to right the ship. It has ideas and strategies for those in their peak earning years, and it has valuable information for those in their golden years.

If you are one of those people who just wants to get to the point, or go right to the answer, I suggest skipping to the end of each chapter and reading the chapter summary. If an idea jumps out at you that you want to expand on, then you can dive deeper into that particular chapter.

If you merely want a checklist and a synopsis of recommendations, I suggest you skip to chapter 20 entitled Grab the Dream—Bottom-Line Edition. It is a compilation of the chapter summaries and the raw, distilled bottom-line points. It is basically the whole book condensed to eight pages.

I don’t encourage skipping to chapter 20. Just getting to the point and providing a checklist doesn’t afford the context in which the advice is offered. You need to immerse yourself into what I am trying to convey. You need to change your entire perception of everything. Only by reading everything and understanding the context of the material presented will you fully embrace the message I hope to convey. A more constructive way to use chapter 20 is to read the whole book and use that chapter as a quick reminder of the concepts you have learned.

I have lived the American dream. I have had a great life and a great journey. Is it because I’m smarter than anybody else? No! It’s because I was given good advice early on in life. In my heart I believe in the American dream. I believe the American dream is there for the taking for those who are willing to do what it takes to achieve it. The American dream is one of hard work and perseverance, not of entitlement. If I can help even one person through the course of writing this book, I will consider that a success.

With that as a way of introduction, let us now embark on a journey so you can begin living your own American dream. My suggestion is to put this book down and get a highlighter and some Post-it notes because there are little nuggets of information throughout that you’ll want to come back to and reference.

SECTION 1

Welcome to the Real World

CHAPTER 1

THE NATURE OF WORK

Stuff

Why do we work? That question on its face is both difficult and at the same time easy to answer. Different things motivate different people. Some people say they work to help people, or they work because they enjoy their job and the contributions they are making to society. There are two types of people in this world: those who work because they have to and those who work because they want to. Some people are simply wired to be doers and producers. I know many talented individuals in dual-income households who could easily afford to not work if they didn’t want to. For various reasons these individuals still elect to work because they actually like what they do, they feel they’re making a contribution, they feel they’re doing something meaningful, and in many instances, they are simply not programmed to be idle. These people work because they seek emotional fulfillment in their actions.

Please note, for the sake of this discussion, I am referring to people working at a paying job. There are many highly talented individuals who elect to devote their time to parenthood. There is no nobler calling in life than sacrificing the most valuable thing you have—your time—to raise a family. We will discuss this topic further in later chapters.

So, why do we work? For the majority of people, the answer is obvious: we work to earn money. But why do we work to earn money? Again, an obvious answer is we earn money to buy food. Without money we literally cannot eat. We need money to buy shelter. At the beginning of every month, the landlord rightfully expects the rent to be paid, or the bank rightfully expects the mortgage payment to be made. If you were to spend the night at a hotel, you would not be given a key to the room until you had paid for your stay. Of course, we also need money to buy cars. Without cars, how can you get to work or the grocery store or get the kids to soccer practice? Some people say they need money to buy an education for their children.

We live in a free market society, which for the most part says, If you don’t work, you don’t eat. This is in contrast to a more socialist or communist economic model that espouses, From each according to his ability, to each according to his need. In other words, the state will provide for your basic needs and overall welfare.

My parents were able to visit Cuba, and they shared their insight about what they observed firsthand after spending some time there. Cuba is basically a time capsule of another era. They are still driving cars from before the 1953 revolution. The buildings are mostly from the same time. The government dictates what people can earn and what they can do. They pride themselves on providing free education and free health care to all their citizens. Prior to 2014, there was no private ownership of businesses, farms, or homes. Everything was owned by the state. The state provides every individual with a food ration card, which entitles each person to an equal ration of food. Citizens can get food at state-owned food dispensaries, and it consists primarily of beans, rice, and some limited staples.

One evening my parents were surprised to be served food by waiters who are also professionally trained as medical doctors. These medical doctors work as servers to supplement their income, as the state dictates how much they can earn in the medical clinics.

The country of Cuba and the people of Cuba are not wealthy by any definition in the Western world. Relative to the rest of the developed world, Cuba has been left behind by most metrics. However, it absolutely can be said that the people’s basic needs are being met. The people have food, they have shelter, and they have medical care. They are getting by. They are essentially treading water in time.

Even in Cuba, while all their needs are