Building Wealth - Cutting Costs

I recently listened to the audio book version of Where Have all the Leaders Gone by Lee Iacocca. The book was pretty good and quite insightful and while Lee has quite a few views I think are bad ideas (raising the gas tax for one) he also has a lot of good ones. The biggest point was that we need more people to pay attention to the political process specifically the younger voters.

In the book he went through all the front runners and left Ron Paul out, not sure when he had written the book I let that go. Yet in the book he talks about setting up a website for the 2008 election where people can rank the canditates on his “9 C’s of Leadership”. In December with very little plubicity that site was launched. You can find it here, http://www.iacocca.com

While I was able to let go of the Ron Paul omission in the book the fact that he now basicly owns the internet for the 2008 race makes his exclusion from the listed candidates unacceptable. To be fair Ron is not really excluded you can and should rank him, he is just hidden from the initial view.

And just who is listed on the main score card!

Joe Biden - Dropped out

Bill Richardson - Dropped out

All the rest included I can’t argue with their inclusion, nor do it it is only Ron Paul’s exclusion while Biden and Richardson are included that tweaks me.

There is a solution though, if you want to make sure Ron is ranked to this,

1. Go to Iaccoca’s Rate the Candidates Site and set up a free account.

2. Click the confirmation email and log in.

3. Click on rate the canditates and while you are doing it in the left margin you will see a link that says, “score more candidates” click that and about a dozen more will show up. Then one from the very bottom you will find Ron. Rank him and any others you wish.

To me Ron is a much a candidate as anyone right now, 10% in Iowa, 8% in New Hampshire and massive support online. It is clear to me that Iacocca must have something against Ron Paul as there is no good reason to exclude him from what is a pretty cool Web 2.0 website while including Biden and Richardson both who are not even in the race!

Now the irony, while there click on “view aggregated score card” and guess who is number one anyway? Ron Paul and who is number two, Alan Keyes who I also think is an outstanding leader! Will such exclusion never end. Anyway I would ask you to consider getting an account at Lee’s site and ranking Paul and the other candidates because the idea is an excellent one.

One more suggestion. There is a link on the score card page to request inclusion of candidates. Please send a NICE but firm message to Iacocca asking that Ron be included based on his campaign and good finishes in Iowa and New Hampshire and pointing out that two candidates they currently display in the default have dropped out may not hurt either.

I am a pretty upbeat guy so a lot of my friends ask why I am so sure that our economy is in the toilet. The answer is pretty damn simple! We are as a nation in debt way over our heads just at the consumer level, our government is trillions of dollars in debt with China along with a massive trade deficit and on top of that the mortgage and real estate markets are in the hole as well.

Yet my reasons are bigger then that! More because I am a student of history. I really suggest you read a book called The Forgotten Man to learn about how similar both our situation and our governments moronic reaction to it are to the years leading up to and during the great depression. This book is a fascinating and enlightening read.

It is very important for us to understand the history of our welfare state, how so many once proud Americans ended up on “the dole” because the coming problems may cause a worse knee jerk reaction. Always remember once the government creates a tax, a department or a program it never ever goes away. Check out The Forgotten Man today and plan well for the tough times to come.

Don’t worry this isn’t one of my “get your financial butt in line” posts, well mostly not. I am just wondering what everyone is up to in general, like what you are watching on TV, etc. Personally I have been enjoying Celebrity Apprentice quite a bit. Check out this video showing what a snake that Omarosa is. Got to be one of the biggest sleezes known to man in my book. To me this is why so many people are looking to build a business of their own, to buy a business or just to find some way to be independently employed. I mean who really wants to deal with a corporate environment that has far more then its’ fare share of Omarosas.

I have also started out on a diet. Last year I elected to not go Elk hunting because honestly I was afraid I might die somewhere alone on the mountain. The last time I went I had a great but tough time. I came home with blistered and even bloody feet and was sore for a week. Back then old CostCutter was in much better shape. This year going out into the unforgiving wilderness alone seemed like a big risk. Since I am way to young to give up that type of life I am getting back in shape. Who knows, perhaps when I loose my weight I will come clean and say who I am.

Additionally I am breathing some new life into a few of my businesses with some creative ideas and looking to hire a few new creative and talented people. The search for talent is really tough right now, I just listened to this podcast on the shortage of talent in the market today and I have to really agree with the guest speaker. While real estate investing today seems to be a buyers market there is no question that in the talented and skilled employee market it is a sellers market. If you are good, have a proven track record and can deliver then today you call the shots. If you are in the market for a new position and are not finding a lot of opportunities I recommend you get in touch with a good executive recruiting firm.

On another note all together I really think the 2008 presidential race is off to an interesting spin. Ron Paul still seems to be shunned by the media despite basicly finishing in a three way tie with 10% of the vote while Rudy was at only 4%. Typical!

Today we focus on New Hampshire, I predict the following for the republicans.

1. Rudy does aweful and everyone says it doesn’t matter.

2. John McCain wins and his national numbers rock because people are lemmings.

3. Mitt Romney does OK and comes in second and they say it is over for him.

4. Ron Paul does far better then the 8% the polls say he can expect. Comes in third and gets ignored again.

Such is the stupidity of our media and the political process.

Moving on the the Democrats - Hillary has had a break down practically coming to tears because she was asked how her day was mostly because Barock Obama is now surging in New Hampshire and she is on track to loose again. Of course the news is making a huge deal of Barock’s massive support. His followers indeed love him, they laud his speeches and vision yet the news people can’t seem to find a single supporter that actually knows his position on any of the big issues. America, please wake up, support who you want but for the love of God know why you support them.

My personal view I think Hillary is a disaster for this country as our President, her health care plan, tax hikes and some other policies will only serve to make worse a recession that is flat out coming to hit us hard over the next few years.   That said Barock is worse, he want to tax more, spend more and make government even bigger and more intrusive then Hillary.  However he can speak very well, avoids the issues and is very likable.  This is why Hillary is in trouble, even her supporters realize Barock is going to be harder for any Republican to beat and are picking the best candidate to win in November.

I personally think Hillary is unelectable and if she looses the primary (which I predict) Barock is probably a 2 to 1 favorite just in odds to win the presidency.  In other words a Hillary loss in the primaries is bad for the republicans while her victory would be very good indeed for them.

My predictions for the Democrats in New Hampshire are as follows.

1. Barock wins by at least 10% of the vote and we hear all the liberal papers cheer how it is finally time, “for an African American president”. When the country has been “ready” for a long time and we are all really tired of being called racists in subversive ways by the communists running our press.

2. Hillary gets slammed, perhaps even damn near ties with Edwards. This is spun as the “end of Hillary by the right” and some how a “right wing conspiracy” or “anti women” thing by the left. The left leaning media will hold out all hope for Hillary and talk about how New Hampshire and Iowa “don’t really matter”. Of course they really don’t it is just that the media just spent the last 30 days convincing us how much they do indeed matter.

3. Edwards does ok in 3rd but the media talks about how that is “hope for his campaign” even though there are only four Democrats in the race. Idiots.

4. Bill Richards gets a clue and drops out.

So what are you up to in 2008? What do you think of our coming elections?

Heck why not one more post about pennies. Yesterday I did a pretty long post extolling the virtues of pre 82 pennies as a simple and small investment. Again I want to restate this isn’t a “way to get rich” but it is a really cool and fun little inflation hedge and about as risk free and low cost as any form of investing has a right to be.

Anyway I found a really cool little resource that reinforces my point that 95% copper pennies that are still in circulation are a pretty hot little item to set aside right now.

The site is called CoinFlation and I have put it into my book marks so I can always find it in the future. One of the coolest tools is a coin melt value calculator that tells you the exact value of coins when you melt them down. They have two calculators one for silver coins (pre 65 dimes, quarters, halves, etc) and one for coins currently in circulation. To give you an idea of how “valuable” pennies made prior to 1982 are. I decided to run all the comparisons at a 100 dollar face value. So lets look at some of the out of circulation silver coins that you can’t find today out side of a coin shop, some of today’s other coins and their “real value” and then compare them to the humble copper penny. Of course this is “raw

• 100 dollars face value of silver dimes, silver quarters or silver half dollars is worth $1017.81 at today’s current metal prices. They are all the same because each represented a fraction of an ounce of silver as in 1/10th, 1/4th, 1/2 ounce etc. So these coins represent about a 917% return of investment just in metal value for those who had the forsight to pull them from circulation in the 60s, 70s and for a bit of the 80s when they were still around.

• Now if you took 100 dollars worth of today’s quarters you end up with about $18.33 in raw metal value or an 81.7% “instant loss”.

• How about 100 dollars worth of today’s pennies (anything minted after 1982) you get a whopping $58.80 in raw value or a 41.2% “instant loss”.

• What about 100 dollars worth of Kennedy Half Dollars? Everyone loves those right? Same formula as the modern quarter. Melt em down and you get $18.33 in raw metal value or an 81.7% “instant loss”.

• What about the nickel? There is a lot of copper in a nickel and it is a thick coin so it does ok. Try a raw value of $113.75 or an instant return on investment of 13.7% Perhaps storing nickels ain’t a bad idea either?

So how does our humble penny add up against all this? Today’s metal prices for copper and zinc put the value of 100 dollars in pre 82 pennies in raw metal at $193.61. That is easy math an instant ROI of 93.61%! Sure the penny isn’t currently holding pace with those old silver coins and it will never catch up to them. As copper goes up you can bet silver will to. Yet that is my point you can’t just go around picking up a dozen silver dimes a day any more but you can pick up a good amount of pennies from prior to 82.

Sure even with copper at say 5 - 6 dollars a pound you would need a lot of pennies to be worth even say 10,000 dollars. Yet just think about it, each day you sort and toss some into a jar. Painless and foolproof, what do you have to loose other then a bit of space?

Let me be blunt you will never and I mean never become wealthy so long as you resent people who are wealthy. This has been written about extensively by Robert Kiyosaki in his Rich Dad Poor Dad series. Yet I think it is worth repeating here because I believe it is the single biggest reason the poor and the broke stay poor and broke.

Follow this simple logic, in the 50s and 60s many blue collar families had parents working say construction (you can fill it in with just about any trade) and all through the 70s etc young men grew up and if they were not college bound aspired to work construction. Hence middle Americans worked construction jobs for many decades. These jobs paid for houses, college tuitions, retirements and life in general.

In short being a “construction worker” had a certain status. It was considered a good paying blue collar career. Sure you had to work hard but Americans valued hard work and some kids never wanted college they wanted to build things, run back hoes and tear old buildings down. Who can blame them while hard work playing with heavy equipment is kind of fun.

Now a whole book on why construction wages fell over the 80s, 90s and 2000’s could be written. Floods of illegal cheap labor, a weakening job market, etc. Today we also seem to believe that every child should go to college and get a degree. We have forgotten that we need a middle class, a blue collar work pool, we have stopped valuing hard physical work as an admirable quality.

So how many kids today have a positive view of being a back hoe operator, or framing houses or building roads? The answer is not many, today that is something most people “settle for” not what they aspire to. Hence not many young men grow up in the US and become construction workers any longer. The logic is quite simple when people have a negative view of a profession, a place in life, a title, etc. they tend not to become what they dislike.

Pretty obvious, not ground breaking, what does this all have to do with wealth and money?

Simple if you see rich people and grumble, if you think the guy that is already in the 35% tax bracket should pay more and if you think all corporate executives are “rich jerks” you are going to have a real hard time moving up in income. Even if you do you will become what I call the “highly paid broke“. That means you will blow all your money and simply match spending to your income to satisfy material needs.

I see people all the time that resent the wealthy and the rich. I watch them grumble when Bill Gates gives 4 Billion to charity, they say with irritation “well he has it to give”. Then you put together an office pool to buy kids toys at Christmas or help a needy family and these same people make excuses and often give nothing. Don’t get me wrong there are poor people that give all they can, very generous folks, most however, don’t resent the wealthy.

Simply put if you want to be wealthy you must first have a very positive view of wealthy people. You can’t begrudge a guy his lifestyle then expect to achieve it yourself. I believe as I stated before this is the NUMBER ONE reason people stay poor and or broke. So the next time the urge to scoff at a successful person crosses your path, ask yourself, “do I want to become wealthy?”.

If the answer is yes think twice before you reinforce to yourself once again that being wealthy is a negative thing only achieved by insiders, the greedy and the lazy. You are going to have a real diffcult time doing what it takes to become wealthy if that is your view of those who have already done it successfully.

Part of the benefit of having extra money is the ability to spend some of it. I believe in cutting costs, investing wisely and building wealth and security. Yet I also believe in enjoying life along the way, if not then what is the point? Any of us could die tomorrow so the key is to balance living for today with planning for tomorrow. So what are some of the things I spend more money on then I should or some of the stuff I just buy when I am bored? Here are a few,

• Starbucks Coffee - I will admit it, I am a caffeine fiend. When I made a lot less money Starbucks was a luxuary that I enjoyed once in a while, now I don’t go a day without a Vente Cappuccino or two. This is extravagance, a waste, a senseless spending that I end up with nothing to show for. Still it makes me happy and I have no real debt to worry about any more, I don’t stop investing to fund it and I only pay in cash so I have the money in my pocket each week to cover the expense.

• My Animals - I have dogs, cats and a lot of reptiles. As a child I wanted to be a herpetologist (a biologist who studies reptiles) but the lure of business was too powerful and I never went to college to pursue the biology degree. When I didn’t have much money and was in debt heavily I kept no pets, today I have an abundance of animals around me. I do breed the reptiles and one day they may pay for themselves but for now all the animals are an expense that never returns any money. Yet the dogs and cats bring joy to me and the family and the reptiles allow me to fufil my childhood dream of being a researcher working with snakes.

• Gadgets - I have all kinds of electronic do dads and I buy something new at least every month. Cameras, software, media players, etc. I just love technology, I like seeing what you can do with it, what you can create and what the latest craze is before it hits. Some of the stuff like my Blackberry has a real purpose for work and organization but most is just for fun. I didn’t need a Sony Alpha DSLR but I bought one because I wanted it. I always pay cash for these gadgets but I must admit I blow money on them. Most are never used to turn a profit I just enjoy having them.

Now let’s say I am bored and just want to go out bumping around with my wife to shops and what not. Doing so will almost always result in spending money! We are all human though and just sitting at home counting money can get old and you don’t always want to really plan an activity so “shopping” (our parents window shopped but we seem to have failed to inherit that ability) has become an American past time. Here are some things I have done to allow me the activity with out totally blowing it.

• Silver Coins - I am a huge fan of American Eagle Coins and often during a jaunt out I stop by one of several local coin shops and buy one or three of them. I keep them in plastic tubes and have been doing this past time for about 10 years now. I occasionally buy more numismaticly valuable coins, mostly older silver dollar and silver half dollar coins. The Eagles have a fixed value against the silver market price (at least newer ones do) so they are decent investments. The other coins have a bit of “subjective value” based on both the silver and collector markets combined. Still even they have a basis based on the price of silver. I will never make a mint on this but there is a value to these coins that will grow. So I get to browse, spend money and not just throw it away.

• Houses - I shop for houses all the time and the beauty of this is multiple. There are always countless new model homes to take a look at, walk around in etc. You never impulse buy a home so that is nice, I shop a lot and buy very seldom. The biggest value is I know my real estate market cold, I know exactly what different types of homes in different areas sell for. So I do know a deal when it pops up. This is the best rule I can give you if you want to invest in real estate some day, window shop houses for a year or so first. Record how long those “great deals” take to sell and keep your whits about you. In time you find gems and when you do you will know it.

• Books - I love knowledge and I love to shop for books, both audio and print. To help with my addiction I shop mostly at Half Price Books so I pay less per book then buying new. A used book is no big handicap to reading it so I just can’t see paying full price unless I want a new book. Then here is the best part, some of these go into my home library but others I read, am done with and sell them back to half price books. They generally pay about 20% or what I bought them for.

So there you go some ways I admit to just blowing money and other ways I stave off boredom with shopping that doesn’t just reduce my net worth dollar per dollar.

Let me be clear I don’t think you have a safe, secure job today if you work even say for the Post Office or even a State Government agency. I believe firmly with the toxicity of debt in both the consumer credit card market and the sub prime lending market a major recession is coming. We won’t die off, no one will jump from tall buildings on Wall Street and the dust bowel is not comming back but there also may no longer be “two chickens in ever pot”. Todays “chickens” are Plasma TVs and other do dads.

Right now there is over 1 Tillion Dollars in toxic debt in the consumer credit market, that is money that will NEVER get paid back. The American tax payer has had enough, we won’t bleed money any more. Social Security is getting to where you as a working member of society have you “own old person” to provide for, it will change and that will be good but short term it will hurt.

The dollar weakens almost daily now! Canada now has a stronger dollar then the US that has never happened. The weak dollar is supposed to help fix the multi trillion dollar trade deficit we have with the world, it does nothing of the sort. The biggest potential export markets for us are China and Japan and both artificially tie their currency to the dollar. When the dollar drops so does the Yen by an equal amount. All a weak dollar does is make your money worth less and less in the global market.

My point is this can’t all just stand as the house of cards it is today and there will come a time soon when some of the bills will have to be paid. When that happens there will not be enough money to pay it. At that point employers are going to feel it hard and tough decisions will have to be made. Your boss might love you but if it comes down to the company surviving and your employment he will have that hard talk with you about some measly severance package. Odds are in many instances he will then get to have the same talk with his boss and so on.

How bad will it be? I do not pretend to know but it will be worse then it is today, that I am sure of. My real point though is it doesn’t really matter does it how many people loose jobs? All that matters to you is if and when you loose yours! It can happen to the best of us, it happened to me and because I live by the things I teach and write about it just wasn’t that big of an issue.

My point is you need to live as though you are currently in the hight of summer. You must buget and make spending choices with the view that you are right now at the peak of your earnings, you must plan for a big decline that can come at any time. This does not mean that you live in fear only that you live free from illusions.

If right now this second you or your spouse lost a job and were unable to replace it quickly how long would your last before you started to go negative on paying your bills. How long till you lost your house or got evicted from your apartment? The average American could scarcely make it 30-60 days! Many are but one or two paychecks from bankruptcy!

How do people get in this position? The belief that a paycheck is an entitlement that’s how. It amazes me how entitled employees tend to be in relation to their employers. Just look at the auto and airline unions, they keep getting more and more from their employers but the problem is the airlines and the car makers no longer can pay the bills. They are putting their very security in jeopardy by always wanting more, more, more.

So what is the solution? - Here are ten things you should be doing starting yesterday.

First - Never see yourself as secure in your job, have a plan B. Always know which competitor or similar company would be best for you to go work for. Cultivate relationships within said company, don’t act like you are ready to switch if you are not but be on the radar.

Second - Build a big network of contacts in your line of work, I don’t care if it is packing boxes or running companies as a CEO. Build network of people around you that can help you if you ever need a new job.

Third - Live below your means! Nothing is more important, make sure you buy less house then you can afford. Buy a cheaper to own and maintain and fuel car that you really have to settle for. In short never buy what you can afford today, buy what you should still be able to afford with far less then you have.

Fourth - If you deep in debt get out now! If have home equity and large credit card debt refinance your house and pay off the cards, then cut them to pieces.

Five - Buy and own a home! Renting has a place but as soon as you can afford to own a home the right way do it. Buy smart, pay less then the house is worth, find a deal, there are always deals. Know this variable rate mortgages are the devil, if you can’t afford the home with a fixed loan, you can’t afford the home!

Six - Build a second income, in other words own your own small business. You know how to do, make or advise on something better then most people. Find a way, anyway to make money with it. Do private consulting, build online income (this is what I do) hell just by blogging you can make 500-1000 dollars a month, (I will show you how in the future). Someway, somehow develop a second and even a third stream of income.

Seven - Save money outside of just your 401K, IRA, etc. The golden rule is get to where you save 10% of your income in an IRA or other tax deffered acocunt. That money is locked away until you retire though. I am all for 10% going to retirement as long as you can save say 15%. If today all you can afford to save is 10% put 5 into a long term locked away account and 5% where you can get to it with out penalty if you need it. Build an emergency fund of at least 90 days of your current income before you lower your savings contributions to liquid accounts.

Eight - Plan on being fired, your company being bought, your job being downsized, etc. It may never happen but plan on it. The very act of viewing such things as a possibility will make you smarter in your decisions every day. It will also make you more level headed and able to stand the hardship if it comes. Again do not live in fear, just follow the boy scout wisdom of “be prepared”.

Nine - Educate yourself in and outside of your current employment niche. When I lost a job about 8 years ago it became an opportunity! I went from Sales Management into online marketing and became very successful. The reason was simple in my sales career I educated myself on how to sell all the time. At the same time I taught myself how to market on and off line. I took my sales knowledge and put it to use online with my new skills. This was my “secondary income” a tiny small business that was making me about 500 dollars a month. I turned it into a new career because I had become a learning sponge. Today I own companies because of this education I gave myself. Be it online, via books, classes, seminars, I don’t care what invest both time and money in educating yourself.

Ten - Be the supreme commander of your own life and destiny. Every day think about how you can do better for yourself, your family and your employer. Your job IS NOT a right, you salary IS NOT an entitlement. Get that into your head right now this second. Would you take a raise if it was enough to damage your companies future? If you can answer that with a yes you should be fired! See yourself as an independent contractor, self employed no matter what your job is about. You should get paid as much as you can with in reason, many are underpaid but many people are also over paid. Work hard enough to be able to demand and expect more.

The key here all goes back to one thing though, no job is secure today. That false belief has put many people into massive debt and financial ruin along with a retirement in poverty. Sure this post was an ass kicking but most of America needs one from time to time.

Here is the most painless way I know to cut your spending effectively. For the next 30 days just write down every dime you spend, every bill, etc should be in your check book already but write those down anyway too. Get a simple note book and record every single dime, read it every night before bed and just keep going. Write your required spending (bills you have to pay, light, heat, mortgage/rent, cable, weekly groceries, etc.) in one section of the book and all other expenditures in another section.

Don’t judge yourself much just record every penny. I mean if you give the kid a quarter for a gum machine write it down. That coffee at Starbucks, that bag of candy, what ever just record it. Do this religiously for 30 days, don’t cheat trust me you will benefit from this simple action.

Now try something I think might shock you. Take just the expenditures on things other then required bills and total them for each week. Make a graph of your weekly spend over 4 weeks. Odds are you will spend a lot less in week 4 then you did in week one. Remember no one told you to spend less, told you what to cut your spending on etc.

The simple act of being aware of what you spend, where and how you spend it will connect with your inner common sense. We all waste money, hell I do it! The key is to waste it consciously not unconsciously. Choose your play don’t just spend until it is gone.

Those of you who make middle to upper incomes will benefit the most with this technique. In fact the more you make the more you need to do this. This was the technique I used to reel myself back in as I went up in income. The more you have the more you tend to blow as you get to a point where you can pay all your bills easily and have good investments going on you get very complacent with what is left.

No matter your income be it 20K a year or 200K a year I challenge you to give this record keeping a try, most will be very shocked and pleased with the results over 30, 60 and 90 days. If you don’t do this all the time whenever you start to blow to much money, use it as a tune up. Remember you are your own boss and you need to be kicking your own ass once in a while.