Building Wealth - Cutting Costs

I was recently asked to have a look at a website for a company called, Willis Consulting Inc, they specialize in financial job placement and while the news reporters keep talking about gloom and doom now may be one of the best opportunities for top financial minds from an employment view point.    You see when money is tight, when profits are down and when recessions hit hard it is the financial expert that turns a company around or keeps it from entering decline in the first place.

Even during the worst economic times there are companies that thrive and excel.   In such times even while laying off parts of their workforce many companies still pay top dollar for bright financial minds because when the chips are down they are needed more then ever.

If I were ever to consider myself “employable” again I would certainly utilize an executive recruiting firm.    If you are really good at what you do emailing resumes and searching job boards is a total waste of time.    My career advice for anyone looking for new opportunities is find a good recruiter, someone you trust and who can do a good job and put them to work marketing you.    If you happen to be a top financial minds this may be one of the best times in recent history to do just that.

You hear liberals all the time discuss how the tax cuts by Bush were reckless. Now look I am not exactly pleased with Bush myself right now and I think his spending (and that of our both the Democrats and Republicans in Congress) is absolutely reckless and disgraceful. Yet cutting taxes makes a lot of sense, further I think we should keep cutting lower and lower.

In fact if I had my way Ron Paul would become our next President and completely cut the income tax to zero. Think that is unreasonable? Well if we cut spending to where it was just 7 years ago we could eliminate the income tax. Yea your read that right, just cut spending to 2000 levels and we do not need an income tax. That should make you really understand just how many other taxes we already pay.

I digress though, lets just talk about an easy way to understand why lower taxes are good for our economy. Now I could go into Economic theory and formulas and such but that is not necessary. I can instead explain this in a very simple and easy to understand way, think of it simply like having a “sales”. If you ran a store and wanted to sell more products would you do it by raising prices or by having a sale?

Now that is about a stupid question isn’t it? Anybody knows when stores have sales they sell more and when they jack up pricing they sell less.

The important thing to understand is that employment, investing and spending is what drives our economy. So to understand why lower taxes drive better economies from here is really easy. Let’s look at how taxes going up or down effect each of these three factors.

Employment - When taxes are lower businesses keep more of their profits rather then giving them over to the government. When a company has more money in profit they grow. As they grow they have more needs for personal and of course they hire more people. In short a lower tax is like a sale on hiring talented people. When you tax a business higher of course we have the exact opposite effect. Companies keep less profit, there is less funding available and they grow slower and hire new people at a slower rate.

Investing - This is simple to understand. If you invest money that inherently comes with risk. So if I put 50,000 dollars into an investment I could loose much of it. On the other hand if the investment does well I end up with a profit but I only keep the part I don’t pay as taxes. For me to take a risk the upside has to be attractive so of course the lower the tax on investment profits the more attractive investments are. Now if you want me to do something incredibility risky like fund a new business I better get to keep the lion’s share of my profit or there is no good reason to take the risk.

You see when taxes are low on capital gains it is like a sale on investments. Effectively I am paying less money to make more money. Did you know that at one time tax rates were as high as 90% for some income brackets. 90%! Don’t believe me look at some historical tax rates here. Now let me ask you why would anyone risk say 100,000 dollars to fund a start up business as a part owner. End up making 200,000 dollars for the investment and then have to pay all but 10,000 of it as taxes? Why in the hell would anyone take such a risk for so small of a true return? Again when this tax goes up it is like when a store raises its’ pricing and when taxes go down money flows in a “sale like” environment. Simply put when investments go on sale more investors buy more investments.

Spending - Now I am all for saving money but if no one spends any money the economy grinds to a halt. This one is the easiest of the three to understand. Tax Joe and Jane America at a lower tax rate and they keep more of their money, when people have more they spend more. In short for the average consumer lower taxes are a “sale” on everything. You just have to do a bit of inverse thinking to understand this. Joe works 10 hours a day and makes 250 dollars for his day of work. Each day he pays 100 back in tax so he profits an actual 150 dollars.

So Joe values money according to that formula. Hence he “pays” 10 hours of his effort for a 150 dollar item. Now tax Joe only 50 dollars and he now profits at 200 dollars for the day. Now a 150 dollar item only “costs” him 7.5 hours! In short by taking less taxes Joe is now buying everything at a 25% discount.

The combined effect

The reality is the economy is like an ecosystem composed of these three factors of spending, investing and employment. None can sustain themselves with out the other two. There is far more complexity then this but a basic understanding is simple.

• When more money is available to business from profit and from investors they hire more people.
• When more people are employed they have more money to spend, hence they spend it.
• When people spend more money it drives business and results in more profits
• When people can find jobs and get paid well and are taxed lower they also invest more
• Investments then feed business

It is really a circle of economic life. In this circle low taxes are like good fertilizer that makes everything healthy and grow faster. Higher taxes are like salting the earth, they lay waste to the ecosystem and stall growth. Now democrat or republican should not matter this is mathematical science and math does not lie.

Debate the role of government if you like, support a guy with an R or a D after his name or if you are smart perhaps an I. Yet don’t ever be fooled by how there is any good to come from higher taxes. Don’t let the government pitch class warfare on you saying only the “rich” are going to see higher taxes. Right now most American’s work till April 30th to pay all taxes, that is enough, more is not the answer.

Oh and yea I really meant it that we could totally eliminate the income tax, watch this video on Ron Paul for more about that.

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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.