We’ve watched and read every bit of news throughout 2008 as it relates to the downward spiral in this global economy. The issues have done more than scathe the surface of our households. The issues have taken on the role of a meat cleaver. They’ve cut down to the bone of our family foundations, exposing the many facets of financial mis-education that exists across all tax brackets.
There is something institutionally off key when men and women of all ages, education and income levels, face the same dilemmas just on different scales. It lets us all know that we need to come together. It lets us all know that it’s time to dig deep and get it right, not just for ourselves but for generations to come. So the question today is…
“What financial foundation can we begin to build that is worth handing down to the next generation?”
There are many ways to get rich. But would you rather be rich or wealthy? It’s been made pretty clear that the Jones’s that many have been trying keep up with having been playing an incredible game of charades. The jobs, the homes(s), the cars, the private school for the children, the vacations and of course, the expensive shoes and matching purses that are the envy of the PTA. We looked at everything they had and then we had a choice to make. Option A was not to worry about what anyone else has or looks like they have. They have theirs, you’ll have yours and I’ll have mine (and together we’ll be fine...). And you thought it was just a song? Option B was to worry about why they have nice things and you don’t. Even though you work just as hard and nothing ever seems to come to you easy, but they always have nice new stuff and go to nice places and the closest I’ve been to a vacation was seeing one on the travel channel.
Why did we make a lifestyle out of competing for false wealth and short lived celebrity? Over the last 150 or so years, the percentage of African American wealth in the Total Net Worth of the United States has not changed. We remain only 1.2% of the country’s total net worth, yet we make up 13% of the total population. To put that in perspective, even though we have the most amount of African American millionaires and billionaires in history, we have not progressed beyond the same 1.2% from 1865 (Civil War Reconstruction Era). Slavery ended in 1865 with the Thirteenth Amendment and we are dead even with the net worth of the then newly free African Americans. My mind screams the necessary yet assumedly rhetorical, why?
Surely the net worth of the country in 1865 was pennies in comparison to what it was during the Clinton Administration, yet the African American population’s percentage of 1.2% hasn’t grown. There are several facts that we must acknowledge before we can begin to understand why. Do understand that when it comes to the practical application and foundations of African American economics, we all need to keep an open mind. There is no room for pride or wearing of a prized college degrees on one’s sleeves. The economy doesn’t respect documents that show people that we did well. Recipients of PhD’s, MBA’s and GED’s are all getting foreclosed on and laid off, so it’s time to let go of our usual sight lines of forecasting financial success.
December 17, 2008
December 13, 2008
The Truth on Wants & Needs
“I need to have.”
“I must have.”
“I have to have.”
These three phrases, and the mindset that accompanies them, are the root of many poor financial decisions. It’s not as if we’re saying…
“I must have my peace of mind,” or
“I need to have financial security,” or even,
“I have to have a sound financial foundation.”
When it comes down to it, the things we say we need, must have and have to have are physical and tangible and are worthless from a generational legacy perspective.
Are you in survival mode?
As a society, a large part of the lifestyle habits that we commit to were passed down by individuals who knew less about managing money than we do. A large percentage of the X and Y generations have only had minimal exposure to the host of financial literacy programs that are now available. All of the information is accessible, but over the last few decades, conditioning has kept our communities one pay check away from being poor. De we need a large SUV when we have one child? Do we need 500 cable channels when most of us don’t even have the time to watch that much television? Do we need to have $200 shoes and purses that will be worn once a month. And most of us certainly aren’t in the financial position to comfortably say that we need a mortgaged primary residence.
Go for generational wealth
We are, however, in the perfect financial position to say that we must have, need to have and have to have contentment, patience and faith. What we should do is understand the plumb lines for why our communities are in financial crisis in which we find ourselves. Many of our households are 1st generation rich, 2nd generation poor and 3rd generation free, with no generational wealth.
We can obtain generational wealth by first acknowledging and accepting what we’ve been doing wrong. Second, we must begin making the undesirable changes in our lifestyle habits. Third, we must put our hands to the plows and turn the tide not only for our lives, but in the branches of the family tree that are coming behind us. A shift in lifestyle habits is a must for the blue and white collar worker, the PhD and G.E.D. holders, the pre-teens and retirees and for whatever other financial classification you are in and desire to be in.
Decide to change…and do it!
1. Understand the Art of Saving — We cannot continue to pay every bill that comes in our name and not take care of ourselves first. Contrary to popular belief it is ok to be selfish in this way. You have to pay yourself first, no one else is going to. Yet by paying yourself first, you will build true savings for you and your family.
2. Be Committed — If you are single with no children, you really only have yourself to be financially responsible for. But if you are single or married with children, then this must be a family affair. Everyone in the family must be in full agreement with committing to the adjustments necessary to become a financially healthy household.
3. Set Real Priorities — Now this can be challenging, however we must be honest and transparent with ourselves and each other. List all of your needs and then list all of your wants. To differentiate between the two, “needs” are the reasonable necessities for living. “Wants” are all the unnecessary items that we can live without (if we wanted to) that must be prioritized by importance. We need a car, food and a roof over our heads. We want a BMW when Hyundai will do, filet mignon when ground chuck will suffice and 3500sqft when 1500 is plenty.
4. Create a Budget — Take one full month (not February) to track all of your expenses on a budget spreadsheet. If you or a family member purchased an item, then it goes in the budget. There’s conviction in seeing just how much we can spend by shopping spontaneously and eating out for breakfast, lunch, dinner and snacks.
5. Set Achievable Goals — Now that you see what you’re actually spending each month, create the budget that you would like to see. It’s always best to take small steps towards reaching your goal. With discipline and support you can reach your dream budget within 6 months! It will take some stretching but the results never lie and you will be glad that you committed to a budget that will benefit you and your family.
6. Learn All That You Can — Since money and banking are not subjects that are traditionally required in school, lack of a clear understanding of financial vernacular is the main reason why communities are so easily taken advantage of. A thorough understanding of financial terms is necessary to advance your household to financial freedom. Being a student didn’t stop with graduation and there are no degrees (AA, BA, MBA, JD, or PhD) handed out for the basics of credit and money. We will always be students.
“I must have.”
“I have to have.”
These three phrases, and the mindset that accompanies them, are the root of many poor financial decisions. It’s not as if we’re saying…
“I must have my peace of mind,” or
“I need to have financial security,” or even,
“I have to have a sound financial foundation.”
When it comes down to it, the things we say we need, must have and have to have are physical and tangible and are worthless from a generational legacy perspective.
Are you in survival mode?
As a society, a large part of the lifestyle habits that we commit to were passed down by individuals who knew less about managing money than we do. A large percentage of the X and Y generations have only had minimal exposure to the host of financial literacy programs that are now available. All of the information is accessible, but over the last few decades, conditioning has kept our communities one pay check away from being poor. De we need a large SUV when we have one child? Do we need 500 cable channels when most of us don’t even have the time to watch that much television? Do we need to have $200 shoes and purses that will be worn once a month. And most of us certainly aren’t in the financial position to comfortably say that we need a mortgaged primary residence.
Go for generational wealth
We are, however, in the perfect financial position to say that we must have, need to have and have to have contentment, patience and faith. What we should do is understand the plumb lines for why our communities are in financial crisis in which we find ourselves. Many of our households are 1st generation rich, 2nd generation poor and 3rd generation free, with no generational wealth.
We can obtain generational wealth by first acknowledging and accepting what we’ve been doing wrong. Second, we must begin making the undesirable changes in our lifestyle habits. Third, we must put our hands to the plows and turn the tide not only for our lives, but in the branches of the family tree that are coming behind us. A shift in lifestyle habits is a must for the blue and white collar worker, the PhD and G.E.D. holders, the pre-teens and retirees and for whatever other financial classification you are in and desire to be in.
Decide to change…and do it!
1. Understand the Art of Saving — We cannot continue to pay every bill that comes in our name and not take care of ourselves first. Contrary to popular belief it is ok to be selfish in this way. You have to pay yourself first, no one else is going to. Yet by paying yourself first, you will build true savings for you and your family.
2. Be Committed — If you are single with no children, you really only have yourself to be financially responsible for. But if you are single or married with children, then this must be a family affair. Everyone in the family must be in full agreement with committing to the adjustments necessary to become a financially healthy household.
3. Set Real Priorities — Now this can be challenging, however we must be honest and transparent with ourselves and each other. List all of your needs and then list all of your wants. To differentiate between the two, “needs” are the reasonable necessities for living. “Wants” are all the unnecessary items that we can live without (if we wanted to) that must be prioritized by importance. We need a car, food and a roof over our heads. We want a BMW when Hyundai will do, filet mignon when ground chuck will suffice and 3500sqft when 1500 is plenty.
4. Create a Budget — Take one full month (not February) to track all of your expenses on a budget spreadsheet. If you or a family member purchased an item, then it goes in the budget. There’s conviction in seeing just how much we can spend by shopping spontaneously and eating out for breakfast, lunch, dinner and snacks.
5. Set Achievable Goals — Now that you see what you’re actually spending each month, create the budget that you would like to see. It’s always best to take small steps towards reaching your goal. With discipline and support you can reach your dream budget within 6 months! It will take some stretching but the results never lie and you will be glad that you committed to a budget that will benefit you and your family.
6. Learn All That You Can — Since money and banking are not subjects that are traditionally required in school, lack of a clear understanding of financial vernacular is the main reason why communities are so easily taken advantage of. A thorough understanding of financial terms is necessary to advance your household to financial freedom. Being a student didn’t stop with graduation and there are no degrees (AA, BA, MBA, JD, or PhD) handed out for the basics of credit and money. We will always be students.
Sizing Up Your Budget
Everyone is talking about budgets — “What is your budget for this?” or “How much have you budgeted to spend?” If you have never heard these words or haven't asked yourself these questions, please read this entire post. You'll love it...But do we really understand a budget's purpose and how it’s supposed to work in our household economy?
By definition, a budget is an itemized documentation of expected income and expenses for a given period in the future; an operating plan derived from such documentation; an itemized allotment of funds and or time over a given period. In short, a budget tells you what funds you are bringing in (income) and where its being spent (expenses). I have seen a variety of budgets from the very vague to the meticulously detailed.
Vague Budgets
A vague budget is like going on a first date to the movies and expecting that you will get to know the person you went with. You want to do something to start things off right however you ultimately fall short and don't get very far. A vague budget will generally list the total amount of income and will only list the most pertinent expenses—these being mortgage or rent, car note, utilities, etc. A vague budget groups similar expenses together under one umbrella. The problem with grouping expenses is that you will not be able pinpoint the spending areas that may need to be adjusted. Like the movies, you won't get much info out of your date because instead of focusing on getting to know your date, you probably have a mouthful of popcorn while shouting "Oh snap!!! Did you see that?" Not productive, or tasteful.
Case in point, you have $500 shown towards utilities, yet $250 is for water and sewage. That's a problem area that you won't see as significantly unless you break down every expense. Seeing a water bill that's higher than a car note tends to get some attention!
Detailed Budgets
Detailed Budgets
A detailed budget on the other hand has dozens of expense categories. Kind of like your date that you should have taken more time bonding with before going shopping. The budget that is distributed to my clients has over 25 categories for the sole purpose of revealing what the areas of concern really are. More than 90 percent of the individuals and couples that I've worked with really looked at themselves a bit differently after listing out every expense they incurred in a 30-day period. Being able to see what you spend on cable, electricity, hairproducts, kids clothing and car repairs can be an eye opener. Buying any combination of breakfast, lunch, dinner and snacks adds up fast and usually tops the list; gas tends to run a close second.
In order for a household to be financially successful, a viable working budget must be one of its major focal points. But it doesn’t stop with just having a budget; budgets must be used, referred to and updated weekly and monthly. Like the memory of your shopping trip with the date you didn't know too well, which you try to forget but your friends remind you of regularly.
If we could manage our finances off of memory, there wouldn't be a need to create budgets. But we can't do it off of memory or assumption. Finance is the one area of our lives that is derived from facts. The facts are that when we go shopping, we know what we would like to spend. And let's face it, we're upset if we spend more than what we allotted (though we rarely leave out of a store or return items). And the degree to which the overspending and not knowing what you’re truly able to spend actually bothers us, is the degree to which we will act to make a change.
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