Post by bounce on Sept 28, 2007 9:39:41 GMT -8
This is about levels 0, 1 & 2
Level Zero.
This type of investor is the Non-Existent. This person lives their
Financial Life with their head in the sand like an ostrich. They
essentially have NO investments or savings. They are completely
unconscious or oblivious in relation to money in general and their
spending habits in particular. Their financial lives are so completely
mismanaged that they do not even qualify for the simplest credit
products and so, ironically, though their financial outlook is bleak, they are often in a better financial position than the person for whom credit is all too easily available. When asked what their problem is, they will invariably state that they
just don’t make enough money. That if they just made more money, they would be OK. The fact is that in many cases they are now “starving” on what they “dreamed” they could make 5 short years ago.
This person fails to see that the problem is not necessarily their income (or lack of it) but rather their Money Habits.
(Also not, technically speaking, an Investor.)
As implied above, the Borrower is often in a far worse financial position than the Non-Existent, though their potential for
change may be greater. The Borrower often has very high debt. They spend all that they make and more besides. What
they know how to do best is consume. When they have money, it gets spent. At best, they “survive” on a month to month basis. Their solution to a money crisis is to either attempt to
spend their way out of it or to take on more debt, oblivious to both the short and long-term consequences of their actions. Their idea of “financial planning” is to get a new Visa Card or MasterCard or to refinance their home in order to buy more things on credit.
Level Zero: The Non-Existent
“…the taxes are indeed very heavy, and
if those laid on by the government were
the only ones we had to pay, we might
more easily discharge them; but we
have many others, and much more
grievous to some of us. We are taxed
twice as much by our idleness, three
times as much by our pride, and four
times as much by our folly, and from
those taxes the commissioners cannot
ease or deliver us by allowing an
abatement.” Benjamin Franklin.
“You can’t build a solid,
substantial house with decayed
planks, no matter what kind of a
veneer is put over their
rottenness.” Benjamin Franklin
Level One - The Borrower
Similar to the Non-Existent, the Borrower refuses to see that the
problem is not necessarily their income (or lack of it) but rather their Money Habits. I personally know of one individual who was making over US$3 million per year and yet still was a Level One – the Borrower. Your Money Habits (what you do with your income) are far more important than the level of income you make, or do not make, in any given year.
The Borrower often gets themselves caught in a vicious cycle of spiraling debt, coming to believe that their situation is hopeless, and as a result, giving up all hope. This person usually lives in complete financial denial. Unless they are willing to change, their financial future is bleak and they are accelerating towards financial oblivion.
The third type of Investor is the Saver. This person usually puts aside a “small” amount of money on a regular basis. The money is generally deposited into a very low-risk, low return vehicle such as a checking account, savings account, money market account, certificate of deposit (CD) or term deposit. If they have a personal retirement account IRA, 401K, Pension, etc.(Superannuation Fund, CFP, as they are known in
other countries) they usually hold it with a bank or insurance company.
The Saver usually saves to consume rather than to invest (i.e. they save for a new TV, stereo, etc.). They are very afraid of financial matters and are unwilling to take any risks. Even when shown that in today’s economic environment, cash investments give a negative return (after inflation and taxes), they are still unwilling to alter their investment habits.
Their idea of an aggressive investment is to buy investment life insurance such as whole life, universal, or variable life insurance (a horrible investment that almost no individual should ever do as described in John Burley’s Automatic Wealth Manual and
Winning the Money Game Tape Set).
From my years in the business, I can tell you that the insurance industry loves this type of person because they
can prey on their conservatism and deep-seated need for “Security” and make HUGE COMMISSIONS in so doing.
Level Two - The Saver
“The drifters slip along until they
float into some quiet by-water, or
they go over the falls – and that is
the end of them. Ambition is
something more than looking at the
point you want to reach. Ambition is
taking off your coat and pulling and
dragging your boat up the stream.”
Henry S. Firestone
Although the strategy of saving worked well for my Grandfather (way back in the first half of the last century when inflation was low and the temptation to consume was minimal), it no longer works in today’s economic environment.
We need to face the facts: the days of old are gone. No longer do we work for the same company all of our lives and then
retire with a nice pension (as was commonplace throughout the 1950’s, 1960’s and 1970’s). And unlike people retiring in the middle and towards the end of the twentieth century, few people working today will retire to live in the same home (mortgage free) that they’ve lived in for the majority of their working lives.
In addition, my grandparent’s generation was able to receive the full benefit of Government Social Security (with nominal contributions) and/or Company retirement plans that were almost entirely funded by the Government and Companies (vs. today’s plans that are almost entirely directly employee funded). And they benefited from Medicare health plans that were mainly paid for by the Federal Government. All of these benefits of old were provided with only nominal contributions by the employee.
Thus, for them, the strategy of saving for the long term worked well.
Over the course of their lives, by diligently saving (without having to invest) and only paying cash (except for modest borrowing to buy their home and possibly automobiles), they were able to live comfortably when they retired.
Would the same be true today? Very doubtful. Let’s look at the six mainreasons why:
1. Inflation – During the last 30 years inflation has proven to be very volatile. The luxury days of old of counting on bank interest rates to keep up with inflation are over;
2. Consumption - Throughout the world, consumption has exploded. The last two generations have become the “ultimate consumers,” eating up much of the money they should have saved for retirement. Unbelievably, the average US “Baby Boomer” (born between 1940-1960) has less than $2,000 saved towards retirement as of June 1999;
3. Income taxes – Throughout the world the “average” family loses between 20%-50%+ of their lifetime earnings to Local, State and Federal Governments in the form of direct and indirect taxation;
“Money is like…an arm or a leg.
Use it or lose it.” Henry Ford
4. Social Security Plans – Most countries offer some form of Social
Security. When Social Security was set up in the United States there were 15 people paying in for every one receiving benefits. Benefits began at age 65 and the average American male was dead at 62. Thus, there was plenty of money to fund the program. Today this is not the case. Today there are 2.5 people paying in for every one receiving benefits. To make it worse Congress takes the money and puts it in to Treasury Certificates, which do not even keep up with the rate of inflation! The Social Security behemoth is doomed.
Currently 15.3% of every dollar in wages paid in America goes to fund this dinosaur. Nonetheless, most experts predict its demise between the years 2010 and 2020 unless the government takes more tax and/or radically reforms the system (for the better). And I don’t for a second think that the current youth of America, Generation X and the younger Baby Boomers (like myself) are going to pay the 20-30% Social Security tax experts say will be needed to keep the system alive long term. There will be a revolution first!
The potential for the failure of over taxed, under funded Social
Security systems is occurring throughout the world. Make no
mistake; the Governments of the world are keenly aware that they cannot continue to fully fund retirement. Many countries have gone to the introduction of compulsory employee/employer, non-Government contribution superannuation (retirement plans). Which shows the Governments’ of the World clear intention for the individual to take responsibility for our own retirement;
5. Increased Longevity - People are living longer and requiring extra funds to sustain their lives beyond their retirement age. Conversely, employment opportunities for older citizens to extend their working age (at their current pay level) and provide for their longer retirement are diminishing for social and skills-related reasons;
6. Higher cost of Housing - Housing costs for the average family, within city environments where employment opportunities are available, have risen dramatically in relation to the wages offered by that employment. It takes the average family many more years to pay off their home than it would have taken for their grandparents with a similar quality of life.
Because of the above factors, unless Saver’s, have already saved enough for their “golden years,” they are destined for financial mediocrity. Their retirement will require family, Government, and employer subsidies (if available) just to provide the basic essentials for survival
Level Zero.
This type of investor is the Non-Existent. This person lives their
Financial Life with their head in the sand like an ostrich. They
essentially have NO investments or savings. They are completely
unconscious or oblivious in relation to money in general and their
spending habits in particular. Their financial lives are so completely
mismanaged that they do not even qualify for the simplest credit
products and so, ironically, though their financial outlook is bleak, they are often in a better financial position than the person for whom credit is all too easily available. When asked what their problem is, they will invariably state that they
just don’t make enough money. That if they just made more money, they would be OK. The fact is that in many cases they are now “starving” on what they “dreamed” they could make 5 short years ago.
This person fails to see that the problem is not necessarily their income (or lack of it) but rather their Money Habits.
(Also not, technically speaking, an Investor.)
As implied above, the Borrower is often in a far worse financial position than the Non-Existent, though their potential for
change may be greater. The Borrower often has very high debt. They spend all that they make and more besides. What
they know how to do best is consume. When they have money, it gets spent. At best, they “survive” on a month to month basis. Their solution to a money crisis is to either attempt to
spend their way out of it or to take on more debt, oblivious to both the short and long-term consequences of their actions. Their idea of “financial planning” is to get a new Visa Card or MasterCard or to refinance their home in order to buy more things on credit.
Level Zero: The Non-Existent
“…the taxes are indeed very heavy, and
if those laid on by the government were
the only ones we had to pay, we might
more easily discharge them; but we
have many others, and much more
grievous to some of us. We are taxed
twice as much by our idleness, three
times as much by our pride, and four
times as much by our folly, and from
those taxes the commissioners cannot
ease or deliver us by allowing an
abatement.” Benjamin Franklin.
“You can’t build a solid,
substantial house with decayed
planks, no matter what kind of a
veneer is put over their
rottenness.” Benjamin Franklin
Level One - The Borrower
Similar to the Non-Existent, the Borrower refuses to see that the
problem is not necessarily their income (or lack of it) but rather their Money Habits. I personally know of one individual who was making over US$3 million per year and yet still was a Level One – the Borrower. Your Money Habits (what you do with your income) are far more important than the level of income you make, or do not make, in any given year.
The Borrower often gets themselves caught in a vicious cycle of spiraling debt, coming to believe that their situation is hopeless, and as a result, giving up all hope. This person usually lives in complete financial denial. Unless they are willing to change, their financial future is bleak and they are accelerating towards financial oblivion.
The third type of Investor is the Saver. This person usually puts aside a “small” amount of money on a regular basis. The money is generally deposited into a very low-risk, low return vehicle such as a checking account, savings account, money market account, certificate of deposit (CD) or term deposit. If they have a personal retirement account IRA, 401K, Pension, etc.(Superannuation Fund, CFP, as they are known in
other countries) they usually hold it with a bank or insurance company.
The Saver usually saves to consume rather than to invest (i.e. they save for a new TV, stereo, etc.). They are very afraid of financial matters and are unwilling to take any risks. Even when shown that in today’s economic environment, cash investments give a negative return (after inflation and taxes), they are still unwilling to alter their investment habits.
Their idea of an aggressive investment is to buy investment life insurance such as whole life, universal, or variable life insurance (a horrible investment that almost no individual should ever do as described in John Burley’s Automatic Wealth Manual and
Winning the Money Game Tape Set).
From my years in the business, I can tell you that the insurance industry loves this type of person because they
can prey on their conservatism and deep-seated need for “Security” and make HUGE COMMISSIONS in so doing.
Level Two - The Saver
“The drifters slip along until they
float into some quiet by-water, or
they go over the falls – and that is
the end of them. Ambition is
something more than looking at the
point you want to reach. Ambition is
taking off your coat and pulling and
dragging your boat up the stream.”
Henry S. Firestone
Although the strategy of saving worked well for my Grandfather (way back in the first half of the last century when inflation was low and the temptation to consume was minimal), it no longer works in today’s economic environment.
We need to face the facts: the days of old are gone. No longer do we work for the same company all of our lives and then
retire with a nice pension (as was commonplace throughout the 1950’s, 1960’s and 1970’s). And unlike people retiring in the middle and towards the end of the twentieth century, few people working today will retire to live in the same home (mortgage free) that they’ve lived in for the majority of their working lives.
In addition, my grandparent’s generation was able to receive the full benefit of Government Social Security (with nominal contributions) and/or Company retirement plans that were almost entirely funded by the Government and Companies (vs. today’s plans that are almost entirely directly employee funded). And they benefited from Medicare health plans that were mainly paid for by the Federal Government. All of these benefits of old were provided with only nominal contributions by the employee.
Thus, for them, the strategy of saving for the long term worked well.
Over the course of their lives, by diligently saving (without having to invest) and only paying cash (except for modest borrowing to buy their home and possibly automobiles), they were able to live comfortably when they retired.
Would the same be true today? Very doubtful. Let’s look at the six mainreasons why:
1. Inflation – During the last 30 years inflation has proven to be very volatile. The luxury days of old of counting on bank interest rates to keep up with inflation are over;
2. Consumption - Throughout the world, consumption has exploded. The last two generations have become the “ultimate consumers,” eating up much of the money they should have saved for retirement. Unbelievably, the average US “Baby Boomer” (born between 1940-1960) has less than $2,000 saved towards retirement as of June 1999;
3. Income taxes – Throughout the world the “average” family loses between 20%-50%+ of their lifetime earnings to Local, State and Federal Governments in the form of direct and indirect taxation;
“Money is like…an arm or a leg.
Use it or lose it.” Henry Ford
4. Social Security Plans – Most countries offer some form of Social
Security. When Social Security was set up in the United States there were 15 people paying in for every one receiving benefits. Benefits began at age 65 and the average American male was dead at 62. Thus, there was plenty of money to fund the program. Today this is not the case. Today there are 2.5 people paying in for every one receiving benefits. To make it worse Congress takes the money and puts it in to Treasury Certificates, which do not even keep up with the rate of inflation! The Social Security behemoth is doomed.
Currently 15.3% of every dollar in wages paid in America goes to fund this dinosaur. Nonetheless, most experts predict its demise between the years 2010 and 2020 unless the government takes more tax and/or radically reforms the system (for the better). And I don’t for a second think that the current youth of America, Generation X and the younger Baby Boomers (like myself) are going to pay the 20-30% Social Security tax experts say will be needed to keep the system alive long term. There will be a revolution first!
The potential for the failure of over taxed, under funded Social
Security systems is occurring throughout the world. Make no
mistake; the Governments of the world are keenly aware that they cannot continue to fully fund retirement. Many countries have gone to the introduction of compulsory employee/employer, non-Government contribution superannuation (retirement plans). Which shows the Governments’ of the World clear intention for the individual to take responsibility for our own retirement;
5. Increased Longevity - People are living longer and requiring extra funds to sustain their lives beyond their retirement age. Conversely, employment opportunities for older citizens to extend their working age (at their current pay level) and provide for their longer retirement are diminishing for social and skills-related reasons;
6. Higher cost of Housing - Housing costs for the average family, within city environments where employment opportunities are available, have risen dramatically in relation to the wages offered by that employment. It takes the average family many more years to pay off their home than it would have taken for their grandparents with a similar quality of life.
Because of the above factors, unless Saver’s, have already saved enough for their “golden years,” they are destined for financial mediocrity. Their retirement will require family, Government, and employer subsidies (if available) just to provide the basic essentials for survival