Doing my Damndest to work on this A-Political Thing… But getting tired of the Conspiracy Theories!!!

This is not what I was originally going to post this week, as I have been watching our government make what I consider more and more boneheaded mistakes. Now that the news media has gotten everyone worked into a lather.

On morning of Wednesday September 24, 2008 I was in a Suburb of Chicago after my 5:30am workout I was watching CNN & preparing for work in my hotel room and while watching what were the financial plans congress had to decide to tackle for the US on this day. You know the ones (because you are informed):

• $700,000,000,000 bailout of the Wall Street financial markets.
  

I also had the Steve Harvey Morning Show streaming through my computer (Gotta get my daily shock by the Strawberry Letter 23) but I was listening to Tommy’s Tips and as I believe “Behind every Joke there is some Truth.” So let me put it together like he did…

Today’s Title is “Can Bush go on and leave now, We got it from here… Onst again, Can Bush go on and leave now, We got it from here…” As they said on the show whats the worst that can happen... We go to War, We loose our Jobs, We loose our homes, Gas prices go up...

(btw... that is George W. Bush in the picture)

But then I get in the rental car and while listening to the XM satelite station XM169 The Power the Conspiracy Theories begin... "They are going to target Black people and turn them away from the polls." "You know they are devising schemes to keep you from voting." and my ultimate favorate "lets march to show them they can't steal this election like they stole the last one..."

First, let me address the email blast that we have began, after the 23rd time I got the email asking if the rules on the Polling places (No banners, no buttons, no hats) were true.

by the way...YES, IT'S TRUE!!!

My dad lived across the street from Brown Highschool in the WestEnd of Atlanta in the early 80's and that highschool happened to be the polling precenct for the WestEnd in Athanta. the morning of the election I remember getting a knock at the door and it was a polling official informing us we had to remove the political signs in the front yard.

Black people, It is great that they are reiterating this rule, however in every election rule book in every state of the union their have always been rules on:

• How many ft/yrds campain paraphanelia can be from a polling venue
• What is considered passive campaigning (ie t-shirts, hats, buttons in polling area)

Sorry, I guess this wasn't for me... it was for the uninformed... LOL (hanging head & stepping down from the soapbox)

Now that, that is clear can my Friends and Frat brothers stop sending me this email!!! (Honorable Mention to Perry & Jon)

I origionally thought that I would put out "What Black Folk should do now..." every 6 months. However, With everything going on I decided to put out a listing of items for all to consider. I decide to put out another "What Black Folk should do now!!!"

WHAT BLACK FOLK SHOULD DO NOW!!!

Early Vote to avoid Lines - Check with your respective county to see when it begins
The A-political person in me says If I don’t like the decisions that a person makes while in office at the next election I’ll vote them out and put someone else in. Many persons have alluded to the fact that this is an important election, therefore let me save you some time, headache, and frustration from the potential lines. Around the nation some jurisdictions have began early voting. To find out when your jurisdiction’s early voting process begins Google your county and/or state elections board (You can find it... My county in Texas starts October 20th at selected poll locations). Now, once you get the information "Go Early Vote!!!"

Manage Your Balance Sheet

Yea, I know I sound like a broken record, but I happen to like Old School. I believe that the Urban Ghetto Poet Charlie "Last Name" Wilson of the legendary Green Archer & Pine Band (The GAP Band for those of you who are uninformed) said it best “The Bigger the Headache, The Bigger the Pill…The Bigger the Doctor, The Bigger the Pill…” The government is handing the American taxpayer Bigger and more Bitter pills to swallow everyday. I want to address the current and future ramification of these actions. I also want to address “Personal Liquidity” and how you can build a Strong Balance sheet regardless of what the market is doing. First note: As I have said numerous times before a Strong Balance Sheet will help you avoid bankruptcy & retire in a respectable manner. If these companies had strong balance sheets they would not need a bailout.

ASSET Management (Grow Strong Assets)

• Cash - ("Cross Town Money") Facts about cash... Nothing spends like cash. I know I own it. I don't have to pay interest, People will pay me interest in the right vehicles. (Assuming it is held in a checking or Savings account) (Don't get it twisted, Know the Truth... See the FDIC Rules below)


• Money Market Accounts (Your Emergency Fund - 3-6 months of EXPENSES)
  Some funds have “Broken the Buck” what that means is they have let their share value dip below the $1.00 mark. That does not mean that "All" Money markets are at risk. This still the one of the most liquid, most stable, & penalty free accounts that you can have. Money Markets invest in less risky more stable vehicles Treasury Securities, Municipal Securities ect.


• Retirement accounts (ROTH's, IRA, SEP's, Simples, 401(k)
  I have written in my post "Sometimes we do things & don't know why we do them..." sometimes we fail to realize that retirement takes planning. Planning is an active process it requires us to be fully engaged with the goal of knowing the lifestyle we plan to retire in.


• Houses (Yea, I said it...)
  Your house is an Asset, that will not change. I have a statastic that said that House Value (Equity) accounts for 60% of Middle Class wealth. I personally believe that it should account for No more than 45% if you build the Strong Assets listed above. Most people over the last 5 plus years purchased more house that they could not afford. This Over Zealous Exuberance and the Ill Founded Belief that realestate always goes up in value has put the US in the position it is currently in. The reason for my 45% versus 60% statement is that if at retirement you have $1 million in Assets (for most of us that amount is too low to retire in a comfortable manner given inflation) that tells me your home is $600,000 of your wealth, and in order to gain access to that $600,000 you have to either sell the home (where are you going to live?) or take out a loan (which is contrary to building a strong balance sheet!!!). My 45% calculation would give you a $450,000 home at $1 million in total assets, that means you have over half a million in cash and cash equivilents. You are more Liquid!! I would dare to say that at retirement you need $600,000 in cash you don't need a $600,000 minimally liquid house. If you disagree please write me...

LIABILITIES (Don’t Reduce… Get rid of them)

• 10 – 15 Year Fixed Rate Mortgage
  Finally, they are going back to the old formula of granting mortgage debt. Simplisticly the formula was 20% down and your home should be no more than 3 times your income. (Oh my gosh, that takes us back to the stone ages, I will never be able to save that...) I agree, you will have a difficult time saving that if you are attempting to purchase more home that you can Afford (ie $525,000 home on a 55,000 total household income, thats $105,000 Down... that is also approx a $3,500 a month mortgage payment on a 15 year) A more realistic scenario is purchasing a home 3 times your income or less (ie 3 times $55,000 equals $165,000) putting 20% down or $33,000 and paying a mortgage of approx $1,113 or less on a 15 year.
  
• Auto Loans
  Finally, they are going back to the old formula of granting auto debt. The old formula is your total car debt should not be more that half you annual income (ie $55,000 times .5 equals $27,500)
  
• Credit Cards, Student Loans, Heloc's & 2nd Mortgages
  YOU SHOULD NOT HAVE THEM... YOU HAVE CASH IF YOU DID WHAT WAS STATED IN THE ASSET AREA.

NOTES:

• PROTECTION (These are not Balance sheet Assets but they are items that protect your balance sheet assets)


• Personal Protection
  Life Insurance
  Health Insurance
  
• Government Protection
  (FDIC) Federal Deposit Insurance Corporation
  
  Today’s Title is “Can Bush go on and leave now, We got it from here… Onst again, Can Bush go on and leave now, We got it from here…” Bush misquoted this protection granted under the FDIC on last night in his bail out speach. Now people (I'm trying to stay A-Political on this...) if the President can't describe this protection correctly, whith all his advisors & speach writers, how is Joey six pack on the street going to understand it?
  
  Per this rule your deposits at your respective bank is insured up to $100,000. Now that is not $100,000 per account (ie. You have 75,000 in your savings & 50,000 in your checking for a total of $125,000). That is $100,000 in total deposits at that bank.
  
  When IndyMac bank in California failed and was taken over by regulators persons were standing out infront of the bank to get their money and some had $2-300,000 in one bank. But multiple accounts. They thought that they were protected, and they were not. For anything over the $100,000 insured amoung, you become a bank creditor and may get paid pennies on the dollar during liquidation.
  
  Some of you will have to contend with estates from parrents & loved ones at sometime in your life. I offer this as information for persons who get inheiritances or insurance settlements it is not safe to have more than $100,000 in any one bank, At that level you need an investment advisor (you actually need one before that time).

For all of you conspiracy theorist out there:

• Yes, I know Jesus loves me, and its not going to increase if is send this email to 20 other people. I can get closer if I spend time with him. I don't think he has email.


• I don't need a $100,000 a year job selling items that I don't have to inventory or warehouse.


• The only thing that is going to get rid of those love handles, and get me the six pack that I desire is time in the gym and good eating habits.


• I don't need discount Herbal Viagra. (Men or Women's)


• No, The African Diplomat living in exile in Spain does not need my help to transfer 10 million dollars out of the war torn congo.


• I don't need a special program to wipe away my debt.


• I don't need a special credit report to Maximize my buying power.

Sometimes we do things & don’t know why we do them… Do you want to go on a Trip or a Vacation?

A TRIP: Is 2-3 days, is decided in a day, usually involves going to see family, driving time is normally 5 hours or less, and you come back more tired than when you left.
A VACATION: Is a week or more, requires planning, someone else takes the initiative in getting you there, & you are pampered and relax.

When I was growing up my family would take a TRIP to my grandmother’s house. It generally lasted a weekend, we normally left on Friday evening or Saturday morning, and we returned on Sunday afternoon. These were wonderful TRIPS. We would see all my mother & father's brothers, sisters, aunts, uncles, cousins, etc. and generally would come back more tired than we were than when we left. We would take 3-4 of these TRIPS a year. I'm sure many if you have done the same thing...

When I got grown, gone, & on my own and began to work my first job, I was given VACATION days (initially 2 weeks a year). I quickly learned to continue the traditions that I was taught, on either the Friday before or the Monday after the weekend I would drive from Atlanta to North Carolina to visit friends, play golf, and come back more tired than I was than when I left. I would take a day here, or a couple of days there until I had exhausted my vacation days. My mentality had not changed...

I was 34 years old before I took my first True VACATION. My wife & I flew to Miami and spent 2 days in South Beach shopping and relaxing. Then we boarded a cruise ship for a 7 night cruise to Puerto Rico, St Thomas, Haiti, & the Bahamas before returning to Miami and spending another night in South Beach prior to returning home. We were gone 10 Days, Now that is a VACATION.

Do most black folk take trips or vacations?

I ask this question as I read a USA Today article entitled “401(k)’s (a) tapped to save homes.” Over my time in the insurance & financial services industry I have fielded my fare share of questions from individuals regarding their use of their 401(k)s to fund their short term desires. The questions range from borrowing from the 401(k) to purchase cars, homes, kids college, etc. People who engage in these self depredating acts normally attempt to justify it with misguided logic.

Normally, I had the hardest time hiding my disgust all the while attempting to convince these black folk to take a VACATION with their money instead of TRIPS. After I explained the benefits of a 401(k), ROTH, SEP or other retirement vehicle, I would receive a cross look from the potential client and the TRIP mentality question would come out, “When can I get my money?”

Preface: Ignorance is having never been taught. Stupidity is having been taught but refusing to implement what you have been taught. Therefore, from this point forward you cannot claim Ignorance… if you take a 401(k) loan you are Stupid.

I then would have to go through the descriptions of “These are the special cases where you are Allowed to Get Your Money…” But in the back of my mind I am screaming “DON’T TAKE A TRIP, TAKE A VACATION!!!” In reality I know they have friends, family, and that one person in the church that took some accounting classes telling them “you got bills, you need your money…” and follow that conversation up with the following Myth:

Myth: If I borrow from my 401(k) it is my money & I am paying myself back…

Fact: This is normally done to satisfy a short term (TRIP) issue or desire.

• I have to pay the IRS… Borrow from the 401k. If you had an emergency fund this would not be an issue.
• I need a down payment for a new car… Borrow from the 401k. Do you really need it? Do you need that level of Auto (why not used)? You knew your car was on its last leg, why didn’t you set money to the side for the future payment?
• I am behind on my Mortgage or Credit Cards… Borrow from the 401k. Collections Agents are putting this misguided logic in people’s heads, and the Ignorant follow, like sheep being led to the slaughterhouse.
• My child is going to college and I can’t afford the tuition… Borrow from the 401k.
  How Dare You, Tell your child to get good grades, and they uphold their end of the bargain. But you chose not to put away the money necessary to uphold your end of the bargain… You Lied, now your retirement suffers or your child suffers… “Thanks Mom & Dad!!!”

(Maybe this is a stupid question… but, Why do I have to Borrow money from my 401k if it is mine??? Sorry, I digress.)
You are Not, paying yourself back. What you have done is halted any future growth on the principal amount that you have taken out. You have created a new bill. You are taking a TRIP,

Ex. You are salaried $50,000 employee. You borrow $5,000 from your plan on a 2 year (24 months) payback schedule. You invest 5% per month ($208.33) into your plan.
If the market grows by 10% over the next 2 years, you will lose approx $537.39 in growth

You have imposed a negative payment stream. In the loan case you are investing 5% per month ($208.33) and you want continue the same investment after you take the loan, you are actually have to increase your payback to $264.56 to truly pay yourself back. That is just to service the loan. You still have not added new investment to stay on track. Therefore, to truly pay yourself back after the loan you have to pay & invest 208.33 + 264.56 = $472.89 to stay even. § That does not take into account the additional loss if your employer matches. § The loan repayment is taken out post-tax not pre-tax

A VACATION requires Planning just as managing your long term investments require Planning. A person with a VACATION mentality knows that if they want to retire and “Not Have To go back to work one day” they have to plan their work & work their plan and let the money produce children & then let money’s children’s children work for them.
Learn What a VACATION is, True Retirement should be similar to a long term Vacation, with reduced stress, and not be a burden to family. I observed that there is a significant difference to how “The other half retires” versus how most Black folk retire.

Do you want Plan A, B, or C?

Plan A: I have personally observed many black folk that have done it right… and they retire to larger homes, better communities, & more money that they had when they were working. There retirement consist of moving to “Active Adult” communities like the following:
http://www.delwebb.com/Default.aspx
http://www.newretirementcommunities.com/?pid=7501


Plan B: In many cases Big Momma moves in with the Sister or Auntee that lives closest and they setup a hospital bed in the formal living room because Big Momma can’t climb the stairs. Is this how you want to retire? I ask this because you may say yes but your children may have another plan…

Plan C: You get to choose from Level A-D based on the amount of money you have…
Level A & B - are run by Hyatt, Hilton, Mariotts
Level C & D - the Social Security Plan… Wait a minute, You are on the Social Security plan (Welfare) “you have to be destitute to get this assistance…” Welcome to level D. Unless you have a family member to take you in which puts you back to Plan B.

What you should do…

• Stop treating this account as “Cross-Town” money. “Cross-Town” money is your checking or savings account at your local bank… because it is going to last you as long as it takes you to get “Cross-Town” and see something that you want. This is for retirement, Period!!! If you never want to retire or plan to live off “Anti-Social Insecurity” take one of the above outlined paths.
• Establish an emergency fund of 3-6 months worth of expenses… this will keep you from considering 401(k) loans as an option.
• Many of us carry blackberry’s, palm-pilots (Treo’s), iPhone’s, etc. and set a reminder on your birthday and your birthday plus 6 months to reallocate your portfolios or at least look at it. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.
• Invest as much as you can with a goal of 15% and As the market goes down continue to invest, it will come back & your diligence will payoff.
• Never…Ever…Ever… take a 401(k) LOAN. Whether a hardship withdrawal or otherwise.

_______________________________________________________
Foot note:
(a) The 401(k) plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the United States Internal Revenue Code (26 U.S.C. § 401(k)). A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage/salary paid directly, or "deferred", into his or her 401(k) account To maintain the tax advantage for income deferred into a 401(k), the law stipulates the restriction that unless an exception applies, money must be kept in the plan or an equivalent tax deferred plan until the employee reaches 59½ years of age.
There are 3 ways money can grow Taxable, Tax-Deferred, or Tax Free. A 401(k) offers Tax-Deferred growth. This means you put the money in pre-tax in many cases and at retirement you have to pay taxes on the growth.

Your Individual situation may vary, Please consult with your financial professional.