Do you want to earn more than a million dollars during your life working period? According to the U.S. Census Bureau Report, you can if you complete high school and work for 40 years. For the same life working period, you can boost your earnings above $4 million, which is more than three times the amount earned with only a high school diploma, by completing a professional degree. In our society, these statistics reveal a unique relationship between education and training and growth of personal earnings. Although not expressed in the above statistics, any relevant education and training opportunities whether offered on the job, in special seminars, in workshops and during apprenticeships that expand knowledge, develop new skills, and increase productivity are related to increases in personal earnings.
I am sure that you are familiar with many great success stories of individuals who beat the averages by earning greater sums of money in a much shorter period of time than 40 years. I met with a business owner to introduce certain financial products that will allow him to expand and improve his business. He quickly informed me that he has never had a loan. He proudly shared with me that he is debt free and presently the owner of a personal residence, rental apartments, barber shops, and Bar-B-Q restaurants. His business transactions are all cash when purchasing and selling assets. His model for business expansion or entering a new venture is first to purchase the necessary equipment and facility for the business venture, and then open the business without debt. He stated firmly that “a person who needs a loan to start a business does not need to be in business!”
Many may disagree with this business philosophy and speculate that he perhaps could have generated more revenue and accumulated greater wealth by using the concept of leveraging, but this business man has defined his success. He owns debt-free cash generating assets which exceed a million dollars in value, and has cash money set aside for each of his children in the event they decide to travel an entrepreneurial pathway. This gentleman is in his early sixties, does not have a high school diploma, and cannot read or write.
Bill Gates left Harvard University in his junior year to pursue his vision, and became a multi-billionaire in less than 40 years. I am truly impressed with each of these stories and many others which do inspire many of us in several areas of our lives. Likewise, I am uniquely impressed with the U.S. Census Data suggesting that in this society the masses can also reach an impressive financial milestone. So, whether you fit the profile of the aforementioned business persons or are a representative of the U.S. Census Data, wisdom is that being prepared, and having the right attitude and courage to act, allows the greatest chance of fully developing your earning potential when opportunities present.
Now, just as you expect to have increasing earnings over a life working period, simultaneously, you want be keenly aware of how to prevent an erosion of your earnings, any reduction of your accumulations and lowering of your standard of living resulting in less money to purchase the family home, educate the children, take family vacations, and plan for retirement.
So, any amount of money that is earned over a life working period, you need to be aware of how to spend and manage it wisely in order to achieve and maintain a high standard of living. Recognizing that each personal situation varies and may require a different focus of attention, there are six areas where effort of some degree must be made to preserve earnings and to allow future growth.
First, poor health, practicing high risk behaviors, and neglecting known preventive health and medical advice increase the occurrences of illness, drain personal finances, and reduce earnings. Based on data from the California Health Interview Survey that was collected during a period of economic growth (2007) nearly one in 13 Californians had some kind of medical debt, and that those with debt were twice as likely as those without debt to report delays in getting needed medical care. The cost of medical care has threatened the finances of many families, and has become one of the most common causes of personal bankruptcy in our country.
Being physically active, having a nutrient-rich diet and reducing caloric intake, avoiding tobacco and alcohol abuse, adapting appropriately to stress, wearing seat belts, and practicing proper procedures for the prevention and control of infection are good health habits which will reduce personal risk for chronic conditions such as heart disease, hypertension, diabetes, obesity, accident and injury, and infectious disease. These conditions can create a big hole in your finances and drain your life earnings. Good personal health habits can reduce the risk of these acute and chronic conditions, and offer effective prevention or control of disease, if present.
Why not practice good health habits, and start as early as possible?
Second, failure to take advantage of education and training opportunities can leave you unprepared when opportunity knocks. Consequently, the chance for increased income, promotion or a move to a higher level, a new job, or new venture opportunity, is missed. Since the cost of goods and services often increase at rates exceeding many households’ income, it is essential that you remain alert and be prepared when the opportunity that will improve your earnings, lifestyle or standard of living presents.
You can be prepared for changes that are taking place in the marketplace by taking a course, seeking additional training, and having courage to explore new opportunities for advancement. To our surprise, cost of living increases often do not keep up with the cost of goods and services. You may need to adjust by seeking promotions, new career opportunities, acquiring new skills, and creating multiple streams of income which now emerge as a wise strategy in the 21st century.
Third, you pay too much in interest because of expensive personal loans and mortgages. Banks are very effective in velocitizing money after encouraging consumers to make deposits and in return receive a small interest income. Banks are aggressive in investing those deposits to make money through loans and other financial instruments yielding substantially higher returns than the depositors receive as interest income. For short-term loans, interest rates may exceed 20%. Paying high interest on credit card debt lowers your effective or available cash for other family or personal needs. For a long-term loan of $200,000 at a fixed interest rate of 5.32%, a borrower will pay slightly more than the amount borrowed in interest payments alone over a 30 year period. (Total payback of $400,714 with $200,714 interest) The interest amount, being the cost of borrowing, is a significant subtraction from personal earnings even after tax adjustment. You, the borrower, must be aware of this significant cost and plan to reduce or compensate for this major subtraction from lifetime earnings.
Fourth, each person should pay their fair share of taxes and we should continue to fight for good tax legislation that helps to support responsibilities as determined by the constitution. On the other hand, many pay unnecessary taxes due to a lack of knowledge of tax laws, and innovative effort that allows one to take full advantage of tax incentives. The government uses tax incentives and allows tax deductions to stimulate or direct activity in certain areas of our society such as community service, national and international programs, starting a business, local development, locating in certain communities, providing job opportunities, charitable giving, and certain investment programs. In some of these areas, you can find that opportunity to partner with the government for your benefit and others.
Fifth, failing to establish legal entities such as businesses, trusts, retirement programs, asset donation and other deferral programs can result in a loss of tax incentives, deductions, deferrals, additional revenue streams, and increased income. The internet offers an excellent opportunity to start a business the 21st century way, and paves the way for many home-based operations.
Sixth, inappropriate spending- our economy depends upon two fundamentals: consumer confidence and consumer spending. During a recession, consumer spending is decreased as compared to a growing economy where consumer spending is increased. Our available money is used to cover expenses, and the remainder, if any, is usually left in banks in checking and savings accounts, or other types of bank financial instruments.
Common understanding is that money used to cover expenses or purchases is considered an act of spending, and money left over or deposited in the bank and not used for expenses, is considered savings. On the contrary, your deposit or money in the bank is also an act of spending. You have purchased bank services consisting of checking and storage privileges, agreed access, capital security and a modest interest income. As customers, we must reorganize our thinking and look at all disbursements of money, and resources including investments as an act of spending.
In an up or down economy, you, the consumer, must focus on spending for value rather than impulse buying or spending, or just accumulating money (savings) in bank accounts. Spending for value achieves efficiency, and engages self-accountability by raising obvious reality-checking questions such as: Is it prudent for me to spend this money now, Am I getting the best value for my dollar? Does this spending contribute to accomplishing my goal? Answering these questions is the beginning of control, and the first defense against excessive spending. A great lesson to learn is how to safely invest my available cash similar to banks by applying Irving Fisher’s (1930s) concept of “The Velocity of Money”.
These six areas, if attended to, will allow you to retain more of your earnings, add additional growth earnings over your working lifetime, and help you to support and maintain a healthy standard of living.