Economic Responsibility...Really Means Human Responsibility

Readers of this blog may have the impression that being economically responsible means amassing dollars as an end to itself, for it's own sake and nothing else. But really, where the rubber hits the road, being economically responsible means being responsible to those who need you, depend on you, who love you, or those whom you love.

Let me explain through a case one of my agents is working on.

The husband of the couple is in his late 40's, and is an attorney in a department of the federal government. His wife is a foreign national in her early 30's. She used to work part time. However, they just had a baby and now she will be home full time taking care of the house and child. The wife spoke to the agent about getting a life policy on herself and on her husband, since they have additional responsibilities with a new baby.

When the agent met with the couple, the husband balked at additional insurance on himself. He explained that he had a group policy for half his annual salary that he got for free through his work, and he didn't see any need in purchasing additional insurance, stating "that amount will just have to be enough." Furthermore, he didn't want to fork out any premium for a policy on his wife, stating "if something happens to her, I'll just give the baby to my parent to raise."

Now, you and I can throw around stereotypes about attorneys, or older American men marrying younger women from developing countries. But the reality is, no matter who the husband and wife are or where they came from, this husband wasn't willing to be fully responsible to his wife and child. The only help he was willing to give his young wife and new mother was a policy he got for free.

I don't know how much an attorney in a department of the Federal government makes. I know he's been in his position for more than 15 years. And knowing the GS levels, I'm figuring $120,000 to $140,000. So we know that cash flow is not an issue. In fact, I learned from the agent that the husband has a gym membership at one of the most expensive facilities in the area, drives an expensive foreign car, and regularly enjoys dining out a very nice restaurants.

It's sad that the wife left the meeting feeling very badly that her husband wasn't willing to shoulder what is a discretionary amount of money to be economically responsible to the two people who love and depend on him the most. In fact, the wife told the agent, "If something happens to him, I will just have to move back to my country. I can stretch the policy he has at work if I do that." Of course, living in a "third world" country with it's lack of economic opportunity, education, and health care wouldn't be a good thing for the child or mother, but that was the only viable option this young mother felt like she had. And more importantly, the only viable option the husband was allowing.

This is only an extreme example in the fact that the wife would move back to a third world country if the husband were to die. Sadly, the dynamic is not uncommon at all. We have cases, on a weekly basis, where one spouse won't give up pleasure based expenses, such as a motorcycle, ATV, boat, playing poker with friends, etc. to be economically responsible for his family.

The fact that the consequences of not enough insurance are so extreme illustrates a point in stark contrast: economic responsibility is really about taking care of your own life and the lives of those who depend on you.

So, how are you being responsible to those who depend on you? Or not?

"It's not return on my money I'm interested in, it's return of my money"

I recently stumbled upon this quote by Mark Twain and found myself comforted by its historic perspective. For those of you who don't know, Mark Twain lived from 1835 to 1910. Probably best known for The Adventures of Hickleberry Finn, Twain, really named Samuel Langhorne Clemens, is known as the father of American Literature [http://en.wikipedia.org/wiki/Mark_Twain]. He was a friend to presidents, artists, industrialists, and European royalty.

The comfort of Twain's remark is that we have been through economic crises before. Hype is nothing new. People with money have been given empty promises way before you or I were even a thought. Scammers promised high returns on money since there was some one to speak to. Investment schemes have gone bad over the decades. Our country has seen the end of many good times and the start of many tough times. People before have lived through it all. That's what's comforting.

Twain in fact experienced some dire financial times in his life. Perhaps this quote is born from some hard won lessons on his part. Whatever their source, Twain's remarks remind us of what is important in economic responsibility: preservation of capital first, growth second.

We can find many sources of inspiration and often they come from the 'non-financial' sector. Someone with as much life experience and perspective as Mark Twain can shine a common sense light on what means to be economically responsible.

"If your ship doesn't come in, swim out to it."

This quote is by the late Johathan Winters, probably one of the funniest entertainers ever. He was also a great observer of humanity. I think that's what made him so funny. Plus his own life story is amazing. He built one of the most successful comedy careers over decades. He has lived these words.

So what does this quote mean? Well, it means two things to me.

First, we've heard people say "I'm waiting for my ship to come in." That's kind of a passive way to approach life. Just sitting around waiting. We know lots of people like that. Their idea of initiative is to sit around. OK, maybe they'll buy a lottery ticket once in a while. But they see economic success as just something that happens to them without their initiative and without their control.

The second thing I pick up from this quote is that while desire and effort are important, equipping, planning, and good execution is critical to financial success.

It's not enough to want success. You have to want it enough to risk your comfortable and predictable spot on the dock. You have to want it enough to be willing to get in water. You have to want it enough to perhaps learn to swim, to train so you can swim better and longer, and to pick a good day to do it. You have to want it enough to have a good safety net or plan, so that if things don't go right, you can try again and not drown in the middle of your first attempt.

Let's face it, for most people, financial success is something we have to go out and get. So, to my fellow swimmers: let's train, make sure we pick the right times to make our attempts, and have our safety plans in place.

Being active, intentional, and deliberate--those are key parts of economic responsibility.

See you in the water!

No One Is In A Position To Be As Responsible with Your Money You

The money I earn is hard won. And I know I'm not the only one. In fact, at this point in my life I may not work as hard as someone who loads frieght trucks for a living (did that in grad school), waits tables or cooks in a restaurant (high school and college), landscaping (high school too), and a bunch of other professions I never had the opportunity to explore. But our earnings come from the strength of our backs, the creativity of our ideas, and the sweat of our efforts. We have a vested interest in being economically responsible.

Let me repeat something I mentioned in a previious this blog--this is not a policital soap box. Having made that disclaimer again, our elected policticians have their shorts in a twist at the bonuses paid to several dozen company executives, at the cost of a few hundred millions dollars. Has anyone missed the contradiction (some may call it hypocritical) that only a week before, the president signed a spending bill that I understand had over 8,000 ear-marks (pet spending projects put in there by both democratic and republican legistators to benefit businesses in their districts) that cost billions. And this bill was signed after a campaign that promised no ear-mark spending, also called "pork barrel"? I like the term "pork barrel" better--it's more descriptive of the purpose of this use of yours and my dollars--spending our money for their for political purposes.

The reality is no one is in a position to be as economically responsible with your money as you are. You earned it. You and your family depend on it now and in the future. They are your first priority. You have a critical interest in seeing that you keep more of what you earn, that your savings are safe, and that you and your family have a better tomorrow than yesterday.

What is the saying? "Charity starts at home"? We can change that to say "economic responsibility starts at home". And, if the blogs on this site peak your interest, give me a call so we can discuss your situation.

A Hair of the Dog that Bit You

I've heard that saying, haven't you? It's used when someone wakes up with a hang-over, and a "friend" recommends they have another drink to deal with the results of their binging. "Have a hair of the dog that bit you" they might say.

That's the same type of ill-conceived advice I've heard from pundits who say that spending is the way out of this economic crisis. Let's do more of what got us into this mess! Have another round of debt! As a country, we've been binging for a long time. If we haven't been buying ever more expensive homes, we've been taking out home equity loans on the increased "value" of the residence we're in to fund "life style" expenses: vacations and trips, new cars, etc. It's all fun and games until someone gets hurt.

Maybe there does need to be more spending in the national economy. I don't operate on that level. I'm interested in my own personal economy. And your own personal economy. Is that the right thing for you to do--spend more, and more, and more?

I never thought it made sense to spend to the limit of your income. There is nothing like knowing you can turn to a nice nest egg when times are tough. And I'm not talking about the equity in my home, either. As we have seen from the recent real estate market, the value of an illiquid asset shrinks with demand. Nope, I'm talking about liquid and safe instruments that can be tapped when and if needed.

Funny thing about saving more--we have more power and control over our circumstances. This is true, I think, both individuall and as a society. If we can have 6 months of very liquid investments, we could weather getting laid off a lot better. When we as a society save more, then the banks would have more cash, and wouldn't need (as much of) a bail out. Maybe it's simplistic, but it makes sense to me.

Economic Responsibility to me means always living well with in your means. As a person. A family. A society. We can't help what the greater society does. It's habits are shaped by advertising and business interests that have a vested interest in their own income, not ours.

But we can follow through on economic responsibility with ourselves and our own families.

You Want to Tax What? Government Gets Desperate

On March 16, I published a blog that addressed ways you can be better prepared for the upcoming tax increases [http://thenewageofeconomicresponsibility.blogspot.com/2009/03/upcoming-tax-increases.html]. In that blog, I made the point that it's only a matter of time before we see tax increases to fund the economic stimulus package, and also as a reaction to the downturn in the economy.

Well, ABC News recently published an article on line that identified some creative ways government is trying to raise cash flow [http://abcnews.go.com/Business/Economy/story?id=7135684&page=1]. The title of their online article is "You Want to Tax What? Government Gets Desperate".

Admittedly, this article describes what I call "fringe taxes": levies that hit only a part of the population. Mostly "sin" taxes. It's an interesting article. But it's just the beginning, I think. The reality is these taxes and fees can't raise enough money to be of great significance. But, they do get the population used to more expense, I believe.

Look--the government is likely to be first at the trough to eat. Their share comes off the top, what ever size they determine that share needs to be. Soon, I think, we will see proposals for broader taxes and reductions in exemptions to make the current taxes apply to more people.

Fore-warned is fore-armed. Sheltering your estate from a higher "death tax" through insurance, creating tax deferred wealth through annuities, sheltering cash in cash-value policies are just three very legal and common ways to keep more of what you have worked so hard to accumulate. It's the economically responsible thing to do.

A Most Pitiful Sight

OK. I admit it. I'm a Diet Coke fiend. Chances are you will find me with a Diet Coke in the office, at home, and in the car. Sometimes my preplanning breaks down, and I find myself in the car without my cherished refreshment. When that happens, I usually pull into a convenience store to pick one up. It's an addiction really.

But that's not the pitiful part. This week I found myself in that situation. I was in a rural area and stopped at the first convenience store I came to when the addiction struck. When I went to the cashier to pay for the drink, there was a large plastic jar on the counter with pennies, nickles, dimes, some quarters, and a few dollar bills in it. A sign on the jar said "Help us help the Johnston family." Below this headline was the picture of a seemingly healthy man, looked to be in his early-30's holding a small child, and both were smiling. Below the picture, the text informed me that Mr. Johnston died unexpectedly and left a wife and 2 kids. The collection jar was placed there by his church to help the family. I asked the clerk if she knew the family, and she said she did. She said Mr. Johnston had no life insurance when he died.

What's pitiful is that this family's never going to be whole again. I'm not talking about the emotional void the family has. Nothing can fill that. Rather it's the economic desperation they're going through. Hats off to his church. They are doing what they can to help. (I found out the church had placed jars like this all over the area). But look at the reality. There might have been $25.00 in the jar, tops. And the jar had been there for 3 weeks. So let's say there were 40 of these jars total with a similar amount of collections. That's still only $1000. Hardly enough to sustain the family for any length of time.

The cashier told me Mr. Johnston came "in all the time." In the mornings, he would stop in for a coffee on his way to work. In the afternoon, he usually stopped for a snack and a drink on his way home. He filleds his tank a couple times a week. The cashier told me that money was tight for the family, as Mr. Johnston was the sole "breadwinner". Clearly this cashier was feeling bad about what happened to a community neighbor and good customer, and helpless to do anything more significant to help the family.

I dropped my 41 cents in the jar. (The drink was $1.59 including tax). And on the way out, I thought, "You know, this guy probably spent $5.00 a day on drinks and snacks at the convenience store. That's a hundred a month. For a young 30-ish man, that buys a damn nice life insurance policy." After I got back to the office, I ran an illustration for a 35 year old standard health non-smoker and found that this guy's snack money would buy a $844,835 term policy for 20 years.

You can tell this situation made me angry. All I could think of was the desperation his wife might be feeling right now. How often does she wake up at night, not because she's missing her husband, but because she's worried about how she'll make the rent or mortgage--if not this month, then the next? Or how many bills are piling up on her kitchen table? Does she worry about getting her growing kids new shoes or clothes when they need them? Is she able to go grocery shopping without using food stamps?

I'm sure Mr. Johnston thought he was taking care of his family. I could see from the picture he was a very proud father. And no one expects to die prematurely. But he did, and his wife and her little children are in a world of hopelessness that they can't easily get out of. And all they have now to help them are the good intentions of some good willed people and a pitiful few dollars in collection jars scattered around their county.

Reality is that money feels "tight" for most families. We all have a habit of living up to the level of our incomes. And maybe even a bit beyond it at times. But like Mr. Johnston, we usually have discretionary spending somewhere, even if it's only a few dollars a day. And that small amount applied to a life policy will leave our families a lot more than memories if we take an early and unexpected exit from this life.