No grashoppers, conundrum is not about practicing safe sex. It is a word that describes the confusion that many have discerning the difference between CASH FLOW and NET WORTH.
I described cash and it's nature last time. Now it is on to NET WORTH. It is the most important concept I will discuss on this blog. As all of you toil to become rich, the measure of that WEALTH is financially described as NET WORTH.
Net Worth is the concept of taking everything that belongs to you and putting it on a pile. Then you reduce the pile by the amount that you owe to other people. Anything that is left is NET WORTH. That is different than cash. For example, you could be making $100,000 per year but have so many debts that the income won't cover all the payments. Cash flow is very good. Net Worth stinks.
The assets that you put on your pile are money in savings accounts, equity in insurance policies, 401k plans at work and your first born. Just kidding about the first born. The only way a first born would be important to net worth is if they promise to support you in your old age. Even your car. Actually you put your house on the pile at market value. Say it is worth $100,000 and you only owe $50,000, that asset actually contributes $50,000 to you wealth or NET WORTH.
Everybody should sit down and list all your assets. Then you should list everything you owe. Then close your eyes and pray. Do you have a positive NET WORTH? You can see that cash is only one component of net worth and the only cash that really counts is money you don't need to live on. Do it. Calculate your net worth. If you need help, let me know. This is another key to your getting rich. Always know your net worth.
Some people calculate the net worth annually. Some do it monthly. Some are so sophiscated that the numbers are updated daily for things such as stocks, bonds, and retirement programs. Being anal retentive, I check it weekly.
Your assignment if you should accept the challenge, is to calculate your NET WORTH. It is the most important term in finance. Hopefully you are worth something. Notice the clever play on words.
Love,
Dad (Just Chas.)
Before I begin my ramblings on "cash", I need to share Jane Bryant Quinn's (she is a financial author) observation on controlling the spigot on your cask. There are only 3 reasons NOT TO CONTROL YOUR SPIGOT:
1. You are so rich you can buy anything you want and you still have plenty of money left over in your cask.
2. She forgot the other two reasons.
Cash has always been a dilemma for me. The only cash that ever seemed real was the dollar bills I carried in my pocket. I could buy a dairy queen, pay for my golf, go out to lunch and even buy a Starbucks coffee whenever I wanted. You get the idea. It is a low level of power in a sense because it was my money and I could do what-ever I wanted with it. I could touch it, feel it, and count it.
Cash is also available from a savings account. Somehow that was never the same as the cash in my pocket but it is cash never the less. I guess in my mind, savings meant is was set aside for future uses. Like down payments on houses, boats and cars. Like tuition for Catholic private school systems. Like weddings and graduations. Like repair of my cars when someone backs into them in my own backyard. Never the less, I could get in my car, go to the local credit union and withdraw savings anytime I wanted. It is cash, but different.
Cash is good. Cash is power. Terry Kohler's dad had several rules concerning money and one was "never snear at cash" meaning if someone pays you in cash, take it.
The textbook definition of cash is that it is money in coin or bills. My defintion of cash is anything you can get you hands on in several days. My list for cash:
1. Cash in bills or coin
2. Checking account - can be converted to cash immediately
3. ATM - Withdraw anytime
4. Money Market Funds - always get check writing privleges and these
funds pay interest.
5. Debit Cards - Immediate deduct from your checking account.
6. Credit Cards - They buy things now like cash, but you don't have
to pay until later. Dangerous cash!
7. Savings Accounts. Go ahead. Drive down to the bank, credit union
or Savings and loan and make a withdrawal. Or transfer to
checking electronically.
8. Instruments that are the same as cash. Stocks for example can be
sold with a telephone call and deposited in your checking
account in 3 days. To me that is the same as cash but there is a
time delay.
Your mother defined cash as green paper that you can touch and crinkle and has power. And you thought she didn't understand cash.
Don't confuse cash with wealth. Wealth or Net Worth is the subject of another musing. For example, you could have $1,000 in you pocket and think you were flush. At the same time you are past due on your mortgage payment of $1,000 so in essense you are worth nothing but can touch and feel the $1,000. There is no power in that! Paul would say that is an unrealistic example because who could ever get $1000 in their pocket? Ha.
Your paychecks are new cash into your "cask system". The money already lying around in your cask is "old cash".
Cash is good. It creates good feelings. It gives you the power to buy things. Get as much of it as you can. Here is another key to getting rich. FILL YOUR CASKS WITH CASH.
Love,
Dad (Just Chas.)
There is no "stupid" question. In fact that is the purpose of this forum: to share information and ask questions that you might not be able to ask elsewhere. Grasshopper No.4 (there are 5 Grasshoppers) asked "what is the definition of enough cash in the cask as it relates to retirement". The little green guy wants a number. Well, here it is. You have some idea of how much money you need TODAY to live comfortably. Let's say that number you know today is $50,000 per year. How much money would you have to have invested generating 5% return that would give you $50,000 per year. I know all the algebraic minds are already dividing $50,000 by .05 to get an even 1 million in today's dollars. You are correct! But wait, most of the Grasshoppers have 20-30 years until they retire so they will need to take the $1 million and increase by the 3% average yearly inflation times the number or years until retirement. Probably close to $2 million dollars in FUTURE dollars. Don't dismay, the money you put aside each year should gain an average of 11.3% each year over the long pull. Those are proven statistical numbers. The numbers you could achieve boggle the mind. Now lets get real, if you fall short of your goal and social security still exists, it will pay you and your spouse $20,000 to $25,000 per year(today's dollars) so you only have to save half what you thought. Then in retirment, you should be able to live on 80% of your current annual expenses. And then, if you work part time, you'd need to save less. You get the idea. Calculate your own number Grasshoppers.
The last posting "Fill'er Up" just discussed the many ways to generate income. Since you've all got a 3 month budget broken into timely monthly buckets or something else that makes sense to you, we have to line up actually cash coming in from jobs to match the money we know is going out. IT IS A TIMING THING. Expenses are neat and clean because they mostly occur monthly, quarterly, or annually. Income usually comes in two week increments. That means the paycheck can arrive at awkward times and some months you'll get 3 paychecks rather than 2 (26 checks over 12 months). If you can live on two paychecks per month, that extra paycheck twice per year could be surplus and stay in the cask. Here is a key. IF POSSIBLE, SAVE THE EXTRA PAYCHECKS. My simple answer for aligning uneven money coming into the cask with the flow out through the spigot is to have the equivalent of one extra paycheck always sitting in the cask. Then you don't have to get real clever with your expense payments. Of course you can also plan using exact days for inflows, exact days for outflows and spend hours trying to balance everything. There is the risk that the time required for this last "finite" balancing might jeopardize potential romance. You decide!
You should now have a budget for 3 months showing all flows from the cask and your own clever way of pouring new cash into the cask over that same period of time. You've got to achieve BALANCE OF INFLOW AND OUTFLOW ON A MONTHLY BASIS.
I think Debs gets paid every two weeks as does Chris and Margaret. Kelly has a varying income stream and I think Jenny's is every two weeks. I don't know of any monthly salaries. Monthly salaries are easy.
I don't feel I explained the timing of inflows very well so if you need more, let me know.
Fill up your casks.
Love
Dad (Just Chas.)
I blew up my blog with one click of a mouse this date. Thanks to the designer of my often read blog, I am now back in business. Sometimes financial plans blowup like that.
We talked about controlling the flow of money out of your cask last time (managing expenses). I promised to talk about filling the cask.
Filling the cask takes HARD WORK. Kiplingers magazine wrote an article profiling people that had become rich, in essence they had filled their cask. I looked for ways to transform their experiences into something that might be meaningful for you. It was not useful unless:
1. One guy had written the song "Grandma Got Runover by a Reindeer" and made millions. He borrowed $40,000 to get promo copies made.
2. One guy beat out 9000 contestants to get on the Amazing Race TV show and won a million dollars. What are the odds?
3. One gal liked to cook and was always upset she couldn't buy unique cooking instruments so she designed her own. She sold her company called the Pampered Chef for $700 million dollars. Yeah, right.
I guess the message is THERE ARE A LOT OF WAYS TO FILL THE CASK. Each of you needs to find your own way. I know hard work, continuing education, and pursuing goals are part of it. You can marry it like I did (ha-ha). You can win the lottery. You can inherit it (Kelly says big deal, one fifth of nothing is nothing). Or you can get it the old fashion way, YOU CAN EARN IT.
Filling up the cask should not be all consuming. It needs to be balanced with all the other things in life like family, friends, and hobbies.
Another key to getting rich is to HAVE MORE COMING IN THAN IS GOING OUT. Dah!
I was fortunate to have jobs that paid pretty well but I maintianed restraint. Our first cottage was a "fixer upper". Our first boat had a broken transome. Our houses were always older with character! Instead of BMW's, we had camaro's and station wagons. But somehow everybody seemed to grow up okay, each with their own pschological hang-ups (which is normal).
Paul keeps wanting to know what my financial goals were. I did have an exact dollar number (which I exceeded) but my ultimate goals was to be able to live in retirement without changing my lifestyle. So far that has come true but if medical costs keep rising, all bets are off.
Key concepts to filling the cask are:
Hard Work,
Continuing education,
Believing in yourself,
Doing something you enjoy,
Having financial goals,
Perseverence.
GO FORTH AND DO YOUR THING!
Love
Dad (Just Chas.)
Today we talk about spigot control. For those of you that don't know, a spigot is a small wooden peg usually at the bottom of a cask (a name for barrel). We are going to use the analogy of the barrel to describe where your vast financial cash income resources are poured into regularly. We are going to open the bottom spigot carefully to pay the bills. Remember I said I would get to filling the barrel later. I elected to start with letting money out through the spigot first.
I also pick the cask as the holder of your money. I figure a cask was originally used to hold alcoholic beverages and if everything turns to shit, we could use it for the original purpose and get drunk.
PLAN YOUR EXPENDITURES OUT 3 MONTHS. The majority of your expenditures are on a monthly basis and you can predict very close, the total of most expenditures. I am not going to tell you how to develop a format because Paul will put it on the computer (he doesn't know how to use a pencil), Chris will probably go to an evelope system and who the hell knows how Margaret will do it. I will tell you how I do it, then you can design your own system.
I actually plan out each month with two parts. I did it that way because I got paid with two pay checks each month and I could match up my paychecks with expenses. Each month is divided into expenses paid from the 1st to the 15th and then from the 16th to the 31st. No wise ass remarks about what if the month is only 28 or 30 days long. YOUR NEED TO KNOW EXACTLY WHEN EACH BILL COMES DUE EACH MONTH. If it comes due in the first half of the month, that is where I log it, and the same with the second half obligations. ALWAYS PAY YOUR BILLS 5 DAYS BEFORE DUE. Don't play the "postmark game" or wait until the last minute. Examples of monthly expenses are phone bills, cable bills, natural gas bills, electric bills, and yes credit card bills. Some bills vary monthly such as electricity (unless you budget even payments) so you should plan based on what you know. I actually BUDGET AN AMOUNT OF DISCRETIONARY MONEY that your mother and I put in our wallet in each one-half monthly period. It is ours individually. No questions asked. If it isn't spent it belongs to us. I can tell you it is never enough but it is yours. Piss it away if you want.
With the ninety day budget, you can lay into the correct time period, quarterly and annual costs. For me, quarterly includes auto insurance, Appleton water and sewer, and newspapers. Annual expenses are usually few but a magazine subscription or a donation because you tithe to the church (ha-ha, I can't stop laughing) or property taxes are examples.
NEVER LET A PAYMENT BE TAKEN AUTOMATICALLY FROM YOUR CASK. Because you don't always know the amounts to be taken such as from a phone company, don't give anyone automatic access to your cask. Never, never, never. If you want to pay electronically, okay. It is your wooden cask and nobody touches it without your permission.
IF YOU MUST USE YOUR CREDIT CARD, immediately log the receipt amount into the time period when you know it must be paid. That way you always know your status on the card and you also can match the period ending statement. I know it is a pain in the ass. You want to get rich. HERE IS ANOTHER KEY. Always know what your expense obligation is and control it.
Your assignment (only if you don't already have a budget) is to put together you 3 month projection of expenses. This almost sounds like Mission Impossible, your assignment if you chose, is to do a budget. Item by Item. Month by month. Do it! Ask me questions. This is one important exercise.
I know this is boring stuff. Making money is boring.
Also inspect you barrel. Make sure that it doesn't have any leaks. YOU DON'T WANT YOUR BARREL TO HAVE A HOLE IN IT.
Love,
Dad (Just Chas.)
Here we go again. I wrote the epistole for this date and it locked up my web site and disappeared in to the writers abyss. So I am going to do it again. Margaret pulled me to safety.
I have a mental agenda that I have been following and I hate to deviate but what the hell, a one time rant won't hurt.
I previously idenitfied car salesmen as bottom dwelling scum suckers. They were in the company of real estate and insurance sales people and graphic designers. Just kidding about graphic designers. I wanted to see if you were reading carefully. The worst bottom dwelling scum suckers are the FINANCIAL INSTITUTIONS THAT OFFER CREDIT CARDS.
Every household gets offered 50 credit cards per year. It seems like more. 73% of all households hold credit cards. 65% of all credit cards are on a revolving balance (they don't pay them off monthly). AND the average household has 7-8 different cards. That last statistic just blows my mind.
Okay, okay, okay, here is how it works. Some smiling BANK or FINANCIAL INSTITUTION lets you know that you are elgible for $3000 credit, no questions asked. You respond and say ME? Sure enough in the mail, you get a personalized card and 10 pages of terms and conditions. They care about YOU.
And then you use it. Amazingly the balance is beyond what you can pay. So you pay the minimum. You also pay up to 28% interest charges. You pay late fees and penalties and if you read the fine print, they can take you first born. The real bottom dwelling scum sucking people have showed up. Wait a minute. That almost sounds like a car salesman.
ANDREWS RULES (the first one will surprise you):
1. NEVER CARRY MORE THAN 2 CREDIT CARDS. Notice I did not say
destroy all cards. They are convenient and if paid on time,
they let you use your money for up to 50 days.
2. DON'T USE CARDS IF YOU CAN'T PAY IN FULL when due.
3. The corollary to paying in full is NEVER, EVER PAY INTEREST ON
A CREDIT CARD. Charging up to 28% interest to use the card
along with penalities and other hidden fees is insane.
You are all looking for the magic key to getting rich. I just gave you a key. Paying charges on any credit card is not the way to do it. You can't earn 28% on your money so why should you pay the bank that much. The Bank pays you 1-2% on your savings account. Why can they earn 28% and you earn 2%? So the next time you are offered a credit card by a nice loving company (they live on the bottom sucking scum), say no thanks just like you did to the car salesman.
There I feel better. I finished my rant. I use credit cards. Your mother uses credit cards. WE DON'T PAY INTEREST CHARGES.
So for those of you out there that think I don't know what it is like to live moment to moment, you are wrong. How often have you heard "I don't know how I would have survived with my cards". You didn't survive. You were being pulled into a financial quagmire.
I'm waiting for someone to argue with me. This is open forum!
Dad (Just Chas.)
We've established that each person is a business. Usually I would start with the product/services you offer the marketplace but I am electing to talk first about expenses.
You all are living. You have money coming in and going out. We need to establish where it all is going. KEEP RECORDS. All business do. In fact most businesses have accurate records going back 5-10 years. I advocate at least 1 year of spending records by MONTH. This means you can look back on identical months from last year to gain historical insight into what you might expect this year. Dah! The next thing is to have a 3 month budget looking into the future. List all you expenses you expect for each month for the next 3 months. Write down everything. PAY YOURSELF! Include in a budget, $10, $20 or more a week for yourself. Then every Monday (or whatever day you pick), Write yourself a check. Remember you are a business and you get to pay yourself a salary as meager as it may be. When a month is gone, keep track of what you actually spent against what you thought you'd spend and you can refer to it next year. When a month is gone, MAKE A NEW 3 MONTH BUDGET.
ANDREWS RULES:
1. BUILD UP EXCESS CASH in your checking account to cover
unexpected expenses. Timing of payments also gets involved.
2. PAY EXPENSES ON TIME.
3. PAY CREDIT CARD EXPENSES ON TIME. Never pay interest charges
on credit cards. I didn't say "don't use credit cards".
4. NEVER, NEVER carry an outstanding balance on credit cards.
You can rationalize anything you want. MY OPINION is to get
rid of credit card debt.
5. The only thing you should borrow money for are HOUSES AND CARS.
The people that get you to finance other things are "God-damned
blood sucking a-holes" to use Margaret's phraseology. She is
right. Come on! 20% interest rates. 25% interest rates.
Ridiculous.
6. ALWAYS KNOW WHERE YOU MONEY IS GOING. It is your money. If
your business fails it is because you don't get enough income
or you don't control expenses or both.
In the interst of keeping things short and crisp, I am ending this discussion. I will expand later. REMEMBER, ONLY YOU CAN CONTROL YOUR BUSINESS EXPENSES.
Dad (Just Chas.)
By some of the questions I have already received, there is the perception that I am done sending financial advice. I've just begun. Every 3-4 days I will address additional subjects. I am starting slow. If I were you I'd print out each musing.
Now, each person is his/her own business. We need to call ourselves Deborah Andrews, Incorporated or Christopher Andrews, Incorporated. Each person has a set of skills and values that it brings to the marketplace and somebody pays for those skills or values. When you go to work for somebody, they pay you money (remember my first session). Once you receive the money for your services, you spend it on different things. IF YOU WANT TO SUCCEED, YOU NEED TO SPEND LESS THAN YOU MAKE. If you can't produce positive cash, then you need to earn more or spend less OR BOTH.
For example, Paul Andrews, Incorporated is struggling. His company has cash coming in from spousal income and the company spending habits are high including predictable monthly expenses. Paul Andrews, Incorporated has made a stategic decision to increase the value of the service he will be offering by going to school to get a bachelors degree. This will improve the amount of new money coming in long term which in addition to spousal income, should produce significant "new money". In the meantime, grants, aids, and student loans keep the business going. Once Paul Andrews, Inc. goes to market to offer the improved product (himself), he needs to manage the newly found cash wisely to keep the company on sound foundation.
As you look at yourself as your own business, you'll find that it takes time to manage effectively. Yes my children. Planning, budgets, cash management and retirement allocations become important.
Kelly, Incorporated offers Dr. of Chiropratic Services. Chris, Inc. offers earth moving supervision/management services. Margaret, Inc. offers skills in computer software management. Maximize the income from those skills.
There will be much more to come on managing yourself as a business. You are important. Your have skills. Maximize the income from those skills.
Patience Paul. Oh thee with many questions waiting for magic answers.
Love
Dad (Just Chas)
Here we go. Jan. 1, 2005 and "Just Chas." gets to share his view of life and money with his kids and others before the Grim Reaper appears.
I want to qualify the musings by stating that they are my simplistic beliefs about money, how it works, and how it affects each and every one of us. It is my perverted view of the world. Ask questions! I can do without the snide remarks about my having lobster on New Years. If you become a good student, you too can have lobster on New Years (and lots of other days).
Okay, I'm going to use the Lombardi method of teaching. At his first meeting with the team at the beginning of a season, he held up the pigskin and said, "this is a football". Max Magee stood up and said, "slow down coach, you're going to fast". If I'm going to fast for you let me know.
Imagine (if you minds permit), that I am holding a dollar bill in my hand. "This is money". Remember it. If affects everything you do all your life. You need it. Get some! Get lots!
Money by definition is coin and paper used as a medium of exchange. You want something, you need coin. You sell something, you get coin. Terrific concept, huh? My mother used to say "she didn't have a pot to pee in". I guess that came from the pre-Chuckie days when there weren't always indoor toilets and people used pots to relieve themselves until they could empty them. Not having a pee pot must be pretty bad.
Why do you need money? In case your kids leave water running in the upstairs bath tub and you flood the lower kitchen floor while you are outside mowing the lawn. You need money. If your kid steps on the brake of the car while a buddy is tailgating too close and there is a sudden crash. You need money. If you lose a front tooth and must replace it. You need money. If a room-mate moves out and you are left with paying the rent by yourself, you need money. If you expect 50 patients in a month and you get 20, that sucks and you also need money. You get the idea.
You also need money for food, cars, clothing, toiletries, home, utilities, school, entertainment, kids, art and opera. Opera? Whatever lights you fire. I can't anticipate everybodies expenses, but life is continuous need for money.
Enough for today. I know it is exhausting to absorb such a complicated subject. If you remember nothing else, Money is your way of procuring stuff.
If you want to be remembered like Max Magee, ask a question. Good ahead. I dare you!
Just Chas.