The Common Man's Financial Guide: Making Money Work For You

INTRODUCTION

Most people think they’re above average in intelligence, relationship status and professional achievement. Social scientists call this illusory superiority. Scott Puritz, Managing Director of Rebalance (a financial services firm), has found the one area where even above-average people, objectively smart, rich, successful professionals, seem to wave the white flag and admit to not understanding - money and investing.

One of the most shocking things is the low-level financial literacy throughout our culture, Puritz told the Washington Post. It’s independent of education. Doctors, MBAs, corporate executives are incredibly competent in everything they do. But when it comes to investing, you run into this cauldron of mostly negative emotions, embarrassment, frustration, guilt. It leads to paralysis.

Given the risks, what do smart, rich people actually do? The key is to lower your costs, be consistent in your investment process, and of course to save enough to build a nest egg in the first place. If you can manage that, there’s a solid middle ground between doing nothing and doing too much.

The sweet spot is what we call portfolio indexing, a form of low-cost portfolio management that harnesses the stock market’s propensity to rise over time and lets compounding do its magic. (Tuchman, 2019)

Financial illiteracy is infectious throughout the country; whether across social-economic backgrounds, ethnic origins, or size of your pay check, because financial literacy is not systemically taught in our current educational system. Financial literacy covers several concepts: Time-Value-of-Money, 401Ks, 403Bs, IRAs, Debt, Risk, Student Loans, Social Security, Retirement, Estate Planning, Trusts, Savings, Investments, Insurance, Minimum Distributions, College Funds, Mortgages, Auto Loans, Compound Interest, Bonds, and Return on Investments, just to name a few. It’s a lot to learn and master, so many of us rely on parents and other adults to teach us what is important to know and practice! The problem is the subtle nuances that tend to make one rich over a period of time or trap a person in the same paycheck-to-paycheck mode, generation after generation. If you don’t want to be stuck in this mode and you want your children to succeed, this is the generation that must take a stand and get educated on what is important financially. You have to know the basics, and even if you don’t, you have to seek professional advice from a financial advisor who puts your needs and interest above all else.

If you are not familiar with most of the concepts listed above, don’t feel bad, you are in good company. According to an annual survey conducted by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at George Washington University School of Business, large numbers of Americans do not have the knowledge associated with financial decisions. The study revealed that fewer than 20% of the participants in the 2018 survey could correctly answer 75% or more of the survey questions correctly. Adds Annamaria Lusardi, GFLEC academic director, Low levels of financial literacy—not only [among] the young but also people close to retirement—show we need to step up the effort to promote financial knowledge across the entire population. (Barney, 2018)

The lack of financial knowledge continues to highlight the wealth gap in retirement as well.

According to Scott Puritz’s LinkedIn page: … the wealthiest 1% pays the lowest price for their investments and gets the best expertise. Meanwhile, hard-working Americans are paying the highest fees and getting advice from financial advisors who may not have their best interests at heart. These fees can consume up to 30% of your retirement nest egg. (Puritz, 2019)

It’s amazing that this area gets little or no attention due to the lack of knowledge. It’s not the idea that rich people are smarter than everyone else, but a matter of financial education, or in most cases, a financial team of experts mandated to decrease tax liabilities for a certain person or entity. In other words, if you can afford tax and financial attorneys, you will most likely pay a lot less in taxes due to their combined level of knowledge. The less you know the more you seem to pay.

What is the answer to this and other financial illiteracy examples? Simply put, financial education! This book will be a start, answering questions, and giving constructive advice according to the experts in the field and great business minds that I have picked and practiced through their collective written and spoken expertise. This book is just a start, an appetizer if you will allow, to a greater base of knowledge and information that will help common people like all of us who don’t have the time or resources to safely navigate the treacherous waters of the financial ocean. Basic terminology used in this book will be explained within the text or can be found in the accompanying Glossary of Terms. The many books and articles used to simplify the mounds and mounds of financial information are also included in the References section of the Appendix. These books along with many others are the meat and vegetables I used to eat a healthy meal and gain financial freedom. I used the information along with a formal education (MBA Finance and Accounting, Regis University 2008, MBA International Business, Regis University 2009) to manage my personal (401K) portfolio from a few thousand dollars in 2006 to almost $1.6 million in 2018. I will caveat this result with the fact that I have a generous benefits package from my employer who pays 16 percent, based on my salary, into my 401K.

Advice: Start early, be consistent, be patient, be unemotional, and seek professional help often!

Kevin O’Leary from Shark Tank has some simple advice for anyone who finds investing scary: Just do it. Now! (Tuchman, Kevin O’Leary ... your debts paid off by age 45, 2019)

Remember: If you change your mindset it becomes an asset!

I wrote this book after countless hours agonizing over why we are not financially literate. I didn’t know a whole lot about finance prior to attending Regis University, but I knew that a military retirement would not sustain my way of life if I had finished 20 years in the military. I did the math and I have to admit, that being forced to live in certain places because they were affordable did not appeal to my ego or manhood. After suffering through the aftermath of 9-11, the loss of our pensions, and an overall 62 percent pay cut, the common man was broke. I wanted to share with regular folks how to avoid the pitfalls that I fell into and how they can become Common Millionaires as well.

I also would like to thank my best friend and number one supporter, my wife Yolonda, for beliving in me and for putting up with my fascination with financial literacy. Many times I forget about everything and everyone else when I start teaching about finances! It will be worth it when we are all free!

Until now, your money has told you what to do and how much to work. Now we’re going to turn that around. You’ll learn to tell your money what to do and how much to work for you.

Celso Cukierkorn, Secrets of Jewish Wealth Revealed!

CHAPTER 1

BEGINNINGS

"When you sacrifice everything for your family,

and you’re committed to changing your lifestyle to secure

a better future, it is not an act of greed,

but rather an act of faith."

— Celso Cukierkorn, Secrets of Jewish Wealth Revealed!

"And we know that all things work together for good to

them that love God, to them who are the called

according to his purpose." Romans 8:28

If someone had told me a long time ago that I would write a book on financial literacy I would have called them crazy. Why would that be crazy? I grew up poor! Of course, at the time, I didn’t feel poor, look poor, or ate poorly. We were just like all the other families in the neighborhood. We lived in a modest 3-bedroom home with eight people. When I was growing up in Columbus, Mississippi, I was always fascinated with numbers. What I really liked about numbers was their consistency, no matter what. I believed my family was at a minimum, lower-middle class. I lived with my mother and father, who both worked multiple jobs along with my five siblings. I was child number five, and probably received more guidance from my father than my four sisters and older brother. (This just means I got a lot more whippings (not spankings) due to my eagerness to work and play hard, i.e. rambunctiousness.) I worked very hard in school, always trying to make 100 percent on every test and assignment, so I felt entitled to play hard and as much as I liked. The over-protective nature of my parents did not agree with my plans to play hard, so I often found myself on the wrong end of a switch when I sneaked out to play with my friends.

My brother was the oldest (nine years my senior) of the children and was already in college by the time I was able to comprehend anything financial. My four sisters (various ages), didn’t really show an interest in finances initially, except for shopping with our dear mother. I never understood shopping. Hours spent looking at beautiful things often too far outside our family budget to make them a reality. What I hated most, was the fact that after all the time spent looking, walking, and sorting over clothes and shoes, I would still end up with the same things I got every year: basic underwear, socks, a few pair of pants, and sneakers ($2 a pair) from our town’s dollar discount store! I was never disappointed with what I received, but that it took all day and we only went home after the store manager announced the store would be closing in the next fifteen minutes. I just wanted to be at home to play not going from store to store to store, just to end up in the same place, buying the same thing as the year before!

What I didn’t get at that time of my youth, was that my mother and father were teaching me valuable lessons in financial management, accountability, consistency of purpose, and the basics of wealth building by being frugal in certain areas and enjoying spending time together dreaming of the future. In other words, they were planning for uncertainty. They both had small insurance policies that were paid in full to cover burial costs and other bills upon their untimely demise. They also had excellent credit, because they always paid their bills on time. We lived well within our means and they taught us the importance of giving away ten percent of what they earned in church called a tithe. My father also told me to always pay myself by keeping at least ten cents out of every dollar I earned. The problem was they never really let me work because education came first in our household. So, in essence I never saved any money until I completed college. But it didn’t matter because in my adult life all these lessons were so ingrained in me that at twenty-one, I made my first big investment. I opened an individual retirement account (an IRA in 1982) in which 50% of all monies for the first year went to the financial planner. Yeah, I know. Something about that doesn’t sound quite right! After a few years and $75,000 later I began to manage the money on my own, after I found out that the investment advisor got paid whether I made money or not. About three years into the investment cycle my account was down $4200 for the year, but the fees on my account totaled $3200. I ask him, ‘why did I have to pay you money, but you lost money for me this year’, and he said, That’s just the way it works. I also told him I noticed a lot of buying and selling of certain stocks in my Mutual Fund that were the worst performers and seemed to cost additional fees. His response was once again, That’s just the way it works. When I told him, I was going to no longer need his services, he stated that I couldn’t do that due to withdrawal fees, I told him, Sorry, that’s just the way it works!

A recent article highlights this phenomenon:

When it comes to investment costs, the same dynamic kicks in. If you pay 2% of your assets a year to a mutual-fund manager or financial adviser, that’s not 2% of your yearly returns. People miss this in the fine print all the time. A 2% annual charge on your total assets is a lot of money. For many investors it’s thousands of dollars a year.

And it’s charged whether you have a good return, or the market sells off. In fact, over time, high-fee funds can absorb essentially all of your potential gains. You take the investment risk and the managers and your adviser keep the returns. Ideally, advisers should help lower their investment costs using index products and provide truly conflict-free advice — such as how much risk to take for your personal goals, when to rebalance, and timely financial planning ideas. Meanwhile, remember to contribute to your own future through prudent, low-cost investments. That way your money will compound into a solid financial base for retirement. (Tuchman, Kevin O’Leary...your debts paid off by age 45, 2019)

One of the main reasons I wrote this book was to shed light on the great need for financial education and freedom. For this country to be the land of opportunity, it seems to only apply to a few individuals. Our educational system has failed in the area of financial education, and because of the taboo nature of money the majority of us remain in the dark about many aspects of finances! The bible states that the Love of money is the root of all evil, (1 Timothy 6:10) but any person who