Today we went on a quick day trip to Payson, then on to Snowflake.  We’ve been wanting to check out the “new” LDS temple in Snowflake for a while now.  At least we thought it was new, but the sign said “Built 2002,” so I guess it’s been a few years now.  Anyway, it was a fun little trip, and we stopped and played in the snow outside Payson with the kids. 

Jeffrey Gitomer has a great article today in his Sales Caffiene newsletter (which I highly recommend - and it’s free!) called “Why Can’t You Achieve the Goals You Set?“  He’s talking about intention, which basically means not just setting a goal, but intending to achieve an outcome.  He points out that if you intend to do something, you do it.

Goals and intentions are linked. Intentions act ually precede goal setting. If you fall short of intention, you will not likely achieve the goal you set. What a simple, powerful concept.

It goes back to my 5 Daily Questions.  #3 is “What do I expect to accomplish (today)? (in life)?  A good friend and mentor of mine Troy Scott said this morning, “I always prayed for it, but didn’t expect it.  You’ve got to expect it.”  It really comes down to intending  and expecting to achieve.  You can’t think of your goal as a pie-in-the-sky dream, or a far-off fantasy.  You’ve got to make it real for yourself. 

I’m not pretending to be an expert on this topic, I’m just a student of it.  As I set goals for myself, and then either succeed or fail, I’m learning every step of the way.  Let me just share a few links to other articles I think you will enjoy.

• Steve Pavlina: Manifesting Intentions.  I especially like his story about the old TV show “The Greatest American Hero.”  He says:  “If you aren’t familiar with the show, it’s about a high school teacher named Ralph who gets a visit from a UFO. The aliens give him a super suit which gives him powers, including flight, invisibility, and psychometry. The only problem is that he loses the instruction manual that came with the suit. So while he’s able to figure out and use some of the powers, he does so very badly. When he flies he’s always flapping his arms hysterically and crashing into things like walls, trees, and cars.”  He points out that our use of goal setting is like Ralph and the super suit: we use it, but badly because we don’t really understand the power behind it.  (Also make sure to follow Steve’s links to other articles he has written on related topics, and listen to his podcast called Faster Goal Achievement.)
• The Secret is a movie that’s been getting a lot of press lately.  I’m not going to do a detailed review of it here, but you should check out: The Secret To You, which is just a little 2 minute clip to help you get into a positive (or expectant) frame of mind.  If your goal is money related, you should also check out The Secret To Riches, which is a short 2 minute clip that does exactly what we’re talking about: adjusting your frame of mind to expect money to flow to you.  It makes sense if you think about it.
• My first “Ah-hah” experience related to goal achievement came the first time I listened to Earl Nightingale’s audio program Lead the Field.  Follow the link and scroll down to where it says “Listen to a sample.”  Click on “We become what we think about,” and you’ll get a quick piece of free advice from Earl.  Really, if you don’t already have it, you need to buy the program.  It’s only $40, and just listening to Earl Nightingale will change your perspective on the value of life, and the limitless potential each of us has.

I received a nice email today about a couple of my first posts to this site.  Apparently, I didn’t credit the right people for their contributions: 

I’m the publisher of BTN.  My law firm sent me an email last week and questioned your use of my material on your blog (http://www.theequityadvantage.com). 

You’re obviously not a subscriber of mine, so I’m wondering why you have ignored the “reproduction prohibited without express permission” warning on the MMG website where you read my copyrighted work? 

Your use of my bullets is an infringement of my copyright.  The MMG website is very clear about your usage of my copyrighted material.  Reproduction is prohibited without express permission.  Please remove my material from your website and do not post any other bullets in the future.

Well, you can’t argue with an email like that.  And I never meant to steal anyone’s content or infringe on any copyrights anyway, so I’ll consider it a lesson learned.  The posts he was referring to (entitled “Interesting Facts”) are gone now.  There was one other post where I used his information (see here), but I got rid of the bullet points and paraphrased the important parts.  I still read “By The Numbers” every week, but from now on, I won’t be sharing!

1. Although 90% of respondents plan to retire, 22% have not yet taken any steps to prepare for retirement 

2. Only 10% of respondents said that they have worked with a financial advisor or other professional to develop a retirement plan

3. 65% of respondents expect Social Security to be their primary source of income during retirement

 I think it’s pretty amazing that everyone wants to retire, but hardly anyone really plans for it.  And what kind of standard of living do you really expect to have by living off of Social Security?  I’m no expert, but I don’t think it’s going to be too good.  That’s why we see so many “retired” folks working at Wal-Mart.  Do you think that’s how they envisioned their retirement?  Do you think that at age 25, they thought about their future and said, “Gee, I never want to retire.  I always want to work… until the day I die.”  Maybe, but I doubt it.  And even if you think you’ll never want to stop working, trust me, the day will come.  When you get up in the morning knowing you’ll be spending your day standing in the dirty, drafty entryway to a discount store arranging shopping carts, you’re going to wish you had done some more planning. 

The statistic said 10% have consulted a financial planner, but I bet it’s actually less if you surveyed just the middle class.  And you can’t count your company’s 401k administrator as a financial planner.  You’ve got to sit down with someone face to face and put it all out there.  Give them a clear picture of your financial status, as well as your goals for the future, and then let them advise you on how they can help you get where you want to go.

I’ve met with a few financial planners recently, which has really gotten me thinking.  I think I’m going to do a series of posts on “How to Find the Right Financial Planner For You.”  There’s a lot of wierd ones out there, and I’ll share my experiences - what’s worked and what hasn’t.

Anyway, remember:  If you fail to plan, you plan to fail.  I think it’s better to plan to succeed.  If you still fail, at least you know you tried.  Right?

Fed Chairman Ben Bernanke made some comments I found pretty interesting in his speech yesterday.  He said:

“A key observation is that over the past few decades, the real wages of workers with more years of formal education have increased more quickly than those of workers with fewer years of formal education.  For example, in 1979 - median weekly earnings for workers with a Bachelor’s or higher degree were 38% more than those of high-school graduates with no college experience; last year, that differential was 75%.” 

I think that’s a pretty incredible statistic, and it surely highlights why so many parents want to send their kids to college.  In my work, I see a lot of people’s income and education numbers.  But let me tell you that education does not always equal a higher income.  I’ve seen plenty of people with no more than a high school education who are earning what I consider really “good money” (at least $150k/year +).  Keep in mind that this is just my observation.  I don’t have all the resources of the Fed, and this is by no means a scientific study - I’m just telling you what I’ve seen.

Most people I see with college degrees, unless they are self-employed, earn in the range of $60k to maybe $110k a year.  And that doesn’t matter if it’s 4 years of college or more.  In thinking about why that might be, one thought that came to mind is those  commercials on TV for colleges and technical schools.  What’s their message?  What are they advertising?  They’re selling that going to college is the way to get a better job!  They’re basically saying, “If you attend our school, you can get a higher paying job.”  I think students who treat college as nothing more than training for a better job are the ones who are most likely to earn average incomes. 

Now, don’t get me wrong - I believe in education.  I think people should get as much education as they possibly can.  The point I’m trying to make is that you can’t blame a lack of education on your low income.  Maybe the real killer is a lack of education coupled with a lack of vision and goals.  The people who make the money are those who decide what they want to do, and then do it. 

So what does make the difference?  I think it’s what Les Brown calls “being hungry!”  Like I said before, it’s having in mind what you want to do, and then going for it.  If you’re really “hungry” for it, and you put real passion and energy into it, you will get it - regardless of your level of education.  That’s the difference.  It’s living with passion - putting it into your work.  And that’s not something they teach you in college. 

While we’re on this subject, one other interesting difference I’ve seen in studying so many people’s tax returns is the source of income.  I’ve noticed that low and average income earners tend to have a huge majority of their income on line 7: “wages, salary, tips, etc. from form W2.”  With people who are well off, I almost always see more scattered income: interest income, dividends, business income, capital gains, rental real estate, royalties, partnerships, S corporations, trusts, etc.

And actually, now that I think about it, it’s not just people who earn high incomes - it’s people who are “well off”.  Because there’s certainly plenty of people who make good money but don’t have money - it’s the Rich Dad Poor Dad comparison.  It’s not just about how much you make, but about what you do with it.  That’s a whole other discussion, but I think it’s interesting to point out that the key to making money isn’t how much education you have.  Certainly education is helpful, but on it’s own, a college education won’t make you rich. 

That said, I’ve got to run to class.

Well I’m on the road with the family this weekend.  The digital camera is broken at the moment, so you’ll have to endure some cheap camera phone shots.  We drove from Phoenix to Denver with only 2 stops.  Heading back tomorrow.  I sure love the open road!

I was talking to a client the other day, and it got me thinking.  She’s in her fifties, divorced, kids are grown; has been at the same job for the last 30 years with no plan for any change in the foreseeable future.  Over that 30 years, she’s managed to save about $60,000 in a 401k (well, minus about a $12,000 401k loan that’s outstanding).  She came to me for a mortgage.  What she didn’t know is that when you come to me for a mortgage, you’re going to get the full range of questioning - not just about mortgages, but about financial habits, retirement plans and investing, etc.  I’m not going to go into full detail about the conversation, but I asked her about her retirement plans, and her answer was basically, “I’ve never really thought about it that much.”

Here’s a person who is rapidly approaching retirement age, incredibly unprepared.  And it made me think - wow, this is a perfect, real world example of what’s probably a very common tale among the baby boomer generation.  So why is it that so many of us put off planning for retirement?  I think there are a couple of reasons.  

1. It’s the unknown, so it’s scary.  First off, most of us don’t know exactly what it’s going to take to retire.  In terms of money - how much are we going to need in order to be comfortable, and not have to go back to work?  And what about not working - are we really going to stop working?  What the heck would we do with our time?  Another thing is that no one can really predict the future.  Who knows exactly what’s going to happen in terms of the economy?  World events?  Terrorism?  Maybe the world’s going to end anyway, so what’s the point?
2. I think most of us secretly believe we’re going to win the lottery.   Or maybe that a rich uncle we didn’t know existed is going to leave us his millions.   Or some other miracle is going to come to our rescue anyway, so really, planning for retirement is not necessary. 

Does that hit home with you at all?  I know it does for me.  The problem with this line of thinking is that you can’t count on the unexpected windfall.  And just because there’s a chance the world may have been nuked before you’re ready to retire - there’s an even better chance it won’t be!  This isn’t a dress rehearsal for your life - this is your life!  Don’t leave it up to chance.

Another interesting fact is that 85% of lottery winners just spend the money buying stuff.  All the money.  A large portion of them end up broke again - just like before they won the money.  Now, that’s a whole other discussion, but the point is that by sitting around waiting for something great to happen, you’re just sealing in the bad financial habits that are going to keep you broke throughout your working life, and keep you working throughout retirement. 

President Theodore Roosevelt once said, “No battle was ever won without a plan; and no battle was ever won according to plan.”  It’s not important that you set goals today and never change them.  What’s important is that you have goals, and you’re working toward them. 

My personal income goal is $240,000 a year, or $20,000 a month.  And my retirement goal is to to continue earning the same $20,000 a month throughout retirement as passive income from my savings.  In order to make that happen, I figure I need $4 Million in my retirement accounts earning an average of 12% annually.  Then I can basically withdraw the interest, leave the principal untouched, and live forever without ever running out of money.  In order to get there, my plan is to save $6,000 every month until I’m 45.  That’s my goal.  I’m hoping what will actually happen is the rich uncle scenario, but until that happens, I’m sticking with the plan. 

I found a new book on Amazon that looks interesting. I just read the first few pages, but now I’m going to have to order it. It’s called “Stop Sitting on Your Assets: How to Safely Leverage the Equity Trapped in Your Home and Transform It Into a Constant Flow of Wealth and Security” by Marian Snow. Let me quote from page 16:

Alan Greenspan, former chairman of the Federal Reserve Board, tallied the total value of Americans’ homes to be over 16 trillion dollars, but went on to say only 7 trillion dollars exists in mortgage debt against those homes.

What does this tell us? We keep obscene portions of cash lying dormant. As a whole, our country has 9 trillion idle dollars trapped inside the walls of our houses. That’s not millions, not billions, but trillions of dollars bricked into the hearths, stuffed in the mattresses, and otherwise buried in the backyards of our American homes.

I thought building equity was good. How can it be bad?

Idle home equity is the largest unemployment crisis imaginable! We’ve got over 9 trillion dollars in non-producing capital tied up in the equity in our homes, yet we have entire generations approaching retirement with little or no savings. Why do we do it? We’re giving ourselves a false sense of security by keeping the majority of our assets inside our walls. When illness, disability, unemployment or other such events strike us, most people are left unable to get a loan to access their cash. Most banks and mortgage companies require evidence of a monthly income in order to obtain a loan. If we’re left with no income, even temporarily, getting a loan becomes extremely difficult, expensive, or even impossible for many of us. Do you see how this puts a wall, so to speak, between us and our cash? We are left exposed. In that vulnerable position, the possibility of us losing our home through foreclosure or sale becomes very real.

Adding to the liquidity risks and lack of safety, vast fortunes have been lost and will continue to vanish because of missed opportunity costs. The cash buried in home equity could instead be working to earn a compounded return, dramatically changing our lives. Millions of Americans live under the poverty line yet have homes that are paid off. What relief, assistance and comfort those assets could have provided if home equity had only been managed more effectively.

The majority of homeowners, financial planners, and even personal finance authors falsely believe that borrowing money and then investing it at the same or lower rate holds no potential for improvement of your personal wealth. They don’t know what they don’t know.

Securing your critical cash in a protected side account to earn a tax-sheltered and compounding return holds the potential for tremendous profits. The relative interest rates of the times do not affect the success of this strategy. When mortgage rates are high, interest yields are high. When mortgage rates are low, the relative earnings move in lockstep. It works in all market situations.

How Can So Many Be Losing So Much?

Outdated guidance. Pure and simple. Most of us receive direction from well-meaning parents, lacking yet concerned advisors and volumes of published advice from ill-informed gurus and media warriors out to protect the little guy. Where do these soothsayers get their information? History.

Ancient wisdom, that’s it. It’s just a reliance on what they learned from their own well-intentioned parents, conventionally-trained advisors and textbooks of supposed traditional knowledge. They are going through life, all too often, failing to look beyond the accepted way of accomplishing a goal. This causes them to overlook and miss out on even better methods of achieving the desired end. They’re simply oblivious to the reality that innovations in the financial community bring new and improved ways to accomplish wealth success.

The ideas this book presents are what I would consider to be central fallacies of the conventional wisdom of our day. We’ve all been taught that the safest thing to do is to own our homes, and own them outright. Aggressively pay down principal in order to kill the “mortgage monster” because paying interest is a waste of money. I hope you will take a few minutes to think it through. Read through some other articles on “Equity Management” on this site. Read some great books like Stop Sitting On Your Assets, Missed Fortune 101, and Ordinary People, Extraordinary Wealth. It’ll be worth it - guaranteed.

Lynn Swaney gave an excellent speech today at Toastmasters that, I think, ties into personal development and the law of attraction in a truly unique way.  Lynn is a decorator with incredible passion for what she does.  Just to give you an idea of how passionate she is, she started her speech by saying that she absolutely believes decorating saves marriages, saves businesses and saves people’s lives; and she was going to prove it.

I have to admit, that got me skeptical, but I was also interested to see how she was going to try to justify that kind of opening.  I’m happy to report, though, that she pulled it off beautifully.  I’m not going to try to rehash her whole speech, but I do want to relate one of her stories, and dive into how I felt it related to the law of attraction. 

Lynn related a story of a friend of hers who lived in Chicago.  This woman was going through some very tough times.  Her husband, who she was very in love with, suddenly announced that he was seeing someone else, and he wanted a divorce.  She was in a job that she hated and that paid low wages.  She was living in a horrible little 2 bedroom house in a bad neighborhood, which meant her daughter would have to go to a bad school.  To top it off, the city of Chicago was in the middle of race riots at the time, which made the atmosphere even worse. 

Being a decorator who truly believes in the life-changing power of her craft, Lynn decided she was going to go out there and “save the day” by decorating her friend’s house.  That was going to change everything - that would give her a place of solace in these turbulent times.  Well, when she got there, she found that things were worse than she had expected.  Not only was it a drab little house, but her friend was actually living out of boxes - literally.  She was refusing to let the kids unpack anything, and they were even using wardrobe boxes for closets. 

Needless to say, Lynn was not going to let that continue.  However, her friend vehemently refused to let her make any changes.  She wouldn’t let her decorate. No drapes, no furniture, nothing that would make it into an environment that felt “permanent.”  What Lynn said she didn’t realize at the time was that her friend wasn’t refusing to decorate the house.  The house already was decorated exactly how she wanted it.  

She went on to explain that the friend was in the process of interviewing for the job she really wanted - a job with the city.  She got called back for her third interview - this time with the real decision maker.  Going in, she thought she had it made.  This guy wouldn’t trouble to meet with her unless he was going to hire her.  What she didn’t know was that the only reason the man wanted to see her was that over the last few months, as she had been in the process of looking at houses, and scouting schools for her kids, she had logged several complaints to the city about different problems she saw.  The only reason this guy called her in was he wanted to meet this lady who was filing complaints and applying for a job at the same time! Well, as it goes, in the process of talking with her, the man realized how right she was for the job and he hired her. 

With the better pay, she was able to move out of the horrible little house into a better neighborhood with better schools. 

Nice little story.  The thing that impressed me was that, just like Lynn said she later realized, her friend wasn’t not decorating.  She had decorated her surrounding the way she thought they should be. In her mind, she had already gotten the job - she knew she was moving.  So the boxes needed to be packed.  That little 2 bedroom was temporary.

I think that’s a great life lesson.  Decide in your mind, and then decorate your life with the things you want around you. 

The title of our site: “The Equity Advantage,” refers to the advantage of using your home equity as part of your overall financial plan.  I think it’s safe to say that most middle class American families, and even a large portion of the financial planner population, don’t think about home equity when considering the family’s financial plan.  People feel “safe” if they have a little equity in their home.  And planners, many times, will just leave the home equity alone.  I think this is a huge mistake.

Gary Artford is one of the top financial planners in the country.  I’ve tuned into conference calls where he has been featured, and always felt like he was talking right to me.  He has the incredible ability to explain complex financial matters in a very simple and easy to understand way.  Here’s part of a transcript from one of those calls that relates to using home equity as part of a financial plan.    

Quite honestly, I will tell you, that paying off a house is just about the dumbest investment and tax decision you can make.  And yet we in the middle class were trained to do the wrong thing by people who loved us. Our mentors were our parents and grandparents, and they had been taught to do it a certain way, therefore we were taught to do it a certain way, and it wasn’t the right way.   

Then there is the issue of safety. We all think - coming out of the middle class, that it’s safer to pay off the house, and it’s actually riskier.  Consider the example:  You have 2 people, both with a $400,000 house, they both start with the same mortgage.  One person has been making extra mtg payments for years, while the other one has been putting money into a side account. When they both lose their jobs, they still have the same contractural mortgage payment.  The person who has been paying a lot of extra money into the mortgage, is at a much riskier position than someone who has not.  They don’t have the cashflow to make the mortgage payment, wheras the person who has a side account can continue making the mortgage payment.  Also, think about how bankers think.  You cannot go to the bank now that you’ve lost your job and say, gee I’d like to get some equity out of my house now.  Because you don’t have any income.  The other side of it is that the person who has lots of equity in the house is at great risk of being foreclosed upon.  Now this is counter-intuitive, but you need to understand it.  The person that has lost their job and still has that payment is now in a situation  where the bank can foreclose on them, discount the property (because the bank doesn’t want the house - they want to be able to make loans).  So they are going to foreclose on the person with lots of equity, discount it, sell it, and that person has lost their house.  Wheras the person with very little equity - the bank HAS to work with them, because if they foreclose, they are going to take a loss.   

The more equity you have in any asset, the lower your return on equity will be.  So if you have a home that is worth $400k, and is going up 4% a year, it is going to make on paper $16,000 a year, or a 4% return on equity.  That’s what I call going broke safely with stabiltiy.  After you subtract taxes and inflation, you are actually under water.  Now own the same $400k home, but only leave 20% in equity.  You are still making $16,000, but you only have $80,000 equity in the property.  So you are now making a 15 or 20% return on your equity instead of 4.  You just turned that real estate into an excellent Return On Equity asset.  Then you take the $320k that you could have invested in the real estate, and you get a typical stock market return of 9-10%. So now you are making an extra $32k a year.  If you compare that, and then look at the cost of the mortgage, you will find that you can make the mortgage payment and still have extra cashflow for investments or standard of living adjustments.   

  

So you end up with greater diversity of asset - would you rather have one piece of real estate (one asset class) in one geograhic area of the world, or would you rather diversify against many classes of asset in many areas of the world.  You tell me which you think is safer.  Because we’ve all been taught to diversify, and when it comes to our houses, we’ve been taught exactly the oposite.  

The key to this is, frankly, to keep your mitts off the money.  Most of the middle class takes equity out of their home for the purposes of buying an RV or a boat, or paying off credit cards they shouldn’t have run up in the first place.  Then 3 years later they’ve run the cards back up again and they have to go back to the well. So the key to this is that you have to use the money intelligently to make all of your assets grow, and once you’ve hit the goal, then it represents money you can spend.  And then it becomes safer, not riskier.  Much safer.  And by the way, being wealthier is the safest thing you can be.

We run our financial planning analysis with and without the use of real estate equity to help them hit their goals.  For over 80% of my clients, they cannot reach their retirement goals if they pay off the house.  So we’re literally faced with the certainty of failure, or if they do it our way, the high probability of success.  So that is what we do for people.  My job is to help people become better off so that when they first walk off their job some day, they can stay that way. 

Well put, sir.  So with that in mind, the Equity Advantage is the ability to reach your retirement goals the fastest and safest way possible.  The Equity Advantage is the high probability of success.  The Equity Advantage is retiring rich AND enjoying the process!

More to come!