The difference between Wealth and a Rich Life…

This week’s post is an article written by Alexander Green. I loved his message and had to share with you. Enjoy!

Over the years, my idea of what it means to be truly wealthy has changed a great deal.

As a young man fresh out of college, I equated wealth with a high income -- and soon found myself in one of the nation’s highest paying professions: money management.

It turned out I had a knack for it. Before long I had the spanking-new lakefront home, the ski boat, the Jaguar XJ-6 and all the other toys. When my friends came over for parties -- which were frequent -- most of them assumed I was rich.

I was nothing of the sort. Wealth is not the same thing as income. If you earn a lot of money and blow it every year, you’re not rich. You’re just living high.

My perspective evolved. I recognized that wealth is not about what you earn or spend. It’s about the financial assets you accumulate and the debt you avoid (or pay down). Your balance sheet -- not your income statement -- is the true measure.

Of course, idealists will tell you that money isn’t important, that it doesn’t really matter. I disagree. Money gives you the freedom to make important choices in your life. No one is truly free who is a slave to his job, his creditors, his circumstances, or his overhead. Money allows you to support worthy causes and help the less fortunate. It allows you to do what you want, where you want, with whom you want. In short, money gives you options.

It has its limitations, as well. Money doesn’t buy genuine love or friendship. (In fact, it may bring you just the opposite.) It won’t restore your health, fix your marriage, turn you into “a success,” or even make you charitable if you’re not already charitably inclined.

Money alone doesn’t make anyone wealthy. True wealth is a life rich in love, friends, projects and interests.

Like me, you may know high-net-worth individuals whose lives are impoverished. They are so obsessed with competing, winning and having “more” that they have little time for anyone or anything else. Other economically successful people are less obsessive but remain trapped in stressful, hectic lives. They lack something far more precious than money: time.

This is a bit odd when you think about it. Our ancestors just a few generations removed walked or rode a horse to work (where they often performed backbreaking labor). There were no automobiles, airplanes, cell phones, or computers. They couldn’t have imagined labor saving developments like dishwashers, microwaves, supermarkets, or the Internet. Yet they still found time for leisure -- and would no doubt be mystified by those today who choose to live their lives in a perpetual rush, as if being busy every minute of the day is a sign of success.

If these folks slowed down a little, they might gain a deeper understanding of what is driving them. Is it the intrinsic and monetary rewards of their work? Or is it fear, greed, envy, reputation, status, or some blinkered image of success?

What does it matter how much you make or how prestigious your title is if you spend your days rushing from one appointment to the next, pressured by deadlines and continually interrupting conversations and meals for emails and phone calls? That is not a rich life. Nor is it a terribly attractive image. As an old Chinaman once observed, “man in hurry cannot walk with dignity.”

True, we live in a competitive, 24/7 world. We all have responsibilities and obligations. We want to be productive and meet our professional goals. But that’s just the point, really. It’s a matter of balance -- and making a priority of what matters most.

You may know from my other letters that I am a huge fan of Thomas Jefferson. He was a statesman, historian, surveyor, philosopher, scientist, architect, inventor, educator, lawyer, farmer, breeder, manufacturer, botanist, anthropologist, meteorologist, astronomer, paleontologist, linguist, Biblicist, mathematician, geographer, scholar, bibliographer, translator, musician, gastronome and the nation’s first great connoisseur of wine. He authored the Declaration of Independence, was Governor of Virginia, served two terms as President of the United States, founded the University of Virginia and much more. Despite his many accomplishments, Jefferson noted near the end of his life, “Nothing really matters except your family and your friends.”

Our most precious resource is the short, unknown time we have left on this little blue ball. It is perishable, irreplaceable, and, unlike money, cannot be saved. Americans live, on average, just 28,000 days. That gives us, if we’re lucky, roughly 443,000 waking hours. (And most of them may be behind you.) So it behooves us to ask, “Am I using my time well?”

Surveys show that more than half of Americans feel rushed, stressed and pressed for time. How do you regain control? In much the same way we create investment capital…

You’ve probably heard that to become a disciplined saver you have to “pay yourself first.” That means setting aside at least ten percent of your income before you pay the rent, buy the groceries, or hit the mall. If you wait until you’ve bought everything you want, there is usually little left to save. To avoid this, we pay ourselves first.

Time is similar. If you intend to spend more time on leisure, or with your closest friends and family, or in other high-value activities once you get everything done, that moment remains elusive. Important but less urgent activities take a back seat to urgent but less important ones. So we have to make first things first. (Follow through, of course, is everything.)

In sum, a genuinely rich life is not about income, assets, or possessions. It’s about living your life your way.

Money helps. But that is a secondary consideration. How you spend your time is the first.

Carpe Diem,

Alex

Alexander Green is the Investment Director of The Oxford Club. The Oxford Club Communique, whose portfolio he directs, is ranked among the top 5 investment letters in the nation for 10-year performance by the independent Hulbert Investment Digest.

It’s all going to be okay…

Given what is happening in our world these days, it’s easy to get stuck. Stuck in the unknown, stuck in fear, or stuck with worry…it tests us all. If we allow ourselves to only focus on the challenges and tragedies, our days can become very bleak.

I’m not suggesting we ignore what is happening around us. Quite the contrary, I feel we should take action to help those around us in every way possible. Whether it is our time, our money or our prayers, we should help.

So, where am I going with this? Over the last several years we have been bombarded with the financial crisis. It would be literally impossible to turn on the news without some sort of story related to our economic challenges. No doubt, we have had some difficult times.

But, I’m here to share some inspiring news! Here’s some statistics that I think will make us all feel better. As you probably know, in 1932 the U.S. experienced the Great Depression. Did you know that in the subsequent 5 years, the market experienced a 194% return? Exciting to think about, isn’t it?

In 1982, the U.S. had the worst recession it had experienced in the prior 25 years. But, in the subsequent 5 years, the market experienced a 183% return!

Here’s one more. In 1994, the U.S. had a dramatic tightening of interest rates, (which means interest rates were going up). In the following 5 years, the market experienced a 213% return! Wowza!

Even in our difficult times, we have rebounded, and rebounded nicely. Look to the future with optimism and hope, as we will surely look back at this time in history and appreciate the healthy rebound. It’s all going to be okay…

Control? Yes and No…

Two weeks ago, on a quiet Saturday night, I got a phone call from my nephew. Being the prankster that he is, I normally take what he says with a grain of salt. “We have a little flooding problem over here and mom needs you to come over.” Not taking him seriously, I calmly said, “Devin, really?” “Yes, really” he says. We repeated these same words three times before I realized he was serious.

As I jumped in my car, I still wasn’t 100% convinced he wasn’t pulling another prank. Then I walked into their home. My sister was devastated, as she watched the ‘rain’ from the second story continue to fall onto our grandmothers antique dining room set. We moved as fast as we could to remove belongings, dry furniture and figure out what to do next. All the while, I just held my sister, telling her this was just temporary. We would get everything repaired and before she knew it, her home would be her castle again.

Like me, her home is her sanctuary. It’s the place we go to when we need calm and quiet. It’s a peaceful feeling when our home is clean, free of clutter and everything is in its proper place. We are in control. Or are we? Yes and no.

To think that we have total control over everything in our lives is a bit ignorant. At least in my opinion. We don’t. And that alone can make some people go nutty. As a control freak myself, I oftentimes struggle with this myself. But, here is how I find my balance.

First, I’ve learned to let go and hand over my issues to God. If that offends you, I’m sorry. But, finding a higher source to lean on, gain strength from and get direction from is, I believe, the first step towards finding peace. Whether you are dealing with a flood in your home, a health scare or money challenges, finding a source of strength, other than yourself, is paramount in getting through it.

Second, with those issues you do have control over, take the bull by the horns. For example, if you have money challenges, such as mounting credit card debt, take proactive steps towards resolving this. Contact your creditors and try negotiating lower interest rates or do a balance transfer to a zero percent interest rate card (Citicards and Discover have some nice offers right now). Then, cut up your cards. Don’t close the account, as this will oftentimes lower your credit score.

Another aspect you do have control over is your mindset. If you think you’re set up for failure or set up to succeed, you are right. Having a positive mindset, despite the bumps, will carry you through difficult times. Read uplifting books or get involved with an activity that brings you absolute joy. It’s not always easy, I’ll give you that, but perseverance and a positive attitude will take you farther than you ever thought possible.

If you learn to let go of those things you can’t control, master those issues you can control and enjoy the journey along the way, you will create a life of joy and peace. Despite the unexpected floods.

Peer pressure and patience…

Shortly after the holiday break, my son came home from school, excited to tell me all about the new phones his friends got for Christmas. “They’re so cool mom, the phones have the capability to do…” he went on to share all the latest and greatest phone features known to mankind. He pleaded with me to upgrade his phone, before the contract allowed for an upgrade, just so he could have all the bells and whistles these new phones have to offer.

If it isn’t a cell phone upgrade, it’s a new outfit or a trip to the sporting goods store. I hear it from parents all the time. Seems that our kids want and want and want. Don’t get me wrong, there’s no harm in wanting. We all want, even as adults.

But, prioritizing our wants, separating those wants from our needs, and focusing on long term financial wealth is oftentimes difficult for adults, let alone our kids. But, prioritizing and focus we must!

Part of that challenge is the peer pressure our kids experience at school. Kids can be tough on each other; being popular, accepted and liked today are far more important than any issue in the future. Trying to convince a teenager that they should be saving for college, a house, or “just to have money in the bank”, rather than buy the latest gadget or pair of jeans is no easy task. Believe me, I’ve tried.

So, what is a parent to do to drive this point home?

First, acknowledge your teen’s feelings and let them know you once felt the same way. If you have an example to share from your younger years, tell them about it. Showing them you understand how they are feeling will help drop their walls.

Second, talk about the importance of balance. Sure, they can want, and have, the latest gadget, once they can afford it. Make them pay for it, once they have also socked away some money in savings. This teaches them several important lessons: one, delayed gratification; two, the importance of savings; three, balance is critical.

Third, lead by example. When you want something, but can’t quite afford it just yet, use the opportunity and discuss the situation with your kids. Show them how, you as a parent wants something, but you aren’t running out and buying it. You must practice what you preach or your kids will catch you every time.

In the end, peer pressure is a fact of life we can’t escape. As adults, we experience this as well, just on a different level. As we get wiser, we don’t let this nonsense get to us. Meanwhile, pack your patience and keep the lines of communication open.  Needless to say, my son never got a new phone.

Should I pay off my mortgage?

Here is the question I was asked recently:

Is there an advantage to paying off your mortgage when you are in your 70′s with financially stable monthly income and retirement savings?  House is worth about 1 million and I owe $300,000.

First, I would like to say, well done! You’ve obviously done a great job of managing your money wisely.

Your question is a good one, with several factors to take into consideration. From a purely financial perspective, I recommend you contact your CPA to determine the tax consequences of paying off, or not paying off, your mortgage. Depending upon your income, tax bracket and other deductions, it may, or may not, make sense to pay your mortgage off.

From an emotional perspective, many find a sense of peace knowing the house is owned free and clear. They know the equity will be passed onto their heirs, without concern of debt issues. If you are one to feel at ease, knowing you have no debt, then paying off your mortgage may make sense, assuming of course, it doesn’t take a big bite out of your remaining assets.

Having said all that, I do have additional points that I think you should consider. Suze Orman would have my head for what I am about to say, but I’ll say it anyways. Although owning a home free and clear does bring a sense of peace, it may not be the best use of your funds. Here’s why: if the majority of your assets are tied up in your home, you may not have access to money when you need it most. If you needed funds for a medical emergency or if Mother Nature decided to surprise you with an unforeseen disaster, you cannot get to that equity immediately. Cash is king!

The other consideration is the interest rate on your mortgage. If your interest rate is very low, you may be borrowing cheap money. Perhaps you can put that money to better use by investing those funds in the stock market, real estate market or a business, rather than paying off your mortgage. Don’t get me wrong, I am not saying you should leverage your home to the hilt to invest in risky alternatives, especially at this time in your life! Capital preservation is paramount at any age, but especially in your golden years. But, making your money work for you is a wise investment strategy, so do weigh all your options.

Many factors go into this decision, as mentioned earlier. You must consider the amount of liquid assets in your portfolio, your present living expenses, interest rate on your mortgage, tax consequences, risk tolerance, age, and alternative uses of your funds.

Please discuss these details with your accountant and financial advisor, as these individuals know your personal circumstances. Doing this homework before you make any major decisions is always a must.

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