A clear, personal, step-by-step plan to achieve financial freedomfor yourself and your community
Financial planning isn't easy – especially when you're trying to overcome destructive spending habits, accumulating debt, and ever-increasing household budgets. Ryan Mack, Wall Streeter-come-financial advisor, has written LIVING IN THE VILLAGE for those who need a clear, accessible and tangible plan for getting personal finances in order once and for all. In a frank, accessible voice, Ryan C. Mack provides simple, easy-to-understand financial advice that you can implement right away. He developed a seven-step plan, featuring critical advice for:
- Eliminating debt
- Improving credit
- Creating an emergency fund
- Maximizing the company retirement plan and IRA
- Avoiding financial predators
- Diversifying your investments
- Establishing a financial legacy for future generations
Each step of the way, LIVING IN THE VILLAGE not only educates you about financial planning tricks and pitfalls, but also, through numerous personal testimonies from ordinary people doing extraordinary things in their communities, shows you how to give back and contribute to the economic advancement to your community.
|Publisher:||St. Martin's Press|
|Product dimensions:||6.00(w) x 9.25(h) x 0.75(d)|
About the Author
RYAN C. MACK left his job on Wall Street with the goal of educating people of all income levels about fiscal responsibility. As President of Optimum Capital Management he has created financial workshops/programs and provided keynote presentations nationwide for Harvard University, National Association of Real Estate Brokers, Housing Preservation and Development, NAACP, NASA, Microsoft Inc., Deutsche Bank AG, AFL-CIO and many more. Mack has been a featured financial expert and commentator on CNBC, CNN, FOX, BET, GMTV, and The Wendy Williams Show.
Read an Excerpt
Living in the Village
Build Your Financial Future and Strengthen Your Community
By Ryan C. Mack
St. Martin's PressCopyright © 2010 Ryan C. Mack
All rights reserved.
It Takes a Village to Raise a Child
AS I WRITE THIS, I AM WATCHING YET ANOTHER NEWS STORY COVERING THE UNCERTAINTY of the global economy. Rising food prices, record home foreclosures, closing manufacturing plants, and spikes in unemployment rates are a just a few stories that cause Americans to worry about our economic futures. But if we can learn from our past financial crises, we may be able to avert crises in the future.
Let's start with the Great Depression (1929-39). Ignited by a worldwide economic downturn, it had its beginning in the United States with the stock market crash on October 29, 1929 (known as Black Tuesday). In the United States, consumers cut expenditures because of the losses suffered in the market, and this loss of revenue was compounded by a severe drought that ravaged the agricultural heartland starting in 1930.
Despite the great uncertainty and stress, this country pulled it together for World War II, beginning in 1939, which marked the end of the Great Depression. With no "bright sky" in sight, businessmen and women didn't allow the massive national debt and heavy new taxes resulting from the large expenditures on the war to discourage them. They worked overtime, gave up leisure activities, and graciously accepted rationing and price controls in full support of the war. Businesses took advantage of the tremendous demand for war supplies and were awarded government contracts, which created a lot of jobs. With 11 million men serving in the military, there were not enough male workers to fill the jobs. So women took those jobs, learning new skills and supporting the country through this hard time with their strength and diligence. The entire country banded together to see America through yet another tough economic time.
More recently, there was the dot-com bubble that existed between 1995 and 2000. In 1995 the United States was coming off one of the most successful recovery periods in U.S. history. This was a period of low inflation, a balanced budget in 1998 (budget surpluses in 1998 through 2000), with relatively less government borrowing leaving more resources available for business investment, low interest rates (which encourage business growth), strong consumer spending, low unemployment rates (4 percent in 2000), and continued gains in disposable income. The gross domestic production (GDP) grew at an annualized rate of 8.3 percent in the fourth quarter of 1999. The strong economic expansion fueled investment in the stock market. Many start-up Internet companies were the beneficiary of this increased investment.
When the country's most followed stock indexes, such as the Standard and Poor 500, hit an all-time high in December of 1999, Federal Reserve chief Alan Greenspan characterized this influx of capital into U.S. markets as unsustainable. He saw that many of these start-up Internet companies were not only not making money, but were not even real companies. The public listened to Greenspan and realized that growth was not sustainable at current levels, and the dot-com bubble began to burst.
Companies once valued at $10 to $15 per share were selling at over $100 per share. Yet as the stock market began to retract to fair market valuations, many began to suffer from losses. This caused people to stop spending as much money, and companies found themselves stuck with a lot of excess supply (paid for with a lot of debt). By the fall of 2000, one noticed increased filings of bankruptcy, decreased manufacturing production, and a decrease in employment. Soon after, the entire economy was in recession.
This recession served as a steep learning curve for America. The burst of the dot-com bubble forced companies to better scrutinize their investments. Investors gave up on attempts to make a quick profit in unproven companies and instead sought out long-term growth opportunities in companies with positive financials and a successful history of earnings. A wave of accounting scandals also caused corporations to become more diligent with their records and prudent with their capital expenditures. Investors saw the importance of diversification into other assets besides stocks, which caused significant growth in both the real estate and commodities markets. The result in 2003 was the beginning of one of the longest bull-market rallies in U.S. history.
Fast-forward to 2010, when once again the economy is slowly recovering from a serious downturn and many are worried about the future. The recession of 2007-8 was caused by a perfect storm of three things:
1. Too many individuals caught up in the overhyped real estate market who purchased homes before they were ready.
2. Too many corporations that sold mortgage loans that shouldn't have been sold. Too many then packaged these high-risk loans as securities and sold them in secondary markets. This made them more money and relieved them of liability of default of the loans. To help with the sale of these loans, they assured the purchasers that they would "insure" the securities against default through the sale of derivatives. However, they didn't have enough money to provide this insurance. Just think if the auto insurer who sold you the policy to cover your vehicle had no money in the bank to pay if you had an accident but was more than happy to accept your premium payments.
3. The government regulated the financial system as if it were 1907, but it was 2007. Wall Street had outpaced the regulations imposed on it by the government, and it didn't help that the government had recently removed many of the most important regulations that could have prevented the crisis.
When those who purchased property through these "subprime mortgage" loans began to default, this set off a ripple effect that crippled the entire economy. First, since the bankers had bundled these loans and sold them, those who had purchased these bundled securities began to suffer losses. Those who began to suffer losses had been sold insurance on these securities and attempted to collect on it. However, those who sold this insurance, called derivatives, never had enough money to cover claims because they weren't being watched by the government closely enough and felt that they could play Wall Street like an Atlantic City casino game. This caused Bear Stearns to have to be bought by J. P. Morgan Chase, then came the collapse of Lehman Brothers because there was no one to save this company from bankruptcy. Billions of dollars left the banks, and the credit crunch of 2007 began.
As we have read from the previous examples, we have been here before. But we can learn from the past to get through these times again. The common thread among every previous economic hardship isn't stocks, bonds, business, or real estate. The common thread that carved a pathway for each of us to reach economic recovery is the resilience, diligence, and sheer will of the American people to survive and overcome.
No matter how hard the circumstances have been, people of all races, genders, religions, ages, and income levels came together to pull this country through. Whether it is African-Americans, who despite discrimination fought to aid this country in the Civil War; women, who despite sexism started a movement that turned this country around after a severe depression; or Jewish immigrants, who in the face of Hitler's tyranny migrated to America and helped to establish strong communities ... we all have a stake in this country's future. This is what "living in the village" is all about: working together and being able to effectively contribute for the benefit of the community, your family, and yourself despite the odds that you face. The village must be strengthened from the bottom up. Each individual has an obligation to strengthen his or her knowledge, wisdom, and character. We must do this not for the benefit of ourselves, but for the sake of the village. How effectively can I contribute to the cause of my community? What else can I do to empower others around me? Every citizen who assisted in pulling this country out of a recession was able to successfully answer these questions.
We all have a role to play in this society. The purpose of this book is for us to understand that role and how we can provide economic strength to our communities, which will in turn make this country better as a whole. A chain is only as strong as its weakest link; therefore, it all starts from the individual. So we first must make sure that we empower ourselves financially, and then we will look at how we can effectively contribute to the economic empowerment of our communities.
DON'T WAIT FOR THE SMOKE!
There is a story about a man and wife who bought a house. After they moved in, the woman discovered that no smoke detector was installed. She asked her husband repeatedly to install a smoke detector but only got disinterested responses. Soon after, instead of asking about installing a smoke detector, she became worried about her husband's lack of concern.
"Why don't you care about the smoke detector?" she asked.
The husband, in a condescending tone, answered, "Why should we get a smoke detector? If ever there is a fire, we will be able to smell the smoke!"
Sound familiar? This story illustrates a problem in many households across America, and we aren't just talking about smoke detectors. When it comes to personal finances, many fail to prepare for the unexpected. Then, just as for a couple who has failed to install a smoke detector, when the fire hits, it is often too late to respond. Stats show how many Americans have not made proper preparations for their financial futures:
By their sixty-fifth birthday, 93 percent of Americans require the financial support of family and friends or Social Security just to provide for necessities. (U.S. Department of Labor)
Fewer men are worth $100 at age sixty-eight after fifty years of hard work than at age eighteen. (Denby's Economic Tables)
Eighty-five percent of all people have only $250 in cash at retirement. (Social Security Administration)
Over one-third of all senior citizens live below the poverty level as established by the federal government. (U.S. Census)
Two and a quarter million senior citizens forfeit their Social Security because they have to work. (Social Security Administration)
How you prepare for your financial future depends upon the type of person that you are. Two types of people live in this world: those who are proactive, and those who are reactive. The reactive person lives his or her life and responds to changes as they come. The proactive person lives his or her life by preparing for things that could occur, and making his or her decisions appropriately.
For example, a reactive person says, "I want to treat myself to a new SUV. My budget is tight now, but I have worked hard enough to treat myself."
The proactive person says, "I want to treat myself to a new SUV, but my budget is a little tight these days. If gas prices continue to rise, I wouldn't be able to afford to drive it. Plus, I don't have my emergency fund [six to nine months of living expenses] completed yet, nor have I saved as much as I can within my IRA. I think I will purchase something a little more affordable. Then when my income increases, I will be ahead of the game in my retirement savings and then I might think about splurging."
The reactive thinker becomes the retiree mentioned in the above statistics. The proactive thinker found the situation urgent enough to begin saving earlier to avoid becoming a statistic. Just like the wife who wanted a smoke alarm, the proactive thinker starts saving as early as possible because he has seen what happens to those who fail to see the urgency in planning for the future.
So I ask you, which are you? Do you never have the time to plan for your future? If you ask the 85 percent of the people who have only $250 at retirement, they will tell you what is truly important. They will tell you what you should make time for. The dilemma with life is there are no second chances, and those 85 percent will never have the opportunity to go back and begin planning for their future at an earlier age. How many of those 85 percent thought they would never be in this predicament?
So ask yourself: How are you spending your money? Why haven't you started an investment plan yet? Few things are more important than your financial future, your financial independence, your financial freedom. If you tell yourself that you will certainly have more than $250 at your retirement, then I ask you, "What are you doing now to prepare for that future?"
PUT THE OXYGEN MASK ON YOURSELF FIRST
If we are going to become effective contributors to our village, then it is imperative that our financial house be in order. This is rule number one. It is amazing to me how many people attempt to help others without paying any mind to their own financial situations. You should be kind enough to get your financial future in liftoff before working to help others. We have all heard the preflight airplane cautions: "Put the oxygen mask on yourself before you put it on your child." The same applies to how we contribute to the financial future of our village. If we want to create change, we must put ourselves in a position of power to be able to support and sustain making change. You are no good empowering the homeless in your community if you cannot pay your mortgage. That new nonprofit that you were going to form that would have helped children in your community needs you to have a good credit score in case you need to take out a loan for your business. I have been a witness to many failing business ventures because people have failed to take care of things at home. So start a path to join the ranks of the 7 percent of this country who have decided that nothing is more important than starting down the road to being financially independent today.
THE IMPORTANCE OF PERSONAL RESPONSIBILITY
A few employees in this country have what is called a defined benefit plan. This plan is defined as follows:
Defined benefit plan: A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.
The key phrase in this definition is "the employer bears the investment risk." This plan is quite a deal for many workers across the country. In many programs, the employee did not have to contribute a single dime to the plan. His retirement benefits were based solely upon salary history and tenure with the company. Even in poor economic times, the employer was still obligated to provide for the employee. Millions who have reaped the benefits of these plans worked in peace knowing that their employer would take care of them in return for many years of dedicated service. However, as time passed and life expectancy increased, so did the financial burden on the employer. This increased financial burden caused fiscal problems for many corporations, and many began to search for ways to eliminate this burden. Enter the defined contribution plan:
Defined contribution plan: An employee-funded retirement plan, such as a 401(k) or a 403(b), that pays benefits based on the amount the employee has accumulated over his or her working life.
With the defined contribution plan, a corporation still provides a retirement plan but does not bear the risk or financial burden of the plan. The employee contributes and bears the risk of the plan. Companies obviously benefit from this, and therefore a dramatic shift in plan offerings occurred across the country. In 1985 the number of defined benefit plans totaled 114,000. Twenty years later, in 2005, they numbered 13,000. I do not disagree with these actions by corporations. The longevity of many corporations was in jeopardy under the defined benefit plans. However, with the rapid shift toward the 401(k)-type plan, no adequate system was in place to educate the common American about its use and importance. Many will admit to being overwhelmed when faced with making investment selections in their 401(k) or 403(b) plan (if they choose to utilize the plan at all). A common asset-allocation strategy that I have seen is to simply select four or five different investment types and invest an equal percentage in each. As we will discuss in a later chapter, this is an inefficient style of selecting investments and trivializes an extremely critical investment.
We can complain that we want our corporations to take more responsibility for our retirement. However, while we are complaining, we are losing valuable time that we should be using to learn about how to plan for our retirement. Corporations have shown that they are no longer going to bear the weight of our retirement, and it is only right that the brunt of the weight lands mostly on our shoulders. We must bear full responsibility for our financial future.
Excerpted from Living in the Village by Ryan C. Mack. Copyright © 2010 Ryan C. Mack. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
PART ONE - WHY IT TAKES A VILLAGE,
CHAPTER ONE - It Takes a Village to Raise a Child,
CHAPTER TWO - The Evidence of Things Unseen,
PART TWO - SEVEN STEPS TO FINANCIAL FREEDOM,
CHAPTER THREE - Step One: Getting Your House in Order — Creating and Maintaining a Household Budget,
CHAPTER FOUR - Step One: Getting Your House in Order — Obtaining Adequate Insurance Coverage,
CHAPTER FIVE - Step One: Getting Your House in Order — Obtaining and Maintaining Up-to-Date Estate-Planning Documents,
CHAPTER SIX - Step One: Getting Your House in Order — Achieving and Maintaining a FICO Score Above 750,
CHAPTER SEVEN - Step Two: Eliminating All High-Risk Debt,
CHAPTER EIGHT - Step Three: Energizing Your Company Retirement Plan,
CHAPTER NINE - Step Four: Establishing an Emergency Fund,
CHAPTER TEN - Step Five: Establishing an Individual Retirement Account,
CHAPTER ELEVEN - Step Six: Eliminating Low-Risk Debt,
CHAPTER TWELVE - Step Seven: Adopting a Diversified Investment Strategy,
CHAPTER THIRTEEN - Selecting the Right Adviser and Building Your Financial Team,
CHAPTER FOURTEEN - The Unofficial Step Eight: Investing in the Community,
CHAPTER FIFTEEN - The Five Points of Economic Prosperity,
CHAPTER SIXTEEN - Next Steps,
APPENDIX A: FOUR STEPS TO SUCCESS,
APPENDIX B: ESTIMATED BUDGET,
APPENDIX C: NET WORTH STATEMENT,
APPENDIX D: SPENDING DIARY,
APPENDIX E: FINANCIAL GOALS,
APPENDIX F: NOTES ON FORMING THE RIGHT ENTITY,