MOST PEOPLE live in a world of financial anxiety and stress. In most cases, they don’t fully understand what decisions they need to make and where to get help making these decisions. ‑ The FinancialVerse - presents in a straight forward, easy to read style - what the reader can expect at each stage of their financial lives and offers ideas and resources to assist decision making. ‑ The FinancialVerse is made up of the knowledge, decisions, resources, risks, and tools that an individual encounter in life’s financial journey. ‑The book has been written to help people reduce their levels of financial anxiety and stress. Authored by financial services leader Harry N. Stout, The FinancialVerse provides a much-needed roadmap of what to expect in our financial lives. ‑ is starts in our Adulting Stage, to working in the Striving Stage to the final or returning Stage of Fulfilling life. Harry acts as your guide and spells out, in a very understandable way, what the risks, opportunities and key decisions the reader will need to make as they move through each stage. He explores what it is like to make decisions influenced by today’s technology, economic trends, and work opportunities. Harry believes that most people, regardless of their family’s economic background and level of education, do not fundamentally understand the key financial decisions and risks they will face in life. He believes improved financial education and literacy are needed as our lives become increasing more complex driven by technological innovation.
About the Author
Harry N. Stout is an acknowledged senior leader in the global financial services business with experience in all key business areas with particular expertise in personal finance, product innovation, and business management. He has over 25 years of financial services industry experience in the U.S. and abroad, working in Europe, Northern Asia, Africa, New Zealand, and Australia. He is a governance fellow with the National Association of Corporate Directors. He is a past director of the National Association for Fixed Annuities, the Financial Services Council of Australia, the Insurance Marketplace Standards Association, and the Life Insurance Marketing and Research Association. Harry’s experience includes serving as Managing Director of Investments and Insurance with Australia and New Zealand Bank (ANZ), where he was based in Sydney and ran the Australian life insurance, investment, retirement services, general insurance and advice businesses for this large regional Australasian bank. During his time in Australia, he was also Managing Director and Chief Executive Officer of ING’s Australian insurance, advice, investment, and retirement services businesses. His U.S. business experience includes serving as President of Voya’s U.S. Retail Annuity Business Group, where he directed the fixed, indexed, and variable annuity businesses. He also spent over a decade with Fidelity & Guaranty Life Insurance Company where he served as Chief Executive Officer and President as well as holding key senior leadership roles for its parent companies USF&G Corporation, Travelers Corporation, and Old Mutual U.S. Holdings, Inc. He has also been a corporate officer or Board member of several insurance marketing organizations. Harry, a Certified Public Accountant by training, began his career in public accounting with KPMG where he spent 10 years working primarily with multi-national enterprises. Harry is a nationally known speaker and author on life insurance and annuities.
Read an Excerpt
The Financial Stages of Your Life
I believe most people have three major stages to their financial lives: the Adulting, Striving, and Fulfilling Stages. Let me briefly explain each to you. Please be mindful that these stages apply for the vast majority of people. There are situations, however, where the suggested length of time in the stage will be more, or substantially less, than the suggested parameters I describe. An example would be if someone were able to generate a windfall of money through his or her productive efforts, an inheritance, or winning the lottery. They will move from what I call the Striving to the Fulfilling Stage of life. These types of events change the timing of the stages and can cause people to move from one stage to the other quickly.
Here are the three stages of your financial life in the FinancialVerse:
THE ADULTING STAGE
This stage takes place from birth to age thirty, when young people, in my view, are finally not their parents' responsibility. I also call this period The Journey to Age Thirty. During this stage, the individual is educated, develops personal relationships such that they find a partner or friend group they affiliate with, finds steady employment or a career track to follow, and, lastly but most importantly, the individual is able to fully financially support themselves. To emphasize the last point, this would mean that the parents' bank closes on their thirtieth birthday unless a major emergency or unexpected need arises.
This period of thirty years is what many Baby Boomers will remember was either eighteen or twenty-one years for them. Many of you can still remember your parents saying that by the age of twenty-one, you needed to be out of the house and on your own. My dad kept telling me that by age eighteen, I was on my own. He said he had carried me as far as he could, and it was time for me to step up.
By the end of the Adulting Stage, the individual should emerge with a meaningful job and, most likely, student loan debt, which was used to finance a portion of their education. A distinct few will have accumulated sufficient savings — likely an emergency fund — and enough savings to afford a security deposit on a rental apartment or down payment on house. A very lucky few will have begun to save and invest for their Fulfilling Stage.
THE STRIVING STAGE
This stage takes place from ages thirty-one to seventy, resulting in a likely forty expected years of employment. During this period, today's young adults entering the workforce will likely have between ten and fifteen different jobs.
I know there is some controversy around increasing the age for ending full-time work to age seventy. I believe age seventy is the age most people will work to either as a result of projected changes in the retirement laws (e.g., Social Security and government retirement regulations) as well as the need for individuals to work longer to accumulate sufficient savings for the much longer life expectancy they will experience in the Fulfilling Stage.
The Striving Stage is the forty years the individual has to pay all their living expenses, pay for the cost of raising a family (if this is what they decide to do), and accumulate sufficient funds and income to provide for the Fulfilling Stage. You need to view these earning years as your key source of funds for your financial life unless you are the beneficiary of an inheritance or other windfall.
What are you going to do to make the most of these earning years? What approach do you want to take to balance work needs and personal needs? How hard are you willing to work? What jobs or fields of endeavor interest you such that you will want to spend forty years or a significant time period doing them? How do you educationally prepare yourself and your offspring for this long journey?
There are many questions to ponder, but the answers can and will differ for each individual. Lifelong learning will also be needed. After World War II, we sent people to college with the understanding that the education they received would last them for their working lives. Today, this is not the case. Too many changes take place in such a fast manner that the ability to learn new knowledge quickly is a skill each individual must master to be successful. The ability to continually learn new things is a skill we all need today.
By the end of the Striving Stage, the individual should have accumulated sufficient sources of funds and/or income streams to be able to fund their Fulfilling Stage. You will notice I do not use the word "retirement," as I believe it will become obsolete in a few years. If you are going to have a good chance to live to age one hundred, you will not want to play golf or sleep until noon from age seventy onward. Most people will want to do something meaningful with their time and physically will be able to do much more than prior generations of aging Americans.
Accumulation of resources for the Fulfilling Stage should include providing for the costs of whatever pleasure activities you want to pursue. This will include whatever charitable and/or community activities that are chosen. These costs would be combined with having sufficient health insurance and providing funds for unforeseen financial emergencies such as a major illness, long-term care protection, major house repairs, and the real risk that you will live much longer than you think possible. We will discuss understanding and providing for the costs of the Fulfilling Stage later.
THE FULFILLING STAGE
This is the post full-time working or Striving Stage of your financial life. This period is normally referred to as retirement, but I believe we need to rename this period of our lives to what it has become. That is a period of giving back by helping others along with the benefit of having the free time to do what pleases us most.
In my view, young adults today should plan for this stage to last from ages seventy-one to one hundred. For other demographic groups, particularly those over age sixty-five, they should plan to live until at least age ninety. As the nationally known financial expert Tom Hegna (TomHegna.com) has stated in his seminars, this stage has three discrete periods within it — the go-go years, the slow-go years, and lastly, the no-go years. Our collective hope is to not reach the no-go years for as long as possible. We will discuss these years in Chapter 5.
We all read much about this stage of life and the changing behaviors we are seeing. Today, most individuals are looking to use their later years to give back what they have learned or financially accumulated to their families and communities to make other people's lives better. They need time and financial resources to accomplish this. This book is part of my Fulfilling Stage, as I want others to learn from my life experiences as well as to benefit from my philanthropic actions. Giving money to causes or family members can be of great benefit and is relatively easy to do. You may, however, rather want others to benefit from your knowledge and life experiences. Your desire to return what you have been given to others will not happen without a plan.
For most people, the Fulfilling Stage also has some unfortunate aspects of aging associated with it. These include the impacts of increased health needs, possible cognitive decline, the complexities of income planning, and the possible impacts of estate-planning issues.
Each stage of your financial life has distinct questions, needs, and responsibilities. Each stage has its own key risks that must be addressed. You will need knowledge, coaching, and resources to successfully navigate each stage. Let's start your education by looking at the economic realities, the ground rules, and the key risks you find in the FinancialVerse.CHAPTER 2
The FinancialVerse's New Economic Realities, Rules, and Risks
THE ECONOMIC REALITIES OF 2019 AND BEYOND
If you are unaware, I would like to welcome you, your family, and your friends to the realities of the Fourth Industrial Revolution, which is just beginning. This revolution will reshape your relationship with technology, work, money, day-today activities, and relaxation. Don't know what this is or what the prior three revolutions were? You are not alone. Let me fill in the blanks for you.
THE FOUR INDUSTRIAL REVOLUTIONS
The First Industrial Revolution
This era began in Britain in the late eighteenth century and continued into the 1800s. In this time frame, the major change was that manufacturing moved from people's homes to powered factories. Production moved to larger-scale operations. This change saw factories powered by the innovations of using power generated by flowing water and steam to power industrial production as never before.
The Second Industrial Revolution
This era began around 1870 and continued to the start of World War I. This revolution was driven by the use of electricity, chemicals, and petroleum. Henry Ford and how he mastered the moving assembly line, creating great economies with mass production of goods, exemplified this era. The era is best known for the invention and harnessing of electric power to further drive production and supporting structures in daily life. Think of the time savings obtained by the invention of the automatic electronic washing machine versus hand washing of clothes.
The Third Industrial Revolution
This era began in the early 2000s and included the expansion of electronics and information technology to digitalize all aspects of how business and our personal lives are conducted. Think of the transition from the electronic manual typewriter to the word processor. We used to physically mail a letter, but today, we simply send an e-mail or text, which is received right away.
The Fourth Industrial Revolution
The Fourth Industrial Revolution is just beginning today and will go further than the third by combining physical, digital, and biological specialties to exponentially change all aspects of work and family life along with industrial production, management, where work is done, and corporate governance — with a related impact on our personal lives. Think of it as encompassing artificial intelligence (AI), robotics, the Internet of Things (IOT), autonomous vehicles, 3-D printing, nanotechnology — the list goes on and on. How you work and live is about to be turned upside down.
As it unfolds, the Fourth Industrial Revolution will change the way we work, where we work, where we live, how we interact socially, and how we relax. Per authors such as Yuval Noah Harari, author of 21 Lessons for the 21st Century, and Klaus Schwab, author of The Fourth Industrial Revolution, we should expect a transformation unlike anything we have seen in the past. Are you ready for this? Do you have the knowledge to be successful in this new world?
The reality for those working or preparing for their careers is that the Fourth Industrial Revolution will require them to learn new skills and acquire new knowledge throughout their working lives. Unfortunately, today, most students still attend educational institutions that teach and provide their service using the predominant post-World War II education model. The Fourth Industrial Revolution will dramatically change this. The demand for people who can think critically, work in teams, solve previously unsolvable problems, and apply new technologies will increase astronomically.
On the other side of this increase in demand for skilled workers, we will find that many of the lower-level, less-skilled jobs we are used to today (e.g., cashiers and clerical service positions) will be eliminated and the workers displaced. Think of this as the transition from your local convenience store to the new Amazon Go stores, we are beginning to see throughout the country. The Go stores are automated with customers able to purchase products with no cashier or self-checkout kiosk. This movement to cashier-less retail stores will increase dramatically as the technology used to implement this function is more widely available. In the World Economic Forum's recently released report titled "The Future of Jobs Report 2018," it was reported that we should expect that our economy will have a significantly number of current jobs eliminated as the technology rollout continues.
There is much debate as to whether new jobs will be created to deploy the displaced workers. My view is that so far, the new support jobs that have been created appear to offer less pay and benefits for the displaced workers. The new knowledge worker jobs this revolution is creating should enjoy higher wages and benefits, but there will be fewer workers to benefit from these jobs. This fourth revolution will create new societal issues that our government will need to address through a renegotiated social safety net, retraining programs, income subsidies, or other creative solutions. Income inequality will become more of an issue rather than less unless it is addressed.
The early impacts of this new revolution are starting to be seen in our economy as I write this book. These include increasing income inequality, a higher number of lower-paying jobs being created, and new business models emerging — think Uber, Lyft, Netflix, and, of course, Amazon.
Bottom line: the Fourth Industrial Revolution and its impacts will provide the key economic drivers for the future of the FinancialVerse, and you will need to understand them and how they impact the path you choose to follow to financial success. I am optimistic that new jobs will come forth to employ displaced workers, but the keys will be how long it will take for these jobs to emerge and the retraining individuals will need to take to qualify for these positions.
THE FINANCIALVERSE'S LANGUAGE
Like any state or country you visit, each destination has its own language and customs. The same is the case for the FinancialVerse. Just like you work to learn a few key words or phrases before taking that trip to a foreign country, you need to do the same as you prepare yourself for your financial journey.
Here are the key words and concepts you will most often come across in the financial media, advertising materials, and interactions in the FinancialVerse. They are easy to understand but require a little study to master. I can't stress enough that you need to understand these basic terms, or you won't understand the conversations that go on in the FinancialVerse. Here are the key terms and phrases you need to fully understand:
Cash Flow – This is the essential foundation phrase. There is no progress in the FinancialVerse without positive cash flow.
It is an accounting term that simply means the cash you generate by working or investment and have available either in your pocket or in bank accounts. Positive cash flow means you are generating more cash than you are spending. Negative cash flow means you are spending more than you have coming in. Positive cash flow is the secret to success in the FinancialVerse.
Budget – A budget is a spreadsheet, financial application, or simple handwritten numerical listing of your expected sources of cash inflow and expenditures. Cash inflows come from your paycheck, child support payments, alimony received, and income from savings or investments. Cash outflows or expenses are what you pay for food, clothing, rent, mortgage, utilities, medical costs, entertainment, and other uses. Budgets are usually prepared for a period of at least six months to one year and show the amount of cash coming in, the cash going out, and the surplus or deficit that exists each period. When completing a budget, you can clearly see if your inflow of cash exceeds your expense outflow for bills.
Only about one-third of people actively set up and follow a budget. In my view, the two-thirds of people who do not have a budget in place ignore the reality of their financial situation and cast a blind eye to their money habits. This happens until the day they run out of cash or credit and an emergency has been created.
My advice is everyone needs a budget. Your goal in the FinancialVerse is to accumulate cash and, as such, your inflow has to exceed your outflow over time. If you constantly spend more cash than you earn, you are headed for financial failure.
Expenses – Expenses are the amounts you spend each day, week, and year to live. Expenses include the costs for housing, train fares, food, dining out, what you spend at Starbucks, student loan payments, car purchase or lease payments, Lyft costs, Uber costs, medical bills, clothing, entertainment, and other amounts spent.
You need to have a basic understanding of what you are spending for each type of item. You would be surprised how many people are totally blind to what they spend on a variety of things, in particular entertainment and clothing.
Debt and Interest Expense – Debt is what you borrow from banks, family members, friends, and financial institutions and is usually evidenced by you signing a written agreement or note explaining how you will repay the debt and under what terms you have borrowed the money. Debt has many forms including credit cards, installment loans, student loans, mortgage loans, payday loans, and car loans. Each type of loan has different terms and costs. The cost for the debt you borrow is called interest expense. In addition to interest expense, you will sometimes give up an interest in the property acquired (e.g., mortgage and car loans) until the loan is repaid, agree to repay the loan over certain time frames (e.g., forty-eight months), sign different legal agreements, and pay different rates of interest expense depending on the loan type.(Continues…)
Excerpted from "The Financial Verse"
Copyright © 2019 Harry N. Stout.
Excerpted by permission of Vertel Publishing.
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
Please Read Before You Proceed,
Introduction: The Value of This Book,
Chapter 1 The Financial Stages of Your Life,
Chapter 2 The FinancialVerse's New Economic Realities, Rules, and Risks,
Chapter 3 The Adulting Stage – The Journey to Age Thirty,
Chapter 4 The Striving Stage (Ages Thirty-One to Seventy),
Chapter 5 The Fulfilling Stage (Over Age Seventy),
Chapter 6 Using the Power of Guarantees to Succeed,
Chapter 7 Finding Financial Advice,
Chapter 8 Lifelong Financial Learning,
Chapter 9 Actions to Take After Reading This Book,
Chapter 10 Final Thoughts – Your Life in the FinancialVerse,
About the Author,
Appendix 1 – Life Insurance Checkup,
Appendix 2 – Fulfilling Stage Income Checkup,