Discipline

The Holidays are here and I wish everyone and their families a happy and safe holiday season!

In my last blog entry the word discipline was mentioned several times. This was not by accident. The word Discipline is defined by Merriam Webster several ways but the most common way is : Self Control.

I have found that when most people ask for financial advice they essentially want to learn how to make more money in the market. This is the wrong approach especially as most of us do not know how to save a dime and worst of all control ourselves when we are in the Mall. "Discipline" or "Self Control" is the foundation for financial success.

Understanding the difference between "Wants" and "Needs" is the first step. Although most people inherently know the difference, most do not exercise the practice. How many times have we all seen someone on Oprah or the Suze Orman Show crying because they are $30K in the hole over credit card expenses related to impulsive shoping and they can no long make their rent or mortgage payments. This is all too common especially among those between the ages of 18-35.

Now, I could sit here and be the plain vanilla person offering financial advice and list what are considered "Wants" and "Needs", but I won't because you already know what they are. What we are lacking is the Discipline to practice what we know is right.

Let's be responsible for ourselves and stop all the excuses of "They keep offering a higher limit on my credit card". "It was on sale". Or here is my favorite one, "I didn't know the interest rate was going to be so high". Stop pointing the finger and realize the problem is you! The retailers are supposed to entice you. It's your responsibility to say "No" if you are not in the position to make a purchase. The retailers are like "Drug Dealers" and the "Consumers" are the junkies. The Retailers will give you credit, layaway, or any form of payment to keep you buying. I bet if you think back to the last several times you purchased something from a department store they asked you "Would you like to open a credit card with us? You'll save 10% on your purchase." Sound familier? The dealer talking to a potential new client. People, just say No!!!!!!!

So, now that I have vented I will offer some simple advice. With the holidays here we all are going to be in the mall. There is nothing wrong with being there and I am not going to tell you to not go. What I am going to suggest is to go with a purpose. Have a list of what you need to get and have an idea of what you are willing to pay for it. Most importantly, do not deviate from your plan. When you see something you "Want" that is considered impulsive, the first thing you should do is walk away. This will allow you time to think about what the purchase will mean to you from an emotional and a financial stand point. My wife and I always do this. If we are not together we will call one another and bounce the idea of the the purchase off of the other person. Usually within a 1 minute conversation the initial excitement of the item has diminished and we have saved ourselves from a impulsive purchase.

While shopping don't fall into the salespersons/dealer's trap. They will tell you anything. You may hear "It may not be here later", "There is only left in your size" or "the sale won't last forever". Bullshit!!!!!!! Most retail items are not only sold in one specific store or even chain. The item will always be somewhere else. It may not be on sale next week, but who cares! If you don't "Need" the item than you lost nothing.

Having self control is a sign of strategic planning and keeping an ultimate goal in mind. Succumbing to "wants" will get you in trouble.

For those of you who have fallen into the traps listed above, it is not too late. Like any addiction, quitting cold turkey is not the best approach. Begin to slowly implement some of the suggestions mentioned above. Trying to cut yourself off all together will only cause regressions and you may end up worse further down the road. Take baby steps! Slow and steady will win the race. The goal is to build a "house" with a solid foundation not a "house of cards".

News updates:

This past week was marked with the Big 3 asking for government assistance, Citi Bank announcing they will lay off 53,000 people, JP Morgan laying off 3,000 Investment Bankers and the Dow dropping dramatically to levels not seen since the early 2000's. The only bright spots were President elect Obama announcing Tim Geithner as his pick for Treasury Secretary and gas prices have nationally dropped below 2.00 a gallon. The Treasury Secretary announcement saw the market rebound although we are still at very low levels especially compared to a high of over 14,000 + on the Dow a little over a year ago.

Many have labeled me and my close friends as pessimists because we have been preaching "Doom and Gloom" for the past year with respect to the national and global economy. Well people, if you didn't think we could have another Depression you are wrong. In fact there are some scary comparisons to the Great Depression happening right now. One of these comparisons is the two week period ending November 20, 2008 with the Dow dropping 16%. The same two week period in 1931 saw the Dow drop the same amount. If you think that is scary, the final five weeks in 1931 the Dow dropped another 20%. We all feel that at some point we need to reach a bottom but the market has no obligation to stop falling because is has already fallen so much.

With no positive economic data foreseeable I would hold on to your britches and expect more fall out. Don't be disillusioned with the fact that some stocks are so cheap that they can't fall anymore. Understand that you still can lose money. This is only the beginning. We have a long way to go. Act like each pay check may be the last.

Stack your Chips-

King of Cash

Next Blog: Understand your Industry

Who is the King of Cash?

King of Cash....ok maybe it is a self proclaimed title, but not untrue. With this title I do not profess to be financial wizard that makes money trading stock. I am person who understands trends and applies discipline to my life approach.

Never being a big user of credit cards and for most of my childhood being fascinated with stacks of cash, I always made sure I kept money readily available. Sometimes I wonder if I was born this way or if I learned the habit of saving. Like most talents, I probably have natural tendancies but over the years I have refined my discipline.

It was my junior year in college (2000) when I discovered how different I was from most people. I can remember having a debate with a classmate about what is the true definition of being able to maintain your lifestyle? My friend felt having a job that allowed you to pay your mortgage, stay current with your bills and establish modest savings (3 months) was sufficient. I quickly challenged his theory with my own. My thoughts of being able to maintain one's lifestyle is having enough cash reserves to sustain a life altering event, personal or global, where a person is able to satisfy all of their obligations without altering one's day to day habits.

After debating for an hour we agreed to disgree. My friend's mindset was based on the fact that as long as a person is employed or has some cash flow, modest savings were sufficient. In retrospect I dont' fault him! His rational was correct for the economy we were currently in. In 2000 most people who were laid off or lost a job could find employment within 90 days. With this mind set.....yeah things are ok and how bad can things really get that I would need savings beyond 3 months. Having studied the history of different economic cycles (Great Depression, The Crash of 1987, etc) I felt if a bad economic cycle hits a prolonged period of unemployment can occur. Knowing this, I always felt it is neccesary to prepare beyond what is considered standard.

Lets fast forward 8 years to our current economic cycle. Most corporations and some State Governments are down sizing 10%-12%, the housing and stock market are in the toilet, banks are unwilling to lend, and there is no turnaround forseeable. The only real access to capital is what is in our bank accounts (Thank you FDIC!!!!!!).

As a Commercial Banker I speak to all of my clients about what changes they are making to get through this current economic cycle. The first thing most business owners are saying is"I am cutting my staff by 10%-12%". You can see that the possibility of unemployment reaching 10% is very real. This global epidemic will not be fixed anytime soon and those who have lost their jobs should expect to be out of work for more than a year.

As a young man my father always taught me "Son, never put all of your eggs in one basket." As a banker I was taught the same in terms of analyzing companies. This lesson came in the form of "Stay away from businesses that have too much customer concentration". Taking both mentalities to heart, I began to analyze my own life. My household income is concentrated in the financial industry (My Wife is a very talented human being and Wall Street Trader. I do my best to keep up with her success.) I began to research how the financial industry fairs during economic downturns. I quickly realized the industry didn't fair well with massive layoffs as the trend. I understand it is not easy to just go out and switch employment to another industry for the sake of diversification, so I asked myself "what is the mitigant?" Understanding the industry ("Understanding your industry"future blog) we work in is what made me realize what we needed to do. If one or both of us could be unemployed during an economic downturn, the easiest thing to do is to accelerate our savings to offset any prolonged period of unemployment.

I must say it takes alot of discipline to aggresively save when there is no real evidence of an economic downturn. Many feel my agressive approach to saving (or conservitive approach to spending) is extreme. However, in this environment, you can quickly see that a strong financial foundation is never a bad decision. We are all learning that we cannot rely on others to ensure our financial stability. Investing in homes, the stock market, 401k, or simply having a job is not enough. "Cash is King"! Stack your Chips!!!!!

For some of you reading this, it may be too late, but for those of you who are blessed to still have employment I encourage you to start "tightening the belt". This is only the beginning and while you still can, please take control or your finances and prepare like each pay period may be your last.

Next Blog Title: Discipline

I will discuss the "checks and balances" my Wife and I put in place to began our financial foundation I will also share economic news that is impacting us all.

Why?

Whether you realize it or not, God has blessed us all with unique gifts. He created all of us different so that we can help and learn from one another. As someone who has been and continues to be financially successful, I feel it is important to share my gift with anyone who is interested.

Our current economic environment is presenting challenging circumstances for individuals and businesses. The problems we are facing are the direct result of over spending, too much leverage, and living for today and not planning for tomorrow.

There is no doubt that the market will always experience "Peaks" and "Valleys", but as individuals we can offset some of the negative effects of the natural economic cycles.

I've started this blog because I see that many in my peer group (25-35) do not understand the fundamentals to financial planning. Because of this lack of understanding many will not be able to weather this current economic storm.

We are all going through this "Storm" together and I would like to share my "Do's and Dont's" as a way of helping us all. Talking is the first step followed by action. We can all come out of this stronger if we band together. It will take a conservative approach by all globally to "right the ship". Getting back to basics is essential.

Each week I will share some of the planning techniques my Wife and I have implemented to get through this recession. Although I am confident in what we have done and continue to do, I realize there are many other ways as well. I look forward to hearing suggestions and getting as much feedback as possible.