To continue our last blog on debt, we’ll go over another type of debt one can accrue.
Presenting... government debt.
Government debt is its own special class of debt and is now probably the greatest threat to the entirety of civilized man. It is important to see that debt incurred by Federal and State governments, which includes all foreign governments as well, has ballooned to levels that are completely unmanageable -– BY ANYONE. The interest on the US debt alone will exceed our total military budget this year. Scary. Multiple states (e.g., Illinois, California and others) are on the verge of bankruptcy due to underfunded pension plans for state workers. Their solution is, was, and will always be to tax your hard-earned income to pay these debts. Like it or not, you will inherit this debt through taxation. You will simply have to produce more to maintain a status quo lifestyle. The definition from our previous blog on debt still applies. “COMMITTED FUTURE PRODUCTION.”
World leaders are committing your future production as well as your children, grandchildren and perhaps further down the family tree at this rate. There will be a tipping point in the not too distant future where they simply cannot tax more and will have to default. It will be a bad day.
Back to what you can do. It takes a tremendous effort these days to save any money. Thirty years ago, I read a book called “The Richest Man in Babylon”. I’m sure it is still in print or on Amazon. I will attempt to distill the book down to one simple maxim – ALWAYS SAVE 10% OF YOUR INCOME OFF THE TOP, ADJUST YOUR SPENDING TO MAKE IT HAPPEN AND STAY OUT OF DEBT. There is far more useful wisdom in that book than my statement here. I strongly recommend you read it if you haven’t.
Being DEBT FREE is a special kind of financial freedom. Your production and your money belongs to you. Moreover, your income is actually worth more to you than a similar person buried in debt. If you earn $50,000 a year and have no debt, you actually have more money to budget logically for future expansions.
If you are in debt – GET OUT OF DEBT.
If are not in debt – DON’T GET INTO DEBT.
Life will be much simpler and you will own your future.
“Diligence is the mother of good fortune, and idleness, it's opposite, never brought a man to the goal of any of his best wishes.” – Miguel de Cervantes -
Many people these days are finding new niches to invest in. Many of them great, but many of them questionable. It’s easy to go back and forth and around in circles on prospective investment deals but it might be helpful to know: What can you do about it?
It’s called due diligence or thorough analysis.
Here is the Definition:
Basic rule #1: If it’s too good to be true, then 99.99% of the time, it is.
Save your time, money and heartache and just walk away.
I hope these helped you ease some of your stress or anxiety on investments, and I hope you share them and use them in the future.
Our next blog will go over valuations. What is the value of the proposed investment? How much do you have to give to get more in return? That is if you do end up getting anything in return. We’ll help you get this sorted out!
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There are two scenarios your finances can be in, to some degree. Below is a list of what the worst financial picture might look like and then the best. There are specific actions you can take to improve any one of these conditions. The worst ones can be made better and the best can be expanded and improved endlessly as well. Nowhere to go but up!
You can easily grade yourself on this list (just for kicks). Look at each line.
On a scale of 1-10, 1 being the worst case and 10 being the best as written above, mark down a score for each line. Add it up.
18–72 is pretty rough.
90–126 is pretty good!
130 on up, you should be doing fine!
I am not saying money is the road to happiness, but I am saying life is a pain when you are leading a hand-to-mouth existence and your finances are a mess. It leads to stress on you, your family and friends, and so on. Having a strong financial base is a Holy Grail of sorts. So many of us struggle through life just to achieve that. It’s that cushion you need when other things go wrong. And life being like it is, something always goes wrong when least expected and least prepared. If you had $1,000,000 extra saved away in reserves and investments, would you breathe easier? Of course, you would.
It does take some discipline and hard work initially to get your finances in a groove, but once you do, it gets easier and easier. As you shift from the left side to the right side in the above scale. and gain stability you’ll find you never want to let all your hard work sift through your fingers.
If I were to prioritize a few of the items above I would say #1 is discipline; #2, a budget; #3, getting out of debt and being ruthless on overspending (#1 again); #4, saving money. But out in front of 1–4 is you, taking action, by working smart and hard to make money in a sensible way.
One other comment: if you are on the left side, it all starts with a decision to change your condition in life. Without that clear-cut decision, there can be no discipline. No one can make you do this. Eventually the world will come down on you – credit cards taken away, evictions, bankruptcies, angry creditors, rejection – UGH.
BUT you can reverse this course ANYTIME.
Do 1–4. Get some good advice. Follow winners – not losers! Almost magically life starts to sweeten up.
WARNING: You will have to agree to work harder, do better, do your job and get real products delivered.
Please feel free to call us any time if you feel you need help or advice.
“Never spend your money before you have it.” -Thomas Jefferson
I know you know what debt is. It’s pretty simple – it’s what you owe to someone else. You borrow, you owe. But there is another way to look at debt that may change how you think about this simple subject.
A useful definition of debt: COMMITTED FUTURE PRODUCTION.
This is perhaps the most useful definition there is for a practical person either in business or for family matters. Think about it: every time you buy on debt you are essentially swearing to another party that you will PRODUCE in the future enough of whatever you do to pay this debt off. This applies to auto loans, credit cards, mortgages, office equipment, etc. – ALL DEBT.
Debt ties up your future.
On a personal level, the more debt you have, the more of your future is tied up with your obligation to pay the debt off. When you add the interest charged, you stretch that out even further.
There are two kinds of debt:
Consumer debt can be such a huge trap. Banks and credit card companies send out all their “You’re Approved” credit card promotions and net people like a fishing trawler. Most people, with consumerism as a religious affectation, just sign right up and start charging without much more thought than – “Hey! Free money!”
Twenty years ago I had so much credit card debt that I worked almost one month per year to pay the interest. I swore to dig myself out and never do that again. Slowly but surely I bought my future back. So far, so good.
Spending, whether on credit cards, debt or cash, must be regulated by what is vital to keep you or your business alive and producing. Going deeper and deeper into debt is a bad sign.
We will continue on the subject of debt next week!
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Financial well being, business well being, personal well being.
To a greater degree than you might first realize, the three categories above are very interrelated
Mess up your business, you mess up your finances. Mess up your finances, you mess up your natural flow of life. Mess up your personal life seriously enough, your business and financial life will not escape unscathed. The complexity of today’s business, financial and economic environment can pose many challenging problems that can have a lasting impact in every area of your life. Without the proper understanding of the terms and the rules of the game, one is put at effect to a greater or lesser degree.
We have all heard of the disasters of investing in the wrong things at the wrong time. Costly legal battles. Missed opportunities. Risks that didn’t pay off. All of these capable of devastating family, friends, and relationships.
My close friend and colleague, Brandon Marion and I have been witness to or involved with at some point, most of the major market movements, whether good or bad.
This includes but is not limited to:
There is just nothing simple anymore about today’s financial world. You need to know what you are doing or suffer the consequences. It’s almost impossible to know it all and see it all at the same time.
How can you safely navigate such complexity? How much should I save? How much insurance do I need? Is my accountant really the best person for the job? Could I have done better on my taxes? Do I need an estate plan? (What is that anyway?!) Are there any safe investments? I don’t understand my financial statements. Is my bank safe? I keep working hard but the business never expands! I have a personal problem I can’t resolve. Whatever!
Look, most working professionals and artists are highly skilled and trained in their specific field. That is what they do best. When you are starting out in your chosen field, whether you are a new doctor opening a practice or an up-and-coming artist just making some headway, to be distracted and burdened with the administrative mechanics of legal, financial and economic issues can easily dampen one’s enthusiasm for the game. What are the priorities? What’s vital and what isn’t? Who do you believe?
Brandon and I can help you sort out just about anything. What we don’t know, we surely know where the answers are. Since we don’t get commissions from insurance brokers, banks, brokers or fund managers, we can remain fully objective and come up with the best solutions for our clients.
Our fee-based Advisory Services are tailor-made to confront and handle your exact financial and business issues. Call for a free consultation. We’ll tell you if we can help or not.
our net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones. - Benjamin Franklin]
Before we get started I want to quickly clear up another word here.
What is a “promoter”? Somebody who raises money for a financial or commercial undertaking.
Promoters of investments come in all shapes and sizes. They can be good friends with some inside track, licensed brokers, businessmen or women raising money for their company, a friend of a friend of a friend who knows a sure thing, accountants, lawyers, brothers and sisters, moms and dads. They may or may not know what they are talking about. In any case, you will feel you can trust them because they seem so sure they do know what they are talking about.
They may or may not be getting compensation for bringing you into the fold. One thing is often certain; they need your money to survive.
I have been promised things by promoters that were absolute lies and based on nonsense. They simply didn’t know the truth, never really did the homework and were just passing on what they were told because they were already in neck deep. In some cases, it is purely driven by greed. This is highly irresponsible and it is up to you to figure it out by asking too many questions. If the promoter of the said investment gets irritated, can’t answer simple questions, or brushes off all your questions with “don’t worry about that now”, that is a blatant warning sign for you.
Here’s another great example: Last year there was a huge push from a young “promoter” to buy the Iraqi currency known as the “Dinar.” This was the next guaranteed 20-1 play. As the story went, the Dinar was about to be revalued “any day.” I was getting hit by client after client to jump in. I “couldn’t lose” it’s “ 20-1”! The promoter of this “investment” had absolutely no experience in the currency field. But he was known to be a good guy and sold the idea to a couple of very knowledgeable investors who had well-known reputations and he co-opted them into the story. That made it appear legitimate to many people. He wasn’t making money himself on the deal, just trying to help all his friends get rich. That lent a touching air to the story.
I looked over the “research” and shared the data with other professionals. We all came to the same conclusion: there was absolutely nothing there. It was all wild speculation based on a few good rumors. I managed to keep most clients out of it, but one did go for a small piece. We are trying to sell his brick (yes, literally a brick of Dinar paper money) because he needs the cash. Oops – the guy who sold it to him is no longer buying Dinar back. It’s currently down about 10% – if we could sell it.
Promoters will tell you anything and insist it’s the truth whether they have done any research or not. The research they do is often just enough to prove they are right. That’s all the proof they need. Hey, keep the dream alive!
I drank Kool-Aid myself on a deal many years ago. I hyped it, pushed it, sold it and then struggled with it for years as it slowly sank with me and the other investors on board. I paid dearly with my own hard-earned money for years to make many of the investors whole again. I was responsible for the research I did and, more to the point, the research I didn’t do.
It was the research I didn’t do that would have kept me out of trouble had I done it.
Next up! We finally made it. Let’s go over how to actually do due diligence. Subscribe to our blog by going to www.wiseman-burke.com. You’ll get an email when a new blog is posted.
“Three great forces rule the world: stupidity, fear and greed.”– Albert Einstein
I’m not sure which factor is worse in this triangle of misery. I do know with certainty that once greed sets in, all rationality departs. Intelligent, honest, hardworking, principled people, once blinded by greed, start babbling facts and figures with their eyeballs rolled up in their heads.
This has been common to every scam or bogus investment I’ve come across. Promoters know full well that you will almost never challenge the offering at risk of losing your special invitation to participate in the most secret deal of all time that will make you rich!
In a pure scam, it is intended from the outset that you will get nothing for your money. I consider an “investment” a rip-off if, despite seemingly honest intentions, there never was enough knowledge, responsibility, intelligence, or capital to make the business a success.
Look at this definition:
Greed: An overwhelming desire to have more of something, such as money, that is actually needed.
“Overwhelming” is the key word here. It truly does become overwhelming in the sense that people shut down analytically, and willingly hand over huge sums of money to people they hardly know to achieve a “virtually guaranteed” colossal return. The allure of turning $10,000 into $500,000 or $500,000 into $15,000,000 in weeks does impair some people’s faculty to sort data. Some investor's greed kicks in so hard that nothing can be said to sway them. I have had people fight with me because I wouldn’t go along and could prove the deal was complete nonsense.
Watch for signs of greed “overwhelm.”
First comes the offer of something too good to be true. That is followed by the exhilaration about how much richer you’ll be because of this special offer.
Then comes the jubilant agreement with all the so-called “facts” presented to you. The exhilaration continues peaking – YOU’RE GOING TO BE RICH! Justified thinking starts answering all your questions. Other people you know are getting in on this! They’d never fall for a bogus deal. You can almost smell the money! Someone says, “Maybe we should check this guy out...” “BAH!! This is solid!” Finally, a bank wire is signed.
As an investor, you are responsible for doing the thorough analysis that separates true investment from mere speculation. It is up to you to turn over every stone to ensure your capital is safe. Sadly, many investors have representatives that are supposed to do this for them but they simply don’t do it. Driven by some desire to get that mystical 20-1 return, they take risks with others’ funds they wouldn’t take themselves. They often have no skin in the game but are playing with your money. They have canned excuses when it fails and expect a pat on the head if it ever succeeds.
Next week we’ll continue our series on due diligence and give you some insight on what promoters are, what to watch for and what promoters will tell you to get you to invest!
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“Action is the foundational key to all success.” ~ Picasso
It all comes down to one thing – Productive Personnel.
If you are running a business or thinking about starting one, I want to tell you about one of the most important things I have learned in 30 years of business: It all comes down to one thing – Productive Personnel.
You can say this isn’t the case at all or there are other important factors in business. But it always comes down to Productive Personnel. A business simply does not exist without people. Yes, computers and machines have replaced thousands of man-hours and no doubt that trend will continue. For now, however, someone must turn those devices on and direct them to accomplish something that is needed and wanted by us humans.
It all starts with the idea that you want to produce something that will be useful in some way to someone else. Whatever that thing or service is, it has to go through various stages before it can be considered complete and then handed over to someone else for money. Every step in that process it goes through is handled by people either directly or through the aid of a machine such as a computer. In order for you to succeed, everyone in that chain must qualify as Productive Personnel. The more productive everyone is in the chain, then the better the outcome for the entire business.
By “productive” I mean one very basic concept. That person, whether in HR, marketing, bookkeeping, sales, PR, the CEO, or any other aspect of your business actually shows up for work and knows exactly what to do and does it.
Look at an assembly line at Ford or GM. All the bits and pieces of a car are added from one starting point and march along until a finished car rolls out the other end and is ready for delivery. What if the dude who upholsters the seats hasn’t got a clue? The final product and the whole company suffers. What if the salesman at the Ford dealership can’t sell? What if marketing can’t get the right ads out? What if treasury loses track of who owes money? Every weak link contributes to the demise of the company and every member of the group.
This is such an easy concept to grasp – right? As long as everyone knows how to do their job and shows up for work, you will be successful. Just remember this other thing, though: it applies from the top down!
So where do Productive Personnel come from? We have to make them. We have to educate them on the basics, train them onto a job, help them along, train some more and then some more, until they are part of a fast-moving, highly productive team, with high quality, viable products being created. Each year this gets more and more difficult. High schools and colleges turn out functionally illiterate kids. Society harbors and endorses a whole class of people who simply do not understand the concept of work and organization beyond the most rudimentary of tasks. They may be good at low-level tasks, but building a vibrant company that has some levels of complexity and requires greater levels of communication, honesty, foresight, management, intelligence, and many other factors will never be built on an army of dropouts or the undereducated and underskilled.
As work ethics change and Joe Schmo gets bogged down with false information about what a job really is and what is expected, it is now incumbent upon the management guys who are still reaching for success (despite taxes, despite insurance issues, despite labor rules and government intervention, despite the ocean of under-educated applicants) to figure out for ourselves how to make Productive Employees.
My oldest son went to work for a major corporation a few years ago. He was tested, background checked and interviewed several times before the job was offered. After he was finally hired, he spent a full week learning their phone system, computer systems, basic company policies and rules, where things were located, how to report his weekly activities and completed work, etc. Then he met the team he was working with. He already had a master’s degree, so he knew technically what his job was and how to do it. They wanted to be sure the money they were investing to put him on the job was not wasted. That he could produce as promised. (He did.)
Whether you are running a small landscaping business or a computer programming company, this rule still applies. If you are planning on building a truly large company, then it is even more vital you move forward with Productive Personnel in every position.
Thankfully there is a simple way to do this.
If you want advice, feel free to call me.
“A fool and his money are soon parted.” - Thomas Tusser
The purpose of this blog is to give you a few vital tools so that you keep your hard-earned or inherited money in actual, solid investments. The focus is on smaller, private investments, not the technology of picking publicly traded stocks or bonds.
Don’t be fooled by all the nonsense that passes as investments – 99.9% of them are junk.However, there is a way to find the one deal that might have a chance. It requires rolling up your sleeves and doing some research. This blog tells you where to look and what to ask
In the 30+ years I have been in the financial industry, it’s amazing to me that despite much history about financial scams and bad investments, people still fall for the same old garbage investments year in and year out. And it’s not just people who lack any real education in the field of investing. People with considerable education and experience in business and life get bamboozled regularly.
I know dozens of stories about people who have watched as their hard-earned money was “invested” and never to be seen again. I’m talking about hundreds of millions of dollars just in my little corner of the market.
The big world of investing gave us such icons as Bernie Madoff, Reed Slatkin, and everyone involved in selling the Credit Default Swaps which handed out losses in the trillions of dollars. On a smaller scale, I have seen speculative real estate deals, phony gold mines, fantastic inventions that “couldn’t lose,” currency deals, high-tech ideas, Internet startups, and more.
While these losses are far less than Bernie Madoff-size losses, the pain from losing your life savings is just as bad. Not to mention all the conflicts these bad investments spawn when they fail, which can cost fortunes in legal fees and tear up old friendships. Broken relationships between friends and family, lawsuits and arbitrations and financial hardship are very common when some “sure thing” falls apart.
People, in most cases, worked hard and were diligent in saving up money. Then one day – Pfffft!– it’s gone? And they get nothing but sad excuses and justifications to explain why the deal fell apart. How can that be? It was a sure winner! Who is to blame? Could anything have been done to prevent it? Fortunately, there are many things you can do to prevent these losses if you will take a little time to do them. To be continued….
Learn more about what you can do to make sure you aren’t getting blinded by a too good to be true investment opportunity by subscribing to our blogs at www.wiseman-burke.com !
Coming up next week in The Due Diligence Series is “Key Factors to Be Aware of When Considering an Investment Deal”. Make sure you don’t miss this! Subscribe our website and follow us on Instagram to get updates! @wiseman_and_burke
Many people in the investment field think they know what they are talking about. The truth is – they don’t. It’s not surprising to find that most people don’t know what an “investment” actually is, so they are easily confused by the “finance speak” and high-gloss brochures passed out by some really nice guy in a suit. Let’s look at some specific definitions that may help you understand the game you’re getting involved in.
Let’s go over this one definition (I have abridged Merriam- Webster’s full definition to relate it to the financial arena and make it more clear) :
v. invest·ed, in·vest·ing, in·vests v.tr
2. To make investments or an investment: invest in real estate.
[From Italian investire and from French investir, both from Latin investre, to clothe, surround: in-,in; see in- + vestre, to clothe (from vestis, clothes; see wes in Indo-European roots).]
From Wikipedia: “Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. In contrast, putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling. As such, those shareholders who fail to thoroughly analyze their stock purchases, such as owners of mutual funds, could well be called speculators.
“To avoid speculation, an investment must be either directly backed by the pledge of sufficient collateral or insured by sufficient assets pledged by a third party. A thoroughly analyzed loan of money backed by collateral with greater immediate value than the loan amount may be considered an investment. A financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency, may be considered an investment.
Examples of these agencies include, in the United States, the Securities Investor Protection Corporation, Federal Deposit Insurance Corporation, or National Credit Union Administration, or in Canada, the Canada Deposit Insurance Corporation.
“Promoters of and news sources that report on speculative financial transactions, such as stocks, mutual funds, real estate, oil and gas leases, commodities, and futures often inaccurately or misleadingly describe speculative schemes as investment.
Investment: thorough analysis and security. Speculation: analysis and some risk. Gambling: lack of analysis and lack of safety.”
Thus, based on the above definitions, it is only an investment if after a thorough analysis there is a high degree of certainty that your principal is secure and that you will actually receive the expected return. Anything less is speculation or gambling. Ninety-nine percent of the “investments” most people get involved in are, in fact, speculation or gambling. They will put a chunk of their life savings in some deal solely because someone they trust said that specific deal was hot. They “invest” with not much more research than that. It is important to name highly speculative deals exactly and not lump them in with safe, conservative investments, to avoid giving them an air of safety they do not deserve. Mislabeled speculation gives investment a bad name.
How can it be that a seemingly promising deal can flop so miserably? After looking over many failed “investments,” the most common mistake is believing that it is an investment and not a gamble per the above definitions. Somehow, “this one is different from all the rest” without careful assessment of all the facts. Far too many investors refuse to do the analysis to determine if it’s an investment or a gamble. They just cut out the work and take someone’s word that THIS really is an investment – this time. This is, of course, usually fatal to your capital.
As an example, in May of 2011 I had a long discussion with a client who was being promoted an investment that promised a 17X return in just a matter of weeks. It was being promoted by people with significant experience and good reputations. Who could possibly pass it up? It was virtually guaranteed!
I actually laughed out loud when I was told about it. My client was slightly offended at my response, so I had to agree to take a careful look at it to make up for my crass behavior. They were ready to invest nearly a million dollars and the prospect of losing out on a $15,000,000 return was just too much to let it pass by without so much as a sniff by me.
I looked at it carefully as agreed, and it was garbage of the highest degree. I refused to let my client near it. One of the trusted sources, upon careful investigation, was found to have had a terrible reputation for rip-off investments and a long history of failed deals.
The promoters somehow missed that.
The details that proved it was bogus were right in the very documents I was sent to convince me it was real.
I shared these with other professionals and they all had the same opinion as me: “Stop! Red alert!” “DANGER WILL ROBINSON, DANGER!”
As of today (more than 2 years later), one of the promoters is still expecting and professing their payout is days away! They truly believe it is still coming, and if I say otherwise, they consider me the nutcase. If I told you more you’d laugh, too.
I tried my best to get it shut down immediately and show them some facts, but they had already cornered enough “investors” who had swallowed the bait whole. Well over two million dollars went down the drain.
Interestingly, one investor (who was a seasoned investor) in this deal, whom I did not know, called me about nine months later because he had heard I researched the deal and had come out against it. He wanted to know what I knew about it. He confided in me that he went into it without knowing anything about the deal, that in fact he was refused any details on what the investment was and had to take it on the word of the promoters.
He was shocked to hear what the deal was all about when I told him. I was even more shocked that he put such a large amount of cash in with no more research than “trust me” from a reliable source who didn’t have the cash to actually guarantee the deal.
There is an important lesson here. ANYONE, regardless of experience and education, who skips taking a good hard look at all the important details, significantly increases the likelihood they will lose their money. Too often, anyone with a good story and an honest face is pushed to the front of the line. I think most people don’t look because they have no idea what to look for and consequently just accept the story.
This brings us to another important factor when investing, greed.
Like what you’ve read? Subscribe to our blog, you’ll be the first to hear about our updates. Next week the Due Diligence Series on Investments will continue. Find out how greed plays a distinct part in investment mistakes and how to detect and avoid it.
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