How to Escape the Rat Race

by Sherry Peel Jackson

  Teaching Your Children About Money

  Most of us have grown up with some of the worst financial teachers on the planet, our parents. Unfortunately, they were not taught how to properly manage money, and they were not able to teach us how to properly manage it. We love them and know that they did the best that they could, but now we are learning and will be better able to teach our children.

  Children as young as six or seven years old can be taught to manage money. You can start by jazzing up the Monopoly game; by using the money in the game to teach them principles of saving and giving.

  I once used the money from the Monopoly game to gauge my then 6-year-old son’s aptitude for money management. I told him that he was an architect, which is what he wanted to be back then, and that he made $300 a week. I gave him $300 in Monopoly money. Then I told him all of his expenses, and gave him different scenarios concerning his expenses. Incredibly, at six years old he was able to pay all of his bills, get a raise, still pay his bills, and not over spend. Next, I threw him a curve: I added a girlfriend, told him his bills for the week, and that his girlfriend wanted to go to dinner and a movie on Friday. After he put all of his bill money aside, there was no money for the date. When I asked what he was going to do he said, “I will just have to tell my girlfriend that we can’t go out this week!” I was impressed. Even a six-year-old is not willing to get into debt if he is taught the proper use of money and proper management of finances.

  Another thing we can do to help teach children how to manage money is to get them small boxes for savings. For instance, if the children have a box for giving, saving, and spending they easily can learn to manage money.

  Both of my children had one small box with three drawers in it. One was labeled “Giving 15%,” one was labeled “Saving 35%,” and one was labeled “Spending 50%.” They did well to only spend half of what they earned or were given. I pray that their use of this principle will carry on throughout their adult lives.

  Giving Back

  Giving back is a universal principle. In virtually all religions, there are Scriptures or quotations about giving back. The Bible says “He who sows sparingly will also reap sparingly, and he who sows bountifully will also reap bountifully” (2 Corinthians 9:6). The principle of giving back works whether people are religious or not. I’ve seen it work, even with hard core atheists.

  Most people know about the principle of sowing and reaping; it applies to anyone who applies it. In order for our country to prosper, people need to “voluntarily” give back some of what they have acquired. However, the people are the ones that should decide who they want to give charity to.

  In the early years, our country didn’t have a welfare system. I learned from my grandfather that if a family down the street fell on hard times and needed food, the whole neighborhood would rally and that family would receive food until they got back on their financial feet.

  When we give back, we are rejecting the evil characteristics of greed and selfishness that have put our country in its current predicament. So many businessmen, politicians and bankers have been so greedy and selfish, keeping the secrets of the wealthy to themselves. Consequently, an attitude of selfishness has taken over the land. Instead of give and it shall be given unto you, the new motto is:

  · Get all you can,

  · Can all you get,

  · And sit on the can.

  Giving will:

  · Help others help themselves

  · Help you have a cheerful heart

  · Bring back more to you

  I know several people who give bountifully on a regular basis. I was on a tour in a remote village in Central America where the children didn’t have shoes and did not go to school often; the school was several miles way and their feet would get sore from the exposed rocks after the rains. My fellow travelers, who were wealthy, immediately jumped into action and not only had one of the local women gather up all of the shoe sizes for all of the children in the village, but they also bought them a forty-five passenger bus so that one of the local adults could drive them back and forth to school! These people remain blessed, in my opinion, partially because they follow the sowing and reaping principle.

  Let’s get into the habit of giving back on a regular basis. Whether to your church, your community youth center, or the Salvation Army, we need to come together to rid the country of the greedy attitude that has so damaged it.

  SECTION THREE

  SAVING

  Once you have started to reduce your expenses and increase your income it’s time to start saving.

  Why Should I Save?

  Believe it or not some people don’t understand the necessity of saving and others don’t believe that they need to save. No wonder so many people are constantly living on the poverty line. When my children wanted to spend all of their allowance I wouldn’t let them. I bought both of them three-drawer boxes and made them give 15%, save 35% and then they could spend 50%. They didn’t like that rule and asked me why they had to save. I let them know that there would be times that some special event was presented to them, or an opportunity to take a trip, and if they didn’t have any money they would miss out. I turned into my father and told them that luck is when preparation and opportunity meet, and being prepared often involves having the money to take advantage of a given opportunity.

  It is my understanding that Conrad Hilton purchased many of his starter hotels during the depression at fire sale rates because he had the cash. From there everything is history. During the depression of 2008 and for a few years following, there were thousands of people that were able to purchase real estate for pennies on the dollar because they had savings. Not all of these were rich people. I know of a couple that had been saving for a modest home and making sure that they were working towards being debt free. They planned to purchase a three-bedroom home in a decent middle class neighborhood. However, right after the crash when the housing market tanked, they were able to purchase a five-bedroom home in an up-scale neighborhood for the same down payment and monthly payments they would have paid for the smaller home a few years earlier. Someone that had not saved and was living from hand to mouth in a large home had to sell it and lose all of their equity in the house in order to avoid foreclosure and bankruptcy.

  Savings are also essential because they help you avoid using credit for purchases. People that spend all that they earn end up using credit cards and loans for so-called emergencies; like new tires, replacement appliances, repairs and funeral expenses. This is the money you put aside for future expenditures that may occur in the next three to fifteen years. For example, I have an associate that decided to go to graduate school. Because she saved lots of money she was able to be a full-time student and live off her savings for the entire degree program instead of taking out student loans. You also want to save for vacations. I know so many people that take vacations using credit cards and loans. They may have had a nice time for a week or even two, however, when they return home the bills start arriving in the mail, causing stress and diminishing the value and memory of their vacation.

  One other very important reason to save is in case of financial disaster. We never want financial calamity to strike our families, and we pray that it doesn’t. However, sometimes bad things happen. If you have saved money for “a rainy day” then your family stability can be kept intact. For example, I have a relative that lost his job during the depression of 2008. Because he had diligently saved his money he was able to live for two years until a new job came along. He didn’t have to borrow or use credit cards during that time. If you’ve saved money for things that don’t occur often and for financial tragedy, your diligence will save you from paying interest on loans and credit cards, keep your credit score high and give you peace of mind.

  How Should I Save?

  I believe that you need at least three “savings pots”. I like having a short-term savings pot, a mid-term savings pot and a long-term savings pot. At this time I think it prudent to explain
the difference between saving and investing. When I mention the long-term savings pot people often mistake this pot for investing but this is not the case.

  The purpose of saving is to safeguard that set-aside money—the money for emergencies and planned short-term expenses like vacation or college. The purpose of investing is to grow the money that you have put away. Invested funds are above and beyond the amount you need for future expenditures and possible financial disaster. In essence, the savings pots will be used at some point in the near future or up to 15 years out, but it will be used for planned expenses. The investments are put aside to constantly and consistently grow so that you can live off of those funds and their earnings even when you are no longer physically working.

  Now that we have discussed the difference between saving and investing let’s discuss the different savings pots.

  Short-Term Savings Pot

  I believe that the short-term savings pot is something that you can save in a hidden place in your home. The short-term pot may be up to around $6,000 and will cover some of the following items:

  · Tire replacement

  · Major auto repairs (timing belt)

  · Vacations

  · Emergency travel (funerals)

  · Appliance repairs and replacement (air conditioners, water heaters)

  Mid-Term Savings Pot

  These funds should be absolutely safe but not kept in your home because of the amount of funds. A bank CD is an option but understand that you will not be earning any significant amounts of interest on the funds. These funds should be used to accelerate debt payoff and to keep handy in case you need to buy large items like used cars. The mid-term savings pot may be up to around $12,000 and will cover some of the following items:

  · Paying off a small credit card

  · Buying a good used car

  · Large home repair (roof repair)

  · Long term or international vacations (Mediterranean Cruise)

  · Six months of living expenses in case of a medical or other calamity

  Long-term Savings Pot

  The long-term savings should also be absolutely safe. These funds may be placed in a Money Market Account or some other account/instrument that is (1) liquid and you have the ability to access it within 72 hours or less and (1) earning some type of interest above what a regular bank savings account pays. These funds should cover very large future expected or unexpected expenditures. The long-term savings pot will be more than $15,000 and will cover some of the following items:

  · A new car

  · College tuition

  · Medical bills not covered by insurance

  · Living expenses in case of a job loss or

  · Other family adversity

  Where Should I Save?

  This money should not be put in stocks, bonds or mutual funds because they are failures. If you don’t believe that go back and look at news stories from September 2008. The value of stocks slipped back into pre 1930 values after the depression of 2008 and even though the financial gurus are telling you that the Market has recovered it’s only pumping up for another crash in the near future. Your savings and investments should be kept far from the digital forms of investing and put into hard assets. For the savings pots you may want to keep some in a Money Market account, or a special college fund that lets you take the money out tax free for tuition, but that’s as far as I would personally go. I have some of my savings in gold and silver, some in cash and some in negotiable instruments (A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document). Investments will be discussed in the next section.

  Note that when these funds are diminishing in any category you must immediately begin to replace them before they are depleted. Also, savings pots should never be invested in stocks, bonds or retirement funds because you can’t take the chance of seeing your funds disappear like they did in 2008; you won’t have time to recover!

  SECTION FOUR

  INVESTING

  Where Is The Road To Wealth?

  The Road to Wealth

  High Risk/Speculative Investments (Last)

  Capital/Guaranteed—Low Risk Investments Emergency Funds—Three Months of Household Expenses

  Insurance (Health & Life)/Assurance—Six Months of Expenses

  Your stair step to financial freedom can be found above. If you follow this model and the other rules in this book, before you know it you will be stress free and on your way to the winner’s circle.

  Let’s start out on the bottom with Insurance and Assurance.

  Insurance is self-explanatory. It is good to have life and health insurance as well as home, auto, and any other insurance that will help you in times of need. Make sure that you shop around for the best prices as you have learned to do in this book. There are many Internet sites that will give you quotes on all types of insurance coverages. Take time to research so that your expenses will be low and your coverage will be good.

  Assurance means that you have saved six months of living expenses in case of some disaster. If you can’t work for six months but all the bills are still due, how much would you need to make sure that you won’t fall into financial ruin? If your household income and expenses are $3,000 per month, you can see that you would need to save $18,000 in Assurance. You need to keep this money very liquid.

  One clever strategy is to purchase three bank CDs for $6,000 each as you accumulate the $6,000 increments. Purchase three-month CDs three months in a row, so that one will mature every three months and you will have your expenses taken care of in case of emergency. Keep the funds in any liquid means that you want, although I don’t recommend keeping that kind of cash under your bed.

  Emergency funds. This is an unreal term, because we really don’t have that many emergencies. You know that those tires will be bald soon, and you know that elderly relatives will pass away; these are not unexpected occurrences or emergencies.

  Many people tell me that the reason they are in debt is because they had several emergencies and that they had to charge their credit card to the max. When I asked what the emergencies were, they told me things like:

  · “My transmission blew,” but you knew you had 315,000 miles on that truck and that it was time for some maintenance.

  · “Aunt Lula Mae passed away and I had to get a flight to the funeral and because it was last minute, the flight was $1,000 and I had to charge it on my Visa,” when you knew Aunt Lula Mae and all of her sisters were elderly and that you should have put travel money aside for the funerals.

  · “I needed a vacation because I was under a lot of stress, so I charged a 7-day Caribbean cruise on my card,” and you came back more in debt and under more stress!

  We can’t keep using excuses to hide our lack of planning. Put three to six months of living expenses away for irregular occurrences to keep from racking up credit card debt and interest.

  Estimate a monthly amount in all of your expense categories based on what you spent last year, then add additional categories for your family, and multiply by 12 for the annual estimates. Take that annual total to see how much per month you will need to put aside for emergencies. If three months of living expenses is not enough, add additional months as needed.

  For example, The Duncan family likes to take vacations. They have totaled up their so-called emergency expenses and determined that they need $14,373 per year to take care of things other than household expenses. Their lifestyle requires that they either set aside $1,197 per month for this fund, or cut down on their vacations and other noted expenses. If they continue to fund these irregular expenses without planning for them, they will fall deep into debt. Credit card debt is the most popular way to get deep in debt, so stop using them for things you can’t afford to pay for in cash!

  Capital Guaranteed Investments

  Capital guaranteed investments simply mean that if you put a certain amount into the investment; y
ou will at least get that amount back. These investments are available in the states and offshore, but they are rare.

  We will talk a little more about offshore investing in our section about what the wealthy do. However, some of us have noticed that the “powers that be” and the news media try to scare the middle class away from even thinking about investigating offshore by associating everything offshore with something illegal. If you put on your thinking caps, you will see that all of the wealthy families; the Rockefellers, Carnegies, Fords, and Kennedys have millions of dollars invested offshore directly and indirectly. If you look at what they are doing, how can you be scared into keeping your funds in losing instruments here in the States?

  Investments that are capital guaranteed are better for the beginner investor who can’t afford to lose what has been invested. A good investment coach will tell you, “Never invest what you can’t afford to lose.” Many of us have been shell-shocked by smooth-talking investment gurus in Italian suits, telling us that their investment will gain us 5% per month. There are investments out there that will bring those kinds of returns; however, your job is to investigate and research these investments instead of just throwing your wallet at the person with the smooth presentation.

  Doing your research and finding capital guaranteed investments at the start of your investment experience will keep you on the road to wealth without any sidetracks, such as those with pie in the sky numbers that make you lose your investment funds.

  One capital guaranteed/low risk (usually) investment is real estate. Real estate is currently coming out of a free fall in the States, but real estate in other countries is another option that many here, even real estate agents and brokers, have not looked into. Countries like Costa Rica, Panama, Ecuador and Nicaragua are booming, and because of their weather, many retirees from all over the world rush in to buy land.