Getting ready for the lean cows!

“And the lean and the ill-favored kine did eat up the first seven fat kine.” (Genesis 41:20)

Till today, I haven’t met any person yet who does not like having a lot of money whether they keep a good or bad relationship with it. Unfortunately, I do know many people that ignore how to retain the money earned which sometimes it is so difficult to make. There are several dreamed easy ways of making easy money such as: receiving an inheritance, finding a treasure, rob a bank (and don’t get arrested), winning the lottery, marrying a millionaire, etc. If you don’t have good luck making money in those nearly impossible ways then you will have to “generate” money, save and/or invest to have something in the near or distant future, but first of all you must educate yourself to know what to do.

I honestly believe that money itself isn’t the solution, it’s easy comes and easier goes… Mike Tyson, MC Hammer and most of the lottery winners end with nothing or less money than the initial point and at the same time we all know families that “keep or increase” money for generations. It’s all about the Financial Education.

Even if you have a whole lot of money, this post could also be instructive for you. The key isn’t how much money is earned but how much wealth is held back. Indeed, one of the richest men on the planet, Warren Buffett, expressed that the difference between the rich and the “others” is that the rich class first pay themselves and they spend afterwards, while the others (poor and middle class) spend first and if there is something left, then they will save it. Only saving money nowadays does not lead anywhere, like we have explained above, but it’s a step forward to reach the Financial Independence.

Please do not misunderstand the concept of paying yourself first. This does not mean to spend the money earned, that would keep you with financial issues forever. Paying yourself first precisely means to invest in yourself with education and investing in your future. In an earlier post we explained the horrendous management that government does with the money and how the Social Security future is so uncertain. Remember that governments are the worst administrator ever seen, so, do not expect any miracles from them.

Nevertheless there is great importance in investing to generate money; if you don’t save you will have nothing tomorrow. What I highly recommend is an education on how to save and make your money work on your own benefit. Earlier in the post “The Gold Rush” we saw the importance of precious metals as economic patterns, that is, they can be used as reference for the amount of money circulating in a country or even globally. But because that standard does not exist in our days, your money is debt and it’s volatile, not only yours, mine is as well and even the one that our president makes too.

There are several places that you can temporarily save your money; at home, in a savings account, money market account, certificates of deposit and other economic mechanisms. I don’t include the bonds either from the governments or companies, nor the famous plans IRA, 401K (please remember 2007)¹, etc, since those are retirement plans and long-term indeed, in addition that money won’t be available in cases of emergencies. I mean deposits from which you can get your money liquid and immediately whenever it’s necessary.

Without any action the money slowly or quickly will vanish. Although I recommend to save at least ten to thirty percent of your income for savings, you can do it based on your means. So save whatever is possible, but do it. There must be a commitment to accomplish this task. I recommend two types of savings:

1. Savings for “short time”. This money is saved for use for any eventualities and/or emergencies needed (it isn’t for daily expenses or any planned expenses), this money can be deposited in a regular savings account.
2. Savings for investing (long-term) will be exclusively used for investments and this is sacred and untouchable. Later on in this post I suggest some points regarding investments. In this account for investments, as it’s for a long term, you can deposit your money in a Money Market account, Certificate of Deposits (CDs), even precious metals or any investment where you can ease or overcome the inflation effects.
3. Finally I propose some “Extra savings” for donations (remember that helping and sharing with one another is a privilege, plus it’s also tax deductible) but again this type of saving is totally optional.

In case that you do not spend any money previously allocated in your regular savings, this can be transferred to your investment account. Here we fulfill the premise of “paying ourselves first” and spend afterwards.”

So what should you invest in?

This is one out of the many points that needs more than one post to explain the almost infinite options that are out there. They must be studied in detail because they have an associated level of risk, monetary capacity, time and aggressiveness. More than anything else, they carry (or must carry) a lot of study and preparation.

Invest in yourself! This is the foundation of life. Financial ignorance drains more money than anything else, we commented about those persons that wasted real fortunes.

Although some people are born in golden cribs the great majority aren’t but we are all gifted with intelligence and 24 hours per day, both can be miraculously raised. School, books, courses, seminars and other forms of learning, help us feeding much more than our souls, they may feed also our pockets. Afterwards, when you gain confidence and expertise about how to operate we recommend to invest your money… bonds, precious metals, commodities, collectibles, real estate, etc. Please, notice that I do not mention the stock shares or trading because without knowledge of what it is, this “investment” may be compared with the Lottery unless fraud is committed and it even took Martha Stewart to jail in the past.

Investments in artworks, precious metals and real estate (buy, “flipping”, sell) base their profits in the appreciation and Time (capital gains). Let’s say your great-great grandfather got one of Van Gogh paintings (it is said that he only sold one in lifetime) and now it could be worth millions. Sales are normally driven by the universal law of supply and demand (there must be someone willing to pay a price). Real estate behaves differently, based on the use given to them; a rented house can produce cash flow without any need of selling and there are other extra fiscal benefits. However if the house is sold the owner would see the money or profit only when it manages the sell and it’s worth saying that taxes must be payed on housing (property taxes) and  sales taxes too² (depends on what you do with the money) and closing costs and much more.

The Government provides numerous fiscal incentives, as less or no need to pay taxes for “those people” who offer jobs, housing, food, technology, energy, etc. If the aforementioned appears to be a synonym of the “rich class” it is not a coincidence but a fact. The rich class study and use these “fiscal incentives” very well to retain more money, another way to pay themselves first, in fact many pay very little or no taxes³ and all this by legally studying the system and taking advantage of the incentives. Preparation undoubtedly makes a remarkable difference in any persons future.

Empty your pockets in your mind and your mind will fill and overflow your pockets! Perhaps at this moment you don’t have enough to invest or you can’t even save a penny now, but what I can assure you is that any bad situation can be reversed and overcome. No matter the place were you are now there is a lot of information available, even for free. So make the difference today to change your future.

Let’s prepare now to prevent the hungry and lean cows from devouring the beautiful cows!

1. The financial crisis is referred to the year 2008 but in fact it began in August 2007 with the subprime mortgage bubble. The stock market panic aggravated the crisis in 2008. The funds in  401K retirement accounts  were very affected by such a blow. Many people at retirement age lost their savings wagered on these accounts.

2. In the US taxes can be divided in three main groups. Property taxes, sales taxes and income taxes. In addition some states and cities have their own income taxes and last but not least there are some more specific ones such as estate, hotel, gift and also sin taxes (this one is applied to tobacco, alcohol and recreational drugs -where they’re allowed).

3. Tax incentives exist for all persons. This is absolutely legal and the vast majority of these people are audited all the time (internally and by the IRS) to verify if they are not incurring in any illegalities in the payment of their taxes. There are incentives on fiscal taxes for almost all people, only that they are different depending on how the money is “created” as well as the amount accrued.