Do Rich Parents Matter Round Up?

By: Roshawn Watson

Does parent wealth decide kids ultimate intelligence? There's a loaded question with no easy answer, but a new paper has shed some light on this age-old question.

Many parents will argue that even some of the most basic acts of parenting, such as choice of daycare or time allocated for television, can significantly impact their child's success. Nonetheless, much research examining many different traits (i.e. self-control, intelligence, etc.) suggests that the home environment has a much less profound impact than genes and peer group.

A recent study evaluated the mental ability 750 American twins at 10 months old and then again at 2 years old. The thought was by contrasting differences between fraternal and identical twins, researchers could better understand the impact of genetics and home environment. Also, the babies came from a variety of different socioeconomic statuses (SES), so the influence of wealth and home environment on test scores could be studied as well.

The Results

• The home environment of 10 months olds was the key determinant of mental ability across every socioeconomic level.
• However, at 2 years, wealth made a big difference. For 80% of the children from lower SES, their mental ability was still determined by the parents. Genetics had negligible effects.
• For wealthy 2-year olds, the outcome was starkly different. Genetics accounted for nearly 50% of all differences in mental ability. This determination was made because identical twins performed much more similarly than fraternal twins. Home environment was much less important ("a distant second").

Conclusions From Research

Increases in wealth are inversely correlated with the impact parental choices have on kids' mental ability. That's because "(w)hen you remove the environmental variance, the genetic variance remains." (Razib Kahn) The results also suggests that the genetic potential of 2-year olds may be held back based on the SES of parents. Attempting to eliminate home environment inequalities in early years would not correct for the impact genetic variation has on mental development. I would be interested in longitudinal studies following these kids as they progressed throughout life to see if these same associations persist, and it would also be nice to see if the results of this study are replicated. Perhaps an equally interesting question is what impact does mental ability have on overall success (this is not an indictment on being smart...just food for thought).

Thought Question: What do you think of this research and what kinds of things do you do (or your parents) to give children the edge?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely.

Personal Finance (Yakezie and other PF bloggers)

Which Financial Author Should You Follow? at Money Reasons - Don writes about the distinctions between popular personal finance authors: Dave Ramsey, Robert Kiyosaki, and David Bach.

How To Calculate A Time Weighted Return? at DIY Investor - Robert challenges DIY investors to  monitor their portfolio performances more closely by using this calculation.


Spend $10 Cash or Use $20 Store Credit at Retire By 40 - Talk about an interesting dilemma, RB40 poses a dilemma that we've all faced. What I found even more interesting than the question was that every came up with an identical answer!


Up From The Projects at The Biz Of Life - I'm not much for book reviews, but the Grouch makes an easy case for reading Walter Williams's autobiography. This is the aggregate wisdom this trailblazer has accumulated over a lifetime.


Centavos Dividend Stocks at 101 Centavos -Andrew gives a peak inside of his dividend-generating holdings.

10 Home Renovation Tips Learned From Experience at Everyday Tips and Thoughts - Kris explores 10 ways to get the most out of a home renovation.

How Much Home Can You Really Afford at Invest It Wisely - Oldie but goodie... It's quintessential to not overextend yourself for the reasons we discussed earlier this week.

100 Words on Credit Cards at Len Penzo - Len challenges the "credit cards are evil" camp.


Business
How Education Impacts Your Income

Google CEO surprise: Larry Page replacing Eric Schmidt

Groupon CEO says exploring IPO; no decision

Google to hire more than 6,200 workers this year
Housing
US Home Prices Slump Again 

Secretary Geithner Sends Debt Limit Letter to Congress



Entertainment Money News

Zsa Zsa Gabor's Mansion for sale for $28 million (pics)

Regis Philbin Quits over pay cut (from $18-$20 million...)

Hollywood Comedy Queens - How Much Do Their Movies Rake In?

They're Rich and Famous and In Foreclosure


Offbeat Money News
The End of Credit Cards

Carnivals that I've participated in:
Festival of Frugality at Spruce Up Your Finances - What Are Your Financial Regrets? (Editor's Pick) 

Round ups that linked to posts from this site

• Kris at Everyday Tips and Thoughts - Weekend Round Up - 3 Teens Editions
• Kevin at Invest It Wisely - Weekend Reading: Moving Edition
• Don at Money Reasons - MR Cache: Getting Traction
• Andrew at 101 Centavos - Random Comments and Round Up links
• Len at Len Penzo - Black Coffee Round Up
• Retire By 40 - Blogging Fun and Napping
• Funny About Money - Moments of Fame
• Maximizing Money - 58 Ways To Save or Make Extra Money

Non-Round Up Mentions

• Khaleef at KNS Financial - Best Personal Finance Blogs in 2010 and Ones to Watch in 2011
• Miranda at Moolanomy - 11 Lesser Known Finance Blogs to Read in 2011

Is a 15-year Mortgage For Everyone?

By: Roshawn Watson

There are few decisions that will likely impact your finances more than the place you choose to reside. If your house is your biggest investment, that typically IS the problem. That's because few purchases will impact your cash flow as much, and your income is your most powerful wealth-building tool. Unless your family has (or will have) a substantially large sum saved for this purpose, you will likely have a mortgage. Unfortunately, some have learned the pitfalls of adjustable-rate and balloon mortgages first-hand; however, under what circumstances should someone avoid even a 15-year fixed mortgage?

Mortgage Debt Is Different

Mortgage debt (on a primary residence) is practically the only debt that even some of the most financially-conservative advisers and commentators will approve. It differs substantially from credit cards and student loans in that it is secured by the value of the asset. Presumably, it differs from car debt as well because cars rapidly depreciate, and homes generally don't and even have the potential to appreciate (especially over the long term and in good neighborhoods). Plus, you can get money out of your home by selling it; also, you have to live somewhere anyway. Despite these distinctions, a mortgage is still a debt and can wreak significant havoc on your finances if not handled properly. If you doubt this, just ask these financial elite.

Should the Mortgage Be 15 or 30 Years?

It's is amazing how much mortgage brokers will pre-qualify you for, despite the tighter lending standards. There's a reason why they call them brokers: the wrong one can make you broke! However, their loose standards should not be the primary determinant of your housing budget. Remember, their primary ambition is to sell you debt for a profit! My concern is that you  make that profit. Some ways to make sure that you haven't financially overextended your family are to make sure that you meet the following minimal guidelines:

• Principal, interest, taxes, homeowners associations dues, and insurance should not exceed more than 25% of your net (take-home) monthly income on a 15-year fixed mortgage
• The mortgage is no more than 3 times your annual household income (2 times if you are especially conservative).
• You are free of all consumer debt (including student loans, car note, credit cards)

To do this requires a measure of delayed gratification that many people do not possess nor aspire to have. Also, there are some real estate markets where meeting these criteria will be more challenging. Yet, following these guidelines would allow most people to hit their other main financial goals (i.e. retirement and college funds, giving, paying off the mortgage early, and other investing) with such an uncommon vigor and power that few will ever truly experience.

Imagine what it feels like to be able to have the freedom to invest thousands on a monthly basis!

The rationale for a 15-year fixed mortgage are numerous, even at today's ridiculously low rates. First, choosing a shorter term usually means you'll get a better rate, so you'll pay much less interest over the life of the loan. Let's look at an example: if you borrow $200,000 (on a $250,000 home) on a 30-year fixed mortgage, then your monthly payment is $1081 at the present interest rate is 4.81%, and you'll pay a total of $389,160. However, if you borrow $200,000 on a 15-year fixed, your monthly payment is $1479 at the present rate of 4%, and you'll pay only $266,220. Thus, you'll save $123,000 in interest just by going with the 15-year mortgage because you cut the life of the loan in half and pay a lower interest rate. If you don't think $123,000 is significant, then just write a check for $123,000! It bothers me that most people do not give thought as to how they are going to replace that $123,000 when they opt for 30 year loans? Second, paying a 15-year mortgage instead of a 30-year mortgage indirectly acts as a forced savings mechanism. You'll simply pay more principle faster throughout the loan. Of course, the end goal is to invest so that you can build some real wealth. Third, 97% of people do not systematically prepay their mortgages. This is important because this means that the people who truly execute "paying a 30-year mortgage as a 15-year mortgage" are few and far between. Fourth, since you will finish at least 15 years earlier, imagine how much you can invest once you no longer have any debt payments!

The Small Mortgage Invest The Rest The Rest Strategy

The Wall Street Journal wrote an article that contrasts the outcomes of buying a $1 million home as opposed to a $400,000 home and investing the balance (in mutual funds). The author found that in the long run, the "small house, invest the rest" strategy is far superior to the "big house" strategy financially speaking.

[Y]our portfolio would be worth $2 million in today's dollars...almost twice what you would pocket with the "big house" strategy. With the "big house" strategy, not only would you face hefty mortgage payments, but...also...(higher) property taxes, maintenance costs, homeowner's insurance and utility. However... you would live in a grander place but that just highlights what this is all about. Buying a bigger house isn't an investment. Rather it is a lifestyle choice, and it comes with a brutally large price tag.

Back In Vogue

Did you know that 15-year mortgages are coming back in style among those who refinance?

CoreLogic reported that the 15-year fixed-rate mortgage made up 9.4% of the refinanced mortgages in 2007, 18.5% in 2009, and 26% for the first part of 2010 (January through June). There is clearly an upward trend! Homeowners choosing the 15-year fixed mortgage typically share the following characteristics:

1. they prioritize paying off debt
2. they see the risk in viewing their mortgage as part of their investment portfolio (using the mortgage as leverage to invest)
3. they are typically older and don't have some of the same expenses as their younger counterparts
4. they typically have a higher income and higher equity.

Remember,15-year mortgages pay off in 15 years every time (assuming you didn't take money out of the home or prepay). Additionally, almost 100% of foreclosed homes have mortgages, so the sooner you get rid of yours the less likely you are to be foreclosed on. If you choose to get a mortgage, why not do so in a way that is the least risky? After all, I'm absolutely certain that you could find a better use for that $123,000 than your mortgage company anyway!

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.

Related Posts
My Big, Fat Trashy Home: The Fall of the McMansion

House Prices Dropping Faster Than During The Great Depression

The American Dream: Asset or Liability

Is Home Ownership Still A Good Investment?

The Unheeded Warning Round Up

By: Roshawn Watson

Lately unemployment and the intricately-connected consumer spending have rightfully been the macroeconomic topics of the day; however, do you remember that thing called the housing bubble?

Well, leave it to Bloomberg News to do a little controversy-inspiring digging into past transcripts from Open Market Committee meetings that show how the Fed ignored warnings about a housing bubble. Moreover, a Fed adviser inappropriately derided the very people sounding the alarms. Interestingly, one of the people who raised his voice is no other than our current U.S. Treasury Secretary: Timothy Geithner.

Here's how the situation unfolded. The committee removed uncertainty about the pace of rate increases by stating that future moves would be “measured” in every statement. "The 'measured' pace language helped fuel the housing boom by keeping longer-term interest rates low and was inappropriate at the time given the uncertainties about both inflation and asset prices."

Timothy Geithner was then the New York Fed President, and he raised concerns about "the low expectations of risk and volatility in financial markets." He regarded the economic outlook at the time “implausibly benign.” “The confidence around this view, which is evident in low credit spreads -- low risk premia generally -- and low expected volatility, leaves one, I think, somewhat uneasy,” said Geithner.

A few months later former Atlanta Fed President Jack Guynn remarked that he had “continuing concern about speculation in (the real estate) markets.” A month later, some staff economists gave presentations raising concerns about the housing markets, but these warnings did not result in more aggressive policy.

Additionally, the then Federal Reserve chairman Alan Greenspan countered that even dropping the word “measured” from statements "would imply that we’re really beginning to see developments out there that are moving very rapidly, and I think it’s too soon to conclude that... "(w)hatever froth there is in the housing market is becoming contained at this stage, and it’s getting contained largely because mortgage rates have moved up and are beginning to have an impact.” (December 2005)

These comments reflect Greenspan's well-document stance of market sovereignty. We all know what happened in the following years. Clearly, in hindsight, many believe it was a mistake to ignore these warning. Of course, hindsight is also 20/20.

Often we dismiss the very people who hold the keys to redemption. My friend often says that not listening to the right people is sometimes a greater mistake that listening to the wrong people or by going with our guts.

The link for entire article is under the Economics subheading below.

Thought Question: When did you realize something wrong was going on with the economy?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely.

Personal Finance (Yakezie and other PF bloggers)
A Couple Quotes from Dr. Martin Luther King at Everyday Tips and Thoughts - Kris invites us to share our favorite quotes from Dr. King - I shared mine. He's such an inspiration!

What's Up With Inflation at DIY Investor - Robert writes about inflation an the implications to investors!


Thoughts for Tax Season at 101 Centavos -Andrew challenges some commonly held myths about taxation and offers a way to decrease your taxes.

5 Eco-Friendly Products for the Smart Saver at Moneycone -MC comes up with some great green ideas that are also economical.

Our First Condo Together at Invest It Wisely - Kevin purchased his first place; this process is so exciting. He invites us to list the pros and cons of our places as well.

The Problem That's Always Decades Away at The Biz Of Life - The Grouch challenges us to confront our economic problems now instead of waiting until an "inevitable" crisis point.

Just a Little Bit More at Money Reasons - Don challenges us to push pass the point of resistance to our breakthroughs!

Business
Eric Schmidt is stepping down as CEO of Google, and Larry Page is taking over the company.

Apple Shares Fall 4.4% as Steve Jobs Takes Medical Leave

Goldman to Offer Facebook Shares Only to Non-U.S. Clients

Economy
The myth of 'American exceptionalism' implodes. Until the 1970s, US capitalism shared its spoils with American workers. But since 2008, it has made them pay for its failures

Bloomberg bombshell article: In 2005 the Fed identified the housing bubble, but 1 man, Richard Peach dismissed the research, and even ridiculed the media for pointing to the bubble. Richard Peach is still working at the Fed giving analysis

Entertainment Money News
Kristen Stewart using her money for a very good cause

Arnold -- Being The Governator Cost Me $200 Million

Carnivals that I've participated in:
Carnival of Personal Finance #292 at My Personal Finance Journey - Setting The Course For The Impossible

Festival of Frugality at Free From Broke - Do You Save Instead of Paying Debt?

Round ups that linked to posts from this site

• Kris at Everyday Tips and Thoughts - When Will Spring Be Here?
• Kevin at Invest It Wisely - Weekend Reading: Snow and Ice Edition
• Don at Money Reasons - MR Cache: Overwhelmed Edition
• Andrew at 101 Centavos - Random Observations and Round Up links

Politics of Envy

If I can't have it, no one will!

It is so insidious that it often goes unnoticed until it has festered and poisoned the soul. The undertones of much of the rhetoric have been so negative and divisive and suggests that envy could be driving our domestic economic policy. My concern is not political but rather economic: what are the financial implications to the politics of envy?

For Shame!

Sometimes people encourage envy.

Former Tyco CEO, Dennis Kozlowki, believes envy is what got him convicted of defrauding shareholders. He maintained his innocence throughout the ordeal and says he was sent to prison because the jury weren't his peers: they couldn't empathize with someone as highly compensated as he was. "I was a guy sitting in a courtroom making $100 million a year, and I think a juror sitting there just would have to say, 'All that money? He must have done something wrong.' I think ...it's as simple as that." The legal fairness of his trial is certainly debatable, but what his response lacks is an acknowledgment of his own contribution to his unrelatability. For example, he threw a lavish 40th birthday party for his wife with costs exceeding $2 million that was very highly publicized.  Perhaps what the jury couldn't identify with is someone who is filthy rich and shamelessly broadcasts his indulgences.

An even more poignant example are the GM and Chrysler CEOs who famously flew in on corporate jets to beg Congress for bailout money. The outrage rightfully reverberated throughout the country: are you saying that first class flights weren't good enough, given the reason for your visits? Quite simply, it would be a sign of good faith: we realize we can't conduct our business affairs in the manner that we have done in past.

In the aforementioned cases, these wealthy men are their own worst enemies, not for being wealthy, but for not being able to appropriately exercise restraint in flaunting their wealth.

Is the Tax System Progressive?

The short answer is yes. A recent paper by Greg Mankiw entitled “Spreading the Wealth Around: Reflections on Joe the Plumber” cites the Congressional Budget Office calculations.

The poorest fifth of the population, with average annual income of $15,400, pays only 4.5 percent of its income in federal taxes. The middle fifth, with income of $56,200, pays 13.9 percent. And the top fifth, with income of $207,200, pays 25.1 percent. The richest 1 percent, with an average income of $1,259,700, forks over 31.1 percent of its income to the federal government.

Accordingly, he concludes that it is simply inaccurate to argue that we do not have a progressive tax system and that the "best analysis shows that average federal tax rates rise steeply with income.” 

Additionally, consider that nearly 50% of all filers pay nothing in federal income taxes. These non-payers are families with children, the elderly, low income households, those who either have too little income to pay taxes or who benefit enough from all the deductions, credits and exemptions in the income tax, so they're zeroed out on the bottom line of their 1040. 

This leaves the higher income earners and upper middle class paying the bulk of income taxes. Those who earn over $500,000 per year pay about 24% of all US taxes and earn about 16-17% of all income. Those who earn over $100,000 per year pay about 70% of all US taxes and earn about 56% of all income.

Does Redistribution Create Wealth?

Here's a question: can the politics of envy (for example using the tax code to extract money from one group to give to another group) achieve economic growth? If the core goal is to redistribute the existing wealth rather than create incentives to stimulate growth, then what is the ultimate outcome? 

Often initiatives designed to strip one segment of the population of their wealth have unexpected implications. Maryland failed to balance its budget in 2007, so it decided to create a special millionaire tax bracket to make up the deficit.

“Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were ‘willing and able to pay their fair share.’ The Baltimore Sun predicted the rich would ‘grin and bear it.’"

However, there were two things that Maryland politicians didn’t count on (1) a world-wide economic crisis decreasing the number of million dollar earners and (2) millionaires simply leaving (or taking in less income). “By April 2009, one-third of the millionaires had disappeared from Maryland tax rolls. On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did the previous year -- even at higher rates.”

Indeed, the number of residents with net taxable income of $1 million or more fell more than 30% to 4,910 in the 2008 tax year from 7,067 the year before. Of the 2,157 “missing” millionaires, the Comptroller’s office said 542 filed no tax return for 2008. Of course in addition to moving, some of these 542 million dollar earners died, requested extensions, or just didn't file. Also, don't forget that some of the 2157 likely lowered their taxable incomes to avoid taxes.

Flawed Logic
Rather than creating wealth, my concern is redistribution removes the incentives for creating wealth.  Aside from whether or not you believe it is just for someone to have more wealth than most of society, there are other issues with redistributing wealth. As Maryland case study (and other states have repeatedly proven), the rich tend to control the velocity, the location, the source, and the volume of their income. The projected increased tax revenues often have a way of not materializing. Also, many people reading this are a lot richer than the rest of the world. An income of over $25,000 annually puts you in the top 10% of income earners in the world, so consider how much more of your income should be redistributed in light of that fact. I doubt merely knowing that fact sufficiently motivates you to give away over half of your income, and if someone had the audacity to force you to do so, you would be considerably upset and not motivated to work harder. The point is there has to be a balance between taxation and incentive. Also, to say that one group of people is more moral for wanting to take money via taxation than others for wanting to control how their money is spent, saved, invested, and given away seems like flawed logic.

Reverse Strategy... Again?
Rather than trying to make the wealthy less wealthy to tackle our budget deficit, could creating more affluent and wealthy individuals do the job? For example, Maryland, California, and New Jersey and other states that have been hammered with the economy all highlight some of the challenges of depending on  relatively few people to finance our government. If we have more people paying taxes (and exercise more fiscal constraint), the deficit will surely diminish. I acknowledge this is a daunting task that doesn't always yield immediate results, but over the long term, at least this strategy has the possibility to eliminate our budgetary shortfalls. I think this would be a much better use of our energy.

What say you: do we actually need more affluent and wealthy individuals? Are you ready to take your rightful among the affluent and wealthy?

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.

Related Posts
 
Do The Rich Pay Their Fair Share Of Taxes?

Revenge Of The Millionaires

Will the Economy Collapse In 2011?

Personal Responsibility Round Up

By: Roshawn Watson

You are the key to your own success, but personal responsibility seems like such a rare character trait nowadays. This is problematic because the moment you make a quality decision to make changes in your finances, your life changes. Kevin shared this relevant quote earlier this week.    

The best day of your life is the one on which you decide your life is your own. No apologies or excuses. No one to lean on, rely on, or blame. The gift is yours – it is an amazing journey – and you alone are responsible for the quality of it. This is the day your life really begins.

~Bob Moawad

One of the reasons we deflect ownership of our problems is because with it comes the burden of solving them. Sometimes we forget that with ownership also comes the freedom of deciding our destinies. For those who chose not to participate in the most recent recession, I applaud you. You are the salt of the earth.

One of my mentor's business was doing about $4 million a year in revenue when he got very ill. Doctors told him that he could not keep up the pace he was going, and he freaked. He knew there too many aspects of his business that depended on his direct involvement, yet he was no longer in any shape to continue. He painstakingly restructured his business so that he could delegate much more work, and he focused his efforts on his recovery for the next three months. He did not even leave the house. That year, his business revenue increased to $20 million. You see, he did not only feel the responsibility to himself, as he was already doing fine. He felt a responsibility to meet the needs of his entire team! That's what I call a stretch goal. Instead of allowing his business to crumble or his health to further deteriorate, he took on the challenge and succeeded admirably.

Remember, with most challenges also comes some interesting opportunities.


Thought Question: How do you define being financially responsibly?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely. 

Personal Finance (Yakezie and other PF bloggers)


My Kids Are In Private School at Everyday Tips And Thoughts - Kris shares an expensive "secret" regarding her kids' education and her justifications.


Rental Condo Income at Retire By Forty - RTB40 offers a glimpse into the cash flow of his rental condo.

Going Carless: Does It Make Sense at Invest It Wisely - Kevin walks through the financial and other considerations of giving up his leased car for public transportation

Can You Do It Yourself at DIY Investor - Robert discusses when you may need to hire financially professionals

The Difference Between Metaphor and Action at The Biz Of Life - The Grouch reminds us that just because something tragic and horrific happens doesn't necessarily mean society is to blame.

Portfolio Allocation and Strategy - 101 Centavos - Andrew allows a peak into his portfolio


Paying Allowances From Dividend Stock at Money Reasons - I always love it when Don provides these charts showing how to pay for things with passive dividend income.

Can Rich People Get To Heaven? at Personal Finance By The Book - Joe debunks several myths as he addresses this captivating question.

Business
Industries That Are Bound For Recovery

We are witnessing the beginning of the end of Facebook. These aren't the symptoms of a company that is winning, but one that is cashing out.'

Myspace to lay off 60% of their staff

Economy
Disappointing Jobless Claims Point to Patchy US Recovery

Unemployment Drops to 9.4% in December

US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages

Entertainment Money News
Kardashians Sued for Ginormous Debit Card Loss

50 cent Tweets and Quadruples the Value of His Portfolio

Carnivals that I've participated in:
Festival of Frugality at Cash Money Life - Toyota Millionaires vs. Mercedes Millionaires

Round ups that linked to posts from this site

• Joe at Personal Finance By The Book -Drag Queen Bingo Roundup
• Miss T at Prairiee Eco Thrifter - Headed Over Seas Edition
• Ray at Squirrelers - Updates and Favorites
• Kris at Everyday Tips and Thoughts - Link Round Up: Tired Edition
• Andrew at 101 Centavos - Round Up and Random Comments
• Don at Money Reasons - MR Review: A Busy Time
• Kevin at Invest It Wisely - Weekend Reading: The New Year Begins
• Funny at Funny About Money - Moments of Fame
  

The Fall Of The American Democracy!

By: Roshawn Watson

For the most part, China's economy doesn't seem to be missing a beat and is quite a force in the global economy. While modern China's economy is blazing, the economies of Western democracies are growing more conservatively and still licking wounds from the recession. The late English historian, Alexander Tytler, has some fascinating writings on this subject. While the accuracy of his following quote is debatable, as our the conclusions, it does have obvious and potent implications today:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government.

A democracy will continue to exist up until the time voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by dictatorship.

The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

• From bondage to spiritual faith;
• From spiritual faith to great courage;
• From courage to liberty;
• From liberty to abundance;
• From abundance to complacency;
• From complacency to apathy;
• From apathy to dependence;
• From dependence back to bondage.

How Does This Apply To America?

• In 1620, the Pilgrims sailed to America for religious freedom from the Church of England (bondage to spiritual faith to great courage). When you risk beheading and dying en route or after settlement for your beliefs, I'll call that great courage too.
• In 1776, the signing of the Declaration of Independence meant that America was declaring war on the most powerful country in the world -- England. With the Revolutionary War, the 13 colonies in North America broke free from the British empire, and the democracy was formed (courage to liberty).
• By 1933, the Great Depression caused Franklin Delano Roosevelt to allow the US dollar to no longer be backed by a gold standard.
• At the conclusion of WWII in 1944, the US dollar, now backed by gold, became the reserve currency of the world.
• Since the U.S. entered the war late, the U.S. essentially became the creditor to the world and financed the rebuilding of England, France, Germany, Italy, and Japan. This made America rich, our democracy moved from liberty to abundance.
• President Nixon took the U.S. dollar off the gold standard in 1971 because America was spending more than it was producing and the U.S. gold reserves were being depleted.
• The following year, Nixon opened the door for trade to China, which caused a huge economic boom. The U.S. borrowed money through the sale of bonds to China, which was then one of the world's poorest countries.We stopped much factory production. We borrowed and printed money to maintain our lifestyles (abundance to complacency)
• We continued to borrow for the next three decades (complacency to apathy)
• You know what's next. Fast forward to 2007, America has the subprime and general lending crisis, and by 2010 we have double-digit unemployment. Moreover, we are dependent on China to buy our bonds and produce cheap products for us (apathy to dependence). Additionally, we have millions of individuals and businesses dependent on the government for provision.

When I read Robert Kiyosaki's review and commentary about the fall of the American Democracy a month ago, I knew I had to share it with you. Regardless of your feelings about him, these facts may have a tremendous impact on Americans and several other countries. That's because the theory of decoupling remains just that: a theory. Our economies are still intrinsically linked, as proven by the global reverberations felt by the credit crisis. Personally, I'm hopeful that we will innovate and return to prosperity. However, given this historical basis, where do you see this going? According to Tytler's cycle, the next stage is from dependent back to bondage.

When Mr. Credit Card shared We Don't Export Enough, many argued. Where do you stand now?

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.



Related Posts
We Don't Export Enough

Will the Economy Collapse in 2011?

Is Money Your God Round Up?

By: Roshawn Watson

Is money your God? Before you answer, let's rephrase it a little to a less inflammatory question "are your decisions being controlled by money?" If you have a decent income and reasonable expenses, don't allow the economy to be your excuse to linger in financial mediocrity. Instead of focusing on the macro headlines, we need to determine how our economies are doing. No lame excuses! If we haven't already, let's get busy making futures for ourselves.

How do you get a handle on your money though? You may not like my answer, but one of the three paths to great wealth is having great money management skills, and fundamental to those skills is following a budget.

Even the word budget triggers negativity because we associate it with restrictions. However, I want to make the case that a budget could be your tool for financial freedom!  Did you know that the vast majority millionaires are self made, and that most of them follow budgets? It is true. In fact, following a budget is one of the reasons they got wealthy in the first place. Don't fret, you may end up liking it (once you get used to it). Here's why, often when you follow a budget, you feel like you just got a raise. The reason why is because you are finally telling your money to behave. It is hard to plug a hole when you cannot identify its location. Budgeting shows you the problem by allowing you to see your real expenses… not what you think they are.You see no matter whether you make $40,000 or $400,000 a year you can still be broke.

Penny Wise But Pound Foolish (Thought Questions)

More importantly, budgeting is not about being penny-wise but pound foolish. Don't just think of cutting things out. Here are some key points about expanding your budget.

• What is your R and D (research and development) budget for 2011? That's right, it's good to budget money for improving yourself. For as little as $10 in investment, you could soak your brain with the observations of a world-renowned thought leader.What ideas in 2011 do you want to develop? What experiences will contribute to your family's enrichment? 
• What contributions will you make to your financial freedom this year?  Plan out your investments in advance.
• Lastly, consider spending a little more to save yourself time. Time is such a precious gift. Money can be replaced; don't undervalue your time

If you have neglected adding this powerful weapon to your financial arsenal, consider doing so. This isn't such a matter of right or wrong for many of you as it is a issue of being sloppy or more effective.

Check out my thoughts on Setting The Course for The Impossible in 2011!

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely. 





Personal Finance (Yakezie and other PF bloggers)
Trade In The Drudgery of New Years Resolutions For The Excitement of Following Your Dreams at Personal Finance By The Book - Joe tells us why New Years resolutions are not as good as following dreams

Personal Finance Keys to Success May Not Always Apply Everyday Tips and Thoughts - If you have a low income, Kris argues you need a different set of personal finance resources.

Coffee Talk – Gaining Time + Income at First Generation American  - Sandy is uniting bloggers with her S resolutions challenge. Several great points including her thoughts on multi-tasking.

Career Tip #1 – Why You Need to Answer Your Voicemail at 101 Centavos - Andrew wrote this very interesting article about how Answering Voicemail could be a career tip .It's unorthodox but true nonetheless

Does Money Have Any Value? at Money Reasons -  Don wrote this philosophical and interesting post that really gets you thinking. Look no further than the comments to get a ton of opinions.

New Year's Blogging Resolutions at Invest It Wisely - Kevin wrote about his blogging resolutions. One resolution of particular interest is his income goal for 2011

5 Ways To Reduce Your Debt at Prarrie Eco Thrifter - Miss T share her tips to eliminate your debt, which is one of the best goals I can think of.

My Secrets to Successful New Year’s Resolutions at Krant Cents - This article has such an incredible quote - "impossible is just an opinion"

The Importance of Sleep for Wealth Creation at Squirrelers - Ray wrote this very interesting piece on taking care of yourself, and its role in wealth creation.

Investment Fundamental #8 – Real Estate at Retire By 40 - RT40 share his real estate investment plan and how this form of passive income fits in his portfolio.

Business
Goldman Offering Clients a Chance to Invest in Facebook - $50 Billion Valuation

Why Is BOA Happy to Pay $3 Billion in Penalties?


The End of Free Checking - Debit Cards With Fees (No!!!!!!)

Madoff victims getting $7.2B back from billionaire's estate

Entertainment Money News

Does Teen Mom's Amber Portwood Really Earn Six Figures?!

Kanye, Diddy, Lil Wayne, Pharrell's Multi-Million-Dollar Homes

Ludacris -- $100,000 for Millionaire's Xmas Party

IRS: Val Kilmer owes $500K in back taxes

Eclipse Eclipsed Harry Potter—and Four Other Shockers From the Year in Movies! 

Carnivals that I've participated in:

Carnival of Financial Planning #168 at Laid Off Dad -  Economists Blame ME for the Slow Recovery and  Why Is Debt Really Decreasing?

Round ups that linked to posts from this site 

• Andrew at 101 Centavos - Roundup Links and Random Observations
• Kevin at Invest It Wisely - Weekend Reading: Winter Solstice Edition and Midweek Reading: Tis' The Season 
• Don at Money Reasons - MR Cache 2010, Dec 18 – Perfect Christmas Lights
• Kris at Everyday Tips and Thoughts - Musings and Links
• Political Calculations  - On the Moneyed Midways (Best Posts of 2010)

Setting The Course For The Impossible

It's time to soar in 2011

By: Roshawn Watson

Happy 2011! The beginning of the year is always a great time to reflect on what worked and what didn't. Such introspection can be very beneficial, especially with respect to goal-setting. Goals are powerful tools that allow you to get the most out of your life. They harness the same power as the laser beam: focused energy! Dr. Steven Covey called goal-setting "the common denominator of successful individuals and organizations."

Not Having Goals

Without clear goals, you merely have pipe dreams! While pipe dreams may give you the warm and fuzzy feeling, they lack the substance to create meaningful and sustainable change within your life. Moreover, without goals, you also don't even know who belongs in your life. Your goals should define every relationship! For example, I have no interest in pursuing counsel from someone unqualified to give it. Constantly evaluate your circle of influence. Qualify those who have access to you. This isn't to be calculating as much as to make sure that those who surround you share values and passions congruent with the direction of your life. Disengage from toxic and unfulfilled relationships.  

Go where you are celebrated instead of where you are tolerated!

On New Year's Day, my wife and I discussed our goals for the year in the six major areas: financial, fitness, spiritual, mental, career, and relationships. Being mindful that over-emphasis in any one area can create a deficit in another, we aimed for some semblance of balance. Most of our goals were not very surprising to us at all, as we discuss and work towards our goals continuously. While this is good, our familiarity with our goals also disturbed me somewhat because one of the last things I want is to become complacent. In fact, one of the benefits of goal-setting is to unlock your passion for your dreams: to develop a plan to bring your vision into reality. The concern is that if your goals no longer excite you, then you run the risk of pursuing them with a half-hearted effort or giving up on them altogether. My friends, if you have been goal-setting for any length of time, complacency may threaten your passions. Don't let the mechanics of goal-setting or the cares of life rob you of the life you deserve! If your priorities change, that's fine. Discover what interests you now, and stir yourself up for your future!

Boundaries

What about goals that you are afraid to set out of fear of failure? Remember, many of the boundaries we face are internal. We have greater influence over our destinies than we give ourselves credit for. I want to encourage you to take a fresh look at what you want to accomplish, and remember to STRETCH yourself. Take a pen, and treat it as a magic wand. BELIEVE that everything that you write will come true. What would you accomplish if you knew you couldn't fail? Don't dismiss this as some trivial exercise. As hokey as it sounds, I did this a year ago while at a conference, and literally every thing that I wrote came true. In three cases, the goals were things that I had been working on for years, yet it came to fruition once I began to release faith and aggressively towards them. In more than one case, I exceeded expectations. Perhaps one of the greatest moments was after I had finished a BIG goal, one very high-level boss commented that I knocked it "out of the part" and someone else mentioned "I want you to know in the 5 years, that was your best you have ever done." Some of the circumstances surrounding these events still amaze and confound me! I will simply say that writing those items down created such a focal point in our lives that to the abandonment of everything else, we knew they had to be done. We had great respect for those goals, and "what you respect, you attract!"  (Law of Attraction) I mention this example not to brag (on the contrary, I'm rather private) but to offer anecdotal support for why it is important to stretch yourself.  As I look back over 2010, I am filled with such gratitude for what we were blessed to accomplish and for the people who helped us.

An Over-rated Virtue

Shouldn't goals have a basis in practicality? Perhaps, but keep in mind that practicality can be over-rated! We often allow practicality to keep us contained. Also, note that as you endeavor to expand your context, your reality will change. For instance, accurate times for the one-mile run started to be recorded in 1850, yet it wasn't until a century later, that the major breakthrough occurred. For many years, it was believed that no man could break the four minute mile barrier without causing significant damage to the runner's health. It was on May 6 1954 that Roger Bannister achieved the first recorded four minute mile. His victory stunned the world. Importantly, by the end of 1957, 16 runners had logged sub-4-minute miles. I maintain that Bannister didn't just break a speed barrier: he broke a mental barrier! How else can you explain 16 runners achieving in just three years what no others accomplished in the previous century. In short, as the context changed (now a post four-minute mile world), so did reality. Moreover, just think about the implications of Groupon generating $2 billion in revenues in just 2 years! There's nothing really proprietary about Groupon either, other than its name, yet look at what they have accomplished! Now, that this mental barrier is broken, the sky is the limit.

Additionally, I'm biased. I fail to understand what is so attractive about being normal and practical anyway. Normal is broke, busted, and disgusted. Normal is paycheck to paycheck. Normal is retiring at 65 and barely able to write a $5,000 check out of fear running out. Just yesterday, I met someone who was just waiting until she reaches 65, so she can "move on" with life and stop working "so hard." Without Social Insecurity, what would many do? I challenge you to move beyond what's normal and practical for your socioeconomic status, gender, race, age, class, disabilities, or anything else that keeps you in the bondage of yesterday.

Don't check with reality before you check with your heart! 

When did you decide that it was okay to give up on your dream? Somewhere deep inside you know you were meant to dominate!  It's not time for a dose of reality. You've had that already and are none the better for it. It's time to get radical, to pursue something that makes your heart flutter, to announce a goal that creates energy to all that hear it!

It requires no faith to stay in the practical. It's not practical to think that Facebook would become the go-to destination, despite all the other social networks that existed before it, yet it happened anyway! I hope this message resonates with your faith on a very visceral level. In 2011, remember, that possibilities for you are determined by your capacity to believe.

Expand your beliefs to expand your life today!

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