This week, College Works Painting is featuring Helmut Biemann as our guest blogger. Biemann is the COO of National Services Group, the parent company of College Works Painting. Biemann is highly knowledgeable on the topic of personal financial management and has been kind enough to write a post to help educate the College Works blog readers. Enjoy!
Taking charge of your financial future
“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation”.
This quote from our second president suggests that the problem of financial illiteracy is not a new one, but still accounts for many of the greatest stresses that people face in their lives. Most societal stresses could be avoided if every person and organization managed their money properly.
It is a great failing of our education system that financial fundamentals are not taught in schools. People are left on their own to figure it out, often by trial and error, or hand off their hard earned money to others who skim much of it away in the form of fees and hidden charges. PBS Frontline recently produced an exceptional documentary called: “The Retirement Gamble”. They do a great job of articulating the long term problem facing most people, and demonstrate the vicious cost of not being able to manage your own money. It can be viewed in full at:
The economic growth of the United States is threatened by the great demographic force of the aging of the population. It is estimated that by 2035, the US will have only 2.5 workers for every retiree, compared with nearly 5 workers supporting each retiree in 2000. There will be no option but to tax workers more, and provide retirees less. If you have no personal savings, you will be at the mercy of the state for all of your needs.
More importantly, unemployment is worsening due to the outsourcing of jobs to cheap foreign labor, and to continuous automation across all industries. Every recession before the current one recovered employment levels within a reasonable period. Five years into this one, recovery has not yet happened, despite population growth.
The fourth major force in play is debt, at all levels of government, corporations and individuals. The government debt is too high to ever repay, forcing massive effective “printing” of money, cheapening the value of currency.
These four fundamental forces are massive and there is very little chance that they can be abated in the next few decades. There will be many reactions from governments that attempt to redistribute income and even assets as these problems worsen. For example Cyprus closed its banks and moved to confiscate 10% of all bank accounts to fund a bail out. France raised its top tax rate to 75% and is looking at increasing its wealth tax. Japan has promised to double its money supply and is even using printed money to buy stocks to prop up the market. The USA effectively prints $85B per month and the tax planners are openly looking at eliminating most deductions that people count on, effectively raising taxes on earners to fund commitments that can never be met over the long term. The US is also changing definitions of things like inflation and GDP, to buy time by publicly implying that things are stabilizing. Many states are headed towards bankruptcy due to lavish pension promises that people have relied on to be there when they retire. The list is just too long to cover here.
It is inevitable that major social support programs that everyone takes for granted now will be drastically reduced over the coming decades. You will either be dependent on others or decreasing government payments, or you will be self-sufficient. The latter, obviously, is a much more desirable outcome.
What is one to do in the face of all this? The answer is to get control of your own money and work to build an investment fund that you control. It takes discipline to not spend your earnings, and takes many years to build up a meaningful fund and learn how investments work. It is a marathon, not a sprint. If you are in your 20’s, it is much easier as you have so much more time to develop it. Consider the simple math of the chart below:
The first step is recognizing the forces around you, and resolving to implement a plan to accumulate an investment fund. This will usually involve giving something up, and will require discipline, but once saving becomes automated, it becomes much easier. The next step will be to make it your business to become financially literate. One must consider this a critical skill and seek financial literacy, or be left to the mercy of the unkind forces around you.
If you can implement this first step, look for my next blog entry for implementing step two: How to learn to become financially literate.