KEYS to FINANCIAL SUCCESS

The goal of money is to make you feel secure, not to make you happy.

It’s not how much money you make, it’s how much you spend.

We all want to achieve the average North American’s goals of a nice home, an education for our children, a prosperous retirement, and a chance to enjoy the finer things of life. Most of us are not financial geniuses so a simple approach is necessary. If you want to do all that without a reduction in your current standard of living, continue reading.
The plan is pure common sense using simple concepts. It will serve any person above age 18 and it is never too late to start. However, the earlier one starts, the better. You will succeed regardless of occupation, income level, and even without mathematical, investment, or accounting skills. The plan is excerpted from what I believe is the best financial advice book ever written, “The Wealthy Barber” by David Chilton. This uses his 1998 edition and is dated but it is amazing how prophetic it is, especially about the housing crisis of 2008. It is written in an entertaining story format where a local barber with great financial skills gives lessons to a group of friends with varying financial needs while giving them haircuts. I have left out the story, excerpted the main messages and added my own thoughts.

There are three things for which we often get no formal training – how to function in a relationship, how to parent, and how to look after our money. For these things, arguably the most important things in our lives, we don’t have to take courses or pass exams. We do that to graduate from grade 12 and to get a license to drive a car. Many of us may not have had good modeling from our parents, and as a result we learn often by trial and error. It seems that there must be another way. I believe that we all have a personal responsibility to work on these areas. Financial success can be easily attained especially if you start young.
It is incomprehensible that our schools do not provide a course in life skills. How to make responsible decisions would be a core part of the curriculum. A family finance course would also be a key part. Most people are financial illiterates. They have little knowledge of financial planning and have few investment assets and that is usually invested poorly.

1. THE TEN PERCENT SOLUTION
Invest ten percent of all you make for long-term growth.
Paying yourself first is the golden rule of financial success. The magic of compound interest will make you a rich person. Every month ten percent of your total income is withdrawn from your bank account using a preauthorized checking plan. Just like all savings, whether for a down payment, a car, or a trip, the most effective way is to have the money come right off your paycheck, or right out of your bank account – before you have the chance to spend it. These major expenditures can’t be achieved without sacrificing some of your current standard of living, but the ten present saving is different. It’s regular. It’s a constant. It is a painless way to save. You will barely notice the money is gone!
Invest that ten percent in equity-orientated mutual funds.
Be an owner not a loaner. It is consistently more profitable to invest in enterprises (being an owner) than to leave your money in the bank (loaning). If the whole economic system collapses, it wouldn’t do you any good to have you money sitting in a bank because all the banks would be locked up. The key is ‘over the long run’, as investing in quality, well-diversified mutual funds, not common stocks, are a long-term proposition. Over time, they will give solid rates of return that easily outpaces inflation.
A carefully selected mutual fund gives you access to a professional money manager. They give you a properly diversified portfolio with stocks in different industries in different countries. They are a hands-off investment with no ongoing research and decision-making required. This gives a low PITA (pain in the ass) factor. Most of us know nothing about stock analysis, and usually a broker does little better than the next guy in picking and choosing common stocks. It’s difficult and requires discipline. To perform well, you have to buy when everyone else is selling (buy low) and sell when everyone else is buying (sell high). Most investors go against the wisdom of letting your profits run and cutting your losses. Good investing is a combination of buying value and exercising patience.
How do mutual funds make money? Most of the fund’s profit occurs when a fund sells the stock for more than it paid for it – a capital gain. Some comes when one of the stocks it owns pays the fund a dividend. It is important that these be reinvested to gain the compounding effect. It also earns interest income from bonds and idle cash. Tax is paid when shares in the mutual fund are sold. The best strategy is to sell the shares for which you paid the most. Avoid switching funds frequently as each generates taxable income and the money does not accumulate tax -free. In Canada the first $48,000 of dividend income is tax-free so when dividends are paid, usually no tax is paid.
Dollar cost averaging. Because of the difficulty in timing a purchase accurately, it is no problem when you buy monthly. Sometimes you will buy high, but sometimes you will buy low. The market always has performed well over the long run and will continue to do so. If a steep decline in the market occurs, it will bounce back and you will be buying shares at rock bottom prices. Eventually the price will go up and you have picked up shares at a good price. Forget discipline, courage, intelligence, and an eye for value, we buy every month.
Pick the right mutual fund. The key is the manager. Access past records and read magazines like Forbes, Money, Worth, Kiplingers, and SmartMoney magazines. They give performance statistics over various lengths of time, rating performance during both good times and bad, and commission charges. 1. Make sure that if a fund has solid rates of return, the manager who created them is still there. A good long-term track record over 10 to 20 years is key. 2. Buy a diversity of funds that invests across many different industries in many countries. Funds need to emphasize value and growth potential. 3. Avoid timing schemes and sector-fund-switching concepts. In theory they sound great but seldom work. More often you switch out of a poorly performing sectors (selling low) to buy a better performing sector (bought high). Instead of sectors, it is better to diversify. Stay away from mutual funds that use complicated strategies, as they often underperform. Watch commissions. All mutual funds charge a management fee called the MER (management expense ratio). It should be less than 2%. All else being equal, buy the fund with the lowest expense ratio. Index funds are much cheaper than actively managed funds (expenses ratios less than .2%) and they can form part of your portfolio.
Buy more than one fund. As diversification is so important, buying several funds across many sectors and countries is a good idea.
INDEX FUNDS – Do Nothing –Make Money
Large pension funds are switching their investment portfolios to passively managed index funds – a decision that should be telling for all investors when it comes to trying to outperform the market. They can’t beat the market or find managers who can beat the market, and even if they can, their fee structures are overwhelming.
Index funds buy the market such as the Dow Jones, S&P 500, Russell 2000 or the Toronto Stock Exchange, unlike mutual funds that try to select winners within a given class of equities. Hedge funds have also significantly lagged behind the market in the last 3 years.
“Efficient market” theory says that because stock market prices reflect all available information at any moment – they are informationally “efficient” – future prices are unpredictable, so trying to beat the market is useless. The return on the S&P 500 beat 87% of active managers in domestic large-cap equity funds over the last five years.
Why can’t expert money managers succeed? There are so many smart managers that they offset one another, gaining or losing at others’ expense and winding up near the market average, before expenses. The median managed fund produces an average minus 1% below the expected return. Some funds do beat their index, but what’s not clear is why – maybe it is luck. Given the noise in the market, it’s kind of hopeless to try to figure anything out of this. Mutual funds also have decreasing funds to scale. Size hurts a manager’s ability to trade.
Yet even if managers match the market, they’ve got expense ratios that then eat into returns. Fees dilute performance. A 1% difference can be huge. It’s not 1% of your money, it’s 1% of expected returns: that’s 16-20%. Let’s examine a typical fund: Say the average balance in one plan was $89,300 in 2013. While !% of that is $893, if you earned 8% compounded over 10 years, the balance would be $192,792; at 7% it’s $172,567, a difference of $17,125 – real money.
Investors are getting the message, pouring some $345 billion into passive mutual and exchange-traded funds over the past 12 months vs. $126 billion in active funds. An index fund is run by a computer, a robot. We don’t want to believe that a robot can beat Ivy League M.B.A.s. The game is over, the robot wins.
Real Estate. If instead of borrowing money to buy a car, you could borrow the same amount of money and use it as down payment on a house or other real estate. As mortgage rates are a little lower than personal loan rates, by renting the house for that amount plus utilities and upkeep, the rental income covers the mortgage. The only cost is your monthly loan payment.
Problems occur when the property value declines. With real estate, it is a matter of timing, as there is no dollar cost averaging. Real estate does have a relatively consistent record of rising prices but if there is nothing worse than losing money, it is losing borrowed money. Interest rates can go up if you have a variable rate mortgage (and you can’t increase the rent). With rates high, few can afford to buy, demand is down, many people are trying to sell, and you may have to sell at a loss. Real estate also has a very high PITA factor. Finding tenants, fixing toilets, maintaining the yard…it’s a lot of work. Some people love the work and this provides them with a profitable way to enjoy their hobby. Many young people would have difficulty qualifying for a down payment loan unless borrowed privately or with a cosigner. If you do go the real estate route, remember the importance of timing, selecting the right property and the tax implications of owning property. If it is not your principal residence, it will generate a taxable capital gain when sold.
Leave real estate investing for later years. Start with mutual funds in your early years. Funds make more sense from a diversification standpoint as you’ll probably own your own homes soon, and then you already have some real estate.
Budget? It is necessary for a business to have a budget that is followed strictly as a business only has to budget for needs and it is the best interest of the business to limit those needs as much as possible. However a personal budget is a waste of time. The individual, in contrast to the business, must budget for both needs and wants. It is a rare person who can do that successfully because, for many people, a want becomes a need.

2. WILL
Half of people have no will. Estate planning is what you do before you die to make sure the people and things that you care about are well take care of after you die. You want your living estate – your assets less your liabilities combined with your insurance proceeds, to provide the necessary capital to carry out your wishes.
When there is no will, estate assets are frozen and the court winds up the deceased’s affairs and pays off his or her debts. The remaining estate is then divided according to a rigid set of rules found in the government’s intestacy laws. No thought is given to the deceased’s known wishes or the needs of potential inheritors. The bulk of the estate might be tied up in a trust for children. Charitable donations, gifts for grandchildren or friends…none will be taken care of if there is no will.
It is best to hire a professional. Guardians for dependents, power of attorney, and a living will should be covered. Before you go see a lawyer, list exactly what your estate would consist of and how you want it divided. Choose an executor who will carry out the will’s instructions (they provide a complete inventory of your assets, collect money owed to you, pay off your debts, file tax and distribute the estate). They should be younger, have some money management skills and it is best they live close to you. Keep the will updated as changes of residence, births, deaths, business ownership, divorces, remarriages et cetera, can complicate estate planning. A complete, up-to-date net worth statement listing everything you own and everything you owe, along with a copy of the will, should be left in your safe deposit box and at home.

3. LIFE INSURANCE
Besides having the proper amount of life insurance, it is necessary to have the right type. One needs life insurance so that when they die, their living estate plus insurance proceeds can provide for the desired standard of living for their dependents. YOU ONLY BUY LIFE INSURANCE WHEN YOU WILL LEAVE SOMEONE FINANCIALLY DEPENDENT ON YOU IF YOU DIE. It is a relatively inexpensive necessity until a sufficient living estate has been acquired to protect one’s dependents. It is better termed financial protection insurance for dependents or income replacement insurance. It is still an expense and buy it only when you have a need for it. Funeral expenses can usually be handled easily by your living estate and separate insurance for that is unnecessary. I cringe when I see all the ads on TV for life insurance and they are appealing to old people – exactly the people who least need life insurance.
Who needs insurance? Single people rarely need insurance. Children are financial liabilities and you don’t insure a liability. Young married couples, especially with children, almost always need insurance. Always insure both spouses for at least the amount of the outstanding debt, funeral expenses, and day care for children. Business partners should insure each other. If significant tax liability is expected (when a large amount of real estate has to be sold), insurance can be purchased to cover that liability.
How much? Your living estate plus insurance must provide enough money for: 1. All debt must be paid off. 2. Money for future lump-sum obligations – your funeral, college expenses for children. 3. Sufficient cash flow to support your dependents indexed for inflation. A spouse should be able to continue the save-ten-percent program without cramping her lifestyle. Buying the right amount can be difficult to determine, but if the proper type is purchased, premiums are reasonable. Surviving spouses and children also receive a government death benefit.
What type?
Renewable and convertible term insurance is the only type most people will ever need. Term insurance pays out the face value of the policy, but is in force for a stipulated period of time – one, five, ten, or twenty-year terms. When the term expires, there is no insurance, cash values, savings, or investment elements. It is insurance in its most basic and least expensive form.
Cash value insurance is a combination of term insurance and a forced-savings program with the savings program being the cash-surrender value of the policy. Because the chance of you dying is the same with each type of policy, buy much cheaper term insurance and invest the difference in a savings vehicle. You can invest the difference better on your own than the insurance company. Insurance companies encourage cash-value policies as the premiums are much higher, as are the commissions. They take everything you deposit in the first year for themselves, in future years they charge you to deposit money into your savings account, you can borrow the money at any time but they will charge interest, if you don’t borrow from this account and you die, they pay only the face amount of the policy and keep the savings for themselves, and they don’t offer the greatest rates of return. Premiums are level but high in the beginning to cover rising costs in later years. There is no need to overpay in the early years when there is a good chance that coverage won’t be required in later years. You should be self-insured by the time the term insurance becomes expensive.
Just as you make automatic payments from your bank accounts for the premium part of the insurance, it is easy to save the difference in the two plans into a good mutual fund. Renewable means that at the end of the stated term, you can renew without having to prove insurability. Make sure your policy sets out the maximum rate that can be charged on your future renewable dates. You are only allowed to renew until age 65 or 70. Convertible gives the right to convert the face value of the policy to any cash value plan sold by the issuing company. This is important if you need insurance past age 65. Even though it is unlikely that you will need it, it is cheap, and should be included. Shop around for the best rate with a reputable company able to honor the policy.
Universal life pays out both the insurance proceeds and the policy’s savings component upon death. But it still doesn’t do as well as buying much cheaper term insurance and investing the difference. The company has to cover expenses and make a profit and you must buy the investment component from the insurance company. One major benefit is that the savings portion grows tax-free until withdrawal. This is usually negated by the poor rates of return.
Group insurance. Term insurance can be even cheaper when bought through a group policy offered at work. If younger than your colleagues, female, or a non-smoker, it may be cheaper to buy individually. If you leave the company, you may not be able to take the insurance with you. Plans available through university alumni, fraternal societies, or unions can also be excellent.

4. RETIREMENT
In addition to saving ten percent, it is important to also plan for the future without demanding too great a sacrifice today. 50% of North Americans who retire need government assistance. With proper planning, the ten percent fund will not be needed to maintain your after-tax income into retirement. Though preretirement income will be reduced by not having insurance, pension contributions, mortgage, dependent children, or need for new furnishings, inflation is the number one enemy of retirees. The absolute amount of your income is not the key, it’s what you can buy with that income that counts. As a result it is important to have the retirement income that maintains your after-tax income after retirement. Because of the magic of compound interest, the various retirement plans allow your deposits to grow tax-free. Annual contributions are financed without having to do impossible additional saving. Pay yourself first.
Government Pension Plans. 40-60 year olds probably have little to worry about, but the aging population mean fewer and fewer people working to support more of us in retirement. Higher payroll taxes, reduced benefits, or delayed retirement dates could result. At best, they will remain a small safety net or income augmentation, and not your retirement plan.
Defined benefit plans. Usually provided by employers, these plans provide a monthly check based on salary history and number of years of employment. Indexing is an important feature as a non-indexed pension’s purchasing power dwindles with surprising speed. Vesting refers to an employee retaining pension benefits if a change of employer occurs. Self employed people and frequent job-hoppers must do a great deal of saving.
United States retirement plans.
1. IRA (Individual Retirement Account). Allows only $2,000/year and can only be used by those with earned income – through wages, salary, self-employed income, professional fees, bonuses, tips, alimony. Rental income, interest, dividends, and most income earned outside the US is excluded. The money is allowed to grow on a tax-deferred basis until withdrawn. The contribution is also tax-deductible if neither you or your spouse is covered by any type of retirement plan if the couples adjusted gross income is not more than 150,000. If you have a retirement plan, you can only deduct IRA contributions if your income is less than $50,000 and then drops by 10%/$1,000 income over $50,000. Withdrawing money before age 59½ invokes a 10% penalty. It is one place to have loaner type of investments but quality mutual funds also function well. Make contributions early in the year to gain the maximum from tax deferral. Name your spouse as your beneficiary as the IRA can be rolled over into the spouses IRA if one dies. They can be bought anywhere but shop the market to find the best rates and fees.
2. Keogh Plan. For self-employed people, contributions are tax-deductible, they grow on a tax-deferred basis, and allow much higher contributions. But full time employees must be included. 25% or up to $30,000, whichever is less, can be contributed.
3. 401 (k). Allows deductible contributions that accumulate on a tax-deferred basis. They often involve employers matching contributions to some degree. Maximum contributions were $9,500 in 1998 but are indexed to inflation and thus grow yearly. Invest in mutual funds or some interest bearing fund but be leery of stock in your company as it limits diversification. This is the perfect retirement savings vehicle.
4. 401(b). For people with defined pension plans, the deductible contributions are invested in a tax-sheltered annuity.
5. Nondeductible contributions to a tax-deferred vehicle. Use when none of the other plans are available. Roth IRA. Contributions are nondeductible but the earnings are tax-free. Once income exceeds $150,000 (singles $95,000), contributions are phased out. Money must remain in the plan for at least 5 years and you must be past 59½ years old. Tax-deferred annuities offered by insurance companies allow non-deductible contributions and tax-deferred growth but fees are high.
Canada Retirement Plans.
1. Registered Retirement Savings Plan (RRSP). These tax-deductible plans allow tax-deferred growth. Distributions are taxed at present tax rates. The maximum contribution is indexed and basically is 18% of taxable income and the maximum is increased regularly.

5. HOME OWNERSHIP
The majority of North American homeowners say that their house is the best investment they have ever made. For most, it is also the only investment they have made. There are some widely held misconceptions about home ownership. When rental costs and mortgage interest payments are similar, your only investment in your house is your down payment.
When house prices are steadily rising, it is important to buy an undervalued property in an area that has not been subject to a tremendous increase in price. The house should fit your needs and fill all the requirements of a good investment. Buying the worst house on a nice street and then fixing it up still holds. Add a deck, people love fireplaces, and minor cosmetic improvements pay for themselves many times over. Pools are discouraged as most people do not want a pool and there will be fewer potential buyers. Location remains the key to buying any real estate. Proximity to good schools, public transportation and shopping are all important. Rather than moving out to suburbia, consider buying in the center of large cities if that is where you work. The higher initial cost is often offset simply by not needing a second car. Think of all the time saved by not having to travel a long ways to work.
Have a home inspector go through the house especially if it is older. Buy the house you like best that you can truly afford. Stretching to your financial limit is almost always a mistake. It precludes saving ten percent and there is no fun money. Live within your means.
Make as large a down payment as possible. 20% has been the traditional amount required by most banks. It may be possible to borrow money from relatives, or sometimes even from the real estate agent. Make payments that allow you to continue the ten percent savings, insurance program, and retirement planning. If you have surplus funds, it may be best to pay off your mortgage faster. In the US, because of deductibility of mortgage costs, that may not be the best. Always get a mortgage that allows prepayments of principal without penalty. Biweekly payments are essential – by paying twice a month, you end up making virtually a full month’s payment every year. That could reduce the cost of a thirty-year mortgage by almost ten years. Shortening your amortization period may not cost much. For example, a $75,000 mortgage amortized over 30 years at 8% costs $550/month. The same mortgage over 15 years would only cost $716, $150 more. Although no one can predict the future of short and long-term interest rates, the decision of a fixed or variable rate mortgage is important. For the majority, a fixed rate is best. If you know you can afford the payments, then you should never be in trouble.
If moving frequently, is home ownership a good idea? The cost of moving – closing costs, legal fees, commissions, time, would tend to negate any gain in value even if there was one. Foreclosed or distressed property may be good deals.
Advantages
Tax incentives to home ownership. In the US, mortgage interest payments and property taxes are tax-deductible giving a huge advantage over Canada where neither are. Capital gains realized on sale of the house are usually not taxed if the home is a primary residence (US 2 of the last 5 years).
Leveragibility or the ability to borrow against, or mortgage, the house is one of real estates finest qualities. Also, by covering the costs of borrowing the money with rental income, the only cost of buying a house is the relatively small down payment. Real estate over the past has shown consistent growth.
Pride of ownership factor – a big part of everyone’s dream.
Building equity is the main advantage of buying over renting. It is one of the best forced-saving methods.
Renting? If you rent something much less costly than one you would choose to buy, and invest the difference by adding to your ten percent fund, you would come out far ahead in the long run.
Disadvantages of home ownership.
If you die still owning your home, you haven’t benefited from your home’s increased value. What your house is worth is of no financial significance whatsoever if you have no intention of ever selling it. Therefore home ownership is part of a total financial plan. You can’t spend your house. Home ownership must work in conjunction with saving ten percent, building a retirement fund, and being properly insured.
The real costs of home ownership – property tax, insurance, utilities, upkeep, and time (fixing things, mowing lawn, wallpapering) may come close to the cost of renting an adequate apartment. Renting is not throwing money away especially if monthly costs to rent are substantially less than the cost of owning. With a condo, if the mortgage costs and condo fees are the same as owning, then it is obviously better to buy.
When real estate values go down, it would be best to have not bought. In most areas, real estate has been on a steady climb, but one only has to look at the housing bubble of 2008 when house prices crashed in the USA and Europe. They did not recover in the US until 2013. Women entering the workforce and smaller families have resulted in higher disposable family income, much of which has been spent on housing. The baby boom generation fueled much of the past growth in real estate values but they may be soon down sizing. People no longer are adverse to borrowing heavily. As long as they can service the debt there is no problem.
Rising interest rates may make it difficult or impossible to service the debt.
Recessions are inevitable. When one is forced to sell because of loss of income and inability to meet mortgage payments, often the house must be sold at less than what is owed. People who have a heavily leveraged property without a lot of other assets have something to worry about.

6. SAVING
In addition to the ten percent fund and retirement funds, one needs to save for purchases like cars, trips, home electronics or other large purchases. Never borrow money to go on a trip. However if the above things are looked after, it doesn’t matter how one spends other discretionary income. It will have little impact on your financial future. Buy whatever you think you can afford. It is virtually impossible to budget accurately for both needs and wants. Wants become needs and the budget goes out the window. The only type of budget necessary is a household monthly expense budget – a budget confined strictly to needs. Most of us lack self-discipline. If you are paying yourself first and using forced saving techniques, you will be wealthy no matter how you manage your everyday finances.
Using discipline and common sense will get you a lot more out of your money. Gross mishandling of discretionary is a common malady in North America. Buying a new car with no money down will drain monthly cash flow. Using borrowed money to buy a non-durable good, and lose thousands of dollars the minute you drive your investment off the car lot, is not smart financial planning and it may not be fatal. If you want to achieve all the goals we have already discussed, but also own a beautiful home, a fancy car, a vacation property, or a boat, you would have to be a miracle worker. You must live within your means. It doesn’t mean that you have to scrimp and save every day, but you also can’t expand with reckless abandon.
A dollar saved is two dollars earned. A $2 raise at work often translates into only a $1 increase in disposable income, the same result that would result from saving a single dollar. Being thrifty, using comparison shopping, and buying at liquidation sales and garage sales implies a disciplined, economical, and common sense approach to money.
A recommended exercise is to keep track of every dime you spend, at least for a while. It can be very informative. It might surprise you how much a vehicle costs to buy and maintain – financing, gas, insurance, upkeep may take up as much as a third of after-tax income. You may realize that you can’t afford the car, sell it, and buy a good secondhand one. How much one spends for food eaten out, espresso coffee, beauty care or many other “needs” may surprise you.
Mindfulness Can Help Save Money. Reward centres in the brain activate when people are given something delicious – say wine or chocolate. It’s making them feel good. But if you promise them a delicious item in the future, there’s no reward centre activity. If it’s not in our hands (or mouths), we don’t care.
Money is the rare exception to this rule. It has the unique ability to affect the way we think, feel and behave – even if we don’t have much or are unaware of its influence. Just as most people think they’re better than average at driving, they also think they’re better than average at negotiating a deal, which primes them to get ripped off. Moreover, if patients believe pain relief to be pricey, they tend to respond more to its effects.
There are small changes we can make to have mind over money. When people pay in cash instead of by card, they tend to spend less, because they can see and feel the exchange. Additionally, we’re less likely to pull from our savings if they’re stored in a bank with a name that makes it sound geographically far away. And purchasing while grumpy often primes us to get a better deal.
The most important mind hack, though, may be to spend money in ways that are proven to make us happier, like prioritizing experiences (which create lasting memories) over material goods.

7. CREDIT MANAGEMENT
Because credit card interest is so exorbitant (often 18% when guaranteed saving certificates earn 1-2%), carrying any balance on your credit card makes absolutely no sense. Credit cards offer short-term, interest free financing, and convenience, but they are not for the undisciplined. Convenience combined with human nature in the hands of someone who likes to shop can be a destructive force. I pay the entire balance directly out of my bank account every month using a preauthorized check. The complete balance is always paid automatically on the last possible day– there is nothing to do. I always make sure I have sufficient funds in my bank account but also carry a line of credit that would cover any over withdrawal. If you can’t live without a credit card and carry any balance, you should consider ripping all your cards up.
Use a separate bank account that receives an automatic savings deposit monthly. Once sufficient funds have accumulated to purchase the consumer item or trip, pay for them from this account. Invest the savings conservatively using a competitive guaranteed investment. Shop the market for the best but since 2008, these accounts earn minimal interest.
One does not want to get in the habit of borrowing-to-buy. Besides you would miss out on the feeling of satisfaction that comes from saving up to buy something you really want, the reward, a feeling of deferred gratification.

8. INVESTMENT INSIGHTS
Because most of us aren’t capable of performing in-depth investment analysis, one of the prerequisites of a financial plan is that its successful implementation be not dependent on expert investment management by the investor. Successful investing takes not only a lot of time and specialized knowledge but also tremendous discipline and an eye for value. Stocks are low when nobody wants them, so, to buy low, you have to buy at just the time when most people are saying it’s not smart to do so. Discipline is the courage to buy when others are selling and to sell when others are buying. Buying high and selling higher is a fool’s game. An eye for value recognizes when an investment is undervalued and one that just isn’t healthy. When you buy real estate with your ten percent fund, timing becomes an issue. The eye for value is more often intuitive rather than informed.
Excess cash from inheritance or other source. First pay off non-deductible debt. Realize that you are paying interest on those loans with after-tax dollars. If instead of paying off a 12% car loan, you purchased a cash deposit. Because the proceeds of this are taxed, you would have to make 20% on the deposit to break even. Credit card debt at 18% requires an investment to be making 30%. A three percent after-tax real rate of return is very good. This is the absolute rate of interest, less the amount paid in taxes, less the inflation rate. Basically, it is the amount you are gaining in purchasing power. Reducing debt also reduces stress. Once all your debts are paid off, increase your ten percent fund to at least 15% or more if possible. If you have money to invest and no debt, spend it. A well – designed financial plan should meet your future goals without dramatically lowering your current standard of living. Why shouldn’t you live to the fullest once your financial future is well taken care of? If you want to invest, spread it out by increasing your ten percent fund monthly savings.
If you want to play the market, don’t do it under the guise of financial planning. It can be exciting and sometimes profitable, but the same can be said for a trip to Las Vegas.

9. INCOME TAX
A dollar saved is two dollars earned whether it’s a dollar saved through coupons or through reduced tax. Tax savings are savings of the best kind. Just as it is unnecessary to have expert investment self-knowledge, it is not necessary to be a tax expert. Paying a tax consultant for their advice is cost-effective and time efficient. Planning and filing some returns can be complicated. If you own private property, depreciation, mortgage interest, rental income, and property taxes, are all tax-deductible. If self-employed, do you have an office in the house, a computer, or car expenses?
Retirement plan contributions are tax-deductible. In the US, mortgage interest and property tax combined with appreciation that will probably be free of capital gains tax make investment in a home particularly attractive.
It is recommended that you fill out your own forms. It can be an excellent learning experience. You find out what areas of your record keeping need improvement. Familiarize yourself with all the available tax deductions.
Non-deductible consumer loans can be refinanced to a still deductible form of debt like a business loan or home-equity loan (if in the US). This is one more reason why home ownership is a good move. You could also take out a second mortgage. Borrow money against the equity in rental property and pay off your consumer loans with it. Debt incurred to earn investment income is tax-deductible, so structure your loans so they are against your investments, not consumer loans. Having the ability to write a check against your home-equity line of credit is a dangerous privilege. Spending money frivolously and making poor investments can lead to disaster. Even deductible interest, if you are paying enough of it, can kill your standard of living. Live within your means.
Use creative bunching so that charitable donations, medical expenses, and other miscellaneous deductions are grouped into alternate years. This creates a larger deduction that can save hundreds of tax dollars.
Going into business is another way to reduce taxes. A vast number of normally non-deductible expenses become deductible if you own your own business – automobile, computer, travel, phone, entertainment, magazine subscriptions, VCR, and office in your house. However, potential tax savings are not sufficient reason to start a business. The business must have some validity with a product or service of value to produce, and should pursue a profit. It can also offer other advantages like independence, a chance to meet people, and a sense of accomplishment. Seeking tax advice is advisable.
Read books and magazines on taxes. Not using all available deductions is the most common mistake of tax filers.

10. COLLEGE EDUCATION FUND
Some parents, including myself, believe that children should pay all or at least a major part of the costs of a college education. By learning the value of hard work and self-discipline, it can be a good experience. They will be able to take pride in saying that they put themselves through school. But for many reasons, it isn’t always possible for students to shoulder the entire cost especially as tuition has climbed progressively in the last decade and good summer jobs have been more scarce since the recession. Even though some of the saving responsibility should be the child’s, the parents should be willing to help out if needed.
US funds. 1. US Savings bonds are guaranteed, have an adjusted interest rate and the interest is tax-free if your combined income is small. If bought in your child’s name and redeemed after age 14, they are taxed at their low rate.
2. Prepaid tuition plans guarantee 4 years of college in that state after paying a fixed sum determined by the child’s age, current tuition fees, and the estimate of the future tuition fees and the income earned by investing the money.
3. Education savings accounts allow tax-deferred savings that are tax-free if redeemed to pay for qualified education expenses. Contributions are not tax deductible.
4. Personal purchase of mutual fund on behalf of child. Invest monthly to achieve higher rates of return, long-term ownership, dollar cost averaging and forced savings. In the US, a child under 14 can earn $650 a year of investment income tax-free and after 14, pays tax at their lower rate. This is a long-term investment. A custodial account is set up in the child’s name, can be used only for the benefit of the child, and can’t be used to provide food, clothing, shelter and other legally required items.

11. MISCELLANEOUS
Emergency funds
Some people recommend having emergency funds equivalent to 4-6 months of salary, but that is inappropriate. There is little sense having that much money sitting around earning fully taxable, low rates of return. The money could be better used to reduce consumer debt or add to a retirement plan. $2-3,000 might be more prudent along with a $10,000 line of credit at your bank. Invest your funds in more productive ways. If there is some item you really want, you can buy it. It is also tempting to convert an emergency fund into a travel or boat fund. The need-versus-wants conflict again.
A business owner or commissioned salesperson whose income is unpredictable, should save for a rainy day. Someone with little job security should also maintain a substantial emergency fund.
Health insurance.
Health insurance. As health costs are the most common cause of bankruptcy in the US and obtaining insurance that offers complete coverage is very expensive, medical costs should be kept in mind. Read my post in Ideas about the US Medical system.
DDisability insurance. This is the most neglected of all forms of insurance. There is a one in four chance of being disabled for at least one year at some point of your life. Your biggest asset is your earning potential and it has to be protected. When people are disabled, they don’t just cease to be an asset to their families, they become a liability. Coverage at work may be insufficient and usually is not portable.
Improving financial knowledge. Read all sources of financial information – books, and magazines like Forbes, Money, Fortune, Worth, SmartMoney, and Kiplinger’s Personal Finance.

12. SPENDING
It is not how much you make, it is how much you spend.
It is not the things you have, it is the memories you make them.
Possessions do not bring happiness, they mainly complicate your life.

To illustrate these points, lets take a look at the extreme end of spending excess: professional athletes and why they go broke.
Evander Holyfield, boxing icon, made over $230 million over his entire career and finds himself going to court because he is over $372,000 behind in child support.
Evander had 12 kids from six different mothers. Child support payments were reported to be $19,270 a month just for one of his kids. The home he built was 54,000 square feet, which is only 1,000 square feet smaller than the White House, has 109 rooms, 17 baths, three kitchens, a bowling alley, a movie theater, an Olympic-sized swimming pool, and sits on 235 acres. The home sold at auction for $7.5 million with Holyfield owing a reported $14 million on the home.
Every year we hear stories of athletes that made many millions of dollars over their careers but end up in bankruptcy. How? Why? It doesn’t seem possible!
I want to start with some shocking statistics. 60 percent of NBA athletes go broke after five years of being retired and 78 percent of NFL players are bankrupt or under financial stress after just two years of retirement.
A common misconception amongst the public is that athletes are “dumb jocks.” While there are a few that fit that description, a recent study showed American elite athletes scored, on average, 96 to 107 on I.Q. tests. The problem lies not with the lack of intelligence, but rather the same challenges and issues every American faces.
Regardless of salary, statistics show many Americans spend everything they earn. As dangerous as that is for the ordinary folk, it’s even more so for athletes that are one injury away from a career being over.
Let’s take a look at how these million-dollar bank accounts get reduced to zero.
Taxes Yes, this is huge. Let’s not forget about Uncle Sam. We all pay our fair share to the government, but with ultra high salaries comes ultra high tax bills. Every contract should be viewed as half of the actual amount. A player signs a $20 million contract, he will clear only $10 million. I know, who can’t live off $10 million?
Divorce Again divide by two. That player that signed a $20 million contract gets divorced; he will receive $5 million of that $20 million after taxes and a divorce settlement. During NBA careers, 90 percent of married couples stay together. Post NBA career, 18 percent stay together!
When a divorce settlement is reached, each walks away with half and legal costs are usually through the roof. Oh, and what if there are kids?
Child support Depending on the number of kids an athlete has, child support can be extremely costly. Travis Henry, former Denver Broncos tailback, has obligations to pay $170,000 annually in child support. Remember, that is for one year and for one child.
Bad investments Athletes all have them and they are lucky if they just have one. Read any story of an athlete going bankrupt and there will be a high probability of him having a bad real estate deal, a bar/restaurant that failed, a next “big thing” investment that busts, or a plain old risky investment in stocks and bonds that losses money.
Some athletes have services that pay their bills and handle all their business matters so they can focus on their sport. They trust people, the wrong people, and shell huge amounts of money for the “sure thing” investment. Money managers, CPA’s, lawyers, and agents can grossly overcharge or outright steal without detection.
Unfortunately for an athlete, there is no high school or college course on how to live with and protect millions of dollars.
Most athletes are first generation wealthy; meaning their parents never had nor know what its like to have money. They usually are young, new to money, and often try to surround themselves with people they have been around their entire life – family.
An athlete can always rely on family right? Sadly, in many cases, it’s the family members who put their own self- interests first. They put an enormous amount of pressure on the athlete to be generous; reminding him he didn’t get there by himself. Many times it’s the buying of houses, cars, and expensive jewelry to show appreciation. Next thing you know, mom, dad, brother, uncle, and cousin are on the payroll. Financially it can be managed when the money is flowing in, but the real problem arises when taking care of family lasts a lifetime.
The average NBA player has a career span of 4.8 years; NFL is 3.2 years, and MLB is 5.6 years. It should be obvious that careers don’t last forever. Unfortunately, that is not the mentality of an athlete. Athletes can’t envision the body breaking down or getting old until it is too late. Spending habits form off the money that is currently coming in from paychecks.
They usually associate with other athletes or high spenders and tend to spend accordingly. They buy cars, houses, jewelry, clothes, and fancy dinners because there is almost nothing they can’t afford at the time.
The years of undisciplined spending habits are too hard to break. Factor in taxes, divorce, child support, pressure from loved ones, bad investments, and unchecked spending, there is a perfect storm brewing for bankruptcy.

The “average” person. Professional athletes may be the extreme, but how many people do you know who live in a similar manner. They buy things they can’t afford, max out their credit cards, get into mortgages that aren’t commensurate with their incomes, have all the “toys”, and basically try to keep up with the Joneses.
Spend only what you can afford. Try to limit your debt to your house mortgage and a car payment

13. LIFE PHILOSOPHY, WORK and RETIREMENT
We all choose our own path in life. Education and training for a job determine how much money one can earn through your lifetime. There is a strong correlation between education and your lifetime earning potential. How you manage that money and how long you work determine your retirement age and the disposable income you will have to enjoy that retirement.
When one retires is a function of both having the money to retire and ones attitude to work. There are some people whose very essence is tied to their job. Work is how they judge themselves and their self-worth. They get up every morning thinking of work and go to bed thinking the same. They cannot see themselves not working and would continue if their health allows, to work until they die, often working into their 80s. Those people should not retire early, if at all. Despite pressure from their friends, family, job and society that sets early retirement as a just award for all those years of toil, not having a job to go to would be an unsatisfying option. They may slow down often acting as consultants and working only a few days per week. Or they may even take on an entirely different career that may involve less stress or less time committment.
That is one end of the spectrum. Most of us are somewhere in between. Many see themselves retiring when their pensions start and put in their last years at work eagerly waiting for that day. They all have different plans, and travel at least part of that time figures in that plan. Most though travel for only a month or so each year. The rest of the time at home is spent with whatever hobbies, clubs or volunteer work that they enjoy. Some may simply watch TV all day and are content with that. Others may buy a second home in a warm climate and spend all winter there, sometimes venturing past those borders. Others buy a motor home going to the same place every year for months or sometimes moving around seeing wherever their motor home can take them, usually in the southern US or Mexico if from North America. We all have our own plan.
I chose a different path than all those above. Despite having a very rewarding job, I worked only as long as I had to in order to save enough money to retire and never work again. I had not traveled much except to the desert SW of the US, and my goal was to see the world in an intensive way. I was 53 and felt confident, if my health was good, to be able to travel at least until I was 70 and hopefully longer. My immediate goal is to get my country count to at least 100 but it would not be likely that I would see all 201 countries present on earth. But who knows. I don’t feel I have the luxury to go back to the same place twice and try my best to see everything that interests me in each country. There are not many places I have been in the last 7 years that I feel I have missed and will want to return to. That requires a certain level of intensity that is not for everyone. I don’t stay in any one place for long. My prime interest is to see all the highlights of that area, then move on. Often it is not very relaxing and I now find myself going home to actually have a vacation. But it is all very intentional and I remain happy with the way I travel and plan on continuing my travels in exactly this manner. Maybe my “style” will change in the future and of course, that would be easy to do. I see myself as a true vagabonder. I travel as cheaply as I can but have no problem spending as much money as needed to go wherever. It is not a way of traveling that would interest many. Again, we all make our own choices.
The jist of this is to formulate a life philosophy that agrees with your personality and goals, obtain the money to do it, actively manage that money to last to fund your dreams, and then to do it. I am living my dream. Hopefully I have given you some ideas on how to pursue your dream.

Financial Management and retirement.
The age of retirement for most is set by the onset of ones pension plan. That age has been steadily increasing in most countries as entitlement benefits are becoming an increasing burden in an aging society with fewer young people to support the plans. European countries like Germany have set the age at 67 and many countries are following suit.
Follow the above Keys to Financial Success and you will have no problem having a satisfying retirement. Save ten percent, have life and disability insurance, save for retirement, and live with in your means. It is simple, takes no special knowledge of investing or accounting, and is based on compounding income within equity based mutual funds over a long period of time. Diversification across sectors, industries, countries while holding a certain amount of fixed income investments depending on investment risk is key.
However I did few of the above until I was 44 years old. I had made my maximum Registered Retirement Savings Plan contributions, had good insurance, owned a modest home, and had no debts. But I had a wife who didn’t work outside the home, three children all into expensive sports, and we spent everything I made. And then I was divorced, half my retirement savings gone, I received only one-third the value of my home, and I had big alimony payments, no savings, and two children in university that I was responsible for. Sounds like financial disaster.
But I had some advantages not available to many people. Nine years later, at 53, I retired with no debt, well off and confident that I would never work again. Admittedly I had a big income. But I maximized the benefits of that to the ultimate. My overhead in my medical practice was very low. My personal professional corporation pays a low tax rate, accumulated money, and will pay me a salary for the rest of my life.
The other main key to my retirement is that I have had a modest lifestyle, and have always drawn a low salary. That speaks to the adage, it is not what you make, it is what you spend. For me it was both. Even with a low wage paid by my corporation, I was still able to save 25% of it. Everything was on an automatic withdrawal savings program. I rented cheap accommodation, bought second-hand vehicles, had no debt, took very inexpensive holidays, and never paid a penny of credit card interest. I still maintain that lifestyle today and an able to travel around the world.
That is how I was able to retire at such a relatively young age, never work again, and travel for 6-7 months every year now for 7 years. I can afford to go anywhere and see anything I want to without having any concerns about how I will pay for it.
That is how I did it. But anyone retiring early, before work or national pensions kick in has to have a similar savings scheme to be able to fund the style of retirement they dream of.
Many people with good jobs have a pension plan that pays them a certain percentage of their income, usually in the 60% range that is available at a variable combination of years worked and age. They are very fortunate and theoretically have a guaranteed income that is quite generous for life. Many are indexed to inflation allowing beneficiaries to not have their benefits eroded over time. However those work derived pension plans are all invested and thus dependent on the stock markets and how they are managed. Nothing is guaranteed. Government employees also have had “cadillac” pension plans. As many state and municipal governments in the US have become bankrupted, the security of their pensions is in jeopardy. I don’t believe there is much security there and many people’s retirement is threatened.

How one invests their personal savings is key to maintaining those savings and deriving an income in the future from them. You may even have had money wise parents who taught you the keys to living a lifestyle within your means, save actively, accumulate wealth, and then manage that money in an efficient manner. Then you are thrice blessed. Most of us have not been that fortunate and have had to learn all these life fundamentals by a combination of trial and error, taking courses, reading books, undergoing counselling, or some other learning method. If you have not done your homework, then problems arise. In my last seven years traveling, I have not met many Americans who have not had their retirement delayed by many years. They live beyond their means, accumulate debt, don’t have a good savings plan, invest badly and thus have no money. If that is you, you may have to work forever and live a very austere lifestyle.

FINANCIAL EDUCATION SHOULD START MUCH EARLIER THAN YOU THINK
By the age of three, kids should know how to take turns, walk up stairs and get dressed without help. They should also be prepping for retirement.
With pension systems in a lasting state of erosion, there’s no such thing as starting too early. An extra 10 years of portfolio growth can mean the difference between an nest egg of $1 million and one of $2 million at age 70.
Not that anyone expects a child to think in such terms. Yet age 3 is when executive function skills – like the ability to control impulses and parse information – enter rapid development. By fostering these skills at an early age, parents just may put their kids on a glide path to financial security. Teaching a 3-year about portfolio management doesn’t make sense, but it is not too young to talk about smart choices and laying the groundwork for wiser saving and spending decisions far into the future.
School based financial education should include benchmarks for kindergarteners. Kids at this age should know that a fair trade benefits both parties, different tasks have different rewards, and a need is different from a want.
It may be asking a lot of toddlers, but the stakes are high. The average 15-year old in the US ranks in the middle of the pack from 18 developed nations in financial ability; adults in the US ranked 14th among 141 nations (the vast majority of these countries are underdeveloped; developed nations like Denmark, Canada and Germany leave the US in the dust). There has been little progress in the number of high schools requiring a course in economics or personal finance. Young adults required to take a personal finance course in high school had higher credit scores and fewer missed payments. Education systems that stress math do best.
Setting the young on a better financial path shortens recessions and mitigates income disparity. More than 1 in 3 workers spend 3 or more hours per week stressed about their finances with a lot of lost productivity. Youth from low and moderate income families struggle the most with student debt and shy away from courses that lead to better-paying jobs. Personal finance is an important lever to help.
There are four simple lessons to start with when children are aged 4-5: you need money to buy things, you earn money by working, you may have to wait to buy something you want, and there is a difference between things you want and things you need.
Conversations about how playing with a friend are free but video games cost money, how people like bus drivers and painters are at work, why you make choices while shopping and why it is worth it to wait, if they must, for a turn on the swing – all vital baby steps.

TEN WAYS RICH PEOPLE THINK DIFFERENTLY
World’s richest woman Gina Rinehart is enduring a media firestorm over an article in which she takes the “jealous” middle class to task for “drinking, or smoking and socializing” rather than working to earn their own fortune. What if she has a point?
Steve Siebold, author of “How Rich People Think,” spent nearly three decades interviewing millionaires around the world to find out what separates them from everyone else. 

It had little to do with money itself, he told Business Insider. It was about their mentality.

”[The middle class] tells people to be happy with what they have,” he said. “And on the whole, most people are steeped in fear when it comes to money.”

1. Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.
”The average person has been brainwashed to believe rich people are lucky or dishonest,” Siebold writes.
”That’s why there’s a certain shame that comes along with “getting rich” in lower-income communities.
The world-class knows that while having money doesn’t guarantee happiness, it does make your life easier and more enjoyable.” 


2. Average people think selfishness is a vice. Rich people think selfishness is a virtue.
The rich go out there and try to make themselves happy. They don’t try to pretend to save the world. The problem is that middle class people see that as a negative––and it’s keeping them poor, he writes.
”If you’re not taking care of you, you’re not in a position to help anyone else. You can’t give what you don’t have.”

3. Average people have a lottery mentality. Rich people have an action mentality.

While the masses are waiting to pick the right numbers and praying for prosperity, the great ones are solving problems. The hero [middle class people] are waiting for may be God, government, their boss or their spouse. It’s the average person’s level of thinking that breeds this approach to life and living while the clock keeps ticking away.


4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.

Many world-class performers have little formal education, and have amassed their wealth through the acquisition and subsequent sale of specific knowledge. Meanwhile, the masses are convinced that master’s degrees and doctorates are the way to wealth, mostly because they are trapped in the linear line of thought that holds them back from higher levels of consciousness…The wealthy aren’t interested in the means, only the end.
5. Average people long for the good old days. Rich people dream of the future.
Self-made millionaires get rich because they’re willing to bet on themselves and project their dreams, goals and ideas into an unknown future. People who believe their best days are behind them rarely get rich, and often struggle with unhappiness and depression.

6. Average people see money through the eyes of emotion. Rich people think about money logically.

An ordinarily smart, well-educated and otherwise successful person can be instantly transformed into a fear-based, scarcity driven thinker whose greatest financial aspiration is to retire comfortably. The world-class sees money for what it is and what it’s not, through the eyes of logic. The great ones know money is a critical tool that presents options and opportunities. 

7. Average people earn money doing things they don’t love. Rich people follow their passion.

”To the average person, it looks like the rich are working all the time,” Siebold says. “But one of the smartest strategies of the world-class is doing what they love and finding a way to get paid for it.”

On the other hand, middle class take jobs they don’t enjoy “because they need the money and they’ve been trained in school and conditioned by society to live in a linear thinking world that equates earning money with physical or mental effort.


8. Average people set low expectations so they’re never disappointed. Rich people are up for the challenge.

Psychologists and other mental health experts often advise people to set low expectations for their life to ensure they are not disappointed. No one would ever strike it rich and live their dreams without huge expectations.

9. Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich.

That’s why people like Donald Trump go from millionaire to nine billion dollars in debt and come back richer than ever. While the masses are fixated on the doing and the immediate results of their actions, the great ones are learning and growing from every experience, whether it’s a success or a failure, knowing their true reward is becoming a human success machine that eventually produces outstanding results.


10. Average people believe you need money to make money. Rich people use other people’s money.

Linear thought might tell people to make money in order to earn more, but Siebold says the rich aren’t afraid to fund their future from other people’s pockets.

”Rich people know not being solvent enough to personally afford something is not relevant. The real question is, ‘Is this worth buying, investing in, or pursuing?

CONSUMPTION
The imprint of consumption is everywhere liberal states flourish. Given its integral role in modern life, it is surprising how little attention is paid to its collective environmental and social consequences; and while there is no shortage of viewpoints about the virtues and pathologies of consumption, divergent concerns are rarely prominent or sustained in public discourse. Meanwhile, worldwide consumption continues to grow without a pause for its critics’ warnings. While social critics and environmentalists lament consumption’s ill effects, and the disproportionate consumption taking place within market society, there’s little likelihood that their cries to curb mankind’s taste for material goods and services will be heeded. Quite the contrary, for contemporary consumption practices are best characterized as hyper-consumptive.

Can consumption-based capitalism survive environmentalism? It is one of the most important questions going, since so much of the eco-discussion centers around how we can save the planet while keeping the way our economy and society functions exactly the same. But the question is, do we really want more of the same?
The Chinese character for “crisis” is the combination of the characters for “danger” and “opportunity.” Our current environmental crisis is an opportunity for us to take a step back and take stock of the way we live and whether we are really heading in the direction we want.
The assumption in western politics seems to have been, for the longest time, that economic growth is what’s most important. The priority, on both a societal and personal level, in other words, is to get more efficient, do more work, produce more goods, and get more money.

On a societal level, the idea is that a growth in economy will trickle down to the poorest of the poor and that the quality of life for all of us will improve. On a personal level, the idea is that more money means more comforts. We’ve used the idea of growth in
income—and resource use—as a surrogate for growth in personal and societal happiness. The problem is that this is not working on either level. More and more, studies are showing that growth is not trickling down. Despite the growth, the poor are getting poorer, the middle classes are getting middler, and the rich are getting richer. Here in the USA, people have begun to question whether our huge economy really does make for our being the land of opportunity. So, does further economic growth really equate to societal happiness?

As for the personal or individual level, members of the new branch of the psychological profession who call themselves “positive psychologists” say that we are on a “hedonic treadmill.” We earn more to spend more and then have to earn more to spend more and then…We get a quick burst of pleasure from our purchases but no long-term increase in happiness. Meanwhile, many are stressed by working all the hours to do jobs they don’t believe in with people they don’t care for.
Increases in the baselines of our happiness, it turns out, don’t come from money once you’ve achieved an income equivalent something like $40,000. What the positive psychologists say happiness does come from, on the other hand, is strong interpersonal
relationships, doing what you are naturally good at, living a life that is in accord with your values, and achieving meaning by connecting to something larger than yourself.

What this all adds up to, in my view, is that the economic growth paradigm is making happier neither the people nor the planet—which can’t afford the resource use. If we use the current environmental crisis to change our priorities, maybe the world could be a better place in a lot more ways than one.

Having said all this, to allay suspicions to the contrary, I want to say that I am a total pro-progress person. I don’t want to take a single step backwards. I’m go straight ahead all the way. But I do question the definition of progress and going forward. If, for 150 years, we considered economic growth and technological advancement as our means of moving forward, is doing more of the same progress, or is it conservatism that will be more important? A lot of the western world is now living a decent standard of living. That was real progress. But real progress does not mean moving from three TVs a household to four. Progress may not be developing our left-brain techno-financier capabilities any more.

Real progress, to me, means turning our attention to the world’s real problems and solving them, not in some trickle down way, but directly. Let’s take a step back and ask these two questions. First, can we take all that we’ve learned and use it, not to figure out how to get teenagers to buy more cell phones, but how to get it so much of the rest of the world is not living in poverty and disease? Can we use our big brains to make pumps for wells in villages that have no water and solar panels for villages with no electricity, for example? Can we change our societal priorities from me, me, me to us, us, us?

Second, can we in the developed countries take a step back and ask ourselves what would really make us happy. Could we consume a little less and spend the time building stronger communities? Could we get off the earn to spend, hedonic treadmill that traps us in the stress cycle, and maybe find meaning looking for ways to help those who are way less fortunate than us? How much happier would we all be if we were able to say we were helping the less fortunate instead of quietly worrying that we were hurting them?

That to me, would be a real measure of progress, both for the planet and its people, because being kinder to the planet may well turn out to be the same as being kinder to its people. That’s the opportunity part of the crisis. So the question may not be can consumption-based capitalism—with growth as its exclusive goal—survive environmentalism, but should it?

“The problems that exist in the world today cannot be solved by the level of thinking that created them” Albert Einstein