Rick Kahler's Financial Awakenings

One of the most important aspects of anyone’s life that has the ability to enrich or erode it—financially, mentally, physically, and emotionally—is one’s career. Ideally, each of us would get to spend our work lives at jobs we absolutely loved.

It seems clear to me that the notion, “Work is just something you have to endure,” is a money script, an unconscious belief that is only partially true. It only occurred to me recently, though, that the idea, “I won’t settle for anything less than my dream job,” may be a money script as well.

The problem with such unconscious money scripts is that they limit our choices. We automatically assume they are true, so we don’t consider other possibilities. If you believe that it’s normal to hate your job, you may spend your whole career in a rut of tolerable discomfort, because it doesn’t occur to you to find something better.

Believing you’re entitled to nothing less than the “perfect” job, however, can be just as limiting in its own way.

• It may actually keep you from finding a job you love. Not even the best job is going to be completely enjoyable every moment. Someone with an unconscious belief that a dream job has to be perfect might over-emphasize its small flaws and overlook its larger satisfactions. Such a person might always be looking for the next job that might finally be the “right” one.

• It can keep you poor. I’ve known a few people whose unconscious beliefs kept them from taking jobs they felt were beneath them, even temporarily. One young man was unemployed for almost a year, while his wife was working part time and going to school full time, because he refused to “settle for” a fast-food job that would have paid the bills.

• It can limit building a foundation that will result in future rewards. Like many of the choices we make in our lives, work requires finding a balance between our dreams and our responsibilities. I know people who choose work that is less than ideal so they can live in a part of the country—like the Black Hills—that they love. Sometimes a better-paying but less enjoyable job may provide the means to save toward getting an education or starting a business. I’ve known people who spend years working at jobs that are not especially satisfying, but who find their fulfillment outside of work, through organizations, family life, or hobbies.

In some cases, a good step toward your “ideal job” is to become someone else’s “ideal employee.” Doing an exceptional job, even in a position you don’t want to keep long-term, can increase your chances of moving into the job you do want.

Another approach can be to focus on the aspects of your job that you do like and that do fit your skills and talents. Eventually this can be a way to transform a less-than-satisfying job into a rewarding career.

One important way of making sure you don’t get stuck in a job you hate is to avoid the trap of getting stuck in an expensive lifestyle. One of the unhappiest clients I’ve ever worked with was a high-earning professional. He hated his work. Yet because his family had grown used to their luxury home, private schools, and expensive vacations, he didn’t feel he could change careers.

I certainly intend to continue helping my clients find and stay in careers they find fulfilling. I also understand that sometimes, for a season, it’s okay for a job to be just a job.

On March 12, Rick will be featured in a “meet the author” session for Money Quotient®, (moneyquotient.org) an organization that provides training for professionals in financial life planning. He will be discussing The Financial Wisdom of Ebenezer Scrooge. The presentation will focus on how financial planners can use the story of Scrooge’s transformation as told in A Christmas Carol to help clients understand their relationship with money.

Rick was featured today by financial columnist Jean Chatzky in her New York Daily News column. In the column, “Shame Game: vicious cycle of debt,” Chatzky linked shame and money, something new for her. She quoted Rick and Brené Brown, a member of the research faculty at the University of Houston Graduate College of Social Work, who is an expert on shame.

Chatzky writes, “You’re not going to stop spending overnight, nor will you suddenly find it easy to open your credit card bills and pop a check in the mail. To put these habits behind you, you have to delve into your past and find out how and why your feelings of shame were formed in the first place, said Rick Kahler, co-author of Conscious Finance: Uncover Your Hidden Money Beliefs and Transform the Role of Money in Your Life.”

We are delighted that a columnist as well read and respected as Jean Chatzky is tuning into the interior side of money and the huge benefits to be reaped by consumers in understanding their money relationship. You can read the full article here.

What makes you rich? According to a Gallup poll done a few years ago, the public’s median definition of “rich” was either an income of $120,000 or assets of one million dollars. By that definition, a lot of people could be considered rich. Roughly the top 7% of Americans have a net worth of a million dollars or more.

More recently, MSN Money asked their more money-savvy readers to define “rich.” A majority of the more than 11,000 who responded felt that they would need at least five million dollars to consider themselves rich.

While the average American thinks assets of a million dollars makes a person rich, someone who actually has that amount in assets understands this isn’t necessarily the case. Face it, a million bucks just isn’t what it used to be.

If you are saving to fund your retirement, one million dollars will only provide an annual income of $30,000 to $50,000. That’s not exactly an income that will support a lavish lifestyle. By my calculations, a retired person would need to have three million dollars to generate an annual income of $120,000, which is the income threshold the American public thinks makes a person rich. Obviously, there is a big disconnect between the asset level and the income level in the perception of the average American. Personally, I would take an income of $120,000 any day over a net worth of a million dollars.

If these are the perceptions of people with average incomes, then how do the rich define “rich?” Do they consider themselves wealthy? An even newer survey done by the Chicago-based Spectrem Group asked affluent Americans (defined as people with assets of over $500,000) what it takes to be considered rich. Of those surveyed, only 22% said one million or more, 45% said five million or more, 25% said 25 million or more, and 8% said $100 million or more.

This may be a classic case of millionaires envying multi-millionaires, who envy billionaires, who envy multi-billionaires. The Wall Street Journal reports that in previous studies, when people have been asked what it takes to be considered rich, the answer is normally twice as much as what the person asked is worth. So, for most people, the real answer to “What is rich?” may be, “A little bit more than whatever I have.”

To emphasize this, another survey I came across found that those who earned less than $30,000 thought that a household income of $74,000 would qualify as rich. Those who made $30,000 to $50,000 said an income of $100,000 would be rich. And people in the top half of earners were more likely to say that an income of $200,000 makes you rich.

Various definitions of “rich,” of course, involve far more than just assets or income. For some, rich may be associated with high earnings, a lavish lifestyle, or having inherited family money. For others, rich could be represented by financial security, giving generously, or having abundant choices.

Nor do these surveys and figures take into account people’s lifestyle or spending habits. If a couple earns $300,000 a year, most people would consider them rich. If they spend $400,000 a year—as I have seen people do—then they may seem to be rich, but they are actually going backwards at the rate of $100,000 a year.

Obviously, however one defines it, “rich” is a relative term. Still, there is something I wonder about. Forbes magazine publishes an annual list of the world’s wealthiest people. Imagine opening that issue and seeing your name at the top of the list. Then, do you suppose, would you officially consider yourself rich?

Unless you’ve been on a news fast, you know that the world stock markets have taken quite a dive since December. This was the worst January in history for the NASDAQ (down 9.9%) and the worst since 1990 for the S&P 500 (down 6.3%). I’ve received a number of calls from journalists asking, “In light of the recent market downturn, what’s an investor to do?”

My answer is, “Nothing.” Nothing, that is, assuming you have a well-thought-out asset allocation strategy and rebalance several times a year. Long-time readers of my columns know that a diversified portfolio will include a mixture of world stocks, world bonds, real estate, commodities, market neutral funds, cash, and TIPS bonds.

In a well-diversified portfolio, it’s as normal to have a year with a 15% loss as it is to have a year with a 25% gain. Neither extreme means that anything is abnormal or needs to be changed.

I’ve been telling my clients we are long overdue for a return to a challenging investment climate. The last five years have been exceedingly good. No market stays exceedingly good forever. It appears 2008 may be the “down” year I’ve been expecting for some time. If we are not now in a recession, we will probably be going into a recession sometime this year. It’s not unusual to see stock markets turn downward many months prior to the start of a recession, then rebound months before the recession ends.

How low do I think the market will go? I don’t know, but according to Steve Leuthold, Perception for the Professional, January 2008, 80% of bear markets bottom out close to median valuation levels, which would mean a fall of about 11% from where they closed on December 31st. That would mean around 1300 on the S&P and 11,800 on the Dow. So far, the lows have been 1326 on the S&P and 12,182 on the Dow.

The good news is that most bear markets are much shorter in duration than bull markets, lasting about 18 months. And, lest you think there may be some other market in which to hide, the international markets will probably follow the US.

While we are on the topic of international investments, I’ve received a number of emails from readers concerned about the decline of the dollar, even to the point of moving investments into all non-US related securities. Personally, I think this would be a mistake.

The dollar, which fell to new lows last year against the Euro, will probably continue its slide, in light of the recent interest rate cuts by the Fed. However, I suspect this slide is nearing a bottom. So does Leuthold, who says his research shows the Euro is extremely overvalued and that the dollar would be more fairly valued at around $1.35.

He expects the long-term outlook for the dollar to be bullish against the Euro for these reasons:

• The US economic foundation is stronger than Europe’s.

• In terms of purchasing power, the dollar is significantly undervalued.

• The US is currently on sale.

• The Euro is untested during a significant recession or economic crisis.

• No multi-country common currency has stood the test of time.

Interestingly, he suggests that the US dollar and the Euro will both weaken against Asian currencies, where economic growth is exploding.

So, while I enjoy speculating as to what the future may hold for world stock and currency markets, I refuse to act on my brilliance—or on anyone else’s. I’ve learned better. Regardless of what I “think” markets will do, I select a well-rounded asset allocation strategy and stay the course. I’ve found it pays great dividends.

We don’t know how we nailed him down during tax time, but we did! Back for his third year of presenting a workshop to KFG clients, Paul Thorstenson, CPA, will join us on Thursday, February 28, at 4pm MST. He’ll give us a down-to-earth presentation on what you need to know in 2008 about the IRS and your taxes.

Paul will discuss anything you want to know about taxes, so bring your questions. And if you don’t have any questions, Paul will cover topics of interest to KFG clients. One area he will discuss is real estate tax basics. He will touch on depreciation strategy, entity selection, passive loss rules, 1031 exchanges, and how you can cut your tax bill by 50% overnight. (One of those topics is Rick’s!)

Register now as this one will fill fast. To register for this February 28 teleclass, click here.

In a 1953 film, three young women in New York City come up with a business plan to insure their financial futures. They sublease a swanky apartment and begin hosting and attending glitzy parties as a way to move into wealthier circles than they’re used to. Their goal is to gain financial security, and their business plan is “How to Marry a Millionaire.”

This blatant approach to wealth-building seems as old-fashioned today as the evening gowns worn in the movie by Lauren Bacall, Betty Grable, and Marilyn Monroe. (The movie is vague on the subject of how three young women with so little money could afford such elegant clothes; but this was Hollywood, after all.)

Yet, despite all the changes our society has undergone in the 50 years since this film was made, the expectation that a husband should and will take care of his wife financially is still unexpectedly alive and well. A survey I cited in a recent column showed that 74% of women would forego marrying for love if the man was rich.

In my practice, I also encounter a surprising number of women who haven’t considered it necessary to plan for their own financial futures. They may have full-time jobs, earn professional salaries, and be fully capable of taking care of themselves. Yet, when it comes to saving for the future, they still rely on their husbands’ earnings, retirement plans, and investment decisions.

This is not a good idea. The financial security provided by a spouse’s income and savings can be an illusion. One of the most common threats to that security, unfortunately, is divorce. Even in the most solid and healthy relationships, though, it’s never wise for one spouse to rely solely on the other when it comes to providing for the financial future. Job layoffs, serious long-term illnesses, and premature death are all very real possibilities that can threaten a couple’s financial security.

I am not suggesting that wives should run out and open separate savings accounts that they keep secret from their husbands. Nor am I necessarily recommending that spouses should keep their finances separate or manage their money individually rather than jointly. That may be a workable option for some couples, but it certainly isn’t necessary or even desirable for many others.

Ideally, marriage is a partnership of equals. One important aspect of such a partnership is working together financially. This is true even if one spouse is not employed outside the home, or if one spouse earns significantly more than the other.

Paying bills and managing money on a day-to-day basis is only one small piece of a couple’s financial teamwork. It is also important that both partners take responsibility for the bigger picture when it comes to finances. This includes being informed about and involved in decisions such as investing for the future and estate planning.

I’ve encountered women who believed that insisting on knowing more about the family finances would imply that they didn’t trust their husbands or respect their judgment. But sharing the responsibility for taking care of oneself financially isn’t about trust, it’s about common sense.

In a perfect world, all couples would live happily ever after and grow old together—with, of course, plenty of financial resources. In the real world, there are many reasons why this doesn’t always happen. Ironically, couples who act as full partners financially not only provide more wisely for their individual futures. They also increase the chances of enjoying the future together.

Valentine’s Day is this week. If you want to do something romantic with your spouse to celebrate, you might consider getting a nice, matched set of his-and-her IRA’s.

Over the past few months, news reports have featured high oil prices, the subprime mortgage mess, and concerns about the health of the U.S. economy. And certainly, these are legitimate and newsworthy issues. Consumers are concerned about the costs of driving their cars, heating their houses, or being able to afford the American dream of home ownership.

One outcome of bad economic news is a need to blame somebody or something for the problem. High on almost every “blame list” is the government or “big, greedy corporations.” In the past year, almost everyone who has turned on any news program has heard high fuel prices blamed on the “obscene profits” of oil companies. High medical costs are blamed on the “greed” of the pharmaceutical industry. It’s easy to see large companies or industries as the problem, or to regard them as huge, malicious entities out to prey on unsuspecting consumers.

Yet the reality isn’t quite that simple.

True, big corporations exist primarily to make money. So do small corporations and individually owned businesses. That is the foundation of a capitalistic system, and it’s nothing to apologize for. Shareholders expect companies they own to be profitable.

An inconvenient reality that tends to be overlooked, however, is just who profits when those big corporations make money. Most people who criticize “big business” don’t stop to think that, by and large, the shareholders of those corporations are not only the ultra rich and wealthy, but ordinary consumers like you and me.

Anyone who has an IRA, a 401(k), an investment in mutual funds, or who is a participant in a state retirement pension plan is a shareholder in one or more “big, greedy corporations.” Over 50% of all U.S. households own stocks, either directly or in a mutual fund or retirement plan, according to a 2005 study done by the Securities Industry Association and the Investment Company Institute. That equates to 56.9 million households.

Certainly, there are corporate abuses and cases of outrageous fraud. Enron is the obvious example. And it makes no sense that a highly-compensated CEO who mismanages a company into huge losses for its stockholders should be rewarded with a multi-million-dollar termination package. It is important that publicly traded companies be held accountable and regulated sufficiently to insure honesty and legitimate business practices.

Yet passing even more burdensome laws that will lower the profitability of those companies, with the grand intention of protecting the “little people” against any losses, can actually do just the opposite. It ultimately could result in significantly reducing the value of the very investments those people count on for a sufficient income in retirement.

When a major industry—whether it is banking, manufacturing, oil, or pharmaceuticals—is hit with new regulations or penalties that result in losses, rather than profits, those losses aren’t suffered by “big, greedy corporations.” The losses are suffered by the company’s shareholders. This includes a great many individual, ordinary investors, whose IRA’s, 401(k)’s, and other retirement nest eggs could lose significant value, perhaps for several years.

Some of the suggested solutions for the subprime mortgage losses, for example, would have the unintended consequence of drying up credit for all except the most credit-worthy borrowers. This would make it harder for small companies, large companies, and individuals to obtain loans to buy property or expand businesses. It could take us back to the days when the only ones who could borrow money were those who didn’t need it.

As a consumer and a small investor, being skeptical is a good idea. Yet seeing big business as a simple matter of “us vs. them” is taking skepticism much too far.