This is the essential point of an article by financial planner and journalist Tim Maurer published February 2 at Forbes.com. Maurer challenges planners to “Do Your Job” more effectively. He includes a suggestion from Rick that planners need to pay more attention to listening to clients.

You can read the full article here.

Based on the Occupy Wall Street folks, one would expect the U.S. to be close behind Namibia in income inequality. This is from an “Occupy” website: “We are getting nothing while the other 1 percent is getting everything. We are the 99 percent.”

But according to the CIA World Factbook 2011, the U.S. Gini Index rating is 45.0, exactly what it was in 1929. That puts us slightly above the global median, which is 41.0. The worst 30 countries have ratings of 48.0 to 70.7.

We’re not in the top 30, however. Sweden leads that group, with a rating of 23.0. Six of the top ten countries with the least income inequality are in Scandinavia and Eastern Europe.

Interestingly, the most economically free economy, Hong Kong, has an index of 53.3 and Singapore, the second most free, is 48.1. It makes intuitive sense that the high tax/big government Scandinavian countries have more income equality than capitalistic countries like Hong Kong, Singapore, and the United States. Still, having a free economy and a lower income inequality ranking is not unobtainable. Australia, New Zealand, Switzerland, Canada, Ireland, and Denmark all have economies ranked more free than ours and also have better income inequality index ratings.

Worldwide, it’s true that the top 1% own a disproportionate share of the wealth. One percent of the world’s population own 40% of the global assets. The richest 10% own 85%, while 50% of the population own less than 1% of the global assets.

This is hardly a “99% vs. 1%” division marked by an arbitrary line. Instead, income comparisons are a scale. Those whose income level puts them at 92%, say, are hardly in the same boat as those at 4% or 5%.

What is the real motivating factor behind the erroneous OWS claims that “We are getting nothing while the other 1% is getting everything”? Anger and fear, certainly, over a perception that the economy is out of control and wealthy Wall Street types are to blame. Envy is probably a factor, as well. Research shows that the more we envy someone, the greater our pleasure at his or her downfall.

But is it a surprise or inherently wrong that the upper percentiles of income earners receive a disproportionate share of the wealth? It would seem reasonable that someone who works harder, risks more, and makes timely and smart decisions will make and acquire more than someone who doesn’t.

What is ironic is that the success of the top earners does not take anything away from those who earn less. In the U.S., the top 1% pay the highest percentage of taxes on their earned income, thus contributing heavily to our capitalistic system. Interestingly, if you have an individual income of over $34,000 you are in the world’s top 1% and are among the globally “rich”.

Envy of the rich is almost universal. It also can be motivating. Contrary to common perception, 85% of the top 2% didn’t inherit wealth but are first generation millionaires or billionaires. Perhaps envy didn’t drive them to try to tear down what others had achieved. Instead, it motivated them to build their own success.

A little-known option that allows owners of an IRA to have unlimited control of the investments they can hold is the self-directed IRA. Assets permitted in self-directed IRAs include real estate, promissory notes, mortgages, tax lien certificates, US gold coins, and private placement securities.

I have clients who use self-directed IRAs to hold promissory notes, mortgages, and contracts for deed. The IRA acts like a bank by making a loan (secured by real estate) to a non-related party. They can often earn 5% to 10% returns. Of course, there is also a significant risk of having to foreclose on the loan and losing a portion of the investment.

Before you jump into a self-directed IRA, you need to do some homework. When you make an investment in a self-directed account, you are on your own. The custodian does little more than be sure your documents are in order. It’s up to you to do your own due diligence on the merits of the investment.

Self-directed IRAs are proving to be such a magnet for unscrupulous promoters of dubious investment schemes that the SEC has issued an investor alert warning owners against fraudulent promoters. The best advice is the old axiom, “if it sounds too good to be true, it probably is.”

That said, Ed Slot, publisher of the IRA Advisor, has some tips for self-directed IRA owners.

1. Be sure the investment is allowed in an IRA. Life insurance, collectables, numismatic coins, and S-corporation stock are not allowed.
2. Don’t partner with or purchase anything from a “disqualified person,”—a spouse, child, grandchild, or someone acting in a fiduciary role for the IRA.
3. If you sell real estate held in a traditional IRA, gains will be taxed at ordinary income rates when the proceeds come out of the IRA instead of as long-term capital gains. Gains on real estate held in Roth IRAs, however, come out tax-free.
4. Don’t think putting your business into an IRA could allow profits to grow tax-free. The Unrelated Business Income Tax is levied on a business owned by a tax-exempt entity like an IRA.
5. The IRS prohibits a “disqualified person” from running or occupying any business or investment owned by your IRA. You or your extended family cannot farm land owned by your IRA. You cannot occupy, even for a day, a property owned by your IRA. Doing so nullifies your IRA and makes it completely taxable.
6. Investment real estate in an IRA might be best owned free and clear of any financing. The Unrelated Debt-Financed Income tax applies to mortgage loans. Also, personally guaranteeing a loan is a prohibited transaction that nullifies your IRA.
7. You must value the assets of the IRA annually. This is a no-brainer for stocks, bonds, and mutual funds, but for real estate it may mean paying for costly annual appraisals.
8. Real estate owned in an IRA must generate enough cash flow to pay all its expenses. Writing a personal check for repairs or loaning money to the IRA are prohibited transactions that make the IRA fully taxable.
9. Holding illiquid investments in a self-directed IRA poses a problem when you reach 70½ and must begin taking distributions.

Self-directed IRAs can be a great tool to bolster retirement income, when used properly. Just be sure you consider all the pitfalls before taking the plunge.

In a January 18 article at CNBC.com titled “How the Financially Disorganized Can Budget and Save,” financial writer Dinah Wisenberg Brin has some suggestions for keeping track of your spending without a detailed budget. She cites Rick’s suggested strategy to “remove everything of importance — taxes, insurance, car and house payments, vacation and emergency savings, retirement funds — from the paycheck before it hits the bank.”

You can read the entire article here.

I met Jannie on a recent trip to China. After earning an undergraduate degree in English, she took a teaching job paying 1000 Renminbi, or RMB, ($150) per month. In China, obtaining a student loan is not an option. Her parents funded her education, which cost 40,000 RMB ($6,500), and one of her goals was to pay them back.

Jannie’s lifestyle didn’t include eating out much, going to movies, or buying the latest clothes. “My rent was 300 RMB, my food was 300 RMB, I spent 100 RMB on other necessities and a few pleasures, so I was able to save the rest.” That was 300 RMB a month or $45. Still, repaying her parents would take about seven years. Jannie found a better way, moving 100 miles from her small village to Beijing and becoming a tourist guide. While it was hard leaving her family and the move ended her relationship with the man she was dating, it was worth it to her.

Jannie works 30 days a month. She makes15,000 RMB ($2,500) per month and is now saving 5,000 RMB. She recently purchased a one year CD earning 3.5%. Her goal is to save the 20% to 30% down payment she will need to purchase an apartment in Beijing.

As admirable as saving one-third of her salary might seem, for Jannie it is a matter of life and death. “People in America don’t need to save,” she told me. “China doesn’t have the social safety nets you have. If an American is in an accident they get medical care. If they don’t have food the government gives them food. If they have no place to sleep you have programs that supply housing. It is not like than in China.”

This lack of social services means low tax rates. Jannie is in the 8% tax bracket. Yet she didn’t hesitate to tell me she thought her tax rate was so high she chooses not to report the majority of her income. That’s why she insists her guests pay cash.

Not only does Jannie choose to evade income taxes, she also chooses not to pay 24% of her earnings for the government health insurance. “If I get sick or need an operation I must pay cash first, otherwise I will not get services.”

While Jannie told me she doesn’t mind paying some taxes, she believes people need to be able to control what they do with their money. I told her she talked like a capitalist. She responded, “I am a capitalist.’ She told me the top tax bracket in China is 40%. I explained that many people in the US felt a 40% tax bracket was too low for the rich and wanted them to pay more. Her eyes widened. “Why, 40% is enough!”

I suspect Jannie’s claim to be a capitalist is framed mostly by whether her standard of living is increasing. As long as it is, she cares very little about what political system the government adopts. She sees little connection between a country’s economy and whether it is communist, socialist, or a democracy.

Over the past 30 years China has moved from a communistic society to a one that is more socialist. Jannie thinks the move has resulted in a great improvement in the average lifestyle. Yet about 75% of the largest Chinese companies are owned by the government, and it’s no coincidence that 95% of Chinese billionaires are children of government officials. This underscores an often forgotten result of socialism: it is the members of the ruling class who become extraordinarily rich.

That was the opening paragraph of a January 12 article by Catey Hill at SmartMoney.com. The magazine is currently running a series, “Retire Here, Not There,” featuring affordable retirement alternatives in various states. This week’s article featured South Dakota and recommended four retirement destinations: Rapid City, Sioux Falls, Pierre, and Hill City.

Rick was among the sources interviewed for the article, which you can read here.

Or maybe we can take advantage of the opportunity to consider ways to give more consciously and deliberately in the coming year. One organization that is a strong example of conscious giving is Black Hills Area Habit for Humanity.

Most of us probably know at least vaguely that Habitat’s mission is to build houses for low-income families. What we may not be aware of is the relatively high success rate for Habitat homeowners. All of them are high-risk applicants that conventional home lenders would turn down. Yet, of the 71 homes completed in the Black Hills area since the local organization began in 1990, there have been just two foreclosures and six owners have paid off their loans. Four families relinquished their homes due to life changes unrelated to their financial ability to keep making payments. Of 63 current loans on Habitat’s books, only two are currently delinquent.

Why does Habitat’s lending program work? I see several reasons:

1. Homes are genuinely affordable rather than artificially affordable. Instead of subsidies or donations that put buyers into more house than they can afford long-term, Habitat houses are modest by today’s standards. Their prices are also kept down through donations and volunteer labor.

2. High standards at the outset. Applicants must be living in inadequate housing, meet low-income guidelines but have enough dependable income to afford mortgage payments, complete homeownership and money management classes, and come up with about $1500 to $2000 up front to cover costs such as homeowner’s insurance. Habitat only accepts about 10% of those who apply for homes. When they sign the mortgage documents, new owners take on the full responsibilities of homeowners including maintenance, property taxes, improvements, and timely mortgage payments.

3. The borrowers invest their own time and energy. Every adult in an applicant family has to contribute 250 hours of “sweat equity,” helping build their own home or someone else’s or working in Habitat’s ReStore center that sells recycled building materials. They are not allowed to move into their homes until all the required hours and classes are completed.

4. Partnership and relationship. Habitat employees, volunteers, and families spend months working together, both during the home-building process and for the first year of ownership. Applicants don’t just receive homes, they learn how to be responsible homeowners. From the beginning, they are active partners and participants in a supportive community.

5. Clear communication and tough love. Habitat holds periodic public information sessions for potential homebuyers and has a detailed application process. The expectations and responsibilities of borrowers are clearly spelled out from the beginning. Families don’t just promise to be responsible homeowners; they demonstrate that responsibility by their actions before they ever get the keys to their new homes.

R. Scott Engmann, the executive director of Black Hills Area Habitat for Humanity, believes one reason the Habitat process works is its similarity to a “village that takes care of itself.” He says, “There are all kinds of support mechanisms and resources available when we work together.”

Our economy is still recovering from a burst housing bubble caused in part by public policy that encouraged people with subprime credit to buy more house than they could afford. Government housing programs could learn from Habitat’s success. Especially in this economy, Habitat’s commonsense approach is a refreshing example of conscious giving. It shows what “a hand up rather than a handout” really means.

As with any profession, there are plenty of bad apples and weeding through them isn’t easy. After the Bernie Madoff Ponzi-scheme scandal and the latest complaints about Ameriprise Financial (which is accused of investing employees’ 401k’s in underperforming mutual funds), there is good reason you will want to thoroughly check out any financial adviser.

A June 2011 survey from the Certified Financial Planner Board of Standards, the regulatory organization for advisers, found that few Americans have a written financial plan. If you’re in the market for a financial adviser, proceed with caution and consider these nine caveats. Read more here.

The secret? They don’t budget.

Your first reaction might be, “Of course these people don’t budget! They have so much money, they don’t need to.”

That may be true for some of those who have money today, but I’m referring to people who want to remain wealthy or those who are “wealth accumulators.” These are people who don’t start out with money, but who build up significant wealth over time.

Many successful wealth accumulators don’t follow a detailed budget in the traditional sense. Instead, they develop the habit of living on less than they make. They do this by setting clear priorities. Here is how it works:

1. Out of every dollar earned, take taxes out first. If you receive a paycheck from an employer, this is done for you. On any earnings where taxes aren’t withheld, estimate the amount of tax you’ll owe and stick it into savings.

2. Take out 15% to 30% to invest for your future. When you’re just starting out, you may have to begin with a much lower percentage, but begin and be consistent. Research tells us if you have 30 years until retirement and you plan to live for 30 years after retirement, you need to save 17% of your salary to maintain the same standard of living upon retirement. When you get a raise, contribute two-thirds of it to your investments and use one-third for increasing your lifestyle. If you want to become financially independent, this step is essential.

3. Save another 10% to 20% for emergencies and short-term needs like vacations, Christmas, and replacing vehicles. Again, you may have to start with a lower percentage, but begin with whatever you can, and be consistent.

4. Take out 5% to 10% for giving.

5. Live on the rest. Pay the bills as they come in, and use what’s left over for discretionary lifestyle spending.

Sounds simple, right? Of course, “simple” isn’t necessarily the same as “easy.” By now, if you’ve done the math, you can see that following this plan means living on as little as one-half to even one-third of your gross earnings.

If you’re living from paycheck to paycheck, just barely managing to pay the bills, the financial advice to live on half of what you make goes beyond absurd. It probably seems impossible. It may, in the short term, be impossible.

Yet there are ways to live on less than you earn, even if to begin with it’s only a little less. Share a cheap apartment with a roommate. Drive an old car that you don’t have to make payments on. Eat at home. Buy used furniture and second-hand clothes. Get a temporary second job solely for the purpose of building up some savings.

What is most important is developing the pattern of living on less than you make. Fostering a frugal mindset is absolutely essential if you want to achieve financial independence. When you commit to saving first—even if you can only save a small amount—you have made one of the wisest financial decisions you can ever make.

This non-budgeting spending style takes away much of the pressure of trying to follow a rigid budget. There’s no need to keep track of envelopes or categories. You’ve made the hard decisions first, and you get to spend everything in the checkbook.

Budgeting without a budget can turn you into a wealth accumulator. It works because you take your future off the top.

Read the entire article here.