07 Jan How not to go broke: Ideas for a great 2015
by Jerry Lynch, CFP, JFL Total Wealth Management
I am fortunate because I get to meet with a lot of different people in all types of financial positions. Some are very financially successful, and others… not so much. People often assume that if you make a great income you will be financially successful, and that simply is not the case. You can look at rock stars such as Michael Jackson — who had signed over a $1 billion contract in 1991 — to athletes such as Mike Tyson, with over $400 million in earnings. What can we learn from their experiences?
1) In 1990, MC Hammer reportedly made $33 million! During that time, he had a 200-person crew that cost him $500,000 per month to maintain. We all know how that ended. Income does not equal wealth and financial success is not tied to income. Financial independence happens when your passive income — income that comes from investments and not you working — is greater than your expenses. At that point, you are financially successful. So, if your Social Security check and your pension are greater than your expenses, even if that is $40,000 annually, then you are financially successful. Financial success is not about how much money you make. It is a matter of the money that you make being more than your expenses.
2) Investments that do not generate income are not investments! Michael Jackson’s “Neverland” was purchased for $18 million in 1988 and reportedly cost $10 million annually to maintain. Buying an expensive home that you live in is not an investment. It’s a huge expense. The maintenance on the property annually, especially for expensive properties, can be in the range of 5 to 10 percent of the value of the home each year. So the $1 million home can cost as much as $50,000 to $100,000 annually to maintain. You may not live in a multi-million dollar home, but you need to ask yourself if this ‘investment” generates income or generates an expense. Having an investment that just sucks cash from your wallet can destroy you in bad financial times.
3) Cash: Why would anyone want their money earning .01 percent? That’s easy. It’s because cash — liquidity — is the most important thing with any person’s (or business’) overall financial plan. Cash gives you breathing room and the ability to get through situations, while those who are locked into investments are forced to have fire sales. Part of financial success is not having big losses, and having cash gives you options to avoid these losses.
4) People: If you look at someone like a Michael Vick, his biggest problem, I felt, was that he had no good people giving him sound advice. I don’t only mean financial people such as CPAs and financial planners, but people who really cared about him and would keep him from doing stupid things. When things are going well, people climb out of the woodwork to be your best friend. However, those same people will plaster your face on Facebook in two seconds if they see you doing something stupid (i.e. Michael Phelps). Every person that you met since the first grade will give you their “great business idea” that is guaranteed to lose money. You need people in your life to help you say no!
5) The tortoise always wins! Many of the successful people that I have met do not look successful. They do not drive Bentleys, live in million dollar homes and have a staff of people catering to their every wish. They are hardworking people who saved their entire life, lived below their means and made the hard choices needed to be successful. Instead of expensive vacations, they fund their kid’s college plan. They buy reasonable cars and drive them into the ground, saving the rest for the future. They save more every time they get a raise. This is really not rocket science!
Financial success is not about luxury items. It is about feeling comfortable in your own skin and being able to live life on your own terms. If your goal is not to go broke, these rules will keep you on track!
Jerry Lynch is a certified financial planner with JFL Total Wealth Management. He may be reached at or (973) 439-1190.
This story was first posted in January 2015.
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