The Future American Nightmare
By Thomas Houck
all been programmed to pursue the American Dream – a nice house,
fast cars, and lavish vacations. Unfortunately, there’s a short
circuit in the current generation’s thinking. Many are living the
new American Dream: Live the dream now, and figure out how
to pay for it later. Unfortunately, this only creates a future
American Nightmare. The truth is simple – in order to attain the
American Dream, you need good money habits; work, save, and then
spend. The current generation, however, has developed
some bad habits: spend, work, and then maybe – someday – save.
small business owner, was in a financial crisis that was causing him
stressful days and sleepless nights.
seems like the business is doing okay,” he thought. “My numbers are
up from last year, and my expenses are about the same; but I can
hardly pay my bills. The bank won’t lend me money because my credit
cards are almost maxed out. My accountant is always on my case
about funding my retirement plan, but how the heck am I supposed to
do that if I can’t even make the mortgage payment? What’s going on?”
decided to hire a consultant to look at his business to see what was
broken and how he could fix it. To the entrepreneur’s surprise, the
consultant discovered that the business was outperforming many
similar competitors in his industry. But his bottom line discovery
was news to Brian: The problem was not the business; it was Brian’s
bad money habits. The consultant suggested that Brian and his wife,
Jen, sit down with him, take a good, hard look at their financial
situation, and commit to developing good financial habits.
meeting was tough for the couple. They quickly realized how out of
control they’d become over the years, and how challenging it was
going to be to right their ship. To help them make this change, the
consultant suggested that they mutually agree on some hard and fast
rules regarding their finances…and abide by them.
One: Don’t spend more than you make: Although this sounds
simplistic, there are millions of Americans who can’t pull this
off. Some guidelines are:
Determine how much you make after taxes; i.e.,
your “take-home pay.” This would be the amount that you can
comfortably “draw” from your business each month, while setting
aside cash to take care of taxes. This number shouldn’t drain
the business to the point of causing a cash flow crunch.
Choose a monthly figure for your “necessary
spending,” which includes rent or mortgage payment, food,
utilities, insurance, and clothing. It does not include
a BMW, a three-week vacation in Maui, dining out five nights a
week, or a new Jacuzzi.
Divide your necessary spending by your take-home
pay. If the number is higher than 75 percent, you have work to
do. The immediate, short-term action is to cut down on your
spending. The long-term goal is to increase business cash flows
so that you can increase your draw.
Two: If you can’t afford it, don’t buy it: This rule may sound
obvious, but an entire generation of Americans doesn’t “get” it.
There’s a huge difference between a “want” and a “need.” If you make
your living by fishing, you need a boat. If you see a cool
catamaran at a boat show and decide to buy it, even though you’ve
never sailed before and are up to your eyeballs in debt, that’s a
“want.” If you really must have a boat, save up for a few years,
and buy it without any financing.
Three: Don’t use ANY debt, especially high-interest options:
This one isn’t complex, either. When you borrow something from
someone, they expect you to pay it back. As a matter of fact, they
take it pretty darn seriously. And credit card companies are the
most serious of them all, which is why using plastic is an expensive
way to buy anything. These companies charge you an outrageous
interest rate, tempt you to buy more by offering points and perks,
and then ruin your credit rating if you fall behind. If you really
want something, determine the cost, and buy it only when you
have the money in hand.
Four: If you don’t save for retirement, you won’t be able to
retire: Many people are missing this one. If you spend more
than you make, and rack up high interest debt during your working
years, what’s going to happen when you want to stop working?
You won’t be able to, because you won’t have any money; or worse
yet, you’ll have more debt than assets. The smartest thing that an
entrepreneur can do is to talk to a CPA and financial advisor, and
pick a suitable retirement plan. Then, fund the plan until it
hurts. If you do this for 20 years and then sell your business, you
should be able to retire comfortably.
Five: Make the best investments: The education of your
children is by far the best investment you can make. Today,
almost every state has some type of prepaid college plan. The
younger the children are when you start funding the plan, the easier
the payments will be.
about Brian and Jen? They had several disagreements, but made some
tough decisions during the first six months after their meeting by
playing by the rules. Brian sold his treasured boat, and they
cancelled a Hawaiian vacation. Going out to eat became a delicious
and rare treat. On the flip side, they’ve paid off most of their
credit cards, and are funding 529 plans for the kids’ educations,
and retirement accounts for themselves. Brian’s business has
started to take off, because he can now sleep at night and isn’t
stressed over money all the time.
both agree that abiding by these five simple financial rules is
going to let them make their own American Dream a reality.
Read other articles and learn more
about Thomas E. Houck.
[This article is available at no-cost, on a non-exclusive basis.
Contact PR/PR at 407-299-6128 for details and