What to do with your money

My usual day includes reading 10 to 12 articles about the economy and business news.  Today I read the best advice from Liz Pulliam Weston on MSN.com.  

Liz gave 10 pieces of advice about what we need to know about the financial crisis we are dealing with after the government failed to pass the bail out package.  Her advice was pretty good, but it was actually number 11 that grabbed my attention.

After giving all the advice about banks, investments, etc., she said the best advice she could give was "to take out your wallet and give to the Red Cross".  We have many victims of hurricanes and other tragic losses in America and around the world that will have much greater losses that any of us will have with the mortgage/wall street crisis.  

Wall street hasn't caused any of us to die, deal with disease, lose our pictures and valued possessions, or anything worse than "some" asset reduction.  Maybe you have to lose the house you are in because of being over mortgaged or because of job loss.  It could be worse.  We could live in Nicaragua and never have had a house.  Or, we could have lived in China and been devastated by the earthquakes.

We are melting down at Wall Street and we may have a difficult time obtaining credit.  We may have to be careful shopping for food, budget a little tighter, not drive as much, not purchase as many luxury items, and maybe not go to the movies and buy extra butter on our popcorn.  This is probably good for all of us.  

As for me and my family, we are going to write a check so someone else can eat, have shelter, avoid disease, and extend life.

We Have Not Addressed the Real Financial Problem

Who is to blame for our current financial crisis?  Greedy homeowners?  Real estate agents? Is it builders, mortgage brokers, bank lenders, wall street businesses, congress, Al-Kida?

Let's look at the free enterprise model.  

Individuals are given incentives to own business that sell products to individuals.  By owning or working for one of these businesses, people gain wealth and have the buying power to buy products from other businesses.  The entire process is built on a core fundamental of supply and demand.

So, the businesses create product to sell to the public.  The competition for product sales drives businesses to create marketing strategies to motivate people to buy.  The buyers are given visual and audio stimulation to choose different products.  

Sounds simple and it is.  But let's look at where the problem exists in this model.

Business are motivated to "sell" and therefore do not have the ability to be a moral conscience for the buyer.  They do not have the ability to think for every buyer to help them know if they can really afford the product they are buying.  So, consumers buy based on what they are allowed to purchase.  If they can get a loan for a tv, car, home, clothes, or anything else, they have the freedom to purchase it.  This is what the sellers are hoping.

Our current crisis is because consumers purchased more than they can afford.  We consumed beyond what our paychecks and balance sheets could absorb.  If we don't buy what we can't afford, banks don't overextend themselves in lending.  The credit bubble (lending beyond what the balance sheets of consumers can handle) is the problem right now.

Ok, still haven't told you anything you didn't know.  Well how about this.  The problem goes deeper than the consumerism purchasing decisions.  I think the problem is lack of education. When was the last time your kid came home from school and asked you to help them with mortgage calculation homework?  What about check book balancing?  What about investment strategies or stock market short selling?  We don't teach these things to our kids but we let them loose in a world that will attack them that has no moral conscience.  

Our education system is to blame for this crisis.  The majority of American's are "starting" to learn about these issues in the newspaper and on the internet.  This is a little late.  Unfortunately, the majority of them still don't understand it because they don't know the fundamental financial basics.  So, we will continue to repeat this type of problem.

The rest of the world hates us because of our gross consumerism attitudes.  Even my best liberal Democrat friends, who hate the American free enterprise system, are deep in debt and can't help themselves when it comes to buying.  We teach that people are entitled to an American Dream of having "stuff" and having it NOW.  We teach the dream but we don't teach how to get it.  We inspire people to entitlement and only those who are lucky enough to get educated on the process end up winning.

McCain and Obama - Address this issue and you will make a difference.  Otherwise, we will see this problem raise its ugly head again.  American's have a very short memory and a terrible basic moral compass.  We think we are owed something for nothing.

History Still Repeats when we don't pay attention

Alert:  Banks get competitive pressure to perform and improve stock value and begin to loan money for real estate to people who can only afford the mortgage if the property values continue to increase.  The real estate market takes a down turn and the banks are left with a crisis.  People can't pay their mortgages, foreclosures become rampant, bank stock values decline, public confidence goes down and people start pulling money out of the banks.  The stock market has huge declines in daily trading.  The banking system looks to go into complete failure and the economy will not be able to survive.  So, the government steps in.  They provide a cash infusion to the banking system with loans that will impact tax payers for many years to come.  The public has to bail out the poor decision making of risky real estate investors and bankers.

I know, you have all heard this and are tired of reading about it.  But, what you don't know is this is a factual account of Japan in 2002.  Yes, they did the SAME things we have just delivered to the U.S. and global economy.  Our impact might be larger, though the global banking system was at risk when Japan's economy was hit in the stomach with a baseball bat.  Our problem is escalated because of the increase in the volume mortgage backed securities.  This simply makes the problem a little further reaching.

15 months ago I spoke to a group of people about where our economy was heading.  My "guess" was exactly correct.  But, I told them at that time that England and Japan had done the same things in the past and it was going to take some time to repair.  My advice to the group I spoke to was to get out of the credit world (quit borrowing money for a period of time), and make sure you are living your life in a way that does not require increased credit.  I was correct.  

My being right is not because of a great prophecy, it was because of an awareness of history.  The banking systems in England and Japan did the same things we are doing now and credit became a hard thing to get.  Credit card usage went up because people couldn't pay bills or get credit anywhere else.  Then they were unable to pay the debt they had accumulated on the cards and large bank write offs continued to put pressure on the banking system.  This is still happening in our system today.

THE BAILOUT:  Japan's government stepped in and did exactly what our government is doing today, they are letting the tax payer bail out the banking system and real estate crooks for the bad decisions they made.  I don't like it but it is the only way we will get out of this problem.  The good news is it took Japan four years to become profitable and healthy again.  That means about 3o months before life seemed to be back to normal.  I believe we will be 24 to 30 months.  We may go faster because American's have shorter memories and will be  more creative in building the next over risky proposition.

So, if you want to understand economics better, just look at history.  Not too many new things will be created, just an embarrassing repeat of the past when we don't pay attention.

Its the Presidents Fault

I must say that as an ex Midland Texas boy that actually received help from President George Bush Jr. on homework when I was in high school, I am very disappointed in him as President.  I don't know what I don't know about the war.  That is a difficult thing to understand.  American's REALLY don't want to know what goes on in the world and how "at risk" we may be every day.  But, I find it difficult to believe we made all the right decisions in this war.

Let me get to my real purpose.  In the upcoming election we need to look at our arguments and be consistent.  If you are saying that the economy, the war, and the overall direction of the country is bad, the entity with the most influence and power in those areas is Congress!  It's not ALL the Presidents fault.  I am amazed that people in congress are actually pointing their fingers at the President and saying we need a change in President because the economy is bad.  Congress initiates policy, they write laws, they agree on tax programs, they drive the U.S. Policy.  The President can simply sign it into law or veto.  The President can make suggestions and introduce legislation but Congress has to decide if they are going to address something, or not.  The military is the only exception to this argument (and most of the military decisions still require congress approval).

So, if you think change needs to take place for the sake of change, CONGRESS needs to go back to Republican.  Don't let either of these POLITICIANs tell you different.  They are both going to represent change.  It will not be the same with either of them as President.  

What I worry about most is having any party in government with too much power.  If the Obama wins, the democrats will be able to drive any policy they want through the system.  Do you really want that?  If McCain wins, we will go into government deadlock.  That means nothing will happen.  I LIKE IT.  When was the last time the government made things better.

Aren't they the ones that created FINRA to watch over the securities world to make sure we were being protected?  Where was this government entity when crooks were selling off mortgage backed securities that had unqualified buyers in houses they couldn't afford? 

Our PRESIDENT (Republican) and CONGRESS (Democrat) put us in war, have extended our mortgage problem by giving a two to three month band aid to homeowners who will now go into foreclosure three months later, have stopped good wealth advisors from giving good advice while crooks took down our banking system, and have created a global hunger problem by driving incentives to farmers to stockpile corn and other agriculture for future fuels to "solve" our fossil fuel problems.

I say either keep em in deadlock or fire them ALL.  If you are going to vote for Obama because of "change", then your principles should have you replace your favorite Democrat in the House and Senate.  Keep em in deadlock!

Eliminating Stress with "Should Do" Management

We can categorize all the things in our life into three categories. 

Things we "have to" do.

Things we "should" do.

Things we "want to" do.

The "have to" items are things we are compelled to do.  They come from our values, habits, and experiences in our lives.  Paying bills, taking a shower, showing up to work, etc.  These things are not optional (hopefully).  The more successful you might be, usually is reflective of the number of items you have inserted into this column.  

The "want to" items are items we would like to do as often as possible but they really don't create stress in our lives if we don't do it.  Travel, sporting events, entertainment, etc.  They are things we do to reward ourselves for doing the "have to" things so well.

"Should do" items are the ones that give us the most stress and have the opportunity for the most potential success.  I should work out more, eat less, prospect more, call more friends, call more clients, go to church more often, and the list goes on.  These things not completed will create stress in our lives.  They keep us up at night.  They keep us from being successful when not complete.  But, when we do them, we have the greatest joy.  Every time I do those items above, I feel better about myself and I have more success.

Success increases when we turn the "should do" items that are critical paths to our success, into "have to" items.  When prospecting, eating healthy, going to church, etc., becomes part of the compelling and habitual part of my life, I will be more successful.  

This is a great concept but if it were easy we would all be doing it.  How do you turn "Should Do" items to "Have To"?  Only two ways that I know.  All around one word... accountability!

Internal and external accountability are the only ways I have seen habits created that make the should do items become have to items.  Internal accountability is when you simply decide it is gong to happen.  You create scheduling activities or force your behavior.  This is a rare success because most people don't have SEAL training and natural abilities to be this disciplined. 

External accountability seems to be the best source of real behavior change.  Tell someone else the behavior you have to change and ask them to hold you accountable.  This could be a spouse, a friend, a boss, a co-worker, or a mentor.  Someone that will consistently challenge you in the area you want to change.  Usually, the time frame is about 3 months to make something a "have to" item.

When you create this accountability and change behaviors to be consistent with your goals, you will find the stress will subside and the results will compound!  Try it and see what happens.

Bad news will get you chewed out... NO NEWS will get you Fired!

Over the last 25 years of being in and around business I have seen a  consistency with business owners.  None of them think they know everything (even though they may act as if they do) and they worry more about what they don't know than what they know.

These owners know about good and bad economic times, people issues, client problems, operational struggles and financial concerns.  They know, from history, what is required to pay the bills and meet client needs.

So, if they know all of these things... why do seminars, best practices groups, conventions, and consultants exist?  They exist because business owners are compelled to know what they don't know.  The things they don't know are what could put them out of business.

My first day on the job at a construction equipment rental, sales, and maintenance company taught me this lesson very well.  I was told to travel with one of our clients to a highway construction job site on my first day.  The trip took about 2 hours (one way) to get to the site, an hour at the site, and 2 hours coming home.  I didn't speak more than 5 minutes the entire trip.  The COO of this road contractor was one of the most successful contractors in the Western U.S. and knew that he had to teach me as much as possible in this trip.  I was going to be making decisions in the equipment company he was depending upon for his job success.

He taught me a lot about the business basics on the way to the site and then showed me how rock crushing equipment worked and how it processed to asphalt and was put on the road.  We stood on the crushing equipment while the rocks were being crushed and screened (I am sure I still have dust in places I can't mention).  I saw how critical every step was in the process and how much money could be lost if something went wrong.  He gave me insights to how much money could be lost if the operation were to be shut down for just one hour. 

When we finished he gave me a lesson that made an impact on my career.  He said "decisions are made in business based on what we know.  If we don't know something, we have to guess.  That is tough and risky.  When we know something it gives us confidence, "even if it is bad news or something we don't want to hear".  He concluded by saying, "A business owner craves knowing what they don't know so they can make better decisions and be more productive".

His message meant two things to me.

1.  If we know something (his machine can't be fixed in time or a rental machine won't be there on time, etc.) we have to tell him immediately upon learning so he can make the necessary decision.  If he doesn't know this information, no matter how bad the news is, he can't make a good decision.

2.  He wants to know any information that can help him run his business better.  If we have experience, best practices, ideas, or strategies that will help him be more successful, he is passionate about getting it.

What can a business learn from this lesson?

1.  Tell your clients any information that would be necessary for them to know, as soon as you learn the information.  Holding back information that could cause them to make a bad decision could be detrimental to your relationship with them.  My mentor at the job site above closed the day with a strong statement... "bad news will get your butt chewed out but no news will get you fired!".

2.  A client needs your expertise and advice.  If you have a method of giving them insights on their business with your expertise, and can put a plan together to help them be more successful, you will bring them value.  Don't just sell them your product.  That is not good enough.  Give them insights to best practices, cost reducing ideas, increased revenue opportunities, and anything they "may not know".  When you help them know what they don't know, you become more valuable.  When you give them plans to improve on "what they don't know", then you really become valuable.

Business owners want to be more profitable, help their clients, hire and retain top employees, and have great owner satisfaction.  Giving analysis and insights to help them with clarity and learning "what they don't know" is valuable.  Giving them a plan to improve their business, based on these insights, is a bonus.

Insurance Agencies in the Sitkins International Network use this model to help their clients.  The model begins by doing an analysis on the risk management issues in the company.  They identify, based on their strong expertise, where a business may spend money they don't want or need to spend in the areas of benefits costs and potential risk issues.  They focus on three areas of Total Cost of Risk and Total Cost of Benefits:  Preventive costs, direct costs, and indirect costs.  

The analysis is put into an indexing process to prioritize the risk management issues and give insights to what a business "may not know".  After the assessment is complete, the agency provides  a "plan" to help the client proactively manage these issues and reach specific goals.  

I have spoken to hundreds of business owners who have communicated the great value of this process.  The insights given from this process allows for them to know "what they don't know" and then have direction on how to improve their business.  

To contact a Sitkins International Agency, you can email Patrick@Sitkins.com and he will connect you with an agency in your area who does this analysis.

A Retirement Mistake

A woman in her 30's recently told me that she was not worried about over spending.  She said her parents are very wealthy and are going to leave her a ton of money.  She spends every dime she makes and actually runs into financial problems frequently because of her over spending.  

The family makes over $100,000 per year in income.  They have a nice home but they live on heavy amounts of credit debt.  They have spent more than they make and have maximized their borrowing capacity.  They are having to live paycheck to paycheck just to pay the debt service and basic living expenses.  They don't have any extra money to do the things they would like to do.  

The ironic aspect of this story is how her and her husband frequently complain about what they don't have and how unfair life is because of the financial struggles they live with.  

I have given them advice about cutting back and "investing" in their future by paying off debt and reducing the eating out and unnecessary disposable spending.  If they paid off the debt, backed off the demands of day to day expenses, and started saving some money, they could retire at a reasonable age and have a good life along the way.  Their response to this was, "we don't have to do that because my parents have a ton of money and we will get that inheritance."

Now, first of all, let me tell you my strong desire for my children to not meet these people and learn this philosophy.  I don't want my children looking at me like a hungry buzzard looks at a wounded antelope, hovering over it waiting for the poor animal to die.  This does not seem very healthy.  I also hope my children are able to see they probably won't see any of the inheritance until it is too late.  

The average age of death is in the 80s.  All my grandparents lived well into their 80s and two are almost 100 and still living strong.  That means my children will not see inheritance until they are at least 60 years old.  Then, many people find that the later years of a persons life can take all of their money due to medical costs or assisted living.  I would hate to bank on having my parents give me money for my retirement and then find out is was gone!  Kinda difficult to make money and start saving at that point in life.  Also, what about the 40 or so years prior to retirement.  Don't you want to have financial freedom during that time as well?

This woman and her family will probably continue to live paycheck to paycheck and have financial struggles.  They will reach retirement age and find a healthy and vibrant mother and father spending their inheritance.  Thus, they will continue to work and struggle.  They will end up like the majority of Americans... unable to retire and a burden to the rest of us who cut back and invested.

I know another woman who was divorced in her early 50s.  She didn't have a dime to her name.  She found a job making $10 an hour.  She simplified her life and only spent what she had to spend.  She put every penny over her basic living expenses into savings and investments.  15 years later she retired.  She had a few raises during that period but never made more than $15 an hour.  She is not almost 70 and lives in her own house, has money to pay her bills and doesn't have to work.  She doesn't live extravagantly but it taught me a couple of lessons.  Oh, I forgot to mention that she had always thought her parents would give her a big inheritance.  Her father passed away almost 12 years ago.  The money was much smaller than she thought.  The expenses to bury him and pay for estate issues was much higher than she thought.  Her mother continues to live (98 years old now) and the expenses for her mothers continued health and upkeep are very high.  She will received nothing from that inheritance.

The lessons learned:

1.  The earlier you start saving and investing, the better life will be when you can retire.

2.  If you save and invest, you can retire.

3.  Your parents money and wealth accumulation may not benefit anyone.  But, if the inheritance does have a benefit it should be to your children, not you.  Inheritance is usually two generations away.

4.  You can live a good life if you don't spend too much today.  Our family motto is "You can have what you WANT to have, if you do what you HAVE to do".  When you get this backwards, you will have a lot less.

If we can all heed this message and do the right things to prepare for later life, we will not be a burden and fewer people will be a burden to us.

Gene Upshaws Death - He Taught Me Great Lessons in Business and Life

We have lost a great man today.  Gene Upshaw passed on today due to cancer.  Gene was the head of the NFLPA, a great football player, and a great man.  This has brought back memories and great life lessons for me.  

First, the life lesson.  Cancer jumped up and bit one more person without warning!  Gene was diagnosed on Saturday with Cancer and died on Thursday.  WOW!  Next to immediate death due to an accident, how would that be for planning.  It helps us remember the reality of mortality. We don't have any promises of tomorrow, and we should live as if that could be true.  What would Gene have done this last week, month and year, had he known today was coming?  The life lesson for me is to live life without an entitlement attitude.  I am not entitled to tomorrow, therefore I will make today a great day in the life of those around me and thus, it will be a great day for me.

The memory for me is also life changing.  I was a replacement player for the New England Patriots in 1987.  I was asked to stay on the team through the remainder of that season because of roster increases after the strike.  I was a guy that was crossing the picket lines that Gene Upshaw had drawn.  My daughter had been born the first day of the strike and I accepted the call to the Patriots standing in the hospital looking at this little girl while wondering how I was going to pay for her birth and her life.  Wasn't much of a decision for me to cross the lines.

Many of the players were understanding of this decision but some were absolute jerks.  Guys like Craig James never spoke to me the entire season.  A couple of weeks after the strike I was in the locker room prior to a game when Gene Upshaw walked in the locker room.  He went from player to player getting acquainted and catching up with old buddies.  I was not near my locker and didn't have my jersey on, so he could not have known who I was.  I remember thinking "A rookie who was the 48th man on a 48 man roster who crossed the picket lines a few weeks earlier was not going to be one of his favorite people to speak to".  I was wrong on all accounts.  

He came up to me and said "Hey Linne, what's up man?"  I was floored.  He knew my name, spoke to me like he had known me all his life, and was eye to eye with me listening for my response.  He spoke with me for about 15 minutes just getting to know me.  No judgement, no condemnation, just a sincere desire to know me better and give me 15 minutes of his time.

This isn't the end.  A year later I was in San Diego, playing for the San Diego Chargers.  It was early in the season and he came to the stadium while we were arriving for a game against the Cowboys.  I was in my street clothes and walking across the field.  He met me at about the 30 yard line and said, "Hey Linne, what's up man?"  Now I was really floored.  He remembered me and spoke to me like I was his old friend.

What was the lessons learned?  

1. Learn peoples name.  They will respect it and appreciate that you care enough about them to remember.
   
2. Live your life for others.  Gene sincerely cared more about others and lived his life serving others.
3. Don't place a value on men.  Gene could have spent all his time with the superstars and the media.  He didn't.  He spent time with every man!
4. Forgiveness.  Gene knew I crossed HIS line.  He immediately forgave me and became my friend.

I don't know if Gene Upshaw would remember me if I were to run into him in the last year.  How could anyone remember the number of people he has known and served in his life?  I don't know but I would not be surprised if he were to see me in a grocery store and remember my name.  

Gene made a big impression on my life and I hope I can take the lessons I learned from him and make the same difference in someone else's life.

Gene Upshaw, I won't forget, Rest in Peace!

"Kill The Witch" - Group Think in Comedy

KILL THE WITCH

 

One of my favorite movies is Monte Python’s “In Search of The Holy Grail”.  A classic in most circles.

 

One of the most memorable parts of the movie is the “kill the witch” scene.  If you don’t remember it (or are one of the culturally challenged people who haven’t seen the movie) I will give you a brief recap.

 

A mob of people are parading a poor young woman through the streets of a medieval city.  They are all yelling “she’s a witch”, and “kill the witch”.  It is a mob scene with clear leadership and followers who don’t think for themselves.  They have a brief trial and ask questions to determine if she is a witch.  One person asks why they think she is a witch and all the people respond… “because She’s a witch”.  Finally they decide to go through a logical process to determine for sure if she was a witch.  The logic was that witches can fly, ducks can fly, and therefore if she weighs the same as a duck, she must be a witch.  They put her on the scales and it goes back and forth for a while until finally the scale shows an equal weight.  So, they conclude “she is a witch”.  Through the entire scene you see a mob mentality where a couple of highly opinionated and passionate people are pushing to get everyone to believe she is a witch.  The crowd wants to see something exciting and is looking for someone to tell them what to believe.  When someone with passion speaks, they listen and believe and become committed to what is being said.  GROUP THINK!

 

Again, this scene cracks me up.  Unfortunately, this is what happens in the U.S. and around the world daily.  We read and hear statements like “Obama is a radical Muslim” or “McCain doesn’t support any benefits for war veterans” in newspapers, internet, and on television.  We hear opinions about the economy and start selling off our stock, or quickly throw our house on the market because we are afraid of the price lowering too much.  Then we start sending those messages to everyone we know through internet or discussions.  None of these messages were ever verified for truth, but we act on them and continue the communication.

 

I saw a comedian a few weeks ago speak about how he saw a report that a politician didn’t support keeping guns out of the hands of children.  He continued through his act making fun of how people took off on the belief that the politician wanted guns in the hands of children.  It was hilarious.  Just as hilarious (and sad) as most of the news we hear and opinions that are stated in the media. 

 

The media is in the marketing business, not the information business.  They do not live to make sure you know facts and valid information.  They survive by SELLING you on keeping your attention.  They want you to read their material and watch them.  This does not require truth, morality, accuracy, or validity.  They have to get your attention and keep it.  This “marketing” strategy requires sensationalism headlines, bold statements, feel good ideas, villains, and heroes. 

 

If this wasn’t bad enough, now we have amateurs entering the game. Amateurs are not being held to the standards of educated and trained professional journalists.  But what sells is not journalism.  What sells is sensationalism, drama, heroes, and villains.  A quick picture from a cell phone or a radical blog will get on the front page of the internet, myspace, or YouTube, and we will all want to watch it.

 

Why is this important?  I have found in the last 10 years that one of the most powerful characteristics you can have is to know the facts that either support or refute what is being communicated through the media.  I’ve had numerous situations where people have sent emails or had discussions that I found to be very ignorant of the truth.  With grace (I hope), I have managed to tell them why their thinking is inaccurate.  Not that I have a corner on the truth, but usually I have done my homework and know enough about the topic to bring the truth to light. 

 

My challenge to all who desire true business acumen… read more than the headlines and verify everything for truth.

Business Acumen

Welcome to my blog.  Over the last 15 years of working with sales people in my consulting practices I have seen a huge need for the development of business acumen.  Business acumen is defined as "having good business judgment".  Good business judgment requires knowledge about business practices, models, strategies and tactics.  Having this judgment will help to increase the success of any person in business, no matter what position they hold.

This blog is dedicated to bring short, easy to read articles and insights that could help business people learn to have good business judgment. 

The blog will give you things to think about, items to talk to others about, and business insights that can help you and others.

I hope you are challenged, and I hope you enjoy!

Larry G. Linne

web site launch

www.larrylinne.com