Nothing Succeeds Like Success- Part I

Worcester Jewish Chronicle, June 2, 2005

Nothing Succeeds Like Success- Part I

William E. Philbrick, CPA, MST, CVA, CFF

How prepared are you to handle your financial future…whatever that future holds?

Centering on that question, three key factors will help to shape your answer-

  • How realistically you answer the question
  • Pinpointing your own specific problem areas…and…
  • Recognizing and acting on steps you can take to turn things around.

It’s a tall order. So let’s get started.  As individuals and as a country, we are in the throes of a huge problem with likely consequences for our families, our communities and our entire nation.

I’m referring to financial illiteracy.  It takes many forms and guises. You can be affluent and have financial blind spots or serious setbacks that cause you to lose it all.  You can be middle class.  You can be a college student…. a single mom, or an average Joe.  Your rank and station in life doesn’t matter.  Statistics show that the majority of Americans do not understand their finances sufficiently to protect themselves and their families. 

Let me give you a few examples of the magnitude of the problem and invite you—urge you—to be honest with yourself.  My purpose is to go beyond defining the problems and put you on the road to solutions.  To do that, you must take the first step and honestly assess if any of the following statistics apply to you.

Americans have the lowest rate of savings of any industrialized country.  We are spending 120% of what we make.  Based on that troubling fact:  How would you pay your bills and go on with life if you or another breadwinner in the family had a major financial setback like getting fired or being laid off?  How long would your savings last?  Are you at the recommended level of six months to a year of income put aside for a rainy day?  What can you do to fix the problem if your savings are nowhere near what they need to be?

Let’s focus on the last question.  What can you do to fix the problem?

The answer is so easy and so promising.  You can begin immediately. I mean today, not tomorrow.  You just have to do two things.  THINK SMALL and DO IT REGULARLY.  Yes.  Think small.  Psychologists and financial experts agree that we most often fail to save because:

  • We believe we don’t have any extra money…AND…
  • We believe we need to save huge amounts for it to matter.

WRONG on both counts.

Thinking small can bring big rewards.  If today you begin to put aside just $2.50 a day—the equivalent of that designer cup of coffee—you’d be saving $17.50 a week.  That’s $78.50 a month…almost $1000 a year.  That’s what   thinking small means. If you don’t want to do it on a daily basis, then do it weekly.  Put aside $20 a week.  Is there anyone who can honestly say that he or she can’t find $20 a week to put aside?  That’s $1080 a year.  But, if I told you to find $1080 at the end of the year to save, you’d likely—and probably accurately—say to me:  “I don’t have $1000 to put away.”

Let’s take this example a bit further.  If you save $201 dollars a month for 25 years, at the end of that time, at a 6.5% after-tax return rate, you’ll have saved $150,000.  If you need advice once your money starts to accumulate, talk to a financial adviser, such as a CPA or qualified financial planner. There are many safe investment vehicles that require no more than a $500 initial investment.  But remember to be wary of an adviser who has a vested interest in steering you to a particular investment product. 

That’s why “Think Small and Do It Regularly” works.  That’s why “Pay Yourself First” works.  One of the surest ways to stay consistent is to have money automatically taken out of your paycheck and put in a special “DON’T TOUCH” account.

Another example of our country’s financial literacy problem is the staggering amount of credit card debt we carry as individuals.  Credit card debt is sapping us both individually and as a country.  For example:

  • The average American owes over $8,000 on their credit cards.
  • The average college student carries 3 credit cards, each with an average balance of nearly $3,000.  More and more students are dropping out of college because of overwhelming debt.
  • If you have a credit card with an average balance of $1,500 and you pay only 2% of the balance each month at an interest rate of 18.9%, it will take you over 49 years to get the balance down to under $50.
  • In 2003, 1.6 million Americans filed for bankruptcy – the highest amount in history and twice the number since 1993.  I’m not talking about companies or corporations; I’m talking about everyday Americans who have had to declare bankruptcy and become ineligible for credit—including mortgages—for 10 years.  That’s how long it takes for that black mark to get off your credit rating. 

You remember that scene in “Indiana Jones” where the walls keep closing in from all sides?  That reminds me of the predicament of credit card debt.  The more money we need…the more we use credit cards…the more interest we incur…and the more our financial walls close in on us, until we are so squeezed we can hardly take a breath.

What must come to mind right now is one of two questions—and they are totally linked to that original question:  “How prepared am I to handle my financial future?”

  • How do I avoid the credit card debt squeeze?
  • If I’m already there, how do I push my way out?

You will avoid the credit card squeeze by limiting the number of credit cards you use…by paying the total due—never just the minimum— every month…by never incurring the exorbitant 18%—or higher—interest rates credit card companies charge. And remember department store rates can often be as high as 21.99% or even higher.

If you already are in a credit card bind, how do you start to work yourself out of it?  First and foremost, stop using your credit cards…talk to a financial planner and pick a reputable one.  Secondly, work with your creditors and talk to them.    Avoid declaring bankruptcy unless you absolutely have to; and only after you’ve consulted with experts.  Make sure you have exhausted all your other options including a second mortgage or home equity loan if you are a property owner…but remember that these options put your home at risk if you fall behind or cannot make payments.  Or, you might ask family or friends for a loan on absolute business terms.

We’ve taken a look at a number of possibilities for easing the two biggest financial problems individual Americans face:  too little savings and too much debt.

In Part II, we will be looking at life cycle events that impact your financial future and strategies to keep you financially fit through these events.


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William E. Philbrick, CPA, MST, CVA, CFF is a Senior Vice President and Director of Taxes and Forensic Services with Greenberg Rosenblatt Kull &Bitsoli, P.C. of Worcester, Mass. He can be reached at wphilbrick@GRK&