There seems to be a movement going on that believes cash is king.  How many times have you heard that exclaimed lately?  Well I’m here to say it’s not and cash will definitely never be my king.  In fact, I believe in democracy so there really is no king to me but that’s a whole other story.  To me cash is fruit.  Think about it…

What’s your favorite fruit?

People love clementines.  There sweet, juicy and easy to peel.  The great thing about clementines is you buy them by the crate.  You get your little wooden crate of clementines.  I usually can’t wait to get home to eat some.  They’re pretty small and I’ll tend to eat two or three at a time.  Clementines give you a sweet, sugary, juicy flavor that makes your taste buds go nuts.

This is how cash is for people.  Their sense go nuts having cash on them.  It’s a lot like a sugar high.  They feel good with the cash in hand.  The switch gets flipped to money to spend when you have cash in hand.  I feel like a steak and cheese sub today.  Oh look I have cash, let’s go.  I want some clementines.  Cash in hand, clementines in the bag.

The funny thing about clementines is you get a bunch of them in that little crate.  My problem is I never finish them all.  There is always a few left in the crate when it happens.  You know what it is.  You go to grab one and it doesn’t quite feel right.  Maybe it’s just one spot at first, then before you know it the whole clementine is feeling a bit squishy.  Then the discoloration sets in.  Your clementines are rotting.

Cash does the same thing.  Maybe you don’t have all your cash in your hand but instead you are stock piling it in your bank account.  Well you know what’s going to happen to that cash over time.  It’s going to start to rot.  Money is a commodity. Cash today will not be worth as much as cash tomorrow.  Prices will rise, purchasing power will decrease.

The first principle of the Evolution Of Wealth is the power of LUC (liquidity, use and control).  This might be the closest thing I have to a king.  Cash is important.  Just as it is important to have cash it is just as important to not have too much cash.  By using the power of LUC, you will be able to get the features of cash without the downside.

• Yes, you need cash on hand and readily available to you for an emergency.  This amount is different for everyone depending on their situation.
• Cash is great for liquidity and control but it doesn’t have very much use.  It just sits there and rots.
• If you have liquidity elsewhere you can meet quick emergencies and then get your hands on a lot more money in a short period of time (a day or two).
• By focusing on LUC, you will be able to get a whole lot more use out of your money.  Whether it be to combat inflation, provide protection or just get a rate of return.
• Without use, your opportunity costs will begin to pile up.  In fact, you might create compounding opportunity costs.

I understand that people are not responsible.  I get that.  To me, that is the driving force behind the likes of Suze Orman changing her tone.  She talks to the masses, to the average people.  To them, the bigger problem than cash is debt.  If your problem is debt then by all means go to cash, if that’s what it takes to fix your problem.  However, if you are responsible with your debt, then cash is NOT your king.  In fact, at a certain point it is just drag or friction that is slowing you down.

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I wanted to share with you a lesson I learned from Douglas Andrew and his writings.  For anyone that has read his books before Douglas is a little over the top but as with most financial books there are at least some great pieces to take out of it.  For anyone who hasn’t read his books he talks about utilizing the equity in your house versus paying off your house in full.  If you are interested in learning more about his books a great one to start with is The Last Chance Millionaire.  I will warn you that it is definitely extreme and might be a little over the top for you.

To get back to the post…Probably the thing that sticks with me the most when reading Douglas Andrew’s book is his visual representation of separating the equity from your home.  Now I’m going to attempt to paraphrase his example in my own worlds and hope not to butcher it too much.

In one hand you have a pitcher with water in it.  This will represent you personal accounts and the water being your cash.  In the other hand, you have an empty glass.  The glass is your house.  Let’s say your house is worth $100,000 and you have $100,000 in water (cash) in the pitcher.  This means that your total assets are $200,000.

Then you pour all your water (cash) into your glass (home).  Now the pitcher is empty but the glass is full of water.  You’ve reduced your assets by $100,000 and eliminated your liability (mortgage).  So your net worth is still $100,000 and you have a full glass of water.

Now let’s assume your house appreciates by 5% next year.  It’s now worth $105,000.  If you water (cash) is still in your glass (home) that means that your assets are $105,000 and your net worth is $105,000.  Now let’s pour the water back into your pitcher (personal account).  You still have your house worth $105,000.  We brought back the $100,000 liability.  How did your cash do?  Did it earn 5% as well?  Then that asset is also worth $105,000.  This is what it looks like now:

The point being that when all your cash is in your house you only have one asset working for you versus two.  The rate of return on the equity in your home is always zero.  The equity isn’t an asset.  People want to talk about it and count on having it down the road and maybe even plan on using it.  All it is, is imaginary.  If you want to make it real at some point you most likely go to a bank and ask the bank’s permission and prove to the bank that you should be allowed to access your equity.  Is it really yours?

Follow my feed, follow me on twitter and e-mail me your thoughts.

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This isn’t a secret trick or any great miracle.  Do you want to save up to 10% on all your insurances?  Take any insurance that you are paying monthly and pay them annually.  Then take the monthly payments and make the to yourself.  Insurance companies have what they call modal premiums in which they add on as much as 10% when you pay your premiums monthly.

So what insurances does this affect?  For most people it would be your auto, homeowners and liability insurance.  As a side not, save up to 25% by having all of these with the same company.  You might have group health and disability insurance through your employer so this might not apply.  However, if you are self-employed or have individual policies, you might just be able to take advantage of this strategy there as well.  It works best with disability and life insurance.

This does take some discipline.  Ideally, you add up the monthly charges for your auto, homeowners, liability, disablity and life insurance.  Then pay the annually premium for all of them.  Finally, you pay yourself the monthly total you just got and save it up for next years annual premium.

Do you want to take this one step further?  Don’t use your savings.  Go to the bank and get approved for an equity line of credit.  You should get the approval anyways in case of an emergency.  Then pay your annual premium with the line of credit and pay it back monthly.  This definitely takes some discipline.  You need to make sure you pay it back so that you are not building debt.  This way you are leveraging your other assets.  Putting idle money to work.

Using the equity line of credit, you will instantly free up the spread between the modal of your premiums and the interest on the line of credit.  Then you just might be able to deduct the interest you paid on top of that (consult a tax adviser).  Then what you do you do with this new found money?  Put it back into your financial model.  That’s one way I help people find money.

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I grew up near two lakes.  One across the street for my dad’s house and the other down the street from my mom’s.  I learned about throwing stones early in life.  The most powerful lesson I learned was the ripples that they created.  Now that I’m older I still throw stones it just might mean more.

As a kid I use to throw the pebbles first.  One at a time.  They make a small splash and kind of leave a ripple but you can barely see that.  Then I’d get some bigger stones.  I would never throw them as far because I wanted that big splash near by or maybe I wasn’t strong enough to throw them very far.  Then you would get more waves than ripples.  After a while I would get a bit board and take a handful of all shapes and sizes and just throw them all.  This would leave splashes everyway and ripples all over the place.  I did, however, notice that as these ripples collided they would either cancel each other out or make bigger waves.

Then I learned to skip stones.  It was amazing.  You’d get a bit of a splash but even more ripples and the stone would just keep going.  It would go so fast that you couldn’t count the skips.  You’d be left counting the ripples each skip left behind.  1,2,3,4,5….

Today, I bet you are throwing a lot of stones.  Your stones are money.  You throw them into the lake of financial products and services out there.  Some are going to leave a little splash.  Some are going to be big enough to get you wet.  They are all going to leave ripples.  The money you spend leaves a different size ripple than the money you save.  How do those ripples interact?  Are you making waves?

Nobody wants to be left soaking wet, out of stones with no ripples in the water.  What do you want out of your money stones?  You want to learn to skip the stones.  You want to get multiple uses out of one stone.  Multiple splashes.  Multiple ripples.  Did you know that was possible?

There are very few poeple out there that can teach you to skip a money stone.  Hopefully this blog will get you started, teach you a few techniques.  You’ll have questions, so ask (evolutionofwealth@rocketmail.com).  Do you want to learn?

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I’m going to tell you a secret that the life insurance industry doesn’t want you to know.  Not all life insurance premiums are set in stone.  If you buy term insurance the insurance company sets the premium and commissions.  Everything there is pretty industry standard.  It is what it is and it can’t be changed.

Permanent life insurance is a different story.  The insurance company sets a target premium.  They pay a standard commission rate up to the target.  Anything over that is usually paid at a 2-3% clip.  Now most agents are trained by insurance companies.  They are trained to sell you a policy at target premiums.  Herein lies the problem with the life insurance industry.  Those aren’t usually the best premiums for the policy holder.

These premiums are also where the rumors arise with cash value in life insurance.  These target premiums produce small returns and can take 15 years to produce positive results.  Who wants that?  How does that help a policy holder?  If it’s best to just have permanent term (a permanent policy that you aren’t looking for cash value growth) then use secondary guarantees on a universal life policy.  However, if you want a policy that is going to build cash value you need it to be properly funded.  This is where most insurance agents fail.  The truth is that these premiums are completely flexible whether it’s a universal, variable or whole life policy.  Yes, whole life policies have just as much if not more flexibility than universal life policies these days.

Do you want a policy that is balance sheet neutral?  Positive returns in 3 years?  95% of the cash you paid in in the policy within the first year?  These things can be done when the policy is properly structured.  Life insurance is the most underutilized financial tool or maybe the most misused.  Don’t fall victim to life insurance agents that don’t know any better.  It’s used by the largest corporations in the US to fund deferred compensation agreements, buy-sell agreements and various executive benefit plans.  It’s a great way to fund a personal pension plan or to maximize the pension you might already be eligible for.  You want to leverage real estate or use a bi-weekly mortgage plan?  It makes them better.  College funding, it gives you complete flexibility without the market losses.  Don’t like banks?  Be your own bank.  Lend yourself money and pay yourself back all while the money is earning returns.  This is only the tip of the iceberg for life insurance.  The best part is what it will do for your loved ones, peace of mind and a future with or without you.  That’s the biggest gift it can provide.

September is Life Insurance Awareness Month.

1. Get a Life Insurance Audit.
2. Talk to the right professional to make sure your policy is set up properly.
3. Let me know if you have any questions, e-mail me.

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I can’t believe I just said that.  Well if you asked me a month ago if I thought it would be 90, sunny and no rain  in Massachusetts for two days in a row I would have said no there as well.  It’s not that I don’t agree with some things she says it’s more about the way she makes blanket recommendations to people after them talking for two minutes.  I also don’t really like that her recommendations always support her advertisers but I understand that.  I just hope other people do as well.

The article I read was in the Sunday MetroWest Daily Newspaper.  Anyone out there still read the newspaper?  Suze Orman was on the cover of USA Weekend and her article was titled “Suze’s top 6 tips“.  Go read the article.

So from her article I am going to give you three things to do to find money.

1. Save a couple thousand dollars a year on property taxes  The rules vary from town to town.   So visit the assessor’s office and ask for your property record card.  Also ask for the process to get your house reassessed due to declining market value.  There is usually an application that is due by December 31st and decisions are made in January.  Now that you have the property card review it to make sure the information on your house is correct.  Then go on zillow.com and see how the assessed value compares.  If you feel the two are different, the next step would to be to hire a real estate broker to do a sales comparison or a licensed appraisor.  The simply follow the process of your town.

2. Save a few hundred dollars a year on your insurance  Dig out your homeowners and auto insurance policies.  Call up your insurance broker and make an appointment.  If you don’t like or trust your own agent, ask your friends and family for the name of a good broker and schedule an appointment with them.  Don’t waste your time by meeting with someone you don’t think will help.  Now you want to ask about how much you can save by having both policies with the same company.  Then look into raising your deductibles to $1,000.  (side note: if you get in a lot of accidents or dents and dings on your car this might not be good for you)  Have the broker review your policies and shop them around for you.

3. Stop giving the IRS an interest free loanDo you get a large tax refund?  If so, contact your human resources or payroll department at work and ask to increase your exemptions.  Instead of getting a lump sum back next April you will see an increase in your paychecks that will allow you to save this money and earn interest on it rather than letting the IRS do it.  This is also a great way to help pay down some outstading debt you might have.  Don’t spend this money though, save or pay down debt.

There are three easy ways for your to find money.  This could easily result in you having a $2-3000 extra each year to keep and enjoy.  I also want to commend Suze Orman for telling people to not max out their 401(k).  I think this is great advice and couldn’t agree more.  What do you think?

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Feel free to say the stars.  If you were an Olympic athlete, what would your ideal situation be?  You are one of the best athletes in the world about to compete against the best athletes in your sport vying for the title of the greatest athlete on Earth.  What is the best case scenario?  I would say setting a world record and taking home the gold.  Sound fair?  Now is that likely to happen.  Probably not unless you are Michael Phelps, pre-pot picture.  I joke because I believe he’ll be right there doing it again in London.

So what does this have to do with finances?  My question to you is, has anyone ever shown you your ideal world?  Now on any given day Michael Phelps might win some and lose some, depending on how he is measuring wins and losses.  What affects this for him?  What eroding factors of his performance does he have to face?  Here’s a list of just a few: how he slept the night before, what he ate, how his legs/arms/body feel, the water in the pool, the current in the pool, the temperature of the water, etc, etc, etc.  You get my point.  I don’t know a ton about swimming but what I do remember is hearing about how the 2008 Olympics in Beijing had a fast pool.  If there’s a fast pool then there must be slow pools.

The things I listed are eroding factors of a swimmers performance in any given event.  Financially, we too face various eroding factors.  Things such as inflation, taxes, technological change, planned obsolescence, financial expenses, lost opportunity cost, interest rate declines, stock market declines, loans and interest charges and lawsuits.  It is extremely difficult to see, realize or counteract the affects of these factors if you don’t know what your ideal situation is.  From your ideal situation you can then look at each factor individually or a combination of factors to see the affects it has on your money.

Is there an easier way to get results than to keep the money that is already there?  Let’s first look at how you are loosing money so that you can begin to learn how you can find it and more importantly, keep it.  What would you rather have, an investment that beats the market or an investment that isn’t affected by inflation, taxes, interest and stock market declines?  If you say ‘let’s run the math’ then I know you have been brainwashed by the misinformation out there.  Remember money is a commodity so ‘money is not math and math is not money’.

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I had a conversation with someone over the weekend that I can’t help but share.  We were talking about Anthony Robbins and his book Unlimited Power.  In Chapter X, he talks about his 6 principles of physiology.  They are the following: 

1. The power of breath.
2. The principle of eating water-rich foods.
3. The principle of effective food combining.
4. The law of controlled consumption.
5. The principle of effective fruit consumption.
6. The protein myth.

Anthony Robbins is not a nutritionist.  He does not seem or claim to have formal education or training in any specialty or area that would make him an expert in health and nutrition.  What he does say is that he researched and spoke to some of the healthiest people he knew and modeled their behavior.  Does this make him an expert?  Probably not.

The thing I love about this chapter of his book is that Tony goes against conventional wisdom.  He tells you he is going to, he pads it for you and then shows you his principles.  I don’t know if these things work because I don’t know enough about the topic.  If you’re reading this and you know about nutrition or health and you’ve read about his principles let me know what you think.  I do know that America has a problem with obesity.  It seems that some of the more convetional diets aren’t working.  Maybe Tony is onto somthing?

What else I do know is ‘financial stuff’.  What I do know is that people are failing financially and that they economy is nothing more than an excuse.  Do you need an excuse?  Or does is just make you feel better?  The conventional ways of doing things are leading to failure.  Is it time for a change?  Are you open to looking outside the box?  Are you open-minded enough to do something that goes against what you read, see and hear because it works?

Here are the first ever written 6 principles of the Evolution of Wealth:

1. The power of LUC.
2. The principle of 15%.
3. The velocity of money.
4. The law of protected savings.
5. The principle of BYOB.
6. The 401k myth.

I will develop and explain these principles in future blog posts but for now I will leave you wondering.  What do you think?  Do any of them sound familiar to you?

***Disclaimer:  This is a rough draft.  I reserve the right to change and update these principles as I see fit.  They will only be modified to better capture and/or explain the concepts of building wealth. ***

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I came across a blog post earlier today by Ramit Sethi at Iwillteachyoutoberich.com.  The blog is titled “Have a mortgage? Save $71,000 in interest payments”.  That’s a pretty catchy title.  I think most people would take a few minutes to learn how to save that much money.  Ramit with the help of Andy Jolls from videocreditscore.com go on to show you a few different ways to save money.  The main strategy is one in which you have probably heard before, make extra principal payments.  Ramit talks about bi-weekly mortgage payments.  Through this strategy you pay ever other week or 26 payments a year.  The key is this gives you an extra monthly payment going to your mortgage each year and thus you save interest and pay off your mortgage faster.  Sound great right?

The best part of this post is the comments.  People really impress me in the comments.  Numerous people call Ramit out for how this is an outdated theory.  As you read through the comments, there are a couple of people that agree (of course).  What I love seeing is how a few people go on to correct him.  SBE, Susanamnm and Travis go on to talk about how the key to the strategy isn’t bi-weekly payments but the extra mortgage payment per year and how this is just paying your mortgage company.  This is what the bank or your mortgage company wants.  They want your money, the sooner the better.  How do banks make money?  Off of other people’s money.  Can’t you do that?

Then we have Darwin’s Finance comment on how Ramit’s calculations are bad and that there is a better way to do this than giving extra money to the bank/mortgage company.  I want to commend Ramit for being completely honest with his reply when you basically says that Darwin’s Finance is completely right but that most people are unable to be disciplined enough to save this money elsewhere.  I commend him for coming out and saying it but I have a problem with his almost giving up on people.  I’m confused on the purpose of his blog.  Ramit claims it’s to help people automate there financial world which his concept would accomplish but how is it harder to make that extra mortgage payment per year to another account or savings vehicle?

The best comment is made by LBG Financial Services who saves me typing by covering the main reasons why you shouldn’t follow Ramit’s blog but instead you can do it a better way.  Ramit is yet to reply directly to them but I look forward to him doing so.

In a reference to evie’s comment, it is better to save the extra mortgage payment each year than pay it off early and then save the full payments.  This is prooven through time value of money and I would be happy to discuss this.

This is a great example of misinformation.  I say this because what Ramit is saying does save you money but as others, and Ramit himself,  point out it isn’t the best way to do so.  I want to help you find the most effective and efficient way.  What would you prefer to learn about?  The second best way?  Me neither.

*** Disclaimer:  In this blog post I am in no way talking about whether a house is a good investment or not, I will save that for other posts.  Also I am in no way recommending that you save the extra money into an investment account.  I do notrecommend that you put the extra money at risk in the market.  I will be happy to discuss this with anyone that has questions.  I also don’t have any relationship whatsoever with anyone mentioned in this blog post and have not verified any information they provide. ***

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When someone asks; I help people find, keep and enjoy your money.

You Spend Money

You are constantly spending money on financial products and services.  You probably have auto, homeowners, life, health and other types of insurance.

You Save Money

You have a checking and savings account.  You might be using a money market accounts or have some money invested in CDs.  You probably contribute to a 401k and/or other types of qualified retirement accounts.

You Hope To Grow Money

You might have some investments such as individual stocks, bonds or mutual funds.  You probably own a house or have some type of real estate investments.

You Pay

Everyone loves to pay taxes right?  You will be paying those your whole life.  As well as various fees for financial advice and services that you may or may not use.

You Acquire These Things

I remember when my dad took me to the bank to open my first passbook savings account.  I use to love to get it stamped.  Maybe a friend of yours recommended an investment to you.  Or someone you went to high school with helped you set up a life insurance policy.  Then you went to the yellow pages to get some auto insurance.  Or a guy shows up at work once a year to tell you what to do with your 401k.  We tend to acquire and make decisions about the products and services at various times and completely independent of each other.

Is There A Better Way?

Like most people you probably have a set amount of money to spend each month.  As you pay your bills independent of each other, it affects what else you could be doing with your money.  What if you could better coordinate the products and services you have?  What would you do with your extra money?  Would you save more? Vacation? Is there something you’ve been wanting for a while?

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