The 3 Secrets of Financial Success

From Bob Jennings at TaxSpeaker. Check out more at taxspeaker.com

It seems like every newsletter in the last 18 months has been related to income taxes and the never-ending line of rules being issued by the IRS and new laws from Congress. As we celebrate our nation’s 250th year of independence in two weeks, maybe we need to work towards our own financial independence.

A few years ago, I was asked by a former college student of mine to give the commencement address at the University where she was President. I questioned her sanity because I had never spoken at a commencement address and more importantly, I was not a believer in the 21st Century concept of birth to death cradling from responsibility. She asked what I meant by that, knowing I would not be offended, and I explained that I am old enough to see that America has gone from the “I am responsible for that” generation of my parents to the internet based generation of “It’s not my fault because I am a victim”. Now, I can already see some of you getting ticked off! I told her if she really wanted me to speak that I would not tell them what they wanted to hear, I would tell them what they needed to hear. Her response was that this was exactly what she wanted.

I addressed the graduates that day with what I told them were the 3 keys to financial success that I had learned after 50 years of preparing tens of thousands of tax returns and observing tens of thousands of clients. They had never learned these “keys” in college or high school or in many cases, even at home. Here they are.

First Rule: Debt free at age 65. Period. This means no thirty-year mortgages after you turn 35 years old. I can hear the screams now, “But I can’t afford the house without a thirty-year mortgage”. Hey guess what, you are right, you can’t afford the house. And buying or refinancing a house at age 50 or later with a thirty-year mortgage-why don’t you send me your own personal nomination for my financial dumber than snot award. Are there exceptions to this rule? I suppose, but you need to convince me that the retirement income left to your spouse after you die will be enough to pay that mortgage when your widow is eighty and needing nursing care with limited income. I have heard every argument there is about leveraging, and cheap mortgage rates, and 2nd homes and my experience after 10,000+ tax returns is today even stronger that a mortgage after 65 is a quick trip to the house of indigence.

Second Rule: You are not special. Come to work on time, do a full day’s work without constant cell phone or instant messaging interruptions and leave after quitting time. You won’t get a special bumper sticker for your Mommy, or a pat on the back or acknowledgement of anything unless you make yourself special by coming in early, working harder and working more efficiently or later than all of your fellow employees. No gold stars after high school or perfect attendance awards. Do something to make yourself special.

Third Rule: Respect the time value of money. The greatest financial lesson I learned from my father was to set as much aside for retirement as I could, as early as I could, and I have passed that idea to my son as well because it is still the number one way to accumulate money for the average person, and we are all average people since we are not special. Here is a simple tool-many of us work at a place with a 401-k. Your first goal should be to defer at least as much as what the company matches (usually 3%). That’s a nice start, but it is just that, a start. When you get your first employer-provided raise, give yourself a raise-increase your 401-k deferral by 1% that year, and then every year you get a raise, increase your own share by raising your deferral percentage by 1%. Think about this-if you get a 5% annual raise, you save 20% of it by increasing your 401-k deferral by 1%, and you still have more cash than last year-it is just common sense! Ten years with the same employer and you will be deferring and accumulating some major money in a totally painless manner.

I started telling this story five years ago and the numerous requests for reprints made it a great topic for your own financial Independence Day. It is also a great day for me to say thanks to you, our customers and friends for helping all of us at Taxspeaker with our own financial independence. Thank You.