PERSONAL FINANCIAL PLANNING PART 1:
The Access Code to Success is 21100
GEORGE WILSON ADAMS CPA MBA
December 29, 2021
As a practicing CPA many of my clients ask me how they can succeed during the difficult economic times we live under. To find the correct answer to this question we must reverse-engineer the economic facts of life as they are today in order to decipher the access code to success.
What I’m about to say about financial success will NOT apply to everyone because circumstances, values and desires differ from person to person. Many people choose to make major life decisions based on non-financial criteria. People own their lives and, therefore, the decisions they make about their lives must be respected.
The advice I offer here pertains to individuals who seek to strengthen and improve their economic status and climb the difficult and slippery ladder that MAY lead to financial success and independence. For such people I believe the access code to success is indeed 21100. Here is the explanation:
Two Jobs Per Person
How you obtain your income and how much income you receive are two of the most important facts of your life. Because these facts of life are so crucial, diversification is vital. You might have a great job right now, and your great job might continue for another year or five years. Conversely, you could show up for work first thing tomorrow morning and be informed that your position “has been eliminated” and that yesterday was your last day. It’s wise to diversify your sources of income and not put all your eggs in one basket. For this reason it’s a great idea to have a second source of income, which could be a second part-time job or a side business.
I highly recommend a side business where your own your job and where your success is measured solely by how well you satisfy your customers. If your side business does well you may be able to quit working as an employee and fire your boss.
The service sector of the economy offers many opportunities for side jobs that don’t require extensive start-up capital. For free information on this subject see the article in the Portfolio section of my website called “Making Business Succeed, Part Three: Succeeding with Services.” See:
HOW TO SUCCEED WITH A SERVICE BUSINESS
One Home
I’ve seen many of my clients obtain temporary, short-lived success and indulge in binge-spending, including the purchase of a second home. Owning two homes will double your occupancy costs including real estate taxes, insurance, utilities and property maintenance. These costs are bills for life that can never be paid off.
It can be very tempting to buy a camp, vacation home, Florida condo, etc. But as an accountant and financial advisor I warn you to be cautious about doubling your housing costs. Only those who can truly afford it should indulge in the luxury of a second home. Some of my clients have made themselves poor by acquiring a second home they can't afford. One rule of thumb is that TOTAL occupancy costs (for all properties) should not exceed 40% of annual after-tax disposable income.
One Vehicle
Vehicles are expensive. According to many sources, the average annual operating cost of a vehicle here in Maine ranges from $7,000 to $15,000 per year (depending on the type of vehicle.) The IRS standard mileage rate for 2021 is 56 cents/mile. This estimate reflects all vehicle operating costs including depreciation, gas, insurance, etc.
Owning a car will expose you to many costs including the expense of buying or leasing it, gas, car insurance, repairs, auto excise tax, and interest if you borrow to buy the vehicle. For most people these costs are not tax-deductible.
Vehicles are essential here in Maine because we lack an extensive system of public transportation. But having a car is costly. The ideal solution is one vehicle per family unit with smart arrangements for how it is used and when. It will cost you a small fortune to treat a vehicle as a toy or status symbol. When it comes to cars, less is more. Delete an unnecessary car from your life and you will put money in your pocket every year you don’t have it.
Zero Children
This may sound harsh but reflects the facts of life as they exist today. We live in a society that, in effect, punishes those who have children. Parents face ever-rising costs for quality child care, health and dental coverage, saving for college, and managing the significant pressures and responsibilities of having kids while working for a living. I know this for a fact because I prepare tax returns for many parents with children and directly see the costs and burdens they incur.
According to the U.S. Department of Agriculture, it costs approximately $14,075 per year to raise a child here in the northeast. The cost to raise a child to age 18 is approximately $253,000. See:
http://www.cnpp.usda.gov/tools/CRC_Calculator/
The economic collapse of 2008 has resulted in a new phenomenon called “adult children” where kids are no longer able to move out on their own and establish financial independence at age 18 or even after completing college. There is a new social fact in this country called the “boomerang generation” where children go off to college, graduate, accumulate enormous student loan debt, can’t find a job that covers the costs of living on their own, and, therefore, move back in with their parents.
Realists like myself sometimes wonder (in our darkest moments) if we live in a society that doesn’t deserve to have children.
Zero Vacations
Here is yet another deeply counter-intuitive idea that reflects the harsh times we live in: it may be dangerous for employees to go on an extended vacation. I plan to discuss this in a future article called “Victims of Vacations.” Here are some key concerns for employees planning an extended vacation:
- While you’re gone on vacation your employer persuades himself that he doesn't need you. Many (perhaps most) employers today are searching for ways to cut labor costs. A prolonged absence from your job may be proof to your boss that you are not needed and can be deleted. Ethical employers would never think this way. Unfortunately, too many employers believe ethics are unaffordable.
- A debt-financed vacation is not a real vacation. If you pay for your vacation by running up your credit cards you’re not achieving anything. You will have to work even harder and longer to payoff the debt you incurred. And what if you don’t payoff this debt before it’s time for the next vacation?
- Victims of Vacations: According to many studies of people returning to work from a prolonged vacation their job performance may deteriorate due to the disorientation effect of switching abruptly from 100% leisure time to work. Many people recover from a vacation like recovering from the flu or other debilitating disease. You can avoid this by taking a vacation that is mentally stimulating and educational as opposed to rotting in the sun on a crowded beach and over-indulging in food and alcohol.
If you are at a stage of life where you seek to accumulate financial assets and economic strength the wisest answer will be to defer major vacations and limit yourself to short two or three day getaways.
21100 Is the Answer
So there it is, like it or not. The math that is most likely to produce financial success for most people is brutally simple: 21100. Work two jobs, have one home, one vehicle, zero children and zero prolonged vacations. The counter-balancing thought is a determined refusal to fail. Failure is always more expensive and more painful than success.
The financial decisions you make every day have cumulative effects that grow week by week, month by month and year by year. Everyone makes at least some mistakes. Financial success, for the most part, is achieved through a persistent series of good decisions that build on and reinforce one another.
One tough lesson I’ve learned from life is quite simple:
You will never be more than what you demand from yourself.
Photo Acknowledgements and Credits: Heavens Gates Opening by ©Inked Pixels | BigStock.com / Bago, Myanmar at Kambawzathardi Golden Palace by ©SeanPavonePhoto | BigStock.com / Climber On Top of Mountain by ©Rozum | Dreamstime.com / Huangshan, China (YELLOW MOUNTAIN/LANDSCAPE) by ©Chi King | flickr.com / Background Birds by ©2015-2016 Jean52 | Devianart.com / Grey Rock Cliff by ©Dmitriy Chugai | Texturelib.com / Composition & Modifications by Shawn Hill | VASTmicro
George Adams
Certified Public Accountant Master of Business Administration
Tel: (207) 989-2700 E-Mail: GeorgeAdams@IntelligenceForRent.com
450 South Main Street: The HQ of IQ
Brewer, Maine 04412-2339
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