A New Years Wish

Be thankful and happy for what you have.

Don't make yourself unhappy because of what you don't have. Remember, the media and advertising industry were created to promote discontent and unhappiness. They have sold us on the idea that if you buy product X, you will be happy.

Our society has bought into this hook, line and sinker. We work harder than any other nation on earth. We spend more than any other nation on earth. We have more debt than any other nation on earth and for what? Iphones and 60" LCD Televisions? Prada handbags and Jimmy Choo shoes? 3,000+ square foot "starter mansions" and BMWs?

Look around and see that we are blessed with an abundance which is unprecedented in human history. However, all this focus on "stuff" has taken energy and time away from the things that really matter, relationships with your friends and family.

If you are looking for a really good New Years resolution, make a resolution to spend more time with your friends and family. Instead of spending more money, spend more time with the people that matter to you! Spending time is infinitely cheaper and provides much more satisfaction than stuff does.

In the end, you can't take any of this stuff with you.

Nobody ever says on their death bed, "If only I spent more time at the office."

Happy New Year!

Next Post Delayed

It's been a busy week with Christmas, family and a kid who's on vacation. I'm sorry I haven't posted. I actually wrote a great segment tonight about the Financial Success Matrix, but I realized once I wrote it, I needed to do a post on Assets first.

So, please forgive the delay. I will have both the post about assets and the Financial Success Matrix up in a few days.

Take Care!

The worst "investment" you will ever make

Let's pretend I'm your financial advisor. I invite you into my office, sit you down and show you an investment that is GUARANTEED to lose anywhere from 80 - 90% of its value over the next 10 years. What would you do?

Of course you would storm right out, probably call me some kind of profanity and - if you're smart - get all of your money the hell away from my hands!

However, most people are more than happy to go out every day and spend their hard earned money on items that will do exactly this.

The picture above is a picture of my car. I purchased it in 1998 and paid $25,000 for the pleasure of calling it mine. Today that car is worth maybe $4,000 (but probably less).

Between 1992 and 2002 I purchased 4 computers and spent a total of about $8,000. The end value of each of these machines was somewhere in the range of $50 - $100.

What about CDs and DVDs? If your careful enough to keep them from getting damaged at home, you can maybe get a few bucks for each one (after spending anywhere from $10 - $30 each on them).

It goes right on down the line: clothing, furniture, toys, electronics, art, books, etc., etc. All this crap is worth pennies on the dollar the minute you bring it home. Even things like jewelry, which you think would be different, are only worth a fraction of you pay for them.

There's someone I'd like you to meet:

The depreciation monster eats your wealth and makes you poorer! Your job as a Financial Judo apprentice is to minimize the effect of the depreciation monster.

There are two ways to do this. This first is to recognize that what you are purchasing is going to lose most of its value and minimize the amount of money you will lose. After the 4 expensive, top of the line compters that I wasted all that money on, I have decided from now on I will spend no more than $750 on any computer. Guess what? I found a decent laptop, with more than enough power to run everything that I need it to for under that price point. I also purchased it on New Mexico's tax free weekend, so I didn't have to pay sales tax on it either. Finally, it was purchased as a business expense, so it is 100% tax deductible from our business!

The other option is to LET SOMEONE ELSE TAKE THE DEPRECIATION HIT! Let someone else buy the thing and full price and then take it off their hands for a fraction of the price. This is so easy to do in this day and age, places like ebay and half.com allow you to find great deals on just about anything you can imagine. Whenever we go to a bookstore or a music store, instead of buying something immediately, we go home and see if we can get a significantly better price online. I've found CDs that are retailing for $15 for only a dollar online.

So instead of plunking down $30,000 on a brand new car next year, why not consider looking at slightly used vehicles? You can get something from 1-3 years old with low miles and save yourself $10,000 or more. I just bought a fully loaded 2004 Prius with 25,000 miles on it for only $15,400. If I had bought a 2007 model I would have spent $27,000.

Of course, my plan is to resell this Prius for a profit, but that is a subject of a future post.

So, let's summarize the first three rules of Financial Judo
1. Don't be a debt slave
2. Don't be a wage slave
3. Don't have your wealth eaten by the deflation monster.

Have a Merry Christmas, everyone! I'll be posting again real soon!

FJ quote of the day

"What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?" - Adam Smith, 1763.

Wage Slave

Just as debt makes you a slave to the bank, wages make you a slave to the government.

Remember my previous post about how much you have to earn just to be able to pay for that plasma TV.

The big problem with being a wage slave is that you earn your money, then the government takes their cut, then you're allowed to spend what's left. Don't forget the fact that you still have to pay sales tax with those after tax dollars - further depleting your purchasing power. Most people's answer to this problem is to get a better paying job. However, a better paying job only increases your tax burden and and makes what you purchase even more expensive.

Another wrong solution is to just to refuse to pay your taxes. Even though the people who advocate this do have some legitimate points and concerns - I guarantee you the end result of this will be jail and massive fines. Which doesn't help your situation at all.

Fortunately, the government does offer us all a very legitimate and legal way to get out from under this wage trap. The solution is to start your own small business. Here's why, when you are a small businessperson you earn your money, THEN YOU DEDUCT YOUR BUSINESS EXPENSES, then you pay taxes on what's left.

That means all your legitimate business expenses are 100% exempt from all income and payroll taxes!!!! Also, any sales tax you pay on legitimate business expenses are deducted pre tax from your income, not after tax like most wage slaves.

When I was in my 20s, I liked to spend my money on music, computers and my car. I started a mobile disc jockey service because it allowed me to deduct most of what I spent on these three items. Over the course of the 10+ years that I performed as a moble DJ, I deducted thousands of dollars from my income on things that I probably would have bought anyway.

Here's another benefit. I always have had a home office. Having a home office allowed me to deduct a portion of what I paid in rent/mortgage, utilities and telephone expenses (basically whatever percentage of your home is dedicated as a home office is the percentage of your home expenses that you can deduct - so if your office is 10% of your home, then 10% of your rent, gas, electric, phone, water, sewer, property taxes, insurance, etc are deductable from your income).

My wife and I run a fitness studio now and here are some of the things that we deduct from our income and, therefore, don't have to pay taxes on:

video equipment

laptop computers

cell phone service

home office expenses

music CDs and itunes

auto mileage when we run errands (currently $0.485/mile)

internet connection

travel expenses

Please note, I am not advocating anything illegal. You have to make sure that whatever you are deducting has a legitimate business purpose. For instance, we have our own website so that allows us to deduct the internet connection.

So, the end result is our taxable income is probably much lower than many of my wage slave colleagues, yet my standard of living is at least equivalent, or sometimes greater, due to the fact that many of the things we both pay for cost much less for me because I buy them income tax free!

So, you have the second tool to help you become a true financial judo master. Find yourself a small business that will allow you to start writing off what you spend your money on!

Debt Slave

One of the most important and critical parts of Financial Judo is to limit the amount of debt you have.

A person that chooses to spend more than they earn will inherit a lifetime of unhappiness, stress and anxiety. A person that chooses to spend less than they earn will inherit a lifetime of abundance, confidence and peace of mind.

The simple fact is that our entire economic system is based on debt and the accumulation of more debt. Think about how easy it is to get into debt. Let's say you want to to buy a new Plasma TV that costs $1,999. After we include 7% sales tax, your total bill is $2,139. No problem though, you just whip out your trusty credit card and put it all on there. Think about that, you want to spend $2,000 on something and you can borrow and spend 100% of that money instantaneously!

Now, the tricky part is paying it back. You have to pay back every penny plus interest (lets say you put this on your credit card at 15% interest). If you pay $100/month to your credit card, the debt will be paid off in 25 months. The total amount you have now spent including interest charges has increased to $2,500.

Hold on! It gets worse. You have to earn the money to pay that debt! You can't just go and earn $2,500 and pay that money back, you have to pay taxes on your income! So, in order to pay that $2,500 back, you have to pay 7.5% in FICA taxes (Social Security and Medicare), and I will assume 15% for Federal Taxes and 3% for state taxes.

All of a sudden, this $1,999 TV is going to require you to earn $3,400 in income in order to pay it off! If you're in a high tax bracket or a high tax state (like California), that number is even higher! In this case, you would pay a 70% premium on this TV when everything is factored in.

Realizing the true costs of these items will make you think twice before slapping down that plastic or filling out another credit application.

The system is set up to allow you to fall easily into debt - to voluntarily place yourself in debt bondage for some short term benefit that harms your long term options. Think about those kids graduating from college with $10,000 in credit card debt and $50,000 in student loans. They have a weight around their necks which will last most of their adult working lives as they struggle to make those payments while paying all the other bills. I sure hope that spring break in Daytona Beach was worth it, because they'll be paying for it for years and years to come!

The other day an aquantance of mine was discussing looking at colleges with her teenage daughter. They went to an Ivy League school (I think it was Vasser) and were informed that the total cost of a 4 year education was $250,000! Are you F***ing kidding me? That's a mortgage! What's the cost benefit analysis on that? Even if she gets a job paying $100,000/year (which we all know there are millions of in this country - sarcasm off), a student loan with a 30 year term and a 7% interest rate, that child will commit herself to paying $20,000/year in loan payments just for her education! You add in the taxes she'll have to pay on a $100,000/year job and she'll be paying 1/2 her income on these two items and we haven't included anything like paying rent, making a car payment, buying food, insurance - anything!

This is what a debt slave is. A lifetime of servitude to her bank and her employer (god help her if she becomes unemployed or can only find a job at Starbucks after she graduates).

Freedom is having choices. The more debt you have, the less freedom you have. The less freedom you have, the more of a slave you are!

Don't be a debt slave! Limit the amount of debt you have at all costs! I will talk about strategies for getting yourself out of debt in future posts.

Thanks for reading!

Why Judo?

When I was in 5th and 6th grade my parents enrolled me in Judo class because I was often the target of bullies (I was one of the youngest in my class and super, super skinny).

Anyway, the first thing they teach you in Judo class is how to fall correctly. This is so you can fall without hurting yourself. You learn how to curve your spine and use your arm to break your fall against the ground.

The second thing they teach you is how to use your opponent's strength and power against them so you can gain an advantage. The founder of Judo was a small man who often had to compete against bigger and more powerful opponents. He developed trips and throws that allow you to put an attacker on the ground and in a weaker position. Even as a tiny 6th grader, I was able to throw kids much larger than me over my shoulder.

The official translation of Judo is "The Gentle Way" and I can see why. In most other martial arts it's all about projecting your power through punches and kicks onto others. Judo isn't really and attacker's sport. You wait for your opponent to come to you and then you throw them to the ground and apply a choke hold until they submit. It's very Sun Tzu in it's philosophy.

As far as finances go. The official line is that you're supposed to work hard, get a high paying job, and project your high status through the various trappings of wealth (expensive luxury car, oversized house, fancy clothes, shiny trinkets and gee-wizbang techno toys). This version of the "rich" is all about consumption and we see it all over our media every day. This is the model of "success" that gets pounded into our consciousness every day of our lives. This is the Karate version of wealth. Unfortunately, this version, the outward "look at how successful I am" is a big reason why American's are drowning in a sea of debt and are trapped in a lifestyle they can't afford.

The Judo definition of wealth is a more "gentle" way. This wealth is about having choices and options. My wife and I made a decision many years ago to value our time over money. We live a modest lifestyle on a modest income, but we have a nice sized nest egg and it gives us lots of options. For instance, I only work 4 days a week (I get a 3 day weekend every weekend!). My wife has been self employed for 7 years running a fitness studio and she only works about 20 - 30 hours per week. We have worked very hard our whole adult lives to limit the amount of debt we have (currently we have zero debt, something that I haven't been in since my senior year of college). We have also diligently saved and invested our money prudently.

This blog is going to talk about our experiences, our strategies, and our challenges of leading a lifestyle that is outside the mainstream. There is another way!

I will be posting again real soon, so come back and check it out!

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Judo Image