Category Archives: Building Wealth

Too Much Free Money in the Economy

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“The way to think about it is there’s not going to be a lot of relief on inflation because if we pump another $600 billion free cash, which is basically what ‘The Inflation Reduction Act’ is, into the market after putting $6 trillion of free money in — there’s a reason we have inflation. We just print too much money.”  Kevin O’Leary, Shark Tank

Key Points:

  • Federal government is printing too much free money
  • Supply chain is still broken
  • Perpetual Inflation – Inflation will continue around 6% to 8% due to increased demand and loss of purchasing power.

Adding more money to an already inflated economy won’t bode well for Americans and their families, O’Leary argued.  The Inflation Reduction Act won’t help the U.S. with its ongoing labor shortage, as the labor force participation rate sits at 62.2%, a slight tick downward from the prior month. There are nearly twice as many job openings in the U.S. as there are unemployed people. “Part of that is a result of just giving free money to everybody all of the time and saying, ‘Look, stay at home. Stay on your sofa,'” O’Leary said.

Reference:

  1. https://www.aol.com/finance/kevin-o-leary-inflation-just-140233627.html

Measuring Inflation

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The consumer-price index reached 9.1%, its fastest pace in nearly 41 years, as strong consumer demand collides with supply shortages. ~ Wall Street Journal

U.S. inflation accelerated to a 9.1% annual rate in June, its fastest pace in nearly 41 years. Consumers are seeing prices rise sharply for a variety of goods and services as strong demand collides with persistent supply shortages.

Inflation is one of the most vexing issues facing economists and government policy makers, and is a factor raising the risk of U.S. recession.

The current bout of inflation has several causes, many linked to the pandemic. For one, consumers have been flush with savings from government stimulus programs, leading them to open the spigot for goods that are in scarce supply.

Supply-chain disruptions have also persisted across the global economy, with Russia’s invasion of Ukraine and Covid-19 cases in China adding additional pressures. Energy prices have gone up sharply.

Fewer workers are in the labor market, encouraging those who are working to demand raises. And low interest rates from the Federal Reserve have made borrowing cheaper, making big purchases more attractive. The Fed is now moving rapidly to make borrowing more expensive, using the central bank’s primary tool of raising rates.

Inflation reflects the broad rise of prices or the fall in the value of money. It generally results from too much demand chasing too few goods or limited services, leading to broad price increases.

To measure inflation, Labor Department’s consumer-price index, or CPI, has become the established benchmark. It is calculated using a survey of households and only covers spending on goods and services. It excludes expenditures that aren’t paid for directly, such as medical care paid for by a person’s health insurance. Its limited set of expenditures can make CPI more volatile. 

The personal-consumption-expenditures price index, or PCE, takes into account a broader range of expenditures—and feedback from businesses—to provide a more expansive picture of price changes. This inflation reading is the Federal Reserve’s preferred measurement. The Commerce Department releases its PCE estimate monthly as part of its income and spending report. 

Ref:

  1. https://www.wsj.com/articles/inflation-definition-cause-what-is-it-11644353564?mod=article_inline

Commit to Building Wealth

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“Change your mindset and change your life.”

If you think you can improve your financial situation, you’ll do exactly that.

“Change your mindset around wealth,” said Mandi Woodruff-Santos, co-host of the “Brown Ambition” podcast. “Tell yourself it’s possible to build wealth, that you can learn anything, and that you can do it! Once you begin to internalize your ability to build wealth, it makes it easier to take the steps needed to increase your earnings, start investing and learn along the way.”

It’s important to realize that no one is going to change your life for you. you must make the decision to learn, to grow, and to improve your life. The most important thing is that you get started!

There are five areas to work on in order to create the most efficient and effective change to your mindset – Your beliefs, fears, perspective, self-talk, and support.

CHALLENGE YOUR LIMITING BELIEFS

Limiting beliefs are the stories we tell ourselves about who we really are: shy, overweight, undeserving of love or success. But, they can be replaced with empowering beliefs.

Nearly everyone has some measure of limiting beliefs that prevent them from realizing their dreams and achieving great milestones. Those who are able to challenge and overcome them go on to achieve their goals. Those who don’t continue to live in negative patterns – and often don’t even realize it.

By rebuilding a positive set of habits, we are able to reach new levels of success* in all aspects of our lives.

FACE YOUR FEARS

When we have identified and gotten honest with ourselves about our belief system, we can then go deeper by really examining our fears. When we examine our fears, we ask ourselves questions like; what is the surface level fear? Where is it coming from? Is it a real or perceived fear? What is the underlying fear? What can I do to change my experience of it? And other such questions.

Fear is a destructive emotion; we often carry fears that we don’t need to. Overcoming your fears is a major step toward how to change your mindset for success.

SHIFT YOUR PERSPECTIVE

Learning how to change your mindset can seem overwhelming, but it doesn’t have to be. Sometimes all it takes to change your mindset forever is the smallest shift in the way you see the world. One choice that we can easily make is the meaning that we give to our experiences. Tony Robbins says, “Nothing in life has any meaning except the meaning I give it.” Do we see challenges as obstacles – or as opportunities?

When we start to make changes to our perspectives, we consider things like; how am I responding to situations? What am I doing, what am I thinking, what meaning am I giving things that I experience? When it comes to our perspectives a small shift with massive results.

CHANGE YOUR SELF-TALK

When you’re thinking about how to change your mindset, do you find yourself mired in negative thoughts? If you do, focus on your language to change your mindset. Change your self-talk starting with how you begin your day. If you plant positive language in your head at the beginning of the day, you’ll feel more energetic. You might find it effective to make a mantra for yourself, depending on how you’re feeling.

Change your mantra as often as you need to, in order to maximize your own power. In addition, remember that it’s okay to need to correct your course many times during the day.

To keep your positivity flowing, surround yourself with people whose mindsets reflect where you want to be. And remember, setbacks are normal. Bounce back from setbacks by reminding yourself why you want to change.

GET SUPPORT

Find some like-minded people whom you can share your experiences with, learn, and grow together.

These days it is pretty easy to find a group or forum online though you might need to try a few before you find a community that really resonates for you. In time many of the people in your life will see you grow and change and want to know more but for now, just find a few people who want to create change in their mindset (or have already done so) and enjoy the process!

References:

  1. https://finance.yahoo.com/news/top-expert-money-advice-better-230111509.html
  2. https://www.gobankingrates.com/money/wealth/top-expert-money-advice-for-how-to-better-build-your-wealth/
  3. https://www.linkedin.com/pulse/how-changing-your-mindset-can-change-life-the-mind-and-body-co/

Taxes are Your Largest Expense

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“Taxes are your largest single expense.” ~ Robert Kiyosaki

Total taxes are by far and away the largest expense that most households face on an annual basis. Total taxes are levied on income, payroll, Social Security, Medicare, property, real estate, sales, alcohol, gasoline, capital gains, dividends, imports, estates and gifts, as well as various other fees such as vehicle tags and driver license. It’s important for Americans to understand that income taxes, sales, Social Security and a myriad of other taxes and fees dramatically reduce your discretionary net income.

The average American household spends anywhere between 25-50 percent of their life working just to pay the diversity of taxes. That means that more than three to six months out of every year are spent working solely to pay your local, state and federal taxes and fees.

Effectively, all levels of government in the U.S. (federal, state, county, city/local) confiscate nearly half of the average household’s income every year, and yet they still cannot balance the national budget and always seem to need more money.

How much is enough when nearly half of the productive effort of the nation is taxed and used unproductively.

Your total tax rate, the one which actually matters the most to you includes more than just income. And these insidious taxes grow in size and quantity every year.

Total taxes are by far the single largest expense that you will pay every year. And, you can’t escape taxes, so the best thing you can do is learn how to better manage your taxes burden and understand how federal , state and local tax laws and regulations can work in your favor.

References:

  1. https://www.richdad.com/taxes-are-your-largest-single-expense#:~:text=Taxes%20
  2. https://www.financialsamurai.com/your-largest-ongoing-living-expense-taxes/

Dow Jones Industrial Average

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The Dow Jones is a terrible measure of the U.S. economy

Created by Charles Dow in 1896, the Dow Jones Industrial Average was intended to act as a “proxy for the broader U.S. economy.” Currently, it’s purpose is to provide a big-picture view of whether stock prices are generally moving up, down, or sideways from moment to moment, and by how much.

For the past 126 years, the Dow Jones Industrial Average (DJIA) has served as a barometer of the stock market’s health. The index is composed of 30 highly profitable, multinational companies.

In many respects, the Dow Jones is home to mature and generally slower-growing businesses. Although, “mature” businesses can make patient investors wealthier and long-term investors financially independent.

All components of the DJIA are household names like Johnson & Johnson (JNJ), Coca-Cola (KO), Disney (DIS), and Microsoft (MSFT).

Dow Is Weighted

The DJIA is price-weighted. Rather than using a simple arithmetic average and dividing by the number of stocks in the average, the Dow Divisor is used.

This divisor smooths out the effects of stock splits and dividends. The DJIA, therefore, is affected only by changes in the stock prices, so companies with a higher share price or a more extreme price movement have a greater effect on the Dow. 

Many financial pundits argue that the DJIA has lost its relevance as a barometer of U.S. stocks. the Dow is deeply flawed. Professor Jeremy J. Siegel at the Wharton School summed it up. Today, no one would build a stock market index that contains only 30 companies, with some sectors of industry completely excluded (like utilities). Worse, the index is weighted by share price instead of market capitalization, which means one company, Boeing, has a wildly outsized sway on the entire stock market.

Yet, DJIA continues to serve as a market and economic indicator. As long as it contains the stocks of companies that reflect the major industrial areas of the U.S. economy during any given period, this 30-stock index will likely remain the standard of financial indicators.

References:

  1. https://www.msn.com/en-us/money/savingandinvesting/the-dow-jones-industrial-averages-5-fastest-growing-stocks/ar-AA103dnv
  2. https://www.investopedia.com/articles/stocks/08/dow-history.asp
  3. https://www.investopedia.com/ask/answers/difference-between-dow-jones-industrial-average-and-sp-500/

Fears of a Recession

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The U.S. economy shrank for a second consecutive quarter, which is a common definition of recession. Additionally, the U.S. economy is enduring a rocky transition from an exceptionally strong post-pandemic recovery to a steep Federal Reserve caused slowdown.

The Commerce Department reported that Gross Domestic Product (GDP) contracted at a 0.9% annual rate in the second quarter of calendar year 2022. With the 1.6% annual rate decline in the first quarter, this means the U.S. economy has declined for two consecutive quarters, a commonly used, but not official definition, of recession. GDP is a broad measure of the goods and services produced across the economy.

Inventories, specifically the pace of restocking, accounted for much of the economic output decline experienced in the second quarter. As an example, Walmart announced that it was cutting prices in its Sam’s Club stores to reduce merchandise levels.

However, the official arbiter of U.S. recessions, the National Bureau of Economic Research (NBER), has not announced that a downturn has begun because an array of other indicators, such as employment and corporate earnings, do not look as dire. NBER defines a recession as a significant decline in economic activity, spread across the economy for more than a few months. It usually doesn’t make a recession determination until long after the fact.

In fact, within the broader economy, the job market remains strong and if employment stays strong, consumer’s will to spend should remain intact.

Consumer spending continues to grow, but at a slower pace. The housing market has cooled down under rising interest rates and high inflation has taken the steam out of business and consumer spending v

Corporate earnings haven’t been as bad as investors had feared, suggesting that soaring inflation and signs of declining economic growth aren’t weighing too heavily on the economy.

The Federal Reserve raised interest rates from near zero to a range between 2.25% and 2.5%, so far this year, and Chairman Powell hinted that the pace of rate increases would eventually flow.

The economy is slowing down as the Federal Reserve acts to bring down inflation. The challenges facing the economy are high inflation, weakening consumer sentiment and supply chain volatility. Consumer spending accounts for about two-thirds of risk U.S. economic output.

References:

  1. https://www.wsj.com/articles/if-this-is-a-recession-we-might-not-know-for-months-11659173402?mod=mhp

Federal Reserve raised its benchmark overnight interest rate

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The Federal Reserve is driving the economy into a recession as it tries to fight inflation.

The Federal Reserve raised its benchmark overnight interest rate by three-quarters of a percentage point in an effort to cool the most intense breakout of inflation since the 1980s. And, there are further increases’ in borrowing costs still ahead despite evidence of a slowing economy in an effort.

Inflation has been raging in the U.S. while economic growth measured by GDP is slowing. The U.S. Commerce Department recently reported a second straight quarter of negative economic growth.

Generally, a central bank tightens money by raising interest rates when the economy is healthy or over heated in order to head off inflation. By making money more expensive to borrow, the Fed’s rate moves work relatively quickly to temper demand. As buying a house or a car or expanding a business becomes pricier, people pull back from doing those things. With fewer consumers and companies competing for the available supply of goods and services, price gains are able to moderate.

Larry Summers, the former Treasury Secretary, argued that the Federal Reserve needed to take “strong action” to control inflation and that allowing inflation to gallop out of control would be the “bigger mistake” than causing a recession. Summers blames inflation on the spending boom of 2020/2021 that spurred excess demand.

Summers believes to tame inflation the Fed must crush demand. But, slowing the economy down could trigger a recession, leaving workers unemployed and families with lower incomes.

Fed officials themselves acknowledge that their tools are blunt, that they cannot fix broken supply chains and that it will be difficult to slow the economy enough without causing an economic downturn.

References:

  1. https://www.nytimes.com/2022/07/27/business/economy/interest-rate-inflation-impact.html
  2. https://www.reuters.com/markets/us/fed-unveil-another-big-rate-hike-signs-economic-slowdown-grow-2022-07-27/

Words Create Life Direction

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“Train your mind to see the good in every situation.” —Unknown

Words set the direction and destination for your life. You can’t speak defeat and expect victory! That’s why you need to pay attention to what you’re saying.

It is not possible to walk in prosperity and talk poverty. It is not possible to walk in health and talk sickness. It is not possible to be love and forgiveness ruled and at the same time talk bitterness and anger.

Change the words you speak will change the direction of your life.  Words are the rudders that steer your life.

Ship captains know the importance of a strong rudder. Without it, they can never reach their destination. Your tongue is like a rudder on a ship. Whatever controls your tongue, controls your direction and destiny.

Your tongue and your words are the rudder of your life. Joel Osteen

What we say with our words and think in our minds will eventually become what we believe and what fruits our lives will bear. You will eat the fruit of your words. Thus, everything you say should be good and encouraging. Since “your tongue and your words are the rudder of your life.”

“I know for sure that what we dwell on is what we become.” — Oprah Winfrey

This is why it is important that you start saying and focusing on positive things about yourself. You set the direction with your words. Over the long-term, you’re going to become what you’re continuing saying.

Thankfulness is the language of faith! And with faith, you have to speak it before you see it.

“My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we’ll change the world.” —Jack Layton

Your words set the direction and destination in your life. You will never rise above them, your words. You will become in your tomorrows what you believe and speak in your todays.

You can change the course of your life by changing the words you speak. Start taking notice of the direction your words are steering your life. Words have directions an destinations. Change your words, change your destination.

References:

  1. https://www.yourlifeyourvoice.org/pages/tip-101-positive-things-to-say-to-myself.aspx
  2. https://www.jonasclark.com/changing-the-words-you-speak-change-the-direction-of-your-life/

There are Things More Valuable than Money

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Money is not the most important thing in life. But, there are some things in life that are more valuable than money.

There are many aspects of life that are more important and valuable than money. The ancient proverb that “health (and time) is more important than wealth” is absolutely true.

There are things and experiences that are more valuable than financial capital (or money), things that can lead straight to your success and happiness:

Physical Health

Health is something in life that is more valuable than money. The fact is that money can’t improve your health if you eat unhealthy refined sugar and saturated fat laden foods, smoke, get inadequate sleep, and live a sedentary lifestyle.

The money you earn can equip you to sustain your health with a sound healthcare system. But what is the use of all the money if you have no time to take care of your health.

Perhaps money will buy you the best of healthcare intervention. But you have already spent the entire life running after money; it might be just too late to enjoy the wealth you have made.

If you are unhealthy to travel, to see new places, to eat all kinds of food, you can’t enjoy just being with the money you’ve earned. Hence being healthy and taking care of yourself is more important than money.

Thus, it’s more important to get adequate sleep. Sleep is your body’s method of resetting and replenishing itself—including (and especially) the brain. And, get healthy and exercise.

Mental Health

Depression, anxiety, and stress cannot be cured just by having a lot of money around you. Why are even the most successful and wealthiest people committing suicide or even sometimes giving up everything for a simple life. It is because they want mental peace and wellbeing more than anything.

So before its too late, focus on your mental health and wellbeing, as it is more important than having money.

Integrity And Respect

The most important thing that you would want in your life is earning the respect of your family and friends. You must have the integrity to carry on with your work. Being wealthy implies that you are well respected, but the respect displayed for being wealthy is for the money you have and not for the person making it.

Your good deeds and giving back to others will earn you respect. How well behaved and respectful you are, how honestly you carry out your work, that will earn you respect. 

Relationships: Loving Family and True Friends

Many people believe that it is quite lonely at the top. In the rat race to earn the most money and to achieve the highest status, we forget to make room for the ones we love – our family, friends, and people who genuinely care for you.

If you are running behind money, you are going far from your near and dear ones. At your difficult times, it will not be money that would give you relief but the presence of your family and friends near you will. These relationships will take you further than money. Family and friends are the foundation that holds the structure up.  From our mother’s unconditional love to our spouse’s constant emotional support, many of us usually take it for granted.

We need to constantly tell our loved ones how much we appreciate them and let them know that we care about them.  We should also go out of our way to help them, because doing so will allow the family bond to stay strong.

To have real friends who will stand for you, no matter what is actual bliss. On top of that, there a few types of toxic people who can even pull you dow. So money can only buy people who would be fake around you.

Making genuine friends and having them for a lifetime is more important than money.

Happiness and Joy

Some of us feel that money equates to happiness but many Americans take it to the extreme and miss the point.  What ends up happening is that without really thinking about it, many people sacrifice their health and family for potential wealth building opportunities. 

When you work too hard, you are giving up precious family time and also your health as you spend less hours relaxing and resting trying to get ahead.

The real fun is not to own a lot of things that make you happy momentarily but to be content inside out and through experiences.

You can be rooted in visiting your hometown; you do not need a lot of money for that, but merely a will to go back and enjoy. Are all the poor unhappy? Well, not! Some find their happiness in spending time with their loved ones and doing simple things in life. 

In the end, it’s all the small things and experiences in life that make a person feel content and happy within.

Gratitude

Gratitude is a feeling that money cannot buy at any cost. Certain things make a person. They are core values, experiences, your attitude, and above all, the feeling of gratitude for all that you have in life.

If you do not have gratitude, you would not even evolve as a better person. So showing appreciation is much more important than money in your life.

Time

Time is a treasure—the time you set aside not to be wasted, not to be given away. The time you set aside to be invested in something that brings value to your life and to others.

Time is the biggest asset in this world. You can never buy time with money or any other valuable things. 

Those who have time want money, and those who have money want time

You know the funny thing is that most people want what they can’t have and this is usually true across both ends of the time/money spectrum.

Those who are unemployed or have low incomes will strive for more hours or a better paid job while those who are on six figure salaries often moan that they have no time to spend with their friends and family.

Neither of these is desirable and both will ultimately cause unhappiness in your life so the trick is to find a happy medium which leads me to my next point.

A healthier balance leads to a healthier life. You can have all this free time but no actual money to do anything worthwhile or you can have all this money but no free time to do the things you want. The challenge is to find a balance and earn enough money without sacrificing all of your free time.

Greed

Greed can be good and useful when you are greedy for and focused on the right thing.

  • Being greedy to spend time with loved ones:  The greed and strong desire to spend more time with friends and family.
  • The greed for a hobby: Have the desire to do things that you like the most.
  • Being greedy to learn and grow in life and succeed: To be able to learn new skills and upgrade yourself and invest in yourself, rather than your belongings.

Purpose

Having a purpose in your life is the most important thing than anything else. You might have all that you want including, loved ones, money, and fame. But if your life is purposeless, if you don’t hold a cause, eventually you might even question your own existence. So ask what is your ‘why’ and keep reminding it to you. Remember your ‘why’, no matter where you reach or what you achieve in your life. It will always guide you on the right path.

Faith

Faith is an investment that cannot be matched. Money can’t touch it. What if you had a million dollars and no faith? You’d be poor. You wouldn’t be wealthy.

Faith is a mindset and is self-motivation and is understanding imperfection. Faith is free and is what unites people for a better tomorrow.

When life gets tough, it is faith that reassures you that things will get better. When life is going well, it is upholding your faith in positivity that creates happiness.

“Believe in yourself; have faith in your ability.”

Concluding Thoughts

If you put your time and energy into the things and experiences more important than money, the money will follow anyway. All you need is to prioritize and reorganize your time and goals. Rethink what is more important and ask what is your ‘why’.

Money is one side, and all the above are on another. Earning money can help you in a long way, but drawing a line is the solution.

Life is for living and experiencing all things and not just chasing money. Live and love life, be grateful for what you have, and strive to be better every single day, anyway money will follow you.

References:

  1. https://alignthoughts.com/life-is-for-living-and-not-just-earning-money-heres-what-is-more-important-than-money/
  2. https://www.psycholocrazy.com/5-reasons-why-time
  3. https://nsucurrent.nova.edu/2016/02/23/why-having-faith-is-more-important-than-religion/

Consumers Falling Behind on Monthly Payments

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AT&T announced that “more of its customers are starting to fall behind on their bills, a sign that rising costs are pinching many households even for services most Americans consider essential,” writes Drew Fitzgerald in The Wall Street Journal.

The company executives reported that subscribers were paying their monthly phone and internet bills on average two days later than a year ago.

Rising interest rates and higher prices on everything from groceries to gasoline this year due to decades high inflation have pressured consumer sentiment. “When you have 9% inflation, it tends to hit those in the low end of the market really, really hard,” said John Stankey, AT&T Chairman and CEO.

Dividend payout ratio matters

The dividend payout ratio is the amount of dividends paid to shareholders in relation to the total amount of free cash flow the company generates. In other words, the dividend payout ratio measures the percentage of free cash flow that is distributed to shareholders in the form of dividends.

AT&T’s current dividend commitment is for around $8 billion annually, or $2 billion a quarter. The company generated $1.4 billion in free cash flow in the second quarter, far short of the $4.7 billion that analysts were expecting. It means that AT&T’s free cash flow for the quarter didn’t cover its dividend commitment in the period.

References:

  1. Drew Fitzgerald, AT&T Says Customers Fall Behind, The Wall Street Journal, July 22, 2022, pp. B1-B2.
  2. https://www.barrons.com/articles/att-stock-dividend-yield-earnings-51658426833