My Financial Guide to Success

It amazes me how people still have the same view about their finances even in these economic times. They still think that working hard at a job and saving their money can help you buy a home. These are no longer the days of mom and dad where the down payment and the homes are cheap whether you bought a Cherry Wood or Levittown home the way my parents bought their home after my father returned from WWII. The homes are quadruple the price and the American dollar is becoming less valuable and salaries have not risen to match these changes; especially where I live on Long Island in New York. According to the website “What Things Cost” in 1950, (See footnote for website), the average home cost $15,000 dollars back in the 1950’s and they are now $350,000 to $700,000 + in 2010. Unless you make close to six figures or better most people will not be able to afford a home in a nice neighborhood with a good school district. Even if you can make the down payment you still may not be able to afford the other expenses on top of the mortgage. Taxes alone for an average house on Long Island cost around $8,000 to $9,000 plus per year with a range of $5000 and up to $11,000 +. In addition to this expense, most people don’t take into consideration the cost of water, gas, heat and electric and daily living expenses such as gas for their car, insurance, maintaining the lawn, pools for those that have them, food – because you will need to eat, personal hygiene, clothing and child expenses as well as decorating and repairing the home to suit your needs. This is what Robert Kyosaki, which he learned from his “Rich Dad,” calls the “Rat Race.” And it is true. Most people on a fixed salary have more months at the end of the money instead of more money at the end of the month. Let’s face it. Say you make $40,000 dollars a year. You still could not afford a house that was not less than $80,000 with at least a 10% down; depending on the interest rate. I figured out the yearly salary you need to make in order to own a $400,000 dollar home with a loan at 4.875% interest rate with 10% down for 30 years; it is cutting it close if you want to have money left over to Invest for retirement or even have six to nine months saved for an emergency (e.g. car repair or maintenance, medical, home repair, day care, etc.). In addition, the interest rate is based on current rates and if it goes any higher it would make it even less affordable. You need to make at least $91,500 dollars a year minimum to be able to afford the mortgage, taxes, gas, water and electric and meet daily living expenses. This would have to be either spouse making this salary or both spouses combined income. There is one thing wrong with either the prior or the later and that is if the one spouse loses his/her job then who is going to pay to keep this house from being foreclosed on. Then you have to consider, if you are going to be or are already married, the cost of having children and I do not just mean diapers, clothing and baby food. I mean when your wife has to go out on maternity leave and someone takes over for her. Will she be welcomed back with open arms and it is business as usual or could the person taking over do a better job than her and the bosses like him/her better. There are very few companies today that show loyalty to their employees. This is why when people buy a home they should both have a salary that can sustain the house they desire in case the other either loses their job or become infirmed. This last remark is the reason why “Cash Flow” is very important for every person’s survival. I have created an Excel Spreadsheet that will allow you to calculate whether or not you can afford a house on your salary. It will automatically calculate your cash flow after all your expenses and deductions are entered into their appropriate cell on the spreadsheet. It also has the “Bracket Creep” table for the United States, but it can be changed to your country by looking on the web for the table your government uses and adjust accordingly. Thus, you know how much is actually taken from your salary and can change that percentage in the formula for the bracket creep to your own specific situation. This spread sheet is a snap shot of your finances, your spending habits and to let you know how much money is left over at the end of the month for investing as well as to save for emergency fund. You are the money maker and if you cannot work then where are you going to get the money to survive. This is the reason why I am writing this book. This is a guide for anyone who wants to point their lives in the right direction financially via investing and entrepreneurship. I have read and listened to many books from many authors that tout themselves as financial gurus. They claim they are able to give anyone “Financial Freedom” and “Success.” A lot of these books I read seem like a lot of self-flatulence and seem like lip service to get you to buy their books, tapes as well as other products.