Friday, March 28, 2014
Thursday, March 27, 2014
The rich get richer… and the poor get poorer.
Any answer will run the risk of my being accused of over simplifying a complex socio-economic problem related to luck, opportunity, class distinction, ‘have-and-have-nots’, minimum wage, the working poor… and so many more reasons.
There are poor people everywhere in the world, wherever you may find yourself. In wealthy cities, fabulously rich people pass by hungry beggars every day. Of course, many people live in poverty due to circumstances entirely beyond their control.
I’d like to focus on the working poor instead. People befitting this description are usually though of as people working two or three jobs, often at minimum wage, or less.
Minimum wage, by definition, is a government instituted tax on employers… i.e. a legislative requirement that obligates an employer to pay an employee no less than e.g. a certain amount per hour.
Adherents of a free market would argue that wage control is not the government’s business. Socialists may counter, perhaps expressing a need for protectionism - or at least sympathy - for anyone unable to fend for themselves (regardless of reason). I’m not casting judgment one way or another… simply expressing different points of view.
It may surprise you to learn that the majority of the working poor in America actually live in nice houses, in the suburbs. They usually appear to be financially quite well off. They certainly are, if measured in international terms, using comparative metrics like GDP, income-per-capita, etc.).
The reality is this: Most two-income families living in the suburbs, with one or more children, are the working poor. As a matter of fact, if one spouse were to lose a job… the house of cards that had been constructed to reflect their apparent economic success may be at risk, or come tumbling down entirely!
The situation described above has become pervasive over the last few decades; causing an almost indiscernible poverty creep. Add the huge debt burden of an average household - exacerbated by a desire to live in a stately, unaffordable house; owned by a bank - and we end up with a contracting middle class.
They cannot save money, because they live paycheck-to-paycheck. Retirement savings - if any - won’t be sustainable; certainly not commensurate with life expectancy. According to Brookings, many households have very few liquid savings. But, on average, the majority (66%) of double-income, working-poor families, living in the suburbs, have about $50,000 in illiquid savings.
Unfortunately, the illiquid savings mentioned above usually reflects their down payment on a house they couldn’t afford in the first place!
And... they had used their liquid savings as security for a debt obligation spanning an entire working career - usually 30 years - aka a mortgage. Membership of the so-called middle class is frighteningly risky!
These homeowners will likely never be able to rise from their debt/poverty trap. Mostly unhappy with their awful financial lot in life - self-created - they often strive to find happiness in other areas like children’s school- and/or extra-curricular activities; or by belonging to a church, gym or some other social group of like-minded people.
Is the description above befitting of your standing?
Here are some tips for a better you, starting now:
- Downsize your house (aka your debt; pro tip: it has no asset value unless you sell it)
- Immediately find a higher paying job(s), that fit your skills
- Maximize your savings; especially 401k with a company match or contribution
- Start saving and spending what’s left over, rather than spending and saving what’s left over
- And most importantly, get fit and follow a healthy diet! (This line trumps everything above, because your life depends on it)
Your future is now… so spend your time wisely!
Monday, March 24, 2014
My recent post on self-employment vs. entrepreneurship, shared via social media, garnered much attention. This is a more detailed follow-up.
First, let’s explore two linguistic definitions:
- Merriam-Webster describes self-employed as: “earning income from your own business or profession rather than by working for someone else.”
- From the same dictionary entrepreneur is described as: “a person who starts a business and is willing to risk loss, in order to make money”
Even at a glance, we can see that these definitions are very different. As is usual, one can apply pros and cons to almost anything in life. So, let’s dig a little deeper yet.
Because of the Internet and social media connectivity today – in modern business verbiage – work is what you do rather than where you are. Although this comment may be applicable to employees, self-employed businesspeople and entrepreneurs, the latter two likely have more work/life balance and flexibility options, than do most, regular employees.
According to South African entrepreneur Brian Walsh, 99% of self-employed people are not entrepreneurs. He said, “Most self-employed people are stuck in a cycle of trying to pay bills each month, or maybe they're making reasonable money but working too hard. They sometimes get stuck in their inability to grow their businesses, or they can't get out of their comfort zone ruts that have become bad habits they don’t know how to break.”
Walsh’s comments ring true. Most self-employed people have simply exchanged having a boss for the perceived pleasure of being their own boss.
Most self-employed people end up going to work day-after-day, at the same time, to the same place, awarding themselves with a regular paycheck, and often taking very little time off to enjoy the fruits of their labor!
For example, a self-employed person may own a dry-cleaning business. An entrepreneur may own a chain of dry-cleaners, but hardly ever work at the actual businesses.
Successful entrepreneurs live fulfilled, exciting lives. Their success could be defined as being both financially and spiritually rewarding… the obvious outputs of doing meaningful work. Successful entrepreneurs generate wealth for themselves and for others, but also generate personal free time to do meaningful things outside of their businesses.
Entrepreneurs strive to own businesses that generate healthy profits without requiring them to work in the business. If they choose to go to work at the business, they often only spend a few hours a day, or a few days a week, at the place of work.
Entrepreneurs should have the ability to see whether the business is operating optimally, from a distance. An entrepreneur will often aspire to spending more quality time with family and friends, while dedicating however much time they want to helping their community, in ways that bring them joy and great personal fulfillment.
Not everyone can be an entrepreneur. Bill Gates and Richard Branson are examples of great entrepreneurs. Not everyone can be self-employed either. Can you think of a truly great, self-employed person?
But… the working world needs great employees too! And, there’s nothing wrong or right – or good or bad – being any of the three active economic contributors, as described above.
Once, I asked one of my employees what motivated her, and she replied “The desire to be the best Account Manager this business has”. That answer was not only endearing, but also complimentary and an answer that should be encouraging for any business owner to hear!