Financial Freedom

We are born with all to live for.

Everything is ahead of us and there seems little in the past of any value. It's all about tomorrow. Our only asset is the time we are given to spend on earth and, as children, the clock seems to tick very slowly. Too slowly in fact. The seven week summer holiday seems like a lifetime. In fact we have so much time that we have a word for those periods when we don't know what to do with all the time we have been given.

“Mom - I'm bored. What can I do”.

Tell me this is a phrase you NEVER used as a child.

It is a phrase we will not use as grown ups.

As the years roll by we exchange this limited time we have on earth for other things – namely experience and money.

In fact, those two things and nothing more.

We swap time for experience and money, and most of us don't even know we are doing it.

We swap a beautiful sunny day for a day at the office chasing the filthy pound, or the filthy dollar or the filthy Euro. Whatever is your poison. We have traded a precious day in our life for a pay check at the end of the month.

And so it goes on throughout our lives.

The days when we were bored are long forgotten and we get angry when our own children come to us saying they are bored. The circle of life continues.

Very soon there is not enough time.

As we get older we have more money and more experience – but now we are running out of time. We have traded one for the other. Each of us will make individual choices about that trade. Each of us will decide what our day is worth and trade it accordingly. All the time the swap only gives us more money or more experience and each of us must decide whether the trade is worthwhile. That assumes of course that you ever stop to think about it.

Over the years this newsletter has challenged you with uncomfortable truths. Truths you already knew but pretended did not exist.

What you do with your life is, of course, the ultimate truth.

If you died tomorrow do you think you have got a fair exchange for the time you gave up?

What about the sunny days sat behind your computer filing, deleting, saving and forwarding endless text messages?

What about the days away from your partner when you were doing that oh so important job that no one else on planet earth could do except you?

What about all those times the kids asked you to play but there were so many jobs around the house that took priority?

Has it been a fair exchange?

Did you trade your days wisely, or were you simply caught up in the day to day crap that somehow takes us from “Mom, I'm bored” to “Why are there never enough hours in the day?”.

People talk about thinking outside the box - most people don't even know the box exists.

If you are at that age when younger people than you are starting to die from cancer and heart attacks chances are you will have resolved to start enjoying life a little bit more than you have of late - before the grim reaper knocks at your door. This thought will probably will last about two minutes, and then you will go back to doing the same crap you were doing yesterday.

It's life Jim – but not as we know it.

Here's a thought.

Take a day off next week – and do absolutely nothing. Nothing, that is, except think about where your life is going.

Where do you want to be in ten years time? What do you want to achieve?

Now start swapping your days on earth for things that are really worthwhile – not by my definition. Not by somebody else's definition - but by YOUR definition.

What is important to you?

Seize the day – before there are no days left to trade.

Slave to the credit card.

Meanwhile:

If you are struggling to do the things you really want to do, chances are you are paying back some debt from the distant past. You have become a slave to debt whether it be financial or otherwise.

For most people it is financial debt that has become their master. Both here, and in the US, an inability to understand even the basics of money management has meant many people are going to find the next ten years a very difficult time indeed.

According to a recent poll, many Americans believe that they are already in a recession. That's not surprising really when you look at what people earn compared with what they spend, as reported in today's edition of the Daily Reckoning.

Did you know that in the USA there are around 20,000 different credit cards available to the American consumer?

They come in a vast array of personalized colours and designs and carry equally personalized terms of use. Finding a credit card that matches your perception of where you are in society is clearly big business. Whether you are a businessperson trying to make your mark or a college leaver with high aspirations but no cash, credit card companies have devised a way to help you accrue massive debt with a feeling of independence and empowerment. You will hardly notice as the debt racks up.

With such a huge choice of 'flexible friends' Americans have had no problem in racking up record levels of personal and national debt.

According to Paul Banister of Bankrate.com there are around 1.2 billion credit cards in use in the United States today; roughly four cards for every man, woman and child in the country. American's say, "put it on the card," for about a quarter of their personal expenditures, helping the average household to bury themselves under $8,400 of credit card debt.

For the luxury of living this life-on-loan, the average American family pays around $1,200 dollars annually in interest on their plastic. Including those pesky fees, that's about $50 billion in revenue for the credit card industry ... every year.

Ma and Pa's profligacy with the plastic is not setting a particularly good example for junior, either. The average college student graduates with no less than six credit cards. One in seven has even managed to rack up over $15,000 in library fines/bar tabs.

Disturbing as these statistics are, this final one has to take the cake. According to Mr. Banister's study, "9 out of 10 Americans claim credit card debt has never been a source of worry."

It's not difficult to see why so many people in the so called land of the free are anything but that. But do not be quick to gloat. This is a global problem not just an American problem and we are just as likely to flash the credit card here in Britain when the mood takes us.

Back in 1992, the UK savings rate was 8.3% of disposable income. Seems reasonable enough.

Today it is a negative figure.

And if that's not bad enough, it has been negative for the last three years.

Personal debt in the UK has risen 72% from £777m in 1993 to £1.34bn today. That number is bigger than our total national GDP.

Not that the government is doing much to setting a better example than those it saddles with its legislation. The UK national debt has more than doubled since 1992 and if that's not bad enough darling Darling just increased it by another £4bn in his Pre-Budget Report. But please remember the big difference here – he won't be paying this money back – but you will.

Just as private households have been living well beyond their means, so has the treasury. If there is an economic downturn, the UK now has very little room for financial stimulus.

While the economic party continues and unemployment remains low - we’re okay.

But nothing lasts forever which means you have to act now to get ahead of the game. Whatever you do, don't rely on your pension to save you in your dotage. The maths just don't add up.

Government statistics show that nationally there are 29m in work in the UK - paying their taxes and helping feed 1.65m unemployed and 2.5m on incapacity benefit – half of whom have been claimants for five years. Nice money if you can get it – and for now at least, they can.

On top of that, the latest bulletin seems to suggest that while personal and government debt continues to rise, more and more people simply don’t want to work any more. In fact, the ‘inactivity rate’ of working age people is the highest it has ever been since records began 36 years ago.

So, what's to be done?

I do realise that the horrendous debt problems that we have created over the last twenty years will not go away overnight. In fact I am bright enough to realise that these problems will never go away. One way or another, the debt must be paid: if not in cash then certainly in bankruptcy and repossession.

But I do want those debt problems to go away for one person in this country and that person is

....... YOU.

Forget everyone else – let's get rid of YOUR bad debt habits and get you back to where you were when you first came into this world – weak and vulnerable you may have been, but at least back then you owed nothing.

No one had a claim on your time or indeed, a claim on your life.

OK, I know you now own loads of 'things'.

Assets you call them.

I call them junk.

You have got a new ipod, a new sofa (50% off and nothing to pay for two years). You have a wide screen television and a subscription to Sky Sports that costs you the best part of £50 a month. You have some designer labels on your clothes to show your friends how successful you are, and oh yes, a new car, and a foreign holiday already booked.

As Shania Twain once sang “That don't impress me much”.

If the price of these trinkets is a life of burden, paying interest upon interest upon interest, then now is the time to change your ways.

Now I know that no one else out there is going to do it – but what about you? Are you ready yet to put your financial life in order?

Don't make the mistake in thinking that if it wasn't for increasing interest rates you wouldn't have a problem and that when rates fall everything will be OK - BECAUSE IT WON'T.

By any historical standard, the current interest rate is in fact extremely low.

All this nonsense about people not being able to pay their mortgages because of the increase in base rates. Its rubbish. It's not the mortgage fees that are the problem - it's the credit cards. All that useless trash that has been bought by poor people trying to prove to their friends that they are really rich people and the whole thing has been financed on plastic.

The only rich people are those who choose whether to work today or whether to go down the golf course.

That's what financial freedom is really all about – choice.

Investing in difficult times.

Many of you have asked me where they should invest during the current financial turmoil, given that just about every country in the world is now being touted as the next property hot spot.

I have shared with you my own personal investment plans for the next five years but only a fool would set himself up in a draw/lose prediction that could easily come a cropper. You all have enough advisers, and hopefully enough common sense to make you own decisions.

But I will give you one good tip.

When the markets are rising just about everywhere you could stick a pin in a map of the world and still have a chance of doing well. It's at times like this that any fool can (almost) buy any property and make money.

But when the markets are in turmoil, the rats leave the ship and only the experienced stay on board.

Plan your overseas investment strategy based on the bad times, not the good times.

If you are thinking of buying overseas I would suggest you only consider investing in a market where the locals earn enough money to easily rent or ideally buy your investment property. If they can't, it means the only person you could ever sell to in times of difficulty would be ANOTHER investor. By definition, when the financial markets are in turmoil there won't be many other investors around. Never restrict your investment in this way.

Always look for strong local economies, good standards of living and relatively high salaries for those living and working in your chosen destination. Sunshine resorts are a great choice but if people also work in that area then you have it both ways.

And one final thing – never buy cheap. If its cheap there's a reason it's cheap. Are you the first person to discover this so-called 'cheap' investment opportunity?

No, of course not. Lots of other people have looked at it ... and that's still the asking price. Ask yourself why - there's always a clue.