So here we go…

1) Win the Lottery!

The upside of this approach is simply outstanding! Basically being handed millions of dollars for almost no work at all, how much better can it get? Some lotteries get into the hundreds of millions.  If you are considering this route, the basic approach to achieving your dreams is to go to a store, typically with a “Quick” “E” and “Mart” somewhere in the name. Once there, ask the person behind the counter for a ticket and hand them money.

There is a lot about the upside, but are there any drawbacks to this approach to financial freedom?  Well a few to keep in mind:

• You have to pick the winning numbers for the big lotteries. It turns out they don’t just give you a check.
• If you win the money, you have to do some math to figure out if you should take the lump sum or receive money over many years.
• You might have to share if someone else wins! Yuck…
• Things don’t always turn out well for the winners. Many times they end up worse off after winning than before. Maybe it was all about the experience!

Oh and one more thing… The chance that you become wealthy with this approach is somewhere around one in 195,249,054.

So for winning the lottery, Elusive Wealth says:

Don’t play the lottery unless you are also equally willing to set the dollar that would pay for the ticket on fire.

2) Sue Someone into Oblivion!

So winning the lottery isn’t for you, you need other options. Another way to score some fast cash is to sue someone.  You can either take the “easy” way by falling on someone’s sidewalk, suing them, and hoping they have a lucrative umbrella policy. Or you could go the more ethical route of accidentally spilling hot coffee on yourself and bringing litigation against McDonalds for not stopping it somehow.  Yes, this can be quite an attractive approach to wealth building!  However, with this there are also a few caveats:

• The odds of winning a baseless lawsuit probably are not much better than winning the lottery.  I couldn’t find any good statistics on this, I am sure it depends on the lawyers and the particular case.
• Some lawsuits may require actual physical injury before they can seriously be considered.
• If you are considering this, have you ever heard of ethics?

Well, you can also consider a combo play by actually suing the lottery.  This especially comes in handy if you play an instant lottery game where the last winning ticket was already played somewhere.

Elusive Wealth says:

Stick to suing only when you have a legitimate gripe that seriously caused a financial loss.  If that is the case though, go for it!

3) Get a Scam Named After You

Financially this one may rate above both suing someone and winning the lottery, if you have got what it takes.  Once you get a scam named after you, you know you have it made!  Madoff, Ponzi, and Stanford (Group) all know what I am talking about. Not only does this path to wealth come with riches, it is matched equally by fame!  Unfortunately there are some downsides:

• You can’t actually get the scam named unless you get caught.
• This is a touch less ethical than suing someone for no reason.

Elusive Wealth says:

Don’t even try scamming, unless you can make the scam both legal and official sounding, like “credit default swaps.”

4) Get a Job, Save Your Money

This option may look a bit out of place on this list, because it is the only one that results in actual, legitimate earned wealth. However, before I encourage anyone to go this route, I have to honestly lay out all of the downsides:

• To get wealthy with this approach, you might just need an education. The good news is, this isn’t always true. In fact many people do quite well without a college degree.
• To get a job, you have to apply for them and compete for them.
• Once you have a job you have to work.
• Saving money means not spending some of it.

Seems like getting a job has as many negatives of anything else on this list! Maybe it is not the best way to go. But consider this: people have done amazing things with the U.S. average household salary ($50,000) and even less. The truth is that by staying away from debt and making good choices, you stand a better chance of getting wealthy this way than any of the above options. Sure there can be some serious road bumps along the way, especially health issues and healthcare. If you think it can’t happen though, then that may be a major part of the problem. This IS how most people become wealthy.

Elusive Wealth says:

This is really the only option worth considering… what did you expect?

To start this discussion, let’s take a look at some statistics on the distribution of income in the United States. Maybe from this there is something to learn, or perhaps its just interesting data.  First let’s look at some of the 2005-2007 census data. Statistics show that we have 111.6 million households. So what is the relative wealth breakdown of those households?

Income Levels (2005-2007 Census Data)

The median income during this time period is right around $50,000. If you are significantly lower than that, you might be struggling to make ends meet. If you are higher than that, you might have a good income, especially relative to the rest of the country… but even then you might not feel like it is sufficient. And if you are way off the charts, you might be Obama-rich (congratulations if that is the case)!

So how do these numbers differ from the past?  Below is the same data from 1993.  You can see the trend as fewer households are in the under $15k range, and significantly more households are in the greater than $75k range.

Income Levels (1993 Census Data)

In 1993, the median income was $31,553 compared to the $50,000 number for 2005-2007.  During this time period (1993 to 2005) the consumer price index grew from 213.7 to 284.3, an increase of 33%. The median family income grew over 58%. So why are incomes outpacing consumer price index during that time period?  One of my thoughts is that a certain portion of that increase is represented in the increase of dual income families.

At the same time that households appear to have more money relative to the cost of goods, people have felt increasingly more strapped. Take a look at some data from Pew Research (The Median Debt-to-Income Ratio for Households With Debt Holdings) that really highlights what I believe to be a major contributor, if not the largest contributor, to any disparity in wealth and the “fading middle class.”  This graph shows the median debt to income ratio of high, middle and lower income earners in 1992 and 2004:

Median Debt to Income (1992 and 2004)

Notice the tremendous growth in debt compared to income! We can consider what goes into that. For instance, I have no doubts that rising health care costs are a contributor. But I also believe that our excess is a factor as well — our Starbucks, BMWs, and our willingness to take on house we cannot afford.. If you compare the income data, it seems we should feel better about our position not worse. And certainly it is difficult to see the middle class disappearing from the income data. Compared to inflation it seems middle class should be getting richer. But this debt is a tremendous burden. And doesn’t Congress provide a wonderful example of keeping debt within reason?

What are your thoughts on what contributes to this drastic increase in debt?

Uncle Sam?

wealth. The reality though?  Capitalism has merely taken a small portion away of the vast wealth that Capitalism provided in the first place. Sure, it does not seem like a small portion. Times are tough and jobs are scarce. Only jobs aren’t as scarce as they have been in the past. And times aren’t as tough as they have been before.

Will times be as tough as they once were?  Maybe, if we keep trying hard enough. If we continue to get better at spreading the wealth around through taxing wealthy, we can get there. If we socialize health care, that will help. If our government keeps taking companies over that will help too.  We can go all the way to the dark ages and beyond if we want to.

What about the great disparity in wealth in our country? Clearly capitalism has increased the gap between the haves and have-nots, right? No again.  The haves are the have-nots employers! Take away the haves (by taking their money) and all you have are have-nots. Sure it’s just a little bit here and there, the haves won’t miss it. The haves won’t use it to hire someone either then. The government cannot hire everyone. The gap between wealthy and the middle class may be growing, so do we take the money away?  Or do we earn it by providing products they can use. And does the money of the wealthy sit under a mattress providing no value to anyone?  Sometimes, but usually it is invested in something that helps everyone produce goods that people need. If it is invested, what else might it be doing besides earning more money for the investor?  Providing jobs.

Well, take the banks — what an example of unfettered capitalism going wrong. Clearly they demonstrate that there must be regulation, right?  Sure, there must be some regulation – not everything fits into an absolute, capitalism is no different. But did capitalism really result in the mess we are in?  To a point, because with capitalism there will always be fluctuations in the marketplace. That is a good thing. But let’s look at other events that contributed to the mess:

• We, the people, borrowed any money we could get our hands on.  We, the people, bought houses we could not afford.
• We continued to be customers of mega banks that increasingly provided lower interest rates and poor customer service.
• Our U.S. Government decided that everyone deserves life, liberty, happiness, and a home. The Community Reinvestment Act encouraged banks to lend to people who could not afford homes. [This is not the cause, it is a contributor]

Do banks have an obligation to ensure that their customers can repay their loans. Absolutely. If they cannot, what happens?  The bank, its management, its shareholders, and unfortunately its employees move on to better endeavors. Why is this important?  Because this is creative destruction, where companies that fail and cannot produce go away. This is capitalism’s way of handling poor management, poor products, poor service, and corruption.

So after I say all of this, I must not care about others, right?  Me, and others that think like me, must be hoarders without empathy. No, I support capitalism because I care. Capitalism is the only system that allows the level of entrepreneurship we have seen in this country.  It is the only system that produces so many millionaires from the have-nots. Those who believe in the opportunity to create wealth for themselves must believe in capitalism, for without it that opportunity does not exist.

http://www.hulu.com/watch/74840/the-dave-ramsey-show-frid-may-2-2009

Now that I have been able to watch it, I have some thoughts that I want to share on the event.  First and foremost I do recommend that everyone watch the Town Hall for Hope. The message is excellent despite any shortcomings I mention in the rest of this post.  It is important that we continue to work our way out of difficult economic times with as much optimism and hope as possible. Key components of Dave’s message in this event include:

• The fear and hysteria can get to anyone, the media has done an excellent job publicizing it.
• Although 45+% of people believe there job may be at jeopardy, the reality is that unemployment has increased only around 3% (this has gone up slightly since the broadcast; also, 3% is based on the official unemployment number — some believe it is optimistic because it does not include underemployed).
• For those who have lost their jobs, attitude is a critical component to moving on and landing the next job.
• Although it is always difficult starting a new business during an economic downturn, there are advantages and opportunities that exist when compared to times of strong economy.

Dave’s message is extremely consistent with his show, and as he puts it, this is common sense — this is advice your grandmother might give.  That is true to an extent, though not everyone believes that avoiding debt completely is necessary. In fact many believe debt can be a key to financial well being (for example, buy real estate at no money down). If you have listened to Dave’s radio show, watched his television program, or read his book The Total Money Makeover, you will see that much of the content of the Town Hall for Hope has been delivered before. That is acceptable here, because in this event it is delivered to a potentially wider audience.

Dave believes that you cannot separate the spiritual from finances. Maybe more accurately he believes you cannot separate the spiritual from anything in one’s life, financies being a component of life. Although occasionally he will encourage his listeners to seek advice from their pastor or their church, usually he keeps religion out of the discussion unless he knows one’s faith. A big part of his delivery of Financial Peace is through the church community, so clearly his message has tie-ins with religion. Like his traditional shows, this event was mostly finance and economy with a little bit of spiritual mixed in.  This may turn off viewers who do not hold views of any religion, or believe in religions other than Christianity.

Near the end of the event the question / answer session between David Asman and Dave Ramsey added less value to the overall conversation than the initial discussion and the question / answer session with viewers. With the crowd gone and the seats empty, it made me feel as if it were time for me to leave as well.

Dave adds many of his usual quips and expressions to much of the conversation, and if you listen to or watch his show you may be quite familiar with them – to the point where they are overused. But there is something rewarding in Dave’s delivery in general, whether part of this event or his show. To me that reward is a very motivating financial adviser that constantly reminding me of my own financial goals. There are certainly other ways to attain the same motivation, however for those that are looking for the motivation, Dave Ramsey provides it.

In the end, for anyone with uncertainty and concern about our economic climate, the Town Hall for Hope is a must watch. For those who want motivation and want to help spread the message of hope, there is value in the event as well. The only group I might recommend not watch the program are doomsayers, there may be too much hope for even the pessimistic to withstand.

Advanced Earned Income Tax Credit

The Advanced Earned Income Tax Credit is an extension of the Earned Income Tax Credit that apparently allows people with children eligible for the EITC to receive a portion of the credit through their paychecks (reduced witholding) instead of at filing time. The AEITC is used by a relatively small percentage of people (3% of those eligible for EITC) and is error prone. Cutting this program is estimated to save $125 million.

What I learned from this, is that if 514,000 people used this program, then that means there are about 17 million people claiming the Earned Income Credit.

C-17 Strategic Airlift Aircraft

Well this saves about $91 million.  Supposedly we are dropping this because we have enough of these already.  But I don’t have one, do you?

Christopher Columbus Fellowship Foundation

Yes I think the word is out, the Earth is round and the East Indies turned out to be farther than he thought. Here we save $1 million, but it makes me wonder what Chris C. would think about cutting the program.

Combat Search and Rescue Helicopter (CSAR-X)

Here we save $144 million dollars by eliminating this single purpose helicopter. From the budget: “The Department of Defense is questioning the need for a single-purpose helicopter. Unlike the other services, which carry out this mission with multiple-purpose helicopters, the Air Force has traditionally carried out this mission with single-purpose aircraft.”

Well they call it single purpose, but it searches and it rescues.  Seems like a winner to me!

Cotton Storage Payments

Cotton storage payments appear to amount to planned price fixing by the U.S. Government. They would never do that, would they?  This item allowed credits for storing cotton until prices increased.  The program is being eliminated since storage costs for other commodities are not funded by the Government.  I could see going either way on this, either have the U.S Government pay to store nothing… or, why not have them store everything?

Storing cotton costs around $570 million, so maybe that is why we don’t extend this program to polyester storage, etc.

Inner City Bus Security Program

Costing us $12 million, this program is being eliminated because it does not appropriately factor in risk when determining where the funding goes. If we wanted to factor in risk, I would start by looking for buses that Keanu Reeves is on.

Joint Strike Fighter Alternative Engine

I love this one!  At the tune of $465 million, we had two separate contractors building two different designs of an engine for the same airplane! Perhaps instead of cancelling the program, we could use the losing engine in one of our new GM cars.

Loran-C

This is being replaced because it is a legacy technology that GPS handles better. Loran-C acted somewhat as a backup for GPS, at least according to the budget document (you never know if the scope of the cut is as accurate as the Government believes). But what struck me in the document was the following statement, “Accounting for inflation, this will achieve a savings of $36 million in 2010 and $190 million over five years.”  I just find this funny, that the savings included account for inflation, considering the source of the inflation is primarily the government anyway. Maybe we should just increase inflation to meet our budget targets.

Oil and Gas Company Subsidies

This is one we all heard about during the campaign (if we were listening anyway).  This won’t save us anything in 2010, but the proposal states that we still save $26 billion between 2011 and 2019. Despite the belief of the budget document, it is difficult for me to imagine that this would not impact the price of gasoline. But I will take their word on it, they wouldn’t lie.

Oil and Gas Research and Development Program

Presidential Helicopter

This program subsidizes R&D efforts for improving extraction and delivery of oil and gas products. The budget states that oil and gas companies have the means to fund this work on their own.  I agree with this, they should compete on a level playing field with alternative energy source companies.  So far, from a product cost perspective, they have been winning hands down. This saves the taxpayers $250 million.

Presidential Helicopter

Last, but not least, the Presidential Helicopter! The cost of this beast has grown to $13 billion. This is an entire helicopter program for a single person.  The program is 5 years over schedule. The good news is that the budget has been cut to just enough funds to end the program and evaluate options for the current fleet and an alternative program. The bad news?  The alternative program likely starts the whole process over again.  Maybe we should have another bake off — hire two contractors to deliver two Presidential Helicopters and see which one flies better.

Conclusion

Well this was a short look at some of the terminated programs from the 2010 proposed budget. Hopefully your favorite program did not get cut. If it did, I apologize if I made fun of it in any away.

Let’s take a look at the economy as an example. A Pew Research poll (Interest in Swine Flu Remains Strong) shows that 44% of people follow the economy very closely as of early May. This is down significantly from a peak of 70% last September.  Remembering back to that time, the economy was the top story almost daily.  And usually the word crash was thrown in for good measure.

World Crisis

The same Pew Research study shows that while 24% of the people surveyed view the economy as their top interest from the media, only about 12% of the news coverage is now on the ecomony. Most of the coverage, on the other hand, is given to the terror and torture discussions.

Perhaps “swine” flu, or H1N1 provides an even better example. The actual hysteria over H1N1 lasted a few weeks, and of course it was a top story. Since then, we have experienced a flu that, at least in the United States, is less deadly than the seasonal flu. That’s not to say that there is not reason to be concerned with new strains of the flu like H1N1, but is media coverage proportional? Today 21% of people surveyed still look to stories on H1N1 as their top media priority, yet media coverage of H1N1 has been reduced to 2%.

Although this is not necessarily definitive, what this demonstrates to me is the extreme effect that media has on the public mindset. For the vast number of people to still have H1N1 as their top concern shows me that media coverage and hysteria were over the top.

Once the hysteria and fear begin to fade away, it does not necessarily leave the public mindset, even for those less affected by the events, until well after recovery begins. The media on the other hand tends to ignore the signs of recovery, relatively speaking. Sure there is some media coverage on signs of recovery in the economy and the less than anticipated potential impact of H1N1. But the reality is that the coverage is disproportional to the coverage of the negative events.

As time passes it is important that we keep these things into perspective and avoid panic. Panic breeds on itself, and very likely made both the economic and H1N1 situations worse than they could have been.