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Why is Everyone “Broke”?

I work in the finance sector. I talk to a lot of people from all walks of life. Attorneys, College Professors, Doctors, Business Owners… People that you and I would consider “successful.” There’s one common theme that ties all these people together: “Sorry, I’m broke.”


Ok, I understand that the economy is in shambles. I knew it would happen before it happened. I watched it unfold. I’ve been studying it each and every day. The soaring unemployment rates, the implosion of once lucrative stocks, the depletion of real estate and most 401(k)’s and investment portfolios. What I do not understand is how everyone – no matter who you are, and what your spending, saving and investment habits are – is broke.

This makes absolutely zero sense to me. Not everyone is broke. How can people (everyone) be this reckless? Is it Southern California? It could be. Ever since I first heard this expression, I took it as gospel: “In Southern California, people spend money they don’t have, to buy things they don’t need, to impress people they don’t like.” Is this why everyone is “broke”? Could be. I don’t buy it though.

I’m going to take some time here and explain to people how to maximize your income. It’s simple really. It’s no secret. Yet no one follows these rules…

Everybody makes income. Everybody’s income is taxed by the Federal and State Governments (with certain States being exempt from income tax.) So for the purpose of this essay, allow me to demonstrate how $100 should be effectively budgeted.


You are taxed at a hypothetical rate of 20%. This leaves you with $80. You need to sleep, you need to eat, you enjoy a little r&r. Let’s assume that rent (or more appropriately, your mortgage), groceries and entertainment take up 40% of that $80. This leaves you with $48.

It’s what people do with this $48 that leaves them broke. Let’s also assume you pay “bills.” And for the sake of this essay, let’s assume these bills are things like a car payment, insurance, cell phone and medical insurance. You now have $33. What do you do with this $33?

Well, let’s get started!

First of all, you need to understand that there are four ways to “grow” (see: invest; save) your money:

I. Taxable: Mutual Fund, Hedge Fund, Individual Stocks, Savings, CD’s, Bonds, etc.

II. Tax Deferred: Annuities, Real Estate, etc.

III. Tax-Free: Roth IRA, Whole Life Policy, etc.

IV. Tax-Deductible: 401(k), 403(b), etc.

Ok, first of all, 10% of your income should be going towards a 401(k) if you’re a w-2 employee. If you’re a government employee, you should have a 403(b). If you’re a business owner, you should have SEPs or a Keough plan. No matter what it is you do for a living, you should have some sort of retirement plan in place. Also, most employers will match you dollar for dollar. So in essence, you’re not saving 10%, you’re saving 20% (after your employer matches you.) But move quickly folks, 401(k)’s aren’t a given. In fact, they’re on their way to extinction.

Ok, so now you’re putting $10 of that $100 towards retirement, and you’ll see $20 for every $100 you earn for the rest of your working adult life until you retire. Not bad.

Moving on.

Everyone should own real estate. I don’t have to explain that to you. You know how it works. You buy a house today for $500,000, and in 30 years when your mortgage is paid off and you want to retire, that home is now worth $10M in tomorrow’s dollars. You sell the home (see: liquidize it), pay your taxes, and sip your pina colada.

For those of us who don’t own a home? We should be saving for one. And what type of savings vessel should we be using? I’d recommend a CD (commercial deposit) at the very least. The yield may only be 2 or 3% if you’re lucky, but it’s something.

Let’s assume that’s 7% (or $7 of your income.) You now have $16 dollars left.

Put 5% in a Roth IRA (assuming you qualify – and all you need to do to  “qualify” is have an income less than $110K/yr.) Just do it. The contribution is taxed, but the disbursement is not. And that’s what’s key. Protecting your assets at retirement. Trust me.

Now you’re left with $11 dollars.

You have a home. You have a car. You have money for bills, groceries, beer, entertainment, vacations, a retirement plan and a Roth IRA… And you still have $11 dollars to play with. So how are you broke? Again, I don’t understand people.

“So, Mr. Financial Guy”, You may be asking, “What do I do with this extra $11?”

Well, I suppose you could feed your coke habit. Perhaps pay for your mistress. Fund your children’s education. Buy a boat. Or do that whole thing where you’re only making $40,000/annually but you’re driving an $80,000 Range Rover.


Or, you could spend it wisely. On a whole life policy. Why? Well, allow me to explain..

I’m assuming you want to retire comfortably. Retire “young.” Leave a legacy. Not have to worry about debt when you’re older. Have your finances in order. Be able to travel. Not have to rely on credit. Not be completely ass-fucked like a prison bitch when the economy takes the slightest of downturns. Not be a slave to your shitty investment portfolio.

Invest in a whole life policy. It will pay you dividends. Dividends that will eventually out-earn your premium and take over your payments for you. It will also accumulate a cash value.

Again, this whole essay is based on assumptions. I assume people want to live comfortably. I assume people want to live debt-free. I assume people want to retire at a reasonable age and not have to worry about money. I assume that people want to have enough money in place at retirement to secure their care until the day they die. But based on what almost everyone I meet says, this is completely to the contrary.

One last thing.. Do you want to be the guy who has to save $5,000/month at age 51 to retire by 75 with just enough money to live off $30k/year?

Or do you want to be the intelligent young professional who had the pragmatism, prudence and foresight to set aside $11 dollars for every $100 you earned and have $10M+ at your disposal (enough to live off $125k/yr until you die after you retire)?

I’m assuming you want to be the latter.

Yet no one does this.

People wear seat belts because they want to live if they get in a car crash. People avoid tobacco because they don’t want lung cancer. People use condoms because they don’t want STDs. People pay their taxes because they don’t want to go to jail. Yet, no one saves. No one thinks about retirement. No one thinks about having their money work for them; they just think about working for their money.

Maybe someday people will wake up.

And when you do, you know where to find me.

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