Today, more than ever, in an overwhelming world of financial complexities, there is a need to reintroduce simple concepts about money management. Contrary to popular thought, the real answers are not the exclusive property of the affluent, white-collar population. We all have the ability to succeed financially-through basic discipline and common sense. In Fields of Green, author and CPA Terry Brown shares some commonsense strategies for intelligently navigating today's complex financial opportunities. From his days growing up on a farm, Brown learned a strong work ethic and a clear vision of financial realities from a young age. Years later, lessons gleaned from working in corporate finance rounded out his approach to financial management and stewardship. Regardless of background, education, or vocation, everyone faces similar challenges-needs and wants, credit card debt, college funding, and retirement planning. Today, retirement and medical plans are much less attractive than they were even a generation ago. The keys to financial security are within your reach, but you need to understand the basic truths first-and those are what Brown offers here. By breaking down what most consider to be impossibly complicated financial theories, Brown shares these truths with the layperson. Financial wisdom is really quite accessible, once you break it down to the basics. In Fields of Green, he gives you the tools you need to confront today's toughest financial challenges.

Fields of Green

The Simpler Way to WealthBy Terry Brown

iUniverse, Inc.

Copyright © 2012 Terry Brown
All right reserved.
ISBN: 978-1-4759-5458-6

Contents

Dedication........................................................vPreface...........................................................ix1. Needs: Give Abraham His Due....................................12. Wants: Do You Really Want That?................................53. Net Worth: So Where Am I?......................................114. Assets: What We Own............................................195. Liabilities: What We Owe.......................................276. Hang with Me...................................................377. Investments and Insurance......................................398. Insurance: Term or Whole?......................................499. College Funding................................................5510. Tax Avoidance: Don't Get Carried Away.........................6311. 'Tis Better to Receive—Part 1...........................7112. 'Tis Better to Receive Cash!—Part 2.....................7713. What We Live In...............................................8314. Money on Wheels...............................................9115. How to Earn a 175 Percent Return..............................10516. Don't Fall in Love with These Two Things......................11717. It Bears Repeating—Part 1...............................12318. It Bears Repeating—Part 2...............................12719. Texting behind Home Plate.....................................13120. I Think I'm Done..............................................137

Chapter One

Needs: Give Abraham His Due

In both high school and college I never had a problem studying things I liked, especially math and business. However, I would not have given a dime to take another psychology or sociology course. For some reason, those just never captured my interest. However, in psychology I managed to retain two pieces of knowledge. One was B. F. Skinner and his tests with rats. The other was Abraham Maslow and the hierarchy of needs.

Basically, Maslow's hierarchy categorized needs from the most critical at the base of the triangle, upward to the less critical needs at the top. Examples of most critical needs are food, clothing, and shelter, while lower priority needs would be self-esteem and social approval.

Perhaps because I am a simple thinker, Maslow's hierarchy appealed to me. It just made sense that until you satisfied the basic needs of food, clothing, and shelter, all else didn't really matter.

In my grandparents' generation, and to a slightly lesser extent in my parents' generation, the base of Mr. Maslow's hierarchy pretty much summed up life in my part of the world. If you were clothed, fed, and had a nice home, you had the good life.

However, in my generation, particularly in the 1980s, advances in technology took a strong hold, and the advances have since accelerated at a dizzying pace. Specifically, a household's "basic need" of phone service as defined thirty years ago has changed drastically by today's standards. As a teenager, I distinctly remember having a four-party house phone, which we had to share with three elderly ladies down the road. Try carrying on a teen social life with that kind of communication network today. Now, the term "basic need" would encompass a private land line, two or three cell phones, texting, and Internet service.

Generations ago, education through high school was considered a great asset, and college was looked upon as almost an elite privilege. Today, high school education has become a bare necessity, and a college education has become more of a need than a luxury.

In both examples, advancements have naturally come at a cost. In many cases, per-unit consumer costs have actually decreased, such as long-distance phone service. However, the scope of services we now have at our disposal has expanded so that overall household costs have increased. In simple terms, our former wants have become needs, and we have been introduced to new wants along the way. Such is the territory that comes with a higher standard of living.

Whether we care to admit it, we all have hierarchies of needs and wants. In general, I think it is safe to assume that we would share Maslow's three basic needs of food, clothing, and shelter. Beyond that, we could fill in charts of needs and wants that would be as diverse as the American population.

Are three cars in a household a need or a want? Is an inground pool a need or a want? The truth of the matter is there is no right or wrong answer. Rather, I think it is merely a good exercise to assess one's definition of needs and wants, as this is undoubtedly something that we as a society rarely stop to consider. Hopefully, this will come back to you as a frame of reference as you read later chapters.

According to how you define your needs, the related costs are essentially what it is going to take for you to exist in terms of financial responsibilities. I prefer to label these as fixed costs, because as long as your heart keeps beating, the financial commitment must be made. This concept would apply to food, in particular. The need is always there, or fixed.

If you care to know my modern-day version of Maslow's needs, I would list in order of importance as follows: (1) food, clothing, and shelter (2) a vehicle and fuel to drive to work (3) insurance and health care, and (4) college education for my children. Granted, there are other things I could put on this list. But in keeping things simple, these four categories pretty much describe what drives me to get out of bed on cold winter mornings and go to work.

Simply put, I am driven from within to meet my definition of needs. Otherwise, I fail my family and possibly my very existence.

Summary Points

• Yesterday's wants have become today's needs.

• A more advanced society means more cost commitments.

• Maslow's hierarchy of needs helps explain how we spend our money.

Chapter 1 Exercise

List the top five needs, in order of priority, that drive you to be a financial provider. Then estimate the annual costs of these needs.

Need Annual cost

1.___________________________ 1.___________________________ 2.___________________________ 2.___________________________ 3.___________________________ 3.___________________________ 4.___________________________ 4.___________________________ 5.___________________________ 5.___________________________

TOTAL___________________________

Chapter Two

Wants: Do You Really Want That?

I am a firm believer in the 80/20 principle, which can be applied to a great many facets of life. For instance, I have often heard it stated that in a group setting, whether charitable or business, 20 percent of the people do 80 percent of the work. While I do not hold this to be an absolute truth, I do think the concept has a good bit of validity.

In presenting my thoughts, I likewise feel there is an 80/20 ratio of relevance to the population of potential readers. For example, on the upper extreme of income levels, there is a group of people who will manage to spend every dime they possess. Individuals who immediately come to mind are professional athletes with multimillion-dollar contracts. I realize it is the overall exception, but in my opinion we hear way too many instances of these individuals in bankruptcy. Personally, I just cannot fathom how one can spend that much money, but this indeed happens. Within this group, I don't think I have much range of relevance to help.

On the flip side, I know more than a few individuals who have raised children alone on a modest income, in many cases providing the children with good college educations. Other individuals who come to mind have done the same after facing extreme medical hardships and related costs. I absolutely commend these individuals and maintain that they should be writing their own books.

As for the remaining 80 percent, this is the group to whom I hope to be relevant, and to whom I can most readily identify. For instance, like most people, I do not share the opinion of some conservative financial experts who maintain that one should not aspire to own a home. These folks believe it is better to rent for one's entire life due to the long-term costs associated with home ownership.

My quick answer to this thinking is, yes, if we think we should live our personal lives as a business, then renting may be the better option. But I'm a firm believer in the American dream, and believe that we all should live where we truly want to live and within our means in the type of home that makes us happy.

Another thing that comes to mind is I do not agree with those who insist that everything should be purchased free of debt. Simply put, if you don't have all the cash, then don't buy the goods. Though I understand the basis of the reasoning, I like to think of myself as a practical person. Sometimes life doesn't give us all the opportunities to buy everything in cash.

Now let's go back to the theme of wants as they apply within the 80 percent group. Foremost, we know our financial commitments to needs cannot be avoided. But likewise, the financial costs of our wants cannot be avoided either. To me, this is the centerpiece of the financial problems in our country.

As consumers, we are continually bombarded with advertisements to buy everything under the sun as we watch sporting events, drive down the highway, explore the Internet, or even stand at the urinal in a restaurant. Throw in the convenience of a credit card and the "click and sold" features of the Internet, and you have all the ingredients for extreme challenges to even the most financially disciplined individuals.

Having said all of that, here is another mental exercise. Broadly speaking, identify your set of wants, given your current economic situation, or what I would call your financial reality. For me, it would be these major categories: (1) more than one vehicle (for convenience), (2) a home with a big yard and pool, (3) ability to take multiple vacations each year, and (4) being able to provide our children with a few of the nicer things in life.

Going a step further, is there anything on your list that you question whether you truly want it? Of the items I have listed, there isn't anything to which I only have a lukewarm feeling. However, if I were asked to double the list, perhaps I would start to question my genuine desire for one or more of the additional items. It goes back to the principle of utility I learned years ago in a basic economics class. The first cheeseburger tastes mighty good when you're hungry, but the second and third just don't have the same positive effect.

Personal reflection

Have you ever done anything expensive that you really didn't want to do? I am of the opinion that many families overextend themselves on vacations merely because of peer pressure, especially social circles within our schools. Along similar lines, how many families cave in to the pressure from a son or daughter to get an expensive first car? I have seen this a great deal over the past decade, in particular, and I am convinced that certain parents become too absorbed in the hype of keeping up with what other parents down the street purchase for their children.

Don't get me wrong. I strongly believe in spending money for the good things in life. I do this personally in the form of weekend getaways, sporting events, and vacations on the beach. As for expensive colognes, personal jewelry, or having to drive the most recent model of car, these don't do much for me, so, therefore, my money doesn't go there. However, if I did choose to spend money on these items without a genuine desire to do so, this would be the flaw in my own financial house in that I would be spending money for the wrong reason.

Wants are fine to have, but we need to stop and question what truly drives us to have these things. Is it for happiness, or the appearance of happiness? That is somewhat deep, but I truly believe this is a real issue today. In my opinion, we have become a society too much occupied with who we are, what brand we are wearing, where we are going, and with whom we are seen.

In short, today's higher standard of living has brought with it more financial complexities to numerous households. Needs must be met, as well as our wants. So far, we have only stopped to question whether there is anything we currently possess that we truly do not need, or perhaps do not want. Some common things that come to mind are unused gym memberships, extra television packages, a boat, RV, vacation home, or a timeshare. In some instances, these are items that can accumulate to a substantial amount of money.

All I would ask of any person would be to consider why one would spend money on something for the wrong reason. That has been the sole focus of the first two chapters. If you come up with an item or two that you can eliminate, then the time so far will have been well justified. Much of the remainder of the book will now focus on how best to manage the costs of those things we have identified that we need and that we truly want.

Summary Points

• Wants are good and can be strong motivators in giving us fulfilling lives.

• The danger of wants is often pursuing them for the wrong reasons.

• Excess wants and lack of financial discipline are serious issues today.

Chapter 2 Exercise

List your top five wants in order of importance to you, as well as the estimated annual costs. This can be a wish list as well as items that you currently possess.

Want Annual cost

1.___________________________ 1.___________________________ 2.___________________________ 2.___________________________ 3.___________________________ 3.___________________________ 4.___________________________ 4.___________________________ 5.___________________________ 5.___________________________

TOTAL___________________________

Now write the primary reason for wishing to attain each of your wants listed above.

1.___________________________________________________ 2.___________________________________________________ 3.___________________________________________________ 4.___________________________________________________ 5.___________________________________________________

Chapter Three

Net Worth: So Where Am I?

Have you ever found yourself alone in a strange mall for the first time? After a few minutes, you end up in a place you don't recognize. It is almost as if you are on a ship at sea without a compass, especially if you happen to be of the male persuasion. But if you are lucky enough to find a map, you can, fortunately, right your path if you first locate where you are in the mall. It will do no good to take off blindly until you first identify your current position and then plan your route accordingly.

Such is the goal after we have gone through the first two chapters, considering those things that we need and want in life. It does no good to question our spending habits if we do not follow through with an analysis of where we are in financial terms, or again, our financial reality.

How often have you heard the comment, "There's no telling what he is worth"? Have you ever stopped and questioned what the term "worth" truly means? So many times American society in general looks at the glitter of a person and draws a conclusion based on that factor alone. Conversely, we are guilty just the same of looking at one's lack of glitter and concluding in the opposite direction.

Suffice it to say that I've seen individuals with the finest of everything who couldn't afford to pay their next bill, and I've seen individuals who lived like a pauper who had the means to purchase an entire bank. We must realize it's not so much what we have that determines our worth, but how much we owe. There is a huge difference.

Before I move on, I will readily admit the following exercise isn't something I have diligently followed during my adult years. Rather, it has been more of a thought process that I would casually put on a piece of paper every now and then. It seems in the first years of one's career, one focuses mainly on the earnings from his or her job and the items that need to be purchased. And in defense of that mentality, many Americans enter their working careers with not a great deal of net worth. Thus, here is a concept that doesn't seem to generate much attention until a person is perhaps well in his or her thirties.

Quite simply, net worth is the value of all assets owned, less any debts owed. If one is married, the calculation would thus include all assets and obligations of the spouse as well. In keeping the topic simple, here is a suggested summary of the calculation.

Assets

Cash in banks, cash on hand ___________________ + Certificates of deposit ___________________ + Value of owned automobiles ___________________ + Value of owned residence ___________________ + Value of stocks, bonds (outside of retirement plan) ___________________ + Value of 401(k), pension plans, IRAs ___________________ + Value of land, vacation homes ___________________ + Value of owned business (net worth) ___________________ + Other ___________________ Total Assets ___________________

Liabilities

Credit card balances owed ___________________ + Debt on automobiles ___________________ + Debt on residence ___________________ + Debt on land, vacation homes ___________________ + Debt against 401(k) balances ___________________ + Other ___________________

Total Liabilities ___________________ NET WORTH = Total Assets less ___________________ Total Liabilities

To make the above calculation any more complicated is in my opinion a useless waste of time. This is a simple exercise that requires only two things: (1) a small amount of time, and (2) a decision of how often to measure your net worth. The calculation can be done quarterly, as 401(k) and pension information is generally updated this frequently. Otherwise, a semiannual or even an annual calculation will suffice. The key is to simply sit down and take the time to do the calculation. Many will be surprised in both directions.

Granted, some of the asset valuations may be somewhat subjective, such as the value of a personal residence or the current value of one's pension. In these cases I recommend erring on the low side. Following this approach will ensure your net worth calculation to be more conservatively realistic.

From a mathematical standpoint one can easily see from the net worth equation why so many Americans ended up in financial distress after the real estate collapse in 2008. More specifically, those individuals with expensive personal residences and vacation homes that were highly leveraged with debt were affected as the values of the assets plunged, while the underlying debt obligations stayed the same. Hence, net worth took a direct hit.

(Continues...)

Excerpted from Fields of Greenby Terry Brown Copyright © 2012 by Terry Brown. Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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