Last Thursday one of my best buddies, Brad “The Dalai Lama” LaMontagne suffered his fourth heart attack and had his 6th, 7th and 8th stints put in his heart.  For the third time that I can remember he nearly left Mary a widow but obviously God has other plans for Brad here on earth.

But Brad’s close encounter with death got me thinking about Kris Allen’s song, “Live like we’re dying”.  He sings, “We only got 86,400 seconds in a day to turn it all around or to throw it all away. We gotta tell them that we love them while we got the chance to say. (We) gotta live like we’re dying.” If I knew this was my last day is this the day I want to live?  Today was a holiday, so I did not go in the office.  I did not manage any accounts or see any clients or prospects today which I normally would have done on a Monday.  Instead I hung out with the twins and Grace this morning; read part of the book I am reading; then spent the afternoon working with Pablo on the TCFin website.  Of course I also wrote this blog and you know what?  I think I lived like I was dying.

Brad wrote a bunch us an email today chronicling his experience over the last couple of days.  This is what he wrote:

What a way to start the New Year!  I just wanted to drop you a note to let you all know what happened for those who don’t know my latest death defying episode, or for those who heard but don’t have the latest news.  Yesterday I was released from the hospital after having my fourth heart attack and stints 6, 7, & 8 installed last Thursday.  I thought I might be approaching some kind of record, but a guy just had his 28^th stint put in, so I won’t win that contest and of course have no further desire to compete.  God was once again gracious to me to allow me to have the heart attack while I was close to a hospital and allowed me to get there pretty quick and have the stints installed within an hour or so. Just a few days before I was on a 6 mile hike to the Channels which is a very long away from any medical care, thank God.  I drove myself to the hospital, which I would not recommend.  Driving on I-81 at 85 mph with one eye open and repeating a different way of saying horse poop because heart attacks hurt pretty bad, is not a lot of fun.  The verdict is still out as to how much damage was done this time around, but it looks like it might be minimal again.  I still have two more pretty serious blockages of 65 and 80% in my left Coronary artery which I will have to deal with in the near future.  It has only been a year and a half since my last heart attack, when my main arteries were pretty clean, so it is not very good news that I have developed 5 major blockages in such a short period of time.  My body has become quite proficient at building up plaque. My future is in God’s hands and I trust He will give me life and breathe, (hopefully many years of breathing) in His perfect timing.

          Having another near death experience reminds me again how very important my three girls are to me in my life.  I am grateful that Brittany and Audra were both here during the Christmas holiday, which means they were here to give me much needed support and love during my stay in the hospital.  I love them so very much and I cannot imagine life without them.  Now Mary, that’s a girl that’s been put through the ringer.  I have tried to die on her 5 times now (once when I had an allergic reaction to Lipitor) but she continues to be my most ardent supporter and love of my life.  Please pray for her because the one left behind is in the position to have to make all those very tough adjustments.  Although she made me promise she could go first, so I can be the one making the adjustments. We do so much together from running our business, taking care of Mom and Gari, running the ranch and horses and so much more.  But of course, most important, is how she has been the love of my life and best friend for more than 26 years. 

          I guess the contemplation of dying and death, which I now have had ample opportunity to consider, is a healthy and an enlightening thing. It reminds you that you will indeed live forever, it’s just a matter of where.  I am so blessed to know where I will be when it does indeed happen to me, and eventually to all of us.  I love my doctor and friend Jim’s saying, “everyone’s gonna die of something”.  I am so indebted to Jesus who died for my sins, and through my acceptance of His free gift of salvation, gives me the assurance of my eternal place. If you are not sure, let’s talk.

          Life is good, life is great and I look forward to spending some time with you guys, my great family and friends. 

Brad’s perspective is awesome.  We are both 50-somethings and as Billy Crystal told the classroom of eight year olds in City Slickers when you are in your fifties you’ll have a “procedure”.  Well, Brad you’ve had more than enough procedures for both of us.  But I know you are living life not only preparing to live eternity with Jesus but to influence your world.  To impact your brother, Gari’s life.  To make your mom’s last years joyous.  To guide Brittany and Audra on the path of righteousness.  To be my Dalai Lama.  To be Mary’s husband.

So here’s my New Year’s Resolution…whether I am working with a client, playing golf, reading a book, sharing my testimony, speaking at some far off conference or sleeping next to Grace, I want to be living like I’m dying.  I want to be influencing the world for Jesus, just like my Dalai Lama.

What’s going on here? Essentially what I have been saying on God’s Money for nearly 20 years is there are lots of people that do not know what they NEED to know to be financial literate and women and young people struggle even more than men. The emails and the phone calls we receive here at TCFin are a never-ending stream of stories of people overwhelmed by debt, poor financial decisions, no savings or investments and every other kind of financial calamity you can think of.

But just knowing the answers on this test does not mean you won’t make financial mistakes or get into financial trouble.  Understanding economics and personal finance doesn’t mean you won’t make mistakes or face financial disasters. But you can lessen the odds and repair the damage faster if you know the rules of the game. However, if you know these basic rules, you can lessen the chances of making a big blunder and more important you’ll know how and why you are experiencing financial distress.

Here are the rules we all need to know:

There is a difference between needs and wants

Our actual needs are pretty limited: food, shelter, clothing, companionship. Just about everything else is a “want,” and our wants are essentially endless. Because our resources are limited (see “scarcity,” below), we have to make choices about which wants to fulfill.

Also, the way we fulfill our needs involves a lot of choice. Shelter, for example, can be a bed at a homeless mission or a $125 million Palm Beach mansion. Our food choices offer a similar range, from beans and tap water consumed at home to steak and Dom Perignon at an exclusive restaurant.

I’ve discovered many people believe they have to spend money in certain ways or in certain amounts, when in reality their spending is a choice — or is at least based on choices they made earlier. If you’re facing a monster mortgage payment, for example, it’s because you chose to buy that home and selected that particular mortgage.

Taking responsibility for our choices can be scary, but it should also be empowering. After all, if you have choices, you’re not just a victim of circumstance.

Scarcity makes the choice for you

It’s lovely to believe in a world of endless abundance, but the reality is that at any given point in time, our resources have limits. Whether it’s oil in the ground, our time here on Earth or the cash in our pockets, there’s only so much available to be spent.

People who ignore this reality are the ones who run out of paycheck before they run out of month, or who extend their unsustainable spending by relying on credit cards, home equity loans and other reckless borrowing. Their refusal to make the sometimes-hard choices needed to responsibly manage money means that they will have even fewer choices in the future. The money they spend on stuff and on interest can’t be invested to meet other goals, like retirement, so odds are pretty good they’ll wind up old and broke.

The pointlessness of the hedonic treadmill

This isn’t the latest workout device at your gym. The hedonic treadmill means that you quickly adjust to improved circumstances. A raise at work or a new possession may make you happy for a little while, but you soon take your situation for granted. Your expectations continue to rise: if only I could get another raise, or a better car, or a bigger house. Should those expectations be satisfied, again you’d adjust and quickly want more.

This has a lot of implications for personal finance and even the economy, but here’s something to consider: Maybe you need to look beyond your wallet for true happiness.  Just saying…

Every money decision has a cost of its own

“Opportunity cost,” very simply, means what you give up to get something else. In every choice, there’s an opportunity cost. If you decide to go to college, for example, you’re giving up the income you could have earned by working full-time during those years plus whatever you could have purchased with the money used to attend school. You also may take on loans to pay for school, which will have to be paid back with future income that could have gone for other purposes.

The good news, of course, is that even with opportunity costs, college is a slam-dunk for most people. The average graduate makes 70% more over his or her lifetime than someone who stops with a high school diploma.

If, however, you train for a career that has little demand and wind up making the same amount as a high school grad or trailering huge amounts of student loan debt you can never repay, you may regret the money spent on school and the foregone income.

Understanding that your choices have opportunity costs, and examining what those costs are, should help you make better economic decisions.

Supply and demand rules

For the most part, prices are set by the interaction between supply and demand. If demand for something suddenly shoots up and the available supply of that something doesn’t change, then prices will increase. If demand drops or supply increases, prices typically fall.

Here’s an example. Say rock star Jessica Cool Babe is photographed wearing a cap with the brand name of a Midwestern seed company. Suddenly, all her fans and half the people reading People magazine decide they, too, need the Midwestern seed company’s hat. The farm supply companies that stock these hats figure out a good thing when they see it, and double, then triple, the price. The hat actually worn by Jessica sells for a mint on eBay, earning a notice in mainstream newspapers and furthering the craze.

The Midwestern seed company wants a piece of this action and starts cranking out hats by the ton. Suddenly you can find one in every Target and Wal-Mart. The retailers can no longer command a premium for having a rare item, thanks to the increase in supply. In fact, the hats start seeming a heck of a lot less cool, lowering demand; Target and Wal-Mart slash the price still further to get rid of their unwanted supply.

The interplay of supply and demand is also why one-day gas boycotts don’t work. Even if a lot of people participated, overall demand wouldn’t change; the boycotters would likely gas up before or after the selected day. Only a big increase in supply or a sustained decline in demand is likely to affect prices.

Supply and demand has a lot to do with your income as well. If you have rare skills that are in high demand by employers, you can negotiate higher pay. If, on the other hand, a lot of people can do what you do or the employer need for what you do is limited, your income is likely to be less.

Do not throw good money after bad

“Sunk costs” are expenses that have already been incurred and can’t be recovered to any appreciable extent. “Sunk cost fallacy” means an irrational belief that a further investment of time, money or effort will somehow resurrect the value that’s already disappeared.

A classic example is the person whose home value has plunged because the economy worsened. The person wouldn’t buy the same house today, yet continues to hang on to the home rather than sell it and take the loss. The person may offer the excuse that he or she wants to at least “break even” before selling, but of course the housing market doesn’t care about you getting your money back, and all the wishing in the world won’t bring the price back up.

By hanging on to a house that often you do not want or can afford, you are giving up the opportunity to own elsewhere at a reduced cost.

The role risk plays

Every human endeavor carries some risk, and investments are no exception. What differs is the amount and type of risk and how you’re compensated for taking it.

The 30-day Treasury bill, for example, is one of the “safest” investments around if you’re solely concerned with getting back your original investment. The T-bill is backed by the full faith and credit of the U.S. government. But the average return on a 30-day T-bill over the past 80 years is just 3.7%, according to Ibbotson Associates. The 30-day rate, today, as I write this is basically zero.  When you factor inflation, you have probably lost money if you invest solely in T-bills.

Large-company stocks, by contrast, returned an average of about a 10% annualized return over the same period. That handily beats inflation, but as everyone who has invested in the past decade knows, stocks aren’t a sure thing. There were plenty of years along the way that the market for large-company stocks dived, and if you invested all your money in a single stock — say, Enron — you could be wiped out. That’s called market risk.

Here’s the point: You almost certainly need to take some market risk if you want to grow your wealth and beat inflation over time. But you should also be wary of “guarantees” of a high return on an investment. If you’re earning more than the going rate on a T-bill, in other words anything over zero, you’re taking risk, and you should understand the extent of that risk before proceeding.

The time value of money

This boils down to a relatively simple proposition: that the dollar you get today is worth more than a dollar you are promised sometime in the future.

There are several reasons for this. One is the “bird in the hand” reality: the dollar you get today is real, but the dollar you are promised in the future likely will be worth less (because of inflation), or you might not get it at all (the person or company might renege on their promise to pay you, the person might die, or the company may cease operations). Also, the dollar you get today could be alternatively invested and potentially create more dollars in the future.

Turn this around, and you’ll see why lenders charge interest for loaning money — and why the interest rate depends on your creditworthiness. Lenders want to be compensated for the erosion in their dollars due to inflation, and for the risk of lending money to you.

The higher the perceived rate of future inflation and/or the more lenders doubt your promise to pay the money back, the more interest they’ll charge to compensate for the risk.

The miracle of compound interest

This is a concept best illustrated by example. Let’s say you give me a penny today, and promise to double the amount every day for a full month. How much money would you be giving me on the 31st day?

The answer: $10.7 million. Check it out:

Each day, the amount you pay me compounds and requires you to pay me more. At the beginning, the amounts are nominal, but by the end we’re talking serious money.

Of course, no one’s going to be able to double their money every day. But this concept explains how people who save relatively small amounts over the years can build rather substantial nest eggs. After a few decades, their actual contributions represent only a small part of their burgeoning wealth — it’s mostly their returns that are earning returns.

But this also illustrates how debts can quickly balloon out of control. If you’re paying interest, rather than incurring it, and you’re not diligent about paying off the finance charges in full every month, the unpaid amount will incur additional interest charges, increasing the total amount that you owe. This is why so many families who incur credit card debt eventually find themselves in trouble as the amounts they owe explode past their ability to pay.

There is a reason they call it interest.  It was meant to come in, rather than go out.

Summary

So, in summary, the rules about money we all need to know are:

1. There is a difference between needs and wants. Not even Donald Trump can buy everything they want in the mall.  Nor would he want to.

2. Scarcity makes the choice for you. We all have limited resources.  Know what you own, what you owe, what you earn and where it goes.

3. Get off the hedonic treadmill.  You do not need to buy into the Madison Avenue dream.  Just because you can does not mean you should.

4. Every money decision has a cost of of its own.  This is huge!  Opportunity cost needs to be considered before you purchase anything.  Indeed developing a power over purchase is priceless.

5. Supply and demand rules. Prices rise when more people want to buy than want to sell.  Prices drop when there are more sellers than buyers.  Be a contrarian – sell when others buy and buy when items are out of favor.

6. Do not throw good money after bad. Kenny Rogers was right. You’ve got to know when to hold ‘em and know when to fold ‘em.  Don’t let the fear of losing cause you to lose even more.

7. The role risk plays is significant. You almost certainly need to take some market risk if you want to grow your wealth and beat inflation over time. But beware of inordinately high guarantees, nothing is risk-free!

8. The Time Value of Money.  The sooner you are paid, the better because the dollar you get today is worth more than a dollar you are promised to receive in the future.

9. The Miracle of Compound Interest. Albert Einstein is credited with saying compound interest is ”the greatest mathematical discovery of all time”.  Enough said.

Begin to use these simple rules in your daily life and the chances of your financial situation improving will increase exponentially.