The biggest flaw of a hardly wealthy person is that they take their earnings at face value. If someone has a salary of $60,000, that doesn’t equate to a person having $60,000 of income. Yet, a hardly wealthy person would think just that. If this was your salary, what would say your monthly spending limit should be?

Breaking it Down

First of all, you can kiss 25% of your income good-bye to federal taxes. This doesn’t include the 8-10% gone to Social Security, Medicaid, State, and Local taxes. Conservatively, this leaves you with $40,200. That’s $3,350 at your disposal on a monthly basis. While it’s ideal that your debt and bills, including rent, only take up a third of your income, we’re well aware that this isn’t the case for many. So, let’s take away half of that. At least 10% should go towards savings, while another 10% should go towards investments (we’re currently a fan of directly buying metals, mainly silver, not stocks). Most Americans have a myriad of monthly personal expenses like hair stylists, barbers, nail technicians, masseuses, gym memberships, etc. that also add up quickly, and sometimes exceed income, causing the credit cards to come out. We haven’t begun talking about staples like food yet.

Let’s break it down according to monthly income:

$3,350
- $1,675 for bills, debt, and housing
- $168 for savings
- $168 for investments
=$1,339

This leaves $1,339 for food, transportation, personal expenses, and whatever needs an individual or family may need. The average hardly wealthy person goes shopping every weekend, spending several hundreds on clothing items, meaning an estimated $800 is gone before food, transportation, and personal expenses are even factored in. Let’s put that in perspective for a hardly wealthy person’s expenses. We call this the “Next Paycheck Syndrome”.

Next Paycheck Syndrome

$3,350

- $1,675 for bills, debt, and housing

- $800 for shopping

=$875

After a few nights of hanging with friends, clubbing, etc., you can take a couple of hundred away, leaving you with $675 left. This doesn’t factor in food, transportation, medication (which many Americans do), beauty expenses, personal indulgences. The hardly wealthy will justify the extra expenses for which their income doesn’t support by saying, “I’ll pay this $250 off with my next $3350 paycheck in two weeks.” However, the reality is that they’re going NET $250 in the hole every month, if they continue the same lifestyle. It leaves their NET worth actually looking like this.

$3,350

- $1,675 for bills, debt, and housing

- $800 for shopping

- $875 for lifestyle, food, transportation, etc.

- $250 for more lifestyle, needless spending

= -250

This yields a $3,000 annual loss.

It doesn’t matter what a hardly wealthy person earns. They generally outspend their income and justify it with their “next paycheck”. This is their thought pattern. What should month expenses look like? Well, we’re unable to tell each individual exactly what their cost profile looks like as each case must be tailored to one’s debt, marital status, household members, dependents, location, tax bracket, health, personal interests, etc. We can only give a general profile, with which we hope everyone is able to reasonably carve out their own “minority fortune” plan.

The Ideal Spending Scenario

$3,350

- $1,675 for bills, debt, and housing

- $168 for savings

- $168 for investments

- $669 for food, transportation, and necessities

- $500 for personal expenses, shopping

=$170

Notice that we intentionally did not spend the entire paycheck, as most hardly wealthy people do. There should always be money left over for emergency funds. If your bills and debt are relatively less than 50% of your income, that’s a good thing! We’d consider doubling down on savings and investment, making it 15-20% of your monthly income. Do not blindly make all of your accessible money personal expenses money.

How Did You Fare?

If you assumed that more than 50%, $30,000, of your salary was at your disposal, you fit in the hardly wealthy category. With that logic, after taxes, you’d barely have $10,000 allocated to bills, debt, food, transportation, etc. We see that as highly unrealistic, unless you’re still living with your parents debt-free. If you fell in this category, you definitely need to sit down and realistically evaluate your expenses. You should only be spending .33% daily of your salary towards personal purchases. If it’s higher than this, it’s time to prioritize. Instead of envisioning yourself with the latest Prada Bag or Louis Vuitton shoes of the season, envision yourself vacationing in the south of France debt free in twenty years.

If you assumed that you had between 30-50%, we’d say you have hardly wealthy inclinations, the higher your estimate was in this range. If you were closer to thirty, this was a very reasonable estimate. However, you probably have an assumption that an entire paycheck is to be spent, even if it isn’t necessarily putting you in debt. Thinking 40% and above should be your wakeup call to evaluate your relationship with money. The advice to the hardly wealthy applies here as well.

The reality is that you should be keeping your personal expenses somewhere between 20-30%. If you chose a percentage in this range, bravo! Most Americans do not think in this way, and you’re above the pack. Keep in mind that your own personal expenses dwindle with each dependent you may have.

Hopefully, after this, you can see why we roll our eyes at every Grade F hardly wealthy millionaire on our blog. They may have earned $6 million, but they certainly don’t have $6 million to spend. Yet, their jewelry and clothing purchases alone surpass 30% of their income before bills, debt, professional services, family, and friends expenses come into play. This on top of that fact that hardly wealthy hardly ever outright purchase their homes upfront. Don’t let this unfortunate behavior happen to you!

A big congrats is in order to Tyler Perry as he earned the title of being the highest paid man in entertainment by Forbes! From May 2010 to May 2011, he earned $130 million. His success is well warranted because he handles his business in a wealthy-elite fashion by doing the following:

Retaining ownership: Selling your soul (or ownership) is so rampant within the entertainment industry. Mostly big production companies sit at the top, dominating their territory and bullying the small players. Not only did Tyler Perry decide to swim with the big fish, he blindsided them by focusing on a niche that the other companies deemed unprofitable. Now he’s truly a force to be reckoned with.

Building His Brand: There’s so many points in his career where Tyler could have assumed that he had “made it” and just lived the high lifestyle. When he was just doing his Madea plays, he could have gotten overly content with his income and stuck with the same revenue model until it waned. However, Tyler set his sights bigger and bigger. After signing a movie deal with Lion Entertainment, he could have created attention-grabbing antics, proving how wealthy he was. After buying his own island, he could have went on and on about how he’s arrived to the world. Yet, what does Tyler do? He continues to invest money into his brand and into the brightest minority actors and actresses.

Sticking with His Values: So many dynamics change once an individual has had a taste of money and fame. If we had a nickel for everytime a hardly-wealthy celeb started feeling themselves and spent their way into the poorhouse, we’d have millions of dollars. With the constant pressure to change his artistic focus into other people’s ideals, Tyler has remained bullishly in his niche.

Pressure of Being a Wealthy Minority

When a minority attains wealth, they usually cannot act in the same manner as their white counterparts. There’s infinite amounts of pressure of them. They feel the need to “represent” and perpetuate the perceived wealthy lifestyle to the point that it compromises their true wealth. There’s the critics who feel that they should shift their mindset and career focus. There’s the family and friends who are financially dependent. Then there’s the competition who is trying to come for your title and wealth, since you’re an easy target. So, we applaud the fact that not only is Tyler Perry kicking butt and taking names, he’s gracefully doing so and not having embarrassing articles written about his antics posted on blogs around the web. Continue doing us proud, Tyler!!!

*Image courtesy of Celebrity Gossip

It’s not about how much you make. It’s about how much you hold onto. -Ephren Taylor

We saw this video recently on Mixergy, and couldn’t resist the temptation to post it over here and share with everyone. Ephren Taylor made history by becoming the youngest African American to become CEO of a publicly-held company. He is a major player in the tech world and has been creating highly profitable businesses since around the age of 16. He’s written two books: Creating Success from the Inside Out: Develop the Focus and Strategy to Uncover the Life You Want and The Elite Entrepreneur: How to Master the 7 Phases of Growth & Take Your Business from Pennies to Billions
, which will be released November 2nd. As if it couldn’t get any better, he works hard at being a great role model and gives back to his community. This guy is a Grade A Model and the epitome of minority fortune through and through. Check this lovely interview out. It ties in his background, entrepreneurship, trials, triumphs, insights, and more. It’s the best hour you could ever spend this weekend!

*If unable to see the video, go to Mixergy HERE:

Business Tips via Mixergy, home of the ambitious upstart!

We possibly have another celebrity with hardly-wealthy behavior on board. This time it’s R&B singer Ciara. She recently mentioned in Pride Magazine that she spends an exorbitant amount monthly on shoes to the tune of $11,000. That equates to about $132,000 annually on shoes that

A) decrease in value over time (liabilities)
B) go out of style after a season or two

She was quoted in the magazine saying the following:

“I just love shoes and go for what’s hot. I like everything from Louboutin and Dr Martens to Versace and Fendi…A person should always be able to afford to buy extravagant shoes,” she says. “It depends on the items, but, on an average shopping trip I probably spend a minimum of $1,200. It’s not that bad! On average, I will spend about $11,000 a month [on shoes].”

We can only take a stab at Ciara’s net worth. Celebrity Net Worth reports that it’s about $16 million dollars. However, once we take into account the typical fees deducted for lawyers, accountants, PR people, stylists, mortgages, bills, cars, clothing, etc., we’d be willing to bet that these eat deeply into her net worth.

Priority Check

If shoes are Ciara’s guilty pleasure, then we have no problem with that if…

1) She has been prioritizing her income, putting money towards things that she needs first (basic essentials).
2) She has diligently been investing a portion of her income towards investments and retirement accounts.
3) She has extended her passive income beyond the fickle music and fashion industry, investing in assets that bring her money: real estate, side businesses, stocks, mutual funds, etc.
4) She only uses the remaining money left towards her leisure spending.

If all of these things are in order, then there is no problem. On the other hand, if these credit card purchases are being paid for with credit, taking up a significant portion in her annual income, or thought of as wealth assets, then there is a big problem. Therefore, this post is not to bash Ciara but simply point to issues that we hope have already been considered.

Lesson to Learn

Just because a musician may earn over a million dollars a year (which rarely happens with these iron-clad contracts they naively sign), it doesn’t give them a pass to spend it rampantly because they will need this money to take care of them for life. Furthermore, we should look beyond our own lives and figure out how to make our wealth work for our families and future generations. They are not obligated to impress their friends with their earnings. They do not have to buy fancy cars just to keep up an image. They do not have to limit themselves to designer labels. They should also use their branding to get all the freebies and discounts as much as possible. Celebrities score designer freebies all the time because it counts as a marketing expense for these designer brands. Therefore, we’re hoping Ciara also uses this to her advantage. It’s not being cheap and ridiculous, it’s being savvy with money.

In the end, we know too little about Ciara’s finances to pass judgement. We sincerely hope all is well on the financial front. However, we aren’t pleased with the message insinuated that priorities with her money lie with materialistic things. It could be the fault of the magazine as well. However, let’s pull away from the boasting about our liability purchases and start bragging about our asset purchases. It applies to celebrities and regular individuals as well.

*Images courtesy of Love B Scott.

While one may think their brand new Jimmy Choo or Limited Edition Michael Jordans are an asset, they’ll have to think again. They may be artistically inspired, but they will yield no profits. We’re referring to art that doubles as an investment as well as décor. Ideally, it should be increasing in value over the years.

Currently, there is a window of opportunity in the art industry. Entrepreneur Magazine reports that “annual sales of contemporary art plunged 75 percent at Sotheby’s and Christie’s evening auctions in 2009, Bloomberg reported, down from $1.97 billion in 2008 and a record $2.4 billion in 2007”. That means contemporary art can be bought at attractive prices. However, every investment requires due diligence before you shell out the dollars to acquire it. Here’s a few things to keep in mind:

• Genuine Interest: It’s pointless to buy a piece of art that you hold absolutely no interest in. Art doesn’t double in worth overnight, meaning that you can expect to hold pieces for years or decades. You’d better at least have a great interest in your art, or you will have truly wasted your money.
• Background Search: If you’re looking to invest in a nice piece of art, you’ll want to conduct some research on the artist, their prior auction prices, demand, and prior shows.
• Attend reputable Auctions: If you’d like your hunt for valuable art to be simpler, consider attending auctions of reputable galleries such Sotheby’s and Christie’s. Reputable auctions won’t bother selling pieces that consist of little value.
• Avoid the Hype: Entrepreneur Magazine reports that galleries can earn up to 50% commission on art sales. Therefore, be wary of any praise that comes from an individual with vested interest in the piece. Also, look for the signs of a bubble. If the artist’s work has tripled in a short amount of time, hold off on buying as the opportunity to buy has passed if their work has gained popularity. Furthermore, you need to make sure the prices can sustain themselves in the way that a classic piece does. So, take your time and don’t be in a rush to buy any art regardless of the fancy bow packaged over it.

*Image courtesy of Artchive.

We once heard an individual describe stock market investing as “sophisticated gambling”. Depending on who you’re looking at, it may or may not be true. First off, let us give our definition of gambling. Gambling is when an individual is up against high odds of a return and facing an infinite range of unknowns. An example would be an individual who buys scratch off or lottery tickets in hopes of scoring a big win by chance of luck. The odds of them recouping their dollar are one in thousands and sometimes millions. This could indeed apply to some individuals who invest in the stock market too. Those who randomly choose stocks based on hype are gambling. Our definition of investing is when an individual purchases something after careful research and analysis in order to lower their risk and have a higher possibility of recouping the money made on their purchase. An example would be an individual who decides to purchase a commercial building at a bargain price after conducting due diligence, in belief that the building will generate a return within a certain amount of years. So, where do you fall?

Education

With every skill, there lies a barrier to entry. The greater the reward, the greater the learning curve. Investing in any arena is no different. Otherwise, everyone would be rich, right? As mundane as the task may be for some, if you can’t force yourself to do your due diligence and research, then you’ll want to refrain from participating until that knowledge is attained. Otherwise, you will find yourself gambling, with the odds against you.

Using a System

Investopedia notes that true investors have a system. The best investors on the planet have not traded on a whim system. They stuck to a system that tied together existing principles with their own discoveries. They all had the same thing to say: have a method, or you’ll drown. After educating yourself, you should take the techniques from Warren Buffet, Benjamin Graham, George Soros, and Peter Lynch to heart. You cannot go wrong by starting with the fundamentals used by the greatest investors in history.

Focusing on Wins

People who cannot take losses may want to avoid investing in higher risk markets. Realize that if the big investors and institutions take losses often, then you certainly will too. The key is to realizing it early and getting out when the signs present themselves. It’s all too often that we’ll hear of an investor who took a loss on an investment and refused to get out in hopes of recouping their loss. In the end, they lost the entire investment based on their ego and refusal to take the loss. Losses don’t equate to your capability. Remember that.

A Thin Line

Gambling and investing can often morph over into the other. There are seasoned poker players that live lavishly off their craft. There are also investment bankers with poor fundamentals. There are even wealthy sports players who foolishly gamble away their wealth in the casinos (*ahem* Antoine Walker). At times, we gamble with every aspect of our lives. The key is to reduce the potential for loss. The higher the odds, the more caution you’ll need to use. Many people make the mistake to think that by trading alone you are an investor. Without the proper education, system, or maturity, you are simply gambling. Therefore, always invest wisely.

You Answer: Do you think there’s a fine line between investing and gambling? Do you have any examples of such?

*Image courtesy of ERproductions Ltd.

In a downturn, there are two types of portfolio holders: ones that are happy and ones that are pissed. While one expects the majority to be ones that are pissed, that doesn’t mean that you have to be one of them! There are always stories told of individuals who acquired massive riches during a bearish economy. Others find refuge in more stable assets. Either way, there’s a way to save it and keep it sexy.

According to Forbes, the keys to a great portfolio in deflationary periods are cash, commodities, and oil. However, one has to be savvy in what they choose because all that glitters isn’t gold. Another point to keep in mind is buying when the prices are low. You don’t want to be caught in the midst of market hype. A resilient portfolio can sometimes be a lonely one.

The Fed has kept the interest rate low, and the Consumer Price Index has declined slightly at the beginning of the year. It means we’re currently dealing with mild deflation, which isn’t all that bad. However, it can lead to a lot of volatility in the market. The younger you are, the more risk you can stand to bare. So here are some ideas to keep in mind as you’re working to balance out your portfolio:

Cash & Treasuries

It sounds corny, but in a depression, cash is king. One might want to consider having a small emergency fund of survival cash in a disaster proof safe within the home. The second most secure thing next to cash is to buy is a short-term treasury. They’re safe but effective.

Gold

While now isn’t the best time to buy into gold since the market is currently overvalued, it’s something to keep in mind once the metal takes a fall. Gold keeps up pretty well with inflation and becomes extremely popular when the economy experiences a downturn. Alternatives to buying gold directly include holding a company or index fund loaded with gold operations with great earnings, management, and history.

High Quality, Dividend Earning Stocks

While they’re not the high-yielding return stocks that technology stocks can be, they prove to be a beacon of light in a bearish market. While other portfolio holders stare into a negative abyss, shareholders of high dividend stocks can at least have some income to look forward to receiving.

Inverse ETFs

While seasoned investors profit off falling stocks through fancy options, derivatives, hedging, shorting, and such, there’s another easier-to-digest method: inverse ETFs. These funds utilize fancy derivatives to profit off the losses in the market. ProShares Short (SH) is the example given as it works to yield the inverse results of a falling S&P 500, but one should still conduct their due diligence before jumping into any fund of any sort.

Oil

Oil can be extremely volatile, experiencing a sequence of highs and lows in short periods of time. The simplest thing to do in this case is buy when oil is bargain priced, which seasoned investors are currently buying right now with eyes on the future, and sell when there’s peak interest. Another option is to invest in a mutual fund or ETF with great allocation and satisfactory performance.

Utilizing either all of these or only a selection would put you far ahead of the pack. Best of all, you’d be preparing for the worst but hoping for the best. It would make all the difference when the next bear cycle comes around and people are walking around looking pissed. Meanwhile, you’d be looking ahead for your next bargain purchase while everyone else is distracted with their losses. That’s what we’d call Grade A Behavior!

Images courtesy of James Baigrie, Anthony Bradshaw, and Hal Bergman.

Wealth is one piece of the pie once you’ve achieved your monetary goals. However, there’s still more work to be done in order to sustain your wealth. The wealthy elite not only find ways to grow their wealth, but they also devise clever ways to keep it out of other people’s hands.

There’s one thing that the wealthy elite understand in terms of wealth protection, and it’s passive ownership. While you may have a large amount of wealth, it should not all actively be under your name. So while Donald Trump has filed for bankruptcy with his companies a few times, it doesn’t mean all of his actual assets were included in the picture. That’s the benefit of this wonderful concept known as wealth protection.

The Rockefellers

To this day no one truly knows the net worth of the Rockefellers. Why is that? It’s because the majority of their wealth is tied up in complex trusts and foundations that aren’t obligated to be reported to the public. These trusts are so complex that the Rockefellers enlisted a specialized team of lawyers to solely manage and protect their wealth. Hidden History reports:

The Rockefellers began hiding their wealth from the public and the tax collector -in trusts and foundations. As reported in the Washington Post: For two generations, the great fortune passed down by John D. has been fractionated and made more complex by increasing layers of trusts and closely held companies, where no public reports are required, none volunteered, and all inquiries politely rebuffed.

The Rockefellers invented a scheme, used by the super rich today, whereby the more money you appear to give away, the richer and more powerful you become. Through the help of captive politicians, guided by some bright boys in the family law offices, legislation was written and passed which would protect the Rockefellers and other elite super-rich from the repressive taxation they have foisted on everyone else. The key to this system is giving up ownership but retaining control. For example, most people don’t believe they really own something unless they retain title to it in their own name. The Rockefellers know this is a big mistake. Often it is better to have your assets owned by a trust or a foundation-which you control-than to have them in your own name.

As you can see, the wealthy elite take the concept of wealth protection extremely seriously. Once you make significant strides in your wealth journey, it’s time to consider a wealth protection strategy.

When is it time to protect my wealth?

Whenever you have enough wealth that you want to shield your wealth away from outsiders, it’s time. If you’re worried about an ex-spouse, clients, creditors, or someone undesirable coming from out of nowhere to claim a stake in your wealth, then you must take action to protect yourself. Remember, one lawsuit or unforeseen emergency could put a majority of your wealth at risk. As you climb the wealth ladder, the more exposed you will become.

Four Methods to Protect Your Wealth:

1.    Companies & Trusts: Restructure your wealth under legal entities that you control but aren’t personally liable for should something occur. The wealthy use trusts to seal their assets off to the world. They use their limited liability companies to purchase homes, assets, and investments.
2.    Diversification: It’s absolutely wise to never put all of your eggs in one basket. All of your income shouldn’t come from one source nor should you store all of your wealth in one place. As your wealth grows, it should be stored in multiple limited liability corporations, foundations, trusts, and banks.
3.    Offshore Banking: While we don’t recommend this method, we share it because it is indeed a method used by corporations and the wealthy elite alike. Offshore banks are utilized by the wealthy because these banks charge zero to minimal taxes and don’t report their client’s accounts. There are many big banks and politicians that are alleged to have offshore accounts including Bank of America and Dick Cheney. However, we’ll never know for sure unless regulation is passed to expose it because the information remains sealed shut.
4.    Help: Seek an advisor’s help. If you’re not familiar with wealth protection, then you must educate yourself and/or find a wealth protection advisor. Laws are constantly changing, and you want to ensure that your wealth is truly protected against worst-case scenarios.