“You're About to Get Paid, Now What?” Part I

This is from a presentation I made at SESAC in June 2008

Every creative person has success in mind and usually with success comes money. It is a difficult transition to make when the big checks start coming in, and below is a road-map for people in that situation. Keep in mind that this is just my humble perspective.

GET A GOOD FINANCIAL TEAM
Why do you need a team? A good team provides peace of mind, and helps you prosper. You can focus on what you do best, which is creating or performing, without having to worry about paying the bills or the type of investments you need. I usually encourage people to get their money’s worth, as you get what you pay for. Having a cousin or a sibling handling money is a recipe for disaster, unless they are already proficient in that field. To those that claim to be able to do it themselves, I offer the “crazier of the two” analogy and that usually shuts them up. It goes as follows: Seems like of one us is crazy. Either I am crazy for having studied all these years and obtained these credentials when someone with no training can do my job, or you are crazy for thinking you can do as well as I without my training and experience. Which on of the two do you think makes sense? A good team has to be a good fit as you should feel comfortable dealing with and talking to them. Condescendence has no place in this field regardless of a client’s educational level or social background, but many stuffy traditional firms do not seem to get it. A fit also means the competencies of the firm you are considering. A CPA should not be doing your estate planning and an insurance agent should not be doing your taxes. Finally, one needs to assess how good that team is. This involves checking references, verifying credentials and talking to people they do business with. This is called due diligence, and many people tend to skip that step.

BE ACCOUNTABLE
Once one has a team in place, the hard part begins. I push my clients to get educated and become familiar with the various terminologies (such as Assets, Liabilities, Bonds, CDs, Stocks, etc…), how they’re being charged for products (commission or fee?), and other things such as their tax brackets and various rules. The more one knows, the better decisions they can make for themselves. It is also important to know the details. This means actually reading your statements to know where you stand financially and showing up to appointments; when there, please stay awake and be involved. I have seen it all from yawning and texting away during financial meetings, but the only one losing out is the client. All the other parties only need to point to that meeting in case anything goes wrong and say “but he/she was there!”, thus declining responsibility. Which leads me to my next point: Don’t be afraid to ask questions. It is your money so shame has no place in there. Questions such as “why this”? “How does it work”? “How long does it take to reach my goals”? These are pertinent questions which will help you remain accountable.

To be continued...

4 Levels: Where do you stand?

Great words to live by, especially in today's economy. Below are the 4 levels of wealth and what they mean, per an online source.

First Level of Wealth - Financial Stability

The first level of wealth is known as financial stability. Financial stability is achieved when you have accumulated enough liquid assets to cover your current expenses for a minimum of six months. You should have also bought life and health insurance to protect you and your family's lifestyle should you be permanently disabled or passed away suddenly. Spend at least 5 minutes to compute your current level of wealth to find out how long you can sustain your current lifestyle without working. This is calculated by taking your total liquid assets divided by your monthly expenses less your current passive income. If you have not achieved financial stability, you would need to do the following:

1. You must aim to clear off your outstanding debts to minimize the negative cash assets that are taking a cut off your monthly salary.

2. Save at least 10-20% of your monthly income. This is on top of any mandatory saving plans such as 401K. You should save up at least 3 times your monthly salary before thinking about investing your savings. This is to make sure that you have sufficient cashflow to handle emergencies.

3. Book an appointment with a financial advisor to have a consultation on what kind of life insurance policy is more suitable for you. This is to cover you and your family in the event that you cannot continue working due to disabilities or any other unfortunate events.

Second Level of Wealth - Additional Passive Income

The second level wealth will be achieved when you accumulate passive income to sustain your most basic expenses. This means that you can choose not to work and yet have enough money to pay off your mortgage, daily food and transportation allowance as well as interest for all your loans and your insurance premiums. Any income that you gained from working will be channeled entirely into investment.

Third Level of Wealth - Financial Freedom

The third level of wealth would be achieving financial freedom. This means that you can sustain your CURRENT lifestyle without working again. You have accumulated enough passive income to sustain your current lifestyle indefinitely.

Fourth Level of Wealth - Financial Abundance

The fourth level of wealth would be attained when you have enough passive income to sustain your DESIRED lifestyle without working indefinitely. The amount of time that you take to achieve financial abundance from financial freedom depends how the gap between your current lifestyle from your desired lifestyle.

As you can see, to achieve higher level of financial wealth, it is very important to save a portion of your income and channel it into generating passive income. I am pretty sure most people are working hard to achieve or maintain level 1. Let's just keep the other levels in mind for that glorious day when the Global economy improves.

Enjoy!

Source

Warmed-Over Myths of Black Wealth

Newsflash from CNBC's NEWBOs: If you're black and can't rap or play ball, forget about making it in America.
By Alfred Edmond, Jr. - February 27, 2009

It’s 2009 and a black man is President of the United States of America. So why is CNBC still programming like it’s 1989 and the only way black Americans can hope to achieve wealth is via a sports contract or a record deal? CNBC’s NEWBOs: The Rise of America’s New Black Overclass, a special which aired last night, is wrong on so many levels. But its biggest disservice is that it is based on two stereotypical myths about black wealth that are just not supported by the facts:
The best–and even the only–avenue to real wealth for black Americans are through sports and entertainment. The majority of the “NEWBOs” featured on the program hit, run and jump for a living (the NFL’s Terrell Owens, Major League Baseball’s Torii Hunter and the NBA’s LeBron James) or perform on stage and recordings (Cash Money Records co-partner and rapper Bryan “Baby” Williams, contemporary gospel artist Kirk Franklin). An exception is RLJ Development CEO and billionaire Robert L. Johnson—the only subject featured who can make a credible claim to being “uber-wealthy.” Of course, he made his fortune by creating and marketing a cable channel featuring black people singing, dancing and rapping. (Oh, and unless you’re Oprah Winfrey, black women need not apply—apparently there are no female NEWBOs.)
Black athletes and entertainers are among the richest black Americans and among the nation’s wealthiest Americans. The problem with this is that NEWBOs primarily focuses on the gross income of the subjects. However, the real measure of wealth is not gross income, but net worth—a person’s assets minus their liabilities. (Black Enterprise readers are familiar with the net worth tables accompanying our monthly Wealth for Life profiles.) Lee Hawkins, the host/interviewer of NEWBOs and a Wall Street Journal reporter who’s authored a forthcoming book about this group, goes to great pains to hype the fact that “black athletes in the NFL, NBA and Major League Baseball and the 20 highest paid hip-hop entrepreneurs” earn a combined total of $4.5 billion dollars. He quickly moves past the fact that this is the combined income of more than 1,000 people, and never mentions that the combined net worth—the real wealth—of this group would be a small fraction of that total. Athletes and entertainers earn good money—but they don’t even come close to being uber-wealthy, the term Hawkins repeatedly uses without ever defining what he actually means when he says it.
Aren’t these the stereotypes and false messages we’ve spent much of the past 40 years trying to deprogram from American thinking, and black American thinking in particular? In the age of Obama, why are we still telling each other—and worse, our children—that our best chance to become wealthy in America is through sports and entertainment? Especially when anyone who understands wealth and the American economy, as CNBC and Hawkins surely do, knows that is not true? Ken Fisher’s book The Ten Roads to Riches: The Way The Wealthy Got There (And How You Can Too!), correctly identifies sports and entertainment as the most difficult way to achieve serious wealth, with the longest odds. The primary reasons to pursue a career in sports or entertainment is because you are good at it, and you like to do it—not because you have more than a prayer of ending up with Bob Johnson money. There are no athletes or entertainers on the most recent Forbes 400 list of the wealthiest Americans. (You needed a net worth of at least $1.3 billion to make the most recent list. Their combined net worth? $1.57 trillion.) I’ve personally come to suspect that black people are intentionally steered toward sports and entertainment to keep us away from the real sources of wealth in America.
Forget the fact that, as a television interviewer, Hawkins is a great newspaper journalist. Forget that there is nothing remotely new about a tiny percentage of black people from poor backgrounds suddenly achieving fame and fortune in sports and entertainment, often fulfilling the role of financial saviors for entire extended families. Forget the fact that there is nothing unusual about most of these NEWBOs being under the age of 40: sports and entertainment are youth-oriented industries—it’s extremely rare for a recording artist or athlete to maintain his or her earning power past the age of 35. (By the way, Bob Johnson is 62.) And don’t even get me started on the poor taste, if not outright insensitivity, of Hawkins focusing—as millions of Americans struggle through a devastating economic crisis—on how his subjects spend their money. (How many black kids could be put through college on the half-million dollars Cash Money’s Williams told Hawkins that his grill is worth? Williams has the right to spend his money as he pleases. But what’s the point of Hawkins celebrating it? Why is it that when wealthy whites are interviewed, the focus is on how they made their money, but wealthy blacks are usually stereotypically profiled as profligate spenders? When did CNBC start airing MTV Cribs?)
To be fair, to really identify the wealthiest black Americans would take a lot of digging—after all, truly wealthy black people, (including many of the corporate CEOs, Wall Street executives and owners of Black Enterprise 100s companies featured in Black Enterprise) are not eager to draw attention to their wealth. They’re quite happy to let Baby Williams and Terrell Owens get all the attention—and aggravation—that comes when people realize you’re earning big money. But isn’t that the kind of thorough, hard-hitting, uncompromising financial reporting CNBC is supposed to be known for?
NEWBOs is of the kind of check-the-box, toss-the-reporting-standards programming that black Americans have come to expect—and too often, regret—starting around the King Holiday in January through the month of February. To me, it feels like the show was created to serve two purposes: as a barely disguised infomercial for Hawkins’ book and a quick and easy way to for CNBC to offer programming for Black History Month (whew—made it with two days to spare!).
Sorry CNBC—that’s not good enough. And no using the flack you’re going to get, and deservedly so, for lowering the CNBC bar with NEWBOs as an excuse to do no programming about black people at all.

Jewelry in a portfolio Part II

The second and most important problem they face is the issue of self-control. I see artists go back again and again to the same jewelers that have no problem extending them a short term credit. I guess jewelers are the new dealers. A jeweler called one day complaining about the $200,000 a client owed him, and then finished the conversation by saying “tell him I have his $50,000 chain ready for pick up”. Now if that’s not some enabler for you, I don’t know what is. Ask any business manager and they’ll tell you that it is a constant battle to keep clients out of those stores. Unfortunately, the jewelers and their lending practices make it hard to succeed. You know you have a real problem when you’re worth a couple of millions and your jewelry portfolio represents half of your net worth (true story). Not stocks, bonds or real estate, but a collection of chains, people! The main reason we fight for restrain is that people end up with an unbalanced level of jewelry in their portfolio. Having too much jewelry takes away from money that could be invested in income producing investments like real estate or stocks. True, diamonds do not lose value, but collecting them leaves money on the table.

As I stated earlier, investing in jewelry is not a bad move if done right. Real wealthy individuals do so by buying pieces that are clearly authenticated, having them appraised before the purchase and focusing on the quality of the stones. However, most hip hop celebrities are not ready for all that and do not shop at Cartier or Boucheron. I am not a big fan of jewelry myself, but my advice to current and future buyers would be:
· One, to pay more attention to the products they’re buying. For the money being spent, they need to be more careful.
· Secondly, they need to make sure they don’t just buy jewelry and nothing else. I have yet to see a pendant pay dividends.
· Finally, they need to invest in some classic pieces if they can’t stay out of the stores. The ones that do it right do like Jay-Z or Sean “Puffy” Combs and focus on limited edition timepieces. They are expensive but their exclusivity make them a sure bet for future appreciation, unlike a typical chain or pendant. Even better, they do look just as good! If you’re not into watches, buy your legal spouse (emphasis on legal) some pieces from major jewelry houses to even-out the quality of your portfolio. Take my advice: they resell way better in times of crisis.

Jewelry in a portfolio Part I

Nowadays, flashing expensive jewelry is a pre-requisite for every hip-hop artist or athlete. I have seen purchases ranging from a couple of thousands to several hundred thousands of dollars. It was actually one of the most feared invoices I could receive, similar to opening your cell phone bill when you know you’ve spent way too much time during peak time. The reality is, when done wisely, purchasing jewelry can be a good and alternative way to invest. Unfortunately, most rappers and ballers I know tend to over-do it.

Purchasing jewelry is part of the bragging mentality prevalent in hip-hop nowadays. However, it would be too simplistic to limit it to a desire to impress others. Let’s admit it: it sure feels good to wear a nice, glimmering piece of jewelry showcasing what your hard work allowed you to purchase. It’s even empowering to be able to splurge on an item equivalent to a down-payment on a small house.
Unfortunately, a lot of up and coming or even established celebrities go at it all wrong. The thing is, being able to afford the expensive pieces does not make one an expert. I remember a client who would spend tens of thousands on pieces for himself and his entourage, and have them shipped overnight to our office. Lo and behold, most of those pieces came in with loose stones or misaligned ones. Do you think he cared? More often than not, he would keep the pieces instead of having to wait for a lengthy readjustment of the stones.

Which leads me to the first pitfall: quality. Not unlike my client mentioned above, most of those celebrities care more about size, custom design and number of diamonds than the actual quality of the finished product. A poorly designed piece of jewelry is only worth the value of the precious metal or stones it contains, which is exactly what they can expect to resell for in times of needs. Add to that the fact that black celebrities usually like ultra-customized pieces, and the resell value is even lower. I don’t blame people for not wanting to walk around with a pendant spelling someone else’s name or crew affiliation, because you best believe they’ll look crazy. Let’s not even get started on the quality of the diamonds themselves, as I have yet to hear a client throw a tantrum based on the lack of “clarity” of the stones they received. My point is, quality is an underlying issue that most clients take lightly since appearance trumps reality when it comes to jewelry: as long as they know it’s real diamond, it cost a lot, and people can tell it’s real, the rest doesn’t really matter.

Millionaire ranks shrink

According to a survey by the Spectrem Group, the number of US millionaire households dropped 27% in 2008 to level not seen since 2003. There are now 6.7 million people with a net worth exceeding $1 million, down from 9.2 million a year ago. The number of penta-millionaires ($5 million and up) fell 28% to 840,000 nationwide. This is mostly due to the widespread losses among the various asset classes available to millionaires, with stocks, real estate and hedge funds recording lower or even negative returns. Similar losses are apparent among the mass affluent, where a 28% drop in the number of household worth $500,000 or more (excluding their primary residence) now stands at 11.3 million as opposed to 15.7 million in 2007.

From my experience, I can safely infer that the drop in the number of African American millionaires is even more pronounced. This is due to our propensity to invest in limited asset classes and our lack of access to sophisticated alternative forms of investments (i.e hedge funds, private equity, venture capital, commodities, art, antiques, etc...). Many recent black millionaires I have encountered reached that level through real estate investments, and we know how that sector turned out.

It is now a time for us to rethink our relationship with money and our approach to safeguarding it. I tend to come back to alternative investments (alternative being the key word here) as they provide a way for one to diversify a portfolio. When the stock market is up 10-12%, hedge funds typically return twice as much, even after fees. And when the stock market lost 40% over the past year, hedge funds were down only half as much on average. Using a financial formula called the rule of 72, a $1 million dollar investment in an alternative product doubles in value over 3 and 1/2 years at 20%, while it takes 7 years to reach the same result at 10% in the stock market. You do the math!

Most people shy away from that which they do not understand, but that is not an excuse. As a group, we need to get more educated about our options and take advantage of the greater returns that are out there, besides those provided by stocks, bonds or cash.