It happens to everyone

Posted: Nov 20, 2006 12:00 AM

How many times have you kicked yourself around for apparently making the wrong decision on something that might have changed your life? My advice – give it up before you find yourself walking funny and being unable to sit in a normal way. Everybody has a story or two about the wrong decision, which by the way seemed right at the time. Recently I had lunch with an actor who talked about not wanting to take a part in a movie that sounded really dumb. He used his best reasoning power with the director and was let out of the film. Not only did the film become one of the most famous movies of the 20th century, but the part he didn't take launched a career that is still going on. My actor friend is still walking normally, as he believes that under the circumstances, he made the right choice and would do it again.

When I was a young man, I had an opportunity to meet and present a plan to a world famous athlete for marketing his image. I was given the go ahead and, together with the gentleman who brought me the deal, we sent out letters to prospective companies to see if they were interested in participating. One major company replied and one small company replied. We chose the smaller company, at the insistence of my new partner, and the rest is history. Nothing good came of it. Looking back, the major company was the right choice. We just didn't make it.

The father of one of my friends told me about a choice he had to make when he was first starting out in business. He sold a new company some equipment they needed and was offered a cash payment over a year or stock in the company. He took the cash and was quite pleased with his profit. During the next ten years he sold them more equipment and was paid on his terms, but was never offered stock again. The company quickly grew and became listed on the New York Stock Exchange. The stock would have been worth a fortune, but it didn't happen for him. He would always chuckle when telling the story because he became a wealthy entrepreneur anyway over the subsequent years.

Could I go on with these examples? Probably for the next week or so, but I think you are getting the picture. Whether it is a big monetary mistake or a small lifestyle choice we did or didn't make – and we have thought (albeit in the back of our mind) that maybe the other choice was right, there isn't anything we can do about it now except laugh or cry. I vote for laugh, because I am sure we all have cried enough over the path not taken.

Everyday I receive emails from people who are seeking my opinion about something in their financial lives that hopefully could change them forever, and every day I send them my thoughts. If I had to guess, I would say the vast majority pass on my advice and will be writing me for years to come about their situation. Is there something wrong with my advice? I don't think so. I do think that most people do not want to make the hard choices that will turn their life around financially and I understand that.

That is generally why they are in the situation they write about. They are still focusing on the problem and can't let go long enough to work on the solution.

The examples I gave earlier in the column are examples of those people, including myself, who will never forget their experience, but have moved on with life. I have a friend who had to travel some distance for a job interview and because of the distance, was given an extra day to get there and try out for the position. He took the extra day and when he got there, the job was filled. He had missed the chance to become the announcer for the most famous sports entertainment team in history. He is still an announcer and enjoying life, and I am sure, deep down, he wishes he had gotten there a day earlier. He hasn't spent the years focusing on his near opportunity for greatness, mainly because he is too busy living life.

If you can forget the problem, you will be able to find the solution. You can write for help, hire people to help, or work it out for yourself, because I have yet to get a letter from anyone that outlined a financial problem that is unsolvable. The answer is generally very simple and based on the premise that money is a rare resource and should be put to its highest and best use. In the world of finance, making the right choice with your money usually means having it work for you and keeping it from dissipating through excess interest charges. A better way of saying that is: Invest your money, don't spend it.

To be able to invest your money instead of spending it, you need to understand the difference. In my field, home mortgages, you have many choices to finance your house, and I will critique two of them: a 30 year fixed loan and a 15 year fixed.

A 30-year fixed loan, if kept for the entire 30 years, will almost always guarantee that you will pay interest in an amount greater than the original amount (If your interest rate is lower than 5.25%, it will be less than the original amount). This means that most people who borrow $200,000 will pay more than $200,000 in interest while repaying the loan over the 30 years. The way mortgage loans work, simple interest, you will have paid the majority of interest in the first fifteen to twenty years, depending on the rate. This also means that most of the loan is paid off in the last fifteen years, not the first fifteen years. So who should take this loan? Someone who needs maximum write off and is less concerned about building up his or her equity. Who shouldn't take this loan? People whose goals are reversed: who need to build up their equity and don't have the need or use for the tax write off from the interest.

A 15 year fixed loan is paid off in its entirety before most people with 30 year fixed loans have come close to paying off half of their loan. Most people who take 15 year loans pay about 1/2 the amount of the original loan in interest over the fifteen years.

Again, most of the interest is paid on this loan in the first seven to eight years. This loan is designed to build equity quickly and isn't as good a choice for someone who needs a maximum deduction from the interest paid on the loan.

When you break the choices down, it is easier to see which choice is right for you.

Then you can see what you need to do for yourself that perhaps you haven't been doing. The next question is how do you implement the solution. I have talked about that in earlier columns and will be talking about it in future columns, but not in this one. Stop lingering on the problem and start focusing on the solution and you will see amazing results.

As always, I am here to help.