Chapter One: A Simple Idea With a Potent Payoff
I started Wealth Watchers in 2002 on a shoestring budget and a deep belief in the concept. Just two years earlier, a bizarre incident on an airplane left me with a brain injury that forced me to start key parts of my life over from scratch. Where once I had been adept at handling my finances, I was suddenly like a child learning to ride a bicycle for the first time. This firsthand struggle gave me a new appreciation for how hard it can be to manage money, and what I learned along the way to my recovery inspired me to create Wealth Watchers.
At the beginning, I endured more meetings than I care to remember where the only attendees were me and a small group of friends and family members. But steadily, in surprising ways, the idea took off and gained enough traction to prove that my faith was justified. What began as a personal triumph has become a movement touching many hundreds of thousands of lives.
My book is a product of this movement and is meant to offer you a financial lifeline in our troubled times. All meaningful change is personal, and my hope is that this book will serve as a powerful introduction to a system that can and will change your financial life. In Jerry Maguire, one of my favorite movies, the obstinate football star Rod Tidwell, played wonderfully by Cuba Gooding, Jr., tells his agent Jerry Maguire, “Some dudes have the coin, but they’ll never have the kwan!” Tidwell explains that kwan means money but also love, respect, and community. It’s a package that makes life fulfilling and worth living. Money alone can’t buy it. I’ve come to believe that real wealth is about the whole package: financial security, integrity, love, family, thrift…the kwan. For me, Wealth Watchers is about the whole package.
If you follow the principles and use the tools of Wealth Watchers, you will be able to have and enjoy the things that you want no matter what your income may be. My belief is that you will relate to the stories of people who have struggled with their financial health and be inspired by the stories of the individuals who have followed the program and fulfilled their financial goals and dreams.
This isn’t a magic bullet or a get-rich-quick scheme. For me, the elegance of Wealth Watchers is in its simplicity and practicality. Our world has grown so large and complex that we are often overwhelmed by all the technology and media bombarding us. The endless flood of often misleading financial offerings, from credit products to untenable mortgages, has set off an unprecedented wave of financial disaster for naïve consumers. I can’t tell you how important it is for consumers to remember that we are now living in a world of Borrower Beware.
I grew up the daughter of a bank president in Naperville, Illinois, the same Chicago suburb where I continue to live. My father was a banker in a time when community banks really cared about the success of their customers and made their money by making successful loans and investing conservatively. My father’s approach had a big impact on me. I know there is no shortage of similar people in banking, even today, with strong ethics who care deeply for their customers’ success.
But what we’ve seen in recent years is that many of their employers are giant banking institutions that became unrecognizable in the deregulated free-for-all that has characterized the last decade. They seem to have “evil geniuses” working in their backrooms creating new ways to generate revenues from fees and penalties from the legions of customers who never read the small print. I constantly hear stories from students who have been hit with overdraft fees because they make the mistake of assuming that the balance shown on their ATM statement is correct. It’s especially ironic that debit cards were originally introduced into the marketplace to protect people from getting hit with overdraft fees because they wouldn’t be allowed to purchase an item if it would cause an overdraft. But somewhere along the line, it became a “courtesy” to honor the purchase, even if that meant someone could be hit with astronomically high overdraft fees. Ugh!!!
Part of my mission is to energize people to ask questions, insist on answers and perhaps move the bankers to rethink the products they offer. This all makes me think of those old Smith Barney television commercials with the actor John Houseman who stares intensely into the camera and says, “At Smith Barney, we make money the old-fashioned way….we EARN it!!” Wouldn’t it be wonderful if we could go back to the days when banks made profits based on solid loans and investments?
My career as an estate planning attorney has provided me with a close look at people’s financial lives. I’ve represented more than a thousand people who have had every kind of advantage and every kind of setback. Most of my clients are financially informed. But it’s surprising that so many have adult children who are terrible with money. I think that disconnect comes from a monumental gap in financial education. A vast majority of states in our country do not require any form of financial education in the classroom. How sad since there are many parents who feel ill equipped to teach financial education at home. I look at our older clients who are above average in terms of money management. They would have never taught their children to stay away from mortgages they couldn’t afford because they were still operating under the old rules of banking in which someone had to genuinely qualify for a loan. By the time they found out their children were in over their heads with unaffordable mortgages, it was too late to undo the damage. And most of our older clients wouldn’t have dreamed that their adult children would accumulate massive credit card debt. Again, by the time these parents found out their children were on the verge of bankruptcy, it was too late.
As you can tell, I’m passionate about education—especially since my husband is a high school teacher. And I don’t dream small dreams. I want Wealth Watchers to set off a global movement, creating a generation of informed and disciplined consumers who use these principles to build a financially stable and fulfilling life for themselves and their families. I want Wealth Watchers to get passed along, for us to teach its principles to our children and for our children to teach these to their children.
They say that timing is everything in life. I am reasonably certain that there hasn’t been a better time in recent memory for a book like Wealth Watchers. When times are flush and the money is flowing, either through real earned income or wagonloads of credit, people tend to throw caution to the wind and forget about financial discipline. Let’s face it, we Americans love our credit cards, believe shopping is a birthright and don’t pay a whole lot of attention to saving our money. But sometimes, we get a collective wake-up call that hits us like a bucket of ice water. And the most recent bucket has been very cold indeed. You don’t need me to provide a litany of the causes of America’s recent hard times. But a few facts will help establish what we’ve had to confront as a nation.
As I write this, America is facing its worst financial crisis since the Great Depression. Since late 2007, we have watched our collective financial well-being take a beating as a severe recession settled into place. Here are some of the grim facts: The Dow Jones Industrial Average was down a whopping 33.4% in 2008 and since October, 2007, Americans have lost a mind-boggling $9 trillion in wealth from their retirement accounts, investments, and home values.
My goal here isn’t to depress you but to suggest that there couldn’t be a better time to take control of our financial lives. This crisis is complex and has many points of origin but one thing really resonates for me when I look at all the bleak statistics: We are a nation that spends more money than we take in. As individuals, Americans are among the world’s worst savers and most in debt. In other words, many of us have simply abandoned personal financial discipline and paid a painful price for doing so.
Many people without any higher education have amassed large amounts of money by working hard and spending less money than they make. And I know people who have had every advantage, but spend more money than they make and so will never be secure. In my work as an estate attorney, I’ve discovered the philosophy that most wealthy people understand and live by–no matter what their level of education –that it’s not what you make, it’s what you spend that counts most.
Maybe the most alarming trend that I’ve seen lately and another reason that Wealth Watchers is so timely, is that so many people I’ve met are worried about how bad their children are with money. As I said, older parents would never have taught their children anything about the risks of using credit cards, or taking on mortgages that are unaffordable. When they were younger, there was no easy access to credit and people had to actually qualify for a home loan. And they were limited in the amount of money they could borrow. This generation paid cash for almost everything but their homes, and they took pride in paying off those mortgages.
They couldn’t have known that banks would one day entice people with easy credit, in much the same way that the tobacco industry made smoking so attractive. Now that credit card debt is skyrocketing and foreclosure rates and bankruptcies are breaking all kinds of records, we’re becoming painfully aware of the lapse in educating our children about the risks of borrowing. And the time has come to say enough.
The massive personal debt in our country isn’t just ruining the security of millions of families, it’s obliterating our values. And when you think of us as a national “family, we aren’t doing any better. The average family, like our government, now spends more than it takes in. The economic meltdown of the last few years was the direct result of this kind of myopic spending. Common sense tells us that we need to know how much money we can spend – and we need to spend less money than we have. Easier said than done – but it can be done. By embracing the Wealth Watchers philosophy that every day and every dollar make a difference, anyone can take that first step toward living smart. It may be overwhelming as is the first day of tackling any life changing initiative whether it’s dieting or giving up smoking. But there’s something about the beginning of a journey that offers hope, and every journey begins with the first step.
Consumer spending is the fuel for our country’s powerful economy and our material wealth has long been the envy of the world. But it seems as if the mantra of “spend, spend, spend” –even if it means maxing out multiple credit cards and living with mounting debt– has spawned a vast number of consumers who can’t afford their purchases. They waste their lives juggling various forms of debt. Personal bankruptcies have soared since 2007 and when you add the sub prime mortgage fiasco to the mix, it is not surprising that we’re in the midst of a financial disaster.
As our new president has told us, there is no easy way out of the current mess but I hope, by the time you read this, the economic picture will have taken a turn for the better. Economic trends historically move in cycles and great downturns are usually followed by periods of prosperity and stability. Nothing is guaranteed but we need to learn over and over again that FDR was at least nearly right: the only thing to fear is fear itself.
Because of course, there is something else to fear and that is not learning from our mistakes. Because regardless of the economic cycle we find ourselves in, we tend to ignore painful realities and slide back into the bad habits that got us into trouble in the first place. It’s not as if there hasn’t been a wave of personal finance advice over the past few decades. The magazines, websites, television and radio shows and books are brimming with advice but few seem to focus on the crucial issue of personal awareness and discipline. I’ve noticed, for example, that personal finance books tend to make many assumptions, that aren’t necessarily correct:
Those assumptions, of course, are based on the belief that most people, and the markets themselves, are financially stable. And nothing could be further from the truth. Though there has emerged in this country a growing group known as the mass affluent– people with enough socked away to be somewhere between comfortable and rich– most people are struggling to find a financial comfort zone in their lives. Many are a paycheck away from disaster and neither investing in the stock market nor working with investment counselors on long-range plans is within their realities. And regardless of where you stand financially, there’s a good chance you or someone close to you struggles constantly with how much it is reasonable to spend and how much debt it is reasonable to carry.
Wealth Watchers was born from my own painful experience with money. Its foundation is a premise of simplicity and transparency. In other words, if we don’t know how much we can spend without spending too much, we don’t know when to stop. Multiple studies have shown that people spend more using credit cards than cash—anywhere from 12 percent to 40 percent depending on which studies you read. A credit card puts a psychological distance between you and your money. The idea that you’ll pay the bill later removes the “feel” of money leaving your possession the way that cash does.
Let me be clear here. I am not against credit cards or other credit products. In today’s digital world, where more people shop online than in retail stores, credit products are indispensable. They are invaluable tools for managing our money if, and this is the big if, we are smart enough and careful enough to avoid making bad mistakes. Running up debt, paying astronomical interest rates, piling up expensive penalties, adding costly fees all make careless consumers their own worst enemies.
I don’t have to tell you how toxic money troubles can be. Financial difficulty is the leading cause of divorce.. If it is a challenge for one person to keep track of their spending, multiply that challenge by two people who must work from a shared and finite pot of money. If they aren’t sharing information, there are bound to be meltdowns. Aside from poor health, there is nothing like bad finances to turn your world upside down. I have been there and it is not a place I care to visit again.
The Wealth Watchers principles are designed to empower people to get organized, increase their understanding of their income, expenses and daily spending habits, help them create and maintain a budget, review their overall financial picture, set their financial goals, and in the end, reach one simple but essential calculation: Daily Disposable Income (DDI). If you track your income and spending on a daily basis, amazing things happen, not the least of which is that you gain a crystal clear vision of your true financial landscape.
It is not a coincidence that Wealth Watchers has a similar name and philosophy to Weight Watchers®. Indeed, Weight Watchers was my inspiration for the concept. A life-changing brain injury, which I will describe in Chapter Two, impaired my ability to handle my finances and lead to unwanted weight gain. It is also not a coincidence that our over-consumption of food and reliance on credit has ballooned at a similar rate. I went to Weight Watchers to help me drop the extra pounds and in one of those “light bulb” moments, I realized that the solution to both my weight and spending problems lay in the simple, daily discipline of keeping track.
I think of Wealth Watchers both as a daily personal discipline and as a global movement. Just as we have long recognized the need to fight obesity by promoting healthy diets in our society, we must make an effort to promote fiscal health as well.
As the statistics tell us, this is a daunting challenge. In 2005, the personal savings rate of Americans dipped near zero and has remained close to that ever since. The last time something like this happened was in the Great Depression. Back then, it took innovative legislation, government-funded works projects, and ultimately World War II to pull the country out of the financial disaster that had lasted more than a decade. I know there are people reading this who are shaking their heads saying that the personal savings rate is a misleading figure because it doesn’t take into account what people have (or, had!) invested in their retirement accounts or in home equity. But I’d like to ask those people how they would cover their living expenses if they lost a job, or a spouse, or developed a serious medical condition. I bet they would be wishing they also had a plain, old-fashioned savings account instead of having to drain their retirement accounts or gut their home equity.
The financial crisis had a swift impact on the savings rate. By May, 2009, the savings rate had risen to 4 percent and it is clear that Americans are now rethinking their behavior. It will be interesting to see whether this trend will continue or whether we’ll start spending more and saving less again when the economy rebounds. I hope this time, we’ll have learned from our past mistakes.
In our lives, we have seen shocking financial behavior–based on a toxic combination of greed, ignorance, and arrogance–create the sub-prime mortgage crisis that set off not just a national but a global recession. But even if we take all of the sludge out of the current financial crisis, when it comes right down to it, we have, each of us, forgotten how important it is to save money. I’ll leave it to the politicians and economists to point fingers and assign blame for the lack of oversight over the financial services industry. For me, the takeaway is all about personal responsibility, which is the foundation of Wealth Watchers. All the advances in the financial services industry—credit cards, ATMs, debit cards, online payment systems, Pay-Pal—have made the flow of money accessible, fast, and convenient. But these innovations have also created a thick wall between people’s spending habits and their awareness of what they can actually afford to spend. Listen to your car radio and you will inevitably hear an ad for consolidating credit card debt. Rampant credit card debt is like the obesity epidemic; we see the problem, we push for solutions but we feel like we are taking one step forward and two steps back.
The Wealth Watchers philosophy is about helping individuals set and track a daily goal for spending and saving. My mission, with both the concept and this book, is to help people develop life-long habits that embrace our core philosophy: “Every day and every dollar make a difference.”®
As I said, this current economic crisis can be a loud wake-up call for all of us. Winston Churchill once said, “The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.”
Despite our current economic hardships, I see unlimited opportunity for anyone who is willing to embrace the daily task of discipline and insight in their spending. Each day can make a tremendous difference—and the cumulative impact of the 365 days in a year can transform a life! What makes Wealth Watchers work is that will help you seize each day, not waiting until the end of the month or the end of the quarter, or the end of the year to change your life. I can’t guarantee you’ll find the kwan, but I can assure you that you’ll find the path to the kwan if you arm yourself for the daily journey.