Die Broke

Die Broke

By Stephen M. Pollan, America's most trusted financial advisor, and Mark Levine

A Radical, Four-Part Financial Plan to Restore Your Confidence, Increase Your Net Worth, And Afford You the Lifestyle of Your Dreams

Quit Today - No, don't tell your boss to shove it...at lest not out and loud. But in your head accept that from this day on you're a free agent whose number one workplace priority is your personal bottom line.

Pay Cash - Spending should be neither convenient nor painless. Saving, not spending, must become reflexive, and credit should be a rarely used tool for those few times (buying homes and cars) when paying cash is impossible.

Don't Retire - Your work life should be a journey up and down hills, rather than a climb up a sheer cliff that ends with a jump into the abyss.

Die Broke - It sounds terrifying, the one intolerable outcome to your financial life. And yet, in truth, dying broke might be your best option for a life without fear: fear of failure and privation now, fear of impoverishment in the long run.

"The last check you write should be to the undertaker - and it should bounce!"

Author Pollan says that conventional wisdom about your money is simple: Maximize your earnings, minimize your expenses, meet your obligations - and make sure that you have some sort of next egg to provide for your old age and to pass along to the kids.

Pollan says that the "conventional wisdom" is wrong. While your income might be rising, so are your mortgage, looming college expenses, and all of our household bills. Even with both spouses working, you can't see how you could care for aging parents or withstand a long stint of unemployment. And your own retirement at age 65 or even 75 hardly looks like a sure thing.

Pollan then says, "Well, guess what?" If you're going to survive with your peace of mind intact, you need to forget about the conventional wisdom and adopt a new goal: DIE BROKE.

In the book the authors show that wealth is to be spent while you're alive, either on yourself or your loved ones, and that every penny left unspent after you die is a failing. The authors declare that their book Die Broke is a cry for sanity. To die broke is not to live poorly, and every Die Broker will find here a comprehensive approach to career planning; saving; investing; buying insurance; providing for parent, children, and spouses; making charitable donations; paying for education; and handling the myriad other details of your financial life.

The authors then state that most financial books offer seemingly sensible advice that invariable leads you to the same anxiety-producing dead end. Die Broke is a way out of the worry. It is a lifelong plant that actually delivers not just peace of mind but the lifestyle of your dreams.

The Die Broke Plan

Initial conditions: 1- No time frame; 2- No age guides; 3- Each person is a unique human being; 4- Objectives of each phase have to be met before moving to the next phase.

The terms in bold are detailed in the book Die Broke. You must get this book to read the full philosophy of Die Broke (about 100 pages) and then how to implement the philosophy (about 200 pages) where are the bolded subjects below are described.

Phase One: Establishing Your Base Camp

If you’re going to live fully up to your means there are risks. Adequate preparation eliminates the risks. Stock up at base camp!

· Have enough cash on hand for paying three months worth of bills. Put this money in three-laddered certificates of deposit.

· Take out sufficient disability insurance and life insurance.

· Reexamine your health insurance coverage.

· Develop a new resume and start job hunting...now.

· Get rid of any credit card debt. Put the proceeds in a money market account needed for phase two.

· Prepare a durable power of attorney for health care and a living will.

· Prepare a will.

· Write down and sign a letter outlining what kind of funerals you and your spouse would want.

Move onto Phase Two only after you've completely stocked your base camp and have accumulated some cash in that money market account.

Phase Two: The Outbound Leg

· Find a good financial planner* to serve as your guide on the rest of our journey.

· Determine an asset allocation philosophy that fits your age and risk aversion. Die Broker's lean toward stocks, using mutual funds to mitigate some risk.

· Exploit every opportunity to invest in tax-deferred pensions.

· Consider home ownership. Then take out adequate homeowner's insurance and flood insurance or earthquake insurance. Consider umbrella liability insurance too.

· Considering college for kids? Determine where you will come up with the 6% of your qualified assets. Help them to come up with their own share.

· Keep job hunting. You won't be at the Phase Three level until you've reached your peak earning potential.

* My financial planner is Mark Youngs. See my Inner Circle page for more on Mark, including how to contact him.

Phase Three: Enjoying the View

· Now is the time to take those family vacations to Europe.

· Consider buying a summer, weekend, or vacation home.

· Perhaps use a home equity loan to finance home improvements, renovations, or additions to make your home fit your dreams.

· Perhaps begin gifting to help your child buy a home or start a business.

· Keep job hunting.

· If your value on the market has begun to drop, move on to Phase Four

Phase Four: Getting Help For the Return Leg

Now is when a Die Broker's years of saving and investing really pays off. Unlike traditionalists who will be looking to conserve their assets, you'll start turning them into lifelong income streams.

· Set up a planned gradual shift of your money into annuities.

· Keep working as long as you can.

· At 65 sign up for Medicare.

· Turn your existing health insurance into a Medigap plan.

· Contact Social Security.

· Investigate long-term care insurance policies.

· Consider pre-paying for your own funeral.

· Reexamine the gifting issue. If you can afford cash gifts, make them.

· When you sense that you'd like to or need to stop working completely you're ready for Phase Five.

Phase Five: The Home Stretch

With no earned income coming in, it's time to ensure that you Die Broke and get all you possibly can from your assets while you're alive to enjoy them.

· Look at charitable remainder trusts as a way to fully annuitize your savings and investments.

· Take out a reverse mortgage to ensure you get the most benefit from all that home equity you've built up.

· Continue gifting and spending, making sure you'll leave behind only enough to pay your bills.

· Make annual cash gifts to your children or help with your grandchildren's college tuition bills.

· If you haven't paid for your funeral, take out a whole life insurance policy for just enough to cover the costs.

With that last obligation taken care of, you can kick back and enjoy all the time you have left.

Some Parting Thoughts from the Authors

When tailoring this general outline to your own life, keep three things in mind.

First...

Share the risks you're taking with others. Insure whenever possible and invest through mutual funds.

Second...

Always focus on your personal income statement rather than your balance sheet. Traditionalists focus on their net worth; Die Broker's watch their income, their expenses, and their cash flow. Die Broker's grow their assets in order to be able to eventually turn them into larger streams of unearned income, not simply to increase their net worth. When a Die Broker dies, his net worth should be zero.

Third...

We can take a separate path but we went to end up in the same place. Life is not a race or a contest. Only look at how you measure to yourself (not to others). Do your best. Play the hand you're dealt the best you can. Have no regrets. A Die Broker's legacy will be intangible, but valuable beyond measure.