All Things Financial Planning Blog

Piece of the Pie

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In the 70’s sitcom show The Jefferson’s, George and Louise Jefferson are an African-American family who move from a working class neighborhood in Queens to a luxury apartment on Manhattan’s Upper East Side. The shows‘s theme song “Movin’ on Up” proudly states that “We finally got a piece of the pie.” And what a big pie it is.

According to the Federal Reserve1, the total net worth of U.S. households was approximately $56.8 trillion dollars. To put that number into perspective, if you were to make a pile of 56.8 trillion $1 bills, it would make it to the moon and back over 8 times. That is really “movin on up” and up and up.

So what is the size of your piece of pie? How do we move up to get a larger slice? According to a working paper by Edward Wolff ,2 the top 5% of U.S. households control 62% of all net worth. In fact, the top 20% of households control 85% of all net worth. This leaves the remaining 80% of all households to fight for the 15% of left over pie. Not much of a piece. So what are households to do?

The great news is that value is constantly being created and the pie gets bigger. Apple Computer and Google started in someone’s garage. Dell Computer was birthed from Michael Dell’s dorm room at the University of Texas. There are thousands of stories of wealth being created from little or nothing. Henry Ford’s family was simple farmers, Colonel Harland Sanders at 65 and on Social Security started selling chicken recipes. It is never too late to get started unless your view changes from the flowers to the roots.

My first three blog entries focused solely on creating a spending plan. The ultimate goal of a spending plan is to become aware of your where your hard earned money ends up: in your pocket or someone else’s. We discussed previously that it’s not what you make, but what you spend. Should M.C. Hammer have saved and invested his fortune instead of spending it down to nothing, his life would be very different today. Unless you are the winner of a large lottery jackpot or the lucky recipient of a major inheritance, wealth is created over time. This is where all your hard work on your spending plan will start to pay off.

When you think of it, there is a near limitless list of things to do with your positive cash flow. The usual suspects that come to mind: start or add to an existing retirement plan, create a stock portfolio, pay down outstanding debt, buy real estate, start or add to an emergency fund. These and other suggestions have become the din of the financial community. Again, nothing magic here. No secrets that haven’t already been shared in the millions of books, magazine articles, blog posts, TV interviews and sales brochures.

The question that needs to be answered first is what are your personal financial goals? Why are you saving in the first place? Are you a risk taker or do you savor a more secure course? Do you work for someone or are you an entrepreneur? You need to determine what size your piece of pie will be. The Chinese Philosopher Lao-tze stated “a journey of a thousand miles begins with a single step.” Wouldn’t it be a shame if after the first 700 miles of the journey you find you went in the wrong direction? For Colonel Harland Sanders, he had many journeys throughout his life that led him in the wrong direction until he discovered the right path to take. He never gave up, was persistent and ultimately reached his goals well past the age of the typical retiree.

How do you reach your goals? Start with Lao-tze’s single step. In this case the first step is a simple written plan. Grab a sheet of paper and your writing instrument of choice. Think of all the things you wish to accomplish both financially and personally. This does not have to be a formal outline or of any particular order. Just write as fast as the ideas come to you. Suffering from writer’s block? Think bigger, larger and create your world as if it contained no restrictions in time or money.

Once completed, review your masterpiece. Marvel at how creative you can be when your mind is free to contemplate possibilities without restrictions. Next, take your top five goals and prioritize them. Congratulations, you have taken your first step. Next month, we will focus on the second step of your journey and will give you the tools that will enable you to be movin’ on up! 

Took a whole lotta tryin’
Just to get up that hill.
Now we’re up in the big leagues,
Gettin’ our turn at bat.
Movin’ on up, To the east side.
We finally got a piece of the pie.

1 Flow of Funds Accounts of the United States, Fourth Quarter 2010
2 http://www.levyinstitute.org/pubs/wp_589.pdf

Ed GjertsenEdward Gjertsen II, CFP®
President
Mack Investment Securities, Inc.
Glenview, IL

Author: Edward W. Gjertsen II, CFP®

Edward W. Gjertsen II, CFP®, currently serves on the board of directors for the 24,000-member Financial Planning Association® (FPA®). He is vice president of Mack Investment Securities, Inc. in Glenview, Ill. and founder of The Mutual Bond Group, an organization dedicated to guide surviving spouses to financial independence. Gjertsen has been a member of FPA and its predecessor organization (International Association for Financial Planning) since 1996. Gjertsen served as FPA of Illinois chapter president and director of technology, and was awarded the FPA of Illinois's 2008 Heart of Financial Planning Distinguished Service Award. Gjertsen served as co-chair of the president/president-elect track for FPA Chapter Leaders Conference 2008, is a co-founder of the FPA diversity committee and will serve as 2010 diversity committee chair. Gjertsen holds a Bachelor of Science in economics from Illinois State University.

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