Friday, September 21, 2012

Survival Handobook

Each day brings more bad news.
Governments rip off taxpayers by collecting always new taxes while public officials uphold it on the media claiming we need these new “measures” to restart the economy. Read this Article on the Corriere della Sera. However, after this further strain on the taxpayers, those same hot shots are now telling us our effort was completely vain.

Isn’t that weird?
By heart you can tell they add insult to injury and I believe there are many people out there who share my same feelings on this “particular” issue. 
However if I decided to write this down, is because I wish to share my formula to crack the code to the government’ subtext, which the media in fact “wisely recommend” as important news.

In these pages you will read what no one would ever tell you. Out of two, one: our government officials are completely unfit to conduct a simple Economic Outlook or forecast (which I can definitely rule out) or worse, they are excellent depression promoters and major pessimism supporters. 
In order to understand what happened behind the scenes, we should try to re-read what they claimed on the media: first they recommended us to pay some new taxes because that was our only way out from the crisis, then they changed their mind saying those taxes we just paid were not able to solve the problem.

So we should had probably expect more taxes to pay in the near future. 
Although if you were able to read between the lines, you could have sensed something like this: the government wants all you’ve got and if you want to survive you have to pay it and after you paid it they ask you to pay more.
To me this sounds like a ransom drop gone wrong. Thing is, a ransom involves a kidnapping and a hostage. The kidnapper is the government and the hostages are represented by our lives and the taxes are the ransom we have to pay. Nonetheless this time the ransom drop went wrong because the government-kidnapper wanted more money from us. Indeed the amount we paid didn't fill the giant gap created by the crisis. 
The worst is every citizen understands his contribution was totally pointless compared to the magnitude of the crisis.
There’s a say: If you want to do away with someone you should break his means and will to resist. In practice you annihilate his own spirit.

That’s exactly what they’re trying to do. It’s like if a father is asking his son to run for a mile as fast as he can. Then, when he’s finished running and he’s gasping for breath, his father tells him his performance was absolutely unacceptable and that he’d better give up running.
Now I am asking you: while you are reading this, can you imagine whether all the taxes you have paid did not fill the gap to make up the deficit?

How big is your fear to lose what you got? Are you worried you won’t make it to make ends meet? How much worried? How would that kid had felt whether he was asked to run at his best once again? Maybe this time for ten miles? He would had run, going all out, or maybe he would had felt his strain being completely useless?

What you just read is the most effective way to generate great frustration, anxiety, panic and distress. People who suffered the hard blow they know it was completely useless and that they are due to pay even more. 
At the end of the day, the truth is somebody wants you to be poor and somebody gets richer by imposing on you. Plain, simple and terrible. This is the actual scenario and it’s happening right now. Unfortunately if things keep going the way they are, there’s a great chance the situation will collapse. We are now in a recession that could lead to a depression. Eventually the crime rate will skyrocket and the next step we’ll have riots in the streets. In practice the whole system would collapse. Don’t you think this sequence of events is already in progress? Unfortunately this is very similar to what happened in the 30’s right before WWII.
Nonetheless if I am here writing this, it’s because there’s a glimpse of hope. Back to the basis. Here I describe an exit strategy to face the crisis.
First of all is crucial to get your bearings. Like a boat in the middle of the storm without a GPS. Orientation. Where do you go? It is vital to have a compass which has to be cheap.

Time is key. Lehman Brothers the day before it crashed, was one of the major investment banks in the world. It took one day to collapse. From rags to riches in one day... this is today’s timing. You should know in advance what’s next. That’s why aligning yourself is so important. You need to position yourself in order to know if you are in the right direction or in the wrong path, in case, it’s important you know it right away.
In practice I define Orientation as the sum of many skills. Like in an airplane cockpit you have a lot of buttons, so in order to survive the crisis, you have to know the tools at your disposal. The Orientation tools are those that allow yourself to switch from visual flight to instrument flight. This works both for airplanes and for the people, whether you are a manager, a family father or an entrepreneur.
These tools don’t require much time to learn how use them, but it’s the most useful time you may spend learning something. It's about an hour a week or two hours a month. No one is so busy not to have 6 hours in a month.

The first tool is the Cash Flow. Many Economy books talk about it and they show it in a proper form. Although you won’t be able to find my idea of Cash Flow in the mainstream finance, but it works. Exactly, it works because it’s very simple. I am not here to make an essay about finance....there is plenty of places where you will find such textbooks. My only wish is to make this stuff useful also for a ten years kid. You don’t need an MBA to know what Cash Flow is. You just need common sense....(and please let me tell you that most of the financial big shots who made the crisis they completely miss what common sense is).The Cash Flow is a periodical activity you should update once a week. Usually I do it once a week, on Mondays. Cash Flow is an 18 months economic outlook. In practice you take a piece of paper (or an excel file) and you divide it in 5 columns then you write Date, Subject, +, -, =. Then under each of these columns you write down the expenses invoices that you have every week/month.

Like for example you’ll have food expenses, medical checks, the rent/loan rate and eventually you'll have some income too from a rent or a salary. So you start writing them down, following a temporal order by when and what you forecast to spend or to collect. In our case, I forecast to cash a salary of $2500 on the 27 of the current month, so I write down 09/27/2012 – Salary – $2500, I leave empty the “-” box then the balance of my money on the column “=”. Then I forecast to do a certain expense the day after, so I would write $600 on the column “-“ by indicating the day 28 of the current month. Then at the beginning of the following month I know I have my kid’s school rate deadline, so I stick it in the box “-“ and so on. The “=” column is very important because is the sum of what you have the day before and what you have today after considering the whole activity. For example if yesterday I had 0 and today I cash a $2500 salary, today I have 0+2500=2500. If tomorrow I have a $600 expense I will have 2500-600=1900. And so on for the coming 18 months. Obviously there also will be extraordinary expenses like Holidays and other unforeseen operations.
The most important thing is to keep the Cash flow active and steady. You will realize that if you fill it with perseverance, you will learn to perfectly forecast a cash deficit..... so that you can manage your money in a different way and in advance. Time needed: a hour a week.

The second tool is the Debt Analysis. A debt in its very nature isn’t bad nor good, because it’s just the use of cash that is not yours. What makes a debt useful or not, is the use you do of the money you borrow. Good debts are those you need to generate cash flows, bad debts are those which “eat” your cash flows. In particular, a useful debt is more an apartment loan that we give out for rent whose income quit of charges and taxes are superior to the loan cost. A bad loan for example is a lease to buy a sport car. However if the lease is to buy a car whose purpose is to help generate income (for example if you are a car dealer or a cab driver) then that debt is considered useful. So you know when a debt is useful depending on what you use the money for.

Here you need a sheet where you will draw down the columns: the bank that gave you the loan, number of contract, type of interest rate, (fixed, variable or compound) date of redemption, deadline terms, type of allowance (where applicable), purchased goods with the loan, rate price + allowance on a yearly basis, cash flow generated by the loan, difference between the cash flow produced and the yearly rate + loan allowance.

This last data provides us with the information if the loan is a financial weight or not.

You can update the sheet once a month or after every activity. Time needed: an hour a month.
In the end, it is important to systematically verify if the route is the one you expected, and this is the Tracking Ob. So I suggest you to write down your long-range objectives, 5 years, 3 years, 2 years and 1 year and for the coming months. This way I know where I wish to go. If you update this document every month you will have the chance to verify if you reached your monthly target or if what you did is coherent with the long-term objective. Time needed: an hour a month.
To get out of the crisis you have to know what your priorities are: economic, moral, environmental and familiar ones. So you have to know how to keep your honour steady.

Unfortunately the crisis leads to miss the accomplishment of your objectives and it might lead to a decadence of personal values. To avoid this to happen it’s fundamental to keep up your honour and dignity. This section is about the fundamental values.

The crisis is stressful. In order to prevail in times of crisis, you have to be aware the crisis could generate psychological suffering: pain, cold, headache, general sense of frustration, inadequacy, loss of self confidence.
Those who are in charge knew since their beginnings, these would have been the consequences of the crisis. They knew it, but they acted for good whatsoever. That’s why I say that financial derivatives and the uncontrolled use of debt are tools of mass destruction. If you know they want to destroy you, you can better resist.
So your Mission and your Fundamental Values are useful to not fall down to the dramatic consequences that somebody wants for you.
The crisis attacks the Emotional side too: so it’s possible to feel fear, anxiety, panic, rage, you can get into substance abuse and you can lose hope.
These emotional consequences have been foreseen by those who generated the crisis.
The crisis as we saw it, it might generates distress and that’s the main cause of many diseases. You just need to be aware of it. At this point it is fundamental to introduce in the battle your survival instinct because that’s the best antidote to all kind of struggle you may face.
The Mission, the Fundamental Values, the Awareness.
This is the strength you need to overcome the crisis distress.
In one word is the will to live and to survive.

Luigi Foscale

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