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Lessons to My Children Simple Life Lessons for Financial Success Wealth and Abundance By I. Mark Cohen J.D. LL.M CFP and Weston D. Burnett J.D. LL.M CFP Copyright 2010 I. Mark Cohen and Weston D. Burnett All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission of the publisher. Library of Congress Control Number 2010927895 ISBN 0-9802118-7-5 Books are available for special promotions and premiums. For details contact Special Markets LINX Corp. Box 613 Great Falls VA 22066 or e-mail specialmarketslinxcorp.com Book design by Paul Fitzgerald Editing by Sandra Gurvis Published by LINX LINX Corp. Box 613 Great Falls VA 22066 www.linxcorp.com Printed in the United States of America 1 Dedication To Our Wonderful Clients and Our Families including Grandparents Parents Wives Children and Grandchildren-to-be LESSONS TO MY CHILDREN 2 FOREWORD 3 Acknowledgements Our joint firms Navigator Wealth Management a financial services firm and Cohen and Burnett PC our law firm are blessed with the finest clients. They are intelligent successful in life and full of love. Serving them is a pleasure. Learning from them has enriched us in ways that lead us to want to pass on the lessons that we observed in them and in our own families. We wish to proudly acknowledge the parts played by those at Navigator Wealth Management and Cohen and Burnett PC. First and foremost is Susan Greco who moved us from talking about a book to the reality. Without her this book would still just be an idea waiting to be born. Nicci Yang is our consummate webmaster. Lawrence Solomon is our consummate financial expert who provided editorial and substantive suggestions. Andrew Vanderhoof Senior Associate Counsel provided constructive edits. To the rest of the staff of Navigator and Cohen Burnett PC thank you for helping us take care of our clients while freeing us to work on this book. We are very grateful to our publisher Steve Eunpu and his team at LINX for leading us expertly through the publishing process with such quality work and advice. And to Brigette Polmar we are thankful for her expert guidance on getting the word out about LTMC. As always we thank our families for all they have done for us. Our parents and grandparents taught us these lessons through their lives. Marks children Michael and Rachel and Wes children David Edward his fiance Alka Pradhan and Jennifer and her husband J.D. Beard contributed stories anecdotes and LESSONS TO MY CHILDREN 4 lessons learned throughout this book. Finally for Marks wife Kathy and Wes wife Barbara we owe a debt of gratitude for their patience and support. 5 TABLE OF CONTENTS Foreword Lessons From Their Children by Michael Cohen and David Burnett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction Financial Literacy Knowledge Is Wealth . . . . . . 13 Lesson 1 Pay Yourself First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Lesson 2 Patience Pays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Lesson 3 Write Yourself a Reality Check . . . . . . . . . . . . . . . . . . . . . . 35 Lesson 4 Have a Game Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Lesson 5 Limit Your Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Lesson 6 You Get What You Pay For . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Lesson 7 Balance Risk and Reward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Lesson 8 Learn Investing 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Lesson 9 Assemble Your Team of Experts . . . . . . . . . . . . . . . . . . . . . . 135 Lesson 10 Being Organized Pays Dividends . . . . . . . . . . . . . . . . . . 151 Lesson 11 Ask What Your Taxes Can Do For You . . . . . . . . . . . 165 Conclusion Make Your Money Work for You . . . . . . . . . . . . . . . . 177 About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 LESSONS TO MY CHILDREN 6 7 F O R E W O R D Lessons From Their Children By Michael Cohen and David Burnett Small things matter and big things have little beginnings. When our fathers the co-authors of this book Mark Cohen and Wes Burnett asked us to share some of our thoughts and experiences while they were writing this book on financial literacy and abundance we each began to think of the practical wisdom they shared with us over the years and can summarize it in a few words start now patience save and self-discipline. Start Now But you may hear yourself saying or thinking I know I should be doing this stuff but I cant possibly get started now. I am too busy and not quite making ends meet. I am buried in debt and bills. My paycheck is like rain in the desert it evaporates before it hits the ground I cant possibly start saving now. I will have to wait until I get a raise or a better job. But heres a fact of life. Regardless of how much or how little you earn you can reorganize your life to pretty much control where you money is going. It takes commitment to start some up-front work and about five minutes per day to stay organized and on budget. This one lesson start now is the most important of all because the information imparted in the Lessons of this book are useless in the absence of motivation. If you think your life it too hectic to start LESSONS TO MY CHILDREN 8 now how and when is that going to change There is never a convenient time for changes to quote John Lennon life is what happens while you are busy making other plans. Michaels Lessons Patience The first financial lesson I remember came to me when I was about five years old. I saw my friends on the bus playing with this red shiny monster-like doll with all sorts of cool features that put my Legos and Lincoln Logs to shame. I loved it. I had to have it. And I let my mom and dad know day and night that this was the toy and that I wanted it more than anything else. They either got the picture or just wanted to put an end to my incessant whining and took me to a toy store where lo and behold the toy was on the shelf with a price-tag that made my dad raise his eyebrow and ask me You really want this toy Michael Yes Lets see how much you want it in two weeks. I left the store empty-handed and disappointed. But two weeks later I was no longer pining for that toy and so I came away with an appreciation for how important it is to give yourself time to think about a purchase especially a major one before you go ahead and make it. I use this time to think about how much I really want the item whether its worth the money or whether I can get it or something comparable in other places for less money. The idea isnt to prevent me from buying it altogether but to make sure I give myself enough time to think about the issue and not let the gotta have it impulse win the day. FOREWORD 9 Save Basically my parents encouraged my sister and I to automatically put away at least 10 percent of whatever we earned. Its a simple principle but the benefits are manifold. First youre always saving something. Second you are becoming accustomed to working with a reduced budget. Third when you retire or cease to have a regular income youll have trained yourself to spend your savings more wisely and frugally because youve been spending something less than your full income all along. This lesson borders on another simple lesson little things add up or big things have small beginnings. The idea is that a little bit of savings if practiced regularly and diligently can over time amount to something significant. On the other hand a regular habit of buying Starbucks coffee will and probably in relatively short time also add up to a large amount of money. It works both ways. Self-Discipline You dont need to be a financial wizard to save but you do need self-discipline to have your money work for you. This means having the ability to continually hold oneself to a regimen plan or principle undistracted by opportunities for short-term gain or quick impulse satisfaction. It means thinking over the long term and keeping that vision even when its difficult not immediately helpful or frustrating. Self-discipline is a challenge but its important for finances and virtually any undertaking in life. Fundamentally self-discipline is learned not from books or pithy sayings but from diligent practice in everyday life. LESSONS TO MY CHILDREN 10 Davids Lessons Savings I was aware from a young age that it was more important to save money than to spend money since it was important to have savings for large future expenses such as college and down payments in particular and to one day provide for ones own children and grandchildren. Good Habits We grew up in an era before the American savings rate dipped below zero when at least in our family good financial habits were passed down from generation to generation and saving for the future was understood to be a duty to self and family. I was aware as a child that my parents and grandparents had selflessly provided for me financially by setting aside money during my entire childhood to be used later in life to pay for education and other things. Im grateful to my parents and grandparents for planning that far in advance and for making personal sacrifices to provide for the next generations. The money they saved and invested paid at least in part for high school college grad school law school and beyond. I was aware of those savings as a child because my parents reminded us of them and of the importance of saving. All About Money and Planning for the Future The way my parents spoke about those savings instilled in me a few important lessons 1 money is something to be saved rather than spent on luxuries or other unimportant things 2 savings are FOREWORD something to be invested for your own future and for the future of your family 3 I have my parents grandparents and great- grandparents to thank for giving me a good foundation in life both through education and affection and support but also by planning ahead financially and providing for me 4 one does not have to be rich or have a high income to save a lot and have that money accumulate over time due to the power of compounded earnings and interest 5 good financial habitsliving within ones means saving for the future thinking of your children and their children are something that can be passed on through the generations 6 spend money where it will maximize value such as on school where it will provide an excellent education and thereby help young people later in life and do not spend on less important things like luxury cars or wardrobes 7 money should be a means to an end. It was for us as children. I do not remember being terribly aware of money status or wealth as a child. I thank my parents for shielding me from a more commercial materialistic lifestyle. What was more important was being around family reading playing outside exercising doing well in school applying myself to Boy Scouts and Cub Scouts and other activities being around friends taking family vacations and holidays etc. It is our hope that our fathers words will provide some insight and ideas as you read these Lessons and embark upon your journey to financial security and effective money management. Michael Cohen age 21 is the son of author Mark Cohen and is a full time student at the College of William and Mary in Williamsburg VA. David Burnett age 32 is the son of author Wes Burnett and is an associate at a large New York law firm. 11