How The 'Balanced Living System' Was Created
In 1992 when I started working in the mortgage industry, I had an MBA and 10 years of small business and corporate experience negotiating leases, analyzing financial statements, working sales territories, and helping investors.
As I entered the industry, it didn't take long before I started noticing patterns in the way people handled their finances, specifically the tangent parts associated with money (retirement, portfolios, insurance, budgets etc.). One pattern in particular shaped my thoughts; during refinance cycles, clients were often in need of getting their debt under control. My unique background gave me a strong insight into how cash flow worked.
It seems my entire life's story uniquely positioned me with a rich source of knowledge and experiences so that advising clients on cash flow and budgeting priorities became a natural part of my practice. Within one short refinance cycle I experienced a Tipping Point: the same clients that I helped during the last cycle were back with the same problem. All the wonderful advice and shared knowledge escaped actual practice within their lives.
It was very frustrating and I wanted to know why? I started my search for a better way and the Balanced Living System is the result of that research.
W. Edwards Deming, The Assembly Line & Quality Control That Isn't!
The best example of what I learned is held within W. Edwards Deming's teachings. Picture a long assembly line in an automobile manufacturing plant. We are in the USA and Ralph is a 20-year veteran of the line. He is over Quality Control and when Ralph sees a defective part, he pulls the part and throws it in the scrap pile.
The scrap pile is melted down and sold as another product at a reduced profit margin or reworked into an acceptable part. Ralph receives awards for addressing this terrible symptom: defective parts. Ralph knows that his work is important because only good parts make it to the final assembly of the product.
Deming taught a different model, rather than throwing the defective part out, he argued that nothing has been done to correct the defect from happening again. Toyota is Deming's thesis project. When a defective part is discovered on a Toyota line, the line worker is given the authority to stop the entire line where a discovery process is undertaken to learn the cause of the problem so it never happens again. And what happens to the line worker? He/she is rewarded.
Ask yourself, all things being equal; which is more likely to be running past 200,000 miles, a Toyota or a Ford? Throw out any patriotism at this point. Why are Toyotas more reliable than Fords? It's simple; Toyota fixes the problem and Ford fixes the symptom.
Parenting and Finances: Do We Use The Same Methods?
When I first learned this concept back in 1990, I wondered if this could be applied to me in my life. For example, parents who have their middle child go astray don't throw their middle child away into the scrap heap and discount them. What good parent wouldn't ask themselves lots of questions? What went wrong? What could be done differently? Their middle child isn't worth less because there is a defect in the product. Any good parent would also look into the mirror with those questions.
So why do people continue to reproduce their financial problems, which look similar to their parent's financial problems? When conducting a mortgage application, the mortgage professional learns a lot about the client: their credit history, income, debt, job history and usually add-ons about the family dynamics that can span up to 3 generations.
Here is what I observed. The respective income levels in our society doesn't matter, everyone wants the same things. They are summed up in two desires:
The Parable of the Bicycle
I then observed how they were going about it. Each family unit would compartmentalize their approach to their goals. Nothing was integrated. In other words, it's like they want a new bicycle, so they buy the bike at the store but assembly is required. So all the parts are laid out on the garage floor and left there hoping that one-day the parts will somehow come together in the form of a bike.
This is what I saw on the floor (metaphorically speaking)...
Now somehow, they were to all miraculously come together and work synergistically toward a wonderful retirement and family life with more time during the present to spend how they want. This is like having the best handlebars money can buy, but without the rest of the bike properly assembled, the riding experience won't quite measure up to expectations.
There are two solutions to this dilemma:
Retirement And The Bicycle
When it comes to retirement, looking through the lenses of my clients, this is how they saw preparing for Retirement:
Everything revolved around investing money, primarily in the stock market using a 401k and/or Stock Broker or some Financial Advisor. The entire focus was singular and compartmentalized.
By focusing on the rate of return in their portfolio, they missed the many crucial elements needed to prepare for retirement. In fact, this focus became a problem. It was like riding a unicycle in the Tour de France (over 2,000 miles of steep hills and unpredictable weather). It's possible to finish but is it the best strategy?
During the 2000-2003 stock market corrections, Americans lost billions of dollars toward their retirement. Dishonest accountants and other professionals within organizations such as Enron and World Com hurt many more people.
When it came to mortgages, the same symptomatic myopia existed in their lenses. All they saw was interest rates and closing costs with no thought or reason to their long-term plans, if they even existed.
Financial Frustrations
Financial frustrations come in many forms: The current mortgage meltdown, a divorce, a severe breach of a family budget without the consent of the spouse, spending habits out of control, or a breakdown in communication between husband and wife. There is no one problem that ruins Americans, just like there is no one solution to the problem. It's a function of the system.
W. Edwards Deming's said: "94% of all failure is a systems malfunction." This is the key to successful retirement preparation and the genesis of The Balanced Living System. It made more sense to integrate the component parts into a system that allows all the various functions of retirement preparation to work on the same page. My clients were going different directions with their future and rarely had any correlation between their actions and their future goals.
The Balanced Living System
The Balanced Living System is a process designed to bring all the parts together synergistically. Each component part is integral to the success of the whole and some of our unique parts have, to my knowledge, never been addressed in the context of retirement preparation. For example:
NOW! Whether you have zero cash flow or so much you don't know what to do, the proper preparation starts with communication. We draw a blue print before we pour the foundation. For the past two decades I've witnessed my clients run their finances from the 2nd floor with little or no foundation underneath them.
What Is The #1 Cause Of Marital Discord?
Observing hundreds of couples work through their mortgage; I learned one of the most important aspects of preparing for retirement is in the communication sector. The number one cause of marital discord is arguably over money. I say arguably because I don't agree. Some experts argue that sex is the actual cause and money is a close second. Again I disagree.
The number one cause of marital discord is a lack of communication according. This means most couples really do not know how to communicate about sensitive subjects. Why are religion and politics taboo in social circles? This has always puzzled and frustrated me. My conclusion is because we, as a people, have lost the ability to hold a productive discussion about weighty matters without emotions and hard feelings.
There is precious little teaching surrounding these two vital subjects, money and communicating. When I realized this, I found the system's malfunction I'd been looking for. I metaphorically stopped the assembly line in my office until we could find a solution to the financial woes of my clients. The Balanced Living System is that solution. The assembly line is rolling again within our office because we fixed the cause rather than the symptom and we have a solution to avoid the symptoms recurring.
The Balanced Living Paradigm
Here is the paradigm through which our Balanced Living System was developed.
Notice how Money and The Team are connected through the same section of the pie: Communication. This is the missing component to financial success in any business or family entity. Searching for the best interest rate, the lowest closing costs, the highest rate of return or the lowest price is putting the cart before the horse. It takes too much attention away from the important factors of retirement preparation and allows emotion to hold greater sway over your future.
The Heart vs. The Mind
Probably the biggest insight over the past 16 plus years dealing with clients is their propensity to make financial decisions from the heart rather than from the mind. Our Communications Pyramid™, along with other tools, addresses the problem.
I'll never forget an experience some years ago that illustrates the impact that emotion plays in the retirement process. Ralph and Gertie came in for some financial assistance. As we discussed their goals and their retirement, we decided on a certain financial strategy. At least Gertie and I thought we had decided. Ralph wanted a boat not a retirement. The money was in his sight and so was the boat. The retirement could and would wait.
Here is an excerpt out of a recent article I wrote for the local paper:
In 1491, most people still believed that the world was flat. No level of reasoning could convince them otherwise. They were sure of this absolute fact! If you were to interview the citizens on the streets of Spain or Portugal during those days and suggest otherwise, you would be laughed at. Using reason and logic would avail you very little. If you were to request factual evidence of a flat world with a sudden drop off at the end of the ocean, rather than an articulate barrage of factoids and logic, you would receive an emotional diatribe of opinions based upon false traditions.
Prior to the 1860s germs did not exist. They only appeared on the scene after the noted French scientist, Louis Pasteur proved their reality.
In the above stories, it was clear after the matter, that those holding onto their traditions "Did not know what they did not know!"
On the surface you may be thinking I'm being a little rough on Ralph for wanting a little pleasure during this stage in his life and you might be right, however, what if Ralph could have his cake and eat it too? There was a way to have both if Ralph would have focused a little more with his mind rather than a complete focus with his heart.
I wish Ralph and Gertie were an isolated experience but they are not. So many decisions are made using an emotional filter rather than a logical one.
The Communication Pie
Each portion of the pie has its own component parts. The difference is in the communication pie. It holds everything together. By focusing energy on the intangible, it becomes a bridge to integrating very important aspects of retirement preparation. This was made clear when I would ask couples to provide a working budget for me in order to assist them with their debt burden.
It was as if I swore at them. The word budget is now officially a 4-letter word in the United States of America. The most common response is 'well, we really don't have a budget on paper, we just kind of know what's going on.' This is another way of saying we don't talk about money.
The most common form of frustration between couples is over what is not said versus what they actually talk about. The avoidance of a financial discussion is almost always because it's not fun. Why do so many people wait until the last minute to plan for retirement? For the same reasons
The Balanced Living System teaches you how to prepare for retirement using these principles and how to hire the right people along the way. Although much can be done yourself, there are certain areas of expertise that you need a professional. Here is a look at the segments of the pie broken out using the system. Remember the Communication's segment holds the other two together:
The Parable of the Toy
Pretend you are 11 again and you really want to buy a new toy that cost $10.00. You earn a weekly allowance of $1. Your toy is on sale for $9.00 until Saturday. It's Friday night and you count your money. You discover that you have $8.00 in your piggy bank. Tomorrow is payday and you get $1 for existing, but mom has some chores that will earn you another $1 for a grand total of $11.00.
And then it happens; no great plan ever survives contact with your friends. Your friend calls up and invites you to the movies, but it will cost $2.50 to go (forgive me for dating the story).
What do you do? You can explain that you want to buy the toy tomorrow and it's a higher priority or you can go to the movie and spend more for the toy at a later date. You know that next Saturday you'll receive another $1.00 and mom is sure to give you more chores, but the toy will cost $10.00 if you wait. If you choose to see the movie with your friend, how much did the movie really cost?
If you said $3.50 you are correct. Here is the retirement quandary I have witnessed for the past 16 years. We are too anxious for the here and now at the increased expense of tomorrow. If you wait for one week, you can have your cake and eat it too because the movie is still $2.50.
Remember Ralph, Gertie and the boat? How much did that boat really cost Ralph?
What Do You Want?
Without exception, in talking to clients, family, friends, and potential clients, one of the primary concerns in life is
Let's add another component:
A Wrestler in Basketball Shoes
Have you ever played basketball with a wrestler? For those of you who have somehow avoided this unique but physical experience allow me to explain. Basketball, by its design is allegedly a non-contact sport. That's why they invented the whistle and the word foul! Playing basketball with a wrestler who is not manicured in the fine subtleties of basketball is not only dangerous (potential injury) but hilarious if you are not in harm's way.
I once coached a basketball team that had an accomplished wrestler on it. His name was Blair. Blair could run very fast. He could jump very high. He had great stamina and agility. He could dribble a basketball. He was coachable. He listened and he had a great attitude. He wanted to have fun and succeed with the team.
On the surface, Blair was my ideal player. What more could a coach want? The picture in your mind is like a picture of an iceberg above the water. Can you hear the voice of Paul Harvey? "And now the rest of the story!"
Blair could only dribble the basketball as long as his feet weren't moving. He couldn't sink a shot if the hoop were the size of his swimming pool. Blair was unfamiliar with all the rules and idiosyncrasies of the sport. When Blair graced the parquet, he played with all out intensity. I always put him on the opponent's best offensive player. Not because Blair knew how to use his feet to play a great defense, but because his awkward style and sheer athletic ability threw confusion into the schema and it usually worked.
Blair was usually in foul trouble before the end of the first half. He had usually received a warning from the officials and a threat to his life from the star player, although he was never confrontational. His understanding of wrestling impeded his basketball prowess.
Blair is the stockbroker or financial planner in the game. He knows how to make money grow, but at the risk of loss. He focuses his attention on the asset side of life and singularly on asset growth. His role is critical but not so important that all other components, players or positions should be neglected.
Over time, it was apparent; the clients who had stockbrokers or financial planners often turned their attention to other areas at the expense of their retirement. The missing piece was communication and the tools associated with preparing for retirement.
PyrBlu, Inc has the system that incorporates solutions to retirement preparation. You will look at life, relationships, family, work, and your past, present and future through a completely different set of lenses after you experience the Balanced Living System.
You will experience a paradigm shift. A paradigm is defined as a problem-solving model. A shift means you've changed the model.
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