Don’t Speed – The Financial Speedometer

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In 1995, Congress repealed the Emergency Highway Energy Conservation Act.  Prior to repeal, the law established a national speed limit of 55 mph and later 65 mph.    Repeal of the law allowed the individual states to establish their own speed limits as they had done prior to passing the Federal law.  In my home state of Illinois, the speed limit of most interstate highways is 65 miles per hour.  Historically, state speed limits had widely varying limits.  For example, prior to passing the law Rhode Island and New York for example limited speed to 50 mph.  Nevada and Montana had no posted speed limit on rural roads.  After the 1995 repeal of the Law, Montana again reverted to having no posted speed limit in daylight hours. 

The speed limit has been established for two major reasons energy usage and the likelihood of having an accident.  One of the greatest critiques of speed limit laws is that there is a low net reduction on fatalities and energy usage because of the huge amount of non-compliance.  I know many folks who have no trouble driving 85 mph on interstates.  The lure of time savings is much more attractive to them then the risk of accidents or increased fuel economy.  Some folks will reduce their speed during periods where they believe police are more likely to be monitoring roads.  Their fear of tickets pressures them to take things more slowly.  Each individual constantly makes decisions about what is the right amount of risk they are prepared to accept relative to the perceived gain the expect to receive.  We know, for example, that the likelihood of our receiving a ticket is much greater if we choose to drive 90 mph rather than 68 mph, when the speed limit is 65 mph.  From my perspective, it is much more a question of self-governance than any outside influence that encourages people to drive more slowly. 

There has always been a debate about how speed limits may have reduced roadway fatalities and conserved energy, but I believe there are lessons that can be drawn from applying an analogy to our financial lives.  

When it comes to money, many of us speed all the time.  I’d like to introduce to you the concept of the financial speedometer (or more accurately spend-o-meter).  Each month each of us earns and spends a certain amount of money.  When we divide one by the other, we realize what proportion of our earnings we spend every month.   If we make $4,000 (net income) and we spend $2,400, we are spending 60% of our income and we’re driving 60.  $3,000 during a month, we are spending 75% of our earnings and we are driving 75.  While if the speed limit is 65 mph you can reasonably expect not to receive a ticket when you are driving 60 mph, sooner or later you can expect to receive a ticket if you are always driving 75 mph, if for no other reason than the officer who pulls you over has had a bad day.   

The key learning here is every time you are financially speeding, you are running the risk of being ticketed.  Moreover, since tickets cost money, it is much more likely that you will need to speed more just to keep up.  If you are spending 80 percent of what you earn and, for example, your car breaks down, it is likely you will feel you have no other choice than to place the repair bill on your credit card.  Now you have to pay $50 more a month than you had been previously.  You now must drive 84 just to keep up.  If you never have an occasion to either increase your income or lower your expenses, it will only be a matter of time until you are exceeding 100 mph.  At this point, you are driving out of control and you are destined for a catastrophe. 

However, if you are driving at 60 mph and your car breaks down, after repairs you might have to drive 64 mph for a few months, but you have the capacity to pay down the bill faster and can quickly return to driving at a leisurely 60 mph.  Better yet, you may have the money in the bank needed to pay cash and never be forced to change your speed at all.

Another consideration is that of energy usage, if you are driving above 80 mph in your car, you must concentrate a great deal more, you have less margin for error, you must be more attentive to hazards ahead, the movement of other cars relative to your own, your adrenaline is pumping at a much greater rate.  When you finally reach your destination, you are exhausted because the physical toll of driving at this speed is so much greater. 

Drawing the analogy out, if you are financially driving your life greater than 80 mph, you are taking a huge physical toll on yourself.  You experience high stress, greater sleeplessness, more moodiness and your personal relationships suffer.  This is made all the worse because it is an experience from which you cannot escape.  There is no short term destination to reach.  You deal with this stress as long as you are moving that fast, which for many people is a period of years.  It leads to physical ailments, emotional trauma and depression and various forms of self destructive behavior.  The human body and mind is not designed to accept such physical exertion over the long term.  We see similar struggles from soldiers returning from a war zone. 

Finally, storms are going to happen.  When the storms come, it is suicidal to continue to drive at the same speeds you were driving in clear weather.  When heavy fog, hail and blizzards hit you while driving, you need to be able to reduce speed.  You will experience at least 1 major financial obstacle in 10 year period in addition to several small to moderate obstacles.  You will be laid off, have a major accident or illness.  The car will need to be replaced.  An investment will go bad.  When you have a setback, life cares little if you cannot afford to reduce your speed.  You will crash.

As a general rule, it has been my experience that for most families, who have regular income and expenses, a self-imposed family financial speed limit of 65, that is to spend no more than 65 percent of what you earn is a great value to achieve in the long term.  We call this the “Green Zone”, and is shown on the financial speedometer.  This will allow you keep you financial stress low, provide you great resources to plan for your future success and still allow you to have some enjoyment in your life. 

The zone on the financial speedometer between 65 and 80 is referred to as the “Yellow Zone”.  For short periods of time, if your speed moves between 65 and 80, though you have some increased risk, you can utilize this zone to both adjust to surprises and to take reasonable risks to get ahead.  When you have a financial setback, if you remain in the yellow zone, though you may have to tighten the belt a little, it is likely that you can work yourself out of the problem relatively quickly.  In addition, if you start in the green zone and you wish to take a risk, such as start a part time business and are in need of start-up capital, you have some capacity to move some of your earnings to subsidize the business until it gets off the ground.  The Yellow Zone is a tool which allows you manage risk over short periods.  Again, if you are driving 75 mph, eventually you will be pulled over.  In general, you should never be in the Yellow Zone more than a year, 6 months is even better. 

The Red Zone is located on the financial speedometer between 80 mph and 100 mph.  If you find yourself consistently spending more than 80 percent of your earnings in a month, you are probably steadily increasing your speed and you one step away from financial tragedy.  Above 80, you no longer have the capacity to work yourself out of the hole you’ve dug for yourself, or even if you do, the amount you have extra to clean up your mess is so small that you cannot gain traction.  Every small setback adds additional burdens to your financial engine.  Doctors appointments, replacing clothing, even basic cable television become luxuries.  Every dollar you spend for these items usually is placed on credit which steadily pushes you closer to 100 mph.  Financial stress skyrockets.  You begin to jeopardize basic needs.  You personally undergo psychological and physiological changes that reap havoc on your personal and interpersonal health.  It is an existence that tears you apart and one from which is not easily escaped.  If you find yourself in the Red Zone, must urgently get yourself out of it.  If you do not dramatically cut your expenses or increase your income, you are on the headed for financial death.

Once you reach 100 mph, every dollar you earn is being spent on supporting yourself and your family.  At this point, you financial life resembles much more of that of a serf in Feudal Europe than a member of a free society.  I call the zone above 100 mph the Black Zone as is symbolizes financial death.  If you have any savings, every day you live costs you some of it.  Every day you work, you do so not for yourself, but for others.  It is made all the worse by the fact that you have absolutely no capacity with which to change your situation.  If you ever find yourself in this situation, you are financially flat-lined.  It is possible that if you work quickly, deliberately and are willing to make huge sacrifices you can be brought back from the brink, but the odds are against you.  Those who are brought back suffer scars that are with you for years.  Those who die, suffer scars that stay with you forever—scars that stay on your soul and your heart and on any mortgage application you will ever file.  Bankruptcy is financial death; and in case you aren’t aware, death is something to be avoided.

To summarize here are the recommended ranges for financial speeds on your financial spend-o-meter.  As a caveat, if you are in a household with variable income, such as self employed individuals, I highly recommend a lower range of speeds for the Green and Yellow Zones.

            Zone                                                   Expense to Income Ratio

                                                Regular Income                                 Irregular Income

            Green Zone                0 to 65                                                0 to 55

            Yellow Zone                65 to 80                                              55 to 70

            Red Zone                   80 to 100                                            70 to 100

            Black Zone                 100+                                                   100+


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Sir Issac Newton’s Other Discovery

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Most children are taught the story of Sir Issac Newton sitting under the apple tree and being struck in the head by a falling apple and how the falling apple prompted him to discover gravity.  However, what kids are not told is that same event prompted another Newton invention.  Gravity is the force that describes how things are pulled down toward the center of the earth.  In order to explain the concept of gravity and to make the new concept more useful, Newton invented a whole new branch of mathematics called calculus.  I have an engineer’s training and have taken more mathematics classes than the vast majority of the population.  Although teaching calculus to kids at an early age may be difficult, the basic concepts behind calculus are very simple, easy to illustrate and are vitally important in the teaching of financial education concepts.

Prior to the invention of calculus, it was very hard to make sense of many things in nature, because math was limited to snapshots.  Algebra, geometry and trigonometry only make sense for the given data at a certain time.  If you wanted to see how things behaved with time you needed to figure out the equation at a bunch of different points and draw the graph to see it.  Calculus allowed us to see how things are changing at a given instant.  It allowed us to see that if we are in our car and slam on the brakes, we can predict how far and how long it will take us to stop.  It allowed us to see if we are spending money at a given rate and earning money at a smaller rate, how long will it be until we run out of money.  These types of measurements weren’t easily performed prior to the invention of calculus.

When it comes to personal finance, each of us does calculus all the time, though we may not realize it. Calculus is used to measure the rate at which something is changing at that instant.  Week-to-week, month-to-month, we adults always work the Net Income equation to make choices.  Net income is simply total income minus expenses.    The bulk of financial education is geared toward increasing the rate of change of the net income equation.  When we work to be more frugal, we are making expenses smaller.  When we invest, take on additional jobs or get wage raises, we are making the gross income side bigger.  Both of these increase the rate at which the net income equation is changing.

300px GodfreyKneller IsaacNewton 1689 Sir Issac Newtons Other Discovery
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By using the net income equation, we can make predictions about where we are going to be financially in the future.  When will I be able to afford that new item?  Will I have enough money to go buy groceries or go to the movies?  Will I be able to pay my tuition bill?  Will there be enough left over to continue to pay for other things?  These are the questions that one can reasonably answer through the help of calculus.

I find it unfortunate that teachers in schools often tell about the first discovery the Newton made that day, but so often neglect to mention the latter.  Kids need to know the concept behind calculus and rate of change at an early age.  It will help them throughout life.  If you think about it, you will find many ways to illustrate these concepts for your children in the car, on the playground and in the home.

This type of learning is important, because gravity tells us that, on earth, unless we do something about it, things fall. This applies to equally to checking account balances as it does to apples.

 Sir Issac Newtons Other Discovery
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Book Review: The Richest Man in Babylon

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5198kPizgPL. SL160  Book Review: The Richest Man in BabylonThis site is all about education.  One of the best ways I have found to learn is through reading.  Therefore, I will provide book reviews from time to time of books which have taught me much about personal finance.

I have chosen to discuss the first book I ever read about personal finance.  It is also one of the best. The Richest Man in Babylon by George S. Clason is a collection of very readable and interesting stories which teach fundamental financial lessons.  Written from the perspective of people living in ancient Babylon, it teaches through story, which I think is one of the most effective ways of learning.

The book provides a simple plan for financial success:

1) Save at least 10 percent of your income.

2) Wisely invest your savings so that it can multiply.

3) Find people who have industry specific knowledge who you trust to help you invest wisely.

4) Don’t invest in things you don’t have knowledge of or things of which your trusted industry experts do not approve.

5) Don’t invest in things that appear to good to be true or with people without integrity.

These five laws, collectively referred to as “The Five Laws of Gold,” are a great foundation into effectively handling money.  What I learned too late is that building wealth is very uncomplicated.

Sometimes when it comes to investing, we try to be sophisticated.  There is a time for sophistication.  But most investing, particularly when you are just starting to build wealth should be kept as simple as possible.

There are many other lessons in this book, such as making the most of opportunity and the value of hard work.  The wisdom gained from reading this simple book is a great primer into the fascinating world of personal finance and investing.

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Why I am here

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Why should I undertake something like this? It’s a challenging answer. It is important that you folks know that I have never attempted to do web hosting/web development before. And, honestly, just to get this far required vast amounts of learning. This learning will only be multiplied going forward.

I’m excited by this though. I am one of the most educated individuals out there. My knowledge and applied skill set spans a wide variety of topics. There is rarely a problem which I haven’t been able to work through with good colleagues and a little time.

However, bad financial decisions I had made early in my life set me on a course that made my road a lot more difficult than it needed to be. I am convinced that our current educational system, despite the laudable efforts of educators, is ill-equipped to arm our young people with knowledge and experience so they can lead financially successful lives upon receiving their first paychecks.

This site is dedicated to them. We will be providing education, knowledge and a forum of ideas to help ambitious youth and the ones who care for them achieve wealth and wholeness. It is my hope that through the wealth they create, each of them will be prepared to make the positive difference on the world that both they and world deserve and need.


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Welcome to!


We are the only site that is exclusively dedicated to helping young people plant their feet safely on the road of financial success.  It is my hope that you will visit here often.  If you are a parent, we will work with you to help you empower your children so they make financially smart choices.  If you are a young person, you will find this forum a great place to learn from others, interact and develop skills that take most of us years to develop–if we ever do.

I learned through a lot of pain and heartache that the dumb financial decisions I made at the dawn of my career dramatically impacted my enjoyment and quality of life for years after that.  I established this community in the hopes that I can spare others the pains and troubles that I unwittingly allowed myself to experience.

I look forward to helping you find and follow the road of financial success, no matter if you are 9 to 90 years young.



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