A new tool to drive traffic to your page: if you haven’t seen Pinyo‘s new site, yet, click here now … I am predicting that it will become THE place to see what late breaking personal finance stories and blogs are hot right now!
I’m not really sure how it works, so I just submitted 3 or 4 of my posts to see what happens … I hope that you will visit PF Buzz, find them, and give each post the rating that it deserves 😉 It’s just an experiment … we’ll see how well it works … in the meantime, here’s today’s post …
I’m often asked what my biggest semi-financial mistakes were … and, I can point to some doozies:
1. I was offered the opportunity to head up a regional business unit promoting one of the first ever PC’s in the market … I said “no thanks … the future’s in mainframes!”
2. I sold 5 ounces of gold (losing money on the transaction) about a week before the 1980’s boom that took gold from $350 and oz. to over $1,800 an oz.!
3. I constantly choose to enter the markets just at the end of a major bull-run … because that’s when I happen to be cashed up.
But, my biggest financial mistake? That’s easy … not getting ‘religion’ early …
Explanation: we all know the benefit of SAVING early:
The following graph shows three investors, each of whom invests $1,000 a year until age 65. However, one begins at age 25, investing a total of $40,000; one at age 35, investing a total of $30,000; and one at age 45, investing a total of $20,000. Each earns 7 percent per year and, for purposes of this illustration, the effects of taxes and inflation are ignored.
The Power of Compounding
Source: Investment Company Institute
And, you already know my view on this: big deal … for each $1,000 invested the start-early guy saves $215k by the time he is 65 … or $2.15m if he can scrape up $10k each year from the age of 25.
That will provide the equivalent of about $30k a year (today) in retirement living (then) …. big deal.
No, I’m talking about the equivalent compounding power of starting to boost your income early … so that you can pump far more than $10k a year into your ‘retirement investments’ …
… imagine what you would get OUT if you could pump $100k a year IN?
The key is to get religion early … the ‘religion’ that I am talking about is the massive why that leads to the massive action that leads to massive amounts of money.
I can easily divide my financial life into two distinct parts:
1. Pre-Why: Until 1998 I plodded along with my little business slowly trying to grow it. I worked hard, but had no particular goal other than to try and eke out a living. My results were unspectacular, to say the least.
2. Post-Why: In 1998, I read the E-Myth Revisited by Michael Gerber; in it he recommended thinking about what I wanted my life to be like when I was ‘done’ and to think about how much money that would take (and by when).
I now had a massive ‘why’ and an ‘oh shit’ amount of money required to support it!
That’s what kicked off my $7 Million Dollar Journey.
So, what was my ‘big mistake’???
There was NOTHING that I did in that 7 years that I COULDN’T have done in the preceding 7 years, or in the 7 years before then!
If I had ‘got religion’ early, I may have reached my goal early … that little ‘financial mistake’ makes every other financial mistake that I could have made, did make, and probably will still make … pale into insignificance.
Which brings me to a comment made by Blogrdoc to a recent post, in which he says:
I seek business success primarily as a challenge and because I want more in life. Not more money, but more impact on others and being able to have fun.
When you’re a 9-5 corporate stiff like me, it’s so easy to just let life ‘happen’. For me, the motivation to get off my ass and try something different from my 9-5 is the tough part.
That was me, pre-1998 … but, 7 years post-1998, I went from there ($30k in debt) to $7 million cash in the bank … fully retired a couple of years later at the age of 49.
Mistake? Hell, yeah …
… I could have just as easily have retired in the same financial position at age 39 or 29!
At the very least, I would have had a helluva buffer against failure: Shoot for 29 … missed? Oh, well … shoot for 39 …
So, when you are still in your 20’s or even 30’s, I suggest that you try and ‘get religion’ early. Here’s how Blogrdoc might do it:
1. He could look for the real meaning in “I want more in life. Not more money, but more impact on others and being able to have fun”.
What would it mean to Blogrdoc … his FAMILY … hell, the WORLD ! … for him to have this?
What about your WHY?
Would it mean enough to you to really need it?
Would it mean enough to you that you would feel that your life was a failure if you didn’t have it? Would it be enough of a need to carry you through the 1st, 2nd, and 100th obstacle that will get in your way?
If not, stop now!
You will never have the emotional strength to crash you through the invetiable HUGE obstacles that will get in the way of you and (say) $7 million: you won’t get rich and you will ‘die’ trying …
But, If so … great … you have the WHY!!!
2. The, you should think about HOW MUCH in today’s income (as if you did it today) you will need to live the life that gives you your WHY (think about costs like travel, housing, cars, donations, etc.); also, decide if you need to quit work entirely to do it … the difference is how much PASSIVE INCOME that you need.
Remember: even if you do decide that you can still work, you may need to rerun these numbers for when you stop work entirely as well … sort of a pre-quit and post-quit plan.
3. Think about WHEN you need this to all happen by (not want it to happen by, NEED it to happen by); DOUBLE the amount of income that you calculated in Step 2. for every 20 years until the WHEN (you can prorate, eg add 50% for 10 years and so on … it wll be close enough).
Multiply by 20, 25 or 40 depening on how conservative you are and how much of a buffer you need (remember, once you stop ‘earning’, what you have in savings and investments has to last your whole life, therefore, I use 40 .. perhaps, excessively conservative) … that’s your Number.
3. Oh shit?
Now, you have the WHY that leads to the WHEREFORE that leads to the MONEY …
… and, you just may get there 10 or 20 years before I did 🙂
I enjoyed this post very much. I’m young, and yet through your blog and other sites, I come to realize what I’m making a lot of mistakes too. I should have been a lot richer than I am today, had I not been too greedy and gullible.
My mistakes were:
[AJC: Alex then went on to detail his experiences … I have taken the liberty of removing them from here, but for a good reason: I think his comments are so important that I am going to use them as the basis for a ‘guest post’ … are you OK with that Alex?!]
AJC, thanks for sharing with us your experience!
Absolutely 🙂 I’d be more than happy to share my experience with everyone.
AJC – thanks again for the reference. I’ve been silent lately in the blogosphere because I have been earnestly soul searching how I can “break through”.
Since My ‘awakening’ in January – I’ve generated together about $750 cash with my ‘Experiment #1’ which I will use to continue to grow my earnings. No speculation… just clear identification of value that I can deliver to a customer. I’m taking ‘baby steps’… slow but sure.
This game is a mental game for sure.
@ blogrdoc – it’s easy … just apply for my 7 Millionaires … In Training! project where your ‘$750 experiment’ may intersect with my ‘$7.5 Million EXPERIMENT’ … Happy Soul Searching! 🙂
Everybody could use a little religion. I’m starting when I am 20, I hope my graph goes even way higher than yours did. I’ll be keeping tabs on your blog and hopefully I will learn as I go.
@ David – then you’ll need to change the name of your blog … chat with me on my Live Show:
Hi AJ –
Looked for e-myth revisited in the library and it was surprising which branch had the only copy; now to dash over and pick it up.
This reminded me a lot of what I said about commitment on my blog about losing weight – if you don’t have the “eye of the tiger” it ain’t gonna give you nothing but grief (and lots of guilt) as you struggle and keep pushing the rock up the mountain side only to see it slide back down.
I’m actually trying to move out of town without telling my bosses – think it’ll work?
ALEX – Thanks for letting AJ share your stuff – I have a feeling I will see myself in a lot of what you shared as well. I started out well, but then somehow fell off my well-meaning plans. But they were still mediocre thinking at work. Time to shake free of those chains!!!
@ Diane – Should’ve been the first to guess my country of origin at my last Live Chat …. I gave away a copy. Let me know what you think of the book …
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