Millionaire by 30?

The best way to become a Millionaire by 30 is to watch my Live Show this Thursday @ 8pm CST (9pm EST / 6pm PST) at ….


Recently I wrote a post that I consider to be one of the critical “you either get it or you don’t” pieces that will determine whether you will ‘make it’ or not …. if you haven’t seen it yet, fully understood it, or hotly debated it (with me, yourself, or your mother) then I highly recommend that you go and get to it!

Anyhow, Jim wrote a comment:

This video was suggested from one of my posts and I think it gives a pretty good example of your premise. This is Douglas Andrew, author of Missed Fortune…

I watched the video … and, set it aside presuming that because it was so short, the one or two glaring errors (did you spot them?) would have been addressed in the full video (or a Douglas Andrews seminar) …

then I saw an article on My Money Blog:

The overall moral of this book review is that even though a book finds a publisher, it doesn’t mean the advice is accurate or applicable to you. The book Millionaire by Thirty: The Quickest Path to Early Financial Independence by Doug Andrews & Company appears to be very similar to the other Missed Fortune books by the same author. In fact, from reading the reviews all of these books seem to contain the exact same material.

Housing Prices Always Go Up, Take Out Largest Mortgage Possible!

“Do you rent? Rent is like throwing money down a black hole. It doesn’t matter how much money you have saved or how long you plan on staying in the same place, you should always try to buy a home. If you aren’t going to stay very long you can simply get an adjustable-rate loan with no down payment. Housing prices always go up, so you can enjoy the low interest for a couple of years, and then sell and make a nice profit.

If you are really smart and disciplined, you can even get an interest-only or negative-amortization loan because then you won’t build up any equity at all. Accumulating home equity is bad. Anytime you have any, you should take out a loan on it and invest it somewhere else, like a second home.”

The above are all the dangerous generalizations about real estate contained in this book. Newsflash… Renting can be the best option for many people. Housing prices do not always go up. Thousands of people who bought a home and now have to sell after a few years will have lost tens of thousands of dollars compared to if they had rented.

Many of the books I read may not be brilliant, but they contain generally good ideas and target a specific type of reader. However, this book is one that could actually hurt more people than it helps. This book is just plain misleading. It would be wonderful if home prices always went up and there was an investment where I could never pay taxes, have no downside risk, and get stock-like returns, but unfortunately both are too good to be true. I’ve tried to lay out my arguments for this briefly, but if you want a better description read the detailed reviews here and here. Clever Dude also shared his thoughts here.

Short version: Don’t read it, don’t buy it, don’t even borrow it from the library

Firstly, I agree with My Money Blog on the home ownership issue to a degree … owning your own home is not always the smartest FINANCIAL option. 

However, here is where I differ: for MOST people, it’s the only way that they will get financially free for lots of psychological/emotional reasons, more than strictly financial. Also, I do agree with the ‘forced saving’ and ‘forced appreciation’ that it can give you (provided that you do something with the appreciation … you don’t want to die ‘house rich / cash poor’!).

The ONLY time you shouldn’t invest in your own home, is to invest in income-producing property instead*.

And, while it’s true that real-estate doesn’t always go up, if you have a 20 – 30 year outlook and can lock in circa 6% interest for up to 30 years (another reason why your own home can be a good idea) … I think the future is exceedingly bright.

So, it is with a little surprise that I find myself actually siding with Doug – warts and all (!) – on this one …

But, I don’t agree with Doug that you shouldn’t have ANY equity in your own home (again, strictly financially speaking, he is probably correct), but I have proposed the 20% Rule that says that you should have no more than 20% of your Net Worth invested in your own home at any one time.

This rule, when understood and applied properly, accomplishes two key things:

1. Let’s you get/stay invested in your own home, but

2. Ensures that you maintain enough of your Net Worth in outside investments.

… without the screaming holes in the get-rich-quick schemes promoted by the ‘nothing down’ brigade!

So, go back and read all the posts that I have linked to … as I said at the very beginning, this could be the key to your wealth …

* or to invest in some other high-reward activity (e.g. buying/starting a business; leveraged
  investments; etc.) ... although, I would still prefer that you ALSO buy you own home 'just in case'
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5 thoughts on “Millionaire by 30?

  1. Good post, AJ. I checked out Clever Dude’s blog and read all those comments as well and it was very enlightening. I have one of those “almost” no money down (80/20) mortgages. I have never considered life insurance to be a good deal, but again it appears that the author is viewing that as a low-risk option along the double-your-money-in-7-years mentality. I’ve got other plans, but it does give me more options for another day.

  2. @ Di – Insurance is a ‘product’ …. product implies overhead: somebody has to package, sell, and then manage the ‘product’. So, why not just go to the underlying investment? Hmmm….

  3. When I consider rent versus buying I don’t get into all the complex rationalization that a lot of PF writers seem to enjoy doing. To me it boils down to where you’ll be in fifteen or thirty years. If you rent, the rent goes up annually and at the end of thirty years you own no real estate. If you buy and get a fixed rate, the payment stays the same annually and you own a house free and clear when you have paid the mortgage off. And that could be in fifteen or thirty years, or it could be a lot sooner if you make an effort to pay it off.

    But I don’t consider a personal home an investment, believe it or not, unless I plan to leverage some of the equity into real estate that WILL be an investment. But that’s the only time. Otherwise, the personal home is something else entirely–to me, it says “I will have a place to live no matter what.” Unless you live somewhere expensive like NYC or the major metropolitan areas of California, you will never pay as much in property taxes annually as you would in rent *or* mortgage. That means that, outside of the government exercising eminent domain or your home being destroyed, you will never lose it. (And you’d still own the land even if the house were carried away in a tornado!)

    No amount of stock or bonds can buy that security. Wall Street is not a residential property.

    But it’s like savings accounts. A lot of times I see PF writers (bloggers or not) pushing people away from savings accounts because the return is so abysmal. Well, a savings account isn’t an investment vehicle either! It is also a security measure; this is where you put emergency funds in case you lose your principal source of income. You don’t want to put your emergency funds someplace where there will be any delay whatsoever in getting the funds out and putting them to use. That rules out every investment vehicle there is except money market funds. Money market funds don’t do much better in terms of interest rates than savings accounts do, and they require a higher initial deposit and a higher daily balance besides. Not good for someone just starting out with an e-fund.

    When we speak of and write about financial issues it’s important to look at the issue for what it is, consider what it’s designed to do and give advice from that perspective. You can’t just lump a whole bunch of entities together because they look sort of alike and give overgeneralized advice. This is how people get into trouble.

  4. Oh, and: You don’t have to be in a situation where prices will go up to make money in real estate. With the subprime meltdown and all the foreclosures going on, the market is hurting for affordable and decent rental properties that people can live in while they are recovering financially. I don’t know why more prospective real estate investors don’t consider landlording. OK, I know it’s kind of a pain in the you-know-where, but you know, you have to deal with people in your daily life anyway. You might as well be making a check from some of them that isn’t tied to your job. And you’ll undoubtedly be doing some of them a real favor. My landlords really annoy me because they are very neglectful of the property I live in (and probably their others as well, judging by the photos on the tax assessor’s website), but if they hadn’t let me live here, I would have been homeless with a baby on the way. Think of it: a solution to homelessness that didn’t require government intervention. I know that’ll make at least some of you happy. 🙂

  5. @ Dana – Your first two para’s are literally ‘right on the money’. Last para spot on, too! However, I differ on the emergency fund issue slightly and have a post coming up on just that subject … stay tuned!

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