The first one minute of this video-teaser for a documentary called Pass It On that I mentioned recently (Scott, who appears in this video excerpt, provided a post comment that was the inspiration for the recent 3-day series of posts showing you how to build a Perpetual Money Machine) is the most interesting to me:

It simply says: Learn it, live it, pass it on …

Whether it’s karma, or simply feels good, it’s a great idea to teach others what you know!

You can pick an area of knowledge and give back without thought of reward – as I have chosen to do in my various blogs – or, you can use your knowledge and share the reward by building a business (e.g. an eBook or other information Product that you can sell) as I show you how to do in my new blog.

Whatever the method, or the reason, why not pass it on? 🙂

I’m about to find out if you can make money online: click here to read the latest installment in my new online money-making adventure!

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Are there truly people who fall for this?

Sir/Madam,
Mr Ray Abo
drrayabo@yahoo.com
My name is Mr Ray Abo ,chairman of contract award and monitoring committee of the ministry of industry and international trade development ,my duty as empowered by the Mauritius government is to provide the basic amenities, social recreational activities in urban and rural areas.

This program includes assistance to deprived local communities and to co-ordinate projects and development at the national level.Furthermore,from this projects were  able to realize some reasonable amount of u.s.$21.8(Twenty one million eight hundred thousand US. dollars only) as commission from various contractors resulting from over invoicing of payment receipts/vouchers hence all the necessary approvals has been completed.

These approved funds were packaged and dispatched through a security company for onward delivery to its destination in Europe.The money was first deposited into a security vault before we arrange for its movement to Europe through diplomatic channel using decoy purporting that the fund belongs to an expatriate/company.
As we are government officials, the oath of office does are not allowed us to operate foreign bank account,hence we need you to stand as the beneficiary and claim the
fund on our behalf from the security company.

Presently I am now in Europe to search for a reliable person/company of high integrity /dignity and one with conscience who will claim this fund on our behalf as the beneficiary.
We have agreed to give you 30% of the total sum as commission for your assistance/effort and 5% will be used to settle every expenses incurred, we will use 65%to invest under your recommendation/guide and go into joint venture business with you .

I would greatly appreciate your assistance and I look forward to your response as soon as possible through this e mail address:drrayabo@yahoo.com
Best regards,
Mr Ray Abo

… just in case it should be one of my readers (hah!) I have changed the name and e-mail address.

But, the mere fact that these e-mails still go around, despite all of the negative publicity indicates – at least to me – that there are still one or two greedy/stupid bunnies out there who will hand out their bank account details to some con-man from another country!

Here is a simple rule of thumb on ‘hot tips’ and offers that are ‘too good to be true’ (aside from the obvious: they are too good to be true):

If you find out about a ‘hot deal’ through a public channel (such as e-mail, the media, even ‘word of mouth’) it is no longer hot … it is either a scam, or the professionals on the ‘inside’ have long-since picked it over and you will be the one left standing in the long line of stupid/greedy people investing at the top – providing the ‘insiders’ their profitable exit, and leaving you to hold the bag when the bubble pops.

No. Good deals only come to those who research a market thoroughly and ‘find’ the deals themselves …

… it’s never going to be handed to you on a silver platter.

Except for that swamp land in Florida that I happen to have a great deal on just for my readers, but only if you act real quick 😉

What are the sacrifices that you need to make when you are building your little nest-egg … especially, if you have chosen the entrepreneurial route?

I can illustrate with one example:

One of the applicants for my ‘grand experiment’ in millionaire-making saw that they hadn’t made the final cut and asked me why. I simply explained:

Your application came in past the cut-off (as did one other person’s) and since I have to somehow cut down to 7 …

And, it’s true. One other of the Final 15 didn’t submit their application, so …

Anyhow, this person responded:

I know there are no excuses for missing the cut-off, but I did write to say I was on vacation and did not have access to email. I hope you can still consider me in the running, but if not thank you for the opportunity and I will continue to follow along.

Now, I’m not here to judge this person – in fact, I consider them a valuable (and inaugural) member of the 7m7y Community (hence, I’m keeping them anonymous here) … and, that wasn’t my point. And, it isn’t the point of this post …

… rather the point is to share this with you:

I was on vacation with my wife recently in Las Vegas, while our children were away at Summer camp (that wonderful American institution … just like sleep-away college … we seem in so much of a hurry to get rid of our kids, here!) and realized that:

1. My phone never rang

2. I dropped my Blackberry in the Bellagio’s pool and didn’t even have to worry about replacing it until we got back

3. I only needed to check my laptop once or twice a day to keep up with my two [now three] blogs

This is only surprising if you realize that on every other vacation for the past 10 years, I would:

a) Carry my laptop to the pool to catch up with my e-mails, if they had wireless … else, head back to my room (or the business center) 4 or 5 times a day, if there was no wireless.

b) Take business calls at all times of the day or night in all places, including one ‘infamous’ call on my hotel balcony to close a particularly large deal

c) Never, ever, ever, stop thinking about work ….

There was one particular trip that I took that turned out to be one of the most stressful trips away that I remember [ AJC: Stressful?! They’re supposed to be VACATIONS, dope 🙂 ] …

… I was woken from my slumber at God-knows-what-hour by a call from my office ‘back home’:

Our ‘mission critical’ software system had failed and our call center was running on ‘manual’ (means people taking calls over the phone and filling in bits of paper to be somehow entered when [if] the system came back up).

The system was down for almost the whole time I was away and I realized that I couldn’t add any value by coming back, yet I felt helpless as I saw my business sinking under my eyes (no computer, no call center, no business) …

… somehow the problem was resolved after a week or so, and they eventually caught up with the ‘paperwork’, and aside from a few customer apologies (more phonecalls while I was away) later everything was back to ‘normal’.

So, when I say that not being bothered by phone calls / customer issues / e-mails while I am on vacation is some sort of ‘novelty’ for me, you better believe it!

If you decide that you need to be on one of the high growth curves to make your Number … however many millions of dollars that may turn out to be …

… giving up the idea of having a ‘true vacation’ for the next few years is just one of the many sacrifices that you will need to make.

After all, if making that much money that quickly was meant to be easy, everybody would be doing it …

PS the Blackberry-In-Swimming-Pool story has a happy ending: I bought myself a new iPhone 3g 🙂

People are starting to cotton on to the fact that if you want to be successful in business these days you need some sort of on-line connection; either:

– Your business itself exists in cyberspace, or

– Your offline, bricks & mortar business has some sort of internet-based aspect for promotion, advertising, etc.

I just got back from breakfast with an old buddy (also from the ‘old country’ but who has lived in NYC for the past 15 years) and his wife bought a small ‘event planning’ business. This business works by finding, then building close connections with, all the best/cheapest local sources for all the stuff that one needs for an event: halls; bands; florists; center-piece makers; etc.

But, we were discussing how the industry needs good local ‘portals’ where people can find this stuff for themselves … obviously, the internet is the tool.

Anyhow, the point is that where you have the word ‘Internet’, you need to add one more word to make it work for you: ‘traffic’.

This is like the old retail store … it needs a cost-effective, high-traffic area to get all those eyes looking, to get a few of those eyes to turn into feet coming into the store, and a few of those feet turning into hands trying stuff out, and a few of those hands clutching wallets.

Similarly, online traffic = volume = ‘customers’ (or whatever action it is that you are looking for; for a blog it just might mean subscribers … for a online retailer, it’s obviously purchasers).

That’s why I made such a big ‘to do’ on my sister blog – 7 Millionaires … In Training! – about driving traffic to each applicant’s ‘Meet me’ page.

Eric, who made it to the Final 15, noticed this and sent me an e-mail that I thought I should share:

So how can I successfully drive traffic? I do not have my own blog and the methods I have tried have failed. I really want to ‘get it’ when it comes to Internet marketing. I truly believe the way to make your grand experiment work (If I am following along correctly) is to drive traffic, but not just to your site, but ours as well for future businesses we may have. How far off base am I? I realize if I do not have the correct tools to make this experiment work then I may not be a future millionaire. You can give a man a fish or teach him how to fish. I want to know more about Internet Marketing and what I am doing so wrong.

Exactly!

If you cannot find a way to acquire the skills (“tools”) to make this ‘experiment’ work, then how are you going to drive any online business?

As to building web-traffic, I assure you that I am no expert, but I managed to build a reasonable following by:

1. Commenting on others blogs, web-sites, forums;

2, Writing good enough content for mine that people would want to link back;

3. Getting a few articles published in one of the many ‘carnivals’ around (e.g. “carnival of personal finance” … google that) helped a little, as well.

But, I recommend that you begin by doing some research into what works and what doesn’t. Fortunately, for the Internet, research is as easy as Google:

For example, google (amazing how it’s become a verb!) Derek Gehl for courses on online marketing that you can buy, or buy Site Build It! by Kevin Evoy if you want to build your own non-blog site.

Read these excellent articles if it’s a blog that you want to promote:

http://www.rss-specifications.com/promote-your-blog.htm

http://vandelaydesign.com/blog/blog-promotion/99-ways-to-promote-your-blog-for-free/

http://www.associatedcontent.com/article/181812/how_to_promote_your_blog_without_being.html

Then …

… just do it! 🙂

I’m about to find out if you can make money online: click here to read the latest installment in my new online money-making adventure!

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Recently, I answered a question for Debbie, a freelancer, who asked:

I’m self employed and my earnings seem to only be limited by the amount of time I have to work… I’m trading “hours for dollars” at this point.  I only have so many hours I can work, and I’m working during all of them 🙂  I’m in a lot of debt… and just about everything my husband and I earn is turned right back into our existing debt/bills.  How do we get a head when we seem to be stuck ?

As I said to Debbie, it all really depends on Your Number – and when you need it (i.e. Your Date):

1. Most freelancers are basically holding a job, without the 401k and other corporate perks, in return for a reasonable hourly salary and some flexibility. For most freelancers, though, when they stop [working] their income stops, too!

2 Some freelancers get smart and realize this, and spend as much time investing as they do earning (Scott shared a good example of a doctor who invested in real-estate and in setting up – then selling – practices). They can build up a decent nest-egg, perhaps into the $1 million to $4 million range, but for the reasons that I cover in that article, probably not much more.

Being a freelancer – or, other self-employed professional – limits your ability to retire early/rich, although some would say that $4 million is a lot … and, it is:

You will see that the guy who achieved this mixed investing in real-estate and businesses to get there.

The problem is that when you are a freelancer/professional, you are trading TIME to earn MONEY …

…. NEVER a good trade!

Let’s think about this: time is a finite resource … believe me, as you get older you will realize just how finite it is.

I previously mentioned this concept in a post about managing rental properties.

Interestingly, a British professor has actually proved that Time = Money, and has even provided a formula for calculating it:

V=(W((100-t)/100))/C

… where V is the value of an hour, W is a person’s hourly wage, t is the tax rate and C is the local cost of living.

It shows that there is no such thing as a free lunch or even a free dinner, while brushing your teeth for three minutes uses up 30 pence (45 cents) in “lost” time, and washing a car by hand has a hidden cost of £3 ($4.50).

Economics professor Ian Walker, of central England’s Warwick University, says process can show people just how valuable their time is in relation to any task they have to perform, from a lie-in or cooking a meal to sleeping and working.

So, if Time is Money, which one is limited (finite) and which one is (unlimited (infinite)? And, why would anybody trade a finite resource (time) for an infinite one (money)?!

This means that selling yourself by the hour (until you gradually, and inevitably, run out of ‘product’ – being YOU – to sell), you are actually limiting your earning potential and wealth.

Perhaps a little counter-intuitively at first (until you understand the money/time trade-off is clearly stacked in favor of conserving time) you begin to realize that when you stop selling yourself, you actually remove limitations to your future wealth.

Therefore, you are far better off financially, thinking of ways to earn income that do not involve the direct use of your own time, but the time and resources of others.

Another term for this is leverage …

It helps to explain why real businesses earn more, and sell for more, than consulting practices.

So, as I said to Debbie

Let’s wind-up Debbie Inc. and consider this time to start creating D Enterprises Inc. and/or D Investments Inc.

One simple example, is to turn your consulting freelancing practice into a freelancing business: one where you employ other freelancers (as long as you also employ even more ‘others’ to find both the clients and the ‘freelancing others’).

An even better example, is eLance, where you simply create an environment where customers and freelancers can get together and do business …

… as I am currently doing with Muhammad in Pakistan for the princely sum of $4 per hour!

eLance makes an 8% commission for introducing the contractors to the clients and handling the payments via credit card … even while eLance’s owners are asleep!

Many people say to me: “I can’t become rich like you because I don’t [insert excuse of choice: have a business; have a profession; earn a high income; come from a rich family; have much time left on this earth; etc.]”.

Now, they may be right … but, if they don’t even try they absolutely will be right 😉

Let’s tackle just one of these ‘objections’ : that you need to be a professional (doctor, dentist, lawyer, accountant, pilot; etc.) to become rich.

Here’s some bad news for you, if you’ve been spending the last 8 years working on your Masters so that you can get a job in a top national firm:

Being a professional is an impediment to becoming rich!

Three major reasons – besides the lousy rates that the health insurers pay doctors 😉 :

1. You have (or soon will have) a steadily increasing high (possibly very-to-super high) income, so your spending habit has this way of growing at least as fast.

The Millionaire Next Door gives a supposedly true story of two doctors on roughly $700k each a year: one was rich (as you would expect!) and the other was basically broke … it’s surprisingly easy to spend $750,000 a year, when you earn $700,000!

2. You have a built-in expectation of a certain minimum standard of living, which typically starts with the amount that you earned at your first job and continues to rise along with your pay-rises.

In other words you have a mental ‘bar’ that you won’t go below … that can have the inverse effect of limiting your upside. For example, it’s unlikely that a professional will give up his lucrative career to start a business (unless the ‘business’ is opening his own practice, in which case he still has a ‘job’) because his earning power will no doubt go down to an unacceptable level before it goes back up.

After 10 years, I was earning a $60k package at the IT company that I was working for, but I could only afford to pay myself $30k a year when I left in 1990 for IDB – In Dad’s Business 🙂 That poor excuse for a ‘professional’s salary’ did not increase past $50k a year for at least the next 10 years.

3. And Scott (who is a professional himself) seems to understand the third reason pretty well:

After tonight’s live feed, I really started thinking, worrying actually, about how in the world i’m going to reach my NUMBER. 10 million, in 8 years in my current profession. The guy I worked for (that i’ve recently semi-separated from) has spent his entire career, 20 years, opening multiple clinics with other doctors and eventually selling them to those Dr.’s. He has made a wonderful living for himself, been very frugal with his lifestyle and is definitely a multimillionaire, but I suspect not quite where my number is. My concern is that my Number and the time that I need it aren’t congruent with my current profession and would be near impossible to achieve just merely focusing on opening multiple clinics.

I’m wondering if focusing every penny that I make in my profession toward the purchase of more and more commercial real-estate is the only way I have a shot at getting to my number in time?? I know you were able to address this somewhat in the live feed today, but i’m not sure that just owning the real-estate that my clinics operate in will be enough to make my goals happen so i’m thinking that I may need to focus on other, more “big-time” real-estate purchases, the kind of purchases where “Subway”, “Blockbuster” and “Kroger” want to pay you for….Any suggestions on this, or what you would do if you could do it all again and were in my shoes?

The problem is that professionals who then do go into business (i.e. open their own practice, or start / buy into a multiple partner practice) find that those businesses aren’t worth that much – they often sell as a multiple of annual revenue, usually in the range of 0.75 – 1.5 of (say) the average of the last three years’ fees.

Since professional firms don’t tend to grow that large, and when they do it’s usually by bringing on more and more ‘partners’ across whom any profits – and proceeds of any sales – must be spread, the ‘big bucks’ that Scott is looking for just ain’t there.

So, the smart professionals – like the ‘rich’ one in the Millionaire Next Door example above – divert as much of their income-stream into real-estate and other investments as possible.

And, that can provide Scott and other professionals like him with a great nest-egg for their eventual retirement: they can buy the ground under their current practice and/or they can use their high incomes to support negative cash flows on multiple investment properties and/or build up multiple deposits.

The depreciation and other tax-benefits of investment real-estate also work particularly well for highly-paid professionals who otherwise have no legal avenues to ‘hide’ their income from Uncle Sam so would otherwise pay the highest rates of tax.

But, it’s a strategy that is unlikely to produce ‘super riches, super soon’ … which is what Scott is looking for.

The problem lies in simple math:

– Let’s assume that Scott’s total Net Worth is $100k today and he wants to get to $10,000,000 in 10 years; that means that Scott is looking for a 67% compound growth rate.

– According to Michael Masterson in his book Seven Years to Seven Figures real-estate (actually, a mixture or real-estate and stocks) is only good for a compound return of 25% – 35%. It wouldn’t matter if Scott was investing in the real-estate under his clinic/s or in Walgreen’s stores (in fact, his own clinics would produce a higher ROI than Walgreens real-estate due to competition) … he wouldn’t be able to push the returns much higher.

– If Scott put his returns on steroids by investing in a mixture of real-estate and small-businesses (as his ex-boss was doing by opening multiple clinics then on-selling them), Michael Masterson says that he may be able to push his investment returns higher: say into the 40% – 45% – 50% range. This could take him to the $3 million or $4 million that he suspects that his old boss has, but not the $10 million that he wants.

So, Scott, you – as do most other professionals – have a real problem … a problem that can only be overcome by opening your own ‘real’ business … the type of business that others will want to buy for many multiples of earnings because it isn’t tied to the personal exertions of you or the principle/s.

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ANNOUNCEMENT: If you haven’t yet caught up with the latest on our 7 Millionaires … in Training! ‘grand experiment’, now’s the time! We have (finally) selected our 7 MITs and this post will bring you up to date with what they (and you) need to review if you really want to get rich. Click here for more …

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One of the main reasons that people provide for saving via their 401(k) rather than investing elsewhere is the tax benefit: the money that you (and, your employer via their ‘match’) put into your 401(k) is in ‘pre tax dollars’.

But, keep in mind that there is a hidden ‘tax’ on your 401(k) because of the types of investments that you are forced to choose from: mutual funds.

That hidden ‘tax’ is fees, which the Division of Investment Management in their December 2000 “Report on Mutual Fund Fees and Expenses“ says averages 1.88% (if you amortize the sales commissions over 5 years … if you commit to holding the fund for 10 years, without topping up or selling down, then the average fee drops to 1.52%).

These fees have been trending up (they averaged 1.79% in 1992), so may very well be higher now.

So what?

Well the report says:

The growth of the fund industry has been accompanied by a debate over the appropriate level of fund fees. The focus on fund fees is important because they can have a dramatic impact on an investor’s return. For example, a 1% increase in a fund’s annual expenses can reduce an investor’s ending account balance in that fund by 18% after twenty years.

Scott Burns in his latest book (Spend ’til the End) says:

While annual expenses of, say, 1.4% [as we now know, this is an underestimate] for a mutual fund may seem reasonable, paying them is equivalent to being hit with a tax that exceeds 35% – the highest marginal federal income tax rate.

While this last part of the statement is a bit, how shall we say, sensationalist (the ‘tax’ comes at the end, so you are still better off than paying tax on the ‘input’ … so, this is an argument against high -fee Mutual Funds, not 401k’s … you’ll have to go here for that!) the principle is correct ….

… as Scott goes on to point out:

This is not obvious. Wall Street tells us the cost is modest because common stocks can be expected to return an inflation-adjusted 9.1% a year, and 1.40 percent in fees is only 14.6 percent of this expected return. And, if our manager is worth what we pay her, she’ll make a higher return.

Well, that’s why we invest in Mutual Funds … to get the Fund Manager’s expertise!

But does it work? Not according to Scott:

The reality is different. First, most managers fail to beat their appointed benchmark. And they tend to trail it by an amount equal to their expenses. The greater the expenses, the greater the investors’ loss of return.

There you have it … solid reasons NOT to invest in most Mutual Funds, and – as Scott recommends in his book – “invest in equities only via Index Funds” …

… except that these aren’t going to work for you either!

Why?

Because you have to focus on RETURNS first and FEES and TAXES later!

The clue comes in the expected 9.1% return for ‘common stocks’ less any fees that you have to pay (even the paltry .10 to .20 percent that you will pay on some low-cost Index Funds).

Will this 9% Net Return (equivalent to a 11.25% – 12.15% net return, depending upon your tax bracket,  + employer match, which will tend towards an extra 1% – 3% annual return, IF you are investing via a 401k) get you to Your Number?

If so, then heed Scott’s advice and invest in Low-Cost Index Funds (preferably via a 401k or other tax-advantaged vehicle).

If not, then start looking for where else you can increase your income and/or investment returns (preferably via a tax-advantaged vehicle), or you simply won’t make it!

I explained to Scott [AJC: not the same Scott who helped us build our Perpetual Money Machine, most of last week; this Scott is one of our 7 Millionaires … In Training!] that his “zero to $10 Million in10 years” financial rocket ship would need to be powered by a potent kind of fuel: one that can deliver a 67% compound annual growth rate …

… and, that kind of growth usually only comes from one place: starting your own business.

Yep … super-growth is the just reward for the entrepreneurial mind set.

But, most won’t even start because super-high growth means assuming more risk; and, many who do take this path fail miserably … or, miss their target completely.

Still, a $10 Mill. / 10 year target – or even a $7 mill. / 7years target – can probably only be achieved with your own business … one that you start yourself so that you can minimize capital (if you buy a business, you are paying precious capital to somebody else, and usually they are selling because the growth rate isn’t stellar).

But, how big does that business need to be?

Well, if you don’t have a target, most people are happy if their business can bring in a decent ‘salary’ …

… but, that’s not enough for you. Because now you have a Life’s Purpose and that needs a certain Number to ‘fuel’ it!

For anybody in business, or aspiring to be in business, here are the steps that will tell you how big your business needs to be:

1. Get a handle on your Life’s Purpose: I’ve already laid out a step-by-step process that will only take a few days to think through (but, will change the way you think about money).

2. Derive your Number / Date combo.: Understanding your Life’s Purpose will tell you are awful lot about how much money you need to generate (Your Number) and by when (Your Date).

3. Set the future sale price of your business: The chances are, your ‘nest egg’ (i.e. your Number) will only come from one place – from selling your business (you might decide to keep it, but let’s assume that the end goal is to sell it, for now). So, let’s assume that you have to sell your business for at least the amount of Your Number (you can subtract any houses or other assets that you are sure that you will have by then).

4. Set your end profit target: Most businesses sell for 3 to 5 times their earnings after tax; professional practices often sell for 0.75 to 1.5 times their annual billings/fees … just check with an accountant and reputable business broker how similar businesses in your area are typically valued (they will usually also tell you to value your inventory, if you carry any … you can probably ignore that for now).

So, it’s simple to work backwards from your Number (hence required business sale price) to see how big your business needs to be in terms of earnings (i.e. net profit) or fees/revenue. Just a rough calc. will be plenty to …

… scare the pants off you!

I’ve said before that understanding my Life’s Purpose was the most profound thing that I ever did … and, I was talking pure finances when I said that – not visualization, self-actualization, or any kind of pop-psychology mumbo jumbo!

You see, when I did this exercise in 1998, I had two small businesses that just managed to break-even (after paying me a nominal salary) after a number of years of operation.

When I suddenly realized that I had just 5 years to turn the loss-making two businesses combined that I already owned for better or (mainly) worse, into a $1.5 million per year net profit powerhouse, I immediately started to look at the businesses very differently …

… and, that’s what suddenly took me on a global hunt for expansion possibilities, resulting in joint ventures in three countries, including the USA, growing my portfolio from 2 loss-making businesses to 5 profitable businesses in less than the 5 years that I allowed myself.

It also sparked the search for an investment portfolio (centered largely on real-estate, at the time) that actually got me to my target even without needing to sell my businesses … that just became the cream on top 😉

There’s no way any of this would have occurred without the spur [AJC: more a kick up the … ] that truly understanding the financial implications of my Life’s Purpose gave me.

Now that you know how … go and do it, too!