The WHY leads to the WHEREFORE leads to the MONEY …

Posted on March 18, 2008 by Adrian

… and that’s what makes it all worthwhile!

I’ve been rabbiting on about getting your arms around your Life’s Dream (or Life’s Goal) as a way to understand what your Magic Number is …

… for me, these two concepts made all the difference!

I just came across this blog post which seems to summarize it nicely …

In it Ian Ybarra says:

I’ve noticed that the more specific goals I have, the wilder the dreams I come up with, the more conscious I am of what I spend my money on. Because committing to doing what I love gives me reason for my money. Every time I’m about to waste money, I can’t help but think “I shouldn’t do this. I could use this money for something I want more.”

I agree with Ian. But, when we talk about Personal Finance, I’ve also noticed that we tend to just talk about money-related goals.

I have a different view – and it’s a view that ultimately made me rich – that money is to support your life, not the other way around!

Buckminster Fuller is generally regarded as one of the twentieth century’s greatest inventors, architects, poets, and visionaries. His theory was that your job/purpose was not to make money. It was to fulfil your life’s purpose … and the money will come (if it’s truly required)!

This neat diagram comes from a site that explains some of Buckminster Fuller’s theories.

I guess, what BF was saying is that our life’s purpose is not necessarily the same as chasing the goal (e.g. to get a promotion or a pay-rise; or to have a $1,000,000 nest egg by age 45; or whatever).

But, the way I look at it is just the opposite …. concentrate all of your efforts on finding then chasing your Life’s True Purpose, and your financial goal – if it is directly related to your life’s purpose – will come!

So, here is my simple three-step plan for totally turning the traditional way of looking at Personal Finance on it’s head:

1. Find your Life’s Purpose – or at least find what the destination is that you are aiming at and by when (retiring on a beach by 55; quitting the rat race to help the poor in Africa; reading every book in the library; whatever turns you ON).

2. Work out how much Passive Income you think that you will need to support that lifestyle in today’s dollars … then double that amount for every 25 years (prorate for shorter periods) until the date that you really have planned. If you intend to keep working, just subtract the income that you expect to be able to earn.

3. Multiply by 20: that is the amount that you will need to have in passive income-producing investments to support your’ Life’s True Purpose Lifestyle by the date that you expect. This becomes your Magic Number.

4. Where will that money come from? it’s probably a larger number (maybe, much larger) than you expected. Right? If so, it will need to come from Making Money 201 strategies … if not, Making Money 101 strategies on their own should achieve your goals.

Please let me know what you think your Magic Number is (and why you need that much/little) …

Fire up your true passion … hot passion drives massive action … massive action drives incredible results

Posted on March 7, 2008 by Adrian

When talking about money, and how to make lots of it, I always start by asking you to imagine your DESTINATION.

Where is your life going? What will your life have been about when it’s done?

Most people fail not because their financial goals are too big, but because they are too small …

… that’s not a misprint. Let me explain.

In 1998, I had a business that was losing $5,000 a month (after 5 years of operation … sometimes it’s a good thing not knowing when to quit!) … I was struggling to take home $30,000 a year (having given up a lucrative career paying a LOT more) … and, my wife had to work full-time to help support us.

My vision was too small …

But, in 1998 that all changed; I read a book that I highly recommend to anybody in business that showed me how to envision my life when it was DONE, and how to envision a business to support that life.

Overnight, my vision changed …

… it became big … very, very BIG.

And, that vision rang true to my subconscious and buried itself deep in my psyche … it’s still there today, constantly egging me on to my ‘new life’ … a life that has nothing to do with multi-million dollar homes and very fast cars (not that I don’t have them, and not that they aren’t VERY NICE to have) …

… but, a life that has more to do with how I USE that wealth to enrich the life of others, thereby enriching my own life in ways that I just couldn’t even imagine when I was Just Over Broke.

With that new life blueprint firmly entrenched in my little mind, almost immediately, I started taking bold (ok … scary) new steps with my business, my investments, and my life to move towards that new, big vision.

I became absolutely resolute and driven to that single-minded goal …

The result … $7million in 7 years … ethically and safely (really), and for me, in multiple streams of income all in areas that I was passionate about.

Why did this work for me? In truth, I don’t know and don’t care … it just worked!

Also, I am not a great believer in The Secret and other ‘visualize and ye shall receive’ New Age beliefs – if you could ‘dream yourself’ to $2 million, why not just imagine $2 billion and be done with it? Better yet, dream $20 billion and help Bill and Melinda Gates save the world …

If pressed, I will say that by going through this process, you find then fire up your true passion … hot passion drives massive action … massive action drives incredible results.

Simple!

So, what’s your big life vision? Your whole future depends upon being crystal clear on this …

Do you know how much you will retire on?

Posted on March 5, 2008 by Adrian

If you are like most Americans, the chances are that you have virtually no idea how much you will be able to retire on …

In fact, only 1 in 3 do. And, everybody else in the world is pretty clueless, too … at least according to this AXA survey:

It gets worse, of those who do know (or think they know) how much they will retire on almost half don’t think it will be enough:

… and, I bet that 90% of the other half are simply settling for a LOT LESS than their dream retirement.

Don’t let that be you … start by working out your Number, and let’s go from there …

Why are you in business?

Posted on March 1, 2008 by Adrian

For those of you who are in business (or aspire to be) let me ask you a straight-forward question:

Why are you (or why do you want to be) in business?

If your answer doesn’t at least include TO SELL OUT FOR $x [insert your favorite number greater than $1 million here] then you need to readjust your thinking.

You see, as Michael Gerber said in his famous (and required reading!) book The E-Myth Revisited your business should support your life … in other words, at some stage you probably want to get out of your business so that you can have your real life back (or, for the first time!).

The best way to get that life is to sell out (eventually) and retire (one day) … when and how are all subjects for future posts.

Or, you may decide to keep the business (perhaps running on autopilot, generating mountains of cash) but at least being CERTAIN that it COULD be sold anytime that you wanted for the amount that you needed to live the life of your dreams …

For now, it’s just sufficient to recognize that you should ALWAYS be thinking about your business in terms of “how much do I NEED to sell it for … and when”.

As I mentioned in a recent post, this will always be MORE than you think … and, sooner!

So, you had better get back to work!

Do you ever get the feeling that you are too ordinary to be successful?

Posted on February 24, 2008 by Adrian

Believe it or not, this man went from being a total unknown to selling 1,000,000 CD’s last year …

… who is he and how did he do it?

If you want to win big in the game of life, you need to find out what it is that you are passionate about, and then go for it …

… no if’s, but’s, or maybe’s.

You can turn that hobby, talent, or passion into $1,000,000 in a year and $7 million in 7 years if you have the passion, this blog will show you how …

If the humble, ordinary, unconfident (really … he says so himself!) man in the picture can do it, then we all can! So, who is he?

Even if you already know his name, watch this YouTube Video … I can guarantee that it will change your perception of who you need to be to win in life:

http://youtube.com/watch?v=1k08yxu57NA

BTW: he went from being a complete unknown to win over $200,000 in this competition and then went on to sell a million CD’s last year …

Now, why don’t you go back and expand your Life Vision?

Do you really care that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?

Posted on February 21, 2008 by Adrian

I just received a hilarious e-mail in my in-box from Fidelity. It said: Did you know that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?*

*This hypothetical example assumes a participant earns $30,000 every year and defers 6% of his/her weekly pay ($34/week) at the beginning of every week for 20 years to a tax-deferred retirement account earning a 7% annual rate of return compounded weekly.”

Why is that funny? Well, in 20 years, $76,000 won’t even buy you a car!

That’s the problem with these “save your way to $1,000,000” advertisements (and, books) …

… while you certainly should put away at least 10% of your gross income (hopefully, it eventually comes to a lot more than $34 a week!), and

… while you may (and should try to at least) make it all the way to $1,000,000 in the bank (or CD’s or 401K) by the time you retire in 30 or 40 years:

(a) You will probably be too old and tired to enjoy it … hell, I’ve waited to 49 to retire and I already feel too old .. and

(b) $1,000,000 will buy you diddly squat because of a little thing called inflation.

Inflation is the thing that causes a sixteen ounce loaf of bread to cost $0.19 in 1950 and $2.10 in 2008!

You don’t have to look too far to see this inflation-effect taken to it’s extreme: in Zimbabwe raging inflation is the thing that means even Z$750,000 isn’t enough to buy that $2 loaf of bread!

What does this mean if inflation averages, say, just 3%?

Let’s say that you are 25 years old today, aiming to save $1,000,000 by the time you retire … by the time you reach 65 and cash in your $1,000,000 ‘retirement check’ that would be the same as your grandfather retiring today on just $315,000 savings!

Does that sound like a lot? Let’s see …

$315,000 would give your grandfather just $15,000 a year to live on (allowing for small yearly ‘pay increases’ after 65, so that he could also keep up with inflation).

Would you want to retire on just $15,000 a year?

No?

Then the only choice that you have left is to try and get rich … quickly, slowly, any legal, safe and ethical way that you can …

Stick with me, and I’ll show you how! Really.

The Scared Millionaire

Posted on February 19, 2008 by Adrian

They say there are two primal forces driving mankind forward …

…. FEAR and GREED.

The typical image that we carry of the ‘rich guy’ is the uber-slick Michael Douglas / Gordon Gekko character from the movie Wall Street who’s catch phrase was “Greed is good”.

But, the Millionaire Next Door was perhaps the first book to dispel that particular myth. Still, we are either driven, it seems to a greater or lesser extent, by fear or greed.

Is it possible to become rich if you aren’t driven by GREED? Isn’t it also true that most millionaires are OPTIMISTS?

Well, I can only speak for myself, but what moved me forward every day was actually FEAR. You see, I am a pessimist!

EVERY time I buy something, I am thinking of how much I could lose … not how much I could gain. Yet, I go ahead and buy, anyway!

Why do I buy, if I carry so much FEAR?

I do it because I have an EVEN BIGGER FEAR … a fear that if I don’t make these ‘big moves’, I won’t make MY NUMBER ….

… and, I have realized that making my number is the most critical thing that I can do. Unfortunately for me and my personality type, my Number was a BIG NUMBER … I simply had to move well out of my comfort zone to get there …

… and, get there I did.

So, it doesn’t matter what drives you … just make sure that SOMETHING bigger than amassing a seven-figure bank account for the sake of seeing a pretty bank statement one day IS driving you!

Are you really on track?

Posted on February 17, 2008 by Adrian

I read an interesting question on one of my favorite blogs the other day.It was from a couple thinking about retirement asking the usual saving-for-retirement questions, peppered with the usual ho-hum terms: ROTH IRA’s, 401K, HSA, CD’s …

What caught my attention was the opening sentence to their post:

“I feel very knowledgeble about long term investments. I feel I manage my retriement savings very well and this has been a top priority.”

If you think your ‘retirement is on track’ just because you are saving your 10% or so into all the ‘right investment vehicles, or retirement for you is still a hell of a long way off, I would just ask that you do the following quick ‘reality check’:

1. What is your current Net Worth (try the CNNMoney calculator)?

2. What is your annual income goal to fund the retirement that you always hoped for?

Multiply that by 20 to 40; depending on how certain you want to be that your money will last as long as you do …

3. The difference between 1. and 2. is what you have to make up (ADD a little more for inflation) between now and retirement.

If it’s only a little, keep doing what you’re doing; your retirment is probably ‘on track’ …

BUT, if it’s a lot, maybe you need to think about INVESTING actively (business, real-estate, trading) rather just SAVING (CD’s, 401K’s, etc.).”

The problem is that most people seem to SAVE (or not save) for their retirement without having a clear understanding of what they want out of retirement, therefore, how much income they need to fund that lifestyle.

It MAY have NOTHING to do with what they currently earn … yet, replacing some or all of the pre-retirement salary is what everybody seems to be aiming for.

So, the issue changes – in my estimation, for MOST people – if they are set to save for a $35k a year retirement, but their dream of living in Tuscany [insert retirement dream of choice: working with the poor in Africa; sailing around the world; quitting my job well BEFORE usual retirement age to become a painter; etc.] requires $150k a year!

Are you really on track for your retirement?

Where do you stand?

Posted on February 10, 2008 by Adrian

In a recent post, I shared one view (not mine) on what it takes to be considered rich …

…it’s $5 million !

Now, here is an article by Bankrate that brings that number right down to the other end of the scale …

Check out this table showing the spread of annual income:

Income level (percentile)	Median income (rounded)
Level VI (90 to 100)	$170,000
Level V (80 to 89.9)	$99,000
Level IV (60 to 79.9)	$65,000
Level III (40 to 59.9)	$40,000
Level II (20 to 39.9)	$24,000
Level I (less than 20)	$10,000

Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey

First, let’s see where you stand in relation to this table?

If you aren’t in the top brackets (although, many of our readers are), it might be comforting to note (according to the Bankrate article): “if you are bringing in $40,000 a year, you’re doing better than half the households in America. Or, as a Washington think tank recently pointed out: If you’re a teacher married to a policeman, your combined household income puts you in the top 25 percent of all households in the nation.”

What intersted me most, was the relatively low income that it takes to be at the absolute middle of the top 10% of all income earners in the USA … ‘only’ $170,000.

This amount seems to correlate with a New York Times survey that said the ‘rich’ were bringing in between $100,000 and $200,000 per year …

… and, if you are like most Americans – earning less than $40,000 – this sounds like a king’s ransom … but, it’s not.

You see, there’s a big difference between what you might bring in as income and what some people call sustainable retirement income .

Take a look at what the Bankrate article tells us how much these same people currently have as their Net Worth:

Net worth (percentile)	Median net worth (rounded)
Level VI (90 to 100)	$833,600
Level V (80 to 89.9)	$263,100
Level IV (60 to 79.9)	$141,500
Level III (40 to 59.9)	$62,500
Level II (20 to 39.9)	$37,200
Level I (less than 20)	$7,900

Source: Family Net Worth, 2001 Federal Reserve Board Survey

Look at the top level, the same ‘rich’ people who earned $170,000 a year in the first table, only have a median net worth of $833,000 according to the second table.

Now, if you take this $833,000 and apply the ‘safe’ annual withdrawal rate of 4% as advocated by most misinformed financial advisors (for me, the safe withdrawal rate is more like 2.5% p.a.), it seems like these so-called ‘rich guys’ can only afford to spin off $33,000 a year.

Now, that’s less than the teacher and the fireman! So, what’s wrong?

Well, for a start there are actually very few really Rich people in this country – so few that there should be another category in BOTH of the above tables: the top 1% of the USA population by Net Worth and Annual Income.

Secondly, the so-called ‘rich guys’ earning $170,000 are just like the rest of the working population working at a JOB … Just Over Broke.

When their job stops, they stop being ‘rich’ … period.

So, where do you stand?

Deal or No Deal

Posted on February 8, 2008 by Adrian

Who would have thought that you could learn so much just by watching television? Maybe, my kids are right? … In their dreams!

A few nights ago I watched NBC’s Deal or No Deal, the Howie Mandel tour de force. It basically works by having people select one suitcase out of 26 offered then accepting or (usually) rejecting larger and larger offers by a mysterious ‘banker’ (just some guy in the control booth punching out a simple computer algorithm) as they eliminate suitcases.

If the contestant stays right to the end, they get keep whatever is in ‘their’ suitcase … a 1-in-26 chance of being $1,000,000, but, much more likely an amount from$0.01 to $500,000.

Ho hum …. usually …

But, the episode I was lucky enough to witness was a SPECIAL episode, because they put out TEN (10) suitcases containing $1,000,000 (with the other 13 suitcases having smaller amounts … the largest suitcase without $1,000,000 in it now held just $10,000. In other words it was a close to 1.3 : 1 chance of winning a million for the contestant, in theory.

Why was this so special … besides the obvious?

Well, it allowed two or three chances to really see

(a) How the ‘banker’ stiffs the contestants on the ‘offers’, and

(b) How the clueless contestants make their decisions.

Usually, it is very hard to work out the correct ‘odds’ when the ‘banker’ makes his offer and Howie sells a hill of beans to our hapless hero (i.e. the contestant) … just try this online version of the game to see what I mean …

But, last night, because there were so many $1,000,000 suitcases left at the end, there was (all approximately) one 1-in-4 chance offer, one 1-in-3 offer, and TWO 50/50 offers that even Blind Freddy could see.

Here were the odds and the ‘banker’ offers on each (now, these are approximate because I didn’t write them down and I didn’t record the show):

Offer 1: $170,000 for an (approx.) 25% chance of $1,000,000 being the chosen suitcase

Offer 2: $240,000 for an (approx.) 33% chance of $1,000,000 being the chosen suitcase

Offer 3: $330,000 for an (approx.) 50% chance of $1,000,000 being the chosen suitcase

Offer 4: $380,000 for an (approx.) 50% chance of $1,000,000 being the chosen suitcase

Would you have accepted any of these offers?

To me, and my maths is probably off, but 33 cents in the dollar on a 50/50 chance sounds a bit light … and, I would not have accepted ANY of these offers.

Anybody who regularly chases 50% chances with only a potential 33% payout will VERY QUICKLY go broke!

What did the contestant do??? She ….

…. rejected the offers [big anticlimax here].

But, I think that she should have accepted ANY ONE of these offers … in fact, I was shocked when she didn’t accept offer 3. or 4. on my table above!

Why?

Because, we haven’t considered her investment and return. You see, she invested NOTHING (except some time) in the ‘deal’ yet was offered hugely large amounts to simply pick up and go home …

… life changing amounts … possibly more money that she is likely to save in her entire lifetime …definitely, 2, 3, or even 4 times the Net Worth of the typical American family!

What does all of this mean?

If you are investing relatively small amounts of your portfolio on investments, gambling, game shows – basically anything where you are chasing a commensurate return – then pay close attention to the ‘odds’ (otherwise known as risk/reward).

But, if you are making the occasional BIG BETS – those all or nothing, bet the farm-type of gambles (such as changing careers, starting a business, etc.) – then you had better have a clear idea of how life changing the outcome will be.

… then, go for broke!

7million7years

How to make 7 million in 7 years …

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