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But, is it the right war? Is it a just war? Or, are we just throwing ourselves, by the millions, into a hail of fire: exploding spending, rampant inflation, the death of social security?
Sure, as we sit in the relative safety of our trenches (at least, that’s what we tell ourselves, until a random mortar shell of job loss or unexpected expenses chooses to lob our way) this is not OUR future … it’s somebody else’s, or it’s too far away, or it just can’t happen …
The sad truth is that legions have jumped the wall before us and have been brutally cut down for lack of an adequate nest-egg; it’s sad to see them go over the dreaded wall of retirement (be it their time, or forced on them early) without an adequate safety net … when they do, it’s as though their grim fate had already been sealed.
Broke – or ‘just’ financially crippled – and unable (for financial reasons) to live life as they had hoped, they are a sad, sad lot.
You see, the war that they fought wasn’t – isn’t – a just war. It’s not even a war … well, it shouldn’t even be more than a skirmish.
It’s the War Against Debt!
When it comes to that war, I’m strictly a pacifist; isn’t it better to simply avoid BAD debt?
Of course, that doesn’t mean that we can’t … shouldn’t … defend ourselves.
Far from it: if we find that BAD debt has snuck through our defences, let’s keep an eye on it. And, if we find that it’s also EXPENSIVE debt, then let’s whip out the Big Guns and wipe it out. Quickly, surgically …
… but, let’s not commit Debt Genocide.
You see, unlike the well-intentioned, but largely Debt-McArthyist “ALL Debt Is Bad, So Let’s Wipe It Out” rabble out there, let’s first ask The Missing Question:
What will you do after your debt is paid off?
“Well, start investing of course!”
But, does that REALLY happen? Who better to ask than Money Reasons:
This past February 2010, I became totally debt free, but now what!
I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments! So now that it’s seven months later and how much extra did I save or invest? Not a single cent!
Hang on, the whole purpose of suiting up for battle – for going to war against debt – was so that you could start investing, right? What’s up with that, Money Reasons:
Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!
But it’s also been a subtle form of LifeStyle Inflation! Thinking back now, I realize that when wants would arise, I would just go ahead and buy it. Yeah, I thought about it a bit, but I knew that I had the cash. Then when your car and lawn mower broke down, I had the cash too…
Money Reasons should have started investing well before all of his debt was paid off … he should have started investing as soon as his expensive debt was paid off and left his cheap debt on a regimen of minimum payments.
The problem with this war is that it’s an unjust war; as TraineeInvestor said: “Debt is a tool. Paying it off is simply choosing not to use the tool.”
If you have to go and fight a war, don’t fight a war against debt …
… go and fight a war for investment
A couple of weeks ago, I shared my thoughts on how – and why – to set up an emergency fund with just $0. For a start, it doesn’t take much cash
I suggested using a HELOC, or tapping your 401k in case of a true emergency. Some of our readers had other suggestions:
– Trainee Investor suggested selling stocks (they can be liquidated pretty quickly), or taking an unsecured overdraft.
– Evan suggested adding the “Cash value portion of a whole life insurance policy to the list. You can have the cash in your account within a day or two”
– Investor junkie says that you can avoid selling your stocks by taking a margin loan [AJC: just beware of the dreaded 'margin call' which can force you to sell your stocks - possibly at a loss - if there's a drop in market price]
And, Yahoo Finance provides their view of the The Best (and Worst) Ways to Raise Fast Cash; check it out. Then let me know if you’ve changed tack with your own emergency fund, or if you still prefer to fund it with cash?
After three years, you may be sick of listening to me – besides, by now, you should be $2 million or $3 million into your own $7 million 7 year journey, so what can I teach you? – so, here is some really important advice from Darwin Deason, a self-made billionaire entrepreneur:
Forbes Magazine: You have $100,000–where do you put it?
Darwin Deason: It depends on age and goals–but if I was young, I’d put all of it in a company that a) I could directly influence or control, and b) that I loved.
If you have your own financial advice, or feel that summarizing somebody else’s ‘personal finance system’ into “just one page” would be fun – and useful – then I have 5 x $100 Apple Gift cards to give away!
Just check out this post to join the action: http://7million7years.com/2010/10/28/just-one-page/
But, hurry … the giveaway finishes on Thursday November 11th (the last day for submissions) and the entries are already starting to come in!
Winners announced Monday, November 15.
Some yahoo breaks the window of a bakery. Did he create employment by causing $250 in repairs, thus giving the window repair man more money to go and spend in a kind of economic ‘mini stimulus package’?
Well, no, as many of my readers were quick to point out …
Hazlitt identifies the missing pieces:
What is missing from the thought experiment of the gathered crowd is the fact that the baker was going to buy a suit with that $250 but he can no longer do that since he is $250 poorer. The suit he was going to buy can no longer come into being since the tailor is not going to get that $250 to make the suit. So in this community, the window repair man and all of the merchants he would spend the money with make out but the tailor and all of the people he would spend his money with lose out. So, was there really any net loss or gain? Other than for the baker, no. Instead of having a window and a suit, he just has a window and is now $250 poorer.
But, “the main reason why no one typically considers the tailor and the merchants he would buy from is that, since the suit never came into being and was not readily visible, it never entered into anyone’s thoughts. The window, however, is quite visible and it does not take much to reason through who would benefit from the broken window.”
This issue of visibility is central to the way that most people manage their finances: the money goes where the need is most visible … now!
PS Before you point it out, I know that the image, above, isn’t the Hazlitt Maneuver … it’s the Heineken Maneuver, of course
Here is a short piece by Henry Hazlitt from his book Economics in One Lesson called “The Broken Window” Maneuver :
A young hoodlum breaks the window of a bakery and the gathered crowd begins to philosophize about whether the hoodlum really harmed anyone at all since he, after all, created employment.
He created employment by having to force the baker to pay the $250 it costs to fix the window to the window repair man. The window repair man will then have an extra $250 to spend with other merchants and those merchants will have more money to spend elsewhere. This line of thinking can continue on forever.
If it weren’t for the broken window then the window repair man would have less money and employment and so would the merchants he would spend the money with and so on.
So, what do you think? Should we stimulate the US (indeed, world) economy, simply by arming our population with rocks and asking them to all go break windows?
Yesterday, I mentioned that Trent Hamm, from a Simple Dollar is giving away a book called Everything You Ever Really Needed to Know About Personal Finance On Just One Page. You can get the eBook – for free – by clicking on that link.
But, what I really like is the first page; which you can download by clicking here => OnePage.
It shows a neat summary of Trent’s thoughts on personal finance in a one page ‘system’. Sure the diagrams are hand-drawn, but everything is clear, succinct, and easy to understand.
But, I don’t agree with everything that Trent says … and, I think that there are other personal finance systems around. It’s just that nobody else has bothered to put them on one page … yet.
That’s why I announced yesterday’s giveaway!
I want to encourage others to put their thoughts on personal finance – whether those thoughts are original, or just neat encapsulations of what has been written elsewhere – into a similar ‘one page system’.
I don’t have any fixed ideas on this, but I imagine that simple diagrams and arrows with a few bullet-points sprinkled in here or there will do the trick … but, I won’t know until I see it.
Now, I have five $100 Apple Gift cards to give away to the 5 people who I think have done the best job, but only if I like what they have done. Call me sole judge, jury, and executioner
But, I really do want to give all five gift cards away … that’s $500 folks … so, hit me with your best shot/s (yes, you can submit as many entries as you like)!
Remember: I’m looking for simplicity & content over appearance. Trent’s page is ‘elegant’ in its simplicity, clarity, and completeness … that’s what I want from you.
Here is a link to the giveaway page, where there are more instructions: $500 Apple Gift Card Giveaway!
Thursday November 11th is the last day for submissions, and I’ll be announcing the winners on Monday, November 15.
You can e-mail your submissions to me at ajc [at] 7million7years [dot] com – or, simply plonk a link to them in the comments of yesterday’s post (or, this one) if you’d rather publish on your own site …
… and, if you already have a blog, why not let your own readers have a one page summary of your personal finance thoughts, and win their undying gratitude … and, maybe get a $100 Apple Gift Card for your troubles?
Trent at a Simple Dollar did something really neat: he put Everything You Ever Really Needed to Know About Personal Finance On Just One Page.
It’s such a great idea, that I want to do the same thing!
But, I’m lazy
So, here’s the deal: put everything that YOU know about personal finance on one page, and you could win a $100 Apple Gift Card.
In fact, I have FIVE of them to give away. But, it’s at my discretion as to who – if anybody – wins these (but, I really do want to give all 5 away).
The ideas could be yours, mine, (not Trent’s because he’s already published his), or anybody else’s (but, link to the source): the presentation (simplicity + completeness + usefulness … not “how pretty it looks”) is what’s important here!
All up, this is $500 of my own hard-earned money … that you get to spend on really cool apple gear … so, make this good!
You can post a link in the comments (if you really can’t link to anything, send it to me as an e-mail and/or attachment to ajc [at] 7million7years [dot] com).
Shall we say 14 days?
More details tomorrow!!!
… heck, you can blog, write eBooks, create a course and sell it. Anything!
If you are interested in starting your own online biz, though, I want you to visit Erica’s site … she’s been there done that when it comes to online businesses. She sold just one of her online businesses for $1.1 million and now travels the lecture circuit talking about what she learned about life and business.
But, don’t believe the hype: you can’t “make millions” with the latest online hooey; Erica REALLY pumps her online ‘presence’ – by blogging, writing, speaking, and creating online products left, right and center – yet here are her income figures:
Ignoring one or two big sales; it’s not enough to change the world is it? Now, with Erica’s commitment and energy, she will keep building this ‘business’.
But, this is NOT how Erica made her first million, either.
Here’s what you should know: in the world of online biz, there’s a slow-path and a fast-path … a ‘real’ online business and an online ‘job’. Which one do I want you to try?
Perhaps surprisingly, I want you ALL to try the online ‘job’!
– It’s great experience: it will teach you about marketing, online businesses, writing … and, so on
– It’s also a great source of additional income that you can use to build your investment ‘war chest’ and/or your ‘real’ business startup capital
It will also help you decide if business is for you …
Then, if business is really for you, start a ‘real’ business either online or offline: one with a brand, with customers, with trailing income … one that somebody will want to buy!
Just like Erica:
By the end of 2003, my fledgling web hosting company, Simpli Hosting, was making more than my consulting gigs. The problem was, I was spending 40+ hours a week doing web development, and maybe 5-10 hours a week on hosting. I figured I had nothing to lose. I met with all my consulting clients and arranged transitions. I would be a full-time web hosting company owner in 6 months.
[lots of problems]
Things turned around. Just four months later, on September 7, 2007, I sold my company for $1.1 million to a competitor.
See the path that Erica took?
She started a business part-time … kept her full-time job (well contracts) … eventually took the plunge and went full-time into her business (this is the really hard step!) … battled all the usual BS that business owners have to put up with … and, eventually sold the business to somebody who didn’t want to go through all of that BS again to grow their own business.
That was (part of) my path to $7 million in 7 years, too. Maybe it should be yours?
I love (not!) these “secrets of how a millionaire thinks” types of articles, like this one called 10 Things A Millionaire Won’t Tell You [AJC: actually, this one really is quite interesting] …
… the problem is that they mix the poor millionaires in with the rich ones!
I’m not sure that I can define a ‘rich millionaire’ for you (seems like a tautology, but isn’t), but it’s something GREATER than $7 million, because I don’t ‘feel’ rich yet. Wealthy, yes. Wealthy enough to live my Life’s Purpose without ever needing to work again … just.
Extravagant, no … but, it would seem extravagant to you, wherein lies one of the problems: you may consider house with swimming pool and tennis court extravagant now. You may consider private schooling for your kids extravagant now. You may consider a BMW M3 Convertible and a Lexus Hybrid extravagant now.
But, when you become a ‘millionaire’ you won’t: you’ll expect the house + a second home in the country. You’ll expect the BMW and Lexus on the street + the ‘exotic’ in the garage. And, you will only want the best for your kids (unless you already live in a top public school district … then, watch your land taxes!).
You need to pin this down … now … when you are working on your required annual living expenses. Inflate this by 4% per year until you expect to retire (a.k.a. begin Life After Work). Multiply by 20. Add in your one-time costs (e.g. house/s). There’s your Number.
Which brings me back to my point; as the article says:
Some 10 million households have a net worth above $1 million, excluding home equity, almost double the number in 2002. Moreover, a recent survey by Fidelity found just 8 percent of millionaires think they’re “very” or “extremely” wealthy, while 19 percent don’t feel rich at all.
A millionaire, these days, can ‘safely’ spin off about $30k to $50k a year. That’s it.
If that makes me rich, then I was rich when I was still working my first job in my mid-twenties.
So, what does it take to truly feel rich, these days. Somewhere north of $7 million …
… Fidelity says the ‘magic number’ is about $23 million [AJC: citation needed; can anyone find the original Fidelity source for this?] before fat boy gets thong girl.
I won’t argue with that!
Early Retirement Extreme wants to slay the ‘enough’ dragon; while, for many, ‘enough’ refers to their income and/or spending, in ERE’s case it refers to his investment net worth:
In terms of the invested assets dragon, I have several. I want to have a $500k net-worth. Once I hit that, I want $750k; then I want $1M. It’s been like that all along. It might just be my biggest source of stress— not being able to rapidly save money, which, rationally, I’m not going to spend anyway. It’s pretty stupid, I know.
And, before you think that “when I’m rich, then I’ll have enough” remember that when people who you and I think are rich (i.e. with net assets in the $5 million to $25 million range) are asked how much they will need before they consider themselves rich, they tend to say: “about double”.
That is, they tend to think that they need about twice their current net worth in order to feel comfortably rich!?
The solution is to prepare your definition of ‘rich’ … in advance!
… and, that should be to have enough money to live your Life’s Purpose. We call that number your Number.
When you get there, STOP because that is – for you – truly ENOUGH.
On the other hand, my ‘dragon’ isn’t income, investment assets, spending, etc., it’s my entrepreneurial gene … I see opportunity in everything and want to invest in it.
Right now, I’m working on my real-estate development projects, partnering with a young entrepreneur in his first bricks-and-mortar venture, and have any number of browser windows open with new technologies that I want to pursue.
While it’s all fun, and mentally challenging, and fits totally within my Life’s Purpose, it all still takes money … so, in some ways, it’s no different to any of the other forms of ‘enough dragons’ out there.
So, how do I deal with my ‘enough dragon’?
Well, I built enough ‘fat’ into my Number to allow both the free time and the free cashflow to play with these new ventures: about 10 @ $50k a pop. Unfortunately, just one of my non-property business ventures is already in $100k territory, so I need to tweak by reducing the number of other ventures that I back.
And, as I’ve already said, this is easier said than done