The Murphy’s Law Fund

Scott who – in my post proposing a Zero Dollar Emergency Fund – says:

I’ve given this topic a lot of thought and how do you feel about seeing a typical ‘emergency fund’ as more of a temporary ‘war chest’? In that, you are building up this cash savings reserve as fast as you can, while you scout for that next great investment opportunity (ie; stock in that excellent undervalued company that you researched, or that terrific foreclosure that you’ve scouted out in a great area that you want to purchase and turn into a rental property, or an excellent business idea or perhaps funding the expansion of your current business).

I figure that way, this money has a specific target(high returns that are more likely to get you to your number by your date) BUT, in the meantime, if Murphy pays you a visit while you’re building up this ‘war chest’, you have some liquidity(ie; emergency funding) to tackle that emergency. But, as soon as you have enough built up to take that next investment opportunity, take it with this money!

The short answer is that Scott has some cash lying around, and hasn’t yet figured out what to do with it. An ‘emergency’ pops up, so the logical thing to do is to dip into that cash and use it to solve the problem.

I don’t have any issue with that: but it isn’t an Emergency Fund. It also isn’t a ‘war chest’. It’s just some spare cash lying around …

Of course, I’m overstating things for dramatic effect, here

So, let’s take a look at the following graph to see what may be happening [AJC: I've adapted this graph from something to do with the 'mating cycle of dogs' that I found on Google image search, but I think it suits our non-canine purposes just fine!]:

Let’s pretend for a minute that this graph represents the amount of ‘spare cash’ that Scott has lying around (Y-Axis) at any point in time (X-Axis):

Scott starts building up his savings, has a little glitch as he realizes that he forgot to pay his car insurance premium by installments so he has to pay it all at once, then steadily builds up again until it reaches Scott’s ‘peak’  – his ideal Emergency Fund of $10,000.

Then Scott hits paydirt: an idea for a new online business, and he starts to spend that $10k on programming, domain name registration, hosting, Google Adwords and all the other stuff needed to get the ‘side business’ off and running. A couple of months and $9k later, Scott’s business is paying it’s own way [AJC: well done, Scott!].

Great, now Scott can start building that Emergency Fund again …

Do you see the problem?

The only time the Emergency Fund is adequate is between the time that Scott has managed to save up the full $10,000 and the time he starts spending the money on something else (in this case, his new business idea; it could easily have been a vacation, new car, girlfriend, or …?).

[Sigh] If only Life’s little ‘emergencies’ knew how to fit into Scott’s calendar [double sigh]

I guess it’s up to me to propose a better solution …

Next time

Monetizing your passion …

If you want a business but don’t know where to start, think about monetizing your passion.

By that I mean, find out what it is that you like to do in this world (golf? personal finance? knitting?) and parlay that into a business.

Here’s somebody who turned a passion (and talent) for jewellery made from twisting little silver-plated wires into a $600k+ p.a. online business that teaches others how to do the same!

That’s why I recommend that you start today …

… whether you have any idea what/how to start your business or not, start by writing a blog.

It can tell others how to do whatever it is that you do (if you are already an expert), chronicle your own journey to ‘expertness’ (great way to get started, even if you don’t know much about your passion at all), or it can simply be a collection / review of others who are experts.

Down the track, you’ll have enough randomized blog entries to create some of your own information products … all neatly reviewed, scrubbed, and honed with the volunteer assistance of your readership.

What do you think I’ve been doing with this blog all of this time?

Seriously, if you think this is hard, check out this story of a 9 y.o. who decided to (successfully, I believe) help pay for his own heart operation by writing/selling an e-book:

http://steve-olson.com/9-year-old-helps-pay-for-own-heart-surgery-by-publishing-estory/

Inspirational, true story even without the business/money lesson that I had to wrap around it!

Lying in a job interview …

… don’t.

If you don’t understand why lying to anybody about anything is a Very Bad Thing, please unsubscribe from this blog … I don’t want to financially arm a lying, cheating scoundrel, you’re dangerous enough without money

This could be my shortest post ever, so let me pad it out with a very-slighty-related anecdote:

One of my friends was offered a promotion, so he had a ‘salary negotiation’ meeting with the CFO of the company (also a very nice guy and also a personal friend, which makes this all the more funny to me).

After a suitable opening discussion, the CFO reached into his briefcase and pulled out an Offer Letter with the proposed new salary on it, and signed by the CEO.

Pretty official … end of discussion.

Except the payrise was trivial (like 5%) and involved a relocation; naturally, my friend pointed out to my other friend (the CFO) how inadequate the payrise was.

No problem.

The CFO merely reached into his briefcase and pulled out a second letter! Neatly typed and also signed by the CEO … sneaky, huh?

Only problem was that this offer was still too low, and my friend told him so.

No problem.

The CFO reached into his briefcase and pulled out a third signed letter!

I wonder how many more signed ‘official’ letters were sitting in there?

Unfortunately, we’ll never know because my first friend stopped there and my other friend (the CFO) ain’t telling.

If there is a message in all of this: negotiate the hell out of all job/business opportunities (without being a pain the the a…), but please don’t lie about it.

5 Secrets Of Self-Made Millionaires

I’m a voracious reader of anything that purports to teach you how to be rich … when I needed to learn, I read everything hoping to find ‘the answer’ … and, after I made it, I continued reading (but, I must admit that I am more discerning now) mostly out of curiosity (to see what others are saying).

In both cases, I was almost invariably disappointed … hence this blog.

But, I was pleasantly surprised to read an article with a [groan] headline: 5 Secrets of Self-Made Millionaires …

… it’s actually not that bad. Not rocket-science, but not anywhere near as bad as most similar articles and books are.

Here are the 5 ‘secrets’ and my take on each:

1. Set your sights on where you’re going

T. Harv Eker, author of Secrets of the Millionaire Mind [another groan] says:

The biggest obstacle to wealth is fear. People are afraid to think big, but if you think small, you’ll only achieve small things.

Wanting to be wealthy is a crucial first step.

I obviously agree; if you don’t understand why, you must be a new reader [Hint: It's to do with discovering your Life's Purpose and Your Number / Date]

2. Educate yourself

You’re reading this blog post … and, I wrote it, didn’t I? ‘Nuff said

3. Passion pays off

See 1. above … ZZZZZzzzzzzzzzz

4. Grow your money

Well, d’uh!

But, Loral Langemeier, author of The Millionaire Maker, adds something sensible:

The fastest way to get out of that pattern [the never-ending cycle of living paycheck to paycheck] is to make extra money for the specific purpose of reinvesting in yourself.

[AJC: I would delete the last two words, which are hokum; it doesn't cost much to "reinvest in yourself" except time ... for example, this blog is FREE].

I like this part [AJC: I bolded the part that I like the best ... I like it, because I did it, too; that's how I raised the capital to expand to the USA i.e. from profits left in the business]:

A little moonlighting cash really can grow into a million. Twenty-five years ago, Rick Sikorski dreamed of owning a personal training business. “I rented a tiny studio where I charged $15 an hour,” he says. When money started trickling in, he squirreled it away instead of spending it, putting it all back into the business. Rick’s 400-square-foot studio is now Fitness Together, a franchise based in Highlands Ranch, Colorado, with more than 360 locations worldwide. And he’s worth over $40 million.

I also like:

If you want to get rich, you need to pay yourself first, by putting money where it will work hard for you—whether that’s in your retirement fund, a side business or investments like real estate.

5. No guts, no glory

If there’s any one secret in all of this, it’s this one:

Iif you are a timid mouse (like me), you either have to learn to roar (like I had to) or learn to live with a Small Number / Never Date.

Getting the Life’s Purpose ‘religion’ is one way to put the fire in your belly … it worked for me.

Oh, and they leave the best secret to last (at least the author feels it’s the best), which is funny because this would then be Secret # 6:

The Biggest Secret? Stop spending.

I agree with everything AFTER the ‘?’ above

If you don’t have the money to invest, don’t spend … it’s simple!

But, I don’t agree with this:

Every millionaire we spoke to has one thing in common: Not a single one spends needlessly. Real estate investor Dave Lindahl drives a Ford Explorer and says his middle-class neighbors would be shocked to learn how much he’s worth. Fitness mogul Rick Sikorski can’t fathom why anyone would buy bottled water. Steve Maxwell, the finance teacher, looked at a $1.5 million home but decided to buy one for half the price because “a house with double the cost wouldn’t give me double the enjoyment.”

Don’t believe that Millionaire Next Door cr*p; some multi-millionaires are frugal – even some Billionaires (most notably Warren Buffett) – but, don’t be fooled into believing that’s the majority of multi-millionaires:

I have a friend who works for a 35 year old Russian immigrant who is now a hugely successful hedge fund manager (yes, he’s survived the GFC as far as I know. I’ll check when I’m on Safari in South Africa with my friend later on this year); my friend overheard him explaining to his daughter that he was going to take the family jet to a business meeting, so she would need to fly on a commercial airliner with her mother to get home from their vacation.

This is what he said to his daughter: “You know that there will be people you don’t know on that plane” … at 8 years old, she had never flown other than by private jet!

Another friend works in MLM and had breakfast with that company’s # 1 distributor – a nice, young lady. She receives a $600,000 check every month. She just bought a mountain in Colorado and a special tractor, so that she could grade her own private ski run.

I hope she puts a lot aside for a rainy day; gives overly generously (money and time) to charity and those in need; and, joyfully spends the rest!

I have a simple rule: spend freely, when it doesn’t make sense not to.

Think about that, and let me know what you think it means …

The problem with Henry …

Actually, it’s not the problem with Henry, it’s the problem with HENRY: High Earner Not Rich Yet.

Included in this group, a group that most workers mistakenly aspire to, are those doctors and ceo’s (at least those not in the Fortune 500) that I mentioned in yesterday’s post.

Now, this is only interesting because I can now answer the question posed on Twitter [AJC: you can glance across to the right to conveniently find a link to my Twitter account].

Dianne Kennedy (CPA), I think erroneously, links HENRY’s to taxes then lifestyle, but (as my article some time back about doctors also said), I think it boils down to three non-tax (even though taxes hurt!) issues:

1. As your income grows so does your spending … then some!

2. Keeping up with YOUR Jones (i.e. other high-flying corporate executives and professionals) is VERY expensive

3. You can’t sell a salary package (like I can sell a business, some shares, or a property or two) when you decide to retire

[AJC: You need both a big 401(k) - see reasons 1. and 2. why this doesn't happen - and a huge golden parachute, which may / may not happen to compensate for reason 3.]

If HENRY’s want to become rich, they have only two choices:

- Get lucky, or

- Invest a very large % of their annual earnings

Let’s assume that a HENRY – conveniently named Henry who happens to be ceo of a medium-sized business – is earning $290,000 and has already managed to save $1 million – our consummate Frugal Investor – and has arranged things so that he can continue to save a very hefty 35% of his salary (this is all pre-tax).

After 22 years, Henry will have saved just enough (in Rule of 20 terms) to replace his $290,000 ceo’s salary … by then, inflation adjusted to $661k per year, assuming that he wants to maintain his lifestyle [AJC: more importantly, assuming that he can - and wants to - 'ceo' for 22 more years ... if he 'only' starts with $500k in savings, he'll need to work for at least 26 more years].

Seems easy, but human nature [read: urge to spend it up] is what it is …

I should know: I was ceo of my own business, employing over a hundred people across 3 countries (USA, Australia, and New Zealand).

I paid myself $250k per year, and had cars, cell phones, laptops, and health insurance all paid for by my company – I reinvested all the remaining profits in these businesses.

I had a $1.65 million house in the ‘burbs, paid for by cash (s0, no mortage), and two children in school (one private, one public). We traveled domestically and/or internationally once or twice a year as a family, ate at ‘normal’ restaurants (and, the occasional top-tier eatery).

I can’t see how I could have saved 1/3 of my salary … I couldn’t even save 10%

Of course, I could have saved 10% if I really tried, but my point is that it’s very hard to save 30% of even a high salary, unless you gear yourself up to do it from the very beginning.

[AJC: Look, it's not my job to tell what should happen as you get richer, but the reality of what will happen and how to do better ... when you get to $250k you will bring with you exactly the same spending and saving habits as you have today, if not worse. Moral: start MM101 today!]

In other words, don’t divert all of your creative energy into playing Corporate Lotto (i.e. chasing a higher salary) if you want to get rich – or, even to reach a more humble goal, such as becoming debt free (a dumb goal, IMHO).

First – and, as soon as possible – learn how to get rich (or debt free, or …) by taking action right now, with whatever you can bring to the table.

If your salary happens to improve along the way, all the better … but, don’t rely on it!

How much income do you need to be Rich?

In his bestseller, The Number (2006), Lee Eisenberg relates the story of a man who outlined for him what somebody else told him [AJC: already, this sounds like an Urban Myth] about what it takes to be rich:

This is really interesting, because it matches what I was told when I began my Journey (to $7 million in 7 years) by a well-known finance guru; at the time, he said [AJC: paraphrasing; my memory's not THAT good!]:

In order to live a ‘rich’ lifestyle (i.e. you can drive the cars you want, live where you want, travel whenever and wherever you want) you need an income of at least $250,000 per year.

Now, that was back in 1998 … so, when I bumped into him a year or two ago, I reminded him of what he told me then, and asked him what he thought the ‘number’ was now: he said “$500,000″ [AJC: that's per year].

In fact, that $250k (times the 20 multiple that he also told me that I needed) was the exact basis for my $5 million Number, because I didn’t know how to calculate it any better (then) … and, along with discovering my Life’s Purpose, started the journey that totally changed my life.

Seeing this table, excerpted from Lee Eisenberg’s book [AJC: which, he admits ripping from somebody else ... apparently, that's how these 'rules' get written!] only reinforces that … so, just decide whether you want to be “comfortable” (or, “comfortable+”), “kind of rich”, or plain ol’ “rich” and  your Number is virtually set!

Which brings me back to the question of whether CEO’s are rich, in the first place?

[AJC: we already know the Fortune 500 CEO's are, but what about the 'ordinary' CEO's of all of those small-to-medium-size businesses out there?]

Really, it’s only the CEO’s of those businesses (and, their highly-deserving legal advisors) who can even claim to be “comfortable+”.

Most senior management in these businesses can only claim to be ‘comfortable”, at best …

… so, the real reason why most CEO’s aren’t rich is that they simply don’t earn enough!

My question to you is:

If you know your Life’s Purpose, and if you know your Number (particularly if it’s a Large Number / Soon Date) why are you wasting your time:

- kissing up to your boss,

- back stabbing your work mates, and

- running ragged for your company’s customers?

… just to have the slightest-possible-chance of getting to the ONE job in the WHOLE company that ONLY makes you “comfortable+” AT BEST?

Seems silly to me …

When I crunched those odds (way back in 1990), I very quickly made a rush for the Exit Door at my high-flying corporate job

Something from nothing …

In The Art of the Start, Guy Kawasaki (founder of garage.com, one of the earliest ‘business angels’) talks about bootstrapping your startup i.e. starting it on a shoe-string …

… he then proceeded to start his own Web 2.0 startup (perhaps only mildly successful, although he did manage to sell it for an undisclosed amount in 2009), called Truemors for only $12,000 (you can read about it, in this excellent post)!

Now, Guy could afford to spend millions, yet he chose to bootstrap, because it made good, commercial sense NOT to spend more.

For most startups, bootstrapping is a necessity, yet how little you spend up front may not have any detrimental effect as far as the success of your business goes, as the HotOrNot.com video above clearly demonstrates.

BTW: to prove that point, Hot or Not was (reportedly) acquired for $20 mill. not long after this video was shot.

My point: don’t let lack of money be your excuse for not starting your own business!

The one question that you should ask, before you ask your question!

Now, that’s a circular headline: The one question that you should ask, before you ask your question!

It’s because Consumerism Commentary has shared his experiences in customer service:

The prevailing wisdom when dealing with customer service representatives is to just keep repeating “let me speak to your supervisor” until you eventually get what you want. Every time I read this, though, I get defensive and annoyed. I can’t forget that year I spent answering the phones for Bank of America … I learned a couple of very important lessons as a CSR that are in direct conflict with the “let me speak to your supervisor” rule.

His rules are good … and, basically involve trying to make the customer service representative on the other end of the phone line your “friend” which (he says) usually results in not only getting his issue/s resolved but also getting “fees reversed, special deals made, you name it.”

Now, I can’t argue with that!

Well, I could, since I employed well over a hundred staff in call-centers across three countries … but, I won’t

But, I will say that there is one question that you should ask as early on as you can politely work it into the conversation with ANYBODY that you hope to ‘get something out of’ e.g

- The customer service representative at the store or on the phone where you hope to have a problem resolved

- The person at the bank who you are sitting in front of to negotiate a new loan

- The customer sitting across the desk from you (or on the other side of the telephone line) when you are trying to make a sale

- The sales rep at the dealership where you are trying to negotiate a “super, great deal” on that new fridge, car, house, etc.

- and, so on …

… particularly, when you know (or, as soon as you are told) that you are ‘pushing the envelope’ with your request.

This one question that I am about to share with you will save you hours and hours of going around in circles trying to ‘close’ whatever deal you are working on (in your favor, of course!), before you have to finally resort to asking to “speak to your supervisor” … and, have to start all over again!

What’s the question?

Simple: “Do you have the authority to [insert: request of choice]?”

A word of warning: you don’t ever want to question somebody’s status, so be subtle and choose the right moment and way to ask this?

For example, in a sales situation, a really neat way to ask this same question without the running the risk of being thrown out of Mr-Lower-Middle-Manager-Who’s-Job-It-Is-To-Keep-People-Like-You-Away-From-The-Real-Decision-Maker’s office, is to politely and innocently enquire:

“Who do you usually like to talk to before you make decisions like this one?”

That’s who you want to speak to right off the bat … not Mr Peabody

You get one shot …

Who was it that said: “you get one shot at making a first impression!”?

This is no truer than in marketing:

- You research your market,

- You target your audience,

- You create a great campaign,

- And, then you send this e-mail campaign out:

We Love Your Blog!!!

[AJC: So far, I'm hooked!]

I’m writing to inform you that [websitename] has been featured on Guide to Online MBA’s Top Personal Finance Blogs list found here:http://www.guidetoonlinemba.com/tips-and-tools/personal-finance-blogs. We’ve gone through and hand-picked a list of our favorite personal finance blogs and outlined the unique reasons why we like them.

[websitename]?!

How’s that for a credibility-killer; naturally I shot back an e-mail of my own:

Dear [spammersname],

“I’m writing to inform you that [websitename] has been featured …”

LOL … and, thanks!

The website owner kindly – and, quickly – wrote back … and, it was all a mail-merge error, etc., etc.

Too late, the marketing campaign is already shot … don’t let this be you

Footnote: If you check out the “hand-picked” and ”unique reasons” why they apparently like my blog, they say my blog “discusses financial strategies for earning $1 Million a year” x 7 years = $7Million7Years (!) … a research genius at work!

You gotta have a hobby …

I don’t collect bees!

My hobby is personal finance: talking about it, writing about it, reading about it, thinking about it …

… strangely enough, making money is actually not my hobby [AJC: although, I far prefer it to the alternative ] although making money gives me the credibility to do the talking/writing.

Anyhow, one of my latest readings is a series of e-mails that is a section-by-section delivery of what Malcolm Hughes also sells as an eBook.

Presumably, when reading these e-mails, you will get SO EXCITED that you won’t be able to wait for the next FREE e-mail, so you will fork out your money for the eBook – ‘Millionaire Stealth Secrets’ Handbook.

Surprisingly, I found that I can wait

For a ‘Millionaire Handbook’, there’s actually NO advice on making/keeping money that I can see, unless you count e-mail upon boring e-mail of goal setting / visualization / dreaming mumbo-jumbo as ‘millionaire advice’.

In fact, the first piece of sensible advice that I can see is the following passage from the 28th e-mail in the series (!):

Listen to this…   Every single hugely successful person in the history of mankind has failed at least once. In many ways, they had to in order to succeed. Richard Branson [billionaire founder/owner of Virgin Records/Airlines/Credit Cards/etc./etc./etc.] was almost put out of business by the Royal Mail strikes of 1971. His mail order record business relied on the post to make money. Instead of ruining him, it made him stronger and he began opening his record shops. He was also nearly liquidised by Coutts Bank for being £300,000 in overdraft!

But whatever had happened, there would still be a Richard Branson. In fact, if Coutts Bank HAD liquidised him, he might have been even richer by now! You see, what CAN happen to a person when he/she fails is that he/she realises at least 3 things that he/she would not have realised had he/she not failed.

1.      Money is actually easily replaceable

2.      There is nothing to fear about failure

3.      Failure is SOMETIMES necessary and ALWAYS fruitful

Fear of failure is one of the key hold-backs that stops people from stepping out of their comfort-zone, so this is good – and true – advice.

Unfortunately, IMHO the rest is BS