Loading ...I think this is a good time to take another look at your emergency fund; I’ll explain next week …
In the meantime, answer the survey to let us know how much you have saved specifically as an emergency fund, and leave a comment (if you like) to tell us why!
They say that the will to give – to donate – generously is governed by a gene.
For those readers in – or approaching – MM301 (i.e. you’ve made your millions, now you are struggling with what to do with it), I want to test that gene to its fullest, by asking you a question:
Would you donate your last penny?
I can honestly say that I would not …
Which brings me to a related topic: it seems that many people who come into money take a chunk of it to donate. Perhaps to have the wing of a school named after them, or to do some other ‘good works’.
Whether the sum is $1,000,000 or $100,000 or $10,000, when donating what you consider to be a large sum, think about what you are really donating; you are not merely donating $1,000,000 (or $100,000 or $10,000), you are donating the future value of $1,000,000:
Let’s say that you plan on living for another 40 years, and you can invest your money at 5% above inflation, then the real value of your donation is not $1,000,000 but more than $6.7 million!
[AJC: if inflation runs at 4%, and you can get an average return of 9% over 40 years your $1 million will grow to almost $29 million, but inflation takes away a huge chunk of it!]
When thinking about donating that $1 million [AJC: The Cartwood Family Wing does sound tempting], I’m not really thinking too much about that $6.7 million [AJC: or, $28.8 million … ounch!], I’m actually asking myself:
Would I donate my last $1 million?
You already know the answer to that 😉
But, why?
If all goes belly-up in my financial life, I really may have just given away my last $1 million … in other words: if I lose $6 million, I am now broke (since I already gave away the 7th million of my 7m7y).
That’s why I would never donate a lump sum … instead, I would invest that $1 million for the benefit of charity. Further, I would not even pledge the capital or the income stream in advance, I would simply make the requisite donations annually and anonymously.
It may not get my name ‘in lights’ [boo hoo]; it may not help the charity with capital acquisitions; and, it may not be the most tax-effective method of donation (compared to, say, charitable trusts and the like), but it will help both the charity and me, long-term:
1. The chances are that I can invest $1 million far better than the people running the charity can [AJC: after all, I’ve made 7m7y]
2. It’s likely that the charity – or, some other equally worthy casue – can use $6.7 million more than they can use $1 million, albeit spread over 40 years; but, I admit that I’m just making a wild guess that the world will need philanthropy for at least the next 40 years.
3. If all goes belly up, and I end up becoming the one in urgent need of ‘charity’, I can ‘donate’ my last million (at least the income thereof) to myself and my family.
4. When I die, if I feel so inclined, I can finally donate either the asset or the income stream (or both) to the charity as I will no longer require it as insurance for myself. On the other hand, I may choose to pass it on to my family and let them decide.
I guess nobody will be talking about “AJ Cartwood, the great AustraloAmerican investor, raconteur, and philanthropist” … at least, not during my lifetime 😉
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!
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!
OK, so if the ‘secret’ to making money hasn’t changed in 50 years …
[AJC: if you didn’t read yesterday’s post, it’s simple: buy a rental property with about 25% down; renovate; trade up and start again; repeat until rich!]
… why are there so few people doing it?
It could be market fever: “the market’s too [insert excuse of choice: hot, cold, near, far, etc.]”; but, I suspect it’s the age old reason: you simply don’t know HOW.
Ok, so let me make it simple: save up a reasonable deposit (15% to 25% works for me), and do the most cost-effective renovation (also called remodeling or rehabbing, depending on what country you live in) possible.
The question is, what are the best ‘bang for buck’ renovations to do?
Well, here is a national summary of typical renovation/remodeling projects (including their average cost and how much resale value that they add to the project):
Despite this, I would not go about replacing all of the wooden front doors in my condos with steel doors! In fact, I would still look at:
1. Repaint / recarpet,
2. New blinds, door handles, light fittings (all of these can be quite cheap, as long as they work/look OK),
3. Kitchen remodel (you may be able to resurface the existing cabinets)
4. Bathroom remodel (you may be able to resurface the existing tiles, baths, and vanities)
5. Also, if it’s a house (not a condo), then you should paint the exterior and fix up the garden
6. Again, if it’s a house, perhaps the MOST ‘bang for buck’ rehab that you can do is to add another bedroom (especially to change a two-bedroom house into a three-bedroom house).
If you think it’s expensive, think again … just be very wary of your budget!
Here’s how it panned out for us:
We purchased one condo a street or two away from the beach:
– We bought for about $220k,
– Spent $15k on a rehab (paint/carpet, kitchen/bathroom remodel, door knobs and light fittings),
– Rented it out (we didn’t need to sell it).
It’s now worth $450k to $550k a mere 6 or 7 years later.
We then repeated with a block of 4 condos:
– Bought all 4 for $1.25 million,
– Rehabbed for $200k ($50k each condo), including the fees necessary to retitle from apartments (rental) to condos (rental or individual sale)
– It’s now worth $1.8 million to $2.25 million, a mere 6 years later.
For the four condo’s, we spent $50k in renovations (each condo: $200k total)), which bought us: paint inside/outside, new kitchen bathroom carpet, light fittings, security entrance for the building AND conversion of the front of the building into a private courtyard for one of the apartments, and conversion of the rear laundry into an ensuite bathroom for another condo in the block!
If you think the work is hard and/or time-consuming, we didn’t do the rehab on either project and didn’t even see the second project until 5 years after it was finished! We believe in outsourcing everything 🙂
You’ve heard the pitches, seen the ads, and even read the books …
… but, how successful are those ‘best-selling’ real-estate authors, anyway?
John T Reed is the guru-basher – rightly or wrongly, he reads, judges, and publishes his views on his web-site. Click on this link to read what he has to say about some of those real-estate gurus, then come back here.
You see, I want to point you to the very first ‘guru’ that he mentions: it’s William Nickerson. William Nickerson was unique in that he really was successful, and interesting for two reasons:
1. He actually wrote a best-selling book on real-estate that is the genuine article, and
2. He wrote (or commissioned) perhaps the very first real newspaper ‘advertorial’ (see the image, above).
According to John T Reed, an accomplished and genuine real-estate investor in his own right, William Nickerson:
… told the truth – but he did that back in 1959. His book, which is excellent, says to save money, put 25% down on rental property, renovate it, and exchange up to a bigger one and repeat the process.
Simple, but effective!
BTW: I now remember that Rich Dad, Poor Dad was NOT the first personal finance book that I ever read. It was, in fact, an old book that I found in my Dad’s book shelf. It was called something like: How I Made $1 Million In Real-Estate and was written by a Hungarian ballet dancer who either moved or defected to the USA and somehow found a lucrative ‘hobby’ in real-estate.
His system was very similar: buy one rental property, rehab, and trade up for a duplex. Repeat and trade up to a quadraplex. And, keep going!
I can’t believe that I forgot about this book, as it was the one that really fired my imagination, after which I promptly did NOTHING towards investing in real-estate for at least the next 10 years 🙁
This video commercial from the New York Lottery shows Louis Eisenberg, the then biggest ever lottery winner with $5 million.
The trouble is he is now broke and living on social security in a trailer park …
… until then, people actually asked him for financial advice:
All of a sudden, people were asking, ‘Lou, what about this?’ ‘What about that?’
All because he – temporarily – won $5 million!
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! 😛
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 🙂
I thought that we had successfully debunked the power of intention, when we showed that our readers – some of who may have tried to manifest money over the past year, but most of whom would have not – greatly outperformed a group of people who most assuredly did try and manifest significant amounts of money.
But, Napoleon Hill is the ‘godfather’ of intention, so go who am I to argue? 🙂