Tag Archives: money

Lying in a job interview …

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… 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.

Speaking of Billionaires …

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Where I fear to tread, Bargaineering boldly ventures; proudly proclaiming The Billionaire Secret: Avoid Ordinary Income, Acquire Capital Gains.

I won’t presume to tell you anything about being a bil-yun-air until I are one, but that doesn’t stop others from trying; Bargaineering says:

The key to building wealth is to build or buy an asset that can appreciate in value and/or generates passive income. The key to building or buying an asset that can do that is to convert your labor into capital (money). This is why saving for retirement, saving for a home, and saving in general is such an important piece of your personal finance plan. This is the billionaire secret because this idea is well understood by people who are wealthy. They see that capital gains taxes are much lower than ordinary income, that’s why Warren Buffet pays lower tax rates than his secretary. Capital gains are taxed at 15% for 2010 while the 15% tax bracket is the second lowest federal tax bracket (for those earning up to $34,000). It’s a no brainer, you want to transition, as quickly as possible, from ordinary income to long term capital gains and dividend income.

Have you ever seen those magic shows where the magician pulls some random guy out of the audience and gets him to try and copy what the magician is doing?

Presto!

The magician accomplishes some amazing feat and the other guy (gal?) ends up looking like a shmuck …

Well, that’s kind’a like what’s happening here – in fact, with most PF authors who write ‘get rich’ stuff. They are working by what they THINK they see other (real millionaires and billionaires) doing.

And, they see Warren Buffett playing with capital and saving on taxes and … presto!

“Convert your labor into capital (money)” and “capital gains taxes are much lower than ordinary income”, so “it’s a no brainer, you want to transition, as quickly as possible, from ordinary income to long term capital gains and dividend income”.

So, it’s a no brainer that you do all this (because the Billionaires DO do all of this, I think) and you’ll be standing there in 5 to 10 years as a poor shmuck.

Why?

You’ve missed the point entirely: how the trick is done, because it’s done behind the scenes … Bargaineering can’t really see it and neither can you.

Not because these billionaires are hiding anything (well, they probably are hiding at least a little) – unlike the magician who can’t afford to tell, not even once – but, because they have much more important things to do than write books and blogs.

So, from a multimillionaire’s perspective rather than a billionaire’s, let me share what I think is going on:

1. While you are trading hours for $$$ you lose

This is why I chose NOT to become a highly paid consultant, way back when I was a world expert (speaking tours and all) in my little niche. Don’t trade a limited commodity (time) for an unlimited one (money); you only have 40 to 60 hours a week to trade, no matter how much per hour you think you can pull, yet money is just bits of paper that Uncle Sam prints by the trillions.

Fortunately this one is simple: start a business; start investing … make your little bit of time and money work as hard as possible, until the money – on its own – starts to make more money for you. I think you can extrapolate?

2. Capital is better than income

But, it’s not for the tax-advantages … I don’t do anything BECAUSE of the tax advantages (for one, Uncle Sam loves to change those rules at the drop of a policy change); I simply take ’em when they come.

But capital is a tool for creating income; it’s a little like that time/money thing. The best you can do is create your perpetual money machine: use your income to buy a little capital (real-estate is nice) which generates more income (from rents, after mortgage and other costs) which you pump back into buying more ‘capital’; repeat until rich!

Finally, Bargaineering says:

While the 2% you can get at a high interest savings account isn’t going to set you for retirement, that income represents your money working for you. The problem with this approach, at least for the long term, is that interest income is considered ordinary income. It’s taxed at the higher rate, which makes it a bad idea.

Do I really need to explain why the problem here is the 2%, not the taxation rate?

None of this get rich(er) quick(er) stuff works, if you don’t get your annual compound growth rate to infinity and beyond … well, at least to 15%+++ 😉

What it takes to be a Billionaire ….

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I feel so privileged to be in the blogging company of a billionaire …

Guerrilla Billionaire [AJC: who, presumably is so humble that he doesn’t even pay $12 at GoDaddy for a real domain name, prefering to use: the free one provided by Typepad … so humble, it brings tears to my eyes] offers a course on How to Become A Billionaire.

Thankfully, he also provided a link to an article written by a guy who interviewed a REAL Chinese billionaire 5 or 6 times:

It seems that this Chinese Billionaire’s ‘secrets’ are along the lines of being humble (he started as a peasant boy), being nice to everybody (you never know when the next peasant will become your competitor, financier, or business partner), being scrupulously honest (apparently, there’s a way to be unscrupulously honest that, so far, I am blissfully unaware of), and to leave plenty of meat on the bone for others.

Of these, perhaps the last is the only ‘real’ secret that I can see in all of this (5 interviews and no secret business or money management techniques?!) … or, at least the only one (other than being honest) that I can relate to:

In my latest property development deal, I am sharing 25% of the project profit (plus a $200k fee) to my partner who is essentially doing nothing other than project management … he’s not putting a penny into these deals (I’m paying him $200k + 25% on each): I’m funding 100%.

I could hire an experienced building project manager for less than the $200k fee alone, yet I am potentially giving away millions to this guy.

Why?

Well, part’s the ‘honesty/ethics’ bit: he did find me one of the pieces of land that I aquired and pointed me towards the real multi-story condo development potential of the other (I had a much less lucrative project in mind); not to mention, he helped me with the rehab of my house.

But, that’s not quite the full story: while I don’t normally like partners – in fact, have never had one before – this is a whole new thing for me … I know nothing – nada – about property development, having always been a buy-and-hold guy. Again, I could have bought in the expertise, but that may not be the same as having somebody that I can (hopefully) trust who now has skin in the game.

We shall see if this strategy works; and – given how much I have already learned (property development is EASY) – whether I will go it alone on any future projects.

But, there’s a LOT to be said for not looking at how many beans are on the other guy’s plate: if you’re hungry, and you’re also eating beans, who cares?

Oh, as to the billionaire course, I won’t be taking it – even though I probably need an instructor for Making Money 401.

Fortunately for you, you already have a bona fide multimillionaire to guide you through MM101, 201 and 301 …

… even if I’m not very humble – at least as far as this blog, using my semi-anonymous AJC identity, goes,  😉

An inch is not a mile …

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You decide that you need a new TV because your old one blew a tube (do they still have those?) and watching the blank screen is a real bummer.

You check your budget then the catalogs and decide that $900 is a reasonable target price for the type of TV that you want, so you trundle down to Best Buy [AJC: Ka-ching! That’s another $1,250 for product placement. Whoohoo!].

Luckily they have the TV you want at only $850 … better yet, with your $50 Best Buy Rewards vouchers [AJC: + $350 Voucher Mention Bonus] you get the whole kit for $800.

So, what should you do with the $100 that you just saved?

That’s the question asked (and, comprehensively analyzed) in a guest post on I Will Teach You How To Be Rich on The Psychology of Money Savings, where the author talks about this as “the last mile of saving”:

So you’ve cut back your car insurance, negotiated a lower interest rate on your credit card—or nabbed a great deal on a new TV. You’re congratulating yourself for being a smart saver, and keeping more of your hard-earned money in your pocket.

Peter Tufano, professor of consumer finance at Harvard Business School, says that many people confuse a lowered rate (on car insurance), or getting a discount (25% off a TV) with saving money.

You can thank a psychological phenomenon that economists have dubbed malleable mental accounting.

C’mon, this isn’t a ‘mile’ … it’s barely a savings ‘inch’: you haven’t ‘saved’ anything … you’ve just spent 800 bucks.

Simple!

If you really want to think about saving, treat the $100 that you ‘saved’ from your original (actually, notional) $900 budget as ‘found money’ and save 50% of that.

Better yet, vacuum the dust off the back of your TV from time to time and maybe it won’t overheat and you’ll be able to ‘save’ the entire $900.

Got it?

5 Steps Toward Financial Independence – Reworked

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Happy Holiday Weekend – which is now already fading as a distant memory of fun and relaxation, as your work cubicle begins to close in on you ….

… although I’m still (technically) on vacation, I’m cutting my blogging-vacation short out of sympathy and because I’m just bursting to share this post with you 😛

Sarah Winfrey – on Wisebread – provides her 5 Steps Toward Financial Independence … I want to share them, then rework them slightly for you.

First, Sarah says:

Whether you’re a brand new grad or regrouping after a layoff or other financial difficulties, you may find that it’s more difficult than you’d imagined to wean yourself from any monetary help you’ve been getting.

1. Get a Job

2. Know Your Expenses

3. Commit to Saving

4. Prioritize Essentials

5. Give Yourself a Deadline

It’s generally good advice, and you should read the whole article here, but this wouldn’t be $7million7years if we didn’t have our own take on things:

1. Get A Job

Losing your job (or graduating college and finding it hard to find that ideal, first grad. job) shows you how fickle the world of employment can be. There’s no safety in employment any more, so you may tempted to become your own boss. But, there’s no safety in business either!

Look, I love the idea of people going it alone and starting a business, but a job provides three things that you might need:

– Cash to live off

– Starting capital for business and/or investing (your ‘war chest’)

– A safety net, in case your first business or two fails.

So, I recommend that you go ahead and get a job … and, start that business on the side!

2. Know Your Expenses

This one is easy … if you try the ‘no budget budget’ ( http://7million7years.com/2009/05/04/i-hate-budgeting-so-ive-only-ever-tracked-my-expenses-once/) 🙂

Hopefully, you already tried this – when (if) you were working – but, now’s a great time to try this again … just for one month.

3. Commit To Saving

Now, this should be easy: if this is your first job, then you’re used to living off nothing, so 50% of something must seem like a HUGE payrise to you. Regardless of whether this is your first job, or you are reentering the Rate Race (I mean, work force), you should treat this as Found Money and aim to save 50% of your income.

If that’s not possible, work your way back from 50%, all the way down to 1% if you need to …

… just remember that your eventual target should be AT LEAST 10% of your net income over and above whatever goes into your 401k.

Why?

Remember that business/investing war chest?

You need access to your money, so start building your savings outside of your 401k, as well as continuing to fund your 401k. But, you should simply treat anything that goes into your 401k as a safety net, much as a high-wire artist treats their safety net as something that’s there but NEVER to be used … except if you fall!

4. Prioritize Essentials

Remember that ‘no budget’ budget?

Now’s a great time to go through it with a fine tooth comb and identify any excesses … and, eliminate them.

And, to help you stop spending money unnecessarily, it’s time to stamp out that Impulse Buying Bug once and for all!

The best tool that I have found to help you do that is the Power of 10-1-1-1-1 card, which should be laminated and sitting in your pocket – well worn from overuse: http://7million7years.com/2009/04/23/the-even-greater-power-of-10-1-1-1-1/

5. Give Yourself A Deadline

Sarah means this as a deadline for getting your financial house in order, but $7million7year readers have a much more important deadline: Your Number / Date.

In case you missed the last three years of posts, here’s where to find:

– Your Life’s Purpose,

– Your Number, and

– Your Date.

By the time you work all of this out, you’ll be in a hurry to get a job and start your active business/investing program 🙂

The Zero Dollar Emergency Fund!

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Last week I asked How many months do you have in your emergency fund?

Earlier, my blogging friend JD Roth at get Rich Slowly (GRS) asked the same question of his readers, and this is what he found:

How many months do you have in your emergency fund?
GRS 7m7y
less than 3 months 38% 29%
3-6 months 26% 24%
7-12 months 13% 24%
more than 12 months 14% 16%

This shows that more 7m7y readers have 3+ months living expenses in their ’emergency funds’ than GRS readers, which means …

… I’ve done a terrible job 🙁

On the other hand, if you answered “what’s an emergency fund?” good for you, you’re already a step ahead of the pack … you see, not everybody – including me – thinks that you need to have an emergency fund at all!

[AJC: At least not until after you reach Your Number]

For instance, Liz Pulliam Weston writes at MSN Money that you should have a $0 emergency fund, replacing it with a concept that she calls ‘financial flexibility’:

The whole idea that everyone needs a big pile of cash, and needs it right now, should be rethought. In reality, the failure to have a fat emergency fund isn’t inevitably a crisis. At the same time, those who feel safe because they have three or even six months’ expenses saved up might be kidding themselves.

Let’s say your take-home pay is about $4,000 a month. Although you have been spending every dime, you make a concerted effort to trim your expenses by 10%. This not only frees up money for your emergency savings but lowers the total amount you need to save from $12,000 to $10,800.

Still, it will take you 27 months — more than two years — to scrape together your emergency fund. And that assumes nothing comes up that forces you to raid your cache.

Let’s explore this a litter further: JD Roth has $10,000 in his emergency fund, but that doesn’t just represent $10,000 today …

…. it represents the future value of $10,000:

Let’s say that you intend to retire in 20 years, if you earn 9% on your money (say, invested in Index Funds) then you are giving up, say, 2% bank interest (by having your emergency fund sit in an ordinary savings account for quick ’emergency’ access) to earn 9% – or, a net of 7%.

That extra 7% earned represents about $8k in extra interest/profit that you are giving up for the benefit of ‘peace of mind’ in an emergency. But, we aren’t investing our money in Index Funds, because we are on a mission: we want to reach $7 Million in just 7 Years!

To us – that is, those of us on a steep financial trajectory – this $10k pile of cash represents seed capital for your new business venture or next real-estate acquisition [AJC: and, don’t tell me that an extra $10k wouldn’t be a big help for either of these endeavors] …

… now, $10k ‘invested’ at:

  • 15% (stocks) grows to $35,000 after just 10 years
  • 30% (real-estate) grows to $106,000 after just 10 years
  • 50% (business) grows to $384,000 after just 10 years

… a slightly larger price to pay for peace of mind 🙂

Who wants to be a billionaire?

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Do you want $1 Billion? If so, I can’t help you much, but maybe this video can help …

For the rest of us, what will YOU spend your money on when your reach YOUR Number (list in the comments)? Even if it is only a paltry $7 Million in 7 years 🙂

To get you started, here’s my list:

House ($6 million; later ‘downsize’ to apartment worth ‘only’ $2 million)

Cars ($500k + $50k p.a. towards buying newer ones every few years)

Travel x 2 to 4 trips per year ($50k p.a.)

Startups ($500k) – Maybe these will pay off, maybe not 😉

Speaking Tours (incl. in travel + $25k marketing budget) – as above!

Charitable Donations (at least $25k p.a.) + time: my wife’s 🙂

… then, there’s all the ‘living’ type stuff: house/parties/clothes/restaurants/sports/etc./etc. ($200k p.a.)

How about you?

… but, Will Smith isn’t (completely) happy

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So, the jury is IN: money does buy (at least some) happiness …

… then, why isn’t Will Smith (who has PLENTY of money) completely happy?!

First, let me backtrack a little:

One of the advantages of being rich – well, 7m7y kind of ‘rich’ – is that acquiring technology isn’t an issue.

That’s why we have a Slingbox, which sends live streaming video from our friend’s satellite TV in Atlanta right to my wife’s PC (or, our home theater) in Australia.

This means that she doesn’t need to miss out on the most current episode of Oprah, and neither do I … on the odd occasion that I happen to be in the same room when she’s watching.

As it happened, on this occasion my wife was catching up on some more recent episodes that she missed while we were busy moving house, and it was how I happened to catch a bit of Will Smith’s Oprah interview.

Will said a couple of things that intrigued me:

First, he said that no matter how much money he accumulates, he never stops worrying about money!

Well, that’s actually good news, because I can see that through every stage of my financial journey, I have never stopped worrying about money.

Good news, because if Will Smith – who must be an order of magnitude or two ahead of me, financially speaking – worries about money, then I can stop worrying about worrying about money.

And, so should you!

It appears that worrying about money is a normal part of the human condition 🙂

The second thing that Will said interested me even more: he’s not satisfied with his achievements to date … he can’t believe that he was put on earth merely to entertain people.

It seems that Will hasn’t found his Life’s Purpose!

Confirmation, to me, that fulfilment comes in three parts:

1. Discovering your Life’s Purpose, then

2. Working towards it, using whatever tools/talents you have been given, then

3. Finally, living your Life’s Purpose.

Step 2 is a means to an end (and, there’s no reason why you can’t bypass it if your Life’s Purpose doesn’t require the passing of time, or the accumulation of supporting assets).

But, don’t confuse Step 2. with Step 3. …

… Will Smith might be famous and known for his singing/acting talents, but (for him) it appears they are merely a means to an end.

Discover your ‘end’, and the ‘means’ – even if not as exciting, profitable, and/or high-profile as Will Smith’s – becomes much more palatable.

What do you think?

I’ve received an award!

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Top Saving Money Blog
Online MBA

I’m not sure who Awarding the Web are, but they have kindly just listed $7million7years as one of their ‘Top 40″ Business Blogs in the “Saving Money” category.

This is kind of ironic as I am keeping company with the likes of Frugal For Life, Bargain Briana, Bitter Wallet, and FruGal [AJC: I love puns … unfortunately for those around me, the more groan-inducing, the better] …

… but, this blog is about as un-saving money as you can get (!):

http://7million7years.com/2009/05/02/save-your-way-to-wealth/

Yet, we do spend a lot of time in Making Money 101 on saving tips:

The reason: habit.

While I stick to my guns and say that you can’t save your way to any reasonably large Number by any reasonably soon Date [AJC: Pick any Number north of $1 million, and any Date south of 15 years and see what you come up with, inflation adjusted], the reason why you should still save/save/save is twofold:

1. You create the seed capital that you might need for your first real-estate purchase and/or business venture … it’s these that will create your Number/Date, and

2. You create the habits that will stop you from spending your wealth once you get it.

Saving money is kind’a like the bookends to your financial life …

… but, true wealth building is in the bits you do in between that really have nothing at all to do with saving.

Well, not directly 😉