Tag Archives: Rich

If you’re well-heeled, you shouldn’t care!

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If you’re not ‘twittering’, you’re missing out …

I always thought that Twitter was about “just got back from the dentist and he said “no cavities” … whoohoo!” or just about advertising your latest post. Well, it is both of those things … but, not anywhere near as much as it used to be. At least when it comes to ‘following’ (a Twitter term) personal finance writers.

Now, it seems to be more about genuine subject-matter-related info in small bites, as well as saying “hey, I saw this cool article on …”.

Now, that’s useful – even to me – and it will be very useful to you.

If you like, you can start by following me at http://twitter.com/7million7years … I promise that it will never (OK, hardly ever) be mundane 😉

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Which brings me to a recent tweet from WellHeeledBlog, whom I’ve just started following:

According to Meriam Webster’s online dictionary, ‘well-heeled’ means: having plenty of money.

My question is: if you are well-heeled why do you even care that Vanguard Group lowered the minimum entry level for Admiral Shares? Of course, WellHeeledBlog may not care, but thinks that some of their readers may and is, therefore, providing a useful reader service.

My point – because I like and follow WellHeeledBlog and will continue to do so – is that I don’t care and neither should my readers … long-term. Many of you may care – today (perhaps, because you are only starting on your path to wealth) – but, long-term you should not care, simply because these sorts of money tips will not make you rich.

My blogging – and, twittering – niche is to take my readers to $7 million in 7 years (or some other Large Number / Soon Date).

On the other hand, I started $30k in debt and so will many of my readers. So, this type of money-saving info is useful in the beginning of your financial journey … but, not for long – and, not for the important parts of your financial journey.

Fortunately, that’s where I step in …

You see, this sort of ‘beginner’ financial info is available everywhere, and I don’t see the point of simply rehashing stuff that you can find elsewhere.

If you do need this kind of entry-level personal financial advice, go elsewhere, find the info you need, save money, and get yourself (partially) out of debt, then come back here to find the reality of how to get rich.

That’s my niche, and I hope you are finding it as enjoyable/useful to read as I am in writing it? 🙂

She’s an heiress …

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Madam X (provocative name) over at My Open Wallet says that she is an heiress:

Remember Great Aunt Minnie? She died peacefully a few weeks ago. I had a chance to see her one last time in May, and spoke to her on the phone a few days before her death … it was even more weird to find a thick envelope in my mail the other night, which turned out to be from Minnie’s lawyer, because I’ll inherit a share of her estate. So now I just have to see what happens once the estate is settled and divided up. I have no idea how much money it will be. I certainly don’t expect much, given I’ll only get one twelfth of her estate.

Receiving money ‘suddenly’, be it from a sad occasion such as this, or from some fortuitous circumstance such as winning a substantial prize in the lottery, can be difficult, because you probably have no plan.

And, because you have no plan, the money can go as quickly as it comes (remember poor-then-rich-then-poor Lou Eisenberg?).

I call this Found Money, and here’s how to deal with it:

If you’re lucky enough to receive such a windfall, you should spend enough to fully celebrate your good fortune (even more so if it was a result of hard work – e.g. selling your business – rather than luck).

Here’s a table that will help you decide how much to save and how much to spend, depending on how much Found Money you happen to come across:


The idea is that money is for SPENDING and ONLY FOR SPENDING … but, you need to PLAN to spend some now and PLAN to spend some later (a.k.a. saving). That’s exactly what this table is designed to do.

So, if you find $10 in the street, buy yourself a fun magazine, then stick the rest in a jar.

If you happen to inherit $100,000 go ahead and upgrade your car (and/or take a vacation) – totally guilt free – then plan to invest the other $90k very wisely 😉

A great retirement plan executed badly …

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I have a good friend who had a successful business; while not exactly a retirement plan (as he still had the business), it would work as one:

He would buy a commercial property (e.g. office or warehouse) in a good near-downtown area, refurbish as necessary and put in place good tenants.

The next year he would buy another.

And, for the next three years after that he would buy another … until he had 5 such quality properties (purchase price around $1 million each).

Then he would do something pretty neat: he would sell the first (i.e. 5 year old property), taking about $1 million out to buy another property worth $1 million, and use the excess capital appreciation to fund his lifestyle.

Nice … except it didn’t make sense.

Because he was simply trading down one property (bought for $1 million 5 years ago so, hopefully, worth a little more now) for another (worth $1 million today), incurring all sorts of changeover costs and possibly even capital gains (unless he could qualify for a tax-free exchange).

He did this until I pointed out the obvious; I said: “Instead of selling one to buy another, why don’t you simply refinance the oldest property each year to release the capital appreciation, tax free?”

Oh!

And, that’s what he did from then on …

People often come up with great, innovative ways to do things … but, it doesn’t mean that they’re the right way.

For example, in our former family finance company, my Dad used to give our clients a check for the full face value of their loan, and ask for a check back to cover our up-front commission.

His reasoning was that we would have the commission money in our hand and earn extra interest on it. Neat, until I pointed out that it was exactly the same as giving the client the net amount (i.e. face value of loan MINUS our commission): One check. Sensible.

Needless to say, that’s exactly what we did from then on.

Always evaluate what you are doing and how you are doing it, even if you are successful … you may be leaving (a lot) of money on the table.

BTW: I’m wondering if you picked it? There seems to be another flaw in the retirement plan executed by my friend and promoted my many a financial spruiker that I have listened to …

These real-estate investment ‘gurus’ say: “Buy lots of real-estate and when you retire you will have a LOT of equity available to fund your own retirement … simply take out a loan against this property every time that you need more money. Because it’s a loan and not income, you pay NO INCOME TAX on it, so it’s worth more to you than taking the money as rent; and, the excess rents will cover the mortgage payments. Of course, because it’s an investment loan, it’s tax deductible.”

Now, there’s so  many things wrong with this strategy that I wouldn’t even know where to start (how about vacancies, as one example?), yet I have been to at least half a dozen seminars where this exact strategy and tax-effectiveness argument was put forth.

However, I take issue with the last statement:

Just because a loan is taken out on an investment property, does NOT necessarily make it tax deductible.

In many countries, the real test is “what’s the PURPOSE of the money that you are borrowing?”

If it’s to refurbish the property to increase rents (hence, so that you can pay the IRS more tax … you win, they win!), more power to you!

But, in this case, it’s not to derive more investment income … it’s so that you can go out and have a good time!

Q: Why would a government want to subsidize your personal spending habits?

A: They probably wouldn’t!

Find a good tax advisor before implementing this strategy … oh, and take what you hear from financial spruikers with a kilo-grain of salt 😉

Comfort kills!

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Yes, that is genius …

But, what does T Harv Eker mean by ‘comfort zone’? Here’s what he says in his book:

Comfort kills! If your goal in life is to be comfortable, I guarantee two things. First, you will never be rich. Second, you will never be happy. Happiness doesn’t come from living a lukewarm life, always wondering what could have been. Happiness comes as a result of being in our natural state of growth and living up to our fullest potential.

How ‘comfortable’ you want to live is up to you … but, I can help you convert that into a number: the amount of money that you need in the bank so that you can live your desired level of comfort (or, discomfort).

Then, I can help you get there!

You DO need $12 million to retire …

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Money Ning says that you don’t need $12 million to retire.

Except on Planet AJC, ‘Ning!

Money Ning says:

Can you imagine spending $11,250 per month every 30 days until you are 70? It would actually be fun for a while, but by the 24th month, I bet you’ll be tired of buying anything. And if you just leave some money left every month? Well, down goes the savings necessary.

These humongous retirement numbers may catch our attention, but they rarely speak the truth about reality. Plus, chasing a number is a never ending game, because there’s always a higher number to go after.

When I was still $30k in debt, and going nowhere fast, I calculated that I needed $5 million to ‘retire rich’:

– That was in 1998 dollars … in 2010 dollars, we’re up at around $7.5 million

– I under-estimated what I needed; and, so will you!

Right now, I ‘burn’ around $250k per year (land taxes, school fees, vacations; house upkeep; etc.) and don’t consider my spending anywhere near ‘Snoop Dog Lavish’, but it’s WAY over Money Ning’s “$11,250 per month” … and, I can’t EVER imagine spending that little per month. Really.

To that annual spend, I add my two houses (to be fair, I’m trying to get rid of the US one), and my two cars (and some associated expenses) … there’s $12 million, and I don’t live in New York!

Of course, that’s not what everybody needs … maybe not even what ANYBODY needs … but, it is (give – not take – a few million) what I decided that I needed.

But, when calculating YOUR ‘number’, don’t go for the money, do as Money Ning suggests:

Chasing a number is a never ending game, because there’s always a higher number to go after. If you want to feel rich, the more appropriate approach is to just make sure money is out of your way, out of your life decisions, and out of the list of things that you worry about.

That’s what I did … it’s hardly my fault if the answer pointed to $5 Million, nor is it my fault that I ended up cashing out for a whole lot more. And, it won’t even be my fault, if you do, too.  😉

Is greed good?

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That is the question posted by Gordon Gekko (Michael Douglas) in the newly released Wall Street movie sequel which, by the way, is abysmal.

One of the pivotal moments in the movie (IMHO) is when the least-sharky of the Wall Street sharks (played incredibly badly by insipid Shia LaBeouf) asks the über-shark (played much better Josh Brolin) what his ‘walk away Number’ is.

Über-Shark answers: “More!”

If you don’t see the problem with this, then you haven’t been reading this blog.

But, my main issue with the movie, aside from the bad acting/characterization/plot-lines is the central premise:

Gordon Gekko has come out of 8 years in jail, with $100 million salted away in some Swiss Bank Account, but held in trust for his since-estranged daughter. Totally believable, so far … except that there are so many tax avoidance issues that no father would put their daughter in that much danger.

But, that’s not my issue with the plot.

The daughter indicates that she knew that there may be SOME money SOMEWHERE for her, but she didn’t care and was planning to give it all away (a plan that she eventually has a chance to execute, but we’ll come to that). Now, nobody in their right minds would give all their money away to charity: a little, some, most … maybe … but, not all!

But, that’s not my issue with the plot.

It’s in the execution of the ‘give away plan’: her fiance, and soon to be father of her child, talks her into ‘donating’ all $100 million to some new company experimenting with a new form of clean energy (lots of fancy diagrams, light beams, serious-but-kindly-and-honest-looking-scientists, high-tech-futuristic-energy-orbs, and so on).

Now, what form of young-and-brilliant-but-disillusioned (don’t forget the “brilliant” part) Wall Street type would put $100 million of his own money (well, he’s about to marry the chick, isn’t he?!), which represents about $99 million more than his entire current net worth (and, that’s only because he just received a $1.5 million bonus check), in a collapsing market into ONE INVESTMENT?

None of my readers, I hope!

And, even if he was stupid enough to bet the entire $100 million, would he bet it on a speculative company that had NEVER made a single cent in profit?

That, my friends, is financial suicide. Don’t do it, because greed is NEVER good 🙁

Beat 80% of professional fund managers!

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I’m disappointed! I thought that 7million7years.com and it’s membership-site ‘cousin’ 7m7y.com were important enough to be hacked … but, they weren’t 🙁

Turns out that MANY GoDaddy-hosted WordPress sites have been similarly ‘hacked’ – with users seeing a [false] SECURITY WARNING ALERT!!! message. GoDaddy appears to be working on have fixed the issue, in the meantime, please read on for today’s un-hacked post ….

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Shawn at Watson Inc. outlines a sensible ‘system’ – one that I have spoken about before – that beats “80%-90%” of professional fund managers [my highlights]:

Some may ask what I mean by systematic investing. Peter Lynch (Fidelity), Warren Buffett (Berkshire), and even Dave Ramsey recommend a conservative and simple approach for the typical investor: rather than trying to outsmart the markets, use benchmarks to track the markets instead. For example, the Vanguard Index 500 fund has outperformed two-thirds of all mutual funds on a rather consistent basis (Cash Flow Quadrant, 1999). Usually over 10 years, these types of index funds yield a return exceeding 80-90% of returns of the “professional” mutual fund money managers (Motley Fool, 2007). Interestingly, the average millionaire is this type of investor (The Millionaire Next Door, 1996). Although there is no 100% guarantee, this method does dramatically decrease the risk over time and provides respectable returns. Provided that one starts early enough (i.e. before mid-forties), consistent investing over time can be the key to achieving a great deal of wealth.

Now, who wouldn’t kill for a system like that?

Well, me for one … and, I’m guessing, most of you!

You see, we (7m7y readers) have a very special filter that QUALIFIES us; it’s the title of this blog: “How to make $7 million in 7 years”.

Now, there’s no reason why you CAN’T read this blog if your target is, say, $1 million in 20 years … I can’t physically stop you … but, it’s ill-advised, because most of what I say would just be ‘noise’ to you …

… just confusing ‘chatter’ that sometimes runs totally counter to what you read elsewhere.

What I say here is ‘noise’ if you really do have very modest financial goals, or no real financial goals beyond saving and trying to become debt free.

So, in my “$7 million 7 year” context, I say “so what if I can beat 80%-90% of fund managers?” because the amount that I can make simply won’t be enough to help me reach my Number … certainly not if it’s one of my main financial strategies.

Instead of worrying about the pro’s and how the vast majority are simply butchering the mutual funds that they are supposed to be wisely managing, realize that investing in the ‘market’ (e.g. by investing in a low-cost index fund as sensibly suggested by Shawn) actually LIMITS your returns to that achieved by the market: 8% over 30 years in any market, 12% in ‘average’ times, and 0% (or worse) in recent times.

Try this:

a) Plug your starting Investment Net Worth (i.e. what you could scrape together to invest) into a compound growth rate calculator

b) Also, plug in how much you think you will be able to add each year

c) Include the number of investing years that you would like to have before you finally ‘stop work’ to live off the fruits of your investments

d) Plug in any number from 1% to 12% that YOU think an Index Fund will reasonably return over the number of years that you allowed, above

e) Halve the answer that the calculator gives you to (very roughly) allow for 4% inflation, for every 20 years (or prorate, if less than 20) that you chose, above.

f) Divide your final answer by 20: on a VERY GOOD DAY, that’s roughly (in today’s dollars) what you will have to live off, each year.

If that’s good enough for you, congratulations on two counts:

1. Thanks to Shawn, you’ve just found your Ideal Investment Strategy … and, it’s easy / low risk, to boot! And,

2. You’ve also saved 2 minutes a day, because this blog – for you – is just noise …. [crackle … and, out!]

But (!), if the answer is NOT good enough for you [AJC: it sure wasn’t good enough for me! But, it just might be good enough for you – be TOTALLY honest, this could be the financial ‘tipping point’ for you] … commiserations: your life just became a whole lot harder!

If so, keep reading … I’ll do what I can to soften the blow 😉

What are your financial flashpoints?

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OK, I was all set to tell JD Roth (at Get Rich Slowly) that wealth comes from your actions, not from some ‘magical millionaire mind-set’ when I clicked PLAY on this video by the author of a book that JD was reviewing on his site …

… the video actually hit home!

I remember some distinct financial flashpoints that helped to set me on my financial path … for better or worse:

1. My dad waking me up in the middle of the night to go and watch our shop burning down

2. My dad telling me our (bad) financial situation

… not one event, but a series with the common theme: we were living beyond our means.

This hit home, and I resolved never to be a financial burden on anybody …. never to hold my hand out … and, so on. From a young age, I held down after school jobs, bought my own clothes, saved up for my own cars, paid for my own trips, and so on.

This is not unusual; many – most – of you probably had to do the same. And, we were not totally ‘poor’ … my dad could eventually solve most of his financial problems by going to other, wealthier relatives for hand-outs.

But, what made it a little different for me was that my dad hid all of this from my mother and my sisters … THEY believed that we lived a ‘normal’ upper-middle-class lifestyle. I actually lived in a different ‘financial house’ to the one in which they lived, even though we shared the same 4 walls!

No doubt, these experiences go a long way to explain why I am independently / self-made wealthy today, and to this day, the females in my family still live off hand-outs.

Yes, there are financial flashpoints that help to explain my ‘wealth motivation’, maybe you would like to share yours?

How to change your life …

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I don’t like calling this a motivational blog; that’s not my intention at all. Above all, I want this to be a practical blog: rules and techniques that you can employ straight away.

Sometimes, though, I come across something of a motivational nature that I think I must share … in this case, twice!

I’ve shown this video before … in the context of “if he can do it, so can anyone”.

But, this time, I want you to take a really close look at it from another angle …

I want you to see the actual moment, caught on camera, of a man changing his own life!

I also want you to catch the look on the judges faces – the subtle change in demeanor – that shows that they, too, realize that they are witnessing an amazing metamorphosis.

And, I think this is the way it really happens: I think that there are moments when you step out and your life changes …

I remember a couple of such ‘moments’ in my own life:

The first was when I stepped into my father’s business and, soon after, he went on vacation. The only other employee was jealous of the nepotism thing (i.e. me joining) and promptly decided to fake a back injury and step out for a couple of weeks, himself.

That left me to do the work of three people, which I managed to fit in … between the hours of 8am and 3am. Two weeks of 20 hour days, and the business didn’t skip a beat …

The second, was when my father became terminally ill and the bank suddenly pulled our funding: no funding, no business since we were a finance company.

Somehow, during the next two weeks I managed to: restart the business with No Money Down; find a new equity partner (who actually PAID me some goodwill to buy in while providing $600k starting capital); and, a bank to put up a couple of million, totally unsecured … and, our customers were none the wiser.

There were others, but these two were the defining moments in my business life: if I could survive these – and, I did – I realized that nothing could break me.

You will have these moments in your business and/or financial life – the larger the goal, the larger the challenges that you will face … I guarantee it!

Curling up in a fetal position and sucking your thumb is NOT an option 🙂

Now, this is a clever post …

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Maybe it’s only because I recently compared personal finance to Vegemite, but I like this guy: he has the gumption [AJC: don’t think this is the right word; any ideas?] to compare soccer to personal finance, then actually make it make sense!

Not to mention, it’s just plain good advice:

Spain is Soccer World Cup 2010 Champion. Analysts say that is because of their mental strength, their wily forwards, a strong defence and the hardworking midfield.

Apart from the mental strength, which is invisible, what’s visible on the field are three important components.
1. Forwards, to score the goals.
2. Midfielders, to control the game.
3. Defenders, to save, not leak goals.

I know you have this idea that I would be comparing soccer with Personal Finance. Here it is.

Personal Finance has three important components too.
1. Investing, to get more bang on your money.
2. Maximizing your income, to control the game of money.
3. Frugality, to save and not leak money.

And yes, you also need to have that mental strength not to be dragged down by “fear and greed”. And keep coming back even after failure.

Now, I haven’t given the whole game away [pun intended!], because Ranjan goes on to talk about the three types of investors … but, you’ll have to read his post to find out 🙂