Tag Archives: Saving

What's 17 years between friends?

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17Warning: This image has absolutely NOTHING to do with the post other than:

(a) it came up when I searched for “17” on Google Images (I don’t even know why?!),

(b) it’s very funny/cool, and

(c) I have absolutely NO IDEA how a boat lands on a car

… or, what a seemingly naked guy in a yellow raincoat is even doing there!?

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In a recent post, we gave Chad a ‘starter kit’ to becoming a millionaire; and as Money Monk said:

There’s always a slow way and a fast way.

For me, the fast way has always held more appeal …

… but, that doesn’t mean that you can’t combine the two, as Jeff points out:

By taking into account annual contributions, your compound annual growth rate can significantly drop. For instance, if Chad starts with $10,000, his compound annual growth rate is 65.52%. If Chad could also save and invest $10,000 of his salary a year, his compound annual growth rate drops to 52.52%.

If Chad’s Date is firm, annual contributions might not change his analysis much, but if he extended his term or could increase his annual contributions, (or both)…the difference can substantial. For example, if Chad extended his date out another 17 years (and adjusted his number for inflation), his compound annual growth rate drops to 19.81%. If Chad also decided to increase his initial annual contribution to $15,000 and then continue to increase the annual contributions by 5% a year, his compound annual growth rate drops further to 16.69%.

Getting 16.69% annualized return is no cake walk, but a lot easier to get than 65.52%.

What’s an extra 17 years and a drop in living expenses by $15k a year between friends?! ;)

Seriously, Jeff’s point is absolutely valid and is the real secret:

Rather than gambling on the business or [insert speculation of choice: growth stocks and options; gold; oil; etc.; etc.] to pay off big time (i.e. deliver your Number in one neat check), you build a business for sale … in the meantime, you keep following Making Money 101 and save/invest in solid assets (e.g. income-producing real-estate and/or ‘value’ stocks) …

… it’s the combination of Making Money 101 and making Money 201 that delivers the extraordinary result that Chad is after.

New Reader Question about debt …

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I am always pleased to receive questions and comments from readers – and, new readers in particular. For example, recently I have been in e-mail conversation with David, a new reader, who asks:

After spending half of my day reading various posts and links I have a better idea of where I need to be.  I do have a question – I have student loans that I unfortunately locked at a 9.9% interest rate back in the mid 90’s.  I still carry about 30k and I make about a $330 payment a month.  What is the best strategy for those?  I can’t refi them.  I can pay them off “quickly” but the money that I would be lopping off that is taken away from my nest egg and emergency funds.  If I pay them off on their schedule, it will cost me around $79k in the long run. What would you suggest?

While I’m not qualified to – therefore, don’t – give give direct personal advice of the financial or any other kind, I can use this question as ‘inspiration’ for this, more general, post …

This is a common problem, facing most folk these day … not specifically the student loan, but debt in general. And my response is generally the same: it depends 🙂

And, the thing that it depends on is actually two things, not one:

1. Do you have ‘spare income’ or cash floating around that you COULD be applying to this loan?

If not, then you need to keep paying the loan according the schedule and doing your level best to find some additional money through increasing income (MM201) and/or better personal money management (MM101). But, if you do have some spare cash floating around then you need to ask yourself the following question …

2. Where else could you put the money that would return more than 9.9%?

This is really a simple question, so you don’t need to beat yourself up about the answer …

If you want to start a business that can return, say 50+% if it’s successful, then you may be better off keeping the loan in place – making just the required payments, for now – and putting your spare cash towards startup/working capital for your business.

But, if you are thinking (instead) of paying down your home loan, with its current interest rate of 6% (probably at least partly tax deductible) then I would suggest that you instead pay off the student loan.

And, if you had a car that you absolutely had to purchase and were thinking about financing it at, say, 11%, then I would instead suggest that you pay cash for the car and keep the student loan in place.

The decisions, to me, only become more ‘difficult’ if you have no clear idea of a better use for your money other than “Maybe investing in something one day” … in which case, I would take the ‘sure thing’ i.e. pay off the ‘student loan’ debt,

OR

The available options are so close in interest rate earned or spent e.g. should I pay down the 9.9% student loan or buy some units in an Index Fund that should return a bit over 9.9% over the next 10 or 20 years …  in which case, I would again take the ‘sure thing’ i.e. pay off the ‘student loan’ debt.

Other than that, simply apply the principles in this recent post and you won’t go too far wrong …

BTW: don’t forget to compare interest earned and/or spent AFTER TAX. To me, a rough estimate (rather than paying for a consultation with your accountant UNLESS the decision is major or strategic) is probably usually good enough … but, when in doubt, work it out WITH YOUR ACCOUNTANT.

Oh and one more ‘trick’; if you have another asset that you can acquire new debt on to pay off the more expensive old debt, can/should you do it?

For example, if David has a house with ‘spare equity’ can/should David refi the house and pay off the student loan entirely. At an effective current (tax deductible) interest rate on the refi of, say, 6% (compared to a ‘locked in’ 9.9%) the answer is most likely a resounding YES, however, now we have to think about locking in and term:

The student loan is likely to be locked in to a repayment schedule that will see it paid off in just a few years, but a mortgage will probably be offered at 15 to 30 years to keep the repayment schedule low … if the purpose if simply to repay the student loan, then you should divert the money that you would be using on a monthly basis to repay the student loan to repaying the mortgage (i.e. pay off the mortgage with the original mortgage payments PLUS the former student loan payments).

Because the combined interest rate is now lower but your repayments are the same as before, you should actually be paying debt off at a slightly faster rate …

Of course, if you do have a hot new business or investment idea, then you may instead refi the house, pay off the student loan and apply any spare cash (over and above what the bank says that you HAVE to pay on the mortgage) to building that little ol’ warchest … but, this is an advanced – and more risky – Making Money 201 concept … only needed if your Number says so 🙂

The even greater Power of 10-1-1-1-1

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Yesterday’s post was about Suzy Welch’s “life transforming idea” (her words, not mine) about the Power of 10-10-10, which I believe can be applied to financial decisions as well.

Now, here’s an even better idea:

How do you know WHEN something is a ‘major financial decision’ worthy of asking Suzy’s Three Big Questions?

Simple, use this table:

If you’re on a low-to-average income, or still well-entrenched in Making Money 101, then you may want to replace each ‘$1..’ with a ‘$3..’ but, if you’re super well-off, then you just start adding zero’s to the dollar amounts to suit!

But, the ‘default table’, as presented above, is a pretty good place to start …

So, next time you’re walking past a store and see that little $99 ‘number’ on sale that you simply “HAVE to have … and, look … it’s ONLY $99! [squeal]” pull out this little table – that you’ve laminated [ AJC: don’t worry, you’ll wait at least 10 minutes in line at Kinko’s to give yourself plenty of time to decide if the cost of laminating is worth it :)) ] – from your pocket and check to see that you really need to come back in 24 hours to complete the transaction …

… chances are you won’t.

Think about even the small expenses that you may be tracking, if you keep a budget; take a glance down the list for even one or two random days and see how many you would have not bought (or bought less of, or fewer of, or the cheaper one of, etc.) had you taken even 10 minutes ‘time out’?

Is this being frugal [AJC: shock/horror … 7million7years on a frugality drive?] – perhaps, overly so? I don’t think so, because you can still make the purchases that you want to make … it’s just that you may change your mind IF you:

(a) allow a little time out, and

(b) ask yourself Suzy’s 10-10-10 questions.

Instead, you may just end up suffering a little less buyer’s remorse …

Does this work?

imagesWell, when the ML Mercedes first came out, I simply HAD to have one of those [squeal] little SUV’s that drives like a car … after some self-imposed ‘time out’, I decided that I really didn’t need the car right now.

Sure enough, the burning desire to buy the car – right then and there – dissipated to the point that I forgot about it; sure enough, a year later the opportunity fell in my lap to buy a factory executive-driven vehicle (genuine … I bought it directly from Mercedes Benz head office), virtually no miles on it, for $11k off the best dealer price that I could get.

Oh, and last week I was hungry … but, after 10 minutes of waiting decided I was even more hungry, so I bought more 😛

Give it a try and let me know how 10-1-1-1-1 works for you … use the Contact Me form on the About page or just drop me a line at AJC at 7million7years.com, I love hearing from readers (but, not spammers) …

The Power of 10-10-10

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10-10-10Suzy Welch, in her new book of the same name, calls 10-10-10 “a life-transforming idea” …

… I don’t know about ‘life-transforming’ but, it’s definitely a simple-yet-powerful decision-making process.

Suzy says:

I call it 10-10-10.

Here’s how it works. Every time I find myself in a situation where there appears to be no solution that will make everyone happy, I ask myself three questions:

What are the consequences of my decision in 10 minutes?

In 10 months?

And in 10 years?

The answers usually tell me what I need to know not only to make the most reasoned move but to explain my choice to the family members, friends, or coworkers who will feel its impact.

I can definitely see how these questions could apply to personal finance: before you make your next major financial decision, take some time out to ask yourself how that decision to [insert financial decision of choice: buy, sell, finance, change, etc.] could affect your life in 10 minutes / 10 months / 10 years.

Chances are that you will change your mind 🙂

Tomorrow, I’ll show you an even more powerful idea that will go hand-in-hand with 10-10-10 to “totally transform” your personal spending habits …

Cash Cascade your car?

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community7I often get comments from new readers asking where to start: so, I start from the premise that living frugally and working for 20 to 40 more years to retire on the equivalent of $15,000 today isn’t what you had in mind? If it is, then this blog isn’t for you 🙂

OK, so you’re still reading … great! In that case, the place to start is to work out what you want from your life and how much it will cost you to get it; here is a site that shows you how to work all of that out: http://www.shareyournumber.com/ Visit it (and, join the Community) … not only is this site totally free, I promise that it will be truly Life Changing.

Once you confirm that you do need to make $7 million in 7 years or $3 million in 10 years (or anywhere in between) then you’ll probably want some ‘quick start tips’; well, let’s start with your greatest expense: your house. This post – if you follow all the backlinks – will tell you all you need to know to make sure that your house actually HELPS you get rich(er) quick(er) instead of poorer: http://7million7years.com/2009/01/12/how-much-house-can-you-afford/.

And, if you’re struggling with questions around debt, then this post will totally change the way that you think about ‘good debt and bad debt’: http://7million7years.com/2009/03/25/debt-snowball-debt-shmowball-as-long-as-youre-rich/.

If you’re still with us after that, then sign up for e-mail updates and trawl through the site to see what you can find, just like this guy did …

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waterfall_over_carI’m glad that some people still rummage through my older posts, as the principles of money don’t age (reference the Richest Man In Babylon, for example) …

… so, I was pleased to have this opportunity to renew this discussion when John commented on this post about cars:

I know it has been over a year since you published this but I was wondering if you could comment on a few calculations I did after reading this post. My disagreement is mostly with the Finance Vs Cash option. The buying a used car part I totally get.

Let’s say I wanted to buy a car with an MSRP of 30,000. If I put 10% money down and get a loan of 27000 for 5 years at let’s say 5% APR. At the end of 5 years I will end up paying 33,571 for the car. If I had paid in cash I would have paid 30,000 for he car. The depreciation on the car would be the same in both cases. So I ended up paying 3,571 more for the car by choosing to finance it instead of paying cash.

But here’s the thing, by financing the car, I also ended up with 27,000 of cash which I can invest elsewhere. To recover the extra 3,571 that I’ll have to pay on interest for the loan, all I need to do is to put this 27,000 in an investment that can give me an APY of 2.52% only, which is not very difficult to find at all.

This suggests that buying with cash, even for a depreciating asset, does not make all that sense. Am I missing something here?

John is basically putting forward the idea of applying Cash Cascade principles to your car … and, given the parameters that he has set, John is absolutely right: it would be better to finance your car and invest the cash elsewhere …

… at least, in principle.

However, in practice, I’m not so sure that the Cash Cascade actually would suggest that you DO finance the car.

Here’s why:

Reason # 1 : It’s unlikely that you will see 5% APR on a auto loan

5% APR car loans are not unheard of, but they are relatively rare; MSN Money cites the current national averages for auto loans as:

National Averages: Low – 3.99% Average – 6.18% High – 10.49%

So, while auto loans as low as roughly 4% (an internet only ‘special’) are available, most are in the 6% – 10% range; and, don’t forget to factor in any added fees!

Of course, you MAY be able to take a 5% HELOC on your house to raise the cash for the car, but I wouldn’t recommend a short-term loan (i.e. a HELOC) for a long-term use (i.e. financing your car over 2 to 5 years) because the bank can change the terms – or even cancel your HELOC – whenever they feel like it. Then you might be stuck with getting a more conventional loan at a higher rate (there goes your 5% loan!).

On the other hand, a refi may do the trick … but, you need to watch both the 25% Income Rule and the closing/refi costs, which are likely to push you well over the 5% if amortized over the expected life of the car loan (you’d be crazy not to have a 2 to 5 year loan payback expectation).

Reason # 2 : It’s likely that you can beat a 5% APR auto loan

This seems to contradict Reason # 1, but doesn’t …

… you see, if you do find a 5% APR loan, it will most likely be offered by an auto dealer. However, the chances are that it comes with a catch: the car isn’t discounted as much as it could be!

A low (or even zero) APR loan is a very common manufacturer / importer / dealer incentive … but, they do a deal with their finance company (often manufacturer-owned, like GMAC) whereby they pay the differential interest rate for you and up front. Back to the catch: they load the price of the car to offset the pre-paid interest component. Sneaky, huh?

Reason # 3 : Even if you can’t beat the 5% APR auto loan you’d better have the cash ready

But, let’s assume that you go to the Pentagon Federal Credit Union for the only 4% APR rate that I could find that wasn’t loaded with fees, and they do give you the loan …

… you had better have the cash ready to buy an investment reasonably quickly.

If you don’t have already have the cash saved up then you should be prepared to save up until you have the lump-sum cash then decide if you want the car only or both the car and the investment. No point borrowing money for the car and trying to save up for an investment … unless, you really, really, really need the car right now! 🙂

… oh, and if you’ve read all the way to here, then you might want see what my 7 Millionaires … In Training! are up to; kind of like American Idol Meets The Apprentice …except it’s online 🙂

Are you carrying expensive debt?

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picture-2Sometime ago, I uploaded a video that explains my unique debt repayment strategy – after all, EVERY self-respecting ‘finance guru’ has one these days 😛 –  and, I wrote a follow-up post explaining the concept of ‘expensive debt v cheap debt.

Money Funk – and, I thank her for (a) taking the time to run the numbers, and (b) for taking the trouble to write about what she found (in not just one post, but two on her own blog) – says:

Now, read the post and reread the post. It took me a couple times to completely follow. But, I will tell you that I am really glad I did. Why? Well, because it could end up saving me $35,328!

I recommend that you read Money Funk’s post – “and reread the post” – to see how she thought through the numbers …

… but, for those of you – like me – whose eyes glaze over as soon as you see a bunch of numbers with IF’s and THEN’s liberally interspersed, simply think about the whole subject this way:

Take a look at the interest rate on the debt that you are thinking of paying (e.g. 2.5% on a student loan; 5.5% on a mortgage / housing loan; 19% on a credit card debt) and decide whether you would be better off leaving that loan in place and investing the payments that you would have made instead.

– If you could earn 8.5% on that money in the stock market, why wouldn’t you do that?? 8.5% is better than either 2.5% or 5.5%

– Alternatively, if you are thinking of borrowing to buy an investment property, why would you pay off a 2.5% loan just to then take out a 6.5% ‘investment loan’?

Oh, and if you are not thinking of buying an investment property instead of paying down any reasonable, low-cost (eg mortgage or student loan) debt … think again!

– However, if you are carrying a 19% credit card debt, what are you thinking of: pay that sucker off ASAP!

BTW: you may be wondering what the Debt-to-Income-Ratio pie chart on the top of the page has to do with anything?

I ‘lifted’ it off MoneyFunk’s site before she changed the pie chart to this one:

picture-3

Now, I can’t comment on the first version, but I can on this one: even though Motley Fool suggests that it’s OK to carry 15% of your income in servicing ‘bad debt’, the ‘correct’ ratio of bad debt to income is 0% … you should carry NO bad debt.

On the other hand, if you DO currently have ‘bad debt’ (eg consumer loans, car loans, mortgage – this one is in the ‘grey area’ between good/bad debt – or credit cards) then the correct comparison is how much expensive debt you should carry v cheap debt … the answer again, of course, is none.

So, the real comparison is how much cheap debt you should then carry, but that’s a whole other enchilada that I have some of my best people working on for you …

… stay tuned 😉

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This is like the closing credits: the reward for people who don’t leave the movie until the VERY end … or, in this case, actually for people who read the WHOLE post:

I got top billing on a site called “hahagood” … I sincerely hope it’s a foreign-language version of this site and not a Chinese porno site 🙂

Dismantling the Ladder of Personal Finance …

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For those who are new to this blog, 7 Million 7 Years is not about saving money, retiring on 75% of your salary in 30 years, stock or real-estate investing, frugal living, ‘getting rich quick’ or anything else that you are likely to find around the blogosphere …

… this blog is simply aimed at those who want to get rich(er) quick(er) more so than any of these other things – on their own – can possibly accomplish. That’s why, from time to time, you will read things here that (a) you won’t see anywhere else, and (b) will fly in the face of conventional wisdom.

You can choose to follow these suggestions or to ignore them; either way, this is unique opinion offered by somebody who has already made their millions and is doing one thing and one thing only: giving back to the best of their ability. Enjoy!

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iwtytbr-bookRamit Sethi, the personal finance blogging phenom – and, champion of Gen Y (18 to 30 y.o.) has finally published his book.

Naturally, it is being reviewed all over the blogosphere, including a review by my good blogging friend JD Roth of Get Rich Slowly, who ventures close to giving the book his highest possible endorsement (JD’s Caveat: for the right audience):

I’m often asked to recommend personal-finance books for young adults. I’ve read a few (and have more in my to-read stack), but there are only two that I promote … however, my friend and colleague Ramit Sethi has written a money book aimed squarely at those in their twenties. If you’re under 25 and single, and if you make a decent living, this book is perfect.

I have to confess that I have not (yet) read the book, but if JD recommends it, then it is probably worth a read.

However, I did find a ‘sneak peak’ of one of the pillars of the book, “The Ladder of Personal Finance“; Ramit says:

These are the five systematic steps you should take to invest. Each step builds on the previous one. So when you finish the first. go on to the second. If you can‘t get to number 5, don‘t worry. You can still feel great, since most people never even get to the first step.

Rung 1: If your employer offers a 401(k) match, invest to take full advantage of it and contribute just enough to get too percent of the match. This is free money and there is, quite simply, no better deal.

Rung 2: Pay off your credit card and any other debt. The average credit card APR is 14 percent. and many APRs are higher. Whatever your card company charges, paying off your debt will give you a significant instant return.

Rung 3: Open up a Roth IRA and contribute as much money as possible to it.

Rung 4: If you have money left oven go back to your 401(k) and contribute as much as possible to it (this time above and beyond your employer match).

Rung 5: If you still have money left to invest, open a regular nonretirement account and put as much as possible there. Also, pay extra on any mortgage debt you have, and consider investing in yourself: Whether it’s starting a company or getting an additional degree, there’s often no better investment than your own career.

ladder

It appears that Ramith Sethi has outlined a simple plan to financial success that is aimed at removing debt and ensuring that you have a great retirement, IF you are prepared to work until retirement age.

My major issue with it is that the book is called I Will Teach You To Be Rich and I will need to read it to see what Ramit thinks ‘rich’ is, because inflation will erode a good chunk of the benefit of any time-based ‘retirement saving plan’ …

… but, if you’re reading this blog, you probably want to become rich(er) quick(er) [AJC: After all, this blog IS called How to Make 7 Million in 7 Years 😉 ], in which case I have a simple solution for you:

Turn Ramit’s ladder upside down!

The 7 Million 7 Year Patented Upside Down Ladder of Personal Finance might look something like this:

Step 1: Start investing in yourself: start a side-company or get an additional job

Step 2: Put at least 50% of the extra money into a regular nonretirement account

Step 3: Pay off your credit card and any other non-mortgage, non-investment debt

Step 4: Start investing in real-estate, stocks, and/or your own business

Step 5: Since you will have money left over (i.e. at least 10% of your original – pre-Step 1 income) feel free to feather your 401(k) nest with it (grab the employer match if you do)

A simple solution with a powerful result … and, if you don’t get past Step 4 then I won’t be terribly upset. 🙂

Another sensational headline

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Motley Fool are masters of the sensational headline; case in point: their blog shouts Avoid the Mistake That Cost Buffett 8 Years of Better Returns, which turns out to be a reasonable discussion of technical analysis v fundamental investing a la Warren Buffett:

Technical analysis is the practice of predicting where stocks will trade based on charts of historical pricing and volume information. There’s a certain logic to it. Stocks trade based on supply and demand, which is greatly influenced by investors’ attitudes about the stocks. The charts should reflect those attitudes and might predict where the individual stocks will go.

But Buffett discovered one small problem. Technical analysis didn’t work. He explained, “I realized that technical analysis didn’t work when I turned the chart upside down and didn’t get a different answer.” After eight years of trying, he concluded that it was the wrong way to invest.

So, what does Warren say is the right way to invest?

Well it would be unfair of me to steal Motley Fool’s Thunder [ AJC: see I, too, can write clever headlines 😛 ] …

… instead, I want to point you to an even better strategy for small-time investors who can hop in/out of positions far more nimbly than Warren Buffett:

Combining value investing with basic technical analysis as touted by Phil Town of Rule # 1 Investing ‘fame’. Phil reportedly turned $1,000 into $1,000,000 over 5 years using these strategies, so maybe you can, too?

I didn’t have this same kind of success (with stocks!), but I did only start to use these strategies as the market crashed 50+%, yet my loss (including doubling my risk by using margin lending) was a 15% loss in the US (on approx. $1,000,000 invested) v a 60% loss in Australia (on approx. $750,000 invested) and a 80% loss in the UK (on approx. $3,000,000 invested) where these techniques were NOT used.

Before you say “what a dope”, my UK ‘investment’ was actually part of my buyout, so I had no choice … but, Australia and US were my [stupid!] decisions to invest at the peak 🙂

So, a 15% US loss should actually be read as a 35% ‘gain’ over the market, thanks to these tools …

Here’s what Phil Town has to say about sticking to his technical analysis-based buy/sell signals:

For all you arrows users (Investools or Success): I buy with three greens and it’s amazing how many times I regret it when i jump the gun and buy with two.  So three green.

And I get out when the stock stops going up and I get two reds down below.

And, here’s how to combine the two:

– Select a stock based upon sound fundamentals: i.e. is it trading below its long term value?

– Buy when the ‘technicals’ tell you that the major fund are beginning to buy in and sell when they are beginning to sell out.

IF this works for you (and, it has worked pretty well for me), it allows you to rid the short-term ‘waves’ in a stock’s price …

… but, you sell out for good, once your ‘value analysis’ tells you that the stock is no longer cheap.

What if you don't want to exit?

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I wrote a post about the real (nay, ONLY) succession plan for any small business: sell it!

But, Steve asks about the alternative:

What if you don’t plan to leave? I mean, Maybe the plan is to run it till you can’t any longer, then the wife runs it till she is ready to sell, or pass to the kids(if they are even interested in that type business). My idea is to find Businesses that provide (mostly Passive income) where you don’t need to spend much time at the shop daily. Where your biggest job is probably gonna entail paperwork.

This is the ‘pipe dream’ of many a small business owner – and, was certainly my father’s ‘dream’ … bring the kids into the business and then pass it on to them. After all, look at the advantages:

– Continuing ‘passive’ income … your kids will eventually run the business and look after you

– You’ll be smart enough to keep a chunky % of the business for yourself to ‘guarantee’ a healthy share of the ongoing profits

– No issues around selling the business, finding the right buyer, or handing it over

– It’ll keep the kids off the streets (probably, my father’s greatest motivation)

And, that’s certainly the central theme of a book that I reviewed some time ago, called Get Rich, Stay Rich, Pass It On: where the authors suggest that the ONLY way to ensure that your wealth carries on through the generations is to have roughly 50% of it in “continually innovative enterprise/s” a.k.a. a business:

What we mean here by a continually innovative enterprise is one that either offers a product or service that breaks new ground or changes a traditional product or service so much that it becomes virtually new.

As I said in my review: “that is something that you do before you retire so that you can retire rich … you take risks, you innovate, then you sit back and reap the profits (or sell)”.

But, there’s a serious flaw in this logic: 99.9997% of small businesses are inextricably tied to the owner; large companies know this, that’s why when they buy a small business, it usually comes with an employment contract to tide them over until they can ‘wash out’ the Owner/Founder Effect:

This is the truism that the business IS the owner/founder and the owner founder IS the business!

The reality is that owner/founders and their businesses cannot be parted so easily and these large companies should NEVER buy small businesses because of the Owner/Founder Effect … inevitably, the owner falls afoul of the new management, leaves disappointed [AJC: hopefully, with bundles of cash in her pocket to help console her 😛 ], and the business goes downhill thereafter.

Eventually, the business becomes ‘absorbed’ in the overall enterprise and they conveniently ‘forget’ that they totally stuffed it up … and, more often than not the old owner eventually buys back his own business for 25 cents in the dollar.

Friends of mine started a computer company and sold/bought it three times … each time selling high, buying low and making a heap on each subsequent sale 😉

Do you think it’s any different, Steve, when you ‘sell’ your business to your wife and/or children?

Because that’s exactly what you are doing: selling it to the least qualified purchasers; you may be able to teach them some of what you know … perhaps even a lot … and, there’s a VERY slight chance that you will be able to teach them (assuming that they have the will and ability to take on what you teach) 98% of what you know …

… but, you can NEVER pass on that last 2%: the Owner/Founder Effect ‘magic’ that made your business one of the few small-to-medium business success stories.

That’s why I called the book’s concept of encourage people to start/buy, then keep, these innovative enterprises “the most dangerous idea in retirement planning that I have ever read”, because that last 2% – the bit that is IN you and ONLY in you – is the bit that you CANNOT pass on and will eventually send your family broke.

Of course, there’s at least (my best guess) a 0.0003% chance that your business COULD become the next Walmart and pass on to at least ONE more generation, but I wouldn’t be willing to bet my family’s financial future on that.

So, instead of trying to fit your business into your Life, here’s what to do:

1. Find Your Number, the one that allows you and your family to live their Life’s Purpose

2. Apply a FULL 100% of YOU to molding the business into something that can be sold for at least Your Number (LESS the value of any investments that the excess cashflow that you truly outstanding business has been able to fund)

3. Spend your free time TEACHING your kids how to fish for themselves

… that’s what I’m doing for you, and that’s what I suggest you do for them 🙂

The Time/Money Paradox

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The uber-blogger, John Chow uses a surprisingly interesting visit to the park with his daughter to make a REALLY IMPORTANT POINT about the “trading time for money (and, money for time) dilemma” that afflicts most people … and, how he is one of the lucky few who avoids it by blogging …

… BUT, there are VERY FEW ways that you can earn money that don’t involve time. So, for the rest of us, we can separate our lives into two portions:

1. Earning/Investing until we reach our Number

2. Having both the time and money to live our Life’s Purpose

The aim is to accelerate the transition to 2. from 1. … how will YOU do it?