Guaranteed Returns?

Posted on April 4, 2009 by Adrian

In choppy and down markets it’s natural to be nervous … so, it’s no wonder that investors start to look at funds that purport to ‘guarantee’ your initial capital, your return, or some combination of both.

I have a close friend who is a financial adviser, who works strictly on a fee basis, yet his practice is associated with the products of one major insurance and fund management company.

He was telling me of the rise of these Absolute Return funds that work on the basis of not only guaranteeing the original amount that you invested, but also lock in your returns to date …

– in other words, if you invest $1,000 this year and the market falls, the fund guarantees to pay you back at least $1,000

– then next year is a good year for the market and your fund increases by 10%; now the fund guarantees to pay you back at least $1,100

– but, next year there’s another market crash and the market drops by 15%; but, the fund STILL guarantees to pay you back at least $1,100

– if you remain with the fund and the market eventually totally recovers, as soon as the fund value rises above your new $1,100 ‘guarantee’ then so does your return.

There have been plenty of systems that have produced similar results … they usually do this by some combination of insurance and/or derivatives (e.g. stock options). In fact, you could replicate some of these results for yourself simply by buying the right type and duration of stock option along with the underlying stock (or index).

The problem is that all of these end up costing you money: the insurance premium and/or options are bought out of your initial (or ongoing) investments. The ‘cost’ of these ‘guarantees’ comes as some combination of increased fees or reduced returns when compared to a similar fund that does not offer the ‘guarantee’ …. it’s that simple.

You can provide yourself a similar – or better – result at far less cost: buy a low-cost Index Fund and wait 30 years to cash it out; I can virtually ‘guarantee‘ an 8.5% minimum return 🙂

7million7year's April Fools Day Joke!

Posted on April 2, 2009 by Adrian

OK, I promised myself that after my March Fools Day joke-with-a-message (you know, the horse racing system one) that I would NOT do an April Fools day post …

… apparently, promises are made to be broken 😛

So, yesterday’s April Fools Day Post was another joke-with-a-message: no matter how much you have, you can always spend more.

Yesterday’s post is actually (slightly) rooted in fact; I have made some errors recently, and the market has turned, so let me come clean:

– We bought our current home for about $1.6 Mill.; naturally, we paid cash.

But, after we cashed out on the second part of our 7m7y journey (the part that I have NOT yet written about on this blog, because it’s a business success story, not a personal finance success story like my 7 million 7 year journey), things took a turn for the ‘worse’:

– We upgraded to a $4.5 mill. home (plus $1 Mill. renovations to come: house/swimming pool/tennis court), and again paid cash … unfortunately, the market correction has probably wiped $500k – $1 mill. of value … but, this is ‘value’ that will only be realized when we sell (hopefully, we’ll be there for at least 10 to 15 years).

– We bought $300k of cars (for cash) but also managed to sell the Maserati

– I did indeed lose $600k in the stock market; this is the ‘cost’ of my experiment in letting somebody else manage a small part of my portfolio for me, and trying to time the market (bad AJC … bad boy!)

– And, I was due to receive a $3 Mill. ‘bonus’ from my ex-employer, that was to be delivered in cash, but ended up being delivered in now-reasonably-worthless stock (that 30 pence to 7 pence slide is real).

The two mistakes that we made were:

– We tried to time the market … however, $1 Mill. represents a small’ish % of our total portfolio

– We spent money on a house that we assumed that we would have, but didn’t get (i.e. the UK cash-to-stock thing).

So, right now, we have broken the 20% Rule … but, I counted cash, and after all of this (including completing the renovations) we still have a LOT of cash in the bank, plus the houses, plus equity in a number of apartments / commercial property, not to mention a ‘passive’ business or two floating around … I won’t have to ‘downgrade’ my $7 million 7 year mantle anytime soon [AJC: because, say, $3 million in 11 years just wouldn’t have the same ring to it, would it?] 🙂

Still, how are we going to ‘correct’? After all, we have broken so many Rules, it hurts me to think …

Well, exactly the same way that you would:

Some of it will come from simply waiting for the market to correct (that $600k stock loss will partially reverse, as will the 30-pence-to-7-pence UK stock slide) … some of it will come from making long-term buy/hold investments in this soft-to-recovering market over the next year or three … some of it will come from applying a large portion of the equity in the home (and selling the old one, when the market recovers) to investments (thus bringing us back within the 20% Rule).

But, the lessons are clear: always obey the Rules … do NOT speculate … and, heed Rick Francis’ Making Money 301 advice:

You really should [not] have to worry about affording needs anymore- you just have to control your wants. Also, you can afford to be more conservative in your investments. Making Money 301 should be a lot less risky as you only need to maintain your principle against your spending and inflation.

Where were you when I needed you, Rick? 😛

PS: In case you didn’t get to see the masthead that went with yesterday’s post, here it is … I’m particularly ‘proud’ of the by-line (something to do with noses, white powder, fast cars/girls) … unfortunately, all-too-true for too many people (but, definitely NOT me! Well, the fast car – singular – maybe). I don’t even know who the photo is of? Do you?

15 seconds to say what took me three posts …

Posted on March 29, 2009 by Adrian

Scroll to about the 3.5 minute mark and listen for 30 seconds: that’s all it takes Warren Buffett to tell you what I’ve been trying to tell you in post-after-post about the folly of buying so-called ‘dividend stocks’ …

… why is he so quick?

First of all, Warren Buffett has credibility; secondly, he has a knack for summarizing things very neatly.

Now, Warren didn’t teach me how to think about dividends – to me, it’s just such clear common sense I can’t even understand the “pro-dividend for dividend’s sake lobby” – but, it’s nice to see that “The World’s Greatest Investor” puts his shareholders’ money where his mouth is 🙂

Building a better retirement account …

Posted on March 26, 2009 by Adrian

If I say “retirement account” what do you say?

“401k”?

Or, is there a better way …

MoneyMonk thinks that there may be, but only once you’re a millionaire:

If you can achieve your investment goals, at the same time taking advantage of the legitimate tax-shelters available to you (e.g. 401k, self-directed IRA, etc.), then you would be a fool not to do so

Agree, 401k is the best way I can shelter tax

Once you are a millionaire, I see why a person like yourself Adrian have no need for it.

Essentially, Money Monk is saying two things:

1. You would be a fool not to have a 401k if you can achieve your investment goals, and

2. You probably don’t need one once you are a millionaire

I’ll turn this over to Scott, who addresses both of these issues very nicely:

I think that’s the big point that many people are somehow still missing. The point is that you did not BECOME a multimillionaire by putting money in your retirement accounts. You BECAME a multimillionaire by focusing on building successful businesses(which required you to put all your available cash into developing those business, not stacking it away in 401k’s, Roth IRA’s etc..), as well as buying stocks and real estate.

I think many folks keep forgetting that the purpose here is to learn how to make 7 million in 7 years, not 2 million in 40 years and then get taxed on it anyhow when you withdraw it at ‘government declared’ retirement age.

And, Scott is right: if I had put money away into my 401k instead of investing it back in the businesses and in real-estate (I invested in stocks, at that time, mainly with what little was in my 401k-equivalents, which were self-directed), I’m pretty sure the blog that I would be writing today would be Frugal Living Until You Are Just On Broke … and, I WOULD be advertising: I’d need the extra $4 a week 😛

But, pursuing tax-savings – as part of a Making Money 201 wealth building program – is a noble, worthy …. and MANDATORY … goal if you truly want to become rich(er) quick(er) … it’s just that the 401k is typically not the right vehicle to foster an ‘early retirement strategy’, and the other government-sponsored programs also have their limitations (how long your money is tied up; what you can invest in them; and, more importantly for the BIG Number / SOON Date brigade: how MUCH you can invest in each) …

… so, by now, we know what NOT to do … but, what should we do to manage our tax expense (after all, if we pay less tax, we have more to invest)?

Well, let’s turn back to Scott who was your typical 35%+ tax bracket high-income earner:

As far as using retirement accounts to shelter tax,just to help the readers understand a little better, after my wife and I did our taxes at the beginning of the year, we realized that after all business deductions, real estate depreciation deductions and rental mortgage interest deductions, we only paid around 25% tax for the year on our income, which is substantial. This was about 10% LESS in taxes than we paid the previous year when we didn’t own such investments. Needless to say, that 10% savings over last year equals approximately the savings we would have made by putting money into a retirement account, but instead, we now have multiple business ownership and extra real estate. This was simply from our first year of dipping our foot into investing and being part of the 7 millionaires in training.

And this is only the beginning. I wonder how much less in tax we’ll pay next year by buying up appreciating assets and/or small business ventures?

No matter how much tax you pay next year, Scott, by investing in income-producing, appreciating assets – and, holding for the long-term in the right types of structures (trusts or companies) – I have absolutely no doubt that you will (a) pay less tax and, (b) return more than the average Doctor on the same salary who doesn’t …

… and, since you are one of the 7 Millionaires … In Training! I will show you exactly how to do it … and, anybody who wants to be a fly on the wall (better yet, participate in the open discussion) will be able to learn some valuable lessons, as well.

And, you can take that to the piggy-bank!

Debt Snowball, Debt Shmowball … as long as you're RICH!

Posted on March 25, 2009 by Adrian

debtbazooka1 Let’s face it, if your whole goal in life is to simply get rid of your debt you are probably reading the wrong blog ….

… but, I am working on the assumption that you feel that paying off debt will help you get rich(er) quick(er).

How?

Well, most people that I talk to say: “I will become debt free then I will have all that money spare to start investing … stress-free because I’ll have no debt to worry about”.

Stress free, until I point out that paying off debt early to start saving up to invest later is the long road to nowhere. You see, they will simply start investing too little, too late to make a dent in their true retirement needs … assuming that living on an ashram, eating rice-cakes three times a day isn’t their ideal future 🙂

When I point this out, they say: “Oh no, I’ll be accelerating my investment plans because I’ll be borrowing to buy an investment property … you see, I’ll have paid off all of that BAD DEBT (on my car, my TV, my house) and be ready to put all of those monthly payments into a big, fat GOOD DEBT loan on an investment property”.

Then they point me to all the methods that might be used to quickly and efficiently pay down all of this ‘bad debt’ – conveniently and cleverly collated in this blog post by my good blogging friend, Pinyo, over at Moolanomey – and:

BANG!

I’ve got ’em right where I want ’em …

You see, the concept of ‘good debt’ and ‘bad debt’ only applies when you are deciding whether to take on debt or not.

Let’s take the following two examples:

You want to buy a car on finance = BAD DEBT

You want to buy a ‘positive cashflow’ investment property by borrowing 80% of the purchase price from the bank = GOOD DEBT

Still with me? Good.

Now, here’s the twist: once you have acquired the debt, there is no more ‘good debt’ / ‘bad debt’ anymore … there’s only EXPENSIVE DEBT and CHEAP DEBT.

I don’t think that this is something that you’ve ever seen anywhere else (at least, I certainly haven’t!), so let’s take a simple example to explain:

You used to have a $25,000 student loan (at 2.5% fixed interest) and a $5,000 car loan (at 11.5%) … and, you cleverly and diligently worked at paying off the car loan at the rate of $150 a month (your minimum payment was $50 a month, so you paid it off pretty quick … good for you!), while maintaining your minimum payment of $25 a month on the student loan.

Now that the car is paid off, you are naturally planning to apply that whole $175 a month to the student loan and have it paid off in only a few years (yay!) … is this the right thing to do?

Well, let’s apply the cheap debt / expensive debt test to the alternatives available to us:

1. Pay down the student loan (save 2.5% interest), or

2. Spend the extra $150 a month on all the stuff we’ve been going without (an effective 0% earned or 100% ‘interest’ expense on the money spent, depending on how you want to look at it), or

3. Stick the money in a CD (earn 1.9% interest).

Clearly paying down the student loan is the best ‘bang for buck’ that we can get, here, and spending the money is the worst.

But, what if we add a fourth option:

4. Use that $150 a month to save up for a deposit, then apply for an 80% loan to buy an investment property (pay 6.5% interest).

Using my ‘cheap debt / expensive debt’ rule, you would immediately work on reducing your most expensive debt, which is the 6.5% mortgage loan … and, the best way to reduce it is by keeping $25k of it in the cheaper (2.5%) student loan.

However, the ‘Ramseyphiles’ would pay off the student loan (BAD DEBT), then save up the entire $175 ($150 + $25) for the deposit on the investment property (GOOD DEBT), and spend a lot more in interest for the privilege.

Now, do you see the sense in doing this?

Well, I can’t!

Why pay down a $25,000 loan at 2.5% just so that you can replace it with another $25,000 loan (plus ‘another loan’ for the remainder of the amount that you will need to buy the investment property) at, say 6.5% or 8.5% or whatever the interest rates will be a few years down the track.

Not, only do you pay more in interest, but you delay the purchase of the ‘cashflow positive’ property which means that you are putting less cash INTO your pocket and missing out on all of that extra appreciation on the property, not for the benefit of being debt free (because you will have a nice, fat mortgage on the property), but for the very minor advantage of only have one larger loan to pay rather than two smaller ones (student loan, plus $25k smaller mortgage).

If you don’t think the property is going to make you money, why buy one at all … and, if you do think it will make you money, why delay?

When thinking about finance, it’s much better to shift your focus from the means (paying off debt) to the ends (having enough passive income to fund your ideal life) …

If you’re interested in understanding more about how this works, read Pinyo’s post to get the basic Debt Snowball mechanics set in your head (he has a nice diagram), then read the Cash Cascade where I explain in video and words how to make this work – even better, in my most humble of opinions – for you 🙂

But, if your sole goal really is to become debt free, why not consider doing it the easy way as the cartoon above, suggests?

The lament of the trust fund baby …

Posted on March 23, 2009 by Adrian

It seems that my Rich Dad. Rich Kid? post struck a bit of a chord with some of our readers; the post was essentially questioning whether your kids are rich – or should be – just because you are – or, will soon become 😉 – rich yourself?

The universal agreement seemed to be that the best financial ‘gift’ that a wealthy parent can give their children is education … particularly education about money; something about teaching children to fish …. ?

That leads me to Diane who suggested that I write a follow-up post, saying:

I married a man who was the son of rich parents and rich grandparents. He didn’t have a lot of motivation, but I liked the fact he was not a workaholic. Divorced now, I do not know how his parents and grandparents’ trust funds have fared, both with the economy and with is father’s aging (a topic for another post, Adrian? How to help the aging parent who’s used to controlling the funds but perhaps has lost his cognitive ability and no one has recognized that decisions are impaired? But I digress…)

Let me deal with both Diane’s question and the whole ‘spoil the child?’ subject with two personal stories:

Firstly, Diane’s question about the aged dealing with finances is a real one that can only be solved with a willing ‘aged one’, some personal ethics, and an Enduring Power of Attorney:

My grandmother is 96 years young; she is in an old people’s home now – having just moved from her retirement village (i.e. over-55’s) due to an over-medication issue – her doctor’s fault. In short, she’s more capable than you or I.

She’s so capable, in fact, that in the last 2 years she personally engineered the sale of a substantial downtown property on behalf of herself and her partners, fetching a record price. She handled the realtors, the attorneys, and her partners herself. Period.

However, she also put in place a Power of Attorney (“just in case”) and has recently set up a trust fund to deal with the cash proceeds.

So, my experience is with somebody who is mentally capable of recognizing their own strengths – and weaknesses – and puts in place the appropriate strategies. She also recognized that my mother may not have the same capabilities so has set up a trust involving my mother and an attorney (not exactly how I would have set it up, but it’s not my call) to try and protect the assets for future generations.

So, my only counsel is that you have to put in place the safeguards, well in advance of the problem – with the elderly person’s consent … if they don’t want to play ball, well it’s their money …

… which brings me to the second personal story:

I am one of three siblings, having a slightly older sister and another sister a few years younger; neither of whom exhibit any signs of financial intelligence (one has no money, no job, no prospects, and the other has no money, a part-time commission-based job, few prospects, and gave away her house to a con-man despite warnings … ’nuff said) … since I have at least some sense of financial responsibility and a desire for self-sufficiency, I can honestly say that I can’t relate.

It was explained to me once by a professional why my sisters and I are so different (and, why I am now wealthy and they are now ‘broke’ … awaiting the next regular dose of parental hand-out): you see, my sisters believe that they grew up in a rich household … that was the impression that my father gave my mother, sisters, friends, bankers … in fact everybody but my grandmother and me.

He would live beyond his means then go to my grandmother for handouts to maintain his comfortable-to-upper-middle-class lifestyle (and support his usually failing business ventures), but he would tell me our true financial situation: just over broke.

Since finances were never discussed openly in our house, I didn’t realize that I was the only one who knew the truth … so, I simply grew up in a ‘poorer’ household than my sisters, which meant that I automatically worked every weekend and every vacation and bought all of my own clothes, cars, and saved for my own discretionary spending. My sisters, of course, simply held their hands out, as and when needed.

Therefore, as the professional explained it to me, I simply grew up responsible and my sisters didn’t. As things turn out, this ‘education’ was a blessing for me …

So, here’s where the two stories intertwine:

Early in my career, I still felt that I had a financial ‘safety net’ – even though my parents were struggling, there was always grandma in the background if things really went awry … not to mention a nice large inheritance surely to come ‘one day’.

Until I realized that (a) the family assets would need to be spread over more and more people as they (eventually) moved from my grandmother to my mother, [perhaps] then to my sisters and me, and (b) my sisters (and, mother) had a huge capacity to consume … so who knows if there will actually be any assets left if my turn should happen to come? That’s the time when I made the key decision to become truly self-sufficient: independently wealthy (you read how this came about, already).

This is the point: if you rely on a safety net, chances are that you will need one, but it won’t be there when you need it.

But, if you choose not to rely on a safety net – instead, choosing the path of self-sufficiency – you will end up creating your own safety net …

… and, if the inheritence happens to come through, you have the perfect means to start your own charitable foundation 🙂

The 401k fallacy …

Posted on March 19, 2009 by Adrian

The objective of this blog is not to challenge your thinking on so-called ‘investment truths’ or ‘common investment wisdom’ …

… that’s just a means to an end.

The objective is to help you become rich [AJC: after all the title of this blog IS “How to make $7 Million in 7 Years”], but in doing so we MUST challenge your thinking on so-called ‘investment truths’ or ‘common investment wisdom’!

Do you see how one is the means and the other is the end?

So it is with many of these personal finance ‘myths’ … so many are treated as an end in themselves, rather than the means that they simply are; none more so than the Mighty 401k.

If we are to become rich, we must slay the temptation to lay at the feet of this great Financial Idol and see it not for what it promises (future financial freedom) but for what it really is: simply words written on a piece of paper.

That’s it, the 401k is just a tax-advantaged savings TOOL … it’s not even a scheme, as there is NO guidance as to what you should put in it (other than restrictions to tell you what you MUST NOT put in it).

Therefore, I have NO OPINION on whether a 401k is intrinsically good or bad for YOU … just as I have no opinion as to whether a stone carving is intrinsically good or bad for a pagan civilization … it’s what belief in its purported ‘power’ does for (or against) your [financial] future that concerns me.

It’s not the tool, but how you choose to use it that counts …

Now, I covered the 401k in many posts, but I thought that I would pick up on a great discussion going on over at my other site, where Scott says that he has no use for a 401k:

I can’t utilize many of the retirement accounts because of my income level and the ones that I can, I max so quickly that it just seems moot. For example, right now, I’m saving up cash as fast as I can to purchase the entire building that my practice is located in. This building also has another business next door that will be paying me rent, and in essence, will drop my personal mortgage significantly, while it’s getting paid off in a few short years, then I own the commercial building, not pay rent, AND receive passive income!

So my question to you would be; Should I delay the purchase date to buy this building and all the above said benefits to first max out retirement accounts that I can’t touch for 30+ years, AND get taxed on them when I do.

Which gets me to my Number faster? Purchasing commercial real estate NOW as fast as I can in my 30’s, particularly one’s that I would normally have to pay rent on and actually begin RECEIVING rent on as well, or fund a retirement account to shed some tax now?

After a bit of discussion around the possibility of finding other tax-advantaged investment vehicles, depending upon your financial positions, Jeff summarized the discussion quite soundly:

The only reasons I can come up with right now to not invest in these types of accounts first is either:

1. The amount you want to invest is greater than the annual contribution limits.

Or

2. You don’t like the age restrictions and early withdrawal penalties that go along with these accounts.

Those are both very valid concerns and certainly reasons to not use typical retirement accounts.

Absolutely, Jeff!

If you can achieve your investment goals, at the same time taking advantage of the legitimate tax-shelters available to you (e.g. 401k, self-directed IRA, etc.), then you would be a fool not to do so.

However, if you divert from a financial course that stands a reasonable chance of meeting your financial objectives – the type of course that Scott seems set to take – just so that you can take part in, say, an employer-sponsored 401k, that may not achieve your financial objectives (in the timeframe that you require, not the timeframe that the employer/government offers) then, in my opinion, you are making a huge mistake 🙂

401k … a means or an end?

Posted on March 16, 2009 by Adrian

There’s still this general expectation that if you earn an income then you will have a 401k … it’s seen as an ‘end’ rather than the ‘means to an end’ that it really is.

Let’s look at the advantages:

1. Tax free on deposits into your 401k … ‘boosts’ your investment buying power by up to 25% to 35%

2. Possible employer ‘match’ … further ‘boosts’ your investment buying power by up to 50% to 100%

Now, let’s look at the disadvantages:

a) Generally, limited investment choices (e.g. managed funds)

b) High fees (both explicit and hidden)

c) Restricted access to your money until government-managed ‘retirement age’

d) A fairly low ‘cap’ on amounts that may be invested

But, similar lists of advantages and disadvantages can be draw up for ANY form of investment, tax scheme, etc. etc. …

… it’s just that we mostly don’t bother. We blindly accept the 401k as the ONLY way to go.

Ryan says:

I share your distaste for 401Ks, and their fee’s and penalties, but I have to believe that there is some advantage to having tax shelters (be them 401k or not). Otherwise, won’t the government just take all of your hard earned (and passively earned!) money?

Ryan’s right … the Government WANTS you to pay tax, but only the minimum that you NEED to pay … they don’t expect a penny more. The problem is, the government is only interested in the tax portion of your personal ‘Profit & Loss’ … YOU should be concerned with all of it!

As Scott says:

Robert Kyosaki states that the wealthy aren’t the one’s paying the lion’s share of the taxes. The middle and upper middle class do.

A 401k, ROTH, ROTH IRA, etc., etc. are all simply methods of protecting assets from taxes to a greater or lesser extent …

… the problem is not with these ’shelters’ in themselves, it’s in their design. You see, they were designed for the ‘average American’ to encourage them to save for retirement.

You and my other readers are probably NOT average Americans – if you are like me, you are aiming for a Number in the millions – and will surely hit the ‘roof’ (i.e. the maximum amount that the Government ‘allows’ you to sock away during any one year) of these vehicles very quickly, as your income starts to sky-rocket from Making Money 201 activities …. then, once you achieve your Number, the limits that you can have socked away will mean little to your Making Money 301 wealth preservation strategies … it’s why I don’t even bother!

It doesn’t mean that you shouldn’t tax-protect your money …

… it’s merely that Scott has hit the nail on the head: these aren’t the ONLY tax shelters available, or even the BEST tax shelters available.

For example, and as Robert Kiyosaki suggests, investing in income-producing assets via corporate structures (LLC’s; trusts; C- and S-Corporations; etc.; etc.) and taking advantage of all the tax deductions available to you (e.g. depreciation, 1031 Exchanges; etc.; etc.) will blow away any ‘tax advantages’ of 401k’s and similar (even WITH the ‘free’ money from the employer match factored in).

So, let’s not put the cart before the horse:

– FIRST look at the types of investments that you need to make in order to reach your financial objectives – be they long term (i.e. your Number) and/or short-term (e.g. flipping a house / trading some stocks and options)

– THEN look at the best ‘vehicle’ to house them in.

As an extreme example, if you decide that a business is the way to go – and, put up 100% of your savings as ’seed’ capital’ – then having a 401k is hardly going to help you, is it?

Blindly setting up a 401k first, then seeing what investments you are allowed to make in them is putting the cart well before the horse!

Rich Dad. Rich Kid?

Posted on March 13, 2009 by Adrian

Let’s not mince words: by most measures The AJC Family is Rich!

But, does that mean that our children are rich? Does it mean that Mom and Pop will buy them cars, vacations, etc.?

The inspiration for this post comes from a comment (on a post by Diane about her car), where Debbie says:

I think most 16 year old’s get cars these days.

I had one before I turned 17, although I had to pay for it with my own money and get my own insurance (but I think the trend is now parents buying their kids first vehicles and insurance from what I’ve been seeing and in fact- I wrote a post about how teenagers are in the perfect position to put aside some money during their high school years on Wisebread.com and do you know the comments I got?!

Parents saying that the idea was ridiculous, kids shouldn’t be expected to save the money they earn on jobs nor would they do it if they understood the value of compound interest and how much those first few thousands would be when they were ready to retire; if kids work during the summer how will they take trips to Europe and attend soccer or music camp, etc. I am still in shock!)

I must admit that I am in ‘shock’ as well …

… but, this brings me to an interesting point: how do ‘rich parents’ bring up their kids?

After all, when you all reach your Number, maybe you need some guidance as to how YOU should face these same issues?

All I can tell you is what we do:

We are in one of the highest socio-economic levels, yet our children (11 and 14 years old) already know that if they want cars, they will need to buy their own. We will contribute (prob. up to 50%) … but, they will need to save up their portion and fund the running costs.

I’m guessing that most of you reading this blog had to do it the same way (?) … at least we had to, so why shouldn’t they?

We feel that just because your parents are ‘rich’ doesn’t mean that YOU are … at least these are the conversations that we have with our children 😉

Why?

We feel that the best FINANCIAL gifts that we can give our children are:

a) Teaching them to take sole responsibility for their own financial situation, and

b) Teaching them how to become rich on their own

… we hope, leading them to the type of confidence and independence that only self-sufficiency can provide.

Think about the second one: what an advantage is it to have parents who have gone from $30k in debt to $7million in the bank? It’s got to be better than reading a blog, or having an occassional mentor … of course, the disadvantage is the child’s natural inclination to rebel from their parents, so, we add a couple of extra advantages:

c) We pay for their formal education. 100% … no “if’s” and “but’s”, for any course, in any reasonable location (we’re not sending them to Switzerland to go to Finishing School!) as helps them achieve their academic goals … but, only their first ‘real’ degree. If they want to sacrifice current earning potential for future by earning Masters, PHD’s, and/or MBA’s, that’s their financial trade-off to make, and

d) [AJC: This is the secret advantage that we do NOT tell them about up front] They will never starve … if all else fails, we are their Safety Net. But, they will not be able to “mooch off the folks” … this is simply an ‘insurance policy’ against disaster.

To that, we add all the ‘normal’ non-financial parenting, PLUS the luxuries of private schooling; after-school activities; bedrooms with private bathrooms, robes and studies (equipped with MacBooks, of course!) for each; as well as the swimming pool, tennis court, travel, etc. lifestyle that living in a ‘rich household’ provides …

What do you do (or plan on doing) with your children?

Exciting Money Making Opportunity? Horses …

Posted on March 12, 2009 by Adrian

horsesass Thanks to all of those who responded asking for further information on this Exciting Money Making Opportunity! But, applications – for suckers – are now closed 😉

It seems that the ‘scam radar’ of my regular readers was well and truly up [AJC: And, I didn’t even have to publish on April 1st, like I was first planning … too obvious, huh?]; take Rick, for example:

I look forward to the follow up post where you outline the lessons to be learned from this post. You did a great job including all of the hallmarks of a sca.. ah, questionable investment: limited time offer, “GUARANTEED”, astronomically huge returns, no knowledge or effort, a new secrete system, and an inherently shaky premise .

Seems like I won’t be able to sell any snake oil on this site …

For those of you who are wondering, here is some ‘scam sniffer bait’ that I threw out for you:

1. Making an offer like this is a HUGE departure from my previous statements: no advertising on this blog; no product sales ever; etc.; etc.

2. If you did a Google search on Derren Brown – or, even just click on the link that I conveniently provided … not all scammers are smart 🙂 – then you would find that Derren is actually billed as “the maestro of mind control” and is a “performer … [who] is in a class of his own, exhilarating audiences with his unique brand of intelligent and theatrical entertainment”. Hardly a “horse racing phenom” ….

3. As in most scams, there is a crumb of truth to my claim that the “foolproof horse-racing system that has been making him … and subscribers … millions of pounds.”

– It IS foolproof, but not profitable (you have to bet on every horse to ‘guarantee’ a win … d’oh!)

– It has made him, and the subscribers to the stock of the various TV stations airing this special, millions of pounds in broadcasting rights …. nice.

4. I am excited to be able to lie “that I have acquired SOLE RIGHTS to the package WORLDWIDE” …. c’mon, I can’t flag every obvious BS statement for you!

5. It’s always good to have testimonials … scammers are masters of those; trouble is, if you Google this one, you’ll find that it’s for something that has nothing to do with The System … in fact the whole section was just ‘lifted’ from another racing product promotional site and I merely cut/pasted the product names:

“Punters look for winners, not fancy color adverts endorsed by famous racing personalities. The System© may come with modest presentation, but has proved to be an explosive winner-finding system that leaves its flashy competitors far behind. The System is definitely an investment and not an expense.”
Odds On Magazine

6. I think that the best one is the banner ad that I put on the next day’s post (you can see it here); it’s actually for some other product entirely – I have no idea what, nor do I care, but I did leave the product name in to make it even easier for you to play ‘spot the scam’!

In fact, you’ll be pleased to know that I don’t even know Derren Brown, and I know even less about horse racing; I haven’t put money on a horse, even socially, in about 20 years 🙂

The point of all of this?

Well, next time you think you’re getting something from the horse’s mouth just make sure that you’re not being the horse’s ass 🙂

Applying even a little common sense will stop you from losing an AWFUL LOT OF MONEY in life …

… and, money saved is EXACTLY the same a money earned (just with less upside).

PS I strongly encourage you to watch the videos that I linked you to … now that you have some idea what it’s all about, it may lose a little of it’s ooomph … but, just seeing how Derren can flip heads on a totally fair coin toss 10 times in a row is a hoot!

7million7years

How to make 7 million in 7 years …

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