Beating the ‘more’ bug!

Do you have the ‘more’ bug?

I certainly do, and I think that most of us do … in fact, I’m so sure of it, because I see hundreds of blogs and books solely aimed at eradicating the disease with drastic remedies such as self-flagellating frugality and anorexic debt diets.

Kind of reminds me of how we used to treat ourselves with blood-letting, hole-in-head-drilling, and leeching – actually, all still legitimate remedies in a tiny minority of real-world cases – because we didn’t know any better.

In those days, a ‘real’ doctor, prescribing a drug that they had discovered would have been seen as a heretic or master of the ‘black arts’ (Louis Pasteur, anybody?).

But, I’m getting ahead of myself … first, here’s how Scott (a doctor, plenty of disposable income, so he’s a prime candidate) describes the symptoms:

I think a big dragon that we all face is that human nature of wanting more. We all seem to do it to some degree or another. We’ll live in a 150k-200k house(which was probably an amazing home to our grandparents standards) and while there, we imagine that million dollar pad. Once we get that, we need a 5 million dollar one, etc..etc..and our number continues to climb with the chronic discontent and needing more.

As Scott says, it’s not such much a ‘bug’ as a human condition: to always want more.

To get a little metaphysical: if you were the Ultimate Higher Power and you wanted to design an environment with endless conflict (all the way up from a personal level to a global level), you would fill it with little creatures that you ‘program’ to always want ‘more’. And, you would give them the tools (opposable thumbs, a modicum of intelligence, and inventiveness) to ensure that they create an endless stream of upscaled ‘stuff’ to constantly fuel that desire.

What Eternal fun! 😉

Assuming that the ‘more’ bug is curable … or at least manageable … how do you deal with this seemingly insatiable desire for ‘more’?

Well, if it really is a disease or condition, then I’m not sure how easy it is to switch off the ‘more’ switch; maybe a 12 Step Program for Wants (might be a great online/offline business here for any psychologists who have a side interest in personal finance)?

But, if it is real – and, manageable – then another strategy might be to build in gradual spending/lifestyle increases into your budget. Allow the ‘disease’, but control it …

For example, I drive a BMW M3 Convertible (in Australia, this is a USD$200k car, due to low volumes, importation costs, and exorbitant luxury vehicle taxes) but I really WANT a Ferrari ($500k++).

So, I have given myself a target:

Develop and/or cash out (for a certain amount over purchase price) on my development sites and I ‘reward’ myself with the Ferrari (not as simple as that: I will also need a day-to-day car, so figure a $150k Audi S6 or Maserati Quattroporte, in addition to the Ferrari … repeat every 5 to 8 years). I think that some of the Sudden Money strategies that I posted about recently are ideal for managing this.

Another way to deal with this was suggested by Robert Kiyosaki: he said that he, too, wanted a Ferrari. His wife said that he could only buy one if he generated the income to cover it. So, he bought a self-storage business and used the income to fund the payments on the car … I’m OK with this: even though he’s funding the car, rather than paying cash, the capital is in an income-producing asset – one that really should increase in value over time.

And, it’s not a ‘real’ business, in that it won’t need a lot of ‘hands on’ management … of course, it’s not a real passive investment either. Other candidates could be automated / no staff car-washes; ‘coin’ laundries (the new kind that use cards instead of cash); and, some of the absentee-owner franchises.

[AJC: Just be warned, you probably can’t tax-deduct much – if any – of the vehicle payments. Contrary to what the financial spruikers and shysters will tell you, the IRS is not stupid: why do you need a Ferrari to help the self-storage business / car-wash / coin-laundry produce an income?!]

But, now that Scott mentions it, I do have a hankering for an island ;)

Fitting another square peg into a round hole …

I need your help on a small project that I am working on! I have a new FaceBook Page for Top Secret Startup Project # 4 and need 25 people to “like” the page in order to get a proper URL. Would you PLEASE take exactly 10 seconds to visit that page by CLICKING HERE and click the “like” button.

I might even send one of you (by random selection) a surprise gift (HINT: think ‘apple’ and think ‘card’) AND you will be amongst the first to know what I’m up to over the next few weeks! Now, back to today’s post …
Philip Brewer is the first to break ranks … that makes him a pioneer!

He’s the first personal finance writer to question the validity of the 4% Rule; I’ll let him do what he does best … explain:

There’s a rule of thumb that’s pretty well known to retirement planners: the 4% rule. It states that if you spend 4% of your capital in your first year of retirement, you can go on spending that much — and even adjust it for inflation — and you won’t run out of money before you die. That rule is starting to look kind of iffy.

The rule is just an observation: Over the past hundred years you could have followed the 4% rule starting in any year and you wouldn’t have run out of money. That’s been true because the return to capital has been pretty high, and because downturns have been pretty short.

So, that’s the genesis of the 4% Rule … basically an assumption that if inflation runs at 3%, you can get at least 7% return on your investment (the difference being the amount you can spend: 4%). But, most investments haven’t ‘returned’ 7% – or anywhere near that – for quite some time, as Philip explains:

Stock investors saw some price appreciation in the 1990s, but there’s been no appreciation since then. In fact, your stock portfolio is probably down over the past decade, even with reinvested dividends.

… and bonds and cash haven’t fared much better, certainly not enough to keep up with inflation and provide spending money for a retiree!

The problem is we’re trying to fit a square peg into a round hole:

Square Peg

Bonds, cash, and stocks are all capital investments (my term); they are designed to hold (preferably, appreciate) the capital that you put in.

You create ‘income’ from these investments: (a) from their (relatively speaking) meager dividends, and/or (b) by selling down your portfolio as needed. The 4% Rule says that the amount that you need to selll down SHOULD be offset by the increase in value of what you have left even after accounting for inflation.

The problem is in the ‘SHOULD’ word: this should all work, but as Philip points out, there are times when it doesn’t …

Round Hole

When you are retired you shouldn’t spend capital unless you print the stuff … or, at least, have an unlimited supply.

You don’t want capital, when you are retired, you really want income.

Specifically, you want a certain amount of income – and, you want regular pay increases (at least enough to keep up with inflation) – just like when you were working.

But, you want it:

a. without needing to work, and

b. without running the risk of being ‘fired’ (i.e. having your retirement income run out).

Other than some nebulous (perhaps, for you, well-defined) need to leave some of your hard-earned, precious, irreplaceable, capital behind for charity, your cat, and/or the next generation, you really don’t – shouldn’t – care very much about it, except for its ability to provide that much needed income.

So, why try and cajole capital-appreciating assets to do the work of your former employer, when there are perfectly good investments out there specifically manufactured for the sole purpose of:

1. At least maintaining their own value (ideally, after inflation), and

2. Providing you with an income, indexed for inflation, for your life or the life of the asset (whichever comes first).

A few such assets immediately spring to mind … each with their own pros/cons (which we can explore in the comments and/or future posts):

1. Real-estate: it tends to increase in value according to inflation; it tends to provide semi-reliable income that increases (again) with inflation,

2. Inflation-indexed annuities: you give up claim on the capital in return for a guaranteed (well, as long as AIG or its like stays in business) income that increases with inflation,

3. Treasury Inflation-Protected Bonds (some Municipal MUNI’s also do much the same): These guarantee that your capital will increase with inflation, and you can ladder them cleverly to provide some semblance of a (albeit low) income stream that increases with inflation.

Of all of these – and, in retirement – I like 100%-owned (i.e. paid for by cash) real-estate the best; what do you recommend?

There’s something about Todd …

Poor Todd, where I don’t fear to tread, Todd (now) refuses to go:

Everybody hates Todd Henderson.

In case you haven’t heard, he’s the University of Chicago law professor who unwisely blogged about his financial woes in a post headlined “We Are the Super Rich.”

Mr. Henderson and his wife, an oncologist, make more than $250,000 a year, and apparently they’re struggling to get by. If President Barack Obama gets his wicked way, and tax rates rise for those earning more than $250,000 a year, Mr. Henderson says it will mean real sacrifice in his family.

It’s too easy to pelt Mr. Henderson with rotten eggs, as so many have now done. (He yanked the post, but way too late–and on the Internet, one’s blunders never die.)

Never, ever, ever again blog about how hard it is to live on $300,000 or $350,000 a year at a time when one middle-aged man in four can’t find a full-time job, and one in five can’t find any job at all.

Yeah, I understand that Mr Todd was whinging to people much worse off than him.

But, I’m not afraid to speak my mind – when it comes to money – after all, ever heard of “teach a man to fish …”?

Early retirement in the extreme …

Jacob and I are really the bookends for early retirement: he says that he has retired on $6k per year (a budget of $500 p.m.), and I am retired on $250k per year (around $20k p.m.).

I know I’m happy, and I’m pretty sure that Jacob is happy, too.

Now, there are some non apples-for-apples comparisons, here:

– Jacob has a spouse who works; my spouse does not work but has thought about working

[AJC: one of the problems with being ‘rich’ is that it’s embarrassing to take a part-time admin. job that pays $13k per year, driving there in 10 years salary worth of car and driving home to 461 years worth of house! I told her that it might be better if she just donated her time to the charity that wanted to hire her]

– Jacob has no children; I have two

– Jacob’s net worth is higher than the typical American’s … so is mine!

Wealth is defined as being able to live comfortably on the passive proceeds of your investments; clearly, both Jacob and I can do that according to our individual assessments of ‘comfort’, so we are both wealthy.

Moreover, our wealth and retirement strategies are not for the masses … but, the lessons learned can be!

However – and, this is a big ‘however’ – I simply don’t believe that ‘extreme’ early retirement strategies really work for any, but a small minority of families. There will simply be too much financial pressure – some generated directly, and some indirectly (yes, peer pressure is real) from the children:

– Food: you may be happy eating home-cooked meals. Your kids will want sushi and sodas with their friends.

– Clothing: you may be happy with last-season Gap and TJ Maxx. Your kids will want this season Abercrombie and Ed Hardy.

– Education: you may be happy on $500 p.m., but how much college will that buy? Your kids will resent having to buy their own, so that you can do nothing.

– Health: your kids will be at the doctor every day … for everything from a runny nose to broken bones to removal of superfluous bits (foreskins, adenoids, tonsils, and appendix … and, that’s just in healthy children!). They won’t ask to go … every time they so much as sneeze, you’ll be dragging them there in a panic!

– Cars/phones/bling/going out/travel: see ‘college’, above!

Of course, you could bring your children up like BF:

He too, is a minimalist, but his parents (well, his father) trained him to be like that from young.

When they were kids, they weren’t poor in the sense that they were living paycheque to paycheque. They had money, they had savings, but they never spent it.

BF joked that to his parents, Money = No Object(s)!

No Television: “It’s all crap on there. Sorry kids. No TV. It’s not reality, and if you want to watch TV, you go over to your cousin’s place. But it’s crap. The radio is better. And free.”

Then from not having a TV they avoided buying:

  • TV accessories
  • A couch to sit in to watch TV
  • A VCR or DVR to record things on TV or to watch videos on the TV
  • …anything the commercials were selling

No Telephone: “Why do we need a telephone for? If you want to talk to somebody, just go over and see them.”

Then from not having a telephone:

  • No phone bills
  • No actual phone to purchase
  • No long distance calls

So what did they spend their money on? Food. And utilities to cook food. That’s it.

No extra clothes, toys, or anything I ever took for granted as a kid. Not even soccer club fees or lessons, because that would mean that you’d have to buy a soccer ball and a uniform.

… you could – and, it might even be character building for both you and your children – but, I wouldn’t count on your future familial happiness 😉

She’s an heiress …

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 😉

Spend More To Invest More?

How do you redeem your credit card points?

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[You may select more than one option]

Our last foray into the world of credit cards pulled up an array of options around using the points generated; for example, Mike  says that he:

Usually pockets the cash back but flying in the A380 Suites are always nice.

And, Investor Junkie uses the points to generate extra cash to invest:

Instead of Best Buy cards, it deposits directly into my Fidelity account.

A popular option, I’m sure, would be to ‘fly them off’ (as I do). On the other hand, Costco gives cash rebates (which we also enjoy). But, I would be interested to see how our readers currently redeem their credit card reward points?

Since you probably have multiple cards, I’ve allowed multiple options on this Reader poll, but just choose the one or two that you mostly figure on using?

Once you have made your selection/s, please read on ….

I wonder, though, where the best bag for buck (almost literally) comes from? I mean, each rewards program must have some sort of formula as to how they convert every dollar that you spend into points, then a more complicated formula (with different weightings, I’m guessing) to convert those points into the cash and/or airline miles and/or other stuff that they need to ‘buy’ to give to you.

But, I’m guessing that those weightings are NOT equal; so what is a more ‘efficient’ (or is that ‘effective’?) use for your points, for the credit cards that you have signed up for?

Using your points for:

1. Cash? Whether you direct it to your investing account, or just spend it.

2. More Stuff? Like Best Buy cards … I used to give the rewards to my employees (anything from bicycles to trips for 2, all paid for by redeemed rewards vouchers) in recognition for ‘above and beyond’ performance.

3. Airline Miles? I’m told that this is the best $$-for-point conversion that you can get … and, that redeeming your points for international flights outweighs domestic travel in terms of the ‘free value’ that you receive.

Since I fly a lot (esp. internationally), generally at my cost, this last option seems the best for me …

Logically, we should aim to get the most Usable Cash Value from our credit card points i.e. either cash, or something that we would convert into cash by using the points INSTEAD of using our own cash on something that we WOULD have spent cash on, anyway.

If it’s something that you would NOT have normally bought for yourself, then the Usable Cash Value is actually low [AJC: under my definition!].

Although, I am contradicting myself a little because I just ‘blew’ a whole heap of points on that First Class airline seat that I would never have bought for myself!

On the other hand, I am at the ‘other end’ of my financial journey, so what the hey 😉

To mini-retire or not to mini-retire?

DrDollaz takes issue with whole ‘eat hamburger now so that you can eat steak later’ philosophy:

Problem with that philosophy is that years later – after being used to eating nothing but hamburger – most people have a hard time splurging on steak!

The whole fallacy of ‘saving so that you can enjoy retirement’ is BS – your life should be filled with mini-retirements.

But, Think Simple Now tried a mini-retirement and found that it wasn’t all it was cracked up to be:

When I first learned of the mini-retirement concept, I was immediately attracted to the idea. To me it represented freedom. I had all these romantic notions associated with it, and when I found a way to take three months off from work, I jumped at the first chance and ran with it.

While traveling is an eye-opening experience and a chance to see how others live in vastly different cultures. It is exhausting, on many levels. It quickly became clear to me that the romantic concept of traveling is flawed.

It turns out that TSN is more disillusioned with travel rather than mini-retirements, per se.

Fortunately, I agree with DrDollaz …

The $7million7years Way  is all about leading you to some future date where you have amassed the required amount of money to start living (your Life’s Purpose).

But, of course, if that’s all you take away then you’ve missed half the story:

Because I also say that money has only one purpose: to spend.

And, I have written many posts telling you to save now, but also to spend now!

Life is a journey …

… and, that includes the bits both before and after your reach your Number 😉

The Real Value of Money?

Aside from the interesting New Zealand accent (only a hop, step and a jump away from my own Aussie accent) – and, the fact that the Porsche Cayenne costs NZ$260k (or a little over USD$189,000) making them ridiculously expensive in the Land Of The Long White Cloud – I think this video is misnamed.

So you forgo the car and invest the money (as you probably should, while you are trying to work towards your Number) and get back $1.8 million after 20 years … what do you do then?

Well, isn’t the Real Value of Money based for spending? Am I missing something here?!

What you spend it on is up to you: you could give it all away or you could go out and buy yourself a Porsche Cayenne.

And, if you’re going to buy a Porsche Cayenne then, why not buy it now (if you have reached your Number and/or can afford it within the 5% Spending Rule)? 😉

Still, the message is clear: don’t go out and waste your money on ‘stuff’ if you are still trying to work towards your Number!

The case FOR credit cards …

I think, by now, we all agree:

Credit Cards = BAD

I mean, that’s pretty much Personal Finance Kindergarten, right?

Why pay 19%+ interest for something that just goes down in value (like that 3D TV)?

But, why do I pay all my bills – both work and personal – by credit card.

I’m sure the answer’s pretty obvious to all and sundry: it’s for the points, man!

Yes, even millionaires like to get free stuff …

…. and, Sugardaddy outlines on NetworthIQ exactly how he does it:

1) Assuming that you pay your bills on time, most of the time, put all routine expenses on your credit card…utilities, groceries, etc.

2) Set up an automatic bill payment plan from your checking account for the card online.


1) you get a 30-day free loan.
2) you get free credit card points that are worth real money.
3) you increase your credit score.
4) you consolidate all your bills in one payment
5) You will never have a late fee and the APR will never concern you.
6) You will always watch your checking account balance like a hawk as failure to have enough in the account IS NOT AN OPTION.

I have done this for 10 years and it works like a charm…I get all my video games for “free” from Best Buy, and beat the banks at their own game.

Life does not get any better than that.

But, there’s always a catch in Life, Sugardaddy 😉

The one, here, is that the credit card companies HOPE that you forget to pay your bill on time, then you get to pay interest from the date of purchase.

[AJC: actually, they’ve already made their $$$$ from the Merchant Fee – believe me, I understand this side of the business VERY well – but, that 19% they get from you is just sweeeetttttt]

So, I add a few more steps to this otherwise inspired plan:

7 ) See 6)
8 ) See 6)
9 ) See 6)
10) See 6)

Point made?

Great, because I, too, have been doing this for years.

My assistant puts all ‘work’ expenses through my personal credit card (needless to say I have a LARGE credit limit), and my wife does the same with our home expenses.

Both ensure payment in full each and EVERY month.

Having done that, later this year I’m traveling ’round the world first class [AJC: I’m told that First Class on the new A380 entitles me to my own/private room on the ‘plane!] … fully ‘paid’ by points.

Sweet 🙂

5 Steps Toward Financial Independence – Reworked

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

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

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

First, Sarah says:

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

1. Get a Job

2. Know Your Expenses

3. Commit to Saving

4. Prioritize Essentials

5. Give Yourself a Deadline

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

1. Get A Job

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

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

– Cash to live off

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

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

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

2. Know Your Expenses

This one is easy … if you try the ‘no budget budget’ ( 🙂

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

3. Commit To Saving

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

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

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


Remember that business/investing war chest?

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

4. Prioritize Essentials

Remember that ‘no budget’ budget?

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

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

The best tool that I have found to help you do that is the Power of 10-1-1-1-1 card, which should be laminated and sitting in your pocket – well worn from overuse:

5. Give Yourself A Deadline

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

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

Your Life’s Purpose,

Your Number, and

Your Date.

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