Tag Archives: Spending

Rich Rat, Poor Rat

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This video is essentially an ad for Robert Kiyosaki’s (Rich Dad, Poor Dad author) board game … a game that I own but have NEVER played. But, the video is also a snapshot of how you can use assets to buy consumer goods. Watch the (visually OK, but aurally uninspiring) video, then read on as I have some comments …

[AJC: Finished watching? Good …. now read on ….]

1. The assumption is that you are smart enough NOT to finance a depreciating ‘asset’ (actually, liability) and save up enough money to pay CASH for your boat: GOOD

2. Can you see how Robert Kiyosaki then suggests that you buy a cashflow positive property, using the cash that you saved for the boat as a deposit on the property instead? Robert implies that the property produces enough cash to then pay for the loan repayments on the boat: BETTER

But, Robert is suggesting that we BREAK a key making Money 101 Rule: that we should borrow to by a consumer item (this is BAD debt); Robert also suggests that ‘delayed gratifiction’ is good. So, let’s make use of this to see if we can come up with a better outcome.

Using a very simple loan calculator, I find that the $16,000 boat will actually cost us $21,600 over 4 years (assuming 10.5% interest, and $343 / month payments) …

… but, if we instead SAVE the full $750 / month that the property spins off as money in our pocket (after mortgage, etc.), we will have SAVED up enough to pay CASH for the boat in just under 2 years (21 months)! What’s more, over the four years that we have NOT been paying the boat loan, our money has been earning us approx. an extra $100 – $400 in bank interest.

OK, so the $100 – $400 extra interest we earn (if the money just sits in CD’s) is not exciting, but also SAVING $5,600 … a total of nearly $6k … surely is? So waiting less than 2 years, then paying cash for the boat, thus saving ourselves nearly $6,000: BEST

There is an exception: where the expense is a business expense it may be OK to finance … Robert gives the example in one of his books about how he was going to buy a Ferrari, but his wife (who’s obviously smarter – as well as better looking – than him) told him to buy a self-storage business instead, and use that to fund the payments on the Ferrari.

Smart … but, I’m sure the IRS would have some words about the deductibility of a Ferrari as ‘company car’ for a self-storage business 😉

Retirement sucks!

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I officially ‘retired’ in April … which is nice for one reason and one reason only (actually, two … second one below): I get to brag for the rest of my life that “I retired before 50 … nyaa…nyaa!”

Now, if that sounds a little vapid, it is … but, I have vapid, dumb, vain, stubborn, and a lot of other great characteristics in me.

But, what keeps me real are equally stupid things like: I didn’t meet my goal of my first million by 30 (I missed by 10 years, or so).

And, even if I did retire by 30, I can tell you unequivocably that retirement sucks … because life sucks!

To prove my point, here’s how I spent just one of my first days in ‘retirement’:

– My wife has been sick with bronchitis this week … in fact, she waited 15 years, until the very first day of my retirement, to get this sick;

– I found out that somebody just scammed one of my overseas businesses for circa $20k … in fact, they waited 15 years, until the very first day of my retirement, to scam me for this much;

– One of my longest-serving employees was terminated from the business that I just left … in fact, they waited 15 years, until the very first day of my retirement, to get rid of this guy;

– Some guy in a Lexus just did his best to kill me; a tennis ‘pro’ actually went out of his way to be rude to me; need I go on?

… and, all of that in one day!

 I guess retirement starts next week 🙂

The point: ‘life’ – for all its good and bad – goes on … and, for those of you just waiting for that perfect moment when [insert favorite when here: when I get $1 million; when I retire; when I get married/divorced/pregnant; when my life will be just perfect] …

… you need to heed my words: I have just had the brutal awakening so that you don’t have to.

Life doesn’t start or stop when something happens … life is … because life is always happening.

I think that this little paragraph from (from “Five Great Moments of Personal Finance”  in an article by Business columnist Scott Burns of the Dallas Morning News) summarizes it quite nicely:

Our easy problems involve money. They may be terrifying, but there is always a solution. Our big problems are the ones that can’t be solved with money. They are the ones that make us cry in the night and pray for relief. The marriage that doesn’t work. The illness that can’t be cured. The child who is afflicted. The friend who won’t be helped. If you are an adult and still think money problems are real problems, you have led a charmed life. Be grateful.

Despite appearances, I was actually quite well-prepared for this week … you see I really didn’t expect my life to become perfect when I retired / made $7 million / whenever …

… my life, for all of its ups and downs was (and is) already perfect.

Then, why did I aim for so much money, so soon?

Simply to give me the freedom and credibility to do what I am doing now, and what the coming months and years will unveil … and, it all begins with writing this little blog.

But, don’t wait to see how my life pans out before living yours … just 3.5 minutes a day is all the contribution to your life that I need to make – the other 1435.5 minutes are all yours!

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Put your money into CD's? Not exactly what we meant!

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Casting Call

 

Last days for ‘pre-applications’ to become one of my 7 millionaires … In Training! Click here to find out more …

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Here’s another in my Money-Video-On-Sundays Series …

This clip from the popular comedy, The Office, is sad but true … how many students are also ‘investing’ their money into CD’s the way that this guy does, rather than saving and paying down debt?

http://www.nbc.com/The_Office/video/#mea=169237

AJC.

PS Take a look at the latest Money Hacks Carnival here ….

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Some financial advice for the blogging community …

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Casting Call

 

 

 

Click Here
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 OK, I am a relatively new blogger … I obviously don’t do it for the money [AJC: no advertising, affiliate links, or product sales here!], but many do … or aspire to.

And, as Alex recently commented on this post, there’s nothing wrong with blogging for money:

If people like Guy Kawasaki, Dilbert’s author, and other wealthy people all put ads on their site to make money, then there’s no reason why we should not. John Chow is making $30,000 month off his main blog so there is always an opportunity to make money through your blog.

It is these Mega-Bloggers who are paving the way to [apparent] riches for the rest of the blogging community …

… but, as far back as 2006 there were already 50,000,000 blogs [holy sh*t!], growing by a mere 17,500 new blogs a day!

So, how is Joe Average Blogger actually doing? Check out this chart:

Blogging Income 

Source: Problogger 

Problogger does a regular survey of their readers to see what they earn; now, this isn’t a scientific survey by any means but it does seem to give a useful indication of Blogging Earning Potential.

For example, 28% of respondents don’t earn ANY money from their blogs with another 18% earning only a pittance!

Problogger says:

A quarter of those who earn something make less than 0.33 cents per day. If that’s not a reality check then I don’t know what is.

Of course, we will categorize these bloggers not as losers, but as new bloggers who are steadily winding their way up to the giddy heights of those who earn $100 – $499 per month … and, maybe even beyond 😉

Even so, this doesn’t mean that blogging is a futile exercise in self-indulgence … right?!

Of course not … it just means that you need to seriously assess exactly why you want to be in blogging:

1. Is it for strictly non-financial reasons?

ReadWriteWeb said in a recent post:

There are many different motivations for blogging and some do not involve money. Some people have a cause they are passionate about – they want to help change the world and a blog is a marvellous way to get attention for that cause. Others don’t even want to change the world or get noticed, they are just passionate about something and enjoy writing about it – attention is a by-product.

These bloggers may have Adsense ads and Amazon affiliate links. Who wants to turn away “no effort” money, however small? Just don’t judge them by their revenue, it is a by-product

2. Is it mainly for financial reasons?

I have some advice for those bloggers who do have at least some serious financial motivation:

Blogging – if pursued mainly for its potential monetary rewards – is a business, and a pretty competitive and limited one, from a strictly financial standpoint, at that.

Like any other business, it takes: commitment, planning, execution …. and, more than a little luck!

The very few guys who do make it Blogging Big (if you call $150k – $250k p.a. earned income ‘big’) probably started early in the game, and put serious effort into growing their business.

This COULD be you … but, here is my suggestion, just in case the odds don’t favor you:

i) Blog because you want to – look at the monetary reward as a bonus

ii) Blog as a form of networking – use it to build an audience for a future product or venture (e.g. a book)

iii) Blog to build content – ‘package’ your posts into an e-book or information product that you can sell

iv) Blog to provide a little extra fuel for your investment strategy – even if you are earning just a few extra dollars a week, doing something that you enjoy, put at least 50% towards your investment strategy and compounding will take care of the rest.

v) Blog because you want to combine all of these strategies … that’s the best way to get benefit from such a usually low-dollar-per-hour-invested activity.

To me, blogging is probably a bad ‘business’ in strict return-on-time-invested terms – I would never pursue it as a business; so many other activities have the potential to return much more and scale much better … and, who the hell are you going to sell it to, anyway?

But, the ‘financial’ value of blogging (if that is the path that you are pursuing)  is that you may be able you use it to eventually drive higher-dollar-per-hour outputs, elsewhere.

For the guys pursuing the blogging-to-earn-money angle, that makes blogging a great marketing tool, pure and simple!

A great example is Jason, who also left a comment on that same post:

I am using my blog to make money, but not in the way you may think. I am using it to establish the fact that I am an expert in specific areas….then when I talk to my investors I can show them the articles I wrote and how it all works. Basically to give credibility.

Next I also use the blog to sometimes promote my computer company. I have not received any sales. but it is a hope … the main thing I use it for is motivation, so that I keep going on my path to being wealthy.

So, what about me?

I may accept advertising on my blog one day … I may also write a book … but, like blogging, that is a relatively low-expected-value activity.

In the meantime, I will keep blogging simply because I enjoy sharing what I have learned in the Financial School of Hard Knocks … I have important information stored up inside me that is simply better out than in!

What about you?

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How to sort the rational wheat from the emotional chaff …

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I published a post last week called 10 steps to whatever it is that you want … how to weigh up the cost of a lifestyle decision which outlined a basic Making Money 101 decision-making process to help you sort your way through a discretionary purchase decision (you know the type: “Hey, that 48″ plasma screen would look really great on that wall!”).

You see, I come from the school of Ambivalent Frugality – sometimes you should … sometimes you shouldn’t. After all, money was invented to trade for ‘stuff’, right?

We just have to trade it for the RIGHT stuff, only when we can AFFORD it; and, the 10 Steps were designed to help us do exactly that.

Now, I don’t normally do a follow-up post so quickly … after all, what will I have left to write about next month?! 🙂

[AJC: kind’a reminds me of the old joke: why shouldn’t you look out of your office window all morning? Because you’ll have nothing to do all afternoon!]

But, Diane had a great question attached to my original post that this post is designed to help her answer – and, I hope that it helps you, too!

Here’s part of Diane’s question:

Have a dilemma regarding is it a need or a want – I have a house now, student loans, bad debt ) and need to decrease everything. I have a rescue Old English Sheepdog I’ve had now over a year and a half. Always meant to get a [larger] fence up, even prior to getting him, but had different expenses and no savings to cover them (hence the debt climb) and have put off getting a fence up … under the 10 questions, it doesn’t qualify as something to change lifestyle, but … I think this is a need, but … it is a financial decision as well. It’s not putting food in our mouths, but it is providing shelter and protection for the family dog who is also protection for us (single mom household). Or is this too left-field?

Now, this is definitely not left field, but – at least on the surface- the 10 Questions seem more designed to answer “can I afford ‘stupid stuff'”-type questions than these really tricky emotional ones.

In my experience, when we get into emotional ‘need v want v life-changing’ questions, rational decision-making can fall flat on it’s head.

But, I have a simple solution …

… one that doesn’t need to involve attempting to answer (preferably, Qualified Shrink Assisted) a myriad of ‘soft’ questions like: “will the animal suffer if you don’t put the larger fence up?” and/or “will YOU suffer if you delay puttin the larger fence up?” and/or “did your parents emotionally ‘fence’ you in when you were young and are you projecting this onto your dog?” and so on [AJC: Sigmund would be SO proud of me].

Instead, I shortcut the whole process for Diane – and, I suggest that you give this a try next time you are trying to avoid answering the 10 Questions because you really need something that you probably can’t afford, too – by simply asking her to do the following:

Follow the 10 questions exactly as written … that’s what I put them there for!

Simple … isn’t it?

Now, Diane, if you followed this advice on Sunday when you left your comment, by now you would have made your own sane, rational decision. Right?

If as I suspect, given your financial position, it was against Poor Pooch then I have a question for you:

How do you really feel now, having made that really hard decision?

…… [Diane inserts emotional feeling of (a) relief having made the ‘right’ decision, or (b) pain having made what feels like a terrible, albeit financially correct decision, or (c) she’s emotionally dead] …..

Diane – and all of us – that is the only way to sort through an emotional need from a want:

Make the decision rationally, then see how you really feel …

… then, go with your feeling!

That’s what LIFE is all about … and, didn’t we just say that our money is to support our life?

AJC.

PS There’s a neat shortcut to this process: when faced with a difficult choice – and you don’t want to pay for professional advice to help you get through the decision-making process – simply flip a coin and mentally go with the decision. Dig deep to see how that makes you feel … and, go with your feeling!

 

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10 steps to whatever it is that you want … how to weigh up the cost of a lifestyle decision

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In Devolving the Myth of Income – Part I we discussed the case of Docsd (or just ‘Doc’) who said:

I have been awaiting approval on … an older historic horse farm on several acres … my goal has always been to live as far below my means as possible while accumulating wealth.

This generated some debate, which eventually boiled down to the following well known saying:

Never invest in anything that eats or needs repairing.

Attributed to Billy Rose, the famous Broadway producer and investor.

But, you can’t always just distill your life down to the pursuit and saving of money – there is a word for being too frugal: it’s called being a miser! Sometimes, you have to make a lifestyle decision …

For example, buying a house to live in may not be the best financial decision in the strictest sense (but, still a sensible financial decision for most people) yet we often buy them for the emotional values: sense of ownership, stability, a house is a home, my wife will divorce me if we don’t 🙂 and so on.

Put simply: there are many acquisitions that we want to make in life that are lifestyle acquisitions not investment acquisitions.

And, the real financial question associated with them is: I really want it but can I afford it?

Unfortunately, there are no hard and fast rules on these things … so I came up with a fairly simple financial decision-making check-list that you can use:

1. Are you saving at least 10% of your GROSS income? If not, do not buy.

2. Are you putting aside enough to meet your future obligations (e.g. college fund, donations, family medical expenses)? If not, do not buy.

3. Have you paid down all of your consumer / bad debt? If not, do not buy.

4. Do you have all of the right insurances in place and have you saved and put aside a 3 – 6 month buffer against emergencies? If not, do not buy.

5. Have you bought your first home? If not, do not buy.

6. Have you paid down your mortgage sufficiently (and/or has the equity risen sufficiently) to ensure that you meet the 20% Rule (i.e. no more than 20% of your current Net Worth as equity in your own home)? If not, do not buy.

7. Are you Investing at least 75% of your Net Worth? If not, do not buy.

8.  Have you saved enough money so that you can pay cash for the item without changing your answer to any of the above and still meet all of your current commitments? If not, do not buy.

9. Can you afford to pay all of the associated expenses (insurance, repairs & maintenance, running costs) on the item without changing your answer on any of the above and still meet all of your current commitments? If not, do not buy.

10. If you have made it all the way to this Step without triggering a ‘do not buy’ …. what are you waiting for?!

… you’re a hard-working adult, if you really want it, go ahead and buy it … you deserve it!!

There you have it … 10 Steps to Whatever It Is That You Want, simply designed to ensure that you can buy the things that you want as long as you put things of lesser long-term intrinsic value (maybe of a higher emotional value) behind activities that:

Keep you out of the poor house, and keep you heading towards your ultimate financial goal. There is a short-cut if neither of these goals are important to you: Buy now and hang the expense!

But, I don’t recommend it 😉

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Celebrating Spending Week!

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For the remainder of this week I want to do something that I believe has never been done in the history of Personal Finance: encourage spending!

Why would I do a ‘heathen’ thing like that:

1. Well spending is good for the economy … it’s how we got things going after WW2 … go ahead be a Patriot!

2. Money has NO PURPOSE until you spend it

3. Money SPENT NOW is worth more than MONEY SPENT later (due to a little thing called Inflation)

4. Learning when/how to spend is AS IMPORTANT as learning how to save … after all, you WILL spend b/w 50% and 90% of your weekly paycheck!

5. If you don’t SPEND when you CAN and SHOULD, society has a word for you: Miser and we don’t want to confuse being SENSIBLE with being STUPID, do we?

But, there is a why and a wherefore that I will be exploring for the rest of this week … enjoy!

And, don’t forget to let me know what you think … we want to be on the cutting-edge of Personal Finance thinking, not the BLEEDING EDGE … your feedback will help us determine where we stand.

AJC.

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Education – a curse or a cushion?

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People often ask me what it takes to be an entrepreneur.

Probably the best book that I can refer you to is the E-Myth Revisited by Michael Gerber … it has changed many business owners’ lives (including my own).

 In it, he shakes the myth of the entrepreneur being some sort of ‘knight on a white charger’ – you know the type, like Jack Taylor, the founder of Enterprise Rent-a-Car who was a navy pilot in WWII then went on to launch Enterprise in 1957, taking it to $78 million revenue before handing the reins to his son, Andy in 1980 (it’s now a $7 billion company!)

 Here’s how Andy described his father:
 

My father was the true entrepreneurial risk taker. He was the guy flying airplanes off carriers. He did not see taking a $25,000 second mortgage to invest in a business as a huge risk, because he saw real risks being taken during World War II.

There’s no doubt that adversity makes for better entrepreneurs … adversity gives you a ‘nothing to lose’ attitude.

Contrast that with the educated middle-to-upper-middle class …

… once you finish college and put in a few years learning the corporate ‘ropes’ it’s very hard to let go of the comfortable $50k – $150k that you are earning (and that your lifestyle has magically jumped up to meet … you know: cars, toys, vacations, etc.) to jump into a business that all the odds point to going broke.

 You see, that education that we strive for, to lift us out of the middle-class, actually serves to keep us there.

Now, I happen to have a college degree, and it has served me well …

… but, after 6 years in the post-college corporate world, I was bitten with the ‘entrepreneurial bug’ so badly that I was miserable every day that I was still at work after that little epiphany (I used to LOVE my job until then).

Yet, it still took me 4 years to leave …

If I was still working, no doubt I would be well on my way to saving $1 million or maybe even more by the time I retired at 65.

 But, from where I now sit that is WAY too little WAY too late …

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Should you pay your children to read? I don't think so!

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I left a comment on a great post by Free Money Finance (I’ve mentioned FMF before as being a GREAT source of Making Money 101 ideas!).

Basically, FMF was commenting on an idea that has been around for a while … the idea of paying your children to read!

I have some strong thoughts on the subject of children (I approve of them), money (I approve of it), paying children to read (I don’t approve of it), encouraging children to save for ‘retirement’ (I STRONGLY approve of it) and thought that I should simply repeat my comment here:

Having kids EARN their pocket money is a great idea! As a matter of personal preference, I would prefer NOT to pay my children to learn.

Whether you pay them to work, pay them to read/learn, or just give a hand-out, what IS important is how they deal with that money.

For example: we give each child TWICE their age in pocket money every month (others do once their age a week), but they must SAVE half (not for cars, toys, or anything else … JUST for future investments) and we encourage them to SPEND the other half (saving it up until they have enough for the ‘good stuff’). Loose change is thrown in a bucket by all for CHARITY …

So far, my 13 y.o. son who supplements his ‘income’ with an e-Bay business (the spend half / save half policy also applies to his e-Bay profits AFTER funding inventory) has bought himself an iPod touch, an Apple Mac, AND an IBM laptop – all this year (he has invested his entire savings in my Scottrade account … he accounts for 0.001% of my portfolio from memory).

Do you pay your children? If so, what for? How much? And, what do you hope and expect they will do with it?

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Index Funds or ETF's … you choose …

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For those of you trying to ramp up your long-term savings plans, Index Funds and ETF’s offer two great alternatives to CD’s and savings accounts … and a MUCH better alternative than typical Mutual Funds (due to lower costs and similar or even better results).

But, don’t kid yourself, these are savings plans, not Investment plans (there is a difference) …

But, if you are committed to saving rather than investing, you have CHOICES.

Specifically, you can now choose between two very low cost options: Vanguard Index Fund (or similar) or ‘Spider’ ETF (or similar).

There was a great post on The Simple Dollar that I think summarized the differences very neatly:

An ETF is an exchange traded fund … a specific example is the Spider ETF, which matches the S&P 500 in much the same way that the Vanguard 500 does.However, in the end, they’re still not the best deal, as pointed out by this Forbes article.

The Simple Dollar post also talks about what to do while you are saving for your entry fee (unlike a bank, you can’t just plonk down $50 every time you want to buy a few shares in the fund) ….

…. if you are in serious saving mode, why don’t you take a read?

But, why Index Funds or whole-of-market ETF’s in the first place, why not mutual funds?

For answers to these questions, I usually try and go straight to the ‘top’ …

… to the greatest expert in that field that I can find. And, in the field of stock investing there is no better advice than that given by the World’s Greatest Investor himself, Warren Buffet, who once said:

The “know-nothing investor” should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. [W. E. Buffett – 1993]

Who would argue with the World’s Richest Man?

Important Note: 7million7dollars does NOT currently invest in any Index Funds, Mutual Funds, or other “Packaged Investment Products” … apparently, he is just a (rich) product of the Stone Age 😉

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