Home Business Success?

Posted on April 22, 2010 by Adrian

Andee Sellman, friend and occasional $7million7years contributor, refers to the Small Business Success Index study saying:

There are about 6.6 million home based businesses that generate at least 50% of the owner’s household income.

Now, assuming that home based businesses have either no – or very few – staff, I think that means that there are about 18 million home based businesses that are generating less then half the owner’s household income.

Now, think about this: the chances are that the whole household has a maximum of two full-time salaries – IF the owner of the small business runs it purely after hours …

… so, most home based businesses are making less than one full-time salary.

Let’s look at the most successful 6 million of these businesses: what are the chances that many of them are doing much better than “50% of the owner’s household income” – or, a maximum of one full-time wage (but, probably, much less!)?

Not much, I would think.

Now, there are exceptions: if you say that Facebook was a home-based business when it started … or, Apple … or, Google. But, most are just small online/offline concerns … low cost, low revenue, low return.

Chances are, you aren’t going to earn a lot from it, or sell it for a lot.

So, what’s the value of starting a home based business?

Well, unless you’re one of the very lucky ones, it’s in what you do with:

1. What you earn: this is extra income (assuming that you just haven’t thrown your old job in until it replaces your income … plus more) that you SHOULD be investing 100% of (some back into the business … some into outside investments, RE is ideal because the extra business cashflow can help fund any shortfall in the first few years), and

2. What you learn: there is no better way to learn about business than by running a business (preferably, with the resources of sites like Andee’s to help you); sure, my son made a couple of grand between the ages of 12 and 14 running his little eBay business from home … but, the lessons that he learned – not just business lessons, but Life lessons – will become priceless!

No, Michael Masterson’s 50%+ compound growth rate is reserved for businesses that can grow rapidly, have intellectual property that is both desired and protected, and have owners who are inspired by their Life’s Purpose to reach extraordinary heights …

… but, even the most humble home-based business can be a huge turning point in your financial life.

I highly recommend that you give it a go … and, keep trying until you find The One that helps you reach your Number 🙂

When is cheap debt expensive?

Posted on April 21, 2010 by Adrian

Dave Ramsey says to use Gazelle Intensity to pay down all debt, before even thinking about investing. Yet, would he consider running his (rather large) business without an overdraft, or leased cars, equipment, and/or furniture?

I doubt it … he needs to preserve his capital, and put it to better use by growing his business investment (more stock; better marketing; more staff; more training; etc.; etc.)

So, why should personal finance be any different?!

But, Dave Ramsey would argue to pay off all debt, whether it is ‘good’ (e.g. produces income) or ‘bad’ (e.g. credit card loans for consumer goods, like that LCD TV that you just bought).

If you are a regular reader of this blog, by now you will know that my view differs markedly; I say:

Once the debt is incurred, it is no longer ‘good’ or ‘bad’ … it becomes either ‘cheap’ or ‘expensive’.

And, as I mentioned in a previous post …

You should only pay off your ‘expensive’ debt!

What makes a debt ‘cheap’ or ‘expensive’? What is the yardstick interest rate? 2%? 5%? 11%? 19%?

Any, all, or none of the above. You see, it’s relative:

– Debt only becomes ‘cheap’ when you have something that produces a better after-tax return [AJC: probably, a MUCH better return to account for the fact that paying off the debt is a GUARANTEED return].

– Otherwise, by default, all debt becomes ‘expensive’ and you should do as Dave Ramsey suggests.

Fortunately, finding suitable investments to offset the need to pay off relatively low-cost debts such as student loans and home mortgages is as easy as finding some great value stocks, a cashflow positive real-estate investment or three, or a small business to buy or begin …

… provided that these are things that you are:

1. Passionate about,

2. Educated in, and

3. Convinced are needed in order to achieve your Required Annual Compound Growth Rate to reach your Number.

I recommend that – if you are pursuing a Large Number / Soon Date – you must pursue your investments with Cheetah Focus … a great example is provided by Eric [AJC: emphasis added]:

I graduated college 2008 from the University of Texas. worked at an oil and gas company in Houston named Flour Daniels. they had massive lay offs in 2009. I worked for a year and managed to save well over 50% of my pay. I reinvested it all into the stock market. I set up a regular investment account and a Roth IRA.

To date my Reg. Stock account is up 30%+ and my Roth IRA is up over 60%. and I still have another month to increase my yearly gains for it

I have had no prior experience with investing/trading. I played safer stocks/ETFs .. Bought on dips and sold when it would pop.

Oh and I also took out a loan from Citi bank.. who sent me a 10,000 loan offer in the mail with a 2% interest for the life of the loan. LOL.. I had to take it. I threw that into stocks also.

Any how my point is. If i had focused on paying off my $28,000 college debt I would have missed all of last year gains. I just made it a goal to beat my debt interest. and I did!

Currently I have enough money to pay off all my debt. but of course i’m not going to do it. I took out 2K from my portfolio to invest in an online woman’s clothing site. We have great style at affordable prices. we are not making huge profits.. but we are selling and that is encouraging.

Did you notice in the image (above) why the gazelle has such intensity?

It’s because the cheetah is coming up fast and furious on his tail 😉

Punch Buggy Blue!

Posted on April 19, 2010 by Adrian

Let’s say that you do agree that real-estate is one of the best MM301 (wealth preservation) strategies … although, many of my readers would disagree …

[AJC: I’m happy to meet all the dissenters in, say, 50 years – at a very cheap restaurant, as they won’t be able to afford much more – to discuss how they went with their TIPS, bonds, cash and stocks-based retirement strategies. Then I’ll meet Scott, Ryan and all the other RE and business-based retirees on their private golf-course in Palm Beach for a second debrief 😉 ]

… but, what type of RE would fit the bill?

After all, many of my readers, Evan included, have had mixed experiences with RE:

I have watched my dad deal with C R A P for years. He owns 2 properties:
1) CASH COW – 2 family residential unit income exceeds mortgage payments. They always pay on time and there mostly are no problems

2) 2 family unit with a bar attached. I have listened to him say for YEARS, that if the bar paid its rent things would be different. I feel like the stress associated with this property is going to kill him eventually, and that is the commercial part.

In NY it takes 9 to 18 months to get someone out, so even if you try to evict you are looking at legal and time costs that could literally eat 6 months profit.

As I said to Evan:

That’s why we keep TWO YEARS’ buffer 😉

But, we all have a Reticular Activating System (RAS) that attracts us to whatever it is that has caught our attention … for example, have you ever played the Punch Buggy / Slug Bug game with your friends and / or kids?

If not, it’s a bundle of fun – and, pain. Actually, mainly pain 🙁

It works like this: who ever sees a VW ‘bug’ first calls out “Punch Buggy [insert color of choice: yellow, green, red, etc.] !!” and gets to whack the other person on the arm … as hard as they like [AJC: usually me. ouch!] …

It’s amazing how many VW Beetles there are on the roads, these days!

We used to play a similar game – many, many years ago – when I was on the school bus: we used to look for Chrysler Chargers, and whomever saw one first would yell out “Hey, Charger!” and hold up their hand with a Richard Nixonesque V-For-Victory sign.

The winner for the day was the one who scored the most ‘victories’ …

It’s amazing how many Chrysler Chargers there were on the roads, in those days 🙂

Of course, what’s happening is that our RAS is simply filtering IN Chargers (or VW Beeltes) and filtering OUT other types of vehicles, making it SEEM as though Chargers / Beetles are everywhere … of course, there are no more / less than there were before we started looking out for them.

Similarly, with RE – or other – investments:

Our view tends towards our first direct – or, even indirect – experiences; which helps to explain why my generation is more conservative (we went through some down cycles in the late 80’s and early 90’s) and younger folk were more bullish, having had 15 to 20 good years … until resetting their RAS’ in the current cycle.

Similarly, Evan’s views may be colored by his Dad’s experiences albeit mixed.

But, Evan’s Dad could have avoided many of his RE problems by buying well … now, for MM301, buying well is NOT the same as buying well for MM201:

While we are still building towards our Number, we need to buy RE that will appreciate strongly, with rents just covering cashflow (of course, we wouldn’t say “no” to more!) …

… but, when we have reached our Number, we need to generate INCOME, so buying well really means that we need to:

Buy to protect our future income / rental stream

As I have shown you, it’s easy to get a positive cashflow from RE; just pay cash!

And, live happily from 75% of the rents (less taxes), knowing that the other 25% will cover all of your ‘normal’ costs (management fees, vacancies, repairs and maintenance, etc.), and will keep up with inflation.

It’s the last part that is key: since we are never selling these properties [AJC: lucky kids!], we don’t really care how much/little the RE itself appreciates, we just care how much the rents appreciate, and our benchmark for this is:

The rents must appreciate at least as much as inflation

That is through both UP and DOWN markets …

… so, I would keep away from bars and other retail EXCEPT for counter-cycle retailers such as dollar stores, groceries / food stores (food staples only), and – of course – Walmart and Walgreens [AJC: if I could get my hands on the freehold!].

Remember, we’re not looking for extraordinary capital growth (any more), but protection in down-cycles.

[AJC: oh, and if you were going to buy stocks (again, for retirement capital protection and dividends); these types of retailers and food businesses would be great ‘protection stocks’ to own, as well]

And, moving away from retail, I would also happily buy small offices, say, housing a number of separate professionals (e.g. doctors, attorneys, etc.), as these professions are required in all markets and my risks are well spread.

But, I would avoid large offices – or industrial showrooms and warehouses – housing SME’s, as these are prime candidates for simply shutting shop in a down cycle, and I may only have one tenant per property (even though buying 6 or 7 of these would certainly help to insulate the ‘shock’)

And, you might be surprised to find that I am not all that excited about residential (even multi-family) for MM301, simply because the rental returns are usually not that great (but, they can make a fantastic MM201 strategy).

Remember, RE isn’t the only MM301 Wealth Protection strategy that you can base your retirement (or, life after work) around, it’s just that I am struggling to find another one that has both income and capital that can keep up with inflation, fairly consistently, through at least the 30 to 50 years that I still plan to be around …

… can you?

What would you do with $5 million … or $50 million?!

Posted on April 18, 2010 by Adrian

Even if you are NOT a poker fan, scroll forward to exactly the 5 minute mark (once the video has had a chance to buffer) to hear Kara Scott ask some poker young – and, old – guns what they would do with $5 million (or, $50 million) …

… you might be surprised how little it seems to mean.

But, if I asked you the same question, you would [AJC: I hope by now] instantly answer:

That’s easy, I would [insert: Your Life’s Purpose]!

But, if you want to understand why these guys are seemingly so relaxed/flippant about $5 million (or, even $50 million for a couple of them) you first need to realize that the question actually means: “what would you do with another $5 million?”

So, it shouldn’t surprise you that my answer would equally be:

Nothing special …

… it would simply make me a little more comfortable that I could live my Life’s Purpose, since I’ll just buy another $5 million of [insert Perpetual Money Machine of choice: 100% paid for by cash real-estate; annuities; TIPS; bonds; etc.; etc.] and live off 75% of the net proceeds.

The Formula For Wealth!

Posted on April 15, 2010 by Adrian

Oops, I made a couple of mistakes, and one of the millionaire ‘success factors’ that I believe in is to admit your mistakes, make restitution as best you can, and then move on.

My first mistake was taking a hot chilli from one of the tradesmen working on my house; I told him it was fine, but a minute or so later (when I was already in my car on the way home) it really hit and I was suffering for another 10 or 20 minutes. I decided that appropriate Restitution for this one was simply the embarrasment of ‘coming clean’, so I had to go back and tell him I’m not a real man, after all 😉

My second mistake was making a promise to the 7million7years who applied (and, were accepted) for my new 70 Millionaires … In Training! program that resulted in me (a) reducing the number of Foundation Members to 40 (was meant to be all 70) and (b) charging them $1 a year (it was meant to be totally free for life). We agreed that appropriate restitution was to donate $5 to a worthy charity for each Foundation Member ($5 x $40); I decided to do it for all 70 charter members (Foundation Members, plus full paying Premium Members) hence the receipt, above.

You gotta admit your mistakes and keep your promises …

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The 7million7year approach is not to measure wealth by the amount of money that we have, or some arbitrary sum that we might wish to have, or even some really complicated ‘secret formula’, but to measure wealth by this simple formula:

Where RequiredAnnualIncome = f { LifePurpose }

[AJC: which simply means that your Required Annual Income is some Function of Your Life’s Purpose i.e. they are -or, at least, should be – totally related!]

You are wealthy, in 7million7year terms, when:

“Wealth Factor” Wealth < 1

Or, you can just go by Ill Liquidity’s formula:

Let E be earn and S be spending. If E E QED. The latter part of the statement is redundant. What about “if you can finance it you can own it?”

I finance therefore I can? 😛

I’m diversified …

Posted on April 12, 2010 by Adrian

Applications for the new $7 Million 7 Year Wealth System Guided Learning Experience are now closed. Thanks to all of those who applied … and, congratulations to those 30 who made it!

I’m not going to encourage my other readers to join, as I can’t see the point of paying $97/year for something that you could have got for free (well, for $1 a year). Anyhow, no advertising allowed on this blog … and, that even applies to me!

Instead, I hope that you will keep reading this blog, and that it will inspire and help you to make millions the good, ol’ fashioned way 🙂

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Yes, I am well and truly diversified …

… and, it sucks!

Here are my current holdings, roughly:

$5.0 million – House in Australia

$1.5 million – House in USA (soon to be a rental)

$2.5 million – Cash in Bank/s

$1.0 Stock in UK (actually, 70% has just been converted to cash)

$1.0 million – Equity in 5 condos

$1.0 million – Equity in two development sites (could be up to $3 million – $6 million once permits are issued)

$1.0 million – Value of business (I still have a finance company running on ‘auto-pilot’)

… aside from the fact that I’ve over-invested in my Aussie house [AJC: see this post for the problem and how I intend to fix it], you can see why I am not happy:

– Too much in cash,

– Too much overseas, in chunks too small to be meaningful

– Too many ‘small’ chunks of $1 million

Ideally, I would like to bring some of those small chunks together, merge them with my cash (like so many drops of mercury) and do something useful with them …

…. by ‘useful’, I mean plonk as much as the bank requires into my two development projects, then use the proceeds to buy as many investment properties in the $1 million to $3 million price range that I can find, as long as the net result is free cashflow of $500k+ p.a.

Nowhere here do you see me saying:

– 30% in cash,

– 30% in real-estate,

– 30% in stocks

– 10% in venture capital

Mine will look more like:

– 80% – 90% real-estate (albeit, over a number of properties, rather than just one big’un),

– 5% – 10% cash for contingencies (up to approx. 2 year’s living expenses or $500k to $1 million, whichever is the lesser)

– 5% – 10% for ‘fun projects’ (e.g. venture capital investments).

Why so much in RE?

[AJC: It doesn’t have to be RE; how I invest my money is not how you should invest yours … but, the principle of NON-diversification is what’s important, here. And, I should clarify that, too: for you, non-diversification could be 95% in TIPS; 80% in AN index fund; 90% in just 4 or 5 stocks … in other words: it means, avoiding spreading across asset classes]

I can’t find the online reference, but Warren Buffett was asked at the 2008 Berkshire Hathaway AGM (which I attended, so I am paraphrasing exactly what I heard, here) how much of his net worth he would place into one position (Berkshire Hathaway doesn’t count, because it’s really a conglomerate).

Warren said that his biggest problem right now is that his investment war chest is so large that he is forced to buy many investments, however, he did point out that he was very happy in days long gone, when his investment in AMEX comprised nearly 60% of his net worth.

Charlie Munger (Warren’s long-time business partner) said that he would be equally happy to have close to 100% of his net worth in just one outstanding investment.

BTW: Charlie is a real ‘character’; short on words … long on wisdom!

Having sat on both sides, I can tell you that – right now – I am NOT happy being so ‘diversified’ … it annoys me, and I feel hamstrung in that I can’t bring my full financial weight to bear on any project.

But, each to their own … it’s just that certain rich peoples’ “own” = non-diversification 🙂

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Adrian J Cartwood is on FaceBook … come and be friends!

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What the wealthy buy on pay day …

Posted on April 4, 2010 by Adrian

This guy is a network marketing guru; but, don’t let that put you off … this first video [to watch just click on this link] is a first-class explanation of what the rich do that the poor and middle-class do not.

BTW: the first half of the next video that will pop up after this one, is also very good … but, I stopped watching when it started to get into Network Marketing.

Don’t let that stop you if you have an interest in learning more about MLM; as Seinfeld would say: “not that there’s anything wrong with that!” 🙂

April Fish!

Posted on April 1, 2010 by Adrian

It’s that time of year again, when work (ex) friends, school buddies, corporate marketing departments, and bloggers everywhere bring out their best ‘April Fools Day’ pranks.

Oh, what fun!

But, the French call it “poisson d’Avril”, the Dutch call it “Aprilvis”, and the Italians call it “Pesce d’Aprile” all which refers to the very funny prank (!?) of sticking a little fish to somebody’s back and everybody calling out “April Fish!”

Oh, the French have such a good sense of humor 🙁

All of which brings me to the April Fool’s day joke that we play on ourselves … the ‘joke’ is on us when we read important information – or, come acrosss a good idea – and, fail to act on it.

The joke is on us when, by failing to act, we delay (perhaps, fataly so) our Number and are eventually forced to compromise our Life’s Purpose.

So, what ideas you have picked up from this blog – and, tried out for yourself (for better or worse) – in the 2+ years that I have been writing it?

What has worked for you (and, why)? What has not worked for you (and, why not)?

Share yourexperiences here, in the comments, and let’s have a good chuckle together 🙂

The Ultimate Gift – Part II

Posted on March 31, 2010 by Adrian

If Monday’s post didn’t spur you to start early, this one sure should!

First, here is something that will upset you if you are already 55 and figure that you need another 10 years to retirement:

Not bothered?

Well, let’s see if we make the same comparison, starting with a much earlier retirement age:

If you used to think that a lifetime of work was good for you, think again – this chart [AJC: the blue line is the important one] shows:

The longer you work, the shorter you live!

From another article:

Generally, it is found that people retiring early live more, but how long do they live? Or what is the average number of years they live after retirement? Well, now 49-50 is usually not considered to be a retirement age in most countries. However, if a person plans everything well and retires at the age of 50, he is expected to live for at least another 35-36 years, which increases the life span to almost 85-86 years! People retiring in their early 50s, normally live up to their late 70s or early 80s and people retiring at their early 60s, live till their early or mid 70s.

We had a pretty important reason to aim to Get Rich(er) Quick(er) i.e. so that we could have the time and money to finally live our Life’s Purpose …

…. but, if you don’t have a clearly defined purpose, then let me give you just one real clear, real simple reason to get Rich(er) Quick(er):

If you retire before 50, you will live 20 years longer than if you wait for normal retirement age.

No longer is the idea that “business/investing is too stressful … I’ll just wait it out in my nice stress-free post office job” valid …

…. I don’t care whether you intend to retire with $1 million or $10 million, as long as you reach your Number much sooner than you otherwise would.

By reaching my Number at age 49, I not only gave myself the gift of finally having the means to truly live my Life’s Purpose, but I also gave myself the gift of 20 years extra in which to live it …

… this, too, is my gift to you.

Don’t waste it!

The Ultimate Gift – Part I

Posted on March 29, 2010 by Adrian

There are lots of reasons to read this blog but, in this special two part post, I am going to give you the ultimate gift …

… I’m going to add 20 years to your life!

After all, what good is life after work (a.k.a. retirement) if you die soon after?

[AJC: we can thank TraineeInvestor for this link – the inspiration for these posts; yet another reason to keep a close eye on the comments to my posts 😉 ]

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