Tag Archives: Starting Out

If you were interviewing me …

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If you were interviewing me …

… here is what you might ask:

At least, these are the questions (and my responses) just sent to me by a journalist who writes for a number of newspapers. This time, he has been contracted by a company that researches – and writes about – the wealthiest families in America.

I’ll let you know if/when/where the interview will be published, in the meantime, here goes:

[EDIT: this is a link to the actual interview in Millionaire Corner; I recommend that you read it there, instead … it’s been slightly edited to make it read better. Donald, the freelance reporter, is the consummate professional and a hell of a nice guy, to boot!]

1)      A little personal background information. I understand Adrian J. Cartwood is a nom de plume?

Yes. I share intimate personal details about my financial background. If I used my real name, I’d just be bragging instead of sharing. Seriously, I started off by inheriting a family business that was failing, and I was $30k in debt. By slowly fixing the business (while starting another), living mainly off my wife’s part-time salary, and investing EVERY penny that we could spare into real-estate and stocks, our net worth grew to $7 million in just 7 years.

2)      What inspired you to start your blog? (what did you do pre-blog—what do you do now besides)

In 1998, when I was still in debt and my businesses were still struggling, I found what I like to call my Life’s Purpose … or “Life After Work”. Others call this retirement, but who wants to wait until they’re 65 to start living their passion? I decided that I really wanted to be traveling and working on things that I was passionate about in just 5 years instead of the usual 20 to 40 years.
So, I calculated my Number, that is how much I would need in the bank in order to stop working. That Number was a very scary $5 million. I missed my 5 year / $5 million target, but made $7 million in 7 years, instead.
Now, starting $30k behind the 8-ball, $5 million in 5 years seems like an impossible target, so I started reading every single personal finance book that I could get my hands on. What I quickly realized is that they are mostly written by people who became rich BECAUSE they wrote a book about how to get rich. Needless to say they were mostly full of rubbish.
So, I found one of my passions! It was, and remains, to be the first true multi-millionaire to write about personal finance, hence the blog.
In my spare time, I develop property and make angel investments, primarily in internet businesses. I am also putting the finishing touches on my first personal finance book.

3)      When did you launch your blog? How many visitors does your blog get?

I don’t do any advertising, marketing, or promotion for my blog at all. I’m not even sure how you found me! Yet, in the three years that I’ve been writing it, I’ve somehow built a dedicated audience in the thousands who seem to read my blog every day. I hope to never disappoint them.

4)      For whom is your blog intended?

This is an excellent question because I often get comments from new readers who say “well, my 401k is company matched, so it’s a great investment” but, I say “sure, but it won’t make you rich”. So, my blog is specifically targeted to people exactly like me: those who realize that their life isn’t merely about money … rather their money is simply there to support their life.
Now, for those readers who truly get this, suddenly they realize that that they, too, want to stop full-time work to pursue their passions – be it writing novels, traveling, researching great wines, writing their own blogs, volunteer, whatever. The kicker is, when they calculate their own Numbers – how much they need in passive investments to support them while they work part-time or quit paid work entirely – it’s inevitably something like $2 million in 6 years. If you run their starting position (say $100,000) through any simple online compound growth rate calculator, as I encourage my readers to do, they quickly see that they need to achieve a 65% compound growth on their investments. Given that their 401k can’t achieve more than 8% over 40 years, it’s clear that they need somebody to teach them how to become rich.
That narrows down my readership to those who have done the same kind of self-reflection that I did 7 years ago and realize that they actually NEED to become rich.

5)      What do most hope your readers get out of it?

I hope that my new readers realize that they should evaluate their lives and see if what they are currently doing is going to truly satisfy them. If so, don’t change anything. But, for those who need more out of life, I hope that they walk away with the tools to evaluate what they truly want to do with their lives, how much money they will need (and by when), and the real personal financial steps that they need to take to bridge the gap … quickly. It’s not about getting rich quick. But it is about getting richer, quicker.

6)      For those unfamiliar, what would be some representative posts?

I really like this one, because it encourage you to start thinking externally rather than internally, which is the first step to financial freedom:
And, this one because it shows that WHERE you invest your money is more important than HOW MUCH you put aside each week or month:
Finally, this one, because it introduces the 20% Rule that tells you how much you can spend on a house:

7)      Did you grow up in a financially literate household? Did your parents discuss money matters with you?

I grew up in a poor household. The rest of my family grew up in a rich one. The trouble was, it was the same house!
You see my father lived beyond his means, but I was the only other male in the family, so he only confided his true financial situation in me. Therefore I grew up paying for all of my own clothes, cars, and so on. The rest of my family still lives on handouts from richer relatives.
That knowledge only taught me financial responsibility, it didn’t teach me how to make money. That came from my $7 million 7 year journey. Naturally, I taught my own children about money from birth. My son is a natural entrepreneur. My daughter more social. But, both know how to save and how to spend responsibly.

8)      If not, were you self taught? Were there any books, for example that influenced you? Or financial pundits?

The books that greatly influenced me were Rich Dad, Poor Dad by Robert Kiyosaki and The E-Myth Revisited by Michael Gerber. The first is about money and the second about business.

9)      How did you get started in investing?

My very first investment was an apartment that I bought soon after college because a friend of mine was buying one in the same block. I knew nothing other than to copy him. I sold it a couple of years later to pay for a trip overseas. It’s safe to say that was not the start of my financial journey!
When my financial wake-up call arrived 7 years ago, I made my first real real-estate investment. Rich Dad, Poor dad was my motivation, but it was very short on ‘how’. So, like most people, I knew that I had to invest in real-estate but I had no idea HOW.
One day I was driving around my neighborhood and saw a ‘for sale’ sign on a condo in an older block of 12. There was an Auction just about to start! I figured that not many people would know about it, because the sign was by an out-of-town agent, so I figured it was likely to go for a good price, so I stopped to check it out.
My next problem was that I had literally no idea of how much to pay. But, I saw a young guy in a trademan’s outfit measuring doors and windows and so on. I guessed that he was planning to buy it for himself, fix it up and flip it. I decided to bid against him and pay $1 more. I figured that if he was looking to take a quick profit that he would be operating on a tight budget, and that I could then afford to pay just that little bit more to buy and hold.
And, that’s what happened.
I found myself as the winning bidder for a property that I had never been in before. I had to call my wife (who was NOT pleased) to rush over with my checkbook. We still own that condo today and it has been a start performer, although we went on from there over the next 5 years to buy our own block of condos, an office building and so on.

10)   What were some of the defining lessons you learned when you first started out?

 You can’t save your way to wealth. Running some simple numbers through that online calculator quickly showed me that my 401k would never be able to fund my retirement even if I waited until 65: investment returns from mutual funds are simply too low and fees are too high, not to mention inflation eats up half of everything every 20 years.
I realized that I would need to create my own perpetual money machine by taking as much of income as I could put aside and investing in assets that I could borrow against (so that I could buy more) but had enough income to cover the costs of owning those assets. Real-estate (and, to a lesser extent a small portfolio of hand-picked stocks) could fit the bill. I also learned that starting a business is the best way to increase income; more income means more investments; more investments means more real wealth.

11)   What are some of the most common mistakes investors make?

The most common and deadly mistake is confusing good debt and bad debt with cheap debt and expensive debt. Because so many people have trapped themselves into bad credit card debt, which they should pay off as quickly as possible because it’s just so expensive, they have been lead to believe by so many financial pundits that they should pay off all of their debt, including their mortgages. For most people, this is actually a mistake.
Instead they should pay off expensive debt (such as credit cards, and auto loans) as quickly as possible. But, as soon as they remaining loans are at a lower rate than the cost of an investment loan (such as you might get to buy an investment property), why pay it off just to take out a bigger, more expensive investment loan?
The second mistake is thinking that you house is an investment, it’s not. The chances are that you will never be able to sell that house, even when you retire, to  truly down-size. Retirees plan on selling their big houses but rarely move into a small, two bedroom condo. They realize that they either don’t want to move, or stay close to their children, or move into an expensive retirement community. That and the moving costs (plus, are you going to move old furniture into a nice, new codo?) mean that they pocket a lot less than they think. Suddenly, there’s a huge hole in their retirement plans.

12)   What is the most common question you are asked?

Mostly, people ask me how I became rich. On my blog, I tell them because it’s something that anybody can do.

13)   What are some key dos and don’ts you think investors should consider?

I think that you should find out what you’re passionate about e.g. real-estate, stocks, business and learn all you can about that subject then base your investment strategy primarily about that.
I don’t think that you should buy any “how I made $1 million by invest in …” books, instead you should find one author whom you feel speaks your language and learn all you can, then go ahead and try out what you have learned. But, first, you should make sure that the author actually made his/her money from the financial strategies that they speak to you about. You’ll find that most made their money either by writing their books or in the business of offering financial advice, rather than actually from investing.
I think that you should buy a house, but then you should not put more than 20% of your net worth into any subsequent or upsized houses.
I think you should not take on debt for consumer purchases, such as gifts, cars, or furniture but you should borrow reasonable amounts of money to invest (say, 20% down real-estate).
I think you should start a business, but you should not quit your job until you have proven the business model with at least some paying customers

14)   The most important question: How much do you miss the Deerfield Bakery?

I still have a home in Deerfield as well as my other home in Australia, so you might say that I am in the fortunate position of being able to have my cake and eat it [pun intended].

<- Now, if you want actually HEAR me interviewed, check out eventual millionaire ->

So, that’s a bit about me; now, why don’t you tell me a bit about you?

The New Lexus 401k Hybrid …

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This is actually a post about finance, so keep reading, even when it seems to be all about cars!

I have a 2009 BMW M3 Convertible. It chews through a tank of gas at least once a week. At Aus prices of $5.30 a gallon, it’s not cheap.

But, it is a heck of a lot of fun 😉

My wife counterbalances: she owns a 2009 Lexus 400 Hybrid. She grudgingly refills about once per month … sometimes I think that she must push the car up hills just to avoid having to refill early.

But, she also thinks playing Gas Roulette is a heck of a lot of fun.

My first car (actually second) in the US was a Mustang GT convertible. It had a monster V8 engine, sounded great with the roof down. Needed a gas station on every corner. Drove like a tank.

It was also a heck of a lot of fun.

But, it was the dumbest car I ever owned …

There was an air-scoop on the hood of the car. The idea of an air-scoop is to suck in extra air to the carburetors on the car to keep the engine happy.

An air-scoop is supposed to be a performance enhancement …

… except, it sticks up out of the hood, so it destroys some of the air-flow, increasing drag, actually decreasing performance and fuel economy.

But, the engineers are made to make the hard design choices: do the increases in performance (extra efficiencies in the carbies) offset the losses (extra drag)?

Naturally, the engineers are experts at what they do so we can trust them to make the right decision. Right?

Well, I would have thought so … until I bought my Mustang. You see, I’m a layman, but even I can tell that:

1. The Mustang has NO carburetors (neither does any modern car), nor does it have any turbo-chargers or anything else that required the injection of air that a hood air-scoop would provide.

2. Now, here’s the killer (just in case we have any engineers out there to dispute my point 1.): the scoop has no air-holes in it.

That’s right, it’s simply an imitation airscoop. A fashion accessory.

As a marketing device, simply designed to make me buy the car, it worked brilliantly!

In other words, it reduces the performance of the vehicle!

Now, don’t get me wrong, the Mustang performed well, and was fun to drive, but didn’t perform better than ‘advertised’. It’s (partially) a marketing con.

My wife’s hybrid is also (partially) a con.

She paid a lot of money to have a hybrid that clearly does save money. But, just like the Mustang, it is designed to perform less than optimally, I believe just to build a marketing story to help sell the product.

The Lexus Hybrid includes a dynamic dash that shows the power flow between the gas engine, the wheels, and the electric motors.

If you don’t understand how a hybrid works check out this video:

In essence, it’s a closed system that uses electric motors (and batteries) to augment the traditional 6 cylinder gasoline engine:

– The gas motor drives the vehicle at all times except when the car’s at rest

– It saves gas simply by ‘switching off’ the engine whenever the vehicle stops.

– The electric motors then restart the engine as the car begins to move (like ‘jump starting’ a car by pushing it downhill … you can even feel a very slight ‘jump’ as the engine kicks in)

– The gas engine then takes over again when the car is moving at a mile or two an hour

– The electric motor’s batteries never need recharging: they are simply charged by an alternator and whenever the car is coasting or braking (it’s called ‘regenerative braking’)

Now, just like the Mustang’s air-scoop, the problem is in the ‘performance enhancement’ of the recharging system. For example, let’s take a closer look at regenerative braking:

Whenever the car is coasting down a hill, it needs to be able to retain as much momentum as possible to help carry it up the next hill, otherwise you have to hit the gas pedal that tiny bit earlier.

The regenerative braking takes a bit of the car’s energy and turns it into electricity, creating additional friction which slows down the car. So you do have to hit the gas pedal that tinier bit earlier.

If you know your physics, introducing this extra step MUST reduce overall efficiency hence increase gas usage.

So, the hybrid works (because when you have to come to a complete stop, such as at a traffic light then you might as well put some energy into the batteries rather than simply heating up the brake pads), but it would work BETTER by turning OFF its regenerative braking ‘performance feature’ when coasting.

But, then that pretty display (image at top of post) wouldn’t be nearly so pretty 😉

What does this have to do with finance?

Well, your 401k is pretty much like my wife’s hybrid!

Sure, it helps to save money. Sure, it’s employer matched. Sure, it’s tax-protected.

But, it could be a lot BETTER simply by turning OFF some of the ‘performance enhancements’ that they’ve added to make the products SEEM more attractive to both employers and employees e.g.:

1. Choices of funds: it has been shown time and time again that long-term buy/hold investors would be better off either selecting their own stocks (if they have the necessary desire and aptitude) or simply putting their money into an ultra-low-cost Index Fund (e.g. S&P500).

All those other high-fee fund choices perform more poorly over the long run. So, why not eliminate them from the fund choices offered? Simple: marketing!

2. Additional services: Fund managers, and the guys that put together benefits plans for employers, offer all sorts of freebies & incentives to the employer to encourage them to buy THEIR funds and services; the problem is, these help the employer – not you. Worst of all, they cost you money. So, why not eliminate them? Simple: marketing!

So, a 401k performs a lot worse than it should, just so the marketing guys can pitch a better story.

Forget the Lexus Hybrid – and, your 401k – they don’t deliver on their promise.

Instead, hop into a BMW M3 – or, direct stocks, real-estate, or business investments – and, supercharge your life.

Unlike my wife’s Lexus Hybrid, or your 401k, their promise – living a little on the edge, but being thrilled with the results – is delivered in spades!

Marketing and performance, for once, are totally aligned 🙂

 

How to give your children $1 billion each …

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When I was still on my own personal financial ‘seeking journey’ …

[AJC: This is the journey that you may be on right now; you know, the one where you read Every Available Book And Blog on Personal Finance Looking For the Mythical And Magical Secret To Financial Success But End Up Settling On Becoming A Miser Disguised As A Debt-Free, Frugal-Saver]

… I remember being very impressed by a tape set [AJC: Yep, that’s a cassette tape set] about a guy who had a ‘system’ to guarantee that your children could become billionaires in their own lifetime.

I no longer have the tape set, but it was all to do with putting aside $x per week (and, adjusting for inflation) and relying on the power of compounding (sic) to allow the sum to run up to $1 billion.

Sounds simple, so I ran a few numbers on my own, and here’s what I came up with:

– Put aside $5 a day, beginning the day your children are born

– Increase by 5% each year and keep up for 40 years

– Vest the sum into your children’s names when they are 80 years old

Then they will each have $63 million dollars!

Not exactly $1 billion, but not a bad sum, right?

Now, it’s really a Grandchildren’s (or, Great Grandchildren’s) Plan, because your children may not even be alive at 80, but if they do the same for their children, and so on, it’s a reasonably smart and easy Generational Wealth Plan and your progeny will thank you for it (well, you won’t be alive, but take my word for it).

But, there are (other) problems:

– Your children have to wait until they’re 80 to ‘cash out’

– You have to contribute for 40 years, starting with $1,825  year and ending with $12k a year (probably, when YOU need it more than your children do)

– And, $63 million is ‘only’ worth – a still healthy – $5.5 million in today’s dollars

Ashley Ormond (a fellow Aussie) has a more practical, shorter term plan in his book that shows you “how to give your kids $1 million each!”

It’s essentially the same kind of plan, obviously running for a shorter period, and includes interesting tweaks such as having your kids pay you back your $7k initial contributions. It also includes sensible children’s savings strategies (such as setting them up with individual ‘saving’, ‘spending’, and ‘investing’ accounts) … but, the rest of the book is Aussie-specific.

Still, all these ‘power of compounding’ books and strategies show me – after spending a LOT of time, in the service of writing this blog, playing with simple spreadsheets (and, you should do the same) – is that there is no real power in compounding at all …

… it’s just simple maths and (a lot of) time, and if you rely on it for your real wealth … well … you’ll never have any 😉

real rich, real simple, redux

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This is a redux of a 2009 post, but it’s about time that I gave my newer readers a heads-up as to what we’re all about … if I had to point somebody to just one of my posts to get them started this would be the one; putting in all of the links nearly killed me 🙂

______________________

I get a lot of questions, comments, and e-mails in general from new readers, and this one – from Chad – is reasonably typical of what I might see:

I’m turning 27; just got a job making 50k/yr.; on the market for my 1st condo to live in (and hopefully rent out a room); have 1 student loan at < 3% fixed interest. My goal is $7 million in 13 years.

1. I have very little to no knowledge of finance/investing. Do you recommend any resources to get me up to speed so I can understand what you write about?

2. Where does my situation put me in terms of Making Money 101 and 201, i.e. where do I go from here?

I appreciate ANY direction you can give me as I do not want to be stuck behind a computer in a cube for the next 30-40 years.

While I love reading these sorts of e-mails (AJC: I really do!], I have a hard time responding because I can’t / don’t give direct personal advice … but,

I can suggest that Chad think about:

1. Exactly HOW important that $7 million in 13 years is to him, and

2. Assuming it’s VERY important (critical even), how he is going to get there.

You see, my advice might change according to his Number – more importantly to his Required Annual Compound Growth Rate:

a) If low – say, no more than 10% to 15% – then I would point Chad to the various ‘frugal’ blogs (my personal favorite is Get Rich Slowly) and ‘starter books’ like The Richest Man In Babylon, or the more modern equivalent: Automatic Millionaire by David Bach, or anything by Dave Ramsey or Suze Orman.

Each would probably suggest something along the lines of:

– Keep your job; times are tough!

– Save as much of your salary as you can (max your 401k’s, then your IRA’s)

– Pay down ALL debt, following a Debt Avalanche or Debt Snowball, whichever is your favorite

– Invest any ‘spare change’ (after all debts are paid off and the requisite ’emergency fund’ has been built up) into a low cost Index Fund

… and, wait until your government-directed – or, employer-forced if you are retrenched and become unhireable – ‘retirement’. This is where that fully paid off home and a lot of candles and canned food stockpiled will really pay off … you won’t be able to afford real food 😉

a) If high – say, more than 10% to 15% (and, I would venture that $7 million in just 13 years would well and truly put Chad in the 50+% required annual compound growth rate category!) – then I would instead point Chad to books like Rich Dad, Poor Dad and The E-Myth Revisited and then towards this blog and its 7 Millionaires … In Training! ‘sister blog’ and suggest that he starts working his way through the back issues (well, posts).

After reading/digesting properly, he should be able to come up with his own plan … something along the lines of:

– Keep your job, but get into active stock and/or real-estate investing – better yet, start a side-business; because times are really tough(!):

i) A mildly successful part-time business might provide additional income to help you weather the financial storm and supercharge your savings, investment, and debt repayment plans

ii) A more successful part-time business might provide a built-in ’emergency fund’, tiding you over should you lose your job and/or unexpected expenses crop up

iii) An even more successful part-time business that can be started and/or survive during a recession may prove to become wildly successful once the clouds of the recession begin to lift, maybe even carrying you directly to your Number [AJC: do not pass Go, but do collect $200 million 🙂 ]

– Control your spending, and save as much of your salary as you can to build a war chest for starting / running your business

– Pay down ALL expensive debt, following the method laid out in the Cash Cascade, but keep your mortgage (lock in to current low rates) subject to the 20% Rule and the 25% Income Rule and seriously think about keeping your other cheap debt loans.

– Invest any ‘spare change’ from your job and business (after all expensive debts are paid off and the requisite ‘business startup fund’ has been built up) into quality ‘recession-priced’ stocks and/or true cashflow positive real-estate.

… and, wait until you have reached your Number (through sale of business and/or conservative valuation of your equity in your investment assets).

That’s it 🙂

Would you cash in your 401k to fund your new business venture?

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There was a question on Quora that asked something along the lines of “what is the most overlooked factor in starting a business?”.

This applies equally to an online or offline business … and, I was surprised that none of the responses mentioned it:

Risk

.

In order to launch a business, you need to be able to overlook risk.

Even though risk can be managed, if you sat down to think about all the possible things that could go wrong with your proposed business, well, you would never start it.

So, I think you need to be able to overlook risk – and, move well out of your comfort zone (unless you are already into extreme sports and other forms of death wish!) – if you are to think about starting a business that consumes considerable time and/or money (no ‘hobby businesses’ here).

Hopefully, this now paves the way for a sensible discussion around a rather controversial Wisebread article sharing Darwin’s thoughts on How to Start a Business With Your 401(k).

Darwin’s view is that, rather than taking on expensive debt, it may be better to start your business by withdrawing all or part of your 401k using “a little known, but increasingly popular provision in the tax code referred to as the Rollover as Business Startup (ROBS). It allows someone to start up a new business venture with funds from an old 401(k) account without incurring the dreaded early withdrawal penalties meant to deter people from using their 401(k) accounts like piggy banks.”

A sensible – negative – response is offered by one reader:

To avoid going into debt is a pretty bad reason to raid your 401(k). If your business fails you can always declare bankruptcy – bankruptcy can’t touch most 401(k)’s – you’ll still have your retirement savings…roll it over into the business instead, have it fail…and you’ll have nothing.

And, I agree – to a point: your 401(k), although woefully inadequate for its intended purpose (i.e. ensuring your retirement) is useful as an insurance policy when all else in your financial life goes wrong.

Cashing in your insurance policies because you need money is the last thing that you should do!

But, this viewpoint ignores some basic realities:

1. Going into business, for a true entrepreneur (the type that can build a $7m7y business) is a “must do”.

Starting my own business was all I could think of for 4 years (yes, I was slow to act), and risking everything (career, etc.) was simply par for the course. I’m not saying this is ‘right’, just that it’s how an entrepreneur thinks.

2. Raising significant debt finance is almost impossible for a new business.

Sure, you can (and should) tap out your sources of traditional finance: refinancing your house (if you’re not already upside down on your mortgage); max’ing out your credit cards; trying for a personal loan (fat chance once the bank manager finds out what it’s for).

I do not think cost of the debt is an issue (if it’s available TAKE IT because it’s deductible and you’ll pay it off if your business is successful). I do think access to debt is … I think you’ll find it’s just not available; at least, not in the amounts required if your business requires access to substantial capital (e.g. for shop fit-outs, software builds, stock purchases, etc.)

3. Equity Capital can be equally difficult

The first place you should go for funds for your new venture is the 4 F’s: Founders (see above), Family, Friends … and, Fools. These days, Fools are very hard to find (they’ve already had their pockets emptied in the crash!) and Family and Friends are less likely to dig into their pockets than ever before.

So, that may leave your 401(k).

If that’s the only source of funds for your new venture, what will you do?

Anatomy Of A Startup – Part VIII

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It seems that most of my readers are happy for me to – at least occasionally – talk about startups.

So, with your blessing, I thought that I would answer the most common [Internet] startup question that I come across:

How do you develop an idea into a startup? I have an idea that I think would be a very good startup but I am new to this industry and trying to figure out how to better develop this idea into a startup.

Here’s a summary of my process:

1. Spend 1 to 5 days on Google keyword searching EVERYTHING I can about my idea, possible competitors, available research (if anything), market size and so on. Basically, I want to absorb the available knowledge around my idea. Others may consider this step non-productive and do it in 2 hours.

2. I then formulate my idea into my first real attempt at a Unique Selling Proposition; fill in the blanks: “_(Name)_ is _(keywords)_ just for _(who should look for it)_ who want _(best thing)_. There’s no other _(category)_ like it because _(name)_ has _(what makes my eBiz different)_”

3. The next step is to create a 2 page executive summary of your idea, with one paragraph or so under each of the following headings: 1. problem (being solved) 2. solution (being offered 3. business model (i.e. how you intend to make money 4. sales and marketing (how you intend to get your product to market 5.the competition (come on EVERYBODY has competition!) 6. the team (please say you have a cofounder and that one of you is tech!) 7. financial overview (I don’t necessarily do any financial modeling at this stage, but you can add this para if you like).

The reason why I do this document is that it forces you to summarize all that you think that you know with the benefit of a) honing you elevator pitch (you DO have one, right?!) and b) having something to send people if, by some miracle, some investor or strategic partner falls into your lap. That’s also ONE of the reasons for taking the next step:

4. Create your first powerpoint pitch deck; I base mine on Guy Kawasaki’s Art Of The Start http://blog.guykawasaki.com/2005…
(but, you can go online and find any number to copy; just keep it short).

The second reason for having one of these pitches is so that you have something to show (with little screen mockups that I create with Paint but you can create with Photoshop or one of the myriad prototyping tools out there like bo.lt).

Now that the background stuff is out of the way, I like to waste even more time by creating ‘wire frames’ (a fancy term for sketches) of what the main screens and workflow will look like.

[AJC: the new ‘lean startup’ movement pioneered by the likes of Steve Blank and Eric Ries will tell you that this step is way premature, and should be done after you have interviewed lots of potential customers to see if they even want what you are thinking of building and – if not – what they would rather you build. I’m slowly coming around to their way of thinking]

5. Then I create a landing page in LaunchRock (there’s NO reason why you shouldn’t make this page as soon as you have your USP / Step 2 … it’s just that I’m a procrastinator. [DISCLAIMER: I am an investor in LaunchRock).

Don’t forget to grab your domain names, and FaceBook and Twitter handles (HINT:fiverr.com is a great resource for getting the necessary ‘likes’ if you are short on friends)

6. Create a short Google Adwords campaign and/or FaceBook advertising campaign and see if you can get anybody to signup to your Landing Page.

7. Talk to and/or survey some real people (potential customers, not your Mom and Dad) about your idea.

8. Go back to 1. until you have Proven Kick Ass Idea With Real And Tested Market Potential.

9. NOW you can stop procrastinating and DO IT.

 

The Pay Yourself Twice Wealth Strategy!

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As you have no doubt worked out for yourself paying yourself twice is in itself just a stepping stone to financial success.

Let’s just quickly recap for new readers:

The likes of David Bach (The Automatic Millionaire) like to tell you that you needn’t do much more than ‘pay yourself first’ (i.e. save) 10% – 12.5% of your gross salary in order to live an idyllic life (well, at least retire well) … going so far as to call this “A Powerful One-Step Plan to Live and Finish Rich”.

The reality is that this is actually a dangerous financial strategy to pin your financial future on.

Whilst the idea of saving money is to be commended – in fact, saving is absolutely necessary – the sad reality is that you would need to pay yourself first 75% of your gross income, starting now and continuing for the next 20 years, just to maintain your current standard of living in retirement.

Clearly, my solution – which is to Pay Yourself Twice 15% of your gross salary – does little to bridge the gap.

Of course, it’s what you do with the money that counts:

I assume that your current ‘pay yourself first’ savings are going into some sort of employer sponsored, tax-advanatged retirement plan …

… which we already know cannot possibly be enough to support your current lifestyle in retirement, let alone set you up for that hammock in the Bahamas with free flowing Pina Coladas that you crave 😉

However, I do want you to keep your retirement fund going – and growing – because it is insurance, if all else fails.

But, it’s the “all else’s” that will make the difference between an austere retirement in 20 – 40 years or a certainly more memorable (and, very early) retirement with $7 million in 7 years … or a happy medium, if that’s more your speed.

And, that’s why you need to Pay Yourself Twice:

– Once to maintain this insurance policy, and

– The second time to build your investing war-chest.

If the power of compounding at bank to mutual fund rates of return (i.e. 4% – 10%) is not sufficient, then it stands to reason that you need to start investing at (much) higher compound returns.

This means building up a modest starting capital amount and ‘rolling the dice’ with higher risk / higher reward investments e.g.

A few minutes with a good compound growth rate calculator will (a) confirm how well your current strategy is doing against your desired retirement needs, and (b) tell you how deep into the above table you need to dive to bridge the gap.

It goes without saying – so, I’ll say it anyway (!) – that I hope that you all succeed with your investments, be they in stocks, real-estate and/or businesses. However, if you should fail … well, by continuing to Pay Yourself Twice, it won’t take too long to build up enough starting capital to have another go.

And, it might take one, two, five times before you are successful …

All the while, you have a 20 year backup plan (by also continuing to pay yourself first) just in case 😉

My circle, my prison.

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1998 capped a long period in my life when I was imprisoned by a circle.

I suspect this is the same for most. What separates me from the others – and, I suspect you, too – is that I broke out.

The ‘circle’ was my life and the things that I was trying to deal with:

– Keeping myself sane in an increasingly mad world

– Keeping my family safe, fed, and healthy

– Trying to earn a decent living to pay the bills and keep a roof over our heads.

This type of existence is inherently inwardly focused … we focus on ourselves, our immediate family, our friends, and our work colleagues (probably in that order) and little else.

The reason why it’s a prison – well, a financial reason (there are others beyond this scope of a humble personal finance blog) – is that our ‘investments’ are similarly inwardly focused; aside from what little we manage to save in our bank accounts and 401k’s, our so-called investments center around the things that make our inner-circle lives a little better.

We invest in our health (as much as we can – or feel motivated to do), our education (often because our parents tell us that “it’s an investment in our future”), our home (because that’s what our parents did) and, of course, our cars & possessions (because that’s what our friends and colleagues do), and so on.

Why do we invest?

So that when our income stops we can try and continue living within our circle and simply maintain what we have?

But, when I broke out of that circle my life began to change!

My First Big Realization was that my life wasn’t about my money … so why was I spending so much of my life – that precious, finite resource – attempting to earn money?

When, in 1998, I found my Life’s Purpose, which included what was in the circle (family, health, and so on) but also a lot more than I had ever felt desirable or even possible, I was forced to look outside the circle … way out.

Interestingly, and logically, I also realized that the investments that I had been making for my circle-bound future would no longer be adequate for a far less bounded life.

Not only did my thinking have to move beyond the circle, but so did my finances. And, if my finances wouldn’t be adequate for the life that I really wanted to lead, then neither would my investments!

So, in 1998, my investment strategy also shifted … and, shifted dramatically.

[AJC: if you want to understand a little more about this process, then check out this free site:  http://site.shareyournumber.com/]

No longer would I try and upgrade my home and my car.

No longer would I try and upgrade my lifestyle in an attempt to keep up with the Jones’ (and, I had plenty of those to try and keep up with!) …

… I would simply begin to apply every spare penny to investing outside of the circle: in true investments that I could not eat, live in, drive, or share over a beer.

Now that those investments have born fruit, finally freeing me up to live my Life’s Purpose, I realize that living outside of the circle has actually also helped me live within.

The difference is that my inner circle is no longer my prison but my sanctuary.

The sooner that you identify what is in your circle and what – if anything – outside of the circle truly drives you, the sooner you will be motivated to seriously start making money and investing.

Then this blog will suddenly become very interesting to you 😉

Pay Yourself Twice!

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It is commonly taught that in order to build wealth, you first need to save; and, the best way to save – so common financial wisdom says – is to pay yourself first.

Investopedia (the online investment dictionary) explains Pay Yourself First:

This simple system is touted by many personal finance professionals and retirement planners as a very effective way of ensuring that individuals continue to make their chosen savings contributions month after month. It removes the temptation to skip a given month’s contribution and the risk that funds will be spent before the contribution has been made.

Regular, consistent savings contributions go a long way toward building a long-term nest egg, and some financial professionals even go so far as to call “pay yourself first” the golden rule of personal finance.

Whilst certainly better than the other 99% of the population who don’t even bother saving anything, paying yourself first doesn’t go far enough:

Never mind underestimating what it costs to live a reasonable lifestyle, realize that the old “retire a millionaire’ ideal is no longer adequate; this is largely because of inflation i.e. over 40 years, you will suffer roughly two doublings in the cost of living.

Another handy way to think about this is to think of your retirement date & financial target:

Think of a ‘number’ … the amount that you think is reasonable to aim for in retirement, given the financial strategies that you feel that you can employ. Can you save $1,000,000 by your expected retirement date? Less? More?

Don’t guess; there are plenty of retirement saving calculators around to help you with this task …

1. If 20 years out, ask yourself: “would I be happy with living off no more than 2% of that number, each year?”

2. If 40 years out, ask yourself: “would I be happy with living off no more than 1% of that number, each year?”

If your answer is a resounding ‘yes’ then you are done … it looks like your retirement savings strategy will work.

Congratulations!

Now, stop reading this $%@@# blog, it will make your head spin 😉

But, I’m guessing that the answer will be ‘no’ … then what?

Then, you have to face some realities about your current “pay yourself nothing” and “pay yourself first” and “no debt in my life” strategies:

– A million dollars in 20 years (= approx. $500k today) to 40 years (= approx. $250k today), is too low a target,

– 10% isn’t enough to save,

– 20 – 40 years is too long to wait,

– Your 401k – more importantly, the underlying investments – isn’t the right place for your money,

– And, you are probably under-leveraged.

Today, we’ll deal with the first issue:

If you have two reasons to save money (1. to pay down debt, and 2. to build your investment war chest), then it stands to reason that you should pay yourself twice!

But, most people pay themselves second, if at all.

From now on, I want you to concentrate on paying yourself twice … before you spend money on anything else (other than taxes and social security); here’s how:

1. Pay Yourself Once: If you currently participate in an employer-sponsored retirement plan, then you should continue to do so, and

2. Pay Yourself Twice: You should save an additional 10% of your take-home pay – for now, this can be in an ordinary savings account clearly separated from your other funds.

If you do not currently participate in an employer-sponsored retirement plan or if you and/or your employer are currently contributing less than 5% of your gross pay into your retirement account, then you need to increase your pay yourself twice target to 15% of your take-home pay.

Of course, this is easier said than done: if you had 10% of your take home pay just lying around, by definition you would already be saving it …

… in other words, you are already paying yourself twice; if not, all of your take home pay is currently spoken for!

So, let’s start slow:

Step 1 – Could you save just 1%?

Take a close look at where your money is going: do you think you could find any spending areas where you can cut back enough to allow you to save just 1% of your take home pay?

If you are already saving – but less than the 10% / 15% Pay Yourself Second target – do you think you could find any spending areas where you can cut back enough to allow you to save another 1% of your take home pay?

[AJC: No need to start at 1% if you can find ways to save more; start at (or, adding) 2% or even more, but make sure that once you start that you never turn back … be realistically aggressive in setting your Pay Yourself Second target]

Step 2 – Wait 3 months and double it!

Over the next three months, perhaps by scouring the personal finance blogs on the internet, dedicate yourself to finding ways to double your savings rate i.e. if you started at 1%, after three months you should be saving at least 2% of your take home pay. If you started at 2%, don’t take your foot off the gas … double your savings to 4% of your take home pay.

Step 3 – Repeat

Keep doubling every three months until you reach 8% of your take home pay; three months later, save that 8% plus an additional 2% of your take home pay.

Step 4 – Almost there

What you do next depends on your Pay Yourself Second target:

– if you are already saving at least 5% of your gross pay in an employer-sponsored retirement plan (or similar), then you are done! Keep saving that 10% of your take-home pay.

– if you don’t participate in a retirement plan, or if you contribute less than 5% of your gross pay (including employer contributions), then you should keep saving 8% of your take-home pay plus you should concentrate on doubling the additional 2% every 3 months (i.e. 2% to 4% to another 8%) until you reach your combined target of 15%.

Step 5 – NEVER give up

Start today and never stop!

Unfortunately, as I’ve already pointed out, saving alone won’t get you to Your Number … it won’t even replace your current salary!

So, next time, I’ll help you decide what to do with your Pay Yourself Twice savings …

The fallacy of multitasking?

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Kevin exposes a fallacy:

Concentration…fortunes are built on it—or lost by the lack of it…

Here’s a clue…if you’re a salesman, you have to sell; if you’re a writer, you have to write; if you’re an accountant, you have to be crunching numbers. The more time and energy spent doing something other than your primary activity, the less progress you’ll make in your career and the less income you’ll earn.

.

I used to struggle with this myself …

My natural tendency is to do a LOT of things … at once.

My father (my then business partner) used to tell me to forget the ‘new business’ and just focus on his one.

My wife used to tell me to focus.

Then I did an online ‘psych test’ about ‘money and personality’ (I highly recommend this one: http://www.kolbe.com/assessmentTools/assessment-tools.cfm#rindex you’ll want to do the A-Index AND the Financial MO+) …

I learned two things about myself that changed my mind … then, my life:

The A-Index told me that I was an entrepreneur – this may be “well, duh” to you, given the title of this blog, but – at the time – it was news to me: I was a struggling entrepreneur, but wasn’t feeling very well cut out for the ‘job’.

The Financial MO+ Index told me that I work best by having “several balls in the air at once” – it’s the way my mind works best, the report said, and it was 100% true.

So, these reports – all $150 worth – gave me the confidence to work according to my instincts … and, a 356% compounded return on my investment 😉

Kevin’s ‘fallacy’ may well be true for 99% of people. But, it’s not true for me.

And – just maybe – if you want to achieve results that only 1% of the population ever dare aspire to and achieve, it won’t be true for you, either?

In any event … I learned to follow my instincts and so should you!