The lament of the middle-class millionaire ….

I must confess that I understand EXACTLY what this ‘poor woman’ is saying …

Ryan (who is one of the Final 15 in my 7 Millionaires … In Training! ‘grand experiment’) sent the link to me saying:

About 6 months ago I did a similar exercise to determine how much I would need to “retire” and live the kind of life I wanted to (travel, philanthropy, golf, bigger house,activities, etc.). Although it seemed like a stretch to even write down, I settled on $10 million in 10 years. After watching a show on cnbc, in particular this clip, , I think it’s time to revise my estimate!!! And to think that a couple of years ago I thought if you had a million dollars you could do anything you wanted.

The exercise that Ryan is referring to is the culmination of a series of posts on designed for one purpose and one purpose only: to help you find your Number.

This video – I believe – helps explain why I think that your Number should be couched in terms of required living expenses rather than some nebulous lump sum (such as $1 million; $5 million; $10 million; etc.) … although I also show you how to calculate the ‘lump sum’ that you will need.

But, Ryan doesn’t need more than $10 Million (a.k.a. $500,000 per year … indexed for inflation) to live a life that simply involves “travel, philanthropy, golf, bigger house,activities, etc.”; he just needs to realize that on $500k per year:

1. He will not be able to afford ownership (fractional or full) of multiple houses, jets, yachts and the like (although one used Ferrari isn’t out of the question), and

2. He will NOT be rich … rather ‘comfortably off’ – at least, according to Felix Dennis the rather quirky (and exceedingly rich) British/American magazine publisher.

… it’s a tough life 😉

That little pup called inflation …

If you’ve been sticking around to see how the 7 Millionaire … In Training! ‘grand experiment’ can pay off your you … 
… your patience is about to be rewarded – at least, that is my sincere hope. 
Starting today are a series of special weekly posts at designed to help you find your Number.  
This is perhaps the most important financial exercise that you will ever undertake in your enitre life … at least, it was for me! Whether you intend to be an active participant in my second site or not – this is my gift to you: 
All you need to do is read the posts, starting today and continuing (once or twice a week) for the next 3 weeks, and follow along with the simple – but critically important – exercises that I will be providing. Like everything here, this information is provided free, without any catches, for your benefit. Make good use of the opportunity … it won’t come around again. 
Good Luck and I hope that it is as profound an exercise for you as it was for me! AJC. 

Sometimes you can’t see further than the back of your own hand until somebody points the way …

… then it just seems so damn obvious that you wonder why all of those other dopes out there are still staring at the backs of their hands!

I was preparing for a radio interview the other day and I happened to pull up an old e-mail (that I mentioned in a previous post) from Fidelity – a fine investment management company – that proudly proclaimed:

Did you know that weekly contributions of $34 could potentially grow to over $76,000 in 20 years?

At the time, I just wrote my little counter-piece and laughed it off because that $76,000 probably won’t even buy you a car in 20 years time!

But in thinking about it – and, this is what I said on air – it’s actually much worse than that …

You go without lunch every day for the next 20 years, and you don’t even get a new car?!

How the hell are you ever going to retire!

Think about it, if $34 a week gets you $76,000 in 20 years … then, you would need to save $340 a week for the next 20 years just to get $760,000 !

Now, even if you could figure a way to save $340 a week (starting right now!) $760,000 a year in 20 years is NOT the same as having $760,000 today …

$760,000 today will get you a reasonably ‘safe’ income of $30,000 a year (indexed for inflation) if you invest the capital wisely, if you don’t suffer any major losses, and if you don’t spend any of it up-front or along the way.

In other words, the equivalent of $30,000 a year has to buy you everything you need and want for the rest of your life!

But …

That’s only if you have the $760,000 today!

If you’re like the rest of the world, to get there you’ll need to put aside that $340 a week for the next 20 years, but that little pup called inflation will be nipping at your heels the whole way

… and, that $760,000 in 20 years will only be ‘worth’ $350,000 if inflation is just 4%. I can’t even begin to think about what would happen if inflation rises to 5%+, as predicted.

That means that you get to live on $14,000 (in today’s dollars) a year!

So, how much did you expect to save?

By when?

But, wait, Fidelity is offering a 7% annualized return … aren’t you going to invest that money in the stock market (an ultra-low-cost Index Fund, of course) that averages 13% a year?


Because the day that YOU invest the market is going to crash, WWIII is going to break out, the sub-prime crisis will just be getting into full swing (again … will they never learn?), or worse.

YOU, my friend, will need to plan for numbers that you can rely on because you only get one shot at this …

… and, the money has to last you for the rest of your life  – unless your backup plan is (a) still checking out groceries at the local supermarket when you’re 75, (b) eating dog food, or (c) let me hear it [leave a comment].

And, the number that you can rely on is this: 8%

Because, you can put your money in an ultra-low-cost Index Fund (we’ll forget about minimums and entry/exit fees for now) and rely on the fact that the market has never had a 30 year period where the returns have been less than 8% (that includes periods of war and pestilence and pure market stupidity).

… but, now you have to wait 30 years; because if you only wait 20 years, you can only be sure of getting a 4% annualized return, and that just sucks.

The good news is that if you can wait 30 years so that you can get a ‘guaranteed’ 8% return and you can keep socking that $340 away, week in week out for 30 years, well that’s over $200,000 a year (at a 4% ‘safe’ withdrawal rate)!

Unfortunately, we still have that little pup (a.k.a. inflation) dragging at us via his leash, which means that you can really only comfortably rely on an annual income of $25,000 in today’s dollars.

But …

You will do (much) better if you can start socking away, without fail, $340 a week and indexing that with inflation as well (in 15 years you’ll be putting away $588 a week and in 30 years $1,060 a week).

In fact, if you can maintain that regimen for 30 years, you’ll deserve a medal as well as your annual income of $37,000 in today’s dollars!

$14,000 … $25,000 … or even $37,000 a year in 30 years: is that really what you had in mind?

I suspect not, or you wouldn’t be reading this blog 😉

Who wants to retire in their 20's, anyway?

Join AJC’s Live Video Chat on Thursday @ 8pm CST … 7 Millionaires … In Training LIVE Results Show: Final 30 announced live tomorrow (!)


Yesterday we talked about starting young, not just as it applies to saving, but as it applies to accelerating your retirement plan.

Maybe you couldn’t find your WHY?

After all, who wants to think about retirement when they are still in their 20’s or even 30’s? Most are still thinking about their job!

Yet, as yesterday’s post showed, there are some good reasons for starting early. And, who wouldn’t want to retire early if their goals matched these from a recent survey of GenXfinance‘s readers:

How Do You Envision Your Ideal Retirement? 

Being a ‘Gen X’ PF site, we can probably assume that most of the respondents were younger than, say, me. But, it’s even more interesting to notice how each of the first three categories (where the majority of the votes fell) require MONEY and/or TIME:

1. Extensive Travel

Think about it, you can escape money to a greater of lesser degree if you are willing to travel frugally, work at least during some of your stopovers (haven’t you noticed how all the ‘servers’ in restaurants in vacations areas are young foreigners?) …

… but, you can’t escape the time element: this means that you have to be ‘retired’ from your day job.

2. Not going to work; just taking things one day at a time

Obviously, this means that you are retired from your day job … but, two things happen when this occurs:

i) Your income goes DOWN

ii) Your spending goes UP

For those who subscribe to the “75% of current income in retirement” theory, I ask this: have you ever tried spending time doing anything BESIDES WORKING that doesn’t COST money?

Think about it … it stopped me from cashing out when I was offered $4 mill. a few years before I eventually did cash out (for a helluva lot more!).

3. Doing volunteer or charity work

All [charity] work and no play makes Jack a dull boy … this is really 2. plus you are spending some of your time (perhaps a lot) giving back. This is a good thing … as well as the great work you are doing, you are spending less time … well … spending!

4. Other

If you scroll down the comments attached to GenXfinance’s post, you will see that most of the ‘other’-folk either mean not retiring at all (like the ‘pursuing a second career’ option) or involve a similar outflow of money and/or a similar savings-account-draining, non-income-earning amount of time.

But, they are all things that you will probably want to start whilst still young enough to enjoy them …

… which means starting to build a pretty damn large nest-egg pretty damn soon!

Let me know what (and how much by when) ‘retirement’ means to you?

What the Quality of Life Index means to you …

First LIVE show aired last night … thanks to all of those who joined us (!) … a few technical glitches … the host wasn’t exactly Jay Leno [I don’t have as many cars as Jay, either] … some great question and fantastic chatting. Same time next week, all?

Now, for today’s post

Today, I am reviewing – and adding to – an important concept recently introduced by mymoneyblog … a way of comparing wealth without resorting to meaningless concepts like Net Worth.

It’s a ratio that mymoneyblog has dubbed the Financial Freedom Ratio:

If someone tells you that they have a net worth of $1,000,000, you might be impressed. But what if they spent $150,000 per year? If they stopped working, the money wouldn’t last very long. However, if they only spent $15,000 per year, they might already be set for life. In other words, your income doesn’t matter. Your expenses do. It may be assumed that the two are related, but that is not necessarily true. We all have the power to disconnect the two.

I’m sure somebody somewhere has already coined this term, but until told otherwise I will call it the Financial Freedom Ratio (FFR):

Liquid Net Worth divided by Annual Expenses

By liquid, I simply mean you can sell it for cash while not affecting your expenses. (Don’t count your car if you need it for work).

I like the FFR because it is a way to compare two people who may be on different financial paths; I mean, who is better off?

The doctor who earns $250k per year (net) but spends $260k a year on mortgages, cars, vacations?


The veterinarian who earns $150k per year (net) but spends $110K and has paid off their house?

But, there is a problem, as mymoneyblog also points out:

For example, if you had $200,000 but only spent $20,000 per year you would have the FFR value of 10 as someone with $1,000,000 but spent $100,000 per year. This also calls into focus how important spending patterns are when talking about financial freedom.

You see, Ratios are dimensionless … they lose scale. Therefore, with the FFR a ‘hobo’ COULD conceivably have a better FFR than a multimillionaire!

For example: my FFR is 40 (purely based upon cash in the bank) – but, that doesn’t mean anything to you, until I also tell you one of the Scaling Numbers (either ‘liquid net worth’ OR ‘annual spending’ will do).

If we want to keep these numbers secret (the great benefit of the FFR), then we simply need to add some sort of Quality of Life Index:

Quality of LIfe Index

As long as the QLI is greater than 1, then I agree that the FFR is a great way to share ‘financial positions’ WITHOUT disclosing how much we actually have in the bank!

It is also a great way to determine if your are on track to your ideal retirement, rather than just settling for the personal finance blogger’s curse: you will save, and save, and save until you can retire on your current paltry salary …

… the QLI forces you to assess what you really need to be able to spend in retirement and then it, together with the FFR, doesn’t let you retire until you can get there!

The only problem?

It doesn’t tell you how to do it! So, you tell me … how will you do it??? 

What does it mean to be wealthy?

7million7years live tomorrow (!) and 7million7years in the press:

Two of my favorite sites are TickerHound (the Investment Q&A Community) and the Tycoon Report (Daily Investing Newsletter); and, they’re both free! 

Also, 7million7years got two mentions when these sites got together here 🙂

Now for today’s post …

Trent at the Simple Dollar rekindled this debate  by asking “How Much Money Is ‘Walk Away From It All’ Money?”

I’ll let you read Trent’s post yourself, but, what often interests me most are some of the questions and comments left by readers to my posts and those on other blogs.

For example, I am often asked what my definition of wealth is; I can tell you what it ISN’T:

I DON’T like the simple numerical definitions of wealth that researchers and academics like to trot out e.g. $170,000 income per year; or $1,000,000 in assets not including primary residence; or even the often quoted Millionaire Next Door formula:

Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

To me, these are just meaningless numbers.

Then there are the passive-income-covers-current-income approaches to wealth [AJC: you may recall that Robert Kiyosaki  claimed $100k p.a. passive income as = wealth for him in Rich Dad, Poor Dad]; “KC” left this example in her comment to Trent’s post:

I’ve always said “wealthy” people are folks who don’t have to work and can live off their savings, pension, social security check, dividends, and any other non-work related payments. That is an age dependant term. My 90 year old grandmother is wealthy by those standards – but I’d hardly call her style of living wealthy – but she is able to live comfortably off her savings cause her budget is so small – no car, paid for house, minimal food & utility needs.

I disagree with this definition of wealth, because of exactly that scenario: the ‘cash poor’ person who accepts a certain level of lifestyle because that is what they can afford. They have one benefit: they can maintain this lifestyle WITHOUT WORKING therefore some would consider them wealthy. But, to me, they are still just getting by …

… which is interesting, because KC then when on to show the contrast:

My in-laws are wealthy – they both have pensions and health benefits, but retired early (55’ish) due to a sizable inheritance and wisely saving money when they were younger despite knowing they’d come into an inheritance. I would describe their lifestyle as wealthy – European travel, upscale cars, very nice paid-for home.

 This lifestyle has all the trappings of wealth … but, to me ‘trappings’ do NOT equal wealth. So, KC what would I consider wealthy?

Simple, it’s the definition that you provided, with an additional – but critical- twist:

It’s having the regular passive income to cover your ideal lifestyle not just your current lifestyle!

Your ideal lifestyle is the one that you measure by what you DO not what you HAVE …

… the DO part is about legacy: what, if anything, do you want to be remembered for?

The financial part of this is then simple. Just ask yourself: how much will it COST (time and/or money) and by WHEN do you need it?

When KC did the numbers she came up with the following:

But for me (a 35 yr old) to be wealthy by the no work standard would easily take 3 million. I arrived at that number by saying what amount times 8% would allow me to maintain my lifestyle on the principal generated? I chose $3 million cause in a few years I’d need that extra money due to inflation. At $3 million I could very easily pay off my home and live VERY comfortably off the 8% interest. That would make me and my husband independently wealthy. Oh well, I’m only about 2.8 million away from my goal – sigh…

Firstly, good on KC for ‘getting’ that you need a hell of a lot more than $3,000,000 AND for figuring inflation into the equation. But, here are some things that she needs to correct:

1. Firstly, she needs to work out her annual passive income requirements – it looks like she’s counting on $3 Million LESS ‘inflation allowance’ LESS Paying off current home.

2. I’m guessing that amounts to something like $150,000 a year that she’s aiming at – a healthy income, but nowhere near ‘reasonably rich’ (that would take about $350,000 – $500,000 a year income: big house, First Class flights, 5 Star Hotels, a couple of fancy cars, private schools). But, let’s assume that she has modest retirement spending requirements: she doesn’t say WHY she needs it, or HOW much … but, we do know that she needs to replace 100% of her time with money as she doesn’t intend to work at all.

3. Before retirement, KC may be able to count on a 12%+ annual compound return (over a 20 – 30 year period) on her ACTIVE investments (forget 401k’s, managed funds, index funds, etc. … to get 12+% she’ll need real-estate and direct investments in stocks), but in retirement, she will want to wind that back to, say 8% on her PASSIVE investments (now she can buy those Index Funds, if she likes).

Why 8%: because that’s the largest return that the stock market has ‘guaranteed’ over any 30 year period, in the last 100 years (the figure drops to just 4% over any 20 year period, and 0% over any 10 year period). And, then we really should deduct mutual fund and middle-man fees …

4. But, to counter for inflation and up/down market swings, KC will need to wind back her withdrawals to somewhere between 2.5% and 5% of her portfolio … 8% is right out of the question! Why? You have to reinvest at least the expected amount of inflation; KC will need a payrise if she wants to keep up with rising prices …

5. That means somewhere between $3 Mill. and $6 Mill. is the ‘Number’ for KC, or she’ll have to be content with taking ‘just’ $75,000 a year in retirement (at least, it will be indexed for inflation) … just remember, if she takes 20 years to get to that $3 Mill. it will be just like retiring on $35,000 a year today. Whilst $75k seems like a lot to most, it ain’t ‘rich’.

Maybe KC was a little optimistic in saying: “At $3 million I could very easily pay off my home and live VERY comfortably off the 8% interest”?

Do you need to shift your financial goalposts a little, as well?

People will usually trade equity for peace of mind …

There was a bit of to/fro on a recent post that I wrote about applying the 20% Rule; one of my readers pointed to a contra-view on an excellent blog by 2million who advocated paying down his home mortgage, whereas I advocate not to (as long as you always ‘fit’ into the 20% Rule), so I wrote to $2mill and asked him to clarify his position.

$2million wrote back and said:

I previously posted an analysis that I did that showed i would earn an after tax return of 6.7% on the mortgage prepayment your commenter is referring to (due to being able to cancel PMI).  I am only chasing returns — not paying off my mortgage — I felt this was the best no-risk investment for our cash savings.

Now, I have written recently about this very subject – why the small gain in reducing interest rates is offset by the huge benefit of leverage, particularly when applied to an appreciating asset such as your own home – but, so many people still choose to pay down their mortgage instead.


I think that $2million speaks for most people who recommend or follow this approach when he says:

Feels good to paydown mortgage emotionally, but have always recognized its not the best return for the investment.

“Feels good emotionaly” a.k.a. ‘peace of mind’ – perhaps one of the most motivating statements in the business world …

… how many $20,000,000 mainframes have IBM sold because ‘buying IBM’ would give the CIO ‘peace of mind’?

It is also truism in the personal finance world that people make decisions emotionally, then look for rational reasons to support their decision … it’s why it’s very difficult to change the way that people think … first, they have to WANT to change.

It’s why it is said that you have to “win their hearts THEN their minds will follow” …

Jason Dragon [great name!] was the commenter on both $2million and my posts; he wrote me an interesting e-mail the other day:

In the investing club I belong to we have a saying.   “People will usually trade equity for peace of mind” and it is so true.  This is the reason you can get a house for 60 cents on the dollar because someone is 1 payment late and scared.  It is also the reason that people don’t invest like they should. It just boils down to the fact that most people are too risk adverse. 

This is one of the best times in history to see emotion-driving-rationality at work: look at the emotions that pushed the markets and real-estate so high all the way through towards the close of 2007 … to be followed by an equally emotional ‘crash’.

Sure, there were economic reasons for both … but, the emotional swings were much, much larger than the rational/economic swings on their own could justify.

Where the heart goes … the mind will follow; it’s why I say on my About page:

If your target is just an amount like $1 Million in 15 years, then you do NOT need to read this blog – you will get far more benefit for your time invested in reading here, here, and here, or probably ANY of the places listed here.

… there’s no reason to waste anybody’s time … if they don’t need $5 mill. – $10 mill. in 5 – 15 years, then why bother reading a blog about the rationality of ignoring much of the Common Wisdom surrounding Personal Finance?

But, for those who have the burning need to break through and be truly financially free – Jason has some more words of wisdom:

One nugget of info can change your life. It is much easier to live below your means if you increase you means. You do need to control costs, but spend more time increasing income than controlling costs and you will be ahead in the long run.

Jason, it’s true: one nugget of info can change your life (little did I know it at the time, but it did for me) …

… but, first your heart has to be receptive to that change!


PS  2million did later explain that he put money into his mortgage as a temporary savings strategy – as it offered a better rate of return than other savings or debt repayment options available to him. 2million is a blogger after my own heart, who intends to pull that money out to buy his 3rd investment property soon.

Contrary to popular opinion, paying off your mortgage is the dumbest move you can make …

I wrote a post a long while ago … actually, it was my 5th-ever post – some say that I should have stopped there 😉 – about the classic Rent or Buy dilemma for your own home … and, I just (!) received an interesting comment to that Post from Joy:

That’s the silliest thing I’ve ever heard – borrow against your house (aquire more debt) to invest??? Paying off your house early and being debt-free allows you to do whatever you want with your income, THAT’s truly the way to wealth.

Now, Joy is not alone: I recently read a post by Boston Gal on her blog that talks about Suze Orman’s  advice which also is to pay off your home loan early:

Believe me, I have thought about trying to pay off my mortgage early. But since I have an investment condo which is mortgage free (yeah! paid that one off in 2007) I have been a bit hesitant to use my current excess cash to pay extra toward my primary home’s principal.

 Now, this sparked a whole series of comments, including this comment from ‘Chris in Boston’ who said:

This is interesting. Usually you hear from personal finance people that its best to take on the longest fixed rate mortgage you can afford. This allows you to tie up as little cash in a non liquid asset as possible (slowly building equity). Also allows you to protect that pile of cash from the effects of inflation. The house is bought in today’s dollars and paid off over 30 years in today’s dollars.

Sure, when you own a property you have to compare it to owning any other investment – cost/benefit; risk/reward; all the usual stuff. You also need to compare the costs of holding it (including interest) against the costs of investing elsewhere.

But, this last piece in Chris’ comment is THE critical point: “the house is bought in today’s dollars and paid off over 30 years in today’s dollars”.

You see, the one thing that makes owing a property, even your own home, very different to any other investment is that it can be easily financed … almost completely (remember the sub-prime crisis?).

This leads to a whole swag of benefits that I don’t think that you can get anywhere else … benefits that simply cannot be ignored by the typical saver / investor.

Here’s why …

When you mortgage a house, you and the bank enter into a partnership (typically the bank is an 80% partner and you are a 20% partner going in), but you are not in the same position:

1. You have access to ALL of the upside … so as inflation and market conditions push the value of the property upward over time, you gain 100% of the increase, the bank gets none of it.

Let’s say you buy a property for $100,000 today; you put in $20,000 deposit and the bank puts in $80,000 as an interest-only loan (forget closing costs for now) … in 20 years, if it doubles to $200,000, your share of the ‘partnership’ is now $120,000 and the bank’s is still $80,000.

You are now 60/40 majority owner of the real-estate venture! In fact, even as 20% ‘owner’ you have total control over all the decisions related to the real-estate – as long as you pay the bank on time.

2. Sure you pay the bank interest on their $80,000 share … but this is fixed (you did take out a fixed interest rate, didn’t you?!).

At 8% interest rate that’s approximately $6,400 per year … this year.

Why only this year? Because the same inflation that is increasing the value of the house (and you get to keep 100% of that increase) also decreases the effective amount that you pay to the bank; as each year goes by, the bank gets less and less in real dollars and your salary goes up.

The price of bread, milk and gas may go up, but the bank’s interest rate never will because it’s fixed!

3. You either get 100% of the value for the payments that you make to the bank (call it ‘rent avoidance’ if you live in the property) or you take 100% of the income if you decide to rent it out … all as 20% minority ‘partner’ going in. The bank on the other hand, gets their $6,400 and ONLY their $6,400.

4. The government gives you tax breaks and incentives to do all of this!

Here is my advice …

Look at everything that you own as a business: if it’s your own home, separate the ownership of the property in your mind from it’s use …

… for example, even if it’s your own home, treat yourself as your own tenant and figure the rent that you would otherwise had to pay when doing the sums.

Then evaluate the investment against any other investment or ‘business’ … and ask yourself:

– What ‘business’ gives you pretty damn close to 100% control for only 20% initial investment?

– What ‘business’ lets you in for only 20% initial investment, but then gives you all of the upside?

– What ‘business’ gives you only one-time multiplier on your initial investment on the downside but a five-time multiplier on the upside?

– What ‘business’ grows in your favor (and not your “partner’s” favor) merely by the effects of inflation?

By all means, pay off you mortgage and your lines of credit as you reach your financial goals and are set to retire …. you have plenty of money and just don’t need the stress, right?

But, if you’re still trying to get rich(er) quick(er)?

If you own a home, don’t pay it off … use the upside to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ‘businesses’ …

If you have other sources of income (businesses, investments) don’t spend it or reinvest all of it … use some of the spare cash to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ‘businesses’ …

That’s my advice to you, and to Joy, but only take it if you want to be rich!

The optimism of the young …

When you are just starting your working career – or perhaps you are still studying for your career – it can be hard to think of anything more exciting and fun than working at a job that you love.

So, when I talk about retirement – as I do from time to time – I can imagine that a large chunk of my audience is looking for the ‘close window’ button?

Well, don’t!

[AJC: Also, keep reading this particular post even if you AREN’T young … I have included a lot of back-links, because I want you to review some of the ground that we have covered so far, with this blog .. the idea of Future Vision is THAT important to your financial success!]

Recently, I suggested that most people fail financially, not because their dreams are too big, but because their dreams are TOO SMALL!

Now, this seems counter-intuitive, therefore some of the comments were interesting … the one that I felt expressed the counterpoint the best was from Alex, who said:

I don’t plan on quitting working anytime soon. My “retirement” is to retire from working 9-5 and work for myself. I wouldn’t call that work since I know I will enjoy it, if not, I can always pick a new thing to work on. Life is simple and fun if you have more choices right?

I responded:

It’s my thesis that one day working will no longer be fun, for any of us … if you agree that it’s possible that you will one day feel the same way, then it’s your job NOW to decide WHEN that will be, WHAT you’ll be doing instead of working, and HOW MUCH it will cost to do it – and, if you’re no longer earning money, WHERE will it come from?

The younger that you are when you get this, the more chance that you have of either:

1. Achieving a larger goal, given enough time, than your friends and peers, or

2. Achieving a more modest goal, but much earlier than your friends or peers.

Simply applying Making Money 101 principles as outlined in this blog will, given enough time, compound your savings to a large’ish sum. Not anywhere near large enough for me – but, that’s another story – if that provides enough for you … great … you’ll have a reasonably stress free (but, long-working) life.

But, if you aspire to an unconventionally wealthy and rewarding lifestyle, where you have replaced work with even more rewarding activities, while you are still young enough to enjoy them (e.g. 29, 39, or – hope YOU don’t need to wait THIS long – 49 years old!) then you will need to sit down and dream your large dreams NOW …

… then wake up, splash some cold water on your face and get straight to work applying my Making Money 201 principles!

If you do, you will soon be keeping your very large nest-egg safe with my Making Money 301 principles – and, at a much earlier age than me or most others.

I’m 49 y.o. – officially retired – and I think that’s WAY TOO OLD!

So will you, if you just sit back and wait because you are still young, and still excited about your work or your business or your whatever … if you follow my advice, these will still be your fun and exciting means to a much more valuable end, so …

… start now!


PS If you are a ‘young adult’, Ryan at Bounteo has a great series specifically focussed on investing for young adults … why don’t you check it out, and let me know what you think?

What's the probability that you'll even read this post?

Well, if we look at all the billions of people on this planet [AJC: is it 6 billion or 8 billion now … damn, I lost count] …  the chances are minuscule.

If we take all the people who use the Internet daily … still microscopic.

If we take all the people who read Personal Finance blog … not much chance.

If we pick all people who read the self-prophesying headline to this post …. bloody great! You see, it WAS a trick question of sorts …

… all to lead me on to the subject of Probability … as in “it’s probable that your eyes will glaze over just about now, and you’ll click back to Pamela Anderson’s home page” … brought to my attention by a recent post from an excellent blog by All Financial Matters, appropriately titled Probability 101.

Even if you hated math [AJC: in other countries, known as: maths] and statistics, stick with me past this excerpt:

I’m in the process of reading Peter Bevelin’s awesome book, Seeking Wisdom – From Darwin to Munger (Not an Affiliate Link). I HIGHLY recommend this book for anyone interested in investing and behavioral finance. As boring as that sounds, this book is a page-turner. One of the sections of the book that I found most interesting was this illustration of probability on page 151:

A lottery has 100 tickets. Each ticket costs $10. The cash prize is $500. Is it worthwhile for Mary to buy a lottery ticket?

The expected value of this game is the probability of winning (1 in 100) multiplied with the prize ($500) less the probability of losing (99 our of 100) multiplied with the cost of playing ($10). For each outcome we take the probability and multiply the consequence (a reward or a cost) and then add the figures. This means that Mary’s expected value of buying a lottery ticket is a loss of about $5 (0.01 × $500 – 0.99 × $10).

The first comment that I would make is that whilst you need to understand the basics of a ‘good decision’ against a ‘bad decision’ in probability/statistical terms, simply running your eye over the key line “A lottery has 100 tickets. Each ticket costs $10. The cash prize is $500”  should do the trick:

If you bought all 100 tickets, at $10 each, you would spend $1,000. But you would only win the cash prize of $500 … are YOU smarter than a 3rd Grader?

But, as one of the comments on that post pointed, out not all decision that SEEM to be mathematical ARE simply mathematical:

Unfortunately, probability doesn’t always translate directly into real-life situations.

Let’s take your example of the lottery, except we’ll change things up a little.

Mary is 50 years old and approaching retirement. She’s been financially savvy for her entire life and has accumulated $1M in cash.

Donald Trump decides to hold a lottery for only Mary. One ticket costs $1M, and she has a 50% chance of winning $10M.
If you looked at just probability, her EV is -(0.5 x $1M) + (0.5 X $10M), or +$4.5M. Does that mean she should buy the ticket? Obviously, no.

I think what this comment is saying is that EVEN THOUGH you have a 50/50 chance of winning 10 times your money, you shouldn’t invest your entire life savings into it … because you have an equal chance of ending up flat broke!

The concept is good, but I take issue with the “obviously no” bit …

The numbers in this example are ridiculously skewed for most people, so I tried to give some ‘closer to home’ examples in my post centred on that popular game show, Deal or No Deal.

It all boils down to this:

When a decision is potentially Life Changing … the numbers count less … the possible result counts more.

In practice:

1. You should understand basic probability because it is so important in life,


2. You should first make the Life Decision then look at the odds …

Deal or No Deal?!


Retirement sucks!

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!