It's the gradient of the curve …

Making millions is serious business …

… don’t worry, here’s a short-cut where you can jump straight in  )

Now, back to today’s post ….


That’s right, it’s not the size of the mountain … but, the gradient of the curve that will get you!

Given enough track, any train can climb any mountain. The track just can’t be steep … hence lots of track … hence lots of meandering around and around to get to the top (if that’s where a train really wants to go) … hence lots of time.

The train can get you there, it just can’t do it very quick!

Similarly with your Number … the size of the number doesn’t phase me, nor should it phase you …

You want a million dollars?

Easy, buy a $100 unit in a low-cost Index Fund and wait …

83 years.

Want a million in today’s buying power? Then, you’ll need to wait another 38 years.

Want $5 Million in today’s buying power? Just wait 21 years more!

You see, it’s not the size of the mountain that will kill you, but the gradient (steepness) of the sides that you need to climb.

That’s why we also need to know the Date that we want to achieve the Number:

Enter your starting Net Worth, your ending Number, and the number of years in between into a simple on-line calculator, and it should tell you the Average Compound Growth Rate required to go from the bottom (you current Net Worth) to the top (your Number).

The Average Compound Growth Rate is a measure of how ‘steep’ a financial mountain you need to climb … and, that should tell you whether you need a train, a fast car, or a helicopter to get you to the very top in time.

According to Michael Masterson in his book Seven Years To Seven Figures:

Required Compound              Investments

Growth Rate                             Required

4%                                                  CD’s

8%                                           Index Funds

15%                                              Stocks

30%                            Real-Estate together with Stocks

45%              Real-Estate together with Stocks and Small Businesses

50%+                           Start Your Own Business

So, how big is your mountain? More importantly, how steep the gradient?

And, are you prepared to try a new mode of transport, if that’s what is required?

If not, you’ll either need to find a smaller mountain (deflate your expected lifestyle) or simply give yourself some (a lot?) more time!

What's a "vacation"?

What are the sacrifices that you need to make when you are building your little nest-egg … especially, if you have chosen the entrepreneurial route?

I can illustrate with one example:

One of the applicants for my ‘grand experiment’ in millionaire-making saw that they hadn’t made the final cut and asked me why. I simply explained:

Your application came in past the cut-off (as did one other person’s) and since I have to somehow cut down to 7 …

And, it’s true. One other of the Final 15 didn’t submit their application, so …

Anyhow, this person responded:

I know there are no excuses for missing the cut-off, but I did write to say I was on vacation and did not have access to email. I hope you can still consider me in the running, but if not thank you for the opportunity and I will continue to follow along.

Now, I’m not here to judge this person – in fact, I consider them a valuable (and inaugural) member of the 7m7y Community (hence, I’m keeping them anonymous here) … and, that wasn’t my point. And, it isn’t the point of this post …

… rather the point is to share this with you:

I was on vacation with my wife recently in Las Vegas, while our children were away at Summer camp (that wonderful American institution … just like sleep-away college … we seem in so much of a hurry to get rid of our kids, here!) and realized that:

1. My phone never rang

2. I dropped my Blackberry in the Bellagio’s pool and didn’t even have to worry about replacing it until we got back

3. I only needed to check my laptop once or twice a day to keep up with my two [now three] blogs

This is only surprising if you realize that on every other vacation for the past 10 years, I would:

a) Carry my laptop to the pool to catch up with my e-mails, if they had wireless … else, head back to my room (or the business center) 4 or 5 times a day, if there was no wireless.

b) Take business calls at all times of the day or night in all places, including one ‘infamous’ call on my hotel balcony to close a particularly large deal

c) Never, ever, ever, stop thinking about work ….

There was one particular trip that I took that turned out to be one of the most stressful trips away that I remember [ AJC: Stressful?! They’re supposed to be VACATIONS, dope 🙂 ] …

… I was woken from my slumber at God-knows-what-hour by a call from my office ‘back home’:

Our ‘mission critical’ software system had failed and our call center was running on ‘manual’ (means people taking calls over the phone and filling in bits of paper to be somehow entered when [if] the system came back up).

The system was down for almost the whole time I was away and I realized that I couldn’t add any value by coming back, yet I felt helpless as I saw my business sinking under my eyes (no computer, no call center, no business) …

… somehow the problem was resolved after a week or so, and they eventually caught up with the ‘paperwork’, and aside from a few customer apologies (more phonecalls while I was away) later everything was back to ‘normal’.

So, when I say that not being bothered by phone calls / customer issues / e-mails while I am on vacation is some sort of ‘novelty’ for me, you better believe it!

If you decide that you need to be on one of the high growth curves to make your Number … however many millions of dollars that may turn out to be …

… giving up the idea of having a ‘true vacation’ for the next few years is just one of the many sacrifices that you will need to make.

After all, if making that much money that quickly was meant to be easy, everybody would be doing it …

PS the Blackberry-In-Swimming-Pool story has a happy ending: I bought myself a new iPhone 3g 🙂

The right balance to get rich …

… who is this hell of a smart guy!?

Whoever he is, he is right, you need to balance:

– Research,

– Creativity,

– The Practical (just do it!).

It takes all three to be a success: if you focus on just any one of these three areas you could be:

– paralyzed by (over) analysis, or

– dreaming, dreaming, dreaming, or

– bull-dozing your way down a path where there is NO demand and no return.

Who says you can’t learn anything useful on the Internet? 🙂

Driving site traffic …

People are starting to cotton on to the fact that if you want to be successful in business these days you need some sort of on-line connection; either:

– Your business itself exists in cyberspace, or

– Your offline, bricks & mortar business has some sort of internet-based aspect for promotion, advertising, etc.

I just got back from breakfast with an old buddy (also from the ‘old country’ but who has lived in NYC for the past 15 years) and his wife bought a small ‘event planning’ business. This business works by finding, then building close connections with, all the best/cheapest local sources for all the stuff that one needs for an event: halls; bands; florists; center-piece makers; etc.

But, we were discussing how the industry needs good local ‘portals’ where people can find this stuff for themselves … obviously, the internet is the tool.

Anyhow, the point is that where you have the word ‘Internet’, you need to add one more word to make it work for you: ‘traffic’.

This is like the old retail store … it needs a cost-effective, high-traffic area to get all those eyes looking, to get a few of those eyes to turn into feet coming into the store, and a few of those feet turning into hands trying stuff out, and a few of those hands clutching wallets.

Similarly, online traffic = volume = ‘customers’ (or whatever action it is that you are looking for; for a blog it just might mean subscribers … for a online retailer, it’s obviously purchasers).

That’s why I made such a big ‘to do’ on my sister blog – 7 Millionaires … In Training! – about driving traffic to each applicant’s ‘Meet me’ page.

Eric, who made it to the Final 15, noticed this and sent me an e-mail that I thought I should share:

So how can I successfully drive traffic? I do not have my own blog and the methods I have tried have failed. I really want to ‘get it’ when it comes to Internet marketing. I truly believe the way to make your grand experiment work (If I am following along correctly) is to drive traffic, but not just to your site, but ours as well for future businesses we may have. How far off base am I? I realize if I do not have the correct tools to make this experiment work then I may not be a future millionaire. You can give a man a fish or teach him how to fish. I want to know more about Internet Marketing and what I am doing so wrong.


If you cannot find a way to acquire the skills (“tools”) to make this ‘experiment’ work, then how are you going to drive any online business?

As to building web-traffic, I assure you that I am no expert, but I managed to build a reasonable following by:

1. Commenting on others blogs, web-sites, forums;

2, Writing good enough content for mine that people would want to link back;

3. Getting a few articles published in one of the many ‘carnivals’ around (e.g. “carnival of personal finance” … google that) helped a little, as well.

But, I recommend that you begin by doing some research into what works and what doesn’t. Fortunately, for the Internet, research is as easy as Google:

For example, google (amazing how it’s become a verb!) Derek Gehl for courses on online marketing that you can buy, or buy Site Build It! by Kevin Evoy if you want to build your own non-blog site.

Read these excellent articles if it’s a blog that you want to promote:

Then …

… just do it! 🙂

Time for Money: a Bad Trade?

I’m about to find out if you can make money online: click here to read the latest installment in my new online money-making adventure!


Recently, I answered a question for Debbie, a freelancer, who asked:

I’m self employed and my earnings seem to only be limited by the amount of time I have to work… I’m trading “hours for dollars” at this point.  I only have so many hours I can work, and I’m working during all of them 🙂  I’m in a lot of debt… and just about everything my husband and I earn is turned right back into our existing debt/bills.  How do we get a head when we seem to be stuck ?

As I said to Debbie, it all really depends on Your Number – and when you need it (i.e. Your Date):

1. Most freelancers are basically holding a job, without the 401k and other corporate perks, in return for a reasonable hourly salary and some flexibility. For most freelancers, though, when they stop [working] their income stops, too!

2 Some freelancers get smart and realize this, and spend as much time investing as they do earning (Scott shared a good example of a doctor who invested in real-estate and in setting up – then selling – practices). They can build up a decent nest-egg, perhaps into the $1 million to $4 million range, but for the reasons that I cover in that article, probably not much more.

Being a freelancer – or, other self-employed professional – limits your ability to retire early/rich, although some would say that $4 million is a lot … and, it is:

You will see that the guy who achieved this mixed investing in real-estate and businesses to get there.

The problem is that when you are a freelancer/professional, you are trading TIME to earn MONEY …

…. NEVER a good trade!

Let’s think about this: time is a finite resource … believe me, as you get older you will realize just how finite it is.

I previously mentioned this concept in a post about managing rental properties.

Interestingly, a British professor has actually proved that Time = Money, and has even provided a formula for calculating it:


… where V is the value of an hour, W is a person’s hourly wage, t is the tax rate and C is the local cost of living.

It shows that there is no such thing as a free lunch or even a free dinner, while brushing your teeth for three minutes uses up 30 pence (45 cents) in “lost” time, and washing a car by hand has a hidden cost of £3 ($4.50).

Economics professor Ian Walker, of central England’s Warwick University, says process can show people just how valuable their time is in relation to any task they have to perform, from a lie-in or cooking a meal to sleeping and working.

So, if Time is Money, which one is limited (finite) and which one is (unlimited (infinite)? And, why would anybody trade a finite resource (time) for an infinite one (money)?!

This means that selling yourself by the hour (until you gradually, and inevitably, run out of ‘product’ – being YOU – to sell), you are actually limiting your earning potential and wealth.

Perhaps a little counter-intuitively at first (until you understand the money/time trade-off is clearly stacked in favor of conserving time) you begin to realize that when you stop selling yourself, you actually remove limitations to your future wealth.

Therefore, you are far better off financially, thinking of ways to earn income that do not involve the direct use of your own time, but the time and resources of others.

Another term for this is leverage …

It helps to explain why real businesses earn more, and sell for more, than consulting practices.

So, as I said to Debbie

Let’s wind-up Debbie Inc. and consider this time to start creating D Enterprises Inc. and/or D Investments Inc. ;)

One simple example, is to turn your consulting freelancing practice into a freelancing business: one where you employ other freelancers (as long as you also employ even more ‘others’ to find both the clients and the ‘freelancing others’).

An even better example, is eLance, where you simply create an environment where customers and freelancers can get together and do business …

… as I am currently doing with Muhammad in Pakistan for the princely sum of $4 per hour!

eLance makes an 8% commission for introducing the contractors to the clients and handling the payments via credit card … even while eLance’s owners are asleep!

To focus or not to focus, that is the question …

Put all of your eggs in one wealth-building basket or not?

That is the question posed by Bill, who says:

I guess you are trying to espouse that one must FOCUS on ONE thing which creates the abundance of ACTIVE income and then leverage further to create PASSIVE incomes via real estates…

And, he would be correct – except that it doesn’t need to be real-estate for either creating or maintaining wealth: it can be whatever turns YOU on.

Because you will only make money where your passion lies … not where anybody else’s lies.

As to my views on focusing on just one thing to create wealth, I am also ambivalent to that – although, I would highly recommend a single wealth building focus to most people.

Generally, to build wealth, do exactly as Bill suggests: “FOCUS on ONE thing which creates the abundance of ACTIVE income” … that way you give a positive variance the greatest chance to kick your wealth into high gear.

Look at it this way; if you split your time and money evenly between two activities:

– one with a solid entrepreneurial 35% compound growth rate

– the other with a slightly-above-market 15% compound growth rate

Then for every $100,000 you ‘invest’ over 20 years, you have the following outcomes:

All @ 35%        Split 15% / 35%      All @ 15%
$29,946,192    $15,684,684           $1,423,177

Significant or not? Try it at 50% v 15% …


I can tell you this; looking at these numbers will tell you an awful lot about your likelihood of even launching your ‘financial career’:

1. The Job-for-Lifers will be looking at the 15% returns and saying “well if I can turn $100k into $1 million just by investing it in an index fund what the hell am I wasting my time here for?”

… and, they will be right.

2. The ‘wannabes’ amongst you will look at the difference between the passive-style returns over 20 years of the All-or-Nothing approach and the Spread-My-Risks-A-Little split approach and say “well if I’m not sure of the ‘next big thing’ I should put some of it in to the Big Venture and the rest into something a little safer or another venture just to be sure”

… and, they will be right.

3. The true Millionaires … In Training! amongst you will be looking at one number: the one that matches most closely (or exceeds) their Number … the amount that they simply MUST have in their nest egg. And, they will (usually) be saying “I have to go for gold – the highest possible return in my chosen field …. but, if I give it a good try and it doesn’t seem capable of producing the return that I expect, I will quickly abort mission and try again”.

… and, they will be right.

It depends on how serious you are …

How much capital do you need to start real-estate investing?

Rick is keen to start his real-estate investment career and is worried about two main subjects – I would say THE two main subjects 🙂 – Time and Money.

I answered Rick’s ‘time’ question here, but now he asks the key question about ‘money’:

What is the minimum practical amount of capitol to start real-estate investing?

The answer is $0.

That’s right …. ZERO: the world of No Money Down is not dead, and is not even a dirty word (or, phrase to be precise).

No Money Down has lived and died a thousand times and will continue to do so; to prove it, here is the best book that I have found on the subject – and, it was written in 2001 by two of the best-credentialed real-estate investors that I could find: Richard Powelson and Albert Lowry, who purport to have used these techniques since the 60’s or 70’s.

But, that is the ‘minimum’ as asked by Rick – and the book reference is to prove that it also meets Rick’s ‘practical’ requirement (not that I’m so sure that the bond strategy that Richard Powelson gets so worked up about in the latter parts of his book count as ‘practical’).

Now, if Rick had asked what I ‘recommend’ that might be a little different:

While it’s true that No-Money-Down probably provides the best Return on Investment (and Internal rate of Return, as well), I would rather avoid asking the seller to carry a note (the number one ‘no money down’ technique) and screw them down to a better price in the current market …

… equally, I would like to avoid taking on a partner (the number two ‘no money down’ technique).

Therefore, what I would recommend instead is that you look to the type of property and market that you want to invest in (I usually recommend finding the neighborhood next to the new ‘hip’ neighborhood, and buying a property in the median-to-just-under-median price range for that area … with some potential for easy cosmetic fix-up) and having enough money under your belt to:

1. Put up a 15% to 20% deposit, and

2. Pay the likely closing costs (nothing wrong with financing these, if the lender will let you), and

3. Hold at least 25% of the first year’s expected rents as a contingency against vacancies, repairs & maintenance, and other costs that might come up just when the property is vacant.

That could mean $10,000 or $100,000 depending upon the area and property type …

… if you can’t afford that, time to dust off the old Formulas For Wealth book, after all 😉

… but, if you don’t want to practice any of the creative funding techniques recommended in this older (but, still excellent) book, you want to target properties in the median-to-just-below-median price range in your target area and have 15% for your first deposit + enough for closing costs + 25% of the expected value of your first years rent as a buffer (minimum).

Why most doctors aren't rich!

Many people say to me: “I can’t become rich like you because I don’t [insert excuse of choice: have a business; have a profession; earn a high income; come from a rich family; have much time left on this earth; etc.]”.

Now, they may be right … but, if they don’t even try they absolutely will be right 😉

Let’s tackle just one of these ‘objections’ : that you need to be a professional (doctor, dentist, lawyer, accountant, pilot; etc.) to become rich.

Here’s some bad news for you, if you’ve been spending the last 8 years working on your Masters so that you can get a job in a top national firm:

Being a professional is an impediment to becoming rich!

Three major reasons – besides the lousy rates that the health insurers pay doctors 😉 :

1. You have (or soon will have) a steadily increasing high (possibly very-to-super high) income, so your spending habit has this way of growing at least as fast.

The Millionaire Next Door gives a supposedly true story of two doctors on roughly $700k each a year: one was rich (as you would expect!) and the other was basically broke … it’s surprisingly easy to spend $750,000 a year, when you earn $700,000!

2. You have a built-in expectation of a certain minimum standard of living, which typically starts with the amount that you earned at your first job and continues to rise along with your pay-rises.

In other words you have a mental ‘bar’ that you won’t go below … that can have the inverse effect of limiting your upside. For example, it’s unlikely that a professional will give up his lucrative career to start a business (unless the ‘business’ is opening his own practice, in which case he still has a ‘job’) because his earning power will no doubt go down to an unacceptable level before it goes back up.

After 10 years, I was earning a $60k package at the IT company that I was working for, but I could only afford to pay myself $30k a year when I left in 1990 for IDB – In Dad’s Business 🙂 That poor excuse for a ‘professional’s salary’ did not increase past $50k a year for at least the next 10 years.

3. And Scott (who is a professional himself) seems to understand the third reason pretty well:

After tonight’s live feed, I really started thinking, worrying actually, about how in the world i’m going to reach my NUMBER. 10 million, in 8 years in my current profession. The guy I worked for (that i’ve recently semi-separated from) has spent his entire career, 20 years, opening multiple clinics with other doctors and eventually selling them to those Dr.’s. He has made a wonderful living for himself, been very frugal with his lifestyle and is definitely a multimillionaire, but I suspect not quite where my number is. My concern is that my Number and the time that I need it aren’t congruent with my current profession and would be near impossible to achieve just merely focusing on opening multiple clinics.

I’m wondering if focusing every penny that I make in my profession toward the purchase of more and more commercial real-estate is the only way I have a shot at getting to my number in time?? I know you were able to address this somewhat in the live feed today, but i’m not sure that just owning the real-estate that my clinics operate in will be enough to make my goals happen so i’m thinking that I may need to focus on other, more “big-time” real-estate purchases, the kind of purchases where “Subway”, “Blockbuster” and “Kroger” want to pay you for….Any suggestions on this, or what you would do if you could do it all again and were in my shoes?

The problem is that professionals who then do go into business (i.e. open their own practice, or start / buy into a multiple partner practice) find that those businesses aren’t worth that much – they often sell as a multiple of annual revenue, usually in the range of 0.75 – 1.5 of (say) the average of the last three years’ fees.

Since professional firms don’t tend to grow that large, and when they do it’s usually by bringing on more and more ‘partners’ across whom any profits – and proceeds of any sales – must be spread, the ‘big bucks’ that Scott is looking for just ain’t there.

So, the smart professionals – like the ‘rich’ one in the Millionaire Next Door example above – divert as much of their income-stream into real-estate and other investments as possible.

And, that can provide Scott and other professionals like him with a great nest-egg for their eventual retirement: they can buy the ground under their current practice and/or they can use their high incomes to support negative cash flows on multiple investment properties and/or build up multiple deposits.

The depreciation and other tax-benefits of investment real-estate also work particularly well for highly-paid professionals who otherwise have no legal avenues to ‘hide’ their income from Uncle Sam so would otherwise pay the highest rates of tax.

But, it’s a strategy that is unlikely to produce ‘super riches, super soon’ … which is what Scott is looking for.

The problem lies in simple math:

– Let’s assume that Scott’s total Net Worth is $100k today and he wants to get to $10,000,000 in 10 years; that means that Scott is looking for a 67% compound growth rate.

– According to Michael Masterson in his book Seven Years to Seven Figures real-estate (actually, a mixture or real-estate and stocks) is only good for a compound return of 25% – 35%. It wouldn’t matter if Scott was investing in the real-estate under his clinic/s or in Walgreen’s stores (in fact, his own clinics would produce a higher ROI than Walgreens real-estate due to competition) … he wouldn’t be able to push the returns much higher.

– If Scott put his returns on steroids by investing in a mixture of real-estate and small-businesses (as his ex-boss was doing by opening multiple clinics then on-selling them), Michael Masterson says that he may be able to push his investment returns higher: say into the 40% – 45% – 50% range. This could take him to the $3 million or $4 million that he suspects that his old boss has, but not the $10 million that he wants.

So, Scott, you – as do most other professionals – have a real problem … a problem that can only be overcome by opening your own ‘real’ business … the type of business that others will want to buy for many multiples of earnings because it isn’t tied to the personal exertions of you or the principle/s.

The world is your backyard!

For most people, their backyard is their investment (OK, you can throw in the front yard, the kennel, the house, and the above-ground pool, but that’s it!) …

… for others, the only place that they invest is near their backyard – well, their neighborhood or those close by.

And, it seems to make sense: you understand the area; you can manage your investment; you can (almost) ‘touch’ your investment … lots and lots of ‘warm fuzzies’ around that one.

That seems to be the thinking behind Ryan’s question:

I have a question on real estate investment when you’re nomadic. My concern is I’m young (28) and my girlfriend and I have a list of places we’d like to try living before we settle down (west coast, gulf coast, a big city, etc). Do you tend to only keep rental property near where you live? Or are you comfortable owning property across the country? And if the latter, do you run into any problems with doing that?

My concern is that, if I have enough income/capital to own property, would I be better off waiting 10 years until we decide where we’re going to live long term? Or might I be better off, when we decide to move somewhere, in buying a house, then when we move, trying to keep it as a rental, or something along those lines?

Any tips or thoughts you could throw at me about real estate investing when your location isn’t static?

Ryan, the best place to invest in real-estate is where you will make the greatest return. Seems obvious, but it opens up so many questions about:

– Location: where to invest

– Type: what class of property (residential, commercial, etc.) to buy

… as well as all the usual questions around how much to invest, funding, etc.

I have real-estate in Australia and in the USA, and I happen to be right in the middle of a big ‘argument’ with my accountant at the moment about where I should invest: he thinks locally (easier to manage, handle taxes, etc.) and I think globally (spread risks; greater potential returns; etc.).

Now, you might say that’s OK for me with a portfolio of real-estate, but the reality is that we also have a single condo overseas that we have held on to, as well as a quadruplex, and until recently we kept our old house and rented that out.

In all of those cases, good property managers ensured that we could manage the investments as easily as if we lived next door – almost 🙂

In fact, by investing away from home, you remove the temptation to manage the properties yourself … you focus on increasing income and finding the next deal; let others do the ‘grunt work’ on the existing properties for you.

As to the second part of your question: if you do want to invest in R/E and you see that as your main path to wealth … start now!

Let others wait ‘until’ …