Strategy or Tactic?

What’s the difference between a strategy and a tactic?

The obligatory post-padding dictionary definitions here and here 😉

But, let me give you a personal finance example or two to explain why it’s critical that you know the difference!

If you spend some time on google, you will find whole blogs dedicated to “financial strategies” such as:

– managing your credit cards,

– eliminating debt,

– paying yourself first,

– building an emergency fund,

… and, so on.

Each blogger (or author – there’s been whole books written on each subject) will explain how his financial strategy will turn your life around.

But, these are not strategies at all … they are tactics, a means to an unknown end.

I’ll explain why …

For each of these tactics (or any other), I can give you a perfectly valid argument for why you should do the exact opposite of what the author recommends!

Here are couple of examples:

– The False War On Debt:

– The Zero Dollar Emergency Fund:

… and, if you go back through my blog [AJC: an easy way is to just search for the word “myth”] you will find counterpoints to all of these – and other – ‘recommended’ financial tactics.

The reason is that I have a personal financial strategic goal: I knew exactly where I wanted to be ($5 million), when I wanted to get there (5 years) and why.

[AJC: for an audacious goal, you need a very strong ‘why’ to help drive you there … it’s a very tough road, and you’ll need all the emotional ‘boost juice’ that you can get! This is one of my earliest posts; you should read it:].

With such a goal, I needed certain financial strategies to get there [AJC: I actually ended up with $7million in 7 years]; my strategy was:

– Increase my income dramatically (for me that was achieved by quickly growing my business),

– Invest as much of that income as possible in real-estate and stocks (instead of spending my business profits on bigger houses and faster cars).

Therefore, the tactics that I needed included:

– Take on as much debt as possible,

– Buy insurance and have lines of credit available (instead of having cash lying around idle) in case of emergency,

– Paying myself first, second, third and fourth (i.e. saving much more than 10% of my business-generated income),

– Obeying the 20% Rule.

So, next time you are looking for financial advice, take the trouble to understand your strategic goal: how much do you want? when do you want it? and, why?

If your goal is simply to retire with $1 million in 40 years, then go ahead and buy that Kindle and load it up with personal finance best-sellers!

However, if your goal is “large and soon” then you, too, will need to ignore most of the so-called “good financial advice” that is floating around so freely. That’s why I started writing this blog 🙂



Did I fail the Ultimate Money Test?

Financial ‘personality tests’ are fun. I like doing them; you should try this one.

Unfortunately, the results don’t always speak for themselves:

[AJC: the star is my score; very average, as I am in (almost) all things in life. The $7m7y logo to the top-right is how my financial performance probably compares to 99%+ of the population]

Whilst this is a pretty good test – much better than many others that I have seen – it will only identify average performance and sub-/super-performance perhaps to one standard deviation (for those statisticians amongst you) …

… however, these tests can’t identify the factors that produce the outliers i.e. the ones (like me) who can make $7 million in 7 years.

If you want to produce (slightly) better than average financial performance over your lifetime, use this test – and others like it – to identify areas of weakness, typically:

– Not saving enough,

– Overspending,

– Credit Card Debt,

… and so on.

All valid reasons why you may be in financial trouble today, but certainly not highly relevant to your chances of retiring rich and retiring soon.

If you do want extraordinary financial performance, keep reading read this blog 😉

How to increase sales …

If you’ve chosen ‘business’ as your primary vehicle to reach your own $7 million in 7years, then it’s best that you focus on increasing the amount of profit that you get to take home each day, week, month, and year.

To non-business readers this may sound like obvious advice, but you would be amazed at how many business owners focus on two numbers:

1. Sales Volume – usually expressed as “my business turned over $2.3 million last year”, and

2. Profit Margin – usually expressed as “my business makes 7% net profit, before tax”.

These may be key numbers for a large business – particularly if listed on a stock exchange, because the market punishes stocks that don’t grow their sales (sales $) fast enough, with comfortable margins (profit %) – however, for a small business …

these are simply ‘vanity metrics’.

The only number that really counts is:

3. Net Profit After Tax – usually expressed as “Last year I took home from my business $738,000 in my pocket”

This is the number that you get to spend and / or invest (preferably the latter) each year, and the one number that you want to grow year-over-year.

So, when aspiring or new business owners ask me:

What is the best way to increase sales volume for a small business?

I say:

According to Jay Abraham (master marketer), there are only three ways to increase sales volume:

1. More customers (customer acquisition e.g. marketing, advertising, referrals),

2. Higher sales per customer (up-selling and cross-selling e.g. bundled offers),

3. More sales per customer (customer retention e.g. backend products)

You only need small improvements in each to make major improvements in your overall sales volume i.e. a 10% improvement in each area means a 33% increase in sales volume, overall.

An example strategy (for, say, an eCommerce site) that encompasses all three elements might be to:

1. Improve your Google search rankings and run some Adwords and FaceBook ad campaigns to bring in some new customers.

2. Create some bundled packages and add some special checkout offers to entice some of your customers to increase the size of their order.

3. Capture their e-mail addresses and send out special offers once every 6 weeks to encourage some repeat sales.

If you are very successful with your bundled, checkout, and e-mail discount offers, you might find that your % profit margin slips slightly, but that your overall sales volume increases significantly.

More importantly, the amount of net profit – i.e. cash that you get to take home in your pocket – goes up dramatically, meaning that you have a lot more cash available to invest in stocks and real-estate.

Then, it won’t be long before that $7 million in 7 years starts to look pretty achievable.

Before you can find the answer …

Yes. Before you can find the right answer, you need to know the right question.

So it is with personal finance: most pf bloggers will answer a whole variety of questions:

– How can I become debt free?

– How can I pay off my credit cards?

– How can I save for retirement?

– How can I be more frugal?

BUT, these are not the questions that you need to be asking … at least, not at first.

No, there are only TWO questions that you need to ask. The first is in two parts, and it simply asks:

a) How much money do I need to support the life that I truly want to live? And, b) when do I want to begin?

I have a hypothesis about the typical answer to these questions, but the truth is that for every human being on this planet there is a different answer:

For some, it may be that they are happy doing what they are doing today, and are happy to keep doing it until they drop. For, them personal finance begins with maintaining their current lifestyle (which probably revolves around maintaining their employment) and staying healthy.

It probably also means learning all the lessons about personal finance that the blogosphere has to share: living below your means, eliminating debt, cutting up your credit cards, paying off your home, setting aside an emergency fund …

My second question – which I’ll come to in a moment – is moot for these lucky, satisfied, job-secure, working-class few.

But, my hypothesis is that most people are not satisfied with their current lifestyle … that you are not satisfied with your current lifestyle … that you:

– Want more time with your family,

– Want to indulge your hobbies and interests,

– Want to travel more,

– Want to be more relaxed and healthier,

… and, the list goes on.

And, I’ll wager that the limiting factor for you, right now, is money.

But, I’ll also bet that with a little thinking, you could come up with a salary that if a rich uncle were to pay it to you, would allow you to stop working full-time (or, altogether) and fund your ideal lifestyle.

I’ll also take a stab that ‘salary’ would bear little resemblance to your current salary.

But, if you can take an educated guess at what that ‘salary’ would need to be, I can tell you what your Number is (the answer to the first half of my first question) simply by telling you to multiply that amount by 20.

Let’s now assume that you have no rich uncle and have to amass this amount yourself …

How long will you give yourself to reach your goal so that you can begin to live the life you really want to live before you are too old to enjoy it?

I gave myself just 5 years to reach my Number of $5 million; in the end, I made $7 million in 7 years, starting $30k in debt.

[AJC: keep in mind that the longer you allow to reach your Number, the larger it will need to be because of the effects of inflation. For example, whatever Number you come up with today, you will need to add 50% if you aim to reach it in 10 years, and you will need to double it if you are prepared to wait 20 years … just to keep up with inflation.]

Which brings us to the second most important question in personal finance:

How am I going to get there?

For example, in order for me to reach a $5 million target in 5 years from a virtual standing start:

– I had to learn how to invest (I had no investments and no idea HOW to invest or WHAT to invest in)

– I had to turn my business around (it was breaking even, at best)

– I (more importantly, my family) had to sacrifice our existing life: we had to move overseas, my wife gave up her career, my children their friends, we all gave up our families for the 5 years we were away from home.

But, we all agreed that it would be worth it, because we had already answered the first question (both parts).

How about you?


The Fisherman and the Investment Banker

I first published this post in 2009 (just on 4 years ago); it’s one of my favorites because I believe that it’s an important new twist on an old story …

… but, you will see from the comments that not everybody agrees with – or, even understands – my deeper point about setting yourself up properly for the day when you can’t – or, no longer want to – work.

I’m republishing this because I’d like to hear your thoughts?


“I write to you the story of a fisherman in a Mexican Village who goes out every day on his boat to catch a fish. The fisherman goes out for three or four hours, catching a small load of fish and returning home. Every day he does this, without fail. One week, an investment banker from New York is vacationing in this Mexican village. Every day he sees this young fisherman go out, catch fish, come back, go out, catch fish, and come back. So after a few days, the investment banker approaches the fisherman. He asks the fisherman if he catches fish like that all the time.

“I do,” says the young Mexican, who is about thirty years old.

“How long have you been fishing?” asks the investment banker.

“All my life,” says the Mexican. “Since I was a boy.”

“And you catch fish like that every time?” He looks at the sizable fish in the catch.

“Yes,” says the Mexican. “There are always fish.”

“But you only go out a few hours a day. If you catch fish like that, why don’t you go out longer—catch more fish?”

The young Mexican thinks a minute and looks down at his feet. He looks back up at the investment banker. “Well, I like to spend time with my family and play cards with my friends.”

The investment banker nods, he steps closer to the Mexican. “Look,” he says, “if you double the amount of time you fish, you’ll make double the amount of money you make now.”

“Why would I want to do that?” asks the Mexican.

“Because then you can buy another boat and hire more fishermen.”

“Why would I want to do that?” asks the Mexican again.

“Because then you’ll quadruple your earnings and pretty soon you can have your own fleet.”

“And why would I want to do that?”

“Well, once you have your own fleet, you’ll have enough fish to cut out the middle men and go directly to the distributor. You do well enough with him, you can buy his company. Then, we do an IPO, take the whole operation public. You’ll cash in. You’ll be rich.”

“And then what?”

“Then,” says the investment banker, “you can spend time with your family, and play cards with your friends …”


That’s a nice story. It’s usually used to show how ridiculous the Investment Banker’s position is, and how we should focus more on what’s important than money … which, of course, is true.

It’s just that money is a part of – or at least an enabler of – what is important …

For example, what happens when the fisherman gets sick, or too old to fish?

We can cover ‘sick’ with Fisherman’s Insurance (a couple of fish set aside from his daily catch should cover that) …

… but, how do we cover ‘old’?

I think, only by meeting the investment banker part way …

IF the fisherman’s ideal retirement is simply to spend some time with his family every day (and, eat a few fish), and have a little spare time to play cards, it shouldn’t be a very big number …

… no IPO’s necessary!

But, it will take some investing in cold-storage to build up enough fish to last as long as the fisherman does!

Perhaps it’s time to think about how many fish you need?

Are polar bears left-handed?

polar bear

Here’s some interesting ‘information’ that I picked up:

Apparently, all Polar Bears are left-handed.

Well, it seems that there are two types of people in this world: those who will now run off and propagate this ‘fact’ at trivia and pub nights, and those who will go and check their sources.

I’m in the latter … now, I’m not obsessive about it, so this information ‘seems’ right, but I’ll let a polarbearophile prove me right or wrong with these Polar Bear Myths:

A hunting bear will cover its black nose while lying in wait for a seal.

Canadian biologist Ian Stirling has spent several thousand hours watching polar bears hunt. He has never seen one hide its nose, nor have other scientists.

The great white bears are left-pawed.

Scientists observing the animals haven’t noticed a preference. In fact, polar bears seem to use their right and left paws equally.

Polar bears use tools, including blocks of ice to kill their prey.

Scientist Ian Stirling believes that this assertion can be traced to unsuccessful hunts. After failing to catch a seal, a frustrated and angry polar bear may kick the snow, slap the ground — or hurl chunks of ice.

A polar bear’s hollow hairs conduct ultraviolet light to its black skin, thus capturing energy.

This theory was tested—and disproved—by physicist Daniel Koon.

The polar bear has a symbiotic relationship with the arctic fox, sharing its food in exchange for the fox’s warning system.

Not only is the bear-fox relationship not symbiotic, the little foxes often annoy the bears. An arctic fox will sometimes tease a bear by darting in to nip at its heels and will sometimes try to drive a bear off its prey.

Orca whales prey on polar bears.

This has never been observed.

Polar bears live at both poles.

Polar bears, of course, live only in the circumpolar North. They never encounter penguins, which do not live in the same regions as polar bears.

[AJC: Polar bears = Arctic and Greenland; Penguins = Antarctic, Australia and New Zealand. Get it??!!]



Well, if this is how many myths polar bears can generate, imagine how many there are about our favorite subject: personal finance?!

Here are just some that I have tried to dispel on this site:

The myth that entrepreneurs are driven by greed

The myth that a high income equates to wealth

The myth that diversification is one of the most important personal finance tools around

The myth that retirement planning centers around replacing your income

… and, I have written many, many more (just type the word ‘myth’ into the search box at the top of this page).

What myths (personal finance or otherwise) have you recently had cause to question?