A sure fire plan to long-term wealth if you are a student or just starting young …

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If you are a student, you have one of the greatest assets available to you … time!

It means that you can succeed with a ‘get rich slow’ program (whereas, most of the rest of us can’t … not enough ‘runway’ left).

Just how important is ‘time’? Just take a look at this example taken straight from the Investment Company Institute‘s web-site: 

The following graph shows three investors, each of whom invests $1,000 a year until age 65. However, one begins at age 25, investing a total of $40,000; one at age 35, investing a total of $30,000; and one at age 45, investing a total of $20,000. Each earns 7 percent per year and, for purposes of this illustration, the effects of taxes and inflation are ignored.

The Power of Compounding

Source: Investment Company Institute

So, if you are happy to ‘get richer than most people but slow’, here’s a super-quick 4-step program for you just because you have time on your side:

1. Get debt free … pay of those credit cards and student loans (if interest rates are super-low on these AND you like a bit of risk, keep the loan and buy and investment property instead) … look at the debt snowball for a neat debt-reduction strategy?

2. If you are hell-bent on investing in stocks stick your money in a low-cost Index Fund (it’s what Warren Buffet suggests) … if you prefer owning direct stocks, then read a book called Rule # 1 Investing by Phil Town.

3. Try and save for a deposit on a rental property (or your own home … but, it’s better to rent/own than own/own) – both real-estate and finance is cheap right now; buy and lock in for 30 years.

4. If you want to accelerate your results (i.e. ‘get rich quicker’), you need to focus on accelerating your income … start a part-time business (for you, Internet-based might be ideal!?). IF you make money, put at least 50% of it towards 1., 2. and 3.

If you do this early enough … then you just may be able to kick-back and enjoy the ride!

Making Money 201 – Going for Broke!

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If Making Money 101 could be drastically over-simplified as ‘saving’; then Making Money 201 is equally over-simplified as being about building your income.

If you were serious about getting your financial house in order quickly, then you probably already did some income building to help you pay debt off quickly while you were working your way through Making Money 101.

Unless you’re a CEO of a Fortune 500 company, or a top professional doctor / dentist / attorney / accountant, then you will need to think about starting a business.

And, to accelerate your business or professional income you may also decide to get into the business of active investing (renovating/flipping real estate, trading stocks and options, etc.).

This is the stage that you get to take RISKS (that’s why you need a solid foundation and plenty of runway … you WILL fail at least once, twice, three times …) because that is the only way to get the big financial REWARDS.

This stage is hard work!

But, it is where you actually sow the seeds that will eventually make you rich …

There are plenty of books and a few blogs around, but most of them are specific to just ONE WAY of making money … the author’s way; some are good and some are lousy.

By the end of this stage you will be earning more than 90% of the US population and will be accelerating rapidly down the runway to financial health … but, spending will also increase dramatically and you will struggle to hang on UNLESS you ALWAYS remember your Making Money 101 lessons about saving!

Paradoxically, you will be the ‘richest’ that you will ever be in your life during this stage IF to you, being ‘rich’ means being able to spend lots of money …

… the problem is that your ‘wealth’ is only based upon your income, therefore only lasts as long as your business or job does.

Also, many of the Making Money 101 rules now need to change, as do almost all of the tools ….

For example, dollar cost averaging and index funds are replaced with sensible investment and savings rules and strategies.

You are still far from ‘rich’ …

In fact, you are still Just Over Broke … but, starting to break free!

The greatest advice from the Oracle of Omaha

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As the latest in my ‘videos on sundays’ series, I offer some advice from the man billed as the ‘greatest investor who ever lived’.

 In 7 minutes you will have ALL of Warren Buffet’s secrets 😉

… maybe not, but you WILL have some insights into his life (the first three minutes) followed by some of the best investing advice that I have seen.

Warning: some of these slides flash across your screen so fast that you will have trouble following them, so pay attention to the very last two slides if you are not an expert investor:

http://youtube.com/watch?v=iW1eg9p5wq4

BUT …

If you are a student of investing, have a long-term view and are willing to dedicate some time and effort, take note that Warren offers exactly the opposite advice for you …

Wide diversification is only required when investors do not understand what they are doing.
Warren Buffett

… he also points to this time in history as being possibly a great time to make your fortune:

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffett

I see a lot of doom and gloom … I bet that Warren Buffet is gearing up for something big …

What are you doing right now?

Why are you in business?

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For those of you who are in business (or aspire to be) let me ask you a straight-forward question:

Why are you (or why do you want to be) in business?

If your answer doesn’t at least include TO SELL OUT FOR $x [insert your favorite number greater than $1 million here] then you need to readjust your thinking.

You see, as Michael Gerber said in his famous (and required reading!) book The E-Myth Revisited your business should support your life … in other words, at some stage you probably want to get out of your business so that you can have your real life back (or, for the first time!).

The best way to get that life is to sell out (eventually) and retire (one day) … when and how are all subjects for future posts.

Or, you may decide to keep the business (perhaps running on autopilot, generating mountains of cash) but at least being CERTAIN that it COULD be sold anytime that you wanted for the amount that you needed to live the life of your dreams …

For now, it’s just sufficient to recognize that you should ALWAYS be thinking about your business in terms of “how much do I NEED to sell it for … and when”.

As I mentioned in a recent post, this will always be MORE than you think … and, sooner!

So, you had better get back to work!

The 4-step, never-fail plan to making a fortune in real estate …

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There is a lot of BAD stuff written about real estate and a little bit of GOOD stuff … start by finding and reading some of these good books (google “John T Reed” and see which books he recommends and which ones he pans).

The truth is that most people MAKE money through a business, then KEEP money by investing in real estate.

If you can’t (or won’t) start a business (even on the side) then you can at least accelerate your LIFE SAVINGS PLAN by buying and holding income-producing real-estate.

Right now, it’s very simple:

1. If you don’t yet own your own home (but would like to) BUY one now and LOCK in the interest for 30 years.

Why?

Home prices are relatively cheap (if you think they will get cheaper then wait a little longer … if you’re not SURE they will get cheaper, buy now).

Money is cheap – mortgage rates are probably 2% lower than they will be by 2009 or 2010.

You want to keep buying that cheap money for as long as possible …

… but, only IF you are prepared to take the next step, which is to …

2. Assess the increased / excess equity (what your house is worth – what you still owe) in your house yearly and use that excess equity to buy another as soon as you can scrape up a reasonable deposit (20% if you are conservative).

3. Lock in the interest rates for 30 years; rent the property out; keep raising rents; reassess the value of all of your properties yearly.

4. Repeat until Rich!

Now, this will take 10 to 30 years … to accelerate: start that little (or big) side-business and use the excess cash-flow to buy more investment properties rather than Porsches!

Simple … and, you couldn’t be starting at a better time in history.

Is your home an asset? A simple question with a not so simple answer …

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According to InvestorWords.com an asset is:
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Examples that they give include:
Cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.
Now, here’s a definition that I like even better …
… it’s Robert Kiyosaki’s definition of an asset from Rich Dad, Poor Dad: 
 

Poor Dad vs. Rich Dad

My Poor Dad Says   My Rich Dad Says
       
  “My house is an asset.”   “My house is a liability.”
       
  Rich dad says, “If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It’s important to know the difference between the two.
  
I don’t always agree with Robert Kiyosaki, but to me, this nugget is one of the best pieces of financial wisdom ever written (and, I have HIGH standards). Why?
Because, I have seen TOO MANY people base their ENTIRE financial strategy on the VALUE OF THEIR OWN home … 
But, your own home is ONLY A PLACE TO LIVE!
It’s only BECOMES an asset when you either (a) sell or (b) put the equity to work for you … until then, it’s just a piece of paper (title deed).Let me share a true story from my own family:
In the 60’s my Grandparents bought a 2-story downtown property with some friends … over the course of 40 years it became old, underdeveloped compared to the multi-story buildings that had sprung up all around, and simply didn’t bring enough rent in to allow her (and her partners) to keep up with costs (personal, and property-related taxes, maintenance, and holding costs).But, they tightly held onto the building because it was an ‘asset’ …

My Grandmother is still alive (she is now 95) and last year I had to LEND HER $40,000 (really! And, she wouldn’t let me just give it to her! Amazing woman …) because she couldn’t afford her share of the real-estate taxes.

Just before Xmas last year, she gave my son a check for his birthday … it bounced!

Happy ending, though …

She (yes last year at the age of 94, and on her own because her partners all live overseas) finally negotiated the sale of this building for $18 million (!) to a developer who way overpaid because he is putting up high-rise luxury apartments.

NOW it’s an ASSET. What about your home?

Will low interest rates and inflation eat up the interest the bank pays you on your CD's?

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Absolutely!

Here’s how to think about banks and cash … consider your time-frame first:

SHORT TERM

If you are keeping your money in the bank to save for something important (hopefully, for a deposit on an income-producing property?) over the next few months or two or three years, then don’t be overly-concerned about the interest rate or inflation. I keep a HUGE amount in the bank right now because I sold out of some investments and am staying ‘in cash’ for a short time through the current market.

MEDIUM TERM

If you have a large’ish sum that you are building up for something major in say 3 to 5 years, then a better ‘savings account’ would be a low cost Index Fund … as you save enough to meet the minimum investment criteria, drop it in … just be prepared to hold for at least the MEDIUM TERM

LONG TERM

If you are, say, 7 to 70 years before retirement, you in the investment mode of your life, and (a) are unlikely to have your cash in the bank, and (b) are crazy if you do! Over 7 or more years, yes, ridiculously low investment returns (and, to a lesser extent inflation) will eat your future alive! Put your money into any mix of Index Funds, Business Opportunities, Real-Estate Investments, Direct Stock Investments – keep away from Mutual Funds – as suits your personality profile and desire to get rich vs merely keep up with the Middle Class Joneses.

SUPER LONG-TERM (a.ka. Retirement)

Here is where that low interest / inflation combo (even if inflation is just 2% or 3%) will eat you alive … be prepared to be retired for a long time, say 30 – 50 years (even if you die young, at least your spouse and kids will be happy with their nest egg!) … you do NOT want your money running out before you do.

If you have a lump-sum, there’s only a few choices:

– Put it all into an Index Fund and only draw down 2.5% – 3.5% each year to live on.
– Put it all into income-producing real-estate and spend no more than 75% of the rent (after paying down mortgages and building up a suitable buffer to guard against ‘problems’)
– Put it all into TIPS (inflation-protected Treasury Bonds) and happily live off all the interest that they pay you every 6 months
– Implement a Bond laddering strategy, such as the Grangaard Strategy, which claim to be able to let you live off 6.6% of your lump sum at retirement every year
– Any combination of the above that suits your needs and ‘investment personality’

Each of these strategies is relatively “inflation-proof”, in that you get to increase the amount that you take out every year as a ‘wage’ to live off, and pays more interest typically than the bank will give you (expect maybe, the bonds … you pay a ‘price’ for the inflation-hedge).

Hope this helps?

Dumb Money!

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I take issue with the seemingly interchangeable use of the words ‘saving’ and ‘investing’ …

Let’s not confuse buying Index Funds or typical diversified ordinay stock Mutual Funds with INVESTING …

… when you buy a Fund you are SAVING – consider it a long-term savings vehicle, no different to ordinary bank savings accounts, CD’s, and Bonds.

The difference? Effort.

 Buying a packaged financial product is no different to buying any other product: you send away for some information; if you like what you see you fill in the appropriate sales form; you pay your money and receive your ‘product’.

 Hopefully, when it comes to Funds, you make some money when you eventually cash out.

Contrast that with INVESTING:

 You do your research; you look for an underpriced item (in this case, a stock); you purchase the item; you watch the market carefully … and, when the price goes back up … you sell (this could be sooner = trading; or later = long-term-buy-and-hold).

Of course, you could just keep holding for dividends. In either case, you are aiming to MANAGE your holding to MAXIMIZE your RETURN.

Some people call the former Passive Investing and the latter Active Investing … but, if it walks like a duck …

… it is a duck!

BTW: there’s nothing wrong with SAVING … go ahead and buy some Index Funds if you’re not up to the task of INVESTING, even Warren says it’s OK …

“Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”W. E. Buffett – 1993

Making Money 101 – Debt Free & Saving Money

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If making money is a journey, then it is one best broken up into three stages. The first stage is all about ‘getting your financial house in order’ …

… kind’a like packing your bags and getting everything ready for a long-journey before you even leave your house.

 This (first) stage happens to also be the one that is well covered by many books (Rich Dad Poor Dad, The Richest Man In Babylon, The Automatic Millionaire, and many more) and many blogs (I Will Teach You To Be Rich, Accumulating Wealth, The Simple Dollar, and many, many more).

I have read them all and I am sad to say that not one of these will actually teach you to be ‘rich’ … but, some will set the stage …

… and, this stage is really just about paying off debt and starting a sensible savings strategy. It’s also about learning the rules about what you should buy and when and how much you should spend and save.

It’s really about ‘clearing the decks’ to lay a solid foundation for future wealth; the earlier in your life that you start this stage the more ‘runway’ you will have for letting your financial wealth really take off later.

This stage is not fun!

The tools of this stage are debt repayment strategies, tricks to save a little extra money or earn a little extra income, paying yourself first, savings accounts, index funds, and dollar cost averaging … there ain’t no ‘rich’ going on here but, it’s a start …

Keep reading this blog as I will be sharing many of these rules and strategies for breezing through Making Money 101 in upcoming posts.

And, keep coming back to this post – I will be creating a special tab for it (and it’s future ‘sister’ posts, Making Money 201 and 301) on the home page.

Do you ever get the feeling that you are too ordinary to be successful?

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Paul Potts

Believe it or not, this man went from being a total unknown to selling 1,000,000 CD’s last year …

… who is he and how did he do it?

If you want to win big in the game of life, you need to find out what it is that you are passionate about, and then go for it …

… no if’s, but’s, or maybe’s.

You can turn that hobby, talent, or passion into $1,000,000 in a year and $7 million in 7 years if you have the passion, this blog will show you how …

If the humble, ordinary, unconfident (really … he says so himself!) man in the picture can do it, then we all can! So, who is he?

Even if you already know his name, watch this YouTube Video … I can guarantee that it will change your perception of who you need to be to win in life:

http://youtube.com/watch?v=1k08yxu57NA

BTW: he went from being a complete unknown to win over $200,000 in this competition and then went on to sell a million CD’s last year …

Now, why don’t you go back and expand your Life Vision?