Tag Archives: Making Money 101

The Scared Millionaire

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Greed Is Good

They say there are two primal forces driving mankind forward …

…. FEAR and GREED.

The typical image that we carry of the ‘rich guy’ is the uber-slick Michael Douglas / Gordon Gekko character from the movie Wall Street who’s catch phrase was “Greed is good”.

But, the Millionaire Next Door was perhaps the first book to dispel that particular myth.  Still, we are either driven, it seems to a greater or lesser extent, by fear or greed.

Is it possible to become rich if you aren’t driven by GREED? Isn’t it also true that most millionaires are OPTIMISTS?

Well, I can only speak for myself, but what moved me forward every day was actually FEAR. You see, I am a pessimist!

EVERY time I buy something, I am thinking of how much I could lose … not how much I could gain. Yet, I go ahead and buy, anyway!

Why do I buy, if I carry so much FEAR? 

I do it because I have an EVEN BIGGER FEAR … a fear that if I don’t make these ‘big moves’, I won’t make MY NUMBER ….

… and, I have realized that making my number is the most critical thing that I can do. Unfortunately for me and my personality type, my Number was a BIG NUMBER … I simply had to move well out of my comfort zone to get there …

… and, get there I did.

So, it doesn’t matter what drives you … just make sure that SOMETHING bigger than amassing a seven-figure bank account for the sake of seeing a pretty bank statement one day IS driving you!

I think I'm revealing the whole 'secret' of money …

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In my first post I briefly alluded to the 3 stages of money: I call them Making Money 101, 201, and 301.

Starting next week, I’m going to write one post a week on each of these stages …

 First, though, let me tee up how I think about making money … serious money … say, $7 million in 7 years.

Making that sort of money – for most of us who don’t inherit, win, steal, speculate, gamble our way to that much moolah – is a long journey …

It’s not so bad when you consider that 99% of people can’t SAVE their way to $1,000,000 in 20 years … but, my point is that it’s still a journey that takes quite some time.

So, if you were to go on a long journey (besides taking a change of shorts) what would you need?

Three things …

1. A destination

You would need to know where you’re going … for a short, local journey, you probably need an address … for a long, global-scale journey, a country and city would be a nice start.

2. A map and compass

If it’s a local journey, you will probably need a street map … although, very simple instructions from somebody who knows the way will probably do.

But, if it’s a global-scale journey, the trip will most likely be broken down into stages for you by your travel agent, and you will need a series of  ‘planes, trains, automobiles’ maps, telling you how to get from HERE to THERE.

 Also, it would be a good idea to have a compass to tell which way is UP when you read the maps!

3. The Rules of the Road

Now, it would be nice to get to where you’re going without being arrested. If it’s a local journey, you can probably use common sense (although, it’s still best not to jaywalk).

But, if it’s a global scale journey, the rules may be totally different at different stages of the journey (you DO know that the Brits drive on the other side of the road, don’t you?).

Well, making money is a journey as well … therefore, you need …

… three things:

1. A destination

When it comes to money, your destination is in two parts (a) HOW MUCH you need, and (b) WHEN you need it. The when is usually in terms of WHEN you stop working, but it need not be; and the HOW MUCH is determined by how well you want to live when you get there (1 star? 5 star? In between?).

2. A map and compass

Your map will be the three stages of your financial journey (getting debt free and starting a savings plan; ramping up both your income and your investments; keeping your money once you get wherever ‘there’ is for you) and we will cover all of that over the coming weeks.

Your compass will be your Investment Net Worth (we’ll discuss the difference between this and your ordinary, old ‘net worth’ later this week).

 3. The Rules of the Road

Like every good ‘rule book’ the Rules of the Finance ‘road’ is a thick one! I’ll be giving you many of these rules over the coming weeks and months in the cyber-pages of this blog; an example of a Financial Rule is the 20% rule of investing in your own home …

… there are many, many more. By learning these Financial Rules, you can shave YEARS off the time it takes you to get rich.

This blog is here to show you how!

Are you really on track?

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I read an interesting question on one of my favorite blogs the other day.It was from a couple thinking about retirement asking the usual saving-for-retirement questions, peppered with the usual ho-hum terms: ROTH IRA’s, 401K, HSA, CD’s …

What caught my attention was the opening sentence to their post:

“I feel very knowledgeble about long term investments.  I feel I manage my retriement savings very well and this has been a top priority.”

If you think your ‘retirement is on track’ just because you are saving your 10% or so into all the ‘right investment vehicles, or retirement for you is still a hell of a long way off, I would just ask that you do the following quick ‘reality check’:

1. What is your current Net Worth (try the CNNMoney calculator)?

2. What is your annual income goal to fund the retirement that you always hoped for?

Multiply that by 20 to 40; depending on how certain you want to be that your money will last as long as you do …

3. The difference between 1. and 2. is what you have to make up (ADD a little more for inflation) between now and retirement.

If it’s only a little, keep doing what you’re doing; your retirment is probably ‘on track’ …

BUT, if it’s a lot, maybe you need to think about INVESTING actively (business, real-estate, trading) rather just SAVING (CD’s, 401K’s, etc.).”

The problem is that most people seem to SAVE (or not save) for their retirement without having a clear understanding of what they want out of retirement, therefore, how much income they need to fund that lifestyle.

It MAY have NOTHING to do with what they currently earn … yet, replacing some or all of the pre-retirement salary is what everybody seems to be aiming for. 

So, the issue changes – in my estimation, for MOST people – if they are set to save for a $35k a year retirement, but their dream of living in Tuscany [insert retirement dream of choice: working with the poor in Africa; sailing around the world; quitting my job well BEFORE usual retirement age to become a painter; etc.] requires $150k a year!

Are you really on track for your retirement? 

 

Let's not confuse 'saving' with 'investing' …

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This goes back to a comment that I received in response to a question posted on another finance blog – one that I happen to like for early-stage savers …

I suggested that for many people, their retirement savings actually won’t be enough to fund their ideal retirement … if they’re happy to accept less, fine!

If not, then I suggested that they may need to do something a bit more active to pick up the pace …

Here is a response that I received:

“Your investing approach of “actively (business, real estate, trading)” sounds more like speculating and your savings approach (CDs, 401ks, etc.)” sounds more like investing to me. Just based on the statistics of individuals who trade rather than index…most get eaten up by fees while compounding growth usually is the better way to go using monte carlo analysis, But who knows what will happen in the future.

Posted by: klauss | February 08, 2008 at 12:21 PM “

My point is simply this:
IF your retirement plan is on track, then keep doing what you’re doing.
But, the vast majority of people can’t simply SAVE themselves into their ideal retirement; they have to INVEST in their future.
I call it ‘investing’ – investing in our future – but, if starting a part-time, work-at-home business, experimenting with actively trading stocks or options [not my personal choice], renovating then holding an income-producing property, etc. is ‘speculation’ to you …
… I simply say:

Bring it on baby!