Tag Archives: Saving

Most people fail financially, not because their dreams are too big, but because their dreams are TOO SMALL.

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How should you plan for your financial future? 

Conventional thinking says to look at your current salary then it says that in retirement you need some larger-or-smaller percentage of that salary to live on – some people say that you need just 50% to 70% of your pre-retirement salary in retirement … others say 100% to 120% – hence you need a certain lump sum invested in a certain way to produce that weekly or monthly withdrawal.

Now, this may produce the RIGHT result for SOME people, but I believe that any resemblance to what MOST PEOPLE would want to retire on is purely coincidental.

Here are two examples – obviously extreme – to illustrate:

1. Less is more

Let’s say that you like surfing … in fact, if to surf every day and just ‘be one with the waves’ is your Life’s Dream, then, I say “go for it!” …

… Go ahead and cash in your 401k and other assets now, move to Byron Bay (Australia) and you can pretty much live the rest of your life on the beach, living off government handouts.

Plenty of people are happily living this ‘dream’ right now …

Requirement: 0% (give or take) of your current salary

2. More is more

In 1998 I had the audacity to imagine a life where I could be ‘free’ to travel physically, mentally, and spiritually … I costed this life in terms of:

(a) Time – I would need to retire within 10 years so that I would be free to travel where and when I liked,

And …

(b) Money – I would need about $250k a year in PASSIVE INCOME, indexed for life … my dream didn’t say that I couldn’t travel Coach!

The only problem, in 1998 I was running a struggling business employing 5 people, losing $5k a month, $30k in debt, drawing only $50k a year, and my wife still had to work … what’s more the business had been running that way for 5 years!

Requirement: 500% (give or take) of my (then) current salary

The outcome for me was positive (I didn’t just pick the name of this blog out of thin air!), I firmly believe BECAUSE I had a Big Dream. My challenge is now to shift from aiming towards it to actually living it.

But, the point here is that your LIFE should dictate your finances, not the other way around … dream first …

… only then, financially plan accordingly.

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Maybe Dale Carnegie was on to something?

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In his famous book, How to Win Friends and Influence People (first published in 1936), Dale Carnegie – the great public speaker, personal improvement trainer, and prolific author – showed that success very much hinges on your ability to ‘influence people’.

In fact, as I think back, my greatest successes have been with people who have liked and admired me … and my greatest challenges have been with those who haven’t.

You can invent the greatest mouse-trap in the world, but nobody will beat a path to your door if they smell a rat 😉

This is Dale Carnegie’s summary of his own book; apply some of these ideas and you will succeed in life.

Remember, no matter what you do other people are the key to your success:

Part One

Fundamental Techniques in Handling People

  1. Don't criticize, condemn or complain.
  2. Give honest and sincere appreciation.
  3. Arouse in the other person an eager want.

Part Two

Six ways to make people like you

  1. Become genuinely interested in other people.
  2. Smile.
  3. Remember that a person's name is to that person the sweetest and most important sound in any language.
  4. Be a good listener. Encourage others to talk about themselves.
  5. Talk in terms of the other person's interests.
  6. Make the other person feel important - and do it sincerely.

Part Three

Win people to your way of thinking

  1. The only way to get the best of an argument is to avoid it.
  2. Show respect for the other person's opinions. Never say, "You're wrong."
  3. If you are wrong, admit it quickly and emphatically.
  4. Begin in a friendly way.
  5. Get the other person saying "yes, yes" immediately.
  6. Let the other person do a great deal of the talking.
  7. Let the other person feel that the idea is his or hers.
  8. Try honestly to see things from the other person's point of view.
  9. Be sympathetic with the other person's ideas and desires.
  10. Appeal to the nobler motives.
  11. Dramatize your ideas.
  12. Throw down a challenge.

Part Four

Be a Leader: How to Change People Without Giving Offense or Arousing Resentment

A leader’s job often includes changing your people’s attitudes and behavior. Some suggestions to accomplish this:

  1. Begin with praise and honest appreciation.
  2. Call attention to people's mistakes indirectly.
  3. Talk about your own mistakes before criticizing the other person.
  4. Ask questions instead of giving direct orders.
  5. Let the other person save face.
  6. Praise the slightest improvement and praise every improvement. Be "hearty in your approbation and lavish in your praise."
  7. Give the other person a fine reputation to live up to.
  8. Use encouragement. Make the fault seem easy to correct.
  9. Make the other person happy about doing the thing you suggest.

Sound advice from one of the 'soundest advisors' of all time ... just wish I had paid attention sooner ... I would have been sitting on the beach, sipping pina-coladas 10 years earlier!

AJC.

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"I noticed you have incredible traffic for a 3 month old blog!"

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blogrdoc 

This was a comment that I just received from a fellow blogger …

I didn’t know I had any ‘fellow bloggers’, but bloggers seem to have an ‘unofficial’ fraternity … so, I guess it’s kind’a nice to be part of a ‘group’ even if I didn’t set out to do so.

I have been communicating off-and-on with one particular fellow blogger that I only know as the mysterious  blogrdoc (that’s him in the picture!) ever since he left me a rather ‘flattering’ comment on one of my earlier posts:

I’m sorry, but if you made $7M, you would *NOT* be running a blog.

I immediately knew that I would like this guy!

After we got to ‘know each other a little better’ through a series of comments and e-mails, blogrdoc asked me a question that I thought I should share with you all:

I wanted to get your opinion on something. I’d *like* to make 7M in 7 years. Do I *necessarily* need to assume a lot of financial risk to do this?

No … blogrdoc … you just need an awful lot of luck 😉

You also need to take at least some risk and put in an awful lot of sweat … it’s just that the risk doesn’t need to be financial, and the sweat can be a little less or a lot more depending upon how quick you want to become rich (and how much ‘rich’ means to you) …

Let’s look at it this way:

If you want to make $1,000,000 in 20 years, just buy a house and keep up the payments and … wait.

Guaranteed millionaire!

If you want to make $7,000,000 in 7 years you need massive passion/action – and, a little (or a lot!) of luck – to get it …

But, if you want to end up somewhere between the two, then we can talk turkey.

First, here is blogrdoc‘s plan:

My Strategy is a multi-layered approach and will include: 1. Blog/Ad based revenue (for starters, I am aware that this is extremely difficult to monetize. Particularly for me since I don’t have too many connections. 2. Several product based revenue ideas. May file for a patent then license. 3. ???

Blogrdoc has hit the nail on the head … these are excellent Making Money 201 strategies:

1. Blogging may not make much money, but it may bring in some (at least 50% of which should go towards your Investment Plan) … the more money it brings in, the shorter the time to the ‘end game’.

2. But, blogging also brings those ‘connections’ that you need to make your life a success … this is just a new twist to an old game called ‘networking’ … it’s not what you know, but who you know that counts.

3. Product based ideas become businesses … businesses (with a lot of hard work, and a little luck) become income … income becomes fuel for your Investment Strategy and we are back to 1. … the more money these businesses bring in, the shorter the time to the ‘end game’.

Now, here is where I think the people who have taken the time to read this whole post get their reward:

In none of these cases am I anticipating putting more than $10k or so at risk. My main concern is that I’ve got a family and I just don’t have the stomach to put too much at risk. I can’t just leave my day job or anything like that. Do I have a chance? Am I looking at this all wrong?

No, my friendly-neighborhood-bloggerman, you are doing this all RIGHT!

Even THE Guy Kawasaki (Apple co-founder; founder/ceo of Angel Investing firm) started his last two successfull online ventures (including Alltop) on something like $10k each … I am into three right now, with a max. of $50k committed to each.

Here’s the low-risk (but, not no-risk) way to reach your financial goals … for any blogger and/or just-starting-out business person out there:

… I can’t promise that this simple plan will make you $7 million in 7 years (first, you have to really need it to get it … just wanting it won’t cut it), but it has a better-than-even chance to make you more money than you ever thought possible:

i) Maintain your Making Money 101 habits: pay yourself first (you know, that “10% into your 401k” thing); pay down your consumer debts (car loans, c/cards, etc.); buy your own house (better yet, buy a rental).

ii) Accelerate your income: Use any excess cash from your job, your side ventures (e.g. ‘starbucks experiment’), tax refund checks, anything that helps you to build up little pots of investment capital.

Hint: that does NOT include anything in (i) … never ‘gamble’ with anything you cannot afford to lose … and you cannot afford to lose your savings or investments … ever!

iii) If you want to get rich slower, simply add these ‘pots’ from ii) to your Investment Plan … if you want to ‘roll the dice’ and take, really, only a little extra risk to (maybe) get rich quicker, use these little pots of investment capital to fund your ‘product based revenue ideas’ and fund those patents.

Warning: this money has to come from somewhere … it will probably be the same money that you used to use for vacations, new sunglasses, baseball tickets, fancy dinners … you know. ‘stuff’ that you couldn’t possibly begin to do without 😉

iv) Starting more than one venture part-time (not necessarily more than one at a time, though) is exactly the kind of ‘controlled risk’ thinking that I like … just make sure that you have your ‘end game’ in mind right from the start (who are you going to licence those patents to? Who is going to buy those ‘micro businesses’ that you spin off).

v) Until the income from one of these ‘side ventures’ makes it seem stupid for you to do otherwise (you will know when this time comes), by all means: keep your day job and keep feeding your family!

vi) If you work hard, delay gratification, stay innovative, keep investing, get lucky, and keep those Step (i) Money Making 101 habits in place the whole way through, you probably won’t need $7 million to do whatever it is that is in your Life’s Dream … but 7 years should be just about enough time to get there.

Good luck to blogrdoc and all of the other Personal Finance (and other) bloggers out there …

… indeed, good luck to anybody who is reading this in order to break out of the pack. Hopefully, by following the advice in this post and others, you’ll need a little less of it (luck) to succeed!

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Devolving the Myth of Income … Part II

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In Devolving the Myth of Income … Part I we explored the following question: “what’s your definition of ‘rich’ … would being a highly-paid professional (such as a doctor) or a high-flying executive (such as a high-tech sales rep) earning megabucks-per-year do it for you?”

Today, I want to finish exploring this subject by looking at question recently posed on Networth IQ a web-site for people to track (and discuss) their own Net Worth.

The question was posted by mario  (you may need to register and log-in to see his Networth IQ Profile):

Like many Americans, I have a great deal of equity in my home, built up by “trading up” over the past 20 years. At this point I have over $2M of equity in my home, which represents two-thirds of my overall net worth. While this is all good, I am starting to feel like this flies in the face of my diversification goals; how can I consider myself diversified if I have 66% of my net worth tied up in one piece of real estate? I would sell the house in a minute except for the tax consequences. Does anyone have a strategy other than selling?

Here is a guy with a high-flying sales career, earning more than $250,000 a year and he’s less than 50!

He also has a house worth $2,000,000 …

…. now, you could be describing me!

But, there’s only two differences:

1. If I choose to stay in bed tomorrow … that’s OK. Stay in bed the next day … fine. The day after, the day after … it doesn’t matter. Even if I never bother getting out of bed again … the money keeps rolling in.

2. I can afford my $2 Million house, my Maserati and my $250,000 a year lifestyle!

Let me explain …

In a recent post I wrote about the Fisherman and the Investment Banker; ‘Mario’ is the Fisherman, I am the Investment Banker … what happens when Mario’s ‘fishing career’ stops?

When Mario stops, his income stops, and he can no longer afford his lifestyle. This is mainly because, Mario’s Investment Net Worth is much lower than his Notional Net Worth.

Here is what the Mario’s of this world – that is, those with high-flying corporate jobs and those in high-income-producing businesses (and there are plenty of both!) – need to do to ‘bullet proof’ their lifestyle:

1. Stay in the habit of saving – maintain the same good savings and debt control habits and (relatively) low-cost lifestyle as I hope you had when you were starting out, because you will need these habits when the income eventually stops flowing in … that will happen when you retire but it may happen even sooner than you think.

2. Only buy as much house as you can afford – obey the 20% Rule  and make sure that you only carry enough mortgage that you can afford without compromising you savings and investing goals.

3. Revalue your house every 3 to 5 years  – whenever your equity exceeds 20% of your Net Worth (Mario!), refinance the house and put 100% of that money towards your Investment Plan.

4. Accelerate your Savings Plan– save at least 50% of non-reinvested business income, every future pay increase, bonus, tax refund check, found money (the loose change in your pockets, Aunt May’s inheritance, that lottery win … anything and everything!). Enjoy the other 50% … go ahead … you worked for it!

5. Implement your Investment Plan – Every time that your Savings Plan builds up sufficient funds, add to your investments by buying and holding for ever any mix of the following that suits your skills and interests (do NOT trade with this money … build up a separate ‘spec fund’ if you want to do that):

a) Income-producing real estate, and/or

b) 4 or 5 direct stocks in companies that you understand and would love to own, and/or

c) Low cost, broad-based Index Funds.

I prefer investing in exactly this order, simply because you can leverage (i.e. borrow more) and improve returns by selecting/managing carefully (a) over (b) over (c) … but, that’s personal choice.

This simply boils down to saving more and spending less (now) to live well and securely (later) … no matter what you income is today … delayed gratification in action!

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Education – a curse or a cushion?

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People often ask me what it takes to be an entrepreneur.

Probably the best book that I can refer you to is the E-Myth Revisited by Michael Gerber … it has changed many business owners’ lives (including my own).

 In it, he shakes the myth of the entrepreneur being some sort of ‘knight on a white charger’ – you know the type, like Jack Taylor, the founder of Enterprise Rent-a-Car who was a navy pilot in WWII then went on to launch Enterprise in 1957, taking it to $78 million revenue before handing the reins to his son, Andy in 1980 (it’s now a $7 billion company!)

 Here’s how Andy described his father:
 

My father was the true entrepreneurial risk taker. He was the guy flying airplanes off carriers. He did not see taking a $25,000 second mortgage to invest in a business as a huge risk, because he saw real risks being taken during World War II.

There’s no doubt that adversity makes for better entrepreneurs … adversity gives you a ‘nothing to lose’ attitude.

Contrast that with the educated middle-to-upper-middle class …

… once you finish college and put in a few years learning the corporate ‘ropes’ it’s very hard to let go of the comfortable $50k – $150k that you are earning (and that your lifestyle has magically jumped up to meet … you know: cars, toys, vacations, etc.) to jump into a business that all the odds point to going broke.

 You see, that education that we strive for, to lift us out of the middle-class, actually serves to keep us there.

Now, I happen to have a college degree, and it has served me well …

… but, after 6 years in the post-college corporate world, I was bitten with the ‘entrepreneurial bug’ so badly that I was miserable every day that I was still at work after that little epiphany (I used to LOVE my job until then).

Yet, it still took me 4 years to leave …

If I was still working, no doubt I would be well on my way to saving $1 million or maybe even more by the time I retired at 65.

 But, from where I now sit that is WAY too little WAY too late …

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How to avoid being 'house rich' yet 'cash poor' …

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I recently read about a very interesting predicament for a reader on Free Money Finance  – one that is, unfortunately, all too common.

 Here is what the reader asked on the post on FMF:

 To start off, my husband and I purchased our home in 1987 for a little over $100,000…..[ her husband died after a whole series of family tragedies]……The house is the only asset I have left and the only thing I have to pass down to our children.

Now, you will need to read the entire post on FMF just to understand the tragedies that this poor woman has had to endure …

…. on top of that, she now has to face an uncertain future because their only form of ‘financial planning’ was to own their own house.

 This is an all-too-common story. In fact, I am reminded of two recent stories from my own family:

1. My wife’s mother died living on a government pension, no vacations, walked wherever she could, and otherwise penny-pinched to survive. Yet she died and left her three daughters (including my wife) a house worth nearly $800k and no mortgage!

2. My 95 y.o. grandmother (still living!) spends all of her income on supporting my mother and two sisters (all capable of working, but choose not to), struggles to pay her own bills (she had to borrow $40,000 from me to pay a Land tax bill). She gave my son a check for his birthday when we went to visit her last Christmas … the check bounced!

However, she just sold an investment property that she had held on to for many, many years (clearly, it became so run down that income was very low) for $4.5 Mill!

Kind of reminds me of the guy who lives like a miser but has a secret $1,000,000 stash of cash stuffed into his mattress.

These are examples of being ‘asset rich’ and ‘cash poor’ and, unfortunately, describes so many Americans reaching retirement age.

The solution is the 20% rule …

If you didn’t read the original post, this ‘rule’ says: have no more than 20% of your net worth tied up in your house (plus another 5% max. tied up in cars, furniture and other possessions).

That is simply another way of saying that you must have 75% of your Net Worth in income-producing assets (if you are at or near retirement age) or in a mix of income and growth assets (if you are at least 10 years off retirement).

If you are nowhere near retirement, and this will be your first home purchase … go ahead and break the 20% rule … but, reassess every year and make it your goal to build up enough free equity (that is, more than the 20% rule allows) … when you do, be sure to use that equity to invest or you will end up exactly where this post says you don’t want to be!

Having a house … and only a house … is no way to live.

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Should you pay your children to read? I don't think so!

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I left a comment on a great post by Free Money Finance (I’ve mentioned FMF before as being a GREAT source of Making Money 101 ideas!).

Basically, FMF was commenting on an idea that has been around for a while … the idea of paying your children to read!

I have some strong thoughts on the subject of children (I approve of them), money (I approve of it), paying children to read (I don’t approve of it), encouraging children to save for ‘retirement’ (I STRONGLY approve of it) and thought that I should simply repeat my comment here:

Having kids EARN their pocket money is a great idea! As a matter of personal preference, I would prefer NOT to pay my children to learn.

Whether you pay them to work, pay them to read/learn, or just give a hand-out, what IS important is how they deal with that money.

For example: we give each child TWICE their age in pocket money every month (others do once their age a week), but they must SAVE half (not for cars, toys, or anything else … JUST for future investments) and we encourage them to SPEND the other half (saving it up until they have enough for the ‘good stuff’). Loose change is thrown in a bucket by all for CHARITY …

So far, my 13 y.o. son who supplements his ‘income’ with an e-Bay business (the spend half / save half policy also applies to his e-Bay profits AFTER funding inventory) has bought himself an iPod touch, an Apple Mac, AND an IBM laptop – all this year (he has invested his entire savings in my Scottrade account … he accounts for 0.001% of my portfolio from memory).

Do you pay your children? If so, what for? How much? And, what do you hope and expect they will do with it?

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8 Principles of Fun

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I enjoy finding videos for my ‘Videos on Sundays’ series. Sometimes they are about money, sometimes just frivolous (but, I usually try and find at least some tenuous link to the subject at hand), and sometimes about life itself.

I came across this interesting and rather inspiring piece and I thought you would enjoy it, too …

 http://www.eightprinciples.com/

… my plan was to then try and create a list called the 8 Principles of Finance to keep this post ‘on subject’ but really felt that I could leave that to you … any ideas?

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Index Funds or ETF's … you choose …

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For those of you trying to ramp up your long-term savings plans, Index Funds and ETF’s offer two great alternatives to CD’s and savings accounts … and a MUCH better alternative than typical Mutual Funds (due to lower costs and similar or even better results).

But, don’t kid yourself, these are savings plans, not Investment plans (there is a difference) …

But, if you are committed to saving rather than investing, you have CHOICES.

Specifically, you can now choose between two very low cost options: Vanguard Index Fund (or similar) or ‘Spider’ ETF (or similar).

There was a great post on The Simple Dollar that I think summarized the differences very neatly:

An ETF is an exchange traded fund … a specific example is the Spider ETF, which matches the S&P 500 in much the same way that the Vanguard 500 does.However, in the end, they’re still not the best deal, as pointed out by this Forbes article.

The Simple Dollar post also talks about what to do while you are saving for your entry fee (unlike a bank, you can’t just plonk down $50 every time you want to buy a few shares in the fund) ….

…. if you are in serious saving mode, why don’t you take a read?

But, why Index Funds or whole-of-market ETF’s in the first place, why not mutual funds?

For answers to these questions, I usually try and go straight to the ‘top’ …

… to the greatest expert in that field that I can find. And, in the field of stock investing there is no better advice than that given by the World’s Greatest Investor himself, Warren Buffet, who once said:

The “know-nothing 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. [W. E. Buffett – 1993]

Who would argue with the World’s Richest Man?

Important Note: 7million7dollars does NOT currently invest in any Index Funds, Mutual Funds, or other “Packaged Investment Products” … apparently, he is just a (rich) product of the Stone Age 😉

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I'm about to find out if you can make money online …. Part III

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Note: In the original version of this post, I included links to the actual sites; WordPress has posted what looks like an ‘automatic warning’ … on the assumption that this content was the cause, I am removing the actual names/links … a pretty good ‘early warning sign’ that the site that I subscribed to is a bit dubious, huh? 

I have a confession, I am already working on two separate on-line ventures that are currently in stealth mode but, these are fairly high-risk / high-reward ventures … they take a lot of preparation, programming, and money.

Which is why I am busy trolling the Internet for a more ‘off the shelf’ business that I can try, so that I can prove to YOU that it is possible to make money on-line. Why?

Because I want you to start a part time business to increase your income. Why?

So that you can invest at least 50% of that extra income to accelerate your savings plan. Why?

So that you may eventually become rich!

So, I’ve found a ‘promising’ candidate … if this doesn’t work, then I’ll just have to come up with my own idea, I guess …

It’s a glossy-looking, well put together web-in-a-box diet program. I guess that it’s designed to pull people into an affiliate program for a so-called “World-Famous TV Lady Doctor“.

Is this as scam? Probably

Do I expect to make any money out of this? No.

Then why? Because I’m hoping (in the unlikely event that it’s not a scam) to at least make a ‘little money’ to show that it is POSSIBLE to make money on-line … to prove that it’s at least possible.

If this doesn’t work (which, I’m fully expecting!) then we’ll go to Plan B …

OK, so here goes; the site says to take the following steps BEFORE signing up (well, putting up some roadblocks before asking me to hand over money is a good sign!):

A) You will need a domain!

We recommend http://GoDaddy.com Once you’ve secured a domain (or if you already have one) you will point it to your webspace!  

B) You will need webspace (i.e., hosting).

 We recommend http://HostGator.com They have 24hr Support — so if you need assistance at anytime, they’re there to help you PRONTO!  

C) You will need a ClickBank account — don’t worry, it’s Free!

 Just go here to grab it N0W! … http://tinyurl.com/   

D) You will need an Autoresponder — Here’s the BEST one on the Net with 98% successful “deliverability!” …

http://AWeber.com

And once you have all those things (which altogether probably will cost you less than $50 bucks!) you just need to click here to order now for JUST $397 (1-time payment ONLY!): 

…. that’s it …. wish me luck! I’ll keep you posted …

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