Archives For May 2011

To own your life, you must control your money.  The best way to do this is to nurture your money tree. However, controlling your money won’t get you all the way there. You must Invest Wisely.

Investing in the stock market has received a bad rap for a good reason. The first decade of the 21st century has been rough on investors.  There have been multiple recessions and market crashes so many people don’t trust it anymore.

BUT… investing in the stock market is still the best way to make good returns. I’ve invested since 2004 and even with the 2008 Great Recession, I’ve still been able to amass a good amount.

How do you invest wisely?

1. Put your investment contributions on auto drive

2. Where to put your money

3. Investing Tips

4. How long to become a millionaire

 

1. Put your investment contributions on auto drive

Don’t leave it up to yourself to decide when to invest… because it won’t happen!  If at all possible, start investing now and don’t allow yourself to stop.  Even small contributions build up over time.

How to put your investments on auto drive:

A. Payroll Deductions

Use a payroll deduction to pull a set amount from each paycheck and enter into an investments account.

The most common way to use this is to invest in a company sponsored retirement vehicle such as the 401(k).

The best part about a payroll deduction is the money is removed before you ever see it, so you learn to live without it.

B. Bank Account Deductions

Use bank account deductions to pull money from your checking account and put into an investment account.

You can setup automatic withdrawals to feed into your Roth IRA, IRA, or regular stock account.

This is the same as the pay yourself first concept which basically means you pay yourself through a savings or investment account before you start paying your bills.

2. Where to put your money

Investing can be overwhelming, but the most complicated part is probably trying to figure out how to start.  There are quite a few options depending on your employment situation.

Review the tiered approach below to determine where you should start.  The items on the left are typically the best options.

Investing Tiers

Retirement accounts are nothing more than ‘vehicles’ where you put investments. The Tier 1 and Tier 2 accounts are all considered retirement accounts.  The Tier 1 accounts will only be offered through your employer.  If you work for a corporation, the most likely option is a 401k or Roth 401k.  If you work for the government, you’ll probably have a 403b.

You can work with your HR department to determine how to get started.  If you don’t have access to a Tier 1 account, you’ll typically want to open a Tier 2 account through any normal brokers that you typically hear about on tv or the internet.

Once you open the account, you can fill them with many different investments, such as stocks, mutual funds, and bonds. For example, when you an open a Roth IRA, the first thing you’ll need to do is fund the account.  After you put money in, you’ll need to decide what investments to purchase.

The type of investments you purchase is up to you.  Stocks are considered the riskiest because you aren’t diversified (all of your money is in one basket).  Mutual funds are a collection of individual stocks that are ‘bucketed’ together.  You buy a share of a mutual fund and get a piece of the many different stocks included.

If you’re not willing to put time into researching companies, your best bet is to probably go with mutual funds or exchanged traded funds (ETFs).  ETFs are similar to mutual funds but can be purchased and traded like stocks.  You can buy an ETF that mimics the major averages (DOW, NASDAQ, etc) or other investment types (gold, high tech companies, etc).

To get more information on investment accounts, check out the overview I’ve created.

Download the investment accounts overview.

3. Investing tips

Below are 7 quick tips to help you start investing wisely.

A.  Don’t check the market or your stock prices daily, hourly, or minutely. This is one of the fastest paths to insanity.

B.  Only buy stocks of companies you understand.

C.  Buy for the long term. Warren Buffett says buy stocks like you’re actually buying the company.

D.  Don’t try to hit a homerun with penny stocks or options, it rarely turns out well.

E.  Don’t day trade.

F.  Don’t trade futures and options

G.  Diversification is for your own protection. Ever heard of Enron?

How to diversify:

Don’t put all of your money in one stock or one fund. I diversify by buying Vanguard index funds or investing in ETFs.

 

4. How long to become a millionaire

It’s possible for almost anyone to become a millionaire.  All it takes is regular contributions + TIME.  For millions to come overnight, you better have a great invention, a great idea, or a great vertical jump.

Determine how long it will take to save one million by following your monthly savings and meeting your expected interest rate.

How long until you have a million dollars

 

Golden handcuffs:  the imaginary chains tying you to a well paying job.  Have you ever said you’d love to do something else, but you can’t leave your job?  You might unknowingly wear the cuffs.

The office cubicle that replaced your dorm room has now become your jail cell.  You leave the cell at night, but you don’t feel you ever truly get away.  You might not hate what you’re doing, but you definitely wouldn’t do it for free.

You’ve delayed the business you were going to start, the Peace Corp mission calling your name, and you’ve even abandoned the pledge to spend more time on yourself.

Watching the numbers on your paycheck climb is fulfilling, but is it enough?  For now, it keeps you at your job; the golden handcuffs are tightening.

If you truly love what you’re doing, there is no such thing as the golden handcuffs.  Your work is rewarding and your rewards reflect your efforts.  However, if you’re unsatisfied at work but tied to it because of the money, you’re all too familiar with the cuffs and their powers.

You feel no other job can pay you more than or even as much as your current job.  And quite frankly, you might need the money to pay for your current lifestyle.  You know, the car, the condo, and the free furniture for 18 months… that you’ll soon have to pay for!

Larry Burkett says we spend the first 5-7 years of our marriage trying to attain the same standard of living as our parents – only it took them 35 years.  I’m sure he meant it, but we start trying to match this lifestyle as soon as we have a decent job.

On top of your pursuit towards your parent’s standards, your success leads you to believe you deserve certain luxuries; your nice car, the new TAG watch, or designer clothes.  Our family, friends, social networks and most of all advertising can reinforce these thoughts of entitlement.

So the question is:  are the golden handcuffs tightening due to the amount of money you’re making or due to the increased standard of living you enjoy with the money?

In my opinion, it depends on the person, but it is probably a combination of both.  Often times, as we’re moving closer to the corner office, we buy into society’s perceptions of our job status.  Seeing the word attorney on your new business card makes you feel entitled to the new car.

Maybe your new co-workers all drive new cars and take a big vacation every year.  Surely, if they can afford it, you can too.  Plus, you don’t want to seem cheap around them.

It’s even worse for doctors, lawyers, and investment bankers whose status is somewhat determined by their total bling.  What happens when you increase your standard of living?

You might get instant gratification when you move into your uptown apartment, cruise around in your new car, or take your boat out for the first time.  However, if you’re financing your new lifestyle with debt, all it means is your monthly debt payments increase.  You work hard, but you play hard.  It’s great for your employer because you can’t quit; you’ll be too busy paying monthly for your new found happiness!

If your golden handcuffs don’t bind you because of an in debt lifestyle, the other reason may be you’re accustomed to seeing a satisfying amount on your check.  You’re happy with it and your family, friends, and colleagues are proud of your success.

You’re afraid you’ll earn less following your dreams, and you’ll lose your social status.

I’m still trying to break free of the golden handcuffs, but I have taken some initial steps.  To deal with the first reason for the cuffs, financing your lifestyle with loans, the answer is living debt free.  You can learn how to do this by taking control of your money.

To deal with the second reason, the impact of a drop in salary or prestige, you must deal with it on more of a psychological level.

If you’re highly satisfied with your new work, you’re going to experience a level of fulfillment and happiness that you’re not currently getting, and it won’t be too hard to remove the golden handcuffs.  Also, realize your fear could be unfounded, and you might be able to make even more money if you switch to another job or do something you love.

Fear springs from ignorance – Ralph Waldo Emerson

Maybe the best way to remove the golden handcuffs is to go out and learn and try something new.  Are you wearing golden handcuffs?  I’d like to hear about it in the comments section as we can all learn from your story!

Do you know why charity is important?  We all know the positive aspects of giving and helping others, but did you know there are some selfish reasons for giving as well?  It’s not just the credit you receive from others or a tax write-off.

It sounds somewhat contradictory, but one important aspect of building wealth is charity.

It’s much easier to believe that a key to building wealth is saving money and not giving it away; this is the way I lived when I graduated from college.  I didn’t have much money to give away because I wasn’t managing it.  It wasn’t until I paid off my $50,000 of debt that I’ve been able to understand the importance of charity.

Charity is viewed as important in our society, but the true reason for charity isn’t always taught.  Religions reinforce charity with tenets around giving and tithing (10%).   It wasn’t until I read Rabbi Daniel Lapin’s Thou Shall Prosper, that I finally understood why giving is important to my personal wealth.

Most of this article is just a repeat of Rabbi Lapin’s book, so you might even consider it a book review.  Sometimes it’s best to use the explanations smart people already used rather than trying to reinvent them all.

Lapin starts with, “Like love, money is best won by renouncing a need to totally possess.”  This is reinforced by the saying about knowing it’s true love if you release it and it comes back.  This doesn’t answer why giving is important, it just tells us to do it.  If I take all of my money and spend it in a mall, I don’t think wealth will come back to me!

Let’s try another quote from Lapin, “Philanthropy is as necessary for creating wealth as sunshine is for growing flowers.”  Once again, reinforces the importance, but it doesn’t tell us why.

Lapin then gets closer to the heart of the answer.  “One popular way to make yourself feel bigger (more powerful) is to spend money and gain control.”  Essentially, a spender’s high is caused from the feeling of control and power one gains when making the purchases.

That gets us much closer to the answer but spending on yourself is selfish and won’t translate into money returning to you like a boomerang.

Then Rabbi Lapin gets to it and explains the real importance, which I’ve outlined below.  However, before you get to this point you must take his advice:  “Don’t try to find a rational reason for giving away money. Charity is irrational.  Nevertheless, it benefits the giver in many ways.”

The book helps define the importance of charity in four ways:

1.  It’s good for your conscious and subconscious
2.  It helps build your network
3.  You become a better investor
4.  It creates a movement of money around you

1.  It’s good for your conscious and subconscious

Lapin writes how giving to charity is one of the best ways of increasing your income because it makes you, “Feel a better person, which makes you come across as a better person.”  As you come across as a better person, people will start to treat you like a better person which reinforces your original thoughts!

Rabbi Lapin nails it when he says, “One of the great harbors to success is when you harbor deep internal doubt about where you deserve such success.   You have to feel that you deserve good things, or else your subconscious might very well sabotage all of your best efforts.  Giving regular gifts from your income to charity is one excellent way of, once and for all, persuading your subconscious that you deserve what lies ahead.”

It becomes a self-fulfilling prophecy that others are able to buy into as well.  You are a good person because you give; then, you give because you are a good person.

2.  It helps build your network

Lapin explains how an important side effect of giving is it helps build your network.  He explains that you should be very intentional in deciding where your money will go and spend your time there as well.  One part of the intentionality is to ensure you associate with a charity that you like and with people you admire.

The group will have common goals, and you’ll be able to build much stronger bonds than you can through business or simple networking.  You’ll build relationships that will help you in the long run in your life plan.

3.  You become a better investor

Giving your money away shouldn’t be a foolish activity.  Sure, it might sound cool to fly over your hometown and drop bills from a helicopter, but outside of some instant press you probably won’t receive many other results.  Dropping coins would be even worse; I grew up in Oklahoma and know what quarter-sized hail can do!

Lapin explains it best when he describes the ultra-wealthy who build hospitals and other large memorials with their money:

“The very internal quality that enabled them to give away the money to build those impressive looking structures was the same quality that enabled them to make that money in the first place.  If you have the generosity of spirit to give money away, you also have the courage to seek profit by placing your money at risk”.  He continues with, “You have to develop a willingness to remove your money from safekeeping and essentially bid it adieu.”

Giving your money away helps you become a better business person because you become willing to unclench your cash and use it for something else.  Lapin explains that some people cannot invest in anything because they are afraid of losing their money.  He says these people are “equally incapable of charitable giving.”

4.  It creates a movement of money around you

Rabbi Lapin gets somewhat metaphysical in the last point, and I’ll leave most of the explaining up to him.  At a high level, it’s backed up by Newton’s 1st law of motion – an object at rest tends to stay at rest unless acted upon by an outside force.

Lapin explains:

“Make money flow, and you will inevitably be creating bonds.  With bonds in place, more money flows.  Like anything else that flows, money requires pipelines.  This means that your task is to excavate pipelines that can carry money toward you.”

“How do you do this?  By pumping money outward from you to the world out there.  That action itself creates conduits that remain open and usable even after they have served their purpose of conveying your money, in the form of charity, from you to the world outside of yourself.  Now that these pipes exist, they are able to be used for cash flow in the reverse direction, too.”

This is such a great concept, and it realy makes a lot of sense.  Not doing it is sort of like sitting at home all day and then being surprised when you don’t meet anyone.  Motion is required to succeed in life.

My wife and I are giving more now than we ever have, but we want to continue to give more.  It’s highly satisfying and has helped me learn the importance of not living as a starving artist.  If you don’t have any money, you can’t give any away, and you miss all of the benefits of helping others and yourself.

I highly recommend Rabbi Lapin’s book Thou Shall Prosper because it explains the importance of charity.  You should buy it today if you’re interested in owning your life.  What are your thoughts on giving?

A college education can be a very valuable thing, but how do you know if it will be worth the price?  How much money will you make and how long will it take to pay off your debt?

Fictional story:

Jamie had big dreams of saving the world.  She wanted to help poor families so she decided to pursue a social services degree.  She always dreamed of going to Harvard and she was lucky enough to get in!  She didn’t have any money or scholarships but luckily she was able to get student loans.

You should definitely pursue your big hairy dreams.  However, at the same time you need to be realistic in your college major choices.  If you want to be a social worker, you’re doing a great thing and without you our world would be much worse off.

However, if you plan on attending Harvard and financing it with student loans then you might need to check your priorities!  On top of that, many social workers need masters degrees which add even more expenses.

Imagine you took a somewhat cheaper path towards this career and ended up with $120,000 in student loans.  According to the BLS, your expected salary as a “Substance abuse and behavioral disorder counselor” will start out at $29,860.  You would have a hard time paying off your student loans in this lifetime if you lived only on that salary.

What degrees are more justified by higher salaries?

An engineer’s projected starting salary is around $61,000. Financial analysts are closer to $56,000. It would be much easier to pay off a $120,000 loan making that kind of money.

What are your options if you want to be a social worker and that is your life’s calling?  You need to get creative about your education to ensure you don’t come out with loads of debt.  For example, your plan could be to spend two years at a community college near your home where you can attend while living with your parents.

You could then transfer to a four year university to finish off your last two years. It would be very helpful if you worked during this time and applied for every scholarship you could find.

The last thing you want to do is get so far in debt that you can’t pursue anything else in life besides the job you’re currently stuck with.  It’s very common for our generation to switch jobs and the only way to remain flexible is by living debt free.

Do you feel like you picked the right degree? If not, what would you change?

Don’t read books!

May 15, 2011 — 2 Comments

Reading books does nothing but waste your valuable time in life.  If anything, just wait until the books come out in movie form and then watch the movie. This will save you countless hours!

While you’re at it, don’t work hard because it’s not worth it. Don’t save money because tomorrow could be your last day. All great advice.

Convincing enough? Hopefully not!  Many of the most influential and greatest minds of our times got to where they were thanks to reading.

What do great minds think of reading?

• A person who won’t read has no advantage over one who can’t read. – Mark Twain
• Much of my reading… gave fixity and clearness to my ideas – Andrew Carnegie
• In the hand of a sensitive reader, a book has the power to transcend the text it contains and become something magical – Thomas Jefferson
• The reading of all good books is like conversation with the finest minds of past centuries – Rene Descartes
• If it’s wisdom you’re seeking, you’re going to spend a lot of time sitting on your ass and reading – Charlie Munger

Are you convinced that reading is worth it? Hopefully so!

There are some great fiction books with great moral tales and lessons, but there are also many that are only a step above television programming. That’s why most learning is from non-fiction.

When I graduated from college it took me a long time to find pleasure in reading. I was burnt out after school and made no specific plans to stop reading, I just didn’t pick up a book. Sixteen years of formal education has a way of doing that.

These are some of the advantages from reading:

1. You can pursue what you really enjoy learning about
2. You can read about multiple views of one subject; instead of relying on one teacher’s opinion
3. It can productively fill your time while you’re trying to figure out what to do in life.
4. It helps you learn how much you (and we) don’t know

When I started reading, I didn’t really know if reading was going to do anything for me besides help pass the time.

Since then, I read at least 100 books between 2007 and 2010. I hope to continue at that rate and even accelerate it.

If you want to start reading, try to make yourself an expert on something that you’re interested in. As the saying goes, if you read three books on a subject you will be an expert! Challenge yourself to do that and after the three books you should know if reading is for you.

One final piece of advice. Don’t let one book ruin all of your reading. Some subjects and some authors are drier than the desert and some are incredibly difficult to read.

I’ve never had much luck with the ‘classics’ as they’re typically written in an older style and aren’t easy to breeze through. This is where the beauty of Amazon reviews come into play!

How often do you read? What is your favorite book?

Your money philosophy is the biggest driver of your financial future. It’s your set of financial values, beliefs and ideas that guide your daily decisions and actions.

Without the correct ‘money philosophy’ it’s easy to get lost and for a good chunk of time, specifically when I was broke after college, I didn’t control my own money philosophy.  Instead, it was controlled by banks, advertisers, products, my job – anyone who wanted a piece of my life.

I lived that way for too long – that was until I reached my breaking point.  I didn’t realize I could develop and control my OWN money philosophy. Since then, I’ve worked extensively to define my own philosophy, and made a huge effort to stick to it.

Your money philosophy should help drive decisions in your life.

What is your money philosophy? Do you use your money as a tool in your life or does your money control your actions?

Either way, if you’re unhappy with your current decisions, you can change the money philosophy that drives them!

This is not a one-size-fits all plan.

Each one of us is different, and we must recognize that when identifying and building our own money philosophies. As a matter of fact, I don’t like the systems and strategies that prescribe exactly how to get out of debt or how to become a millionaire.

What works for one person, may not work for the next. A lot of it depends on your personality type, your history and your current environment.

When you create your own money philosophy, it’s important to think long term. Don’t let the obstacles of today dictate your end goal. Don’t be afraid to dream.

What are some of the tenets of my money philosophy?

1. Control your money and yourself
2. Spend less than you make
3. Sacrifice
4. Live life like there’s no tomorrow, but plan life like there are plenty of tomorrows!
5. March to the beat of your own drum

1. Control your money and yourself

You need to develop a discipline in your life plan that you continue to live as your money situation changes. Your philosophy shouldn’t change if you get a big raise. If it does, then it wasn’t a philosophy in the first place.

Imagine changing religions every time you went to a new church.

One of the best examples of discipline in a money philosophy is Warren Buffett. He has lived in the same two story house in Omaha, Nebraska since 1957. It doesn’t matter that he’s a mega billionaire. He still controls himself.

My goal is to control me which will allow me to control my money.

If I lose control of myself, everything else will go with it. I practice discipline with my money and it’s worked out well as my wife and I have continued to make more and more.

All it takes is one bad decision to fall off the wagon.

Some people who don’t have control think they can keep up with their spending by making more money. Trying to out earn your bad money decisions is like trying to walk off your overeating.

You might be able to keep up for a while but eventually it’s going to catch up and you’re going to go broke or get fat!

A key element to my money philosophy is controlling myself which in turn controls my money.

2. Spend less than you make

This one is easy. It’s easy for a person making over $1 million a year to be poor and many of them do it. They spend more than they make.  There was a time in my life when I spent more than I made and that made me broke.

John D Rockefeller said “save when you can and not when you have to.”  The only way you can do this is to spend less than you make.

3. Sacrifice

You must be willing sacrifice to have success in your plan. It’s not just me and you who can’t have everything we want. It’s everyone!

This is the most important part of my personal money philosophy: I’m willing to sacrifice some of the creature comforts today to guarantee my comfort in life tomorrow.

I’m not willing to make myself miserable, but I’ll sacrifice.  This doesn’t mean I’m going to live a life of want and not enjoy it until I’m too old to.  My wife and I have worked hard to pay off our debts and save money to do some of the things we want to now.  For example, we went on a dream vacation to Machu Picchu in September 2010,

However, right now I’m sitting in my office with a box fan on me because the temperature inside is 77 degrees. We have central air conditioning but I’m ok without it right now.

We’re willing to sacrifice comfort today so we can do the big things we want to do.  Part of sacrificing is giving up wants and focusing on needs. As Benjamin Franklin said, “blessed is he that expects nothing, for he shall never be disappointed.”

4. Live life like there’s no tomorrow, but plan life like there are plenty of tomorrows!

Many people use the first part of the phrase to justify their poor money habits. “You can’t take it with you!” That usually translates into broke.

You don’t need to spend money to live like there’s no tomorrow.

Living like there’s no tomorrow means focusing on the good parts of life and not worrying about the bad.

We all have guilt, shame, and sorrows. Many times it takes impending death before we realize the significance of living like there’s no tomorrow.

The most important concepts in building wealth are consistent contributions and time. And TIME. Most millionaires make it through hard work and contributing to their retirement savings over TIME.

You’re going to get old someday. Do yourself a favor and starting saving money for that old man or woman you’ll one day become.

5. March to the beat of your own drum

Don’t be afraid to create your own money philosophy. Make sure you’re the one who controls your life. Don’t be afraid to be different.

Henry David Thoreau illustrates the acceptance of individuality when he wrote:

“Why should we be in such desperate haste to succeed, and in such desperate enterprise? If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away. It is not important that he should mature as soon as an apple-tree or an oak. Shall he turn his spring into summer?”

Your money philosophy should coincide with your beliefs, wants, and needs. Also, realize it might change over time as your situation changes.  Don’t be afraid to dream big and change your current money philosophy. After all, there’s a good chance you didn’t even create it!

After you create your money philosophy, you’re ready to create your life plan. Use the steps outlined in the OWN IT plan to do this.  The OWN IT plan is an actionable set of steps and the money philosophy is the tenets to live by.

Your money philosophy should feed into your OWN IT plan and vice versa. There is nothing independent in this world.  What do you think? What are the main points for your money philosophy?