You can afford it

Sunrise from my balcony

One of the biggest separations from reality between those with money and those without is an understanding of the size and value of money.  Put simply, a rich person knows the difference between $1,000, $100,000 and $10,000,000.  A poor person sees $10,000 the same as $10 billion.  This is why so many lottery winners go bankrupt in 5 years.  They win $10 million and think that the money will last forever.

Lets do the math: if you spend a million dollars a year, you’re broke in 10 years.  But since the average poor person can’t see the difference between a large amount of money and a King’s ransom, they can easily burn through $10,000 because in their mind, the money will last forever.

This comes to mind because a year ago, one of my best friends asked me a question.  He had seen that I had retired a year earlier and really had no means of income from a traditional source (like a 9 to 5 job).  He asked me, out of the blue, “Do you have seven figures?”  And like an idiot, I answered yes, and (feeling good about myself), I added, “Just in cash.”

The very next evening, when the bill came at the restaurant, he and his Wife looked away as though they were so poor and just expected me to pay.  My buddy’s Wife and her Mother approached my Wife about a donation for some charity that they worked in.

In their eyes, I have a million bucks, the $ will last forever, so surely I can share some with them.

What most poor people don’t realize is that it takes 50 to 100 times longer to save money than to spend it.  And once the spending begins, it is hard to stop.  This is why most poor people are poor, they can’t save and just “have” to spend.

Some six months later, we were shopping for a new car for my Wife an I was working hard to find a good deal.  I don’t believe in buying new cars as a year old car is a MUCH better value.  And so, I was dealing and negotiating and my buddy asked about my progress and I told him.  He, and then his wife began to chide me, “Don’t be so cheap, go and buy her a new car. You can afford it.”

What you can afford is relative.  If I buy a new car, a new this and that, soon, you’ve spent a hundred thousand dollars.  Do that a few years and you’ve burned through a million.  But this is the difference between my buddy and I.  This is why I have seven figures in the bank and he doesn’t.  I used a large part of the money I saved (like buying a used car instead of a new) to afford a 6 bedroom apartment on the beach (see photo above).  And in my buddy’s mind, now, more than ever, I can “afford” most anything.  But in reality, I am able to live at this “million dollar house” because I didn’t have the blase attitude that I could afford anything.

Think about this: how much money can you save each month?  For most people, it is only $500 or $1,000 per month.  And so, $50,000 is TEN YEARS OF SAVINGS.  If you get a large bonus at work or you win a lottery scratchier, if you blow through $50k, you didn’t just spend fifty thousand dollars, you spent TEN YEARS OF SAVINGS.

You will never accumulate a million dollars if you always have the attitude, “You can afford it.”  If the goal in your mind is to save a million dollars or to have a house on the beach, YOU CAN’T AFFORD IT.

One of the biggest impediments to your financial success is family and friends.  Family members don’t understand how money works and as soon as you have a few thousand dollars “extra,” they think it is the same as a billion dollars and won’t understand why you can/t/won’t share it with them.  You have to be brutally firm with friends and family.  Don’t ever give the idea that you’ll pick up the tab or pay their bill because you’re financially successful.  Guard your money.  Not only will they spend their money, they’ll freely spend yours too – if you let them.

Good luck!

Thanks for dropping in, I’d love to hear your comments on this topic!

I’m back!

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I see that I haven’t updated this website for close to two years. It is a project that I’ve often wanted to continue but haven’t had time. My Wife and I had a baby a year ago and we’ve moved (see photo above). Needless to say, we’ve been busy.

I have begun a few drafts and it is my intention to continue with this website and share what I’ve learned along the way.  I hope you will drop in again.

In case you start to get discouraged on your way to your first million, have a look at the photo above. It is a shot from my living room balcony. Actually, the photo doesn’t do the view justice as it isn’t wide enough. The view stretches from left to right, 165 degrees wide of ocean view. We’ve started a new business and we’re doing well living by the beach.

Stay determined and keep your goal to the front of your mind.

You can make it!

Father of 8 Won’t Save Money for College

Father of 8 won’t save any $ for college

Fagan Family

The Fagan family. Photo by Chris Kaiser.

For a lot of parents, watching their child get his college diploma represents a lifelong dream. For David Fagan, a marketing executive in Orange County, not so much.

Fagan has eight children, the oldest of which is a senior in high school, but the author of the upcoming book Guerilla Parenting says if any of his kids want to go to college, they’re going to have to pay for it themselves. “There was a point in time when college was the main goal, it was the American dream,” Fagan tells Yahoo Parenting. “The reason was that it led to being financially secure and self-reliant. But things have gone so far out of skew that we’ve stopped chasing self-reliance and instead chase college for college’s sake. Kids go to school and hope they’ll figure out their future, and we end up with a whole generation of kids laying on parents’ couches with degrees that are unusable, and $100,000 of student loans.”

So instead of college, Fagan’s goal is teach his kids to be financially independent, and that means working for whatever they want — even an education. “So many parents say, ‘I just want my kids to be happy.’ But my parenting style isn’t ‘how can I make my kid happy?’ It’s ‘how can I make my kid self-reliant?’ Long-lasting happiness comes from knowing what you want and not having to rely on others.”

For Fagan’s children, those lessons start as early as one or two years old, he says. “If one of my kids tells me, at a restaurant, ‘I want a burger,’ I say ‘Okay, you’ve decided what you want. Now you need to ask for it. You have to get out of your comfort zone and talk to an adult and go after what you want.’”

Not that he makes them pay for everything, Fagan says. He provides his children with their needs — he’s not making his kids work for food, he says— and if the family goes to the movies, he’ll buy the tickets. “But if my daughter want to go to the movies with her friends, she knows she needs to figure out how to pay for that,” Fagan says. (To help make that possible, he’ll pay the kids to do chores around the house or for starting little businesses.)

When it comes to college, Fagan says it’s not for everyone, so people who want to go — like his 18-year-old daughter — need to understand the costs, and that the end goal is to leave school being even more capable of being financially secure. “Huge organizations are pushing college educations down our throat without anything to back it up,” he says. “No one is stopping to challenge the system and say ‘Why?’ What I’m putting out there is maybe it’s more valuable to put $10,000 into a business than it is to put $200,000 into a college education.”

Not so fast, says Dr. Tahira Hira, a consultant in financial education and former member of the U.S. President’s Advisory Council on Financial Literacy. She tells Yahoo Parenting that parents shouldn’t underestimate the value of a college degree. In 2012, for example, the median earnings for young adults ages 25 to 34 with a college degree was $46,900, while the earnings for a young adult with only a high school diploma was $30,000.

“I’m not saying everyone should cover college 100 percent for their kids, and plenty of parents can’t afford that,” she says. “But I think there is a more reasonable conversation to have than a statement of ‘you’re out there on your own.’” Hira says parents whose kids want to go to college should feel lucky, and should think about helping in some regard. “Maybe you contribute some financially, and then you talk to your child about earning scholarships or getting loans. Or maybe, if you can’t afford to help financially, you take some part in helping them work for the money. It’s about showing that you are there to help. ”

Hira agrees with Fagan that conversations about money management should start early. “The minute the child says, ‘I want that,’ they’re giving parents an opportunity to teach about working for what you want, why we can’t always have everything you want and why we don’t always have what other people have,’” she says. “I just think there is some balance between doing everything for your child and doing nothing for your child.”

Fagan says he helps his kids when they earn it. When one of his daughters wanted to go to Peru last year, she worked hard to raise the money, but fell short. “I saw the work she put in, so I lent her the money and she went on the trip, and when she returned she kept working to pay me back,” he says. “But sometimes when they can’t afford something and they have to miss out on an experience they wanted, that’s when something clicks. Then they’re motivated.”

Does that mean his kids should miss out on higher education if they want it? “I don’t think I’m denying them a lot of opportunities,” he says. “I’m just going about it differently. Kids don’t know what they’re capable of — like raising the money for school — until they have to learn what they’re capable of.”

Playing like a Bigshot

Big shot

Have you ever made a bad decision and later wondered why you made it? Have you ever done something that, even though you know it is wrong, you just couldn’t stop yourself?

How we react to daily situations is a combination of our hard wiring (genetics and how we were raised) and the intellect that we use daily to make decisions. Deep down inside of each off us, we feel a certain way about ourselves (ego) and we act according to this self perception and about how we feel perceived by those around us.

When it comes to money, this is a powerful combination. We may know in our brain that we should act in a certain way, but the desire to feel loved, recognized and appreciated often undermines actions that we (know that we) should take.

Last summer I was overseas working with two colleagues. We were in a hotel (company paid) that had a free laundry service. The workers in the laundry were from Pakistan or Bangladesh. By Western standards, they were quite poor. I believe that their monthly salary was about $300 (US). This might not seem like a lot off money but as I talked to some of the them, I learned that it is quite a fortune. The average worker in their country earns about $50 per month with nothing left over for savings or luxuries. Working at this hotel, the worker could send home $50 to pay the family’s bills, take $50 for “spending money” and still save $200 per month. After a year long contract, the worker could return home with $2,500 and start a business. This one year long sacrifice could change that family’s situation forever.

Now add to the mix, about 100 American expat workers. Along comes the first “big shot” who “tips” the laundry guy $3 to wash the laundry that the worker is already paid a salary to wash. The American worker feels justified paying $3 for a tip because, after all, the laundry was “free” (paid by his employer). And then, the next guy thinks, “Oh yeah, he tipped, so I should tip too.” And a year later, when I arrived, EVERY guy was tipping $3 per week to get his “free” laundry done. Now, do the math. This $300 per month Bangladesh worker is now taking in his salary PLUS $3 per guy in tips per laundry load. Multiply this x 100 guys for four weeks per month. The “American do-gooders” were giving this guy, outside of his “normal” pay, an extra $1200 a month. This is a 400% tip on top of his regular salary that is already 600% of his national average!

Later, I refused to tip at all and the Bangladesh worker gave me a dirty look. When we picked up our clothes the next day, everyone else had folded clothes and mine were a half-wet ball in the laundry bag. His job was to wash and and fold. But because I didn’t tip, he REFUSED to do even the basic service that was required of him. We had spoiled this worker so that now he expects a tip. No, he demands a tip. My one colleague Matty tipped him $20 one day. I was livid. I told Matty that he was wasting his money and was “screwing the rest of us” because soon this worker will come to expect $20 each time he does our laundry. Matty’s reply was, “Well, don’t be so tight, you can afford it.”

Think about the logic of that. I can afford it.

That’s what poor people say.

I’m a millionaire and I doubt that Matty will ever be. He will constantly chase credit card bills, struggle to pay his mortgage and will complain that he “can’t get ahead.”

Think about the logic of this:

This Bangladesh worker is already earning 600% of his “normal” wage at home. This is the equivalent of an American worker taking a job overseas and getting $270,000 per year (six times national average of $45,000). Now, imagine if you took a job overseas making $270,000 working in Saudi Arabia. And then, as Saudis came in to get your services, they handed stacks of $100 bills. By the end of each month, your tips amount to a million dollars in cash. Does that seem reasonable to you? Well, that’s what we did with this man. We were giving him, when compared to the wages of his country, about a million dollars per month when compared to US wages and living standards.

Later, we went for a $5 haircut and matty paid $20 ($15 tip).

I debated with Matty and some other colleagues. I explained that we were giving this guy a fortune, and for what? Matty explained that he was “helping” the guy. I said that his regular salary was a small fortune and that his “help” was just a waste of his money. Matty then said something telling and I immediately understood WHY he tipped. He said, “When I give that guy the $20 and his face lights up, it makes me feel good.”

Ah ha. The reason why Matty was tipping was because it made him feel like a big shot. It made him feel rich compared to this lowly Bangladesh worker. I then realized that Matty didn’t care about helping this guy, he was showing off in front of him. I thought about how so many people love to over tip in America and I realized that it has less to do with manners and showing appreciation; it has more to do with showing off one’s success and wealth.

Now. If your net worth is over a million and you earn over $100,000 in passive income, your house and cars are paid, you have enough $ for your children’s college education and your 401(k) is maxed out, then go ahead. Tip away.

But, if not. You’re taking money out of your retirement, out of your children’s education, out of your gfamily legacy AND YOU ARE GIVING IT AWAY TO A STRANGER.

Think about it. To stroke your ego and to make you feel “rich,” you’re giving away your family’s legacy.

Some days, I walk around in a t-shirt and flip flop sandals. I still wear my expensive watch, but I dress comfortably. I might be at the mall and I’ll see some young guy with his Rolex, expensive car and I know that he’s up to his eyeballs in debt. I know INSIDE of myself that I’m the big shot. I don’t need to drop a 600% tip on a stranger to feel like a big-shot.

There is a difference between the two and they both revolve around your confidence level. People who are not confident in themselves need the placebo of success that comes from the 30 second “approval” they get from the waiter when they over tip. And in the end, that $3 here and that $15 there add up. If saved and invested, over a decade or two, they can mean the difference of having enough $ to buy that distressed rental property or to snatch up a choice asset in a fire sale. That one asset can turn into an income stream or a sale with a big dividend that can be invested again and again.

People who tip big always seem to be broke and complaining about money. I’m smart with my money and I don’t feel the need to impress anyone. I’ve impressed myself. That is all that is important.

A valuable lesson learned in Hawaii

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A Hard Life Lesson Learned on Molokai Last Week
By Dr. Steve Sjuggerud
Wednesday, August 6, 2014

Stansberry Research

I learned a hard lesson last weekend… on the island of Molokai, of all places…

I was checking in as a competitor for the 32-mile Molokai-to-Oahu paddleboard race, when the race director said to me:

“Steve Sjuggerud? Are you related to the Steve Sjuggerud that writes an investment letter?”

It turns out, the race director is a subscriber of mine…

He is living right…

He is 64 years old – retired from a corporate job – and he could pass for a fit athlete in his 30s (if he dyed his hair). He lives in Hawaii, and he surfs every day there are waves.

I met up with him at his house after the race, and we talked a lot about living… and living right.

“I see a lot of friends with huge mortgages, spending more than they earn,” he said while we sat at his kitchen table.

“I do the opposite. I live way below my means… But what more could I want?”

I looked up from his kitchen table, and looked all around…

He was right. He has everything he needs, right here. He lives a short walk from his favorite surfing spot in Hawaii. He lives lean and healthy. His life is about experiences, not about stuff.

I want to be like him when I’m 64.

Heck – I want to be like him right now…

I thought I was living right. But now I think I’ve gotten off track.

The Molokai race was an eye-opener for me about getting off track…

This race is 32 miles across “the Channel of Bones” between two Hawaiian islands. I did the race as a three-man team, on a standup paddleboard. (Each person takes turns, jumping out of a chase boat.)

I’m glad I had good teammates, because I didn’t do so well…

I have excuses for not training as much as I should have – I’d broken a rib two months before the race, and I’d been sick for much of this year before that. But those are just excuses.

I had one nagging thought:

Money can buy you a lot of things in life… but it can’t buy you fitness. You have to earn that yourself.

And ultimately, if you’re unhealthy, who cares how much money you have?

Now that I’m home from Molokai, I realize I need to make some changes…

• I need to clear out more stuff. I need to live leaner.

• I need to make my health a top priority. Work and family always seem more important than working on my health – but I have to convince myself that I’m better off for my work and my family if I’m healthy.
How can I make my health a priority?

I have a clear path… for the next year at least.

I need to “right my wrong” in this year’s Molokai race. I need to get fit – for real – and do MUCH better in the race next year. (I haven’t told my wife this goal yet… I’m not sure she wants to hear right now that I want to go back next year and do this again.)

I know that nobody cares how I did in the race. But I care…

I realized on the water that I was fooling myself about my level of health and fitness… and that’s not something you want to fool yourself about!

I have a long way to go to get where I want to be, fitness-wise – but at least I have a one-year goal that will drive me.

Are you like me? Do you have some money… but not the level of fitness that you want? Then what are you going to do about it?

What is your goal?

Over the next year, I’m going to live more like my Hawaiian subscriber… I’m going to live leaner… and healthier.

How about you? What are you going to do?

Are you going to muddle along? Are you going to keep fooling yourself, like I was? Or are you going to make some real changes?

You can’t buy your own fitness. You have to earn it. The best thing, for me at least, is to have a goal in front of me that I’m striving toward.

What’s your goal? If you don’t have one, then find one… and get to it!

Best of luck!

Sincerely,

Steve

Why We Lied to Our Kids

From Stansberry Research:

By Mark Ford, founder, The Palm Beach Letter

Five years ago, Bill Bonner, my friend and business partner, asked me to speak to a group of about 50 old, wealthy white people meeting in an exclusive beach resort. He wanted me to discuss “the challenge of intergenerational wealth.”

What the heck is intergenerational wealth?

It’s the wealth you’ve acquired for your children, grandchildren, and maybe even your great-grandchildren.

The challenge is how to preserve it. History tells us that people usually squander any money they inherit. And if they don’t squander it, their children surely will.

This is a serious problem for seriously wealthy people. But I believe it’s a problem for middle-class people, as well.

It’s not just about keeping your kids from throwing away the money you worked so hard to save. It’s about keeping that money from turning them into the kind of adults you don’t want them to be.

The experience of speaking to that bunch of 50 grumpy old folks gave me a number of new and useful ideas about this problem. I’d like to share those ideas with you in this essay.

The Downside of Helping Your Children

Let’s be realistic: It feels good to give, and we want to think of giving as a purely beneficial act. (With a stroke of the pen we can make someone’s life easier.) But giving away money – whether to your children or to strangers – often results in unintended consequences… some of them undesirable.

Giving money to your children – at any age – can make them wasteful. It might make them dependent. It might weaken their ambition and strip away their self-confidence. And the expectation of getting money from you might even make them greedy.

It’s easier to understand this when our children are very young. We recognize that giving a small child everything he wants is likely to spoil him.

My wife, K, and I were concerned about this 30-odd years ago, when our children were small. We lived in Boca Raton, where high-income baby boomers climbed over one another in some fiendish, unspoken competition to out-spend each other on their offspring.

Parents taught their grammar-school children to distinguish Hondas from BMWs. High school kids knew which of their friends’ parents had the highest-paying jobs. Some of them felt proud to come to school wearing Rolex watches and Gucci shoes.

As our family CEO, K waged a war against this by having high expectations of our kids as students and as family members. She was strict with household rules and stingy with luxuries.

If our boys failed to maintain a B+ average, we didn’t allow them to go out. Period. Before they could play on weekends, they had to work around the house. And the work was real: cleaning toilets and cutting the lawn.

We had no live TV. Video games were verboten. We never bought them clothes or toys when they asked for them. They had to wait for their birthdays or Christmas. But most of all, we expected our kids to be respectful to us and to others.

In other words, they were part of the universe, not the center of it.

K’s approach worked. Our children were not spoiled. Although – I must admit – I had doubts at times. Once, a few hours before picking up his date for the junior prom, I found my eldest son polishing the vinyl seat of the vehicle he was driving to the event: his 20-year-old, rusted-out pick-up truck. (He bought it from his grandfather.) He worked away at it in good spirits, seemingly oblivious to the stuffing coming out of a large tear in the middle of the seat. I wondered if we had gone too far.

Now, I have no doubts.

The Inheritance Question

What about leaving your kids money after you die?

I have a friend who doesn’t speak to his siblings because of a dispute over the distribution of his mother’s belongings after she died.

I’ve heard my neighbor refer to her mother-in-law as a “selfish bitch” because, at 80, the woman remarried and began spending some of her money on her new husband. When my father left more of his property to two of his daughters because they were unmarried, it caused a resentment that lasted several years.

“Family fights among children after death occur in a large percentage of families,” Tim O’Sullivan, an estate planning and tax attorney, told U.S. News & World Report. “If the No.1 goal is to create family harmony, then the estate plan ought to be designed in a way that preserves it. It’s so sad to see what happens in these situations.”

The last thing a parent wants is for the money he leaves his children to become a source of discord. And yet, it happens all the time.

This is precisely why K and I always lied to our children.

Whenever the subject arose, we told them – in clear terms – they would “never inherit a nickel” from us. We said we intended to spend all our money before we died. If we couldn’t spend it all, we would give it to a charity. We told them that we expected them to earn their own money – that they weren’t entitled to any of ours.

And we meant it.

Well, we meant the part about expecting them to make their own money. But we lied about the inheritance. Of course we’re going to leave them our money – at least some significant part of it.

We lied because we were afraid that if they expected an inheritance, they might become less ambitious. And it seems to have worked. Our boys have grown into young men who work hard, pay their bills, and never ask us for money.

Another – Maybe Better – Approach

Meanwhile, my friend Bill and his wife, E, took a different approach. They avoided lying when their children were small by simply avoiding the topic of money. Talking about money – they taught their children – was gauche.

But then, as the children grew into adults, they began to talk frequently and openly about their money. In fact, they formed a legal structure designed to preserve the family’s intergenerational wealth.

In preparing the speech Bill asked me to give on “the challenge of intergenerational wealth,” I had a conversation with him about our different approaches. And it changed some of my thinking.

I told him what we had done and said that we were happy with the results. I also told him that now that my children were adults – and their characters were largely formed – I was having trouble not helping them.

And then we talked about the inheritance issue.

He was surprised to hear that our children still believed they would not inherit anything from us.

“How long do you intend to continue with this lie?” he asked.

“‘Til the bitter end,” I answered.

“So they will find out after you are gone that they have all this money,” he said. “Just like that?”

“Right.”

“And they won’t have had any guidance from you on how to manage that money… how to work together to preserve and grow it… how to use it productively?”

That hit me like a ton of bricks.

My kids knew how to work hard. They knew how to enjoy their lives. But I now realized that one day they would inherit many financial assets about which they knew nothing.

So K and I decided to have a family meeting. We made it a formal meeting and asked our family attorney to preside. At that meeting, we showed our three boys – for the very first time – the sum of our assets. And we told them that we intended for them to inherit some portion of that.

I am pleased to report that their first reaction was negative. “We don’t need your money,” they told us. “And we don’t want it.”

I told them that I was happy they felt that way. But like it or not, they were going to inherit a sum of money one day. And we had to start talking about what they would do with it.

Since then, we’ve had several more meetings. And those meetings are influenced by a publication and organization that Bill and his eldest son, Will, started. It’s called – appropriately – The Bonner Family Office (BFO).

One big idea that we borrowed from the BFO concerns the purpose of inherited wealth. Bill doesn’t believe in cutting up wealth among the children so that they can do with it what they like. He sees the wealth as an integral family asset that should function more like a bank.

Rather than inheriting lump sums of money, the children inherit an interest in the family fund. The purpose of that fund is to help individual family members enrich their lives… but how they do that must make sense.

Children can borrow from the fund. But if they do, they must return the borrowed money with interest. They can use the money to start businesses or pursue education, but they can’t use it to buy sports cars or yachts. They also should help the fund grow in value. That way, when they die, it’s larger than it was – large enough to help their own children.

As it happens, I had formed The Ford Family Limited Partnership 20 years prior to this, so we used that structure to accomplish these goals.

We’ve already used the partnership to extend two loans: one to help our eldest son buy a house and another to help our second son start a business. Without access to these funds, neither of them could have done those things.

Their credit may not be good enough for banks, but it is good enough for us. Having the limited partnership structure allows us to provide a financial benefit to them without spoiling them.

Another thing we’ve done is include our children in a charitable project I started in Nicaragua a number of years ago. It’s a community center that provides educational and recreational facilities for local people. Originally, I saw this as a personal project – my own experiment in charitable giving. But now, by inviting the family to get involved, I’ve benefited in two ways: I have their help in developing the center, and I can expect that it will be preserved after my death.

Our youngest son took over as director of the center two years ago. He’s done a great job of it, hiring capable people and vastly improving the scope and quality of services. He receives a stipend for doing this. In addition, he’s learning how to manage a somewhat complicated business with 20 employees and hundreds of “customers.” (He asks me questions and sometimes listens to my answers.)

The Ford Family Limited Partnership owns rental real estate, which seems to be the perfect vehicle for our purposes. And recently, our second son agreed to manage those properties. As a musician and composer, he had very little exposure to real estate investing or business management. But he’s taken to it like a duck to water.

He spends several hours each week learning about the real estate business, learning that – like the music business – it can be both fun and challenging. Like our youngest son, he receives compensation for his efforts. This gives us a way to help him out financially that is merited rather than entitled.

Our oldest son hasn’t gotten involved in any of the family businesses, but perhaps he will one day. If not, there’s always the chance that a cousin or grandchild might want to get involved.

We still have plenty of assets to figure out, but we are comfortable with what we have done so far.

The community center in Nicaragua is fast becoming a project we all feel proud to contribute to. And the real-estate business has already become a cool little private bank that can make loans to family members while it grows its asset base steadily and safely.

In general, I feel like we’re doing a smart thing: involving our children in the management of the assets that they will one day inherit while we are still around to provide advice and guidance.

So what have we learned about this complicated subject?

While your children are young…

Don’t buy them expensive things just because you were poor and never had them. Remember that giving your children less is sometimes giving them more.

Expect them to work – and not just at their education. Give them menial household chores and pay them fair market value for their work. Never overpay them.

Avoid discussions of family wealth. If the subject of inheritance comes up, tell them they aren’t getting anything.

When your children leave home…

Make it clear that their bedroom is no longer their bedroom. Put their personal effects in storage. Tell them they are welcome to come home for brief periods as a guest. Remind them that guests are always well-mannered.

When your children become adults…

After your children have proven to you that they can take care of themselves, you can begin to discuss family wealth, including what they might one day inherit.

Consider putting a business or some income-producing assets into a legal structure that can operate as a family bank, making loans to them when merited.

Consider establishing a family charity (if you believe in charity).

Use the family bank and charity to teach your adult children what you have learned about managing wealth.

Best,

Mark

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

How Less Consumption Leads to Early Retirement

From Yahoo Finance:

Do you want to retire early? Then spend less and save more. You’ve probably heard this advice preached countless times and completely agree with it in principle. But you know how it goes. Saving money makes perfect sense, until you actually see something you want, and then every urge you’ve learned to control goes swiftly down the drain.

In the heat of the moment, you don’t think too much about the impact of a seemingly small purchase. But how much are you really giving up when you give in to small purchases? Here are a few reasons daily spending lengthens the amount of time you will spend in the 9-to-5 grind:

Your expenses are directly tied to how many years you need to work. The fewer dollars each paycheck that go to spending, the more you have left over to invest. No surprises there. But a smaller monthly outlay also lessens the load your nest egg will need to pay for in retirement. Spending just $5 per day on a coffee fix or other convenience food will cost you $1,825 per year or $54,750 over a 30-year career. For people who earn around a $50,000 salary, that’s an entire extra year of work just to pay for $5 worth of daily discretionary spending. If that worker spends close to 9 hours a day at work or commuting and works 20 days per month, that’s 2,160 extra hours of dealing with work, boring meetings, incompetent bosses and the commute, just to finance a daily $5 purchase.

Avoiding discretionary purchases could help you retire sooner. If you instead saved that $5 per day, you could not only retire a year earlier, but perhaps much earlier than that due to the compound interest on that $1,825 you tuck away each year. Saving just $5 per day in a 401(k) will grow to $178,856 over 30 years, assuming 7 percent annual returns. That’s about three and a half fewer years you would need to work if you earn $50,000 per year. And if you also get an employer match of 50 cents per dollar contributed on that money, you will have $268,284 after 30 years, which is 5 and a half years’ pay for the same worker.

You don’t need to save up as much. When your expenses are less each year, you can live well with a smaller nest egg in retirement. If you learn to live on $40,000 a year, even if you earn much more than that, you only need to save up enough to cover the $40,000 per year in retirement, not enough to replace your current salary. In fact, living on $40,000 per year, working hard to earn more than that and saving the difference is one of the fastest ways to retire early.

It’s much easier to come up with income to replace the smaller lifestyle. A smaller monthly budget can also add to your peace of mind in retirement. When your standard of living is entirely dependent on what the markets do, it’s hard to not be nervous whenever valuations gyrate. But what if your spending is so low you can easily come up with the difference by working part time? Obviously you can still aim big and try to get a large salary back. But if an easier to find and less stressful job can fulfill a possible income shortfall, then you don’t have to worry so much about investment performance and can concentrate on enjoying retirement.

For some people, spending less is extremely hard. We all live in the same modern society that celebrates consumption. But think about what you are giving up whenever you click the “buy” button. Is years of working worth the extras that you will forget about after owning them for a while?

Visit MoneyNing.com for more personal finance discussions. This site also helps readers decide whether a 0 percent balance transfer card is worth signing up for and keeps a good list of helpful promotion codes.

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Win arguments and negotiations

Surely this is useful in business and might help you get to your financial goal!

From Bakadesuyo.com

JUNE 19, 2013 by ERIC BARKER

6 hostage negotiation techniques that will get you what you want

hostage negotiation

 

How does hostage negotiation get people to change their minds?

The Behavioral Change Stairway Model was developed by the FBI’s hostage negotiation unit, and it shows the 5 steps to getting someone else to see your point of view and change what they’re doing.

It’s not something that only works with barricaded criminals wielding assault rifles — it applies to most any form of disagreement.

There are five steps:

  1. Active Listening: Listen to their side and make them aware you’re listening.
  2. Empathy: You get an understanding of where they’re coming from and how they feel.
  3. Rapport: Empathy is what you feel. Rapport is when they feel it back. They start to trust you.
  4. Influence: Now that they trust you, you’ve earned the right to work on problem solving with them and recommend a course of action.
  5. Behavioral Change: They act. (And maybe come out with their hands up.)

The problem is, you’re probably screwing it up.

 

What you’re doing wrong

In all likelihood you usually skip the first three steps. You start at 4 (Influence) and expect the other person to immediately go to 5 (Behavioral Change).

And that never works.

Saying “Here’s why I’m right and you’re wrong” might be effective if people were fundamentally rational.

But they’re not.

From my interview with former head of FBI international hostage negotiation, Chris Voss:

business negotiations try to pretend that emotions don’t exist. What’s your best alternative to a negotiated agreement, or ‘BATNA’?  That’s to try to be completely unemotional and rational, which is a fiction about negotiation. Human beings are incapable of being rational, regardless So instead of pretending emotions don’t exist in negotiations, hostage negotiators have actually designed an approach that takes emotions fully into account and uses them to influence situations, which is the reality of the way all negotiations go…

The most critical step in the Behavioral Change Staircase is actually the first part: Active listening.

The other steps all follow from it. But most people are terrible at listening.

Here’s Chris again:

If while you’re making your argument, the only time the other side is silent is because they’re thinking about their own argument, they’ve got a voice in their head that’s talking to them. They’re not listening to you. When they’re making their argument to you, you’re thinking about your argument, that’s the voice in your head that’s talking to you. So it’s very much like dealing with a schizophrenic.

If your first objective in the negotiation, instead of making your argument, is to hear the other side out, that’s the only way you can quiet the voice in the other guy’s mind. But most people don’t do that. They don’t walk into a negotiation wanting to hear what the other side has to say. They walk into a negotiation wanting to make an argument. They don’t pay attention to emotions and they don’t listen.

The basics of active listening are pretty straightforward:

  1. Listen to what they say. Don’t interrupt, disagree or “evaluate.”
  2. Nod your head, and make brief acknowledging comments like “yes” and “uh-huh.”
  3. Without being awkward, repeat back the gist of what they just said, from their frame of reference.
  4. Inquire. Ask questions that show you’ve been paying attention and that move the discussion forward.

So what six techniques do FBI hostage negotiation professionals use to take it to the next level?

 

1. Ask open-ended questions

You don’t want yes/no answers, you want them to open up.

Via Crisis Negotiations, Fourth Edition: Managing Critical Incidents and Hostage Situations in Law Enforcement and Corrections:

A good open-ended question would be “Sounds like a tough deal. Tell me how it all happened.” It is non-judgmental, shows interest, and is likely to lead to more information about the man’s situation. A poor response would be “Do you have a gun? What kind? How many bullets do you have?” because it forces the man into one-word answers, gives the impression that the negotiator is more interested in the gun than the man, and communicates a sense of urgency that will build rather than defuse tension.

 

2. Effective pauses

Pausing is powerful. Use it for emphasis, to encourage someone to keep talking or to defuse things when people get emotional.

Gary Noesner, author of Stalling for Time: My Life as an FBI Hostage Negotiator has said:

Eventually, even the most emotionally overwrought subjects will find it difficult to sustain a one-sided argument, and they again will return to meaningful dialogue with negotiators. Thus, by remaining silent at the right times, negotiators actually can move the overall negotiation process forward.

 

3. Minimal Encouragers

Brief statements to let the person know you’re listening and to keep them talking.

Gary Noesner:

Even relatively simple phrases, such as “yes,” “O.K.,” or “I see,” effectively convey that a negotiator is paying attention to the subject. These responses will encourage the subject to continue talking and gradually relinquish more control of the situation to the negotiator.

 

4. Mirroring

Repeating the last word or phrase the person said to show you’re listening and engaged. Yes, it’s that simple — just repeat the last word or two:

Gary Noesner:

For example, a subject may declare, “I’m sick and tired of being pushed around,” to which the negotiator can respond, “Feel pushed, huh?”

 

5. Paraphrasing

Repeating what the other person is saying back to them in your own words. This powerfully shows you really do understand and aren’t merely parroting.

From my interview with former head of FBI international hostage negotiation, Chris Voss:

The idea is to really listen to what the other side is saying and feed it back to them. It’s kind of a discovery process for both sides. First of all, you’re trying to discover what’s important to them, and secondly, you’re trying to help them hear what they’re saying to find out if what they are saying makes sense to them.

 

6. Emotional Labeling

Give their feelings a name. It shows you’re identifying with how they feel. Don’t comment on the validity of the feelings — they could be totally crazy — but show them you understand.

Via Crisis Negotiations, Fourth Edition: Managing Critical Incidents and Hostage Situations in Law Enforcement and Corrections:

A good use of emotional labeling would be “You sound pretty hurt about being left. It doesn’t seem fair.” because it recognizes the feelings without judging them. It is a good Additive Empathetic response because it identifies the hurt that underlies the anger the woman feels and adds the idea of justice to the actor’s message, an idea that can lead to other ways of getting justice.

A poor response would be “You don’t need to feel that way. If he was messing around on you, he was not worth the energy.” It is judgmental. It tells the subject how not to feel. It minimizes the subject’s feelings, which are a major part of who she is. It is Subtractive Empathy.

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Getting financial advice

Stansberry

Probably 90% of the advice dispensed from brokers, financial planners and pundits on CNBC is liable to make you broke. The guys on Wall Street don’t care 1 bit about you or whether or not you make money. What they do care about is making money for themselves.

For me, as an investor and business man, this has always been a problem. Who’s advice can you trust?

Really, the only way that you can get good, unbiased advice is to pay for it. Being as frugal (cheap) as I am, even I have a hard time breaking out my credit card when there are free alternatives on the internet. I just love the internet for all of the freebies that you can get. But sometimes, it pays to spend a little money. I would never go cheap for a lawyer if I was in trouble or if I was buying a million dollar house. So why should I go cheap when I’m managing a million dollar portfolio?

I’ve read articles on The Motley Fool and Seeking Alpha and I can say that most of these articles are written by amateurs who know little about the market and have (themselves) never had a real stake in a Wall Street position. Many of these guys are novice traders but they sure talk a big game.

I’ve gone back and read many of the :”old” MF & SA articles and checked the success rate and I’ve found that the number of winners depends solely on the overall market. When the overall market is up, about 70% of these picks make money. When the market is down, only about 30% of these pics make money. When the market is flat, about 1/2 of the recommendations make money. And so, throwing darts at the Wall Street Journal stock page is just as likely to yield winners as some of these “free” websites.

I tried a few investment services on a short trial basis and I found that Stansberry Research offered me a new and fresh look at the market. I found that Porter Stansberry and his team(s) don’t tell you what you want to hear, they tell you what they believe. They don’t have an sponsors to satisfy, any government lobbyist to appease, they just tell it like they see it. For some, this doesnt’ work, especially for “sheeple.”

Sheeple are part human, part sheep. They move along with the crowd. They want public acceptance and to “fit in.” These people will rarely become financially independent and will rarely become rich. These people buy at market highs, sell at lows and are afraid to do anything different from their golf buddies or colleagues at work. Stansberry writes what he thinks is happening in the stock market and for some people, this is very upsetting.

Since I subscribed to his newsletters about 3 years ago, I’ve seen my net worth grow about $300,000. And I can honestly say that 95% of that gain is due to the insights that I’ve received reading three of his newsletters.

I recommend that you give it a look. Maybe try one of his one month specials wherein he offers one of his newsletters at a discount for one month to let you try it out.

A bit of a disclaimer: the “main” newsletter is about $30 a year and it offers some basic overall market instruction and a couple of good buy ideas. But most of his really good material comes from his “premium” newsletters that can run from $50 a year up to $4,000 per year. Each daily email from the standard newsletter is usually accompanied by one or two sales pitches to buy a premium newsletter. And this is sometimes (really) annoying. But, if you just get in the habit to delete the sales emails, its really worth it.

Once in a while, he offers a good price to try out a premium newsletter; I’ve tried 4 and kept the subscriptions for 2 so that in total I now have 3 newsletters coming from him. I think I pay $30 + $60 + $50 per year. Not bad when held up to $300,000.

I don’t make a nickle from advertising for this company. Have a look at it if you want. Like I’ve said before, I’ve offered this website as a way to give some of my experience to others. So take it what its worth: the honest recommendation from a guy from a poor family who managed to save a million bucks.

Stansberry Research

Good luck, and good investing!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Free credit monitoring?

In an attempt to “fix” the public unhappiness with their credit card fiasco, Target is offering its customers 1 year of free credit reporting. As a target customer I was sent a link to sign up for this free service. I followed the link, set up the account and now I have access to 1 year free Experion credit reporting.

When I looked at the link I was provided I noticed that it didn’t have any customer-specific information. In other words, its a generic link and it looks like anyone can use it.

If you are a Target customer or not, I’m pretty sure that you can use this link to get “free” credit monitoring. Give it a try and if it works for you, leave a comment and let us know!

Good luck!

Free Target Credit Reporting

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net