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!

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.

Its all about your attitude

Happy grimmace sad

As I think more and more about the road to financial independence, I become more and more convinced that your attitude is the primary factor for success. Unlike the graphic above, whether or not you are happy or sad won’t decide if you will make a million dollars but your attitude towards getting to that goal will be everything.

At my work I’m surrounded by colleagues who make six figure salaries and barely can put together ten thousand dollars for a house down payment. There is NO reason why they can’t be financially successful (savings I mean, not earnings) except for their attitude. They treat money like air, something to be breathed in and out without a thought to saving, investing or planning for the next step in their lives. Opportunities about; the average person probably has about a half dozen opportunities in their life to stake a claim on their fortune. Whether or not you are prepared will mean everything.

I have one old buddy from high school who started real estate investing in the last 6 or 7 years. I even went in on one of his deals and it is paying off nicely. He first bought a 3 room house and then rented it followed by a one bedroom apartment. He paid enough down so that his monthly cash flow was positive on both properties. Later he bought (also with positive cash flows) a 3 unit condo complex and later a 4 unit apartment building (the unit I helped to finance). He has just informed me that he closed on an 18 unit apartment building. Each property has a positive cash flow and I estimate that he is earning somewhere between $6,000-8,000 per month in EXTRA income.

I say extra because he still has his job and his wife still has hers. Because the cost of financing is cheap (rates in the 4% range), he uses the extra $6k each month to finance new properties. After a year, you have an extra $80k – this can be used for a down payment on a new property. I guess that he will hit his million in a decade.

Realize now that he started with NOTHING. He and his wife worked, skimped and saved until they had enough to buy their first rental property. After that, they skimped and saved more. And over time, it is paying off handsomely. I suppose that in a few years he will be so busy managing his properties that he won’t have time to go to work. What a glorious day that will be when he can quit his job and be self employed.

The American Dream.

And so, what set him apart from his friends and colleagues who aren’t growing their net worth like him? It was all his attitude. He made a goal to own 20 properties and started with just one. When his first was bought, he set his sights on the next.

It was all ATTITUDE.

If your attitude isn’t such that your mindset is that you’re ALWAYS looking for your chance to stake a claim to one of your life’s jackpot opportunities then you’ll probably never succeed. Have an attitude check on yourself and ask if you’re motivated and focused on becoming a millionaire. If you are, you can find a way. If you aren’t, someone else will take that opportunity that you pass. They’ll be the “lucky” one who was “at the right place at the right time.”

Luck is when preparation meets with opportunity.

Good luck!

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:

Compound Interest

Reading my weekly Stansberry investment newsletter I came across an article that I thought I would share.  This article is about compound interest and its importance.  Most people don’t realize how important compound interest can be; over time, money grows and as it grows and grows, eventually the growth becomes quite explosive.  Eventually, the money works for itself and grows exponentially.  Below, you’ll see a chart that gives an example of how compounding works.  But to give you another idea, lets talk about sheep:

Pretend that you are a shepard from the days of the bible.  You live in a tent with your wife and son and daughter and you have a flock of 8 sheep, 4 male and 4 female.  In the spring, your 4 female goats give birth and after the first year you now have 12 sheep.  The following year, your 6 female sheep give birth and you now have 18 sheep.  In the third year, the 9 female sheep have a baby sheep each and now you have 27 sheep.  4th year you have 13 more sheep and in year 5 20 baby sheep are born.  After 5 years, your 8 sheep have turned into 60.  Interest compounds a little slower than this but over time, as the money grows, you are compounding a larger and larger amount so that the amount of interest you receive each month becomes a substantial amount.

Imagine, some 20 or 30 years later, you have 1,000 sheep and in the spring, you have 500 new baby sheep.  Compound interest works like this.  Eventually, your “nest egg” is big enough so that the interest generated is more than your regular salary.  I am just totaling my dividends, interest and options premiums for December and my million dollar portfolio generated over $10,000 this month (combined interest, dividends and options premiums).  In the 3 months previous, my account has paid me  $6,456, $9,435 & $3,479.  I can remember back when my account had thirty or forty thousand dollars and my monthly dividends and interest might only be ten or twenty bucks.  One sheep born… years later, 500 sheep born.

From Stansberry:

In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions – he’s finished.

A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he’s 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A’s 33 additional contributions.

This is a study that I suggest you show to your kids. It’s a study I’ve lived by, and I can tell you, “It works.”

So you can see that the investor who stared earlier ended nearly the same even though he invested much less money.  Over time, compounding can have a dramatic effect on your investments.  Previously we talked about the Rule of 72.  If you can get a high rate of return on your investments and let that interest compound over time you can save a million dollars.

Eventually, the interest earned on your investments is more than your regular monthly contributions.  When that happens, it is a great feeling!

Save, invest and grow your wealth until you are a millionaire.

Good luck!

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:

Lending Club

Once in a while I come across an idea that is so brilliant that I lament that I wasn’t the one who had thought it up.  When I first heard about “peer to peer lending,” I was a bit intrigued and I did some research.  It seems that the two largest companies are the Lending Club and Prosper.  After looking at both, I found the Lending Club’s website to be easier to use and their “deal” seemed better.  I studied, read their literature and decided to give peer to peer lending a try.  After some months enrolled in the program, I have found that the results match the advertisements and I bring the idea to you here so that you might be able to benefit from it.  I wish I had found it 5 years ago, I might have retired earlier!

First, let me explain peer to peer lending.

The typical Lending Club borrower is someone with credit card debt who is looking for lower payments.  Some credit cards charge 25% and if you have ten or twenty thousand dollars at very high rates, the payments can be crippling.  Even if you can make the payments, it is often difficult to pay down the balances.  Trying to obtain a second source loan, maybe from your local bank, will likely incur equally high interest rates.

The Lending Club offers loans to qualified borrowers and sets an appropriate interest rate and the borrower applies for a Lending Club loan just like they would for any credit card, revolving charge line or car loan.  The Lending Club credit department verifies basic information like credit scores, employment verification and (sometimes) income levels.  If the loan is “approved” by the Lending Club credit department, the loan is placed for funding on the company’s website.  The website lists loans, not unlike you find products on eBay, and investors (you and I) can purchase these loans.

The Lending Club collects a fee, typically about 1% of the loan and payments to do the credit check and verifications and to process the payments.  Having done personal and business loans, I know how much work it can be.  They definitely earn their fee and I am happy to pay it!

The biggest problem with investing in loans is that you must often need a LOT of capital.  AND, you have a HUGE risk if the loan defaults.  If some person is paying 25% on a $20,000 loan, you could loan them $20,000 at 16% and give them a chance to pay their bill down much quicker and save a lot of money in finance charges.  But, what if they default?  You just lost $20,000.  For a large corporation like Visa or Master Card, this is not a problem as they have hundreds of thousands of loans.  If their default rate is 10% and they are collecting (on average), 20% in interest, they still clear 10% in finance charges.

And here is the brilliance of the Lending Club.  You don’t have to buy the whole $20,000 loan, you can buy a fractional share!  The minimum investment in any loan is only $25.  With an investment as small as $2500, you can purchase 100 loans.  If you average 14% notes that have a expected default rate of 4%, you will (all things considered) average about 9-10% return on your money.

Quick disclaimer:  I made my purchase with the Lending Club based on my financials.  I am merely explaining how the company works.  I cannot say if this type of investment is appropriate for you.  Be sure to check with your accountant and/or financial planner and ALWAYS: don’t invest more than you can risk.  Also, Lending Club loans are 3 to 5 years.  Do not invest money that you will need in less than 3-5 years.  This kind of investment is appropriate only for long term investment capital (in my opinion, your IRA or Roth IRA account is a good place to start).

The Lending Club reports that they only “approve” about 10% of the loan applications that they receive.  I have attempted to “purchase” loans that were in funding that later failed one or more of the credit verifications (the applicant exaggerated their income or they failed to send in key documents as required to process their loan).  It was actually a good feeling when, sometimes, half of the loans that I attempted to purchase were disqualified during underwriting: my money was returned to my account to use to select another loan.

“Dipping my toe in the water,” I decided to fund a Lending Club account with $5,000 from one of my IRA accounts.  I opened my account in September and the results have been as advertised.  In the top photo, I have made a screen capture of the main page of my account.  In it, you can see the annualized rate of return on my portfolio of loans (not including default rate), how much interest I’ve received (in a little over two months), the value of my account (up to $5,150.53 from $5,000 ), the amount of capital that is applied to loans that are being approved, how much accrued interest I have made (but not yet paid), a listing of my loans and if they are current or late, and a summary of the payments I have received to date.

I am sure I will receive some feedback that lending money to unsecured borrowers is dangerous.  Really?  Visa and Master Card do it every day and make millions.  The way to limit risk is diversification: spread your money out and if any one, two, three or four loans go bad, you make up the difference on your loans that pay on time.  Think about how much your bank savings account pays you now.  .25%?  .50%?  Maybe if you are lucky, .80%  In about 2 1/2 months with Lending Club, I have returned 3% on my money.  OVER TIME, the additional 10%, 12% or 16% you earn on an account like this will most likely exceed your loss rates through defaults.

Loans are packaged in A, B, C, D, E, F and G categories.  The A paper has the less risk and typically pays about 6%.  The Lending Club provides some statistics and I have copied that page below.  In the bottom left you can see the expected returns for each of the credit grades, the expected default rate and the overall expected yield.  I have primarily purchased B-F paper.  Looking at the return after default, I think that the A and G provide the lowest yield to risk ratio.  Really, the biggest risk to a portfolio of Lending Club loans is another recession like we had in 2008.  I figure, that in a situation like ’08, someone with good credit (A paper) is just as likely to get laid off as someone with mediocre credit (D or E paper).  If I can earn a greater yield before the next economic hard times, why not make my money work for me while the economy is doing alright?

After I successfully invested my $5,000, I began receiving payments a little after 30 days.  My monthly payments are approximately $150.  Of that, $100 is a return of capital (the borrow is paying down the principle of the loan) and $50 in interest.  With the $150 I receive in payments each month, I am able to buy bits of 6 more loans at $25 each.  In the screen capture below, I segregated my loans into the initial investment and then the monthly accrued interest that is used to purchase additional notes.  The monthly payment amount for the initial purchase increases each month as I receive payments on the loans purchased with interest.  In this way, my money compounds and continues to work for me.  I plan to add an additional $5,000 at the end of the year and perhaps make a larger investment next Spring.

The amount of money you receive in interest can have an ENORMOUS difference on your net worth over time. If you do not already know the “Rule of 72,” you should understand how it works. Take the number 72 and divide by the interest rate and you will know how long until your money will double.If you are getting a 1% return in a savings account, your money will double in 72 years. Most get less, perhaps .5% – so, your money will double every 140 years. Subtract taxes and inflation and you are actually losing money. THE ONLY WAY TO GROW YOUR MONEY is to beat inflation after taxes are taken out.If you pay 30% in taxes, you must earn a MINIMUM of about 6.5% return to beat inflation.If you earn 7%, your money will double every 10 years. At 10%, your money will double every 7 years.Most people make the mistake thinking that 10% is only 3% more than 7%. Over time, this can be a costly mistake.

Lets say you invest $10,000 at 7% and $10,000 at 10% for periods of 20 years.

The 7% money is going to to double twice:
$10,000 initial
$20,000 year 10
$40,000 year 20

The 10% money is going to do much better:
$10,000 initial
$20,000 year 7
$40,000 year 14
$80,000 year 21

In almost the same amount of time, gaining only 3% more in interest DOUBLES the amount of money you earn. At 15%, your money will double every 5 years and the results are staggering.

$10,000 intial
$20,000 year 5
$40,000 year 10
$80,000 year 15
$160,000 year 20

And you wonder why Visa and Master Card make so much money? My point is this: don’t be afraid of investing in (what you may consider) “risky” investments that pay more than your local FDIC bank. Earning .25% return on your money with an inflation rate of 4% means that after taxes, you are losing 4% a year.

Not bad, you think? After 10 years, you’ve lost 40% of your purchasing power. The possibility of a 20%, 30% or even 40% default rate on consumer credit lending doesn’t sound so bad when compared to a guaranteed loss of 40% in a bank savings account? If every 5 or 10 years, you have a small or even moderate loss lending money in an account like this, the years you earned 15% will more than make up for it. You don’t think that Visa and Master Card put their money in FDIC insured banks do you? They are making millions on credit card loans.

What the Lending Club does, it allows you to undercut some of Visa’s business, give the borrower a good break on their interest rate and make a healthy profit for yourself. If a borrower with $10,000 in credit cards at 22% is still a “good risk” for Visa, they should be a GREAT risk for you at 16%!!!

Below is a “typical” loan sheet of a loan that I purchased. You can see the amount borrowed, the loan % rate, the length of the loan, how many payments I’ve received so far, the next scheduled payment and the payment history at the bottom. A great thing about the Lending Club is that the payments are auto-deducted from the borrower’s account. No worry about the customers forgetting to mail their payment, if the money is in the account, it automatically drafts to Lending Club. I will see that the payments due today are “in process” and about 5 days later, my account will be credited with the interest and principle.

Here is a screen capture from the long list of notes that I have purchased.  Here you can see the loan number, which “portfolio” I have saved it to, how much I invested, the note credit rating, the interest of the note, the term length of the note (36 months or 60 months), how much is outstanding in principle, the monthly payment I receive for the note, the day of the next scheduled payment and the note status.

And this last page is a typical loan listing from the borrower.  This page explains how much is to be borrowed, the amount of payment, the borrower’s income and employment information, why they want the note and all sorts of other information.  I like to see a borrower who has been on the job some time and who has a low credit line utilization.  With this borrower, they have spent about 57% of their credit card maximum.  I don’t like anything about 60%  I think that a borrower who is at 95% of their credit line might be using their credit cards for “living expenses.”  This gives me feelings of default and I avoid this.  You can set your parameters and screen for all sorts of debt, income and employment factors as well as the overall credit worthiness of the borrower (A, B, C paper etc).

I am quite impressed with the professional look and navigation of the Lending Club website.

If you have some long term capital that is inflating away in an FDIC bank, you may consider investing some of your capital towards your goal of someday becoming a millionaire.

Good luck!

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:


photo from Frontlines of Revolutionary Struggle

A few years ago my sister told me that she and her husband had saved an extra $1,500 from their tips that month – both worked in the food service industry.  I was excited for them.  They have always lived paycheck to paycheck and I thought that they finally had a way to “turn the corner” and begin a savings account that might lead to a down payment on a home.  What she told me next both shocked and disgusted me.

My sister told me that they gave $500 to their church and the remaining $1,000 was divided into five dollar bills.  My sister and her husband then went and handed out the $5 bills to homeless people as they “witnessed” to them about Jesus and Christianity.

Whether or not you are religious – try to put that aside for now.  And I can understand supporting your church in the form of monthly tithes (donations).  But to give away your entire savings for the month, when you don’t even have a cash “emergency fund” in the bank is, in my opinion, not only foolish but also reckless.

If you do not have a savings account of at least 3 years net wages AND a fully funded 401(k) and/or IRA plan, YOU HAVE NO BUSINESS DONATING TO CHARITY!

I have a favorite charity.  It is called the Samuel charity.  My investment account is my charity.  And every month, every available dollar that I can find goes in to be invested to generate even more wealth.  I have over a million dollars in the bank and I still don’t give a nickle to charity.

And neither should you!

Warren Buffet, Bill Gates and Bono should be donating to charity.  Some rich folks give a couple of million and we applaud them.  In reality, most give only a small fraction of their net worth.  Warren Buffet and Bill Gates are actually making sizable contributions to charity and for that I applaud them.  But leave it to them.  If you haven’t earned your million yet, leave the charity giving to the rich folks.

Sound greedy?

It is.  But  you have to be greedy if you want to be a millionaire.  Money doesn’t grow on trees.  You have to fight and scrape for every dollar and donations to charity are hazardous to your financial future and well being.

Does it sound rough?  Yes it does.  But I’ll say it again.  Quit donating your hard earned money to charity!

If an aircraft is suddenly depressurized, what is the first bit of instructions that they give you?  Put on your own mask first before helping others.  If you haven’t funded your retirement account and you don’t have an adequate emergency cash account, why are you putting a financial oxygen mask on others while you suffocate?

I read an article in Bloomberg this week that stated that millions are starving in India as donated food is pilfered by corrupt officials.  Most of this aid comes from donations from western countries and the distribution is so bad that upwards of 10% of the food rots before it can be delivered and what remains is stolen by corrupt state officials and sold for handsome profits.  Have a look at the article:

Poor in India Starve as Politicians Steal $14.5 Billion of Food

I see a story like it every week.  Last week I saw a story about a woman who claimed cancer to get her wedding paid for – she made the whole story up.  A large amount of every charity dollar donated goes to pay some bureaucrat or administrator.  Some day, when I feel “comfortable” in my financial position I suppose that I shall engage in direct charity.  Find a local family down on their luck and help them out, save their house, pay their water bill, fix their car.

What if you lose your job?  What if a loved one is injured and there are huge medical bills?  The charity money that you gave away could have been used to save your own family.  Charity begins at home and you should think of yourself and your family the next time you’re feeling generous with the excess of your paycheck.

And while I’m on the subject of America - YOU HAVE NO BUSINESS DONATING TO OVERSEAS CHARITIES!  More than 1/3rd of each dollar spent by the American Government this year is borrowed money.  Yes, we’re borrowing money to give to charities (ie foreign governments).  Israel has a high standard of living and less debt than us but we borrowed 1/3rd of the US $4 billion in aid that we gave them this year.  And if you are reading this, you probably have debt of your own.  Home mortgage, car payment, credit cards, etc.  If you send ANY money to charity and you have ANY bills, this means that you borrowed that $ to pay the charity.  If you haven’t paid your house off, your car off, & your credit cards, you’re using borrowed money to fund your charity donations.

We allow our politicians to spend out money on charity countries because we’ve all been sold that it is the noble thing to do.  Perhaps if more Americans were concerned for their own wealth and financial well being, they would insist that Congress do the same with their tax dollars.

What I’m saying isn’t politically correct, but it is correct.  Giving money away when you don’t have enough for yourself is insane.  America is broke and we give away more.  Hard times are coming.  In ten years, you may wish you had given less to charity and saved some for your own family.

Think about it.  Be wise with your money.  Be tight with your money.

The path to riches isn’t easy.  You have to change your way of thinking.

Good luck!

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What do you think is the path to riches?  Most people believe that you have to win the lottery, inherit the money or have a super high-paid job like a CEO or celebrity. While having a high paying job makes getting to the million dollar mark easier, it isn’t the only factor.  It isn’t even a necessary factor.

If you earn $40,000 per year, working from age 25 to 65, you will earn $1.2 million dollars in your lifetime.  About two decades ago I was told by a financial planner, “It’s not what you earn.  It’s what you keep.”

Think about that for a minute.  There are plenty of lawyers and dentists who are broke.  They earn $143,000 annually and spend $142,000.  What is left over usually is used to maintain credit card bills and rich living.  If anyone with an income spends less than they earn (after taxes and expenses), they will be able to save money.  Save money and you’ll have it available to invest.  You will have it available when “once in a lifetime” opportunities come up.

Most Americans don’t have 3 months salary in the bank.  You should have a few years worth of salary in the bank.

If you’re thinking of buying a house and the bank approves you for a $250,000 loan.  Buy a $150,000 house instead.

Your car running good?  How about a detail instead of a new car payment.

Instead of going out to the movies and blowing $100 on a family of 4, how about rent some movies and cook some microwave popcorn.

Live within your means!

This is one characteristic that you will find with all self-made millionaires.  THEY LIVE WITHIN THEIR MEANS.

Being frugal makes it easier to live within your means.  But if you are serious about becoming wealthy, you have to change your mindset to a state where saving and accumulating money becomes normal.  You’ll never get rich spending what you take in.  You have to spend much less than you take in and then save and invest.

Becoming a millionaire isn’t easy!  If it was, everyone would be rich.  But if you are serious about becoming a millionaire, you have to start by saving.

More on this topic as this blog evolves.  But if you’ve decided to start on the path to millionaire status, begin to start saving your money.  Track your progress and find ways that you can save more.

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: