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

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

You are what you eat

I’m sure you’ve heard the saying “You are what you eat.” In many ways it is true; you need only look at the diet of an athlete and a couch potato to see that each looks much like what they eat. An athlete who eats chicken in rice is thin whereas a couch potato looks a bit like a soft & fatty cheeseburger.

Much in the same way, with finances you are what you eat. More exactly, you are what you think. This idea came to my mind as I was on break at work. I shuffled through some investments, made some options trades and netted about $250. As I sat back, happy with my financial gain, I looked around the room. Three of the other guys were playing fantasy football and comparing how many “points” they earned on Sunday’s games and one guy was gun shopping. Specifically, he was shopping for a Kalashnikov and he was calling out the prices that he found on each website. It seems that the going rate for an AK-47 is about $750 in America.

The next day, most of the guys were playing “fantasy football,” and my other colleague finally pulled the trigger on his AK purchase and gave his credit card number over to the tune of $750. I made another option trade, this time netting $500. He called over to me and told me that he bought the AK. I smiled and told him that I just made two options trades in the last two days for $750. In essence, he spent $750 and I made $750. The rest of the guys, they just spun their time along in football fantasy land.

As I talk to most of my colleagues, friends and relatives at parties and others that I meet here and there, I find that most people don’t focus or concentrate their efforts on finance. They are busy with fantasy football, golf, fixing up their pet car project or whatever else it is that people do when they aren’t working. I have my own hobbies: travel, writing, going to the movies, gym, etc. But, a good portion of my day (at least one hour) is spent studying finance. And it shows: I am financially successful. Now, if you don’t study finance, how can you expect to be financially successful? Just like the couch potato who eats and never exercises, as he is what he eats, your finances are what you think.

I might look at the markets for 6 or 7 days and never see a trade, but when one jumps out, I play it and make a few hundred bucks, its only because I’m studying the markets that I see the opportunities as they come up. My colleagues, well, they see good fantasy football and gun deals – but this won’t make them a million dollars.

If you want to grow your own million dollars, you need to be studying finance every day. You need to focus on it, think about it, you pretty much need to sleep with finance in your mind. If you invest in real estate, you should study real estate. If you are growing a car business, you should be thinking cars all day and night.

My point is, if you want to make a million dollars, you should be focusing on it every day, not on fantasy football or some other distraction. Remember, you are what you eat!

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

Don’t buy junk

crap

On average, women outperform men in stock market investments.  The reason for this is quite simple: women tend to buy and hold whereas men trade stocks more often.  The average investor (probably 90% or more of small investors) sell when the market is down and buy when the market is up.  I remember in 2008 as most of my colleagues freaked out and bailed out of the market.  Most women held their stocks through the market sell-off and continued to dollar cost average through 401(k) investments and had positive returns by 2010.  Many of the men who tried to “market time” the market sold at the bottom and then returned to buy at the top.

I count myself among the “guilty” when it came to second guessing the market – and eventually missing great market gains and suffering stock market drops after buying too high.  I’ve sought knowledge, read and studied and only in the last few years have I begun to enjoy strong market gains, whether the market advances or declines.

In this article we will cover the first of the big mistakes that investors make.  If you avoid these pitfalls, you will GREATLY improve the returns on your investments.

1.  Don’t buy junk.  This sounds obvious, but the vast majority of stock investors own “junk” investments.  I’m not talking about junk bonds, those can have a place in a well diversified investment portfolio, I’m talking about bad investments.  Before you know what a “bad” investment is, you need to know first what a good investment is.

To understand what a good stock investment is, you need to stop thinking about investments as buying stocks.  Instead, you need to focus on buying businesses.  Imagine for a moment that you just won the lottery for $8 million dollars.  After taxes you take home $5 million.  You decide that you want to buy some businesses in town.  Let’s say that the “average” business in your town sells for a million dollars.  Let’s say that you decide to buy 1 bar, 1 retail store, 1 restaurant, 1 auto repair garage, and an apartment building.

We will start with the restaurant: you have a choice of a “popular” bar that has a flamboyant owner who is often in the news.  He regularly drives around in his convertible and has several girlfriends.  This guy is well known in town and very popular.  His bar is “the place to be” on Friday nights and often has a line formed up outside on weekend evenings.  Everyone wants to get into this bar on the weekends, it is popular and there is a lot of “buzz” about this place.  Most investors would love to be a part of this business; it is exciting, it is sexy.

And so, you begin to look at the books of this business.  You see that it has a strong cash flow on the weekends but during the week, it draws significantly less in revenue.  You see that the rent on the building is VERY high, the wages paid to the staff are quite expensive and the liability insurance for this “popular” watering hole eat up most of the profits.  Despite the “colorful” lifestyle of the owner, you see that he barely turns a profit.  Moreover, because of several fights at the bar in past weekends, some lawsuits are pending.  This business “looks good” from the outside, but in reality, it does not return much money to the owner.

Take a look at many stocks that are “popular.”  Many pay low dividends, have weak earnings and are priced very high.  I am regularly astounded that stocks with no earnings and high P/E (price to earnings ratios) sell at such high premiums.  And why?  Because  idiots like “Kramer” on CNBC and silly online companies like Motley Fool recommend them.  As I talk to more and more small investors I find that most people are buying stocks based on what’s in trend, what’s en vogue and what is “popular” on CNBC.  Over time, these investments return very little to the owner.

We look at another bar.  The local Irish pub.  It has a steady and loyal customer base, it is “busy” 7 days a week, has low overhead and expenses and returns a cash flow to the owner.  The current owner (who is now retiring) draws $8,000 per month in owners’ equity (salary) and leaves several thousand in the bar for improvements and to grow equity.  You realize that if you draw $8,000 per month, each year you will “take out” $96,000 per year.  In about 11 years you will return your initial $1,000,000 investment.  Starting in year 12, you have a “free bar” and the income that comes in is all profit.  Imagine now that the intrinsic value of the bar has grown in these last 12 years so that now you can sell it for $1.5 million.  Now, not only have you taken all of your money back, but you’ve made a 50% return on your basic capital.  Meanwhile, the “popular” bar had its business slow and after a year or two, it went out of business.

I ask people, “Why did you buy that stock.”  What I hear astounds me.  They ALWAYS have a “story.”  Something someone told them, something their broker told them, something they saw on CNBC or read in Fortune Magazine.  I ask them about the stock’s earnings or its dividend and they have a blank stare on their face.  These people – and I might be talking about you – aren’t investing, they’re gambling.

When you buy a stock you should look for a company with strong earnings, little competition, a strong return of capital (strong dividend) and good future business prospects.  I’ve had this conversation at work a dozen times and every time, I’m asked the question, “Well then, what stocks fit this description?”  And when I answer, I see eyes roll over, sighs of sarcasm and chuckles as though I don’t know what I’m talking about.  To most investors, these investments are “boring” and they don’t have the patience for them.  But good stocks are considered by most to be boring.

Let’s take a look at some “good stocks.”  These are stocks that pay ever increasing dividends, have little competition and increase owner equity through the practice of paying a strong dividend and share buy-backs:

Walmart

Coca Cola

McDonalds

Microsoft

Hershey’s

Sysco

Procter & Gamble

I’m sure you get the idea – fat companies with thick profit margins.  If you buy the stock of one of these companies and reinvest the dividends into more shares, you’ll average about 15% return.  And considering that much of the gains will be long-term capital gains, you’ll never pay tax on the growth of the price of the shares until you sell.  Warren Buffet bought 5 or 6% of Coke back in the 80’s and has reinvested his dividends ever since.  His dividends now pay back the entire cost of his investment EVERY SIX MONTHS!  Think about that for a minute, lets say he invested $10 million, he’s getting back $20 million every year just in dividends!  That initial Coke purchase paid for itself and now pays dividends year after year while the base value of the stock continues to grow.

And yet, I hear of other “investors” buying this or that stock because of some crazy idea they heard on TV.  Example, one of my clients bought Remington (the firearms manufacturer) because Obama’s plans for more gun controls = increased sales.  Maybe.  But does Remington have the fat profit margins and increasing dividends each year like McDonalds has?  No.  Not even close.  When I suggested that he sell his Remington and buy Coke or Walmart or McDonalds, he looked at me as if I had a bullet hole in my forehead.  Again and again, I share the “logic” of buying good companies and people nod in agreement and then tell me how they’re buying Ford or GM because, once upon a time, it traded for 3x what it trades for today.  How silly.  You want a company that pays you to own it, not the company that is popular or has a good story.

The BULK of your portfolio should be boring Blue Chip stocks that are fat with profits, insurance companies, oil & energy transport and some real estate investments that pay you regular rents.  The way to win in the market is slow and steady gains without taking massive losses.  If you can earn 12% year in and year out, you’ll beat all of your co-workers who are chasing Apple to $600 a share.

More on this idea later – but if you own a bunch of junk – stocks that don’t earn (and pay) rich profits, you should consider shifting the bulk of your portfolio to some boring stocks that pay you and pay you year after year.

Good luck.  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

Make a Goal

One of the most important steps – and perhaps the most overlooked step to wealth building is the setting of specific goals.  I once read an article – it has been years so don’t quote me on specifics.  The article quoted a study of college students, graduates and working professionals.  It asked if the study subjects wrote down their goals.  Most people had goals but this study was looking at the difference between those who wrote their goals and those who just had them in their heads.

The results of the study were interesting; if I remember correctly, 80% of the people who wrote their goals were successful in attaining them whereas only 20% of those who did not write their goals were successful in attaining them.  This observation echoes the same findings that Napoleon Hill had in his book “Think and Grow Rich.”

It is very important to write down your goals.

In November 2004, after I had read Napoleon Hill again (I had read it twice back in my college days), I sat down and wrote out my goal.  It was an ambitious plan and I did not know if I would accomplish it or not but I wrote it down.  I’ll have to admit, I didn’t read it twice aloud daily like I was supposed to.  Perhaps I read it a few days a week and sometimes I would forget for a week or two.  But I would always come back to it, visualize it, fantasize about it and try – as hard as I could – to will it to happen.

It read:

11/15/04

I, Samuel, will have in the bank, $1,000,000 – one million dollars, cash, by 30 November 2012.  For this amount of money, I will give my time, effort, energy, liberty, ego, family, relationships, friendships, freedom, hard work, travel, recreation and hobbies; I will use all of my determination, nuance, skill or anything else necessary to make this goal a reality.

I can already see myself in possession of this money.  As I close my eyes, I can already see this amount of money in the bank.  It is as sure as there.  I will attain this goal.  I will focus on this goal and all of my actions will drive me towards this end; I will conduct myself in a way that is compatible with the successful attainment of this goal.  I will forgo and ignore all distractions that take my attention and efforts off of this goal.

I will read this statement, aloud, twice daily, morning and evening, until this goal is a reality.

I surpassed the $1,000,000 cash mark on 5 August 2012, about 3 months before my goal date.  There were many months (years) where I thought I wouldn’t make it.  Especially after the 2008 stock market crash.  I lost over $100,000 in one month.  Many of my work colleagues freaked out and abandoned the market and put their money in FDIC insured accounts.  I re-read my goal and thought about it and realized that this was a once in a lifetime opportunity.

I piled what cash I had left into the Dow Pro-Shares Ultra fund (leverages the Dow Jones Industrial average 200% – if the Dow is up 10%, you’re up 20%, if it is down 10%, you’re down 20%).  Then, I took out a margin loan with my broker and plunked down some more in this fund and some other blue chip stocks.  For the entire year 2009, I put every last paycheck I had into good stocks that I thought were severely undervalued.

I received an application for a Discover Card & it invited me to “transfer balances” interest free for 6 months.  I thought, “Why not,” and put down my brokerage as a creditor – I did have a margin loan after all.  Sure enough, Discover mailed them a $20,000 check.  This freed up $20k in margin allowing me to buy more stock.  I then called up my Visa card and asked if they would send me “some of those balance transfer” checks.  They were happy to oblige.  My account climbed about $400k from Fall 2009 til Spring 2010.

During the French Revolution, one of the frogs said, “Buy when there is blood in the streets.”  How true that is.  If you want to be rich you have to be bold when others are scared.  You have to think outside the box.  You have to seek the advice of wise people (I pay more in financial newsletter subscriptions than I ever paid for any membership or subscription and it has paid off 100 fold).

Back to goals.  Have you written your goals down yet?  If not, 80% chance you won’t make your goal; you probably will not become a millionaire.  Better to write your goals and be in the 80% club!

Good luck!

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Charity

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!

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

Saving

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: http://www.my1stmillion.net

On being frugal

There are several disciplines that must be mastered in order to become wealthy.  Aside from inheriting money or winning the lottery, these steps are crucial and failure to master them most assuredly makes wealth growth nearly impossible.  In order to grow your wealth you must increase your income, manage and grow your investments, manage your expenses, and manage or eliminate your debt.  We’ll talk about income, investments and debt at a later time but for now, let us focus on managing expenses.  There is no more direct way to managing expenses than to just be plain frugal.

I get grief from my friends all the time about being a “tightwad,” being “cheap,” and they even nicknamed me “Jew.”  Now before I get a rash of hate-mail for being anti-semetic, let me just say that I take the Jew nickname as a compliment.  Let’s face it, per capita, Jews are the most wealthy people on the planet.  Why is this?  It is because they respect money and they teach that respect to their children.  All of my Jewish friends have told me the stories of being scolded by their parents for leaving $.35 cents in change on their dresser drawer at the end of the day.  “Respect that money, that isn’t how I raised you, put that money away.”  Quite to the contrary, most Gentile families criticize you if you don’t spend outside of your means, calling you cheap.

Well, lets just look at the results.  Being frugal with your $ = long term wealth creation as demonstrated by, not only Jewish families but also many in the Asian community, Armenians and even the American Scottish.  It may not seem like much, $.35, but added each day, over 10 years, when invested wisely, those pennies add up to dollars and then to thousands of dollars.

Now, I’m not talking about being “cheap,” wherein you sacrifice quality to save money.  I’m talking about getting good bargains, buying things on sale, spending within your financial situation and not overspending on silly things like tipping at restaurants.  My brother is notorious for tipping the wait-staff 25% for every meal.  He is an owner of a large corporation that does millions in business and I’d be surprised if he has $1,000 in the bank.  He also spends lavishly going out to dinner and to bars, on expensive cars and on gifts for his children.  I’m all for buying a nice Rolex watch or a Mercedes sedan, but only if you can afford it.  If you don’t already have a million bucks in the bank, if you have to borrow to afford it, guess what, you can’t afford it!

There is no way you will ever grow a million dollars if you are extravagantly spending money on things like this…

There is a lot of social pressure to “not act cheap” so much that people feel obliged to tip 20% or more at restaurants.  Didn’t tipping used to be 10%?  Then it went to 15% and now people are tipping 20-25% or more!  On a hundred dollar bill (not uncommon for a diner for two), you’re looking at an additional $25 for the tip!  Multiply that times twice a week and at the end of the year you’ve spent an extra thousand dollars!  Put that thousand dollars in a stock mutual fund and after ten years, you could have as much as $20,000!  Every time I tip 10% and sometimes 15% and I get that “look,” I just smile and think about that $20k in my bank account.

If you want to become wealthy, you have to be strong enough to ignore social convention and do what is right for you!  

Sometimes thinking of yourself first instead of other people (the waiter) is the difference between financial mediocrity and serious wealth generation.  Suppose you do cut back on tips and you do save $20k in the next decade.  You later hear that a house is up for sale because of some financial problems and you are able to step in and buy it at a discount.  Later, you sell the home and make an additional $50k profit.  This is how and why rich people get rich and stay rich – they have the financial means to take advantage of opportunities when they arise.  I bet deals pass you all the time and you don’t have the $ to take advantage of them.

Cut back on your extravagant spending now to have $ available for those “once in a lifetime” bargains that occur more often than you realize.

I have a colleague here at work, young, maybe in his 20′s.  He has a six-figure salary and he has no idea how to manage his money.  Last year he bought a Cadillac Escalade for $70k and put on $15k worth of rims and then bought two Breitling watches and a Rolex for an additional $25k.  Despite his six-figure salary, he is close to bankruptcy now.  Heaven forbid he should ever get laid off from work, he surely will be in bankruptcy court.  Meanwhile, banks are almost giving houses away to anyone with a serious down payment.  With the money that he spent on these luxury items, he could have easily bought four houses in the Texas area netting two thousand dollars a month in rent.

I made a deal with myself – when my account hit $750,000, I would buy an Omega watch to reward myself.  I told myself that when I hit a million, I’d buy a Rolex.  The photo at the top of this post is the watch that I’m going to buy.  But why haven’t I bought it yet?  Because I haven’t found the right deal.  Why do I want to spend $8-12k on a watch when I can find someone who spent outside of their paycheck, ran into financial trouble and now they’re selling theirs at a discount.  I’ve seen watches like this sell for as low as $3,800.  I’ll be patient and get a good deal.

When you go to buy ANYTHING, shop for the best price.  Most people say, “Oh, its not worth the trouble.”  Isn’t it?  If you save $50 here, $100 there, over time, those bits add up (just like the Jewish kid’s $.35 cents) and eventually, you’ll see a once in a lifetime deal and you’ll have the means to capitalize on it.

In my case, I worked and saved hard and when the 2008 stock market crash happened, I had a few hundred thousand in the bank.  I loaded up on stocks and in 2009/2010 I realized about $400,000 in stock gains.  If I hadn’t been frugal, hadn’t saved that money, I would have missed out on the best stock-buying opportunity of our generation.

When someone looks “down” at you for leaving a moderate tip, turn it around on them and tell them that to do otherwise is foolish and fiscally irresponsible.

Your bank account will thank you in the long run!

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

Think and Grow Rich

Probably the most profound “self-help” book ever written.  I first read this book nearly two decades ago and it finally paid off.  I can confidently say that my success in breaking a million dollars wouldn’t have been possible if I hadn’t read this book.

Authored by Napoleon Hill in the 1930′s this book is the original “get-rich” book.  But unlike so many of the fads that have come and gone over the decades, this book still delivers.  I would bet that most of the financial self-help books are spin-offs of this book.  Napoleon Hill wanted to know what made newly-rich people different from “ordinary” people.  He went around and interviewed people like Mellon, Carnegie, Edison, Vanderbilt and catalogued what they all had in common.  He found that they all had similar characteristics, recorded them and then set out to try them himself.

Indeed, Napoleon Hill did become rich and proved that the method that he recorded worked.  He does not take credit for the method – he only recorded what he learned from the moguls of industry and finance.

If you don’t have a copy, here is a link where you can download a free copy to be read on your Kindle, iPhone, computer or any other electronic device.

Think and Grow Rich by Napoleon Hill

Reading this book is a must read for anyone who desires financial independence.  Since it is free – and proven, there is NO EXCUSE not to read it.  I’m currently re-reading it again – this is my 8th or 9th read.  I’m reading it to glean ideas for my 2nd million.

I can vouch for this book – it worked for me, it can work for you!

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