How to Live Like a Millionaire


Many would love to live the millionaire lifestyle.  Spending each day at the beach, on the golf course, or in exotic resorts around the world.  Each night would be parties and galas.  Perhaps a random trip to the office to check on things and grab some cash from the safe.

Sadly, that is not the normal lifestyle of the typical millionaire.  As chronicled in The Millionaire Next Door, the flashy lifestyles seen are those of people who have a large income, but probably would be on the streets within six months of losing that income.  Most millionaires work a lot harder than most other people.  They forego a flashy lifestyle, instead saving religiously and judiciously buying things that will increase in value rather than drop.

(Never read The Millionaire Next Door?  It is a must for anyone wanting to actually become a millionaire.)

Millionaires could afford to buy new cars every few years, but they choose not to because they know they are a wasting asset.  Likewise they could buy big, flashy mansions in new subdivisions, but instead they chose to buy modest houses in older neighborhoods since they cost less to maintain and the rate of appreciation for the neighborhood can be judged from its history.  Whenever they make a big purchase, it is something that will grow in value such as fine furniture, works of art, or properties.  They minimize the amount of money they put into things that go down in value (such as cars).Millionaires also tend to own their own businesses.  It is much easier to become wealthy when doing something that allows each of your hours spent at work to be multiplied.  For example, if you work for someone, you may get paid $30 per hour.  You can earn more by working more hours, but you still only get $30 per hour.   If you work for yourself and use the time to design and market a product, you can get paid each time someone then buys the product.  If you write a novel, you get paid each time someone buys a copy of the novel.  If you own a movie theater, you get paid more if more customers attend the movies and buy popcorn.

Having people working for you also multiplies your time since for each hour you spend supervising, several other people are working to increase the money your business earns.  If you hire effective people and manage well (eventually hiring other effective managers), the more people who work for you the more money you can make for each hour of your time.  Note that even doctors and lawyers don’t make a lot of money because of their salaries.  They make a lot of money because most of them own a practice or are partners in a law firm with people working under them.   They are business owners.

      

So, if you wish to become a millionaire, here are some tips:

1) Spend less than you make, and religiously put money away into assets – things that grow in value and eventually provide an income.  Note that investing in your own business can be an asset.

2) Start your own business, or find something to do that multiplies the value of your time.  This is a tough step for many to take and requires a certain type of personality, but it definitely makes becoming rich a lot easier.

3) Cut down on expenses and payments as much as possible – it is easier to invest and save if you do not have every dollar spoken for before you earn it.

4) Live below your means.  Have a smaller house, older cars, and take less exotic vacations than your level of wealth and income will allow.

5) Make smart purchasing choices.  Bring in drinks from home rather than hitting the vending machine every day.  Bring a lunch in rather than eating out all the time.   When you do eat out, have a water and save $2.50 plus taxes per meal.

(Save money by bringing your own water bottle and skipping the vending machines. Shown: CamelBak Eddy Water Bottle, 0.75-Liter, Cardinal.)

6) Plan your success.  Don’t simply hope your investments will grow.  Make a budget, plan how much you will invest each month, then stick to that plan.  Good luck generally comes to those who have set themselves up for success.

7) Work hard.  Whether you own your own business or work for someone else, you can plan on working harder than most other people if you want to become wealthy.  Additional money earned generally is available for investments since other expenses have been taken care of.

8.) Hire people to perform tasks you are not skilled at doing.  Most millionaires would not work on their own cars, repair their own sinks, or cut their own grass unless it was a leisure activity for them.   Millionaires would rather spend the time doing what they do best or with their families than doing tasks that they can hire someone to do who will do a better, faster job.  If you will take 8 hours to fix a sink and could make $400 in those eight hours at work, it makes sense to hire a plumber at $150 and instead work the extra hours.  Even if it only takes him 1 hour because of his experience and tools, you come out ahead.

Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is Camping The Ultimate Frugal Vacation? (Plus Five Tips For Starting Camping Without Going Broke)


How to save big on vacations, from the Chief Mom Officer Blog.

If you decide to go camping, here are some items I’d recommend (click on each for a full description):

Many decide a hammock is more comfortable than a tent, plus it is lighter for backpacking (plus no ground pad required):

A collapsible dish washing set is really convenient:

 

This little wood-burning stove is a great way to heat up some water for tea or coffee without wasting a lot of propane:

This is a neat little lantern that you can recharge with the sun, and also use to recharge your phone:

You’ll find you’ll have lots of wet stuff to hang, so a clothesline that can handle a lot of clothes is handy:

Because you’ll want to make smores, and those sticks you find in the woods are questionable:

I always like a propane or kerosene lantern, but LEDs are really convenient:

This is just crazy-cheap for a tent, but would be good for a first tent until you decide if you really like camping or not:

Once you decide you do, these tents will be lighter and have better poles and seams:

Chief Mom Officer

As I write this, the CMO clan just got back from camping in Connecticut near to Rhode Island. We first started camping right after my husband got sick and almost died five years ago. When he was young, his family of six would go camping every summer in Rhode Island, but my family had never been camping when I was young. In fact my own mother still can’t understand why I enjoy camping. Every year she talks to me about how I need to buy a camper, or perhaps camp somewhere with air conditioning, or maybe go on a vacation somewhere more fun (because camping outside couldn’t possibly be fun).

IMG_0370 Not having fun at Block Island, a day trip from the camp site

And sure, camping has its downsides. Bugs. Rain. Cold. Heat. Noisy campsites with inconsiderate neighbors. I have been known to once proclaim, in a bad camping…

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Hedging Strategies to Protect Yourself Against a Market Drop


With the big run-up in stocks this year and many people expecting a pull-back or an outright bear market, perhaps you’re getting nervous and looking for ways to protect the gains you’ve made.  Hedging refers to taking positions that will reduce your loss should the market drop while still allowing for gains should the markets continue to perform well.  Today I thought I’d discuss some hedging strategies for those who are looking for a little protection.  Understand, however, that any hedging strategy you employ will reduce gains in the future.

In speaking about hedging we’ll assume that the investor is primarily long to start with, meaning that the investor will make money if the stocks he/she owns go up in price.  (When you buy a stock, bond, or mutual fund, you are “long.”  When you sell short or buy an option that goes up in price when a stock goes down, you’re “short.”)  Most people are long most of the time and this makes sense because the market’s long-term tendency is always up.  Being short for a long period of time would be like entering a turbulent river and expecting to travel mostly upstream.  Hedging a short position can also be done just by doing the compliment of the trades I describe.  For example, buying a call option instead of a put option.  (If you are not familiar with options, check out Options Trading: QuickStart Guide – The Simplified Beginner’s Guide To Options Trading or a similar book.)

One often associates hedging with risk, largely because of the term, “hedge fund” applied to the high risk/high return funds purchased by wealthy individuals.  These funds get their names because they can take long or short positions, but often these funds are not hedging.  Instead they are using large amounts of leverage to make large gains from relatively small movements in the markets.  This causes a substantial risk of losing money.  True hedging actually reduces risk.

To hedge is to take up positions that are designed to offset long positions, such that the investor will be less susceptible to losses due to falls in the market.  For those who play roulette, you would be hedging a bet of $100 on red by putting $50 on black as well.  You would be reducing the amount you would win if red were rolled since you would lose the bet on black, but you would also be reducing your loss should black be rolled since your small win on the black bet would reduce the loss on the red bet.   If an investor is perfectly hedged, he/she will not lose money no matter what the market does.  But by taking up these positions, one also limits or eliminates the possibility for making gains while the hedges are in effect.  The following are ways to hedge a long position:

Selling shares of the same stock short-  This is also called “selling short-against-the-box” and forms a perfect hedge provided that equal numbers of the shares are sold short as are held.  No matter the movements in the stock, no money will be gained or lost.  (Note that if the stock price goes up an investor would need to add cash to the account or pay margin fees, since this would result in  negative cash balances in the account).  Selling short-against-the-box has little purpose other than delaying gains from one year into the next for taxes.

Selling shares of other complimentary companies short-  In this strategy, the investor sells short shares of a company that he/she expects to decline if shares of the company he/she owns fall in price.  For example, if he owns McDonald’s, he might sell shares of Wendy’s short, figuring that is the market turns against fast food companies shares of both companies will fall.

Buying put options- A put option is a legal contract by which someone agrees to buy shares of a stock for a predefined price before a certain date.  This can be though of as an insurance contract on the shares of the stock.  In exchange for this agreement the owner of the shares gives the seller (called the writer) of the put a certain amount of money, called the “premium”.  For example, a put option for selling 100 shares of XYZ stock at 50, good for three months, might cost $300 when the price of XYZ was at $51 per share.

Writing covered calls on the stock–  Here a contract is written that allows another individual to purchase your shares for a fixed price.  This limits the amount the investor can make on the shares (since if they go up above the agreed to sales price they will be purchased for the sales price) but reduces losses somewhat if the shares decline in price due to the premium collected.

Buying short ETFs– This involves buying short exchange traded funds (ETF).  These are financial instruments that are designed to go in the opposite direction of a particular market segment or index.  For example, an owner of several mining companies might buy a short basic materials ETF as a hedge against a fall in commodities prices or a slowdown in goods production.

Selling a portion of the position The simplest way to guard against losses in a position is to simply sell some or all off the position, and is probably the best thing to do if you really need the money in the short-term since it is the most cost-effective way to be safe.  This, of course, reduces the possibility of future gains, however.

If you’re interested in individual stock buying and this strategy, I go into far more detail in my book, SmallIvy Book of Investing: Book1: Investing to Grow Wealthy.  Check it out at the link below if interested.

Have a question?  Please leave it in a comment.  Follow me on Twitter to get news about new articles and find out what I’m investing in. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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