Tag: small investors

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.

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Are Rewards Cards Really that Rewarding?


I have a huge amount of respect for Dave Ramsey.  I discovered him soon after I moved to Tennessee in 1998.  At that time we had just bought a new Jeep Cherokee and were making car payments.  I also had a couple of credit cards that I was paying off every month, which seemed to be working for me, until it wasn’t.

After I started listening to Dave Ramsey, we started paying off the car faster, paying it off in about three and a half years instead of the original six we were signed up for.   We then refinanced the mortgage from a  30-year to a 15-year, taking advantage of the lower interest rates, then paid if off in about 12 years, saving probably a hundred thousand dollars in interest. Thanks to Dave, we were on great financial footing by the time we reached our mid-thirties, despite starting off “normal,” as Dave would say, which meant that we were in debt with a car payment, spending money as fast as it came in.  (At least we never had credit card debt since we were paying the cards off each month.)

Pick up a copy of Dave’s book if you’re perpetually in debt beyond your mortgage and get started on your debt snowball – it can change your life:

I still held onto the credit cards since they did not seem to be hurting anything and we were getting a little cash back.  One day, however, I opened up a bill and discovered that I had been charged a bunch of interest, basically wiping out the cash back I was getting.  What had happened was that I had written a check for the full amount, something like $1759.65, but had mis-written the line where you write out the amount of the check.  The  box said $1759.65, but the line said “One-thousand fifty-nine and 65/100s.”  I had left out the seven hundred.

I’m sure that the people who received the check noticed the mistake, but didn’t call and tell me, letting me think that I had paid off the balance in full.  The credit card company (Bank of America) decided instead to cash the check for the lesser amount, then charge me for interest for the first month and the next month since I had not paid the amount in full.   Because I had particularly a large balance the next month, the interest came out to several hundred dollars!   At best I was getting a hundred dollars or so a year in rewards.  Needless to say, I was fairly upset.  When the company refused to refund the interest, I cancelled the card, sending in a check large enough to make sure I paid off the balance so that I wouldn’t continue to be hit with interest.

At that point I swore off credit cards, instead using only cash and a debit card for about eight years as Dave Ramsey advised.   Rewards cards were nice for the free stuff, but they’re ready to zing you if you make one mistake.  There is also the danger of purposely letting yourself carry a balance during an emergency event in your life.  Once you fall into that hole, while you think you’ll just pay everything off and be done with debt, things usually just keep happening to make you fall back in.  It is difficult to climb your way out.

   

A couple of years ago I did get a credit card again, but this time it is on automatic payment from my brokerage account such that they automatically pay it off in full each month.  So far this has mainly worked out, although I am still somewhat leery.  The only thing I don’t like about it is that they wait until the last-minute to pay off the card, allowing the balance to build up as I add charges for the next month, such that the balance can grow with time and even start to threaten to bump the credit limit if I’ve had some big charges.  I go in every so often and make a special payment to send it back to $0 to keep this from happening.

A few days ago, a gentleman from US News and World Report contacted me, saying that they had done a survey and written a piece on rewards cards, including how to select the best ones and how to manage these cards and was wondering if I wanted to include a link to it in my blog.  At first I was a bit leery to reference the report since I certainly don’t want to promote everyone rushing out and loading up on rewards cards since they really can bite you, but I was impressed once I read the piece in that they constantly made the reminder that you really need to pay the balance each month if you want to be “rewarded.”  If you carry a balance, the value of any rewards will quickly be swallowed up by interest payments.  It also does give some good information on how to select the right rewards card for you if you are so inclined.

The U.S. News & World Report’s 2017 rewards credit card survey and guide can be viewed here:

So if you do decide to get a rewards credit card, here are some things that I would suggest to help protect yourself from ending up in a bad place a few years later:

  1.  Make sure you have an emergency fund, meaning 3-6 month’s worth of expenses, saved away in cash to handle the little emergencies that come up.  Having a credit card for an emergency is a bad plan since that is how people often start to get into serious debt.  Instead, have the cash you need to cover things that come up before the next payday.
  2. Have as fool-proof a way as possible to make sure the bill is paid on time each month. Credit card companies purposely make you wait until after a certain day in the month before you can pay the minimum payment to increase the chances that you’ll pay late.  Watch out for their games that are designed to get you paying interest and penalties.  Find as good a method as you can to make sure that bill gets paid on-time (or early) each month.  Some people send in a check or do a transfer as soon as they make a purchase.  Using automated payment seems to be working for me.  
  3. Don’t ever let the teaser rates cause you to decide to carry a balance.  If you are late with a payment for any reason, and sometimes if you are late in paying another card or even your mortgage payment, they can jack your rates up to 30% or more.  Really, they can jack you rate up if Wednesday falls in the middle of the week or if it is hot in the summer.  They have all of the power in that credit card agreement you probably didn’t scan before you signed up.  You can quickly go from being able to easily handle the payments to just scraping by if the interest rates are raised.  There is no reason to carry a balance on a credit card, ever.
  4. Still use cash to help control your spending.   For most people, spending with credit is painless, where paying with cash hurts.  Think about going to Wal-Mart and shelling out ten crisp $20 bills to pay for a cart full of stuff, versus handing over a card and signing a slip.  One really makes you think about the money you’re spending, the other barely registers.  This means that people spend more with plastic than they will with cash, even when using a debit card.  That is why the fast food chains are now taking credit cards even though they pay a fee when they do.  The amount extra that people spend when using plastic more than makes up for the fees.  While your impulse may be to put everything on the card to maximize your rewards, it is still a good idea to use cash for things like dinners out where you may be tempted to blow your budget if you don’t feel a little pain when the bill comes.

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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A Missed Chance to Change American Healthcare History


 

Regular readers to the blog will remember the “Parable of the Pipeline,” which was created by Burke Hedges.  This is an excellent analogy to show how the rich become wealthy and why the “normal” person doesn’t.  (You can buy your own copy by clicking on the book cover below.)

To paraphrase:

Once in a town in Spain there were two brothers who were paid for each bucket of water they carried from the spring to the village.  They each worked hard and made a reasonable living.

One brother went out at night and had big meals and wine with friends, spending any money he had left after paying for his basic needs.  He saw a lot of money go through his hands with little to show for it, but he was not concerned because he was young and healthy.  Whenever he needed more money he simply worked harder, carrying more buckets.

The other brother also worked hard, but he spent his nights building a pipeline from the spring.  He spent any surplus money he had on materials for the pipeline.  While his brother was spending his money on fancy meals and good wine, he was eating a simple dinner he brought from home in the field.  While this brother was buying fancy clothes, he was content to buy durable, functional clothes that would last a long time.

The Parable of the Pipeline: How Anyone Can Build a Pipeline of Ongoing Residual Income in the New Economy – Get your copy of the original!

The first brother ridiculed the second brother, saying that he was wasting his time and not enjoying life.  He and the other men and women in town laughed at his simple clothes and pipe dream.  “We have always carried buckets from that well,” they would say.  “Our parents were bucket carriers, and their parents before them.  Quit wasting your time on this fancy.”

But the second brother continued to work on his pipeline each chance that he got.  Finally, he completed the pipeline all the way to town.  The second brother was now able to bring as much water to the village as he ever could in his youngest days simply by turning a valve.  If he also carried buckets, how could easily sell twice as many buckets as his brother could. 

When he was sick, his income did not decline.  He would travel and still have the same steady income.  He could now buy nicer clothes, using the income from his pipeline, and still have his whole salary to pay for his needs and materials.

Because he did not need to work as hard to provide for his needs, the second brother could now spend more time working on his pipelines.  Because he had even more surplus money, he could also hire others to help.  As time passed he used his wealth to build more pipelines, eventually becoming very wealthy.

As they grew older, the number of buckets each brother could carry each day decreased.  The first brother, no longer able to work, saw his income decline, making it tough to pay for necessities.    The second brother, however, was able to live comfortably on his income from the pipelines.

Note in this parable no one was cheated.  The second brother did not build his fortune by taking advantage of his workers – he paid them what they considered a fair wage for their efforts.  It is true that he worked harder for his income when carrying buckets than when he was using the pipeline he built, but he certainly worked very hard when building the pipelines and he delayed using the fruits of his labor in order to build them.  He was using his income in a smarter way than the first brother was using his – something the first brother could have done had he chosen to do so.

There is currently an assault on those who have built their pipelines and are now receiving the fruits of their efforts.  Jealousy and envy are being used as tools to divide.  So that people will not notice the political promises that have not been kept (because the economics made it impossible to do so), the blame is being placed on those who saved and invested.

Other books by Burke Hedges that you should read:

This nation is great because of those who have built the pipelines.  Henry Ford created a way that would allow average people to own an automobile and in doing so created the factory, employing thousands.  Sam Walton filled the need for a greater selection of products at prices the average person in rural communities could afford and in doing so raised the standard of living for thousands.

Even those who did not found multibillion dollar corporations, but who did save and invest so that they had a few million dollars by their 50’s benefit society.  They ensure that they will not be a burden on others as they age.  They also have the means to help individuals and organizations in their communities (as many do).

If we are all bucket carriers who spend every dime we will not be able to take care of ourselves in old age.  If we tear down all of the pipelines out of envy there will be less for everyone.  Less money, less taxes, fewer jobs, and fewer goods.

We will be like a lake full of frogs who find that the pond is dry.  As an old Texan once told me, when the pond runs dry, frogs eat frogs.

Please contact me via vtsioriginal@yahoo.com or leave 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.

Picture Credits:  Kevin Abbott , downloaded from stock.xchng.

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