Progress Vs. Perfection

 
twit1There are a couple of trends I’ve noticed among those I follow on twitter recently. The first is a belief that passive income is the path to success. That one isn’t wrong but it isn’t as easy as it sounds either. The other trend is the choice (maybe a false choice) between progress and perfection.
The Truth
It is true that if you wait until everything is known, until there is no risk and everything is perfect, you’ll never get started. Paralysis by analysis as it’s called. But that doesn’t mean you should settle. Strive for perfection while moving forward.
The Reality
In What Next I talk about the ability (metaphorically speaking) to hike or travel two or more paths at the same time. This is working a day job while pursuing a business idea you have, for example. Well the same is true with progress and perfection. Keep moving forward and when you fall short of perfection ask why and modify your course.
Simple Sells
The reason progress or perfection is presented as a choice or passive income is presented as the solution to success is that they’re simple. These choices let you off the hook. You don’t have to work hard because you have passive income – well that’s bull. It’s ok not to strive for perfection because at least you’re moving forward – also bull.
It may not be the simple solution you want, but the truth is, success is hard. If it wasn’t, you wouldn’t be reading this and other similar posts. Don’t let yourself off so easily, dedicate yourself to doing the hard work and find true success.


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Building up

 
This is what I want:

home48

And this is what I have:

NewBoat

And this is where I started:

Jetski 750SX

You don’t start at the top and work your way down. You don’t start with a yacht and end up with a Jestski. You start at the bottom – but the bottom for me is different than the bottom for you.

Richard Branson grew up wealthy so for him starting at the bottom was founding a magazine. John Paul DeJoria, founder of Paul Mitchell hair care and Patron tequila (love the coffee Patron), once lived in a car, bottom for him was really low.

It is incremental steps that build success and wealth, but like starting at the bottom the increments are larger or smaller depending on the person.

Howard Schultz, the CEO of Starbucks, grew that business incrementally. Begun in 1971 Schultz bought the company in 1987 and expanded outside the Seattle area for the first time that same year. The company didn’t go public until 1992 when it had just 140 locations compared to over 16,000 today. The incremental growth was slow in the beginning and picked up speed as time went on. Incremental growth speeds up with momentum. None of the successful people you know have coasted to the heights they’ve achieved. Success is an uphill climb and coasting doesn’t work up hill.

But what do the boats have to do with growing a business? Nothing really, but they are the end result of that success. I mean really, why work if it can’t buy fun? The boats represent how growing your business is tied to growing your own success. We grow our businesses, our savings, our net worth so that we can enjoy it. When I got my first job out of college I bought that Jetski and thought I had hit the big time. Over the years I upgraded and bought a boat and then another Jetski. I traded up for a bigger boat and now I’ve traded up once again for the boat you see in the middle.

I’ve taken small steps over the years which is how I’ve been able to grow in other areas such as net worth and investment portfolio. I don’t know if I’ll ever have the yacht in the first picture but I know I won’t get it by obsessing over it. I’ll get that boat by continuing to work hard, by growing my various What Next businesses, and by keeping focused on success. It’s the people who focus on the results of success rather than the work of success who end up with less than they started.


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Slow Motion Lottery

 
powerballI didn’t win the Powerball (I also didn’t play but my wife did) and to make matters worse, my net worth has taken a big hit so far this year as the stock market has cratered. If I were close to retirement I’d  be worried.StockDecline

People, so called experts (you know my feelings on experts), are saying stupid things like sell everything, or sell into any rally. Don’t listen.

On the contrary, buy and keep buying. Don’t take every last penny and invest, that’s just as stupid, but if you buy regularly as the market falls, you’ll have a lot more shares when things turn around. It’s a proven concept called dollar cost averaging. These “experts” make it sound like dollar cost averaging is only a good idea when markets rise but it’s just the opposite. It works best the further the market falls.

The spring is tightening, coiling up for those of us smart and confident enough to stick with a plan, and bold enough to adjust the plan to take advantage of panic.

The lottery is real it’s just not a sudden and unexpected thing. It’s predictable (over long periods of time) and involves some faith but mostly discipline. The slow motion lottery of investing and working hard isn’t found in a convenience store, it’s found in your character.

So what should you do?

Make a plan. Investing blindly is no different than paying money for random numbers you hope will match some other random numbers.

It’s a new year and if you didn’t max out your 401k last year, this is the year to do it. I have calculated the amount I need to invest each paycheck so that I’ll hit the max on my last paycheck. Here’s how you can do the same: Take 18,000 (2016 max) and divide by your salary. This is the percentage you should invest. Take that percentage and multiply by your gross paycheck. For example: if your income is $80,000/year then the percentage you need to save is: 22.5%. Your weekly gross is $1,540 and you should put $347 each paycheck into your 401k.

That alone is good but it’s not lottery worthy. Save more now than you ever have and invest in accounts other than your 401k.

Discipline is hard. Saving when you really want to spend is hard but it’s a winning lottery ticket you just have to have the guts to buy it.

PS: if you read this far I’m impressed but I know you’re probably thinking there is no way you could save and invest that much. You’re wrong. Check out how much I save and stop making excuses.


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OPM = Opium

Do you know what OPM stands for?

Other People’s Money and it’s what get rich quick schemers tell you to use to do everything from buying real estate to…well really I’m just talking about buying real estate.

House for SaleI was on vacation at my house/rental property in California and I kept hearing ads on the radio about a real estate investment seminar where the star of a house flipping show will teach me, the listener, how to invest in real estate using other people’s money. “The Palm Springs area is an ideal place” to use these techniques, the voice said.

The funny thing is that when I got back home to my primary residence, I heard the exact same voice of the exact same television star saying that my town in NJ was an ideal place for these techniques.

What this person was really saying is that there are plenty of suckers in Palm Springs and plenty of suckers in NJ. This house flipping is easy and can be taught to anyone drug is the opium being pushed on innocent people who lack some common sense and want an easy way to success.

Real estate can be a great investment, I’ve invested in real estate and now own three properties, but it’s not easy, it’s not short term, and no one is giving you money without a proven track record.

Money can be made flipping houses, I don’t doubt that, as a matter of fact, my nephew has been quite successful doing it, but it’s his full time job and it was something he grew into building from a different but related business. Flipping houses is not something that can be done on weekends or in your spare time.

I know (if anyone actually reads this) that there will be some who say, “but I’ve done it, I flip houses on the weekends, in my spare time and it works.”

My response is if it works so well, why don’t you do it full time? If it’s so lucrative why not quit your 9-5 and get serious about it? The reason is that it probably doesn’t pay as much as you think and when you really do the numbers you’ll see that.

Don’t get sucked up in the it’s easy to make money (especially if you use other people’s money) game. It’s a losers game.


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Buy, Save, Hold, and Buy

 
I tweeted this Friday as the stock market was poised to fall:

BuyHoldTweet
While it’s true, it’s also a little too simple as tweets often are.
My real strategy is a buy continuously, but buy more when prices fall, and save (and hold) as prices rise.

Buy Continuously
This is your automatic savings and investing such as your 401k, Roth IRA, or 403b. Start young and do your best to max this out. Take full advantage of any matching funds and never, ever, take a loan out against these accounts. The money coming out of your paycheck on a regular basis is dollar cost averaging and captures both the ups and downs of the market and smooths out wild swings like the downside rout we’re having now.

Buy More as Prices Fall
When the market drops, that’s the time to buy. As Warren Buffet said, “be greedy when others are scared, be scared when others are greedy.” Don’t try to wait for the bottom, just dollar cost average more aggressively. Friday I invested less than 5% of the money I’ve been saving over the past year. As prices continue to fall I’ll buy more again.

Save as Prices Rise
Over the past year or so I haven’t been buying stocks (I buy stocks only in low cost index funds) and instead have been saving more aggressively. This doesn’t mean that I haven’t been buying any stocks, just not any above my set investment plan. Now I have more capital to invest and since prices are lower I hope to get better returns. Too many people don’t have the discipline to save like this but if you can then you’ll be prepared like I am.

It Paid Off Before

Do you remember how far the market fell in 2008? In 18 months the Dow Jones Industrial Average lost more than 50%. Many people sold, panicked really, but not me. I continued buying throughout 2008 but still I lost a huge amount of money, with my net worth diving 16.44% (check the chart below). In 2009, however, my plan and my discipline paid off. My net worth rebounded by 24.93%, more than recouping the losses of the previous year.

My net worth percentage change chart

 

 

 

 

 

 

 

So what’s your plan in this tumultuous time for the market? Panic and sell at the worst time or stick with your plan and take advantage of low prices?


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SCOTUS And Responsibility

 
US Supreme CourtThe headline made it sound like homeowners were getting screwed by the Supreme Court. “Supreme Court Hands Defeat to Struggling Homeowners” it said.

Here is how I would have written the same headline: “Supreme Court Says Pay What You Owe.”

In a 9-0 decision the court said that when a homeowner is underwater, secondary loans such as home equity loans and second mortgages, cannot be automatically discharged, simply stripped off, in chapter 7 bankruptcy.

I have written a lot about the housing crash and the people who were reckless, who put instant gratification above security and common sense.

Stupidity, greed, or a lack of knowledge is no excuse. If you sign a document and take the loan, you have an obligation to pay it back.

Bankruptcy exists to help people who get in trouble and is used correctly every day. The court’s decision doesn’t say that these loans can never be discharged, just that it’s not an automatic thing. Why should it be?

Sophisticated financial transactions are available to everyone but too many people don’t take them seriously enough. Too many people don’t give themselves any wiggle room, don’t plan for the unexpected. As I say in What Next, “it’s not the plan for the expected that saves you, it’s the plan for the unexpected that does.”

Here are my rules of thumb:

If you can’t afford 20% down, you can’t afford the house

If you can’t afford the mortgage on one salary, you can’t afford the house

If you take a second mortgage you should be able to pay it off quickly

If you take a a home equity loan it should be related to the house, not for something like a car or boat

Are some of these difficult to get to? Yes, but sticking to these rules will set you up for success down the road.

 


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Side Hustle

 
http://www.dreamstime.com/stock-image-hand-displaying-spread-cash-us-one-hundred-dollar-bills-image42507251Make Money Blogging!

Work from Home just Hours a Day!

Turn Your Hobby into Profits!

This all sounds easy and could fit into the definition of what so many entrepreneur cheerleaders call a side hustle. A lot of people post on social media about their side hustles, and Gary Vaynerchuk is a big proponent of hustle in general. The reality, however, is that what many think is a side hustle is really just a time, energy, and money suck.

A side hustle is a way to earn extra money on the side. If you aren’t smart about it and think it will be easy then you will probably fail.

Side hustle isn’t a get rich quick scheme – just ask people who thought flipping houses in the mid 2000s would be easy money.

Most of my side hustles didn’t work out but the difference is that it didn’t cost me much either.

In the appendix of What Next I have a trail map of my career and entrepreneurial side hustles – some are dead ends, some go on for a while, and some have made me lots of money. The point is that I didn’t put all my effort into one thing and I didn’t stop looking for a next hustle. Maybe most important, I was willing to walk away from ones I grew tired of or were becoming a drain rather than an addition to my income, time, or energy.

It’s great to have the motivation to pursue a side hustle but you also have the common sense to know when something is just a pyramid scheme or when an investment could end up costing you more than it makes you. The emphasis should be on the word hustle because these things take work, hard work, and too many people think it will be easy.


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The Good and Bad of 401ks

 
401kHighwayI believe blanket statements are too simplistic and that’s why I flipped out on James Altucher for saying that people in their 20s should not invest in 401k plans. That’s dumb advice, so here’s my reasoning why 401k plans are a good investment, but not the best, and why they should be part of your investing life but not the only part. If you’re a numbers geek then you’ll love this post.

One of the completely idiotic statements James made was that you’ll only get a 1/2 percent return on a 401k so let’s take a look at my experience. A few things: I’m a consistent investor who believes in buy and hold and favors index funds over actively managed funds. Obviously I’m not going to use my actual account balances so instead I’ll use a hypothetical based on about $1,000 invested over 18 or so years which is how long I’ve been in the 401ks I’m using for this example.

Let’s say my current 401k account balance is $4,180. There are four parts that make up this balance:

1. How much I invested over the years

2. My company matching funds – free money

3. Dividends that are reinvested

4. Growth – what James Altucher said would be about 1/2 a percent (I’m shaking my head writing that)

My investments, the money that came out of my paycheck, accounts for 23.4% of that total or $978.12.

The company match, the free money James didn’t even mention, accounts for 5.1% or $213.18.

The dividends were a big part of this and is the reason I have mutual funds that pay higher dividends in my tax deferred retirement accounts, another item James was not impressed with but can be very important. You don’t pay taxes on dividends in a tax deferred account! So the dividends were 18.6% or $777.48.

Add all that up and you only get $1,968.78 far below my balance of $4,180 so where is the rest? The rest is growth over 18 years and accounts for 52.9% of the value of my 401k balance. That’s a lot more than the 1/2 a percent James mentioned is his video. Also of note is that this includes the huge losses in 2008, losses that were quickly recovered because I didn’t panic and stuck with my plan.

But in some small way I do agree with James that 401k plans are not always the best option. I have reduced the amount I’m investing in my 401k plan for a couple of reasons. First because the money is locked up until I’m 59 and a half (not 65 as James said in his video). I want to retire early and need money available before I’m 59.5 so I’ve been investing more in my taxable accounts.

Another reason I’ve reduced my 401k investments is so that I have funds available for other investment options like a business I opened a couple of years ago. If all my money was tied up in retirement accounts I’d be investment rich but cash poor like so many people are house rich and cash poor.

One size does not fit all and blanket statements are useless. The power of compounding, as evidenced here, is incredible! So please do invest in a 401k plan as early as possible and put enough money to at least get the full match your company offers (if they offer a match). After that make decisions that work for your situation.


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James Altucher’s Terrible Advice

 
I’m adding James Altucher to my list of really smart, incredibly successful, fools.

I’m adding him because of this video: http://www.businessinsider.com/james-altucher-401k-strategy-investing-money-2015-4

Watch at your own risk because the advice is so wrong it’s sad, sad that someone so successful and so intelligent would give such bad advice. Sad, because he was allowed by Business Insider to give false information. His blanket statement is so simplistic, it’s an insult. If James gets easily verified information wrong then what does that say about his concern about truth?

In the video James Altucher says that you can’t remove money from a 401k without a huge pentalty until you’re 65. WRONG! Once you’re 59 and a half you can take money from any retirement account penalty free. And that huge penalty he talks about is really just a 10% penalty – not good but not huge either.

James also doesn’t seem to think that tax deferral means much to someone in their 20s which indicates that it probably does mean something to someone older, so what’s the cutoff, 30? 40? 50? Here’s what tax deferral has meant for me: over the years that I have invested in my 401k I have saved over $14,000 in capital gains from sales only (dividends aren’t included but are also huge) thanks to the tax deferral of my 401ks. I also don’t sell often  so that savings could have been much larger. Maybe that doesn’t mean much to someone as wealthy as James Altucher but to a regular person who has a job, that’s a big deal.

Another idiotic statement that James makes is that you have no idea what’s happening to your money in a 401k. That’s just ridiculous. You certainly know what’s happening because you can choose the investments (granted from a pre-selected group of funds) and you can buy and sell as you see fit. I suggest index funds. I have invested in a 401k since I started my current job 18 years ago and my return has been huge.

Add up all the money I’ve invested and compare that to the current value of my 401k and you get a 418% return. I understand that’s hard to believe but it’s true. Part of that is the company match which James conveniently left out of his video. How someone ignores the possibility of FREE money is baffling to me. Without giving you my specific numbers let’s break that down. The period we’re talking about is 18 years so if you invested $1,000 over 18 years you would get $4,180. Think about that – all you had to do was invest $56 a year and at the end of 18 years you’d have $4,180. Make those numbers larger and you really see the benefit: invest $5,000 a year for 18 years for a total of $90,000 and the balance would be $376,200 and you’d still have at least 10-20 years of work for that to grow.

Blanket statements might lead to clicks and bring you publicity but they are rarely correct. Blanket statements are an insult to your intelligence. Investing is somewhat complicated but I believe you’re smart enough to understand.

I’m going to give more detail into my investing and why I think a 401k is just one part of a successful investing plan tomorrow. I hope to see you back.


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Are You Profitable?

 
Stack of cashAs a business owner you hear this question or one like it all the time. It starts as small talk – how’s business? – is usually the first question. Fairly quickly, because they want you to succeed, they’ll ask if you’re breaking even or making a profit.

If they’re asking that question then they probably haven’t been in business themselves because the answer is rather complicated.

Start-up costs are huge and can’t be recovered in a short time. While that money isn’t all out of pocket, loans need to be paid back and the term for business loans are not very long, 5-7 years, so payments are fairly high. I’ve had people ask me if my business was profitable after I was only open a few months. That’s the field of dreams concept of business, if you build it they will come, as if customers flood you with money the moment your doors open.

In addition to start-up costs there are the operational costs and, with a slow (but hopefully steady) increase in business, the money to keep things going needs to come from somewhere. Since it’s not coming from customers it has to come from the owner or investors. It’s called the burn rate and needs to be watched closely. There were plenty of weeks and months that I had to add cash to cover payroll, loan payments, or marketing expenses.

I have indeed seen businesses reach profitability in a short period of time but that’s the exception.

Patience and attention to all aspects of the business, revenue, expenses, marketing, and staff are the key things the entrepreneur needs to focus on. If there is progress then profits will come. Owning a business is a long-term prospect and success doesn’t come over night.

So my response to people who ask me these questions is: “If only it were that quick and easy everyone would own a business.”

What’s your response? Add your comment below.


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