Million Dollar Lunch

Warren BuffettIf you had the chance to have lunch with Warren Buffet, would you? If you had the chance to ask, one on one, Richard Branson for advice, would you?

I think the answer to both of those questions is a resounding yes! I would too, but would you pay a million dollars, or in the case of Warren Buffet’s latest charity auction, 2.3 million for lunch?

Even if I could afford it my answer would be no. From my perspective the fabulously wealthy offer little value. Sure, their success sets the bar high but I’m more interested in people who have done a lot with relatively little, the people whose advice can actually lead somewhere.

I’d rather have lunch with the man or woman who opened a local restaurant and now owns several throughout the state. I’d rather meet and talk to the person who created something that a lot of people use. Maybe they didn’t make billions but they did fill a need and did well doing so.

These are people I have access to, or more access than I do to Richard Branson or Warren Buffet.

By looking for lessons and advice from these entrepreneurial rock stars you might be overlooking the valuable advice that’s sitting next to you at the barber shop or on the subway.

Many people don’t listen enough, aren’t curious enough to ask questions, to discover the wisdom that’s right under their nose.


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Passive Takes Work

hammockIf you know anything about me you know that the title of this post has nothing to do with being lazy or taking it easy.

Instead this post is about passive income but, unlike most articles, books, and blog posts about passive income I’m going to tell and show you that passive income is difficult, it takes work. There are a lot of financial bloggers who promote real estate as a panacea for wealth creation but I’ll tell you they’re wrong. At the same time I’ll say that real estate has been a great success for me. That sounds schizophrenic but the reality is that for real estate to generate income it takes work and smart decisions, there is no easy way and while some people will have great success with real estate others will struggle or lose everything.

As promised this post is a followup to some of the numbers in my post titled Manage Your Money Don’t Let it Manage You. Specifically I said that, in 2013, dividends and interest accounted for 14.75% of my gross income. That’s a high number, imagine making an extra 14.75% of what you make right now – it would be nice, right? Well this does vary year by year and here how’s its gone for me: 2007 – 12.59%, 2008 – 7.08%, 2009 – 3.45%, 2010 – 5.57%, 2011 – 10.15%, 2012 – 9.68%.

Passive income indeed but it is highly variable and you can see that the recession years had very low numbers that reached a low in 2009 and have been (mostly) growing since. I expect 2014 to be lower than 2013 because I don’t expect the stock market to do as well (Update: I was wrong. 2014 saw dividends and interest at 18.67%). Let’s also not forget that you may owe taxes on those dividends and if you reinvest those dividends (which you should) you’ll have to come up with that money yourself. I say may owe taxes on the dividends because it’s only true if the stocks, bonds, mutual funds, or ETFs that generate the dividends are in taxable accounts. Most of our dividends come from our retirement accounts, 401k and IRA.

Over the years I’ve read a lot of self help books especially with a financial bent but most weren’t very helpful which is why I wrote my own. One book, however, stuck with me. It’s called Your Money or Your Life and puts forth the concept of passive income through dividends and interest eventually replacing your salary allowing you to retire. But it takes a while and requires aggressive savings. I liked the idea so much that it is a major part of my retirement plan but as you can see, even with my aggressive savings, I’ve got a long way to go.

Now to real estate. In the same post I referenced above I pointed out that my rental properties represent 6.11% of my income but they also account for 9.09% of my expenses. In other words I’m losing money on the real estate. Not to mention the time I devote to overseeing and renovating those properties. Anyone who has rental real estate knows the income is anything but passive, it takes a lot of work. But there are several things going for me: first, I get to use those properties while I’m there to oversee and renovate them (they’re vacation rental properties and so are a literal pleasure to visit), second  I will be able to deduct the money spent on renovations, repairs, and improvements when I sell the property (income limits called passive income rules prevent me from doing so now), and third, and maybe most important is that the properties have increased in value over the years and I’ll be able to sell them for more than I paid. Like any investment these are long term commitments.

When people start talking about passive income like it’s easy, come back here and read this for a little balance.

Do you have experience (good or bad) with passive income? Add your comments below!


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Manage Your Money Don’t Let it Manage You

So I haven’t written anything in a very long time and I’ll get around to some reasons in future posts but yesterday I saw a sudden rush (which for me means three or four people) reading some posts I wrote a while back, they even tweeted links to their followers (thanks!). That inspired me to make an effort to write some more so I’ll start again with a favorite topic of mine, finances.

Percentage_IncreaseI keep very detailed stats on my money, what’s coming in and what’s going out, my investments, how they’re performing, and my plans for the future. One thing I do every year is a cash flow analysis (because I’m that exciting). Because I track everything I spend I can make informed decisions rather than just guessing. Of course I’m not going to share actual numbers – you know my name after all, but I will share percentages.

All of my income is 100% but what is the total from? Well my salary represents 35.92% and my wife’s salary represents 41.91%. Yes she makes more than me and I’m not only ok with it, I love it because it shows that smarter people are rewarded more. So our salaries represent 77.20% of our income where does the rest come from? The next largest chunk comes from investments in the form of dividends and interest at 14.75%. This might sound high and it is (and will be the subject of a future post) but is key to building wealth. I wrote about our two rental properties in What Next and they represent 6.11% of our income. After that comes our 401k match which represents 1.87% of our income and that is free money, money that we’re not taxed on but that grows and grows until we retire (and beyond). The importance of the match can’t be overstated.

Now comes the importance of tracking your spending because I can list, in broad categories, where every penny of my money went.

Mortgage: 12.67%  Loans: 2.22%  Insurance: 1.78%  Taxes: 19.59%  Commuting: 1.59%  Household: 1.57%  Vehicles: 4.19%  Eating Out: 2.67%  Groceries: 0.80%  Entertainment: 2.01%  Utilities: 1.79%  Travel: 0.72%  Medical: 0.38%  Pets: 0.49%  Rental Properties: 9.09%  New Business: 17.57%  Misc: 2.64%.

Since the numbers above don’t equal 100% where did the rest go? Savings! Last year we saved 18.23% and that’s from gross income while in the midst of opening a new business.

Some observations:

While my rental properties contribute 6.11% of my income it takes 9.09% in expenses. In other words “passive” income like this isn’t easy money and often the return isn’t evident until the property is sold.

Even though a large amount of money is generated by dividends and interest (this year, 2013, was unique because of how much stocks were up) most of that money is inaccessable because it’s in retirement accounts such as a 401k.

We spend very little on groceries for two reasons: we eat out a lot and we buy in bulk at Costco which if done carefully can save us a lot.


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You Can’t Get Rich Working for Someone Else or Can You?

I’m sure you’ve heard or even repeated the expression “You can’t get rich working for someone else.” I’ve said it but I’ve grown to realize it’s not true. I’m not talking about high level executives with huge salaries, stock options and bonuses that make them a millionaire each year. I’m talking about a normal person with a good, but not extraordinary, job.

stacks-of-cash-2The secret (I hate that word because it’s not a secret, it’s common sense) is to save, often aggressively, work, really hard, and invest, wisely. A couple of weeks after writing this I saw a bit of news about a school teacher who left behind an estate worth $10 million when she died. Along with her twin brother they lived by these three “secrets” and it paid off.


Wealth is about opportunity but being in the right place at the right time isn’t opportunity, what you’re able to do when you’re in the right place at the right time is. If you meet an inventor with a great new produt who needs investors, you’re at the right place at the right time but if you don’t have the money to invest it doesn’t matter. That’s why aggressive savings is so important. I’m not talking about normal savings like the advice you’ll read in magazines, I’m talking about serious savings. My wife and I have saved, on average, nearly 25% of our gross income each year. It would have been higher if not for item number three on my list, investments (which some will view as savings but read on to discover why I don’t).

Read here about a woman, Leah Manderson, who maxed out her Roth IRA (that’s $5,000) while earning only $28,000. That’s a 17.87% savings rate. Can you say you’ve saved that much? If not then you aren’t saving aggressively.


A job is a means to an end. We have to work to survive (unless you want to grow a long beard, live in a shack, and kill your own dinner). A job is also a means to security when we’re too old or tired to work.

While I would highly recommend doing something you love, you should also maximize your earning potential by advancing through the ranks and negotiating well. Hard work means being the go-to person, the lynchpin as Seth Godin puts it.

It has been my ability to increase my income and my aggressive savings that allows me to move on to each What Next.


You can invest in yourself by working hard and you can invest your money by contributing to your retirement (401k, IRA, etc.) but that’s not the kind of investments I’m talking about.

I’m talking about investments that require active participation like rental real estate, it’s an investment I’ve used throughout my life (I’ve seen a lot of people use it as an investment very badly). It’s also an investment that requires sacrifice. I can’t have a fancy and expensive house for myself if I’m also buying homes for rentals.

I have also had side projects (some would call them businesses but I don’t think many of them rose to that level). What they did do is provide some extra income to invest in other ways. It also allowed me to learn a lot about myself and business in general.

Now than that I’m older, more established, and secure I’ve invested in actual businesses, recently opening a franchise. The key with all of it is that my job, the thing people say won’t make you rich, made all my investments possible. I call it corporate sponsorship. None of these investments can be considered savings since there’s no garuntee that I’ll get a return or how big that return will be. Once I sell an investment, then fine, the proceeds will move over to the savings category.

You can get rich working for someone else if you’re smart about it and are willing to do more than those who say you can’t get rich working for someone else.

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Trading Up

The headline today (May 2012) read “Housing Market Recovery Gains Traction.” I guess that’s a good thing. It’s certainly good for anyone trying to sell a house or hoping that it will at least be worth what they owe on it. I suspect we’ll see more of those stories as time goes on and eventually (probably not for a very long time) we’ll see that home prices have surpassed their 2006 peak.

Don’t get too excited because, human nature being what it is, I’m sure people will fall right back into the trap of bad habits.

I wrote the piece below for a previous blog I ran in March 2006 (before the collapse) about why owning a home is a danger for some people. As long as you don’t get caught in this trap, you’ll be fine.

Trading Up

My parents have owned the same house for more than 30 years. My cousin owned her home for 40 years, raised her children in it and one of those kids will probably live in that house after she’s gone.

Modest HomeHave you ever heard of a mortgage burning party? Well, it used to be that people would buy a house and live in it until they died, working year after year with one goal in mind, paying off the mortgage. When the day finally came and the mortgage was paid off the homeowner would burn the mortgage as a final act of freedom. It was a significant event.

This has become rare these days as people continue trading up to ever larger homes with more amenities that end up costing more to maintain. It’s theBig House common roadblock to wealth – status.

It’s not a conscious thing. We don’t wake up one morning and say “I’m going to put status over saving today.” But when it comes time to buy something major like a car, you probably want the newest model with the most amenities and biggest engine. If you could get a Mercedes or BMW you would.

It’s the same with a home. You’re probably going to stretch to afford the most you can and, in time, when your financial picture brightens and you’ve built up some equity, you’ll want to upgrade. Never mind that you already have rooms that are rarely used or that it will cost more to heat and cool the house. No, you want a bigger house so that you can impress friends and family. Like I said, this might not be a conscious decision but if you would just ask yourself the question “is it really necessary for me to move” you’ll be surprised at the answer.

We do this all the time. Do you really need that new DVD? Do you really need that new grill or would a bit of cleaning work just as well and save you hundreds of dollars?

Yeah little things add up but big things add up quicker. So stay in your current house a bit longer. Keep that car for a few years after you finish the payments. It may be a subconscious thing, seeking status, but you can make a conscious effort to fight that urge and do more by spending less.

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Wealth Builder Carnival #75

CashGathering articles on topics such as Earning, Investing, Living Frugally, and Taxes, Super Saver (who I talked about in this post) presents the Wealth Builder Carnival #75. Super knows a thing or two about building wealth since he set the goal of retiring in his 40s and accomplished it. The articles in each edition of this carnival will educate you about finances and set you on the path to building wealth. You have to take action, click over, and read the articles for any of the advice to work.

The article that Super included from me is called Functional Financial Illiteracy. There are many more excellent posts to read so what are you waiting for?


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Wealth Builder Carnival #73

A blog carnival is hosted by one blog as a central location to gathers articles from many other blogs on one topic . Obviously the Wealth Builder Carnival is meant to aggregate posts on building wealth. Topics include earning money, investing, and living frugally to name a few. 

This week I have a post I wrote shortly before going on vacation called Old Men in Fast Cars about the phenomenon I notice of really old people driving cars that I would look much better in. The only problem is I can’t afford those cars. So why can they afford those cars? Read the post.

Head over and check out all the articles in the Carnival there are lots of good ideas and lessons to learn. Come on be curious!


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Carnival of Financial Planning #222

The Carnival of Financial Planning brings the best financial articles and blog posts of the week together in one place. These Carnivals are fantastic resources and I highly recommend that you check it out.

Of course the reason I’m telling you about it is that I have a post that has been featured: 

What Next presents Options to Track Your Spending posted at What Next, saying, “I don’t really care where you spend your money but the key to success is that you know where you spend your money. Tracking your spending is crucial to success. Below are what I call the big three methods of doing this with pros and cons for each. Pick the one that works best for you.”

There are other articles that sound really good as well.

Beating Broke has a post called I Quit My Job: Overcoming the Fear and talks about a concept that is important to success, careful decision making.  “One question I’ve been asked over and over when talking about quitting my job is how I overcame the fear of not being able to find a new job, or not being able to pay my bills. Obviously, both of those questions played a part in the decision. My answer might surprise some. I didn’t.”

Another post I’m interested in is by LaTisha called How You Can Build Wealth posted at Financial Success for Young Adults , saying, “Building wealth takes time and knowledge. There is no get rich quick method. There are a few ways to begin building wealth. Passive income is the key.” I can’t agree more!

There are 88 articles in total. Sounds overwhelming, but it is a great resource for anyone interested in financial success!

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Random Thoughts – Taxes

IRSOk maybe I need to get out more on the weekends but it’s cold outside and my wife and I have been painting for several weekends now so I’m stuck inside. On the rare and brief moments I get to check email and other computer related stuff what have I been reading? One item that caught my eye was a headline that said “No, Entrepreneurs Like Steve Jobs Do Not ‘Create Jobs’ By Inventing Products Like The iPhone.” I clicked and it was a well reasoned look at why raising taxes on the super-wealthy (or even just the mere wealthy) won’t “kill” jobs as many politicians say. The article makes a strong case that raising taxes on the wealthy will create more jobs. Oh and it’s not exactly on a liberal website, it was on Business Insider.

Reading the article referenced above I was reminded of Henry Ford who once encouraged other manufacturers to hire workers that previously had been laid off. If they didn’t, Ford wondered “Who would buy my cars?” The idea is that if workers are paid a decent wage and can afford to buy goods, the economy will do well. A strong middle class is needed for consumption to fuel the economy. If, on the other hand, as we’re seeing today, there is a wide gap between rich and poor with a shrinking middle class, the economy will suffer.

The article was based on an editorial for Bloomberg by Nick Hanauer, a billionaire. Mr. Hanauer is very clear that he is not a job creator, nor are any rich people. Then who is? The consumer. Mr. Hanauer writes:

I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. 

Another problem with this taxes-will-cause-people-not-to-start-businesses line of reasoning is that it doesn’t matter how much I pay in taxes if I earn more than I had before. Imagine there was a flat tax of 30 per cent and I wanted to start a business. If I make $100,000 then I keep $70,000. I’m better off. Now imagine that taxes are raised to a flat 40 per cent. If I start a business and make $100,000 I keep $60,000. I’m still better off. Not as much but still better. It reminds me of the people I’ve worked with who would complain about how much they paid in taxes on their overtime pay. Who cares how much taxes you paid, you have more money in your pocket and that was the purpose of the overtime.

I may not be a billionaire but I’m not complaining if my taxes rise a bit from the historically low rates of today.

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