Is it better to have had and lost or never had at all? Here's a list of billionaires who lost big money last year. A summary:
Dozens of the world's wealthiest lost billions in recent months, but these 10 distinguish themselves for some of the biggest flops.
Of course most of these guys are still rich -- though one has a net worth of $0 now. Ouch!
Here's an analysis that shows "what it takes to be rich" in various parts of the country.
It's always interesting to me when an author bases being "rich" on income data rather than on net worth figures. Makes me think they don't know the difference between the two -- and which one really makes you "rich."
The following is a guest post from Estrategias Financieras.
I finally got around to reading the infamous The Millionaire Next Door
They interviewed 10 deca-millionaires (people worth at least 10 million dollars), and being frugal was the most noticeable shared characteristic among them. They are big time savers; they don’t spend money on non-sense and they give this habit a great deal of credit for their success. I have always been an avid advocate of saving; everyone needs a financial cushion, everyone has to have a financial cushion, but maybe there’s more to it than that.
All this leads me to ask this question: Is saving a better way to riches than everyone thinks? Maybe it’s way underrated. Do you know someone who has done it this way? It’s not unlikely, saving is a great habit and it can have very many awesome side effects. A lot of financial consultants will say that savers are losers (due to inflation and taxes), and because they want people to buy their funds.
I used to think in this manner, but the more and more I learn about multimillionaires; the more I am beginning to think that saving is getting the ugly duckling treatment in the world of money making and it’s time to revisit it under a different light. I really believe that saving can lead to riches, if only because by saving you can eventually come up with the money for that million dollar idea you’ve been keeping a secret.
It could also be that by saving you can accumulate enough cash for when that awesome real estate deal shows up – there’s nothing worst than the feeling of: “I’d know exactly what to do if I had the money for it.”
Maybe by saving, you can accumulate enough cash to partner up with a friend to start or buy into the business you’ve always wanted. There are many ways in which saving up can lead you to riches. We all know that in most occasions it takes money to make money, and if you want money you either go get it or don’t let it go so freely. I suggest that the latter can be a bit easier.
Hey, if all these deca-millionaires are so big on saving, maybe we ought to start paying attention. The easiest way to achieve success is to copy someone who is successful.
I recently ran into a listing of 10 things millionaires won't tell you. I found a few of the points especially interesting. We'll start with a description of the group:
A million dollars may sound like a fortune to most people, and folks with that much cash can't complain — they're richer than 90 percent of U.S. households and earn $366,000 a year, on average, putting them in the top 1 percent of taxpayers. But the club isn't so exclusive anymore. Some 10 million households have a net worth above $1 million, excluding home equity, almost double the number in 2002.
No, a million dollars isn't as much as it once was, but it's way more than most people have. In fact, if you have a million dollars, only 10% of Americans have as much or more than you do. That's pretty good, huh?
And what about that earning level? Looks like they made the most of their most important financial asset.
They may not buy the 99-cent paper towels, but millionaires know what it is to be frugal. About 80 percent say they spend with a middle-class mind-set, according to a 2007 survey of high-net-worth individuals, published by American Express and the Harrison Group. That means buying luxury items on sale, hunting for bargains — even clipping coupons.
In other words, they are frugal and spend less than they earn. Way less.
So how do you join the millionaires' club? You could buy stocks or real estate, play the slots in Vegas — or take the most common path: running your own business. That's how half of all millionaires made their money, according to the AmEx/Harrison survey. About a third had a professional practice or worked in the corporate world; only 3 percent inherited their wealth.
Yep, owning your own business is a great way to earn a boatload. But, as you can see, many made it without doing so.
Combine the fact that they earn a ton with the fact that they're frugal and you have a winning combination -- one that can't help but grow a person's net worth.
Here's a quick overview of what the wealthy have done to become wealthy:
1. They maximized their income. Whether that's from their career or from owning a business, they know how to make a good amount of money.
2. They spend way less than they earn, saving a ton of money along the way.
Again, the formula: High income + low outflow = great net worth
Hmmm, this advice sounds familiar, doesn't it? ;-)
Anyway, if you repeat the same steps, you'll get the same results -- and will become rich.
For those of you who are interested in millionaires:
The number of people around the world with at least $1 million in assets passed 10 million for the first time last year, according to a new report. And their bank accounts are growing even faster.
$1 million is not what it used to be, but it's still more than most people have.
Kiplinger's has a list of eight ways to make a million dollars. They profile eight different stories of how people made a million dollars. Of course, my two favorites are:
You don’t need to earn much to make millions. Paul Navone, 78, never made more than $11 an hour as a quality-control inspector in a glass-container factory. But last year he gave $2 million to two New Jersey schools. He has about $1 million more saved for his retirement.
Income from his rentals paid Navone’s living expenses. "I never spent any of my wages," he says. He owns no phone or TV. He collects Hummel figurines -- dozens of the ceramic pieces decorate his home. But for the most part, he squirreled his money away in savings and investments, and he gives credit to "four very good brokers." Navone invested in "a little bit of everything" and stuck with a buy-and-hold strategy. He is partial to utility stocks, with their steady earnings and dividends (which he always reinvests).
I told you. There's a very simple way to get rich if you simply stick with it. Do it and prosper.
Here's a guest post from Can I Get Rich On A Salary. My personal story is very similar to this one except I don't think of my mind being full of mush. ;-)
I first started this post by writing, “Now that we’re millionaires,…” But then I couldn’t stop laughing. I guess I find it hard to take myself all that seriously just because our net worth has gone over $1 million.
Hitting the million-dollar mark still seems to be a big deal in many of our cultures. Think how much the words “million” and “millionaire” are used in media and publicity. A quick search of any bookseller website turns up tons of titles—5,891 on Amazon. Books like The Millionaire Next Door, The Millionaire Mind, Secrets of the Millionaire Mind, and The Automatic Millionaire were all mega-sellers. Television shows span the gamut, from the Who Wants To Be A Millionaire game show to The Millionaire Inside personal-finance advice show. (And let’s not forget The Six Million Dollar Man—though with inflation, he’d probably cost over $16 million dollars today.) And it took me no time at all to turn up over 10 personal-finance blogs with “million” or “millionaire” in their titles. There’s at least a mild obsession with getting inside the minds of millionaires, presumably to unlock the hidden secrets of how to become one.
Looking inside my mind, unfortunately, revealed a big ball of mush.
The most interesting thing about our net worth being over $1 million is that there was and is no secret to unlock. Our net worth progress has been remarkably boring. The entirety of it can be attributed to: how much we saved and invested.
Most of our personal-finance plan revolves around automating how we save money and get it into the stock market. And the stock-market piece is made up mostly of index-based ETFs and blue chips. And as much as I’ve strayed and taken a big hack here and again, we’ve hit no home runs.
There’s no one stock in our portfolio that makes up more than about 3% of our net worth. The equity in our home makes up over 20%—but if you excluded it, our net worth would still be over $1 million. We have one investment property, and our equity in that might make up around 4% of our net worth. We never started, ran, bought, or sold a business. We never had stock options in a company that got acquired or had an IPO.
We’re in our late 30s and early 40s respectively. We live in an expensive area of the country. Our incomes are pretty good. We’ve been in our careers for about 10-15 years respectively—and did not start saving and investing regularly until quite a few years in. We’re decent savers. But the more blogs I read, the more I would rate us as average to mediocre on the frugality scale.
So if I had to break down the top few financial steps that we took to get here:
When I think about it now, our very boring story is pretty exciting. Because it means that lots of people can replicate it. Because it means that the advice on this and other blogs on how to become a millionaire or how to become wealthy worked.
You too could have a millionaire mind of mush.
It's nice to earn a fortune every year, huh? Here are the details on Tiger Woods' new home:
Tiger has a brand-new lair - a $65 million estate in the Hamp tons where he can send his chip shots flying into the ocean.
Located on exclusive Gin Lane, Tiger Woods' estate is on nearly six gated acres with a 13,200-square-foot Colonial Revival main residence, a 7,500-square-foot guesthouse and a four-car garage with staff quarters.
Here are some pics of the place.
Update: Turns out this ISN'T Tiger's home. Thanks, Harold.
Here's a piece from Money magazine that starts with the following: "The top White House contenders are a lot richer than the rest of us. Here's where they got it...and where it goes." I'll link to the page for each candidate and pull out a few choice tidbits:
A few comments from me:
1. Yep, they're all extremely wealthy. Only Obama is within somewhat reasonable reach of most Americans. Then again, he's the youngest here, so give him time.
2. Looks like to me that a couple of these people are as good at spending their money as they are saving it. Obama and Thompson have net worths that are either below or just slightly above their 2006 salary. Yikes! Someone their ages should have a net worth far above their annual salary.
3. Bill Clinton has earned $41 million in speaking fees? Sweet! Where do I sign up for that gig?
4. Of course, Giuliani has talked his way into $11 million in one year, so in six years he should blast way past Bill.
5. Romney's potential estate tax bill is larger than the net worths of all the other candidates. ;-)
I'm a big fan of the book The Millionaire Next Door
Yahoo Finance has a piece that says many millionaires prefer to keep a middle class level of lifestyle. The basic facts:
But instead of entering the echelons of the elite, these new millionaires adhere to middle-class values, earning their money rather than inheriting it, working 70 hours a week, and choosing neighborhoods based on the quality of schools.
"These are middle class people who are in the community and don't insulate themselves but they are different because they have managed to accumulate wealth," said Schiff, the president of private wealth consultant Advanced Planning Group.
Hmmmm. Wealthy people living way below their means, living by neighbors who are worth much less financially than they are. Sounds familiar, huh? ;-)
Here's another finding I found interesting:
They found that 89 percent of middle-class millionaires believed anyone could attain wealth through hard work.
I believe this as well. If you learn and apply even just the basics of personal finance, you can't help but become wealthy! And it all starts with spending less than you earn. Many people say this advice is too simplistic (and of course it's just the beginning, there's obviously more to apply), but as simple as it is, it's the one area that trips up the most people. It's also the foundation for everything a person does financially. With it, you can become wealthy. Without it, you're sunk no matter what you do.
One last point I liked:
He said the four main characteristics of a millionaire were that they were hard working, networked, persistent even in the face of failure, and put themselves in the flow of money.
It's really pretty simple, folks. Know the basics, apply them, and keep at it for a long time and you'll be wealthy.
Every time I write something about how to earn a million dollars or how to save a million dollars, I always get at least on person that says something like, "Yeah, well a million dollars isn't what it used to be." I usually respond with something like, "No, it isn't, but it's still a lot more than most people have."
Well, here's a piece from MSNBC that says a million dollars isn't what it used to be. Specifically, $1 million doesn't guarantee you financial security/well being any longer. It used to be that if you had $1 million, you were certainly wealthy and probably didn't have many money worries (except how to manage such a large fortune.) Today, while $1 million is nothing to sneeze at (and it is certainly more than most people have), it doesn't automatically put you on easy street. Here's what the piece says:
For many affluent individuals, a $1 million nest egg is just not enough these days. “Everything costs more — gas, housing, education, health care, food — everything,” said Welling. “A million dollars used to be the magic number, and while it still is a lot of money, it may not be enough to retire or support the kind lifestyle people think it could.”
Longer lifespans are one reason why $1 million may not be enough to provide a lifetime of financial security, he said. “What do you do if your mom ends up living to 100 but her retirement plan only lasts till 80?”
The article then says that $5 million is what is really needed to be well-off. But the government thinks it's half that:
Somewhat surprisingly, the Securities and Exchange Commission still uses $1 million — a figure that was established in 1982 — as an important benchmark for wealthy households, although there is a pending proposal to raise the minimum to $2.5 million.
Lastly, I found this very interesting:
Most multimillionaires today made their wealth in one of three ways: real estate investments, business buyouts or the technology boom, said financial experts.
So this got me to thinking about what it would take for me to quit my job and retire. I'm thinking that it would be around $3 million of liquid net worth. This way, I could earn $150,000 a year at 5%. Ok, so maybe I only need $2 million in liquid net worth -- that would be $100,000 per year at 5%. Then again, $1 million at 5% is $50,000 a year -- enough for most people to live on. Hey, maybe $1 million is a good amount after all! :-)
What amount would you need before you'd feel comfortable enough calling work quits and doing something else?
The following is courtesy of Marotta Asset Management and gives some facts on billionaires and thoughts on how to become one:
There are 946 billionaires in the world according to a recent survey. Half are in one country, the United States of America! The others are scattered throughout 53 other countries. Because of the surging world economy, 195 newcomers were added to the list last year and only 32 dropped out. Learning how billionaires amass their wealth may expand your financial horizons and possibly stimulate some ideas that could lead to your name being added in the future.
Topping the list for the past thirteen years is Microsoft founder, Bill Gates, the richest person in the world with $56 billion. Investor Warren Buffet remains in second place with $52 billion. They are followed by three foreigners: Mexican telecom executive Carlos Slim Helu; Swedish Ingvar Kamprad, the founder of the Ikea stores; and Indian steel magnate Lakshmi Mittal
Germany is the next country with 55 billionaires, but probably not for long. Russia with 53 is moving up fast having been freed from the shackles of communism and benefiting from rising world oil prices. In fourth place is the "emerging-market" country of India with 36 billionaires overtaking the "mature" economies of Japan and the U.K.
How does one become a billionaire? If you are lucky, you are born into the right family. The fifteenth richest person in the world Karl Albrecht ($20 billion) inherited his mother's corner grocery store and grew it into the giant supermarket chain Aldi. In the U.S., he owns the fast-growing Trader Joes gourmet food shops.
Do what you're good at, work smart, invest wisely and you too may be pleasantly surprised.
If you are a "geek" in college, start a business in your dormitory. That's what two billionaires did: Larry Page and Sergey Brin. They were graduate students at Stanford University when they conceived the idea that has become the most popular computer internet search engine -- Google. When the company went public in 2005, they were each worth $7 billion. Now each is worth double that: $16 billion. Earlier, Michael Dell started his business while a student at the University of Texas.
Devise a method to sell good products at the lowest cost. That's what Sam Walton did by starting Wal-Mart. His five heirs are each worth about $17 billion. If Papa Sam were still alive, he would easily be the richest man in the world with $85 billion. Sam was a smart man who had six basic rules for his business: think small, communicate, keep your ear to the ground, push responsibility and authority down, force ideas to bubble up and fight bureaucracy.
Is it possible to get rich while you are on welfare? Well, one single mother in England did just that. Billionaire Joanne Kathleen Rowling started writing stories about "Harry Potter" while on "the dole" during the time her child was sleeping.
Is it possible to get rich collecting waste paper? Yan Cheung, China's richest woman with $2.4 billion did just that. The waste paper she collects in the US goes to China to be made into cardboard that then brings back to us the goods we buy from China.
How does one get rich? We analyzed the top fifty billionaires in the United States and found that most of them gained that stature by starting their own business. The next best (and easiest) way to become a billionaire is to have billionaire parents and inherit wealth. The third best way is to entertain people and be in the media business. Fourth, be a good investor (common stocks earn an average of 11 percent annually and at that rate you can double your money every six and a half years). Buying and owning real estate is the fifth best way as it earns an average of eight percent annually, and at that rate you can double your wealth every nine years.
Is a billion dollars a lot of money? Think of it this way. Just to COUNT to a billion would take over 32 years. The wealthiest people today are not like the "robber barons" of a century ago. Most are honest, good citizens, who worked hard to create their wealth, but also did well for society in general. Eventually, most of the wealth is gifted to charity.
Bill Gates, the wealthiest person, and his wife Melinda, set up the world's largest private charitable trust worth $33 billion that is dispensing funds for medical research, education, etc. Last year, Warren Buffet announced that he would give $31 billion of his Berkshire-Hathaway stock to charity; most of it to the Gates Foundation. Guided by the belief that every life has equal value, the Foundation seeks to reduce inequities and improve lives around the world.
If you want to be rich, be prepared to pay more taxes. The wealthiest people in the US, the top one percent of earners, pay 36% of all federal income taxes. The top 5% pay 57% of all federal income taxes. If the government wants to continue doing "good," a lot of tax revenues needs to come from the wealthiest families. When the wealthy do well, the government is able to afford to "do good" for society.
With the victory of capitalism over communism, the "democratization of wealth" is becoming more commonplace in Russia, Eastern Europe and China. Deng Zhao Ping, the architect of China's transformation, was smart. He told his fellow politburo members that in order to advance. China had to let some people get rich.
But, just where does one start? First, you need to accumulate some capital. If you work for someone else, save enough to quit your job and start your own business. It is a long shot to becoming a billionaire, but it's worth the try. On your way to becoming a billionaire, the million markers become commonplace.
Over seven million households now have a net worth of over $1 million. That is five times the number that existed in 1989. The odds of someone becoming a millionaire through personal efforts are good -- about one in five. Do what you're good at, work smart, invest wisely and you too may be pleasantly surprised.
Earlier this week I talked about how millionaires are much more common than I would have thought they are. But then I saw this piece from Yahoo that talks about accidental millionaires (see a bit down the page) -- people who are millionaires on paper but not because they saved and invested but because their house has appreciated under them to make them more wealthy. The article is an interview with personal finance author and radio host Jennifer Openshaw and here's what she has to say on the subject:
Many Americans have been trapped into thinking they're wealthy because of all the equity in their homes. Well, chances are you're not even close to being rich because that money won't do you a bit of good if you're living in the house. You're actually what I call an "Accidental Millionaire."
I guess this is why some people exclude the value of a primary residence when they calculate their net worth. Personally, I count it in my net worth, but I also realize that the amount invested in my house is very illiquid and not something I can count on to help fund my retirement (unless I use a reverse mortgage or downsize in retirement.)
So, how many accidental millionaires are there?
Well, consider this:
Looked at another way, 9.5% of SmartMoney's "millionaires" are accidental millionaires.
I just read SmartMoney's June issue with the main cover story being about people who are worth $5 million or more (the net worth I said I'd need to have to consider myself rich) -- what they're like, how they became wealthy, etc.) I'll be sharing my thoughts on the piece over the next few days, but before I got into it, I wanted to highlight this tidbit I found on the editor's page:
In the past 10 years, the number of U.S. households with net worth over a million dollars has nearly doubled; it works out to an astounding one in 12.
Wow. That's a huge percentage of people who count as millionaires. They don't say for sure but I'm guessing these numbers include home values in the calculations (which some people do not count in their net worth figures), but still, it's much larger than I would have guessed. And if one in 12 is a millionaire and net worths as a whole are so low, many, many, many people have very, very, very low net worths.
Finally, I have to reiterate that $1 Million isn't what it used to be (but it's still more than most people have.) ;-)
For more on millionaires, see these posts:
One of the comments I receive most when I post on "how to become a millionaire" or something similar is "$1 million isn't what it used to be." No kidding. Nothing is what it used to be -- it's called inflation.
That said, I usually respond that while $1 million isn't what it used to be, it sure is more than what most people have. That argument seems to work in most cases. ;-)
Here's a piece from MSNBC titled, appropriately enough "$1 million is just not what it used to be." Some highlights:
Not that long ago, the word “millionaire” conjured up visions of chauffeured limousines and extravagant shopping trips and elegant yachts. These days, a millionaire is more likely to be the guy or gal next door who saved carefully — and perhaps benefited from the sharp run-up in housing prices — but still worries about covering the exploding costs of children’s educations, caring for aging parents and funding their own retirements.
And the fact is, $1 million doesn’t go as far these days as it used to. For one thing, it’s vulnerable to inflation — someone who bought $1 million worth of goods in 1957 would need $7.3 million to buy the same goods today, according to Federal Reserve figures.
It’s also vulnerable to longevity. Americans are living much longer than they used to, and that means they need larger nest eggs to get them through retirement.
Ok, so there's the ammunition for those who say "$1 million isn't what it used to be." You're right. It isn't.
But I'm right too. While $1 million isn't what it used to be, it's much more than what most people have:
But David Bach, author of “The Automatic Millionaire” and other financial advice books, points out that “99 percent of Americans don’t have a million dollars — and to them, a million dollars is a fortune.” To the hundreds of millions of people around the world who live on $1 a day or less, “it’s unfathomable.”
Yes, much, much more:
“Take a baby boomer who has less than $50,000 in savings — which is what the average baby boomer has — and tell them they need $1 million, you might as well give them a gun and tell them to shoot themselves,” Bach said.
The average baby boomer has $50,000? Yikes!
So while $1 million isn't what it used to be, it is still a good chunk of change. It certainly doesn't have the status it once did and it's far less than many people need to retire, but it's still kind of a "neat" goal for people to aspire to.
What about you? Does hitting a net worth of $1 million mean anything to you?
For those of you who just can't get enough of millionaire-ville, here are some past articles on the subject:
Here's a piece from Money Central that details how ordinary people have become millionaires. It details the lives of four "millionaires next door" -- people that you'd probably least suspect were wealthy but who are worth at least $1 million. If you're interested in their stories, click through the link above and get all the details.
I thought I'd share with you a bit of the piece -- the part where each of them gives their advice on how to become wealthy. Here's what each person had to say:
In a nut shell, the basics of becoming a millionaire are:
That's just what I said in How to Get Rich in Three Easy Steps.
For more thoughts on these issues, see the following posts:
Here are some more facts on millionaires from Money magazine's January issue:
My thoughts on these:
1. You're probably thinking "yeah, I'd be a millionaire too if I made $209,000 a year." I have a few thoughts on this:
2. Yep, college is one of the steps towards building a great career -- which is your most valuable financial asset.
3. Most are married, huh? Again we find that married people tend to be wealthier.
In its January issue, Money magazine had a great, multi-page section on how to start meeting your goals. The piece is filled with tons of stats, information, data, and suggestions and I'll be highlighting some of this information over the next couple of weeks. Today I want to focus on the page titled "What it Takes to Become a Millionaire" and, in particular, their stats about how the 8.9 millionaires in the U.S. got their wealth:
Not surprising info here. As I've said a ga-zillion times before, your career is your most valuable financial asset, offering you many financial benefits. You can make the most of it by getting a college degree and managing your career to its full potential. Doing this well can earn you millions of dollars in extra income throughout your lifetime.
It's also interesting to note that 26% became millionaires from owning a business but business owners make up only 12% of households. Seems like owning your own business is a great way to become well-off.
Personally, I plan to use a combination of job earnings, investments and business ownership (side business) to continue growing my wealth.
Final interesting notes: 55% of millionaires are still on the job and 58 is the average age of the head of the household in millionaire families.
Here's an interesting piece from Money Central on how to make your child a millionaire. The details:
A newborn has nothing but time -- and that's something this strategy exploits to the fullest. Let's say a 30-year-old manages to save up and then invest a lump sum of $10,000. At an annual return of 8%, by the time she's 65, that $10,000 will have grown to nearly $150,000. Not bad, right?
But then compare it to what a 5-year-old could make from the same $10,000. The extra 25 years of growth would give him over $1 million by age 65. A newborn would need just $6,700, less than the cost of a decent used car.
This is all about the power of compounding, folks. Take some money and a lot of time and you can become very, very wealthy. It's just the formula I detailed in How to Get Rich in Three Easy Steps.
That said, I'm still constantly amazed by the power of compounding and how much of a difference it can make. I'm just starting to see some really big benefits from compounding personally as my portfolio is now in a position where compounding is really kicking in. It's a nice friend to have on your side. ;-)
The article goes on to highlight what kids at various ages need to invest in order to be millionaires by age 65. It gives three alternatives: a lump-sum investment, a monthly investment until age 18, and a monthly investment until age 65. Here are the results for the various age levels:
Newborn
Age 5
Age 10
Age 15
Very, very, very interesting -- and compelling -- information. Imagine socking away $6,721 when your child is born, knowing he/she would be a millionaire at age 65. I know, $1 million would not be worth as much then as now, but it still would be a decent amount for such a small initial investment. Besides, what if instead of $6,721, you set aside $20,000? Or $30,000? That's when the pot at 65 would be REALLY big money!
Here's a small tidbit I found in the December issue of Money magazine that made me chuckle:
Adults in this country with a net worth of $1 million or more: 1.2%; high schoolers who expect to be millionaires by age 40: 39%.
Ha!
This just highlights the unrealistic expectations/lack of knowledge of today's teens. But there are also a couple other noteworthy things to comment on in this short quote:
1. Every time I write a post on "How to Become a Millionaire" or something similar, someone leaves a comment like "What's the big deal? A million dollars isn't that much. It's certainly not what it used to be." To which my response is usually "Maybe it's not much, but it's more than most people have." This proves it! Unless you're in the 1.2% that owns $1 million or more, $1 million is a goal for you to reach for.
2. There is a way today's high schoolers can become millionaires by age 40 -- if they really want to work at it. How is that? Check out How to Get Rich in Three Easy Steps. Teenagers are in especially good shape to make this happen because they have time on their side -- lots of time where their money can compound again and again to help make them the millionaires they want to be.
On my post titled Become a Millionaire by Trading Sparingly and Investing for the Long Haul. I had a couple of good comments worth sharing with all of you. The first reinforced the idea that it's wise to trade sparingly and invest for the long haul:
That makes perfect sense; I think the people who call their brokers each morning to find out how London did are either afraid of the internet or have so much money that they're investing all over the globe that they need to call their broker to find out what's going on. In which case they're probably good friends with their broker.
Over time I've come to realize that the long haul is what's important.
Yep, me too. I focus on good, simple, easy-to-manage investments. That's why I like index funds.
The second person validates the suggestions through practical experience. Here's his comment:
I use to do a lot of trading. I was even into options trading, selling covered calls, and a lot of day trading. You can win big and then you get really confident and you start to trade bigger positions of stock and then you get a major down day or down week. So the ups are great and the downs can be really bad. I also ran out of time, my job has become more and more demanding and I travel about 25% of the time. Therefore, you end up not having enough time to watch the investments. I have since switched to using a financial planner. I figure if I would have earned 5 to 6% on my investments over the last 5 years I would have been way ahead. Instead I am still writing off my capital loses from times when I made large bets and things went wrong.
I must admit that I learned through the school of hard knocks myself -- though not to this extent. I traded stocks regularly for years, thinking I always knew better than anyone else how a company was going to perform. Needless to say, I lost a fair amount of money. But I then discovered index funds, dollar-coat averaging, and automating my investments and it's been all good since then.
I often get the comment that "a million dollars isn't worth what it used to be" or "it's not that much money" when I post about becoming a millionaire. I have a response to each of these thoughts:
That said, it seems like coming into a cool $1 million wouldn't really change people's lives that much. At least that what the comments on my post asking What Would You Do with $1 Million? lead me to conclude. So, I'm upping the ante on this post and asking "What Would You Do with $5 million?" That should change people's lives a bit.
It certainly would for me. Here's what I would do (in order):
So, would $5 million change your life? What would you do with it?
I recently ran into the article titled The Dark Side of Financial Windfalls which detailed the hardships many people suffer when they receive a financial windfall.
I know, you're thinking the same thing I was: "Boy, I'd love to have their problems." ;-)
But I don't really want to discuss that issue now, but the bigger issue this piece brings up: what do people do with financial windfalls and, specifically, what would you do if you came into a bunch of money?
There's a poll associated with the piece that asks What would you do with $1 million? At the time of this writing, most people are saying "Not much, I'd invest and keep working" but this doesn't give much detail . So I'm asking you, "What would you do with $1 million?" Leave your answer in the comments below -- it should be interesting to see what everyone says.
As for me, here's what I think I'd do, assuming I actually had $1 million to spend (meaning I already paid taxes and had $1 million left over):
Of course, no one knows what they would actually do with the money until they had it. Plus, I'd (of course) make the decisions above with my wife, so this is only my best guess as of now.
So, what would you do with $1 million?
One of the books I have in my "review pile" is The Money Coach's Guide to Your First Million. In the brief glance I've taken at it so far, I think I'm going to like it.
But I'll save the review for later. Today, courtesy of the author and publisher, we have an excerpt from the book that gives some thoughts on how to make your first million by setting goals. I think you'll like it. Here goes:
Don’t Just Dream; Execute By Setting Goals
By Lynnette Khalfani, Author of The Money Coach's Guide to Your First Million
Too many people dream of becoming a millionaire but have no real plan for how to achieve it. Well, you can’t become a millionaire just by dreaming, wanting, or wishing for wealth. As you develop the framework for your millionaire’s budget, think about planning for the future and reaching some of your bigger goals. So many times we get caught up in daily tasks and activities that we forget about setting substantive goals for the future. But in order to accrue substantial wealth, it’s essential that you write out your short-, medium-, and long-range goals. Some of you may not have thought about your own goals much lately. Perhaps your life has been consumed by your children’s world; their needs and wants always come first, and you constantly put your desires on the back burner. It’s a mistake to do that. Financially speaking, you can get yourself so wrapped up in another person—whether that individual is your child, partner, or parent—that you neglect yourself and fail to engage in smart, practical financial planning. You don’t want to look up 20 years from now and think that you should have managed your money better when you were younger.
To immediately improve how you handle your finances and make a giant leap toward becoming a millionaire, one of the most important things you can do is to write out your personal goals. This one act alone will help you build a foundation for a lifetime of wealth. If you are married or in a committed relationship, I suggest you do this exercise with your partner. Write your individual goals first, and then share your goals with the other person. Ultimately, we are all individuals with our own unique dreams and ambitions. Yet, for those of us involved with significant others, it’s crucial that you make a habit of setting— and reaching—your goals together.
I want you to think of your goals in the context of how long it will be before these goals can be realized. Short-term goals should be something that you can accomplish in a relatively brief period of time, say in one to two years, at most. Medium-term goals can be classified as those that require two to ten years to accomplish. Long-range goals are those that require ten years or more to fulfill. To jump start your thinking, I’ve included a laundry list of goals below. Some of these may be relevant to you; others may hold no significance. The idea, however, is to give yourself permission to focus on the things you want to accomplish in the future—goals you may never have acknowledged to yourself, let alone written down or verbalized to someone else. Among the goals you might pursue are:
■ Eliminating credit card debt.
■ Buying a new home.
■ Saving for a college education.
■ Investing for retirement.
■ Starting a business.
■ Establishing a cash cushion.
■ Paying for a wedding.
■ Saving for a new baby.
■ Purchasing a vacation home.
■ Traveling around the world.
■ Buying a boat.
■ Paying off student loans.
■ Making a large contribution to church, synagogue, etc.
■ Buying a new car or a second car.
One of the most important things you can do to reach your goal of becoming a millionaire is to write out your personal goals.
The Write Way
No matter what your goals, you should know that writing out your plans gives you a far better shot at making them happen. In fact, written goal-setting is a phenomenally powerful act as demonstrated by a number of high-profile cases.
A compelling example of the power of written goal-setting is represented in a 1979 survey of Harvard University students which found that 84 percent of them did not set goals. Another 13 percent of them did set goals, but didn’t bother to write them down. And only 3 percent of the graduating class had written goals and an action plan. Ten years later, researchers resurveyed the group. The 13 percent with unwritten goals were earning double the income of those with no goals. But here’s the whopper: the 3 percent of the student population with written goals earned 10 times as much as the other 97 percent!
Clearly, written goals are important. But do you realize how it is that written goals are able to propel you to reach success? Here are a few reasons why goal-setting works: |
■ PURPOSE: Goals give your daily and long-term actions meaning and purpose. This helps you stay motivated when you realize that you’re engaging in certain financial behaviors for a reason and not just randomly acting.
■ ACCOUNTABILITY: Goals also make you accountable. If you find that you’re regularly falling short of your goals, it could be that you’re not really committed to them.
■ STRUCTURE: Goals provide a framework or structure from which you can operate and achieve your objectives. Many of us need this structure to plug away at reaching our goals, especially long range visions.
■ DISCIPLINE: Goals spur you along to be consistent and disciplined in your actions since you know that a lack of discipline on your part will cause you to deviate from your plans, thereby jeopardizing your chances of hitting your goals.
■ SPECIFICITY: Goal-setting forces you to not just think about what you want in general terms, but to write down your aims in concrete terms. Adding the element of specificity to your goals makes you far more effective in taking the practical steps required to reach your objectives.
Written goals give you purpose, make you accountable, make your financial plan concrete, supply you with a discipline to follow, and identify specific areas to focus on.
Setting Smart Goals
Your goals have to matter to you. They have to be achievable. You want to push yourself and stretch to achieve a goal without putting it so far out of reach that you become disillusioned and give up. Remember, failure is not an option for a Millionaire-in-Training. And I believe that’s what you are if you’re reading this book and taking this advice seriously. I’m also a believer in setting the appropriate type of goals. SMART is an acronym that describes goals that are:
■ Specific goals are the exact opposite of vague, hazy dreams. With the latter, someone might say, "I want to be rich," or, "I want to save money for my kid’s college education." Those are just general wishes, and chances are they won’t be fulfilled. But the person who sets a specific goal would define (in writing) exactly what "rich" means from his or her point of view, as in "I want to have a net worth of $5 million." A specific goal regarding college savings might be: "I want to save $80,000 for my son’s college tuition."
When you make goals measurable, you quantify the objective you’re seeking. In doing so, you ensure accountability and track your progress. For instance, to know where you’re going, you have to know your starting point. So if one of your goals is to have no debt, you need to know how much debt you currently have. If you add up your credit card bills and they total $20,000, then you make your goal measurable by writing down something to the effect that, "Over the next two years, I want to eliminate my $20,000 in debt." In light of this goal, you know that after one year, if you’re staying on task, you should be able to measure your progress and find that you’ve knocked out half of your debt, or $10,000.
■ Action-oriented goals require you to do something, not just think about doing something. Not weigh your options. Not analyze a certain situation. Not research possibilities, and so forth. No, in |order for the goal to carry weight, you must act upon it. So let’s say you initially thought that, "I want to start a business," was a goal. That’s far too vague. You have to amend that statement and write something along the lines of: "By the end of the month, I want to create a business plan for my new interior design business." This way, you know you actually have to draw up the business plan. If you look up sample business plans on the Internet or investigate what lenders want in a business plan, that’s fine as a prerequisite to what you have to do. But ultimately, it’s the actual writing of your business plan that you need to accomplish.
■ Realistic goals are neither too ambitious nor too easy to accomplish. If you set the bar so high that it’s impossible to reach your goal, you’re only setting yourself up for failure and disappointment. By all means, make your goals challenging to reach, but be realistic in your expectations. Here’s a case in point. Let’s say one of your goals is to return to college and obtain an MBA. You already have a Bachelor of Arts degree, and you know that the MBA program you want to attend typically takes two years for the average fulltime student to complete. If you work 40 hours a week, will take courses only part time, and can study only on the weekends, don’t expect to finish the MBA program in 18 months. Given the confines of your situation, a more realistic yet still challenging goal might be: "I want to earn my MBA in two and a half years."
Any worthwhile goal is time-bound and includes a deadline by which the goal should be met. When you include a deadline, you make your goal time-bound. Therefore, it’s not good enough to say: "I plan to buy a new home." Instead, when writing out your SMART goal, put down something like: "Two years from now, I plan to put down a 10 percent down payment toward the purchase a $450,000 Tudor home with four bedrooms and two bathrooms." This goal is clearly specific, measurable, action-oriented, realistic for many people, and time-bound.
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See? I told you you'd like it. ;-)
Here's a piece from Yahoo that discusses the fact that one of the key money problems in America is comparing ourselves to how others are doing. It makes the following statement which I found to be particularly interesting:
Meanwhile, books like "The Millionaire Next Door" by Thomas Stanley and William Danko have documented the fact that many wealthy people got that way by living below their means and saving heaps of money. But, as Boss points out, no one looks at someone with a used car and modest home and says, "Wow, they must be putting a lot of money aside for their future!" As she puts it, "They're just not on our radar screen."
This is a great truth of money -- you can't tell who's rich by looking at people. If you see someone with a big house, a late model, expensive car, country club memberships and the like, most people would assume that they're rich. But in many cases, they aren't. They may be high income families, but they are also likely to be high consumption families. And if so, they're not accumulating much wealth. After all, if you make a million dollars a year and spend a million dollars plus some, you're going backwards.
The opposite also holds true. You can see a guy who has an "average" house, older cars, and shops at the Salvation Army for "good buys" on clothes and think that he's not wealthy. But you never know. He could be the millionaire next door.
Take me for example. I live in a family-oriented neighborhood with an "average" house in our development. We drive inexpensive cars (compared to most), shop at Wal-mart, and wear nice but non-name-brand (usually) clothing (and we wear it until it gives out). But we apply the various money tips I discuss here at Free Money Finance and, as a result, our net worth is several times that of our neighbors (based on average statistics for our area). But you'd never know it from looking at us. In fact, you'd say we were middle class at best if all you did was look at our possessions, how we dress, what we drive, and how we spend our money.
I want to end this post with three main thoughts. First, don't judge a book by it's cover and don't get caught up trying to get more "stuff" than your seemingly wealthy friends, neighbors, and relatives. The truth is, they are likely not doing nearly as well as they appear to be doing. And why should you ruin your finances trying to keep up with their unrealistic spending levels?
Second, and this is great news for us all, anyone can become wealthy. All you need to do is spend less than you earn and take a few other, simple steps. If you want details on how, see the Free Money Finance Guide to Getting Rich.
Finally, it's been awhile since I had some posts from the great book The Millionaire Next Door. I may start posting on it again some day, but for now, here are some of the great posts I've done previous from this book:
Here is a simply wonderful article from the Washington Post. It's written by a long-time financial writer who's retiring and this piece is his last for the Post. In it, he shares "the strategies my wife and I have used, and lessons we have learned, over the years building our financial security." I think of them as strategies for creating wealth. Here are the ones I found especially useful and my corresponding comments on them:
All those books and articles you see about squeezing everyday expenses to generate savings are right. Almost everyone who has a job can manage to save a little every day. Simply substituting a Thermos of home-made coffee (tea is even cheaper) for the $3 latt