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August 08, 2012


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Great article! I'm working on my second million now. (Because I gave my first one up as a bad job!) If I were you, I'd lift out your mistake #3 and give it its own billing: too much debt.

You asked if there's one thing to add, and there is: understand the economic cycle.

The most common manifestation of getting the cycle wrong is overpaying for a house. House prices are cyclical. That means they don't always keep going up.

Other assets also move up and down in price with the economic cycle: mutual funds and stocks, for example.

Sink your heard saved money into an asset, only to see it shriveling away to nothing, is a very helpless and depressing feeling. Not to mention wealth destroying.

When that asset is a house, it actually can sink past nothing into negative territory. 25% of existing home mortgages are underwater, tangible proof that overbuying is the biggest wealth killer.

And why do people overbuy? Because they don't understand the economic cycle. We've had a recession every 7-10 years since World War 2. Like clockwork.

And that is news to most people.

Warren Buffett says buy low and sell high. Is there a factor determining low/high more than the economic cycle? I don't think so. I was one of those people who woke up in their 50s realizing my retirement is underfunded. Just focusing on the cycle helped me get caught up in a major way. (So much so I started a blog about it.)

If you pay attention to the economic cycle, you end up making the economy work for you.

I'd add it to the list. :)

I like the list and yes not just one will get you to a million but several if not alot of them need to be done.

The biggest one from "avoiding these money mistakes" is a spouse who is on the same saving and spending wavelength as you. I have seen too many friend complain that there spouse is spending too much money.

I am working on increasing side income to make my gap as large as possible. I already am pretty lean on the expense side of things and have no doubt I will hit 1 million one day.

Love it. We're hitting all the bullet points, but can certainly stand to up the intensity with a few. Not at seven figures yet. But we'll get there. :)

I will get to $500K next month. It took me six years to get here and hopefully it will take me less than six to get to the holly grail of $1MM.

The essential, and often overlooked, step #1 is to be lucky.

Thanks for relinking the Do What You Like link. It was candid and true for me. I have a job I like (and has given me a great nest egg), but the hobby I love more I could never make a living off of (freelancing). If I had to depend on making money writing, it would be torture!

Good stuff. I'm 35, done most all on the list, and have a net worth over $1 works.

You are absolutely right about Luck.
I retired in September 1992 and experienced the upward portion of the greatest roller coaster of my lifetime.

On 4/28/1997 the Nasdaq 100 index closed at 828.4
On 3/27/2000 the Nasdaq 100 index closed at 4,704.7
On 9/30/2002 the Nasdaq 100 index closed at 832.5

That's a 568% gain in about 3 years followed by a return to where it started in 2 1/2 years. It is otherwise known as the Bubble and nothing like it has occured since and probably never will.

I was in 4 very aggressive growth mutual funds for the upward ride and after such an exhilarating ascent I was waiting for the peak and started selling on the first bad day, after two more bad days I was totally in a MMF with a 9% loss.

If I had still been working with most of our assets in my 401K and limited to making one allocation change/year between a basket of stocks, bonds or a MMF I would be a whole lot poorer today.

@Limey -
I appreciate your feedback.

I'd like to think I've been successful because I'm smart, work hard and made good choices. With wisdom comes the understanding that luck has played a larger role than I could ever imagine. Books or articles that promise or imply some magic number is attainable if you follow a set of proscribed steps are irksome to me if they don't account for a big slice of reality.

CNN Money won't sell too much advertising if they recommend following a bunch of steps that can only marginally improve your current position. I'm not quibbling with the steps themselves. But there is no pot-of-gold at the end of the rainbow. The pot-of-gold is the journey along the way.

This isn't sour grapes. I've already done it. But I'm too good at math to pretend that my results are repeatable. In a nation of 313 million people, roughly 5 million have a net worth above a million dollars. A game of musical chairs with 5 seats and 313 people will leave over 300 of them standing, no matter how well most of them plot, plan and strategize.

Catherine (and Old Limey) --

I disagree with you both -- at least in part.

I would say that luck is a factor, for sure, but it's impact mostly on the downside. For instance, it's hard to become wealthy if you are "unlucky" enough to have major medical problems all your life.

But I would also say that there are repeatable steps people can take that increase the odds that they will be successful. If people take these steps, most of them will be wealthy.

The issue of why more people aren't wealthy isn't that most people aren't lucky, it's that most people aren't prepared to work hard, be disciplined, spend less than they earn, etc.

I don't know Catherine's specific story, but I do know Old Limey's. Luck played a part in making you VERY wealthy, but you were already doing well before that point. Then when the internet bubble hit, you had to apply a lot of knowledge, hard work, and skill to take advantage of it. So yes, it was lucky it happened to you, but it happened to hundreds of millions of people. They were "lucky" to have it too. And yet you became very wealthy and they didn't. Why was that? It was because of what you did when presented with an opportunity. If success was simply luck, we all would have made a fortune during that time.

As someone once said, "the harder I work, the luckier I get."

Maybe as you say, "Luck" isn't an appropriate word. A more appropriate phrase to describe my 77 years in this world has turned out to be "Good Timing".

If I had been born either 10-15 years earlier or 10-15 years later my life would have been totally different for several reasons.

1) I never had to serve any country during wartime with the outcomes (like a premature death or severe injury) that it could have produced.

2) The Cold War (1946-1990) had a dramatic impact on defense spending both in Britain and the USA and had a very positive impact on my working life, even though when I decided on my career path in 1951 I had never heard mention of it.

3) When I decided to leave England in 1956 there was no problem whatsoever in going to Canada because it's part of the British Commonwealth, and then in 1958 when I decided to move to the USA, unlike the situation today, the quota for British emigrants then was never filled. The period from 1958 - 1992 when I retired was a great one in aerospace. Lots of jobs, excellent raises, great benefits, interesting work, and massive progress in computers. In 1956 I worked on a vacuum tube type IBM 704 computer that was extremely unreliable, by 1992 I was using the world's fastest computer, the CRAY XMP4. It was also a great period to be buying and owning real estate.

4) Thanks to an advertisment in the Wall St. Journal in 1992 I established a relationship with a company whose database service and software I have used ever since. That led to an ambitious task of writing my own software that used their database, and ultimately supplying it to a large number of their subscribers.

5) Then, as you mentioned, the bubble couldn't have come at a more opportune time for me. By then all of our investments were consolidated at Fidelity, I had been to many investment seminars, made contact with quite a few prominent experts, listened to their presentations, and become very knowledgeable about technical analysis, fund selection, and market timing. Being retired I could also give all the time I needed to managing our investments, something that would have been impossible while I was working.

6) Lastly, near the end of 2007 our investments had gone over $5M and I was starting to tire of market volatility and the large daily fluctuations it produced in our portfolio. Coincidentally the (UpVol-DownVol) and (New Highs-New Lows) summation indexes for the NYSE and NASDAQ were showing an ominous pattern of lower lows and lower highs and indicating trouble ahead, so I decided to move completely into income investments. This decision worked out very well and has eliminated much stress.

Old Limey --

I think if you look at almost anyone's life you'll see that there are circumstances that allow opportunities to be taken. This can be called "luck", "timing", or whatever. But there are always those who seize on the opportunities, no matter the circumstances, that do well financially.

As I said above, circumstances do play a role in financial success, but mostly on the downside. As for the upside, there are proven steps to wealth creation and if people take them they will be much better off than if they don't take them.

Some of the guys that went down the same early path that I did also took the step of leaving their mother country and emigrating to Canada. The way it worked was that the first couple to arrive would get established and then the next couple would live with them for a week or two until they had found an apartment and settled in - and so on. Every couple were newlyweds which can also be a stressful time.

A common problem was a "Homesick wife". Soon after we had moved to California but before we bought a house we decided to go home for a Christmas vacation to make the final decision about where to spend the rest of our life. It happened to be a terrible Winter that year in England and because I had to return early in time for the next semester of my MS program my wife stayed behind for two more weeks. We exchanged letters and I told her about the nice Californian weather and backyard barbeques I had with mutual friends. Her letters were all about the terrible weather and how she couldn't wait to return home to California. That decision on her part turned out to be a life changing one since if she had been very homesick like some of the other women I would have had no choice but to return home. That would have been the end of my dreams and the end of a very promising career, and future wealth from the investment successes I had after retiring.

As things turned out much later on the company I worked for made the ICBMs that were installed in the US Navy's nuclear submarines. The Royal Navy had produced similar nuclear submarines and the US Defense Department offered to sell Britain our ICBMs (minus the warheads). This gave me an opportunity to make many trips back to the UK during the life of the program, and it was very satisfying to feel that even as a US citizen I was still able to help the country of my birth in improving our mutual defense.

Bottom Line - Making an excellent, long lasting choice in marriage can easily have a profound effect upon every aspect of your future life, as it surely did in my case.

"Luck is where the crossroads of opportunity and preparation meet." ~ Seneca

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