Education / Entrepreneurship / Investments — Comments Off on Why Failing Will Be the Best Thing That Ever Happened to You
20
Jan 11

Why Failing Will Be the Best Thing That Ever Happened to You

Winners always win right? Wrong. Every winner is a product of a long line of failures plus an ounce of luck and a pound of persistence. Winning is actually a process which needs to be developed. Part of the process of winning is learning how to fail. Learning how to fail will provide you with powerful lessons to apply to the next business venture or your next trade.

Learning how to fail takes a lot of work. Luckily, failures usually mount quickly, giving you mounds of material to sift through for lessons. When dealing with a failure, it is necessary to pick apart the event to see what went wrong, what you could have done better and what you will do differently next time. The earlier you get on the learning curve the faster you will progress through the necessary setbacks and begin to win.

A loser will not do this.

A loser will quit because the weight of the failure will prove too much to bear. A loser curls up in the fetal position and waits for someone to make it better. They are unlikely to be able to get the loss or failure out of their mind and these thoughts will fester and hinder them from taking future risks – eventually turning them into a bitter loser. A bitter loser will have stern warnings and violent head shakes when conversing with any individual still working on the process of winning.

Obviously, the bitter loser is the worst kind of loser. All optimism for life and an irrational blame game with risk has developed. Avoid a bitter loser at any cost!

Failing is the best thing that can happen to you. You learn adversity, determination and humility – all necessary attributes for a successful life. Whenever someone brags about a life without failure or an investment portfolio without loss, I am always skeptical. Either that person has not ever pushed themselves to be great, never took chances or is dishonest. Maybe this person has never left the cozy confines of their comfort zone.

Living in your comfort zone is a recipe for monotony, average investment returns (at best) and a run-of-the-mill life.

Like any pain in our lives, a failure stings, burns and makes you sick to even think about. These emotions will not last. Only you will know when you are ready to apply the lessons learned and get back on that horse – whether your horse is the stock market, an entrepreneurial venture or a relationship. Accept and embrace failure as a necessary bump in the road and a valuable education. Ask yourself, “what can I learn from this setback?”

Avoid becoming a loser by keeping an open mind to the possibilities that lie ahead for you in the future. Be wiser next time and your failure will make you a better winner in the markets and in life.

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Debt / Education — Comments Off on When School Loans Aren’t The Answer
19
Jan 11

When School Loans Aren’t The Answer

No parent wants to sit across the dining room table with their son or daughter who is beaming with excitement over their acceptance letter to NYU and have to tell them that they cannot afford to go to school there. It is a parent’s job to guide the child through the trials and tribulations of life, but in the case of going to their number one choice for undergrad, parents seem to be blind to the finances of the decision.

There are many factors that need to be considered and countless fallacies that must be ignored when making this decision. Making the wrong decision could end up with the student starting life out with so much debt that they cannot even afford to live on their own even if they are lucky enough to land a job.

The first factor that needs to be analyzed is the amount of cash and cash equivalents that are currently put aside for the college fund. At the point when your child is a senior in high school, most of these investments should be converted over to cash and ready to be dished out. It is a mistake to keep this money locked up in anything but a certificate of deposit as it will be need within few years. If you are going to need the money in less than five years, it needs to be in cash.

Another important factor to consider is the amount the student will be receiving in scholarships. Scholarships are an amazing gift from generous benefactors that never need to be paid back. A gift of education that will last a lifetime is one of the most powerful gifts someone can receive. Many of the largest universities offer many free-ride scholarships to ensure they yield the best of the best students for their classes. They can then publish these statistics and draw in future classes of highly intelligent and highly sought after students.

A factor not to be ignored is the field the student will be going into. Though many students change their majors many times, a best estimate forecast based on the students’ passions and desires should be taken. I am all for learning poetry and English if that is your passion, but I am skeptical about paying $200,000 for an undergraduate degree in the field especially if the degree needs to be financed. There is no way that the student will be able to make enough to cover the loan payments. A state school is an option here or even majoring in something with a higher paying career and minoring in the passionate discipline.

Is the student planning on going to graduate school? Many times a student will have so much debt from undergrad that they cannot even afford to go on. Having a degree in pre-med is fine and good, but eventually you have to be in position to attend med school to benefit fully.

Some parents think that they should borrow from or cash out their retirement plans to fund the child’s education. Though this is very thoughtful it will end up causing a lot of trouble for you when it comes time for retirement. Another issue here is that your kid could start life with a degree and no debt, but then have to take care of their elderly parents because the parents had nothing in retirement to support themselves with.

A top school does not necessarily translate into a top salary. Entry level is entry level, do not get swept away with the notion that you should send your child to a top school and they will automatically graduate with some great job making six figures. This is a dangerous fallacy. A top school will open a few more doors in the work place and graduate school than a run-of-the-mill state school, but there are no guarantees and no promises. Sometimes luck is the most fascinating aspect of a successful person’s biography!

Education is an asset that a person will carry with them for the rest of their life. A bachelor’s degree is a qualifier and will open doors in life, but it will not determine a life.  It is likely that a student will be doing something entirely different with their life in ten or twenty years than they expected they would be doing as a teenager.

Deciding where to attend and what to study are very important decisions, but not the most important determinate of success. There is no substitute for hard work, a creative mind and financial discipline. Financial discipline, when taught at a young age and exemplified through the reasonableness of college decision-making, will be the greatest education a child can receive.

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Finding a Balance — Comments Off on The Rolex Dilemma
19
Jan 11

The Rolex Dilemma

I recently had a conversation with a friend about his impending Rolex purchase. He had the money saved up for the watch, but was not sure if he should buy it. This guy has always been a “watch guy” and he has progressively climbed the watch ladder to a point were a Rolex was the logical next rung.

“Watch guys” are guys that see value in having a status symbol on their wrist that costs more than a lot of people’s cars. The timepiece in question was a Rolex Submariner and the price tag was around $5,000. Just because this guy had an ING savings account dedicated to this goal and had managed to save the cash, had no debt and lived generally frugally, does that automatically mean he should pull the trigger on the Rolex?

Rolex photo by hypo.physe via Flickr Creative Commons

I am not a watch guy. The thought of shelling out that much money for a watch that will provide me no benefit but to tell the time, gives me a mini panic attack. I have a Seiko. A fine Japanese timepiece that has always let me know what time it was and even provided the added benefit of showing the date – all for $200! Watch guys laugh at my ignorance. I can scrounge up the money for a Rolex if I wanted one. I could delve into savings; move some investments around – whatever it took.

I cannot help but to run through all the possible uses for that cash besides a watch. I should note that I do have a problem spending in general. I am more comfortable leaving cash in investments. Once in a while I can talk myself into buying something if I can somehow contort my thoughts of the purchase into thinking that it was an actual investment.

My thoughts turn back to the conversation with my friend and how he systematically laid out all the benefits of a Rolex. He stated enthusiastically how this watch is something you can leave to your kids or grandkids. He adoringly flipped through webpage after webpage of happy watch guys enjoying their Rolex’s with their beautiful families and requisite Labrador glaring adoringly at his master. He went through the technical specifications and I now know that if he ever happened to be diving with his Rolex, the watch is rated to a depth of 1000 feet. The presentation was very compelling, but I am not a watch guy.

It did not seem like a good use of the cash he worked hard for and sacrificed to save. He makes a good living, but I could not see spending this type of money for a watch unless I was up in $750,000 range.

That’s me though and I am not a watch guy (did I mention that?)

He is a watch guy and he sees great value in the Rolex. It makes him happy to let it slightly peek out of his shirt cuff. He can even make a persuasive argument that the Rolex is an actual investment. I am not tempted to go out and buy a Rolex and I honestly highly doubt I will ever be.

I believe we need to reward ourselves in life. We work hard, save and invest and as long as we save with a purchase and have no debt we should give ourselves rewards to keep life interesting. I think that for most moderate income people, big ticket splurges should be narrowed to the few areas that we really enjoy. A Rolex for the “watch guy,” but not a Rolex and a Porsche as the Porsche is designated for the “car guy.”

It’s important that you figure out what kind of “guy” or “girl” you are so you don’t end up splurging on items that you are only going to enjoy in the fleeting moment. Just because you have enough to purchase the Rolex in your bank account does not imply in any way what-so-ever that the purchase is anywhere approaching the realm of practical. A Rolex is not sensible and never will be. However, if it’s a reward for living sensibly and you are sure you are a “watch guy” then it is acceptable. I suppose.

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Debt / Income / Investments / Wealth — Comments Off on The Three Pillars of Wealth Creation
18
Jan 11

The Three Pillars of Wealth Creation

If you would like to be wealthy and have not yet been able to acquire wealth, you need to develop habits that support your objective to build it. Once developed, you then need to commit to those habits and to that objective.

People throw around the term “commitment” haphazardly these days. If you look-up the definition of “commit” on Dictionary.com, you will get an assortment of definitions all dancing around giving some sort of obligation or the act of “being committed.” While these meanings are all accurate and some people may think you will need to “be committed” to an institution once you commit to wealth-building, these terms seemed watered-down to me.

There is a huge difference in saying someone committed suicide and someone committed to a marital obligation, for example. When someone commits suicide by leaping from a roof, they cannot revisit and amend the decision on the way down – they are indeed committed to the decision in which they made. Marriage is different. Sure there is an obligation and an expectation that the union will last forever, but marriage can hardly be viewed as a commitment the same way the leap off a building can (but some may argue the outcome is the similar). The difference is the “out clause” which is implicitly or explicitly available to us in most decisions we make in life. With the divorce rate in the United States dancing around 50%, many people have revisited their decision to “take the leap!”

Committing to wealth-building is committing to a way of life and not trying out a new idea or fad that you can easily cease if the wind happens to blow from a different direction on a particular day. Similar successful commitments can be seen in the realm of weight loss. You know the before and after pictures where the individual holds up the big pants? If you read enough of these stories a common theme will emerge. These successful examples made a positive and life-changing commitment to dieting and exercising and have experienced the amazing result you see in the photo of them holding up their big pants.

These men and women developed habits that changed everything they did throughout their day. The way they shopped, the way they slept, the way they went to happy hour, they way they celebrated holidays – there is no realm of their life unaffected.  Committing to building wealth is exactly the same. You will have to develop new habits in the way you shop, where you live, how you eat and every other aspect of your life. The objective is becoming wealthy and living a life of abundance and the before-and-after photo is you holding up a picture of where you dream of being.

Wealth is abundance, but wealth is not necessarily money. Having money and investments throwing off passive income can just be the instrument in which you are able to live abundantly. If you have no debt and some strategic investments paying you an acceptable return, you don’t even need high income to live abundantly and consider yourself wealthy. You can decide how to spend your time! Committing to building wealth is committing to live your life with careful management of what I call the three pillars of wealth creation – debt, income and investments.

Pillars photo by Mandy Dawn via Flickr Creative Commons

Pillar One – Debt

Debt, or leverage, is a normal part of most people’s lives and essential in managing the operations of most corporations. Getting something today and paying for it later is appealing to most people as they gain some pleasure from the purchase and want to experience that pleasure now. The acceleration of their personal enjoyment is a habit people come by innately and it is a negative spending habit that people must drop to be wealthy. Instead of making the decision to buy an item based on the pleasure derived and the time-table in which that pleasure is derived, the decision should be based on the future consequences of the decision to finance the good.

Not all debt is bad. Debt can be used to elevate one’s income (Pillar Two) through the financing of an education. Debt or leverage can also be used to provide the necessary capital for an investment (Pillar Three). Each pillar is inter-dependent on the other two pillars and strategies to increase wealth can be formed by manipulating one, two or three of the pillars. There are many scenarios one can put in play to achieve the objective of building wealth.

Pillar Two – Income

Income is often confused with wealth. If a doctor or a lawyer brings home a few hundred thousand dollars per year, they are often mistakenly labeled as “wealthy” and this is not necessarily true. The most striking example of this large paycheck phenomenon is through the observance of professional athletes. We are all inundated with the headlines every time an athlete signs a new contract for tens of millions of dollars. Then we are all shocked when we read about an athlete’s bankruptcy filing just a few years into retirement. The athlete hit pillar two out of the park (pun intended), but failed to manage the other of the other pillars.

For many Americans, income is a way to keep a roof over their heads and food on the table. They simply do not have the ability to invest as they have nothing left over. Occasionally, they even need to use credit cards to cover these basic human needs – which trigger a downward spiral of hopelessness and despair. Income and debt need to be mastered before one can begin to learn about investing. Often times, a highly-paid professional with a large house and a nice car also works just to pay the $5,000 mortgage and the lease on the Bentley. A plumber with a savings account that lives under his means will have a higher net worth that the highly-paid professional.

Pillar Three – Investments

Investment is the management of accumulated wealth. How many lottery winners go bankrupt because they are so unbelievably ignorant on investing they blow two-hundred million dollars on solid gold telephones and diamond-crusted golf balls? I am being a tad facetious – but only a tad. The hard part is getting the nest-egg built up enough to have to consider the investment pillar. On the other hand, I cannot really blame someone who is the third generation in his/her family just working on not going too far into credit card debt and trying to increase income. These negative habits are learned and passed from generation to generation. Most people are completely unaware of investing and in their realm. To them, there are only two pillars.

Saving is not investing. Saving is setting aside cash for some future purchase and attempting to earn as much interest while you wait. Savings will eventually be spent.  Ideally, investments have no timeline. You should plan on never spending the principal used to make your investment. Occasionally, you may sell an investment for strategic reasons and invest the capital in a more optimal investment, but you should not shift that money to anything that is not an investment of acceptable return. You should plan on spending only the interest or dividends spun off of the investment to make your money last.

For even diligent savers and investors, reaching this investment utopia will not happen. Even in retirement, a portion of the principal invested may have to be spent to support the retiree’s lifestyle. The reasons for not reaching this pinnacle are many and depend on an individual’s age and a myriad of other contributing factors, but the concept is sound and to be committed to building wealth means being committed to this objective and being committed to this objective you need to develop habits that support this commitment in every aspect of your life.

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Living Life Abundantly / The Jones' / Wealth — Comments Off on What is Wealth?
17
Jan 11

What is Wealth?

Some are born with it. Some achieve it. Some will never experience it. Some just don’t get it. It was many years ago that I began to study the fundamentals of wealth creation. Some people have it and some people do not. The people that had it seemed to have much more fun than the people that did not! As I examined more closely, the wealthy seemed to live a more fulfilling life – and this fact was the driving factor in my personal quest to get it. I wanted a more fulfilling life.

What do you think of when you read the word wealth? Most likely, the first thoughts that pop into your mind are all the things that you can buy. Perhaps a 60-inch LCD television with remote control that can launch a rocket as well as turn on the fireplace is your dream? Or maybe a yacht moored out in the pristine blue water of a Mediterranean bay (complete with wait staff of course)? Or even a shoe closet bigger than your college apartment stocked with the finest shoes hot off the New York runways. All these things are fine and would be really cool to have, but there is a danger in this type of thinking.

Motorboat photo by Maxine Simpson via Flickr Creative Commons

Wealth is a subjective. When are you really wealthy? I recall watching an interview with a hedge fund tycoon that talked about his yearly income which was in the billions. Yes, you read income not wealth or net worth.  This guy admittedly could buy anything in the world and couldn’t spend his money in ten lifetimes. This is an extreme case to show you the sliding scale of wealth we are dealing with. Many people consider themselves wealthy if they can merely control their own life and make decisions on what to do with their money – in other words, they don’t have it spent before they make it.

People often mistakenly associate wealth with success. Although wealth may be a result of successful planning or even achieving one’s goals, it is impossible to measure success by the amount of wealth a person has accumulated. Like wealth, success is subjective. I am sure you can think of hundreds examples of success being achieved with no creation of wealth. The birth of a baby, the finishing a marathon or graduating with a bachelor’s degree can all be examples of success without the presence of wealth creation. Moreover, a person born into a wealth may project success as they have their driver drop them off at the front curb of their high school. Therefore, success may be achieved with or without wealth and wealth may be achieved with or without success.

When you measure your wealth by the amount of things you have or can have, you end up empty and always craving more. I believe wealth offers freedom and options for your life and should be defined as such. If you didn’t have to go to work what would you do? If you actually had the option to plan out your entire day from scratch, would you go to the beach, play a round of golf or write a novel? My challenge to you is to measure your wealth simply by reflecting on your day. How did you spend your day? Did you do whatever you wanted to? The most important thing wealth will buy you is freedom. What you do with your freedom is up to you.

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