Tag

net worth

Frugal Living, Lifestyle, Small Business

The Fastest Way to Grow Your Net Worth

Ever since I disclosed my net worth broke eight figures strange emails have been coming in. Another milestone was passed without fanfare. Past experience had me used to the lack of excitement financial milestones caused.

A theme among many emails revolved around my rate of return. I never really thought of it that way. It was just a thing that happened because I saved a large percentage of my income and invested the bulk of my excess money in index funds. One commenter said he was impressed because my rate of return over the last 20 years was 11% while the S&P rose only 8.5% per year on average. I don’t know if it’s true; I never broke the numbers down that way. All I care is that it grew to a lot.

What the emails and comments forget when they calculate my rate of return is that I added funds over the last 20 years. If I reached my million dollar goal when I was 32 and never dropped another dime in the kitty my internal rate of return would be impressive. Instead, I added excess funds every year. If I analyzed my real return including the additional invested fund my internal rate of return would be less impressive.




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Early Retirement, Lifestyle

You, Inc.

Whether you like it or not You are a brand. Everything you say and do either adds or subtracts from your brand. Ignore You and your brand starts to turn stale.

You, Inc. is your brand. It will take you wherever you want to go. But do you know what You, Inc. is all about?

It is simple to see You, Inc. in action when compared to a business. Take this blog for example. I can speak at conferences or just attend to build contacts. Guest blogging brings more visibility to my work. Or I can spend money to promote my brand. How I act and interact with people around me reflect on my brand. Treat the brand well and it will take good care of me; ignore it or treat it badly and the brand will kamikaze faster than you can snap your fingers.

Building You, Inc. takes time and effort; destroying You, Inc. can happen fast. Your income and net worth are directly related to the brand of You, Inc.  Arming yourself with knowledge is the surest way to supercharge your brand. But knowledge is not enough. Knowledge without action is worthless. Creating a large net worth in a relatively short time is possible. Increasing income to retire debt and grow investments is the only road to financial independence.




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Lifestyle, Small Business, Taxes and Investing

Investment Commercial Real Estate Profits and Pitfalls

Residential investment property is forgiving for the most part. Professional managers exist in most markets and except for the very worst of conditions it is possible to fill most apartments even if it is not at a profitable rate.

The number of residential properties available is large and unloading a single family home or duplex is fairly quick and simple. Many economists consider a six month supply of homes on the market a healthy balanced market.

Things get slightly less forgiving when you graduate to multi-unit apartment complexes. There are fewer to select from, they cost significantly more, there are more tenants to manage and it usually takes longer to sell the more expensive buildings. Not as many investors can swing a multi-million dollar deal or even finance one.

It might not be intuitive, but the more expensive the property the more likely it will be purchased as a cash deal. Big buildings carry big responsibilities and risks, but also are coupled with larger rewards.

Generally the rules are straightforward with residential rental properties. Lease contracts are generally standardized in most states and the landlord/tenant rules are clearly defined. The laws tend to protect the tenant more than the landlord. Still, the landlord, if she bought right, should turn a tidy profit.

Real estate investors usually start small, a single family rental or duplex, moving up to multi-unit buildings later. Most landlords stop at the duplex level with maybe a 4-plex or so tossed in for good measure.

The next leap takes courage. Financing a large deal is more difficult. Only a select number of banks are willing to fund a seven figure project. You need good credit, experience and a documented plan. At the end of the day the multi-unit complex is still a forgiving animal in the real estate world.

Then there is the commercial property.




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Early Retirement, Frugal Living, Lifestyle, Taxes and Investing

$10 Million Isn’t What it Used to Be

I remember the day I realized I crossed the seven figure mark. The actual moment of crossing was lost because I didn’t know I was doing so well. There was no party or celebration.

The year was 1996, I was 32 years old and the bank needed a personal financial statement for an investment property purchase. The real estate partnership I had with my dad and brother was in full swing, but I wanted to add a few additional properties to my personal portfolio.

The bank asked for a personal financial statement. It had been a while since I filled one out so I was interested in where I would end up.

Don’t get me wrong. I track my finances closely. Each individual investment gets reviewed annually or semi-annually. I don’t always add up all the numbers to see where my net worth is, however.

As I gathered each asset and wrote its value down I could see this was going to be higher than I originally anticipated. My liquid investments had advanced a lot over the years and the real estate in my portfolio was adding a serious number to my net worth.

Once I had the assets added I knew I had crosses the million dollar mark before tallying the liabilities. Debt was low, even with all those rental properties.




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Frugal Living, Lifestyle

Buy A Car at an Awesome Price (From the Dealer)!

One moment please. I need to wipe a tear from my left eye. <sniff>

There, I am better now.

Regular readers probably were wondering what happened to me yesterday. I normally publish on Friday and there wasn’t a whisper of evidence a certain accountant was anywhere to be found. I have a good excuse for my behavior: my oldest daughter bought her first car.

The process of buying her first car took time. She was working at it for 6 – 8 months. Dad didn’t do it for her either. I only gave advice; so like dad. She did all the work searching for a car and my job was to shoot down the idea. In the past I bought all my cars from the bank or credit union. Unfortunately, most financial institutions no longer mess around with selling their repossessed vehicles anymore, electing to move the assets at auction.

Unless you have a dealer’s license you can’t buy cars at auction. The effort to get and keep such a license is not worth it if you only buy a vehicle every 10-15 years.




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Early Retirement, Frugal Living, Lifestyle

Get There Before You Arrive

How long does it take to crawl out a hole you dug? How long to formulate a plan? Execute it? Reach your goal? Financial independence (FI) is a goal most people have. Some want it bad at a young age and work toward that goal. Others wait until Father Time ticks closer to the traditional retirement age. Still others get a wakeup call when their body fails in some way.

Before this blog I was a tax Endorsed Local Provider (ELP) for the Dave Ramsey organization. His story resonated with me. I agreed with Ramsey that debt is the acid which destroys the vessel that holds it. Ramsey is fanatical against any kind of debt; I am a bit more moderate in the faith. Still, debt is a problem for many people.

Before FI can be achieved debt first needs to either be eliminated or seriously curtailed for most people. The Ramsey plan is to eliminate all debt and invest in actively managed mutual funds offered by a financial advisor. If you read that last sentence carefully you will begin to understand why I could no longer in good conscious be a Dave Ramsey ELP. Ramsey’s philosophy is right on so many levels and wrong on so many more.

Debt in and of itself is not bad. It’s just a thing. Too much debt is the real issue. Credit card and similar high interest debt is caustic, no doubt. A home mortgage can make all the sense in the world. Even a small, short-term business loan is a positive in many instances. A blanket faith in no debt is something I don’t subscribe to. When very wealthy people borrow for a home or investment it is frequently the right choice. Borrowing $10,000 for working capital in your business instead of selling a profitable income producing investment I will argue is a good call, especially when you consider the tax consequences.




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Why Saving Half Your Gross Income is Better and Easier Than Saving Half Your Net Income

People frequently look to their accountant for sound financial advice. Good accountants are up to the task; other, not so much. Finding a good one is easy; they tell you what you don’t want to hear even if you threaten to leave.

Advice sought from accountants runs the gamut. Selling or buying a business requires in-depth analysis and most people trust their accountant’s judgment regarding this matter.

Then the bizarre requests come. Over the years I have been pulled to the side by clients wanting advice on how to raise their children, gambling problems, infidelity, and divorce issues. Some of the requests have a hint of tax built into them. Gambling problems are also tax problems. I’m never comfortable helping anyone decide if they should end their marriage. It’s not my place or at least shouldn’t be. And even if it was I want nothing to do with that kind of conflict.

My favorite requests are about personal finance, intelligent tax reduction and retirement. These are the moments when I can shine. It is also an area of massive risk. My mantra, oft repeated, is simple, yet rarely followed. First the client is in denial (which is a river in Egypt last I checked). Quickly the client moves to tell me my advice is impossible to follow and nobody does it. (Oh, yes they do.) Finally, the client starts to bargain her way into a deeper hole. They think they can change the rules and make it easier. Don’t they know I already thought of every twist and shortcut possible? Clients usually bargain themselves into a deeper hole without even knowing it.




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Spending versus Cash Flow Meets the Debt Bomb

“It’s not working.”

A long time client started reading this blog and subscribed wholeheartedly into the idea of saving half her income. She discovered the blog early so she had nearly a year of effort under her belt. Student loans were the worst part of her debt, but credit cards and a mortgage also weighed heavily on her financial plan.

Saving half your income is the floor, not the ceiling. In this case, my client and her husband earn nearly $100,000 a year. They wanted to cut their spending to my levels using my yardsticks for spending. They are down to the mid 40s, a very good sign. The lament, however, has me concerned.

The only way this works is to be consistent. Years of hard work can be destroyed by a short-term spending binge. A new expensive car, a cottage up north, a trip to the casino and a new set of furniture can all be spent in a single month. The penalty will take years to fix.





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