Archive for September 2017

Choose Your Friends Carefully

There is no doubt the kids are back in school. Three times a week I visit the gym midafternoon, a slow time of the day for the establishment. All summer I had the floor to myself or nearly so. Then the days got shorter and the kids went back to school. This gives mom free time to work out. I now have to share.

New members stream in at a steady pace. They notice I am there a bit so they ask me questions about the gym, using a machine or personal trainers. The conversation about trainers goes something like this:

“Which personal trainer in the best here?”

“They’re all good,” I reply.

“Yes, but which one is the best?” They always put a bit more emphasis on the word “best” the second time around.

“Depends what you want to look like.” This always brings a puzzled look.

I point to one of the thin female trainers and say, “If you are looking to lose weight I would recommend her.” Then I point to a muscular female trainer as say, “If you want to tone your body consider her.” Then I point to one of the male trainers who is solid muscle from head to toe. He is in awesome shape. “If you want to build muscle choose him.”

“Are you sure,” they ask.

“Yes, I am sure. All the personal trainers here are good. They hire the best. But the best one for you depends on what you want to look like. Pick a trainer that has the body you desire. Spend enough time with that trainer and you will slowly evolve into what they are.”

Their gaze is quizzical as their mouth is slightly open preparing to catch flies. It’s not the answer they expected, but it’s the answer the needed to here.




It’s Spreading

Studies have shown that people who hang out together tend to look and act alike. But it’s a lie. Take a group of women where all the members are 5’4” (162 cm) tall and 240 pounds (109 kg), except for one girl weighing in at 108 pounds (49 kg).

The eating and exercise habits of the heavier women will rub off on the thinner woman. The 108 pound woman will eat many of the same things with her friends; will stop and sit when they do; and share recipes with her friends. It is only a matter of time before the petite girl is less petite.

This is not to pick on the heavier women. Metabolism will alter the weight between the women when they share the same diet and exercise attitudes. This is why you want a trainer who looks closest to what you want to look like. Given enough time, their eating and exercise habits will affect yours and slowly you will begin to have the body they have.

Accidental Infection

Can we agree The Wealthy Accountant is at least a moderately successful blog? As I write my traffic sits around 70,000 pageviews per month with over 15,000 unique visitors, a far cry from big names in the demographic, but still respectable for a blog a year and a half old.

Many opportunities threaten to rocket near future traffic much higher. Every time I turn around another source of traffic is showing up. I would guess over the next year and a half traffic will increase to several hundred thousand pageviews per month. This is well within the respectable range. Not superstar status, but respectable, no doubt.

The Wealthy Accountant found life when a planned encounter with Mr. Money Mustache went in an unplanned direction. The very same day people were already asking if I had a blog they could read. I had a ready-made waiting crowd eager for my work.

The amount of work to write a blog like TWA is massive. The more traffic grows the more work is involved. Most blogs have one issue to deal with: the blog. Not so TWA. When traffic increases so do the demands for services in my practice. It takes a special set of skills to manger such a unique beast successfully; a trait I am still learning.

The success of TWA and my learning curve in managing the growth are an interesting experiment. We could sit back and watch your favorite accountant spin out of control or he could do something strange; something you should consider doing if you write a blog.

What I did was consort with seedy characters, oops, I mean with other successful bloggers. I have shared a beer over conversation with Pete (MMM), the Mad Fientist, Doug Nordman (The Military Guide), Carl (1500 Days to Freedom), Jim Collins (jlcollinsnh), and J.D. Roth (the grandfather of the blog demographic, starting it off with Get Rich Slowly and now Money Boss). And the list isn’t complete. There are many more I consorted with at conferences, camps and private get-togethers.

Then there are the newbies. Another beer was sacrificed over conversations with Gwen (Fiery Millennial), Joel (Financial 180), and Ruby (A Journey We Love).

There are numerous bloggers I communicated with online over the last two years as well and have yet to meet personally..

The point I’m making is I found a way to fit into the group of people I wanted to be like. I wanted to write a successful blog. By default I pick up habits from the other bloggers in the group as I communicate with them.

Every parent understands this process well. When your child joins a group of friends, mom and dad want to know what the kids in this group are like. If it’s part of a bad crowd it is only a matter of time before little Billy or Sally are in trouble with the law or worse. Mom knows a friend from a good family doesn’t guarantee protection from bad things happening, but it sure evens up the odds.

The same applies in all areas of life. You will become like the people you spend the most time with unless your personality is strong enough to overcome the influence.

It Pays to Have Rich Friends

You may have no desire to ever write a blog. Your friends may meet your expectations of physical health. You may be happy with your weight and your kids have friends from good families. But you are reading this blog for a reason.

The only reason to digest the hundreds of thousands of words I regurgitate onto the screen is to learn. The time commitment is too large to be here for manure and giggles. This venue now has nearly 300 posts and over 500,000 words. The time commitment means you are either entertained, educated or both when you come here. Or maybe you just think I’m a cool guy. (I am.)

Readers in the tax and accounting industry might be looking for ideas to serve their clients better; bloggers want to get ideas on what to write and to improve their writing skills; some people are looking for a side gig; others for financial independence; others to discover the path to early retirement.

None of these reasons are what this blog is about. Pete (MMM) thinks a blog should be cult-like. I agree. We are different and should be. We save at a higher rate, invest in broad-based index funds and reach financial independence at an early age. You would be surprised how many visitors to this site are under age 35 and financially at a point where they can choose their own course in life. This is where the magic happens.

When you come to TWA and read, comment and visit the forum, you are entering a group who will rub off on you. It is not if, it is when you start to gravitate towards the center of gravity of the group.

Like metabolism and weight, personal financial growth is dependent on several personal factors. Disability of major medical issues will give you unique challenges compared to the group at large. Race plays a role in opportunity. This doesn’t mean race precludes you from financial success. Quite the contrary. Race is just a different challenge from the average of the group.

When you are surrounded by people bragging about all their expensive toys it has an effect. Surrounding yourself with people who save a large percentage of their income will also adjust your worldview. When keeping up with the Joneses is replace by hyperactive goals of financial independence it is easy to fall right in.



The Flavor of the Herd

When one steer takes off and runs the whole herd follows blindly. As smart as we think we are we are manipulated by the herd mentality.

Even within our demographic there are certain commonalities. People are under pressure to hit financial independence at an early age so they can retire. I think it’s crazy to think this way and many readers come here because they agree with me. FI, as I’ve said often, is like the event horizon of a black hole; an invisible line you cross where there is no return but you can’t see it.

FI is like that, an invisible line. You don’t feel a jolt when you cross the line. You might not even know where the line is at!

Still, the pressure is on to say, Yup, I’m 37 and retired. Whatever! I’m 53 and never plan on retiring because I’m having too much fun doing what I do.

The other thing you see around the demographic is the traveling thing. People reach FI, quit their job and travel the world. Once again I say, Whatever! I don’t want to travel unless for business, so I don’t. Readers around here like the fresh viewpoint.

This is the flavor of our herd. The FIRE community has a center of gravity and readers of TWA like the outlier attitudes I have. You can have a high net worth and still enjoy the work you do while refusing to gallivant around the planet. It’s okay to stay home with the family, refuse to watch TV, never listen to radio and still have an awesome life.

I guess that makes us a cult. The fact you are reading this makes you a member of our cult.

Welcome to the herd.



Higher Interest Rates Will Cause Inflation

Fed funds historical rates.

There was a time not that long ago when people believed higher interest rates slowed the economy, caused higher unemployment, dampened demand and put pressure on prices. The Federal Reserve in the United States and Central Banks around the planet held this belief tight to the chest. When the economy overheated, causing inflation to creep up, the Fed would start increasing interest rates until demand weakened as consumers faced higher borrowing costs.

The opposite also held true. Low interest rates were thought to spark strong economic growth as lower interest rates freed cash in family budgets for more spending while encouraging businesses to ramp up production with cheap credit. Since the Great Depression this theory held true and worked, even if slowly, in controlling economic activity. Then we had the twin recessions of the early 1980s.

All Downhill from the Peak

Stagflation in the 1970s proved difficult to contain. Two OPEC oil embargoes ramped up prices on oil, causing virtually all goods and services to increase without growing real wages to fund the price increases until wages started getting cost of living (COLA) increases each year. Inflation for the first time was chained with a weak economy.

High inflation encourages spending because the money in your pocket will be worth less in the morning. Businesses faced an opposite effect. Funding capital expenditures became more costly as Paul Volcker, the chairman of the Fed, racketed up interest rates at a steep rate. Killing inflation would require painful medicine. A weak economy was crushed. Housing suffered most. Mortgages rates were comfortably in double digit territory if you could get a loan at all.

The medicine worked. Demand dried up from the higher interest rates causing inflation to abate. It was the last time interest rate changes were so effective on economic performance.

Good Medicine Going Bad

Lower interest rates followed the brutal twin 1980s recessions. The stock market and economy rallied strongly. Pent up demand for housing lifted housing stocks and the building boom was off. The 1981 Tax Code overhaul gave businesses additional deductions for capital expenditures. It might be hard to believe expensing of assets worked this way. Back then the limit on Section 179 expensing of assets was raised from $10,000 to $25,000. Small business was ecstatic.

Increased tax deductions for capital expenditures caused a boom in production which required more workers. Increased production reduced inflation while employment skyrocketed. The world was good with only one warning cloud on the horizon: debt.

Current chairman of the Federal Reserve, Janet Yellen (left). Former chairmen (from second left to right) : Alan Greenspan, Ben Bernanke and Paul Volcker.

The tax cuts were funded with massive amount of new federal government debt. The annual federal deficit broke $200 billion and kept climbing. The credit card was getting a workout.

The smart money believed the excessive government spending would pay for itself with higher economic output increasing revenues. That promise has never been realized.

Lower interest rates were the perfect medicine for housing and housing creates lots of job, most good-paying jobs. By 1984 the economy was on fire with 7.4% growth that year while inflation was still easing.

The Fed was concerned by the heady growth and started increasing rates until it triggered selling by program trading. The economy barely missed a beat. In 1987 the economy expanded 3.5% and another 4.2% in 1988. The 1987 stock market crash be damned.

High interest rates took some time to reduce economic production, but not real long. Lower interest rates had an almost instantaneous reaction in the markets and marketplace. From Wall Street to Main Street, these were the good times.

The first warning signs something was fundamentally wrong showed up in the next recession which began in July 1990 and lasted for eight months.

Interest rates trended down from 1982 onwards. Periodic rate increases gave the economy indigestion causing the Fed to resume lowering rates again. Each peak in the rate cycle was lower and the lows were lower.

And the recoveries were longer, less steep and left more people behind as many high paying jobs never returned.

As the economy began climbing in April 1991 it was like watching water boil or grass grow. Growth was a heck of a lot slower than the liftoff from the 1982 recession. Some blamed it on the first Gulf War. There was merit in the observation. People stopped spending as they sat around the television absorbing their newfound entertainment: bloodshed.




One More Party

The slow growth out of the 1990/1 recession eventually broke loose with several years of 4%+ GDP expansion at the end of the millennium.

The terrorist attacks of 2001 set the tone for the next recession. President George W. Bush came on television and encouraged Americans to keep spending to show the terrorists our nation could not be deterred. The Fed added liquidity to the system (lowered interest rates) to unheard of levels. People began wondering what would happen when rates went to zero. What weapon to spur the economy would the Fed have then?

Lower interest rates did the trick. The 2001 recession was so short and mild the U.S. GDP still expanded 1% for the entire year.

But the economic expansion lower interest rates should have caused didn’t work as well this time. What was a concern in the post 1990/1 recession expansion turned into full-blown panic. The stock market lost half its value. The new money the Fed created stopped the pain on Wall Street. Main Street was not nearly as happy. Job growth was steady, but low. Only two years of the first decade of the new millennium had GDP growth over 3% in the U.S.

The stock market climbed from depressed levels and eventually made new highs. It was an unconvincing multi-year rally.

Then all the printed money that disappeared into derivatives and sub-prime mortgages came home to roost.

Current Economic Cycle

When the first cracks appeared the Federal Reserve had very few weapons in its quiver. Interest rates were already the lowest in recent memory prior to a recession.

Housing was in bad shape after the 2008 recession. My house could’ve used a few new shingles.

The 2008 recession was fast and brutal triggered by a cascading set of events which culminated in money-center banks and investment banking houses on the verge of collapse.  Low interest rates were not enough to stop the bleeding. Rates were now touching 0% and the economy was still in dire straits.

The Fed toyed with negative interest rates and the Japanese, Swiss, and European Union Central Banks all sent rates into negative territory where the borrower gets paid (!) to borrow money instead of paying to borrow. The lender took all the risk for a guarantee to lose money to boot.

In the U.S. the Fed started early in experimenting with alternative methods of pumping more liquidity into the banking system. It worked, sort of. The economic recovery from the 2008/9 recession never exceeded 3% in any calendar year, the slowest recovery in the nation’s history. The growth once again was steady, but painfully slow.

Wages were slow to increase as family budgets struggled to pay the bills. Low wage growth kept a lid on demand, inflation and job growth.

The current economic cycle started from the lowest interest rates in this nation’s history. The federal government kept spending at a rapid pace, all put on the credit card. The current federal national debt is over $20 trillion and growing at around a half trillion more each year. And we couldn’t manage 3% growth.

Where is the Inflation

There have been more predictions all the money printing would cause rampant inflation soon than there have been calls for the world ending. Prices fooled the experts. A basket of goods followed by the Bureau of Labor and Statistics (BLS) hovered slightly above zero with a few extended periods of deflation.

For eight years the Fed kept interest rates at 0% and the economy slowly clawed forward a few percent per year. And I think I know why.

Typical human blaming a bovine again.

Low interest rates were the medicine our parents and grandparents used to spur economic growth. But this time WAS different! Technology had finally advanced so far it was hurting the economy! Or more accurately, technology was increasing faster than demand could absorb.

Low interest rates no longer increases demand. Even businesses didn’t spend aggressively in the low interest rate environment until the last few years. What business did spend went further than ever. $4,000 computers two decades ago now cost under $1,000 and do a thousand times more and faster. Business spent less because the cost of capital expenditures had declined for many technologies and the cost of capital was nearly free. If technology costs would have remained unchanged, businesses would have created and capital expenditure boom.

Low interest rates after all these years seem to cause deflation instead of spurring economic growth like the good ol’ days. And higher interest rates, if the economic model is truly turned upside down, should cause the economy to overheat and inflation to expand. Here’s why.

New World Order

Keeping Interest rates so low for so long must have caused a few academics to rethink the classical model. Low rates caused bubbles and imbalances in the markets without any money trickling down to Main Street to create jobs and more demand for goods and services. It was a Wall Street pile-up where average people paid the price for the sins of a few with control over the newly created money.

It’s called pushing on a string. More money pushed into the banking system either didn’t find its way into the general economy or people refused to spend it if they did get it. This isn’t all bad if the savinga rate climbs as households save and invest a larger portion of their income.

This wasn’t the case either. The savings rate climbed slightly, but not anywhere near the levels money creation would dictate if the money weren’t spent. Where was the money going? Nowhere. The money supply was larger than ever as the Fed’s balance sheet bloated, but it all sat in money-center and Central Bank vaults around the world.

None of this matters since it was a wasted exercise carried out by central bankers. The money was created, yet most never entered the economy. No wonder the GDP was anemic.




Low Rates Caused Deflation, Now Rising Rates will Cause Inflation

Most businesses today have plenty of capacity. Here is an example from CNBC showing how low interest rates caused a glut in domestic milk supplies. Low interest rates allowed factory farms to add capacity at virtually no cost, over supplying the market and driving down prices. Industry after industry is in the same boat.

Low interest rates encouraged the over production. Higher interest rates will increase the cost of capital expenditures for businesses, eventually reducing supply and increasing prices. This is the opposite effect we might expect in the past. Higher interest rates usually slowed the economy and if raised far enough still will. But the initial effect will be to decrease supply as marginal production is taken offline.

The experiment isn’t over and my supposition could be 100% wrong, not that my batting average is any worse than that of economists. Interest rates are slow on the takeoff this economic cycle. Eventually a trigger point will be reached, causing the economy to overheat and prices to climb faster.

The higher interest rates will not work any better controlling inflation than low interest rates encouraged economic growth.

My concern is the trend. Since 1980, interest rates have been cycling lower. We went negative this time around and the fed funds rate peaked at 5.25% during the prior economic expansion. This cycle the Fed worries the current 1-1.25% fed funds rate might slow the economy. Crazy!

If lower rates don’t encourage inflation and rapid GDP growth, then higher rates probably will. At no time in history has this amount of money ever been created and hyperinflation hasn’t followed. There are no indications of rapidly increasing prices on the horizon, however.

Higher interest rates might do the trick or we could head still lower this interest rate long cycle. Only time will tell.

The earnings stream from a company is worth more in a low interest rate environment. If inflation starts the rear its ugly head the Fed will worry and jack interest rates, causing business investment to slow, marginal production to be taken offline, causing prices to increase. Remember, you heard it here first. And earnings are worth a lot less as rates rise.

Just a few things to consider as you plan the family budget.

 

Side Notes

Ever wonder how your favorite accountant takes notes for a new post idea? Below are my notes used to prompt the writing of this post, unedited. Writers might find the evolution of an article of interest.

The old world paradigm hasn’t worked for a few decades now. The old school says lower interest rates spurs demand and eventually inflation. At no time in history has so much money creation taken place for this long without a massive upturn in inflation. What is different this time?

Lower rates lead to a muted economic expansion with slow growing demand and modest job growth. The economy should have overheated by now. Why?

Instead of inflation, technology made it easy to increase production and the cost of capital was near zero encouraging this capacity expansion. Everything seems to be in a glut. From oil to food, there is plenty enough to satiate 100% of demand. Low interest rates now seem to fund capacity expansion faster than demand.

Higher interest rates will increase the cost of capacity expansion and will lead to higher interest rates.

What worked in the past is turned on its head! The Fed reduced rates for a decade and printed money with reckless abandon to further spur demand. It didn’t happen the way the textbook said it would. Higher rates, the traditional fix for inflation, may also have an inverse effect from the expected norm. When inflation does show up as the Fed increases rates the Fed may overreact and keep raising rates to kill inflation. It will work if rates go high enough. Demand can be quashed by high interest rates.

It would be easier and less painful to consider doing the opposite of what we always did in the past. It might just work this time.

https://www.cnbc.com/2017/09/22/dairy-glut-in-us-leads-to-problem-of-spilled-milk.html

 



Too Frugal

Focus is considered one of the most important traits of success. It makes sense. If your mind is constantly wandering it is hard to stick to a project until completion.

Frugality also requires focus. I was lucky growing up in the boondocks where the siren song of spending was only visible in the hazy distance. The nearest store was seven miles away and groceries and miscellaneous hardware supplies were all that was sold. Eighteen miles in the other direction was the next nearest place to get separated from your money. Needless to say we didn’t travel that far often.

Before the days of Amazon and endless online shopping sites, I was content playing cops and robbers with my uncle, brother and a few neighborhood boys roughly my age, racing on our bikes around our 400 acre farm.

Working on the farm paid a small token only. I remember wanting a slingshot in grade school. Coming home from church (we never missed a service back then) dad stopped at Farm & Home, the local hardware store. They had a “wrist-rocket” slingshot for $7 and change. My allowance was 25 cents per week.

My passbook savings account (remember those things) had enough money, but I already had a bit of granddad in me: Never take off the pile. I started saving those quarters each week in a piggy bank. To earn that quarter I had to help feed the calves twice a day and other assorted farm chores.

Around seven months later I was the proud owner of a wrist-rocket slingshot. I snaked my hand through the handle. The loop where your hand went in pressed against the wrist when you pulled back the elastic band to increase the slingshot’s power. The bark would fly when a pebble left the slingshot, smashing into a tree.

For seven months I focused all my energy into saving enough for that slingshot. My biggest worry was Farm & Home would sell it to someone else. There is no proof, but I think my dad had something to do with that slingshot remaining on the shelf for over seven months.

Once I owned the object of my desire I focused on aiming better. My goal was to use the slingshot as a hunting weapon, putting a fresh bunny into the roaster. Things didn’t turn out as planned.

Focus is a powerful trait, but it can also cloud judgment. For seven months I only focused on one thing. Then I owned the object and within weeks the desire faded. I discovered it is better to want than to have, a lesson I frequently need to relearn.

The School Called

Last Thursday I worked from home. By mid-afternoon I had most of my work goal completed. Mrs. Accountant noticed I was ready for a break and asked, “Can we talk?” I knew that tone of voice. Something was wrong.

Mrs. Accountant explained the school councilor called about our youngest daughter. The school was worried she was depressed. So you don’t worry, my daughter was fine; a friend of hers misinterpreted having a down day with serious depression and reported it.

Before Mrs. Accountant and I knew our daughter was fine we tried to figure out what could have caused her to be depressed. She seemed fine at home.

Unfortunately, I have been a bit distant lately, focusing on my work (blog and practice). Life was good as a small business owner, but now with a blog I am working two full-time jobs (according to my office manager).

Excessive focus can harm relationships. My daughter is a senior. When the school year started the school set graduation on Memorial Day weekend, the same weekend I attend and speak at Camp Mustache in Seattle. I said we have to hope they change the date or I’ll not be able to go. My focus was so tight I failed to mention what event I was planning on skipping.

My youngest daughter thought I was cutting her graduation for business. I have to admit I am so focused on this blog and helping readers I actually toyed with the idea. I can be an ass at times. My daughter wanted me to be at her graduation.

I never realized what I did. My daughter wasn’t depressed as the school thought she was, but she wanted dad at her graduation. School doesn’t come easy for her and it means a lot mom and dad are there.




Called Into Action

The bus route this year in insane. My daughter is the first on in the morning and the last off at night. She spends over three hours a day on the bus to and from school. We don’t like wasting gas, but she sure loves when we find an excuse to take her in or pick her up at the end of the day.

Mrs. Accountant and I decided to pick our sweetheart up from school unannounced last Thursday. When school let out she was surprised to see us there waiting for her. We took her to Chilton for a chicken strip basket at Dairy Queen and took the time to speak with her to understand her feelings.

Before we got to DQ we knew everything was fine. But there were still several problems. Going to DQ for dinner is something we almost never do. In fact, nobody had eaten in a restaurant since late tax season. Dining out is something we rarely do, but this was getting excessive

Work is the perfect solution to spending. My normal frugal ways went into overdrive as my focus on this blog dug in deep. I brown bag lunch every day. I drink coffee at the office, never buying a cup at the gas station or anywhere else. Sometimes I bike to work, a 30 mile round trip.

With all my time consumed by my two jobs I was enjoying the hell out of myself so much I forgot there were people living around me.

Spending in a typical year ranges in the low 30s. As summer arrived and later school started again, I noticed I was spending almost nothing. I track every penny spent in our household and we hadn’t broken $1,000 a single month since January. My frugality was driving us to an annual spending level slightly under $12,000 for 2017. It has been a long time since I was so tight with the cash.

Not all of it was my fault. The cell phones were switched to Google Fi a while back so the phone bill for two phones was $40 per month. Gardens provided a good portion of our food and a simpler diet also cut costs. For some reason the utility bill was nonexistent. The bill last month was $56 and $20 of that is just to have service. I ran a small farm and my household on just over 300 kilowatts for the month!

As we ate our chicken strips I explained to my daughter there would be some changes. Now that she is seventeen I told her she should have her own phone, especially now that she is driving. When Mrs. Accountant and I are out of town she really needs a phone. (We have no landline.) That’ll add $20 a month to the recurring expense column. (I feel those recurring expenses acutely.)

Our daughter was also nervous about Mrs. Accountant and me heading out of town for FinCon. We made arrangements so she would never be alone. We also gave her the good news she could drive to school when we were gone. That brought a smile. (Good thing for daddy the school doesn’t have any parking fees. You’d have needed the smelling salts.)

I reiterated I would be attending her graduation. As much as I enjoy Camp Mustache in Seattle, my daughter is more important by miles. If people want to see me they have to attend FinCon or CampFI. This blog has a “Where Am I” calendar now showing my schedule. It is easy to meet up.

Dust Bunnies in the Wallet

My oldest daughter comes home from college each weekend. She enjoys the good life so she had several gap years before rolling up the sleeves and digging in. She also has matured a pile as she added a few years. She sounds like mom when she talks about other students. It seems many more lessons were digested than originally thought.

The girls wanted to go out to Funset Boulevard on Saturday. They had some coupons for a farmer’s market so they stopped there first, bought a fresh lunch and several dozen cobs of sweet corn with the coupons.

Funset Boulevard is billed as one of these family-friendly entertainment venues. They are as expensive as hell; my blood begins to clot even thinking about it. Funset has laser tag and other assorted games.

At first I was thinking the whole family should go, but then decided the girls might like some time out without parents around. The girls don’t mind mom and dad coming along. Still, the girls need to have girl’s time out. Besides, my oldest daughter wanted to talk with my youngest daughter privately to make sure nothing wasn’t wrong. It feels good as a parent to know they look out for each other.

When nobody was looking I slipped $40 to my youngest daughter to cover their expenses. I told her to share it with her sister, but to tease her it was a loan at 47% interest per day.

Forty dollars isn’t a lot of money at a place like Funset. The girls left around 9 a.m., went to the farmer’s market and then enjoyed a few hours at Funset. They spent $39.50, keeping the change. Dad noticed.




Too Frugal

When deep in debt, massive frugality is required. However, once the crisis has passed, responsible spending is allowed.

The investment accounts have received a heavy dose of additional capital this year. The money had to go somewhere.

It took a short scare as a wakeup call. Concern I may have absconded my parental duties caused me to realign my focus in a more appropriate manner. Saving is a good thing. Saving 90% of my income for no reason might be going a bit too far.

Focus is good as long as the focus in on the right things. Focus at work, even pleasant and enjoyable work, should stay at the office. Focus on family is required at home. Having my own business means the line between business and family is blurred. It’s still no excuse.

I’m lucky. I’ve always been lucky. Things always seem to work out. I forgot my duties as a father and my daughter didn’t flip out or try drugs or get knocked up. She waited for dad to come to his senses, even if only momentarily. Then dad sinks into a book or his writing or work. I am one very lucky daddy.

But I can’t take luck for granted. You can be too frugal, as I sometimes am. This year got extreme. It does illustrate how little money a person can survive on.

I love the girls in my house. I found the right woman and married her. She stayed with me even when I tested her to the limit. She deserves the “Wife of the Millennium” award for putting up with me. My daughters have never been in trouble, unlike dad. No drugs, alcohol, police visits, late nights (except for my oldest daughter reading like dear old dad until the wee hours of the morning), boyfriend drama, pregnancy or disrespect ever entered our household. My girls are the best.

It will be hard for me to do the right thing. I suggested we make it a point to go out to eat once per month and to see a movie or check out a museum or some other sort of entertainment monthly. It doesn’t have to cost much. The goal is to put work down and enjoy family time.

Very successful people sometimes have difficult personal lives. Laser focus can eventually destroy a family. And a destroyed family is not frugal, nor is it right to put the people you love under such stress.

Frugality is part of this demographic. I get it. It is important for good mental, physical and spiritual health to put an all-encompassing hobby down for other activities.

Call it mad money, FU money or anything you want. Just make sure you use it with the people you love most.

Now that is something to focus on.



All the New Stuff at The Wealthy Accountant

Astute observers will have noticed the curtains around this blog look different lately. The much talked about redesign is complete. As you can see it has been implemented. As expected, a few bugs needed working out, hence, the purpose for this special, Sunday Edition, post.

Everything from before is still here with numerous additional features to help you find what you are searching for.

The Home Page is a clean landing page only with a beautiful picture of my puss. (Yeah, I know. It scares me too.) The latest six posts scroll half way down the page followed by the bragging board.

The Contact and Subscribe Buttons

There were a few problems with the subscribe, unsubscribe and contact button for a while. Those problems have been fixed. If you had a problem subscribing you should try again.

The Contact page had issues with timing out and then the contact never made it to my email. If you contacted me in the past week or so you might want to try again as the message might have said “Delivered” but never reached me.

Working with The Wealthy Accountant

The bottom of most pages throughout this blog has a variety of links, including the “Working with the Wealthy Accountant” link. It is a good idea to review this page periodically and especially before you try to contact me. This is a part of a growing process to handle the increasing traffic on this blog and the attending increase in demands to my office and me. Nobody wants to see me burnout and crash. I selectively accept new clients. If your project sounds interesting I may reply. Please note I receive dozens of requests per day (including weekends and holidays) and the number is growing. I take two consulting appointments per week only with regular clients getting preference. (I still handle minor consulting with regular clients as their needs arise.)

In the near future I will add a Media Kit with sample images you can use without permission.

New Archive

The Archive has been enhanced. Clicking the Archive button at the top of most pages takes you to the Master Archive where a short description is attached to each title. You can click the Master List to see the old style archive which has all posts on one page you can scroll through.

The Forum is still there and I encourage its use. This is where you can share ideas, find an accountant or offer your accounting services. Since I am one human being and have limited time to handle questions, the forum is an opportunity to interact with other wealthy accountants to get those questions answered.

Where Am I

The two most beneficial changes are the “Where Am I” and “TWA Recommends” buttons in the toolbar across the top of most pages.

The “Where Am I” feature is a calendar listing my upcoming public appearances. As I write this you will notice my time at FinCon in October and most of my January is in Florida teaching at Camp FI. As I started working with the calendar I am finding it helpful for clients to check if I am available. I try to add a short description of what I plan to focus on each day. It gives readers an opportunity to see my basic schedule. It also shows when I am taking time off to recharge and when I’m overworking (so you can send me nasty-grams telling me to slow down so I don’t burn out.)

TWA Recommends

“TWA Recommends” brings all the major ideas of this blog under one roof. Trying to remember the article on cost segregation studies? It’s on “TWA Recommends”. Some recommendations are affiliates which support my work. I’m not bashful about asking for a sale. If you shop on Amazon consider starting the process from this blog. It costs you nothing and offers a referral commission to The Wealthy Accountant. (Man’s gotta eat!)

The “TWA Recommends” page also has a nice feature to find a credit card matching your needs. Looking for a bonus? There is a link. Travel rewards? Link for that, too.

I tried to include everything recommended over the last few years. If you notice something I missed, shoot me a comment. I’ll get right on it.

Bonus Feature

The redesign includes many features invisible to the naked eye. These new features will be expanded as time goes on. The most important feature requires you to subscribe. Special meet-ups, opportunities and unpublished public appearances will only be available to subscribers. When I open my doors to new clients or consulting slots, subscribers will know first.

Final Pieces of House Cleaning

FinCon is fast approaching and has decided to open their doors to the general public, Friday, October 27 from 1 p.m. to 6 p.m. Some of the biggest names in personal finance will be there. I will also be in attendance. This is the perfect time for people living in the Dallas area or those passing through the area to meet me and big names (David Bach, Farnoosh Torabi and Lynnette-Khalfani-Cox to name a few) of the industry. A networking party follows. You can sign up to attend by clicking here.

If you have any suggestions, please leave a comment below. Hope you enjoy the new Wealthy Accountant blog.

 

 

How to Complain To Your Credit Card Company

Today we have a special guest post from Josh Wilson of Family Faith Finance. Josh’s idea for an article is one I would’ve written if I’d thought of it. I talk about using credit cards as a tool to better manage your finances and those juicy bonuses they offer, tax-free. But what if something goes wrong? Identity theft drips from the newsfeeds. Unauthorized charges happen.

There is a way to protect yourself. Most readers are aware of their credit card’s dispute process. But if the dispute goes wrong there are still options short of arbitration. Josh gives us the basic framework in disputing a credit card charge or issuing bank’s action before moving to a powerful tool to resolve the worst problems with lenders. I’ll let Josh tell the story.

 

How to Complain To Your Credit Card Company

 

By Josh Wilson, creator, blogger, and personal finance junkie.

 

While credit cards aren’t a prerequisite, they’re a great tool for emergencies, recurring payments, cash management, to build credit score and for bonuses. Usually having a credit card is no big deal, either, but then life interferes? Having a complaint against your credit card company is normal and if you do you’re definitely not alone. The most common complaints about credit card companies include: billing disputes, identity theft, and account closure.

 

When you have an issue with your credit card service it’s best to work directly with the issuing bank first before seeking arbitration or help from a third-party advocacy group. Contacting a credit card company to file a complaint can seem daunting, but most complaints can easily be handled with some research and a phone call. The process is similar for most credit card companies, but there are a few things to remember when filing a credit card complaint.

 

  • First, it’s going to take some work. You are going to have to make phone calls, write letters, send in copies of bank statements and more to deal with a fraudulent charge on your credit card or other credit issues. Just be prepared and make sure you have everything organized.
  • Second, you must document everything. It will make the process much easier. To keep good records, use email, record your phone calls and print two copies of all paperwork you send them.

 

Let’s review the process of filing a complaint with your credit card company:

 

Evaluate the charge or discrepancy. This is the first step if we’re looking at billing mistakes or potentially fraudulent charges. You want to make doubly sure that you didn’t simply forget about a charge you did make. You may have to look up the location or call various merchants when trying to figure out if you made a purchase there.

 

Contact the merchant or credit card company.  Once you have your information together you should contact the merchant or credit card company. If it is for a fraudulent charge you should first contact the merchant to dispute it. If they can’t or refuse to remedy the error, contact the credit card company and alert them. [TWA Note: I would report a fraudulent charge using the bank’s online portal and let the bank deal with the issue. I wouldn’t call the merchant.]

 

Mail paperwork.  More than likely you will be asked to send in some information to the credit card company. This is usually handled with a fax or scan, but may require a hard copy snail mailed. Most banks don’t require paper complaints, but if required, send in a copy, keeping the original documents for your records.

 

Play the waiting game and appeal if necessary.  Once you’ve sent the information you need to wait while the company does their own research. Sometimes your dispute is denied. If that is the case you can appeal, asking for an explanation as to why the dispute was denied. However, most credit card companies will require you to appeal within 10-14 days of receiving your verdict on your initial complaint.

 

What happens when the credit card company is unwilling to resolve the issue? This occasionally happens and it’s not your fault. You can do everything right and the company may decide you are liable. Luckily there’s a government agency designed to handle this, namely the Consumer Finance Protection Bureau, which is designed to assure financial institutions follow the laws and treat you fairly. They have a process where you can file a complaint against a financial institution if you have a problem with your credit card, mortgage, student loan or any other issue involving a lender.

 

How do you file a CFPB complaint?

The CFPB has a unique process for filing a complaint. Once a complaint is filed they become a liaison between the consumer and financial institution.

  1. You file your complaint on their website. You can log in to check or update the status at any time.
  2. The CFPB reviews your complaint and all the documents you provided them.
  3. They contact the financial institution on your behalf to settle the dispute.
  4. The credit card company responds to you and the CFPB.
  5. Your complaint is updated when it’s resolved and the CFPB publically publishes the results.

 

Whether you file a complaint with your credit card company or with the CFPB, you shouldn’t be anxious about addressing an issue involving your credit card, student loans, mortgage, or any other loan.



If You Haven’t Retired by 30 You’re a F—— Failure

Watch what you say. The world is listening.

When I first discovered the FIRE (financial independence, retire early) community I didn’t even know it was a community. Always eager for a good read, I mentally grazed on the offerings of blogs around the internet.

Intrigued by frugality I was naturally drawn to these blogs and news articles. Poverty was well in my past, yet habits die hard. My reasons were many. I wanted to leave as light a footprint on the planet as possible as good steward of the world I inherited. My natural competitive nature also drove me to compete against myself in lowering my consumption and needs.

Before the FIRE community caught my fancy I was living a frugal life and had attained FI. It was common to see me turn out light not is use and to turn the water heater off except for the times of the day when hot water was needed. Keeping my house 60 degrees F in the winter doesn’t appeal to Mrs. Accountant or the girls, but dad sure loves seeing if he can lower this year’s heat bill over last year. Every heating season is a competition to find a way to cut energy costs.

Eventually I ran across Mr. Money Mustache (Pete). Other blogs were interesting, but Pete roped me in like no other writer. Before long I introduced myself to Pete, ended up his accountant and discovered our philosophy had a few areas of disagreement.

Today the newsfeeds are stuffed with articles on people who retired by 30 or 35 or 40, quit their job and traveled the world. When I started this blog I became an apologist for people who loved the work they did and didn’t care about retirement.

Making excuses about why I am 53 and still not retired got old fast. Eventually I used some colorful language (read: cuss words) to punctuate my desire to continue running my tax practice. If I retired I would end up filling my time doing exactly what I’m doing now. So why retire!




Blame it on Pete

This post was in my queue for a long time. I am finally writing the post the night before it is published (unless I am murdered by the Illuminati before I can get the thing formatted and scheduled in WordPress).

When I came up with the idea and saved it in my queue I emailed Pete to ask him if he would edit the post to avoid offending him with my “retirement sucks” shtick. He agreed he would edit the post. (I kept the original title and decided to publish without Pete’s blessing or awesome editing skills.) My original intention was for this to be a very edgy post with many of the aforementioned colorful language. Time (and a promise to refrain from my tendency to write very dark essays with four-letter words) healed some of my original fervor, but here goes anyway.

A gathering of Mustachians in Seattle.

You are NOT a failure if you don’t retire by 30, like Pete! Get it. Stop introducing yourself to me with an apology for not retiring yet at the ripe old age of 37. Remember who you are talking to.

True to the original concept of this post, I blame Pete and his blog for starting the whole darn thing. It wasn’t actually his fault. Early Retirement Extreme came before Pete and I’m sure there was somebody before that. Hey, we all came from someplace; all started as something different.

Yes, Pete retired at 30. No, he is not lazy. He does a lot of other productive activities vital to a better community. He writes his blog (he doesn’t write much anymore, but most of his work is still available at his blog and he graces us with a post or two each month), has a new HQ in his hometown and performs the most important task any man can: he spends quality time with his son and wife. His new headquarters hosted a business school recently to great acclaim if social media is any indication. I call that a productive retirement.

Pete did make one very serious mistake, a mistake so huge I’d kick him in the tail if he weren’t a client. His mistake was to convince people they can retire young. Many people took that to mean they had failed if they didn’t repeat what Pete accomplished.

Knock it Off!

You are NOT Pete! You’re not the Wealthy Accountant either. Stop trying to live in either of our shoes!

Of course, my life is awesome. So is Pete’s. But you can’t have my life! You don’t want it either. The price I paid to have what I have is a price you are unlikely to enjoy paying yourself. When I hear readers tell me they want a farm (just like mine) and a tax practice (just like mine) and a blog (just like mine) I want to scream, “Live your own life!”

Don’t take it personal. It’s not you; it’s me. You will be unhappy living my life. My life juices me. You need to find your own way. Pete and I can provide plenty of fodder in your thinking process when building the life that juices you. But you can never be Pete. There is only one Pete. There is only one me. (And thank God for that.) For fans of Vin Diesel let me quote from the Chronicles of Riddick: “Sister, they don’t know what to do with one of me.”

People sit across the desk from me after reading Mr. Money Mustache and The Wealthy Accountant in tears as they explain how much they failed in life because they are 32 and still punching a clock.

My life on the farm. Not yours.

Let me add one more piece of perspective. You probably ran across this demographic from a newsfeed blaring yet another story of some guy who retired at 30 something and is living the good life. To keep readers clicking—and paying the bills—they have to keep upping the ante. One guy retires at 40, the next guy at thirty. The next guy better blows the rat race at 28 if he wants a slot on Business Insider or MarketWatch. I fully expect any day to see an article scroll through my newsfeed of some kid from Tupelo who retired at four months old and started traveling the world. To keep the article family friendly the infant helped mom and dad retire and travel with the little snot-nosed kid. Remember, you heard it here first.

How do you top that?

WONDERKID RETIRED BEFORE VACATING THE WOMB

It’s sensational journalism and I hate it. There is nothing wrong with a productive life.

People have been BS’ed into thinking they have to hate their job. Not all jobs or work is that hated! I love my job even on a bad day. Sure, there are days that make my head hurt. I work with government, for Christ’s sake! But I wouldn’t trade it for any other job in the world.

Work is fun. It gives us something productive to do. It allows us to earn a living. We have a build-in social network to communicate with at work. Side gigs are work, a job. And there is nothing with that.

Traveling is something I hate. As FinCon gets closer I know I have to sit on a plane again and I talk about it more. It’s something I do as part of this blog, even if distasteful. Then I have a great time with readers sharing ideas.

Traveling for traveling’s sake is something I don’t care for. But does that mean readers should be like me? Heck no! If you want to travel, you should. If you want to retire early, go for it. Let me warn you I have seen plenty of people in this demographic retire early only to work more at their business or side gig later than when they were formally working. I find it poetic.

It’s not fair to Pete, me or you to expect or have you do what any of us did. These blogs are to share ideas in reaching financial independence; to retire early if you desire; to start you own business if it lights your fire.

One Good Reason Not to Retire

It breaks my heart when a client sits in my office apologizing for not reaching FI by a certain age. Then they explain medical issues threatening the life of a family member and feel like a failure because they didn’t reach retirement or FI early in adulthood.

Special treatment at the gym for a certain accountant. They know me wherever I go. What’s up with that?

Nothing is more important than your children and significant other. Nothing. If I had a choice between money and my family, my family wins hands down. There is no competition. I’d rather live poor with Mrs. Accountant and my beautiful children than have money without my family. If the demand is made, my money would be gone instantly to share more time with the girls I love more than life.

Retirement is not a goal! Finding meaning in each day of your life is what matters. Family tops the list. For those of faith, God tops the list followed closely by family.

Money is only a game, a scorecard. More stuff will not make me happy. You either.

My grandfather worked until he was in his late 80s. He enjoyed the work and had plenty of money. He enjoyed the company of co-workers and helping people. Someone explain to me what he was going to retire from.

My grandparents traveled a bit in their younger day. Good thing because my grandmother died of a stroke at 70. Granddad filled his day with meaningful work helping people. Younger people hated the job; he found happiness in all his activities, including formalized labor.

I travel now too. Mrs. Accountant isn’t as healthy as I am. That is why you see me connected to the sexy Mrs. A at conferences. We are madly in love after 29 years of marriage. Maybe the newness of marriage will wear off eventually. You know, by the time we have 80 or so years under our belts our youthful lust might abate a tad. Nah!

I live my life my way. I invite you to live your life your way. Don’t be Pete; don’t be me. Learn from both of us and other bloggers sharing their story. Learn and adopt what works for you.

Pete didn’t get a chance to preview and edit this post. He doesn’t have a clue it’s coming. Hope he’s not offended. Hope I still have a client.

Pete? Pete?

NEWSFEED:

WAYWARD ACCOUNTANT FINALLY RETIRES AT RIPE OLD AGE OF 53



How Rich Am I? How Rich Are You?

Over the years I have been accused of being a millionaire by clients. The quest was to discover how much wealth their accountant had. I was mum.

Few of my local clients read this blog; only the few who do know the scope of my wealth and understanding of money. The inquisitors would have been excited to know the truth.

The allegation began the same every time. A discussion on money and wealth building led to the client asking, “You must be at least a millionaire?” I smiled and shrugged. Like my grandfather, I kept my mouth shut about what I had.

Before I reached the seven figure level I felt comfortable with people believing I had more than I did. For some reason people think you are smart if you have more than two nickels to rub together. Money does not make you smart! I could give plenty of examples, but I must protect the guilty.

It took me years to understand I was rich all along. When a client suggested I must be a millionaire it was because they wanted validation of my intelligence when it comes to money. But smart people are usually the worst with money. Think of doctors. Most doctors have a net worth far below what their income and time earning that income would suggest. Attorneys are almost as bad as doctors. Accountants and tax professionals as a group are terrible with money. Some do exceedingly well; most are flat broke.

The worst offenders of all are financial advisors. Those high-earning folks empowered to help us with our excess funds earn and spend as similar levels. I could tell stories, but client confidentiality forbids.

The best people with money are as dumb as a box of thumbtacks. Smart people always believe they can outsmart the market by either timing or investing in crazy alternative investments. Usually both.

Dumb people shouldn’t be confused with stupid people. Dumb people can be very intelligent, but rarely walk around bragging about it. Professionals have a status to keep so clients think they are successful! Doctors spend under pressure from peers. Attorneys have clients to impress; accountants have clients to impress. But the semi driver doesn’t have to impress anyone!

Some of the wealthiest people I know are in professions you would not connect with lots of money. Hate to break it to you, but the local junk yard dealer has more cash tucked away in the market than you. I know many truck drivers and mill workers with massive amounts of liquid investments. I know just as many broke attorneys.




Define Rich

The title of this post indicates you and I might be richer than we think. The title has done its job.

Before I crossed the seven figure barrier I was richer than I ever imagined. My net worth was measured in the hundreds of thousands, but the power of that money, and even much more modest sums, could be leveraged into a fortune.

Back then I could walk roads and hiking paths all over God’s Green Acre. Hiking, biking and driving was essentially free. I paid nothing to drive from my home to the library or my parent’s home. If I owned a car, a bike or a good pair of sneakers I was ready to go. Roads are free. A few toll roads are out there, but I can get anywhere I want on free roads.

The path between my home and library was worn deep. I love books! Call it a sickness. I’m big into mental masturbation. (I said that because I notice people quoting me lately and I wanted to provide something quotable in this post.) And the library is free. You can’t imagine all the great stuff to be had there outside of the normal books you would expect.

“Wait a minute!” I can hear you say. “The roads aren’t free. I pay TAXES!” Yes, you do my friend, but you don’t pay for the entire road, yet you use the whole darn thing. You pay taxes which include the roads and other infrastructure. People with high incomes pay more than their pro rata share of use while those earning less get a free ride until they are high earners.

As long as we are discussing it, let’s not forget that wonderful library. It costs pennies per person per year to fund your local library. For pocket change in taxes you have at least a million dollars worth of stuff you can borrow at any time without question even in a small community.

Even the poorest people in the community can use the library. My oldest daughter runs her tutoring business out of the library. I read voraciously for years every book from the library and still frequent the place more than all other establishments combined. Libraries are the best deal going and turn everyone into a rich person by default.

Leveraged Wealth

While we’re at it, your money goes a heck of a lot further than you think. How much does a cheap plane cost? A hundred grand? More? Well, for $500 (or free with credit card reward miles) you can fly anywhere in the country on a fancy jetliner, chauffeured by the finest trained pilots and served by cabin staff. Even First Class is a bargain when you think of it.

A small wad of small bills buys you more than a mega-million dollar plane with staff to take you where you want to go. Before the plane takes off you get to use the fine airport facilities and the runway to get the plane into the air.

One simple flight makes you sound mighty rich. For a $50 Uber ride you are driven to the airport in a $25,000 car on roads that would have cost you millions, tens of millions. Then you hop on an $85 million plane flown by trained pilots; no driving necessary on your part. Add the $50 Uber ride to the $500 airline ticket and you leveraged your way into using a couple hundred million dollars of infrastructure. As a percentage it is darn near free.

Gratitude Attitude

I have always been extremely rich, even before I had money. It can be argued my current net worth in direct proportion to the books I read from the library. Without those books I probably wouldn’t be here.

I was introduced to this philosophy by Tony Robbins in his first Personal Power tapes. I had my foster kids listen to Tony on a regular basis so I heard this stuff again and again. Some of it actually sunk in as noted by a foster child returning years later to thank me and by my business and family success.

Listening to this powerful message convinced me I was born the luckiest guy in the world. I was super rich before I earned my first dime.

I call it the Gratitude Attitude. There is no doubt my success in my marriage, business and raising my children is all related to my Gratitude Attitude.

None of this is new. Tony learned it somewhere and shared it with me. Now I am sharing it with you, paying it forward.

I make a point to realize how much I have with every step I take. Driving to the office is a multi-million dollar advantage. Books are free to borrow at the library or for twenty bucks you can own the thing. Of course the printing press, editors and distributors would have to charge me an arm and a leg if they only produced one copy just for me. Lucky for me I was born in a world of unbound riches.

How Rich Am I?

Only a cursory look tells anyone willing to notice I have always been rich. I was born into a rural farming family, but had untold riches around me from the moment I hit the table and my mother breathed a sigh of relief her labor was over.

I have health and freedom and a loving family. My childhood was filled with awe and wonder. Sure, other people had different riches, but I was rich as rich can be all the same.

Now, added to all the riches I was born into, I am blessed with financial wealth. After all these years I sit in awe and shock at my great fortune.

How rich am I? The richest man to ever live.

How Rich Are You?

As rich as I ever was.

Now pay it forward.



How to Lose a Million Dollars in a Day

There is an insidious side to the FIRE (financial independence, retire early) community nobody wants to talk about. I was aware of this issue for some time as the owner of an accounting practice. What I found most disturbing is how blatantly bloggers and talking heads in the demographic keep giving advice that will lead to tears.

It is not if, it is when it will happen. If you follow the advice of this blog and others in the genre you will eventually suffer a million dollar loss day.

I have broken bread with these people and tipped a beer or three as this issue has been discussed and to date I never found anyone to give a damn.




The Bad Advice You Must Avoid

It is insane for bloggers to preach what they do. By encouraging people to save as much as half (sometimes even more) of their income and then drop it into a low cost index fund is guaranteed to cause massive financial problems. If you are one of those said bloggers: Shame on you!

Once you start down the slippery slope of frugality and living within your means the die is cast. The worst part is you will NEVER outperform the market! Index funds will MATCH the market, minus the extremely low fees.

It doesn’t take a genius to figure out what happens when you consistently drop money into a low cost investment geared to match market returns. A few years later you have a nice pile of money. What a headache!

By encouraging young people to take such steps is borderline illegal! There aughta be a law. A decade of this behavior is one thing, but before you know it these young people have a few decades behind them (like your favorite accountant) and then the manure really hits the fan.

Do you know what thirty years of investing half your income in index funds can do to you? That’s right! First you blow past a million and before you know it the seven figure account is in the rearview mirror. It sounds impossible, but this is only with “average” stock market returns! And the index fund isn’t taking hardly a thing in fees. You are double screwed, my friend. Double screwed.

You see, what goes up will eventually come down and come down hard. If you had a $100 invested and the investment went down to $90 in a market correction, you lost $10. Not too bad, I guess. God forbid, we get one of those gut wrenching days where the market declines 5% or even more. Imagine losing $20 of your hard earned money in a bear market!

(Well, actually, you didn’t lose any money. The market fluctuates a bit now and again so the ups and downs mean nothing unless you are in the market to sell. But I digress.)

Now think about the same scenario if you have a $1 million portfolio. Holy catfish, Batman! You just took a $100,000 groin shot. Time to get out of Dodge.

But it gets so much worse. Take it from your favorite accountant; I am living the following eventuality. You see, I started young and was scared witless so I saved everything and stuffed it into the market. Starting with a few thousand to my name at 18 I managed to amass a couple hundred thousand four years later. (Thank you early 80s bull market. You da man!) I quit life to read books all day until a certain young lady forced me to marry her (and she wasn’t even pregnant, I swear!). I fought like crazy, but could not get away. I still have scars. See!

Well, a respectable married man works a job, dang it. So the investment machinery went back into action. A short stint as a working man convinced me a job was not the course I wished to travel in life so I started a business where there was plenty of time to read.

That was the stupidest thing I ever did! Now my portfolio was growing from market gains and my new investments. In the last year my behavior pushed me into eight figure net worth territory. I’m still trying to figure out how a dumb schmuck from the backwoods of Wisconsin pulled this off without bumping off a bank or three. (I didn’t do it!)

Criminal activity aside, I cannot avoid the problem we started this post with. A simple (and normal) 10% market correction will cut a temporary $1 million hole in my hide, ahem, net worth. If the S&P has one of those stomach turning days where things head south by over 5% I’m dead meat!

My current net worth has me under 8%. That means if the market has an 8% down day I’m out a cool million.

And it keeps getting worse. Soon the portfolio will grow so large that when the President passes wind and coughs at the same time the 14 point decline in the Dow will crush my net worth by seven figures in an afternoon! Way to go, Mr. President!

Alternatives to the Awful Advice

There is help, my spend thrifty friends. As your favorite accountant I offer, two, not one, but two solutions to the issue above.

The last thing you want to do is end up like me with all that filthy money just dying to cut your heart out. I find it hard to get out of bed most days now.




Here are the two solutions from your friend who has lived this life of debauchery.

1.) Spend all your money before it gets a chance to grow. I know it means you will be forced to work a dead-end job you hate till your walker gets in the way, but think of the alternative. Do you really want to live a month of life where you tinkled a million bucks into the sewer? I didn’t think so. No go out there and buy those $300 sneakers you had your eye on. The blinking lights are fancy.

2.) If you are a sick puppy like me and hate shopping *whatever* and end up saving lots of money you still have an out. For God’s sake don’t drop the cash into an index fund, whatever you do. That is the first step to a $1 million bloodletting. Instead, open one of those fancy savings accounts at the bank that throw off a massive .01% interest annually.

If you follow my advice I can assure you the day your friends reading these crazy blogs take a $1 million haircut, you will be sitting pretty at your minimum wage job laughing your tail off.

SUCKERS!

Fun Time is Over; Time to Get Serious

We had some fun above with a serious issue few people think of. The larger your investment portfolio the more normal market declines become really big numbers even when it is a small percentage; numbers that have been known to cause a rash.

A simple and regular market correction will reduce your net worth/portfolio by $100,000 or more with a low seven figure account. Losing $100,000 is bit hard to take when less than a decade ago your net worth wasn’t even that big!

I told the truth above. Bloggers, me included, tell the truth about building massive wealth. What nobody talks about is what to do once you HAVE the wealth. Is it back to the investment advisors you were warned about all along?

Managing $10,000 or a million or ten million is nearly the same. The only difference is at the lower end where you need some liquid cash for an emergency. Most of your money will be in equities and equities like to go real high and then play rollercoaster periodically to shake out the weak hands.

It would be a dirty shame if you worked so hard to build wealth to the level of financial independence only to fall through the sieve when the market does what it always does.

Don’t listen to the crazy accountant writing above advising spending all your money or saving only in the bank at 0% interest. There is a better way.

The first step is to prepare. A market correction is defined as a 10% or greater decline from the market high or recent top. These guys show up every 3-5 years or so. It has been a bit since we saw one of these animals. Don’t be fooled. Corrections can be weird. Sometimes they trick us into a false sense of security by hiding for 7 or more years. They know they are more painful when they do it that way.

Bear markets are defined as a 20% or larger decline from a recent market top. These nasty devils educate the crowds usually at least once a decade. Yes, I know we are overdue.

Then we get the truly Armageddon style realignment of asset prices where the indexes are half the recent high. We had two of them in the first decade of this millennium, but that is unusual.

OMG! Warren Buffett is a Mustachian!

You must be mentally prepared for any of these declines in market value. We could go years before one of these declines arrive or it could start tomorrow morning. Nobody has ever proved they can predict market declines with accuracy so the only option is to stay invested at all times.

Protecting your money means preparing your mind. It’s all between the ears! Once you know it WILL happen you will not be scared into selling (AHHHHHH, the world is ending!!!) when we are enjoying a sale on investments. If you get good at this you will buy during these trying times and profit handsomely.

The best solution is to invest whenever money is available and always let it ride: up market or down.

Be different. When people scream, “The sky is falling!” you back up the truck and load up. Shirts are on sale half off, oh, I mean the companies selling the shirts are on sale half off.

Train yourself to not bury your head in the sand. I frequently tell clients not to look at their accounts when the market is in turmoil. Out of sight; out of mind. This is wrong. I say it so less astute investors, present company accepted, so they don’t destroy a lifetime of hard work building their nest egg to destroy it in an afternoon.

With some time and a bit of luck, you might one day be able to say, “I lost a million dollars today, and frankly, I don’t give a damn.”