Lifetime Winner

“When you improve a little each day, eventually big things occur. When you improve conditioning a little each day, eventually you have a big improvement in conditioning. Not tomorrow, not the next day, but eventually a big gain is made. Don’t look for the big, quick improvement. Seek the small improvement one day at a time. That’s the only way it happens—and when it happens it lasts.”

- John Wooden

This quote is coming from arguably the best college basketball coach of all time. He won the National Championship 10 out of 12 years at UCLA! What a philosophy to live by.

I don’t know about you, but the “get rich quick” or “buy now, pay later” messages of the day are sure seductive. They certainly offer an easier road to travel. (That LypoDissolve pill that makes all of your fat magically disappear with no change in diet or without ever working out is tempting, but come on, really?) No hard work, self discipline, or persistence required.

After years of reflecting on these two varying philosophies I am reminded of a statement from a business course I took:

All interpretations are valid; however, they are not equally powerful.

As I reflect on all of the people I most admire, none of them were a one hit wonder. They were people who persevered. They kept after it, never giving up. It is through the very un-sexy work of discipline and persistence where the most valuable attributes are developed. It is these very attributes that build a foundation for future success. This cycle, if repeated over the years produces lasting success.

Don’t shirk the hard work if you really want to be a lifetime winner!

College Costs What?

College costs keep rising. How much and how do you possibly fund it?

First, the newest numbers:

On October 29, 2008, the College Board released college cost figures for the 2008/2009 academic year in its Trends in College Pricing Report. Not surprisingly, costs went up in every category. Here are the highlights: To view the 2008 Trends in College Pricing report, Downloand College Cost 2008.

Public colleges (in-state students):

Tuition and fees increased an average of 6.4%

Room and board increased an average of 5.2%

Total average cost for 2008/2009: $18,326

Public colleges (out-of-state students):

Tuition and fees increased an average of 5.2%

Room and board increased an average of 5.2%

Total average cost for 2008/2009: $29,193

Private colleges:

Tuition and fees increased an average of 5.9%

Room and board increased an average of 4.8%

Total average cost for 2008/2009: $37,390

"Total average cost" includes tuition and fees, room and board, books and supplies, transportation, and other miscellaneous costs.

The College Board stated, however, that average cost is not necessarily representative of what most college students pay. The Board noted that there is considerable variation in price among institutions, and that almost two-thirds of undergraduate students enrolled full-time receive grants that reduce the actual price of college.

I suggest two different ways to insure you are prepared:

1. Maximize an ESA College Savings Fund – ESA stands for Education Savings Account. ESA allows for a maximum annual contribution of $2,000 per student. The earnings in the account grow tax-free as long as distributions are used for eligible expenses, which are not limited to college costs.

$2000 invested annually at 8% for 18 years equals $74,900

2. Buy a rental property –when your child is young, buy a property for multiple reasons:

§   it will appreciate at 3-5% for ten plus years before college money is due

§   rental rates will increase at 3-5% producing some cash flow to help with expenses

§   use it as a teaching tool for your child; help them learn to care for it, find and screen renters, manage the finances of the property, pay taxes, etc. This will be a life altering experience that will give them a leg up in a financial education deprived world we live in

$200,000 house appreciating at 4% over 10 years will be worth $296,048

$1200 in rent increasing at 4% over 10 years will climb to $1776

A Cheesy Sweater?

Years ago when asking my mother what she wanted for Christmas I was perplexed at her request. She said she wanted us three kids to memorize a quote on attitude by Charles Swindoll. It was a quote that I had read a number of times over the years by virtue of seeing it every time I went to the fridge.

In my infinite wisdom, I concluded that memorizing a quote was not a good gift, what she really would enjoy was a nice sweater from the Gap. I never spoke to my younger brother or sister about this and had frankly forgotten the original request.

Christmas morning rolled around and I of course watched her open a cheesy sweater that she would not be caught dead in now. She faked her satisfaction, gave me hug and we were on to the next gift. As we went around the circle it was time for my brother and sister to give their gifts to mom. In unison they recited the cherished quote,

"The longer I live, the more I realize the impact of attitude on life. Attitude, to me, is more important than facts. It is more important than the past, than education, than money, than circumstances, than failures, than successes, than what other people think or say or do. It is more important than appearance, giftedness or skill. It will make or break a company...a church...a home.

The remarkable thing is we have a choice everyday regarding the attitude we will embrace for that day. We cannot change the past...we cannot change that people will act in a certain way. We cannot change the inevitable. The only thing we can do is play on the one string we have, and that is our attitude.

I am convinced that life is 10% what happens to me and 90% how I react to it. And so it is with you...we are in charge of our attitudes."

With tears running down her face she thanked them for their effort. Looking back, it is now crystal clear that the emotion she was feeling was her ability to foresee the lasting impact on my siblings of memorizing those words. What a valuable lesson from a loving mother.

With so much going on around us that we cannot control, the empowering words of Charles Swindoll ring in my ears almost daily. We are in charge of our attitudes!

You Won't Know Unless You Measure

I have a new practice of inviting at a minimum, two influential people to lunch every month. Yesterday I took a guy to lunch that is an ex-accountant. 30 years ago he left one of the big eight firms (at the time) to be a partner and acting CFO and COO of a Cummins distributorship. 3 years ago, after years of diligent effort, he and his partner sold the business. It was rumored to have sold for well over 100 million. Not bad, eh?

Over lunch, I asked him, "What was the factor that most contributed to your success?" He shared a philosophy that they lived by:

        You don’t know what you don’t know

        You can’t do what you don’t know

        You won’t know unless you measure

        If you value it, measure it

        If you don’t value it, don’t measure it and don’t do it

They used this philosophy to dramatically increase profit margins in every department of the company.

That is an extremely pertinent and powerful philosophy if applied to personal finance as well as business. A vast majority of people have no clue what their numbers are. I’ll prove it.

-           How much money did you spend on gas last month vs. what your projections were?

-           How much money did you spend on entertainment last month?

-           What percentage of your income did you invest or save last month? how much was that? (if the number is 0%, don’t get thinking you are too smart for knowing your numbers=)

-           What is your net worth? what is the year over year increase or decrease?

-           How much money will it take for you to retire at your desired retirement age to maintain the lifestyle you currently have?

How to apply the philosophy to personal finance:

1.  Budget – track your expenses (all of them), eliminate unnecessary “wants”, make sure your “needs” are less than what you earn,  go to a cash system and when the money is out, stop spending (McDonald’s per transaction sale went up 47% when they began accepting credit cards)

2.  Net worth – what is the value of all of your assets minus all of your liabilities. The difference is your net worth. This is an important number as it will be an indicator of your capacity to stop working someday

3.  Capital at Work – how much money is working on your behalf each day? This is determined by summing up the value of your stocks, bonds, and investment accounts.

Stay tuned for a more detailed explanation of each – how to track, utilize and improve them for the sake of improving your financial situation and ultimately reaching your financial objectives.

Saved By Zero

While watching Monday night football last night I couldn’t help but laugh at Toyota’s new car commercial. The catchy tune they sing during the commercial consists of a chorus only, with the words “saved by zero” sang over and over again promoting their new 0% financing on a majority of their models.

I am not sure if they mean that their revenues and therefore 4^th Qtr will be saved if enough people buy because of 0% financing or if they are saving “us” by providing 0% financing?

In researching new car depreciation for this entry I discovered that a vast majority of experts agree on depreciation figures. In year one you can expect 15-20% depreciation and 10% each year after that.

Here is what Toyota’s “Saved by Zero” financing is really costing:

        brand new          $32,155

year one            $24,000 value

        year two            $21,600 value

        year three          $19,440 value

        year four            $17,496 value

To confirm, I priced out a new Camry on the Toyota site and also found a used one on AutoTrader.com. The results are strikingly similar:

Brand New Camry XLE fully loaded                 $32,155

2004 Camry XLE fully loaded                         $16,150

Interesting that even a Toyota Camry, a very reliable car, keeps pace with average new car depreciation rates.

Your “Saved by Zero” deal costs you $333.44 a month or $76.95 a week in depreciation.

A lot can be learned with a little research so that you can decipher who is really saving me and who is looking to save themselves.

Cash is King

A couple of years ago a wise, old, financial mentor of mine said to me after reviewing my financials, “I am very impressed. You have built up quite a net worth at a young age and are on a path to go far in life. However, if there is any advice I could give you it is that cash is king!” 

At the time I had good equity in a growing company, lots of real estate holdings and very little cash reserves. Although I understood what he meant, I did not know what he meant. I use the word know to mean - understand it to the point of creating powerful thought and action.

Fast forward three years. What if I had taken his advice to heart and been on a quest to accumulate cash? Everything is on sale right now!

Real estate as evidenced by the Case Shiller report shows discounts approaching 20% off in the nations largest 20 cities.

Stocks and bonds (at home and abroad) have had their prices slashed dramatically this year:

Dow Jones Industrial Average -- over 35% down

Nasdaq -- over 40% down

S & P 500 -- over 40% down

Emerging Market Stocks -- almost 60% down

REITS -- over 40% down

Welcome to a buyers market without any buyers!

Very few have cash right now. They may have equity but cannot get to it. This is the time you want to be buying, in a buyers market without any buyers. If you have cash, now is the time to be building your fortune like those in the time of the Great Depression did.

Warren Buffet was quoted as saying, “When the prices are right, I can buy companies faster than Imelda Marcos can buy shoes.”

Lessons I will apply the next cycle:

1. Don’t get greedy when everything is racing up – remember Nordstrom has the Twice Yearly Sale, real estate and stocks have a Twice a Decade Sale

2. Take money off the table - it is not necessary to go all in, every hand. get comfortable with the coffers full of cash, poised for the next big sale

3. They are called cycles for a reason – prices go up and prices come down, round and round they go. be a buyer in the down cycle

4. Be a contrarian! 

5. Start now - now is the time to begin preparing for the next great opportunity. be a student now. build your wealth habits now.

A Crisis is a Terrible Thing to Waste

“A crisis is a terrible thing to waste”, said the CEO of Merck, Richard Clark recently.

What a refreshing statement to hear! 

In Chinese philosophy, the concept of yin and yang is used to describe how seemingly opposing forces are bound together, intertwined, and interdependent in the natural world, giving rise to each other in turn.

I believe this to be true. At a time of great danger and fear lies one of the greatest opportunities to build wealth we have seen in decades.

Are you looking for opportunities or hiding under your kitchen table? Is it possible this is the break you have been waiting for?

Did you know that there were more millionaires created per capita during the Great Depression than at any other time in our country's history?

Maybe it is time to adjust your belief systems to a more powerful way of thinking. You will find exactly what you are looking for. Are you looking for opportunities or looking for danger and despair?

Chains of Habit

“Chains of habit are too light to be felt until they are too heavy to be broken.” - Warren Buffett

It is my belief that a vast majority of the economic struggles we are experiencing today have been brought on by poor habits and a disregard to the fundamental laws of money. The NY Times reported that “For decades — from the 1950s through the 1980s — Americans spent about 91 percent of their income, on average, and put away the rest. In the last few years, they have spent close to 99 percent and saved only about 1 percent.” Recent government data shows the personal savings rate has been negative for the last two years. At some point the merri-go-round has to stop. 

Where would we be today if we had adhered to the Five Laws of Gold from the classic book, Richest Man in Babylon?

FIVE LAWS OF GOLD

1. Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family
2. Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
3. Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
4. Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep
5. Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment

Did you cause Alzheimers?

It seems that with each day comes a barrage of negative news. The Dow finished down 411 points or 4.7% yesterday at 8282. Initial Jobless Claims, a good leading indicator on the health of the job market, showed 516,000 new claims, far worse than expectations of 479,000.  Additionally, the Continuing Jobless Claims reached 3.89 million, their highest level in 25 years. GM’s stock price slid to $3.08, teetering on the edge of the abyss, when just 8 years ago it was worth over $90 share and the end of 2007 it was over $40 share.

How important is it to control your emotions and mood?

Did you cause Alzheimers?

Epidemiologist David Snowdon did a study of 678 nuns in the School of Sisters of Notre Dame Congregation. Snowdon set out to study the factors that differentiate nuns who eventually got Alzheimer’s disease from those who did not. All of the nuns he studied were required to write a personal essay when they came into the order in their early twenties. Upon analysis, Snowdon discovered that those nuns whose writing expressed a preponderance of positive emotions tended to live longer and more productive lives. Nuns with the highest number of positive-emotion sentences had half the risk of death at any age as those with the lowest number of such sentences. This is consistent with the findings from several other studies suggesting that a history of depression – the most insidious of all negative emotions – increases twofold the likelihood of eventually developing Alzheimer’s. These findings deeply influenced Snowdon not just professionally, but also personally. “I now make a conscious effort to regain my physiological balance quickly after an upset,” he explains. “I try not to stay stuck in negativity. My goal is to return to its normal, healthier state as soon as possible.”

What can you do about it?

Some simple suggestions are: Do an inventory of your influences. Who are you spending your time with and what is their mood? What are you listening to and what are they saying? What are you reading? What are you watching and what is there message and motive?

Surround yourself with people who are positive. Not people who are blindly optimistic, but people who are realists looking for the opportunity in all they see. Read uplifting material. Turn off the TV. Listen to books and programs that will increase your capacity to think and act. Work out.

The great James Allen wrote in his bestseller, As a Man Thinketh, “As a being of power, intelligence and the lord over his own thoughts, man holds the key to every situation, and contains within himself that transforming and regenerative agency by which may make himself what he wills.”

Big Hat, No Cattle

Big hat, no cattle!

This is a phrase from The Millionaire Next Door, by Dr. Thomas Stanley referring to the people that put on the millionaire façade. Cars are great examples of that.

In the spirit of transparency, I am a car fanatic. I love them. I enjoy looking at them, washing them, sitting in them, and driving them. This is something that started in high school and I have become progressively more obsessed over the years.

What I had never stopped to do was to calculate the cost of financing a car. Dave Ramsey recently quoted a study that revealed the average American has a $484 monthly car payment that they never get rid of. This means that as soon as it is paid off they go out and buy a new model starting the fun all over again. I became curious what this would cost over a lifetime.

For ease of calculations I have rounded the payment up to $500 month. I have estimated an 8% return on the money if it had been invested instead:

• Over 30 years you would have made $180,000 in car payments. Had you chosen to invest those monthly payments instead, you would be sitting on a $679,699 asset.
  
• Over 40 years you would have made $240,000 in car payments. Had you chosen to invest those monthly payments instead, you would be sitting on a $1,554,339 investment.
  

Needless to say, our car is for sale. For $1,554,339 I can learn to enjoy a used car smell!