Can You Hand Me That PledgeHammer?

One of the topics that I have been passionate about for sometime is the need to build successful habits to reach your potential. Dr. Tony Schwartz teaches in the Power of Full Engagement that we have a finite amount of self-discipline and therefore we can only set out to change a limited number of things in our life at a time without running out of energy.

Ever wonder why you are not the only one who has failed at keeping 29 different New Years Resolutions? He says the solution is to build habits. Habits once effectively established no longer take self-discipline to keep going, but rather energy to break.

An important part of building these new habits is being accountable. I recently ran across a website that does just that, helps you be accountable.

www.PledgeHammer.com

Pledgehammer.com is a site that helps you keep your promises. They do this by making your pledge public and asking you to decide on a deadline as well as a financial incentive. Should you not succeed they ask you to donate money to a charity you choose yourself. This way your unsuccessful pledge may help to save the rainforest or support families in third world countries, making it not all that unsuccessful after all.

I thought it was a very interesting idea and one that can certainly help in an area that I believe we all could use help in.

Money Can’t Buy You Happiness…or Can It?

“Money can’t buy you happiness…but it can buy you a Waverunner,” said the comedian to start his routine.

I couldn’t say it better myself. Last night, my wife and I had a conversation on this very topic. Fortunately, we both agree that money cannot buy you happiness. I spent 2 years in Brazil on a mission for my Church and experienced poverty beyond comprehension for this day and age. What shocked me was the observation of the families who lived in it, often times were happier than the wealthy American families that I knew back home. To prove I was not in some spiritual fantasy land, I certainly experienced families in the depths of poverty that were absolutely miserable and unhappy.

The lesson I learned is that the two are disconnected. Happiness and pleasure have been used interchangeably in the English language and I think they are very different. Pleasure is short term, and I know first hand that money can buy you pleasure. What I have yet to see is the case where money bought long term happiness.

What money can do is enhance an already happy existence. Yesterday I talked to one family who went camping over spring break. Now, I happen to know camping was the recreation of choice because it is virtually free. By the way it was 45 degrees and raining! I know of another family that went to Mexico for the week and stayed in a beach front villa. All things being equal, I’ll take the Mexican trip to paradise please.

That leaves us all with some thinking and planning to do. First and most important, what is happiness? How do I achieve it today, tomorrow and twenty years from now? Secondly, what is my ideal life and how much does that cost? How will I fund it?

How Does That Math Work?

I spent some time with a very bright money manager yesterday and he shared something that I had never noticed or more importantly understood.

For simplification purposes, I will show you 4 years of stock market returns. We will start with $100,000 in our account and then I will specify a certain stock market return for that year and then the next years balance will be a result of that previous years return. Let me show you:

Year 1

Starting Balance $100,000

Stock Market Return -50%

Year 2

Starting Balance $50,000

Stock Market Return +100%

Year 3

Starting Balance $100,000

Stock Market Return -50%

Year 4

Starting Balance $50,000

Stock Market Return +100%

Year 5

Starting Balance $100,000

In this example, we had 2 years that had a 100% return and 2 years that had a -50% return. If we were to calculate the average rate of return for those four years you would get an average 25% rate of return. In reality, you finished with the same amount you started with, $100,000, no where near a 25% rate of return.

The numbers that are thrown around in your mutual fund and 401k prospectus are designed to help you, but do not tell the whole story. More time must be spent really understanding your numbers because your ability to retire depends on it.

Take your investment accounts statements out and figure out how much you started with, how much you added, and how much you have now. Do the math, you’ll be shocked at the results. (If you don’t know how to figure it out, go find someone who does, or spend 20 minutes on google. It will be time well spent)

What Is Your EVE Ratio?

EVE is an acronym for education versus entertainment. I was tipped off to a company called iLearningGlobal that talks about this EVE ratio.

They suggest that your future “destiny” depends greatly on your EVE ratio. I am not sure I agree with the word choice "destiny" but maybe destination. 

Most people spend far more hours and money on entertainment than they do on education and yet remain perplexed at how unsatisfied they are with the results or destination they have reached.

Did you know that the average U.S. household watched TV for 8 hours and 18 minutes a day from September 2007 to September 2008, which is a record high since the days Nielsen Co. started measuring television in the 1950s.

What is your EVE ratio? Take one week and add up the hours of each. 

Are you shocked at how little time and money you spend on improving yourself and your ability to build the life you desire?

The great Zig Ziglar said, “You don’t have to be great to start, but you do have to start to be great.”

Now What?

After yesterdays post on "How Much Should You Be Saving Annually" you probably realize how much you underestimated the amount of money needed to invest to live in retirement. As I see it, three options arise:

1. Increase current income – if you are going to be a passive investor, you are bound by the economic factors of 8% annual return, 3% inflation, and 4% withdrawal rate, you simply must earn more money to allow for today’s requirements and tomorrow’s future
2. Become an active investor – if 8% won’t get you there, you must learn different strategies for netting a higher return. Real estate or investing in businesses could be an option.
3. Build a business – one of the great advantages of being self-employed is the autonomy you have to build something of residual value. When you are an employee, in most cases, you work for today’s wages and the day you retire your income stops. By building a business, you open the door to producing an asset that could be sold at retirement for a lump sum payment or residual income.

Most likely, any of the options above are going to require more knowledge than you currently have. The good news is that with the internet, almost all of what you need is at your fingertips and much of it is free.

Begin by talking with people you know who have already reached their financial goals with a fully funded retirement. Discover how they did it. Get to know others who are on their way and figure out what they are doing. Read some good books, go to some classes and seminars to increase your understanding of these options.

What you should not do is:

1. keep doing what you are doing
2. keep hanging out with the same people who are also not on track
3. keep reading the same things you have been reading
4. keep watching the same things you have been watching
5. keep spending your time doing the same things you have been doing

“When we are no longer able to change a situation, we are challenged to change ourselves.”  ~Victor Frankl

“If you don't like something change it; if you can't change it, change the way you think about it.”  ~Mary Engelbreit

How much should you be saving annually?

Have you ever wondered how much money you should be investing to insure you have enough at retirement? I have been in a course for three years now called the Aji Network and they talk a lot about this. A paper they released is very helpful for your calculations to how much capital (money invested) is needed to produce $100,000 a year in today’s dollars.

First let me give you some assumptions that were made in arriving at this point:

3% Inflation – the historical average (avg. increase in the costs of goods and services)

8% Return on Investments – historical average if passive investing (putting money in market and leaving it)

4% Annual Withdrawals from Principle – this is given as the maximum rate of withdrawal as to decrease the likelihood that you will run out of money before you die (this is determined based upon the Monte Carlo calculations that take into account stock market volatility)

 Here are the figures:

 Age - 30                    

Years to Work until 62 - 32                    

$100k income at retirement - $257,508    

Capital-at-Work needed to be on track today - $264,326        

Capital-at-Work needed at 62 - $6,437,707 

Minimum Annual Payments if started today - $47,966

If interested in looking closer, check it out the chart on their website.

If you think you can live on less than $100,000 after taxes you can cut the above numbers in half. Either way, it creates the need for some action and certainly a strategy and most likely a strategy different than the one you have. Now is the time to build the strategy and to do that you must begin to build relationships with those further down the road than you are.

Impact of Attitude on Life

“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." -   Charles Swindoll

This is a quote that my mother had hung on our fridge growing up. For years I was forced to look at it every time I was hungry. It was a mantra that she lived and in turn we learned from. What a blessing a positive, intentional mother is. What a better life I live for having been exposed to this philosophy.

Are They Scaring You?

I thought it would be important to take a step back for a moment and quickly analyze who is footing the bill for those that are acting as alarmists. Primarily journalists and politicians.

Journalists are paid by advertisers. Advertisers pay for high traffic and big viewership/readership. The more people the journalists can get to pay attention to what they are saying the more ads they can sell and the more money they make. They know that they are in the entertainment business. If they can trigger a mood of worry, we will keep coming back for more.

Politicians are paid by the American people. The masses. If everything is great, then we will feel like we do not need their help. So it is in their best interest to dramatize a situation with scary language so that we feel vulnerable and afraid, and they can come to the rescue like a knight in shining armor. Here to save the day and give everyone money.

Walking around in a state of worry and fear will never allow you to think clearly which is exactly what is needed in a changing environment. Just as past expansions inevitably set up future contractions, the present contraction is setting up our future expansion. Of course the ones who will be poised to take advantage of it will be the ones thinking clearly now.

Opportunities abound. In a year or two the stories will start to come out about the visionary, courageous people who thought clearly and created powerful business offers in the midst of the firestorm. Why can’t you be one of them? You can bet I am working on mine.

Just Doesn't Make Sense

Our current bailout strategy doesn't make sense to me, but I didn’t think I was intelligent enough to be the one pointing it out. Well I found someone who is smart enough and eloquent enough to explain why this fundamentally cannot work.

Legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers said the US risks sending the world into a depression as its bailouts of failed companies rob healthy businesses of capital.

Speaking to Bloomberg TV today , Jim Rogers said: “The U.S. is taking assets from competent people and giving them to incompetent people,” said Rogers. “That’s bad economics,” he added.

Rogers argued that American International Group should have been allowed to descend into bankruptcy, and he feels the same about similarly situated businesses. It just doesn't make sense to divert money from healthy, prudently-managed companies and plow it into debt-burdened companies that are being run badly at best and criminally at worst.

Rogers has spent a career being one step ahead of mainstream investment thinking.  Amongst his many accomplishments, Rogers was co-founder with George Soros of Quantum Fund. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%

Don't Have Time for the Super Bowl?

Commuting from one appointment to another yesterday I tuned in to the Dan Patrick Show in an attempt to catch some March Madness talk. Roy Williams, head coach of number one seeded North Carolina and one of the all time winningest coaches in NCAA basketball history, was being interviewed.

He was asked the poll question of the day which had something to do with "if you would miss the Super Bowl or not". He answered by saying yes he would, but that it may not mean much coming from him as last year was the first year in many, many years that he has watched the entire game. I was shocked as I thought the Super Bowl was the one sporting event that attracted even non-sports fans.

When pressed by Dan Patrick, Roy Williams explained that four hours is a huge block of time and that he cannot justify spending that much time watching a game when he has so many things he could be doing that time of year.

What became apparent to me is that Roy Williams is so busy pursuing his own dreams and goals, that he doesn’t have time to watch others pursuing theirs. No wonder some people are wildly successful and most aren’t even close.

I was reminded of a quote I keep on my desk:

“To give anything less than your best is to sacrifice the gift.” – Steve Prefontaine 

How will you get it back?

The total net worth of Americans was $51.5 trillion as of 12/31/08, down 18% in the last year, reaching its lowest level since 9/30/05 (source: Federal Reserve). 

Those numbers seem low considering the Case Shiller home price index has dropped 16.7% in the last 12 months and the S & P is down 40.97% over the last year.

Whether it is 18% or more, new action must come from it. Some will live more frugally. Some will delay retirement indefinitely. Some will realize the job they are in simply will not provide them the income they will need to live the life they want and will go out and start new businesses. Some will begin investing in new ways.

What is your plan? How much net worth have you lost? How will you make it up? How much money do you need at retirement to live the life you desire? How about to maintain the current lifestyle you have?

Now is the time to build the strategy. Now is the time to take action. What has worked in the past will not work in the future. Time has elapsed and market dynamics have changed. A new philosophy for wealth accumulation must be built sooner than later.

Attend MIT for Free

Over the last decade or so we have transitioned from a labor based economy (make money by the number of hours that you work and how fast you work them) to a knowledge based economy (where knowledge is the key to the kingdom). By knowledge I do not mean education or understanding. Knowledge is the superior capacity to think and act.

We live at a truly amazing time with the introduction of the computer and internet. Virtually everything you would ever need to make a fortune is free!

I recently ran across a site that MIT has offered called MIT Open CourseWare. On this site you can get access to almost every document, lecture note, presentation, and resource that you would as a student at MIT. It is all absolutely free. Truly unbelievable. They have a great business program along with math and science, etc.

How are you spending your time? By cutting out 1 hour a day of TV watching or Internet surfing you will free up 365 hours a year or 15 full twenty-four hour days or 45 eight hour business days. What could you learn and apply in an extra 45 business days this next year? I know I can learn and accomplish more.

To Me Boxing is Like Ballet

“To me boxing is like a ballet, except there is no music, no choreography and the dancers hit each other.” Jack Handy, Deep Thoughts from SNL

Like the eloquent Jack Handy, I have learned to appreciate brutal spectacles like our current economy. It is like a good economy, except many are losing their jobs, people are hoarding their money and no one is happy.

At the same time, we need to be grateful for the actions it forces upon us. Americans are saving their money like we have not seen in years and years as the personal savings rate climbed to 3.2% in Q4 of ‘08, up from 1.3% in Q3 of ‘o8.

Home prices are dropping and making homes more affordable. As a real estate investor, even 12 months ago, it was impossible to buy a rental property and get it to cash flow with 20% down. There is a very generic rule of thumb for investing in real estate called the “1% Rule”.

In simple terms the gross monthly rent of a property should be at least 1% of the purchase price. A friend of mine is buying a duplex at around $300,000 and so the rents should be around $3000 a month, which they now are and wouldn’t have been without this market correction.

I love boxing, more than ballet if you can imagine a guy saying that…and I am learning to love corrections too!

Everything's Amazing, Nobody's Happy

A good friend of mine sent me one of the funniest videos I have seen in quite some time. What a difference a slight paradigm shift makes. 

"What we see depends mainly on what we look for." - John Lubbock

Share this with others you know that could use a different perspective.

Thank Your Lucky Stars It Ain't 1950

I ran across a great post by Todd Ballenger of Borrow Smart Retire Rich. His post on Lifestyle Inflation today is very insightful. It breaks down how much we have to work at the average wage to buy typical household goods and compared today’s hours versus 1950’s. Pretty fascinating, check out the chart on the blog. Here is a little of what he said:

“Isn't it amazing, that we feel like we are working so hard for less.  Yet, we've said before that the richest man in the world couldn't afford air conditioning.  Who was that?  It was Getty, and air conditioning wasn't invented in his life time.  We take it for granted now don't we?  It would take us almost 8 months of work to afford the same material goods in 1950, versus less than 2 months today.  You would think we would be awash in 'free time', but our lifestyle inflates to absorb the new efficiencies.”

When things are not going the way we like, it is easy to get caught up in the trap of focusing on what isn’t going well instead of looking for what is going well. We really live at an amazing time in the world’s history and have so much to be grateful for.

“Happiness cannot be traveled to, owned, earned, worn or consumed. Happiness is the spiritual experience of living every minute with love, grace and gratitude.” – Dennis Waitley

“The hardest arithmetic to master is that which enables us to count our blessings.” – Eric Hoffer

Reflecting on many of my failures, often times at the root has been a lack of persistence.

Calvin Coolidge declared, “Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan “press on” has solved and always will solve the problems of the human race.”

By understanding this, I still have not acknowledged the elephant in the living room…how do you increase persistence if you are not adequately satisfied with your current “persistence muscle”?

In one of the best all time books on accumulating wealth, Think and Grow Rich, Napoleon Hill states this formula for developing persistence.

How to develop persistence:

1. A definite purpose backed by a burning desire for its fulfillment
2. A definite plan, expressed in continuous action
3. A mind closed tightly against all negative and discouraging influences, including negative suggestions of relatives, friends and acquaintances.
4. A friendly alliance with one or more persons who will encourage one to follow through with both plan and purpose.

How clear is your purpose? Can you visualize it to the point that it appears real? Do you have a plan to achieve it? Is it written down? Is it reviewed daily? What are you watching and listening to? Who are you hanging out with? What are you reading? Who is holding you accountable? Do they believe in you? Will they let you off the hook?

A Japanese proverb states, “Money grows on the tree of persistence.”

Just Give Me the Friggin' Magic Bullet

Over the last few weeks I have been listening to the 4-Hour Workweek by Tim Ferris during my workouts. (In a business course I am in they call that a full move, workout and learn, instead of compartmentalizing the two). I have really enjoyed his perspective on work, not as a “consume your life” activity, but as a “fuel for your life” activity.

While reading the book he pitches a product that he sells called Brain Quicken. It is a speed reading course that he raves about. Disregarding the conflict of interest, it is something I have been intrigued by for some time.

I have a stack of books on my nightstand that I cannot get through quick enough. Feels like too much to learn and too little time…so that led me to the investigation of speed reading. I researched some books and sites, one of the better appears to be mother of speed reading, Evelyn Wood. Lastly, I fortunatlely consulted with a friend who is an avid reader and relentless learner. He is the CEO of DotNetNuke and possibly the best thinker I have ever associated with.

He also was intrigued by the concept, did some research of his own, sent me the link to StraightDope that explains " you get the text's general drift while remaining largely innocent of the details, sometimes embarrassingly so." 

More importantly, he made an observation that I should have made myself, “We need good research and a very respectable reference before we expend time (forget money) on this.” 

We both realized that we have never met someone who is a great thinker and wildly successful in business, let alone life, that is a speed reader.

Mike Ditka, the head coach of the Super Bowl champion Bears said it best, “If things came easy, then everybody would be great at what they did, let's face it.”

Being a life long learner is not easy and it is that very fact that separates those who are willing to pay the price from the rest of the field. Knowledge wins in this new economy and to gain it takes time, energy, sacrifice and persistence.

The Assault of Sustained Thinking

“No problem can withstand the assault of sustained thinking.” – Voltaire

I have found that critical, deliberate thinking takes great emotional strength and discipline. We have a society that leaves no room for thinking.

With the I-Pod going every spare moment, DVR’d TV programs at your disposal in excess, the internet and radio you could go a whole week without a minute of quiet time to direct your own thoughts.

Creating the space to think and then having the fortitude to intentionally direct your thoughts as opposed to letting them wander is a much more difficult practice than it appears.

I went through a phase, in an attempt to strengthen the power of my mind, where I would pick a topic and try to focus on it for the entire shower each morning. It is amazing the tangents you can get off on. If you don’t believe me, try it tomorrow morning. I would start out with a topic like golf. Next thing I knew my mind had meandered to beautiful scenery to Hawaii to beaches to surfing to sharks and my fear of them. I couldn’t believe that I was able to make that journey in 45 seconds, while consciously trying to focus just on golf.

Voltaire has spoken a profound truth, if we can learn to create some time each day to think and if we can learn to channel our thoughts in a focused direction, there is not a problem in our lives that can withstand the assault of sustained thinking.

Instead we have become lazy in hoping that our problems will resolve themselves without any real thought on our behalf. Critical thinking is key to effective action and satisfying results.

Should I Follow Charlie Brown?

Charlie Brown once declared, “No problem is too big or complicated that it can’t be run away from.”

That certainly seems like the most sensible thing to do right now as the bad news appears to be stalking us in a majority of conversations, radio shows, newspapers, and news programs.

I am afraid we are not fast enough to run, so we might as well stand up and fight. We must look for the silver lining. There is great change in our world today and it is through this change that doors are opened.

It is change that creates the opportunity for new offers of help, new businesses and services.

My brother is in the high-end construction business and you can imagine how lucrative that is right now. Instead of spending all day lamenting over the old business model he had that has so cruelly been jerked out from under him, he started meeting with the influential people he knew to get their interpretation of what is to come. In one of these conversations, he was tipped off to an opportunity coming in the commercial real estate markets. Due to a mass exodus of businesses, shopping malls and office complexes are going to have vacancies like never before. In order to lease the space out again, the landlords gut them out, taking them back down to the shell to make them a blank canvas for the prospective tenants. 

Without the change we are experiencing, that opportunity would not be there. What opportunities are around you that you may not have previously seen?

Trade My Rolls for Your Station Wagon?

Don’t things change quickly? For the last 8-10 years it was the Donald all over TV with the hit Apprentice. The primetime show was laced with images of black jets with TRUMP painted in Gold, sleek helicopters, and fancy cars.

The Donald’s home town now has an emerging trend quite different than what you would expect… frugality. The NY Times reported that a real estate broker, Sharon Baum, is feeling like it is not in her best interest to be sporting a green Rolls Royce around town. She was quoted as saying “But now, with the recession, it’s not an appropriate time — nor do I want to be riding around in a Rolls-Royce.” The car was her trademark since 1996 and now she is concerned about the image she is portraying. Her plan is to garage the car and drive her station wagon around.

Saving is "En Vogue" now, which, based on statistics is a long time coming. In the third quarter of 2008, the personal savings rate was 1.2%. When the government started tracking the savings rate in the first quarter of 1952 it was 8.6% and it was 7.9% just 20 years ago in the third quarter of 1989.

Although, we have quite a hole to dig out of, it is nice to see frugality coming back in style. MSN Money reports a growing trend of second hand shoppers, some 60 million Americans! There was a day a couple of weeks ago where I would have lied to my mother about the fact that I was buying something from a second hand store. The smell alone makes me want to run the other direction. Now it is the cool thing to do.

Both of these examples are extreme and I am sure there is a more palatable middle ground...I will be looking for it. In the meantime, station wagons and second-hand clothes, here we come. I wonder if couches on porches are coming back soon too?