Time Is Money: FIRE - Financial Independence, Retire Early

Time Is Money - Financial
Independence, Retire Early
Adidas Wilson
Published by Financierpro Publishing, 2020.
Copyright © 2020 by Adidas Wilson
All rights reserved. No part of this publication may
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Table of Contents
Title Page
Copyright Page
Time Is Money - Financial Independence, Retire Early
Foreword
Table of Contents
Introduction
Chapter 1 | Your Battle Against Time
Chapter 2 | The Crisis
Chapter 3 | FIRE Portfolio
Chapter 4 | Personal Finance
Chapter 5 | Signs
Chapter 6 | The FIRE Within
Chapter 7 | Real Estate in America
Chapter 8 | FIRE Steps
Chapter 9 | Taxes in Retirement
Chapter 10 | FIRE Income
Chapter 11 | FIRE 20/20
Chapter 12 | Annuities
Chapter 13 | FIRE Buffers
Chapter 14 | Rich Dad, Poor Dad
Chapter 15 | Good to Great
Chapter 16 | Think and Grow Rich
Chapter 17 | Common Sense Investing
Chapter 18 | The Four-Hour Workweek
FIRE Coach
Conclusion
About the Author
Disclaimer
THE AUTHOR HAS MADE every effort to ensure the
accuracy of the information within this book was correct at
time of publication. The author does not assume and hereby
disclaims any liability to any party for any loss, damage, or
disruption caused by errors or omissions, whether such errors
or omissions result from accident, negligence, or any other
cause.
Foreword
“T
ime Is Money”, this expression comes from
Benjamin Franklin, one of the Founding Fathers of
the United States. He wrote in a book in 1748: “Remember
that time is money,”. The meaning “Time is money” means
that in order to earn money, one must act and therefore use
one’s time (which is not infinite). We also use this expression
to say there is no time to lose. This book is being published in
one of the worst economic times in history. The COVID-19
virus has one of the worst effects on the global economy and
over twenty-five million people have filed unemployment in
the United States. If you have not thought of reinventing
yourself before and creating multiple streams of income, now
is the time. Everyone probably knows that having multiple
income streams is a fantastic idea. But many will not realize
why it is important. Regardless of where you fall, here is
everything you need to know. Having multiple streams of
income simply means having different cash flow sources. If
one of the sources dries up, you will still be okay. Technology
has made it easy to have several consistent streams of income,
both active and passive. Before getting into examples, it is
good to know why you need multiple income streams. When
you mention multiple income streams, this is the first reason
that comes into most people’s minds—it is obvious. With
additional sources of income, your financial goals will be
achievable, your standard of living will improve and, if you
have any debts, you will clear them faster. More money means
freedom and opportunities. What would happen to you if you
got laid off from your 9-5? Other than shock, you will get deep
into financial troubles if you do not have another source of
income. With several streams of revenue, you will continue
sustaining residuals to pay bills as you hunt for another
job. People have different retirement goals. Some hope to
retire at 30, others 40, and others 50. The earlier you start with
building income streams, the earlier you can retire. The truth is
that most people do not make six figures. This makes saving
and investing a lot tougher—unless you have several income
streams, apart from your job. “Don’t put all your eggs in one
basket.” You have probably heard this advice lots of times in
your life. It is a cliché, but you need to live by it when
planning your finances. If you want to invest successfully, you
must diversify. Spread money to various assets so that when
there is a downturn you will be protected. The same concept
applies to income streams. You will not get rich overnight, and
it is not easy. You still must work hard. Having several income
streams, however, will get you there faster. It will also help
you maintain the wealth you have attained. It is said that the
average millionaire has seven income streams. Examples of
income streams can be your job: this is the 9-5 for most
people. It is a primary source with consistent income.
Secondary income: this is a spouse’s salary. Investments: this
refers to stock market investment through Roth IRA, 401(k),
etc. Online business: there are tons of businesses that you can
start online, such as selling on platforms like Amazon and
creating a blog. Gig economy: when you hear of the gig
economy, think about Rover, Airbnb, Lyft, Uber, etc. Rental
income: this may require a large initial capital, but it is a great
way to build wealth. Successful people do not see the world
like everyone else. It is not because they are perfect or because
their version of life is easier than yours. However, in one way
or another, they always appear to bounce ahead. It does not
matter the obstacles they face, the problems that come their
way, or how loud their critics sneer—they always come up
with a way to emerge victorious. How do they do this? They
have a few beliefs that they hold on to. These beliefs make a
difference in the way they fight for success. They do not view
the beliefs as some random motivational quotes from a book.
What they believe in impacts every aspect of their daily
life. Everything is possible if you are prepared to put in
enough effort and time. If you make up excuses to get out of
doing something, that ‘something’ is exactly what you are
supposed to be doing. The people who do not like you much
are the ones that will give you the most truthful advice.
Whoever wants something the most is the one who will
eventually win it. Whatever it takes is exactly what it takes to
achieve your life desires. If you want to keep losing, surround
yourself with negative people. Gratitude, action, fear, and
worry are choices that you make. If you are not prepared to
master all the details, you have very slim chances of winning.
Apathy is a hindrance to achieving something fantastic. Just
because you failed last time does not mean that you should
stop trying. It does not matter how bad you have it; if you
want to make, you will. No one is responsible for making your
decisions. You get to make all your decisions. If you have
been yearning for a second chance, today is your second
chance; make use of it. Your effort’s intensity determines how
fast you progress. Be prepared to listen and acquire
knowledge; otherwise, you will never get better. Your actions
in private determine your course of development. Just because
your critics are loud is not reason to believe that they are on
the right. If a solution is easy, guaranteed, and fast, it will
probably not be useful in the long run. In their heart of hearts,
winners believe that nothing Is Impossible. In most cases, they
have no idea how they are going to win. But even then, they
truly believe that they are going to find a way. According to
them, the great equalizer is effort. When they have no idea
what they should do, they take time to learn and even perfect
it. The things you believe will bring change in your life. This
is a good time to pause and seriously think about what
motivates you. What are your beliefs? Do you think that life is
not fair? Do you constantly believe that you have it harder
than everyone else? Do you blame everyone but yourself?
“If you don’t find a way to make money while you
sleep, you will work until you die.”
-Warren Buffett
Table of Contents
F
oreword
Introduction
Ch. 1 - Your Battle Against Time
Ch. 2 - The Crisis
Ch. 3 - FIRE Portfolio
Ch. 4 – Personal Finance
Ch. 5 - Signs
Ch. 6- The FIRE Within
Ch. 7 - Real Estate in America
Ch. 8 – FIRE Steps
Ch. 9 - Taxes in Retirement
Ch.10 - FIRE Income
Ch. 11- FIRE 20/20
Ch. 12 – Annuities
Ch. 13 - FIRE Buffers
Ch. 14 - Rich Dad, Poor Dad
Ch. 15 - Good to Great
Ch. 16- Think and Grow Rich
Ch.17- Common Sense Investing
Ch.18- The Four-Hour Workweek
Ch. 19 – FIRE Coach
Conclusion
About the Author
Introduction
B
uilding true wealth is not just about making money. At
some point, you have seen happy poor people and
miserable rich people. According to research, the relationship
between happiness and money is small. The following ten
principles will help you attain true wealth, personally and
financially. Become Deeply Motivated - Money cannot be
considered a deep motivator. Financial wealth has external
benefits. With money, you can have big bank accounts, fancy
houses, etc. but you cannot buy happiness. Since external
goals have inherent limits, they will limit your motivation.
Come up with deep internal goals such as: Freedom,
Leadership, Growth, and Charity. The value you offer should
be more than the value you take. If you aspire to give more
value, everyone will be a winner. And that is how true wealth
is built. By improving the lives of others, you improve your
own. There are many examples of people who exploited the
environment or other people to build wealth for themselves.
But that does not bring fulfillment and happiness. 100%
Integrity - Before you say or do anything, ask yourself if it
would make your father or mother proud. Do not cheat, insult,
harm the environment, encroach on someone else’s property,
or hurt someone just so you can be rich. Always do the right
thing—that which you would be comfortable telling your
parents, children, or spouse about. Be Courageous - It is not
easy for humans to go out independently because they are
social in nature. But following the crowd will not build you
wealth. Do what others are afraid of. Being self-responsible
takes courage. So, does acquiring new skills and walking less
traveled paths. Be Disciplined - Wealth comes because of
many small things compounded over the long term. Those
daily habits you consider insignificant can either break or
make your success. You need to acquire financial knowledge,
invest, and save consistently and persistently. All these things
can only happen if you are disciplined. Stay away from
conspicuous consumption - Consumerism will direct whatever
wealth you have away from wealth building and toward
lifestyle. Think of wealth as delayed gratification. Live a
modest life and spend less than you can afford. This applies to
energy and time, just as much as money. Invest the difference
in your future. Create a Supportive Environment - Anyone can
come up with a plan to attain wealth. The difference between
those who achieve it and those who do not is focused,
persistent and consistent action. Avoid distractions and build a
support system that will enable you to stay focused. Apply
Leverage -With these principles of leverage, you will be
working smarter and not harder: Knowledge leverage,
Network leverage, Marketing leverage, Systems and
technology leverage, Time leverage, and Financial leverage. In
short, make use of other people’s resources, not just your own.
Your Wealth Is a Business - You need a plan to build wealth,
just like you need a business plan. Find proven business
principles and incorporate them into your plan. Examples of
these principles include accountability, accurate record
keeping, leverage and competitive advantage. Steward Your
Wealth - With money, comes responsibility on how to use it.
Let your wealth do good when you are alive and even after
you pass. When someone mentions retirement, you
automatically think of people aged 50 0r 60. This is what you
are used to. People striving for FIRE, however, retire earlier;
in their 40s, 30s, or even 20s. It is easy to dismiss FIRE,
especially if you do not make much money. Take the example
of someone making about 35k a year. Also, assume that they
have huge student loan debt. How can someone like this retire
early? Well, be patient. You will know shortly. The FIRE
movement is mainly about retirement. But there is more.
When you look deeper into its principles, you will realize that
it is about flexibility. Once you attain financial independence,
you can make life choices without considering money. Most
people must take finances into account every time they plan
something. But with financial independence comes
freedom. FIRE is also not about quitting your job. It is a
movement that supports being free to go after your ambitions
and dreams. You can decide to continue working or not. Who
Is Eligible for FIRE? Did you become interested in FIRE
because your job pays well but makes you miserable? This
may not be a good idea. An expert says that you should not
retire early just because you hate your job. When you finally
retire, you will be aimless and boring. FIRE takes
determination and focus. It is not for you if you just hate your
job or want a get-rich-quick scheme. If your job sucks the life
out of you, get into a different path or position. That said,
thousands of people believe that any person can achieve FIRE.
They argue that, if you cannot it is your fault—you need to cut
back more expenses or save more. But wage stagnation is a
problem for many people. To be honest, a decent income is
necessary for FIRE. The math is simple: earn more than you
spend then save the difference. You can invest the savings in
index funds and other low-fee investments. Frugality is also
important. With time, you can get into other investments such
as rental properties. The rules seem simple but carrying them
out can be challenging. You must train yourself. The first step
to reaching FIRE is asking yourself why you want to do it.
This will be your motivation. Next, track your spending. Make
sure you spend mindfully. To help you, here are 10 financial
independence pillars: Reduce your housing cost. Buy used
cars. Eliminate cable. Reduce your tax liability (max out tax
deferred vehicles). Find a cheap cell phone service. Utilize
credit card rewards. Lower grocery bills. Raise your income.
Invest in low-fee index funds. Adhere to the 4% rule. It takes
time and self-discipline to retire early. Your goal should be to
save/invest 25-30% of your annual expenses, depending on
what you want your retirement lifestyle will be. Regardless of
how you want to spend yearly, you will find yourself in one of
the three FIRE categories: FIRE, fatFIRE, and leanFIRE. To
achieve your goal, you need to maximize your income, spend
less than what you are making and make the most of your
retirement accounts. Pay all high-interest debts before you
retire including early pay off the mortgage. Planning your
retirement is not easy. You must give your effort and selfdiscipline to maximize your earnings, savings, and
investments the most you can while you are still young. Early
retirement can be seen in a lot of ways. How you visualize
your retirement will determine how you can get there. We
have listed the steps you must take to get there: How do you
define early retirement? Early retirement does not mean you
will not earn any more. A lot of early retirees interpret it as
having financial independence or not having to work to
support a living. Some describe it as leaving their corporate
jobs to do what they want or be their own boss. While some
explain it as focusing on non-income generating activities or
traveling in between works, or even working just whenever
you want to. Knowing what early retirement means for you is
the first step you need to do. Once you have visualized what
your early retirement looks like, you can easily make plans to
achieve your goal. However, be adaptive to changes as your
plan may evolve. Make an inventory. A 43-year-old retired
anesthesiologist and the person behind Physician on FIRE,
Leif Dahleen, said that taking inventory of finances is the first
step for someone who wants to retire early. According to
Dahleen, you need to do two things to plan for your future.
The first is to calculate your worth, and the second is to
calculate your annual expenses. You can guess your expenses
based on your spending habits as well as your credit card
statements. He further added that setting up a semi-automated
tracking app will help verify the amount of money you spend
every year. Once you have set your vision of early retirement,
you need to set your goal of how much money you need to see
that vision become a reality. Self-made millionaire and an
early retiree himself Grant Sabatier recommend saving or
investing between 25-30 times your expected yearly
expenditure on top of one-year worth of cash expenses.
Sabatier shared a formula to calculate his “target number” in
his book “Financial Freedom: A Proven Path to All the Money
You Will Ever Need.” He broke down the number to different
saving goal period: monthly, weekly, and daily. With the
possible recession and other events that may affect your
investments, it can be difficult to calculate this on your own.
Looking for a financial planner will help you deal with the
numbers and provide you with a realistic plan to reach your
goal. Spend less than what you earn. Spending more than you
earn does not only make it hard for you to save, but it can also
lead to debt accumulation. If you want early retirement, you
must spend less than what you are making. In other words, you
must live below your means. This is the best – and perhaps the
only – way for you to save and invest more for the future.
Reducing your biggest expenses like housing, transportation,
and food will help you increase the amount you can save every
year. Regardless of your spending, you need to understand
about FIRE, which means “Financial Independence. Retire
Early.” There are three FIRE: Fire, leanFire, and fatFire. Fire
is someone whose expenditures are around the US household’s
average which is approximately $60,000/year. LeanFire is
someone who lives on a lean budget and saves up to 25 times
their yearly expenses and spends less than the average
American. FatFire, on the other hand, is someone who spends
more than what is the average. Control your income. Financial
Planner Eric Roberge said it is essential to keep track of your
spending and cost-cut only to a limited degree. On their
podcast, “Beyond Finances,” Eric and his wife Kali said that
increasing your income can make a big difference. Increasing
the money that is coming in is a long-term solution, which is
in direct contrast to the short-term solution brought about by
cost-cutting expenses and daily spending. He also said that
diversifying your income sources is a good way to increase
cash flow. The best way to increase your cash flow is to invest
in passive income like real estate. Having a passive income
business that provides even a small amount of money which
can help cover for your monthly spending “gives you more
flexibility and potentially the opportunity to reach financial
independence very quickly.” Early and frequent savings. These
two are the most common strategy in almost every success
story about early retirement and financial independence. The
best way to enhance savings is to save on retirement accounts.
IRAs and employer-sponsored retirement plans offer great tax
benefits and investment growth. In 2019, a person can
contribute $6,000 to traditional IRA and up to $19,000 pre-tax
to a 401(k). The amounts you contributed can be used as a tax
deduction on the year’s tax return. The only disadvantage of
saving on retirement accounts for early retirement is
withdrawal restrictions. You cannot withdraw money from
401(k) contributions with no penalty until you are 59 ½ years
old. But you can withdraw your Roth IRA. This is funded with
after-tax money and allows you to withdraw your
contributions tax-free anytime. However, you cannot withdraw
your earnings on this account, just the contributions only. If
you have extra money, proceed to invest it directly. For
example, if you have reached the contribution limit of your
retirement accounts, invest the rest to a brokerage account in
which you can invest and withdraw anytime you want in the
stock market. Warren Buffet’s favorite investment is low-cost
index funds. Index funds track the specific financial market
and diversify your money while minimizing the risk. Many
early retirees and self-made millionaires are investing in this.
Paying off the mortgage early is a good deal when preparing
for an early retirement… that is if you get a good deal with
your financial institution. Paying off the mortgage and other
liabilities also provides a sense of relief and stress-free mind to
a lot of people. An early retiree named Tommy who retired
when he was only 51 years old after more than 30 years of
working in a telecom company said he never earned 6-figure
salaries, but he focused his efforts on saving since he was in
his early 20s and lived on a tight budget with his wife and
three kids. However, he only has one regret and that is not
paying off his mortgage early. He said in one of his blog posts,
“So much of our having a great retirement is mental. Being
mortgage free certainly adds another level of mental freedom.”
It really is worth it to pay your mortgage early. Once you retire
from work, it also means saying goodbye to your employersponsored health insurance. It is also not a good plan to just
wait until you are 65 years old for Medicare to start. You need
to have insurance between the time you leave your work until
you are 65 years old and the best one is to join a working
spouse’s employer-sponsored health insurance plan. You may
also continue the coverage from an old employer under the
Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA). COBRA allows an eligible employee to continue
the benefits he is receiving even after he leaves an employer.
You may also browse other coverage options and subsidies via
the Affordable Care Act marketplace, get a part-time job with
insurance benefits, or research on other health-sharing plans.
There is no such thing as a perfect plan. Even if you have
visualized your early retirement and the road you will take to
achieve it perfectly, something can go wrong along the way.
There are times when an early retiree realizes that it is such a
bore to do nothing – if this happens to you, will you work
again? Or there might be some recession or any economic
downfall that will affect your net worth and savings – can you
afford to cut your expenditures by then? Having a back-up
plan will help you in these trying times should the worst things
come to happen and affect your early retirement plans. Work
on your future early retirement, while making sure that you
still enjoy the present. Thinking of the future tends to make us
overlook the present. We focused too much on thinking about
what our future looks like while disregarding our present lives.
Time and self-discipline are needed to have early retirement
and relax, but make sure that you still have a present life.
Steve Adcock, an early retiree, wrote, “Sacrifice is necessary
to retire early, but it’s not all we do, either. It is important to
treat and reward those along the way by celebrating those
smaller achievements.” Think about the future, but also live
life in the present. Disclaimer: There are times when we
emphasize financial products and services that can guide you
to make smart choices regarding your finances. However, we
neither provide investment advice nor persuade you to adopt a
specific investment strategy. You have the freedom to decide
what you want to do with your money. When you act based on
one of our suggestions, we take a small share from the revenue
of our partners. This does not, in any way, influence our
decision to feature different financial products or services. We
are an independent group from our sales advertising team.
Chapter 1
Your Battle Against Time
T
hings were cheaper when you were a child—snacks,
movies, etc. That is the work of inflation. It causes the
prices of services and goods to go up over time. When you are
young, this may seem like a small issue. But the impact of
inflation increases as time goes by. You will battle against
inflation when planning for your retirement. Since inflation
will be your enemy, you must understand it to defeat it. When
you understand inflation in detail, you can stop it from
affecting you. Inflation is more than increasing prices. It is the
continual increase in the average cost of services and goods.
As a result, the purchasing power of the dollar goes down.
That is, the number of goods/services you can purchase with a
specific amount of money reduces. As the cost increases, the
value of money decreases. The rate at which these prices go up
differs. So, these changing prices are used to get an average
inflation rate. The rate of inflation, like the cost of goods, can
be compared annually. Over the last 100 years, the rate of
inflation has been 3.25%. Something that costs $100 this year
will be $103 next year, with an inflation rate of 3%.
Sometimes the numbers are extremely high. In June 1920, for
instance, the inflation rate was at 23.7%, an all-time high and
-15.8% (deflation rate) in June 1921, an all-time low. Going
by these numbers, you always need to be aware of
inflation. There are several theories that can explain the cause
of inflation. Demand-pull theory: when the demand for
services and goods increases, prices are driven up so that
inventories do not get depleted. Cost-push theory: an increase
in the cost production forces manufacturers to increase prices
to make profits. Monetary inflation theory: an oversupply of
money causes its value to go down. Inflation is not always a
bad thing. When prices go up, wages do too. Stock investors
and holders of fixed rate mortgage benefit as well. People with
fixed incomes and contracted salaries are the unlucky ones in
this case—and so are savers. Due to the TVM (time value of
money) money cannot be more valuable than it is today. But
you can put to work whatever money you have today to get
more money. Keep working - you will get benefits and a salary
that increases with inflation. Invest in stocks: when you put
your retirement savings into stock, you can keep up with
inflation. Delay social security: you will get a larger check and
it will be inflation-protected. This is not a constant factor so
watch out for any changes as far as Social Security benefits are
concerned. Real estate: with real estate, you can keep pace
with or even beat inflation. Purchase annuities: note that
annuities are not an investment, just contracts. Safe
investments: CDs (certificates of deposit) and bonds are good
examples of safe investment. Early retirement for many people
is just a fantasy. But it does not have to be. There are strategies
that work, and not just for brilliant investors. Some of them are
nothing but predictable and repeatable science. So, this
highlights the theory, why it works and why only a few people
make it. There are also tips to help you attain success with this
strategy. For quick math, assume you earn $48,000 a year.
Also, assume this is your income after tax. Every month you
will have a spendable $4,000. If you decide to save $2800
every month (70% of your earnings), at a return of 8%, after
10 years you will have $515,000. You will be forced to live on
$14,400 a year. But after 10 years, you will have financial
independence. You can also decide to retire earlier and save
80% of your income. This will mean extreme frugality. But
again, in 7 years or less you will be enjoying financial
freedom. Someone reading this may laugh the idea off.
Especially if you cannot even cover basic expenses with 100%
of your earnings. But in many cases, this is not the “truth”. It
is about your lifestyle choices. People choose a lifestyle of
extreme frugality because they would rather not slave most of
their lives for money. They opt for the cheaper options
everyday just so they can realize their dreams. The point is
that, it works, and it has worked for many people. Many
people want to retire early, but most of them fail. Why?
Because you need to have impeccable self-discipline to save
70% to 80% of your income. It is even harder for people with
spouses and kids. This is just one path. You can choose to start
a business or get into real estate for the same results.
Understand these key principles: The more you save, the
earlier you can retire. Inflation and investment return do not
have a huge effect in the short term. Financial independence is
not enough motivation to live frugally. That is why few people
achieve it. What is your goal: financial independence or
financial freedom? They are different. A super frugal lifestyle
is anything but freedom. To achieve financial freedom, know
your values and then create enough wealth to live them. For
some people, extreme frugality is not something they see
themselves doing. So, incorporate your plan into your values.
You want to attain both financial independence and financial
freedom. Your plan should reflect your reality. There is
nothing like a one size fits all when it comes to a wealth
plan. But there are other paths. Getting lucky (inheritance, the
lottery, etc.), traditional saving strategies, hiring financial
advisors, and using tried and tested methods. Wealth planning
is a personal choice. You would be surprised at how simple it
is to build wealth. You do not need special connections, luck,
or anything of that sort. You also do not have to waste money
on expensive financial seminars or “buy” the latest tricks and
strategies. John Bogle said that there is no secret—and that is
the secret. Anyone can access the truth and knowledge on how
to build wealth. As a matter of fact, it can be summarized in
only two sentences: Earn more money that you spend then
invest the difference. Adopt small daily habits which
contribute to your wealth accumulation goal. This may be
disappointing. Many people do not want to hear this, they
want a new and clever secret.
While many marketers will promise you a special
ingredient, this is the tried and tested strategy. Ask any
wealthy person you know. Even Benjamin Franklin taught this
truth hundreds of years ago. This wisdom is timeless and will
work for you if you commit. So, take a deeper look at each of
these sentences. Earn more than You spend. Invest the
difference. The first sentence is all about having a positive
cash flow. Either spend less or find a way to make more
money. Spending less may mean adopting a frugal life. You
can start a business, ask for a raise, or change your job for
more income. Make sure you have something to save and
invest so your wealth can grow. Frugality requires you to be
self-disciplined. Depending on how much you earn and what
you want to save, it may mean making a lot of sacrifices. This
is what makes it difficult. Every day you will have to choose
between your financial freedom goals and lifestyle
desires. People who like simplicity may enjoy it, though.
Extreme frugal people have been known to save even 70% of
their income just so they can become financially independent
in 10 years or less. But this is not something that everyone can
do. Raising your income seems like the easy alternative. You
can earn as much as you want. You are your only limit. An
even better alternative is to do both. Minimize your spending
and increase your income. In investing, you can either choose:
Paper assets, such as a low-cost index fund, and real estate.
Small habits to achieve a big goal is simple and people have
proven that it works. All you must do is act. This requires
efforts and consistency. Small actions done consistently over
time lead to wealth accumulation. Procrastination is your
worst enemy. There will always be something else that
requires your attention and money. Start today. Identify a habit
that will serve your goals and stick to it. If you have no idea
where to start, here are some examples. Join a program for
automatic saving. If your company offers a 401(k), opt in.
Prepay on your mortgage (even a small amount counts).
Eliminate unnecessary expenses. Sell any unused assets. Learn
to repair instead of replacing when not necessary. Find a way
to get a raise. Learn about real estate investment or asset
allocation.
Chapter 2
The Crisis
I
n 2000, both stock prices and interest rates plummeted. At
the same time, pension liability value rose as the value of
assets meant to meet them declined. This is when corporate
America began to take note of pensions. Companies that could
not meet their pension obligations went bankrupt.
Consequently, America quickly shifted away from DB
(defined-benefit) pensions to DC (defined-contribution)
retirements plans. With the latter, the employee (and not the
company) bears the investment risk. DC plans—think 401(k)
—are now the main private retirement saving plans. DC plans
may be good for businesses, but with the baby boomers now
retiring, a crisis may be waiting. First, it is problematic to let
unknowledgeable individuals make complex investment
decisions. Another thing, the shift to return on investment from
retirement income is dangerous. This post explores the
implications of treating a pension fund like any other
conventional investment portfolio. The traditional DB plans
were designed to offer members a guaranteed income. The
member can give you an exact figure of how much their
pension is worth. DC investment, on the other hand, is quite
different. They are mostly regulated as investment accounts.
The savers receive communication only in terms of returns and
assets. When you ask someone about their 401(k) worth, you
will get a cash amount. You may also hear a complaint about
how the financial crisis has led to some loss in value. The
problem here is that if you want to get a specific future
income, you should not be measuring your goal using asset
volatility and investment value. To communicate with a saver
using those terms is both misleading and unhelpful. If
someone wants guaranteed income for life after retirement,
portfolio value is not the relevant risk, retirement income
uncertainty is. So instead of specifying the market value, let
members know whether their future income stream is
safe. What is the best thing for retirement planners to invest
in? The answer is technical. But generally, the investment
manager should invest in a combination of risk-free and risky
assets. The balance between risk-free and risk should shift
over time to increase the chances of attaining the investment
goal. Here is the difference: define the risk from an income
point of view and make the risk-free assets deferred inflationindexed annuities. This is a liability-driven investment strategy
known as immunization. With the DC model, an employer
asks an employee how much risk they are willing to take.
When the employee cannot specify a level of risk, the provider
assumes for them, based on the saver’s age group. From there
onwards, the employer communicates to the saver in terms of
returns and asset value. If the numbers are positive, the
employee will feel happy.
While some people propose consumer education, it is not
wise for a customer to get too involved in investment
management. The best option is not to make savers smarter
about investments. It is better to have a smarter dialogue. Let
the investment manager or plan provider engage the server
more so they can help them attain their goals.
“YOU WERE BORN TO WIN, but to be a winner, you must
plan to win, prepare to win, and expect to win.”
-Zig Ziglar
Chapter 3
FIRE Portfolio
E
veryone must stop working at some point in their life.
When that time comes, they will have to dig into their
retirement savings. Some have enough and can live
comfortably; but others are not so lucky. People now live a
longer and, depending on how long you live, you may need
income for 30 or more years after retirement. So, how much
should a retiree save? Will $500,000 Be Enough? To be
honest, this would not be enough for many people today. But
you can get enough income with a good investment
portfolio. Suppose in your first year of retirement you want to
earn about $50,000. The average Social Security payment is
$17,000. So now you must earn $33,000 from your $500,000
portfolio. Another assumption here is that income will increase
with inflation and the investment portfolio will, therefore,
must increase. The portfolio should protect your savings and,
at the same time, grow at a higher rate than your yearly
withdrawals. So be sure to find the proper balance between
fixed-income investments and stocks. Many financial advisors
typically recommend the 4% rule to their clients when it
comes to withdrawals. According to this guideline, you should
never withdraw over 4% of your income in a year.
If you have saved $500,000, you will either live on very
little or go against the 4% rule. Here are some possible
$500,000 investment portfolios and their potential income.
20/80
20% equities, 80% fixed income
●
10% US Equities
●
10% International Equities
●
10% US Treasuries
●
15% Global Bonds
●
15% Corporate Bonds
●
5% TIPS (Treasury Inflation-Protected Securities)
●
10% Mortgage-backed Securities
●
20% Cash and CDs
●
5% Other Bonds
With this example, you will place your portfolio into 80%
fixed income and 20% equities. When you inject that much
money into fixed income securities, your portfolio will be
protected in the event of a stock market crash. But still, this
portfolio may not generate the amount of income you will
need as a retiree.
50/50
50% equities, 50% fixed income
●
25% U.S Equities
●
25% International Equities
●
20% U.S Treasuries
●
10% Global Bonds
●
10% Corporate Bonds
●
15% Cash and CDs
Half of the funds in fixed income and half in equities
would make a better portfolio. This kind of portfolio is likely
to generate an average of 8.4% in annual returns over time.
That is $42,000 annual income. However, more equity means
a higher risk.
40/60
40% equities, 60% fixed income
●
20% U.S Equities
●
20% International Equities
●
20% U.S Treasuries
●
20% Global Bonds
●
10% Corporate Bonds
●
10% Cash and CDs
With such a portfolio, principal will be preserved, and the
portfolio might even grow. The average annual return would
be about 7.8%.
100% Fixed Income
●
20% U.S Treasuries
●
20% Global Bonds
●
15% Corporate Bonds
●
10% (TIPS) Treasury Inflation-Protected Securities
●
10% Mortgage-backed Securities
●
20% Cash and CDs
●
5% Other Bonds
While a portfolio like this is protected from market
downturn, its growth may not be enough to offset
withdrawals. Annuities are not for everyone but could be a
good option for retirement. You can even get $33,000 annually
with less than $500,000. Certain ages trigger specific
retirement events—such as taking IRA distributions or
drawing on Social Security. Rules change as you age. It is
important for you to understand these changes, the closer you
get to retirement and even after retiring. While age 55 is not
too late for you to start your retirement plan, you should get
serious about it. You need to figure out how to earn income
after retirement. Write down your IRAs, assets, investments,
savings, income, and whatever other sources you
have. Calculate your debt amount and how much you should
pay off before you retire. Start saving a good amount to ensure
your comfort as you make this huge transition. The perfect
retirement plan is one that has a timeline format. It allows you
to know what things will be like, year by year. Forecast your
investments also, to know how much you can withdraw. Your
focus should be how much your money will be worth in the
future. Invest with it so it will be worth more. Concern
yourself less with high return investments and more with
strategies that will ensure a sizable future income. Consider
low-risk investments—minimize the risk as you get older. Find
a side hustle, if you can, for extra income. In your retirement
plan, do not forget to factor in health costs. Age 59.5 - This is
the age at which you can make withdrawals from your
retirement accounts with no penalty tax. Your Social Security
will be delayed until you are 70; but you can compensate with
other streams of income. Find long-term care insurance for
your health costs. Know, however, that Medicare will not
cover all expenses. Find other alternatives. By this age, you
should already have cash reserves. If not, reduce risks in your
investment as much as possible. You may also want to talk to a
financial adviser or retirement planner. Age 62 - You are now
eligible for Social Security benefits. However, the benefits will
be greater if you wait to apply at 66. It is even better to wait
until you are 70. For couples, it is wise to try the 62/70 split.
The one earning less files at 62 and the other one at 70. Age 65
- Medicare begins at this age. Even though you have retiree or
employer health coverage, you should consider enrolling in
Medicare just before you turn 65. With enough years of work,
the first part is free. Part B, however, is not. Age 70 - At 70 and
older, immediate annuities, reverse mortgages and such
strategies are more attractive. Your income can go up without
market risk. Age 70.5- At this age, you are required to start
taking distributions from retirement accounts and/or your
IRAs. The mandatory distributions are known as RMDs
(required minimum distributions). Age 75+ - Review whatever
plans you have occasionally. You will be able to find small
problems in the plan before they blow up in your face. Start
thinking about end-of-life decisions. Discuss them with your
immediate family.
“Your work is going to fill a large part of your life, and the
only way to be truly satisfied is to do what you believe is great
work. And the only way to do great work is to love what you
do.”
– Steve Jobs
Chapter 4
Personal Finance
T
o grow your wealth, you need to invest consistently and
wisely. You cannot just keep money in a savings
account. There are different ways to invest your money—some
prefer businesses, others real estate, and others the stock
market. It all depends on your life goals, the amount of money
you have, and what works for you. But there is one asset that
everyone has and should invest in before anything else:
yourself. What Does This Mean? Investing in yourself can be
defined as putting in resources such as money and time into
becoming a better version of yourself. Instead of putting all
your focus on material possessions, you find assets and
opportunities that increase your knowledge, affecting you in a
positive way. The goal is to become better with each passing
day for your family and yourself. If you invest in yourself, you
will notice an improvement in your hobbies, career, finances,
and a general happiness in your life. Why Should You Invest
in Yourself? Investing in yourself will cause you to acquire
skills and knowledge that will affect the returns of whatever
you decide to do. Your knowledge will be diversified, you will
have more business/career choices and have improved
decision making. Learning should be a continuous process.
Here are four key areas that are crucial in your self-investment
journey. How do you invest your time? This is a question you
must ask yourself and answer it if you want to succeed in your
financial life. You get limited time—everybody does—and it
is good to know how to manage it. Many people would love to
have enough money to retire. But they think that it is too hard
to attain that. Investing, to them, seems too difficult. What
they do not know is that time is key. Getting super rich
overnight is almost impossible. Compound interest will get
you your dream portfolio if you start early. Spend time
learning all about investing. Nobody wants to sit and learn
after a tiring day of work and dealing with life. But if you
want your financial future to be better, you need to expand
your knowledge. Schools do not teach finances or investing
properly. You cannot trust every piece of information that you
get from the media. Without knowledge, you will be following
information blindly and this can cost you a lot. Read blogs and
books, listen to experts in various fields, and podcasts. What
good is financial freedom if you will not enjoy it? Have
regular physical checkups, eat well, and exercise. Even when
life gets too busy, squeeze in time to take care of your
health. When you are healthy, you will be motivated and be
able to make great choices. You will not accomplish much
when in distress. Learn to relax and spend time with yourself.
Sleep well, pray, meditate, and when overwhelmed, step back
for a minute. Paying attention to your finances in your 20s is
one of the wisest things in this life. It will not be easy; but you
will regret it if you wait until later. The following financial
challenges are common among people in their 20s. Consumer
debt, low paying job, financial illiteracy, and huge student loan
debt. All financial situations vary. So, your journey to
attaining better finances may not look like someone else’s.
And there is nothing wrong with that. Take note of the
financial advice given here and apply it in your life. Most
people in their 20s buy whatever pleases their eyes. Instant
gratification is all they know. The concept of instant
gratification is more than just about money. Learn how to
delay gratification. Here are three tips that can help: Wait for
about 48 hours before you make a big purchase. Analyze the
exact amount you will spend. Ask yourself if it will improve
your life or just offer temporary happiness. Focus on income,
expenses, saving and investing. In your 20s, you may not be
making enough to save. Focus on these four areas: Income:
20-year-olds do not earn much, generally. Figure out a way to
increase your income. Maybe start a business or sharpen your
skills to get a bigger salary. Savings: first, create an emergency
fund. Anything can happen; be prepared. Investing: if your
company has a 401(k) plan, invest in it—or your own IRA. If
you start saving up early, you will have more to live on when
you retire. Expenses: monitor how you spend your money. See
if you can cut back and save more. Not many people want to
spend their time learning about budgeting and finances—it is
not exciting. But it will improve your mentality and financial
habits. Dedicate some of your time to learning through books,
podcasts, etc. Social gatherings trigger poor money habits.
You may see your friends buying new cars, the latest tech or
eating out a lot. Do not worry about keeping an appearance.
Stay focused and always have your goal in mind. You need a
financial plan—with both long-term and short-term goals. It
will guide you in investing, saving, and creating a retirement
plan. The earlier you begin investing, the more you will enjoy
the benefits of compound interest. Not paying bills or paying
them late will hurt your credit score. And you may have to live
with the consequences for a long time. Always ensure that
your credit scores are good. Start building up credit history
early. A side hustle means more money—which you can add to
your savings or pay off your debt. It will also come in handy if
you get laid off. Here are some money basics topics: Debit
card vs credit card, opening a savings account, opening a
checking account. If you want to have a healthy financial life,
you must start from somewhere. Personal Finance 101 is
basically the first step. It includes simple things such as
investing basics, saving for retirement, creating a budget, and
understanding expenses. To a complete beginner, these may
seem like difficult concepts to grasp. But anyone can learn and
succeed. For anyone who has no idea where to start, the steps
below will help you. Before anything else, you need to watch
your mindset and mentality. Financial experts and the media
try to make finance sound complicated. Some aspects are, no
doubt, but a big part of it is easy. This can change how you
view money and mess up your financial literacy. Other people
choose to deny their financial situation—ignore the problem
completely. But this will come back to bite you in the
future. Another way your mindset may hinder you is by
thinking that you are too young. So, you do not make financial
education a priority. Educate yourself about money. Everyone
knows that it is wise to have an emergency fund, save for
retirement and invest. But most people do not do it. Why? If
you think that changing your financial situation is just “too
hard” things will remain the same. The change needs to start
from within you. Come up with financial goals. Why are you
interested in learning about money? What about our financial
situation makes you want to change? How do you expect your
financial life to benefit, now and in the future? Without
financial goals, you will not have the motivation or even know
where to begin. Once you have finished writing down clear
goals, you need to analyze your numbers. Numbers here
include your investments, savings, expenses, salary, etc.
Seeing everything on a single spreadsheet will help you
finetune your goals. Reading books is the best way to amass
financial knowledge. Now, this may not sound very
interesting. But you can easily get personal finance books. Set
aside time every week for book reading. Personal finance
blogs will expand your viewpoints and knowledge. However,
know that not all information is accurate or right for you. Do
not follow all advice blindly. Opening an account does not
mean that you must fund it—and some of them are free. But
experience is the best teacher. You can deposit small amounts
as you learn. Watch interviews but remember to do your due
diligence before you decide to follow advice. The point is to
learn. When you look around, you may see a family member
or friend that is killing it in the personal finance department.
Have a conversation with them. Here are a few tools that you
may find useful in your journey: YNAB (You Need a Budget),
Personal capital: monitor your money, bloom: for 401(k),
acorns, and Udemy, Lynda, Coursera: platforms where you can
take a financial course. When you listen to several people talk
about their financial transformation, you will notice three
things that stand out. And even after becoming financially
successful, they are still the backbone of their process.
Now, these factors make a simple acronym that anyone can
remember and use. If you have been reading a lot of personal
finance material, then you have come across a ton of
acronyms. You may have heard of FatFIRE, FIRE, DINKS, PF
and many more. Today, you will learn about the PIE effect. It
is an acronym for the three key things mentioned in the
introduction. They are not a magic ticket to financial
independence, but they will get you on the right path. The
Acronym - P: prioritizing money - I: investing often - E: earning
more. Each one of these components has been important in
every successful person’s process. Note that personal finance
can be complicated, and everyone’s situation is different. But
these pillars are steppingstones that fit everywhere. To help
you know how to fit each pillar into your personal situation,
they are discussed in detail below. P: Prioritizing Money - For
most people, this involves paying off their debt. But there is
more to this pillar. Prioritization plays a bigger role. Because
of this, there are many different definitions. This one is the
best, though: choosing the order with which to deal with tasks
and items depending on how important they are. This concept
is not just great for your finances—it will help in other areas
of your life. In your journey to financial success, you will have
to prioritize time, your needs, spending, debt payment and
much more. If your financial health is not important, you can
easily sink into debt, fail to save, live beyond your means, etc.
But the moment you start prioritizing, you will notice a
positive change. To get that financial freedom you have been
yearning for, you need to make it a priority. I: Investing Often Investing is interesting. For your money to grow, it is
important to invest often. What makes investing crucial? Well,
here are a few reasons: Your net worth will grow with time.
Compound interest could make you attain your goals faster.
Your money will make money even while you sleep. You will
learn many investing fundamentals such as prospectus,
business, math, etc. Regardless of what your financial goals
are, it is unlikely that overspending or keeping your money in
the bank will help achieve them. Note: learn about investing
before you commit your money. E: Earning More - Cutting
expenses usually plays a part in the journey to financial
freedom. But it is not included here—for good reason. There is
only so much you can cut back. So, earning more seems like
the better alternative. You will have more to save and invest.
Note that earning more will not really help you if your
financial habits and priorities are not in check. Avoid instant
gratification and monitor your lifestyle. To have a secure
financial future, you need to focus on wealth building. And it
is not just about having money. Wealth includes savings,
investments, and assets that affect your quality of life. Wealth
building habits can be defined as financial actions taken
consistently to build wealth. Many people do not like to see
the word “secret” used regarding building wealth—and
rightfully so. Any successful person will tell that magical
secrets do not exist. Most of the “secrets” you will read on
blogs are just logic. But people fall for that because they are
desperate for a solution. So even in this case, do not expect a
mind-blowing secret. They are just simple traits such as: Risk
taking, commitment, and patience. In all honesty, luck also
plays a part. You can put in all the work, but success is not
guaranteed. On top of the “secrets” listed above, the following
habits will improve your chances. Do not just read these
habits, incorporate them into your life and be consistent in
practicing them. If you have read Kiyosaki’s Rich Dad, Poor
Dad, you may be familiar with this concept. If you have not
you need to. Regardless of what you earn, you should always
pay yourself first. This means putting away a percentage of
your earnings in retirement or a savings account before you
pay anything else. You will find yourself more focused on
your financial goals. Remember to do this even before you pay
the bills. Your mindset will change, and you will eventually
develop good money habits. Those you spend a lot of time
with affect your mindset as far as wealth building is
concerned. Like-minded people who want to have a better
financial future will motivate you. This is not an
encouragement to ditch the friends you have now (unless they
are bad for you). But connect with people that will add to your
life. Their good habits will rub on you and they can mentor
you. Even with a small salary, you can slowly build wealth by
spending less. Instant gratification is a big problem for the
current generation. The sooner you grasp this concept, the
better. Building wealth just by saving will take a mighty long
time. Investing will get you there faster. Find a strategy that
works for you and create a plan. Debt can be a good thing.
Borrowing money to invest in something that will return more
cash in the future is good debt. Borrowing money for
consumption is bad debt. Come up with long-term and shortterm goals. You can always change them as you grow. Having
a clear vision of where you want to go and how to get there
makes the dream possible. Books will make you financially
literate. They will shift your mindset and make you
knowledgeable. Read as many books as you can, and never
stop. It is common knowledge that having emergency fund or
savings is a wise idea. Your car can break down, you might
bump into some health issues, etc.
Some experts do not like the whole “emergency fund”
concept. To them, your savings should go to retirement or
investments. Regardless of what you believe, you can agree
that most Americans would be in trouble if they encountered
an unexpected money issue. When this happens, they either
get late notices and extra fees or sink deep into credit card
debt. All this makes it even harder to build up their savings.
This is a common issue with people below the age of 35 years.
They are not prepared for retirement or an emergency. Some
of them would love to but they are still in school, building
their career or have the burden of student loans. However,
there are low income people who have managed to save
enough for retirement. So low income may not be the real
problem here. Why are people struggling to save? This is not
an insensitive question. Things are tough, thanks to job loss,
huge student debt, stagnant wages, etc. Financial situations
vary from one person to another. But there is one thing that
would make a difference in everyone’s financial life; can you
guess? Living below your means. In theory, this is simple. But
when you start doing it you will realize that it gets
hard. Living below your means basically means spending less
than you make, not living paycheck to paycheck and making
better money decisions. This could mean eating out less, living
in a cheaper house, downgrading your car, etc. People love to
compare themselves and keep upgrading their lifestyles to
match those of their friends. It is widely assumed that you
must be super frugal to live below your means. Which is not
true. You can enjoy life and have some good times. Besides,
you will not be struggling to pay your bills, your pockets will
not be stressed, and your mental health will improve. Do not
worry about how others will see you. Stay in your lane. The
people you are trying to keep up with may be knee-deep in
debt for all you know. Living Below Your Means: How to?
Monitor your spending. Create a list of your expenses. Go
through the list and check what is important and what needs to
go. If you can, find cheaper options. Refinance for less
interest. Student loans and their burdening interest rates are
weighing down many millennials. Refinance your loans
through services such as Credible. It is free and your credit
score will not be affected. Do not go buying the most
expensive stuff just because the bank says you can afford
them. Find a cheaper home and get a used car. As soon as you
receive your income, pay yourself before you pay any bill.
Save that money and invest. If you want to be rich, do not
work for money. Observe any rich person you know—and you
will realize that they are not paid to work. You can argue with
this and say that some people earn a lot of money from
working. But regardless of how much they are paid, it all
comes to an end. If you seriously assess their situation, you
will also realize that they are not making much. If you work
for money, the best you can become is a high-income earner—
nothing more. And this is not how you become rich.
Entertainers and athletes are good examples of high-income
earners. As soon as their careers are done, they go broke. In
the eyes of the average person, a high-income earner appears
rich. But the definition of a rich person is one who makes $1
million and above annually without working for it.
Additionally, their mandatory expenses do not exceed 50% of
the income. Income, for these people, is not a reward for a job
done. They have a system that makes them money as they
sleep. If you do not have a system like this in place, you must
work all your life. You do not earn big money, you make
it. Rich people let money work for them. So, what do they do?
Paycheck dependence leads to poverty. A paycheck will not let
you think straight. You are bound mentally to what you
make. Rich people are always thinking of how to build more
wealth. They come up with ideas on how to create income
streams. Average people, on the other hand, are more
concerned with today’s needs. Tomorrow is not important to
them. If you are a slave to the paycheck, you will never think
about other income streams or businesses. You will be content
until the paychecks stop coming. Future millions for today’s
pennies. The rich and the average have one major difference:
the rich think long-term. They think beyond the next month.
To play and win the long game, you should be ready to deal
with short-term losses. You may have to walk away from
instant benefits. Always think in terms of the next 10 years.
Ask yourself if something will be worth it in 10 years. When
all your attention is on the paycheck, you will not notice the
big money moves around you. Your focus will become clearer
the day that paycheck stops coming. Look at the big picture—
and fix your eyes there. If you work for free, you will have
your back against the wall. You will have no option but to
think and think hard. You will figure it out. Where you are
positioned determines a lot of things such as how people treat
you. Be careful when choosing the places, things, and people
you associate with. You do not have to be an entrepreneur to
learn how to sell. Be confident in what you are offering, and
people will buy.
“OUR GOALS CAN ONLY be reached through a vehicle of a
plan, in which we must fervently believe, and upon which we
must vigorously act. There is no other route to success.”
– Pablo Picasso
Chapter 5
Signs
F
or many Americans, it is not easy to determine the right
time for retirement. A few financial flags may help you
know whether transitioning into retirement a bad idea is. 25%
of retired Americans feel that their retirement was a mistake,
financially speaking. This is according to a poll that was
carried out by Associated Press-NORC Center for Public
Affairs Research in 2019. The following signs show that you
are not financially ready to retire and how to remedy
them. Focus on paying off that huge debt before you start
thinking about retirement. If you are earning $5000 per month
and must pay a monthly credit card balance of $1000, get rid
of that debt. So, once you retire, you will not have the
additional $1000 expense every month. That amount from
your retirement income can go to other things. Without debts
to pay, you will live comfortably far longer on your retirement
savings. How will you know what amount to save if you
cannot figure out your retirement living expenses? Consider
your retirement lifestyle carefully and create an ideal monthly
budget. If you plan on seeing your grandkids more or traveling
you need to know how much that would cost, you. With a
monthly budget setup, look at your savings and investments to
see whether you are ready to retire. If you retire before you are
eligible for Medicare (65 years old), figure out a separate plan
to cater for your health expenses. Health insurance is anything
but cheap. Expect to spend over $1000 a month. Even though
you are 65 and eligible for Medicare when you retire, you will
still face difficulties. Medicare will not cover all your medical
expenses. So, make sure that your retirement budget includes
health costs. Social Security benefits will not really be enough
to support your lifestyle after retirement. Besides, the benefits
can be reduced. Other than Social Security, you need another
solid retirement plan. How much longer do you have to pay
your mortgage? This will probably be your most consistent
and largest monthly expense once you retire. If you do not
have a plan on how to handle it, you better continue
working. A good option would be to sell the home then
downsize in retirement. It is one thing to have several
investment vehicles. Understanding how they bring in income
is another. Having many of them does not necessarily mean
that you have a plan. Talk to a financial advisor. Let them
assess your investments and help you create a viable plan. It is
not wise to retire if you are still supporting your children
financially. Those expenses will strain your retirement budget.
Maybe wait until the kids are financially independent. Your
retirement plan may be perfect but do not forget that things
can come up unexpectedly. You may have to repair the house,
pay higher health costs or inflation may happen. It is important
to have an emergency fund. One of the most important lessons
you will learn is how you can differentiate between liabilities
and assets. The moment you understand this concept, it will be
easier for you to build wealth. For many people, assets are
anything with a cash value—which is inaccurate. The first step
to becoming wealthy is to consider your household finance a
business. In simple terms, an asset is anything that can bring in
cash flow in the future. Assets earn money. If it takes money
out, it is a liability. A multitude of individuals think that their
car, home, and other belongings are assets. These are just
liabilities. When you have this view of liabilities and assets,
you will have an easier time building passive income. Check
out some of the things you considered “assets”. People say that
your home is an asset; and a big one at that. When you
purchase a house, you will pay for yard work, repair,
maintenance, utilities, insurance, HOA, property tax,
mortgage, and furnish it as well. You will be paying out a lot
of cash every month. The house may appreciate, but will the
appreciation surpass the expenses? Everyone wants a house,
but it is not an asset. For your house to make you money, you
can rent out any extra rooms. Second to a house, a car is the
most valuable possession for many people. It is a necessity, no
doubt; but it is expensive. Nonetheless, it is not an asset. In
fact, it is worse than a house. It depreciates with every passing
day and you must buy gas. Think of it as a money pit. If you
are not wealthy, avoid buying a luxury car unless your passive
income pays for it. All the things you own are depreciating
everyday—clothes, kitchenware, laptop, TV, etc. With that in
mind, do you still want to buy that new unnecessary gadget?
Look at It differently. Good assets: these are assets that
produce income. Think bonds, real estate, rental properties,
etc. Neutral assets: these are assets that are appreciated such as
antiques, your home, and artwork. Liabilities: these are assets
that are depreciating. Worse liabilities: these are assets that
consume your income (cellphone, car, boat). Where Do You
Lie? Poor: you have many liabilities and must work to fund
your lifestyle—regardless of how much you earn. Middle
class: you have a few investments and good assets. Financial
independence: income from your good assets is more than
your expenses. Wealthy: your investments generate a lot of
income which you reinvest. How do you define happiness?
According to research in the domain of positive psychology
and happiness, a happy person is defined as one who
experiences positive emotions such as pride, interest, and joy
frequently and does not, on a regular basis, experience
negative emotions like anger, sadness, and anxiety
(Lyubomirsky et al., 2005). Happiness is also related to
satisfaction in life: life, appreciation, and moments of
pleasure. An important note about these definitions is that the
presence of positive emotions does not mean that negative
emotions are absent. A happy person will experience a range
of emotions like any other person, but the frequency of
negative emotions differs. Maybe, happy people do not
experience negative emotion as much because they find
meaning and process it differently than others. It is probably
incorrect to use the phrase “happy person” because it assumes
that good things always happen to them or they are naturally
happy. Life’s stressors affect everyone. The difference is in
how you perceive them, as moments of opportunity or
moments of opposition. Each person defines happiness in his
or her own way. Politicians, actors, philosophers, have all
contributed based on their view. Here are some of the best
definitions. According to ancient Greeks, happiness is the joy
that people feel when they are working to reach their potential.
Shirley MacLaine, who is an Academy Award winner, asserted
that to be happy, you must be willing to “be compliant without
knowing”. For Michael J. Fox, his happiness is directly
proportional to his acceptance and indirectly proportional to
his expectations. The founder of Daily Love, Mastin Kipp,
says that “he does not expect to be happy always, he simply
accepts what is”. That acceptance, to him, is key. Self-love is
all about this, acceptance and being able to love yourself
where you are. Gabrielle Bernstein said that, “choosing
happiness is the path of least resistance.” According to
Aristotle, “happiness is a state of activity.” Dr. Shefali Tsabary
said that you could only be truly fulfilled and happy when you
fill your own needs and feel satisfied from within. Eleanor
Roosevelt said that she was once asked what she considered
the three topmost requirements for happiness. Her answer was:
it is the feeling that comes with knowing that you have been
honest with those around you and yourself, knowing that you
have given your best in your work and personal life, and being
able to love other people. The best thing about these
definitions is that they share some commonalities. Michael J.
Fox and Shirley MacLaine talk about accepting life situations
and uncertainties. The more you can do that, the happier you
are likely to become. Mastin Kipp says it is okay to accept
whatever you are feeling and not strive for happiness.
Acknowledgement takes you to the happy space faster since
your emotions are not striving for your attention. Aristotle also
has an important point about happiness, staying active.
Happiness is easily found when you are doing what you love
and building meaningful connections. What makes someone
succeed? What kind of successful habits do they possess?
There are countless self-help strategies all over but the most
crucial one is focusing on your mindset. Mindset is
responsible for your attitude in any situation. A positive
mindset will guide you. A negative mindset, on the other hand,
can be the source of problems. These habits will help you
think of yourself as successful. Think positively about
yourself. Tell yourself that you will achieve your goal, that
you are a confident and powerful person. Affirmations are
most effective when you do them in the morning, as the first
thing when you wake up. This will ensure that the benefits last
throughout the day. Negative visualization has its roots in the
olden Greek philosophy of stoicism and involves visualizing
yourself losing your possessions. This does not sound positive,
but it is very useful. For instance, imagine your car
disappearing out of your driveway and not being able to buy
another one. How would that affect you? You will be more
grateful to have your car the next time you are in it. This is a
successful habit that helps you appreciate your current
situation in life. Your problems will not affect you that much
because you will be thankful for everything that is going right.
Harvard researchers maintain that happiness is love. The
decision to surround your life with loving relationships is an
important key to happiness and success. Where love is
concerned, chances are that you will get what you have given.
Invest time in cultivating loving relationships with family
friends and pets. Gratitude involves seeing the positive side of
life. Being grateful always helps people to keep going even
when things get tough. You simply need to keep a gratitude
journal to develop this mindset. List at least three positive
experiences that you helped to create every day. You will
begin to automatically notice positive situations and even take
complete advantage of them. Being grateful also protects you
from the negative energy in the world. Recognizing only the
negative events will stress you. Framing is the idea of seeing
things from various perspectives. Many people are always in a
problem framework; they only see problems and never look
for solutions. Shifting to a solution-based perspective is a
successful habit. Do not complain in the face of problems or
try to blame others. Look for solutions. You will feel confident
and capable and other people will find you valuable.
Stubbornness is not a virtue. People who are not flexible
cannot be effective. Be more flexible to be more successful.
Curiosity is a huge part of success. A curious mindset involves
asking a lot of questions. Have a desire to learn new skills and
look on the positive side in failure. Look for new challenges
and see if you can get anything valuable out of them. It is
always difficult to stay positive, but it helps to adapt an
optimistic mindset. If you are not optimistic, you are likely to
give up often and very early in business struggles. Avoid too
much negativity and surround yourself with other optimistic
people. Personal management involves creating a personal life
plan where you set both long-term and short-term goals, then
come up with different methods to attain these goals.
Choosing the best path and sticking to it while leaving room
for fresh opportunities and adjustments is the wise thing to do.
For your plan to succeed you need to meet a few personal
management requirements. You must value time if you want to
attain your goals within a set period. Pareto’s law states that,
“80 percent of our output is generated by 20 percent of our
input.” With outstanding time-management skills, you will
work less and yield more. You should be able to see problems
in time management and solve them fast. Procrastination will
steal your time. Never postpone tasks for later if you can do
them now. One way to combat this issue is by having a
calendar and scheduling each activity. You may want to limit
your expenditure and live within your means. For instance,
make a point of budgeting for necessary items such as rent,
food, transport, and books. Prioritize your needs in such a way
that clothing and entertainment expenses are at the bottom of
the list because they are obviously not essential. Successful
financial management requires a lot of discipline. Financial
power improves all other areas of your life. Making your
financial situation better affirms the realization of your goals.
Try saving daily expense receipts so that you can analyze your
monthly expenditure. This will help you see your spending
habits and make changes where necessary. Communication
helps you talk about your views in a confident manner. It is a
crucial aspect of personal management. When you discover
your voice, you can have internal dialogues that will assure
you and direct you towards success. Having unlimited
communication skills will give you the power and confidence
to encourage and inspire other people. Another great thing is
cultivating good listening skills. For instance, learn to look at
the person speaking in the eyes and think about only what they
are trying to put across so that you can get more content.
Always speak eloquently and make your point in a way that
those listening understand. Sticking to your personal
development journey helps you identify the aspects of your
life that need attention and correction. Making this realization
gives you more power to put your organizational,
communicational, time, and financial skills into good use. For
instance, you can schedule an appointment for personal
evaluation to analyze all that you did during the week. It also
helps you focus on the goals you want to achieve every day
when you get out of bed and review your day when it ends.
This will make it easier to make improvements where
necessary and celebrate your victories, however small. Keep
going and never stop, even when it is too difficult to continue.
Lastly, remember to remain flexible because you cannot avoid
change. Every thought you have creates energy flow in and
around your physical being which attracts its likeness. If you
think you suck, then your energy sucks and that is what you
will attract—unpleasant experiences. The law of attraction has
become trendy, which is awesome, but it is a little misleading
to lazy people. To use your energy to manifest greatness, you
must remove all the obstacles that will not allow you to
believe in your greatness. These key principles are for genuine
manifestation. As you practice them, ensure that you focus on
feeling good first then attracting good stuff second. Remind
yourself that you attract goodness by feeling good. Before you
even start the manifestation process, you need take some time
and believe in your power to be happy. One way to do this is
to pray for release. Cultivate a daily prayer practice asking to
be set free from all your limiting beliefs. Keep your eyes open
for any signs that you may receive. The sign may be in the
form of losing your job to teach you about self-reliance.
Clarity is key in manifesting your desires. Be sure to have
clear intentions and know what you want to invite in to avoid
manifesting what you do not want. Know what you desire and
create a list of everything that accompanies it. This will help
you have a vibrant mental picture of your desire. The crucial
part in this step is establishing how you desire to feel then you
can start accessing the feeling. The feeling will form your
manifestation. Combining the above two steps, take the clear
intention then take some time every day soaking in the feeling
of your desire. You can either access the feeling via visioning
or meditation exercises. Alternatively, call on the feeling while
doing your favorite exercise or when in nature. Allow the
feeling to take over your energy. As you feel the feeling of
your desire, you will believe more that it is coming. This next
step is very important in your manifestation process. To
completely manifest your desires, you must relax. “Those who
are sure about the outcome have no problem waiting without
anxiety”. Do not forget this message. Let your faithfulness
lead you to believe that your desire will manifest. You may
know what you want but you cannot control how or when it
arrives. When you are intentional about what you want, your
energy is no longer one of disbelief or fear. The more your
disbelief fades away, the more knowing replaces wanting. You
will naturally get into the know. Practice these steps diligently
and you will become happier. The process will bring you to a
point of healing and let you know that you are exactly where
you are supposed to be. It is said that failure is an amazing
teacher. But if that is the case, why are so many people unable
to gain knowledge from this supposedly “great teacher”? Why
do people keep failing? The issue is that, although failure is an
amazing teacher, it is a cryptic one as well. It is not easy to
obtain its lessons, especially when you are still lost in
demoralization, disappointment, frustration, and nursing your
bruised ego. Sometimes failure also comes with hopelessness,
resentment, and embarrassment. To be able to benefit from
your failure, you need to find a way to decipher the “teachable
moments” that are hidden tactfully within failure. You need a
method to help you understand what the lessons are and how
you can use them to improve your chances of a successful
future. The guidelines below will enable you to assess your
failures and find the specific issues that you must correct as
you pursue tasks and goals. You will need to do a lot of soul
searching and thinking so do not hesitate to take some time to
recover from the punch of a new failure before you start. Reevaluate your planning: how long did it take you to plan the
best way to attain your goal before you began? Did you think
about the problems or hurdles that you might face and how
you would overcome them? A big number of people barely
spend time planning things like these even though unexpected
obstacles are part of life. In the future, have a general strategy,
think about potential setbacks, and find a way to overcome
them beforehand. Re-evaluate your preparation: this step is a
very crucial one but still, many people skip it. For instance,
think about someone who aspires to live a healthy life by
joining a gym and attending at least three times per week. This
plan can be easily shattered if the babysitter cancels last
minute and there is no alternative. If there is a prepared
backup plan for childcare, the parent would be able to attend
gym more consistently and slide into the habit. Another
example is when someone begins a diet but does not get rid of
unhealthy foods in the house to replace them with healthy
ones. When planning, take measures that will increase your
chances of success. Re-evaluate your execution: were your
efforts consistent? Were you lacking motivation and lagging in
your work ethic? Go back and analyze when and why your
efforts dropped. Understand what circumstances led to the
derailment of your efforts and know how you will address
them should they occur in the future. Focus on the variables
within your control: it is normal for failure to make you feel
helpless and passive, leading you to believe that you may
never succeed even if you try. However, understand that these
feelings are perceptual distortions. You have more control over
situations than you realize. There is always something you can
do to improve a situation such as being more knowledgeable,
improving your network, or building relationships with
potential clients.
“WHEN YOU WANT SOMETHING, all the universe
conspires in helping you to achieve it.”
-Paulo Coelho
Chapter 6
The FIRE Within
M
anaging your money is not just about meeting
necessary needs. And you do not need to be a
mathematical genius—just know how to add and
subtract. Good financial skills make life easier. They impact
the level of debt you incur as well as your credit score. If you
live paycheck-to-paycheck yet you make a lot of money, then
you may have poor money management skills. Just because
you have funds does not mean you can afford to make a
purchase decision, especially a large one. Before you buy
something, make sure you can afford it and that the money
was not meant for anything else. For many people, budgeting
is a boring process that involves listing expenses and math.
But if you have already established that you need help with
money management, you cannot afford to make excuses.
Taking a few hours every month to create a budget will help
you get your finances in order. So why would you want to
avoid it? Focus less on the boring process and more on how it
will add value to your life. What good will your budget do if
you never look at it? Use it throughout the month and let it
guide you while making spending decisions. Keep updating it
when you pay bills. Make sure you know, at any time, how
much money you can spend. Your net income is critical to
your budget. This is the amount you have left after paying
your expenses. You can use this money for entertainment or
fun. However, create a limit—especially if it is for the whole
month. Those purchases you consider small can add up very
quickly and it is easy to overspend. Monitor your spending and
see where you are overspending unknowingly. Save receipts
and keep a spending journal. Even though your credit and
income qualify for a loan, you do not have to take it.
Remember that you must make the payments on time. Assess
your finances and confirm that you can afford an extra
monthly payment. If you can, try comparison shopping and
pay the lowest prices for both services and products. Find
cheaper alternatives, coupons, and discounts. Delaying
gratification goes a long way in money management. Instead
of using a credit card or sacrificing essential purchases, put off
a large purchase and save up for it. You will have enough time
to compare different prices and determine whether it is
necessary. If you are a spender, a credit card is your worst
enemy. Do not use your credit card every time you are out of
cash. Save every month, and deposit money into a savings
account. Even better, make it automatic. At first, these habits
will not come to you easily. Nonetheless, keep pushing until
they become a part of your life. Change is reinvention.
Whenever a big shift occurs in your life (such as a
relationship, leaving a job, moving, or losing a loved one), you
must choose who you want to become. Otherwise, you risk
never achieving your potential. Many adults have reinvented
themselves several times in their lives. However, what many
people forget is that you must choose reinvention. Every time
you do it, you forge a new path for yourself, intentionally and
with foresight. When you wait for your future to find you, you
will wait in vain. You will be lost in sadness and confusion or
find yourself in a situation that you do not want. When you
have been struggling in a bad situation for a while, one day
you will realize that part of the reason you have been stuck is
that you have no idea where you want to go; you have no end
goal. This happens when you are thinking about your past and
not your future. Find a quiet place and sit with your eyes
closed. Imagine all the people, situations, and places that you
know you must leave behind. Next, imagine your ideal future;
it could be a group of people, a feeling, or even a situation—
such as a great job. Imagine how you feel being in that new
place. Imagine the sun rising behind your future and it’s warm
glow lighting your face. Take a moment to stand and quietly
voice your gratefulness for all the things that came before.
After thanking the past, look towards the sun, with
appreciation and compassion, picture yourself walking away
from it and into your future. Picture a scene from your
reinvention or write about how you want it to play out. Where
do you see yourself living? What is your morning, afternoon,
and evening routine? How do you spend your days and who
are your friends? Keep writing until the excitement of the
exercise wears out. Write everything from scenes, to
dialogues, to plans. Keep the writing safe and look at it every
now and then. Surround yourself with things that remind you
of your ideal life. If you desire a job in a certain field, put
images or objects from that place where you can see them
daily. If it is a home, get a picture of the house of your choice
and place it near your door. Whatever it is, let it be something
that reminds you of where you want to be. What do you have
to do daily to create your vision? Find new friends? Look for a
job? Be specific. Create a list and a schedule of everything that
you need to do. Commit yourself and do it, one day at a time.
Each morning or evening, imagine yourself moving towards
the rising sun and all your dreams. Remind yourself why you
must do this. These habits define rich people. If you adopt the
habits below, you will be on the path to a wealthy life as well.
Unless you feed yourself properly, you will not feel well and,
in turn, you cannot think well. Focus on healthy fats, protein,
vegetables, and fruit. The lottery is otherwise known as the
Fool’s Tax. You can never become rich if you use a significant
amount of your income for gambling. Wealthy people set a
single clear goal and set out to achieve it. Exercising and
eating well go hand in hand. Exercising boosts your energy
and mood. Find something you enjoy like walking or running.
When you are taking a walk or commuting to work, listen to
educational or inspirational audios—feed your brain. Before
you go to sleep, create a to-do list for the following day, even
for small things. When you cross them off you will feel
motivated! Volunteering increases happiness. Another thing,
you can make valuable connections while volunteering which
may prove helpful in future. People with close social
relationships tend to be happier. The happier you are, the more
successful you are likely to be. When you remember your
loved ones’ birthdays, you foster the relationships. Writing
your goals down increases your chances of achieving them.
When something is written down, it remains at the forefront of
your mind. Reading should be a part of you. Find books that
teach you something. Learn to pick your battles. You do not
have to speak your mind every time. Sometimes you must be
quiet even when someone is being difficult. Who you know
matters! Your next big job or business can come from
anywhere. Attend Meetups and industry events. There is
almost nothing good about watching TV. Instead of wasting
time, do something beneficial such as visiting a friend, reading
a book, or making a healthy meal. Watching TV can be
justified but watching reality TV is just dumb. This cannot be
said nicely. If you watch reality TV, you need to be better.
Early hours are quiet and peaceful. Use this time to be
productive because you have no one to interrupt you. Waking
up early also allows you to start your day calmly. Teaching is
more about adopting good habits so your children can copy
them and less about teaching them. Many wealthy people
believe that if you have good habits, you will have better
opportunities. When you foster bad habits, be prepared for bad
outcomes. For instance, failure to floss may lead to gum
disease and, in turn, expensive dental work. Never stop
learning. Take a dancing class, learn new skills—just learn
something. The importance of reading cannot be emphasized
enough. Many successful people will tell you that reading has
partially contributed to their success. Before Elon Musk
became Tesla CEO, he read for 10 hours every day. Bill Gates,
Microsoft CEO, completes one book every week. Warren
Buffett spends 5 to 6 hours daily reading newspapers. He
makes sure to read five different ones. He also goes through
500 pages of investment documents and recommends this to
all investors. According to him, knowledge works like that.
Like compound interest, it builds up. Everyone can do it, he
says, but not many will not do it. Formerly the CEO of
Microsoft, Bill Gates says that he reads 50 books a year. This
roughly translates to one each week. Most of the books he
reads are non-fiction and deal with science, business,
engineering, disease, and public health. Occasionally, he reads
a novel. However, he is more interested in books that make
him more knowledgeable about the world. In 2015, Mark
Zuckerberg revealed in a Facebook post that he intends to read
a new book each week. He said that he was interested in
learning more about technologies, histories, beliefs, and
cultures. He said that books cause you to explore something
fully and get deeper into it. Oprah Winfrey has been
encouraging her viewers to read since 1996. She says that
reading is her path to freedom. For her, books allowed her to
see a world beyond her grandmother’s house. They opened her
eyes to possibilities that went beyond what was acceptable at
the time. Mark Cuban is the owner of the Dallas Mavericks.
He is always saying that you should treat your business like a
sport. That means looking for the competitive edge in every
possible way. For him, it means three hours of reading each
day so he can learn about various industries. Mark asserts that
this was very fruitful when he was starting his career. All the
things he read were public. The books and magazines are
accessible to anyone. The information he acquired can be
accessed by whoever wants it. However, he says, many are not
interested. David Rubenstein is the cofounder of The Carlyle
Group. He reads about six books every week and almost eight
newspapers every day. He attributes this extraordinary ability
to his laser-like sense of focus. David says that he has always
been driven from an early age. Phil Knight, Nike founder had
a library at the back of his executive office. He kept it sacred
and asked anyone who entered take off their shoes and even
bow. He stepped down as the CEO, but he says that the library
still exists. Elon Musk co-founded PayPal and is now the CEO
of Tesla. However, before all that, he dedicated 10 hours each
day to reading science-fiction novels. That is how he became
knowledgeable about rockets. You have come across people
who look like they have it all together. They happily and
successfully manage their responsibilities, careers, and
families. How do these people manage to juggle so many
things with ease while you can barely do one thing without
getting frustrated? These are the same people that win the race,
get promoted, never appear stressed, and everyone admires
them. This is their secret. They get enough sleep. People who
sleep properly are happy, focused, and successful. Sleep helps
recharge your body and brain. When you are feeling tired, you
will jump from one task to another without clarity. You, like
everyone else, want to be the best version of yourself in
parenting, your career, or whatever you do. Modern life is so
busy, and sleep is a luxury for many people. You always hear
the saying “I’ll sleep when I’m dead” often. This is a mistake.
Sleep is an important factor if you really want to achieve your
goals. Poor sleep habits will wear you out. You will begin to
break down. You become moody and irritable. If you continue
depriving yourself of sleep, you may experience anxiety and
hallucinations. You will be emotionally flattened, and your
relationships will take a blow. Your ability to remember will
lessen, causing cognitive delays. You may get into substance
abuse. You may start getting micro-sleep. Avoid eating right
before bed. Eat three hours before you go to sleep. Stay away
from alcohol and caffeine. Alcohol may make you drowsy at
first, but it can cause you to wake up many times during the
night. Use your bed for sleep only, not TV, not work; just
sleep. Turn off the lights. Bright lights repress melatonin, the
sleep hormone. Avoid sleeping too much. Oversleeping does
more harm than good. Eight hours of sleep is enough for an
adult. Meditate: stress is the leading cause of sleeplessness.
Learn to turn off your mind. Positive thinking and
organization: before bed, write down all the positive things
that happened during your day. Also, make a to-do list for the
following day. Exercise: do this late afternoon or early
morning. It makes you feel better and aids sleep. Hydrate: stay
hydrated all through the day. Relaxation tea: the aroma itself
will relax you and get your body ready for bed. Wake up early:
this is a key factor if you want to be successful. It makes you
start the day in calmness without rushing. Maintain a sleep
schedule: have a routine. Sleep at the same time and wake up
at the same time every day. Keep your room cool: 650F is
perfect according to research. Life goes on: solve what you
can and do not worry about what you cannot solve. Laugh:
humor and laughter make you stress less and become more
likeable. Have your goals somewhere at your bedside table:
When you wake up, it will be the first thing you see every
morning. Self Doubt happens to everyone. Sometimes, you
question yourself and wonder if you are doing well or if you
can face whatever comes your way. You doubt yourself when
making choices and decisions or feel “not good enough”. That
is self-doubt. It is when you are not feeling capable or
confident when performing a task. Self-doubt is not always
bad. However, when it becomes persistent and mixed with
fear, it can negatively affect your life. Suppose your boss
assigns an important task to you because he trusts your
capabilities. Instead of being proud that he has recognized
your efforts, you panic. You start wondering whether you will
do a great job, or you will make a fool out of yourself. You
stress over each decision you must make and imagine
everything that may go wrong. This fear will start playing a
huge role and introduce you to another friend, procrastination.
You will be demotivated and keep off doing the work as much
as possible. Eventually, you hand in the last-minute work
feeling that you would have done better. Bad experiences in
your past can affect your present reactions. They can shake
your beliefs. You should know that your past is a closed case
and there is nothing you can change about it. Do not reference
past experiences unless you are learning from them. Your
upbringing shapes your personality and habits. If your parents
constantly told you that you do not measure up, you probably
question yourself a lot. Remind yourself that you are now a
grownup. It is your life and you can decide what is best for
you. There is so much competition in the world and you will
constantly catch yourself comparing. Social media does not
make this any easier. It is easy to envy other people and feel
like you are not doing well enough. Comparing is not that bad
if you are doing it to improve yourself. Appreciate yourself.
New challenges bring about feelings of insecurity and
uncertainty. Take this challenge as an opportunity to learn
instead of feeling incapable. Tell yourself that mistakes are
allowed. Previous success may bring about fear because you
wonder if you can do as well as you did back then. Do not
focus on replicating past success; think about outperforming it.
Focus on the present moment and the positive aspects. Take a
break and boost your optimism. Seek help when necessary. 21Day Challenge to Gain Self-Confidence - Day 1 to 7: write
three things that you are thankful for every morning. Day 8 to
14: in addition to the above, note the times you feel insecure
and the reason for that. Day 15 to 21: write down what you did
to overcome the uncomfortable feelings.
“Before you can become a millionaire, you must learn to
think like one. You must learn how to motivate yourself to
counter fear with courage.”
—Thomas J. Stanley
Chapter 7
Real Estate in America
T
he volatility of the stock market is back, and investors
are now focusing more on real estate. If it is on your
mind as well, you must be wondering which cities are the best
to purchase real estate. Cities such as Washington DC, LA,
Seattle, New York City and San Francisco have become very
crowded and the prices are ridiculous. The constant traffic
does not make things any better. Most people are now able to
work remotely because of technology. The current coronavirus
pandemic could also push people further into the remote
working trend. People with families also prefer a much bigger
space with safe streets for kids. You can barely get land in a
city like San Francisco—and if you do, it will be crazy
expensive. First, here are the best states to purchase real estate
(arranged in order, starting with the best): South Carolina,
Vermont, South Dakota, Tennessee, Arizona, Idaho, Texas,
North Carolina, Florida, Oregon, New Mexico, Washington,
Delaware, Washington, DC, Nevada. The following are the
best cities according to ULI (Urban Land Institute). Austin is a
favorite for many people as far as real estate investing goes.
The benefits include passionate commitment to business,
reasonable prices for real estate, no state income taxes and
high-quality lifestyle. However, the pressures of housing
affordability are going up and traffic is starting to become a
problem. The population growth is also expected to be very
high in the next five years. The multifamily family and
suburban office sectors have seen impressive investment over
the recent past. Raleigh/Durham has a high concentration of
educational institutions making it an intellectual capital
center. The Research Triangle Park has placed
Raleigh/Durham in third place after San Francisco and Silicon
Valley in the tech industry. Nashville has a high-spirited mood
and there are expectations for continued development and
investment. Corporation-wise, it has Smile Direct Club, an
operations center for Amazon and Alliance Bernstein’s
headquarters. The Bank of America has its headquarters in
Charlotte. It has been a hub for the banking sector for more
than 20 years. 1.2% of the country’s real estate investment was
in Charlotte (2016 to 2018). In 2019, the number went up to
1.5 %. Orlando attracted 1.3% of USA’s real estate investment
(2016 to 2018). Its population is expected to rise by 71,000 in
the coming five years. Despite this, it was rated a multifamily
“buy”, according to ULI’s survey. Lastly, it does not have state
income tax. CrowdStreet focuses primarily on 18-hour cities
when it comes to investing. According to them, here are four
cities they consider interesting. Milwaukee, Wisconsin – the
cost of doing business is lower here. Columbus, Ohio – many
educated millennials have been moving to Columbus, giving it
a high population of workers in their prime. Charleston, South
Carolina – the city is vibrant, and the job growth is
great. Kansas City, Missouri – everyone loves the growth of
job opportunities and low cost of living. A wise estate
planning lawyer once said that while rich people need estate
planning, those who are not rich need it more. This is because
they may be unable to afford probate fees in the event of an
untimely death. If you do not have a Revocable Living Trust
or a will, beneficiaries will have to part with 3-8% of your
assets in probate fees. Furthermore, the process of asset
allocation may take a year or even longer. The following
constitute probate fees: Appraisal and business evaluation
fees. Bond fees, Accounting fees, Attorney’s fees, Court fees,
Personal representative fees, and Miscellaneous fees. To settle
a Revocable Living Trust, on the other hand, will only cost 13% of the assets. Other than that, the Revocable Living Trust
has the benefit of privacy. People should not know what you
had or even what you are giving. As a responsible parent, you
should set up a revocable living trust, have an advanced health
care directive and draft a clear will. The benefits include
succession planning, cost savings, clarity, and privacy. The
greatest asset is time. Everyone wants to live long. Parents
would love to see their children grow up and build happy
lives. To do this, you must decide to live healthily. While
people are now living longer, life is not long enough—and you
will soon realize that. Do not waste time doing something you
do not want to do. When it comes to creating wealth, again,
time is your biggest asset because of the compounding power.
Through reasonable returns and diligent savings over a long
period of time, you will be able to accumulate a lot. Estimate
the amount of wealth you will have at the end of your life and
then the death tax rate and lifetime gift tax exemption. The
estate tax exemption is at the highest now. Assume that the
estate tax rate will continue to decrease, and that the estate tax
exemption will go up. That would be the logical thing to
do. Looking at the above scenario in point 2, your inheritors
may have to sell a portion of your assets to cater for the tax
liabilities. This is unless they are already rich. If you have a
business and you would like it to remain in operation after
your death, you may face a few problems. Instead of paying a
huge tax bill on something you have already been taxed for,
isn’t it better to donate the amount to charity before you die?
Or spend the money on your loved ones and yourself. If you
estimate an unreasonable death tax on your assets, it would be
better to enjoy the wealth while you still can. Those who
devote their life to investing and saving overestimate the
amount they will need. Most people who are focused on
finances die with too much wealth. That is why the above
three points are important. Dividend stocks: A lot of research
is required on your side and a significant amount of capital.
Peer to peer lending: This involves lending money to people
who do not qualify for other loans. Rental properties:
investment in rental properties can be done in so many ways
and it is a great way to have a steady monthly income. Money
market funds and high yield savings accounts: this is best if
you want your money to work for you, but you do not want to
think about it too much. CD ladders: this involves buying
certificates of deposits (CDs) in specific increments from
banks. Annuities: pay for an insurance product (annuity) then
get monthly payments for life. Automatically invest in stock
market: through a robo-advisor people who are not sure about
the process of picking stocks can passively invest in the stock
market. Invest in a real estate investment trust (REIT): REITs
are investment vehicles which hold your property within them.
Refinance your mortgage: if you refinance your mortgage, you
can free up significant income. Reduce or pay off debt:
reducing your debt or paying it off completely helps you build
your income. Invest in a business: being a silent partner in
your business of choice can generate passive income for you.
Sell an eBook online: self-publishing is huge today and
easy. Create a course on Udemy or Teachable: if you are an
expert in the real estate field, you can create a video course
and let other Udemy/Teachable users buy it. Airbnb: list
apartments, houses, etc. and earn revenue. Why is real estate
investing worthwhile? Cash flow: investors love rental
properties because they have the potential of generating
positive cash flow. After paying off all the expenses, you will
be left with profit. Some people are even choosing to rent out
an extra room or space in their primary residence for some
extra money. Appreciation: this is not always the case, but
often, housing values appreciate over time. Your property will
be worth more after some time. Therefore, real estate is
considered the ultimate nest egg. Leverage: this advantage is
not very well known. If you consistently pay down the
mortgage, you may tap the built-up equity. This is a great
rainy-day fund. With multiple properties, you can cash out
whenever you want. Tax advantages: unlike regular
homeowners, landlords have some extra advantages. They can
deduct items such as maintenance, depreciation, insurance,
and interest. Moreover, when you sell your property and
exercise a 1031 exchange and the proceeds go into reinvesting
into another new property, you can defer capital-gains taxes.
The best thing about real estate investing is that you have the
freedom to create your own strategy. Dana, for instance, buys
small multifamily properties (3-4 units each). She says that
this strategy is best for those that want to live in one unit and
rent out the rest. So, why are people not investing in real
estate? Real estate investing is no different from any other
business and that means that it is not easy. Understand the
following: Getting started is difficult: this venture requires
money, time, or both. These two resources are not easy to
spare. Scaling is even more difficult: owning property will not
make it easier. There will be challenges and situations on the
way and you must face them head on. Waiting is the most
difficult: slow-and-steady always wins the race. The journey to
your goals may be long and full of obstacles. Create a great
strategy. Your business model should be reliable for the long
run.
Chapter 8
FIRE Steps
I
t is possible to achieve financial freedom. But it takes time
and consistent efforts. This chapter highlights a few steps
that you can take to attain financial success and freedom. What
Is Financial Freedom? What exactly is financial freedom and
why should you care about it? It simply means being able to
use your energy and time however you want without being
concerned about money. It is also referred to as financial
independence. It may determine having enough investments
and savings, so you do not have to work. Or owning several
businesses that bring in enough cash flow to cover your
monthly expenses. This is something that everyone wants—
whether they admit it or not. The problem is knowing how to
achieve that. If you have heard about the 7 steps to financial
freedom, you have probably heard one of two versions (or
both). There is one by Tony Robbins and another one by Dave
Ramsey. 7 steps according to Dave Ramsey: Create an
emergency fund worth $1000. Clear your debt with the debt
snowball. Save about three to six months of living expenses.
Use 15% of your household income to invest into pre-tax
retirement and Roth IRAs. College fund for kids. Pay off your
home early. Create wealth and give back. 7 steps according to
Tony Robbins: Become the investor, rather than a consumer.
Do not invest before you know the rules. Amass knowledge to
win. Decide on asset allocation. Come up with a lifetime
income strategy. Model hedge funds portfolio. Have fun and
share. Everyone’s financial situation is different. It is not easy
to come up with a one-size-fits-all strategy. Hopefully, this
will make sense to you. Create an emergency fund: When it
comes to personal finance success, an emergency fund is
crucial. Unplanned emergencies do not announce their arrival.
So always be prepared. Pay off your consumer debt: Debt
restricts you. You cannot live the way you want to. Spend less
and use the surplus to pay it off. Save 10% of your earnings:
Having cleared your debt and set up an emergency fund, you
can now start saving. Direct 10% of your earnings to a savings
account and use the money for investing. Educate yourself
about investing: Learn as much as you can about investing to
know what suits you. Invest in yourself: work on developing
yourself. Be consistent: keep saving, do not sink back into
debt and continue growing your wealth. Give back - always be
willing to share your wealth, time, and knowledge with
others. The above steps may seem difficult and a long-term
thing. But there are two actions you can start taking today and
you will see the results almost immediately. Monitor your
income and expenses: where are you financially? Know how
much you are making and what you are spending it on. Learn:
take the time to learn about personal finance and be consistent
in your actions. Investing is important if you are on the
journey to financial success. Regardless of how old you are,
there is still time. Do not feel like you are too late to the party.
When most people are young, they give a priority to every
other financial goal and never think about retirement. Before
they know it, they are retired and filled with regrets. If you are
not there yet, you can start now. First, you need to know why
you must start investing now. The “why” can be answered in
just one phrase: compound interest. Interest is what you get for
loaning someone or a bank money, for instance. This is
common knowledge. Now, compound interest is bigger. It is
best defined as the return on your initial principal plus returns
on accrued interest. It is interest earned by your
interest. Suppose you invest $1000 in the stock market. If the
average annual return is 10%, you will gain $100 (10%) after
the first year. This sounds amazing—but wait until you see the
magic of compound interest. If you never contribute anything
more, you will earn interest worth $1593.74 in 10 years.
Imagine that! For compound interest to perform its magic on
your investment, you must invest early. In the market, time is
the single most important factor. The first step to knowing the
best time to retire is estimating how much money you will
need to cover your expenses in retirement. Once you have a
number, divide it by the years you have left until retirement.
That is how much you will need to save each year before you
retire. The resulting amount may be scary but there are a few
things you can do to get significant results. Take advantage of
your employee-sponsored 401k—especially if the firm
matches your contribution. Do your best to take the match.
Raise your contributions, at least every few years, or as often
as your finances allow. The gradual increase may not seem
like much. But after a few years, you will realize how big of a
difference the small increases make. Once you get to 50, you
will be able to contribute a little more to your IRAs and 401k.
The maximum contribution as of 2019 was $19000. But after
50, you can add $6000. Take advantage of that. Do not raise
your standard of living if you get a raise. Continue living like
before and save the extra money. When you receive a tax
return, act like you did not and direct it to your
contribution. When you decide to sell the things that you do
not use, save that additional cash instead of wasting it. When
you land a side-hustle and you start getting consistent
additional income, treat it like a volunteering job and
save. Save whatever settlement you get, your overtime and any
extra money that comes your way. What is your dream in life?
Can you picture it? Is it your reality right now? What would
you do if you were the master of your life and you had the
power to do anything? If your mind has conceived it, you can
do it. Be Proactive, Live Intentionally - Change your attitude
and mindset toward life. Do not react to your surrounding
situation. Live purposely and do as you wish. Make plans and
act on them—that is what it means to be proactive. Positive
Thinking Is Powerful - Your mind is more powerful than you
know, and it can create a reality of its own. Think positively
and say positive things about yourself. Most life situations are
win-win. Help others and know that there is enough for
everyone. Be patient, have understanding, and live
selflessly. You cannot measure your progress if you have no
goals. A goal helps you take actions that push you to get there.
A defined goal gives you a clear picture of your future. Small
consistent actions will eventually get you where you want to
go. You can barely see progress in the beginning. But after a
while, you will look back and see how far you have
come. There is no fun in having debt or living paycheck to
paycheck. Monitor your spending and save religiously. You
can either save more or earn more to make your financial
situation better. Saving may work but there is a limit to how
much you can compare to your expenses. So, it is better to
earn more. If you eat garbage, you will have a garbage mental
state and physique. The food you eat makes you. Be sure to eat
healthy and take lots of water. Get moving to raise your heart
rate and improve blood flow. You do not have to get a gym
subscription. Just try to be physically active for about 30
minutes each day. For your goals to become a reality, you must
learn new things along the way. Better learners are confident
when it comes to venturing into new territories. Humans,
being social creatures, often must interact with each other.
Learn to understand your emotions and communicate properly
with people. It is important for you to realize that there are
things you just do not understand or know. Say “I don’t know”
sometimes. You are surrounded by noise: the TV, social media,
etc. Remove the distractions and focus on your goals. You can
multitask; but it is better to deal with one thing at a time. Meet
and network with other people. Surround yourself with wise
friends. You will learn to see things from another
perspective. Do not be all about work. Have fun occasionally,
rest and sleep.
Chapter 9
Taxes in Retirement
E
ven in retirement, you will still be required to pay taxes.
While creating your retirement plan, you should
estimate how much you expect to pay and include it in your
budget. You can then set up tax withholdings in
advance. Different tax rules apply to different types of income.
Understanding this helps you estimate and, in some cases,
minimize your retirement taxes. This chapter highlights the
most common retirement income types and how they are
taxed. You may not be required to pay any taxes if Social
Security is the only source of income you have in retirement.
A portion of the SS income, however, will be taxed if you are
making money elsewhere. There is a formula for this. Going
by the formula, 85% of your SS benefits should be included as
taxable income. The taxable amount will depend on your other
sources of income. In the tax worksheet, you will include your
Social Security benefits and any other income (combined
income) to find the taxable percentage of your benefits. Most
of your withdrawals from these accounts will be taxed. This
includes 457, 403(b), 401(k), IRA, etc. The amount of tax will
depend on your tax bracket, deductions, and the total income
amount. If the deductions exceed the income, it is possible that
you will not have to pay taxes in that year. Note: some
retirement accounts have tax-free withdrawals. Pension
income is usually taxable. If the pension was funded using pretax income, then you should include the entire amount as
taxable income every year. If this is the case, ask for the taxes
to be deducted directly from the pension check. If a part of the
pension was funded using after-tax money, then a portion will
not be taxable and the other portion will be, each year. If a
retirement account or IRA owns your annuity, the IRA
withdrawal tax rules will apply. If the annuity was bought
using after-tax money (not within a retirement account or
IRA), the type of annuity will determine the tax
rules. Immediate annuity income: a fraction of each payment
is regarded as return on principal and, therefore, considered
interest. This portion is taxable income. Variable or fixed
annuity: with these types, the tax rules are that you must
withdraw earnings first. These earnings are taxable income.
The original contribution (cost basis) is not. You are required
to pay taxes on capital gains, interest income and dividends—
just like you did before retirement. You can reduce taxes in
retirement if you have investments outside of a retirement
account. Note: some investment incomes are not considered
taxable income. If you have been living in your home for two
years or more, you may not be required to pay taxes if you sell
the home. That is, unless the gains are more than $500,000
(married) or $250,000 (single). The rules are more
complicated if you rented the home for a while. So, talk to a
tax professional. To get a rough estimate for retirement, list all
your income types and the taxable amount. Add it up. Now
subtract expected exemptions and deductions.
Chapter 10
FIRE Income
R
etirement finance is always thought of as a two-part
process. People spend decades of their lives generating
and saving money; and after retirement, they live a few
decades spending the money. This does not have to be the
case, however. Once you are retired, you can depend on other
sources of funds other than IRA and 401(k). Even after your
career life, you can continue to get paid. If you diversify
sources of income in retirement, your nest egg will be under
less pressure and you will be protected from market volatility.
In other cases, you may get nonfinancial benefits. When it
comes to asset allocation, there are five investment strategies
that one can use, depending on risk tolerance and financial
goals. They include aggressive, moderately aggressive,
moderate, moderately conservative, and conservative. The
following are great sources of income after retirement. Some
of them can bring significant returns but others will only give
you lunch money. In your earning and saving phase, allocate
more money to growth stocks. These are shares that have the
potential to increase in value steadily over the years. As you
get closer to retirement, shift more towards income generating
assets. Bonds with interest and stocks with regular dividends
are good examples. REITs (real estate investment trust) would
also be a good idea. While still in the earning phase, re-invest
any income earned from these assets to grow your nest
egg. The time you start receiving benefits partly determines
how big the check will be. You become eligible to take
benefits in social security when you are 62 years old.
However, the money will be 30% less compared to if you start
at age 66 or 67. If you wait until you are 70, the benefit
increases by 8% every year after you turn 66. You do not
really have to wait to turn 70, though. The point is: only take
the benefit if you really need it. Rental property is a good
source of consistent income—but you must be ready to deal
with the stress that comes with being a landlord. If you plan on
relocating after retirement, do not sell your current home; rent
it. If all the retirement accounts are fully funded and you still
have some money, consider buying another property to rent
out. Research the market extensively before you put any
money into real estate. Once you retire, find a part-time job for
extra money. You do not have to work many hours—maybe 10
hours a week or so. In addition to a source of income, you will
get a sense of purpose and maintain social contact. Find
something that you are passionate about. In the private sector,
pensions are almost non-existent. In the public sector,
however, they are still a thing. They help to offset low
payments for police officers, firefighters, and teachers. See if
your job has any pension benefits. While it may not be much,
it is something. How much money should you invest in stocks
vs bonds? This is among the first questions that you must ask
yourself when building your portfolio. But there is no direct
answer. It all depends on your age, the investment philosophy
of your choice and your experience, among many other things.
A long-term investment strategy is the best option for many
people. With a long-term viewpoint, a strategic asset allocation
will help you determine the percentage that should go to bonds
and stocks. This approach involves choosing an investment
combination based on volatility of various asset classes and
rates of return over time. Stocks, for instance, have shown to
be volatile in the short-term but over the long-term, have a
higher return rate compared to bonds. Here are four allocation
samples, all drawn using the strategic approach (period of 15+
years). In life, do not measure the success of your investment
on a yearly, monthly, weekly, or daily basis, but over multipleyear periods. If you are aiming at a 9% return rate or higher,
100% of your portfolio should go with stocks. When you
decide to use this approach, expect your portfolio to lose about
30% in a calendar quarter at some point. Sometimes, your
portfolio may lose value by 60% in the whole calendar year.
This means that if you invested $10,000, the value would go
down to $4000. Historically, however, the positive years
always offset the negative ones. If you would like a return rate
of 8% or higher over the long-term, assign 20% to bonds and
cash then the remaining 80% to stocks. Expect a 20% value
drop in a calendar quarter and, maybe a 40% value drop in a
year. But over the long term, it will recover and gain value.
Every once a year, try to rebalance the allocation. For a return
rate of 7% or more over the long term, assign 40% to cash and
bonds then the remaining 60% to stocks. In a year or single
quarter, you may witness a 20% drop. Like the other allocation
above, you should try to rebalance this allocation every year. If
preserving capital is more important to you than high returns,
do not allocate more than 50% to stocks. These allocations are
still a little volatile and, in a year or calendar quarter, the value
may drop by 10%. To avoid risks completely, stick to bonds,
CDs, money markets and other safer investments. All the
models discussed above are more suitable for people who have
not retired. But after retirement, you will need a different
approach since you will be withdrawing regularly from your
investments and savings. When you get to that phase, your
main goal is a reliable income and not high returns. So, a
portfolio that seeks to maximize returns might be too volatile
to offer you consistent income. If you are close to retirement,
find other allocation approaches. Are you about to retire? Here
are some income strategies that you can use to generate cash
flow. Safe Investments such as Certificate of Deposit which you
get from a bank. It is FDIC insured and you get a higher
interest if its term is longer. Pros: your principal will be safe.
Cons: the income will not be much, and it is not inflationprotected. To get a significant amount of income in retirement,
you will have to invest a huge capital amount. Just like a CD, a
bond comes with a maturity date. There are several types of
bonds such as corporate issued bonds which are higher
yielding and government issued bonds which are safer. Pros:
you will get more income from a bond than from a CD. Bond
maturities can also be matched with your cash flow needs.
Some bonds offer tax-free income. Cons: the income is not
inflation-protected, and you must invest a huge amount of
capital for a significant amount of income. With some stocks,
the dividends increase every year. Pros: your capital will grow
if history is anything to go by. Companies usually increase
dividends gradually. Your income, therefore, increases with
inflation. Cons: it is volatile. When times are tough, dividends
may reduce. Some investments such as master-limited
partnerships, yield high returns. But the higher the return, the
higher the risk. Pros: high initial income. Cons: the value of
your principal will fluctuate. You may not receive any income
when times are tough. Systematic withdrawals from a
balanced portfolio is one that includes both bonds and
stocks. Pros: when you do this right, you will get a consistent
lifetime income that is inflation-adjusted. The bond part
promotes stability while the stocks part gives long-term
growth. Cons: the value of your principal will fluctuate. Even
when things are thick, you must stick to your strategy.
Sometimes, you will be forced to withdraw less. Annuities are
contracts issued by insurance companies. Pros: you are assured
of a lifetime income—regardless of how long you live. Cons:
unless your annuity is inflation-adjusted, your income will not
keep up with inflation. For the highest payout, you cannot
access your principal. Income for life model aims to find a
balance between growth-oriented investments and safe
investments. Pros: it is an easy to understand model and can
give good results. Cons: this strategy involves taking an
investment risk. Variable annuity with a guaranteed income
feature is an annuity that allows you to choose a portfolio of
investments (market-based). Pros: if the market continues to
rise, you are guaranteed a lifetime inflation-adjusted
income. Cons: the fees will most likely be higher. Holistic
retirement asset allocation plan is to maximize income and not
maximize returns. Pros: combining several ideas could create
the perfect flow of income for your needs. Cons: putting
everything together takes a lot of work. Passive income is your
best chance if you want to attain financial freedom. There are
many types of passive income streams. They vary in activity,
liquidity, feasibility, return and risk. This post seeks to rank
several streams going by those factors. The rankings may be
subjective. They are based on one investor’s personal life over
a 20-year experience. Spending is more fun than saving. While
saving is crucial, it is only one step of many. The most
important part is knowing how to invest the savings. The
following are 8 of the best passive income streams. They are
ranked based on activity, liquidity, feasibility, return and risk.
For each of these factors, the investment will get a score, 1 to
10.
Score of 10 for risk – no risk
Score of 1 for return – horrible returns
Score of 10 for feasibility – anyone can do it
Score of 1 for liquidity – withdrawing money is difficult
and/or attracts a huge penalty. Score of 10 for activity – you
can relax and do nothing, you will still earn
Lastly, the method is based on someone trying to generate
an annual passive income of $10,000. Bond prices keep rising
as interest rates go down. They bring some stability to your
portfolio, more so when times are tough and uncertain. Most
bond types are easily accessible. The main issue is future
interest rates. If they increase, the value of bonds will decline.
●
Risk: 8
●
Return: 5
●
Feasibility: 10
●
Liquidity: 8
●
Activity: 9
●
Total score: 40
Physical Real Estate
P2P (Peer-to-Peer) Lending
The idea behind P2P is to make loans accessible to denied
borrowers at lower interest rates.
●
Risk: 5
●
Return: 9
●
Feasibility: 9
●
Liquidity: 6
●
Activity: 8
●
Total score: 38
Private Equity Investing
Pick the right investments and you will have an
outstanding source of income.
●
Risk: 4
●
Return: 7
●
Feasibility: 4
●
Liquidity: 2
●
Activity: 10
●
Total score: 27
Real Estate Crowdsourcing
With real estate crowdsourcing, you can invest a little
amount into a huge real estate project and get some attractive
returns.
●
Risk: 7
●
Return: 8
●
Feasibility: 10
●
Liquidity: 7
●
Activity: 10
●
Total score: 42
Make Your Own Products
If you have great ideas, creating products may bring you a
steady flow of cash for years.
●
Risk: 10
●
Return: 9
●
Feasibility: 7
●
Liquidity: 8
●
Activity: 9
●
Total score: 43
If you do not work, you do not get paid. Passive income is
earned repeatedly for a single action or investment. It is not
related to you working actively. You still need to work for
passive income, but the payment is not tied directly to the
number of hours you work. Accumulating wealth is not that
difficult. Here is what you must do: Sell your time and earn
money. Make sure your expenses are less than your income.
Invest what you save so it grows. The only problem here is the
Maslow’s Hierarchy of Needs. You need a house, food, and
other basic needs which cost money. In a perfect world, it
would be easy to use money from your day job to build a huge
successful business. The reality is, that money goes to
accommodation, food, and clothes. Assume that your net
worth is an airplane. Your goal is to make it airborne and soar
high. Your expenses determine the size and weight of your
plane. The heavier the plane, the harder it is to fly it. Only
when your income (thrust) exceeds your expenses (gravity)
will you be able to take off. Use what you have for now—
active income from your job—and save enough to create a
passive income stream. On matters saving, there are two
concepts: Earn more: focus on making more money either
through side hustles or businesses. Save more: cut your
expenses and live frugally. Ideally, do both. When you cut
expenses, your disposable income increases immediately. On
the other hand, earning more is a long-term thing. Save as
much as possible, this cannot be emphasized enough. You can
either build your own business using your savings and reap
from that or you can lend someone else your savings. They
will use the money to build something valuable and pay you
back for your money. As you build your business, you will
have to give up active income and work for free, initially,
before it becomes profitable. Think of it as volunteering at
your business. In future you will reap both passive and active
income. While you are doing this, your expenses will still need
to be paid. This means that your business will either be a side
hustle for a while, or you will be relying on your savings.
When you lend out the money, someone else will be doing the
heavy lifting. Common Streams of Passive Income - Interest
from various loans. Dividends from partnerships or
investments. Capital gains from selling investments. Royalties
from licensing or selling products. Rental income from you
real estate property. Business income.
Chapter 11
FIRE 20/20
/20 hindsight: the “hindsight” bias or “I knew it all along
20
phenomenon” is when you think you had the answer the whole
time or that it is common sense. The problem with this is that
it creates false confidence. Try a new thing for 30 days: drop a
habit, take up a new one or learn a new thing for 30 days
straight. This is a great way to broaden your skills and increase
your capabilities. 80% of your results are from 20% of your
efforts (80/20 rule): with this rule in mind, only focus your
energy on the most important things. Make change a sense of
urgency: change is not easy for many people. To get over this
resistance to change, make it seem urgent. “Absence makes
the heart grow fonder” in the long-term: you will forget the
negative things and only remember the positive ones. Only
absorb what works for you: you can draw inspiration from
anything and anyone but only get what suits you. Tailor what
you collect to fit your circumstances. Look for the surprise:
you easily remember whatever surprises you. Did you learn
something that surprised you or a fact that was
unexpected? Agree and compare to create a relationship: when
opinions differ, compare. Contribute when key pieces are left
out by others. Instead of telling, ask: a wandering mind is
more motivated and goal-directed than that which declares its
objective. Try, “will I achieve this?” instead of “I will achieve
this.” Ask, “how is this useful?”: to make the most out of
information, always ask yourself how you can use it. This
helps you make insights actionable. Ask yourself if it is
effective: you may often find yourself trying things that do not
work. Asking yourself if something is effective may seem
simple but it can lead you to your desired results. Learned
helplessness is dangerous: when things do not go your way,
watch how you give yourself an explanation. Avoid making it
pervasive, personal, or permanent. Questions like, “why me
always?” are no good. Balance conviction and connection:
connection refers to how you connect to others while
conviction refers to your rigidity or flexibility as far as your
beliefs are concerned. Empathize, encourage, validate and be
open to new ideas without being too accommodating. Be-dohave rather than have-do-be; avoid holding off or having your
life on wait mode. “BE” what you want, and you will “DO”
according to your beliefs, leading you to “HAVE” what you
want. Careful what you wish for: the grass will always appear
greener on the other side but that is not always the case. Lead
by example: this approach gives you power to act. You will
not find yourself blaming others and playing victim. Set your
own example of what you consider good and influence others.
Take note of specialization: specialization is great; until things
change. Adaptable people get the victory in the long run.
“OCEAN” personality traits: the OCEAN (Openness,
Conscientiousness, Extraversion, Agreeable and Neuroticism)
refers to the Big Five framework. It is meant to understand
how personality relates to behavior. Black swan theory: some
events are unpredictable but there is a way you can prepare to
exploit the positive ones and persevere the negative ones.
Blink: snap judgments may tell you a lot. If correct, a little
input is more useful than a lot of input. Train your senses and
mind to focus on what is right and you will make great snap
judgements. Blue oceans: stop competing where there is too
much competition. Look into an untapped market space if you
must. Blue zones: blue zones are the healthiest spots in the
world. They teach people how to live longer lives. Change the
question, change your focus: changing your question will
change your focus. Ask yourself, “what is right here?” instead
of “what is wrong here?”. Change your perception or change
your procedure: skillfully change your emotions. You can get
over any negative emotion in a moment. You can do this by
changing your solution or changing your way of experiencing
it. Change your “How” or your “Why”: sometimes, the “what”
is out of your control but if you change your “how” or “why”
then you may achieve motivation. You will no longer depend
on motivation from outside. Begin by changing yourself: it
may be difficult or impossible to change someone else but
changing yourself is instant. This may include changing your
views or how you do things. Avoid “Have-To” and go for
“Choose-To”: choosing to do something will make it more
fun. It is empowering and you will not be the victim.
Cognitive dissonance: Wikipedia defines cognitive dissonance
as a discomfort brought about by having conflicting cognitions
(values, beliefs, ideas) simultaneously. When one is having
cognitive dissonance, one tries to change beliefs to achieve a
consistent system of belief. Delayed gratification: are you
“present-oriented” or “future-oriented”? A future-oriented
person delays gratification and according to research,
navigates through life better. Deliberate practice: Malcom
Gladwell, the author of Outliers: The Story of Success, says
that to be successful, you must practice the task for about
10,000 hours. You become experienced by repetitively
practicing a skill, tracking your performance, assessing your
effectiveness, and listening to feedback. Delphi method: this
technique involves using experts to predict and forecast
information. A facilitator asks experts to give answers to
specific questions anonymously. The collective answers are
then used to conclude. Do it daily: to get into a new habit or
get out of an old one, you need to do it daily. Create a habit
and condition yourself to do it. Causational vs. correlational:
when two things happen simultaneously, it does not
necessarily mean that one caused the other. They may just be
correlated. Knowing the difference will make you better suited
to get to the root cause. Stop waiting for inspiration: begin by
acting, motivation will come. Doublethink: learn to think
twice. Focus on both the negative and the positive. When you
imagine the two sides, you can visualize effectively. Dream
big dreams: small dreams are not very inspirational. Big ones
stir your blood and inspire your mind. Emotional intelligence:
EQ may hold you back or propel you forward. It is defined as
the ability to point out, analyze and control your emotions and
that of others. Energized differentiation: be different with
vision, dynamism and invention. Enjoy the journey: take a
moment to smell the roses. Come up with ways to have fun in
your journey. Sometimes, your journey is all you have. Errors
in value and errors in odds: according to Dan Gilbert, people
make poor choices because they fail to estimate odds well and
they are also not good when it comes to estimating
value. Relationship before influence: a relationship helps you
know the concerns and needs of the other party. It also builds
trust. The third alternative: do not get into a win-lose situation.
Find another option because it is always there. A first
impression is a lasting impression: you only get one chance to
create a first impression. If you blow your chance, you can
change their perception. Let the other person assess you in a
new context or situation. Fortune cookie effect: you can
rationalize whatever you want in your mind. You take actions
that cause something to come true. What you can control over
what you cannot: not everything is under your control and this
should not be a reason for you to give up. Control your
actions, attitude, approach, and response. Gambler’s fallacy:
just because an action or event has not taken place for some
time, does not mean that its chances of happening now are
high. Groupthink: two heads are better than one—this
statement is not always true. A group may exaggerate
decisions, making the final decision too conservative or too
risky. Remove the unessential: according to Bruce Lee, it is
daily decrease over daily increase. Halo effect: sometimes you
assess someone globally and apply that to a specific trait. For
instance, you may think someone is likeable and,
consequently, assume that they are friendly and
intelligent. The end of the story: the ending of a story is more
important than its beginning. Measure your life: the best way
to measure life is regarding the number of people you touch.
Informational power: information is an impermanent form of
power and holding on to it is an even weaker form of power.
Evaluate your thinking: everyone’s mind is flawed. Your
thinking has traps and pitfalls. Challenge your thinking and
eliminate poor thinking patterns. Extrinsic motivation vs
intrinsic motivation: find out what motivates and drives you.
Do this by connecting your job to your values. Irrationality:
always treat each decision as crucial if you are looking to
make a change. Energy management over time management:
everyone has 24 hours in a day. The only thing that is under
your control is energy. If you manage your energy, you will do
more with less effort. Jigsaw technique: if you want people to
overcome their prejudice, pair them up. They will realize, as
they work on the project, that they are all humans with
vulnerabilities, feelings, and basic needs. Job satisfaction: to
make your job more enjoyable, focus on feedback, autonomy,
task significance, task identity and skill variety. Johari
window: know yourself and show yourself. This way, you will
find it easier to share information that matters and enhance
communication. Learning style: is your learning style
kinesthetic, visual, or audio? Less is more: less here refers to
more focus. Linchpin: work towards being indispensable. One
way to do this is to always go above the call of duty. Give your
all, do more art and break rules to tweak the game. Link to
good feelings: a new habit will be easier to adopt if it is linked
to good feelings. You can barely do things that do not feel
good. Reframe the meaning of the action. Maslow’s hierarchy
of needs: Maslow suggested that there is a set of needs
commonly shared by people. Understanding this concept will
help you know more about what drives you and
others. Mentors are short-cuts: with a good mentor, you will
avoid pitfalls. A good mentor shows you what you should
focus on and hasten your journey to success. Microexpressions: this is a very quick involuntary facial expression.
It is hard to hide these types of expressions, regardless of how
much you know about them. Mindstyle: do you prefer
sequential, random, concrete, or abstract? Understand how you
prefer to grasp information and order it. Mirror cells: everyone
has mirror neurons that mirror the feelings or intentions of
other people. They can help you explain empathy and
imitation. Flexible people are favored by nature: survival is
not for the most intelligent or the strongest, it is for those that
adapt very well to change. Similarities bind - it is true that
opposites attract but people attain a special connection at the
values. Shared values bring people together. Parkinson’s law:
assign less time to something if you want it to be done faster.
Work will expand to fill the available time. Pygmalion effect:
what you expect is what you get. Reciprocity of liking: people
like those that like them. If you do not like yourself, you will
not like the people that like you. Return on luck: Jim Collins
suggests leveraging luck by seeing it as an event rather than an
indefinable aura. Aim at achieving a high return on luck
(ROL). Satisfice: to make decisions faster, experts satisfice.
They look for the first solution that is perfect for that
situation. Self-efficacy: one’s self-efficacy beliefs will
determine a person’s behavior, motivation, and
thoughts. Dispositional vs situational: did the situation cause
you to do that or is it just who you are? Get small, think big:
small is a key to flexibility, increased effectiveness, and more
efficiency. Social loafing: when people are more, they work
less hard. People put in less effort when they are working in
groups. Speak to the communication needs of people:
communication needs include appreciation, approval,
accuracy, and action. People will give you clues on what they
need to hear. Start with why: you should communicate, act and
think in the same way. Start with the thought, from the inside
out. Begin with why, then how and finally what. Synthetic
happiness: learn to create your own happiness; it is just as
good as genuine happiness. The effort effect: effort is what
makes a difference, not talent. Your effort, in turn, is facilitated
or limited by your mindset. Another thing: reward your efforts.
The long view: you cannot predict what will happen in the
future. You can, however, play the “What-Ifs”. Use forecasting
to prepare for what may happen. The paradox of choice: the
more choices you make, the poorer your decision will be. You
may not even be able to make the decision. The power of
identity; be rooted in something that will last while enjoying
your growth journey at the same time. The power of regrets: if
you reflect on your worst, you will be motivated to unleash
your best. The principle of contrast: you can easily lose
perspective. Compare with something worse. This principle of
contrast is useful when changing perspective, explaining value
or negotiating fees. The progress principle: small progress can
significantly make your day. Perfection is not what matters,
progress is. The “Good Life” secret: learn to allocate more
time to your values. Ask yourself how you can do more of the
things you love at work. The two happiness questions: “How
happy are you with your life?” and “How happy are
you?”. Thoughts that work for you: think thoughts that will
serve you better. “To-Date” vs. “To-Go”: if you commit
yourself to a goal, you will focus on what is left (and will be
more motivated). If you are not that committed, you will
concentrate on how much you have accomplished. Important
vs Urgent: you will achieve your long-term goals if you spend
time on the important but non-urgent matters. Befriend stress:
anxiety is a cognitive response while stress is a fight-or-flight
response. Stress can be useful while performing physical tasks
or simple tasks. Willpower is like a muscle: you can
strengthen willpower through practice, just like a muscle.
Know that you can also fatigue it; it is limited. Yerkes-Dodson
human performance curve: do not stress yourself beyond your
capacity. You will start producing less with more effort. You
are the company you keep; friends can help you grow or hold
you back. They will influence your actions, emotions, attitude,
and thoughts. Your strengths facilitate your growth: focus on
your strengths if you want to accelerate your success.
Thoughts shape feelings: shift your focus to change your
feelings. Zeigarnik effect: to overcome procrastination,
convince yourself to do something for “just a few minutes”.
You will be motivated to finish what you have already begun.
Chapter 12
Annuities
G
uaranteed income streams are becoming more
attractive as crushed dreams and investments become
the retirement nightmare for most people. With some
annuities, you can get this guarantee. Annuities come in
different types. You need to be educated before you commit
your money. So here is a guide. Annuity can be defined as a
contract between an insurance company and a consumer (you)
to cover certain goals. The goals could be long-term care
expenses, legacy planning, lifetime income, or principal
protection. An annuity is not an investment, even though some
insurers market is as such. It is a contract. Breaking the
contract is almost impossible. Why an Annuity? Many people
buy annuities to get a guaranteed source of income. That is
why they are popular in retirement planning. There is no
contribution limit and you can save as much as you want. In
simple terms, an annuity transfers risk to the insurer from the
owner (annuitant). You then pay the company premiums.
These premiums can either be paid in a series of installments
or a single lump sum. The payments are not indefinite. After
some time, you stop paying and get paid instead. All annuities
are not the same. Some pay you for as long as you live, and
when you die at a defined time frame, your beneficiary will be
paid the remainder. Annuities are divided into two categories:
immediate and deferred. With an immediate annuity, the
income begins almost immediately. It, however, will not come
right away. After you pay the lump sum, you start receiving
income after one annuity period. It could be a year or one
month. A deferred annuity offers a lifetime income and taxadvantaged saving. The payments begin years later. The series
of payments and minimum rate of return are fixed with this
type of annuity, but under predetermined conditions. If you
choose to withdraw your funds before the specified time, you
may incur surrender charges. The charges usually reduce with
time. The insurer invests your money in different sub accounts
if you choose a variable annuity. The rate of return will depend
on how these subaccounts perform. Just as with an IRA or
401(k), you pay taxes when you withdraw the money. The tax
depends on whether you funded the annuity with after-tax or
pre-tax dollars. Variable annuities have annual fees, but most
other types do not. All of them, however, have
commissions. Contrary to how they are marketed, fixed
indexed annuities are complicated, and they have limited
protection and potential. Riders can enhance the long-term
care provisions, legacy, or income—but at a cost. They can
either be living riders or death benefit riders. If you die earlier
than expected, the insurance company will not keep your
premiums. Annuity payments are guaranteed by the insurance
company, not the government. So, the insurer’s financial
strength matters. Annuities present an opportunity cost risk.
That is why you need to annuitize gradually instead of paying
your premium as a lump sum. People who do not expect to
reach their life expectancy or run out of income do not require
an annuity. Also investigate bonds. Tracking bonds is not the
most fun thing to do. It is about as interesting as watching a
pot boil or paint dry. It is not as exciting as watching stocks—
you have probably seen how investors get. But the lack of
hype should not mislead you. Bonds and stocks both have their
advantages and disadvantages. Bonds may be less exciting
than stocks, but they would be great in your portfolio. Bonds,
unlike stocks, are less risky and less volatile. If you hold them
to maturity, you may get consistent and stable returns. Bonds
interest rates are higher than money market accounts,
certificate of deposits, and bank savings interest rates. When
stocks are falling, bonds tend to perform better. The key
difference between bonds and stocks can be fitted into three
words: debt versus equity. Bonds are a debt while stocks are
equity ownership. Investing in debt is always safer compared
to investing in equity. If the business is declared bankrupt,
debtholders (creditors) are paid before shareholders. Creditors
are more likely to get their money while the shareholders may
lose theirs altogether. Treasury Bonds (U.S Government
bonds) are risk-free, whereas there is no such thing as a riskfree stock. Bonds may not yield high returns (just about 3%
annual interest rate) but they are the best for capital
preservation. It is important to note that bonds may be safer,
but they are not 100% safe. Also, other bond types, such as
junk bonds, are very risky. In the long run, stocks tend to
outperform bonds, if history is anything to go by. But at
certain points, bonds perform better. Stocks can lose 10% or
even more in a single year. If this happens, you will be lucky
to have bonds in your portfolio to ease the blow. Another
thing, people will need predictability and security sometimes.
Think of retirees, for example. They may depend on the
predictability of bond income. With only stocks in your
portfolio, retiring into a bear market will be disappointing, to
say the least. Better Than Saving with the Bank? Bonds
typically have higher interest rates than a CD or savings
account. If you have some money that you will not use for a
while (like a year), it is better to invest in bonds. Having
money in the bank is not bad. But you will not get any
returns. How Much Should You Invest in Bonds? You will not
get a direct answer. However, there is an old rule that some
investors use. Your allocation among cash, bonds and stocks
should depend on your age. According to this rule, you should
subtract your age from 100. The number you get is the
percentage of your assets that should go into stocks, then
spread the rest between cash and bonds. If you are 50, 50%
should go to stocks and 50% to cash and bonds.
Chapter 13
FIRE Buffers
L
eaving your job is never easy. You may have everything
in order, but you will still be nervous because you never
know what the future holds. It is even worse if you live in an
expensive city. Here are some financial buffers to make the
future less scary for you. How do you get your employer to lay
you off? Negotiating severance is much like pitching to be
hired—except you do it in reverse. If you engineer it correctly,
you may get bonuses, health care, deferred compensation, etc.
If, on the other hand, you just quit, all you will probably get is
a cake and a pat on the back. If your streams of income are not
bringing in enough money, slaughtering your golden goose
might be your best option. Aspire to make more money. You
can improve your passive income by raising rents and
refinancing your mortgages lower. The former will bring
more, and the latter will save you a few thousand
dollars. Contrary to popular belief, it is never easy to build an
online business. You need discipline and a lot of traffic. As a
blogger for example, you will be working for free in the
beginning—before the money starts coming in. Develop a
thick skin, make the site friendly to readers and work
extremely hard. Starting a business is one of the most difficult
things you may ever have to do. You will soon learn all about
failure. Your idea may flop or take off—and that is okay. Good
investors make money during the bad years. With a large
financial nut, a return of 7 – 9% is good enough. The point is
to protect your nut and not lose money. Try your best to max
out your IRA and 401k. Write them off mentally until you are
over 60 years. Offer your labor. Work at a Starbucks or
McDonald’s. In addition to your wages, you might get health
insurance if you are a full-time employee. After your shift, try
your hand at something such as giving Uber rides or building
websites. Use your knowledge to earn some money. Sit down
and find out what you are good at. Then build a service
business around that. Startup consulting services will easily
make you a lot of money. And that is just one benefit. The
other one is that you get to work with whoever you want.
Nobody dreams of depending on their parents once they are
out of college. But if things get tough, there is no shame in
going back home. Just make sure you help around the house.
The option of asking for donations is never the first on
anyone’s mind. However, desperate times call for desperate
measures. If you are married to a financially independent
partner, you are lucky. You can depend on them for a while. If
all else fails, apply for food stamps and government
housing. The FIRE (Financial Independence Retire Early)
movement is the trend currently. People have become wealthy,
not just in America, but all around the world—thanks to real
estate, stocks, and risk assets in general. This increase in
wealth has caused people to consider joining the FIRE
movement which includes retiring early (30s, 40s, and 50s) to
enjoy their wealth. There is the Lean FIRE route which
involves living frugally and the Fat FIRE route. Your choice
depends on your finances. Reading about the fabulous lives of
FIRE followers can be irritating—especially when you are not
yet there. Why Do People Desire FIRE? Here are some not-soobvious reasons. It is hard to find someone quitting a job that
they love. But again, these jobs are not easy to come by. In all
honesty, not everyone is attractive enough, connected enough
or even talented enough to land their dream job. So, people
take what they can get and toil miserably just to earn a living.
If they see an opportunity to escape this reality, they jump on
it. Rather than be stuck at a job they hate for decades; people
opt to quit. Others may be doing what they love but the lack of
recognition wears them out and the love fades away
eventually. If you think about it, retiring early is a cowardly
move. Instead of trying your best, you give up. Why work
hard for years to get the corner office? Why not become the
boss now? Social media and the internet push people to desire
instant success. They quit when they do not get their
way. Location independent lifestyles became hot in the last
downturn. No one likes to admit that they are unemployed.
Saying you are financially independent sounds better. Being
employed is so hard when you hate following orders. FIRE
followers are mostly introverts who do not like being part of
any group. Retiring when you are older is not fun. You cannot
go wherever you want or do certain activities. So, people
decide that it is better to do these things sooner. After some
time, people realize that all they do is make the employers
richer. Their own financial status does not change much. For
many people with disabilities, their conditions only get worse
with time. So, they choose to have fun while they still
can. Having to pay someone to watch your kids is never
someones first option. Parental guilt eats at you, especially if
you see other households with a stay-at-home parent. There is
so much talk about FIRE and how amazing it is. Many do not
want to miss out. You will look stupid if you go back to
working after retiring can be a risk. You can run out of cash or
get sick. You may get lonely and bored. Supporting your
Family becomes too expensive. You will want to contribute to
society. Anyone is free to retire if they have enough
investment income to cover their living expenses. However,
retiring early offers its own unique challenges. A working
spouse makes it easy to retire early. And without kinds, you
have all the freedom in the world—if your spouse continues
providing. Another easy option would be to choose poverty in
retirement. But living like a monk is hard and, for some
people, it does not make sense. You retire to be free and have
fun. The other option, and the one that most people want, is to
retire and maintain your standard of living. This is a difficult
route and requires serious budget sacrifices. The last and
hardest of them all is going into retirement early while you
still have adolescent kids. To some people, it is nearly
impossible. Here is why. The obvious reason is that children
come with extra costs. The other reason is that they suck your
energy and time. Most retirees spend their free time finding
extra streams of income. They: Manage their investment
portfolio, pet sit, freelance/consult, coach youth sports, create
online products, drive for Lyft and Uber, or start a blog. With
kids, you will be lucky to get even 5 extra hours to do any of
the above things. Having children while still working could
delay your retirement by a decade or more. You will want to
work until they graduate college. Once you get a child, the
first thing you will notice is an increase in your healthcare
premiums. Do not forget all the money required for
babysitting, tuition, toys, clothes, diapers and much more. For
many people, private school is out of question because of the
ridiculous fees. And there is also no guarantee that your child
will get into the public school you are eyeing. So, you may
have to drive across down every day for school. With an
investment income of $200,000 a year, you can create a
realistic budget for your family. A good budget may leave you
with about $1000 or more to spare in a year. This applies to a
family of three. Adding another child would ruin the whole
budget. How Much Do You Need to Retire Early with Kids?
Some will argue that an investment income of $200,000 for a
family of three is more than enough. So, how about
$100,000? To get this kind of income, you will need to invest
$2,000,000 to $5,000,000. With a return of 4% to 5% annually,
you will attain your goal. This is for a conservative
portfolio. Retire Early with Kids: Tips
Pay yourself first. Move to a cheaper area. Join an
organization that offers pension (law enforcement, military,
etc.). Consider public grade school (private is extremely
expensive). Let kids help with house chores. You will save
money and it builds their character. If you are struggling
financially, accept healthcare subsidies. Consider a severance.
SMART goal setting is an efficient method trusted by high
achievers. Perhaps, there is something you have always
wanted to achieve but you just cannot seem to be successful. If
you do not approach your goals with seriousness and a great
attitude, you will barely achieve them. SMART goal setting is
your key to get to where you have always wanted to go. This
is a method of setting goals that takes into consideration
certain factors about the goal relative to whoever is setting it.
The factors are the five letters in the acronym. The goal setting
is relative to the specific goal setter because people are
different. This is what the acronym stands for:
S – Specific
M – Measurable
A - Achievable
R – Realistic
T – Time bound
What is so special about this goal setting metric?
SMART goal setting is partially responsible for the success
of people such as Steve Jobs and Stephen Cooley. Here are the
impacts of SMART goal setting: Clears your goals: this goal
setting method allows you to understand all the phases of the
goal. You will always be asking the relevant questions as far as
your goal is concerned. Motivates you: SMART goal setting
breaks down your goal into smaller ones or milestones. This
makes the bigger goal appear less intimidating. Saves time:
when you have a strategy, you are likely to achieve more.
Being strategic means that your goal is SMART. If you look at
your goals and you cannot see any of these features (specific,
measurable, achievable, realistic and time bound), know that
you may not go far. You become more motivated when you
write down your goals. Enhances self-discipline: everyone
should try self-improvement regularly. Setting SMART goals
will help you realize that effort is required on your side to
achieve them. Specific - vague goals are not advisable. You
may not even realize when you have achieved them. For
instance, a goal like “start planning for retirement” is not
specific. Go ahead and outline how exactly you plan on
preparing. A specific goal has clear components and it will be
easier to work towards it. Measurable - a goal such as “save
millions of dollars for retirement” is not measurable. It would
be better to set a goal for saving a specific amount every
month towards retirement. Achievable - is your goal
actionable? You must resonate with your goal. Make sure you
have the resources (not necessarily all of them) to achieve the
goal. The time frame is also an important factor to
consider. Realistic: are you willing to sacrifice all that is
required to achieve your goal? Time bound - you must write
the start and end date of you goal. Once you have done that,
break down the goal into milestones, chunks or phases.
Deadlines will motivate you to act. What is a meaningful and
fulfilling life? There are tons of answers to this question on the
internet. They may all seem to be great ideas, but they are
directionless and vague. A better answer would be a list of
goals to lead you to a fulfilling life. These goals are divided
into four categories: 1 - 8: concentrate on long-term happiness.
9 -15: nurture deep relationships. 16 - 23: tap into your
potential. 24 - 29: live a life driven by purpose. A gratitude
journal: this basically means noting down about 4 things that
you are grateful for every morning. Make a life plan: a
detailed life plan will give you an idea of where you want to
be and what you want to achieve. A healthy exercise routine:
exercise boosts energy levels, your mood, health, happiness,
and much more. A creative hobby: everyone has an innate
creative ability. Look for a way to express yours. Become
mindful: teach yourself to live in the moment. Be kind: share
kindness with strangers even when you do not feel like it.
Pursue personal growth: you cannot live a fulfilling life unless
you grow as a person. Get away from bad relationships: only
focus on the relationships that matter; not those that drain you.
Be with people you admire - you will become like the people
you surround yourself with. Routine phone calls: set a regular
reminder to call your loved ones. Something new once a
month: if you are trying to be closer to someone (spouse or
friend), find a new activity to do together every month.
Volunteer together: volunteer with your loved ones regularly.
Deep, vulnerable conversations: being vulnerable builds trust
and deepens relationships. Do not talk about yourself for one
evening: this will help you learn more about someone else. Do
something scary: try doing something that you fear. Take a
risk: this could mean starting a business. Personal
development books: these books teach you so much about
yourself and the world. Get more responsibility: ask your boss
for greater responsibilities. Find a mentor: mentorship is
powerful, and you will get to higher levels. Mentor someone:
you will learn so much as you teach. Embrace failure: take
failures as an opportunity to learn. Know yourself: what are
your weaknesses, strengths and personality type? Discover
your dreams: set time to imagine your future and do not hold
back. Define your values: know what matters and focus on
that. Be authentic: be true to yourself every day. Try new
things: explore and seek excitement. Pursue your dream
career: apply tirelessly for your dream job. Defend your
dream: do not take your eyes off your goals. Say “no” if you
must.
Chapter 14
Rich Dad, Poor Dad
R
obert Kiyosaki tries to explain, in Rich Dad, Poor Dad,
why people work hard but do not earn enough, and how
to escape the rat race. If financial independence is your goal,
going to school, getting impressive grades, and a good job is
not really the way. There are many reasons why people are
struggling financially—one of them is the education system.
You learn how you can work for money, but no one will teach
you how to make money work for you. They do not teach
financial skills in school. No wonder even college educated
people have a problem with personal finances. As a result,
many end up trapped and chasing paychecks for most of —if
not all—their life. According to Rich, Dad, Poor Dad, this is
Robert Kiyosaki’s conclusion. But he also gives a solution.
Kiyosaki is convinced that working for money is a short-term
solution. You will never have enough money if you do not
know how it works. So how do you attain financial
independence? Acquire assets, become rich. It sounds easy but
some people cannot tell the difference between a liability and
an asset. The former takes money from your pocket while the
latter puts money in. Kiyosaki maintains that you must
accumulate assets which will bring in money to cover your
expenses if you want to attain financial independence. To
achieve this, you must be ready to do things a different way.
Go against the current. You will always hear people complain
that their expenses increase with their income. The rich have
assets which make more money than is needed to pay their
expenses. They are, therefore, able to reinvest and earn more
income. What are some good examples of income generating
assets? Businesses (those that do not require you to be
physically present). Royalties, Income-generating real estate,
Mutual funds, Bonds, Stocks, and anything whose value
appreciates over time. Assets are rich people’s income.
Profession is most people’s income. Do not make luxuries a
priority. Reinvest excess cash flow from your assets. Aim to
acquire more assets, not to earn more income. Reduce
liabilities and cut your expenses. Reduce tax expenses and
protect your assets by creating a corporation. Know a bit about
everything—negotiating, speaking, writing, leadership,
marketing, sales, the law, investing, accounting, and stock
markets. Work to acquire skills, not to earn. Learn about
investing then buy investments. What you study is what you
will become— be intentional when choosing study
materials. Do not be afraid to lose, that is how you win. Use
failure as an inspiration. Control your emotions. Do not act
based on the opinion or fear of the general public. The asking
price is usually too much. Be surrounded by smart people. Pay
them well. Ask yourself, “how can I afford it?” instead of “I
can’t afford it.” Before you pay bills, pay yourself and buy
assets with the money. Create a clear goal. Listen more than
you talk. Do not time the market, do not follow the crowd.
“FINANCIAL FREEDOM IS available to those who learn
about it and work for it.”
― Robert Kiyosaki
Chapter 15
Good to Great
J
im Collins, the author of Good to Great spent half a
decade with his team, researching how to make companies
great. He begins the book by stating that, “Good is the enemy
of great.” According to him, going to Great from Good is
super difficult and rarely even happens. So, the author, Jim
Collins, unraveled systematic phases undergone by great
companies and he came up with a framework. In the
framework, there are key components: Process: it starts by
building yourself up for greatness to the inflection point that
propels you to greatness. Phases: The Good to Great journey
has three phases. Disciplined people: finding the right team
and leader. Disciplined thought: creating core values and
understanding brutal facts. Disciplined action: building a
culture in which the right people follow the core values.
Flywheel: this is a quiet and intentional process of finding out
what should be done to achieve the best results, and then
taking the steps consistently to get to the breakthrough
point. Here is a more detailed explanation of the components.
Level 5 Leadership. Process stage: build up. Phase: disciplined
people. According to research, leaders who take companies
from Good to Great are not big personalities or charismatic.
They are deliberate, shy, and quiet. They have a combination
of professional will and humility. A Level 5 leader is
necessary if a company wants to become great. The
characteristics of such a leader are outlined below. They think
about the organization’s success first and then their own. They
are shy but fierce when it comes to doing the job. They think
about how the company will be without them and carefully
plan their succession. They are not self-obsessed. They credit
others or luck—never themselves. They take responsibility in
case of failure. First Who, and then What. Process stage: build
up. Phase: disciplined people. Everyone knows that you need
the right team to attain the goal. But not many know that
finding the team should come even before defining the path to
greatness. “Who then what”. Choose great people to make
your team; then come up with a vision or strategy to make
your company great. Confront Brutal Facts. Process stage:
build up. Phase: disciplined thought. Good decisions are
crucial in making your company great. And to make them, you
must confront brutal facts. Do not lead with answers. Do it
with questions. Engage in debate and dialogue, not coercion.
Do not throw blame around. The Hedgehog Concept - Process
stage: build up. Phase: disciplined thought. Great companies
have mastered three major dimensions, through which they
understand themselves deeper. What can you do best? What is
the driver of your economic engine? What are you passionate
about? Culture of Discipline. Process stage: breakthrough.
Phase: disciplined action. In a culture of discipline, people are
required to adhere strongly to the defined concepts while
having freedom at the same time. Saying NO is also part of the
discipline culture if something does not fit the
concept. Technology Accelerators. Process stage:
breakthrough. Phase: disciplined action. While technology is
important in growing a business, it is good to avoid following
every new technology blindly. Find the technology that best
suits your hedgehog concept.
Chapter 16
Think and Grow Rich
T
hink and Grow Rich by Napoleon Hill is worth a read.
The title may cause many people to roll their eyes, but it
is one of the most important books in the financial world.
Napoleon Hill researched and analyzed many well-known men
for 20 years and came up with this amazing book. When Hill
wrote this book, he was not rich. But that does not undermine
his authority on the subject. The human mind can achieve
anything if it can believe. Thoughts are things. And when
mixed with a burning desire, persistence, definiteness of
purpose, and other material stuff, they become powerful
things. When someone desires something deeply, to the point
of betting his entire future on it, he will win. There are many
causes of failure. One of them is quitting anytime you face
temporary defeat. Before any man attains success, he will meet
a lot of temporary defeat, and sometimes failure. Quitting is
usually the logical and easiest response in such cases—and
many men do that. Success goes to those who are success
conscious. Failure goes to those who are indifferent to failure
consciously. Many people measure everything based on their
own impressions and beliefs. This is a weakness. You are the
captain of your soils, the master of your fate because you can
control your thoughts. Desire is not a wish or hope. It is
definite and transcends all else. If you win in whatever
undertaking, burn all retreat sources. This will allow you to
maintain a pulsating desire to win, which is necessary for
success. Failure does not permit alibis; success does not
require apologies. Practical dreamers have no quitting
option. Lack of ambition, laziness, and indifference do not
bear dreams. Those who attain success in life face a bad start
and tons of heartbreaking events before they get there. Unless
you accept defeat as a reality, you are not defeated. Your only
limitations are the ones you have in your mind. The head
chemist of your mind is faith. Of all the key positive emotions,
sex, love, and faith are the most powerful. Faith and love are
psychic; they are related to your spiritual side. Sex is
biological, related to the physical. To voluntarily develop faith,
repeat affirmations to your subconscious mind. The thoughts
that a man allows to dominantly occupy his mind make him
what he is. Your subconscious mind acts on thoughts that have
been mixed with feeling or emotion. Knowledge is potential
power. If you organize it, it becomes power. People discredit
and fail to appreciate anything they acquire without cost or
effort. Humans only value something that has a price. Lack of
ambition is a weakness without remedy. Accepting your fate
kills off ambition. Failure and success are results of
habits. Your imagination is your only limitation. Ideas may be
intangible, but they can outlive the brain that created them. Be
persistent in making new plans. Intelligent followers become
great leaders. Conduct a yearly self-analysis to measure
advancement. Every person must conquer
procrastination. Decide firmly and quickly. Worry is based on
fear, and it is a state of mind. Napoleon Hill talks about his
“other self” in his book, Outwitting the Devil. This side of him
was not unclear or indecisive about the future. It completely
operated out of definiteness of purpose and faith. Hill went
through deep depression for several months and he sunk to
rock bottom. At one point, he decided that enough was
enough. He decided to follow his “other self” with total
obedience, even when it seemed crazy. According to certain
research conducted at Yale University, if you hesitate even for
several seconds, your chances of doing what you were feeling
inspired to do drops dramatically. Always act immediately
whenever you are inspired to carry out an action. Every second
is important. Hill decided to act immediately and completely
disregard his other self. A Life Without Hesitation - Hill’s
voice advised him to ask for financial assistance in publishing
his books. It gave him amazing business ideas. Napoleon Hill
is not the only one who has experienced this “other self”
concept. Tony Robbins talks about it as a 3-part process:
Decide while you are in a peak or passionate state. Commit to
your decision by setting up several accountability mechanisms
and removing conflicting things in your environment. Resolve
to finish what you have started. Big Decisions in a Peak State If your decisions are not made in a peak state, they will be
small-minded and weak. Having yourself in a peak state is
your responsibility, every single day. Avoid dragging yourself
through life. Set new standards for the day and for your life.
What Does Commitment Mean? To commit to something
means that you will carry it out to completion. You have no
escape routes and you burn any bridges that may lead to
distraction. Once you have decided, you do not turn back.
When you resolve something within yourself, it means that it
is done inside you before it is done. Once you have decided
that something is done, you will achieve it—no matter what
comes your way. People will often forsake inner freedom for
external security. However, when an individual has inner
freedom, they have no problem embracing the uncertainty that
comes with pursuing their dreams. You already know what
you want, and you will make sure you get it. You have faith
that God will help you. Resolve Means Knowing That You
Will Achieve Your Goals - The moment you have made a
resolve, you know it will happen. Every day, you wake up
with more faith and reassure yourself that your dreams will
come true. Nothing can stand in your way. People break the
commitments they have made to themselves every other day
and they, therefore, have no genuine confidence. Confidence
cannot be faked; it shows how you relate to yourself. If you
are feeling inspired to do something today or to do more,
decide and commit to it.
“TELL ME HOW YOU USE your spare time, and how you
spend your money, and I will tell you where and what you will
be in ten years from now.”
-Napoleon Hill
Chapter 17
Common Sense Investing
J
ohn C. Bogle is the former chairman and CEO of
Vanguard Mutual Fund Group. It is the biggest no-load
mutual fund firm in the world. Bogle was the first person ever
to launch an index fund for ordinary people in 1976. Today,
money invested in index funds is about $1 trillion. William
Sharpe, Warren Buffett, and other investment gurus
recommend them. They are perfect, according to them, for
individual investors. In this book, John C. Bogle discusses
everything about index funds—making it a must-read for all
investors. Single stocks have a high risk, unlike index funds.
The latter have no risk because they focus on the whole
market. Due to the power of compounding, typical index funds
bring huge long-term returns. The market’s returns are
unbeatable in the long run because of risks and costs. It is rare
for money managers to outdo long-term market returns. An
increase in share selling and buying causes a decrease in
general share market returns. These changing returns are
caused by emotional investing. It has nothing to do with an
increase in earnings and dividends. The share market focuses
on emotional outcomes which are short-term. Benjamin
Graham was the wisest fund manager in his time. He wrote a
book in 1949, Intelligent Investor. So, if you are looking for a
book with great investment advice, you will love it. According
to him, many investors lack professional training or
knowledge. They do not assess the stock value or worth of a
company. They cannot even predict the firm’s future share
value. He says that investors should be conservative when
making choices. Invest in a diverse portfolio—that is his
advice. He also recommends holding on to the stocks in your
portfolio in the long run. Graham also says not to rely on
brokers too much. As mentioned, the first ordinary investor
index fund was launched in 1976. Index funds have a simple
core idea behind them. They have the most diversified
shares. The share market in the United States has seen
immense growth. The average annual return rate on stocks was
9.6% from 1900 to 2005. If you compound these returns, you
will get a surprising outcome. A dollar invested in 1900 rose
to $15,062 by 2005. When you factor in inflation, the actual
growth is $793. During some periods, the share market returns
beat dividends and earnings growth (late 1920s and late
1990s). Such returns always fall back to the ground in a severe
crash. Do not trust speculative high returns. No one can
predict the fall or rise of a company’s current value. US firms
are good for investments because of their strong business
basics. If you want to invest broadly, buy an index fund. The
S&P 500 depicts the 500 top firms in the United States. But it
is not the only measure of investing success/failure. There is
also the Dow Jones Wilshire Total Stock Market Index. Do
not forget to check costs when investing. These can eat away
at your initial investment. An index fund can be described as a
kind of mutual fund with holdings that track or match a certain
market index. You can have a diversified portfolio and earn
significant returns with this kind of investment. The reason is
that index funds are not in competition with the market; they
are, instead, trying to be the market. That is, buying stocks of
all the listed firms on the index and therefore reflecting the
index’s performance. Index funds are helpful in balancing the
risk in the portfolio of an investor. Market swings are usually
less volatile throughout the index unlike with individual
stocks. They allow you to buy the entire market indirectly.
With an index fund, you buy the securities making up the
entire index. An index fund usually buys shares from all
companies that are listed on an index. An investor then buys
shares from that fund and its value will reflect the losses and
gains of the index that is being tracked. You win by accepting
defeat. There is a high likelihood that you will not outperform
the market when you pick individual stocks. Even experienced
investors do not. According to research (2001 to 2016), over
90 percent of active fund managers underperform their
benchmark index. You have a better chance of meeting market
gains than you have of beating the market. That is the major
purpose of index funds. Index funds are becoming more
popular among investors. Actively managed exchange-traded
funds and mutual funds saw outflows of almost $514 billion.
Passively managed funds, on the other hand, saw about $1.6
trillion in new money (April 2014 to April 2017). The
increased popularity of passive investing and robo-advisors are
responsible for this. There are index funds across different
asset classes. An investor can acquire funds that focus on a
specific sector such as technology or on companies with large,
medium, or small capital values. These indexes may not be as
diversified as the broadest index market, but they are still
diversified. What is in It for You? Although individual stocks
rise and fall, indexes rise with time. You may not get an insane
profit during a bear market with index funds, but you will also
not lose your money in one investment. With index funds,
there are fewer fees that reduce your returns. For index funds
the expense ratios (cost of management and commissions of
your account) are lower. This is because they are easier to run
than the managed accounts. You will not be paying someone
to assess financial statements. You diversify your portfolio
with index funds. Index funds, just like other mutual funds,
spread risk and offer investors more choice among riskier and
conservative investments and a wider mix of asset classes and
industries. It is easy to understand index funds. It may be a
little difficult to understand most investing strategies.
However, what you see with index funds is exactly what you
get. Index mutual funds are an easy, affordable, and diversified
option of investing in the stock market. When you buy an
index fund as an investor, you get a variety of stocks in a
single package—without having to go through the trouble of
buying each one individually. The management fee is low
because the funds contain all investments in a specific index.
You, therefore, end up getting higher investment returns. You
can buy an index fund from a brokerage or a mutual fund
company. The same applies for ETFs (exchange-traded funds).
When deciding where to buy, consider the following: Fund
selection: do you prefer to buy index funds from different fund
families? Major mutual fund companies hold their
competitor’s funds. However, the selection is likely to be
limited compared to what you will get from a discount
broker’s line up. Convenience: look for a single provider who
will cater for all your needs. For instance, if you are only
interested in mutual funds, a mutual fund company will do just
fine as your investment hub. However, for screening tools and
sophisticated stock research, you may need to go to a discount
broker. Commission-free options: see if they offer
commission-free ETFs or mutual funds with no transaction
fee. Trading costs: check how much a fund company or broker
charges to sell and buy the index fund if there is no waiver for
the transaction fee or commission. Index mutual funds usually
track various indexes. One of the most popular indexes is the
Standard and Poor’s 500 index. It tracks some of the largest
and well-known businesses in the U.S and represents a wide
range of industries. There are other indexes, like the S&P 500,
made of other assets such as stocks chosen based on:
Company size and capitalization, Geography, Business
industry or sector, Asset type, and Market opportunities. Despite
the wide range of options available, you will probably need to
invest in one only. Index funds are known for their low costs.
Since they are automated, they do not require a lot of money to
run. However, they still have administrative costs which are
deducted from each shareholder’s profit. Two funds with a
similar investment goal may have varying management costs.
The fractions may not seem significant but in the long run,
they can take a huge cut off your returns. These are the costs
you should consider: Investment minimum: this is the
minimum amount that is required to invest in an index fund.
Account minimum: this should not be confused with the
investment minimum. Expense ratio: this cost is deducted
from each shareholder’s profit. Tax-cost ratio: these are also,
in most cases, deducted from the investment returns. Is the
index fund serving its purpose? It should reflect the progress
of the underlying index. Can you afford the index fund you
want? You can buy just a piece of the fund if it is too
expensive. Would it be better to buy stocks? Are you making
progress? There are calculators online that you can use to track
your progress. For someone who does not know much about
the stock market, everything about it can be so confusing.
Phrases such as “intraday highs” and “earnings movers” are
not very meaningful to the average investor, which is not a big
deal. If you are investing for the long-term, this lingo and the
green or red flashes at the bottom of your TV display should
be the least of your worries. You do not have to watch the
stock market. If you would like to become a pro at trading
stocks, you might want to start by learning the basic stuff on
how the stock market functions. The stock market comprises
exchanges such as Nasdaq and the New York Stock Exchange.
It brings sellers and buyers together. Simply put, it is the
market for the stocks’ shares. The exchange tracks the demand
and supply and of course, each stock’s price. However, the
stock market is not like any other market. You do not just go
and pick up your shares as you do with products at the grocery
store. Brokers represent individual traders, usually an online
broker, thanks to technology. The broker conducts the
exchange for you. When people say that the stock market is
down or up, they are usually referring to one of the primary
market indexes. The market index monitors how a group of
stocks perform. The most common indexes include the Dow
Jones industrial average, the Standard & Poor’s 500, and the
Nasdaq composite. They are used as a representation of the
overall market’s performance. Indexes are used by investors to
benchmark their own portfolios’ performance. If you want,
you can invest in a whole index through exchange-traded
funds and index funds. A bear market is when the prices of
stocks are falling across several indexes. The bull market is the
opposite. Since March 2009, the stock market has been a bull
market and so many new investors may not have experienced
a bear market. A bear market comes after a bull market and
vice versa. Investors are usually confident in a bull market and
this translates to economic growth. In a bear market, investors
start to pull back and the economy will most likely fall. The
bull market lasts longer than the bear market. Therefore,
investing in stocks for the long-term is a good idea. The year
2017 saw fewer drastic shifts in value. The calm period came
to an end in February. The market experienced a 10% drop in
value. This was a correction. A stock market crash is when
stock prices drop suddenly and sharply. A great example is
October of 1987 when stocks dropped 23% in one day. You
cannot avoid bear markets as an investor. However, you can
avoid the risk that an undiversified portfolio brings about.
Inevitable market setbacks will hurt your portfolio less if you
diversify. Creating a diversified portfolio can be a headache. A
better option is a mutual fund. Everybody wants financial
freedom. Many try to find it by doing what they are passionate
about. There are people who have found it by climbing up the
ladder in the company where they work while others have
started a business. In the past five-year period, more
millionaires have emerged than in any other period. Online
resources and the internet in general are responsible for much
of that success. Most of these people have been cool enough to
write about their success and offer some advice and insight
about success and what to do to attain it. Warren Buffet, one of
the greatest investors in the world, warns strongly against
committing your money into businesses you do not know
much about. If you know nothing about the business models,
you have no business buying stock in the company. You can
avoid making this mistake by building a diversified portfolio
of mutual funds or exchange-traded funds (ETFs). However, if
you decide to invest in individual stocks try and understand
the company as much as possible before you buy. Sometimes,
the company you have invested in performs very well. You
can easily fall in love with the company and even forget that
you are an investor. Never forget that you bought stock for the
purpose of making money. If you notice that any of the things
that convinced you to purchase the stock have changed,
consider selling. History has proven, time and again, that
slow-and-steady progress is powerful. This applies to every
area of life and investing is no different. Instead of opting for
last-minute Hail Mary tactics, have a disciplined, slow, and
steady approach— and you will not regret in the long-term. Do
not expect your portfolio to work magic. Have realistic
expectations and take all factors into consideration. Turnover
is a dangerous thing, a returning killer. If you are not an
institutional investor with low commission rate benefits, the
cost of transactions and short-term tax rates will finish you.
Add to this the fact that you will miss out on the gains of longterm investments. Market timing is another killer of returns. It
is very difficult to time a market successfully, even for
institutional investors. Your asset allocation decisions are
responsible for your portfolio’s return, not security selection or
timing. Getting even might see you lose your returns. If you do
not realize a loss as an investor, you lose in two ways. First, if
you do not sell a loser, it may drop until it is worthless.
Another thing is the opportunity cost of the alternative better
use of the money. A seasoned investor can generate alpha by
concentrating on a specific company. However, newbies must
never try this. Apply the principle of diversification. As you
build your mutual fund or ETF portfolio, make a point of
spreading out. Consider all primary sectors and do not allocate
any one investment more than 5-10%. It is said that greed and
fear rule the market. Think about the bigger picture.
Understand that stock market profits are wild over the short
term but over the long term they can average 10%. Do not
make irrational decisions. Create a plan of action: develop
your investment goals and a clear plan on how to achieve
them. Have your plan on automatic: review your investment
performance at the end of every year and make any necessary
changes. Set aside “fun money”: this is for when you get
tempted to spend.
Chapter 18
The Four-Hour Workweek
T
he Four-Hour Workweek has inspired many to explore
their entrepreneurial side. The book, written by Tim
Ferris, is inspirational. However, people do not attain the
literal 4-hour workweek. Ferris is probably promoting his
endeavors or himself for over four hours a week. With that out
of the way, you should know that the book has many practical
tips. You will also draw a lot of inspiration and
encouragement. You will be inspired to rise above average and
focus on what matters, rather than what is urgent. Here are the
main points. D is for Definition - Separate yourself from the
notion of slaving for a pat on the back and a gold watch. Do
not entertain the idea of retirement being a holy grail. Do not
focus on the amount you make annually (absolute income).
Focus, instead, on what you earn vs your actual effort (relative
income). Take 5 minutes to sit and define what your dream is.
Take five minutes and think of the worst possible outcome if
you decide to chase that dream. Can that nightmare make you
abandon the dream? E is for Elimination - Before the end of
the day, make a to-do list for the following day. If you
accomplished just one item on the list (anyone) would you say
your day was productive? From the moment you wake up, be
determined to cross off everything on that list, knowing that it
is all worth it. Do not multitask. This makes you complete one
task faster. Try as best as you can to end the week on Thursday
or the day at 4 PM. Make it a habit to compress productive
time. Stay away from the media for one week. Only check
your email twice a day. Do not go to or set a meeting if you
have no clear agenda. There is nothing wrong with having a
“do not disturb” sign when necessary. A is for Automation You can make passive income with little effort if you set an
appropriate middleman. L is for Liberation - Change jobs to
one that allows you to work remotely. You can efficiently
improve your relative income with geographic arbitrage. Time,
not money, is the best asset in your life. In theory, building
retirement wealth is quite easy. There are three things
involved: how much you invest, how fast your money grows,
and the time you give it to grow. The reason why many people
fail in wealth building is because it is not about understanding
the principles. You need to act effectively. Have that in mind
as you read the tips below. Never underestimate the power of a
written plan. Without it, how will you execute the financial
success formula? A written plan is the first step and it acts as a
roadmap to where you want to go. Many people are more
concerned with looking wealthy instead of being wealthy.
Lifestyle is preferred by the current generation over financial
freedom. Rather than accumulate assets, they spend. Spending
money will never make you rich. Your financial intelligence
will determine how much your money grows. Before you
invest, learn. Any market condition can offer you an
opportunity to make a profit if you are an expert. Research,
read and take courses. That will be money well spent. Another
thing that affects your accumulated wealth is the amount of
time your capital must compound and grow. The longer you
wait to start investing, the less you will have when you retire.
A little procrastination will cost you. Automatic actions are
easy and less painful. Automate some actions to increase your
assets. You do not have to put in extra work or make an
additional decision. It is a good way to ensure that you stay on
track. Taking full responsibility for everything that concerns
your wealth. It helps you take the necessary action. You decide
when to start investing and what you spend money on. Make
these decisions and own the results. Under-commitment is a
recipe for failure. If you want to attain your wealth goal you
have to get all the resources required for that. If you can easily
access your savings whenever you want, you are setting
yourself up for failure. This is what makes governmentsponsored plans great. Do not go to your savings every time
you need something. When it comes to investing, choose a
smart strategy that reduces the risk of volatility and loss by use
of different tools. Some of these tools include a sell discipline,
valuation, careful asset selection, and diversification. Note that
defensive investing does not mean avoiding risk
completely. Speculative frauds and manias will destroy your
retirement plan if you are not keen. Whatever you choose to
invest in must make business sense. Death is certain. It is
important to leave things for your loved ones. This is not
something that people love to think about it—but that is just
how it is. Plan who will get what. Retirement planning is not
just about money. Think about interesting activities, your
health, and relationships. You will be happier as a retiree if
your life is fulfilling.
“A JOURNEY OF A THOUSAND miles must begin with a
single step.”
—Lao Tzu
FIRE Coach
T
here is so much information everywhere you turn. And
you cannot be good at everything. Building wealth for
many people is complex. You can barely find time to read
about all things finance. That is why a financial coach may be
your best option. Here are some of the benefits you will enjoy.
Customized wealth plan: financial coaching helps you get a
wealth building plan, customized based on your interests,
resources, values, and unique skills. Consistent results: once
you have a plan, you need to be consistent in your actions.
Financial coaching offers weekly accountability which
eliminates distractions and procrastination. Improved
efficiency: without wasteful distraction, you will have clarity
and focus more on your wealth plan. Less mistakes: a financial
coach brings experience to the table and the experience of all
other clients. This helps you avoid most mistakes. Lasting
change: a financial coach will not just offer you a temporary
fix. They find the underlying cause of your financial troubles
and make changes that will last. Personal confidant: financial
coaching sessions are non-judgmental and private. The coach
gives you undivided attention and they do not have conflicting
interests. Balance and happiness: your financial life is tied to
other parts of your life. So, while the coach helps with
finances, they also improve every other area such as health and
relationships. Fast growth: coaching cultivates an environment
that is conducive for fast growth. Stress and risk are properly
managed. Enhanced problem solving - as you grow, expect
obstacles and problems. But it is easier with financial coaching
because you have an experienced brainstorming partner.
Creative alternatives: following conventional paths will rarely
bring you to success. But new paths are not without risks. A
financial coach helps you face the risks creatively. Better
financial habits: financial coaching improves your financial
habits which eventually have a positive impact on other areas
of your life. Thrive, do not just survive - financial coaching
provides a plan and actions to take. You will have no doubts
about your future when it comes to finances. Wealth as a
primary business: in your journey, you will learn that personal
finance is like a business. Become a financial expert: the coach
will educate and equip you with knowledge required to make
effective decisions. Proven principles: do not guess or invest
based on other people’s opinions. A coach will give you
proven strategies and models. Confidence in investing: with
proper knowledge, you will know what to do even when things
are bad in the markets. Strong personal foundation: financial
coaching gives you a strong reliable financial
foundation. Specialized resources: the coach will offer you
access to resources and knowledge that are hard to come by.
And they will be customized just for you. Simplified concepts:
there are a lot of complex topics in wealth building. A
financial coach breaks them down for you. Convenient: you
can choose to have the coaching done over the phone and set a
schedule that works for you. Measurable results: you measure
financial coaching by its results. You get value for money or
discontinue. Monetary wealth is not what you need to be
happy. You may not want to hear this, but it is the truth.
Anyone can access happiness. Many people work towards
financial freedom and get disappointed when they learn that it
does not come with happiness. You can be happy right this
moment, regardless of the troubles in your life or your current
financial situation. Money and Happiness: The Truth - When
you have financial freedom, your life becomes self-determined
and not predetermined. You can no longer make excuses for
having a less than ideal life. Your happiness becomes your
responsibility. People who work every day have a
predetermined life. Most of their time is spent working. They
spend the remaining time catching up with family and running
errands. They barely have time to build a unique life
destiny. After you gain financial freedom, you suddenly have
all the time in the world. Your days are not predetermined, and
you can do whatever you want. You cannot blame your
unhappiness on anyone. This becomes a burden for many
people. When Reality Strikes… Retiring young, having
attained financial freedom is an unexplainable feeling. And it
is even better when you have a significant other to share the
experience with. But like many people, your happiness will be
short lived. You spend all your time working hard thinking that
all you need is financial freedom and then you will be
personally free. That is not how it works. Even after financial
freedom, you will still be the same person. Your personal
issues will still be with you. The only difference is that you
will have more time to see the truth. And this time, you will
not have work as a distraction. You will realize that what you
really needed was not financial freedom but personal
freedom. Some people may slip into mental issues while
others will find themselves on a personal growth
journey. Daily Happiness Accountability - Your thoughts
determine your happiness. If you want to be happy, have the
right frame of mind. If you cannot come up with happiness
thoughts off the top of your head, here are a few to get you
started. Choose Happiness - Choose not to be unhappy. Let
happiness be a direct choice; not dependent on anything. You
do not need favorable events to be happy. Do not postpone
happiness. Work from a happy place. Do not limit your
happiness. Misery, just like happiness, is an option. Let Go of
Judgments - Have an accepting attitude. Do not complain,
shame, or blame. Be compassionate toward others. Believe
that everything is for the best. Do not focus on other people’s
businesses. Choose how you react to events. Be Present - You
are unhappy because you worry about the future or regret the
past. Be Grateful - Do not take anything for granted. Live in
your blessing. Appreciate every little miracle. Be thankful for
what you have now. Begin your day with active gratitude.
Strong Social Connection - Be authentic. Simplify yourself.
Have one face. Live with Contribution - Make someone else’s
day. Serve a bigger purpose. Give happiness to experience
happiness.
“WEALTH IS LARGELY THE result of habit.”
—John Jacob Astor
Conclusion
W
hen you ask most people, they will tell you they
never expected the FIRE movement to get so
popular. Foregoing the pleasures of life and saving 50%+ of
income to retire at 30 or 40 is not an easy thing to do. In 2020,
the FIRE movement is at its peak. Unfortunately, that means
there is no more rising—the only way to go is down. Every
day, you see a story of someone who retired early and how
they achieved that. This is how you know that FIRE is at its
peak. Any investor knows that when you see the news in print,
you cannot invest because it is too late. But it is usually a great
time to sell. Investors try to forecast the future. And many will
tell you that the FIRE movement is about to face a rude
awakening. Faithful FIRE believers realize that it is not what
they imagined once they leave their good jobs with amazing
benefits. FIRE followers may have to go back to their regular
jobs if a downturn comes (thanks to the corona pandemic). In
a recession, FIRE is a stupid idea. DIRE (Delay, Inherit,
Retire, Expire) is now the new kid on the block. Delaying
retirement is the best option for most people. It could be due to
increased costs of education, healthcare, and housing. For the
past decade, the median household income in America has
remained stagnant and the house price has risen to $222,000
from $177,000. Some residents have even lost hope of
becoming homeowners. The cost of healthcare is another story.
Without an employer to subsidize the monthly premium, the
burden is just too much to bear. College tuition is also out of
control. If you have kids, retirement ends up being nothing but
a fantasy. Since early retirement seems to be too far out of
reach, many Americans think that inheritance could be their
retirement strategy. Parents in the ‘70s had kids while young
(about 25 years) and people are now living longer. Because of
this, the average American will not inherit anything until they
are around 55 years. Future generations will wait even
longer. With DIRE, the retirement age has been pushed to 70+.
Since people are living longer, it is only logical that they work
for as long as they can to support themselves. You may not be
able to play golf with a bad back—but at least you can binge
watch tons of shows and order takeout everyday. DIRE
followers will not be happy at the end of their lives. They had
to work most of their lives because they did not have much of
an option. But they also know that the early retirement dream
is just that—a dream. So, they did what they had to do to
survive. Compared to recent years, Americans are optimistic
about the economy and their finances today. However, only
about 50% feel that they are financially secure. This is
according to The Pew Charitable Trusts. Most participants said
that they spend more money than they make in a month. Over
50% said that they do not feel prepared for a financial
emergency.
The survey was carried out on over 7000 households and
focus groups done in Phoenix, Boston, and Orlando. The
purpose of the survey was to see the perception of Americans
on their financial security. It also sought to find out how these
views differ regarding race, wealth, and income, among other
demographic factors. The results show that while the economy
has continued to recover steadily, Americans still feel
vulnerable. They constantly worry about finances. More than
90% of Americans say that they would rather be financially
stable than climb the income ladder. Here are the key findings
of the survey: 56% of the survey participants were positive
about their financial situation. The number has gone up from
42% in 2009 during the recession. In 2008, only 9% rated the
economy positively; but the number went to 27% in
2014. 51% of American households said they feel financially
secure. Over 56% reported that they were worried about their
finances, especially over the past year. This was because of a
lot of factors, including retirement and short-term bills. 57%
said that they do not feel ready for a financial emergency. Over
half of the participants have expenses that exceed their income
or are barely breaking even. 33% reported that they have no
savings. Only less than half (45%) said they have consistent
expenses and a steady income. Among these households, 36%
disclosed that they had no savings. Concerning retirement
plans, 21% had no plans to retire and 53% hoped to venture
into something else, like a different job. Only 26% said they
had retirement plans where they will quit working
completely. 60% of households disclosed that they had
experienced financial shock—house or car repair, loss of a
partner/spouse, hospital visit or drop in income—over the past
one year. 55% in this group reported that the setback was hard
on them financially. 92% picked financial security over
climbing the income ladder when asked to choose between the
two. In 2011, this number was down by 7 points. The results of
this survey supplemented the analysis of financial data by
Pew, released in January. It showed that the family balance
sheets were in a precarious state by assessing what the families
thought about their financial status. Policymakers can consider
this additional information when coming up with proposals to
help the American families. Many US citizens are now
thinking about retiring abroad, and they want to do it sooner.
The conventional retirement plan does not seem to work
anymore. Luckily, the meaning of retirement has changed a
little. No one wants to sacrifice the comfort of their current life
for a future that is so far. It is better to balance this life and the
one they hope for in the future. The last generation saved as
much as they could to fund an income stream for their
retirement. This, along with pensions, helped them achieve
comfort post-retirement. Life expectancy is higher now and
people must work longer. But they want to do it without
subscribing to the 9-5. With the advancement in technology,
they can work and still enjoy the freedom they desire. The
main issue is figuring out what to do to earn an income while
still having the freedom that really matters to them. Others
prefer to build the kind of life that they will not have to retire
from. That is what retirement means for many people. When
you bring up the retirement conversation with people, three
key variables will always come up. Where they live vs where
they want to retire, retirement places like Arizona and Florida
are not attractive anymore. People are now talking about
Thailand and Mexico. Arizona and Florida have always been
great retirement spots. But the federal and local tax rates are
crazy. You may have to pay 21% (Arizona) or 18.75%
(Florida) in taxes when earning about $100,000. If you
become a permanent resident overseas, your after-tax income
could increase by 25%. Strength of the dollar: people realize
that it is very cheap to move overseas. Compare the New York
cost of living with that of other cities. It is 49% cheaper to live
in Phoenix and 33% cheaper in Fort Lauderdale— compared
to New York. It gets even cheaper when you decide to live
abroad because the U.S dollar is strong. Take a city like
Merida in Mexico, for instance. The cost of living is about
$1435 a month. You will be surrounded by gorgeous beaches
and an international airport. The cost of living in Chiang Mai,
Thailand will be roughly $2047 a month. By saving money on
taxes and living a cheaper life, you will have more left to
spend. Decent healthcare: there is something very wrong with
the U.S healthcare system. That is not the case abroad. You
will enjoy amazing medical and dental coverage. You may
never have to pay for healthcare out of pocket. In some
scenarios, you can get worldwide coverage. The medical costs
in the U.S are widely elevated, compared to other developed
countries. Retiring abroad could see you save taxes and get
better healthcare at reduced costs. Once you find a way to earn
an income, you can easily live an awesome life. For this
reason, many people are retiring early and moving out of the
United States. Everyone wants a fulfilling life. Many people
do not necessarily want a long life; just a fulfilling one
characterized by happiness, achievements, and zero regrets.
However, this seems like a fantasy to many. People around
you may throw some discouraging comments your way, saying
how a ‘fulfilling life’ is for the rich. While that may be
partially true, you will be relieved to know that financial
freedom is not necessary for a full life. Living a life of fullness
begins with a willingness to learn. Every working professional
remembers the time when they were in school. The morning
lecturers and the exams were not so fun, were they? You
wished to be done with it and begin working. Now that you are
working, there are days when you miss being in school.
College life may not be very stressful compared to your
current life. There is a lot that you need to experience and
learn. With your social life, business, family commitments and
everything else, time is a limited resource. You must find new
ways, every time, to absorb new stuff efficiently. When you
gain new knowledge and learn new skills, you get solutions
and answers to your life problems and in turn, a higher sense
of fulfillment. Formal education and qualifications are
important if you want to secure a good job. However, going to
school is not the only type of learning there is. You learn in
many ways and the experiences help you grow. You can
acquire knowledge and develop skill sets anywhere.
Nonetheless, lifelong learning involves having a positive
attitude towards learning, both for professional and personal
development. A lifelong learner develops and learns because
they have made a choice to do just that; it is a voluntary and
deliberate act. When you become a lifelong learner, your
understanding of the world is enhanced, your quality of life
improved and you can access better opportunities. People are
now retiring later in life, thanks to increased life expectancy.
As a lifelong learner, you have better chances of having
productive working days. You will experience profound
progress and a sense of wellbeing. A knowledgeable and
highly skilled employee is considered an asset in a company.
This means faster promotion and, of course, a salary increase.
With more expertise, a worker adds value to customers as well
as employers. Expertise is also considered a major quality of
effective leaders. When you keep on amassing knowledge, you
will have an advantage over those that do not think lifelong
learning is important. People change career paths all the time.
You can always start afresh in life, no matter how old you are.
When you educate yourself and learn new things, your
opportunities widen. You will have a way out if what you are
currently doing is not fulfilling. You will always hear people
giving excuses saying that they were not born with the talent
necessary to succeed. It is true there are naturally advantaged
people in some ways. However, attaining success at something
boils down to committing yourself and taking the time to
acquire and master skills. In fact, talent is nothing more than a
starting point. Nobody is denying that natural talent exists.
They are genetically advantaged, especially where physical
ability is concerned. Nonetheless, success is not always a
physical venture for most people. They just want to do
something and be good at it. They desire to earn a decent
salary while doing something fulfilling—all for a comfortable
life. When that goal is not attained, it is easy to sit on your
couch, sulking, and envying those that are successful. You will
start wishing that you were blessed with talent as well. You
should know that you can make things work in your favor. You
must be willing to change. The wrong perspective can have
you miss out on so many opportunities. As soon as you make
yourself believe that talent is all you need to succeed, you
have already put up a wall. You will convince yourself that
you cannot get to a certain point because you lack talent. The
problem with this kind of thinking is that it assumes that you
need innate ability to perform well. This way of thinking will
limit you. Sure, talent makes a difference. However, the lack
of it will never hinder you from following your talent. You can
be a master at a skill without having the natural talent—
although you might have to weather a few storms. Dedication
and passion are what really matters. Talent can be learnt.
Every successful person you see had to work hard to get there,
from the Olympic sprinter to the world-renowned musician.
Do you desire to be successful? Well, stop limiting yourself.
Ability is not talent. Think of abilities as skills. When you
refer to talents as skills, you tell your subconscious that it is
learnable. If you know and believe that it is possible, you are
halfway there. This does not just apply to technical stuff like
playing the guitar. Even singing can be learned— and this is
supported by science. When everything to you is a skill and
not a talent, an entire world of opportunities will open for you.
The successful, talented people you see will only be dedicated
individuals in your eyes. Rich businessmen/women will be
disciplined investors. Famous public speakers will just be
people who took time to practice. If you set your mind right,
the next half of the battle will be possible to conquer. Know
what skills you desire to acquire and start practicing. Have a
target and dedicate yourself.
“The reason why we have never found measure of wealth.
We never sought it.”
― George Clason, The Richest Man in Babylon
About the Author
Adidas Wilson was born in Chicago, Illinois, surviving a near
death experience driving off a bridge in an 18 wheeler and
getting hit by a train. Adidas has dedicated his time and effort
to educate, motivate, and inspire people around the world to
make positive lifestyle changes. Adidas enrolled at the
University of Phoenix graduating with a bachelor’s in
Healthcare Management. Also studying Health care
Informatics - Master Degree program at Lipscomb University.
Amazon Best Seller’s List and mentioned in Entrepreneur
Magazine.