Another Concept Not Being Taught In Our Public Schools

We’re all born and we all die! These are things we all have in common whether we’re heading up a Fortune 100 company or broke and unemployed. Getting from birth to death has a cost to it. Granted that cost may be higher for some than others, but it’s a fact that our journey through life has a cost to it. What may not be so obvious is the fact that the money we spend today pays for the days from birth to the present. It’s the money we don’t spend; the portion that we invest that pays for the days from death back toward the present. When your investments grow to become enough to pay for the rest of your days on Earth, that’s financial independence. I call it functional retirement, because it’s the point when you get to choose what you do each day rather than having to do what someone else wants you to do to earn a living.

The beauty of reaching functional retirement is that there’s no age limit associated with it. Depending on your success, you might become financially independent in your 20s, 30s or 40s instead of waiting until your 60s or even 70s, but you’ll never get there without investments. With that thought in mind, can you see how starting to invest early and investing as much as possible can move retirement up dramatically? Why is this concept so difficult for young people to grasp? I think a lot has to do with our educational system.

Last week I wrote about the failure of public schools to teach basic consumer economics. Paying bills, balancing bank accounts, and understanding how and when to use credit are critically important to handling the money you earn, but that’s just the beginning. Understanding wealth and how to create it is even more important. When I talk with educators about the problem, they point to a myriad of initiatives that when reduced to a common denominator, all focus on teaching students how to get a job and work for a living. They never discuss programs designed to teach young people how to build wealth and secure their futures.

We are all blessed with three eight hour blocks of time per day, seven days per week. In a typical work week, most people work five of these eight hour blocks and they sleep seven of them. It’s what they do with the other nine that determines their fate in life. Most people treat the hours they aren’t working or sleeping as fun time and try to entertain themselves during these 72 discretionary hours. Unfortunately, this can be a recipe for disaster when it comes to wealth building.

If you work 5 of these eight hour blocks of time, try to pay all your bills with the money you earn, plus entertain yourself during all this discretionary time, can you see how money might become an issue? Why not invest part of your spare time instead of spending it? Thirty seven years ago, I decided to invest a few hours each week learning how to buy investment real estate. I recognized the potential it had for producing passive income. In case you don’t know; that’s income for which you don’t have to work.

Today, I still own all the investment properties I’ve purchased over the past 37 years. The income, which was only a break even proposition during the first year, has become enough to secure my future for the rest of my life. That’s what happens when you use patience and persistence and are willing to accept delayed gratification.

This concept is not being taught in our public schools. If you don’t believe me, just ask a few young people to tell you how much money they would have at age 60 if they started at age 20, invested $100 per month and earned an eight percent return compounded monthly. I did this recently and not one of the 14 new high school graduates I interviewed could come up with the correct answer. It’s just over $351,000, or at an 8 percent return, enough to pay a monthly income of almost $2350 per month for the rest of their lives. If they can’t calculate the future value of today’s actions, how can we expect young people to understand the value of delayed gratification? Why aren’t our schools teaching this?

401K plans, IRAs and other retirement type accounts rely on compounding interest and delayed gratification to produce maximum results. These investments aren’t attractive to most young people because they can’t calculate the future value of the account. They would rather have a new car or boat now and worry about the future later. The problem with this thinking is you lose the value of compounding in the early years. In the above example, by starting at age 20, it takes less than 9 years for the interest earned each month to exceed the $100 deposit being made. At that point over $200 per month is being added to the account. Students should not be allowed to graduate high school without understanding this concept.

Here’s a tip! I like real estate as a long term investment for several reasons. First, because it can be highly leveraged, real estate can earn outstanding returns on the cash invested; returns that are far greater than the 8 percent mentioned earlier. Secondly, rents from real estate grow with inflation. Third, as rents increase and mortgages pay down, cash flow increases. Fourth, real estate appreciates in value which increases the owner’s net worth. Fifth, and I think most important, real estate provides great protection from impulse spending because it cannot be readily converted to cash on a whim. Finally, current conditions are the best I’ve seen in my lifetime to invest in real estate.

Original text from article for Asheville Citizen-Times, 35th week of 2008

Many Factors Play Into Reaching Financial Independence

We hear a lot of talk about financial independence, but how do you define the term. Financial independence for someone comfortable with a $3,000 per month standard of living is totally different from someone who wants a $30,000 per month standard of living. I define financial independence as the point where your assets are able to produce enough income to sustain your chosen standard of living without having to trade labor for earnings. With this in mind, achieving achieve financial independence must start by setting a goal for the kind of lifestyle you want to live.

When setting your goal for financial independence, several factors come into play. Among these are, the standard of living you expect to live, the amount of time you’re willing to allocate, the sacrifices you are willing to endure, and the decisions you are willing to make. These factors determine how you will divide your earnings between improving your current standard of living and investing for the future.

You make little decisions consciously or unconsciously every day that have a major impact on your future. Do we eat out tonight, or save money by cooking at home? Do we buy that new pair of sneakers just because our friends have the new style, when we already have a perfectly good pair? Do we trade cars now and get that new one that smells and looks so good, or do we wait a year or two and invest the savings? How many decisions like this, big and small, are you faced with every day? Do you realize that a day’s income invested today could pay for several days 20, 30, or 40 years from now?

Time is the one commodity that is distributed equally to all living creatures. You can’t save time, hoard time, bank time, or accumulate time. You can only spend it. The decisions we make each day are a reflection of the way we spend this time. It’s how you spend time that determines what you accomplish in life and whether or not you achieve financial independence.

There are many ways to spend time. You can spend it usefully, constructively, beneficially, creatively, efficiently, positively, productively, and wisely; or you can spend it wastefully, foolishly, frivolously, extravagantly, lavishly, carelessly, and inefficiently. If you think about it, you can come up with hundreds of other ways to spend time, but not a single way to get more of it.

So, if you can only spend time, what can you do to become more successful and achieve financial independence? The answer is simple: You improve yourself. Through education and practice, you learn how to produce more in the same amount of time. Unlike time, you can save and invest part of the income from this increased production and that’s how you achieve financial independence.

For example, if you are a typist who types 40 words per minute, you can become twice as valuable by increasing your typing speed to 80 words per minute. This translates into additional income which can either be spent or invested. One of the biggest reasons people fail to achieve financial independence is they spend everything they make, which forces them to work their entire lives just to exist. They lack the discipline to regularly invest part of what they earn and allow the investment to grow until it is able to produce enough income to support their lifestyle.

Over the years I’ve heard thousands of people gripe and complain about their jobs, their lifestyles, and other people who seemed to get all the breaks. These people all had a common characteristic. They weren’t willing to take the time they spent complaining and use it to improve themselves and become more valuable to others. I overhead one of these conversations at lunch last week and in the conversation, the man doing the complaining proudly proclaimed that he hadn’t read a book since he got out of school. Umh!

Here’s a tip! Whatever you are doing to earn a living, commitment yourself to get better at doing it. Ignore those who might criticize you and vow to become the best at whatever you do. Whenever this increased performance results in a pay raise, commit to taking half of it and putting into an investment account. Deposit this amount every time you get paid.

Although it will start small in the beginning, you’ll be amazed at how fast your investment account will grow. Do the same each time you get a pay increase throughout your working career and you’ll be surprised how this one simple act will propel you toward financial independence. Once your investment account reaches a certain level, it will open the door to other investing opportunities that were not available when you had very little to invest.

When you make a true commitment to learning, you will become more valuable in the workplace and your compensation will grow exponentially in proportion to your level of expertise. Why do you think the CEO of major public companies makes 100 times as much or more than the production workers? Is his or her time really that much more valuable? You bet it is or they wouldn’t be getting paid that much. Public companies are not benevolent intuitions. They’re in business to make profits for their shareholders and most CEOs are compensated based on the profits they produce. Interestingly enough, so are production workers…it just isn’t stated that way.

Original text from the article written for the Asheville Citizen-Times, 10th week of 2008

Learn To Manage Time If You Want To Build Wealth

Young or old, rich or poor, we all have one thing in common. For the CEO of a major corporation and the person doing manual labor for minimum wage, time is a common asset. They both have 24 hours in a day, 7 days in a week and 52 weeks in a year. It’s what they do with this time that result in one rising to the top of the corporate world while the other struggles to make ends meet. What you do with your time determines how quickly, if ever, you achieve financial independence.

Time management enables you to get more done in less time. It’s what allows you to free up a few hours each week that you can devote to building wealth and creating financial security. Those who don’t understand time management spend their entire week scurrying around doing busy work and complaining about how they don’t have time for anything else. A good manager of time can get more done in an hour that many people can all day.

Your willingness to work long hours may be noble, but what you accomplish is far more important than how long you work. Furthermore, spending all your time working can be very draining. If you’re like most people, after eight hours on the job you’re tired and just want to get home and rest. That’s fine, but good time management will allow you to schedule time to rest plus all those other little things that need to be done around the house and still leave you with a few hours to devote to improving your finances.

Time management takes the pressure and stress out of working, thereby making it more fun and more productive. When you plan ahead and block off a few hours to devote to wealth building, you’ll find yourself scheduling the other things you need to do in the time that remains. As a result, you’ll feel better while you’re doing the other things, because you’ll know that you have devoted time toward your goal of financial independence.

Time management also enables you to plan for recreation and family life, which helps enrich your overall life experience. A good time manager can take on monumental amounts of work, get it all done and still have time for leisure and fun activities. Being a good time manager conjures up the vision of a parent fishing with their children on a Saturday afternoon because they finished their wealth building activities Saturday morning rather than lying in bed half the day.

Good time management also gives you an incredible reputation for reliability. If you tell someone you’ll call them at 10:00 on Saturday morning, he or she can count on it. They’ll be sitting by the phone waiting for your call. If you tell someone you’ll mail certain information, they can expect it. If you tell someone you’ll handle a certain situation, the person can anticipate it will be done. People with whom you do business will admire you so much for your reliability that they will be drawn to you. Also, when you conduct yourself in this manner, people who work for you will soon learn that if they committed to complete a project for you, they better do it on time or you will be right behind them, following up.

The first rule of good time management is to concentrate on one thing at a time. Prioritize the tasks that lie ahead and then knock them off one at a time. Many people do the most enjoyable tasks or the ones that take the least amount of time first and put off more important ones for later. That’s why prioritizing is so important! Give yourself deadlines. I never truly appreciated the effect of deadlines until I wrote my first book and had to have the manuscript turned in by a certain date or suffer the financial consequences if it wasn’t.

Time management is one of those non-glamorous tasks that people tend to take lightly, but it’s the biggest difference between why one person builds wealth while another stacks up excuses. People often shy away from time management because they assume it means planning every minute of your life and living by a rigid schedule and having no fun. These are the same people who shy away from preparing a financial budget because they think it would mean they would have to account for every penny they spend and have no “mad money.” Nothing could be further from the truth in either case.

Here’s a tip! Think of time management as a budget; as planning part of your 24 hours, 7 days a week so that you get important things done first. That doesn’t mean you have to schedule every minute of your day. A good way to start is to pick the three most important things you have to do each day, allocate the necessary time and then do them first. Once they are accomplished whatever you do with the rest of your day will be more enjoyable because these important items won’t be hanging over your head like a big club.

Once you begin seeing the benefits of planning for three important items and getting them done, you’ll find it easier to start adding additional tasks to your planning schedule. It won’t happen overnight, but gradually you’ll find yourself getting more accomplished with less time. You’ll also find that good time management leads to greater success in life, no matter what you are doing and additional success often leads to financial independence. Try it! You’ll like it!

From original text of article written for Asheville Citizen-Times, 4th week of 2008