Friday, July 24, 2009
The book this week was The Total Money Makeover by Dave Ramsey. This book can help anyone who reads it. I feel like a lot of people have a immense amount of misguided pride about personal finance. People won't pick up a book like this one because they hate to think that there is anything wrong with the way they are spending their money. Well, I hate to break it to you, but if you are like 95% of Americans, you are using your money unwisely.
People don't learn about how to make the most of their personal finances in this world. And if they are one of the lucky ones that actually did get taught the basics of how to manage their money, they were most likely taught by someone who didn't have their own finances figured out.
Ramsey's book is a 7 step plan to provide "financial fitness." The basics of the 7 step program is to get rid of all your debt and live right. There is an incredibly powerful trend in this world to live beyond your means, finance your whole life, and live real close to paycheck to paycheck. It might be because someone is trying to keep up with the Jones' or because someone never told them that it was wrong, but there is a better life.
Ramsey's book has a lot of success stories of people who did the steps and turned their life around. I'm not one for sentiment, but the idea is that this program really works. The steps are: make a $1000 emergency fund, paying off ALL your debt, make your emergency fund larger (6 months of living), save towards retirement, save towards college, and finally, pay off your mortgage. Once you have that done you will be completely financially secure.
Most people can't imagine not having any debt because that is just not what they were taught. But it is possible and you will be so much better off if you get it done. The trick to getting rid of your debt- step 2- is to figure how to just get by for awhile (groceries, mortgage/rent, not a lot extra) and put all the money you have left towards your debts. Start with the credit card with the smallest balance and just keep going until every single one of your debts is gone. This includes student loans and car payments. From then on you will be paying cash for everything... your clothes, gas, and even your cars. It can be done, but it means living within your means.
Quick side note within the book - The average multi-millionaire doesn't buy a brand new car off the lot. They buy a 2 or 3 year old car that was previously used as a lease. It costs over 60% less and all the bugs have been worked out.
Now to the millionaire part! If you are living within your means with absolutely no debt you have the opportunity to invest in your retirement. There is nothing more powerful than the power of compound interest. The Standard and Poor 500 has had an average return of 12% for the last 70 years. We aren't talking about day trading here. If you are going to be in it for the big bucks you have to look long term. Find a good mutual fund and invest every month, as if its your new car payment, and you will see huge rewards. Let me illustrate this for you... If you invest in a Roth which grows tax free at 12% interest, with $3000 a year, starting when you are 30 years old. You will have $873,000 tax-free at the age of 60 years for retirement. Not to shabby! Or another example from the book if you invested $464 into a different mutual fund (Roth caps out at normally $3000 a year) from the age 25 to 65 you would have $5,448,854.45.
This book is not about getting rich quick and it's not about being adventurous and opening up a business. Anyone, seriously, anyone can do this... You just have to throw your pride away and really do it. It will probably be painful making the transition to living within your means and people will probably tease you because you aren't spending money as frivolously as they are. But I guarantee you if you read this book and take Ramsey's words to heart, you will change your life forever. You will have a wonderful retirement, your kid's college will be paid for, and you will have money to really have fun with.
A lot of the books I have written about in this blog have not been for everyone. This one is. I know the problems that money can cause in people's lives and this book is all about casting away those problems. Read this book. There are somethings in it that are unnecessary, but the concepts in this book are simple and priceless. If you have any questions on the book don't hesitate to ask me a question. I would be more than happy to help anyone that needs it.
Amazon Link to buy Total Money Makeover by Dave Ramsey
Friday, July 17, 2009
The book of the week was Good to Great by Jim Collins. This is considered a "must read" by most of the professors I have had. I think the book was pretty good. I definitely think it was a little harder to get through than most books, but that is because all the evidence in the book is backed up by cold hard facts. I would say the reading of this book is in between a business textbook and a motivational how-to book.
The book lays out a pattern of companies that made the jump from being a good company to a great company. Collins follows 11 good-to-great companies and 11 comparison companies. He noticed a pattern in companies that made it to good-to-great status. They all have certain attributes: Disciplined people, disciplined thought, and disciplined action.
After reading I decided that there are three ideas that are very important to achieving a successful business. Level 5 leadership, the Hedgehog Concept, and BHAG (Big Huge Audacious Goals.) If you have these ideas at the base of your organization, you are well on your way to success.
The first is Level 5 leadership, the book definition is: Builds enduring greatness through a paradoxical blend of personal humility and professional will. Most people never make it to this stage in their leadership and if you think you are a level 5 leader... you're not. Part of being a level 5 leader is having the ability to step back from the limelight and look at what is best for the company, no matter what. Most people don't even know of level 5 leaders because they aren't the ones getting the credit. They are more concerned with taking the company to where it needs to go than to get credit for it. Most of the time they credit successes to those around them and throw blame to themselves for all the failures. Although these people are a needle in a haystack, you get one and you are well on your way to greatness.
The next idea is the Hedgehog Concept. I love this one. You put your focus on three areas... what you are passionate about, what generates your revenue, and what you are best at. This makes up the three circles of the Hedgehog Concept. If you take those three circles and focus on where they overlap, you have your hedgehog. Just imagine, everyone at a company being passionate about what they do, being great at it, and generating revenue the whole time. Putting all those ideas together just sounds amazing.
Another idea I wanted to throw at you is BHAG. It sounds simple, but most people don't know how to make their Big Huge Audacious Goals effective. They get focused on things they aren't good at just because it seems like a good idea at the time. The way to focus your BHAG is to look back toward the Hedgehog. The place where your three circles intersect is where you do you goal setting.
If a company can couple the Hedgehog and BHAG with a Level 5 Leader, I can't imagine it failing. It would have incredible controlled growth doing things that matter for the people that work there. If I ever start a company, I will make sure that I implement these concepts. And I really don't think I will ever get to be a level 5 leader, but I know that if I ever find one, I will hold onto him or her and we will do great things together. I do want to say that Collins talks about companies rushing into things too quick. When making a company great, it takes time. Most of these companies did it over the span of several years. Rushing into things is a sure way to get in over your head and not make the jump to greatness.
I think this book is very good and also very informative. There is so much information on this book I could write for pages and not even touch some of the material. Seriously, Jim Collins and his research team worked on this for 5 years! Not something I can sum up in a few paragraph review. And I think the book has very powerful information that is invaluable to any entrepreneur or manager. However, I don't think it is for everyone. This book would seem a lot like studying for a lot of people, especially if you are not particularly concerned with the ideas behind making a organization great. But if you do read this, go in with an open mind and think about how you might be able to incorporate the material into your personal life. If you have any questions on the book don't hesitate to ask me a question. I would be more than happy to help anyone that needs it.
Amazon Link to buy Good to Great by Jim Collins
Friday, July 10, 2009
The book this week was Rich Dad Poor Dad by Robert Kiyosaki. Amazing book. Kiyosaki's title comes from his upbringing. He had his biological father, a PhD educated professor, and his best friend's father, a serial entrepreneur. The first dad was the poor dad and the second was the rich. His poor father told him to work hard and get a good education and he would get a good job to take care of him. His rich father told him to go against the norms of society and gain financial independence.
The first step to gaining your financial independence is learning how to apply accounting concepts to your personal life. It's real simple and Kiyosaki says the reason most adults don't catch on is because it's too simple. But the trick is all about cashflow. You have to make sure your assets are greater than your expenses. The hardest part about this is determining what an asset is. An asset is anything that is going to perpetually give you income: stocks, bonds, notes, some real estate, etc. Most people don't worry about making the assets greater than their expenses and for those people... it doesn't matter how much money you give them, they will always be in over their head just scratching to pay off bills. Kiyosaki's poor father was making a great salary, but he didn't know how to regulate his cashflow so he was always over his head.
One issue in the book, which is brought up quite often, is that going to school and getting a good education is not enough to get everything you want. If you go to school, pass you classes with straight As and get into a high paying job... The government is still going to reach into your check before you can even spend a cent and tax you 40-50%. That means that you work your new job out of school and the first 4 to 5 months you are working goes straight to the government. Doesn't seem fair.
On the other hand, Kiyosaki points out what the rich do. They use corporations to protect their money from the government. A loop hole that politicians put into the books to help themselves (the rich). You see, when you have a corporation you don't get taxed until after you have spent all your money. That means that instead of the average American who is getting paid $30,000 a year, who gets 40% taken right off the top, who can spend $18,000 on their needs and wants. A corporation that makes $30,000 a year and can spend as much of that $30,000 on company cars, dinners with clients, company housing and then gets taxed on what is left after those purchases. Sounds a lot better... and anyone can start a corporation.
Kiyosaki was taught at a early age how to play the game by his rich dad. When he grew up he worked at a job just like everyone else, at Xerox. While he was at Xerox he started a Real Estate Holding Company and while he worked his day-job he flipped houses on the side. He had the best of both worlds. So in case you were wondering, you don't have to quit your day-job to be an entrepreneur.
You may call me naive, but I honestly do think that every single person has what it takes to be a millionaire. They just let fear and cynicism control them. They fear losing their money and they are a cynic of anyone that is trying to do something great... "That will never work"... I cringe at these words and I have done my best to avoid people that spout these words because in the words of Miguel de Cervantes Saavedra "Tell me what company you keep and I'll tell you what you are."
I do think you can do it. And I think if you are willing to put yourself out there, your million dollar dream is not far away. Read this book, it's an eye opener. If you have any questions on the book don't hesitate to ask me a question. I would be more than happy to help anyone that needs it.
Amazon Link to Rich Dad Poor Dad by Robert Kiyosaki
Tuesday, July 7, 2009
Friday, July 3, 2009
The book this week was The ABC's of Real Estate Investing by Ken McElroy. I was introduced to this book by a friend of mine. He has become quite the adviser on the subject of Real Estate Investing, starting his own Investment Group LLC at the early age of 22.
McElroy's book is slow starting, (which is expected with any book that has "The ABC's" in the title) but it really picks up after a few chapters. I know that after reading this book I could make six figures in the business of real estate investing in 5 years or less. The first step is exactly that: Making a goal for yourself. Tell yourself that you want to make more than $100,000 annually in 5 years in multi-unit real estate investing. The goal you set for yourself has to measurable- "over $100,000", Time based- "5 years", and specific- "multi-unit real estate investing."
And now that you have your goal, it is time to hit the ground running. You will need to find a team because great things are seldom done alone. You will want a lawyer, accountant, engineer, etc. People that you can turn to and ask questions when they arise during your research. Another great thing about having a team to help you with your real estate dreams is you have people to keep you accountable. If you have ever worked out.. weight-lifting, running, or biking. You know it is so much easier to succeed when you have a partner to help you through.
You will then have to go out and find your ideal real estate. McElroy line-items just about everything you will need to look for when you are researching. This can be a fun time. Once you find the right property for you, this book will tell you how to find the "right" asking price. In the book there are detailed guides to writing your letter of intent to your buyer and how to go through the final process of acquiring your property.
After you have your property you will need to decide if you are going to be a the property manager- the person that handles the landlord duties- or are you going to outsource that job to property management company. I recommend outsourcing for any property over 8 units. Let someone else handle the rent checks, leaks, broken appliances, flooding, evictions, background checks, criminal checks and the list goes on. Outsourcing this job will allow you to work on researching other properties or continuing career goals. Property management companies will charge between 8% and 14% depending on the number of units and the company. However, remember that like all things, you get what you pay for.
As you venture into this new world of Real Estate Investing you may start small with a duplex or a small apartment complex. If you follow the guidelines laid out in this book you will have a steady cash flow to reinvest in new larger properties. The goal that I previously outlined in this review is not far-fetched. If you are motivated, put the excuses aside, believe in yourself, and really go for it you can reach this goal. In the current economy you have a goldmine of opportunity. Go do some research and put yourself out there. Interest rates are low and everybody is selling. Its a buyer's market, so take advantage!
I think this book is good for anyone that has ever thought about investing in property to supplement their income, but never really knew what steps to take. If you have any questions on the book don't hesitate to ask me a question. I would be more than happy to help anyone that needs it.
Amazon Link to The ABC's of Real Estate Investing by Ken McElroy