Saturday, February 25, 2012

The Automatic Millionaire Homeowner...

The book of the week was The Automatic Millionaire Homeowner by David Bach. I read one of Bach's books previously and I really liked it, so I thought I would see what this one is about too. I agree with Bach's philosophies on investing more than any other author I have read. He believes in eliminating bad debt and utilizing good debt in smart ways. He writes about owning your own home while working on purchasing a second or third property to generate cash flow.

Two things I would like to discuss from this book are making your mortgage automatic and way to get a second property. Both of these ideas got me really interested!

Making your Mortgage Automatic

This is really smart. First off, I am huge on automating every aspect of my finances. I have my paycheck automatically deposited into my checking account once a month on the 28th. I have my rent automatically withdrawn from my checking account on the 1st. I have my church donation paid automatically on the 1st of each month from my credit card, and I make all my purchases with my credit card so I can get cashback with all my purchases, and finally my credit card is automatically paid on the 2nd of each month. On the 3rd of each month I have my ING savings accounts and my Vanguard Index funds withdraw X amounts from my checking account. It takes my less than 30 minutes a month to review my expenses and verify everything is being charged correctly. And I do this by checking my accounts on a couple times a week on my phone and this also helps to assure that I am staying within my budget. Automating my finances is one of the best decisions I have ever made.

Bach takes this same concept toward paying off a mortgage. A lot of mortgage providers will offer a service for automatic withdraw from your checking account, and if they don't offer the service directly, they will have connections to organizations that will help with it. One smart thing that Bach suggests is doing bi-monthly payments. Most people get paid twice a month already, so they make two half payments. This has a huge impact. By making half payments two times a month, and avoiding two weeks of interest accumulation on half of your monthly payment you shorten your loan timeline tremendously. The average 30 year fixed loan can be paid off 5-7 years early by using this method. That's Huge! The sooner you have a property paid off the sooner you can move onto your next property... which brings me to my next point...

Your Second Property

Bach suggests a simple, but not commonly practiced method of getting your second property. If you have lived in your house for a few years, instead of selling your house and buying a new property all together, keep your old property and dip into your equity you have accumulated over the years you have lived in your current property and use that as your down payment on your new house. Then rent out your old home that you still have ownership over and create some cash flow for yourself. DISCLAIMER: This book was written in 2005, at the peak of the real estate boom. In 2010, it is not a certainty that your home has grown in value. However, I only invest for the longterm and in the longterm home prices will always increase. The greatest stock pickers in the world assess what products and services consumers will be buying into, what consumers "need"... well everyone needs a place to live. I contend that real estate is the best longterm investment in the world.

I really like Bach, and I purchased another book by him this week, so you should be expecting to hear most about him soon. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Saturday, February 18, 2012

Made to Stick...

The book of the week was Made to Stick by Chip and Dan Heath. I love this book. I am a big fan of how the mind works and this book has so many answers. The main idea of the book is explaining why ideas stick... aka why they are passed around for years and years and why everyone that tells them remembers all the juicy details. For example urban myths... stories about people having their kidneys stolen, the "fact" that humans only use 10% of their brains, or stories of people poisoning Halloween candy. All of these are myths- there is not a band of organ harvesters that steals kidneys, humans actually use 100% of their brains in a given day, and there have only been 2 true cases of poisoned Halloween candy and both cases were done by the children's own family. The questions this book answers is what do these stories have that we can harness and make our own words 'sticky.'

The answer: sticky stories need to have 6 attributes. They need to be Simple, Unexpected, Concrete, Credible, Emotional, and they have to be Stories.

Simple: You have to find the core of the message you are trying to send. This will be your one sentence phrase to get the message across. If your reader only reads one sentence, they should still take away the message you are trying to get across.

Unexpected: Surprise the reader! Your intention should be to hold their attention and the best way to do that is to tell them something unexpected. One of the best ways to do this is to highlight a 'knowledge gap.' You give the reader enough information to know what is happening. The human mind then has an innate desire to close the gap with more knowledge.  News casters do this with their 10 second commercials telling you what the news stories will be at the "9 o'clock news"- they will say something like "A gorilla escaped from the zoo and ended up at a children's birthday party, find out more at 9." That is a unexpected tag line that fills your head with enough of the story that you crave the rest. That's what we need to do with our message.... have them hungry for more.

Concrete: Help people understand and remember. Help the reader paint a picture in their mind. Use words that help them see exactly what you are talking about. You can even make them live it, so they remember better. For example: if you are teaching how to add and subtract. Use props, so the students can see what it is to be subtracted and added. If you just write 40 +20... it's too abstract. However, if you have 40 bricks and you add another 20 bricks... it's concrete. The mind has a picture painted and it will retain that information much easier.

Credible: Make them believe. You need some credible details in your story for it to be believable. My favorite way of doing this used in the book is the Sinatra test. "If you can make it there, you can make it anywhere"- if you are starting a catering business and only have one previous client, but that client was catering a White House event.. anyone will hire you. Use your credentials to your advantage.

Emotional: Make people care. My favorite way of presenting this was the Mother Teresa principle: If I look at the one, I will act. Here are two scenarios: 1. (a video of the country of Africa) You could help many people in Africa with your donation.. it would go toward food, shelter, and helping education. 2. (A video of a young girl sitting in the dirt) With your donation you could help Cindy... your donation would help feed Cindy, put a roof over Cindy's head, and help send Cindy to school. Between these two scenarios, nearly everyone would choose helping Cindy over having the money spread over the whole country of Africa.  You have an emotional connection to Cindy after seeing that video, but you aren't as emotionally invested in the whole country of Africa. Make your message specific and tug on their heart strings to draw in your target.

Stories: Get people to act. Subway has the Jared story. This is a story that gets people to act. They see a before an after picture of this college student that lost a couple hundred pounds by eating Subway. Well, if I was a 425 lb person I would be encouraged to go to Subway after hearing that story. "If Jared can do it, you can do it"  is the ultimate message and it works. It's difficult to find these stories, but when you find them you have a gold mine.

This book is tremendous. It is probably the best book I have read in several months. The Heath Brothers did their research and did terrific work. There are so many great stories and insights within the pages. I have learned so much this week and I urge you to pick up this book. I guarantee you will have some massive take-aways. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Saturday, February 11, 2012

Leading Change...

The book of the week was Leading Change by John P. Kotter. I got this book because change is one of the hardest things to successfully implement within an organization from the position of a leader. People are very hesitant to change and if you are fortunate enough to make a little change happen, if you don't follow through for a considerable amount of time everything that you changed will quickly revert back to what it was.

This is a very specific task within leadership that not a lot of people are charged with implementing. And now the meat and potatoes, I am going to run down Kotters Eight Stage Process of Creating Major Change:

1. Establish A Sense of Urgency
-Examining the market and competitive realities
-Identifying and discussing crises, potential crises, or major opportunities

2. Create a Guiding Coalition
-Putting together a group with enough power to lead the change
-Getting the group to work together like a team

3. Developing a Vision and Strategy
-Creating a vision to help direct the change effort
-Developing strategies for achieving that vision

4. Communicating the Change Vision
-Using every vehicle possible to constantly communicate the new vision and strategies
-Having the guiding coalition role model the behavior expected of employees

5. Empowering Broad-Based Action
-Getting rid of obstacles
-Changing systems or structures that undermine the change vision
-Encouraging risk taking and nontraditional ideas, activities, and actions

6. Generating Short-Term Wins
-Planning for visible improvements in performance, or "wins"
-Creating those wins
-Visibly recognizing and rewarding people who made the wins possible

7. Consolidating Gains And Producing More Change
-Using increased credibility to change all systems, structures, and policies that don't fit together and don't fit the transformation vision
-Hiring, promoting, and developing people who can implement the change vision
-Reinvigorating the process with new projects, themes, and change agents

8. Anchoring New Approaches In The Culture
-Creating better performance through customer and productivity-oriented behavior, more and better leadership, and more effective management
-Articulating the connections between new behaviors and organizational success
-Developing means to ensure leadership development and succession

I think the problem that leaders make all too often is jumping into change without really planning. You need communication with individuals on every level to see what problems are and what the best course of action is to solve them. Just jumping in and creating change is leading blind and can lead to a lot of resentment by the people within the organization. Additionally, as I said earlier, people celebrate after a couple small wins.. this too leads to resentment. Big change takes months or even years to successfully change the underlining culture.

I liked this book. I think it is the most detailed book I have read on changing behaviors and cultures. If this is something you have the intention to do within your organization, read this book. It will help. As always, if you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.

Saturday, February 4, 2012

He Will Teach You To Be Rich!!!

The book this week was I Will Teach You To Be Rich by Ramit Sethi. I was thrilled with this book... It was well written, but in a very unorthodox way. Sethi uses a very conversational type of writing style that make the book incredibly entertaining. Sethi started by writing a blog, on his blog he writes about personal finance and related topics and then published this book February of this year. This little tidbit of knowledge really caught my attention because, well, sounds exactly like what I want to do.

On to the book... Solid ideas and very clear "how-tos" throughout the book. The book is organized around the main idea of 6 Weeks to Financial Literacy. Each chapter walks the reader through steps to learn a new financial idea. These ideas cover everything from negotiating with credit card companies to get the best deals to opening a high interest yielding back account to saving tens of thousands of dollars by concentrating on "big wins" instead of cutting out unnecessary nickel and dime things out of your budget.

My favorite idea covered in this book, which I found to be quite genius was automating your finances. Automating your finances saves you lots of time by saving for retirement, investing, and setting aside money for your big purchases, all the while, paying your rent and fixed expenses, all done with as little as a few hours of you interaction a month. I actually saw Ramit Sethi talk about this a while back in a YouTube video and didn't even realize it was him I watched until about half way through this book.

Here is that video I watched, pay attention! Really great ideas here!

One of the most important things I think you should take away from this book is the importance of investing as early as possible. People hear this but disregard it... they assume they will do it later. You won't! Humans are creatures of habit, in fact, the human mind starts getting comfortable with routine around the age of 25, so everything you do at the age of 25, you will do for the rest of your life. You will generally wake up at the same time, like the same foods, work the same job, and INVEST the same way. You need a bigger reason to change after this age for your mind to really do it. So I urge you to invest now. It doesn't matter how much money you have... that is ridiculous! I started investing money when I was 13 years old. I definitely wasn't racking in the dough back then... Sure my investment was shares in a credit union, but investing none the less, and after this investing was a habit. Been doing it ever since. If you are past the age of 25... understand the importance of investing and give yourself the reason you need! I have read countless stories of people as old as 65 years old that shocked themselves into a craze investing so they would be able to retire comfortably. Run the numbers and find out what it will take for you to come up with the money you want to retire with. This should show you how powerful compound interest really is... I like's calculators, as well as, Dave Ramsey. Check out Bloomberg's Roth Calculator and throw in some numbers I also recommend giving the retirement planning calculator a whirl as well.. Both my idea of fun! (I'm kind of a nerd) The great thing about Sethi's concept of automating your finances is it gives you the needed push to start your investing. If a certain sum of money is automatically invested for you each month right after your paycheck you don't even need to think about whether you have the money or what else you might spend it on.. After you do this for a year, you start seeing how powerful compounding interest is and you'll wish you had started sooner.

There are so many ideas I like in this book.. investing in index funds instead of mutual funds, the cost of a wedding (average cost is $28,000, have you started saving?), negotiating a high salary... the list goes on. Ramit Sethi is on my list of favorite authors now. If the concepts laid out in this weeks blog interest you... pick up this book and read it cover to cover, and then read his blog. If you have any questions on the book don't hesitate to ask. I would be more than happy to help anyone that wants it.