What is The Cash Flow Lifestyle?

What Exactly is The Cash Flow Lifestyle and Why Is Cash Flow So Important?

As I originally explained in 2011 with What Would You Do With A Million Dollars, the United States went off the gold standard officially in 1973. In short, the US Dollar was no longer backed by gold. Instead, the US dollar was merely ‘worth’ whatever the US Government said it was worth.

When the US and the Allies won WW2, the Bretton Woods conference put the US in a position unseen before in the history of society. The result was that the world, minus the US, was destroyed and needed rebuilding. The US lent all the major countries money forcing all major countries to tie their currencies to the US Dollar, which at the time was backed by actual gold.

Not after 1973. As a result of the Vietnam War, and decades of not having to worry about fiscal policies that made sense, the US was in a position where it needed to create more money that we had. Since money is simply the belief in a system that essentially isn’t ‘real’ anyway, who was going to question us?

Gold Spot Price

Click Here for More Information about The “Nixon Shock”

So why does this matter? Well for you, it means everything you have been taught about money is outdated and wrong. Maybe not everything, but for the sake of arguing lets just start over from the beginning and go from there.

The world we live in now punishes savers and rewards investors. Example? Too Big To Fail rewarded all the greedy wall street crooks and punished you. (Click Here for an INCREDIBLE book on this story.)

The world we live in now rewards people that borrow money. Yes, if you borrowed money to buy 4 houses you couldn’t afford in 2006 you were punished, but that was dumb because you should never buy something you can’t afford. But if you have debt at a fixed interest rate, it gets cheaper over time, just like your savings gets cheaper over time if its not tied up in an income producing asset like stocks or rental real estate.

Mutual Funds are a terrible investment. Most people invest in mutual funds because they have heard of them before and they like the idea of choosing between “aggressive and moderate” instead of putting thought behind where their money goes. But why are they so well known? Could it be because mutual funds spend a lot of money promoting themselves? Where does this money come from? (Click HERE for a GREAT book on this topic written by Tony Robbins.)

The Government raises money by selling bonds, then repays them by printing money. This is the simplest way to understand the current system. No, we won’t ever default to China because we can just print more money and pay them off. Other countries don’t have the luxury as their money is tied to ours, and because oil is also priced in US Dollars.

So what does it all mean?

If you have savings in a bank account, you are losing about 3% of its value every year to inflation. if rapid inflation hits, which is pretty likely given how much money we have been printing since the recession, then your savings will be hit even harder.

If you are investing in a mutual fund and ‘have a guy’ that manages it for you, then you are in the same position as a savings account but with more people charging you fees.

What should you do?

Focus on your cash flow. Focus on more money coming in than going out every month. You don’t have to start the next Facebook or Uber, but you should consider businesses and projects that can generate a few hundred or thousand dollars a month for you.

The greatest tool that every American has for building wealth is access to a primary mortgage as I explain below:

http://www.youtube.com/watch?v=OyAaB-87loE

(Also, read this when you have time: Investing in Stocks vs. Real Estate)

Your primary mortgage is the best loan that you can get and is secured by an asset. You have to live somewhere and its important that you own your residence. Some residences are better than others when it comes to investing, but we are speaking in generalities for the time being.

When it comes to your savings and retirement, stop thinking big pile of money, and instead think of income stream.

How can I make more money next month than I made this month is a question I ask myself every month. Even if its just a few more dollars, every little bit matters.

When I invest in stocks, I look for stocks with dividends.

When I invest in real estate, I look for cash flow rentals.

When I start a new business I ask myself how long do I need to work on this until I can walk away and have it still produce income?

The Problem With Trying To Save A Big Pile Of Money:

  • How big of a pile of money do you need?
  • Is this pile getting bigger while you sleep, or if you are sick, or if you are traveling? Or is it getting smaller because of inflation and people charging you fees?
  • What is your end goal? To retire and start spending money from this pile? What if you out-live your pile (which should be a good thing) or what happens when you get older and your cost of living actually rises so your pile shrinks faster than you thought?
  • Is your solution to turn that big pile of money into income at retirement? Why wait? Why not start now? How much income will your big pile of money produce anyway? What if you found a way to produce that with passive income so that your pile never gets smaller and you could retire sooner? This is The Cash Flow Lifestyle!

The Cash Flow Lifestyle:

  • Focus on your passive income! Passive income is money that comes in every month for work you have already done. This can include:
  • Pay Yourself First! As long as you pay yourself first and invest that money for future you EVERY month, you can then spend what is left over. Budgeting sucks, and study showed that even financial planners don’t budget. Its too hard. Instead, as long as you pay yourself first you are free to spend what is left over. If nothing is left over, then shit, don’t spend anything that money and work harder for next month.
  • Invest in Yourself! We live in the most incredible time right now. All the information you could ever want is available to you for free. Well, mostly free. You still need access to the internet which can cost money as well as a computer or smart phone, but guess what? These can be investments! Don’t be stupid and buy things you can’t afford, but also don’t skimp on things that could help you get better, smarter and eventually wealthier. (Start here: (Cash Flow Resources)
  • Never Stop Educating! It doesn’t matter how old you are, school never ends! If you have a job you need to know everything about that job so you can get better, then more valuable and eventually invaluable! You do not need to go to an actual school to do this, the skills matter more than the degrees. (Read: How Much Is Too Much To Spend On Knowledge?)
  • The Power of Compounding Is Your Salvation! Whether its your personal life where you decide to make better decisions with your health and money, or your financial life where you commit to investing in dividend paying stocks for the next 20 years. (For better life choices and the impact they will have on your life read: The Compound Effect by Darren Hardy

What’s the point of all this?

The old way doesn’t work anymore. Relatives that lived through the Great Depression urged saving because they know what can happen when times go bad. But that was before 1973 when dollars yesterday were worth the same tomorrow.

Now you need assets. Preferably income producing assets.

If your goal was to save $1,000,000 so you could ‘invest’ it and return 5%, that means $50,000 a year or just over $4000 per month. How long would it take for you to save one million dollars? Assuming nothing went wrong, whats your best case scenario?

By the time its saved, what has inflation done to it? Assuming a best case scenario of 3% a year for X years, how much value is that one million dollars really?

Then assuming all this went as planned, how are you going to turn your million dollars into $50,000 a year? Are you just going to give it to someone and hope for the best? Is he going to charge you? (Yes he is) How much? Will he pay you if he loses your money? (No he isn’t)

If this doesn’t sound that exciting to you then you aren’t alone.

If you are ready for a lifestyle change then you aren’t alone.

You do not need to be an expert to start investing, but you must start investing if you ever want to build wealth.

Do you want to build wealth?

 

Or keep doing what you have been doing and keep getting what you have been getting.

http://www.youtube.com/watch?v=LNuEkgK0nus


Back When I Was Lucky: Unemployed, In Debt, And Living With My Parents

I look around and I don’t think I have ever met anyone as lucky as me. Yes, I was born in America, so I already won the lottery, but it gets better!

I was born in 1984! Why is this important? Because this meant if I followed societies expectations, I would graduate high school in 2003. And I did!

Stay with me…

Because I graduated high school in 2003, this meant I began college a few months later in the fall of 2003. Despite spending a few quarters (University of California Schools are on the quarter system, not semesters) on academic probation (including a personal letter I had to write to the Dean begging to keep me enrolled), I managed to graduate in 4 years, meaning I entered the workforce in 2007!

Do you remember 2007?

In real estate history, 2007 is not looked upon as a positive year. In fact, most of our economy doesn’t look back on 2007 fondly.

You can trace back the peak of the housing market to between 2005-2006, depending on which part of the country you are looking. Prices kept skyrocketing… until they stopped.

Think of 2007 as Wiley Coyote from The Looney Toons cartoon. Prices are about to collapse, but as long as nobody looks down, everyone can buy themselves a few more seconds of ignorance and stability.

So here we are, it’s 2007 and I enter the workforce! Corporate America here I come! How lucky am I?!

I am hired as an assistant marketing consultant for an environmental consulting firm. Sounds pretty neat right? It wasn’t.

But lucky for me after I returned from a 2-week training program in Indianapolis (I was based in Newport, California) only to discover that the boss who hired me had left the company!

How lucky!

So now I had several bosses! Thats cool right? And no ‘real’ job description any more. Thats sustainable, right?

Here’s the thing. I hated my job. I hated my job more than you have ever hated a job. I don’t need to go into details about how I travelled 25 days a month, worked 60-80 hour weeks for extremely low pay while living in a very expensive city that I barely saw except when I was flying into and out of John Wayne Airport, LAX or Burbank (depending one whichever was cheapest or involved the longest layovers).

It is very possible that the greatest attribute any entrepreneur can have is a complete disdain towards working at a job. I consider myself very lucky to have this attribute.

Did I mention I was a coward?

Maybe coward is too strong of a word, but maybe it isn’t. I absolutely despised working at this job. My friends saw it in me.

I was terrible to be around, and any free time I had was usually filled with a lot of alcohol. It went on like this for WAY longer than any sane person should allow.

I was completely unappreciated and at any time I could have put a stop to it.

(My wife and I are currently watching Orange is the New Black on Netflix, and all I can compare it to is voluntarily getting up every morning and driving to prison for the day, only to do it all over again the next day.)

So why would I do this? We already established that I was a big fat scaredy cat.

Was it fear of the unknown? What would I do for money?

What would my friends think if I was unemployed?

What would my parents think if I quit my first job?

What would my mom think if I no longer had health benefits?

Whatever it was, it was strong enough to keep me doing something I despised for quite a while. But good thing I am lucky!

By the time the recession reached the west coast, my company had seen at least 3 rounds of layoffs before it was my turn.

I have touched on this before, but I was legitimately “Up in the Air”d.

It wasn’t as bad as getting fired over the computer, but it was a 3rd party company doing the dirty work.

So its 2008. Mid-Recession. I am 24 and unemployed, so I moved back in with my parents! How lucky!

All of these things were happening to me, (for me), and I had no control over them. I was too afraid to quit a job I hated, but was eventually fired! How many people get to experience this level of good luck in their lives? I assume not many.

But I did!

2008. Crazy recession going on. Living at home with my parents, back in Scottsdale and out of California where all my friends and “business connections” resided.

All of my biggest ‘fears’ had come to fruition. How lucky!

Do you know how freeing it is to be so afraid of something, and then to experience it?

Its pretty hard to be afraid of hitting rock bottom if it means moving up a level.

Armed with my only attribute of “never wanting another job again”, I decided I would never have another job again. What was the worst that would happen? I’d end up at home with my parents at 25 instead of 24?

So I took a risk. And then another. And then another. Now these were very calculated risks. In fact, they weren’t really even risks.

After studying Robert Kiyosaki for a few years, I was well aware that he made  lot of money in real estate after the savings and loan crisis of 1987. In fact, he did it in Phoenix. Phoenix is where I was, and there was a new crisis. How lucky!

I begged, borrowed, and stole all the money I could find, in order to buy single family homes in Phoenix. People told me I was crazy to be buying houses. Today, they tell me how lucky I am.

I tell them, I know!!!

I was born in America in 1984. The way the American education system is aligned, this meant I graduated from college after 4 years in 2007. There was a global recession underway that I had no control over. It didn’t start earlier, it didn’t start later.

I was fired from a job I was too afraid to quit.

At age 24, unemployed and a complete failure, I moved back in with my parents.

No one is luckier than me!

In the following years; several companies founded, many houses bought, rented and sold, websites developed and books in the pipeline, a loving wife and beautiful family. All because I am nothing but a big scaredy cat. At least I was.

And no one is luckier than me.

 


So You Want To Be An Investor? Don’t Quit Your Day Job

 

Don’t Quit Your Day Job

I often get asked “Where should I start?” or better yet, “What would you do if you were me?”

 

If I were you? I would get started immediately! But that doesn’t necessarily mean investing in Real Estate. Here’s why:

I cut my teeth in the Real Estate Investing game at the perfect time to be in the Real Estate Investing Game. I knew this at the time because everyone told me how stupid I was for getting into real estate in 2009.

This was a combination of being introduced to the right books at the right time, investing my savings and income made from my first company into Kiyosaki Real Estate courses, and eventually just pulling the trigger on my first property purchase.

I was VERY fortunate. All of these factors had to come into play at the right time for me to succeed. Not to mention I was born in 1984, graduated college in 2007, and then fired from my corporate job in 2008. If I was born a few years earlier and things were different, maybe I would have invested in real estate at the worst time ever.

I know I am lucky, but I also know that I was willing to take the risk when others wouldn’t.

However, risk taking is easy when you are unemployed and living with your parents. It gets harder in your 30’s when you are married with 2 kids. I get this.

This is why I am very cautious when people ask me how they should get started investing in Real Estate. You can do all the homework in the world, but eventually you will have to pull the trigger.

So before you do, make sure you have the following covered:

It Must Cash Flow!

What does this mean? You should know by now, but if not here is a refresher. It should put more money into your pocket every month than it takes out.

If it doesn’t cash flow after mortgage, taxes, insurance, property manager fees and miscellaneous repairs, than it isn’t an investment. Its a liability. Even if its losing just $100 a month, you try and convince yourself its a good thing because  of  appreciation, and taxes and blah blah blah.

The problem with losing money on an investment is
A- It’s dumb to lose money on an investment
B- How many of these “investments” can you afford if its losing money every month?
C- You won’t get rich by losing money.

Which brings us to number two:

You Are Going To Use A Property Manager

I don’t care if you only own one rental property, use a property manager. If you don’t, you will never buy number 2. Trust me. I see it countless times.
Or if you end up being the exception to the rule and do purchase a second rental property, you become a full time land lord and your other income producing projects suffer or become non-existent.

You are investing in Real Estate, you are not switching job careers to property management.

Your Best Course of Action is to Purchase a Primary Residence, and then Rent It Out

The best wealth tool that everyone in America has access to is your mortgage on your primary residence.

It’s the best interest rate on any loan you can get, and its secured by real property. And you get access to a couple of these over your lifespan if you are smart about it. So be smart about it.

Don’t Quit Your Day Job

If you want to be a writer and you aren’t writing every day then you don’t really want to be a writer.

If you want to be an investor and you aren’t reading on your lunch break, listening to podcasts and audio books during your work commute, and attending seminars on the weekends, then you don’t really want to be an investor.

How will quitting your job make you a better investor? It wont.

So whats the secret to investing? Working your ass off. There is no free time. Time is money. Time is Valuable. Time is a rare asset.

Never in the history of the world has there been so many different ways to make money for anyone at any time in any country.

Before You Invest In Real Estate

Ask yourself why do you want to invest in real estate.

Seriously.

Ok, then read this: “Why Do I want to invest in Real Estate?”

Answer: Because I want passive income and investments.

Then ask: “Why do I want Passive Income and Investments?”

Answer: “So I have the freedom to live the life I choose!”

Lastly: “What Life would I choose if I could?”

Answer: (This is where you come up with your own answer)

Does your 3rd answer line up with question number 1? Then great! You should start investing in Real Estate ASAP!

Does your 3rd answer describe something else that has nothing to do with Real Estate investing?

Well then maybe real estate isn’t for you? I am learning that it isn’t for everyone. But that’s ok, because only 64%-68% of the American adult population historically owns real estate, and that includes the real estate boom of 2006.

Maybe what you really want is to travel the world. There are other ways to generate income that will allow for this. Maybe you can intern at an embassy in a country you want to spend time in? Don’t need to own real estate for that.

For me, real estate made a lot of sense, and still does. But we are also not in the same market we were before. This is why I also diversify into stocks and other small business opportunities.

If you plan on spending more than a couple of years in any one place, I highly recommend buying a home and renting the rooms out. If you have a family and this isn’t conceivable then I recommend buying a home and in a few years moving to another one and keeping your first as a rental.

If you can do this every 3 years imagine the position you will be in after a short decade. The time is going to pass by anyway!

Make these types of decisions as early as possible.

Or don’t. Just keep doing what you are doing and keep getting what you have been getting.

What do you think? Love this? Hate this? Let me know!


How To Get Rich and Skinny in 30 Days!!! (But Not Really)

How To Get Rich and Skinny in 30 Days!!! (But Not Really)

If you want to lose weight you need to exercise more and eat less. Its really that simple. You can argue all you want about carbs, gluten free, vegan, whatever, but it really comes down to exercising more and eating less.

 

But people like complexity. People like to know more. People like to learn something from somewhere so that they can tell someone who hasn’t heard about it yet and say “You haven’t heard about…….????”

 

If you want to get rich you need to save more and spend less. Its really that simple. You can argue all you want about derivatives, option trading, IPO’s, whatever, but it really comes down to saving more and spending less.

 

But people like complexity… You can see where I am going I’m sure….

 

So why isn’t everyone rich and skinny?

We all know what we should be doing. Why don’t we do it?

 

Well, one reason is that we all don’t really know this. Or rather we do, but we convince ourselves it isn’t true. We argue about carbs and gluten free and then convince ourselves its too complex and difficult, and since we will never lose weight we should argue about how a “A Vegan Diet Really Isn’t Good For You” or “Running Is So Bad For Your Knees”, over a cheeseburger, large fries and a “diet” coke.

 

Same thing happens with your money. You are bombarded with the jargon, get rich quick schemes, “Don’t Miss Out on This Hot Stock!” articles, and of course my favorite: “Sign up now and I will teach you the Secret that Wall Street Doesn’t Want You to Know” seminars.

 

But really, just save more and spend less, every day, forever.

 

But forever is a long time.

 

30 Days

So why not just do it for 30 days?

 

Don’t budget. Budgeting sucks. Even financial experts that charge you money for their advice don’t keep budgets.

 

Just go one month. 30 days. Don’t do anything drastic, just spend a little less and save a little more.

 

Maybe cook dinner instead of going out? Or if you go out, just drink water instead of soda or alcohol. Or if you are at Starbucks, ask for a large cup of ice water instead of a bottle of water.

 

There are a lot of things you could do throughout the day. For 30 days.

 

Just spend a little less, and save a little more.

 

What? Does it sound too easy? Not complex enough? Well, if you want to invest in the complex stuff we can talk about that. But if you want to invest, you need to have some money. So spend a little less, and save a little more.

 

One Choice At A Time

By enforcing one small but positive habit that is easily manageable, you will start to notice the following:

1. Its not that hard.
2. What if I had started sooner, where would I be?
3. Your good habit muscle will get stronger, and you will expand it into other parts of your life.

 

Maybe spending a little less and saving a little more means going out to dinner less often. So instead you start to cook. Maybe you research some recipes and find you like cooking. Maybe you drink less alcohol and start to wake up earlier and feel more refreshed. Or maybe you go 30 days and end up fatter and in more debt.

 

Who knows? Its only 30 days.

 

Anyone can do 30 days.

 

Can you do 30 days?

 

You Don’t Need To Be An Expert To Get Started, Just Get Started

So don’t make a budget. Don’t worry about forever. Just worry about the next 30 days, one day at a time. Every time you are presented with a choice, remember your goal today is to spend a little less and save a little more. Remember, every single decision should have this goal in mind.

 

Just choose the option that allows you to spend just a little less. How little? Depends on how rich you want to be someday, or how soon you want to be rich.

 

Don’t worry about what you are going to do with the money either. Just spend less of it and save more of it.

 

For 30 days.

 

Anyone can do 30 days.

 

Starting today.

 

 

Wealth Triangle

What is The Wealth Triangle?

There are only 24 hours in every day, for every person rich or poor. The definition of ‘wealth‘ varies from person to person because everyone chooses to spend their time in different ways.

Some people would like to travel the world if they could, while some would simply like to stay home with their families… if they could.

But there is only so much time in the day. And most people must sell some of that time to someone else in order to pay for life’s necessities and also luxuries of their choice.

This brings us to the Wealth Triangle.

Wealth Triangle

Wealth is merely a triangle with 3 important pillars: Time + Knowledge + Money = Wealth

Once you have achieved two of these pillars, you can use the two you have to obtain the third. When you have all three, you are wealthy.

Time + Knowledge= Money

Lets say you are fresh out of college and have no money. But you are young meaning you have a lot of time left. Use this time to increase your knowledge. Read BOOKS about money, finance and investing. Attend seminars and lectures. Find something you are passionate about and get a job in that industry. Use the money you make to buy assets that produce income and grow over time. By using the time you have, spend your days increasing your knowledge and the money will come. Time + Knowledge + Money = Wealth

Knowledge + Money= Time

Lets say you do not have as much time, but you have years of experience in an industry and hopefully savings. You should still be reading books, attending seminars and continuing your financial education. With this wealth of knowledge and money, you can now purchase time. By knowing how money really works, and how to put it to work for you so that you do not have to work, you now have the time you need to do as you please.

Time + Money= Knowledge

Who has time and money but no knowledge? Think lottery winners, or those who have recently received a large inheritance. Many people do not know how money works, or even how to keep money. Most lottery winners end up not only broke within 7 years, but also in more debt than they started in. This is not a coincidence. We are only taught how to consume, not how to invest. (See What Would You Do With A Million Dollars?)

The First Step Is Getting Started:

While everyone loves money (especially me!) the most important of these pillars is time and Knowledge. There is only so much time in the day, month years and in our lives. You can diet and exercise to try and buy more time… but that seems hard.

With knowledge, anything is possible. Knowing the right people, the right terminology, the right time, the right investment, the right price and you can achieve wealth. But like dieting and exercising it seems hard.

True Wealth is achievable by anyone. You must first define what it means to you and get started. Its much better than selling the most precious asset that you have, time. Besides, you are running out of it.

 


The Psychology of Wealth

The Psychology of Wealth

“Mo’ money mo problems.”- Notorious B.I.G.

The greatest misnomer in our country is the belief that money is the answer to our money problems. Whether it is the government wanting to raise your taxes to solve its problems, or you wanting a raise from your employer to solve your own. But what is often overlooked is the fact that even if you were given this money, or the government got its money, if you don’t change your habits you will return to the same problems. And when this occurs, you will need another raise, or the government will need more taxes.

But lets ignore the government, and focus on ourselves. If you have been reading this blog, you have heard before that it is not how much you make that matters, but rather how much you keep. When you hear these words, do you believe them? Do you apply it to yourself? Or do merely read over them?

What is Wealth?

How do you define wealth? If you make $200,000 a year, have two expensive cars a big house and lots of gadgets are you wealthy? What if this requires working 60 hour weeks and your expenses are $200,000 a year? Are you wealthy? Are you rich? Are you screwed if you miss just a single paycheck? Are you thinking to yourself that you wouldn’t have money problems if you were lucky enough to earn $200,000 a year? Unless you change your habits, money will never solve your money problems. This is what I like to call the “psychology of wealth”.

In 1996, Doctors Thomas Stanley and William Danko determined that “One of the reason that millionaires are successful is that they think differently.” But who are these guys, right? And what do they know? Well in 1996 the published a book titled: The Millionaire Next Door.

If you want to understand the psychology of wealth, I highly recommend this book. Why? Here is an excerpt from the introduction: “We have determined how ordinary people can become wealthy.”

Another one: “Many people who live in expensive homes and drive luxury cars are not actually have much wealth. Then, we discovered something odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods.”

In all honesty, I could quote the entire book because it should be required reading in elementary school. Instead we see young athletes, rappers and lottery winners on TV growing up and think that is how to get rich, and once rich that THIS is what to do with it. Only later do we learn that they are rented houses and leased cars. Is that wealth, or is that waste?

The above book explains how many self made millionaires are people that never earned high salaries, they were just very smart with their finances. And by smart, I merely mean they didn’t by stupid things. They invested in safe assets and over time built wealth. What is a safe asset? For most of them it was real estate. Real estate over time has proven to be the greatest wealth builder in our country.

Investing For You

But these people didn’t refinance their homes to buy cars and boats, they instead paid off their mortgages. In fact, as you will discover if you read the book, many tie up more of their wealth in their investment real estate than their personal residence. What a concept!?

Like I have said before, there are different investments for different people. Maybe you aren’t ready to invest a portion of your money into real estate or stocks, but hopefully you are willing to invest in your education. This book is a good start.

What is Investing?

What Is Investing?

What is investing? It sounds like a simple question, but is it? Investing should be simple, but we have a way of complicating it.

Investing should be defined as anything you buy that makes you money. Simple, right?

Investing in stocks should NOT be confused with day trading. Investing in stocks is NOT about finding a hot stock tip.

If you are just starting out investing, you should consider companies that you plan to hold onto for at least one year. If you decide to sell after a year, at least you will be paying long term capital gains tax versus short term capital gains (less than one year) which is taxed at your ordinary income rate.

Stock Trading Is Not Investing

If you are starting out with $1000 to “play around with” you must remember that every trade (buying or selling) you do will cost you $9.99 (at e-trade brokerage). Essentially, that is 1%. So you buy $1000 worth of stock, it costs you 1%, and say it goes up and you sell; it costs you 1%. This stock needs to have gone up at least 2% to cover just your trades. In addition, you are paying ordinary income tax (say 18-23% as an estimate) on any gains on top of that.

This is where the investor joke, “They call them stock brokers because they make you broke off their stocks” comes from. Stock brokers encourage trades because they get a piece of the action like a bookie taking bets. The house always wins because they represent both sides, and also take a piece off the top.

To make money day trading, you need to be using a lot of capital. A lot of day traders use leverage (other people’s money) so that a small spread yields them a lot of profit. But also a small mistake can be VERY costly. People that make a living off of day trading can apply for a special IRS status so that they are not taxed on short term capital gains like you and I are. You need a lot of money, and to dedicate the majority of your time to qualify for this status. This is not investing. This is trading.

Investing is Necessary For Wealth

What you need to do is invest. Think of investing as your savings account, only better. When your money sits in your savings account, what happens to it? It gets eaten up. Sometimes slowly (inflation or a nice dinner) and sometimes rapidly (vacation or car repairs).

When your savings is tied up in investments, the psychological impact is great. Your brain considers the money spent. It is in another account, and is tied up in stocks. Worst case scenario, you can ALWAYS take it out if you NEEDED to. But you need to convince yourself never to do so.

Real Estate:

It is no secret that I love real estate. I love everything about it. One interesting thing about real estate that not many people know, is that you can own real estate without owning a property.

REIT: Real Estate Investment Trust. (CLICK HERE FOR INFORMATION ABOUT REITS)

You may think that you don’t have enough money to invest yet, but you are wrong. It is all about establishing your plan, and then sticking to it. Everything I have read about real estate tells me that apartment buildings are wonderful investments. I would love to own an apartment building. But sadly, I am not in a position at this time to provide the funding to acquire one.

Instead, I found a company that owns apartment complexes throughout Southern California (very strong rental market) and is willing to sell me shares so that I can own a piece of it. In addition, this company is paying me money to own these shares. Why is that? If you don’t know then you didn’t click on the link that provides information about REITS.

Maybe you like commercial properties? Hotels? Retail? Medical? Residential? There are all kinds. Here is an alphabetical list.

The greatest thing about REITS is that you get all the benefits of owning real estate, without the hassle. I want to own an apartment still, but instead of throwing money into a savings account to save up for one, I am investing into an apartment REIT that pays me money to own it, plus will go up in value over time as inflation hits and the market recovers.

This will help me reach my goal FASTER. Investing shouldn’t be about: “I am saving up X amount of dollars, then I am going to invest in Y.”

Investing should be about: “I am going to invest in X  now, and then eventually I am going to take that and invest in Y.”

Investing For You

There are investments for everyone. Depending on your age, income, risk tolerance, whatever. There is no reason to NOT invest other than being uneducated. But everyone has the ability to fix that.

I used to believe that I had to learn enough about a topic so that I could ask an “expert” a logical question. I later learned this was not enough. Instead I would urge you to know enough on a topic to ask a logical question, and also know whether or not the “expert” just gave you a bull shit answer.

To conclude, when it comes to investing always remember Warren Buffett’s two rules of investing.
1. Never lose money.
2. Don’t forget rule number one.

 

What would you do with a million dollars?

What would you do with a million dollars?

This question is often asked to high school students by a guidance counselor, or by friends at a bar, and often the answer varies. However, if given a million dollars would you know how to make it last? How much money did you make in 2010? How much of did you keep?

Could you retire on a million dollars? Would you want to? What kind of a lifestyle could you live if given a million dollars at the age of 25. If you are immediately thinking of the objects you could buy with this money than you are definitely a product of the American educational system. We have all been taught how to consume. Some of us have been taught how to save. Very few of us have been taught how to invest.

Keep in mind that in 1971, Richard Nixon took the United States currency off the gold standard. The result was that our money turned into a currency. Like a river or ocean current, it fluctuates compared to other currencies. This makes great political sense because it allows a government to borrow money for a project, then print money to pay down the debt. When this occurs, debt becomes cheaper for everyone as there is now more money in the system.

In the past, inflation has risen about 3% a year keeping in line with about a 3% growth in US GDP. (This does not include war years which change all the economic rules). This is meant to encourage consumption. Imagine you want to buy a car. The government wants you to buy the car right now, even if you do not have the money to do so. You can finance the purchase today and have your debt become 3% cheaper a year from now; or save up for a year and pay an extra 3% a year from now due to inflation.

Another side effect of the 1971 decision is that money in the bank needs to be keeping pace with inflation just to maintain its value. Historically, the US has seen a 3% inflation rate. However, this was prior to TARP, Quantitative Easing 1, Quantitative Easing 2, Government Bailouts 2008. What interest are you earning with your money? Is your money earning more money?

You need to be pessimistic about your future. 10,000 Baby Boomers turn 65 years old every day. You and I will pay for their retirements. Can you even afford your own retirement? Social Security is bankrupt already so do not plan on retiring on that. Is a million dollars enough to retire on? Depends on the lifestyle you want to enjoy (Yes, life should be enjoyed, not just lived).

Responsible people have already started to save for their retirement. Some may have a number they want to reach in order to feel comfortable. Do you have a number? I hope that you do not. Instead you should be thinking of how much monthly income would give you the life you desire. I do not mean salary, I mean monthly income.

I graduated college in 2007 with a C average. If you asked me what I wanted to be when I grew up, all I could ever think of was to be happy. I got a good job after school. I travelled a lot. I worked a lot. I bought a lot of things. I was not happy.

I wanted to quit but two things kept me from doing so. The first was that I didn’t know what else I would do; I didn’t have a dream job. The second was that I had 4 different bosses. How do you quit with 4 different bosses? Do you have to quit 4 times and ask for 4 letters recommendations. Do you have to give 2 weeks notice 4 times? If I quit today, would I have to work for 8 more weeks?

My company was kind enough to to Up in the Air me which eradicated all the worry. Relieved right? Not really. Now I was unemployed and unhappy. Oh how I missed the days of employed and unhappy.

I then did what any young, confident and newly unemployed person does: I moved in with my parents and revised my resume. I’ll skip over all the self pity moments I had and go right to the epiphany. After sending out my resume to all the wrong places, I decided to take a very large chunk of my savings and invested into some Robert Kiyosaki Real Estate classes.

A lot of it was sales fluff, but one thing stuck with me. The concept of Cash Flow. This is similar to what Timmothy Ferriss preaches in The Four Hour Work Week and George Clason cites in The Richest Man in Babylon, but this time it made sense to me.

Cash Flow = money coming in> money going out.

Instead of looking for a new job I would hate, I began to find investments. Instead of working 40-55 hours a week for someone else, I dedicated all of my time researching ways to cash flow. Instead of accepting a job offer in San Diego, I purchased real estate in Arizona.

Lawyers, doctors, accountants and most likely your boss all have one thing in common. They get paid hourly. They sell their time for money. Yes, they get a lot of money for their time, but there are only 24 hours in every day. If they want more money they have to sell more of their time. I may spend a month working on a deal, but when I am done I get paid once a month, every month, for ever. If I want more money, I find more deals. If I want to sleep in, I sleep in. I decided my time is too valuable to me to sell it to someone else. How valuable is your time?

What would you do with a million dollars? This question expired in 1971. Instead, I ask you: What would you do if you cash flowed?