Monday, August 27, 2012

The Second Tier of Building Wealth

The second tier of building wealth is learning how to have your money make money. If you don't know how to earn money, you won't have any money anyway, which is why the first tier is so important.
Managing Your Money
The first part of this tier is learning how to manage your money. Rather than flying by the seat of your pants, it is important to have a game plan and set goals. Learning how to make a budget and having the discipline to stick to that budget are key.

"A penny saved is a penny earned."

"Those who make 4 dollars and spend 3 will always be better off than those who make 5 dollars and spend 6." - me

“Most people don’t receive a formal education about financial matters, but it’s an important life skill.” - http://www.northbaybiz.com/General_Articles/General_Articles/Amazing_Savers.php

Avoiding Debt
Debt is a cancer. Debt is a disease. It affects stress, health and relationships. On the national scale, we are about 70 trillion in debt, if we include future debts such as Social Security and Medicare (http://www.truthin2008.org/"http://www.truthin2008.org/). On the individual level, "Credit card debt is the third largest source of household indebtedness, averaging $15,587 per indebted household as of June 2012" (http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/). While some people believe debt increases productivity, I think we should be attacking the statistics above head on.

People often get upset when taxes are raised, yet will gladly pay a 3% tax to use their credit cards. Of course credit card companies are smart so they charge businesses and people think they are not being charged if they pay off their credit cards on time. Even worse, people don't pay their credit cards off each month which leads to 10%-25% in additional fees.

A quick side note. There are arguments that businesses should have debt because they leverage money and increase investor returns. I absolutely believe in the power of leveraging money, but that is another blog posting.

Create an Emergency Fund
Everyone should have 3 to 6 months of living expenses saved up for emergencies. I have heard it quoted that for every $10,000 in your annual salary, it may take a month to find that pay in a job, if you were to lose your job. That is, to find a 100K job, if that is your salary, it might take 10 months to find that job. In addition to losing your job, you may have to replace your car or take care of another emergency.

If you do not have an emergency fund and have credit card debt, I would advocate eliminating your credit card debt and building an emergency fund at the same time. An emergency fund can be placed in a checking, savings, money market account or certificate of deposit. This purpose of this fund is not to make money, but be liquid, meaning that you have access to the fund within a week's time frame.

Playing the Money Game
Once you have followed the above rules, you will be able to start playing the money game. You will become a lender and not a borrower. That's right, I said you be the bank. Rather than give the money to the bank, find out where the bank is investing the money you are giving it. I think that its very sad that we have become a society where we go to the bank to get loans, rather than visiting that rich uncle. What has happened to the strength of an individual's word? Why not register a promissary note which is based on a mere handshake?

Besides, the emergency fund and the 529 plans for college savings accounts, you should have a couple more buckets used to build your financial house. Diversification is an important word. For those who had all of their savings in mutual funds or stocks in their 401(k) plans in 2008, they may have had 50% of their estate taken out. On the other hand, suppose you had something like a 50% real estate, 25% stocks and 25% bonds. Now, imagine you lost 50% in stocks. This means you really only lost 12.5% of your estate.

Any well built financial house will include a diversified portfolio along with tax considerations. It will also include considerations on liquidity (like short or long term).

More importantly, realize that "No one will protect your money better than yourself." If your financial planner is not teaching you about money, they are not doing their job. A good financial planner will give you information and then let you make decisions about your money. They will not give you a single option and tell you that its the perfect plan, because no one can predict the future. Rather than pass the buck to your finanical planner, learn enough to be able to ask the right questions.

Most people who lost money in real estate, lost because they didn't know how to evaluate home prices or do other number crunching. This is true because over the past ten years while many were losing, those who knew were still making money. It is shocking to me that right after the sub prime mortgage crisis, people are still putting 3-5% down on homes and taking out a 30 year loan.

Most people who took a huge hit in stocks, also lost because they didn't know what they were investing in or how their investment worked. With the advancement of the internet, people can now invest in any publically traded company with the click of a button. They do not look at the investment, they just tell themselves, "Well, Apple is a great company with a great product." So, if someone told me that, I might respond, "If you had 1 trillion dollars, does that mean you would be willing to purchase Apple with that 1 trillion dollars?" It is shocking to me that right after the stock market crashes of 2001 and 2008 people continue handing their money off to someone who is making money whether they gain or lose money.

Whether in real estate or in the stock market, based on many people I have interviewed, I have found a huge difference between people who know how to have their money make money and people who don't. Those who do, often live by this phrase, "If the numbers work, I will do the deal. If they don't, I won't."

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Sunday, August 19, 2012

The First Tier of Building Wealth

Today, I want to start a discussion on the three tiers of building wealth. This will be a three part discussion, over the next few weeks. The first tier of building wealth is to maximize your earning potential. Be sure to check out http://www.thejobyoulove.com/, which has some related topics.

EDUCATION

Often times, people get to a point where they are happy with their careers and they become complacent. While they think they have made it, in reality, standing still is really falling behind. For example, if you fail to continue learning, you will soon be phazed out by new technology and new times.

By nature, life is progressive. While people have great value at each phaze of their life: baby, child, adult, parent, grandparent, they naturally need to progress to be the most valuable during each of these phazes. While children are innocent and full of love, one will not be very valuable as an adult, without maturing beyond their childhood state. For one thing, nature will not allow us to keep the innocence we had or let our love flow as freely because we will have impacting experiences in our life. However, if we do value these characteristics of our children, we can have an even greater impact based on how we mature as adults. Imagine, as adults, if we all behaved like children, how our society would be. Sometimes we do behave like children, but hopefully, we are seeking how to grow through life and its progressive nature.

One thing that amazes me is that many highly successful people mention how we should never stop learning. I read somewhere that 42% of college graduates, never read another book. On the other hand, you talk to world class athletes and they continue to train being coachable, which makes them the best of the best. You talk to successful CEOs and they talk about how they need to learn even more. It shocks me.

"The best entrepreneurs never lose sight of the big picture, and they never stop learning until they die." Marty Zwilling (http://articles.businessinsider.com/2012-03-11/strategy/31144567_1_big-picture-business-ideas-new-idea)

When I was a teenager, I used to say I wanted to get 3 PhDs. I didn't even know much of what that meant. Now, I say I will someday write a book and someday become a lawyer. This is the mentality of "Never stop learning."

No matter what you do in life or where you go, you can always learn. You should be learning through every experience in your life. Some people say "I don't know why I went to school, I don't even use my degree." I like to look at this a different way. I like to think that no matter what your degree was, it will always affect your earning potential because you learned things and had experiences that shape your life. If you start a new business and you fail, you should learn something which will help shape your future. If you attend a meeting and it doesn't apply to you, you should still try to pick up something valuable.

OPPORTUNITY

One should always be looking for new opportunities. I have talked about this in previous blogs. Basically, I strongly believe that people on average have a million dollar idea each year. Most people just don't act on it or aren't willing to apply the effort necessary to profit from that idea. As you live your life, you will constantly find something lacking as you try to accomplish what you are trying to accomplish. It may be something small, like a garden hose or coffee cup sleeve. Or it can be something big like software program to teach people how to sing. You can either continue on in your life, or you can perform a great service by trying to fill that void.

If you want to double your salary, you have to reinvent yourself. If you are making 25K a year and want to make 50K a year, you have to reinvent yourself. If you are making 50K a year and want to make 100K a year, you have to reinvent yourself. The reason is that part of the things you value and know have led you to where you are today. However, part of the things you value and know are also preventing you from reaching that next level.

If you are making $8/hr going to school, why not look for a job that pays $10/hr. When you find that job paying $10/hr, why not search for something paying $12/hr. Continue sharpening your skills until you get to where you want to go. I would even say, don't stop there. If you make $100K per year, why not try to look at what it would take to make $200K per year. If anything, do it because life is short and you want to challenge yourself to be the best you can be.

NEGOTIATION

Did you know, you can get paid more for what you already do? Negotiation is so critical in determining wages and salary. I once negotiated a 10K raise. I told my employer that I had no intention of leaving and that I loved what I did. I just added some information that gave the employer an incentive to give me a raise. In any case, you may be working at a job where your employer is making a profit from keeping you on board. If you learn some basic negotiating skills it can go a long way. Time and time again, I have seen the best people on a team have some of the lowest salaries, simply because they did not have the skills to negotiate.

Here are some quotes from a Forbes article I read: (http://www.forbes.com/sites/meghancasserly/2012/04/03/why-american-women-lose-negotiation-linked-in-career/)

1. "A new survey from LinkedIn reveals that not only are professionals uncomfortable with negotiating for higher salaries, roughly one in four of us are so anxious with the process that we’ve decided to skip it altogether."

2. "According to the numbers, fewer than 26% of women feel comfortable negotiating compared to nearly 40% of men."

Just a quick suggestion. When starting that new job, even if its the only job you have on the table, ask them to mail you an offer letter for you to look over the entire package. After they do, say it looks promising and you'll have to think about it because you really wanted to see such and such a number. Little things like this mean you will pick up the job either way, so you don't have to worry about not having a job, but they also mean you can get what you are worth. And by that, I mean, don't ever let some company tell you what you are worth. I know there is no cap on your potential. If you can speak English, your brain has enough power to do so much more than you realize.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Tuesday, August 14, 2012

The Four D's and the Cycle of Life

From sitting down with people, I have heard many stories. These stories are what have inspired me to continue on my mission to sit down with people and help them sort through their finances.

In one situation, a person was pulling in close to a quarter million a year and now struggles to pay rent. In another situation, a person spent much of their career in software, only to be laid off and replaced by a younger engineer. In another, a small business owner had business booming, without enough people to handle all the work coming in. A few years later, the business had died down, close to only one tenth of the work from previous years.

It is surprising how different we all are, yet how similar we are. We all tend to feel the same feelings and go through the same things in life. I love to speak to older people and learn about their experiences. You would be surprised what people have done in their life, if you only take the time to ask and listen.

As an investor, you can be paid well by learning to solve people's problems when one of the four D's occurs. Here, disaster typically means something like fire/earthquake, but you might also include being fired or losing a job.

  • Death
  • Divorce
  • Disaster
  • Debt

All too often, I speak with people who say they are doing well. I think that is great and of course hope that life will continue to be well. However, I hope that people can "Hope for the best while planning for the worst." When times are good, enjoy them and put some money away for a rainy day. Remember, you are one event away from a financial disaster and unfortunately, the statistics are not on your side. Can you honestly look at the list above and say you don't think any of those things will affect you in your life? What about the next few years?

I'd like to give a new interpretation to an old parable. What I love about parables is that they have different meanings for different people. The parable I am interested in is the parable of the ten virgins. Most people think that this has to do with the second coming or when they death. However, I think of this having to do with life and its cyclic nature, since when one of the four D's occurs, the bridegroom tends to arrive right at the front doorstep.

So, while you are thinking that your life is going well, I want you to just take a second to think. Does that house you are looking at fit your budget? Do you really need that new car? Do you already have furniture that you can be happy with? If you can answer these questions correctly, then maybe true happiness will enter your life when you are able to help your loved ones through hard times.

“At the end of the day, the questions we ask of ourselves determine the type of people that we will become.” – Leo Babauta

While some ask themselves, if they will be successful, I ask myself, when I will achieve success. That is why I can achieve anything I set out to achieve. People who know me well, know this about me. In the last year, I was involved in a 3 mile river race, in which our boat fell apart and all hope was lost. Most thought I would quit. Most thought I wouldn't get to the 1 mile mark. But then again, most didn't know me. It was said of me, "I don't know when he will finish, but I do know one thing. I know where I will meet him to pick him up." I never asked myself if I would finish the race, I just asked myself how long it would take.

So maybe the questions above are not the right questions. Maybe you should ask, "Will this house provide the things you need, no more, no less, so that you can pay the mortgage in the next 15 years?" "Can you live with a slightly older car, if it means you can put extra money into your kids college fund?" "Would you rather purchase this new furniture set or be able to send your mother money if she loses her job?"

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.

Monday, August 6, 2012

The Get Rich Slow Scheme

So, the topic today is to address the idea of getting rich quickly and the concept of get rich quick schemes. Let's admit it. Sometimes people are lazy. Sometimes they want to maximize their rewards and minimize their efforts.

CHOOSE TO BE HAPPY

If you want to get rich quickly, you can. Its really simple. Close your eyes. Think of all the great things you have in your life. Despite your situation, despite where you are, you are already rich. Rich with many blessings you probably just don't take the time to realize you have.

"But whosoever drinketh of the water that I shall give him shall never thirst", John 4:14. I usually don't quote scripture because I'm not really worthy to but let me just throw it out there as it may mean something special to others.

Some people always want more. They want this or that in their life. No matter how much they get, they take and take and take. What I propose is that people choose to be happy, appreciate what they have fully and attempt to enjoy each day of life. If they do this, they should not find it difficult to live within their means.

MOTIVATE YOURSELF

One of the great things about all those get rich quick schemes out there is they are very motivational. Yes, I tend to see the positive in many things. Two of my good friends opened my eyes to Robert Greene's book called "The 48 Laws of Power". You can check this list out on wikipedia. When I first looked at this list, I thought, "EVIL!". I almost shunned away when I read some of this page because the idea of manipulating other people just didn't sit right with me. Then, I decided to read it so that I could protect myself from others trying to manipulate me. I don't know if this is just a euphemism, but I prefer to be an open book, providing information and let people make their own decisions. Now, I am not like most people, so I sat and thought about how these 48 laws could be used as something positive in my own life. Here is what I decided. People can be their own motivators. They can use the 48 laws of power to motivate themselves to achieve the goals they set out for themselves.

A great way to motivate yourself is to attend two professional seminars or conferences per year. You may come back refreshed and motivated. I like Robert Kiyosaki because he often knocks those with a traditional college degree. While, I am a huge fan of getting a traditional education, I also believe that one should never stop learning.

Despite how many achievements I have in life, or what I think I have accomplished, life always has its way of humbling me, sometimes with a devastating knock out. I spoke to an old gentleman yesterday and he told me a story of the Dalai Lama. About a business man who went to the Dalai Lama in search of advice and basically couldn't stop talking. The Dalai Lama proceeded to fill his cup of tea until it overflowed and continued pouring. The point was that the business man could not learn anything because his cup was not empty.

"Even the strongest current of water cannot add a drop to a cup which is already full."

"The most difficult subjects can be explained to the most slow- witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."

One great way to motivate yourself is to focus on your dreams and goals. Write them down. Usually, I have heard about a Harvard study about goal setting. I think this is a myth, but here is an interesting study: http://cdn.sidsavara.com/wp-content/uploads/2008/09/researchsummary2.pdf.

“Ordinary people believe only in the possible. Extraordinary people visualize not what is possible or probable, but rather what is impossible. And by visualizing the impossible, they begin to see it as possible.” – Cherie Carter-Scott

TIME VALUE OF EFFORT

Albert Einstein was quoted as saying, “The most powerful force in the universe is compound interest.” I want to take this one step further. "The most powerful force in the univerise is the time value of effort."

I often talk to other people about the revolutionary concept I like to call the "Get Rich Slow Scheme". It is not what you do over the span of a few years that makes the difference, but what you do over the span of your lifetime. Rather than try to hit home runs, learn how to hit a single and repeat the process. You may "fail" and if you do, learn from your failure and try again. Eventually, after years and years of learning, modifying, strengthening, you may just hit a home run. Once you do, you may just hit a few more. Like compound interest you will also find that your efforts tend to stack exponentially.

I guess it is ironic that I have always been very happy with what I have had and at the same time been motivated to grow and build more. A somewhat zen concept of maintaining an abundance to help the suffering of those around me. This is thanks to those who have shared their abundance with me whenever I was suffering.

Support My Mission

1. You can support my mission by visiting http://www.izuservices.com and donating. A dollar lets me know you support my mission or like my posts. Thank you for those who have already donated.

2. Donate to SAGE via http://sagescholars.berkeley.edu/. The UC Berkeley SAGE (Student Achievement Guided by Experience) is a self-funded experiential leadership program that provides education, professional development, mentoring and internships to UC Berkeley students who come from poverty and low income backgrounds. I serve on the Leadership Council for SAGE and want to help raise money for their cause.

3. Call toll-free (877) 855-8111 or log on to www.PrimericaSecure.com to save yourself some money on either your home or auto insurance policies. Be sure to use my last name (IZU) and solution number (2MTFT). PrimericaSecure automatically compares rates from multiple companies such as Progressive, Travelers, Safeco, Hallmark, etc.