Remembering Harold on Memorial Day 5/27/3013

 :: Posted by ifm89408 on 05-28-2013

Harold with his best scowl!

Harold talked very little about his time in the military.  He served during WWII in both the North Atlantic Theatre (before Pearl Harbor) and in the South Pacific after the attack on Pearl Harbor.  We urged him to write down his memories of these events later in life so they could be known and remembered by those who followed after him.

As I sit here on Memorial Day 2013 I know we are losing the last vestiges of what is commonly called “The Greatest Generation”.  Those young men who heard the call of a nation at war and a world in need, they answered that call with gusto and pride.  Few ever talked about their experiences so I will reprint here one of Harold’s most vivid memories, his recollection of the battle of Midway from four decks below on the USS Yorktown:

June 4, 1942

We were supposed to be bringing up the rear of the flotilla, but the Japanese really wanted to get at us because we had caused them so much trouble, not only in the Battle of the Coral Sea, but on the three raids we had made on their shipping, so they went around the other two task forces to get at us (so we took the main group of Bombers and Torpedo planes the Japanese had sent out from their carriers). We shot down every Torpedo plane and most of the Dive Bombers, but they made 4 Torpedo hits and several bomb hits or close misses which still can rupture some plates on the bottom of our ship.

I stood my watch in Central Station and had been told not to go up into the tunnel going to the Bridge because it was so long that is was reinforced in the center of it so a big man like me (230 lbs.) might not get through.  I would have to be the last to go up (of the 25 men) if, and when we would get the order to abandon ship.  This bothered me some, so when I was standing watch alone I undogged the small door in the ceiling and proceeded to climb the ladder until after 7 decks I got to the reinforcements in the tunnel.  I was barely able to crawl through on the ladder but that made me feel better.

During the battle we received a torpedo hit in the fwd generator room directly across the passageway from our location on the 4th deck.  I was asked to undog our watertight door into the fwd generator room and water started to seep out so I knew that all the men in there were dead.  We also smelled some smoke so the 1st Lt. asked me to check the Powder Magazine in the next compartment forward of us to see if there was fire there.  After crawling all around the compartment and over the powder canisters I determined there was no fire (thank goodness) and I reported back the same.  Because of no generation from the Generator room we had no lights so we were using flashlights and power phones to keep in contact with the repair crews around the ship and the Bridge.  We had taken a 25 degree list to the starboard side of the ship and we could hardly stand up.  Finally the order came down from Captain Buckmaster on the Bridge to abandon ship.  Because of having to go up through the tunnel all of us had the “belt” type of life savers on, which we would inflate when we went into the water the same as a pilot would do.  This belt had two small canisters in the middle of it which, when squeezed would inflate the belt.

I was 4th out of Central Station and I went up that tunnel so fast that to this day I don’t remember that reinforcement in the tunnel.  Arriving on the Bridge we immediately went out on the catwalks on the outside of the smaller stack which was about 50 ft. above the Flight Deck.  We were immediately strafed by the Japanese planes so spent some time flat on the catwalk.  We only had dungarees on with no shirt or shoes or socks.  When we got down to the Flight Deck we were still on a 27 degree list to starboard and it was very hard to stand up and keep from sliding off the deck.  When trying to get to the top side of the ship we walked around and over dead shipmates that had been on a 1.1 mount of anti aircraft guns that had received a direct hit on the mount and they were all killed and laid out on deck.

They had lowered lots of heavy 1” lines down the side of the ship to go down to the 50 man rafts that had been released from the side of the ship and were hitting up against the side of the ship with every wave.  As we went down the ropes to the rafts there were so many going down that each shipmate was riding almost on the shoulders of the one below.  I could hear the raft banging up against the side of the ship and worried all the way down that when I got down to the water either the raft would be gone or a person could be squashed between the 50 man raft and the ship.  I couldn’t see below me so when I got to the water and felt it on my feet I immediately pulled up on the rope and I heard the raft hit the ship below me.  I let loose the rope and I was into the raft when it again went away from the ship.  The raft was full of shipmates and it was gradually sinking by sheer numbers in it and we were having trouble getting away from the ship.  I inflated my life belt and started to swim away from the ship.

I was in the water which was covered with oil which immediately started to cake on my head and body.  There were Destroyers darting in and out picking up survivors.  They couldn’t stop for long because they were afraid of Japanese submarines in the area.  After I was picked up by a Destroyer I was put into a baggage locker below deck on the fantail of the ship along with others and the deck door dogged down which was because the ship was under battle conditions of alert.  Each time the Destroyer would gun his engines the screws directly below us would really shake us up.  They would go to 25 knots in a few seconds from standstill.

Towards night we were let out of the baggage locker and because we only had pants on, without any shirts, we were given blankets to wrap ourselves in to stand up beside the stacks on deck to get heat.  Seems like we were given something to eat out of hand until about 9:00 or 10:00 am when we were transferred to a boatswains chair individually on a rope strung from the Destroyer to a Heavy Cruiser, the USS Astoria.

After we were aboard the Astoria we were allowed into the heads to take showers.  We would dry off and take them over again trying to get the oil off our heads and hair.  Hair came out by the handfuls.  We were issued some clothing to wear until we got to Pearl Harbor where we were taken to, and put up into the hills on the Island where we were issued new toilet articles and other issue of clothing, but not allowed to leave camp for any reason.    We later found out they put a skeleton crew back on the Yorktown so they could flood the compartments on the Starboard side of the ship to try to level the ship from the 35 degree list to Port and they were doing this OK.  There were two Million Dollar tugs (new) came out form Pearl Harbor and they had the Yorktown under tow at about 2 knots when a Japanese submarine put a torpedo into the USS Harman and it set off its depth charges in their racks and it sunk in about a very short time.  It also blew a hole in the USS Yorktown big enough to put a house into.  Everything was stopped and the skeleton crew abandoned ship for the 2nd time.  The USS Yorktown stayed afloat for at least 24 hours until it finally sank.

 

 

 

 

 

 

 

 


My AHAAA! Moment, Or How to Use a Financial Calculator

 :: Posted by ifm89408 on 06-06-2011

I can trace my financial beginnings back to several epochal moments in my life.  One of the most meaningful came when I was working on my MBA back …..  well, back a long time ago.  We were working on present value, discounted value, sinking funds and other problems that required complex cash flows and compound interest calculations.  Back in those days (OK, now I’m dating myself) financial calculators were not that readily available (OK, you can laugh now – I was an engineer at the time and I actually had a slide rule…).  Instead we used a book of tables that you would look up the appropriate multiplier from a table and use it to calculate your result.

What happened was almost divine guidance.  I was working on my problems and learning how to use that book of interest rate tables and I got curious.  Instead of my problems for school I started to wander through the tables and just started to look at each type of table and the “pattern” that they ascribed.  I zeroed in on the “sinking fund” table.  This is a table specifically for when you put away the same amount of money at given intervals for a certain period of time (IRA and 401(K) accounts were just starting to gain popularity at the time and they are sinking funds).  Simple problem:  You deposit $4,000 a year for 40 years and get an 8% return.  You would go to the table of sinking funds, go down to the row for 40 years, and then over to the column for 8%.  There you would find a number (259.78) to multiply your deposit by to calculate the total value in 40 years.  I started looking at the tables and saw how they “Hockey Sticked” as the years went on (The longer you stayed at it, the multiplier described by the table grew really fast).

This taught me two things:

  1. That if I had time (which I did at age 22) I could easily accumulate tremendous amounts of money making regular deposits.  If I wasted my time, I was screwed!
  2. You have to keep going to get to those later years where things really accelerate.  For instance:
    1. The multiplier for year 5 is 5.87 and for year 10 is 14.49.  A difference of 8.62 times your annual deposit.  Of course 5 of that 8.62 was the annual deposits you made.
    2. The multiplier for year 35 is 172.32 and for year 40 is 259.78.  A difference of 87.46.  Again, 5 of it was from your annual deposits but a full 82.46 was due to “THE MIRACLE OF COMPOUND INTEREST”.  As you can see you MUST get to those later years – you CANNOT RAID YOUR LONG TERM SAVINGS.

Not long after that financial calculators started showing up.  My first a HP-12C was a bit arcane but I learned to use it and it replaced my book of tables (which I kept by my bedside for several years).  You had to know a bit about “cash flows” and their directions to properly use that calculator.  Today, there are a myriad of calculators available to you.  Handhelds, Internet, Specific Programs (Like TValue), even using a spreadsheet (one of my favorites).

 

These allow you to do what I did – play, plug in numbers and dream, start to make plans, understand the impact of decisions you make (like robbing your 401(k) to buy a car).  So let’s learn some basics:

Most calculators will have a TVM group of buttons (Time Value of Money).  Usually consists of the following:

PV (Present Value) – The current Value of the account.

FV(Future Value)- Account value at the end of the time period.

PMT (Payment) – The amount paid each period.

N (Number) – Number of periods (you decide what a period is, month year or whatever).

I (Interest rate) – The Interest Rate you will get.  Make sure it is for the period specified (12% annually is just 1% monthly).

Now things are pretty simple.  Fill out any four of the variables and the computer will calculate the fifth unknown variable.  One thing to Know for many calculators is that they are DIRECTIONAL.  That refers to the numbers used for the PV, FV and PMT.  It is important to identify which are POSITIVE and which are negative (this related only to PV, FV and PMT).  I like to think that “money in” is positive and “money out” is negative.  So if I am starting with a positive PV and adding money to it the PMT is positive, and the FV will then be negative (as though it is a final withdrawal).  This is standard CONVENTION for financial calculators and is necessary for more complex calculations of cash flow.  Simple calculators like what is  available on the internet just show everything as positive but it is good to be aware of the sign convention if it is a more sophisticated calculator (Positive means money added, Negative means money withdrawn).

So let’s take some examples:  You want to see what you need to deposit today to have $1,000,000 in 30 years if you can get an 8% return.  FV=-1,000,000 (negative because that is what you will withdraw at the end), N=30, I=.08 (8%), PMT=0.  Now just press the PV key and you will get something like $99,377.33, the amount you need to put away today.

Example #2:  You have a 401(k) with $68,500 in it and you are putting $6,000 in it each year and that is matched 25% by your company and you have been getting a 6% return on that account – what should you have in 15 years when you want to retire?.  PV=$68,500, PMT=$7,500 (your $6,000 and the employers 25% match of $1,500), N=15, I=.06 (6%).  Enter these and press the FV and you should get something like -$349,208.20.  Notice the amount is negative, this is the amount that would be withdrawn since we used positive to represent amounts deposited (both the present value and the annual payments).

Here is a great website with a bunch of calculators.  I suggest playing with these and looking at things such as”

  • How you can build a large amount of money over a long period of time.
  • How much interest gets paid on a mortgage of 30 years length vs a 15 year mortgage.
  • What happens if you build an account for 10 years then spend that money, vs keep on saving.
  • Note how most of these calculators are just variations on a them of the basic Time Value of Money (TVM) calculator.

http://www.financialcalculator.org/calculators

 

THIS IS ALL INFORMATION THAT IS INTENDED TO EMPOWER YOU – THE INDIVIDUAL.  The more you play with these numbers and calculators the more familiar you will be with them and how cash flow works.  This will give you ammunition when getting a loan, buying a home and getting a mortgage, making long term savings decisions, choosing retirement savings vehicles,  saving for a child’s education, anything that uses compound interest calculations – which freak most people out.  Knowledge is power and these calculators provide unimaginable power when not long ago we need a book of tables!

 

Here is where it gets complicated

 

Cash Flows – not all problems are simple put money down and see what it is worth some years later.  When I would talk to my Dad in his later years I would ask him what his investment return was for the past year.  I knew he did not “really” know because he did not have a calculator to compute all the money he moved in and out of his investment accounts, but he could give me a “wag”, which is an educated estimate and it was a good topic to discuss.  I want you to be able to tell what your returns really are instead of wagging them, but it takes some work.

Let’s look at a sample problem.  You have an investment account that you have had for 15 years.  You started by putting in $1,000 and it is now worth $175,000.  You could just put this into the TVM calculator and come up with a return of 41.10%.  That’s probably not real because you forgot to add the $25,000 you deposited in year 3, the $40,000 you got from a home sale in year 6, the $31,000 you deposited from a bonus you got in year 7, and the $11,000 you took out last year for Junior’s education.  Whoa, now how the heck do we do this?

You need something more sophisticated and there are options:

  1. You can track your investment accounts using a program like Quicken.  If you properly enter your transactions, your dividends, interest, purchases, sales, deposits and withdrawals then you can just ask Quicken to do the calculation for you and VIOLA it is done!
  2. You can use a program I use called TValue.  In this you would enter each cash flow on a separate line in a table and ask TValue to perform the calculation.
  3. You can enter each cash flow with the date in a two column excel spreadsheet and then use the “XIRR” formula.

Lets look at how this would look in TValue or Excel (assuming “Today” is 1/1/2011):

1/1/1996          $1,000

1/1/1999        $26,000

1/1/2002        $40,000

1/1/2003        $31,000

1/1/2010      -$11,000

1/1/2011     -$175,000

 

I enter these into an excel spreadsheet and then use the function “XIRR” which returns an “Internal Rate of Return” for a series like this.  This is the same as saying, “If I put these same deposits and withdrawals in a bank what would the actual return be that I received.  In this case “XIRR” returns .069157 or 6.9157%.  That is a long way from 41%.

The Key here is we need to be able to distinguish actual cash flows but it is much more simple than you might think.  It is just simply money into and out of the account.  “Money in” is POSITIVE, and “money out” is NEGATIVE.  You have to keep track of those flows but you can just create a spreadsheet and each year add the dates and individual cash flows and extend the spreadsheet.

If you are able to calculate basic loans, sinking funds, estimate future value of an amount and especially tell what your rate of return has been on a complex set of cash flows you are light years ahead of the average person and that is very powerful.

 

 

Auto Rich … Net Worth Poor!

 :: Posted by ifm89408 on 05-09-2011

AAAT’S What I’m Talking about!!

If there is one single lesson I can teach a 20 something person it is this one.  Driving the latest, coolest, fastest, most desirable car is the surest way to never acquire growth.  There I said it, and I just burst your bubble <sorry>.

I am going to add that this is advice I did not really get from Harold.  Sure, when he was younger he bought used cars and kept them for a long time but once he was about 50 years old he started buying a new car every year.  Then again, by age 50 he had done the “heavy lifting” of creating wealth and could afford a luxury like that.  I’ll make you a deal – you save and build a solid net worth then you too can trade for a new car every year.

Almost 30 years ago I got my first computer and of course spreadsheets were the first thing a good engineer would learn about.  One of the things I created was a spreadsheet showing the long term wealth impact of owning new and fashionable cars.  At the time I was conflicted; I was a supposedly successful engineer and lived in Southern California – a society where a person was absolutely defined by what they drove, but I had opted for the most mundane ride you might have ever seen – yes I was driving a 1978 ElCamino (I bought it from Harold, who replaced it with a new Buick)!  Even though it seemed intuitive that driving a boring used car like that would save money, I needed to prove to myself why I had made such a sacrifice.  Solving this gave me something to learn on my new computer, while it also would help ease my bruised id.

I dug out this now almost 30 year old spreadsheet the other night and updated some of the basic criteria and refined some of the formulas etc.  Here is what I did and the results.

Two different people  – Mr. Cool “Chick Magnet”, and Mr. Net Worth “Chick Repellant”

Mr. Cool:

  • Buys his first new car for $45,000 (OK – he did not get the Audi but got a 3 Series BMW)
  • Borrows all his money to afford his cool car – but only pays 6% interest for new car rate (5 year Loan).
  • Pays  an additional $1,000/year for insurance and registration (hey, that  “GR8TANTRA” Custom plate is expensive).
  • He gets another new car every three years.  Sells the old one for 60% of what he paid for it.

 

Mr. Net Worth:

  • Buys his first 3 year old, low mileage, used car for $15,000 (60% of the $25,000 new price 3 years ago for that Honda Accord)
  • Borrows all his money – pays 7% since used car rates are normally more than new car rates (3 year loan).
  • He pays an additional $75/month in maintenance costs, because his car is aging.
  • Keeps his car for 5 years (paying it off in 3 years and having no car payment for years 4 and 5)
  • Sells his car for 15% of what he paid for it 5 years ago.

Some common criteria:

  • Inflation of 3% (increasing the price of cars each year)
  • Return on extra cash invested by Mr. Net Worth is 8% (he is a smart Geek!)

 

So what are the Results already (scheez – do we have to sit through all your pontificating?  Get to the punch line!)

After  5 Years

  • Mr Cool:      Owes $26,500 on his 2nd car
  • Mr. Net Worth:      Just got second car, owes $15,140, has $47,500 in the bank.

After 10 Years

  • Mr. Cool:     Owes $36,960 on his 4th car (and the new baby does not fit in the sports car).
  • Mr. Net Worth:  Owes $17,550 on his 3rd car, has $108,200 in the bank for Juniors College Fund.

After 15 years

  • Mr. Cool:      Just bought his 6th car for $70,000 (those Mercedes SUV’s are spendy), owes $52,700 on it.
  • Mr. Net Worth:  Just  bought 4th car for $23,400.  He owes $20,400 and has $197,500 in investments.

After 20 years (hey, these guys are only 40 years old)

  • Mr. Cool:     His 7th car cost $72,000 two years ago (Remember that 3% annual increase has a much larger impact on high end cars than it does on lower priced average cars).  He currently owes  $36,400.
  • Mr. Net Worth:      Owes $23,586 on his 5th car.  Has $328,577 in investment account.

 

 

 

 

 

 

But HERE is what I ended up with!

Conclusion:

My analysis and spreadsheet put numbers and scope to what I intuitively knew.  I just had no idea the vast scope of the impact (as much as $500,000 in 25 years).  When I first did this some 30 years ago the impact was about ½ of what I presented here, but the cost of cars was less than ½ of today.  As with any long term financial estimation it is just an estimation, nothing is exact and conditions will never be just as predicted.  Still, there is such a large difference between the two cases that I am convinced that “Fast Cars” are simply the quickest way to drain a person’s potential net worth no matter how the chips actually fall over the years.

I have just skewered one of the most sacred cows of the young adult just starting out on a successful career path, so I expect resistance (I KNOW you think I am full of “it” right now).  Believe me I have heard all the excuses and rationalizations:

  • I will just do it once in my life.
  • I owe it to myself
  • I deserve it (after getting that big bonus check)
  • I’m getting a great deal on this car.
  • I need to look successful for my job (great for Real Estate).

Let me clue you in <Y-A-W-N>.  Anyone with a lick of life experience can see through your façade of “success” and knows you are actually in hock up to your ears and just a few missed paychecks away from having that car reposed.  If there is anything you owe to yourself it is the savings brought on by owning a more practical ride and a big investment account.  Take the conservative route until you have established your net worth and you will be able to easily afford those nice cars later, just like Harold did.

After I did this analysis I decided to keep that old ElCamino until it just had no more giddyap (12 years I drove that car).  I have never owned a new car and am only on my second car since I sold that ElCamino 19 years ago.  Since then it has been Honda Accords.  Reliable, nondescript, economical and I normally get almost 150 – 200K out of one.  I guess I could probably follow Harold now and start rotating cars every year but I go back to my spreadsheet and know I am satisfied with the simplicity of my old cars and my extra change.

I Cannot Save a Cent

 :: Posted by ifm89408 on 05-07-2011

OK, we have gone over the fact that I believe anyone who starts at a young age can pretty easily become a millionaire.  I showed you how to do it with a simple saving plan of $4,000/year.

BUT YOU TELL ME YOU JUST CANNOT FIND THOSE SAVINGS.

Don’t think I have not heard this before.  For many $4,000 a year may seem like a lot of money, especially when you are working at a minimum wage job.

What I am about to tell you is the first difficult thing you will have to do and it is up to you whether it is worth it or not.  I’m not kidding you, when you are saving only $4,000/year it will seem like the you will NEVER get there (so why try?).  Here is what you are up against:

After 5 hard years of saving (with 6% return) you will only have:  $22,548

After 10 years:  $52,723

After 20 years:  $147,142

Of course in each 10 year period you are only putting away $40,000 of your money, and hopefully you see in the first 10 years you make about $12,723 in return, but in the second 10 years you make $54,419 (and it keeps getting much better – that is another lesson).

The problem is it will seem like NOTHING at first – like it is just pure gut savings, and in fact IT IS!

So how do you accomplish these feats of savings?   It is a three step process:

1.        Break down the task at hand to something simpler.  $4,000/year is $333.33/month, $76.92/week,  $10.95/day.

2.       Find something that you can give up:

a.       Daily Starbucks – $5.00.

b.      Cigarettes – $6.00/pack.

c.       Go out Friday OR Saturday night, not both.

d.      Drive a used car.

e.      Take a lunch to work.

f.        Get a roommate.

3.       Put that money into an investment account – FIRST, before anything else.

 

What I am saying is to make lifestyle changes.  What I like to think of as “Living a level below what I think I can afford”.  It is a FACT that people will live up to the absolute level of their income.  If you make $700/week and take home $560 I can guarantee you will spend every penny of it if you allow yourself to do so.  Now I come along and tell you to save $76.92 of that $560.  What you have to do is look at a person who you think only has $480/week to spend and live like they do.  There is your $80 in weekly savings.  Giving up some of the suggestions above, or finding things of your own that are not NECESSITIES to give up allows you to make those savings.

Here is exactly what I did as a yute….

I graduated college and received one of the top paying jobs in my class (it was pure luck, believe me on that).  When I got to my new life (I moved 2,500 miles for that job) I did the following:

1.        Bought a used car that was not very cool (but cheap to own and reliable).

2.       Got a roommate (in fact two roommates).

3.       Would only go out once a weekend.

4.       Rode a bicycle, played softball, played pick-up basketball and used a cheap gym membership for my primary entertainment (all costing next to nothing)

5.       Quit smoking

6.       Eventually the three of us moved out of our posh “bachelor pad” and into a much cheaper house we rented.

7.       When I bought my first house I bought it as a partnership with one of my roommates.

8.       Had money deposited directly into my company 401(k) and into an IRA I established.  This is the “Pay Yourself First” technique that I think is so important.  Once the money is in those deferred accounts it is like it is gone (at least that is how you should think of it).

While my starting salary at the time was only $400/week I managed to save $2,000 every year for my own IRA and an additional $2,100 into my company 401(k).  Sure it was a different time and living expenses were less but that was still over 20% of my total pay, or more than 27% of my take home pay (so you should be able to do the same percentage).  Sure, I had friends driving Corvettes, going out several times a week and generally living a much more exciting life than I was, but I was determined to “Live a level below what I knew I could afford.”  I had watched my father (and mother) for years running a strict budget, buying day old bread, raising our own cattle and chickens, canning all our vegetables from our garden, living with a single car for a family of 8.  I knew we could have had more but I had learned why we did that and securing a future was more important to me than my current gratification.

So don’t tell me you cannot do it unless you want me to come over there and go through three months of your checkbook and credit card charges and tell you EXACTLY where I would get those savings.  You have to internalize your savings.

Anyone Can Do It!

 :: Posted by ifm89408 on 05-07-2011

This is the first subject post of this blog and for good reason as it really forms the basis of what I will be talking about from here on out.  I have never seen a definition of “Rich” (or for that matter “middle class” – ask your politician to define it next time they want to help the middle class) so I am going to give you one right here.

Rich is having all the necessities required to live a fruitful life.  You can define what that is for you.  Believe me, I am sure the requirements to meet that definition are very different for Mother Teresa than they are for Donald Trump.  My point is it’s a personal decision how you define “rich” and one persons wealth may be inconsequential to another.  It is important to understand that dollars are only a financial measure of wealth and while I will address some other aspects of wealth in my posts,  dollars are what I will be concentrating on.

All that said, what I am going to be looking at is making “Millionaires”.  It is still something few people ever reach even though it may not have the pizazz it had when I was a young man.  While I am writing this there are about 10 Million people worldwide who have achieved this level of net worth, about 1 in 700.  In the USA it is about 3 million or roughly 1 in 110 people.  So my feeling is if you can get to that level then you are at least on the correct path.

Required reading for anyone who desires to know exactly how to become a Millionaire is the book “The Millionaire Next Door”.  I am going to give you the “Cliff Notes” here:

1.  Stay Married.

2.  Start a Business.

3.  Be Thrifty (maintain a budget).

4.  Be Practical (no status items like big houses or cars).

5.  Take maximum advantage of investing opportunities such as tax deferred accounts.

6.  Income and wealth are very different things, a high income person often has a low net worth in relation to their income.

7.  While generally conservative, Millionaires invest and take risks they understand.

8.  Most take many years to accumulate wealth.

Of course NONE of these are absolutes, but the authors did extensive research and I can tell you from my experience that in general these are correct.  Now I am going to give you three descriptions of Millionaires that I have know over the years:

1.  Worked as a laborer for 35 years.  Maximized the company 401(k), lived modestly and saved the difference, choosing to buy stock with what was left over.  This person did all of the 8 except working for someone else.  That is OK, that gave solid opportunities to build deferred savings, earn a company retirement to augment those savings, while living thrifty allowed this person to make additional savings.  All of these savings were invested for returns in excess of bank returns (taking risk).  This person learned the stock market, did their own investing and understood those risks.

2.  Small business owner, married with several children (put all through college).  Wealth was split between tax deferred and taxable accounts and several houses that were paid for and rented.  Again, this individual took advantage of the opportunities to save tax deferred, lived a modest lifestyle, budgeted to allow for additional savings, and did their own investing (including the rental houses) learning on their own what they could about the stock markets.

3.   Family farmer, ran an additional business and sold the farm at the peak of the market to lock in generations of wealth.  This is out of the ordinary but this person continues to run a small business, lives modestly, remains married and does all the other things to maintain the level of wealth that was locked in from the sale of the family farm.

My point is that all of these three accomplished their level of wealth slowly over time and while they may not have complied with all of the predominant traits each did really fit many of the criteria.  I have seen enough of this in my lifetime to believe that anyone can get there given enough time.  That last qualifier is VERY important – TIME – is the key.  Notice all of my examples earned wealth over a long period of time and that is what the authors of “Millionaire” found in general.  This is why I am really aiming this blog to younger adults, this is the time in life to learn information like this so it’s application can have it’s largest impact.

All of this actually jelled with me when I was about 20 and looking at these new investment accounts called IRA’s.  It was real simple since there are no tax impacts until you take the money out.  I could just calculate how much an annual deposit of $2,000 would become (that was all that was allowed back then).  When I saw the numbers I was memorized, because this just seemed too easy.  So lets take a look at this so you can see the impact of time for yourself.  We are going to use a person who deposits $4,000/year ($333/month) which is currently a standard IRA deposit.  Those deposits will receive a very reasonable 6% annual return.  We will do this, planning on taking the money at age 70 (when you must start taking IRA distributions).  I am going to do this for a person who is 20, 30, 40, and 50 years old.  I will list how much was invested over the years and what it should be worth with the 6% return at age 70.  Hopefully you will see how urgent it is to start early and just how easy it will be:

Age                      Total Deposits                            Account Value at Age 70

20                         $200,000                                       $1,161,343

30                         $160,000                                         $619,047

40                         $120,000                                         $316,232

50                           $80,000                                         $147,142

 

I hope you see what turned me on as a young 20 year old.  The difference between starting right away and waiting for 10 years to start saving is essentially DOUBLE.   Yes, you only put away $40,000 of your dollars the first 10 years but it is the 50 years those dollars get to grow that makes the difference.

Putting it this way hopefully you can see why I believe anyone can get there.  You can give all kinds of excuses like:  “$1 Million 50 years from now will be nothing” – they said that over 30 years ago when I started and it is still significant (the only people that say that are too afraid to try or have given up).   Or “I cannot save that much” – I doubt that, it is just not important enough to you to put away $4,000/year.  If you are making $40,000 a year you should be able to save 10% if it is important to you.  Instead of using all your income to live, simply knock your standard of living down a notch and make the savings.  You can continue to make the excuses, and I can continue to tell you how to overcome each excuse.  The bottom line is that no matter what you say, all I hear is that it (becoming a millionaire) is just not as important to you as is the current consumption of your income.  Once you internalize the goal of becoming a Millionaire, or even take the additional step of calculating what “Rich” is to you, it is really only a matter of time, persistence, a bit of deferred gratification, and some hard work.

 

 

 

 

Welcome to dads-wisdom

 :: Posted by ifm89408 on 03-24-2011

Welcome to dads-wisdom.  I named this domain with the concept that I would be giving basic financial information to people just starting out in life, kind of like the information a good father would provide.  It is a mixture of what I was taught by my own parents, and what I have learned during my (now) over 35 years of working life.  What I will attempt to do is add a post a week or so as time permits.  At this time I have enough ideas in all of the different categories to take me well over a year to spill out but I ‘m pretty sure I can come up with much more as time moves on.

Come back and check for new posts, look over old posts, bookmark those that give good information or some of my favorite shortcuts. If you have questions leave a comment or send me an email.  If you don’t like something or disagree, you can do that as I am writing this from America, not China.

Hopefully this information will be presented in a fashion that is interesting and easy to digest.  My goal is to help you to be more proactive in your own financial future as I have seen first hand how these lessons have helped other particularly young people.  Hopefully they can help you also.

Finally, I hope you will enjoy reading about Harold’s life as told through his own words and maybe embellished by my own recollections.  He was a a special person.

Brian R.