This time of year is always a favorite around here, not just for the festivities and joy that always seem to accompany the holiday season but also for the precious extra time spent with family and friends, relaxing, catching up and just enjoying each others’ company.
The holidays offer a much-needed break from our regular routines, which in turn always bring a fresh, new perspective and the opportunity for reflection and realignment of values and priorities. I’m always reminded of what is most important to me because of all the positive feelings and happiness this time of year brings.
Values & Priorities
It’s far too easy to get off-track and caught up in this world of distraction and pressure. In an effort to try to ‘do it all’ or to please others or to ‘do the right thing’ or sometimes without even realizing, many of us add items to our daily workload that really aren’t in alignment with what we value. Moreover, we add without subtracting or adjusting to help keep our lives in a healthy balance, both physically and emotionally, at work and at home.
Have you ever had your nose so closely to the grindstone that when you finally look up you wonder, How on earth did I end up here?!
Since we can only do so much, it’s important that what we choose to do is aligned with what we truly value.
Reflection is a powerful tool. Taking time to think about what is and is not serving you well is the first step to designing and living your best life. That’s YOUR best life. Not the Jones’, not what your mother or me or some guru or anyone else thinks is best for you. If you take nothing else from this post, remember that your life does not have to be patterned in a certain way or resemble anyone else’s life.
Sometimes we think we want or need certain things like a particular job or car or house because it’s expected or it’s the ‘next step’ on the road to success. Unfortunately, that’s the kind of thinking that can lead us into a vicious cycle of unnecessary consumerism and debt and general unhappiness. Success can be measured in many ways but I believe it ultimately comes down not to how much stuff a person has, but to simply being happy.
In a previous article, I talked about living and spending in accordance with personal values and priorities. Spending is an important part of living here in North America. How we choose to spend our time and our hard-earned dollars has a direct impact on our quality of life and overall happiness. Reflecting on personal choices and making sure that our actions and spending of time and money is in alignment with personal values and priorities is, I believe, the key.
Reflect & Realign
Take some time this holiday season to really think about what you truly value: Education? Travel? Independence? Work? Family? Health? Examine what each one means to you and think about its current place in your life. Be honest with yourself and try not to think about what is ‘right’ or expected; just focus on what is important to you.
Reflect on those values and on your top priorities. How do they factor in to your life today? Do your current goals reflect what is truly important to you? Does your current routine reflect your highest priorities? If you value time with family but are spending all your time at work, then your actions and choices may not be in alignment with your values. Where might you need to make some adjustments?
Don’t stress if you feel your life is a little ‘out of whack’ and certainly don’t compare yourself to anyone else! Realigning your choices with your values and priorities may take some time depending on how long it’s been since you last reflected and how far off track you may have wandered. Simply identify what needs to be adjusted, make the changes you can now and then incorporate the rest into your list of goals for 2013.
“No matter how long you are traveling down the wrong road, when you figure it out, turn around.” ~ Turkish proverb
Holidays, breaks and vacations allow us to take a step back from our everyday projects and challenges, and to really see the big picture of our life. Enjoy this special time of year and make sure you are spending your time and money on the things that make you truly happy!
US citizens and residents with funds and/or investments in foreign banks or companies have just less than 6 months before this sneaky legislation from the 2010 Hiring Incentives to Restore Employment (HIRE) Act takes effect in January 2013:
“Any funds transferred from the US to any overseas account are subject to a new tax equal to 30 percent of the total amount of the payment – unless the payment is sent to a foreign bank that has agreed to report all American-owned accounts automatically and electronically to the US government.”
The IRS provides a summary of key Foreign Account Tax Compliance Act (FATCA) provisions of 2009 which were expanded in relation to the components of the HIRE Act of 2010 intended to raise revenue to ‘off-set’ the costs involved with the HIRE Act and to enforce compliance of the additional disclosure and reporting requirements.
Stiff penalties are involved for those individuals failing to disclose and report foreign assets and financial accounts – $10,000 for the initial infraction up to $50,000 for continued non-disclosure. In addition, the penalty for any portion of an underpayment of tax on non-disclosed gross income and assets increases from 20% to 40% of the understated amount.
To top it off, the statute of limitations for IRS audits on certain unreported income from foreign financial accounts has been increased from 3 years to 6 years, allowing the government to reach back further to tap into potential revenue from non-disclosed accounts and holdings of US citizens and residents.
But all the IRS strong-arming isn’t just limited to US taxpayers.
Starting in 2013, Foreign Financial Institutions (FFI) which include any non-US banks, securities firms and other investment funds will essentially be forced to choose – either agree to disclose sensitive personal and transaction information about accounts held by certain US persons and/or entities OR accept a penalty of 30% withholding tax on ALL payments received from any US institution or other source.
US institutions will essentially bear the responsibility of ‘collecting’ the 30% withholding tax on behalf of the IRS. Since it will be difficult to determine exactly which transactions are and aren’t subject to withholding – and since the same law provides that US institutions will be held harmless for improper withholding even when tax is not due! – it stands to reason that banks will withhold 30% tax on ALL foreign payments to countries or institutions that do NOT have what is considered the required information-sharing agreement in place with the US.
As predicted by many with a vested interest when the law was first introduced, there has already been a huge uproar in the global financial community. Big banks everywhere began lobbying against the legislation as soon as it was passed in 2010 and several key European institutions (Deutsche Bank, HSBC and Credit Suisse) have already balked at the onerous and costly reporting requirements, systematically refusing business with American clients since 2011. In fact, some countries and institutions may be precluded from compliance with US law due to client privilege and privacy laws of their own.
What was initially purported to be a crackdown on tax evasion by wealthy US taxpayers with non-disclosed off-shore holdings and accounts has such overreaching consequences that some economists are inclined to believe the law is part of a concerted effort by the US at currency control, certainly discouraging Americans from diversifying their portfolios by sending or holding assets abroad, but also essentially creating an ultimatum for the rest of the world – play by our rules or don’t play with us at all.
In this case, the burden of accountability seems misplaced. Instead of encouraging responsible reporting by US citizens or targeting and penalizing specific non-compliant taxpayers, foreign institutions are being coerced by the parent-like IRS into ‘tattling’ on its US taxpayer clients like the older siblings of naughty children, under pain of the 30% withholding penalty.
Such strict limitation and regulation, though, often produces unintended resulting consequences.
Instead of encouraging a healthy flow of information in an effort to close the ‘tax gap’ and ensure proper reporting by US taxpayers, the law could serve to deter other countries from choosing to do business with the US or any of its citizens worldwide.
It could also discourage other nations from using US currency for international trade transactions, potentially resulting in a shift away from the US dollar as the de facto world currency. Many analysts have already expressed concern that the cost and hassle of compliance will far outweigh the benefits of working with US capital and investors.
So what does all this have to do with us regular folks who just want to be able to create a secure, affordable retirement with a decent standard of living?
If it hasn’t already, US taxpayers living, working and/or investing abroad will undoubtedly face significant obstacles to opening foreign bank accounts and conducting foreign financial transactions of any kind. In fact, some banks may close or reject US citizen-held accounts entirely, making it virtually impossible for Americans to function, let alone compete, globally.
For those with accounts at participating foreign financial institutions, the IRS will soon have a very real and extensive system in place to track US taxpayer holdings and transactions, along with the power to go back 6 years to collect and impose harsh penalties. Americans currently living overseas with the bulk of their assets in foreign institutions will definitely need to review the law, institutional policies and the overall potential impact on their individual situations.
Americans may be rejected from participating in joint-venture international projects, making real property purchases or any number of other investments involving fund transfers internationally. Anyone (including pending and non-resident immigrants) considering foreign real estate purchases, extended travel, full or part-time retirement abroad may be forced to reconsider those plans simply on a practical level.
The American Citizens Abroad (ACA) has called for a Repeal of the FATCA legislation citing many of these problematic issues and more.
The true extent and potential repercussions of this legislation may not even be fully realized until after the fact but this law is certain to change the way business is done BY and WITH Americans in the future.
This is the second in a series of articles about Real Estate Investing as a Financial Tool. Read the series from the beginning or click on the links below to learn more about each of the strategies presented.
Real Estate Investment is a versatile financial tool and can be used to help achieve any or all of these investment objectives:
Real estate investments can help you to acquire assets capable of growing equity and increasing investment capital. This strategy can be applied quickly or slowly over time, depending on the project, goals, individual capabilities and appetite for risk.
‘Flippers’ use real estate as stepping stones to amass lump sums of equity in a relatively short period of time. Most often, they purchase a property at well-below market price (often foreclosures or fixers), then turn around and sell as quickly as possible for a profit.
This can be a great way to build significant capital in a relatively short period of time (less than a year). However, it can come with some significant drawbacks, notably the time, expertise and labor required to prepare the property for resale, higher taxes on short-term gains, and of course the ever-present profit-eroding ‘Unexpected’. This includes repairs, property expenses, debt and carrying costs, market changes, purchase/sales costs, selling period, etc. that weren’t adequately planned for or anticipated.
It’s easy to get excited when calculating all the potential profits on a transaction but many people forget to also prepare a potential ‘worst-case scenario’ or a contingency plan for the unexpected or underestimated costs that are bound to come up.
Since profits from this method are usually only realized when the property sells, having to hold it even just a few months longer than anticipated can quickly erode returns, especially if financing is involved.
Similarly, many people purchase new construction homes with little or no money down with the intent to sell in a year or two as phases are added, the neighborhood stabilizes and values appreciate. In the 2008 housing market crash, many buyers purchased without proper due diligence and adequate investment capital. When financing froze and home sales literally came to a screeching halt, people found that they were unable to sell, unsuited to being an impromptu landlord or unable to afford the monthly costs of owning a rental home, in some cases even with a tenant in place. Timing is a critical factor, especially when banking on future profits to make up for interim negative cash flow.
Building wealth rapidly is an exciting prospect but be sure to do your homework up front. Inexperienced and/or under-capitalized investors can quickly find themselves in over their heads and/or with a very expensive learning experience!
Slower-paced wealth building usually involves a slightly longer time frame, often 3-5 years or so. This strategy is typically used with development and construction or ‘value-add’ projects, where an investor will purchase, lease or option a project property and take specific, calculated steps to improve or add to its overall value over a certain length of time with the intent to then re-sell and realize profits.
Land development can range from working with the local city to establish zoning, permitting, platting, subdividing, etc. to putting in the infrastructure (roads, curbing, utilities, etc.) for future construction and actually building on the land. Each step of the development process can add value to the property, with investment capital and costs recouped through sales or refinancing. Many developers look for ways to control the risks involved in the development and construction process, such as lining up a lease or buyer for the property before building or prearranging for higher-cost construction financing to convert automatically to a lower-rate permanent loan after a set period.
Development and construction projects can be quite lucrative but can also carry significant risk to initial investment capital and hefty up-front costs.
Value-add project improvements can include capital or cosmetic repairs like upgrading units, replacing a roof, repainting, resurfacing parking lots, as well as strategic asset management action like leasing vacant space to increase net income, restructuring or extending leases, putting more efficient management systems in place, fractionalizing ownership, refinancing with a different/better loan product, etc.
Funds to pay for capital improvements are either calculated into the purchase price up front and/or paid for by existing cash flow from the property. Strategic actions usually will need a stabilization period for the property to show consistent performance at new income or expense levels.
Investors using this wealth-building model either become, joint-venture with or hire a project manager who is responsible for executing the improvement plan for adding value to the property. Expertise is obviously an important factor and depending on the scope of the improvements, may involve a great deal of coordination with sub-contractors or other professionals. Timing can still be a major factor in realizing profits with this wealth-building method, especially if there are heavy up-front costs or if the building is completely vacant.
A detailed cost analysis is essential for any development or improvement project, along with a healthy cushion or reserve fund for the ‘Unexpected’.
One of the biggest criticisms of real estate is that the investment capital or equity cannot be as easily converted to cash as liquidating a stocks and bonds account. However, building wealth patiently over time with real estate is how many business and family dynasties were created.
‘Buy and Hold’ is a term often used with much longer investment time frames, often 10 years or more. Long-term wealth-building can been used strategically in an investment portfolio to achieve various long and short-term objectives depending on what is purchased and how it is structured.
Land-banking is the practice of buying an empty lot or raw piece of land with the anticipation that it will become more valuable over time. Ever hear of the phrase, ‘Dirt Cheap’? Unimproved land is less expensive to purchase and costs less to own than property that has a building already on it. Land-bankers strategically purchase in areas that they consider to be or will eventually be ‘in the path of progress’ as towns and cities grow and develop new communities. This can happen quickly, take years or may never happen at all if development is slow, takes a different path than anticipated or if environmental or other challenges arise that make development difficult or cost-prohibitive.
Investment Real Estate can be any residential or commercial property purchased for growth and/or profit potential. Many people buy a second home or break-even rental property in anticipation that eventually over time, it will appreciate in value as most real estate has done historically overall. This is often referred to as an ‘Appreciation Play’.
Income property is purchased with the expectation that it can generate enough income through rents or leases to ideally provide a source of income for the investor or to at least cover its own expenses for property tax, insurance, ongoing maintenance, repairs and other expenses associated with ownership. Even property free and clear of any financing will have operating and administrative costs that need to be planned and prepared for.
One of the truly powerful wealth-building abilities of real estate is the ability to leverage your initial investment and increase its earning and growth potential exponentially.
If part of the purchase price is financed there will be loan payments to account for but if those costs are also covered by income generated by the property, the tenants ultimately pay down your loan, thereby increasing your equity and building your wealth in the process.
Obviously, financing adds another variable and additional risk to the equation. Operating costs and loan payments are due regardless of vacancy or other interruptions in income. Highly leveraged properties and under-capitalized, inexperienced owners can be a dangerous combination. Investors need to carefully examine the past and projected performance of the property as well as their ability to manage the asset. Again, a reserve fund is a wise way to help manage property cash flows and avoid being prematurely forced to sell.
Leverage is simply another tool and can be used as responsibly or irresponsibly as the investor wielding it.
Bottom line: Build wealth at a pace with which you feel comfortable and can afford. Expect the Unexpected. Partner with discretion, integrity and experience. Any investment or project is only as good as the people involved.
This is the second in a series of articles about Real Estate Investing as a Financial Tool. Read the series from the beginning or click on the links below to learn more about each of the strategies presented.
I’ve said it once, I’ll say it again: Real estate investment is an incredible financial tool.
Why use the term ‘tool’? Because a tool can be used to help you do the job you want when you need it. You might need a little instruction and practice to use it properly and with as little risk or harm to yourself as possible (ever bang your thumb with a hammer?!) but ultimately, a good tool can help leverage your time, effort and money to get a job done more quickly, efficiently and effectively.
And as any artisan or craftsman knows, having the just the right tool for the job can make a huge difference. But a tool is just a thing. It takes the energy and know-how of the person using it to make it work and to get the most out of it. It’s also important to have as many different tools in your toolbox as possible – so that you can pull out just the right one exactly when you need it.
Real Estate Investment is a very versatile financial tool. It can be used in different ways to accomplish different results. If you can only carry or learn to use a few tools, it makes sense to pick ones that can be applied in as many situations as possible.
Investing in real estate as a financial strategy makes sense for many different reasons, including:
Let’s face it – the Stock Market is really not for the faint of heart, especially in times like these!
Recent news and the ongoing economic uncertainty have been causing some pretty wild rides and sometimes it feels like you’re just hanging on for dear life. It can be a pretty scary place, even for the most seasoned and experienced day traders.
But without the downs, you can’t have the ups. Without the ups, you can’t have the downs. It doesn’t matter which side you’re betting on; without movement there is little potential for profit. For those players who can keep their cool during this time of fear and panic, there is money to be made.
The same essentially holds true for Real Estate. Investors want to see the real estate markets cycle because that is when real opportunities happen. Remember the old adage, ‘Buy Low – Sell High’? It’s hard to buy low if the market is always up!
In most situations, movement means change, and change creates motivation. Sometimes perfectly good assets and real estate must be sold because of a death, divorce, partnership dissolution, retirement, downsize, loan maturity, interest rate adjustment, etc. Sometimes the owner has simply accomplished his goal and is exercising his exit strategy to realize a profit. Sometimes the owner has just not managed the asset well. Whatever the motivation, if you aren’t expecting the change or if you aren’t properly prepared, your hand could be forced sooner than you’d like or under less-than-ideal circumstances.
Fortunately, the Real Estate markets tend to move at a much slower pace than the breakneck, minute-to-minute rollercoaster of the stock market. For those who are looking (and who actually want to see!) it’s usually a lot easier to anticipate market movement or upcoming changes and then have time to plan and prepare accordingly. For example, information and statistics are available that show another wave of mortgages with interest rates re-setting coming up over the next few years. That could spell disaster for those owners who don’t start working on a plan to resolve the issue but it can also spell opportunity for investors who start positioning now to be ready to purchase if and when some people are forced to sell.
Ideally, owners and investors will plan and prepare to be in a position to minimize losses or to take advantage of upcoming opportunities when movements happen. Understanding your investment and the things that can affect its value are the keys to making smart investment decisions.
Smart investors are proactive, not reactive. They constantly monitor their holdings and make strategic moves to protect overall value – hedging their bets, so to speak. That way, if something changes or it the market moves in the opposite direction than what they think, the portfolio’s principal value is still largely protected. Whether it’s a stock, real estate or other asset class, every investment asset needs to be actively monitored and managed, even the passive ones. (Note: Property Management is not the same as Asset Management!)
In Real Estate, hedging or protecting your principal is often as simple as having ample cash reserves to weather through a rough spell of unexpected vacancy or repairs. The only time you really need to worry about the value of real estate is when you go to sell. Adequate liquidity can usually help you smoothly ride out a down cycle so you aren’t forced to sell at an inopportune time.
As many investors have recently discovered, a Home Equity Line of Credit (HELOC) is a poor and unreliable substitute for an actual cash reserve account. A HELOC can and will be revoked or capped by the lender at any given moment, regardless of spotless credit or payment history.
Many real estate owners make the mistake of cannibalizing their investment by draining every drop of the operating cash flow or overleveraging the asset. Then, when something unexpected comes up or something changes, they blame the market or the real estate itself for a problem that they created by not carrying sufficient reserves. You WILL have tenant changes, you WILL have some repairs – these are eventualities that can and should be planned for by all real estate owners.
Bottom line: Know your assets, know your investments, keep your eyes open and plan ahead. These market movements are creating a lot of opportunity and it doesn’t look like it’s ending any time soon. Batten down the hatches of your solid performers to ride out the turbulence, cut loose the dead-weights and position yourself to take advantage of the opportunities created by these market movements.
Women really do make great investors. Why? Because investing is about more than just math and numbers.
Women are becoming more and more deeply invested in their own financial success for many reasons: Careers are being pursued and marriage is being delayed, divorce rates are higher than ever, single-moms and women who are the sole or main breadwinner in the family are increasing, cost of living is rising steadily, job security is virtually non-existent…the list goes on. There are no guarantees in life and situations can change drastically in the blink of an eye. Independence and self-sufficiency are more than just words; they are a gateway to freedom. Women are no longer content or willing to be dependent on others for their quality of life.
A lot of the Myths about Money & Women floating around out there are simply false. Statistics show that women are blowing the stereotypes out of the water when it comes to money and investing: Women are MORE likely to join a retirement plan, women save on average 10% MORE than men, women actually spend LESS than men, and women are MORE likely to diversify their investment portfolio.
True power and independence happen not when you HAVE money, but when you know how to MAKE money.
Just ask any lottery winner or divorcee who has blown through a divorce settlement trying to sustain a champagne lifestyle on a beer budget! A lump-sum goes away pretty fast when there is nothing in place to replenish it. The first step is learning about Assets & Liabilities; the next step is doing something with that knowledge.
As Rich Woman Coach Nichole explains in a video Coaching Tip about Women and Investing on Robert Kiyosaki’s Rich Dad website, there’s a lot more to successful investing than just numbers and calculations. The Rich Woman coaches identified their top 5 characteristics that make women great investors:
Let’s take a closer look at these strengths, how they each contribute and add up to a Great Investor Profile:
Asking for Help. Women typically know how to ask for help when they know they need it. And in my experience, more often than not, they prefer to ask other women. Have you noticed all the networks and clubs and resources that are geared towards supporting women in financial and business endeavors? The Daily Worth, WomenOwned.com, Ladies Who Launch, National Association of Women Business Owners (NAWBO), My Wealth Spa to name a few. Many of these were created or developed just in this past decade.
Women seek and value mentors that can support and assist them in a non-intimidating, non-judgmental forum. Although men often view women’s lunchtime or evening gatherings as a sewing circle gossip session, women frequently use friends and colleagues as sounding boards for new ideas, thoughts and perspectives. Brainstorming and round-table sessions are becoming more and more mainstream, even in the ‘Old Boys Club’ organizations because there is strength and power in teams and in seeking outside opinions and help.
Planning. Most women become good planners by necessity. Often in addition to full-time employment or business ownership, women take on, or inherit by default, the monumental task of running the household, juggling kids activities, making and keeping family appointments, planning and organizing family vacations, meals, etc. It takes a lot of planning and organization to make sure everything runs smoothly from day to day and week to week.
Investing demands a similar kind of planning and organization to be efficient and get the most out of your capital. The ability to make and stick to short and long-term goals is important but having a system to monitor and track it all is priceless, especially when it comes to finance and investing.
Multitasking. Women are also known to be exceptional multitaskers. Handling several issues or tasks at once is all in a day’s work for most women. This translates well into the world of investing because there are always many different things going on in many different markets and across many different asset classes.
Women who are able to see various market factors and how they can affect an investment will be much more able to predict possible outcomes and proactively make adjustments as needed. Diversification is also easily appreciated and accepted by women who are more likely to hedge their bets as opposed to going for the glory in a single ‘Hail Mary’ home-run move.
Diligent Research. Women know how to do their homework. They are used to budgeting, comparing prices, finding the right pediatrician, school, camp, mechanic, gardener, insurance, etc. In finance and investing, this means that women know how to investigate and identify investments that will work best for them.
Investing involves a LOT of research. ‘Due Diligence’ is an investment term that refers to the process of verifying data presented, investigating the investment parameters and terms so that the investor can make an educated decision to purchase or decline. As a real estate investor, I screen and analyze literally hundreds of properties before finally deciding to offer in on one or two. Diligently investigating the investment and the people involved is a crucial step in protecting your investment funds up front and finding a good fit for your specific purposes.
Value Shopping. Warren Buffet once said, “Price is what you pay; value is what you get.” Women seem to intrinsically know how to stretch a budget and shop for bargains. They are aware of what’s available, what the going rates are and will go clear across town to get something at a discount. Women know that it makes sense to get a designer gown at half price if they are willing to find and sew on a couple of missing buttons.
Investing for value or value-add opportunity follows the same principles as shopping for any kind of bargain. You need to have a good idea of the general market value so that you have a benchmark to evaluate the investment you are looking to purchase and know when it’s priced below its true value, or when a few simple steps are all it takes to realize its potential (add value, like sewing on a button). Once you know what to look for, it gets easier to spot the gems.
Finance and investing may seem like a spider’s web of intricacy and detail but understanding the rules and knowing how to filter out the junk makes it a lot easier. Women have the skills and qualities to excel in the investment arena on their own terms. Women really do make great investors!
~ Eleanor Roosevelt ~
When purchasing a big-ticket item like a car or a house, don’t most people usually do a little research, shop around, compare prices and look for specific features that suit their needs? Of course they do. So why do many people not bother doing the same when it comes to their investments, especially their retirement, arguably one of the most important big-ticket items a person will ever own?
It always surprises me when people talk about their portfolio but have no clue as to what they are invested in. They’ll often joke about it and make a comment about leaving it up to the professionals or that’s why they pay their stock broker/adviser the big bucks.
Let me ask you this: Would you let the dealer pick out the car you’re going to purchase? Or how about letting your real estate agent pick out your home? Highly unlikely. So why would you let anyone else have the last say on your retirement or investments?
Think about some of the reasons why you probably wouldn’t leave the decision-making up to a dealer or agent:
Perspective. The fact that there are six – count’em, six! – cup holders may be a fabulous feature but not as high on your list of ‘Auto Must-Haves’ as it might be for the car-pool commuter. An agent might find the school next door to be most convenient but your spouse working the night shift might disagree when trying to sleep during the day. Different people are always going to have different opinions based on their unique personal perspective, especially when it comes down to the details.
Priorities. The dealer may also not realize that you’d rather give up side air-bags for an extended warranty, even though you indicated that ‘safety’ was a priority. An agent might consider a view to be more valuable than a yard. Many of us don’t even realize our own priorities until we start looking at options and are faced with making some decisions.
Cost. It’s way easier to spend someone else’s money. It’s also easier to take risks and overlook ‘minor’ issues when it’s not your buck. The agent or dealer won’t have to live with the stiff clutch or the less-than-functional kitchen layout. And if compensation is based on a percentage of price, they might not be as aggressive in negotiating the sale. Always track the money chain. Fee structure can often make a big difference in how much you end up actually paying for something.
Value. No one will care as much about getting the best bang for your buck as you will. These are your hard-earned dollars so it makes sense that you’ll want them to work as hard as you do (or harder!) That’s why we usually take the time to shop around, to get the most value for the best price. We each have a different cut-off point when we feel we have a good idea of the ‘going rate’ and are comfortable with the intrinsic value of the purchase. The dealer or agent might only look at 2 or 3 options before making a decision.
Reliability. Choices can be tough, either having too few or having too many. It’s hard to know all the in’s and out’s of every product in every field and it can be even harder to slog through all the information out there and filter it down to manageable, suitable options. That’s one of the reasons why we look to loan brokers, agents, lawyers and other professionals. Hiring a specialist in the field and leveraging their knowledge and experience is usually well worth it. But…
How reliable would you consider the data or opinion if the dealer/agent providing the information was also the owner of the car or property you are about to buy?
Don’t get me wrong. I think it’s VERY important to seek professional assistance and advice, especially for infrequent, large and/or complex transactions. But just like an auto dealer or real estate agent, their role is to give information, guidance, advice and support through the transaction. You might decide to outsource some of the legwork but ultimately you need to make the final decisions.
All of these concepts apply when making any major decision, including investment and retirement planning. If you leave all the decision-making up to someone else, you are basically at the mercy of their choices. You don’t have to be an expert but you owe it to yourself to do a little research and have a basic understanding of the core concepts, even when you use a professional, so that you can effectively evaluate the information you are given and make informed decisions.
NOTE: Many employer-sponsored retirement and 401k plans are limited to a few select investment funds but they usually include dollar-for-dollar matching contributions. It’s hard to go wrong with free money! Just be sure to monitor statements and fund performance, and discuss options or concerns with the fund manager. Don’t forget ~ 401k accounts can normally be rolled over into an IRA when employment has ended. Know where your funds are and what they’re doing!
I just read an article by Timothy McMahon, editor at Financial Trend Forecaster entitled All it Takes to Make a Million Dollars is Time, Consistency and Rate of Return.
McMahon shares some numbers and data to support this formula and it got me thinking about a pretty exciting reality: Anyone can be a millionaire.
It’s true. The tools are available, especially here in opportunity-rich North America, for anyone with a little bit of self-discipline and a willingness to learn. A-a-a-a-and there’s the rub. Despite having the key to the Million Dollar Formula, those two little characteristics make all the difference when it comes to WANTING a million dollars versus actually MAKING a million dollars.
Think about it. We all know that a journey of a thousand miles begins with a single step. And then another and another, until we finally reach the destination. We know the destination is there waiting for us even though we can’t see it. We know that paths are available to get us there, sometimes many different routes. So why do so many of us never actually make it there?
It’s been said that ultimately we are the sum of our choices in life. Nowhere is that more apparent than in our financial picture. Good habits are the cornerstone of success but to develop them you have to be willing to prioritize and maybe even curb some indulgences along the way.
The ability to delay gratification is a huge struggle for most of us. But it’s also your most powerful tool when it comes to money, saving and investing. If CONSISTENCY is one of the keys to the Million Dollar Formula, then having a plan and a system can really help you balance and manage the process, as well as to stay focused on the end goal. This is especially important when the goal is long-term, like retirement and the benefits can’t be seen or felt immediately. Make it as easy as possible for yourself to be successful!
Temptation and accessibility are the silent saboteurs when it comes to your money and savings. Take steps to make it harder to access your funds, like setting up a separate savings account that is NOT linked to your ATM card or locking up your credit cards (carry only one for true emergencies). Choose to go to the park or beach instead of the mall. Unsubscribe from magazines and emails with advertising and offers. Keep pictures to remind yourself of the end-goal and track your progress so you have a visual representation of your success.
Treat your savings like an iron-clad fixed expense and take it off the top of each paycheck no matter when or how often it comes in. YES, YOU CAN! Remember, it’s about making choices. Latte or $1M? Eat out or $1M? New car or $1M? Every single indulgence is a choice you make that adds up and pushes your goal back a little further. It’s not about doing without; it’s about priorities. If you want to get to the Million Dollar Destination you have to make it a priority. How quickly you get there depends on how high a priority you want (or need) to make it.
McMahon shares the math about the effects of Time and Consistency, along with an interesting thought: “Even if you don’t have a (lump sum) nest egg you can retire a millionaire. Simply by saving $10 per day and investing it at 15% per year you will still reach Millionaire status in 25 years. Is 25 years too long to save become a Millionaire? The average mortgage is 30 years! So why are people willing to go in debt for 30 years but not save for 25 years?”
Willingness to Learn
People will often tell themselves that others have more opportunities, more cash, more luck or more whatever so that they can absolve themselves of any and all responsibility for their own success (or failure!) The truth is that we are each in charge of how we handle the people, things and events in our lives.
We are in the Digital Information Age. There is information readily available on just about every possible topic you can think of, including money, finance and investing. There are many paths to get to the Million Dollar Destination but not all of them will be right for you. Taking time to read about different options and benefits will help you make informed decisions and more likely to avoid costly mistakes and setbacks.
Knowledge is power. Even a child can understand the value of knowledge. I asked my 13 year old son which he’d rather have: A million dollars or the ability to make a million dollars. He explained that, of course, knowing how to make a million would let him do it over and over again. (But as we all know, knowing and doing are two completely different things – cue self-discipline!)
Are you familiar with the phrase, The rich get richer and the poor get poorer? Knowledge and discipline really do make all the difference in the world. McMahon shares this insight:
The Wealthy buy Assets; the Poor buy Liabilities; The Middle Class buy Liabilities believing they are Assets.
Knowing the difference between an asset and a liability is fundamental to building wealth. Assets earn money and can appreciate in value; liabilities cost you and depreciate. A rental home has the capacity to provide income and tax benefits AFTER covering its operating expenses, as well as the potential to appreciate in value. Conversely, that boat you’re eyeing might provide hours of enjoyment and entertainment but it depreciates the minute you purchase and costs you every month for storage, gas, licensing, registration, maintenance and repairs.
As your funds grow, so will the temptation to spend and/or move them around. It’s important to understand the pros and cons and the ins and outs of what you are invested in so that you can make informed decisions, regardless of whether it’s the stock market, real estate or any other asset class. Rates of return vary greatly from product to product and every investment carries its own risk and parameters. Again, there are many possible paths to get to the Million Dollar Destination so you need a basic understanding how they work to decide which is right for you.
Million Dollar Formula
So here it is again, the not-so-secret formula for anyone to make a million dollars:
Time + Consistency + Rate of Return = $1Million
Whether it’s the magic of compound interest or the brilliance of principal reduction, the sooner you start, the longer your funds have to work for you.
You have the Million Dollar Formula ~ The big question now is what are you going to do with it?
BTW, did you know that one of the best graduation or birthday gifts that you can give your kids is a ROTH IRA? They may not fully appreciate it now but when it helps to pay for their college education or a down payment on a house, rest assured your kids will profusely thank and consider you a financial genius!
Hello, Holiday Weekend! So good to see you again – it’s been way too long! I’m looking forward to catching up…and not feeling guilty for taking time off work!
The great thing about running your own business is flexible scheduling. The tough thing about running your own business is…flexible scheduling. Family demands somehow manage to creep into the workday. Work demands (especially the ‘administrivia’!) often get pushed to the weekend or evening when you can work without interruption or distraction. The demands never seem to end; there is ALWAYS something else to be done and it can be really hard to keep everything in check without going a little nuts.
There are times when I look back longingly at the days of punching in on a time clock. Things just seemed so simple back then. You worked when you were at work; you were off when you went home. You got paid for the hours you put in. No need to think about the upcoming quarter or reporting or payroll or making decisions. Boundaries were clearly defined and made it relatively easy to know when to make time for the demands of work and when you dealt with everything else. As an entrepreneur, those lines quickly get fuzzy.
Dealing with issues as they come up is one way to get things done but it usually means reacting to events and people instead of being proactive and in control. Flexible scheduling does not mean no scheduling. It’s kind of like tax time – the more prepared and up-to-date you are, the faster and easier it is to file the return, and the more likely it is you will do it accurately and efficiently. It’s the same in business. Someone once told me that the secret to being a successful entrepreneur was self-discipline and time management. That concept, like the board game Othello, takes a minute to learn but a lifetime to master.
Small business owners wear many hats. I’ve come to realize that it’s crucial to your business and your sanity to respect each role and dedicate a little bit of time each week to working on specific tasks for each hat, for both business and family. Notice I said ‘working on’, not ‘completing’. An on-going business, just like a family, is never actually a finished product. It will grow and change and evolve, priorities and tasks along with it. Just like juggling, keeping everything in motion requires that you regularly handle every single ball (task), even if it’s just for a short time.
Making a plan or schedule and sticking to it can really help you stay organized as well as dedicate specific time to personal, family and business matters. It’s much easier to balance your life when you can actually see it in front of you. It also reduces your anxiety and stress knowing that important tasks and events won’t be forgotten and that there IS enough time to fit everything in.
It doesn’t matter what you start with, it just matters that you start. By no means am I a master of life balance either. I struggle with all the things above and am constantly trying to find a ‘just right’ formula. If you have any ideas or tips to add, I welcome and encourage you to comment below and share them.
That being said, it’s now time for me to ‘unplug’ and spend some scheduled time with family and friends. Thanks to my schedule, I can rest assured that my business won’t suffer while I enjoy the weekend and have some fun!
I’ve read and heard a lot about women and success lately, most recently in the form of a TED video by Sheryl Sandberg, COO of Facebook. She talks about the lack of women in business leadership, and suggests that women could be making better headway in the corporate arena if they change some key behaviors and make a concerted effort to get in the game. I agree, but think it might go even deeper than that.
The statistics are staggering and still pretty pathetic when it comes to the number of women in power and leadership roles, in executive and corporate positions, salary discrepancies and the like. It’s easy to blame the ‘glass ceiling’ and the ‘old boys club’ but when it comes right down to it, it’s possible that we women might just be resisting our own corporate success.
Women should be shattering that ceiling and crashing those clubs. In fact, a post on Daily Worth cites a 2010 economic committee report which found that companies with women promoted to senior positions consistently outperform their competition. It goes on to highlight the proven success in the corporate arena of collaboration, team-building and mentoring, skills that women naturally tend to use and excel at. We should be leading the C-suite charge and taking the business world by storm. Instead, we seem to be consistently undermining our own efforts and thwarting our own potential success at every juncture.
Sandberg suggests that women tend to take themselves out of the game when it comes to business advancement and promotion. She notes some disturbing patterns and trends and then raises some great questions: Why don’t women pursue goals as actively as their male counterparts? Why do we tend to defer to spouses when it comes to domestic situations? Why do women often capitulate or back off in business settings? Are we being ‘too nice’?
There are probably as many reasons for it as there are women. After all, success is actually a very personal and subjective term. Being successful means different things to different people. However, one common denominator seems to be happiness in some form, and regardless of the amount of money you make or titles you earn or values you uphold, it’s pretty hard to be happy if you think that no one likes you!
Whether they choose to work inside or outside the home, women often seem to get the short end of the judgment stick, and unfortunately, we women are often the worst offenders when it comes to bashing our own. Have you ever commented on or criticized the ‘soccer moms’ and ‘helicopter moms’ for not being ambitious enough, or the ‘working moms’ for not being involved enough, or complained that the ‘bitchy boss’ needs to get…a life? Women need to support each other irrespective of priorities and choices instead of perpetuating negative and counterproductive stereotypes.
In business, successful men are typically seen as confident and assertive, whereas successful women are more often than not considered aggressive and cold-hearted. The stereotype of the ‘Bitchy Boss’ stubbornly persists and can be found all around us – it’s in movies, magazines, photos, story lines, even in our conversations. So why on earth would any girl or woman ever want to aspire to be ‘successful’ in business if it means being seen as cold and hard, shunned and resented by everyone around her?
Historically, success in the business world has also represented sacrifice, most often at the expense of family and relationships. As a woman, it is often considered selfish to actively pursue work-related goals, but ironically, men are seen as ‘go-getters’ and good providers. Gasp, what kind of woman/mother would ever put her work or self ahead of the needs of her family?! She might be successful but at what price?
Guilt can a pretty strong motivator, especially when it plays on our existing doubts or insecurities. I don’t know anyone who doesn’t experience a little self-doubt every now and then. People tend to put others down to feel good about themselves and to rationalize their own choices. It takes a very confident and self-assured woman to overcome that kind of guilt, ignore societal prejudice and judgment and feel secure in the knowledge that she is living according to her own values and priorities.
As Sandberg suggests, maybe women need to be more assertive in pursing promotions, more confident in their abilities and in presenting their ideas, more diligent about sharing domestic responsibilities. These are positive key behaviors that will serve us well no matter what we choose to do. Maybe as a society we should judge a little less and accept a little more.
But maybe the apparent lack of progress with women and corporate success is not really about insecurity or refusing to step up to the table. Maybe it’s a little more complicated than that. Maybe it’s about rejecting the notion that a powerful, successful business woman must, by definition, also be a bitch. Maybe it’s about an unwillingness to compromise priorities or to sacrifice family to fit some arbitrary definition of what it means to be successful. Maybe women DO want it all and are no longer willing to accept less.
Maybe, just maybe, women are collectively rejecting an antiquated industrial corporate model and are refusing to do business in the manner that its always been done. A recent analysis reports that the number of women-owned businesses has increased by 50% over the last decade and a half. Company size and revenues have not increased but maybe that’s by choice and design. Maybe it’s possible that progress via the corporate ladder has slowed because women have embraced the spirit of the Gen-Y Millennials and are actually in the process of redefining success and rewriting the rules to do business on our own terms.
Maybe women are realizing that we can have it all. It just might look and feel a little different than what our grandmothers, mothers, aunts or even we ever imagined!
One thing is for sure though – it’s a lot easier and faster to succeed if you are the one writing the rules. We do need strong, confident and capable women in corporate-level and Board positions. Not to increase statistics or reflect equal representation or even to just show ’em all that women are just as able as men. Women need to be an integral part of making the decisions and policies that shape the way business can be done and to redefine success.
Author Note: Check out the TED video by Sheryl Sandberg and share your comments to let us know what you think we can do to help redefine the rules and roles of women leaders.