November 17th, 2008 — Book Review, Debt, Diversification, Income Streams, Leverage
Douglas Andrew’s book reads like a rejected first draft of Rich Dad, Poor Dad and right off the bat, it’s kitschy premise (ripped right from the above book) falls more than a little flat. In order to illustrate his points, the author relies on his sons and their imaginary friends – and the discussions they might have about finances. We’ll leave that whole imaginary friend thing alone – that’s just too easy, and focus on the advice that is tossed around.
From the start, with the title, you’ll think you’ve got your hands on a great blueprint that will have your financial future secured by the time you hit thirty. Well, unfortunately, that’s just not the case. There is some really great advice for those that are just starting out, but unless you are completely new to financial planning, the book will most likely fall short of your expectations. It certainly fell short of mine.
This is the perfect book if you want to get into real estate investment – since this appears to be the only way that the author believes you can make a million by the time you hit thirty. Obviously, the book was written before the housing crash and did not take into account the current state of the market. Many people that delved too deeply have ended up financially ruined thanks to similar advice.
Whenever you try to create multiple streams of income, the key to their success is diversity. Just ask the people who sunk all of their cash into real estate. Right about now, they’re probably wishing they had spread out their investments a little more. The basic premise is that you need to purchase first a home of your own, second a vacation property and then buy more rental properties.
The main problem is the age group we’re talking about here. Most twenty year olds are not ready for the responsibilities of owning more than one home – heck, most are strapped enough as it is with an apartment. There is a lot of responsibility that comes with owning your own home, and unless you’ve got a solid job, trying to keep up on property taxes and insurance for that many properties is going to be a stretch, especially since the first two really won’t be earning any money.
It gets even worse however. Although the author is a proponent of using debt leverage to make more money, he recommends frequent refinancing of your homes. Again, this advice really wasn’t well thought out given the state of the housing market right now. In addition, constant refinancing will not do your credit history much good and you’ll end up with far too much risk in my opinion and far too little return.
If you read the book with the right mindset, there is some good advice mixed in with the bad. Granted, hindsight is always twenty-twenty, but smart investors know that good markets never stay good forever and he could have done more to address how to handle down markets.
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November 16th, 2008 — Goal, Personal Finance
One of the hardest things for many of us to do is to manage our finances properly. It can be hard if you’ve had no training and you’re used to just spending freely, whenever you want. There are thousands of people out there that can’t balance their checkbooks let alone plan for their future, but there is no shame in that. You just need to take that first step towards learning about how to start managing your finances and getting ready for the future.
For some, this may just not be possible, and again, there is no shame in that. If you simply cannot make sense of your money, you will need to get some help before you get into trouble. An accountant can really make a difference if you’re struggling and they usually do not cost that much money. You’ll actually be saving money in the long term and you’ll be able to spend less time worrying about your money.
But for most of us, it’s important to learn how to do this on our own. Unless you are incredibly bad at math, there is no reason that you cannot manage your finances. It’s really just basic addition and subtraction and anyone can do it. It takes a little bit of focus and you may need to learn a few terms along the way. However, you’re investing in your future when you learn how to manage your finances and it will pay off.
Let’s start off with basic financial planning. A lot of people hear that term and simply turn off. However, it’s actually pretty easy. Here’s an example - You need to ask yourself, how much money do I want to have saved five years from now. Now, divide that number by five. This is how much money you’re going to need to put aside every year to meet that goal.
If your goal isn’t reasonable, you may need to fine-tune it a little bit to bring it line with your income. Now, you’ll need to take that yearly figure and divide it by twelve. This is the amount you’ll need to put aside every single month. Set up an interest bearing savings account and make that deposit every single month. You may need to discipline yourself for the first few months, but it will get easier. If you find that your finances are a little tight, try revisiting a few of your expenses to free up some cash.
Lastly, it is important to understand how debt works. There is bad debt – which most of us are in, and then there is good debt. A simple formula to tell the difference is:
Bad debt = money spent on consumables and things that will never give you a return
Good debt = money spent on something that will create new income streams or pay off in the future.
By using good debt, you can reach your savings goals a lot faster and it won’t be so difficult.
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November 15th, 2008 — Book Review
Douglas Andrew’s book targets the baby boomer generation and tries to convince them that it is not too late to become a millionaire and avoid living on soup kitchen handouts to survive retirement. That’s a pretty tall order and a lot of authors have failed at this exact same premise. While Andrew’s book is well written and contains some good advice, there is just not enough here to make it stand out from the other books in this overcrowded field.
The first part of the book is dedicated to the art of financial planning and if you can wade through it to get to the parts you really want to read – bravo. Personally, he spent far too much time covering this area and it started to feel a bit like filler halfway through. With a catchy title, most readers are going to want the goods pretty quickly and forcing them to sit through half a book of financial planning advice is not a good idea if you want them to stay connected.
He constantly stresses frugality and the importance of not consuming. Well – good luck with that. We all have to consume, and if we didn’t the economy would implode. I’m certainly not saying we should all throw caution to the wind and spend every last dime, but over-frugality doesn’t make much sense either. It’s the happy medium that counts when it comes to managing your finances, not the extremes.
Once he does finally get to the point, you’re treated to advice that you should rip your money out of its nice safe little IRA and throw it into life insurance investments. It doesn’t take long to wonder whether the author has a vested interest in this since the tone of the book shifts to a full on sales pitch. While life insurance investments can be useful, it’s certainly not a good idea to go blow your entire IRA on them. Another disturbing point is the fact that he acknowledges that tax laws for life insurance investments “may” be changing and he “thinks” that if you invest now, you’ll be grandfathered in.
I’m sorry but “think” is not enough to get me to cash in my IRA, thank you very much. While he does include some figures to illustrate his points, in my opinion, this is simply far too much to ask of any reader. In addition, while he did cover the importance of annuities, and other safe investments, there was no attention paid to the importance of having more than one source of income.
Baby boomers are being phased out rapidly from companies all across the country and many are finding that financial ruin is looming after being laid off. There is also a lack of advice on how to leverage debt (which is vital for readers that may not have plush savings accounts) to create more income for retirement.
The book failed on many fronts, and honestly, I cannot recommend it to anyone.
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June 20th, 2008 — Book Review
There has been a lot of hype surrounding Douglas Andrew’s book, Missed Fortune 101. Many people gushed that it unlocked the secrets to becoming a millionaire, so I went into the book with high hopes. I was pretty disappointed to discover that much of the advice is already well known and let’s face it, a bit on the mundane side. We all know it’s important to have a 401K, but few of us have the potential to turn that into a million dollars.
While the book does serve as a useful guide for those that are just starting out, it kind of defeats the purpose and the target audience. The title itself leads readers to believe it’s written for those of us that are past the starting years and facing the ugly truths of retirement planning. Unless you have absolutely no concept of financial planning, I’m afraid this book will be a bit of a disappointment.
It is well written and the author does have a lot of enthusiasm, which is helpful considering some of the mundane advice that is doled out. Quite honestly, I felt that the author focused far too much on taxation and although I acknowledge that understanding tax law and avoiding overtaxation is important, it’s certainly not going to turn you into a millionaire. You may save a few thousand here or there, but it’s not the silver bullet that the hype built up. That said, there are a few good tips on how to avoid having your savings funds taxed into oblivion, but again, it seems as though the author was missing the point.
My main issue with the book is that it encourages readers to leverage the money from their homes into “special funds.” Finally, it’s revealed that these “special funds” are nothing more than investment grade life insurance policies. Personally, I believe it’s a bad idea to encourage people to endanger their homes with this type of investment, and quite honestly, the returns are not that good to warrant that kind of commitment.
The author encourages readers to build up as much mortgage debt as possible – which may have sounded good at the time, but as the latest news has proven, was really bad advice. Although he did discuss leveraging that into the investments mentioned above, it’s just not a sound enough premise to warrant anyone rushing out to adopt it. In fact, I worry that readers who took this advice to heart may be facing foreclosure right now.
Overall, while the book was well written, it fell horribly, horribly short of its promise. Perhaps if it had a different title, I would have come away with more praise. As it is, the hype is nothing more than that – empty hype that will get you no closer to realizing your dreams of financial independence. In that vein, it’s really not worth your time and there are far better books that cover the basics of dealing with taxes and finding ways to invest your money.
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May 29th, 2008 — Debt, Financial Security, Investing, Leverage, Money, Personal Finance, Wealth
Financial planning at its smallest denominator is essentially what you’d like to have and how you plan to get it. That may be oversimplifying things just a bit, but sometimes when you look at things stripped away of all of their jargon, it’s a lot easier to understand it. So, in order to begin planning your financial future, make a list of everything you’d like to have. Whether it’s the freedom to take a vacation whenever the fancy strikes you or the ability to retire without having to worry about eating out of garbage cans, write it down.
Now, let’s work on how you plan to get there. If you’ve already got a great job, you’re well on your way. It’s easy to think that making X amount of dollars per year is going to make you rich, but when the realities of life start to creep in, it’s all too easy to become uncertain. There are going to be unexpected expenses for the rest of your life from orthodontia to cars that break down. There are going to be hurdles that will trip you up on your way to financial success.
You’ve got to accept this fact and realize that your job on its own, unless it is incredibly lucrative, is not going to be enough to secure your financial future. Your 401K cannot bear the burden of your future by itself. It’s going to need a little help. Somewhere along the line, you’re going to have to take risks and start investing. This can be pretty scary at first. All of us are familiar with the horror stories of people who took a gamble and lost everything.
However, this doesn’t have to be your story. If you want to start planning for your future, you’re going to have to take some risks. It’s being able to tell which risks are the ones worth taking and the ways that you finance these risks that make the difference. Many people are under the impression that in order to invest in something, they’ve got to have money put aside. In most cases, this means waiting until you’re well established to start making plans for your future. This is all well and good, but chances are, by the time you’re there, you’re not going to have much time left before you retirement.
Before waiting until you have a lot of money put aside, it’s a good idea to consider leveraging debt to start generating income right now. You’ll have a lot more time to start putting money away if you start now rather than waiting to get flush years down the road. If you’re already at the point where retirement is looming, debt leverage may be your first alternative.
By using smart debt management practices, you can leverage it to start making money. Whether it’s investing in stocks that you couldn’t afford on your own, or taking a chance on a new company, debt is a very powerful tool
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