“… unlike anything you’ve ever seen, heard, or read before. I personally guarantee it!”

This Genuine Multi–Millionaire Wants To Teach You How To Build Real Wealth!

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“The content revealed is truly gold dust!” — Dan, UK

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This is one of our last structured exercises …

… soon, our paths to our Number will begin to diverge and we won’t be able to neatly keep every one of the 7 Millionaires … In Training! – and, our readers – on exactly the same path.

Right now, though, we have one of the most important MM201 exercises of all: Assessing whether the ‘ad’ that you have placed on Craigs List will actually be able to do its intended job!

Will your selected Growth Engine actually have sufficient ‘grunt’ to carry you to your Number on (or before) your required Date?

Will it do the job?

So, you have chosen business, real-estate, stocks or some combination of all (for most of our MITs this is true) as the vehicle to carry you to your Number, and you chose it based upon:

a) a calculation of your required annual compound growth rate, and

But, is having faith in Michael’s guidelines good enough for YOU … do you want to put your entire future in the hands of somebody else, or do you want to come to your own conclusions?

Even if you are a person of immense faith in others (is naïveté a better word?) as am I, are you really guaranteed a, say, 50%+ compound growth rate if you choose to start a business, as Michael Masterson’s table suggests?

Of course not! Let me give you an example:

In 1998, when I undertook as similar analysis, I had already decided that my little finance company was incapable of growing enough to reach my Number / Date … it wasn’t the Craig’s List ad that I needed to run!

So that left my fledgling call-center business to do the job; but, at that time it was growing VERY slowly with just 5 customers in 5 years … and, was losing $5k a month. Yet, something told me that this was the place to start looking for my Growth Engine …

…. here are the steps I took in order to confirm my suspicions:

i) Find my Number / Date: this was then $5 Million in 5 Years

ii) Decide where the bulk of my Number was going to come from: selling my business in (target Date) 2003 for (target Number) $5 million

iii) Decide what income/profit the business would need to generate in order to be ‘worth’ that much to a typical buyer: well if these types of businesses sell for 3 to 4 times annual earnings, then my business would need to generate, say, $1.5 million net profit each year by the time 2003 rolls around.

Note: other businesses may have different multiples; e.g. doctors’ surgeries might be based upon a multiple of sales; RE might be based on a ‘capitalization rate’ of, say, 7% for commercial, etc.

iv) Decide if/how my business could get from -($5,000 x 12) to +$1.5 mill. in just 5 years: in my case, I realized that my business would need to have almost every single large corporation (both private and public) in order to reach my Number!

So, I ran some ‘what if’ scenarios with a spreadsheet and realized that if I could change my business model to include a number of new lines of business, not only could I reach my Number, but I would only need to be exactly 1/11th of the size of the public company whose annual report I modeled my own numbers on.

 Unfortunately, soon after, the government changes some rules that would have required millions of dollars in capitals security bonds to secure the necessary licenses for the type of business that I wanted to move into, to it was back to the drawing board for me!

v) Once I realized that the business/investment could NOT go from i) to iv) satisfactorily, then NO PROBLEM (well, after a few sleepless nights and a lot of soul searching): I wrote a NEW Craig’s List ad and went back to Step (i) …

You see, I ran some new ‘what if’ scenarios on my spreadsheet and realized that if I could simply change my existing business model to assume major overseas expansion … and, the numbers worked!

At least on the spreadsheet …

… I quickly realized that finding the capital to fund the expansion (and open operations centers in multiple countries) would also require a lot of capital that I didn’t have, but I ‘solved’ that problem (at least, on paper) with the idea of setting up each overseas operation as a separate joint-venture!

From that point on, the rest was ‘simply’ about the execution …

Now, what about you? Can your Craig’s List ad take you to your Number? If not, what are you going to do about it?

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We’re not ‘playing in the sandpit’ any more

Photo credit: pencilsoda

This last post in the current series signals the return of the 7 Millionaires … In Training ! to its ‘old’ home right here at the NEW, REVAMPED, BIGGER, BETTER, BRIGHTER, ALL-STAIN-REMOVAL:  http://7m7y.com.

Soon, we move on to the next phase of this ‘grand experiment’ and ask the 7MITs to really examine: “is this [their selected Growth Engine] an opportunity worth pursuing?”

With Mark’s “Craig’s List Ad”, it looks as though he has settled on Tax Lien Investing as his preferred vehicle to get him to his Number? Is it investing, or is it a business? Does it even matter? Stick around, and we’ll find out (if not in this post, then in Mark’s next ones) …

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I’ve been settling in the MM101 comfort zone for a while. Now it is time to move up to MM201. I do need momentum and I think I did not recharge enough from the previous exercises to move forward fast enough. I tried “forced” recharging via a business development deal with my accountant and encouragement from my peers but it is still not enough. The plan for me is to redo some of the exercises we did last year to plant enough fire for me to push through.

My number and my date haven’t changed. It is still $5million in 10 years. It is well explained in my previous posts. With my accountant, we have developed a business plan where I’ll spending the next few months preparing for tax lien auctions in South Carolina which will happen in the months of October, November and December. The goal for me is to review my training materials and to develop a written procedures for various targeted counties and also line up the necessary resources – property reviewers, real estate attorney and the bid history to get an idea of competitors and patterns. There is a lot of work but we spaced them out proportionately every month leading to October.

The first year will be focused on South Carolina. I’ll then repeat the process in other nearby states like Maryland, Georgia, Florida and Texas. All these states will fit in to a 5 year plan where there is a target tax lien acquisition, potential conversion, rough expenses, etc.

It looks like I have a lot of things going on. I know without a great push from within, it will not move very far. That’s why I’m going to go back and redo some of the exercises.

Wanted 1: Growing Tax Lien Holding Company

A growing tax lien holding company with operations in at least 5 states. Must have written procedures, templates and archived documents to operate in the various counties which have different proceedings. The written procedures must cover all stages of the tax lien process including due diligence, property review templates, redemption of tax liens, foreclosure processes, strategies to manage properties and established contacts with local resources  – property reviewers, real estate attorney, and investors.

One of the tools I am going to use to get to my number is the start up of a business. (I’ll also create an exit strategy).  Actually I’m interested in a greeting card business and I want to operate it on two levels (1). A face to face operation with clients who want my product and (2). An on-line sales of the same product.   I have been in touch with a man in Portland who just recently left this same business and he was very encouraging.

My problem is knowing just where and how to begin.  Mainly I’m looking for “who” do I need to bring along side me to assist in this effort?  Attorney, accountant, Small Business Administration?  Do I need to become an LLC and do I need to deal with Trade Mark issues and so on. Finally how do I approach investors and what is actually step one that will kick start this into motion?

My niche will be law enforcement and firefighters but of course it will have to be wider than that to really make a difference.  However there are very few real quality products out there and with my background as a law enforcement chaplain with national and even some world wide connections I believe I can touch a lot of interested people.  But again the question is where do I actually begin. What comes first?

This doesn’t seem like much to those who are already on the fact track to real estate and other investments but this is where I choose to begin with hopes of making money to then invest in other ventures.   After making a few minor adjustments via  MM101 I am beginning to feel a little less pressure with regards to my spending habits thereby freeing us some money.

If I went to craigslist I would probably post it in the following fashion:

WANTED “Greeting Card Associates”.  I am looking for people interested in getting in on the ground floor of a multimillion dollar greeting card indutry, must have expertise in  business start up. Specifically looking for an attorney, an accountant and professional type sketch artist.

The Exciting Adventure Ahead

Now is the time to get the engines going and steer in the right direction toward our Number by our Date.  Taking a look back at my notes and goals reveals that we’ll need a bit over 4 million by 2018 to live our life’s purpose and according to our required annual compound growth rate, we’ll need to average right at around 38% moving forward. I firmly believe in all of my heart that this is doable for us over the next 9 years. Here we are almost 1 year into this grand experiment and we’ve already far exceeded that compound growth rate for the first year(I believe last year when we first estimated this, it was closer to 40% required, so we are moving along nicely).  We had a 67% growth rate for the previous year. I would really LOVE to reach this number well before 2018. If we can shave a few years off, by all means, i’ll do what’s necessary!

According to the table by Micheal Masterson, http://7m7y.com/2008/11/13/draft-how-high-is-your-mountain/, we’ll need a combination of real estate and stocks together with small businesses as our vehicle to get that compound growth rate.

After thorough discussion on this forum and throughout this experiment, it appears that the best order of those modalities would be for me to start up additional businesses(in my case, clinics) and use the cash flow from these small businesses to purchase real estate(possibly starting with the commercial properties that these practices reside in) and stocks.

I believe that now is a better time than ever to make this all happen since not only do I have terrific experience in running a successful practice, but also in training associate doctors to actually run a new practice startup to possibly duplicate my own results.  Health care always does well in the midst of a recession(lots of stress as well as odd jobs being performed for people to keep paying the bills, this adds up to health problems and injuries). So getting a new practice up and going to successful numbers is in good favor, purchasing real estate is terrific right now due to the bursting bubble, low prices and dirt cheap financing(Phil Town also suggests that commercial real estate will continue to drop in prices as business failures flatten out) so that’s a check, then hopefully the cash flow will be occuring in perfect timing as we crawl out of a recession and all those wonderful, undervalued companies(and their dirt cheap stocks) begin to move back up in stock prices.

Anyway, this is my prediction or delusion! lol. Now my only delima in this whole situation is this; I’m currently under contract for the next 30 months to run this clinic I currently practice in. The deal is, 50% ownership of this practice was given to me by my previous employer(who has owned and operated multiple clinics for many years) and this 50% ownership was to span 3 1/2 years, at which time the other 50% would be given to me(for all my previous service). In essence, I worked for him as an associate for 4 years, made a good base salary, plus good bonuses(which my wife and I used along our Money Making 101 journey) then I made the move to the new clinic that was just getting going on it’s numbers and the deal began. The 3 1/2 year working span at 50% ownership at this new office was pretty much my payment for the other 50%. Well, it’s been a year that i’ve been there, so 30 months are left and I don’t want to do anything to jeopardize this deal, I want complete ownership of this clinic in 30 months, but at the same time, I feel that my hands are tied during this time period and it’s nearly impossible for me to open another clinic until i’m free of this deal.

If I owned this clinic completely at the moment, this would all be simple; I hire an associate dr fresh out of school, take them in as my padawan for around 6 months and train them pretty intensly on how to run this practice as I have and how to duplicate my results(as well as have a nice period where we are both working in this clinic, so that existing patients get comfortable with this doctor), then step away from this clinic, let this doc run the show for a fair salary and attractive performance-based bonus system, plus full benefits and I go and start up practice #2 and repeat! (Actually, the moment I have practice number 2 up and cash flowing positive and ready to hand over to trained associate #2, I could techically step away and begin to live my life’s purpose because we will have superceeded our “monthly number” in passive income, ala what such authors as Robert Kiyosaki, T. Harv Eker and Timothy Ferris teach =  Get to your monthly number in passive income and then you are ‘out of the rat race’ or you have ‘won the money game’ or you are on a ’4-hour work week’.)

The interesting thing about this idea would be that I could still keep a “foot in the door” sort of speak to still practice a bit(I do love helping patients, I just don’t like the daily grind and the ‘have to go to work’ situation or the daily dealings with insurance, so being available for occasional associate dr requested days off or 1-2 time per year vacation weeks for them or a bit of part time coaching would actually be kind of nice and fun to get to do). This idea would actually set us free MUCH faster and my passive income from these 2 offices would FAR exceed the income that getting to our NUMBER would provide. (If these 2 doctors generated only 75% of what I currently generate on average in practice and if I paid them a generous 6 figure income that was even more than I made as an associate plus full benefits for them and their families, my personal passive income total from these 2 offices added up would still be in the 20-25k per month range while my NUMBER would provide a little over 16k per month in income). Needless to say, my wife and I would still live on the 16k per month via our life’s purpose and would invest the extra money to grow our portfolio at the same time.

I guess i’ve sort of parlayed an interesting set of questions and possibilities for me in this post and where I am right now. Any suggestions?

Anyhow, my businesses might look like this in an ad:

Wanted: A very successfully run healthcare practice, specializing in spinal rehabilitation, exercise, massage therapy as well as other holistic services such as nutritional advice and expertise. Professionally run to the highest of clinical standards with a well-trained, goal-oriented staff, necessary equipment and supplies. Low monthly overhead, time-proven practice and business design system already in place, extremely high cash-flow and yearly profit margins, ongoing community marketing programs in place, all in a state and local community that harbors terrific heath insurance coverage for these services.  Totally turn-key, fully developed business design, everything from new employee training techniques, to patient marketing, to patient scheduling, to treatment programs and proven care systems are all in place and can be duplicated, expanded upon and repeated in additional clinic ventures and startups time and again. The commercial property that the clinic resides in may be purchased at reasonably assessed property value and additional rents may be collected by adjoining business that resides in the same building, once building is purchased.

In Review

If Scott achieves the same compound growth rate over just the next 12 months that he says that he has achieved over the past four years, he’ll reach his Number in less than a year and be almost twice as rich as Warren Buffett in just 4 more years! That’s the power of compounding …. of course, you need to fuel up the tanks with rocket fuel to reach those heights so the same tools that worked before (saving, saving, saving … with some high income thrown in for good measure) have a limit that is quickly reached … in other words, Scott’s annual compound growth rate will start to slow down (in fact, it’s already a ‘paltry’ 67%), unless he adds something with a lot more octane to the mix.

In fact, Scott is already building up his “‘war chest’ to use for business startups, purchasing stocks and real estate” … any suggestions?

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Well, here’s another brief review of my journey to financial freedom so far.  I’ve gotten a lot out of Money Making 101, or more specifically, the exercises have driven home valuable lessons that I learned before becoming one of the 7 MIT from reading books by various famous finance authors, taking seminars on finance and wealth building, as well as the personal punishment that I usually put on myself to be financially responsible, lol.

I don’t think there’s anything that I need to change, everything is moving along as I had planned for it to. We have no consumer debt, no car payments, no personal loans. The biggest sin on our list financially is my student loan, which is fixed at 2.85%, so for obvious reasons, we are simply making the normal minimal payments on that loan, so we can maximize our required annual compound growth rate. We have actually been saving 50% of our take home, net income.

Our number is still pretty much the same, 4 million in 10 years(of which there are 9 years left!) and our required annual compound growth rate is 40% which can be met with a combination of small businesses, real estate and some stocks. I calculated that when we actually started 4 years ago, we had a net worth of NEGATIVE -$225,000.00 and today our networth should reach $200,000.00 by next month(or pretty darn close) which means that over the last 4 years, we have had a growth rate of over 2450%. Now of course it may not necessarily keep up that kind of pace (but who knows!).

Looking at the last 12 months, we have grown 66.67%, so it looks like we are moving in the right direction and with some of the Money Making 201 plans that I have, we will reach our number far sooner than our originally planned date in 2018, or overshoot our number by a good margin. The main goal this year for us is to stock pile as much cash in our ‘war chest’ as possible to use for business startups, purchasing stocks and real estate.

We have saved over 40k in cash so far this year so our current strategy is to fund an emergency fund of around 15k into the rental property savings account to be used as a buffer against any damages or any vacancies as Adrian stated to do. Then leave around 15k in our own personal ‘emergency fund’ to be left alone for any damages or emergency on our own home front. This leaves 10k in our ‘war chest’ that will now be built upon month after month and used for Money Making 201 purposes. We should have between 60k-80k in that chest by the end of the year to use  for this purpose.

Right now i’m so torn on which move to make first with this investment money. Do I take advantage of some amazing and almost unheard of growth potential that the stock market can provide as it begins it’s upswing? Do I purchase the building that my practice resides in first, effectively cutting out paying rent and paying it to myself instead?!?(also enjoying the possibility of real estate growth that a COMMERCIAL property can provide under the right conditions) AND collecting rent from the business next door in the same building. Or do I use this money to open up another practice, spend the next year overseeing it develop, begin to make overhead and then cashflow sometime the following year, adding not only a large increase to our networth due to the value of the business once it’s developed, but this extra monthly cashflow which can be used to fuel other investments.

Or do I divide the efforts into all 3??(Sounds like the badword: DIVERSIFICATION, so perhaps I should focus instead   )

Any advice or help would be greatly appreciated!

Just Numbers

Mark discovers that living his “Life’s Purpose” too early can have a financial cost … do you see something a little ironic in this?

What advice can you give Mark?

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I’ve been tracking my numbers using Quicken for a while. I remember using it a lot more a few years ago when I have the 2001 edition. It is more manual but at least I know I need to work on it to keep it updated. Unfortunately, I upgraded to the 2007 version. The conversion didn’t go quite well and I lost some of the reports I used to keep track of my income and expenses. 2007 includes automatic updates which makes me use it lesser and I do lose track on my expenses as we discover below.

How do we compare the usage of Quicken and NetworthIQ?

Although I prefer to use Quicken, it is harder to add notes to it or get involved with other like minded people. I haven’t been leveraging NetworthIQ that much although there are good information among the Questions and Tips.

Over the last year, I have been struggling in terms of aligning my goals towards achieving my number. I seem to do quite well following Money Making 101 and some of its rules, but I haven’t quite make it to Money Making 201 with much success yet. I did experiment with stocks and options trading, some real estate investments and a half-hearted effort to do something online. My main enemy has been time where I am unable concentrate on any one of the investment activities and unable to cope when my current work requires extra effort (working nights and weekends).

Some of them are my own doing where I choose to travel to various destinations and enjoying life. I may have put too much emphasis on  the “enjoy life” part of my life’s purpose.

Let’s go through our current exercise where we focus on our “Income Statement” and “Net Worth Statement”. The reference will be the numbers from my NetworthIQ profile.

Income Statement

My current monthly net income after taxes is about $6,425

I haven’t tracked my expenses in detail for a while even though I’ve been using Quicken and I’m surprised to see some areas where I can easily cut down.

Current Monthly Expenses (average for the last 12 months):

• Housing – $980
• Gifts (gifts for family and friends, mostly family) – $925
• Auto – $267
• Entertainment (been to many concerts, musicals, activities and events) – $266
• Utilities – $256
• Dinner and Lunch outside – $228
• Vacation (low number since I’ve used airline miles for 2 international trips) – $224
• Charity – $191
• Misc (Electronics, Clothes, Insurance, Cash) -  $406

The total is about $3,743.

This indicates a savings of $6,425 – $3,743 = $2682

The $2682 goes into the 401K ($891), ESPP ($1248), HSA ($162) and building cash reserves or fund investment activities ($381).

My income and expenses will definitely change in the near future since the above numbers does not include my new residence and potential rental income. These numbers are not available yet but the Net Worth Statement below did take my newly acquired primary residence into account.

Net Worth Statement

Using my NetworthIQ profile, you can see that my current assets are:

• Cash     $21,016
• Stocks     $22,387
• Retirement     $78,781
• Home     $209,900
• Other Real Estate     $141,300
• Cars     $8,500
• Business accounts (savings, checking, investments) $4,500

The total is $486,384.

However, the liabilities are:

• Home Mortgage(s)     $183,420
• Other Mortgage(s)     $108,966

Total liabilities: $292,386.

Current Net Worth: $486,384 – $292,386 = $193,998

Good Debt?

Photo credit: revdancatt

Sounds like Mark has embraced the concept of ‘good debt’ pretty quickly; I wonder where he intends to live when he converts his current home to a rental? I am also wondering why he is planning to ‘flip’ it in 2 -3 years for another?

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I must admit, I came from a culture where debt is frowned upon. This apply to mortgages as well.  I’ve never hear of the concept of a good debt until recently. What kind of debt do I have?

For starters, I don’t carry a credit card balance so I don’t have any credit card debt. The only time I did carry a balance is when it was 0% many years ago right after college. I was a poor student!

I had brief moments where I have an auto loan. The first one only lasted 9 months and the latest auto loan is paid off using a HELOC I obtained from my home which is a much lower rate and it is tax deductible.

Here is my current debt situation:

1) Primary mortgage on my current residence. The balance is about $92K @ 4.75%. It is an ARM that will reset next year but I’m only planning to keep this property for 2-3 years. The cost of refinancing is not too attractive for that time frame. Alternatively, since this is an ING Orange Mortgage product, I can just pay $750 to get the current rate for another 5 years. Currently it is at 4.5%. The ARM is tied to the 1 Year Constant Maturity Treasury Rate + a margin of 2.5%. It is currently at 0.62%. If it resets today, it will be lower than 4.75%. That’s why I’m not too keen on refinancing.

2) HELOC on my current residence. I took out a $25K credit line from my local credit union. I used about $10K to pay off the auto loan and about $7K for investments. The rate that they are charging is Prime Rate -1% which is currently at 2.25%. This is definitely a steal and I’m repaying this slowly.

3) Future primary mortgage. I’ll be taking up more “good debt” end of this month. I just identified a property from a builder and completed the purchase agreement and obtained financing for it. The mortgage amount will be at $183K @ 4.999% fixed for 30 years.  There is actually an interesting story behind this deal which deserves its own post. I will get to it, I promise.

I planned to convert my current residence into a rental very soon. There is some up front cost like minor repairs and replacing the 15 year old heating / cooling system. I will just rent it out for 2-3 years and will plan to sell it during that time frame to avoid some tax liability. That will  eliminate debt (1) and (2) but I will be purchasing another property at that time, hopefully.

The True Liability – Not Reaching Your Number!

27 1/2 years left on a fixed rate 2.85% (student) loan … sweeeeet [AJC: queue Homer Simpson drooling] …

It seems that Scott is the poster-child for ‘big debt boy made good’ … what do you think?

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In this next exercise, our main topic is to take a serious look at our liabilities, ie; who we owe, how much we owe and what do we intend to do about it.

My wife and have have started 2009 fresh from the beginning in what Adrian has called Money Making 201 . We completed our Money Making 101 by the end of 2008 by paying off the last of our consumer debt, or what many would call “bad debt”. In Making Money 101 , the whole idea is to clean up your financial act basically by paying off your bad, unsecured, consumer debt, such as credit cards, personal loans, car loans and any other similar debts that cause you a monthly liability. It’s also a chance to get yourself in position to obey various financial rules that will aid in you ultimately building your wealth as fast as possible, provided that you are also working on ideas for your growth engine, so you can begin generating some serious cash to invest, or start your own business.

It’s getting spending under control as well and getting into good money managing habits that will basically clear your “financial runway” so that you can build up some really good speed for a better takeoff to build wealth, and continue these new money managing habits in the future, even in Money Making 201 and 301, so that you keep your wealth once you’ve reached your Number by your Date.

We can certainly write the book now on Money Making 101. Just a few short years ago, my wife and I had a networth of negative $225k. This debt consisted of a mountain of credit card debt, two insane car loans, personal loans, my wife’s student loans (at an outrageous interest rate of 12%) my fresh new student loans and a few other blunders here and there.

Before ‘meeting’ Adrian online and talking to him about his ideas for 7 Millionaires In Training!, We had paid off a little more than half of this debt and we started the 7MIT program at I believe around negative 90k in debt or so. Since that time last year, we continued to plug away, paying off each debt according to the Debt Avalanche. We used a method similar to Dave Ramsey’s Debt Snowball to pay off the first half of the debt in which you simply list your debts from smallest to largest, pay the minimums on all the others except for the smallest, in which you throw everything but the kitchen sink at, then as it’s paid, you roll what you were paying on it onto the next largest debt in addition to the minimum that you were paying on it, and simply repeat until all debt is clear. Ramsey does this approach because he believes that you get quicker ‘traction’ on paying off your total number of debts faster, thereby seeing quicker results and keeping the intensity up.

It worked quite well for us actually, as we got excited month after month as we were paying off individual creditors and accounts fast, but to honor Adrian and his system once I was selected as a MIT, we switched over to the Debt Avalanche. With this system, you pay off your largest interest rate debts first, thereby giving you a faster ‘return’ on your debt payment and truly, mathematically paying off all your total debt the fastest. This worked excellently for us as well!

Now that we have paid all of this off, we still however do have 3 very distinct debts. The first one is my student loan. A couple of years ago, my wife and I planned to place that student loan in the mix with all of our other bad and unsecured debt and simply pay it off as fast as possible according to Dave Ramsey’s program as well. We actually did pay a large chunk of it off, but put the breaks on an early payoff for it shortly after I was selected as one of the 7 MIT’s. We had several discussions about this loan with Adrian and the rest of the 7million7years community and decided that we were not going to pay it off early because it is at an astoundingly low interest rate. I was able to lock it in a 2.85% shortly after I graduated, so you can see, average yearly inflation alone is eroding this loan on top of my minimum payment and there are so many other ways to get a return on our money of more than 2.85% that it just doesn’t make sense mathematically to pay it off early.

Our other 2 debts consist of the mortgage on our home and the mortgage on our rental property. If you haven’t been keeping up with our discussions regarding why you should NOT pay off a mortgage early, then you would definitely want to read up on those. So hence, we are not paying a single penny extra to any of these 3 debts above their minimum payments. All three are set up for 30 years(26 1/2 left on our rental, 27 1/2 yrs left on my student loan and now 29 years left on our home).

So you can see our main purpose right now is to continue to keep our lifestyle and living expenses exactly where they are, which is significantly below our monthly income, save every penny above those living expenses and use this cash to fuel a combination of small businesses, real-estate and stocks. This is the growth engine that Michael Masterson states is necessary to achieve around a 45% annual compound growth rate. If this method does produce us even close to a 45% annual compounding growth rate, we will pleasantly overshoot our Number or simply achieve our number faster than our Date!

401K? No way!

First cab off the rank – Scott – weighs in with a barrage of reasons why he does NOT have a 401k, or the ‘doctor equivalent’ thereof …

… I can’t judge Scott badly because:

a) He has a strong saving ethic and a positive and – apparently – rapidly improving net worth, and

b) I have no 401k, either, to show for 5 years of living and working in the USA

Perhaps some of you can steer Scott down the ‘path of the retirement righteous’ better than I?

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Well the next area for each of the 7 MIT to look at when analyzing our financial health and how well we are on track to generate our required compound growth rates (and hence, reach our Number by our Date) is in the area of retirement accounts. In this exercise, we are taking a strong look at how well we’ve put money away to date in traditional retirement accounts, such as 401k’s, Roth IRA’s, etc… as well as approximately what percentage of our income do we invest in these vehicles, do we get an employer match, how has this investment performed for us thus far and whether or not we have lost money recently due to the current economy.

I must first start by saying that very gladly I have absolutely NO retirement account, never opened one, never participated one bit and don’t really plan on participating in an actual retirement account at all during this lifetime, unless I get to the point where an adviser shows me that I might get a slight tax advantage from using one, instead of ponying up a little extra of my hard earned money for Uncle Sam, instead of for my life’s purpose. I know to many of you, this probably sounds like about the most foolish statement concerning finance that you have ever heard and probably think of me as a fool. Well, a fool I am!

Back a few years ago, when the end of school was near for me and I was beginning to face a different set of challenges and ways of thinking.  Basically switching gears from thinking scientifically, clinically, drowning my mind in research and cutting through how I was going to properly assess patients and get the desired clinical results to help them with their health challenges, to thinking about things like; finance, my debt, what it was going to cost to get into practice, how to run a small business practice, etc..  Needless to say, when you’ve been thinking about nothing but anatomy, physiology, biochemistry, injuries and the like for the past bazzillion years, it’s tough to make the switch in your mind and do it right so that you can indeed be financial successful.

I think this is one of the major pitfalls that young doctors coming out of school make. Not only is it hard to switch those gears in your mind from the science of the human body, to the science of money, but you’ve been raked through the coals for so long mentally and you’ve been so financially drained and broke for so many years that I believe this is the cause for most doctors to get into the typical doctor finance situation. The situations where as they start to earn money (not to mention serious income), they go bananas, break the 20% and 25% housing rules, live waaaay above or at least the maximum of their financial means, purchase expensive toys, cars, etc…and get nowhere in the process financially speaking.

In other words, they’ve had to live on absolutely nothing for so many years, while the same age friends and peers have already joined the work force, began to make some decent money, purchased some decent houses, cars and toys and taken a vacation or 3. I believe this is the cause for the new doctor spending bonanza. I found myself starting down this road right out of school and immediately put the brakes on!!

I began talking to as many financially successful doctors as I could, read just about anything on finance I could get my hands on, subscribed to several blogs on money, take seminars and just about anything else I could do to start creating the transition in my mind. It worked. It was a hard switch to turn, but it did indeed work and the rest is history. Since that time, we’ve gone from a whopping net worth of negative 225k to a positive 152k in just a few short years, but more importantly, I can already see the wealth snowball building faster and faster for the next few years to come. I believe we’ve paved a very nice, clear Money Making 101 runway and have begun a very smooth takeoff and ascent to begin Money Making 201.

So concerning a retirement account, well, we’ve spent so much time and energy the past few years paying off debt that of course we didn’t bother to open one up. It also helped that I never had a traditional ‘corporate’ job, that was supplied with a 401k option. So it never really came up in my mind. However, as I read my way through several books, blogs, popular finance magazines and websites, the topic kept coming up over and over about how smart it was to invest the 10-15% of your paycheck into a tax-deferred retirement account, possibly get an employer match and finish like a winner with a mil or so in that account at age 65!

Somehow the thought of this didn’t sit well in my brain….I kept getting images of me at 65, in really scary looking  plaid golf pants (and I don’t even play golf. Don’t ask how I got this image in my head) a strangely unstylish looking white hat, heading over to the ATM machine to check the limited funds I had available to rent the car that we would need to drive across Yellowstone National Park for the 30th time, because we couldn’t afford to do the Fiji trip I always wanted to do. Nope, there were not enough funds in that intelligent 401k that every author told me I had to invest in, to withdraw safely without worrying about the remaining years of my retirement, anyway.

Needless to say, when I snapped out of that dream, I began to question retirements accounts and other investment tools of the poor. I would be found regularly scoffing at retirement accounts in front of friends, on blogs, to family members, etc… and be looked at like a fool. But I’m sticking to my guns here and saying that I’m passing up the retirement account.

I believe that life is short, too darn short to stick away 10% into a retirement account, earning 7-8% if you’re lucky and don’t get picked apart by fees and the myth of diversification. Not to mention the fact that you can’t touch that money for the next 100 years without being penalized, or whatever the cutoff age is now.

No thanks, I’ll make my own decision concerning my own money Uncle Sam! And even more importantly,  I’ll have a few swings for the fence and all the glory it can provide you if you connect right!

So there you have it! No retirement account in the past, present or future for Scott. My retirement account comes to the tune of about 40-50% of my net household income per month going into appreciating assets that include a mixture of real estate, small businesses and stocks, with a higher percentage of that income going to all of the above as my income increases.

Now, I guess I need to plan on thoughts for a better wardrobe for my mind in my dream retirement…..hmmm, lets see here…