Going Vertical

Jeff’s got a great analogy about Space Shuttle take-offs v Navy Jet Fighters – when was the last time that you actually got to fly one of those things, Jeff? – that tells you a lot about how he thinks!

What advice can you give Jeff from your perspective, be it stratospheric, strictly earthbound, or anywhere in between?

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I’m sure Adrian advocates an aggressive vertical takeoff profile, given the picture he chose to use of the space shuttle taking flight.

My typical launch profile is a bit different than that of the Space Shuttle.  I’m used to starting from a standstill, checking the instruments, stroking the afterburners, taking level flight to build speed, and then pulling up to start a climb.  I’ve been launching this way for about 17 years now.  Not just professionally as a Naval Aviator, but also financially.

However, I think I’ve may have stayed in ground effect for a bit too long financially and its now time to pull back on the stick, load up the “Gs” and take things vertical.

But there’s more to going vertical than just honking on a big ‘ol pull on the control stick.  Pull too little or too late and you might not clear the trees at the end of the runway.  Pull too much, too quickly or too soon and you could decelerate rapidly causing you to peak out lower than you intended.  There’s a science to looking cool.

The struggle I am having in our experiment is one of changing old habits.  I’m finding that old investing habits can be hard to break, especially those that you believe have been good ones.

I have been a typical retirement account poster child.  I use ‘em and I max ‘em out.  And I haven’t done too bad along the way.  I’m on track to be comfortable later in life, not having to work until I die, nor rely upon the charity of my children.

But being comfortable in 27 years is not why I’m here.  I want to find a time machine to shave 17 years off that clock.

Let’s take a closer look at where things sit right now and determine if I have enough airspeed on this baby to take her vertical.

INCOME STATEMENT

Adrian made a nice graphic at the top of the page capturing my monthly income statement.  Before I add a little more detail, I have a small confession to make first.

Those numbers reflect what life will look like in May 2009.  My pay is still fluctuating from my recent move and won’t settle out completely until I officially “check in” to my new command on May first.

Monthly after tax income: $12,501 (made up of my paycheck and rental income)

Monthly expenses: $9,512 (made up of living expenses and two mortgages)

Monthly savings: $2,989

My surplus is normally divvied up between a 401K, two Roth IRA’s, two 529 college accounts, and cash savings.  However, right now everything is being funneled into money market savings to replenish my cash reserves and cushion the unforeseen expenses that come with a move.

NET WORTH

Reviewing my net worth profile yields the following:

Total assets: $1,355,253 (two houses, two cars, one boat, cash savings, and several retirement accounts)

Total liabilities: $753,755 (two mortgages, one short term bridge loan tied to my home)

Net worth: $601,498 (this is a new all time high for me)

WHAT’S NEXT

Reviewing all these numbers helps me understand some of my hesitation and reluctance to step away from my past investing practices.  Things don’t feel broke.

Adding to this hesitation are concerns for those who rely upon me.  I have a wife and two kids that are depending upon the course I chart.

What if I make a misstep in this experiment?

What if I lose it all trying something new?

Failure is not an option.

If I’m going to pull back on the stick the right amount, I have some more work to do in order to determine how much “pull” is enough.

But I’m committed to this and have been laying the ground work necessary to begin shifting my investment portfolio from mutual funds to a concentrated selection of individual stocks so that I can take this baby vertical.

Keep your eyes on the sky.

I’ll be the one with my hair on fire.

If your house is your biggest purchase, then your next biggest purchase is likely to be your car …

… but, you aren’t most people!

I assure you – that through the course of this experiment, if you choose to participate actively along with our 7MITs – you will make MUCH bigger purchases by way of businesses/investments/RE/etc.

So, to put this all in perspective, think about your car:

Note: You need to be a Premium Member to view this content:

BTW: 7million7year’s own car – the Maserati in the pictures – has been sold (or, so the dealer has assured me) … I think I will break-even on my purchase price due to a number of conflicting factors:

- I paid cash

- I bought the car 6 months old (and, only 1,700 miles on the clock) for a $35k discount off new

- I am selling the car in a recession with a 8% dealer’s ‘consignment commission’

- I am transacting in FOREX currency

Now, I’ll just have to be content with the new 7m7y Mobile …

Start Here

Photo credit: massdistraction

Mark is income ‘rich’ compared to what he needs to spend; now, imagine adding: wife, children, dog, college fund, bigger house (hence, bigger mortgage, bigger land tax), more food, clothes, it’s enough to make you want to stay single …. is that a dream or a financial nightmare?

Looks like we’ll have plenty of RE and finance=type issues to chew over in the coming weeks and months …

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In my last post, I discussed about creating 3 year programs in lieu of a formal MBA program. I’m now ready to venture more into real estate investing, be it in tax lien or investment properties. I did acquire a tax lien a while ago on a small condo and it is now due for redemption. It is time for me to investigate more into this particular property. I will definitely need seek legal advice on this.

I have been thinking about buying another house and convert my current townhouse into a rental. I was looking last year and did put up a few offers but none of them came through. It is a good thing since the real estate market has been declining. Looks like I might be able find better deals in the next few months. However, the area I’m in did not decline as much. It’s time to go hunting!

As you can see, I’m going to start with real estate investing first. How am I able to fund these investments?

Let’s take a look at my current financial health at NetworthIQ.

I’m fortunate enough not to have any consumer debt. I did have a car loan earlier this year but I paid it off using a HELOC which is at a lower rate. The interest is tax deductible too. HELOCs are great now since I did get a very good deal at prime minus 1. This is a very low 3.0% at the moment. Looks like I’m not likely to pay this off very soon. There is still some equity to be tapped to invest but for now, it is better not to incur more debt.

Given my current income, I do live below my means. However, all my income is tied to my current occupation. I would like to add some passive income through rentals or other ventures.

My living expenses are low relative to my income. This does not mean that I live frugally. I spend quite a lot on traveling, going out, parties and on toys. I’m looking forward for a trip to Asia next month! There is definitely a lot of cost cutting opportunities. But I should think about generating more income instead. Right now, I’m thinking about selling a lot of unused toys and items around the house on ebay.

Currently, I’m saving quite a bit. I see only less than 50% of my paycheck after taxes, deductions and retirement contribution. I think this made me spend less than what I earn since I don’t see the money to begin with. I put in 10% into my 401K, ermm 201K and 15% into the ESPP program. The 401K is not very healthy due to the current market conditions. The proceeds from the ESPP program are usually reinvested in stock investments and Roth IRA. Sometimes, I send money home (overseas) and build up my travel allowance.

Once You’re a Pickle

Diane is embarking on some Making Money 201 activities (part-time teaching; real-estate investment ) and so on … full points for trying! We had quite a few discussions off-line (actually by e-mail, so I guess that’s really ‘on-line’) about RE attorneys, accountants, structures and the like … maybe, we can ask Diane to write a post about her experiences in ‘converting’ her old home into a rental (e.g. why, how do the numbers stack up, how did she go about finding agents/accountants/attorneys/etc.)?

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I quit my J.O.B. in October to move to NC to be with my fiance.

A lot of what we’ve been going thru (and are still going thru) can be seen on “Clean House” shown on Style TV (discovered by accident, but well worth the lessons these guys give)  – trying to let go of things I don’t need anymore in my future – selling or donating them – and reevaluating how much every thing is worth to me.   There is still a lot we could all live without, but for now, we are still moving “down” to one 4-bedroom house (although I have kept my house as an investment).

Is my debt too much still? Yes, coming down some, but I am moving assets around to do that rather than relying on an income.

By July, cash flow will need to increase by at least $2500 per month, plus enough for taxes.   In theory I can get another J.O.B., but I want to invest my time in me for this, because I need to do more than that.

July gives me a short-term goal.  July is when two of my credit card rates’ low rates go way-up-high.  I have choices.  One should be paid off two months before then (that’s the plan).  I may also be able to move the second debt to another card (for a fee and a rate) and then have enough available cash to extend July out and use the cash for another investment.

Sitting at the beginning of December,

Expenses:  What are they?  I’ve pared them down a lot, but living with my fiance is giving me a lot of amenities that I am not having to pay for (and had stopped paying for), but we are both trying to watch all the things I’d been watching (lights, water running, spending).  We are looking at which vehicle to sell;  I may drop my cell phone later this month (it’s no longer on contract, so no fee there).

Here’s what is left:  I am paying for:  mortgage, student loan, credit card loans, expenses for lines of income I’m working to create (RE, writing, Zumba Instructor Network (ZIN)), my own health requirements, and then there are medical bills for the boys, child support payments for the boys, and now orthodontics for one son and soon the other).

What can I do about them?  I’ve challenged my sons needing a nanny at their ages (old enough to babysit), but agree to support their need for orthodontics.  I could argue the point, but these are my sons and I won’t.  I could drop out of ZIN, but taking Zumba classes in NC would cost more than continuing the membership, so if I only do classes for myself, I’m better off, and if I create classes, I may recoup more than that while basically still doing my own workout (different focus if teaching, but no doubt that I’ll get a workout as well).  ZIN stays in for both practical and health reasons.

Insurance costs more in NC.  I also am told I’ll be charged tax for the value of my vehicle when I register it here, so good chance that mine will be the one sold.  I’ll miss it a lot.  The money is also already ear-marked (as the minivan was) for my boys’ eventual need for their own cheap wheels, so I will set aside a certain amount for them, and the rest I can use to invest or pay down debt

Looking ahead to Making Money 201, I am evaluating properties, having enlisted the help of a realtor, and considering the other options I have to have in place. I believe I can find angels, but am looking to find properties that will justify the traditional/conventional lenders who will probably lend the bulk of the money for the property, yet I am open to more creative ways and am looking for those as well.

Savings? I have some, but I am moving it from tax-deferred accounts to paying bills now, so they are going down. A 401k, a traditional IRA with some money in McDonald’s stock, but everything else is in cash, and the 401k will rollover into the IRA soon.

Other considerations – looking at creating other avenues of income. I have a goal of having $3600 more income per month by July. Not a lot with a J.O.B., but doing it all by and for myself (as a foundation to bigger things) is where I want to be doing it. I feel going back to a full-time J.O.B. would be a cop-out.

In the meantime, I may substitute teach. This fulfills me in two ways: I feel like I am giving back to the community – to the students and the teachers as well as to the parents whose kids are going to whichever school district I am helping. I think many business folks should try to put in time substituting at a school because there is a lot of knowledge that can be handed down from someone who’s been there doing that kind of work (or some kind of work other than teaching because most of the students will not become teachers). I don’t expect or want this to be full-time 5-days a week, so I am not thinking it will provide the bulk of my financial needs, only a small part.

I am also going to pursue writing as a career during this time – a full-time job with pay – using and thereby learning internet and marketing online strategies (that’s what the eHow article about “How to Justify Buying a Buggati Veyron” was about – testing an internet marketing theory someone else on eHow had espoused.) There are different ways to go with that, and I need to choose one.

Although writers faced with a blank sheet of paper may be overcome with writer’s block, there is also something to be said about a blank sheet of paper.

Like a young child, a blank sheet of paper still has a myriad of possibilities for what it may become. Once ink is set, the paper has changed. A bolt of fabric is the same way for a quilter. Once cut, it cannot be put back into the form it once had and the myriad choices are reduced. Once you’re a pickle, you can’t go back to being a cucumber.

Now is the time for me to reduce the pathways available to me and begin concentrating on those for which there is time, interest, and ability and which will move me along toward meeting my Life’s Purpose.

The Revision of The Number…

Scott has found the intersection between his Life’s Purpose and the Real World: it’s called his Number and he has just realized that his dream needs to be modified slightly to avoid it becoming a nightmare …

Well folks, i’ve gone over it and over it time and again and guess what?  I’m realizing that at least for the moment, I can’t justify the number I set forth previously for myself of 10 million dollars.  The reason being is simple. First of all, it seems a lot of what was driving my number was to run a “Free Clinic”  and all the monthly costs associated with such a venture. The trouble is, in order to run a clinic like this, it is going to require just as much “work” ie; busy work, rat race, (enter Robert Kyosaki discussion of choice) as I do now, because even a free clinic has to be marketed and how on earth am I going to be able to take mission style trips abroad to help those less fortunate as well as take personal family time vacations I desire as well as have the freedom I desire if I personally have to run this clinic.

Instead, i’ve opted for owning a clinic that does accept pay, insurance assignment, etc.. however provides extremely generous ‘discounts’ to those who genuinely cannot afford to pay and meet certain financial eligibility qualifications or rather hardship qualifications. This will enable those that need and want care but truly cannot afford it to have the ability to receive it. Plain and simple. What this also does is allow me to have another doctor, or doctors to effectively “run” the clinic, handle the insurance issues, paperwork, etc… while I don’t!!  But it gives me the freedom as the owner to come and go as I choose, when I choose as well as have other, well-paid individuals to deal with paperwork, insurance chasing, etc..     all the things I don’t want to do, while I get to enjoy the things I do want to do, which is the doctor/patient relationship, patient education and patient care!  Why you ask, don’t I set my clinic up that way now? Simple, because doing the marketing, the paper work and the other ‘rat race’ tasks myself keeps my overhead low and my profitability high and is what generates my high income at the moment. The income necessary to fuel real estate purchases and other investments that will help me achieve my number, hence, my Life’s Purpose. Once this clinic is established the way I want in the future, it will not be very profitable, in fact it may just barely make overhead after additional staff and doctor’s salaries are met, and will produce me no profit, but essentially ‘pay for itself’ and help me live the purpose of helping others while having freedom from “work” and the freedom to travel.

I think another thing that would drive my number up would be a desire to live in a multimillion dollar home. However, my wife and I have no intentions for the moment or desires to purchase more home than we currently have. We just recently purchased a horse estate just outside of Louisville that we absolutely love.  It is a 100+ year old, former plantation farm that has basically been about 70% renovated, and really just needs a few other projects completed as well as some cosmetic restorations and a barn renovations. We basically got this house for about half of what other similar horse farms have sold for in the area because most people can’t look past cosmetic work(some of which i’ve already completed myself this year for little or nothing) that needs to be done and I think this real estate market and the drop in acreage prices have helped out as well. We got the house for 325k and plan to spend around 200k total on it completing all restorations to make the house COMPLETE and when done, it will be an absolute gem and should be worth around 800k(in today’s dollars). Our total investment in doing this will be around 525k. This is in rural Louisville, KY numbers. Pick this house and land up and drop it in Southern California where Ryan lives, or in Chicago where Adrian lives, or even in NY near Josh and I guarantee you can easily double or triple its value. So as you can see, we feel no need to purchase another or spend 3 million dollars(3 million spent here would get you an Evander Holyfield estate with 27 bedrooms and with an airstrip on it, lol).

Also, we have no need to purchase brand-new cars. We do however desperately want to drive nice, expensive, high performance cars(a 911 porsche turbo has been on my dream list as long as I can remember. Just as Josh desires, but in my research, one can be obtained for 50-65k) and my wife and I love BMW.

I think what has stuck in my brain is what Adrian has tried to stress several times which is: What is the BARE MINIMUM that you NEED/WANT in order to live the life that you NEED/WANT? Right now, I just don’t desire things that necessitate 10 million I guess. The extra would be nice but who knows, that could all change in the future, right? I’m sure later I may desire more. But I figure if I can make this number happen, why couldn’t I reset in 10 years, and make A NEW NUMBER happen from that new starting point if I get bored being “retired” and want to put the gloves back on and climb back in the ring? Hey, it worked for Bernard Hopkins at 43 years old a couple of weeks ago!

Anyway, with all this realization, this brings me to our new Number:
One-Off Expenses

Housing needs:                          Today:                           Total needed in 10 yrs(inflation adj):

Pay-off current mortgage:                323k                                 271k left(according to amortization schedule)

Renovations needed:                        200k                                300k

Student Loan Payoff: 140k                                102k left in 10 years

Vehicles 100k                                150k(then replace these every 8 yrs or so…)

(for used Porsche Turbo, BMW 7 series and farm equip. needed as well as investable assets to replace every 8yrs or so)

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General Yearly Costs

General monthly living costs: 48k                                       72k

(gas, electric, insurances, groceries, nutrition supplements, basic

dining & entertainment, gifts, horse and other animal care, etc..)

Travel Abroad to Help Patients 16k                                      24k

(2,  1 week long trips @ 8k each)

Travel for Pure Enjoyment 20k                                     30k

(2, 1 week long trips @ 10k each)

Additional Gifts 5,000.00                           7,500.00

(above what is budgeted in living expenses already)

Philanthropy 12,000.00                     18,000.00

(above what is budgeted in living expenses already)
Car Maintenance 4,000.00                     6,000.00

(estimates for upgraded cars above what is included in living expenses already)

Additional Car Ins. Premium 2,400.00                  3,600.00

(Ditto, above)

Total:                                                     107,400.00                 161,100.00
161,100.00 x 20 =  3,222,000.00 + total of one-off expenses above(823,000.00) =

New Number of  $4,045,000.00 (Multiplied by 20)

$5,656,000.00 (Multiplied by 30)<==================This is what i’m going by for now

$6,444,000.00 (Multiplied by 40)