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.

The Transition

Josh’s strategy has been clear from the start – and, with a slight ‘jump’ in Net Worth recently, due to a positive outcome on a trade (a.k.a. bet) and a stake in a pharmaceutical company, he should soon have the capital to do what he wants to do: start a hedge fund of his own. Anybody ready to throw their money in the ring, yet (7MITs aside, due to the 7 Golden Rules)? If so, why? If not, why not?

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At this point in our journey, it seems appropriate to graduate from the foundational principles of Money Making 101 and to immediately enroll in Money Making 201 activities. Similar to sequential classes in school, 201 principles are well rooted in 101 principles, so a strong foundation in Money Making 101 is imperative.

The most important principle I’ve taken away from Money Making 101 is to keep my finances as simple as possible. I’ve determined to use only one credit card, and only for purchases related to my automobile, such as gas, parts and service (I just can’t pass up the 5% cash rebate). All other purchases are to be made with cash or debit card. Another financial amendment starting in June will be automatic deductions from my checking to my brokerage account, this will be the second most important deduction after my tithe.

Speaking of tithing, I experienced a slight increase in my net worth this past month, it currently stands at approximately $450,000.  Obviously this has caused my required compounding growth rate to decrease, but after  exploring the housing options in Westchester County recently, I’ve increased my number to slightly under 9 Mil, leaving my required compounding growth rate around 53% (I guess this is an improvement from 170% not too long ago).  My date remains unchanged at 6 years, 6 months from now.

To achieve 50+% compounded annual growth, I plan to start a hedge fund, possibly within the next year. Once the fund is established, I will consider myself partially retired because trading doesn’t demand much of anything I wouldn’t or couldn’t do if I didn’t have to work at all. As long as I have a computer, internet connection and phone, I could trade from anywhere, and frankly, the strategy I use doesn’t demand much research time. The assets I’m invested in currently have very little risk while potential future increase is large. I expect the managing executives of the company Titan Pharmaceuticals (the company I own a small stake in) to do as they recently described as “maximize the value of our current assets… for our shareholders while minimizing expenses”. The only viable option I see is for the company to be sold to the highest bidder and when the avenue for egress has been offered, I will sell my shares and start the hedge fund.

Where Did All the Money Go?

OK Scott is off the hook for not doing this exercise …

… but only because he actually already has a pretty strict budgeting system in place: I love the idea of withdrawing a certain set amount from the ATM each week for things like personal spending and entertainment and “when it’s gone it’s gone” … much like Caleb’s envelope system a lá Dave Ramsey described in a comment to my post at 7million7years.

Not to mention Scott saves 40% of his income!

BTW: I bolded a very key statement that Scott made; it will be your ‘reward’ for taking the time to read all the way to the bottom of Scott’s excellent post … excellent because it does what I was hoping this blog would eventually do: start bringing new ideas to the forefront; ideas that come from our readers and our 7MITs

Thanks Scott!

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Well, I started keeping track at the beginning of April of every expense I possibly could. Boy, it certainly takes quite a bit of dedication to keep track of everything and I have to admit, I didn’t do very well keeping up with everything.

But to be completely honest, the way my wife and I have elected to set up our financial life, it keeps things so simple to keep track of that we really don’t have to be that anal about every dollar and cent. In other words, we sat down long ago and established our “lifestyle budget” if you will.  You see, what I’ve noticed among financial circles is that there is a great deal of debate about the dreaded “B” word budget.

On one hand, you have a school of thought that feels like every single penny that someone earns should be spent on paper, the month before that income even comes in, ‘ala Dave Ramsey’. Some people take this to heart 100% and some bash the idea of using a budget completely, stating that it is a foolish waste of time and that the answer to building wealth is to simply “earn more”.  I’ve read this school of thought on many popular blogs, but the thing I find interesting is that the author will turn around and contradict themselves in their very next post and talk about how you must ‘live on less than you make’ to get ahead, that way you can save and invest the difference.

To me, the contradictions are a waste of time because by now, we all know that, “pay yourself first”, “live below your means”, live on less than you make or any other million ways you can say it all mean the same thing. And it’s something that I feel must be done if someone wants to go from zero to hero financially speaking. But that is only one of the necessary ‘tools’. The next tool you need to use is the one that decides what you do with all of these ‘pay yourself first’, ‘live below your means’, ‘live on less than you make’ semantic dollars.

When I think about applying the principles of a budget, I stand right smack dead center between the two schools of thought. I don’t think it’s the end-all be-all to financial success and I don’t think it should be ignored or ostracized.  I believe it is one of the necessary tools that every person needs for financial success, but it is only one tool in the toolbox. It’s a tool that you NEED, but you also need other tools equally as important.

I’ve read a lot of posts and comments recently scolding budgets, saying don’t “live below your means” just simply INCREASE your means. Well that’s fine, but you can increase your means all you like but if you don’t have a plan for the money, it will simply be attracted to those who do have a plan for it like everything else in life.  Just ask Mike Tyson, MC Hammer, Evander Holyfield or any other person who made ultra millions throughout their career and found themselves broke. You’ll find that you can never earn enough money.

You simply need to figure out your number that allows you to live your life’s purpose,  get there as fast as possible (by the date you need it), and guess what? You’ll still have to live by something that at least somewhat resembles a budget to make sure you can continue to live your life’s purpose and not have to work for money in the future!

Like I said, it’s all semantics whatever you want to call it. I don’t mind calling it a budget because with any negative sentiment, it also carries many positive sentiments to me such as “We will not only get wealthy, but we’ll stay wealthy” and can sleep at night and live the life we’ve chosen.  I just simply look at it as a game plan, in the financial sense much like a sports team or big business has a game plan. And I find, once I get it set up, figure out all the mistakes and nuances after a couple of months, things settle in with a budget nicely and you’ll simply know what you can spend and what you can’t spend. You have a game plan. What I find is that after you master it, it kind of goes on autopilot and you don’t have to think about it anymore. You get on to living your life and not thinking about paying the bills or if you can or can’t make it to payday. I use this mental ‘freedom’ if you will to go forth and put my energy elsewhere, such as how to make more money in business and investments and hence the snowball effect works where I begin to make more money, all tools guiding me to my number.

My wife and I simply sat down and figured out our ‘lifestyle’ budget long ago and discovered what it cost for us to live, on average, every month, predictably, with a little emergency money in place to keep things ‘predictable’ and we discovered what we could be comfortable with or without while we were on our Money Making 101 journey and then to stay on it throughout our current Money Making 201 journey.

For example, the mortgage, taxes, insurance, grocery, gas, etc.. etc.. stays pretty much the same every month. Quinton’s lunch money, school clothing upkeep and other things are pretty much the same as well. In other words, we found that we could come up with a  monthly ‘number’ that is required for us to live the lifestyle we have chosen during this journey. There are a lot of things we’ve elected to do without and there are a lot of things that are important to us that we have elected to ‘do with’ at the same time. But these all have predictable costs. So in essence, it’s the same as a budget. We simply leave this amount of money in the checking account that we use to pay the bills and live on (no we don’t have separate finances, checking accounts, lifestyles, etc.. this kind of goes against what marriage is in the first place, doesn’t it? Not to mention it makes it kind of difficult to know where you are financially and where All the money went, before you even saved or invested anything. Then 25 years go by and you wonder; Where Did All the Money Go?).

Everything goes into the same pot and then gets routed automatically to it’s payment or usage destination. It never changes. It doesn’t require constant monitoring, it’s simply automatic with the add of online auto pays and a weekly ATM drive through. On Fridays, I drive through the ATM machine and pull out what we call our ‘dining and entertainment’ allowance. This is what’s used if we want to go see X-MEN: Wolverine. And when it’s gone, it’s gone, so keep the popcorn and candy down a bit, please! I also pull out a small ‘personal cash allowance’ in equal amount for myself and my wife. This stays the same. It has been preditermined and allows me  to have my own personal cash to save up for toys or stop by Subway or if I want or grab a Rock Star, to cook along on my goals at light speed! My wife has her own equal cash allowance to use if she sees a nice purse or somthing a bit more expensive that she can save up for. I call this the “Keep Your Hands out of the Financial Freedom Cookie Jar” expense. It works great.

So with a predictable spending plan, that is pre-determined by the family, stays the same, is about 95% automatic, doesn’t require sitting in a torture chamber with budgeting tools or any other nonsense that most people dream up about budgets, we spend approximately the exact same amount each month and save each and every penny to pay ourselves first with before anything.  Lately this savings has been pretty much to the tune of half of our after tax income going into our “War Chest” as Adrian calls it, to use for business startups and investing.

As far as writing things down daily on paper, there’s really not much to report, unless you want to know exactly how I spent my own personal weekly allowance (that is always the exact same amount) on an occasional cup of coffee, a new pack of guitar strings, a sandwich, etc… In other words, it remains constant. There’s no flux, no ‘loss’ or ‘gain’, no surprises, the amount stays the same with our allowance and entertainment and it’s taken as cash, not used by credit card(unless an online purchase is made, then that amount in cash gets left in the checking account, not taken out at the ATM and the amount on the credit card is paid asap.)

Any other amount of spending just gets done automatically for the utility bills, taxes, car insurance, grocery spending, etc.. so there’s really nothing to report.

We have found this method to be really refreshing. We just don’t have to think about money except for certain key moments when we take a peek at our accounts and make sure everything is getting routed to it’s proper place in a timely fashion. There’s no late pays to worry about, no over budget spending to worry about. It’s very a very peaceful feeling and frees my focus and energy up to go and make more money.

Incidentally, since we’ve been using this method, our income has increased substantially and continues to do so. We’ve been able to amass over 40k in just a couple of months because I’ve done so well in my business and I foresee this as continuing to increase. We may actually move closer to saving 60% of our income using this method. Even when I double or triple my income, we will be living on the exact same monthly number and putting all that extra income into the war chest. This further speeds up business purchase or startups and making real estate and stock purchases.

It seems that dreaded “B” word is somehow making us “Earn More” afterall!

Financial Tune Up

After Jeff’s ‘quick and dirty‘ post became an intriguing set of discussions around his business / investing aspirations, I hope that you are finding these exercises worthwhile following along with?

Even better, if you find an issue raised – or financial situation disclosed – that has some parallel with your life, you should feel free to weigh in with a comment, opinion and/or question … the more the merrier!

Josh is also master of brevity, but it appears that he has made a major – and, uncomfortable – change to his ‘retirement savings’ strategy: basically eliminating it entirely, in favor of a more direct / hands-on investing/saving strategy. Is he wise to forgo the tax advantages and potential employer match?

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The latest improvements made to increase my net worth faster (while maintaining the ability to access the capital before I’m 59) is to drop the 401(k) bi-weekly contribution to 0% while adding the after tax cash to my bi-weekly saving and investing/trading. It has been difficult to accept this route because I know I will be forfeiting the free employer contribution, but it’s clearly best since I plan to withdraw the funds within 7 years.  I will continue to actively trade the SDRA account, from the research I’ve done, it seems once I leave my current job, I can withdraw the vested funds with 40% going to taxes and  penalties…at least I get the bigger piece of the pie.

The current exercise of recording all monetary expenditures for the month of April has been enlightening. I clearly need to spend less money and will continue to work toward minimizing unnecessary purchases.

It is also clear I need to increase my income as soon as possible. Over the next 3 years (approximately) I’ll be studying and taking tests’ to earn membership within the CFA Institute. I hope within the next year to land a position in finance, leading to an analytical position and finally portfolio management. Or maybe I’ll just open my own private equity group, we’ll see what happens.

The Recap!

I think if there’s one of our 7 Millionaires … In Training! who’s course seems to already be set, it’s Scott … the only question that I would have will be answered in the next part of our journey – stay tuned!

In the meantime, what questions / advice do YOU have?

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This next post seems to be a bit of a wrap-up to Money Making 101, where we take a final look at where we currently are exactly in our financial picture and what we intend to do about it.

To be honest, I’ve pretty much covered this info pretty thoroughly a few times in my most recent posts, probably more so than was intended in those posts, so there’s just not a lot for me to add here with this post today. The only debt we have, other than the mortgage on our home and the mortgage on our rental is my student loan. We could probably have it paid off completely in 12-16 months time from now if we focused entirely on paying every available savings dollar to it, but that would not get us richer, quicker!

The loan is currently at a little over 138k, but it is fixed at 2.8% for the life of the loan. Using up every penny to pay this loan off early would take valuable capital in the next year to year and a half that can go toward purchasing bargains in real-estate and stocks. Everything is on sale right now and I believe the next few years, it can be quite easy to reach an astounding annual compound growth rate with a little focus, research and picky buying. It would certainly be a shame to miss out on these opportunities before the recession ends and we want to take as full advantage of it as possible.

Other than that, I really don’t have any specific questions regarding where we are, I ‘m just busy in the trenches doing what I know I need to do! Live on significantly less than we make, save it up into huge chunks of cash, purchase assets, and repeat!

Pay cash for use cars, don’t take any extravagant vacations, delay gratification, don’t purchase toys, etc..etc…In the middle of that mix, start additional businesses that spin off even more cash and allow this growth snowball to really pick up snow as it rolls in the direction of our number by our date. In my mind, there’s just the wait to our date! At the same time, life is precious and short. You only get so much time here, so I don’t want to hurry time past either. I want to enjoy every minute of it along this journey, while at the same time, be doing everything I can, every step along the way to set us up for growth for our future so that we enjoy every minute now, and arrive out our departure to exactly where we want to be and then enjoy living our life’s purpose from that point forward and not live to make money!

If anyone has any questions, please feel free to ask. If anyone thinks I’m doing things totally wrong, let me know!

I’m all ears. Whatever tips, suggestions and information that can help us get to our number faster is good information for me!

The Right Vehicle

The vehicle selected for my journey to 9 million in seven years is to start and manage a business, this selection is appropriate for the compounded annual growth rate necessary to achieve 9 million in seven years. The business I plan to start is essantialy a money managing business also know as a hedge fund (In the past several decades the title “hedge fund”  has become more of a blanket title then an acurate description of how money is managed in most “hedge funds”, because usually very little “hedging” is actually happening).

The fund I plan to manage will initially use purely long/short equites for investing purposes, using an aggressive yet risk adverse strategy to atract institutional investor’s as well as high net worth individuals. Most of the revenue from the fund is generated from from  fee’s taken from the investors capital appreciation, this is generally 20%-25% and usually 1%-2% of the principal for administrative costs.  The fee structure of hedge funds is the main attraction for me to this business model because when comparing to mutual fund’s, the fees guarantee that profits to the firm will only be paid when capital appreciation takes place, thus aligning the managers and investors incentives perfectly.

Judging from the fee structure, anyone can see that the more money under management, the greater the profit potential is, although it is arguably harder to make 50% per year with 1 billion dollars then 1 million dollars, so the competition to earn the greatest return for investors becomes more difficult as more and more money pores into the fund.

The path to the initial starting capital for the fund will come almost entirely from the what I saved up and continue to earn and make from investments. As certain milestone amounts have been reached it will become feasable to start the fund. There is no dought in my mind that managing a hedge fund has the potential to increase my net worth past my number of 9 million.

mmm

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…

Driving Into Wealth

Scott and [BMW steering wheel] leather go together like birds of a feather …

… so, I knew that he would be the first in on this post (and it would be full of all the right ‘brands’)

Sounds like Scott’s on to a good deal with his employer’s largess, right?!

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With this next post, we are analyzing our current vehicle situation and how it applies to our financial health. I must first start by saying that this has been an area of weakness for me for quite some time. I am very knowledgeable about and really into high-end, luxury and sports cars. Particularly fine German and Italian sports cars, ala BMW, Porche, Ferrari and Lamborghini. The trouble is, like most people, for years I was caught up in the idea that a car  was something that you HAD to finance. And HAD to go for as new as possible and as much car as you could “afford”. Like most, paying cash for a car and not financing wasn’t in any stretch of my imagination, so like most people, I financed, then I financed, then I financed, one car after another, then another, etc…Sometimes(like most people) even rolled over the negative equity that I had with a vehicle into the NEXT car finance. And often these weren’t even good financing terms. Doing what ‘normal’ people do and financing a car always kept me strapped financially of course, because of course, you gotta buy the most expensive car you can afford. So I bought in to this nonsense and probably ‘bought’ myself an additional 10 years worth of work and not living my life’s purpose.

I would say that somewhere around the year 2005, I began to wake up from my long financial slumber, in which I pretty much ignored finances, didn’t think about the future much (why should I? For I was fast becoming a high paid Doctor, and that’s more than anyone can ask for, right?) and definitely didn’t think about the possibility of purchasing a car out of necessity and buying used with cash, as to avoid car payment and wasted funds that could be used to invest with.

Once I awoke from that financially mindless sleep and began to read books on financial mastery, take seminars, seek out advice like that which is given here, on 7million7years.com and shareyournumber.com, I naturally began to see a car loan as ‘bad debt’ for the first time and simply added this bad debt to the debt avalanche and paid it off the same as I would a personal unsecured loan, a credit card debt, etc..

Now, I can say that my wife and I have had no car payments for a long time.  We, however, aren’t hurting in the function and style department though in that we currently have 2 cars with one of them being a fairly new, 2007 BMW 3 Series. The other, a 2002 GMC Envoy.

The Envoy was my wife’s SUV when we first met. This car was a brand new concept for GMC that ‘officially’ came out in 2002, however, her’s was one of the original showroom demo models that came out in the Spring of 2001. She purchased it with around 15k miles on it for 32k. And this purchase was done while she was making around 35k in salary! Ahh the brainwashing that we get and the things we believe we are ‘suppose’ to do. Buy a car for the amount of money that equals your yearly salary, and finance it! Under poor terms! I believe she purchased this car when she had poor credit and got a 13% loan on it! (Interesting how we both now have excellent credit, knocking on the door of 800 scores and wouldn’t dream of financing a car, lol).

Currently, it’s still sitting in the driveway, running just as good as ever, still washed, babied, loved and actually looking like new. People still comment on it, thinking that it must be nice to be driving a  ‘new car’, when in fact, she’s had it for 7 years since 2002. It currently has 122k miles on it, is worth just under 6k and all maintenance has been meticulously performed on it and it’s running like a dream. It is fully loaded with every option you can get on these, but most of all, it has been PAID FOR for a while now and we have no intention on selling it, upgrading it or anything. We are planning on driving it until the axle falls off, LoL. This is the official family(and pet) get around wagon.

As for our second vehicle.  About a year and a half ago, while I was in the midst of working my way up in a group practice franchise here that I basically started my career up with in Louisville, KY, my employer ‘bonused’ me for the hard work I was doing (and the hundreds of thousands of dollars I was producing for him in the practice that HE owned) and decided to lease me a vehicle. A BMW. He knew that I liked BMW very much and knew of my future goals to own one. He picked out a then brand new, 2007, BMW 328I and told me that all I had to do was go pick it up and he would make the payments on it completely for the duration of the 3 year lease. Now, I’m a strong man, but saying no to a “FREE” BMW was not something that I had the strength to say no to!

So the rest is history. I still have the car and it’s about half way through it’s lease. Still 18 months to go and still it’s free to me. Even the maintenance is free (BMW provides free maintenance, oil changes, etc.. for the first 4 years or 50k miles, whichever comes first). So, I basically get to drive around in the car for free, except for the cost of gas and insurance, which are both very cheap, seeing as though this isn’t the M3 model and is considered very safe by insurance standards. It also seems to average around 27 miles to the gallon with my everyday driving and close to 30 on long trips, not too bad.

Unfortunately however, when the lease is up in 18 months, I’ll have no second car to call my own. But not to worry, we will be paying cash on a VERY used, fairly high mileage, high gas mileage, BMW something, I’m sure in 18 months. Right now, my wife and I have found deals on older models that fit what we are looking for in the neighborhood of 5-8k, cash. Probably 2 generations old.

So we will continue to buy used, high-end, high quality cars for cash, dirt cheap and take our sweeeeeet time looking for the best deals we can find while waving cash in the sellers face during the midst of a recession.

I plan on doing this when we reach our Number as well, only the cars will be much more high end, but the same principles will be applied and they will be paid for with passive income.

Used Porsche 911 Turbo, anyone?

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:

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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 …

Primarily About the Primary

Scott and I ‘worked’ on this house very early on in the piece, so I kind of feel ‘at home’ just reading this post

If you haven’t already done so, you should check out the photos, as Scott suggests, over at our Community Site …

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In the next exercise, it’s time for all the MIT’s to evaluate our current primary residence, our mortgage situation with this residence and how this relates to the 25% and 20% rules!

As you may have seen in my Networthiq profile, the mortgage on my primary residence is currently at around 322k. This mortgage is fixed on a 30 year, 6.25% interest mortgage. My payment(including taxes and insurance) comes to $2,438.00 per month. My net, take-home household income seems to be averaging around 11k per month at this moment, however this is down from normal due to my wife recently losing her job. In the current economy, my wife has lost 2 different jobs in the past 6 months.

The first job she lost paid her 65k per year, so naturally that gave us a much bigger financial tool to use, when coupled with my income. The interesting thing is, when she was making this money before she lost her job, I was averaging around 120k per year (so approximately 180k together). Right around the time I acquired 50% ownership of my practice from the original owner(which naturally raised my income), almost immediately, my wife lost her job, so income stayed about the same or perhaps dropped a little, lol. Go figure! Anyway, she was unemployed for about a month, then found a job with another company, which paid her 40k(big step back for her), but that job only lasted around 4 months, unfortunately.

So when she is working, we have about 14k per month or so in net monthly income and when she isn’t working, it’s around 11k per month. You can see that in either one of those scenarios, we set up our primary residence situation to make sure that we didn’t violate the 25% rule, meaning that our primary mortgage, including taxes and insurance do not exceed 25% of our monthly net income. With her not working, it’s hovering around 20% actually and when she is working, it’s a mere 17% or so. So, good to go on that rule!

Now, as far as the 20% rule goes, our primary residence was last estimated to be worth around 380k(now this could have dropped a little in recent months. Zillow has not yet reported any values for this home for some reason, so it’s hard to tell without paying a professional to come out and give us an estimate).  With the mortgage balance of 322k, that gives us around 15% equity in this house against the mortgage, or roughly $58,000.00. As you can see, this 58k is approximately 38% of our 150k net worth. A big no- no, according to the 20% rule!  The trouble is, at only 15% equity, we cannot tap this equity yet and use it toward investments, so I think we are a little stuck in the mud in our violation at the moment, that it is, until our savings and investments otherwise build our networth up to the point where this is no longer the case mathematically.

We love our home and really have no intentions to purchase another, even in the near future(although circumstances and people certainly do change!). This home is a 101 year-old, historic farmhouse and our only plans for it are to finish renovations and cosmetic work to bring it back to it’s original ‘charm and glory.’

(see pics of it on shareyournumber.com!)

We have currently budgeted $1000.00 per month of our net income to use as a “home improvement” budget for this work. We figured that way, the improvements come slower and more manageable over time, we don’t have to concern ourselves with going out and borrowing any additional money and naturally, this work will help to slowly increase the value of the property as work is slowly completed.

I believe that this is money well spent for several reasons, because it’s not the same as taking $1,000.00 per month and putting it towards spending money, toys, a Porsche Cayman S lease, or anything like that. It is rounding out the home that we plan on living in the rest of our lives, so we won’t have to worry about eventually spending 1 or 2 million dollars on a home with our valuable number, just to be satisfied with our primary residence. And as the value of our home increases because of this work, we can simply tap into this equity in the near future when available and apply this equity toward investments, so that we maximize the speed of growth toward our number by our date.

Let me know what you think!