This unique Guided Learning Experience is about wealth … real wealth.

But, what does that mean? We’ll be working on that together … very soon.

First, let me ask you a question:

Exactly, how rich is ‘rich’?

It might surprise you to learn that there is no universally accepted answer to this question … but, in our first lesson (called a Key Learning Experience, because they are mostly interactive), you will have a chance to tell me how much money you are aiming for.

And, I will make a promise, whatever ‘number’ you have in your mind today, be it $1  million, $5 million, or even $50 million:

Within just a couple of weeks from today your Number will change!

In just a couple of days, I will share my own $7 million 7 years journey, but I didn’t always have that Number ($7 million) in mind … in fact, until I began that 7 year journey, I didn’t have any number in mind … no wonder I was still $30k in debt.

But, more on that later.

For today, let me explain why there is no universally-accepted Number:

Recently, a US-based research consultancy asked its wealthy clients how much money they thought people needed in order to be considered ‘rich’.

The problem is that they asked people who were already Rich!

So, most wealthy people said $5 million net worth, but some said as much as $25 million.

This large variation was related to how wealthy the person being asked the question was … the more they have, the more they spend, so the more they believe it takes to be ‘rich’.

Only one in five said $1 million, which is what many people just starting on the road to wealth believe means ‘rich’ … when you get to $1M tell me if you are ready to retire (I’m quite certain that the answer will be NO!).

I think the ‘number’ is somewhere between $100 million and $1 billion …

… as one Billionaire said recently, after his company stocks grew five-fold in less than 12 months moving him from $1 Billion to $5 Billion net worth: “once you get past the first Billion the rest doesn’t matter.

By my own standards, ‘only’ having made $7 million in 7 years (starting in 1998 being $30k in debt), I am not at all rich.

But, I am wealthy!

I am wealthy because I can afford to live my ideal lifestyle – the lifestyle that I am living now – for the rest of my life … without needing to work!

Now, we aren’t slouches (nice house in a great suburb, the ‘right’ cars, schools, vacations, etc.) but we have no helicopters or Lear Jets … but, we aren’t rich, and I have calculated that my desired lifestyle, while lavish doesn’t require me to be $100 million to $1 billion ‘rich’.

And, I am pretty sure, neither will yours.

So, to determine when you are ‘rich’  – or, at least wealthy – you first need to determine your Number:

Your Number is the amount of money that you need to have ‘in the bank’ (actually in Passive Investments : bank accounts, investment properties, stock market … anything that makes YOU money even while you are asleep) to produce enough income for you to live your current (or desired) lifestyle for the rest of your life (which means, the amount has to be indexed for inflation).

I’ll show you how to find your Number in this first module of the $7 Million 7 Year Wealth System. And, in the remaining modules, I’ll show you how to get there … and, stay there!

As we head into the July 4th holiday weekend it’s an opportune time [AJC: did you think I was just going to let you sit on your deck watching the fireworks when there's serious millionaire-making to be done?! ] to consider your journey: assessing whether the ad that you have placed on Craigs List will actually be able to do it’s intended job …

… will it take you to your Number on (or before) your required Date? Will it do the job?

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

Good Luck!

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

As Josh found out I like to put our 7 Millionaires … In Training! under the virtual ‘spotlight’ when they have an issue, question or decision of note. It doesn’t mean that there’s anything wrong, it just might mean an opportunity to examine their current strategy with all of our readers … you never know where the next Million Dollar Breakthrough is going to come from!

___________________

Scott is busy working on our next exercise [AJC: watch for more details in an upcoming post!] and realizes that he has reached a bit of a fork in the road:

I’ve been putting some numbers to the test the past couple of days. It’s funny, I had began getting elated because I felt like I would be able to easily get to my number a few years earlier at my current growth rate, but as i’m crunching the numbers on my plans and everything, i’m finding that I’ll ‘just barely’ arrive at my number in about 8.5 to 9 years = the exact amount of time left that I determined in my original 10 year plan, lol.

‘Barely’ scares me a little because – besides the obvious: Scott makes his exact Number of his exact Date [AJC: sure ... and, I'm a balding hippopotamus ], Scott is likely to:

- Overshoot his Number by his Date … yay!

- Undershoot his Number or delay his Date … potential disaster, IF Scott’s Number/Date is critical.

In other words the benefit of overshoot is far outweighed by the potential that he simply won’t make his Number by his Date … so, we have to do a little more work. I asked Scott to clarify, according to his current plans:

1. How many practices does he need? And, according to what opening schedule?

2. Did Scott also assume owning the properties and build in some allowance there?

Scott said:

I just ran the numbers again for:

Owning 2 clinics, the first one outright in 30 months of course and then getting another one off the ground in approximately 1 year after that by using 100k of my ‘war chest’ money to open the office. I’ll have around 150k ‘left’ in that war chest after using the 100k to open clinic #2.

I also factored in keeping my current rental property, getting it refinanced to get rid of the interest only scam mortgage that I currently have on it asap(jeez, I was so financial dumb when I bought that house) and factoring in an appreciation rate of 4% per year(this may be pushing it too due to the current market, but it is in one of the most sought after parts of the city for families), plus factoring in the $500.00 per month extra cash flow from that property earned to go into the war chest.

Factoring in purchasing both of the commercial properties that both offices operate in at estimated values of 300k with a 25% down payment and a 10 year mortgage term each and selling them at the end after enjoying at 6% per year increase in value for a few years(once again, this may be pushing it!).

I also factored in the cash savings along this trip to be getting 12%(dunno if this is realistic or not, but if we come out of a recession, I would think I could at least get that kind of a return on my accumulating cash by investing in a few good stocks??)

This took me to right at 4 million in about 9 years from now if I sell the practices off for their fair market values(around 300k each), sell the commercial properties that they sit on for a reasonable price, taking into account equity gained from regular mortgage payments and estimating the 6% per year appreciation, selling of the rental property and gaining a 4% appreciation each year from this year forward, taking into account equity gained from regular mortgage payments applied to that mortgage and adding this all to my number, AND on top of all this, getting 12% on the cash flow from these 2 businesses along the way by investing in stocks after the ‘war chest’ money was used to get the second clinic off the ground and down payments were made on the 2 commercial properties to acquire them.

So, here’s the picture: again, it’s very rosy in that just owning a couple of nice medical practices and plowing the profits into RE can produce an incredible Number, like $4 million in as little as 8 to 10 years …

… but, there are some risks:

- Scott just ‘barely’ makes his Number according to this plan, and

- there are some assumptions, particularly around the returns from stocks, that bother me.

In fact, I’m wondering – if Scott reran the numbers assuming just, say, 8.5% return on cash invested in stocks, and again at, say, just 4% (assuming the cash just sits in the bank) as a ‘sensitivity test’ … would that change the outcome dramatically? If Scott’s model is highly dependent on this return, then he really has a stock strategy to get to his Number, and that’s pretty speculative!

Now, the final piece of information that I need to share before turning this over to you, is that Scott COULD offer to buy his partner out of his existing practice now … Scott can’t be certain if his partner would sell or not, and for how much, but he’s estimating about $200k. This would:

a) pretty much eat up all of Scott’s savings – and then some – for the next couple fo years or so – hence, ‘kill’ Scott’s stock investment strategy, but

b) potentially allow him to open up his second practice now rather than wait for 30 months before the practice would otherwise just be given to him (saving him $200k in the process).

Now, Scott’s busy crunching some numbers on all of these alternatives, but what advice can you give him? How/where should Scott invest (business? RE? Stocks? All? None of the above?)?

Most importantly, which fork in the road should he take?

Liftoff!

Well, as I mentioned before, we actually lifted off before we reached the launch pad …. ooops

But, in personal finance – thus, this ‘grand experiment’ – we’ll actually be doing a lot of back-tracking even as we move forward at great (I hope!) speed …

… in fact, some horses have jumped right out of the gate so fast, we’ve had to gently coax them into slowing down, just a tad

Horses and rocket ships? Now there’s a broken analogy, but it’s all in a good cause, because:

As promised, we are now moving into MM201

For at least a few of the 7 Millionaires … In Training! the past few months has seen a confirmation that their MM101 strategies are sound (but, I don’t know any who shouldn’t have made at least a slight shift in their thinking?), but for others, change is required.

I’m retired at 49 [AJC: and, I intend to stay at this age for my 'blogging persona', much like a perpetually 10 y.o. Bart Simpson] … if I had this advice in front of me when I started out (probably in my mid- to late-20′s would have been the right-frame-of-mind time for me), I would be retired before 35 and be living my Life’s Purpose already …

…. it really is just a 7 year project IMHO, give or take a little

Some of the keys that we have learned already are to:

1. Set a solid base (bankroll management, respect for money, delayed gratification) without going over the top (it’s just not necessary to live totally ‘frugally’)

2. Have a very clear understanding of the ‘why’ (your Life’s Purpose), the ‘what’ (your Number), and the ‘when’ (your Date)

3. Select the right ‘how’ i.e the MM201 ‘tool/s’ that are most appropriate for YOU to get YOU there

… the ‘who’ is pretty straightforward: it’s only YOU who can make this happen!

Under the spotlight: Josh

I’m starting a new ‘occasional series’ where we put one of our 7 Millionaires … In Training! – or, any other reader – under the spotlight when there is an interesting or unusual aspect of their journey towards their Number / Date that needs to be discussed.

Josh is the lucky first participant, as a result of some discussion that we have had online (with this post) and via e-mail (that I will summarize below) …

… this is designed as a discussion – Josh and I are looking for YOUR thoughts!

___________________________

I told Josh (via e-mail):

Listen, you’re keeping me up at night … and, believe me, this project isn’t usually what does that! So, here’s my concern:

Professional poker players KNOW that they need to manage their bankroll carefully; this means:

- Not risking more than 15% of their bankroll in any one session
- Breaking up their ‘windfall’ winnings in a similar manner to the 1/3 x 3 method that I outlined for you in that post.

Note: if your income comes from external sources you can ‘fiddle’ this a bit e.g. to make it 50/50 passive v trading or even 1/3 passive and allocate fully 1/3 x 2 to trading. Also, I’m not here to tell you how much of your trading account to risk on one ‘bet’ …. if you want to follow your system for 100% of the trading account in one ‘hit’, go for it.

But, if you DON’T come up with a better bankroll mgt ‘system’ than Bet It All, you will have problems later; look, this is MM101 For Traders and if you don’t make the habits now when you DON’T need them, you definitely won’t have the habits when you DO need them!

So, I’ve got some ‘special homework’ for you, Josh:

1. Buy/Read that Jesse Livermore book (you’ll love it, anyway) … esp. for how high he ‘flew’ and how far he eventually crashed. You have to KNOW this will happen to you one day if you don’t do what’s necessary NOW: http://www.amazon.com/Jesse-Livermore-Worlds-Greatest-Trader/dp/0471023264

2. Come up with a ‘bankroll management system’ that will work for you under all circumstances (i.e. now when Josh = No Commitments and later when Josh = mortgage, school fees, family commitments, etc., etc.) … and, I don’t want to hear “bet it all now so that I have a LOT of money to split up more wisely later” One system for all circumstances!

3. Think about what/how you will deal with the ‘passive investment account’; read this series of posts CAREFULLY:

http://7million7years.com/2008/09/08/if-its-not-passive-its-active/

http://7million7years.com/2008/09/09/how-to-build-a-perpetual-money-machine/

http://7million7years.com/2008/09/12/the-perpetual-money-machine-begins-to-wind-itself-up/

http://7million7years.com/2008/11/06/your-perpetual-money-machine-wont-start/

I’m happy to bounce ideas around, but this is your ‘homework’ …  and, it will help me sleep better if you come up with a GREAT plan – one that you, hopefully, actually intend to keep to

Josh responded with:

[I] hear what your saying, basically discipline myself now, so when I have a lot of money, it won’t be an issue (is this what your saying?).

I agree in theory, and in 95% of practice, but right now it seems foolish to have cash sitting on the sidelines in a sub-par investment when it could be really working, because blue chip or good MLP dividend stocks aren’t going to help me GET to my number, but will help me maintain it. And right now I’m still not there.

This is my plan. Lets assume I have 500,000 now. The minimum I would like to start a hedge fund with is 500,000, but  I would also like to purchase an apartment soon which costs between 750,000-1.2mill, the purchase of the apartment is important because I would like to get married soon (six months). So I’m thinking….

Once I have the apartment = 1.2 mill (worst case) I can start the hedge fund = 500,000 Lets just round up to 2 million dollars.

Once I have the apartment + the 500,000, I can understand dividing the cash into separate investment strategies to minimize risk at that point because there’s nothing to rush for, since I’m basically retired at that point anyway.

Also I plan to break the 20% rule, and own my house free and clear. This stems back to basic biblical principles of the borrower being servant to the lender. Let me know your thoughts

BTW: Josh also says that his “closing value of assets under management for today is $477,000″, which is quite a sum for a young man …… to build from and protect

____________

Josh and I would love to hear your thoughts

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?

_______________________

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.

Making Money 201?

I now realize that I was a little premature running the photo of the space shuttle actually launching off the pad; where we’ve really been until now is back at the Launch Control Center making sure that we are all prepared for the flight: suits [check]; oxygen [check]; flight training [check]; flight physicals [check] …

… a.k.a. Making Money 101

Some people like the training; others hate it … regardless we all NEED it and HAVE to go through it in order to increase our chances of surviving the voyage without breaking up: the training and physicals that we have undertaken will see us through an arduous flight … plenty of G’s [AJC: you might equate that to your required Annual Compound Growth Rate] and a long journey through unexplored territory …

… a.k.a. Making Money 201

And, we’re now pushing the shuttle out onto the launch pad; while you’re strapped in, waiting to hit the launch button, there’s nothing to do but check your commitment: if it’s not high enough, your just wasting your time … it’s not too late to turn back … if you do, only your pride will be hurt

_______________________

Josh has made a huge financial windfall; but, it comes with a warning (read the comments on his post) … even so, he represents the desires of pretty much anybody who wants to get ahead of the curve, financially-speaking:

When are we starting MM201, I’m jumping out of my skin here?

I think that Josh speaks for us all: we’re chaffing at the bit to ramp up our MM201 activities [AJC: some, like Josh, have already started ... heck, why wait for me?!] but, here we are, tied down in the minutia of counting check stubs (‘No Budget’ Budget) and counting minutes (Power of 10-1-1-1-1) …

… of course, there’s a good reason; two actually:

1. We want to create a great base to lift off from, and

2. We want to ingrain the habits that will help us keep our money once we get it!

But, there is good news: most of you already have MM101 well under control (some, perhaps overly so) and the others, well, you now have the tools to claw your way out of the financial muck hole (e.g. No Budget, Budget; Power of 10-1-1-1-1; MM101 savings rules) … it’s just a matter of applying them; …

… in either case, we’re leaving MM101 now – except for the occasional ‘touch base’ to see how we’re doing … and, of course, we’re always open for questions (via post and/or e-mail); just remember that there are now 7 who can help you if/when you need it!

So, let’s smoothly transition to MM201 and we’ll do that by reviewing a few things with our 7MITs over the next few days, that you may also want to review (and, share with us!) … stay tuned!

April Spending

Josh has come up with the honest truth about budgeting:” little purchases add up quick” … print it in B I G letters, frame it and hang it on your wall and you won’t go too far wrong …

What can you add?

________________________

So the month of April is over and I spent a lot of money. April is an unusual month for me because it’s the month my birthday lands on, so there was a bit of going out and living it up.  I expect May to be equally lean, mainly because I’m spending all extra time studying, I’m not obligated to go out for my birthday again until next April, and the maintenance for my car is up to date. During May, all the MIT’s have been instructed to use the 10-10-10 and 10-1-1-1-1 pricipal for all our purchases. I anticpate a reflection of this exercise in my May spending.

Through this past months exercise, I’ve learned little purchases add up quick and it may be worth it for me to only use one credit card and use it only for emergencies.  I manage money on a “buy it as needed” basis, using mainly the credit cards which provide the most cash back (I’ve probably earned over $100 this year from my Discover Card) The problem is, the Discover bill comes in and it’s more then I planned, and now there’s none left to save.

I’m thinking it may be worth surrendering the regular use of credit in order to better track my available cash. This will increase the pain felt when spending that I need to experience in order to pass up those small unnecessary purchase a.k.a going out to lunch.

April
12.75 Baskin Robins
4.65 Quiznos, lunch
124 car insurance
63 cell phone
36.2 gasoline fill up, shell premium @ 2.35 dollars/gallon
200 tihe
15.5 dry cleaning
4.29 lunch
2.5 lunch
33 party
160 party
33.32 groceries
300 church offering
20 cleaning
46.36 tools
13.27 lunch
75.68 alignment
7.84 lunch
200 tithe
299 kaplan question bank
23.6 ac recharge
27.4 kinkos
50 tax fee
20 cleaning
3.76 groceries

total  =  1776.12