Tag Archives: long-term thinking

Why Students Should Work In College

I can tell you why you’re not working hard enough. There are a lot of people who know how to work intelligently, with both work and life in general. They only engage in activities that are precisely planned and efficiently organized. These are often the well-educated people, those who know the best, smartest use of time. But often they spend a lot of it relaxing or enjoying fun activities.

Then there are the hard workers. They’re the people who do the heavy lifting. They end each day both physically and mentally exhausted. These are the people who work 60+ hours per week, striving for some piece of the American dream.

Lastly, but by far the rarest group of them all is the smart-hard worker. This person is someone who not only engages in thoughtful planning, meaningful self-improvement and learning, but also in the daily “grind”, the discipline-filled early mornings, the continuous extension of energy.

By far the last group can achieve the most. Not only do they have the advantages of planning and efficiency, they also spend enough time working that they can begin to get a better grasp of their tasks and gain a larger force of momentum behind them as they get into the swing of things.

One of the best times to make strides towards this happy medium of efficiency (thoughtfulness, planning) and force (work, discipline) is being a student with a job.

Now before you go off and start dismissing this idea as both impractical and stupid, please take this journey with me through my thought process and how I worked 40 to 50 hours per week while going to school full-time (and still spending a little time with family and getting a 3.8 GPA).

First, why work in school? One of the reasons most students work is to both pay for school, and gain valuable work experience in college. I want to add one more reason: better grades. Better grades? Yeah. According to a cnbc.com article there is a correlation between students who work part-time and those who get better grades. The reason this makes sense is that having a job creates a sense of greater responsibility in your life. You not only have a different perspective, but you also have less time to goof off, which makes it easier to get down to business.

I would recommend most students seriously consider working at least 20 hours per week during the semester. Not only will you most likely get better grades, you can also start to see more money coming in to pay expenses.

My challenge: get a job while you’re in school. You might find that you have more confidence, job experience and money.

Should I Invest in Small-Cap or Large-Cap Companies?

If you’re a stock investor you’ve probably asked yourself the question before. While there are many different kinds of stocks, that can be broken down into different categories based on a set of seemingly endless criteria, one of the best ways to set them apart is by market capitalization.

Market capitalization is basically what we mean when we multiply the amount of outstanding shares of a company times the price per share. It’s basically the value that the market is placing on the company at any moment in time.

The two biggest companies Apple and Amazon are inching forward towards reaching $1,000,000,000,000 in market capitalization. Meaning if you multiplied the stock price of either company times the amount of shares of that company, you’d end up with a number just shy of $1Trillion.

This has clearly never happened before but is expected as the market experiences inflation and growth.

So which one is best, small-cap stocks or large-cap stocks? Well there are certainly good individual companies in each category. For example even though apple is a large company, it is a solid investment for appreciation even for an already large company.

What happens is that depending on the economic circumstances and if they’re better for large or small companies each of these asset classes will perform accordingly. Thus, you’ll get periods when large-caps outperform small-caps and vice versa. However, generally in our history, small-cap stocks as a whole have outpaced their large-cap counterparts. The reason? Size.

When you think of a tree, whether an oak, maple or redwood, you can think of the different stages in its life. As a little seed and sapling, trees usually experience either rapid growth when they’re little, or they die off.

The reason there’s so many little trees at the bottom of a forest floor is that most of them don’t survive, but the ones that do usually experience rapid growth. The same is true with companies.

When a company is small it’s just trying to pay the bills, grow revenue and establish credibility that will equate to market share. But often these smaller companies can’t outlast the constant bombardment of competition so they die off.

If you look at the small-capitalization indexes they have tended the out-perform the large-cap indexes like the S&P 500 (an index of the 500 largest companies in the U.S.).

If you’re young and can ride the volatility, go with small cap stocks. If you want to mitigate short-term loss and volatility, large-caps are generally better.

Whichever you choose, good luck.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.

Is It Possible to Become a Billionaire?

When most people think of a Billionaire they think of Warren Buffet, Bill Gates, Jeff Bezos, or even Elon Musk. But very few people have heard of Bernard Arnault, Amancio Ortega, or Ma Huateng. These people, not as well known as some of the others, have made their way to the list of top 20 billionaires in recent years.

Bernard Arnault made his money by developing a large company that focuses mostly on luxury items and services. He has a large collection of art and is the richest person in France.

Amancio Ortega built is fortune in fashion. He is the sixth richest person on the globe but likes to keep his personal life private.

Ma Huateng has built his fortune around technology, specifically the internet. He funded Tancent, which is the highest valued company in all of Asia.

Each of these men are relatively unknown by the general U.S. population yet remain powerful, wealthy and esteemed in their area of focus. So the question that comes up is, is it possible to repeat their stories or stories like them?

The answer is yes and no. Each of these people, including the whole Forbes list of billionaires, are remarkably smart, hard working and strategic. Most of them have not only worked hard to get where they are, they have also “sacrificed” basic things that a lot of us feel are regular parts of a typical life like regular free social interaction and time with friends.

For example Elon Must was showering at the YMCA and sleeping in the office at one point.

For for all the self-made billionaires there were times where they were working their butt off. But pretty much everyone has worked their butt off right? True, but these men and women were purposeful about what they worked on, and were smart about being efficient, strategic and passion driven.

So, if it wasn’t necessarily working hard that made these self-made billionaires rich, but a set of internal actions, habits and principles, what does that mean for us? Well first that it’s completely possible, but not likely to reach their level of success in a different area of focus.

Secondly each of these people had some degree of luck, but even with the luck, it’s no surprise that any one of them is where they are today. While each of them had luck they also planted the seeds of success and let the work, perseverance, time and their brains help grow it.

One of the main similarities between all these people is 1) their commitment to improvement, 2) their involvement in business or customer satisfaction, and 3) their intelligent decision making multiplied over many times. If you sprinkle a lot of hard work on the seed you can see how it grew into a large tree. All of these things together equal focus. Being focused on achieving their goals and having a great time doing it seems like a big similarity here too.

So if you’re wondering if there’s a certain industry posed to do the best the answer is probably internet technology or AI or something along those lines. But that’s not the right question to ask. You have to find the one thing that makes you intrigued, and draws you in day after day. If you have a big difficulty even thinking about it each day that’s probably not a good sign.

Bill Gates was into computers. Jeff Bezos was into customer satisfaction and was intrigued and excited for the internet. Elon Must is into science yet balances that intrigue with his drive to make something tangible for the future. It’s not so much the industry you’re in, but the culture you have and surround yourself in of discipline, hard work, passion, improvement, learning, integrity and ultimately intense focus.

Get Rid of Your Money

Most Americans don’t have very much in savings. Those that do try to protect the amount they have, whether that’s $1,000 or $100,000. But I have a challenge to everyone who thinks stashing money will make you more secure. What if you got rid of your money, what would you do?

If you had $3,246 in the bank one day and $25.47 in the bank the next you’d probably go into panic mode. Your instincts would start kicking in. You’d figure out how to cut spending, eliminate waste from your life, and earn more income to make the difference. In other words, you’d wake up.

What happens when we have chunks of money sitting in the bank is that we convince ourselves that we’re making it, or that we’re safe. This is dangerous.

Instead, realize that the little money you have in the bank, be it $45 or $45,000 still makes you broke. I know to a lot of people $45,000 is a lot of money, but if you want to change the way you think about money, it starts here. Instead of thinking of what you could buy with $45,000, think of what you’d like to buy.

As soon as you realize that the $36,000 car, $5,000 vacation, and the 25 year retirement are on your list, $45,000 doesn’t seem like very much does it?

I personally have a little over $6K in the bank. Currently I’m gearing up for another year of college. With 2.5 to 3 years left I’m beginning to realize that it’s going to be difficult to get through college with no debt, even with lower costs than most, on just $6K. It’s time to up my game.

I’m going to have to start stashing away for college next year, both by working over the summer, taking odd jobs, and even working during the semester. Having perspective on that $6,000 helps me realize that it’s really not a lot of money – that reaching my goals will require a change in mindset.

For everyone who’s out of college and not saving for something that’s just around the corner, consider getting rid of your money. Now I don’t mean you should go and buy a newer car or travel to Europe. But it’s possible that some day you can do those things if you do what I’m going to suggest you do with the money: invest it.

Investing the money you have other than an emergency fund is a great move. Make sure you have enough money for 3 to 6 months of expenses and everything over that needs to get out of there. Put it into retirement accounts, buy real estate, pick an investment that you feel comfortable with and are ready to pull the trigger on. (just make sure to do your research)

So next time you get a $3,000 bonus, inheritance or gift, consider getting rid of it by paying off debts, securing an emergency fund, and finally putting everything else out the door into the world of investing.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.

How do Most People get Rich?

What if you had to choose one investment vehicle to get you to riches? What would it be? It’s an intriguing question not only because so many people have done it so many different ways, but because the question deals more with the future than looking at the past.

The vast majority on the Forbes billionaires list have gotten there through owning all or part of their own business. The industries range from technology to finance to fashion and even real estate.

Most of the newer billionaires have done it through technology (like Mark Z., Bill Gates, and Jeff Bezos). A good portion of the older billionaires have made it though finance. But even within sectors there is great variation as to how the billionaires made it. For example in the technology sector Jeff Bezos has done it through online retail while Zuckerberg has done it through social media.

Real estate, whether you consider it a business(which it true) or it’s own investment category altogether has also created many wealthy people. One notable difference between billionaires in real estate and millionaires in real estate is that the millionaires have focused primarily on single family and small multifamily homes while the billionaires have purchased scalable, large operation commercial properties. (For example Donald Bren.)

Arguably it’s very difficult to get into these large operations without significant capital. So for the average investor a good place to start is either smaller properties or partnerships. Either way you look at it, real estate as a whole has been a solid investment for both the well-off and the ultra-rich.

If you’re looking to the fastest made billionaires technology businesses are your best bet. If you’re looking for the most stable, predictable, simple and versatile investment, real estate is your best choice. Most of the other investment options including bitcoin, gold, bonds, futures, options and commodities have considerably less stellar track records. However the one similarity between the ultra rich is that they have done so with extreme focus and specialization – becoming experts in their field of influence.

As times change and new technology becomes more mainstream there becomes a great advantage to the person who is willing to pick one thing, just one thing, and focus entirely on it.

How Can Active Income Be Better Than Passive Income?

I could pretend like this was easy – like I could share the secret sauce of creating passive income for life. But it’s not that easy. No reputable story I’ve heard, book I’ve read, or person I’ve talked to, has guaranteed 100% passive income at very little or zero personal sacrifice. That’s because it doesn’t exist.

When looking at income you can categorize it into three main groups: Income you work for (earned income), income that comes to you without work on a regular basis (Also called passive or residual), and income that you receive when you sell an asset (stock or real estate) for more than you bought for it (capital appreciation).

There are a lot of videos, books and even seminars, that claim to help you create passive income. I’m here to show you why they’re all wrong.

I don’t want passive income. At least not in the way most of the gurus are talking about. Recently I’ve been reading Tim Farriss’ book “The 4-Hour Workweek”. While I’ve been able to glean some useful information out of it like how to simplify certain tasks and create automation I disagree with the premise of the book: the less work the better.

The whole idea of slimming and cutting your time down into 4 hours of work each week is actually appalling to me. While I certainly don’t want to be working 80 hour weeks like he talks about avoiding, I also have seen the benefits of working hard with true purpose.

Whenever I get done with work there is a feeling of built confidence and endurance. Even on challenging days you feel like you’ve overcome worthwhile obstacles. In my option without some sort of work life becomes meaningless.

From Christmas 2017 till March 2018 I had practically all the time in the world to think about this question. I was in Zambia with my family, spending time with them before I headed back to the U.S. in March.

The thing was most of my family was busy during the day, which left me plenty of time to think – including about this question. I thought, how can generate enough money so that I don’t have to work. I strategized this for a while. I finally realized I didn’t want to eliminate work altogether. I simply wanted to make it optional.

To be fair Tim Farriss is actually probably right about a great deal in the book – that there are ways to relatively easily create more time in your life – whether through automation or elimination. However the whole way the book is presented is how to reduce work or almost like work is bad. He tapped into the feeling that many people feel: they don’t like work.

I have a simpler and (I believe) better solution. This choice is difficult to find yet it’s what some of the most successful people in the world have chosen. People like Bill Gates, Jeff Bezos, Elon Musk and many of the ultra rich followed this path. Why not pick a kind of work that you enjoy? Why not experiment and explore the options till you find something that excites you and makes you enjoy “work”?

 

A Picture Made Clearer

My first job ever was when I was 17. I got hired in as a host at Cracker Barrel. I would guide people to their seats while keeping track of which seats were clean and open. This job taught me a lot about what I didn’t like doing – interacting in that type of busy social setting – but it didn’t necessarily tell me what things I enjoyed doing.

I started understanding more about myself. That’s a very important step. You need to start painting a picture of you endgame – what you like, dislike and ultimately want you want your work to look like. Even if your endgame changes with time, the very fact that you’re aiming for something makes the drive behind your actions that much more purpose-driven.

When you’re young there’s not a lot you can say you’ve experienced. As time passes if you’re not diligent, it’s easy to simply take the situations life gives you without paying attention to what they mean for you. Ask yourself: What has this taught me about myself? Why did things happen the way they did?

Once you have an idea of what you’re like – what interests you and what turns you off, you can take some of the first big steps.

Now if you already have a family I can see how it would be much harder to both provide and transition through many different life changes. My advice would be to pay attention to the money first – make sure you have enough for your family. If you know you can take care of your family financially then you can start experimenting with side-businesses, side-jobs, side-hobbies, and side experiences.

Never lose sight of what you know you want to do, even if what you want to do is constantly changing. This strategy has definitely worked for me so far. I’ve begun to paint a clearer and clearer picture of what I want to do, even at a young age. I know it will continue to work for me in the future.

And who knows, there might be a day where you finally can see enough of your picture to take the first step forward.

The $288,000 Car

Right now the average cost of a new car is about $36,000.

But what will a new car cost in 40, 50, or even 60 years?

Right now it’s 2018. Inflation has averaged about 3-4% per year. So if we assume a 3.5% inflation rate over 62 years (2018 to 2080) then the average new car cost will go from roughly $36,000 to $288,000!

Imagine, for all of us under 20, living in a world where a basic new vehicle costs over a quarter of a million dollars.

But this is just vehicles. This principle applies to most everything including travel. So that  $350 airplane ticket has gradually become a $2,800 cost. Now how about housing? Well that $200,000 house (assuming a 4% yearly inflation) will blow up to $2.2M. Is this possible? You bet.

Actually the price of a house was about $7,300 in 1950. Fast forward 60+ years and we’re looking at massive inflation!

What does this mean for you?

First you need to realize that while inflation can certainly be a force working against you, there are also ways to take advantage of it for the better. One of these ways is through ownership in stocks. Historically stocks have performed at roughly 5-7 percent above inflation meaning this ownership vehicle can certainly become a powerful hedge.

Meanwhile others are building wealth through real estate. Just like the house, real estate as a whole has done quite well in most economic seasons.

An crucial step is to simply take action. If you’re young, willing to learn, and able to take risks, the world of investments can become a plentiful field of opportunity.

What $30K Can Become

 

I’ve had the opportunity to travel a lot over the last few years. But over the next few much hard work lies in store. This doesn’t mean I’ll cut out travel completely, but I may have to sacrifice more trips for reaching my goals.

One of my biggest goals over the next four years as I finish college is my retirement account. I maxed out my contributions last April for the 2017 tax year($5500). This year, though, I hope to do the same. That means, by the end of this year I should have roughly $11K in my Roth IRA.

Imagine what this could turn into over 30, 40 or even fifty years! As I work this summer and during the school year I will see the balance of my Roth gradually rise. Maxing it out (which will be no small task) for the next four years(2018, 2019, 2020 and 2021 will set me up for a fantastic retirement safety net.

Maxing out contributions over five years (2017-2021) is $27500, but most likely it will be a little more by 2021 so there’ll be roughly $30K in there let’s say for simplicity. Compounding that investment over 38 years (2022-2060) at roughly the long term average of the stock market, 10%, leaves me with the following picture:

Screen Shot 2018-07-10 at 7.06.53 AM.png

I got this off Calculator.net, but there are many other tools out there.

When I first looked at it I couldn’t believe how much growth this thing could kick out. However I started to think of ways to improve it like the rate of return and the time horizon. What happens when I wait just five more years to age 65?

Screen Shot 2018-07-10 at 7.09.51 AM.png

The whole amount raises about about $700K!

There are a few things to consider though. For one this totally forgets about inflation, which will eat away at the purchasing power considerably.  Seconded this assumes a 10% compounded rate of return. Although I’m not actually considered about this because stocks tend to do very well over long periods of time.

Altogether the picture this paints is one of optimism and potential. Imagine if I continue to contribute beyond the age of 22!

Vison & Purpose: The Freedom to Dream

Whenever I travel somewhere I always enjoy imagining what the city will look like in the following decades. For example in my recent travels to Dallas, TX I couldn’t help but wonder what this city, which has been growing rapidly in the past decade will look like in the following two.

It’s fun to create these kinds of imaginative pictures but we can also do the same with our personal lives. In my personal financial journey I’ve begun to dream, plan and execute towards an amazing future. However often times I’ll talk to folks who don’t know where they’re going with their finances. They can’t see beyond the current year or decade. These people don’t see how fun and exciting creating a financial vision can be.

The blog up to this point has been primarily focused on my experiences as a traveler. Although I will continue to share stories from future trips (and a particularly special adventure I had last April), I will be sharing more about my truly greatest interest: personal finance.

There are so many facets of the personal finance world I can’t expect to cover all of them in the scope of just a few blog posts. As with a lot of things, personal finance isn’t as simple as chewing gum (which probably actually has a pretty complex molecular structure). However I hope I can demystify the subject at least a little.

While I don’t claim to be an expert I know I can provide value to a lot of you by summarizing wisdom I’ve gleaned from some of the leading financial experts – wisdom that I got from reading literally hundreds of books, videos, and articles. I may even take you on a tour through my personal finances.

For me dreaming bold has always been a natural outflow of my outlook on life. I view the world through the lens of what things are capable of being, and how they can improve in the future. While I recognize there can be extremely painful periods for everyone, I know we will continue to see the overall improvement of living standards for third world countries as well as America.

That’s why I’m so optimistic about my future and the future of everyone else in my age group. As this younger generation begins rising up in the workforce a few things will become apparent. 1) This is one of the best times to be alive for anyone who wants to create financial freedom. 2) The sooner you take personal responsibility for your finances and take initiative to understand more, the sooner you can begin making moves that will set you up for a better life in your 40’s, 50’s, 60’s and beyond. And lastly 3) For anyone who thinks this isn’t important or it’s too complicated or boring, remember: Personal finance is one of the top 4 most important topics (up there with God, relationships, and physical health).

On this fourth of July I hope we can appreciate the opportunity we have in this country to both dream and pursue happiness. Personal finance doesn’t have to be boring or complicated – that’s what I hope you take away in this blog.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.