Entrepreneurship, Financial Freedom, Financial Independence, Investing, Self-Made Millionaires, Wealth

How Benjamin Franklin used 13 virtues to get rich

Gallery Leave a comment

“Tell me and I forget. Teach me and I remember. Involve me and I learn.” – Benjamin Franklin 

Benjamin Franklin is not only one of America’s founding fathers (known as one of the signatories the Declaration of Independence), but also its first millionaire.

He did this by investing in what he knew. That is how he built his fortune.

You can do the same to build yours.

I listen to what people have to say, but I always make my own decisions.

I research any industry I want to know and then focus on investing in what I know. I try to put my money where my values are.

I prefer consumer staples such as food, beverage, toothpaste, cleaning supplies, tissue, and other household items.

Companies like Proctor & Gamble, Colgate-Palmolive, Kimberly-Clark. Clorox, and PepsiCo.

You can find many of these companies included in many mutual funds such as any 500 index fund like the Standard & Poor’s 500 Index (S&P 500 index), the Vanguard 500 Index Fund Investor Shares (VFINX), the Fidelity Spartan 500 Index Investor Shares (FUSEX), the Schwab S&P 500 Index Fund (SWPPX) or the   T. Rowe Price Equity Index 500 Fund (PREIX).

I figured a good way to start my wealth journey was to learn about those that became wealthy.

Benjamin Franklin also created a list of 13 virtues to develop his character. This lets me know that your character is your destiny.

Here I provide you with his checklist. See which ones you can try to emulate to help you on your road to wealth accumulation.

THE 13 VIRTUES OF BENJAMIN FRANKLIN

In 1758, Benjamin Franklin published his essay The Way to Wealth.

Although, it was written 260 years ago, the advice still is holds up, even to this day.

Below is a copy of his checklist.

SPOTLIGHT ON FRUGALITY

My personal favorite is frugality because it includes all the other virtues.

Frugality is basically the will to spend money on what is important and avoiding spending on what is not.

Frugal is not being merely cheap or miserly like Ebenezer Scrooge.  See my post on Money Lessons I Learned from Scrooge McDuck. It is about saving money on things you do not really need.

Saving money allows you to put that money to work for you.

Imagine every dollar is a little soldier. What do soldiers do? They fight.

You have to fight for your money because everyone is trying to part it from you. Don’t let them.

Invest that money and each dollar (soldier) fights for you everyday 365/24/7. Even while you sleep.

FOCUS ON FRUGALITY

In this world, you’re on your own. Benjamin Franklin knew that. So, he set out to start a business in a field he knew. He was a printing apprentice and started a printing shop. He became an expert at that one thing and did it so well that people paid him for it.

He then reinvested the profits back into his business.

That is how he grew rich.

He knew to become wealthy, he had to ignore the charlatans or hype. He had to focus on himself and his spending habits.

And that is what you must do. Ignore the hype. Forget what everyone else says or thinks. Trust your gut.

FORGET THE FANCY SET OF WHEELS

You do not need a fancy car to make you happy. Ride a bike and get some exercise. Better yet, buy an inexpensive, older Chevy where the bumper looks like it will fall off any second.

Then people will be less likely to ask you for money, if they see you riding around in a clunker because they will think your broke, but it couldn’t be further from the truth.

It’s not that you do not like nice cars or can’t necessarily afford one. It’s that you choose not to spend your money on it. Sounds pretty good right?

And watch out for the hangers on. They tend to come around when your last name is followed by an M.D. or Esquire.

FORGET THE BIG HOUSE

You do not need a mansion to live in. You know what that does? It just causes you to spend more money to heat, cool, maintain, and furnish it.

You fill the home up with stuff. No one likes an empty corner. Every inch is piled high with stuff.

How is that stuff paid for? Usually with credit.

What happens if you need that money? For instance, homes need maintenance.

Do you know what the repair bill is for a roof on a mansion? Well, you don’t want to know. One thing we do know for sure is that it costs more than what you would spend on a smaller house.

What about PMI? Private mortgage insurance is what you must pay if you put down less than a 20% down payment. And folks, that money is on top of the insurance and a monthly mortgage payment. We aren’t talking chicken feed here. It can be hundreds of dollars per month!

What about property taxes? It can add hundreds or thousands to a monthly mortgage payment. That’s money that’s not working for you in the bank.

You want to be investment rich, not house poor.

Every dollar that goes toward the house, can’t be working for you in an investment account.

I know they say the value of the home will go up and your equity will increase as you are making the house payments. However, let’s not forget the 2008 housing bubble.

When that bubble burst, so did most folks equity. Foreclosure notices were going out in the mail all over the country. Many lost homes. And many have still not recovered.

FORGET THE DESIGNER CLOTHES

You know those people who say dress to impress. Well, that’s fine and dandy, if you can afford it. However, if you can’t swing it, then walk by the $400 clothing rack and head to the sales rack in the back. Forget sartorial superiority. Who wants to be the best-dressed poor person?

I now see more people walking around with designer purses today than I have seen at any other time I can remember. Who’s paying for it? Mr. credit card, that’s who.

I see people opening up store cards all the time.

They have so many different color credit cards in their wallet it looks like a skittles bag exploded.

Places are handing out applications for credit cards every, single day.

You must resist. Resist the urge to spend. Credit is seductive. The temptation is too great.

So you must decide, what is more important. Buying a designer’s clothing and paying for their summer home or funding your own future.

FORGET THE EXPENSIVE WATCHES AND JEWELRY

I read about an NBA player who had bought dozens of watches. And not just any watches, but Rolexes!

Just because. Well, hey, you know bosses got to be on time.

Do you know what those things retail for? Well, last time I checked, it could be anywhere from $2500 to $40,000 and up.

The guy could have started a college fund. He could have funded an entire small city of kids $1k college scholarships.

Who needs 30 watches? Someone who wants to know the exact moment they went bankrupt I guess.

FORGET THE EXOTIC VACATIONS

So you want to travel. That’s great. But unless you can afford it or do it on someone else’s dime (like for work).

You may just have to watch the latest episodes of House Hunter or any show on the travel channel.

I once read it is a great thing to go travel and see the world as it is a great education, it will only cost you: $25,000.

I think I’ll just read a good book on world travels instead and invest that money until it earns enough interest that I can pay for the trip with cash.

Here are some of my suggestions on traveling when your travel budget is on life support.

You want to see the northern lights in Iceland? See it on a YouTube video.

You want to go skiing in Switzerland, Aspen, France or Vail? Watch a travel show until you can afford it.

You want shopping sprees in Milan, Paris, Rome, New York’s Fifth Ave, or Rodeo Drive?  Focus on buying things that will appreciate in value. Clothes, once purchased, is money that’s burnt.

I know you watch the television shows and see all the families going to Disneyland or Hawaii. However, what they don’t tell you is how much it costs to go to these places. Lots of times the studio or the network is picking up the tab.

They do it for ratings. Because who wants to watch a show about people sitting on couches all day. They want to see the lifestyles of the rich not the broke and unknown. I say just stop watching those shows.

Focus your attention on earning and working. If your head is down working, you never can look up and notice what everyone else around you are doing.

FORGET FOMO (fear of missing out). It’s a myth.

I know plenty of people that go out, spend money, buy nice cars, big homes, fly to the islands, and go to lots of parties.

However, they are not the boss. They work a 9-to-5 just like everybody else. One missed check could cause havoc on their already precarious finances.

Many people are one paycheck away from being on the sidewalk.

Don’t be like them.

Practice the 13 virtues. Be frugal. Then you can live like no one else because you will actually be rich instead of acting like you are.

FORGET PRETENDING TO HAVE MONEY

Forget pretending to be rich. The only time bluffing works when it comes to money is at the poker table.

And you know what happens when the hand is over, the bluffing stops there.

So leave the bluffing at the table and check it at the door.

Remember that scene in the comedy movie Back to School with Rodney Dangerfield. He was a wealthy guy named Thornton Melon, but always said to his son: A man without an education is nothing.

There was one scene in the film where he was talking in class about being in business and all the things a businessman is doing to make it in the real-world.

The teacher disagrees with his assessment, even though he was coming from a place of information.

When the professor asks where to build the business after scolding Melon he replies, “How about fantasyland.”

When it comes to your money you cannot afford to live in a fantasy. You have to keep your feet planted firmly on the ground and your actions based in reality.

Earn money, save it, invest it, and get rich slow.

College, Film Reviews

Money and Life Lessons I Learned from Disney’s film National Treasure

Gallery 1 Comment

An investment in knowledge pays the best interest. – Benjamin Franklin

It has been so long that I had almost forgotten this gem of a film released by Disney in 2004 called National Treasure starring Nicolas Cage. He plays a historian, Benjamin Franklin Gates, on the hunt for a fabled national treasure hidden in America that was told as a secret to one of his ancestors in 1832 by Charles Carroll.  The secret was the first clue (the secret lies with Charlotte) to the treasure and this is where the story begins.

After finding the first clue, it then leads to another, this time it’s to an invisible map the Declaration of Independence, which was signed on July 4, 1776. And here begins the adventure and the life lessons.

GET A GOOD EDUCATION

After hearing the secret of the treasure from his grandfather, Gates goes on to become an expert in history as he recites historical facts, data, and events in American history with ease throughout the film. It was also at one point stated that he had various degrees from top colleges such as Georgetown and Brown University.

His educational and historical prowess is evident during the film to be quite extensive. This makes him very important to those who want the knowledge he has. His education and skills also helps him get out of all types of jams and sticky situations in the film. His expertise in literature, culture, science and history also drives the movie forward as he informs the audience of how he plans his next move why and with what tools he needs to succeed. His street smarts and brains are what keeps him alive. I learned from this that the value of a good education is priceless.

SHARE RESOURCES AND KNOWLEDGE

Gates is constantly figuring out his next move and is usually one step ahead of everyone else. However, he always shares what he knows. This allows people to put faith and trust in him, which was necessary for his success.

At one point in the film, he does not know something, but his comrade does (Justin Bartha). This enables them to keep moving toward their goal. Therefore, it goes to show that knowing is not enough, but you must also apply and at times ask for help. Shared knowledge brings more gains that keeping it to yourself.

CARE FOR OTHERS

Throughout the film, he makes sure to ask the woman (Diane Kruger) he is with if she is hurt or hungry. He tells people to be careful and to watch their step. He does all he can to keep his father out of trouble or in any harm’s way. He also shows great respect and that he cares for the people around him. They, in turn, watch out for and care for him.

Gates kept good people and characters around him. He surrounded himself with capable people. If you ever saw the film The Fast and the Furious: Tokyo Drift, there is a scene when Han says he needs good people and character around him. He also said you make decisions and you don’t look back. Words of wisdom to live by. It’s gems like that people need to hear.

A LITTLE COMMON SENSE GOES A LONG WAY

In the film, while they are on their way from Washington, DC to Philadelphia, Gates says they need to buy new clothes to look less conspicuous. His companions agree, but one states they have no money. He then tells them that he has taken a book off his father’s shelf called Common Sense, which was written by Thomas Paine during the Revolutionary War in 1776. Paine is also famous for writing the American Crisis and this sentence: THESE are the times that try men’s souls.

Inside the book, there is money. Gates says his father usually tucks away a small stash of hundreds in there. Bravo, how very smart of his father. They say hide it in the books, as that is the last place most people will look, if you are trying to keep something hidden.

I learned here that even small amounts of money can you help out, if you are in a pinch. And remember cash is king. People can turn you down for credit, but people welcome cash with open arms.  In one scene, a sales girl was hesitant to give back a hundred dollar bill he paid the clothes with, but conceded when he offered something of value in exchange. And he just wanted to borrow it to look at the back of the bill! Do not ever downplay the power of cold, hard cash.

THE STATUS QUO

Later in the film, Gates is in a bind. The bad guys (Sean Bean) find him and use his friends and leverage to do their bidding. He is reminded that their usefulness exists in keeping the status quo. One the bad guys get what they need, then they are no longer useful. Therefore, they do all they can to keep the state of affairs ever in their favor. Much like the motto of The Hunger Games: May the odds be ever in your favour. This film starred Jennifer Lawrence as Katniss Everdeen.  And the motto was said repeatedly by Effie Trinket (played by Elizabeth Banks). Trust me, you will need them to be as no one wants the odds stacked against them.

If you can, your goal is to always have a strategic plan to win. One of the greatest military leaders of all time, Napoleon Bonaparte, was well aware of battle strategy. During his time, he dethroned the king and queen (Marie Antoinette) of France during the French Revolution. His goal was to be emperor himself. However, short of funds he decided to sell the French controlled territory in America, known as the Louisiana Purchase in 1803.  Although, the United States could have said no, they decided to get the funds together in order to double the size of the country. The U.S. paid $15 million dollars and would go on to eventually have enough territories to create seven, and later, 15 states. I learned when opportunity knocks, answer the door.

PAY ATTENTION TO YOUR SURROUNDINGS

At various times within the film, he assesses the situation and surroundings to get out of numerous scrapes. Every time he was in some sort of trouble or missing a piece of the puzzle, he with the help of his companions figured a way out or an answer to a clue. Paying attention to your surroundings and telling the truth can help keep you safe. For example,

  • He knew that a ship was buried in the artic based on climate change and where to look for it
  • Saw that a barrel was being safeguarded by a deceased ship captain
  • Solved various riddles and clues throughout the film
  • Was aware of a smuggling cargo hold in an old ship
  • Noticed an incomplete coin collection in the office of a would be ally and used this information to get on this person’s good side and lower her defenses
  • Saw an opportunity to get access to the Declaration due to a 70th anniversary party advertised at the Smithsonian
  • Bought a duplicate Declaration just in case of any trouble as a way to safety precaution
  • Knew to watch for signs of activity from afar and to then park blocks away from his father’s house for fear of being followed
  • Bought new clothes to appear less conspicuous
  • Separated the map (lock) from the glasses (key)
  • When in federal custody he told the truth and received goodwill treatment
  • Recovered items that were clues and kept them in his possession (which would come in handy later)
  • Avoided danger at all costs
  • Delegating tasks such as asking a young boy to access the Silence Dogood letters written by Benjamin Franklin to avoid detection from the FBI
  • Always left little to no trace of his existence when plotting schemes such as putting the brick back where he found it
  • Did not knowingly try to put anyone in harm’s way and avoided loss of life
  • Knowing that when spelunking in caves that the explorers would create second opening in case of cave ins or other danger as a means of escape
  • Recognizing that using the clue piece was how to open a secret door (the secret lies with Charlotte, literally)

ALWAYS HAVE A PLAN

When the bad guys need more help as their knowledge is not as vast as Gates, they then turn to him for assistance. This kept the ball in Gates court and the status quo on his side because he knew things they didn’t know. Once it was evident that he was the one in control, he exploited this opportunity and used it to his advantage to win. I learned that in life you need to acquire knowledge and skills, keep learning, apply what you know, be useful, and always have a goal or plan for success.

FORGIVENESS

Once they are abandoned and left by the henchmen, they then look for a way out. Thinking it is the route to the treasure. When it is not, they are thoroughly disappointed. Gates, very thoughtfully, apologizes to this friends. They forgive him.

This reminded me of an old saying I heard: To err is human, to forgive is divine. This saying is from “An Essay on Criticism,” Part II, 1711 by English poet Alexander Pope.

GIVE IT TO THE PEOPLE

It is not enough to have abundance, if there is no one to share it with. Too much should not be held by one person. The founding fathers believed the same thing about government: Give it to the people.

When Gates had the opportunity to give, he did so. He decided to give the wealth he had from the knowledge he had gained to the people. Therefore, there is no common good to be had by being miserly, stingy, or hoarding. Give what you have and give freely without looking for anything in return. Earn what is yours, keep what you need, and then give the rest away.

WHAT IS LIFE WITHOUT A LITTLE WHIMSY

You will notice in the film certain times when they are playful or funny. Although, they were in serious situations, they still made time to laugh now and then. One of my favorite scenes is when he covertly and illegally goes into the room for the Declaration and once he walks in, points to the camera as his friend looks on. This was funny because it signaled to his friend that his plan could be done and that as serious as things were he could still keep it lighthearted. Sometimes, in life you just have to smile or laugh at yourself.

It’s like Sheldon Cooper said, on The Big Bang Theory, after he decided to to drink hot chocolate in months with an R in them: “What’s life without a little whimsy.” Indeed. Not very much fun.

HARD WORK = REWARD$

By the end of the film, Gates turns down a 10% finder’s fee. Instead, he requests only a 1% fee for his services. His friend is upset by this. However, you will see what that 1% has gotten them.

Although, it took him 30 years, he was able to reap the benefits and rewards for all of his acquired knowledge and hard work. He also garnered the respect of his peers, family, friends, and colleagues.

From this I learned that nothing can replace hard work. You have to give it everything you have because success takes no less than everything you’ve got. You must believe in yourself, even when nobody else does. Prove people wrong. Work for what you want. Do the right thing as it is its own reward. However, that reward may take years. But do not give up. The journey is more satisfying than winning.

College, Credit Cards, Financial Freedom, Retirement, Saving, Wealth

How I went from $5k to a six-figure 401(k) in 6 years

Gallery 2 Comments

“It’s not your salary that makes you rich, it’s your spending habits.” ― Charles A. Jaffe

It seems like every other day I read about some new 401(k) millionaire.

I think that’s really great, but you know what I always think about when I hear about newly minted 401(k) millionaires; I think how that money is all on paper only. You cannot access those funds without cashing out. Making this investment illiquid.

There is nothing wrong with that except if you need or want the money now to spend or invest. Tapping a retirement account before age 59 ½ comes with a 10% penalty and a 25% income tax rate. Ouch!

Therefore, I focus on earning more, saving more, and investing more all at the same time.

However, years ago I thought to myself why not also focus on getting a million in investable assets.

That’s when I set about focusing on what I could do to get to $1 million in my retirement account.

After doing some research, I found that millionaires did the following:

  1. Invest at least 20% of their income
  2. Spend less than they earn
  3. Read about finance

So, then I determined that I would have to make some sacrifices, if my goal was to get to $1 million.

First, I looked at what it would take to get there.

I learned that a $100,000 could turn into $1 million in 30 years at an 8% rate of return or higher and that is a great return on investment (ROI). Since, the stock market has averaged a return of 9.8% over 90 years from 1926-2016, then I figure 8% ROI is not an unrealistic percentage. And that is without adding another dime to your portfolio.

Imagine what life would be like if you no longer had to contribute to a 401(k). Pretty sweet. All that money now comes back to you and you can put it in other places such as a college fund, real estate, or seed money to start a business.

Now, I am not saying not to continue investing. Especially, if you get a match from your employer. That’s free money. Don’t give that up. It’s just good to have and know your options. Just FYI, I am still investing in my retirement accounts.

This is how I went from $5k to five zeroes in retirement accounts in just over 5 years.

DECIDE TO GET TO SIX-FIGURES

Once I made the decision to get to $100k, then I had to figure out a way to do it.

I decided to stick to a conservative estimate of a 6% ROI. That would equate to investing $12,585 per year. That works out to $1,048.75 per month or $484.04 bi-weekly.

Salary of $35k-$100k means you would have to put in anywhere from approximately 13% to 36% of your income in investments to get this figure.

COMMIT TO SAVING

I had to then commit to the idea. That meant some belt tightening. I looked for ways to save. I cut anything that was not required for me to eat, sleep, or stay healthy. I know financial gurus say it is best to focus on earning. And while I agree, I also know it is easier to cut expenses than it is to earn more.  Therefore, these things had to go:

  • Cable
  • Subscriptions (magazines, books, etc.)
  • Buying clothes (waved bye-bye to this)
  • Vacations
  • Nail salon visits
  • Restaurant Meals (ate out less)
  • Movies
  • CD’s, DVD’s and books (rented from the local public library for free)

This freed up quite a bit of money. Anywhere from $200-300 per month. Yep, that went to saving.

Then I turned my attention toward my debt. I was paying about $800 per month to service debt. Yikes! Even though that included different kinds of consumer debt (personal loan, credit cards), it was still a huge monthly expense. So, I decided to make some changes.

I wanted to stop paying so much in interest. That money could go toward saving and investing after all. I figured I could either pay it off, see about getting the interest rates down or both.

I called up a couple lenders to see if they would lower my interest rate based on payment history and credit score. They said no. And here’s a word of caution: after calling one lender, my credit limit was lowered. That’s right. You have no say or control when you owe money. The lender has all the power. Therefore, it is your job to pay off your debt so that you can have all the power.

Your credit limit is very important because this also affects your credit score.

Say you have a $10k credit limit and you owe $1k. That is a 10% credit usage. Very low. However, if your credit limit is slashed by more than half to $2k, then that $1k balance becomes a 50% credit usage. This would increase your debt ratio and lower your credit score.

And we all know how important your credit score is. The credit bureaus – Experian, Equifax, and Transunion – hold a lot of weight in the eyes of lenders. If you have a low credit score, it can affect whether or not you get a job, are able to buy a home or even a car. Credit scores below 620 usually mean you pay higher interest rates. On a mortgage, that could mean the difference of paying $10,000 to $100,000 in interest! No pair of name brand jeans, destination wedding, or fancy exotic vacation is worth a $100,000 dollars!

Going back to saving on credit interest, I had to figure out another route. Therefore, I did two things. One, I paid off all the low balance credit cards. Any lender I owed less than $500, I paid them off. Then, went after the ones under $1k and so on until I only owed two lenders.

That’s when I used the 0% balance transfer deals I had. I was able to put $10k at 0% for 18 months and another $5k at 0% for 12 months.

I also paid off my $20k personal loan! I had previously paid off my car loan. See my post Outrageous loan terms for Porsche that even the rich can’t justify about how and when I paid off my car!

I went from spending $1k to $1,100 per month to spending $500 and saving $600 more per month!

MAKE YOUR MONEY WORK AS HARD FOR YOU AS YOU WORK FOR IT

I was able to put that in my retirement accounts. I went from investing $450 a month with an employer match to investing $1,050 to get to the required $12,585 annually needed for $100,000.

Once I hit this goal I started looking for other ways to save. Mentally, it was a great feeling to know if I never invested another dime, that I could still end up a 401(k) millionaire by just letting my money sit and work for me while I was sleeping.

Then, I turned my attention toward other goals such as paying off all debt, building a 12-month emergency fund, and building capital to purchase an income property.

I also started saving more and looking for higher rate saving accounts because it’s not that the sky is falling (shout out to chicken little); I just need a better saving rate because inflation is coming!

Thus, the purpose you need to invest. You need assets that will beat inflation, which is anywhere from 2-3% per year.

I prefer to pay off debt first. All of it as fast as you can. If not, then prioritize.

If you know that your credit cards are going to charge an Annual Percentage Rate (APR) of 11.99 to 29.99%, then this has to go.

If your student loans and mortgage are charging you 7% or higher, then you may want to focus on getting the amounts down to under $50,00 or $100,000 respectively. That way you pay less interest over the life of the loan.

If possible, I say pay them all off before age 50. Then all your money is yours in your golden years. If this is not feasible, like, say a 15-year mortgage, then you may want to focus on beefing up your savings and investing more if your loans are charging 5% or less.

Either way, automate your savings. Can’t spend what you can’t see. Pay yourself first. You do this by putting money aside in savings as soon as it comes in and not the other way around. Paying bills first and then saving what is left is a recipe for disaster. Try to aim to invest 20%, save 30%, and use the other 50% for living expenses. If you can aim to save 40-50%, and then you can invest more money to get out of the rat race sooner.

Investing 20% or more in retirement and saving 30-50% would mean you are saving and investing 50-70% of your income. At a 50% savings rate, you could turn every dollar into two. At a 10% compound interest savings rate, you could double your money every 7 years! Now that’s what I’m talking about. Turn one dollar into more.

Remember this: It’s not what you make, it’s what you keep that will make you wealthy.

Celebrities and Money, College, Credit Cards, Financial Independence, Retirement, Saving

Meet an orthodontist with $1 million in student loan debt

Gallery 8 Comments

Unless you have not been reading headline making news lately, then you have heard of the man who ran up a tab of over a million dollars to become an orthodontist. It was featured in the Wall Street Journal and has attracted a lot of attention. His name is Dr. Mike Meru. He owes approximately $1,060,945.42 as of the reporting of the article in May 2018. There are only 101 people with $1 million in student loan debt. He is one of those people. Here is how this went down.

HOW TO GO FROM DEBT FREE TO OWING $1M IN 13 YEARS

Mr. Meru grew up in California. He has two brothers and is the eldest of the three. His parents said they would help pay for college. He got through undergrad with the help of his parents and by working through school. He graduated in 2005 from Brigham Young debt-free.

From there he decided to go to dental school.

Before we go any further in this story, I want you readers to know that becoming a doctor is incredibly expensive. It is not uncommon to have medical students be in debt for hundreds of thousands of dollars. Anywhere from $200,000-300,000 in medical school debt is their reality.  Dental school is also one of the most expensive programs and can cost upwards of $70,000 or more per year.

Getting back to Mr. Meru, he was informed that going to dental school would cost anywhere from a price tag of $400,000-$450,000 in student loans plus interest.

For me, this is a red flag. Even if you can earn a six-figure salary as a doctor, I am risk-averse and would be turned away by this eye-popping amount. However, if your goal is to be a doctor and be of help and in service to others, then this is what the cost will be.

FROM $0 IN STUDENT LOANS TO $340,000 IN FOUR YEARS

He then chooses one of the most prestigious institutions for dentistry: University of Southern California.  This is what he paid for four years of school from 2005-2009:

Year one at end he owed: $43,000

Year two at end he owed: $115,000

Year three at end he owed: $230,000

Year four at end he owed: $340,000

Dr. Meru has now finished dental school. He owes over a quarter of a million dollars in debt within four years of graduating from college debt-free.

Keep in mind that college tuition goes up every year around the country. USC is no exception. In addition, interest rates have gone up on student loans as well. In the WSJ article, his loans were at various interest rates throughout his time at school. Also, tuition increases at USC would go for about 6%. This is a huge amount of money. For instance, a 6% increase over 3 years would be the equivalent of an 18% increase in tuition by overall from start to finish.

The cost of college is going up faster than the cost of inflation. Generally, inflation goes up by about 3% annually increasing the costs of goods and services. Therefore, if it cost a dollar ($1.00) last year it will now cost $1.03 this year. Imagine paying 6% on $50,000 and then 6% on 53,000 and so on, all the while you are also accruing interest on this borrowed amount.

You are getting hit with a two combo even worse than Mike Tyson could ever do.

First, you get hit with tuition increases of 6% in this case. Second, you pay interest on the loans you take out of approximately $50,000 per year. The compound interest is brutal.

In the article, it states that Dr. Meru found his calling as orthodontics changed his life as a teenager. However, the one caveat he did not take into consideration: inflation. If you want to learn more about inflation, read my article Money Lessons I learned from Scrooge McDuck. The cost of becoming a doctor 20-25 years ago was cheaper then as it is way more expensive now.

This is not the first time I have seen people take bets like this on their education.

If you were to do some research, you will find that 50 plus years ago education was pretty reasonable and in many cases more  affordable. I will provide one such case below.

In the book, Generation Debt by Anya Kamenetz, a Yallie that was born toward the end of the 1970’s, stated in her book that her parents old college professors were in shock at the sticker price of Yale over a seven year time period which had risen- from $30,000 to almost $39,000. Her own father, who attended Yale on a scholarship, had appropriately asked the justification of the tuition increases. This considering when he went there the price was…wait for it…$3,000. That means within one generation tuition has increased $1,000% or to roughly 10 times the cost.

The absolute saddest and funniest part of the book, in my opinion, was at the high school graduation brunch of her younger sister. Her parents also wanted her sister to go to Yale, but cited cost concerns and rightly so. The speaker said of the 180 graduates they would divide $18 million in scholarships- that’ll just about get them to Thanksgiving. That was putting it mildly.

The problem is that education is not an equalizer. Although, there is nothing wrong with getting a good education. And going to a great school with high-quality education is awesome; some people may have to simply understand that it may not be the best option for them individually.

The jury is still out on the value of an education. Sure, they let you know on college brochures and in the media that a college degree can net you more than $1 million more in lifetime income, but in Dr. Meru’s case did it also say that if you flip a coin, it could be the opposite and you could owe $1 million dollars? I don’t think so.

Many employers are paying in wages nowhere near the cost of college.

I have read that some places cannot put a dollar amount on how much to pay their employees for their degree, but colleges have put a price on it as USC cost Dr. Meru over $400k.

FROM $340,000 IN STUDENT LOANS TO $601,506 IN THREE YEARS

You would think by finishing dental school that his education was done and over with. Alas, then there is residency, which is training for doctors. However, for dental specialists this costs too. Many doctors are paid while in residency, but Dr. Meru must continue to pay for training for an additional three years FROM 2009-2012. This would increase his debt to over $600,000.

FROM $601,506 IN STUDENT LOANS TO $1,060,945.42 IN SIX YEARS

Pay close attention here because things move really quickly.

He consolidates after finishing all his education and training. He then owes $724,817 by 2012-2013. This includes in interest and principal as a consolidation not only changes your repayment terms, interest rate, and payment amount but interest can capitalize. Capitalization is what makes student loans such a slippery slope. It makes you owe interest on top of interest making it harder to get it paid off.

From there he continues to accrue interest and owes $882,300 by 2015.

Within 3 years, interest continues and grows the debt to $1,060,945.42 by 2018.

How is this even possible? In 2005, Congress created Grad PLUS loans that removed loan limits and allows student to borrow for every expense from tuition to rent and living expenses. Dangerous.

He is now making monthly payments of $1,589.97. He has two daughters, a wife, a $400,000 mortgage, a $225,000 salary and is accruing $130 per day in interest on his loans, which is $3,900 per month and $47,000 per year.

If not for Income-based repayment, he would have to pay $10,541.91 per month. Instead, he pays about $1,600. This does not pay all the interest that is accruing and does not even touch his principal. Within 20 years he will owe $2 million. If forgiven, he will owe $700,000 in income taxes. Currently, his take-home pay after income taxes is $13,333 per month. That means if he pays the $10k monthly payment, he would have his debt paid off in about 13 years, but bring home less than $3,000 per month.

 WHY SO MUCH DEBT?

Keep in mind that it is mostly graduate students that end up in the most debt. With the cost of graduate school (2-4 years) easily topping $20,000 or more per year, it can dwarf undergraduate costs. Over 20 years ago no undergrad or graduate students owed six-figures of student loan debt. Today, over 2.5 million of graduate students do.

After reading about Dr. Meru’s story, I feel that there is a serious problem with the funding of higher education. I want people to be doing the opposite of owing interest on a $1 million and instead be earning interest on this amount of money.

I want people to have the trifecta of retirement funds- pension or 401(k), savings, social security. Over a 30 year career you want to have a paid for home, 25 times your annual income in a retirement account, and be able to get social security or have at least two forms of income to supplement your savings.

In the article, his wife said there are a few things that are OK to go into debt for: a home, an automobile, an education. I have to disagree. I say if you can avoid all debt, then do it. Pay cash for all your purchases. For a car you need one loan. Same goes for a home. However, her husband needed 50 loans to fund his education.

If you are unsure why or how you will pay cash for all purchases, let the advice of these millionaires be your guide.

Mark Cuban, billionaire owner of the Mavericks, says if you use a credit card, then you do not want to be rich.

Kevin O’Leary, shark tank entrepreneur, says all debt is evil.

David Bach, financial advisor and author of the Automatic Millionaire, says all debt is bad debt.

I rest my case.

Budgeting, College, Philanthropy, Saving

Generosity can go a long way

Gallery 2 Comments

“Think of giving not as a duty but as a privilege.” John D. Rockefeller

“I believe that it is my duty to make money and use it for the benefit of my neighbors. This is what my conscience tells me.” John D. Rockefeller

“No one is useless in this world who lightens the burdens of another.” Charles Dickens

Every now and then I read stories that just lifts my heart. Recently there have been articles of heroes saving lives and people donating to charitable causes close to their heart. It reminded me of a story I heard about many years ago, but is still very inspiring today.

This article was reported on the front page of the New York Times in 1995:

All She Has, $150,000, Is Going to a University

She may be gone, but her act of charity is remembered. This tweet is from 2017. Ms. McCarty passed away in 1999. Therefore, the good you do is still remembered long after you are gone.

Her name was Oseola McCarty. And here is her story.

MEET OSEOLA MCCARTY

Oseola McCarty was born on March 7, 1908 in Mississippi. As a young child, she had to quit school in order to tend to a sick family member. Quitting school in the sixth grade, she went straight to work as a laundress like her grandmother before her. She would go on to do this for about 75 years. Leaving school was one of her biggest regrets. She wanted to go back, but all the kids in her class had moved on ahead and so she didn’t go back because she wanted to be with her class. She decided to just keep working.

HOW SHE SAVED $150,000

She was never idle. She was working since she was a young child until she retired in 1994. She worked for many years and just put almost every dollar she made into the bank. She learned to save from her mother and kept the habit for life.

The following is what she did over 70 years:

  • She took one short vacation to Niagara Falls
  • She did not travel
  • She did not fly on planes
  • She did not stay in hotels
  • She never owned a car (she walked everywhere)
  • All her immediate family passed away and she never married or had children
  • She had lived alone since 1967
  • She lived in a family home her uncle gave her in 1947 for the rest of her life
  • Money she received from the passing of her mother and aunt went into savings
  • She spent almost nothing and lived very frugally
  • Repaired instead of replaced items for brand new ones
  • Covered her old bible in Scotch tape to keep Corinthians from falling out
  • Cut wholes in her shoes if they did not fit
  • Bought her first air-conditioner in 1992 and only uses it when company comes over
  • Owns one tiny black and white television (that only gets one channel) but she rarely watches
  • She did not retire until she was around 85 years old
  • Keeps her utility bills low
  • Never subscribed to a newspaper because it cost too much (an extravagance)
  • She would pay her bills and deposit the rest of her money (even coins) into savings
  • Over time this grew into $280,000

How she donated her life savings

One day she decided she would gift her money to a local university. Not as a bequest, but immediately as she wanted to be alive to see a recipient graduate from college as he one wish. In July 1995, she would go on to start a scholarship fund to help finance college tuition for students, preferably of African-American descent, who would be unable to attend college due to financial hardship. at the University of Mississippi. When asked why she chose that school, she simply said, because it was close.

A banker at one of her financial institutions assisted her. In 1995, he wanted to help an 87-year-old Ms. McCarty, but was unsure how to assist a woman with a fifth-grade education through estate planning. He came up with the novel idea of giving her 10 dimes, each representing 10 percent of her assets. He gave her five slips of paper to write down the names of the beneficiaries and divide up the coins. She deposited one dime to her church, one for each of her cousins and the last six for a scholarship fund, after setting aside enough money to live on.

She signed an irrevocable living trust and the bank managed her funds while she received a regular check for her living expenses.

WHY SHE DONATED

She decided to give because she knew the importance of education. She had struggled all her life doing manual labor (scrubbing laundry by hand on a scrub board). She did not want that for the younger generation coming up so she gifted them money to help them not have to do what she did and get a degree she was never able to get herself.

FOR EVERY ACTION THERE IS A REACTION

The news hit the media and overnight she went from obscurity to a celebrity. She wanted no monuments or other recognition’s of her selflessness, but they came to her.

Once word spread of what she had done, it spread far and fast. Accolades and recognition for her act of charity in anticipation of her death was almost immediate. Goodness and kindness tend to spread. There was a chain reaction to her charitable action that had people wanting to reciprocate what she had done by also donating. This is what happened over four years:

  • She was honored by the United Nations
  • She received more than 300 awards
  • Contributions poured in from other donations adding almost $330,000 to her gift
  • Ted Turner donated a billion dollars to charity after hearing her act of philanthropy
  • She received the Presidential Citizen’s Medal, the nation’s second-highest civilian award
  • She received an honorary doctorate from Harvard University
  • She carried the Olympic torch through part of Mississippi in 1996
  • In December 1996, hers was the hand on the switch that dropped the ball in Times Square in New York’s New Year’s Eve celebration (also the first time she stayed up past midnight, rode an airplane, and stayed in a hotel)
  • McCarty received the Award for Greatest Public Service Benefiting the Disadvantaged, an award given out annually by Jefferson Awards
  • She was awarded an honorary degree from USM, the first such degree awarded by the university in 1998
  • McCarty was also recognized with an Essence Award and Patti LaBelle sang tribute to her during the ceremony at Madison Square Garden in New York.
  • She even met President Clinton
  • She became an author; she wrote a book called Simple Wisdom for Rich Living, published in 1996

Ms. McCarty gave out pearls of wisdom, if people wanted to listen, but mostly it was common decency and sense she had said. She also said you should know the difference between a need and a want. Just because something is free does not mean you need it. It is okay to turn down something that is free, if you really do not need it. ”There’s a lot of talk about self-esteem these days,” she once said. ”It seems pretty basic to me. If you want to feel proud of yourself, you’ve got to do things you can be proud of. Feelings follow actions.”

It was reported that her home will be turned into a museum.

When asked what she wanted to do with her money right before she donated it, Ms. McCarty replied: “I want to help some child go to college.”

And just in case you were wondering, the recipient of the very first Oseola McCarty award not only met Ms. McCarty in person to say thank you, but she also went to the University of Mississippi and graduated.  Ms. Oseola McCarty also lived long enough to get her wish: to live to see a recipient graduate.

Celebrities and Money, Financial Freedom, Financial Independence, Self-Made Millionaires

3 Rich Habits of Millionaires

Gallery Leave a comment

After doing some research on millionaires and billionaires, I have noticed some recurring attributes among them, which include: reading, pursuing a passion, and setting goals.

READ

“The more that you read, the more things you will know. The more that you learn, the more places you’ll go.”

― Dr. Seuss, I Can Read With My Eyes Shut!

Many of the affluent read daily or often. They seem to set aside at least 30 minutes a day for reading. This greatly improves their knowledge of their products, brands, and businesses. When you know what drives the market, then it makes it easier to compete with everyone else. I even read that Marilyn Monroe was also said to be a voracious reader.

I know in my life reading has helped me a great deal. I was able to do better in school, make better informed personal and professional decisions, and increase my investment knowledge.

One of the most successful investors of all time, Warren Buffet, says he reads every day.  Buffet typically spends 80% of his day reading. Here are some quotes from interviews he has done over the years in regards to how to become successful.

THE KEY TO SUCCESS

The CEO of Berkshire Hathaway, when asked once about the key to success, pointed to a stack of books and said, “Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

WHAT BUFFET READS?

Warren Buffet starts his days with an assortment of national and local news. The billionaire investor tells CNBC he reads the Wall Street Journal, the Financial Times, the New York Times, USA Today, the Omaha World-Herald, and the American Banker in the mornings.

Even though Buffet reads tremendously, it would mean nothing if he did not retain what he has read. Buffets says that knowledge builds up over time. Here are some tips to remember what you read – take notes, skim the text, read out load – are just a few things you can do to retain what you read.

PURSUE YOUR PASSION OR GIFT

“To give anything less than your best, is to sacrifice the gift.” – Steve Prefontaine

I have always had an affinity for writing. I write pretty much every day. My goals are that my writing helps to plant the seed that inspire people, motivate them, and make them feel good about themselves. Writing about finances is the cherry on top of the sundae for me. And I give it everything I’ve got. No less. When I’m sick. I write. When I’m tired. I write. When I was down to my last $2. Still wrote. I would write down my thoughts, hopes, dreams, and goals. I have crossed off at least 5 items on my 10 year to do list. If it can work for me and countless others, then I know it can for you.

Dreams can come true. You just have to believe and lay down the groundwork. There is no builder of a home that would not first lay down the foundation and then build up. The same goes for life. You do not start in at the top. Otherwise, if you do, you are more likely to have created a house of cards, that can easily come tumbling down.  Like the three little pigs, you want bricks and not sticks or straw. You want something that is concrete. Construct your life blueprint on building or creating something that is solid.

If you can, find a mentor. Mentors help guide and keep people on the right path to succeed. I suggest finding someone who has already done what you want to do successfully and then asking them for advice. You can also read their books or attend their workshops. Either way study their success and see if you can imitate it.

SET GOALS

“Set your goals high, and don’t stop till you get there.” – Bo Jackson

The best advice I have ever read was to write down your goals. I have heard this from numerous celebrities including Beyoncé. She said she would write down her goals; and that she wanted to go platinum and sell a million records. Well, she wanted to be financially secure. Well, she can scratch that off her checklist. Simply heed these words: Write it down.

When you set goals and pursue your passion it is a winning combination for success. Instead of watching the clock, you just keep on working. There are too many hours on the clock when you do something you detest, but no enough hours in the day when you do something you love.

Forget the naysayers. They are not you and you are not them.  Focus your energy on doing what you enjoy putting your effort into. The energy you use to pursue your passion or anything that you do well is never wasted.  When you can focus and limit or ignore distractions, you are well on your way toward success.

Financial Freedom built attracting one dollar at a time