Tag Archives: millionaire

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

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

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“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.

Automobiles, Financial Freedom

Outrageous Loan Terms for Porsche that even the Rich can’t Justify

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Want to finance an exotic car? No sweat. It will only cost you $157,944.33.

That amount is based on a Porsche that costs $144,750 with loan terms of 144 months, with a 3.3% interest rate, and $14,475 down payment.

Yes, you read that right. Financing for 144 months is the equivalent of 12 years! Just ridiculous.

Especially, considering that a car depreciates in value the minute you take it off the lot.

For example, a $100k BMW 6 Series after five years will likely only be worth $40,000 in resale value. Therefore, over that time period you have paid over $70k. You would still owe approximately the same amount as the current resale value and it would be worth even less in a few more years.

What made me look into this was listening to talk on a radio show I heard about being able to finance a $100k Porsche over 8 years. I was like that can’t be real. Oh, but it is. The people on the radio said that people were doing it and taking out these loans. I was like that’s insane. You can buy houses in different countries all over the world or in certain parts of the United States for that.

If you are so set on having an exotic vehicle, then I think the best course of action is paying cash in the form of a cashier’s check. If you have to finance a $100k car, then that sounds like a red flag that you can’t afford it. Instead of spending $100k on a car, why not invest it? Over a period of 12 years with a 7% ROI you could have $272,641 in your 401(k). Even without investing another dime, you could be a millionaire in about 20 years. Is that car worth a million dollars? I don’t think so.

Who are these people that want to finance a $100k car? The only one I have ever seen was on a Canadian television show called Til Debt Do Us Part hosted by finance writer Gail Vaz-Oxlade. In one episode, a married couple had accumulated a significant amount of debt, but what made this episode stand out was the fact that the wife wanted a very fancy car and was thinking of financing over $100k to get it. Mind you, the couple had kids and debt, so where was this money coming from?

Here is a sample of how the show went on to explain to viewers how people are spending and where the money comes from: credit. If you want to order Gail Vaz-Oxlade or other financial books, then look to the side or go to the top of my blog page and click the Amazon banner link.

Who are these companies that are likely to finance these amounts? BMW Financial, Audi Financial, Porsche Financial, and the like. See the screen shot.

And not only do these companies allow you to finance, but expect a down payment on cars with six-figure price tags.

I have had my car for more than a decade. Actually, it has been 15 years. My car has been very reliable. Once I paid it off I decided I did not want another car note.  That was almost 10 years ago. Here is a snapshot below of my last payment. It may become my screensaver.

I have been able to do so much without having that payment hanging over my head. I decided to start paying off my credit card debt, invest more, get Lasik, join a gym, and get another degree. Basically, I invested in myself. I do not regret not purchasing a new car for one second.

Here is my take on it. Why stretch yourself financially, for a car you desire? Ask yourself if you would still be willing to do that, if the most popular car in the world among the money elite was a Honda? Financially savvy folks know that a fancy set of wheels is pricey in more ways than one.

I was told that a rapper was discussing online about owning a Bugatti or some other luxury vehicle that has three radiators. If one goes down, it costs $90k to replace. Gulp! That’s a hard pill or repair bill to swallow.

I heard an NBA player say that he knew people that would buy Bentley’s, but then would stop driving them because they were not meant for everyday driving. The wear and tear was ridiculous.  Owners were shelling out tens of thousands of dollars on maintenance. Don’t believe me. I read an article by Forbes about unreliable luxury cars.  Apparently, I am not the only one who has noticed that every luxury car that glitters isn’t gold, but merely sold to those willing to fork over their hard earned cash.

That means you basically are driving a house on wheels for the amount you paid. Then after all that, still have to worry about thousands of dollars in repairs. And since this isn’t your run of the mill car, you have to go to specific repair shops. Usually, this means repeated trips to the dealership. Who has time for that?

Luxury cars seem not only to come with a high price tag, but also lots of headaches. I say this: if you can afford the monthly payments, maintenance, and can hire a mechanic or chauffeur to repair or take your car in for service at a moment’s notice, then you can get the car. If not, you’re better off sticking to something you can take to Jiffy Lube.

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

The six ways to get rich

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“What’s keeping you from being rich? In most cases, it’s simply a lack of belief. In order to become rich, you must believe you can do it, and you must take the actions necessary to achieve your goal.” —Suze Orman

Sure, there are lots of ways to get rich, but they all fall into one of these six categories as there are only six ways to actually get rich.

The six ways to get rich are:

  • Capitalize on a unique skill or talent.
  • Marry rich.
  • Inherit money.
  • Own a business.
  • Take calculated risks and get lucky.
  • Spend less than you earn and invest wisely.

Let’s explore each category.

CAPITALIZE ON TALENT

Don’t make money your goal. Instead, pursue the things you love doing and then do them so well that people can’t take their eyes off of you.” ― Maya Angelou.

Become an expert in one area or niche and exploit it. Dominate that field. And never stop growing.

If you read my post on Beyoncé, you will notice that she started young, developed her craft, and expanded her expertise. She not only sings, but dances, endorses products, started businesses, and writes songs. She owns what she does. Everything from trademarks – Blue Ivy and Ivy Park – to owning a music streaming service. Put it simply, she dominates in her field.

If you want to be the next J.K. Rowling or Stephen King, then you just have to start writing. J.K. Rowling famously said she was rejected at least 12 times before anyone would publish Harry Potter. Persistence and determination are vitally important if you want to succeed. And just FYI, it took her 7 years to write Harry Potter.

MARRY RICH

“Don’t you know that a man being rich is like a girl being pretty? You wouldn’t marry a girl just because she’s pretty, but my goodness, doesn’t it help?”

―Marilyn Monroe as Lorelei Lee in Gentlemen Prefer Blondes (1953)

Dating is all about introductions and proximity. It doesn’t matter if you swipe right on Tinder or meet at your family’s country club, you just have to get some face time. You can’t date who you can’t see or touch.

In my experience, men date and marry women who are in their vicinity or social circle. Therefore, if you are looking for a rich man, then you have to be where they are i.e., charity events, sports games, auction houses, doctoral seminars, or the like.

In addition, if you know where wealthy men tend to reside, then hey you can pack up and find a job there and frequent their haunts. Location, location, location baby.

People also tend to look for partners that are successful in their own right. You don’t necessarily have to be rich, but having some sort of talent or career outside of just being a wealthy mate’s plus one bodes well for you and your prospects of landing and keeping a partner. So, invest in yourself – get educated, cultured, learn opera, play piano, paint or learn another language – either way you have a skill.

Above all else, respect yourself. Have your own life, career, friends, family, and money. No one wants a loner that can barely make rent, they want someone who is open to people, new experiences, and can pick up the check.

Don’t agree. Well, how’s this for food for thought; Chrissy Teigen once responded to a mean tweet by telling someone she does not just spend someone else’s money, but in two words replied: “my money.” She also went on to note her Forbes ranking and that she is a best-selling cookbook author. She basically told people to chew on that – no pun intended. A very nice retort on her part and her equivalent of put that in your pipe and smoke it.

Ah, gotta love that Chrissy.

You have to admit it sure sounds better when you can list your own accomplishments.  Respect for self is attractive and shows confidence. And confidence is key.

INHERIT MONEY

I would rather make my name than inherit it. – William Makepeace Thackeray

Studies into the wealth of households have shown that most wealth today is now earned than inherited. In my experience, people truly appreciate and cherish that which they work and sweat for.

For example, when I was given gifts of money or other items I am usually losing or unable to tell you whom gave me the gift. The car in my driveway that I worked so hard for is still there 15 years later.

There are those that inherit their fortunes, but the saying goes that a fool and his money are soon parted. I suggest you get a career, get educated, and learn a craft to earn your own living. If you do inherit, then you can manage your money instead of squandering it.

OWN A BUSINESS

Only I can change my life. No one can do it for me. – Carol Burnett

Starting a business is what two-thirds of millionaires do. This lets you know that if you are successful and become rich, then most likely you will or do own a business at some point in your life.

I suggest determining what you are good at and then turning that into a business. Passion is great, but just because you are passionate about golf and want to be a pro golfer does not mean that is what you are good at or meant to do.

Also study up and get a mentor or work with people in the field you want to be in. Read books, attend seminars and save money. All businesses need capitol. If you can find a business to start with a low barrier to entry such as a food truck or blogging, then the better.

BIG RISKS FOR BIG REWARDS

“If you want big rewards, you gotta take big risks.” Jessica Biel as Tenley Parrish in Summer Catch (2001)

If you read my post, wealth comes from doing not luck, then you understand that from preparedness comes opportunity and hard work creates luck and success.

It is okay to take risks, but I prefer calculated ones. The ones where you do your research, study your results, learn from you’re mistakes or the ones of others and keep moving forward. Make that pro con list, watch videos, attend conferences or better yet, speak to those that have done or are doing what you long to do. If you’re going to risk it all, then best to know all the facts first.

SPEND LESS, SAVE AND INVEST OVER TIME

The formula for getting rich is this: spend < money earned

Simply put, spend less than you earn.

If you can do that, you have got a shot at getting rich.

For example, you can be a millionaire over time if you do the following:

  • Save $6,000 a month for 10 years getting a 6% return
  • Save $2,200 a month for 20 years getting a 6% return
  • Save $800 a month for 25 years getting an 8% return
  • Save $600 a month for 30 years getting an 8% return
  • Save $500 a month for 40 years getting a 6% return

The combinations can vary based on the amount of savings invested and the return on investment of compound interest. However, the bottom line is saving can earn you a fortune.

For those concerned with inflation, here is an inflation-adjusted. 25-year wealth accumulation chart.

Source: www.businessinsider.com

THE BOTTOM LINE

Ultimately, no matter what path you take if you partake in spending less than you earn and investing, over time you will become rich eventually.

Celebrities and Money, Self-Made Millionaires

How Dave Grohl turned passion into profits

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“I never took lessons to learn how to play the drums, and I never took lessons to learn how to play guitar, l just sort of figured it out. I think that if you’re passionate about something and you’re driven and focused, that you can pretty much do anything that you want to do in life.” – Dave Grohl

I am a firm believer in being passionate about what you do. If you’re going to do it for a living, then you may as well enjoy it. That’s how I feel about finances. I can’t stop talking about it. So, I write about it.

It’s funny because growing up I always felt I wanted to be a writer. From the time I was in the 5th grade I knew writing stories made me happy. It just so happened I was able to combine my two passions and got this blog up and running.

I also try to learn from those who have turned their passion into a successful career. One person that really stood out for me in the music world was none other than one of the legendary grunge music founders: Dave Grohl.

DAVE GROHL THE BEGINNINGS

Dave Eric Grohl was born on January 14, 1969 in Warren, OH. He discovered his passion for guitar at the age of 10, started lessons at 12, and then started teaching himself at age 13. After he saw his first concert in 1982, he knew from then on that his music that he would play would be punk rock.

He went to several high schools in Virginia before finally dropping out to start playing in a rock band full-time. It was also at a concert in 1990, where Grohl met Kurt Cobain and Krist Novoselic. Little did he know these guys would be the start of his future in rock. They asked him to audition for their band. His passion, drive, and all out hardcore drumming impressed them and from there he became the new, fifth and final, drummer for the legendary band Nirvana. As one-third of the iconic Nirvana, he played with them from (1990-1994). And they played grunge music.

Grunge started around the 1980’s in Seattle. As a form of alternative rock, these bands changed the game in music. One band that stood out from the crowd was Nirvana.

NIRVANA FROM GRUNGE MUSIC TO MUSIC ROYALTY

After playing with Nirvana for a few years, they got the attention of major record labels.  Nirvana was signed to Geffen Records and recorded the iconic album “Nevermind” right after. This album, in 1991, had the hit single “Smells Like Teen Spirit,” which was a huge commercial success worldwide, became the anthem for grunge music and became one the top selling singles of all time, with 8 million copies sold. It also spawned the hit single “Come as you are” in 1992. Nirvana went from grunge music to music royalty, and became international superstars.

Nirvana became so big that their music had to be cut from the 1992 Cameron Crowe film soundtrack for “Singles” after they became famous. The song and band became so popular that the movie could not afford the rights to the song as it became too expensive by the time the studio released the movie. The album “Nevermind” was recorded over the course of a year and would go on to sell over 24 million albums worldwide. The band would go on to record 102 songs and become one of the biggest recording groups of all time.

After the death of Nirvana lead singer, Kurt Cobain, the grunge music scene was left reeling as many grunge bands in Seattle broke up and from there things were never the same. That is just how much Cobain and Nirvana had influenced alternative rock. Their talent as a band forever lives on in their music.

FOO FIGHTERS

Grohl went on to form the critically acclaimed bad the Foo Fighters in Seattle, Washington in 1994. Founded by the Nirvana drummer as a one-man project after the dissolution of Nirvana. Although, he was asked to join other bands, including Tom Petty and the Heartbreakers, he turned them down to pursue his own vision and dreams.

According to an article in Rolling Stone magazine, devastated by the death of Cobain, he went to Ireland and was just in a daze driving around until he saw someone walking down the street wearing a Cobain T-shirt. From there he decided to go back to work. He then recorded a 15-track demo. This would become the Foo Fighters first album.

The band’s debut album “Foo Fighters” was in 1995 and they are still going strong today. In the band’s twenty plus year long career they have won four Grammys, recorded nine albums and sold over 12 million albums in the United States alone.

ADVICE FROM A ROCKSTAR

When Nirvana became popular, you could very easily slip and get lost during that storm. I fortunately had really heavy anchors – old friends, family. – Dave Grohl

No excess needed. Grohl has said he does not believe in rock-star excess. When Nirvana made it big and got popular he was renting a house with a friend. He had a lamp, futon, and a dresser. When the band sold over ten million records later, he still was in the same spot with the same lamp, futon, and dresser. He said he didn’t have much growing up, but does not remember ever needing anything. Grohl says, how much do you need?

When asked about what he does with his money, this is what Dave Grohl replied:

“It goes straight into my bank account, where it turns all moldy and smelly… I don’t waste my time thinking about how I could make more when I already got enough. I’m not a banker, I’m a musician.”

Nirvana (Cobain, Novoselic, and Grohl) would eventually be forever remembered by receiving one of the highest honors in music as they were inducted into the Rock and Roll Hall of Fame on April 10, 2014. The band has sold over 75 million albums worldwide. They are considered one of the greatest rock bands of all time.

More than one path to success. Coming from money and pursuing higher education are not the only ways to succeed. In an interview, Grohl stated “I never graduated school and I never had enough money for college.” He worked blue collar jobs and played music on the side. Now he’s in the Rock and Roll Hall of Fame. Grohl says, “I want everyone to imagine that same opportunity is possible.”

Be true to yourself. Grohl’s advice to others after all his success is simple and honest which is just to be yourself as it has worked for him for the last 20 years. Grohl feels he is an earnest and nerdy guy, but it works.  His mother has described him as driven and determined with money never really being part of their conversation as he just wanted to work.

When he writes music, he wants a story behind it. He wants something that is relevant. And having sold over 100 million albums in two different bands it shows that it works. His mother says she believes people listen to his music because he is sincere. Basically, he could be the Phil Collins of alternative rock. As Phil Collins, is one of the only artists (there are only three) to ever sell 100 million albums as a solo artist and with a band.

He once even broke his leg during a concert, went to the hospital, and was back on stage within two hours playing guitar. That’s just how much passion he has for what he does.

I love to play music. So why endanger that with something like drugs? – Dave Grohl

Grohl says, “It’s important to me – that the stories that inspired me can inspire other people. I don’t feel like I’m on a mission. But I have the opportunity and the resources.” I take this advice to heart and I just try to be myself, do what interests and excites me, and just live my life. If it doesn’t excite me, then I probably won’t do it. Life is too short for mediocrity.

And just in case you were wondering, Nirvana went on to receive seven Grammy award nominations; winning one. The Foo Fighters have been nominated for 16 Grammys.

Grohl, the man behind the drums in Nirvana, and the lead guitarist in Foo Fighters, has received 15 Grammys out of 39 nominations. He continues to tour with the Foo Fighters and has amassed a fortune of $280 million dollars. Not bad for a high school dropout. It just goes to show; never give up on your dreams.