A recent articl,e Is $1 Million Enough to Retire On?, got me thinking. According to the article, the average American thinks that retiring on $1 million is more than enough.
However, living on a $1 million isn’t what it was a few decades ago. It will only generate between $40,000 and $50,000 a year in income. Assuming that your house is paid off and your kids are independent, that sounds like a decent amount to live on.
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I spent the day at the office of a rich hotel owner. He was accepting bids for the construction of a new $10 million, 100 room Hampton Inn, and was kind enough to let me watch the process. I saw two different companies present their bids and both of them had extremely different operating styles. However, the owner and his team had a consistent approach in both cases. They had a rough idea of how much money they were willing to spend on a per foot basis and tried to negotiate on costs that they knew the contractors had some flexibility with. I also saw them put an offer on an adjoining piece of land and I realized what terrific negotiators they were. Just because he was rich didn’t mean he was generous with his money!
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NPR had an interesting section on increasing economic anxiety in the middle class. Even though the economy is thriving, 7 out of 10 Americans report living paycheck to paycheck, meaning there never seems to be enough left over for savings.
I definitely don’t agree that the economy is thriving. I think the economy is actually in recession but it won’t be announced for another 6 months, meaning it’ll be March before the Fed actually admits to it. (Thats one reason why I think Ben Bernanke will reduce the Fed Funds rate 50 basis points this week, but I digress).
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I dislike paying taxes as much as the next guy. But instead of complaining I’ve put my money in investments that give me tax breaks like real estate and oil drilling programs.
However, some people hate paying so much that they’re willing to live below the poverty level just to avoid “qualifying” for taxes. Here’s a war protester that refuses to pay for the Iraq war and has decided to live on less than $12,000 a year.
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One of the three pillars to Financial Independance is having your own business. The other two are having hard assets like Real Estate, and paper-based assets like stocks and mutual funds. The business provides the cash-flow, the real estate provides leveraged returns and tax shelters and the paper assets provide liquidity.
But starting a business takes both perseverance and guts. You are venturing into uncharted territory and the road ahead will be bumpy and filled with challenges. Having said this, it can also be extremely rewarding and put you on the path to living the “American dream”.
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For most people, their home mortgage is the largest financial commitment they will ever make. However, people will spend more time selecting the kitchen appliances than understanding how mortgages work. Considering that your mortgage will likely be over a hundred thousand dollars, getting a sub-optimal mortgage can cost you tens of thousands of dollars over the life of the loan.
Lets go through some of the common terminology used in the mortgage business.
Fully Amortizing Mortgage : You pay interest and principle payments every month.
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According to Mark Nestman, Wealth Preservation & Tax Consultant and President of The Nestmann Group, there are 50,000 new lawsuits filed everyday in the US. The odds of every US resident being sued is 100% every 16.5 years!!! A study published in March, 2007, entitled “Jackpot Justice,” estimates that lawsuits cost the U.S. economy US$865 billion annually. This figure represents a yearly “lawsuit tax” of US$9,827 for a family of four. Pretty unbelievable!
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A lot of people think that you only form a corporation if you’re establishing a business at a physical location. However, if you’re doing anything that generates some income like consulting or even investing, you can form a corporation and you probably should do so. There are several good reasons to incorporate but the main benefits are asset protection and tax savings, both of which are necessary to create and preserve your wealth.
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If you’re one of those people who likes to live the high life, you probably don’t realize how much your spending will end up costing you in the long run. Unless of course you have a trust fund and don’t need to worry about money, there’s a good chance you’re spending more money than you ought to, and thus not saving enough for retirement.
While its difficult to curb your spending, you can still make a difference. What you try to do is cut down on certain expenses without making a signficant lifestyle change. You don’t drop the expense, you modify it so it costs less. Maybe use a cheaper brand or a less expensive service. And you invest the difference.
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- Starting saving early. If it doesn’t hurt you’re not saving enough!
- Never spend more than you earn.
- Max out all your retirement plans every year.
- Get and stay married to a sensible person.
- Buy your home.
- Plan far ahead for your retirement, and then stick to the program.
- Make a plan with a reliable financial adviser. Don’t be afraid to ask for advice.
- Make savings and financial stability more important than looking cool.
- Adopt a straightforward investment philosophy that takes advantage of the historical benefits of investing in common stocks but balances it with bonds in a judicious mix.
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