Edwin, lucky retirement picture

Can luck play a part in retirement? In speaking to one of my neighbors, a retired dentist I’ll call Edwin, I asked how he planned for retirement. The answer appeared haphazard. Edwin is 92 and has been retired for about 20 years.

Back in 1960, when he was about age 38, a friend of his had built a couple of apartment buildings in the Palms area of Los Angeles. He offered Edwin the chance to own half of the next 7 unit building he was constructing for a $6000 investment. To a young dentist raising a family that was a lot of money. But Edwin was able to borrow $6000 against his life insurance and made the investment. While it didn’t pay much for the first 10 years, the profit did grow. By the 1970’s Edwin was receiving about $1000 per month. Now the building is paid off it is generating about $4000 per month profit at this point.

In addition to his social security, and income from the apartment building, Edwin has income from selling his dental practice, income from a Bank of American corporate bond, and about $450 per month from an IRA. Edwin has always been a conservative spender and avoided wasting money on the latest fads or gadgets. He lived a comfortable life, but not an extravagant one.

Edwin told me he didn’t really think about retirement until he was in his 70’s, and he’s in good health too. Aside from the usual medications that someone at age 92 might take, he exercises 1 hour each morning, swims, plays golf 3-6 times per month, and walks the neighborhood. Both from the inside, and how it looks on the outside, life for Edwin is pretty good, even with haphazard retirement planning.

The Wealth On Any Income Internet course is doing well with about 22 enrolled. If you would like information on the next course in January, please let me know.

Rennie

To Track or Not to Track, that is the question

This week I received an excellent question from a participant in my Wealth On Any Income Internet course:

We are having some challenges both getting onboard with the spending plan. I see the value because this is similar to how I tracked my finances when I was single. I like seeing trends and making changed based on that. However, my husband doesn’t want to feel like a miser, or feel like he shouldn’t be allowed to enjoy his money and spend it as he wants. We do save a substantial amount each month. He says, “I could die tomorrow and don’t want to waste the time to figure out where every penny is going.”

This is an excellent question/concern and I saw right away my next blog topic.

In a relationship, it's not crucial for both parties to track spending, BUT both parties need to be agreement on the goals, and "major" spending decisions should be shared and agreed to. You can do the tracking and Jay can operate on an allowance. He can do whatever he wants with that and doesn't have to track anything. Only the amount of the allowance is accounted for. AND it would be a good idea to come up with another term instead of allowance, like Spending Fund, Fun Money Account, Anti-Budget Account, Jay's Fund...

When I started this practice many years ago I noticed things that I could not have been aware of prior. I would have conversations about eating healthy, buying more fruits and vegetables at the market and so on. At the time I said I wanted to spend $300 at the market.

I also set aside a spending goal of $300 for meals out. What I noticed, because I tracked it AND measured the level of pleasure I got from where I spent my money, was that I had a large surplus from the amount I wanted to spend at the market, and over spent on meals out. The point being my actions were not in alignment with what I said I wanted.

That brings up the need to make a choice: Either I do want to buy, prepare and eat healthy food, or I don't. What I realized is that I don't want to cook and I don't want to clean up. I do want to have a conversation with my wife without jumping up and down from the table. (I forgot a serving spoon; I forgot a napkin; oh, we need the salt, I’d like more iced tea…) I do want to be served and I chose to SPEND more money eating out. This is what was important to me.

Granted there are healthy eating choices when I go out, and I can do that too, but the main point is that you can't make decisions without accurate information. This has NOTHING to do with penny pinching. This DOES have to do with spending your money in the ways that you enjoy consciously, not unconsciously.

Yes, I do say you can live within your income in 90 days, but that's not your issue. Your issue may be to save even more money per month and make investments that bring financial freedom to the both of you in 8 years instead of 10 years. And the tracking can end when you've developed the habits that you are sure are taking you where you want to go.

I will have to warn you that once you start the process, it could be difficult to give it up. After I had about $5m invested I said, ”I don't need to track my spending any longer. The habits and choices are set, and I am happy with them.” However, it took about two years more before I could actually drop the habit of tracking my spending. Again, this is what the wealthy do, whether they do it themselves or they have someone else do it for them. I hope this addresses your concern.

By the way, I've seen the ledger that John D. Rockefeller used when he was 11 years old. He tracked every penny that came into his life, and where every penny went. (In 1850, a penny actually had some value.) With Standard Oil he became one of the wealthiest men in the world, but tracking where money was coming from and where money was going are the habits that supported his business growth.

By the way, there are many things you don't have to track. The only things to track are where the money leaks out during the month, like meals out, groceries, maybe gasoline, clothing, etc. If you only buy clothing 4 times per year, there's no point to track that. If someone goes out shopping for clothing several times per week there is another issue to look at, and it's not about budgeting.

How to Change ANY behavior

Recently I read a book with the title Change Anything that validated something I’ve been teaching for about 25 years. They cite study after study working with thousands of people from their own research plus the studies from other universities, books and institutions. In my book I just had anecdotal stories based on my coaching clients.

The bottom line is that to change any behavior, from losing weight, improving job performance, quitting smoking to improving a marriage or creating wealth, it is NOT a do-it-yourself project and it does NOT involve will power. It requires a structure that involves both the support of other people as well as changes in your environment. In the same way it’s easier to carry a casket with six people, there are six components needed to bury any bad habit and replace it with the behavior that you want.

Let’s say you want to get out of debt, save money, invest money and create financial independence, where you can choose to work if you want, or choose not to work. Here’s an example of what you face when you want to change your behavior:

First you get offers in the mail for another credit card. Then you see on the TV and ad for some gadget that will make your life better. You turn off the TV and on the radio you hear an ad for the same, or a different gadget, book or program that will make your life better. So you turn off the radio and check your emails and see the banner ads for the gadgets that will make your life better. Or you get emails because of some website that you looked at yesterday and they want you to buy the gadget from them. Then PayPal tells you about their new program where you don’t have to pay right away. You’ve had enough and get in the car to get some milk, and on the way to the store you stop at a traffic signal. Jus ahead you see a billboard advertising that gadget that will make your life better. You turn your head away from the billboard and see the same ad for the same gadget on the bus bench next to you.

Do you realize how you are bombarded with advertisements that scream at you from every direction to buy this and buy that, and if you don’t your life won’t amount to anything? If you buy this beer you’ll get beautiful models to fawn over you. If you don’t whiten your teeth no man or woman will speak to you. It’s absurd. But I guess it works, or companies won’t spend the money on all that advertising.

So you think that you can solve this with your will power? Give me a break! I realized many years ago that I was not going to be able to get myself out of debt and create financial independence unless I got the support of some people who had achieved what I wanted to achieve. And that worked for me, and then it worked for my coaching clients.

The Change Anything book identified six areas to use from people to your environment to create the changes you want in your life. I don’t care if you want to change your life or transform your life, using all six of these areas is where the power comes from. Sure you can use one or two of the areas, but that’s like lifting a coffin with one or two people instead of six people.

So, what are the six areas? There are three big areas, personal, social and structural, with motivation and ability in each of the three big areas.

11.    The obvious first area is you need to have the Personal Motivation to change. You want to tap into what you want, what’s important to you, and your desires. Here it’s important to discover you own value system and have it be conscious. You may value family, or learning or integrity, but you have to write it down and make it real.

22.    You need to have the Personal Ability to accomplish your goal. To get out of debt you need to know how much debt you have, how to create a personal or business budget or spending plan. You need to have the knowledge of how to reach your goal, and you may have to get educated on how to do this.

33.    Next you will need to determine if you have the Social Motivation. Do the people around you support good or bad habits? Are the people you socialize with spenders? Are they in debt? Would they feel more comfortable if you achieved financial freedom and no longer had debts? Or do your friends all feel comfortable that you’re all in the same boat together

44.    You have to have the willingness to establish the Social Ability that will support and enable you to follow a new path. You have to either convert the people around you who may be accomplices to your old behavior into friends that will support your new behavior, or you have to find new friends. This is a tough one. You may have to find a mentor, new friends or hire a coach.

55.    Structural Motivation involves things. Do you have the same connection to your money when you use a credit card or real hard cash? Can you see yourself paying for a $300 meal with a credit card or a stack of $20 bills, or three $100 bills? What would give you more of the feeling that you are really paying $300 for the meal? If you want to have the feeling you are really spending money use cash, not a credit card, debit card or check.

66.  Structural Ability deals with changing your environment. Either adding visual cues or removing visual cues can help you focus on what you want to accomplish. An example might be to remove the poster of a cat clinging to a branch in eminent danger of falling. Instead, put up a poster showing a pristine white sandy beach in Bali; with palm trees in the background; you and a mate sitting on lounge chairs, and have this represent where you could live if you didn’t have to work for a living.

For a free copy of my best selling, award winning book, Wealth On Any Income, log onto www.WealthOnAnyIncome.com , enter your name and email address and press the button that says “Click here for your free book.”

Calculate Your Financial Freedom Number

I hope you’ve enjoyed the blog posts up to this point on how the wealthy think and what they do.

Let’s talk about the big picture and how to calculate the level of assets that will generate an income so you can choose work if you want to do that, or choose to do something else, or nothing else. However, I’ve not met anyone in my career where doing nothing was a goal. No one has said to me, “When I stop working I’m going to sit my sofa and watch daytime TV with a beer in one hand and the remote in the other.”

Instead I’ve heard things like;

·         I’m going to travel the world

·         I want to volunteer at Massive Hospital Group

·         I’m going to take my grandchildren hiking along the Oregon Tail

·         I’m going to take up oil painting, fishing, hunting, and distance biking

·         I’m going play golf on one course in every country on the globe at least once

·         Inside me is the great American novel, and I’m going to write it

·         That 40 foot boat in my back yard will be done and I’m going to sail the world…

You may be asking, “What’s the simplest way to calculate what I would need to stop working?” You’ll find this information in the ebook version of the revised Wealth On Any Income that I sent out. If you didn’t receive it, please let me know.

Here’s a quick review: To do the calculation you’ll need to look at your balance sheet. The first step is to subtract the value of personal use assets, like your home and autos, from your net worth. That should leave you with your investable assets, like cash and retirement plans, rental real estate, and so on. Let’s say that total is $800,000. Since we cannot predict how long you will live, we will NOT figure that you’ll spend any capital and end up on your last day spending your last dollar.

The next step will be to determine a rate of return you can earn over the long term on your $800,000 of investable assets. If you have real estate investments, calculate what you are currently earning on the equity after expenses. If it’s in Los Angeles, it may be as little as 2 -3%, or it could be 8-10% in other parts of the country. Regardless it could be converted into another asset, like a Delaware Statutory Trust (DST) investment, and provide an 8-10% cash flow with no management responsibilities.

If you see your investments returning about 6% per year, or you feel that’s a reasonable and safe amount to use, then multiply $800,000 x 6%. This would be $48,000 per year of income. Some of this would be taxable, some might be sheltered. Would a gross income of $48,000 per year maintain your standard of living? If you earned 8% on your assets the return would be $64,000. Would this be enough?

From this you can see you either have enough income, or you need to create more investable assets, or earn a higher return and possibly expose your assets to a higher level of risk.

When you’ve accumulated enough assets that can earn the return you are comfortable with, you will have the income to support your standard of living. At that point you will have achieved financial freedom. Whether you worked for a living or not, you would have the income you need to support your lifestyle.

I look forward to your comments. Was I clear about the steps to take? Is there anything I left out that you want to know?

For a free copy of my best selling, award winning book, Wealth On Any Income, log onto www.WealthOnAnyIncome.com , enter your name and email address and press the button that says “Click here for your free book.”