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Financial Kryptonite for Building Wealth
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Sunday, October 07, 2007
New Beginning - A Time Of Unlimited Choices
On Tuesday, I will begin a two week series of courses exploring my strengths, interests, and identifying potential ways I can utilize them. In addition, I will take the series on starting my own business, should that be of interest.
The Three Boxes of Life, by Richard Bolles, divides life into Learning, Working and Leisure (Retirement) and offers strategies on how to deal with the stages. In the past, when I started the book, the concepts always resonated with me, but I was never motivated enough to finish. I was always too busy doing the "working" phase :-)
For inspiration, I will be reading articles such as, Pursuing Lifetime Dreams in Retirement, which shares such ideas as Taking Hobbies to the Next Level and Networking on the Net. While neither of these ideas are an exact match for, I will be interested in exploring the possibility of doing my dream job. In a nutshell, I can choose to do what I like to do :-)
These are exciting times for us.
For more on New Beginnings, check back every Sunday for the next segment.
This is not financial or retirement advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Saturday, October 06, 2007
Every Day is Saturday!
Surprisingly, our three year old daughter now also thinks every day is Saturday. On each day since retiring, I've asked her "What day is today?" and she has replied confidently, "Saturday!" I guess it's because I am now home after breakfast every day. And that used to only happen on Saturdays.
Ahh... Life is good.
For more on Reflections and Musings, check back every Saturday for a new segment.
Photo Credit: morgueFile.com, Emily Roesly
This is not financial or retirement advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Friday, October 05, 2007
Our Journey To Financial Freedom #1: Our Childhood Preparation
“Children have never been very good at listening to their elders, but they have never failed to imitate them.” - James Arthur Baldwin (American essayist, playwright and novelist, 1924-1987)In early October, 2007, I announced that I had retired in my forties. So I now join my wife, who stopped working to care for our child. As promised, I am writing a series on "How We Did It," of which this is segment #1. For reference, our story is a boring one because we did it by working for established companies, spending less than we earn, and prudently investing our savings. There were no business start ups, lottery winnings, or inheritances involved. However, it worked for us. Read on if you still want to find out how.
Step One - Have (Be) Good Parent Role Models
In the Millionaire Next Door, the authors note that the affluent generally answer "yes" to the following three questions:
- Were your parents very frugal?
- Are you frugal?
- Is your spouse more frugal than you are?
My wife and I can answer yes to #1 and #2. (Only one of us can answer yes to #3:-) When I was born, my dad was a graduate student. My father-in-law was a lieutenant in the Air Force when my wife was born. Even with their incomes, our parents lived within their means and saved money. In addition, our parents didn't use debt, except for home mortgages and car loans. Finally, both my father and father-in-law believed in the stock market and invested in it.
Many of those values were passed on to us. Some examples during our childhood include:
Saving for retirement. My dad had me open my first IRA when I was 18, into which I put part of my summer earnings, just enough to put my income into the 0 tax bracket. As a result, I got a double bonus - a head start on retirement savings and a 100% tax refund.
Minimizing unnecessary expenses. My parents valued savings more than having "bling." For example, I was encouraged to save money by foregoing a car during high school and college. I borrowed the family car when I needed one. While a car would have been cool, I'm sure it would have been a big black hole into which money was thrown.
Saving to pay for something important. I had an intern job in engineering every summer of college and 95% of my earnings were put into college or retirement savings. I also worked during college in the cafeteria and managed a student run business. My wife also worked summers and during school and used the saving to cover part of college costs.
Our parents were far from wealthy when we were children. However, they gave us an excellent foundation on to which we could build wealth. We were fortunate to have them as role models. However, in addition to their values helping their children, they have also done pretty well, as both our parents are now comfortably retired.
Finally, if your parents were not good personal finance role models, don't worry too much about the past. One cannot change the past, but one can surely create the future. While having a good role model is the best beginning, it's possible to overcome a rocky start in personal finances. For some timeless personal finance principles to use, see: Is There Anything Really NEW In Personal Finance? And, remember, as you go forward, that your kids are likely to imitate your personal finance values:-)
Next Friday: The Value Of Higher Education
Here's the series:
- Our Childhood Preparation
- The Value Of Higher Education
- Making The Most Of My Job
- Lifestyle and Spending Choices
- Setting Goals, Developing Plans and Tracking Process
- Staying The Course
- How Luck Played A Role
- My Personal Finance Mind Tricks
- The Professionals We Used
- When Preparation Met Opportunity
For more on Reaping the Rewards, check back every Friday for a new segment.
Photo Credit: morgueFile.com, Gracey Stinson
This is not finanical or family advice. Please consults a professional advisor.
Copyright © 2007 Achievement Catalyst, LLCThursday, October 04, 2007
Lessons From My Dad - Encouragement
Freshman year of college. The first year is usually the toughest. It was no different for me. I was attending Princeton. Needless to say, in the first week of school, I learned there were many people smarter than me. In my class, there were chess champions, a million valedictorians from top prep schools, debate champions etc. And then there were the upperclassman. Since I had placed out of freshman chemistry and math, I was with sophomores in half my classes.
As it turned out, Physics was my toughest class. For the midterm, I managed a 40% on the test. Needless to say, I felt bad and told my dad I wasn't likely to be getting A's in my classes any more. My dad made me feel better when he said, " That's OK. Just work on learning the material and don't worry about the grade. It will work out."
And it did work out, as I ended up with an A in the course and eventually graduated Summa Cum Laude with a degree in Chemical Engineering.
Early years of work. My first year of working was average at best. I wasn't advancing my project or career very much. I thought about leaving to start a business through franchising. After all, I had ran a successful student business while in college and I expected to be able to be successful at running one in the "real world."
My dad understood the challenges and provided perspective that it would be worth sticking it out another year before taking action. As it turns out, it was great advice. It gave me another year to adjust to the transition from school to work. Since then, I have had a terrific career, with several advancements, and an international assignment. Also, I was able to recently retire from this company.
Running for public office. While in my twenties, I ran for public office in a major U.S. city. It was my first attempt and I was running as an independent. I was up against experienced Democrats and Republicans and only had a small campaign budget. However, we developed a great platform that is still important today.
While this was outside my dad's expertise, he reminded me of how perseverance had paid off in the past. And he even made an out-of-state contribution to the campaign. As it turns out, I lost but I only finished one place behind a candidate that spent 10 times what I did. It was a great experience and I am glad I did it.
Doing an overseas assignment. My company offered me an overseas assignment with a promotion, which we turned down. Without consulting our parents, my wife and I felt it would be better for us to be close to them, given that they were older and the assignment would potentially be 7-10 years.
Several months later, I was offered the assignment again. This time, we talked with our parents. Both of them thought it was a great idea, even though we would be half a world away. My dad encouraged us to "go do it." He thought it was a great career opportunity and didn't want me to miss it.
This turned out to be one of the best assignments I in my career. I learned more about our business and competing globally that I did in any other assignment. While it was a challenging assignment, both personally and professionally, I will always be glad that I took it.
My dad passed away two years ago after an extended fight with pneumonia. I miss him very much. However, a part of him will always be with me, through the many words of encouragement he gave me. I hope I can be as much of an inspiration to my daughter someday.
For more on Crossing Generations , check back every Thursday for a new segment.
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Links To Carnivals from October 1 - 3, 2007
Carnival of Stocks - 56th Edition
Carnival of Family Life
Tax Carnival #23 - TaxtoberFest 2007
Carnival of the Capitalists - 1st October Edition
Festival of Frugality
Carnival of Education
Give these host some recognition for their hard work and visit their Carnivals.
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Wednesday, October 03, 2007
Today is The First Day of The Rest of My Life
Yesterday, I walked out of my office for the final time yesterday. I am now retired, in my forties. Part of me wanted to say, " I'm free, " and the other part of me thought, "So what." After all, I still (hopefully:-) have half my life ahead of me, for the "third phase."
For me, Phase I - Education and Phase II - Working were investments. Phase III - Retirement is the reward. Looking back, I feel I invested well in the first two phases. I studied hard during the education phase and I worked diligently in the working phase. Now, I want to make sure the retirement phase is also successful.
Interestingly, progression within a phase or to a new phase moves from more structure and certainty to less structure and more uncertainty. For example, in grade school the curriculum is essentially fixed. In college, a student needs to choose among a multitude of courses and majors that will set the direction for his or her future. For my work, the objective was to create a competitive advantage to be the best product or service in market. There were never clear or certain solutions. Retirement seems to be even less structured.
So I am going to take some time to engage in this phase and plan the future. Already, we have invested significant time in understanding the financial aspects. Now, I want invest time thinking about what our family will be doing (e.g. lifestyle, continual learning, exciting adventures etc.) over the next few decades. I expect this will be a tremendously fun time :-)
Here are a few elements that I know will be part of the future:
Healthy lifestyle. We will transition to healthier living, especially with respect to exercise. I am currently about 20 pounds heavier than I was as a freshman in college. Five years ago, I was below my freshman weight and had significantly reduced my cholesterol. Now it's back up again. Also, I need to eat better. My wife, who has a BS in Food Science, has long been working to improve daily diet, with low compliance by me. I will be able to stick to it better now.
Preparing our daughter for her future. The future for our children be a challenging one with lots of change and transitions. As a parent, I want to prepare her to be successful on her own. Important skills will including critical thinking capabilities, adaptability, agility and creative problem solving. I hope to give her these skills to build upon her traditional education. To do this, we will also need to participate in the process of continual learning, which I am sure we will enjoy.
Choosing adventures. When I graduated from college, I took an eight week backpacking tour of Europe. My second longest vacation was a two week trip to China for the adoption of our daughter. Although we have taken 10 day vacations to Australia, Thailand, and Alaska, I look forward to extended trips that we will be able to take.
For more on The Practice of Personal Finance , check back every Wednesday for a new segment.
Copyright © 2007 Achievement Catalyst, LLC
Achieving Financial Freedom - I've Retired In My Forties
"I did it." - our three year old when accomplishing something.Yesterday was my last day at the office. I've retired, in my forties. I can now say, "I did it." Although this was a monumental milestone, it has been surprisingly uneventful. Other than a couple of retirement parties, transfer of work projects, and multiple meetings with my financial advisor, everything has been mostly normal. Mainly, because we aren't planning any major changes (e.g. moving to a new retirement home) other than not working.
For now, I plan to spend more time with family and friends, especially my wife and child, and my mother and sister. Past that I don't have any specific plans, other than enjoying my time. However, in the next week, I will start planning my "third phase." :-)
Here's what I do know:
Financial status. My company's retirement plan is a defined contribution plan - i.e. it is not a pension. According to my financial advisor, our retirement and saving accounts will easily last another 50 years into our nineties. The calculation was done at 100% of current after tax salary and includes covering 100% of our daughter's college education. The Monte Carlo analysis shows a 92% probability of our next egg being sufficient, to provide 100% of our current after-tax income. For reference, over 75% probability is acceptable in most cases. The 8% of failures happen primarily because of low or negative investment returns in the first few years of retirement. So I will find out very quickly, in the next couple years, whether I need to return to work:-(
We will keep our home mortgage. We still have a mortgage on our home for about 45% of the estimated market value. In the past, I had written that we wanted to pay off our home mortgage before retiring. Our goal was to be debt free at retirement. Being debt free would reduce our monthly expenses by 20%. However, in the short term it makes more sense to keep the mortgage instead of using 2.5 times our after-tax income to eliminate it. Not paying off the mortgage gives us an additional buffer against a downturn in our investments in the next couple years. In addition, I will still be able to use the mortgage tax deduction, since our non-retirement account investments will be generating taxable income.
Consider a dream job. With salary income no longer being a key driver, both my spouse and I can consider looking for and applying to do our dream jobs. We can now work at what we love without worrying about compensation. However, at this time, volunteer work is not one of the options, since we have already done significant amounts of volunteer work in our younger days.
How did I do it? If it was an easy get rich plan that any one can do, I could sell it to millions for $19.95 plus shipping and handling :-) The reality is that it was a combination of preparation, planning, lots of hard work, perseverance, some sacrifice and little luck. Over the next ten Fridays, I'll publish a retrospective on how I got here. I hope it will provide some insights that others will find useful.
Here's the series:
- Our Childhood Preparation
- The Value Of Higher Education
- Making The Most Of My Job
- Lifestyle and Spending Choices
- Setting Goals, Developing Plans and Tracking Process
- Staying The Course
- How Luck Played A Role
- My Personal Finance Mind Tricks
- The Professionals We Used
- When Preparation Met Opportunity
For more on The Practice of Personal Finance, check back every Wednesday for a new segment.
Photo Credit: morgueFile.com, Kenn Kiser
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Tuesday, October 02, 2007
Exercise for Free
Daily routines. Instead of looking for the closest parking space, park farther away. Take the stairs instead of the elevator. Walk down the hall instead of using the phone. By doing these, I add hundreds of extra steps into my daily routine.
Yard chores. Mowing the lawn, raking leaves and mulching the flower beds involve a good bit of physical effort. Do the work, get exercise and save money. Admittedly, I now pay someone to cut our lawn. However, my spouse and I still do the majority of other yard work.
Pickup games. Tennis and basketball are games one can play for free on public courts. I do it regularly with my friends and neighbors.
Simple home gym. Weight lifting can be done at home with a barbell set and bench for very little cost. I also have a punching bag, which currently is a bit underutilized.
Run or walk. This is the easiest one to do. Put on comfortable shoes and take stroll or jog around the neighborhood.
Any of these ways can be effective and free ways to get routine exercise, and without the burden of membership or monthly fees.
For more on Ideas You Can Use, check back every Tuesday for a new segment.
Photo Credit: morgueFile.com, Anita Patterson Peppers
This is not financial or health advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
Monday, October 01, 2007
Wealth Builder Ratios - Q3 2007 Update
Ratio and Target | Q2 2007 | Q3 2007 | |
Investment | The significant increase is due to a 15% gain in our company stock, which is a signficant part of our retirement account. Tracking this number is giving me an indication of what our income might be like during retirement. Obviously, with income at 9% of my salary for the first half of the year, we would have been spending our retirement principal during Q1 and Q2 2007. However, for the second year in a row, significant gains have been achieved in the second half of the year. | ||
Savings Target>20 2007 - 16.5 | The significant gain this quarter is due to 15% rise in my company's stock, the gain in my taxable accounts and a contribution by the company to my retirement account. | ||
Debt to Salary Target=0 2007 - 1.53 | Currently, our only debt is our home mortgage. In January, we made a payment equal to 4% of our principal. |
My financial goals for 2007 are:
1. Continue to maintain an Investment Income to Salary ratio > 0.8. (on track)
2. Add 1.5 to my Savings to Salary Ratio for a year-end value of 16.5. (on track)
3. Reduce my Debt to Salary Ratio by 0.1 to 1.53. (done)
(For reference, Salary refers to gross salary.)
Both #1 and #2 are directly correlated with how well our stock, bond, and CD investments do. If our stock investments return about 10% in 2007, I should be able to comfortably achieve these goals. The S&P return through September 28, 2007, is 7.7% and the Dow is up 11.4%. Number 3 is on track since we made an additional payment equal to about 4% of our mortgage principal.
When I was bullish on the market, I expected to achieve these financial goals for 2007. I still believe 2007 will be a strong finish for the market (and my company's stock), and hope to exceed the 2007 goals.
For more on Strategies and Plans , check back every Monday for a new segment.
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
10/1/07 Stock Purchase Update - New High For Portfolio
| My Wealth Builder Buy List | |||
|---|---|---|---|
| Stock | Shares | Purchase Price | Current Price |
| Terex (TEX) | 50 | $82.36 | $89.02 |
| Potash (POT) | 50 | $71.39 | $105.07 |
| Shaw Communications B (SJR) | 100* | $21.755 | $24.84 |
* 2 for 1 split on 8/3/07
Overall, I am still happy with the performance of these four stocks, given that the overall market had a signifcant drop in August. Since the last update, TEX and POT were up significantly, and SJR was flat. The portfolio of these three stocks have returned 23.9% in the four months I have owned them. POT has contributed significantly with a 48.1% gain in that time. I owned AVT for 5 months before selling it for a 5.1% gain.
I continue to be impressed with my commitment to stay invested in these stocks, in spite of the market volatility. In the past, I would have closed out the entire position with this level of volatility. Given the performance of the portfolio, I am glad I held my positions instead of allowing myself to be whipsawed by the market each week.
The recent events (credit crunch, central bank interventions) originally had convinced me that the bull market is in its last stage, and I was considering closing out these positions during the next significant rally. However, the Fed rate cuts of 0.5% for the discount and Fed funds rate of September 18, 2007 lead me to believe the bull market will last about another year. So I will be updating my stock picks from the modified Unemotional Investor Growth system around October 7, 2007 and add new purchases in the coming weeks.
For more on Strategies and Plans, check back every Monday for a new segment.
This is not financial or investment advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC
