Category Archives: Goals

Wealth Pyramid Update – 2010, April 26

by

I decided to review my progress on the Wealth Pyramid (also called my Financial Pyramid) that I created below.  You can also view the pyramid as levels, or even a journey down the sidewalk of success.

Back to me!  So far, I’m still at the “Action Plans For Wealth Development” level!  While I have some of the elements automated (401k, Life Insurance, etc), I’m still working on the non-retirement wealth accumulation part.  I’ve been waiting for my tax return to be deposited in my checking account before I start this piece, but that has happened this past weekend.  Now I need to focus on where to put that money.  Hopefully, I’ll blog about my decision by the end of the month.

Once I get the “Action Plans” level running, it will be a short jump to the “Asset Accumulation” phase, where unfortunately, I’ll be stuck at this level for at least a few years.  Now that my house is paid off and I’m totally debt free, I’ll have extra money for Asset Accumulation!

I don’t expect to get to the Financial Independence level for at least 10 years, and that’s if everything goes well.

Realistically, I don’t even expect to get to the top two levels (Gates and Wealthy), but the picture wouldn’t be complete without them, so I added them just to be whole.

For a better analysis of each level, check out my original post which explains each level in greater detail…  Click “here on My Financial Pyramid“.

Now on to my “Wealth Strategy Pyramid”!

I like to think of things from different angles, it helps me get a more three-dimensional feel for abstract thoughts.

Bests,

Don

Millionaire Clubbing With a Friend

by

Move over doctors & lawyers, make room for me because I’m on my way UP!

Big Yep, I decided to join Mr. J. Money’s (@ budgetsaresexy.com) “Millionaire’s Club”.

Million Dollar Club

Actually former blogging buddy Jane @ “SeeJaneGetRich.com” and I both jumping in together with both feet! (Alas, my good blogging buddy Jane is no longer blogging, we’ll miss you, Jane)

Without further ado…  Here is my Pledge List:

In order for me, MR, to become a millionaire, I pledge to do the following:

First the normal “run of the mill” list:

  • Contribute the maximum to my 401(k) plan at work (done and doing)
  • Anything that is left over will be sent to maximize my Roth (nothing left 🙁 )
  • Be as frugal as possible, pinching the pennies till they scream, but still maintaining the balance I currently have! (done and doing, but less and less)
  • Identify areas I’m being overcharged in chop them down to size. (done and doing)

Second the “sort of” unconventional list.

  1. Develop Dividend steams to replace present-day expenses (done and doing)
  2. Develop a Side Income stream(s) – contracting, blogging, whatever (meh)
  3. Be happy and positive in my pursuit of becoming a millionaire (meh)
  4. Expand my social network, and be open to different opinions. (meh)
  5. Continue my journey while funding my kids’ 529 plans. (done!)
  6. Continue to find things to sell online for a profit. (meh, I need to do this again)
  7. Keep a close eye on ole “Mr. Lifestyle Creep”, cuz he’s tricky! (decent)
  8. Invest outside of retirement (done and doing)

I know, #7 and #8 don’t really look like they belong, but really they are crucial to my strategy.  With positive motivation, the journey is much more enjoyable.

While my ultimate goal is to increase my net worth to over a millionaire level, for tracking purposes, I’m going to be tracking my Brokerage accounts.  The idea is to increase those so that they can produce a dividend stream to replacing my expenses.

So if things go well, I should be able to save at a minimum $30,000+ a year (and hopefully over $40,000) towards obtaining the Millionaire Club goal. (decent, but not quite)

The key is to Maintain a Balanced Lifestyle!  In the next few years, I still plan on taking better vacations and living a full fun life.

Ironically, now that I’m debt-free, I’m debating with myself about creating a full-fledged budget (instead of a spot budget) to help me manage (balance) my money planning better…

As that frugal master, Yoda once said  “Do, or do not. There is no try”

So I chose to Do!

-D

Stop Drowning in Debt, Start Swimming To Shore

by

If you own too much money, eventually you will feel like you are drowning in debt!  I’ve felt like this for the past 10 years, in my opinion, financial progress is like the following analogy:

swimming to shore

 

When we are younger, it’s like we are riding in a helicopter perhaps 20 to 50 feet above the ocean (living with our parents).  Before you know it, we are putting on a wet suit to prepare for the leap out (like college).  Once we get our wetsuit on, we jump deep into the cold hard water.

Down, down down we go, further into debt (credit card, auto, home, any debt).  You are under water clawing up, trying to get to the surface to breath…

Once you get to the surface you feel sudden relief that you can breathe (you pay off all of your debt).  You emerge from a dark potentially cold wet world, into the warm light air.  You breathe deeply for a few minutes, relieved to be able to breath again.  After a few seconds of happiness, you suddenly realize you are in the middle of the ocean and need to swim to shore of a distant island which could be miles away depending on multiple financial matters.

So you develop a strategy (action plan) to get to that island, taking into account the current and distance (the island being like your financial goals…).  You start swimming towards that island a stroke at a time, small but crutial movements toward the island (goal).  Some people get luck and their relatives (inheritances, trust funds, etc) come by and give them a boat.  Other times (luck), they are only a few yards away from the shoreline.  But for the rest of use, we have to swim a long distance (work for a living).  Pacing ourselves for the long swim to shore (slow and steady savings).

Where am I currently at  in this process?

Next month, I will have emerged from the ocean, gasping for air, happy to be able to breathe again.  But unfortunately, the shore line is still very far for me, and I will have to develop a strategy for swimming the distance as quickly as possible without wearing myself out.

I’m happy to be able to breath again (being debt-free), but it’s still a long long way till shore…

-D

My Financial Pyramid

by

My Personal Financial Pyramid

Just for fun, I thought I’d create my interpretation of a hierarchical “Financial Pyramid” (modeled after Maslow’s Hierarchy of needs).

Financial Pyramid

 

Financial Pyramid Level Details (Top Down analysis):

Uber-RICH
Warren Buffet, Bill Gates, and similar people dwell here! I don’t know what it would be like to have a Net Worth greater than the GDP (Gross Domestic Product) of entire countries, but these people do…  This is (for the most part) a practically impossible level for the vast majority of us to obtain.

Wealthy
I would define this level in my financial pyramid model as those (in current 2010 dollars) having at least $20,000,000 million and above (if you live in a city like New York, perhaps $100,000,000 would be a better entry-level marker for you…).  Another hard level to conquer…  You would need the perfect combination to obtain and stay at this level (such as considerable luck, personal drive, income, investment mix would have to be perfect).

Rich
Depends where you live, but you would need at least enough money to travel overseas whenever you wanted (up to 4 time a year), without decreasing your net worth.  I would define this group as people having at least $5,000,000 in financial assets.  If you had the money invested in an investment that would yield 4%, that would provide you $200,000 in income per year…  The key idea here would be that the passive income (interest/dividends) generated off of your financial assets would earn you enough income to be above the top 2% of similarly worked for (earned) income by the non-rich.

Financial Independence
This is the break even point, this is where your investment and other passive income(s) earn you enough to cover your current life style expenses and inflation.  You’ll still want to contribute money to increasing your wealth though.  After all, recessions and inflation happens!!!

Upper Middle Class
Interesting level, many people can make it to this level by improving themselves and increasing the amount of money they have via investments, hard work, being frugal and continuous learning.  I personally don’t believe that getting a degree like an MBA is the magic ticket for inclusion in the Upper middle class (although it certainly can help!).  I think to be a part of this level, you’d have to either have a net worth of $1,000,000 or at least manage that much at a personal level.  Upper middle class is more than money though.  This is the level where IMHO, you should have developed some traditional sense of class, and people should ask you for your opinion on matters.  So respect or prestige (at least a little) comes into play.

Asset Accumulation
This is the strategic years, where you have already implemented or are following your plans developed in the lower level.  Time (hopefully) is your greatest ally.  Keep doing what you are doing and hopefully Lady Luck will also join your team and become an ally as well.

Action Plans for Wealth Development
At this stage, you have to think and really hustle to get ahead.  At this stage you have most of your core needs managed, and you are now trying to build your wealth for the future.  I almost called this the Battle Plans level, because you must develop strategies to conquer future expenses (kid’s college, kids cars, kids braces, retirement, car replacements, home repairs, increased life style, better vacation, etc).  At this level you must start the plans for these future financial concerns.  Even if they seem impossible to beat, at least start the process…  If you don’t, then the saying (by my #1 financial hero Benjamin Franklin)  “By failing to prepare, you are preparing to fail” will happen!!!  These are the hustle years, think and move quickly and wisely!!!

Money Control Basics
 You have money to cover your shelter needs: Housing, real estate taxes, Utility costs and so forth…  This can be a monkey on your back that is slowing you down.  Personally, I started the Action Plans level above while still working on this level too.  By doing so, it took me a little bit over 10 years to conquer this level, but I think the way that I did it worked out well in my case.  Most people just make their mortgage payment as planned out by the banks, and that is fine.  The key is to have money (from some source) to cover this basic need.  Ideally, you want to have this paid off or have invested assets that can cover the mortgage payments in case you get laid off or something else happens…

Financial Survival Strategy
This is the most simple level, you need to have some way of getting food and clothes!  The preferred way is saving up your money so that if something horrible happens you can use that money to buy cheap foods and clothes for survival.  Of course, if you are really at this level you could get food stamps, or try growing your own food.  Having an Emergency Fund of some sort would go a long way to covering this level.  Perhaps $20,000?  I cheated this level, I had money but it was in investments.  This was risky, but I was young and the economy was strong…  If I were a college graduate today, I’d most likely consider a high yield saving account or government bonds for my emergency needs.

If you haven’t noticed in my previous posts, I like to measure things and create milestones and other markers to help me judge where I’m currently at on my financial goals.  Such tools help me define my financial progress and enables me see things that I might miss if I didn’t use them.  So that said (or written), I’m currently at the phase called “Action Plans for Wealth Development“.  I’ve been in it for a while and I expect to be in it for quite a while actually.

If you have other tools to help you in your progress, please share them too, such tools can really help others…

– Don