I Will Not Die

This site is intended to be an aid in assisting people to attain their personal potentials. It does that by focusing on the many obstacles that prevent them from reaching those potentials easily. Remove the impediments then get going. One of the biggest obstacles many people face is debt. If they rack up enough debt, then while repaying that debt they end up losing a large portion of their income.

1. Be fully rational while addressing debt

What do androids and computer programs have in common? They don’t care. Now while I don’t believe it is advisable or even desirable for you to become an uncaring person, caring too much about your debt will subject you to the pitfalls that can trap humans. We respond emotionally to many things but we respond even more emotionally to emotional things. The more emotion that is involved, the greater the reaction to the emotion. Before long, we tend to start breaking up. Remove all the emotion: debt is an obstacle. It consumes our income that we could use for more pleasurable purchases. The most rational and concise description of debt is this: debt is a thing. However, many people let the emotions of lost income fuel the emotion cycle and before long debt is not “just a thing,” but it becomes something that lets them feel bad all the time. They dread debt and sometimes after paying on it for a long time feel like the day will never come when it is gone. Then that sensation of a never-ending road through hell just makes matters worse. Eliminate all the emotion. Hit the reset button. Debt is just a thing.

2. Set a plan

Once you fully recognize this thing for what it is, just a thing, plan your assault on the thing. You have to have a plan. This thing is just a debt and it must be zero. Of course, everyone can carry a little debt, but if you have mountains of the stuff you need to make it an anthill. Decide how much you are willing to sacrifice so you can pay it off. Many people overwhelmed with debt make minimum payments. When they do this, the vast majority of that minimum payment is interest. Find some ways to pay more if you can. Calculate how long it will take you to pay off your debt. Save this number for later. Also, a lot of people spend a lot of time looking for some magic solution, biding their time, waiting, expecting some raise at work or some golden opportunity to come along that will solve their debt woes. If you are one of them, wake up. There is no magic solution, it’s just something that has to be paid off. Once you have some plan and once you’ve set a budget that involves making some sacrifices so you can get rid of this thing, throw the plan out and proceed to the next step.

3. Greeting debt with a sledge hammer

Number two was a joke. Number two is really just my version of what you often see in printed magazines and in articles on Yahoo! Finance’s front page. Quite honestly, they’re not my style. If you have lots of debt, throw all that junk out and focus on one thing: if you took 5 years to accumulate lots of debt, then take it easy paying it off, you’ll spend at least as much time getting rid of it as you did earning it. If you have enough debt that it’s preventing you from doing other, more useful things with your money, you need do one simple math problem: (number of years from previous step) / (72 - your age).

If you’re 35 and think it will take you 10 years to pay off your debt using a conventional style, 27% of the remainder of your life will be associated with your debt paying. 27% of a life is a career for some people! It’s worse if you’re older and have more debt. Ask yourself if that’s how you want to be remembered. For me, when I looked at it that way, I turned into a zombie from 28 Days Later. Yeah, it was scary. In an instant, my budget became exclusively rent, electricity, water, sewer, groceries, debt. And fifty bucks here and there for some play. No eating out, no toys, nothing. That’s when more than 50% of my income became available for debt service. Then I concentrated all my efforts on making more money at work and managed to increase my pay by 77% in about a year. All that extra went to debt too.

Have debt stories of your own? I’d love to hear about them!

Dereck :: Jun.12.2008 :: Money :: No Comments »

Don’t be turned off by me telling you to shut up.

It’s not personal. This is business. And I’m an ally. Got it? I’m on your side. The good news is that my telling you to shut up is actually conditional. Once you start reading this article, you might decide that you’ve already got a lot of what I’m saying down pat; if so, then use this article as a tool to hone what you’re already doing. Use it for ideas to perfect your game. On the other hand, if you start reading this article and feel immediately defensive because after reading umpteen articles on how to improve your life, and failing to find anything practically useful from them, then it’s time to shut up and listen. Oh yeah. There’s one more option: you could keep reading umpteen articles.

Why listen to me?

If you haven’t read this yet, then start there. Its true. I’m way out there. But besides all that rubbish about scores, I have a practicality often lacking in the typical ultra-intelligent people you might meet. The typical über-smarty pants out there might be shuffling around talking to himself about some exotic non-existent math problem that he thinks will one day mean something. Fostered from birth in some nurturing environment with loving parents and pleasant schoolmates, he might have some lofty life-is-wonderful approach to everything he sets his eyes upon. True too, he might make significant contributions to science or some other subject. A school might be named after him. But his accomplishments and efforts will be largely inaccessible to the vast majority of the rest of the population. He won’t necessarily say something that could help you directly. Not so with me. I grew up with my face pushed down on the pavement in a decaying suburb of Detroit. Take away that nurturing environment from a smarty like myself and you have this strange hybrid human who is half cosmopolitan, half walking scientist. Hip-hop lip-syncing, sneaker wearing urbanite by day; creative revolutionary by night. A monster, possibly. Or a little bit of you and a little bit of not you.

So let’s get started. This article will follow the following pattern: each section will list an abstract concept, then have specific details about the abstraction, then real-world examples to illustrate the details. What we’re going to do is treat everything we know, primarily our individual lives, as individual businesses. Then were going to make those businesses immensely profitable. Here’s the bad news: everyone cannot make their lives immensely profitable. It turns out that the way we’re going to define immensely profitable is hinged on the crucial measurement of our profits being relative to something else (namely, the other businesses). If everyone’s businesses grew in profit to the same degree, no one would actually get rich (I’ll explain this in more detail later). Here’s the good news: the person who cannot make their business profitable happens to be one of those who does not make it to the end of the article, or is someone who does but does not take it seriously (in other words, they didn’t shut up and listen). If you’re one of those relatively precious few who can do both, well then, I’ll see you on the other side.

The three roads to the two roads to wealth

There are only three ways to wealth. But those three ways are really only two ways. These two ways will form the basic overarching hypothesis that will guide us.

1) Some people are born into wealth. Hate it or love it, it’s life. If you were rich, you’d probably pass something along to your kids too, so if you’re resentful of those born lucky, get over it because if you follow along carefully, and make it too, you’ll have some lucky kids.

2) Some people hit the jackpot. Could be the lottery, life insurance payout, or the work of a brilliant lawyer pulling the strings in some punitive damage lawsuit. Whatever you want to call this road, its a windfall.

3) Some people are extremely industrious. This is the most common road (and the only realistic one for us). Those who hit this road are the actual creators of the vast majority of concentrated wealth.

Immediately throw out #2. Try it if you want, but every time you try to play that road, what you’re really doing is consistently making someone else money. For that one lucky S.O.B. who hauls in the 28 million dollar Powerball jackpot, there are hundreds of thousands or even millions of people who shelled out for it. The odds are ridiculously against you. I can’t tell you how many people I have tried to steer away from the lottery who have responded with the expected, “but it could happen”. I always want to say, “Are you f–cking kidding me?” Instead, I smile politely and wish them well. Don’t be like them. And if it’s not the lottery you’re after, but the life insurance payout, then you’re a despicable human being, kissing Grandma on the forehead in the hospital right after your phone call to your travel agent. That’s pretty sick. In both cases, what you’re actively doing to get rich is passively hoping to get rich. Good luck. Now then, finally, it might seem strange, but if you are neither #1 nor #2, then you’re almost completely screwed. It turns out that #3 is the most common road, but it also turns out that almost all of those on the third road started on the first. Ouch. The test would be this: line up the rich people and scrutinize their origins. Take a man like a Bill Gates, who has indubitably created vast fortunes and then check his birth certificate. Parchment or fine cloth? Fine cloth. A rich family bred an (no doubt) intelligent man who went on to become wealthy. Road one often leads to road three. This is why articles like this one make me laugh. They serve up junk food for the masses, many of whom won’t make it to this paragraph. The article insinuates that going to Harvard increases ones chances of becoming a billionaire. The cause and effect here is simply incomplete. Most of those who go to Harvard have an inside track. Money. Here are some stats on Harvard students aid habits:

A whopping six percent of the students used state and local financial aid. Do you think Bill Gates was eligible for state and local financial aid? Going to Harvard doesn’t increase your chance of becoming a billionaire. Being born rich increases your chances of going to Harvard. The worst part is now that we’re done using the saw, we haven’t much limb left. You have no choice on #1. You cant pick your parents. Don’t choose #2. You’re either dumb, lazy or plain evil. Choose #3. But, most who can choose #3 easily, start on #1, which makes the job significantly easier for them. Also, both #1 and #2 are based on the same substance: luck. That’s why they are really one and the same road. This simplifies everything: we can get rich by being lucky or industrious, and luck is always against us.

The scary truth about wealth

Earlier I said I would discuss in greater detail the notion that everyone cannot equally become extremely wealthy. In a single phrase, think of wealth as market share. To increase your wealth, or share of wealth, or your share of the market “wealth”, it has to come from someone else’s. This is not a crash course in economics, but there is often a widely used rebuttal: increase the market. This is tricky to grasp, but stay with me. You might be thinking that by increasing the whole market, and assuming that everyone’s relative share of that market stays the same, then everyone gets wealthier. Sure, on paper. But all that really occurred was inflation. The reason this does not make anyone feel wealthier is because of the notion of scarcity. Let’s use a simple example. 2 natives on an island and a gold dealer with 1 gold nugget. Everyone on the island starts with $100, so the wealth market is $300. Option one: fist fight. Native #1 wants the gold nugget, but it costs $200, so he beats the snot out of native #2 and takes his $100. Then he goes to the dealer and buys the nugget who gladly sells it because he has tripled his own money. But some people don’t like this because it feels unethical so they say we should increase the market so everyone can have more. Some act of a god (or federal reserve) makes it so that instead of there being $300 available on the island, there is now 3 million dollars. Problem is, there’s still just one nugget. The market is much bigger, but the scarce goods are still scarce. Now any native knows they can go to the gold dealer and offer $200 for the gold nugget. But he has a million bucks too.

This concept has to be a fundamental part of your groundwork. Forget about an altruistic vision that falsely allows you to believe that you can become rich and have clean hands too. You can still do it nicely, but I honestly think that many people fail to become rich because they do not have the stomach for it. If you want to become rich, then it cannot bother you when you step on someone else. Now we’re getting somewhere: getting rich will not occur via luck, and will not come via any other road except one that led through someone else’s loss. Don’t do it. I know you’re already tempted. You might be thinking, but if I want a yacht, and there are other people who want yachts, my yacht doesn’t have to be at the loss of someone else’s yacht; let’s just hire another yacht maker so we can all have more. You just lied to yourself. You’re thinking that not all goods are scarce, that yachts, in opposition to gold nuggets can be produced, that they are not necessarily fixed. Two problems with this one. 1) Why don’t you want a plastic kayak instead of a yacht? Probably because anyone can get one for $200 at a local sporting goods store. If it’s something everyone can get easily, it’s suddenly not so fun. There was a point when automobiles with air conditioners cost much more, but now even basic models have them. So now we want leather. Lesson: wealth is relative wealth. 2) You increase the demand for yachts at the local yacht manufacturer, who in turn places a classified ad for the new position he needs to fill so he can make your yacht. Problem is, Fred, the potential new hire, was on the verge of becoming a gifted math teacher at a local university, but decided not to because he ran into the classified ad. You just cost Johnny the freshman at the university his particularly gifted math education. Lesson: you cannot create more wealth in the sense that feels in harmony with some kind of justice. It is relative wealth only, and that dictates that is comes to you at the cost of someone else. I encourage you to think of other examples on your own.

Finally, here’s one last example of why you cant avoid stepping on someone in your pursuit of extreme relative wealth. Lets say you wanted to flip cars. If you buy a $500 1978 Pinto from your neighbor, you can’t very well sell it for $500, right? You would have to sell it for say, $700. But you can’t sell it for $700 unless either a) its worth $700 or b) you take advantage of someone and make them think its worth $700 when it’s only worth $500. In either case, you step on someone. All business transactions must necessarily fit this pattern in order for you to make a profit. Even if the transactions are purely voluntary, you’re still stepping on someone.

Time to run our business

Here’s where everything gets more useful. Have you ever wanted to own your business, watch it grow, and massage its finances for maximum gain? You already are. Every. Single. Day. Almost everyone I know, and everything I read is constantly referencing some nostalgic-smelling rose patch off over the horizon that we can, through long trials and tribulations, finally and just maybe, arrive at. We’re always looking too damned far away. And it’s absolutely miserable trying to imagine such a long and stupid trip, a trip so seemingly hard to take that it seems almost futile and childish to even play with the idea of ever actually finishing it. Stop it. I’ve started this part of the discussion so far into the article for a very good reason: many, many people do not have the attention span to read a lengthy article. Use this to your advantage. Most of your competitors are off to youtube by now. We the remaining, have to break this fallacy: we think of a distant goal in such a way so as to make it only enjoyable once we attain it. For example, many of us imagine the joy we would endure if we were self-employed and not subject to the fixed and competitive income associated with being an employed person for someone else. But until we are self employed, we’re miserable. But, if we were just self-employed, as in say day two of our being self-employed, would we be off to Hawaii on vacation just yet? Of course not. We have to make our business profitable enough so that we can afford such a trip. So we’re back to imagining about the day when we can enjoy the vacation that we wanted that was supposed to come from being self-employed. But even still, being self-employed by itself would be more enjoyable than being employed for someone else. But if we were just laid off and have a family, being employed for someone wouldn’t seem so bad. You must fix on this. Think about it often until it becomes a real part of you: live your life today with the same mentality you would have, if you were living the life you want. Own the business you want tomorrow today. You are your own business.

Our fundamental hypothesis

Now all the essential groundwork is in place. After abandoning any belief that we will gain wealth through an encounter with luck, and after deciding that our way to wealth will be through conscious and deliberate actions, and after acknowledging the fact that the acquisition of wealth must necessarily come at the loss of someone else’s, and finally adapting to the perspective that requires us to operate our daily activities as though they themselves were the business or vehicle that will bring us to that wealth we seek, we can now become rich. We won’t be waiting or hoping to make it. We will be actively ensuring that the motions we make are all aimed to the same end. We will become businesspeople. Businesspeople actively pursue profit. That pursuit requires us to buy low and sell high. The sense of fairness must be eliminated. And lastly, because it is fairly easy to recognize extremely wealthy businesses (Microsoft, Apple, etc.) we are going live out our daily lives as though those lives themselves were the profitable businesses we seek to emulate. We do not need to wait until some distant achievement is here in order to begin. We can begin immediately.

The life is business perspective

This will begin the fully pragmatic part of this article. The shift from the highly typical consumer perspective to the business perspective will be a radical transformation for most people. So long as you maintain this perspective, you will never lose, and here’s why. Businesses lose, or fail, because they become insolvent. They do this when they spend more than they earn to the extent that they no longer have assets. They disappear. If you, literally your body, is the business vehicle that we start with, your insolvency will be your death. As long as you are breathing, you are or can be a profit turning entity. Eventually, once, using this method for long enough, you actually have significant capital, then you can literally run a business of some kind. The reason it is essential to begin with you the individual is twofold: 1) it allows you to begin immediately and 2) it will make you business through and through. Business will become an instinctive part of everything you do. So what do businesses do? Businesses earn revenue, then they incur expenses and what is left is profit. With that profit they can grow the business, acquire assets or pay off liabilities. Or of course they can keep the profits (and once they do that, its just an asset).

Its not necessary to have an MBA in order to do this effectively. However, I’ll run through some basics. You’re about to see why the vast majority of people are poor, why they would never acknowledge that they feel as wealthy as a Microsoft or an Apple. If profit is the remaining revenue after expenses have been paid, then how much should that be? Twenty percent is solid. Any business that has twenty percent of its revenue left after it pays its bills is doing very well, though obviously this amount can vary significantly. In other words, for every $100 in revenue they bring in, after they pay their bills they have $20 left. Right away you probably can see a problem. After paying your bills, do you have twenty percent left? In other words, are you saving that much from every paycheck? If businesses have assets and liabilities, how much of each is good? Generally speaking, the difference between the amount of assets a company has and the amount of debts it has is called net assets. Because this is a dollar amount, the amount varies significantly between different sized businesses. One way to compare them is to determine how much they are making given the net assets they have. Again, in the simplest fashion, this is just return on assets. Here, even just ten percent is good. Again, we can see a major problem. Most people don’t even have more assets than debts, let alone a return. For a large part of peoples’ lives, their mortgage puts them in the red on the asset side. In our example here, for every $100 in net assets a business has, they would be doing well to be making $10 in profit. Almost no individual can say that. Here going forward, all we have to do now is play out this daily game where we manage our business in such a way so as to be able to operate more profitably than the best businesses out there. I will use examples from my own life to illustrate what is possible by doing this.

Revenues, expenses, assets, and liabilities

All businesses are simply machines. Machines are run by operators. Well maintained machines run by skilled operators produce the desired outcomes for which the machines were created. Decide what you want your machine (your business, your life) to do then operate it skillfully. What each of you can do, starting immediately, is to determine how your business is operating. If it’s operating poorly in comparison to some great company out there, then all you have to do is change your habits so that you can out compete them. The greater degree to which you can do this, then the more quickly you can become nightmarishly rich. To begin, start by jotting down some details about your business.

Revenues

For most people, this will be their job. However, if you have other sources of income, include these too. Obviously, growing your revenues is going to be one of the most important things you can ever do in your entire life. At the same time, making more money isn’t all that easy, or if it was, everyone would be doing it all the time. There’s something we can do long before we increase our income though: decrease our expenses.

Expenses

If raising revenue is hard, lowering expenses actually is not. The best part is that as you decrease your expenses, you open the door to an increase in revenue. When examining your expenses, I think it’s best to make this distinction. If you were a business, which is what we are pretending to be, you incur expenses that are related to your business. In other words, if you manufacture silly putty, you incur costs that are related to silly putty manufacturing. This is where the major revolution in your thinking can occur most quickly. As you examine your expenses, what do most of them relate to? Remember now, the intent is to make the most highly profitable business that is in the business of making profits. Do your expenses relate to making money? Are they the raw ingredients needed for the money machine?

Assets

When you spend your profits (assuming you have any), what are you buying? Are you buying assets that contribute to your money making? Many of the assets we buy are assets in a way, but not in the way that a business would consider useful assets. A manufacturing firm might invest in a plant that they can use to manufacture their goods. What if the same manufacturing plant bought say, firewood? It wouldn’t make much sense, and from a business perspective, it would actually be about as useful as just lighting the cash on fire would have been. It would be a waste because it wouldn’t contribute to their manufacturing process.

Liabilities

In truth, the only liabilities you should have are ones that you incurred so you could obtain assets that contribute to your money making lifestyle. Period. Everything else is firewood. But in this case actually worse, because now you have a useless asset and you owe someone for. The best businesses out there only take on debts that produce useful assets. You should too. Here’s the main kicker on liabilities: interest. Remember when we talked about return on investment earlier? Here is when you use it. If you can get an asset that will earn you ten percent per year on that asset, but you have to borrow to get it, and the interest for borrowing it is twelve percent, don’t do it. You should only take on liabilities when you can earn more of a return on the assets you get from them than the interest you are charged to obtain them in the first place.

Are you a consumer or a money maker?

By now you should have begun to think over things in your life that you do, and examine them under a purely business light. As a business, are you trying to increase your revenues? Are you doing side work, training for a promotion, educating yourself, or whatever that will allow to make more money? Are you looking for business opportunities in your area? Are the expenses you incur a function of making money, or are they for personal pleasure? Does eating out make you money or someone else? Does owning a $25,000 car make you money, or could you have the same essential transportation for $10,000? Why do you own a plasma TV? Are you that bored? Can you find nothing better to do with your time but watch shit on a screen? Do you even need cable? Does owning an SUV somehow make you money? What about your DVD collection? Do you buy everything new? Most people won’t answer these questions without feeling like I’m some kind of jerk, but these questions need to be asked, and answered. Besides, I’m not the one searching for articles like this on Google, I’m the one writing it.

Proof that this works

My rate of return is much higher than yours. I can say this with confidence because I know hundreds of people. So far, I haven’t actually met anyone who lives as frugally as I do who still enjoys the level of comfort that I do. On paper, you’d think that I should be in the poor house. But I’m far from that and I’m keeping so much of my money and am doing such useful things with it, that with every day that goes by, I’m earning even more money at a faster pace than anyone I know. And then I’m using that to make even more. Its like a self-fulfilling circle. The truth is, ironically, that all those hundreds of people I know could easily outperform me with almost no effort. It’s weird, because I’m making more money than anyone I know, but I “make” less money than anyone I know. And I mean by legions. Just so you know, I live in a comfortable 1700 square-foot, 2-story, newly constructed home in a nice suburb with wealthy neighbors, a pool nearby and nice lawns everywhere. I drive a car that is less than a year old and I eat like a king (more because of my wife’s fine cooking skills than because of what we spend on groceries, mind you). I wear nice clothes to work (in fact, I generally out-dress my superiors). Oh by the way, I have a wife and two children. And my wife doesn’t even work. And, if you read my short bio on the “About” page, then you’d know my circumstances and know that while smart, I don’t even have a college degree. As a result, I only make about $35,000 a year. It gets even better. As far as revenues versus expenses? My profit margin, that is, my earnings left over after I pay my bills is about 28%. Could you imagine if I actually had a degree and could market that in the workforce, or even if my wife worked? All of that additional income would be pure bonus; it would all fall directly to the bottom line. Now don’t get me wrong here either, I’m not hanging out on some mountain of cash either. As you know, I’m trying to return to school and have several debts to destroy before I can do that, so all of my profits are going toward my liabilities. What’s your profit margin? Or your household’s?

Now it’s your turn

So you want to be rich? Run your life by the numbers and you will. Operate with the intent to be a money maker not a money consumer. Leave that for all the people who yawned off at paragraph two. Examine your lifestyle and spend your energy on finding new wealth, limiting what you spend only to the things that make you money, accumulate assets that really do help you in your venture and use liabilities only to acquire assets that do the same. Finally, I hope to see you soon in this site’s brand new forum. Not many users yet, but don’t be shy. I want to hear about the ways you will make it too. And as always, if you’ve enjoyed this, tell your friends.

Dereck :: Jun.08.2008 :: Money :: 37 Comments »