My response to this article at newjerseynewsroom.com:

Can you please site the source that says 1,500 millionaires paid no federal income tax?? The tax code would not allow this unless they had no income (which if they had no income they shouldn't be taxed)! But I sincerely doubt they wouldn't have at least capital gains income which is taxed at 15%. This is of course how Warren Buffet would pay a lower tax RATE then his secretary because he only receives income from investments. BUT when you say the plan is, "based around the simple idea that billionaires shouldn’t pay lower taxes than their secretaries." You are not telling the whole story. Billionaires are NOT paying lower taxes then they are secretaries it is just a lower RATE. The amount of dollars that Warren Buffett paid in taxes is actually significantly higher than what his secretary paid. In fact the top one percent of earners already contribute 38% of the federal tax income. (http://www.heritage.org/budgetchartbook/pdf/2011/top10-percent-income-earners.pdf)

Another element we need to consider is how this rule would increase revenue vs. how much our government spends. If you consider this chart, by crunching the numbers you see that the income by implementing the Buffet Rule doesn't really attack the source of the problem which is exuberant government spending. The spending problem is the first issue we need to address before we look at increasing taxes. If the government were a private business it would have been bankrupt by now because the amount being spent is FAR more that the amount coming in, so much so that even taxing the richest americans won't move the needle that much.

The last thing I want you to consider (especially coming from the non-profit sector) is that the top 3% of earners account for more than 66 percent of all charitable giving year after year. So be careful when you ask the government to take more from them. Sure it will ultimately give the government more but it may reduce the giving to the non-profit sector. If this were to happen it is a question of: who do you trust to do the most good, for the most people AND in the most economical way... the government or a non-profit organization?? I would rather give my hard earned money to a solid non-profit that has a great track record of helping people because I know my money is going to a good cause. With the government however I'm not so sure where my money is going and how it translates to help the people who need it.

Mega Millons... Mega Rip-off

I have already posted about Gambling and the Lottery and you should know how stupid it is to play the lottery merely because the chance of winning is far too slim. But I have a confession to make.... two weeks ago I got caught up the hype over the $640 million jackpot and purchased a couple tickets for the first and last time. Unfortunately, I didn't hit it big but are the winners really set for life? Well no, chances are they will be broke in 5 years and really they don't have to buy anything extravagant. This is because they will be taxed into oblivion by the government for almost anything they want to do with the money. I would highly suggest you read this article outlining how the winners will be taxed. To add insult, most people who win the lottery don't know about these taxes and don't have a trusted tax professionals to help them. This is a recipe for bad news.

So maybe the lucky winners aren't so lucky after all. The real winner in the mega millions is always the government and it is set up that way. So before you throw away another dollar on a ticket think long about the decision. The only real way to get rich and STAY rich is by hard work, saving, investing and giving.

--A Future Millionaire

Student Loans: Response to an article in the Daily Targum

Here is the link to the article and here is my response:

Why is it the government and financial institutions that need to take into account the student's post-educational career prospects?

I think that responsibility falls solely on the students applying for the loan. If they want to go to a liberal arts school that costs $40,000 a year to major in underwater basket weaving then they should be allowed to do it, after all I think we are in a free country.

We all know this would be an irresponsible choice for that student and they would probably be told several times to reconsider BUT in the end the decision is up to the student (and/or their parents).

Also, before receiving the loan they have to read several documents issued by the lender about how this loan is a big undertaking and needs to be paid back. After all of these warnings if they still want to proceed, fine. But then problems come to fruition once they realize how much debt they are in and start thinking in real world money terms (as opposed to mystical college money terms where all you need to get food is a swipe of the student ID).

Only then do they finally realize that they will never be able to pay off the loan. This is when they start crying and protesting that they have been cheated by "the system" when in fact there was no cheating going on whatsoever. They had their fair warning and they have to deal with it. It is not the government's responsibility to bail them out.

Unfortunately this government has set up the precedent that if you whine and cry enough then they will bail you out, but this country couldn't afford to bailout the banks and it surely can't afford a student loan bailout. The only solution I know for getting out of debt is hard work and long hours. This method is what I am implementing while I'm still in school (It won't kill you to get a job at Burger King).

And hopefully new students entering college now will wake up and see what these recent grads are going through, so that they don't make the same mistakes.

We don't need more government in our lives telling us what to do. We just need to have common sense... which unfortunately is not so common anymore.

Don't Wait for a Crisis

Many of us simply wander through life not really worried about finances; thinking that if we just work hard and get a paycheck that everything will be OK. Unfortunately, this is not how it works. In order to be successful and thrive financially, we need to be aware of what is going on with our money. We need to constantly see how our money is coming in and going out (a budget). Have a plan when something unexpected happens (an emergency fund) and be able to live with dignity in our later years (retirement savings). All of these will not happen if we don't pay attention to our finances. Unfortunately, many of us think things are going well until a crisis occurs and when it does, everything is thrown upside. We then realize that our personal finance foundation was weak.

I have breaking news, a storm is coming! It may not come tomorrow, or the next day, or the next year, or even the next ten years but eventually a storm will strike! The good news is that you will recover quickly if you have a strong financial foundation including: an emergency fund, debt freedom, proper insurance in place, a retirement nest egg and a helpful support system. Please don't wait for a crisis to strike and then realize that your finances are not in order... by then it will be too late.

--A Future Millionaire

Technology

According to CNBC, Apple is ready to launch the iPad 3 next week. After this they will be feverishly working to release the iPhone 5. All of this excellent technology has infiltrated our lives and convinced us that if we don't have these things we are less productive and not as cool. I don't have a problem with people owning this technology as long as they can afford it! These companies (not just apple) with their excellent advertising and product appeal, have shifted these items from our 'want' list, to our 'need' list. We cannot imagine how we got by without being able to browse the web on our phone, but it is possible! If you are struggling, look to see if getting a cheaper phone plan will help with budget and the next time you are convinced you 'need' a new tablet, really reflect on if you can afford it. This will allow you to save more money or pay off more debt.

--A Future Millionaire

Analyze your Rates of Return

The days of getting 3% interest on your savings account is not coming back anytime soon but that doesn't mean you should sit back with your money and be happy with the 0.05% they may be giving now.

To grow your money you have several options (even more than I will mention here):

For long term investing go with a Mutual Fund or Exchange Traded Fund. Over the long haul (5+ years) these will allow for 6% to 12% rates of return. However, for money that you may need soon these investments are too volatile.

For short term investing you have a couple of options. The one with the most risk would be a peer-2-peer lending site such as Lending Club or Prosper. This type of site evaluates borrowers and then (if the site accepts them for the loan), they look for lenders. That is where you would come in. You become a lender and lend your money to several different loan accounts and whenever they make a payment you get some of the money back. Unfortunately these loans are unsecured, so if a borrower goes bankrupt, your money invested in that loan is gone. Usually though if you have a lot of different accounts the rate of return on our money will be about 8% over a three year period. (I have not actually tried this myself but I have heard good things).

The next highest rate of return would be in a Certificate of Deposit (CD). These have several downsides, the most daunting is the locked-in term. When you by a CD you do so for a set term, say 2 years. This means that if you need the money before two years is up, you will have to pay a penalty on the interest that you accumulated. Depending on the term length, a current CD can produce a 0.5% to 1.5% APY. (These are FDIC insured so there is no risk of losing money.)

There is also a special type of CD that allows you to make a one-time withdraw without penalty. These are probably your best bet when it comes to CDs. The one I like is offered by Ally Bank and yields a 0.91% APY.

Then the final option is a money market account. This is just a glorified savings account with slightly higher rates of return. Money markets nowadays can range from 0.25% to 0.85% depending on where you bank and how much you keep in the account. These are also FDIC insured.

The main objective here is not the interest rate or how you invest, it is the fact that you are paying attention to your money! Paying attention to your money will lead to wealth. You can easily wander into debt but it is very hard to get out of debt and become wealthy. It starts with paying attention.

--A Future Millionaire

The Flywheel

In Jim Collins book Good to Great he introduces the idea of the flywheel: 

"Picture a huge heavy flywheel, a massive metal disc mounted horizontally on an axel, about thirty feet in diameter, two feet thick and weighing about 5000 pounds. Now imagine that your task is to get the flywheel rotating on the axel as fast and long as possible. Pushing with great effort you get the flywheel to inch forward moving almost imperceptibly at first, you keep pushing and after two or three hours of persistent effort you get the flywheel to complete one entire turn. But you don't stop, you keep pushing and the flywheel begins to move a bit faster and with continued effort you move it around a second rotation. You keep pushing, in an intelligent, consistent direction. Three turns, four, five, six, the flywheel builds up speed, seven, eight, you keep pushing, nine, ten, it builds momentum, 11, 12, moving faster and faster with each turn, 20, 30, 50, 100! Then at some point breakthrough. The momentum of the thing kicks in your favor, hurling the flywheel forward turn, after turn. Whoooosh! It's own heavy weight working for you. You're pushing no harder then during the first rotation but the flywheel goes faster and faster and faster still. Each turn of the flywheel builds upon the work done earlier, compounding your investment of effort 1,000 times faster, then 10,000 then 100,000 the huge heavy disc flies forward with almost unstoppable momentum."

This is a powerful statement of how our finances actually work. Unfortunately for some of us, we have been pushing the flywheel in the exact wrong direction we want it to go. By building up debt and wasting money, the flywheel may be spinning so fast in the wrong direction it's hard to picture it stopping, much less spinning the other way.

So what can we do to get it turning the right way? 

1. Stop borrowing money! You can't make much progress if you continue to push in the wrong direction.

2. Get help. Sometimes you can't reverse the flywheel by yourself. Reach out to someone you trust and ask them to help you get your finances under control. Also read all the material you can about how to handle money.

3. Don't give up! It is going to take consistently smart decisions with your money to get you out of the mess. As long as you keep pushing everyday things will start to move in your favor.

4. Invest in assets. Once you get everything under control and are out of debt, invest money so that you can make more without doing more work. (This is what really gets the flywheel going fast in the right direction).

5. Enjoy. Once the momentum of your smart decisions builds it will be easy to maintain, so you can sit back, relax and enjoy.

--A Future Millionaire

Mirror vs. Window

This title does not mean that I switch my blog to be about interior design, it's actually a business concept that is outlined in the book, Good to Great by Jim Collins. The whole book talks about how to turn a good business into a great business by studying companies that made and sustained a great amount of success. Although it talks about businesses we can relate this to our everyday lives... think of yourself as being the CEO of your life.

One of the principles that the research team noticed in the leaders of these companies was this mirror or window phenomenon. They noticed in the Good to Great companies that when things were going well, the leader would look to others in the company to give credit (window) but when things were going poorly they looked to themselves to solve the problem (mirror). With the comparison companies, it was the exact opposite!

So what do you do when things are going poorly in your life and with your finances? Do you look out the window for someone to blame or do you confront the person in the mirror?

Personal accountability is the most important concept you need to integrate into your life. Once you start shifting from "helpless victim" thinking to true personal accountability things start changing for the better. One book that talks about this idea is QBQ! Question behind the question by John Miller. The main point of the book is to start asking the right questions. For instance instead of asking, "Why do we have to go through all this change?" Ask, "How can I adapt to the changing world?" This change in perspective puts the initiative on you instead of someone else.

One of the most memorable lines in the book for me was the "Circle of Blame" that he laid out:

"The CEO blames the vice president, who blames the manager, who blames the employee, who blames the customer, who blames the government, who blames the people, who blames the politicians, who blames the schools, who blames the parents, who blames the teen, who blames the dad, who blames the mom, who blames her manager, who blames the vice president, who blames the CEO, and on and on it goes." p. 45

As can be seen from the silly yet true quote above, blaming accomplishes nothing! The take home point is to look into the mirror and take responsibility for where you are in your life and accept the responsibility to fix it. Once you take back control of your life, only good things will come.

--A Future Millionaire

Net Worth

One of my goals for the new year is too continually track my net worth monthly to see how I am making it grow. I am excited to track it and see how much it is growing by saving and investing while spending less. I eventually want to be what Thomas Stanley calls a Prodigious Accumulator of Wealth (PAW) as opposed to an Under Accumulator of Wealth (UAW). The formula for figuring out which one you are is quite simple and involves your age and salary.

According to the formula your average net worth should be = 0.1*age*pre-tax income from last year (this can be taken from your W-2).

The formula is slightly skewed for those of us who are younger and those who have just achieved a stable salary. However, if you want to know how much you should be worth this is a good approximation. If your actual net worth is higher you would be a PAW and if it's lower you would be classified as an UAW.

I just graduated from college last year and have obviously not had much time to accumulate wealth. The power of compound interest is also not on my side but I am feverishly saving and want to get to the $1 million net worth. I am very far off right now as you may be too but if we keep saving and investing the flywheel will turn faster and faster and our goal will be attainable.

--A Future Millionaire

Happiness

Money can buy us a lot of things but happiness is not one of them. We try to find the next thing to buy that will make us happy but it always falls short. We always want more, thinking that will finally fill the void. We say, "If I only had that new house or car then I would be happy." Dr. Henry Cloud in The Law of Happiness investigates what we really need to be happy by trying to answer the question, "Where does happiness come from?"

First, he breaks down a mathematical makeup of happiness (derived from psychological research):
- Circumstances account for only about 10 percent of our happiness. (This is why the new house, car, boat, job or even spouse will make you happy at first, but it will surely fade if you don't address the other sources of happiness.)
- Our internal makeup (probably composed of genetic, temperament, and constitutional factors) seems to account for 50 percent of our happiness.
- The next 40 percent comes from things that we CAN control such as our behaviors, thoughts and intentional practices in our lives.

Dr. Cloud further breaks down these things we can control into thirteen chapters each corresponding with the thirteen ways of happiness where God and science agree:
1) Happy people are givers - Giving is important not only for others but also for the person who gives. That good feeling we get inside when we give some of our time or money can bring us true happiness.
2) Happy people are not lazy - In order to be happy we must willing to invest our time into things such as building relationships, attending a small group, pursuing goals, serving others and staying healthy.
3) Happy people don't wait for "someday" - If we are always looking for happiness in the future, we will never find it in the present. Find happiness in the now.
4) Happy people pursue goals - Setting worthwhile goals and reaching them gives a sense of accomplishment that is important for attaining happiness. I recently wrote about achieving goals and how to ensure you reach your goals. In the book, Dr. Cloud introduces something similar called SMART goals, meaning you must make them Specific, Measurable, Attainable, Realistic and Timely.
5) Happy people fully engage - Those who really love what they do become fully engaged and "time flies." If we are fully engaged to what we do then we become a happier person.
6) Happy people fully connect - We can't do this alone. We need support systems from friends and family built into our life to make us happy.
7) Happy people don't compare themselves - We are all unique and have different situations. You can't compare yourself to what others are doing especially when you don't know their whole story.
8) Happy people think well - Everyday, happy people are thinking thoughts that help them to be happy, while unhappy people do the opposite. Always think good thoughts and find the silver lining in everything.
9) Happy people are grateful - Be thankful for everything that we have, instead of wallowing over the things that we don't have. If someone is not yet in their dream job they should just be thankful they have a job that can put food on the table. Thank God everyday for everything.
10) Happy people have boundaries - They don't let people walk over them and they remove themselves from negative situations. "When you change yourself, the world around you usually changes as well."
11) Happy people forgive - "The evidence confirms that when you forgive others, you are the biggest beneficiary." Forgiveness allows you to move on with your life and forget about the past hurtful event.
12) Happy people have a calling - When we realize the daily activities that we do are in alignment with what God wants for us, everything has a higher meaning and purpose.
13) Happy people have faith - Having a relationship with God built on trust is important. Knowing that He has a purpose for us will give us a great sense of calm and allow us to get through a lot of hardship.

My goal is to become a millionaire... duh. But if I achieve it at the cost of my happiness and health then the journey was for naught. All the money in the world can't buy happiness and health, so it's important we keep everything in balance on this journey and stay truly happy and healthy while building wealth.

--A Future Millionaire

A Love Affair that's Destroying our Finances

That's right. There is a love affair going on in the homes of many Americans. This affair drains money from each respective home at about $400 a month. In some instances, after 3 years your extra lover just gets up and leaves you, with nothing to show for it except pictures. Your spouse even sees you with the lover and sometimes joins in on the action (or worse) has one of their own! This lover will reciprocate altercations involving financial concerns, and therefore is the #1 cause of divorce in America. Who is this mysterious relationship destroyer? Why do we still allow them to infiltrate our homes?

I'm talking about an automobile. That's right folks, America is obsessed with cars! This may not come as a shock to you because everyone knows this. If someone gets a shiny new car they usually get many accolades like, "Wow! Have you seen Jim's new car? He must be doing well for himself." Since when did cars become the gauge of how successful a person is? Just because someone can afford a lease on a $60,000 car does not make them successful. Even if they can afford to buy the car and make payments, it's just plain stupid. A car is the largest item we buy that decreases in value. It decreases so much that as you drive a new car off the lot, it has lost up to 25% of its original value, continuing to lose 70% of its original value after four years. This sounds like a great investment to me... NOT! Now, I'm not saying that you can never own a nice vehicle. I want you to drive around in a $300,000 Lamborghini but not until you can afford it. There are some rules of thumb if you want to buy a brand new vehicle:

1) Must be able to pay cash.
2) Must have a net worth over $1 million.
3) The total value of all your vehicles (anything with a motor) should be no more than half your income.

If you buy a used car of at least two years old only rules one and three apply. If you follow these basic rules of thumb you will avoid the biggest financial mistake made by most families in America and be on your way to success financially.

--A Future Millionaire

Goals of the New Year

This is a popular time to make a new years resolution but how many of these actually turn into results? The usual question after someone announces their resolution is: "how long will that last?" Instead we should be asking "how long will it take to complete?" That's why I don't support new years resolutions, they are bound to fail every time. We instead need to make goals that we want to accomplish in the new year. To make goals work they need to encompass 5 qualities, they need to be:

1) Specific
2) Measurable (how much?)
3) Yours (not your wife's, husband's, mother's, brother's or friend's goal for you)
4) Have a time-limit (how long?)
5) In writing

Therefore the standard new years resolutions of "My wife wants me to lose weight", "I want to spend more time with family" or "My family wants me to get out of debt." Will not work! They are bound to fail. We instead need to make them goals and incorporate the 5 characteristics above. You want to get out of debt? Great! How much do you have to pay off? How long are you giving yourself to pay it off? These are the types of questions that need to be asked, answered and written down. Once you do this, your goals can be accomplished and 2012 can be the year your life turns around for good.

--A Future Millionaire