Robert T. Baker Presents for Your Delight

What It Means to Diversify
And Why It Makes You Wealthy

Your money is like your time - how you spend it makes all the difference in the world.
   There's a million different ways to spend your money. Some of it has to get spent to survive, that's life. But what about the money that doesn't have to be spent right away? Can you use it to make more money? Of course you can! In fact, that's what you're supposed to be doing with it. You also have a lot of choices about how to spend your time don't you?
   When you're young and stupid, you trade your time for dollars as a wage slave because you have lots of time, no money, and limited skills. As you mature, and as your knowledge and experience increase, your earning power should increase too. You maybe start out flipping burgers as a teenager, but at some point you learned a trade that pays better, you filled out job applications, and you did what was necessary to get a better paying job - you got smart about how you invest your time so that you could get more dollars per hour. How you invest your money (your income and your savings) needs to go through a similar maturing process. You have to put some of your income into savings. Tucking away a small percentage each week is essential for emergencies, for retirement, and to invest with. Money in the bank also helps you sleep at night.

The biggest difference between rich and poor is how they invest their savings.
   By middle age, patterns have been set and most people can get a feel for what they have to look forward to in their golden years. Of course, they only look like golden years to the people who have been investing their time and savings wisely. The rest of us are freaking out because we're looking at having to make do with less when we are barely getting by as it is. Scary!
   In the later years of life, time becomes more important than money. To still be scraping by as a wage slave at this point, feeling trapped and vulnerable, can be frustrating. Worse, not having enough money to meet your basic needs for good health and some happiness is also depressing. They say most marriages fail because of financial stress. It's important like a heart attack to get yourself set up right with savings and investments. To become one of the burger flippers who retires with a great lifestyle!

To be wealthy, put your money to work like wealthy people do.
   When you spend your money, think about what you're getting for it. If every purchase you make is an item that increases in value over time, your wealth will grow. Obviously that's not possible, but you should do as little "disposing" of your income and as much "investing" of your income as you can. Become an investor. Put your money to work. Make a point of growing your estate. That's what wealthy people do. At some point, there is enough money coming in from the investments that you will no longer have to trade most of your waking hours for dollars - the dollars will be doing the work for you. This stage of financial maturing needs to happen about the time you're sick of working.

In life, you usually get what you go after.
   As a youngster, beer and apartment rent might seem like a worthwhile investment (even though they leave you with nothing tangible), so you work, you rent an apartment and you party. If you have no ambition, you can ride that rut all the way to the grave. But if you begin a family, you might realize that what would make you feel better is buying a house and having a life insurance policy. So you go after those things. You talk to friends to learn how it's done, you read magazine articles, check out books from the library, and then you go for it. You make the phone calls, you sign the documents, you write the checks - and from that point on you can call your self a homeowner or you have your life insurance policy. You started out not having a clue what to do, but a year later it's a done deal. Becoming an investor is like that, and it's a process you must go through if you want a shot at being wealthy in the last half of your life.

By middle age, most people only have their money saved up these three ways.
   1) They have some money in a savings account. 2) They have been paying a mortgage for a while and maybe have (or had) some equity in their home. 3) Their job offered a 401K investment plan and they signed up for it. That's it. They add up the amounts for those three things, and that's what they got for retirement so far. And when they think about it, most people get a panic attack instead of being filled with a feeling of contentment. It doesn't have to be that way. Everybody has what it takes to retire wealthy right at their fingertips (some income, some information, some action) - but they never take the steps to educate themselves and make some investments.

You need a system for saving money.
   It takes money to make money so you need a way to set aside some of your income for that purpose. The most common method is a savings account. Go to a credit union (less fees than a regular bank) with enough money to open an account and sign up. ($1 will do in most cases.) It's common to get a checking account at the same time. If you like, you can have the credit union (or bank) automatically take some money from your checking account and put it into your savings account each month. Resist all temptation to withdraw any money from your savings account except for one purpose - to make more money. And even then, it shouldn't be all your cash reserves, just what you are willing to risk. If you have a problem with banks and would prefer to keep your cash in a coffee can buried under your house in the crawl space that's fine, just come up with a system that works for you.

How to really save up for retirement.
   Step 1) Make as much money per hour as you can (without hating yourself). 2) Set aside as much of that money as you can for the purpose of growing your wealth. 3) Have a diversified investment strategy. The rest of this article is going to explain what that is.

Beyond Savings Accounts.
   When you put money into a savings account the bank will pay you a fraction of 1% per year on the money you have in there. (Shop around if you like, to find the best rate before you put your money in.) They use your money to make loans, and they charge a few percent interest for that service. The money they make off the loans pays the interest on your savings account, the employees and the light bill - everybody is a winner. Savings accounts have a lot going for them. They're easy to do, you can get to your money anytime, and the goverment guarantees that your money will be there if the bank defaults. (That's what the sticker by the front door that says "FDIC insured up to $100,000" means, that if the bank goes bankrupt the government will reimburse you for your account up to $100,000). Putting money in a savings account is one of the safest investments you can make. The downside is that they pay very little in interest. It can take a long time for your money to grow in a savings account. That's why invsestors are always looking for better ways to make money with their money.

The link between risk and reward.
   At some point in your life you may have been lured into a scheme to "double your money" and got burned. Investing is a lot like gambling. The longer the odds,the bigger the winnings, but also, the better your chance of losing your money. Opportunities for quick riches are out there, but they're too risky to bet your nest egg on. You need to balance the risk with how much you stand to gain. Making investments that bring modest returns because they have modest risks is where the smart money puts most of their chips. Over time small percentages can add up to big wealth. And that's why investing is not like gambling. There are basic strategies that anybody can learn to make money with their money. There is a place for risky investing, but you need a solid foundation of sensible invesments to operate from. Slow and steady wins the race. Never bet the farm.

For example, mutual funds are not guaranteed investments.
   They can lose your money too. Some say it's a 50/50 chance. Because basically, a mutual fund is some dude (fund manager) who says "If you all (mutual) give me a bunch of your money to work with (fund), I'll do a bunch of stock trading and then give you back a slice of the profits". I've seen mutual funds pay back (grow) 33% in a year. Meaning, if you started with $15,000 in January, you could have $20,000 in December - Hooray! But if the guy were to lose 33% you could end up with only $10,000 instead - Ow! So why would anybody take the chance? Because many mutual funds have decent track records. I recently saw a materials mutual fund that has been producing around 15% for the last ten years. It might be the best performing mutual fund available today. (That 33% example I saw was many years ago).
   The marketplace is constantly changing for a million different reasons: tax increases, natural disasters, government policy changes, fashion, warfare, the weather in Florida, holidays, a foreign government collapsing, an Oprah tweet - you name it! You may have heard salesmen cover their butt with this line "Past performance is no guarantee of future results." In the financial industry, they really mean it. So why should you risk it?
   Because everybody would rather make money than lose it. Mutual fund managers have gigantic egos! To have a knack for picking winners in the stock market is to be worshipped like a god on Wall Street. These people are highly motivated to run a successful fund. Their reputation is at stake and so is the reputation and the money of the people who hired them. If they do well, the are richly rewarded with a salary and bonuses, and get articles written about them in magazines. If they lose a lot of money, they get fired and they get magazine articles written about them - but not the kind they want anybody to see. It's like being run out of town.

The worst thing you could do would be to put all your savings into the highest paying mutual fund.
   Sure it would be wonderful to put $35,000 into a mutual fund on January 2012 and have $53,000 by December 2014 (which is what 15% growth in 3 years works out to). But just because a fund has been doing it for ten years doesn't mean they can keep doing it. Everything is fluctuating all the time.
   One reason a mutual fund can take a dive is a change in management. If a successful fund manager retires and the new guy doesn't do as well, a fund that had been earning a steady 8% for years might suddenly have a string of bad years. How do you prepare for that? Of course you need to actively monitor what your investments (and the people behind them) are doing. But even if you do all your homework, stuff is going to happen and money is going to get lost occasionally. The key to weathering bad investments and still continuing to grow your investment portfolio is this: Don't put all your eggs in one basket. That's what diversifying means.

An example of how to protect yourself using diversification.
   If you have $30,000 that you want to invest in mutual funds, you pick the three best funds you feel comfortable with. (By the way, for many people, the rate of return is not the only factor in choosing where to invest. Each mutual fund has a specialty. If you think alternative energy is the future, there's a mutual funds that picks only those kinds of stock. If you don't want your money invested in companies that do animal testing, there are green funds you can feel good about. If you think mining companies are a shrewd investment because we will always need raw materials, there's a fund for that.)
   You then invest in the three funds evenly, with $10,000 in each. If they are earning 5%, 10% and 15%, then that's an average of 10% a year - and that's good! Avoid the temptation to put all your money in the highest paying fund - because if it loses money for the year, then you lose money for the year. By staying evenly invested in all three funds, you are semi-protected. If any one of the three has a bad year and loses 5% (even if it's the fund that was earning 15%) you would still come out ahead and make money with mutual funds for the year. If all three lose money, you protect yourself by not having all of your money in mutual funds! Hopefully your other investments can make up for the loss in that area. That's how diversification can protect you, and that's why it's crucial to your investment strategy.

It's more than just covering your ass.
   So far we've been having the typical discussion about diversifying your investments - coving your butt in case one of your investments takes a dive. But that's only one side of it. The real genius of diversifying your investments is that you can use that safety net to your advantage and make a few investments that are a little riskier, but have the potential to bring you a much greater return than the slowest and safest path to growing your savings.
   In Consumer Reports (March 2012) their annual surveys showed this interesting statistic. People who have money invested in three or fewer investments usually had less than a quarter million dollars saved up. People who have seven investments or more averaged over a half million dollars saved up! And it doesn't seem to matter a whole lot what income bracket people are in. People with incomes under $85K who used seven or more investment vehicles had a savings of $368K - but people in the 125-199K income bracket with three or less investments had less saved up at $315K. Twice the income doesn't always equal twice the savings.

Ulitmately, the reason diversifying works so well is that it makes you an active investor.
   To have only three investments going on (savings account, house payment, 401K automatic deduction) is not really doing anything. People who have seven or more investment vehicles in their investment portfolio are more active. They're comparing rates, moving their money out of poor investments, balancing the risk, watching market trends for investment ideas, etc. As you monitor your money, nursing the seeds you've planted and planting new ones, you'll be more involved in the marketplace and you will discover new opportunities as they are on their way up. You will also get a feel for danger signs when it's time to move your money out of an investment. Surely there will be mistakes made, but as the years go by and you get into your routine (maybe Wednesday nights) and discover your style (maybe you tend to overreact and realize it's better to wait a day before buying/selling) - you will become more knowledgeable and make more money.

Becoming an investor is not rocket science.
   Although a lot of financial advisors and investment companies would like you to think it is. They're job is easier (and more profitable) if you know nothing and just hand over your money and let them make the investment decisions for you. A lot of amateur (part-time) investors are making way more money than the professionals. Nobody cares about your money like you do.
   Look at it this way. At first, learning to drive is complicated because you need to learn how to operate the car, learn the rules of the road and pay attention to everything that's happening all around you. But within a few months, when the routine becomes familiar, it's just another one of those things that you do. Becoming an investor is like that. Like learning a new job. Everything seems overwhelming at first, but after you learn the basic system, it's just the details that change.
   If you could hang out with a millionaire who spends weekdays at her home office just managing her investments (reading her mail, looking at charts, deciding when to jump in on an investment and what the exit strategy is, that sort of thing) you would eventually learn their patterns, their system for moving money around so that it grows as fast and as safely (to her) as possible. Maybe her money grows 17% a year.
   If you spent time with another millionnaire you might find she spends her weekdays sailing and wine tasting. On Saturday mornings she reviews her newsletters and email to see what's going on with her investments. In the afternoon she meets online with her investment club and they talk about how to do better. Maybe her money grows 11% a year. (Or maybe the percentages are the other way around!)
   What's important in both examples is 1) the money is doing most of the work and both are living life on their terms, doing what they enjoy, and 2) nobody was born knowing how to invest, it's a skill that you learn like swimming, and 3) anybody can start small and work their way up.

What exactly are the investors doing?
   What you would find is that everybody is doing pretty much the same thing, there's just different flavors. Investors use many of the same websites to get their information. Everybody is using the same handful of brokers to do the actual buying and selling. And everybody is investing in the same New York Stock Exchange and NASDAQ. (Although there are other stock exchanges like Tokyo, London and Toronto if you feel like investing internationally).
   The biggest difference between investors is their style or philosophy. Some folks are more comfortable making long term investments with part time effort. Some folks don't want their money tied up in any one place for very long and they're happy to check their computer every weekday morning and evening. Whatever the personality, most people will find a magazine or newsletter from an investment guru who matches their style and they subscribe. Lots of investors at some point have read books or attended seminars to learn a special "buy low, sell high" technique - but there is no formula that works every time because the real world is too complicated for that.
    People like you just give it a whirl, starting small and slowly expanding/ diversifying their investments over the years. Join them. Within a year or two you'll understand the basic strategies that everybody is using and by expirementing a little you should be able to find a system that works for you. For example, the price of gold has doubled in the last four years. That's like 20% growth per year. Buying a gold coin every three months (or whatever you could afford) would have been an excellent strategy to grow your savings these past four years. Who knows, it might still be a good idea for another ten years, it's worth looking into. Everybody in the financial world has been talking about the big rise in gold for years. This isn't inside information. If you were plugged into the investment world even just a little bit (like with one magazine subscription) you would already be aware of this and could have jumped on board.

The fundamentals of being an investor.
   1) Monitor your investments. (Actually read the statements they send you.) 2) Stay informed about changes in the marketplace. (When digital cameras came out, that would have been a good time to sell your Kodak stock.) 3) Keep an eye out for new opportunities (when the iPod came out, that would have been a good time to own Apple stock.) 4) Use a mixture of your knowledge and your intuition to make new investment decisions, or to sell off investments that aren't performing as well as you like. 5) Keep diversifying to protect yourself from losses and to risk new investments. You don't need to be right all of the time, just a lot of the time. Sure it's all new and scary at first, but many folks find it to be very interesting and a lot of fun.

Where to begin.
   Start simple. Subscribe to a financial magazine. Go to a big library or bookstore and find one that seems readable to you. Money or Fortune might be good choices for beginners. Put the magazines in the bathroom or the car or somewhere else where you are bound to read them a few times a week. As the weeks go by you will see the same lingo over and over again. You'll learn what the words mean. By reading the articles you will learn how other people invest and you'll see that everybody has their own opinions about what's the best way. If you have a savings account that is paying you interest - congratulations, you are already an investor! Why not take it to the next level.

Buy stock in a company you like.
   If you like eating at McDonalds, become a part owner and buy some shares of their stock! It's a very well run company that has been growing since Day 1, I don't think anybody is feeling nervous about holding on to that investment. (That's one reason their stock costs more than "penny stock" companies you've never heard of.)
   Buy a couple shares of the companies that you regularly buy from. You'll learn a lot by reading the newsletters they send you and by looking up how the stock is doing and by seeing what factors are affecting the price of the stock. Who knows, as a shareholder, you might get a dividend check, which is an annual interest payment to you for loaning them the money. You'll feel differently when you go shopping there too, because you'll be helping to support a company that you are now own a part of.

How do you buy stock?
   You set up an account at a brokerage house. Maybe you've heard of E-Trade or Charles Schwab to name a couple. is good for beginners because they only require $500 to open an account and they are well known for their excellent service. Once your account is set up, you are free to shop and buy stocks, bonds, mutual funds and everything else they offer. Every brokerage firm charges a small fee for doing a transaction. Once you know what kind of investor you are, you can shop around and find the brokerage house that has the best rates for the kind of trading you want to do. Although I wouldn't trust everything says, I found their site to be helpful for comparing the different firms.

Practice on paper.
   Afraid of losing money? You should be! Everybody is when they start out, and it might take some time for you to find the right investment strategy for your personality. A brilliant method to help you get up to speed is to practice on paper. Do your homework, pick the stocks or funds that you would like to participate in and then pretend that your money is on the line. Check your investments weekly and track how well you would be doing if you had put your money in. It's a great way to learn without risking anything.
   Even better, since this is the computer age, you might want to try or something similar. They are a brokerage house that lets you open a virtual account for free, where you can "pretend buy" stocks and other investments to build a virtual investment portfolio, and then track how it's doing without any of your money at risk. When you feel confident that you can make money with your invesment picking skills, then you can buy for real.

You're not alone.
   Many of the brokerage firm websites offer a ton of useful tools, articles and forums to help you get up to speed. There are also thousands of other websites offering the same thing. Millions of people, just like you, all over the world, are trying to figure out how to make two dollars out of one dollar. What's neat about the internet is there are so many communities of investors, of all skill levels, talking about what's working and what's not, and why they think that is.
   Here's a great thing about human nature. People who have a knack for trading are eager to boast how well they can do. And they are happy to share important tips because they want you to idolize them. It seems at (a brockerage house) there is a social network atmosphere where investors can be ranked by their rate of return. If you see somebody regularly generating over 20% growth in a month - it would probably be worth finding out what their picking.

Some traditional investment vehicles - a quick comparison.
Savings Accounts. It's putting your money in a bank account. It's a safe investment, but the return will be less than 1%. Another advantage is that you can get the money back in your hand quick if you want to (that's called "liquidity").
Certificates of Deposit (CDs). Like a savings account, but you agree to not take your money out for a certain period of time (like 1-5 years). It pays a little better (like 1-2%). If you withdraw your money early, there will be fees for doing so.
Bonds and Notes. These are called debt instruments, and they are used by governments, corporations, or whoever wants to raise money for a project. When you buy a bond or a note, you are lending your money to the issuer of the bond or note and they are promising to pay you back at a certain time with interest. Notes "mature" (pay back) in under ten years, bonds mature in ten years or more. Bonds and notes issued by the US Govt are considered safe, but smaller corporations or city governments (municipal bonds) are at risk of not paying back like they said they would. A Treasury Bill (T-Bill) is a type of note from the US Gov't that you may have heard of. Debt instruments can give a better rate of return than a CD, how much more will depend on the credit risk of the issuer and how long you have to wait. Some bonds will pay you interest while you are waiting for it to mature, and there are a lot of people who will buy your bonds or notes off you if you need to cash out.
Stocks. These are shares of a company. As a shareholder, you own a part of the company. If the company does well, they may pay out dividends to the shareholders. The stock certificates (shares) are of value to investors, and how much investors are willing to pay for them will fluctuate depending on the company, the economy and the marketplace. If you buy them low and sell them high, you make money. Also, companies can do a stock split - which is when one share is split into two shares (a $100 share becomes two $50 shares). One of the reasons companies do this to make their stock more affordable. Microsoft stock has split nine times since their beginning. Which is why if you bought thousands of shares of Microsoft in 1986 and held on to them you are a happy guy today. They have returned over 20,000% to their initial investors. On the flip side, bad management can run a company into the ground and stock is worthless when the company is no longer around.
   There are lots of ways to measure how the stock market is doing, and most agree that the stock of America's most important companies increase in value over time. Dow Jones measures who they think the top 40 are, S&P tracks the top 500 stocks. (Companies like: Boeing, McDonalds, Proctor & Gamble, Walmart and General Electric.) According to S&P numbers, three out of four year stocks increase in value, one out of three they drop. Since 1973, there have been 7 years where growth was over 30%, and there was only one year where the value dropped more than 30% (in 2008). And by the way, there's a practice called "short selling" which makes it possible to profit when a stock price goes down if you're into that.
Collectibles. Objects that are rare but desired by many. Artwork, baseball cards, dolls, classic cars, old coins ("numismatics" is the technical term those fall under), antiques, fine wine, etc. They can be fun to own, and as time goes by the objects tend to get rarer and can be worth more than you paid (as long as there are still people interested in owning them.) The downside is that cashing out can take a while, there is no interest payments along the way, and they can be easily damaged.
Real Estate. Land and buildings. Buying a building and renting it out has been one of the most successful strategies to make money ever. Especially when you buy the building using OPM (other people's money). There are tax advantages to owning real estate too. Plus, no matter how bad the economy may get, real estate will never be worth zero. You can do a lot with real estate: create rental income, buy distressed property and flip at retail price, make improvements and sell, or buy land and forget about it (as a long term investment, yes there are property taxes, but it's safe, it's not going anywhere).
Precious metals. Gold, silver and platinum are the most common examples. But there are others. You can buy it as a bar (bullion), coins, or as certificates. The company issuing the certificate will hold the gold for you which might be safer for you, and buying and selling the certificates is easier than shipping the gold all over the place. Gold has been desired by human beings for as long as there have been human beings, and that's not likely to change. All precious metals are needed for industry as well. Almost all investment gurus suggest having some gold in your invesment portfolio.

Being diversified means using as many investment vehicles as you feel comfortable with.
   CDs, T-bills, mutual funds, individual stock, gold coins, silver bullion, real estate, a classic car - why not own a little bit of everything! Use diversification to spread the risk around and to be a part of the action that is doing well in the current market conditions (like gold). If you are starting out and all you can afford to put away is $50 a week, a classic car might be out of reach for the moment - but stocks, silver coins and deposits into a savings account are all doable.

The world is filled with investment opportunities - investing should not be boring!
   Beside the traditional investment vehicles, you can invest in anything that you think will increase in value over time. If you've ever watched The Antiques Roadshow, you've probably seen the darndest things be worth a lot of money - don't throw out your grandma's old baskets without looking them up first! If you have a hobby you enjoy, you might be able to combine some of your time with your investments and make even more money - like the millionaire I know who loves fixing Packards, he's been doing it his whole life. Many house flippers are in this category - they have a passion for real estate because buying and selling houses can be exciting! People who bid on abandoned storage units get the thrill of treasure hunting, and with practice, they get good at it.

The most undervalued investment I can think of.
   Established businesses that run themselves (with experienced manager and staff) are for sale all over the place because the owners want to retire, they died, or they want to do something different. These businesses can be suprisingly inexpensive for what you get - the thrill of owning and running the enterprise, and usually all your money back within one to three years. At that point you could resell the business and double your money. If you have some business acumen and you buy a profitable business from a guy who did a thousand things wrong but succeeded anyway just because he was in a great location for example - that kind of investment opportunity can make you rich! Think outside the financial advisor box.

Every investment has it's upside and it's downside - be prepared for the worst.
   A classic convertible Corvette (sold for thousands, now worth tens of thousands) can be a great investment, especially on a sunny day. But you can lose it all if a tree falls on it or it gets stolen. Spread the risk around. If a thief or a garage fire can financially ruin you, you're not properly diversified.

Diversify your income.
   Diversification is not just for your investment portfolio. Apply the concept to how you work. Bring in as many streams of income as you can. If your job is your only source of income and the company you work for decides to call it quits - it puts you in a difficult position. By having several sources of income it softens the blow when one of the sources dries up. Plus, you might find that a secondary source of income has the potential to make you more than your primary source of income - and you would never have known that if you hadn't tried.

Diversify your skills.
   My Dad told me that one of the best things he did for his engineering career at Boeing was taking a marketing class! One of the key concepts he learned was to focus on the benefits, not the features. For example, "it shuts off automatically" is a feature, "it won't burn your house down if you forget to turn it off" is the benefit. Turning his list of features into a list of benefits dramatically helped him with his proposals, resumes and presentations. Instead of being slotted in one career at Boeing he was able to market himself and get bigger, better paying jobs within the company. (And just as important, jobs that were more exciting to him.)
   Whatever your career is, you should consider training for the next stage. As the decades go by you'll be moving up the food chain. And the more skills you have, the more options you have. Invest in yourself. Later, ultimately, your career as an investor should pay all your bills. Going to work should be voluntary.

What's the opposite of diversifying?
   Missing the boat. Doing nothing. Doing the same old thing. Being vulnerable to change in a world that's always changing. Hardship, stagnation, poverty and misery. So sad. So avoidable. So get out onto the dance floor and shake that thang!

By Using The Power of Compounding Interest
You Can Retire As A Millionaire
With Only A Minimum Wage Job!

Many of us think that the only way to get rich is to have some sort of super-job with a big salary, or to win a huge lottery, or be given a large inheritance - but that's simply not true. Almost all of us, with our low-class or middle-class job, earn enough to retire wealthy by middle age. There are two reasons it doesn't work out that way and it started going wrong when we were young. 1) As young adults most of us got zero training on how to budget our money. 2) Nobody taught us how to use our money to make money. So we blow it.

Here's a little story to show the power of budgeting and 7% interest. A middle aged woman, starting over, gets a cleaning job at a restaurant earning $8 an hour. She works 40 hours a week (= $320/wk), the government takes 25%, so she nets $240 each week with her paycheck. She lives in a camper van parked behind the restaurant. The restaurant owner lets her park there rent-free because she keeps an eye on the place. As she cleans tables she throws out many pounds of food. Occasionally she puts a slice of untouched meat, vegetable or toast into a zipper bag she keeps in her apron. Other employees see her do this but they don't say anything. She eats for free.
  Each week she keeps $40 cash to buy toiletries or the occasional treat. For entertainment she goes walking, listens to the radio and reads books she gets from the library. She drinks water from the tap. Since she usually spends less than $20 on herself in a week, the other $20 that doesn't get spent adds up over the months to hundreds of dollars in her purse. ($20 x 52 weeks = $1,040 per year).
  The other $200 per week from her paycheck she invests in a no-load mutual fund that earns 7% interest per year. She knows there are other funds out there that might earn her more than 10%, but she doesn't want to invest in anything too risky and lose money. She's comfortable with only a 7% return. In a year there are 52 weeks, but she gives her paycheck to charity 2 weeks of the year so our math is nice and simple. 50 weeks x $200/week = $10,000 per year that she puts into the fund.
  After 20 years she quits, buys some cheap land in the desert where it's always warm, plants a garden, and lives comfortably off $2,000 a month for the rest of her life (plus Social Security) knowing that her account will continue to grow. She also likes having access to large amounts of money if she needs it.

How to read the chart. At the end of the Year 1 she has put $10,000 into the fund. If the full $10,000 had been in the fund a full year we would add 7% interest ($700) to the account. But the money trickled in over the year ($200/wk), so we will say the interest earned for Year 1 is only $300 which gives the account a total of $10,300. Read the table left to right, line by line. For Year 2, we again add $10,000 to the account, plus the $300 that was earned as the money trickled in, but we also add $721 which was the 7% interest earned on Year 1's money for a new total of $21,321. (LYB = Last Year's Balance) Look carefully what happens over time.

Year # Put Into
Plus Last Year's Balance Plus 7% on LYB Equals
New Balance
1 10,000 300 0 0 10,300
2 10,000 300 10,300 721 21,321
3 10,000 300 21,321 1,492 33,113
4 10,000 300 33,113 2,318 45,731
5 10,000 300 45,731 3,201 59,233
6 10,000 300 59,233 4,146 73,679
7 10,000 300 73,679 5,158 89,136
8 10,000 300 89,136 6,240 105,676
9 10,000 300 105,676 7,397 123,373
10 10,000 300 123,373 8,636 142,309
11 10,000 300 142,309 9,962 162,571
12 10,000 300 162,571 11,380 184,251
13 10,000 300 184,251 12,898 207,449
14 10,000 300 207,449 14,521 232,270
15 10,000 300 232,270 16,259 258,829
16 10,000 300 258,829 18,118 287,247
17 10,000 300 287,247 20,107 317,654
18 10,000 300 317,654 22,236 350,190
19 10,000 300 350,190 24,513 385,003
20 10,000 300 385,003 26,950 422,254
21 10,000 300 422,254 29,558 462,111
22 10,000 300 462,111 32,348 504,759
23 10,000 300 504,759 35,333 550,392
24 10,000 300 550,392 38,527 599,220
25 10,000 300 599,220 41,945 651,465
26 10,000 300 651,465 45,603 707,368
27 10,000 300 707,368 49,516 767,183
28 10,000 300 767,183 53,703 831,186
29 10,000 300 831,186 58,183 899,669
30 10,000 300 899,669 62,977 972,946
31 10,000 300 972,946 68,106 1,051,352
32 10,000 300 1,051,352 73,595 1,135,247
33 10,000 300 1,135,247 79,467 1,225,014
34 10,000 300 1,225,014 85,751 1,321,065
35 10,000 300 1,321,065 92,475 1,423,840
36 10,000 300 1,423,840 99,669 1,533,809
37 10,000 300 1,533,809 107,367 1,651,475
38 10,000 300 1,651,475 115,603 1,777,379
39 10,000 300 1,777,379 124,416 1,912,095
40 10,000 300 1,912,095 133,847 2,056,242

If you don't think 7% is anything to get excited about, look at Year 22. $10,000 times 22 years equals $220,000 in deposits - but instead, there's over a half million dollars in the account - over twice as much! At the end of 31 years, there's not just $310,000 in the acount - THERE'S OVER A MILLION DOLLARS IN THE ACCOUNT - over three times as much! So it's easy to imagine, that if you were to get a dishwasher job at The Fig Garden at age 18, and work there for 40 years - so long as $192.31 (which is $10,000 divided by 52 weeks) goes into the savings/investment account every week - you could retire at age 58 with over $2,000,000 in the account (over five times what was put in) and the interest bringing in over $140,000 a year. In this situation you could spend $100,000 every year for the rest of your life and your investment fund would keep on growing. Even though the hourly job never paid more than $25,000 a year!

These examples are extreme, it would be difficult to live off $40 a week. But people all over the world are using a similar strategy every day - because the numbers add up. Overseas a young family might find work in a sweatshop. They sleep on a dirt floor and eat nothing but rice and flies for thirty years - but they put every spare cent into the retirement account their parents began. Then when the time is right, they emigrate to America and buy apartment buildings and mini-marts! They still eat rice and flies though, a lifetime of frugal habits are hard to break. (I'm being impolite.) But these kinds of success stories do happen - especially in a culture where delayed gratification is seen as a virtue and pleasure seeking is seen as a vice.

As you can see from the table above, the big money doesn't start rolling in until the balance in the account is large. It can take decades to build up. Once these accounts are established, they can continue to grow and be of benefit to your family for generations. Ever heard of "old money" or "trust fund kids"? That's what's going on - people living well without ever having to work because of the investments their grandparents made. A hundred million in a 3% savings account brings in three million dollars a year. The rich get richer and it's a beautiful thing because nobody is getting hurt. In fact, most of us like it when banks have money to lend. And corporations like it when people buy their stock so they can invent new products, build new factories and hire more people. And governments like it when you buy their bonds so they can build bridges and boondoggles - and they really like it when you make money because they have a tax for that. Everybody wins because money makes the world go 'round! Nobody has invented a better system yet, so we might as well go with what works. Yay Free-Enterprise Capitalism!!

Working hard is not always enough to be wealthy - you have to be smart with your money too. That takes knowledge and self discipline. Fortunately lots of books have been written on those subjects to help you. It would be nice if, as teenagers, our schools made us take a class called "Money: How to make it, budget it, and invest it." But the system is rigged to keep us poor and powerless. It's up to you to overcome the obstacles and set yourself financially free.

You Need Money To Be Happy!
You Need A Plan!

Forget winning the lottery. The only consistent winner at that racket is the Governor. A great paying career is fantastic - but only if you have one, and you like the work and the people. For the other 98% of us (I just made up that statistic, but it might be close) - you need a plan. Here's one you can try. It's a ten or twenty year plan, but you can adapt it to your personality and circumstances.
FACT: Most people who are wealthy didn't get that way suddenly, they came up with a plan and worked it. Over time, the efforts of working a plan can pay off. The idea behind this plan is to create several streams of income over the course of years, with part-time effort.

STEP 1: On your birthday (it's a good time to start new projects), decide this: Within two years you will have created a side business that brings in $50 a month. It could be anything: renting out space, buying old toasters at garage sales and selling them online, dog watching, blogging, yardwork, commodity trading, printing tee-shirts, playing cards, whatever. Brainstorm a list of ideas right now, keep it with you and add to the list as you think of new ideas. Next, pick something and try it. If it doesn't work out, try something else. Sketch out a business plan that includes market research (seeing how other people are making money with the idea), marketing (how you can reach customers), fulfillment (making the customer happy and getting paid), and oversight (making executive decisions about spending, cutting, planning, etc.). That's enough of a plan to start. You'll learn more by doing, so it's not wise to spend a lot of time planning (unless a lot of money is at stake, but this should just be hobby money for now). Instead, update the plan as you go along. Focus on making sales and putting cash in your pocket.

STEP 2: (Two years later) Step 1 was the warm up. Because now you are going to repeat the process but aim for a bigger prize. Within the next two years, you are going create a business that earns you $200 a month income. (Or whatever you are comfortable with.) During the previous two years you should have been preparing for this moment with an eye out for new opportunities (customers who need satisfaction and they are willing to pay for it). Within a week you should be able to have a rough idea of who is making money in the marketplace and how - and how you can get involved. The process is this: get an idea, do some quick research, come up with a simple plan, test your idea/strategy, then advertise and expand if the idea seems worthy.

STEP 3: By now, going into years five and six of the Mo' Money plan, you are getting into a groove, with ideas popping into your head routinely. Again, shoot for a slightly bigger target. If you barely made $150, well then just go for $250 for this two year push. If you exceeded $150 a month easily, then shoot for $500 a month or more. Give yourself a target to strive for, it helps.

STEPS 4+: Every two years you should have a routine of testing an idea, then rolling it out on a larger scale if the test looks promising. Even if your goal is only $200 per month each time, over time a few things are going to happen. The income from each of these businesses is going to add up. (Hopefully you can run them with minimal effort, maybe hire a helper to do most of the work.) If at the end of ten years you have three solid businessess averaging $500 a month, that won't make you rich, but it's a great place to be working from for the next ten year push (with all the experience you've gained, new business contacts you've met, and positive cash flow).

THE ULTIMATE GOAL: As you strive to bring in several streams of income, each effort is like rolling the dice. Sometimes you'll get nuthin' Sometimes you'll break even. Sometimes you'll do okay. But eventually, you're skills are going to match up with the right opportunity and you'll be blessed with the thrill of owning a successful business that makes all your dreams come true. Oprah Winfrey took a weather reporter job and turned herself into media mogul within twenty years - one step at a time. If it turns out that at the end of twenty years you aren't making six figures a year, but you do have six businesses bringing in an average of $500 a month and you are your own boss - that might be preferable to working full time for somebody else for more money. And that next project just might be the roll of the dice you were looking for.
   You might also find that working the same plan over and over again works well for you too. I know a guy who split his small rambler house into a duplex and with the rental income (and living on a budget) he bought the house next door several years later. It was a three story house so he turned it into three rentals. Today he owns every building on the block and lives a couple miles away in a million dollar home. He worked a simple plan step by step.

A DISCLAIMER: I'm not comfortable giving financial advice. What I'm presenting to you are ideas to think about. My information might be incomplete, out of date, or completely wrong. If you get inspired to act, definitely do your homework so you know what you're getting into.

         Need Money Making Ideas?
The largest marketplace in the world is right in front of you. To participate, all you have to do is log on. Buying stuff off amazon and ebay is easy. It turns out, selling stuff on those sites is pretty easy too. To be in business you don't need an office building, a secretary, fancy letterhead, or even a business card! A laptop on a kitchen table can be your portal. If you choose to use the dropshipping technique, you can sell stuff that you don't even own! The best book I've seen on earning money with the web is Moonlighting on the Internet: 5 World-Class Experts Reveal Proven Ways to Make Extra Cash. If you want to know how people are making money online, I heartily recommend this book to get you started. I'm working at it now (the link below is an example of affiliate marketing), and later I'll share what I learn.

                  Did You Know?
The Government needs Real Money to fund its schemes, campaigns and beauracracies. Sure they can use the fake stuff they're printing up, but the value has to come from somewhere.
   Real Money comes from creating wealth the old fashioned way. Like from a farmer investing a year of his working life into a plot of land with some seed, water and sunshine (and maybe a mortgage or some tractor payments).
   And if, at the end of the season, the farmer has more money than he started with at the beginning of the season, then he has created wealth, Real Money.
   When the farmer hires a carpenter to build a new farmhouse, real wealth is created, both in the house and the building of it. Through their actions, industries and families throughout the region get a chance to create wealth for themselves, and the industries they support. It's a self perpetuating cycle of prosperity, community, and technological advancement.
   If you support your government, your nation, and your contryrmen (and countrywomen), and really, the whole idea of civilization in general - then it is your civic duty to create as much Real Money as you can and then spread it around to Uncle Sam, Corporate America and the little Ma and Pa shop in your neighborhood. We're all counting on you to make something of yourself.

If you're having trouble with generating enough money, maybe you're not looking at it right. Stuie is a lot of fun to read, and he has all kinds of interesting ideas worth considering.

Contact with questions or comments.
© 2012, by Robert Baker. All rights reserved.