• 03:21:58 am on November 24, 2008 | 13
    Tags: , , , , , ,

    Choosing the Right Vehicle for the Trip?

    Scott seems to have his path pretty much mapped out; of course, combining business interests with investing is no ‘walk in the park’, as we’ll see later … but, I think Scott’s got a good chance of getting there: what do you think?

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    So you’ve figured out your number, that is, THE NUMBER that will enable you to live the life you’ve always dreamed of living, starting in the time frame that you would like to begin. Now what? How are you going to get there? Or in another way of looking at it, how will you choose the right vehicle for the trip to get you there?

    For myself, after coming to the realization that I don’t actually need quite so high of a number in the next 10 years to fulfill my life’s purpose as I previously thought, I now have to pick the right vehicle, or investment vehicle that is, to be able to make this trip in due time. I pretty much think of this “trip” and this “vehicle” in much of the same way that I would think of any other form of traveling.

    For example, living in Louisville, KY, if I needed to get to Indianapolis, Indiana in the next 3 hours, it would be very reasonable for me to make this trip by car. Seeing as though this is about a 2 1/2 hour driving trip, automobile transportation would be the best mode of travel, possibly getting me there a few minutes early to spare. But what if I needed to get to Los Angeles California in the next few hours? Well a car just ain’t cutting it! I’m going to need an airplane. You get the point.

    This is kind of the way I see the next stage required for all of the 7 Millionaires in training (and any of you following along and applying these principles of wealth building for yourselves). Adrian has kindly pointed out a table for us all to follow, courtesy of Michael Masterson, that simply shows various percentages of annual required compound growth vs. the vehicle needed achieve that growth, eg. cd’s, index funds, stocks, etc…that is needed to get you to where you currently are to where you NEED to be:

    According to Michael Masterson in his book Seven Years To Seven Figures:

    Required Compound              Investments

    Growth Rate                             Required

    4%                                                  CD’s

    8%                                           Index Funds

    15%                                              Stocks

    30%                            Real-Estate together with Stocks

    45%              Real-Estate together with Stocks and Small Businesses

    50%+                           Start Your Own Business

    And looking at where I am starting out in net worth on this journey vs. where I need to be:

    picture-11

    It appears that I will need a 40% annual compound growth rate in order to land safely at my final destination over the 10 year period, from where I am departing from.

    Now to back things up just a notch, my original vehicle of choice, even before getting to this stage of decision making on how I’m going to pull this off has been to use an expected combination of real estate together with stocks, all the while “fueled” if you will, by money seeded from my small business. As you can see, these tables match my personal goals completely across the board.

    More specifically, I’ve estimated that I can invest an average dollar amount of between $3,500 to $5,500 per month beginning this January 2009 from my business, after personal living expenses are met at my family’s current chosen level of lifestyle. I can continue this amount of investing for 3 years due to expected income from business revenues, however, in 3 years, this amount will increase to approximately $8,000 per month to invest over the remaining 7 years of my 10 year journey. This is if I choose to do nothing else but continue to get dressed and head out to the office 5 days a week (and stay healthy and motivated to do so, of course, but more on this later, as I pursue additional businesses with which to gather more “seeds” from ).  When I put these figures together and apply this “seed money” toward an expected annual compound growth rate of 26.3%, I’ll finish with $4,050,000.00 in exactly 10 years.

    However, if I jump in a bit more powerful “jet” , let say, perhaps pushing the annual compound growth rate on up to around 40%, I can reach my destination between 7 and 8 years instead.

    So I guess the next question to ponder would be “How willing are you to upgrade your mode of transportation?”

    I hope some of us aren’t afraid of flying!

     

Comments

  • Diane 1:04 pm on November 24, 2008 | #

    Good plan, Scott! Where does paying off your student loans fit in with your choices for the $3500-5000 you’re going to start investing in January 09? Will those be allowed to trickle along due to their low interest rate? How were you able to find the $3500-5000 (or make it available)? Was this thru applying Making Money 101 (paying off another debt) or through working a sideline or another investment that is part of your Making Money 201? Inquiring minds want to do it, too! 🙂

  • Scott 2:16 pm on November 24, 2008 | #

    Thanks Diane, I have elected to continue paying only the minimums on my student loan because I consolidated them to one fixed payment at 2.8% interest 2 1/2 years ago and due to everything I’ve learned while being one of the 7 MIT, I see this debt the same as a mortgage. The interest rate, like the mortgage on my home is so far below what I can achieve investing in real-estate, businesses and stocks that I wouldn’t dream of using precious capital to pay them off early.

    As far as finding the extra cash per month to invest, it was more of a matter of increasing income through increasing clinic ownership and keeping lifestyle relatively low. I’m very fortunate that the 10 years of sacrifice in college work and 4 degrees enabled me to earn a terrific income as a doctor(I think of those 10 years as an “investment” that I made in my future earnings much the same way a regular investor does) and I insist my family and I give every dollar a name every month so we live on significantly less than we could and this is what ‘frees’ up the investing money.

    However, even if our household income was 1/3rd of what it is now, we would simply live on even less(ie, we would have a $750.00 mortgage, instead of a $2,400.00 one, etc…across the board on all expenses,)pay off bad high-interest consumer debt, then stay away from consumer debt, and use this money that would otherwise be sent to visa, mastercard, discover card, etc..to fund investments. In other words, same method, just using smaller amounts of cash but still getting to the same destination.

    One of the lesson’s I’ve learned about money so far is it’s not about how much money you make, it’s about how well you manage the money you make….which will eventually lead to you having MORE money to manage.

    Hope this helps.

  • Moneymonk 3:48 pm on November 24, 2008 | #

    15% Stocks” if u lucky, I rather Real-Estate together with Stocks and Small Businesses ….yeah baby!!!

  • AJC 6:13 pm on November 24, 2008 | #

    @ Diane – I’m glad that SOMEBODY pays attention to what I’m saying 🙂

    @ Scott – Your post goes some way to answering Josh’s question (that he sent me) about whether to go for an MBA or not … no doubt it’s a great investment; but, on it’s own, it wouldn’t have got you to your Number/Date. However, the Making Money 101 lessons that you learned – and, the ‘investing income’ that you are accruing – in the process of acquiring these degrees then using them, just might!

    @ MoneyMonk – You said it, Baby!

  • Josh 6:16 pm on November 24, 2008 | #

    Sounds like a good plan Scott. Seems to me like your taking the train. A determined, steady mode of transportation.

  • Debbie 7:27 pm on November 24, 2008 | #

    @Scott – you made good choices along the way, unfortunately I think many people have already gone outside their means and are now faced with debt and very little (if any!) extra money each month. Did you not have any private education loans? My private education loans have much higher interest rates than 2.8% (and you can’t consolidate those with federal, unfortunately). Bummer. But yay for you- looks like things are all falling into place for you!

  • Scott 8:31 pm on November 24, 2008 | #

    @ Moneymonk – That’s pretty much what I meant with my plan; real-estate together with stocks and small businesses. Didn’t really put any credence in my post to the order, but you get the point.

    @ Adrian – Yeah, I would seriously look at the “big picture” of the MBA first before pursuing if it were me; Would the degree provide enough ‘seed money’ to fund your investment vehicle of choice to get you to your required NUMBER by your required DATE? That’s the question I would have to answer for myself.

    @ Josh – Thanks Josh. Although I plan to open up a couple more clinics, which will be like dropping a couple of twin turbos in this train, lol.

    @ Debbie – Been there, done that too. I was waaay over 2ook in the negative when I started out(and that doesn’t include a mortgage!). Yep, your heard that one correctly. When I was finishing up my last semester of school, we had 2 cars that totaled 40k of debt, over 20k in credit card debt, 2 personal loans of 10k each, my wife’s 11k student loan, owed our first born to a couple of banks, etc.. and our household income TOTALED about 35k. If there was a way to be stupid with money, unfortunately I did it! But what valuable lessons I learned that are worth far more money than the debt I paid off….As Dave Ramsey put it, we got on beans and rice, rice and beans and started hacking away. As we began to manage our money better and started stacking the debts with the debt avalanche, something strange began to happen, the money coming in kept going up, and not just my income. My wife kept getting raises and nearly doubled her income while I was raising my income, so the same principles work for anyone I think.

    As far as the private loans, no, Sallie Mae funded all the graduate work and I did an enlistment in the Army out of high school that gave me the Army college fund to take care of all my undergrad work. Growing up in trailer parks, I didn’t see much of a chance in paying for college at the time unless I enlisted, lol.

  • Debbie 10:39 am on November 25, 2008 | #

    @Scott, I am more inspired by what you just shared in that last comment than anything else I’ve done or read here. Thank you!!

  • Debbie 10:40 am on November 25, 2008 | #

    (Oh.. that’s not to say I haven’t been inspired thus far, just that this has been very enlightening to me- just wanted to clarify because after posting I thought someone might take that the wrong way!)

  • AJC 12:28 pm on November 25, 2008 | #

    @ Debbie – we have ‘thick skins’ here … have to 😉

  • Scott 1:39 pm on November 25, 2008 | #

    @ Debbie – Your welcome Debbie. Trust me, just keep your focus and you will achieve your goals!

  • Diane 7:07 pm on November 25, 2008 | #

    @ Scott – My niece and her husband are recent MDs who both got residencies in Chicago at about what you quoted: $35k apiece. My sister went up there this fall to take care of their baby because they can’t afford a babysitter. I was shocked at what a newly-minted MD is paid (and expected to do), but I understand it’s a bit like learning how to make “better decisions faster” by having to learn how to do them while sleeping on your feet…eventually they are second nature and require almost no thought.

  • Scott 9:39 pm on November 25, 2008 | #

    Yeah, it’s definitely a shocker, but they’ll be doing well before you know it. Maybe you can teach them what you are learning here and get them off on the right foot when they do begin making high incomes so they’ll put it to good use for themselves 🙂


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