• 02:26:19 am on May 27, 2009 | 8
    Tags: , , , , , ,

    In Review

    If Scott achieves the same compound growth rate over just the next 12 months that he says that he has achieved over the past four years, he’ll reach his Number in less than a year and be almost twice as rich as Warren Buffett in just 4 more years! That’s the power of compounding …. of course, you need to fuel up the tanks with rocket fuel to reach those heights so the same tools that worked before (saving, saving, saving … with some high income thrown in for good measure) have a limit that is quickly reached … in other words, Scott’s annual compound growth rate will start to slow down (in fact, it’s already a ‘paltry’ 67%), unless he adds something with a lot more octane to the mix.

    In fact, Scott is already building up his “‘war chest’ to use for business startups, purchasing stocks and real estate” … any suggestions?

    ____________________

    Well, here’s another brief review of my journey to financial freedom so far.  I’ve gotten a lot out of Money Making 101, or more specifically, the exercises have driven home valuable lessons that I learned before becoming one of the 7 MIT from reading books by various famous finance authors, taking seminars on finance and wealth building, as well as the personal punishment that I usually put on myself to be financially responsible, lol.

    I don’t think there’s anything that I need to change, everything is moving along as I had planned for it to. We have no consumer debt, no car payments, no personal loans. The biggest sin on our list financially is my student loan, which is fixed at 2.85%, so for obvious reasons, we are simply making the normal minimal payments on that loan, so we can maximize our required annual compound growth rate. We have actually been saving 50% of our take home, net income.

    Our number is still pretty much the same, 4 million in 10 years(of which there are 9 years left!) and our required annual compound growth rate is 40% which can be met with a combination of small businesses, real estate and some stocks. I calculated that when we actually started 4 years ago, we had a net worth of NEGATIVE -$225,000.00 and today our networth should reach $200,000.00 by next month(or pretty darn close) which means that over the last 4 years, we have had a growth rate of over 2450%. Now of course it may not necessarily keep up that kind of pace (but who knows!).

    Looking at the last 12 months, we have grown 66.67%, so it looks like we are moving in the right direction and with some of the Money Making 201 plans that I have, we will reach our number far sooner than our originally planned date in 2018, or overshoot our number by a good margin. The main goal this year for us is to stock pile as much cash in our ‘war chest’ as possible to use for business startups, purchasing stocks and real estate.

    We have saved over 40k in cash so far this year so our current strategy is to fund an emergency fund of around 15k into the rental property savings account to be used as a buffer against any damages or any vacancies as Adrian stated to do. Then leave around 15k in our own personal ’emergency fund’ to be left alone for any damages or emergency on our own home front. This leaves 10k in our ‘war chest’ that will now be built upon month after month and used for Money Making 201 purposes. We should have between 60k-80k in that chest by the end of the year to use  for this purpose.

    Right now i’m so torn on which move to make first with this investment money. Do I take advantage of some amazing and almost unheard of growth potential that the stock market can provide as it begins it’s upswing? Do I purchase the building that my practice resides in first, effectively cutting out paying rent and paying it to myself instead?!?(also enjoying the possibility of real estate growth that a COMMERCIAL property can provide under the right conditions) AND collecting rent from the business next door in the same building. Or do I use this money to open up another practice, spend the next year overseeing it develop, begin to make overhead and then cashflow sometime the following year, adding not only a large increase to our networth due to the value of the business once it’s developed, but this extra monthly cashflow which can be used to fuel other investments.

    Or do I divide the efforts into all 3??(Sounds like the badword: DIVERSIFICATION, so perhaps I should focus instead 🙂  )

    Any advice or help would be greatly appreciated!

     

Comments

  • Josh 8:22 am on May 27, 2009 | #

    Scott, although starting a business (the next clinic)may be considered high risk to some, seems like with your track record it’s the most conservative option, probably more conservative then investing in stocks.
    I say, invest in what you will enjoy learning about. Just as long as it will get you to your number.

  • Adrian 9:47 am on May 27, 2009 | #

    @ Scott – The prize is behind Door # 3 (it always is) 😉

    Work out what you think the compound growth rate will be on each option over the next say, 5 years; then we can discuss …

  • Scott 10:10 am on May 27, 2009 | #

    Thanks Josh!

    Adrian, I did the numbers on a “highly-likely” scenario for 5 years from the day I opened another. The results are pretty astonishing and provide between 75-100% annual compound growth rate. 🙂

  • Adrian 3:15 pm on May 27, 2009 | #

    @ Scott – … and stocks? Commercial real-estate?

  • Scott 3:23 pm on May 27, 2009 | #

    Well, that’s the thing, I don’t know for sure in this market, lol. But I do have a fairly firm handle on what a successful practice can bring and those numbers I quoted above are very conservative numbers for a practice that’s doing “well” but not necessarily knocking it out of the park.

    Phil town seems to think that commercial real estate is going to start dropping soon for obvious reasons as many businesses continue to decline, so it might be smarter to wait for the bottom before purchasing.

    I haven’t educated myself enough on stock purchasing yet, so I agree with Josh that the stock market might be a more risky place for me at the moment.

  • Mark 9:36 pm on May 27, 2009 | #

    I agree with Josh and Adrian that starting a new clinic is the best approach. You already got the expertise and know how to do so. It will be easier this time and a very safe bet. Then I’ll look into owning the commercial property and you might be going in at the right time. Looks like things are aligning for you nicely.

  • Adrian 2:19 am on May 28, 2009 | #

    @ Mark – You are 100% right … Scott gave his own answer when he said: “Well, that’s the thing [i.e. stocks / commercial real-estate] I don’t know for sure in this market, lol. But I do have a fairly firm handle on what a successful practice can bring …”

    The path to wealth always begins with what you KNOW and are passionate about; Scott can then learn/add INVESTING to the mix to create his own Perpetual Money Machine with the additional cashflow created.

  • Scott 5:54 am on May 28, 2009 | #

    Thanks guys, my gut tells me that, but it’s great to hear it from the outside 🙂


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