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

     
  • 02:35:13 am on May 7, 2009 | 15 | # |
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    Where Did All the Money Go?

    OK Scott is off the hook for not doing this exercise …

    … but only because he actually already has a pretty strict budgeting system in place: I love the idea of withdrawing a certain set amount from the ATM each week for things like personal spending and entertainment and “when it’s gone it’s gone” … much like Caleb’s envelope system a lá Dave Ramsey described in a comment to my post at 7million7years.

    Not to mention Scott saves 40% of his income!

    BTW: I bolded a very key statement that Scott made; it will be your ‘reward’ for taking the time to read all the way to the bottom of Scott’s excellent post … excellent because it does what I was hoping this blog would eventually do: start bringing new ideas to the forefront; ideas that come from our readers and our 7MITs 🙂

    Thanks Scott!

    _______________________

    Well, I started keeping track at the beginning of April of every expense I possibly could. Boy, it certainly takes quite a bit of dedication to keep track of everything and I have to admit, I didn’t do very well keeping up with everything.

    But to be completely honest, the way my wife and I have elected to set up our financial life, it keeps things so simple to keep track of that we really don’t have to be that anal about every dollar and cent. In other words, we sat down long ago and established our “lifestyle budget” if you will.  You see, what I’ve noticed among financial circles is that there is a great deal of debate about the dreaded “B” word budget.

    On one hand, you have a school of thought that feels like every single penny that someone earns should be spent on paper, the month before that income even comes in, ‘ala Dave Ramsey’. Some people take this to heart 100% and some bash the idea of using a budget completely, stating that it is a foolish waste of time and that the answer to building wealth is to simply “earn more”.  I’ve read this school of thought on many popular blogs, but the thing I find interesting is that the author will turn around and contradict themselves in their very next post and talk about how you must ‘live on less than you make’ to get ahead, that way you can save and invest the difference.

    To me, the contradictions are a waste of time because by now, we all know that, “pay yourself first”, “live below your means”, live on less than you make or any other million ways you can say it all mean the same thing. And it’s something that I feel must be done if someone wants to go from zero to hero financially speaking. But that is only one of the necessary ‘tools’. The next tool you need to use is the one that decides what you do with all of these ‘pay yourself first’, ‘live below your means’, ‘live on less than you make’ semantic dollars.

    When I think about applying the principles of a budget, I stand right smack dead center between the two schools of thought. I don’t think it’s the end-all be-all to financial success and I don’t think it should be ignored or ostracized.  I believe it is one of the necessary tools that every person needs for financial success, but it is only one tool in the toolbox. It’s a tool that you NEED, but you also need other tools equally as important.

    I’ve read a lot of posts and comments recently scolding budgets, saying don’t “live below your means” just simply INCREASE your means. Well that’s fine, but you can increase your means all you like but if you don’t have a plan for the money, it will simply be attracted to those who do have a plan for it like everything else in life.  Just ask Mike Tyson, MC Hammer, Evander Holyfield or any other person who made ultra millions throughout their career and found themselves broke. You’ll find that you can never earn enough money.

    You simply need to figure out your number that allows you to live your life’s purpose,  get there as fast as possible (by the date you need it), and guess what? You’ll still have to live by something that at least somewhat resembles a budget to make sure you can continue to live your life’s purpose and not have to work for money in the future!

    Like I said, it’s all semantics whatever you want to call it. I don’t mind calling it a budget because with any negative sentiment, it also carries many positive sentiments to me such as “We will not only get wealthy, but we’ll stay wealthy” and can sleep at night and live the life we’ve chosen.  I just simply look at it as a game plan, in the financial sense much like a sports team or big business has a game plan. And I find, once I get it set up, figure out all the mistakes and nuances after a couple of months, things settle in with a budget nicely and you’ll simply know what you can spend and what you can’t spend. You have a game plan. What I find is that after you master it, it kind of goes on autopilot and you don’t have to think about it anymore. You get on to living your life and not thinking about paying the bills or if you can or can’t make it to payday. I use this mental ‘freedom’ if you will to go forth and put my energy elsewhere, such as how to make more money in business and investments and hence the snowball effect works where I begin to make more money, all tools guiding me to my number.

    My wife and I simply sat down and figured out our ‘lifestyle’ budget long ago and discovered what it cost for us to live, on average, every month, predictably, with a little emergency money in place to keep things ‘predictable’ and we discovered what we could be comfortable with or without while we were on our Money Making 101 journey and then to stay on it throughout our current Money Making 201 journey.

    For example, the mortgage, taxes, insurance, grocery, gas, etc.. etc.. stays pretty much the same every month. Quinton’s lunch money, school clothing upkeep and other things are pretty much the same as well. In other words, we found that we could come up with a  monthly ‘number’ that is required for us to live the lifestyle we have chosen during this journey. There are a lot of things we’ve elected to do without and there are a lot of things that are important to us that we have elected to ‘do with’ at the same time. But these all have predictable costs. So in essence, it’s the same as a budget. We simply leave this amount of money in the checking account that we use to pay the bills and live on (no we don’t have separate finances, checking accounts, lifestyles, etc.. this kind of goes against what marriage is in the first place, doesn’t it? Not to mention it makes it kind of difficult to know where you are financially and where All the money went, before you even saved or invested anything. Then 25 years go by and you wonder; Where Did All the Money Go?).

    Everything goes into the same pot and then gets routed automatically to it’s payment or usage destination. It never changes. It doesn’t require constant monitoring, it’s simply automatic with the add of online auto pays and a weekly ATM drive through. On Fridays, I drive through the ATM machine and pull out what we call our ‘dining and entertainment’ allowance. This is what’s used if we want to go see X-MEN: Wolverine. And when it’s gone, it’s gone, so keep the popcorn and candy down a bit, please! I also pull out a small ‘personal cash allowance’ in equal amount for myself and my wife. This stays the same. It has been preditermined and allows me  to have my own personal cash to save up for toys or stop by Subway or if I want or grab a Rock Star, to cook along on my goals at light speed! My wife has her own equal cash allowance to use if she sees a nice purse or somthing a bit more expensive that she can save up for. I call this the “Keep Your Hands out of the Financial Freedom Cookie Jar” expense. It works great.

    So with a predictable spending plan, that is pre-determined by the family, stays the same, is about 95% automatic, doesn’t require sitting in a torture chamber with budgeting tools or any other nonsense that most people dream up about budgets, we spend approximately the exact same amount each month and save each and every penny to pay ourselves first with before anything.  Lately this savings has been pretty much to the tune of half of our after tax income going into our “War Chest” as Adrian calls it, to use for business startups and investing.

    As far as writing things down daily on paper, there’s really not much to report, unless you want to know exactly how I spent my own personal weekly allowance (that is always the exact same amount) on an occasional cup of coffee, a new pack of guitar strings, a sandwich, etc… In other words, it remains constant. There’s no flux, no ‘loss’ or ‘gain’, no surprises, the amount stays the same with our allowance and entertainment and it’s taken as cash, not used by credit card(unless an online purchase is made, then that amount in cash gets left in the checking account, not taken out at the ATM and the amount on the credit card is paid asap.)

    Any other amount of spending just gets done automatically for the utility bills, taxes, car insurance, grocery spending, etc.. so there’s really nothing to report.

    We have found this method to be really refreshing. We just don’t have to think about money except for certain key moments when we take a peek at our accounts and make sure everything is getting routed to it’s proper place in a timely fashion. There’s no late pays to worry about, no over budget spending to worry about. It’s very a very peaceful feeling and frees my focus and energy up to go and make more money.

    Incidentally, since we’ve been using this method, our income has increased substantially and continues to do so. We’ve been able to amass over 40k in just a couple of months because I’ve done so well in my business and I foresee this as continuing to increase. We may actually move closer to saving 60% of our income using this method. Even when I double or triple my income, we will be living on the exact same monthly number and putting all that extra income into the war chest. This further speeds up business purchase or startups and making real estate and stock purchases.

    It seems that dreaded “B” word is somehow making us “Earn More” afterall! 😉

     
  • 03:18:49 am on April 16, 2009 | 8 | # |
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    The Recap!

    I think if there’s one of our 7 Millionaires … In Training! who’s course seems to already be set, it’s Scott … the only question that I would have will be answered in the next part of our journey – stay tuned!

    In the meantime, what questions / advice do YOU have?

    _____________________________

    This next post seems to be a bit of a wrap-up to Money Making 101, where we take a final look at where we currently are exactly in our financial picture and what we intend to do about it.

    To be honest, I’ve pretty much covered this info pretty thoroughly a few times in my most recent posts, probably more so than was intended in those posts, so there’s just not a lot for me to add here with this post today. The only debt we have, other than the mortgage on our home and the mortgage on our rental is my student loan. We could probably have it paid off completely in 12-16 months time from now if we focused entirely on paying every available savings dollar to it, but that would not get us richer, quicker!

    The loan is currently at a little over 138k, but it is fixed at 2.8% for the life of the loan. Using up every penny to pay this loan off early would take valuable capital in the next year to year and a half that can go toward purchasing bargains in real-estate and stocks. Everything is on sale right now and I believe the next few years, it can be quite easy to reach an astounding annual compound growth rate with a little focus, research and picky buying. It would certainly be a shame to miss out on these opportunities before the recession ends and we want to take as full advantage of it as possible.

    Other than that, I really don’t have any specific questions regarding where we are, I ‘m just busy in the trenches doing what I know I need to do! Live on significantly less than we make, save it up into huge chunks of cash, purchase assets, and repeat!

    Pay cash for use cars, don’t take any extravagant vacations, delay gratification, don’t purchase toys, etc..etc…In the middle of that mix, start additional businesses that spin off even more cash and allow this growth snowball to really pick up snow as it rolls in the direction of our number by our date. In my mind, there’s just the wait to our date! At the same time, life is precious and short. You only get so much time here, so I don’t want to hurry time past either. I want to enjoy every minute of it along this journey, while at the same time, be doing everything I can, every step along the way to set us up for growth for our future so that we enjoy every minute now, and arrive out our departure to exactly where we want to be and then enjoy living our life’s purpose from that point forward and not live to make money!

    If anyone has any questions, please feel free to ask. If anyone thinks I’m doing things totally wrong, let me know!

    I’m all ears. Whatever tips, suggestions and information that can help us get to our number faster is good information for me!

     
  • 01:30:08 am on March 26, 2009 | 23 | # |
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    7 Millionaire In-Training! Review

    The diagram is mine, but the healthy financial ‘picture’ is all Scott’s … the poster child of the high-income earner / high-saver. Let’s hope that he also knows how to also have fun, but I guess a hobby farm with horses has got to provide a fair chunk of happiness?! Scott also has a ‘built in’ Income and Net Worth kicker when the contract surrounding the other half of the practice that he is in ‘kicks in’ …

    What do you think Scott needs to do from here?

    __________________

    picture-1This next post provides a bit of a summary of where we are financially at the moment. You’ve gotten bits and pieces of where we currently are along the way, via several different posts and you’ve hopefully gotten a good picture of where we all want to be. Hopefully you’ve gotten a good idea of the various plans of action that each of us 7MIT need to take if we want to achieve our required annual compound growth rate, and hence our Number by our Date.

    I know i’ve learned a lot myself so far since being a part of this site and this grand experiment. Among the lessons i’ve learned is that wealth creation can be broken down into 3 distinct categories; Money Making 101, 201 and 301. I’ve learned the 20% rule regarding equity in your home, the 25% rule regarding your monthly home payment and the 5% rule regarding other “stuff” so that you may have 75% of your net worth invested at all times while you are building your wealth along Money Making 201. I’ve also learned that the right kind of debt can be a good thing, as long as you have a low, fixed interest rate. This ‘good debt’ can allow you to develop your wealth faster by increasing your annual compound growth rate. This as well as the financial rules regarding your home will allow you to continue to expand your portfolio exponentially and reach your number the fastest. I’ve also learned that it is first important to do the utmost soul searching and discover your life’s purpose before you do any of this. Discovering your life’s purpose is the “Why?” associated to getting rich. Then you must calculate the “How Much?”, meaning just how much money do you NEED in order for you to live out your life’s purpose and then “When?” do you need it by. Once you figure out these things, you get a clearer picture of your life, a better focus and both excitement and fear under your wheels to get you there on time! I’ve learned about the debt avalanche and other Money Making 101 techniques.

    Speaking of fear, there’s nothing like learning about how inflation can nip at your heels and chew away at your wealth. Not only are good money preservation skills important to learn to use in Money Making 301, but you must fully understand the power of inflation and what it means to your number, or in other words, just how much bigger your number must be to account for this inflation that will inevitably occur between now and your “Date”!  These are extremely important mathematical factors that must be considered when designing your plan to launch.

    Hmm, what else have I learned….Oh, I’ve confirmed my earlier suspicion that traditional retirement plans such as 401K’s, Roth IRA’s and the like are not only not the ‘only’ way to retirement and reducing taxs burdens, but they are not necessarily the best! That’s right. Robert Kiyosaki didn’t just explain this in his books to use up pages, he meant it. The wealthy didn’t get wealthy by saving money in tax-advantaged retirement accounts and the wealthy pay less taxes than everyone else.

    Not only that, but if you’ve learned anything about life and how to accomplish your goals, you’ve learned that the truth is this: You get what you focus on, especially when you’ve trained your brain to see no other way. Focus your energy on safe, ‘governmentally designed’ fall backs and you’ll stay focused on a cushy, comfy ‘job’ with good benefits and retirement plan to work on for the next 30-40 years. While you make the owner of that business wealthier. Do you think that owner logs on to his/her ‘retirement account’ and get all giddy about it. No, they think about how many buildings they own, how much the individual stocks they buy are growing, how much they are going to sell their business for and how many other businesses do they want to develop. Focus on your Number, your Date and the required means to get you there, like there’s no other way available to you in the world and you’ll get there! You get what you focus on. Just like Warren Buffet and other incredibly successful investors and entrepreneurs have done and are continuing to do. Don’t ‘diversify’ your focus, don’t ‘diversify’ your energy and don’t diversify how you invest. That is, if you want to be wealthy rather quickly. After all, these blogs have to do with making 7 million in 7 years, not 2 million in 40 years, right?

    I know i’ve learned an incredible amount more too, but I believe those are some of the most important lessons. I can’t think of many specifics that I’m struggling with so far concerning my life’s purpose, or what to do at this very moment concerning my networth status or this phase of my journey. I’m pretty much in the flight of Money Making 201 with my destination and my time tables in place. I’m just focusing on clear, easy weather and a smooth flight! But I know the flight will get bumpy. That’s life, but just like anything else i’ve accomplished, i’ll navigate around and through all the storms to get there.

    I believe an income statement is in order for this post, so I’ll give a run down of our current numbers. My wife is currently unemployed due to layoffs and has been that way for the better part of the past 9 months. I run a successful practice that I currently own 50% of, so naturally i’m only entitled to half of the profits that I am currently generating. As such, my income varies of course, but it appears that if I take my average over the past few months, i’m averaging somewhere between 170-180k before taxes. That’s usually between 14k and 15k per month of which 5k per month is my base pay and doesn’t change. The rest is a distribution income based on the monthly profits, hence why it changes. Tax is deducted from my monthly base, so I take home right at 3,800.00/month from that and I pay taxes off my monthly distribution quarterly. What we’ve been doing is just setting the quarterly estimations aside and paying them out quarterly. I deduct as much as possible from my personal vehicle, down to business lunches, continuing ed seminars, right down to the shoes I wear in the clinic and have to replace. This all reduces my tax liability, as well as any depreciations I deduct with my rental property business. Speaking of the rental property income, I’m only cash flowing 50 bucks per month on the rental at this very moment, but get a nice tax deduction from it on my income.

    All in all, after tax, we are depositing around 11k per month on average into our checking, of which we are living on exactly half of. 5,500.00 per month for our basic living cost and ‘lifestyle’ if you will and $1000.00 per month goes to “home improvement” for the farm we bought last year that we are taking our time finishing renovations on. This provides us an average of about 4500.00 per month to invest. If you watch our networth profile carefully over this year, you’ll see our “cash” section going up by this much per month on average. You’ll then see this cash disappear some or lessen as we purchase assets such as real-estate, other businesses, invest in my current business to make it grow, spin off more cash itself, or increase in value, etc…Some months that monthly cash savings may go up by twice the amount due to me producing a really good month and some months, you may see it be a bit less during slower times.

    Currently in the “Other” category on my networthiq profile, https://www.networthiq.com/people/abundantlife, this is where we’ll keep business assets or rather their current market re-sale values. This currently includes my personal shares of my practice and may in the near future include the value of any other businesses that I start or acquire. In a little over 2 1/2 years. The end of 2010 to be exact, I’ll become 100% owner of my practice, so you’ll see that current number probably double. My income should pretty much double as well which will help to further fuel my required annual compound growth rate.

    I guess that’s pretty much it as far as my networthiq profile. Personal property includes my valuable guitars, guns, my wife’s jewelery, any antique furniture that we have that could be sold for something. Lawn tractor and basic farm upkeep equipment, horses, etc..

    The ‘other real-estate’ category currently includes the value of our rental and will include the total values of course of any other real-estate properties that we acquire.  “Other mortgage” is where we’ll keep the total of all investment real-estate mortgages owed.

    The student loan is consolidated and fixed on a 30 year at 2.85%, the mortgage on our primary residence is fixed on a 30 year at 6.25%. Oh yeah, that reminds me, one of our plans is to refinance our rental. We were suckers for a crappy mortgage on that house when we first bought it nearly 3 1/2 years ago(it was our first home) and we want to refi to get a low fixed rate. Currently the mortgage on that property is an 80/20 with a 5 year interest only on the big one and a 20 year balloon on the small one. Man we were so dumb and gullable a few years ago compared to now. It currently averages around 8.5% as it is, with obviously very little payment going to principle, but if we get that property refinanced to a low fixed rate for 30 years, we’ll be cash flow positive by a couple hundred dollars per month as well as enjoy the tax deductions, so that is a goal of ours. Other than that, we don’t really have any questions about anything else that I can think of.

     
  • 03:06:44 am on March 10, 2009 | 14 | # |
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    The True Liability – Not Reaching Your Number!

    27 1/2 years left on a fixed rate 2.85% (student) loan … sweeeeet [AJC: queue Homer Simpson drooling] …

    It seems that Scott is the poster-child for ‘big debt boy made good’ … what do you think?

    __________________

    In this next exercise, our main topic is to take a serious look at our liabilities, ie; who we owe, how much we owe and what do we intend to do about it.

    My wife and have have started 2009 fresh from the beginning in what Adrian has called Money Making 201 . We completed our Money Making 101 by the end of 2008 by paying off the last of our consumer debt, or what many would call “bad debt”. In Making Money 101 , the whole idea is to clean up your financial act basically by paying off your bad, unsecured, consumer debt, such as credit cards, personal loans, car loans and any other similar debts that cause you a monthly liability. It’s also a chance to get yourself in position to obey various financial rules that will aid in you ultimately building your wealth as fast as possible, provided that you are also working on ideas for your growth engine, so you can begin generating some serious cash to invest, or start your own business.

    It’s getting spending under control as well and getting into good money managing habits that will basically clear your “financial runway” so that you can build up some really good speed for a better takeoff to build wealth, and continue these new money managing habits in the future, even in Money Making 201 and 301, so that you keep your wealth once you’ve reached your Number by your Date.

    We can certainly write the book now on Money Making 101. Just a few short years ago, my wife and I had a networth of negative $225k. This debt consisted of a mountain of credit card debt, two insane car loans, personal loans, my wife’s student loans (at an outrageous interest rate of 12%) my fresh new student loans and a few other blunders here and there.

    Before ‘meeting’ Adrian online and talking to him about his ideas for 7 Millionaires In Training!, We had paid off a little more than half of this debt and we started the 7MIT program at I believe around negative 90k in debt or so. Since that time last year, we continued to plug away, paying off each debt according to the Debt Avalanche. We used a method similar to Dave Ramsey’s Debt Snowball to pay off the first half of the debt in which you simply list your debts from smallest to largest, pay the minimums on all the others except for the smallest, in which you throw everything but the kitchen sink at, then as it’s paid, you roll what you were paying on it onto the next largest debt in addition to the minimum that you were paying on it, and simply repeat until all debt is clear. Ramsey does this approach because he believes that you get quicker ‘traction’ on paying off your total number of debts faster, thereby seeing quicker results and keeping the intensity up.

    It worked quite well for us actually, as we got excited month after month as we were paying off individual creditors and accounts fast, but to honor Adrian and his system once I was selected as a MIT, we switched over to the Debt Avalanche. With this system, you pay off your largest interest rate debts first, thereby giving you a faster ‘return’ on your debt payment and truly, mathematically paying off all your total debt the fastest. This worked excellently for us as well!

    Now that we have paid all of this off, we still however do have 3 very distinct debts. The first one is my student loan. A couple of years ago, my wife and I planned to place that student loan in the mix with all of our other bad and unsecured debt and simply pay it off as fast as possible according to Dave Ramsey’s program as well. We actually did pay a large chunk of it off, but put the breaks on an early payoff for it shortly after I was selected as one of the 7 MIT’s. We had several discussions about this loan with Adrian and the rest of the 7million7years community and decided that we were not going to pay it off early because it is at an astoundingly low interest rate. I was able to lock it in a 2.85% shortly after I graduated, so you can see, average yearly inflation alone is eroding this loan on top of my minimum payment and there are so many other ways to get a return on our money of more than 2.85% that it just doesn’t make sense mathematically to pay it off early.

    Our other 2 debts consist of the mortgage on our home and the mortgage on our rental property. If you haven’t been keeping up with our discussions regarding why you should NOT pay off a mortgage early, then you would definitely want to read up on those. So hence, we are not paying a single penny extra to any of these 3 debts above their minimum payments. All three are set up for 30 years(26 1/2 left on our rental, 27 1/2 yrs left on my student loan and now 29 years left on our home).

    So you can see our main purpose right now is to continue to keep our lifestyle and living expenses exactly where they are, which is significantly below our monthly income, save every penny above those living expenses and use this cash to fuel a combination of small businesses, real-estate and stocks. This is the growth engine that Michael Masterson states is necessary to achieve around a 45% annual compound growth rate. If this method does produce us even close to a 45% annual compounding growth rate, we will pleasantly overshoot our Number or simply achieve our number faster than our Date!

     
  • 02:44:18 am on February 23, 2009 | 25 | # |
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    401K? No way!

    First cab off the rank – Scott – weighs in with a barrage of reasons why he does NOT have a 401k, or the ‘doctor equivalent’ thereof …

    … I can’t judge Scott badly because:

    a) He has a strong saving ethic and a positive and – apparently – rapidly improving net worth, and

    b) I have no 401k, either, to show for 5 years of living and working in the USA 😛

    Perhaps some of you can steer Scott down the ‘path of the retirement righteous’ better than I?

    ____________________

    Well the next area for each of the 7 MIT to look at when analyzing our financial health and how well we are on track to generate our required compound growth rates (and hence, reach our Number by our Date) is in the area of retirement accounts. In this exercise, we are taking a strong look at how well we’ve put money away to date in traditional retirement accounts, such as 401k’s, Roth IRA’s, etc… as well as approximately what percentage of our income do we invest in these vehicles, do we get an employer match, how has this investment performed for us thus far and whether or not we have lost money recently due to the current economy.

    I must first start by saying that very gladly I have absolutely NO retirement account, never opened one, never participated one bit and don’t really plan on participating in an actual retirement account at all during this lifetime, unless I get to the point where an adviser shows me that I might get a slight tax advantage from using one, instead of ponying up a little extra of my hard earned money for Uncle Sam, instead of for my life’s purpose. I know to many of you, this probably sounds like about the most foolish statement concerning finance that you have ever heard and probably think of me as a fool. Well, a fool I am!

    Back a few years ago, when the end of school was near for me and I was beginning to face a different set of challenges and ways of thinking.  Basically switching gears from thinking scientifically, clinically, drowning my mind in research and cutting through how I was going to properly assess patients and get the desired clinical results to help them with their health challenges, to thinking about things like; finance, my debt, what it was going to cost to get into practice, how to run a small business practice, etc..  Needless to say, when you’ve been thinking about nothing but anatomy, physiology, biochemistry, injuries and the like for the past bazzillion years, it’s tough to make the switch in your mind and do it right so that you can indeed be financial successful.

    I think this is one of the major pitfalls that young doctors coming out of school make. Not only is it hard to switch those gears in your mind from the science of the human body, to the science of money, but you’ve been raked through the coals for so long mentally and you’ve been so financially drained and broke for so many years that I believe this is the cause for most doctors to get into the typical doctor finance situation. The situations where as they start to earn money (not to mention serious income), they go bananas, break the 20% and 25% housing rules, live waaaay above or at least the maximum of their financial means, purchase expensive toys, cars, etc…and get nowhere in the process financially speaking.

    In other words, they’ve had to live on absolutely nothing for so many years, while the same age friends and peers have already joined the work force, began to make some decent money, purchased some decent houses, cars and toys and taken a vacation or 3. I believe this is the cause for the new doctor spending bonanza. I found myself starting down this road right out of school and immediately put the brakes on!!

    I began talking to as many financially successful doctors as I could, read just about anything on finance I could get my hands on, subscribed to several blogs on money, take seminars and just about anything else I could do to start creating the transition in my mind. It worked. It was a hard switch to turn, but it did indeed work and the rest is history. Since that time, we’ve gone from a whopping net worth of negative 225k to a positive 152k in just a few short years, but more importantly, I can already see the wealth snowball building faster and faster for the next few years to come. I believe we’ve paved a very nice, clear Money Making 101 runway and have begun a very smooth takeoff and ascent to begin Money Making 201.

    So concerning a retirement account, well, we’ve spent so much time and energy the past few years paying off debt that of course we didn’t bother to open one up. It also helped that I never had a traditional ‘corporate’ job, that was supplied with a 401k option. So it never really came up in my mind. However, as I read my way through several books, blogs, popular finance magazines and websites, the topic kept coming up over and over about how smart it was to invest the 10-15% of your paycheck into a tax-deferred retirement account, possibly get an employer match and finish like a winner with a mil or so in that account at age 65!

    Somehow the thought of this didn’t sit well in my brain….I kept getting images of me at 65, in really scary looking  plaid golf pants (and I don’t even play golf. Don’t ask how I got this image in my head) a strangely unstylish looking white hat, heading over to the ATM machine to check the limited funds I had available to rent the car that we would need to drive across Yellowstone National Park for the 30th time, because we couldn’t afford to do the Fiji trip I always wanted to do. Nope, there were not enough funds in that intelligent 401k that every author told me I had to invest in, to withdraw safely without worrying about the remaining years of my retirement, anyway.

    Needless to say, when I snapped out of that dream, I began to question retirements accounts and other investment tools of the poor. I would be found regularly scoffing at retirement accounts in front of friends, on blogs, to family members, etc… and be looked at like a fool. But I’m sticking to my guns here and saying that I’m passing up the retirement account.

    I believe that life is short, too darn short to stick away 10% into a retirement account, earning 7-8% if you’re lucky and don’t get picked apart by fees and the myth of diversification. Not to mention the fact that you can’t touch that money for the next 100 years without being penalized, or whatever the cutoff age is now.

    No thanks, I’ll make my own decision concerning my own money Uncle Sam! And even more importantly,  I’ll have a few swings for the fence and all the glory it can provide you if you connect right!

    So there you have it! No retirement account in the past, present or future for Scott. My retirement account comes to the tune of about 40-50% of my net household income per month going into appreciating assets that include a mixture of real estate, small businesses and stocks, with a higher percentage of that income going to all of the above as my income increases.

    Now, I guess I need to plan on thoughts for a better wardrobe for my mind in my dream retirement…..hmmm, lets see here…

     
  • 01:49:47 am on February 5, 2009 | 9 | # |
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    Driving Into Wealth

    Scott and [BMW steering wheel] leather go together like birds of a feather

    so, I knew that he would be the first in on this post (and it would be full of all the right ‘brands’) 🙂

    Sounds like Scott’s on to a good deal with his employer’s largess, right?!

    ________________________________

    With this next post, we are analyzing our current vehicle situation and how it applies to our financial health. I must first start by saying that this has been an area of weakness for me for quite some time. I am very knowledgeable about and really into high-end, luxury and sports cars. Particularly fine German and Italian sports cars, ala BMW, Porche, Ferrari and Lamborghini. The trouble is, like most people, for years I was caught up in the idea that a car  was something that you HAD to finance. And HAD to go for as new as possible and as much car as you could “afford”. Like most, paying cash for a car and not financing wasn’t in any stretch of my imagination, so like most people, I financed, then I financed, then I financed, one car after another, then another, etc…Sometimes(like most people) even rolled over the negative equity that I had with a vehicle into the NEXT car finance. And often these weren’t even good financing terms. Doing what ‘normal’ people do and financing a car always kept me strapped financially of course, because of course, you gotta buy the most expensive car you can afford. So I bought in to this nonsense and probably ‘bought’ myself an additional 10 years worth of work and not living my life’s purpose.

    I would say that somewhere around the year 2005, I began to wake up from my long financial slumber, in which I pretty much ignored finances, didn’t think about the future much (why should I? For I was fast becoming a high paid Doctor, and that’s more than anyone can ask for, right?) and definitely didn’t think about the possibility of purchasing a car out of necessity and buying used with cash, as to avoid car payment and wasted funds that could be used to invest with.

    Once I awoke from that financially mindless sleep and began to read books on financial mastery, take seminars, seek out advice like that which is given here, on 7million7years.com and shareyournumber.com, I naturally began to see a car loan as ‘bad debt’ for the first time and simply added this bad debt to the debt avalanche and paid it off the same as I would a personal unsecured loan, a credit card debt, etc..

    Now, I can say that my wife and I have had no car payments for a long time.  We, however, aren’t hurting in the function and style department though in that we currently have 2 cars with one of them being a fairly new, 2007 BMW 3 Series. The other, a 2002 GMC Envoy.

    The Envoy was my wife’s SUV when we first met. This car was a brand new concept for GMC that ‘officially’ came out in 2002, however, her’s was one of the original showroom demo models that came out in the Spring of 2001. She purchased it with around 15k miles on it for 32k. And this purchase was done while she was making around 35k in salary! Ahh the brainwashing that we get and the things we believe we are ‘suppose’ to do. Buy a car for the amount of money that equals your yearly salary, and finance it! Under poor terms! I believe she purchased this car when she had poor credit and got a 13% loan on it! (Interesting how we both now have excellent credit, knocking on the door of 800 scores and wouldn’t dream of financing a car, lol).

    Currently, it’s still sitting in the driveway, running just as good as ever, still washed, babied, loved and actually looking like new. People still comment on it, thinking that it must be nice to be driving a  ‘new car’, when in fact, she’s had it for 7 years since 2002. It currently has 122k miles on it, is worth just under 6k and all maintenance has been meticulously performed on it and it’s running like a dream. It is fully loaded with every option you can get on these, but most of all, it has been PAID FOR for a while now and we have no intention on selling it, upgrading it or anything. We are planning on driving it until the axle falls off, LoL. This is the official family(and pet) get around wagon.

    As for our second vehicle.  About a year and a half ago, while I was in the midst of working my way up in a group practice franchise here that I basically started my career up with in Louisville, KY, my employer ‘bonused’ me for the hard work I was doing (and the hundreds of thousands of dollars I was producing for him in the practice that HE owned) and decided to lease me a vehicle. A BMW. He knew that I liked BMW very much and knew of my future goals to own one. He picked out a then brand new, 2007, BMW 328I and told me that all I had to do was go pick it up and he would make the payments on it completely for the duration of the 3 year lease. Now, I’m a strong man, but saying no to a “FREE” BMW was not something that I had the strength to say no to!

    So the rest is history. I still have the car and it’s about half way through it’s lease. Still 18 months to go and still it’s free to me. Even the maintenance is free (BMW provides free maintenance, oil changes, etc.. for the first 4 years or 50k miles, whichever comes first). So, I basically get to drive around in the car for free, except for the cost of gas and insurance, which are both very cheap, seeing as though this isn’t the M3 model and is considered very safe by insurance standards. It also seems to average around 27 miles to the gallon with my everyday driving and close to 30 on long trips, not too bad.

    Unfortunately however, when the lease is up in 18 months, I’ll have no second car to call my own. But not to worry, we will be paying cash on a VERY used, fairly high mileage, high gas mileage, BMW something, I’m sure in 18 months. Right now, my wife and I have found deals on older models that fit what we are looking for in the neighborhood of 5-8k, cash. Probably 2 generations old.

    So we will continue to buy used, high-end, high quality cars for cash, dirt cheap and take our sweeeeeet time looking for the best deals we can find while waving cash in the sellers face during the midst of a recession.

    I plan on doing this when we reach our Number as well, only the cars will be much more high end, but the same principles will be applied and they will be paid for with passive income.

    Used Porsche 911 Turbo, anyone?

     
  • 07:07:52 am on January 20, 2009 | 8 | # |
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    Primarily About the Primary

    Scott and I ‘worked’ on this house very early on in the piece, so I kind of feel ‘at home’ just reading this post 🙂

    If you haven’t already done so, you should check out the photos, as Scott suggests, over at our Community Site

    ______________________

    In the next exercise, it’s time for all the MIT’s to evaluate our current primary residence, our mortgage situation with this residence and how this relates to the 25% and 20% rules!

    As you may have seen in my Networthiq profile, the mortgage on my primary residence is currently at around 322k. This mortgage is fixed on a 30 year, 6.25% interest mortgage. My payment(including taxes and insurance) comes to $2,438.00 per month. My net, take-home household income seems to be averaging around 11k per month at this moment, however this is down from normal due to my wife recently losing her job. In the current economy, my wife has lost 2 different jobs in the past 6 months.

    The first job she lost paid her 65k per year, so naturally that gave us a much bigger financial tool to use, when coupled with my income. The interesting thing is, when she was making this money before she lost her job, I was averaging around 120k per year (so approximately 180k together). Right around the time I acquired 50% ownership of my practice from the original owner(which naturally raised my income), almost immediately, my wife lost her job, so income stayed about the same or perhaps dropped a little, lol. Go figure! Anyway, she was unemployed for about a month, then found a job with another company, which paid her 40k(big step back for her), but that job only lasted around 4 months, unfortunately.

    So when she is working, we have about 14k per month or so in net monthly income and when she isn’t working, it’s around 11k per month. You can see that in either one of those scenarios, we set up our primary residence situation to make sure that we didn’t violate the 25% rule, meaning that our primary mortgage, including taxes and insurance do not exceed 25% of our monthly net income. With her not working, it’s hovering around 20% actually and when she is working, it’s a mere 17% or so. So, good to go on that rule!

    Now, as far as the 20% rule goes, our primary residence was last estimated to be worth around 380k(now this could have dropped a little in recent months. Zillow has not yet reported any values for this home for some reason, so it’s hard to tell without paying a professional to come out and give us an estimate).  With the mortgage balance of 322k, that gives us around 15% equity in this house against the mortgage, or roughly $58,000.00. As you can see, this 58k is approximately 38% of our 150k net worth. A big no- no, according to the 20% rule!  The trouble is, at only 15% equity, we cannot tap this equity yet and use it toward investments, so I think we are a little stuck in the mud in our violation at the moment, that it is, until our savings and investments otherwise build our networth up to the point where this is no longer the case mathematically.

    We love our home and really have no intentions to purchase another, even in the near future(although circumstances and people certainly do change!). This home is a 101 year-old, historic farmhouse and our only plans for it are to finish renovations and cosmetic work to bring it back to it’s original ‘charm and glory.’

    (see pics of it on shareyournumber.com!)

    We have currently budgeted $1000.00 per month of our net income to use as a “home improvement” budget for this work. We figured that way, the improvements come slower and more manageable over time, we don’t have to concern ourselves with going out and borrowing any additional money and naturally, this work will help to slowly increase the value of the property as work is slowly completed.

    I believe that this is money well spent for several reasons, because it’s not the same as taking $1,000.00 per month and putting it towards spending money, toys, a Porsche Cayman S lease, or anything like that. It is rounding out the home that we plan on living in the rest of our lives, so we won’t have to worry about eventually spending 1 or 2 million dollars on a home with our valuable number, just to be satisfied with our primary residence. And as the value of our home increases because of this work, we can simply tap into this equity in the near future when available and apply this equity toward investments, so that we maximize the speed of growth toward our number by our date.

    Let me know what you think!

     
  • 02:29:22 am on January 7, 2009 | 13 | # |
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    Fickle and in a Pickle

    Scott and I seem to share a love of ‘collecting’ hobbies … mine included (over the years): go kart (then car) racing; fly fishing; war gaming; CB radio; motorcycling; poker; and the list goes on … and on …

    I suspect that the challenge for Scott – as it was for me – will be finding the right thing (or things) to focus on. I can see a clear winner in this lot, but would be interested to see what you think?

    It seems that in every exercise, one of the 7MIT’s has ‘stood up’ and created a table or a list to help the rest of us; this time, it seems that we have Diane’s Table

    _______________________

    Boy, for some reason, this has been a really tough exercise for me. I’m not sure why, but I think because it has exposed some interesting things about myself that I wasn’t quite aware of.

    What this exercise has shown me the most is the fact that I am very fickle.

    I guess by that, I mean that I have a variety of different hobbies and interest, but that I change them out quite a bit. One minute, I’m all over researching fitness, weight training, bodybuilding, fat loss, etc. (I actually have a master’s degree in this stuff and have done quite a bit of research on all of it and consider myself a bit of a fitness fanatic), then the next, I’m more focused on playing guitar, studying guitar, wanting to join a local band for fun on the weekends, etc…

    Then the next minute, I’m all about researching how to restore our older historic home, then the next, I’m into archery and spending a lot of time shooting my tradition recurve bow to perfection….the list goes on and on. I have so many interests and bounce around from one to the next, that it’s hard to put a finger on using one for a growth engine to build wealth with. At least that’s my illusion for the moment and I guess as I continue to find myself and ‘grow up’, I might nail something down that I can capitalize on.

    Anyway, take a look at my list in the table below (Thanks for this handy little platform that you created Di!)

    From the list below, you can see that I have nothing that runs across all 4 categories, however, I do have at least 3 current interests that  cover 3 categories.

    One is playing guitar. I suppose I could coach/teach/mentor people in guitar playing, but who became wealthy just doing that alone? Joe Satriani taught Kirk Hammett of Metallica a few lessons, but he was already a world class musician on the concert circuit and selling albums long before that. This would be a tough one, because I consider myself  ‘not bad’  at guitar, but nothing to write/coach/teach, or even brag about.

    Now, fitness/training/health and even nutrition is definitely on 3 of them, and if I combine coaching/mentoring/teaching/consulting with it, I can be a fitness/training/health/nutrition…um….coach/mentor/teacher/consultant. Whew! Anyway, I’m thinking I might be able to concoct some sort of way to use this to sell myself or something worth paying for, but that’s going to take some serious ‘noggin burnin’ to figure something out to market there. That’s certainly a competitive market, but seems to be a highly profitable one when you have the right ‘juice’. (pun intended)

    The 3rd interest that spreads across 3 categories is an interest that I liked a lot as a child and have recently taken back up: this is shooting rifles and bows.

    I’ve been thoroughly enjoying this hobby as a way to unwind and relax (to shoot well, it almost requires a zen, or meditation-like focus and relaxation that I’ve come to really enjoy). Along with this hobby of course, is checking out or trying new and different equipment, competitive marksmanship, learning technology and mastering craft and technique, all of which I could spend a lifetime figuring out. And then there’s even rifle and bow making/crafting!

    Hmm, seems like a hobby that I could easily get pretty deep into.

    Well, that pretty much narrows it down. Travel, reading/learning, and going to concerts all pop up on at least 2 categories, but other than that, these are pretty much my interests and how they stack up.

    Any suggestions on how I can get richer, quicker with this new information would certainly be appreciated!

    EARN SPEND ABILITY DO
    How do you make $ or want to make money, past/present/future?(e.g., teacher) How do I spend $ or want to spend $ ? (e.g., clothing) What are you good at?What do you wish you were good at?What sparks your creative juices? What do you enjoy? (e.g., writing) What are your hobbies or qualifications/jobs?  What would you want to do, even for free?(e.g., wood-working)
    1 doctor Travel Health/Fitness/Nutrition Teach people about fitness/training/health
    2 coach/mentor Health/Fitness/Nutrition Sports Playing guitar
    3 writer(books, not blogs) Guitars Playing music/guitar Traveling
    4 consultant Concerts/Music Rifle & archery target shooting/competition Fine dining
    5
    teacher
    Historic home restoration Rifle & archery target shooting/competition
    6 musician(???) Fine dining Historic home restoration
    7 Rifle & archery equipment/target shooting equipment/fees/etc.. Reading/learning
    8 Reading/learning Concerts/Music
    9
    10

     
  • 03:26:38 am on December 15, 2008 | 11 | # |
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    All Aboard!

    Well, I guess it seems my bags are packed, I’ve got my map together, my trusty compass. I have my destination in sight and have pretty well chosen my means of travel. I even have a pretty accurate arrival time!

    What next before departure? I guess it would help to know where I am now, right?

    As far as I can tell, i’m ready to make the step over to Money Making 201 (please let me know what you think, if i’m not ready!).  After finishing all of college and training, i’ve been grinding it out in Making Money 101 for a couple of years now and just finish making the last payment to what most would call “bad debt” or “consumer debt”. Scroll down and see my networthiq profile from almost a year ago  as compared to my neworthiq profile this month to see progress over just the 2008 year:   https://www.networthiq.com/people/abundantlife/2008.

    I still have my student loan, which is the only “unsecured” debt that I have and although it is still a whopper at 140k, it is locked-in at a nice low 2.85% interest. Enough for my minimum payments and inflation to eat it up just nicely over time. I went back and forth for quite a while about paying it off early or not and even sent sizeable extra payments to it here and there(started with way more than 140k) and with everything i’ve learned here as a 7MIT, decided that sending extra investable money to a fixed, 2.85% interest loan wasn’t the best mathematical approach toward getting richer, quicker!

    So here I am now, no car payments, no credit card payments, no personal loan payments and with a savings money market account started that i’m about to make grow as fast as possible each month. This money will then be applied towards one investment at a time.  I will research my next buying opportunity as this fund grows to meet the required downpayment/additional business purchase/stock purchase in a really good but undervalued company, and then I will repeat this cycle over and over until I am ready to land at my destination of 4 million dollars in liquifyable assets in 10 years. Actually this savings will be earmarked FIRST for a downpayment to buy the commercial building that my practice is located in. This will be my first commercial property, added to what was my first residential rental property that I established this year.

    My family’s monthly living expense budget totals between 6k-6.5k per month(depending on fuel and grocery fluctuations. This monthly amount includes a mortgage of 2400.00/month fixed at 6.25%(well below the 25% rule of takehome income), all utilities, taxes, great  insurance policies all around, basic pet and horse upkeep costs of a couple of hundred dollars per month[to keep the wife happy ;)] a modest monthly cash allowance for dining/entertainment = which I call the “anti-impulse buying and spending fund” [hey, works quite well to give yourself an expected cash allowance for ” fun money” each month to prevent any “where did that money go?” spending! :)]     Actually, the family is dying over earmarking some money this year also to buy new furniture with(we are still pretty much living on college/starting out furniture, at the moment). I’m just such a tightwad at the moment and don’t want to spend money on furniture ;(

    Total household income at the moment as just dropped this month because my wife has been laid off from work for the 2nd time this year. My income is hard to predict because like any small, self-employed business, it’s based on how well I am doing at the moment. In my current business setup and agreement, it seems to bounce between 120k per year and 200k per year. Tracking my performance over the past 4 months suggests that i’m averaging around 150k. If my wife wasn’t laid off, that would put us well over 200k per year, but i’ll make 15ok work just fine for now until she finds work. This income of mine is also limited to the next 3 years of my business contract(i’m currently splitting half of my business revenues with a franchise owner 😦  and this practice will be 100% mine in 3 years, although I plan on starting my own franchise soon, while I still own half of this one 😉 . With the right planning and continued focus and hard work, I can triple my income in the next 3 years.

    The only financial house cleaning that I believe I need to do at the moment is to refinance the mortgage on my rental property to a low, fixed rate. This property has been rented out for the past 4 months and the rents received just barely cover the monthly mortgage, tax and insurance costs at the moment, so i’m not exactly positively geared on the investment right now. This house was our first home and foolishly, we purchased it with no money down and with an ARM loan of 280k. The price of the home was a good purchase value because the home is in one of the most highly proment and sought-after locations of the city, however, the interest rate on that mortgage averages around 9% right now and is available for refinance without penalty next month, so you can take a guess what ole’ Scott will be doing next month, right? The only question I have about when I refinance it to a low, fixed rate is: Do I attempt to pull some cash out of it if the bank allows me to? My new 7MIT gut says, Yes! Even with a 300k mortgage refi on this property, and a 20k cash takout, I will be just slightly positively geared with rent payments received, but that’s just for right now. As soon as my current tenants are ready to leave, you guessed it, the rents will be going up a bit, given market conditions and I should be positively geared by 100-200 bucks per month, which will be thrown into the money market account and eventually reinvested of course.

    I am thinking that we should keep at least 15-20k handy in a separate money market account to cover property repairs/dammages, un-rented months, etc.. seeing as though real-estate is going to be one of my big investment vehicles of choice, so the cash-out refinance might be a smart move to create this fund with and then leave it alone except for “rental rainy days.”

    Well, I guess that about sums it all up for now. Any feedback or advice would be greatly appreciated.

    Otherwise, I guess it’s time to jump aboard for the trip!

     
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