thesolitude

Dear Readers & Potential Clients,

Over the past three years, I’ve spent 35 hours a week amassing over 5,000 hours worth of online knowledge.  There have been plenty of ups and downs, but through this time period, Financial Samurai has grown into one of the most widely read blogs in the personal finance space with ~160,000 pageviews a month and growing.  To put 160,000 in context, that’s the size of three Yankee stadiums, three Candlestick Parks, or the student population of Ohio State, University of Arizona, and the University of Florida combined!  It’s become very clear what it takes to build a good following and I want to help you get there.

With tremendous viewership comes tremendous opportunity, access, credibility and optionality.  Online income has grown to become a major income source thanks to the amount of traffic.  If you build a strong web presence online, you will gain credibility with the product you want to sell or the job you’re looking to land.  Advertisement opportunities will eventually begin rolling in if you can stick with your site over the long-term.  Grow your online presence big enough, and you could actually quit your day job one day!

The problem is, building viewership is not easy in a crowded market with hundreds of millions of blogs and new sites starting up everyday around the world.  If you are a blogger or a small business with a serious desire to build a web presence, you’ve now got yourself an advocate.

FINANCIAL SAMURAI’S “GET ON THE MAP” SERVICE

Get On The Map Goal: To get noticed, build traffic, create buzz, develop authority, and create a permanently higher reader base for your website.

What You Will Receive:

* A ~1,000 word article on your site based on the topic of your choice.  The article will be either fully written by me, or I will work together with you as the editor and co-writer to build a whale post.  My areas of strength are, but not limited to: Retirement, Government, Taxes, Career Advice, Autos, Investments, Real Estate, and Relationships.  Your article will be highlighted over social media to get the buzz going.  Afterward, you and I will be active participants in the comment section, challenging readers on their thought process and leading discussion.

* Within a week of publishing the original post on your site, I will then write a sister article on Financial Samurai discussing some of the key feedback and curiosities from the comments section.  My article on Financial Samurai will serve to showcase your article, thereby bringing traffic to your site.  Your link will stay up on my site forever, which currently has a mozRank 5.5, Domain Authority 61, and Page Authority 66.

* I employ the “Case Study Method” of article writing to get the conversation going.  Harvard and many of the nations top business schools use the Case Study Method to teach their students how to think critically.  As a graduate of a top 10 business school myself, I experienced first hand how to structure a topic and encourage a tremendous amount of discussion and learning in the process.

* During this time period, you are free to e-mail me as many times as you want on various strategies to boost your readership and provide better content.  I am your consultant and biggest advocate.

* GOTM clients will gain access to many profitable leads I have in the online space.

* Cost: $980 initial offer price, payable in three installments if needed.  My plan is to spend roughly 10 hours creating your whale post, writing my sister post that correlates with your post, and marketing the content over the web.  Great content is what will get you on the map and launch your site to the next level.

* Limit: I have room to take up to four of the most dedicated clients a month maximum.  I take the work I do very seriously and want to give as much focus to my clients as possible.  I will not rest until I believe you receive the best product.

Case Study: Below is a “Get On The Map” example where I helped triple the readership of an established blog that has been around for over a year.  The site’s Alexa ranking has since dropped from 125,000 to 70,000 and the average readership has increased by 40% to 500-600 pageviews a day since the service.  Furthermore, other metrics such as mozRank, domain authority, and page authority have all improved as well.

The client is squarely on the map and has earned thousands of dollars in incremental ad revenue within the next several months, more than paying for the cost of my service.  If I can help get an established site of more than one year with this many more readers, I’m confident I can help new sites even further.  Actual results will vary of course.

FINANCIAL SAMURAI ONLINE CONSULTING SERVICES

It’s 2012 and if you aren’t online, the competition will eat your lunch.  From blogging, to selling a product, to getting a job, every person and organization needs to be online.  But being online is not good enough.  You’ve got to develop a brand and a value proposition for your clients and readers!  This is where I can help.

* Strategic Formulation Of Your Website – You feel overwhelmed and don’t know where to start.  I’m here to understand what you want to get out of your website, and help you formulate a strategy to get there.  When you Google yourself, companies like Facebook and LinkedIn own your name.  You need to own your own name, not some mega corporation!  I will walk you through your value proposition to create something unique for your readers and clients.   I have a cadre of references to help get you going and will help formulate a game plan for you.

* Branding – In order to stand out, you need to develop a brand.  You need to stand for something otherwise nobody will care.  The world is too competitive, and too populated for you to just be another number.  I will help you figure out who you are, and what you want others to see you as.

* Search Engine Optimization - It’s possible to write great content and never get noticed.  This is where Search Engine Optimization comes in.  I will help optimize your content and your site so that people can find you online through the search engines.  If you are trying to navigate the landmines of Google, and have been penalized by Google, I can also offer some very specific suggestions for you to regain your website mojo and revenue.

* Website Overview & Analysis – You don’t need to have a fancy, custom designed, website.  What you need is clarity, great content and good structure.  You may think your site is awesome, but what you think is actually not as important as what the viewers think.  You will either have traffic or you won’t.  I will thoroughly look over your website and provide candid suggestions on what you need to do to optimize and grow your readership.

* Building A Community - I have built the web’s largest, most interactive and collaborative personal finance and lifestyle network called the Yakezie Network.  Building a community is brutally difficult, and I will share with you some of the things I’ve done to help the Yakezie Network grow in good times and bad times.  With a large community of friends and advocates to rally around you, you can practically do anything you want.

The Ideal Candidate:

* Someone who loves to write and is very serious about building a presence online for the long run.

* Someone who has been blogging forever, but is frustrated by the lack of their traffic.

* An entrepreneur with a great idea and a great product who needs a platform to tell the world.

* A small business who is looking to build a social media presence online, get interviewed, and jump-start their product line.

* Someone who no longer wants to work at their day job and wants to one day have the freedom to work from home, or anywhere in the world with internet access.

* A stay at home parent who longs to connect with people, has their own talents to share (art, poetry, music, design, writing, etc) and wants to balance parenthood with outside activity to enrich their lives.

* A student or recent graduate who wants to build their brand online to be more attractive to potential employers.

* Someone who highly values privacy and discretion.

Cost: My hourly rate is $299 with a minimum of 1 hour, followed by 20 minute increments.  We can meet in person if you are in San Francisco or speak over Skype or phone.  If you purchase the “Get On The Map” product, my hourly rate comes down to $150.

Limit: 10 hours per week total to ensure maximum focus on you the clients.  If my 10 hour limit is reached, I will put you on a wait-list, first come first serve and get to you as soon as possible.

If you are interested in my online services, please fill out some basic information so I can understand more about you and what you’d like to accomplish.  If I decide we are a good fit, I will contact you to arrange a meeting time.  I am only going to work with those who have as much fire as I do about making their website and product soar!

To scroll down, please click the white space outside the question box and click the down arrow.  All information is 100% private and will never be discussed beyond us.

Thanks you for your interest!  I will be in touch within 72 hours after your application is filled.

You can read my sister post on Yakezie.com entitled, “Thank You ADVERSITY For Giving Me The Motivation To Work Harder” for more insights into the start of this business.

Best,

Sam

Financial Samurai – “Slicing Through Money’s Mysteries”

I stumbled across a very crafty Twitter feed called “GS Elevator Gossip” @GSElevator the other day.  The idea behind the Twitter feed is to share with the public the random elevator talk from one of the most hallowed, and vilified investment banks in the world.  Given the average compensation for Goldman Sachs employees runs around $300,000-$500,000 a year, it’s safe to say that Goldman Sachs has its fair share of 1 percenters.

Some of the Tweets are quite witty.  And others are downright offensive.  The key to all good snark is to be witty, a little offensive, and contain a good dose of truth.  One of the Tweets that piqued my interest is this one:

“I’m in the top 1% because I want the best for my family. What does that say about the 99%?”

ZING!  Let’s discuss the merits of this statement, shall we?  I’m assuming that most parents in the 99% won’t be in agreement with the statement.  We’ll also touch upon why the 99% is better than the top 1% as well.

WHY THE TOP 1% IS BETTER

Logic would say that if you want what’s best for your family, you are going to be the most loving parent who makes enough money to provide everything in the world for your family.  From piano and soccer lessons, to study abroad trips, to $1,500 SAT prep courses, to full-tuition paid for at any college of choice, the best parents should arguably be able to provide anything for their kids.

To let your family worry about their finances is an unnecessary burden.  It may cause your daughter to have to work multiple part-time jobs during high school just to pay for college.  Given that she’s working so much, she’s at a competitive disadvantage vs. her peers who get to study 20 hours more a week to get straight A’s.  As a result, your daughter goes to a mediocre school, and ends up with a mediocre job for the rest of her life.

If you aren’t rich, you might only be able to afford an average house in a relatively dangerous part of town.  As a result, you subject your kids to negative influences that may corrupt their minds.  Why do you think there is so much urban violence in cities such as Oakland, Detroit and Philadelphia?  Even here in expensive San Francisco, where public schools are free, parents with money don’t dare send their kids to the school several blocks away, and would rather spend $20,000 a year on private school.  What a shame.

Let’s say you have the most loving husband.  He is the best homemaker on the planet with food on the table every night.  The house is always clean and the laundry is always folded.  The kids are always dropped off and picked up at school.  Finally, he rocks your world whenever you want.

If you are poor, you can’t treat him to anything super special because your finances won’t allow it.  But if you are rich, you could one day surprise him with a guys trip to Hawaii or a Porsche 911 Turbo just because you love him so much.  Aren’t you a better wife because you have the financial means to reward your spouse for a job well done?

WHY NOT STRIVE TO BE IN THE TOP 1% AS WELL?

Given that you agree it’s better to be able to provide everything for your family rather than not, why doesn’t everybody strive to be in the Top 1%?  If we truly want what’s best for our family, shouldn’t we stop being foolish with our money by spending on things we can’t afford?  Shouldn’t we get good grades in high school so we can get into good colleges so we can have the optionality of getting better paying jobs?

If we truly want what’s best for those we care most dearly about, why don’t we just try harder?  Whatever it is that we do to make a living, shouldn’t we do our absolute best for our family?

We all know that good grades + hard work + good communication skills + team work = success.

WHY THE 99% IS BETTER THAN THE 1%

On the flip side of the argument, one can easily argue that the 99% are much better than the 1%.  The 99% are by definition, most of us.  We are what makes up our great country!

* In any election, the 99% will always beat the 1%.

* The 99% combined pay more taxes than the 1%.

* The 99% produce more of our country’s servicemen and war heroes than the 1%.

* The 99% built America to what it is today.

* The 99% likely has more time than the 1% to spend quality time with the family.

* The 99% can’t spoil their children as easily as the 1%, thereby producing more thankful people.

* Without the 99%, there wouldn’t be such a thing as the 1%.

Readers, what do you think?  Is the top 1% better than the 99% since they can better provide for their family?  Do they care more about their families than the 99% as a result?  Or, is the 99% better than the 1%?

Why do you think there are so many anti-1% protesters?  Why can’t the 99% and the 1% live in peace?

Photo: Thomas Jefferson’s Monticello in Charlottesville, Virginia.  SD.  TJ died broke.

Regards,

Sam

If you ever want to be absolutely free, you need to develop multiple income streams so that when the inevitable change happens, you’ll be covered.  I first recommend you start with the end in mind. What makes you happy?  From this question, now you can derive how much money you honestly think will make you happy.

Once you’ve digged deep to answer these two important questions, you can then start building your income goals.

What makes me happy?

Family, friends, experiences, travel, freedom to say and do what I want, sports, relationships, the online community, hot tubbing with drinks, food and enough money to not have to worry.  Good old nostalgia really makes me happy too.

What makes me unhappy?

Racists, bigots, haters, lying politicians, bad bosses, cronyism, inequality, people who say one thing and do another, thieves, and zealots who impose their will on others.  See this post for more.

How much money do I need to achieve what makes me happy?

Anywhere from $3,000 to $15,000 a month after taxes to account for a single life to one that provides for a family of four.

I really don’t need much to be happy if I’m supporting only myself and have no debt.  I was super happy living on nothing while in school, so $3,000 a month after tax would be fine.

$15,000 a month after tax is a large nut that equates to about $235,000 in gross income a year, the income level where I think maximum happiness is attained.  With $15,000 a month, I can afford private school tuition for two if necessary, go travel 8 weeks a year, get huge and eat whatever I want, have a paid off car, live in a comfortable home practically anywhere in the world, and continuously save for a rainy day.  Furthermore, $15,000 a month after tax can be used to help my parents in case they need financial help for whatever reason.

Think about an after tax monthly income number you’d like to achieve and let me know.  For now, it’s time to open up the kimono and see what can be produced after over a decade of saving and investing.  This is a long post, so make sure you go to the bathroom first!

CONSTRUCTING THE FREEDOM PORTFOLIO

The first step is to save aggressively.  I’ve been saving 50%-75% of my after tax income every year for the past 13 years.  I try not to be a miser and have done my best to try and spend money on things I enjoy e.g. vacations, food, a home, and tennis.  Where I did “sacrifice” was not buying higher-end new cars (all but one were second hand and under $20K) and going on less exotic vacations. Amanpulo I’m coming for you eventually!

I’ve predominantly invested all the savings in long-term CDs that have returned 5.5% all the way down to 2.5%.  Currently, my risk-free return is averaging about 3.75-4% a year.  These aren’t sexy returns by any means, but I sleep very well at night and have also never lost money in this portion of my wealth for the past 13 years.  A smaller portion of my savings goes towards my trading account.

CD Interest Income: ~$2,800/month.  My CD interest income can almost fulfill my lower end of my target income range if I were a single guy.  This is income that will keep coming automatically for another 5-6 years and I don’t have to do anything except renew come expiration.  I’m not worried about interest rates getting crushed during a reset, because if they do, that simply means there is little inflation.  The best thing right now is that my primary mortgage at 3.125% costs less than my risk free CD return of 4%!  If I can ever complete my latest refinance, my mortgage rate drops to 2.625%.  Thank you for now, BenGenie.

Dividend Income: ~$1,200/month.  I have not focused on dividend income because: 1) the underlying values of these stocks have fluctuated so much over the past 5 years, and 2) I never withdraw any of the proceeds as I don’t need the income right now.  I’ve focused more on capital preservation and growth instead.   Companies have been cutting their dividends aggressively since 2008 to preserve cash.  Only now in 2012 are we seeing signs of companies raising their dividends eg Wal-Mart and American Express.  To be clear, my dividend income all comes from active investments.  None of my dividend income comes from my 401K because they can’t be touched until 59.5.

Rental Property Income: ~$1,500-$3,500/month after expenses.  The range in income property has to do with a vacation rental which swings huge during the summer and winter months, and fades during the months of May, October, and November.  I’m basically averaging about $2,500/month per year total.  The income is very reliable, since everything is well maintained.  One of my rentals was bought 10 years ago, and the rent is over 4X the mortgage interest now.  The mortgage can be paid off, but the rate is only 3.125%, and the interest is an expense deduction so I’d rather have the liquidity.  Once the rental property mortgages get paid off, then rental income will increase further.  Thanks to amortization and operating expenses, the taxes I have to pay on my rental income is next to nothing.  I plan to start paying taxes on my rental income after I retire and get into a lower income tax bracket.

VARIOUS PASSIVE INCOMES REVIEW 

I’m currently at about $6,500 gross a month in relatively passive income that is now being generated.  The blue sky column is achievable if it’s a bull market and all my rental property mortgages are paid off in about 5 years.  After 30% tax, my base case passive income is around $4,550 a month.  The irony is, if I didn’t work for a living, my after tax income would probably be over $5,000 a month due to a lower effective tax rate of 20%.

Another solution is to just move to one of the seven no income tax states upon retirement.  Base after tax income will therefore rise to about $5,500/month and $8,800/month for blue sky.  California’s 10% income tax is a killer!  $4,550 is not bad, but still far short of my goal of generating up to $15,000 a month in after tax income.

At the rate I’m going, I’ll have to probably work another 10 years, so screw that!  Instead, I’ve been cultivating other income streams that will allow me to work 2-4 hours a day on my own terms.

SAVINGS AS A BUFFER TO PASSIVE INCOME 

I’ve saved up about 17 years (16-18) of living expenses if I retire tomorrow and keep my living expenses the same.  The 17 years of savings excludes the use of all passive income.  In other words, I could just live off my passive income and never touch my savings if I really started being more frugal.

I’m sure I could cut expenses such as my credit card bill, and sell my primary residence and downsize to make my savings last forever.  However, that’s too disruptive and decreases the quality of my life, which is the wrong direction.  The plan is to stay conservative, not touch savings, and build passive income to survive.

Remember, the thesis of “How To Retire Early And Never Have To Work Again” is that all one has to do is save 55%+ of their after tax income for 18 years from ages 22-40, and s/he will have 20 years of living expenses covered to not have to work until government assistance kicks in.  This is a very conservative assumption since most people will work from ages 40-60, and will have various side income streams.  Plenty of folks will also find a partner to pitch in and share the expenses.

I’m not including my 401K savings/investments as part of passive income.  I treat all government tax deferred programs as write-offs since the Evil Empire can easily take all our money away to fund their egregious spending.  The 401K and IRA, if you are so fortunate to not get discriminated by the government to contribute, should be a buffer against your savings.  Max out your 401K and shoot to save at least 20% of your after tax income a month.  Here’s how much I believe everyone should have in their 401Ks at different ages.

ACTIVE INCOME STREAMS AS A BUFFER TO SAVINGS

Tennis Teacher: I can teach tennis for about $40/hour.  In fact, I’ve often toyed with starting my own tennis instruction website and supplement my passive income with 80 hours of teaching a month ($3,200).  I’ve also fantasized about being a tennis instructor at the Four Seasons Resort in Bora Bora.  Teaching tennis on occasion is nice spending money, but something I do more to have fun, exercise, and meet cool people.  Tennis lessons at private clubs are around $80-100 an hour, so in a way, I feel like I’m doing a public service.

Trading Portfolio: I have a trading portfolio which I like to play around with on Etrade to keep me engaged with the markets. Investing is in my blood, and I’ve been doing so for the past 15 years when Ameritrade and Charles Schwab first went online.  There were some major successes and epic failures in the beginning.  Nowadays, I’m more conservative, but I can still easily lose money as I can make money.  The reason why I don’t talk about specific stocks and strategies is because I don’t want you crazy kids to follow everything I do and sue me for giving you bad stock advice.  Instead, I highlight my market predictions and give you some overarching thoughts as to why I am buying and selling the markets.

Online: Online income has come out of left field and is now my second largest income source.  In three not-so-short years, I’m amazed to discover the internet is allowing so many people to work for themselves and live location-independent lifestyles.  Online income is by far the most fun and the most efficient of all incomes given the low overhead costs.  I’ve always written just for the fun of it as hopefully long-time followers have noticed.  I suck at writing affiliate posts, and I will try to get better, but they bum me out so maybe I’ll hire someone!  I just want to write about fun and topical stuff which we can all discuss.  With around 150,000 pageviews a month now, you can see how it’s relatively easy to make $1,000 a month in ad revenue.  A banner that pays $6.75 per 1,000 impressions = $1,000 a month with 150,000 a month in pageviews.  I have yet to find a client that pays $6.75 per 1,000 impressions, but you get the idea.  If I ever start blogging about blogging, then I’ll let you know this income stream in more detail.  The online income goes to charity, loved ones, operating costs, or never gets spent.  When I need it, I’ll use it, but not now.  It’s the same way with CD, dividend, and rental income – they are all never touched.

Consulting: I’m going to begin offering online consulting services soon.  I love to help people and I think I will be good at it.  This consulting service could potentially generate some nice sushi money, depending on how well I market the product and how many clients I take.  I’d like to help new bloggers build momentum on their sites.  I also want to help review people’s finances and get their ducks in order.  After writing over 500 personal finance articles, and reaching financial independence myself, I believe there is demand for financial consultation.  The question is, at what price.

Full-time job: This active income stream is by far my biggest income source.  It’s a fun job, however, do anything long enough and the fun fades.  My day job income is enough to make me write article after article highlighting how corrupt and inefficient the government is with our money.  I’m sick and tired of the government partying like a rockstar with my income, hence I’m seriously focusing on figuring out a way to make less money, while also maintaining my lifestyle.  Should be fun!

BONUS INCOME STREAMS AS A BUFFER TO ACTIVE INCOME

Rich Hot Spouse: One of the secrets to early retirement is having a working spouse.  The secret to a happier early retirement is to therefore find a hot and rich spouse!  You can do jack doo doo and claim to the world how you retired early, so long as your spouse continues to work and provides you with goodies and healthcare.  It’s no joke that many people make it a mission to look for a wealthy spouse.  With the Facebook IPO coming out in May, here’s my advice to you on how to snag a Facebook multi-millionaire for your own!

Private Equity: I’ve currently got one private company investment totaling close to six figures.  I’ve written it off to zero because so rarely do these private equity companies exit for a nice profit.  However, the company has been around for 6 years and survived the financial crisis.  Hence, perhaps there is a chance I will not only get my money back, but also get a solid internal rate of return down the road.

Private Real Estate: During the financial vomiting period of 2008-2009, I invested $50,000 into a distressed global real estate fund which was buying property at 15-30 cents on the dollar.  The fund was a private offering to a certain group of accredited investors.  The fund is up about 120% in three years and spits out a reasonable 4-7% dividend yield.  Once the fund is liquidated in several years, I calculate a roughly 25% IRR.  Looking back, of course I wish I had invested more.  It’s just hard to drop dimes when things are blowing up left and right.

The Federal Reserve: Unfortunately for savers and those who seek yield (me), interest rates will be low for a very long time.  I’m thinking for the rest of our lives actually.  That said, if the economy really starts growing gangbusters again, the Fed could start raising interest rates, causing a commensurate jump in US treasury yields, which will lead to higher savings interest, CD interest, and dividend yield payout ratios.  Everything is relative though, which means prices for goods and services will have also gone up despite an increase in interest/dividend income.  The flip side is, asset owners benefit greatly as well.

Primary House Rental: I’ve been wondering whether I should sell my house or rent out my house due to the social media craze which has formed in the SF Bay Area.  If I decide to rent out my house and downgrade to a normal 2/2 apartment, I would probably generate an additional $3,000-$4,000 in monthly income after paying rent for my new place.  Rents have gone bonkers, especially for single family homes in good areas in San Francisco.  The problem is, I love the house and the location.  Life is about living in the moment, and I don’t want to live in a crappy rental just to save or make more money.

Unemployment Benefits: You can earn $10,000 a month in passive income, and still qualify for unemployment benefits of $1,800 a month here in California.  Unemployment income is passive income because all one has to do is apply, wait, and fill out their continued claims form every two weeks online.  That takes 3 minutes, and your Bank of America debit card gets injected with cash two days after filling out the questionnaire online.  Of course, if I were to collect unemployment income, I’m not allowed to have my own business or teach.  If one can get their passive income to a level which makes them happy, collecting unemployment benefits after paying all those taxes for all those years is a logical fantasy.

TOTAL COMBINED INCOME STREAMS 

EXPERIENCING THE FREEDOM AND ERADICATING FEAR

With multiple income streams you not only develop financial independence, you also achieve mental independence as well!  You don’t have to worry about pissing anybody off anymore, or feeling guilty about doing things for money you otherwise wouldn’t do.  You’ve gone from being someone who is second guessing everything, to someone who does what feels right.  Nobody can ever take away your passive income you’ve spent years building.

It takes a damn long time to build a livable passive income stream nowadays thanks to Ben Bernanke’s monetary benevolence.  As a result, CD interest income is not good enough and my focus will be more towards online income, rental properties and creating a larger dividend portfolio.  That said, I think there’s a mini-bubble in dividend investing, so I’m not jumping head first just yet.

I haven’t been paying too much attention to my passive income breakdown until now because my work income has always been my primary focus and only about 25-45% of that income after tax is what I need to live.  However, if I truly plan to pursue the life I *think* will make me even happier, then its time to buckle down and develop more side income since my day job income will disappear.  $5,000-$8,000 a month in after tax passive income is good, but it’s still $7,000-$10,000 away from what I find ideal.

GET GOING AND NO CO-MINGLING OF INCOMES!

It’s important to not co-mingle your funds if you want to build significant multiple income streams.  With passive income, you’ve got to pretend you’ve got no other income.  That way, you stay focused and don’t start getting lazy with your mission to achieve freedom.  If you make $100,000 a year at your day job, pretend you make ZERO so that you give everything you’ve got to find other income sources.

If you make $2,000 a month from your online properties, ignore it completely in order to really develop your day job income, rental income, dividend income, interest income and so forth.  Compartmentalize!  You must compare apples to apples eg not passive income to online income.  Everyday I wake up, I pretend I have next to nothing in my bank accounts, trading accounts, 401K, and Paypal.  As a result, I’m super motivated and find the journey incredibly rewarding and fun.

I recommend all of you to start saving aggressively, build a CD ladder, invest in rental properties, look into dividend yielding stocks, work harder at your jobs, leverage your skills to teach others, and start a small business.  You’ve got to do your due diligence and pounce on investments you like with focus.  Build buffer after buffer of income streams.

I can promise you that if you do all these things, in 10-15 years, you’ll be set for life.  And if you can’t figure it out and need guidance, let me know.  Financial Samurai will be open for business very soon!

Readers, how are your various income streams coming along?  Do you have a monthly after tax income target amount you’d like to generate to achieve your definition of freedom?

Anybody else treat creating multiple income streams like a game?  What areas of investments do you think are particularly attractive to build future income streams and why?

Recommended Follow-Up Reading:

The People You Should Be Most Afraid Of - This is an in-depth discussion of the benefits of financial freedom.  The liberation of the mind is a wonderful and perhaps priceless feeling.

The Financial Samurai Value Proposition – After reading this post, you should have a better understanding of why I write the way I do.

Photo: On the balcony of my suite on a cruise ship in the Mediterranean.  Freedom, baby!

Regards,

Sam

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If you ever want to be absolutely free, you need to develop multiple income streams so that when the inevitable change happens, you’ll be covered.  I first recommend you start with the end in mind. What makes you happy?  From this question, how you can derive how much money you honestly think will make you happy.

Once you’ve digged deep to answer these two important questions, you can then start building your income goals.

What makes me happy?

Family, friends, experiences, travel, freedom to say and do what I want, sports, relationships, the online community, hot tubbing with alcohol, food and enough money to not have to worry.  Good old nostalgia really makes me happy too.

What makes me unhappy?

Racists, bigots, haters, lying politicians, bad bosses, cronyism, inequality, people who say one thing and do another, thieves, and zealots who impose their will on others.  See this post for more.

How much money do I need to achieve what makes me happy?

Anywhere from $3,000 to $15,000 a month after taxes to account for a single life to one that provides for a family of four.

I really don’t need much to be happy if I’m supporting only myself and have no debt.  I was super happy living on nothing while in school, so $3,000 a month after tax would be fine.

$15,000 a month after tax is a large nut that equates to about $235,000 in gross income a year, about the income level where I think maximum happiness is attained.  With $15,000 a month, I can afford private school tuition for two if necessary, go travel 8 weeks a year, get huge and eat whatever I want, have a paid off car, live in a comfortable home practically anywhere in the world, and continuously save for a rainy day.  Furthermore, $15,000 a month after tax can be used to help my parents in case they need financial help for whatever reason.

Think about an after tax monthly income number you’d like to achieve and let me know.  For now, it’s time to open up the kimono and see what can be produced after over a decade of saving and investing.  This is a long post, so make sure you go to the bathroom first!

CONSTRUCTING THE FREEDOM PORTFOLIO

The first step is to save aggressively.  I’ve been saving 50%-75% of my after tax income every year for the past 13 years.  I try not to be a miser and have done my best to try and spend money on things I enjoy e.g. vacations, food, a home, and tennis.  Where I did “sacrifice” was not buying higher-end new cars (all but one were second hand and under $20K) and going on less exotic vacations. Amanpulo I’m coming for you eventually!

I’ve predominantly invested all the savings in long-term CDs that have returned 5.5% all the way down to 2.5%.  Currently, my risk-free return is averaging about 3.75-4% a year.  These aren’t sexy returns by any means, but I sleep very well at night and have also never lost money in this portion of my wealth for the past 13 years.  A much smaller portion of my savings goes towards my trading account.

CD Interest Income: ~$2,800/month.  My CD interest income can almost fulfill my lower end of my target income range for being happy for a single guy.  This is income that will keep coming automatically for another 5-6 years and I don’t have to do anything except renew come expiration.  I’m not worried about interest rates getting crushed during a reset, because if they do, that simply means there is little inflation.  The best thing right now is that my primary mortgage at 3.125% costs less than my risk free CD return of 4%!  If I can ever complete my latest refinance, my mortgage drops to 2.625%.  Thank you for now, BenGenie.

Dividend Income: ~$1,200/month.  I have not focused on dividend income because: 1) the underlying values of these stocks have fluctuated so much over the past 5 years, and 2) I never withdraw any of the proceeds as I don’t need the income right now.  I’ve focused more on capital preservation and growth instead.   Companies have been cutting their dividends aggressively since 2008 to preserve cash.  Only now in 2012 are we seeing signs of companies raising their dividends eg Wal-Mart and American Express.  To be clear, my dividend income all comes from active investments.  None of my dividend income comes from my 401K.

Rental Property Income: ~$1,500-$3,500/month after expenses.  The range in income property has to do with a vacation rental which swings huge during the summer and winter months, and fades during the months of May, October, and November.  I’m basically averaging about $2,500/month per year total.  The income is very reliable, since everything is well maintained.  One of my rentals was bought 10 years ago, and the rent is over 4X the mortgage interest now.  The mortgage can be paid off, but the rate is only 3.125%, and the interest is an expense deduction so I’d rather have the liquidity.  Once the rental property mortgages get paid off, then rental income will increase further.  Thanks to amortization and operating expenses, the taxes I have to pay on my rental income is next to nothing.  I plan to start paying taxes on my rental income after I retire and get into a lower income tax bracket.

VARIOUS PASSIVE INCOMES REVIEW 

I’m currently at about $6,500 gross a month in relatively passive income that is now being generated.  The blue sky column is achievable if it’s a bull market and all my rental property mortgages are paid off in about 5 years.  After 30% tax, my base case passive income is around $4,550 a month.  The irony is, if I didn’t work for a living, my after tax income would probably be over $5,000 a month due to a lower effective tax rate of 20%.

Another solution is to just move to one of the seven no income tax states upon retirement.  Base after tax income will therefore rise to about $5,500/month.  California’s 10% income tax is a killer!  $4,550 is not bad, but still far short of my goal of generating up to $15,000 a month in after tax income.

At the rate I’m going, I’ll have to probably work another 10 years, so screw that!  Instead, I’ve been cultivating other income streams that will allow me to work 2-4 hours a day on my own terms.

SAVINGS AS A BUFFER TO PASSIVE INCOME 

I’ve saved up about 17 years (16-18) of living expenses if I retire tomorrow and keep my living expenses the same.  The 17 years of savings excludes the use of all passive income.  In other words, I could just live off my passive income and never touch my savings if I really started being more frugal.

I’m sure I could cut expenses such as my credit card bill, and sell my primary residence and downsize to make my savings last forever.  However, that’s too disruptive and decreases the quality of my life, which is the wrong direction.  The plan is to stay conservative, not touch savings, and build passive income to survive.

Remember, the thesis of “How To Retire Early And Never Have To Work Again” is that all one has to do is save 55%+ of their after tax income for 18 years from ages 22-40, and s/he will have 20 years of living expenses covered to not have to work until government assistance kicks in.  This is a very conservative assumption since most people will work from ages 40-60, and will have various side income streams.  Plenty of folks will also find a partner to pitch in and share the expenses.

I’m not including my 401K savings/investments as part of passive income.  I treat all government tax deferred programs as write-offs since the Evil Empire can easily take all our money away to fund their egregious spending.  The 401K and IRA, if you are so fortunate to not get discriminated by the government to contribute, should be a buffer against your savings.  Max out your 401K and shoot to save at least 20% of your after tax income a month.  Here’s how much I believe everyone should have in their 401Ks at different ages.

ACTIVE INCOME STREAMS AS A BUFFER TO SAVINGS

Tennis Teacher: I can teach tennis for about $40/hour.  In fact, I’ve often toyed with starting my own tennis instruction website and supplement my passive income with 80 hours of teaching a month ($3,200).  I’ve also fantasized about being a tennis instructor at the Four Seasons Resort in Bora Bora.  Teaching tennis on occasion is nice spending money, but something I do more to have fun, exercise, and meet cool people.  Tennis lessons at private clubs are around $80-100 an hour, so in a way, I feel like I’m doing a public service.

Trading Portfolio: I have a trading portfolio which I like to play around with on ScottTrade to keep me engaged with the markets. Investing is in my blood, and I’ve been doing so for the past 15 years when Ameritrade and Charles Schwab first went online.  There were some major successes and epic failures in the beginning.  Nowadays, I’m more conservative, but I can still easily lose money as I can make money.  The reason why I don’t talk about specific stocks and strategies is because I don’t want you crazy kids to follow everything I do and sue me for giving you bad stock advice.  Instead, I highlight my market predictions and give you some overarching thoughts as to why I am buying and selling the markets.

Online: Online income has come out of left field.  In three not-so-short years, I’m amazed to discover the internet is allowing so many people to work for themselves and live location-independent lifestyles.  Online income is by far the most fun and the most efficient of all incomes given the low overhead costs.  I’ve always written just for the fun of it as hopefully long-time followers have noticed.  I suck at writing affiliate posts, and I will try to get better, but they bum me out so maybe I’ll hire someone!  I just want to write about fun and topical stuff which we can all discuss.  With around 150,000 pageviews a month now, you can see how it’s relatively easy to make $1,000 a month in ad revenue.  A banner that pays $6.75 per 1,000 impressions = $1,000 a month with 150,000 a month in pageviews.  I have yet to find a client that pays $6.75 per 1,000 impressions, but you get the idea.  If I ever start blogging about blogging, then I’ll let you know this income stream in more detail.  The online income goes to charity, loved ones, operating costs, or never gets spent.  When I need it, I’ll use it, but not now.  It’s the same way with CD, dividend, and rental income – they are all never touched.

Consulting: I’m going to begin offering online consulting services soon.  I love to help people and I think I will be good at it.  This consulting service could potentially generate some nice sushi money, depending on how well I market the product and how many clients I take.  I’d like to help new bloggers build momentum on their sites.  I also want to help review people’s finances and get their ducks in order.  After writing over 500 personal finance articles, and reaching financial independence myself, I believe there is demand for financial consultation.  The question is, at what price.

Full-time job: This active income stream is by far my biggest income source.  It’s a fun job, however, do anything long enough and the fun fades.  My day job income is enough to make me write article after article highlighting how corrupt and inefficient the government is with our money.  I’m sick and tired of the government partying like a rockstar with my income, hence I’m seriously focusing on figuring out a way to make less money, while also maintaining my lifestyle.  Should be fun!

BONUS INCOME STREAMS AS A BUFFER TO ACTIVE INCOME

Rich Hot Spouse: One of the secrets to early retirement is having a working spouse.  The secret to a happier early retirement is to therefore find a hot and rich spouse!  You can do jack doo doo and claim to the world how you retired early, so long as your spouse continues to work and provides you with goodies and healthcare.  It’s no joke that many people make it a mission to look for a wealthy spouse.  With the Facebook IPO coming out in May, here’s my advice to you on how to snag a Facebook multi-millionaire for your own!

Private Equity: I’ve currently got one private company investment totaling close to six figures.  I’ve written it off to zero because so rarely do these private equity companies exit for a nice profit.  However, the company has been around for 6 years now and survived the financial crisis.  Hence, perhaps there is a chance I will not only get my money back, but also get a solid internal rate of return down the road.

Private Real Estate: During the financial vomiting of 2008-2009, I invested $50,000 into a distressed global real estate fund which was buying property at 15-30 cents on the dollar.  The fund was a private offering to a certain group of accredited investors.  The fund is up about 120% in three years and spits out a reasonable 4-7% dividend yield.  Once the fund is liquidated in several years, I calculate a roughly 25% IRR.  Looking back, of course I wish I had invested more.  It’s just hard to drop large chunks of change when things are blowing up left and right.

The Federal Reserve: Unfortunately for savers and those who seek yield, interest rates will be low for a very long time.  I’m thinking for the rest of our lives actually.  That said, if the economy really starts growing gangbusters again, the Fed could start raising interest rates, causing a commensurate jump in US treasury yields, which will lead to higher savings interest, CD interest, and dividend yield payout ratios.  Everything is relative though, which means prices for goods and services will have also gone up despite an increase in interest/dividend income.

Primary House Rental: I’ve been wondering whether I should sell my house or rent out my house due to the social media craze which has formed in the SF Bay Area.  If I decide to rent out my house and downgrade to a normal 2/2 apartment, I would probably generate an additional $3,000-$4,000 in monthly income.  Rents have gone bonkers, especially for single family homes in good areas in San Francisco.  The problem is, I love the house and the location.  Life is about living in the moment, and I don’t want to live in a crappy rental just to save or make more money.

Unemployment Benefits: You can earn $10,000 a month in passive income, and still qualify for unemployment benefits of $1,800 a month here in California.  Unemployment income is passive income because all one has to do is apply, wait, and fill out their continued claims form every two weeks online.  That takes 3 minutes, and your Bank of America debit card gets injected with cash two days after filling out the questionnaire online.  Of course, if I were to collect unemployment income, I’m not allowed to have my own business or teach.  If one can get their passive income to a level which makes them happy, collecting unemployment benefits after paying all those taxes for all those years is a logical fantasy.

TOTAL COMBINED INCOME STREAMS 

EXPERIENCING THE FREEDOM AND ERADICATING FEAR

With multiple income streams you not only develop financial independence, you also achieve mental independence as well!  You don’t have to worry about pissing anybody off anymore, or feeling guilty about doing things for money you otherwise wouldn’t do.  You’ve gone from being someone who is second guessing everything, to someone who does what feels right to them.  Nobody can ever take away your passive income you’ve spent years building.

It takes a damn long time to build a livable passive income stream nowadays thanks to Ben Bernanke’s monetary benevolence.  As a result, CD interest income is not good enough and my focus will be more towards online income, rental properties and creating a larger dividend portfolio.  That said, I think there’s a mini-bubble in dividend investing, so I’m not jumping head first just yet.

I haven’t been paying too much attention to my passive income breakdown until now because my work income has always been my primary focus and only about 25-45% of that income after tax is what I need to live.  However, if I truly plan to pursue the life I *think* will make me happiest, then its time to buckle down and develop more side income since my day job income will disappear.  $5,000-$8,000 a month in after tax passive income is good, but it’s still $7,000-$10,000 away from what I find ideal.

GET GOING AND NO CO-MINGLING OF INCOMES!

It’s important to not co-mingle your funds if you want to build significant multiple income streams.  With passive income, you’ve got to pretend you’ve got no other income.  That way, you stay focused and don’t start getting lazy with your mission to achieve freedom.  If you make $100,000 a year at your day job, pretend you make ZERO so that you give everything you’ve got to find other income sources.

If you make $2,000 a month from your online properties, ignore it completely in order to really develop your day job income, rental income, dividend income, interest income and so forth.  Compartmentalize!  You must compare apples to apples eg not passive income to online income.  Everyday I wake up, I pretend I have next to nothing in my bank account.  As a result, I’m super motivated and find the journey incredibly rewarding and fun.

I recommend all of you to start saving aggressively, build a CD ladder, invest in rental properties, look into dividend yielding stocks, work harder at your jobs, leverage your skills to teach others, and start a small business.  You’ve got to do your due diligence and pounce on investments you like with focus.  Build buffer after buffer of income streams.

I can promise you that if you do all these things, in 10-15 years, you’ll be set for life.  And if you can’t figure it out and need guidance, let me know.  Financial Samurai will be open for business very soon!

Readers, how are your various income streams coming along?  Do you have a monthly after tax income target amount you’d like to generate to achieve your definition of freedom?

Anybody else treat creating multiple income streams like a game?  What areas of investments do you think are particularly attractive to build future income streams and why?

Recommended Follow-Up Reading:

The People You Should Be Most Afraid Of vs. The People Who Should Be Most Afraid - This is an in-depth discussion of the benefits of financial freedom.  The liberation of the mind is a wonderful, and perhaps priceless feeling.

Photo: On the balcony of my suite on a cruise ship in the Mediterranean.  Freedom.

Regards,

Sam

If you want to achieve financial freedom, please sign up for my e-mail feed or RSS feed to keep in touch!

The average tax refund is roughly $2,750.  With the US per capita income at around $48,000, that’s 6% of one’s income they’ve overpaid to the evil empire.  Everybody knows that getting a refund is like giving the government an interest free loan.  But, with interest rates the way they are, who cares?!

If you were to ask people to put aside $230 a month to save $2,750 a year, I bet most would fail due to the lack of discipline.  As a result, I think it’s fantastic most people are getting refunds.  The key is not blowing your refund on some splurge you wouldn’t otherwise spend money on if you didn’t get a refund.

In 2011, I had to pay about $1,000 more in Federal taxes, but I got several thousand back from the state of California.  For the past 10 years, I’ve saved or invested every single refund I’ve received, and this year was no different.  Boring!  At least a philosophical post came out of it entitled, “Is Paying Taxes A Form Of Charity?”

Here’s a neat infochart with more ideas of what to do with your refund.  I like the rocket ship chart of investing your refund every year until you retire with a 7.5% return.  Buying a nice Macbook Pro would be sweet too, however, that’s a corporate expense, baby!

If you are like me, you should be motivated to invest and pay down more debt with your refund, rather than spend it on superfluous things.  Although buying 1,000 lottery tickets sure sounds like way more fun!

Via: Your Local Security

Readers, what do you plan to do with your refund?  How do you plan to make your refund work for you?

Regards,

Sam

Like you, I’ve been inspired by the teachings of the Financial Samurai for some time now. I enjoy his constantly bullish take on life, his flame-breathing enthusiasm for hard work, and his interesting tales involving of money and rental properties.

But there’s one place we seem to disagree, and that is in the area of Early Retirement (I actually agree, just not entirely). For those that don’t know me, I’m a big proponent of that lifestyle, and I write about it frequently on my own blog. Mrs Money Mustache and I quit our own cushy corporate jobs over six years ago in order to raise our little kid, and we haven’t looked back since then.

Sam, on the other hand, occasionally likes to poke fun at the idea of early retirement (it’s good to always see the other side of things). I’ve collected a few quotes from him on the matter.

Let’s be honest, writing about retiring in your 20′s and 30′s is a gimmick.

Apparently, there are people in this world who actually work 40 hours a week or less and complain why they can’t get ahead!

I love to work and the ideal amount is 2 to 4 hours a day. I think if everybody were able to work less hours a day, they’d probably love their jobs that much more and last that much longer too. (Wouldn’t this be ideal for everyone?)

 

On top of that, I’ve seen Sam speculate that several million dollars in net worth would be required to retire, and I’ve read case studies on this site suggesting that people might not want to walk away from their $250k jobs, even after they’ve been working them for 16 years.

“That’s cool“, I always say, “To each his own“. The MMM family is still happy with our own early retirement and the party goes on.

But recently there have been some challenges thrown down between our two camps. Financial Samurai has been popping up around the web, saying things like ,”Mr. Money Mustache should be a hedge fund manager for being able to show investment gains during the 2008 downturn!”  (This is my main area of curiosity.  How did one show investment gains during the 2008-2009 melt-down like John Paulson when investors were getting obliterated in stocks and bonds?  I’m a student of investing and am always looking to learn.)

I know a friendly ribbing when I see it, and I think the Samurai is really challenging me to answer this question: “How can you retire at age 30, with a family, on less than a million bucks, and still live a good life and even survive gigantic financial turmoil like we’ve seen?“.

Here’s The Answer: Very easily! Let me tell you a little story:

I didn’t know much about retirement when I set out to become financially independent. I was only 21 years old when I got started, and I hadn’t yet learned about retirement planning, savings rates, or even the basics of stock investing. The only things I understood were how to earn more money (working hard at my job), and how to spend less than I earned (buying less stuff than my friends did).

As time went on, I learned more things. I read about a hundred books on economics, finance, and investing over the years. I learned how to renovate my own house and take care of my own cars. I even read about health and fitness, nutrition and cooking. I got married and my wife learned a bunch of skills too. In addition to her main job in software project management, she got her real estate license and became a badass web developer. We moved to the US together and learned about the new culture in this great and business-friendly country. Most importantly, we had plenty of fun and met lots of people in our new hometown – people with many additional skills that were happy to share them.

As the years passed, the habit of stashing away cash and the new skills started to mix in interesting ways. I was able to move from my first house, which I had renovated from a 1978 junkpile into something trendy and modern, and rent it out at a profit. This paid our mortgage on a second house, which I also renovated. The hobbies of fitness and biking paid off in the form of being able to share one older car instead of two newer ones, saving thousands per year. These savings could then be profitably invested in stocks due to the better investment knowledge. Weird synergies like these continued.

Eventually, we realized we had built up enough passive income from stock dividends and rental houses to sustain our low-cost lifestyle, so we quit our office jobs and had a baby. (love passive income!)

But just like Sam, we both still love to get things done occasionally. We took up part-time jobs doing things we enjoyed, from home. She would occasionally help a friend buy a house and earn a real estate commission, and I would occasionally do some carpentry in my garage or around the neighborhood. At other times, when family duties or long vacations called, we would not work.

Things didn’t always go smoothly.  The Great Financial crisis hit in 2008, and caused the worst recession since the Great Depression. The value of my retirement savings in stocks was sliced in half. I was also stuck with an extra house I couldn’t sell. We had been blindsided by something we never could have predicted a few years earlier.

Were Our Early Retirement Dreams Shattered?

Amazingly enough, they barely took a hit! Most US companies continued to make their dividend payments at a barely-reduced level throughout 2008 and 2009 (Many US companies cut their dividend payments to 0 to preserve cash eg financials, consumers, tech which made up 60%+ of the S&P500). The rental market remained strong enough to keep properties from sitting vacant. Sure, the stock prices were down, but who cares about stock prices when you’re not selling them? (Rental prices were indeed sticky on the way down, which is one reason why rental property is such a great asset class)

We dialed back our spending for a year or two, continued to rent out the un-sellable house, and I even made a point of doing some extra work so I could afford to buy some of the stocks that had been beaten down to bargain levels.

Eventually, the economy recovered. Stocks rebounded, my rental income went up and I started working less again. Meanwhile, my little boy has made it to six years old now, and hanging out and learning with him continues to be my biggest job by far, just as it has been since he was born.

What does all this look like on a graph? I put my best estimate of the numbers into the chart below for your review:

This chart is based on the numbers from an old article on my own blog called “A Brief History Of The ‘Stash” (an excellent chronology you should read). The key thing to note is that while stock prices and real estate values fluctuate wildly, dividend and rental income barely changes with a recession. (“Dividend X 10″ means the real annual figure is the amount divided by 10 eg $9,000 div income in chart = $900 a year in real dividend income)

That’s a long story, but it’s supposed to be a lesson too. I am trying to show my more fearful friends that Early Retirement is not a risky or scary proposition. It’s pretty much just the same as a regular working life, except you have much more flexibility. This flexibility lets you adapt to any changes that might happen – financial, health, or otherwise, and continue to lead a good and happy life. The more flexible you are, the greater your chance of being happy, wherever your life takes you.

Overconsumption Habits Are Risky

A big part of this flexibility comes from having a bunch of complimentary skills. Imagine a workaholic double-career family who are so busy earning (and spending) $300k per year that they don’t even have time to clean their own house or cook their own dinner. These people feel “security” from their high-income jobs, but they are also locked into two expensive cars that they depend on even to get to the grocery store 2 miles away, a gigantic mortgage, $900 per month in extracurricular activities for their kids on top of the $3,000 in childcare or private school tuition expenses, and the list goes on…

This family is secure only as long as they both maintain their high-income jobs. Even a few months of job loss would leave them deep underwater with no hope of rescue. If an industry evolves and their skills become obsolete, they could be stuck forever, with bills they can never pay. If their roof leaks or the car breaks or the lawn needs mowing, these people don’t have the skills to solve their own problems without spending a ton of money. So they will always be dependent on earning ton after ton of money.

Let’s contrast that to the early retirees. With the mortgage paid off and no debt of any sort, these people have very minimal monthly bills (mine are only about $2,000 per month, and that includes raising a young child and living in a rather large house). They have savings equal to at  least 25 years of living expenses, which are invested to provide enough cashflow for the expenses, with plenty held back to keep up with inflation. They have the ability to cut their spending much further if hard times ever hit. Plus they have skills and personal connections that would allow them to earn income if it were ever needed. On top of that, they actually do earn occasional income, and save 100% of it, further growing the nest egg.

Where’s The Risk?

When you really think about the two lifestyles, does it really seem that early retirement is risky at all? I feel safer now than I ever have in my life. And the freedom is useful in motivating me to try things that I wouldn’t otherwise have time to do – like starting some low-key businesses in areas that interest me, and of course, a blog about early retirement!

So for those pondering early retirement, I’d like to offer some advice: if you do the hard work required to save for it, chances are you’ll automatically develop the skills to thrive once you are there. You don’t have to worry about what it will be like – just start the journey and let your life skills grow even as your cash does.

Love,

Mr. Money Mustache 

Further recommended reading:

How To Retire Early And Never Have To Work Again (160 comments) – Lots of non-believers, despite mathematical tautologies.  A follow-up post is coming up, so stay tuned.

How To Save More For Retirement If You Don’t Make Much (100 comments) – If you don’t feel a little bit of pain saving, you aren’t saving enough!

The Dark Side Of Early Retirement (230 comments) – This is the post no early retiree wants to read, so don’t read it.  Save yourself the truth and don’t let me derail you from kicking back.

Sam’s Notes:  Thanks MMM for sharing your story and congratulations to you both for retiring early!  I’m glad you helped clarify what happened in 2008-2009.   I think one of the key points about early retirement is that it’s different for everybody.  One can work on their own things while retired, and consider themselves retired, for example.

America, Australia, Europe, and Canada are such easy countries to live in that it doesn’t take much to retire or survive.  We’ve got a social safety net, decent unemployment benefits, good public infrastructure, freedom, and many ways to make money other than through a traditional 9-to-5 job.

You’ve heard about Bondi Beach, the Great Barrier Reef, Elle McPherson and the Australian Open.  You know that Australia has a great “walkabout” culture where college graduates take a gap year to go explore the world and expand their horizons.  As far as you can tell, Australia is a wonderful land down under!

Unless you’ve been to sunny Australia, everything is hearsay.  I’ve never been, but fortunately for all of us,  Shaun from Money Cactus is a regular reader who hails from Australia and has decided to provide some insights into what it’s really like living and working in Australia.

One of my friends from San Francisco moved to Sydney five years ago and he loved it so much he decided to start a business there and become an Aussie citizen!  After looking more into the Australian healthcare and social safety net system, there’s no wonder why people love Australia!  In fact, I might consider retiring there myself if they have me.  Then again, why would they since I haven’t paid any of their taxes!

Here’s Shaun’s perspective on Australia.  For other Australian readers and those who’ve spent some time there, please feel free to share your thoughts as well!

Australian Boom: Where The Money’s At

Fortunately things still seem to be moving in the right direction for most of Australia, particularly if you have a skill that is suited to the mining industry. Australia is going through a mining boom right now and there is some serious coin to be made, even truck drivers are pulling down 100k plus and all they need to be able to do is drive in a straight line!  There is even bigger money to be made for qualified trades people, so unsurprisingly everyone wants a job with a mining company at the moment.  We are talking $150,000-$300,000 jobs!

Other industries (like manufacturing) aren’t fairing quite as well and our exports are suffering due to a strong Aussie dollar, but online shopping has definitely exploded as a result. Australia is pretty under-serviced in the online retail market, so I think that there is a lot of potential in this space at the moment too.

Australian Schooling System

The education system in Australia is very similar to America. Once kids get through school they might choose to go to university (college in the states), or undertake vocational training (similar to a community college I guess). The big difference is the cost of tertiary education. We are pretty lucky really, I’ve heard about the cost of college in America and it sounds pretty scary!

Rhe cost of college in Australia isn’t nearly as terrifying. Depending on your area of study, you could be looking at 15k-20k total in fees over 3-4 years. Sure it hurt a bit paying back my debt, but not nearly as bad as it would if it was 15k-20k per year. I think that this is a really significant difference as far as your personal finances are concerned, a huge financial burden early in life can have a big impact on your ability to save and invest.

My tertiary education tip? If you can afford to pay up front, come to Australia to study. Our university fees are lower and you get to experience a great part of the world at the same time.

Australian Tax and Retirement System

Australian tax laws aren’t too dissimilar to those in the USA, but there are a few little differences. The tax system in Australia is administered by the federal government and is quite comprehensive, which basically means they generally take more than they should (before deductions are factored back). Tax is paid directly by your employer with each pay cycle and while it is possible to arrange a variation based on your deductions, most Australians file for a tax return at the end of the financial year (June 30).

I’ve really liked some of the tables that Sam has put together lately, so I’ve got one for you too. The table below compares the tax rates and income thresholds for individuals in Australia and the USA (all figures taken from Wikipedia). There are some other levies to factor in here, like healthcare or any state taxes but this is good as a general guide.

It is worth pointing out that in both situations an individual pays tax at a given bracket only for each dollar within that bracket’s range. So if you earn $37,500 in Australia as a resident, then you pay no tax on the first $6,000, then 15% on the amount between $6,001 to $37,000 and finally 30% on the last $500.

One big benefit I think we do have here in Australia is compulsory employer contributions to employee retirement funds (we call it superannuation). This runs at 9% of your wage as a minimum, but some employers pay more. It is pretty nice having a mandatory systems that helps to ensure you have some funds available when you retire, but as you would expect, it doesn’t add up to much unless you contribute a lot more for retirement yourself. We also have some pretty stringent laws that govern the way this money can be invested and when you can access it, but most people invest in a diversified portfolio through a superannuation fund provider and get access to it at the age of 65.

Australian Public and Private Healthcare

Medicare is the Australian public health service, which provides residents with subsidised treatment from their local medical practitioners (around 75%), and fully subsidised treatment in public hospitals. The system is means tested but essentially available to everyone (higher income earners incur a levy of 1%). While this is a pretty good deal, close to 50% of Australian citizens also have their own private cover as it is more comprehensive, provides greater choice and generally covers a portion of the charges generally referred to as ‘extras’ such as dental, optical, physiotherapy, elective surgery etc.

The Australian health care system is by no means perfect, we have some very long waiting lists for surgeries and often a lot of crowding at hospitals, but I think we are still pretty fortunate to have access to ‘free’ care no matter what you do or how old you are.

Aussie Personal Investments

One of the biggest differences I’ve noticed from a tax perspective between Australia and the USA is that you can deduct your home mortgage interest in the States, but you can’t deduct your home mortgage interest in Australia.  On the bright side, we in Australia pay no capital gains whatsoever on the sale of our primary residence.  Furthermore, we can deduct the interest expense on our commercial and residential investment properties.

Capital gains tax is paid on 50% of the profit of any investment sold, the rate applied is the same as the individual tax rate after the profit is added to your income. Unfortunately we don’t have anything similar to a section 1031, so if you sell an investment property you will end up paying at least some capital gains tax.

Australia Ain’t That Bad At All Mate

So there you have it, a brief contrast of the more obvious differences that I have noticed and those that could have a pretty significant impact on your finances depending on where you live and how you handle things. Hopefully I’ve mentioned something in here that has caught your interest and will get you investigating your own personal finances a little more closely. If not, I suggest you start saving for a holiday ‘down under’ and experience a little more of Australia for yourself.

What are some of the unique ‘perks’ you take advantage of in the USA to improve your personal finances?

Shaun is not an accountant, financial planner or life coach, but he writes about wealth creation anyway at Money Cactus! Shaun’s motto is “Make wealth, not money,” which fits quite nicely with where he wants to be in life. You can find out more by visiting his blog where he shows you how to take action over your personal wealth.

Every now and again, it’s good to reflect on things in order to improve.  You’ve likely read my updated About page already and have a decent sense of what this site is about after going through some of the posts.  I went through this exact same exercise with The Yakezie Value Proposition the other week and found the process to be quite helpful.

There are thousands of personal finance blogs on the web and certainly millions more blogs across all categories you can potentially visit.  It’s just impossible to do and you’ve got to pick and choose.  I’d like to formalize Financial Samurai’s value proposition to help you understand why you want to keep coming back for more.

In three more years time, we are going to build more wealth, slice through more money bullshit, and be happier because of it!

THE FINANCIAL SAMURAI VALUE PROPOSITION

* The Joy of Communication: Interaction with all of you is what makes Financial Samurai so much fun.  I tend to respond to the large majority of comments where there are questions.  Even if you don’t have questions, I like to drop an occasional note of observation and thanks.  I’m not going to sit in a high chair far above and not interact with you readers.  Hence, if you have questions, feel free to ask, and I’ll get to them as efficiently as possible.

* Just Me And The Community: 95%+ of the posts are written by me and I do not employ staff writers or ghost writers.  I’m not against having a staff writer by any means.  I’ve just got a large backlog of posts that are ready to be published, including several good ones from Financial Samurai readers which I’m sure you’ll find interesting.  The whole point of having a blog is to share your own views and opinions, otherwise, you might as well just read a newspaper don’t you think?  I also welcome all well-written guest posts from the community.  I’ve found that nobody cares more about your writing than yourself, which is why I tend to lose interest in sites that employ too many voices.  You’ll be amazed at how many sites employe ghost writers by the way.  I was shocked to find out myself.

* Quality Of Writing: I spend a lot of time editing my posts and guest posts so that they come out as clear and entertaining as possible.  Of course there will be typos and grammatical errors here and there, but for the most part, the content is well put together.  Remember, this is not the New York Times or The Washington Post!  Articles are generally opinionated and I try and make readers think about issues at hand, even if they object.  Despite having some controversial posts, you will hardly ever find nasty comments because I think the argument structures are sound.  The average post length is around 900-1,500 words, and the posts have consistently come out 3-4X a week for years.

* Entertainment: I get easily bored, which is why I will only publish something that I find relatively entertaining.  It’s impossible to always have the most riveting content on the web.  That said, even the most mundane things like credit scores can be told through an experience that will incite emotion.  Furthermore, I will keep the topics forever changing.  My focus is on real estate, automobiles, health, insurance, taxes, retirement, government and relationships.  There will seldom be a dull moment on Financial Samurai if I can help it.  Thank goodness there are so many crooked politicians and companies out there!

* Integrity: Because I don’t depend on online income to survive, or need to work anymore for that matter, I care less about what corporations, potential advertisers, and other bloggers think of me.  It doesn’t mean I don’t care.  I just care less.  To go to war over something I believe in is a true honor.  I find it fun and invigorating to battle an opponent to the end!  If you wrong me, like PG&E wronged me, I have no qualms about pointing out the injustices even if that means a lack of sponsorship in the future.  If you treat me well, like USAA has treated me well for the past 20 years, then I have no problems highlighting your good work and advertising your product.  Even then, if you are going to try to make me all of a sudden pay 50% higher home insurance premiums, I will write about the insurance and appraisal scam as well.  Everybody has the right to make money online and do what they want with their websites.  There are certain things I need to be vague about in order to protect individual identities.  However, it’s the takeaways which are the most important thing.  It’s what you say and do on the web, your social capital if you will, which matters most.

* First-Hand Experience: I’m not pontificating on what things would be like, or how things could be.  I’m sharing with you my experiences and telling you what I’ve learned.  If I don’t know about something, and find the subject interesting, I’ll ask someone who does know to share their thoughts.  Because I own a home, have rental properties, invest in stocks, invest in bonds, and invest in private companies, there is always going to be a ton of investment content that we will discuss.  Maybe we’ll all be able to make some good returns as a result (you take profits yet?).  Because I pay a shitload of taxes, hate taxes, and think the government is made up of crooks, we will constantly have philosophical debates on how to improve our country.  Because I worked at McDonald’s making $3.25 an hour and worked a lot of other low paying jobs since high school, I empathize with those who are financially struggling.  As a manager in the workplace, you will gain career perspective on how to get ahead and blow yourself up.  Finally, as a person who has lived in 7 different countries, and visited 50 more, you will find a diversity of cultural viewpoints to help expand the mind.  I hate racism, bigotry, and ignorance.

* Financially Independent:  One of the main underlying goals of reading any personal finance site is to figure out how to achieve financial independence.  If someone could teach me how to retire early with real money and never have to work again, I would pay them a lot because time is priceless!  Good thing for you, I’ve mathematically figured it out and have shown you how to realistically retire by 40 or 45 if you want to.  Whether you take the leap of faith, it’s up to you.  When you work due to the joy of your work, and not because you need the paycheck to survive, that is a great feeling.  It’s the same way I felt getting my MBA.  Grades didn’t matter, just the learning.  Hopefully by reading Financial Samurai, you will get a glimpse into the way someone who is financially independent thinks about things.

* Quality of Readers: We have the best personal finance readers on the web.  It’s a virtuous cycle where good content attracts good readers who attract more good readers.  I’ve learned so much from all of you, as I’m sure many of you have learned so much from the community as well.  A large majority of us have moved beyond the basics of personal finance and are looking to maximize our lifestyles, super-charge our investments, optimize our taxation structures, see the world, and have a frolicking good time in the process!  We will indulge a little more than average in some of the luxuries life has to offer.  There’s no point making money if you don’t spend it.

MAY WE CONTINUE TO SLICE THROUGH MONEY’S MYSTERIES

I am a big fan of the personal finance and lifestyle blog community.  So in essence, I am like all of you readers.  I like to be entertained while learning something new in the process.  Those sites that can offer such a combination are the sites that keep me coming back for more.

A blog is also a great testing ground for new things.  I do want to see if I can create a product and service.  I know there is demand out there from readers who would like to start their own sites, or who have their own sites and want to get noticed.  I also know there are readers who want to get one-on-one financial advice as well.  It will be an adventure to work on pricing, marketing, and product offering.  Even if there is absolute failure with no resulting business, trying something new always brings about new knowledge.

It’s pretty neat how over a hundred thousand of you come by every month.  Do let me know if you have any further feedback and ways I can improve!  Let me know what you’d like to read more of and less of.  What makes you happy and annoyed when coming to Financial Samurai.  I’m always open to suggestions.

Photo: Girl dancing in a Hawaiian sunset, SD.

Best,

Sam

Please sign up for my e-mail feed or RSS feed to keep in touch! 

If there’s one thing we can appreciate from the Occupy Movement, it’s a fantastic slogan that emerged saying, “Shit Is Fucked Up And Bullshit!”  There’s something about this slogan that resonates with me, and perhaps with many of you.  I’ve found myself saying this in my head a lot recently.

I’m not sure if I’ve ever ranted on my site.  Rather, I’ve tried to channel my frustration into posts which tell stories that prove points.  In this post, I thought it would be helpful to highlight some fucked up bullshit things that are going on which need to be addressed and fixed.

I don’t expect you to agree with me on all of them, or even a majority.  You are free to think and say whatever you want, which is part of the core of this site.

A LIST OF SHIT THAT IS FUCKED UP AND BULLSHIT

Government Power

* How can a man, sitting in Congress, pass a law that restricts women from doing what they want with their bodies?

* Why can’t gay couples have the same rights as heterosexual couples?

* How could we let Congress profit from insider trading for so long, yet lock common citizens up for doing the same thing?

* Why does the USA police the world?  America doesn’t let other countries dictate how we govern.

* Who gave us the right to impose our will on others and kill innocent people during war?

* Why is there an income threshold that dictates who can contribute to an IRA or ROTH IRA?  Don’t we all deserve to save for retirement?

* Why is the maximum 401K contribution capped at $17,000, when you know that even saving $17,000 for 30 years in a row is no guarantee you will have enough money to live a happily retired life?

Taxation Discrimination

* Why does the government want to raise taxes on couples making over $250,000, but when they are apart, they can make $200,000 each for a total of $400,000 and not have to pay more taxes?

* How can people vote on a candidate to raise another person’s taxes without that person having to pay more taxes themselves?

* Why can’t all working individuals pay something in federal income taxes so that we all help our country prosper?

* Why is there class warfare on people who pay the most in taxes?

* Why do people think they are entitled to other people’s money?  It’s not yours if you haven’t earned it!

* How can the poor speak for the rich, when they are poor and have never been rich?

* How can the rich speak for the poor, if they have always been rich?

* Why is there an income threshold for people to receive a child tax credit?  Shouldn’t we either have zero tax credit, or tax credit for all families?

* How come if you die after 30 years of contributing to Social Security and are single, your next of kin get nothing?

Human Rights Violations

* Why must we impose our religion on others and tell them they will die if they do not follow?

* Why do we not protect our children and let grown men in leadership positions abuse them?

* Why is there not basic universal healthcare to save those with hardly any money who will lose everything?

* Why are there homeless veterans in America?  Haven’t they earned your support dear government?

* How is it OK for a family to have 20 kids when there are 144+ million orphans in the world?

* Why are attractive women “randomly” selected at airport security screenings to go through the full body scan?  Why are male TSA employees allowed to view the body scans of women when only female TSA employees can pat down a female traveler?

* Why is there still racism in America?

Integrity Compromised

* Why do people always brag about their big wins, but never their losses?

* Why do people let attractive or rich people get away with murder?

* Why do people forget where they come from?

* Why do people stop giving thanks to those who gave them a chance to succeed?

* Why do people steal each other’s ideas?

* Why do people support others who insult their own family?

* Why is an underwater homeowner blaming some rich person who has nothing to do with their decision to sign the documents?

* Why must one hate on another without truly getting to know them?

* Why do people manifest their own personal anger and project against others?

* Why don’t people do what they say they will do?

* Why do people think they can vandalize and graffiti other people’s property and not face consequences?

Corporate Abuse

* How can a CEO get paid millions of dollars if their company underperforms its peers, kills people, shows negative performance in the stock market, and actually loses money?

* Why do insurance companies sometimes make it impossible to collect on a claim and scam their customers?

* How can a company with monopoly profits in one segment use those profits to destroy its competitors in every other segment?

Work & Career

* Why do people think they deserve to make a lot of money working 40 hours a week or less, when someone overseas is working 60 hours a week and earns a quarter of what you are making?

* Why do we work so hard to get passed over for a promotion and not given a raise because of company politics despite solid performance.

* Why do people complain why they can’t get ahead if they don’t come in first, leave last, and work on weekends?

* Why do “C-students” think they deserve “A-lifestyles”?  There are millions of kids out there busting their asses after school, studying 5 hours after participating in extracurricular activities who are going to compete.

And the list goes on, and on, and on.

TELL ME PEOPLE, WHAT THE HELL IS GOING ON?

I have a lot of questions, and a lot of opinions.  What are some of the things you think are fucked up and bullshit?  Why can’t we all fight for equality if equality is what we want for our children and loved ones? Never stop fighting for what you believe in.  Never surrender!

There’s no stopping us right now…………

Regards,

Sam

Since the very beginning of Financial Samurai, I’ve sought to delve into the psychology of wealth by focusing on stories about wealth and moving beyond numbers.  My favorite is, “The Curse Of Making Too Much Money And Not Pursuing Your Dreams“.  It’s infinitely more interesting to learn about what makes people happy, and what wealth means to everyone.

Most of us are born into relative wealth given America, Australia, and the United Kingdom, are where most of you readers hail from.  There are hundreds of millions more people born into relative poverty and can’t get out.  Go anywhere in India for a couple weeks and it will change your appreciation of what you have, forever.  You’ll probably no longer complain about why you don’t make X, and you’ll likely lose some weight as well upon realization of so much waste.

The psychology of wealth is more than just having a net worth of $1 million dollars by the time you retire.  That’s pretty straight forward if you have your head on straight the day you graduate from college.  The psychology of wealth is about being wealthy, no matter how much money you have.  It’s about “understanding your relationship with money and achieving prosperity,” as Dr. Richards writes.

THE PSYCHOLOGY OF WEALTH REVIEW

* The Beginning:  To understand what we have, we must understand how far we’ve come.  Dr. Richards talks about how we define wealth, the evolution of wealth, and finding your dreams in the first few chapters.  Dr. Richard’s great-great grandparents were slaves and were set free by the Emancipation Proclamation as young adults.  From there, they managed to purchase 41 acres of property in Tennessee to begin their wealth-building journey.  The idea is to discovery our past and appreciate it for all its worth so we can appreciate how much more we have now.

* The Importance Of Self-Esteem: Self-esteem is probably the most important aspect in building wealth and appreciating wealth in my opinion.  It’s why I highlight this particular topic here.  If you do not believe in yourself, nobody else will.  If I do not believe I will vanquish my opponent on the tennis court, then I will be in a compromised position and probably lose.  The great news is that even if you are not born with a high amount of self-esteem, it can be built, one step at a time through continuous positive experiences.

“It is not possible to grant another person an authentic and durable sense of self-esteem-it is a quality that we gain through our own experiences.” says Robert Reasoner, past president of the National Association of Self-Esteem.

Start making a conscious habit of replacing negative language with positive language while thinking and speaking about ourselves and others.  It really is about taking small steps to build your self-worth, which can be synonymous with self-esteem.  Learn from your mistakes.  Be open to other points of view.  Trust your judgement.  Be proactive.  Don’t fear change.  Feel grateful for what you have and so forth.

* “Value Is What You Get, Price Is What You Pay”: This is a famous saying from Warren Buffett which is used by Dr. Richards to discuss what is important to us.  What makes me happy are cheap old toys from my childhood and spending time with loved ones.  Yes, a Lamborghini Gallardo would make me happy for several months, but I’m sure that thrill will fade.  I find tremendous value in simple things and don’t require expensive hobbies at all to make me happy.  The goal is to list some things that you find tremendous value in, and highlight the various prices you’ve paid and would be willing to pay.

* The Power Of Giving Back: Some of us are more generous than others and I’ve long struggled with the feeling of not feeling generous enough.  I remember when I was in college, I gave $1,000 of the $3,000 total I had to my old baby sitter of 10 years because she had just given birth to her daughter.  It made me feel so happy.  Once I graduated, and began working like a slave, I stopped giving as much money and time, partly b/c I was always so tired, and partly b/c I felt I worked so hard for my money at 22-23 years old.  A $1,000 dollars now was worth much more than a $1,000, and I couldn’t just give it away.

Over the years, I’ve volunteered more of my time, and given away more of my money again.  The power of giving back creates a tremendous amount of wealth, and needs to continue.  The book talks about this power of helping others, and at the Yakezie Network’s core, helping others is what it’s all about.  Hopefully you folks can participate in the Yakezie Writing Contest that will be launched end of this April.

CONCLUSION – A GREAT READ

The Psychology of Wealth is an excellent book that came at a very important time in my life.  I’m trying hard to extricate myself away from “the rat race” and live a more balanced lifestyle that isn’t focused just about money.  I’ve written about lifestyle balance ever since I first published my About Page three years ago, and I’m still trying to get there.

If you feel consumed by money, or feel you don’t have enough money, you most definitely should read The Psychology Of Wealth.  The book will help change your relationship with money and help you appreciate more of what you have.  As Dr. Richards writes, “The psychology of wealth means taking responsibility for one’s own decisions and nurturing the qualities and attitudes within ourselves that will create a prosperous life.”

HOW TO WIN ONE OF FIVE COPIES

* Sign up for my E-mail feed. 3 points.

* Highlight this giveaway on your site. 5 points.

* Comment why you are having a tough time appreciating your surroundings and the wealth you have.  If you do appreciate your wealth and surroundings fully, then comment on how you plan to build more wealth, based on your definition of wealth. 5 points.

* Share this post on Twitter by clicking one of the buttons below. 3 points.

* Google +1. 2 points.

Make sure you’ve commented what steps you’ve taken to win below and help me out by telling me the total points.  I’ll choose five winners in 10 days after this post is published.  If you have any questions for Dr. Richards, feel free to ask them below and I will ask the good doctor to respond when he can.  Good luck!

Please note: The PR agency has asked all contestants be from North America.  Sorry international readers!

Regards,

Sam

Book Details: Hard copy, 241 pages. McGraw-Hill publisher.  $26 retail.