Money Mindset

Money Mindset discusses the experiences and opinions of a middle-aged professional on the topic of money, including: financial planners, investment experiences, part-time income sources, real estate investment and private sales, web site income opportunities, changing professions, home office organization, money education for kids, and many other subjects I have experienced first hand or even just thought about.

Saturday, March 25, 2006

Mind Over Money... Which is Worth More?

I believe it doesn't matter how much money you have. How happy you are has more to do with you mindset regarding money than how much money you actually have at any given time.

As the gurus often remember, I think it was Henry Ford who, when someone asked him what he would do if he lost all his money, said something like, "I'd make it all back in 5 years."

However, I think there is a difference between having a healthy attitude toward creating wealth and believing you have a bottomless pit of money to throw around on "Doodads", as Kiyosaki calls them.

In fact, it seems to me that when it comes to money, the less you can live on, the happier you'd be, no matter what the circumstances.

(Note: I drafted this post a few weeks ago, before the post about Feast or Famine. Even though I'm now technically in the Famine phase, I feel like it's an opportunity to take actions that will benefit me both in making money and in saving money through good times and bad. )

... Scott

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Tuesday, March 21, 2006

Your NIQ... or Network Income Quotient and NWQ

You'll hear this in most guru seminars and books. Things like "Your Network is Your Net Worth". I wasn't sure what this meant when I first heard of it. I thought it just meant that the more people you knew, the more you were worth... well, sort of.

But I have learned a bit more about what they mean. In one of Robin J. Elliott's bootcamps we discussed the exercise where you place a dot in the middle of a page. Then draw a small circle around the dot and place 4 dots on the circle. Name the dots with the names of the 4 people you spend the most time with. Then draw another circle just outside that one, with the names of the next 4 people you spend the most time with... and so on.

Now, the important thing is to estimate the income and/or net worth of the people on the circles around you. I'm not sure how the rest of the exercise went exactly, but it helps you put into perspective what the financial capacity of the people closest to you is.

It makes sense that as the income or net worth of the people closest to you goes up, you will be influenced by them in ways that changes your mindset on money and finances. It's a good exercise.

Being an engineer, I like to try to quantify things, so I think of it as a "Network Income Quotient" or NIQ.

So, try this. After you've labelled the incomes of each of the 4 people around you, take their average income.

For example, Joe ($45K), Fred ($40K), Alice ($55K), Mr. Boss ($100K) have incomes totalling $240,000.

Now, divide that total by 4 to get $60,000. That's the average income of the people you spend the most time with.

Now, your NIQ would be that average divided by your income. If the number is greater than 1, then your NIQ is hopefully increasing your net worth. If you spend more time with people who make 2 or 3 times your income, you can get NIQ values of 2, or 3. If you can get that number to be closer to 10, you will find your knowledge of money and finances becomes much greater.

Then, once you see where you are, try making a conscious effort to increase your NIQ by spending more time with people who have higher incomes.

But is Income the Best Indicator?

If you do the same exercise with net worth (total assets minus total debts), you will also learn things about how the people around you are affecting your attitude on money. I would call this your NWQ (Network Worth Quotient).

You can do it both ways NIQ and NWQ. You may find professionals who make a lot of money (high NIQ), but may not be increasing their NWQ. Try to find people with NIQ and NWQ that are much higher than yours to spend time with and learn from.

Just be careful if you hang around people with a high NIQ but a relatively low NWQ. These people don't seem to know or care how to manage their money, since they have not managed to put much of their earnings to work on building their assets. You will probably pick up their poor spending habits without having the income to sustain them. That can be very dangerous.

... Scott

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Tuesday, March 07, 2006

An Update From My Financial Planner

After posting my earlier blog article about choosing a financial planner, I got the following comment from my planner:

Scott -

The reality of the trillion dollars that is supposed to transfer hands in the coming decade has led a wave of people into the investment and financial planning space. Everyone is getting into the business because of the potential. Because of this, the consumer of these services and products is inundated and confused with all the choices and designations and products.

Too much choice often leads to paralysis and besides, its their hard earned assets and who can you trust anyway.

I've come to conclude the following when I think of how the average person should choose a financial planner;

1 - Designations - There are only a few respectable designations in my mind suited to creating a financial plan: a CFP, RFP and CHLU. There are a few other designations for specialists in divorce CDS and the elderly EPC too although they are in addition to the others. But even individuals with these designations often haven't actually completed and implemented a plan.
So along with designations, you want to ask about experiences and see what a plan involves. The actual planning document is not as important as the implementation of I, so asking a lot of questions about how the plan is implemented and tacked is important.

2 - Compensation drives behaviour - when it comes to investments, a commission approach only works for the do it your selfer - and most individuals are not interested or experienced or have the time to be DIY's.

Paying a fee for the plan and either a flat fee for implementation and management of the assets or a percentage of the market value up to a maximum amount is the only way to ensure the advisor is as interested in your success as you are.

3 - Diversification - If the planner is only recommending managed money (funds or managed accounts) you have to wonder if he/she is really managing risk for their clients. Along with Wills and appropriate insurance, pensions, annuities, and of course investment real estate need to be considered in the mix.


Thanks, Rich!

... Scott

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Passive Income

Passive income is simply income that your investments generate each month. It takes no additional work for it to happen. If you invest in assets that generate cash each month with no money from you, then eventually, the passive income stream will exceed your monthly expenses. When that happens, as long as your monthly expenses don't keep increasing, then you have "infinite wealth", meaning you can retire and live off of your investments.

Oops, My Expenses Grew, Too!

I mention "as long as your monthly expenses don't keep increasing" because I realize that if you don't make a conscious decision to budget and pace your spending it gets very easy to change your lifestyle to match your new passive income. There's nothing wrong with increasing your standard of living as your means increase, but just realize that you won't be able to retire until you make an effort to live within your means.

OK, There's Still a Bit of Work...

So, the way I look at it, if you are looking to retire on passive income, the only work you should need to do to "stay retired" is to manage your expenses to stay within your means.

For more discussion on passive income, please read the link below posted on Robin J. Elliott's blog.

Passive Income at Real Success Blog.

Should you decide to go further with Robin Elliott, and join the Joint Venture Forum, which explains how to generate passive income with no money and no risk (but some education and a small amount of time), please indicate that you found him through "Scott at Money Mindset Blog".


... Scott

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Thursday, March 02, 2006

It Doesn't Take Money to Make Money

This is a simple statement. However, you might be surprised at how some people interpret this universal "truth".

Many investment gurus will make this statement. Inevitably, they have proven it, using their own success as a testamonial. So, it must be true.

What I have found is that there is usually a way to structure investments so that I end up with an asset, and ultimately, I have no less money in my bank account than I did before I made the investment. This is based on theory, and I do know a few people who are doing this.

By most people's definitions, this kind of investment approach could be called "creative investing".

I have tried several investments using these approaches. In some, I have been able to make an investment, and within a few months, I have a new asset and no less money in my bank account. This doesn't mean I didn't use money to get the asset. It's all in the definition and implications.

Sometimes you can ask people to sell you a house and hold 100% financing, which means you don't need to put any money down up front. Of course there are likely to be land transfer taxes and legal fees. So you can't really say that you don't need "any" money. But it's not impossible.

For me, the key thing is that it is much "easier" for me to make an investment if I have some cash to put into the deal. Then, there are ways to get back the money I put in within some period of time, so I can use it for my next investment.

Someday, I hope to have the skill to partner with people in a way that leverages someone else's money and my skills in putting together investment opportunities. I believe it can be done. But it requires a lot of knowledge about what partners are looking for in an investment. It may not appear complicated, but it is not necessarily easy, depending on your investment knowledge, experience and credibility.

If it was a simple AND easy thing to do, I think most people would at least know someone who is doing it, and eventually most people would be doing it. I don't know very many people who are able to do this. But I'm working on being one.

It doesn't always take cash out of my bank account to invest in an asset that will earn me money, but without the skills to do it right, I think it is much easier if you have the cash.

So, I'd plan on spending a lot of time (and money) developing my ability to invest without taking money out of my bank account.

Let me know what you think by posting a comment below.

... Scott

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