Infographic: It’s Never Too Late To Start

notlate1There’s a new movie out about Ray Kroc and McDonald’s called The Founder. Did you know that Kroc was selling milkshake machines into his 50s until he stumbled on a pair of brothers buying a ton of milkshake machines for their new hamburger shop?

I don’t know if I would call him a role model, but Ray Kroc’s story does show that it’s never too late to start something. You don’t need to have started at age 18 in your college dorm room. Here’s an infographic from Anna Vital of Funders and Founders that provide other examples of people who took an indirect path to success. Click for original:

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Here’s another interactive infographic breaks down various successful self-starters with the age at which they started their companies. It turns out that 35 is actually the most common age to start a large, successful company. Perhaps it helps to build up a platform of experience (and failures?) first. Click on the image to reach the interactive version.

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Hopefully that provided a bit of motivation to keep reaching for that idea that always comes up when your mind is quiet.

It’s never too late to start putting money aside. It’s never too late to start working on your business idea. It’s never too late to spend your time differently.

HBO Documentary: Becoming Warren Buffett

HBO has a new documentary film called Becoming Warren Buffett that includes a more personal look at his life, including “never-before-released home videos, family photographs, archival footage and interviews with family and friends.” I just watched it on using the HBO Now 30-day free trial. Here’s the HBO trailer:

My notes:

Warren Buffett does have a folksy exterior. He drives around in his own car, eats at McDonald’s, drinks Coke, and still lives in the same house he bought in 1957 for $31,500. He doesn’t have a personal stylist or fashionable clothes. He likes to say things that sound like common sense.

Some people think this is a fake exterior. I don’t think so. Some people take this to mean that “anyone” can get rich buying and selling stocks. I also don’t think so.

Warren Buffett is also extraordinarily intelligent and competitive. His net worth is one of his scorecards. His skill is capital allocation and that involves extreme emotional detachment and rationality. These are features that aren’t visible, and he’s better at it than you are.

Warren Buffett is always learning and improving. Buffett skipped grades, finished high school at age 16, and finished his undergraduate degree in 3 years. However, instead of any degree hanging on his office walls, he has a certificate from a Dale Carnegie course on public speaking. Buffett realized his weaknesses and worked to improve himself.

Charlie Munger shared an analogy with someone who can juggle 15 balls in the air. How did that happen? Well, at some point they started with one ball, practiced, and then two balls, and then practiced some more…

The film does explore his personal life, albeit in a very sensitive and respectful manner. His emotionally volatile mother is mentioned but not explored deeply. His father was a great influence and Warren keeps a picture of his dad on the wall in his office. His late first wife, Susan, was shown as a very kind, considerate person. In her interviews, she came off as very well-spoken, fair, and intelligent. She definitely played a huge part in his overall development. She is also a huge reason that eventually $100 billion is going to charitable causes to improve the world.

Buffett has said many times that he won the “ovarian lottery”. He was born in the United States. He was born a male. He had many opportunities to succeed and support structures if he failed.

As a relatively new and clueless parent, I wonder about his kids. Warren Buffett spent most of his time working and not much time raising the kids. I wonder what they would have been like if their father didn’t become famous and rich. (Supposedly when they were young, Warren really wasn’t all that rich or famous yet.) Today, all three of them appear to be well-adjusted adults, but everyone’s job is to give away their parent’s money. Do they do this out of obligation to their parents? Out of obligation to make sure the money is well spent? Is this the “job they would get if they didn’t need a job”?

Warren attributes his financial success to “Focus”. Was that laser focus detrimental to his family and other personal relationships? What if he had just stopped when he reached $10 million or whatever?

Warren Buffett is worth over $60 billion, yet he doesn’t meet certain definitions of “retirement”. What Buffett has always been keen on is constructing a life that fits him. His version of financial freedom includes sitting by himself and reading 5-6 hours a day and thinking. He’s loved being his own boss since filing his first income tax return at age 13 and taking a $35 tax deduction for the use of his bicycle and watch on his paper route.

I think hero-worshipping can be dangerous when you simply try to follow everything about someone else. Every human has their flaws. We should extract the qualities that we admire, and try to emulate those qualities. Warren Buffett has a lot of worthy attributes and I value his shareholder letters, but I certainly don’t want to “be just like Warren Buffett”. For me, I respect that he basically figured out how he wanted to live his life (no bosses, lots of reading) and that he achieved it an early age. The eventual billionaire status doesn’t really excite me, other than the fact that he managed to remain “grounded” and relatable.

Overall, the film does offer some new personal glimpses but not much new deep material for those that have read his biographies – The Snowball: Warren Buffett and the Business of Life by Alice Schroder and Buffett: The Making of an American Capitalist by Roger Lowenstein.

Two Ways to Get Rich: Save Like Crazy, or Start a Business

Cash ImageTom Corley performed a study examining 233 self-made millionaires over 5 years, and found that they fell into one of two categories as outlined in this Business Insider article:

  1. They were fanatical savers.
  2. They sold something.

This aligns with my own observations as someone who has thought about financial independence nearly every day for over the last 10 years. My version:

  1. You can become financially independent by managing your income and expenses carefully over a long time. If you start at zero, you will need a 50% savings rate to retire in 15-20 years. You will need a 30% savings rate to retire within 25-30 years. Thus a household making $100k has to live on $50k (both after taxes). Being a steady, salaried or hourly-rate employee will do just fine. There is no secret besides applying discipline and consistency.
  2. You can become financially independent faster by starting a scalable business. By starting a scalable business, you are breaking the link between hours worked and money earned. As a salaried or hourly worker, you’ll never earn more than a set amount, be it $40k a year, $400k a year, or $20 an hour. As a business owner, your income has no ceiling. You take the risks, and you get all the rewards. Ideally, this results in a lump-sum “liquidity event” like a sale or IPO that provides the same amount of money as decades of steady savings. (Controlling your expenses still matters, even millionaires can go broke when the income stops flowing.)

The first option can be described as “get rich slowly” or “get rich surely”; it is more reliable but may take longer (or at least feel longer). The second option is “get rich quickly” but also “get rich maybe”; there is more risk and results are not guaranteed despite the size of your efforts. Luck will have a role, but if you don’t even try then your chances are zero.

If I was to make a broad recommendation (i.e. what I plan to tell my kids), I’d say that if you really wanted to get rich, you should (1) do both options above and (2) do it now, hopefully when you are younger and don’t have as many responsibilities. Keep your expenses bare-bones and start a business. Being a single 24-year-old meant I could still have fun with minimal expenses and spending 60-80 hours a week working on a project didn’t destroy my family or personal life.

Someone Is Doing The Thing That You Decided Couldn’t Be Done

bbootWe are currently planning a 4-week European trip with our young children (age 1 and 3). The most common reactions are “Cool. Wait, you’re not bringing the kids, are you?” followed by “You’re nuts.” At first, we didn’t think it could be done either. It does take a lot of additional planning for car seats, cribs, kid-friendly itineraries, and so on.

While doing some research at a site called My Little Nomads, the author shared a quote by Seth Godin:

One of the under-reported stories of the internet is this: it constantly reports on what’s possible. Somewhere in the world, someone is doing something that you decided couldn’t be done. By calling your bluff and by pointing out the possibilities, this reporting of possibility changes everything.

You can view this as a horrible burden, one that raises the bar and eliminates any sinecure of comfort and hiding you can find, or you can embrace it as a chance to stretch.

That is a great quote that encapsulates why I love the internet. If you want to start your own niche business, pull off home-cooked weeknight meals, take your house entirely off-grid, semi-retire at age 40, or just take your tiny kids on an adventure – someone out there has probably already done it. You may even find an entire online community ready to help you reach your goal. There will be doubters, but all you need to know is that it’s possible.

Financial Independence Heat Map: Starting Age vs. Savings Rate

If you are into podcasts and enjoy long conversations about higher-level personal finance topics (put that in your dating profile!), check out the Radical Personal Finance podcast. I’ve only listened to a few, but I enjoyed Episode 181 on The Impact of Your Savings Rate on Your Time to Financial Independence. If you make $50,000 a year and spend $40,000, then your savings rate is 20%.

Based on math formulas mentioned in the podcast, a commenter named Philip Frey created a “heat map” Google Docs worksheet with starting age, savings rate, and age at financial independence. Green means you retire by age 40, yellow by age 50, red by age 65, and grey… means you’ll be heavily reliant on Social Security. 😉

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I believe the assumptions include (1) both income and spending numbers are after-tax, (2) once you reach 25 times expenses you reach financial independence (4% safe spending rate), and (3) outside pensions and Social Security are ignored. It’s not perfect and I wouldn’t take hard numbers from this chart, but it’s still a neat visualization.

Savings rate is a great way to measure your velocity towards financial independence. Treating the components of income and expenses as separate, as opposed to intricately linked as most people assume, is the key takeaway.

Achieving financial independence is quite difficult no matter how you do it, but my bet is that at least 10x more people have achieved early retirement through high income and average spending, as opposed to average income and very low spending. This is based on our own observations, including having household income that varied between slightly below average and well above-average. I could be wrong; I’d love to see some good data on this.

On Planting Trees and Enjoying The Leaves

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Autumn. My parents are thinking of taking a special tour to watch the leaves fall in New England. You can even pay someone to ship you a bundle of leaves for 20 bucks. I recently came across a piece of inspirational art with the following quote on it:

The best time to plant a tree was 20 years go. The second best time is now. – Chinese Proverb

I know I’m weird, but falling leaves make me think of dividends and interest. The leaves arrive, you “spend” them, and then more grow back. During my last site redesign, I was very close to switching the logo of this site to the image below.

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The tree and leaves would symbolize saving now and reaping the rewards in the future. Plant a seed now, and someday you’ll have a sapling. The leaves falling from tree could be seen as a replenishing stream of dividend, rental, or interest income. Every year, you’ll have a slightly larger pile of leaves. I suppose a better example would be picking fruit in the same manner. Either way, I figured not enough people would get the reference immediately.

The timing of the quote was fitting as I am coming on up on my 20th high school reunion. I’ve had some sort of job every year since high school, so that means I’ve also had 20 years to grow my tree. I’m still working on it, but my tree is already producing significant “dividend leaves”. Looking back, planting those seeds has been worth the time and effort.

If you haven’t started your tree yet, now is the best time available to start.

Image credit: Fall Colors by Flickr user ashokbo.

Elizabeth Gilbert On Taking Back 30 Minutes A Day For Yourself

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Right this second, there are probably 37 different things vying for your time and attention. Are you letting the right things get through? Elizabeth Gilbert is best known for her bestselling memoir Eat, Pray, Love. In a recent Facebook post, she credits turning off the Sopranos with giving her the time to write her seven books (and become wildly rich and successful). Here are selected parts of her post, I left out some parts for brevity:

Yesterday I posted a message about not giving up on your daydream, and a lovely follower of this page asked what you should do if you have “too much family stuff” going on in order to live your dream? […]

But what if you could find 40 minutes a day? What if you could borrow those minutes from the time that you normally spend watching your favorite TV show, or hanging out on social media?

Back in my twenties, I once complained to a successful older woman artist that I had no time to write, and she said, “What’s your favorite TV show?” I replied, “The Sopranos!” She said, “Not anymore, it isn’t. Give yourself back that time. Turn off your TV.”

She was right. So I turned off my TV. And I STILL haven’t seen the last three seasons of The Sopranos. But since that conversation, I have written seven books.

By the same token, I must admit that I always smile when somebody gets on this Facebook page to tell me that they don’t have any free time in their lives to be creative. As much as I LOVE to see you all on this page, my first reaction to such a statement is always to say, “Why don’t you start by signing off Facebook right this minute?”

If you have enough free time to get on Facebook and tell me that you don’t have any free time, then you have some free time.

What would happen if you committed yourself to that time? What if you used it to create, or to meditate, or to exercise, or to volunteer, or to dream…or even to just devote some serious single-minded attention to the process of making an escape plan — such that, five years from now, your life looks entirely different than it looks today. In other words — what could YOU make out of your life in an extra forty minutes a day? Might that be worth exploring?

She also directs people to read a beautifully-drawn Zen Pencils comic by Gavin Aung Than (shown above) that was based on an article by James Rhodes, a largely self-taught concert pianist. Here’s the original Rhodes piece and here’s a short excerpt:

What if for a couple of hundred quid you could get an old upright on eBay delivered? And then you were told that with the right teacher and 40 minutes proper practice a day you could learn a piece you’ve always wanted to play within a few short weeks. Is that not worth exploring?

(Also see: Another Zen Pencils comic about Alan Watts.)

Regular readers may recall that Charlie Munger of Berkshire Hathaway also tells people to work for yourself for an hour each day.

The takeaway is that these are not coincidences! Not everyone has a little voice inside them, telling them something is missing. But if you do, read all the full versions above, get inspired, and take some of your time back.

Financial Freedom and The Parable of the Mexican Fisherman

mexfishIn the rush of our everyday lives, it’s easy to lose sight of the real reasons why we work and toil every day. Money is a tool, not the end.

I’ve seen several versions of this parable in various books and blog posts (like here and here), but haven’t been able to pin down the original source. Here’s my favorite variation:

An American investment banker took a vacation to a small coastal Mexican village, on doctors orders due to his stress-related health problems. Unable to sleep, he took a walk along the pair and saw a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “Only a little while.” The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.” The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to consumers, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”

The Mexican fisherman asked, “But, how long will this all take?”

To which the American replied, “15 – 20 years.”

“But what then?” Asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”

“Millions – then what?”

The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

I also use this story to remember to live and enjoy things now and not focus solely on the future.

Image credit: gogeid of Flickr

Your Financial Plan & The Importance of Getting Started

onepage0I’m currently reading The One-Page Financial Plan by Carl Richards, who also writes for the New York Times. Given the title, I thought it would be a quick read but it turns out to cover a variety of topics over its 200+ pages. So far, I like that it comes from the point of view of an experienced financial planner who spends his days talking with clients.

A valuable observation is that the most common financial mistake most people make is simply doing nothing. Either they are scared of what they might find, or they are overwhelmed by how hard it is to plan for something with such uncertainty. Future jobs and/or income? Uncertain. Childcare/Healthcare/Retirement costs? Uncertain. Future investment returns? Uncertain.

As a financial planner, his job is get people over this hurdle. Guessing is okay! You can always correct your course as you go along, but as long as you are facing the problem and doing something, you are much more likely to have a good result. Carl Richards is also known as “The Sketch Guy” and this one from the book illustrates things well:

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However, you could replace “investment” with any decision that you have been putting off. Don’t worry about making mistakes (you will). Don’t worry about making the perfect or optimal decision (you won’t). Financial planning is not an exact science.

Here’s another take from inspirational speaker and writer James Clear in Why Getting Started is More Important Than Succeeding:

I can’t think of any skill more critical to the active pursuit of a healthy life than the willingness to start. Everything that signifies a happy, healthy and fulfilled existence — strong relationships, vibrant creativity, valuable work, a physical lifestyle, etc. — it all requires a willingness to get started over and over again.

Take note: being the best isn’t required to be happy or fulfilled, but being in the game is necessary.

Get started and correct your course as needed. In terms of personal finance, so many people have never drilled down to the real reasons why money is important to them, they have never calculated their net worth, never tracked and broken down their monthly expenses, and thus never properly prioritized their time, energy, and money accordingly. But that’s okay, as now is still a great time to get started! I have finished the book yet, but apparently you can fit an entire plan on one page. 🙂

The Position of F- You and Financial Independence

In the recent movie The Gambler, a loanshark named Frank explains the Position of F- You to gambler Jim Bennett. (Played by actor John Goodman.) Warning: Lots of explicit language ahead!

(Embedded YouTube video above. Direct link.)

If you can’t view the video, here is a partial transcript:

Jim Bennett: I’ve been up two and a half million.
Frank: What you got on you?
Jim Bennett: Nothing.
Frank: What you put away?
Jim Bennett: Nothing.
Frank: You get up two and a half million dollars, any asshole in the world knows what to do: you get a house with a 25 year roof, an indestructible Jap-economy shitbox, you put the rest into the system at three to five percent to pay your taxes and that’s your base, get me? That’s your fortress of fucking solitude. That puts you, for the rest of your life, at a level of fuck you. Somebody wants you to do something, fuck you. Boss pisses you off, fuck you! Own your house. Have a couple bucks in the bank. Don’t drink. That’s all I have to say to anybody on any social level. Did your grandfather take risks?
Jim Bennett: Yes.
Frank: I guarantee he did it from a position of fuck you. A wise man’s life is based around fuck you. The United States of America is based on fuck you. You have a navy? Greatest army in the history of mankind? Fuck you! Blow me. We’ll fuck it up ourselves.

I found this via the ERE Facebook page but saw that Nassim Taleb also commented on it:

This is a critical 1 min lecture to understand independence, antifragility, “f** you money”, selfownership, and many things.

I’ve written about the concept of F- You Money before as discussed by Dilbert and Humphrey Bogart. Here’s that Dilbert comic again.

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Financial independence, financial freedom, early retirement, whatever you want to call it… Why do some people yearn for it? Perhaps you recall the most common regret on our deathbeds:

#1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.

In my view, that is what it is all about. Having “f-you money” can help. You don’t need a million bucks or anywhere near that. Even a small sum of money tucked away can make a big difference in your mood and outlook on life.

Alan Watts: What If Money Didn’t Matter?

Alan Watts was a “British-born philosopher, writer, and speaker, best known as an interpreter and populariser of Eastern philosophy for a Western audience.” I actually stumbled upon his readings via a trailer for Days of Our Youth, a movie about people who grew up to be professional skiers.

Anyhow, he turns out to be pretty popular but if you haven’t heard of him before, I think listening to his voice is the best way to experience it:

Here is a transcript of the YouTube video above:

What makes you itch? What sort of the situation would you like? Let’s suppose, I do this often in vocational guidance of students: they come to me and say well, we are getting out of college and we haven’t the faintest idea what we want to do. So I always ask the question: What would you like to do if money were no object? How would you really enjoy spending your life? Well it’s so amazing as the result of our kind of educational system, crowds of students say ‘Well, we’d like to be painters, we’d like to be poets, we’d like to be writers’ But as everybody knows you can’t earn any money that way! Another person says ‘Well I’d like to live an out-of-door’s life and ride horses.’ I said ‘You wanna teach in a riding school?’

Let’s go through with it. What do you want to do? When we finally got down to something which the individual says he really wants to do, I will say to him ‘You do that! And forget the money!’ Because if you say that getting the money is the most important thing you will spend your life completely wasting your time! You’ll be doing things you don’t like doing in order to go on living – that is to go on doing things you don’t like doing! Which is stupid! Better to have a short life that is full of what you like doing then a long life spent in a miserable way. And after all, if you do really like what you are doing – it doesn’t really matter what it is – you can eventually become a master of it. It’s the only way of becoming the master of something, to be really with it. And then you will be able to get a good fee for whatever it is. So don’t worry too much, somebody is interested in everything. Anything you can be interested in, you’ll find others who are.

But it’s absolutely stupid to spend your time doing things you don’t like in order to go on spending things you don’t like, doing things you don’t like and to teach our children to follow the same track. See, what we are doing is we are bringing up children and educating to live the same sort of lives we are living. In order they may justify themselves and find satisfaction in life by bringing up their children to bring up their children to do the same thing. So it’s all retch and no vomit – it never gets there! And so therefore it’s so important to consider this question:

What do I desire?

Alternatively, Gavin Aung Than of Zen Pencils turned the quote into a very cool comic:

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Stuff like this is always controversial. Too dreamy? Too hippie? My current opinion is that it all depends on the person. Some people don’t have a strong affinity towards anything, they may value safety or prestige other things. (Is that really wrong if that’s what they want?) But to some people, they do have a latent desire, and reading such stories is like a wake-up call. Yes! That thing that you always think about in the shower, or right before you go to bed? Yes you should try that!

In the end, I think if you are going to spend a huge chunk of your life doing anything, then it should be at least be aligned with your personal beliefs. Only you can decide if that is currently the case, or if a change must be made.

Must, Should, and Financial Freedom

mustIf you struggle with your inner compass at times like I do, definitely read this thought-provoking and inspiring article The Crossroads of Should and Must by Elle Luna:

Should is how others want us to show up in the world — how we’re supposed to think, what we ought to say, what we should or shouldn’t do. It’s the vast array of expectations that others layer upon us. When we choose Should the journey is smooth, the risk is small.

Must is who we are, what we believe, and what we do when we are alone with our truest, most authentic self. It’s our instincts, our cravings and longings, the things and places and ideas we burn for, the intuition that swells up from somewhere deep inside of us.

When reading biographies and interviews of notable people, those who made seemingly bold decisions often remark that it really wasn’t. They just did it. It was a Must. I always wonder if it was also scary for them.

Looking back, I wonder if my own moves were by choice or not. Did I choose to quit my stable job with the bi-weekly paycheck and instead go back to school while supporting myself with online projects? Was I scared? Probably. Did I have any other choice? I only remember that I couldn’t do the job anymore.

Whenever I start feeling like others are controlling my destiny instead of me, I start to panic and plan my escape. I believe this fear of losing control is why I like to hoard money. Money gives you time to work towards a Must:

Money can be a bridge to the freedom of exploring Musts. And it often doesn’t require much. But it does require determination. Money can be used to buy you a day, a week, month of time to work on a Must, which may amount to nothing. Or it can be used to buy a sweater, a suit, a car — the value of which is obvious and low risk.

The article speaks of aligning your everyday actions to your dreams. Your job should be your calling. An artist. A tech start-up. A food truck.

That is a worthwhile goal and while it is important for me to like what I do each day (which I do), I feel differently. Not needing money from a job at all and having absolute freedom to do whatever I want (paid or not), that is what I crave. That is what I think about in the shower. Achieving financial freedom is my Must.