Rich Twin Poor Twin

I recently went over a book by Robert Kiyosaki – I think it was “Rich Dad’s Guide to Investment – what the Rich Invest in and the Middle Class does not”. The book was released before the internet stock bubble burst. In the book it mentions the 20-10-5 trend which is really interesting. It states that for 20 years the equity market is the place to invest your money – Equity or stocks, mutual funds, hedgefunds, etc. Then comes a 10 year trend to put your money into commodities, gold, silver, real estate – basically into hard assets. And the 5 is that for every 5 years a major catastropy occurs – September 11. Looking back at this chapter I can see that we are just about done with the real estate and gold trend and will head back into stock market trend soon if this theory is true. So far it looks pretty accurate. My twin and I are already playing with automated system trading platforms and putting more cash into stocks. We also invested some money into really neat programs to backtest the forumlas we use to time stock buys.

I recently took a look at Netflix, stock symbol nflx and think that it is at a good discount to put some money into it right now. One thing that troubled me with Netflix’s quarter financials is that it had a sudden 250+ million investment in it. Its rival Blockbuster was recently upgraded by advisors who recommend the stock after the company introduce rental rates that undercut Netflix’s 3 movies out at a time by One whole dollar. The fact remains that Blockbuster is losing massive amounts of money and does not have the leading brand name in online rentals to begin with. They have been playing catch up for the last 3 years to Netflix and are still losing money. My bet is with Netflix. Short BBI and buy some NFLX – buy some leap year options. I’m estimating returns of 20+% here with NFLX. Seen it a hundred times already.

The last post was entitled: How to Start Making Good Money, Today. To us good money (or easy money) is money that is generated effectively – where our time is not tied into and is not in proportion to how much money we get. Passive income from businesses and interest from your savings are examples of what we are talking about. Another source for effective (good, easy, passive, L33T) income is through stocks or paper assests.

Stocks or paper assets are effective ways to generate money these days because you basically make money when you buy the paper asset and don’t need to tie up any more of your time into that endevor to make money. Simple when stated but it is hard to do (make money) in the begining if you are a novice or have little experience actually generating this effective source of income.

We follow the simple formula that probably everyone who has been in the stock market has heard before to make us money. We buy low and sell when we have a pretty decent profit. It works. We also have some ok dividend yeilding stocks (they don’t even beat savings’ interest these days) but usually inch up in price over time. A lot of people would say that it is easier said than done. Its true but if you keep doing it you will eventually make consistent money through stocks (10 to 20%) a year is quite normal.

Generating money through stocks is not a get rich quick deal. It takes discipline, focus, controlled decisions with no emotional attachments, and sound business decisions – you play stocks to MAKE money not lose it. What really helps in consistently generating money through stocks is actually gaining and having experience in setting up and running a successful (consistent positive cashflow – growth helps) online or offline business. You can really see when great companies with scalable operations, strong financials and solid performance are “for sale” when they follow price drops with the major indices during what my twin and I call ‘noobs panic selling’. It happened with google, microsoft, and apple on a couple of occassions already the past 2 years.

More tips on how to get started:

-Open up a scottrade trade account or a trade king account. There are no minimums.

- Learn to save a little every month first. Then move on to saving a little more each month to put that amount into your “investment” cash. Even if its a dollar a month. Do it.

- Look at only 2-5 companies to invest in. Don’t go for one you never heard of or do not understand the business model.

– Paper trade to get a feel of stocks which just means to write down when you think its a good time to buy with fake cash and track results. Its really easy and fun to begin with. You use google right? Or have an ipod? or use microsoft XP or Vista? Track those company’s stocks by going to yahoo finance and punching in “goog”, “aapl”, and “msft”. Look at the charts. What have you missed out on? When was the first time you remember hearing or using these companies products? Are you confident in these companies? Are they LEADERS in their fields?

- Do not invest if you NEED to make positive cash flow right away. Its slow and boring but is an effective way to generate money in terms of how much actual time you need to deal with it. Do not get suckered into day trading or try to time the market because it will be a JOB for you. And lets face it – JOBS suck. So don’t do it unless you have a business in traning and gaining off of day traders.

I know most will probably turn away when the very word of stocks or investing is mentioned. They are missing a very effective way to generate money. If this did not scare you or bore you away, then I would like to also mention options for stocks which is a more risky way to generate capital gains when you see a company’s stock in an obvious deep sales price.

The mention of compound interest will usually arouse knowing nods in the room. However, if everyone seriously understood what compound interest is, then there wouldn’t be as many people falling into the depths of bankruptcy due to credit card debts. Without a doubt, financial institutions are making the most out of this moneymaking concept to the disadvantage of the debtors a.k.a. general public.

Do you know what compound interest is, then? Essentially, it’s interest generated on top of interest plus the principal sum over a length of time. To illustrate this, assume you have $10000 today and you’re supposed to get an interest of 3% a year for this principal sum. This means you would have $10300 by the end of the year. So in the second year, the principal sum is $10300 and by the end of that year, you would have accumulated $10609. In year three, the accumulated sum would add up to $10927 and so forth. In the same vein, $10000 compounded on a basis of 10% per year would have generated two-fold of what you started with, in 7 years. Therefore when you hear banks claiming to make your money work harder for you, they are just employing compound interest.

While it’s nice to imagine our money in the bank escalating away and making us richer, it also assumes that we do not make withdrawals, which dramatically reduces the impact of compound interest. How often have we withdrawn deposits made religiously due to ‘emergencies’?

How do we harness the benefits of compound interest? By taking note of how credit cards employ this very principle on our debts would be a prudent first step. Banks often claim to be diligently calculating interest on a daily basis, but one must question to whom does it benefit? Large firms are the ones using this exponential tool to their gain. The general public only has opportunities to take advantage of compound interest on a smaller scale, namely mutual funds and stocks that typically yield yearly dividends. On a similar note would be fixed deposits offering paltry yearly interest rates. Increments in salary happen once or twice at most in a year. Anything, which can be compounded to the general public’s benefit, is often on a yearly basis. So what must one observe in order to jump on the compound interest plane to financial independence?

Conclusively, compound interest works better for us if it happens more frequently. Which is to say, twice yearly is better than yearly and quarterly is definitely better than twice yearly and so forth. Therefore ideal investment plans should have these features:

- Returns of at least 5%
- Compounding on a monthly basis
- Low risk with high winning percentage (no less than 90%)
- Flexible withdrawal for liquidity (i.e. one is able to stop anytime)

So let’s start employing compound interest and be on your way to financial freedom.

Copyright (c) 2007 CashFlow Avenue

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The rich think very differently than the poor. One considers something smart while the other usually considers the same thing as risky or stupid. What are your opinions on the following – is it risky for you or is it smart to you?

1. Getting and working in a high paying job?

2. Starting a part-time business?

3. Investing in a business (yours or other people’s), property?

4. Saving money? and finding ways to save more money?

5. Buying a large house to live in?

Here are our answers:

1. Getting a high-paying job is kinda smart. You need something to start off with, especially if you are brand new to the business of making money online. But it is foolish and risky thinking that you can climb the corporate ladder, capture your “dream job”, build an awesome “career”, while getting paid for a job, and think that it is safe and secure. layoffs happen and who wants to retire when they are 65? In the end, as an employee (for most) you build nothing and have really nothing to show for your work except paper experience to buff up your resumes. Also, if you really want to become rich, you realistically can’t acheive it as a high paying employee. Our businesses pulls in enough profit in a month to match our yearly incomes from our full-time jobs. Who will pay you that kinda cash per hour as an employee? The answer is You because in the end you are ultimately your own boss no matter who’s name is on the check.

2. Starting a part time business is smart for us. But for most it is risky and they just instantly say – “Do you know, that 9 out of 10 businesses fail?” Yea well one makes it and you actually learn to fight back. These are the same people who will not hesitate to go back to school for 4 more years to get their MS and PHD’s cacooning themselves and learning more and more about less and less. Real financial education is taught by doing and teaching. I just think about those years in HS when the internet boom was in its peak and I just cringe because in those years anyone with a brain and knoweldge/experience about money could have easily made a million bucks.

3. Investing is not just smart but is necessary for us. The first thing that the poor say is that investing is risky and that you will lose all your money. Yet they don’t even think twice before playing the weekly lottery or betting for their team to win the monday night game. Yea investing is a jungle and it can really beat you up if you don’t know what you are doing but thats just all the more reason to start small and learn to own it. In order to beceome rich you must not be afraid of investing and heck even make it a NECESSITY. Then you will expect (not just hope and pray like 90% of investors) to make a positive ROI, retun on investment. Its your choice – to sit on the side lines or starting small with your own business. One bit of advice from us, you master investing by investing in your own business rather than in someone else’s because you know it deeper. I just hope that those employees who are big into stocks, mutual funds, options, and paper assets really know what they are doing and are actually learning something.

4. Saving money is kinda smart to us but going that extra mile to save a few cents is just stupid and a waste of time to us. I remember and see people in super markets with stacks of neatly cut coupons holding up the line to save a few dollars. They do as much research saving money as a rich guy would do looking into increasing his profits and ROI. Why try to horde and save money when you have the ability to amplify it? Yea its pretty tough to amplify money if you NEVER tried. But its seems so easy to deny your wants and to mitigate them is it not? A funny thing my twin and I notice is that when there are big sales you see these same people overbuy and stock up on cheap food and supplies – necessities for living or expenses. Yet when the stock or real estate  market is taking a nose dive these people with small portfolios sell sell sell while the rich sees this, researches, and buy good deals on ASSETS. Seen it a hundred times already.

5. Buying a large house just ties up too much money. If you plan to flip it, then start small and do your research and find people who have already done it successfully or unsuccessfully to guide you through your first several deals. You can also learn more on this at: IamFacingForeclosure.com

If you are new to the making money business or are just thinking about it, you should probably read this post. I’m not going to go into details about all the ways you can make money now online and offline because there really are countless ways to do it now – many suck, some work, some don’t, some work but are proportional to how much effort you put in. You can just google it and see that there are endless ways to make money now and new ones are popping up everyday. Just two years ago, my twin and I were still in school and making ZERO dollars on the web. We didn’t have a single website, no clue about html, no clue about “affiliate marketing”, CPA, clickbank, Adsense, YPN, blogs, etc etc. So just how did we manage to reach the point where we are now? I think that there are two fundamental reasons how we got to where we are. The first one is this: Not Settling and staying hungry. The second thing is that we believed we could do it.

There is a reason why you are earning the amount you are earning right now. It doesn’t matter if you are earning one dollar, one thousand dollars, or $100K a month. Those levels are set by no one else except you. You earn that amount because that is just how much value you are giving out, providing, creating, or sharing. Period. I just chuckle whenever I hear and see employees get jealous at rich people or get angry at their lousy paychecks thinking that someone owes them more. Realistically, if you are an employee and want to become rich through that means only, the odds are way stacked against you to become rich in a short period of time (less than 10 years). You will most likely have to work for forty years. FORTY YEARS to break 1 million bucks while people can realistically break that amount in just 2-5 years today if they put their minds to it. 

Their focus is on something that they do not have complete control over; thinking that their boss, their jobs or their company is the problem. When they focus on that, they lose sight that they are the problem. If you have a money problem, it is because of you and only you can fix it. Your boss is not here to make you rich – he just gives you work and a paycheck. What you do with that paycheck will determine if you will become rich or stay mediocre. That decision on what to do with your paychecks stems from what you think and feel about money. You want to become rich and master money? Start by changing the way you feel and think about money.

You think money is hard to get? Takes a lot of physical effort to get or is in proportional to the amount of time and energy you put in? Okay then you will work hard for the rest of your life. You think money is something that is to be saved and horded up? Then you will just be like a lot of employees who just try to horde and try to save every last penny of their paycheck  always suppressing their real wants, needs and desires. That blows.

On a side note: this also brings up something that I hear quite regularly from people who have family and parents to “feed.” It is a large responsibility to provide financially for them and it takes a lot of guts and character to provide the things they need and want while scarificing/mitigating your own needs at times as well as putting your nose to the grind stone for them. However, if you seriously want them to be “taken cared of” or want their love which it eventually all boils down to, then you owe it to them as well as yourself to seek the path to master money, hard. Yes grinding away at a job can provide all the things a modern family will ever want, but if you have ever wanted more in terms of money,time, freedom and to expand yourself then you have to seriously start into changing the way and amount of income you bring in for them and yourself. Don’t let 20 years pass by then see that you have to start changing the way you make money. Start now.  

Others spend all of it and more. Most are not that extreme in either direction and are somewhere in the middle they save some and spend some. They don’t ever think about how money can be controlled and amplified. Phrased in another way: they don’t use money to create, buy, or rent assets. Again, assets are just things that put money into your pockets. See money making systems. So how do you start thinking and acting like this? It was mentioned in the beginning of this entry  your income is in proportion to the amount of value you give out.