Bernard Baruch by James Grant: Book Review


How did I find this book about Bernard Baruch’s life

Book cover of Bernard BaruchAbout one year ago I read an excellent book: Reminiscences of a Stock Operator by Edwin Lefevre. So far, that book reminds me of my favorites of times – it is about the life of legendary trader Jesse Livermore. I cannot recommend that book enough.

A few months ago I was listening to a podcast created by  the newspaper Investor’s Business Daily and in the podcast the spokesperson was talking about lessons to learn from legendary traders. The spokesperson said that lessons taught by Bernard Baruch were as valuable as the lesson taught by Jesse Livermore. I had never heard of Bernard Baruch before. I looked him up in Amazon.com, I found the book and I put it on my wish list. A few weeks later, my business partner gave me that book as a birthday present.

I had great expectations when I received the book. My enthusiasm was high and I was eager to get started.

Big disappointment

Spending time with my brother, his wife and two daughters
Spending time with my brother, his wife and two daughters

When I finally got to the book I felt a great disappointment. I felt that I was losing minutes of my life every time I turned a page.

The author, James Grant goes into a lot of detail about the life of Baruch’s grandparents, then about his parents, and finally he starts writing about Baruch.

As he narrates the story, he goes into exact dates and practically all the address where Baruch lived and worked. I could never figure out how knowing the exact addresses of Baruch’s office helps the narration advance.

The subtitle of the book is: “The Adventure of a Wall Street Legend.” However, the content of the book devoted to Baruch’s life in Wall Street was less than 20%. The rest of the book was devoted to Baruch’s life in politics and other services which he performed for the US. The subtitle was totally misleading.

Overall, I was extremely disappointed with the content as well as the narration of the book.

My recommendation

My recommendation is not to waste even one minute of your life with this book. That is my job, to shuffle among many business related books, so that I can find and offer you the ones which are worth reading.

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The frugal birthday party

Hanging out with my friend Elijah
Hanging out with my friend Elijah

Elijah’s birthday party

A few weeks ago, my friend Elijah sent me a Facebook invitation to his birthday party. It was at La Fontaine Park, a 10-minute walk from my place. It was one of those potluck style celebrations. Everyone brought  a little something: Beer, snacks, fruit, vegetables, etc. I brought a six pack of beer ($10) and some fruit ($5).  The party started at about 4 pm and ended at about 11:00 pm. People arrived and left when it was convenient for them. They drifted from one group of people to the other conversing and getting to know each other. It was an inclusive atmosphere and the cost for the venue was $0. I had an amazing time.

Another friend’s birthday party

Birthday party at a restaurant. Big echo, loud music, lots of money, inability to mingle with other people
Birthday party at a restaurant. Big echo, loud music, lots of money, inability to mingle with other people

I hope she doesn’t read my blog. Sometime ago, a friend invited me to her birthday party. I had a crush on her, so I jumped on the occasion without hesitation. The restaurant was big and it was full. There were as many tables as the restaurant owner could fit into the building. The echo of everyone’s voices was overwhelming. I was seated next to and across from people who I didn’t know. One of the people next to me was busy chatting on Facebook. I felt trapped in my seat. There was loud techno music in the background and I had to scream to speak to the person next to me. My friend came to chat with me for a few minutes and then she went off to another table. The food was great, but I had a miserable time. The cost of food and drink was about $60.

Dave’s Birthday party

My friend Dave is a master at the BBQ. Free venue, lovely atmosphere, easy to talk to every one, affordable.
My friend Dave is a master at the BBQ. Free venue, lovely atmosphere, easy to talk to every one, affordable.

My friend Dave decided to celebrate his birthday at a small Indian restaurant. The place was small and the echo was not overwhelming. There was some background music but not too loud. I was sitting next to people who I knew and we were having nice conversations. I was able to speak to friends one table over. The cost for this celebration was about $15 per person.

The ingredients for a good birthday party

Let’s be honest, a restaurant bill of $60 or more is painful for many of us. If your friends have to pay this amount to spend a few hours with you, you are being inconsiderate with your friends. In addition, some of your friends may not come. I have refused birthday parties because I don’t like the price of the restaurant.

How to make an inclusive birthday party

This is just my point of view, feel free to disagree, but I like public venues. Parks are my favorite, but any place where you can get together for free is great. The other option is to rent space in a community center or any place where you can get a good deal. Finally, there are thousands of restaurants in a city. Choose a restaurant with a good ambiance and where the food is not expensive. My personal limit is $20.

I celebrate my birthday every year at La Fontaine Park. Usually, I have between 20 to 30 people attend. We talk, we eat, we drink and we dance from 2 pm to 10:00. All of that for free.

How do you celebrate your birthday?

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Net worth Statement July 1st, 2016. $151,000

Net worth
Net worth

Living out of passive income

Although my passive income has now surpassed my expenses, I still work the same amount of hours as I did the previous month. Money is not my major motivation – it’s the need to feel useful and having a purpose which keeps me going.

This year I met an Uber driver. He picked me up in a nice Cadillac. When we started a conversation, I discovered that he was a retired millionaire who works for Uber two hours every day to break the monotony of his millionaire life.

Going cycling with friends
Going cycling with friends

About a year ago I heard this saying: Those who want to retire can’t, and those who can retire don’t want to. The reason is simple: we all need to have a purpose in life, otherwise we die. Most millionaire/billionaires such as Warren Buffet, Oprah Winfrey and Bill Gates continue working even though they don’t need the money.

So what do I do with my time? I am ashamed to confess that I spend too much time on Facebook. But when I am not in Facebook, I correspond with my tenants, I prepare speeches for my social club McGill Toastmasters, I speculate in the stock market, I read, I study English & French, and I hang out with friends.

Any plans for the future?

If nothing changes in my life, I will be financially secure. But nothing in life is permanent. Life has a weird habit of throwing you a wrench when everything seems to be going fine. Right now, I live in fear of losing what I have accumulated and I am constantly thinking of ways to protect myself.

My life dream is to become a stock market speculator. I am working on my systems, studying everyday, paper trading utilizing different formulas. One day I will be able to come back to this blog and share my results.

So here it goes. An overview of my financial affairs:

  • Cash is increasing. I want to have enough cash to take a vacation during the winter.
  • My car continues losing value.
  • Stocks are happily going up.
  • The mortgages continue getting paid.
  • And due to interest expenses, my debt continues to increase as well.

Here is a breakdown of my net worth:

Date Cash Car Stocks R. estate Debt Total
July 1st 3,578 1,250 95,645 155,527 105,000 151,000
June 1st 3,350 1,500 95,505 154,892 104,717 150,530
May 1st 3,249 1,750 95,029 153,408 101,808 151,628

Goals for July

To increase my net worth to $152,000. This goal should be attainable, but a lot depends on the fluctuations of the stock market.

My projection is that my portfolio will increase at the rate of 6% per year. This will be the equivalent of $5700/ year or $475/ month.

As for the real estate part, if my mortgage gets paid every month, my debt is reduced and my equity increases by about $500 per month.

Long term goals

As soon as my stock portfolio reaches $100,000 I should concentrate on paying down my debt. I feel happy with a $100,000 portfolio. From this moment on, the wise thing will be to reduce leverage and go into a more secure situation.

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Wage Slavery Emancipation

Slave Venture Smith buys his freedom
If a slave in the 1700 can do it, we can do it as well

Slavery in the 1700s

During the late 1700s and early 1800s slaves were allowed to buy their own freedom. They earned money by doing work in excess of what was expected of them. Sometimes they worked for other masters on weekends or engaged in entrepreneurial activities such as fishing or farming.

When those slaves earned extra money, they could have easily spent it buying stuff, but they didn’t. They had a higher goal in mind. They wanted to buy their own freedom.

Here is the story of Venture Smith, a slave who at the age of 31 had saved enough money to buy his own freedom, and 10 years later he had saved enough to buy the freedom of his wife, his son and his two daughters.

Although self-purchase was rare, an 1839 census reveals that 42% of blacks in Cincinnati and Ohio had purchased their own freedom.

Wage Slavery
Alain Guillot and friends at the park
Against Wage Slavery. One of my favorite activities is to spend time at the park with friends. It’s fee and we have lots of fun

It is my belief that today most people live a similar slavery, a wage slavery. Sure, we don’t get beaten by our masters and we don’t suffer physical violence (but we can be put in jail by the tax authorities) but the feeling of slavery is way too similar.

Wage Slavery refers to the circumstances in which a person’s livelihood depends 100% on his salary.

As opposed to the 1700s slaves who were forced into slavery, today’s wage slaves fall into slavery by psychological manipulation. Today’s wage slaves are persuaded to spend money on frivolous things, to buy clothes every season, to buy gadgets every year, to eat in restaurants they can’t afford, to use brand names as a way to signal how unique they are, to buy new cars when an old one would do fine, to live in housing they can’t afford. Today’s slavery is self inflicted. We spend every dollar we earn and then borrow more, we belong to the credit card companies and to the government.

Save to buy our freedom

We are constantly bombarded with all kinds of advertising. We have to buy the new thing to feel unique and special, we deserve it because we are different. But if we take a moment to reflect, we could easily discover that we are being played by corporations and by our governments.

The way to get out of wage slavery is to consume less and invest the savings in a tax efficient manner. We can reduce the power of our two masters, the advertising machine and the government, by saving and investing.

When we reduce our spending and invest our savings, we shouldn’t  think of it as deprivation, we should think of it as a method to buy our own freedom.

When we invest our money, our money works for us. Therefore we are not 100% dependent on our salary. At the same time, we can invest it in a way that allows us to pay less taxes.

If slaves were able to buy their own freedom at the end of the 1700s, we can certainly buy our own freedom today.

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Profiting from the Brexit panic selling

Stock market falls after the Brexit.
After the Brexit, the market tumbled. I was greedy when others were fearful

It’s all over the news. England is separating from the European Union.

The English got tired of having their lives dictated from Brussels. They found the excessive control asphyxiating. They decided to give up some of the economic benefit of being part of the European Union in exchange for gaining back some of their sovereignty.

With friends at a picnic table at the park
Enjoying time with friends.

On Thursday June 23rd, the market rallied over expectations that there would not be a Brexit, but on Friday we woke up to a different reality. Britain decided to separate from the European Union. There was panic selling. There was blood in the streets.

Warren Buffett often says: “Be fearful when others are greedy and be greedy when others are fearful.”

Be fearful when others are greedy and be greedy when others are fearful.

It seems to me that others were fearful. There was panic selling all over the world. The French index went down 8.04%. The Euro SToxx 50 went down 8.62.

What was my reaction?

I bought the Developed Europe All Cap Index ETF sold by Vanguard (VE.TO). This index focuses on companies located in developed European markets. VE.TO dropped 8.23%.

The rationale:

This is not the end of the world, this is not a terrorist act, nor a war, nor a major natural disaster which could damage the productivity of the companies in the index. This was a democratic decision taken by a developed nation in a peaceful fashion.

All the companies included in the index will continue doing business through the weekend, next week, next month and next year. Commerce will continue to happen within Europe and with the rest of the world.

It is my belief that over the weekend traders will have the time to analyze the situation and realize that things are not as bad as they believed it to be. At that moment the European market will rebound and I will get out of my position with a small profit.

Anytime a person buys a position, he/she does so with the knowledge that the price could go down. I might not make my profit right away. It could take me a week, a month, or even a year. That’s ok. The alternative is to have my money in the bank earning 0%. I prefer to take a risk than to let inflation erode my money.

I bought VE, an index composed of 1,220 European companies. It represents the whole European economy. The index might go down, but it will not go down to 0$.

I bought 400 shares of VE at $23.16. I will write another post when I get out of my position.

Update: Five days later I sold at $23.70. Only a 2% gain, but it was fun.

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group

Interview with Elijah Baker. I don’t believe money brings happiness

drums
Having purpose in life brings happiness

This is the second in a series of 10 interviews which I am calling Canadian Hustler.

We have won the geographic lottery. We live in a rich country, full of opportunities and numerous safety nets to catch us if we fall through the cracks. We can afford to take risks, we can dare to do something that we are passionate about. We don’t have to restrict ourselves to so-called “job security.”

This is an interview with Elijah Baker, a person who I met at my Toastmasters Club. Through his speeches Elijah has shared snippets of his life, but through his actions  he tells us about his creativity, his optimism, his humility and his ability to see the best of life in every circumstance.

Elijah has opted out of the 9 to 5 lifestyle. This is how he lives his life:

Elijah Baker

Alain: How do you make a living?

Elijah: I have always been able to make a living doing things which interest me. I studied communications and music at university and right now I give music lessons, plus I do independent video contracts. (This is Elijah’s website Inspiration Media).

Alain: Have you always been a hustler?

Elijah: When I was in my 20s, I worked for about 4 months in a 9 to 5 job and that was enough.

Alain: How were you able to escape from the 9 to 5 mindset?

Elijah: My parents were my role models, they had unconventional ways of earning a living.

My  mother always worked part time. She only worked 2 days a week and the rest of the week she spent living her life gardening and doing  other things.

My father works in the film industry as a freelancer.

The idea of doing the same thing, every day, from 9 to 5, scares me. I would worry that it wouldn’t be fulfilling for me and I would not feel passionate about it. I gave myself permission to live outside the box.

I gave myself permission to live outside the box.

Alain: Don’t you feel afraid? Not having a regular paycheck?

Elijah: Not really, hahaha.

We live in a society with lots of safety nets, but I feel if I ever fell, my family would be there to catch me. I’m really lucky to have a great family. I’ve never had to call upon it.

What is the worse that could happen? That I get a crappy job? Getting a crappy job would not be the end of the world and I can always find a job.

Alain: What advice would you give to someone who would like to get out of the 9 to 5 but don’t have the courage?

Elijah: We only have one life to live. I would encourage anyone not to suffer for too long. If they don’t like their job, I would encourage them to find something that they feel more passionate about.

Alain: How do you find business?

Elijah: Word of mouth, networking at events, being present in different activities, always speaking about what I do, and Facebook events.

Alain: How do you stay motivated?

Elijah: I always try to do my best. My work represents me. I put myself into my work and I feel good when I produce something of quality.

Alain: How much do you earn?

Elijah: Lately I have a lot of work, so I am doing fine, but I don’t know how much I earn. For me, as long as I have enough to pay my bills, I’m happy.

As long as I have enough to pay my bills, I’m happy.

Alain: How do you deal with the stress when you are not earning enough?

Elijah: Lack of money is not the most stressful thing. We have safety nets and I don’t believe that money brings happiness. I believe that having a purpose and engagement in what you’re doing brings happiness.

I don’t believe that money brings happiness. I believe that having a purpose and engagement in what you’re doing brings happiness.

Alain: Which books can you recommend to the audience?

Elijah: Creating a Life Worth Living by Carol Lloyd. She asks, what kind of person you are, what environment you want to work in. What is your creativity style? And then she encourages us to create a life for ourselves worth living.

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Alain and friends in a dance floor

An emergency fund is not that important

Do you need an emergency fund?

Most personal finance books promote the idea of creating an emergency fund as a fundamental step in personal finance. ( See personal finance guru Dave Ramsey and Senator Elizabeth Warren.)

Why? Because if you have an emergency, you can use that money instead of using your credit cards or dipping into your savings account.

The recommended amount for an emergency fund is the equivalent of 3 to 6 months of your regular monthly expenses.

For example, a person with a $40,000 salary will have an income of about $3,350.

A three month emergency fund would be about $10,000

A six month emergency fund would be about $20,000

That’s a lot of money.

The typical textbook recommendation is to put this emergency fund into a zero risk, liquid account, like a savings account. Usually these kinds of accounts earn zero interest.

Your credit card is your emergency

I just read an article from the blog NerdWallet  which reported the average amount of debt carried by a typical person:

Credit Card:        $15,762
Mortgage:        $168,614
Auto Loan        $27,141
Student Loan        $48,172

In a world where credit card interest rates fluctuate between 18% and 22%, it makes no sense to have $10,000 sitting in a bank account, earning 0% while holding a credit card debt of $15,762 at 18%-22% interest rate.

Paying down your credit card debt should be your highest financial priority. There should be no savings for retirement, no savings to buy a house, no nothing, until your credit cards are paid. Your credit card debt is your emergency.

You should also pay off other debts, such as your mortgage debt ( about 4%), auto loan (about 6% ), and student debt ( about 6% ). Why forgo reducing these debts in order to have money sitting in a checking account earning 0%? This makes no sense.

Invest your emergency fund

Let’s suppose you have paid all your debts. Would it be a good idea to have an emergency fund now?

No!

Either the Canadian index or the US index has an average return of 8% per year. Investing money at 8% sounds a lot  better than letting your money sit in a bank account earning 0%.

But what if you have an emergency?

The usual examples used by experts for an emergency fund are:

  1. Your car breaks down, or
  2. You get sick.

Car repairs don’t cost $10,000. If yours do, you are driving the wrong car and you have a consumption problem. Your problem is not lack of an emergency fund.

Most people get sick for about a week, this is not an emergency. If you have a more serious illness, $10,000 will not solve your problem. Your problem is lack of proper insurance.

Emergencies should be rare events which happen every 5 years or so. If you have an emergency every year, then it is not an emergency, it is a recurring expense.

What if you have a more serious emergency?

Credit card: Get your credit card, pay for your emergency, and then pay for your credit card debt within 30 days with alternative forms of financing..

Line of credit: The interest on a line of credit (right now) is about 5%-6%. It is better to have this debt at a low interest rate than to use money in your investment account which could be earning about 8%.

Your investment account: A final alternative is to take money out of your investment account. Assuming that a real emergency happens every 5 years, your investment account had 5 years to grow at an average 8% return for 5 years. Assuming an scenario where the market drops 20% right before you need your money, you are still better off than leaving your money at a savings account earning 0%.

How do I deal with emergencies?

I don’t recall having an emergency during the past 18 years. The biggest unexpected expenses I’ve had are parking tickets.

However, I do keep a checking account with a balance which fluctuates between $5K and $10k. If it has less than $5k, I panic and find ways to increase it. If it has more than $10k, then I send more money to my investment account.

How do you deal with emergencies?

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Interview with Raja Chemani about entrepreneurship and self-reliance

base
Raja enjoying his free time

Canadian Hustler

This is the first in a series of 10 interviews which I am calling Canadian Hustler.

Since our birth, we are indoctrinated to believe that the 9 to 5 lifestyle is the only option to make a living. This indoctrination is so deep in our subconscious that when we don’t get a 9 to 5 job we feel destroyed physically, emotionally, and psychologically.

drink
Having a drink. Cheryl, Raja, and Alain

Our lack of creativity, self-esteem and self-reliance makes us believe that if no one hands us a job we have no way of making a living. For this reason, we are always searching for approval, for diplomas, for certificates and many other forms of endorsements from the permission-givers.

People fight and beg for salary increases or government support because they don’t realize that they can take matters into their own hands. They don’t realize they can create their own salaries and be masters of their own lives.

With the intention of showing that there is an alternative to the 9 to 5 indoctrination, I have decided to interview 10 people who have taken control of their own lives, 10 people who don’t care about minimum wage nor government social programs because they have created their own jobs.

Raja Chemali

Raja was born in Lebanon. He came to Canada in 2007 and went to McGill University to earn a master’s in biomedical engineering.

As soon as Raja started working in his field he found that working in a small lab was tedious and stressful.

In a search for an alternative way of living, he opened an event production company where he invited guest speakers to share their knowledge. The business model consisted on charging people for the privilege of listening to the speakers. Due to the extraneous time and emotional demands, after some time, Raja gave up this business.

While developing the event production company, Raja was working as an independent contractor, knocking on doors, finding contracts for a landscaping company and keeping a 30% cut for his efforts.

The event production company was struggling and Raja needed more money to keep it going, so he decided to continue knocking on doors, but instead of giving the jobs to the landscaping company, he decided to do the job himself. This is how Raja started his present business Sparkle Window, a window cleaning company. Raja created his company in only two weeks and earned a few thousand dollars the first week.

Interview

Alain: Raja, How come your instinct pulled you towards creating  your own business, instead of looking for a regular 9 to 5 job?

Raja: I didn’t want to have a 9 to 5 job, that is not my type.

A 9 to 5 is not for human beings, we are not machines that can be programmed to work a certain amount of hours. Sometimes we can get the job done in one hour, sometimes we need 12 hours.

We are organic beings, our lives should not be framed into 9 to 5 blocks.

A 9 to 5 job kills our creativity, it kills the spontaneity of doing things we want to do when we want to do it.

We are the smartest creatures on earth, we should be able to find other ways of making a living other than the typical 9 to 5 system.

Many people don’t enjoy the 9 to 5 schedule, they do it because they feel trapped. They don’t know any other way.

Alain: Many people go to fancy universities to study 4 to 8 years to earn a degree which will help them make a living. And here you are, doing manual labor in a job that only took you 2 weeks to create and you are earning thousands of dollars. How do you feel about that?

Raja: Washing windows doesn’t identify me, I am a lot more than a window washer, I am a human being. My window washing business provides me with the money I need to live and enjoy life on my own terms. Our jobs should not determine who we are as individuals.

Alain: How do you find business?

Raja: I do some Kijiji ads, I keep my website up to date, but mostly I knock on a lot of doors to offer my services.

At the beginning, I wasn’t used to rejections, but then I accepted it as part of the business. Knocking on doors is like a muscle, the more I use it the stronger it gets.

Alain: How do you keep motivated?

Raja: Sometimes it’s difficult. I do it by switching off the creative and intelligent side of my brain and switching on the stupidity mode. I become an automaton.

I also keep myself motivated by thinking about upcoming projects or goals that I want to accomplish and how I am going to use the money to fulfill those goals.

Alain: How much do you make?

Raja: It depends on how much energy I put into it, on how many doors I knock on doors, but when I push myself, I can make up to $1,000 per day.

Alain: Can anyone create their own business or does this require a special mindset?

Raja: The system is designed to take all the creativity out of us and it doesn’t allow us to become human beings. We have the potential, creativity and intelligence to do anything we want but we are taught to obey, we are taught to take orders.

Everybody is an entrepreneur. Children are the biggest entrepreneurs, they believe anything is possible but the system robs them of that belief.

Self-doubt is the biggest barrier to entrepreneurship.

Alain: Which books do you recommend to your friends?

Raja:

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Hanging out with friends

Net worth Statement June 1st, 2016. $150,530

I have arrived!!!

I have reached that critical moment when my passive income is bigger than my monthly expenses. My monthly expenses are about $1,500 per month, and my monthly income from real estate is about $1,500 per month.

True, I don’t live a life of luxury, in fact I take pride in my frugality. I might not have many physical possessions nor status symbols, but I have plenty of time to relax and live a stress free life. And isn’t time a luxury? Time to hang out in the park with friends and time to do nothing. In that sense, I am living an extremely luxurious life.

Also, my income is not 100% passive. I do have the responsibilities of owning real estate, of finding tenants, of making repairs, of doing the bookkeeping and doing all the little things which are necessary to run my business smoothly.

In addition to covering my expenses, my net worth increases about $1,000 per month. This happens because every time I pay the mortgage I owe less to the bank. This accounts for about $500 per month. And if my projection of a 6% increase in my stock market holdings comes true, my portfolio will increase in value about $500 per month.

What’s next?

I have always loved the idea of fluidity. Of not being attached to a particular place. That’s why I don’t like to have material things. I find them heavy for the mind and the spirit.

Eventually I would like to pay all my personal debts, They are a big psychological burden. I owe $104,717 to my friends and family. And I would like to sell all my real estate holdings. The only possession I want to have is  my broker’s account, my phone and my laptop. I would love it if the day I die, the executor of my estate would only have one job to do: to close my broker account and pay my utility bills.

I would love it if the day I die, the executor of my estate would only have one job to do: to close my broker account and pay my utility bills.

Projects coming up

I want to learn more about personal finance and share my knowledge through my blog, through my You Tube channel, though public speaking and through a future podcast. To that end, I continue educating myself, I continue participating in toastmasters meetings ( I will be the next president of our club next month), and I continue writing in this blog.

I would love to become a leader of a community of people who want to improve their financial lives. I want to help people protect themselves against the manipulation of advertisers, and I want to help people realize that there are better opportunities than working for minimum wage.

So here it goes. An overview of my financial affairs

  • Cash is increasing. I want have enough cash to take a vacation during the winter.
  • My car continues losing value.
  • Stocks are happily going up.
  • The mortgages continue getting paid
  • And due to interest expenses, my debt continues to increase as well.

Here is a breakdown of my net worth:

Date Cash Car Stocks R. estate Debt Total
June 1st 3,350 1,500 95,505 154,892 104,717 150,530
May 1st 3,249 1,750 95,029 153,408 101,808 151,628

Goals for June

To increase my net worth to $151,000. This goal should be attainable, but a lot depends on the fluctuations of the stock market.

My projection is that my portfolio will increase at the rate of 6% per year. This will be the equivalent of $5700/ year or $475/ month.

As for the real estate part, if my mortgage gets paid every month, my debt is reduced and my equity increases by about $500 per month.

Long term goals

As soon as stock portfolio reaches $100,000 I should concentrate on paying down my debt. I feel happy with a $100,000 portfolio. From this moment on, the wise thing will be to reduce leverage and go into a more secure situation.

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Book review: The Millionaire Next Door by Dr. Thomas J. Stanley


Book cover. The Millionaire Next DoorBooks at great bargain

I bought this book at a second hand store for only $2. The regular price was $10.99. That’s an 80% discount for a book which is just as valuable today as when it was written in 1996. One of the millionaire’s habits is to constantly be on the lookout for good value.

The irony of Dr. Stanley’s death

Unfortunately Dr. Thomas J. Stanley (1943-2015) left us last year after a fatal car accident. He was a fantastic writer of business books. He wrote many New York Times’ best sellers including The Millionaire Next Door and The Millionaire Mind. The ironic thing about his death is that after a lifetime of pontificating abstinence and frugality, he died while driving his brand new, luxurious Corvette.

Having a beer with a few friends
Having a beer with a few friends

Are you a PAW or a UAW?

Dr. Stanley divides people in two categories: Prodigious Accumulators of Wealth (PAW) and Under Accumulators of Wealth (UAW). He creates this division by using a formula. He multiplies the person’s age, times their annual income, times 10%. If your net worth is above that number, you are a PAW. If your net worth is below that number, you are a UAW.

Let’s experiment, let’s see if I am a PAW or a UAW.

I’m 49 years old.
My income is about $18,000 per year.

49 old X $18,000 X 0.10 = $88,200

My net worth is about $150,000, so according to this formula, I am a Prodigious Accumulator of Wealth (PAW.) Yeeeaaahhh.

Try it! Are you a PAW or UAW?

The book goes on to describe the habits of millionaires and of people with high incomes who are not millionaires.

Dr. Stanley doesn’t tell us exactly the sample size, nor how he managed to have so much face time to interview all the subjects of his study.

I really enjoyed the book and I think everyone who wishes to be a millionaire should read it. It shares many of the principles and ideas that I am implementing to become a millionaire.

At the same time, I think that the book is highly deceiving favoring the romantic idea of a person who starts from a humble background and who through decades of self sacrifice, deprivation and hard work, becomes a millionaire.

Almost all the subjects covered in the book were self employed, white male, blue collar workers. In his samples, there were no females, no movie actors, no sport celebrities, no CEOs from big companies, no rich traders from Wall Street, no programmers from Silicon Valley or the equivalent from that time. Where were all those millionaires? They were nowhere because they don’t fit the ideal character which Mr. Stanley portrays in his book. Although I loved the book, it’s credibility is highly questionable.

Although I don’t believe the research, I believe that the lessons shared are of great value to anyone who wants to increase their wealth. Here are some of those lessons:

Spend less than you earn

According to the book, all the millionaires had frugal wives and they owe their wealth, in part, to the wife’s ability to cut coupons.

I am a deep believer in the “spend less than you earn” philosophy, but I think he could have found better examples than frugal wives.

Avoid buying status objects or leading a status lifestyle

There is a lot to say about this subject and there are many anecdotes to support it, but it boils down to spending less than you earn.

Willing to take a risk

Since most of the millionaires were business owners, they all took the risk of starting their own businesses. It’s hare to become rich when you depend on a salary.

Inter generational lessons

Dr. Stanley claims that sons of high consumers become high consumers and sons of frugal people become frugal. In short, your destiny is predetermined by the habits of your household. It is ironic that most of these millionaires were self-made millionaires from humble families. Yes, your family habits and background can influence your future, but all of the alleged millionaires overcame those odds.

Conclusion

Although the book is portrayed as  serious research, I see it more as a depiction of the fictional character that Dr. Stanley had of the ideal millionaire. All the millionaires of the book became millionaires for the sake of becoming millionaires. They deprived themselves from their own money during their whole life.

Here’s the story of Mr. Ronald Read a Vermont gas station attendant and janitor, who had a portfolio of $8 million dollars by the time he died at 92. He accumulated that much wealth by saving, investing wisely, and being frugal. Mr. Ronald Read never enjoyed any of his own money. This is The Millionaire Next Door.

Coaching Service

If you are interested in my coaching services, send me a message to book a session guillot.alai@gmail.com

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