Thursday, August 26, 2010

About Investors and Gamblers

If you read some of the earlier postings of my blog you already know this: my earlier attempts to invest resembled more gambling than anything else. I searched for all kinds of hints and signs of stocks that could go up quickly, and then picked the ones that seemed the best, mostly based on my intuition. I wanted to be an investor, but in reality I was just another gambler – even if I didn’t notice and would have never admitted it.

What then is the difference between a gambler and an investor? Both in gambling and in investing the results are volatile over any shorter period of time. You will win some, and you will lose some. This is why it’s so difficult to notice any difference between gambling and investing in the short term. They resemble each other so much that you could assume they are just the same: the goal is to make money, the results seem about the same over short term, and the only real difference appears to be in the methods.

Luckily for us investors, there are things that do make us different from gamblers. Of course there is the location (yes, Vegas does seem cooler than Wall Street!) and then the methods of work (I admit a roulette table has a bit more glamour than punching numbers into an Excel sheet). More seriously though, to me it all comes down to two things that really separate investors from gamblers: probabilities and time span.

A gambler “invests” money in order to win money, just like an investor. However, the gambler is ready to make bets where his odds are either not know or on the losing side, whereas an investor only makes bets where the odds are known and on the winning side. Gamblers bet because they think they might get lucky – they don’t mind the odds so much because they trust their luck.

The other key differentiator between gambling and investing is the time span. The idea in gambling is to get rich really quickly. Of course this rarely happens, but still this is what many gamblers hope for. Therefore they are ready to make big bets when there is a chance for really big wins, never mind the odds for these bets. Naturally also investors hope to get quick rich the quicker the better, but they don’t really expect it to happen suddenly. Instead, investors know that it takes time for probabilities to work out. Therefore, for any give method that works, the investor is prepared to stick to it in orde to get the results become clear and significant.

The graph below shows what the results of an investor look like compared to the results of a gambler. The key difference, as you notice, is just the trend. In gambling, the odds are unknown or outright against you. You will at best keep your money and more probably lose it all, either little by little or quickly, depending on the kind of gambling you do. In investing, as you will make sure the odds are on your favor, you will win more than you lose. Therefore your assets grow over time as long as you stick to the methods behind the positive odds.

Judging from results, a really big share of people who want to be investors actually end up being gamblers. Obviously, they would not invest if the odds of success seemed low. Instead, they invest in cases where the odds were really not known: they know the price but have no solid analysis of the actual value of the investment. Due to this, they often end up getting erratic results that are roughly in line with market performance. If they trade frequently, the results tend to lag the market more significantly due to the trading costs. Also, due to market psychology, they tend to buy when prices are high and sell when prices are low. Accordingly they catch more often falling markets than they catch rising ones, further dragging down their overall investment performance.

The frustrating part in all this is the following. If you think you are an investor but actually are a gambler – like I was – at some point you are bound to notice and want to change. The frustration comes from the fact that making that change is much harder than it seems.

First, finding a method that enables you to identify investment with favorable odds is very hard. You will sift through all sorts of people, companies, and methods, all of whom claim to be able to make your investments successful. When you dig into the details, though, you’ll notice that many of them cannot explain what their success is based on, exactly, and very few have any proof or track record of sustained success. Some of them are very expensive to access, and some have limitations that make them unpractical for you.

Second, when you finally find something promising, it feels initially hard to stick to it, especially when things go south (and they always will, usually even rather soon!). You are so used to jumping into new things based on the latest hints or newest advice, that it actually feels kind of boring to keep doing the same thing over and over again. And when your investment underperforms for the first (or second or third) time, the feeling is the same as the one you had when your gambling style investments didn’t pan out. The temptation to jump ship can be almost overwhelming, even after all that homework you did in the first place in order to make sure you are really investing, not gambling, this time.

Finally, there is all that noise around you: all sorts of people telling what’s going to happen next, where all the smart money is moving just now, how things are totally different this time, why the methods that worked in the past can no more work at all, and how this investment or that is the one you really must make right now. It’s hard not to pay attention, especially when you know many of these folks make their living from their advice. It seems also natural to drop what you are doing and follow their advice, especially as so many others seem to be doing exactly that.

Luckily, where there’s will, there’s a way. The key to becoming an investor – rather than a gambler – is eventually in choosing the right methods and people to work with. This is more challenging that it may sound. So many of those offering to help you to invest your money are nothing more than fortune tellers and snake oil salesmen. The rare gems of advisors and methods that really can help your investments to succeed are few and far apart.

Fortunately, such gems do exist. Identifying them is what my next posting will focus at: how to avoid the fortune tellers and snake oil salesmen, and how to recognize the real gems that can help you too to be a real investor. Until next time!

Thursday, July 15, 2010

How to learn to swim without drowning in the process?

You sometimes hear these stories where people suddenly learned to swim as someone just threw them into water without caring that these folks couldn't really swim. I’m glad and relieved they (or at least some of them) survived to tell the story! I see the point though: you can learn many things just by starting to do them, and without actually trying out something you’ll never have a chance to learn it. This is all fine and good, but I still don’t think you should just like that jump into anything that can either really kill you or at least make the rest of your life miserable.

When you consider starting your own business, you will probably have limitations to what you can and want to do. You only know what you know, you may already have a busy schedule managing your current job, you only have limited financial resources (great for you if you don’t!), and you still want to spend some of your time with your family, friends, hobbies, and so forth. Congratulations, you too see to be human!

For most of us the driving force behind our journeys to our first millions is the search of happiness: we believe that this journey for it’s part, big or small, will make us eventually happier. Sure, it will require some sacrifice and tons of hard work too, but at the end we believe the results will please us and thus get us higher on our scale of general happiness. The sacrifice is thus justified by the outcomes, we believe.

I think this logic is solid, as long as we carefully balance what we sacrifice, exactly, and to what extent, and against what benefits exactly. While the final judgment here is very personal, the key is to know yourself and be very clear about your values and limits. It is easy get self-centered and greedy, and while that’s a great way to stay focused, it’s an even greater way to end up in utter unhappiness despite great results.

Besides keeping tabs of the sacrifices we really want to make – especially the ones that affect others around us – we also need to be very conscious and aware of the risks. We should not be afraid of risks, quite the contrary, but being aware of them ensures we can mitigate them. Jumping into deep water might be OK as long as you know you can swim a bit and if there’s a life vest available as soon as you need it – if you need it. Planning ahead (especially planning for the worst case scenarios), selecting the right circumstances, and making preparations to match both your strengths and weaknesses is what will keep you from drowning when you jump.

If you have enough experience (or data) and skills to simulate your finances before you get started, by making simulations with pessimistic, realistic, and optimistic assumptions you can get an idea of what you can expect in good times and bad. For me this is part of the essential preparation and planning before setting up your business. This also allows you to already start testing your ideas regarding how to make the best of those bad times that will also come. In a similar way you can already plan how to best take full advantage of the booms that you too will benefit off every now and then.

So concretely, to save ourselves from drowning – and sinking our new businesses too – we need to plan in advance what we can and cannot do, and what we want and definitely don’t want to do. Starting from the business ideas themselves, we need to choose something that matches our interests, the skills we have and can acquire, the time we have available now and later, the financial resources we have, the opinions of our spouses or other near family, and so forth. This of course makes it more difficult to find a viable business idea, but it is necessary, as otherwise the chance of a dramatic failure is all too real.

When I was seven years ago trying to decide on a business for myself, I initially had a long list of ideas, and all of them seemed to be either unsuitable or just plain bad. Some of them appeared to have low profitability, others require things I couldn’t or absolutely wouldn’t want to do have, and yet others were such that my wife totally hated them. Also many of them were such that I could not have pulled them off while staying in my corporate job. This meant they were out of the question for me, as I still needed the stable income of my job in order to support my family, especially as I had limited savings to rely on. All this felt tough at the time, but forced me to keep searching and generating new ideas until I found that one that was right for me. I’m so glad I kept searching and found “my thing”, as all of my other ideas would have seriously compromised something that I really didn’t want to compromise.

Similarly, when I was doing all the planning and data gathering for my real estate business, and when I was trying to quickly learn as much I could by reading tons of books on the topic, I was really anxious to get going and get my venture flying, off the drawing board. Luckily, it took me much longer than I expected to take the concrete initial step – buy my first property – and I feel blessed about the time this gave me to prepare for it. By the time I made the purchase, I had been studying, planning, and preparing everything for about 9 months and was therefore really well prepared and ready to succeed in what I was starting. This way my situation was very different from what it had been less than a year ago: I had already had the idea and the readiness to pretty much just jump in no matter how little I actually knew. Lucky that I didn’t have the money, so that I just had to save more and meanwhile use the time to learn and plan properly.

How much risk should we then take, and how do we know whether it’s time jump in or time to still plan some more? Of course these are ultimately judgment calls we all need to make for ourselves, but my criteria are these:
  • It’s time to go back to the drawing board to work on the idea and prepare it some more (or maybe dump it and try something else) if 
    • my worst case scenario could totally sink me – financially, family-wise, time-wise, or other ways                                        OR
    • o my spouse – or close friends who know me very well and have well-balanced opinions – ask questions that make me seriously wonder about some aspects of my plans        OR
    • I wonder myself whether my plans border my limits, whether financial, work-load related, ethical, or others                       OR 
    • I don’t really feel exited about my plans

  • It’s time to jump in and get your business started when
    • none of the criteria above apply   AND
    • the realistic scenario for your business fulfils your financial and other requirements

    The point about being excited and really wanting to do it is worth a special mention. As starting up your own business is a lot of work and effort anyhow, you’ll need all the energy you can have in order to push through and make it success. Even if everything else goes well, you will probably not have the energy you need to be successful unless you really love the idea and the plan you intend to follow. The excitement creates commitment, and commitment is really what you need to make it happen. This is what makes the whole thing so different form working in a corporate job: it’s enough if you like your job and find your work OK, but unless you love your business concept, it’s going to be hard to put in the work that is required to really make it successful.

    Another point worth a special mention is starting a business while keeping a previous full-time job. It’s very common and that people initially keep their steady jobs when starting up their own business. It gives them a chance to see whether their business goes as planned and provides stable income through the infancy of the start-up – and even beyond if necessary. It does have its down-sides too, though. Working 40-50 hours a week in your regular job and then spending evenings and weekends on working your own business can be very taxing. Not only do the hours shoot through the roof, but it’s also challenging to try to focus on your day job when there are be so many exciting things to do and achieve around your start-up.

    Given these challenges in, most of us will eventually have to ease up a bit – or a a lot – on one side or the other to keep it reasonable. This is perfectly OK as long as you get the timing right (don’t fall between the chairs please!) and find an arrangement that works for you and still gets you to your goals. Balancing is the name of the game here too. Sometimes I meet people who want to jump head first to their new business, being so excited about it, and are ready to quit their jobs even before they have gotten the business started. That’s fine if you have other sources of income providing food to your table and making sure your bills keep getting paid. And if you don’t, just accept this as one of your limitations and find a way to get your business started without quitting your job yet. The time will eventually come – but for now it’s just wiser to stay put.

    So, there you go: you will be successful if your idea is realistic and feasible in your circumstances, if you choose something that you are passionate about, and if you execute on it in a way that respects your realities. Remember, you are setting up for a marathon, not a 100-meter dash. If you need to stay in your job, then do so and find something that fits– you’ll anyhow get a chance to quit your job later. If your family does not like your ideas, or if you simply don’t feel excited about a potential business, search some more and find something that really suits you. While it may be that you’ll never find a 100% match, I’m sure you can find at least a 90% one, and as long as nothing really essential is missing or wrong, then that’s the one you should go for!

    Are you wondering about business ideas of your own right now and trying to decide whether to jump or whether to stick to the drawing board? Are you hesitating what to do because you have a great idea but some of the risks feel too scary? I would love to hear your thoughts and comments on these things!

    Oh, before I forget: I do know not everyone wants to set up their own shop, and yes there sure are other ways too to invest successfully. I’ll get back to these other aspects of investing in my next posting, with a focus on ways to get reasonable returns while keeping risks under control. Until next time!

    Tuesday, June 29, 2010

    Get rich quick(er) with your own business

    Growing up, my idea about investments was very simple: you buy stocks, hope they go up, and that’s about it. Depending on the source, stocks were said to offer 7-9% return after adjusting for inflation, and that sounded pretty good to me compared to anything else I knew. Of course at this pace I would never get really rich by owning stocks, but that wasn’t my aim either (especially as I figured I’ll be making tons of money by working hard and becoming a CEO of a major corporation in any case before I turn 40!)

    As my ideas about saving and investments were rather rudimentary, I didn’t keep any real stats on my success and therefore don’t even know for sure if I my stocks were returning that 7-9% or not (how sad!). I did start keeping track a bit more systematically since the mid of 1997, but still only followed up the total value of my investments. Due to this, I can only say how quickly (or slowly) my net worth went up, but cannot tell which part of this was the return on my previous investments and which part was new savings. The new savings were typically quite little, though, and knowing that my net worth went up by average 11% a year in 1997 – 2004, the returns on existing investments seem to have been around that 7-9%.

    Having all my investments in stocks, the ride was pretty wild. In 1997-2000 my net worth went up 18 – 39% each year which felt great! Then came the bust and my net worth took a dive: -17% in 2001 and another -5% in 2002. I still remember how sickening it really felt. In 2003 – 2004 I got back to 12 – 14% annual net worth growth, but I think much of this was due to the dive of 2001 – 2002: having gone through those stomach churning two year, I was now saving much more than before. Even if it still wasn’t much, it was enough to have a visible impact on my net worth of about $220,000 of that time (including the $100,000-or-so equity tied up in my own house). I was very happy about this and the increase in my net worth, but having to save more money just to see it return by average 7-9% a year did not feel that exciting.

    When I started planning my real-estate business in 2004 – see more of these plans in the previous two postings on this blog – something really struck me. Based on the data I gathered and calculations I made, it seemed that the returns on equity I would get from my real estate business would be way to high to be correct. All my calculations seemed to point to returns of 20 – 40%, depending on the assumptions and scenarios. I was wondering if I was somehow making a huge mistake somewhere, as 20% average returns – these were with my most pessimistic and conservative assumptions and scenarios – seemed way to low. Therefore I checked and re-did my data and figures again and again, but the results did not seem to change. Quite the opposite, the more I worked on the figures, the more convinced I became that my math was correct and the opportunity was just simply huge – much bigger than I had every expected.

    In order to be sure, I started checking a bit what type of returns on equity small businesses could offer. I soon found out that while the spectrum of returns was really wide, well-managed small businesses could often and easily return 20-40% on equity. I was appalled! How come no-one had ever told me this before (or how come I hadn’t been listening if anyone every actually had mentioned that to me)?

    This may help you understand why I was so hot in getting started in 2004. I was a bit anxious, though, as I still found it a hard to believe that those kind of returns would actually materialize. Fast forward to the mid of 2005 – and now I just couldn’t believe that it was really happening! What I was seeing was exactly the kind of figures I had estimated in my scenarios. In 2005 the ROE I calculated for my real-estate business ended up around 40% and again the same in 2006. This didn’t even reflect the real estate boom, as I didn’t use actual market appreciation to calculate the ROE’s (instead I used long-time average appreciation figures, knowing that what’s going up will come down).

    This experience has continued – even through these past couple of years of real estate bust – so you can understand that I am a huge advocate of people setting up their own businesses. Funny enough, while my own experience was a catalyst to this, my real enthusiasm comes from what I since learned from others. Ever since I started, I’ve been on search for data on the profitability and characteristics of start-ups and small businesses. What I have found is that while every business situation, start-up, and entrepreneur is different from each other, people who understand their businesses well, are enthusiastic about them and therefore work hard to make them successful, tend to get very high returns on equity in their businesses.

    This is why I am so convinced that your own business can easily be also your best investment. If you set up your own shop in a field that you understand very well, there is a high chance that you can make it very successful and get those higher double-digit returns you could only dream about in the past. I’m not saying this is easy, and yes it sure is quite a bit of work, but again it’s really worth it. Few experiences can beat the satisfaction – or returns -you can get out of this!

    Tuesday, June 15, 2010

    Saving for the sunny day

    In the spring of 2004 I was a man with plan. I had a purpose, I had a destination, and I was in a rush to get there. I figured I’d just need to buy some real estate – my first property – and then the rest would follow pretty much automatically!

    I was spending tons of time trying to understand what kind of property exactly I should be buying and how to get the money to buy it. Pretty soon I concluded I’d need to be buying a multi-unit apartment building. While there were several reasons for this, the main one was the profitability: in my part of the world, managing a multi-unit property offered much better returns than what was available from individual houses or condos. I was glad I had figured this out, but it also gave me a real headache. This kind of properties required a much higher initial investment than houses or condos, and I didn’t have enough savings to get a reasonably priced mortgage to finance my purchase. In my area banks wouldn’t deal out a mortgage for the full purchase price of a property without adding a hefty premium to the interest rate. With the premiums they were asking, it would have made little sense to invest at all. I simply had no way around it: I was in an urgent need to save much more money to get my real estate business going.

    I had never been a big spender, in my own opinion, and certainly didn’t feel there were many expenses I could have skipped or postponed in order to save more money. Yet, as I was dying to buy some real estate, I figured I’d have to find something. So I set about analyzing my income and expenses, in order to find some money to save.

    First, I carefully detailed my – and my wife’s – sources of income. As for most people, this was a relatively simple and quickly done. Two salaries, and that was about it. Sure there were a few other minor pockets of income contributing to my household’s budget: a few hundred a month from a very minority interest in a family business, some regular dividends from the shares I owned, some occasional bonuses from my employer, and so forth. Yet the amount these things contributed seemed small and felt therefore almost negligible.

    On the expense side, the story was more complex. First of all, it took a while to even understand where my money really went, on a monthly or annual basis. Tracking this down wasn’t difficult, but it sure was time-consuming. I found a few good hints and templates on the web and used them to come up with a comprehensive list of expense categories plus an exact or estimated amount for the monthly or annual spend in each category. I then compared the total spend to my bank account records, and as the two seemed to matching pretty closely, I decided my analysis was accurate enough for my purposes.

    I had never before done proper budgeting in a holistic way, but still thought I had a pretty good idea of my income and expenses. While the results of my analyses mostly proved this correct, there were also some real surprises there. First, the total of my average monthly spend was a fair bit higher than I had thought. There were some items where I spent much more than I had expected. This had been masked by the fact that also my average income was higher than I had thought. In brief, I had never properly factored in the bonuses and other similar “extras”, and accordingly had also failed to notice where some (or much) of this money had gone.

    With this, I saw that while my expenses were mostly reasonable, I was really spending away for traveling and vacations, and it had only gotten worse over the past few years. While I was far from being prepared to give up my traveling – I really enjoy seeing and experiencing new places near and far – I sure was ready to scale it back. In a similar way, I noticed some of my other favorite pastimes – mostly sports – were eating up a disproportionate part of my income. Again, I felt I could cut back in these without losing the essence of the pleasure I got out of them. With these and a few other smaller pockets of extra spend, I found much more money than I had ever expected. This felt fantastic!

    So, having found all this “new money”, I only had one more challenge left, but this was the kind of one that could really stop my efforts unless properly addressed. If I wanted to save more money – or really proceed with any other parts of my plan either – my wife would have to be part of the picture. The problem was I wasn’t sure she would be really buy into my plans, especially to the the need-to-save-more-now part. Luckily, I felt she would agree – maybe a bit reluctantly, but still – if I just laid out the whole plan to her. So one evening I took the steps to explain to her what I had in my mind and where she’d need to help me out. As expected, she wasn’t excited about the need to save more, but agreed to give it a shot. However, more surprisingly, she had a lot of questions about my real estate business plan and really wondered if I these plans were realistic at all.

    So, good news: my main stakeholder had signed up for the plan to considerably increase the level of our monthly savings! The bad news: while she subscribed to the purpose of my plan, she wasn’t convinced at all that my assumptions hadn’t been overly optimistic. After some discussion, I just decided to get going with the first part of the plan and not worry about the second part just yet, but tackle it a bit later, even if still very soon.

    I made the necessary changes to my spending patterns and worked with my wife to tackle the parts that required her contribution. Actually, this turned out to be easier than expected, as our purpose was so clear and motivation strong. Also, the rewards came in very quickly: in just a few months’ time, our bank accounts started to show behavior and balances that had been rarely seen before, and this sure gave a further great boost for our motivation. Our feeling was that now – for the first time ever – we really had grip of our finances. While we didn’t really have a lot accumulated let, it felt it would be just a matter of time that this would dramatically change.

    So far so good: the savings were now accumulating and my ability to get started with the real estate business seemed ascertained. However, my assumptions and knowledge concerning the planned business itself had been questioned, and to be honest I knew my wife had a point there. I had never owned any real estate other than our own house and certainly had no experience in putting together successful real estate deals, managing tenants, or doing many of the other things that this new business would require.

    Starting a new business is always risky, especially if it’s the kind of one you’ve never managed before. However, I quickly found out there are many ways to mitigate this situation, and while you cannot take away all the risk, you sure can reduce it and make it manageable. My firm belief is now that owning a business is one of the best and least risky ways to make the journey to your first million, despite the challenges and requirements it brings. More than that, I am convinced it’s actually a necessity, an essential component for the vehicle you’ll need for your journey.

    In my next posting in a few weeks from now I will explain why I think you too should set up your own shop. I will also discuss how to do this without having to quit your current job, and how to pull off starting your own business without a risk of killing yourself – or at least your finances – in the process.

    Meanwhile, if you’ve read my first three postings – including this one just now – but haven’t done anything yet to get started on your journey, I’d say: GET STARTED NOW, DUDE! (Please note that in my vocabulary “dude” is a unisex word.) The goal is worthwhile, the journey isn’t that hard, your chances of success are high, and the results are rewarding. That’s why today is a better time to start than any other. Get a grasp of your finances now, start seriously saving for the sunny day (will also take away your need to save ever again for the rainy day!) and read the next posting to get going with your next steps too!

    Wednesday, May 26, 2010

    Who needs a million anyhow?

    Before I got started on my personal journey to my first million, I had never really considered the idea of systematically trying to build wealth. I don’t mean that I had never saved money, or that I had never really invested – quite the contrary. Ever since I was ten or so, I had to save money to buy my “toys” – a bicycle, camera, surf board, or anything else my parents claimed to be no necessity for my life. And believe me, their definition for necessities was pretty narrow! Anyhow, my idea always was that I would save in order to spend, for a specific purpose, and for a definite – and usually the shortest possible – period. So instead of really saving money, I would just temporarily not spend money over a period of time in order to definitely spend it a bit later.

    Similar to my idea of savings, my idea of investments was… well, let’s just call it “intuitive”. I would invest only if I had something to spare – which was in any case seldom – and I would then just buy whatever stocks that happened seem good at the time. My criteria for selecting my few investments varied, and I sure had no method of any kind for selecting stocks, except my intuition and gut feeling. With the benefit of hindsight, it seems my intuition could have used some improvement and my guts never had much of a proper feeling either. My investment outcomes varied from OK to disastrous - mostly depending on the market performance - and in any case remained below-the-market most of the time.

    Finally, in 2002, a change-triggering event took place, and it came from a totally unexpected direction. I went through an experience that really shocked me to the core. I had been a well-rewarded fast-moving top-achiever in a successful company and had never had reasons to worry about my finances, as they had been getting better year by year. Suddenly, however, my employer was taken over by another company, and I almost lost my job in the reorganization process that followed. Eventually, I managed to stay and felt relieved, but I also realized how suddenly my financial prospects could change due to reasons that were completely outside of my control. This made me really think, and the more I thought about it, the more I felt my finances really shouldn’t depend much on anyone but me. I suddenly realized that being heavily dependent on an employer was not something I wanted anymore. Instead I started to wonder what I would need to do in order to decrease – or maybe even do away with - this dependency.

    Within the next year or so, I went through all kinds of ideas around this topic. I was trying to figure out a business I could set up and manage on limited part-time basis while still keeping my job. Most of my ideas were bad and some of them really bad, and luckily my wife mercilessly shot down every single one of them. I kept on searching for something that would fit me, but it seemed hard to come up with anything that wouldn’t be either unexciting or unrealistic.

    Luckily, my “save in order to spend” habit turned out to provide the seed for the money tree I was trying to plant. I happened to have some money saved up, as I wanted to buy a holiday house in Tuscany and had started saving for that. I was not much, but anyhow I was wondering whether I could do something more profitable with these savings. Then, when browsing books in a book store (yes, this is what us old people used to do before bankrupted most bricks-and-mortart book businesses!), I bought a book called “Rich Dad’s Guide to Investing”, by Robert Kiyosaki. I read the book, and while it was quite different from what I had expected, it turned out to be just what I needed. For me it was really not a guide to investing, despite the name. Instead of ideas for managing my investments, I got from it something much more valuable.

    First, I got a sense that this really could work for me. For the first time ever I really felt that I actually could decouple my finances from my work, or better, I could probably become financially independent over a bit longer period of time – maybe or decade or so. All it would take would be just a decision and then some hard work – but hardly much harder that what I had been doing at my job until then. I would just need to reallocate my time and make sure I focus on the things that most affect the achievement of my goals. It really felt like a revelation.

    Second, the book also helped me understand how this whole thing should work. I had somehow always thought that you should just save a lot of money, and then eventually after many decades you would have a million or so. What I hadn’t realized is that actually my money could start working for me just as hard or harder than I work for that money. With this I would have a real turbo booster that would propel me to my million much quicker than I had ever thought to be possible. Of course I could just put my savings to a bank account or maybe buy some stocks, but instead owning a business of some kind could probably really get me the sort of returns that I was looking for here.

    Third, the book had many references to real estate investments, by chance. The more I read about them, the more I started to feel this could actually be it - the thing that I was looking for! While reading along, I grew more and more sure that real estate could be “my thing” and my ticket to financial freedom. So I started to find out more about real estate markets near where I lived, bought more books on the topic, and also started to do some calculations regarding who the whole thing could work financially. The more I learned, the more it seemed like the right thing for me. I only had one little problem: my savings were nowhere near what I would have needed in order to get into real estate.

    So, having the motivation, the basic understanding, and the essences of the method. I now had to start saving in a serious way. Boy did I wish I had done that before, as I was so anxious to get going with my plans. Yet, there was just no way around it: had to start saving now as I hadn’t really done it before.

    But man was I also motivated to do it! I suddenly felt that every penny I could save today would pay back so handsomely in future. I would have had to be crazy not to save all I could! The payback would first come in the form of being able to do what I really wanted: continue to work for my employer while growing my money tree, or simply quit and play golf, or maybe do something totally different like build my businesses or travel the world. Up to me to decide! Then, the payback would also come in the form of not having to worry about my finances any more, ever. Wow, did that feel liberating! Finally, I also thought about the possibilities I would eventually have in helping others and sharing part of my wealth, and this alone felt worthy enough to pursue this new plan.

    So, there you go, that’s how I got s motivation to start the journey to my first million. Given that you’ve read this far, it seems you too have wishes or fears that make you wonder whether this trip would be worth your while. My advice to you is this:

    1. Yes it really is worth it! Just consider yourself what you would feel like if you knew you had enough money to take care of all your needs and plenty more coming as long as you just keep sticking to your plan.
    2. Yes the trip from here to there is totally realistic. While the start may feel slow and uneventful, soon you will start gathering speed and quicker than you know become amazed how fast you are flying!
    3. Yes you too will find your method to get there. It will require serious effort from your side, and your method may end up being different from mine or anyone else, but you will sure find it.

    So now that we know whether – and why – we want to make this journey, back to the grinding. I still needed to save for the money I didn’t have, so that I could really get started – a bit boring, huh? Actually, it wasn’t that bad at all, really! I’ll tell you all about it in my next posting in June.

    Thursday, May 6, 2010

    Day 1 of the journey - Welcome onboard!

    Hi, and welcome onboard to my "Next Stop: Million" blog!

    The purpose with this blog is to help you too to reach your financial freedom, nothing less. My intention is first to get you started, support you in ramping up to full speed, and eventually help you find your way to the first destination - a cool one million! We will do this with simple, straightforward, practical methods and advice that just about anyone is able to apply in order to get there.

    Hard to believe, huh? Sounds way too good and simple to be true, right? Any proof that this might actually work? Well, if I can do it - and I already did - anyone can do it!

    My methods are be based on my own experiences and on all the things I learnt from many others during my own journey over the past 5 years. And yes, that's exactly how long it took in my case to get to the same first destination are we are now heading to.

    When I started in 2004, I figured it would take me nearly 10 years to reach that one million milestone. I felt my estimate was conservative but realistic - a lot of things could and probably would go wrong in ten years. And man, how some things really did go wrong!

    Just to mention the main catastrophe that hit me: the financial meltdown in the fall of 2008. It happened just when I was first time getting close – so close! – to the first stop milestone. The feeling was a bit like in a board game: “You were caught and fined for speeding - go back ten steps!” – or rather go back a hundred thousand, in my case.

    The worst was that the signs had been there for some while already, but I had done nothing to get prepared for what had seemed probably. I – like many others – had simply gotten too greedy and was blindsided by the nice speed I had gathered. I should have noticed that the road was leading towards a cliff with no bridge, but of course I noticed nothing. I was just so busy trying to figure how to further get even more speed out of my machine!

    So, I sure got a real learning experience, like we all did. The nice thing was, though, that I fared pretty OK, given the circumstances. I soon noticed that most of what had happened – I mean the financial meltdown itself – was just bad luck for me, the sort of stuff I had expected to happen even if I had hoped it wouldn’t. It still really hurt, I must say, but also appeared like a temporary set-back rather than the apocalypse now. My fundaments were still mostly correct and working, so with some adjustments to my machine and this sure-hard-to-forget learning experience in my pocket, I figured I should just solder on. And so I did.

    Fast forward a year and a few months later, I was suddenly there! I could hardly believe it when I actually got to my one million milestone. I sure had seen it coming for some months already, given the way things had been going. Yet, having had my real learning experience just a year earlier, I though the world might well collapse again, like it had just done. I did think it now seemed less probably, though: the economy was already near rock-bottom, so it could hardly get much worse. And it didn’t.

    Since I passed my first stop milestone last fall, I had gathered really great speed, and I sure didn’t feel it was time to stop now. Actually I still don’t! Instead, I have set my sights on new destinations, both financial and non-financial.

    One of these destinations is the one I intend to reach through this blog. I felt I really want to help others to do the same that I had done, because it’s not as hard as most thing, and because the reward really is worth pursuing. Based on my own experience, the first step and the very key to the success on this journey is to get the motivation. Once you really decide you want to make this journey, everything else will follow in very natural way and much easier that most expect.

    So let's get cracking! My next posting will be all about the motivation: the real rewards, as well as the initially-luring-but-eventually-not-so-important ones, and – most importantly – my personal testimony for why this journey really is worth making.

    So, once more welcome onboard, and on to my next posting next week!