“Millionaire by Thirty: The Quickest Path to Early Financial Independence” Review & Reflections

For some reason, I didn’t publish this after I wrote it. Oh well!


Not gonna lie, I’m a little on edge about reading this book. So many financial experts are giving advice to young people about how to make it big early. My job, being the inquisitive learner amongst my peers, is to decipher and filter all the information being tossed our way. Let’s see what this book has to say. Seems solid at first though.

Preface

…most young adults do not grow up in families that discuss financial independence at the dinner table. p. xii

Chapter 1: Wake Up and Step Out of the Financial Darkeness

Is it any wonder that seven out of ten young adults polled recently said they don’t earn enough to lead the kind of life they want to lead? Or that almost seven in ten say that growing rich is their most important goal in life? p. 4

Often parents are understandably so eager to help their children that they may inadvertently hurt them. While parents’ generosity is well-intentioned, it’s what I call “giving your kids a fish instead of teaching them how to fish.” ‘College is an ideal time to begin learning how to earn and put money to work, rather than just studying and playing. p. 6

In a recent USA Today survey, 22 percent said they accepted a “job they otherwise wouldn’t have because they needed more money to pay off student-loan debt”; 29 percent put off or chose “not to pursue more education”; 26 percent have put off buying a home. And a smaller percentage even postponed marriage and having kids.” p. 6

The median income for families headed by people aged twenty to twenty-nine was just under 28,000 in 2004, according to Federal Reserve statistics. p. 7

There are three kinds of people in the world:

  1. People who make things happen.
  2. People who watch things happen.
  3. People who wonder what happened.

Chapter 2: Mapping Your Future– Ten years to Financial Independence by Avoiding the Top Ten Dangers

  1. Trying to Have Right Now What Took Your Parents Years to Acquire
  2. Saving only 1-3% of your income, rather than 10-30%
  3. Not fully understanding the difference between preferred and non-preferred debt
  4.  Not understanding the basics of taxes and paycheck withholding
  5. Automaticallly assuming that putting money in IRAs and 401(K)s is the best way to save for retirement
  6. Assuming that “Deferring Tax” means that you save on tax
  7. Assuming that the government or your employer will provide a comfortable retirement
  8. Buying and selling investments at the wrong time, rather than buying and holding
  9. Viewing the world with a “scarcity” mentality
  10. Focusing on the least important categories on the family balance sheet: money, rather than relationships

So, whenever you borrow money, you should borrow to conserve, not to consume. p. 19

Ultimately, your employer’s contributions probably will end up just covering your tax for you. That is, most likely all of the growth on the matching amount will end up belonging to the Internal Revenue Service. p. 21

…when companies get into trouble, they take away employer benefits that they had promised their employees. p. 22

However, the real secret of wealth accumulation is to put money aside, keep it aside, and put it to work for you. Interest rates or rates of return are not as important as systematic savings. p. 22

Chapter 3: The Millionaire Mindset– Harness the Power of Three to Simplify Your Finances

Three stages of financial maturity: striver, arriver, thriver. p. 35

Strivers are the millions of people who may want to manage their money better but who don’t understand the dynamics of money yet…They drift through life aimlessly, with no structure, and they often “fall apart” during rough times. They live only in the present. They only want to know how to make money and then spend it. p. 37

Arrivers were once strivers, but by applying some discipline and knowledge about managing their money, they have set out on the path to a true wealth transformation. p. 37

Thrivers are one rung above Arrives on the ladder. They have learned how to repeat the process of accumulating wealth over and over again. p. 37

You can continue to make minimum payments on a student loan while putting your dollars into investments that earn you a higher rate. p. 44

I’m not sure that I agree with this. The stress of dealing with debt payments can be huge, not to mention the interest payments that stack up over time. I understand the idea of investing to earn a higher rate of return, but investments fluctuate, but minimum payments do not. I’ll have to explore this concept in a little more detail.

Chapter 4: Pay Yourself First– Budget, Save Money, and Manage Debt Properly- Live Within Your Means

In keeping with our theme of threes, there are three attitudes young adults often have toward money: clueless, carefree, cautious. You know you’re clueless if you cannot for the life of you figure out how the money from your last paycheck managed to disappear. Or perhaps you have an idea where the money went, but your attitude is, “There’s more where that came from.” In that case, you are carefree. Maybe you are the overly cautious type: You’re discouraged at the thought that you must deprive yourself of the latte you buy every morning for the next forty years in order to save money. p. 55

One of the greatest secrets to wealth accumulation is to discipline yourself to live on no more than 80 percent of your net after-tax income. Allocate at least 20 percent of every dollar earned to pay yourself first and pay yourself forward. p. 55

6 percent [of the 10 percent] should go towards long-term savings. p. 56

To establish a maintain an excellent credit score, it is best to:

  • Pay all of your accounts on a timely basis every month
  • Keep your credit card balances under 30 percent of your credit limit
  • Have at least three revolving credit lines (balances that can be carried over from one month to the next) that you pay on time and pay off regularly
  • Have at least one timely paid active installment loan or a paid installment loan on your credit report p. 68

This chapter offered an interesting discussion on student loans. Essentially, the authors are recommending that instead of paying extra towards your debts, you save that money in an investment, that you’ll have money saved up while you’re getting rid of your debt. I definitely recommend that people build up their liquid reserves, but should also focus on getting out of debt quickly!

In fact, the millionaire mindset is that you should not rent for any longer than absolutely necessary. p. 74

Chapter 5: Don’t Give Uncle Sam Gifts– Understand taxes and how to leverage otherwise payable income tax

This is one of the three most common mistakes that taxpayers make. They lose the use of thousands of dollars by withholding too much from their paychecks. p. 78

The longer you wait to begin saving and investing, the more you will need to set aside to achieve your goals. p. 81

Because the government thinks it is better to own a home than to rent one, the IRS allows you to deduct the interest on your first and second mortgages. p. 84

But think about it. Sometimes we’ll get excited about getting a raise of one or two dollars an hour, or we’ll work overtime for extra money. Then when it comes time to spend one to three hours filling out an income tax form, people don’t want to spend the energy, time, or money. But you can actually make the equivalent of $500 an hour spending the extra time and energy (and perhaps fee) on taxes. p. 85

More money in one pot doesn’t grow any faster than the same amount divided into several accounts growing at the same interest rate. p. 86

When we ask audiences whether they expect taxes to go up, go down, or stay the same, most people believe taxes will only go up. That’s another reason it makes so much sense to invest in an environment where you do not have to pay taxes later. p. 86

Chapter 6: From Renter to Homeowner in One Leap– Buy your primary home now rather than rent

Let’s dispel a myth about money- follow our directions and you will be using other people’s money to buy the home. As for the ability to commit, you are not buying something you are going to keep forever. Yes, you are making a commitment to a place, but nobody says you must stay there for a certain length of time. p. 95

This chapter provides several methods for getting into a home quickly, whether by borrowing the money from a lender or relative, or negotiating with the seller of the home by offering them a greater rate of return. These seem risky from my experience in real estate, but to anyone interested in the industry and home ownership, they don’t seem too unreasonable. Finally, the author recommends that homeowners DON’T pay off their mortgage early, and instead invest the money that would have gone towards principal payments into another investment to essentially outpace the interest on the home. They call it “bypassing the middleman”. In other words, the mortgage company uses the overpayments to invest and make an even larger profit, whereas the purchaser could invest the money, grow it faster, and then pay it off quicker than they originally planned. I’m not sure how I feel about this strategy, but I’ll let it marinate.

Chapter 7: Real Estate Equals Real Wealth– Develop real estate equity and mange it successfully

When smart investors are offered a new investment, they ask three questions: 1) Can I get my money back when I want it back? Is it liquid? 2) Is it guaranteed or insured? How safe is it? 3) What rate of return can I get? p. 126

Again, the authors are saying to borrow your home equity, invest it in universal life insurance (of all things!), and then to buy a vacation home to function as a retirement plan!? This is very unconventional to say the least. The language used in the book is also interesting, since the authors continuously build suspense for the reader towards “fun” and “guaranteed investments”. -___-

The rest of the chapter tells readers to use your equity from your home to buy as much real estate as possible, rent it out, and invest any extra income you have into your side fund. This sounds awfully glorious- and risky (for those who don’t know much about real estate). Real estate is a headache and I think the authors are make it seem way easier than it is. I’m sure it gets easier as time goes on and if you use a management company.

 

 

 

 

 

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About 5eriouslyernest

Aspiring Servant-Leader studying engineering principles, financial stewardship, business management, and psychology fundamentals in order to cultivate passionate leadership, disseminate positive energy, uplift the community and ultimately create a brighter future for generations to come.
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