Dexter Nelson Blog

Reasoning And Talk About All That Interests Me

Category: Money

  • Which would you choose – Instant Millionaire or $10k Per Month For Life?

    Which would you choose – Instant Millionaire or $10k Per Month For Life?

    It’s an interesting question isn’t it. Would you rather be an instant millionaire, or take $10k per month for life?

    It was asked in a group I belong to and a lot of people chose the $10,000 per month option. Very few said “instant millionaire” like I did, and many were curious as to why I would.

    So here is my initial response.

    First, no one knows when they’re going to die. Planning for the future is great and all, but 10k a month would take you 8 years to make a million.

    That’s a lot of missed opportunity.

    Instant millionaire gives you cash flow options, and a bit of freedom to take action on some things. Also, if you become an instant millionaire you don’t go right into investing.

    You would invest with 10k a month to build a million dollars. You become an instant millionaire, you look for cash flow and capital gains to safely retain and grow your wealth.

    A lot of people who win the lotto and get inheritances go broke trying to invest.

    Then I recounted a real life story of a friend who got a $3m inheritance and he’s grown it to over $35 million in the past 10 years. The only thing he invested in was himself. Education, knowledge…

    A lot of people wanted to learn more, but there is a character limit on replies, so I’m writing this blog post. Enjoy.

    Have you read the book Money: Master The Game by Tony Robbins? Or listened to wealth builders like Warren Buffett, Grant Cardone, Tai Lopez and others?

    The first time I heard about that piece of advice is from Mark Cuban. He was doing an interview – and I don’t remember with whom, but that’s the BIG nugget I got out of the whole thing.

    They were talking about immediate wealth, specifically people who win the lotto or come into a big inheritance and how a few years later a surprisingly large amount of them are broke.

    The reason is that they have not been prepared or educated to have wealth, because they’ve been raised up in a system designed to teach the masses how to work.

    The most common advice to build wealth is to invest, but when has the masses ever been taught to invest?

    What happens is, they get a lot of wealth and they suddenly become investors without any knowledge or experience of how money works on that level so many of them lose it. They aren’t investing, they’re gambling.

    On top of that they’re buying all of this stuff that are essentially liabilities if they’re not handled properly. Houses, cars, etc.

    Instead of staying frugal, they become big spenders, without any accountability.

    So they’re spending out of control, they’re gambling, and they’re taking on more liabilities, (things that require money to maintain), and the inevitable is that sooner or later, they end up broke and even in debt when the money runs out.

    So what should you do with lump money when you become wealthy instantly?

    This is would be MY plan if I became an instant millionaire, based on everything I’ve learned so far, and I will say that disclosure this is NOT intended to be financial advice.

    I’m just sharing what my plan would be and what my thoughts are.

    Why I Chose Instant Millionaire And What I Would Do With It

    Instant Millionaire or $10,000 Per Month? What I would do…

    1. Remain Frugal.

    I would continue to live as you’ve been living. By all means, pay off your debts, maybe move into a bigger house if you need it, but be reasonable.

    Paying off your debts would be something like school loans, arrears, maybe pay off the car, even the house if it’s not an exorbitant amount.

    For example, let’s say you’ve got a $300k house and you still owe $200k or more, just hold off on that one for a bit because you really don’t want to use up too much of your money all in one shot.

    Or pay off and close all but the oldest line of credit with any cards so as not to ruin your credit score.

    You remain frugal to a. keep your monthly liabilities low and b. maintain/build your credit score.

    Most people will increase their living expenses, you want to stay the same or decrease it.

    2. DON’T quit your job

    After paying off your debts, something interesting happens. Your job becomes an asset.

    Most people live paycheck to paycheck because their job is a liability. Their living expenses is either just enough to maintain their lifestyle, or not enough to and they need “creative financing” to stay where they’re at. Miss one or two paychecks and they lose everything.

    However, large influxes of money give you an opportunity to reduce your monthly liabilities.

    For example, an opportunity with large cash influxes is doing a refinance with a principal payment and dramatically bringing down the monthly payment.

    So let’s say the monthly mortgage is $1500 per month, you do a refinance to preferably a fixed rate, NOT taking any money out, but instead put down say $50,000 or $60,000 on the principal, and suddenly you don’t have $1500 per month to pay anymore, you have like $800 or $900 per month.

    You just freed up $700 or $800 per month.

    So, if you make $5,000 per month and you were having trouble keeping up, take away the student loan payment, excess credit card payment, the car payment, etc. and include a reduced mortgage payment, suddenly $5,000 isn’t a liability anymore, it’s an asset – a stream of income.

    3. Set aside 2 years of living expenses.

    For most people, they maintain a home with $5,000 per month. For some it’s more, for some it’s less, but set aside 24 month of expenses. Not bills, but expenses.

    Eating out, hanging out, Netflix, Hulu, etc. Include the misc. stuff you spend money on each month, and put yourself on that budget.

    So set aside $120,000, ($5,000 x 24) in an interest bearing account and leave it alone.

    I would look for the highest available interest rate return, and an account that eliminates fees by maintaining a certain balance, and just let it appreciate over time, and let the interest compound.

    4. Business-like banking structure.

    This is something I actually adopted quite a while ago. I used to have a problem with overdrafts and stuff when I was younger, before I learned about money management and how to protect my money from predatory practices.

    All of my money is held in a high-yielding interest account, that I call my holding account.

    My goal with doing that is to make sure my money doesn’t lose value over time. There are no fees on the account and the interest compounds over time.

    The more money in it, the more options become available, including higher returns which allows my money to continue to make money over time.

    I have a separate account where I get paid. So my clients, gigs, etc. when I get paid, all deposit to that account. That’s my accounts receivable.

    From there, the money that I make gets divided up into other areas.

    The first, is another bank account with no overdraft protection or overdraft fees. The reason for that is because nobody should have access to or drafting back where I keep large sums of money.

    This is accounts payable, a.k.a. bills and debts.

    I calculate my monthly expenses for the following month and transfer the money to that account. Mortgage, car payment, insurance, cc payments, etc. Anything I need to pay the following money will be there, plus the minimum balance so that the monthly fees are eliminated.

    You know how a lot of companies think they own you, like it’s their money? They don’t want a card, they want a bank account and routing number? That’s what this account is for.

    Never give anyone direct access to your source. It’s bad enough that the bank has access to it.

    Then I have a personal savings and a personal checking. The money for my personal savings go first, and what’s left over goes into my personal checking.

    I grow my savings with programs that allow me to do things like forward the cash back to my savings, or roll over the amount up to the nearest dollar to my savings, and I have a monthly commitment to add to my savings.

    Savings are for emergencies. Car breaks down, refrigerator stops working, etc. I’d take a part of what’s left over and continue to contribute to holding too.

    If I followed the steps, all of my money is growing slowly over time and not losing value, and because I have less monthly liability I have a bit of money freedom to do things.

    After I’ve contributed to everything to make sure my money grows and doesn’t lose value, the rest of the money is for whatever I want, but more importantly, it’s for investing in myself. finding a mentor, buying books, taking classes, learning and growing.

    I’d learn about finance, business – maybe even start one.

    THEN I would look at becoming an investor.

    I know the cashflow quadrant says the goal is to become a business owner and investor as fast as possible, but the CQ assumes progression from employee and self-employed to business owner and investor. It assumes time for learning and experience over a period of time, usually years.

    If wealth is just dropped in your lap though, ASAP is dangerous. There’s no way to skip learning and having experience.

    So if it happened to me, MY GOAL would be to first make sure that my new wealth continues to grow and is protected, second turn my existing income into as asset by reducing my monthly liabilities, third create an income buffer to hedge against economic disaster.

    I chose 24 months, because the ’08 ’09 crash was pretty bad and left me out of work for 18 months, and it took about 4-6 months for me to get a business going to where I didn’t have to worry about immediate money problems – so 24 months.

    Fourth? I would focus on growing as a person and learning finance and business.

    If time was a problem, I would go from full time to part time hours with my clients and free up that time, but I wouldn’t quit my clients. This will prevent me from relying on my holdings to live on.

    The 5th step would be to then start investing, and I would invest in cashflow opportunities primarily to rapidly grow my holdings.

    I’d want to not lose money at all, but grow it.

    I would let go of my clients ONLY when I have another income stream that would maintain my lifestyle, and I needed the time freedom to do other things.

    Even then, I would probably incorporate, and hire someone to do the work for me so that I don’t lose that income stream. And after incorporating I’d restructure my banking to further protect my wealth and lower my tax footprint.

    Come June 12th 2020, I will have been working from home full time for 8 years. That’s from not knowing ANYTHING about business or finance at all, so I’d probably maintain for 3-5 years before moving away from doing the fulfillment for clients personally.

    I’m 41 right now – will be 42 in November. So by 47, life would be my oyster. I’d be able to do what I want, go where I want, help who I want. Pursue other passions.

    $10k a month isn’t enough for me to pursue my calling in life. I need to grow wealth in order to fulfill that which I see as my purpose and help those that my calling will help.

    I’d definitely take the instant millionaire.

  • Dear Progressives – Billionaires Aren’t The Problem

    Dear Progressives – Billionaires Aren’t The Problem

    As of late, I’ve been involved in some interesting financial debates, and from the progressive point of view, billionaires have become a dirty word, something evil to be banished.

    I wanted to address the topic of money, but before I do, take the time to watch the video below. My response, as I would have responded to them is below it.

    The ideas they have are actually really wrong, and while I understand the progressive point of view, but the pitch isn’t exactly objective.

    Let me show you something cool.

    According to financial experts, (quoting from the Wiki page):

    “Essentially, the wealthy possess greater financial opportunities that allow their money to make more money. Earnings from the stock market or mutual funds are reinvested to produce a larger return. Over time, the sum that is invested becomes progressively more substantial. Those who are not wealthy, however, do not have the resources to enhance their opportunities and improve their economic position. Rather, “after debt payments, poor families are constrained to spend the remaining income on items that will not produce wealth and will depreciate over time.”

    What gives the wealthy those opportunities is a results of differences in income.

    Again quoting, “Economic inequality is a result of difference in income. Factors that contribute to this gap in wages are things such as level of education, labor market demand and supply, gender differences, growth in technology, and personal abilities. The quality and level of education that a person has often corresponds to their skill level, which is justified by their income”

    When we actually dig into all of the causes, there are productivity and compensation gaps, market factors (including globalization, education, incentives, etc.), and tax and transfer policies.

    There are other factors on top of that too like the decline of unions, immigration, corporatism, and so on, but what we know for sure that impacts wealth inequality are the ones that I first quoted.

    Actually being wealthy isn’t a cause of poverty.

    To give you a perspective of that statistics, there are about 3.5 million homeless people in the US. That is about 0.5% of the population – and don’t hold your breath yet.

    While there are some states experiencing a rise in homeless rates, overall, it’s been decreasing since 2007. 2017 was the first year the numbers ticked up in a while. Source.

    Here’s something else that is interesting. There are 14.5 million millionaires in the US. That’s about 12% of the US households.

    And according to the census bureau, about 12.3% of US households live in poverty.

    So the number of households between millionaires and poverty is about the same, or relatively close).

    And, there are 540 billionaires in the US.

    So to recap:

    1. billionaire isn’t a dirty word, since being wealthy in and of itself isn’t the cause of poverty. Lack of opportunities are.
    2. Homelessness is actually decreasing not increasing.

    The solution progressives are looking for isn’t to take away the money billionaires have and give it to everyone else. That’s literally theft.

    The solution is to correct the bad policies and faults in the system that create wealth inequality.

    And I say that because while taxation has an effect on budgeting, just taking away the money from billionaires will have a devastating effect on the economy.

    For example, if we take away Jeff Bezos’ money, the 300,000 plus families that rely on a paycheck from Amazon will be unemployed and lose their health insurance. Because he wouldn’t be able to keep the company afloat.

    Not only that, but the money he invests in companies that change our lives every day will be gone.

    Also, he’s a philanthropist that funds companies that research and develop life extending treatments. That will be gone too.

    To give you an idea of how much value Bezos puts into the economy, without him, Amazon wouldn’t be the only company that disappears.
    Without Bezos there wouldn’t be Amazon, Alexa, Juno, Audible, Twitch, Zappos, Whole Foods and HomeTown Grocer, Twitter, Business Insider, StackOverflow, IMDB, LivingSocial, Twilio…

    Oh yeah, there probably wouldn’t be a Google either, because Bezos helped invest to get them off the ground.

    Just him operating his businesses pours millions every year into the economy.

    How much does he spend buying resources to run the company? Office supplies, furniture, building maintenance, utilities.

    There are a few hundred thousand people working because they buy cars. That private plane he has, they didn’t built it themselves. There’s a manufacturer out there with employees getting paid to build those, and maintain them.

    There are thousands of families in the energy sector that has to drill, process and distill the fuel.

    There are shipping companies that have to move the stuff they buy from point A to point B.

    He has a multi-million dollar home and estate. He didn’t built it himself. A lot of people went to work, and a lot of people still work to keep it up.
    That’s the thing about being wealthy. They put a lot of money directly into the US economy just to maintain everything they have.

    And the elephant in the room?

    We take their money away – what happens after the money is gone?
    They can’t maintain everything they built so there is significantly less money they will be making. It’ll run out in a couple years.

    The problems that cause wealth inequality will still be there.

    And you know who will benefit? The people with the skills and education to capitalize on making more money, and make more money.
    Everyone else will still be in the same boat.

    As someone who was working as a farm hand and living in a plywood shack for a time, and is working his butt off to become one of the wealthy, let me share three rules about how the wealthy spend their money.

    1. All money is someone else’s money.

    2. Money has no value unless it’s traded for something else.

    3. The only time the wealthy spend money, outside of necessities is when it falls into 3 categories.

    • There is a tax benefit
    • It makes them more money
    • It has the potential to make them more money

    That’s the only time they spend money.

    If you don’t understand how money works, it doesn’t matter how much money you take from the wealthy. The problems that cause inequality will never be solved.

    And yes, I hear you. “They’re hogging all the wealth!“

    That’s also factually wrong.

    They employ people by the hundreds of thousands. They are they investing in other businesses, and they are funding charities and research. That’s not counting the amount of money that goes directly into the economy to maintain their lavish lifestyles.

    They aren’t hogging it.

    The mindset that wealth can somehow run out, is wrong as well. That’s thee lack of financial education rearing it’s head.

    Do you know how our government works?

    The US Treasury decides when to print money, but the Federal Reserve controls the supply, and it uses a balance of credit and interests rates to moderate supply and demand, backed by reserve requirements.

    You know what determines the value of the dollar? Supply and demand. There is no direct mechanism for establishing the value of the U.S. dollar, which means the whole thing only works because people believe it has value.

    The Federal Reserve can, at any time increase their balance sheets and increase the amount of money available to be borrowed by increasing their reserve requirement.

    That means the amount of money made available has no set limit.
    When things tend to get out of hand, banks intercede to stabilize it. That’s how the whole thing works.

    There is no limit on how much money there is or can be as long as people believe it has value. What they use as collateral? Gold, silver and precious metals.

    Take gold for example, we aren’t running out of gold anytime soon.
    Right now, as collateral backing for our currency, the US has 8,000 Tonnes of gold.

    It is estimated that there is about $35 BILLION tons of gold on dry land, which means in all of human history, we’ve mined roughly 0.00047% of the world’s surface gold.

    AND as long as there are stars in the sky, there will always be gold for as long as the universe exists.

    And that’s just gold. We’re not talking about the other things we use as collateral backing for our currency.

    Money can literally never run out. As I said, it’s just an idea. If the dollar disappeared today, it would be replaced by something else that we assign value to and trade in that.

    I get this was a ridiculously long post.

    I took the time to write it because the focus on billionaires *is* the distraction, and a pointless one at that.

    As long as the US constitution exists, nobody can tell anyone how much, where, when or how to spend their money. It’s just not going to happen.

    What we need to focus on is Congress. They make the laws. They are the ones that will have to change it.

    Hopefully those of you who really care about wealth inequality will learn from the post about how money works.

    CREDIT: Super Yacht Concept image by Digital Trends feature.