When it comes to investment advice (but not cheap broadband advice) I’ll listen to almost anything that Warren Buffet has to say. And here’s what he has to say about this book:

by far the best book about investing ever written.

So if Warren Buffett gives such a raving review of this book, then I figure that there must be something useful to this book.

Here are some of the topics discussed in the book:

• the difference between a defensive and enterprising investor (most of us would probably fall in the former category)
• stock selection criteria for both the defensive and enterprising investor (getting down to the nitty gritty!)
• how to deal with the inevitable stock market fluctuations (I find this especially relevant in light of the recent market conditions)
• inflation and attempts to hedge against it (a real threat to the purchasing power of our money)
• pros and cons of the different types of mutual funds
• the margin of safety concept of investment

I’ve read this book a few times now, and still can’t say that I have a full grasp of the material. This is one of those books that you’ll come back to over and over again in your lifetime. I’d suggest reading it once, applying some of the things you’ve learned, then reading it again and repeating the process. Since most of us are investing for our future, I think it’s worthwhile to try to master some of the principles in this classic book.

The Tupperware Party

The real power of the Tupperware party comes from the use of the liking rule. Though the Tupperware salesperson asks for the order, the more compelling request comes from the hostess. She’s the one who called her friends together for a demonstration.

In this setting, the warmth, security, and obligation of friendship is brought into the sales setting. As a result, the Tupperware company arranges for the customers to buy from a friend, rather than an unknown salesperson.

Researchers have found that social bond is twice as likely to lead to a purchase than just preference for the product itself. Recent estimates showed that Tupperware sales exceed $2.5 million a day!

Similarly, the Shaklee Corporation, which specializes in door-to-door sales of various household goods, uses the “endless chain” sales technique to find new customers. Once customers admit to liking a product, they’re asked for names of friends who’d also appreciate hearing about it. These friends are then approached for both sales and a list of their friends, and the process continues in an endless chain.

Why does this work? The salesman approaches the customer with the name of a friend “who suggusted I call you.” Using this method, turning down the salesman is hard. It’d almost be like turning down the actual friend.

The Greatest Car Salesman

Joe Girard used a sales technique that involves the liking rule to master the sale of Chevrolets. He was so successful that he was crowned “greatest car salesman” by the Guinness Book of World Records. Why did customers like him more?

Each and every month, he sent all of his over 13,000 customers a greeting card with a personal message. But the interesting thing is that the note on the card never changed – all it said was “I like you.”

This reveals an important fact about human nature: Within certain limits, we’re suckers for flattery!

How To Defend Against The Liking Factor

Rather than trying to prevent the action of the liking rule before it’s had a chance to work, we should just let them work. The time to react is when we feel ourselves liking the person more than we should under the circumstances. Then we’ll have noticed that some tactic has probably been used, and we can start taking a stand.

Suppose you go shopping for a new car. After negotiating for awhile, Rob the salesman wants to close the deal. Before you make your decision, you should ask: “In the short time I’ve spoken to this guy, have I come to like him more than I would’ve expected?”

If the answer is yes, then you need to mentally separate Rob from the car he’s trying to sell. After all, it’s the car you’ll be driving home, not Rob.

In a wise car purchase, it makes no difference that Rob is likable because he’s funny and charming. Concentrate on the deal, and keep your feelings about the person making the deal separate.

How have you been influenced by the liking rule?

Photo by emilio labrador

Since I like reading about the mechanics of personal finance, I guess I was expecting to see a book full of data, charts, and “how to’s.” But this book is different – and in a good way.

This book is more about our mental and emotional response to money. Specifically, Streater writes about seven counterfeit convictions we often believe about money. These lies keep us from getting our finances in order, and experiencing the peace that comes with that.

But to combat that, she challenges those counterfeit convictions by teaching us timeless biblical truths. At the end of each chapter, action steps are offered to get us moving in the right direction.

Can it really be done? Yes, because Streater is living proof. She started in life making smart financial decisions. But like many of us, somewhere along the way, she made some foolish decisions. Yet she was able to get help with her situation, and now she even serves as a pastor of financial stewardship.

I appreciate the fact that she writes in a blunt style that calls out our stupid beliefs. Yet at the same time she is loving enough to help us get a more biblical worldview of money and show us the better way to handle our finances.

This is a great reminder that the mechanics of personal finance don’t have to be difficult to grasp. We just make it difficult through our distorted worldviews.

I can personally say that I still struggle with some of these counterfeit convictions. But this book was helpful in calling them out, and offering steps to correct them.

What are your convictions about money? Have you ever questioned them?

What gives a person the right to lead?

An advanced degree? Nope. Fancy title? No.

In short, you can’t be given the right to lead – you’ve got to earn it. You can’t make other people follow you. You’ve got to make yourself the kind of person others want to follow.

There are seven sections in this book, and each describes a leadership quality – a quality you must develop in order to earn the right to lead. They are action, vision, sacrifice, risk, determination, service, and integrity.

This is a great concise book that could be read in a single afternoon, or you could read a few pages a day to receive reminders and encouragement.

Here’s my favorite part of the book.

The late John Wooden is known as a man of character who was dedicated to excellence on the basketball court. Most people know that his dedication helped him coach UCLA to an unprecedented 10 NCAA championships.

But what people may not know is that John was just as dedicated off the court in his personal life as he was on the court.

On the 21st of each month, John would write a love letter to Nellie, his wife of 53 years. Then after he’d share his heart with her, he’d put the letter inside an envelope, and place it with all the other letters he’s written. In his lifetime, he wrote over 180 of those love letters.

The touching part about all of this is that all the letters remain unopened. Why? Because it’s been over 15 years since his dear wife passed away. Yet not a single month had passed that John hadn’t written to her.

Now that is an act of loyalty and commitment! Who wouldn’t want to follow a person like that?

If you’d like to read more inspiring stories from leaders like this, get your copy of The Right To Lead today.

So I chose this particular book because the author, John Maxwell, is known as the leadership guru. As such, I’m interested to hear what he has to say about connecting with others. Here’s what I’ve learned.

Why Should We Connect?

Simply put, people can’t succeed in life without communicating effectively. And good communication is all about connecting. To connect, we must identify and relate to people in a way that increases our influence with them.

How Do We Connect Better?

Here are five actions we can take.

Find Common Ground

All great relationships are built on common values. This common ground must be discovered, and that takes time. So be available to others. Move into their world and search for something in their background that relates to yours.

Keep It Simple

I used to think that using big words would make me sound smarter and more sophisticated. But if people need a dictionary to understand you, then you’re not connecting!

Educators take the simple and make it complicated, while communicators take the complicated and make it simple.

Create An Enjoyable Experience For Everyone

To hold people’s interest, you should seek to be the kind of communicator you would like to hear. Some of the qualities found in good communicators are warmness, honesty, creativity, and a sense of humor.

Inspire People

Believe the best about people. People usually respond to the expectations set by others.

But don’t just help them feel good. Understanding will change your mind. Action will change your life. Call people to action and give them a game plan.

Live What You Communicate

Over time, the way you live outweighs the words you use. Know who you are, and who you’re not. We all have strengths and weaknesses. Perfection is a mask.

And deliver on your promises. Making commitments creates hope. Keeping commitments creates trust.

How Can You Tell When You’ve Connected With Others?

Here are some signs:

• People give extra effort,
• People express unsolicited appreciation,
• People demonstrate unguarded openness, and
• Positive energy is created when they’re together.

My Thoughts

Reading this, I realize that it’s my responsibility to make sure I’m connecting with others. I’m far from an expert, so I need to be the kind of person others would like to spend time with.

The good thing about Everyone Communicates, Few Connect is that there are questions at the end of each chapter to help you reflect on your current ability to connect. And of course, there are also tips to help you get better at it.

Have you read this book? How would you describe your ability to connect?

Nowadays, many are working more, saving less, and getting into more and more debt. We compensate by living it up on the weekend.

Then it’s more of the same the following week. How many people feel more alive at the end of the day than at the beginning? If you don’t, maybe you’re really “making a dying”.

If that’s how you feel, then reading Your Money Or Your Life will transform the way you relate to money.

The Point Of Enough

Most people think that spending money, or just having lots of it will bring fulfillment. I know I struggle with this myself. But there’s a point we reach in our pursuit of fulfillment where we’ve finally had enough.

Enough to survive. Enough comfort. Even enough luxury.

At this point, we finally enjoy what money brings into our life, and we stop buying things we don’t need. Everything beyond this point is just. . . clutter.

How Do You Get To The Point Of Enough?

The book outlines nine steps. Though all nine are helpful, there are three in particular that really stood out to me.

Step 1: Figure out how much you’ve earned over your lifetime, and see what you have to show for it.

You can do this easily by looking at your Social Security statement. I actually did this for the first time in a couple of years. And while I don’t make a ridiculous amount of money, looking over the years of my employment shows that I’ve actually earned quite a bit.

The second half of this step is to see what you have to show from your years of employment. You can do this by calculating your net worth.

Are you happy with this number? Does the stuff you bought still bring you fulfillment?

Personally, I’ve bought stuff that I haven’t used in a long time. If I sold some of it, the net worth might be higher today, and I might be further along the road to financial independence.

What Is Money?

Green pieces of paper? Power? Security? These could all be valid definitions, but there’s a simpler one.

Money is simply something we trade our life energy for.

When we go to work, we pay for money with our time. This leads to the next step.

Step 2: Track Your Life Energy

After you understand that you trade your life for money, you can calculate how much you actually trade it for.

If you work 40 hours a week and bring in $400, you may think you earn $10 an hour. But think of all the indirect expenses that are associated with your job. If you didn’t need the job, could you reduce or eliminate some of the expenses, and save some of the time expenditures?

Here’s a few examples.

Commuting – Suppose you spend 5 hours a week commuting, and $10 a week for gas.

Meals – Let’s say you take an hour for lunch. Since you don’t have time to cook, you spend $5 a day eating out. Maybe you also treat yourself to a $2 cup of coffee everyday.

Decompression – When you come home, are you energized to begin the remainder of your day? Or do you turn on the TV to vegetate for an hour with some beer and chips? Let’s say this takes up 5 hours and $10 every week.

Looking at it this way, you’re giving up an hour of your life for $6!!! Less than  minimum wage in most states!

Calculate Your Costs Using Life Energy

Now that you have your real wage, you can determine how much anything costs in exchange for your life energy. So if the iPad costs $700 and your real wage is $6, it’ll cost you over 116 hours of your life.

Step 3: Ask Three Questions To Transform Your Life

Since you can now determine how much anything costs in terms of your life energy, you can now ask the following questions to help you spend more consciously.

1) Did I receive fulfillment and value in proportion to life energy spent? Was the iPad worth trading 116 hours of your life? Maybe it is, maybe it isn’t. But this gives you something to compare your purchases to.

2) Is this expenditure of life energy in alignment with my values and life purpose? This one makes you ponder about your life overall. Maybe you think you don’t have enough time for family and friends. If you do, eliminating some of the stuff that costs you a lot in terms of life energy may create that additional time.

3) How might this expenditure change if I didn’t have to work? This assumes most people would prefer not to work at their traditional jobs if they had the option. Would you need to buy all that fancy clothing? Eat out everyday?

Closing Thoughts

Not all parts of the book resonate with me. For instance, I think it’s a bit too tedious to track every penny that comes in and goes out of your life.

However, the minor issues don’t diminish the fact that there are still good points to take away from Your Money Or Your Life.

Have you tried calculating your real hourly wage? Would you spend more consciously knowing that you trade your money for your life?

This article was included in the Carnival of Personal Finance during the week of May 17, 2010. Check out Tom ‘s Canadian Finance Blog for a variety of great articles!

Becoming a millionaire is one of the goals I’d like to achieve in my lifetime. The encouraging part about this book is that it illustrates how a regular guy like me can fulfill this dream.

According to the authors, most millionaires aren’t descendants of super rich people. More than 80% of millionaires are ordinary people who achieved their wealth in one generation. They didn’t have the fortune of signing a multimillion-dollar sports contract. Or the fortune of winning the lotto. Or becoming the next Michael Jordan. They just did it slowly and steadily.

The main idea of the book is that there are seven common traits among those who become millionaires.

1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right profession.

How Wealthy Should You Be?

An interesting way that the authors define wealth is by a person’s expected net worth. This level is based on your age and income. The formula works best if you’re between the age of 25 and 65, and make $50,000 or more per year. Here’s the equation:

Expected Net Worth = (Age x Pretax Income) / 10

If your net worth is within 75% of this number, you’re what they call a prodigious accumulator of wealth, or PAW. How do you stack up? I can say that I’m fortunate enough to be a PAW, and hope to stay that way.

Do You Live Well Below Your Means?

This is the first common trait among millionaires. According to the authors,

“The foundation stone of wealth accumulation is defense, and this defense should be anchored by budgeting and planning.”

Do you keep a budget? I actually don’t. And since I don’t, I thought I’d be reducing my chances of becoming a millionaire. Luckily, the authors found that for every 120 millionaires who do budget, there are 100 who don’t keep one. Instead, they became millionaires by creating an economic environment of scarcity for themselves. In other words, they invested first, then spent the rest of their income.

This is the strategy that I follow. My plan is to  max out my 401k and Roth IRA every year for as long as I can. Then I’ll figure out how to live off the rest of the money.

You Aren’t What You Drive

The second common trait among millionaires is that they think financial independence is more important than displaying high social status. One story that illustrates this point really stood out to me. It involves a guy named Mr. Allan.

Mr. Allan was to be given a special birthday present after helping some friends stay in business. That special present was a Rolls-Royce! However, he felt that if he accepted the high-status car, he’d feel pressure to fill up his socially conspicuous puzzle with other status products. These things are a threat to his simple yet highly efficient lifestyle. So how did he respond?

“There’s nothing the Rolls-Royce represents that’s important in my life. Nor would I want to have to change my life to go along with owning the Rolls. I can’t throw fish in the back seat of the Rolls, like I do right now when I go fishing.”

He also said this:

“With a Rolls, I can’t go to some of the crummy restaurants I enjoy going to. . . . Can’t drive up in a Rolls-Royce. So, no, thank you.”

I love it! And while I can’t guarantee that I’d turn down a Rolls if it was offered to me, I can safely say that I’d probably turn it down too. When I got my first minor dent and semi-noticeable scratch on my car, I was pretty upset for a few days. The funny part is that I drive a car that’s nowhere near as nice as a Rolls! Imagine how badly I’d flip out if it happened to a Rolls! So the moral of the story is this:

Don’t trade wealth for high-status material possessions.

How Millionaires Buy Cars

I used to think that since millionaires were so rich, they automatically just bought new cars whenever they made a purchase. Why would they ever bother buying used?

Well, the authors found that although 63% of millionaires did purchase their cars brand new, there were still 37% that actually bought used cars. Why did they do it?

They actually got more satisfaction from acquiring used instead of new. In buying a quality used car, they felt that the original owner paid while the car was depreciating in value.

If I could do my car buying over again, I would go this route. But going forward, my plan is to be like these millionaires and buy a quality used car at a discount!

Go Where The Money Is

Another characteristic of millionaires is that they pursue business opportunities that target the affluent. As of 1996, when this book was written, there were about 3.5 million households in the U.S. with a net worth of $1 million or more.

So the authors argue that if you want to become wealthy, a logical way to do this is by serving the affluent in some way. If you supply a valuable service that solves a problem of the affluent, you’re more likely to become wealthy. This makes a lot of sense to me! Professions likely to benefit from the affluent include:

• Estate Attorneys – Acting as executors or administrators of millionaire estates can translate into high profits.
• Tax Attorneys – The number one expense among millionaires is income tax. Helping these millionaires find every option within the law to remain affluent will likely make you affluent as well.
• Marketers of cruises, tours, and other vacations – The affluent enjoy vacationing with their children and grandchildren, and many of them spend considerable amounts doing so.

Closing Thoughts

Overall, The Millionaire Next Door is a great book and an easy read. Rather than thinking that most millionaires live a super lavish lifestyle, the book sheds light on who the majority of millionaires really are.

Have you read this book? How did it impact you? Are you a PAW?

This post was included in The Carnival of Personal Finance for the week of May 3, 2010. Check out the Well-Heeled Blog for a fantastic article on the origin of the piggy bank!

Just because the government suggests that you work until age 67, it doesn’t mean that you absolutely must follow their suggestion. In this book, Clyatt shows us that with disciplined saving, a detailed examination of your expenses, and the drive to stay focused, semi-retirement can become a reality.

What is Semi-Retirement?

Simply put, it’s transitioning out of the full-time careers that many of us currently in, so that we’ll have more free time. With this new found time, you could pick up new interests, find a more fulfilling avocation, or just look for other ways to be more fully engaged in living your life.

Why Semi-Retirement?

Today, American workers take fewer paid vacation days than workers in any other developed country, at an average of only 10 days per year. Contrast that with the Chinese, who take 15 days per year. Or the Japanese, who take 17 days per year. If that’s not discouraging enough for you, the top ten European countries take an average of 29 days (almost 6 weeks!) of paid vacation every year.

According to Clyatt,

“Most career-track professional employment requires 55 or more hours a week of sustained in-the-workplace effort, along with more labor at home or on the road checking email and catching up on relevant business news. The average American worker logs nearly 48 hours a week on the job.”

So why semi-retire? Think about all the work-related stress that you’ll no longer have to go through. Or the fact that you’ll no longer have to stay late at the office. Or that you’ll no longer be chained to your blackberry.

The bottom line is that a lot of us are overworked. Do you want to stay on this cycle for the remainder of your working life?

How Do You Do It?

First of all, you need to decide why you want to semi-retire. To be quite honest, this is the challenging part for me. I’m not exactly sure what I’d actually do with all of my free time. With such a tremendous resource as more time, I feel like I would want to use it wisely.

Do you want more time so you could exercise more, take better care of your health, or nourish deeper relationships with your family and friends? If you had all the time in the world and no financial worries, what would you do?

Semi-retirement isn’t something that many people currently pursue, or even think is possible for that matter. So in reality, you may not find a lot of encouragement in your pursuit. Therefore, defining the “why” will help you push through weariness, obstacles, self-doubt, or any other difficulties that may arise.

Once you figure out the “why”, the “how” isn’t rocket science. It should come as no surprise that it involves aggressive saving, a certain detachment from the high-end lifestyle, and disciplined investing. However, Clyatt does remind us that moderation is key. You don’t want to overdo the saving and penny-pinching, work hard, yet burn out quickly. Semi-retirement is about savoring life and living it fully.

How Do You Know When You’re Actually Ready?

To know when you’ll be able to semi-retire, you have to determine the amount that you need to accumulate to meet your annual expenses during those years. Depending on your circumstances, this could be $30,000, $50,000, or more. Clyatt offers a few ways to figure this out. One method is through taking your annual pay, and subtracting expenses you’ll no longer need, such as savings, work-related expenses, and paid debts. Then you’ll add to this figure the new expenses you will incur, such as lower income taxes, fund management fees, and home and car repair costs. And this should go without saying, but when you are gainfully employed full-time, it may be sometimes necessary to take advantage of payday loans from wonga.com and other lenders. However, you should be entering retirement without need for any kinds of loans whatsoever.

Once you have this number, an easy way to get a rough estimate of the total amount you need is to multiply your annual expenses by 25. So if you need to live off $30,000 per year, you’ll need to accumulate $750,000 before you can semi-retire comfortably.

How Do You Invest To Earn That Much?

By allocating your money into various asset classes (stocks, bonds, real estate, etc.), you can create a portfolio that has achieved historical returns between 8-10%. Clyatt lays out three examples of such portfolios that you can choose from.

If you want to put your investments on autopilot, you can simply select a single balanced mutual fund. But if you’re a more of a hands-on investor, you can select several mutual funds to create a more diversified portfolio with less volatility.

So if you’d like to retire in 20 years with $750,000, and you assume an 8% annual return, you’ll need to save about $15,200 every year.

Where Do You Invest?

Generally speaking, there are two types of savings accounts that you’ll need. One of them is a tax-advantaged plan such as an IRA, 401k, or 403b. The other is a taxable bank and brokerage account that doesn’t have favorable tax treatment.

The reason for having these two types of accounts has to do with accessibility. Since the tax-advantaged plan limits your ability to withdraw money before you reach age 59 1/2, it helps to have a taxable account that you can access in your 40′s and 50′s.

How Much Can You Withdraw?

Clyatt uses a term called the Safe Withdrawal Rate, which is 4% every year. Here’s how the math works:

If your portfolio grows at an average rate of 8% interest per year, you’ll need to subtract an assumed inflation rate of 3% a year, subtract portfolio management fees of roughly 0.5% a year, and state and federal taxes of around 0.3% a year.

After doing this, you’re still left with enough interest to withdraw 4% each year, while keeping the inflation-adjusted value of your portfolio constant every year. So with this method, you won’t have to withdraw any of your principal, and you should be able to live off of just the interest for the rest of your life.

What About Taxes?

When you semi-retire, your tax situation should be a lot better than it is now. This is because the highest tax rates are on earned income. Since you’ll be living off of interest, dividends, capital gains, and maybe some income from part-time work, you’ll be left with a more manageable tax bill.

While interest income is taxed at the same rates as earned income, qualified dividends and capital gains are taxed at just 15% in 2010, and at 0% if you’re in the lower two tax brackets. However, tax rates are subject to change in the future.

Final Thoughts

I suppose the challenge most of us will face is saving the required amount each year to reach our goal. To help with this, there are tips in this book on ways to save on both smaller and larger expenses.

Nonetheless, if you want to reach semi-retirement bad enough, and have some clear ideas of what you’d like to do with all the free time you’ll gain, then you should check this book out.

Do you want to semi-retire before you turn age 67? Are you willing to make some sacrifices to do this?

This post was included in the Carnival of Personal Finance for the week of April 19, 2010. You can find it at Debt Ninja’s blog, along with many other excellent posts related to the world of personal finance.

With that said, before sharing my thoughts, it was not my intention to be either unfairly critical or kiss up to the author, but rather to offer as unbiased of an opinion as possible.

The book is divided into six lessons. I’ll pull some of the quotes that I found memorable, or that made me think in one way or another. Then I’ll write my thoughts and opinions below them.

Introduction: There is a Need

The only reason that I wanted to highlight the introduction was because of the very first sentence. It asks,

“Does school prepare children for the real world?”

In my opinion, the answer would be no. When I read or hear about people today who are in major credit card debt, or don’t have much saved for retirement, then I don’t think we’ve done a good job of being prepared for the real world. While in school, if we were taught concepts such as how to use credit responsibly, the power of compound interest, and the horrible impact of debt, I think we’d be a lot better prepared to face the real world.

Lesson 1: The Rich Don’t Work for Money

He says the poor and middle class work for money, while the rich have money work for them. He says its easier to work for money, because for many people fear keeps them at a job. I see some truth in that statement. Maybe it’s the fear of not paying the bills, not being able to eat, or not providing for your loved ones.  If I don’t love my job, or if I don’t go there with the mindset of serving others with my skills, then what is my main motivation? I would think that my job would just be a vehicle to pay bills.

“Learning how to have money work for you is a lifetime study. Most people go to college for four years, and their education ends.”

I agree with this, and interpret this to mean that getting rich is not easy. Otherwise, wouldn’t everyone be rich?

“…The fear of being without money motivates us to work hard, and then once  we get that paycheck, greed or desire start us thinking about all the wonderful things money can buy. The pattern is then set.”

I also see some truth in this statement. If we didn’t have money to meet our basic needs, we would live in fear. But once we do get a paycheck, a lot of times we think of material things to buy that we hope will satisfy us. Often, those things don’t satisfy us, and we keep the cycle going.

Lesson 2: Why Teach Financial Literacy

The main point that he stresses in this lesson is that if you want to be rich, you need to be financially literate.

“You must know the difference between an asset and a liability, and buy assets.”

He then goes on to define an asset and a liability.

“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.”

I love the simplicity of this advice. Fancy cars, while nice, depreciate the moment you drive them off the lot. Therefore, they’re not an asset.

He then argues that the rich see their home as a liability, while the poor see their house as an asset. I guess this is where things get controversial. Most people, myself included, where taught that a house is an asset because over time, home prices rise in value. However, since a home doesn’t generate income, but rather has expenses that include mortgage payments, property taxes, and insurance, he considers it a liability.

I have mixed feelings about this. Because for many people, home buying isn’t merely a financial purchase, but also an emotional purchase. To his credit, he acknowledges this and doesn’t expect people to agree with him.

And he argues,

“And when it comes to money, high emotions tend to lower financial intelligence.”

I wouldn’t necessarily agree with that statement. For some, the emotional benefits of buying a dream home may be worth making the financial sacrifice of taking on a mortgage and the other expenses. So if they’re committed to paying off the mortgage and it’s a conscious decision, then I don’t think their intelligence is lowered. After all, we all ultimately use our money to buy something don’t we?

But if you see some nice golf clubs that you like but can’t afford, and you purchase it on impulse with a credit card, then I agree that this is not a financially intelligent move.

Another point which I think people may find difficult to agree with is his definition of wealth.

“Wealth is a person’s ability to survive so many number of days forward… or if I stopped working today, how long could I survive?”

“Wealth is the measure of the cash flow from the asset column compared with the expense column.”

So if you have $2,000 of monthly expenses, and a cash flow of $1,000 per month from your assets, you’d have enough wealth to survive for half a month. Thus, he argues that when you achieve $2,000 in monthly cash flow, then you’ll be wealthy.

But how many people can generate $2,000 in income from their assets alone? If they owned property and rented it out, then perhaps this would be feasible. But I doubt that the average person has property to rent out, or is close to generating $2,000 a month from their assets.

I suppose this may be why people may have a hard time with his definition of wealth. In more traditional financial circles, a person’s wealth is measured by their net worth. This would include property such as your house and car. But since these things don’t generate income, they don’t fit in his definition of an asset.

However, I will say that his definition of wealth does make sense to me, and makes me want to strive to somehow build enough assets that generate enough income to cover my expenses.

Lesson 3: Mind Your Own Business

To become financially secure, we need to mind our business. He says that people struggle because they work for someone else, rather than owning their own business. They focus on their income, rather than their business, which revolves around assets. He encourages us to keep our days jobs, but to also buy assets, and reduce liabilities and expenses.

He also suggests buying assets that you love because if you don’t love it, you won’t take care of it. His love is real estate and small company stock. I’m not too knowledgeable in those areas, so I stick to index funds, which are an asset according to him, and which I do love.

Lesson 4: The History of Taxes and the Power of Corporations

This was a pretty short lesson. He suggests setting up a corporation for its tax advantages and protection from lawsuits. So if you have any kind of legitimate assets, he recommends looking more into the benefits of having one. This lesson wasn’t too informative or helpful to me, but I didn’t find anything that I strongly oppose.

Lesson 5: The Rich Invent Money

I didn’t get too much out of this chapter, other than his example of buying property in a down market for cheap and selling it for a gain. He reiterates the importance of building a strong financial foundation through building a financial education.

Lesson 6: Work to Learn-Don’t Work for Money

In this lesson, he advocates learning selling skills. He gives the example of McDonald’s and their hamburgers. Although they don’t make they best tasting burger, they make a lot of money because they know how to sell average hamburgers.

More and more, I’m seeing the importance of having selling skills. You sell yourself in many situations such as job interviews, work presentations, and companies need salespeople to sell their products. Heck, even girl scouts have methods to sell their cookies.

Final Thoughts

I will say that this is definitely NOT a book about finance and investing. If you’re looking for it to help you in those areas, you will be disappointed. It’s more of a motivational, self-help book. But overall, this book made me think, which is a good thing. It fires me up to learn more and try to be more entrepreneurial.  I also couldn’t help but think of the role that luck and fortune play in one’s financial destiny, like a great roulette wheel. Some of us hit the jackpot through strategy, others by luck.

There may have been a few things I didn’t agree with, but I personally didn’t find this book too controversial. I just ignored the parts that I didn’t find helpful and took away the concepts that I did find useful.

What about you? Have you read this book? Do you have any strong opinions about it?

Fortunately, since then I’ve learned a few things about salary negotiation. And while I’m no expert at it, I was able to use some of the techniques in this book to get a higher salary in my current position than what was originally budgeted. So if you’re not an expert either, learning some of these techniques may help you too.

Five Rules Of Salary Negotiation

Rule #1 – When To Discuss It

The best moment to talk about salary with your employer is when they decide they want you. So postpone salary negotiations until you’ve been offered the job. When you’re asked what salary you’re looking for, say something like this:

I’m sure we can come to a good salary agreement if I’m the right person for the job, so let’s first agree on whether I am.

Or:

I understand that you want to be sure you can afford me, and I won’t require a salary out of line with the job. But it’s a principle of mine not to discuss salary yet, because it can throw us off track. What’s really important is whether I’m right for the job and what I can produce for you.

Rule #2 – Let Them Go First

Once you’ve been offered the job, let them state the salary first. Here’s why:

If you go first and your figure is too high and out of their budget, you’ll lose the job.

If your number is too low, you may also lose the job. Since salary is related to your level of responsibility, they may think you’re underqualified. Or if your number is within their budgeted range, you may get the job but lose out on a few thousand dollars. (If you state that you require $32,000 per year, and they budgeted $35,000, you’d lose $3,000 per year!)

To influence them to go first, say something like:

I’m sure you have something budgeted for this position. What range did you have in mind?

Or:

I have some idea of the market, but for a moment let’s start with your range.

Rule #3 – Your First Response

Once you hear their exact figure or range, repeat that figure or the top of the range, then be quiet. Have a contemplative tone in your voice when you speak, then count to 30 in your head and think. This forces them to reconsider your quality and the return you’d make on their investment.

While thinking, compare their number with your research of what the job should pay (which you do before the interview). Two websites that can help you determine your market value are jobstar.org and salary.com.

Rule #4 – Counter Their Offer With Your Researched Response

Your mindset should be to get your top figure in a way that the employer thinks is fair. If the offer is too low, say something like this:

Thirty thousand dollars. I appreciate your offer, Mr. Employer. And, I’d love to work here. And I’m sure you want to pay me a compensation that is fair and will keep me committed and productive, right? Well, from my research, I estimate that positions like this for someone with my qualifications are paying in the range of X to Y thousand dollars. What can you do in that range?

Now you’re ready to continue an honest discussion to reach a common ground. Even if negotiating leads nowhere, you still have the original job offer that you can take or turn down.

Rule #5 – Cinch The Deal, Then Deal Some More

After coming to an agreement on salary, you can now move on to negotiating benefits and other perks. The first thing to explore is a salary review. To do this, you should say something like:

While my starting salary is important, I’m also very interested in the future, since I expect to work here for quite some time. In six months, when we review my performance, will it be on my demonstrated worth, or just a mechanical procedure?

If you are in sales, an important item to consider is your commission rate. If your work involves new-account generation, you should negotiate a residual commission on those accounts. The rationale behind this is that the reward for selling the account belongs to you. If you leave the company and the account is maintained, part of the income should still be yours for awhile. Don’t get cheated out of your commissions when you leave. A common misfortune in negotiating sales commissions is not being clear about what happens when you leave the company.

Even if you’re not in sales, negotiating a performance bonus is a win-win way of earning more money. You can pose an open-ended question to your employer, such as:

Let’s consider setting up a special bonus to encourage excellent performance. Can you think of a workable one?

And last but not least, if you can’t increase your salary, try to reduce the time. Negotiate vacation, personal days, or hours worked per week. To do this, first ask what the company’s policies are. Then frame your request in a way to help you be more productive on the job. You can say:

I usually throw myself so entirely into my work that I need a few breaks during the year to recharge. I’d like X weeks of vacation.

Final Thoughts

To keep this post relatively short, I’ve only covered the basics of salary negotiation. But this is a great book that covers many other situations that come up when discussing salary, such as how to handle applications that require your salary history, and negotiating stock options. Not only does it describe some of those common situations we go through, but it also shows specific examples of how to respond in a way that is in your favor.

If you want more information, you can check out Jack’s website, which has some additional free resources. If you’d like to purchase a copy, you can get one here.

Did you negotiate salary in your current position? Are there other techniques not mentioned here that helped you get a higher salary? Share them below.