It’s Aloha Friday…no work-a ‘til Monday…

Unless, of course, you are Kung Fu Girl who has (once again) something really embarrassing to admit and therefore something sort of like “work” to do this weekend…

We, the Kung Fu Family, have WAY. TOO. MUCH. STUFF.

It’s true…yes, I, Kung Fu Girl, who goes on and on about “simplicity” and who quotes Bruce Lee left and right and left again about the beauty and majesty and wondrousness of simplicity, and who has even just recently culled her way-too-many investing newsletters down to just a chosen few, still has WAY. TOO. MUCH. STUFF.

So, as my new friend Baker from Man vs. Debt (great site, by the way!) says, “Burn all your crap in a bonfire if that’s what it takes!”. Words to live by—I love that guy!

While we are not planning on having a bonfire (although that would be one AMAZING party….maybe we can do that with the non-plastic leftovers!), we are planning to reduce our stuff. Particularly the Kung Fu Kids stuff, much of which they have long outgrown.

So this weekend, the Kung Fu Family is going on an adventure…to the San Jose Flea Market. I have never been to the San Jose Flea Market but I hear it is quite an event, an institution really, and a “family tradition since 1960” according to their website.

Is this the “best” way to sell our stuff? Probably not. It might actually be a big disaster. 🙂

(Usually the first time I try anything it’s a disaster, but now I just expect that and muddle through and thankfully the next time or two tends to go better for me. Usually.) 🙂

But I am way too lazy busy to individually list everything on eBay or Craigslist, and we have enough stuff that it’s worthwhile to try to get some money out of it (we have already donated, donated, and donated again to the GoodWill, Salvation Army, and others, and it’s difficult to find places nearby that accept toys).

The thing is, I really DO value simplicity and minimalism, and this stuff drives me CRAZY. Luckily it is all out of our actual house and in a storage shed/garage, but I still know it is there and I trip over it each morning taking the Kung Fu Kids to school.

So off to the swap meet we go…I’m not sure if we will actually sell anything tomorrow or just go on a recon mission, but hopefully I’ll have something to report next week!

(Wish us luck—we’ll need it!)

But now, onto this week’s questions!

First, Steve asks,
KF Girl,
Girl, you are a wizard; I reviewed your interview, and it was inspiring to say the least.
Ok, so starting late in my life how do I really build wealth, and yes I am listening to what you say. Networking, study, work, pay attention, contrarian, I just have a bit of trouble when all of the real discretionary money goes to 401k.

I am debt-free, and I don’t own a home, I am working to figure out how to save, earn extra and pay cash for a home in the next, let’s say 3 years. No mortgage here, it would be very satisfying to pay cash for a home, plus it will be my retirement castle when I accomplish this feat. So you know and can contemplate, I am 58 years old.
Steve

Hi Steve, thank you for your great question. This is the absolute #1 question on everyone’s mind—“How do I really and truly build wealth?”

And your scenario, with the majority of your “extra” / discretionary money going toward your 401k, is the exact same situation most people face.

So let me dig in, although I have to remind you (and everyone) that I am not a financial advisor nor licensed to give personal advice. But that said, I will try to generically tell you what I believe!

First of all, CONGRATULATIONS on being debt-free!!! That is such a huge obstacle to overcome, and I am so very proud of you. It is really hard to do that (believe me, I know!) and you should give yourself a huge pat on the back for being a true “value creator”—someone who produces more than they consume on this planet, which is sadly really hard to say for most of us!

(And nothing at all against the not-yet-out-of-debt folks—I’ve been there myself!  We are conditioned as a society, particularly here in America, to “consume-consume-consume”, so don’t feel bad, just keep working at it!).

But Steve, you should seriously give yourself a giant gold star for being a true value creator—it’s a big deal!

Here is one for you!

Value Creator

Congratulations!

So you’ve done the hard part, and now you are down to the crux of what this website is about—once you have managed to save more than you spend each month, what on earth do you do with it to build real wealth? Particularly when the majority of this savings (discretionary income) is used to fund your 401k, which you have little to no control over?

Well, assuming you already have an emergency fund established and you want to continue to contribute to your 401k (which is an extremely personal decision and based on your own income / tax situation, both now and expected in the future…you can read some of my previous articles on how your 401k is robbing you blind here, here, here, and here…), you have two ways to come up with “additional” money each month to fund other types of investments outside of your 401k:

  1. Earn more income
  2. Reduce your expenses

I know that’s basic, but most people spend all of their time focusing on #2 and neglect the power and possibility of #1.

Is there anything you can do to earn some extra income each month? Can you present your case to your manager and ask for a raise? Do you have any skills that you could offer to people outside of your job on a consulting basis that you could charge for? Could you start a small business on the side?

(And I don’t mean a crazy risky venture that takes a huge amount of capital expense to fund, but something simple and inexpensive like a website where you can share your knowledge with people who will pay you for it? You don’t even need to write to have a successful website today—many of the most successful sites are all video or podcasts/audio-only.)

Because if you can think creatively and focus on earning more income, you will be in great shape to start investing outside of your 401k, because that “magic” discretionary amount will increase and you can then invest it.

You are already doing the right things by learning, reading, practicing, studying, paying attention, etc.

Here is where I begin to differ from the “mainstream” advice.

Most “mainstream” advisors will recommend that you just automatically take this new discretionary money and dollar-cost average your way into the stock market via ETF’s and mutual funds, and depending on your age and risk tolerance to put say 50% of this money into equities and 50% into bonds (or bond funds). This typically makes Wall St. and your financial advisor a lot of money, but it doesn’t really help YOU very much.

You, broke, empty pockets

You 🙁

Your Banker

Wall St.

This is where your own knowledge must come into effect, because no one knows as much about your personal situation as YOU do, and to be frank, no one cares about your personal financial situation as much as YOU do.

You need to decide, based on your knowledge, what you’ve learned, what you believe, etc., what your best plan of attack will be, and what strategies you want to use to get there. (That’s one reason I chose the “kung fu” metaphor…you need to create your war plan and plan of attack!)

This is so personal.

Only you know what your vision and goals are (e.g. to own a home outright in 3 years, or to retire in 10 years, or to move to Ecuador in 6 years, or to…?) — only you know what’s most important to you.

But, the great news is that once you decide what you want, there are MANY strategies to get you there! Many.

And they are not all “risky” or “crazy”! Most strategies themselves are neutral—it’s the investor who is “risky” or “crazy”.

Here are just a few you can choose from, and believe me I wish I could just explain each and every one in great glorious detail (I am slowly working on it here at Kung Fu Finance, day by day!):

+ You can choose to invest in world-dominating dividend-paying equities, like KFF subscriber Tim

…but then first learn how to read a financial statement, learn how to properly value companies using several different valuation methods (price to earnings, price to book, etc.), learn how to recognize when the ones you are interested in go “on sale” (and make sure you have enough cash on hand to buy them when they’re on sale), and keep up with the macroeconomic trends that affect the overall equities markets and business cycle.

+ You can choose to invest in residential income-producing real estate, like KFF subscriber Aunty

…but then learn how to value property, how mortgage financing works and how to obtain the best loan, how to find good tenants and property managers, etc.

+ You can choose to try your hand at Forex, like KFF subscriber Ryan

…but then learn how Forex works, how to LIMIT your risk (a big deal in Forex!), etc.

+ You can choose to invest in precious metals, like myself and many other KFF subscribers

…but then learn about monetary history and the supply and demand factors of the various metals you are interested in, learn about fiat currencies vs. sound money, learn the differences between buying physical bullion and “paper” gold or silver, learn about the tax consequences (they are taxed at the higher “collectibles” rate, 28%), etc.

+ You can choose to invest in the commodities futures market, like my friend and KFF subscriber Kent, who’s been a successful commodities investor for 30+ years

…but then learn about how the futures market works, be extremely careful particularly with the recent fallout of MF Global (you are not protected anymore so it is an extremely “do this at your own risk” market now, unfortunately), etc.

(By the way, Kent posted a great comment yesterday on building wealth and the role of newsletters, and I invite you to read it here…he’s a really smart guy and very savvy investor!)

Basically, it comes down to your individual style, circumstances, and preferences—there is no “one right” way to build wealth.

The “right” way is the way that works for YOU and that YOU enjoy.

The majority of successful investors whom I have had the fortune to know all have the following in common. They:

  • Manage/reconcile their finances each and every month and consistently earn/save more than they spend,
  • Understand macroeconomic trends and how to capitalize and profit from them,
  • Understand the cyclical nature of markets and how to profit from them (Mike Maloney calls these “Wealth Cycles”),
  • Understand the distortions caused by politics (love ‘em or hate ‘em…) and know how to profit from them,
  • Invest tremendously OUTSIDE of their 401k’s (some in addition to their 401k, some in place of),
  • Choose a style of investing that makes sense to them and resonates with them and then become masters at it,
  • Continue to grow their knowledge and diversify / hedge their bets accordingly to build long-term stable wealth.

So, the question I pose to you is:

Which one of the various investment styles interests you or excites you the most?

(And by “excites” I don’t mean excites you because you think you might “hit the jackpot” and “win big”, but excites you from a perspective of you think you’d really enjoy learning about it, talking with other people about it, digging into it, doing it, and mastering it?)

Because not all of these are for everyone.

Some people can’t stomach the risk of FOREX. Some people hate real estate because they think it is too much work or they just don’t get excited about buying and renting out houses or apartment buildings. Some people think bonds are boring, or precious metals are for wacko conspiracy theorists, etc.

For me, I started out on the “alternative investment” path with gold and silver. It “worked” for me and made sense to me…I loved buying something tangible vs. a piece of paper or bits on a screen, I romantically thought of myself as a pirate back in the days of old with my chest overflowing with gold and silver coins, and I was excited and passionate about studying monetary history, fiat currencies, and more (and all this way back in 2003 or so when people thought I was crazy….but I thought it was fascinating—my little secret!).

Craig Ballantyne invests in information publishing businesses, because that’s what he knows and that’s what he loves, and I bet he does darn well at it!

Mark and Chris from Capitalist Exploits invest in frontier markets and private placements, and they’ve become so good at it they now match investors to opportunities.

So in short, the secret to building real wealth, I believe, is choosing the best strategy for YOU and then working to MASTER it.

This is what the most successful investors in the world do (think Warren Buffett, George Soros, Jim Rogers, and all of the smaller-yet-still-extremely-successful investors I mentioned above).

And yet, this is the exact opposite of what most mainstream financial advisors recommend…they would have you throw all of your money into 10 or 20 different ETF, bond, or mutual funds and hope for the best, thinking, “hey, at least they won’t all go down at the same time!” (which we KNOW isn’t true and which to me is a TERRIBLE strategy.)

So, if you are willing to do the work (and it can be a lot of fun, too—that’s why you need to pick a strategy that excites you!!!), simply choose one and MASTER it.

Next, Paul asks,

Hi KFG, here are my goals for this upcoming quarter. BTW, I’m in the business of selling private businesses.
Do you think this is “SMART” enough? Thank you kindly!

  • Launch the first phase of my business, so that I can quit my corporate job and focus full-time growing my business and my family’s finances full-time from August 1st with a safe capital cushion
  • Prospect 50 per day: call 25 at lunch; visit 10 after work; e-mail 15 at night
  • Obtain 6 quality engagements

  • Close one business for minimum $500,000 ($50,000 success fee)

  • …By July 31st, 2012 (90 days from May 1st… one business quarter)

Hi Paul, thank you for sharing your goals with us! You are already one step closer to achieving them by sharing them publicly with people you trust (that’s us) 🙂 so congratulations!

Yes they definitely pass the SMART test and sound specific, measurable, achievable, relevant, and time-bound to me—good luck! I hope you knock it out of the park!

And you are smart to create a “safe capital cushion” for your family before quitting your corporate job…very wise.

Good luck, and please keep us posted!

I should create a Kung Fu Finance marketplace for all of us to swap ideas and businesses—many of you have such interesting businesses and websites yourselves it would be great to have a place where we could all help each other out. I will think on that!

Next, Honolulu Aunty asks,
Thanks much for the recap of Robert Kiyosaki’s event. His language has become more colorful and his patience has worn thin it seems. I liked his style before, but maybe today’s way of life demands the harsher meaner realities of his words because of how the world has changed. Part of it was that we always thought the USA was the center of the world, and it isn’t anymore. It’s a global and aging society, and those that don’t change are like cavemen on foot in the age of automobiles and jets.

As a wife, I’m still old-fashioned in the sense that the man is the head of the house. However, my favorite scene in “My Big Fat Greek Wedding” was when the father was boasting how he was the head of the family, and his wife did a side remark about how she was the neck. My kids cracked up when they saw that. Venusians and Martians.

Mahalo for info on the kids’ app BingAnimal. I downloaded to my iPad in case I’m waiting and a bored kid is whining or having fits. Distraction on an electronic screen, and education at the same time. Beats giving them candy! Do you know of any Rich Dad or Cash Flow game type of apps?

Aunty

Hi Aunty! I love My Big Fat Greek Wedding. Windex! 🙂

Yes, I think Robert Kiyosaki still has great information, but maybe he feels a sense of urgency now that causes him to not to mince words… Anyway, his info is still great and I always learn something!

I do not know of any Rich Dad or Cash Flow mobile apps, but I could have sworn he was developing one…I just searched but do not see anything, sadly. Thank you for your awesome comments, as always!

Next, Kerrie asks,

Thank you Kung Fu Girl for taking on an Australian Grasshopper!

I’ve been reading The One Minute Millionaire by Mark Victor Hansen & Robert G. Allen which reads like it has been based on scenarios from 20 – 40 years ago. Nevertheless it has helped me get started and as a result I am now consistently tracking the family budget and paying an additional 10% against our home mortgage.

Now, I get the sense from your blog that you are more in touch with today and so look forward to some major transformational learning and implementation on investing and finance in general. I’m so glad I found your blog!

Do you know if your strategies translate well to the Australian market?

Regards
Kerrie

Hi Kerrie, welcome to Kung Fu Finance!  I should form a meetup group as there are definitely more subscribers from Australia—welcome!

Yes, I strive to provide more timely information and advice than some of the older books are able to do, although I do remember reading Robert Allen’s Multiple Streams of Income many years ago and probably most of the book is still pretty good (except for the Internet section, LOL).

Congratulations on consistently tracking the family budget!!!  That is one of the very first things I did that set me on the road to becoming “accredited” and it is priceless….it is so important to know where you stand each month!  So many people never bother to do that, so you are already way ahead of the game.  And congrats too on paying down more of your mortgage—you are off to a terrific start!

I do think that much of what I talk about is relevant worldwide—you will have to let me know!

Thank you so much for signing up and I hope you find it valuable!

————————

That’s it for this week…have a great weekend (and wish us luck at the swap meet!)

To your financial success,
— Kung Fu Girl