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Tuesday, October 18, 2011

MONEY Investing for Retirement versus Reality

     As people enter the work force they have to make up there mind if they will invest for retirement.  Many do not as they are not making enough to get the necessities of life.  It is all about management.  I use to think that a person could not get by on say $10 and hour and only one person working to support the family.  My son in law proved me wrong on that count.  He not only fed a family of five on his $10 an hour income.  He managed to buy the materials over several years time to almost completely build a new home on his own.  He did borrow some to get the concrete work done and have the trusses set.  The insulating and  drywall finishing he also hired out.  When he was done he had a $135,000 dollar three bed room home with a full basement and about $90,000 dollars in equity.  He did all that by planning and working with his spouse(my daughter)and staying in a budget.  He is one of the most self disciplined individuals I have ever met. 
     That was all said to show that planning can profit the individual.  Over the last few years I have seen many people watch the money they had counted on for retirement disappear as the market started to look more like a roller coaster.  Seeing that, it really bothers me to see media financial advisors still telling people to put the money in the stock market.  They will come out ahead in the long run the advisors tell them.   My question is this, if you are smart enough to make your money and pay your bills, why do you need an advisor to invest your money?  Advisors make their money by getting part of your money.  They are like people who advise people to invest in oil wells.  People who drill oil wells do not usually put their money in drilling the well.   They put other peoples money into the well.  If the well is dry they simply say, so sorry.  Then they will offer you a chance to invest in another sure fire deal.  Yes some people get rich, but they generally drill more dry holes than wet ones.   Financial advisors work under the same principal.   Yes they know the tax loopholes and can save you money that way.  However if you have a competent tax person doing your taxes they can usually steer you in the right direction.

      When I started my second business I told my tax person.  I do not care if you make a mistake.  That happens sometimes.  If you do make a mistake or a bad decision make it in favor of the IRS.  My first business I made some bad decisions about taxes and they haunted me for almost seven years.  That being said, never fear going to the IRS with a problem.  They will work with you and they will give you a budget to work it out.  They are not the heartless jerks often portrayed in adds and movies.  At least that was my experience when dealing with the IRS system.

    If you are self employed you need to get a tax ID number for yourself and do all your dealings directly with the IRS or through your tax person.  If you are not self employed you simply need to first do a very serious and realistic budget and determine how much you can invest.  The second thing you need to determine is how and what you will invest your money in.   With the stock market moving like a roller coaster it is not a good investment regardless of what the financial planners say.  Interest rates are in the tank.  The profit on most bonds will be lost to inflation.  The only choice left is for you to self manage your money.  Most investment managers will tell you that is a bad idea.  The main reason they say that is because they will not be getting a piece of your pie if you do.

   The trick to self management is you have to be very proactive.  The advantage is you always have access to your money.  Having access can be both a good and bad situation.  The question is do you have the discipline to do your own managing.  If you are disciplined enough to go to work everyday and pay your own bills and not waste your money.   The answer is yes.  If you stay out of the credit card debt trap and other wasteful practices you can do it.  The system I use is real simple.  Make good buys on almost anything and then sell it for a profit.  The trick to this is you have to be a bit of a horse trader.  That means you have to be actively involved in the buying and selling.  My thing is going to auctions and buying broken stuff and fixing it in my wood shop and then selling it.  The thing going for me in this situation is when I retired from trucking and sold my truck I had this very big building right on Main Street and hardly anything in it.  Woodworking had been my hobby so I already had the tools.  So then it is a matter of looking for bargains at the auctions.  If a piece of furniture is broke and I can fix it my practice is to let everybody know it is broke.  First it keeps the price down for me.   Secondly it keeps someone from buying something they can not use.  Some people say that is not fair.  Is it fair to sell something you know is broken and try to get top dollar out of it.  My needs are not as great as some people.  My goal is to simply supplement my retirement to make ends meet.  Some say that is not really retired, my answer is, I am actively retired, I enjoy wood working.  What would I do with all the stuff.  I can only use so many chairs or dressers.

    If you are investing to retire you may need to make more money.  Then I suggest either cars or real estate.  Both of these require you to know the real market value and what a really good deal consists of.  In the state I live in you can buy and sell up to ten cars per year without a business license.  If you are married and working together you could do up to twenty cars a year.  Again the secret is spending time finding the true bargain and then taking the time to sell it.  If you do it right you can easily make two or three thousand dollars per deal.  In horse trading if you are selling it is gold, if you are buying what they have is crap.  The trick is you have to be able to sell it below the market value and still make your profit.  You have to not only buy a bargain, you have to sell one.  That keeps your money moving.  Just because it is cheap does not mean it is a good deal.  When I started my wheeling and dealing I bought five couches at an auction for $5.  This made me think I was a real wheeler and dealer.  A year later burnt four of the couches and finally sold one for $10.  Now when you figure loading, transporting and storing for over a year and then disposing of the ones that did not sell, I made a bad deal.  However the upside was I learnt early that just because something is cheap does not mean it is a good deal.   The trick is knowing what people need, what they will buy and how much they will pay.  I buy dressers, night stands, baby beds, dining room sets and entertainment centers. They all sell good.   My rule is that I have to buy it for a fifth of what I think I can sell it for.  Then even if I have to discount it, my investment is safe.  Do not get in bidding battles and just because you think something is nice does not mean others do.  If it really is nice it will sell accordingly.  Auctions are a place to get some real good deals.  It has also been my experience to watch people get in bidding wars over building materials and see them pay twice what they would have paid at Lowe's or Home Depot.  You have to know what you are bidding on is worth.

    You can easily make far more than you would in interest on invested money.  You may have to sit on some items for some time.  The catch is, are you willing to invest the time.  If you are not then go ahead and follow the old standard investment route.  My wife retired in January 2009.   Over the last couple years she was working she watched over half of her retirement account simply vanish in the market.  Timing is everything when it comes to investing for retirement.  Will you even be around when it comes retirement time.  Having been dead twice myself, I know not being is a definite possibility.   That being said, we have to plan like we will live for a long time.  The other part of the equation is to enjoy life while you are living it.  Why make yourself miserable and die before you get to enjoy it.  It is all a matter of what is important to you.  One of my grandsons is sixteen and already has two houses he bought at tax sales.  His mom and dad make a living in real estate.  He took his yard mowing money and invested it in real estate.  His goal is to retire before he is thirty.  Having two houses which are paid for and the rent money to roll into more investments he may accomplish his goals.  His goal is ten houses buy the time he finishes high school.  That is certainly possible to do.   If he keeps going through his twenties he could be looking at as much as $10,000 a month income from his properties.  He may not retire, but he will be able to decide what he wants to do for a living.  Tax sales are a definite money making opportunity for almost anybody.   If your not into managing your own money though just go ahead and plan on working till your 65 or so.   The decision is yours.  My good fortune has been to see that the American Dream is possible to anyone willing to put in the effort.  Good luck.

1 comment:

  1. Being a money blogger, I naturally found my way to this post on your blog. I somewhat disagree with your stance on financial adviser's. I look at them this way.. They should earn you more than than cost you. In other words, your financial gain due to using them should be more than it costs you in commission to use them. Kind of like using a realtor to sell a house. They are experienced and knowledgeable in their field and should sell your house for more than you could if you tried to sell by owner. The greater profit and lesser hassle factor should more than make up for what they cost you in commissions.

    I love your ideas on self-investing... but you obviously need time to implement these ideas. Imagine trying to do the auction buy/re-sell gig while you were out on the road!

    Real estate is one of my favorites, and probably the most profitable you can get into. But again, it takes time to deal with renters and repairs to the properties. Very hard to handle for somebody who works 50-60 hours per week. I love that your grandson is able to do this while still in high school! That is incredible.

    As for your wife "losing" half of her retirement savings in the stock market crash of 2008... so did I. Nothing was actually "lost," though. The value only went down. I still had the exact same number of shares. By the end of 2009, all of that value returned and then some!

    Enjoying your blog and looking forward to reading some of your trucking stories. Gotta go work on mine for now though.