Simon’s Notes

I read a post recently from John Chow where he gives his opinion on income taxes in the USA. John Chow believes that the government should basically reverse the system, or at least do away with it all together. The income tax is currently paid on a sliding scale, so if you earn more you will pay a higher percentage of tax than someone that earns less. John Chow believes that it should be the other way around, so if you earn less you should pay more than someone that earns more. If nothing else, it should at least be fixed so everyone is paying the same.

When I read this, I didn’t think much of it at first, to me this concept is not new and its one that has always made some sense in my opinion. But then someone left a comment accusing John of being greedy, now I’m not going to argue that assumption, he might very well be the greediest man alive, I don’t care. But in relation to this topic, I don’t think so.

I don’t live in the USA, I live in South Africa, but its exactly the same here. This system for calculating income tax basically rewards you for being lazy and poor. Here in South Africa there is even a threshold where you don’t have to pay taxes at all, so if you make 40,000 rand (5714 dollars) or less per year, you don’t have to pay any taxes. That may seem like pocket change to most of you but here in South Africa 40,000 rand is more than minimum wage (quite a bit more) and a lot of people earn less than that. On the surface this seems great, but actually this just promotes poverty, most people don’t want to make more money because it will just get taken away. If you earn a little more than R40,000 per year you might actually end up with less than your next door neighbor that makes less than you, its crazy.

Its not greedy to want to reward those that are moving the country forward. The only greedy ones here are the government, if they tax the richer people more they can make more money, and at the same time they can get votes from the majority of the poor people by not taxing them as much.

I’m not against poor people and helping others, in fact I’m quite involved with a lot of charity work here in SA. There are some people that are truly less fortunate than ourselves, and those people need our help. But here in SA its become a huge problem where you constantly find people that can make something of themselves but they refuse to because they are lazy, as a result we have one of the most dangerous countries in the world crime wise. If only the government would provide incentives for making more money the legal way, I’m sure a lot of our problems would be solved.

Simon

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I do, don’t you? Its not that hard either, in fact I consider myself to be a multimillionaire! The reason being that I know exactly how I’m going to do it, I know that my chosen method (or combination of methods) is fail proof, and I even know approximately when I will reach my goal. The good news is that I’m dying to tell you the secret.

You might have noticed that I said the secret, instead of my secret, there’s a good reason for that. The secret that I’m going to tell you should be common knowledge and I hope that most of you will laugh when you realize how simple it is. But the sad truth is that most people don’t know about it, and whats sadder still is that most people are doing the exact opposite.

The moment you decide that you want to become a millionaire you also have to decide how you want to get there. There are two basic methods to chose from, I like to call them the fast method, and the slow method. So the question you need to ask yourself is do I want to become a millionaire right away, or am I willing to wait for 20 to 30 years? I’m going to recommend a combination of the two, and in the following paragraphs I will try to simplify them for you.

The first method, and the one that most people are interested in, is the fast method. The fast method can basically be broken down into 4 categories:

1. Investments. This category consists of shares, bonds, CD’s, Unit Trusts, and any other form of paper investments.
2. Real Estate. Any investment in property falls into this category, whether you buy and sell property, or you own several properties that you collect rent from. Owning a home that you live in and pay a mortgage on does not count, as this is considered to be a liability and not an asset.
3. Business. This is obviously when you market a product, service, or idea.
4. Internet. This one is my favorite. Any Internet business or venture that is making you money falls into this category.

As you can see, all of these methods have an element of risk to them and none of them are guaranteed to bring you millions. That’s why you need to not focus on just one method, but on as many as you can. I talk a little more about this in another post. If you’ve diversified your methods enough, you will find that the odds are firmly stacked in your favor, as long as you don’t give up. But there is another method to reach your millions, and the second method is 99% guaranteed to bring you to your riches.

The second method is very simple and it can be summarised in one sentence. Save, and invest. if you save one dollar every day and invest it in a low risk investment, this is how long it will take you to become a millionaire.

• 3% interest - 147 years - any bank will give this
• 5% interest - 100 years - any bank will give this
• 10% interest - 56 years - a government bond should give you this easily
• 15% interest - 40 years - low risk Unit Trusts
• 20% interest - 32 years - medium to low risk Unit Trusts

Before you leave and vow to never come back, let me remind you that this scenario is for a monthly investment of just 30 dollars. 30 dollars! Come on, you could have been doing this since you were 8. If you were to invest 100 dollars a month at 20% interest per anum you would be a millionaire in 25 years, and in 40 years your investment will have grown to nearly 17,000,000 dollars. Imagine what would happen with 500 dollars a month.

The best thing for you to do is a combination of the two methods, that way if you don’t get rich soon you’re sure to get rich eventually. And the sooner you start the better, compound interest will do more for you with more time. Remember how I said you could have started saving a dollar a day when you were 8, imagine if you had, by the time you’re ready to retire at 70 years or so, you will have accumulated 1,000,000,000 dollars. I could do with that.

And lastly I cannot stress enough the importance of continued education, read as many books as you can. One of the books that I’m reading at the moment that I highly recommend is called ‘The One Minute Millionaire‘ by Mark Victor Hansen and Robert G. Allen.

Enjoy
Simon

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Whenever someone starts a new business, one of the most important things to consider is finance, notably where its going to come from. As far as I’m concerned there are 2 ways to go about getting finance, the one way is quicker, and the other is generally thought to be safer. I disagree, and the 2 ways I’m talking about are borrowing it, or saving it up.

I’m definitely not an expert, but this is the way I see it. I believe that there are a number of reasons why borrowing the capital would be a wiser decision then saving it all up. Firstly, you can get started quicker (time is money), secondly you do not put your own hard earned cash at risk, and thirdly, you might find that you will save more in the long run by borrowing.

Let me try to illustrate this with a simple story. Mary and Emma were neighbors and they were both starting new businesses. Mary was a firm believer in not owing anything to anyone, so she was prepared to wait a while in order to save up enough capitol. Emma, on the other hand, was a bit more of a risk taker so she immediately applied for a small business loan at her local bank. They both needed 60,000 dollars to get started.

Mary immediately set her mind to the task of planning out how she was going to save the money she needed. Mary didn’t have to worry about the bills since her husband was also working, so she figured that if she worked overtime she could pull in about $5,000 a month, which meant that in only a year she would be able to start debt free.

Emma started out by drawing up a complete business plan. She figured that she might struggle for the first 6 months, so she would only be able to afford a premium of $7,000 per month. Of the $7,000 only $5,000 would be to pay back the loan. Emma calculates that she will break even after 3 months, and by six months she should be turning a profit of around $5,000 after all expenses (including premium payments) have been paid. At this point Emma decides that she will start putting all her extra cash into the loan, so instead of only putting $5,000 into the loan she is now putting $10,000 and she is paying a premium of 12,000 dollars. By the end of 9 months, Emma has paid off her loan and she has managed to save up about $10,000. Her company is now on a roll and is making about $20,000 per month after all expenses have been paid.

By the end of 1 year Mary is about to start her company and she is dreading the thought of risking all of her hard earned 60,000 dollars. Emma, on the other hand, has spent the year paying in total of $18,000 in interest payments to the bank, but she has managed to not spend a cent of her own money, she has been able to save up an additional $70,000, and her company is well on its way to success.

Somebody great once said that “successful people make their fortunes with their own sweat, blood, and money, but rich people use other people’s money”. If nobody has said that yet, I shall claim it as my own :)).

I feel that before I close I should add a disclaimer. The views expressed in this post are my opinion, and not the opinion of a financial expert, use them wisely. The figures presented are for illustrative purposes only, in real life they might differ dramatically.

Simon

P.S. If you have any wisdom to add, feel free to do so in a comment. I love to learn.

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While I was at the mall today I happened to briefly overhear one of our famous DJ’s here in South Africa try to promote his latest CD. I was in a hurry so I couldn’t really catch much, but what I did hear seemed to consist of variations of ME, MYSELF, and MINE. My immediate impression was that this was one CD that I wouldn’t listen to if someone gave it to me for free.

The favorite topic of discussion for pretty much anybody in the world is, in fact, themselves, this is a fact. The sweetest sounding word in the dictionary is your own name. Unfortunately this doesn’t work both ways.

Have you ever been in a conversation where the other person spoke of nothing else but themselves? I know I have, and it pisses me off. Every time you try to say something they try to butt in with a little more self promotion.

Anybody can promote anyone, except themselves. I will repeat, anybody can promote anyone, except themselves. Once you understand this principal, it will be your greatest asset in whatever business you are involved in.

I read a story recently about a guy that was thinking of buying insurance. So he set up an appointment with a salesperson. The salesperson arrived to the appointment accompanied by a another guy whom the salesperson introduced as Mr. X, an expert in the insurance field. The salesperson then proceeded to promote Mr. X to the high heavens, in fact, nobody said a word about insurance during the entire meeting. As the salesman and Mr. X were getting ready to leave, Mr. X looked the prospect in the eye and said, “Mr. T, I’ve been in insurance for 20 years, and I have never seen an insurance plan as solid as this one”. That was it, the prospect signed the papers on the spot. You see, if I tell you that I’m an expert at something you will think I’m just bragging, but if somebody else tells you I’m an expert, chances are that you will believe them. You might not know me, and you might not even know the person that recommended me, but you will still believe. Isn’t that amazing.

I actually know a guy who is a director at a very big property company here in South Africa, and uses these tricks all the time, and it works very well for him. If him and a colleague have a big meeting with clients, he will go into the room before his colleague and introduce him as an expert in the property field. Then when the colleague comes in, the prospects are eagerly waiting to hear what the expert has to say.

Anybody can promote anyone, except themselves.

Simon

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I phoned an acquaintance of mine today to invite him to take a look at one of the many business ventures that I am involved with. This was a young guy, he is newly married and he is starting out in his chosen profession, in other words, he has the world at his feet. Unfortunately his reply did not surprise me as much as it should. He told me that he was putting all his efforts into his job and career, so he did not have time to look at other options.

To some of you this might seem like a reasonable response, and perhaps even a good mentality. I’m going to be very honest with you and tell you that this philosophy is one of the most dangerous traps an ambitious person can fall into. Why? Let me explain.

There is one little nugget of wisdom that any financial adviser will tell you at some point or another. That piece of wisdom is that you should never put all your eggs in one basket. Most people will agree, right? Doesn’t it make so much sense? After all, what will happen if one basket falls down and all your eggs break? If you’ve followed the right advice, you will still have tons of eggs in lots of other baskets. But the same people that hear this and think its great are the same people that are sweating it out at one job, and trying to climb up one corporate ladder.

The secret is to start building your own ladder on the side. Or better yet, start building a money tree; in other words, many, many ladders, as many as you can. If one branch dies, or one ladder falls, and stops giving you fruit, that’s fine because you will be covered.

Starting your own small business on the side is easy. Money is out there for the taking. Buy a bicycle and rent it out, do whatever it takes, but get to it. The only retirement that you are sure to have, is the one that you make for yourself.

A multi-millionaire once told me that ‘as long as you’re alive, life will happen’. I repeat, as long as you’re alive, life will happen. Don’t put all your hopes and dreams on your job, or on a single stream of income. Broaden your horizons and be on the lookout for the many opportunities out there.

And most importantly, enjoy your business.

Simon

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Albert Einstein once said that the single most important invention ever conceived by man was the miracle of compound interest (or something to that effect). And I agree. I find a lot of people that don’t understand the concept of compound interest, and as a result they do not value the small change that they should be saving instead of wasting it on impulses and cravings.

What is a dollar here, or two dollars there on snacks? Its nothing right? Wrong! It may seem like nothing now, but it could cost you tens of thousands of dollars in the future. Far fetched? Read on.

Let me start by explaining the concept of compound interest. Its actually pretty simple. The whole idea is that you earn interest not only on your money but on the interest that you are earning. So if you have 100 dollars in a government bond that is giving you 10 percent per anum, after the first year you will have 110 dollars, and you will earn 10 percent interest on the extra 10 dollars the following year, so by the next year you will have something like 121 dollars. You might be tempted to think ’so what, whats an extra dollar or two a year’. Don’t be fooled, the magic of compound interest is in its ability to take off and have a snowball effect that could eventually give you your financial freedom.

I told you that spending those few dollars here and there could be very costly to you in the future, and I know you still don’t believe me. I don’t know how better to explain this than with a simple example.

Tom and Bob were best friends, they did everything together. But, they had a few differences when it came to money. Every time Tom saw a chocolate bar or a piece of candy in the supermarket that he wanted to buy, he saved the dollar and at the end of every month, he put all his saved dollars into a very conservative investment fund that was earning him 10 percent per anum. Bob, on the other hand, had a great job and he didn’t see the need to ‘live like a pauper’, instead, when he saw something that he craved he would just buy it, after all, a dollar here and there never hurt anyone. By the end of every month, Tom managed to save about 100 dollars, and Bob was spending his 100 on snacks. Lets see what happened.

At the end of 10 years Bob’s little habit of spending a dollar here or there cost him about 7,500 dollars. How do I know this, its simple, Tom had managed to accumulate 19,500 dollars from his savings, but he only saved 12,000 dollars. Compound interest made 7,500 dollars for Tom, and by spending little money here and there, Bob had managed to spend 19,500 dollars of potential money even though he only spent 12,000 dollars of real money.

Thats not all, if Tom wants to start lightening up on his strict saving habits, and he stops putting money in all together, this is what happens.

Another 10 years go by, Tom goes to check up on his long forgotten investment. To his surprise, he finds out that, without saving anything for the past 10 years, his investment has grown to 50,580 dollars. WOW. In the past 10 years, compound interest made 31,080 dollars, as opposed to the first 10 years where it only made him 7,500 dollars. He can’t wait for the next 10 years.

All this happened without Tom having to raise a finger to work, it happened whether he was sick or asleep. If he wants to, he can start living off the interest and retire. Or he can wait a little longer, and retire in style.

Every second you wait, is a second that could be making money for you. Don’t make that mistake.

Simon

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Buying real estate is definitely one of the best investments you can make. Generally its quite safe, and the returns could be very appealing, but there is also a lot of work to consider, and a few risks and traps that, if neglected, could ruin you.

One of those traps is the bank. If you’re like most people, you probably don’t walk around with 1,000,000 dollars in cash to splash out on a house, so you most likely have to go the bank route, (unless you have a rich uncle who gives you everything you want).

I have nothing against banks or bankers, in fact I’d like to be one, but a lot of people don’t realize that its all just a big game with certain rules that need to be followed. How many times have you heard people say things like ‘the bank screwed me over’, or ‘those bankers are all thieves’. I know quite a few people that think like this, to them it makes perfect sense, and if you’d listen to their story it might make some sense to you too. But what they don’t understand are the rules of the game, in fact they probably don’t even know its a game, once this concept sets in its not long before you start thinking that maybe you can win the game.

To win this game the first thing you need is to know how it works. When you apply for a mortgage loan from a bank, generally they will give you a 20-30 year repayment loan. A good way to get an idea of what your monthly premiums will be on a 30 year mortgage is by calculating 1 percent of the loan, so if you’re asking for a $1,000,000 loan, your monthly premiums will probably be around 10,000 dollars a month (this can easily vary depending on the interest rate).

Now lets say that the interest rate is 13 percent (thats about what it is in SA right now). The way the premiums are calculated based on the figures I’ve given so far will be something like this:

• The first thing that you need to understand is that the interest is calculated each month, I’m not talking about the interest rates (although that can also fluctuate), I’m talking about the interest that needs to be paid each month, it will be calculated each month based on the rate.
• The interest is calculated per annum, so 13 percent of $1,000,000 is $130,000. The interest that needs to be paid on the first month will be $130,000 divided by 12 which is about $10,850.
• I wrote a small program to calculate all this for me but I don’t have it with me, so I’ll just give rough guesses. Basically you will pay about $10,835 interest in the first month, so your whole premiums will be something like $11,200.
• If your whole monthly premium is $11,200 and your interest on the first month is $10,850 that means you’re only putting about $365 to pay back your 1,000,000 dollar loan. Scary, they really are thieves.
• What happens is that you spend the first 10 years of your happy home life paying the interest alone to the bank, eventually as the loan gets paid back ever so slowly, your interest starts going down, and soon you’re paying less interest and putting more money towards the actual loan, this creates a snowball effect until the loan is completely paid.
• But if you do the math you’ll find that at the end of 30 years you will have paid about 3 times the price of the house. Its still a pretty good investment if you’ve picked the right house and stuck around for 30 years. But most of us don’t want that, generally you want to sell the house after 5 or so years, but with a deal like this there’s a good chance that you’ll still have most of the loan to pay back, you’ve been throwing away a lot of money in interest to the bank, and unless you’ve really picked a winner, the value of the house hasn’t gone up enough to pay for all the expenses so far.

So how does knowing all this help you beat the banks at their own game? Well, the next time you decide to buy a house or some real estate, make a commitment to pay an extra 1,000 dollars on top of the premiums. So if your premiums are $11,200 per month, pay $12,200. If you do this you’ll find that you can cut down the loan years to something more in the region of 10 years instead of 30. And instead of paying 3 times the initial value of the house you could easily end up paying a fraction of the value in interest.

With this knowledge suddenly your investment could be very profitable again.

Simon

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Whenever anyone starts a new business or venture, there is one thing that should always be on your mind, that 80 percent of new ventures fail in the first five years. The reason you should remember this is simple, it will remind you that if you don’t plan properly, all your savings that you’ve invested into the venture will go down the drain.

But there is also good news. Its not that hard to be part of the 20 percent that succeed. All you need is some planning, thats it, you don’t need a bigger brain, more money, and 101 hot girls. No, all you need is a good plan.

The most important part of a good business plan is, in my opinion, your market research. From your research you can figure out almost all other aspects of your business. The problem for me was that I could never figure out how to do a proper market research campaign. So for those of you out there that are finding it difficult to manage your research, here’s some helpful tips.

The key things to keep in mind when doing your research are these:

• What is your target market area?
• Approximately how many households are in that area?
• How much does each household averagely spend on your product per month?
• How many competitors are in your target area?
• What percentage of the market can you realistically hope to capture?
• How much will it cost you to set up?
• What will be your approximate monthly expenses?
• What is your break even point?
• How long will it take you to get there?

Now that we have a list, I think I can explain the concept better with an example.

Tony has been a gardener for the last 10 years, and now he feels its time to start out on his own. Tony is a shrewd fellow, and he’s read enough books to know that he has an 80 percent change of failure in the first 5 years. But he also understands that with enough planning, he can easily be part of the 20 percent that succeed.

Tony decides that he will start out working in his home town only. Its not a big town, we’ll call it HappyVille, and its got a population of about 50,000. Tony first enquires at his local munincipality and finds out that there are approximately 5,000 households in HappyVille. He then checks his local business directory for competitors, and finds out that there are 25 garden service companies in his town. He phones around a bit and finds out that his potential competitors service approximimately 2000 households a month, and each household will pay about 100 dollars a month. So now he knows that its a 200,000 dollar market. Tony has asked around, and he knows that there is still a fair amount of demand amongst households that still don’t have a garden service, so he’s fairly confident that in 1 years time he can be servicing 100 households a month, he hopes to make 75 percent of that from new customers, and capture the other 25 percent off competitors. So in 1 year he is confident that he can control about 5 percent of the market, in dollars that would be approximately 10,000 dollars a month.

Now Tony has to figure out the costs. In this case, he can work quite well from his home, so he doesn’t have to worry about rent. His initial costs would be about 1,000 dollars for the equipment (This isn’t anywhere near an exact figure), and he needs a down payment for a pickup truck, that will set him back about 1,000 dollars again. Now the monthly costs. The payments on the pickup will be about 150 dollars a month, and he needs to hire some help, so thats going to be another 1000 dollars a month. Since he’s working from his house, he’ll pay 200 dollars a month to himself for rent. Other costs will come to about 200 dollars a month. So his initial expenses come out at 2,000 dollars, and his monthly expenses will be about 1,550 dollars.

His break even point will be the point where he’s neither made money or lost money, so here’s how it plays out. Right at the start, he’s down by $2,000. He figures that in his first month he might be able to capture 0.1 percent of the market, in dollars thats $200, so he’ll be down $3,350. By the second month he should be able to capture about 0.3 percent of the market, in dollars thats $600, so he’ll be down $4300. By the third month he should be on his feet, and he figures he can have 1 percent of the market captured, in dollars thats $2,000, so he’s now down $3,850. Fourth month comes around and he’s on a roll with 1.5 percent of the market, in dollars thats $3,000, so by now he’s only down $2.400. By the fifth month he’s got 2.2 percent of the market, in dollars thats $4,400. By this time, Tony calculates that he will not only break even, but he will have made a profit of 450 dollars.

From this simple research Tony figured out that he will need about 10,000 dollars to hold him over for 5 months till he breaks even. And he knows that if he can attain his goal of capturing 5 percent of the market in 1 year, he could be making a good bit of money every month.

Now he can put this all on paper, and start looking for finance, but thats for a different post.

Simon

(The figures in this post are not meant to be exact figures. I live in South Africa so I have no idea how much things cost in the US. Please bare that in mind)

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One of the most important things to take into consideration when you’re on the path to money making success, is your own organizational skills. Being organized is a discipline that is not always easy to master, for some of us, like me, we never really understand how its done. But the outcome for neglecting this simple fact can vary from mild annoyance to complete disaster, usually it tends to complete disaster.

If you that you are one of those people that never know what time it is, never know how much money you have (or don’t have), and you’re always running to your mom for clean underwear, here’s a few pointers that you should pin up on your bathroom mirror.

Buy a watch.
Make it a point to exercise and shower every day, you’ll be amazed at what this can do for you. Even a half hour walk in the morning will do wonders.
Make a schedule for you days, weeks, month, and your life in general.
Try your best to follow that schedule.
Make a budget. If you don’t know how, don’t worry, do a google search. Its not that hard.
Don’t impulse buy. If you’re an impulse buyer by nature, make it a goal never to buy anything until you have slept on it for one night at least.
Sit down and write some goals for your life.
Organize your goals and try to develop a strategy for attaining them.
Sleep for at least 8-9 hours a day. If you don’t want to do it at night, do it during the day.

If you start following even some of these guidelines you’ll notice a difference. And whether you’re making money online or on the streets won’t matter anymore, because you’ll find it much easier to cope with the needed responsibilities.

Simon

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