.2(S) + .8(M) = FS

There are two formulas that I apply to financial success. One is E + S + I = FS and the other is .2(S) + .8(M) = FS. For those of you who don't like math, I can picture your eyes starting to glaze over now, but stick with me. I am not about to get all nerdy on you.

 

The first is a formulaic expression of something you have heard me say many times before. Financial success comes from thinking like an entrepreneur (E), saving prodigiously (S), and investing wisely (I). Hence, E + S + I = FS. This basic formula for financial success is the subject of my first book, which I have finally started to make headway on after three years of swearing I was going to get it done!

 

The second refers to my belief that financial success is only 20% skill-set (S) and 80% mindset (M). That is true at the broad level and it applies to each of the three areas of financial success mentioned above.

 

When I say think like an entrepreneur, you don't have to have years of management experience to benefit from that perspective. You just need to be educated on some basic management tools, like personal financial statements. That is the easy part. Anyone can learn those. The hard part is the mind set side of the equation.

 

The traits of successful entrepreneurs are the same traits you should bring to your personal finances in order to be successful. Those are 1) commitment and determination; 2) creativity, self-reliance and the ability to adapt; and 3) believing in yourself and that you are worthy of financial success.

 

Saving money doesn't take all that much knowledge. I think it is fair to say anyone can do it. With proper financial literacy education, like that provided by Money Camp, even kids can grasp the concept of saving for what you want and different wallets for spending, saving and charitable contributions.

 

Having the discipline to save is another matter altogether. It has been said, "The reason most people fail instead of succeed is they trade what they want most for what they want at that moment."

 

I know in my own life, if left to my unconscious, I tend to be a spender rather than a saver. I didn't really become a saver until I met my husband, who is a natural saver. But once I started doing it, I realized I got a lot of satisfaction from seeing my net worth grow. Who knew the number on the bottom of personal balance sheet could bring more deep and lasting satisfaction than some gee-gaw I bought?

 

Don’t get me wrong. I still like nice things. But now whether I spend or save is a very conscious decision rather than an unconscious one.

 

Finally, you have investing. No where is my 80%/20% formula more pronounced than here. When it comes to skill set, it helps to understand that many of the most powerful concepts in investing are the simplest ones. It does not take complex investment strategies to build wealth through investing. In fact, the opposite is true. The more time you spend on it, and the more complicated your investment schemes, the less likely you are to get your desired result.

 

For years now, women who have just completed the Snider Investment Method™ workshop come up to me with incredulous voices and say, "I can do this!" In my mind I think, "Well, duh!"

 

Often they will say something like, "My husband has always taken care of our money", or "I am an artist. I didn't think I would understand investing", or "I didn't know anything about investing when I walked in and I was sure I would be totally lost."

 

(By the way - I am pretty sure there are men who think the same thing but I just don't think they are as willing to admit it to me!)

 

Anyone can learn to invest. It has nothing to do with whether you are an artist or an engineer. In fact, academic research says it has nothing to do with how smart you are.

 

Jay Zagorsky, a researcher from Ohio State University has studied the relationship between IQ and wealth. "Smarter people tend to get paid more on the job, but there's no relationship between intelligence and net worth when holding other factors constant," says Zagorsky, whose report was published in the journal, Intelligence.

 

(Just as another aside, we have scheduled an interview with Jay Zagorsky. So listen for my interview with him in the coming weeks on my radio show, Saturdays at noon CT on 1080 AM KRLD in the Dallas Fort Worth area and in our Financial Success Coaching podcast available from iTunes, Odeo and right here on the Kimmunications blog.)

 

So what does account for your ability to build net worth through investing? It is your ability to control your emotional responses to meaningless, short term price movements. It is your ability to avoid extreme states of fear or greed. It is your ability to do the right thing every single day even though it often feels wrong.

 

In short, investing is almost totally a mind game. That is why hedge funds hire psychologists to work with their traders in the same way professional sports team hire sports psychologists to work with athletes. I know because one of them was one of my mentors. Investing is 20% skill and 80% in your head. That is one of the very first things he said to me when we started working together and I know it is as true as the sky is blue.

 

That is why the way I invest my own money is a system that tells me what to do in every single circumstance. It leaves nothing to my discretion because I worked it all out based on probabilities beforehand. Then I follow it religiously to take the game out of my head and make it all about knowledge. That is a game I can win and in my opinion the only way you can win it.

 

So follow my convoluted algebra here. If E + S + I = FS and .2(S) + .8(M) = FS then E + S + I = .2(S) + .8(M). In other words, in order to achieve financial success, you must be educated on the nuts and bolts. That is important. But more important is your mental approach to money.

 

If that is true, then doesn't it also follow that the people you need to surround yourself with are not just salesmen who make their living by selling you annuities and mutual funds, but rather a mentor who will help you with both sides of the equation?

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Run Your Finances Like a Business

Did you know that there are many similarities between managing a successful business and managing your personal finances? Thinking about your money in this way can be very beneficial. You do not have to have years of management experience to profit from this way of thinking. You just need to borrow a few of the basic principles.

 

In a small business, the owner often fills many roles including Chief Financial Officer, Marketing, Shipping and whatever else needs doing. I teach my students to run their personal finances in much the same way. Financially successful individuals examine their finances from the high-level perspective of the CEO, as well as the detail level of an accountant or bookkeeper.

 

At a high level, every successful business, including the business of personal finance, needs a plan. What are your goals, both short and long term? Why are these important? Your financial goals are not usually about the money itself, but about the joys in life that financial security can bring. One of my own goals is to always have a passive income from investments that exceeds my monthly living expenses. That gives me the option to work only when I want to, and leaves plenty of opportunity for recreation, family and friends, something that is very important to me.

 

It has been said that, "The reason most people fail instead of succeed is that they trade what they want most for what they want at that moment." Make sure your personal financial goals are specific, in writing, and visible. That will reduce the temptation to sacrifice long-term goals for short-term gratification.

 

Once you have determined your personal financial goals, you must decide how you will achieve them, and over what time frame. By thinking about your finances as a business, you will see that your "business" has two primary sources of income: savings and investment income. What strategies will you use to maximize both? What can you do to reduce taxes and unnecessary expenses? How can you best utilize tax-deferred investments such as IRA's and 401(k)'s? What sort of asset allocation should you keep in your investment portfolios?

 

Now you have a detailed plan, but how do you know if you are successful in executing that plan? Companies, big and small, have an accurate and timely system for tracking income, expenses, assets and liabilities. A study by the authors of The Millionaire Next Door found that those people who had built a significant amount of liquid net worth spent, on average, twice as much time planning their investment and budgeting decisions than their non-millionaire neighbors making similar incomes.

 

These people became millionaires on relatively small incomes by diligently tracking the past and planning the future. The key to making sound financial decisions is having good information about how much is coming in, how much is going out and how that compares to past results and future goals. Many easy-to-use computer programs, such as Quicken or Microsoft Money, can help with this. Armed with detailed information, you can take positive steps to make your dreams into reality. Without it, you are financially adrift.

 

A final lesson we can take away from the company management model is that of responsibility and involvement. When a company succeeds, much of the credit goes to the CEO. When it fails, the CEO must also take full responsibility. No CEO can go very far by relying on expert advice that he doesn't understand and then blaming the experts when things don't go as planned.

 

A CEO must understand the basis for all decisions, and take responsibility for them. Show me an absentee CEO and I will show you a company that is under-performing. The same is true in the business of your personal finances. To rely on someone else to make financial decisions on your behalf, without being fully aware of the implications and the logic behind them, whether that person is a spouse, financial planner, broker, or mutual fund manager, is an incredible gamble.

 

Letting others make financial decisions on your behalf may feel safe, but playing it safe is dangerous. Financial security is one of our highest needs. It is precisely this level of importance that often causes us to abdicate the providing of a secure financial future to someone else. Fear of failing in this most critical area creates stress and uncertainty that we often deal with by not dealing with it.

 

Invest in your own personal development the same way a company invests in training for its key personnel. Get training. Read books. Stay away from people who get paid to manage your money for you. Gravitate towards those who have a vested interest in teaching you how to take care of yourself and secure your own financial future.

 

The purpose of a business is to make money for its owners. The business of your personal finances is not much different. In both cases, active, hands-on, day-to-day involvement by management is required. Having a high level objective, specific goals, a plan for attaining them, and detailed information from which you can monitor, track, budget and plan will move you miles ahead on the path to financial freedom.

 

NOTE: This article was originally published in Today's Dallas Woman in November, 2001. An abridged version appeared in the Fort Worth Business Press on May 9, 2003. The similarities between managing a business and managing your finances has always been a dominant theme for me and will be an integral part of the book I am working on. (Yes, I am once again working on the book that I intended to have published last year!)

 

You can help by drawing your own parallels between business and personal finance. Leave them in the comment section below. DISCLAIMER: By publishing them on this blog, you are giving your permission for me to use them in the book. I will acknowledge your contribution provided you submit the comment under your real name using a valid email address.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Are You Navigating or Just Drifting?

I've been reading a management book titled "Mastering the Rockefeller Habits" by Verne Harnish. The central premise is how to create alignment in an organization. Alignment can best be understood as everyone and everything working together toward a defined objective.

 

I am attracted to the Rockefeller Habits because Harnish has created a step-by-step system for managing a small but rapidly growing business, much like the Snider Investment Method™ is a complete system for managing your investments. Like the Snider Method, there are steps to be followed, one after the other and always in the same sequence. Also like the Snider Method, there are worksheets to keep up with all the data and metrics to track performance.

 

As I was reading, I quickly realized that my company is suffering from a lack of alignment. We have 20 people all doing stuff every day - stuff that "feels" important, or at the very least urgent. But a lot of it has nothing to do with meeting our most important goals. We are all rowing very hard but all to a different cadence. We are moving, but not in a straight line and not with the efficiency we could be.

 

I also realized that I am much more successful at achieving goals in my personal life than in my business life. Maybe it's because there are fewer people to get onboard. In my personal life, it's just Jim and me. The dogs don't put up much resistance - or provide much input for that matter!

 

Our dream is to build a polo farm in Aiken, SC. Everything we have done for the last few years has been about making that a reality.

 

First, we had a vision that we were absolutely 100% committed to. Next, we had to ensure we had enough money put away to support us for the rest of our lives - not lavishly, but at least comfortably. In other words, take care of retirement savings first, then the dream.

 

Then we had to figure out what it would take to make the dream a reality. The first thing we realized is we needed to build the company into one that was not so dependent on Jim and I on a daily basis. In others words, we had to build a business. We are working on that.

 

It also meant quantifying the dollars involved. How much would it take to build our dream? Yikes! Polo farms don't come cheaply, at least not the one I see in my dreams. So we did that too.

 

Then we started working towards those goals. Everything else has taken a back seat because that is what we decided was most important. When we wanted to take a vacation, we measured it against the dream. "For the cost of a trip to Sun Valley, we could buy an acre of land." or "Is that worth a polo pony?" Sometimes we would say yes. Most of the time we decide it isn't worth it.

 

Our actions are generally in alignment with our goals. As a result, we have bought the land and hope to start moving dirt some time next year.

 

I have always believed that our lives, especially our financial lives, are just micro businesses, to which business principles apply. That is why I always stress the concept of the Family CFO. I believe it is a useful metaphor.

 

I realize now that my personal life is better aligned with my personal goals than my business is with its business goals. We aren't as focused, in the business, as I would like us to be. That is my fault as the CEO and I have determined to fix that.

 

But what can you learn from my experience? Well, here is my question - are YOUR actions aligned with YOUR goals or are you allowing YOURSELF to drift day-to-day without getting any closer to your dreams? And if you are drifting, what do you need to do to take hold of the helm and start creating an intentional course? If you'd like to share, your thoughts and comments are welcome below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Do You Deserve Financial Success?

I saw an article in MarketWatch the other day that made me sad. Apparently, 50% of Americans believe a secure retirement is an impossible dream. It makes me sad because self-defeating beliefs like this become self-fulfilling prophecies. There is absolutely no reason this has to be true.

 

Financial success requires three things: save prodigiously, invest wisely, and act like an entrepreneur. These things are simple. They are doable. But they are obviously not easy or we would all be millionaires.

 

In The Millionaire Next Door, Drs. Thomas Stanley and William Danko tackle the question of quantifying how wealthy you should be. They use a formula I have find quite useful. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

 

If your net worth is more than twice this number, you are a PAW - a prodigious accumulator of wealth. If it is less than 50% of this number, you are a UAW - an under-accumulator of wealth. In between and you are average - an AAW.

 

At the age of 28, I was wealthy, by any measure. I didn't inherit it. But it was a stroke of luck. The company I worked for went public and my stock options were suddenly worth a lot of money.

 

By age 30, I was dead broke. I didn't have a penny to my name and I was in debt up to my eyeballs. All my cool toys were re-possessed. I sold my beautiful Uptown condo at a terrible loss just to stay out of foreclosure. My credit was wrecked and I had no job.

 

Today I am 43 - I'll turn 44 in May. I am again wealthy - by any measure. This time it wasn't a stroke of luck. It was damn hard work. And let me tell you something. It is far more gratifying than the first time.

 

There are many lessons to be learned in how and why I lost all that money the first go around. I'll save that for another day. I prefer to focus on how I got from the there to here - and to ask you a question? What can you learn from my experience?

 

One of the most useful exercises for me has been finding people who had what I wanted, figuring out what they were doing that got them the result I was after and then doing the same thing. That is why I found the Millionaire Next Door to be so helpful. It gave me a shortcut. I didn't have to talk with all these people, the author's already had.

 

Financial success starts with a simple principle. If you earn $100 and spend $110 you will always be poor - it doesn't matter how much money you earn. If you earn $100 and spend $90, you will always have money - it doesn't matter how little you earn. If you want to be financially successful, you must spend less than you earn.

 

Once you have put away enough to cover emergencies start investing your savings. The key to investing wisely is knowledge. I believe a financial education is one of the best investments you can possibly make.

 

Investing is simply a trade-off between risk and reward. You cannot have one without the other. That law is as fundamental as gravity - it cannot be suspended. The investor who manages that trade-off well will do well. If you don't, you won't. Too much risk or too little can be equally detrimental to achieving financial success. Your job is to always maintain a happy medium.

 

Risk is connected with financial success in many ways. For example, two-thirds of high net worth (HNW) individuals are entrepreneurs even though the self-employed only make up 20% of the workers in America. That makes sense given that profit is the reward for risk. The entrepreneur takes the risk to start and sustain a business and therefore makes more, when successful, than the person who works for someone else and has less risk. But he or she also stands to lose more if the business fails, which it often does.

 

So it is not surprising that HNW individuals are predominantly entrepreneurs. I am an entrepreneur. Not because I set out to make a lot of money but because I have a passion that burns deep inside my core - to make a profound difference in the financial lives of others by teaching them what I had to learn the hard way.

 

But the good news is that you don't have to be an entrepreneur to be financially successful - you just have to act like one. Most successful entrepreneurs I know have three traits you need to be financially successful: 1) commitment and determination; 2) creativity, self-reliance and ability to adapt; and 3) believing in yourself.

 

People sometimes ask me how I went from broke, to not, in thirteen years. I tell them I decided to. That is the truth. Without commitment and determination, you probably won't get there, because financial success requires making hard choices - usually involving giving up what you want now for the opportunity to have something better down the road. That is hard.

 

It is also hard not to get caught up in what everyone else is doing or to not keep doing the same thing over and over and expecting a different result. When the traditional Wall Street offering didn't meet my objectives, I created my own. If what you're doing isn't working, change what you're doing. Otherwise, you shouldn't be surprised when you keep getting what you've always gotten.

 

50% of Americans don't believe they can create a secure retirement. Sadly, they are right. Because if you don't believe you will, then you most assuredly won't.

 

Why do so many people doubt their ability to achieve financial success? Is it because they are afraid to try? Is it because too many people have told them they can't do it? Is it because we are a gluttonous, consumer goods oriented society where no one knows the value of delayed gratification any more? Maybe.

 

I saw an old beater car driving down Stemmons Freeway yesterday with a big screen plasma TV tied in the trunk. The driver was pretty obviously on the lowest rungs of the economic ladder. Yet there he was with his big screen, which by the looks of it, was worth more than the car!

 

But maybe, just maybe, it is because we do not believe we are deserving of financial success. One thing I know for sure, anything I believe I am unworthy of - love, money, respect, friendship - will elude me until I can say with certainty, "I deserve this!". Do you deserve financial success?

 

	TAKEAWAYS:   1. To be financially successful you must: save prodigiously, invest wisely, and act like an entrepreneur.   2. If you don't believe you are capable of financial success, figure out why.

 

So now you know what I think. How about you? What do you think? Feel free to leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Pay It Off

I promised to post the video from NBC5's series entitled, Pay It Off." It took me a little longer than expected. Sorry for the delay.

For those of you in the audience that night at the Frontiers of Flight Museum - "Dahlings, you look mah-velous!"

NOTE: Hover your mouse over the top  left of the video window to see the video player control buttons.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Boomer Entrepreneurs

I will be featured in a week-long series, on NBC5 in Dallas - Fort Worth, along with Suze Orman and Dave Ramsey, on making your dollars go farther. I was interviewed Friday by anchor Meredith Land. We focused on my four foundations for financial success: 1) a disciplined and conservative view of money; 2) diligent planning, budgeting and saving; 3) prudently investing what you save; and 4) the spirit of entrepreneurialism - whether you are one or not.

 

As you are also probably no doubt aware - the focus of my work is on investing for retirement, by which point you have to meet my definition of financial success - when you have enough passive income from your investments to pay all your bills - or you are screwed.

 

Many people are going to be screwed. That accounts for the fact that 66% of pre-retirees say they intend to work in retirement. Many cannot afford to do otherwise. But that does not mean they are opting for traditional employment.

 

Experts believe we are at the beginning of an unprecedented explosion in new business start-ups, greater even than the dot com boom of the 1990's, led this time by near-retirees. Surveys by Chicago outplacement firm Challenger, Gray & Christmas suggest the boom is already underway.

 

This is also supported by data from the Bureau of Labor Statistics, which reported the number 55 to 64 year olds categorized as self-employed has increased 29% since 2000. This increase is atypical. The number of entrepreneurs is stagnant or shrinking in all other age categories. Baby boomers and older entrepreneurs now make up 54% of the self-employed workforce.

 

It turns out, many of these boomer start-ups may have their former employer as their best customer. It is widely predicted that the job market will continue to tighten. I have seen many respected sources predict that it will be even worse than the 1990s when you hired anyone who was warm. As boomers leave the workforce, their employers will find it increasingly difficult to replace their skills, opening the door for the entrepreneur to sell their experience back to their employer in a new way.

 

It probably shouldn't be a surprise that boomers are opting to go the entrepreneurial route. After all, that is the appeal of being your own boss - the flexibility to run your own show, work as much or as little as you want, and, in theory at least, you get to keep more of the proceeds of your efforts.

 

Of course, we know it rarely works that way. Most entrepreneurs don't run their business - their business runs them. And few ever turn a profit. Something like 50% of new businesses fail within their first year and a large percentage of those fail within the first five years.

 

Still, you would think older, more experienced entrepreneurs would have as good or better chance as anybody. What do you think? Take our survey and leave your thoughts and comments below.

 

 

SOURCE:

 

1. Glenda Vosburgh, "Welcome to Boomerville." Dallas Business Journal 25 August 2006; 24.

http://dallas.bizjournals.com/dallas/stories/2006/08/28/editorial2.html

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.