Just Married? Manage Your Money Well From the Start

Starting married life is exciting, but there is also so much to think about. Where will you live? Who cooks and who cleans? How are you ever going to pay for your children’s university when you can’t even find all your bills? Take a deep breath – the cooking and cleaning will probably work itself out. The financial stuff? Well, start with these tips and you’ll find that you have it under control in no time.

Set Your Goals Together. Discuss the important stuff, and the sooner the better. Are you going to buy a house or rent an apartment? Do you want to work from home in order to stay with the kids? Talk about your goals for all these very important decisions. You have to make them together, and it’s better to agree now rather than in ten years.

Create A System. Whether you file your paper bills in a drawer or go paperless and do everything online with personal finance software, it’s best to be systematic about it. Both of you should know the system so one of you can deal with it if the other is sick and out of town.

Make A Budget – And Be Realistic. Write down all your expenses. Don’t leave anything out or underestimate. If you love to go to the movies every weekend, don’t make your entertainment budget $25 a month. Remember that you need to reevaluate your budget on a regular basis, especially at first. If you’re running out of money before the end of the month, something needs to give. You can download a budget template from the internet, such as this one from Microsoft, or create your own to suit your needs.

Talk It Over Again. And Again. You discussed everything that one night until you were blue in the face. Do it again? Yes. Goals change, salaries change, bills change. If you have to buy a car, is that in the budget? What if you get a promotion (good) but have to buy a new wardrobe (bad)? Marriage is the ultimate partnership. If you need to cut back, or even if you have more money coming in, decisions are best made together.

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

To Buy or Not to Buy

Owning rental property as an investment can be rewarding and almost anyone can do it provided they are prepared to view it and treat it as a business. There are good deals, and bad deals, good timing and bad timing and good areas and bad areas. From my experience, there are four criteria that must be met before considering purchasing a rental property:

Does The Rental Property produce positive cash flow? In my opinion, this is the most important factor. Don’t even consider the property unless you can count on a good cash flow margin that exceeds monthly expenses, which include the mortgage, home insurance, property tax, vacancy allowance, repair and upgrade budget, property management (even if you are planning on managing it yourself). Make sure the tenants are responsible for their own heat, hot water, gas, cable, and phone. To determine what your rent will be, research the comparables, or similar properties, in the same neighborhood by looking on the internet listings such as Criagslist or Kijiji. Unless the property is in a very small town, usually newspaper classifieds are not where properties are listed for rent nowadays. The minimum Return on Investment (ROI) I would consider would be a 12% annual return on my down payment amount. For example: if I put down $20,000, I must be able to get a positive cashflow of at least $200 per month, or it simply isn’t worth the headache.

Is The House In Good Condition? Unless your specialty is fixing up houses, it’s no fun to buy something that needs work. Finding out in mid winter that the roof is leaking and needs replacing or that the furnace is on its last legs can set you back thousands and defeat the purpose of having an investment property, which is to create passive income. Everybody wants fresh paint, but the basic structure and systems of the house should be in good working order. Always invest in having a professional inspection before putting an offer in on a property. Note: If there are major repairs needed, they can be brought up in negotiations to lower the asking price of the home, or written into the subjects that the seller must take care of the repairs before the deal is done.

Is There A Demand For Rental Housing In The Neighborhood? Survey the neighborhood for the number of rental properties and the number of vacant properties. If there are no rental properties at all in the area, you may be in a neighborhood where people simply prefer to purchase, rather than rent, a home. On the other hand, the neighborhood may have many rental properties. But what if half of them are empty? You’re probably not going to able to charge premium rent because potential renters have so many other choices. To get a sense of the vacancy rates in the area you are considering, check out this government website. The lower the vacancy rate, the higher the demand and the higher rents you can charge.

Where Is The Price In Relation To Market Value? If the house is overpriced, obviously you don’t want it. If you keep an eye out, you can often find houses that are undervalued for one reason or another. They may be foreclosures, or maybe they’ve been on the market for too long. Perhaps the current owner is moving away and needs to sell quickly. Whatever the reason, unless there is structural damage to the house, a property that can be bought under market value is usually a keeper, provided that the previous three conditions are also met.

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

Should Students File a Tax Return?

I’m often asked if students should file a tax return, and my answer is always ‘yes’! It’s never too soon to learn about tax time and how you’re able to get the most out of your money. In this blog, I’m answering several questions that I receive regularly. Here are some basic concepts to remember about taxes if you’re a student:

Anyone who answers ‘yes’ to the following questions should file a tax return, including students:

• Have you worked during the past year or paid tax for any reason?
• Have you received your Working Income Tax advance credit last year and want to apply it this year?
• Do you owe money from a Lifelong Learning Plan withdrawal?
• Do you think you’re entitled to a refund?
• Will you be or turn 19 years old before April 2011?
• Do you still have tuition credits that you want to use in the future?

What about GST/HST credits? Canadians with lower incomes receive payments to help with the taxes they pay on goods and services throughout the year. These payments are given out quarterly. You may be eligible for these payments even if you didn’t work last year, but the Government will not know until you file a tax return.

What if I make below the personal exemption? The personal exemption amount for 2009 is $10,320. If you earned this amount or less last year, you will get a refund of all the taxes your employer deducted from your pay cheque. That’s why it’s important to file even if you didn’t make much money. You are most likely eligible for a refund!

Why would a student need an RRSP? An RRSP, or Registered Retirement Savings Plan, is designed to help you put away money for when you retire, admittedly it may be a while if you’re a student. But, the sooner you start contributing, the more your money will grow. Also, contributing now allows you to be able to make full contributions as soon as you begin your full-time career. Even better, your RRSP contributions receive credits that will add to your tax return! To learn about some different RRSP vehicles that will give you a safe and high-growth rate, consider attending a webinar or email me if you have any questions.

If you have any more questions about filing a tax return, please ask!

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

The Interest Rate Rise

As the Canadian economy recovers from the last year, the Bank of Canada is expected to increase its target lending rate in June. The Bank of Canada has signaled an increase in borrowing costs when it stated in early March that inflation and economic output have been stronger than expected. This news comes from Sophia Drossos, co-head of global foreign-exchange strategy of Morgan Stanley. To read the full article on Bloomberg, please click here.

Preparing For Ups and Downs

The thing about emergencies is that we never expect them to happen to us. But sure enough, the fridge stops working, we get a flat tire, we get injured, we lose our job suddenly, a friend or family member urgently needs our assistance, there’s a flood or fire, and on and on. Sometimes the unexpected costs are more positive – you are promoted at work and need to get some suits, or you are introduced to an opportunity to invest in a safe, high return deal. Having extra cash to deal with the tragedies as well as take advantage of the opportunities is a good idea all around and one way to make this happen is to get into the habit of squirreling some money away each time we get paid. A good rule of thumb is 10% of your take home income.

The main purpose of an emergency fund is to have money in place so that if there is ever an emergency, you are able to cover your daily expenses as well as deal with the extra out-of-pocket cost. Each person’s emergency fund will be different, depending on their needs, wants, and lifestyle, but there are some core ingredients that should be in every emergency fund.

Your emergency fund needs to be easily accessible or liquid, and ideally earning you some interest as well in a safe investment vehicle, as you never know when you may need to use the funds. Most banks offer 0 – 1% for ‘high interest’ savings accounts – RBC’s high interest e-savings account is currently paying .75% and ING Direct is currently paying 1.2%. (The best high interest deal we are aware of and currently participate in at Share the Wealth pays 12% per annum. Call or email us for more information – info@sharethewealth.ca). The Tax Free Savings Account is also sold by banks as a good place for GIC’s and savings accounts paying 1-3% interest, but don’t be fooled. Leave available space in your TFSA for higher performing investments that will actually benefit you tax-wise.  You can read one of our previous blogs for ideas on how to best use your TFSA.

I’m often asked how much money should be set-aside in an emergency fund. The typical answer to this question is between 6 to 9 months worth of living expenses, which I believe to be a safe estimate. Keep in mind that your living expenses may also change during an emergency situation, meaning they may go up or down depending on the type. For example, if the emergency puts you in the hospital, and you require private treatments that may not be fully covered by medical (physiotherapy, counseling) then your expenses will go up. If your emergency is losing a job, your expenses may go down if you choose to live a more frugal life ie. Saving on gas, lunches out (if you are still doing that after reading our Success Key blog post!), while you get back on your feet.

If the emergency is an unexpected positive event, you will have the cash to take advantage of it and enjoy it! When this happens you can then replenish your emergency fund back up again by saving 10% until you have your 6-9 month contingency fund in place again. **Note: This can be a slippery slope for those struggling with over-spending or rationalizing their negative spending habits – be honest with yourself on what is an ‘unexpected positive emergency’ and what isn’t.

Don’t forget that Insurance policies could also be part of your emergency strategy and many financial experts recommend this. For example, a mix of disability/critical illness, life and home/contents insurance can lower your risk levels as they will cover you should you need them.

Too often, emergency funds are not thought of until it’s too late, but by planning for the unexpected in advance, a lot of stress will be alleviated from the negative situations and you will also be prepared for the positive ones too!

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

Success Key: Focus on the Prize

When it comes to managing expenses and personal finances, we hear a lot about cutting back on spending, denying ourselves the things we want and basically getting rid of all the things we like or are fun to do. There is also a lot of focus on discipline, denial of immediate gratification and hammering down the importance of being mature and responsible. No wonder the word “budget” is seen as the new four-letter word and falling off the “debt diet wagon” is more common than staying on it. We then find ourselves feeling like failures and losers, which only perpetuates more spending or throwing the unopened bills in the garbage in an effort to try to feel better.

Instead, what works wonders as a starting point is to develop a focus on what is (or would be) truly fun and exciting – like never having to work again at a job that bores you, having surplus cash to travel whenever you want, owning a vacation property in Panama, spending a year traveling the world, setting up a foundation to help troubled teens. Thinking about goals that really get you smiling and feeling pumped up is the first step to getting your creative juices flowing. By focusing on a ‘bigger game’ goal that holds meaning, pleasure and purpose for you, your mind starts to think of ways you can achieve it. You naturally move towards an abundance mentality, rather than a scarcity mentality.

When I was a struggling and broke Arts undergraduate student, I became highly motivated to find a way to a six-figure income when I graduated. I had no idea of what that job was, or how I was going to get there. But I did believe that a six-figure income meant freedom, security, power, and success – all things I wanted. I then took whatever action steps I could think of to get me closer to my goal. I let others know what I wanted and asked them for suggestions and ideas how to get there. I signed up for the Arts Co-op program to build my employable skills (I was mostly computer illiterate in 2003). I tried different short-term jobs to see what sectors were a fit and to gain experience. I networked to find possible permanent job leads. I also became friends with career educators, took personality assessment tests to see what I was good at, what I wasn’t, and what was a natural fit. I asked people what careers made the most money and didn’t require more specialized education. I went on information interviews, re-vamped my resume, took suggestions and never quit staying open to possibilities – and sure enough, within a few months of graduation I had a job earning a six figure income in commission sales at a recruitment firm.

When we focus on a bigger game goal, we find ourselves less tempted to spend on distractions to ‘fill the void’, or to alleviate boredom or depression. I remember when I was 10 I became obsessed with waterbeds. (It was the early eighties, after all!) My parents had been giving me a weekly allowance of $1.00 per week, some of which I would spend on candy, and the rest I would save. They also agreed to foot the bill for half the waterbed if I came up with the other half, which was $99.00 at the time. Interestingly, I was so motivated to get the bed as soon as I could, that my neighbourhood friend and I decided to share a paper route to earn extra money, and I mysteriously lost my craving for Fun-Dip and Lotsa-Fizzes. I asked my parents if I could wash the car and do other household projects for cash. I even challenged my Dad to betting on a game of darts for double-or-nothing with my weekly allowance one week. (I don’t recommend gambling as an income source, but it does underscore the point about 10-year-old creativity!) When the goal was there pulling me towards it, the focus and discipline were easy – I didn’t feel deprived in forgoing my weekly candy binge and I bought the waterbed in less than six months.

What goals have pulled you into success and abundance? What creative steps did you take to achieve them?

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

Paint Your Financial Picture!

On your journey towards financial freedom, it’s important to create a snap shot of your finances along the way. Many people do this at the beginning of the year, but it can really be done at any time, especially when something has changed.

CashFlow: This number is essential to know because you don’t want to be spending more than you make. Create a cashflow spreadsheet or use one from this great website, and input all of your income amounts and expenses; your income should include everything from a rental home to a part-time job and your expenses should include everything from utility bills to cosmetic purchases. If your outgoing expenses are higher than your incoming amounts, look at where you can cut back on spending.

Emergency Savings: As the saying goes, ‘bad things happen to good people’ and we have no way of knowing they’re going to happen. We may not always know when an appliance is going to stop working, or when a job loss may take place, so it is best to be financially prepared for the worst. The general rule of thumb is to have an emergency savings equal to six months of expenses.

Debts: When it comes to paying off debt, it is most effective to pay off the highest interest bad debt first, including high-interest credit cards and car loans, before tackling the lower interest mortgage and home equity line debts. One sure fire way to make sure your credit card is paid off is to automate the payment from your chequing account – just contact your bank and ask them to help you set that up.

Investments: Don’t forget about adding up all the good numbers! Determine the amount you’ve got saved up in investments, including the equity in rental property (but you can’t include the monthly cashflow, only the principle), investments such as mutual funds, or shares and bonds in both public and private companies that may be sheltered from taxes (for now) in your RRSP, and any other non-registered investments.

The financial picture you’ve painted will show you where you’re excelling, where you can improve, and help you get clear on what area to work with first. Have you ever painted your financial situation? If not, you’re not alone – most middle income Canadians, particularly those of us who are intimidated by math or worried about money avoid spending the 15 minutes we need to write down the numbers. We know – we’ve been there too. Less than five years ago my husband and I felt buried under our $70,000 in bad debt (credit cards, student loans, car loans) and writing down the numbers with a trusted friend was the first step toward turning everything around for the better.

If this sounds like you, we are here to help! Please call or email us for a complimentary ½ hour call and we’ll help you – it only takes a few minutes and you’re worth it!

Please share your experience! Did you find it helpful to get those numbers “out of your head” and lay them on the table?

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

Accepting the Necessary Expenses

We all know there’s a difference between our spending needs and wants. Taking 30 minutes to look at our bank statements or credit card bills each month to see where our money has gone gives a clear picture of the difference. A very interesting phenomenon is the capacity we have as humans to ‘expand’ our lifestyle to fit our incomes, such that there is either just enough at the end of the month, or for many of us, there is less than enough and the deficit falls on credit to bridge the gap. We will look at “consciously contracting” lifestyle habits in a later blog as a cornerstone of wealth-building, but for now, whether you’re living paycheque to paycheque or have more than enough money at the end of each month, we must meet our needs before our wants. Here are the basic needs we all have in common:

1. Housing. Whether you rent or pay a mortgage, that should be considered a debt you owe a landlord or bank. Put the housing payment aside the moment you get your income so you know its taken care of as being homeless is no fun. For homeowners the housing charge will also include property tax and insurance costs, and possibly strata or maintenance fees if you live in a condo, apartment or townhouse.

2. Food/Toiletries.  Create a food budget for your family – know how much money you need to spend on food on a weekly or monthly basis and budget it into your monthly expenses. This can be tricky to determine in this day and age – so many of us eat out in restaurants on a daily basis, it may seem like a need – in fact it is a want. The $5 sandwiches and coffees from Tim Hortons or Starbucks can literally add up to hundreds or thousands each month. Once the new habit of brewing coffee at home and using a thermos, and putting leftovers in tupperware or spending 5 minutes to make a sandwich and throw a piece of fruit into your bag is established, you will be amazed at the ‘extra’ money in your account at the end of each week. Many ‘brown bag’ converts also notice they lose weight which is an added bonus for most of us! Our family of three spends about $175 – $200.00 per week on food/toiletries, and we typically shop at Superstore on Sunday to stock up for the upcoming week.

3. Utility bills. On a monthly or bi-monthly basis, you’ll have to pay for water, electricity, air conditioning, gas and heating, as well as a phone line and, for more and more of us each year, internet. These are all expenses you can’t live without and can factor into your monthly expenses as they should be fairly consistent. Often the electric and gas providers can offer an equal payment plan throughout the year to prevent expensive surprises during extreme weather.

4. Emergency funds. Everybody has emergencies they are not expecting. Injuries/dental costs, job loss, computer crashes, flat tires, family crises, and so on require money when they do come up, so be prepared for them by putting away a set amount each month to pay for them. The rule of thumb is to build up between 3 and 6 months worth of emergency fund money that would cover your basis living costs. Make sure to replenish any withdrawals it as soon as possible after they are used. Remember that emergencies do not include any impulse shopping sprees or candy cravings (although they really feel like emergencies at times

5. Transportation. Although transportation is a necessity, it is a cost that can vary widely. If you walk or bike to work, or are a telecommuter, your transportation bills can be almost nothing. If you take public transportation such as buses or cabs, track how much you spend on them and set that money aside. If you use your car regularly, know how much you need for gas, insurance, maintenance and replacement costs and have the cash set aside accordingly.

6. Annual costs/Appliances.  Costs such as property taxes, car insurance, and home insurance, are less costly if planned for and paid annually rather than monthly as there is usually a financing fee tacked on for smaller payments. Other predictable annual or biannual costs such as oil changes, regular car maintenance, annual credit card fees, new computer or associated upgrades, replacement appliances, and children’s clothes can all be set aside each month too for when the time comes up.

The point of figuring out the amount of money that you spend on these necessities is to get very clear on your “bottom line” overall expenses and create a system to make sure your needs are met. Your expenses will determine the cash-flow that you need to become financially independent – knowing this number is the first step towards achieving this goal! To read more about creating a budget and a tracking system, you can check out our blog “Conscious Spending: Watch Where You Money is Going”.

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

New Mortgage Rules for Canadians

Finance Minister Jim Flaherty recently revealed the new mortgage standards to take effect April 19, 2010. These new rules are aimed to curb housing speculators (people who buy houses with the intent of ‘flipping’ them for a profit in a short period of time, ie. a few days – 2 years) and ensure that homebuyers are able to manage their debts as interest rates rise.

Here are three new adjustments:

1. Borrowers must be able to afford a five-year, fixed-rate mortgage, even if they opt for a shorter term or lower rate. This rule is to help homebuyers prepare for higher rates in the future.
2. When a home is refinanced, it will be limited to 90% of the value of the home, this is a 5% drop from the previous 95%. This rule has the power to make owning a home a more effective way to save. As CMHC suggests one only borrows up to 80% of the equity, this rule is not a very big set-back for homeowners.
3. When purchasing an investment property, the buyer must have a minimum down payment of 20% to receive a government-backed mortgage, this is a steep hike up from the previous 5%. This big increase will make purchasing rental properties unaffordable to many investors.

These new rules are aimed to make buyers more responsible for they amount they borrow and not purchase outside of their affordability level. Personally, I think these rules make sense. The 20% ‘buffer’ builds security for the lender ie. the bank holding the mortgage, but it also provides peace of mind for the borrower too in the event that housing prices drop and the borrower is forced to sell pre-maturely. As well, by putting down a minimum of 20%, real estate owners are able to avoid the costly CMHC insurance that was tacked on for down-payments below 20%. A $550,000 home carries a CMHC fee of over $17,000 with a 5% down payment. Sure, it is carried over the amortization of the mortgage, but that is just more money out of pocket spread out over several years. (For a discussion on the real cost of traditional mortgages, please see “Alternatives to RRSP’s“).

As well, I am a big fan of keeping one’s housing charges as low as possible, as it is just money out the door each month, regardless of whether one is renting or owning. Keeping one’s total expenses as low as possible (including housing costs) frees up capital for investing in deals that provide positive cashflow, and capital appreciation opportunities, which gets you out of the rat race and into financial independence that much faster.

As always, we welcome your comments! And don’t be shy to contact us for more information about private investment opportunities, as some are not posted publicly on our Events page – feel free to call us at 778-328-7282 or email us at info@sharethewealth.ca

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.

Review of “The Millionaire Women Next Door” by Thomas J. Stanley

“Unmarried”…”Unattractive”…”Unwanted”…”Business Owners”…”Married to their business”…”Revenge-seeking workaholics”…

These are stereotypes of North American millionaire business-women – an unfortunate double standard, and not very appealing. But not so fast – in his book “Millionaire Women Next Door”, Thomas J. Stanley refutes these stereotypes based on a comprehensive study conducted in May 2001. From a random sample of 2500 millionaire women, 439 participated and answered questions on financial risk taking, leadership, budgeting, happiness and satisfaction, investment habits, academic achievements, goals, planning habits, income-allocation patterns, and eleemosynary habits and attitudes. And his findings are encouraging and more achievable than one might think.

The general success formula comes back to:

1. Having the desire to be wealthy
2. Not equating spending with happiness
3. Having the discipline to save/invest diligently
4. Taking personal responsibility for managing money
5. Expressing care and concern for others
6. Doing what is genuinely enjoyable

Here are some statistics about the average millionaire woman in North America:

1. She usually rises before 6:00am and retires around 10:30pm
2. She often works forty-nine hours a week
3. She typically exercises for about three hours thirty minutes per week
4. On average, she earns 71 percent of her households’ income and the household net worth is approximately $2.9 million
5. She has a 95 percent chance of being married
6. Although she most likely never attended a private school, she probably does have a college education
7. Most likely owns her own home

In his book, Stanley defines an “Under Accumulator of Wealth” (UAW) as someone who has a low net worth compared to her annual income. According to Stanley, an individual would be considered a UAW if her net worth is less than the product of her age and one tenth of her realized pre-tax income. For example, if we consider a 38 year old surgeon earning $200,000.00 per year, then $20,000 x 38 = $760,000. A net worth of less than $760,000 by that age would be considered a UAW. The lifestyle of a UAW is based on consumption of income rather than saving and investing.

On the other hand, a “Prodigious Accumulator of Wealth” (PAW) usually accumulates well over the product of the individual’s age and one tenth of her realized pre-tax income, and either are, or become, millionaires (or multi-millionaires) in their lifetimes.

The main reason why UAWs have debt is due to the fact that they often spend tomorrow’s cash today, whereas PAWs have the common belief in saving or investing today’s cash for tomorrow. UAWs often believe that money is one of the most renewable resources, leading them into consumption of expensive and excess items, allowing them to temporarily live a life of luxury and style, with no security and limited choices later in life.

The millionaires profiled in Stanley’s book did not live extravagant lifestyles. Rather, these millionaires spent little on cars, watches, suits, restaurant dining and other luxury items. The reason why these women managed to become millionaires is because they were able to live below their means. Women who have actual wealth and a high net worth are referred to as ‘Balance Sheet Affluent’, while women who have a high income but low net-worth are referred to as ‘Income Affluent.’

So, according to Stanley’s data and findings, how can you become a Millionaire (Woman) Next Door?

Spend less than you earn. If you constantly spend more than you earn, you will never be able to increase your net worth, no matter how high your salary is.

Avoid purchasing status objects. When you purchase imported vehicles, you will be lead to constantly want the latest model. This turns into a never-ending cycle and you are left with depreciating assets.

Invest for high returns. You can never go wrong when you invest your money for a great return. Many wealthy people do not put money in the stock market, but rather invest in private businesses or joint venture projects.

I thoroughly enjoyed this book. I appreciated the evidence presented by Stanley that most millionaires don’t ‘look like’ the stereotypical image many of us have of millionaires: People with flashy cars, brand name clothes, big houses and extravagant lifestyles. Instead, most millionaires look pretty average on the outside, and exhibit characteristics of persistence, frugality, humility, discipline and are dedicated to enjoying a meaningful life. Relationships, charity, integrity, and a high valuation of freedom, independence and hard work were also consistent attributes that Stanley’s study subjects shared as well. Stanley’s findings are consistent with my own experience. One of my early jobs was as a teller in a downtown Vancouver bank. I clearly recall that the best dressed and “flashy” customers were usually the ones with the lowest bank balances and the maxed out credit cards.

My only negative critique of Stanley’s book is the focus on net worth, without a discussion of the importance of positive cash flow. In my opinion, having a million dollars in net worth (a “mercantilist” definition of wealth) and being financially independent can be quite different.

The main complaint that I have with the high net worth definition of wealth, is that one also has to have money to live on. If one has to start spending one’s assets in order to live – by selling the real estate, spending the capital gains earned in the stock market, and draining the bank account, etc. then inevitably, net worth disappears.

I prefer R.Buckminster Fuller’s definition of wealth and “financial independence”, which is the amount of time you can survive without having to work. It makes more sense to me to focus on accumulating assets that also produce immediate positive cash flow, thus freeing up my time and creating more options for a satisfying quality of life, which is what motivates most people to become millionaires in the first place. Positive cash flow, like it sounds, creates continuous streams of monthly, quarterly or annual income that carries on indefinitely, regardless of whether we choose to work or not.

While Stanley’s book “The Millionaire Woman Next Door” provides terrific examples of the mind set, characteristics, habits and goals of those who are able to produce and save/invest considerably more than they spend, that is only one side of the coin. Next month, I’ll be writing a review of Robert Kiyosaki’s book “Guide to Investing” which outlines ways to create those passive income streams and develop a savvy investor mindset that embraces both net worth and cash flow. As always, we welcome your comments, stories and suggestions and thanks for reading!

Disclaimer: This blog should be used for informational purposes only and should not replace the advice of a licensed financial professional.