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Why Most Personal Finance Blogs Are B.S.

by J. Money on Thursday, October 18, 2012

dollar bill eye of providence

(Guest Post by Adrian J Cartwood, with a giveaway of his new book at the end: “Share Your Number!“)

I’m a different kind of personal finance blogger because I believe that most of what you read in the pf blogosphere is wrong.

My alternative financial viewpoint arises simply because I come from a different background than most pf bloggers. Most bloggers write because they want to make money, or are embarking on a journey to get out of debt, and they are passionate enough about their finances to share their own experiences.

I write because I have already made my money (I made $7 million in just 7 years, starting $30,000 in debt) but found, as I was on my own financial journey, that most of the advice in the books and blogs on offer was either wrong or outright dangerous.

Wrong, because most personal finance advice is designed to make you frugal and debt free – not wealthy. Dangerous, because you need to amass a much larger fortune than most bloggers and authors will have you believe is necessary, if you want to enjoy life beyond work. Aim too low and you’ll end up working for 40 years or more, only to live the rest of your life in virtual poverty, relying on government handouts to supplement your meager retirement income.

So, here are some of the more popular myths of personal finance that I resolved to bust:

The Millionaire Myth

Fortunately, the myth that you can retire comfortably on a million dollars is a fairly easy one to discredit with some simple mathematics (stick with me on this). In fact, becoming a millionaire in your lifetime is going to be easy … too easy:

If you start off earning $25,000 a year and work for 40 years (earning around $80k in your last pre-retirement year), and save just 10% of your annual salary (earning 8% on your money), you will have exactly $1,000,000 when you retire.

Of course, you will be used to living on $72k p.a. ($80k less 10% set aside for savings) by then, but – assuming a 4% ‘safe’ withdrawal rate – $1 million will only give you half of that to live off.

Now, $36,000 a year without working may sound tempting, until you factor in the effects of inflation which tends to double the cost of living every 20 years. This means that your $36k retirement salary is worth less then $9,000 a year in today’s dollars!

So, you will be a millionaire in your lifetime, but that is hardly the point!

The ‘Bad Debt’ Myth

The most common and costly mistake that personal finance bloggers make is confusing good and bad debt with cheap and expensive debt.

Because so many people have trapped themselves into credit card debt, which they should pay off as quickly as possible because it’s just so expensive, they have been lead to believe by so many financial pundits that they should pay off all of their debt, including their mortgages.

For most people, this is actually a huge mistake.

Instead, they should first pay off expensive debt (such as credit cards, and auto loans) as quickly as possible. But, as soon as their remaining loans (such as student loans and home mortgages) are at a lower after-tax interest rate than, say, the cost of an investment loan (such as you might get to buy an investment property), why pay it off just to take out a bigger, more expensive investment loan later?

The ‘Emergency Fund’ Myth

It’s become popular for personal finance authors to promote the idea of putting cash aside to deal with life’s little emergencies – 3 months salary or $10,000 seems to be popular choices amongst bloggers.

But does putting aside $10,000 cash make financial sense? First, let’s assume that this fund is big enough to cover all likely emergencies.

Haven’t you just created your worst case outcome? Haven’t you just depleted your investment fund by $10k? Wouldn’t it be better to instead invest that $10k so that it is always working for you, earning a return, whether there is an emergency (very unlikely) or no emergency (very likely)?

To protect yourself in the unlikely event of an emergency, you could simply create a source of money that you can tap into only when needed (e.g. a line of credit against your home; a redraw facility against your 401k; a 0% APR credit card, sitting there – unused – just for this purpose).

A 2-Step Plan For Wealth

If these myths – and, others – need to be broken, what should you put in their place? Well, it starts with understanding – if retiring with $1 million isn’t sufficient – just how much is enough?

That answer will differ for everybody, but I’m guessing that if you are just starting your working life, you will want many times the $9,000 per year in today’s spending power that $1 million in 40 years actually delivers.

And, the only way that you will amass that kind of wealth is to:

  1. Increase Your Income
  2. Actively Invest

Saving money is far less important than increasing your income, simply because – as your income increases – you will have more to save. For example, you should be able to save 10% of your current income, but saving 50% is almost impossible without making dramatic sacrifices to your lifestyle. Yet, continuing to save 10% (or, whatever your current rate of saving is) and saving 50% of any future increase in income should be far less traumatic, yet your overall savings will increase dramatically.

And, you should also be actively working on your investments: my rule of thumb is that 75% of your net worth should always be working for you, at the best possible after tax interest rate.

For example, why put your money into a CD at 2% (or less) or an Index Fund at 7% (over a long enough timeframe) when $10,000 invested at:

  • 15% (direct stocks) grows to $35,000 after just 10 years
  • 30% (real-estate) grows to $106,000 after just 10 years
  • 50% (business) grows to $384,000 after just 10 years

Now, you will need to learn a lot and work hard to get anywhere close to these kinds of returns, but if you increase both the amount that you invest and the rate of return, over a 20 to 40 year working life, you can safely expect far more than the typical financial blogger will have you ever believe is possible.

**Giving Away 2 Copies of Adrian’s New Book!**

Like what Adrian had to say? Want a copy of his new book, “Share Your Number!“? Tell us how much you think YOU’LL need to retire comfortably in the comments below, and you’ll be entered to win one of them :) Or just tell us what you thought of his post today for fun, haha… Just make sure to let us know if you want to be entered in the giveaway or not when leaving your comment.

We’ll pick the two winners Sunday evening, and will use Random.org to select them. Good luck! And hope you enjoyed today’s change of perspective!

———
Guest Post by Adrian J Cartwood – A self-made (and, recently retired) multi-millionaire and author of the personal finance blog “How To Make $7 million In 7 Years” where AJC blogs about his personal journey from $30,000 in debt to $7 million in the bank. AJC (in conjunction with popular blogger and author, Debbie Dragon) has just published his first book, “Share Your Number!

[MY THOUGHTS: I both agree and disagree with this article ;) Yes you need a lot more money to retire comfortably on later than just a million, but a) Not many people can find investments that pay out 15- 50% in returns (or else EVERYONE would be doing it!) and b) You have to be okay with taking out all emotions from the equation too. Which most people also can't do - myself included (though it would certainly be financially smarter to do so). So yeah, by all means shoot for hitting $7 million+ and follow these steps when you're ready to up your game, but in the beginning at least I still think it's smart to pay attention to your emergency funds and mortgage debts/etc. There's nothing wrong with going for the gold once you have a great foundation down, and you don't want to get overwhelmed before you even get started! Overall an interesting take on things though, and I greatly appreciate the fresh perspective here. Thanks again Adrian, and congrats on the book!]

PS: Also? All personal finance blogs are sexy.com ;) You NEED all the different viewpoints out there in order to learn and make better decisions! So I’d call them more “mainstream” than I would B.S. cuz all that stuff is def. helping people no matter what the opinions…

Photo by: Ecstatic Mark


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{ 79 comments… read them below or add one }

1 Eric October 18, 2012 at 5:49 am

Yep, makes perfect mathematical sense.

One problem, though; I have to factor in the financial cost of my wife shooting me if I ever touch our emergency fund. I’ll stick with it for now. Good article, though.

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2 William @ Drop Dead Money October 18, 2012 at 6:12 am

The math is good. And there are investments that yield 30% or more. Flipping houses done right, rental property over time (starts small, but escalates) and others. All those, though, are not passive – they are second jobs as much as investments. But if you’re willing and able to do it, then you should do it. Paula Pant blogs about this a lot (Afford Anything).

While the numbers make sense, I always get my cautious glasses out when I read hype-y language like this post has. Especially when he feels the need to lead off with a headline that put others down. If you think you’re better than others, compliment them. If you think that you can’t afford to, you’re probably not as good as you proclaim yourself to be. [Hey, you asked what we thought... :) ]

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3 chung October 18, 2012 at 6:57 am

I think 5 million

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4 Mrs. Pop @ Planting Our Pennies October 18, 2012 at 7:19 am

Having recently finished the book “7 Years to 7 Figures”, I’d love to win his copy and do a comparison… it sounds like they’re both advocating similar tactics, and I had a hard time swallowing some of Michael Masterson’s…

That said, I think we live pretty frugally enough that a couple of million earning us passive income (like RE rentals) would probably be sufficient for a lot of our needs.

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5 Lance @ Money Life and More October 18, 2012 at 7:21 am

I disagree with your emergency fund comment. If you lose your job how on earth are you going to pay that credit card payment? What if the bank takes away your home line of credit when you lose your job? I would, you now have no income to pay it back.

Increasing income is very important and so is investing. That’s my plan! I also plan to not pay off my mortgage faster than the schedule because the rate is so low and inflation will help me toward the end as my payments get “cheaper”. Not all financial blogs are BS…

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6 Money Beagle October 18, 2012 at 7:43 am

On the emergency fund element, I can sort of see the point, and have thought about a two-stage emergency fund. One would be a smaller pool of cash than I have now and the second would be putting the rest into an investment fund. If need be the investment could be cleared out and settled within a couple of weeks, which the cash pool should get you through.

Not a fan of the article title, though. It’s akin to a promo for Maury Povich or some other type show that’s designed solely to be titillating and to reel you in. Bad form.

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7 nGneer October 18, 2012 at 8:03 am

Two things I completely believe in this article are 1) that it takes more than a million to retire adn 2) that you both need to actively increase income and invest in order to increase your wealth significantly. I think this was obvious for most of us who read financial blogs.

The rest of the article (title included) just left me wondering what this guy is smoking. His style of writing (or lack thereof) just bothered me. He sounds like a self absorbed Ahole who can’t stop talking about his 7 mil and loves to put other people down. Clicking on the link to his blog just reassured me that that’s exactly who he is. Maybe a little harsh but it’s my honest opinion.

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8 Brian October 18, 2012 at 8:17 am

I agree 1M isn’t going to cut it for most people in retirement. However, not many people are willing to take on the level of risk that he took to get where he is. Not everyone wants to start a business (which could fail and leave you deep in the hole), and not everyone wants to be a landlord, so those two options are out for most people. Also a lot of people lose a lot of money investing in individual stocks becuase the don’t take the time, or care to take the time, to learn about the companies and just listen to talking heads.

While I am a fan of investing in individual stocks, again this is not for everyone. I would like to read his book and see what he has to say, but agian this almost sounds like an investing newsletter that is promising to find me the next 500% increase on a penny stock.

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9 Too Funny October 18, 2012 at 8:18 am

Seems like a poorly educated scammer to me. From what I can gather, the author inherited a business that he says was failing, probably rigged it a little and happened to fall ass-backward into an appreciating real estate market. Pretty lame if that’s the case if it is even true.

The guy can’t even write. His first sentence is choppy and shoddy. Bad writing often reflects sloppy thinking. And liars tend to think sloppily as they make up their story.

And just think about his claim of expected value. At his rate of appreciation we are looking at the next Bill Gates. In 7 years time I’d expect he’d be a billionaire.

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10 John at Married with Debt October 18, 2012 at 8:23 am

Kudos to J for publishing this, but I disagree with most of this.

These are opinions that are being sold as facts.

One million is a lot of money now and will be a lot of money in thirty years. Plenty to retire on.

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11 Econowiser October 18, 2012 at 8:24 am

Well, I hope my PFblog isn’t B.S. ;-) Anyways, I don’t have “a number” and I do worry about the fact that prices will keep increasing, money will keep becoming worth less so that in the end you do have the problem you’re describing. Food for thought, thanks.

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12 AJC @ 7million7years October 18, 2012 at 8:33 am

Thanks for the opportunity to write a guest post, and thanks for all the comments.

@ Mrs. Pop @ Planting Our Pennies – I have read Michael Masterson’s book; in fact, his operations manager contacted me because the name of my blog is similar to the name of his book. However, that’s where the similarities end. Although, I found the first 42 pages of his book very helpful.

@ Lance @ Money Life and More – Emergency times call for emergency measures: take out enough from your credit card to cover your immediate requirements PLUS the interest. This whole strategy assumes that you can pay it back when the emergency is over (and, is not designed to replace insurable events, such as loss of income, etc.).

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13 Michelle October 18, 2012 at 8:34 am

Hmmm this is all very interesting. I do think emergency funds are good and without it I wouuld be the biggest worry wort.

PS my comfortable number would be around $4 million, unless I had some good and reliable passive income.

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14 Ryan October 18, 2012 at 9:02 am

Interesting, I agree with it to an extent. I agree that you need to invest in other areas, rather than just your retirement plan or IRA. I recently invested in a commercial rental that will be paid off in 10 years and has a 7 year lease with COLA every two years.

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15 Manette @ Barbara Friedberg Personal Finance October 18, 2012 at 9:05 am

An emergency fund equivalent to your 3-month salary? Ours is worth 6 months… $7 million in 7 years! Whoa! Congratulations! I hope I can do the same fete. Now, isn’t that what you call a motivation? :)

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16 David@SkepticFinance October 18, 2012 at 9:17 am

Parts of my blog are definitely BS. But it’s my BS :)

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17 Poor to Rich a Day at a Time October 18, 2012 at 9:22 am

I would like to be entered in the Giveaway, I love reading finance books I have not read yet :)

I could easily retire on a million or less even, and lead a quality life ,as no matter how much I made a year, my expenses would always be really low.

As far as emergencies not being likley to occur, what world does this guy live in? While I have never been ablet o establish an emergency fund, emergencies have happened regularly enough where an emergency fund sure would of helped by leaps and bounds.

While maybe part of it should be invested, some should remain in a savings account where it can be accessed immediatly.

There is tons in this article I really don’t agree with but do agree with other commenters where this article is a turn off to read

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18 Call Me What You Want Even Cheap October 18, 2012 at 9:25 am

Very interesting and he does make some good points. I do agree that increasing my income and actively investing is key, but I don’t plan to give up my ef fund.

I would still like to read his book. Please enter me into the draw.

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19 20's Finances October 18, 2012 at 9:26 am

It seems pretty easy to claim that most pf blogs are BS without understanding how saving money is changing people’s lives. To a certain degree, I agree that increasing your income and investing is essential, but to limit to that is a big mistake. I can make $100,000 each year and spend it all, while not making my nest egg that much larger. My point is that increasing income and investing are only half (or maybe 2/3) of the equation. The other is avoiding consumerism.

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20 David@SkepticFinance October 18, 2012 at 9:44 am

…and I’d like to win the book too.

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21 MB @ 12 Year Career October 18, 2012 at 9:58 am

Our number is somewhere in the $1-2M range depending on how many kids we end up having (if any). But, then again, we are saving >50% of our salaries and actually prefer the simple living approach as opposed to seeing it as dramatic or traumatic :-)

I do agree with a couple of the points made in this article. We don’t have an emergency-specific fund because we have liquid assets and a line of credit that we could use in the event of an emergency. And I’m no longer so impressed by the idea of becoming a millionaire, because it will happen – it’s just a matter of when.

Anyway, I’d like to read the book. Please enter me in the giveaway!

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22 Eric J. Nisall - DollarVersity October 18, 2012 at 10:01 am

I’ve been saying for a while now that a lot of what is being written is BS, but for different reasons (I think that writing the same things in the same tones in the same manner makes for bad reading and doesn’t provide real value). I don’t agree with some of the things being put out there but that is what makes personal finance “PERSONAL”–the different options and viewpoints. Just because you don’t agree with something someone says doesn’t make it BS. If anything, it makes you seem more like the “gurus” who I think are REALLY full of crap-and themselves-because they think what they say and advise can and should be applied by ALL people. Everyone needs to find the path to their goals that suits their personality and abilities, not what someone suggests simply because they wrote a book or are on television.

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23 Budget & the Beach October 18, 2012 at 10:07 am

I think I can agree on one thing really, and that is to have the mindset to not just think about living frugally only and not dream big. That whole you attract how you feel kind of a thing. It’s too simple to just say, this is how you will make 7 million. There is a whole plethora of situations that you could probably not begin to understand. It’s not a one size fits all solution. I’m happy for you that you achieved such financial success, but to say that other people who choose to save for an emergency fund is bad, isn’t right.

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24 Diane October 18, 2012 at 11:15 am

I’ve heard that no e-fund argument before. It didn’t work well after the last crash, when people were under water and couldn’t tap equity and couldn’t pay their “0%” CC debt. Me – as a self-employed individual I have 1.5 years of e-fund – less makes me nervous. I’ll stick with that, thanks.

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25 Pauline October 18, 2012 at 11:21 am

I agree with your reasoning, which I apply to my life, but it is not for people who like a little safety in their lives.
I think I can comfortably retire today on $1M invested in real estate.

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26 Samantha October 18, 2012 at 11:28 am

I’m posting my number but I don’t want this guy’s book.

$10 million.

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27 Emily @ evolvingPF October 18, 2012 at 11:29 am

The $1M to retire on is a straw man – I haven’t come across that advocated in the PF blogosphere that I read.

That said, I do focus more on frugality than increasing income so I would like to read Mr. Cartwood’s story for a different perspective. Though from what he laid out here it sounds like a lot of risk!

I estimated a while ago that my husband and I would need $4.2M to retire “safely” at 65 with our current standard of living (assuming a paid-for residence), but I would like to have a higher standard of living!

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28 Ginger @ Girls Just Wanna Have Funds October 18, 2012 at 11:32 am

*yawn* I call BS. This is just really bad advice. Gotta love guest posters who aim to offend a whole blogging niche and then push their book!

We do tend to focus on being frugal and getting out of debt. However, there IS a value in teaching good money management skills. If you can’t keep what you have and pay off what’s costing you more money then how will you keep what you make?

That whole part about what we write is wrong and BS is purely for shock value. Being frugal, saving, and reducing debt has it’s place with investing.

“To protect yourself in the unlikely event of an emergency, you could simply create a source of money that you can tap into only when needed (e.g. a line of credit against your home; a redraw facility against your 401k; a 0% APR credit card, sitting there – unused – just for this purpose).”

Emergency Funds are frigging awesome and without them most would be out on their @$$es at the end of the day. That above is total BS – again. You’re advocating credit for emergencies instead of liquid cash? Im sorry, who are you again? And we’re full of BS? If the bank yanks the CC (reduces limit, cancels for low utilization etc) because, well they just do that then where does that leave the person needing immediate liquid access to cash? When we have conversations like this it is totally irresponsible to make suggestions like this without really thinking about the various scenarios that come about for readers.

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29 Yana October 18, 2012 at 11:34 am

Seven million would be a minimum, and I’d be pleased if we had that. However, “how much do you need to be happy?” isn’t a proper question to me, because I am quite happy right now without an ideal amount of money. It isn’t all about money. But in America, we do need vulgar amounts of money due to the medical system that we might find desirable to use at some point. That is the greatest threat to financial security.

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30 Angella October 18, 2012 at 11:39 am

Honestly, my husband and I could retire with a million (after any taxes though) and live comfortably if we still live where we are now. I guess it just depends on how people want to retire. Some want to travel and live it up, not me. I’m a homebody and going about my normal routines, without the work, would be just fine for me. :) I disagree with the EF argument. Mine measly $1000 has saved my ass several times. I hope to build it up, but know there’s cash now when I need it has been helpful in many situations.

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31 Jenay October 18, 2012 at 11:56 am

My goal would be $2500/month, plus our pensions (about $3500/month combined). That would be ideal. Would love a copy of your book!

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32 Janine October 18, 2012 at 12:06 pm

I love this post! I think you made some really great points! I have an emergency fund and majority of it is invested in safer mutual funds. They would be easy to liquidate and it’s much better than having that money just sitting as cash in a savings account. I also agree with you that in today’s world most of us will probably “become millionaires” by the time we retire, but it really isn’t an accomplishment. People are living longer and life is a lot more expensive. Lastly, I just wanted to say thank you for saying that your ability to earn an income IS your most important financial asset. Many people have a very skewed perception on what their best financial asset it. Guaranteed it’s your ability to earn an income.

Great Post!

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33 Pam October 18, 2012 at 12:13 pm

I liked what he had to say and would love a copy of the book.

I don’t think a million is enough and at this point in my life I unfortunately don’t think I’ll ever be able to retire.

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34 Soo October 18, 2012 at 12:14 pm

I think $10 million would do it. So how do I make my $10 million? I think I need the book to help me figure it out…

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35 pedro October 18, 2012 at 12:15 pm

i’m in for the giveaway!

My emergency fund? 1 year of spending, so NOT based on income. It is invested, so it makes money. I (hope I) will never have to touch this. It gives me the freedom to not work for a year, if I don’t feel like it (or if they kick me out)

And for retirement? The same point of view: I want to spend as little as possible, so I don’t have to have a huge amount before I can retire. Still a long way to go, and no idea yet of how much I need exactly, but working on it.

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36 LB @ Finanical Black Sheep October 18, 2012 at 12:33 pm

I am completely interested in reading your book, but no I don’t think other PF blogs are worthless. They are a way to start and get out of debt. If you combine frugal living, with passive income and side-hustles, there is no way you can lose. I would love to read your book to find out more about your ideas, as I always look for the other side of things. Most of the blogs I read that talk about making more money, seem to stop once they leave their job and become surfers or start making money as a self-help guru. If this book is none of the above I would be very interested in it.

My magic number is finish school and then figure it out. School as been my priority for so long I think I lost my future outlook on anything else.

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37 LB @ Finanical Black Sheep October 18, 2012 at 12:36 pm

P.S. I wish Amazon had more reviews on your book, as I would like some hard examples showing what the book is about.

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38 pd October 18, 2012 at 1:45 pm

$10 million sounds about right, enough for me to live off of and take care of those around me if need be.
I agree with one of the other posts above, “what is this guy smokin?” (my exact thoughts as I read each paragraph)

Total disagree with the no e-fund… now losing your job isn’t considered an emergency? huh… so a person loses their job during a recession, draws on equity, credit cards, retirement funds (w/ penalty). 6 month later, still no job and now less retirement funds, more debt, plus interest on that debt… 12mo later rinse/repeat… sounds like a plan???
Maybe I’m just the type to sleep better at night knowing I will not have to go and dig another hole just to try and fill in the one I’m already in.
But I do get where he’s coming from, it’s just financial advice for those who are already millionaires.

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39 cashflowmantra October 18, 2012 at 1:46 pm

The article makes sense, but the problem is that most people don’t have what it takes to create businesses or invest. I look at the guy sweeping the floor in the Taco Bell where I am sitting and think there is no way that he could begin to make $7 million in several lifetimes. His best chance is to make sure he stays out of major debt and saves as much as possible.

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40 LB @ Finanical Black Sheep October 18, 2012 at 2:30 pm

Correct me if I am wrong, but I think the author of this article is trying to say if you have more than one income stream losing a job isn’t going to affect you as much. An emergency fund then isn’t needed, because you will be able to pay whatever you need to borrow at the time. I think this article was more for publicity and getting people interested in his cool-aid. I am not for or against his idea, I am just stating that I think this is more for marketing than anything else. In his free e-book he talks about paying off debt, having a budget and saving money-everything pf bloggers usually talk about.

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41 Zach Turner October 18, 2012 at 2:51 pm

My number given inflation would b 3.5 million to give me a comfortable living.
I liked the article and will def check out his stuff and want to b entered to win the book but i agree with J that u need a good foundation. There’s no sure quick way to millions. It takes time and discipline. U need those skills first if u hope to level up to being more active on ur investment research. That’s the majority of who my audience is right now but i hope one day, i, with them, will b ready to level up.

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42 jurgen October 18, 2012 at 2:58 pm

Growing your money at 50% doing business? I’d like to know what business you mean!

I own 2 businesses and I get a LOT less than a 50% growth…

Or maybe in your country it goes a lot faster?

I live in Belgium.

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43 david October 18, 2012 at 4:00 pm

i want to enter the giveaway. long time reader of authors blog. very motivational

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44 Jairo October 18, 2012 at 4:18 pm

Well, I dont think I need to “Save” millions and millions to be able to retire…. I just want enough assets to produce passive income to cover my expenses…

Average rents in my area are 700 month for a 2br apt. if my expenses are 2000 a month, I just need 3 paid off units to “retire”.

Thank you, Jairo.

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45 Kelli October 18, 2012 at 4:33 pm

Please enter my name in the giveaway!

I do agree with some of his points and disagree with others. There are so many factors involved: the economy, the market, each individual’s level of risk-taking and investment skills, luck, etc., etc.

I really enjoy reading a variety of finance blogs and opinions (but especially Budgets are Sexy!). I think I take away a little something positive from all of them, even if they’re not really speaking to my demographic. Just keeping myself informed on money matters is the most important thing and, if I get some entertainment out of the deal as well, all the better.

Hmmm, what would my magic number be to retire comfortably? Maybe a couple mil? To be able to retire how I would LIKE to? Probably $5-10 mil. ha ha

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46 Downundersugarglider October 18, 2012 at 5:34 pm

I have not bought the chap’s book but I am still confused about the numbers. I visited his website and watched a couple of videos and I am still not sure how he achieves everything. I suspect it is mostly because he owns the business. In Australia the stock market has been going sideways since 2009; and the property market has been falling – only recently do people think it is bottoming out – no way 30% over 10 years. I suspect the same in the USA. So there it is very hard to make those returns from non-business investments at the moment. Also the values of properties are much higher in Australia than figures he quotes, which makes it all the harder to get started and afford mortgages.
And that’s where I have problems – I accept he says “use the equity in your home to invest” however you have to have that equity. He also says “don’t pay off your mortgage” so – I would be still making mortgage payments; plus I would be making equity loan payments; so the value of my dividends / net rent has to outstrip the interest expenses, taxation and operating costs. Plenty of people do it – but as an early poster wrote – pretty busy job – not passive income

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47 AJC @ 7million7years October 18, 2012 at 7:04 pm

@ MB @ 12 Year Career – Well done! If you can save >50% of your income, you should be able to retire comfortably on that $1m – $2m that it sounds like you are aiming for. After all, your living expenses are 40% – 50% lower than many others on the same salary & your savings rate 3 to 5 times higher.

My approach is the opposite: increase income (but, not expenses … at least, not proportionally) and invest actively (not passively) for higher returns. Higher Number = higher income in retirement.

Interestingly, I believe that people need to choose either your path or mine: save a LOT more or earn a LOT more. Everybody should run their own numbers through an online retirement calculator and see for themselves.

@ pd – “Total disagree with the no e-fund… now losing your job isn’t considered an emergency?” Of course it is!

I just feel that income protection insurance is a better investment than putting aside 3 to 12 months (as some commenters have stated) aside, losing 2% a year (after inflation).

Here’s a little more on my thinking around emergency funds: http://7million7years.com/2010/08/08/the-zero-dollar-emergency-fund-2/

BTW: Kudos to those readers who have said that they invest their ‘emergency funds’ for a higher return.

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48 Aaron B October 18, 2012 at 8:00 pm

$10,000,000 is my number

I’ve thought about this for a while. This number gets me $200k a year at 2 percent interest before taxes. $200k a year at a conservative 2% yes please!

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49 Tony October 18, 2012 at 9:13 pm

Please enter my name in the drawing.

I think I would need a steady monthly income of $5000 a month.

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50 mbhunter October 19, 2012 at 1:46 am

How to make $7 Million in 7 Years is AWFULLY close in title to Michael Masterson’s Seven Years to Seven Figures. I’d like to see how closely the line of logic follow’s Mr. Masterson’s, just so I can let him know.

But anyway, I think about $51,600,000 would be my comfort zone for retirement. $51,700,000 is too much.

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51 AJC @ 7million7years October 19, 2012 at 2:56 am

@ mbhunter – you’re right … the names are close. See my reply to Mrs. Pop @ Planting Our Pennies, who made a similar observation, in the comments above.

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52 Brandi October 19, 2012 at 5:04 am

I think $3 mil in today’s dollars would do it

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53 Brian R October 19, 2012 at 6:21 am

Very interested in this book. Think I would Ned’s 8-9 million to retire

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54 Lady October 19, 2012 at 1:40 pm

I think two mil would do it!

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55 Shane @ Beating Broke October 19, 2012 at 3:27 pm

I’d love to take a read of the book. I’ve struggled with what the real number is. Mostly because I live in an area that is pretty cheap to live in. Even so, I think 1-2 million might be the right number if I don’t count on anything else (like social security).

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56 J. Money October 19, 2012 at 6:24 pm

Haha, lots of juiciness this week right? Gotta keep you all on your toes! :) I know not everyone agreed with this thoughts (as I didn’t myself all the way), but I DID want to throw this out there just to give everyone a new perspective on things. We’re so used to hearing pretty much the same kinds of things over and over again just in a different way, so my goal for allowing this post was to keep the mind open more and consider – even for just a hot second – a new thought process. I hope y’all did that! Now back to living my own financial life again ;)

I’ll let ya know who the 2 book winners are on Sunday – good luck! And thanks to everyone sharing their opinions regardless if you wanted the book or not! Def. proves how awesome our community here is. Y’all rock.

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57 Meei October 19, 2012 at 8:51 pm

i disagree with the emergency fund idea but i agree with the increasing income as a way to increase wealth.

i want to join the giveaway!

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58 Hemi_8 October 19, 2012 at 9:17 pm

1.5 Million is what I will need.

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59 eemusings October 20, 2012 at 12:35 am

Hmm. Advice for the 1 percenters?

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60 Financial Samurai October 20, 2012 at 11:27 am

AJC, hopefully you have a lot more than $7 mil now? You’ve been pitching the $7 mil in 7 years for the past two years at least.

How much do you have now?

Thx

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61 Simply Rich Life October 21, 2012 at 2:08 pm

Our number is $750,000 in today’s dollars. The easiest road to wealth is to be in control of both your income and expenses. Many people (including AJC) focus on one at the expense of the other. You may live in a more expensive area and need a bit more, but why make things hard on yourself by shooting for an inflated number that won’t make you any happier?

I’m also interested in FS’s question. What happens when you apply a 50% annual return to 7m for 4-5 years? (I read the blog more than 2 years ago I think) 50% or more is easy to get at first when you’re in a business that doesn’t require much capital but after a while when your assets go up and your income stays the same, that percentage can undergo some shrinkage.

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62 Liquid October 21, 2012 at 6:25 pm

I agree with the bad/good debt myth. What only matters it the cost of capital, so it’s better to pay off those high interest rate debts first. As for enough to retire and live comfortably, my number would probably be around $800,000 in today’s dollars. So that will probably go up over time as everything gets more expensive to pay for.

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63 AJC @ 7million7years October 21, 2012 at 7:11 pm

@ Financial Samurai – My $7m7y journey covers the period from 1998 to 2005, and doesn’t include the additional 50%+ compounded return that I subsequently made selling my business. On the minus side I, too, have seen my investments suffer since the 2008 crash.

@ Simply Rich Life – I agree with your income/expense tradeoff observation but, if you really had to choose one over the other, why choose focussing on expenses/saving (which is limited) when you could focus on income/investing (which is unlimited)?

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64 Evan October 21, 2012 at 9:07 pm

Long time AJC I am glad to see that you are still active. Good luck with the book!

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65 Evan October 21, 2012 at 9:08 pm

Whatever happened to those 7 or so people you took on as “students”

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66 J. Money October 21, 2012 at 10:04 pm

Thanks again for participating everyone, and for AJC on his feisty post :) Here are the two winners of his new book – congrats!

1) Brian (commenter #8)
2) Pam (commenter #33)

You’ll be getting an email soon from one of us. Enjoy!

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67 Edward Antrobus October 22, 2012 at 7:00 am

I also tend to disagree with a lot of PF blogs, but for the opposite reason. I see a lot of them focusing too much on the making money side of things. There’s more to life than money. I happen to have about as much of a life outside of work as I need, and can manage that very cheaply, thank you! 40 years of work? I hope I have more like 60!

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68 Financial Samurai October 22, 2012 at 7:47 pm

Hi AJC – So may I ask what is your number now?

Also, tell me more about your strategy of disparaging the personal finance sphere if you hope the genre to support your site and your book? Is it the “I’m better and richer than you strategy” you hope to win people over?

Thanks, Sam

*****

@ Financial Samurai – My $7m7y journey covers the period from 1998 to 2005, and doesn’t include the additional 50%+ compounded return that I subsequently made selling my business. On the minus side I, too, have seen my investments suffer since the 2008 crash.

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69 Adam Hathaway October 23, 2012 at 7:44 am

Awesome post! I agree almost completely with the advise given here and I continually preach these same points. However, I think it is important to note that everyone should consider a way to generate passive income that will last into their retirement years. This might be some type of financial investment but what I am going to do is get my passive income to a point where it will cover all my regular expenses with a little left over. Then I will know I made it, not if I have a huge emergency fund with a giant wad of money I dont want to touch in a 401k somewhere.

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70 Investor Junkie October 25, 2012 at 9:05 am

J and AJC this is sort of the same theme of a post I did awhile back:

“Most Personal Finance Blogs Suck!”

http://investorjunkie.com/12840/personal-finance-blogs-suck/

You are absolutely correct. $1M isn’t enough to retire off of, unless you want to live like a hermit, don’t have any children, and live in a third world country. Especially the age of most PF bloggers (under 30). People trust me when I say this: $1M isn’t enough.

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71 J. Money October 27, 2012 at 8:22 pm

I’ll let you know once I hit it ;)

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72 Cat November 9, 2012 at 2:19 pm

I loved this blog post.

I do however think that many financial bloggers and people who talk finance start out the way they do because they need simple, easy steps for people to follow.

Once people can follow the simple steps, like J Money said, then they can focus on other things.

For me, I can’t imagine investing 10K because I don’t have it yet. I can however commit to putting aside 2500 per year into an account and know that in 4 years I will have 10k to invest, and if I need to have emergency fund in addition to split them up so I can’t get distracted or find an excuse to take out of the investment, then I do that. (for instance I might say… the dishwasher broke lets that out 10K! – total exaggeration but I’d shamelessly take away from my investments constantly if I didn’t split up accounts.)

Great read, I loved the math and it puts some numbers into perspective! thanks!

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73 Benjamin James February 11, 2013 at 11:18 pm

Some good food for thought in this article and I agree with a lot of it. The one point that I disagree with is that “All PF Blogs are B.S.”. Like other PF blogs, mine also encourages readers to reduce debt and save. This is a fundamental principle. And I do that by providing readers with 3 pillars: education (to learn personal finance concepts), inspiration (to encourage people to change their relationship with money), and news commentary (so that they can have a better understanding of the world/politics and how it influences their money.)

If you can’t manage your money well making $45,000 a year, chances are you will do just as poorly making $1 million a year. Changing your relationship with money is your first step to creating wealth. If a person doesn’t “get” that part, they will most likely always struggle or at the very least always fear not having enough money. Money and income should bring freedom. Not fear and worry.

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74 J. Money February 12, 2013 at 12:57 pm

I agree with ya, bud. Gotta get those fundamentals down if you really want to grow that nest egg later!

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75 Clint May 14, 2014 at 9:36 am

This article is o.k…but and a huge BUT here, it fails to mention one thing. RISK. If I am sitting in a paid for 100,000 dollar house with a modest 3 month emergency fund of 10k and my neighbor has 80k in debt on his 100,000 dollar house with little to no emergency fund who has more risk? It won’t matter that he has 200k in investments if he is laid off or the market turns south. I’ll take my paid for house and invest as much as I can without endangering my Family’s well being. My wife also feels safer. Happy wife, happy life.

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76 J. Money May 14, 2014 at 5:06 pm

Preach on, brotha!

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77 Rob @Money Nomad September 1, 2014 at 8:06 pm

This is an old article, but definitely still relevant – I’m glad I came upon it! I certainly believe that a balance is necessary, as risking everything is more likely to end in disaster. I also agree that all personal finance blogs are sexy. :) I think it’s great that you share differing opinions on your blog – that makes for more interesting reads indeed.

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78 J. Money September 6, 2014 at 3:23 pm

Glad you enjoyed, my man! Thanks for stopping by and commenting – even if it’s an oldie but goodie :) Going now to check out your blog… I’m liking the name.

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79 Paul Andrew @TheFrugalGrad September 9, 2014 at 1:29 pm

First off, I would be very interested in learning how the author made his millions. But I do agree that too much emphasis is often put on a large emergency fund in cash. It makes sense to invest some of this money in low-risk investments to at least gain some type of return. Keeping a stash for 10 year in a bank account can be missing out on some major gains. Great article and great perspective on the issues!

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