Always Work On Improving Cash Flow For Financial Independence

Cash Flow For Financial Independence

Cash Flow by Jo Z-Sunny

The other day I asked a very wealthy entrepreneur about his main financial concern. He’s probably worth anywhere between $50 million to $75 million dollars. Given he has so much money, I thought his answer would be more philosphical, like “making sure my kids appreciate the value of money,” or “how to create a lasting legacy.”

Instead, the entrepreneur responded, “My biggest concern is making sure I have enough cash flow to maintain my lifestyle.”

I initially thought the answer was odd because why bother measuring cash flow given he can simply draw down principal to fund his lifestyle forever. $500,000 here, $1 million here, who cares? He’s still left with tens of millions of dollars left over! But maintaining a lifestyle that is meaningful to you is what having money is all about.

Many people with tremendously high net worth figures don’t have nearly as much LIQUID net worth as one would assume. People mistakenly think that just because someone has a $10 million net worth, that they can withdraw 10 million $1 dollar bills and make it rain. Instead, high net worth individuals likely have much of their net worth tied up in equity stakes that could disappear if a downturn like 2008-2009 ever happened again.

Just look at the guy who founded CNET, the technology online review site. He was worth $2 billion dollars, but after a divorce and leveraging up in 2007, he filed for bankruptcy. Every super wealthy person I know is well aware of how ephemeral wealth is. This is why buying real assets, like property or fine art is so attractive to many equity millionaires.

It’s Impossible To Stay Retired Once You Retire Early

Retired couple by Sebastian Flickr Creative CommonsIn the spring of 2012, I hung up my sword after working in finance since 1999. There was actually a hiccup the very last day of work, a Friday. When I was e-mailing some personal files from my work account to my personal account (pictures, tax docs, etc), I inadvertently e-mailed a five year old client file that was caught by compliance. I was warned this was a violation of company policy and that I would be hearing from them about any repercussions the next week. I apologized for the mistake and waited nervously about the fate of my severance check.

To allay my worries, I actually went to a free Hastings School Of Law community service event where law students and professors helped those with legal questions. They just so happened to host the event on what I thought was the first free weekend of the rest of my life. It was great to see the school give back to literally hundreds of people regarding questions about divorce, employment, accidents, theft, trusts, and more.

My question to a professor and to a law student was simply, “Can my firm take away the agreed upon severance contract due to a five year old company file that I inadvertently sent to myself?” Financial companies are notoriously strict about ex-employees transferring sensitive client documents that can be advantageously used against their old employer if they join a competitor. I told my company that I was retiring from the finance business altogether, but how could they know I was really telling the truth? In our business, few people voluntarily walk away from such paychecks.

After getting comforting council saying that I should be fine, I promised that day to NEVER go back to work in finance if I could still get my severance and deferred compensation. My new manager was in from New York City that day and was already busting my balls for the incident. I went a step further and promised to never go back to working for anybody. Hundreds of thousands of dollars were at stake and I was worried.

HR called me the following Tuesday and told me everything was fine in the end. They agreed the client file was irrelevant given it was five years old, and accepted my e-mail apology for the mistake. Once I got my severance check several weeks later I felt like I had sheepishly won the lottery. Instead of spending it all, I sat on it like I would any financial windfall. By the summer of 2012, the market had taken a little dive and I finally invested the entire amount in the stock market so as to make it disappear. I wanted to stay hungry and pretend I received nothing. 

How To Save More Than $100,000 A Year Pre-Tax: Open A SEP-IRA Or Solo 401k

SEP-IRA by American Advisors GroupOne big goal on Financial Samurai is to highlight to readers what is financially possible. Once you know what is possible, you minimize your limiting beliefs and tend to strive much farther. Through close to eight hours of research and production, this post will explain how you can add more than $100,000 every year pre-tax to your retirement account if you have the right employer and proper strategic money making mindset.

The 401k maximum contribution for 2015 is $18,000. The increases will likely continue by $500 increments every year or two to keep up with inflation. Contributing $18,000 pre-tax a year for 30+ years will most likely make you a millionaire by the time you retire. Unfortunately, $3 million is the new $1 million, and in 30 years, $7 million will likely be the new $1 million if we assume a 3% annual inflation rate!

The 401k is not enough for most people to retire on. Sure, we potentially have Social Security to help us when we reach, at the earliest, 62 years of age. But I wouldn’t count on the government to properly manage our money until then. Beyond maxing out a 401k every year, I encourage everyone to also invest at least 20% of their after-tax, after-401k money into a diversified investment portfolio.

As a contractor over the past year, I’ve discovered something that will really supercharge one’s pre-tax retirement savings. The discovery still seems too good to be true, so for any of you tax gurus out there, please speak up and correct me if I’m wrong. We are going to crowd source this post into one of the best maximum pre-tax retirement posts around. The research I’ve done is based off the IRS website, my own experience, and speaking to Fidelity’s small business retirement department where I have a rollover IRA, SEP-IRA, and Solo 401k.

The Epitome Of Perseverance: Joe Locke’s 14-Hour Swim Through Cold And Darkness

Farallon Islands Incredible Swim Joe Locke

Joe swimming at 2am in the Pacific Ocean

Life is funny. I remember looking out my new living room window one morning and seeing the Farallon Islands for the first time. Even on a sunny day, they sometimes don’t appear given they are 30 miles away. But everything was crystal clear this morning and I could see the island’s entire silhouette.

I distinctly remember thinking to myself, wouldn’t it be crazy if someone swam from the Farallon Islands to the San Francisco shore and grabbed a cheeseburger for lunch at Outerlands Restaurant?

Then that afternoon I saw on the news a man had just finished swimming from the Farallon Islands to the Golden Gate Bridge in 14 hours! What’s more, I knew the guy from my previous career in finance. Small world!

I reached out to Joe to have him share his incredible accomplishment of swimming in frigid 53-55 degree waters for 14 hours straight, starting at midnight. I’m constantly looking for motivation, and I just cannot believe Joe was able to persevere for so long. After two hours of swimming in 78 degree Hawaiian water I’m done!

For those who have a propensity to quit way too soon, please have a read. There are just too many people who never achieve their full potential due to not sticking things out.

Bankers, Techies, And Doctors: You’ll Never Get Rich Working For Someone Else

Although I estimate an entrepreneur needs to make at least 35% more to replicate his or her day job income to run in place, I’m truly beginning to realize after two and a half years how much more upside there is to entrepreneurship than to working for someone else.

I came from the world of banking where 23 year old graduates with one year of experience can clear $100,000 no problem. Despite ascending from Financial Analyst, to Associate, to VP, to Director within 10 years, and earning Director level compensation for three years before leaving, I still wasn’t able to earn and save enough money to buy my dream home in Kahala, Oahu.

Dream House In Kahala, Oahu, Hawaii

Contemplating on never being able to afford my dream home

The above is a picture of me sitting on a lanai, looking down the southeast coast of Oahu towards Koko Head. The home is on Blackpoint Road in the exclusive Kahala/Diamond Head neighborhood. Since I was a kid, I’ve always dreamed about living here one day. But I’ve come to realize my childhood dream will likely never come true.

The asking price for this 6,000 sqft Kahala home with 4 bedrooms and 4 bathrooms is $3.5 million ($583/sqft). The lower level is a 1,800 sqft rental apartment that is going for a below market rate rent of $2,500 a month. The main house is therefore not that huge. $3.5 million is actually great value given the view and the size of the house. Other houses in Kahala are easily asking for $900/sqft or more.

If I had $4 million cash, I would buy this house in a heartbeat. It needs at least $300,000 in renovations given it is quite dated. But the lanai and the spectacular view are priceless. All I think about when I’m looking for my dream home is being able to sit outside in 72-85 degree weather with an ice cold beer and write about various adventures. 

The Maximum 401k Contribution Limit: What You Could Have If You Max Out Every Year

Mega yacht in HawaiiThe government has blessed us with the ability to max out our 401k to $18,000 a year starting in 2015, up from $17,500 in 2014. If you are 50 or older, you can add up to $6,000 extra per year from $5,500 in 2014. Although $500 isn’t that big of an increase, it’s still better than a sharp stick in the eye!

I always recommend trying to max out your 401k as fast as you can. Once you get into a max habit you’ll rack up some nice bucks in no time.

So many people don’t even bother to try because they don’t feel like it’s possible. But once they try, they kick themselves for wondering why they didn’t max out sooner. Remember, the contribution to your 401k is pre-tax so an $18,000 contribution is more like $13,500 less from your paycheck a year if we use a 25% effective tax rate.

Here’s a simple chart to see how much you can accumulate in your 401k by age or years worked if you contribute $18,000 a year starting today. The chart is obviously more helpful for younger folks, given older folks had lower maximum contribution limits in the past. For example, when I first started maxing out my 401k in 2000, the contribution limit was only $10,500.

I’ve also included my high-end 401k target amount by age based off continued maximum contributions plus a constant 4-8% annual return. My high-end 401k savings target can also be considered your overall total savings target, which includes after tax savings as well. The numbers are for “ideal” conditions. We all know that life, recessions, and buying things we don’t need get in the way of savings and returns all the time.

The Best Place To Rent A Vacation Property In Lake Tahoe – The Resort At Squaw Creek

Lake Tahoe Summer At The Resort At Squaw CreekWinter is coming and I’ve just renewed my season pass at Squaw Valley, Lake Tahoe! One of my favorite activities in the world is writing for a couple hours in front of a fireplace in the early morning, hitting the slopes for four hours in the middle of the day, and then relaxing in an outdoor hot tub with a couple cold beers. One for me, one for you.

Lake Tahoe, California is one of my favorite places in America. The other two favorites are San Francisco and anywhere in Hawaii. Lake Tahoe is situated roughly 205 miles away from San Francisco and it’s a place I’ve been going to for amazing skiing/snowboarding during the winter and golfing, hiking, swimming, biking, and fishing during the summer since 2001.

Most people think of Lake Tahoe as a winter destination given the 1960 Winter Olympics were hosted in Squaw Valley USA. Squaw is one of the largest mountains with a 2,850 foot vertical; a top elevation of 9,050; 4,000 acres of skiable area and 270 trails after joining forces with Alpine Meadows in 2012. The mountain is so big that even during peak holiday weekends, there’s hardly ever a wait for the lifts when they are all open. Squaw is great for beginners and advanced skiers alike.

But if you’re a summer lover, summer in Lake Tahoe is even more beautiful! Every year I spend 4-5 weeks up at my place during the summer and fall for a writing retreat. I love to hike and there are scenic trails all around.