October 2012 – The Wealth Maker

October 28, 2012October 29, 2012

Saving

This should have been the very first post on this blog. Without the practice of conscious, regular saving, you don’t have the basic building block to grow any financial wealth. Borrowing money to fund a wealth-making project is not easy, as we’ve seen in the Wealth Algorithm articles.

Saving is natural to some people, and is a struggle to others. Some investors go to the extreme of being too thrifty, depriving themselves and their families of the basic needs of life. Money becomes the master! They work for money, rather than money works for them.

On the other extreme, we find the lavish spender, who can’t save a penny of whatever he/she gets every month. That is also wrong.

The reasonable approach would be to choose a percentage of one’s income, which is maintainable, without causing a damage of any sort; whether physical, social or emotional.

According to several financial studies, saving 10% on a monthly basis is affordable to most people. The key is to make this a habit, and put that amount aside before spending a dime. To use David Bach’s phrase, author of “The Automatic Millionaire”: Pay yourself first!

Yes, that’s true. If you left saving till after you’ve paid all the bills, bought all the stuff, there would be nothing to save. Whether your income is 100,000 or 2,000 a month, you should be able to save 10% regularly. It may take some revision of your spending patterns, a bit difficult at the start, but still doable, considering the tremendous benefits on the long run.

If you look at the previous article, that 10% was able to turn a mere $200 into one million over 10 years! Imagine if the savings were more than $200 a month!

To organize this habit, open an investing account only for those savings. Assume that account does not exist when it comes to daily or monthly expenses. Once you get your paycheck, or your monthly income in whatever form, deduct 10% and immediately deposit it in that account. You could also make it automatic. Your bank transfers the money for you at the beginning of every month.

In addition to proper organization, this takes discipline. The best source of such discipline is a clear vision of what you intend to achieve. Keep that vivid in your mind, and on paper, where you can see it daily.

Now that you have an investment account, with money deposited in it periodically, in the background, the next logical step would be? Yes, to start investing, wisely. Grow those funds, as we’ve explained extensively throughout The Wealth Maker blog!

Good Saving, Good Investing, True Wealth!

The Wealth Maker

October 20, 2012October 20, 2012

The Wealth Algorithm (10) – Plan B

What if you couldn’t secure the necessary funds to start your project, to reach your dream? Would you give up? I don’t think so. Having had a powerful intention, which you believe in; giving up, giving in, failure, whatever, are not part of your vocabulary, even when you talk to yourself (by the way, random, obsessive self-talk is destructive!).

If that was the case, the first step would be to revise your plan, especially the due date. Then, assuming you have a monthly income, before paying the bills, or buying anything, put 10% of that income aside. Open an investment account for that purpose, and deposit 10% of your monthly income in it, before you spend a dime.

Once your savings in that account reach $1000, start investing. Your target is to make 5% a month. Below is an example of how you would manage your investment account:

Month 10%Savings 5% Yield Monthly Total

1	200.00	0.00	200.00
2	200.00	0.00	400.00
3	200.00	0.00	600.00
4	200.00	0.00	800.00
5	200.00	0.00	1,000.00
6	200.00	50.00	1,250.00
7	200.00	62.50	1,512.50
8	200.00	75.63	1,788.13
9	200.00	89.41	2,077.53
10	200.00	103.88	2,381.41
11	200.00	119.07	2,700.48
12	200.00	135.02	3,035.50
13	200.00	151.78	3,387.28
14	200.00	169.36	3,756.64
15	200.00	187.83	4,144.47
16	200.00	207.22	4,551.70
17	200.00	227.58	4,979.28
18	200.00	248.96	5,428.25
19	200.00	271.41	5,899.66
20	200.00	294.98	6,394.64
21	200.00	319.73	6,914.37
22	200.00	345.72	7,460.09
23	200.00	373.00	8,033.10
24	200.00	401.65	8,634.75
25	200.00	431.74	9,266.49
26	200.00	463.32	9,929.81
27	200.00	496.49	10,626.30
28	200.00	531.32	11,357.62

Over a period of 28 months, and because of the power of compounding, your $200 monthly savings, have turned into $11,357.62!

Notice that you haven’t been withdrawing at all. Every month, you add the monthly savings (A), to the 5% yield on the previous month’s total (B), then to the previous month’s total (C). Or: A+B+C=D. The sum, (D), is reinvested again, and so on. Please spend some time studying the above table. As simple as it may look, it’s so powerful and effective.

Another observation is that the increase from one month to the next is exponential, not linear! Although your total is about 11K at the end of the 28th month, you don’t have to wait 2800 months to reach a million. You’re actually pretty close. You could find out by applying the above formula till the monthly total hits one million. If you did that, you would find out that you would need a total of 125 months. Or around 10 years.

The assumptions we made were conservative: A $2,000 monthly income and only 5% return. If either of these (or both) went up a little, the total number of months would decrease dramatically, again, because of the magic of compounding.

Now you have a backup plan to revert back to in case your original plan could not be implemented. As a matter of fact, you could go for plan B, even if plan A did work! Think about that…

The only challenge with plan B is the 5% monthly return. You might ask: How am I going to maintain such yield every month? What kind of investment am I supposed to use? You could either revisit the methods provided in this blog, or do further research. You will find what you’re looking for.

All the best,

The Wealth Maker

October 10, 2012October 10, 2012

The Wealth Algorithm (9) – Conclusion

So far, we’ve covered two out of the four steps mentioned in article (6) of this series. Namely, the business plan and funding options and processes.

One quick note about the funding options presented in the last article. Most of those organizations are based in the US. They offer their “services” to US citizens or US permanent residents only. Before you start working with an online funding entity, please make sure it supports your country. The concept is fairly new. It might not be available everywhere. It’s starting to emerge in Canada as we speak, but it’s more established in the US so far.

Assuming you’ve found the right source of funding for your venture, and prepared your business plan, now you need to work with the funding institution to present the business plan and obtain the funds.

If you went the route of online funding, most of the work would be electronic: Emails, completing online forms and applications, and probably by the end, some phone conversations. Be prepared to answer a wide range of questions, including personal questions. To some extent, this process may be more demanding than job search.

As long as you clearly know what you want (your intention), and how to achieve it (your business plan), you’ve already covered more than half of the distance!

Keep in mind that funding organizations are business-oriented. They want to make sure that by investing in your idea and your plan, both parties would create a profitable business. This insight needs to be clear throughout your presentations. You are not asking for loans or charity. You are a business partner, who is ready to use the offered capital to generate a positive outcome for both parties.

Once a verbal agreement is reached, the details must be documented in an Investment Partnership (TM) Agreement (IPA). The IPA would become the “constitution” of the project. It specifies the objectives, the parties involved, the timelines, rights and responsibilities, the way profit and/or loss are shared, and so on.

Carefully read the agreement in full, and check if you agree on all its provisions, before you make any commitment. If something is ambiguous, or contrary to your original understanding, never hesitate to voice your concern, till you and the funding party reach a mutually agreed-upon formula. This is your right as a business partner..

Next, as you start receiving the funds, you begin executing your business and action plans, day in and day out, till you attain your clearly set intention, and successfully satisfy the terms of the IPA.

I’m not promising you that the road will be rosy all the way. There would be some challenges. Use your capacity and wisdom to convert those challenges into new opportunities. This is easier said than done. Deal with them, one by one, as, and if, they come.

All the best,

The Wealth Maker

October 4, 2012October 5, 2012

The Wealth Algorithm (8) – Funding

We covered step one of your tasks in the previous article, which was creating a business plan. The post didn’t write the plan for you. It rather gave you the fundamental building blocks of that activity. The rest is yours to do, following those guidelines. If there was interest to give a full example of a business plan, I’d do that, but I’d need to receive such quires from the readers. You could easily post a comment under any article of this series.

Today I’ll continue to step two: Finding your business partner.

Few articles ago, we excluded friends and family, for obvious reasons, as well as banks. So what’s left? Had this question been raised thirty or more years ago, the answer would have been: None!

However, nowadays, investors and entrepreneurs have almost untapped sources of online funding. With the proliferation of social networking, an era of business financing has been emerging.

Your first stop would be your social networks: Facebook, Twitter or Linked-In. The last is more professional-oriented. If you happened to be a member of Linked-In and have good and trusted connections, you might want to start there. Look for someone with a background in business management, investing, financing, etc. On the other hand, this person is honest and trustworthy. How would you know that? The simplest way would be to visit their profile and see what kind of connections they have. You could do more research and “investigation” till you feel satisfied.

The next stop would be to explore the following new resources of online funding. I’m presenting the three most popular here, but you could find more.

One example is referred to as “Crowd-Funding (CF)”. Another is “Internet-Assisted angel investing (IAAI). A third is “Accelerator Programs (AP)”

Those are online resources, originally inspired (and to some extent created) by social networking. They are interested in funding new, and potentially profitable, ventures, against some guarantees from the investor.

Below are the definitions of the first two, as given by Wikipedia.org:

(1) “Crowd funding or crowdfunding (alternately crowd financing, equity crowdfunding, social funding or hyper funding) describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.^[1] Crowd funding is used in support of a wide variety of activities, including disaster relief, citizen journalism, support of artists by fans, political campaigns, startup companyfunding,^[2] movie^[3] or free software development, and scientific research.^[4]

Crowd funding can also refer to the funding of a company by selling small amounts of equity to many investors. This form of crowd funding has recently received attention from policymakers in the United States with direct mention in theJOBS Act; legislation that allows for a wider pool of small investors with fewer restrictions. The Act was signed into law by President Obama on April 5, 2012. The U.S. Securities and Exchange Commission has been given approximately 270 days to set forth specific rules and guidelines that enact this legislation, while also ensuring the protection of investors.^[5]“

(2) “An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.”

The following website is one of the pioneers in the area of AP: http://globalacceleratornetwork.com. Click on ” about” to get the following definition:

[Note: The definition below is the property of http://globalacceleratornetwork.com. The author is not promoting or supporting any part of the definition. It’s given here as an example of this kind of online funding. There are other potential options that are worth looking at during your research].

(3) “The Global Accelerator Network consists of independently owned and operated organizations that utilize a mentorship-based startup accelerator model. It provides networking opportunities, training, special perks, and ongoing support for members of the network.

Championed by TechStars, the Global Accelerator Network was created in 2010 under the management of top accelerator programs and alongside the White House’s Startup America Initiative. In the spirit of supporting more entrepreneurs around the world, the Network’s mission is to ensure that 5,000 successful and experienced entrepreneurs and investors will mentor and support 6,000 promising young entrepreneurs. The goal is to increase their success rate tenfold and create 25,000 new jobs by 2015 as well as a sustained engine for growing these figures over time.

Our vision for the Global Accelerator Network is to empower entrepreneurs and accelerators, resulting in an increase in the pace of innovation and the ability for more communities to cultivate entrepreneurial success. We believe the proliferation of this model is very positive for entrepreneurs, investors, and start-up ecosystems. By bringing programs together to create and share best practices, resources and knowledge, we can increase the success of member programs and improve entrepreneurial ecosystems across the globe.

The Global Accelerator Network is a proud supporter and partner of The Startup America Initiative, the White House’s program to celebrate, inspire, and accelerate high-growth entrepreneurship.”

–End of definitions—

The above are only definitions, although they offer a good amount of details to start from. You need to research each one enough to see the full picture, then decide on the one that’s best for you and your selected venture.

Please post your questions and comments below.

All the best,

The Wealth Maker