Wisdom of Rich Dad

Soured on stocks? It’s understandable that many investors have, after watching their assets founder for so long. If you invested $100 in the Standard & Poor’s 500 in April of 2000, you have only about $97 today.

That figure, which includes reinvested dividends, amounts to an annualized return of -0.3%. Ouch! Since 1926, annual returns have averaged nearly 10%.

Many investors now question whether expecting those kinds of gains is realistic anymore. But avoiding equities would be a mistake. Stocks still present an attractive investment, despite the past decade’s historically dismal showing, and even after the past year’s spectacular 70% gain.

You might think that the time to buy has passed. After all, it stings to pay $100 for something that traded at $59 just 12 months ago. But investing based on the recent past is like driving a car while focused on the rearview mirror: stupid and dangerous.

Looking ahead, annual returns of 7% or so is likely in the coming decades … and perhaps 8% to 9% over the next 10 years or so.

To understand why, start by considering what kind of profit growth can realistically be expected, since common equity is ultimately a claim on a company’s earnings.

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If you’re like thousands of other job seekers, you may dream of earning the big bucks without having to deal with the extreme stress that goes hand-in-hand with top-paying jobs. Of course, a high-salary, low-stress job sounds too good to be true. Or is it?

Believe it or not, you don’t have to take on a heart-pounding career as a brain surgeon, airline pilot or stock broker to bring home some serious bacon. As a matter of fact, some of the highest-stress jobs pay surprisingly scanty salaries. Just think about police officers, firefighters and social workers. These folks have quite possibly the most nerve-racking jobs in the world, yet most of them earn less than $45,000 a year. What about combat soldiers who face death on a daily basis? They typically earn less than $30,000 a year.

In other words, high stress does not always equal a hefty salary, or vice versa. Fortunately, there are plenty of laid-back career choices that pay quite generously.

Physical Therapist

Although physical therapists (PT) work in the notoriously stressful medical field, they enjoy some unique advantages over ER nurses and doctors. First of all, PTs have flexible hours and generally aren’t expected to work nights. Secondly, many physical therapists are self-employed – which means they don’t have to deal with the stress of a boss breathing down their neck while they work.

Plus, as the massive Baby Boomer generation continues grow older and face new physical challenges, PTs are constantly flooded with patients. As a result, physical therapists rarely suffer from dry spells.

To top it all off, physical therapists can earn anywhere between $50,000-105,000 a year. Now that’s therapeutic.

Computer Software Engineer

If you’re a tech geek seeking a relatively low-pressure career, you may want to check out the software engineering field. Software engineers design and test a variety of different types of software, from computer games to operating systems to business applications. These days, many software engineers can work from home, since their jobs can be done from practically anywhere.

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Since I graduated college at age 22, I have been following many of the rules of prudent living.   I have been “investing” ten percent of my income into a 401(k) account.

Additionally, I have been fortunate enough to save an additional 10 or 20 percent over the years and “invest” these into mutual funds, stocks, US Treasury notes, certificates of deposit and other paper investments.

Most of my assets were  name brand stocks, the S&P 500, target date mutual funds etc.  Pretty basic stuff.  Nevertheless, I considered this “investing”.

Last week I had an epiphany.  While reading Robert Kiyosaki’s book “Rich Dad’s Guide to Investing”, I learned that I am not really an investor, but merely a saver.  There is a significant difference.

I had come from the train of thought that to get ahead financially, I needed to put aside as much as possible for a long period of time and at the end of the day, I will be wealthy.  While I have succeeded in putting a significant amount of my income aside over the years, my investments have never really earned much of a return.

Under my approach investing in name brand stocks, bonds and mutual funds, my assets could never really do much more than mimic the market.  I had no control over any of the assets in which I had invested.  Furthermore, there are always, middlemen, brokerage companies, custodians, etc. ready to skim a little off the top for their own pocket.

Here is how Mr. Kiyosaki defines a saver:

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Lessons I learned from my mother:

1.) Start saving as early as possible. We can never be too young to start saving for our future. Mom started when she was 18. I, on the other hand, started at 17. Two things can happen when we start early: We can have a bigger retirement fund or we can retire earlier. Both are definitely advantageous. Whenever possible, I always tell the youth to start saving and investing as early as possible.

2.) Invest wisely. Mom’s portfolio consisted of real and liquid assets. She bought two pieces of property in the late 1990s and flipped them a decade later, earning her substantial profits. She invested in two pension plans from a defunct preneed company and received the maturity benefit just months before the company ceased operations.

She was able to take advantage of the high interest rates being offered during the 1990s and has had several double-your-money placements. She was able to ride the bull run of this century and went offshore to take advantage of the global growth.

Knowing that illnesses may eat into her savings, she bought a health-care plan and several life-insurance policies. She managed to maintain a balanced portfolio at any given time.

3.) Practice frugality at all times. I learned frugality by example. She not only stressed it, she lived it! She has this uncanny memory—she could remember how much we spent for household expenses. This resulted in a much-disciplined budget management. She doesn’t jot everything down but she knows when to cut down on unnecessary costs.

She once told me that she never regretted being very frugal throughout her life. She practiced delayed gratification and this practice made her appreciate and enjoy her wealth now.

4.) Failure must not stop you. Mom lost her entire life savings when the business she and my dad put up failed. But she was undeterred. It wasn’t the best of times but they managed to pull through. The failure just motivated her even more to build a better future for her and her family.

5.) Get a health insurance. As I mentioned, this is one of my mom’s proudest investments. Mom got herself and my dad health insurance early. Thus, they were able to maximize the benefit limits when the needs presented themselves—ovarian cyst, stroke and kidney stones. It also included all the blood tests and medical examinations that can reach several tens of thousands a year. Not having one would surely have put a big dent in her savings.

My mother is not a business-minded person. She never considered the small tutorial place she runs a business. Nothing glamorous in it but being self-employed managed to make her financially independent. I am proud of her for all her financial achievements. It does put quite a pressure on me to emulate what she has accomplished.

In time, I wish to impart money-management lessons to my children as my mom did to me. I hope to be a financial success like my mom someday; it would be the greatest repayment I can think of.

If you find yourself nervously checking your bank account balance before payday, then perhaps it’s time to make some changes. Before swearing off restaurants or cutting up your credit card, ask yourself the following 8 questions, which are designed to help get you back on top of your finances.

Do I know where my money is going?

Beyond a quick glance at our credit card statements each month, most of us don’t bother tracking how we’re spending money. That means we might not realize that our grocery expenses have suddenly skyrocketed, or our utility bills have doubled.

Using an online personal financial management tool to automatically track your spending – www.Mint.com and www.Wesabe.com are among the most popular – allows you to figure out where money is going with minimal effort. The programs can also warn you once you get close to your target budget for the month.

Am I focusing too much on the month, instead of the year? Research suggests that people often fall victim to forgetfulness when budgeting by the month. They tend to overlook unexpected and one-time expenses, such as car repairs or gifts, so underestimate how much they’ll need to spend.

But when people budget by the year, they tend to factor in those costs. Research by University of Southern California’s Gulden Ulkumen, Cornell’s Manoj Thomas, and New York University’s Vicki Morwitz found that college students were about 40 percent off-target when budgeting by the month, but only three percent off base when thinking by the year.

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After browsing through dozens of potential high-chairs for our six-month old daughter, my husband and I found ourselves at the upscale chain Giggle. “This one’s only $250!” I exclaimed, as I ran my hand over the smooth wood of the sleek model.

My husband looked at me. “Only $250” for a high chair? A few days earlier, we’d talked about a budget of $60 for this purchase. My enthusiasm for the pricier model epitomized a recent trend in my shopping habits: When it comes to my baby, no price tag is too high. I want to get her the best, from teethers designed in Germany to Baby Bjorn potty training stools.

The fact that she goes to daycare helps fuel the flames of my spending sprees. I might not be able to spend all day with her, but I will buy her whatever she wants! $80 Jumperoo? Done. Organic, pureed baby food? Absolutely. And if she might sleep better with the $50 mobile, add that to my diapers.com order, too.

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