IN THIS CHAPTER

Avoiding obstacles on the road to wealth

Learning from your mistakes so that you don't repeat them

The truth is, we all make mistakes in when it comes to creating wealth. This chapter presents ten mistakes that are commonly made by many people. Making a few of these mistakes is not catastrophic to your wealth. But if you don’t learn from the errors and you repeat these errors, you'll find it difficult to stay on the road to wealth. As you review the sections in this chapter, I want you to ask yourself, “Have I made this mistake? Is this an ongoing problem or challenge? How can I overcome this issue so that it's never a roadblock to my success again?”

Most of these errors are rooted in lack of strategy, lack of action, or lack of consistent action. In essence, what's lacking is the development of key success habits that are repeated over time!

Starting Too Late … or Not Early Enough

When you start late, you are up against it. When you say you will begin “someday,” it’s likely someday will never come. The time to act is now. While I did not start extremely early, I did start before most. I opened my first retirement savings account at 28. It was a humble beginning, meaning I put in very little, but I put something in. At the beginning, it was more of a rounding error in size. But don’t go into the mental space of “I’m 40 years old, and I haven’t saved anything.” That is wasted mental energy in the “if only zone” of life. You can’t change the past. You can only create a new future from this point forward.

I literally started by putting 1 percent of my gross commission checks in retirement savings. I was in 100-percent commission sales selling real estate. My average commission check was $3,200. I was putting $32 dollars away into retirement. After a year, I had a whopping $1,300 saved in my retirement account. That $1,300 would have been nothing today without my habit of continuing to save and increase my savings amounts annually. The $1,300 by itself would have turned into $10,000 if I had gotten excellent returns from investing it.

The actual amount was inconsequential. What was consequential is that I did it. What was consequential was establishing the habit that has stuck with me. Then I slowly raised the level of savings. I raised the percentage from 1 percent to 2 percent, then to 5 percent and more. It’s the start that stops most of us.

Even if you just establish an IRA right now and find a small amount from each earnings check, that new habit will create momentum to wealth. It might be less than you need, but it’s more than you have done previously. The best time to start is 20 years ago. The second-best time is now.

Lacking Clarity for Your Future

What is it you want? What do you want your future to look like in retirement? What is the lifestyle you desire? When do you want to achieve financial independence? At what age? What type of house, freedom, travel, and philanthropy?

The clearer you are on the why and the what you want, the how you get there becomes easier. You are better able to craft a plan and create projections of how to get there. When you have a plan, you can unleash your subconscious mind to attract and create solutions. Your subconscious mind will turn your plan and process over and over again even while you are sleeping — like a chicken on your rotisserie BBQ until it’s cooked perfectly.

Not Having a Written Wealth Strategy Plan

It’s not enough to know what you want and why you want it. You must craft and execute a plan. Most people invest more time in planning their next vacation than they do planning their financial lives. I realize that this is uncomfortable, and you might feel ill-prepared to do this. You might be thinking, “I have no idea where to start.”

I want you to know that I have felt pretty much the same way. It’s perfectly normal to believe you are not prepared and have some fear because of it. What is also normal for most people is to save some for their whole life and hope it turns out okay. If you are in your 30s or 40s now, chances are good that you will be alive 30 or 40 years from now. So there's little question that you will arrive at retirement age. The question is, what will your lifestyle be when you arrive at that age?

You may feel you are vastly behind in where you need to be. I also understand that as well. I am not a financial planner and I don’t claim to be. I am a guy who is passionate about helping people achieve wealth and success in their lives. I want to help you craft your success plan to achieve it.

Carrying High-Interest-Rate Consumer Debt

No one should carry high-interest-rate consumer debt, which is credit card debt, consumer loan debt, and IRS debt. That type of debt is always bad. It costs more and lacks deductibility, so the effective interest rate is very high.

A little known fact on credit card debt and fees: If you carry a balance on your credit cards and you charge something on a credit card that has a balance, the interest on that most recent charge starts the moment the charge is applied to your account. The typical grace period or float period is gone. So that tank of gas you just put on your credit card is carrying a 17%, 21%, or 25% interest charge on it from the time you start your car to pull away from the pump. The banks make billions of dollars every year from this cost to you. And you end up paying hundreds if not thousands of dollars per year in additional interest charges.

If you feel you need the use of a credit card in your financial life, then work to pay one off that you can then use. This strategy will enable you to receive a grace period again of roughly 25 to 28 days before you need to pay the bill. You won’t be charged interest on your purchases, and you will be using credit wisely.

Not Using “Good Debt” Wisely

There are only a few types of good debt. The most common good debt is debt on real estate that produces strong cash flow. I am not talking about speculative-only appreciation-return-expecting real estate. I am talking about properties that are leveraged with 25 percent down or more. I'm talking about properties with cash flow hundreds of dollars a month beyond your PITI, mortgage fees, vacancy losses, repairs, and contingency funds. For these properties, the cap rates and rates of return are strong, and you are well covered against the forces of the economy and real estate market. You can absorb a drop in real estate value, higher than expected repair bills, extended vacancy levels, or increased rental competition driving your results down by 10 to 15 percent.

To leverage and use debt under those standards and parameters is not foolish or overly risky but actually wise. To use debt in a long-term, measured way is prudent. The debt must be stable, meaning no teaser or short-term fixed-rate options unless you have a plan for when the balloon comes due for that type of a loan. In this case, the rate of interest and payment creates growth and leverage.

Not Having a Rainy-Day Fund

If you don’t have cash reserves or a cash cushion, then you have problems. The adage of having six months of cash reserves minimum that covers 100-percent of your living expenses is sound thinking. If you need a little more to feel secure, that is fine also.

The real key is to define the amount and save the amount you require. Once you have saved that amount, then make sure you use your funds well beyond that. The funds beyond that amount should be invested where your return is much better than a standard savings account or CDs. If your expenses are $10,000 a month, you don’t need $100,000. You need at least $60,000. That extra $40,000 can be used to create wealth better than having it in cash, getting a less than 1-percent savings return. The truth is, you are losing 1 percent a year to inflation, which is at 2 percent. You want enough to provide security in liquid assets.

If you lose your job or your income drops, you have savings to weather a short-term bump in the road. I am 56 years old as I write this. There will probably be three more recessions in my lifetime. Many of you will experience four to five or even six more recessions or economic shifts in your lifetime. The rainy-day fund enables you to not act out of desperation, haste, or panic when the next economic curveball of life comes your way. The wealthiest people have the means and courage to seize opportunities when economic shifts happen. Without a rainy-day fund, your mindset becomes just trying to survive rather than to thrive.

Poor Estate Planning

Even if you are young, you need estate planning. At a minimum, you need a health advance directive. It’s a document that clearly states your wishes in the event of a health emergency where you have lost the capacity to decide for yourself. You will also name someone you authorize to make those decisions. (Joan, my wife, has that authority, and I'm sure she's going to pull the plug — because I'm worth more dead than alive. LOL, as the kids say.)

Basic estate planning is essential for your loved ones. We recently lost Aretha Franklin, who at death had no will or estate plan. Her children are going through the grieving process of the loss and the nightmare of dealing with her estate without even a basic will.

A revocable living trust creates a trust for your assets and provides clear direction regarding what will happen with your assets and property. If you are married, both you and your spouse need to have one. As an example, Joan and I own several properties either in whole or in part in Oregon, Arizona, California, and Hawaii, and they would all need to go through the probate process in each state if we didn't have the living trust document. It would be extremely expensive and time consuming. We would need to hire probate attorneys in each state and then file all the court documents in each state.

You also need to equally place assets between your spouse’s trust and your trust if you have a large number of assets. For example, if Joan and I put all of our property in my trust, the value of my trust could be too large and create an estate tax bill at death to the federal government. There is no avoiding our Oregon estate tax because the threshold is only 1 million dollars per person. We will have to pay that tax at death. The federal threshold is 5.49 million dollars per person, so if we evenly spread out assets between the two of us, we can resolve or eliminate the potential federal tax payment.

If you live in a state with high property values, it’s likely you will have an estate tax due at the state level. You must have some type of plan and strategy for yourself and your kids. A good attorney who is knowledgeable in trust estates and estate taxes is worth his or her weight in gold, as is a very good accountant.

Rarely a month goes by where I don’t hear about someone who has passed away leaving behind a young family. What is a tremendous tragedy is compounded because the family frequently finds out there was no life insurance policy to pay off the mortgage and other debt, fund college for the kids, or even meet basic family expenses for the next few years. Life insurance is an integral piece of estate planning for your loved ones. For most people, basic term life insurance is inexpensive compared to the benefit and protection it affords. Secure a policy that, upon death, will free your family of debt and financial obligations.

You should also have life insurance for a stay-at-home parent. If that parent passes away, you will need to cover the cost of the vital role that person played in raising the family and maintaining the household. Even though the stay-at-home parent wasn’t earning an income, his or her loss will create a financial as well as an emotional hardship on the family.

Going Alone without a Wealth Team

Most of us, including myself, are amateurs in some areas of wealth, estate planning, tax law, and tax strategy. It isn’t our primary job or area of expertise. I understand real estate and the real estate industry extremely well. I have personally been doing it for almost 30 years. I watched my parents initially in their real estate investing for better than 20 years before I bought my first property. I have close to 50 years of real estate experience in active investing or firsthand close observation. So I don’t need someone on my wealth team who is versed in real estate investment.

But I will never achieve as much knowledge and practical experience in tax strategy. That’s why you have to formulate your dream team. Doing it all yourself will lead to errors, mistakes, stress, and lower levels of wealth. There are four people who make up your primary wealth team: a good tax estate attorney, a good financial planner, a good investment lender, and a good accountant. These are the people who will guide you and advise you about your financial-independence goals. They have been instrumental in my journey to financial independence.

Being Timid When Opportunity Arrives

For most people who have achieved wealth, they have developed the habit of saving consistently toward their desire wealth. That is the single biggest “secret” to their wealth. A close second is bold action when an opportunity presents itself. You won’t be able to do the second without the first. You won’t have money to use when opportunity arrives. Creating wealth requires boldness. That doesn’t mean you are reckless or take undue risk. It also doesn’t mean that you follow the herd. Most wealthy people are not herd followers. In most cases, if you follow the herd, you will receive what the herd possesses, which is not much.

The classic contrarian is Warren Buffett. He is arguably the greatest investor of wealth ever. He studies, analyzes, and patiently waits for proper timing. He then boldly makes his move with large positions or large acquisitions. Many of those bold moves have been purchasing distressed assets, or in distressed economic conditions.

“Be fearful when others are greedy. Be greedy when others are fearful.” —Warren Buffett

I am certainly not in Warren’s league, but I have a few opportunities that I seized and boldly. I saw the real estate market correction coming. I did not predict the depth of the correction that happened from 2008 to 2011. No one could have foreseen a 60-percent correction in value in some real estate markets. What I did see early in 2009 is that this real estate correction was going to be larger than we had ever seen in history and that homes were selling in some markets at half of what it would cost to build them.

At that point, our economy was struggling, so all asset classes were discounted heavily. If you had bought stocks in high quality companies, you would have done very well. Opportunities come infrequently. When it rains gold, put out a bucket, not a thimble. Warren Buffett, being able to see and seize opportunity, creates wealth unlike any other.

I saw the rare moment in time for what it was: opportunity. I went all-in like a guy who was holding four aces in his poker hand. There aren’t too many hands better than four aces. The odds of me losing were incredibly low. I pooled all my retirement account funds and available cash, applied for larger credit lines, and established a few more lender relationships. I knew for the next few years there would be great opportunities to buy real estate assets at heavy discounts. This was a big moment: Real estate would never again in my lifetime be discounted and undervalued to this level. I had been preparing my whole financial life for this rare occurrence.

So what was the difference? I get asked that all the time by people seeking wealth. Was I better and smarter than others? Certainly not. The difference is, I acted. I didn’t just think about doing something or research every angle. The difference was, once I did my research and knew I was facing a rare moment in time, I acted on what I learned. The same is true for the people who bought Google stock at its IPO in 2004 at $85 a share. It’s now trading at $1,575 a share. Had we acted in 2004 buying Google, we would be wealthy as well.

Big opportunity will be presented to you in your lifetime a few times. The question will only be this: Will you act boldly when it comes knocking at your door?

Not Remaining Married to Your First Spouse

When my father was preparing to retire in 1990, I was 29 years old and recently started my new career in real estate sales. Joan, my wife, and I were in our first year of marriage. Norm, my father, and I were out playing golf one day, which we did frequently as I was growing up. Getting four hours of uninterrupted time with my dad was totally worth its weight in gold.

We were talking about financial success and discussed when he knew that he had amassed enough wealth to sell his dental practice and retire. I have been blessed to have those types of conversations over my lifetime with him. They're not the typical conversations between a father and son. He was sharing with me the details of a recent meeting with his longtime accountant, Uncle Bob. They agreed that he was ready financially to retire. In fact, the accountant stated, “Norm, you have done the one thing that made the biggest difference in early retirement and wealth.” My father at that moment paused in the story. To this day I don’t know whether he was gauging my interest, whether he did it consciously, or it just happened, but there was this moment of silence that seemed like an eternity.

My mind was racing. Was it his choice of real estate he invested in? Was it the fact he wasn’t flashy with fancy cars or homes? Was it some stocks he had selected? I was trying to guess what that “one thing” was. The agony of the silence was finally and mercifully broken by my father sharing what Uncle Bob said to him: “You still have your first wife.”

Honestly, that was a big letdown. I thought, “Is that it?” But over the last few decades, I've done a lot of thinking about what was revealed that day, and I've come to realize that the longevity of marriage is a significant determining factor of success and wealth in life.

My professional and financial success would not have been achieved in the absence of my wife, Joan. She has been an integral part of that success. Our partnership is the foundation of success. I know that was true for my father and mother as well.

The breakup of a relationship causes untold loss of wealth. There are now assets and liabilities to split up and two households to fund. And don't forget about the emotional toll on all the family members. I am not here to judge or comment on your personal relationships. Relationships do get severed, divorces happen, and some spouses are in abusive relationships. They need to free themselves for their emotional health and physical safety.

I understand how blessed I have been to come from a two-parent home and to have experienced 29 years of marriage with an incredible spouse and partner in Joan. I am blessed to have a thriving business and wonderful staff that make me look better than I am. I have two amazing kids in Wesley and Annabelle. All of these blessings come from the foundation of the relationship I have with Joan.