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May 10

What Big Wall Rock Climbing Can Teach Us About Wealth Building

Posted on Thursday, May 10, 2012 in Financial Education, Good stuff from others, wealth building

by Darrow Kirkpatrick (as shared on www.financialmentor.com)

Darrow Ascending To Shield

Do you have a defining moment or metaphor for your life? An event or accomplishment that set your personal bar and taught you more than any classroom ever could about the line between success and failure?

A defining moment in my life came in the summer of 1981, when I climbed the Shield route up the 3,000 foot vertical face of El Capitan in Yosemite Valley, California. My partner and I spent 5 days on the rock face, hauling every life-sustaining necessity along with us, sleeping at night on hammocks or small ledges. It was the adventure of a lifetime.

El Capitan is known to climbers as a “big wall.” Failure rates are high: many parties retreat far below the summit. So what is the line between success and failure ?

As it turns out, there are a few factors that make all the difference. And they are the same factors that lead to success in other areas of life, including building wealth and achieving financial independence….

Commitment

The single most important factor for success in climbing, finance, or in life is commitment to a meaningful goal. You simply must be highly motivated to achieve anything substantial. Why? To maintain the focus and energy you’ll need for the long and difficult work required, and to overcome the serious obstacles you will encounter.

Some obstacles will be constant annoyances — like a stressful work environment, or the thirst you get from climbing in the hot sun all day on rationed water supplies. Other obstacles will be momentous — like saving your first $100,000, or climbing past the 30 ft. long overhang we encountered half way up El Capitan.

The small, continuous obstacles demand your best in patience and perseverance. The large ones require focused energy and skillful action. And the root factor in developing all of these qualities is commitment. You develop that commitment by choosing a worthy goal, preparing for success, and believing it is possible.

In building wealth and financial security you will be committed when you internalize this principle: living on less than you make and investing the difference wisely WILL make you financially independent. Once you fully understand that this applies to YOU, and that, with the right behaviors in place, wealth is the only possible outcome, you will be 100% committed. And that motivation will carry you through the inevitable challenges. Believing in your goal will keep you on course and away from energy and attention-sapping detours.

On El Capitan, we were totally committed to reaching the top. Every ounce of mental and physical energy was focused on completing the climb. It was the only option we talked about, or contemplated. There was enormous momentum from feeling “we are prepared, we know what to do, we are going to do it, and it’s going to be awesome!” And that momentum gave us the energy to climb through the inevitable obstacles.

Such commitment doesn’t appear out of thin air. Nor is it blind faith. It is built on essential preparation….

Practice

Realistic commitment is built on supporting behaviors or habits you develop through practice. The specific domain doesn’t matter. It could be athletic, financial, or personal. The essential point is that the recurring behaviors you manifest are what will create results in your life, for better or worse. Because unlike wishes, dreams, or even goals — your habits are what you actually do.

In building wealth, the first habit is learning. You must educate yourself about money matters as a continuing, long-term process. Early on, you will make many small financial decisions that add up to significant results over time. Later you will be involved in larger and more substantial transactions. Every decision counts. But the world changes, and you change. So never stop learning.

On El Capitan, well-trained behaviors gave us the ability to do the safe and efficient things automatically, without the need for conscious deliberation, and to keep going even when we didn’t feel like it.

Another key financial habit is saving. Plan to save and invest a portion of every dollar that comes to you. Don’t consume all the resources put at your disposal: you, or somebody you love, may need them later. Living below your means and investing the balance wisely is an essential habit for financial success.

On El Capitan, we were rested and fit, in the best physical condition of our lives, fully prepared with the finest equipment of the day. The resources we had stored up gave us the confidence to commit to our ultimate goal.

Another key financial habit is demanding value. Every dollar that leaves your hands should return at least a dollar in actual life value to you. There are many experiences and things in life, too many to count, that would be “nice” to have, but are simply not worth their cost. Being well versed in your own personal valuation metrics, and using them instinctively, is essential.

Success on a big wall is about persistence and endurance, but, with thousands of vertical feet to cover, efficiency is at the heart of the process. Getting full value from every motion, every minute, every calorie of energy is key. Just as in personal finance, activities or possessions that don’t contribute to upward progress simply hold you back.

On El Capitan the essential ingredients for success were in place, but we had to deploy them effectively….

Structure

The world offers seemingly limitless options. Almost any substantial endeavor must first slay the complexity monster. There will be a host of data, tools, technologies, techniques, products, services, systems, instructors, and institutions. You must sift the essential from the unimportant, then organize and focus.

In the financial realm it’s important to keep your investments, your relationships, your tools, as simple as possible. Accountability, feedback, and control are fundamental. A common mistake is accumulating a mishmash of unrelated investments — often based on recommendations from friends, family, or media — until you don’t know what you have, or how you’re doing. Managing less, choosing the few right priorities and tracking them regularly, will optimize your attention.

Organization is an essential habit for success on a big wall too. On El Capitan we carried more than 300 individual pieces of climbing gear, every one of which was critical to upward progress at some point during the climb. Without a good system for organizing and handling that equipment, efficiently transferring it from one partner to another as the climb advanced — progress would slow and burn out altogether.

One of the most important organizational tools for personal finance is to monitor your progress. Begin by knowing your net worth: add up your assets including bank accounts, investments, and real estate equity. Then subtract any debt. Update this number several times a year. Also calculate and understand the performance of your entire investment portfolio, annually. These metrics provide essential feedback on your progress, so you can make course corrections as needed

Teamwork

Life is a team sport, and finance is no exception. I credit my wife, son, parents, friends, colleagues, and mentors with much of my own financial success. The fact is, I simply couldn’t have done it without them.

The same was true on El Capitan: teamwork was critical. A strong, dedicated, enthusiastic partner was a key ingredient to success. A good partner shares the often severe physical and psychological strains of living and working in the vertical environment, contributing to efficiency and morale.

Off the rock, a long-term, committed relationship pays enormous dividends in both happiness and financial well being. Two can live cheaper than one by sharing expenses such as housing, and vehicles, and buying in bulk. They can also combine resources. In our case, I had the high-paying job, but my wife had the more reliable health benefits. A good partner also provides accountability for financial goals. You can encourage and cheer each other on when the going is tough.

Not just any partner will do. Unspoken connection and communication are essential. On El Capitan, we were often out of view and out of earshot, separated by a hundred feet or more of windswept rock, connected only by a thin rope. My partner and I had to know and trust how each other would react to a broad range of conditions. A climbing partner’s judgment must be beyond reproach: they literally hold your life in their hands. A similar level of trust is required of a financial partner.

Though we didn’t have a personal guide on El Capitan, we did reap the wisdom of those who had gone before us. In financial life, I did have a personal guide. Early on, I subscribed to an investment newsletter that taught me the virtues of patient, low-cost, diversified, value-oriented investing. That was foundational to my financial education and eventual success. A guide, mentor, or financial coach can play a critical role in helping you anticipate and avoid the most serious dangers encountered when pushing your limits….

Safety

Big walls, and financial markets, are foreign, potentially hostile environments. Risk can never be fully eliminated. Seemingly small moves can result in large losses. But many of the techniques used to stay alive on a big wall work equally well at staying safe in your financial life. To survive and prosper, you can rely on time-tested principles of testing and redundancy.

Frequent testing is the safest way to get feedback. A key principle is to fail small and fail fast. For example, El Capitan required thousands of feet of difficult aid climbing — using ultra-thin pitons hammered just fractions of an inch into the rock to support body weight for upward progress. Any one of those placements could potentially fail at a moment’s notice. You can bet we carefully tested each one, and backed it up with solid anchors below, before fully trusting our weight to it!

“Failing small and fast” applies to finance as well. Don’t bet your life savings on a complex annuity or a technology start-up. If you feel compelled to try something new, do it with a small amount of money, over a short time frame. That way you get quick feedback on your decision, and can learn from it, before it takes on wealth-threatening proportions.

Redundancy is another time-tested safety principle. Never trust your entire success to a single point of failure. Climbers learn to build anchors so that loads are evenly distributed and single points of failure are eliminated. They check, and re-check, critical knots and connections. When it comes to life-saving systems, or large sums of money, always review the details!

In personal finance your emergency savings are an essential backup. Without it, unexpected events could leave you short on operating cash, forcing you into selling investments at distressed prices, losing a home, or declaring bankruptcy.

For investing, redundancy means diversification thru asset allocation. You distribute your holdings over a range of uncorrelated asset classes. So if one of your investments under-performs for a time, another will likely step up to take its place.

On El Capitan we carried extras of all essentials. We planned on 5 days to complete the climb, but carried 6 days of food and water. We had extra layers of clothing and rain gear, to endure any kind of weather. And we carried spares for the most critical pieces of climbing gear, so that dropping or damaging something couldn’t stop us.

Success – Topping Out

When you reach the summit of El Capitan the view is breathtaking. You see the entire length of Yosemite Valley, from the heights of Tuolumne Meadows and Half Dome to the East, past El Portal and out to California’s San Joaquin Valley in the West.

Standing there for the first time, after successfully climbing the Shield, I realized a new vision of life’s possibilities. There was no doubt in my mind then, or now, that any goal, no matter how grand or ambitious, could be achieved, with commitment and dedication.

I no longer climb as hard, or as often, as I once did. But I still apply the lessons learned on El Capitan to my life. The teachings received long ago in Yosemite’s granite crucible benefit me to this day.

You don’t have to be a dedicated climber, or even an athlete, to get the same benefit. You can apply these lessons to any life challenge large or small — in the gym or on a hike, raising a child, getting a degree, starting a business, or building wealth.

It’s not the size of the goal that’s important, but committing to it and leveraging your own gifts and talents through practice, structure, and teamwork. In the end you will find it was the personal journey that mattered, more than the destination. Success begins with a commitment and behaviors that are available to everyone. Just like on El Capitan, there are many routes to the summit. See you at the top!

About the Author

Darrow Kirkpatrick is an author, software engineer, and investor who participated in several technology start-ups and retired at age 50. He is married to a schoolteacher and the father of an amazing artist and engineer. He is an experienced rock climber and enthusiastic mountain biker, and writes regularly about saving, investing, and retiring at CanIRetireYet.com.

Jan 31

Wealth Building: Big Dream, Bigger Struggle, Huge Victory

Posted on Tuesday, January 31, 2012 in wealth building

Big dreams come at a high price. God wants us to dream big but he also wants us to grow into the kind of person who can appreciate the victory. Its the growing between dream and victory that can really challenge us.

I have heard the concept of big dreams requiring bigger struggles but I don’t think I had truly appreciated this until I watched the movie, Rudy. When Rudy came out years ago I remember thinking it looked interesting but never bothered to watch it. This weekend I happened to catch it on the inspiration channel and it touched me very deeply.

For those who have not seen it I don’t want to give away the whole story. In a nutshell, Rudy is the true story of a young man from a blue collar family and despite being small, non athletic and a poor student he decides he is going to play on the Notra Dame football team. As you can imagine he catches a lot of flack for such an ambitious dream.

Rudy does not back down, however, and overcomes every obstacle put in front of him. Along the way, even though Rudy somehow makes it on to the Notra Dame practice squad he comes to realize that he does not have the talent to play on the team. Instead of giving up on his dream for himself he shifts his dream to suiting up for at least one game so his family and friends will get to come watch his game. He wanted others to live the experience through him.

The biggest impact the movie had on me was that Rudy never gave up on his dream. He did make it into a game and his family and friends all came to watch. Rudy could have quit so many times and no one would have thought any less of him. Even as he was getting literally battered by the better players in the practice sessions he kept giving his all.

At the very end he almost did quit. As he was right at the point of achieving his dream he almost quit. But he came back one more time when it looked like there was no hope of him making it into a game. No hope for his dream on his terms but he came back anyway. And then out of the acceptance of human defeat came victory. When Rudy had done all he could and it wasn’t enough God stepped in with his grace. Rudy did his part of having a big dream and being willing to struggle for it, God did his and it was a great victory. Madalyn

If your big dream is financial freedom lets talk.

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Dec 9

Book Review: That Used to be Us

Posted on Friday, December 9, 2011 in Good Books

“America will do the right thing, but only after exhausting all other options.” Thomas Friedman and Michael Mandelbaum echo this comment made by Winston Churchhill. In their book, That Used to be Us, both authors explore the reasons that America is falling behind in the world and the solutions to get us back to the top.

Friedman and Mandelbaum contend that as Americans, we are falling behind in the world we invented. Our spirit, diversity of opinions and talents, flexible economy, work ethic and penchant for innovation have allowed us to make the world a much better place. All these traits are still present in America but we are not living up to our potential.

Friedman and Mandelbaum look towards China for as the country that is most ambitious but contend that even as China is getting 90% of the benefits of its second rate political system we seem satisfied to get only 50% benefits from our first rate system. What’s with that?

The Authors list 4 reason they feel we are falling behind:

First, we don’t get up each day and ask: What world are we living in and what exactly do we need to do to thrive in this world?
Second, over the last 20 years we have failed to address some of our biggest problems – education, deficits and debt, energy and climate change.
Third, we have stopped investing in our country’s traditional formula for success, which includes a healthy balance and cooperation between the government and private enterprise.
Fourth, our political system has become paralyzed and our system of values has suffered serious erosion.

This book is depressing in many areas because of the enormity of the problems but it does lay out the groundwork for what needs to happen for America to get back to the top. The world needs a strong America. The more we, as individuals, can understand the problems the more we will be able to select the best leaders to take us forward as a country. Madalyn

Photo Credit: Flickr via creative commons

Oct 24

Wealth Building 101: Are you listening to God?

Posted on Monday, October 24, 2011 in wealth building

Yesterday, in church, my pastor washed the feet of a man who is new to our church. Why did he do this? Because he believed God told him to. Was it easy for my pastor to humble himself in this way? No, I don’t believe it was. But the effect was powerful.

Our church body is usually exuberant in worship but yesterday you could have heard a pin drop as people watched in reverent silence. Pastor said God did not reveal to him why he wanted him to wash the feet of another man but he trusted the message anyway.

For me the message was powerful in that I had read the scripture in John 13 just the day before. Jesus washed the feet of each disciple at the last supper and Simon Peter questioned why he would humble himself in such a way. Jesus patiently explained to Peter than what Peter did not understand then he would later. Jesus went on to say that what he did for his followers by humbling himself they were to do for others.

There are so many powerful lessons in John 13 and the one that speaks most to me is about listening to God and following his guidance without question. What  does John 13 have to do with wealth building? Again, I believe it is about listening and trusting God.

We live in such uncertain times right now and human based financial knowledge alone is not as dependable as it once was. We don’t need to be concerned if we listen to God and are obedient. God wants us to prosper even in tough times but first we must seek and trust him.

Ways that God guides us in wealth building:

How to market and attract the best customers
Who to partner with and trust in business
Where and how to invest
How much to tithe or donate to charity
When and how to spend our money

The list is endless and in truth we should be consulting God on every move we make in life. He is our best friend, counselor, partner and lover. As humans, of course, we fall short of this. For me, even when I do listen and hear God’s word, I often question or argue. My hat is off to my pastor who listened to God and obeyed. He blessed us me by so doing. Madalyn

Like this post? Check out – Your first step in your perfect wealth formula

Oct 7

Wealth Building 101: What to do while you wait

Posted on Friday, October 7, 2011 in wealth building

Seems like I have been doing lots of waiting lately. Waiting for the recession economy to improve, waiting for the drought to break, waiting for temps to get below 100, waiting for my goats to get pregnant, waiting for my leg to heal after getting kicked by a horse. God is teaching me what to do while I wait.

But to those who wait on the Lord
Shall renew their strength;
They shall mount up with wings like eagles,
They shall run and not be weary,
They shall walk and not faint.

Isaiah 40:31

In the past I tended to decide what I wanted to do and would dive right in without asking for any guidance. The result was many stalled or complicated projects that often cost way more than anticipated. The last few years my budget has been tighter and my energy lower. I have found myself seeking God’s timing and blessing for my projects and the results have been nothing short of amazing.

At the beginning of 2011 I had many projects in mind but I did not expect them to be completed this year. I resigned myself to paying down debt and starting back on projects next year. I focused instead on giving appreciation for all my completed projects and current blessings. I kept going with my business marketing even as sales seemed to slow. The recession economy also slowed my vet practice so I had more free time to reflect and visualize for the future.

Interesting thing happened once I got out of the way. God started working on my projects and arranging one miracle after another for them to be accomplished easily and with minimum expense. It was like I was just along for the ride.

Here is what God has done for me this year:

Patio completed with free flagstones
Fence around 10 acres with half cost and labor from my neighbor
Panels for fence around my yard delivered for a great price
Down cedar stacked at a discounted price
A new shelter for the horses
Hot wire around my front pasture

Other gifts:

Neighbor’s goat to milk since mine did not get pregnant
Perfect healing from my kick injury
Healing of a foundered horse in my care who should not have survived
A fun new pony to enjoy

It was like God had all these gifts saved up and he was just waiting for me to stop pushing to get my way. I had to run out of my own resources before I considered depending on his. How sad but once again God used my struggles to teach me a huge lesson.

Here is what I have learned to do while I wait on God:

Show appreciation and count my blessings
Keep working even when business slows
Journal and reflect on previous actions
Focus on a positive vision for the future.
Trust God for timing and anointing

Now waiting is becoming a peaceful and useful pass time. I may not be soaring like an eagle but I am sure less weary. Madalyn

Photo Credit: Flickr via creative commons

Sep 16

Money Smart Skill: How to pay yourself first

Posted on Friday, September 16, 2011 in Financial Education, Money Smart Skills, Network Marketing

The money smart skill of paying yourself first is a tough one for many. My first years in business I felt like the pay machine for everyone but myself. Across the board every financial advisor I consulted preached the importance of paying myself first, yet I could not feel good about taking money out of my business when I still had bills unpaid at the end of the month. Finally I had to face the fact that if I could not pay myself then I had no business working for myself.

In order to pay myself I had to bring in more income and/or lower my expenses. The money smart skill of paying myself first had to become a priority and I knew I had to change my entire mindset about money. Instead of looking at money itself I started looking at how to use it differently. For instance, I knew I could not work more hours than I was working so I had to look at other sources of income that did not require more hours of work from me. At least not long term.

Network marketing was a Godsend for me. At first I worked a few more hours a week but as I gained more skills I had income coming in each month based on my previous efforts. My network marketing efforts did not bring in huge sums of income but the consistent checks gave me room to breathe and allowed be to work a few less hours a week. By working fewer hours  was able to study more and increase my skills which allowed me to raise my prices.

Two ways I increased my income:

Started a network marketing business
Advanced my skills and raised my prices

Next I looked at how I was spending money. At that time I was renting my clinic and it made sense for me to buy my own property. Purchasing my own clinic was a way of paying myself because I was building equity in real estate. Another way of paying myself was to start contributing to a SEP retirement fund which also saved money on taxes. The money smart skill of paying myself first began to shift my bottom line and over the years allowed me to gain financially.

Two ways I paid myself:

Purchased my own clinic and stopped paying rent
Invested in a SEP retirement account

Because the money was automatically invested through mortgage payments and direct withdrawal from my bank account I never had to make a choice of paying myself or paying bills. Interestingly, the bills still got paid. Madalyn

Enjoy our free E book: Journey to Enlightened Wealth

Aug 12

Wealth Building 101: Manage your emotion

Posted on Friday, August 12, 2011 in Financial Education, Rich Dad Education, wealth building

When it comes to wealth building, emotion is not your friend! A perfect example of this is the roller coaster ride the stock market has been on the last few weeks. One day the news is good so people buy, the next day the news is bad so people sell.  Did the companies being bought and sold really gain or lose value in those few hours? Of course not but people are reacting to emotions rather than logic.

What about your everyday spending habits? Do you spend money when you feel like you want something even if the item is not in your budget? Do you have a budget? Do you save when you are fearful about the recession economy and then start spending freely again when the economic news improves?

How about your work habits? Do you stay focused on your business even when your friends are headed to the lake? Do you set goals and plan out the action steps needed to reach them?

Before I was introduced to the Kiyosaki financial education principles I made all of my wealth building decisions based on emotion. Actually, it has only been in the last few years that I have developed the discipline to manage my emotion when it comes to wealth building. I am a very impulsive person and I love excitement. Believe me when I say I have had to sit on my hands during the recent stock market churning. I have a plan for my investments but it has been so tempting to bail on some holdings to add to others only to watch the fortunes reverse for each in a matter of hours or days.

Same with my everyday spending. On my farm I have so many projects I want to do but I have to stay focused on priorities. In the past I would have simply done the projects and put to cost on credit cards. Now, thanks to my Kiyosaki, richdad education, I avoid credit card debt like the plague. I have to look at the importance of a shelter for the horses first even though my emotion is that I want a round pen more.

Same with business. It is Friday afternoon and I am so tempted to call it a week and quit early but writing this blog is the action step that is needed to achieve my long term business goals. Now that I am writing this blog my emotion has shifted from bored to excited.

Emotions are like that. They are fickle and can shift on a dime. That is why wealth building is about managing emotion.

Here are a few tips that help manage emotion:

Keep a journal so you can see where your emotions go from day to day
Keep a balance sheet for your business so you can see where your money goes
Track business and personal assets and expenses
Understand what your net worth is
Watch your cash flow monthly
Study all you can about wealth building. Hint – all the experts say make a plan and stick to it. Boring but true.
Schedule time for fun and keep a little cash on hand for impulse spending

Celebrate and reward yourself for managing your emotion

Madalyn

Like this post: Check out Hope is not a strategy or
Why you need a coach

Photo credit: Flickr via creative commons

Aug 8

Wealth Building 101: Creating cash flow monthly verses building a fence

Posted on Monday, August 8, 2011 in wealth building

I have been building fence the last few weeks in 105 degree weather and hard as that is, it is easier than creating cash flow monthly. You see, with building a fence I see the fruits of my labor right away. The pattern looks like this:

Goal – work – reward

My goal is 1000 feet of new fence so my horses can have more grazing area.

The work involves laying a ground wire so I know where I want the post holes, buying the supplies, digging the holes, driving T posts, stretching wire, tying the fence to the posts and hanging gates. It is hard but straight forward work.

The reward is happy horses and hopefully a lower feed bill when it decides to rain again.

Creating cash flow monthly is not so clean a process. The pattern looks like this:

Goal – work – work – work – work some more – small reward – work – work – work some more – setback like a major recession – keep working – reward – work – reward  – work – more reward – ongoing reward of regular cash flow monthly with less to no additional work on your part

Your goal is cash flow monthly so you can have money and time to enjoy it. In other words, to live your dream.

It’s the work part that is so challenging. First, you have to be willing to work and delay your gratification. Second, like building a fence, you have to have a plan. If you are starting a business from scratch this can be a huge barrier. You will not likely get a loan or investor support without a solid plan on how you intend to create cash flow monthly. If you have never built a business of your own you may have no clue where to start the process.

A great place to start in building a business that can generate cash flow monthly is with a solid network marketing company. With a good company and good partners you will have the security and mentoring from people who have already put the infrastructure in place for you. You will still have to learn the skills needed to be successful and there will be a lot of work involved but you will have a plan. You don’t have to quit your job and you can build your business working as little as 7 to 10 hours a week.

The reward part of creating cash flow monthly is often very slow in coming. This is probably why so many people lose track of their goals and give up on their dreams. They stick to what they know, even if it is painful – like fence building. Madalyn

PS My network marketing business gives me cash flow monthly so I can have and enjoy my own farm. Fence building is not my real job:).

Contact me if you have any questions.

Wonder if network marketing is right for you?

Aug 2

Money Smart Skill: Appreciation of residual or perpetual cash flow monthly

Posted on Tuesday, August 2, 2011 in Financial Education, Money Smart Skills, Network Marketing

Recently I asked myself why I get so excited about small increases in my residual cash flow monthly and take my more significant earned income for granted. It is not that I don’t appreciate the money I earn in my veterinary practice but I see that money evaporate when the bills come due and then I have to earn it all over again.

My residual cash flow monthly, on the other hand, is based on past effort and financial investment. Although generally a smaller amount than my earned income I don’t have to earn it every month, it just shows up. I love that. I have spent to last 15 years developing the money smart skill of shifting my overall income from primarily earned income to residual cash flow monthly.

Residual is what is left over at the end of a process, in the case of residual income it is money that comes to you regularly in return for your past work and investment efforts. You might argue that you should have money left over after paying bills with earned income. This is true but you have to work for that money each time.

Passive is another term for residual income but I don’t like it because it implies that the income happened with no effort on the part of the receiver. Nothing could be further from the truth. Creating residual cash flow monthly requires significant effort, sometimes working months or even years with little reward.

I prefer the term perpetual income which means something that continues indefinitely without interruption. Some people call this mailbox money from back in the days before direct deposit.

Lets look at a hypothetical example of how earned and perpetual income compare over the course of a few months:

Month 1
Earned income $1000 with $200 left over after paying bills

Month 1
Perpetual income of $200 from investments such as rentals or a network marketing business

Month 2
Economy slows. Earned income $800 with none left over after paying bills

Month 2
Economy slows. Perpetual income of $200 remains consistent

Month 3
Great economy. Earned income $1200 with $400 left after paying bills

Month 3
Great economy. Perpetual income of $200 remains constant

Month 4
Brief illness limits work. Earned income of $800 with none left over after paying bills

Month 4
Brief illness does not affect perpetual income of $200

Month 5
Vacation needed to recover from illness and overwork. Earned income $800 with none left over after paying bills

Month 5
Perpetual income of $200 comes right on time while you enjoy vacation

Month 6
Back to normal. Earned income of $1000 with $200 left after paying bills

Month 6
Perpetual income of $200 remains constant

Lets look at the final tally over a typical 6 month period:

Earned income $5600 with $800 net
Perpetual income of $1200 with $1200 net
Earned income and perpetual income combined $6800 with $2000 net

This may seem like a simplified example but it is a reflection of reality. If you ever wonder why you don’t get ahead with earned income alone I hope this helps you understand. I am not saying quit your job but I am suggesting you consider adding a source of perpetual income. Keep your job to pay the bills and create perpetual cash flow monthly to enjoy your life. Madalyn

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Photo credit: http://www.flickr.com/photos/joeshlabotnik/ / CC BY 2.0

Jul 22

Saving with solar power

Posted on Friday, July 22, 2011 in Uncategorized

Guest Post: Kevin Gibson

If I told you there’s a minimal risk investment that could return 16% per annum, would you be interested?

I have known Madalyn for about ten years now and although our common ground is horses, we usually end up in discussions around politics and economics.  I have read with interest her blogs on money and offered this piece as a guest contribution to her ‘gocashflownow’ site.

In terms of ‘Money Models,’ mines about to change dramatically as I will be retiring in a few months. I will go from a 6 figure, tax free income to a zero income scenario.  That’s kind of a scary change in lifestyle.  So a big question is how I get my capital to work for me in this economy. Well obviously passive income is good and we do have some income from property rental, but an alternate is rather than using capital for income how about reducing your expenditure.

So about 18 months ago I decided to install a grid tied solar panel array. Most people would agree that solar powered electricity would be a better solution for the planet, but the cost still seems to be a deterrent to residential systems.  Going solar might be easier and cheaper than you think, but you have to do some research and math. I’ll talk later about some of the options available but let’s start with the example of my system.

The nice thing about grid tied is you don’t have to worry about peak loads or getting through cloudy days. When you generate excess electricity it is pushed back to the grid on a separate meter . When you’re not generating enough power you pull from the grid through the regular meter. The difference in the two meter readings is charged if you used more than you generated, or is credited in kWh (kilo Watt hours) if you’ve over generated.

SYSTEM SIZE: My old electricity bills, which I could download on-line, showed I used 12,000 kWh in a year. This varied from 730 kWh in spring to a peak of 1,400 kWh in August when the A/C was running.  So I needed a system that averaged 1,000 kWh per month or 33.3 kWh per day.  So the next question was how much sunlight do we get here in Snowflake AZ.  There are published maps and charts of average sun hours for our location (see resource’s at end) from these we get an average of 6 sun hours per day.

So for 33.3kWh in 6 hours of sun I need a power rating of 33.3/6 = 5.56kW
There is loss due to inefficiencies of about 10% so 5.56*1.1 = 6.1kW

So the solar panels are connected to a controller and inverter and the size that covered my requirements was nominally 6.3kW with 28 solar panels which were ground mounted.

SYSTEM COST: To connect to the grid the system must be installed by an approved contractor, this is also required to apply for the benefits or rebates available. I got quotations from 3 contractors and then haggled down a few hundred.

So the cost break down:
System hardware               $18,000
System installation             $18,000
Power Company Rebate – $18,000 that was $3 per watt on a 6kW system
Federal Tax rebate             – $5,400 that’s 30% of final cost to owner
Total cost of system            $12,600

SYSTEM PERFORMANCE: The system came on line early Jan 2010 and generated 11,016kWh of power. Regretfully we had a problem with the controller and lost 6 weeks of power from half the panels. The loss was refunded by the vendor as the equipment was on a 7 year guarantee. To date this year we have generated 6,360 kWh of power and are ahead of target of 1000kWh/month. So in a typical year we expect to generate the 12,000kWh that we designed for.

COSTS ANALYSIS: You may have seen figures for cost of electricity for different states. Here in Arizona that cost is supposedly 10cents/kWh.  However when I took a closer look at my electricity bill, there were additional transmission costs, service costs and taxes all proportional to the kWh used. In the final analysis I paid $8.80 to have the meter read and 16.7c/kWh for my power.

12,000kWh of power at cost of 16.7cents/kWh = $2004 per year. That’s a return on my $12,600 of 15.9%, and you won’t match that in today’s market. Another way to look at it is that the system will pay for itself in 6.28 years at the present cost of electricity. In the next few years I would expect an increase in power cost, so the payback may well be less than 6 years and there after my electricity bill is $8.80 per month to have the meter read.

A tricky part of retirement planning is knowing how long to live. If I die in the next five years I have plenty of money, if I live to 100 things might be tight. We plan everything on 30 years.   If we make it that far we’ll sell all assets and move into assisted living. When you start looking at time frames like 30 years the numbers get more dramatic at 3.5 % inflation we would have needed $100,000 to support our electricity habit.

Now if you don’t have the capital to invest immediately, you might still be able to go solar by using a rent and purchase agreement. There are several companies offering this kind of agreement, where basically they install the equipment; you keep paying the electricity bill as usual and after several years the equipment becomes yours.   So you’re no worse of for the next few years, then you get the benefits afterward and all the time you’re helping the planet.

RESOURCES:
Solar maps
Solar/Rent purchase
Photo credit: Flicker via creative commons