Saturday, July 2, 2016

Hang 10%, Wave after Wave

SURFING FEVER - I had the pleasure of talking to a long time friend. He's got Hawaii fever, BAD! He bought some condos in Oahu and recently a home there. In fact, the two times my family traveled to Hawaii, we stayed at his places. The friend is financially secure and longs to move to Hawaii full time. His girlfriend still has career aspirations working in the entertainment industry. Because he wants to be supportive of her, he is not yet pushing too hard for a permanent move to Hawaii. I am not sure when he picked up surfing, but by his account,  he could spend the rest of his life surfing and he would die happy. In Hawaii, there is a supposedly a buzz in the air when the surf is up. Everyone gets excited to drop what they are doing and head out since nature is challenging them. Evidently, once you have this surfing fever, you never lose it. 

MULTIPLICATION- The only splurge our family really has is spending on our childrens' education. Our oldest kid goes to a private school that costs a several pretty pennies. Luckily only one of our children is of school age right now. Interestingly, the school line item cost is greater than all our other expenditures combined. This is a function of the schooling costing a whole lot of mullah and the fact that we live a pretty simple life. I'm still not sure that private school is the best path for our kids, but we'll see. (The math says, I can give my kids 1M dollars at graduation or this private school education, this will be another post one day) The resources and experiences the kids have at this private school are so amazing. I soooo wish I could go to this school, yes that is ENVY.  The students love their school. I often threaten my oldest that if she doesn't do X (whatever a parent is imploring their child at the time), that she can't go to school. Who would have thought of school being a treat for a kid? So the school has families pay the tuition in full for the next school year by June of the existing school year. The concept of perishability of an unused student spot is comprehensible, but it doesn't make it any easier to pay tuition a year in advance. In kindergarten and 1st grade, the school tries to instill this love of learning so they totally pamper the kids. They don't really push the kids academically. I've been wanting my oldest to learn multiplication, so I can teach her about the concept of 10% returns/waves, a sort of annuity. I basically told her she had to learn the multiplication table before I would pay for the next school year.

10% - So why 10%? First, I've always been able to make more than 10% per year. I kind of see that as the minimum return. Second, the math is easy; 10% of something is really easy to calculate. My dad taught me to look at income/expenditures this way. Any cash outlay was losing a future wave of 10% returns, so buying a car for $15,000, meant I was losing $1,500 a year FOREVER. Along the same concept, when you make X amount, it meant you would earn 10% of that FOREVER. I remember when my net worth hit $100,000, I was more excited at the $10,000 cash flow FOREVER. Having this perspective makes the decision on tradeoffs so easy. I was looking at a home purchase recently that would have cost 4M. The decision is: Do I want the home more or do I want the 400k a year. Life really boils down to tradeoffs. What do you want more, this or that? I've often preferred the 10% percent return FOREVER. Excited to be teaching her this concept. As for the magic of compounding, that will be later.

MILLIONAIRE CONFIDENTIAL - Catch the 10% wave fever and let each 10% annual return enable you to reach bliss in life.

Do you have any ah hah perspectives that is like taking the red pill? Once enlightened, your life is never the same. Please share....

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