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Making 6 figures? How to avoid being one of 69% of Americans who have less than $1000 in the bank.

Are you making a 6-figure ($100,000) or higher income? How much do you have in saving? How much do you save per year?

In the latest survey (September 2016 by GoBankingRates) on 7000 American adults, 69% said they have less than $1000 in the bank. Close to half of participants who earn between $100,000 and $149,999 have less than $1000. One-third of participants with incomes of $150,000 and above said that they had less than $1000 in the saving. 6% of those high income earners had nothing in the bank. Where did their money go? What will they do in case they need more than $1000? What will they do in case of emergency? Taking a loan? Using credit cards?

If you are not of those who have difficulty with saving money, you can skip the rest of this article. My primary goal is to show those who have troubles with saving money how they can save even just small amount and possibly retire being a millionaire if they do it right. Saving in my definition is the money you put away without touching it for expenses.

The following steps work for a man who makes one cent as well as the man who makes millions or billions. If you only make 5 figures, it works for you as well.

A warning before you proceed. The method I am about to give you is simple but requires your persistence to apply. You will be rich if you follow it consistently.

First, save one-tenth of what you earn and dont touch it. Bob Proctor and Earl Nightingale put it in another way: pay yourself everything you earn from 8am to 12pm on Monday. If you earn $1000 per month, put aside $100 for your saving. Use only $900 to pay for your expenses. The hardest part is to have discipline not to touch the $100 you save. The most important thing to remind yourself of if you are tempted to use your saving is that you will spend your future without return.

Second, for every dollar you save, make it work for you. Make your savings your slaves. Make their children your slaves also. Let’s say that you put $100 into a bank that would pay you back 5% in interest annually. At the end of a year, you would have $105. The second year you would earn additional 5% on your $105 and end up with $110.25… in other words, your money is compounded at 5%. The first $100 is your slave. Its first 5% is its child which is also your slave. Each additional year you would get more slaves that work for you to earn your wealth.
If you start with $100 and continue to put in $100 each month, with 5% interest, by 10th year you will end up with $15,662.10.

Third, control your expenditure so that you never have to tap into your saving. Better yet, slash your expense so that you may have some extra dollars to put into your saving. Remember #2, your saving will work for you along with its children, grandchildren, …

Fourth, guard your capital. Remember that getting rich is not a quick venture. You must be patient and not jump into any venture that causes you to lose your saving.

Fifth, be disciplined and remember step #4. Warren Buffett follows this principle by saying “the first rule of investing is to not lose money. The second rule is to never forget rule #1”.

If you start with $100 and continue to put in $100 each month, with 5% interest, by 10th year you will end up with $15,662.10. With this amount, you are better than 60% of those who earn more than $150,000 per year. Right after your first year, you will be far better than 69% of American adults who have less than $1000 in the bank.

As I warned you earlier, you must be disciplined to religiously put $100 into saving every month without fail. You must find a way to invest your saving so that it can compound at 5% over 10 years. This is a compound interest of 5%. Buffett recommended index fund, which is historically very safe to earn above 5% return.
Another discipline you must develop is to listen only to people with credibility and expertise. In your endeavor to invest your saving, listen only to people you can fully trust and they really know what they tell you as well as they have track records to prove.

Watch out for advices from your friends, relatives, co-workers, or even strangers. Advice is too cheap. You will lose money if you do not know what you are doing.

Now, go and make a plan for your saving. Pay yourself at least 10% of what you earn, make your saving work for you, be consistent, and listen only to people with credibility. You are on your way to become rich and enjoy your life in comfort.

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Learn the two simple steps to become financially independent: Love your job? How to avoid being financially dependent

Warren Buffett – Annual letter to shareholder 2020

I am an eager student of Warrent Buffett’s annual letters as he writes candidly and shares his wisdom freely. Since I began reading his annual letters, my investing has become much better.

In 2020, the world went through a pandemic with covid-19 spreading out throughout the world. Berkshire, however, had a good year.

The following is my takeaways from Warren Buffett’s 2020 annual letter to shareholders.

“What’s out of sight should not be out of mind.” The unrecorded retained earnings are usually building values for Berkshire.

Typical conglomerates:

“Conglomerates have generally limited themselves to buying businesses in their entirety. That strategy came with two problems. One was unsolvable: most of the truly great businesses had no interest in having anyone take them over. Consequently, deal-hungry conglomerates had to focus on so-so companies that lacked important and durable competitive strengths. Second was that conglomerates often found themselves required to pay staggering ‘control’ premiums.”

Berkshire conglomerate:

“Charlie and I want our conglomerate to own all or part of a diverse group of businesses with good economic characteristics and good managers. Whether Berkshire controls these businesses or not is unimportant to us.”

Investing Philosophy:

“Charlie convinced me that owning a non-controlling portion of a wonderful business is more profitable, more enjoyable, and far less work than struggling with 100% of a marginal enterprise.”

“In contrast to the scoring system utilized in diving competition, you are awarded no points in business endeavors for degree of difficulty. Furthermore, as Ronald Reagan cautioned: ‘it’s said that hard work never killed anyone, but I say why take the chance?'”

Relationship to shareholders:

“Charlie and I would be less than human if we did not feel a special kinship with the million-plus individual investors who simply trust us to represent their interests, whatever the future may bring. They have joined us with no intent to leave.”

“In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned, capriciously switch from one to the other: Your message to potential customers must be consistent with what they will find upon entering your premises.
At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has attracted.”

The annual meeting will be streamed online via https://finance.yahoo.com/brklivestream at 1pm EST.

Onward to the annual meeting.

A note to myself from myself

Dear myself,

An old man told me that I should watch out for the next three days. If I let my emotion take over me, I would be dead. If I can take it slowly, let it sink, slow it down, and let it go, my future will be bright.

Sound interesting, doesn’t it?

Well, I have no problem to let my emotion go. It’s just what’s going on with me internally.

Yet, what the old man told me was an excellent reminder.

On Sunday, some of my employees sent a note telling me that they would not be in the office on Monday.

When I saw the note, I got angry. We are people of integrity and live by the law of integrity. We communicate immediately when we know we can’t keep our words.

Yet, I interpreted that they waited till the last minute to tell me that they wouldn’t be in the office on Monday. It was a clear communication before the break that everyone would be in the office by Monday.

So I was angry. I wrote back a note with anger.

The words from the old man came to the rescue. I saw that my communication didn’t come from my heart; it was from my anger. I removed what I wrote before many would see it. If I was at the receiving end of what I wrote, I would react badly.

Warren Buffett once said that we should hold onto what we want to say when we are angry at someone; let it sit in our mind for at least 24 hours; if after 24 hours we still feel we should deliver the message, we should do it.

Well, myself, it shouldn’t be just three days. Do it for the rest of your life. Respond to anger with love. Come from the place of love and take it from there.

Just love it.

From myself to myself.

Key lessons from Warren Buffett and Berkshire Hathaway’s annual letters

Warren Buffett published his now famous annual letter to Berkshire Hathaway’s shareholders on Saturday February 22nd 2020. He’s known to communicate openly both good and bad. Buffett uses a rule when writing his annual letter: write as if his auntie, who doesn’t understand complicated terms, would read it and communicate key business numbers as if he’s the investor who would read the letter.

The compound interest that Buffett achieved for Berkshire Hathaway from 1965 to 2019 is remarkably 20.3%. This is the best record that any investor can achieve for the duration of 54 years.

Lesson 1: Power of retained earning

It’s easier for people to see when the company pays dividends. When companies retain earnings, many factors need to be considered.
Buffett wrote about retained earnings and its importance to the company’s growth many times.
This time, he quoted Edgar Lawrence Smith, the author of the popular book Common Stocks as Long-term Investments, and John Maynard Keynes. Smith planned to argue that bond performs better in deflationary period and stock performs better in the inflationary period. He was in a shock.
Keynes captured Smith’s insights: “I have kept until last what is perhaps Mr. Smith’s most important, and is certainly his most novel, point. Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In good years, if not in all years, they retain a part of their profits and put them back into the business. Thus there is an element of compound interest (Keynes’ italics) operating in favour of a sound industrial investment. Over a period of years, the real value of the property of a sound industrial is increasing at compound interest, quite apart from the dividends paid out to the shareholders.”
Rockefellers, Carnegie, and Ford amassed mind-boggling wealth by retaining a huge portion of their earnings to fund growth.
Buffett has followed them to retain all Berkshire Hathaway’s earnings. He reinvested $121 billion in the last decade into the company.

Lesson 2: criteria to acquire businesses

Buffett looks for three things in a business:

They must earn good return on the net tangible investment required in their operation
They are run by able and honest managers
They must be available at sensible prices

Those types of businesses are rare. Down markets often offer more opportunities to own such businesses.

Lesson 3: acquiring good businesses
Tom Murphy gave Buffett an advice: “to achieve a reputation as a good manager, just be sure you buy good businesses.”
Reviewing his record which has losers and winners, Buffett concluded: “Acquisitions are similar to marriage. They start, of course, with a joyful wedding – but then reality tends to diverge from pre-nuptial expectations… I’d have to say it is usually the buyer who encounters unpleasant surprises. It’s easy to get dreamy-eyed during corporate courtships.”
Even though Buffett does not sell losers, they became stagnate and required less and less capital from Berkshire. Capital allocation is one of Buffett’s specialty. He allocated like he invested: more to the winners and less or none to the losers.

Lesson 4: Don’t forecast
as the pundits who opine on forecasting reveal far more about themselves than they reveal about the future.

Lesson 5: 5 factors of Buffett’s optimism on Berkshire’s future.

Berkshire’s assets are deployed in extraordinary variety of businesses that on average earn attractive return on invested capital.
Berkshire’s positioning of its controlled businesses within a single entity with substantial amount of capital endows it with some important and enduring competitive advantages.
Berkshire’s financial affairs will unfailingly be managed in a manner allowing the company to withstand external shocks of an extreme nature.
We possess skilled and devoted top managers for whom running Berkshire is far more than simply having a high-paying and/or prestigious job.
Berkshire’s directors are constantly focused on both the welfare of owners and the nurturing of a culture that is rare among giant corporations. (A new book called Margin of Trust will be published)

Lesson 6: board of directors

When a CEO wants to make an acquisition, he/she hardly brings in consultants or directors that would likely challenge him/her.
If a director’s income is largely tied with directorship fee, the director is not independent. He/she would not challenge the CEO for the fear of losing their directorship. In addition, CEO often looks at a director’s track record and would more likely bring in directors who have not opposed to CEOs.
At Berkshire, directors got paid a tiny fee compared to their net worth. Berkshire’s directors also buy their own shares instead of being granted.

For the full annual letter, please visit https://berkshirehathaway.com/letters/2019ltr.pdf

Hetty Green – the witch of Walls Street and the world’s richest woman

Hetty Green was born in a rich family. She inherited a large sum from her father. However, unlike other rich daughters, she didn’t like to spend money on luxury. She loved compounding money. From less than $1 million she inherited from her father, she invested in real estates, bonds, and companies. By the time she died at the age of 83, she was the richest woman in America. Her net worth was estimated from $100 million to $200 million (or $2.3 billion to $4.6 billion in 2019).

Hetty Green lived a frugal life. She did what she loved and didn’t care what others thought of her.

The following are stories I collected which are my favorites about Hetty Green.

Hetty thought her servant wasted money shopping for family meals. In fact, she considered her servant a wasteful expense.

“Hetty insisted on doing most of the shopping herself, and would return to the house bearing the cheapest flour she could find, and bags of broken cookies that grocers sold cheap. Grocer Patrick J. Keane said she always redeemed her berry boxes for a nickel refund, and asked for—and received—free bones for the family dog.”

“When the Greens first arrived in town, they took pleasure rides in Edward’s barouche, a fancy, four-wheeled carriage with a collapsible top, double seats facing each other inside the carriage, and an outside front seat for the driver, along with a pair of fine horses. Hetty decided the rig was too fancy. She sold the carriage and horses, and paid $10 for an old horse and a modest jump seat wagon, barely large enough to fit the family.”

“Edward’s mother was no match for Hetty’s forceful nature. Anna had no doubt expected to live out her remaining days in genteel comfort and contentment, surrounded by Edward, his bride, and the two grandchildren. Instead, she found herself sharing her suddenly too small home with a loud, opinionated woman who questioned every incidental expense, harangued her beloved maid, and didn’t even bother to make herself presentable. Neighbors on Henry Street were shocked one day to see Hetty on the roof, seated, wearing hoop skirts, hammering away. Why pay workmen for a simple repair job?”

“Merchants reportedly tried to lie low when they saw Hetty Green approaching. She was known to demand the cheapest possible goods and, still, to haggle endlessly over a bill.”

“Hetty Green never thought of anything without evaluating its cost, and never received a bill that she did not question.”

“She seems to have made it a rule of her life to indulge in no personal luxuries. She has been known to walk from her hotel in this city to a social reception through a heavy snowstorm rather than pay for the use of a coach.”

“Although she could have afforded a home as fine as the finest on Millionaire’s Row, she chose instead the teeming, dense borough of Brooklyn, populated by immigrants and, laborers, where nobody dressed up as royalty”

“Nobody ever saw her with a dress which was not severely plain, and seldom has she been noticed when she did not carry an old style and well-worn black satchel. Her appearance would never cause the uninitiated to think that she was anything more extraordinary than an old fashioned woman of moderate means and simple tastes, who was on her way to the corner grocery or the bakery on the block below. Yet, if money is power, this same staid looking person is one of the most powerful human beings in the country.”

“Hetty rarely lost sleep worrying what others thought of her, and yet there was a certain irony in the public’s reaction to her. For all of her faults, she was no snob. She sneered at all forms of pretense, and was unimpressed with titles. She didn’t just mix with the common folk; she lived among them, ate at their restaurants, rode their streetcars and ferries.”

“Hetty lived her life convinced that, as a businesswoman, if not as a woman, she was fundamentally and completely alone. Nobody else would watch out for her interests. She mistrusted all forms of alliances and cabals. Where other investors sought the safety of numbers, the soothing ring of consensus, Hetty felt most comfortable on her own, trusting her own judgment and instincts. She was a free agent in the truest sense of the term.”

The Georgia Central was unwieldy, inefficient, and complacent. The stock languished at $69. In 1886, a group of investors from New York began buying up the stock with the idea of replacing the management and directors.

The Georgians fought back.

Hetty got wind of the plan early on and began quietly buying stock at around $70 a share. She had 6,700 shares. She took no side and waited patiently.

By November, the stock shot up to $100 per share.

Alexander, the New Yorker, offered Hetty $115 a share.

Hetty told him that he could have her shares for $125. Alexander declined.

A few days later he came back accepting her offer with a condition that she waited till the election was over.

Hetty replied: “If I have to wait for my money, the price is $130.”

Alexander counted with $127.50 and Hetty agreed.

As her custom, she demanded that Alexander’s group post collateral for the entire amount.

Despite her reputation as a miser and a hard-nosed dealer, Hetty usually offered rates that were more than fair. Although she could be ruthless when dealing with an enemy, she rarely if ever took the opportunity to kick a borrower when he was down. That was bad business, she always said.

“I’ve found out something about the young man who has been waiting on you at Newport, Sylvia. I find that your young man is very nice and proper, but if it wasn’t for his father, the world wouldn’t know a thing about him. He has never earned a dollar and doesn’t know the value of money. Now Sylvia, I’ve kept my eyes open all these years, and I want to say right here and now, that you shall never marry a society man with my consent. I want to see you happily married and in a home of your own, but I want you to marry a poor young man of good principles, who is making an honest, hard fight for success. I don’t care whether he’s got $100 or not, provided he is made of the right stuff. You will have more money than you’ll ever spend, and it isn’t necessary to look for a young man with money. Now you know my wish, and I hope I won’t hear anything more about your young man at Newport, who knows just about enough to part his hair in the middle and spend his father’s money.”

“Hetty kept to a simple and predictable daily routine. Each morning she awoke early enough to eat a light breakfast in her apartment and make the short walk, rain or shine, to the ferry slip in order to catch the 7 A.M. ferry to Manhattan.

She was, invariably, among the first to arrive at the bank (where she has her office desk). She ate a small and hurried lunch at any of several nearby restaurants.

In the evening, Hetty was usually among the last to leave the bank. ”

“Waiter, I want the best steak you can give me for thirty cents.”

“We have no thirty-cent steaks, madam.”

“No thirty-cent steaks! Haven’t you something you can warm up for me?”

“No, madam.”

“Well, how much is your tea?”

“Ten cents.”

“Ten cents! Well, it isn’t worth it. How much are your stews?”

“Fifteen cents.”

“Can’t you let me have a stew for less than that? “No, madam.”

“Well, you can bring me some tea, some toast without butter, and a stew.”

“All of her life she had considered herself physically indestructible, and her remarkable constitution generally supported this conceit. She attributed her ability to function into her seventies with the energy and sharpness of someone half her age to her prudent habits—moderation, frugality, and self-denial. Illness and health to Hetty had always carried a moral component—people who were sick were probably overindulging their desires, becoming soft, or else spending money they did not have and driving themselves to an early grave over worry. ”

“One way is to give money and make a big show. That is not my way of doing. I am of the Quaker belief, and although the Quakers are about all dead, I still follow their example. An ordinary gift to be bragged about is not a gift in the eyes of the Lord.”

The #1 app for building habit of being effective

I was inspired by Peter Drucker when reading the Effective Executive on an airplane. Being a tech guy, I was inspired to create an app to help myself and others become more effective.

My team was inspired by what it can do for others and released the first version with lightning speed.

Interestingly enough, even testing the app, I built quite a few good habits and had better control over my time. Some of those are built into the app such as: walk 10,000 steps daily, wake up by 6 am, read 30 minutes a day, prioritize my day,….

I know it can do the same for you.

You are invited to check it out at:
https://achieffective.com

And share your feedback. We are already working on the next version to incorporate many feedbacks we received.

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