Sam Walton, the founder of Wal-Mart, grew up poor in a farm community in rural Missouri during the Great
Depression. The poverty he experienced while growing up taught him the value of money and to persevere.
After attending the University of Missouri, he immediately worked for J.C. Penny where he got his
first taste of retailing. He served in World War II, after which he became a successful franchiser of Ben
Franklin five-and-dime stores. In 1962, he had the idea of opening bigger stores, sticking to ruralb areas, keeping costs low and discounting heavily.
The management disagreed with his vision. Undaunted, Walton pursued his vision, founded Wal-Mart and
started a retailing success story.
When Walton died in 1992, the family's net worth approached $25 billion.
Today, Wal-Mart is the world's #1 retailer, with more than 4,150 stores, including discount stores,
combination discount and grocery stores, and membership-only warehouse stores (Sam's Club).
Learn Walton's winning formula for business.
Rule 1:
Commit to your business. Believe in it more than anybody else. I think I overcame every single
one of my personal shortcomings by the sheer passion I brought to my work. I don't know if you're born
with this kind of passion, or if you can learn it.
But I do know you need it. If you love your work, you'll be out there every day trying to do it the
best you possibly can, and pretty soon everybody around will catch the passion from you - like a
fever.
Rule 2:
Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations.
Remain a corporation and retain control if you like, but behave as a servant leader in your partnership.
Encourage your associates to hold a stake in the company. Offer discounted stock, and grant them
stock for their retirement. It's the single best thing we ever did.
Rule 3:
Motivate your partners. Money and ownership alone aren't enough. Constantly, day by day, think
of new and more interesting ways to motivate and challenge your partners. Set high goals, encourage
competition, and then keep score. Make bets with outrageous payoffs. If things get stale,
cross-pollinate; have managers switch jobs with one another to stay challenged. Keep everybody guessing
as to what your next trick is going to be. Don't become too predictable.
Rule 4:
Communicate everything you possibly can to your partners. The more they know, the more they'll
understand. The more they understand, the more they'll care. Once they care, there's no stopping
them. If you don't trust your associates to know what's going on, they'll know you really don't
consider them partners. Information is power, and the gain you get from empowering your associates
more than offsets the risk of informing your competitors.
Rule 5:
Appreciate everything your associates do for the business. A paycheck and a stock option will buy
one kind of loyalty. But all of us like to be told how much somebody appreciates what we do for them.
We like to hear it often, and especially when we have done something we're really proud of. Nothing
else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They're
absolutely free - and worth a fortune.
Rule 6:
Celebrate your success. Find some humor in your failures. Don't take yourself so seriously.
Loosen up, and everybody around you will loosen up. Have fun. Show enthusiasm - always. When all else
fails, put on a costume and sing a silly song. Then make everybody else sing with you. Don't do a hula
on Wall Street. It's been done. Think up your own stunt. All of this is more important, and more fun,
than you think, and it really fools competition.
"Why should we take those cornballs at Wal-Mart seriously?"
Rule 7:
Listen to everyone in your company and figure out ways to get them talking. The folks on
the front lines - the ones who actually talk to the customer - are the only ones who really know what's
going on out there. You'd better find out what they know. This really is what total quality is all
about. To push responsibility down in your organization, and to force good ideas to bubble up within it, you must listen to what your associates are trying to tell you.
Rule 8:
Exceed your customer's expectations. If you do, they'll come back over and over. Give them what
they want - and a little more. Let them know you appreciate them. Make good on all your mistakes, and
don't make excuses - apologize. Stand behind everything you do. The two most important words I
ever wrote were on that first Wal-Mart sign: "Satisfaction Guaranteed." They're still up there,
and they have made all the difference.
Rule 9:
Control your expenses better than your competition. This is where you can always find the competitive advantage. For twenty-five years running - long before Wal-Mart was known as the nation's
largest retailer - we've ranked No. 1 in our industry for the lowest ratio of expenses to sales.
You can make a lot of different mistakes and still recover if you run an efficient operation. Or you
can be brilliant and still go out of business if you're too inefficient.
Rule 10:
Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody else is doing it
one way, there's a good chance you can find your niche by going in exactly the opposite direction.
But be prepared for a lot of folks to wave you down and tell you you're headed the wrong way. I guess in
all my years, what I heard more often than anything was: a town of less than 50,000 population cannot
support a discount store for very long.
Management is all about connecting with the people on your team. So how do you effectively manage a team?
With common knowledge, of course. These are a few back-to-basics rules that will help you develop management skills that really matter.
Body Language
Like it or not, your body speaks volumes, even when you are silent. Here's how to express an attitude that's appropriate for a leader.1. Stand tall. Keeping your shoulders back and holding yourself up to your full height will give you an air of confidence.
2. Take your hands out of your pockets. Putting your hands in your pockets is often seen as a sign that you have something to hide.
3. Stand with your arms crossed behind your back. This will help you adjust your posture, and it leaves your hands in a position that is open and not intimidating.
4. Make eye contact. Always look directly into the eyes of the people you are speaking with. This shows you're interested and also gives you a sense of confidence.
5. Sit up straight. Even if you're at an 8 a.m.meeting and feeling tired, it's important to sit up straight in your chair. Slouching makes you look disinterested and can give off an unwanted air of laziness.
6. Face the person you're talking to. This shows you are interested and engaged in the conversation
7. Shake hands firmly. For many, a handshake is a reflection of the person you're shaking hands with. You don't want to come across as unsure or overbearing, so make sure yours is professional and confident.
8. Always smile. Smiles are contagious and will make others feel positive when you're around.
9. Look your best. You don't have to be model perfect every day, but you should dress appropriately and neatly. Clothes can have a big impact on the way you're perceived.
10. Walk confidently. Keep your head up and take even strides.
Meeting Deadlines
11. Only promise what you can realistically deliver. Don't create deadlines that you know you can't meet. By only promising what you know you can do, you'll be able to finish on time.
12. Set clear goals. Once you know what you need to accomplish, it helps to know how and when you want to do it. Put your goals down on paper and make sure everyone on your team gets a copy.
13. Organize a team. Many of your employees will have unique strengths and training that can make them great assets to certain projects. Pick a team that has the right skills to carry out the job.
14. Delegate tasks. Spread work among your employees in a way that doesn't leave anyone overburdened while also allowing the project work smoothly.
15. Create milestones. Creating milestones for you and your team will help you keep track of your progress and also give you a sense of accomplishment as you reach each milestone.
16. Keep communication open. Keeping everyone in touch with the status of the project is key to making sure it's completed on time.
17. Do it right the first time. Planning ahead will help prevent you from delivering a substandard product. Having to redo something for a client costs money, and, more than likely, future business opportunities.
18. Stay organized. Staying organized will help keep you from wasting time chasing down important documents and information.
19. Make sure expectations are clear. Be sure that each member of your team knows what their specific responsibilities are. This will save time and prevent tasks from being overlooked.
20. Create a plan. Compile your goals and milestones into a comprehensive plan for attacking any project you are given. This way, you can make sure you're staying on schedule and that all of your employees will be clear about how and when things should be done.
Getting Along with Employees
A happy office is a productive one. Everyone will be more cheerful if you follow these simple rules.
21. Don't make your employees come in on days they're normally not scheduled to work or call them while they're on vacation. A surefire way to make employees resent you is to invade their personal time for nonpressing work. Unless you have something that absolutely has to be done, let time away from work stay that way.
22. Don't play favorites. Playing favorites can bias your judgment and impair your leadership abilities. Treat your employees equally.
23. Give credit when it's due. Don't take credit for your employees' ideas or hog their limelight. This action not only fosters resentment but also makes you seem untrustworthy.
24. Don't micromanage. While it's fine to keep up with what your employees are working on, don't constantly look over their shoulders.
25. Never discuss employee matters with their co-workers. This kind of gossip always gets back to the person and will make you look unprofessional.
26. Don't interfere with employees' work. If your employees are getting work done, don't stress about how it gets done. Even if it's not being done they way you'd do it, it's best to let employees use their best judgment.
27. Don't push unreasonable deadlines. You don't want to spend all of your time at the office, and neither do your employees.
28. Keep your promises. Barring some catastrophic event, you should always keep promises you make to employees, especially about pay and benefits.
29. Keep work about work. Don't require employees to run your personal errands. Take care of your own personal business or hire an assistant.
30. Reward hard work. Make sure your employees feel valued for the work that they do. Employees will be more willing to put in extra effort if they know it's noted and appreciated.
31. Provide motivation. Sometimes employees need a morale boost. Provide them with encouragement to get a project rolling.
Manage Yourself
Being a good manager isn't just about what you can encourage other people to do, it's also about managing your own performance.32. Be accessible. Don't hole up in your office all day - come out and visit with your employees. Let them know that they can always come to you with problems and concerns.
33. Be open to constructive criticism. It may not always be what you want to hear, but listening to constructive criticism gives you the chance to learn and grow from your mistakes.
34. Accept responsibility. Part of being the boss is accepting responsibility for the mistakes of all that you manage, not just your own.
35. Know there's always room for improvement. No matter how good you think you are, your job can always be done better. Always be willing to learn.
36. Improve your skills. Learning is a lifelong process. You're never too old to take a class or ask a co-worker to help you improve your knowledge.
37. Explain things simply. Don't use big words or technical jargon just to sound smart and impress others. Your employees will understand and perform better if you explain simply and clearly what you need.
38. Instruct rather than order. You may be the boss, but you don't have to be bossy. You'll have more success if your requests are more tactfully delivered.
39. Include your staff in your plans. Don't make your work top secret; let your employees know what's going on and how they are expected to contribute.
40. Know your subordinates' jobs. You don't want to be caught with inferior job knowledge.
41. Be flexible. It's fine to be firm in what you expect, but allow for flexibility in how it gets done.
42. Get regular feedback. Your employees and superiors can give you valuable feedback on how to improve your performance. Use this to your advantage.
43. Know your limitations. You can't be everywhere doing everything all at once. Know the limits of your time and abilities and say no to things you know you can't do.
Boosting Productivity
Getting the most out of your day can be difficult with a busy schedule, but you can use these tips to help you maximize your time in order to be better available to employees.44. Get the most out of meetings. Be organized and prepared for meetings to increase effectiveness and time savings.
45. Focus your energy on things that matter. Don't let trivial tasks take time away from things that are really important.
46. Identify your time-stealers. Everyone has little things that detract their attention and make them lose focus. Figure out what these are and work to eliminate them, if only for a few hours a day.
47. Be punctual. Being on time is a big deal. Never keep people waiting for appointments or meetings if you can help it.
48. Respond to your correspondence within a reasonable amount of time. You don't have to be chained to your inbox, but make sure you respond to emails within a few hours whenever possible.
49. Do only what is necessary. There are times when going above and beyond works, but doing so on a daily basis can derail your progress on more important issues. Get the key things done first, then see if you have time for additional things.
50. Stick to schedules and routines. While they may not be the most exciting things, schedules and routines can help streamline and improve your productivity.
51. Organize and manage your schedule. Use any tools and utilities you have at your disposal to prioritize your day and keep track of what you need to get done.
52. Plan more than you think you can do. While this may sound stressful, it can actually be a great motivator. If you manage to get everything done, you'll enjoy a great sense of achievement.
53. Get to work early on occasion. Sometimes an uninterrupted half hour in an unoccupied office can help you get key things done or allow you to plan your day before there are any distractions to slow you down.
54. Know that sometimes stress is good. While too much of anything, especially stress, can be bad, sometimes a little stress can be the motivation to get you moving, allowing you to get more done.
55. Do your least favorite tasks first. Get your most tedious and least desirable tasks out of the way earlier in the day. After that, everything else will be a breeze.
Managing Finances and Resources
Whether you're a business owner or a manager, staying on top of tangible items is vital to success. These tips can help you keep track.
56. Set up a realistic budget. While it's good to be optimistic, don't plan for more spending than you know you can afford. Make sure you plan for emergencies and contingencies as well.
57. Save costs where they matter the most. Don't just pinch pennies for the present. Make sure your savings will pay off in the long run. Compromising on quality might cost you later on in repairs and replacements.
58. Spend only when it's necessary. Don't spend if you don't need to. Every bit you save goes toward your profit.
59. Find alternative sources of finance. Sometimes even successful businesses need a little help. Business loans and investors can help you through leaner times.
60. Stay true to your contracts. Not only will you gain the respect of your clients, you'll also avoid legal battles that can be a serious financial drain.
61. Make sure employees are well compensated. Employees deserve to be rewarded for hard work. Make sure yours are well compensated for their time and they'll be more productive and happier to come to work.
62. Learn to do more with less. Quality is much more important than quantity, so make what you have count.
63. Assign equipment wisely. While it might be nice for every employee to have a PDA, budgets often don't allow for such conveniences. Make sure the employees that need tools the most have access to them.
64. Invest in solid technology. This doesn't always mean the latest technology, but what your office needs to do work effectively.
65. Update when necessary. Using obsolete equipment and programs can really slow you down. Update when it makes sense so you won't get left behind by competitors.
66. Don't be wasteful. Every sheet of paper, paper clip and pen is a cost on your budget. Use materials wisely and don't waste them out of haste or carelessness.
Communicating with Clients
Whether you're a business owner or a manager carrying out a project, one thing is always the same: The client is dominant voice in decision-making. Learn to communicate with them effectively and you'll set a good example for the people you supervise.
67. Remember that the customer is the boss. At the end of the day, your job is to make the customer happy. Act accordingly.
68. Differentiate your products. Don't get lost in a sea of products and services like yours. Make sure you stand out from your competitors.
69. Retain customers as much as you recruit new ones. While you always want to bring in new business, it's very important to maintain relationships with loyal customers.
70. Provide effective channels of communication. Make sure your clients can contact you easily and quickly if they have a problem, concern or question. They can also provide a valuable source of feedback.
71. Maintain customer data. Use this data to make your customers feel special by remembering occasions like birthdays and anniversaries. It's also helpful for keeping track of purchasing preferences.
72. Segment your customers. Not all customers are alike. Divide your customers into groups that allow you to provide attention and services that meet each customer's unique needs.
73. Provide effective after-sales services. Don't let contact fall off after the work is complete. Make sure your client stays happy.
74. Listen attentively. Pay attention to exactly what clients are asking for to help you better meet their needs.
75. Don't be afraid to say you don't know. It's OK not to know the answer to every question. It's better to say you don't know and get back to a customer than to try to bluff your way through a conversation and have to backtrack later.
Keep Up with Change
There is no way to stop the world from changing, so follow these tips to keep up and ahead of the game.
76. Don't fight change. You can't stop markets, trends and technology from changing, so learn to go with the flow.
77. Adopt a predictive managerial style. Don't wait for things to happen to make a move. Anticipate problems and provide contingency plans.
78. Test your contingency plans. Waiting for disaster to strike is a dangerous way to find out if your emergency plans will hold. Test them out from time to time to fine-tune them and make sure they're still relevant.
79. Identify the positives. Even the most negative changes can have positive aspects to them. Being able to identify and maximize them can help make adapting less painful.
80. Be quick to adapt. Learn to adapt to changing situations quickly and be able to change plans on the spur of the moment if the situation requires it.
81. Stay tuned to external factors. Your business is affected in many ways by outside factors. Keep abreast of these so you can anticipate any sudden market changes that would affect how you need to manage.
82. Put in place a Research and Development plan. Encourage innovation and creativity to stay ahead of the demand for newer and better products and services.
83. Keep an eye on the competition. Don't let the competition get the best of you. Keep up-to-date with what they're doing and use it to your advantage in managing your business
Resolving Problems
Whether problems are internal or external, they can make your management duties a nightmare if you don't handle them correctly. Here's how to stay on top of them.
84. Stand up for employees. If other departments or managers are bearing down hard on your employees, stand up for them.
85. Fix what's broken. Don't waste time placing blame. Take care of fixing the problem before dealing with any possible repercussions.
86. Manage and control your emotions. Don't let anger or frustration affect your problem resolution. If you are emotionally invested in a situation, cool down before discussing it or bring in an outside mediator.
87. Learn when to step in. Some problems might resolve themselves if you just let them be, but you need to be aware of times where you'll need to step in and take control of a situation.
88. Take the blame. If you've made a mistake, fess up. It'll give you more time to work on fixing the problem instead of talking your way out of taking the rap.
89. Get the facts first. Before you pass judgment on a situation, make sure you have the whole story. Listen to employees and refrain from questioning anyone's integrity without first ensuring that you've gathered all the data.
90. Rise above the crisis. Learn to separate yourself from the problem and rise above the fray. You'll be able to think more clearly and make a better decision on how to rectify the issue.
91. Don't ignore problems. A small problem can easily snowball and become something much more difficult to fix.
92. Try to depersonalize problems. Let employees know that the problem isn't with them but with their actions. Don't make it personal.
Go Above and Beyond
Managing people isn't just about getting the job done. To truly be a great leader, sometimes you need to go above and beyond what the job calls for.
93. Lead by example. You can talk until you're blue in the face, but the best way to get a point across is to be the model to emulate. Let employees follow your lead.
94. Get your hands dirty. Sometimes you need to show your employees that no one's above doing unattractive tasks.
95. Make a difference to your employees. Don't just be a generic manager - stand out as a leader and role model for your employees.
96. Gain your employees' trust and respect. You'll have a much easier time managing employees when they respect your rules and boundaries and trust your leadership.
97. Be empathetic to personal problems. Whether it should or not, what happens outside of work can have a big affect on the quality of work produced. Be sensitive if employees have personal issues that keep them from concentrating on work.
98. Be unique as a manager. Every position demands something different and you should be proud to be adept at your particular role rather than trying to emulate other managers.
99. Remember that ethics matter above all. Be honest and reliable in all of your business and personal relationships.
100. Be on the lookout for new ideas. You never know where your next great inspiration will come from.
101. Get to know your employees. Learn more than just their names. Get to know your employees' family backgrounds, likes and dislikes. Doing so will make you more personable.
Fear Can Cost You Money
Wall Street recently paid out billions in bonuses to its employees. Those bonuses came from investors who believe investing is risky. In other words, there's a giant industry built around investor fears. The more fear, the bigger the bonuses
A recent Time magazine article called "How Americans Are Living Dangerously" makes a number of good points on this reality. I'll look at a few of them.
Illusory Control
We misjudge risk if we feel we have some control over it, even if it's an illusory sense of control. The article uses the example of people who drive rather than fly.
Even though the risks of death are higher driving than flying, many people would rather drive simply because they feel they have more control driving. The facts are that only a few hundred people die a year flying and 44,000 are killed a year driving. After Sept. 11, 2001, many people took to the roads rather than the skies. Not surprisingly, between October and December 2001, there were a 1,000 more deaths.
Today, many people feel they have more control if they have money in savings. Thus the saying, "Safe as money in the bank." But the fact is that savers are the biggest losers of all.
Between 1996 and 2006, the purchasing power of the dollar dropped by 50 percent compared to gold. In 1996, gold was approximately $275 an ounce; by 2006 it was over $600 an ounce. In 1996, oil was approximately $10 a barrel ; in 2006 it was over $60 dollars a barrel. Compare the price of real estate in your area between the same 10 years and you'll notice that the purchasing power of your dollar has slipped.
The point is, in spite of the facts, many people feel safer with money in the bank because they feel they have more control over it. They don't have control over the price of gold, oil, or real estate, so they think investing in these assets is risky.
The Biggest Risks of All
The second point the Time article makes is that when we're afraid, we tend to ignore the statistics and listen to our emotions. As I mentioned above, you're over 500 times more likely to die in a car than in an airplane. Yet cars are not the biggest of all killers.
Of the 2.5 million deaths annually in the United States, the No. 1 killer is heart disease. In 2003, there were 685,089 deaths due to heart attack. Auto accidents caused 44,000 deaths. Only 17,732 deaths by murder and 1 death by shark attack occurred in the same year.
Despite these statistics, more people are afraid of sharks and murderers than driving up to a fast food restaurant and saying, "Super-size it." French fries kill more people than guns and sharks, yet nobody's afraid of french fries.
The same is true in the investment world. Since many people believe investing is risky, they go for the second-riskiest investment, mutual funds. As my rich dad used to say, "Mutual funds are like french fries. They may fill you up, but they aren't good for you in the long run."
John C. Bogle, founder of the Vanguard Funds, states in his book The Battle for the Soul of Capitalism, "When we have strong managers, weak directors, and passive owners, it's only a matter of time until the looting begins." Bogle has spoken out this way because the mutual funds industry is legally looting money from investors.
To put it another way, since most people think investing is risky and full of sharks, they've turned their money over to some of the biggest sharks in the world -- the managers of mutual funds
True Expertise Counts
One of the reasons people think investing is risky is because there's an entire industry that wants you to believe so. Trading on your fears is very profitable.
This leads to point number three in the Time piece. The magazine quotes the findings of a study in which a panel of 20 communications and finance experts were asked about the risk of human-to-human transmission of avian (bird) flu. These experts said the risk was 60 percent. When the same question was asked of medical experts, their answer was 10 percent.
The point is that you need to be critical of experts. Is the person you seek advice from able to give you a credible answer?
Qualified and Unqualified Advice
There are three experts who are often not qualified to give you sound investment advice. They are:
• Non-investors
I'm always surprised by the number of people who take investment advice from non-investors -- people such as friends, family, and co-workers. A few years ago, I found a spectacular little condominium for sale for $50,000 in Phoenix, Ariz. All I had to do was put down $6,000 and assume the loan
At the time, it was worth about $95,000. Today the units in the same complex sell for $195,000. Best of all, the monthly rent at the time was approximately $1,000 a month and today rents are around $1,500
A friend from Portland, Ore., asked if I would let her purchase it. My wife, Kim, and I agreed, thinking at the time that this unit would be a great start for our friend. A few months went by and we asked her how the purchase was coming along. She said, "Oh, I forgot to tell you. I didn't buy the unit." When we asked her why, she said, "My neighbor Marge said it was too risky."
"How many investment properties does Marge own?"
"None."
Clearly, taking advice from someone who doesn't know what they're talking about is the real risk.
• Perceived experts, such as financial planners or stock or real estate brokers
Most people take financial advice from salespeople, not rich people. Most stockbrokers are not rich nor do they invest in what they sell. The numbers are even worse for real estate brokers.
• Investors themselves
I've shown several great investments to an investor friend of mine. To this date, he hasn't purchased anything I've recommended. That's because he can always find something wrong with the investment. Instead of looking at what's good about them, he looks for what's wrong and then talks himself out of taking action
This is one reason why I invest as part of a team, so that I can consult with other investors rather than talk myself out of great deals.
The Time article made it clear that fear is normal. We all experience fear; I admit that I've let it hold me back. I probably would've been a lot richer a lot sooner if I flew more and drove less.
The important thing to remember is to pay attention to what we worry about -- and what we should be worrying about.
My little brain simply can't stop putting things into categories and seeking to find the patterns in life.
One of the many patterns I've noticed is that some people in the United States are much richer than others. We have a nation filled with opportunity: free education, easy investing, and cheap interest rates. And yet there's stunning financial inequality
Disparity by the Numbers
According to my wonderful pal, Phil DeMuth, the top 1 percent of all wealth-holders in the U.S. own about 44 percent of the financial assets of the country, mostly in stocks and bonds. The top 10 percent own about 80 percent of the financial assets of the nation.
The top one-tenth of 1 percent of earners in the nation earn about as much as the bottom 40 percent. That is, about 130,000 high-income Americans earn as much as the bottom 120 million Americans combined
To me, this is stunning -- almost frightening. But the real question it poses is, how did the ones at the top get there? Obviously, some do it through inheritance, and some have spectacular athletic or musical abilities. But what about the others? How did they get to the pinnacle of wealth?
Think First, Get Rich Later
I'll to offer some homely speculation. First, as the genius financial planner Ray Lucia would say, the first step is to have a plan to save. Without equilibrating assets and liabilities by accumulating lots of stocks, REITs, and cash, you won't get there
But I'm looking for something more basic here. How do you get the income to start saving meaningful sums?
Here's a clue: think. In 1996, when I started shooting "Win Ben Stein's Money," I was assigned a bodyguard named Yaniv. He was a former Israeli soldier, and as tough as old boots. We worked together happily for about 900 shows, and then we worked on "Star Search" together, after which we went our separate ways.
Occasionally, Yaniv would help me set up electronics equipment. He always did a great job because he read the instructions and then followed them
Up the Ladder
Not long ago, I bought some new stereo equipment for my house and I called Yaniv to come over to install it. He showed up in an immense truck and told me what he'd been doing for the past few years
He'd become a construction foreman on a jobsite building condos. He was so good at reading instructions that he became a contractor. He was so good at that, investors hired him to build still bigger buildings and paid him a good chunk of the profits.
Now he's building large developments and gets an even bigger share of the startlingly large profits. If a unit costs $300,000 to build, it's not unusual for it to sell for $600,000 to $800,000. Of course, you have to factor in the cost of the land, permits and legal issues, advertising, and the time value of money. But all in all, the profits are consistently immense.
Yaniv, a 32-year-old who still gets a thrill out of his Ford truck, is well on his way to being in the top 1 percent and, after that, the top one-tenth of 1 percent.
Outstanding in Your Field
How did he do it? He reads instructions. Yaniv reads building plans very carefully, then he reads permit applications carefully, and soon a building is done
Beyond that, he reads life's instructions carefully, too. People make a lot of money building condos in Los Angeles even in an economic slowdown, so Yaniv entered a field that leads to making money
If he'd continued on as a bodyguard he would've had fun, but he never would've gotten rich. And here his experience proves the great advice of Warren E. Buffett: It's better to be medium-good in a great field than great in a medium field. There are some fields where a lot of money can be made, and real estate development is one of them
Law is another one, at private firms. Medicine -- if you're a surgeon -- is another, and finance is the highest-paid one. Starting a restaurant isn't a moneymaking field. Teaching and writing, except in the rarest of cases, aren't either. Acting is almost never highly paid, and police work never is highly paid
Making the Choice for Wealth
Please notice a pattern: the most interesting and psychologically rewarding work is rarely the best-paid. So choices must be made.
If your goal is to be in that top 1 percent of wealth-holders, you have to do what Yaniv did. Follow the instructions to where the money is, and to where it isn't.
There's nothing -- absolutely nothing -- about people who have money that's better than people who don't. But if you want it anyway, simply follow the instructions as to where to find it. It's not that complicated.
How the Young Can Get Rich
Young people, listen up. A couple of retirement surveys released in the last month provide information that you can capitalize on if you act quickly.
An important point of both surveys: You may not have complete control of your work destiny when you get older, so plan accordingly. For instance, a global retirement survey by AXA Equitable reveals that one-quarter of middle-income folks were forced to retire early. Another retirement study commissioned by Nationwide Financial indicates that 30 percent of workers retire earlier than expected "because they have to, due to illness, disability, layoffs or some other reason beyond their control."
So how can you capitalize on this rather negative news? You can take preventive measures by investing in a retirement plan now, even though retirement may seem like a goal that's light years away. The reason: You have time on your side, and time is your best ally when it comes to getting rich.
Yes, you can get rich and then you'll be in a much better position to deal with life's adversities should they afflict you in midlife which, trust me, arrives much sooner than you might think
Early Shirley and late Nate
Consider the tale of Shirley and Nate
Shirley's not particularly organized or ambitious, but she had the advantage of attending a seminar while still at college where she learned about the magic of compound interest.
So at age 25, after graduating from college and landing a job, she opened a Roth IRA and began contributing $4,000 a year to it. She chose a moderately aggressive balanced fund within her IRA that invested mostly in stocks, with limited exposure to bonds. It produced annual returns of 9 percent on average.
Shirley did this even though she owed money on college loans. She continued to invest until she turned 35, at which time the account was valued at $60,772.
Then she stopped and invested nothing more, but continued to earn 9 percent annually in the account. At age 35, her life intersected with Nate's.
Nate was quite ambitious and owned all the latest technological gadgets. But he had put off investing because, well, he was about driving cool cars and impressing women and he just didn't want to think about retirement. Retirement was for old people. He finally started investing $4,000 annually at age 35 because Shirley put him up to it. In fact, that marked their first fight, among many
Nate invested this amount for 20 straight years in a mix of funds that also returned 9 percent annually on average. When he turned 55, his account was worth $204,640 -- less than Shirley's account value, which by then had grown to $340,591. Nate's total outlay of $80,000 was twice that of Shirley's. And oh, by the way, the two had split up eons ago, after only investing six months in the relationship
Nevertheless, Nate continued to invest $4,000 a year for another 10 years until he turned 65, when his account value reached $545,230. But guess what? Shirley's account at age 65 was worth more than $806,303.
You can see for yourself how starting early puts oomph behind your retirement fund using Bankrate's compound interest calculator.
Workplace options
This tale serves to show how time can work to the advantage of young investors. But it's not a guide to follow precisely. In the first place, Shirley wouldn't stop investing at age 35. She's too smart for that.
A better strategy would be to invest a percentage of your income regularly in a tax-advantaged retirement account, if one is offered at your workplace, particularly if your employer offers a matching contribution. For example, if your employer offers a 50 percent match of up to 5 percent of your salary, you'd be passing up an instant 50 percent return if you didn't contribute at least 5 percent of your money to the plan
At a minimum, take full advantage of the company match. But if you can manage it, contribute 10 percent or more of your income.
If your employer offers an automatic enrollment plan and you don't opt out, the plan will determine how much to take out of your paycheck and which investment to put it in. Of course, your employer will have to let you know all those details in advance. Take a look at them. If it's not enough, opt to have a higher percentage deducted from your paycheck. Whatever you do, don't opt out.
If your employer doesn't offer a plan at all, an IRA serves as a decent backup plan. Keep in mind, too, that your money isn't necessarily tied up for decades. You can withdraw up to $10,000 to use for a home purchase from a Roth IRA in certain cases without paying a penalty.
Advice to heed and ignore
A lot of folks, both young and old, are not sure how to juggle their finances. It's not hard to understand why. They're often hit with conflicting advice even from financial experts.
For instance, The Wall Street Journal published a story recently on the subject of financial priorities in which a vice president of financial planning at The Schwab Center for Investment Research said, "Don't even bother saving for retirement or saving for college if you haven't paid credit card debt." In the same article, a financial adviser for T. Rowe Price advises paying off debt while saving for retirement and an emergency fund.
I agree with the guy from Price. While it's true that paying off high-interest credit card debt is always a good idea, it's just not good advice to hold off on investing here in America, where the average household carries a $5,100 credit card balance, according to the Federal Reserve's Survey of Consumer Finances. If they wait until they've paid off their credit cards, the majority of Americans would forgo investing altogether because they'd be focused on this one area of their finances rather than on the bigger picture. Unless they can eradicate debt very quickly, they'd miss out on the magic of compound earnings.
The same goes for student loan debt which, by the way, is tax-deductible. If you happen to be stuck with a private student loan with a high interest rate, by all means, go on an accelerated payment plan and get that off your back. But try to allot something -- even a small amount of your pay -- to a retirement plan.
Focus on the present
We should apply our multitasking skills in our personal finances. So a good strategy would be to pay off debt from the past and invest for the future at the same time. Of course, you can't have everything and you'll likely have to give up something. How about rethinking some of the urgent needs that you have in the present?
For instance, rather than be swayed by the whims of fashion, why not go for a basic look that will endure? How many pairs of shoes do you need? And who says you have to pay $40 or $50 for a haircut? You can find a good hairdresser and get the job done for half the price. And why spend a lot of money making a landlord rich so you can have a spacious apartment? And what is the most important function of your car -- to convey status or convey you from one place to another?
You get the idea. Rethink your priorities, because chances are you can easily let go of some of these "necessities" and build yourself a fortune instead.
I'm always surprised by the number of people who take investment advice from non-investors -- people such as friends, family, and co-workers. A few years ago, I found a spectacular little condominium for sale for $50,000 in Phoenix, Ariz. All I had to do was put down $6,000 and assume the loan
At the time, it was worth about $95,000. Today the units in the same complex sell for $195,000. Best of all, the monthly rent at the time was approximately $1,000 a month and today rents are around $1,500
A friend from Portland, Ore., asked if I would let her purchase it. My wife, Kim, and I agreed, thinking at the time that this unit would be a great start for our friend. A few months went by and we asked her how the purchase was coming along. She said, "Oh, I forgot to tell you. I didn't buy the unit." When we asked her why, she said, "My neighbor Marge said it was too risky."
"How many investment properties does Marge own?"
"None."
Clearly, taking advice from someone who doesn't know what they're talking about is the real risk.
• Perceived experts, such as financial planners or stock or real estate brokers
Most people take financial advice from salespeople, not rich people. Most stockbrokers are not rich nor do they invest in what they sell. The numbers are even worse for real estate brokers.
• Investors themselves
I've shown several great investments to an investor friend of mine. To this date, he hasn't purchased anything I've recommended. That's because he can always find something wrong with the investment. Instead of looking at what's good about them, he looks for what's wrong and then talks himself out of taking action
This is one reason why I invest as part of a team, so that I can consult with other investors rather than talk myself out of great deals.
The Time article made it clear that fear is normal. We all experience fear; I admit that I've let it hold me back. I probably would've been a lot richer a lot sooner if I flew more and drove less.
The important thing to remember is to pay attention to what we worry about -- and what we should be worrying about.
My little brain simply can't stop putting things into categories and seeking to find the patterns in life.
One of the many patterns I've noticed is that some people in the United States are much richer than others. We have a nation filled with opportunity: free education, easy investing, and cheap interest rates. And yet there's stunning financial inequality
Disparity by the Numbers
According to my wonderful pal, Phil DeMuth, the top 1 percent of all wealth-holders in the U.S. own about 44 percent of the financial assets of the country, mostly in stocks and bonds. The top 10 percent own about 80 percent of the financial assets of the nation.
The top one-tenth of 1 percent of earners in the nation earn about as much as the bottom 40 percent. That is, about 130,000 high-income Americans earn as much as the bottom 120 million Americans combined
To me, this is stunning -- almost frightening. But the real question it poses is, how did the ones at the top get there? Obviously, some do it through inheritance, and some have spectacular athletic or musical abilities. But what about the others? How did they get to the pinnacle of wealth?
Think First, Get Rich Later
I'll to offer some homely speculation. First, as the genius financial planner Ray Lucia would say, the first step is to have a plan to save. Without equilibrating assets and liabilities by accumulating lots of stocks, REITs, and cash, you won't get there
But I'm looking for something more basic here. How do you get the income to start saving meaningful sums?
Here's a clue: think. In 1996, when I started shooting "Win Ben Stein's Money," I was assigned a bodyguard named Yaniv. He was a former Israeli soldier, and as tough as old boots. We worked together happily for about 900 shows, and then we worked on "Star Search" together, after which we went our separate ways.
Occasionally, Yaniv would help me set up electronics equipment. He always did a great job because he read the instructions and then followed them
Up the Ladder
Not long ago, I bought some new stereo equipment for my house and I called Yaniv to come over to install it. He showed up in an immense truck and told me what he'd been doing for the past few years
He'd become a construction foreman on a jobsite building condos. He was so good at reading instructions that he became a contractor. He was so good at that, investors hired him to build still bigger buildings and paid him a good chunk of the profits.
Now he's building large developments and gets an even bigger share of the startlingly large profits. If a unit costs $300,000 to build, it's not unusual for it to sell for $600,000 to $800,000. Of course, you have to factor in the cost of the land, permits and legal issues, advertising, and the time value of money. But all in all, the profits are consistently immense.
Yaniv, a 32-year-old who still gets a thrill out of his Ford truck, is well on his way to being in the top 1 percent and, after that, the top one-tenth of 1 percent.
Outstanding in Your Field
How did he do it? He reads instructions. Yaniv reads building plans very carefully, then he reads permit applications carefully, and soon a building is done
Beyond that, he reads life's instructions carefully, too. People make a lot of money building condos in Los Angeles even in an economic slowdown, so Yaniv entered a field that leads to making money
If he'd continued on as a bodyguard he would've had fun, but he never would've gotten rich. And here his experience proves the great advice of Warren E. Buffett: It's better to be medium-good in a great field than great in a medium field. There are some fields where a lot of money can be made, and real estate development is one of them
Law is another one, at private firms. Medicine -- if you're a surgeon -- is another, and finance is the highest-paid one. Starting a restaurant isn't a moneymaking field. Teaching and writing, except in the rarest of cases, aren't either. Acting is almost never highly paid, and police work never is highly paid
Making the Choice for Wealth
Please notice a pattern: the most interesting and psychologically rewarding work is rarely the best-paid. So choices must be made.
If your goal is to be in that top 1 percent of wealth-holders, you have to do what Yaniv did. Follow the instructions to where the money is, and to where it isn't.
There's nothing -- absolutely nothing -- about people who have money that's better than people who don't. But if you want it anyway, simply follow the instructions as to where to find it. It's not that complicated.
How the Young Can Get Rich
Young people, listen up. A couple of retirement surveys released in the last month provide information that you can capitalize on if you act quickly.
An important point of both surveys: You may not have complete control of your work destiny when you get older, so plan accordingly. For instance, a global retirement survey by AXA Equitable reveals that one-quarter of middle-income folks were forced to retire early. Another retirement study commissioned by Nationwide Financial indicates that 30 percent of workers retire earlier than expected "because they have to, due to illness, disability, layoffs or some other reason beyond their control."
So how can you capitalize on this rather negative news? You can take preventive measures by investing in a retirement plan now, even though retirement may seem like a goal that's light years away. The reason: You have time on your side, and time is your best ally when it comes to getting rich.
Yes, you can get rich and then you'll be in a much better position to deal with life's adversities should they afflict you in midlife which, trust me, arrives much sooner than you might think
Early Shirley and late Nate
Consider the tale of Shirley and Nate
Shirley's not particularly organized or ambitious, but she had the advantage of attending a seminar while still at college where she learned about the magic of compound interest.
So at age 25, after graduating from college and landing a job, she opened a Roth IRA and began contributing $4,000 a year to it. She chose a moderately aggressive balanced fund within her IRA that invested mostly in stocks, with limited exposure to bonds. It produced annual returns of 9 percent on average.
Shirley did this even though she owed money on college loans. She continued to invest until she turned 35, at which time the account was valued at $60,772.
Then she stopped and invested nothing more, but continued to earn 9 percent annually in the account. At age 35, her life intersected with Nate's.
Nate was quite ambitious and owned all the latest technological gadgets. But he had put off investing because, well, he was about driving cool cars and impressing women and he just didn't want to think about retirement. Retirement was for old people. He finally started investing $4,000 annually at age 35 because Shirley put him up to it. In fact, that marked their first fight, among many
Nate invested this amount for 20 straight years in a mix of funds that also returned 9 percent annually on average. When he turned 55, his account was worth $204,640 -- less than Shirley's account value, which by then had grown to $340,591. Nate's total outlay of $80,000 was twice that of Shirley's. And oh, by the way, the two had split up eons ago, after only investing six months in the relationship
Nevertheless, Nate continued to invest $4,000 a year for another 10 years until he turned 65, when his account value reached $545,230. But guess what? Shirley's account at age 65 was worth more than $806,303.
You can see for yourself how starting early puts oomph behind your retirement fund using Bankrate's compound interest calculator.
Workplace options
This tale serves to show how time can work to the advantage of young investors. But it's not a guide to follow precisely. In the first place, Shirley wouldn't stop investing at age 35. She's too smart for that.
A better strategy would be to invest a percentage of your income regularly in a tax-advantaged retirement account, if one is offered at your workplace, particularly if your employer offers a matching contribution. For example, if your employer offers a 50 percent match of up to 5 percent of your salary, you'd be passing up an instant 50 percent return if you didn't contribute at least 5 percent of your money to the plan
At a minimum, take full advantage of the company match. But if you can manage it, contribute 10 percent or more of your income.
If your employer offers an automatic enrollment plan and you don't opt out, the plan will determine how much to take out of your paycheck and which investment to put it in. Of course, your employer will have to let you know all those details in advance. Take a look at them. If it's not enough, opt to have a higher percentage deducted from your paycheck. Whatever you do, don't opt out.
If your employer doesn't offer a plan at all, an IRA serves as a decent backup plan. Keep in mind, too, that your money isn't necessarily tied up for decades. You can withdraw up to $10,000 to use for a home purchase from a Roth IRA in certain cases without paying a penalty.
Advice to heed and ignore
A lot of folks, both young and old, are not sure how to juggle their finances. It's not hard to understand why. They're often hit with conflicting advice even from financial experts.
For instance, The Wall Street Journal published a story recently on the subject of financial priorities in which a vice president of financial planning at The Schwab Center for Investment Research said, "Don't even bother saving for retirement or saving for college if you haven't paid credit card debt." In the same article, a financial adviser for T. Rowe Price advises paying off debt while saving for retirement and an emergency fund.
I agree with the guy from Price. While it's true that paying off high-interest credit card debt is always a good idea, it's just not good advice to hold off on investing here in America, where the average household carries a $5,100 credit card balance, according to the Federal Reserve's Survey of Consumer Finances. If they wait until they've paid off their credit cards, the majority of Americans would forgo investing altogether because they'd be focused on this one area of their finances rather than on the bigger picture. Unless they can eradicate debt very quickly, they'd miss out on the magic of compound earnings.
The same goes for student loan debt which, by the way, is tax-deductible. If you happen to be stuck with a private student loan with a high interest rate, by all means, go on an accelerated payment plan and get that off your back. But try to allot something -- even a small amount of your pay -- to a retirement plan.
Focus on the present
We should apply our multitasking skills in our personal finances. So a good strategy would be to pay off debt from the past and invest for the future at the same time. Of course, you can't have everything and you'll likely have to give up something. How about rethinking some of the urgent needs that you have in the present?
For instance, rather than be swayed by the whims of fashion, why not go for a basic look that will endure? How many pairs of shoes do you need? And who says you have to pay $40 or $50 for a haircut? You can find a good hairdresser and get the job done for half the price. And why spend a lot of money making a landlord rich so you can have a spacious apartment? And what is the most important function of your car -- to convey status or convey you from one place to another?
You get the idea. Rethink your priorities, because chances are you can easily let go of some of these "necessities" and build yourself a fortune instead.
