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We Saved Like Bandits, and Invested in Businesses

More from my interview with a millionaire, MR.

Central Park

On Tuesday we posted an excerpts from my interview with MR, a furniture store owner in Salt Lake City. As I re-read the transcript of my conversation with him yesterday, I realized MR had a lot more to say about wealth creation. Here is the second installment; it focuses almost entirely on MR’s investing philosophy.

I’ll say at the outset that his specific approach may not work for everyone, but everyone would be better off if we applied the underlying principles. Look for ways you could apply his approach to your particular situation as you read.

During the conversation risk and investing came up several times. Although MR doesn’t seek out risk, he was still willing to take calculated risks under the right conditions:

MR: I take risks, and they’re all very calculated…I’ve [even] developed real estate along the way.

Mark: What kind of real estate have you done?

MR: I’ve done some retail subdivisions. We bought…600 acres…and did a development up there when everyone said we couldn’t. We put one together and sold it out in a couple weeks, and made a couple million dollars on that deal.

And that was scary, actually, because it was out of my control. You’re at the whim of city councils and county councils. And that was a closed county. They didn’t like development. But I was just very tenacious and stayed after it - took me two years of meetings to get it done, but once we got it done and built we sold it out quickly. There was a huge demand.

[I found this story about real estate investing especially interesting because MR always talks about maintaining control of your money and your investments, so I’m sure it was nerve-wracking for him to have to rely on these elected officials in a small county.

The interesting part is that since he felt that he couldn’t completely control the outcome of the investment, he did everything in his power to influence the outcome by going to “two years of meetings to get it done.” What a great lesson in investing.]

Mark: You’ve told me that all the wealthy people you know did it “a brick at a time”. How has that been true in your life?

MR: [We got completely out of debt] and then we saved like bandits, and invested in businesses. I didn’t make any…I’ve never made a dime in the stock market. I don’t do equities because I can’t control them. To me, it’s gambling; I’m lousy at it. I do what I can control. I do a deal every day at the store, we do deals every day and we make money on every deal, and it compounds. It’s not rocket science. It’s really not.

I don’t let anybody handle my money. No brokers, no advisers. For me, that’s all a shot in the dark, and I don’t understand it. And I’m horrible at trying to guess where to put my dough.

Mark: What is the one piece of financial advice you’d give? [Yes, I know I published part of the answer to this question on Tuesday. Here’s the rest of it.]

MR: Don’t do anything that you don’t understand, that keeps you up at night. And personally, don’t give your money to other people to handle. Do it yourself.

I personally don’t go after equities. I don’t do anything like that, but I do go after solid things I can control, solid investments. I buy land free and clear. I know it’s pretty much a done deal when I develop it. I sell it or I know the market’s there.

[Think back to the real estate development he did. Interesting that he paid cash for the land? It was just one more way he minimized his risk.]

MR: Take every dime you have and get out of debt, and then go look at what’s out there. Because there’s a ton of opportunity anywhere you look; there are ways to make money.

Mark: So you sleep pretty well at night.

MR: Yeah, you’re exactly right. I know exactly what my return is on money that’s not in the business, because it’s all in fixed instruments, and you know when you’re getting a small return on a whole lot of money, at least you know what that return is and it’s okay. You know, you can live.

So I’m not trying to make millions in the market. I’m just trying to preserve, at my stage (I’m 55), just preserve what I have and enjoy life. But yeah, we don’t borrow money. Not business, not anything. In retail if the market turns, generally, and people stop buying, if you’re [buying] your goods with a bank, you’ve got more problems than just your mortgage or just the lease on the buildings.

Mark: You obviously have no interest in the market.

MR: Yeah, it’s scary for me. And I’ve got some great friends that are brokers that are multi-millionaires that seem to understand it, but I sleep better at night. I really do.

You know for me to fail now my bank would have to collapse and take my money with it. Other than that, there’s no exposure anywhere. Which is a great feeling, when you’ve still got two kids at home. You’re not trying to build a kingdom anymore; you’re just trying to enjoy your life.

What are the lessons learned from MR’s experience? Many of you will say “I can’t pay cash for land,” or “I can’t afford to keep all my money out of the stock market. It’s the only vehicle available to me.”

All of that may be true. And I’m not a stock-market hater. Neither is MR. His only point is that he’s not going to put his money into the market when he doesn’t have the skill or experience to make his money work for him there.

The principles that stick with me from this conversation are:

1. Accountability: YOU are responsible for your wealth. Don’t blame the market or your broker, or the administrator of your 401k if your nest egg isn’t growing as fast as you think it should be. Take ownership of your financial future.

2. Control: If you can’t directly control the outcome of your investments, do everything you can to influence the result by educating yourself and making decisions that absolutely minimize your exposure, while still positioning you for a reasonable return on your money.

What did you get from these interviews? We’d love to hear your comments on the insights from MR!

Interview with a Millionaire: M.R., a Furniture Store Owner

Arched Gate

As an interesting follow-up to the questions I asked you yesterday, I wanted to post some excerpts from my interview with MR, a furniture store owner in Salt Lake City. He was good enough to spend about half an hour on the phone with me, and gave me great insight into what it takes to be a successful person, and his thoughts on becoming financially independent.

First a little background on him. As a young man, MR spent two years in North Carolina, and during some of his spare time he toured the furniture factories and other industries in the area.

He says he was “fascinated by the furniture thing”, so when he moved back to Utah in his early 20s he went to work in a furniture store, and became one of their most “prolific salesmen.”

The store he was selling for was struggling though, and he saw that they would soon be closing their doors. Around that time a major furniture manufacturer approached him about the opportunity to become one of their first franchisees.

The thought of striking out on his own was scary, and he had to borrow $50,000 to get the business off the ground. For him, borrowing that money and facing the task of opening a successful store and paying off that debt was, as he put it, “gut wrenching.”

But he did do it, and in his words “We really haven’t had, other than the initial fear, [any] setbacks. It’s been solid since the year we opened. It’s just grown every year since then.”

MR is a great example of someone whose primary goal has been to limit risk by avoiding debt and making only sure money investments. That strategy has paid off in a big way for him. He’s now a multi-millionaire, with not a penny of debt to anyone, and no exposure to the risks of the markets.

Our conversation started with a look at what it takes to be successful:

Mark: The word tenacious keeps coming up in my millionaire interviews. What single attribute of yours would you say has contributed most to the success you’ve had?

MR: [T]hat word, tenacious. It’s a sticktoitiveness.

I’ve never met anyone who it was a flash in the pan that made him a ton of dough instantly and life was good. The guys that I run with have been tenacious, have done it a brick at a time, till they built the wall over a long period of time.

The get rich quick thing you always hear about usually doesn’t happen. It’s always hard work, and almost exclusively, all entrepreneurs. They did their own thing; they weren’t working for anyone, or [at least] for very long. They did their own business, their own thing.

I don’t know anybody who inherited wealth, personally. I don’t know anybody who got rich quick. I know a lot of millionaires in my circle of friends, and all of them have done it, you know, a year at a time, a month at a time over their careers.

Building wealth is not a big deal once you get a little bit of dough under your belt, and you’re smart about it, and you clear all debt – and that was crucial.

My wife and I, we worked two jobs when we were first married, each, so that we could pay off our huge mortgage of thirty thousand bucks. And we did that in a couple years and then we saved like bandits, and invested in businesses.

Mark: What is the one piece of financial advice you’d give?

MR: First, clear all debt, at any sacrifice. Clear your mortgage. Don’t borrow money for cars. If you can’t pay for it, don’t buy it. And that takes discipline, and that takes tenacity, and that takes guts. And once you’ve cleared debt, then you’ve got a little money that you can invest in a business without putting your family at risk, without putting your own financial well-being at risk.

Mark: You know, there are a lot of people out there who say, “Don’t pay off your house. Leverage your house.”

MR: Nonsense.

MB: So, why is it so important to clear ALL the debt before anything else?

MR: Because it’s a personal triumph. You’re not in bondage to anybody. You’ve cleared every debt you owe. Nobody’s coming after you; nobody’s looking at you for money, and you control what you do with your money. The leveraging your house thing is the biggest bunch of nonsense in the history of the planet, and you’re seeing the results of that right now in the collapse of the market, the real estate market.

[I]f you mortgage a solid asset like that, and if you take the money and you gamble with the money, odds are you’re going to lose. So that’s an asset you don’t fool with. You just don’t. You clear it out so your family’s secure, you’re secure. And then you go after businesses.

Clear all your dough – any debt you have and you’ll be surprised what an inner strength that gives you if you’ve had the discipline to do that. Don’t drive a Lexus; don’t drive a BMW, don’t do any of that until all of those debts are gone, then you can start doing some of that other stuff.

So what do you think? How can you implement some of these philosophies into your own personal financial plan? My conversation with MR made a big impact on me. The day after he and I spoke I paid off a car and 3 credit cards.

Sure, the car and the credit cards were all at super-low interest rates, and the payments were very manageable for me, but MR inspired me to get out of debt, so I did what I could that day and made a plan to get rid of the rest of my debt as quickly as possible.

You know the best part? By paying off that car and those credit cards I effectively gave myself a five-figure raise in my annual net income! Maybe that would make a good article for this site…

Image Credit: Kenn Chaplin

What Does a Millionaire Sound Like?

My job is to talk to broke people on the phone. After talking with a couple thousand people who are cash-poor, frustrated, and embarrassed, I know what they sound like, and I know how they feel.

Money Questions

On the other hand, each week I interview three or four millionaires about their financial situation - the two groups sound nothing alike at all.

Why am I so preoccupied with how people sound? It comes from spending hundreds of hours talking to them on the phone. Let me explain.

The Power of Tone

In any interaction between two people, meaning and feeling are conveyed in three ways: body language, tone of voice, and syntax (the words you use). But the three are not equally important in expressing yourself. Here’s how they break down:

38% of a person’s meaning is conveyed through the tone of their voice.

55% is expressed through body language.

Only 7% of communication takes place through your choice of words (syntax).

Do the math. Body language is eight times more important than syntax, and tone is a little over five times as important. What you say isn’t nearly as important as how you say it. Now what does this all have to do with anything?

The Sound of Broke

When I’m talking to a person on the phone, I can’t read their body language, so I’m left with their tone and words.

black phone

How can I explain the tone of ‘broke’? You know how someone looks after a twelve hour road trip where they had a flat tire and got caught in a snowstorm? Or maybe you’ve been in an airport during the holidays and you saw two parents with three little kids, one of them a screaming toddler (as you hear the announcement of the flight being delayed)?

Well, the way those people look is how most of the people I talk to sound. I think that gives you pretty clear picture. These people are just exhausted and ready to have something go right.

So if that’s how broke people sound, what difference do I hear in a millionaire’s tone of voice?

The Voice of Independence

I can sum it up in a single word: Calm. There is a sureness and confidence in the voices of the millionaires I’ve interviewed over the last few weeks. Not many sentences have to leave their mouths before I have the thought “This person sleeps well at night.” And why wouldn’t they? Contrast some of their statements with those from my conversations with the financially frustrated:

  • Broke: “I have debt I’ll never pay off.”
  • Millionaire: “I paid off my mortgage in two years and I’ve never owed on a home, car, or anything else since then.”
  • Broke: “I don’t have any college funds set up for my kids.”
  • Millionaire: “When some tough family circumstances came up that required a lot of cash, I had it on hand.”
  • Broke: “I can barely keep up with the minimum payments on my credit cards, let alone pay down the balance.”
  • Millionaire: “I’ve never paid interest on a credit card.”
  • Broke: “My retirement funds aren’t anywhere near where they need to be.”
  • Millionaire: “If I sold my business tomorrow I could maintain my lifestyle forever just living off the interest.”
  • Broke: “I hate my job.”
  • Millionaire: “At a certain point I decided enough was enough when it came to money, and it was time to move on to more important things.”

Not bad huh? And let me point something out - when I was listening to these guys talk there was something I was not hearing; arrogance. They’re almost embarrassed to admit how successful they are.

I interviewed one man who had spent over twenty years as one of the top financial advisers in a major firm. He hesitated to talk about his accomplishments, saying he felt too boastful. Trust me, he wasn’t boastful.

There’s a Big Difference Between High Income and Wealth

Many of my conversations with people I’d call broke are high earners that love to talk a big game - doctors, lawyers, sales professionals. They’ve got six figure incomes and seven figure debt, and the reality is if they missed a few paychecks they’d be facing foreclosure.

What I hear in the high-income Broke is bravado, laced with fear. Nothing like the millionaires. The truly wealthy men I’ve talked to are completely at ease with money.

The world at large is pretty frantic about money right now, with all this talk of mortgage crisis and recession. The millionaires I’ve talked with don’t have much fear about it. One of them, whose job it is to buy public equities (stocks) to the tune of hundreds of millions of dollars, was actually almost giddy about the current state of affairs.

That’s the reward for a lifetime of good decisions. When the economy turns down, the wealthy don’t panic. They get out their checkbooks. Whether it’s real estate or stocks, everything goes on ’sale’. Smart people increase their wealth much more quickly in down markets.

Money Ideas

Million Dollar Decision Making

So what are the decisions my millionaires make? Some you could probably guess; others may surprise you because they go so contrary to what you hear in the media. Stick around and you’ll find out what millionaires really have to say about their success.