The Online Investing AI Blog

Most people are familiar with the dangers of the debt curve. As we borrow more money, the interest costs us more and more. We in turn borrow more, and the vicious cycle continutes. Sound familiar? It’s the foundation of the credit card industry as well as the federal budget.

It’s a vicious cycle because the problem gets worse as time goes on. Instead of solving the problem, we just put it off until tomorrow. The danger is that tomorrow the problem is a little bit bigger. And then it gets pushed off again.

The good news is that the power of exponential growth goes both ways. Our debt can increase exponentially, but so can our wealth. How? Through investing. Instead of paying 5% or 10% or 20% annual interest on our debt, we can get paid 5% or 10% or 20% on our assets.

Impossible?

Read more…

Investing, Money, Success cars, debt, finances, Investing, Money, poor, rich, wealth

After reading this great post at Bible Money Matters, it reminded me that the most important thing that we want to change is the way that we think. 90% of our thoughts today will be repeated tomorrow. And, the best way to change our finances it to change the way that we think about them.

The post talks about 5 things that millionaires do that helped make them rich. Most millionaires are self made, and it didn’t happen from winning the lottery. It happened through a specific way of thinking, and specific actions that they took to get rich. The interesting thing about these 5 things is that anyone can do them, regardless of their financial situation: Read more…

Investing, Money, Success Investing, Money, poor, psychology, rich, thinking

Would you rather live in a tent on the beach with the person you love most in this world, or live alone in a huge mansion?

It’s possible to save all the money in the world, and still be poor. Consider how many millionaires go through their entire lives worried that they will lose their money, or that somebody will steal it. They become consumed with worry, and never enjoy their money.

Reason #7: The Quality of Life Is Determined by Value, not Price.

Many people are consumed with making money and spend decades or their whole life focusing on it. But money is not really a measure of the quality of our life. It’s part of it, but a fairly small part.

What is the purpose of having a lot of money if it does not create an outstanding quality of life? If we want to have a wonderful, fulfilling life, then we only need enough money to have the kind of life that we dream of.

Nothing of value can be bought with money. We cannot buy the love of the person that we love most. We cannot buy children to bring tears of joy to us. We cannot buy kindness from a stranger. We cannot buy fulfillment or happiness.

Money, Success finances, fulfillment, love, poor, rich, saving

How far would you drive to save 10 cents per gallon on gas? Some people will drive far away. Some people don’t pay any attention to how much gas costs and fill up wherever is convenient. But how much time does it take to get to that cheaper station?

So what’s the point? The point is that when we focus on saving money, we ignore the real costs. Because money is only one measure of value. We have other things that are far more valuable than money. These are time and effort.

Reason #6: Saving Ignores the Actual Costs

It’s very easy to spend a lot of time, energy and effort trying to save a small amount of money. For example, driving an extra 30 minutes to save money on gas gives us a very low return on our time and effort. Another example is people who spend two or three hours each day commuting to work. Besides costing money and gas, they have extended their working day by 20% or 30%. This in turn, robs them of time and energy that they could spend doing something productive.

On the flip side, there are things that people spend money on that consume all their time. The most popular is television. The person might say, well, I only paid $300 for the TV set. But actually, if you consider what the person could have done with the time that they spend watching, the cost is far greater. They could have built a business, become an investor, or gotten rich in any number of ways. They could have built the most popular blog on the Internet. The possibilities are endless.

So, what if we consider how much value we are actually getting when we save a few dollars? Perhaps we could ask, “Is it really worth spending the time and effort to keep this money?”

Money, Success business, finances, Investing, poor, rich, saving, television

Savers focus on saving money. They tend to try to save money on everything. That includes food, gas and books. There’s one small problem with this strategy.

Reason #5: Spending Money Can Make you Rich.

Sometimes spending money is the best thing that we can do for our finances. For example, suppose we decide to become more educated about investing, so we’re not poor for our whole life. The saver will say, “Why should I buy a book when I can get it for free at the library?” Someone else might say, “I’m going to buy this book and learn all about investing.”

Which person do you think is more likely to follow through? It’s much easier for the person who invested nothing except their time in going to the library to simply return the book and forget all about it. However, the person who actually bought the book now has it sitting in their room. At the very least, they feel like they should read it.

Savers save money on everything. And they’re very reticent to invest in themselves. But investing is actually the same thing as spending. Investing is spending money to make you rich.

Consider this: some people have no problem spending money on the one thing that destroys their financial life more than everything else: television. Many people who refuse to buy a book have several televisions and spend over $1,000 per year on cable TV or satellite service.

So here’s the point. The amount of money that one spends is not important. What makes the difference is the quality of the product or service that they spend the money on. The difference in their financial lives is determined by whether they spend money on valuable things that enable them to become rich, or garbage that sentences them to a life of poverty.

Investing, Money, Success finances, Investing, poor, rich, television

Imagine what it would be like to be a typical American man or woman, age 65. They have worked hard for 40 years. They served their company. Perhaps even served their country. Now it’s time to retire. There’s only one small problem.

They don’t have enough money. They wake up one morning to discover that they have spent their entire life working for the dream of a comfortable retirement. This bliss is shattered when they notice that Social Security will barely pay enough to get by. They are surprised that the meager interest on their life savings is less than their food bills. It’s sad, and it’s happening to millions of baby boomers who are retiring in the next few years.

How did this happen?

It happened for the same reason that saving three dollars a day on a latte doesn’t work. The financial advisors say, if you save three dollars a day, in 40 years you will have a million dollars. There’s only one problem with this method. In 40 years, $1 million won’t be worth much.

Have you ever heard (or even said) “I remember when the newspaper costs a nickel!” Have you noticed how prices are always rising? The technical term for ever-increasing prices is inflation. For people in America today, inflation has been very real. The price of housing has doubled in the last five years. And before the price of gas took a tumble, it had doubled as well.

Look at the following chart. Have you ever seen a chart that looks like this?

This sort of chart is often depicted by people promoting saving. However, this chart is not about how much money you will have if you save a few dollars a day. This chart shows how little you can buy in 40 years with the dollar.

The chart shows how the purchasing power of a dollar decreases over time. The US government says that inflation is about 5% on average. That means after 40 years, something that cost one dollar today will cost 7 dollars. What you pay $1 for today will cost $7 in 40 years. That is why the chart above shows $1 becoming $7 after 40 years.

This chart was created using Microsoft Excel, a simple software that can be used to create charts. I got the 5% figure from the American government. These results were generated from using mathematical formulas, and government statistics. If you believe what the government says, then this chart is a picture of hard math. I can tell you for sure that the computer software does not lie.

The reason that the hard-working retiree is having a financial challenge is evident from the above chart. The value of his savings has decreased because of inflation. And since the government statistics are not accurate, his Social Security income has actually decreased because of inflation as well. The amount of stuff that he can buy has decreased.

Reason #4: Prices Rise Faster than Low Paying Savings Accounts and Other Poor Investments

Saving doesn’t work because inflation reduces what we can buy with the money we have saved. People think that they will have a lot of money saved up when they retire, but that money buys little. It only seems like a lot of money, because we are thinking in present-day dollars. That’s why the newspaper seems cheap if it only costs a nickel. But think about what life was like back to when a newspaper only cost a nickel. Everything else was much cheaper as well. The newspaper was just as expensive back then, compared to whatever else you could buy for a nickel.

Savings accounts, CDs and mutual funds only pay about as much as the government set interest rate. Returns are further diminished when the government collects its taxes on the interest. That’s why inflation and taxes eat up more than low-quality investments pay. And therefore, savers lose money over the long term.

Investing, Money, Success interest rates, mutual funds, poor, rich, saving, social security

It was lunch time. I stopped at the pizza place to pick up some food. I figured it would only take a minute so I parked in a spot right out front. My car was about 1 foot in the red, but I figured it would be okay.

When I came out five minutes later, the guy was writing the ticket. I was furious. My blood boiled. I was seeing red. I said, “It’s just a little bit on the red!” he replied happily, “You can’t park on the red it all.” As he left me with a parking ticket, he said, “Have a nice day.”

Do you know that sinking feeling when someone has stolen from you? Do you get that terrible feeling in the pit of your stomach, like you just got punched, when something like this happens? I’ll never forget that feeling.

Probably the same exact thing has happened to you. Or maybe something similar. Has anything small ever happened that has ruined your day? Maybe you’ve gotten a spot on your clothes. Or, it’s raining. Or maybe you’ve got a parking ticket. Has anything small like this had a big effect on how you feel?

The funny part is that the next day we’ve completely forgotten what happened. We have discarded the anger, disappointment and upset of the previous day. So that begs the question, “Is it worth it to get that upset about it if we are going to forget about it in a few hours or days?”

What’s the point of this whole story? It’s easy to focus on small, unimportant things, that will disappear in one day. Living in this society, it’s quite normal to get all wrapped up in things that make no difference in our lives.

Saving a few dollars is an example of the same thing. Saving a few dollars is like focusing on something small and unimportant. Saving a few dollars will not make a difference in our financial lives. Saving a few dollars will not change anyone’s finances in a big way.

Reason #3: Saving Money Causes us to Focus on Something Small and Unimportant.

In stark contrast, the same energy that we spend in saving a few dollars can be used to do something that will have a massive effect on our financial future. For example, what if we spend our energy in finding ways of increasing our income? Or, what if we start a business? Or, what about becoming an investor?

All of these activities can be accomplished with the same time, effort and money that it takes to be a good saver. The difference is that any of the above endeavors can make us rich. Saving money is more likely to distract us from things that could make a big difference for our financial future.

Go to Reason #2: Saving Money Creates a Scarcity Mentality

Investing, Money, Success finances, Investing, Money, parking ticket, poor, rich, saving

The child came home from school, dirty, but happy. Mike’s friend had told him about his new shining blue bicycle, and the dream of a new bike for himself consumed him. He had just sat down for dinner when he piped up, “Daddy! Can I have a new bicycle?”

Maybe it was a long day at work, and the denial of the raise. Maybe the mounting debts and financial pressures were too much for Mike’s father. Maybe it was the fact that the family finances had gotten bad enough to stress the relationship with his wife. Whatever it was, Mike’s father’s violent temper erupted into a verbal barrage on the unsuspecting eight-year-old.

“What is wrong with you? Do you think money grows on trees? I don’t have money for a stupid bicycle!!” The father yelled in a voice that cut like a razor. The red-hot anger and unbridled fury ripped into Mike’s tender psyche. He was paralyzed with fear. Mike never forgot that night.

But Mike is not alone. Most Americans grow up in families that have financial challenges, and hear those same destructive phrases from a young age. The idea that there is not enough money stays deeply buried in most peoples mind as they go through their entire life.

Have you heard any the following when you were growing up?

• “I’m not made of money.”
• “Money doesn’t grow on trees.”
• “Who do you think I am, a Rockefeller?”
• “Don’t throw money in the street.”

Repetition of these kinds of phrases results in a scarcity mentality that many adults never question. The challenge is that this scarcity mentality is a self-fulfilling prophecy. If we believe in scarcity, we get scarcity. If we believe there’s not enough money then we never have enough money.

Reason #2: Saving Money Creates a Scarcity Mentality.

Every time we try to save money we are telling ourselves that there is not enough. That’s why saving money creates scarcity. Saving money causes us to have less money.

Scarcity is an idea that can be changed. Have you ever heard of The Secret? How about the Law of Attraction? These books and the movie have shown the power of an abundance mentality. As a matter of fact, The Secret DVD has sold over 1 million copies, and the book has sold over 2 million copies. The Secret DVD was the number one selling DVD of all DVDs on Amazon.

Have you ever received money unexpectedly? Perhaps you have received a check in the mail and had no idea that it was coming? If so, that’s an example of abundance.

It seems to me that everyone has a choice. They can continue to believe what they were told as a child and live their life as though there is not enough money. They can save and scrimp and hold on to every penny. Or they can consider another way of thinking. That other way is the way of abundance.

Go to 7 Reasons Why Saving Money Makes You Poor: Reason #1

Check back tomorrow for the next Reason Why Saving Money Makes you Poor.

Money, Success abundance, Money, poor, rich, saving, scarcity

The conventional wisdom passed down through the ages says that we should save money to become rich. Most financial advisors suggest that we must spend less money than we make, and investing the difference will make us enough money to retire. The average working person spends their whole life in an office or factory, tries to save a little bit of money each month for 40 years, and then hopes to retire. That’s the common sense and simple way to get rich. However, it’s totally wrong.

I have a friend who’s in his 40’s now, and has been working since he graduated from a well respected college. He works hard, six days a week from 10 in the morning till 10 at night. He takes the subway every day, and is well-liked by his colleagues. He saves several hundred dollars a month. There’s only one problem: if he continues going down the same road, he’ll have to work until the day he dies. His savings of $20,000 or $30,000 will not be enough to support him. It’s a sad story, and very common.

How would you feel if you wasted your whole life working for someone else, only to discover at the end that you didn’t have enough money to retire? Wouldn’t that be a wasted life? How would it feel to know that you’ve spent your whole life working and saving, and have nothing significant to show for it?

In my friend’s case, he is poor in more ways than one. He has almost no money, and in addition he has almost no free time. He doesn’t have a wife or children, but if he did he wouldn’t have much time for them. As it stands now, he doesn’t have enough time to spend with his girlfriend or his friends.

Reason #1: Being Rich or Poor has Little to do with Money.

Being rich is not just about having a lot of money. Being rich is about having the resources to do what is important to you each day. Being rich is about having the time and energy to spend with your family. Being rich is about having friends, relationships and things of value in our lives, and not just money. Don’t you think that a life empty of love, relationships and happiness is poor, no matter how much money is in it?

I recently read a story about a top executive at Sony Corporation, who was making $900,000 per year. He works all the time, has terrible relationships in his life, and wastes most of his income on stuff that did not make him happy. He lost the remainder of his sizable income in bad investments. Do you think he’s rich?

Being rich or poor is not about the amount of money we have. You are rich when you have the time, energy, and enough money to do what you really enjoy. You are rich when you spend time with family and friends that you love. People who are poor are severely lacking in one or more of these areas.

The problem with saving money is that it does not give us the resources to do what we enjoy. Saving a few dollars will increase the money in our wallet by a few dollars. However, it will not free us from working in a job that we hate. A few dollars is not enough to help someone less fortunate in a significant way. A few dollars is not enough to help a good cause for society.

Go to 7 Reasons Why Saving Money Makes You Poor: Reason #2

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The old adage goes, “The rich get richer, and the poor get poorer.” The Democrats accuse the Republicans of protecting the rich. The Republicans accuse the Democrats of giving too much money to the poor. When you think about it, there is some truth in both statements.

I think it’s true. The rich do set up the laws and the system to protect themselves and keep them rich. But every coin has two sides. Anyone in America can become one of those rich people. And they can help as many other people throughout the world as they choose.

The government is in the process of spending hundreds of billions of dollars to protect both rich and poor in the next few months. The challenge is that we don’t have any money at all! The government has already borrowed $10 trillion, and has every intention of borrowing more and more. In fact, they’re planning on borrowing at record pace.

But here’s the problem. In a futile attempt to help everyone, the government is actually helping no one. Through spending and borrowing more and more money, they are actually making all Americans poorer. The reason that most people are unaware of this is that we don’t know or care about paying back the national debt.

So what’s the solution? I think the solution is that instead of spending money by giving people a free lunch, or businesses a tax deduction, there is a much better way. If we could inspire all Americans to succeed financially, to find ways of making money without having it given to them, that would be awesome. It would be a whole new paradigm of stimulus.

And the same could be done for businesses. To inspire all businesses to improve their profitability through innovation. That could make a major change in the economy. If we can educate people on how to launch their own business, then they can make money without depending on the government. If we can teach businesses how to perpetually improve their products, services and value proposition, then we can increase the GDP by double digits. And we can even solve the problem of the national deficit.

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