You’re smart.  Chances are you’re pretty darn good looking to.  But odds are you aren’t rich.  We all know some half-wit who’s rolling in dough right?  So why aren’t you?

If you’re so smart, why aren’t you rich?  That question was posed my “Mr. ToughMoneyLove” (quite likely not his real name) over at his blog the other day as a “Money Mystery.”  Well, in hopes to answer that question, and because I love a challenge, I’ll venture a stab at clearing that mystery up.

Here are some possible reasons you’re not rich:

• You didn’t go to college – fact is, most millionaires went to college.  Even a superstar like Bill Gates spent a year in college, and that was at Harvard which is presumably like 4 years at most colleges.  You need skills to pay the bills.  Scott Adams, creator of Dilbert, suggests one needs to get skills well above average at two or three things to succeed.  He claims to be above average at drawing and humor.  Enough people agree with him to keep his comic going.  I’d also suggest the MBA he earned has made him a rather skilled marketer as well.
• You don’t save your money – Big screen TVs are nice.  Real nice.  But it’s awful hard to build that nest egg when you keep giving your money to the Costco electronics department.  Many people who’ve accumulated wealth have done it through stocks, real estate or other investments.  From startup stock options to the old compounded interest over time trick, rich people save and invest.
• You don’t own a business – Many millionaires own successful businesses.  Often nothing glamorous, but they learn to make more than they spend and build a business that’s worth a lot. Lots of people who accumulate wealth own a business, according to the books The Millionaire Mind and The Millionaire Next Door.
• You’re in debt – consumer debt and huge mortgages with escalating interest rates have led the US and much of the world into banking turmoil.  It’s no good owning a business or saving and investing wisely if you’re burying you nest egg in debt.

OK, does one of these things stand out to you?  Maybe, maybe not.  But I’ll bet that describes a lot of folks who wonder why their ship hasn’t come in.  Want more proof?  Here’s a guy who started small, but worked his way up with rental property (and some serious frugal behavior) and ended up with some serious cash.  May we all be as smart as he is.

I know at least four millionaires.  I’m pretty sure I know more, but I thought I’d outline those I know the most about.   People aren’t exactly forthcoming with their money matters, so I’m having to speculate here, but I’m rather certain these four are loaded.

Here are my profiles. They all shared some common traits: they worked hard and were smart with their money.   Three of the four also owned their own business.  I’m leaving out their names and cities (not all actually live near me) but I’ve gotten to know them over the years on my travels.

1. The Tire Man – Most millionaires make money in stuff that’s incredibly boring to most of us.  This guy made serious money selling used tires.  He started small and grew slowly.  Now he has multiple places and a warehouse with thousands of tires he hauls in.  I actually had a tour of it.  No glamorous buildings, he buys old places from closed dealerships and the like, leaving him with real estate and money in the bank.
2. The Wire Man — an associates degree, an electrical business in a growing city, and a smart business sense to not waste money made this friend a likely millionaire.  He’s smart and works hard and has reaped the benefits.
3. The Junk Man — If used tires were too glamorous, this guy ran a salvage yard and sold it for over a million.  I’ve been to the yard and would never have thought it was a gold mine.
4. The Heisman – I actually knew a football player who lived nearby.  Turns out my house is near my city’s football practice facility.  A few players live near me, but he’s the one I’ve actually met.  He struck me as smart with his money and likely is doing well.

So unless you’re able to hurl a football with laser precision while evading 300 pound linemen, it looks like owning your own business is a good call for becoming a millionaire.  You have to budget, have good sense, work hard and have some luck, but I know many people who’ve done well, if not hit seven figures with boring but profitable busineses.

That’s a pretty small sampling, but it’s consisetent with Thomas J. Stanley’s books The Millionaire Mind and The Millionaire Next Door.  Makes me wonder what I should be doing differently.

It’s the time of the year where people set goals.  But rather than bore you with my financial goals for 2009, I thought I’d put something together to help you make your own goals.  My goal is to help you set goals that let you live those dreams in 2009 and beyond.

People love setting goals, but far too often we fail to reach them.  I’ve learned that sometimes it’s the way we set goals that counts.  For instance, a very common financial goal is to be rich.  So someone will say “I want to be rich,” and possibly get a bit frustrated when it doesn’t happen.

So how do we get SMART about that goal?

SMART is an acronym that comes from project management, but has some real applications outside the workplace.  The letters in SMART each stand for a specific attribute a goal must have to be one that can be met.  Let’s dive into what each of the letters means and see how we can improve that lofty “I want to be rich” goal.

• Specific (also significant or stretching) – A goal has to be specific.  Some people thing being “rich” means making a lot of money.  Some think it means having a large net worth.  I’m all about building net worth, so I’m going to change the goal a bit – I want to have a large net worth.  I’d say that also qualifies as significant or stretching for most people.

• Measurable (also meaningful or motivational) – Now that we’ve gotten specific, this part is easy.  Net worth should be easy to track, right?   But how much is “large”?  How about a million dollars?  That sounds meaningful and motivational, at least to me.  Everyone wants to be a millionaire, right?  New goal: I want to have a net worth equal to or greater than one million dollars.

• Attainable (also agreed upon or action-oriented) – A goal should be attainable.  Can we attain this goal?  Hmm.  A million is pretty big, but according to reports, there are now many millionaires in the US.  It’s a goal that many have attained and requires action.  One interesting thing is “agreed upon” – what does your significant other think of your goals?  I’m going to assume any partner would be OK with having a millionaire around.

• Realistic (also relevant, rewarding and results-oriented) – is this a goal that’s realistic for the person setting it?  For someone just starting out in life or who already has a half million invested, it might work well.  For someone who’s much older and a hundred grand in the hole, maybe another goal is more realistic.  Is a financial goal relevant to your needs?  I really think it would be rewarding to most people, but not the same as some other things as friends and family life.

• Time-based (also tangible and trackable) – This is the part that can turn a goal into action.  When will one start trying to get that million?  What’s the deadline to get there?  That varies each person’s situation.  Let’s go for a nice round number and our final improvement on the “I want to be rich” goal: My goal is to have a net worth equal to or greater than one million dollars in the next 10 year. Sound good?

For someone almost to one million, it might be in 2009, for someone just starting out it might be 30 years.   Money is one of the most tangible and easy to track things around, which maybe makes setting financial goals so much fun.

So what are your SMART money goals for 2009?  Please share them in the comments below.  I’d love to hear what your goals are.

Some SMART resources: Project SMART Wikipedia Goal Setting Guide

Mint.com is a an online software budgeting package that is a huge success so far. I first heard about it through a “Twitter” sent from a friend who simply said “mint.com is pretty slick” He’s a graphic designer so I was expecting an Adobe Photoshop tutorial rather than a personal finance tool.

But what I found was pretty interesting. Mint seems to follow the “web 2.0″ style of fast, free and slick web design (that’s perpetually in “beta”) that so many other sites offer these days. What sets it apart is its relative ease of use.

In order to know what your balances are, Mint ask for your passwords. That is a huge hurdle for me. I’m hesitant enough to type my passwords on a public machine. Now one wants me to store them? Somehow Mint bridged that gap of trust. In case you’re interested, they have a full page on security, including a video. Still, one must be sure to follow standard safety procedures when accessing any online account.

With some of my accounts entered, I was impressed at how simple and effective the presentation of the data was. This worked pretty well with only my checking and savings entered. After a few days, I noticed that Mint was smart enough to know what I was spending and show how certain amounts (like gas) exceeded it’s preset budget levels. I live in Atlanta, where so many people have long commutes, so my gas budget would cause some folks to cry.

I did however encounter problems when entering multiple accounts. Mint is set up with many banks and financial institutions already, but I found a couple of my accounts were (and still are) hard to set up. For some reason, I couldn’t set up one of the accounts at all. Maybe that will be resolved over time.

The other issue I encountered was the speed of updates. I just logged into Mint and still can’t see my updates after 5 minutes. Again, I hope this improves over time, because the interface so far is great.

Mint is free. So who’s paying for the party? You are, sort of. Mint analyzes your accounts and offers you ways to improve, which is essentially very targeted advertising. LinkedIn has done that with job searches and has done really well. I wish Mint the same success as they try to improve an already useful service.

Note: I called this “Part 1″ as I’m hoping to dive deeper into what Mint offers and see how their service improves.  Stay tuned for future reviews.

The New York Times just ran an interesting article comparing business budgeting to home budgeting. Apparently, many an entrepreneur out there doesn’t budget as well in their personal lives as they do with their business.

The article references another personal finance blogger, David Ning, who makes and interesting observation: “In order to be successful, the entrepreneur has to be convicted in the decisions that are made. This is the only way to be able to lead other people to follow and execute his/her direction with confidence.” Yes, entrepreneurs go for broke, and sometime go broke (or strike it rich). My own situation is a little different. I found that while trying an internet startup over the past two years, I found I was so busy, that I had little time to micromanage my own funds, or even mow the lawn.

This seems to go against two of my favorite books, The Millionaire Next Door and The Millionaire Mind. Both paint the “successful” business people (ones with big net worth) as ones who apply the same discipline of budgeting for their business to their personal lives. Applying this advice to my personal situation might help me in both my personal and business ventures.

When it comes down to it, we operate at a personal level much the way as a business does — at a profit or at a loss.

I can take away one really good point from The Millionaire Mind. Often people who pursue businesses prefer to get help with task that have minimal return, like lawn mowing. I recently signed up with mint.com and plan on doing a review soon. Mint is a personal finance tool that allegedly does just about everything — except mow the lawn. Time will tell.

In the mean time, I’ve done two other things. First I’ve set aside the startup. To be honest, it wasn’t working out like I had hoped and after two years my optimism had dried up. That will free up some time to blog keep a better budget and develop my next plan to rule the world.

Here’s the NYT Article.

Budgeting is boring. And paying off a credit card is a lot less fun than just paying the minimum and using the rest of the money to buy the latest MP3 player.  But as those of you who’ve been reading for a while know, I keep pretty close track of my personal financial progress.

I’ll be honest, personal finance isn’t always easy.  It’s mundane, boring and sometimes frustrating.  But it’s worth it.  When it’s time to budget, or remind myself to buckle down to pay off debt, I keep the following items in my mind to keep me motivated:

1. Budgeting allows you to think before you spend – I really underrated this one until recently.  I’m able to see my spending month to month and how it changes.  I approach each month with a plan.  And I have to really determine if a purchase is worth it in my mind.  I make far fewer impulse buys and have gone from wondering where all the money went to having more than I expected.
2. Saving and investing provide you with freedom in the future – I’ve got a tiny emergency fund right now.  But I also have the knowledge that if I hit a bump in the road, it won’t completely derail my plans.  I also have a small retirement fund set up.  And last quarter was pretty good to me, so I have some small hope for the future.
3. Balancing your checkbook provides you with peace of mind – There’s really no better way I know of to keep track of where I’m at financially.  I also have the knowledge that I’m keeping to my budget – or not – and can take action accordingly.
4. Paying off debt provides you with a sense of immediate freedom – Every credit card I unload is sheer bliss.  There has been a bigger load lifted from my mind than just the monthly payment.  I’ll always have utility payments.  I’m on a path to eliminate my credit card debt forever.  That means no more payments ever.

I also have to give credit (not the monetary kind) where it’s due.  It was Liz Strauss’ excellent article 10 Reasons to Get Jazzed About Writing in her successful and outstanding blog that inspired this piece.  Not only did it get me jazzed about writing, it got me even more jazzed about personal finance.

So give it a try, think of what all the mundane things you’re doing with your money mean in the long run.  Or even in the short run.  When I do that, I have all the incentive I need to keep my personal finances on track.

I’ve heard this one several times before: everyone’s becoming a millionaire.  It goes right along with the idea that the rich are getting richer and the poor are getting poorer.  These days, that certainly seems to be the case.  Some of us are watching the numbers on our quarterly statements getting bigger, while the rest have the bankruptcy attorney on speed dial.

But there is a question I can’t avoid here:  Why are there so many millionaires today?  Here’s a few answers I came up with:

1. Inflation – A million bucks ain’t what it used to be.  It’s understandable that there are more millionaires.  When I was a kid, they’d only be half-millionaires.
2. Stocks and Real Estate – Stocks have gone up recently, and the real estate bubble is well documented. 
3. These days, you can’t afford to not be a millionaire – Pensions are quickly becoming a thing of the past.  Social Security is in trouble.

I’d like to focus on that last one for a second.  My parents aren’t millionaires, but they are pretty good with money.  In fact, if I was as good as they were, I might not be blogging right now.  I’d just be marching merrily along to my first million, wondering why everyone else was making such a fuss about money and going bankrupt all over the place.

But my parents also have a full pension.  They didn’t need a gigantic cushion.  The same goes for my spouse’s grandfather.  He’s been retired for as long as he’s been working.  He was also good with his money, as many in his generation were.

But you and I likely don’t have that option.  No pensions, questionable social security benefits and an ever increasing life span make it imperative for us all to save now.  In Lee Eisenberg’s book The Number, he states that one can safely retire on 4% of a nest egg.  That’s only 40 grand if you have a flat million to draw from.  What will that look like 10 years from now.  What will it look like when you’re 100?

I don’t want to be all doom and gloom.  I realized these things later than I should have, but early enough to do something serious about it.  I’ve set aggressive financial goals for the year, because I’m really not interested in living like most Americans are these days – spending more than they earn.

I wasn’t known as the best student in high school, but I was reasonably aware of what was going on.  I learned about everything from valance electrons to integrals to The Great Gatsby.  But when it came to money, the one thing I would need to deal with for nearly every day of the rest of my life, the teaching was almost non-existent.  I’m not terribly sure why that is, but I have some ideas about what I’d like to have been taught in High School:

1. How to budget - In four years of high school, the only teacher who bothered to try and show a class what a budget involved was my 9th grade metal shop teacher.  That’s right, it was the guy who poured the molten aluminum who actually spent 20 minutes one day trying to explain to us what a real household budget involved.  No one else said a thing about the one thing I need to do every month – budget.   I will note that the business courses might have had some training on a business budget.  That’s fine, but why not a home budgeting course for everyone?
2. Savings - I don’t recall learning a thing about how much to save or why an emergency fund was so important.
3. Retirement - I went to high school when Social Security and pensions both seemed like sound retirement plans.  Maybe that’s why it was never covered.
4. Compound Interest - This was only covered rapidly in math class one day.  There was no thought given to the idea of actually putting money away for 25 years or more. 
5. Stocks/Bonds/Mutual Funds/Money Market accounts - I had no idea what the difference between any investment vehicle was, nor what any of the terms even meant.
6. The cost of a loan - How much does a 30 year mortgage cost vs. a 15 year on the same property?  How much interest does one pay on a car loan?  What about credit cards, how much will the interest on those add up to over time?  And how about pawn or payday loans?  How much does that interest add up to annually?
7. Ponzi schemes - There’s plenty of get-rich-quick schemes out there, some are legal, some aren’t.  Ponzi schemes are illegal, yet so many people get caught in them.  If we bothered to explain what they are, and why they don’t work to kids, maybe fewer people would end up in trouble with them.

None of those are complicated items, but they are things we face every day as adults.  What did your high school teach about money?  I’d love to find out if my experience was unusual, or if they really did teach all that and I was just sleeping in class (more likely than you might think).  So feel free to comment and let me know what your high school taught and what you would like to see taught.

Unfortunately, I think I’m going to have to do most of the money teaching on my own.  I want to teach them how to make smart moves with their money and avoid the money mistakes I’ve made.

I recently read  The Number: A Completely Different Way to Think About the Rest of Your Life by Lee Eisenberg, which I found only because I confused it with a different book called The Number in Mark Cuban’s blog.  It was a pleasant mistake, because I completely enjoyed the book.   And I enjoyed it for a reason that - strangely enough – has nothing to do with numbers.

The Number is an exceptional book because it takes a fresh, entertaining look at an otherwise dull subject.  Rather than pour over endless calculations, including the obligatory compound interest graph, Eisenberg takes the reader on a trip to “the rest of of your life.”   His style is engaging and conversational which is likely helpful to people who find themselves yawning when subjects like 401(k) accounts come up.

The fact is, you can probably fit the part about numbers from The Number, in one chapter.  What sets the book apart is that it makes one think about more than just how “big” of a number (in other words, your net worth) you would need to retire.  One part contains a description of an exercise a retirement planner put his clients through.  He started by asking people what they would do if they retired.  Then he asked what they would do if they knew they only had 5-10 years to live.  Then he asked the key question.   The planner asked:

If you only had 24 hours left to live…

The reader then paused, perhaps intentionally, to give me a chance to think up an answer.  I instantly thought “I would spend the entire time with my wife and kids.”  Then the reader finished:

…what would you have missed?

That took me in an entirely different direction.  I had to think, what have I missed?  If I had a sufficiently large “number,”  what would I do?  Having a massive net worth isn’t just about golf (ok, for most people) fine wines and the life of idle rich.  As much as I dream of getting up to play 18 every day, then following it with hours of VH1’s fine programming and a nap, I know I’d get sick of it – after a month or two.

I have part of an answer.  I’ve found that I enjoy writing.  If I could write in a way that really helps people, I’d have it made.  In fact, that’s part of why I started this website.  I don’t give my writing high marks, but I have twenty years before my number is retirement-sized to get better.  I also have twenty years or so to come up with a better answer.

But enough about me.  What’s your answer?  What would you have missed if today was your last day?  Feel free to let me know by leaving a comment.

The concept of a burn rate is pretty important for companies just staring out. It refers to the rate that a young company is “burning” through the cash that venture capitalists or other investors have put up. And sometimes it’s pretty large. One startup I worked for burned cash at the rate of 1.5 million dollars a month. It’s been sold to another company now.

Of course with a start-up, the burn rate refers to the amount negative cash flow for a company. A start up can get away with that – for a while at least – while it’s trying to move towards a profit. Startups can get away with that (or at least they do sometimes) but you and I can’t. That’s why it’s important to know how much of our income we “burn” every month, so we don’t burn too much.

Finding a burn rate is simple is one does a monthly budget. Add up all the bills, and all the expenses and that’s your monthly burn rate. I calculate my minimum payments on my cards, and try to include a twelfth of my annual payments, such as homeowners association dues, car registration and the like. Sound simple, and it is. But I have this feeling that not many people really know how much they spend each month.

Knowing your personal burn rate is important for two reasons. First, I’ve gone on about how imporant an emergency fund is for personal financial safety. Most experts seem to indicate the need for three to six months of savings in your emergency fund. That’s almost impossible to figure out unless you know how much money you use in a single month.

Second, knowledge of your burn rate lets you know if you really are operating with positive cash flow. I found that when I didn’t know how much I was spending, I was apt to overspend and charge items, planning to pay for them later with money I’d never have because my burn rate was too high for my income.