The Three Steps to The Last Steps of Financial Independence

And Then There’s The Riches … Now You Have It, Now What?

Really, there are three, technical levels of financial well-being along the spectrum to financial independence. Each one builds upon the other.

1. Defense and Security

First and foremost, moving closer to financial independence provides you with monetary security. If your boss comes in tomorrow and fires you, can you still afford to pay for the basic necessities; food, clothing and shelter? How long can you last before running out of money? In this book, my prescription will bring you to this stage first. Food, clothing and shelter will be taken care of. I define this stage as the ability to cover your monthly expenses via passive or portfolio cash flow. If for example, you have $3,000 a month in expenses and $3,000 in passive cash flow, then you have reached stage one. At the very least, if career or financial disaster strikes, you will be able to cover the necessities. Then and only then will you progress to stage two.

2. Having a Chair When the Music Stops

Back to my previous example, if your boss cans your ass tomorrow, it will be absolutely critical to be able to procure food, clothing and shelter. Once the essentials are covered though, you can travel further along the financial independence paradigm and build a nice chair to sit in once the music stops, or in other words, when the job ends. By nice chair I mean a source of income that provides you with excess income to buy luxuries over and above the essentials and in part, allows you indulge in a passion that you truly enjoy instead of a job unless of course you truly enjoy your job. I would define this stage as having twice the amount of monthly expenses flowing into your income column from passive and portfolio investments. If you have $3,000 a month in expenses then once you have $6,000 a month in passive cash flow, you have reached stage two.

Now, some people in the world actually enjoy the job they have right now and even if they reached this stage, they would continue to do what they do simply because they enjoy doing it and would become bored if they stopped. That is fine. Continue to work your job if you enjoy it. The point is to have options, financial independence and work that you are passionate about. Stage two is all about building a nice place to sit once the music stops and making sure you enjoy sitting there.

3. Attaining Control, Ultimate Freedom and Riches

Stage three is the ultimate goal of the financial independence paradigm. Now that the necessities are taken care of and you have a good chair to sit in after the music stops, you should now work to increase your wealth even more, give more away, spend more time with family (unless you are completely annoyed by them at this point), spend more time in service and charitable contributions, spend more time at movie theaters and ballgames, indulge in dormant hobbies such as music and art, go back to school, buy a bunch of toys and again, give more time and money away. I would define this point as generating at the least $10,000 a month in passive income and really, there is a stage four of $100,000 a month. Of course, this prescription is relative to your monthly expenses i.e., if you have $10,000 a month in expenses then truly $10,000 will be stage two for you. It can take years to get here but you hold in your hand the map to do it.

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The above excerpt is from my upcoming third book My Happy Assets - Taking the Last

Steps to Financial Independence.

If you like what you read, check out my first book, My Happy Assets athttp://www.myhappyassets.com/only

$3.99 and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a

Successful Business at http://www.smallbizcoffee.com/, only $3.99. Or both are available at lulu.com.

Happy Reading!

www.lulu.com

The New Five Legged Stool of Retirement

Rental

Rental is truly the traditional home of passive cash flow through assets. Robert Kiyosaki highly recommends this asset class in order to become financially independent. In order to excel at this asset class you must become proficient at developing pro forma profit and loss statements and calculating your rate of return.

The advantages of rental over stock investments include the following:

· Property is a physical asset

· You can depreciate the building for tax breaks

· You can leverage the investment

· Control – you can raise rents, evict tenants and make property improvements

· You can insure the property against catastrophic loss

If you are not going to employ property management then be prepared to deal with clogged toilets, tenant evictions and general repairs.

Traditionally, rental is seen as one of the only games to generate significant cash flow unless you are familiar with …

Covered Calls

If you want to get away from tenant complaints, evictions and clogged toilets and you like the world of stocks, then covered calls may be cash flow solution for you. In this technique you are literally renting out your stocks on a monthly basis for cash flow. You buy a stock (at least one hundred shares) and sell someone the right but not the obligation to purchase your stock at a set price otherwise known as the strike price. The money you receive is the premium and it is yours to keep. This is your rental check and you can transfer and spend it right away or you can reinvest it.

At the end of the month, your stock is either called out or you write another call against it. If you cannot profitably write another call against it then you can follow management techniques detailed by Hooper and Zalewski in Covered Calls and Leaps, A Wealth Option, in order to continue generating cash flow. The bottom line is that whether the stock is going up or down, you can still generate the same amount of cash flow each month.

Budget and Balance Sheet

According to Warren Buffett, accounting is the language of business. You need to have the capability to compile and read your own personal financial statements. You do not need a degree in accounting, just the basic skills to develop a monthly budget and balance sheet. You need to check your totals at the end of each month and review your balance sheet: is it getting better or worse? Are you building equity or merely taking on more and more debt?

401ks

Although Robert Kiyosaki despises mutual funds and does not make 401ks a part of his financial plan, I definitely include them in my financial plan. Who is to argue with having one if your employer provides a match? Even though Kiyosaki says that is money owed to you anyway, I argue that it is icing on the cake.

In many respects you want to end up with as many tiers as possible in order to build a solid stool for financial independence. Traditionally, the old stool involved three legs:

· Social Security

· Your Savings

· Pension Plans

Pension plans are long gone folks and social security soon will be. This means that you have a one-legged stool which is probably not going to be to comfy.

I recommend the following five legged stool:

· Rental

· Covered Calls

· 401 k

· A Business

· Buffett-style stock investments

This type of stool is very sturdy and should not topple anytime soon.

Buffettology

If you are going to stay with mutual funds then as Warren Buffett recommends, you should invest in an index fund. By doing so you will avoid the high fees that come along with most traditional funds which truly eat away at your overall return.

I would also recommend that you diversify international through an international fund.

If you are going to venture outside of the world of mutual funds then you need to take an in-depth look at Buffettololgy. In that book, Mary Buffett and David Clark detail the methodology that Warren Buffett uses to identify great companies. He looks for:

· A consumer monopoly or toll bridge

· Consistent, growing earnings

· High ROE

· The ability to reinvest

· The ability to keep up with inflation

· Low debt

· Good margins

Also, if you are going to build a business you need to study up on Buffettology since it will key you in as to what makes up a good, strong business.

You can also potentially look at dividend paying stocks or REITS, royalty trusts or ETFs when you venture away from traditional mutual funds. Just keep in mind that Warren has been able to generate consistent return of over 20% over the years which he considers his cash flow. So, I would tell that if you are looking for dividend paying stocks, meld dividend yielders with Buffettology and approach it from that direction.

________________________________________________________________

The above excerpt is from my upcoming third book My Happy Assets - Taking the Last

Steps to Financial Independence.

If you like what you read, check out my first book, My Happy Assets athttp://www.myhappyassets.com/only

$3.99 and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful

Businessathttp://www.smallbizcoffee.com/, only $3.99. Or both are available at lulu.com. Happy Reading!

www.lulu.com

Can You Name The Four Basic Necessities?

The New Four Essentials

1. Food
2. Clothing
3. Shelter
4. Health Insurance

In the past you typically had three essentials that you had to cover; food, clothing and shelter. Nowadays it is the big four and includes health insurance. Why? Because one major, uncovered medical disaster and you will be sunk. Additionally, if you are going to quit your job, you have to figure out how to cover your major medical insurance.

Are You an Eagle or a Golden Retriever?

In is book 48 Days to the Work You Love, Dan Miller identifies four main personality tendencies that we all possess:

1. Dominance or driver (Eagle) – likes to take charge, likes power, and authority, confident, very direct, bold, determined and competitive.

2. Influencing – good talkers, outgoing, fun-loving, impulsive, creative, variety-seeking, promoter.

3. Steadiness (Golden Retriever) – loyal, good listener, calm, enjoys routine, understanding, avoids conflict.

4. Compliance – loves detail, very logical, diplomatic, factual, deliberate, controlled, inquisitive, predictable, resistant to change.

It is your job to discover who you are in each of these three areas; Skills and abilities, Personality Tendencies, Values, Dreams and Passions. By doing so you will have a much greater chance of identifying the work you will be happiest with.

The Five Predictors of Success

Dan goes on to tell us that with any job role there are 5 predictors of success:

• Passion
• Determination
• Talent
• Self-Discipline
• Faith

With passion you can set goals. With determination you have a destination on your roadmap. With talent you can excel and build your confidence. With self-discipline you can follow through on your goals and with faith you have the confidence to get there.

_____________________________________________________________________________________

The above excerpt is from my upcoming third book My Happy Assets - Taking the Last

Steps to Financial Independence.

If you like what you read, check out my first book, My Happy Assets athttp://www.myhappyassets.com/only

$3.99 and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful

Businessathttp://www.smallbizcoffee.com/, only $3.99. Or both are available at lulu.com. Happy Reading!

www.lulu.com

Taking the Last Steps to Financial Independence

The new one ... Part Three ... due out by March 31st, 2011

Taking Your Company Public

Any company can be a publicly traded company because there are no minimum asset or revenue regulations.

The reasons why every company should go public:

1) It offers liquidity to investors should the company start to fail.

2) It gives you the ability to use the stock as currency for acquisitions.

3) It gives the insiders and investors leverage at the time of the sale of the company.

4) Being public allows you to leverage the value of your company because the market capitalization (shares issued multiplied by the share price) are almost always a multiple of the balance sheet of that company.

IPO – when a company issues common stock or shares to the public for the first time. Typically an IPO issued by smaller companies seeking capital to expand. Assistance is obtained from an underwriting firm which helps determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.

The sale (that is, the allocation and pricing) of shares in an IPO may take several forms. Common methods include:

§ Best efforts contract

§ Firm commitment contract

§ All-or-none contract

§ Bought deal

§ Dutch auction

§ Self distribution of stock

As an angel investor, you can invest in private companies and, with success, expect to better than double your money. Or, you can invest in public companies and, with equal success, expect to earn fifty-fold your investment in the same time period. The public company choice is always the wiser choice because it gives you liquidity should things go wrong and leverage should things go right.

How To in General:

One

1) File a registration statement with the SEC.

a. The statement must be accurate otherwise it could be suspended.

2) The SEC will perform a due diligence review of the company to make sure the statement is accurate.

3) Once they determine it is accurate, they will make the statement “effective” and you will be able to start selling shares.

Two - Underwriting

1) This process finds out who all of your prospective buyers are going to be.

2) Includes going through a group of investment bankers who will agree to purchase your company’s securities and then will resell them to the public.

3) The investment bankers will distribute the preliminary pamphlet to potential buyers so they can see what they are going to be buying.

4) Your company along with underwriters will go around to different potential buyers and do a marketing trip which includes explaining the business plan including the strategies and business objectives and to answer any questions involving your company going public

Three – I’m Still Standing

1) Stay in good standing with the underwriters – about a month after you have filed the registration statement, the Securities and Exchange Commission will give you written comments whether or not your registration statement is accurate.

2) The underwriters will then agree on a price for what they think your stock should sell for.

Where to Start

1) Research what goes into the registration statement.

2) The whole process of taking the company public takes about 3 months.

Cost

It costs a lot in up front out of pocket expense with figures ranging from $100,000 to $1.5 million. Total costs and expenses for smaller IPOs can reach 24 to 39 percent of the offering or total monies raised. But, the company’s net worth is increased and going public makes it easier to get money for growth.

Here’s a breakdown of the cost categories:

1. Underwriter costs

2. Professional costs

3. Up-front costs

4. Hidden and future costs

The Breakdown

The underwriter’s total fees typically range from 8% to 13%. This is the largest single cost item in a public offering. Legal expenses are typically the second largest – on an IPO of $8 million, costs can range between $30,000 and $175,000. Up-front costs can include stamps, paper, phone calls, special forms, entertainment, and office equipment, up-front costs include registration fees and printing. Printing costs typically range between $10,000 to $60,000.

How much time does it take?

It can be done in three to four months but if the market is overwhelmed it could take a year.

Key Steps in a Public Offering

1. Business Plans

a. Corporate master plan

b. Underwriter/legal/accounting plan

c. Condensed plan (executive summary)

d. Identify preprivate financing

2. Identification of Associates

a. Retain attorneys

b. Identify accountants

c. Identify underwriters

d. Establish preprivate financing

3. Forming the Corporation

a. File incorporation

b. Structure public offering

i. Identify founders

1. Percent founders

2. Percent preprivate

3. Percent private

4. Percent dilution

c. Negotiate underwriter’s letter of intent

d. Retain accountants

e. Negotiate outside agreements (patents, sales, licenses, consultants, royalties)

4. Private Placement Prepreparation

a. Approval of private placement documents

i. Corporation

ii. Underwriter

iii. State

5. Raising Private Funds

a. Establish escrow account

b. Solicit private monies

c. Prepreparation of public registration

d. Break private escrow

6. Audit and Registration Preparation

a. Complete initial audit

b. Retain printer

c. Retain transfer agent

d. Approval of SEC registration statement

i. Accountant

ii. Corporation

iii. Underwriter

7. Filings

a. Submit registration to SEC

b. File with blue-sky states

c. Clear with NASD

d. Initial comment letter from SEC

e. Print red herring

i. Send syndication indication request

ii. Distribute red herring

f. Second letter of comment and reply

g. Third letter (if needed)

h. SEC acceleration request (if needed)

8. Raising public financing

a. Arrange due diligence schedule

b. Sign underwriter’s agreement

c. Establish public escrow

d. Print prospectus

e. File with Nasdaq

f. Establish syndicate

g. Distribute prospectus

h. Conduct due diligence meetings

i. Place tombstones

j. Complete public offering

i. Legal and accounting opinions

ii. Closing papers

9. Post completion

a. Break escrow

i. Corporation, attorneys, accountants, bank, transfer agent, respective counsel

b. Establish market makers/quotation

i. Pink sheets

ii. Nasdaq

c. Establish trading

d. File 8-k

Also …

You can use a public company for estate planning purposes to pass on assets to heirs – there is a certain amount of cache to being public as well. You can raise money yourself and by having a stock symbol and a quote it lets people know there is any exit strategy.

In going public, the company realizes several objectives:

1. Receipt of capital to fund business objectives

2. Liquidity, or at least potential liquidity, for company insiders

3. Creation of a new form of currency to reward loyal employees or to make acquisitions

4. Obtaining a source of future capital to fund growth

5. Creation of a basis for valuation of insiders’ stock for estate tax or similar purposes, and facilitation of business succession strategies

The categories of companies which the market has been interested in taking public is as follows

1. Companies with a history of successful operations with a demonstrated growth trend that is likely to continue

2. Companies that possess a unique franchise or market niche within a market sector that is experiencing growth and management has a comprehensive business plan to realize profitable growth

3. Companies that possess patent or similar rights to a technology in a market sector which could experience rapid growth by the application of new technologies

4. Companies in a market sector that is experiencing growth headed by an entrepreneur or management team with a successful track record with prior IPO’s

Further advantages for the company

· Fund start-up operations

· Purchase equipment necessary for production

· Increase inventories of both raw and finished goods

· Support growing receivables

· Further research

· Develop the next generation of product

· Retire prior debt and

· Increase market share

___________________________________________________________

The above excerpt is from my upcoming third book My Happy Assets - Taking the Last

Steps to Financial Independence.

If you like what you read, check out my first book, My Happy Assets athttp://www.myhappyassets.com/only

$3.99 and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful

Businessathttp://www.smallbizcoffee.com/, only $3.99. Or both are available at lulu.com. Happy Reading!

www.lulu.com