Would You Ditch A Car For $1,000,000 (One Million Dollars)?

A study found that households with 3 or more cars are the single largest group among American car owners. The national average is 2.28 vehicles per household. Obviously, Americans are very much in love with the automobile.

According to the AAA, the average American spends $9,369, excluding loan payments, to drive ONE medium sedan 15,000 a year. In arriving at this estimate, AAA figures in fuel, routine maintenance, tires, insurance, license and registration, loan finance charges and depreciation costs.

22 years ago, my husband and I sold one of our cars to pay for our wedding and honeymoon. We intended to replace the sold vehicle eventually — after we built up our credit score so we could get a car loan — but as time went by, we discovered that sharing one car between the two of us was no big deal. We learned to carpool, drop one another off, take turns, group errands, walk, bike, take the bus, work from an in-home office, go places together. Surprisingly, 22 years later, we still share just one car.

It would be difficult to figure out exactly how much my husband and I have saved over the past 22 years (with the effects of inflation), but it is easy to calculate how much more we can save if we continue to share one vehicle:

If we continue to share one car instead of owning two for the the next 29 years, invest our compounded annual savings and earn an 8%* annual rate of return, we could save an additional one million dollars**.

Would you be willing to ditch a car for a cool million? Let us know in the comments.

*The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com).

**actual value with annual investments adjusted for inflation @ 3.1%*** annually.

***A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2008.

Learn From Successful Entrepreneurs Who Have BTDT (been there, done that)

Brian was tired of making other people wealthy. He no longer felt in control of his earnings as an employee. One day not too long ago, Brian Schwartz told his wife that he wanted to quit his 9 to 5 job and become his own boss.

Brian, the primary bread winner for his family, had never been an entrepreneur before. His astute wife put him to a test — she told him he could quit his job, after he interviewed 50 entrepreneurs.

The vast majority of small businesses fail. Why? And what does it take for an entrepreneur to succeed? Brian discovered the answers to these questions and more by asking those who have BTDT (been there, done that). Armed with a list of 13 pertinent questions, Brian met with over 50 entrepreneurs. I was one of them. Brian’s end result? An army of role models and mentors, a 245 page biographical encyclopedia, his wife’s blessings, and a new business that he is already turning into a franchise.

Recently, I turned the tables and interviewed Brian. Our ten minute discussion comes in two video parts:

In Part One, I ask Brian:

  • What was your motivation behind launching 50 Interviews?
  • Did you quit your job after publishing the book?
  • From everything you learned through your interview process, what was your most surprising finding?
  • Do you think successful entrepreneurs are born or made?

(Email subscribers, you’ll need to click here to view the video on my blog page.)

In Part Two, Brian responds to these questions:

  • Among the 50+ entrepreneurs you interviewed, what characteristics do they share in common?
  • What do you see as the biggest barriers confronting a wanna-be entrepreneur?
  • Upon publishing 50 Interviews, you quit your own job to become an entrepreneur yourself. Have you encountered challenges that you didn’t expect?

(Email subscribers, you’ll need to click here to view the video on my blog page.)

Brian’s book, 50 Interviews: Entrepreneurs, provides a short background about each business owner, then provides each entrepreneur’s answers — in their own words — to the following questions:

1. What was your initial start-up cost and source?
2. How long was it until you reached a positive cash flow?
3. Did you use a business plan?
4. What was the genesis of your business idea?
5. What is the vision of your company & the community you serve?
6. What is the passion that it fills for you personally?
7. Where do you see yourself and your company in ten years?
8. What were your biggest challenges? Looking back now, is there anything you wish you had done differently? What do you know now that you wish you’d known sooner?
9. What aspects of ownership are the most rewarding? Any unexpected rewards?
10. What do you attribute your success to? Luck, timing, someone who helped you?
11. How do you attract and retain the best employees? What is the most important attribute you look for?
12. Can you recommended any training or resources such as books, classes or websites? Do you recommend an MBA?
13. What slogan do you live by? What might your tombstone say?

The collective — yet very diverse — wisdom contained between the covers of the book 50 Interviews: Entrepreneurs is a godsend for any aspiring new business owner. If you are thinking about ditching the 9-5 grind for a business to call your own, spare yourself a few time-consuming and expensive hard knocks.

Mailbox: Outsourcing Edition

“When the economy tanked, I was forced to come out of retirement and work as a taxi driver.”

Photo: Visit Puppies Are Prozac for a dose of adorable, funny animal photos to chase the grumpies away.

Readers’ Questions Answered:

“You mentioned being better at the business side of things, but what did you do to help your husband make more money in the same, or less, time? ~Gregg

My husband is a third-generation construction tradesman. During his twenties, my husband worked as an employee for hourly wages, earning $20,000 to $35,000 annually. Meanwhile, his boss made several times as much revenue off of my husband’s efforts.

At age 30, my husband quit his job, affixed a rooftop rack onto an old Econoline van and became his own boss. After a year or two, his annual net income climbed to $60,000 before leveling off. He was on the right track, but for the hours he worked, he wasn’t earning what he could.

I had spent my twenties bootstrapping a couple of small businesses. I loved the creative process, the networking, the number crunching. After selling my businesses, I reviewed his business operations and found inefficiencies. My husband is an excellent tradesman with fantastic people skills; however, the math and minutiae of business management wasn’t his strong suit. Thankfully that’s where I shine so we joined forces and doubled the plumbing business’ annual net income to $120,000 the following year.

My husband is awesome with mechanical problem-solving and people; I have a talent for brainstorming ideas, analytical problem-solving, and implementing a sound plan. My husband and I both have different strengths that we bring to the table and together, we make a great team.

Statistically, the majority of millionaires are self-employed business owners. But it’s difficult for one entrepreneur to wear all the hats. Stick to what you’re best at doing and get help with the rest.

I’ve been outsourcing various tasks since I was 14 years old. My two siblings and I hated spending our weekends off from school cleaning the house, so the three of us pitched in equal shares from the money we earned from babysitting / paper-routes / dog-walking to hire a weekly housecleaner. Since we were better at our after-school jobs than we were at cleaning house, it made sense for us to do so.

I still use a housecleaner; I have a bookkeeper who comes to our home weekly to pay our bills, balance our checking accounts, file papers and send correspondence; and I just hired a personal assistant to help me tackle other tasks I’m not good at or don’t enjoy doing myself. When we’re really pressed for time (like after we returned home from China with our new daughter), we hire someone to stock our freezer with ready-to-cook meals. We hire subcontractors to do the work we aren’t good at — or don’t want to do — for our various businesses, too.

Outsourcing allows my husband and I to wear the hat that fits us best. As a result, we make more money AND have more free time to enjoy it!

You can read more of my tips (and others’) on outsourcing in a recent interview by US News and World Report.

“What are your favorite personal finance books?” ~Kelly

Here are my top 3 all-time favorite books:

  1. Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century
  2. Wishcraft: How to Get What You Really Want
  3. The Millionaire Next Door: The Surprising Secrets Of Americas Wealthy

Click on the following categorized lists to view more books I like:

Books That Changed My Life (Highly Recommended)
Building Wealth
Millionaire Mindset
Personal Finance Software
Raising Money-Savvy Kids
Self-Employment, Small Business
Simple Living, Saving Money, Frugality

These titles are offered at Amazon but many of the titles can be found at your local library, too. Shop at Amazon.com from my store link and I’ll use my referral fees to help small businesses operated by working, impoverished women through Kiva.org.

Online articles that captured my attention this week:

What If You Don’t Plan to Retire? Save Anyhow! @ Get Rich Slowly

Why It Could Take Years to Recover @ The Motley Fool

New HGTV show gives homeowners the cold truth @SFGate

(photo by ff137)

Realtors Might Not Have Your Best Interests At Heart

I made contingency-free, cash offers on three different houses this week. I used recent sold comps (comparables) and price-to-rent ratios to calculate a reasonable price.

All three listing Realtors refused to present my offer to their sellers “because my bid wasn’t close enough to their asking price”.

Even though Realtors are legally required to present all offers, sometimes they don’t.  If I was in the mood for it, I’d get stinky and insist upon it. But obviously, I know these Realtors won’t present my offer in a positive way to their clients. I’d be wasting my time. My contingency-free cash offer might be good for their seller, but the lower price would mean a lower commission to the Realtor…

The Realtors in our local market appear to be in denial about the state of our current economy and still have their heads in the sky about house valuation. Houses are getting contracts, then failing to close because they fall short when it comes time for loan appraisal.

During my housing search, I’d ask the listing Realtor how they arrived at their price. What comps (comparable sales) did they use? Most of the Realtors told me they used “active comps” (houses currently for sale) rather than “sold comps” to set their price!

…so what that those overpriced active comps have been languishing on the market month after month…

Their rational went something like this:

“It isn’t fair that appraisers include foreclosures and short-sales in the sold comps. They haven’t walked through those houses to compare interior finishes and condition with the house we are selling.”

Helloooo? Appraisers have NEVER walked through sold house comps to compare finishes and condition. Why should it be different now? Furthermore, appraisers can’t use active comps in their appraisal report.

Here are some of the other ridiculous things we were told:

“It’s not a house, it’s your home. Your daughter needs a home.”

Wherever you share love and laughter is home. Calling a house a “home” is a manipulation of your emotions for their profit. As I’ve said before, whether you pay rent to your landlord or pay interest to your mortgage company, you are buying shelter.

“You can’t paint your walls when you rent.”

Why not? We rent, we paint! If your landlord doesn’t care for the accent colors you’ve chosen, simply paint those walls back to white when you move out. Or use white walls as a backdrop for colorful furnishings.

“Real estate is local. Our local market won’t continue to suffer like the national market is because….. (fill in the blank with an odd assortment of rationales)”

Yes, local markets do vary. But lending is global and loans are harder to get. As long as credit and lending standards are tight and unemployment climbs, house prices will continue to drop everywhere.

“Mortgage rates are low. Hurry! Buy now before interest rates goes up!”

Think about this one: What will happen if/when mortgage interest rates go up? I’ll tell you: Buyers will qualify for smaller loans. This will dampen house prices even further. We can pay cash for our next house so the higher the mortgage rate is, the lower the price, so all the better for us.

“Rents could go up, but your mortgage payment will always stay the same.”

My response to this one could easily fill a whole ‘nother post, but let me just say this for now: Rents are limited by the amount of money people earn — rather than how much they can borrow. Besides, mortgage expenses do increase over time: think maintenance and repairs, property taxes, insurance, HOA fees.

We are renewing our house lease. We will compare our cost of renting versus buying again next year.  If our local Realtors are still playing these silly games, we’ll focus our search to properties listed for-sale-by-owner. Undoubtedly, house prices will have dropped even further by then, making it easier to win a favorable bid. In the meantime, we are happy to be home.

Read more housing crisis articles:

When Should I Buy a Home? Have We Reached Bottom Yet? What Is The Right Price? written by me
Why Downsizing To A Smaller Home Can Make You Happier written by me
Can’t Sell Your Home In Today’s Market? Here Are Some Suggestions written by me
10 Things Your Real Estate Broker Won’t Say by SmartMoney
Housing Crash News from Patrick.net