Planning For Financial Success
by Ernest Tew

Compound Rate	Months Required
40%	21
30%	28
20%	42
15%	56
10%	84
6%	139
3%	278

 
We know that most banks will pay 2% to 5% on our money. But, before dismissing 20% to 40% returns as wishful thinking and no doubt unsafe, bear with us a little longer and we will show you how.

First, there is another important concept that we should understand and keep in mind: The time value of money. We all understand the importance of avoiding losses when investing our money. However, most people don't realize that profits we could have earned had we taken the correct steps, is just as real as the loss of money when we make a bad investment. The longer our money is allowed to sit idle--or invested at rates that are too low--the more money we lose.

To show the dramatic difference, let's look at the results achieved by our two hypothetical investors. After keeping $10,000 in savings at 6% for ten years, Mr. DeLay discovered he could earn 20% on his money. At the end of ten years he invested the accumulated $17,908 at the higher rate for the next ten years. Now, at the end of twenty years, his $10,000 investment has grown to $110,882 ($10,000 compounded at 6% to $17,908 over the first ten years; then compounded at 20% for ten years).

Mr. Timely, on the other hand, discovered at the outset that he could earn 20% on his money. During the same twenty year period his $10,000 grew to $383,376. Besides earning $272,494 more than Mr. DeLay, what did Mr. Timely do different? He allowed his money to grow at the higher rate for a longer period of time. He understood the concept of compound interest and the time value of money. Other important lessons can be learned by studying the following examples:

"Goals are simply dreams we are willing to take action upon."

Table II
Results of compounding a $10,000 investment at varying rates of return.

Compound Rate	2 Years	5 Years	10 Years	20 Years
40%	$19,600	$ 53,782	$289,255	$8,366,826
30%	16,900	37,129	137,858	1,900,496
20%	14,400	24,883	61,917	383,376
15%	13,225	20,114	40,456	163,665
10%	2,100	16,105	25,937	67,275
6%	11,236	13,382	17,908	32,071
3%	10,609	11,593	13,439	18,061

 
Before going any further with this theory, let's get rid of some of your skepticism by reviewing a typical transaction, involving the purchase and sale of a used manufactured home. It was one of my wife's first transactions, done while she still worked as a nurse.

Advice should be measured by the success of the person giving it.

Example

Situation: The manufactured home owner was a registered nurse who had just contracted to purchase a house. She had maintained her home in good condition and paid off the loan. Her asking price was $5,000 cash.

My wife had discovered it was relatively simple to buy and sell used homes that were already set up in a park and didn't need to be moved.

Problems: The owner had contracted to buy a house and needed to get cash for her mobile home to help with the down payment. But, most prospective buyers don't have the cash-and banks wouldn't finance older mobile homes. She also needed to be relieved of lot rent of $158 per month.

Solution: The owner agreed to accept our cash offer of $3,500, with the understanding that she would be allowed to stay in the home for about three weeks until she could close on the purchase of her new home.

After the seller moved out, we resold the home within two weeks for $6,250. Our buyer paid $750 cash down and agreed to finance the $5,500 balance at $189.32 per month, including 14.5% interest for 36 months.

The financial results were as follows:

Purchase price	$3,500
Sales tax (6%)	210
Fee for recording title	35
Thorough cleaning of the home	50
One month's lot rent	158
Total Cash Invested	$3,953
Less down payment from "buyer"	750
Net cash investment	$3,203
Lease & option price	$6,250
Less down payment (option money)	750
Receivable from buyer	$5,500

 

	Months	Annual Return	Present Value	Monthly Payments
Receivable	36	14.5%	$5,500	$189.32
Net Investment	36	57.9%	$3,203	$189.32

 
Advantages: The owner received $3,500 of the cash needed for her new home and was relieved of $158 per month in lot rent. She no longer had to be responsible for the mobile home and was free to move at her convenience.

Our buyer was able to move into a neat home for only $750 down and $347.32 per month, including lot rent. His cash requirement and monthly payments were about the same as it would be had he rented a comparable apartment. But, unlike renting an apartment, the home will be paid for in three years. After that, he would have only lot rent to pay.

The park manager was happy to have the home stay in the park and to be able to continue collecting lot rent.

On a net investment of $3,203, my wife received $189.32 per month for the next 36 months-a net yield of 57.9% per annum.

Keep in mind, however, that we earn this kind of return by dealing in manufactured homes as a business-not a passive investment. While almost anyone can find ways to buy and sell manufactured homes, it does take a little time and effort.

Rules for setting effective goals
To become financially independent, we believe it is necessary to set effective goals. Here are some rules you may want to follow:

• Your goals should be written. An unwritten goal is merely a wish that you probably won't achieve. By putting your goals in writing they become a commitment you have made to yourself. Since your situation today and your goals for tomorrow are both unique, your plan must be personalized.
  
  Ask yourself, "How will I know if I am accomplishing my goals?" If you can't answer that question, you should rewrite your goals.
  
• Financial goals should be specific. State your financial goals in terms of numbers and dates. For example, you might decide to have investments worth $250,000, producing an annual net income of $25,000 within five years.
  
  Break your goals down into smaller sub-goals. For example, you may decide to increase your income by $5,000 each year and the value of your assets by $50,000.
  
• Focus on the things you want to achieve. Setting your priorities is of utmost importance. Keep a daily or weekly list of things that you need to do. Arrange them in order of importance. Ask yourself: If I could accomplish only one of these objectives, which one should it be? Once the list is arranged in order of importance, take some action each day that will get you closer to where you want to be.
  
• Your goals must be challenging but attainable. Excitement and challenge are important ingredients when setting goals. If your goals don't demand your best efforts and push you beyond where you have been before, the lack of challenge may cause you to lose interest. However, if it becomes apparent as you get more involved that your goals are unrealistic, adjust them to a more realistic level. If you don't believe you can achieve the goals, you won't be willing to pay the price. When they begin to lose their challenge because they are too easy, adjust them upward.
  
• Review your goals regularly. This is another reason it is important to have written goals. In a world that constantly threatens to overwhelm us with alternatives, reviewing written goals will help you stay on course and make adjustments when appropriate.
  
• Evaluate your progress regularly. Without the satisfaction of reaching some of your goals for long periods of time, you may lose interest in your long-term goals. It may be helpful to reward yourself when achieving one of your sub-goals. Such things as new clothes, a new car, or a vacation could be a part of your goals. Don't spend any more of your profits than necessary. The more you spend, the less you have left to invest.
  
• You must want to achieve your goals. The stronger the desire to reach those goals, the more willing you will be to pay the price for achievement. Spend a little time visualizing yourself possessing the things you want to acquire-then go out and do it. A plan that is not implemented is really no plan at all!
  

Obstacles you will need to overcome
To become financially independent, it is essential to know the obstacles you will face, and then devise methods of overcoming them. Three major obstacles which need to be considered are:

• The fear of taking a risk: The inability or unwillingness to take risks can be a handicap to financial success. Those who will not take risks often become spectators in the economic world and eventually blame everyone but themselves for their lack of wealth. Most people, in their desire for safety, choose methods that are familiar-rather than keeping an open mind and considering new ideas.
  
• Procrastination and indecision: The best opportunities are usually brief and do not wait for those who are unprepared. How many times have we missed an opportunity by waiting too long? Almost everyone procrastinates to some extent. The difference is one of degree and only a small degree of difference can separate the successful from the unsuccessful.
  
• Taxation: Our income tax system tends to punish the uninformed and reward those who are informed-provided they plan ahead and then take action. While the existence of taxation is beyond our control, there are many ways to minimize taxes, while working within the system.
  

Avoid Making Decisions By Indecision
If you are like many others, one of the big problems facing you is indecision. Usually, indecision is based upon a lack of information. When you are faced with making important decisions that you are not sure about, why not talk to people who are in a position to help? Ask each to list all the advantages and disadvantages.

Once you have the information necessary to make an informed decision, evaluate that information and then take appropriate action. The best decisions are made by design and systematic planning-not by acting on impulse.

You probably learned in school that Benjamin Franklin was famous for making wise decisions. If it was the right thing, he wanted to be sure to do it. If it was the wrong thing, he wanted to be sure to avoid it. His simple method of making decisions is used by many astute people today.

Taking a sheet of blank paper, Benjamin Franklin would draw a line down the middle. On one side he would list all the reasons for taking the action. On the other he would list the reasons not to take the action. When he was through, he counted the reasons on each side and the decision was made for him.

However, some reasons are more important than others. To be more precise when making important decisions, we could give each reason a weighted number on a scale of one to ten. When the totals on one side out-weigh the totals on the other, the right decision becomes more clear.

Some decisions, such as buying or selling a large property, involve many different considerations. How will it affect your monthly income? Will cash be available to meet obligations? Do you have capable management? Will it result in additional taxes or tax savings? Is the property likely to increase or decline in value? Such decisions may be too complex to be made by approaching it as one decision.

Complex decisions should be broken down into "bite-size" pieces with each consideration listed as a separate issue. Then focus your attention on one issue at a time. When in doubt, get advice from people who are experienced in that area. When one issue is resolved, go to the next. When you are finished, the right decision will be clear.

Just do it!
All the information, ideas, and good intentions will not pay the bills-until we decide to make it happen. Why do so many capable people fail to take action? They talk, read and think about all the great things they would like to do. And, then they fail to take action.

In his outstanding tapes, "Personal Power," Anthony Robbins explains that our actions are based on pain and pleasure. We have allowed our sub-conscious minds to believe that we can get more instant pleasure by sitting in front of the television set than by taking action. We are pained by the fear of making mistakes, failing to get the desired results, or what others might think about us. So, rather than take a chance, we procrastinate.

But, that same fear and pain can be turned to our advantage. Spend a few moments thinking about the pain you will have if you miss the opportunity to enjoy the benefits because you failed to use the talents you have. Then think about all the pleasures that come from achievement; the personal satisfaction of knowing that you are a person who can make a decision. And, think about the security, peace of mind and freedom from financial worry when you become financially independent.

Change the way you look at failure. And always remember, it's a condition-not a person. The first time you tried to ride a bicycle, you probably had a few falls. You picked yourself up and kept trying until you got it right. Then you "practiced" riding the bicycle until you got very good at it.

You can avoid any feelings of fear or rejection when dealing with buyers and sellers by reminding yourself that you are just "practicing." Don't be shy about asking for more than you expect to get. If you don't get the desired response, you won't be discouraged. You simply discover one of the things that didn't work with that particular person. As adults, we practice in our trade or profession. Lawyers practice law and doctors practice medicine.

Ernest Tew

Ernest is author of "The Investors Toolkit", a comprehensive system for doing business, cutting taxes and protecting your assets.  He is also co-author of "Huge Profits in Mobile Homes and Mobile Home Parks", a how-to course on making money in the mobile home business.