By Felix A. Montelara, Author: Potencial Millonario
This is a question that has come up in my email and phone conversations. If a Christian wants to be rich, is he or she serving two masters? We are all familiar with the Biblical texts (for example Luke 16:13) which council that we cannot serve two masters, and if we try we will end up taking sides: pitting one against the other in our hearts and actions. With this strict advice and warning, we must be careful to examine just what we are doing when we strive to fulfill the Potential Millionaire in all of us.
Let me make it clear: I do not want you to serve God and money. I want you to serve God, and let your money serve you. I firmly believe that God sets before all of us wonderful opportunities every day, and these opportunities can lead us to great wealth and well-being. We must recognize them, choose them, and be thankful to God for them. The personal finance strategies that I recommend and employ are really stewardship principles, in which I am helping you recognize, understand, and avail yourselves of the opportunities that God sets before you every day. It is through this process that we all realize the Potential Millionaire status that God sets at our table- we must choose His blessings in order to manifest this lifestyle for ourselves. By serving God, by making him number one in our lives, we become aware of his teachings, blessings, and actions in our lives. That’s when doors start opening in our financial future.
Money is a gift from God, and we must make it serve us in a God-like way. We must never become greedy, take what is not ours, or act at the expense of others. Money is a powerful tool with which to serve others, help those less fortunate than us, and spread the Word of God.
Invest the maximum amount you are allowed (so you get the 5 percent government match) in the Thrift Savings Plan.
Pick the right fund (or combination of funds). Stick with them, except when you need to change.
Stir occassionaly for 20 to 30 years and wham, bam, you are a millionaire.
It’s been done. Seventy five current feds have TSP accounts worth a million or more, although most did it via the rollover route. .
So is the road to riches the stock market-index funds? It can be a bumpy ride taking you up and down depending on war, weather, economic conditions, the price of oil and even volcanoes in Iceland. Throw in the occasional asteroid strike to make it interesting.
Or do you get rich by playing it safe and sticking with the G-fund which invested in special U.S. Treasury securities that are not available to people outside the TSP? Its payoff is never heart-pounding exciting, but it has never had a loss.
Mike, an employee of the Department of Veterans Affairs takes the slow-but-sure approach. “Becoming a TSP millionaire can be done with zero risk strictly through investing in the G fund,” he says. “There is no need to invest in the risky C, S, and I funds. Just contribute the max each year (currently $16,500) and over a 30 year career you will exceed a million.”
Over the last 10 years the G-fund and the much-neglected F-fund (bonds) have outperformed the stock-index C, S and I funds. But when the CSIs have a good year (like 30 percent returns) it can be avery good year.
One of the easiest ways to become wealthy is to write a book with tips on how to become wealthy in the stock market. Even if you have failed in every other way, it can be your ticket to big bucks.
The secret of success is often not in the tips themselves — buy low, sell high, dollar-cost-average, yadda yada yadda — but on publicity. Catch the eye of Oprah or Dr. Oz, or get the gang on The Talk on afternoon TV to chat it up. Bingo, you are an instant celebrity. Then possibly very rich. Or…
You can do it the old-fashioned way. If you are a federal or postal worker you can join the TSP, max your contributions, take advantage of the 5 percent government match for FERS employees and settle in for the long haul.
Wednesday’s column noted that there are currently 929 federal workers with TSP accounts worth $1 million or more. As noted, some of them were rich when they came into government. They transferred their 401(k) plan funds into the TSP.
Some of the TSP millionaires are members of Congress or lawyers-turned- federal judges. They either did well in the private sector or married well. They had the good fortune to fall in love with someone who happened to have the good fortune to have a fortune. But a few did it the hard way. Here’s one who tells how it can be done:
“…I am one of the 929 TSP millionaires mentioned in your column. Not born with a silver spoon in my mouth either, for growing up, my family never even had a car. I’m 58 years old and have over $1 million in the TSP, beginning with contributions 25 years ago. Attached is a plot showing how it happened, by putting the maximum amount available (although past 50, due to other financial obligations I did not even add the catch-up available for 50+). I did make sound investments with timing, for I made double-digit growth extraordinaire during the booms, and was fortunate to avoid the busts by moving it temporarily to the G fund. I have some advice that I think you should offer the young bloods out there joining the federal government and that they must contribute their maximum amount to the TSP. That is rule #1.”Here is rule #2: No one right now should have money in the F Fund. I am hoping that perhaps the TSP board will actually
develop separate F Funds for short/moderate term bonds (less than 5-7 years) and another separate one for long term bonds. That is because more than half of the holdings in the F fund are for more than five years’ duration. It is a mathematical fact that for every 1 percent increase in interest rates (and interest rates must go up at some point, since they are basically zero and cannot go lower), there is a 7 percent reduction in the value of the bond fund. So, Mike Causey of Federal News Radio fame, you should get on your soapbox and save all the federal employees who have money in the F fund and tell them to move it out. It is ridiculous to have a fund like the F fund, where half the money will guaranteed lose money and the other half will gain. All it takes is for the TSP board to create two separate funds and really help the federal employees. It is a shame.
“One more thing for those federal employees who had other jobs. They should undoubtedly move their other IRAs into the TSP using form TSP-30. They should do this electronically and never, ever touch the money themselves. Tax consequences would incur if for some reason they did not move the money within 60 days of taking it out of the IRA. Only do a rollover IRA from one institution to another.” — One of the 929
A few weeks ago, Alberto Baco Bague arrived in New York for a roadshow of sorts. In just 48 hours, Baco, Puerto Rico’s secretary of economic development and commerce, met with more than 30 hedge fund managers, investors and others who could be classified as very well-off.
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For Baco and the Puerto Rican government, the benefits of injecting more rich people into the island are clear. “We are a poor island, and this is our way of developing [and] developing employment in Puerto Rico. We are very serious about that,” he says.s mission might seem quixotic at best: trying to convince these well-heeled New Yorkers to uproot themselves from Manhattan and relocate to Puerto Rico. But he says they are starting to come.
Baco has an enticing carrot for the investors. Under laws enacted in 2012, when someone moves to the island, all of that person’s investment income, like capital gains, dividends and the like — is completely tax-free. Plus, service income — say, a hedge fund’s management fees, is taxed at just 4 percent. And, as it is for all Puerto Rico residents, there’s no federal income tax.
Occasional Visitors Need Not Apply
The catch is that you can’t just set up a post office box and call yourself a resident. You have to move for real. Like Damon Vickers has.
“I love it. I love Puerto Rico, I love the climate, I love the people, I love the energy of the place,” Vickers says, sitting by the pool at the La Concha resort in Puerto Rico’s capital, San Juan.
Vickers moved his hedge fund and his family here from Seattle earlier this year. He had been eyeing the U.S. Virgin Islands for a move, but then caught wind of Puerto Rico’s new tax benefits. For him, it’s about simple math.
“I like making money. And we want to go to a place where our money is treated the best, so we might benefit ourselves, and we might also benefit our investors,” he says.
His friends in the investing world are watching closely to see how he fares. Many are unaware the island even has a financial district, much less modern highways and shopping malls. Once they learn more, many worry about the crime, including a murder rate six times the U.S. average. And, given its gritty reputation, word hasn’t gotten out that the wealthy can live well in Puerto Rico.
Paco Diaz, with Trillion Realty Group, the local affiliate of Christie’s, is among those trying to convince them. Picking them up in his late-model BMW SUV, he takes investors around tony neighborhoods like Condado on the San Juan beachfront, pointing out homes selling for millions.
He shows off resort hotels, new condo buildings and high-end stores along a segment he says many call “the Puerto Rican version of Fifth Avenue.” New York’s storied shopping strip doesn’t have anything to worry about, but one block here does feature Louis Vuitton and Cartier.
To take advantage of the tax breaks, the rules say you must live in Puerto Rico at least 183 days a year and prove that you’re really part of the community. Your spouse must live with you, and your kids must go to local schools. Some of the best, like the private Saint John’s School, are just feet from the ocean, which Diaz uses as a selling point. He points out students attending a surfing school behind him. “They just go across the street with their surfing boards to catch some waves,” he says.
If the city life is not to the investors’ liking, Diaz takes them to the suburb of Dorado. It’s a gated community on steroids. Past its guards, you’ll find lush palm trees, golf courses, private beach clubs and a water park. A few nights at the Ritz Carlton resort here costs about what the average Puerto Rican makes in a year. Singer Ricky Martin lives around the corner.
Diaz’s colleague Coco Millares says the tax incentives are already boosting her business. “We have had, since they passed the law, much more interest in Dorado than we had before,” she says.
Hoping To Boost A Weak Economy
But back in San Juan, few residents had even heard of these tax breaks. When told the details, their reactions were mixed. One thought it could bring some much-needed money to the island. But others, like restaurant worker Estefania Colon, were resentful that locals pay taxes while the newcomers are exempt from many of them.
“They’re already rich, and they’re making more money from us?” she says.
Tax incentives are nothing new to Puerto Rico. For decades, tax breaks brought manufacturing and pharmaceutical firms to the island. But many incentives have been phased out, and some officials believe that’s one reason the island’s recession has been so deep. Unemployment is nearly 14 percent, and the average income is about half that of Mississippi.
The hope is that a few super-rich people will help turn some of that around and beef up the service and financial sectors, while also buying real estate, eating at restaurants, hiring locals and, eventually, maybe even invest their own money in big projects on the island.
The zero percent tax on investment income, and the 4 percent corporate tax, went into effect at the start of 2012. The goal is for 500 wealthy investors to come in the next four years. So far, 77 have applied.
The investment tax breaks are guaranteed until 2036. Only congressional action — or granting Puerto Rico statehood — would put a stop to them. But while some say this is just Puerto Rico becoming the latest tax haven, there has been little serious opposition.
Mauro Guillen, a professor of international management at the University of Pennsylvania’s Wharton School, says Puerto Rico officials are being a bit optimistic about the direct effects.
“It is not going to create a major migration to Puerto Rico,” Guillen says. The biggest boon could be indirect, he explains. Even if just a few people move, it could change the conversation about the island.
“Puerto Rico will be making the headlines. It will be perceived as a location where you should do business in,” Guillen says.
Lawyer Fernando Goyco, who advises many of the investors, says in his practice, it’s millionaires, not billionaires, who are showing the most interest in moving for the tax deal. That could be a good thing for Puerto Rico, he says — too many super-rich moving here to avoid taxes could draw congressional scrutiny.
And he’s not surprised big honchos aren’t flocking to his island. “Moving somebody from New York to Puerto Rico, that’s very difficult, that’s very difficult. Moving somebody from Kansas to Puerto Rico [or] from North Carolina to Puerto Rico — it’s a different story,” he says, chuckling.
But as the word spreads, he says, millionaires are calling his office
Toronto – We like to think we’d stick to our ethical principles no matter what. But when people feel financially deprived — as many did from losses suffered thanks to the last market and banking meltdown — they are more likely to relax their moral standards and transgress to improve their financial situation. They are also more likely to judge other deprived moral offenders who do the same more leniently, says a new paper to be published in Organizational Behavior and Human Decision Processes.
“We found that most respondents did not think financial deprivation would lead them to behave immorally,” said Nina Mažar, an associate professor of marketing at the University of Toronto’s Rotman School of Management and one of the lead researchers of the study. “Yet, once they actually experienced financial deprivation, they were more likely to loosen their ethical principles.”
This could result in workplace sabotage and the pilfering of supplies and equipment, the paper says. Public policies that entrench financial inequalities, such as through regressive taxation plans or tax cuts for the wealthy, could also lead to more cheating inside and outside the office.
And those who interpret or enforce policies or regulations as part of their work — in corporations, law enforcement, or the judicial system — need to be mindful of the deprivation effect too. Temporary upsets in their own financial position could lead them to go easier on others demonstrating unethical behaviour while under financial stress, the paper says.
There are many ways people assess their financial health. But research has found one of the strongest influences is comparing oneself to other people. A sense of financial deprivation can happen when people simply feel financially inferior to their peers.
The findings are based on a series of experiments that studied people’s views about dishonest behaviour, and how they behaved once they were induced to feel financially-deprived themselves. The effects were observed both in experiments where people actually experienced financial loss and in those where they were merely made to feel financially-deprived, relative to others.
The effects were lessened however, when people saw that acting unethically either would be unfair, or would not improve their financial situation — or when they accepted that their financial position was deserved.
Perceptions of fairness were key to participants’ decisions to act honestly or dishonestly, said Prof. Mažar. That suggests that one reason why workplace theft is so common is because employees may see their own, and other colleagues’ financial positions as inferior and unfair, relative to the companies and executives they work for.
Prof. Mažar’s co-authors on the study were Eesha Sharma of the Tuck School of Business, Dartmouth College, Adam L. Alter of NYU’s Stern School of Business and Dan Ariely of Duke University’s Fuqua School of Business.
The Rotman School of Management at the University of Toronto is redesigning business education for the 21st century with a curriculum based on Integrative Thinking. Located in the world’s most diverse city, the Rotman School fosters a new way to think that enables the design of creative business solutions. The School is currently raising $200 million to ensure Canada has the world-class business school it deserves. For more information, visit www.rotman.utoronto.ca.
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For more information:
Ken McGuffin
Manager, Media Relations
Rotman School of Management
University of Toronto
Voice 416.946.3818
E-mail mcguffin@rotman.utoronto.ca
Follow Rotman on Twitter @rotmanschool
The Senate voted to pass a bill which will reopen the U.S. Federal government. The bill will raise the debt limit and President Obama has spoken about the vote. Excellent.
Now if you were one of the 800,000 furloughed employees, what is our take away besides the obvious. I ask, could you have gone two more weeks with the uncertainty of not receiving a paycheck? Let’s not talk about another month without one. I received numerous calls and comments via e-mail around the issue of not having enough money to pay the bills. And that was only after the first pay period which had several paid days missing.
My advice was simply, “You will have to borrow from a family member or make payments by using a credit card until the shutdown ends.” As you know, this is not what we want to do. We would rather receive a paycheck and make our payments on time. However, this shutdown should make you change how you handle your money. If you were not able to make payments out of your savings, you are not managing your money well and that needs to change in the future.
In my book upcoming book Potential Millionaire the third golden rule is, “Establish an Emergency Savings Fund.” This will prevent you from having to borrowing in case of another shutdown, which could happen again. Being self-reliant financially is always a great thing. If you are like me and have saved for a rainy day congratulations. You are part of 25% of America household that learned to manage you money.
Photo by: Lori Quiller
Here is an excerpt from Potential Millionaire on the subject of Emergency funds:
“The unexpected can happen at any time. This is the importance of saving some money for an emergency. You never know what can happen with your work, family, health, among other things. So it’s smart to be financially prepared by having an emergency fund. An emergency fund is savings that you keep separate from your other accounts. Only when it is absolutely necessary is it used in case of true necessity. By stumbling you learn to walk, but it is not that simple. Starting an emergency fund is like the first year of a child’s life. They must strengthen their muscles and develop coordination. With the passage of time the child learns to rollover, sit, and crawl subsequently standing and will start walking. However, some will take more time to reach this achievement. This process will have a series of challenges and skills that require great efforts on your part. As you learned in chapter three, there are habits and attitudes that you must adapt if you want to have new and exciting experiences in winning with money. Once you overcome the challenge of obtaining and completing an emergency fund you will be on the road to financial freedom.
If you attempt to run without knowing how to walk, rest assured that frustration will come and failure will soon be upon you.”
Government shutdown day 10- The Hill is talking with White house Staffers and earlier today President Obama meet with 20 Republicans. As you know by know they are negotiating the issue of the debt ceiling. Needless to say stocks skyrocketed today as investors were encouraged by talk of a deal that may avert a U.S. government default. The Dow Jones industrial average jumped 323 points, or 2.2%, to 15,126 . The Standard & Poor’s 500 index gained 37 points, or 2.2%, to 1,693 and the Nasdaq composite index skyrocketed 83, or 2.3%, to 3,761. What does mean for you? Your TSP, 401K, 457, or 403b made some real money, enjoy. 😉
For my fellow co-workers you will receive a pay check, but if you where originally furloughed it will have about 48 hours of pay. If you were deemed essential will have you 80 hours, congrats. 😉 In my personal case 48 hours is coming tomorrow. I was not deemed essential until after day 8. I am hearing stories of Federal employees that will not be able to pay theirs bills with 48 hours of pay. Furthermore many are not sure if they will be able to a mortgage if the next pay check has zero hours.
I have been working this week not sure if I will receive a pay check at the end of next pay period. I have not had a chance to work on my book Potential Millionaire LE edition but here is an excerpt that may help you in the future when you have an unforeseen no pay check.
Standard Operation Procedures (SOP) for winning with money:
Felix with daugther Anya and son Nicasio (Nick)
Personnel will not spend more than you bring home
Personnel should create passive income
Personnel may earn more income
Personnel must not have debt
Personnel should have a budget
Personnel must establish emergency fund
Personnel must participate in the retirement plan
Personnel will insure assets and life
Personnel should not place all your investments in one nest egg
Personnel should not mortgage you life away
Personnel should save for your children education fund
Personnel must have all legal/financial documents in order in case of an unforeseen emergency
When SOP is followed and applied appropriately financial freedom will be achieved and you will win with money. Please kept in mind these SOPs, since they are only talking about the debt ceiling not re-opening the government.
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