A Million Dollars and 7 Sources of Income
By Fred Atwater, March 2018
Intentionally engineering your financial life to suit your talents, goals, and aspirations. Create financial freedom and a legacy of wealth.
Hello and thank you for taking a moment to read this. I’d like to introduce myself. My name is Frederick H Atwater (Fred for short). I’m an American born 48 year old (as of 2018) with nearly 100% British ancestry (all the way back to c. 1260!). I’m a retired Lt Colonel from the United States Air Force. I flew T-38s, F-15Es, MQ-1s, and MQ9s. It was a fantastic career that I loved, loved, loved. Many, many thanks to all my mentors, leaders, and friends that I met and served with over 24 years in that career.
I’m married very happily to my awesome wife, Kristi. We have a kindergarten aged son, and we live in Henderson, NV. I also have 2 older college aged kids from a previous marriage whom I hope to teach the blessings of financial freedom to, when they are ready.
I’ve been trading stocks, bonds, and mutual funds since I was 18 years old, although the amounts I traded back then were much smaller, they still set the foundation for engineering a life of financial freedom. Midway in my Air Force career, I took several weeks off and learned to trade options. There was an awful lot to learn. “Firehose effect” is what we called it in the military (where you hold a firehose of knowledge up to your face, and the instructors turn it on... imagine learning to fly fighters or trade options that way). What happened? I had uncovered another passion besides flying—options trading. I hired a mentor from the Chicago Board Options Exchange, and had the awesome opportunity to learn at the CBOE. What I learned was deeper than the mechanics of the money. It was the psychology of dealing with large amounts of money, learning how to set and take a stop loss, and learning how to take your profits off the table at the correct time.
In addition to “trading with the pros”, they also taught me to reinvest your money in something else. They warned me about the possibility of “blowing up an account” which meant having all your money VANISH in a very short time... money that could have taken you years to build up. I’ve seen it happen over and over and over again to people. And so had they. That’s what this short read is about—establishing your wealth, permanently. It’s all fine and great to have a million dollars, but if that money is at the fluctuation risk that is present in day to day stock market action, and you need that money to thrive and survive on, it creates this thing called stress...and worry...and stress! What if there was a way to mitigate risk? What if there was a way to minimize worry? What if?
Well there is. It’s called The Rule of 7 (or 8). It’s a rule-of-thumb that some of you will recognize from a different source. It originates in Ecclesiastes 11:2. I’m not a bible-reader or a church-go-er by any means. Haven’t been to church in years. If church is your thing, great.
It’s not mine, but some of the lessons and guidance offered are spot-on. Read on if you’d like to learn more about my Rule of 7 (or 8).
WHY ARE YOU SEEKING WEALTH?
Why are you seeking wealth? Here’s some ideas:
To pay bills? To be “rich”? To buy that new BMW? To impress your parents? Status? Look at some digital figure on a computer screen? Build a big-giant nice house with hardwood floors and a Jacuzzi/pool? On 100 acres of land? Make life easy? Hire a maid? Meet some imaginary goal in your mind? Be out of debt? Create a legacy?
Why are you seeking wealth? Here... write it down right here:
Why? You have to answer that for yourself. I’ll tell you my answer. It’s easy. Ready? Because being poor sucks. I’ve been without money before. I’ve been on the wrong side of ZERO. When I graduated Arizona State University back in the mid 1990’s, I was exactly ($55,000) net worth due to student loans and credit card debt (used to pay for food, books, beer, clothes, etc). Negative $55,000. That is broke. Oh, and I had a newborn son. Yes I still traded ($1000 here/$1000 there.. very small time), but I was in deep, deep negative territory. And I had to buy a car on a loan. Add another ($6,000) for that beat up, high mileage, faded paint-job 1989 Ford Bronco with a broken air-conditioner. In Tempe, AZ, in the summer, with a newborn son. Being poor sucks. What about the time I couldn’t pay a cheap motel bill because my checking account was overdrawn and I had to sleep in the car with the new family? Again. Poor sucks. It sucks people. Period. I’ve heard it put another way. “I’ve been rich, and I’ve been poor. I like rich better”. There, see. I’m not afraid to say it. I’m rich, and I like it better than being poor. And being poor sucks. I didn’t get here by being handed the money. I consciously engineered my way out of poor and right into being rich. It took years.
What are your beliefs about money? Seriously. Have you ever gotten out a blank piece of paper and written them down? I have no idea what your beliefs are. No idea. I do know from evidence based observation that most of US and European culture believes in debt. Most of our culture believes that money is somehow scarce. That there’s not enough. Listen to the language. Listen to the words in songs you hear on the radio. Watch what themes recur over and over and over in television series and movie genre.
Here are some examples:
Language: “That’s too expensive...” “I can’t afford that...” “Geez, I can’t believe that costs so much...” “Honey, how are we going to pay for this...” “I can’t save for retirement right now because...” “How are we going to afford kids’ college”. And on... And on.... And on....
Music you hear: This one is my all-time favorite observations of debt-laden western culture that actually believes there is a lack of money. Yes, I said that correctly. People actually believe there is a lack of money... hence why they take on debt and self-sabotage their personal and family’s financial freedom. The song is by The Who. It’s called “Eminence Front”
The sun shines
And people forget
The spray flies as the speedboat glides And people forget
Forget they're hiding
The girls smile
And people forget
The snow packs as the skier tracks People forget
Forget they're hiding
Behind an eminence front Eminence front, it's a put on
It's an eminence front
It's an eminence front, it's a put on An eminence front Eminence front, it's a put on Eminence front
It's an eminence front
It's an eminence front, it's a put on It's a put on, it's a put on, it's a put on Come and join the party
Dress to kill
Won't you come and join the party Dress to kill, dress to kill Drinks flow
That big wheel spins, the hair thins People forget
Forget they're hiding
The news slows
Their shares crash, hopes are dashed People forget...
That song is describing people constantly putting on a grand façade. A.k.a. an Eminence Front. If you don’t recognize that song, listen to it on youtube or whatever free music internet app you may have. You’ll probably recognize the tune. I bet you didn’t know it was at its core about western culture’s foundational belief that money is scarce. In the case of that song, money’s scarce, get yourself into debt, go to parties, go skiing, buy a speedboat...and when shares crash, your hopes are dashed. People forget.
Movie Genre and TV: How many movies can you think of where there’s some bank robbery or diamond heist? What about movies where someone is kidnapped and money is demanded? Or there’s some million dollar amount of money that is due to someone for something and the entire sequence of the movie is built around that?
Folks, its all the same. The movies are just reflecting what society and culture seem to behave as. And in the case of money, people easily default to the theme of lack and scarcity. It must be evolutionary or something like that. Maybe our 170,000 year old human species relatives had a lack of food and living resources, and somewhere along the line when money got invented, the same lack mindset was promoted. Problem is: it’s not true.
There is SO MUCH MONEY in the world that everyone in the US could be a millionaire today. Right now. There is no lack of money. There is, however, lack of belief. Lack of belief in yourself that you are worth it. Why is that? I can’t answer that for you. Again, all I can tell you is what I was taught to do. Write it down. In fact, I have a sheet for my trading rules that states my number one rule: “Believe in yourself, you are worth it”. It’s self-oriented, self- driving, self-motivating, and self-realizing. It overcomes good old grandpa-caveman from 170,000 years ago that thought that lack of food in the forests of pre-historic Eurasia somehow translated into lack of money.
There are a lot of sources out there that promote the lack of money mindset too. Namely, corporate lenders, banks, auto-dealers, mortgage-brokers, etc. They ALL want to lend you money because they are capitalizing on the culture of debt and belief system that there is not enough money...so they’ll be glad to lend it to you if you pay it back with a little interest. If you’re reading this, make a mental note to block out debt culture. It is a lie. It is there to set up the Eminence Front mentality and to TAKE YOUR MONEY and to keep you poor. Don’t do it. Remember, being poor sucks.
Why are you seeking wealth? Write it down again:
The Rule of 7 (or 8)
And here we are. The magic. This is the “invest your money in something else” part. This is the key to longevity, to wealth, to legacy.
I remember reading “The Millionaire Next Door” when it first came out in the late 1990’s. I was absolutely immersed in my Air Force flying career at the time, but distinctly remember several things from that book. One thing in particular stood out with extreme clarity: most millionaire-next-door-people had 7 sources of income. I absolutely remember thinking with clarity that I was going to do that, too. That was my path to millionaire. That was the easy part. Then came the next YEARS of figuring out what that really meant and how was I going to engineer this financial life where I had 7 (or 8 according to Ecclesiastes) sources of passive income. I added the passive part from both the Millionaire Next Door source and the Ecclesiastes source.
I defined the Rule of 7 (or 8) after about 15 years of successfully getting myself and family out of debt and excelling at building some dollar-based wealth. I remember at about age 32 years old (or so) passing the $100,000 net worth point. I still carried debt, but I had somehow made it to that point. And in the 5 years that followed, I lost about half of it due to divorce. That wasn’t in the plan. Doesn’t matter, the plan was in my head anyway. Note to self: WRITE IT DOWN. You too. Write it down. Write your plan on a piece of paper and tape it somewhere prominent. Your refrigerator, your bathroom mirror, somewhere you will see it EVERY SINGLE DAY so that it becomes part of your neural mechanism and the universe corresponds to your thoughts and energies. Seriously.
And write it down I did. Be self-correcting in all your endeavors. Do not bother with why something happened. Sure, think about it for about a second, recognize it...and then move on. Write down what you’re going to do differently, and then do it differently. Works with re-marrying, works with money, and it works all the time.
Self-correction and $50,000. Alright, let’s make it happen. And it did. A lot of working, trading, real-estate, research, staying up late, and busting-my-butt had real results. At age 40 (or so) I remember seeing our annual net worth at around $770,000. Wow. The $770,000 was impressive, but what was more-so was the rate of increase. Holy moly. It had doubled in 2-3 years. And in the two subsequent years that followed, we hit $880,000 and $990,000 like clock-work. Saving, working, trading, real-estate. Same formula, only on speed. I remember at age 42 thinking “uhhh... we’re going to be millionaires....soon”. And we did. Blasted right through to 1.3 million. And stagnated. It took me a year and a half to figure out why the stagnation. It was because of greed and overspending. It was a huge-party with my wife and I,
all the time. We went to Europe several times, traveled the US almost every weekend. We bought an airplane rental business, started an MLM business (they both failed) and had an all- around good time.
There was a problem. One, I was still in the Air Force, and all that partying made me gain a little too much weight, and I failed a physical-fitness test. And, two, our net-worth growth had stagnated due to overspending. That was it. I was done with the reckless spending and too many calories all the time approach. Full stop (airplane term). I lost 30 pounds, got myself back on focus for the 7 sources of income track, and broke the stagnant 1.3 million dollar barrier.
Add about 3 more years at age 45, and we had made it. Retired successfully. 2 million. And counting. I’m 48.
And all due to being mentored, putting forth the effort, self-correcting, writing it down, and as I said before, I think the most important piece in all of it: BELIEVE IN YOURSELF, YOU ARE WORTH IT.
Here’s my 7 (or 8) sources of income. All it takes folks is writing it down, and then focusing on it. The law of attraction says you will attract what you think and believe. So think and believe big, because it is within your reach.
US Air Force Pension: This one took me 20 years. I served for 24 years, but the military “cliff vests” their pension at the 20 years active duty mark. That is a big commitment, and the military culture is definitely not for everyone. It’s actually a pretty small minority of the population. You will lose friends. You may get divorced due to over-deployments and long lonely times away from home. You will bust your butt harder than you ever thought possible. And you will come out a better person. More exposed to many, many cultures. Lifetime friends. Lucky for me, I got to do exactly what I set out to do- fly jets, go fast, and retire as a Lt Col. Goal met. One other benefit out of the source of income: TRICARE PRIME medical. As a retiree, we pay $48 / month (insignificant) for full family coverage. Additionally, our co-pay is typically less than $20. Again, insignificant. And I get free prescriptions for the family on any military installation, world-wide.
Veterans Administration Disability: I didn’t expect this one. This is a tax-exempt payment that the VA makes each month to us based on medical issues I had incurred over 24 years of service. It was a giant pain-in-the neck (one of the disabilities!) to go through, but the tax-exempt income is permanent. Oh, and they give me free medical and prescriptions for life, although the VA system is VERY slow. I don’t recommend to anyone to go to war twice to get this benefit, but it showed up. I was
actually concerned about creating the 7th source of income (this one is listed as 2nd, but was really 7th in my build-sequence).
- Rental Real-Estate: We own three very nice houses at Holloman AFB in New Mexico that we bought at the very bottom of the housing market. Timing. Timing. Timing. And we used stock-market money to pay for all of them. Shack. 3rd source. Done. Thanks to a timely reading from Robert Kiyosaki is how we got into real-estate. I just don’t adhere to the same debt philosophy as he does.
- Dividends: This is its own distinct class of income. There are many, many reading sources you can do with respect to setting up a dividend portfolio. You’re going to have to get your mind around the numbers involved here. If you want $1500 / month in passive income, how much capital earning a 3% yield are you going to have to have? Well, that’s a college-freshman finance question. Basically, annualize the monthly demand ($1500 x 12 months) and you have $18,000 / year. Then, divide the annual income requirement by the dividend yield ($18,000 / 3%) and you have $600,000. So, find/design/engineer a dividend portfolio worth $600,000 that pays 3% yield...and magic. You have $18,000 / year in passive income. If you want to get fancy about it, gross-up the requirement to pay the taxes too, and you have $18,000 / (1-tax rate), which gives you $18,000 / 75% = $24,000. Then divide $24000/3% and you magically have a capital requirement of $800,000. We are doing just fine in the dividends department.
- Lending Club: This P2P (peer to peer) resource is about a decade old, but relatively new to the investing menu. I’ve been with them for 6 years now and have generally figured out how to use the platform very well. Our current ANAR (adjusted net annual return) from them is a touch over 6%. I believe that in the 2018-2022 rising interest rate environment that we’re probably going to experience, this 6% will climb very nicely to the 7%-8% range, given time. The math on this one is exactly the same as dividends, but instead of “yield” it’s called “ANAR”.
- Municipal Bonds: This one is an old and relatively boring strategy used by people that have plenty of money that are looking for tax-exempt income. We use “USTEX” through USAA as our municipal bond income. Its very liquid, pays a 4.25% annual yield, and is tax exempt. We use the income from this one to pay our property taxes back to the county.
- And lastly. This one is a collage of work/trading/other income. And when I stop working/trading, this one becomes social-security. There is a public misperception
that military retirees don’t receive social security. Nothing could be further from the truth. We paid FICA for 24 years and will receive (under current law...maybe the future changes) social security at an appropriate point in our lives.
Thank you for reading this through. My real goal/intention is to spread the “wealth” of knowledge I’ve gained over the last 30 years. My results varied from my mentors, as will yours from yours. 7 (or 8) sources of income is an easy concept. Actually making it happen—well that takes work. A lot of dang work. I/we didn’t get here without frustrations and some loud- late night cursing sometimes. Whatever your style is, exploit it. Get you and your spouse on board and on the same sheet of music. It’s actually a fun journey (it was really fun when we were traveling to Europe!)
Look around you, listen. Observe. Recognize that there is literally infinite money in the world. You can have as much as you need. I was taught that as a youngster by my dad... and lived through some frustrating negative-net worth times in my life. I can tell you being out of debt it awesome. No payments. To anyone. For anything. Just for entertainment, I looked at my “credit score”. It’s over 800... so I wondered what kind of an interest rate I could get on a house... something around 3.75%. But then I did the math. Holy-tamole... 3.75% of $350,000!! That’s $13,125 / year!! You have got to be kidding me. And then there’s the “tax deduction myth” of that $13,125. I’ll tell you what, how about I loan you $350,000, you can pay me $13,125 in interest, and then I’ll give you back 25 % (your tax deduction)... $3,281.25. Let’s make a deal! Right Now! That means I get to keep $9,841.75! Wow. Easy money. And it’s all based on myth.
Try it for a day. Listen to the songs on the radio. Watch the ads on TV. Observe the themes in movies. You’ll be astonished about the links to lack and scarcity around money. And then turn them off. Block them out of your psyche. There is more money in the world than you could ever possibly imagine. And you can have as much of it as you need.
And believe in yourself, you are worth it.