Category Archives: Income



A Tale of Two High Income Earners

Football vs 50 cent

Over the years, several high-profile celebrities have gone bankrupt.  The most recent is 50 Cent, AKA Curtis Jackson.  He has a high income, but he also has a growing mountain of expenses.  Jethro Nededog at Business Insider published 50 Cent’s expenses and income statements.  $108,000 per month ($1,296,000 per year) is flowing out and, by my calculation, $271,219 coming in each month ($3,254,630 each year).  That’s a 40% expense to income ratio.  That not too terrible.  But, when you consider the fact that 50 Cent has two multi-million dollar lawsuits hanging over his head, you can understand why bankruptcy is suddenly his best friend.

As a side-note, I find it fascinating that with such a high income, 50 Cent still has debt.  He has a mortgage that he pays $17,400 per month on.  He also pays $5,800 per month on his Bently lease.  I mean, why not pay cash?!  Even more amazing, 50 Cent spends $1,000 per month on personal grooming.  That’s a lot of haircuts!

On the other hand, look at John Urschel, an offensive lineman for the Baltimore Ravens.  As Tony Manfred of Business Insider points out, Urschel has a fairly high income – $564,000 per year.  But, he only spends $25,000 per year, or 5% of what he takes in.  He drives around in a used 2013 Nissan Versa that only cost him $9,000, or 6% of his $144,000 signing bonus from 2014.  It’s unclear whether he paid cash for the car, but I can’t imagine why he wouldn’t have.

I really like the pic Urschel posted on Twitter.  Two large, likely much pricier pickups, towering over his tiny clown car.  He has such a great attitude about money and life.   Urschel insists, “I’m driving my dream car.”

So, in the long run, which of these two will end up wealthier?  My money is on Mr. Urschel!  In the end, it’s not about the size of your income.  It’s more about what you do with that income – how you manage it.  If you’re careless with your money, or you use money to show others how much you have, there’s a good chance you’ll be joining 50 Cent in bankruptcy court somewhere down the road.



Elon Musk Ate for a Dollar a Day and You Can Too!

Money Love

I know it sounds crazy, but in a recent interview with Neil deGrasse Tyson, the billionaire founder of Tesla Motors and SpaceX, Elon Musk, revealed how much belt-tightening he did when he was in college, including living off a $30 a month food budget!  His diet wasn’t glamorous, consisting of hot dogs and oranges or pasta and sauce. He also lived in a cheap apartment with just a computer and  internet all in an effort to focus his attention on starting his first company.  Years later he has started a few very successful companies and is worth over $10 billion.

I know what you’re thinking.  How can I trim my lifestyle back, so I too can become a billionaire?  Well, to do it right, there are some rules you should follow:

1. Don’t rack up the debt

I’m not sure whether Musk took out any loans or used any credit cards, but if you can cut your lifestyle to the bone without going into debt, you’ll have one less thing to worry about.   Cash-flow your self-imposed poverty.

2. Build some savings first

Before you jump in, it would be wise to have an emergency fund saved up.  It wouldn’t have to be too large, since your expenses will be super low.  If, for example, you think you can live off of $1000 a month, make sure you have $6000 saved up first.  Some might argue that having zero savings will create a sense of desperation that will motivate you to succeed.  Personally, I like wearing a seat-belt when I drive fast.

3. Have a plan

Don’t just decide one day that you’re going to rent out a cheap room and start living off hamburgers and Hostess apple pies.  Do some research and planning first.  Figure out exactly how much is realistic for rent, groceries, utilities, and a computer.  Make sure you REALLY LOVE the food you plan to eat.  I love cereal, so that might be my choice.  I might need something else for a little more nutritional balance.

4. Time-box it

After a couple years, if your dream company isn’t getting any traction, you have to be willing to pull the ripcord and float back down to earth.  If you go too long without extra money to save and invest, you’ll miss out on some valuable compounding interest years.

5. Consider your family

If you have a family, this plan doesn’t really work.  Unless, by some miracle, you can get buy-in from everyone in your household.  A plan like this much more realistic if you’re single and in your twenties.

There truly is a valid principal behind Elon Musk’s wealth strategy.  C. S. Lewis outlines it very nicely:

You can’t get second things by putting them first; you can get second things only by putting first things first”

To me this means, if you focus on the most important things first like following your dream and getting your business off the ground, the rest of the things in your life, like food and shelter, will take care of themselves.  Following a plan like this is certainly no guarantee of wealth or success, but challenging your mind to focus on different priorities might have a significant impact on your life.

Have you ever tried a self-imposed period of poverty?  Do you think this is a good strategy for building wealth?



Zero to One: An Unconventional Look at What it Takes to Build a Company

Copying something that already exists is like going from 1 to n, but creating something completely new and different means going from 0 to 1.  In order for a company to succeed, it has to create something the world has never seen.  This is the core idea behind the new book Zero to One: Notes on Startups or How to Build the Future by Peter Thiel and Blake Masters.

The book is based on notes taken by Masters, a student at Stanford in 2012 who took a class about startups.  That class was taught by Peter Thiel, the “don” of the famed PayPal Mafia – the name given to the founding group at PayPal who each later went on to start and invest in several other successful tech companies.  Since selling PayPal to eBay in 2002, Thiel himself has gone on to start Palantir and invest in many other startups including Facebook and SpaceX.  It is the lessons learned from these experiences that fill the pages of this book.

As I read Zero to One, I found myself bookmarking and highlighting in my Nexus more times than I wanted count.  The text flowed easily, but the nuggets of golden wisdom that shined through were sharp and, at times, jarring.  My mind had to pause at the more radical ideas like competition is bad, monopolies are good, and don’t invest in a tech CEO that wears a suit.

Throughout the read, Thiel acknowledges conventional wisdom and then kicks it to the curb.  One fundamental myth that Theil picks apart is the idea that success is like winning the lottery.  He calls out Malcolm Gladwell on this point, but to be fair, many of us have bought into the idea that luck is the main factor in determining who succeeds.  Thiel shrewdly responds, “if you believe your life is mainly a matter of chance, why read this book?”  There’s no reason to find a winning strategy if it’s like the lottery, and everyone has an equal chance of succeeding.  “You are not a lottery ticket.”  You control your own destiny.

Most of us are familiar with the theory of evolution – the idea that living things randomly mutate and the best mutations win.  There is no plan.  It just happens.  There are companies out there that operate under this same premise.  Adapt to a changing world, be nimble, listen to your customers.  These are all phrases that, if adhered to, Thiel says will spell a company’s doom: “Darwinism may be a fine theory in other contexts, but in startups, intelligent design works best.”

Thiel argues that the many startup failures that came out of the dotcom bubble of the late 90s and, more recently, out of the cleantech bubble the began around a decade ago are the result of failing to answer one or more of his seven questions every company must ask itself.

In Zero to One, Theil serves up a refreshing glass of thirst-quenching knowledge on how to put together a successful company.  Some of his ideas are the polar opposite of what today’s companies embrace.  But if you stop, listen, and think about them, they make sense.

Whether you’re thinking of building a startup, currently running a startup, or maybe working for a startup, I would highly recommend this book.  Even if you’re affiliated with a more established company, this book might just get you thinking about where your company is headed.



A Make-Believe Chef Can Show You What it Takes to be Successful

This past weekend Mrs. Pennypacker and I saw Jon Favreau’s new movie Chef.  Favreau plays chef Carl Casper who starts his own food truck business after being fired from his job as master chef at a high-end L.A. restaurant.

To me the movie is a great illustration of how following your passion can lead to success. Passion is important.  It attracts good people.  His friend, played by John Leguizamo, drops everything to be his right-hand man in the new venture.  His ex-wife, played by Sofia Vergara, hooks him up with the truck.  His son, who just wants to hang out with his dad, sees an opportunity to be with his dad and learn how to do what makes his dad happy – cook.  If you’re passionate about something, don’t be afraid to take the risk and go out on your own.  You’ll find that you’ll work harder, produce better quality, and attract a staff that feeds off your passion.  Customers will come.  The time, effort, and joy that you put into your work, will show in your product (or service) and you’ll draw a loyal following.

But, passion alone is not enough.  It also takes talent.  You can have all the passion in the world, but if you don’t have the skill to produce a quality product or service, you probably won’t make it.  That skill might be something your born with, something you work hard to develop, or a combination of both.  We’re not entirely sure where Casper’s talent comes from, but we know he works hard.

Besides passion and talent, it takes courage.  You have to be willing to take a chance and go out on your own.  In the movie, it took being fired from his secure job and a few hurtful jabs from a prominent online food critic for chef Casper to find his courage and set off on his own.

Now, even if you have all three things going for you – passion, talent, and courage – you still may not be a success.  You still have to have the demand.  Lots of people have to be willing to pay money for your product or service.  Chef Casper didn’t really start out with overwhelming demand for his Cubanos (a type of Cuban sandwich).  But, through some creative marketing involving his son’s social media expertise, he was able to create the demand for his food.

Overall, Chef was an inspiring movie about what it takes to be successful.  Do what you love, but don’t let that love blind you to the other components of success – talent, courage, and demand for what you do.



You Don’t Need a High Income to be Wealthy

What makes a person wealthy?  I suspect most people would say a high income.  But, a high income earner is not necessarily wealthy.  There are plenty of people that have high incomes that also end up declaring bankruptcy – M.C. Hammer, Mike Tyson, Toni Braxton, and Michael Jackson to name a few.  How could these celebrities, who made millions of dollars in their careers, have found themselves in such financial trouble?  Easy.  They could not cover their expenses.  A person can make $1 million a year, but if his expenses are $2 million a year, his income cannot keep up, and bankruptcy is right around the corner.

Can a low income earner be wealthy?  Absolutely.  In my mind, a person is wealthy if they don’t have  to work to pay for their lifestyle.  Instead, they use passive investment income from assets such as stocks, real estate and bank accounts to fund their lives.  If you lead a simple life renting a small studio and eating peanut butter and jelly sandwiches, you’re assets don’t need to produce much income to keep you going.  You can be a low income earner and still be wealthy according to my definition.  Our peanut butter eater could problem subsist on $15,000 a year renting a room in small south Texas town such as Harlingen.  It wouldn’t be too hard to save up a portfolio of diversified stock market mutual funds that would support this meager existence.

Now, I would imagine most people wouldn’t be happy living in a tiny room in Texas repetitively consuming crushed peanuts smooshed between two pieces of white, crust-free bread.  But, you shouldn’t feel like a $1 million  a year salary is necessary to reach financial independence.  Learn to be comfortable living a simpler life with less material things and you’ll find wealth is closer than you think.



No More Taxes…For At Least 10 Months

Woohoo!  Mrs. Pennypacker and I survived another tax season.  Our tax returns have been processed and we ended up with a net refund of about $100.  I say net because we ended up writing a check to the IRS for our Federal taxes and getting a refund check for our state taxes.  I’m not sure exactly why it ended up like this.  It always seems like a game of Go-Fish trying to get the withholding just right.  But, it looks like we guessed right last year and we’ll probably keep the withholding the same for this year.

So, now that we’ve received our refund of $100, what are we going to do with that money?  That’s easy.  Put it towards our mortgage.  We’re in the middle of a push right now to try to get our mortgage balance down to half of the original loan amount by June.

I’m sure lot’s of folks would think we’re crazy.  They would rather treat their tax refund like lottery winnings and go on a shopping spree.  Maybe buy a new car, a new TV, a new sofa, or all three.  Not us.  See, a tax refund is just the state or federal government saying, “Oops, we took too much in taxes from you last year.  Here’s your money back.”  It doesn’t exactly feel like we won anything.

Also, we have predetermined savings goals.  We decide how we’re going to spend our money before we actually have it.  So, even if we did win the lottery, or the Billion Dollar Bracket Challenge (which I didn’t enter because the odds of winning are about 1 in 9 quintillion. and I didn’t feel like giving my phone number out so Quicken Loans can try and sell me a loan), we would still just go right down the list and check off each of our financial goals.

Now you may have noticed it’s March and taxes aren’t due until April 15th.  If you’re a proud procrastinator, you’re probably wondering why we finished our taxes so soon.  Well, Mrs. Pennypacker and I like to get things done as early as possible.  We’ve learned that too many things can and do go wrong when you wait until the last minute.  Frankly, I would’ve loved to turn in our tax returns earlier, but we had to wait until mid-February until we received all the necessary forms like W-2s and 1099s from our banks and employers.  Anyhow, we’re done.  And, we’ve bought ourselves another 10 months of freedom from those wonderfully user-friendly tax forms.