This book will help you to:

• get out of debt and accumulate wealth.
• get ahead, even when the work you love doesn’t produce big bucks.
• find your strengths and passions and make a living with them.
• live a more fulfilled life.

You'll discover the wisdom of the great makers and accumulators of wealth, presented in a story form to help you understand, internalize and have fun in the process. You’ll learn investing from Warren Buffett, the world’s greatest investor and second wealthiest man in the world. You’ll learn principles of business success from Sam Walton, the uber-successful founder of Wal-Mart. You’ll find advice on landing and succeeding in a dream job from experts in career guidance.

You're never too young or too old to discover these ageless principles. They apply to the seasoned business executive as well as the entrepreneur with his first lemonade stand. Warren Buffet caught his vision at age 5 and started investing at age 11. My grandmother started multiplying her money in her mid-60's. At age one hundred and one, with her sharp mind intact, she's accumulated a small fortune.

Many books teach personal money management. Some of them are good. But as Paul A. Samuelson (MIT Professor of Economics and Nobel Laureate) said:

"The same surgeon general who required cigarette packages to say 'Warning, this product may be dangerous to your health' ought to require that 99 out of 100 books written on personal finance carry that same label. The exceptions are rare." (1)

I strove to be one of those exceptions by basing my advice, not just upon years of personal experience, but upon the knowledge and experiences of well over one hundred wise people. In the process, my house at times bore more resemblance to the famed library of Alexandria than to a home. But each new book or interview seemed to offer new angles or fresh insights, often pointing to new paths just begging to be traveled. (2)

After writing my first draft, I put it into the hands of over twenty-five smart people I trust, asking them, "If you could put into a book a lifetime of financial wisdom, is this what you'd say? Be ruthlessly honest!" Their input proved invaluable.

Essentially, I distill the wisdom of the wise on working hard, working smart, saving, investing, and giving - all the ageless basics - applied to today's world. I was especially fascinated with the counter-intuitive nature of so much of their advice. The more you study the successful, the more you see why most people aren't very successful. The path to financial freedom isn't the path that initially appears obvious. Thus, the need for books to challenge the conventional thinking of popular culture.

I cover critical topics that are often left out of books of this nature. The excellent studies of millionaires by Professor Thomas Stanley show that character traits such as integrity, diligence and thrift must be top priorities for those who would accumulate wealth.(3) The massive Gallup study of managers and people at work has much to say about maximizing strengths in the work arena.(4)

Finally, people usually seek money, not as an end in itself, but in order to find peace and happiness. Funny that so many money books assume that lots of money will automatically cure our ills and put smiles on our faces. When does money help lead us to happiness? When does it hinder our happiness? Social scientists studied this extensively in the 1990's and drew some interesting, often counter-intuitive conclusions. (5) Isn't happiness important to consider in personal money management?

Money management can be exciting! I believe that this story of Antonio, Akashi, James, Amy and their mentors can build some of that excitement. It's fun to beat the system. It’s fun to see your money grow. It’s fun to feel successful. It’s fun to have enough money to help others. To this end, I hope you have fun reading my book.

Steve Miller

Labor Day, 2006.

Dangling off the edge of a massive rock, something had to give. Antonio could no longer hang on to both his well-chalked handhold and his struggling, neophyte climber - a Down’s Syndrome teen named Phil.

Antonio shot a piercing glance directly into Phil’s fear-filled eyes. "I’ve got to let go of ya, Phil! Trust in what you’ve learned and hang on to that rope!"

After the briefest silent prayer, Antonio let go….

Phil let out a blood-curdling scream, which quickly shifted into quiet concentration as he relaxed his death-grip on the rope and let it slide through the carabineers. He pushed off of the rock and began bouncing down the cliff. Rappelling with newly found confidence and his own distinctive style, his silence erupted into laughter. Phil had conquered yet another challenge during his week-long adventure with Outward Bound.

Antonio free-climbed his way down the adjacent rock, shouting aloud to the cloudless sky, "What a job! The wilderness is my office. My clients love me. I’m changing the world, one person at a time!"

Then he chuckled to himself as his mind rewound to a decade earlier, to "In School Suspension," "The Counter-Culture Club," and that loony old Mrs. Kramer, who turned out to have more sense than anyone he’d ever met.

"Without them," Antonio thought, "I could have never landed this dream job. Not the way I handled my money back in high school. When I get back to civilization, I’m calling a reunion of the "The Counter-Culture Club."

Second-shift manager Larry Wiersbe was experiencing a rare lull in customers until suddenly, four rowdy twenty-somethings charged in, looking like they’d stepped straight out of a culturally sensitive brochure: an Asian girl, an African-American guy, an alternative-looking Anglo-American girl and a Hispanic guy.

Larry introduced himself, took their orders and retreated to the grill, until out of the corner of his eye, he saw the Asian jump up suddenly, swing her glass Ketchup bottle over her shoulder like the start of a tennis serve, and bring it down forcibly toward the table. Before he could intervene, she stepped back just far enough to miss the table. Riotous laughter followed, not stopping until an old lady appeared in the entranceway, pointing her cane at the small party and yelling at the top of her lungs, "I christen thee, ‘The Counter-Culture Club!"

"Mrs. Kramer!" the Hispanic shouted, as they sprang from their seats to hug their old mentor and friend. High fives and severely dated hand-shakes and hand-slaps followed. After all the commotion, Larry half expected them to boost the old lady overhead and body surf her to the table. Instead, they led her gently by her hands, respectfully seating her at the head of their table.

His curiosity piqued, Larry found that he could follow their loud conversation fine from the grill.

"You crazy kids!" Mrs. Kramer began. "What in the world have you been up to? You kept me up with e-mails and an occasional meeting for a few short years, but then you fell off the face of the earth, you ungrateful bums!"

"You were never one to beat around the bush," Antonio said sheepishly. "I’ll be the first to plead guilty to the charge of not writing…"

"Enough with the boring confessional," Mrs. Kramer broke in. "Let’s get a picture. You were such homely geeks when you were in high school! Now you look like something out of Cosmopolitan Magazine. I think I’d rather remember you this way. Stand over by that brick wall and I’ll click it."

"No way! Not without you!" insisted the Asian girl.

"All right, whatever," Mrs. Kramer sighed. "Let’s see if the cute waiter-boy will take the picture."

"Still flirting with waiters, I see," teased the black fellow. "Hey, can you shoot this picture?"

Larry complied, with this result: Put in pic.

For the next hour, Larry listened intently to some incredible success stories. Although far from perfect, these five people seemed to "get" something that Larry didn’t. They exuded vision, goals, purpose. A lot of the talk revolved around finances – refusing debt, making, saving and investing money. But then the conversation would move seamlessly to finding fulfillment serving others with their time and money.

Larry knew he didn’t fit in. He shared their age, but that was it. The three credit cards in his wallet were stretched to the max. He worked two dead-end jobs just to keep his head above water. At this rate, he’d never own his own home, much less have the time and resources to help others. And he resolved to never marry a girl who was stupid enough to want to marry such a loser. Finally, he got the nerve to break in…

"OK guys, it’s midnight, closing time. But you’ve obviously got something I desperately need. Unless you’re all on weed or lying through your teeth, you’ve achieved something that’s eluded me all of my life. Can you tell me what you learned from this lady that made your lives into something I’m envying?

I’ll cut a deal with you. If you’ll tell me in one hour how you’ve achieved this…"financial freedom" as you call it, I’ll let you hang out here as long as you like, serving you whatever you want."

They looked at each other and shrugged.

"Why not?" Said the old lady, obviously the mouthpiece for the group, seeming to enjoy taking charge once more. "It would be a hoot to reminisce about old times, and a helpful review for these slow learners. Keep that notepad handy, because you’ll need to jot some of this down."

"And you’d better pull up your chair," chuckled the black fellow, "because once you get us started, we’ll take more than your hour."

In School Suspension

"I’ll start," volunteered the alternative-looking blonde. "I remember that first day vividly, because I’ve relived it in my mind a hundred times since. You wouldn’t have recognized me back then. As a fifteen-year-old, I didn’t have the cheek-ring or tattoos that today help jump-start conversations while volunteering at the Juvenile Center. Back then, I was a reluctant cheerleader. This unlikely group first met in ISS."

"In School Suspension?" queried Larry.

"If you don’t know, you must have been one of the good boys!" teased the Asian.

"So I walked in to find these three students, but no teacher. I’d hoped someone I knew would be there, but no such luck. An assistant principal broke the ice by stepping in and explaining that our teacher would be in shortly. Then, she asked for our names and wrote them on a legal pad:

Antonio, Amy, Akashi, James

She took another sheet and began to read our crimes, something like this:

"Antonio: Fourteen tardies? We’re only into the fifteenth school day!"

"I’m not a morning person," Antonio offered.

"Akashi, sleeping through Algebra again? I figured you’d be good at Math."

"Not all Asians can be Math geniuses, you know," Akashi responded, showing more than a hint of attitude.

"James, caught in the hall without a pass."

"The teacher wasn’t around, and when you gotta go, you gotta…"

"Spare me the details. And Amy, what’s with parking in the teacher’s lot?"

"I was late and a visitor had taken my spot."

"Typical teens: all victims, none responsible. Anyway, Coach Helms will be in shortly."

As the door closed behind her, Akashi mocked, "typical teens…all victims, none responsible. And since I’m Asian, of course I sit around studying Math for fun. I’m so tired of this prison of a school. And here I sit in house arrest with a couple of jocks and a cheerleader."

"So you resent being labeled a stereotypical Asian Math whiz, but you have the gall to label us as stereotypical preps and jocks," shot back Antonio.

"We’re getting off to a bad start," offered James. "If coach Helms walks in to find us in a rumble, we’ll be stuck in I.S.S. the rest of the year. Obviously none of us want to crack a book until we have to. Let’s break through the stereotypes and get to know each other a bit. Surely there’s something we have in common. Amy, you’re a cheerleader, right?

"I hate cheerleading," complained Amy. "It’s not me at all."

"What do you mean?" asked Antonio. "You so look the part."

"I’m an alternative type, living in a mainstream world. You see, my big brother started dressing weird in high school when he got caught up in the drug culture. My parents, fearing the same would happen to me if I got with the wrong crowd, won’t let me near a Hot Topic or thrift store. I understand their concern, but I’m not about to do drugs. I see what they’ve done to my brother. Yet, I’m not comfortable with mainstream student culture.

"My parents want the best for me. I don’t want to hurt them. But I’m counting the days till I go off to college, shed these Abercrombies, and join a punk band. Alone in my bedroom with my bass, I can keep up with almost any song you give me."

"Amazing. And you guys probably think I play Soccer," teased Antonio. "It’s never interested me. I’m more into weightlifting and wilderness adventures, like rock climbing and caving."

"If you’re into stereotypes, I do like basketball and fried chicken," offered James. "But I don’t like watermelon, and I’m not on the school basketball team. I spend my after school hours making money. My parents always fight about money, so I plan to make a million by the time I’m 40 so that it won’t be an issue in my family.

"Parents with money problems, now that’s something we’ve got in common," said Akashi. My parents are so obsessed with "getting ahead" that they work day and night and weekends. We live in a nice neighborhood and have the latest cars, but they can’t enjoy life, since they’ve got to work obsessively to pay the bills. I’d much rather live in a one room apartment and have time to travel and hang out with each other. Amy, what about your parents?"

"They’d love to be teachers at the University and writers on the side, but they can’t quit their corporate jobs. They need the money. They’ve never been savers, and tend to max out their credit cards over Christmas, pay them off by the end of summer, and start the cycle over again the next Christmas.

When my brother went into drug rehab and insurance wouldn’t pay, mom and dad had absolutely no savings to draw from. They took out a second loan on the house, and now are in worse financial shape than ever. It’s depressing. I can’t see how they’ll ever dig themselves out of this hole. Antonio?"

"My mom works day and night to support the family. Dad’s a deadbeat. He’s always either looking for a job or complaining about the job he has. Money’s definitely a big issue at home. Mom and dad argue all the time about money. It’s so intense that I fear dad will eventually pack up and leave."

Enter Coach Helms.

"Okay class. Sorry to be late. I recognize all of you from previous I.S.S.’s, so I’ll dispense with introductory matters. Please open your text books and get to work."

"Coach Helms, we’ve got problems," interjected Akashi.

"Hello! That’s why you’re in I.S.S. Right?" offered Coach Helms.

"Not those problems," explained Akashi. "I’m talking about family problems. Our parents suck with their money."

"Tell me about it," said Coach Helms. "I wish I had some answers, but I overslept this morning because I work a night job to make ends meet. I can’t seem to make it on my teacher’s salary."

"Is everyone in this town hopeless with their money?" asked Akashi. "If you don’t give us some answers, we’ll end up just like our parents. You’re supposed to be our teacher. Give us some direction here."

Coach Helms thought for a moment, tapping his pencil nervously on the desk. Without looking up, he said, "What about Mrs. Kramer?"

"Old widow Kramer, the social studies teacher?" asked James. "I had her for a class. She doesn’t dress stylish or drive a cool car."

"She may not look the part," said Coach Helms, "but my banker says she’s the best financial manager he knows. She’s apparently got all kinds of investments going. Besides Social Studies and Business, she also teaches Money Management."

"Come to think of it," continued James, "I do remember her telling us excitedly about her extensive foreign travel. I should have wondered how she paid for it on a teacher’s salary. Maybe she got a big life insurance claim when her husband died. But she can be a little scary. And those riddles…."

"She eats second lunch shift," interrupted Coach Helms. "You can take second lunch and try to connect with her. Until then, get out those notebooks. I want to see some progress before lunch."

Old Widow Kramer

"So we met her for lunch and she told us her story," Amy continued. "Tell him about it, Mrs. Kramer."

"At thirty years of age, my husband died in an auto accident, leaving me, not with a fat life insurance pay out, but with over $20,000 in credit card debt and funeral expenses. The monthly payments on those debts were killing me. Every time the phone rang, I knew a debt collector would be on the other end hounding and threatening me.

I sold my house, moved into a condo to reduce my expenses (and avoid mowing that blasted yard) and took a weekend job. The extra job also helped keep my mind off of my grief. I worked like a dog to dig my way out of debt and get those accursed creditors off my back. In a little over four years, I paid those debts in full, on a day I refer to as "one of the best days of my life." I felt soooo free!

From that experience, I developed a strong conviction about debt. I avoided all debt like a plague. I vowed to never again make credit card payments unless it was absolutely necessary.

I still owed about $15,000 on the condo, so I kept my weekend job, putting all my extra money into paying it down. I was amazed at how quickly I paid it off. Now I was totally debt free. A bank could never take my home from me. It was mine. I could use those former monthly payments however I wanted.

With very few expenses, I quit my weekend job and divided my excess money each month into investments, travel, and giving to worthy causes. So far, I’ve saved up about $500,000 toward an early retirement.

"From $20,000 in debt to $500,000 in savings!" reiterated Amy. "That was quite an impressive story. Frankly, a little unbelievable at the time."

Amy continued. "From that short lunch, we knew that there was a lot more wisdom where that came from. And it was more than book wisdom. It came from her experience. She had beaten the system that was killing our parents. If we could learn at age 18 what she knew now, she could save us tons of headaches along the way."

"We asked her if she would meet us for breakfast once a week, to ask questions and learn more. She said that she’d love to, if we’d pay her $5.00 each per breakfast. She explained that it would be a good lesson for us in paying for wise counsel. For the next year, we met with her every Saturday morning, usually at 9:00 AM at Hash Brown’s Breakfast Bar. Sometimes, we’d discuss a book for a month of meetings. Other times, we’d just ask questions. We’ll just tell you about the meetings where she pulled out her notebook and covered new topics. Each week, she exposed us stuff we’d never learned, either at school or at home. Those meetings changed our lives.

Part One

Investing Money

"I remember that first meeting well." volunteered Antonio, wincing.

"So I walk in at 9:04 to find everyone there, waiting on me."

"You’re four minutes late," chided Mrs. Kramer.

"I have a hard time getting places on time," I explained.

"When you’re late, you waste our time," said Kramer. "Half of success, financial or otherwise, is showing up…on time. It’s so important that I’ll lay out some incentive. If you’re late next week, you pay for the entire breakfast by yourself."

"Everyone but me thought it a splendid idea, so my resistance was outvoted. I was more than a little hacked off, threatening that I just might not show up at all next week. Kramer nonchalantly replied that it was my choice. We learned quickly that if we wanted her advice, it would be on her terms, not ours. She ignored my pouty expression and continued."

"So you want to learn how to handle your money," Kramer began. "Well if I talk the entire time, I don’t get to eat. So let’s do it this way. We order our food. While we wait for it to come, I tell a story or throw out five to ten minutes of advice, while you think and jot down notes.

"After the food comes, everyone throws in their thoughts. I want to know your experience with the concept, good or bad. Take your best shots at my ideas. Too much education these days is merely transferring a set of notes from the teacher to the students, without going through the minds of either.

I’m not easily offended. Tell me why it won’t work for you. Your objections and comments will help us distill each concept into something that will work for you. At the end of each session, you can suggest what you want to deal with the next week. That way, we stay practical. Sound good to you?"

Everyone agreed as the waiter arrived to take our order.

Kramer: First, I want to pass out a sheet that should help you to lighten up on your parents. I know that you think they’re totally incompetent buffoons with finances. I want you to understand the bigger picture of our culture, a big part of the reason for their money issues. Your parents’ neighbors, friends and relatives probably handle their money the same way. They’re just doing what their culture has taught them to do. When everybody’s doing it, it’s hard to question your way of life.

James: You’re saying that if I were to live with my neighbors for awhile, I’d likely find lots of the same financial problems that mom and dad have? I’ve assumed that their nice cars and smiling faces meant that they were better off than me.

Kramer: Right. Here’s the way many of your friends and neighbors manage their money (She hands out the sheet, having them fill in the blanks.):

Akashi: Seven out of 10 adults living paycheck to paycheck? Talk about risky living!?!. And adults complain about teens’ risky behaviors! A short-term job loss or illness could put them in serious debt and make them lose their houses.

Amy: The scary side of it for me is that if we don’t do something different, we’ll all be over $20,000 in debt in about 5 years. Then, we’ll live paycheck to paycheck for the rest of our lives, until we retire in a low rent district, watching Wheel of Fortune and whining about how we regret the way we lived our lives and don’t have enough money saved to have any fun.

Akashi: Our kids will probably hate our visits, assuming we’re there to ask for another handout!

Kramer: Exactly! Somehow, you’ve got to break loose from a culture that’s gone crazy with its finances. They’re digging themselves into a deeper hole every day, enjoying life less and less as they spend everything they’ve got to pay off past debts. In the land of the free, they’ve become financially enslaved.

(Getting a wild look in her eyes, talking more animated with each sentence as she rises from her seat.) You’re already different from the mainstream. That’s why I relate to you. You’re not stereotypical students. I challenge you to extend your counterculture attitudes to your finances.

And to that end (she pulls back a glass ketchup bottle high overhead with both hands, waving it menacingly in the air), I christen this group (she brings the bottle back down with increasing speed, aimed directly at the table), THE COUNTER-CULTURE CLUB! (she pulls back the ketchup at the last second, missing the table, but sending her students scattering all directions. Kramer erupts into laughter.)

Amy: You scared me to death! Did you really have to embarrass us in front of all these people to make that point?

Kramer: A little adrenaline is good to help cement points in your memory. You’ll never forget this moment. Plus, if you never get over the "Oh my gosh, what’s everybody gonna think?" thing, you’ll find yourself living everyone else's life, the life of your culture, rather than your own life. I like a little drama now and again to spice things up. Later today I’ll get a good laugh out of picturing your faces as you envisioned ketchup exploding all over the restaurant.

From the stats on my handout, you know how NOT to handle your finances: the way most others handle their finances. You’ve seen it in your parents and now in the culture at large. Let’s transition to how we can do finances right. This being the first breakfast, let’s start with an overview - some basics of financial wisdom. In coming weeks, we’ll devote entire breakfasts to each principle.

But instead of handing out the list, I want you to draw out the basics from a real person who went counterculture with her finances. From decades of teaching, I’ve found that students remember stories better than lists; plus, stories are more interesting. As I tell the story, jot down the principles that you think made the person successful.

Some of us might fear that we'll never have enough money to make ends meet and enjoy life. What if your job doesn't pay well and you can't seem to get ahead? I want to introduce you to Oseola, who has a lot to teach us. She didn't have the advantages of most of us, yet she enjoyed life and saved a ton. 

Oseola grew up in a simple house with her grandmother, mother, and an aunt.  As an eight-year-old she would wash clothes after school to help make ends meet.  Her school education ended at age 12, when she dropped out to care for her sick aunt and work full time at washing. 

So far, she's not on anyone’s "most likely to succeed" list. 

Her work was hard, but she enjoyed work. She washed the old-fashioned way, building a fire under her wash pot, then soaking, washing, and boiling a bundle of clothes.  Rub.  Wrench. Rub again. Starch.  Hang out to dry.  She worked Monday through Saturday, for 75 years, until arthritis forced her into retirement at age 86.  She never got to finish school, never had a car, and owned few possessions.  Her TV received only one station.  But that didn't bother her, because she never watched it very much anyway. 

I can hear you thinking, ''Get a life, woman!''  But, you see, Oseola did have a life, a great life.  She didn't desire travel or possessions.  She loved her God, her family and her work. Singing and storytelling filled her days with joy and laughter. 

She never bought on credit, so that she was financially free. And since she didn't need money for a lot of possessions or travel, she invested it, a little each month, so that by July 1995 she had saved, get this, $280,000 - over a quarter of a million dollars! Then, she stunned the world by giving away over half of it, $150,000, to establish a college scholarship for needy students, offering others the education she never had.

Until recently, Oseola McCarty referred to herself as a ''poor little old colored woman who walked everywhere.''  No one paid her much attention when she was out.  But when the word leaked out about her donation, the world took notice. 

She has since received numerous awards, been interviewed on ABC, CNN, NBC, BET and MTV.  She's been featured in Newsweek, The New York Times, People, Life, Ebony, Essence, and Jet.  But all that recognition never changed her simple life.  You see, she didn't need all the recognition.  In her own words, ''I think my secret was contentment.  I was happy with what I had.'' (16)

Now compare her to most Americans. Many with huge salaries in America today haven't managed to save a cent. Many are worth less than nothing, worrying constantly about their debts. But Oseola shows me that if she can save over a quarter of a million dollars by washing people's clothes in boiling water over a fire, I can save money as a schoolteacher.

"So, what do you think?"

Antonio: "Akashi! Mrs. Kramer is trying to help us out here. Don’t be so hard on her!"

Kramer: "I’m the one who sets the ground rules, and I challenge you to be just as outspoken as Akashi. If you other three sit there smiling at each other and sipping your juice while disagreeing in your gut, we’re getting nowhere. Say what you think. Be ruthless.

Jack Welch, one of the greatest business leaders of our time, devoted an entire chapter of his book on "Winning" to candor. (17) He observes that usually, we don’t tell it like it is, fearing we’ll hurt people’s feelings. He thinks lack of candor is deadly to business. Lack of candor may be easier in the short-run, but hurts us in the long-run. Without candor, we don’t face reality. Be honest, guys! Do you agree with Akashi?"

Antonio: "I’ll be candid with you Akashi. In I.S.S. you complained about your parents being so wrapped up in their work and living in a ritzy neighborhood that they didn’t have time for the important stuff, like family.

Oseola chose relationships over things. She enjoyed working at home, spending time with her relatives and helping others. She didn’t secretly desire to get the latest version of Halo or go to Disneyland. She lived life the way she wanted to, had lots of fun, and can look back with the satisfaction that she helped others along the way.

Think of Einstein. He never drove a car. He liked thinking more than mansions and hot cars.

Akashi: "You nailed me. I suppose that as much as I complain about my parents’ obsession with things and money, I’m pretty hooked on some of my things, like my fast internet service, playing online games till late at night, and the freedom that my car gives me.

But fun is different for everyone. I do admire Oseola for bucking the crowd, choosing her own path, finding financial freedom, and putting people first. "

Kramer: "We don’t have to adopt everything about her life. But what can we learn from her financial success?"

James: "I’m astounded that she could accumulate such wealth from what must have been a pitiful salary."

Akashi – Look not only at what she did, but what she didn’t do. I’ll bet she didn’t own even one credit card. Whereas most of us spend outrageous money in interest, she waited till she could pay cash. I’ll bet that one habit saved her tons of money over time.

Kramer – You bet right, Akashi. In Oseola’s own words,

''I save my money till I can buy something outright.'' (18)

Kramer: I think you’ve summed up the basics of financial wisdom. Think about those principles this week and see how they apply to your personal finances. In future weeks we’ll talk in much more depth about each principle. What do you want to cover next week?

James: "I’m fascinated with how Oseola multiplied her money. I want to be financially independent as quickly as possible. How can investments multiply my money so that I can retire in my 40’s?

Kramer: "Is that okay with everyone else?"

(Nods all around.)

"This week, ask your parents to tell you what they know about investments. Go on the internet to read some basic articles on stocks and mutual funds. And you’ll need to bring your calculators. What I’m going to tell you is so extraordinary that you won’t believe it unless you see the numbers yourselves.

One more thing! I'm handing out a riddle for you to solve:

To some I’m their greatest nightmare
To others their greatest friend.
Neither spirit nor flesh
I’m not hard to comprehend.

I increase the wealth
Of both paupers and kings
Rewarding the wise
Robbing fools of their dreams.

I’ll work for you when you work
Just as hard when you sleep.
With me Buffett made billions
If you sow, you can also reap.

I’m slow at the beginning
Till my power is unfurled.
It’s why bankers and investors say,
"You’re the eighth wonder of the world."

(Antonio enters sporting a white button down shirt, one shirt-tail hanging out, glasses cocked up on one side, hair frazzled, a massive pocket saver with colored pencils and a killer calculator fit for an aerospace engineer.)

Kramer: So, you decided to dress for success as an accountant.

Antonio: That’s right. If we’re using calculators, I should dress the part.

Akashi: Scary. It looks almost natural for you. Is that the real you Antonio?

Antonio: I assumed that the real you wouldn’t even own a calculator. Did you grab one at WalMart on the way?

Akashi: Quite perceptive, Antonio. I sacrificed an entire $2.95.

Antonio: Are you sure it will do all the advanced functions, like subtraction and multiplication?

Mrs. Kramer followed Antonio and Akashi’s bantering with interest. "More playful than mean-spirited," she thought. "Hmmm…. Was that a flash of resentment in her eye…or perhaps…a twinkle?"

Kramer: I think you two ought to settle your differences outside of this meeting, say, a Sunday picnic at Lake Acworth. What do you think? (1)

Antonio: (Obviously taken off guard.) "I, I, I’m not sure Akashi would be into a picnic."

Akashi: "Why not? 1:00 Sunday at the Pavilion. Pick me up at 12:45. Don’t be late and don’t dare wear that outfit."

Antonio: "Fine!...I guess…."

Kramer: "Risk. Antonio and Akashi just took a calculated risk. Maybe the picnic won’t go so well. But maybe it will. One thing’s for certain, if you’re not willing to diversify your friendships by getting to know new people, you may never find the right person."

"That’s a great introduction to investing. Not all investments turn out great. They all require a degree of risk. But not investing also carries risk, just like not meeting new people. With investing, you’ve got to start somewhere, take a calculated risk, and diversify so that if two investments bomb, the other eight will make up for them. You minimize your risk with your knowledge. You’ve simply got to understand what you’re doing."

"But here I go, rambling on without a story to base it on. As we wait for our food, let me tell you about a little boy named Warren. Jot down lessons from his life on your napkins as I talk."

(Picture of Buffett?

Warren was born in 1930, in the midst of the Great Depression, which stripped his dad of his job and savings. They had food to eat, but that was about all. Perhaps those bleak years built into Warren an early passion to pursue money.

He decided to get rich, very rich. The vision took hold of him before he was five and never left him. From that early age, he passionately pursued his goal. (2)

Seriously ill at age seven, he prophetically told a nurse, "I don’t have much money now, but someday I will and I’ll have my picture in the paper." In elementary school, he’d tell his classmates that he planned to be rich before his 35th birthday. (3)

His early pursuits seemed endless:

• At age five, he set up a stand in front of his house and sold Chicklets. Then he progressed to lemonade, finding a better location at his friend’s house on a busier street. (4)

• On vacation at Lake Okoboji at age 6, he bought a six-pack of Cokes and sold them at a five cent profit per Coke. (Interestingly, as an adult, he would buy up a huge chunk of the Coca Cola Company, one of his greatest investments.) (5)
  
• Before age 11, he hired neighborhood kids to find balls and paid others to sell them, taking his cut. He caddied for golfers at the Omaha Country Club for $3 a day. (6)
  

But Warren’s interest went further than merely making money. He thought long and hard about investing money. By age 11, he’d earned enough to begin investing, so he bought 3 shares of Cities Service preferred stock for $114 (that’s $1500 in 2005 dollars! (7)), which he later sold at a profit.

In the 8th grade, a family friend asked Warren about his drive to make money. "It’s not that I want money," he explained. "It’s the fun of making money and watching it grow." (8)

He continued the pattern of working, saving, investing. And he read everything he could get his hands on concerning business and finance. He grew a paper route into a profitable business, so that at the age of 14, he invested $1,200 ($12,800 in today’s money) in forty acres of Nebraska farmland. (9)

You probably picture Warren at this point as wearing the sharpest clothes, having the best toys, and flashing his wealth around. But Warren couldn’t have cared less about impressing others. Norma Jean Thurston, a high school classmate, remembers that Warren wore the same tennis shoes year-round, which made him come across like a country bumpkin. Fellow students would joke about it. Norma Jean noted,

"Most of us were trying to be like everyone else. ...I think he liked being different. ...He was what he was and he never tried to be anything else." (10)

Warren and a friend, Donald Danley, bought a used pinball machine and enjoyed playing it for hours. Then, they decided to put it in a barber shop and split the profits with the barber. Donald was mechanically minded, fixing the machine when it broke. Warren did the accounting. It went so well that they bought two more and placed them in other barber shops. (11)

By high school graduation, Warren had read over 100 business books and earned over $5000 ($47,000 in today’s money) during summers and after school. From his paper routes, pinball machines and rent from a tenant farmer, he was earning more money than his teachers. (12)

In college, he studied investing under Benjamin Graham, a respected authority on investing who became his mentor. By college graduation, he’d saved $9,800, ($75,000 in today’s money) which he spent full-time investing, along with other people’s money. (13)

By age 31, four years ahead of his elementary school goal, he’d multiplied his savings to $1,000,000. (14) He kept multiplying that money with rapidly compounding interest until he was the second wealthiest man in the world, with a net worth in 2006 of $44 Billion.

He never spent the money on extravagant living, always intending to give the bulk of it away. Today he lives in a modest house, the same one he bought in 1958 for $31,500. (15) He drives a modest car and buys his Cokes when they’re on sale. (16)

He loves his work of researching companies so much that he describes his typical workday as beginning with tap-dancing into the office. Besides his work, his pleasures are simple: playing Bridge with his friends, eating a good hamburger at Dairy Queen and washing it down with a Cherry Coke. He probably enjoys it all the more, knowing that he owns a huge portion of both The Coca Cola Company and DQ. He recently gave away most of his billions to worthy causes. (17)

So, my budding financial wizards, what can we learn from Warren?

Kramer: It’s called compounding interest. You won’t believe it unless you figure it out yourselves on your calculators. Antonio, you won’t need all those higher functions. Basically, all you need to know is the difference between addition and multiplication, something that most people haven’t thought through. Let's start with a couple of examples:

(She pulls out a checkerboard and a zip-lock bag full of wheat grain.)

Amy: That’s easy. Sixty-four grains.  

James: Eight.

Kramer: How many on the fifth block?

Amy: Sixteen.

Now let’s get out those calculators and have some fun. Put 8 on your calculator and multiply times 2 for the fifth square, times 2 for the 6th square. How many squares until the number’s so huge that your calculator display won’t even hold it? That’s a lot of grain!

Let’s compare addition to multiplication. By adding 1 to each square, we ended up with 64 grains on the 64^th square. How many grains do you think would be in that 64^th square if we kept multiplying times two? The answer?

(Dead silence and incredulous looks from all four students.)

(Kramer doesn’t think they get it yet, so she sits back down and takes out a sheet of notebook paper.)

"Let’s imagine that this paper is 1/1000 of an inch thick. James, tear it in half and stack one on top of the other. How thick is it now?

James: Two thousandths of an inch.

Kramer: Multiplication starts out deceptively slowly. Don’t forget that. Tear it again to make it 4/1000 of an inch and again for 8/1000 of an inch.

Amy: That paper’s so thin that we’re getting nowhere.

Kramer: It starts deceptively slow, Amy. Deceptively slow. But imagine that we were to tear it and stack it 50 times. Remember, it’s doubling in height each time. How high do you think the paper would be?

Antonio: I’m starting to catch on. As high as the ceiling?

James: I’ll guess as high as this building.

Kramer: And the answer is (dramatic pause), approximately 17,000,000 miles high, about the distance of 34 trips to the moon! (19)

Antonio: That’s hard to believe. From 1/1000 of an inch to 17,000,000 miles in only 50 doubles?

Kramer: Try it on your calculator when you get home. Trust me for now.

Let’s move on from multiplying grain and paper to real money. How did multiplication allow Buffett to catapult his $9800 into billions?

With his dogged research and his brilliant understanding of companies, he was able to get an extremely high return for his investments. If you double your money every few years, it multiplies beyond your wildest dreams, just like doubling grain and paper. Investors call it compound interest, or compounding growth. It’s been called "the eighth wonder of the world." (20) The more you think about it, the more it seems like magic.

Akashi: That’s all great for Buffett, who loves studying businesses and can choose just the right stocks. But I can’t see myself tap dancing into a lonely office to study businesses all day. I assume you’ve got to do that to divine which business will do better than average over the long-haul.

Kramer: Actually, you don’t have to be a Warren Buffett to get multiplication working for you. I’m with you; I don’t want to spend my weekends pouring through the financial reports of businesses. I invest in stocks the lazy, easy way, with Mutual Funds.

Kramer: True, but others will go up. When you average them all together, over the long-haul, the return is still good enough to multiply your money incredibly. I’ll give you an example.

A Total Stock Market Index Fund tries to track the behavior of the entire stock market by investing in many different types of businesses. If you buy some shares, you own a little bit of utility companies, real estate companies, hospitals, pharmaceuticals, retail stores, oil companies, high tech companies – well, you get the idea.

Since 1926, stocks have averaged a return of slightly over 10% per year. (21) Some years they go down; some years they go up. But if you kept the stocks through the good and bad times, you’d have averaged over 10%.

Let’s say you save up $5000 and invest it at the age of twenty in a Total Stock Market Index Fund. (In the coming weeks we’ll talk more about what this is. Trust me for now.)

At 10% interest, how many years will it take that $5000 to double to $10,000? You figure it by taking 10% of $5000 (5000 x .10) and adding it back to the $5000, giving you $5,500 after the first year. To figure the second year, take 10% of the $5,500 and add it back in. Do it for each new year until it’s doubled. Got it?

Men and women, to your calculators!

(Antonio whips his out of his shirt pocket with bravado.)

Amy: (Raising her hand in triumph) "It doesn’t work out exactly, but it doubles approximately every seven years."

Antonio: OK, so it grew by $5000 in 7 years. It still looks like it’s gonna take forever to accumulate anything significant.

Kramer: Like most people, you’ve been deceived. Remember, multiplication starts out slowly. Don’t think of it as making $5000 in 7 years. Think of it as doubling in 7 years. In each succeeding set of 7 years, you’ll make increasingly more than $5000, because you’re multiplying rather than adding.

Akashi: So all I have to do is put $5000 into my calculator and hit three keys: "x", "2", and "="?

Kramer. Right. It’s incredibly easy. For investing, Buffett never uses Algebra. He says that "If calculus were required, I’d have to go back to delivering papers." (22)

James: (Raising his hand and glancing an "I beat you!" look at Amy) "You’ll have your million somewhere between the ages of 69 and 76."

Remember these. We’ll keep using them in the coming weeks, so that they will become second nature to you.

Akashi: It’s not just that we made $1,000,000, but that we made it with so little effort. Once we made the investment, there was no effort, time or work needed on our part. It’s almost like the money did the work.

Kramer: Killer point, Akashi! It’s passive rather than active. Money gurus put it this way:

If you’d gotten hit by a car at the age of 21 and lay in a coma until the age of 74, you’d wake up and still have your million. While you were sleeping, your money was working, silently but relentlessly in the background.

Amy: I’m impressed with the difference of the yearly increase from the early years to the latter years. In the first 7 years, you passively made only $5000. But in the final 7 years, your money made $640,000! In the next 7 years it would add well over $1,000,000! It’s like your money gets better at making money as the years go by.

Antonio: I’ll bet a lot of people get itchy fingers during those slow, early years. They put $5000 into a fund that makes another $5000 in 7 years and they think, "That’s not very much. I’ll never get rich at this rate." So that they take it out and buy a country club membership instead.

Amy: (tap, tap, tap) Following up on the thought of early investing. Let’s say that I have a twin sister. I start investing at age 20 but she puts off starting to invest till age 27. Most would think, "Big deal. You’ll be investing for 50 years, what difference could a 7 year lag mean?" Actually, it means that my money gets to double one more time than hers, so that when we’re both age 62 she’s got $160,000 and I’ve got twice that much: $320,000.

Kramer: Remember the Oseola story from last week? When someone asked about her secret to multiplying her money she said,

''The secret of building a fortune is compounding interest.  It's not the ones who make big money, but the ones who know how to save who get ahead.  You've got to leave your investment alone long enough for it to increase.'' (23)

Very few people can think long term. Buffett was the greatest. He had a hard time spending $500 on something trivial today, knowing that it could become $128,000 in 54 years.

James: Two problems. First, that’s not soon enough for me. I don’t want to wait until I’m 74 to get my million dollars. I’m afraid I’ll be so old that I can’t enjoy it. I’d like to have it at least by the time I’m 45. Second, since I failed to save up as early as Buffett, I think all my early savings will go toward college. Realistically, in four years, I’ll graduate with nothing to invest.

Kramer: What do you guys recommend to James?

Antonio: I suppose that after college graduation, at age 22, he could start putting in a portion of his salary each month. Just do the math and see how much he’d have to put in each month to make his million at the age he decides.

Kramer: Good suggestion. Most of us will invest little by little over time, rather than all at once. Let me pull out my notebook computer and surf to one of those online interest calculators. We can thank Hash Brown for making his restaurant into an internet hot spot last year. Amy, would you mind taking the computer and running the numbers? Just Google "interest calculator" and you’ll find scads of them.

Amy: My pleasure!

James: Yeeeehaaa! Independence Day! Sooner! Sooner! How can I get my million sooner, say in my 30’s?

Amy: Put in more than 10% each month, or start putting it in earlier.

Kramer: That works.

Akashi: What if he could get more than 10% interest? Some companies gain 20% or more in a year. Why not invest in them?

Kramer: IF you can figure out which companies will beat the market. That’s a big "IF". To get higher returns, people take more risk. Some do well at predicting stocks, but the great majority lose money playing the stock market. "Get rich quick" schemes don’t usually have happy endings.

But I’ll have to admit that some investors beat the market over time. That’s the way the great Buffett did it. Incredibly, he averaged over 29% per year!

James: Throw that 29% into that online interest calculator!

Amy: Let’s see. Starting at age 22 with nothing, the average teacher would invest one tenth of her salary at $383 per month. If she got 29% interest, she’d be a millionaire in 15 years, at age 37.

James: So that’s how Buffett did it. He saved his money and invested it early at an incredible rate. It made him a millionaire in his 30’s, a billionaire later.

Kramer: But Buffett’s the best of the best. He rules the investing world like no other. His mind works in a way that’s suited superbly for understanding businesses. Plus, he absolutely loves spending his days thinking about businesses. He’s obsessed with it. (25)

James: But even if I could get a couple of percentage points above that 10%....

Kramer: Perhaps. And some do. We’ll talk about it at a later breakfast.

I’ll let tomorrow’s guest, who knows a lot about investing, tell you about the possibilities and pitfalls of trying to beat the market.

Antonio: Do we need to wear suits?

Kramer: (Laughing.) "Not for this investor. He’d probably be more comfortable if you dressed like hippies and greeted him with a peace sign."

Kramer: Take a swing.

Amy: Is it "money?"

Antonio: But how does money "rob fools?"

Akashi: I don’t understand how every line applies, but is it "compound interest?"

Kramer: Bravo! Let’s take apart the riddle with what we learned today.

To some I’m their greatest nightmare
To others their greatest friend.

How could compound interest be someone’s "greatest nightmare?"

Antonio: When it’s working against him, like a huge credit card debt at 16% interest.

Neither spirit nor flesh
I’m not hard to comprehend.

Akashi: It is pretty simple. You’re just multiplying times two.

I increase the wealth
Of both paupers and kings

James: It works for anyone who invests.

Amy: Again, Buffett receives interest while the foolish pay interest.

I’ll work for you when you work
Just as hard when you sleep.

Antonio: If Buffett fell into a coma, compound interest would keep working.

Buffett used me to make his billions
If you sow, you can also reap.

Amy: Deceptively slow at the beginning, until it’s multiplying greater amounts.

It’s why bankers and investors say,
"You’re the eighth wonder of the world."

Kramer: It’s true. Money managers recognize its magic, its wonder. Reflect on it this week. Pound it out on those calculators. Slowly, its magic will dawn upon you as well.

What are the main points you want to walk away with?