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a
utomatic
w
ealth
for
…and Anyone Else Just
Starting Out
Michael Masterson
Foreword by Mark Skousen
John Wiley & Sons, Inc.
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For Liam, Patrick, and Michael.
Copyright © 2006 by Michael Masterson. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part ofthis publication may be reproduced, stored in a retrieval system, or transmitted
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Limit ofLiability/Disclaimer ofWarranty:While the publisher and the author have used
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respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties ofmerchantability or fitness for a particular purpose. No
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The advice and strategies contained herein may not be suitable for your situation. You
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Library ofCongress Cataloging-in-Publication Data
Masterson, Michael.
Automatic wealth for grads—and anyone else just starting out /
Michael Masterson
p. cm.
ISBN-13: 978-0-471-78676-4 (cloth)
ISBN-10: 0-471-78676-4 (cloth)
1. College graduates—Finance, Personal. 2. Youth—Finance,
Personal. 3. Saving and investment—United States. 4. College
graduates—Employment—United States. 5. Vocational
Guidance—United States. I. Title.
HG179.M315 2006
332.024'01—dc22
2005032768
Printed in the United States ofAmerica
10 9 8 7 6 5 4 3 2 1
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CCOONNTTEENNTTSS
Acknowledgments iv
Foreword by Mark Skousen v
CHAPTER 1:Wealth Matters:You Decide How Much 1
CHAPTER 2:Starting Young:How to Take
Advantage of the “Miracle”
of Compound Interest 19
CHAPTER 3:Choosing a Rewarding Career:
Making the Best Decisions Easily 49
CHAPTER 4:Your Next and Best-Ever Job 69
CHAPTER 5:How Easy It Can Be to Earn
a Very High Income 91
CHAPTER 6:Starting Your Own
Multimillion-Dollar Business 125
CHAPTER 7:Why Real Estate Is Right for You
Even Now 145
CHAPTER 8:Investing in the Stock Market—
The Smart Way 177
CHAPTER 9:Living Rich Starting Tomorrow 203
Index 239
iii
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AACCKKNNOOWWLLEEDDGGMMEENNTTSS
My first debt of gratitude goes to Michael Ward, who sug-
gested the title after Automatic Wealth hit the best-seller lists.
Next, I’d like to thank Judy Strauss, Charlie Byrne, Suzanne
Richardson, Kim Twist, Maggie Crowell, Wayne Ellis, Debbie
Englander, and Justin Ford for their help, wisdom, and en-
couragement.
Andfinally,theinspirationtofinishthisbookwassustained
by my love for my children, nieces, nephews, and godchildren
who,Ihope,willonedayreadandprofitfromit:Eamon,Mor-
gan, Allison, Annabelle, Shay, Elizabeth, Christopher, Justin,
Thadeus, Morgan, Vivian, Jocelyn, Isabelle, Conor, Aidan,
Alexandra,Vincent, Emma, and Louis.
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FFOORREEWWOORRDD
In short, the way to wealth, ifyou desire it, is as plain as the way
to market. It depends chiefly on two words, industryand frugality;
that is, waste neither time nor money, but make the best use of
both. Without industry and frugality, nothing will do, and with
them everything.
—Ben Franklin, The Way to Wealth
This is a “how to” book for people who have the drive to be
eminently successful in life. Do you have what it takes?
A hundred years ago, aspiring young entrepreneurs like
Andrew Carnegie and Thomas Mellon learned their “way to
wealth”by reading Ben Franklin’s Autobiography. Today’s grads
might well learn the same tried-and-true principles from
Michael Masterson’s Automatic Wealth for Grads.
There is an uncanny resemblance between the two sages.
Franklin tells his rags-to-riches story in the Autobiography,
emphasizing three grand principles:
1. Industry and smart work: As Franklin was starting out as
a printer in Philadelphia, he worked harder, longer,
and smarter than his competitors. He was the first to
arrive at work in the morning and the last to leave. He
made sure that his customers saw him carrying the
newspapers himself through the streets of Philadelphia.
He wanted the public to know he was an ambitious
young man deserving of their business.
Franklin opposed taking advantage of a neighbor or
customer. He believed that every transaction should be
an honest one that benefits both buyer and seller.
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Foreword
But working long hours can only get you so far. You
have to develop business acumen. You need to train
yourself in the most advanced techniques. You need to
be ahead of your competition. Franklin invested in
the latest printing equipment from Britain, while his
competitors used old equipment. He developed close
friendships with customers and suppliers through his
Junto, a club of fellow tradesmen. Franklin was the only
founding father who was approachable, the kind of guy
you could sit down and have a beer with. He got
involved in civil affairs to improve the city—paving the
streets and starting the first library, university, fire station,
and insurance company. He worked with government
officials and got the contract to print the province’s
currency. Franklin was also a practical inventor—of a
new, more efficient stove, lightning rods to prevent fire
caused by lightning, bifocals, and a musical instrument.
Franklin used leverage. He opened up several fran-
chises of his printing services in the other colonies and
the Caribbean. When he retired at age 42, he had a
large source of regular income from these franchises
and other investments.
2. Frugality and economy: Franklin adopted the principles
of budgeting, wise use of time, and avoiding waste
throughout his long life. “Economy is a great source of
revenue,”he wrote in Poor Richard’s Almanac.His most
famous pro-saving adage, “A penny saved is a penny
earned,” is remarkably profound. How can a penny
saved be a penny earned? Assume you earn $100 a day.
If you have $100 in your pocket and you spend it, you
have to go out and do a day’s work to get that $100
back. Another way of putting it:With $100 in savings,
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Foreword
you could take off a whole day of work and still enjoy
a day’s income by drawing upon your savings. In sum,
saving is a source of earning power.
The more you save, the more earning power you
build up. In addition, savings earn interest, which means
more earning power through compounded returns.
Thrift is always a virtue, and debt is always a danger, for
individuals, businesses, and nations.
Franklin preached economy in peacetime and
wartime, when he was poor and when he was rich. He
believed in modest living and avoiding extravagant
lifestyles that might create envy among neighbors.
MICHAEL MASTERSON:
A MODERN-DAY DR. FRANKLIN
I am glad to see my friend Michael Masterson following in the
footsteps ofthe wise ol’ Dr. Franklin. What does Mr. Masterson
preach? First, he preaches thrift, and the power of compounded
interest. After you pay your taxes, “pay yourself,” he admon-
ishes. Save at least 15 percent of your after-tax income. That’s a
tall order, especially for someone just starting out in business.
But it can be done. John Templeton, the famed mutual fund
guru, saved 5 percent of his income during the 1930s Great
Depression. I know others today who save 35 percent of their
income.
Second, he preaches economy and modest living, even
when you are wealthy. He rejects the Keynesian mind-set of
the consumer society;instead, he advocates the frugal society.
Buy a used BMW, not a new one, and save. Don’t buy an
expensive, big house. “Buy the house you most admire, which
is probably not huge and flashy,” he says. “Less is more.”
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“Overspending is a major problem,” he declares. He tells
the story of Mike Tyson, who made more than $300 million
during his boxing career, and went bankrupt. Franklin wisely
said, “Revenue without economy is never sufficient.” Master-
son says the same thing. So does George Clason in his classic
book The Richest Man in Babylon. To make sure to get richer
every year, always spend less than you make. Always.
Most people think the way to wealth is by earning more
money, by getting a raise, inheriting a fortune from a rich
uncle, or winning the lottery. Actually, Masterson offers a lot
of good advice for getting a raise or increasing your income
dramatically, and it is sound advice. Read those chapters care-
fully. But just remember, making more money is no guarantee
of financial success. You need to live within your means, and
you need to protect your backside, and you need to keep a
budget. Remember how John D. Rockefeller succeeded? He
would tell you very simply:“Ledger A.” He kept an accurate
count of his revenues and expenditures.
Then there is the principle of sound investing. What good is
it if you save 15 percent and foolishly invest it in scams and bad
investments? Masterson shows you how to invest your surplus
wealth prudently in the stock market, real estate, and other
alternative investments. He has excellent chapters on investing
your savings wisely, based on experience and the sound advice
ofexperts. “Learn to earn,”as Peter Lynch says. You’ll make the
mistakes, but you’ll learn from those mistakes and do better.
I like Masterson’s fundamental approach to stock market
investment. Invest in growth, in companies that can’t help but
burgeon over time, and buy them cheaply, at a discount.
J. Paul Getty said it best in his classic work, How to Be Rich:
“Sound stocks, purchased for investment when their prices are
low and held for the long pull, are very likely to produce high
profits through dividends and increases in value.” Masterson is
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Foreword
a second-generation J. Paul Getty. He recommends the same
practical advice to you. Buy small-cap stocks that are growing
rapidly. (I would only add that you should consider investing
abroad—foreign stocks often offer excellent profit potential.)
Finally, I’d like to compliment Mr. Masterson for his ethi-
cal approach to business and investing. He confesses that early
in his career, he was more interested in making a buck than in
his integrity. “In my early years as a marketer, I sold products
I wasn’t proud of at prices I couldn’t justify.” But he learned,
as we all do eventually, that the right way of doing business is
the best way. Dr. Franklin would find it most agreeable.
I especially enjoyed reading Chapter 9, the final chapter,
“Living Rich Starting Tomorrow.” This is a chapter that only
a seasoned veteran could write:“Slow down to enjoy life. . . .
Eliminate major time killers like television, video games, and
Web browsing. . . . Reduce stress in your life by making time
for your favorite pastimes. . . . Get a restful night’s sleep. . . .
Take regular work breaks. . . . Leave your work at work. . . .
Stop thinking about yourself.” You might do well to read
another book along these lines:The Importance of Living, by Lin
Yutang, the Chinese-American philosopher. “O wise human-
ity, terribly wise humanity! Of thee I sing. How inscrutable is
the civilization where men toil and work and worry their hair
gray to get a living and forget to play!”
Of course, Masterson says that “few people” really under-
stand these sound principles, and so they struggle financially
throughout their lives. Franklin said it well, “Experience keeps
a dear school, yet fools will learn in no other.” Hopefully, you
are different because you have bought this book. Only time
will tell whether you will have the guts and honor to follow
Masterson’s masterful plan. Good luck!
—Mark Skousen
February 2006
ix
