A way to estimate the actual value of a property is to use what is known as the “reproduction cost method.” That is, what would it cost to build that same building today? Here you pretend to buy a lot at today’s value and then build a “used” building that matches the existing building. For this reason alone, this is not an easy method. It requires a good knowledge of the market for raw land as well as an understanding of the costs of construction and depreciation.

Consequently, this method is often used solely by professional real estate appraisers. If you want to attempt it, the first thing to consider is the cost of the lot. Contact brokers and builders in your area. Find out what similar lots cost. In our example, the lots are about 5,200 square feet. After some diligent research on your part, let’s say that in your area,  and that size is worth $135,000.

Step two is to figure out what it would cost to build your building. Analyze the square footage and construction method of the property you want to buy. Let’s say that the cost to build a standard wood- frame and stucco building like the  one you want to buy is $85 per square foot, and the cost to build the garages is $30 per square foot.

Investors need to know their limits. In some ways, investing is like driving. Risks must be balanced with rewards. All drivers know that the faster you go, the sooner you get there, unless you run off the road or get ticketed or die in a car wreck. Speed must be balanced with safety. After years of driving, several tickets, and a few wrecks and near misses, most drivers know their limits. Some drivers are comfortable in the fast lane, yet slow down to the posted speed limit on exit ramps. Other drivers like the slow lane, but leave the motor running when filling up the tank. The raging driver is only happy on the road honking and flipping people off while the ultracautious never drive at night or on freeways. Ultimately, arriving faster is a secondary goal for most drivers.

Investments are touted for their high returns. Investors must balance return with anxiety and other emotions. High return often entails high anxiety, and low return usually means low anxiety. However, investing is complex. Some investments have high returns with complexity and low anxiety. Investors who can handle complexity will be happy. Other investors will be miserable. Some investments offer high returns with extensive effort. Some low-return investments entail an emotional roller coaster. Extreme speculation sometimes leads to gambling addiction. Some investors can handle a multitude of investments, and other investors are only comfortable with one asset class.

Before we get much farther in this book, I want to tattoo this concept on your brain. Not that I want you to spend every dime you have for the rest of your life saving for retirement, but you’ve got to do what you’ve got to do. Period.

I’m not going to show you step-by-step how to calculate the exact amount you should save each year, but I do want to give you a rule of thumb and show you how painful procrastination is.

My rule of thumb, based on a decade as a retirement planner, is that you’ll need to have 20 times your “unmet income need” for your first year of retirement in the bank on the day you retire. In other words, if you think you’ll need $50,000 per year for the rest of your life, and Social Security is going to give you $20,000, you’ll need $600,000 in the bank ($50,000 minus $20,000, multiplied by 20). This amount would provide you with a large enough nest egg to live off just the interest of your investments.

Not using up the investments themselves is crucial because none of us know how long we’re going to live.

As a financial planner who spent the first part of my career helping people save and invest money, this opportunity cost is the single scariest. It is not just a missed opportunity that you’ll someday kick yourself for, snap your fingers, and say “Aw Shucks!” Rather, it’s an opportunity cost that will determine the day-to-day existence of possibly one third of your entire life. I’m talking about retirement.

Now, a good percentage of you reading this book will say something along the lines of “retirement is so far away that I’m not worried about it” or “I’ll worry about retirement when I get out of debt.” But, the key thing I want to pound into your head is that retirement planning is monumentally less painful the earlier you do it. In fact, if you wait until 15 to 20 years before retirement to start planning, you may not be able to pull it off.

Why is it such a big deal? Well, the biggest problem is that people are living longer and longer, and our employers and Social Security system are giving us less and less. In fact, it is very possible that you might retire at age 65 and live to be close to 100 years old. That means that 35 years, or one third of your life, will be spent without income from a job. If you are hoping Social Security is going to cover even the majority of that, think again.

I don’t mean to scare you, but rather hope to give you some major motivation for moving forward. Just like my wife kept her eyes on that little sailor outfit during delivery, you need to keep your eyes on retirement as you try and decide what to do with each and every penny of your income and expenses.

Based on this simplistic analysis, the country should not be doing very well at all economically, and yet the gross domestic product (GDP) is robust and strong. The reason, of course, is the so-called invisible income that Great Britain derives from more than a century of having made judicious and fortuitous investments abroad. Take the insurance industry, for instance. Great Britain controls more than 70 percent of the reinsurance industry, largely through the operations of Lloyd’s of London (with Switzerland mopping up most of the remaining 30 percent). Britain similarly has substantial investments abroad in banking, pharmaceuticals, and transportation, to name a few. No doubt the Brits making these investments 100 years ago were also branded as being unpatriotic, as they were taking pounds sterling out of their country back then, but the entire nation is now benefiting from the ongoing repatriation to Great Britain of dividends, profits, rents, and realized capital gains.

Just how do these repatriated profits benefit the entire nation rather than just the companies and individuals controlling the investments? First, on entering the country, these funds push up the value of the British pound. And once the profits are in the coffers of a recipient company, that company will tend to spend the money in a number of different ways. They will invest some into research and development, employing scientists, engineers, physicists, chemists, and a slew of technical support staff. They will conduct marketing surveys and advertising campaigns, employing PR firms, communications experts, marketing staff, and legal spin doctors.

They may expand their premises, employing architects, engineers, construction workers, electricians, plumbers, painters, and the like. I think you get the picture. Money coming into a country tends to end up benefiting everyone. Money leaving a country tends to disadvantage everyone. That is why a balance of trade surplus is so healthy for a country, and a deficit is so debilitating.

• Are there internal issues—such as civil unrest, a repressive government, a history of military intervention in political matters, an upsurge in religious fundamentalism, racial hostilities, pervasive distrust of foreigners—that may make the country unstable in your lifetime or in the lifetime of those whom you may hope to someday benefit from your investments?
• Are there corruption issues—national or regional government corruption or failure to prosecute those engaged in nefarious business dealings? Did you consult Transparency International’s corruption perception index (www.transparency.org) to get up-to-date information?
• Are there external issues—such as border problems with neighboring countries, influxes of immigrants or refugees, overt or covert threats of terrorism—that may make the country unstable?
• Are there foreseeable ecological concerns—pollution, deforestation, overfarming, water and/or food shortages, not to mention the increasing anxiety about the possible effects of global warming, particularly on coastal areas—that may make the country’s economic future less desirable?
• Are there societal and cultural changes—religious or tribal strife, large immigrant populations, increasing disparity between rich and poor, underfunded or collapsing educational systems—that may make the stability of the country’s overall future less predictable?