Stop Wasting Your Life & Do Something (7 page)

Because money is regulated and comes in standardised formats (you can’t spend a £17/$17 note), it can be used by everyone and understood easily.

Money is neutral. It doesn’t care who you are or what you do. It will come to the housekeeper just as easily as it will come to the CEO if you follow the simple rules of making, and growing your money.

Money is worthless in and of itself. It is only the things you can DO with money that make it valuable.

Money is a game. You either win, or you lose. If you can accumulate more money, you are winning. If you are getting into debt, you are losing.

Money cannot be fooled, but you can fool yourself about how you are doing with your money. It’s easy to kid yourself that you’re making progress when you’re actually getting further into debt. So you can kid yourself, but you can’t kid money.

Money is a choice giver. If you have money you have choices. Where can I go? What can I buy? Who can I treat? What charities can I contribute to? What experiences can I enjoy? If you have no money you can’t choose where to go out to eat. You can’t choose where to shop, or what experiences you’d like to enjoy.

Money is nice to have. If you’ve got money in the bank, you have a feeling of security. It gives you a sense of safety as you know that you could handle the emergencies of life.

Money is easily lost. Protect it. Protect it from yourself and your own poor habits. Protect it from those that would take it from you, either legally or illegally.

Money is abundant. We won’t run out of money, and you can always make more. Money can be created out of an idea, so in essence, money can come to you out of thin air (kind of)!

Money is time. If you have ten years worth of income in a safe investment, this means that you could lose your source of income and survive ten years.

Money is good. People that say that money is the root of all evil are very much mistaken. You can only create money by offering a product or service to others. 99 times out of 100 this product or service is a positive one. I would say that poverty is the root of all evil, which is a lack of money. People don’t tend to burgle houses when they are wealthy. Poor people are far more likely to do this.

Chapter 19

Habits

Your money habits will either make or break you financially. Your financial future is determined by how much you earn, and then what you do with that money. People that earn millions every year can soon go bankrupt if they spend millions every year. People that earn twenty thousand a year can become wealthy if they spend less than they make and invest the difference.

People that have won tens of millions on the lottery that weren’t financially literate have become broke within a few short years. This is because of their habits.

What are your money habits? Do you save ten percent of what you earn every month? Do you spend over your means every month because you have to have the latest gadget? Do you invest in sound investments? Do you gamble all of your money at the casino or bookmakers?

Here’s one habit you should start: Keep strict accounts every month so that you know where all of your money is going.

Here’s one habit you should stop: Spending money on credit cards. I know this one is difficult, especially if you’re used to treating yourself all of the time, but you have to stop it.

Creating habits takes time, but if you sincerely want to change your financial life, you must do it. What are the habits of people that are broke? Let’s have a look (I used to be one of them so I know these pretty well).

Broke People’s Habits

Spending more than they earn. If you earn £20,000 a year, and spend £24,000 a year, how much money can you accumulate? The answer is zero. Also, not only can you accumulate zero, you will be in debt for the rest of your life if you don’t change this habit.

Having unnecessary expenses. For example, cable or satellite TV, expensive gym or club memberships, owning cars they can’t really afford with massive monthly payments, going out for expensive meals. You get the picture.

Not keeping accounts. If you don’t know how much you’re spending on rent/mortgage, gas/electric, utilities, food, petrol, taxes, paying off debt, etc, then how will you know what to cut out or reduce?

Trying to look rich. This is a big one. Did you know that most of the expensive watches are sold to people that aren’t wealthy? The most popular watch for American millionaires is a Seiko. So who’s buying all of the Rolex’s? The people that are trying to look rich that’s who. Don’t be one of them (unless you are rich!)

Not planning. If you want something, then plan and save for it. Set yourself a goal of when you want it, then work out how you can afford it and start planning and saving.

Relying on their sole source of income for all of their income. If you only get paid from your job, you’re risking all of your income from one place. Create some more sources of income!

Wasting time. This is the biggest one. If you’re wasting your time, you can never get it back. Are you going to the pub instead of working on a business idea? Are you sat in front of the TV instead of learning new skills? Are you spending all of your time socialising, instead of planning your future and being productive? If you are, you will stay where you are. You’re either climbing or you’re sliding. You can’t waste time AND move forward. You have to use your time productively to move you towards your goals.

Wealthy People’s Habits

Planning where they are going to put their money, and what they are going to do with their money. Allocating it towards things that will improve their life situation, and making sure they know where their money is going.

Being productive with their time. You won’t find many wealthy people watching soap operas four nights a week. They will be doing something to make their life better. This could be creating or working on a business. It could be exercising. It could be inventing a new way of doing business, or finding new customers. This doesn’t mean that wealthy people never relax and never have fun; it just means that they don’t spend major time on minor things.

Spending less than they earn. Most wealthy people will have a savings plan, and save a minimum of 10% of their income on a monthly/weekly basis.

Not using credit unless it’s to buy assets. Most wealthy people like to spend cash rather than credit. They know that if you use credit, everything you buy costs more money as you’re paying interest on it. A TV that costs £500 costs £500 if you pay cash. If you buy it on credit over 3 years at a 20% interest rate, it will cost you £668. Same TV, different price.

They buy assets instead of liabilities. An asset is something that can provide an income or provide capital growth or both. If you buy a car, that is a liability as it costs you money. If you buy a taxi, that is an asset as it makes you money. If you buy a holiday home, it is a liability as it costs you money. If you buy a buy-to-let home, that is an asset as it makes you money.

They control their expenses. Even though they can afford the best, they don’t feel as though they have to join the best clubs, or drive the most expensive cars, or wear the most expensive clothes. They are more focussed on becoming, and staying wealthy, than looking wealthy.

Paying themselves first. This means that a part of all they earn they keep. Keep in savings, or investments. This should normally be 10% or more. This also means that you do it EVERY time you get money, whether it’s earned, given, inherited, won etc.

Keeping strict accounts. Wealthy people know what they are doing with their money, and where it’s going. That’s why they’re wealthy.

Which of your habits do you need to change?

Let’s create a strategy!

Chapter 20

Wealth Strategy

Ok, so let’s start where you are right now. The most important thing for you to do is to get out of debt. Debt is a siphon hose on your income. If you earn £2,000 a month, and have to pay £750 a month out to your creditors, your life will be hard. If you earn £2,000 a month, and you have to pay zero money out to your creditors, life will be so much easier.

Let’s look at your financial situation right now.

Take a sheet of paper, and draw a vertical line down the centre of the page. Now cross it with a horizontal line across the centre of the page. You should now have four squares or rectangles of approximately the same size.

In the top left hand square, at the top, and in the centre, write the word Income, and underline it.

In the top right hand square, at the top, and in the centre, write the word Expenses, and underline it.

In the bottom left hand square, at the top, and in the centre, write the word Assets.

In the bottom right hand square, at the top, and in the centre, write the word Liabilities.

In the Income grid, make a list of all of your monthly income that you are due for the month following this one. This should include any income from your main source (job), any part time work, any sales you make on eBay for example, and any other money that you are due to receive. This includes things such as benefits or child support for example.

In the Expenses column, write a list of everything you are due to pay out next month. This should include everything. Mortgage, rent, taxes, credit card payments, loan payments, insurances, satellite TV, gas and electric, utilities, mobile phone.

Now total up the sums from these grids and you should have two totals. 1 – Income total. 2 – Expenses total. Now work out the balance. Deduct your total Expenses from your total Income. This should be a positive number (for example £500). If it’s a negative number, you’re in real trouble.

Now in your assets grid, make a list of everything you have that is an asset. An asset can only be something that you own that either makes you money, or can be sold quickly for money. Your own home should not go into this grid, as you cannot sell your home as you’d be homeless.

Now total them up.

Now do exactly the same thing with your liabilities. A liability is anything that can be paid off. A mortgage can be paid off so should go in there. Rent cannot be paid off, so shouldn’t go in there. Car loans, bank loans, credit cards, payday loans. All of these should go into this grid.

Now total these up.

Now deduct your liabilities from your assets as you did earlier. This is your total net worth (we’re only speaking economically here). Your worth as a human being is unlimited, but you need to know where you’re at financially.

This is your starting point.

Now you need a strategy to turn these numbers into your favour. There are two things to look at. Cash flow, and net worth.

Cash flow is how your money flows in and out each month. This needs to be positive if you are to get ahead.

Net Worth is what you are actually worth from a financial point of view.

Get your cash flow up first, and then build your net worth. This is the game that you need to play for the rest of your life.

Building Your Cash Flow

There are two ways to increase your cash flow (making your income higher than your expenses).

One is to increase your income, and the other is to decrease your expenses. My advice is to do both at the same time.

There are many ways to increase your income. Without going into too much detail, as there are many books about starting a home-based business, I’m going to give you some suggestions. The idea of this section is just to wake your mind up to the possibilities

One – Go for a promotion in your job. If this means you need some more skills, then go and get them. If it means you need to move out of your comfort zone, then do it. If it means you need to build some new relationships, then go for it!

Two – Build an online business. This could be selling something. It could be building an online blog. It could mean an eBay business. It could be creating a website that pays you through advertising.

Three – Sell some of your unwanted stuff on eBay or Gumtree. Give yourself a goal of selling £100 worth a month for example. I’m sure you’ve got stuff you don’t need any more. Somebody out there will buy it from you. You could also set yourself a goal of buying and selling from car boot sales on eBay, with a profit of £100 per month just to get you started.

Four – Reduce your debts. If you can pay off some of your debts (or better still all of them), then will have a massive impact on your expenses, and thus your cash flow. If you’re currently paying £600 a month on loan/car/credit card repayments, doing this will make you £600 a month better off. This is just simple maths.

Five – Invent something and license it to a company. If you can create a solution to an everyday problem, someone will pay you for that idea. If you license it to them, they will pay you a royalty. This could be a monthly royalty, a quarterly royalty, or an annual one. Either way, it will help your cash flow.

Sell information. What do you know a lot about? I bet you have some knowledge or skills that other people would pay to get their hands on. Create an ebook/CD/MP3/Podcast/DVD on it, and sell it. Advertise it in industry specific magazines or websites. With the quality of free software available today, anyone can create a product from scratch.