Money and Finance
We are going to tackle one of the more important topics – money and finances! Although, finances shouldn’t be the highest priority in our lives, I will say that money plays a major role in our lives, and we need to see it for what it is–a tool. As my good friend Zig Ziglar says, “Money isn’t everything, but it ranks right up there with oxygen!”
Money is a tool that, depending on how we use it, can bring much joy to our lives or it can bring destruction. We need to be aware of all the possibilities it offers as well as the pitfalls. Some of the most amazing things have been done because people had the financial resources to pay for them–businesses have been built, schools started, and philanthropic charities founded that have accomplished much good. On the other hand, friendships have been ruined, illicit gains profited and lives destroyed – all over the issues of money.
So, as we go through this month, I want to focus on applying some simple financial principles, but I also want to teach the underlying philosophies that govern what good people can do and what tremendous accomplishments can be made when we see money for what it is – a tool to improve our lives and the lives of others.
Specifically, we will focus on four main areas of Finances. These four pivotal topics are:
- Getting Out of Debt – Debt is a killer. It is a killer of dreams and hopes. It is a killer of businesses. It is a killer of financial futures. And, according to statistics, debt plays a prominent role in many failed marriages. So what should we conclude from this? If we are to be successful, we must have a commitment to stay out of debt! You can make two million dollars a year but if you spend 2.5 million dollars, it doesn’t matter how much money you made, does it? You will be saddled with debt. Today we will be addressing this issue.
- Saving – One of the key components to long-term wealth building is the discipline of saving money on a regular basis. Next week, we will go through the basics and show how a commitment to saving money can revolutionize your financial life and provide the kind of security you desire. One simple difference between the philosophy of the rich and the poor is: the rich save/invest their money and spend what is left; the poor spend their money and save/invest what is left. What a simple shift in our thinking for such a revolutionary result. We will talk about saving in next week’s edition.
- Investing – Investing is much different than saving. Investing involves risk – calculated risk – and the possibility for much more reward. Saving and investing are done for different reasons and with different desired goals and outcomes. By taking a portion of our income and turning it into capital to be invested, we will be actively working toward our goal of financial independence. We will cover the importance of investing, along with some basics of investing in two weeks.
- Giving – Giving a portion of your resources away is one of the most powerful principles you will ever embrace. It seems counter-intuitive, but the truth is that giving will help you achieve the financial freedom you desire. Amazingly, giving makes you bigger than you are. The more you pour out, the more life will be able to pour back in. So, giving a percentage of your resources away will help you not only have more money but enjoy it more as well, and that is the best benefit.
John Wesley said, “Earn all you can, save all you can, and give all you can.” That is a perfect quote for us to think about as we go through this month together. A person who sees the powerful force that money can be for good will more likely keep their own life in balance by pursuing the disciplines of earning, saving and giving – which together, create the perfect tension and balance.
We must also remember that money has a seductive side that tells you it will solve all of your problems, but it won’t. It is great to have money – lots of it – as long as your life is in balance and you have the proper perspective. It is important that we own our money and not the other way around.
Part One – Getting Out of Debt
The first way to make sure that money doesn’t own us is to deal with the issue of debt.
Americans, as well as most of the world, have more debt than ever. We would do well to remember the old proverb:
“The borrower is the servant to the lender.”
When we are in debt, we owe someone and because of this, they have a certain amount of control over us. We are in essence, their servant. This is not the way of financial freedom.
Interestingly enough, when it comes to debt, I have found that many otherwise intelligent people just don’t get it. So, for a little help, here are Five Things You Need to “Get” to Stay Out of Debt.
- Get the Right Mindset. When it comes to debt, the only mindset is one of ruthless opposition. We need to see debt as the very enemy of our financial lives. If we begin to say, “Well, a little debt here and maybe a little debt there,” we will soon see a lot of debt everywhere. In the same way that finances can compound positively when we save and invest, debt can also multiply and push you deeper and deeper into debt as each month passes.
The right mindset is that we need to get out of debt and stay out of debt. Is this your mindset? Many times we are a product of the environment we were raised in or we associate with currently. Have you thought lately about what mindset you have toward debt?
One interjection here, because I hear it regularly when I say that we should have no debt: It is the question of a home mortgage. Most people believe that their home is not a debt but an investment. The fact is that in this day and age, homes cost four or five times the annual income of t people who live in the average neighborhood. And while there is the potential that you could lose money on your home, historical analysis shows that a person who lives in a home for quite some time will generally end up on the plus side of the financial equation. So for the basic understanding, a home mortgage can be considered an investment rather than a debt, though there is debt involved. But, it can be argued either way–an investment or a liability–and you would be right. Now, if you want to pay your mortgage off, there is no harm in that and it would certainly be the conservative way to go!
Besides the home mortgage exception however, we should remain diligent about staying out of debt.
- Get an Understanding. Some people do not even know how much debt they have. Some people do not know whether or not they have a positive or negative net worth. With many couples, one spouse knows the real financial situation while the other is relatively “in the dark.” This isn’t good. You can’t plan your future if you do not know where you currently are. Think of it this way. Let’s say you wanted to visit a friend and needed directions to get to his home. When you call for directions he would ask you where you are coming from. Typically we would tell him our town or address and he would then give us directions on how to get there from the starting point we give him. Imagine however, if we told him that we didn’t know where we were! He couldn’t give us directions because he wouldn’t know whether to tell us to go north or south, east or west.
The same is true with knowing where we are financially. If you have a goal to save one million dollars, your plan is going to be different if you already have $750,000 saved than if you have $100,000 in consumer debt. Figure out where you are financially – get an understanding. In this instance the old adage, knowledge is power, is true. There is power in knowing where you stand financially, because only then can you map your financial future!
- Get Some Help. When you are sick, you go to the doctor. When you want to improve in a sport, you get a coach. When you are in debt, you need to get some help. Depending upon the amount of debt you have, you will have to get varying degrees of help. If you have two to five thousand dollars in credit card debt you may just need a friend who will help keep you accountable on monthly spending. If on the other hand you are over your head in debt, for instance $50,000 in credit card debt, you may need to bring in the help of a financial advisor who can help you with your creditors. Do not be proud. Everybody needs help sometimes and smart people get the help they need. If you have debt and need help managing it, get the help. Your future depends on it.
- Get Control. Think about the concept of debt for a minute; especially the specific action of going into debt in order to purchase something you want but don’t have the funds on hand to pay. Now, you may not ever articulate it this way, but what you are really saying is, “I don’t have the money for this, but I want it so much that I cannot go any longer without it. And not only that, I am willing to pay ten to twenty percent more for it than it costs” (ten to twenty percent is a typical yearly percentage rate on a credit card).
What this boils down to is an issue of control. Can you control your urges? Better than that – will you control your urges? Will you take control of your life? Will you take responsibility for your actions and decide for yourself that you will no longer buy on credit and dig yourself deeper into debt, imperiling your financial future?
- Get a Plan. To get out of debt you need a plan. It needs to be simple, effective, workable and tailored to your life individually. There are some basics you can follow but everyone has different incomes, different levels of debt and are at different stages of life. A fifty year old couple who has an income of $125,000 with $50,000 in debt is going to have a different plan than a single male, age 25, who has an income of $30,000 a year and a total of $10,000 in debt.
The key is to have a plan. And once you have a plan that will work for you, then work the plan with all of the discipline you have. Your plan should include detailed strategies for spending, income, saving, investing, etc. (we will be covering in depth this month). I remember the day so clearly that I told Mr. Shoaff, “If I had more money, I would have a better plan.” To which he replied, “No, I would suggest that if you had a better plan, you would have more money. Remember, it’s not the amount that counts, it’s the plan.” As the old adage goes, “If you fail to plan, you plan to fail.” So true.
We need a plan, and here are a few additional basics for your get-out-of-debt plan:
1) Write down everything you spend. Keep a ledger or a journal or a note pad or whatever will work for you. But write down every expenditure you make. This is so important. It creates awareness and also forces you to take a second look at each decision. It also can help bring accountability within your household.
2) On all future credit card charges, pay off your full charges for the previous month’s expenditures – no exceptions. This will keep you from paying “new” interest. If you are not able to do this right away, set it as a goal to be able to do as soon as possible.
3) Determine how much additional money you can apply to your debt each month and apply it all to your highest interest debts.
Your financial future can be amazing. It can be anything that you want it to be. Part of the heritage you can leave behind is being financially independent, but it will involve some deep soul searching and some tough decisions to figure out exactly what you want out of life, but it can be done. One of the first issues you must deal with though, is debt. If you don’t have debt, that is fantastic. If you do, life isn’t over for you – you can still achieve whatever you desire, but only if you make the commitment to change things around. I know that you will!
Part Two – Saving
Money is a tool and resource we can use. I want to focus on some simple financial principles you can apply, as well as teach the underlying philosophies that govern what good people can do and what tremendous accomplishments can be made when we see money for what it is – a tool to improve our lives and the lives of others.
Now we are covering the topic of saving money. Statistics consistently show that the vast majority of people live hand-to-mouth or month-to-month, that is with no savings to speak of. The average person would be hard pressed to live for more than just a couple of months if they were unable to draw an income. This means that they are not independent, but dependent upon insurance, government programs, friends, family and the like. The primary goal of savings is to provide a much higher level of personal independence and security.
The discipline of saving directly determines how we will take care of ourselves and plan for not only the future, but also for the unforeseeable events that touch our lives at times. It is an act of self-determination where we decide that we will provide for ourselves and protect ourselves. Saving is not, as you will see further down, the pursuit of aggressive growth of our resources. Simply put it is our security, our safety net if you will, that remains in place to provide a solid base on which to build the rest of our financial independence.
So, with these things in mind, let’s take a deeper look at saving our money.
Saving is an act of discipline. No matter how you slice it, saving money on a regular basis is a discipline. It is not “dependent” on income. If you were to ask five people, all at varying income levels, if it is hard to save, chances are they would all say “yes.” This is because the tendency for us is to spend whatever we earn. When we start out and make $25,000 a year, we think it is hard to save. If only we could make $40,000 a year! But when we make $40,000 a year we say the same thing. Our expenses go up, we buy a bigger house, fancier car, etc. Some people who make a million dollars a year save nothing. At the end of the year, they have spent it all and they are no better off than the person who makes $40,000 a year. Professional athletes and entertainers are renowned for this. Pick up any number of magazines and you can read about an athlete who made twenty million dollars over seven years and is now bankrupt. It isn’t a matter of money. It is a matter discipline. On a regular basis, put a little away until it builds up. That is the savings game.
Saving is much like the familiar story of the tortoise and the hare. Little by little we put a small amount away and slowly but surely we develop the kind of saving amounts we are looking for. Those who put away a lot and then spend it all on a big screen TV may end up with a TV but that is about it. In the end, the slow and sure saver ends up with real wealth and financial independence.
Saving builds self-reliance. Our ultimate goal financially should be to become independent, without relying on anyone else. We should be able to pay our bills and longterm, live off of the interest of the savings and investments we have. So through our diligent saving, we rely on what we have accrued. Then we become more able to help those in need. We are now the lender and not the borrower. Saving allows us to rely on what we have stored up for ourselves if bad times come along. A good savings goal is to have at least six months of living expenses set aside. For example, if your expenses are $3,000 a month, then you should set the amount of $18,000 as a savings goal. This gives you the ability to be self-reliant for those times when you may need it, and the peace of mind knowing you would be able to handle challenging circumstances if necessary.
Saving money not only helps bring security and peace of mind, it also begins to harness the power of compound interest. As we will see next week, investing is the maximizing of capital gain and the harnessing of compound interest. Saving money in a standard savings account or money market account will pay a nominal sum, say 2-4 percent, depending upon interest rates. As we will discuss further next week, there is something called the rule of 72, which says that whatever interest rate you average, divided into 72, will determine how many years it takes to double your money. So, even at 3 percent, your money will double in 24 years. That isn’t extraordinary by any means, but it does happen. Your money is working for you. You get more money simply by letting it sit there and letting compound interest do its work. With saving, this is a seemingly small beginning, but it is the strong foundation of security that allows you to build the future of your dreams and goals, and provides the anchor to help you weather financial storms that can come your way. But here’s what is exciting, the real power comes next week when we talk about investing.
Basically, our understanding of the discipline of saving our money on a regular basis is for the safety and stability it creates. Investing is for advanced compounding of your resources.
So here is what to focus on: Adopt the regular discipline of saving. Think like the tortoise and not the hare. Achieve self-reliance through saving. Harness the power of compound interest.
Part Three – Investing
Now we can focus on the third topic that is investing.
When you look at the wealthiest people in the world, you are almost always looking at people who are investors. They know that the way to long-term accumulation is through investments in a variety of means to develop financial abundance.
I do not believe that people with wealth are any better than anyone else, they simply have applied themselves methodically to the disciplines of wealth building, some of which we are going to look at in today’s edition.
The key is to begin to see yourself as an investor–an investor in yourself, in others, in businesses, in assets and in financial vehicles that will maximize your return and begin to help you accrue the kind of wealth you desire.
Let’s take a look at some of the specific things you need to invest in if you are going to build a lifetime of wealth and abundance that will provide you and your loved ones with the lifestyle you are looking for. Because we all know a variety of ways to make a living – now let’s figure out how to make a fortune!
Here are a few things you should invest in:
- Invest in Yourself. You are already doing this by participating in this One-Year Program. Those who develop real wealth always invest in themselves. They are readers. They study. They have an interest in people and wealth. They are constantly working on bettering themselves and stretching themselves to become people of knowledge and influence. If you want to be a person who achieves financial independence, then you would do well to continue this journey of investing in yourself. Make yourself better by learning all that you can about business and wealth. Learn about people and what drives them. Learn about yourself so you can maximize your strengths and improve your weaknesses. Always strive to make yourself better each year than you were the previous year.
- Invest in Others. My friend Zig Ziglar says that a person can get anything they want in life if they will help enough other people get everything they want out of life. People who develop long-term wealth are those who provide something for others – they help others and invest in them – and they reap multiple rewards that come from their investment!
- Invest in Your Company. When you look at the richest people, minus athletes and entertainers, you will see a huge percentage work for themselves. They own their own businesses. They work for wealth, not for wages. As you’ve heard me say before, profits are better than wages because wages make you a living while profits will make you a fortune. If you have a company, work on building it and increasing revenue. If you do not have your own business and you feel you are ready, please consider starting one. Besides the obvious advantage for building wealth, there is also the added benefit of knowing you are charting your own course and determining your own destiny.
- Invest in Hard Assets. One of the best ways to develop long-term wealth is to convert your money into assets that increase in value and work for you. Examples of this would be real estate, especially income producing real estate, such as rental homes, apartments, or office complexes. Certain collectables may also fall into this category. When we convert our money into hard assets, we are helping to cultivate long-term wealth for ourselves by diversifying into many different areas that can work on our behalf.
- Invest in Ideas. One of the amazing things we continually see is how ideas can become wealth. In fact, every company, every product and every service that has ever existed, first existed in a person’s mind in the form of an idea. But let me say that you must search for good ideas because rarely do they interrupt you. So read, search, go the classes and invest the time to seek out good ideas. Because if you do, then you will find them; ancient script assures us that if we seek, we will find. Now when good ideas are combined with intelligent action, those ideas take form and can produce wealth. Invest in your ideas. Cultivate them, dream about them, sharpen them and apply them. Then those ideas can become wealth for you to enjoy for a very long time.
- Invest in Public Companies. Typically this would be the stock market. Even with the big dips we see from time to time, the stock market averages about twelve percent a year return for those who stay in for the long haul. The best strategies typically are those that involve methodical investment in both good times and bad. Think about the power of investing in a public company. Let’s say you invest $1,000 in Microsoft stock. What is amazing about that is now you have Bill Gates and his people going to work every day on your behalf! This is the power of investing in a public company: you become an owner, and the employees work on your behalf and you share in the returns. Again, when you look at those who achieve great wealth, there is almost always a component of investment in public companies.
Now that we have looked at what to invest in, let’s look at the Basics of Investing:
- Let your money work for you, not the other way around. People who achieve longterm wealth and financial independence are those who have found the secrets of having money work for them, increasing on its own. Don’t work for wages, work for wealth.
- Get a team of help. Even a beginning investor can have a team of people working for them, advising and teaching them. Obviously they start with a team of advisors through the books and financial resources they read. Even a minimal investment at the bookstore will provide you with a broad range of information that will give you a great head start on investing. Next, a stockbroker, a financial advisor and an accountant are good to have. Most of them will work on your behalf even if you only have a small amount to invest. It isn’t wise to go it alone. Get the help you need to make good decisions.
- Do it regularly. The key to accumulating wealth is the same as almost all disciplines-do it regularly. If you wanted to lose weight you would exercise on a regular basis. If you want to build wealth, you invest on a regular basis. Every week, the first of the month, four times a year; it doesn’t matter except for the fact that you must make it consistent. Whether the amount is big or small, just keep doing it, and you will find that your investments compounded over time will yield a great harvest.
- Harness the power of compound interest. I wrote last week a little about compound interest and the power it provides. Rumor has it that Albert Einstein called compound interest the most powerful force in the world. Whether he said it or not, it is close to being true. There is tremendous power in building wealth through compound interest. Last week I also wrote about the rule of 72, meaning whatever investment return you receive on average, divided into 72 will be how many years it takes to double your money. So, for example, let’s say long-term you receive a 12% yearly average return on your stock portfolio. This means that if you put $10,000 into your stocks and never add another dollar, you will still have $20,000 after 6 years; that is your money working for you. And after 6 more years you would have $40,000. After six more years (18 total now) you would have $80,000. And that is if you had just invested the original $10,000. Where this becomes incredibly powerful is when you are continually adding more investment money to the pot! Grab a calculator and work the numbers for yourself. You will be amazed!
- Think long-term. Yes, we still hear about overnight millionaires, but the fact is that they are the exception, not the rule. To develop long-term wealth, you must have a longterm mentality. Your stocks won’t go up every year. Not every investment will work out. Sometimes your property values will go down. But long-term you will see that the trend is up, with some dips along the way. Remember, it is the tortoise mentality, not the hare mentality that achieves long-term wealth.
- Generally speaking, move from aggressive to conservative. Younger people can afford to be more aggressive than older people because they have more time in which to recover if their investments sink in the short-term. As you get older and have more and more resources available, you will want to move more into capital preservation rather than capital appreciation. You may still have a portion in which you invest in speculative ways but you will move most of what you have into investments that preserve what you have spent a lifetime accumulating. Of course, your financial advisor can help you set up a plan that is perfect for you.
- Invest in what makes you comfortable. Ultimately, you want to be able to sleep at night. Some people can invest in wildly speculative investments with no worry, and others are more comfortable with something safer. Whichever way you decide, that is okay. It is your life and you have to feel comfortable with how you live it. Research, gain all the knowledge you can and then invest in what you know and what allows you to feel comfortable.
Keep in mind our goal here is to have the ability to live from the income of our own personal resources, thus achieving our own financial independence. What a powerful feeling of knowing that you depend on no one for your financial welfare.
Part Four – Giving
Giving is a very powerful thing. Because here’s what’s exciting, sharing makes you bigger than you are. The more you pour out, the more life will be able to pour in. What you give becomes an investment that will return to you multiplied at some point in the future. Becoming a giving person will bring you so much more in your life. You will become the kind of person who others look to, respect and appreciate.
Giving is about being fully human. It is about making something of ourselves that goes beyond what we merely do for ourselves. It is very important to work for ourselves, to determine our own futures, but a person could do that and still not reach the peak of their human potential. They could do that and be entirely selfish. And while they may be able to build an empire or financial independence, they would also be missing something. They would be missing that part that is altruistic, the generous, human element that wants to help others, to make a difference. Because when we choose to give, everybody wins.
Giving of ourselves, especially financially, can make a big difference for us and in us. And it is relatively easy to do, if we discipline ourselves to do it. And my recommendation to you would be to start this discipline when the amounts are small. It’s easy to give ten cents out of every dollar, but much harder to give one hundred thousand dollars out of a million if you haven’t developed the discipline of giving.
So, let me give you four ways that giving financially changes you and five steps to becoming a generous giver.
Four Ways Giving Financially Changes You
- Giving keeps money in its proper perspective. Money is a great tool. It enables you to experience so many different aspects of life that you can’t if you don’t have money. But in the end, money isn’t the end! Money for money’s sake is a hopeless goal. Money is a tool that helps us do better things, enjoy life and help others. When we give money away, we tell ourselves that money isn’t the end all. It is a tool. We gain proper perspective when we give money away to organizations and people that need it.
- Giving makes you more aware of others and their needs. If you are going to give away money on a regular basis, then you will most certainly be looking for what you are going to be giving it to. Your vision opens up to many new worlds. When the option is open for giving money away you will soon begin to see the wide spectrum of the many people and organizations that can really use your help. Your heart will experience a unique transformation as you see all of the good accomplished through so many organizations – there really are so many good groups out there doing fantastic things for those who need it.
- Giving enables you to be a difference maker. At the end of our lives we want to be able to look back and say that the world is a better place because we were here. W made a difference. People are better off because they met us. Organizations made a bigger impact because we gave generously to help support their purposes. Our businesses had an impact in the lives of our customers. When we generously give of our finances, we become difference makers – either through direct contribution or through the efforts of the organizations we support. And at the end of our lives we will have stored up for ourselves many intangible treasures.
- Giving ignites the principle of sowing and reaping. The ancient saying is that you “reap what you sow.” When we give financially to others we are sowing – sowing goodness, sowing financially, sowing generosity, sowing a higher purpose. And that means we will reap those things too. We become people of higher vision than those who simply work only for themselves. We accomplish many more goals and objectives, and in a way that makes our world a better place. What an incredible gift we have to bestow on others, and yet amazingly in the giving process it starts the reciprocal reaction of the receiving process in our own lives. Because the more we give, the more we open ourselves up to receive–to receive the benefits of generosity, the gifts galore of both tangible and intangible things. So start the process today, (if you haven’t already) and watch your life take on a whole exciting new aspect and look for the miracles to occur!
Five Steps to Becoming a Generous Giver
If you have as a goal to become a generous giver, I would encourage you to work to accomplish it in the same way you would do anything: Think it through, plan it out, and execute the plan. Here is a process you can implement immediately that will move you toward your goal of becoming a generous giver who makes a difference!
- Think it through. Who do you want to give to? What causes move you? What groups are doing the work you want to support? Who needs your help? There are many, many groups who need assistance. In fact, too many for any one person. This is why it is important to be very clear in your own mind as to what you want your giving dollars to do when you give them. What organizations would be “good ground” to sow into? There are religious causes, political causes, humanitarian causes and more. Think through and prioritize who and what you want to give to.
- Budget your giving. If you aren’t currently giving, you will need to take a look at how you will come up with the money to give and then adjust accordingly. Will it come from your discretionary income or from cutting back on a current expenditure? Budgeting will help you decide. Then you need to decide on either a fixed amount or a percentage. Historically, millions of people use the concept of tithing. “Tithe” means tenth. So many people give a tenth of their income to charities of their choice. The important idea is that you budget it in so it gets done on a regular basis.
- Give on a schedule. The easiest thing to do is to give when you get a paycheck. Just as you pay the taxman or the electric bill, give to those organizations you want to support. If you have it in your budget and in your schedule, then you will get it done. So when some comes in, make sure a little goes back out in your giving budget.
- Be generous. In the end, most people will probably wish they had given more. They will get to the end of their lives and realize that they were cutting corners on their giving when instead they could have given more. Be generous. If you can, make the check a little bit bigger. Review from year to year what you are giving, and if your income has gone up, then increase your giving. Will a little extra hurt you? Most likely not – but it will help the groups you give to. Ultimately, the amount you give isn’t what is important. What really matters is what that amount represents in terms of your life.
- Be spontaneous (sometimes). We can’t give to everyone who holds out their hand, but it isn’t wise to be so rigid that we aren’t open to helping people who may cross our paths. Use your intuition and err on the side of being generous. If you have an opportunity to give to someone who crosses your path, weigh it carefully and be open to helping. In the end you may have made a few mistakes, but you will have helped many more people too.
Giving is a very important skill – so important that I made it one of four main areas of discussion for this pillar of success. We should be people who live by John Wesley’s quote, “Earn all you can, save all you can, and give all you can.” And in doing so, we bring our lives into a perfect tension that keeps us with a proper perspective on financial matters.