Special Audio Bonus! Chris Hogan, personal finance expert and author of Retire Inspired: It’s Not an Age, It’s a Financial Number, talks numbers and provides answers to your toughest financial questions.
Welcome back! Today we are going over Part Three in our topic called Finances.
The four pivotal topics we cover this month 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 $2 million a year, but if you spend $2.5 million, it doesn’t matter how much money you made, does it? You will be saddled with debt. We addressed this two weeks ago.
One of the key components to long-term wealth building is the discipline of saving money on a regular basis. Last week, we went through the basics and showed 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 that the rich save/invest their money and spend what is left, while the poor spend their money and save/invest what is left. What a simple shift in our thinking for such a revolutionary result.
Investing is very different from 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. Today we will cover both the importance and basics of investing.
Giving a portion of your resources away is one of the most powerful principles you will ever embrace. It seems counterintuitive, 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.
This week our focus is on investing.
When you look at the wealthiest people in the world, you are almost always looking at people who are investors. They know the way to long-term accumulation is through investments in a variety of means to develop financial abundance.
I do not believe people with wealth are any better than anyone else; they have simply applied themselves methodically to the disciplines of wealth building, some of which we will look at in today’s edition.
The key is to begin seeing 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 want to build a lifetime of wealth and abundance that will provide you and your loved ones with the lifestyle you desire. 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 making a major investment in yourself by participating in this blog “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 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. Continue to better yourself by learning all you can about business and wealth. Learn about people and what drives them. Learn about yourself so that you can maximize your strengths and improve your weaknesses. Always strive to challenge yourself and grow more each year than you did the previous year.
Invest in Others. Zig Ziglar says “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 bring value to others; they help and invest in them—and reap multiple rewards 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. You’ve heard me say it 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 but you feel you are ready, 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 generate income for you. Examples of this would be real estate, especially income-producing real estate, such as rental homes, apartments or office complexes. Certain collectibles may also fall into this category. When we convert our money into hard assets, we cultivate long-term wealth for ourselves by diversifying into different areas that 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. You’ve all heard me say you must search for good ideas because rarely do they interrupt you. So read, search, go to the classes and invest the time to seek out good ideas, because if you do, then you will find them. Ancient scripture 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 a 12 percent per year return for those who stay in for the long haul. The best strategies are typically 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 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:
1. Let your money work for you, not the other way around. People who achieve long-term 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.
2. 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.
3. Do it regularly. The key to accumulating wealth is the same as almost all disciplines—do it regularly. If you want to lose weight, you 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 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.
4. 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 you receive a 12 percent annual average return on your stock portfolio long term. This means that if you put $10,000 into your stocks and never add another dollar, you will still have $20,000 after six years. That is your money working for you. And after six more years, you would have $40,000. After six more years, (18 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!
5. Think long term. Yes, we still hear about overnight millionaires, but the fact is that they are truly the exception, not the rule. To develop long-term wealth, you must have a long-term mentality. Your stocks won’t go up every year. Not every investment will work out. Sometimes your property values will go down, but most of the time, long term, you will see the trend moves up. Just know there will always be some dips along the way. Remember, it is the tortoise mentality, not the hare mentality, that achieves long-term wealth.
6. Generally speaking, move from aggressive to conservative. Younger people can afford to be more aggressive with their investments than older people because they have more time 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 fits for you.
7. 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. Whatever you decide is OK. 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 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.
Financial freedom is a buzz phrase for our generation. It is the pursuit of literally millions of people. What is it? Is it that elusive? Can anyone achieve it?
This is not about how to earn money or even accumulate more money. Rather, it is about how to find financial freedom, which, surprisingly, may or may not involve making more money.
The first step in finding financial freedom is to realize that financial freedom has absolutely nothing to do with how much money you have or make. What? Exactly. Financial freedom is something that goes on inside you. This is why someone who makes very little can be happy and someone who makes a ton can be extremely stressed-out over their financial situation. The first step is to realize that financial freedom is more about our attitudes toward money than about the amount of money.
Here are a few philosophies that can keep you in the financial freedom mindset.
We do not have to worry about money. Why? Because we can control our income. We can control our outgo. We can make choices to alleviate our worries. Realize that things always work out in one way or another, so why waste time worrying? Work hard, invest, plan for the future, and then rest in the knowledge that you’ve done what you can do. Choose to take action instead of choosing to worry.
We can be happy regardless of our financial state. We know people who are worth hundreds of millions of dollars and we know people who don’t have two nickels to rub together. Some are happy; some aren’t. But none of the people who have a lot of money say, “I’ve become so happy since I got money.” They were happy before they had money, and they are happy now that they have money. Their happiness has nothing to do with the money. Billionaire David Geffen once said, “Anyone who says that money will buy them happiness has never had any money.”
Money is a means to an end, not the end itself. Another way to look at it is that money is the tool to build the house, not the house itself. Definitely set financial goals, but be sure you know what greater purpose the money serves when you reach those goals. In other words, what will the house you build be used for?
Some people think it is bad to earn more money. It isn’t. Some people believe it is bad to save. It isn’t. Some people feel they will be better off hoarding their money. They won’t. Some people believe that they can’t spend anything on themselves. They can. That is financial freedom.
Embrace delayed gratification. We have the option to adopt one of two financial philosophies. Philosophy 1: Buy now and pay (struggle) later. Philosophy 2: Delay buying right now; invest the money you would have spent, and have all you want later on! And you won’t even have to touch the principal! We tend to think having it all now will bring enjoyment, but unless you can do it and not cause yourself financial stress, you will actually get more from waiting!
Have more by managing better. The fact is that most of us earn enough. What would be beneficial is to set our priorities and live by a budget. As we get control, our budget will loosen up a bit and we will find ourselves enjoying it more. Money that is already there can be your answer if you strategically put it to work for you.
You can experience financial freedom no matter how much money you have. Granted, it is great to build wealth, and that should be our goal, but no matter what level you are currently at or what level of wealth you ultimately attain, if you keep money in the proper perspective, you can be happy and free.