chapter 2 - How to Be Rich Book

Transcription

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Get the AUDIO VERSION of this book at www.BeRichBook.com.
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BE RICH
The Aspiring Millionaire’s Guide to a
Lifetime of Financial Freedom
Dan Dulin
with Greg Weiler
The 10 Financial Laws of Prosperity that determine if you are
rich, poor or somewhere in-between.
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Second Edition
Copyright 2011, Santa Maria Group, LLC. All rights reserved.
Disclaimer
Before attempting any technique, following any recommendation or process in
this book make sure you consult with your accountant and attorney.
All of the stories in this book, along with the people portrayed in them are
fictional with the exception of the stories that the authors‘ tell about
themselves. Any character that resembles a real person, whether living or dead,
or story that resembles real events are pure coincidence.
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Acknowledgements & Special Thanks
Cover Design:
Ms. Roberta Schultz
Buenos Aires, Brazil
http://robertaschultz.daportfolio.com/
Editing:
Ms. Amber M Bryan
Phoenix, Arizona
Has a double bachelor’s degree in English and Writing from Drury University in
Springfield, Mo. She currently works in marketing as a designer, editor and writer
for a major commercial real estate firm.
Consulting:
Mr. Paul Sammis
Phoenix, Arizona
A graduate of the Ira Fulton School of Engineering at Arizona State University and
currently specializing in financial, facilities management and corporate real estate
consulting.
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To David,
I was told that ―All roads lead to Rome,‖ but I have learned some circle the
mountain a few times before getting you there. Have the courage to face your
personal challenges, be quick to correct your mistakes, and never take yourself
so seriously that you cannot laugh at your follies.
This book holds the key to a lifetime of financial abundance and the secret to
true wealth. Use this knowledge to take action with an unwavering belief that
you can accomplish your goals, and a magical transformation will occur — you
will be part of a small minority of people that can proudly say, ―I achieve.‖
With love,
Dad
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A note from the authors
You deserve to be the next billionaire , but being rich means nothing in the
broader scheme of life unless you make a positive contribution to humanity. It
is through this contribution and your self-sacrifice that you can be a changing
force for the betterment of mankind by making a difference in the lives of
others. Only then can you have true wealth.
I object to tyranny. We should all have the opportunity to better ourselves in
every aspect of our lives without fear of oppression. We should have the
freedom of choice to follow our dreams in the manner that best suits us and
doesn‘t tread upon the freedoms of others. I believe in the rights of the
individual, rights that were best captured in the words of Thomas Jefferson:
―…[T]hat all men are created equal, that they are endowed by their Creator with
certain unalienable Rights, that among these are Life, Liberty and the pursuit
of Happiness.‖
I object to poverty. Poverty robs mankind of liberty by concentrating material
wealth and power into the hands of the few, which leads to the exploitation of
many. The world is becoming a poorer place , and despotism has begun to take
root in societies across the globe. This trend must be reversed, not with
socialism or a forced redistribution of wealth, but with the preservation of
liberty. Guaranteed individual rights, combined with true capitalism tempered
by intelligent regulation, give mankind the greatest opportunity to pursue
happiness.
This book was written for everyone who wants a better life. We are committed
to giving away 100,000 copies of this eBook as a contribution to the campaign
for the creation of a wealthy society and the protection of individual rights. The
success of this project depends on you. Recommend this book to your
friends, and give your printed used copy to someone else. Together we can
make a difference throughout the world.
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Table of Contents
INTRODUC TION: BE RICH, NOT POOR
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CHAPTER 1: THE SECRET INGREDIENT
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CHAPTER 2: THE FIRST FINANCIAL LESSON
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CHAPTER 3: MAKE MORE MONEY
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CHAPTER 4: CONTRIBUTE
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CHAPTER 5: DROWNING ON DRY LAND
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CHAPTER 6: LIVE WITHIN YOUR MEANS
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CHAPTER 7: A TWIST OF FATE
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CHAPTER 8: THE WAY OF MONEY — HOW IT’S MADE AND LOST
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CHAPTER 9: MITIGATE THE LOSS OF MONEY
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Chapter 10: HOME SWEET HOME
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CHAPTER 11: MAKING MILLIONS IN REAL ESTATE
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ABOUT THE AUTHORS
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INTRODUCTION: BE RICH, NOT POOR
The world is forever the same yet always changing; forge and bend it to your
vision, and you will have found the stuff that makes dreams come true.
Today we celebrate your financial awakening! It starts the moment you
believe you deserve to be rich and are willing do something about it. Consider
your awakening as a crossroads in your life — down one road, you will find a
lifetime of financial independence; the other road leads to financial frustration.
By choosing to travel the road to financial independence, you will quickly
separate yourself from those who are only one paycheck away from financial
disaster. To be rich, poor or somewhere in-between has always been up to you.
Awaken, my friend, and enjoy a lifetime of financial independence.
Nothing weighs heavier on the human spirit more than poverty. It robs you of
your peace of mind, limits your personal freedoms and subjects you to one of
the oldest forms of discrimination known to mankind — the discrimination
against another based on their ability to pay. Nonetheless, poverty is a
choice, and the finer things in life are within anyone‘s grasp. Poverty starts
with a belief that then manifests itself throughout one‘s life. If you believe you
will be poor, then you have condemned yourself to poverty. If you believe you
will be rich, then a world of opportunity opens up to you.
There are two financial classes of people — those who are financially
independent and those who are not. If you can quit your job, leave your
business, give up any outside financial assistance and do nothing all day
without having to worry about maintaining your current lifestyle, then you are
financially independent to your standard of living. If you can‘t, you have some
work to do!
The idea for this book came during my search to understand why so few
people grow rich and most others struggle with money. I did a significant
amount of research and interviewed both successful and unsuccessful people. I
found bits and pieces of what I was looking for everywhere, but no single
source gave me the full answer. Then one day, it came to me. There were 10
things the rich did to gain and maintain their financial independence. The 10
Financial Laws of Prosperity found me, and I now pass them on to you.
Your ticket to ride the money train for life is in this book. It will teach anyone
how to be rich and stay rich. You will learn the 10 Financial Laws of Prosperity,
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the way of money, the golden rules and how to get started. By mastering the
Laws, following the rules and taking consistent intelligent action, you can
expect riches that exceed your wildest dreams. If you are a little less committed
to action but follow this system, the Financial Laws of Prosperity will still
produce profound positive financial results in your life. If you are content with
working for others and cling to a belief riches are far beyond your grasp, this
book will look good collecting dust on your nightstand!
Imagine what your life would be like if you didn‘t have to worry about money.
You can buy whatever you desire, retire at any time, travel anywhere and
spend your days as you please. You help the less fortunate and your family,
and you are financially happy. This can be your future. The missing pieces to
your money puzzle and the answer to the question, ―How can I get rich and
STAY rich?‖ are in these pages.
This book is for anyone interested in becoming financially independent
and preserving that wealth for life. Financial independence defined is the
stage in your life in which your money grows on its own and covers all of your
expenses. It means you are your own boss, and agonizing over money is
optional (yes, for some people, all the money in the world still isn‘t enough).
Only by following the 10 Financial Laws of Prosperity can you hope to
accumulate and retain vast sums of money. Complete mastery of the
principles in this book will decrease the amount of time it takes to create
riches; ignorance will make a lifetime of financial independence
impossible. The Financial Laws of Prosperity can be bent but never broken
because they are as inescapable as the passage of time. It doesn‘t matter who
you are or what you currently have — you will never experience a lifetime of
financial independence without adherence to the Laws.
Financial independence is a lifestyle. Proclaiming yourself ―rich‖ one day and
ignoring the 10 Financial Laws of Prosperity the next will drive you to the
poorhouse just as surely as gambling away all of your money at a Las Vegas
casino. To be rich and stay rich, you must constantly prove yourself to be
a good steward of money. There‘s a huge difference between having money at
one point in your life and achieving a lifetime of financial independence. As
such, the achievement award for financial independence only gets handed out
upon your death. Die rich and you get the award; die poor and your funeral
costs will be one more burden you pass along to the ones you leave behind!
Many people will come into money only to see it disappear as fast as it
arrived. These people spend their money in such an unsustainable fashion that
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they have nothing to show for it in a relatively short period of time. This is
because, mentally, they identify with being poor and act poor on a grand scale.
As a general rule, poor people must spend all of their money; this, of course, is
what makes them poor. If you want to know real financial heartache, make a
lot of money and then lose it all. If you happen to make it back, you will never
stray too far from the 10 Financial Laws of Prosperity again.
During your financial journey, you will always find someone richer than you.
This has nothing to do with fairness, trust funds or a lucky roll of the cosmic
dice. What they have is there for a reason, and that reason may not be
apparent to you. Indeed, some of these people may be more worthy of your pity
than your admiration because they project the illusion of having money when
they secretly struggle to maintain their lifestyle. What you think about people
who have true financial wealth will determine your own level of financial
success, because your thoughts reveal your personal beliefs about money.
Negative beliefs will prevent you from becoming rich just as surely as spending
your days at home eating potato chips on the sofa, watching TV, surfing the
Internet or playing video games.
We are all at different points in our financial journey but subject to the same
10 Financial Laws of Prosperity. Countless athletes, actors, singers, business
people, entrepreneurs, lottery winners, recipients of large inheritances and
others have rocketed to the top of the financial Who‘s Who list only to go broke
and then disappear into obscurity. Despite what pop culture might teach,
there are no shortcuts to becoming and staying rich. You must master the
10 Financial Laws of Prosperity before you can enjoy a lifetime of financial
independence.
Many people spend years trying to be come rich and wonder why they never
reach their goal. They work hard for others but find themselves disappointed
when their rewards don‘t measure up to their expectations. They never realize
that without complete financial independence, everyone answers to somebody,
whether a boss, client, customer, partner, patron or shareholder. As long as
you answer to somebody, you will never make the money you truly deserve.
The trick to making a lot of money is to become self-reliant. Only then can you
break the chain of financial limitation imposed on you by others.
Having an abundance of money is not true wealth — a measure of your total
happiness. True wealth is to be rich in thought, friendship, love, joy,
spirituality, compassion, gratitude and generosity and has absolutely nothing
to do with the material possessions acquired with money. A life with an
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abundance of money but lacking in sincere, fulfilling connections to other
people is a life steeped in loneliness and despair. The Fourth Financial Law of
Prosperity will teach you to Help Those in Need, but true wealth must come
from your heart. No cause is greater and no deed more worthy than assisting
the needy, for it is this selfless act that defines our humanity. For many, the
simple but rewarding concept of giving will take years to understand and longer
still to act upon, even though it‘s essential to the achievement of complete
happiness.
Everyone‘s financial story is worth telling. This book tells the stories of people
who have struggled to reach financial independence and relates those stories to
the principles contained within these chapters. The people in these stories are
fictional, but the lessons imparted are timeless, because they speak to
circumstances anyone could encounter in life.
I don‘t consider myself to be a financial guru. I‘ve squandered money, been
caught up in the ―lifestyle trap,‖ taken foolish risks, made bad decisions and,
on occasion, had to worry about where my next meal was coming from. It took
two major financial setbacks before I was willing to change my approach to
financial independence. Each setback was painful. I collected debt and
financial obligations that only added stress to my life, put my personal
relationships into turmoil, and dragged me further from my financial goals. I
soon learned to embrace my failures as an essential part of success because
within every setback I found the seeds of new opportunity, seeds that
eventually grew into the idea for this book and provided me with the inspiration
to pursue related businesses.
Originally, the concepts outlined in this book served as my personal wealth
business plan. When I realized this information could help others turn their
financial dreams into reality, I felt compelled to make my plan into a real book.
It took almost two years to complete this project, and now the 10 Financial
Laws of Prosperity are yours. Follow these laws to create a lifetime of financial
independence.
You and I can change the world for the better, and right now, what needs to
change is the ever-increasing poverty rate. Hundreds of millions of people could
use the knowledge in this book as a starting point to improve their lives if they
only knew it existed. This is where you come in. I need your assistance.
Please help me share the 10 Financial Laws of Prosperity with the world. Tell as
many people as you can about this book. If you would rather listen to this
book, you can find the audio version at www.BeRichBook.com. If you are a
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parent or educator, teach the children in your life about the 10 Financial Laws
of Prosperity, have them read this book, and teach them money skills by
playing the companion game, NET W ORTH which can be found at
www.NetWorthCardGame.com. When you are finished with your printed copy
of this book, give it to a friend or donate it to charity, the needy, a school or
your local public library — your generosity will have a multiplier effect and will
give others the opportunity to experience a be tter life, too.
At the end of this book, I have included a bonus chapter on real estate
investing titled: Making Millions in Real Estate. This bonus chapter contains a
number of techniques that real estate investors use every single day to make
money. This chapter by itself will not turn you into an expert real estate
investor. Its purpose is to plant the seed that anyone can invest in real estate
and show you how it‘s done.
There is no exclusivity for who gets to be rich. It all boils down to your be liefs
and ability to execute on a meaningful plan. Anyone can do it, but few will
try. Make the choice to incorporate the 10 Financial Laws of Prosperity into
your life and reap their rewards.
In this world of mice and men, do you see the lion?
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CHAPTER 1: THE SECRET INGREDIENT
Believe you can and discover a world of unlimited possibilities; believe you can’t
and forever find none.
Jerry had been living on the streets of New York City for several months. He
was a tall, likable man in his early 30s with dark hair and a deep tan. He was
an Iraqi war veteran who bounced from one low-paying job to the next. Jerry
was no stranger to hardship, but tonight he was in the wrong place at the
wrong time. Two youths had just run past him as he turned the corner onto an
otherwise deserted street when, suddenly, a snarling German Shepherd leapt
toward his face. Instinctively, he raised his arm to protect himself. The police
dog latched onto Jerry, dragging him to the ground. Sharp teeth ripped into his
arm, sending pain throughout his body.
―Stop struggling!‖ the police officer shouted at him. He then turned to the dog.
―RELEASE!‖
Jerry went limp as the dog let go of his arm. The officer leashed the animal
and called for Jerry to be rushed to the hospital.
Officer O‘Malley found Jerry wandering the streets a few days later. He had
read the hospital report and learned the man his dog had attacked mist akenly
was homeless and between jobs. Feeling compelled to help, he made
arrangements for Jerry to stay at a local group home.
Living at the group home was hard for Jerry. He was no longer sleeping on
the streets but had little privacy. He got a job as a t axi driver and started to
spend his spare time at the public library, where he found solitude. The library
changed Jerry. He developed a thirst for knowledge and a love for reading.
Books helped him realize there was more to life and he deserved better. He
began to believe in himself and made enough money from his job to move into
a small apartment.
Jerry got into the habit of saving a little from each paycheck, but it was hard
to make ends meet. He grew tired of struggling financially and made the
conscious decision to become rich. He didn‘t know how he would create his
fortune, but he knew the answer was out there. He took advantage of his job as
a taxi driver by interviewing business people he picked up as riders. He
gathered their thoughts on success and talked to each of them at length about
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how they made money. Any new idea or concept that he was interested in, he
would diligently research on the Internet.
Time passed and Jerry began to notice more of his passengers were using
smartphones. People were raving about these gadgets. Jerry recognized the
start of a new trend and was determined to capitalize on the opportunity. He
created a list of different ways to make money from smartphones. A few ideas
turned into complete failures. Undeterred, he continued his search.
Jerry‘s golden idea came to him after a near-miss accident with a bicyclist. A
biker swerved into oncoming traffic and Jerry nearly hit him. It was a seed of
inspiration. He went home that night and sketched out an idea for a
smartphone game he called ―Taxi Loco™‖.
Jerry spent the next few months refining the idea for Taxi Loco™. He hired a
programmer and graphic design artist using an outsourcing website, and soon
his game was ready. He posted a simple sign in the back of his taxi to market
it.
The sign sparked the curiosity of a passenger who identified himself as a
freelance reporter. The reporter talked to Jerry for some time about the
development process for Taxi Loco™. After, Jerry didn‘t give the conversation a
second thought; it was one out of an entire day of conversations with riders.
One week later, Jerry‘s game, Taxi Loco™, was featured in an article by a
prominent national newspaper about emerging smartphone opportunities.
Before he knew it, his game went viral, selling millions of copies, and Jerry
became a very rich man.
The First Financial Law of Prosperity
The First Financial Law of Prosperity is You Must Believe. Belief comes before
money. The single most important thing needed to attain and maintain your
financial independence is unwavering belief. Think you can do something and
you leave room for doubt; know you can do something and you harness the
limitless creative power of your mind to make it a reality.
In practice, the exact formula to be rich is 80% belief and 20% everything else.
This means once you truly know you will be rich, you‘ve taken the single most
important step toward achieving your goal. Only when you believe that you can
create financial abundance in your life will you develop and follow a plan to
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produce the desired wealth. Belief is the foundation for creating a lifetime of
financial independence.
Why Rich, Not Poor?
Why do you care if you are rich? The answer to this question will reveal your
true motivation to be rich. Some reasons are more motivating than others. Fill
in your answer:
―I want to be rich because __________.‖
Does your answer inspire you, or is it just a bunch of words? Answers to this
question vary, but whatever material possessions, luxuries or lifestyle you
think an abundance of money will afford you isn‘t what you really want. Once
your basic human needs have been met, what you are truly searching for is a
feeling you think money, lifestyle or material possessions will give you. Maybe
this feeling is a sense of power, freedom, security, comfort or control . Your
reasons are your own, so there is no right or wrong answer.
If you think money will solve all of your problems, you are going to be
disappointed. Money is only a catalyst for obtaining your material desires — it
can‘t make you truly happy. Happiness comes from within and has nothing to
do with the size of your wallet. That being said, there‘s nothing wrong with
creating financial independence first and mulling over the finer points of
philosophy later!
The Secret Ingredients Needed to Be Ric h
You may have already heard about the paradox of belief — whether you think
you can or can‘t do something, you are right. Any reason you can invent or
person you can blame for not having financial abundance in your life today is
just a convenient excuse. Excuses hold you back from getting what you want.
You must cast them aside to open a world of opportunity. Your beliefs are the
only real obstacle to becoming rich and, more importantly, staying rich.
―Why am I not rich?‖
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Ask yourself this question, and write down the answer(s) to uncover the beliefs
holding you back. Next, review your answer(s) to determine if:
1) You blame others or circumstances for your financial situation, or
2) You feel as if you are lacking in some quality, trait or resource.
You may have some great reasons on your list, but do you really want to
sacrifice your financial independence for a handful of excuses?
Belief in yourself and an unyielding determination to achieve a desired result
are the only resources you need to be rich. They are the secret ingredients.
Everything else stems from these two components. Belief comes before money,
so don‘t worry about how to create your financial independence. Rather, know
that you will create your financial independence. Begin by developing the
unwavering belief that you will be rich and that you can achieve your financial
independence by working at this goal every day. When you believe in something
so strongly you know with every fiber of your being it will be true, the object of
that belief will appear. It is only through consistent and cumulative daily action
that greater goals can be achieved. Believe you can and you will — believe you
can‘t and you won‘t.
Man often becomes wh at he believes himself to be. If I keep
on saying to myself that I cannot do a cert ain thing, it is
possible that I may end by really becoming incapable of
doing it. On the contrary, if I shall have the belief that I can
do it, I shall surely acquire the cap acity to do it, even if I may
not have it at the beginning.
—Mah atma Gandhi (1869-1948)
What You Think is W hat You Get
You are directly responsible for what you possess and what you lack. Your
thoughts determine if you are rich, poor or somewhere in-between, just as
surely as they determined what time you got out of bed this morning. Human
thought forms the foundation for every belief you hold.
As used in this book, a belief is a collection of thoughts that help you rapidly
interpret or evaluate the world around you based on experience. Beliefs can
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give instantaneous meaning to situations and events and are designed to help
you survive and thrive in your environment.
Everything you do originates from the conscious process of thinking, and
what you think about most determines your level of motivation and what
actions you are willing to take. The experiences, or results, generated from your
actions create more thoughts as feedback. This feedback could be expressed as:
 Positive: ―T aking the highw ay to w ork this morning w as a GOOD decision
because I w as five minutes early.‖
 Negative: ―T aking the highw ay to w ork this morning w as a BAD decision because
there w as an accident and I w as 25 minutes late.‖
Based on this feedback, or new thoug ht, your ori ginal beliefs about taking the
highway to work have been either positively or negatively reinforced. This
association will affect all future decisions about taking the highway to work.
This continuous process of thought to belief, belief to action, action to result
and finally back to evaluative thought is called the ―Thought-to-Result Cycle.‖
Your brain is the perfect cause-and-effect feedback loop. Much like reverb
from an open microphone placed too close to a speaker, you will hear more of
and get more from dominant thoughts. To be rich, you must have the ―right‖
thoughts. Once your thoughts are aligned with your desired results, those
changes will amplify through your Thought-to-Result Cycle, bringing you closer
to your goal.
Your dominant thoughts manifest themselves in your life for good or bad.
Therefore, poverty thoughts produce poverty, rich thoughts produce financial
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abundance, happy thoughts produce happiness, thoughts of greed produce
greediness, and thoughts of love produce love. The current state of your life is a
direct reflection of your dominant pattern of thought.
The very process of thinking affects your motivation. Your dominant thoughts
shape your belief and determine the amount of action you are willing to take to
achieve a result. The amount of effort exercised in the pursuit of any desired
result is directly proportionate to the confidence you have in your ability to
achieve that result. You must learn to control and channel your thoughts
to support your goals.
Belief in yourself and an unyielding determination to achieve a desired result
are the only two resources you need to be rich. The stronger your belief, the
greater the amount of determination and effort you will put forth to reach your
goal.
Sow a thought and you reap an action; sow an act and you
reap a h abit; sow a habit and you reap a ch aracter; sow a
character and you reap a destiny.
—Ralph Waldo Emerson (1803-1882)
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The Thought-to-Result Cycle Detailed
Thought: The Thought-to-Result Cycle starts with the cognitive process of
thinking that involves the structure of mental data in the form of thoughts.
These thoughts can include mental images and other sensations. Your
thought intensity can be amplified by emotion or how strongly you feel about
something.
School Example: You think about taking a placement test so you can go to
medical school, something that has always interested you but you never
bothered to pursue.
Belief: A collection of thoughts used to evaluate the nature of a subject or
idea. If you don‘t believe you can do something, you will never do it.
School Example: You don‟t believe you are smart enough to pass the test, so
you don‟t bother studying.
Action: If your belief is strong enough, you will take action. The stronger
your belief, the more action you will take.
School Example: Your friend asks if you have scheduled to take the exam,
because she thinks you will do well. You now believe you may get a
competitive score and st art preparing for the exam.
Resul ts: Results are created from your actions, so very little can be
accomplished without real effort. Not all of your actions will yield their
intended results, and some will create totally unexpected circumstances, a
phenomenon known as opportunity or luck.
School Example: You learn you h ave score in the top percentile.
The Cycl e Restarts: The Thought-to-Result Cycle starts again, but your
recent experience or lessons learned from a particular result (situational
feedback) are now incorporated into your existing thoughts and beliefs. Your
financial situation may or may not have changed based on these new
results; however, the impact these results had on you will reinforce your
beliefs.
School Example: You scored well on the exam, so you now believe you can
get into a top school and start preparing the application
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Positive Thinking Isn’t Enough
Some people will have you believe the energy created from positive thinking
and desire alone can bring you financial prosperity. If this were true, we would
all be rich and happy, but greatness can only be reac hed with signific ant effort.
Positive thinking can improve your mental state, yet it does little to change
your finances without the employment of intelligent daily action. Positive
thinking and desire are part of a larger system you must employ if you are to
become rich and stay rich.
Your thoughts are a relatively weak form of energy compared to measurable
physical effort. The physical act of moving a coffee cup across a table, rather
than just thinking about it, illustrates how directed thought can combine with
purposeful action to create a meaningful result. If you believed you couldn‘t
move the cup because you thought it was glued to the table , you may never
have attempted it. This is a testament to the power a belief has over your
decision to take action.
Thought + Action = Meaningful Results
Thought + NO Action = Hope
Not all of your actions will yield their intended results. Some ac tions create
totally random or unexpected circumstances, which can produce
opportunity or l uc k, and there is a direct correlation between the amount
of ac tion you take and the amount of opportunity or l uc k you experience.
The benefits that opportunity or luck may bring can‘t be calculated early in
your journey to financial independence; however, these benefits will have a
significant positive impact on your ability to create riches. It‘s important to
emphasize that opportunity or luck can only occur when you act. This is why it
is critically important to believe, develop a plan and take action.
Thoughts and beliefs work at both a conscious and subconscious level.
Subconscious thoughts are shaped by dominant conscious thoughts and viceversa. Thought must be controlled on a conscious level to reinforce your
positive beliefs, or those beliefs will be eroded by negative thinking.
Consciously controlling your thoughts also impacts your subconscious mind
over time. Unfortunately, controlling thought is harder than it sounds, because
most people are habitually negative thinkers , and human thought can be
influenced by other people.
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The human mind is a garden where all thoughts find fertile ground. Some
thoughts sow seeds that produce intellectually beneficial fruits and beautiful
blossoms, while others sow poisons and weeds. Negative thoughts, whether
yours or someone else‘s, will always take root in your mental garden regardless
of what crop is planted. Like any good gardener, you must cultivate thoughts
that produce desirable thinking while vigilantly eradicating thoughts that
produce the destructive weeds of fear, doubt and financial ruin.
Greatness can only be reached with significant effort.
What Does Having Money Mean to You?
You decide to meet a friend for lunch at a local restaurant, and along the way,
you notice a magnificent mansion surrounded by acres of meticulously
manicured grounds. As you pass by, you see the groundskeeper finishing his
work under the warm summer sun and several expensive cars parked in the
driveway. Posted on the ornately decorated gate is a sign — ―Now Hiring: Cook,
Maid, Chauffer.‖
You think to yourself, This must be an extremely rich person living here, and
you start to speculate about this person‘s character.
STOP!
Take a few moments to consider some traits, characteristics and the
personality of the mansion‘s owner. What do you think about this house? What
do you think about the type of help its owner is seeking? Do you think the
owner is a good person?
GO!
You continue on your way and meet your friend for lunch. During the meal you
tell her about the beautiful house. Before you can finish your story, your friend
excitedly interrupts you and explains she‘s met the mansion‘s owner. She tells
you the owner:
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 Contributes large sums of money to the community to help the less fortunate buy
food, get job training and obtain affordable housing
 Is the benefactor of several orphanages that have a wonderful reputation for
finding homes for displaced children
 Volunteers at a local animal shelter, nursing back to health abused cats and dogs
 Helped his former cook, maid and chauffer start their own successful businesses
What would you say about the owner now? How many negative thoughts did
you originally have about him? Did you believe you deserved to live in that
beautiful mansion or have a lot of money? If you don‘t think that you are
worthy, take a few moments to consider the reasons why.
This story was designed to probe your beliefs about money. Having money
doesn‘t automatically make you a good or bad person. Money is only an
accelerator of your ability to fulfill your material desires. Negative thoughts and
beliefs about money will influence the amount of intelligent action you are
willing to take to achieve your financial independence and consequently must
be controlled. It is only through honest, careful and objective self-examination
that we can we reveal our own limiting beliefs about money that, once changed,
will help us reach our ultimate financial goal.
Enemy #1: A Poverty Mentality
A poverty mentality is a pattern of negative thought associated with money
that implies a state of scarcity or lack or in one‘s life. These negative thoughts
appear in a person‘s choice of words when money and money-related topics are
discussed. A poverty mentality is very destructive to your financial future ,
because thoughts of monetary scarceness are completely counterproductive to
the attainment of financial abundance.
Remember, what you think shapes your bel iefs, which then influence
the amount of ac tion you are willing to take to produce a resul t.
A poverty mentality must be recognized before it can be eradicated. Once
you‘ve identified negative money thoughts or speech patterns, immediately
correct yourself.
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Poverty Mentality Thought:
I can‘t afford this.
This is too expensive.
If I had money, I‘d buy this.
It takes money to make money.
I‘m broke/I don‘t have enough money.
Money isn‘t everything.
He only has money because he‘s
lucky.
Nothing is changing for me
financially.
It takes money to do that.
Money doesn‘t grow on trees.
Positive M oney Thought:
I can afford anything I w ant and earn.
There needs to be more value here.
I‘m going to add this to my future
purchase list.
I have all the resources I need to be
rich.
I‘m fully invested right now , but very
soon…
Money solves a lot of problems.
Money is abundant and freely earned.
My financial circumstances improve
every day.
I have all the money and creativity I
need to do that.
Money grows on trees — I just need
to pick it.
Sometimes it‘s easier to spot the poverty mentality in others before you can
recognize it in yourself. First, listen for negative money speech patterns in your
friends, peers and family — you may be surprised at how rampant the poverty
mentality is in our society. Next, consider enlisting a trusted friend to help you
recognize your own poverty thoughts. Every time you catch yourself saying or
thinking a poverty thought, say aloud 10 times a positive money thought. Once
you are no longer plagued with poverty thoughts , you will have mastered this
exercise.
Enemy #2: The Entitlement Mentality
An entitlement mentality is a state of mind of someone who expects to receive
rewards, compensation or benefits that are not justly earned or to the
detriment of others. These people have a clear disadvantage when it comes to
creating and maintaining financial independence , because they are dependent
on others.
A person with an entitlement mentality is not the same as someone who
needs a helping hand. A person who seeks or receives charity does so in many
cases as an act of survival with the hope of getting back on their feet quickly so
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as to lead a productive life. This differs greatly from a person who believes they
are entitled to certain rewards and benefits or expects something for nothing in
return. Charity is a pillar of humanity; exploitive people are its weakness.
Nothing of value can be truly appreciated without being rightfully earned.
Entitlements rob a person of the satisfaction that comes with any great
achievement and deprives them of a sincere appreciation for what they have in
life. A person with an entitlement mentality is selfish, ignorant and fearful.
The rich believe they are owed nothing but that which they have legitimately
earned and created. They recognize everything worth having has more meaning
when it‘s been earned through their own creativity, perseverance and hard
work. To be rich for life, you must be self-reliant and shed all financial
dependence on others.
Any entitlement that becomes a burden to its provider will
have a diminishing benefit to its recipients over time.
Your Long-Term Financial Goal
A financial goal gives you a target, provides clarity and keeps you focused.
Your goal should be to obtain a lifetime of financial independ ence. Complete
financial independence is defined as the ability to make enough passive
investment income to pay your monthly expenditures, maintain your standard
of living, grow your investment capital and provide for your future income
needs without having to work another day. Most people need to work for
money, trading time for an income, but to be rich, money must work for you.
Everyone has different financial needs. Without clearly defining what your
needs are, financial independence can be an elusive goal. Grab a pen and
define your long-term financial goal by completing these steps:
Step 1: How much money do you need to receive on a yearly basis to achieve
complete financial independence? I need $__________ per year in passive
income, or investment income.
Step 2: Divide the answer in Step 1 by a conservative interest rate. This can be
anywhere from 4% to 15% , depending on your risk tolerance. I prefer to use
10% for this calculation, because it‘s the minimum return I will accept on
my money. The answer from Step 1, $__________, divided by the
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conservative interest rate expressed as a decimal _____ (.10 = 10%), equals
your Long-T erm Financial Goal amount of $__________. For example,
$500,000 in passive income per year, divided by .10, equals $5,000,000.
PASSIVE INCOME ÷ INTEREST RAT E = YOUR FINANCIAL GOAL
Step 3: How many years are you going to give yourself to reach your goal and amass
the money needed in Step 2? _________
Step 4: What type of goods or services will you provide society with in order to
receive the money you need to contribute tow ard your Long-Term Financial
Goal? Maybe you w ill be a great doctor, law yer, teacher, police officer,
engineer, inventor, real estate investor, salesperson or insurance agent.
Maybe you will create and sell softw are or manufacture something.
At this point, you may be a little doubtful you can achieve your Long-Term
Financial Goal. Remember, the First Financial Law of Prosperity is You Must
Believe. A person who believes they can accomplish a task with absolute
conviction and possesses determination will always succeed. Know you will
achieve your goal, intelligently work toward it daily, and the prize will be yours.
The Financial Belief Statement
What do you believe when it comes to your ability to create and keep massive
amounts of money in your life? You may still have a negative view of wealth,
money and your abilities to change the financial direction of your life , or you
may not know what you believe. Not knowing what to believe, however, will
have the same disastrous results as not believing at all. Regardless of what you
believe now, you can always change or modify beliefs to suit your needs by
designing a Financial Belief Statement.
The Financial Belief Statement is an affirmation of what you currently believe
or want to believe about money. Your statement should include the amount of
money you want, the time frame in which to get it, what you think about your
ability to create your financial freedom and what you will do to get the money.
It should be no more than a paragraph long and only contain positive words.
Your statement will be used as an incantation to program both your conscious
and subconscious to obtain the money you desire. It should empower you with
33
positive thoughts, help you express gratitude for what you currently have, add
clarity to your Long-Term Financial Goal and move you toward success.
Step 1: Create your Financial Belief Statement.
A Good Financial Belief Statement:
―I am w ealthy, w orthy and thankful for everything I have in my life. I am
intelligent, creative, resourceful and will accumulate [your Long-Term
Financial Goal] by [date] by [goods or services you will provide society in
exchange for money]. I grow closer to my complete financial independence
by educating myself, netw orking with successful people, following my plan
and taking intelligent daily action. I discover new moneymaking ideas and
opportunities everywhere I look.‖
A Bad Financial Belief Statement:
―I deserve money because I‘ve been poor and now it‘s my turn to be rich. I
think I‘m smart enough to make my own money and opportunities.‖
Step 2: Commit your Financial Belief Statement to memory.
Step 3: Close your eyes and say your Financial Belief Statement to yourself once
each morning and evening. Make it real. See the money, feel the crisp bills
in your hands, smell the ink on the bills, listen to the cash-counting
machine whirling in the background, preparing the next stack of money that
will be handed to you. Imagine how your life will change for the better and
get excited!
The Plan
When you truly believe you will be rich, you will develop and follow a plan to
be rich. Consider your plan a roadmap to your destination. Like all travel
plans, your exact route isn‘t cast in stone. You will encounter detours, hazards,
alternate routes, pit stops and delays. Some of these encounters will bring you
closer to your destination; others will take you out of your way.
Only by knowing your final destination can you determine if you are headed
in the right direction. Most people wander through life and settle for wherever
they land. These people are unmistakable; you will come upon them drifting
along life‘s highway, squandering their precious time or mired in their own
34
dramas. Distinguish yourself from the wanderers by having an executable plan
that will give you clear direction and purpose.
Step 1: On a sheet of paper, copy the following sentences and fill in the blanks with
the information listed in the previous exercises.
MY PLAN
1. My Long-Term Financial Goal is $__________, and I will achieve this goal
by [date].
2. I will earn money that will contribute to this financial goal by [what you
are going to do for the money].
Step 2: At the bottom of your plan, w rite the following:
SUPPORTING EXERCISE
Financial Belief Statement stated twice daily
Step 3: P ost your plan in a place where you will see it every morning.
Step 4: Each morning, ask yourself, ―What will do today to reach these goals?‖ Once
you have the answer, you have your next task. Say your Financial Belief
Statement out loud twice daily.
When you start to work your plan, you must always pay attention to what is
going on around you, because some of your actions will produce opportunity or
luck. Once you identify such an event, seek to immediately exploit that
situation to your utmost benefit.
A fool with a plan can outsmart a genius without one.
—T . Boone Pickens, billionaire
Borrowing from the Future
Recall that the Thought-to-Result Cycle is a continuous sequence of thought,
belief, action and results. The most common way to influence this cycle is to
improve one or more of its components — better thoughts, stronger beliefs or
greater intelligent action.
35
It‘s possible, however, to create a result that hasn‘t happened yet. This
influences your thoughts and beliefs by tricking your brain into believing
you‘ve already done something you haven‘t. This technique is called ―borrowing
from the future.‖
―Borrowing from the future‖ is nothing more than a vision of what you think
your future would be like with lots of money. This imaginary financial future, if
done with enough repetition and emotional intensity, can trick the brain into
thinking the made-up events have already happened, which will further
reinforce your belief that you can really accomplish this task.
Let‘s design an ideal image of your financial future. Only strong, vivid images,
mixed with emotional excitement, will have the desired effect on your Thoughtto-Result Cycle. Imagine yourself just after you‘ve reached your Long-Term
Financial Goal.
Who‘s in your life?
What do you have now that you didn‘t have before?
How are you respected in your community?
How does it feel to be in a position to help family, friends and the less fortunate?
Where do you live?
What does it feel like to be debt free?
How much more peace of mind do you have?
What positive things can you see happening around you now that you have
money?
Use your answers to get emotionally excited about this future at least twice a
day or any time you need a mental boost.
36
People Can Be Belief Killers
We all know a number of clichés about the people with whom we choose to
associate: ―Like attracts like,‖ ―Birds of a feather flock together,‖ ―Guilt by
association,‖ and ―Lay with dogs and you will wake with fleas.‖ These phrases
all describe homogeny, or the tendency for people to seek others who share
similar commonalities. Those who act, look, talk and think as we do are more
desirable to associate with than those who don‘t. The more traits we share with
people, the more we like them. Homogeny makes us feel connected to and
comfortable around others, but too much comfort can hinder your progress
toward riches and, in some instances, your personal growth.
Our peers validate our thinking and sanction our behavior. We strive to fit in
with our peer group‘s expectations. Strong individuals can sway and move
weaker peers toward their beliefs; however, weaker individuals can still
influence strong persons over time by exposing them to their beliefs. When
individuals are equally matched but have different beliefs , there will be conflict
until someone either submits or leaves the group.
The human tendency toward homogeny is neither good nor bad, though if
your inclination is to associate with people who are a less motivated to achieve
personal growth and success, consider changing your group. A stagnant peer
group can extinguish the ambitions of any member who wants something more
from life.
Surrounding yourself with people whose beliefs you consider ideal for your
own personal and professional growth will reduce the amount of time it takes
for you to reach your desired goals. Having the right peers can push you
toward success, forcing your growth as payment for continued association with
the group. Having the wrong peers can stifle your growth and cost you your
success, because, after all, a winner cannot be tolerated by a group of losers.
Surrounding yourself with the wrong people is like radiation poisoning —
manageable in low doses but deadly with prolonged exposure.
37
38
CHAPTER 2: THE FIRST FINANCIAL LESSON
Value yourself above material desire, and you will receive even greater riches.
I was eight years old when I received my first financial lesson. My father and I
were driving down a lonely Maryland highway on a dreary winter day toward
home. I was busy staring out of the backseat window, listening to the wiper
blades sputter and groan to clear the freezing rain relentlessly pelting the
windshield. Most car rides with Dad were spent in silence, though he would
occasionally make an effort to explain some life lesson that, once completed,
typically left me more confused than enlightened. Our talk about ―the birds and
the bees,‖ for instance, baffled me for an entire decade.
―Son, I want to talk to you about money,‖ Dad announced. ―When you have a
job, you have to understand that you must invest in yourself by putting 10% of
everything you make directly into your savings account. Once your money is in
the bank, you must never spend it. If you do this, you‘ll be OK.‖
He asked me to repeat it back to him, and then my financial lesson was over.
Savings account, bank, money, job and investment — my head was spinning.
Dad, however, was satisfied with our talk, so I figured there was no sense in
adding to my confusion and didn‘t ask any questions. Unfortunately, the
money education I received from my father never got any better than that. Even
though he did his best to teach me what he knew, my father had little financial
success in his own life.
Dad worked hard and dreamt of a day when he could retire in comfort. He
learned too late in life it takes more than hard work to become rich. He tried to
improve his financial circumstances by investing, but his efforts yielded mixed
results because he didn‘t fully understand the nature of money. Dad eventually
went into semi-retirement and got to do what he loved most, but he could have
done it years sooner had he approached things a little differently.
Like any responsible parent, my father tried to educate me in the ways of
money. He never realized his beliefs and struggles with money made more of an
impression than his teaching. The real lesson my father taught me was this —
anyone c an offer good advic e, but few set a positive example.
39
The Second Financial Law of Prosperity
The Second Financial Law of Prosperity is Invest In Yourself. Value yourself
above other desires, and you will prove worthy of riches. Always invest in
yourself before you pay any debt, spend any of your earnings on necessities,
luxuries or living expenses. Take at least 10% or more of your primary income
and put it away for future investment. Your savings need to be kept separate
from monies used to pay expenses. Never, under any circumstances, spend the
money you‘ve saved on anything but investment. By strictly following the
Second Financial Law of Prosperity, you create a pool of money that will help
you reach your Long-Term Financial Goal.
Anyone Can Do It, but Few Will Try
People tend to spend everything they make regardless of how much they
make. As your income increases, so, too, does your spending. The inverse is
also true. Use these natural human tendencies to your advantage. When
money is received, set aside at least 10%, and adjust your spending
accordingly.
You can save 10% or more from your income no matter your financial
situation. The simplest way to accomplish this is to simply do it. Most of what
you buy doesn‘t really serve your long-term interests or even give you
satisfaction. What spending categories can you modify or eliminate? Meeting
the 10% minimum goal becomes easier each month you do it, because as you
watch your savings grow, you will get greater satisfaction from knowing your
money is bringing you that much closer to financial independenc e.
The key to adhering to the Second Financial Law of Prosperity is to
understand your priorities. Do you want to have the freedom and security that
money can bring, or do you want to work forever trying to make ends meet?
There are plenty of things you can worry about in life — why make money one
of them?
The Second Financial Law of Prosperity is designed to help you improve your
future. By setting aside a portion of your income today, you lay the foundation
to achieve your Long-Term Financial Goal. In doing so, however, some of your
immediate desires must go temporarily unfulfilled. We all have an unlimited
number of wants, and it‘s impossible to satisfy them all. The intelligent rich
40
know there are limits to what their money can buy. To be ric h, you must
understand that spending all of your money is the fastest way to poverty.
The Second Financial Law of Prosperity is a test of your readiness to receive
greater riches. If you consistently save a portion of your income and never
spend it, you will prove worthy of receiving more money — slowly at first, then
at an ever-increasing pace and from unexpected sources. If, however, you
continue spending everything, financial abundance will always elude you.
A man and his wife h ad the good fortune to possess a goose
which laid a golden egg every day. Lucky though they were,
they soon began to think they were not getting rich fast
enough, and, imagining the bird must be made of gold inside,
they decided to kill it in order to secure the whole store of
precious metal at once. But when they cut it open they found
it was just like any other goose. T hus, they neither got rich
all once, as they h ad hoped, nor enjoyed an y longer the daily
addition to their wealth.
—Aesop‟s Fables
Modern Slavery
It‘s in your long-term best interest to be rich. Anyone who relies on someone
else for money is vulnerable to extreme financial disappointment. If you are not
self-reliant, you are swimming in troubled waters. People who get rich and stay
rich depend on themselves — they make their own financial dreams come true
and so must you. Thought is the only real divider between the rich and the
poor. Thought used to be a personal affair, but by combining traditional
marketing with psychology, what you think is greatly influenced by mo dern
advertising.
In our society, poverty is deliberately seeded and grown by exposing people to
a constant message of entitlement. We are encouraged to spend and live in
excess, to constantly want more. This message is everywhere and practically
inescapable. From cradle to grave, 24 hours a day, seven days a week,
advertisements tell us, ―You want it. You deserve it. Now go and get it!‖
In the wake of this social conditioning is a widening gap between the rich and
the poor, with a middle class that‘s disappearing. The culprits behind the
message are a consortium of large businesses — ―Big Business,‖ as I like to call
41
them — that encourage people to stay in a perpetual state of overconsumption.
They have no interest in building a wealthy society, because they wouldn‘t
profit immediately from it. Their methods of control are credit, psychology and
streamed messages of entitlement designed to convince people to spend.
Hundreds of millions of people are trapped in a state of financial slavery
because their expenses are greater than or equal to their income. These people
are in a perpetual state of financial angst, as they must labor to make money,
struggle to pay bills and spend on their lifestyle. After the bills are paid, there‘s
typically nothing left over for savings or investment. This spending pattern is
called the ―Money Cycle of the Poor,‖ and it‘s why the poor get poorer.
The Money Cycle of the Poor
Work for
money
Save what's
leftover
Borrow
shortfall
Pay bills
Spend on
lifestyle
The poor make up Big Business‘s army of working financ ial slaves, because
they will give their hard-earned money to everyone but themselves. The
invisible chain of slavery around their neck is unbridled consumerism caused
by the belief they deserve and are entitled to all the privileges money can
provide right now.
Personal responsibility is the solution to financial slavery. If you want to hold
someone accountable for your servitude, look no further than your closest
mirror. Free yourself by making the choice to follow the Second Financial Law
of Prosperity. Step up, take responsibility, and commit to real change — always
save a portion of your income before you pay your bills. If you want to be rich,
start by exercising self-control. Change your mindset from ―What can I spend?‖
to ―How much can I save?‖
Rich and poor people think differently about money. The rich, or financially
independent, think in terms of financial creation, savings and money growth;
42
to them, there‘s an abundance of money in the world and opportunity is
everywhere. The poor, or financially dependent, think in terms of getting paid,
paying bills, spending and scarcity; to them, little opportunity exists in the
world, and riches are available only to a privileged few.
To experience a lifetime of financial independence, you must employ the
―Money Cycle of the Rich.‖ The rich save a portion of their income, pay bills ,
spend on their lifestyles and reinvest for greater returns. The order of money
flow is important — save money first, not last. Saving money is the one
disciplined act that gives a person the resources needed to begin the
process of investment. Getting your money to create more money without the
need for physical labor is the reason why the rich get richer, and it‘s what you
must learn to do if you want to join them.
The Money Cycle of the Rich
Receive
money
Reinvest
savings
Spend on
lifestyle
Save a
portion
Pay bills
There will always be a class system of rich and poor, ―have‖s and ―have not‖s.
It‘s been this way for thousands of years. The system is fair because anyone
can change sides — no one has to be poor unless they choose to be poor. To
firmly set your feet on the road to riches , you must obey the Second Financial
Law of Prosperity and save an amount not less than 10% of your earnings. Stay
focused, and let nothing sway you from this task.
Money and the Role of Commercial Banking
Modern money is a paradox — it has value and is worthless at the same time.
Its true value comes only from your perception of its worth in the system where
it‘s exchanged for goods and services.
43
Your country‘s financial system needs you to believe your money has value .
To understand why, you must realize modern money is merely a mechanis m of
exchange and a unit of accounting represented by printed paper currency.
Modern money has nothing to do with the backing of gold, silver or anything
valuable. Its value is only a shared belief — as long you and other people
believe your money has value, it‘s valuable.
The printing of money is controlled by a currency‘s issuing government or
central bank. Today, however, commercial banks create and distribute most of
the money in a process called fractional-reserve banking. The paper money in
your wallet is government money, and the loan you have on your car or house
is bank money. Bank money always takes the form of loans , and its creation
process essentially works like this:
1) The government creates $1,000 from ink and paper, then gives this money to Dan.
He deposits the $1,000 into his bank. The bank lends $850 to Sam so he can buy
a new car from Mary. Dan‘s bank reports they have $1,000 on deposit that he can
withdraw at any time, and a loan for $850. The total money in the financial
system is now $1,850.
2) Mary deposits the $850 she got from selling the car to Sam into a different bank,
which lends $722.50 to Fred to buy a new boat from Michelle. Mary‘s bank still
reports $850 on deposit that she can withdraw at any time, and a loan for
$722.50. T he total money in the financial system is now $3,422.50.
3) Michelle deposits the $722.50 she got from selling the boat to Fred into another
bank, w hich lends $614.12 to Larry so he can pay John to remodel his bathroom.
Michelle‘s bank still reports $722.50 on deposit that she can withdraw at any
time, and a loan for $614.12. The total money in the financial system is now
$6,609.13.
Depositor
Total
Deposits
Reserve
@ 15%
Amount
Loaned
Total
$ Supply
1
Dan
$1,000.00
$150.00
$850.00
$1,850.00
2
Mary
$850.00
$127.50
$722.50
$3,422.50
3
Michelle
$722.50
$108.38
$614.13
$6,609.13
TOTAL
$2,572.50
$385.88
$2,186.63
$6,609.13
Transaction
In the example above, the banks took $1,000 in government money and
created an additional $5,609 from it in the form of loans or bank money.
44
Money has been created from virtually nothing. This lending and money
creation will continue until the original $1,000 can‘t be split anymore. If Dan,
Mary or Michelle decided to withdraw their money from the bank in the form of
paper money or cash, a bank could borrow the physical money needed to cover
the amount of that withdrawal from the government‘s central bank.
One problem with the process of bank money creation is that the banks
charge interest on their loans in order to make a profit. When you pay interest,
you are essentially working for the bank. Interest makes the things you buy
more expensive, in turn making you poorer. Let‘s say the total of all the
interest charged in the above example was $800. There‘s only $6,609 in our
economy‘s financial system, so another $800 needs to be created to cover the
interest charged by the banks. Where do you suppose the extra money needed
to pay for the banks‘ interest will come? In this example, the government would
have to print $800 and add it to the financial system to account for the
interest.
As this new government money gets deposited into the banks, more loans are
created, adding even more bank money to the financial system. This steady
addition of money can eventually cause inflation, or an increase in the price of
goods and services in an economy. Inflation makes you poorer, because it
makes the money you work so hard for and save worth less.
For modern economies to function properly, the government must pump a
steady supply of money into the financial system. Banks need to multiply the
government‘s money and distribute it throughout the economy by making
loans, while the majority of the population must borrow, spend and pay
interest on that money. If the government, banks or population fail to do their
part, or the supply of money doesn‘t meet the demand, the economy suffers. To
avoid a system breakdown, the vast majority of the population must continue
to work for money and borrow and spend as much as possible. This has
created a system of financial servitude from which most people will never
escape and an environment where the rich have learned to profit.
The people who get rich and stay rich are self-reliant — they
make their own fin ancial dreams come t rue.
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46
CHAPTER 3: MAKE MORE MONEY
If you are a bricklayer, be the best bricklayer in town. If you are a smart bricklayer,
get other people to lay the bricks for you in many towns.
Nancy was a young, single mother. She had gotten pregnant at age 17 and, at
her mother‘s insistence, had married her high school boyfriend upon
graduation, only to have him leave her six months later. She was intelligent
and had planned on going to college after the birth of her child, but something
always kept her from that dream. Despite working a full-time job, Nancy was
struggling to pay her rent. Desperate to avoid eviction, she made an
appointment with the manager of her apartment building.
Roxanne politely listened to Nancy‘s hardship story but was unmoved. She
had managed apartments for over 25 years, and every story was the same —
someone didn‘t have money and wanted to make it the building owner‘s
problem.
―You‘ve got to pay the rent or get out,‖ Roxanne stated flatly.
To Nancy, the thought of living on the streets and losing her daughter made
her cry uncontrollably. ―I don‘t have…‖ she started, but the words were lost in
her sobs. ―I don‘t have anywhere to go,‖ she finally managed.
Roxanne attempted to remain unsympathetic, but the genuine emotional pain
of this young woman brought down her defenses. She reached for the box of
tissue on her desk and handed it to Nancy. ―Look,‖ she began, ―I don‘t know
what you are willing to do to make some extra money, but I need some parttime help cleaning vacant apartments. If you want the work, it‘s yours, but if
you screw up, I‘m going to fire you and then evict you. If this works out, you
can pay me for the apartment when you get your first check.‖
Nancy agreed to take the job, and within two weeks, she had enough money
for rent. A few months passed, and she settled into a routine of working long
hours at two jobs while still handling the responsibilities of raising her
daughter on her own. She yearned for free time on the weekends and dreaded
Mondays. Her daughter was happy, she was making ends meet, and that was
all that mattered.
It was about this time that Roxanne approached Nancy and asked her to
work on the weekends renting apartments for her. Roxanne told Nancy she
47
believed this would be a good opportunity to learn about property management.
Nancy had developed a lot of respect for Roxanne over the last few months and
didn‘t want to disappoint her. Nancy agreed and found herself saddled with a
third job.
With three jobs, Nancy became a scheduling whiz. Bills were easily paid, and
she only had time for what was important in her life. Within three months,
Nancy was making more money renting apartments on the weekend than she
made cleaning them during the week. Working three jobs and raising a child on
her own was difficult, though, so Nancy soon approached Roxanne to see if she
could give up her cleaning job.
―I‘ll do you one better,‖ Roxanne replied. ―I just moved my full-time rental
agent to the assistant manager position. His old job is yours if you want it.
Besides, you can make the same money working this new job as you can with
the other three combined.‖
Nancy now worked with Roxanne daily. With years of experience in property
management, Roxanne was a wealth of information, and Nancy took it in like a
sponge. With Roxanne‘s encouragement, she enrolled in property management
classes at a community college and with the local apartment association. Each
day, Nancy got better at her job. It wasn‘t long before she was promoted to
assistant manager and received another pay raise.
A few years passed, and Nancy got an opportunity to become manager at
another apartment community within the same company. With this new job
came another raise and more responsibility. She had earned a degree in
property management, however, and was very capable of doing the job.
After five years, Nancy grew restless with her current level of her success. She
began to wonder if there was something else beyond the standard 9-to-5. She
had come a long way from near homelessness , but there had to be something
more, a path leading to an even better future.
She continued to educate herself by participating in property management
workshops, reading trade journals, doing research and staying involved with
her local apartment association. It was at one of these association meetings
that a new opportunity emerged. She met a real estate investor having trouble
renting apartments at one of his properties and this problem was costing him a
lot of money. Nancy offered to help the investor for free, but he insisted on
paying her in some fashion.
For the next 60 days, Nancy worked in her spare time to train the investor‘s
staff and rent his vacant apartments. Once she was finished, the investor
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handed her a $10,000 check for her consulting work. In that moment, she
found the inspiration she needed to start her own consulting company. Nancy
was now in complete control of her financial future.
The Third Financial Law of Prosperity
The Third Financial Law of Prosperity is Make More Money. Multiple sources
of income will help you accelerate the wealth-creation process and take years
off the time needed to become financially independent. For some, additional
income will be earned from working extra jobs, but for others, it comes from
starting a new business or with successful investment. Increase your ability to
make money by using your time wisely, learning new skills and exploring new
opportunities. Your goal is to create money without the need for your physic al
labor or any signific ant ong oing investment of your personal time.
Get into the Moneymaking Fast Lane
The infamous American bank robber Willie Sutton had it right when he said,
―Go where the money is and go there often!‖ I‘m not advocating bank robbery,
but merely pointing out that some things pay significantly more than others.
Find people who are making lots of money, and learn to do what they do.
Ask these people questions like:
1) If you had to do it all over again, where would you start?
2) What w ords of advice w ould give to someone w anting to duplicate your success?
3) What‘s the best w ay to make money in today‘s business environment?
There are many roads to riches; talk to the travelers who have already paved
their roads with gold. The successes of others can be duplicated and improved.
Learning successful moneymaking strategies from these people can take years
off your journey to become financially independent. Learn how to make money
without having to ―reinvent the wheel‖ or waste valuable resources on trial and
error. Like a modern highway, the road to riches has more than one lane, so
shift gears and get into the fast lane.
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Intelligent Enjoyment Means More Time
People will do more to entertain and distract themselves than they would ever
consider doing to become financially independent. It takes a significant time
commitment and level of maturity to be ric h. This is more than most
people are willing to give. How one spends their time directly affects whether
or not they will become rich.
Do you find yourself talking on the phone, texting, emailing, surfing the
Internet or playing games when you should be doing other things? I‘m not
going to begrudge someone for distracting themselves when they could be
working toward their financial freedom. After all, our society needs poor
laborers if it‘s to function properly. People who trade their opportunity to
become financially independent for a distraction are ―Rather Be‘s‖ — ―I‘d rather
be doing this‖ or ―…rather be doing that.‖
I understand the dog needs to be walked, you have to spend time with family,
you have plans for the weekend or you deserve a little time to yourself. I know
spending time with friends is also important. We all have responsibilities and
pleasures that occupy our time. If you intend to be rich, though, you must
learn there’s a time and place for everything, and everything you do must
be done smartly.
The passage of time is the real enemy to your financial independence. Be
judicious and guarded with your time, because it‘s the most precious resource
you have. Use your time wisely and develop multiple sources of income that
will help you to accelerate the wealth-creation process. Time is the currency of
self-improvement; spend it wisely. Are you going to invest your limited time on
things that trap you in your current lifestyle? Are you going to invest hours of
your day in watching reality shows or latest YouTube sensation? Or are you
going to put your currency into research, interviews and learning how to go
from working for money to making money work for you? The time you sacrifice
today is a small price to pay to reach your Long-Term Financial Goal.
T ime is the currency of self-improvement.
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Specialized Knowledge is Key to Making Money
Your brain is your greatest asset. Fill it with useful information that will help
you achieve your goals. If you want to make money, you must develop skills
that are highly rewarded by society. Learn to specialize.
A college education is an important part of this process but not critical if you
are committed to self-education. Statistically speaking, college graduates make
more money, due in part to their demonstrated ability to set and achieve longterm goals. This doesn‘t mean you should go to school, collect a plethora of
degrees and burden yourself with mountains of debt on the mistaken belief
that multiple degrees will automatically make you rich. Education without
purpose can be a cleverly disguised distraction from the achievement of your
Long-Term Financial Goal.
An abundance of knowledge is no guarantee you will be rich. Look no further
than your typical school teacher or professor, and you will discover some of the
most educated people in this world are nowhere close to becoming financially
independent. The power to become rich is hidden within knowledge , and it can
only be extracted when combined with purposeful action. You must learn and
then successfully execute an endeavor that has a high value to society if
you want to make lots of money. Possessing specialized knowledge or a
richly rewarded skill is the easiest way to create your financial independence.
Again, a college degree is not a prerequisite for financial independence. Bill
Gates didn‘t have a college degree before he founded Microsoft and went on to
become one of the richest men in the world, but he was highly educated and
possessed specialized knowledge. If you want to make an abundance of money,
you must become educated in something with a high monetary value to society.
Whatever your level of education, the learning process never stops.
Successful people constantly educate themselves. They read books, take
classes, read trade magazines, do research, attend seminars, listen to audio
books, learn from other successful people and explore new ideas. Knowledge is
the only thing that can never be taken away from you.
The Two W ays to Make Money
There are only two ways to make money in this world — with your brain or
your brawn. There‘s an immense difference between these two categories ,
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because one can be scaled, while the other can‘t. One has virtually unlimited
income potential, while the other is limited by time and effort. The single most
important factor in determining which category a moneymaking opportunity
falls into is your involvement.
If you work somewhere that requires you to be present, you are working by
brawn. This means you are the critical element to the economic equation that
determines your income, and without your participation at some level, money
won‘t be received. Maybe you own the company, are salaried or get paid hourly,
receive a commission or are an independent contractor. The one fatal flaw to
your business model is YOU. There‘s just one you and only a certain number of
hours in a workday, which limits what can be accomplished. To get better
results, you push these limits by working harder and longer, but there are still
only 24 hours in a day. ―BRAWN-work‖ has limitations that will drain you both
physically and emotionally and could end up killing you. The total number of
hours you can work in a day is an absolute bound ary to your productivity and
therefore limits the amount of money you can make.
If you have passive investments or a business that makes money but requires
little or none of your time, you are working with your brain. Like BRAWN-work,
the acid test for ―BRAIN-work‖ is the extent of your involvement. Can you walk
away from whatever you are doing for a few months and not experience a
significant drop in income? If so, this is a good indicator you are working with
your brain. People engaged in BRAIN -work have removed themselves as the
critical part of their moneymaking system. They work because they want to,
not because they have to. BRAIN-work is neither physically nor emotionally
draining.
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BRAIN-work eliminates the boundaries on scale, allowing you to automate
and grow. Intelligently scaling your system of moneymaking to massive
proportions is the difference between making a million dollars and a
billion dollars. If you want to be rich — and I mean roll-around-in-your-ownprivate-vault rich — you need to work using your brain and then scale up your
successful moneymaking system.
True BRAIN-work eludes most people, even though the rewards are well worth
the efforts required to create it. BRAIN-work is defined as a system of making
money that requires little or no ongoing involvement from you. It is a virtual
cash machine. It can make you money while you sleep. BRAIN-work can be as
simple as having a series of passive investments, a traditional business others
manage for you or an automated Internet business that works for you 24/7.
There are many ways to make money with your brain, but one of the most
cost-effective is to use the Internet. The Internet is a collection of knowledge,
opportunity, social content and communication tools everyone must have a
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fundamental understanding of if they are to remain competitive. And, for those
seeking to be rich, it‘s a global marketplace of infinite moneymaking
possibilities.
The Internet is a simple yet powerful sales platform — anything can be
bought and sold online with a few clicks of the mouse or tap on the screen, and
websites are always open for business. It‘s also an ideal platform for BRAIN work, because anyone can create an online business that can be automated
and scaled for very little cost.
The Internet gives you the opportunity to reach billions of people. Remember
that one product, idea or design you have rolling around in your head? You
know, the one that always makes you think, ―This would be a great idea if…‖?
Now, imagine sharing your idea with people on every corner of the planet and
then getting paid for it. Can you afford to pass on that prospect?
Everyone has an expertise in or a moneymaking idea about something. What
could you do to make money utilizing the Internet? It might be your current
vocation, hobby or something in which you have a strong interest. It could be
as simple as writing a blog on cooking while selling recipes or as multifaceted
as developing and selling electronic components. The trick to making money on
the Internet is to take what you are good at and charge for it online.
I challenge you to develop a BRAIN-work business. If you already have a
BRAIN-work system of making money, create another. The only rule is
whatever you decide to do, it must involve the Internet as a sales platform.
Selling anything online is a marketing-and-numbers game. If your offering has
value, someone somewhere will be interested in buying it. The key is to find a
void, a need or a want, then use your talents to fill it. Maybe you can invent
something, write a book, make downloadable music, sell an existing product,
create a new process for doing something or sell advertising. Is there something
you do or know about in your current BRAWN -work job that can be changed to
BRAIN-work?
After you‘ve generated a few ideas for BRAIN-work, your next step is research.
The answers to all the reasons why you can‘t complete this challenge or any
problems you encounter are contained in a book, given online, understood by
someone else or taught in a class. Go find the solutions. Your success
depends on your idea, your determination and your ability to execute.
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I Took the BRAIN-Work Challenge
I took my own challenge to develop a BRAIN -work business. Remember,
anyone c an offer good advice, but few set a positive example. What follows
demonstrates the power of belief, learning something new, the effects of
planning and taking intelligent action.
In writing this book, I learned there were no good games on the market that
could teach kids money skills. How do you teach a child abstract financial
concepts like credit, debt, bankruptcy, job loss, lawsuits, market crashes,
assets, rainy-day funds and payments without relating these concepts to
something they know? Every responsible parent, teacher and game lover was a
potential customer, revealing a huge untapped market for a fun money game.
With an idea in mind, my next step was to research the subject and build a
prototype. After hundreds of hours of testing, collecting feedback, refining, and
lots of trial and error, a workable concept for an entertaining and educational
money game was developed. N ET WORTH: The FUN Money Game™ was born.
N ET WORTH became an instant success with adults and children 8-years and
older, because it‘s FUN, easy to learn, teaches financial awareness and takes
only minutes to play. Without taking the action to write this book, it‘s unlikely
the game would have ever been created. This is why it is critically important
to believe, develop a plan and take action. Do something intelligent and a
method of making money will be revealed.
The entire process from sale, manufacture and distribution of N ET WORTH is
automated, making this ideal BRAIN -work. Visit the N ET WORTH website at
www.NetWorthCardGame.com to see how simple BRAIN -work can be and to
purchase the companion game to this book.
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N ET WORTH: The FUN Money Game!™
Your financial life in a deck of ca rds . Strategi call y get rid of debt and collect
assets while unleashing financial doom on other pla yers. Become debt free to
end the game, but remember — the pla yer wi th the hi ghes t net worth wins !
Do something intelligent and a method of making money will be revealed.
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CHAPTER 4: CONTRIBUTE
A person with a golden heart can do more good rich than they could ever imagine poor.
It was in the name of God and the Bible‘s Ten Commandments that the rebel
group known as the Lord‘s Resistance Army (LRA) poured out of the hills and
descended upon a small village in northern Uganda like a plague of locusts.
The sun was beginning to rise as the LRA‘s child soldiers set about their
unholy work of lighting ablaze the thatched roofs on the mudbrick huts and
murdering their inhabitants. The village was taken completely by surprise.
Their able-bodied men had gone the day before to defend a neighboring village ,
leaving their women, children and elderly behind to fend for themselves.
Abraham, a skinny nine-year-old boy with dark, wiry hair, was left in charge
of the family during his father‘s absence. He was the first to wake at the smell
of smoke filling the hut, and he quickly roused his mother, who gasped at the
sight of the spreading fire. She scooped up Abraham‘s baby brother and
younger sister, then shuttled her family out of the burning structure. They
entered into a chaos created by the LRA.
Terrified screams and crying could be heard above the laughter and
excitement of the child soldiers enjoying their wicked fun. Thick, acrid smoke
billowed from the burning huts, making it difficult for Abraham to see. His
family raced through the burning village, taking cover behind whatever they
could to avoid detection by the child soldiers. They were almost out of the
village when Abraham‘s baby brother, frightened, started to cry, alerting the
young marauders to the escape.
Four soldiers wielding machetes and clubs took pursuit, eventually catching
Abraham‘s mother and baby brother. Two of the soldiers continued after
Abraham and his sister, while the other pair stayed to dispatch his mother and
brother. The pursuing soldiers were faster and gained on them. Abraham had
to do something, or he and his sister would both be caught.
―Keep running! I will find you!‖ Abraham shouted to his sister.
He turned to face his attackers. With two against one, armed versus
unarmed, Abraham was soon clubbed to the ground, but he had bought
enough time for his sister to escape. Once all life had been extinguished at the
village, Abraham and the other abducted children were marched to the LRA‘s
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base camp, where they learned they, too, would serve in the Lord‘s Resistance
Army.
And so it was. Captured boys were made into soldiers and girls used as sex
slaves. All manner of civility, self-respect and youthful innocence was cruelly
ripped from them. In time, they were turned into killers, wild animals feeding
upon the carcasses of a once moral society in one murderous spree after
another. Their actions were orchestrated by men convinced of their own selfrighteousness, acting in the name of God.
Samantha Garcia, an American volunteer, was working in Lira, Uganda, to
rebuild an orphanage. Throughout her life, Samantha had done everything
right. She graduated from college, avoided debt and had her own business.
Like many people her age, she viewed the world as a place of unlimited
possibility. She came from a culture with little understanding of the
devastations of war, cultural hopelessness, abject poverty and widespread
hunger. When she learned about the plight of the Ugandan people, however,
she felt compelled to help. Samantha was moved by the suffering of others , and
she felt an inner calling to help these distant strangers in need. She ignored
her peers, who told her not to go, that it was too dangerous or that she couldn‘t
make a difference. Samantha knew she had to do something.
That particular something came as a program designed to help rehabilitate
Uganda‘s child soldiers by teaching them construction skills. Two decades of
bloody civil war had come to an end, and the children who were conditioned to
a life of violence and destruction had nowhere to turn and needed to learn
productive skills if they were to successfully rejoin society. Volunteers were
asked to work with the children, rebuilding structures destroyed during the
war. This is where Samantha met Abraham.
Samantha worked alongside Abraham for many days. During this time, she
gained his trust and they talked at length. She learned that Abraham and his
sister were orphans living on the outskirts of town. Their house was nothing
more than a shanty made from scavenged materials and had a dirt floor. They
survived by stealing food and receiving aid from Christian missionaries. As his
story unfolded, Samantha realized what an incredibly hard life he had. Nothing
she had ever dealt with compared to the suffering endured by him and others
who had their lives shattered by the realities of war.
Abraham also took an interest in Samantha. He enjoyed hearing of her life in
America; he was especially eager to learn about the different subjects Ameri can
students studied in school, marveled at the wonders of snow skiing and rock
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concerts. Their connection deepened daily. By the end of her stay, Abraham
was no longer a statistic or another face among the millions affected by war —
he was a real person who needed help. His story had become part of
Samantha‘s life, and his pain had emotionally touched her.
Samantha‘s time in Uganda passed quickly, and soon she bid farewell to her
young friend. During the long flight home, Samantha was haunted by one
reoccurring thought: ―You can do more.‖
Six months later, Samantha, her family and friends stood in the airport
waiting area for arriving passengers. Led by an airline employee, Abraham and
his sister crossed the immigration checkpoint exit. Abraham, upon seeing
Samantha, ran to her, took her by the hand and started to cry.
Samantha embraced him for a long moment and said, ―Abraham, I would like
to introduce you to some good friends of mine and your new family...‖
Samantha would always remember the exact moment when she knew she
could do more to help. The source of inspiration is never as important as its
influence. What matters most is that one human being took the time and made
the effort to help another and, in doing so, changed the world for the better.
The Fourth Financial Law of Prosperity
The Fourth Financial Law of Prosperity is Help Those in Need. A life spent
without knowing the joys of helping others is a life half-lived. The simple act of
giving provides purpose, a sense of accomplishment and adds meaning to one‘s
life. No cause is greater or deed more worthy than assisting the needy. To be
rich doesn‘t solely imply acquiring an abundance of material or financial
wealth. A person can be rich financially and poor in giving, or they can be poor
financially and rich in giving, but, in the end, such a person could have done
more to help both themselves and others.
The 10 Financial Laws of Prosperity teach balance — to be rich financially and
to be rich in giving. Balance is the only way to find that which matters most —
a fulfilling happiness that nurtures the soul and is the source for true wealth.
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Your Three Gifts
There are Three Gifts you can give that will make our world a better place for
generations to come. To have true wealth, you must give these gifts without
expectation of recognition or reward.
1) The Gift of Money: Give 10% or more of your income to charitable causes. For
every dollar of personal income you receive, immediately give 10%, or whatever
you can afford, to w orthy causes. Find causes you believe in and allocate your
funds accordingly. Many people have difficulty giving aw ay money to charitable
causes; how ever, monetary donations are essential for procuring resources such
as food, medicine, housing, clothing and books. Volunteers at a soup kitchen can
do little to feed the hungry if someone else didn‘t first donate the money to buy the
food, and pay the rent and the utility bills for the kitchen facility.
2) The Gift of Time: Your time volunteered to charitable causes as a w orker, mentor
or teacher can make a dramatic difference in the lives of others. What can you do
with your time or talents that w ould help someone in need? What valuable skill
could you teach others to help them decrease their dependence on others? Donate
tw o or more hours a w eek to charitable projects. Remember to have fun while
helping others, and don‘t be afraid to get your hands dirty.
3) The Gift of Forgiveness: Forgiveness may not seem like your traditional tool for
developing riches, because, unlike money or time, it can‘t be measured. Yet, the
effects of forgiveness on your quality of life are profound. T he simple act of
forgiveness heals by relieving us from burdens that impede our enjoyment of life.
Forgiveness enables us to rebuild, strengthen and enjoy our relationships.
T o attain true wealth, you must forgive yourself and others. Forgiveness enables
us to move beyond hurtful events by breaking the chains of anger, hurt and
resentment that bind us to those events. Forgiveness is a conscious decision to
acknowledge and forget. It doesn‘t mean you have to like or condone an event,
only that you will no longer dwell on or harbor ill feelings about it. There is power,
strength and freedom in the act of forgiveness. Forgiveness allows you to develop
and maintain deep, gratifying relationships with others and keeps you on the path
to true wealth.
T rue charity is the desire to be useful to others without
thought of recompense. —Emanuel Swedenborg (1688-1772)
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To Perpetuate Giving, You Must Also Receive
To give selflessly is to give without the expectation of recognition or reward;
however, this doesn‘t mean you can‘t accept return gifts. Gratitude, a gift from
the heart, is one of the most common return gifts you can receive. When a
hungry man gives sincere thanks to another who gave him food, he‘s bestowing
a return gift of gratitude. There‘s no harm in accepting a person‘s gratitude or
other small tokens of appreciation.
Accept all reasonable heartfelt gifts to perpetuate and expand the giving
process. When appropriate, ask people to repay your gifts by giving to others in
need. This can cause a single gift from you to be multiplied many times over.
Poverty is always h ardest on the poor.
The Random Act of Kindness
One of the most rewarding forms of giving is the random act of kindness. I
stumbled onto this one day when I ordered a cup of coffee at a local coffee
house and reached for my wallet, only to be told by the cashier there was no
charge. A gentleman on my left then handed the cashier money, and I got a free
coffee! I thanked the man profusely and tried to repay him. He politely refused
and told me if I really wanted to thank him, he would appreciate it if I
performed a random act of kindness for someone else. I agreed and have been
hooked on this form of giving ever since. Try it. I‘m sure you will agree being
kind to others is very rewarding. Here are some ideas to get you started:
1) Buy a stranger a meal (no, this doesn‘t mean you have to eat with them).
2) If you are approached by someone begging for money to buy food in front of a
grocery store, bring them into the store, give them a hand basket, and tell them to
fill it with food. Once they are done, pay for their groceries.
3) Give a bottle of w ater or a sandwich to a homeless person without them asking.
4) Smile, look at and listen to the next beggar w ho talks to you. You might actually
discover they have a genuine need. Some people are lonely and only w ant a few
minutes of conversation to make them feel human again.
5) Say hello, w ave and smile at people you don‘t know .
6) Be courteous and friendly to other drivers on the road.
7) Buy a stuffed animal or small toy and offer it to a distressed child (after asking
permission from his or her parents). I typically carry small stuffed animals or toys
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with me when I fly on commercial airlines, because I alw ays seem to run across a
distressed child or two somewhere on the trip.
8) Visit a retirement home. Listen to the stories that the elderly will tell — you may
learn something.
9) Help the needy in your professional life. Every now and again, you can afford to
cut someone a break.
The World Needs More Heroes
A few years ago in a crowded movie theater, an irate hulk of a man was about
to make good on his promise to ―take apart‖ an elderly couple because they had
asked him nicely to stop talking to his girlfriend during the movie. Two
defenseless people were about to be beat up in front of 200 onlookers , and not
one person was going to lift a finger to stop it.
As he grabbed the couple, I stood up and said in my toughest voice, ―You‘ll be
going through me first!‖
―You got it, pal!‖ was the man‘s reply.
He let go of the elderly couple and angrily approached me. It was at that
moment I realized that in order to play the hero, you must also accept the
consequences of your actions, and I was about to be mauled by a grizzly of a
man for an elderly couple I didn‘t know. Before any punches were thrown,
another voice boomed through the dark movie theater, but this voice was
gravelly, deep and carried like the sound of a lion roaring on the open
savannah.
―NO. I AM FIRST!‖
This new challenge stopped the aggressive man in his tracks , and he quickly
left the movie theater. To say I was relieved would be an understatement.
Would the physical beating that I could have taken for two complete strangers
been worth it? Yes. There are a few defining moments in one‘s life when a
person can choose to demonstrate remarkable character by rising to meet an
extraordinary challenge or be forced to live with the stains of shame and regret.
Eliminating poverty, feeding the hungry, promoting justice, promoting
individual rights, helping a friend or stranger in need — what cause will you
support or what will you stand up for? Do you have the courage to Help Those
in Need or do the right thing when circumstances call upon you to act? The
world needs more heroes — we must all answer the call.
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T o those who are quick to wield the sword, I say, let your
first blow fall upon your own breast to cleave from your heart
all ignoran ce, malice and discontent. Snip the puppeteer‟s
strings, and then you will know if you should extend your
hand in reconciliation or pierce an enemy with your
unforgiving steel.
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CHAPTER 5: DROWNING ON DRY LAND
The fastest way to get out of debt is to make more money.
Robert worked as a shift supervisor at an automobile parts manufacturing
company. The position afforded him a good living. He had been with the
company a little over 20 years and was a model employee. He had learned to
use his personal time wisely and develop new skills that helped him quickly
promote past his peers.
Robert always worked hard for what he had in his life. He was a family man
with a wife and two kids. He played it safe when it came to his personal
finances. He saved his money and never liked having debt; however, he, like
many, believed large purchases required the use of debt, and using credit cards
was OK as long as you paid them off. So he borrowed money to buy cars, a
boat and his house, weighing each major purchase against his ability to make
his monthly payments.
One day while sitting in the company‘s break room, Robert heard a story on
the news about the worsening economy. Banks were no longer lending money,
credit was drying up, and the number of people dealing with a job loss was
growing at an astronomical rate. Robert gave silent thanks for his employment
and returned to work.
It wasn‘t long before the worsening recession affected Robert‘s company.
People stopped buying cars, and most of the manufacturing lines ground to a
halt. Half of the company‘s work force was let go. Robert survived the first
round of cuts by sacrificing some hours and taking a reduction in pay. To
make ends meet, he started to rely on his credit cards and dipped heavily into
his savings to support his family. He took a part-time job, but his financial
problems only grew.
A few months passed, and the company he spent 20 years of his life working
for filed for bankruptcy protection, cheating employees of benefits and
nullifying union agreements. Robert joined millions of others who had no real
job but had a family to feed and bills to pay. The financial pressure started to
feel like two lead weights on his shoulders.
―How could this have happened?‖ Robert wondered. ―Everything used to be so
simple. I worked hard and followed the rules. I don‘t deserve this.‖
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Past-due notices turned into shutoff notices until only the essentials got paid.
He and his wife bickered frequently about their finances while the telephone
rang constantly with bill collectors. He could no longer sleep. He would sneak
out of bed, only to hide in the bathroom and cry. He would jump at the sound
of a car door slamming outside his house and cringe when someone knocked
on his door.
Robert finally reached the point where he was emotionally dead, and when he
thought about his debt, he didn‘t care anymore. He was willing to give
everything away to stop the harassment and mental anguish. He realized too
late that having debt makes a person feel like a caged animal, desperate for
freedom but helplessly locked behind bars. It destroys peace of mind, creates
anxiety and strains relationships. It taxes the health and robs from one‘s
quality of life. Debt creeps up on you; innocent purchases made today can grow
into mountains of interest and fees tomorrow.
It took Robert years to recognize that in order to get what you truly want from
life, you must create it for yourself or else you get stuck with what others think
you deserve. He had allowed his financial security to become dependent upon
the promises of others. Unfortunately, many people find themselves in the
same financial trap as Robert. They don‘t realize until it‘s too late that financial
security can only be achieved through self-reliance.
The Fifth Financial Law of Prosperity
The Fifth Financial Law of Prosperity is Live Debt Free. Debt is designed to
maintain control over you by giving your creditors a claim on your future
income. It robs you of the benefit of your hard-earned money and makes
everything you buy more expensive. To be ric h, you must pay c ash for
everything. If you can‘t afford to pay cash for something you want today, save
to buy it later.
Escaping the grip of debt sounds straightforward, but it‘s easier said than
done. If you are currently in debt, you need to make immediate adjustments to
your lifestyle. These could be as simple as allocating more money toward
paying off existing debt, or it could require you to make sweeping changes in
your spending habits. Either way, overcoming debt requires personal sacrifice,
but it will ultimately yield your financial freedom.
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If you are in debt, allocate 20% of your income to pay off existing debts. Once
you are completely debt free, save 30% of your income for future investment.
Start Living Debt Free Today
A life without debt is one of the greatest gifts you can give yourself. All debt
has a repayment risk and can severely hinder your progress toward financial
independence. If you have a debt or a credit problem, you are living out of
balance with the 10 Financial Laws of Prosperity. The best way to kick an
addiction to debt is to just do it. Follow these four simple steps to start living
debt free today:
Step 1: Resolve to add no more debt, starting right now !
Step 2: Cut up your credit cards and become your own personal banker. Use a
debit card for emergencies only. You might think it impossible to live
without credit cards, but credit cards represent the w all separating you
from living with the burden of debt and living debt free.
Step 3: Pay cash for everything. As your money disappears from your w allet, you
will be reminded to manage your spending. When you run out of cash, you
have reached your spending limit. If you go hungry for a few days, you will
learn very quickly how to budget your money!
Step 4: Begin the process of paying off debt. Negotiate low er interest rates with
your creditors and seek third-party help if necessary.
Credit in Our Society is Like Heroin to a Junkie
It‘s amazing how many people actually believe credit and credit scores are
important. The number of people who have been conditioned to believe their
credit score defines who they are or that it really means something is
staggering. The conditioning is so strong, people are offended when they think
their credit has been tainted by the least little thing. The mistaken belief that a
credit score determines a person‘s financial well-being is perhaps one of the
greatest scams perpetrated on our society in the last 40 years.
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Credit reporting and credit scores are devices used by ―Big Business‖ to
produce the maximum return on money loaned to the poorer majority of society
while minimizing losses. Credit was created to keep people buying goods and
services well beyond their capacity to pay for them in cash. In other words,
credit is designed to keep you working for creditors and poor forever.
Billions of dollars are spent every year on advertising and other means of
social conditioning to get you to accept and identify with credit. Credit is like
an addictive drug to society — we‘ve ―gotta‖ have it. As soon as our ―dealer‖
threatens to cut us off, we panic for fear of going into spending withdrawal. The
depth of this conditioning on the consumer psyche is so great, ―Big Business‖
can even use credit reporting as its own private justice system to bully a credit addicted populous into obedience.
What do a credit report and a credit score really mean to the financially
independent obeying the 10 Financial Laws of Prosperity? Absolutely nothing. I
discovered this when I went into my bank and asked them to reverse a series of
low-balance service charges imposed on an account I was trying to close. The
bank manager told me my request couldn‘t be honored because it was against
bank policy. I asked what would happen if I didn‘t pay the charges. The
manager informed me with a smug smile it would reflect negatively on my
credit report. I pondered this for a few moments, then told her those
consequences were acceptable. The bank manager was shocked because I
wouldn‘t be bullied into compliance by the threat of placing a ―black mark‖ on
my credit report. I promptly closed the rest of my accounts and moved my
money to a small, local credit union.
Break free of the credit report hypnosis. Credit reporting and credit scores are
cogs on the gear of social conditioning that encourage people to live beyond
their means. Credit, loans, ―easy payments,‖ ―pay later,‖ layaway and advances
all mean the same thing — debt. To achieve your financial goals, you need
cold, hard cash and solid relationships with people who can help you.
Anyone with debt can reach a tipping point where they owe more than what
they can repay, and, like a house built from playing cards, everything will come
tumbling down in ruin. There‘s absolutely nothing in this world you can buy
with credit that a stack of cash can‘t buy for less. If you aspire to live debt free,
does it really matter what your credit score is? Is the instant gratification of
obtaining something now with borrowed money rather than later with cash
really worth the extra cost? The irony of incorporating of the 10 Financial Laws
of Prosperity into your way of living is that once you do, your credit report and
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credit score improve dramatically, and ―Big Business‖ will practically throw
credit at you. Resist the temptation, because sheep get fleeced, and it‘s time to
leave the flock.
―Big Business‖ has spent a lot of money trying to condition you to accept and
identify with credit. Do you believe your credit score defines you? Do you
believe credit is an important part of your life? Some people are very defensive
of their need for credit and can make a terrific argument to support their
position. People who need credit make tough converts to the Fifth Financial
Law of Prosperity. The inescapable truth is that anyone using credit to buy
goods and services that doesn‘t have the ability to immediately pay their debt
in cash is living beyond their means. Think about it.
Another W ay to Look at Debt
It can be difficult to move away from the instant gratification of buying
something on credit to the delayed reward of paying in cash. Often, it‘s helpful
to look at debt from another perspective to understand the benefits of buying
something only when you have the cash to pay for it.
Let‘s say you are interested in a new bicycle that costs $500. You could buy it
now using a credit card, or you could wait to pay for it with cash. You decide to
pay for it with a credit card, and you are charged $200 in interest by your
credit card company before you pay off the debt. Using credit increased the
cost of the bike from $500 to $700. If you work at a job making $20 per hour
after taxes, it would take you 35 working hours to pay for your bicycle.
Alternatively, had you waited to buy your bicycle with cash, you would have
worked just 25 hours. Cash saved you from working two extra days for your
credit card company.
When you pay with cash, your money‘s purchasing power is working for you.
If you use credit, both you and your money are working for someone else.
Negotiate Your Debt
If you are heavily in debt, you may want to consider negotiating with your
creditors to reduce your principal balances and/or interest rates. In many
cases, your debt can be dramatically reduced, saving you years of working to
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repay it. If you can‘t make any headway with your creditors, consider talking to
a credit counselor, nonprofit debt-consolidation company or an attorney.
Don‘t feel ashamed or embarrassed for attempting to negotiate your debt. It‘s
not a question of honor, ethics or pride if you have a legitimate problem and
you are trying to solve that problem through negotiation — it‘s only business.
Good business practices don‘t include lying, fraud or misrepresentation,
because any short-term gain from these activities will have long-term negative
consequences. All debt is negotiable — you just may not like the terms!
Eliminate Debt Forever
Develop a strategy to eliminate your debts , but keep in mind, all debt should
not be treated equal. Some bills will cost you more money than others. Here are
four good ways to quickly pay off debt:
1) P ay your debt faster than what your creditor expects.
2) Make larger payments than what your creditor expects.
3) Negotiate a reduction in your debt or interest rate.
4) A combination of the above.
You must intelligently employ a strategy to repay your debt. Pay 20% of your
income toward your existing debts. When paying off multiple debts, always pay
more money to the debt with the highest interest rate first because the higher
the interest rate, the more expensive the debt. Repaying debts with higher
interest rates faster than those with lower interest rates saves you money.
Exampl e: You make $3,000 per month and have a car loan and a credit card bill
that must be paid off. You have $600 per month, or 20% of your income, that can go
tow ard this goal. Your car loan has a balance of $4,000 at 6% interest per year w ith
a monthly payment of $290. Your credit card has a balance of $7,500 at 21%
interest per year and a minimum monthly payment of $206.
After paying the combined minimum payments of $496 for both the car and credit
card, you have $104 remaining in your budget of $600. The extra $104 should be
used to repay your credit card, because it has the highest interest rate. P aying the
credit card‘s minimum payment, plus an extra $104 every month, will save you over
$10,000 in interest and completely pay off the debt in 32 months.
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Once your credit card is paid off, apply that $310 ($206 minimum payment plus
$104) tow ard your car loan. P ay the $290 minimum monthly payment on the car
loan plus the old credit card payment of $310 for a combined payment of $600.
Repeat this process until all your debts are paid.
Accelerate the repayment of your debt by using the money you save for
investment. You may recall reading how the money you save for investment
(the Second Financial Law of Prosperity) should only be used for investments,
but being saddled by debt will make it almost impossible to reach your goals.
In order to make your financial dreams a reality, you first need to tear down
the debt barriers that prevent you from reaching your goal and keep you in a
state of servitude.
Exampl e: You take home $3,000 per month from your primary job. Under normal
circumstances, you should use $600 per month, or 20%, to pay off debt and save
10%, or $300, for future investment. In order to accelerate the repayment of debt,
how ever, you could combine those amounts to use 30% of your income, or $900, to
pay off debt.
Your credit card has a balance of $7,500 at 21% interest annually and a minimum
payment of $206. If you only made the minimum payment, it w ould take over 26
years to repay, and you will have paid $12,500 in interest. By increasing the
payment from $206 to $900, you will repay the debt in 10 months and will have paid
less than $700 in interest.
Before you repay any debt, make sure you understand the terms under which
you borrowed the money. Some debts can‘t be repaid without a penalty. If you
have any doubts or questions about your debts , seek professional advice.
If you use credit, both you and your money are working for someone else.
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CHAPTER 6: LIVE WITHIN YOUR MEANS
To live life the hard way, work for your money, spend it all and make no
provisions for the future.
Alexander was a boisterous fat man consumed by vanity. A bachelor in his
mid-50s, he was the center of his own universe, and people seemed to shuffle
in and out of his life like the regular cadence of waves crashing upon a rocky
shore. For him, lifestyle was a tool to gain social status and receive approval
from others. There was no separating him from his vanity; it was his identity,
and to be deprived of it would be the loss of his sole purpose in life.
Alexander traveled to exotic places and sought to be seen at the trendiest
spots in town. He bought the latest fashions, the newest luxury automobiles,
lavish jewelry and electronics. He gave those around him elaborate gifts to
express love as he knew it and angered if they didn‘t return love to him in a
similar manner. Alexander was a particularly troubled and lonely man. He
didn‘t realize his vanity alienated him from others and cost him what he
needed most in his life — true love and belonging.
Alexander financed his lifestyle by borrowing to excess and created a façade
of wealth to bait people into investing in his moneymaking schemes. Money
made, money spent — every dollar he received was funneled back into his
lifestyle. Only he benefited from his business dealings, and his loyalty went as
far as his own self-interests would allow. In his wake, he left tangled wreckage
from the hopes and dreams of the naïve who had trusted him with their money
and were poorer for their experience.
Extravagant lifestyles are expensive and difficult to maintain. Eventually,
Alexander‘s income couldn‘t keep pace with his spending. His lines of credit
began to dry up, banks refused to lend him money, and there was no one new
to pay into his latest investment ideas. His world started to crumble. He
became desperately reflective about his financial hardship, and, briefly,
redemption was within his grasp. However, when the promised rewards are
large enough there‘s always a fool willing to take a chance to satisfy their own
personal greed. Alexander found a new investor. Freshly funded with someone
else‘s money, he was back in business — at least for a while.
Money didn‘t create Alexander the monster. Money doesn‘t change a man‘s
character — only helps reveal it. Like a genie granting wishes from a magic
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lamp, money is a tool used to manifest one‘s material desires and can‘t be
categorized as good or bad. We all have a shadow of Alexander locked away
inside of us, waiting to be unleashed. Personal choice controls the monster
within. Don‘t let the latest trend or societal expectations define your standard
of living, and don‘t fall into the trap of spending more than you make to
impress others. You must consciously choose to be better than the Alexanders
of the world.
The Sixth Financial Law of Prosperity
The Sixth Financial Law of Prosperity is Live Within Your Means. You must
maintain a sustainable standard of living that will help to accomplish your
financial goals. In practice, 20% of your income can be spent on living
expenses (utilities, food, clothing, dining out and entertainment). For every
dollar you bring in, spend no more than 20 cents on your lifestyle.
The 10 Financial Laws of Prosperity are less about squeezing your personal
finances into one-size-fits-all percentages as they are about managing
expenditures and creating a sustainable lifestyle. Limiting the amount you
spend on your lifestyle gives you the ability to maximize your savings for
investment. It‘s only through the successful investment of money that you can
hope to create a sustainable source of income that will eliminate your need to
labor for money. Money creating money in an endless cycle of growth — this is
what it means to have money working for you, and it‘s only possible when you
Live Within Your Means.
Personal Lifestyle is All About Meeting Your Human Needs
A person devoted to unbridled consumerism lives in a state of financial
slavery. The easiest way to avoid this trap is to live within your means. Many
people want your hard-earned money and won’t rest until they have it.
Every day, you are bombarded with advertisements telling you how to make
your life better, easier or more gratifying just by buying whatever they are
selling. Millions of people are trapped in a continuous cycle of making and
spending money to service their lifestyle, and few stop to think about the longterm consequences of their financial decisions.
A person‘s lifestyle is a physical expression of their val ues and beliefs. People
often spend beyond their means in an attempt to achieve their ideal lifestyle
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while unwittingly sacrificing their future financ ial independence. Over time,
more and more of a person‘s financial resources go into maintaining their
lifestyle and servicing debt, leaving little money for anything else. This is
known as a ―lifestyle trap.‖ A lifestyle trap diverts a person‘s attention away
from the long-term effects of their reckless money management and focuses it
on the immediate need to sustain their current standard of living.
What drives our spending decisions? Are ―new,‖ ―more,‖ ―different‖ or ―better‖
the only requirements for purchasing goods and services? Is keeping up with
the Jones‘ really that important?
In his book Motivation and Personality, Abraham Maslow explains that all
humans strive to meet a hierarchy of needs. Maslow describes five levels of
human needs and the order in which people seek to satisfy them. According to
this theory, a person cannot satisfy needs ranked higher on the hierarchy
without first satisfying needs at the bottom. It would be hard for you to pursue
love, friendship and other social needs, for instance, if you were starving. Below
are Maslow‘s five categories of human need and the order they must be
satisfied in:
1) Physiol ogical : Basic biological needs necessary for survival, including food, air,
w ater, shelter, sleep and clothing. You can‘t survive without meeting these needs,
making them the most important.
2) Safety: Once our physiological needs are met, we seek to feel safe and secure in
our environment. We can‟t thrive if we are afraid. Feelings of safety can come from
law enforcement, job security, personal property rights, insurance protection,
physical health and entitlement safety nets, like Social Security and Medicare.
3) Love and Bel onging: After a person has met their basic physiol ogical needs and
feels safe, they w ill seek to interact with others. We are social creatures with a
need for love, belonging and acceptance. T hese needs can be met through
friendships, family, intimate relationships and other social interactions.
4) Esteem: Once a person feels love and belonging, he or she will move up the
hierarchy to seek w orth from others by being accepted and valued for their
contributions to a group or society. Esteem needs can be met through personal or
professional achievement, volunteer work, recognition, prestige, receiving respect
from others and by maintaining a sense of self-respect.
5) Sel f-Actualization: Someone who‘s achieved all other needs on the hierarchy will
seek self-actualization, or the desire to find and fulfill their purpose in life. Just
like an explorer has to explore and a dancer needs to dance, we must all discover
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how to bring meaning to our lives with the talents we have been given. Without
real purpose, w e can become dissatisfied with life.
According to Maslow, everything we do is an attempt to meet one or more
of our five needs. To understand why people do the things they do, you must
first understand what needs they are trying to satisfy with a particular
behavior. Money, for instance, can be used to meet nearly all of your
physiological needs, though once you move beyond what‘s necessary for
survival, you begin to use money to meet your perceived societal expectations
or mental and emotional needs farther up the hierarchy. Think of this as your
lifestyle.
How do you use money to meet your needs? Human needs typically are
uncovered by the feelings associated with or the motivation behind a purchase.
If you trade in your perfectly good car for a newer model to make your friends
jealous, you are trying to satisfy your need for Esteem. If you bought the same
car as a gift to win back your significant other, however, you are seeking to
satisfy your need for Love and Belonging.
When you are caught up in a lifestyle trap, the reason has nothing to do with
other people and everything to do with you. To break a cycle of needless
spending, you must recognize which human needs you are trying to satisfy and
then meet those needs with a healthy alternative.
T o reach self-actualiz ation, you must h ave a purpose.
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Looking over the Lifestyle Fence
While society tends to measure prosperity by where a person lives, their
profession and what they own, there‘s also a sub-measure based on the
perceived quality of the things that they have in their life . If someone were to
drive up to an elite hotel in a subcompact car, rather than a luxury automobile,
many would expect the parking valet to inform him or her that the employee
entrance is at the rear of the building. It‘s this misconception of what it means
to be rich that helps set up people for a lifetime of financial dependence.
We have been conditioned from an early age to believe wealth means material
possessions, and if we have ―stuff,‖ we are rich. Not surprisingly, when most
people get money, they try to live up to this societal image by spending it all on
— you guessed it — stuff.
While it is undeniable that the rich have more possessions and privileges
simply because they have money, most people fail to recognize what it really
takes to become sustainably rich — hard work, creativity, time and
discipline. So naturally, when someone financially challenged gets money or
has access to money in the form of credit, they spend it in an effort to attain
the appearance of wealth.
People who use money and credit to fit in with society‘s stereotypes or image
of wealth are pretenders and spenders. They struggle to maintain a lifestyle
they haven‘t earned. These people have yet to understand that they must first
create a sustainable source of money before they can have a sustainably
affluent lifestyle.
There‘s no harm in looking over the lifestyle fence and saying, ―Gee, I wish I
owned that big house and sports car.‖ For some, this might be the defining
moment in which they change their approach to acquiring money and decide to
become financially independent. The majority of people, however, will continue
to funnel their time and income into chasing a lifestyle they can‘t afford.
Having possessions and privileges doesn‘t necessarily mean you have a
spending problem. The 10 Financial Laws of Prosperity allocate 20% or more of
your income to be spent on your lifestyle, though your 20% won‘t match
someone else‘s 20% if you have different income levels. If you want something
but can‘t afford it, there are four ways to get it:




SAVE the money.
MAKE more money.
BORROW the money.
ST EAL the money.
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The first two choices are consistent with the 10 Financial Laws of Prosperity;
the last two will ultimately produce unpleasant results in your life.
The 10 Financial Laws of Prosperity work universally for everyone, but not
everyone is willing to do the work needed to achieve financial independence.
When a person who has very little looks at the lifestyle of someone rich, they
tend to see only the benefits of money and not the hard work and time it took
to create the source of money that supports that lifestyle. Anyone can be ric h
if they are willing to be creative, resourceful, disciplined, committed to
learning new things and put forth the effort to accomplish their goals.
Changing personal values from, ―How much money can I spend?‖ to ―How
much money can I get working for me?‖ is a critical step in the journey to
The True Cost of Ownership
Have you ever stopped to consider the long-term effects of your buying
decisions? Price is what you initially pay for an item, but what you might not
realize is the true cost of ownership over time. Everything you can buy, possess
or control has a cost of ownership. These costs can be obvious, like a monthly
service fee for your telephone, or something you never really considered before,
such as depreciation on your car, the amount of time it takes to maintain an
item, or the cost to feed and care for an animal.
A direct cost of ownership is any monetary cost directly attributable to an
item you own. The price you pay for something is a direct cost. Another direct
cost is depreciation, or an item‘s loss of value over time due to its use or
obsolescence. Other direct costs include add-on sales, service fees, storage
costs, taxes, maintenance costs, loss from spoilage and insurance premiums.
An indirect cost of ownership is any nonmonetary cost attributable to an item
you own. Common indirect costs include the amount of unpaid time, energy
and effort spent taking care of an item owned or in your control. Your unpaid
time spent cleaning a fish bowl is an indirect cost of goldfish ownership.
Everything you have in your life has a cost of ownership that can be
measured by the direct and indirect costs associated with it. Things with a high
cost of ownership make you poorer. Things with no ongoing cost of ownership
make you richer. Anything that makes you richer can be considered an asset.
Assets create more resources than they consume; therefore, the benefits of
ownership will always outweigh any associated cost. You must own and
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cultivate resource-producing assets if you want to have a lifetime of
Ownership of anything can be debt in disguise. The vast majority of people
spend their money on things that have a high cost of ownership, making it
virtually impossible for them to become financially independent. They
accumulate possessions and services that constantly nibble at their wallets.
―Expense creep,‖ or the growing burden of expenditures over time, can only be
minimized by avoiding the purchase of goods and services with a high cost of
ownership.
Financially independent people who adhere to the 10 Financial Laws of
Prosperity take the time to consider the true cost of ownership of the things
they buy. They accumulate assets that support their financial goals, making
them richer, and avoid or quickly discard items with a high cost of ownership.
You must learn to minimize your ownership costs before you can enjoy a
lifetime of financial independence. Consider buying used instead of new to
reduce the direct cost of depreciation, or rent an item you occasionally use
instead of buying it to avoid depreciation costs entirely. Before you buy, ask
yourself, ―Will this purchase make me richer or poorer?‖ Some would consider
this sort of behavior to be cheap, frugal, stingy, tight or miserly, but for the
financially independent, this behavior is intelligent and necessary.
Before you can be rich, you must stop acting poor and take a more
enlightened approach to ownership. Consider your true cost of ownership prior
to making any purchase with your money while keeping in mind that some
costs are measured in time and may not be so obvious. Minimize the negative
effects of expense creep in your life. Learn to accumulate assets that contribute
to your financial goals and avoid or quickly get rid of items that burden you
with a high cost of ownership.
To live within your means is to live intelligently. Recognize the different uses
for money and how a seemingly simple purchase may result in unforeseen
costs of both time and money. It‘s important to understand how certain
purchases or investments can help you reach your financial independence and
others will set you back. A moment of gratification or stroke of the ego that an
unwise purchase will give you is not equivalent to the satisfaction you would
receive if you were financially independent.
Don‟t let crisis be your alarm clock; live within your means.
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CHAPTER 7: A TWIST OF FATE
There is no accounting for life’s randomness — you can be the king of the hill one
day, and the next, find yourself rolling down it.
―Stick out your tongue and say ahhhh,‖ Dr. Baker said to his six-year-old
patient, who sat fidgeting on the paper-covered examination table.
―Ahhhh-hhhh,‖ the boy mimicked, his tongue extending over his lower lip.
The doctor placed a wooden tongue depressor into the boy‘s mouth. ―What‘s
your favorite flavor?‖ he asked, studying the back of his throat.
―G-ww-ape.‖
Dr. Baker promptly switched the tongue depressor for a grape lollipop,
bringing a big grin to his young patient‘s face. After a few minutes of discussing
the visit‘s results with the boy‘s mother, the doctor left the exam room and was
off to see his next patient.
Samuel Baker was a prominent African-American doctor who graduated with
honors from medical school in 1968. He rose above the challenges and
obstacles erected by prejudices of others to successfully pursue his dream of
opening his own medical practice. He had a passion for helping people and felt
blessed he could do the work he loved so much. His practice was located in a
big city, but he considered himself a ―simple country doctor,‖ making a point to
know as much as he could about each patient. Accomplishing such a feat took
time and often put him behind schedule, but it was this quality that made him
truly exceptional at what he did.
Dr. Baker was a family man with three beautiful children and a devoted wife.
Balancing the rigors of a thriving medical practice with the demands of a busy
home life proved challenging at times, but he managed. Occasionally, his
duties at the practice would force him to miss dinner with the family, and his
wife was always quick to remind him about his responsibilities as a father and
husband. He didn‘t mind these rare spats, however, because he knew she loved
him and would forgive him.
His life wasn‘t perfect, and, like most people, he had financial worries. The
doctor had medical school loans, there were costs involved wit h running his
growing practice, car payments and the mortgage on his five-bedroom house,
among other concerns. Lately, he had been troubled with the prospect of
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putting his children through college, and his youngest son had expressed an
interest in becoming a doctor himself.
Busy days turned into busy weeks, months rolled into years, and Dr. Baker
made little progress with his financial planning. There was always something
getting in the way: patient emergencies, medical conferences, managing the
practice and handling the pressing responsibilities of family life. The stress
began to get to him, and he could feel a familiar pressure building in his chest.
Rel ax, he told himself. Breathe.
It wasn‘t enough.
The doctor‘s funeral was few days later. No one suspected such a promising
life would be cut short so suddenly by heart disease. Tears and fond memories
were shared at his memorial service. Everyone agreed the doctor was a fine
man and wondered what would become of his grieving widow and the children
now that he was gone.
The money ran out a few months later, and Dr. Baker‘s wife was forced to sell
their home in the suburbs to move into a small apartment in the city, where
steady work was easier to find. Times were hard, and most of their dreams
were put on hold. The widow worked two jobs, and her oldest child took a part time position. The younger children learned to do without many things and
spent hours alone every day waiting for their mom to come home.
Years passed. Dr. Baker‘s youngest son graduated from high school and
wished his father could‘ve been there to see him finish with honors. He had a
goal to follow in his father‘s footsteps and become a doctor, but he had no idea
where he would get the money to pay for school. He kept his father‘s old
stethoscope on his desk for inspiration. To him, it was a symbol of hope, real
proof that dreams bec ome reality with determination and intelligent action.
Fourteen years later, with no advantage other than a burning desire to
accomplish his goal, Samuel Baker, Jr., became the second doctor in his
family. His achievement was a triumph over many hardships, and he knew that
somewhere, somehow, he had made his father very happy.
The Seventh Financial Law of Prosperity
The Seventh Financial Law of Prosperity is Be Prepared. Nothing in life is
certain, and you never know when a twist of fate will throw misfortune your
way. Being caught unprepared puts your money, health, property, family and
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even your life in jeopardy. As such, you should always keep insuranc e, have an
emergency fund, maintain a will, and prepare for both natural and manmade
disasters. There‘s an element of chance to life about which you can do very
little. Preparedness is the only way to protect what‘s important to you.
Your Emergency Fund
Everyone needs an emergency fund. An emergency fund is a cash reserve that
can be used for unexpected and unavoidable expenses. What if you lose your
job, your car breaks down, the roof starts to leak or you have a medical
emergency? Instead of using a credit card, borrowing money or not taking care
of the problem at all, you can rely on your emergency fund.
The amount of your emergency fund and the speed in which you create it will
vary with your financial success. As you make more money, you must increase
the amount of your emergency fund. Add to your fund until you have the
equivalent of one month‘s living e xpenses saved in cash and, eventually, at
least a year‘s worth of your living expenses saved in easily convertible liquid
assets.
Start your emergency fund with the money you have saved for investment
and any amount extra you were planning to use to pay down debt. In fact, your
emergency fund is so important that you shouldn’t invest or accelerate the
repayment of debt until you have saved at least one month’s worth of
living expenses. Once you have established your emergency fund, don‘t spend
this money on anything unless it‘s an absolute emergency.
The effects of what you prep are for can be minimized;
the effects of what you don‟t prep are for can be catastrophic.
Avoid Catastrophic Loss with Insurance
Loss is a certainty of life — only the amount and timing are unpredictable.
Major losses can be disastrous to your financial independence, so you must
prepare for any catastrophic loss that would be extremely difficult for you to
recover from by using insurance to reduce of your financial risk. Approximately
10% of your earnings should be allocated to purchase different kinds of
insurance appropriate for your particular situation and stage of life. Your
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actual cost could be more or less depending on your health, age, income or
other circumstances. There are several types of insurance policies you should
consider:
Disability Insurance: P ays your personal expenses for a period of time in the
event you have an illness or become disabled and can no longer w ork.
Property Insurance: Coverage against the risk of loss on your property. T he most
common property policies are homeowner‘s, automobile and rental. Whether you
rent or own your home, you should always have property insurance. Make sure
your coverage includes the full replacement value of the property most important
to you, such as jewelry, firearms or artw ork.
Fl ood Insurance: Flood insurance is a form of property insurance, but most
property insurance policies exclude flood insurance. If you live in an area that can
flood, you may have to purchase this type of coverage separately from your other
property insurance policies. Never assume your insurance policies cover floods.
Alw ays ask your insurance agent if you are covered, and get the answer in w riting.
Life Insurance: If you die, life insurance pays your family or other named
person(s) a predetermined amount of money. Anyone with a family and financial
w orries should have life insurance. One clever wealth strategy is to keep enough
life insurance coverage to pay for all of the estate taxes (often called the ―Death
T ax‖) charged by your government when you die so your property transfers to your
heir(s) tax-free.
M edical Insurance: Includes coverage for both your physical health and dental.
Personal Liability Insurance: Helps protect you from liability claims made
against you by others for harm done to them or their property. This type of
insurance is important because a lawsuit could be financially devastating and
force you into bankruptcy. Liability insurance w on‘t cover you if you intentionally
harm someone and/or damage their property or reputation.
Pet Bite Insurance: If you are a pet owner, make sure your insurance policy
covers you in the event your pet decides to bite your local postman, houseguest or
the creepy neighbor kid next door.
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Insurance can be expensive. If you can‘t afford the insurance coverage you
deem necessary, consider having a high deductible on your policies. High
deductibles tend to lower the cost of the insurance coverage, saving you money.
Example: T he insurance premium for $0 annual deductible ―deluxe‖ medical
insurance policy for a family of tw o is $1,200 per month. That same policy with a
$10,000 annual deductible is $300 per month. A high deductible saves you $900 per
month, or $10,800 per year. Make sure you have enough money in your savings or
emergency fund to cover your deductible in the event you need to file a claim against
your policy.
An experienced, reputable insurance agent can be a tremendous help in
determining the amount of coverage you need and customizing your policies to
fit your budget. Don‘t forget to check your agent‘s references and the ratings on
the insurance company that will be providing your policies.
Good Advice: Always buy insurance coverage through an experienced, reputable
insurance agent. Buying discount insurance coverage directly over the Internet is
probably the best way to get cheated. Insurance policies are complex and
contain many legal nuances the average person won’t understand. Many people
have bought discounted coverage over the Internet only to have their claims
denied. When it comes to insurance, always work with a professional agent and
never switch from a reputable insurance company to a discount insurance
carrier just to save a few dollars.
When You are Dead or Mentally Gone
Most people die without a will, and they make no provisions for their care if
they were to become mentally incapacitated. Many falsely believe their property
or decisions for their long-term care will automatically fall to their next of kin.
Without a written will, however, anything can be challenged or disputed with
legal action. If you would like to leave this world with a little peace of mind,
properly plan your estate.
If you were to die or become incapacitated, do you know with 100% certainty
the answers to these questions?
1) Who gets your property?
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2) What three people (in ranking order) are candidates to become the legal guardian
of your children?
3) What type of care do you w ant if you become incapacitated and can no longer
express your wishes?
4) If you become incapacitated, w hat three people (in ranking order) w ould be
candidates to handle your finances?
Take the time to make your wishes known with a legal will, because going to
court can be an expensive, harrowing experience for your grieving family. Court
costs, attorney fees and other costs can quickly add up, eroding the value of
your estate and burdening your family with expenses. Every adult should have
a legal will and make provisions in the event they become incapacitated.
Consult with an attorney who specializes in estate planning to determine what
would be best for you.
Prepare for Natural and Manmade Disasters
We are under constant threat from both natural and manmade disasters. As
such, everyone should be prepared for two emergency situations: fleeing your
home with little notice and temporarily surviving in your home with no access
to outside services. The Seventh Financial Law of Prosperity is more than a
safeguard for your money and property; it‘s a mandate to minimize the effects
of outside influences on your health and safety.
No matter where you live, you are more than likely vulnerable to earthquakes,
floods, storms, wildfires or some other cataclysm that could change your life.
Here are some of the more infamous disasters:
1) December 2004 – An undersea earthquake caused a major tsunami to crash into
landmasses bordering the Indian Ocean. More than 200,000 peopl e died. It took
weeks to effectively mount an international relief effort, and hundreds of
thousands of people were left homeless.
2) August 2005 – Hurricane Katrina slammed into Louisiana. After the storm passed
and authorities could rescue all of the trapped and stranded people, 1,800 human
lives w ere lost. It took more than one w eek to effectively provide relief services to
the affected area, and many people were left homeless.
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3) M ay 2007 – An F5 tornado destroyed the city of Greensburg, Kan., and killed 10
people. Relief services w ere received almost immediately, but many people w ere
left homeless and had few resources to fall back on .
4) January 2010 – A massive earthquake struck Haiti, killing more than 200,000
people. It took weeks to mount an internation al relief effort, and thousands of
people were left homeless.
If Mother Nature wasn‘t bad enough, mankind also lends his own stupidity to
the fray. The case for future manmade disasters is strongly rooted in a rich
history of industrial accidents, wars, armed conflicts, genocide, social unrest,
terrorism, revolution and other euphemisms used to describe the destruction of
life, the environment, wealth and property. The sheer number of manmade
disasters is staggering. Some notable examples are:
1) The Great Depression of the 1930s w as prolonged by the poor economic policies of
the U.S. government and Federal Reserve, tens of millions of people were plunged
into poverty for more than a decade. Many who gambled on Wall Street w ent
broke. Hunger and hopelessness w ere widespread.
2) Adolph Hitler rose to pow er in 1933 by riding a w ave of German social and
economic discontent. He placed the blame for the country‘s w oes on the
international and Jewish community, and he promised he w ould do something
about it. The people who were targeted for persecution and fled survived with their
lives; those that stayed, perished. By the time he w as stopped, he had plunged the
w orld into w ar and murdered more than 5 million people.
3) In 1945, the United States, in an effort to force an end to the w ar with Japan,
dropped tw o nuclear bombs on Hiroshima and Nagasaki, killing approximately
200,000 people. Many people on the perimeter of the blast zone w ere force to flee
their homes. Nuclear material w as sent into the stratosphere, where it w as carried
w orldwide.
4) In 1984, an explosion at a Union Carbide chemical plant in Bhopal, India, sent a
plume of deadly chemicals into the air. An estimated 15,000 people died, and
another 550,000 w ere injured.
5) In 1986, the Chernobyl nuclear pow er plant exploded, sending clouds of
radioactive material across Europe, Russia and into the stratosphere, where it w as
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carried w orldwide. Hundreds of thousands of people were directly affected, and
approximately 4,000 deaths were attributed to the disaster.
Prepare for any natural disaster common to your location and anticipate
different manmade disasters. Anyone who‘s been in a prolonged emergency
situation like a blizzard or severe storm knows that the first thing to disappear
from the shelves of local stores is food. Two key things you should have on your
preparation list are at least a 30-day stockpile of food (including any
medications you may need) and a ―Gotta Go‖ bag containing three days‘ worth
of necessities, packed and easily accessible just in case you are forced to flee
your home. Also, keep insurance information, important medical and financial
records in a place where you can quickly find them in the event of an
emergency. Additionally, a portion of your wealth should be portable and
readily accessible in case there‘s no electricity or Internet.
Both natural and manmade disasters can strike anywhere at any time. Be
prepared.
Preparedness is the only way to protect what‟s important to you.
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CHAPTER 8: THE WAY OF MONEY — HOW IT’S MADE AND LOST
Money flourishes under the right conditions and withers with others.
A man going on a long journey called his servants to entrust his property to
them. To one he gave five talents of money, to another two talents, and to
another one talent, each according to his ability. Then he went on his journey.
The man who received the five talents went at once and put his money to work
and gained five more. So also, the one with the two talents gained two more.
But the man who received one talent went off, dug a hole in the ground and hid
his master's money.
After a long time, the master of those servants returned and settled accounts
with them. The man who had received five talents brought the other five.
―Master,‖ he said, ―you entrusted me with five talents. See, I have gained five
more.‖ His master replied, ―Well done, good and faithful servant! You have been
faithful with a few things; I will put you in charge of many things. Come and
share your master's happiness!‖
The man with the two talents also came. ―Master,‖ he said, ―you entrusted me
with two talents. See, I have gained two more.‖ His master replied, ―Well done,
good and faithful servant! You have been faithful with a few things; I will put
you in charge of many things. Come and share your master's happiness!‖
Then the man who had received the one talent came. ―Master,‖ he said, ―I
knew that you are a hard man, harvesting where you have not sown and
gathering where you have not scattered seed. So I was afraid and went out and
hid your talent in the ground. See, here is what belongs to you.‖ His master
replied, ―You wicked, lazy servant! So you knew that I harvest where I have not
sown and gather where I have not scattered seed? Well then, you should have
put my money on deposit with the bankers, so that when I returned I would
have received it back with interest. Take the talent from him and give it to the
one who has the 10 talents. For everyone who has will be given more and will
have an abundance. Whoever does not have, even what he has will be taken
from him. And throw that worthless servant outside, into the darkness, where
there will be weeping and gnashing of teeth.‖
—Holy Bible, Matthew 25:14-30 (New International Version)
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The Eighth Financial Law of Prosperity
The Eighth Financial Law of Prosperity is Make Money Work for You. Far too
many people work for their money, but to be rich, you must make your money
work for you. Your goal is to save and invest a portion of everything you
earn until you reach the point in which the income received from your
investments will continue to grow while completely supporting all of your
living expenses.
Your money must always be working for you by earning a return or producing
an income. All investments carry an element of ris k that must be rewarded
with a proportionate return. Investing for future appreciation alone is akin to
gambling in that if your investment increases in value, you win, and if it drops,
you lose. Investing for a combination of price appreciation and income gives
you some manner of protection, because the cash you invested produces more
cash (known as ―income‖ or ―cash flow‖) independently from the value of your
investment. Your investments must produce an income that exceeds your living
expenses if you are to become financially independent.
Money never sits idle; it‘s either creating more money or losing value.
Understand what your money is invested in, and make sure it‘s generating an
acceptable rate of return and is reinvested for exponential growth over t ime (a
process known as ―compounding‖). Learn to legally defer, minimize or eliminate
the amount of taxes you pay on your investments for as long as possible.
Money Must Work or Money is Lost
It seems reasonable that a dollar today would be the same as a dollar
tomorrow, but that‘s not the case. Time changes money. Money in today‘s
economy loses its value daily in a process called ―inflation.‖ With inflation, the
amount of money under your mattress stays the same, but its value decreases.
Inflation is measured by the rising cost of goods and services in an economy.
Inflation makes everything you buy more expensive, so the value of your money
decreases. A dollar buys four apples today but only three apples tomorrow. A
dollar is still a dollar, but in terms of what you get for your money, inflation ate
one apple!
Inflation is created when a government adds more money to its economy than
what‘s needed for that economy to function properly. There are a number of
ways a government can do this, but the process is generally described as
printing money. When a government adds money to its economy, it typically
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does so to fund its spending. This means the government needs more money
than what it has received from its citizens and has decided to make up the
shortage by creating new money. This deliberate act creates inflation and
decreases the value of all money in that economy.
Inflation is a hidden government tax paid in the form of rising prices. It
disproportionately affects the poor, working class and people who save but
don‘t invest wisely. To be rich, you must minimize or shelter your money from
the effects of inflation. Given that inflation decreases the value of money over
time, you must put your money to work earning a return greater than your
country‘s real inflation rate (this figure would include food and energy costs).
Example: If your money is in a bank savings account paying 3% interest per year
and the real national inflation rate is 4.5% per year, your money is losing 1.5% of its
buying pow er each year. If you invested your money at 4.5%, you break even and
your money retains its value. Breaking even on your investments isn‘t a path to
riches. Only by investing your money at a rate higher than the 4.5% inflation rate
can you hope to multiply your money.
Money is made or lost with time. Your money is working for you only if it‘s
invested at a rate of return greater than the real inflation rate reported in your
country during the same period of time your money was invested.
“T here are three kinds of lies: lies, damned lies and [government] statistics.”
—Mark T wain (1835-1910)
Two Mules Teach the Art of Making Money
It was morning in the high desert region of New Mexico. The sun was starting
to peak, its golden rays lighting up a magnificent sky filled with purple hued
clouds that floated toward the Sangre de Cristo Mountains. The fall air was
crisp as daybreak chased away the last silvery stains of frost still left on the
ground from the night before.
The wooden wagon creaked and groaned as a pair of dusty mules pulled it
along an old dirt road on the way to a pasture , part of a beautiful 2,500-acre
cattle ranch. Driving the wagon was a weathered ranch hand named Joseph,
who quietly hummed to himself as the rancher and his friends rode in the
back, excitedly talking about their morning quail hunt. The conversation
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quickly turned, as it does with successful people, to the art of making money
with investments.
When it was his turn to comment, the rancher leaned back on the wagon and
said, ―Well, boys, these two mules are moneymaking experts.‖ He paused to let
the absurdity of his statement gain the full attention of the group and then
broke the silence. ―Tell ‘em, Joseph.‖
Joseph smiled and replied, ―Yes, sir-r-r! Listen up, ‗cause I‘m gonna have
these mules teach you everything you need to know ‗bout making money.‖ He
raised the reins high in the air and, with a firm downward shake, slapped them
over the backs of the mules. ―Giddy-up, C ash „n Flow-w-w!‖
After the group got a good laugh and settled down a bit, Joseph continued.
―Jus‘ like this wagon needs mules to pull it, you need cash flow from your
investments if you want ‗em to take you where you wanna go!‖
Money must be put to work earning a return or producing an income.
The Miracle of Compounding
Compounding is the process by which the amount of your money grows
exponentially over time. The amount by which it grows depends on the interest
rate, how often interest is paid and the length of time your money stays in the
investment. Time changes money, allowing it to multiply with sound
investment. Compounding your money to receive exponential growth is another
key component in the formula to create a lifetime of financial independence.
Which would you rather have — $750,000 today or one penny double every
day for 30 days? Give up? Look at the chart below:
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In this case, a single penny invested at an interest rate of 100%, calculated
daily for 30 days, gives you more than $5,300,000! The miracle of
compounding is its ability to transform small amounts of money into larger
sums over time. Remember — time changes money.
The Rule of 72
To be rich, you need to invest your money and get it doubling for you in the
shortest amount of time possible. To decrease the time needed to double your
money, seek investments with higher returns. The Rule of 72 is an easy way to
estimate the number of years it would take to double your money at a given
interest rate (known as the ―rate of return‖). Because this method is an
estimate, it‘s easier to calculate it in your head or with a basic calculator.
To use the Rule of 72, divide the interest rate you will receive on your
investment into 72 to get the number of years it will take to double your
investment.
Interest
Rate
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
15%
20%
25%
30%
40%
50%
Actual
Years
69.66
35.00
23.45
17.67
14.21
11.90
10.24
9.01
8.04
7.27
6.64
6.12
4.96
3.80
3.11
2.64
2.06
1.71
Rule
of 72
72.00
36.00
24.00
18.00
14.40
12.00
10.29
9.00
8.00
7.20
6.55
6.00
4.80
3.60
2.88
2.40
1.80
1.44
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The Golden Rules of Investing
The Golden Rules of Investing are a set of basic investment principles that will
help you identify opportunities and avoid common investment pitfalls. While
the Golden Rules of Investing are widely known and speak to common sense,
they are often ignored, skipped or forgotten in one‘s ques t to make money.
Memorize them or post them on your bathroom mirror — one day, you will
thank me.
Rul e #1 Learn from others. I w as once told that a pioneer w as someone who had all
of the arrows in his back. He paid a heavy price for his discoveries,
profiting handsomely in some instances while losing everything in others.
Learn from people who are making money with proven methods before you
risk your hard-earned money on the latest craze. Know what you are doing
before you do it. A tried-and-true method of making money is better than a
sad-but-tr ue story of losing it.
Rul e #2 Timing is everything. Timing is the difference betw een making money and
losing money in any investment. All investments rise and fall in value.
Know where your potential investment stands in relation to its relevant
market or business cycle before you invest. There‘s always a good time
and a bad time for making an investment.
Rul e #3 Never siphon your principal. Your investment principal is the money you
have saved for investing. This money must never be spent on anything but
investing. Remember, this is the fuel for your personal money machine
that, once started, will continually produce cash for you. The more mone y
you invest, the greater your potential return.
Rul e #4 Invest for income or cash flow. The lifeblood of any successful business or
investment is the cash it produces. Buy and cultivate assets that
continually produce cash, because things that produce cash alw ays have a
value. Investing in noncash-producing assets you believe will appreciate in
value is speculation. Money producing money is the key to lasting riches.
Rul e #5 Control your fear and greed. Fear of loss and greed for more are curse s
upon sound investment decision-making. Whether you are engaged in an
emotional chase for greater profits or you are frantic to minimize a loss,
your rational judgment can become clouded and you can fail to use
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common sense. Avoid making investment decisions motivated by fear or
greed, as they will only cost you money.
Rul e #6 Stay aw ay from the ―confidence trap.‖ Overconfidence developed from
earlier successes can lead to carelessness, causing you to skip critical
steps in your investment research. It takes true genius to make money in
both an up and down market.
Rul e #7 Know your exit. P lan your exit before you invest. If your investment
strategy is to create cash flow and appreciation for tw o years, then buying
a 10-year certificate of deposit w on‘t help you meet your goal. Knowing
what factors will trigger your exit from an investment forces you to think
about the viability of that investment to meet your objectives. Once you
have established the parameters for your exit, follow your rules and never
be afraid to take a profit or minimize a loss. All investments must come to
an end, so w rite your ending before every beginning!
Rul e #8 Get everything in writing. Get all of the details (who, what, when, why and
how ) on paper before you move forw ard on any opportunity. Never rely on
verbal agreements, handshakes and unclear details.
Rul e #9 T rust is earned. There are plenty of people in this w orld willing to take
advantage of you or your money. Never do business with people of
questionable character. First impressions tend to be correct impressions.
When it comes to your money, trust must be continually earned and never
freely given.
Rul e #10 Maintain control. Never buy or invest in things you can‘t control. When
you have control, you make the decisions that shape your investment‘s
future. When someone else makes the decisions, they have control over
your investment‘s future and, therefore, your money.
Rul e #11 Keep a friends and family policy. You are not the personal investment
banker to your friends and family. Only l end money to friends and
family if you consider the l oan to be a gift never to be repaid. Losing a
close relationship over money is a steep price to pay by those who place
obligation ahead of financial common sense. As Shakespeare said, “Neither
a borrow er nor a lender be; for loan oft loses both itself and friend. ‖
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Rul e #12 Negotiate everything. A little give and take is a natural part of life, so why
should investing be any different? Ask for a better deal and don‘t
automatically give up when someone says no. Never negotiate against
yourself, because that‘s the best w ay to get the worst price, terms or
outcome possible on the object of the negotiation.
Rul e #13 Stick with what you know. We all develop an expertise in something. It
might be creating new businesses, investing in stocks, bonds or investing
in real estate. Whatever your expertise, exploit it to the fullest. When you
invest in something new, start small, do your homew ork, read books, take
classes and seek professional assistance from someone you can trust until
you have achieved mastery of the new investment vehicle.
Rul e #14 Manage risk. Any investment can make you lose all of your money or,
w orse still, all of your money and then some. Alw ays limit your loss to your
initial investment. Ask yourself, ―How could this go badly?‖ Once you know
the answ er, you can make the appropriate investment decision. P utting
your money in any opportunity that has an unpredictable outcome or a
high probability of loss is gambling, not investing. As the risk of loss goes
up, so should the rew ard.
Rul e #15 Work with professionals. It‘s impossible to be an expert in everything, and
sooner or later, you will need outside help. Make sure you work with
professionals who are experts in their field. P rofessionals are
knowledgeable, licensed, sought after, teach their trade, write books and
have an extremely loyal following. Having good people on your team
increases your probability of success.
Money never sits idle; it is either creating more money or losing its value.
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CHAPTER 9: MITIGATE THE LOSS OF MONEY
Opportunity knocks loudly for a fool with money.
`The sun w as shining on the sea,
Shining with all his might:
He did his very best to make
The billows smooth and bright —
And this w as odd, because it w as
The middle of the night.
The moon w as shining sulkily,
Because she thought the sun
Had got no business to be there
After the day w as done —
"It's very rude of him," she said,
"T o come and spoil the fun!"
The sea w as wet as w et could be,
The sands were dry as dry.
You could not see a cloud, because
No cloud w as in the sky:
No birds were flying over head —
There were no birds to fly.
The Walrus and the Carpenter
Were w alking close at hand;
They w ept like anything to see
Such quantities of sand:
"If this were only cleared aw ay,"
They said, "it would be grand!"
"If seven maids with seven mops
Sw ept it for half a year,
Do you suppose," the Walrus said,
"That they could get it clear?"
"I doubt it," said the Carpenter,
And shed a bitter tear.
"O Oysters, come and w alk with us!"
The Walrus did beseech.
"A pleasant w alk, a pleasant talk,
Along the briny beach:
We cannot do with more than four,
T o give a hand to each."
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The eldest Oyster looked at him.
But never a w ord he said:
The eldest Oyster winked his eye,
And shook his heavy head —
Meaning to say he did not choose
T o leave the oyster-bed.
But four young oysters hurried up,
All eager for the treat:
Their coats were brushed, their faces w ashed,
Their shoes were clean and neat —
And this w as odd, because, you know,
They hadn't any feet.
Four other Oysters follow ed them,
And yet another four;
And thick and fast they came at last,
And more, and more, and more —
All hopping through the frothy w aves,
And scrambling to the shore.
The Walrus and the Carpenter
Walked on a mile or so,
And then they rested on a rock
Conveniently low:
And all the little Oysters stood
And w aited in a row .
"The time has come," the Walrus said,
"T o talk of many things:
Of shoes — and ships — and sealing-w ax —
Of cabbages — and kings —
And why the sea is boiling hot —
And whether pigs have wings."
"But w ait a bit," the Oysters cried,
"Before we have our chat;
For some of us are out of breath,
And all of us are fat!"
"No hurry!" said the Carpenter.
They thanked him much for that.
"A loaf of bread," the Walrus said,
"Is what we chiefly need:
P epper and vinegar besides
Are very good indeed —
Now if you're ready Oysters dear,
We can begin to feed."
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"But not on us!" the Oysters cried,
T urning a little blue,
"After such kindness, that w ould be
A dismal thing to do!"
"The night is fine," the Walrus said
"Do you admire the view ?
"It w as so kind of you to come!
And you are very nice!"
The Carpenter said nothing but
"Cut us another slice:
I wish you were not quite so deaf —
I've had to ask you tw ice!"
"It seems a shame," the Walrus said,
"T o play them such a trick,
After w e've brought them out so far,
And made them trot so quick!"
The Carpenter said nothing but
"The butter's spread too thick!"
"I w eep for you," the Walrus said.
"I deeply sympathize."
With sobs and tears he sorted out
Those of the largest size.
Holding his pocket handkerchief
Before his streaming eyes.
"O Oysters," said the Carpenter.
"You've had a pleasant run!
Shall we be trotting home again?"
But answ er came there none —
And that w as scarcely odd, because
They'd eaten every one.'
—―T hrough the Looking-Glass and What Alice Found T here” by Lewis Carroll
The Ninth Financial Law of Prosperity
The Ninth Financial Law of Prosperity is Protect Your Money from Loss. Never
risk your money on unwise investments or entrust the complete responsibility
of its management to another. You are responsible for your money‟s well-being,
bec ause it is you who must live with the consequences of its loss.
The return of principal is more important than the return on principal.
Decrease your risk of loss by being diversified, constantly educating yourself
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and working with reputable professionals. All investments have risk — if you
don‘t understand them completely, you have no reason to invest. ―Risk-free,‖
―can‘t lose,‖ ―sure thing,‖ ―once in a lifetime‖ and ―too good to be true‖
investments have a higher probability of loss and should be viewed with a
healthy dose of skepticism.
Base Hits Are W hat It’s All About
I was 10 years old and standing at the edge of a cornfield on Kent Island
overlooking the Chesapeake Bay. It was a sweltering summer afternoon, and
the neighborhood kids had gathered to play baseball with Mr. Parker, my best
friend‘s father, who had taken on the roles of both coach and umpire. Baseball
was very popular pastime for the local kids, but I was embarrassed because I
was the only one in my neighborhood who didn‘t know how to play. While the
other kids skillfully hit and ran the bases, I stayed in the outfield, chasing
down stray balls.
My lack of participation didn‘t go unnoticed by Mr. Parker, who, in short
order, had me in the makeshift batter‘s box with a bat in hand, instructing me
to keep my eye on the ball and swing when I was ready. The first pitch came
whistling by me at chest height, smacking into the catcher‘s glove with a
resounding thwop!
―Strike one!‖ someone yelled. I stood paralyzed, wondering what had just
happened, and the rest of the kids erupted in laughter.
―Don‘t worry about that one, Danny-boy!‖ Mr. Parker shouted from his
vantage point halfway between home plate and third base. ―But you might
wanna swing the bat next time.‖
Determined to earn back the respect of my friends, I swung at the very next
pitch in a hard, arching motion that made me look more like a golfer than a
baseball player. The uncontrolled awkwardness of the swing spun me around,
causing me to lose my balance and stumble backwards a few steps.
―Strike two!‖ My friends reveled in wild laughter once again.
Mr. Parker was bewildered. ―What are you doing?‖ He jogged in and pulled me
aside for some personal coaching.
―Well, everyone else was hitting the ball far and high in the air, so I thought
I‘d fix my swing to do the same,‖ I replied, feeling ashamed.
―Don‘t worry about hitting the ball into the air. Your only concern is to hit the
ball just enough to get on first base. Base hits are what it‘s all about. Hitting fly
balls and home runs comes with practice. Let‘s try it again.‖
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I stepped back into the batter‘s box and hefted the bat to my shoulder. The
pitcher threw the ball in a perfect pitch toward the plate, and I swung. The
aluminum bat collided with the ball.
T-i-n-g!
The ball took one hard bounce into the dirt halfway to the pitcher. He
scrambled to chase it down as I ran toward first base, making contact as the
rest of the kids on the sidelines cheered.
―See? What did I tell you?‖ Mr. Parker shouted to me from across the field.
―Now, go from base to base until you score, but don‘t do anything stupid.‖
Following those instructions, I soon scored my first run. From that point
forward, every time I got up to bat, I kept one thing in mind: Home runs come
with practice, but base hits are what it‟s all about.
As I got older, I realized this simple philosophy also rang true for
accomplishing larger goals, like growing one‘s personal wealth. Everyone
dreams of hitting a financial home run and making lots of money by taking a
big risk. Many find out too late in the game that big risks come with big losses.
Smart investors have learned that base hits , or growing one‘s wealth with a
series of reasonable investments producing predictable returns , are better than
risky investments with high returns. Grow your money gradually by building
on prior investment successes, and avoid the temptation of high risk.
Greed emboldens the inner fool.
Modern Money, a Thief by Any Other Name
How much is a $100 bill worth? Nothing. The money we carry around and
judiciously manage is nothing more than ink on paper. The money we use
today is called ―fiat money‖ and exists only because the government says so.
It‘s inherently worthless, because it can‘t be redeemed for a fixed value of
tangibles, such as gold, silver, cattle, wheat, oil or diamonds. This means that
modern money has value for as long as the people using it believe it does. Fiat
money can be manipulated easily and poses a real risk to your financial
independence. The value of your money is determined by the market, or what
somebody is willing to exchange for it. If you can get 10 apples for your paper
money, its value is 10 apples; if you get nothing for your money, it‘s worthless.
Early in the 20th century, paper money could be redeemed for gold. Back
then, even if you couldn‘t exchange your paper money for apples, you could
still exchange it for fixed amount of gold; thus, paper money always had value.
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When paper money is exchangeable for a fixed amount of gold, it‘s referred to
as a ―gold standard.‖ This type of monetary system limits the amount of paper
money printed by a government to the amount of gold the government has on
hand. Under a gold standard, if a government wanted to print more money, it
would first have to get more gold. This limiting function acts as a natural
control over government, preventing it from adding more money to its country‘s
financial system. When a government tinkers with their money, however, it
usually does so for its own benefit and at the e xpense of its citizens, making
them poorer.
In most developed countries, the money supply, or currency used in their
economies, is controlled by the issuing government‘s independent central bank
or monetary authority. Independent central banks or monetary authorities
aren‘t really independent and have a long history of being influenced by big
business, government and commercial banks. Traditionally, a central bank‘s
role is to oversee a country‘s money supply, regulate its commercial banking
system and issue the official currency. Central banks also have the power to
influence a country‘s business cycle or periods of economic growth and decline.
When a central bank tampers with the business cycle, it can harm your
financial independence. There are four main business cycle risks you must
learn to recognize in order to protect your financial wealth:
Defl ation – Caused by a central bank not having enough money circulating in the
economy for that economy to function properly. As the amount of money circulating
decreases, there‘s less money chasing the same amount of goods in that economy, so
prices fall. Deflation increases the value of a country‘s currency, which means you
get more for your money.
Initially, falling prices can benefit the poor and people who save their money.
P rolonged deflation, though, devastates an economy by stifling demand for goods
and services, propelling mass job losses and other harmful economic consequences.
Many assets like real estate and stocks lose value during periods of deflation, which
hurts those who have faithfully invested their money. Fortunately, deflation is rare.
A traditional defense against the effects of deflation is to keep your w ealth in paper
money. Once deflation has subsided, use your cash to scoop up undervalued assets
to make handsome profits once the market returns to normal.
Infl ation – Caused by a central bank adding more money to its economy beyond
what‘s needed for that economy to function properly. As the amount of money
circulating in an economy increases, there‘s more money chasing the same amount
of goods in that economy, so prices rise. Inflation decreases the value of a country‘s
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currency. Rising prices penalize the poor and people who save their money while
rew arding those w ho spend. P rotect your w ealth from the effects of inflation by
putting it to work earning a return greater than the real national inflation rate.
Hyperinfl ation – Caused when a central bank adds too much money to its economy,
and the people using it lose faith in and reject that money. Hyperinflation rapidly
decreases the value of a country‘s currency, making it w orth much less because the
price of goods is skyrocketing. Such a price surge occurs when people using the
government‘s money will buy an ything to avoid getting stuck with a failing currency.
A meteoric rise in prices penalizes just about everyone but is hardest on the poor,
people on fixed incomes and those who have diligently saved their money.
You must learn to protect your financial wealth against hyperinflation. Valuable
commodities such as gold and silver are a traditional safe haven for investors during
times of economic uncertainty. Hyperinflation is rare but devastating to an economy
and your financial independence.
Stagfl ation – A mixture of low economic grow th, high unemployment, deflation and
inflation caused by a saturation of bad economic policies by both the central bank
and government. Prices on food, energy and other essentials rise, while prices of
assets (real estate, stocks, etc.) fall. T he poor, people who save and those who invest
money are all penalized.
Business cycle risks are an economic reality. Investors prepared for these risks
can minimize their financial exposure and even profit from these cycles.
Remember, people must always satisfy their basic human needs no matter what
direction the economic wind is blowing. Invest accordingly and be vigilant.
Governments can also manipulate their currencies by changing the rules
under which they honor their currency and pay back the money they borrowed
from others. In 1933, the United States was still struggling to emerge from the
Great Depression. In an effort to stimulate the economy, President Roosevelt
declared private ownership of gold (a tangible form of value and legal tender at
the time) to be illegal, imposing stiff fines and prison time for anyone who
violated his order. This forced citizens who held gold as a store of wealth to
exchange their bullion for paper dollars at a rate of $20.67 per ounce. One year
later, the government increased the dollar-to-gold exchange rate by 70% to $35
per ounce, which decreased the real value of the dollar by approximately 40%.
This deliberate act of currency manipulation robbed every person who held or
saved U.S. dollars of nearly half of their money‘s value and did little to solve the
country‘s economic problems.
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Government manipulation of paper money and the business cycle poses a
risk to your financial independence. Modern money is nothing more than a
means of accounting and a method of exchange. It‘s an unreliable store of
value because it can‘t be exchanged for a fixed amount of a tangible commodity
like gold and is easily manipulated by an issuing government. If you want to be
rich for life, learn to anticipate and protect your financial wealth from both
currency manipulation and business cycle risks.
Money is only worth what someone else is willing to give you for it.
The Golden Rules of Protection
The Golden Rules of Protection are a set of basic investment safety principles
that will help you identify risks and minimize losses. Much like the Golden
Rules of Investment, the Golden Rules of Protection are widely known and speak
to common sense.
1) Diversify your investments. Tw o mules are better than one and three mules are
better than tw o! Spread your wealth across different investment categories and
develop multiple income streams. If one of your investments is reduced or lost,
you are protected by having other investments. Giddy-up, mules!
2) Read it all. What‘s in w riting is there for a reason. Read and understand the
ramifications of everything you agree to or participate in. If you don‘t understand
what you are reading, then you have no business agreeing to it.
3)
Character matters. Never do business with people of questionable character.
First impressions tend to be correct, so if you are suspicious of someone when
you meet them, you have no reason to do business with them. Always engage
people in an extensive conversation first. P ay close attention to their verbal and
nonverbal cues; often, they reveal hints about their character and give you clues
to their intentions. Is your inner voice telling you something isn‘t right? Listen.
4)
Hire the best. When it comes to your money, life or property, you can always
afford to hire the best.
5)
Keep your house in order. T ake care of small problems before they turn into
large ones, because large problems have a w ay of turning into expensive lessons.
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6)
Give no guarantees. Every investment should stand on its own merits. Never
provide a guarantee on an investment or endeavor that will give somebody a
claim against you or your property. Separate your investments by placing them
into different ownership entities like limited-liability companies (LLCs),
corporations or trusts to protect you against third-party claims that may arise
from your investment activities.
7)
Never go for broke. Going for broke often leaves you broke. We have all heard
inspiring stories about people w ho have become fabulously w ealthy after they
invested everything they had on the hopes they w ould strike it big with an
investment or company. These are the lucky few, because countless others have
lost everything by taking such a gamble. If your money plan involves go-forbroke investing, stop to consider what the poorhouse looks like, because that‘s
where you are headed.
8)
Avoid partnerships. Most partnerships are formed when the person with the
business idea needs money, lacks the confidence to go it alone or doesn‘t w ant to
w ork as hard as he or she should. P artnerships slow the decision -making
process and can create tension betw een the participants. This leads to the
destruction of the partnership and the potential loss of money. Alw ays
remember, if you have at least 51% interest in a partnership, you have control. If
you have a 50/50 partnership, you have a bureaucracy. If you have a 49% or
less interest in a partnership, you have a job which makes your partner your
boss.
9)
Never turn a profit into a l oss. What goes up in value also comes down in
value, and more often than not, the difference betw een a profit and a loss is
timing. There will always be a fine line betw een profit and greed; define the line,
and never let your greed turn your profit into a loss.
10) Never trust a trusted advisor. Check up on and evaluate the performance of
your trusted advisors regularly. Alw ays know what your money‘s doing, and
never place it all under the control of a single person or company.
11) Foll ow the money. Find out who benefits financially from any endeavor you are
asked to participate in by following the flow of money to the pockets it will line.
Alw ays ask yourself before you invest, ―Who benefits from this transaction and
how ?‖
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12) Be sel f-reliant. You are at risk of extreme financial disappointment if you
depend on any person, company, organization or government program to take
care of you or your money. You must be self-reliant or you will be subject to the
interests of others. Control your money to control your financial destiny.
13) Never compound a loss. Once you begin to lose money in an investment,
there‘s typically no w ay to determine if you will continue to lose money or make
your money back over time. When a loss has reached a predetermined amount,
do what you must to salvage the remainder of your money to prevent an even
greater loss. Don‘t let denial or hope cloud your judgment and compound a loss.
Savvy investors understand they must maintain a diversified investment
portfolio and never lose more than 20% on any single investment. Remember, a
50% loss will require a 100% gain to make up.
14) Never rush. If something seems odd or out of place, or if you think you are
getting pushed into something, never be afraid to pass on an opportunity.
Rushing always leads to mistakes. Good deals come along regularly; replacing
the money you have lost on a failed investment will take considerably longer.
15) Hedge against l oss. A hedge is a separate investment made to protect another
investment against major loss. T hink of a hedge as an insurance policy. Say you
buy stock in a company but are w orried about price volatility or the potential for
a market crash. You hedge your stock investment by buying a ―put,‖ or the right
to sell the stock at a certain price. If the price of the stock falls, the value of the
put will increase, offsetting your loss. Most investment risks can be hedged.
A fool and his money are soon parted.
—Thomas T usser (1524-1580)
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Chapter 10: HOME SWEET HOME
Fewer pleasures are greater than being royalty in your own castle.
―Times must be good,‖ Thomas thought to himself as he peered out his
kitchen window at the neighbors attempting to park a brand-new RV into their
backyard.
Much had changed in his neighborhood since he had moved in 15 years ago.
Very few of the original homeowners were left, most having retired and moved
away. Many of the new owners remodeled the houses, trading 1950s charm for
a more modern look. As the neighborhood improved, so did the class of people
wanting to live there, and they paid prices for homes that seemed outrageous
to Thomas only a few years ago.
Thomas continued to watch his neighbors, Darren and Lydia, as they stopped
to bicker with one another. Amused and sensing an opportunity to hassle
them, Thomas slipped on a pair of flip-flops and made his way out the front
door.
―How was I supposed to know you couldn‘t see? You told me to make sure
you didn‘t hit the house!‖ Lydia said defensively.
―Come on, babe. What‘d you think would happen?‖ Darren replied with a
touch of sarcasm.
―Howdy, neighbors!‖ Thomas said in a loud voice as he approached them. His
neighbors looked up suddenly. ―I came over to tell you that you‘re about to
back over your lawnmower, but from the looks of it, I think I‘m too late.‖
Thomas grinned and nodded in the direction of the lawnmower crushed under
the back tires of the camper.
―Oh, funny, man. You‘re so hilarious. Did you come over here just to harass
me or what?‖ Darren shot back at his neighbor.
―Hey, nice RV! Did you rob a bank or something?‖ Thomas said, changing the
subject.
―You like it? We just picked it up from the dealership. Our bank gave us a
great deal on refinancing the house and now we‘ve got this little beauty!‖ Lydia
was visibly excited about their purchase.
Two years passed. Life was harder for everyone. Every day, news agencies
reported on the ―Great Recession,‖ rising unemployment rates and people
losing their homes to foreclosure. Everyone had a story about a friend or loved
now struggling to make ends meet. Expressions of outrage and desperate cries
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for help rang out from every corner of the country, demanding the government
do something, do anything, but to no avail. Leadership and self-help had to
come from the people affected most.
Thomas watched from his kitchen window as Darren and Lydia hastily
loaded a moving truck. His neighborhood had undergone another major
transformation over the last couple of years. Hard times had fallen on many;
some of his friends had been forced into downsizing, while others spent their
days searching for work. Cul-de-sacs that once served as the playgrounds for
the neighborhood children had fallen silent. Formerly neat and tidy houses
now stood overgrown with weeds and left in disrepair.
Knowing this would likely be the last time he would see his neighbors,
Thomas quickly put on his shoes and made his way toward them. Lydia walked
around to the front of the moving truck to meet him.
―We lost the house,‖ she explained softly.
Thomas struggled for the right words, any words that could bring comfort,
but he knew there were none; the emotional wounds were too fresh. ―I don‘t
know what to say,‖ he finally murmured.
A rolling rumble followed by a loud bang came from the back of the moving
truck as Darren closed the cargo door. A few moments later, he joined them.
―Tom, you‘ve been a great neighbor and a good friend. We‘ve gotta get going
now, but we‘ll see you around sometime, OK?‖ Darren was trying to maintain
control of the emotion in his voice.
They shook hands and said their goodbyes. Thomas never saw Darren and
Lydia again.
The Tenth Financial Law of Prosperity
The Tenth Financial Law of Prosperity is Own Your Own Home. Everyone
needs shelter. You can rent, own, squat or live with others, but every human
being must fulfill this basic need. Own your home and enjoy the security and
peace of mind this blessing will provide you. Your home is the castle from
which you will rule your financial empire and the cornerstone to your financial
independence. Don’t borrow against your home or do anything to risk its
loss.
Most people can‘t afford to buy a home for cash, so they must borrow money.
Borrowing money to buy a home is consistent with the Financial Laws of
Prosperity, because we all have the primary need for shelter and, depending on
the circumstances, must pay a portion of our income to obtain it.
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Spend no more than 30% of your annual income on housing, and work to
own your home free and clear. Although it can be done, spending more than
30% makes it difficult to adhere to the remaining Financial Laws of Prosperity,
which could impede your progress toward financial independence. Work to pay
off your home loan early. Protect your home from loss or damage by
maintaining insurance coverage that is adequate and customary for your
property‘s value and location.
Paying off Your Home Loan Early
Paying off your home loan early can save you hundreds of thousands of
dollars in interest and years of making payments. Some financial experts can
make strong arguments against repaying your home loan early, and, while
being financially sound, nothing can trump the simple truth that all debt has a
repayment risk.
People who have made a lot of money and then lost it all will tell you they
wish they would have paid off their home while they had the chance. Learn
from their mistakes. You can afford to be aggressive in some areas of your
financial life, but it pays to be conservative in others. Obey the Tenth Financial
Law of Prosperity, and implement a strategy to own your home free and clear
today.
Most home loans are fully amortizing, meaning a portion of every payment
goes toward both the interest and principal until the loan is paid. During the
first years of the loan, most of the payment is applied to the lender‘s interest,
while a disproportionately smaller amount goes toward the repayment of the
amount borrowed. During the final years of loan, the opposite is true.
Example: You borrow $300,000 to buy your home at an 8% interest rate and have
a loan that is fully amortized over 30 years. Your payment (principal and interest)
is $2,201 every month, or $26,412 per year.
At the end of the first year you w ill:
 Have paid $23,909 in interest.
 Have paid only $2,506 tow ard the loan‘s principal.
 Still owe $297,493!
By the end of the 30th year you will:
 Have paid $492,470 in interest.
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 Have paid $300,000 tow ard the principal.
 Have made $792,470 in total payments (on a $300,000 loan).
 Have successfully repaid your loan.
There is no magic to repaying your home loan early — the faster you repay
the amount borrowed, the less you end up paying in interest and the fewer
payments you make. Here are some popular techniques that can help you
expedite repayment of your loan:
Biw eekl y Payments – P ayments made every tw o weeks. T o calculate a biw eekly
payment, divide the normal monthly payment by 2, then pay that amount every
tw o weeks. There are 52 w eeks in the year, so you will end up making 26 biw eekly
payments, which w orks out to one additional monthly payment per year. Making
biweekly payments is basically the same as making one extra payment per year
but w ith a l ot more brain damage.
Biweekly Payment Comparison
($300,000 loan, 8% interest rate with 30-year amortization)
Normal Monthly Payments
Monthly Payment: $2,201
Biweekly Payments
Biweekly Payment:
$1,101
Total Interest:
$492,470
Total Interest:
$349,472
Years to Pay off:
30
Years to Pay off:
22
INTEREST SAVINGS:
$142,998
Extra Payments – P erhaps the easiest method you can use to pay off your home
loan. Make at least one extra payment to a loan‘s principal balance each year, and
you will dramatically decrease the amount of interest paid over the life of the loan
and the time it takes to pay off the loan.
Extra Payment Comparison
($300,000 loan, 8% interest rate with 30-year amortization)
Monthly Payment:
$2,201
Extra Payment Per Year
Monthly Payment:
$2,201
Extra Payment:
$2,201/year
Total Interest:
$492,470
Total Interest:
$349,389
Years to Pay off:
30
Years to Pay off:
22
INTEREST SAVINGS:
$143,081
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Refinance: Interest rates vary over time and with economic conditions. If interest
rates drop at least 1% below your current loan‘s interest rate, you should consider
refinancing your loan to the new rate. Once you have your new loan and low er
payment, pay the old payment amount on your new loan with the difference going
to pay down the principal balance.
Interest Rate Reduction Comparison
(8% interest rate)
New Loan Payments
(7% interest rate)
Monthly Payment:
$1,996
Extra Payment:
$205/month
Total Interest:
$492,470
Total Interest:
$239,995
Years to Pay off:
30
Years to Pay off:
18
INTEREST SAVINGS:
$252,475
15-Year Amortization: Changing the amortization period of your loan from 30
years to 15 years or less will dramatically reduce the amount of interest paid and
the time it takes to pay off the loan. The draw back to a 15-year amortization
period is a higher monthly payment. One w ay to maintain flexibility in your
payment is to keep your 30-year loan but make payments as if you w ere on a 15year loan. By doing this, you maintain the ability to pay the lower payment if you
happen to be pinched for cash in any particular month.
Amortization Period Comparison
(8% interest rate)
Monthly Payments
(30-year amortization)
Monthly Payments
(15-year amortization)
Monthly Payment:
$2,867
Total Interest:
$492,470
Total Interest:
$216,051.23
Years to Pay off:
30
Years to Pay off:
15
INTEREST SAVINGS:
$276,419
There‘s no secret formula to repaying a home loan early. Simply pay back the
principal balance owed on the loan earlier than what your lender expects to be
paid. The sooner you repay the amount borrowed, the less you will pay in
interest. The easiest way to accomplish this is by making extra payments
toward the principal balance of your loan every year. The faster you repay the
principal, the faster your loan will be paid off and the more money you save. I f
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you have multiple loans on your home, pay the additional payments to the loan
with the highest interest rate first.
Before you make any additional payments on your loan, verify that the loan
does not have a prepayment penalty. Also, be sure to designate all of the extra
money toward your loan‘s principal balance or make separate payments.
Always check to make sure your payments are being applied properly. There
have been many cases where lenders have failed to correctly allocate additional
principal payments to the loan, instead electing to prepay interest or hold the
payment. It‘s absolutely critical you verify all payments are applied to your loan
correctly if you are to successfully repay your loan in the time frame you set.
The “Buzz” About Homeownership
There are truths, fictions and a lot of bad advice about the financial aspects
of homeownership. A home is just that — a home. It satisfies your basic and
inescapable human need for shelter. Risking your home for a chance to sleep
on the streets isn‘t advisable. Here are some of the more common facts and
falsities concerning homeownership:
Tax Advantage: In the United States, one of the largest misconceptions to keeping a
loan on a personal residence is the perceived tax advantage received from paying
interest to a lender. The w ay this w orks is if you are in a 25% tax bracket, you must
spend one dollar in interest to save 25 cents on your taxes. Many people don‘t realize
it‘s much better to save the whole dollar of interest and pay the 25 cents in tax
because you come out ahead by 75 cents! Besides, the government can alw ays
change its mind about tax deductions. P ay off your home loan early and let your
professional tax advisor w orry about your taxes.
Your Biggest Asset: Whether your home is your biggest asset or an investment
really depends on whose advice you follow . Technically, your home can be
considered an asset if it has positive equity. It could also be considered an
investment if it w as rented to a tenant. T o the financially independent, though, a
home is just a home. Your personal residence makes a poor long-term investment
compared to other opportunities that can give you cash flow and appreciation. If you
consider your home a place to live and an investment something that pays you, you
will be one step farther from the poorhouse!
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Peopl e w ith Assets Get Sued: Persons with assets do make juicy targets for
law suits, so hold your free-and-clear house and other assets in different legal
entities to protect yourself from opportunistic people. Contact a professional estate
planner or an attorney for more information. Maintain adequate umbrella coverage
as part of your homeowner‘s insurance to protect yourself against certain types of
liability. Contact your insurance agent and have them develop a policy that best
meets your needs.
Home Equity Shoul d be Put to Work: This popular fiction is another w ay of saying
you should keep a loan on your home and spend your equity on whatever suits your
fancy. Never treat your home as a piggy bank to be raided whenever the mood strikes
you. P ay off your home and forget about borrow ing against it.
Coll ateralization: P ledging an asset such as your home as a guar antee for the
repayment of a loan is called collateralization. As your wealth and investment
experience grows, you may be tempted to use your home as collateral so you can
borrow money to buy another investment. T his is a good w ay to double your loss,
first by losing money on the investment and then by losing your house as it gets sold
to satisfy the losses your lender incurred on the loan they made to you.
Turn Your Home into an Investment
Turning your home into an investment is a great way to jumpstart your
wealth-building process. This technique is especially useful for people just
beginning their financial journey or those who have fallen behind in their
retirement planning. A home becomes an investment when other people rent a
portion or all of it from you and the income you receive from that rental covers
most, if not all, of your property expenses.
Your goal is to buy and move into your own rental property to help you
minimize your living expense by sharing the costs of ownership with your
tenants. You will then pay off the loan used to buy the property as fast as
possible. Once you own your rental property free and clear, you will have an
asset that will pay you a significant monthly income for as long as you own it.
In the United States, apartment properties with four units or fewer make the
best candidates for this technique because they are easy to finance. The entire
process is very similar to buying a single-family home and is fairly
straightforward. Whatever type of apartment property you buy, make sure you
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can continue to comfortably afford making the loan payments if most of your
tenants move out for some period of time.
Example: You w ant to buy a four-plex. You have a small down payment and your
take-home pay is $45,000 per year. T he T enth Financial Law of P rosperity states
that you must not spend more than 30% of your income on housing, so you are
limited to a monthly loan payment of $1,150 ($45,000 × 30% = $13,500; $13,500 ÷
12 months = $1,150 per month). The rents from your soon-to-be-acquired fourplex, however, can also count tow ard your income, allowing you to get more
property for your money. For comparison, let‘s pretend that both houses and fourplexes are selling for the same price. Your monthly payments w ould look like this:
House
Four-Plex
Your Take-Home Income
$45,000
$45,000
Max. Monthly Payment
$1,125
$1,125
Purchase Price
$150,000
$150,000
Loan Amount After 10% Down
$135,000
$135,000
Payment (6% Int., 30-Yr. Fixed)
$810
$810
Property Taxes & Insurance
$175
$250
MONTHLY PAYMENT (PITI)
$985
$1,060
In our example, the payments are a little higher on the four-plex, because the
taxes and insurance cost more. The house, however, doesn‘t get the financial
benefit of collecting rents, which makes a significant difference in how much of
your own money you must spend paying back the loan. In other words, if you
owned the four-plex, you would use your tenants‘ money to help repay your
loan.
House
Four-Plex
Tenant Rents w/Vacancy
NONE
$1,173
Less: Operating Expenses
NONE
($550)
Equals: Net Income
NONE
$623
Less: Monthly Loan Payment
($985)
($1,060)
Equals: Out-of-Pocket Cost
$985
$437
MONTHLY SAVINGS
None
$623
If you owned the four-plex and continued to make the entire monthly
payment of $1,060 from your personal income and used the $623 the property
generated as an additional monthly payment to your lender, it dramatically
reduces the amount of time it takes to repay the loan. So in 11 years, the four-
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plex is paid off and your home turned into an investment that pays you a
monthly income that allows you to live for free! How different would your
financial life be if you didn’t have to pay rent or make a house payment?
Living in your own rental property isn‘t for everybody. You will have to put up
with your tenants‘ idiosyncrasies, sacrifice some privacy, and deal with their
problems and complaints. You may even have to plunge a few toilets and do
many of the repairs yourself to get the numbers to work for you. Is this really
so bad? How long would it take you to save the equivalent value of your rental
property by simply following the Second Financial Law of Prosperity — Invest In
Yourself? Giving up a traditional home and living in your own rental property
could yield significant long-term financial benefits. Consider this option
carefully before you rule it out for the pretty little house with the white picket
fence. All self-made millionaires can tell you stories of self-sacrifice. Now that
it‘s your turn to be rich, what will you sacrifice?
Mediocrit y is perh aps the greatest social epidemic of our time.
115
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CHAPTER 11: MAKING MILLIONS IN REAL ESTATE
A great idea is nothing without the plan to make it happen.
There are literally thousands of ways you can invest your money. I am an
advocate commercial real estate investment, because you don‘t have to be a
rocket scientist or need a ton of money to participate, and anyone willing to
make the effort to learn about it can be successful. In commercial real estate
investment, professional and amateur investors are on a level playing field.
There are no expensive database programs, black-box trading systems or élite
Wall Street trading firms that can give anyone the upper hand. Every
commercial property is unique and must be researched carefully to determine
its investment potential. These factors can work to your favor because they
hinder other investors and make great real estate investments possible. As with
any investment, there are risks, but you will never have to worry about a
company CEO ―cooking the books‖ to make their quarterly earnings estimates,
or insider trading, flash crashes or day traders reducing the value of your
property to pennies.
From a small multiunit rental property to large multimillion-dollar apartment
communities, there are opportunities available in commercial real estate for all
levels of investors and in any market condition. Some of the wealthiest people
in the world will tell you that real estate played an important role in making
them rich. There‘s no right or wrong answer when it comes to determining what
type of investment is right for you, because it is, after all, your money.
Falling in Love with Investment Real Estate
Investment real estate is any property leased to one or more tenants,
effectively creating income, or cash flow, for the owner. There are several types
of income-producing properties, but the best type for a new investor is
multifamily, best known as apartments.
Any property with two or more residential rental units fits my definition of a
multifamily property. Apartments are unique because they are an incomeproducing property type that satisfies the human need for shelter. People don‘t
absolutely need shopping malls, retail centers or office buildings, but they do
need somewhere to live. Simply put, there will always be demand for welllocated apartment properties. Also, unlike single-family homes operating as
117
rentals, apartments have more than one tenant living on the property, so if
another tenant moves out, you still have others paying rent.
U.S. real estate investors enjoy a number of tax benefits. The proceeds from
the sale of investment real estate often qualify for a tax-deferred exchange,
allowing you to delay the payment of tax on the money you make once you sell
the property. This lets you to use the money that would have gone toward taxes
to help grow your wealth. Investment real estate can also be depreciated,
sheltering a portion of a property‘s income from taxation and thereby
increasing your cash flow.
Commercial real estate can be leveraged, or borrowed against, but this is not
the same as borrowing money personally because the income generated from
property pays back the loan, not you. All debt carries a repayment risk. If you
stop making loan payments or fail to adhere to the terms of the loan, your
lender can foreclose on the property and sell it to recover their money. Leverage
excites investors because it is a magnifier — it allows investors to buy larger
properties and ―magnify‖ their investment returns. Unfortunately, it also
magnifies losses.
Finally, apartment properties can be a good hedge against low to modest
inflation. Unlike other property types, apartments have shorter lease terms .
This gives you, the owner, the ability to increase rents to keep pace with
inflation or other changes in the market.
A decent apartment property should provide you with a return of about 12%
to 25% or more when calculated over the life of the investment. It‘s real estate‘s
propensity to generate high returns that makes it an ideal vehicle for wealth
creation. There are plenty of examples of people who have doubled, tripled and
quadrupled their investment in real estate, but there are just as many who
have lost all of their money by doing unintelligent things. Never let the siren
song of easy money and high returns cloud your judgment in any investment.
Borrowed money is like rocket fuel to real estate — the right amount
causes the market to soar; too much causes it to overheat and explode.
Three Keys to Successful Real Estate Investment
The most important thing for successful real estate investment is not
―location, location, location‖. Rather, your success depends on multiple factors
that include timing, location and knowing your exit.
Get your timing right. Real estate appreciates and depreciates in value
depending on where you happen to be in the market cycle. All real estate is
118
subject to absolute market cycles characterized by the supply of developed
property in relation to market demand for that property. There are many
factors that influence supply and demand. Imbalances between supply and
demand cause the market to move up and down in a process known as a ―real
estate cycle.‖ If your timing is off and you buy a well-located property at the top
of the market, your rents can decrease and your property will lose value. To
make matters worse, high vacancy can turn any pro perty into a cash-sucking
machine with an insatiable appetite for your hard-earned money.
Location, location, location. We have all heard the cliché, but it‘s undeniable
that properties in superior locations outperform those in inferior locations in
any market condition. Always invest in properties with desirable locations.
Know your exit. Plan your exit from a real estate investment before you
invest. If your investment strategy is to create cash flow and appreciation for
five years, then buying a property with a 10-year loan that can‘t be repaid until
the end of the 10th year won‘t help you meet your goal. Evaluate properties
based on their ability to meet your objectives and understand what factors will
affect your exit.
Before you invest in any well-located property, understand where you are in
the real estate cycle, get your timing right, and know your exit!
Eight Ways to Invest in the Same Apartment Property
Outlined below are eight ways to make money in investment real estate. Don‘t
let the dollar amounts put you off; real estate can be scaled to meet any
investment requirement.
M ethod 1: “All -Cash” Apartment Purchase
T ony and Maria find an apartment property for sale for $131,000. They have
$139,000 to invest, so they proceed to buy the property for $131,000 cash and fix it
119
up at an additional cost of $8,000. They have almost no risk because they didn‘t
borrow money. Since they don‘t w ant the headaches that come with managing real
estate, they hire a property management company to run the building for them. After
the units are rented and the bills are paid, they have a cash flow of $17,000 in their
first year of ownership, marking a 12% return on their $139,000 investment.
They decide to sell the property after one year for $170,000. After paying 8% as a
cost of sale, their total return including cash flow is $34,400, or 24% on an
investment of $139,000. T hey turned their $139,000 savings into $173,400!
M ethod 2: Buy a Singl e Property w ith a Loan
T ony and Maria find an apartment property for sale for $131,000, but they don‘t
have enough money to buy the property for cash. They decided to borrow $98,250 of
the purchase price from a local bank at 8% interest. Their down payment is $32,750,
and they spend $8,000 to fix up the apartments. After the units are rented and the
bills are paid, including $7,860 to the bank for loan payments, they have a cash flow
of $9,140 in their first year of ownership, representing a tremendous 22% return on
their $40,750 investment ($32,750 down payment plus $8,000 remodel c ost).
The use of leverage, or borrowing money from the bank, magnified their returns. It
took less money to buy the property, but they have significantly more risk, because if
they don‘t pay their loan, they will lose the property and their $40,750 investment.
T ony and Maria decide to sell the property after one year for $170,000. After paying
8% as a cost of sale, their total return including cash flow is $26,540, or 65% on an
investment of $40,750. They invested $40,750 and made an additional $26,540
when they sold. They turned their $40,750 investment into $67,290!
M ethod 3: Cash-Out Refinance
Let‘s say that T ony and Maria changed their minds in Method 2 and didn‘t sell after
a year, instead deciding to refinance the property. They find a new ban k willing to
refinance and loan them 80% of the property‘s current market value of $170,000,
giving them a new loan balance of $136,000 ($170,000 x 80%). T his technique gets
their money out of the property but also increases their risk of default on the loan.
After the old loan is paid off, T ony and Maria now have $37,750 from the refinance
plus $9,140 in cash flow , amounting to $46,890. All of their $32,750 down payment
and $8,000 remodeling costs have been returned to them. They have turned their
$40,750 investment into $46,890 cash, own a property th at still has a whopping
$34,000 worth of equity ($170,000 property value less the $136,000 new loan
balance) and still receive cash flow!
120
M ethod 4: Sal e w ith a Tax-Deferred Exchange
In Method 1, T ony and Maria bought an apartment building for $131,000, remodeled
it for $8,000 and then sold it a year later for $170,000. After paying 8% as a cost of
sale, their total sale proceeds were $17,400 before taking into consideration cash
flow. Normally, real estate investors must pay tax on the profit they receive from a
sale. T ony and Maria, however, learned from their accountant a technique that
allows them to defer paying that tax. By using a 1031 exchange, they bought another
more expensive property with the proceeds received from the sale of their last
property. Because they can delay the payment of tax on the profits from their
previous sale, they get the benefit of using 100% of those profits in their next real
estate purchase.
M ethod 5: ―I Got No Money, Honey”
T ony and Maria find an apartment property for sale for $131,000, but they are flat
broke. Undeterred, they put in an offer to buy the property at full price, which they
feel is undervalued by approximately $50,000. In T ony and Maria‘s contract to
purchase the property, they have a series of contingencies that allow them to extend
the closing date and assign their rights to buy the property to another person.
They advertise and make a lot of phone calls until they find someone willing to buy
the right to purchase the property from them for a $10,000 fee. This new buyer
closes the transaction. The seller gets the $131,000 purchase price, T ony and Maria
pocket the $10,000, and the new buyer gets the property, after paying $141,000.
T ony and Maria made $10,000 by using nothing but their time and intelligence.
M ethod 6: ―I Got No Money, Honey” – Part 2
In Method 5, T ony and Maria sold their right to buy the property to someone else,
who paid them $10,000 at closing. What if instead they made an agreement with the
new buyer for 25% of the profit when the property w as resold and 25% of the cash
flow? The property w as bought for $131,000 and, after some elbow grease, sold a
year later for $170,000.
After paying 8% as a cost of sale, the total profit including cash flow is $34,400,
out of w hich T ony and Maria get 25%, or $8,600. T ony and Maria made $8,600 by
using nothing but their time and intelligence.
M ethod 7: Have M oney, Hate Risk
T ony and Maria are retired and have $139,000 sitting in the bank earning 2%
interest. T he real inflation rate in their country is 5%, and they realize they are
losing about 3% of the value of their money per year but can‘t afford to take a large
risk. After meeting with their accountant and attorney, they decide to buy an
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apartment building for cash. They contact a reputable apartment real estate agent,
who helps them find a good property for $131,000.
Immediately after buying the property, they have their apartment real estate agent
resell the property for $170,000 to a new buyer, who puts down only 10%, or
$17,000, of the purchase price. T ony and Maria loan the new buyer the remaining
$153,000 balance as a secured note and first deed of trust against the property with
the following terms: 8% interest only and the entire loan is due in three years. After
the customary 8% closing costs are paid, T ony and Maria put $3,400 dollars in their
pocket and collect a monthly income of $1,020 for the next three years.
At the end of the loan term, the buyer must repay the balance, an amount equal to
$153,000. By the end of the third year, T ony and Maria h ave turned their $131,000
into $193,120 for a total return of 47%, or 15.8% per year!
This method works because T ony and Maria are providing a high-leverage loan to
the buyer, giving them the incentive to pay a higher price. The seller‘s loan is
secured in the first lien position on the property, which means if the buyer doesn‘t
pay, the property goes back to the seller. It w ould be good news to T ony and Maria if
the buyer defaulted on the loan, because they w ould get to keep all of the money
paid to them and sell the property all over again, making even more money.
M ethod 8: The Hard-M oney Loan, Like Risk
T ony and Maria find an apartment property for sale for $131,000. They have some
money but don‘t w ant to spend it all on this property. They‘ve calculated an $8,000
investment in remodeling, and renting the apartments for a higher amount w ould
increase the property‘s value to $170,000. They contact a ―hard-money lender,‖ who
agrees to lend them the purchase price and the cost to remodel the property, or
$139,000 at 12% interest only for one year.
After the units are rented and the bills are paid, including $16,680 in loan interest,
they have a cash flow of just $320. They decide to sell the property after one year for
$170,000. After paying 8% as a cost of sale, their total return including cash flow is
$17,720. T ony and Maria made $17,720 by using nothing but their time and
intelligence.
Rising Energy Prices and the Future of Real Estate
Over the next decade, higher energy costs will dramatically impact the value
and desirability of real estate. You must understand how this trend will affect
any property you currently own or are planning to buy. The cost of oil is rising.
122
Oil is a main ingredient in the manufacturing and transportation of everything,
including people!
The cause of rising oil prices isn‘t as important as its effect. As the cost of oil
increases, so do the costs of gasoline, diesel fuels and other petroleumdependent products. Rising fuel prices decrease people‘s desire to live in
outlying areas; expect to see a migration from the suburbs back to larger cities
with employment opportunities. People will have to live closer to employment
centers and will need access to reliable public transportation to keep down
costs. This will turn once-thriving suburban communities into figurative ghost
towns and well-located urban areas into boom towns. Plan accordingly.
Good Advice: Always buy commercial real estate through an experienced,
reputable “commercial” real estate agent. Buying real estate through an
inexperienced practitioner is probably the best way to get a bad investment.
Commercial real estate contracts, negotiations, and title polices can be complex
and contain many legal nuances that the average person won’t understand.
When it comes to real estate, always work with a professional commercial
agent, and always consult with your accountant and attorney on every
transaction.
The Inflation Myth and Real Estate
High inflation harms real estate because its value is interest-rate sensitive. As
the real inflation rate increases, investors will seek higher returns from real
estate, which means they must pay less for it. When interest rates rise,
property values fall.
Example: Investors currently seek a 10% return or interest rate from real estate , so
an apartment building producing $10 in net operating income is w orth $100 ($10
income divided by .10= $100). Investors change their minds and now w ant a 12%
return, so an apartment building producing $10 in net operating income is now
w orth only $83 ($10 income divided by .12= $83). T he property‘s value dropped
because investors must pay less for it in order to get a higher return.
Real estate isn‘t an absolute inflationary hedge, but it can be an effective
hedge against inflation if your return on investment is greater than your
country‘s real inflation rate. Properties producing flat revenue streams, no
income at all or those with long-term fixed-rate leases are poor investments to
123
own during periods of high inflation, because their rents can‘t be raised to
match rising inflation. Apartment properties with their short-term leases are
ideal to own during periods of moderate inflation, because you have the ability
to increase rents, thereby keeping pace with inflation.
All inflation isn‘t created equal. Stagflation, a combination of deflation,
inflation and high unemployment, has a negative impact on real estate values.
In a ―stagflationary‖ environment, the costs to operate an income-producing
property increase (inflation), but you are unable to raise rents because your
tenants can‘t afford it (stagnant wages and high unemployment) and they move
out. As a result, property values fall (deflation). Real estate is only a good
hedge against inflation if your property’s rents rise faster than your
property’s expenses and the return on your investment is greater than the
real inflation rate in your country.
All great journeys st art with an idea and the determination to
do something that h as not yet been personally accomplished.
124
ABOUT THE AUTHORS
Dan Dulin
Dan graduated from Arizona State University in 1992 with
a Bachelor of Science degree in Sociology. While w orking
his w ay through college, he leased and managed multiple
200 plus unit multifamily communities. Although an
achievement in itself, this accomplishment w as magnified
by what w as historically marked as a challenging time for
the commercial real estate industry due to the disposition
activity of Resolution T rust Corporation (RT C). Following
graduation, Dan managed commercial property and served
as the Director of Multifamily Operations for Sevo Miller
Inc, a sizeable, successful commercial brokerage and
property management firm based in Denver, Colorado.
During his leadership tenure, he w as responsible for the financial operation of over
13,000 multifamily units across eight states which represented w ell over a half -billion
dollars in investment real estate.
Dan joined a national commercial real estate brokerage company in 2000, w ere he has
earned numerous achievement aw ards. A professional in his field, Dan has authored
numerous articles and books on both Commercial Real Estate T echnology and
Investments. Additionally, he has taught and lectured thousands of people w orldwide
via live Internet presentations and seminars.
Dan not only supports but is also active in many community outreach and charitable
organizations. He is passionate about helping the needy, promoting education and is
an advocate for a wealthy society.
Greg Weiler
Greg Weiler is a contributing author for Be Rich. Upon graduating from college, he
gained management experience in a number of different industries before specializing
in finance. His familiarity in these fields, from teaching to management, aided in the
development of this book. Weiler currently lives in Los Angeles and when he isn‘t
writing spends his time hunting for his next real estate opportunity.
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chapter 2 - How to Be Rich Book

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