Last post we explored the second quadrant of living a prosperous life: resources (a/k/a money and material things). The goal is for you to develop an Action Plan for financial security. But for any great money Action Plan to take root and work, you must begin by developing financial literacy.
Just as rats don’t know that someone built the maze, you may not realize that money is a game. But it is. A very complex game which is rigged against you by a long list of villains:
- Banks
- Credit card companies
- Financial planning firms
- Insurance carriers
- Governments
These players are all interwoven into a broader financial system that contains far too many incentives for keeping you ignorant and dependent. You must learn how to play the money game to win.
Begin by knowing your metrics…
Take the time to find out your net worth. Which, if you’re like most people, is likely negative. You might have high levels of debt, be upside down on your car, and not have any financial assets working for you. Whatever it is, it is, but you need to know. Don’t be discouraged: it’s not about where you start but where you end up. Just facing the truth and developing awareness of your current situation will put you ahead of virtually 70 percent of the population. A huge part of the battle is already won because you’re lowering your level of ignorance.
Next, get an honest idea of how much you need to meet your monthly living needs, at least a general idea of what a sufficient net worth would provide you financial stability, and what kind of income your ideal lifestyle would require. You then have a realistic understanding of where you’re at and where you want to go. Now you’re ready to start learning the money game and that begins by understanding a few simple but extremely important wealth building concepts. Let’s run through them…
Live on less than you earn.
We all have heard this a million times and know it’s true. So why don’t 90 percent of people practice this? Because they allow themselves to be brainwashed into an instant gratification lifestyle. If you’re spending everything you’re taking in, you’re going to get exposed at some point by a job loss, personal emergency, or economic meltdown of some kind. This won’t have a happy ending. But you’re facing hundreds of messages daily, designed to seduce you into buying that that wouldn’t be prudent in your current situation. You have to counter-program against these.
Worse, if you’re like most people and spend more than you earn, financing the excess with debt, you’re building your own prison. And this situation has an even unhappier ending. Be willing to sacrifice early to luxuriate later. Discipline creates freedom.
You work for money, or money works for you.
The previous sentence may be the most simple yet profound statement ever written on creating prosperity. You may want to print it out and post above your computer or on your bathroom mirror.
Taking this to the next level, for the most part, broke people work for money and wealthy people have money work for them. You must take a percentage of your income and put it to work making money. (More about this in a minute.)
Utilize good debt, avoid bad debt.
If you borrow $400,000 and use it to buy an income producing property that provides positive cash flow while increasing your net worth, you’re a genius. If you borrow $400 to buy a tv, you’re a moron.
Convert income into capital.
This is where we get into the officially sexy part of prosperity building. Because the sexiest part isn’t earning but unleashing the power of leverage with your earnings. There’s a reason we call it capitalism not “workism.” Even if you’re a brain surgeon earning $10,000 an hour, if that’s all you are doing, you’re still trapped in the trading hours for money trap. Leverage is a superpower for building prosperity.
Generate steady gains to apply compounding to.
First you spend less than you earn, which leaves you some income to turn into capital. The initial goal is to beat your burn rate. Then that capital starts producing gains, which you then reinvest into creating more and larger gains, using the principle of compounding. Now you’re leveraging your leverage. This is when you create an ongoing cycle of increasing wealth which allows you to achieve the perfect outcome: waking up every morning wealthier than you were when you went to sleep the night before.
Finally, let me wrap up with the #1 wealth-building strategy ever developed…
Lose the need to signal your virtue, status, or wealth to others.
I love my home. It’s got a water view that makes me feel I’m communing with God every morning. It’s filled with fresh flowers and art that speak to my soul. It’s bright, spacious, and built out to my exact design vision. Don’t misunderstand, it’s a million-dollar penthouse. But I have friends with mansions that cost many multiples of my place, that require butlers with living quarters for staff in the most sought-after neighborhoods. I feel no need to keep up; my home is my sanctuary. One of my cars is almost ten years old, and my Sunday softball car is a Dodge Challenger. Both are low mileage in mint condition, and I love driving them. I have friends with million-dollar exotic supercars and that makes me happy for them. But my days of measuring my self-esteem by the value of my garage are over. Same story with the watches, bespoke suits, and bling-bling.
I do wake up every morning wealthier than the night before. And I have no hesitation about surrounding myself with the finer things in life. But every luxury or extravagance is because it enhances my life, not to impress anyone else. My wish for you is the same.
Learn the money game. Build financial security so you have great options. Then select the ones that add value to you with no regard for virtue signaling or impressing vapid people on social media.
Next post, we’ll get back to your Action Plan. In the meantime, please share your thoughts below.
Peace,
– RG