“If you are born poor it’s not your fault, but if you die poor it’s your mistake.” – Bill Gates
The maths behind financial independence is incredibly simple. So why do so few people achieve financial freedom? I personally don’t think it’s for the lack of knowledge – there are so many money blogs, videos and podcasts out there. Instead, I think it’s a combination of our mindset, habits and behaviours that rule our financial destiny. If becoming wealthy is the goal, why do we fail?
So let’s look at 7 tips that could help you with your finances:
1. ‘If you are born poor it’s not your fault, but if you die poor it’s your mistake.’
This quote is often attributed to Bill Gates, a self-made multi billionaire who is now helping the world through his philanthropic work. What he’s getting at is that you have to take responsibility for your financial future. You have to become financially literate. The problem for many is that becoming wealthy is a long journey and it’s not easy. But then again why should it be easy? If it were easy, then the rewards would not be so great. Intentionally planning your finances is important in you realising the goals you want in your future.
2. Don’t follow the herd.
Each of us has been hardwired by evolution with a desire to be part of a herd. In the early days of humanity, being part of a herd meant survival. With a herd, there was always someone on guard for predators or danger and also certain herd members identified opportunities that could be beneficial to the herd.
However, that’s not the way it works with money, unless you want to be average and follow the crowd of average folk. But if you want to achieve financial excellence, one of the best things you can do is not follow the herd. You need to break away from the pack, take your own path and make the best choices for you as an individual.
Successful investors know that to get to the top of the property ladder, they need to overcome the fears that hold most people back from ever stepping foot on the first rung, or of not waiting for the perfect time or the perfect investment. And they also understand the importance of, wait for it, going against the crowd!
Warren Buffet said it best, “Be fearful when others are greedy and greedy when others are fearful.”
3. You should know how many months you have left in your wealth window.
Your “wealth window” is the time from now until when you stop receiving an earned active income. How much are you going to earn in that time? Think about it…if you earn $100,000 a year for the next 15 years you will have $1.5 million passing through your hands.
The big question is: how much of this will you keep?
You have two important stages in your life: a saving and investment stage – this is what I call your “wealth window” and your spending stage – your retirement. For many people their biggest asset is their income earning capacity over the rest of their “wealth window.” Your financial future will depend on the balance between enjoying your money now and planning for “then.”
Which leads to…
4. Practice delayed gratification.
If you want more money and freedom in life, you’re going to have to practice delayed gratification. Successful people possess higher patience and an aptitude to postpone the enjoyment of their work. They have an ability to work hard to accomplish a goal which isn’t achieved for a long time.
Learning to delay gratification rather than seeking immediate satisfaction is essential for success, particularly when it comes to things like investing, business and making money. Yet it’s not easy to change ingrained habits and the approaches to life that you’ve been practising since childhood, but once you’re aware of the importance of the concept of delayed gratification, it’s entirely do-able.
The problem is the average person focuses on survival and instant gratification. They don’t think beyond the moment. However, the very rich think and plan very far into the future—five, ten, or twenty years.
I’ve found, the poor think about the moment— they can’t wait for their pay at the end of the week. The middle class are hoping to make it through the month. The rich are planning a year to several years into the future, and the multi-millionaires are thinking a decade or two future. Remember, if it comes too quickly, chances are you will lose it again just as readily. All good things take time.
As Warren Buffet wisely said: “Wealth is the transfer of money from the inpatient to the patient.”
5. Don’t think you can ever make money overnight.
Whether it’s property, financial commodities, shares etc.; trading is really a form of gambling and the only people who seem to make quick money out of this are the trading “educators” and the “bookmakers.”
It’s interesting how people with an ego bigger than their experience believe they can beat the odds. No they can’t. Instead stick to the wealth creation strategies that have always worked; either investing in income earning real estate, a business or a share portfolio.
6. Avoid credit card debt
While credit cards can be very useful at certain times of your life, don’t use them to maintain an expensive lifestyle to impress people who you barely know.
This is a huge financial mistake. Remember the balance on your credit card isn’t your money, it’s the banks’ and they’ll charge you for the privilege of using it. So do not use it unless it is an emergency, buying the latest Air Jordans or iPhone is not an emergency. Many of the wealthy got where they are by living within their means and investing a big portion of their earnings. Warren Buffett still lives in the same home he bought in 1958 for $31,500.
It can be difficult to avoid the temptation to spend beyond your means, but it’s crucial that you resist. Otherwise, you could find yourself in debt, which will hamper your ability to save for the future even more.
Set a budget for yourself, if you haven’t already, and strive to set aside at least 20% of your income for savings whenever possible. When you get a raise, raise your monthly savings amount before doing anything else. And if you’re already in debt, take steps to pay it down. A balance transfer card is a nice option for tackling credit card debt. You could also try a personal loan.
7. Time is your most valuable currency
Adding to tip #3, when it comes to investing, your most valuable asset is time. Money you contribute earlier in your life is more valuable than money you contribute later, thanks to compound interest. At first, you’ll just earn interest on your initial contributions, but over time, you’ll also begin to earn interest on your interest, helping your balance grow much faster. Consider this: If you invested $10,000 when you were 25, it would be worth over $217,000 by the time you turned 65, assuming an 8% annual rate of return. But if you waited 10 years to invest that $10,000, it would only be worth $101,000 in the end.
So even if you can’t afford to invest much money today, your small contributions could still grow into a large sum over time, so you’re better off starting now rather than waiting until later. Automate your investments whenever possible so that you don’t have to worry about remembering to set aside the money on your own every month.
The bottom line
Becoming financially fluent will be the best gift you can give yourself. And getting sound impartial financial advice along the way is not a cost, it’s an investment.
It’s interesting that all the wealthy people I know have advisers and are happy to pay for them, while the average person gets their financial advice from Facebook or Twitter or doesn’t get any at all (a survey in the UK found out). Find someone to educate you on how to become financially sound and from there plan your financial future accordingly.
Share with us your investment tips in the comments section.