Eight steps to financial freedom

Article from http://www.stuff.co.nz/business/money
Posted on Last updated 08:15 05/05/2014

There are two paths to wealth creation - one based on using your own financial resources and the other based on borrowing money to invest.

It is not a good idea to borrow money to invest until such time as you have mastered the art of creating wealth with your own financial resources.

After all, if you can't manage your own money properly, how can you manage someone else's? There is a very simple formula for creating wealth using your own financial resources. Whether you are a risk-taking entrepreneur or a would-be saver, this simple formula applies to you. It comprises eight steps which are not necessarily taken one after the other.

The order of the steps represents their priority and the emphasis that should be given to them when planning how to use surplus cash.

1: Spend less than you earn

Spending less than you earn is all about creating a surplus which is then applied to Steps Two to Eight. The bigger the surplus, the more wealth you are likely to create. Unfortunately, the first step is where most people stumble. Once you've cracked it, the rest is relatively easy. Spending less than you earn is a matter of mindset. The easiest way to do it is to use the "pay yourself first" principle and set aside money each payday into a savings account by automatic transfer.

2: Join KiwiSaver

Your first priority with the surplus cash created in Step One is to join KiwiSaver or another subsidised superannuation scheme, if you have not already done so. Employer subsidies and tax credits mean that you will achieve a high rate of return on your money with a high level of certainty.

3: Pay off short-term debt

Paying off debt gives a tax-paid rate of return on your money which is the equivalent of the rate of interest on the debt. The higher the rate of the interest, the better off you will be by getting rid of the debt.

If you have several debts there are two schools of thought as to how they should be paid off.

Strictly speaking, you should start with the debt with the highest interest rate, but the alternative view is to start with the smallest debt so as to quickly get a feeling of success.

4: Set up an emergency fund

The best way to avoid getting into debt is to set up an emergency fund to cover unexpected loss of income through illness or job loss, or unexpected expenses such as car repairs, whiteware replacement or medical and dental bills. This should ideally be the equivalent of around three months' living expenses. If you have a mortgage, you may be able to use an offset arrangement with your bank whereby the amount of your savings is offset against your mortgage for interest calculation purposes.

5: Buy at least one house

By the time you retire, you will be financially better off if you have a mortgage-free home to live in. The sooner you can achieve this goal the better. If you are not ready to settle down in one place yet, or can't afford to buy in the area where you want to live, then consider buying a house that you rent to someone else.

6: Pay off your mortgage

Paying off your mortgage gives you a guaranteed, tax-paid rate of return on your "investment" equivalent to the rate of interest on your mortgage. If you have surplus cash of your own, it makes sense to place a higher priority on paying off your mortgage than on using this cash to set up an investment portfolio for which the returns carry risk, unless of course you are investing in KiwiSaver or a subsidised superannuation scheme.

7: Set up a savings and investment portfolio

Saving for your retirement should become a priority once your mortgage is paid off. However, not all of your saving and investing should be focused on these two objectives or you may have a very boring life!

Have two streams of saving; one for retirement and one for your shorter-term goals such as travel or home renovations. Working out how much you will need for your retirement will help you achieve balance between the two.

8: Protect your wealth

It is easy to overlook the risk of losing the wealth you have created. Risks include loss of income through illness, loss of assets through disasters such as fire or theft, relationship property claims and business failures, to name a few. Insurance brokers and solicitors can help you identify the risks you face and give you options for dealing with them.

Creating wealth takes time and it doesn't always happen smoothly. Life goes in cycles and your wealth may well ebb and flow over time as your circumstances change. The most important things to remember are to find ways to create surplus cash.

Liz Koh is an authorised financial adviser and author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press, 2008. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free by calling 0800 273 847.

Article from http://www.stuff.co.nz/business/money
Posted on Last updated 08:15 05/05/2014

Seven Secrets of Self-Made Multimillionaires

BY Grant Cardone | February 2, 2012
Posted from http://www.entrepreneur.com/

First, understand that you no longer want to be just a millionaire. You want to become a multimillionaire.

While you may think a million dollars will give you financial security, it will not. Given the volatility in economies, governments and financial markets around the world, it's no longer safe to assume a million dollars will provide you and your family with true security. In fact, a Fidelity Investments' study of millionaires last year found that 42 percent of them don't feel wealthy and they would need $7.5 million of investable assets to start feeling rich.

This isn't a how-to on the accumulation of wealth from a lifetime of saving and pinching pennies. This is about generating multimillion-dollar wealth and enjoying it during the creation process. To get started, consider these seven secrets of multimillionaires.

No. 1: Decide to Be a Multimillionaire -- You first have to decide you want to be a self-made millionaire. I went from nothing—no money, just ideas and a lot of hard work—to create a net worth that probably cannot be destroyed in my lifetime. The first step was making a decision and setting a target. Every day for years, I wrote down this statement: "I am worth over $100,000,000!"

Related: Seven Rules for Coping with Sales Rejection

No. 2: Get Rid of Poverty Thinking -- There's no shortage of money on planet Earth, only a shortage of people who think correctly about it. To become a millionaire from scratch, you must end the poverty thinking. I know because I had to. I was raised by a single mother who did everything possible to put three boys through school and make ends meets. Many of the lessons she taught me encouraged a sense of scarcity and fear: "Eat all your food; there are people starving," "Don't waste anything," "Money doesn't grow on trees." Real wealth and abundance aren't created from such thinking.

No. 3: Treat it Like a Duty -- Self-made multimillionaires are motivated not just by money, but by a need for the marketplace to validate their contributions. While I have always wanted wealth, I was driven more by my need to contribute consistent with my potential. Multimillionaires don't lower their targets when things get tough. Rather, they raise expectations for themselves because they see the difference they can make with their families, company, community and charities.

Related Video: Grant Cardone on Closing the Sale

No. 4: Surround Yourself with Multimillionaires -- I have been studying wealthy people since I was 10 years old. I read their stories and see what they went through. These are my mentors and teachers who inspire me. You can't learn how to make money from someone who doesn't have much. Who says, "Money won't make you happy"? People without money. Who says, "All rich people are greedy"? People who aren't rich. Wealthy people don't talk like that. You need to know what people are doing to create wealth and follow their example: What do they read? How do they invest? What drives them? How do they stay motivated and excited?

No. 5: Work Like a Millionaire -- Rich people treat time differently. They buy it, while poor people sell it. The wealthy know time is more valuable than money itself, so they hire people for things they're not good at or aren't a productive use of their time, such as household chores. But don't kid yourself that those who hit it big don't work hard. Financially successful people are consumed by their hunt for success and work to the point that they feel they are winning and not just working.

Related: How to Conquer Your Sales Fears

No. 6: Shift Focus from Spending to Investing -- The rich don't spend money; they invest. They know the U.S. tax laws favor investing over spending. You buy a house and can't write it off. The rich, in contrast, buy an apartment building that produces cash flow, appreciates and offers write-offs year after year. You buy cars for comfort and style. The rich buy cars for their company that are deductible because they are used to produce revenue.

No. 7: Create Multiple Flows of Income -- The really rich never depend on one flow of income but instead create a number of revenue streams. My first business had been generating a seven-figure income for years when I started investing cash in multifamily real estate. Once my real estate and my consulting business were churning, I went into a third business developing software to help retailers improve the customer experience.

Lastly, you may be surprised to learn that wealthy people wish you were wealthy, too. It's a mystery to them why others don't get rich. They know they aren't special and that wealth is available to anyone who wants to focus and persist. Rich people want others to be rich for two reasons: first, so you can buy their products and services, and second, because they want to hang out with other rich people. Get rich -- it's American.

Grant Cardone | February 2, 2012
Posted from http://www.entrepreneur.com/

12 mental tricks to make you save more, spend less

From https://ph.she.yahoo.com/photos/12-mental-tricks-to-make-you-save-more-spend-less-slideshow/

In theory, getting richer is a simple calculation: earn more, spend less. But in practice, it's harder than it sounds. In the moment, most of us would rather have that Rs 1000 brunch special than increase our retirement contributions by 1%. To combat the weakness so many of us feel when it comes to saving money, we've rounded up over a dozen awesome mind tricks that could help keep cash in your pocket for another day.

1. Think of your savings in terms of how many "weeks of freedom" they buy. David Weliver from Money Under 30 writes that by estimating how much money you need to live for a year and then breaking that sum into weeks by dividing it by 52, you'll end up with a much more tangible, urgent goal to save toward instead of an abstractly enormous sum: weeks of freedom. "That’s time to find a new job if you get laid off, time to travel around if you take a sabbatical, or the beginning of retirement — that time when you're finally free to do whatever the hell you please," he writes. "The good news is, thanks to compounding interest, the more you save, the less you have to save to buy an incremental week of freedom."

2. Don't give things up — "savor" them instead. Giving up something to save money, whether lunch out or cable, can make you feel deprived. That is, unless you change your attitude to start "savoring" instead of "giving up." "Don't feel you have to change your lifestyle; merely change the frequency of your indulgences," writes Reddit user stringliterals. Go to the movies weekly? Try once a month instead. "It's psychologically much easier to tell yourself you're not giving anything up, you're just going to savor [it] more."

3. Engage the "gas or brake method." Financial blog Early Retirement Extreme compared making progress on your financial goals to driving. Every decision you make either gets you closer to where you want to be (stepping on the gas) or slows you down (leaning on the brake). The next time you go to make a decision, ask yourself: Am I stepping on the gas or the brake?

4. Remember that when you aren't earning, you're spending. Reddit user seerae looks at hours he isn't earning money as hours he's spending that money instead. "When I used to work a service industry job... I used to get called in or asked to cover shifts all the time," he writes. "Of course I'd rather spend the morning sleeping in and then watching some TV, or go hiking in the afternoon, or grab some dinner with friends that evening. But, then I'd think, am I really going to spend $150 to sleep in and watch TV?" The feeling of losing money is a lot more painful than missing it — and seerae says that agreeing to work was "totally worth it every time."

5. Practice the "stranger test." When deciding whether or not to make a purchase, imagine a stranger offering you your would-be purchase in one hand and the cash it would take to buy it in the other. If you'd rather accept the cash, you might as well keep that money in your pocket.

6. Spend your money where you spend your time. Reddit user GreyFoxNinjaFan points out some advice he heard on Reddit: "Spend your money where you spend your time. If you spend a lot of time on your feet, invest in decent, comfortable shoes regardless of the extra cost," he writes. "If you drive a long way quite regularly, spend money on the inside of the car and how it feels to [drive] the car over how it looks. When you start thinking like that, you also start to notice the superficial stuff you overspend on."

7. Use the "urgency test" when shopping. J Money from Budgets Are Sexy has a trick that comes in handy when shopping — particularly, for clothes. If you're wavering on a purchase, ask yourself, "Would I wear this out of the dressing room right now?" If you aren't excited enough to wear it right then, don't bother buying it.

8. Procrastinate on non-essential purchases. When it comes to discretionary spending (except for important moves for financial security, like saving for retirement), A. Noonan Moose from Frugal Fringe recommends putting off your purchase to give yourself time to find better prices and make better decisions. We highlighted a few of our favorite examples here.

9. Never spend loose change. Make it a hard-and-fast mental rule, suggests blog And Then We Saved, and instead consolidate those unspent coins every night until you have a small pile of savings to bring to the bank. And even if you don't use cash, she writes, "some banks will round your purchases to the nearest dollar and deposit that money into a savings account. If your bank doesn't offer that service, you can easily add up the change on your purchases and move that change to a separate account. Doing the math yourself is a little less magical, but it works."

10. Cover your credit card to create a mental — and physical — barrier. Break out those craft skills. If you're prone to impulse spending on your credit card (and who isn't?), Lifehacker recommends creating a simple paper sleeve for your card. Not only does it give you another mental step to climb before you can spend — and another chance to second-guess yourself and put on the brakes — but on the sleeve, you can paste or draw a picture of your savings goals to keep them top of mind, or pen a warning to yourself: "For emergency use only!"

11. Don't hesitate to say "no." Jackie of Money Crush points out that we're thinking about "no" all wrong. Instead of being reluctant to turn down a purchase, pass up an expensive opportunity, or closely manage your budget, remember that refusal gives you power: For one thing, it gives us serious negotiating clout. And for another, she explains, saying "no" to the things that don't really matter allows us to focus on the things that do.

12. "Use it up, wear it out, make it do, or do without." It's up to you if you want this slogan on a poster, but Reddit user AnnabellBeaverhausen suggests using it when struggling to be frugal. Before spending on something new to supplement or replace something you already own, look at what you currently use with a critical eye: Can you use it up, wear it out, make it work, or simply go without it until you have more cash? 

From https://ph.she.yahoo.com/photos/12-mental-tricks-to-make-you-save-more-spend-less-slideshow/