Are you getting money all wrong?
Read the biographies of most super-wealthy entrepreneurs, and you’ll be refreshed to find that more than a few have known the rigour of living pay check to pay check, or in some cases no check to no check. What distinguishes them, however, is that they recognised a trap and got out at the right moment. A change of perspective by itself won’t turn you into the Sultan of Brunei, but it could fundamentally loosen the hold money has over your life. Follow our simple 8 steps to solvency…
Erm, stop spending
Saving alone won’t make you rich if you’re spending money like it has an expiry date. In fact, one of the most common traits of habitually wealthy people is that they never lose sight of the value of a dollar. Think Steve Jobs in his jeans and black turtle neck, Mark Zuckerberg dining out at McDonalds on his honeymoon, and Warren Buffett living in the same simple house since the 1950s. Of course, at the extreme lurks downright miserliness, like John Paul Getty installing a payphone for guests in his London mansion. In general, though, think of every moment you don’t spend money unnecessarily as paying yourself. Fly economy instead of business class and you just paid yourself over $5,000 for many journeys. Sip a quality scotch in a quiet booth with friends rather than showering strippers with 100-dollar bills and Crystal. The key is to make yourself wealthy, not someone else.
The first step on your road to a healthy bank balance is to acquaint yourself with cash. Only cash. No more buying rounds of drinks for strangers before dawn with a quick tap and go, or waking up in the morning to find you put the Siberian tiger in the bathroom on your credit card. By withdrawing cash once a week and sticking to your budget, you’ll be spending consciously, aware that each transaction reduces the amount in your pocket. Your debit or credit card don’t do this. Moreover, you’ll be thinking twice before making bigger purchases. Try the $200 rule. Anything over this amount and you give yourself 48 hours to think about it before committing. Caveat: does not work with mortgage payments.
Credit card = emergency only
Remember that to qualify for your credit card (or loan) in the first place, you had to prove that you really don’t need one. That should have set the alarm bells ringing. Ask any financial maven and they’ll tell you that the first thing you need to ditch is the plastic. Typically, you’ll be paying the kind of interest rates that normally come with a beating, and they work best for the credit card company when you make mistakes. If you must use a credit card, keep it for emergencies only, and pay off at least half the balance as soon as possible, never the recommended minimum.
You don’t become wealthy through work
If you’re working to become rich, you haven’t finished watching the Wolf of Wall Street. The only thing that should be putting in the hours is your money. Note that 77 of the world’s top 400 billionaires became rich through investment. Very few reach the top through a 40-hour week and two hours a day on the subway. Easier said than done, perhaps, but the sooner you can transfer savings into investments, you will be earning money for doing nothing. And as Albert Einstein observed, “Compound interest is the eighth wonder of the world.” Start saving little and early, and you can be comfortably secure before your life has passed you by.
You don’t need money
As cliché ridden as it may seem, when is the last time you actually saw a wealthy person with a smile on their face? The purpose of money is to buy time. Quality time, that is, once the basic needs of food, clothing and shelter are covered. If you don’t believe that you can be content without cash, follow the exploits of Mark Boyle, ‘The Moneyless Man’. Despite – or perhaps because of – possessing a business degree, Mark has been living cash-free for the last years, and blogging about it. It turns out there’s much satisfaction to be had in bartering, living self-sufficiently, and taking the time now and then to smell the flowers.
Prioritise, prioritise, prioritise
Otherwise known as the Three P’s. Here’s a cold reality: you don’t need to smoke, drink, eat out, or go on holiday. You don’t need a flat screen TV bigger than a NASA space mission tracker. So if you’re committed to financial freedom, start of by cutting out all the unnecessary cappuccinos, tequila shots, movie tickets and taxi rides. Work first on clearing debt, then assign whatever you can afford to an emergency fund. In the UK, one in three families admit to not being able to get hold of £500 in an emergency. A little over a pound a day, though, can put that in place.
Don’t blow it
Admit it, you kind of feel good when you read about a rapper who used to flaunt diamond-studded rims now working in a car wash, having blown the lot. The list of billionaires who turned themselves into millionaires on their way to oblivion is frighteningly long. Even Michael Jackson, who earnt over a billion dollars in his lifetime, died half a billion in debt. Once you’ve made your fortune, put someone you trust between it and you. Preferably not someone whose business card reads ‘Accountant, construction, dry cleaning, talent agent’. This isn’t about limiting the amount of tax you pay on your income; it’s about limiting your ability to buy a fleet of Lamborghinis just because your debut song is top of the ring tone charts. In fact, as one notable billionaire noted, you should settle for renting anything that ‘floats, flies or f**ks’.
The chances are that if you’re going to make your fortune, you’re going to have to come up with something a bit better than a website for connecting sarcastic Millennials. The good news is that opportunity is all over the place. Billionaire Mark Cuban famously sold garbage bags as a 12-year-old to buy a pair of sneakers. Later, he made his fortune by selling startups. Publishing magnate Felix Dennis (he of the above quote) launched a magazine empire on the passing mania for kung fu and then personal computers. If you can put your finger on the right pulse at the right time, then put more work into the dream than the next person, you won’t be disappointed.
All comments are welcome, but apologies in advance if you don’t get an immediate reply. The WiFi on these private yachts can be temperamental in the South Pacific…