Financial Freedom for the Rest of Your Life – Part II

In my last blog, I asked “Is it possible that just 3 simple rules will give you financial freedom for the rest of your life?” I continued, “You better believe it. It worked for me, it worked for millions and millions of others, and it will work for you. If you follow my three simple rules, you will have financial freedom, probably sooner than you ever thought possible…”
If you haven’t read that blog, please check it out now, as this is a follow up, intended to break down the three rules in more detail, and to get more personal.
Here, again, are my 3 rules:
Rule #1 – Live below your means.
Rule #2 – Save and invest the difference.
Rule #3 – Continuously improve on rules #1 and #2.
Now, the breakdown…
Rule #1 – Live below your means. This point is the beginning of building wealth, and eventually financial freedom. The 2-5% of Americans that become self-made millionaires do a few things differently than the rest of the population. They manage their money better, they take 100% responsibility for their financial success or failure (no blaming, no excuses), and they take a long term view of things. Rather than spend every penny of income or more today, they live below their means, so that, rather than working for their money, eventually their money can go to work for them, and then they can do… whatever they want!
Rule #2 – Save and invest the difference. The obvious second step, is to save the difference between their income and their spending, and then to methodically begin investing it. Don’t invest it haphazardly, willy nilly. Once you get on track with living below your means, start studying investments. Figure out which avenue suits you. Learn, try some things, improve, and keep improving. What kind of investing will you enjoy enough to get extremely good at? Some possibilities include real estate and/or real estate related, stocks and bonds, owning your own business(es), marketing, and internet based income streams. One of my primary recommendations to someone who wants financial freedom is always to try to find something you are passionate about, and figure out how to make money doing it. Gaining financial freedom, or becoming a self-made millionaire, is not a stroll in the park – you might remember ‘it is simple, but it isn’t easy’. If you don’t have a burning desire (strong reasons why you want it), and have passion for the avenue you are using to achieve it, chances of you doing what it takes to make it are not real good.
When I first started trying to live below my means, I had an extremely hard time with the adjustment (from living paycheck to paycheck). I failed several times. What makes a champion isn’t making sure you never get knocked down – it is making sure that you get up one time more than you get knocked down. Brian Tracy calls it becoming “unstoppable”, and asks the question, “How do you become unstoppable?” The simple answer is you… refuse… to ever… STOP!!! How simple is this?
Here is what finally worked for me, and hopefully it will help others. I made the habit of saving automatic, so I didn’t ever have to think about it. I stopped trying to save what was left over at the end of the month, and started to ‘pay myself first’. I set up an untouchable savings account, and I set up part of my paycheck to go into it automatically. A very important thing to remember here is the amount doesn’t matter! T. Harv Eker says, “It’s not the amount, it’s the habit!” My untouchable account had to be hard to get to, so I opened it at a different bank than my normal bank. I wrote up a full year of deposits into my savings passbook, put it in an envelope that I wrote my goals and dreams and reasons I wanted to succeed all over, taped it all over completely with scotch tape so it was impossible to open without destroying, locked it up in a small home safety deposit box, and buried that at the back of my closet. Then I hid the key separately. Then, to make it interesting, I set some savings goals, and made simple bar charts to follow my progress, and taped them to my refrigerator. I used the same scotch tape that I used to tape up the envelope with the passbook savings in it – that’s important (LOL). Every payday I marked the next bar on my charts, a little higher than the last. One chart was for a $1K goal, to open a checking account that had no fees, and paid interest on the balance. The second goal was saving for a down payment to buy a house (I was renting a dumpy efficiency apartment in a bad neighborhood when I started this, and delivering pizzas for a living). The third goal was to buy a hot tub (I think it helps to have at least one goal that is fun and glamorous and indicative of the good life that your future holds). Then, and don’t skip this step, I started visualizing my dreams, already having come true, and began looking back from that place to figure out how I did it. I learned this from one of the many books I read, and, while I didn’t get all of the answers all at once, things started improving, and my finances started changing, and over time the answers came. I still visualize today. In fact, I quit my JOB, in part, because I felt that I needed more time for dreaming and visualizing, and I figured that would benefit me more in the long run than my JOB salary and benefits.
I was able to save such a small amount at the beginning that it was almost laughable, but I will tell you what happened. I started, and my ‘journey of a thousand miles began with a single step’. I started to see progress, and I got encouraged. I started saving my spare change, so it could be added to my funds. Then I got a pay raise, and I didn’t need the extra money to live on, so I increased my automatic savings, and redid my passbook higher. My charts grew faster, and I got more encouraged. Watching my charts grow became more enjoyable to me than a lot of the stupid stuff I had been wasting all of my money on. Then I got a better job, and didn’t need the extra money for living, so I redid the passbook again, even higher. Then I called around for quotes on my auto insurance, and got a better rate, and started saving the difference. Somewhere in there I worked two jobs for a short period of time so I could save more, faster. Then I got one unexpected break or another, like an income tax refund, and I didn’t need it for living, so I saved it all. To make a long story short, God seemed to help me at every turn, once I finally helped myself by taking the first step, and goals that appeared insurmountable at the start rapidly began being reached, and increased to bigger goals. Success begets success. If memory serves me, I was initially saving $10/month or less, and in less than one year I opened that $1K no fee checking account that paid interest. I had been talking to my landlord, and getting some information, and when I opened that checking account, I think I replaced that goal with a new goal of saving money to invest in real estate (even though I didn’t even own my own home yet at the time). Anyhow, it wasn’t long after that when I bought myself a house to live in (a starter home, to be sure, but I hunted down a bargain, and within three years of buying my home, I bought my first rental property, just two blocks away, and started my passion and my path to financial freedom - real estate investing).
Finally, Rule #3 – Continuously improve on rules #1 and #2. I guess I already led into this with my personal story, but you need to get better and better at living below your means, and saving and investing the difference. You also need to become a lifelong learner. I forget where I got this quote from, but, “The learners inherit the earth, while the learned are beautifully equipped for a world that no longer exists”. Only one thing in your finances is constant – change. So don’t fight the change, but become a continuous learner, and be one of those who benefits from it. Looking at history, the times when the most people built the most wealth the fastest, were in the times of greatest change. The Great Depression hurt many, but also made those brave enough to forge ahead very wealthy, like J. Paul Getty. The automobile industry killed the horse and buggy, but it made people with the vision of Henry Ford and Harvey Firestone very wealthy. The internet created countless millionaires of those who got in early, and hurt those companies that moved slower than their competition. Don’t fight change; become a continuous learner, and embrace it.
Let me give a quick point on why it is so important that you continuously improve on living below your means, and saving and investing the difference. If I offered you a choice, would you rather have $1 million today, or one cent today, which would double every day through day thirty? If you haven’t seen this before, this will astound you. I have seen it before, and I still have to do the math from time to time, because it seems so unbelievable. The one cent today, doubled every day through day thirty, becomes $2,736,509.12 (almost three million dollars!). Good thing I taught you this, because now if you ever get this offer, you won’t make a mistake – LOL! If you still don’t believe it, it only takes about five minutes to work through the math. Start with one cent on day one, and double it twenty-nine times to day thirty. Presto - $2,736,509.12! So what is my point?
Have you heard of the rule of 72? If you have money invested, divide the percentage rate of return on your money into 72, and that is how many years it will take until your money doubles. For instance, if you have a nice, safe, CD in the bank, earning 3% interest, it will take you 24 years to double your money (72/3 = 24). Hike that up to 6% and you double your money in 12 years. Figure out how to earn 12% and you are talking about 6 years, and earn 24% on your money, and you double it every 3 years. I have made 24% and more on my real estate investments, by learning the business, learning the right way to do it, and having the discipline to stick with it. I did a nothing down deal on a single family house that earned me over $40K in less than three years (with nothing down, the return is infinite). Then, when I sold that house, I learned how to do a 1031 exchange, rolling the profit into a bigger, better house, and allowing me to defer the taxes on my $40K profit until I eventually sell without doing a 1031 exchange (if I ever do). What a great country we live in! Anything is possible! Anyhow, looking at the rates of return on investment, and how many years it takes to double your investment, how good do you think you should become at investing? ‘The more you learn, the more you earn’. I have been studying real estate, investing, finance, motivation, and success since before I bought my first rental property back in 1998, and I study them still. I read books, listen to CD’s, attend seminars, etc., on an almost daily basis. I am reading two books, plus my Bible, and listening to two CD sets (one in my truck, and one in my office) simultaneously, and I am confident I will continue to do this type of learning for many, many years to come.
This is adapted from Brian Tracy… Why do you think wealthy people have libraries in their homes? Is it because they had all of this money, and decided, hey, why not a library? Or do you suppose that they started in a small house, with a few books, and as they got more and more books, and improved themselves, and moved to progressively bigger and nicer houses, they eventually decided that, when they got their next house, they absolutely had to make sure there was a place to put all of those books?
Anyhow, I guess this is as good a point as any to start wrapping up this session. Please, if you aren’t already, start following my three rules. Make it automatic if it will help. Figure out your dreams, set some financial goals (and whatever other goals suit you), and start to chart (it is much easier when you can see your progress). Peter Drucker said, “What gets measured gets improved”. Watch and see if, over time, God doesn’t speed you on your way. ‘Whatever you can do, or dream you can do, begin it; boldness has genius, power, and magic in it.’ Best wishes!