Provision #199: Make it Happen

Laser Provision

Money is a representation of our life energy. It is really nothing more than an idea, but it is an idea that has shaped the world for centuries. To be happy in this kind of world, we need to figure out both sides of the equation: supply and demand. That is what we’ve been trying to do for the past four months. Today we bring this series to a close.

LifeTrek Provision

This week we bring to a close our series on The Meaning and Management of Money. Some readers have said it’s about time. After four months on the subject, our longest series yet, some people are ready to think about something else. “There is more to life than money!” summarizes the feeling, on multiple levels.

These people are certainly right. There is more to life than money. But there is no dimension of life that has not been impacted by money. Money is an idea and a social construct that, for better or for worse, shapes the world in which we live, a world in which far too many have far too little. Small wonder that utopian visions and communities, from Star Trek to the Hutterites, have eschewed the idea of money as unnecessary, unhelpful, and unholy.

But as George Bailey said to his guardian angel in the movie It’s a Wonderful Life, “Money comes in pretty handy around here.” It may not have a place in heaven, but it certainly has a predominant place on earth. As such, it behooves us to get it right.

At the beginning of our series we went from the adage “time is money” to the wisdom “life energy is money.” They really are one in the same. After all, it’s our time. Each of us is given a limited amount of time on earth. What we do with that time is up to us. When we spend money, we are transferring our energy from one arena to another arena.

This recognition prompted several Provisions in this series on the concept of enough. No amount of progress on the supply side of the equation can be sufficient if there is limitless demand. A bottomless pit can never be filled. The first secret to successful money management is getting demand under control. Becoming mindful of what we truly want in life enables us to seek and be content with just enough, no more and no less. That is our first wish for anyone concerned about money. Know your limits. They’re easier to satisfy than you may suspect.

Of course satisfying your limits may require some radical surgery, such as cutting your expenses at the same time as you cut up your credit cards, but even radical surgery can be relatively painless when it comes with the anesthesia of mindful sufficiency. Know your limits and you will happily find a way to meet them.

After working the demand side of the equation for several weeks, and even with the tonic of mindful sufficiency, it became necessary to switch to the supply side in order to complete our series. It’s interesting that this is the point at which some people became critical of the series. As long as we were preaching prudence, everyone could get on board • especially at a time when the stock market was tanking. But as soon as we started talking about ways to make enough money to satisfy our heartfelt desires (heartfelt in the best sense of the word), some people became concerned that we were advocating the lifestyles of the rich and famous.

In a way, I guess we were. But not in the way you think. We believe that people have the ability to discern their authentic consumption levels. This goes for food as well as for every other commodity. By paying attention, we can figure out the things that make our souls come alive. Not plastic things, that titillate but do not satisfy. But real things, that nourish the body, mind, and spirit.

These things can change over time, but the basic principle of paying attention to what nourishes the soul will not lead us astray.

Once we know, we can begin to make the shifts that enable us to take advantage of all aspects of what Robert Kiyosaki calls The Cashflow Quadrant (Click): We can draw money as an Employee, a Self-employed, a Business Owner, and an Investor all at the same time. We can stop wasting and start making money. We can save and give money as part of a regular investment plan. We can take advantage of real estate, corporations, and networking in order to enhance our final position. In short, we can do what we’re called to do in order to live the life we’re called to live.

That is our second wish for anyone concerned about money. Know your potential. Learn how to make the system work for you. You can, of course, drop out and live a meager lifestyle. There is a great spiritual traditional here that we recognize and respect. But you can also drop in and live a sufficient lifestyle. Sufficient to meet your needs and the needs of the world. Sufficient to make you sing of the goodness and mercies of God.

Please contact us if you would like to pursue this further through personalized coaching. Next week we start The Art of Listening. One woman has already subscribed her husband for the new series! J It’s a skill most of us could stand to hone.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC

Provision #198: Network Yourself

Laser Provision

What’s the next best thing you can do for yourself financially? Network yourself! This takes extending yourself on behalf of others. It’s not just who you know, it’s how you care for who you know. Once people know you care, you will never be stuck again. You’ll end up with the Midas touch for financial independence.

LifeTrek Provision

We’ve been talking about ways to improve your cash flow by working smarter rather than harder. That sounds like a clich•, but it contains an important truth that really can make a difference in your life.

Here’s the bottom line: the more your cash flow comes from your own effort and activity, either through employment or self-employment, the harder you have to work to get more cash to flow. The more your cash flow comes from the effort and activity of others, either through business systems or investments, the smarter you have to work to get more cash to flow. In other words, you have to learn how to work the system.

In recent weeks, we’ve talked about investments in the stock market, commercial paper, and real estate. We’ve also talked about the importance of having one or more corporations wrapped around your assets, in order to gain tax advantages, legal protections, and access to capital. But there’s another, equally important, way to smartly improve your cash flow: network yourself. The more people you have on your team, working for you, the more doors will open and the easier life will be.

Networking starts as a lifestyle before it ever becomes a revenue-producing business system. To get to the system you have to have the lifestyle. Too many people wait until they’re forced into a transition to start thinking about networking. In other words, they wait until they need something from other people to start thinking about other people. That is a surefire way to have a less-than-effective network and a less-than-adequate cash flow.

The networking lifestyle, at its best and when it has integrity, is about compassion, courtesy, and caring. It is about love. In his best-selling book The Road Less Traveled (Click), psychiatrist M. Scott Peck defined love as “the will to extend oneself for the purpose of nurturing one’s own or another’s spiritual growth.” That may sound like a strange concept to introduce during a series on the meaning and management of money, but unless we love other people in Peck’s sense of the word our net will never work for us.

Notice that Peck does not equate love with the feeling of being in love. Peck equates love with something you choose and do. It is the willful act of extending oneself for others. When was the last time that you went out of your way to show someone that you cared? When was the last time that you were nice to someone? When was the last time that you chose to do something that would nurture someone’s spirit, not because of the quid pro quo of what they can do for you, but simply because you loved them?

This doesn’t always, and in fact doesn’t usually, take on grand or heroic proportions. It can be as simple as remembering their name or some item of interest, like their child’s interest in soccer or their company’s new venture, from one encounter to the next. Make notes and develop a reminder system as part of your caring for others. Nothing demonstrates your interest in people more than remembering the little things about their life and work.

Love doesn’t stop at the little things. You can also make connections for people, as an example, whether at an event or in the course of a day. You will not always be the official host, but you can always serve as a catalyst to help people interact with each other. Work the room. Whenever you see a connection that others may not see or know, make the connection. Introduce people to each other. Put two and two together. Don’t just see the connection. Do something about it. Extend yourself for others.

Even introverts can discipline themselves into the role of catalyst and connector. It may not come naturally, but it can come • once we understand that love truly makes the world go round. How does that work? By being there for others, others are there for you.

This is why so many attempts to make money through Network Marketing fail. Network Marketing is the process of recruiting others (who then recruit others, who then recruit others) to sell a product or service to their family and friends. Mary Kay, Amway, and Avon are three famous examples in the USA. You make what you sell, as well as a percentage of what everyone else in your network sells. And you do it for a small initial investment with a proven system and a large organization behind you.

Robert Kiyosaki recommends Network or Multi-Level Marketing (MLM) because it gives someone the experience of running a business system for much less money than it costs to buy a franchise (Click). Instead of reinventing the wheel, you’re given a proven system that can generate passive income and teach you the mechanics of running a business. In the process, you overcome your fears and master the art of leading people.

Unfortunately, most people in Network Marketing don’t make any money at all. Why? Sometimes it’s because they get involved with a fraudulent company. Buyers beware! More often it’s because they start marketing before they start networking. Networking is about people; it’s about compassion, courtesy, and caring. It’s about love. Get those things working in your life and the rest will follow.
May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC

Provision #197: Incorporate Yourself

Laser Provision

What’s the best thing you can do for yourself financially? Incorporate yourself! Put together a corporation that’s wrapped around your assets. This will enable you to reap great tax advantages and legal protections as well as to gain access to capital. It will also shift your thinking in important ways.

LifeTrek Provision

The best thing I ever did financially was to incorporate myself, long before I knew how to run a company or to make any money as a business owner. It took all of $40 and 40 minutes. I had to come up with a name and a statement of purpose or activities. That was the hard part. LifeTrek Coaching International probably took a day or two of conversation with my wife and business partner. The statement of purpose or activities was easier. I wanted it to be so general as to not exclude anything. I put down “consulting and coaching work with individuals, organizations, and corporations.” Other than making widgets, there’s not much we can’t do under that banner.

Why was this such a good thing to do financially? Because as soon as we had the vehicle, opportunities arose to use the vehicle. It immediately shifted our consciousness from what Robert Kiyosaki calls the “E” (Employee) quadrant to the “S” (Self-employed) quadrant. It then shifted our consciousness from the “S” (Self-employed) quadrant to the “B” (Business Owner) quadrant. And it passed along significant tax advantages all the way down the line.

Of the two shifts, in consciousness and in taxable income, the shift in consciousness was the most important. Breaking out of the “Earn–Tax–Spend” syndrome, which is part and parcel of being an Employee, starts in the mind. There is a tremendous sense of security that comes from having a paycheck every two weeks, not to mention the fringe benefits. And although no job is secure anymore, with the value of loyalty to employers and employees becoming little more than a distant memory, being an employee still has an aura of security that many people need in order to feel safe.

There is another way, however. And it starts the moment you incorporate yourself. Instead of working for the company, you are the company. How’s that for security! The trick, of course, is to make money. The money comes once the shift is made. Instead of thinking, “Where’s my next paycheck going to come from?” You start thinking, “Where’s my next customer or contract going to come from?” It totally changes the way you see the world. Once that shift is made, it’s a smaller step to start thinking, “How do I grow this company into a bigger operation that can run on its own, without my having to be responsible for every piece of the action?” That’s when you get involved with business plans, capitalization, and systems.

Long before that happens, however, you start to reap the benefits of owning a corporation. Although there are different types of corporations to own, we created an S-Corporation on the advice of our accountant. It has proven to be an exquisite decision. Between the payroll service and the accountant, we hardly have to think about reporting requirements. Income and expenses flow through the corporation, in accord with law and the policies established at board meetings. And at the end of the day, the earnings of the corporation • whatever is leftover after everything has come in and gone out • are simply added to our personal tax returns.

That may not seem like much of a benefit, and it’s certainly not complicated high-finance that’s hard to understand, but imbedded in that formula lies the key to great wealth: get the cash to flow before taxes. I’ve already mentioned the “Earn–Tax–Spend” syndrome. Once you incorporate yourself you immediately become eligible to participate in the “Earn–Spend–Tax” equation. And that’s a much more favorable equation. Plus you receive many added benefits such as protection from litigation and the ability to raise capital.

In his book Rich Dad, Poor Dad (Click), Robert Kiyosaki puts it quite plainly. “An individual with the knowledge of tax advantages and protection provided by a corporation can get rich so much faster than someone who is an employee or a small-business proprietor. It’s like the difference between someone walking and someone flying. The difference is profound when it comes to long-term wealth.”

So why don’t more people incorporate themselves? It may be a lack of understanding how profound the benefits can be. It may be laziness. It may be contentment with things being good enough. I know one person who teaches this stuff but has never gotten around to doing it! It may be internal conflicts over making the shift from the left to the right side of the cash-flow quadrant Let’s call that the fear of flying.

Coaches work with people to get over that fear and to take action. If you can find $40 and a name, it’s possible to keep your day job and to incorporate yourself at the same time. Then you gradually make the shift from “E” to “S” to “B” until you’re ready to leave the “E” behind. Let us know if you’d like to get to work on that life-changing project. We’d be happy to coach you through the process.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC

Provision #195: Play in the Sandbox

Laser Provision

After you begin to have some assets with which you can invest, it behooves you to start playing with your money before the big opportunities come along. This “playing in the sandbox” will assist you to develop your knowledge of and intuition for making money work.

LifeTrek Provision

Although I hate to borrow a line from the lottery, I want to begin this Provision with a simple truism: you can’t win if you never play. That’s as true, if not truer, for money management as for any other area of human endeavor.

Unfortunately, when it comes to money, we seldom give ourselves the permission to play. After all, money is deadly serious. If you don’t believe me, take a bill out of your pocket or purse right now and tear it up. Quite apart from that being against the law in some countries, tearing up money — even the smallest of bills • just runs counter to everything we know about those curious pieces of paper. Their power far outweighs their value.

The mystique of money has its place, since money deserves respect, but if we never get beyond the mystique we’ll forever be enslaved by money. And we’ll never have the kind of cash flow that generates and produces financial independence.

So far in this series we’ve made a few simple points: develop a vision for your life that reflects your true values, organize your life accordingly, cut your expenses, pay down your debt, save and give money regularly. Those points will take you a long way towards financial independence. But they won’t take you all the way. They are, rather, the tried and true prerequisites for financial independence. Without them, there’s no way to get in the game.

But what do we do with our money once the cash begins to accumulate? Early on, we need to set most of it aside in savings. Ideally, six months worth of living expenses in liquid assets as well as three to five years worth in low-risk investments (e.g., certificates of deposit and money market funds).

Unfortunately, most people will never know such cushions if they always play it safe with their money. That’s why I recommend setting aside a small amount to play with in the sandbox. If one never has the experience of buying and selling stock on line, for example, then one will be less than prepared for the time when real money management is required. Playing with money, even losing money, can make an invaluable contribution to our knowledge of and our instinct for making money work.

Although both knowledge and instinct are important, Suze Orman clearly believes that, when in doubt, we need to trust our gut. In other words, it’s better to be lucky than good when it comes to money. Only Orman wouldn’t call it luck. She argues in her book The 9 Steps to Financial Freedom(Click) that our instinctual response, properly cultivated, will lead us to make the right decision more often than not. When it comes to money, our money, we have the critical intuition. The voice of wisdom speaks directly to us. The trick is learning to listen for, trust, and heed that voice more than all the other voices: advisers, experts, friends, relatives, investment formulas, and programs.

To cultivate that intuition, Orman suggests that we go into a quiet room by our self • with no TV, CD player, phone, or children • in order to contemplate a variety of critical-decision scenarios to which there is no obvious right answer: getting an investment tip, cosigning a lease, inheriting stock, choosing a retirement plan, getting a new job offer, or giving your savings to your new brother-in-law, a financial adviser. By contemplating these scenarios, Orman hopes we will learn to get in touch with our inner voice as to which ones make us feel uncomfortable and which ones feel attractive.

Playing in the sandbox of the stock market is another way to learn the same lesson, first with fictitious money and then with real money.

To begin playing the market you will need to create an account at one of the many online brokerage firms. To help you select a reputable firm, visit Gomez (Click), Smart Money (Click), or Kiplinger (Click). They may well point you in the direction of E*Trade (Click), WebStreet (Click), Datek Online (Click), DLJDirect (Click), Discover Brokerage Direct (Click), National Discount Brokers (Click), or Waterhouse Securities (Click). Each has their strengths and weaknesses in terms of commissions, real-time quotes, account information, technical support, fees, online products, and research lines. Use that intuition. You decide!

From there you can set up a fictitious portfolio, from which you can begin to buy and sell both individual stocks as well as mutual funds. This serves as excellent hands-on training for both knowledge and intuition. The lessons get even more intense when you move to playing with real money. And don’t think you have to wait forever.

After you accumulate six months of living expenses in liquid assets, use the “80/20 Rule” to divide your regular savings program into working capital and play money. Set aside at least 80% in relatively safe investments such as mutual funds. Take no more than 20% in order to begin making investments based on your values and visions of life. Don’t worry about how much you make or lose. Instead, worry about doing your homework and trusting your judgment • rather than the judgment of others.

The key is to listen deeply for that inner voice. The more you know about a company or a fund the more your confidence will improve. It’s not impossible to make a difference and to make money at the same time. A few small wins will get you ready for the big opportunities as they come along.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran
LifeTrek Coaching International
121 Will Scarlet Lane
Williamsburg, VA 23185-5043
U.S.A.

Telephone: 757-345-3452
Fax: 772-382-3258

Provision #194: Give Money Regularly

Laser Provision

Giving regularly goes hand-in-hand with saving regularly. They are both acts of faith, since they both demonstrate the conviction that the future can be controlled and improved. Giving also connects us with and encourages us to place our trust in others. Giving is good for the soul and other living things.

LifeTrek Provision

A longtime subscriber to LifeTrek Provisions, a close personal friend, and a dedicated Christian replied with a strong objection to the current series on the meaning and management of money. “The current preoccupation with acquiring more and more wealth,” writes my friend, “the unquestioning acceptance of a global free-market economy, and the widening gap between rich and poor that inevitably results from a profit-driven, competitive model of human relations is at odds with the New Testament ethic of sacrifice, simplicity and shared love.”

My friend also asserted that the way to true security is not “to store up riches on earth, but to store them up in heaven.” God takes care of those who care for God. My friend expressed the concern that the current series of Provisions was losing sight of this perspective, falling prey to the cultural presumption of the accumulation of money as an all-important value.

This objection deserves a thoughtful reply. It should, perhaps, be pointed out that my friend’s critique is not limited to the Christian worldview. Capitalism comes under fire from a wide variety of religious and secular viewpoints. With the collapse of the Soviet Union, capitalism has been running rampant around the globe, leaving no economy unaffected. The “widening gap between rich and poor” is a well-documented and troubling fact.

It should also be pointed out that voluntary poverty is the logical conclusion of my friend’s perspective. This represents, in fact, a basic tenet of the monastic way. Entire communities, as well as some heroic individuals, have lived throughout history without regard for the things of this world in order to stand in solidarity with the poor and to rely in perpetuity on the blessings of God. These people act courageously and tap into a deeper perspective far more often than most.

I do not deny the power of such systemic and spiritual responses to the problems of human existence. Most of us, however, my friend included, have not chosen to live in poverty as an expression of our trust in God. And most of us will not live to see the demise of capitalism, whether we view that as desirable or not. The global free-market economy is what it is, and change will come slowly if I read history and understand politics correctly.

So what’s a person to do? That’s been the focus of this series on the meaning and management of money, from the vantage point of one humble observer. I have, in fact, challenged our unquestioned participation in the consumer economy. The earn-and-spend pipeline turns out to lose more than it carries. There is no escape other than to plug the leaks • or to throw ourselves on the mercies of God. But to think that God will care for us like the birds of the air and the lilies of the field, as we mindlessly consume an ever-larger share of the world’s precious resources, is to take my friend’s point in a direction that defies both sense and sensibility. Here my friend and I no doubt agree.

What happens to our money after we plug the leaks? I have been arguing for the importance of saving and investing in the future. As Paul Zane Pilzer points out in his book God Wants You To Be Rich: The Theology of Economics (Click), saving is not just good business • it’s an act of faith, “a form of self-denial that expresses confidence in the future. A person who denies current comfort and pleasure for future happiness is demonstrating his or her belief in a destiny that can be controlled and improved.” Perhaps that’s why, in the century of the social gospel, the first modern savings institution was developed by a church in 1810 • to provide parishioners with a way of accumulating modest wealth to improve their lives and the futures of their children.

I have enough confidence in the ways of God to trust they have a place in human history. The world’s problems notwithstanding, I believe we have a future. I also believe we have the ability as well as the responsibility to prepare for that future by saving regularly and investing the balance. There is a fine line between stewardship and greed, but it does exist.

One of the ways to walk that line is to give money as regularly as we save money. The two are not incompatible, and may actually be inextricably intertwined. Saving money is not the only way to care for our future and the future of our children. Giving money to causes and people who work for a better world does the same thing, only in a different way. It also serves to remind us that we are not alone. We stand on and rub the shoulders of a great multitude, much of it sweating and striving for survival.

It is heartening to see the growth of organizations such as Responsible Wealth (Click), which makes this connection for some of the world’s richest citizens. Not only does it assist them to give their money away, it also involves them in advocacy for progressive taxation and livable wages. In other words, it moves the wealthy from charity to justice in ways that may seem both surprising and contradictory.

But once we “get” the connection between giving and saving, it becomes obvious that the good of the one depends upon the good of the many. We are one people, one world, and one future estate. It behooves us to care for ourselves and for others. In my estimation, it’s not impossible to do both. The sooner we get in the habit, the better.

Provision #193: Save Money Regularly

Laser Provision

Financial independence can be defined as never having to work for a living. Most of us are so far away from that position that it appears to be an impossible dream. But as with most impossible dreams, it begins with a single step: saving regularly.

LifeTrek Provision

The process of moving toward financial independence is simple: get control of your cash flow, save money regularly, then put that money • and eventually the money and labor of others • to work for you. That’s how its been done since time immemorial.

So far in our series on the meaning and management of money, we’ve focused on getting control of our cash flow. We’ve recognized how controlling our cash flow begins with controlling our energy flow. Although some people are given more energy than others, we all eventually run out of steam. That limitation makes our time on earth very precious indeed.

How we choose to spend that time represents what Joe Dominguez and Vicki Robin call an expenditure of “life energy.” (Click here to order.) Given that we can’t expend our life energy forever, it behooves us to align this expenditure with our purpose, values, and gifts. This is the way to true fulfillment and success.

This is also the way to financial independence. Working in a position or on a project that does not align with our purpose, values, and gifts guarantees lackluster performance, negligible learning, profound unhappiness, and chronic money problems. The magic of money • attracting all that we need and more than we need • never happens. This is not a chicken and egg conundrum. Live passionately from your purpose, values, and gifts and the money will follow.

But what do we do with the money once the cash flow is in the black month after month? Early on, the key is to create safe liquid assets that earn a solid amount of interest, month after month. Too many people start saving a little money and immediately begin thinking of how they can double or triple it by investing in some high-risk, get-rich-quick scheme. Stay away from those, even if it’s a tip from a friend, until you have accumulated six months worth of living expenses in safe, liquid assets.

That, by the way, is the definition of financial independence. How long can you live without having to work? If you can live forever without ever having to work, then you are financially independent. If this seems like an impossible dream, break it down into steps. Start by putting a fixed percentage of your gross earnings every month into a high-interest bearing account such as a Certificate of Deposit or Money Market Fund. Do this in addition to whatever you are putting aside for retirement.

The point of the first step is to create liquid cash reserves that will enable you to live for at least six months without working • if necessary — before retirement. Having these reserves is the first step to financial independence.

The second step, which occurs concurrently with the first step, is to put a fixed percentage of your gross earnings every month into a retirement account that includes a mix of stocks and bonds. If your employer does not offer an acceptable retirement plan, you may need to devise your own portfolio of tax-deferred individual retirement accounts, as permitted by law. Since your retirement fund takes the long view, you will want more than 50% of that fund to be invested in stocks.

Take a good hard look at these first two steps to financial independence. They both involve taking a fixed percentage of your gross income and setting it aside on a monthly basis. Ideally, together with any employer matches, you are setting aside 14% of your gross income for retirement and 10% of your gross income for cash reserves. That’s practically a quarter of what you earn every month, being set aside in one savings plan or another.

Once the reality of that begins to sink in, you can see why we’ve spent so much time on the issue of controlling your cash flow. If your cash flow is consistently in the red, whether through an overblown lifestyle or frequent financial emergencies, it will never be possible to save and make money work for you. You’ll forever be working for and spending the money you make. If your cash flow is consistently in the black, however, you’ll be amazed as to what you can accumulate and accomplish over a period of years.

Provision #192 Stop Wasting, Start Making

Laser Provision

After you pay down your debts it’s time to start saving money and investing in the future. That’s how people become wealthy: one dollar at a time. The key is to stop wasting and start making money • then you can start and fuel the engine that will power you to financial independence.

LifeTrek Provision

Last week we introduced you to Robert Kiyosaki’s The Cashflow Quadrant (Click), a simple way of looking at where our money is coming from and how to get on the road to financial independence. People who work for and spend their money, whether as employees or as self-employed, may never break free of the rat race. People who save and invest their money in businesses and other instruments, tangible or intangible, may gain the financial freedom to design the life of their dreams.

For most people, business ownership and other investments are a long way off. But they will never come at all unless we begin now to save for the future. Thomas Stanley and William Danko in their book The Millionaire Next Door (Click) make it clear that most millionaires know the value of money and live accordingly. They avoid over consumption and practice conservation. Savings and investments are their pride and joy, enabling them to do for themselves and for others the things that are truly important.

Stories abound of people who build significant assets on very modest incomes. On occasion they make the news, such as when the janitor leaves a six or seven figure gift to his or her favorite charity. But most of the time, wealthy people go about their business anonymously • quietly shifting their cash flow from the left to the right side of the quadrant — all the while driving 4-year old cars, eating in more than they eat out, and rarely purchasing designer clothes.

When asked to name the eighth wonder of the world, Albert Einstein reportedly replied “compound interest.” The best savings opportunity comes when we’re young. Set aside $2,000 per year for nine years before the age of 30 • a total of $18,000 • and never add to it or touch it again. Get a 9% return and you’ll have almost $600,000 by the time you’re 65. The earlier you begin the easier it is to build real wealth. But it’s never too late to start. Saving and investing money for the future is the most important thing you can do for your own and your children’s long-term financial well-being.

If you have to choose, for example, between going into debt for your child’s college education and saving money for your future — choose saving money for your future. Your child will figure out how to work and borrow the money to get through college • with a lifetime of earning potential ahead of them. You, on the other hand, may have limited years to secure the future and avoid becoming a burden on your children or on society.

In his book The Complete Idiot’s Guide to Getting Rich (Click), Larry Waschka presents two top 20 lists that will assist anyone to stop wasting and start making money. Next week we’ll talk about what to do with all that excess money in order to shift your cash flow to the right side of the quadrant and build a wonderful life.

Larry Waschka’s Top 20 Biggest Wastes of Money

  1. Buying lottery tickets and entering sweepstakes
  2. Purchasing a new car every two years
  3. Investing in whole life insurance, commodities, options, land in Transylvania, or anything else you are clueless about
  4. Buying credit life insurance
  5.  Purchasing extended warranties on appliances and electronics
  6. Taking action on a “hot” stock tip
  7. Lending money to friends
  8. Shopping on QVC or the Home Shopping Channel
  9. Claiming the wrong amount of deductions on your W-4s
  10. Getting suckered into “get rich quick” opportunities
  11. Paying fees on your checking account
  12. Using credit cards like a regular bank loan
  13. Buying name brands on a regular basis
  14. Keeping money in low-interest savings accounts
  15. Buying anything at convenience stores
  16. The car dealer extras
  17.  Shopping at ritzy clothes and grocery stores
  18. Paying an annual fee on a credit card
  19. Eating at upscale restaurants
  20. Buying food and drinks at the movies or ball games

Larry Washcka’s Top 20 Best Money Moves

  1. Saving a set amount of money month after month
  2. Avoiding illness by eating right and exercising regularly
  3. Shopping at warehouse clubs
  4. Buying term life insurance instead of whole life insurance
  5. Taking a Saturday morning and going to a few neighborhood garage sales
  6. Doing your taxes yourself
  7. Investing through mutual funds
  8. Buying generic and store brands at the grocery store
  9. Double-checking the word of a commissioned salesperson
  10. Buying clothes at thrift stores
  11. Getting wired to the Internet to find the best deals on everything
  12. Investing in income-producing real estate
  13. Being your own travel agent
  14. Finding out the dealer cost of a car before you start negotiations
  15. Being debt-free and buying most everything with cash
  16. Educating yourself about investing and being your own adviser
  17. Finding a no-fee checking account
  18. Shopping at outlet stores
  19. Eating meals at home rather than out
  20. Making “extra principal” payments on your mortgage

Provision #191: Pay Down your Debts

Laser Provision

Do you work hard for your money and have a lot of debts? If so, you may be poor even if your income is high. Financial independence begins with paying down your debts, and there’s a simple strategy to get it done.

LifeTrek Provision

Before you can start acting like you’re rich you have to stop acting like you’re poor. That sounds obvious, but there’s a lot to learn from this simple wisdom.

Two things are true about poor people: they work hard for their money and they frequently go into debt. Unfortunately, many people maintain this pattern even after they move up the ladder and start making a decent income.

Robert Kiyosaki speaks about both dynamics in his book The Cash Flow Quadrant (1998, 1999,Click). The Quadrant refers to four different ways of making money:

  • E = Employee. Most people make their money here: working for someone who promises to pay them for their time. The pay is typically in the form of wages and benefits, although there are other forms of payment such as profit sharing and stock options. People in this quadrant are attracted to the security of having a steady paycheck, although the security of the “E” quadrant is decreasing rapidly.
  • S = Self-Employed. This quadrant covers many professional people such as doctors, lawyers, and accountants. Going into business for themselves is often the next step for successful employees. It’s not uncommon for these people to work even harder than employees, but they enjoy being in control of the operation. The “S” quadrant attracts do-it-yourself perfectionists.
  •  B = Business Owner. People in the “B” quadrant make money from the work of others. They hire people to make the product, provide the service, and control the operation for them. If they go into debt, they rely on the labors of others to pay off the debt. True “Bs” love to delegate. Owning a company does not make someone a “B” unless they get out of the business of running the company.
  •  I = Investor. This is the one quadrant where it takes money • or at least the knowledge of money • to make money. Whereas the “B” makes money off of other people’s time, the “I” makes money off of their own and other people’s money. There is no way to convert money into wealth without moving into the “I” quadrant. Kiyosaki also acknowledges other forms of investment, such as education and IRAs, as a prelude to wealth building.

Kiyosaki encourages people to understand the four quadrants and how they work in order to make decisions about how much time and energy we spend in each one. The poor spend most of their time in the “E” or “S” quadrants, while the rich spend most of their time in the “B” and “I” quadrants. Being poor is not about how much money we make; it’s about how we make our money.

In addition to working hard for their money, poor people frequently go into debt. These two make for a vicious cycle. The harder we work the more money we make, the more money we make the more we can borrow; the more we borrow the harder we have to work to keep up with the payments.

There is no way to move from the “E” and “S” quadrants to the “B” and “I” quadrants if we do not break this cycle. And the only way to break this cycle is to pay down and eventually eliminate all debt that depends upon our work for payment. This includes consumer debt as well as mortgages on a primary residence.

Kiyosaki suggests the following plan for debt elimination. First, craft a lifestyle that generates at least an extra $150 to $200 per month. Be creative here. Vicki Robin, co-author of Your Money or Your Life, paid cash to purchase a large house along with three other people. This enables her to have the benefits of home ownership at a fraction of the cost.

Second, never buy anything on credit that you cannot pay for in the current month. Tear up all your credit cards except for 1 or 2, and use those only for convenience rather than for buying on time.

Third, pay the minimum due on all consumer debts except for the one with the highest interest. On this one put down that extra $150 to $200 per month until the debt is paid off. When that debt is paid off, move on to the next one • adding what you were paying on the first one to the minimum payment you were making on the second. Continue this way until all debts are paid off. The payments quickly snowball and Kioysaki believes that most people can be debt free in 5 to 7 years.

Once your debts are paid off, the considerable monthly payment you were making on the last debt becomes available for investment. Start with simple savings instruments, such as Certificates of Deposit and Money Market funds, before trying anything fancy. Once you put money into savings, never take it out until you’re ready to invest in something else.

That may sound like an impossible dream, but it’s not impossible if we craft an affordable lifestyle in the first place. There’s an old formula that suggests we save 10%, give 10%, and live on 80% of what we make. Anyone who crafts a lifestyle based on 80% of what they make • rather than 100% or 120% • will be able to quickly pay down their debt, improve their circumstances, and share their wealth with others.

Provision #190: Cut your Expenses

Laser Provision

Cutting your expenses can be a very high-yield investment: it’s completely tax-free and, when implemented properly, it can produce a sustainable as well as enjoyable lifestyle. Get into the game of cost cutting your way to success.

LifeTrek Provision

In reviewing the literature on the supply-side of the cash-flow equation, I made an important discovery: the demand-side rules the roost. As Andrew Carnegie once said, “If you can’t save money, you’ll never be rich.” Make no mistake about what this means: controlling expenses is fundamental to successful money management and cutting expenses is high-yield investing. Increase the supply-side by a dollar and you’ll either pay taxes or tax-sheltering fees on that dollar. Decrease the demand-side by a dollar and it’s completely tax-free.

An analogy can be made here to weight-management and weight-loss. In 1998, I lost 65 pounds and have since maintained my weight, with only a slight initial increase to a more sustainable level. In the process I learned how much harder it was to burn calories (the supply-side) than to never consume them in the first place (the demand-side). It takes an hour of intense aerobic exercise to burn off the calories in two bagels with cream cheese. And running an entire marathon will not burn a pound’s worth of calories. Once I got this truth, I stopped eating bagels with cream cheese and “calorie awareness” became effortless, second nature, and fun. I didn’t want to gain the weight back again.

So too with money. Controlling and cutting your expenses (the demand-side) is the best financial investment you’ll ever make. For one thing, like those bagels with cream cheese, if you don’t control the demand-side • the supply-side will never produce the life and shape you want. Once you see controlling and cutting your expenses as a high-yield investment, it too will become effortless, second nature, and fun. Instead of feeling deprived, you will rejoice with every positive move to control and cut.

So far in this series we haven’t given too many specific suggestions on how to do this, other than to state the obvious: it starts from within. Without a clear vision of the life you want to live, you will never get a handle on your spending. Coaches often work with clients at precisely this point: getting crystal clear about their priorities and getting motivated as well as organized to do nothing that detracts or distracts from those priorities.

Truth be told, that is the most important suggestion of all: identify your own, unique spending triggers and institute systems that automatically and effortlessly prevent you from pulling those triggers unawares. The point is not to never spend money. The point is to never spend money mindlessly, and to never rationalize spending more money than we can truly afford. Just as we need to know the calorie level that will maintain optimal weight, so too we need to know the spending level that will maintain optimal wealth. From this baseline we can build the life of our dreams.

That said you might want to consider the following suggestions for cutting expenses from The Complete Idiot’s Guide to Investing Like a Pro by Edward Koch and Debra DeSalvo (2000, Click):

  • Track your expenses accurately, honestly, and concurrently. You can’t control or cut what you don’t know. This tracking may identify “money leaks” that we can cut: late fees, daily extravagances, eating out, and keeping things we don’t want. Cutting expenses begins with money mindfulness.
  • Cut your taxes. The options abound for pre-tax expenditures, offsetting gains with losses, charitable contributions, tax-free income, and deductible interest payments. See a good tax advisor.
  •  Buy in bulk, but never more than a three-months supply. In the name of bulk buying • “Look at how much I’m saving!” • many people end up overstuffing their lives and overspending their budgets.
  • Buy rather than lease a car, if you need one at all, unless you need a new car every two or three years or you don’t expect to live more than two or three years. After four years, the economics favor buying. After eight years, you will have maximized your investment.
  • Choose a low-cost bank and eliminate as many demand accounts as possible. Checking accounts, for example, can be replaced with private money market accounts that generate higher interest and charge lower fees.
  • Buy term rather than whole or universal life insurance. Term insurance is the lowest cost.
  • Eliminate credit card debt. The interest charges here are real killers. Robert Kiyosaki in his book The Cash Flow Quadrant (Click) spells out a simple strategy that we’ll talk about in a future issue of LifeTrek Provisions.

Suggestions like these, when properly implemented, can assist anyone to improve their cash flow and financial position. The key to sustaining them over the long haul • like sustaining a new eating regimen after a diet • is turning them into enjoyable new habits. Once that happens you will be well on your way to financial independence.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC

Provision #189: Escape the Rat Race

Laser Provision

There is a place of balance between affluence and awareness. Too often we’re out of balance • having either too much or too little, without much appreciation for the present moment. Before turning to cash flow and debt reduction in order to break out of the rat race, let’s strike one last perspective on having enough.

LifeTrek Provision

We’re in the middle of a series on the meaning and management of money. We’ve been trying to understand how to break free of the rat race, that vicious cycle of making and spending more. Around and around it goes. The more we make and spend, the more we have to make and spend. Like fire and gasoline • each useful in its own right • making and spending can combine to create a towering inferno.

How do we break free of the rat race? It begins with the spending side of the equation. There is no other place to start, because there is always more to have. Today is Super Bowl Sunday in the United States, another one of those all-out glitzy reminders of just how extravagant we’ve become in our spending. It takes a conscious and courageous choice to live differently, to say enough is enough, and to fashion the vision of a satisfying yet sustainable life.

For the past several weeks, we’ve been talking about how to do just that. It begins with outrage and anger at what the rat race has done to us and to others. Until one sees the problem, no change is possible. We mindlessly get up every morning to go through the motions all over again, regardless of how tired and bankrupt they leave us every evening. Our wanting more drives an impossible dream and an intolerable life.

Sociologist Philip Slater made the point more than three decades ago, in his now classic work The Pursuit of Loneliness (Click), that the rat race is fueled by the fragmentation and loneliness of modern life. We end up trying to fill the void of meaning and community with ever-more elaborate devices and diversions costing ever-greater sums of money. Unfortunately, these devices and diversions only serve to isolate us further.

Once we see the problem, we can see the solution. We can develop an alternative vision for our life and the life of the world. Two weeks ago we spoke of this vision as having enough rather than as having it all. If we want to have it all, we can never be satisfied because there is always more to have. If we want to have enough • no more, no less • enough to be satisfied and free, enough to use our gifts and talents • then we can rest content in what David Whyte calls The House of Belonging in his poem by the same name (1997, Click).

I awoke this morning in the gold light turning this way and that
thinking for a moment it was one day like any other.

But the veil had gone from my darkened heart and I thought
it must have been the quiet candlelight that filled my room,
it must have been the first easy rhythm
with which I breathed myself to sleep,
it must have been the prayer I said
speaking to the otherness of the night.

And I thought this is the good day you could meet your love,
this is the black day someone close to you could die.

This is the day you realize how easily the thread is broken
between this world and the next
and I found myself sitting up in the quiet pathway of light,
the tawny close-grained cedar burning round me like fire
and all the angels of this housely heaven ascending
through the first roof of light the sun has made.

This is the bright home in which I live,
this is where I ask my friends to come,
this is where I want to love all the things
it has taken me so long to learn to love.

This is the temple of my adult aloneness
and I belong to that aloneness as I belong to my life.

There is no house like the house of belonging.

Do you catch wind of someone who has discovered that enough is enough in David’s poem? It is often accompanied by the realization of “how easily the thread is broken between this world and the next.” When it comes, we look around and discover that we are where we want to be. This is the “home in which I want to live,” the place “where I ask my friends to come,” and the context where “I want to love all the things it has taken me so long to learn to love.”

That awareness alone can liberate us from the rat race. The rat race is, after all, a race of our own making. No external authority insists that we ever or always strive for more. People can be satisfied and fulfilled with the most simple of lifestyles. Even so, there are times when awareness is not enough. People also need the affluence of having more than the bare necessities without a crushing amount of debt. The challenge is to find the place of balance between awareness and affluence.

Over the next few weeks we’ll turn to the supply side of the equation: how to generate cash flow and eliminate debt in order to strike that balance. By the time we’re through, we will have learned how to structure our finances so as to receive and behold the good life’s full dimensionality.

May you be filled with goodness, peace, and joy.

Bob Tschannen-Moran, MCC, BCC