Strategy 4 SMALL FINANCE
Chapter 7. How to be financially free?
Money is a sensitive subject
and most of us have mixed feelings about it.
On the one hand we need the safety
and comfort it can provide;
on the other hand,
we fear that financial success will somehow destroy our morals.
To be sure, television
and movies have portrayed the rich
as scheming and insidious.
When was the last time you watched a show
that portrayed the rich as a “nice guy”?
I love the biblical commandment
that the love of money is the root of all evil.
Indeed, if you make money your love
and pursue wealth to the point of forgetting other things
or at the expense of other values,
you are losing,
However, let’s consider this question:
If you could do better, would you?
During your allotted time to be productive,
don’t you strive to be the best you can be?
I believe that life’s greatest satisfaction comes to those
who get into the habit of making the best of what we have.
In fact, working below our best just makes our psyche weigh.
people seem to be born for business.
We are all challenged by the seasons.
We see the earth,
the rain and the seeds
and we feel like they are urging us to exploit them.
It seems that life and nature are saying:
“Do you have the talent to create something unique from us?
We are the raw material.
Can you create something amazing while you’re here?”
You and I,
born to be in business,
shouldn’t hesitate to commit to it
– for high productivity,
for the full exploitation of our genius,
for the full exploitation of our potential in every area of our lives
– including the area that creates prosperity.
That is the nature of life.
Those who have experienced it know that it’s not how much we do,
it’s how we do everything we can with our God-given ability.
This last idea
– doing everything we can with what we have
– is at the heart of an exceptional book.
The book is called The Richest Man in Babylon by George Clayson.
It’s a pamphlet that can be read in a single session
but contains the basics.
I call it the Appetizer
for a Comprehensive Discussion on the Topic of Financial Independence
and I recommend you read it.
Our actions and the things we buy say a lot about us.
They reveal our philosophy,
our knowledge and our thoughts
– even our characteristics.
Since the outer world is always a reflection of the inner world,
they are constant commentary on our capacity
for consideration and perception.
There’s even a famous saying that says,
“What are you talking about so loudly,
I can’t hear what you’re saying.”
Here’s the truth:
Everything is a sign of something
– either right or wrong.
That is why a wise policy must not ignore the signs.
In the event that certain things in your life aren’t working as they should,
they’re also working as an early warning system,
declaring to anyone
who wants to listen
that something is up must be changed.
For example, you might consider your lifestyle in relation
to your income,
if you are spending more than you earn,
you may be committing
to slow financial suicide.
Your next installment “toy”
could be a poison on a silver platter inviting you to take it.
Take a look at what you’re doing with your current income.
Are you using it wisely,
spending no more than 70% of your total income?
Or are you living a few hundred dollars more than your income
or a few thousand dollars a month?
Look for the signs before it’s too late.
I remember saying to Mr. Shoaff:
“If I had had more money,
I would have had a better plan.”
He quickly replied,
“I would suggest
that if you had a better plan you would have more money.”
This is a statement of primary importance!
You see, it’s not the quantity that matters,
it’s the plan that matters.
What matters is not how much you consume,
but how you spend it.
Share the financial pie
When was the last time someone taught you
how to operate our economic system?
I don’t mean theoretical textbooks
but everyday economic knowledge?
Has someone ever told you the smartest way
to spend every penny you make?
I certainly wasn’t taught at all about this either
until Shoaff patiently took the job
and explained it to me.
Econometrics is undoubtedly one of the most frequently overlooked subjects
in our educational system
I say this because on my lecture tours around the world,
I often meet even well-educated people – doctors,
lawyers, senior human resource managers, even businessmen
– who don’t have a have any idea about the subject,
even how to manage their finances.
These brilliant people can read complex annual reports
but don’t seem to understand everyday economics,
the economic knowledge
to become financially independent on a steady,
ongoing and complete basis entirely predictable.
As a result of this omission,
such people do not teach this basic economic knowledge
to their children.
And so, generation after generation,
there remains the same oblivion of the magic of the free enterprise system.
So, be generous
when I need time to consider
how money is distributed to create prosperity.
Never spend your money before you have it. — Thomas Jefferson
I also find that the subject of taxation can be a bit strange
to start a discussion about creating prosperity.
Yet, throughout our lives,
whether young or old,
we must learn the necessity of paying taxes.
And even if we don’t have any,
our children must learn that
when they spend money,
they immediately become consumers.
And all consumers of goods and services,
no matter how young,
must pay taxes.
If a child is only six years old
when he first goes to the store
to buy something that costs a dollar,
the shop owner also asks for an extra six cents.
The boy will look at the price tag
and ask the shop owner
why the extra six cents.
This is the time for a full explanation.
If he had to take six cents from the boy,
wouldn’t the shopkeeper tell the boy where the money went?
After all, it was the boy’s six cents.
The boy can ask the shop owner who keeps the money.
The shop owner might explain it as tax money,
that he doesn’t keep it
but collects it for him.
Obviously the boy could ask the next two questions,
who took the money
and what it was used for.
To these questions the answers are very important.
The boy had to be explained that since we all agree to live together,
we call ourselves a society.
And for society to function properly,
there are some things we don’t just do for ourselves.
For example, each person cannot make his own piece of the street.
The cost of the machines will be extremely expensive
and it takes a lot of time to learn how to use them.
So we have government.
And a government is made up of people
who will do things that we can’t
or don’t want to do ourselves.
fire all come at a cost,
we agree to contribute some money
to the government every time we buy something.
A good archer is known not by his arrows
but by his aim. – Thomas Fuller
Understanding this is important.
All of us, whether a child or an adult,
have to learn that.
Shoaff urged me to be a happy taxpayer.
Now, I must confess it took a while
but I have finally become a happy taxpayer.
Part of this transformation happened
as I began to understand the function of taxes
and the rightness of everyone
to give their fair share.
All I’m saying is that once everything’s been calculated,
all valid deductions have been made
and you’ve made it to the last line of your income tax return,
whatever the amount,
And pay taxes with happiness,
knowing that you are raising the goose that lays golden eggs
– the golden eggs of freedom,
and business freedom.
Rich people plan for four generations.
Poor people plan for Saturday night. — Gloria Steinem
Deep down, I believe everyone should pay
– even the poorest.
I don’t put too much weight on it
even if it’s only a dollar a year.
So that’s enough.
The bottom line is
that each person should be happy with the dignity of paying his
or her share of responsibility.
There is a story about Jesus
and some of his disciples observing people coming
to make offerings to the temple.
Some people offer large sums of money.
Others offer smaller amounts.
Finally, a small old woman came
and carefully placed two zinc coins in the offering box.
Jesus pointed to the old woman and said,
“Look at this wonderful woman
who gave her two copper coins.”
His disciples were amazed.
“Two zinc coins!”
“Of all the wonderful offerings here today,
why did you choose this poor woman as an example?” Jesus said,
“She gave more than anyone else.”
“Two copper coins
– more than anyone else?
Explain to us, Master.” Jesus said,
“Yes, for her two copper coins is all she has.”
It’s OK to have your eggs in one basket
as long as you control what happens to that basket. ― Elon Musk
But let’s take a closer look at this story.
Sometimes what is not told holds a deeper lesson than what is told.
Think about what Jesus did not do.
The man who did not take the two zinc coins
from the offering box
and returned them to the old woman, said:
“Here, old lady,
we have observed that you are so poor,
that we will give you back our two zinc coins.”
What an insult if that happens!
She would probably say,
“What’s the matter,
are my two zinc coins not good enough?
They are a very substantial part of what I have.
You intend to take away my dignity?”
Of course, this scene did not happen.
And indeed that is the most profound lesson.
Here is an equation worth remembering:
Five dollars earned minus seven dollars spent equals an unhappy life. ― Jon Morrison
The 70/30 . Rule
After you’ve paid your tax liability,
you must learn to live on 70% of your after-tax income.
70% of you will spend on necessities and luxuries.
How you allocate the remaining 30% is important.
Try the following:
When you get in debt you become a slave. — Andrew Jackson
Of the 30% not spent,
give a third of your donation to charity.
Charity is the act of giving back to the community
what you have received to help those in need.
I believe contributing 10% of your after-tax income is well worth the effort.
(You can choose more or less
– depending on your plan).
Some people like to donate their money to charity
through community organizations;
Others prefer to do it themselves.
But whether you manage the money yourself
or leave it to an organization,
be sure to set aside some of your earnings to give away.
The act of giving should be taught from an early age.
The best time to teach a child to give
to charity is when he gets his first coin.
Take your child on a tour.
Take him to a place
where people really can’t help himself
so he can learn tolerance.
If the child understands,
he will have no trouble giving away the 25-cent coin.
Children have big hearts.
There is a reason why the act of giving should be taught
when the amount of money is small.
Extracting ten cents from a dollar is relatively easy.
You say, “Oh, if I had a million
I would have no problem giving a hundred thousand dollars.”
I’m not so sure.
One hundred thousand dollars is a lot of money.
We’d better start early
so you’ll develop this habit
before this big money gets in your way.
Money is always eager and ready to work
for anyone who is ready to employ it. ― Idowu Koyenik
With your next 10% of your earnings,
you’ll invest in creating prosperity.
This is the money you will use to buy,
The key issue is participation in the commercial sector,
even if it is just taking advantage of time outside of working hours.
So how can you create prosperity with 10% of your income
that you have dedicated to that purpose?
There are many way.
Let your imagination soar.
Take a close look at the skills you’ve developed at work
or through your hobbies;
you can turn these skills into lucrative businesses.
you can also learn
how to buy a product at a wholesale price
and sell it at a retail price.
Or you can also buy real estate and renovate it.
And if you’re lucky enough
to work at a place that rewards productivity,
you can work to increase your income
and use it to invest in your own equity by buying stocks.
Use this 10% to buy equipment,
products or stocks
– to get started.
No one can tell what kind of genius
is lying dormant inside you waiting
to be awakened by the spark of opportunity.
This is an exciting idea!
Why not work full-time for your job
and use your off-hours for your fortune?
And how would it feel to be able to honestly say,
“I am working to become prosperous.
I don’t work just to pay my bills.”
When you have a prosperous plan,
you will be so motivated
that it is difficult to go to bed early every night.
Capital is that part of wealth which is devoted
to obtaining further wealth. ― Alfred Marshall
The last 10% should be for savings.
I consider this to be one of the most exciting parts of your prosperity plan
as it can give you peace of mind by getting ready
for the “winters” of your life.
A Child’s Perspective
The best time to teach market economics is
when a child discovers
that he can make a little money by making himself useful.
But beyond just giving them a small amount of money,
you can show your kids how to get into real business.
For example, the kids might have two bikes
– one to ride and one to rent.
It really doesn’t have to be expensive
to get into the business;
It doesn’t take a million dollars.
And what’s exciting is
that a child can learn the basic business principles
of running General
Motors by successfully running a bicycle rental business.
Here is another idea.
Show children how to buy a two-dollar bottle of shampoo
and sell it for three dollars
– to the neighbors.
That is the operation of the market economy
products and services brought to the market.
Those are the things that make luck.
And also teach your child the advantages of being a child.
Tell the boy that some people will buy from him
just because he is a child…
Jonny went down from her house
to several other houses
and knocked on Miss Jones’ door.
Miss Jones opened the door.
Jonny said: “Miss Jones,
I would love to have a bottle of this shampoo.
It’s the best kind.
My mom uses it and a lot of people
I know don’t use it either.
She really should buy a bottle.
It’s only three dollars
and since I’m your neighbor,
I care about you.
And besides… you’re just a kid.”
Miss Jones said, “Jonny,
I’m so glad you stopped by.
I think your product is good but to be honest
I already have a lot of shampoo.”
“Let me in and check,” Jonny said…
Miss Jones, knowing her objections were futile,
said, “Okay, I’ll be your client.”
Jonny rushed home excitedly.
“I have three dollars to spend,” he said.
“If you spend all three dollars,”
you remind the boy,
“you will have nothing left to do business with.”
“Oh,” sighed Jonny,
a little disappointed.
“I already understood.”
You go on to explain:
“First, you have to save two dollars
to invest in another bottle of shampoo.
You must not spend your capital.
Capital must be carefully preserved.
What do you think if a farmer eats all his seed corn?
Stupid farmer, right?
Capital money too,
it is considered as seed money,
must be protected.
It is your only chance for another harvest.”
Jonny couldn’t argue with your explanation,
so after reconsidering the matter,
“Yes, I’ll save two dollars
so I can keep working and keep making a dollar in profit.
But you get to spend a dollar of profit, right?”
Now is your chance to show Jonny the difference
between staying poor or becoming rich.
“If I spend all my profits,
I will go bankrupt and not be happy.”
Johnny doesn’t understand.
So you take the boy to the poorest neighbor on the street and ask him,
“Do you want to live like this?”
“So, the thing is.
I can’t spend a dollar.”
“Then what can I do with it?”
“First, you have to pay taxes.”
And with children this is easy.
They will pay taxes on spending.
Next, you remind Jonny of the need for charity.
“Oh yeah, here’s ten cents for people
who can’t help themselves.
Now can I spend the rest?”
“No, no,” you reply.
“You can still end up broke
and suffer a little less.”
“Yes, yes, now what?”
Jonny was starting to lose patience.
“The next ten cents from a dollar
of your profits are for capital gains.
If you keep saving ten cents for every dollar you make,
you’ll eventually have enough money
to buy two bottles of shampoo and not just one.”
Now Jonny really got the story.
“If you can buy two bottles instead of one,
you save yourself a trip and sell more bottles.”
Capital goes where it is welcome
and stays where it is well treated. ― Walter Wriston
Next, you explain that some companies will charge a lower price per bottle
when you buy two bottles.
If they sell one bottle for two dollars,
they can sell two bottles for three dollars and eighty cents.
Jonny was so excited. “OH!” The boy shouted.
“When you sell, you’ll make even more money!”
And it’s true.
Everyone benefits from raising capital.
The company sells two bottles at a time,
Jonny saves a trip as well as a few other expenses
and he can keep the savings for himself
or pass them on to Miss Jones as a kind of “promotion”
if he buys two bottles,
instead of one.
Jonny said: “Wow, that’s really cool.
Can I spend the rest of the profit now?”
“No, we still have one more thing to do.
We will lend your money to the bank.”
“What do you mean?”
So you continue explaining.
“From your profit you need to extract ten cents
and put it into a financial institution like a bank.
They will pay you a fee to borrow your money.
They call it interest.”
“Why would the bank want to do this?”
“Because there are some projects,
for example building a high-rise building or a factory,
which require huge capital that one person cannot afford.
So we have a system
where everyone can invest their money in a bank,
so that the bank will have enough money
to lend to big projects.
This helps create more jobs,
which also helps people.
the bank will also pay you for using your money.”
“What kind of interest will they pay for the children?”
“The same kind they pay adults.”
Jonny finds this hard to believe.
“Did you say that
I will receive adult interest
even if I am still a child?”
He asked suspiciously.
“Right. My money is growing as fast as anyone else’s.”
“Can I get my money back?”
“Sure, and you will always get more than you put in.”
Can I spend the rest now?”
go out and buy ice cream.”
I bet you probably already know all of this.
But when I met Shoaff at the age of 25,
I was just as naive as Jonny.
I wonder how many adults have never been taught
how they can plan to be prosperous…
If you have children,
make sure you explain them to them
about the prosperity plan.
that if they start using the 70/30 formula at a young age,
they will become financially independent by age 40.
Then they can spend the rest
of their lives doing just what they want.
Let me give you the definition of “rich” and “poor”.
The poor spend their money and save what is left.
Rich people save their money and spend what’s left.
The amount is the same
– just the philosophy is different.
Twenty years ago,
there were two people,
each earning a thousand dollars a month.
A person who follows the philosophy
of spending money
and saving what is left;
the other follows the philosophy of saving first
and spending what is left.
Today, if you knew both of them you would call one poor
and the other rich.
Saving is like any form of discipline
because it also has a subtle effect.
At the end of each day,
week or month,
the results are often negligible.
But if left for five years,
the difference becomes very significant.
When ten years have passed,
the difference is enormous.
We can learn to save from ants
with a great philosophy called Unique Ants for two reasons:
First, an ant never gives up.
If it has to move somewhere
and you put an obstacle in its way,
it will try to climb over,
under or around the obstacle.
If you remove the obstacle,
it keeps going again.
And if you put another obstacle in its way,
the ant finds a way again
– over it,
or around it.
How long will an ant try?
An ant never gives up.
The question isn’t at what age I want to retire,
it’s at what income. ― George Foreman
What a lesson!
Is the second reason ants unique?
Guess what the ants plan for the whole summer?
And how much food does an ant collect in the summer
to prepare for the winter?
All that it can! So smart!
Do you remember the fable about the cicada?
The one who laughed at the ant about hoarding grain all summer,
and I sang and danced all the time
without worrying about tomorrow.
When the harsh winter came,
the mite died of starvation and the ant still had plenty of food left.
Poor or rich – the difference
is not too big in terms of how much you make.
What matters is how you spend what you earn.
The choice is yours.
The key to financial freedom and great wealth
is a person’s ability or skill to convert earned income into passive income
and/or portfolio income. ― Robert Kiyosaki
What do you think about the elderly?
Do you think these are people
who are a bit hopeless and who live on limited resources?
Indeed, this is the common condition of most people
who fall into the category of so-called “respectable citizens.”
Wouldn’t it be a miracle if we could change that image?
I have come to a new definition of the role of the elderly.
The main role grandparents should take is
to teach their grandchildren how to be rich,
cultured, and happy “just like us.”
Grandparents shouldn’t say,
“I’ve worked all my life and now I need help.”
They should say,
“I have worked all my life and now I can still help others.”
If you are not financially independent at the age of 40 or 50,
it does not mean that you were born in the wrong country,
live in the wrong community of the time.
It simply means you have the wrong plan.
And you’re not alone.
Most of us get off track.
When people launched spacecraft to the moon,
they knew that the spacecraft was bound to deviate from its journey.
The first set of instructions
for the guidance system will not be enough for the whole flight.
A mid-ride adjustment is required.
You and I are no different.
Over time, we must also make adjustments midway
through our own journey
if we want to become financially independent.
After all, don’t you want to be the kind of grandparent
who can serve as a role model for wealth
If you don’t find a way to make money while you sleep,
you will work until you die. ― Warren Buffett
As soon as I met him, Shoaff asked me
if I had any financial statements.
I asked, “What are financial statements?”
Shoaff patiently explained
that it is vitally important to know exactly
where you are in a serious way.
Only when you know
where you are can you have a good plan
to get where you want to go.
Doing this is not difficult.
Just list your net worth on one side of the page
and all your debts or liabilities on the other side.
Then, by subtracting liabilities from assets,
you get a figure that shows your net financial worth.
This number does not tell you
how much you are worth as an individual,
but only how much you are worth in monetary terms.
I told Shoaff,
“My financial statements aren’t going to be very good.”
“It’s not how good it looks that matters,” he said.
It’s important that you do that report.”
So I put it all into my first financial statement.
I have a lot to pay.
I owe money from my parents,
my financial company,
and several other institutions that require monthly payments.
Next, on the side write property
I have listed everything.
I write down everything I can think of.
I even counted my shoes!
After all, they are a bit worth it.
Well, it’s a shame there are so few
– after six years of work!
Surely you do much better than that.
But even if you don’t,
you need financial statements.
You do not need to post this result
to the public bulletin
or publish it to the community.
But it is extremely important
that you know the match score in your current financial plan.
With your financial statements,
start maintaining your income
and expense books in earnest.
Never let yourself say,
“I don’t know where all my money goes.”
From now on you must know exactly
where everything is going
and where everything is coming from.
Hey, I’ve discovered that just making a lot of money isn’t enough.
I know that a person can make ten thousand dollars a month
and still go bankrupt.
You say, “How can you go broke making ten thousand dollars a month?”
Very easy! Just spending eleven thousand.
And believe me,
when you make ten thousand
it is not difficult to spend eleven thousand.
As some people have said:
“If you spend more than you earn
and want to keep your prices that way,
it will be your own disaster.”
Then master what you have and your brand.
That’s where the seeds of greatness are sown
– great wealth,
great influence and a great lifestyle.
Take care and even pleasure in doing small things well.
It will help you become a sophisticated person
who understands the fundamental strategies
for prosperity and happiness.
The greater the passive income you can build,
the freer you will become. ―Todd M. Fleming
Prosperity and happiness attitude
I often say, “I hate paying taxes.”
“Yeah, you can live that way if you want to
– it’s definitely an attitude,” said Shoaff.
I’m a bit confused.
I thought that was the only attitude one should have.
I wonder what he meant…
I often say, “I hate paying bills.”
And he said,
“Yeah, you can live that way if you want to.”
I thought that was the only way.
I often say, “I hate giving away my money.”
“It’s about choosing an attitude
and lifestyle,” says Shoaff.
Finally, I asked,
“Is there another way to feel about these things?”
“What if you said, ‘I like to pay taxes
because I know it’s my part to take care of
and raise the goose that lays the golden eggs’?
What if you said:
‘I love paying my bills,
reducing my debts and increasing my wealth’?
What if you said:
‘I like to give away my money
and put it in circulation
so that it can help build a dynamic economy’?
Wouldn’t that be a better way
if you learned to ‘love’ instead of ‘hate’?”
What a wonderful way to see life!
And although it took me a
while to learn to say, reliably,
“I like,” the change in my life from hate
to love made a huge difference.
Shoaff even taught me
to pay car installments with enthusiasm.
He said, “Next time you pay $100 in recurring payments put a note
in the envelope that says:
‘I’m happy to send you this $100.’”
Laughing, he said. continued:
“You won’t believe how much this will disturb the receiver.
They don’t get that many messages.
But most importantly,
you won’t know what will happen on your side.
You will feel in control,
accompanied by a philosophy
that brings joy instead of frustration.”
You can achieve that.
Why not start today?
All it takes is the discipline to apply the 70/30 rule to your life.
It’s never too late,
young or old,
to start on the right path.
“Money and power follow attention,
so whoever can get the most attention is the person
who takes the most action and sooner
or later will get the most results.”― Grant Cardone