Episode 29: The Wealth On Any Income Book – Section 3: The 5000-year Old Secret to Create Wealth – Transcript
Hi Folks, Welcome to the Wealth On Any Income podcast. This is where we talk about money tips, techniques, attitudes, information and provide inspiration. I’m your host, Rennie Gabriel.
In the previous episodes I spoke about your five year financial goal; the difference between good debt and bad debt; how good debt can support you to create wealth. We discussed how to complete a Balance Sheet and determine your net worth so you know how close you are to Complete Financial Choice™. You found out there are many sources of income in addition to a paycheck. When you focus on expenses first you’re rewarded with more income. We discussed how to measure the level of pleasure based on where you spend your money. And in the last episode we spoke about what to do if your expenses are more than your income.
Today, I will continue reading the third section of the Wealth On Any Income book. This section is where I cover the tools, tips and techniques that will lead to you having Complete Financial Choice™ in your life. Today I’ll talk about a 5000 year old secret that is responsible for creating wealth for the richest people on the planet and how to treat yourself like you matter.
It will be around 15 minutes today.
As I read, I could stumble over some words. I am not a professional voice over actor so please forgive me if that happens.
In previous sections I’ve frequently described that financial freedom is having work as a choice instead of a requirement, or money at work so you don’t have to work. This is what I call achieving Complete Financial Choice™. This is the point in time where you don’t have to depend on anyone else for your income, and I expect you to be free from consumer debt. You’ll be independent of a job, career, and even free of government support. You will have a level of income from your investments that will cover your standard of living. It could be as simple as food, utilities, minimum taxes, entertainment, travel, and contributions to the communities or organizations of your choice.
There are two ways of saving money; one is what most people use who live from paycheck to paycheck, and the other is a powerful method that has been working for 5000 years and will lead to financial freedom and Complete Financial Choice™.
Unless you are driving, sit down now and draw two circles. In the first circle you would pay all your expenses first, and then if there’s some money left over you save it. This would be a small sliver at the bottom of the circle. This is not a trick question: What might be some good reasons for saving money? Obviously since we’ve been talking about financial independence this could be one reason. But what else? You could save for the down payment on a home, or second home, or income property, a vacation, new car, more education for yourself or for children’s education, emergencies, opportunities, or starting a new business. There are lots of good reasons for saving money, and this first method is one way to do it. When there is money left over at the end of the month, if there is any, you set it aside in savings.
Now the second circle is the preferred method where you would lop off a bigger slice first. You would save a bigger percentage of your income before you pay your expenses. You would set aside 10, 15 or maybe 20% of your income. This is what I did. This is what Jerry Buss did. Jerry Buss was the person who purchased the Los Angeles Forum, the Lakers basketball team, Kings hockey team and the estate of Douglas Fairbanks, Jr. and Mary Pickford.
Right about here I usually get the question, “Should I be saving 10% of my income now, when I have all this debt I need to pay off?” My answer is yes and no. What I’m suggesting is you still must pay yourself first. It may not be 10%. Maybe it’ll be 4%, or $10 per week. But pay yourself something first. This will become very clear later on when I discuss the very high cost of waiting to invest.
This is where I ask another question: “Do you deserve to own some of the money you’re earning?” If you do, prove it! Pay yourself first. Pay yourself before you pay the telephone bill, the groceries, rent or transportation expenses. If you want to feel like you deserve to own some of the money you earn, you have to treat yourself like you do. And that means pay yourself first. You can’t wait until you feel like it first. When the action comes first, it will create the feeling.
After you’ve paid yourself first, then pay your expenses. And a part of the expenses will be your credit card or other debts.
When they’re paid off, then you can dramatically increase the percentage you pay yourself first.
Paying yourself first is not a new concept. The Richest Man in Babylon is a book written in 1936 based on some clay tablets found around the turn of the century. The tablets were between 3,000 and 5,000 years old from the ancient city of Babylon, when it was one of the wealthiest city-states on earth. The tablets tell the story of a man who got into financial trouble in Babylon, fled the city, and decided to return and clean up his act. Across 5,000 years of time, the reader is exposed to how people were taught to handle money, the excuses they had, and what it took to create wealth. As you read history, you discover people have not changed materially in 5,000 years. And, the principles of creating wealth are the same today as they were 5,000 years ago. Pay yourself first.
Maybe you’re saying, “I can’t pay myself first and have the money I need to support my standard of living.” Here’s what I’ve seen: Someone pays all their bills one month, and among them is a phone bill for $100. At the end of the month there’s nothing left.
The next month they pay all their bills and among them is a phone bill for $150. Somehow they manage to pay the phone company an extra $50. I’ll venture to say that different things come up each month, and someone else gets more money from you than they did in a previous month, and you still end up with nothing at the end of the month. What’s missing here is putting yourself at the top of the list before the bills are paid. You’ll find some way to have nothing at the end of the month, but this time you will have some money for yourself. Again, this is how you create Complete Financial Choice™.
One of my clients, an attorney, said he couldn’t possibly pay himself first. He told me he had $6,000 of bills to pay and had only received $5,500. He said, “How can I pay myself first when I’m short $500 to pay the bills?” (I find many people can relate to this, as it may have happened to them, or even be happening now.) I suggested he set aside $250, or about 5%, of what came in. I showed him he now had only $5,250 to pay toward $6,000 of bills. He was now short $750 instead of $500, and I asked, “What difference does it make? You’re short either way. But now, you have $250 that belongs to you.” He can look at that money and say he has something for the work he did. He’s not just a conduit for money to flow in one end and out the other, with nothing to show for it. Now he has something to show for it, even if it’s only $250. And psychologically, that $250 can spur him on to generate more income because now he sees he can have some of it for himself, instead of just paying bills with it.
Another client, a business owner, said he did not deserve to own any of the money he was earning. He was in serious debt and even had a savings account seized for payroll taxes he owed. He said he owed too much money to others and therefore didn’t deserve to own any of the money he earned. It was that attitude which prevented him from generating more income to deal with his creditors and support his family. Again, there is a psychological shift that occurs when you treat yourself like you deserve to own some of the money you earn. It allows you to generate more money. You no longer see yourself as a conduit or pipe, with money flowing in one end and out the other. The feeling that ‘no matter how much comes in, you still won’t have anything’ will be eliminated when you pay yourself first.
This is another example of how you can justify paying yourself first. Around 1982, Western Airlines announced to its flight attendants that it was in a financial crisis. They asked the attendants to vote on taking a 23% pay cut, or laying off 23% of them.
The attendants voted to have a job with a 23% pay cut rather than face the possibility of no job at all. I’ve met some of them. They still had a place to live, a car to drive, food to eat and so on. They lost 23% of their income up front, money they could have used to pay themselves first. When it was taken away, they figured out how to live on less.
In your situation, it will not be taken away. It will be yours to keep for the rest of your life. It becomes the money that will create the income so you no longer have to work, unless you choose to. This is where you have Complete Financial Choice™.
How smart do you have to be to do this? If someone has an IQ of 70–80 they’re smart enough. One of the people in my workshop told me about her cousin who retarded. Forget the politically correct terms. This is what the cousin said; his IQ was tested at 90. He was told when he was young he had to (read no choice) put 25% of his paycheck into savings. Because of his low IQ he was only able to get minimum wage jobs. At the time the story was told to me in 1990, he was in his mid-30s and had accumulated over $90,000 in savings. Maybe you’re too smart and that’s why it won’t work. You can figure out clever reasons why you don’t have to do this. Sometimes we’re too smart for our own good. Her cousin wasn’t smart enough to do anything other than what he was told. Maybe stupidity helps.
Only 16% of our population has twice the income of those at the poverty level at retirement age. Only about 5% are financially independent and the rest need government assistance to maintain their lifestyle. Well, in the city of Babylon 5,000 years ago, only 10% of the population had the discipline to pay themselves first and they created one of the wealthiest city-states in the ancient world. The United States is one of the wealthiest countries in the world today, and we have 10% of our population with the discipline to pay themselves first. Not much has changed in 5,000 years. And for you to think you’ll be an exception to history is to court disaster. How about if you use what’s proven effective for 5,000 years?
Here’s your opportunity to grow: Start right now to treat yourself like you matter. If you can’t start with 10%, start with 5% or 2%. Just start. If you are already doing this, increase it from where you are by paying yourself an additional 5%.
As a reminder, if you want all of the forms that were described in the previous episodes please send an email to Rennie@WealthOnAnyIncome.com and put ALL FORMS in the subject line.
In the next episode we’ll cover step 11 of the 12 steps to financial freedom, or as I like to say Complete Financial Choice™. You’ll hear how to handle emergency spending, without creating a financial disaster.
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Until next week, be prosperous. Bye, bye for now.
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