Beruflich Dokumente
Kultur Dokumente
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Coach Yourself
to Wealth
Live the Life You Want
Martin Hawes and Joan Baker
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Contents
Preface: A better life
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C O A C H Y O U R S E L F T O W E A LT H
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C O A C H Y O U R S E L F T O W E A LT H
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Page 1
Part
1
2
3
4
3
6
9
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Chapter
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How this
book works
So, you have decided that you want to be wealthy and free.
Congratulations! That is the hardest step by far. Most people
never progress beyond the stage of wishing to be rich. You are
reading this book because you want your life to be different.
We are going to take you through the steps you need to take
in order to become wealthy and free to live the life you want.
The process we work through with clients has five main
building blocks or steps. We look at:
1. Your current position.
2. Your desired position.
3. Your freedom figure.
And then we move on to:
4. Strategies for wealth.
5. Action plans.
As you read on you will find out exactly what you need to do in
each of these areas. Here we outline the sorts of things you will
be working through under each heading.
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C O A C H Y O U R S E L F T O W E A LT H
wealth you have, how your assets are allocated, what your
current income is, how much money is being spent and where,
and what is happening to the surplusif there is a surplus.
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need to figure out where they are at and what they want. We
think that you should do a lot of preparatory work before
choosing a strategy to build your wealth, a strategy that will
work best for you. We outline the various strategies for wealth
creation and give you some guidelines to help you choose the
one that best suits your circumstances and talents.
5 Action plans
Nothing much ever gets done without a clear plan. The path to
the level of wealth that will let you live the life of your dreams
is usually a long one and could take a few years. Without a good
plan you are likely to lose your way or become disheartened
because you cannot see that you are making progress. In this section we help you build a simple plan of action that will assist you
to do the right things and let you set milestones that allow you to
celebrate your success.
Chapter
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KASH your
way to wealth
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K A S H Y O U R WAY T O W E A LT H
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C O A C H Y O U R S E L F T O W E A LT H
is the stuff that you want to take away so that you can use it
again and again to ensure you reach your dreams of a life of
wealth and freedom.
KASH will make you wealthy!
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Chapter
What is wealth
and freedom?
Having wealth and freedom is about having both the time and
the money that you need to live the life you want. Neither wealth
nor time is enough on its ownits hard to enjoy either money
or leisure without having enough of the other. Time without
money is not a lot of fun, nor is it fun having money but no
time. You need both.
It is all too easy to focus on money alone. Many people we see
have plenty of wealth but no time or freedom, when we know
that time and money are both important to having a life of
wealth and abundance.
Financially Free = Having Time and Money
Low Income/Lot of Time
Lot
TIME
May be
Semi-retired
Part-time
Unemployed
Financially Free!
May be
Single parents
Have multiple jobs
Small children
Little
Low
INCOME
9
High
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C O A C H Y O U R S E L F T O W E A LT H
Exercise 1
Financially Free = Having Time and Money
TIME
Lot
Little
Low
INCOME
10
High
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W H AT I S W E A LT H A N D F R E E D O M ?
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C O A C H Y O U R S E L F T O W E A LT H
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W H AT I S W E A LT H A N D F R E E D O M ?
Farmers, who often have a very high net worth, but who
cannot leave the management of the farm for more than
a few days and are subject to all the risks inherent in farming (commodity prices and exchange rate changes, bad
weather, etc.)
Certainly these people may be wealthyif they do a Net Worth
statement they may be worth millions of dollars. But their
wealth is not the sort that gives them financial freedom. Unless
they cash up (and put the proceeds from the sale into good
passive investments) they are still at risk, by no means secure,
and therefore are not free. They have the means or the wealth for
financial freedom, but have not chosen to become free.
Other people who give the appearance of being wealthy in
fact are not, and are a long way from financial freedom. These
are the people with good careers that yield them high incomes.
They have very nice cars (company provided, of course) and a
good house in a good area (often with a big mortgage). This is
not financial freedom eitheras soon as they stop work, the
income stops too. They have no (or little) assets and investments
to give them passive income, unless they have diverted a good
part of their salaries to investment (and few seem to do that to
any great extent). This is not financial freedom because they are
still dependent on the job that they have, and usually on their
continued career advancement.
Being rich is a capital game. It is having a lot of capital, not
just a lot of income. For true financial freedom, the income you
have must be achieved passively, not by actively working for it.
You only get significant passive income if you have a lot of
capital. To be free, your income has to come from capital
invested, not time invested.
Many people become wealthybut they do not stay wealthy.
Whatever it is that makes you rich is likely to be risky. Achieving financial freedom is about developing great wealth, and
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C O A C H Y O U R S E L F T O W E A LT H
14
Chapter
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WealthCoaches Model
for wealth and freedom
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C O A C H Y O U R S E L F T O W E A LT H
Wealth-Creating Assets;
Income; and
Security Assets.
In our model we keep each of these separate. To understand the
process, you should think of them as separate things. Nevertheless, although they are separate, they are also interrelated.
Now we start to build the model.
To begin with, you need some Wealth-Creating Assets.
Wealth-Creating Assets
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
There are really only three things that will make you this sort
of return:
A business;
Property investment or property development; and
Shares.
You do not get high returns from just anything in these
categoriesnot all businesses or property investments or
shares will give you the growth that you need to get rich. So
you need to know how to go into whichever of them you
choose. However, these are the only three categories that are
capable of giving a high enough return to grow your wealth to
financial freedom.
We have already said that the ownership of these kinds of
things is risky: your own business is inherently risky (many do
not last more than five years); property is risky because it has
high borrowings, and shares are volatile, going up and down
and sometimes only down.
The risks associated with owning these things mean that you
cannot own only these and expect to have financial freedom
you do not have financial security while you own only these.
You may have great wealth, but the risks inherent in all
Wealth-Creating Assets mean that you cannot relax and call
yourself free. Wealth-Creating Assets are by definition risky,
so that your wealth is always at risk while it is still in this kind
of asset.
Therefore, while these are the way to become rich, they are
not the endgame in themselvesyou need to have more secure
investments as well, investments that are unassailable. (More on
this soon.)
In the next step in building the model, your Wealth-Creating
Assets give you income:
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C O A C H Y O U R S E L F T O W E A LT H
Wealth-Creating Assets
Income
CONSUMPTION
Income
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
The question now arises: what are you going to do with your
surplus income after consumption? If you consume some of the
income and reinvest the remainder in risky Wealth-Creating
Assets you are unlikely to remain wealthy for long. So we come
to the next step of the model; some of your income needs to be
invested in Security Assets:
Wealth-Creating Assets
Security
Assets
Income
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C O A C H Y O U R S E L F T O W E A LT H
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
Wealth-Creating Assets
CONSUMPTION
INCOME
$
Security
Assets
Income
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C O A C H Y O U R S E L F T O W E A LT H
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
Exercise 2
Study the completed model until you are clear that you
understand the differences between Wealth-Creating Assets,
Security Assets and Income.
Make a full-page sketch in your workbook or folder.
Wealth-Creating Assets
CONSUMPTION
INCOME
$
Security
Assets
Income
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C O A C H Y O U R S E L F T O W E A LT H
KASH point
Now that you have some background knowledge of how this
process works, lets get on with your journey to wealth and
freedom.
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
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C O A C H Y O U R S E L F T O W E A LT H
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
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C O A C H Y O U R S E L F T O W E A LT H
Score analysis
80+ You are doing brilliantly! Your knowledge and skills are
very good and you are doing most of the things you need to do
to ensure that you become wealthy and stay that way. Have a
close look at any of the keys where you did not score the full
amountthat will probably give you an indication of what
you need to do to put the final touch on your wealth-creation
habits. Congratulations! You must have a great attitude.
60+ You are doing well. You must be doing most things right,
at least some of the time. Ask yourself why you are not more
consistentyou obviously know a lot about what you need to
do to become wealthy. Is your attitude stopping you? Are you
giving up from time to time? Are there particular keys that
you have neglected entirely and that you need to attend to?
If you do more of the right stuff consistently your performance
should improve rapidly.
40+ Well, you cant plead ignorance! You either have some
knowledge of what you need to do but are not doing it often
enough, or you have only just started and havent quite got
there yet. Examine the keys where you scored poorly and pick
a couple where you can take action immediately. This should
make such a difference to your performance that you will soon
implement the other keys.
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W E A LT H C O A C H E S M O D E L F O R W E A LT H A N D F R E E D O M
040 Your wealth may be in a bad state. The only way from
here is up. If you are serious about becoming wealthy you
should take a day off and read the whole book. You will never
be wealthy unless you understand and apply these keys for
wealth. Remember, anyone can do thisstart today to take
action on one of these keys. Pick a chapter, do the exercises
and make something happen today to take you on the path
to wealth.
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Part
II
5
6
7
8
Facing reality
What is stopping you?
Net worth
Where are your assets? Getting the
balance right
Chapter 9 What is coming in: Income
Chapter 10 What is going out: Expenditure flows
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39
46
51
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Facing
reality
Lets get down to business! The most important part of the path
to wealth is taking stock of where you are now. In this section
you are going to build up a picture of your current financial
position. Some of this will be about the hard numbers, such as
how much wealth you have (Net Worth) and current levels and
sources of income. Some of it will be about the soft stuff, such
as understanding why you are in the position you are inthis
may relate to your attitude to wealth or to poor habits with
money. No matter what the picture looks like, we believe that
you need to have a very firm grasp of your current financial
reality before you go any further.
Everyones reality is a little different. Most likely you have
been working hard since the day you left school or finished
whatever education or training you undertook. We have all been
told thats what we need to do to succeed in life. However, you
(and many others) have probably found that it isnt true, that
this recipe has not taken you very far. Even when you have got
further, you may not be in the place you want to be. You may
have a high Net Worth but are still having to work hard. Habits
can be hard to break!
If you are like most people, you probably find that it is taking
all your efforts just to stay in the same place. You may own a
home but still have a considerable amount left on the mortgage.
You may be working hardperhaps harder than ever before
but feel you are unlikely to make much more headway. And
you certainly wont be able to stop work very soonif at all.
Depending on your age you may have more or less anxiety about
the position you find yourself in: younger people often look at
the work and lives of those ahead of them on the ladder and
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C O A C H Y O U R S E L F T O W E A LT H
Exercise 4
Write your story about your life so far. No one will see this
unless you choose to share it, so feel free to be as detailed and
as passionate as you wish.
What has happened so far?
How are you feeling about your life at present?
What do you like about your life?
What is irritating you that you want to change?
What do you think will happen if you stay on this path?
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FA C I N G R E A L I T Y
KASH points
The purpose of this exercise is to help you get some insight and
self-knowledge about your financial position, that is, about the
path you have been following to get to here. Your writing is
likely to show you what your attitudes are to work, wealth
accumulation and spending money. You may find your story
highlights skills with money that you already have, or need to
learn. Sometimes it is only when you look at the whole story
over the years that the habits you have around money become
obvious.
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What is
stopping you?
Its a very good idea to work out what is holding you back
because you are then clear about what you have to overcome.
Exercise 5
Which of the following sound/s like you? (You may fit into
more than one category.)
I dont know what I want
Many people stay poor and waste their time and energies all their
lives because they never stop to work out what is really important
to them. Without some clarity about what really matters, people
tend to live from day to day and spend their money and time on
whims. You cant become wealthy behaving like that. If this
sounds like you, you will need to do some work on clarifying your
dreams for your life. This is very important, because if you dont
know what you want it is very hard to put together a wealthcreation plan to take you there. We find that almost nobody is
motivated by wealth for its own sakerather, people desire the
lives that wealth will give them. You will need to work out what
that life would look like.
I dont know what to do
Some people are very clear about what they want but feel that
they have no idea how to get there. You may think you are
clear about where you want to end up but you dont know
where to start or what strategy to pursue! In the following
chapters we will give you ideas for starting on the path to
wealth creation. You will want to choose a way to create wealth
that suits your skills and circumstances.
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W H AT I S S T O P P I N G Y O U ?
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C O A C H Y O U R S E L F T O W E A LT H
like these you will have to work hard to overcome them. Well
give you some ideas of how to shift these attitudesand thats
all they are, attitudes, not facts.
I dont really want to
Many people say that they want wealth and abundance in their
livesbut they want it all today and they expect it to arrive
effortlessly. In fact, they have no intention of making the effort
to move in the direction of their dreams. Changing their habits
and behaviours is simply not on their agenda so in reality they
dont want wealth and abundance enough to do anything about
creating it.
Consider what might be the biggest obstacle that has so far
prevented you from becoming wealthy. You are not
expected to know everything, be highly skilful in every area
of creating wealth, have perfect habits or attitudesnobody
does. However, it is likely that most of your problems are in
one of the areas above. Can you identify which one?
Try to work out where you are blockedit will be much
easier for you to make progress if you are clear about what
is holding you back.
Write some of your reflections in your workbookyou will
want to refer to this again and you will also find it useful
to see how far you have progressed as you go through the
coaching process. These blockages and obstacles will
disappear as you move forward on the path to wealth.
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Net
worth
$450
$20
$250
$30
$
000
000
000
000
Total
$750 000
Liabilities ()
House mortgage
Investment property mortgage
Car hire purchase
Credit card
($260 000)
($220 000)
($15 000)
($5000)
($500 000)
Net Worth
$250 000
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C O A C H Y O U R S E L F T O W E A LT H
Exercise 6
Do your own net worth statement.
Assets can include things like the family home, other
property, shares, or a business you own. You can include
vehicles, boats, sports equipment, jewellery and art, but
unless they are very valuable you are probably better to
leave them out. They only clutter up your statement and
often would be worth very little if you had to sell them
tomorrow. (The amount you paid for them is irrelevant
their value is their saleable value.)
Liabilities will include any debts you owe such as the
amount left on the mortgage, bank loans, student loans and
credit card debt. If you have hire purchase agreements (for
example, for cars or home appliances) you should include
the amounts you have left to pay.
Assets (+)
House
Shares
Investment property
Car
$
...................
...................
...................
...................
Liabilities ()
House mortgage
(...................)
Investment property mortgage (...................)
Car hire purchase
(...................)
Credit card
(...................)
Total
...................
(...................)
...................
Net Worth
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N E T W O RT H
Exercise 7
Do net worth statements for the past few years. It does not
matter if you cannot remember the exact numbers for the value
of every asset and every liabilitywhat you are trying to do is
to see how net worth changes and what affects your net worth.
Have you made progress?
How have you made progress?
What has grown in value?
What has decreased in value?
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C O A C H Y O U R S E L F T O W E A LT H
350
300
250
200
150
WEALTH
100
50
0
50
AGE
20
40
60
80
100
In fact, the graph may be more wavy than this, as there are ups
and downs on the pathyour progress towards financial wealth
and abundance is unlikely to go in a nice smooth line!
Graphing your net worth has the very positive effect of
you being able to see how you are doing at a glance. Certainly
you will have dips (and probably a few spikes as well) but the
graph should, over time, run in the right direction.
Exercise 8
Draw a rough graph of your net worth, up to whatever age
you are, and enter it into your workbook or folder. Note
that this does not need to be perfectly accuratewhat
you want to see is the way your line has moved over
the years.
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N E T W O RT H
350
WEALTH
300
250
200
150
100
DEBT
50
0
50
TIME
20
40
60
80
100
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C O A C H Y O U R S E L F T O W E A LT H
you are to having the level of wealth that you need for your
desired life. Becoming wealthy is about building net worth. You
need enough net worth to give you the passive income to do
whatever is your dream. Some people find that when they have
done a net worth statement they already have a high net worth.
Their problem is that they do not have their capital in the right
things for financial freedomtheir money is mostly tied up in
a farm, a business or a highly geared property portfolio, all of
which require a lot of management. Others find that their asset
mix is wrong to grow wealththey have a $1 million house
(Security Asset) that earns them no income and only $50 000
in Wealth-Creating Assets that earn income.
You now know what you have to work with. This helps you
make the connections between your dream and what you need
to do with your financial resources in the future.
Your net worth statement tells you how wealthy you are,
where you are starting from and if you do it regularly (say every
six months or annually) it measures your progress. It also tells
you exactly what you own.
You should be very concerned if:
Your net worth is negative, that is, you owe more than you
own.
Your net worth is not growing each year, that is, you have no
more wealth.
Your net worth is shrinking, that is, you are spending more
than your income.
This is a good time to consider what you would like to be
worth. It is also a good time to start thinking about how
much you should be worth in a year (or three years or five
years) from now.
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N E T W O RT H
KASH points
Understanding your net worth and why it is important is a key
piece of financial knowledge. Adopting an attitude to focus on
growing your net worth is one of the big changes that you will
need to make to grow wealthy.
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Now you have a number telling you what you are worth financially. However, where you have that money is also important.
Remember, some things are Wealth-Creating Assets (designed to
make you wealthier) and others are Security Assets (designed
as a store for your wealth). You need to get the balance right to
take you to where you want to be. If you want to grow your
wealth strongly you will have to have more in Wealth-Creating
Assets; if you do not want to grow your wealth strongly, if you
value security and want to have more time, you may need to
change the balance to have more in Security Assets. But first you
have to look at your allocation as it is now.
Once you have done a net worth statement, you can categorise
what you own in terms of the WealthCoaches Model. This
means deciding whether each of the things that you own is a
Wealth-Creating Asset or a Security Asset. Remember that WealthCreating Assets are things which give you high returns. They are
risky and are also likely to have high borrowings. Security Assets
have low or no borrowing. They give low returns and are low risk.
Categorising the things you currently own is a very important step. Putting each of your investment assets into its proper
category allows you to see at a glance how well you have things
balanced. It may be that you currently have too many passive
Security Assets to get the growth that is required to get rich.
Conversely, you may have too much in aggressive WealthCreating Assets and your task is to start transferring some of
what you own into Security Assets. Spending some time putting
your assets into the correct circles (the Wealth-Creating Assets
circle or the Security Assets circle) lets you see how well you have
things balanced and structured at the moment. When you see what
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Ric and Dana are in their thirties. They have no children. Ric is
working full time on their property portfolio and Dana works as
a customer services supervisor earning $45 000 a year. They
have all their net worth in Wealth-Creating Assets. They dont
even have a family home, choosing to rent instead.
At their age and stage what Ric and Dana are doing makes sense.
They can carry the risk of high borrowings (although even at
this stage they should be building a small amount of Security
Assets). Time is on their side; they can afford to be aggressive.
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C O A C H Y O U R S E L F T O W E A LT H
Carlo and Elena have too much of their net worth invested in
Wealth-Creating Assets. We think that this is too high risk at
this stage and that they should sell down at least half of the
business (worth in total about $2 million). We would like to see
this money invested in Security Assets. The couple have worked
too hard and too long to keep putting all of this achievement on
the line every dayand business is always risky.
Sometimes it is hard to know whether an asset is a WealthCreating Asset or a Security Asset. The real test for classifying
any particular item centres on whether or not the asset is likely
or able to give you a 15 per cent return. If your intention is to
get a 15 per cent return from something that you own, then it
is a Wealth-Creating Asset; if the return is likely to be much less
than this, then it should be classified as a Security Asset.
Another way to think of it is the degree of risk that an asset
hasriskier assets (business, highly geared property and some
shares) go in the Wealth-Creating Asset box.
Some things that you own belong in neither Wealth-Creating
Asset nor Security Asset. These are things that are likely to fall
in value and as such are really part of your consumption because
they will make you poorer. For example, in the net worth
example on page 39 a $30 000 car was listed as an asset (which
in a technical sense it is). However, the car is likely to fall in
value (the ones we buy always seem to). Assuming that these
people are going to keep the car, it should be categorised as
consumption (it will certainly make them poorer).
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Exercise 9
Draw another copy of the WealthCoaches Model shown on
page 19.
Allocate your assets to the various compartments and
name the assets, for example, put your family home in
Security Assets and put its market value beside itFamily
Home $500 000 (owe $120 000), and put the rental
property in Wealth-Creating Assets22 Summer St,
$350 000 (owe $290 000). This will allow you to see what
you are doing with what you have.
Look at the balance that you currently have. Is it right for
what you want to achieve? Will this asset allocation grow
your wealth? Will it grow it fast enough?
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tax)
tax)
tax)
tax)
Jim has a very good job and his annual salary after he pays
tax is $75 000. Moana works part-time as they have two small
children. They also own a rental property (still heavily
indebted), but after they have covered the expenses and paid
tax it nets an extra $7000. So their total annual income
(after tax) is $97 000.
Exercise 10
Do a personal statement of income by working out all your
sources of income after tax
Statement of income
Salary/Wages
Interest
Rental income
Dividends
Income from trust
Other
.........
.........
.........
.........
.........
.........
.........
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Wealth-Creating Assets
INCOME
Income
You probably have to collect all this information for your tax
return every year anyway. It is very useful when you are starting
to think about your financial future to have a clear sense of
where you are starting fromit will help you set reasonable
goals and it will show you which areas should get priority in
your plans.
Income matters. Even if your net worth statement shows that
you are quite wealthy, that doesnt necessarily mean you have
enough income to build the life you dream of. A couple who
own a valuable house may have a net worth of hundreds of
thousands of dollarsbut you cant eat that or pay bills with it.
One of the other benefits of doing an income statement
is that it makes you very conscious of how much money flows
into your handseven if you have convinced yourself that you
do not earn enough to ever be wealthy and free to live your
dream life.
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What are you doing with your money now? Where is it going?
Dont feel too bad if you dont knowhardly anyone we have
ever coached had a good sense of where exactly the money was
going. It just went!
Now is a good time to have a good look at what you are
currently doing with your money every week and month. You
have already done a net worth statement and the sums to see
what annual income you have. People we work with often find
these exercises quite shocking. They often say things like, I cant
believe I have this amount of income and yet I never have any
money or I have been earning well for years and yet I have
nothing to show for it or Given how much income I have, why
dont I seem to be able to be or do or have any of these things
I say I want in my life?
These reactions are not from stupid people, rather they come
about because we are often shocked when we finally write down
our expenditures and look at the numbers. Perhaps its because
we secretly know that we are not going to like what we see
that we avoid ever doing these sums!
Exercise 11
Ask yourself:
Am I always in debt?
Is there any money left over in each pay period?
Am I living from one pay cheque to the next?
Do expenses like rates come out of the blue?
Do I have blow-outs in certain areas or at certain times?
Do I resist the idea of a plan/budget?
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Jim and Elena both work and have their five-year-old son Tad
cared for after school. They called us because despite both
working full time they felt that they were making no progress.
When we worked with them to track their expenditure Elena
found she was spending $350 a week at the supermarket. It
was only when she broke this into further categories that she
realised nearly $60 of that was going on hot takeaway food
on the evenings she shopped. All very understandableshe
had already put in a full day at work and the shopping made
her late in starting to prepare a meal. But Jim and
Elena identified that this was $60 that they could easily
harvest to grow a deposit on a do-up property to grow
their wealth.
Likewise, its easy to miss what you are really doing at the service
stationthat $50 of petrol may end up being $75 after each
fill when you add on the cigarettes, ice-creams, papers and
occasional groceries. Some of the other often-forgotten places
where hard-earned income leaks include the chemist (we go in
for a prescription and come out with all sorts of other goodies)
and social occasions, which tend to take on a life of their own
(we believe that we are going out for a beer and end up paying
for food and a taxi home!).
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Exercise 12
Find out exactly where the money goes. Buy a notebook and
find where every cent of your money is going. When you
have enough data (several weeks or months) add up the
expenditure under the different categories.
Its probably best to keep this quite simple to start with. If
you find that a category seems quite high, then you might
want to break it down in some detail. Unaccounted for
spending or categories like miscellaneous may also be where
your expenditure woes lie. Miscellaneous is not a slush fund
in the Bahamas! Rather it might include frightening levels of
expenditure under such sub-headings as:
Laundry
Drycleaning
Coffee
Lunches
Magazines
Taxis
Car accessories
Cigarettes
Chocolate
Treats for kids
Ice-creams
School lunches
Takeaways
Cosmetics
Flowers
Greeting cards
Babysitting
Eating out
Manicures
Hairdresser
You can file these expenses under any of the above headings
you like but dont lose sight of themthey may be the
consuming all the money that could make you rich and free.
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you feel your spending is getting away from you. And if you
spend all your income every pay period or if you have debt on
your credit card, then your spending is out of control.
Exercise 13
Write your consumption figure into the WealthCoaches Model
you used for Exercises 9 and 10.
Wealth-Creating Assets
CONSUMPTION
INCOME
Income
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Exercise 14
Copy the model below, and work out what you are doing with
your surplus income. Show where the income that is not spent
(consumed) is goingeither to Wealth-Creating Assets or to
Security Assets.
Review whether you have enough invested in WealthCreating Assets to achieve your dreams.
Reallocate income as necessary to Wealth-Creating or
Security Assets.
Wealth-Creating Assets
$ data
$ data
$ data
INCOME
$ data
Income
$ data
Security
Assets
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you can meet your big goal and live the life of your dreams?
Is too much going into Wealth-Creating Assets and
therefore unnecessarily increasing the risks you are taking?
Factors that you should consider to get the balance right for
you include:
Age Younger people have more time on their side and can
therefore afford to take more risks.
Dependents Those without children can take a more
aggressive approach to the risks of Wealth-Creating Assets.
Stage The closer you are to achieving the dream the more
you should invest in Security Assets. It makes little sense at
this stage to continue to take high risks or play double or
quits with your wealth.
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Part
III
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Exercise 15
Start thinking about what the idea of wealth represents for
you.
If you had enough money so that you did not need to work
again, how would you choose to live your life?
What would a day in that life look like?
What sorts of things would you be doing over a month in
that life?
How would a year of your dream life look?
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doing and how were you living? If you were not afraid, what
would you change in your life? Most likely you can have a great
deal of what you wantso what is it that you want?
Exercise 16
There are many different ways you can connect with your
dreams. Try the following ideas.
What would you do if you won a lottery? You would no
longer have financial constraints. You might continue to
work, but only because you like to. So what would you do?
How would you spend your time?
What would you do if you found you had only a year to
live? That concentrates the mind. Your priorities will
become very clear as you think through such a scenario.
In the time you have left on earth, who do you want to be?
What do you want to do? What do you want to have in
your life? Make lists of your answers.
This exercise asks very hard questions. Daily life usually keeps
us so busy that we never get to consider them. We all have
flights of fancy over the summer holidays when we get a few
weeks off, but we usually get back to normal fairly quickly
once the holidays are over. Thats a pity, as these are lifes most
important questions. They have engaged the best philosophical
minds for centuries, but in the end we all have to answer them
for ourselves.
Dont expect this process to be quickyou will probably
want to spend lots of time thinking about what you really want.
We stress that this is a very important part of the process, after
all, the goal of creating wealth is not money; rather it is to have
the life that wealth can allow you. You need to develop a picture
of what that life would look like for you.
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Exercise 17
More dreaming ideas.
Think back to times when you were happiest. What were
you doing? Who were you with? Who were you being?
What made those times special?
You might find it useful to draw as well as write. Some people
enjoy finding snatches of music or song lyrics that express their
desires. Others enjoy collecting images of their ideal lifeyou
could even build a collage of pictures you find attractive from
magazines.
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add to it as time goes on. You may also want to share this work
with people who are close to you and who will support you in
the achievement of your dreams.
KASH points
Self-knowledge about what is important to you and how you
want your life to be is an essential step on the path to wealth.
There is no point in accumulating wealth if you have no idea of
what matters to you. You will almost certainly find that your
attitude is changing as you do this workyou will probably be
getting quite determined that you will have the life of your
dreams and that you will learn to do what you need to get that
life of wealth and freedom. We think dreaming is a vastly
underrated habitdream as big and as much as you can. The
important thing is to commit to making some of your dreams
come true!
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your future together. You too will need to share your dreams. We
recommend you spend a lot of time talking about the life you
want to create together. If you find that you share very little in
the way of dreams you will have issues to confront other than
wealth creation.
Exercise 18
Consider whom in your life you can share your dreams
with. If you have a life partner you should work on sharing
your individual dreams and work on building a shared
dream together. Get him/her to clarify dreams. Share your
dreams. Do some of the exercises in the last chapter
individually and then compare your answers.
Negotiate a shared dream of your future together.
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What do you
really value?
Lets say it again: its not the wealth itself that is important, its
the life and lifestyle that the wealth will allow you to have. If you
dont know what matters to you, you run the risk of becoming
a miserable wealthy person rather than a miserable poor one!
You will simply be a little more comfortable in your general state
of unhappiness.
Barring unavoidable disasters, it is not necessary to be miserable. You will be making choices every day which determine what
your future will be like so you need to know what you value
really care aboutas you make these decisions and choices.
When people first talk to us about what we do there is often
an assumption that the people we work with simply want to be
rich, even filthy rich! Many assume our clients only care about
money and only care about themselves. Nothing could be further from the truth.
Something prompted you to pick up this book. Perhaps you
want more choice and control in your life or you yearn for a
better future than the one you are facing at the moment. Many
will be seeking radical change in their lives and fortunes. The
better you understand what is driving you, the easier it will be
to get started on the change.
Over and over again we have found that the people we work
with are driven by very attractive values. The details of what they
dream of varyyoud expect that. However, when you strip
away those differences we find that people want to make sure
that all the good values are metthings like:
family
leisure time
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love
security
personal growth
health
learning
service
success
contribution
These are the values that people are expressing when they
describe dreams of:
spending more time at home with my children;
being available to participate in childrens school and sporting lives;
training my sons rugby team;
taking my kids away to the bush;
spending time just being with my ageing parents;
travelling less so that I see more of family and friends;
having more time to walk/swim/play golf ;
going back to school just for me, learning how to play a
musical instrument;
building my own boat;
making sure my elderly parents can be well taken care of ;
helping some younger people succeed;
mentoring some start-up businesses; and
contributing to the community.
Its really important to know what you mean by wealth. Values
like independence, choices, security and health are all forms of
wealth. Most people never stop to think long enough to figure
out what really matters to them. We often only find out when
we have lost something or someone in our lives or when one of
our deeply held values has been violated in some way.
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Exercise 19
Its helpful to try to figure out the underlying values behind
your dreams. When you know what your core values are it is
easier to figure out different ways of meeting those values.
While we might all sign up to a very large list of worthwhile
values, typically we find that people are really driven by a small
number. In other words, when you have to choose which few
values are the most dear to you.
Achievement
Adventure
Community
Contribution
Creativity
Excellence
Family
Friendship
Freedom
Fun
Harmony
Health
Independence
Inspiration
Involvement
Love
Power
Recognition
Religion
Respect
Society
Spirituality
Sucess
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KASH points
Get to know what matters to you at a deep levelotherwise
you dont know whats worth fighting for. Clarifying your values
is all about discovering what is purposeful for you. There is no
point in pursuing wealth if you dont know what wealth really
means for youyou wont have enough sense of purpose and
meaning to sustain you on the journey. There is no point in
soldiering away to achieve a list of what others value (or
things you have been told you should value!) if you never
get what you value yourself. You will be doing a lot of work
coaching yourself to wealthmake sure that you are fighting
the battle for the right stuff for you. Above all, dont spend your
lifes energies working hard to create a future you dont want.
Having a clear set of values will help you change your
attitude and habits around money. When you are clear about
what really matters to you, you will feel much more determined
to make sure that it happens. It will also help you change your
behaviour around finance so that you build new habits that will
help you become wealthy and free.
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IV
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Whats enough?
Its really important that you know what you want so you can
direct all your efforts to making sure you achieve it. Its also
important to begin to cost those dreams and valueswhats
the bill going to be? Theres a big difference between having a
dream and knowing exactly what you will need to allow you to
live that dream. The bridge consists of converting your dreams
into concrete goals with numbers attached. Being financially
free to live the life you want is a great dream, but its a very
vague goal.
The next step is to get clear about the precise numbers required for the version of financial freedom that you want.
When you know how much you will need to live your dream
you will have your Freedom Figurea dollar figure that is the
amount of wealth you need to create. This will be different for
each individual.
The Freedom Figure is the amount of net worth that you need
to give you the passive income required to live your life in the
way that you want. This figure can vary hugely, depending on
the dream. If your dream is to have a house in Tuscany, a flat
in Knightsbridge, a house on Sydney Harbour, a loft apartment
in New York and a Lear Jet to fly between them, then your
Freedom Figure will need to be very large (perhaps $50 million!).
On the other hand, if you are perfectly happy in the house
you already have and would like, perhaps $50 000 p.a. of passive
income so you can afford to work part time, your Freedom
Figure will be much less (perhaps $1 million). Note that it is the
dream that dictates the Freedom Figurebig, expensive dreams
require big Freedom Figures and therefore require more time,
effort, energy (and risk!) to achieve.
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We often find that clients are much closer to living the life of
their dreams than they realise. People tend to think they need to
be very, very rich in dollar terms to have what they want but that
is not always the case. Sometimes modest amounts of wealth are
sufficientand what a joy to find that you are almost there! It
is a real shame to spend years and effort accumulating wealth
that you dont need just because you were unclear about what
was important to you.
When people know what they want it is relatively simple to
work out what it would take in wealth terms for them to live
that life.
Hans and Marie owned a market garden. They were in their
early forties and the kids were almost grown upone finishing
a degree and the other in the last year of high school. Hans
and Marie had worked very hard over two decades to build up
their businessacquiring more land, buying Hanss brother out
and developing the excellent relationships they had with
customers and suppliers. They worked at least six days a week
and hardly knew what a holiday wasmarket gardening is like
any other kind of farming in that it is almost impossible to get
away from.
Hans and Marie were so used to working hard that they had
never thought very much about life beyond their weekly round.
They came to us because they wanted to develop a plan to be
financially free by their early fifties, which meant they were
willing to put in another ten hard years.
After spending quite a bit of time with them working on their
dreams we estimated that they would need $100 000 a year in
addition to their home (they already owned a home, mortgage
free). The business was fairly conservatively valued at
$2.8 million. We were delighted to be able to assure them that
if they wished they could start living their dream life right away.
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The money they would get for their business would more than
amply cover the price of their dream life. If they sold the
business and invested the $2.8 million they could expect over
$200 000 p.a. in passive income. This would more than meet
the cost of their dream life. At the very least they could sell half
the business and work a great deal less.
You will need to work out how much income you need each year
to fund your dream life. If you do not intend to work for any of
that income, then it will all have to come from your investmentsas dividends, rentals or interestincome that you no
longer have to do any work for. If, for example, you decided
that you needed $100 000 a year (before tax) to live the life
you want, then you would need about ten times that amount
($1 million) invested well (returning 10 per cent before tax) to
have that amount of income. However, if you were willing
to continue to do part-time work or the occasional contract you
might well need far less in order to start your dream life.
Everyones circumstances are different. You will need to
juggle with several options to find the best mix for you. These
options are your choices; all of them involve trade-offs. The
more you want in the life of your dreams, the more you will
have to work to achieve it. If your dream life is looking very
expensive you may want to review some of the things you think
you want. For example, do you really have to have that flat in
Knightsbridge? Is it really so important to you that you are
going to keep on working for several years to achieve it? Would
you be just as happy without it? These are the sorts of things we
all have to make choices and trade-offs about.
Some peoples dreams are much more costly than others.
Clearly if your dream life is to live modestly in a less expensive
area with plenty of free time, that will be much cheaper than
wishing to live lavishly in an expensive suburb with lots of
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Exercise 20
Try to price your dreamwhat it would cost you per
annum to live that life. You have already done some work
on how much income you are consuming at present. Use
the same categories as before and consider groceries,
utilities, transport, clothes, holidays, gifts, etc. How much
would you need each year before tax in order to live your
dream life? (It is best to assume here that you will own your
house at the point you want to stop working.) This is
important, because until you know how much it will cost
you (approximately) to live the life you want, it is
impossible to say how much wealth you need to create.
Multiply that figure by 10. On the assumption that you
can get a 10 per cent return approximately (before tax) on
your wealth (and you should if it is well invested), this is
your Freedom Figurethe amount of wealth that you need
to create so that you can stop and live the life of your
dreams. Remember, this is in addition to the value of
your house.
So, if you believe that you can live the life you want on
$75 000 a year (before tax), then you will need to create
approximately $750 000 in addition to your home so that
you can stop and live the life of your dreams. The
$750 000, well invested, should give you about 10 per cent
return before tax so you should receive approximately
$75 000 p.a.
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Step 6
Multiply passive income required (Step 5) by 10.
This is the amount of investment capital you need to
live the life of your dreams.
Step 7
Add together the house(s) that you want (Steps 1 and 2)
and the investment capital needed (Step 6)
This is Stan and Anyas Freedom Figure
$900 000
$2 400 000
Exercise 21
Consider your timeframethe longer you are willing to
wait to live your dream life the easier it will be. How many
years are you prepared to wait to live the life of your
dreams?
Calculate your own Freedom Figure following Steps 1 to 7.
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Step 1
What is the value of the house you want?
$.................
Step 2
Do you want another holiday house? Value?
$.................
Step 3
What income do you need for the life of
your choice?
$.................
Step 4
What income will you receive from working
in your dream life?
$.................
Step 5
Deduct the income from working (Step 4) from
Step 3. This is the amount of passive income
that you require.
$.................
Step 6
Multiply passive income required (Step 5)
by 10. This is the amount of investment capital
you need to live the life of your dreams.
$.................
Step 7
Add together the house(s) that you want
(Steps 1 and 2) and the investment capital
needed (Step 6).
This is your Freedom Figure
$.................
You should now have a Freedom Figure and a date for when
you wish to be financially free, for example, I need to
create $2.5 million by 2012. That is, $1 million for the
house and $1.5 million to give approximately $150 000
of income (before tax) each year.
Write this information down and keep it somewhere you
can see it regularly.
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The knowledge that is important here is understanding or working out what you would need as income in order to live the life
of your dreams. This allows you to answer the question, How
much is enough? You should work on the basis that you will
need 10 times this income invested in order to give you that
income (on top of owning the home where you want to live).
Working on your dream with the actual numbers you need will
help make your journey towards wealth feel very realit takes
you away from fantasies about wealth and helps you cultivate an
attitude of reality.
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SMART goals
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One of the better ideas that you can borrow from the business world is to make your goal statements SMART:
S = Specific
M = Measurable
A = Attainable
R = Relevant
T = Time-bound
These concepts work as a kind of checklist to make sure that
your goal is clear. Lets look at each in turn and consider how
you might use the idea to firm up your goal statements.
Specific means detailed. Vague goals are impotent. The more
specific and detailed you can be, the clearer the image in your
mind about what you want. Research shows that the more
explicit or specific the goal is the better we are able to regulate
our behaviour to achieve the goal. A very precise goal is much
more compelling than a muddy idea of what you want to
achieve. If your goal was to own a lovely home, for example,
you need to make this precise by defining location, value,
style, age, number of bedrooms, school zone, etc.
Measurable refers to writing a goal in a way you can trackyou
need to be able to measure and evaluate your performance in
achieving the goal. While you could not measure or track a goal
of become more secure, you certainly can determine if you buy
a house that meets the above specifications. The more precisely
you specify the measurements of achievement the easier it is
to monitor your behaviour and keep it aligned with your goal.
Attainable is a check on whether your goal has any realism
are you capable of achieving the goal? For example, if your
desired home has a specified value of $1 million and your net
worth at the moment is $50 000, that does not appear to be
an attainable goal any time in the foreseeable future. Not that
you shouldnt dream bigyou should. But youd probably
be better to consider a more modest house to start with or
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Caseys SMART goals for owning her home look like this:
Buy a three-bedroom detached house with verandah and
garden in a suburb close to work. (Specific)
Value between $200 000 and $250 000. (Measurable)
Provide a $20 000 deposit (already have $15 000) and
make monthly payments similar to my current rent.
(Attainable)
This will meet my value of security and I really care about
that. (Relevant)
Purchase home before the end of this year. (Time-bound)
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S M A RT G O A L S
There are a lot of words here but its all really just a way of
helping yourself to tease out exactly what it is you are going to
do. And SMART goals make it much easier for you to make
them happen.
Dreams are very importantthey are powerful because we
think in pictures and we use our senses to connect with what is
important to us. We dont tend to visualise numbers and dates!
However, when it come to making your dreams a reality you will
need to be much more precise and business-likethe dream
will give you the energy but it is the clear, well-specified goals
which will form the basis of your plan of action. SMARTing
your goals will give you a great tool for turning your desires into
reality with as little wasted time and effort as possible.
Exercise 22
You should have your Freedom Figure written as a SMART
goal, for example, I will create $2.5 million (Specific) by 2012
(Time-bound). I will do this by growing my income by at least
10 per cent p.a. and by keeping my consumption at its existing
level (both Measurable and Attainable). I will invest my surplus
income in geared property in order to grow my wealth
(Relevant).
Start converting your values and dreams into specific goals.
You may find it easier to begin with a small goal or project
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Your Freedom Figure is the big goal. Most people will want to
meet goals along the way, such as owning a house, growing
income, acquiring a promotion, creating a property or share
portfolioand each of these goals should be SMARTed.
KASH points
The skill that you need to acquire here is the ability to make
your goals clear and unequivocal. This skill will help you firm
up your habits around setting and meeting goals. This will be
very important when you begin to take action on the strategies
that will create your wealth.
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Its not an easy question, is it? It can seem very frivolous but
nothing could be more serious than deciding what you will
devote your attention and focus and energies to.
Now that you have calculated an approximate Freedom
Figure you should have a sense of how big the goal is. Some of
you will have enough or nearly enough to live the life you want
and will be feeling very good. Others among you may be reeling
at the price of your dream. You may have priced your dream life
at many millions of dollars and feel that:
you do not have enough years left to create that kind of
wealth;
you will have to work very hard for a long time to make that
amount of money;
you just dont want the dream enough to set a goal that high.
If this has happened to you, now is a good time to think again,
and dig down deep about what is really important to you.
Some of the things you described in your dream might be
blue sky, for example, spending winter overseas each year in
your own villa in Tuscany. You should examine your dream list
again and ask which things on it are really important for your
happiness and which are just icing. Obviously, every item you
cross off lowers the price of the dream, and that means you have
to create less wealth or work for far fewer years to achieve your
Freedom Figure.
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Nic and Maria are in their early forties with three children. Nic
has run a successful business for years and they have a
comfortable if not lavish lifestyle. When we priced their dream
life, their Freedom Figure came out at $7.75 million! Not too
surprising when you consider that it included:
When we revisited the list with Nic and Maria, they were quick
to agree that what they really wanted was a home by the sea
(and a $1.5 million one would do) and $150 000 income and
a very basic holiday home ($500 000) in the mountains where
they could take the kids fishing and tramping. This version of
their dream was priced at approximately $3.5 million. Given
that their net worth was already over $2 million this new
Freedom Figure was not out of reach within a few years if they
continued to drive the business well and kept control of their
consumption.
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Exercise 23
Now that you have done a lot of thinking about your dreams
and values you need to decide what it is that you really want.
Part of this decision is trading off between what you want
and how much you are prepared to do to get itwhat are you
willing to give up to get the dream; what part of the dream are
you prepared to negotiate on so you can achieve your dream in
a reasonable timeframe? And with a reasonable level of risk?
So what would be the perfect fit for you and your family? Dreams
need money so that they can become real. You and your partner
have to keep discussing what you really want until you are agreed
that you are willing to create the wealth that your particular dream
will cost.
KASH point
The key skill to master here is the trade-off between the cost of
the dream and the wealth you will need to accumulate. You
(and your partner) are answering the question, How much is
enough? You can choose to dream very big if you are willing
to make the huge effort that it will take to meet the cost of that
dream. Or you can choose a more modest dream life and the
probability of getting it more easily and sooner. Your choice.
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Part
17
18
19
20
21
22
23
24
25
26
27
28
29
103
106
110
114
118
122
124
126
137
141
149
156
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Chapter
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How wealth
is created
If you really want to become wealthy you first need to understand how wealth works. Many people approach wealth as if it
were a matter of luck! Others think that you have to have a lot
of money to make money. Neither is true: wealth is created
following some basic rules that you need to understand so that
you can make use of them.
Being wealthy is not about having a lot of income. It is about
having a lot of capital. The ultimate aim, financial freedom so that
you have the life you want, is to have a lot of income, but this has
to be passive incomethat is, income that you get without having
to work. Passive income can only come from capital, and so you
have to grow your capital (your wealth) so that you can get plenty
of passive income. Capitalism is the name of the game.
This sounds simple enough. But many people confuse having high income with being rich. People who have high income
(especially when it is from a job) give every appearance of being
rich (they have all the toys and trappings of the rich), but they
are not. Being rich is about having capital, capital that can
be converted into assets that will give you passive income. It is
passive income (income that you do not have to work for) that
allows you to live the life of your dreams. Then you are free to
spend your time on what is important to youand you have
enough income to do so.
Exercise 24
Look again at your net worth figure and compare it with your
level of income. Are you rich in income but poor in wealth
(probably because everything is being consumed)?
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Having lots of capital is the final objectiveremember, capitalism is the name of the game. You have to be an owner: an owner
of the right things. What you do with your income during the
time that you are trying to get rich is important. A lot of people
manage to get high incomes from their businesses or investment
activities but because of how they use this income, not all of
them get rich.
Income has four important uses:
Consumption You have to live. A proportion of your income
will have to be spent on groceries, transport, utilities, etc.
Reinvestment If you retain income (that is, do not spend it)
it is added to your capital and will grow. When income is
added to a Wealth-Creating Asset it will compound at a high
rate and so grow very quickly.
Paying for borrowings Nearly everyone who becomes rich
gears up the capital that they have by borrowing. Borrowing
reduces the amount of disposable income that you have
(because you have to pay interest) but increases the amount
of your growth of capital (because by borrowing you have
increased your Wealth-Creating Assets).
Setting capital value The income that you get from your
assets values those assets. Regardless of whether it is a business,
shares or property, the value is set by the amount of income
that comes from them. Therefore, increase the amount of
income from your Wealth-Creating Assets (business, property
investments, etc.) and you increase the value of them. For
example, an increase in the rents that you get from a warehouse that you own not only increases your income but also
makes the warehouse more valuable.
To become rich, to grow your capital quickly, you need to own
Wealth-Creating Assets, things that will give a total return
(capital growth plus income) of at least 15 per cent p.a. on your
money. As we have said before there are only three things that
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Exercise 25
Consider how you view wealth and incomehave you been
confusing the two?
Do you see income as a means to increasing wealth, rather
than as wealth in itself?
Are you focused on increasing your wealth?
How will you use your income to grow your wealth?
Do you value your income highly enough?
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Higher Asset
Values
Re-invest
Additional
Borrowings
Exercise 26
What have you been doing with your incomeis there any
surplus or are you consuming it all?
If there is a surplus where have you been putting it?
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KASH points
The critical factor is your attitude to your income, and in
particular to the increases in income that you win. Most people
simply spend it, consume it in one way or another. Of course,
when you do this, it is goneit is out of the system.
What you do with your income is critical to becoming
wealthy. Those of you who are determined to become wealthy
will keep it in the system. You will plough it back to keep the
virtuous circle of wealth turning for your future benefit: using
extra capital in your businesses as you buy new plant and
equipment, increase stock levels, add a new product range or
division, etc., or purchase more investment property or shares.
You will re-invest, continuing to strive to grow your wealth at
15 per cent or greater, compounding your returns to riches.
This is the habit that you need to create wealth.
Your attitude to your income, your knowledge of how your
income can become capital that in turn gets more income, is
critical. People become rich because they handle the income
that they have wellthey have a plan for their income and
they work the plan. They work very hard to get more income
out of their businesses and properties, not for its own sake but
for how it grows their capital. The rich use the virtuous circle,
growing their wealth with each turn.
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How wealth
is destroyed
The same mechanisms that make you rich can also make you
bankrupt! It is all too easy for the Virtuous Circle of Wealth to
go too fast, spin out of control and into a Vicious Spiral of
Bankruptcy. If you play double or quits for long enough, some
time it will be quits.
There are risks involved in chasing high returns. There are
risks involved in being in business (just look at statistics on how
many fail), risks in highly geared property, risks from shares and
any other high-return endeavour that you might try. To become
rich you have to look for high returns, always remembering that
high returns come with high risk. At any point the Virtuous
Circle of Wealth can be brokenand send you into a downward
spiral towards insolvency.
It is not just that WealthCreating Assets are risky. They
certainly are risky but these risks are exacerbated and magnified
by the two key components of the Virtuous Circle of Wealth,
borrowings and reinvestment.
Borrowings Nobody gets rich without borrowing to buy
income-earning assets. Gearing or leverage is a necessary part
of getting rich as it greatly increases the return that you will
get on your own capital. You may as well get used to the idea
that you will have to borrow to become wealthy. However,
although borrowing greatly increases the returns on your
capital, if things go the wrong way it also greatly increases
your losses. Gearing or leverage speed up the process to
wealthbut speed kills. Borrowings speed up the Virtuous
Circle of Wealth, but of course the faster you go, the bigger
the mess that can result when things go wrong.
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Exercise 27
Is all your net worth tied up in Wealth-Creating Assets? This is
a risky allocation. Read on for advice about making your
position more secure.
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Exercise 28
What Security Assets do you have?
Do you have any plans for securing your wealth?
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KASH points
The critical knowledge here is understanding how you can lose
your wealth. This should help create an attitude that will help
you build the skill to protect your wealthinvesting in Security
Assets. The habit of protecting wealth is just as important as the
one of creating wealthyou need to be sure that you are going
to keep most of what you have worked so hard to make.
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How to protect
your wealth
You need to use the Virtuous Circle of Wealth but at the same
time guard against the Vicious Spiral of Bankruptcy. It is
actually not that difficult to create wealth, but if you want to
remain wealthy and be free your wealth must be secure.
We have always been concerned about the possibility of any of
our clients losing the wealth they have created. The WealthCoaches Model is designed to help them go on the offensive to
create wealth while still having some defence plays. It allows
you to plan and structure your affairs to achieve financial freedom without being stopped halfway through by some financial
adversity. It is a plan that means you can survive the bad times so
you are still there to thrive in the good times. In order to win, it
is not enough to be able to play on the offence; you have to play
a good defensive game as well.
Money never takes care of itself! We have heard so many
passionate entrepreneurs, and share and property investors, tell
us that if they love what they do and are passionate about it, the
money will take care of itself. The truth is so different. All your
time and toil will probably be for nought if you do not take
steps to lock in some of your gains as you go.
Suffice to say here, a plan has to be developed so that money
is moved to Security Assets that will be secure, and separated
from Wealth-Creating Assets. You need a deliberate policy of
using a part of the income from your Wealth-Creating Assets
to put aside in Security Assets. The purpose of doing this is to
give you a fallback position so that if you do get caught in a
vicious spiral you will have other assets that you can use to
help you survive. Getting rich takes place over a number of
years. You want to be set up in such a way that you can weather
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Exercise 29
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H O W T O P R O T E C T Y O U R W E A LT H
KASH points
The attitude and habit of protecting wealth are the keys to
making sure you become financially free.
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With all of the above you can accumulate the sort of wealth you
need. As has already been seen (and we will show further) there
are ways of getting 15 per cent and more on your money. They are
not without risk. But they are available.
The things that are going to make you wealthy, and grow your
money at a fast enough rate must have these two characteristics:
Produce a 15 per cent return of income and capital, after tax
and any fees. You must be growing your wealth at this rate
that means that any income that you use for consumption
cannot be counted. (To get a 15 per cent return you will
almost certainly have to gear.)
Be saleable, that is, the Wealth-Creating Asset must be able
to be owned, and then sold. You cannot become wealthy by
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Most people will choose how they are going to become wealthy
by looking at activities that they are already involved in, already
have some interest in or already have some knowledge of. This
choice by default may not sound the best way, but at least it does
mean that you go into something with a bit of a start.
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Exercise 30
Before you start, before you commit any capital, just check that
the activity really is capable of making you rich. It does not have
to be the most likely way to riches but it does need to give you
a fairly good chance. On the one hand, do not enter into an
activity that you know nothing about solely because it seems to
be in the most rapidly growing industry; on the other hand,
do not go into something which you are passionate about but
which is an industry in rapid decline. The knowledge that you
need to acquire before choosing your Wealth-Creating Asset
includes understanding how you will create wealth through
property, shares or a business, and self-knowledge about which
you are best suited to. Do not rush into a venture hereyou will
be working long and hard and have lots of risk to carry so you
need to get this choice right at the start. And you must choose
only one Wealth-Creating Asset.
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123
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How to choose a
Wealth-Creating Asset
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Exercise 31
Choose the Wealth-Creating Asset which best suits your
skills and circumstances.
If you have been dabbling in several Wealth-Creating Assets
consider which to disinvestyou are unlikely to be
successful if you are spread thinly.
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Getting asset
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(15 per cent or more). This often involves making big and
radical changes.
Mike and Melba were in their early forties. Mike ran his own
professional practice and had enjoyed very high income for
years. The couple had only one child who had almost finished
tertiary study and was about to go overseas for a few years.
Mike and Melba were devoted homebodies. Melba had worked
part time (she had been an accountant) for many years but now
devoted herself to looking after their beautiful semi-rural
homestead with extensive gardens. She was talented at both
the house and garden were stunning and she had done most of
the design as well as the actual work.
They had called us because they were worried about the
future. Sure, they enjoyed a high income and a great, albeit
quiet, lifestyle. The problem was that Mike wanted, indeed
needed, according to his doctor, to slow down. However, if
Mike worked less there was less income.
As always, we began with talking about the dream. Mike
and Melba wanted a similar lifestyle with much less work for
Mike. This of course meant that they would need to find a way
to get some passive income.
We then did a net worth statement:
Assets
House
Business
Shares
$1 200 000
$200 000
$20 000
Liabilities
Business loan
$50 000
Net worth
$1 370 000
Mike was doing very well, bringing home $150 000 after tax
each year
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Wealth-Creating Assets
$130 000
Security Assets
Income
$20 000
$150 000
The picture tells the story: Mike and Melba looked very wealthy
from the outsidepeople regularly stopped and admired the
house and gardens. They certainly enjoyed their income
spending a great deal on entertaining at home, keeping the
house and grounds as a showpiece, and enjoying several
expensive breaks during the year.
This was an enjoyable way to live as far as it went but it was
totally reliant on Mike continuing to work hard and long and
bring in a high income. The picture showed that they had no
other source of income apart from Mike. The business was in his
name but, as most professional practices do, only provided a
name and a group of colleagues to work with. If Mike were to
sell up and leave there was a small amount of goodwill value
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G E T T I N G A S S E T A L L O C AT I O N R I G H T
Wealth-Creating Assets
$70 000
Security Assets
Income
$5000
$75 000
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G E T T I N G A S S E T A L L O C AT I O N R I G H T
Assets
House
Business
Land (for development)
Property investments
Shares
$700 000
$2 500 000
$600 000
$750 000
$25 000
$4 575 000
Liabilities
Mortgage (on land and property developments)
Net worth
$650 000
$3 925 000
The business was profitable, making $400 000 p.a. after tax.
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Wealth-Creating Assets
$80 000
REINVESTMENT
$320 000
Security Assets
Income
$400 000
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Wealth-Creating Assets
$120 000
$150 000
Rentals
Security Assets
$30 000
Income
$60 000
$180 000
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Exercise 32
Revisit the model showing your asset allocation (you did this in
Exercise 9 on p. 50).
Decide where you need to make changes: have you too little
in Wealth-Creating Assets? In this case you will need to take
from Security Assets and/or Consumption and re-allocate to
help grow your wealth.
Have you too much in Wealth-Creating Assets? In this case
you have little or no Security Assets and may need to sell
down or borrow and re-allocate some wealth to Security
Assets. You will be settling for a lower return on your
money but you will have some wealth protection.
KASH points
Understanding how your assets need to be allocated so that you
can grow your wealth sufficiently quickly to achieve your
Freedom Figure is a key piece of your financial knowledge.
Using the model you should practise re-allocating your assets so
that you get the right balance of Wealth-Creating and Security
Assets to allow you to meet your goalsthis is a skill that you
will need to return to over the years as your asset allocation will
need to be changed as the years go by.
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What if you
have a job?
Many readers will derive almost all their income from a wage
or salary. Many of you may earn a considerable amount, even
several hundred thousand dollars per annum between both partners. The problem with a career is that no matter how much
income it gives you, you cannot sell a career. The day you stop
working, the income ends. The income is entirely dependent on
your presence and time. This poses a number of issues.
If you are highly paid it seems to make little sense to give
away your high income to try your hand at wealth creation in
a field that is new to you, and risky to boot. If you decide to
continue to work you will have to make some disciplined
decisions in order to become wealthy and stay free.
Most of these decisions concern consumption. Our experience with high-earning clients is that their lifestyle matchesand
sometimes exceedstheir income. In other words, as income
levels rise they adjust their consumption upwardsmove to a
better home, drive a better (second) car, take more (and more
expensive) holidays, and buy the toys. There is considerable social
pressure on executive types to do all of the aboveboth from
within and outside their own families.
To become rich and free, a significant amount of this income
will need to be diverted into a Wealth-Creating Asset. Not only will
this imply a change of lifestyle from a consumption point of
view, but you will also have to put the time and effort into
wealth creation as well as continue your demanding job(s). Sometimes one partner gives up their job to manage this full time.
It is very difficult to run a business part time. Managing an
aggressive share portfolio would probably be easier if/once
you have the necessary skills. Managing a property portfolio is
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probably easiest if you still need to work full time, as the work
and effort can be done out of office hours.
Surprisingly, many people who have earned high incomes for
years have very little net worth. This also affects their Security
Asset portfolio. They may live in a beautiful home but have little
equity in the asset. A concerted effort needs to be made to pay
off the mortgage and get some security. Many of you who are
committed to becoming financially free will begin by trading
down to a more modest home and ensuring that it becomes
mortgage free as soon as possible.
Exercise 33
If you decide to remain employed (and self-employed as a contractor or consultant is only another form of job; you cant sell
the business), then you should take steps to maximise that
income. It is astonishing, really, how reticent many highly skilled
people are in asking for a salary increase, investigating other
employment at more lucrative rates, or upskilling themselves
at their own expense in order to be more valuable in the
marketplace. Even a relatively small increase in salary diverted
into Wealth-Creating Assets can make a great difference over a
10-year period.
Many people feel at this point that there is little that they can
do as all of their time and effort is consumed by a job. They look
at the difficulties of starting a business or developing a property
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KASH points
The knowledge gem here is the understanding that it is all
about creating a surplusno matter how large or small your
income is. If your attitude is committed to wealth creation,
you will acquire the habit of investing that surplus in
Wealth-Creating Assets.
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income. You or your partner may still have jobs. Your WealthCreating Asset will be hungry. In all likelihood it will need almost
all of its cash reinvested to keep it going. You will probably also
have borrowings (because the Wealth-Creating Asset will be
geared to give you high returns) to service.
All this means that you will need to manage income and
consumption very closely. You really need a budget. This should
be based on whatever time period is most convenient for you in
terms of income (weekly, fortnightly, monthly). The budget
should show your expected income for each period and your
planned consumption.
Most people find that given the motivation to get on the
journey to wealth and freedom they can take many dollars out
of their consumption. We would advise against making your
budget too strictif you do you are unlikely to keep to it. Its just
like dietingif you starve yourself, sooner or later you will attack
the chocolate biscuits and eat the whole packet. You want a
reasonable budget that you can live with and which will avoid
big blowouts.
By now you will be firming up on the dream for your life
and you have probably established your Freedom Figurehow
much you will need, what timeframe you want to achieve it in
and what rate of return on your Wealth-Creating Asset you will
need to reach your dream in that timeframe. Every dollar you
dont consume can be put to work in wealth creation.
Exercise 34
The first part of any budget is to look at what income you have
coming in. This could come from a number of sources:
Your job.
Your partners income.
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Wealth-Creating Assets
CONSUMPTION
INCOME
Income
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24 hours a day every day. This is the money that will make you
wealthy and buy you the life of your dreams.
We tell our clients two things:
Before you spend some money on something, imagine that
you are not spending dollars but GPG shares. (GPG is a pet
company of ours that has performed extremely well for its
shareholders for a decade. At the time of writing the shares
are trading at around 210 cents and they look like they still
have a future. Dont just take our word for it thoughcheck
them out first.) Imagine then that the currency you are
spending is GPG shares. That means that if you forgo that
suit for $800 you are gaining about 400 GPG shares.
Owning the GPG shares now may be better than owning the
suit. But in 20 years time it is far betterthe suit has gone
off to be a duster, but if GPG shares grow at 20 per cent p.a.,
they will be worth $30 670. (You should be able to buy a few
suits with that!)
Now, we are not saying do not buy a suit (or anything else for
that matter). What we are saying is think about the cost not just
in dollars today, but dollars in the future. The real cost of your
spending is the future value of the dollars you are spending
today if they had been invested well instead. There is a very real
benefit in forgoing something today for a better tomorrow.
The ability to delay gratification is a hallmark of successful
individuals in all areas of life. The success here is achieving your
dream of financial freedom.
Changing your currency to GPG shares (or some other proxy
that is meaningful to you) is a good way of recognising the
real cost of unnecessary expenditure. That cost is primarily what
you can have instead in the future. The only thing that you
need to be careful of is taking it too far, and ending up mean,
miserable and no fun to be around. Which leads us to the
second thing.
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Exercise 35
If you have not already done so, start a draft budget. There
are several websites that provide useful categories to budget
underthe main value of this is that you will not leave out
items that occur infrequently, for example, rates, car
registration, back-to-school expenses, etc.
Decide on an overall amount that you will spend per year,
for example, $30 000 after tax. What you spend this money
on is irrelevant to your wealth creationwe have no
opinions on whether you should buy vegetables instead of
wine! All that really matters is that there is a surplus left
that can be used to grow your wealth. So you will need to
choose a consumption amount that allows for enough
surplus to let you reach your Freedom Figure in the
timeframe you have chosen.
hardest; we have heard people say that their first $1 billion was
their hardest. (Well have to take their word on that!) This is just
as true for the first $100 000 (or even the first $10 000).
If you are starting with next to nothing, your first investments can only really come from increased income and/or
reduced consumption. If you are starting with a little but not
very much, reduced consumption will accelerate the process.
And dont feel hopeless if you are young and poor and with very
little available for surplusstarting early is the best wealthcreating strategy of all. Time is your biggest ally.
Many people could become financially free just by spending
less and investing the remaining money well. We have seen clients
save thousand of dollars per month from their budgets and
develop an impressive investment portfolio within a year! Living
below your means becomes a new habit quicklyand a very
rewarding one when you see the resulting assets accumulate.
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The wealthy people we coach are not mean. They are, in fact,
nearly always generous. However, almost all of them are very
mindful spenders. They know what they want and they have
what they want. But they do not have what they do not want
they are quite happy to go without if they are not getting the full
measure of enjoyment for each dollar spent.
KASH points
The key bit of knowledge you need here is to understand how
a smart budget underpins all your efforts towards financial
freedom. As you play with various options you will develop the
skill of allocating income towards the consumption essentials
(like power and food) and some valued discretionary items (for
example, entertainment, hobbies, holidays) and away from
things that are less important to you. You will find that your
attitude to spending will changeyou will start to ask whether
you want this or that item more than your dream. Over
time, you will develop the habits of the wealthymanaging
consumption well, ensuring that there is a surplus, and using
that surplus to create wealth.
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You should
maximise income
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increase you can getthat becomes the new baseline for the
following year.
The numbers on the previous page are significant even for
a modestly paid job. If you or your partner are already earning
well, then trying to increase that income will have an even greater
impact on your wealth creation. There are several strategies you
can pursue to raise your income from employment.
Get paid what youre worth Ask your manager how pay
levels are determined in your organisation. Youll be surprised
how often this works if you do your homework and have all
the facts you need. You can check out equivalent jobs in
other places by following up on ads in the paper or phoning
a recruitment agency and asking about current rates for the
work you do. Even a dollar or two an hour will make a big
difference to what you can saveand you could be talking
thousands of dollars a year depending on your job.
Ask for a raise If you are a valued employee your chances of
a raise are very goodthey wont want to lose you and they
know it will cost them more than your pay rise to recruit a
new person. Obviously you need to go about this the right
way and be ready to remind your manager of the contribution you make and your achievements at work. They are
not obliged to pay you more but you are entitled to have
your salary reviewed regularly. Make sure it happens. Asking
for a raise also sends a signal that you care and that you
expect to be valuedthat will be remembered the following
year. And if you can do whatever it is that you are being
paid for you can get yourself a raise! Dont be afraid to ask
for more.
Find a new job It is often much easier to get a pay rise by
changing jobseither to a different organisation or to a
different role. The biggest leaps in pay are usually achieved by
changing your joba new employer usually feels obliged to
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offer more. By the time they reach the point of making you
a job offer they have already invested a lot of time and money
in the process. They have seen the other available candidates
and they want you. This is the best time to look for an
increase in payunless your request is outrageous for the
role and your skill and experience level youll probably be
successful. So be ready to negotiate. You may not get all you
ask for but you will get some of it. So, polish up your CV,
have a good audit of your skills and experience and go
looking for a better job with better pay. Keep an eye on the
employment pages in the paper or on websites and get a clear
sense of what employers are looking for that you can offer.
Often the longer you stay in a job the less notice anyone
takesit can be much easier to make an impression and be
properly valued by a new employer.
Make yourself more valuable In the end, employers pay for
the knowledge, the skills and the track record you bring to
their business. No matter how you earn moneyeven if you
dont consider it very specialyou should treat your work as
a career. It pays to take every opportunity you can to learn
more. Ask your manager for training, take every opportunity
to learn new skills, both on the job and on any courses that
are on offer. Volunteer for new tasks and projects. Get a
reputation for being flexible and willing and quick to take on
new things. These attributes can be highly valued in the
workplace as hard skills.
Invest in yourself Some organisations and industries are
much better at developing their employees than others.
While a good employer will invest in your training, your
future is your responsibility. It makes great financial sense for
you to invest in yourself. This might mean paying for some
additional study, going on a course or buying yourself a PC
so that you can improve your skills. If it applies to your area
of work, take the time to read books and listen to tapes that
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will help you be better at what you do. Investing time and
money in your own development will give you a very good
pay-off over time. Its never too lateand its never too
earlyto start to make yourself more employable and more
valuable. And you should never stopthis isnt just a good
idea for young people. Choose to learn in order to earn.
Even on relatively low wages and salaries the average person
earns millions of dollars over a lifetime. If you can get your
hourly or annual pay increased by even a small amount you will
not only benefit from that this year but it could be multiplying
by 40 hours a week and 52 weeks a year for the rest of your
working life. When you use that money for wealth creation it
will make a huge difference to your future.
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Exercise 36
Choose one or more of the above (depending on your
sources of income) and start immediately on your plan to
grow your income. (This should be one of the key strategies
on your one-page planmore about that in Chapter 31.)
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Example
Objective: To grow my income from employment
Goals: Increase (pre-tax) income from $60k to $90k
(a 50% growth) within 2 years
Strategies
Ask for pay rises
Revise CV
Improve qualifications
Get high-profile
project
Get promoted
Get better job offer
Milestones
get 5% every 6 months
Updated by xx/yy/zz
Do 2 papers each year
Operational by xx/yy/zz
One grade higher by end
of year
Get offer of 50% more
Actions
Compile dossier
of achievements
Get examples
Enrol in course
Do project proposal
Make a case for review
Monitor ads, contact
recruiters, practise
interview skills
KASH points
The key knowledge here is understanding that maximising
income is fundamental to becoming wealthy. It works by
giving you more surplus to invest and also by allowing you to
borrow more (gear) and even by raising the value of your
assets (for example, a property with higher rentals is worth
more). You can revisit these ideas in more detail in Chapter 18.
You should return to the ideas in this chapter frequently and
check if you are growing your skill at maximising income.
Successful wealth creators develop the habit of always seeking
to grow income from whatever source they can.
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$150 000 in five yearsa good return. The value of the building has compounded and you have been able to avail yourself
of this effect but without using much of your own money.
While the property rose 25 per cent in value (from $400 000 to
$500 000), your capital has risen 200 per cent (from $50 000
to $150 000).
Gearing for wealth in this example looks like this:
Building cost
Deposit
Borrowed (at 10%)
Interest
Rent/Income
$400 000
$50 000
$350 000
$35 000
$35 000
Sold at
Profit
$500 000
$100 000
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peoples money work for you. But you only have to pay back
what you borrowed, not all the money you made with that
money!
This also works with income, as with rentals or profits or
dividends. Again, lets use a property example.
Suppose that you bought a building for $650 000 with a
rental of $52 000 and paid a 10 per cent deposit of $65 000.
You borrow the rest, $585 000 at 7 per cent. This means your
interest each year would be $41 000. However, your rental
income is $52 000 so you have a profit each year of $11 000
($52 000 minus $41 000). You are getting $11 000 profit on the
$65 000 you deposited. This means you are getting a 17 per cent
cash return on your investmentand thats before any capital
gain. In this example, the sums look like this:
Building cost
Deposit
Borrowed (at 7%)
Interest
Rent/Income
$650 000
$65 000
$585 000
$41 000
$52 000
Profit
$11 000
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general, the principle is that if you can make more money with
the borrowings than it costs to have the loan then it is worth
having some borrowings. Obviously you have to assess the costs
of the borrowing and the risks that you are taking. Many highly
profitable and growing businesses pay out no dividends because
they are making the judgment that it is more in the shareholders
interest (that is, they will get a higher return) to have this money
re-invested in the business. Conversely, when a business is holding a great deal of cash/paying out very high dividends you
should be asking why they cannot find a better use for the
money. (Clearly, it is a little more complicated than this, and is
greatly influenced by factors such as the industry, the business
cycle, the product lifecycle, etc.)
Property is little different. It is often easier to borrow to
buy property as there is a real asset for the bank to reclaim
should you default on your loan. You can invest in property in
this way with very little of your own money10 per cent or
even less. A good investment property will give rentals to cover
all or most of the interest repayments and the loan can be repaid
when you sell. If you buy well to begin with you should achieve
a very handsome return through the leverage of your borrowings. Many property investors own several properties that are
financed and geared in this way.
Similarly for shares. It is just as easy to use other peoples
money to buy shares as it is to borrow to buy property or take
out an overdraft for a business.
Gearing really works for Wealth-Creating Assets because of
the high returns. Borrowing to buy things which return 15 per
cent or more makes great sense when you are only paying the
other person 78 per cent for his or her money.
Now to state the obvious: this all works in reverse as well!
Leveraging or gearing is a wonderful way to turbocharge compounding which works to make you rich. Equally well, the
turbocharge effect can make you very poor, even bankrupt.
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Exercise 37
What kinds of things have you borrowed for?
Are you borrowing for the right things? (You get worse than
no return when you borrow for value-losing assets like cars
or home appliances.)
Are you borrowing for Wealth-Creating Assets or just for
consumption?
Does your attitude to borrowing need to change?
KASH points
The key knowledge is that while leveraging makes a good
investment better it makes a bad investment even worse! The
right attitude and habits will see you borrowing only for wealth
creation and never for consumption. Skill in borrowing is about
making sure that you borrow well, that is, that you get a good
rate of interest and that you manage your debt actively.
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How to maximise
your returns
Putting up a little of your own money and using a lot of someone elses to buy a high-performance asset is how people become
rich. It does not really matter what the high-performance asset
is, provided that you can borrow against it, and that it provides
high returns. Smart people know that they need to use other
peoples money to lever the relatively small amount of money
they have at the start. They know that the game is to increase
their wealthto keep driving up their net worth until they have
enough for financial freedom. They want the Wealth-Creating
Assets to grow and grow, and for their share of those assets to be
greater and greater.
Clever people know that they need to keep getting a high
return on their money so that their equity is growing. This return
on your money is called the Internal Rate of Return. This is
jargon for the rate at which you are growing your own money, the
rate at which you are growing the equity that you have in your
property or share portfolio or business. This of course is the only
thing that is important: the rate that your capital is growing will
dictate how much you have in the future.
This internal rate of return is different from the capital
growth and returns that the Wealth-Creating Asset is getting.
For example, your property might be growing at 5 per cent p.a.,
but your equity (your capital, your investment, your stake) is
growing at 29 per cent p.a.
For example, an investor buys a property at $100 000 with a
$10 000 deposit and borrowings at $90 000 at 8 per cent interest.
The rent is $10 000 p.a. after all costs.
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Property value
Borrowings
Equity
Rent
Interest
Cash profit
Capital growth (@5%)
$100 000
$90 000
$10 000
$10 000
$8 000
$2 000
$5 000
$7 000
Total profit
This investor has made a profit of $7000 on the $10 000 that
was invested. This is an internal rate of return of 70 per cent
(the investor has 70 per cent more equity than at the start of the
year). While the property is not a particularly high-performing
one, the investor has quite successfully used gearing to rapidly
grow the quite small amount of initial equity.
This example is illustrative only. It is only to show how
smart people get high rates of return and grow their net worth
quickly. The example is made up and in some respects unrealistic (for example, it doesnt include any provision for tax).
This next example, however, is both realistic and true.
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The key thing for you to think of is how fast you can grow the
capital that you have now. Use the engine of compounding by
retaining most of your profits, and turbocharge the engine with
leverage. It is the turbo that will give you the grunt that you
really needthe use of other peoples money is the way to grow
yours.
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Exercise 38
What internal rate of return are you getting on your equity?
KASH points
It is important to your wealth-creation knowledge that you
understand the internal rate of return (IRR) that you are getting
on your Wealth-Creation Assets. You should develop the habit
of calculating the return you are getting each year.
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Part
VI
Action plans:
What will you do?
Chapter 30 Bridging the gap
Chapter 31 Do a one-page plan
Chapter 32 Turning strategies into actions
167
171
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time for some people, but it does mean that a 40-year-old will
be free before being 50 years old (and, yes, there is still life at
50). Some will achieve it much quicker than this. Those in
business or property development and some other activities
probably look out no more than 10 years.
Your aim should be to achieve financial freedom within 10
years because it is difficult to plan for more than this. Perhaps
more importantly, it is hard to maintain enthusiasm and motivation if the time period seems too long. If you are 35 years old
now, it is hard to imagine yourself at 50 or 55 years. It is hard
to imagine or envision where you will be or what you will be
like in, say, 20 years, so your timeframe needs to be less than
that period.
Exercise 39
Write down your Freedom Figure.
Work out how many years you are prepared to work to
achieve it.
Calculate the rate of return you will need to get on your
Wealth-Creating Assets.
You will need to set goals that work for your dream. This can
take a bit of hard work and debate. Its worth it. Your mind loves
goals! When you have set your goals your mind will be focused
firmly on themall the time. Goals are very powerful and the
fewer and the clearer the better!
The next step is to make a plan to make all this a reality.
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KASH points
The key knowledge here is to understand what numbers you
have to achieve to close the gap between where you are now
and where you want to be. How much wealth has to be
created? What rate of return will you need to achieve that
wealth in however many years you will take? Obviously these
numbers are interrelated: you can achieve your Freedom Figure
faster or with a lower rate of return if you set the Freedom
Figure at a lower level; you can achieve the Freedom Figure at
a lower rate of return if you are prepared to wait for longer; if
you are in a great hurry, your rate of return will have to be
very high to achieve the same Freedom Figure. Play with these
numbers and develop your skill at making trade-offs between
them and deciding what key benchmark numbers you will set.
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Do a
one-page plan
Dream (words)
Goals (numbers)
Strategies
(words)
Milestones
(numbers)
171
Actions
(words)
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Dreams
Your dream should be written down in words. Keep working at
it and get it to a point where you can clearly state it in a sentence
or two. (If you cant state it simply that shows that the dream
is still fuzzy and that you need to continue to work to clarify
it.) You dont need every detail but you do need all the main
components; otherwise it will be impossible to cost your dream
with any accuracy.
Marnie and Jacs one-page plan looked like this when they
started:
Dream: TTo live by the sea on a small holding near the children.
T spend our time reading and painting and contributing
To
to the local community.y
Goals: To
T spend a month overseas each winter.r
Strategies
(words)
Milestones
(numbers)
172
Actions
(words)
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D O A O N E - PA G E P L A N
Goals
The next part of the one-page plan captures your numerical
goalsthe amount of wealth you need to create, the timeframe
you need to achieve it in, and the rate of growth you need to get
on your current level of wealth.
Milestones
(numbers)
Actions
(words)
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Exercise 40
Copy the one-page plan format from page 171 into your
workbook and write in your dream and your major
numerical goals.
Start to think about some of the strategies you will have
to undertake to achieve these goals and ultimately your
dreamyou might consider some of the wealth-creating
activities you can enter, some of the things you might
get out of (for example, selling some non-WealthCreating Assets), career development (if you have a
job), etc.
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KASH points
The skill you need to develop here is that of making a simple
plan to show how you will achieve your goals and dreams. A
plan helps you outline the path to take you from where you are
to where you want to be with a few key stages or changes.
Once you have mastered the skill of making simple plans you
are free to spend your time doing the things that need to be
doneusing the plan to keep you on track and help you
monitor your progress. We think that the habit of planning is
essentialour most successful clients have become very good at
making simple plans to ensure that they get the changes that
they want and to make sure that they meet their targets along
the way. The planning habit is a great tool for wealth creation.
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Turning strategies
into actions
It can be very difficult when you are starting out to know how
to convert your dreams and goals into strategies and actions that
will take you towards your goals and eventually achieve your
Freedom Figure.
In the last chapter the one-page plan showed an example
of some clients dream statements and the goals they had set
(which included the Freedom Figure). The next step is to choose
176
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Exercise 41
Use the example on page 176 to write down some strategies on
your one-page plan.
You will have noticed that each of the strategies should have one
or more milestones attached to it. These are targets or markers
to help you define what has to be achieved for each strategy, for
example, if you decided to downsize the family home in order
to release funds for investment you should set a price you expect
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Milestones
In 6 months, for $750k
Within 3 years
1 by year end, 2 a year
Budget by end of month
$550k by xx/yy/zz,
Plan by xx/yy/zz
Invest $30k by xx/yy/zz
<$2m, within 18 months
Within year, >$4.5m
Actions
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Milestones
In 6 months, for $750k
Within 3 years
1 by year end, 2 a year
Budget by end of month
$550k by xx/yy/zz,
Plan by xx/yy/zz
Invest $30k by xx/yy/zz
<$2m, within 18 months
Within year, >$4.5m
Actions
Fix garage, Put on market
Upskill & get promotion
Reading program, course
Monitor consumption
Courses on profitability,
get consultant
Reading program, course
Investigate food industry
Finish fencing, paint shed
The core idea of these plans is to take you from the big vague
ideas right down to do-able tasks that you can take action on
immediatelysuch as fixing the garage. After all, nothing will
change until you take action and do something! It can be hard
to know where to start, and our clients find that having simple
one-page plans makes everything much easier.
You can take this idea further: each strategy can have its own
one-page plan. In fact, you can use a one-page plan for any
aspect of your wealth creation that you like. Over the page
is a plan for the strategy of growing the profitability of the
businessa specific objective.
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Milestones
Increase margin by
5%
Take out $100k
Sold by xx/yy/zz
Operational by
xx/yy/zz
Trade only by xx/yy/zz
Actions
Review pricing
by product
Delegate to Mike
Call agent and list, call
lawyer re lease document
Advertise, call recruiters
Do project plan, Jim(?)
to manage
KASH points
The knowledge here is the understanding of how dreams and
big goals are turned into plans that are actionable. Try doing a
few of these one-page plans and you will find that your skill
will develop very quickly. Having one-page plans will help you
feel that the tasks that are ahead of you are do-able and that
they will be easy to track and manage. This will help give you
an attitude of optimism and confidence as you start to make
big changesand buying Wealth-Creating Assets or changing
jobs or selling other things are very big changes. The habit of
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T U R N I N G S T R AT E G I E S I N T O A C T I O N S
planning on one page will give you a tool to think about what
has to be done and will also help you to stay in control of all of
the things you will be doing.
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Part
VII
33
34
35
36
37
38
39
40
185
188
192
196
199
204
207
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Whos on
your side?
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If you have a partner you will have talked a lot together about
your dreams and hopefully have collaborated on setting the
goals you need to reach to have your dream life. Ideally you have
done your planning together and have discussed in detail how
you will take action on these plans.
The most successful couples work as a team on wealth
creation. They play to each others strengths and contribute the
stuff they do best. They use their respective skills and personalities to help the other partner be the best that he or she can
be. Two are far better than oneif they are in harmony about
the life they want and what they need to change to get it. Effective teamsin sport, business or any disciplinealways share
a dream about their destination and they talk a lot about the
journey and the tasks they each will need to perform along
the way.
Not all couples are so lucky: some people find themselves
with a partner who is at best neutral and at worst hostile to
the idea of having a vision for a better life and doing what is
necessary to get there. Partners are sometimes very threatened by
the changes that are implied when the other partner wants to
pursue a dream of a bigger and better life. This lack of interest,
sometimes even ridicule, can extend to the wider family.
We can only encourage people in this situation to persevere.
Early signs of success will often bring others on board. If you are
finding the going tough among your closer family members and
friends, then wed advise you to keep much of your dreaming
and planning to yourself in their presence. Seek out like minds
in other placeswhether your interest is in business, property
or shares you will find that there are many formal and informal
groups which get together to discuss these topics. These people
are likely to have similar dreams and ambitions to yours and will
give you a sounding board and some much-needed support.
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Exercise 42
Make a diagram of your close friends and family.
Tick the ones whose support you can count on.
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Networking: Winners
work with winners!
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Exercise 43
Draw a diagram or mindmap of all of your family, friends
and contacts.
Study that diagram and imagine how many other people
each of these people know.
Identify the gaps in your network. Do you know people
who will be able to tell you what rental levels are in your
area? Do you know people who know the latest on what is
going on in your industry? Is there someone you can call on
if you need information on tax?, etc.
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KASH points
The skill that you need to focus on here is the development and
maintenance of a network that can help you on your journey to
wealth and freedom. There is nothing nasty or manipulative in
thisall these people will be delighted to have your knowledge
and skill in their networks. It is easier to achieve when you have
access to a big group of people who know things and people,
and who have expertise and contacts that you may lack.
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Assembling a
dream team
While no one is going to take care of your finances for you, you
dont have to do this all on your own. While you are responsible
and have to take charge, no matter how organised you are or
how well disciplined you become, you will need expert help
from time to time. And there are lots of people who can help.
If you are committed to wealth creation you will make sure
that you surround yourself with a dream team of professionals
who will assist you in making good decisions and providing
good advice.
Winners work with winners! Every time we deal with successful people or successful businesses we find a team of winners
around them. Success is almost always underpinned by a dream
teampeople who are winners in their own professions and
who can also function well as a team. Beware of professional
jealousies, however. You need a team, not just a number of individuals, to make your wealth creation a success.
We all need help and advice from time to time. Unqualified
friends and relations, no matter how supportive, will not know
all they need to know to give you good advice. No matter how
hard you work at learning what you need to know, you will
never be across all the professional fields, nor be as up to date as
you need to be. When the going gets tough you will want to call
on a heavyweight in the right field.
Those on the path to wealth and abundance will need one or
more of the following from time to time:
Lawyer;
Accountant;
Real estate agent;
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Sharebroker;
Tax specialist;
Insurance broker;
Investment adviser;
Trust lawyer.
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work well with your lawyer to ensure that your assets are
properly structured and managed tax-effectively?
Lawyer Wealth creation can be a complicated business. Does
your lawyer understand business? Is your lawyer proactive in
advising you about business structures (partnerships, companies, trusts)? Does your lawyer ensure that your wills and
Enduring Power of Attorney are up to date? Is your trust being
managed properly?
Exercise 44
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KASH point
The key knowledge here is that expert help will be necessary
from time to time. These people are critical to your success and
you need the best that can be found. It is very seductive in
business to spend all your energy on operational and financial
issues. However, it is a rare business that outperforms the
people in it. Are you doing everything you can to get a dream
team working on your business?
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Professional
Usually
provides
Should be able
to advise on
Ideally provides
Accountant
Accounts
Tax returns
Business structures
Busines issues
Tax
Debt
Planning for
changes,
for example,
growth of
business,
Tax
minimisation.
Lawyer
Company
formation
Trust
formation
Contracts
Wills
Business structures
Trust management
Succession
planning
Keeping wills
up-to-date.
Anticipating
changes in
legislation.
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Professional
Usually
provides
Should be able
to advise on
Ideally provides
Financial
planner
Insurance
Investments
Investments
Debt management
Financial plans
A highly
customised plan.
Ongoing
guidance
Proactive
communication
on changes
which may affect
you.
Real estate
agent
Agreements
for sale or
purchase
Leasing
Trends
Where the
market is
Updates on
property in your
area of interest.
Whats going on.
Business
consultant
General
business
advice
Some specialty,
for example,
marketing
Conduit to other
experts.
Counsel on
direction of
business.
Valued sounding
board
Stockbroker
Sale or
purchase of
shares,
bonds, funds.
Recommendations
for sale/purchase.
New listings
Research
Risk adviser
Insurance
Buy/Sell
agreements
Risk management
Regular review
of your risk
profile.
Risk mitigation.
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KASH point
The knowledge to focus on here is to understand what you
need and should get from each expert. You will need to
consciously continue to build your skill around managing your
professionals so that they do a great job for youthis is not
something you should just assume will happen.
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Real Estate
Agent
Lawyer
Mortgage
Broker
Builder
You will also need to manage your team of advisers well. You will
need to be fair but firm and must expect them to perform. Make
sure that you get what you are paying for. If you are not satisfied
you will need to replace the adviser.
It is very hard for you to outperform the teamyour success
is unlikely to be better than the teams performance. If you are
serious you will get a good team together and take care to keep
them working for you. And make them operate as a team
quite often they will need to talk to each other in helping to
arrange your affairs. Make sure that they meet each other and
talk to each other about your finances and what is best for you.
A serious wealth creator will be at the centre of this team of
professionals demanding the best from each of them, separately
and together.
You cant go to sleep on the job once youve assembled a team
and just assume that your accountant, financial planner and
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Exercise 45
Decide what type of specialist help you need to help you
achieve financial independence.
Find some people who fit these roles.
Put them to work as your dream team to ensure you
achieve your plans.
Manage them wellits your money!
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KASH points
The knowledge to focus on here is that it takes a team of good
advisers to make your wealth-creation enterprise as successful
as it can be. You should also focus on developing the skill to
bring your team together and motivate them to work towards a
common goalyour wealth creation. You will need to manage
them so that they develop the habit of communicating well with
each other about your wealth creationdont allow them to
play games of professional jealousy with each other as you,
and your wealth, will be the only victims.
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Exercise 46
Decide what you need and ask for recommendations.
Interview professionals to decide whether you would find
them easy to approach and work closely with.
Be sure you understand how they get paidit may affect
the advice they give you.
KASH point
The skill that you need to focus on here is the interviewing and
selection of people to work on your team. We know that this is
not easyespecially when you are starting out. (We are asked
to recommend good professionals more than any other thing in
our WealthCoaching work.) However, this is a skill you want to
persevere with as it is critical. It does get easieryou get better
at knowing what will work for you and, in addition, good
people will lead you to other good people. This is also an area
where your growing network may be of great help.
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Learning from
the masters
One of the most interesting things about those who have succeeded in building wealth is that they are in most other ways
ordinary and average people. That may seem surprising but for
the most part successful people are not marked out by having
much greater talents or education or abilities than the rest of us.
But:
They behave differently.
They work to different rules.
They think differently.
You can learn much from the people who have already achieved
wealth and freedom. Forget the ones who have stumbled into
itthose who have married wealth or inherited it, or who have
won a lottery. None of these people have gone out to deliberately grasp financial freedomthey have been lucky. (And some
not so lucky! Research in the UK suggests that a lot of those who
are lucky enough to have a major lottery win are back where
they started from within five years). These people are not useful
models for you. Look instead at the people who have set out to
become wealthy and free, and have succeeded.
Masters in any field dont just keep popping coins in a slot
machine, hoping for a lucky break. They apply tried and true
principles in their field and they discipline themselves to do
what works. Sure, they continuously try to improve but they
certainly dont ignore the methods that have been shown to
work over and over again. You get lucky when you are prepared
and when you have learned your tradeexpecting to be lucky
just by sitting there waiting for the wind to change is rather
foolish. There is more information available today about how to
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often not even when they have made it. They are quite happy to
go without the toys that many of us think are necessary but
which in reality are simply things to make us look good in
our own eyes or in the eyes of others. We have seen clients run a
garage sale to cash up sports equipment, special household
appliances and other luxuries to raise money for their wealthcreation portfolio. Another very sporting family gave each family
member a budget figure for leisure activities which was adhered
tothat was good going for people who had been boating,
skiing, golfing, swimming and playing tennis, all of which
require expensive equipment and/or membership fees. Many of
our clients who have achieved their goals still live modestly on
the surfacebut have the luxury of Security Assets that ensure
income and choices for the rest of their days. And they will never
need to work againunless they wish to.
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disaster and the SARS epidemic had sensible plans and had
not overreached.
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wealth-creating activity they are in, property, shares or a business, they have committed to it and driven it hard. It is hard to
imagine people loving some of the wealth-creating enterprises
we have seen, but the important thing is that our successful
clients behaved as if they didthey paid attention, they learned
everything they needed to know, they knew the business inside
out, no detail was overlooked. They understood that you can
do well in any industry if you are prepared to understand it
well enough.
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40
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Exercise 47
Make a list of the things that you have been putting off.
Identify and define your frogs, look them straight in the
eyeand eat them!
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