Look, we are all trying to get ahead in life or you wouldn’t be listening today. For me, becoming a millionaire has been a goal of mine since I was a teenager growing up in Deming New Mexico and working at my Dad’s gas station. My hometown was recently listed as the 27th poorest city in the country according to the U.S. Census Bureau’s American Community Survey.
Growing up, I watched the majority of people around me struggle to make ends meet day in and day out. I told myself as I was growing up that I would become financially independent and not have to deal with the struggles of money and living hand to mouth.
Now becoming a millionaire to a lot of people is like finding a unicorn; the odds are unfathomable to them that they could someday be a wealthy person and achieve financial independence. Now, here is what is interesting; people will spend dollar after dollar on the lottery hoping they will become wealthy versus just working at becoming financially independent.
Now, there are lots of reasons why people are not financially independent. Sometimes they simply do not want to be; you heard that right. Sometimes they simply do not want to be! For others, they get stuck in wealth traps which we will discuss later in this podcast.
I have learned that if you want to be wealthy, you can’t just “give it your best shot” and then be happy with falling short. Wealth comes to those who pursue it doggedly every day until they achieve it.
Let’s get one thing straight, being financially independent isn’t all about the money it’s also about the importance of time:
WHEN YOU WORK. YOU ARE SWAPPINGYOUR “QUALITY” TIME
How many times have you felt energetic at work and then get called into another meeting or another conference call about nothing?
Are you stuck at your desk on a sunny day even though you don’t have enough work to do?
Working 5 days a week from 9-5 means you are working over 70% of the week, just to get 30% off. This doesn’t include travel time which gives you less than 30% off. And if you work nights, you are also trading your health for your job. So, just based on the simple math, you are likely spending a majority of your “quality” time commuting or working at your job. Now this is great if you love your job, but if you don’t, and most people don’t, then you are selling your “quality” hours for your salary or hourly wage.
Gallup’s 2017 annual survey of the American Workforce stated that 70 percent of employees in the United States are disengaged at work. They are just getting by. Take a second to really assess your situation; are you just getting by?
This just makes me so sad – that people resign to a job that they don’t like and spend the best hours, the “quality” hours of the best years of their lives, “just getting by.”
I see this not only in my travels across corporate America but personally have friends, colleagues and family who work at “god-awful” jobs for years just to leave their job and have absolutely nothing to show for it. By trading their quality time, they haven’t traveled, have no hobbies, no outside friends, live hand to mouth and end up absolutely miserable.
I always remember the movie with Tom Hanks called Joe Versus the Volcano. Tom Hanks works in a horrific office at a hideous corporation that makes plastic body parts. Each day he comes to work in a depressing office environment until he reaches his breaking point after getting the news he is going to die and realizes he has completely wasted his life working here. He goes bonkers at his manager screaming a line I love: “I’ve been working here for 4/12 years in a job that should have taken 5 to 6 months to finish. I sold my life to you for a measly 300 dollars a week. These lights are like zombies, sucking the life out of me. Suck, suck, suck.” How many of you feel you have sold your life to your job right now and the lights are sucking the life out of you?
Look, if there is anything you can take from this podcast, it’s not selling your life to your job and it’s trying to become financially independent as quickly as possible, so you can reclaim your own quality time for yourself and those you enjoy being around.
WHEN IT COMES TO MONEY, TIME IS MORE VALUABLE WHEN YOU ARE YOUNG, BECAUSE YOUR MONEY HAS MORE TIME TO GROW SO DO IT NOW
When it comes to investing, time is not equal and most people are wasting it. It’s a well-known fact that the earlier you start investing the more time your money has to grow, so the larger it can grow. One dollar saved at 25 is going to be worth 2-3x more when you are 65 than a dollar saved when you are 35.
When it comes to investing, every year earlier that you start makes a massive difference. I started investing in the stock market at age 20 when the DOW was at 760; now its at 25000.
This was one of the biggest reasons I started saving as much money as possible when I was young and began to fast track my financial independence because I knew I had time on my side. But no matter when you start or how old you are today, today is a better day to start investing than tomorrow. Waiting to invest is leaving money on the table and above all else, you are wasting the most precious resource of all: time.
TIME IS MORE VALUABLE THE OLDER YOU GET BECAUSE YOU HAVE LESS OF IT
Time gets more valuable as we get older for two reasons– we feel like it’s moving faster and we have less of it. Cognitive psychologists believe we as humans feel like time goes by faster as we get older because we have fewer “firsts” in our lives.
Listen to this, by the age of 7, we have already experienced half of all experiences we will experience in life. Time moves slower when we are experiencing new things – it’s why when you travel time seems to move slower. But when it comes to working and our routines, those experiences are so comfortable – it’s why the weeks literally feel like they are flying by when we eat, sleep, work, repeat.
And not only does time feel like it’s moving faster as we get older, we have less of it. Time, becoming more valuable as we get older, is a simple concept, but unfortunately, but it doesn’t often align with how most people value their own time or think about money in their lives.
Here is something important to remember: In corporate America, what you make is based on how much experience you have and how valuable you are to the company, not how valuable your time is to you. You are paid based on how valuable you are to the market. And the market doesn’t care about you. If you don’t value your own time, no one else will. Have you ever given any thought to this?
According to entrepreneurs, real estate investors, and self-made millionaires David Osborn and Paul Morris in their new book, Wealth Can’t Wait, “Wealth is just code for freedom, and freedom is the ultimate gift in life.”
In their book, they outline how to build sustainable wealth – not the kind you get from a “get-rich-quick formula” — by shifting your mindset, overcoming obstacles, cultivating smart habits, and developing a dynamic business.
I have found that being financially independent is truly liberating; it lifts the burden of dealing with the unknowns of whether you can make it this month, this year or into the future. It gives you time; time to do things when you want to on your schedule and no one else’s.
One of the first steps on the journey to building wealth, Osborn and Morris says, is identifying and conquering the seven “wealth traps,” or ways you could be inhibiting yourself from reaching your goals.
“To build awareness and enhance your state of mind, think of someone who is less talented, less hardworking, less smart, and less of whatever it is you are good at, yet has more wealth than you. The odds are that person has escaped the wealth traps,” they write.
In my journey to financial independence, I have networked with millionaires who have made it in many different ways. I learned you don’t have to have a college degree or be born the right color, be handsome or beautiful or only be a male. But there is one thing you have to do to become a millionaire and that is to work hard at it; remember that hope is not a strategy and you ARENT GOING TO WIN THE LOTTERY!
So, with that being said, let’s check out the seven wealth traps and how to avoid them.
Staying in a comfortable job
It’s easy to get comfortable in a job you enjoy or even seek out a position that aligns with your interests. For example, Osborn and Morris write in their book, a ski instructor who loves to ski or a bartender who loves to meet new people and be social.
“All of these individuals are getting some subset of their needs met,” they write. “But is it enough?” Are you getting enough out of your job?
Osborn and Morris encourage you to use your learned skills to find interests outside of your comfort zone. ”Building wealth is a contact sport. It requires movement, action, and impact. Be purposeful and build a network that takes you closer to your goals,” they write.
Are you too comfortable in your job? Are you just getting by, putting some money away in your 401k, hoping social security will still be there when you retire, praying your kids will take care of you or that perfect job will show up?
Fear is a universal feeling. Once you realize you’re not alone in that feeling, “ask yourself, ‘What is truly at risk?'” Osborn and Morris write.
Remember, if it’s a worthwhile endeavor, there will almost certainly be some sort of risk involved.
“We’re not going to sugarcoat this — building wealth involves taking risks,” they write. “But it’s overinflated compared to the risk of doing nothing. The biggest risk in life is not taking one.”
Now, taking unhealthy financial risk is not what you want to do but taking risks that make sense for your age, tolerance level, and financial condition does make sense. Learning to invest using a level of risk tolerance that will get you to your goals is critical. Hiding your money under your mattress to avoid risk makes no sense. I love taking a risk and when I was younger my investment risks were much higher than they are today; my risk tolerance is graduating itself down to levels that make sense based on where I stand today.
I can state unequivocally that I would not be financially independent if I hadn’t taken risks in my life, my jobs, my investments and long-term strategies. As the famous Babe Ruth said and it applies to risk, “Never let the fear of striking out, keep you from playing the game”.
Viewing wealth negatively
All of us are brought up around different attitudes about money, whether that’s the idea that wealth is glamorous and unattainable like a unicorn, or that it’s a sign of greed and corruption.
Your ability to build wealth effectively hinges on these beliefs, Osborn and Morris said.
“Celebrate your pursuit of wealth and look at it as a pathway to freedom. And, steer clear from those who think money is a dirty word,” they write.
I have encountered many people (friends and family) who look at financial independence as something bad; they see you as selling yourself out to the other side. You are one of those people. Look I’ve been on both sides of the financial see-saw. I like being on the financial independent side of that see-saw. People who tell you they are okay with just living on the edge are lying to you. Trust me if they could choose they would choose financial independence. Do you want to be poor or financial independent? Isn’t the choice simple?
As with any challenge in life, you’ll experience ups and downs in your pursuit of wealth. Those people who make it to the top are the ones who never quit.
Osborn and Morris explain:
“When you face a setback, you have a choice: You can jump ship by focusing on the sting of the loss or stay the course and reap the value of the lesson.
“Just remember: You had courage before the loss, and now you have the power of more experience and information as you move forward.”
My biggest setback was my divorce that cost me 7 figures and required a complete reconstruction of my financial plan, strategy, and efforts to get me back to where I am today. If I had given up who knows where I would be today. You have to deal with setbacks and not lose sight of your long-term plan.
Holding on to toxic friendships
“How many people are best friends with their kindergarten buddies? Not many. Yet how many folks have a friend they won’t cut loose, even though they are a negative influence?”
Osborn and Morris ask these questions to emphasize that you have total control over who you surround yourself with. Ultimately, they say, don’t get trapped in a “weak social circle.” If you do find yourself there, be sensible enough to walk away.
Remember, you are the average of the 5 people you hang out the most with on a regular basis. So, look at who you hang out with and see where you stand. Surround yourself with friends who will drive you to success not drain you of it.
Bad things happen every day and at times it may even feel like you’re taking more hits than others. Did you lose money on your investment? Have an unexpected event that drained your savings? Run your new business into the ground? That’s going to be difficult to get through, but it’s no excuse to victimize yourself, Osborn and Morris explain.
“Victimhood leads to blame, apathy, and general malaise. It’s hard to move forward with a positive vision when you are locked into an event from the past. Negativity tends to lead to inertia and despondency. Don’t let a bad occurrence hold you back,” they write.
Thinking you know it all
Osborn and Morris quote Stephen Hawking to illustrate this point: “The greatest enemy of knowledge is not ignorance, it’s the illusion of knowledge.”
Thus, thinking you know all there is to know — the “expert syndrome,” as they call it — hinders teachability and growth. In other words: We all, always, have something to learn.
I strive to continually learn when it comes to financial planning and ensures my plan is working for me today and into the future. I also have a team of financial managers whose job is to execute the plan and ensure it will reach my goals but I always remember no matter what I need to know what they are doing because it’s my ultimate responsibility to protect my financial independence.
So, how do I get started:
Avoid consumer debt. Consumer debt is the bane of financial independence. If you use credit cards to buy consumable goods and carry a balance, then you are enriching the banks and not yourself. Credit cards, payday loans, and car loans are all examples of money-generating machines for creditors. The first step toward financial independence is to get rid of high-interest debts and free your money to work for you instead of the banks.
Ignore the Joneses. One of the many reasons we spend so much money on stuff is to keep up with our friends and neighbors. Is accumulating stuff really the reason we get up every morning to go to work? Most of us don’t need a 3,000 square foot McMansion and luxury cars. A modest home and car will work just as well. Car commercials on TV make life into a competition to buy the most expensive vehicle, but you don’t have to fall for that. Ignore the Joneses to build up your finances instead, and you will leave your neighbors behind financially.
Spend much less than you earn. The real key to financial independence is to spend less than you earn. Avoiding consumer debt and ignoring the Joneses will get you most of the way there, but it takes a lot of diligence to spend much less than you earn. First, you need to track your expenses and see what you spend money on. Then you can cut the things you don’t need and keep lifestyle inflation to a minimum. Of course, it’s equally as important to generate more income. Remember to work both sides of the equation to widen the gap between spending and income.
Pay yourself first. This might sound selfish, but to reach financial independence you will need to put yourself first. You need to prioritize saving ahead of everything else. Save before you pay the utility bills, buy groceries or even pay the rent. Paying yourself first encourages you to live on a smaller budget and it’s a powerful saving habit. Funding an employer-sponsored 401(k) plan is a great way to get started. The contribution will be deducted right out of your paycheck, so you won’t even miss it. Living with what’s left after paying yourself is a great way to build wealth.
Buy income generating assets. Once you start saving you have to invest the money in assets that will generate income and appreciate. The stock market has a good long-term track record, and many investors build wealth that way. Investment properties, art, and collectibles are all assets that will help you move toward financial independence. Focus on buying assets that will make you money instead of depreciating into a pile of electronic junk.
Keep investing. It’s equally important to keep investing over the long term. You have to invest in the stock market through the good and bad years. It can be difficult to buy stocks when the price is going down, but if you don’t, then you will probably miss out on the recovery. It’s much easier to keep buying no matter what the market is doing. That way you’re accumulating wealth over the long haul. As you near retirement, then you will need to adjust your asset allocation to reduce risk and volatility.
Be flexible. Be flexible and adjust your spending accordingly. Some years are bound to be more financially difficult than others, and you need to be able to deal with them. If you’re laid off, then cut expenses and adjust quickly. Don’t wait until you’ve used up your savings before you cut spending. The stock market could plunge 40 percent and reduce your net worth by a huge amount next year. Instead of withdrawing money, as usual, another option is to get a part-time job to pull through the rough patch. Being flexible means you’ll always land on your feet and live a less stressful life.
You don’t need millions to achieve basic financial independence for yourself. Anyone can take these steps to reach financial independence. Having enough income to cover your living expenses without having to work full time can free you up to actually enjoy your life instead of remaining on a treadmill of working and spending.
Financial independence has done three things for me:
- Achieve my dream that started over 40 years ago in my hometown of Deming NM.
- Live my life in a way that I want to live it without being under the weight of debt or other peoples control
- Give me the opportunity to change peoples lives in a positive way through my charity foundation
In closing, remember financial independence is up to you and as PT Barnum stated: “Money is a terrible master but an excellent servant.” Make it your servant, not your master.