13 Oct 15 Money Strategies That Rocked Our World
Financial Freedom… we all want it, but so few of us actually have it.
But what exactly is financial freedom?
In its simplest form, financial freedom means having sufficient personal wealth to live, without having to work actively for the necessities of life. It means that money isn’t the dominating force when it comes to making decisions.
Those who have achieved financial freedom – or are on their way – have some serious wisdom to share, and they did just that in our last two years of Financial Wisdom Challenges!
The challenge was simple… to share the single best step you have taken toward financial independence.
Here are 15 of our favorite responses…
Jon Butcher: Invest ONLY In What You Know
“The most important financial strategy I’ve ever encountered was taught to me by my good friend Garrett Gunderson. It’s so simple, that when you read it, you may not give it the thought it deserves. And you should, because almost NO ONE follows it. Here it is:
‘Invest in ONLY what you KNOW.’
I have invested in every conceivable financial instrument, from stocks and bonds to precious metals and real estate. But I’m only an expert in one form of investing – contemporary art. I’ve bought works of art that are now worth 20-30 times what I paid for them.
I don’t own a single stock – and I never will again. I’ll never own a bond. I won’t invest in paper. If I buy real estate – it will be for my own enjoyment and that of my families.
I will ONLY invest in what I know. Companies. Art. Wine.”
Christofer Ashby: 3 Non-Negotiable Rules (And a Purpose For It All)
- Consciously delineate between the great experience(s) not the thing(s) that creates the great experience. In most cases, the thing that created the great experience(s) can be rented. I am talking about boats, second homes, planes and exotic cars.
- Always pay cash for anything that could be classified as a toy (boat, car, aircraft) and only use debt when my net returns are a minimum of 350 bps higher than the cost of the debt.
- Always run extensive and detailed background checks on anyone with whom I am considering working. Doing this has been a huge deterrent in entering into financial transactions that could eat my cash.
The Gift of Giving
I am assisting a brilliant five-year-old child who lives in abject poverty on an island near to my home. The small cost of purchasing her school clothes, books and a weekly box of food has caused me to realize that an enormous part and responsibility of my being financially independent is to be able to assist others less fortunate than myself in becoming free from such simple things as hunger and shame.
Andy Clark: Daily Expense Tracking
One thing that has worked well for me both from a personal and business perspective is tracking expenses DAILY, to stay on top of where the money is going. Just make it part of your morning routine every day. Finances are just too important not to check in on every single day. It only takes 5-10 minutes and then the agony (at least for me) of tracking monthly or quarterly goes away. And in my experience, the added consciousness this brings to finances actually makes the bank account grow rather than sputter every month! I’m not running out to buy his and hers beemers just yet, but…
RJ Weiss: A Personal R&D Savings Accounts
Finance has always been an interest of mine. I was 20 years old when I started my Roth IRA. I studied finance in college. I started and sold a financial educational based website. I’m now a Certified Financial Planner.
When I thought about the single best step I’ve taken towards my own financial independence many strategies and habits came to mind.
Starting and maxing Roth IRAs for myself and wife, having a hour long financial review every month to review last month and set goals for the following month, going cash only in the areas where I overspend, learning how to “travel hack” so I no longer have to pay for flights.
But after some thought, my best strategy was clear. About five years ago, I started my own Personal R&D Expense Account–which is 5% of my income,goes towards expanding my skills and education.
My Personal R&D account is used for attending seminars, business newsletters, books, audio books, programs, courses, Lifebook etc.. If there’s something out there which can improve my skills and capabilities, in any category of my life and it fits within my budget, my Personal R&D Account gives me the freedom to invest in it.
The habit of setting aside 5% of my income towards investing in myself has not only had the biggest impact on my path towards financial independence but quality of life as well. Connecting the dots, it’s eye opening as to how large of an impact this has had on my life.
Having a personal R&D account gives me the freedom to learn, to grow, and to expand my professional capabilities. While I wish I could pinpoint the one book, seminar, or newsletter that provided me the one insight that has gotten me closer to financial independence, it’s impossible. Instead, it’s the consistent concept of investing in myself which has gotten me closer and will soon allow me to reach financial independence.
Lesley Schulte: Financial Meeting Ritual
My best practice is holding a financial meeting during “business hours” with my hubby every week at 1:00pm on Mondays. We use a functional (fill-in-the-blank) agenda that I prepare prior to the meeting with weekly updates to keep us focused and to cover key points consistently. This meeting time is dedicated specifically to financial matters and we table other topics until we get through the agenda or save them for another time. This practice has significantly improved our ability to have productive & objective money discussions about WIGO (what is going on) in our financial life. It also provides a safe space to brainstorm, anticipate or react to changing financial conditions and priorities in a proactive manner. Other side benefits of our weekly financial meetings are improved overall communication and dates that are less business and more fun!
Peter Scott: Using Cash Envelopes
Even Monopoly, one of the most popular board games in the world, now teaches children to rely on swiping their plastic instead of using cash.
Lately, I’ve taken a hard look at some of my spending habits, and to be completely honest…
it wasn’t pretty.
Despite creating a budget and tracking my finances weekly on http://www.mint.com, I was still throwing money away. So after sharing my struggles with a friend, he recommended I read, “The Total Money Makeover” by Dave Ramsey.
In it, Dave suggests using cash instead of credit/debit cards for the majority of your purchases in an effort to pay down your debt and minimize your careless spending. Realizing that I would continue to exceed my electronic budget if I didn’t make a change in my spending habits led me to my 30-Day Challenge below:
For the month of August, I substituted cash in place of using my credit/debit card (except for automatic bills) to see how much less I would spend. I took the following 5 steps in starting the cash envelope system.
- Budget on http://www.mint.com – I hate the word “budget” as much as you do, but I’ve learned that I must budget down to the last dime if I’m going to successfully implement the envelope system.
- Create cash categories – Of course, there will be budget items that I cannot include in my envelope system, like bills paid by check or automatic withdrawal. However, I can create categories like groceries, restaurants, gas, clothing, and entertainment for which I will solely pay cash.
- Withdraw the cash to fill the envelopes – After I categorized my cash expenses, I filled each envelope with the money allotted for it in my budget. For example, if I allowed $100 for clothing, then I put $100 in cash in my clothing envelope for the month.
- Stay disciplined – Once I spent all the money in a given envelope, I’m done spending for that category. If I went on a shopping spree and spent the $100 in my clothing envelope, I can’t spend any more on clothes until I budget for that category again. That means no visits to the ATM to withdraw more money!
- Find accountability partners – I’ve used credit/debit cards for the majority of my purchases since I was 18 years old. I needed several people I trusted to hold me accountable so I wouldn’t fall into my old habits. While debit cards can’t get me directly into debt, if used carelessly, they can cause me to over-spend. There’s something psychological about spending cash that hurts more than swiping a piece of plastic (I learned this traveling with Damion throughout SE Asia). If spending cash whenever possible can become a habit, I’ll be less likely to over-spend or buy on impulse.
Now you may be thinking what I did starting out…
Cash is painful. Cash is tedious. Cash is inconvenient.
Despite how I “felt” about cash, using cash decreased my expenses last month by 20% from my average monthly expenditures.
I recommend anyone try this 30-day challenge and see what results you get.
Colleen Cardarella: Financial Lessons From a Young Age
I learned a couple of things about financial independence at a very young age and keeping those in mind, helps me keep on track.
1) As soon as I was old enough to get working papers, I started earning. A paper route, babysitting, dogsitting. You name it. I started all these jobs as a kid and I had a bank account, but no wheels, so I often had cash piled up in my room until I had a ride to the bank.
This was in the days before ATMs, so if my parents needed money to run to the grocery store or the gas station, they visited my “bank”, since the real bank was probably closed at whatever hour they ran errands. Once they went to the real bank, they stopped by my room to see what they owed and paid me back. Usually I had to make change too. It was a great experience at 14.
Lesson learned – track all the money that flows into and flows out of your bank. Keep track of your spendings and earnings and always have a budget and when you can (as in when I had a ride to the bank) invest.
2) My first full-time job out of college involved marketing and managing a small business loan fund. Part of my job involved pulling a loan applicant’s credit report and reviewing it with them. I was struck by how many clients had no idea that paying their bills late or mistakes that were made stuck with them and impacted their credit ratings.
Lesson learned – understand what impacts your credit rating and be anal about protecting it. Some of these things are simple. Pay your bills on time. If you screw up with payments, call the lender and work it out as quickly as you notice it. Pull your credit report regularly and make sure it is correct. Don’t open too much credit, that includes not always accepting that higher limit the credit card company gives you. Think twice before you close your oldest credit accounts. Protect your financial identity. There’s a lot you can do and none of it takes long.
Keppen Laszlo: Merging Real Estate and Small Business
As entrepreneurs, the best financial steps my wife and I have taken are to own the real estate we start our businesses in. Our model is to purchase the real estate, start and grow the business, sell the business after two years, and pay the real estate off in full from the proceeds of the sold business. We transition from the business owner to the commercial real estate landlord. This model provides us passive income with secured rates of return. We love business and we love real estate. This model fits us well.
Sandra Garest: Eliminating Debt
“Coming out of college with student loans, mounting credit card debt, and less than stellar education about managing money, I quickly learned was not a recipe for financial success.
So I decided to commit a whole year to eliminate debt and create a healthy relationship with money. I put a complete halt on spending except for necessities. I made it like a game – trying to pay down as much debt as I could each month while still saving. I negotiated for lower interest rates, cut up department store cards, and determined the order in which I would eliminate each bill: highest interest rate bill to the lowest interest rate bill.
In only 12 months all loans, credit cards and my car were paid off – it completely changed my life!
The most important aspect of evolving from a spender into a saver for me was learning that saving money could feel as good as spending it – even better!”
David Wright: Creating the Freedom to Prioritize
First, just wanted to say that there is an incredible amount of wisdom within the comments here. So, thank you, everyone, for contributing.
Two strategies, though seemingly small, have contributed greatly to propelling us down the road to financial independence. First, I decided to aggressively pay my student loans down shortly after college, and second, I’m still driving the car I purchased nine years ago. These two decisions have kept the quantity and total cost of our fixed expenses down so that we can allocate more toward other categories including giving and saving.
We still have quite the gap to our ideal vision in this category and we’re working toward being smarter about how we spend, invest and save. In the meantime, we’re happy to be living within or below our means in a few categories to give us the freedom to prioritize how we spend and save our money.
Damion Lupo: The Ultimate Cash Cushion Strategy
How much cash do you have laying around? How much should you have? This is the question I asked and answered that became THE fundamental and foundational strategy for creating wealth and expanding happiness in my life.
My rule is to figure out how much you’re spending each month on your lifestyle and build up 12 times that amount as a minimum, in cash. I’m talking cash in your safe or in the bank. Does a credit card or a line of credit count? Nope. Absolutely not. They’re nice but they don’t serve the purpose of the real Cash Cushion.
Here’s why the cushion matters.
Have you seen someone get a tax refund and they jump up doing a happy dance, thinking of all the ways they can spend the money? Maybe that happens to you? It’s the surge of cash that was unexpected. And the knee jerk reaction that we have to spend it because it’s excess that isn’t supposed to be there anyway. It will feel good to spend it so we think about how to accomplish that.
This is the same reaction we get when our business gets a windfall, we make a big sale or we get a bonus. We think, woohoo! Lets party!!
At least that’s what happens if the cash represents a big surge on our balance sheet. But what if we have an extra $10k show up and our checking account already has $80,000 sitting in it? Do you think we’d be as likely to need to spend it and purge the cash? Not so much. The cushion absorbs the windfall and keeps the emotion, the need to spend from overtaking us.
A similar thing happens in reverse when we have a sudden unexpected expense. When I got back from Europe last week I showed up to a dead car. After three tow companies failed to jump my car it went into the dealership and guess what? A sucky surprise $783 bill for my fried electrical system.
But, because I have a 12 month cash cushion I was annoyed but not freaking out. I simply paid for it and grumbled for a minute as I drove my car away. If I didn’t have the cash sitting in the bank the emotion would have been more “oh sh*t…”
Here’s the bottom line. The cash cushion removes at best and at the very least, vastly reduces the emotional charge when we have cash ebb and flow events. It allows us to stay focused without freaking out or being addicted the spending and earning waves.
The other major advantage of a cash cushion is something we call Runway in our book “Reinvented Life.” The cash cushion provides a period of time for you to reinvent yourself, to change careers, go on sabbatical, find yourself in the Himalayas, get sick without going bankrupt or whatever else unplanned or unforeseen hits your life. The greater the cash, the bigger the Runway, the more options you have, the more choices you have.
It’s great to have investments but before you sink everything into investments and use your credit lines for your cushion, consider the benefit of emotional peace you’ll create when you have a year’s worth of cash as a foundation and a giant wall of protection against the randomness we call life. Even if it takes a few years to fully fund, this simple strategy will surely improve your life, bring more peace, happiness and stability. Ultimately the cushion allows you to pursue your greatest purpose and live a life of freedom from stupid stresses and worries.
To your Wealth & Happiness!
Heather Lewis: Paying Yourself First
Thank you for all the wisdom about Financial success! I came into the VIP program about half way through the month of September and I have been trying to absorb as much of your advice, wisdom, and information as possible. I’m excited to be a part of the VIP community finally, wishing I would have made the commitment a long time ago.
The biggest key for me, so far in life, has been to ALWAYS pay myself first, a minimum of 10%. The momentum and energy that I have felt with watching my savings grow has played a big part in my excitement to save more and pay down debt. After college, I found myself in a state of Financial Crisis. I had more debt than I could comprehend. After listening to my Uncle tell me to ALWAYS pay myself 10% first, no matter what kind of financial stress I may be in, I realized how easy it was to stop spending on wants. I was able to use the momentum of a growing savings account to apply my extra 90% to needs and paying my down my college debt quickly. I felt a great sense of satisfaction when I made my last payment to become debt free several months before I had budgeted to be done!
I have a journey ahead of me to become where I would see myself being “Financially Fit”, but by simply paying myself first, I have accomplished more than I would have ever thought possible in a short 4 years!
Jessi Kohlhagen: Assign a Purpose to Every Dollar
By far the best strategy my husband and I have implemented in the past couple of years is assigning a purpose to EVERY dollar that comes in, and immediately putting it where it needs to go on pay day (savings, taxes, expenses, bills, spending, etc.). We used to just leave large amounts of extra “unassigned” cash in our checking account for whatever, which we (not surprisingly) ended up spending on meaningless crap.
All it required was a little extra consciousness, foresight and discipline. Now we have total conscious control over every single dollar we earn, and we spend ALL of our money with purpose and intention, which is incredibly empowering!
Karyn McCarthy: Set Up a Corporation vs. a W-2
Two strategies have moved me much closer to financial independence.
First, I set up a corporation and instead of getting paid as a W2 employee, I get paid through my corporation. This gives me a lower tax rate and allows for more deductions.
Second, and even more importantly, as a corporation I was able to set up a “defined-benefit plan,” (DBP). This allows my corporation to contribute more money to my retirement plan than the usual personal retirement options, such as a 401K. And I can deduct the contribution to my retirement plan – my DPB – as a business expense.
This excellent New York Times article explains defined-benefit plans in detail, and notes “The I.R.S. allows a maximum annual contribution to the plan of about $255,000 for people in their 50s.” That’s amazing!
Because the plan is based on actuarial tables, the older you are the more you get to contribute. A DBP may not be the best option for people in their 20’s and 30’s, but for older Lifebook VIP’s who want to reduce their tax bills and shift the savings into their retirement accounts, it’s a game-changer.
Mike Vorozilchak: The Money Jar
The most fun and impactful strategy my wife Meredith and I have ever implemented is our money jar. It is real simple. We have one of those clear plastic jars with the seal-tight clamp-down lids on it that has become our financial cookie jar.
The only difference is that we only put in and don’t take out.
We implemented this strategy about 3 years ago after reading the book “The Millionaire Mindset” by T. Harv Eker. We were looking to make some serious shifts in our quality of life and make a more clear roadmap for our financial future and this one habit blew the lid off our savings. It has literally created a vacuum for money and we have easily stockpiled an extra $30,000+ in this little cookie jar over the last few years. There is no doubt that if we didn’t have our cookie jar, that money would have been spent and wasted and never accounted for in a meaningful way.
We started filling our empty jar by adding all of our rolled coins to it. Seems simple. But, we often overlook the little things because “change is too small to bother with”. But, Harv teaches that even picking up a penny in a parking lot increases your net worth, while ignoring that same penny sends a message to the universe that “I don’t need any extra money”. We cashed in all the change we had at the bank and our jar had its first $25. Over the next few weeks and months, this became an exciting new game we played where we kept focusing on feeding out cookie jar. A dollar here. Five dollars there. All of sudden, it seemed that money started appearing out of nowhere, all because we had a new purpose for it. Every time we got to $100 in small bills, I would take it to the bank to get a fresh $100 bill. Before we knew it, we had rolls of $5000 filling up the jar.
What I love about this habit is that I get to see and feel cash every day. Green paper might not be worth much in and of itself, but there is a serious charge of energy I feel when I hold a roll of 50 $100 bills. It makes money seem abundant and it makes me feel more compelled to keep growing and expanding my worth. It is a strong anchor.
To this day, the game continues and this simple little habit continues to be the most fun and impactful financial strategy we have.