Set and Then Forget… (at least for a little while)
As an aggressive entrepreneur, I was ready to conquer the world at a very young age. My plan was to out-work, out-innovate, and out-run my competition at all costs until I was financially free.
I started a lawn mowing business… then a custom T-shirt business… and then a motivational poster business…
After several years of intense entrepreneurship, I had reached my mid-20â€™s… and I was still broke.
Stabilize Your Finances
Financial stability starts with steady income and low expenses, NOT with a great investment or the next great entrepreneurial idea. It took me awhile to realize this, but itâ€™s only when you have a strong base to stand on that you can take big risks.
I always wanted to put risk before stability, but itâ€™s actually the other way around. In America, weâ€™re romanced by the stories of great entrepreneurs. We learn that you have to take risk to receive reward. What isnâ€™t on the front pages is that most of these success stories started with a strong base. Without the security of stable finances to fall back on, these entrepreneurs wouldnâ€™t have been able to weather the ups and downs of entrepreneurship and investment.
1. Get/Keep Your Income… A Job is not necessarily bad
As a free spirit, Iâ€™ve always hated â€œworkinâ€™ for the man.â€ Every time I had a J-O-B, I dreamed about setting up a business and leaving that place behind. The feeling was overwhelming and eventually, I would succumb…
Iâ€™d put in my resignation and set out on my next business adventure. Unfortunately, because Iâ€™d jumped ship too early, Iâ€™d be right back at the job after several months.
Entrepreneurs: Donâ€™t Jump Too Soon
As an entrepreneur coach, I see the same situation over and over again. People come into my office, ready to start a new life. They say, â€œOK, I quit my job… now what?â€
My advice is always something they donâ€™t want to hear:
â€œTry to get your job back…â€
Realize that entrepreneurship is risky.
The Moat Theory
Risk is not something we want to take until we have a stable foundation. Mitch Stephen, a friend and author of the book â€œMy Life and 1000 Housesâ€ calls it The Moat Theory. Get your basics covered and surrounded by a moat before you set off over the draw-bridge with your horse and joust.
Then… if youâ€™re not successful… you can just retreat back to your little castle, pull up the bridge, and regroup.
The fact is: you have a much better chance of being successful if youâ€™re operating form a place of security as opposed to a place of desperation. Itâ€™s part of financial gravity… people can smell it when youâ€™re weak.
2. Take Inventory… As Painful as it Might Be
The vast majority of people have no idea where they are financially. They might have a vague feeling of â€œIâ€™m brokeâ€, or â€œIâ€™ve got some extra moneyâ€… but if you asked for their net worth or cashflow statement, theyâ€™d just give a blank stare.
It can be a painful process to pull together all of your statements and fill out a financial statement… but the end result is liberating.
Even if itâ€™s bad news… at least you know where you are! Finally, you can start taking steps forward.
Hereâ€™s the gist of financial statements:
(Your Net Worth)
Add up all of your assets and then subtract your liabilities.
Assets (find the current value of the items below if you were to sell them today)
Stocks & Bonds
Credit Card Debt
(Income Minus Expenses)
Real Estate Cashflow
3. Increase Income/Axe Expenses until You are at Least $200/mo Cashflow Positive
Whew, that feels better…
Now that you know where you are, you can take the first step toward tightening up your finances.
If the bottom line of your income statement was positive… great! You can move to the next step (as long as you keep it positive!)
If your bottom line was negative, itâ€™s important to get it into positive territory as soon as you can. Increase your income and/or decrease your expenses until youâ€™ve got an extra $200 a month.
This is where #13 â€œGet Rid of Insecuritiesâ€ really kicks in…
If youâ€™re an insecure person, it will be hard to get rid of luxuries in order to be cashflow positive. You have to dig deep and realize that you are making short-term sacrifices for long-term gain.
4. Make a Pact Never to Decrease in Net Worth Again
Now that youâ€™ve proven to yourself that you can maintain a positive monthly cashflow, itâ€™s time to commit.
As long as you always make more than you spend, your net worth will always increase (provided you donâ€™t invest in risky assets… see The Equity Goose and Cashflow Golden Egg)
Take time at the end of each month to fill out your balance sheet and income statement. Check to see that you have a positive number on the bottom line of your income statement and your net worth is higher than it was the month before.
Even if your net worth only increases by $100, you are always moving forward. Itâ€™s much harder to catch up from a loss than it is to make a small gain.
When you stabilize, you will notice that your net worth will begin to accelerate.
5. Pay your savings and bills the minute you get your paycheck
Hereâ€™s a tip that really helped me do away with â€œsurpriseâ€ bill payments. Each time you get your paycheck, make the following transactions in this order:
1. Put at least $200 in your untouchable savings account.
2. Pay all of the bills you owe for that pay cycle.
3. Take out a budgeted amount of cash for all of the day-to-day spending you will incur until your next paycheck.
6. Build a $1,000 Emergency Account
I owe Dave Ramsey for this powerful tip:
Save up to $1000 in your â€œemergency accountâ€ before you make any other financial moves such as paying down debt or making an investment.
It took me awhile to â€œseeâ€ the wisdom (again, I was thinking too hard…), but itâ€™s very powerful.
There is no way you can predict all of the expenses that will appear in your life. Most people spend every dollar they have, and when something â€œunexpectedâ€ happens, they have to borrow to pay for it.
Once you realize that â€œunexpectedâ€ expenses are a part of life… they will no longer be unexpected.
7. Get Your Credit Above 700
After you stabilize your income statement and put away an emergency account, you can start working on your credit.
DISCLAIMER: Weâ€™re not building credit so that you can buy more â€œstuff.â€ Credit is a fragile tool that we can use to buy income-producing investments.
Thereâ€™s a complex formula (thatâ€™s way above my head) to increasing your credit score. Trying to figure it out will only confuse you. I would recommend finding a reputable credit consultant who can work on your credit on your behalf. (Be careful, there are a lot of credit repair scams out there.)
8. Focus on Building Your â€œEquity Gooseâ€
Once youâ€™ve built up to a 700 credit score, you can start building your net worth with assets such as real estate. The idea is to buy an asset such as a house at a discount, fix it up, and either rent or sell it.
If youâ€™ve bought the asset correctly, youâ€™ll make $20-40,000 every time you repeat this process.
Never Touch the Goose!
Take those chunks of $20k and put them back into the system…
Never live on the equity of your investments (the goose), only the cashflow (the golden egg).
Stabilize Your Life
I started this article by writing about finances. My intention was to keep your attention, not to suggest that finances are the most important part. Most people like the tangibility of financial advice so that they can apply in their life.
But, the reality is: your financial fitness often mirrors your social, physical, and spiritual fitness. If youâ€™re struggling financially, it may be an indicator of an imbalance somewhere else in your life.
Even though these areas can be harder to measure than finances, ultimately they are the entire reason we seek more money in the first place.
9. Exercise at Least Three Days a Week
The easiest and most immediate way to see improvement in your life is to improve your physical fitness. All of the other areas of your life (including mental, social, and spiritual) are affected by your physical being.
The trick with fitness is simple:
Consistency is more important than intensity.
Getting some moderate exercise three times a week for the rest of your life will do more for your overall well-being than jumping into intense exercise cycles that will eventually burn you out.
A good book to illustrate this point is â€œThe Compound Effectâ€ by Darren Hardy. He points out that massive changes can be made in your life by making consistent, small efforts.
10. Realize that Youâ€™ll Be Fine No Matter What Happens
When I face great stress in my life… I always resort to something I learned early in my adulthood:
After all is said and done… youâ€™re going to be fine.
Look back at times in the past when youâ€™ve faced trials and tragedy. In the end, you were okay.
It takes an amount of spiritual maturity to realize it; but even if the worst scenario you can imagine happens… youâ€™re going to be okay.
Take some time to ponder and meditate on this concept and it will free you to face life with more vigor and confidence.
11. Seek Guidance
As a strong self-determinist, I thought I could create wealth on my own through reading books and brute force… It wasnâ€™t until I had a few years behind me that I realized the immense power of seeking guidance… and results started to follow.
Intelligence vs. Wisdom
Iâ€™ve always had a very strong intellect (I thought that was all that I needed). What I didnâ€™t realize is that intelligence can actually be an obstacle to success without wisdom.
The difference between intelligence and wisdom is similar to the difference between leadership and management. To borrow from one of my favorite books of all time, â€œThe Seven Habits of Highly Effective Peopleâ€ by Stephen Covey; the managers are down in the jungle, sharpening the blades, organizing a work schedule, motivating the workers, innovating new tree-chopping techniques…
The leader is the one who climbs the tallest tree… surveys the land… and yells, â€œWroooong Jungle!â€
Wisdom Comes From Experience
The reason it is so important to seek guidance is that wisdom cannot be manufactured through sheer brain-power alone. It can only be found in the minds of those men and women who have been there before.
The great thing is that it doesnâ€™t have to come from your own experience… you can skip the learning curve if you are open-minded enough to listen to the advice of someone who has been successful.
Find someone who is in the financial, social and spiritual position you want to be in and ask them for advice.
It was hard for me to ask for help in my younger years because I let my pride get in the way. I wanted to become successful on my own.
When I started to seek guidance from people who where more successful than me, my own success increased exponentially.
The World Is Immense
Iâ€™ve had the blessing of being well traveled (I would recommend it to anyone). The more I traveled, the more I realized that the world is larger than a human brain can comprehend.
It is almost guaranteed that someone has faced the same obstacle that you are facing now… thousands probably have.
Instead of trying to figure it out on your own, it makes much more sense to learn the wisdom of those who have already overcome.
12. Set Your Intention
The easiest part for me was always knowing what I wanted… I read books on visualizing my goals and I became good at it. I was able to create the feeling of achieving the objective before I even began on the journey.
Having a clear picture of what you want is important to establish in the beginning. Take some time and imagine who you would like to be.
It doesnâ€™t have to be some grand dream… If youâ€™re having trouble with a goal, start with something simple like finishing a good book or smiling more at work.
Engrain it in Your Head
Once youâ€™ve got an idea of what you want, itâ€™s time to engrain it in your head by setting your intention. Realize that thoughts are fleeting… it takes real discipline to engrain a thought in your head. Here are a few ideas on how to set your intention:
â€¢ Write it down… the act of writing â€œcrystallizesâ€ your thoughts.
â€¢ Leave notes everywhere… on your bathroom mirror, computer monitor, steering wheel, etc.
â€¢ Meditate on it… clear your mind and visualize it as if it were real
â€¢ Keep a symbol in your pocket… every time you reach for your keys, youâ€™ll bump into that rock or figurine
â€¢ Create a vision board… make a collage of magazine clippings symbolizing what you want to become
Itâ€™s important to â€œBegin with the End in Mindâ€, (as Stephen Covey would say); but itâ€™s also important not to get stuck living in the future dream space. Once youâ€™ve set your intention, set it aside and get back to working on your foundation.
13. Get Rid of Insecurities
Insecurity is a huge obstacle to success. Most people hold some level of insecurity in some aspect of their life. Those who learn how to manage and overcome their insecurities are much more likely to succeed.
A person who is secure with his or herself is able to give to others and create win/win relationships. An insecure person is always taking from others, attempting to fill a seemingly endless void.
Read â€œSings of Insecurityâ€ for more on this topic.
14. Participate in Your Hobby at least Once a Week
In todayâ€™s fast-paced society, work and making money consumes us more and more. Many people canâ€™t remember the last time they took time to enjoy a hobby.
Taking time to shut off the work thoughts in your head and enjoy yourself â€œresetsâ€ the neurons in your brain, making you more efficient when you return to work.
When your brain is always engaged, it becomes weaker.
Read â€œThe Power of Full Engagementâ€ for more on this topic.
15. Take Time Each Week to Visit with Friends and Family
What good are possessions or experiences if we donâ€™t share them with someone?
The relationships we make and maintain are the greatest investments we can make in our lives. Be sure to spend quality time with loved ones as a part of your weekly schedule.
When working on personal development, it can be tempting to jump straight to the more glamorous activities such as investing, entrepreneurship, and shooting for the stars.
None of those things matter unless we have a stable base to stand on. Start by stabilizing your life and finances before you move on to more aggressive investments.