I believe there’s no decision more important than to take charge of your own financial future.
We live in a country of opportunity and yet most Australians are buried in credit card debt, car loan debt, personal debt and other debt.
Don’t get me wrong, debt is not a bad thing per se, but there’s good debt and bad debt.
Good debt makes you money: an investment property where you’re making a good capital gain. This may be from the property is increasing in value or from the cash you’re left with after paying the mortgage and other associated costs of the property.
Bad debt, on the other hand, costs you money for a depreciating asset: a car or credit card purchases, for example.
But what do I know?
Plenty. I built and sold my first business then moved on to my second within 18 months.
I raised over $500,000 in capital for my third business at 20, only to be dead broke six months before I turned 21. I then made it all back by my 21st birthday.
And there were plenty more ups and downs to follow.
So, in a nutshell, I know a thing or two about having a poor understanding of finances. But, I turned this around by following a few key principles to ensure a good financial future.
To save you the pain – professionally and personally – here are my top 11 rules and strategies to mastering your finances, learnt from some of Australia’s most financially savvy individuals, as well as my own experiences.
1. Decide to be financially free
Make the decision right now to be financially free. There’s no need to put a time frame or even a dollar value on it.
The moment you make a conscious decision to be financially free (and consistently remind yourself of the fact) your brain will start to become attuned to things that will help you reach your goal.
2. Understand how money works
I call this the three Rs to understanding how money works and how to work money:
- Role model
We live in an age where we can access thousands and thousands of books through the click of a button, for free or at very little cost.
We also live in a time where some of the most successful people who understand money hold seminars online – again, often for free.
3. Master your beliefs, rules and your relationship with money
Decide what it means to be financially free in your own words; understand what your triggers are when it comes to spending money.
4. Set financial goals
Clearly define your financial goals. Use a simple goal-setting sheet (you can get one from www.theyeclub.com) to help you stay on track.
5. Keep a budget and P&L ledger
As Robert Kiyosaki (Author of Rich Dad Poor Dad) says: “My banker doesn’t ask me for my report card (school report card), he asks to see my profit and loss statements when borrowing money for investments.”
Making money is one thing, but keeping track of it is another. You hear all too often people say “If I where rich I’d really be able to manage my money.” But then when they’re asked what happens to their pay each week they say “I don’t even know where it goes.”
It doesn’t seem right for someone to be given more money if they can’t manage what they already have. And trust me, I learnt this lesson the hard way.
Take control of your money now by creating a profit and loss statement. Get into the habit of doing this on a monthly basis.
Once it’s done you’ll know your budget for the next month (The YE Club can also provide you with a template budget and Profit & Loss sheet if needed at the same website).
6. The Four Buckets principle
Imagine you’re going invest $100 a week. In order to be financially protected on the way to becoming financially free, you should diversify your investment funds. That way, if one investment doesn’t perform so well the others should pull it through.
The Four Buckets principle is as follows:
• Out of every $100 you earn for your invests account, diversify into four separate areas/buckets.
• The first bucket should be a safe and secure investment, such as a bank or term deposit. I believe 40% of your investment funds should go here. Your returns should be between 4% and 8% p.a.
• The second bucket should be slightly more risky such as shares, property, business etc; stick 30% of your investment funds here. Your returns should be circa 8% or more.
• The third bucket is your lifestyle bucket. This is where you stick the money that will go towards a reward to yourself, like a holiday or fun day out with friends. I believe 20% of your investment funds should go in this bucket.
• The fourth bucket is your emergency bucket. This should be 10% of what you’re investing. Only dip into it if unforeseen circumstances threaten to scupper your investment strategy.
7. Dream big
Donald Trump said it best: “You’re going to be thinking anyway, so think big!”
As we all know, Donald Trump does everything big (especially his hair) but even he started small. Well, smaller. From investing in small buildings, to buildings worth several million, to those worth $500+ million a piece.
Start to dream about bigger and better things that you can provide for your loved ones, your friends, your colleagues and, of course, yourself.
8. Begin to invest
Just take the first step. Whether it’s $10, $100 or $1,000, this will teach your mind that you have enough and that investing is a good thing.
Within 12 months of investing on a regular basis you’ll find yourself investing in multiple ventures ranging from businesses, to shares, to property.
9. Increase your assets
By investing in property, shares or businesses you increase your assets. In most cases you’ll also be increasing your cash flow that’s paid as a dividend, rental income or business income.
Start by investing using the Four Buckets principle and then move on to acquiring assets to maintain, build and multiply your wealth.
If you’ve done your research then hopefully your assets will grow while you just keep an eye on them. (That’s assuming you want to be making money even when you’re asleep.)
10. Get advice, and listen
The best way to become financially free is to model someone who’s living the financial lifestyle you desire.
A common mistake in wealth creation or in any form of learning is people pay so-called ‘professionals’ for advice on how to create wealth or lose weight or improve this or that when the ‘professional’ doesn’t subscribe to their own ethos.
The best quote I’ve ever heard in regards to wealth creation was: ‘The most expensive advice is advice from a poor person.’
11. Give at least 10% to a cause other than your own
This principle stems back to the foundation of all wealth creation. It teaches your mind that you already have more than enough in your life.
Give with an attitude of gratitude and it will come back tenfold. What’s more, you’ll feel great about helping others achieve their goals.
Keep in mind that this is not limited to giving financially; there are many people who would appreciate a ten minute conversation or an hour of your time at a homeless shelter or animal hospital more than they would a financial donation.
And there you have it, the top 11 rules and key strategies that I’ve compiled from some of the world’s most financially-successful individuals. I hope it inspires you in your current journey to assuming control of your financial future.
Ross Scutts is the Co-Founder and General Manager of The Young Entrepreneurs Club.