Best Practices for Financial Success

Investigate Before You Invest

As an entrepreneur, investor or corporate executive you need to move quickly because time truly is money in many situations. However when it comes to spending your hard earned money you need to at the very least take a moment to examine the purchase you are about to make. Again you should examine everything like an investment. Will it make you more money or will it add more value than the price and terms will take. Ask yourself with this investment get me closer to my goals? If the answer is yes then do it and don’t think twice about it. But if you don’t take a moment to think about it you may be buying something on emotion and regret the decision down the road.

Give To Others

Yes, you read that correctly, give. Don’t pinch every penny so tightly that you can’t spare some cash for someone in need or a worthy cause. When you hold onto every penny with a death grip you tell your brain that money is a scarce resource and that it’s hard to attain. This action will solidify itself into belief and will cause you to act in a way that manifests more scarcity in your life. The truth is if you can’t spare some cash for someone who needs it you have bigger problems than a money shortage, you have a closed mind and your values are skewed. You can always spare money for some worthy cause. This action will open the floodgates of abundance in your own mind. You will see abundance, speak abundance and you will live abundantly in your actions.

Create Multiple Flows of Income

One source of income is a disaster waiting to happen. Most people earn money from their job, they trade time for money. If your only source of income is earned income from your “W-2” job you have a problem. Ordinary income is the most constricted and highly taxed source of income available. Not only that but you have no control. Your taxes are taken out of your gross pay before you even see it. You are also at the mercy of an employer who can do whatever they wish with you.

Begin now to look for multiple sources of income that you can use to supplement your current job. Look for opportunities to generate income that isn’t tied to your time. For example you can create passive flows of income by creating an online business, investing in real estate and creating products. Yes there will be a massive initial time investment on the front end of creating these sources. However once they’re up and running they will produce cashflow 24 hours a day whether you’re working on them or not. The barrier to entry here is your own laziness and lack of certainty. You can do it and you will if you make it your purpose.

Leverage Other People’s Money (OPM)

Ask yourself a question, which one is easier stashing away $100K in the bank or borrowing $100K from a lending institution or private source? The correct answer is that it is 10X harder to build a stockpile of cash than it is to leverage debt. You should avoid using your own money and learn to leverage other people’s money whenever you can. Liquid capital is king on our economic planet. Don’t throw away your hard earned capital into paying down mortgages, student loans and other installment programs. Instead use the capital you have now to leverage more money to buy investments that will make you more money. Leverage against your current assets to get even more purchase power. Maybe instead of liquid capital being kind I should say that purchase power is king. For example let’s say that you wanted to buy a piece of real estate costing $190K which was going to produce monthly rental income. Let’s say that you had $250K in the bank and you could pay cash for the property. Or you could finance it with 10% down and factor the debt service into the equation as an expense. Would you rather give up $190K or a $19,000 down payment. By leveraging other people’s money you would be able to buy 10 properties of similar price with that $250K instead of just one. In my former job as a commercial broker I used to interview clients who had hundreds of thousands and even millions of dollars in the bank. But because their mind wasn’t in the right place they didn’t see the value of leveraging other people’s money. They insisted on paying cash for expensive real estate. This always confused me because they could have bought 10X more and made that much more money if they were only willing to change their investing formula.

In addition to what I’ve said I must also warn you. Debt is to be leveraged for one thing and one thing only, investments. These can be investments that make you more money or investments in yourself. You are not to rack up bad debt with credit cards buying consumer items. If you can make it a habit of looking for every opportunity to use someone else’s money instead of your own you will start to think like the wealthy. This is how you get rich, with purchase power.

Pay Yourself First

This one has been around for a while so I can’t take credit for it but it works. Before you pay bills, car payments, credit cards, expenses and everyone else pay yourself. Set up a direct deposit from your bank to automatically send money to a separate financial institution. Stockpile this cash and don’t touch for any reason other than to buy investments. Don’t use it for vacation, don’t use it for an emergency or anything other than that which will help you grow and reach your goals. Consider the automatic payments as just another expense that you have to pay. Except now you are investing in your future instead of paying bills. This is a great way to build up capital without having to put too much thought into it. The trick is to pick an amount you want to send and then to keep it consistent. Stop what you’re doing right now and set up a direct deposit to your financial freedom account.

Keep What You Earn

There’s saying “It’s not about what you earn but what you keep that counts.” This of course doesn’t mean anything if you’re making practically nothing but that’s a different story. How often do you keep track of your expenses and outflow of money. What useless activities and vices in your life are draining your bank account? Everybody has them and if you don’t plug the hole you will always wonder why no matter how much money you make you can’t seem to keep any of it. Begin to set up accurate accounting and bookkeeping in your personal life. Find the areas where you are throwing away money and then eliminate them once and for all. I’m not saying create a budget and be a miser, I’m saying pay attention to what you’re doing and don’t be an idiot. Most people just spend carelessly without ever weighing the pros and cons of their decisions. Don’t be a slave to your own habits, take control.

Run Your Life Like A Business

For years I’ve heard many people say to run your life like it were a business. This is great and I agree but no one ever explains what that means. For someone with no business experience they can only guess at what it means. Here’s what it means to me. You need to run your personal life as though you were a business “owner”. In any business you have different departments such as accounting, marketing, merchandising, acquisitions, operations, etc. A business owner does not work in these departments, rather the owner hires professionals/specialists to handle these areas of the business. A business owner works with accountants, attorneys, tax specialists, insurance professionals, etc. In the same way I think that you should effectively outsource these important areas of your life to specialists and industry professionals who work in that industry all day long. For example most people do their taxes online by themselves and are missing out on thousands and thousands of dollars they could be keeping each year because they don’t seek professionals assistance.

Then we get to the income and expenses. The income you make before expenses is your gross income and when you subtract your personal operating expenses you get the difference which is known as Net Operating Income. Your goal is to increase your personal Net Operating Income by increasing gross revenue and decreasing operating expenses. You should know exactly how much money you make and from where as well as how much money you are spending and where it is going. View your rent, gas and food as operating expenses like a business would. Now you can run your life like a business or an investment.

Increase Your Financial Intelligence:

Are you familiar with the terms ROI, NOI, IRR, debt service, debt service coverage ratio, revenue, EBITDA, assets, liabilities, cashflow, balance sheet, capital, equity, depreciation and so on? If not and any of your goals involve money then that’s a problem. Many people want to become wealthy but they don’t educate themselves on the language of money. If you wanted to learn to speak a new language don’t you think you’d pick up a book on that language at some point? Exactly so then you should do the exact same thing with money. You should constantly be consuming new and useful information on finance, investing and business strategies. The terms above should be a part of your daily conversation. When you do this things relating to building wealth and obtaining money will make more sense to you. You will start to “see the matrix” as I like to say. This new language and mindset will help you spot opportunities and make calculated decisions that help you get closer to your financial goals.

Don’t Commingle Business and Personal Money

If you are in business for yourself in any capacity it is extremely important that you don’t mix your personal and business assets and accounts. There are many reasons why you would not want to do this including legal issues involving the corporate veil. Commingling personal and professional assets is a rookie move and will lead to confusion and inaccurate accounting procedures. Take your business efforts seriously and treat them with the highest importance. Be a professional, run your business like a professional and don’t adopt careless habit such as this one.

Utilize Cash

Credit cards, apple pay, online checkouts and paypal. All of these technological innovations have made it easier than ever for businesses and individuals to make transactions. This convenience has made it easier and easier to spend your hard earned money. It has disassociated you with your money by making it easier emotionally to part with your money. It has also made it harder to track and manage your financial habits.

Think about a company that you authorize to draft money from your bank account for a subscription based purchase such as a gym membership. This may sound good when you make the purchase but a year later when you try to cancel you may encounter complications. And you you are not careful and don’t track your money you could have subscriptions you don’t even use anymore charging you every month.

A great way to get around this is to use cash. It may take longer at the register but at least you have your hands on your money which makes it a lot harder for someone to subtly take it from you or for you to part with it in a negligent manner. Obviously you shouldn’t completely limit yourself to just cash purchases but for your everyday spending this is a great way to exercise more control over your money.

Cash can also put limits on how much you spend because you only have what you carry. If you are having a hard time keeping what you earn then using cash may be a great way to limit yourself. Creating systems is a great way to put controls on yourself when discipline and willpower aren’t enough.

These transactional technologies have also made it easier for criminals to steal your money without you ever even knowing about it. Every time you swipe your card or make an online purchase you jeopardize your financial security. You shouldn’t live in fear but you should be aware of the realities of the world you live in.

Never Spend Money Again

Never spend your money again. Poor people spend their money, wealthy people invest their money. Don’t spend money but instead invest your money in assets. Assets can simply be defined as things that give more in return than the cost to acquire them. I’m not really talking about financial instruments rather I’m talking about everyday purchases. As I’ve said before every decision you make is an investment. You are either investing in assets or liabilities. So in the same way with money only invest in assets. For example you want to buy a new TV but you know you need a new computer for your photography business. So ask yourself which one will get your closer to your goals? Which one will increase your success and productivity? Probably the computer.

Assets don’t necessarily have to be directly related to your goals in life either. For example let’s say that you want to take a vacation to gain recenter yourself after a successful but highly stressful product launch in your business. Let’s say you are examining two different resorts in Fiji. One is $240 per night and the other is $298 per night. Now someone who is very conservative with their money would tell you to take the lesser costly of the two but that’s not what I’m advocating here. I’m saying to only invest your money in things that give more than they take in return. The more expensive resort does cost more but it may make you feel better than the less expensive option.