MONEY MAKES MONEY.
THE RICH GET RICHER
If you do want to do something about it, then it seems to make sense to me to make a tidy sum and use your money wisely to help the less fortunate than you. Or do whatever with it you so choose.
Once you have some money you’ll be astonished at how quickly it can grow. I recommend you understand and learn the concept of compound interest as quickly as possible. And no, I am not going to tell you anything about it except it’s vitally important that you know about it and make it a cornerstone in your building of wealth. The reason I’m not going to tell you anything about it is, firstly, this isn’t that sort of a book and, secondly, I’m not going to do all the work for you.* That would be too easy and you’d learn nothing. My observation is that wealthy people get the idea of compound interest and the rest of us don’t.
If you spend all you get, then this Rule will never work for you; it’ll never get your money working for you. You have to set aside money for breeding purposes. If you ran a rabbit farm and killed and ate all your rabbits, you wouldn’t have any left to keep going. Forget the rabbit farm – you’re going to start a money farm. Your money will breed. You can then reinvest some and spend some – but you can’t spend it all or you’ll have no more rabbits. Look, this stuff isn’t rocket science but it is amazing how many people simply don’t get it. But you do now. You have been given the best tip I can give you.
Put some money aside for breeding purposes.
Cream a little off for spending.
Reinvest the bulk to build up a good and healthy stock.
Keep it to yourself.
* Go and read The Financial Times Guide to Investing by Glen Arnold (Pearson Education, 2010).
RULE 11
Calculate the net return
Now doesn’t that sound boring: ‘calculate the net return’. Well it shouldn’t be boring. Remember, this is about deciding if and when you’re going to get that house or that holiday, when you can afford to give up work, how much you can leave to your kids or give to good causes, what kind of car you’re going to drive. That’s not boring. And the answer to when it’s all going to happen will be affected by whether or not you calculate the net return.
You understand what ‘net’ means of course. But do you remember to factor in the costs, expenses, charges and tax before deciding whether to make an investment? For example, suppose you’re tempted by a rate of 3 per cent. That might sound like a pretty good investment. But if you’re a 40 per cent tax payer that’s going to drop to a ‘net’ return of 1.8 per cent. Doesn’t look quite so good now does it? Of course this calculation may not deter you, and that’s fine, so long as you base your investment decision on the real, net, return and don’t fall into the trap of just seeing the headline figure.
THIS IS ABOUT DECIDING IF
AND WHEN YOU’RE GOING
TO GET THAT HOUSE OR
THAT HOLIDAY
Here’s another example. Suppose you buy a property to rent out. If it costs you, say, £200,000 and you let it out at £10,000 a year, you might think that looks pretty good. But hang on – what have you got to factor in before you make your decision? Well, there’s the cost of the mortgage of course. And the insurance. The letting agent’s fees. Maybe periods when the property is empty between tenants. Oh, and tax on the rental income. See? I’m not saying buy-to-let is never worth it, but you’ve got to calculate the net return before you can decide if this is a good move for you. Obviously there’s also the potential capital growth in a property to consider, but that’s not guaranteed except perhaps over the very long term. Certainly if you need to sell the property in five or even ten years’ time, you can’t assume significant growth, and the value may even have dropped.
So do your sums. They’re not complicated, but they do require you to think it through and make sure you haven’t forgotten anything – especially the tax you may eventually have to pay on anything you make.
RULE 12
If you see money as the solution you’ll find it becomes the problem
Having money doesn’t make all your relationships flow smoothly – not by a long shot. It doesn’t protect you from disease – it may buy you better medical care after the event but it doesn’t protect you. It might buy a better diet but the rich half of the world has a pretty poor health record despite having all the money to feed itself extremely well, so wealth and health do not necessarily go hand in hand.
IT MAY BUY YOU BETTER
MEDICAL CARE AFTER THE
EVENT BUT IT DOESN’T
PROTECT YOU
The more you see money as a solution, the greater the chance that you are missing the point entirely. Money doesn’t do anything.
I know, I know. You’ll be thinking, ‘If only I had X amount, I could fix this problem in my life’. I think you’ll find money would throw up a lot more problems in its wake. Money will not make you happier, thinner or more popular with decent people. Money does not deliver lasting, meaningful peace of mind. There are plenty of rich, fat, unhappy people with no real friends. I think we need to find the cure to our problems first and then find a way of funding that cure. Money isn’t, and never will be, the cure. It is the oil that smoothes the wheels. It isn’t the engine.
RULE 13
You can make lots of money, you can enjoy your job, and you can sleep nights
A lot of people hold one or other – or all – of these notions:
Making money goes hand in hand with being a ruthless, manipulative, amoral, greedy lizard.
To make a bit of cash you have to sell your soul, grandmother and principles.
Being wealthy means you end up with a heart problem, insomnia and other stress-related disorders.
To make money you have to turn into a slimeball who sacrifices their family, morals and happiness and all on the altar of wealth
Well, it can be like that, but it doesn’t have to be. In fact, it shouldn’t be. That’s the beauty of it. If it is like that, then you’re doing it wrong. You see, money is so freely available – and to anyone (as we looked at in Rule 1) – that you really don’t need to try that hard, or change that much. An awful lot of pretty ordinary, nice people make money – and lots of it.
You can make money, enjoy your job and sleep at night. You just have to decide that is what you’re going to do – no matter what. And then stick to it.
Remember, if you are starting to lose sleep or have stopped enjoying what you do, then you need to have a serious talk with yourself. Go back to the beginning of the book and remember what it is that wealth is all about to you.
I remember a cartoon of a boardroom with fat-cat executives. A small girl pokes her head round the door and says, ‘Money can’t buy a kind smile’. The businessmen all look, momentarily, shamed. Then the chairman growls, ‘Get outta here, kid, who the hell wants a kind smile?’ and the others all look relieved and go back to their meeting.
Well, I for one would like the kind smile even if it does mean I lose a little money. I want to sleep nights and to enjoy my job and to make money. But I won’t compromise my principles, spend too little time with my family or children, neglect to sit in the sunshine occasionally, take a day off. I won’t worry about work or money once I’ve gone to bed, be driven so much by money that I lose my sense of humour or need to have fun. These I swear by. And it is possible – believe me, I’ve known and observed enough wealthy people to know this is true – to make money and have a life, to be ethical and rich, to earn a lot and be a thoroughly nice person. It is possible. It just sometimes seems it isn’t. All part of debunking our money myths.
IF YOU LOSE SLEEP OR HAVE
STOPPED ENJOYING WHAT
YOU DO, THEN YOU NEED TO
HAVE A TALK WITH YOURSELF
RULE 14
Don’t make money by being bad
I like Google’s corporate motto – ‘Don’t be evil’. It’s probably an anagram of something but I still like it. If you have to lie, cheat, st
eal, defraud, lose sleep, hide, dodge the law in any way, break the rules or generally behave badly to make your money, then don’t do it, it isn’t worth it.
If earning money or being wealthy stops being fun – and by being bad it really will stop being fun – then there’s no point doing it. If you don’t enjoy the challenge of earning money in a decent way, then best go and do something different.
I knew a major criminal once. He told me it was no fun being ‘bent’ as, in fact, he had to be a lot more law-abiding than the rest of us. He couldn’t risk getting pulled over by the police for speeding or any minor motoring offence; no late night parties in case the police got called out; no flash car to draw attention to himself; no lavish lifestyle in case it put him in the spotlight.
IF YOU DON’T ENJOY THE
CHALLENGE OF EARNING
MONEY IN A DECENT
WAY THEN GO AND DO
SOMETHING DIFFERENT
But there is more to living a clean life than being able to speed or have parties. Living a life where you make your money from being good lets you sleep nights. You get to look your kids in the eye – and yourself in the mirror – with the added bonus of a feel-good factor. No amount of money can buy that.
If you have to resort to being wicked, it means you’ve failed; you’ve lost the plot. It means you haven’t been able to do it properly. It means you’re scraping the barrel. It means you haven’t been able to think of a proper idea. It means you’ve been lazy, desperate, non-creative, boring.
I can come up with lots of examples of famous wealthy people who’ve made their money out of being bad. Yep, they’re wealthy it’s true, but look in their eyes and what do you see there? Do you want to have that stay-awake-at-night-worrying look? Do you want that flinch-when-the-doorbell-rings kind of life? You want nobody-trusts-you sort of relationships? Or would you rather relax and know that you did it legit, honest, fairly? It’s a no-brainer really, isn’t it?
As long as you can earn your wealth without ripping people off, being cruel or unjust, breaking the law or bending the rules, you’ll be doing fine. All it requires is a quick check, staying conscious of what you – and your money – are doing.
RULE 15
Money and happiness – understand their relationship
There are lots of things that will make us miserable – losing a partner, being made redundant, getting sick. And loads more. There are quite a few related to money and gaining or spending thereof.
Remember:
too little money can make you miserable
too much money can make you miserable
too much stuff can make you miserable
not having enough stuff can make you miserable
I think what we have to grasp pretty well from Day 1 is that money and happiness are not necessarily the same thing. Money doesn’t buy happiness. This is a common mistake people make. It isn’t going to be one you make. You can be poor and happy. You can be rich and happy. You can also be either poor or rich and miserable.
If you are looking to wealth to make you happy, you’ll be disappointed. If you are looking to money to make you powerful/ younger/sexier/more vital/more interesting/better looking/whatever, you’re going to be disappointed. Sorry but money doesn’t do any of that. In your head it might. In other people’s heads it might. But it doesn’t in reality. You can be all those things with money, it is true. It isn’t money that does it. The switch is thrown in your head first. Money is a placebo, not a cure.
We’ve all seen the lottery winners who buy the big house and feel miserable because they’ve left all their friends behind. Or the tycoons who lose the lot and top themselves because they felt their life was over just because they were skint.
MONEY IS A PLACEBO,
NOT A CURE
But we won’t make any of these mistakes because we shall practise this Rule diligently and understand the relationship between money and happiness. Ah, but I hear you ask, what exactly is this Rule? What do I have to do? Answer: nothing except not expect too much from money and don’t buy stuff in the hope it will make you happy – it won’t. When they build that brand new Beemer or whatever it is you covet, they don’t build in any happiness. So when you first sit in it or buy it and you feel fantastic – and I’m not denying people do feel great buying stuff – that feeling isn’t in the thing you buy. That feeling was inside you anyway. All this said, what money can do is buy away a lot of unhappiness. It just can’t go any further than that.
RULE 16
Know the difference between price and value
I once asked my delightful father-in-law to explain that thing about wine to me. You know, can a bottle that costs £100 in a top restaurant really be 20 times as good as a bottle that you can get for a fiver at the local shop?
His answer was interesting. He said that you aren’t paying for the wine alone. What you are paying for is the ambience, the service, the location (we’re talking Le Gavroche here), the wine waiter’s expertise, the good company, the fine tablecloths, the privacy and discretion, the style and class, the tradition, the food and the trust, the humidity and storage, the tone and the surroundings, the fellow dining guests and the great conversation.
The wine is almost an irrelevance and that’s the point. We think we know the price of something. But the value can spread out far beyond all of that.
I have an old Mercedes car (I like Mercs but am far too mean to buy a new one and lose all that depreciation). I didn’t pay much for it. You never do, as people are scared of them in case they go wrong, and fair enough they do cost a fortune to put right, but you need to remember that because they are better made, they rarely do go wrong. I was visited by a friend who was driving a brand new car he’d just bought. A modern Eurobox, a small hatchback thing that looked like a mini spaceship. He looked at my old, battered, mud-streaked Merc and exclaimed, ‘Blimey, you must be doing well!’ I tried to explain that wasn’t the case and that he’d probably paid at least five times for his what I’d paid for mine but he wouldn’t have it. He saw the Merc and had decided its value was a lot more than the price – i.e. what was actually paid for it. I learnt that day about price not necessarily equating to perceived value.
Remember too that something is only worth what others are willing to pay for it. A catalogue may say the value of a painting is £500 but that’s only true if somebody is willing to pay that amount for it. An important lesson to learn. The price of something can be far less than its actual value, either to you or to somebody else. Or a lot more.
If you are going to be wealthy – and I sincerely hope you are, if you put into play the Rules in this book and work diligently at it – then it’s worth studying the difference between price and value.
WE THINK WE KNOW THE
PRICE OF SOMETHING. BUT
THE VALUE CAN SPREAD OUT
FAR BEYOND ALL OF THAT
RULE 17
Know how the wealthy think
There is a simple test to determine whether someone will end up wealthy – or if they already are. All you have to do is watch someone read their favourite newspaper, especially if it’s one of the big Sundays:
Notice which paper they choose.
Notice which sections they choose to read.
Notice which sections they discard.
Notice in which order they read their chosen sections
This is a test for you too. Have a look at the above and make a mental note of what you do. The wealthy – those who have deliberately chosen to be wealthy rather than those who have won the lottery or inherited (God’s lottery as I think of it) or married into it – invariably:
choose the more serious papers
choose the more serious sections
discard the ‘frivolous’ sections
read the money/business sections first
If you are serious about being wealthy, you will have to learn how the wealthy think. This means studying the ‘opposition’ – although very shortly you will be a part of t
hem. You need to know the lingo and the language, where they eat and live, how they work and relax, how they invest and save. In short, you need to study money if you are to increase your prosperity. Try to get to talk to wealthy people. Ask questions. Develop a thirst for understanding and knowledge. Read about wealthy people – interviews and autobiographies can be full of insight.
YOU NEED TO STUDY MONEY
IF YOU ARE TO INCREASE
YOUR PROSPERITY
You may also benefit from a few well-chosen business and finance books. I’m not going to recommend any to you as I don’t know your reading style – find ones that suit you. Also, why not log on to the FT site or the finance pages of other online papers to keep up with the latest developments in the money market? Get informed.
But what if this all feels a bit too heavy? If, like me, you like the gossip columns as well as financial pages then you, like me, will probably never be extremely, mind-bogglingly over-the-top wealthy. We can still be wealthy – and we might have more fun too. Prosperous and fun – sounds good to me. I think we have to be really passionate about money if we want lots. We have to live and breathe and sleep (yes, bearing in mind Rule 13) money. We have to study hard at the University of Wealth if we want to graduate.
RULE 18
Don’t envy what others have
We all set our own objectives. We all have individual ambitions. We all work out how much work we are prepared to put into this business of becoming wealthy. We all set our own limits and know what we are prepared to do or not do. So what is the point of envying what anyone else has? None, unless you know what their agenda was and is. None, unless you know how much work they were prepared to put in. None, unless you know what they were prepared to sacrifice.
The Rules of Wealth Page 3