** Obviously, even if you are following your dream, there will be moments, days, when you’ve had enough and you’re sick of everything...We’re talking about what you overall enjoy, on the whole find pleasurable, mostly glory in.
RULE 40
Spend less than you earn
I’m amazed how many people flout this simple but most golden of all golden rules. You have to live within your means. Control your spending. Allow yourself to create a little bit of savings, with which to generate more income. (Remember the rabbit farm? You can’t breed more rabbits if you sell them all.)
This Rule doesn’t contradict Rule 35 about small economies not making you rich, by the way. You should live within your means but live well enough to be happy. If you don’t earn enough to have champagne every week, then have it only once a month. But do have it if it makes you happy.
This is about being informed and in control. You need to know what your income is and what your outgoings are. We’ll talk later about how to curb spending and make savings and how to cut up your credit cards if they’ve let you down – they do that sometimes, evil little things.
You also need to know:
any expenditure that is likely to come up
any provision you’ve made for contingency plans
any future income you may be entitled to in the way of interest or investments coming to fruition.
And that really is about it. Where people go wrong is not whether they earn enough or spend too much – both of those are fairly easy to overcome. No, the biggest mistake is not knowing what you are doing, where you are financially and what is up ahead.
I know it can be tough to live within your means but if you are constantly in debt then all the prosperity that is rightfully yours is going to some faceless bank. I bet they’re enjoying spending it. I bet they’re having champagne more than once a week. Why encourage them?
I want you to know to the very week, the very hour, what you earn. And I want you to monitor what you spend, what it costs you to live – where you waste money, where you save money and where you spend money wisely. As long as more is coming in than is going out, you’re getting the basics right. If more is going out than coming in, you need to take swift and effective action to redress the situation.
THE BIGGEST MISTAKE IS
NOT KNOWING WHAT YOU
ARE DOING, WHERE YOU
ARE FINANCIALLY AND WHAT
IS UP AHEAD
RULE 41
Don’t borrow money – unless you really, really have to
This is so important that I will repeat it: don’t borrow money unless you really, really have to. And even then don’t. Not unless you are borrowing off someone who is lending it interest free, no strings, not secured against your house, no potential for messing up friendships – and that sounds like cloud cuckoo land. Ha, there is no such thing as free money (or a free lunch).*
If someone lends it, they’ll want it back – plus. And that plus is what kills most of us, stops us from becoming prosperous. It has to be nipped in the bud. And if it’s too late for that, then it needs to be severely pruned. We have to get rid of that plus.
The plus is usually financial (i.e. interest on the loan) and this is what usually cripples people. However, the plus can be emotional also – if you borrow from friends and family it can cause all kinds of other complications – it’s never ever simple.
IF SOMEONE LENDS IT,
THEY’LL WANT IT
BACK – PLUS
Pay off your loans and debts before you do anything else. It’s the only way to get rid of the plus. I know, I know, lots of people borrow money to start their own business and then go on to make millions and what am I talking about – we all have to borrow, don’t we? Do we? I have a friend who started his own business with three friends. They all put in £500 and ran the business for 15 years. Then they sold it for £43 million. Yep, and not a penny borrowed. The upshot was they had to share with no one – and at times like this you don’t want to share, no matter what your parents said about how we all should learn to share.
I have another friend who borrowed heavily to launch his business, which he successfully sold for £8 million. But nearly every penny of that went into loan repayments and interest. He was left with very little and, having not learnt his lesson, proceeded to start another business with capital raised by money loaned from the City. But he says he has learnt a lot because this time he’s only borrowed £3 million. Ho ho.
When you are starting a business, advisers often say it’s OK to borrow off people you know because they are willing to support you etc. But the novelist Jilly Cooper says she is wary of lending money to friends as it is terribly difficult to see someone at Christmas and give them a hug knowing they owe you £10,000. Personally I would find it hard to hug someone who owed me a lot less than that!
Try not to borrow from:
your parents
your children
other people’s children
friends
lovers
passing strangers
loan sharks
the City
banks
credit card companies
offshore investment bankers of any sort
me.
*There is such a thing actually – try putting ‘freebies’ into your search engine and you should find a free lunch somewhere.
RULE 42
Consider consolidating debts
Obviously the best advice is don’t get into debt in the first place. If it’s a bit late for that nugget of wisdom then you need to pay as little interest as you can while you are paying off your debts (which clearly you will be doing as quickly as possible). Consolidating debts is one way of doing this that might be right for you. What I am talking about here is stopping using three or four credit cards plus an overdraft plus a bank loan plus other borrowings. It is possible to consolidate all of them into one loan, tear up the cards (as if – you need industrial strength scissors, and here speaks a man who has cut up many a credit card) and pay off the overdraft. And yes I do understand the ease and usefulness of a credit card but don’t forget that good old stand-by – cash.
A word of warning, however, if you do consolidate your debts: make sure you aren’t turning short-term debts into long-term debts. The idea is strictly to pay off debt quickly.
DON’T FORGET THAT GOOD
OLD STAND-BY – CASH
If you do decide to consolidate your debts, here are some useful tips:
I have a friend who wrote to all his creditors and offered them an immediate payment of 50 per cent if they would write the debt off – this included all his credit card people. Surprisingly every single one of them said yes and he took out a bank loan and paid them all off without having to declare himself bankrupt. He thus consolidated his debts and reduced them by half. Brilliant.
Never ever respond to any adverts from companies offering to consolidate your debts for you – those ads are for people with more money than sense.
Shop around for any pay-off loans – don’t accept your bank’s just because it is your bank: they may not be the cheapest by a long way.
Don’t secure anything against your home, ever, under any circumstances. If you do, you could lose your home if you don’t keep up repayments. Is anything worth this risk? I don’t think so.
Check the small print regarding early settlements and make sure you aren’t going to be penalized if you settle early.
Only ever take out one loan to consolidate and only do this once – learn your lesson and move on.
Pay off as quickly as you can afford – the longer the term, the more you’ll have to pay in interest.
If you must borrow, borrow against an asset you can resell (machine tool, delivery van) and try not to borrow more than the resale value.
Buying on credit is a bit different. When Jack Cohen started Tesco he negotiated the rent for his shop to be paid three months in arrears, he paid for his stock three months in arrears, and started tak
ing money over the counter on day 1. By day 90 he had taken a lot more than he owed.
RULE 43
Cultivate a skill and it’ll repay you over and over again
There’s a saying that he who pays the piper calls the tune. And that’s true. But the piper can decide how much he will charge for playing that tune if what he plays is:
in demand
rare
particularly difficult (or in some way unique) to play.
Get yourself a decent instrument, a decent set of tunes, an unusual or quirky PR approach, a USP,* create a name for yourself and the world will beat a path to your door. And pay you handsomely.
Once you can do something no one else can do – or as few people as is possible – you can pretty well name your price. And believe me it doesn’t have to be a particularly difficult skill, just one that somebody else wants and will pay for. Remember the guy who polishes the very best cars at a premium price? (See Rule 8.)
You could train to be a brain surgeon** but it takes over ten years and aptitude and dedication and steady hands. So putting that aside, think about what you’ve got to offer. What are your skills, your talents, your strengths and weaknesses? Who needs those skills? How could you put them to best use? How do you tell the people who need these skills that you have them? What skill might you be able to master in order to meet a need that’s out there waiting to be met?
ONCE YOU CAN DO
SOMETHING NO ONE
ELSE CAN DO – OR AS FEW
PEOPLE AS IS POSSIBLE –
YOU CAN PRETTY WELL
NAME YOUR PRICE
For this exercise you are not allowed to say:
don’t know
not sure
nothing really
not a lot
what do you mean? Talent? Skills? Me?
Come on, we all have something we can do or could do that is special to us, that we feel we could make a fortune from if only someone would give us a break.*** We all have a dream we could follow, a plan we dare carry out. Perhaps all we need is a shove, a push in the right direction, a wake-up call to get up off our backside and actually do something. Well, this is it. WAKE UP. GET ON WITH IT.
* Unique selling proposition.
** Neurosurgeon, as they are properly titled.
*** No one gives you a break – you create breaks. You go out there and wrestle breaks to the ground and beat them into submission, you lure them out of their caves with sweets on a stick, you track them down and hunt them with an opportunity gun, you stay in their face until they give in – but no one gives them away.
RULE 44
Pay off your loans and debts as a priority
Do you clear your credit card balance every month? If you do, and you don’t have any other outstanding loans/debts then well done you. You’re not wasting money paying interest and you’re already in a strong position to go forward. Skip the rest of this Rule and carry on.
If you do have a credit card balance (or five), an overdraft and/or other loans or debts,* then you certainly aren’t alone. We live in a ‘have it now, pay later’ society. Trouble is, debt bogs us down and holds us back. We’re simply throwing money away paying off the interest (you borrow, say, £20,000 and can end up paying several thousand pounds extra back in interest – the actual amount you end up paying depends on how long you borrow for, as well as the interest rate you’re being charged). Debt is a millstone round your neck – it makes you feel bad, it’s always there nagging away at the back of your mind and it can easily become a major problem that affects your health as well as your wealth.
DEBT BOGS US DOWN
AND HOLDS US BACK
There’s no doubt about it. The very first thing you need to do on your wealth quest is to get loans/debts paid off as soon as possible and do nothing else until that’s done. There’s no point at all starting to put money into a savings account, earning say 5 per cent interest, if you are at the same time paying 10 per cent interest on money you owe to the bank or somebody else. It doesn’t make any sense. The simple truth is that those who borrow almost always pay a higher rate of interest than the rate received by those who save.
I acknowledge that you may in fact have found a special situation where you can borrow money at a very low rate of interest and believe you can invest that money for a bigger return, but I say be very, very, very careful indeed. You are playing with fire here and unless the investment is absolutely risk free (which I doubt), pay the debt/loan off as fast as you possibly can.
I should stress here that there are a few possible special exemptions to this Rule; for example, if you’ve borrowed to invest in, say, a business and you really know what you’re doing. We’re really talking mainly about personal debt in this Rule.
I’m not playing down how difficult it is to become debt free, but it has to be done. Make a plan as to how you’re going to get rid of your debt – start by paying off the highest interest debt first if you’ve more than one. Motivation is vital as this is short-term pain for long-term gain.
And of course once you finally make it to debt free, you’re never going there again, are you? (See Rule 40.) Of course you aren’t. You’re a Rules Player now.
* We don’t include mortgages in this category by the way – although strictly speaking it is a loan, it’s an investment (we hope) and therefore is a special case.
RULE 45
Don’t be too busy earning a living to make some money
It’s easily done. You needed a job because we all do, in order to live. Then you get into working for a living and it takes up such a huge amount of your time and energies that there’s none left over to spend thinking about what you could be doing differently, extra or smarter in order to make more money. How many of us are guilty of letting our financial affairs slide because quite frankly we feel there are better things to do with our precious free time than get to grips with our finances or plan a long overdue life/career change?
Sometimes we’re so busy doing our jobs, we forget the end goal – making some real money. Well, to become wealthy, you absolutely have to remember to lift your head above the parapet of your 9 to 5 (or 8 to 8 or whatever hours you work) and give yourself a chance to think about the bigger picture – and take action.
Lots and lots of people work to live – and without them the rich couldn’t get richer. And this doesn’t mean the workers are being exploited or used. Just that if people choose to be drudges and invest all their time and energy in working for wages, then there will always be other people who will be quick to see an opportunity and become prosperous, simply because they had their heads up and could see further.
If you do work for a living and don’t confidently expect that job to make you rich, then you must be doing it for love, mustn’t you? No, this isn’t a trick question. It is about prioritizing our ambitions. If we go to work solely for money it makes sense to earn as much as we can, as we want.
If you love what you do then if the money doesn’t come with it you need to create a strategy for wealth creation that doesn’t rely on the ‘day job’ income. It’s great that you love what you do, but if you also want wealth you need to make sure you aren’t so busy doing it that you forget to work out how you’re going to get wealthy doing it, or what other actions or strategies you need to create a second income or alternative revenue generator.
If you are unhappy with your pay and/or hate your job then you have to question why you’re still doing it and what else you could do. The worst possible scenario is that you don’t feel fulfilled or rewarded in your job but you are so busy doing it that you don’t have time to create a plan that will bring you greater prosperity and happiness. While you’ve got your head down earning a living, a million and one opportunities to become prosperous have just passed over your head and you didn’t see them. Imagine waking up in ten years’ time and realizing that’s what you’d done. If this is your situation then do something now. Change your perspective and seize the day.
&nb
sp; IF WE GO TO WORK SOLELY
FOR MONEY IT MAKES
SENSE TO EARN AS MUCH
AS WE CAN
RULE 46
Save in big chunks – or should you?
I always thought that if I could get my hands on a big chunk I would put loads of it away and that would be a brilliant way of saving. I have a friend who says that is a nonsense and that the drip-by-drip effect is the best way to save. Who is right and who is wrong? Obviously I must be right. It’s my book, after all.
Let us consider it a bit more logically. Suppose I save a big chunk. Let’s say I get £20,000 for some work I do or something I sell. I spend half and save half. And I do this when I am 50. How much do I have at retirement?
My friend saves a measly, miserly £10 a month – small potatoes I say. But he does start early – at 20 and never misses a month. Who is going to retire big time and who is going to be reusing tea bags? Come on, come on, you can work this stuff out in your head, can’t you? No? OK there’s the chart opposite (assuming 5 per cent interest per annum).
See, I told you I was right...but not by much. Hope you have learnt a valuable lesson here. It’s good to be prudent and save regularly but in the long run a big chunk saved later in life will bring home the bacon just as easily.
RULE 47
Don’t rent, buy
We all need somewhere to live. We therefore have the choice as to whether to rent the roof over our heads, or buy it. Most of us can’t afford to buy outright (I doubt you’d be reading this book if you were in this category), so in order to buy we need to borrow a lump sum of money to buy with. But hang on. Haven’t we said that borrowing is bad, bad, bad and we shouldn’t do it? Haven’t we said that this way madness lies because you pay so much interest on what you borrow and so on? Indeed we have.
The Rules of Wealth Page 7