dangerman wrote:Jaffab - made up you've been so successful. I'd love to pick your brains and learn from you. I've been reading books about this stuff as you know, I'm aware there are many mind sets, I'm just trying to develop my own. I'm aware of Kyosaki's bad press, I take everything with a pinch of salt. The thing is, like religion, politics... anything really, something has to ring true first. I'd like to think I apply systematic science after that. There is often truth mixed in with crap, and there is an art to removing the crap. I predict problems around interest rates and other economic things, hard times are ahead for some. I'm trying to learn now so as to prep for it. The more knowledge I have the better equipped I will hopefully be later.
My money principles have always been pretty simple. They work for me, and I have passed them on to my wife and daughter, though they may not work for everybody:
1) Get and stay out of debt as much as possible. I myself have debt - but its only in the forms of a small mortgage on my main house and a loan on one of my rentals. I would love to pay these off, but I am restricted by the terms of the loans - I can only pay 10% off each year of the original loan value otherwise they carry BIG penalties. Still, both will be down to zero in 3 years.
2) Make money work. Every £1 I spend either feeds me (and wife), clothes me, TRULY entertains me, otherwise it works to make more money. When I spend a pound, I always ask which of these it is doing
3) Get a pension. A pension is still the most effective method of saving in the UK. No shares, no property, no ISA, no 'get rich scheme' will ever beat a pension (in terms of tax returns and growth)
4) If you have investments (pensions, ISA or anything else) dont sweat about the growth %. This is never the issue, its always about the charges. Work with a provider with the lowest possible charges. The difference between 0.25% charges and 0.5% a year charges is double your money with compound interest over a 20 year period
5) Only lend out what you never expect to get back
6) Dont try to keep up with the Joneses in terms of 'Stuff'. Sometimes the old stuff is better than the new stuff, and anyway, the Joneses are broke and its all on credit.
7) After a certain age, its no longer about 'stuff' but 'experiences'. You will remember the experiences but you wont remember all the money wasted on stuff that you eventually bin.
8) Never gamble. Ever. Las Vagas, Reno, and the millions given out by Camelot are all based on the false hope of gamblers. The house ALWAYS wins
9) As soon as you can, work for yourself. You will never earn as much working for somebody as you will working for yourself
10) If something seems too good to be true, it always is. Don't waste time trying to see the catch, the catch will always be hidden. If its to good to be true, just walk away.
11) Never put all your eggs in one basket. Yes the government has guarantees should organisations go under - but then so did Iceland, and millions are still fighting to get their money back
12) Have goals. Goals focuses the mind - which means your mind will create a plan, and from a plan comes action, and from action comes analysis of options. From these options, generally comes the right decision
13) Money is just a number - its a tool. Make the tool work for you, or somebody else will find a way to take that money from you and make it work for them
14) Protect yourself. Insurance works, dont be scared of it. Protect your home, protect your car, and then when you can afford it, protect your money, your income and your life
15) If you want to make money outside of your job, there are 5 ways: a) Buy something and get somebody to pay you to use it - in this case the something has to have a value beyond the rental period b) Create something that will sell with a value greater than its component parts plus your time c) Create something small that you can sell easily and cheaply, that millions of people want/need d) Create something which is hard to sell and very expensive that only a few people need or e) Offer a service which people need, and get really REALY good at it and work for yourself
16) And to make money takes time, and it takes time to grow. Track it. But dont get obsessive about it.
I am personally less worried about interest rates as I am about inflation. I see interest rates going up a little in the US, but I think they are doing this so that when the next financial problem comes (later in the year) interest rates have somewhere to drop to. Interest rates cannot go too high as interest rates change how much money the country has to spend servicing the national debt. Whereas inflation is good for the national debt - it devalues it. I am surprised that interest rates have not gone up a little here in the UK (for the same 'somewhere to go' reason) - when we hit another dip, then interest rates have nowhere to go. The government then has only two options - print more (made up) money or raise taxes (VAT to 20%) - but higher taxes causes the spending to stop, and its only people spending that is keeping the money machine turning. If that stalls, we are al in deep do-do.
If interest rates do go up, I can see a lot of families in the UK being in deep financial trouble and house repossessions to grow massively.
EDITED - To add four more onto the list that I had forgotten about, and the wife reminded me about....
17) If you want something, wait 5 days before buying it. 50% of the time you will no longer want it, and 50% of the time you will see a better/cheaper one. Needs on the other hand (you need a new washing machine the old one is buggered) you buy straight away.
18) Automate money as much as possible. For instance, I know that after my company (as in I own it) pays me, I know I always have exactly £250 to spend that month. On the day after payday, all my money flows out of my account via standing orders, direct debits etc. Whatever is left minus the £250 is automatically swept into savings. Its easy to keep track of my spending with a set figure each month. For things like food, we have a credit card which we both use to buy food, and automatically gets paid off whatever the balance is every month.
19) Save for everything. Save to have a buffer in case the worst happens or you lose your job, save for holidays, save for that thing you want. Automate the savings to come out of your account. Once its automated, you no longer think of the money as yours, and when you do have the money for that holiday/thing, you have the cash so no need to put it on a credit card
20) Cash is king - it always will be. Shops may tell you that 'there is no discount for cash' but they are lying. For a shop to take your money via a credit card, they pay between 2% to 3.5% (for amex) to the credit card company. Cash saves them this. Even if its just 2%, ask for a cash discount. I very rarely pull price for anything.
21) Now and again, treat yourself - money is supposed to be fun (sometimes).
You live in a time of decay, when the worth of a man is how much he can pay (Flamboyant, Pet Shop Boys, 2006)
At the moment I can't see past property for long term financial security. We all need somewhere to live and in the boom times the property value goes up (only an issue if you want to sell or use it to secure more money) and in the bust times rents go up as the demand increases. This is very broad brush strokes and nothing is 100% safe.
The Tony Robbins book I read spoke about aiming for a critical mass, growing money like crops until you have enough to pay you enough in interest to live off. For me, I need 400k invested (@5% return) to live happily on. Or 200k if I decided to own my own house. Maybe you should consider targeting a critical mass with your extra cash rather than over visiting Hennie. 