Tips From a Multi-millionaire For Breaking Bad Money Habits
The personal finance lessons that set me financially free
The personal finance lessons that set me financially free
Debt is the Genie to material possessions.
Whatever your wish; a new car, new clothes – it’s yours if you’re willing to go into debt for it.
But just like Casinos… The house always wins.
There are reasons institutions offer more credit cards, more low rate loans and never die.
Their risk is subsidised by our Governments, who, ironically are also in debt… To the tune of 85.9% of our GDP in the UK alone.
It’s a system designed to keep the working class, working. This ‘free money’ isn’t available to do you a favour, it’s to make other people rich off ‘late fees’ and over-inflated ‘interest payments’.
As you struggle to pay, the Government sticks the boot in, by raising the minimum wage in increments beneath the living wage.
It sounds like a conspiracy but it’s the cold, hard truth. After adjusting for inflation, the median full-time employee earnings increased by less than 1% between April 2018 to April 2019, here in the UK.
You may get a pay rise and think you’re earning more, but your money is worth less.
Your only escape from this cycle is to earn more (and avoid the undeniable urge to spend it) or spend less. Sacrifice.
Say goodbye to take-aways, date nights, expensive clothes and the latest iPhone.
Those things are ephemeral, transitory and only distract you from the goal of attaining financial freedom.
In this article, I want to help you reframe your relationship with money, just like I did, by sharing lessons I was taught by a multi-millionaire mentor.
#1. Understanding your financial position
There’s a lot of posers out there with designer clothes but missed child-support payments.
Living at home rent-free, but still unable to afford their maiden flight from the coop. They’re living a champagne lifestyle on lemonade money.
To ensure you’re not falling into the same trap as them, you need to assess your financial position.
Make a spreadsheet or list of your monthly expenses against your income.
Define one of two things:
Do you earn enough to cover your essential expenditure, or are you relying on debt to get by? If the answer is debt, you need to earn more. Start a side-hustle or get a new, higher-paying job. Alternatively, you could reduce your expenditure by moving house, or lower your utilities with services like LookAfterMyBills.com
Does your income easily cover your essential expenditure and if so, what percentage of income goes on non-essential goods and services? Your goal is to achieve a minimum of 20% disposable income that you can save and invest with. That’s money you’ve earned that doesn’t need to be spent each month. If you fall short of 20%, the solution is the same as point #1. Reduce essential bills, downgrade or apply for a higher-paying job.
A recent study found that the average British adult has just £276 of disposable income each month — less than £10 a day.
Of those polled, 45% claimed to often have months with absolutely no disposable income at all.
That’s the cycle I’m trying to help you break, to make sure you’re not in that 45% or the percentage decreases overall.
#2. Debt has a hold over you
I used to be in a considerable amount of credit card and tax debt. Paying it all back myself gave me an appreciation for the true value of money.
I managed to clear myself of all of that debt in less than 18 months. How?
No holiday for 2 years.
Non-essential expenditure cut out completely.
Most ‘essential’ goods aren’t essential at all. Look at your phone, how old is it?
I have a cracked-screen iPhone 7 plus from 2016, but enough money now to easily buy 10 new phones if I had to, without feeling the financial hit.
Ironically, I have that extra money because I’m no longer frivolous. My car is 12 years old, but it works fine and is free of any monthly payments. I can afford the new Audi’s that my neighbours drive, but I don’t ‘need’ one and that’s the secret to breaking debt’s hold over you.
The financially secure don’t always need the newest, shiniest thing and I know millionaires that drive modest cars and have a £50 Casio watch on their wrist. They’re not looking to display their wealth.
You have to say no to the non-essential and like them, use that disposable income elsewhere.
It was a tough lesson to learn and with growing debt now hitting over £15,000 per average UK household it’s only going to get worse if we don’t do anything about it.
Debt is sometimes necessary, like borrowing to refurbish a property to sell for a profit, but buying a pair of Yeezy’s whilst owning the government tax money is probably not a good idea.
“It is not the man who has too little, but the man who craves more, that is poor.”- Seneca
#3. Debt-free? Invest and diversify
This is the bit that scares most people, but once free of debt, you need to put that money to work for you.
You are a service, so you can only earn for the hours that you put in. However, your money can go to work for you, in the form of diversified investments.
As my mentor, who wants to remain nameless says:
“You are a milk-cow for the government. Your job is to exist and earn, paying ever-increasing taxes. It’s a rat-wheel that goes round and round and you won’t escape it unless you own a piece of something that can appreciate in value. Instead of buying goods that just depreciate in value.”
Where to invest?
You can invest your money in any area that suits your style or level of risk-aversion.
These key areas could be:
Property or land (owning a house or houses)
Stocks (index funds, individual stocks or futures)
Cryptocurrencies (i.e. Bitcoin, Etherium etc)
Precious metals (Gold, Silver, Platinum, Palladium etc)
Bonds (Government-backed or Corporate bonds)
Cash (keeping literal cash)
Of course there are more areas, but these are the most accessible to the everyday person like you or me. Personally, I have my money in cash, property, Gold, Silver & some cryptocurrencies.
Thanks to the advice of a mentor and given my age, I treat my long-term investments as retirement opportunities. Below is the Gold price for the last 20 years. If it follows the same trend, when I’m ready to retire in 30 years, it’s very likely (although not guaranteed) that I’ll make a good return on my money.
Especially as some economists predict that gold is currently undervalued.
Gold’s performance over the last 20 years
The all-time high was achieved after the financial crash of 2008 when investors flocked towards more solid stores of value, following the failure of the banks.
For investing in Gold, I use an accessible service called GoldMoney, which does have a referral program, but I won’t make you use it. Regardless of whether you reach out to me for my code or not, it’s a fantastic service to buy smaller values of Gold, Silver, Platinum or Palladium, without the required capital to buy actual, physical bars.
For traditionally safer stock investment options for beginners, you could invest in the S&P 500 index fund. If you’re new to this it’s essentially a collection of the 500 best companies in the US.
By buying into this fund, it’s like buying stocks in all of them. If their overall value goes up, your investment goes up. If their overall value goes down, your investment goes down.
The S&P 500’s all-time performance
As you can see from the graph above, it follows an upward trend and the S&P 500 has even beaten [Warren Buffet’s] flagship fund, Berkshire Hathaway, over the past decade.
It’s considered a less-risky, entry-level stock market choice for a beginner investor.
The power of cash
“Cash is King.”
We’ve all heard that saying before. It’s because cash allows for negotiation in certain circumstances. Like paying tradesmen in cash for work on your house, or bartering on the price of goods at a local antique store… Two very first-world examples, as I write it.
Most people are unaware, but the legal-binder of a sale (here in the UK at least) isn’t the price displayed, but the amount in which you offer to pay. The price is a guideline and it’s up to the merchant whether they accept it or not. That legality surrounding the transaction is known as ‘offer & acceptance’.
Cash also avoids the dependence on the present Banking system and people’s distrust of these institutions after the 2008 financial crash.
Your money is available when you need it and not held digitally by a computer.
Most people don’t know that there isn’t enough physical cash in circulation to satiate how much is displayed on screens. If we all tried to withdraw our money right now, the banks would fail under the demand and many people would not be able to access their wealth at all.
FACT: Warren Buffet recently revealed that his firm Berkshire Hathaway has a record $137 billion cash pile. He’s hoarding cash for a reason.
Whatever your position it’s always useful to hold at least 20% of your wealth in cash. In a safety deposit box, safe or secret location.
Don’t store cash in your home. Most home insurers don’t cover cash-loss as it’s arbitrary and somewhat unprovable.
Property and land
The world is only so big and land comes at a premium.
An increasing population creates an increase in demand for property and land to build that property on — especially if that land or property is located within commuting distance to a big job-rich location, like a major City.
Getting a mortgage on a house in a great location is a tremendous investment and one of the only ways I’ll ever be likely to leverage debt. It’s worth consideration for you too, as long as you can afford it.
As you make payments, you’re paying off what it was worth and building value in the ownership of this asset for future sale or inheritance.
Diversification avoids risk
Finally, it’s important that whichever methods of investment you choose, you’ll need to diversify.
Should one investment underperform, you can rely on the rest of your portfolio to cover the losses in that area.
If our dependence of FIAT currencies (like the British pound or US dollar) dissipates, it could increase the value of alternatives like Crypto and precious metals.
If Crypto's go to zero, it could see people rushing into less liquid (posh term for accessible) investments like property — creating a boom and overwhelming return on your investment there, should you own some.
Whatever your choice, ensure you don’t have all of your eggs in one basket. Nothing is financially secure, if it was, we’d all be doing it and it would cease to create a return for anyone.
For you to make a gain, someone has to lose. Diversifying makes it implausible that it’ll be you that’s losing every time.
By reading this today, you’ve hopefully re-evaluated your position on money and the debt addiction we can see affecting our materially-possessed population.
The difference between knowledge and success is action, so like I did, set your ego aside and learn from those more financially secure than you are.
I’ve learned that the industry purposefully uses intelligent-sounding terms to make the masses fear economics and investments. If people don’t understand the jargon, they assume it’s inaccessible and avoid trying. Don’t let that be you.
As a legal disclaimer, I’m almost positive that I have to warn you about investing in these specific areas as it’s your money and results may vary. You could lose it at your own risk. However, I’ve simply pointed out the path to you. It’s up to you to research into the areas that suit you to see how you’d like to proceed.
These lessons from a multi-millionaire mentor of mine, set me free… financially speaking — and I had to share them with you.
It’s about re-framing your approach to money and it’s hold over you. The choices you make now will pay dividends for the rest of your life. Sometimes literally.