The more money you have in your bank account, the more energy it generates and the more money is attracted into your life. You have heard it said that “it takes money to make money.” This is true. As you begin to save and accumulate money, the universe begins to direct more and more money toward you that you can save and accumulate.
Everyone who has ever practiced this principle of regular saving is absolutely astonished at how quickly their financial fortunes change for the better.
The rule for financial independence, once you have rewired your attitude toward money, is to “pay yourself first.” Most people save whatever is left over after their monthly expenses—if there is anything left over at all. The key, however, is to pay yourself
first
, off the top, from every amount of money you receive.
Save Throughout Your Lifetime
It used to be that if you saved 10 percent of your income from your first paycheck until you retired, you would be financially independent, if not rich. Today, however, financial advisers suggest that you need to save
15 or 20 percent
of your income in order to achieve all your financial goals. Any less than this opens you up to the risk of running out of money later in life.
When we suggest to people that they need to begin saving 10 percent of their incomes, they shake their heads. Most people are spending everything they earn today. They have nothing left over. Most people are deeply in debt as well. The idea of saving 10 percent of their income, right off the top, appears impossible. But there is a solution.
Practice the 1 Percent Formula
Begin today to save 1 percent of your income and learn to live on the other 99 percent. This is a manageable amount. This is a number that you can get your mind around. It requires only a small amount of self-discipline and delayed gratification for you to save 1 percent each month. If you are earning $3,000 per month, 1 percent is $30 per month, or only $1 per day.
At the end of each day, come home and put your daily amount into a box or jar. Once per month, take your accumulated savings down to the bank and put it into your financial freedom account. This sounds like a small beginning, but remember that “a journey of a thousand leagues begins with a single step.”
In no time at all, you will become comfortable living on 99 percent of your income. At that point, you raise your savings level to 2 percent of your income per month. You then adjust your lifestyle to live on 98 percent. In no time, this will become a habit; you will find it automatic and easy to live on 98 percent of what you earn.
Month by month, you then increase your savings level by 1 percent. By the end of the year, you will probably be saving 10 percent of your income. Then something else remarkable will start to happen. Your debts will start to decline. As you become consciously aware of saving your money and moving toward financial independence, you will become more intelligent and thoughtful about each expenditure. You will find yourself spending less and gradually paying off your debts, month by month.
The Payoff Is Tremendous
The reward for saving and investing is substantial. It is said that “happiness is the progressive realization of a worthy ideal.” So every time you save a dollar or pay off a dollar of indebtedness, you feel happy inside. You feel more positive and in control of your life. Your brain releases endorphins, which in turn give you a feeling of calmness and well-being.
Within two years of beginning this process, you will have worked your way out of debt and will have begun to accumulate a growing amount of money in your financial freedom account. As this amount increases, you will begin to attract into your life
more
money and more opportunities to deploy those funds intelligently so that they yield a higher rate of return.
At the same time, your attitude toward money and spending will gradually change. You will become more disciplined and conscientious. You will investigate carefully before you invest. You will study every aspect of a potential business or opportunity. You will be reluctant to part with money that you have worked so hard to accumulate. You will actually begin to reshape your attitude and personality toward money—and do so in a very positive way.
Income Increases Don’t Help
Sometimes I ask my audiences, “Who here would like to be financially independent?” Everybody raises their hand. So then I ask, “If I could wave a magic wand and double the income of every person in this room, would that help you to become financially independent?”
Everybody cheers and laughs and nods their head, agreeing that if they could miraculously double their income, they could become financially independent.
I then ask them, “How many people in this room, from the time you took your first job to today, have already
doubled
your income?”
Without hesitation, every hand in the room goes up.
I then ask, “How many people here, from the time you took your first job to today, have increased your income three times? Five times? Ten times?”
Hands go up all over the room. Everyone in the room has doubled or tripled or increased their income five or ten times from the time they took their first job.
I then make my point: “Everyone here has already increased their income dramatically, but it has done no good. Simply increasing your income does not ensure that you will achieve financial independence. This is because of Parkinson’s Law, which says, ‘Expenditures rise to meet income.’ No matter how much you earn, you end up spending it all, and more besides.”
Practice the Wedge Principle
The way to achieve financial independence is for you to break Parkinson’s Law. You do this by practicing the “Wedge Principle” for the rest of your life. Here is how you do it: As your income increases in the months and years ahead,
drive a wedge
between your increasing income and your increasing expenses. Instead of spending it all, resolve that you will save 50 percent of your “increase.”
If your income increases by $100 per month, resolve to save $50 per month, off the top, and put it into your financial freedom account. You can spend the other $50 on your family and on improving your lifestyle. But you must resolve to save
half
of your increase for the rest of your financial life.
When you pay yourself first, saving 10 or 15 percent of your income off the top and then saving 50 percent of your increase for the rest of your career, you will soon achieve financial independence. You will join the top 5 percent of wealthy people in our society. You will never have to worry about money again.
The Miracle of Compound Interest
Albert Einstein said, “Compound interest is the most powerful force in the universe.”
If, from the age of twenty-one until you are sixty-five, you were to save only $100 per month and invest that amount in a mutual fund or index fund that increased an average of 7 to 10 percent per year, you would be worth more than a million dollars. If you were to set up your payroll account so that $100 were automatically deducted and invested for you, you could be sure of becoming one of the wealthiest people in America.
This means that if you are serious about achieving financial independence, the most important single requirement is self-discipline combined with the ability to delay gratification. Your ability to practice self-mastery, self-control, and self-denial throughout your life will not only enable you to achieve all your financial goals, but it will also make you successful and happy in everything else you do.
In the next chapter, we will talk about the key to making almost everything in your life work for you: the use of your
time
. We all start off in life with lots of time and little money. How you spend your time throughout your adult years largely determines the quality of your life.
Action Exercises:
1. Make a decision today to take complete control of your financial life, get out of debt, and achieve financial independence.
2. Determine your net worth today. Add up all your assets, subtract all your debts and liabilities, and calculate the exact number.
3. Set up a separate bank account and begin saving at least 1 percent of your income as you receive it every month or paycheck.
4. Make a list of all your debts and begin paying them off, starting with those carrying the highest interest rates.
5. Calculate the exact amount that you will need to be financially independent at the end of your career and then set this as a goal.
6. Set specific financial accumulation goals for yourself for each month, quarter, and year for the rest of your life.
7. Practice frugality in spending by putting off and delaying every expenditure you possibly can until you achieve your long-term financial goals.
Chapter 13
Self-Discipline and Time Management
“If you do not conquer self, you will be conquered by self.”
—NAPOLEON HILL
T
here is perhaps no area of your life in which self-discipline is more important than in the way you manage your time. Time management is a core discipline that largely determines the quality of your life. As Peter Drucker said, “You cannot manage time; you can only manage yourself.”
Time management is really
life
management, personal management, management of yourself rather than of time or circumstances.
Time is perishable; it cannot be saved. Time is irreplaceable; nothing else will do. Time is irretrievable; once it is gone or wasted, you can never get it back. Finally, time is indispensable, especially for accomplishments of any kind. All achievement, all results, all success requires time.
You Can’t “Save” Time
The fact is that you cannot
save
time; you can only
spend
it differently. You can only reallocate your time usage from areas of low value to areas of high value. Herein lies the key to success, and the requirement for self-discipline.
Time management is the ability to choose the
sequence of events
. By exerting your self-discipline with regard to time, you can choose what to do first, second, and not at all. And you are always free to choose.
You require tremendous self-discipline to overcome the procrastination and delay that holds most people back from great success. A native Indian once told me that “procrastination is the thief of dreams.”
The Pareto Principle, the 80/20 rule, says that 20 percent of the things you do account for 80 percent of the value of what you accomplish. This means that 80 percent of what you do is worth 20 percent or less of the value of what you accomplish.
Assess the True Value of Everything You Do
Some things you do are five times and even ten times more valuable than other things, even though they take the same number of minutes and hours. The most important things you do—the top 20 percent—are usually big, difficult, and daunting. In contrast, the 80 percent of things that you do that make little or no difference to your life are usually fun, easy, and enjoyable.
You can tell the value that something has to you by the amount of your time you invest in it. You always pay attention to and spend time on what you most value, whether it is your family, your health, your social or sports activities, or your money and career. It is only by looking at how you spend your time that you (and everyone else) know what is really important to you.
Some people say that career success is most important to them, and then they go home and watch television several hours per day. Some people say their families are important to them, and then they go out socializing or playing golf. Only your
actions
tell you—and others—what you truly value.