Financial Freedom
Lesson 4: Wealth creation
1. Envisioning Your Future
2. You're On Your Own
3. To Budget or Not to Budget
4. Net Worth and Cash Flow
5. Income, Assets, Debts, and Liabilities
6. Building Wealth
7. Business
8. Innovation
9. Real Estate
10. Advisors
1. Envisioning Your Future
There is what you know, and then there is what you do about it. For many people, these are two different things. They may "know" a lot, but unless they successfully act on what they know — and actually do it in the "real world" — then they don't really know it. The proof is in the doing. Nowhere is this more so, than in their own financial situation.
It takes courage to see the world as it is, rather than through the filters of popular programming, sentiment, apathy, enculturation, indoctrination, propaganda, or social conditioning. It takes even more courage to choose to live your own life in accordance with your own true awareness, your conscience, your sense of what is right and wrong, and your refusal to go along with the herd.
That is a choice you make, based upon your level of awareness, and the extent to which you try to be honest with yourself. If you can see the way the world is, if you can see how it is going, if you have some idea of how things are changing in many areas of society, then don't you owe it to yourself to act on what you know? Don't you owe it to yourself to live your life in alignment with the highest truth, goodness, purpose, and value that you find in life?
The benefit of envisioning your future — seeing where you are, and where you may wind up as you continue along your path — is that it gives you the power to change, now. You realize the power to choose your future. And, you realize that the power to change your future is in the present moment, right here, right now.
One financial decision — one choice — can change your entire financial future.
Can you see what that choice might be, in your own life?
It could be changing jobs, starting a business, getting investment advice, ...
For many people, envisioning their future includes considering what their legacy will be when they leave this world. What will be the difference that their life has made? Who have they helped, and in what way? This extends to financial concerns, too. What is the point of getting really rich, and having a ton of money, and then dying? Wouldn't it be nice to take some time while you are still living, to see how to help others?
We do not agree with the hedonistic, materialistic, egotistical philosophy that life is about "winning" and the way you win is to die with the most toys or having spent all your money, just because you can't take it with you. How absurd and irresponsible.
A popular success technique is to visualize what you want. Taken to an extreme, this is a fixation upon worldly desires. Unfortunately, a person can become so fixated upon a certain goal that they exclude nearly everything else from their vision. Billionaires are great at this. They can be the most incredibly narrow, narrow-minded, unbalanced people in the rest of their life, but they are fixated upon money as if it were life itself. They often have no sense of the spiritual wholeness of life.
When we speak of envisioning your future, this is not what we mean. We mean having a sense of how to have true balance in your life — not how to have every last materialistic or financial detail the way you want it. That is merely a form of spiritual blindness.
As you envision your future, think about what really means something in life, what really matters, what is essential. And discriminate clearly as to what is not. If there is anything you want to experience in life, which is not reducible to the simple experience of love, peace, truth, joy, and goodness within you, then you need to question what it is all about. If there is anything you want, which you imagine will give you the experience of peace, love, or enlightenment, reconsider what it is outside you that you believe can give you what you want — or need to find — within you.
What if you lost everything? It happens. An earthquake, a flood, a hurricane, a wildfire, a tornado, something unexpected — and people lose everything. Meditate deeply upon what it is that you have in life — what is really of value — which cannot be lost. What is it within you that goes on?
Expect the unexpected. Plan for it. Do not live in denial, or imagine that nothing bad can happen. It does, all the time. Be prepared. Take preventative measures. Protect yourself and your loved ones and your security. You will have a lot more peace of mind, here, now, as well as in the future. Take care of today, and it will help take care of tomorrow. Neglect today, and you risk a very uncertain tomorrow.
See yourself, where you are, and where you believe you will be in five years, in ten years, in twenty five years, when you retire. Not "where" in terms of a geographical location, but in terms of your quality of life, what you will be doing, your satisfaction in all areas of life, your well-being and health, your financial health, your security. That is having true vision and perspective, rather than a blind fixation on satisfying desires or goals.
And, if you do not see that you have taken appropriate steps to be where you want and need to be, then make a different choice now. You change the future in the present, not the future.
2. You're On Your Own
When it comes to money, and securing your own future, you really are on your own. No one likes to think about this, but there are many ways in which it is possible to wind up alone and separated from your money. It happens every day.
While you may really enjoy being with another person, and even marry them and/or have children with them, you need to realize that relationships do not last. That is a fact. More than half of all marriages now end in divorce, and there are often financial consequences — not to mention a period of transition which can drain all the love, peace, joy, and understanding from you.
Few people think, when they fall in love or enter a relationship or have sex or have a baby with someone, that it's just a passing thing. People like to imagine that what makes them feel good is going to last, it's going to stay with them in some way. But, that is the problem. It doesn't. And, what we often tell ourselves isn't the truth; it's an illusion, falsehood, or false expectation.
Wherever you are in relationship with others, you have to take care of your own financial future. Now. Women especially. Women generally (not always) earn less than men, do not pursue aggressive investment but keep money in savings, hold their money in joint accounts or even in things that are entirely in their husband's name (or in his company, etc.), get the children and all the expenses after a divorce, and may be owed child support which they do not receive. Men owe women nearly a hundred billion dollars in unpaid child support, today, in the US.
There are so-called "Christian" financial counselors who demand that married couples put all of their money and assets in joint accounts. They think marriage is a permanent "union," and that the couple have to live that way, and hold their money that way. It may be a nice idea, but it is out of touch with reality — with so many marriages ending in divorce. It is living in a kind of financial and spiritual state of denial.
Realize, you need to have money in your own name, regardless of how much you trust your partner, spouse, financial advisor, accountant, children, or others. Do not allow yourself to be in a position where it could all go away, tomorrow. It happens. And, it especially happens to those who cannot conceive of it happening to them, and who do not prepare.
If you have a relationship partner, and have some kind of mutual assets or joint accounts, you need to be clear as to establishing your own financial security. If you have stayed at home to raise children, and not pursued a career, and are not able to earn much on your own in the job market, you need to be sure you have money set aside for you, and your children. And, you need to further protect yourself with life insurance on the primary income provider. That is a necessary expense. Pizza and beer are not. Insurance is, because things happen unexpectedly, all the time.
If you are relying upon anyone else for money, or for your future security, you need to learn how to create and build wealth on your own. You might consider something you enjoy doing as a hobby, begin to do it for profit, and begin a business at home. If you are not financially savvy, begin to read the business and financial pages on various websites or newspapers. Learn the language of money and finance, and understand how investments create wealth, by the interest they earn, by their appreciation in value, and so on.
Find your own unique talents and abilities, and develop them. You owe that to your self. Protect the money, resources, and assets you have. And, finally, when it comes to money, it is better to trust your self, and not anyone else. This may seem cold or heartless, but the world is full of people who are ready to separate you from your money, and take everything you have. The world is not a benign place. So, deal with it before it happens to you.
Expect the unexpected. Whatever you may have believed, known, valued, or invested in, in the past — and that means at any time up until right now — realize that it can all change in the blink of an eye. There can be unexpected illnesses, layoffs, deaths, theft, robbery and other crimes, identity theft, lawsuits and other legal problems, custody battles, accidents, disability, addictions (including, perhaps, someone close to you), natural disasters, earthquakes, hurricanes, floods, tornadoes, hail storms, fires, landslides, droughts, wars, and "acts of God." Be prepared. In hard times, or when some event causes you to be unable to get cash from an ATM or use a credit card for a number of days, you would be better off to have prepared in advance: keep on hand sufficient food, water, medicine, emergency supplies, a small amount of cash, fuel in the tank of your vehicle, and so on. Money can buy a lot of things, except when it cannot.
This doesn't mean you need to live in "survival mode," but even if you have your vision focused on wealth, you need to ensure your basic survival. You are never too wealthy to overlook that. And if you feel you are too poor, make it a goal to be able to save enough money to take care of your basic survival needs in an emergency, then for a period of two months. Put aside whatever you can, weekly, to accomplish this. Save what you would otherwise spend on a few beers and you could save your life. The idea isn't to live in fear, but to live with true peace of mind.
Financial health is like physical health: we take it for granted when nothing major is going wrong, but when it does, we wish we could have seen it coming and done something differently. It's about choice — making the right choices. The question is not "what can you afford," but rather, what do you truly need, what truly serves you, what leads to greater security, peace of mind, and well-being?
3. To Budget or Not to Budget
Most people do not budget, and few people want to. So, we will not suggest doing a budget, in which you allot a certain amount of money to all the different categories of expenses you have each month, and try to stick to it. If you already budget, and it works for you, fine.
On the other hand, we do suggest understanding where your money is going, and how much of it is going where. That greater awareness is empowering — it gives you greater ability to discern between choices that are serving you and those that are not.
The basic measures of financial health are cash flow and net worth. Cash flow is basically your monthly income minus expenses. Net worth is the bigger picture, your total assets minus your total liabilities or debts. It doesn't take a lot of math to figure these things out. Once again, the mathematically disinclined may prefer not to do the math, but in this case everyone really needs to do this. You don't have to know where every penny goes, or try to control every penny of spending, but unless you know what is really happening with your money you are giving up the basic control that you need to have.
If, after you determine your monthly cash flow, you choose to do a budget and stick to it, fine. What we are after here is awareness — the willingness to face economic reality and not live in financial denial. That is how you may begin to release yourself from limiting and destructive patterns of behavior.
The first thing to know about what is happening with your money is that all of the expenses you have are in competition with each other, especially if you do not have a lot more coming in each month than you have being spent (rather than being saved or invested). There is nothing inherently right or wrong about many expenses, but changing your perspective on where your money is going — and how much — can help you to make better choices. Do you really need to spend six or seven thousand dollars on vacations every year, as a typical family may? Just because other people do? Are there better uses you could put that money towards?
Notice, if you just spend what comes in, or after it accumulates in your bank account, you really aren't "saving." Saving means the money actually stays in savings. Spending it, and draining your savings, or neglecting to invest money in something that will contribute towards your financial independence, is cheating yourself. You are gratifying yourself now, to rob yourself of a financially secure and healthy future.
In many ways, this is a lot like dieting. Most Americans are overweight; they eat what they want when they want, and they do overeat. Similarly, most Americans over-consume. And, the thing to realize here is that this simply isn't necessary. There may be reasons why this behavior is so common, but that doesn't make it right, or good, or rational, or necessary. In fact, all patterns of what is ultimately self-destructive behavior — including all patterns of consumption — are self-limiting. They have the illusion of allowing us to be free, but they in fact trap us, feed our illusions, and create less well-being.
Here is another aspect of financial denial that doesn't quite make it into the budget: the amount of money people directly spend on things that are addictive or self-destructive. That includes alcohol, drugs, tobacco, gambling, pornography, and shopping addictions. Any of these can not only throw a budget way off, they can ruin your financial health.
So, to regain financial health and well-being, to get control of your money and your life, you need to figure out where your money really is going — and face it, rather than denying it. It doesn't work to excuse, rationalize, deny, or overlook your money-spending habits. And, if any of your habits is really a dependency or addiction, you need to realize that you have the makings of a black hole, an astronomical money-suck that will devour everything you can get your hands on. If that is that case, you may need to not only do the math, but you may need to learn to change your behavior to something that truly serves you rather than artificial, illusory, self-destructive, false "needs."
Financial well-being, health, and wholeness are about integrity with your self, not counting pennies.
4. Net Worth and Cash Flow
Take some time to calculate your net worth (assets minus liabilities) and cash flow (monthly income minus expenses). These are far better indicators of your financial well-being than your credit score.
Your credit score is designed by creditors to measure your apparent worthiness for getting credit, and it has nothing whatsoever to do with your net worth, and little to do with your cash flow. They merely want to see if you have the willingness and the ability to pay interest on their extensions of credit, and, perhaps, to eventually pay back the principal that you were advanced.
A credit score which shows that you have a lot of debt, pay your bills on time, and keep your accounts active, impresses the lenders. But, it does not necessarily impress a financial advisor. The willingness to spend what comes to you — no matter how reliable you may be at that — is not financial sense. Ultimately, it is not even real financial responsibility. Financial responsibility is not the extent to which you pay for your debts monthly, as much as it is having the understanding and commitment to not being excessively in debt in the first place, and to be wise in your spending.
How wise are you in your spending? The numbers tell.
Add up all the income you have each month, from all sources. The way in which it comes to you is not factored into the equation, just what you have coming in per month. If you have any income that is annual, or irregular, add up how much you get in the course of a year, divide by twelve, and you will have a monthly figure.
Do the same for all the expenses you have each month, regardless of where the money goes. If you have any expenses that are annual, seasonal, or otherwise not monthly, then once again divide the amount you pay over the course of an entire year by twelve, and get a monthly figure. Add up everything you spend for the month; if you are uncertain, keep track of your income and expenses for a month, by writing down what comes in and what goes out. Just keep a paper and pen handy, and jot down everything.
Look at your cash flow for the month, and, perhaps, for a few months, to be sure you have a realistic estimate, and you aren't forgetting things. Subtract the expenses from the income, and see what that number is. It is your monthly cash flow. The first thing to notice, is, is it a positive or negative number. Are the expenses greater than the income, or is the income greater than the expenses? Or are they about equal?
You might imagine that you are doing better than you are, or, perhaps, have the belief that as long as your expenses just about equal your income, you are doing well. In fact, you are more likely going nowhere, financially; you are not really getting ahead. The worst case is if your expenses are greater than your income; it's better if they are even; and it is best if you spend less than comes in. That way you have something to save, and, at some point, to invest.
Next, consider your net worth. This will shed some light on how your monthly cash flow has added up in your life. What do you have to show for all the money that has come to you, and all the money you have spent? Be realistic, and think in financial terms. "A marriage partner, two kids, a dog, and two cars" is not the best answer to this question. It may fit your programming and society's expectations, but it is not your real net worth. Your net worth is your total assets minus your total liabilities.
Add up all the assets you have, everything you own that you purchased or obtained that has monetary value, your savings and investments. If you are including your house or other property, such as a vehicle, determine what it is worth — what price it would get today — and be realistic. Subtract your debts, what you still own on your house, property, vehicles, credit cards, loans, and so on.
Theoretically, you can include in your calculations things that technically have some value, such as money owed to you, but be honest; if you don't expect to ever see that money, don't include it. Be sure to consider the current value of things you own, not their price when new (their replacement value).
Subtract all you owe from all you own, and look at that number. It is your new worth. Are you surprised? Disregarding the money that they have in their homes, most Americans have negative savings. The money you have in your home is not necessarily guaranteed, either. The market can go up, and the bubble can burst, too. So, even when you look at your net worth, do not take it as some measure of your absolute financial ability.
These calculations are to give you an idea of what you have done with your money, not to create any guilt or upset, but rather to simply be aware, and to perhaps learn from your experience. Has what you have done till now really gotten you anywhere, or where you truly would like to be, financially? If not, it may be time to make some new, different, and better choices.
The process of building wealth is about having a positive net worth, and having it grow.
5. Income, Assets, Debts, and Liabilities
It is important to understand a few basic financial terms, and how they impact you. For example, most people assume that their income determines their financial health. That is a fallacy. It is possible to have a large salary and equal — or even greater — expenses. This, in itself, does not produce a positive cash flow or net worth. In fact, many people with high salaries have a negative cash flow or negative net worth. And, they do not realize they are in poor financial health.
Income is simply money you have coming in. It's what you do with it that matters.
Assets are anything you own that has value. But, assets alone do not give you financial freedom. You need to have income-producing assets, such as a business interest or investment income, which can continue to produce income when you are not working at it. In other words, the best income for retirement is income-producing assets, because they keep on making money for you. Income, especially that produced by assets, is also referred to as "cash flow." If you have more money coming in than you have going out, you have a positive cash flow.
Balancing a checkbook is hard for many people, but even when you do, it is not enough to create a secure financial future. All a balanced checkbook means, is that the expenses which you have paid by check are likely less than or equal to the amount of money you deposited in that account, that month. Since you likely have other expenses which you pay for by cash, this does not give an accurate picture of your cash flow or net worth.
So, a checkbook, no matter how well you balance it, does not tally all of your income, assets, debts, and liabilities. It is just a convenient way of paying some of your expenses; it is not a gauge of financial health.
Many people keep a minimum amount of money in their checkbook, just enough to cover the expenses that come up during the month. They leave any left over in their savings account, where it may earn some small interest. The next thing to realize about your future financial security, is that even if your savings are "secure" today, because they are held in a government-insured savings account, that is not the same as financial security. And, it certainly does not guarantee future financial security, either.
Financial security comes from first having a positive cash flow — more income than expenses — and a positive net worth — more assets than liabilities. But, that is only the start. Security is about having what you need in the future if or when you do not have the income you now have, or you have expenses that you do not have now. You need to have a financial plan which ensures a secure financial future for you and your loved ones.
Some debts are not bad, in the sense that the money is spent on something that is necessary for you to have an income, or may directly produce income. For example, if you have debt on your home (a mortgage loan), and the interest rate is low, you can use money that you earn during the life of your mortgage to invest at a much higher rate of return. That works for some people. Others take out home loans, secured by the equity in their home, to purchase various consumer items or to take a vacation. This is generally a bad use of that money, and debt.
Anything you pay for which leaves you nothing tangible to show (such as a vacation) — and which does not produce income — does not contribute toward your net worth. It diminishes your net worth. Any "asset" you have which does not grow in value, or which decreases in value (such as a big screen TV), similarly does not add to your net worth, but diminishes it.
Finally, your home may or may not be a real asset. There are homes that are worth less over time than what was paid for them; there are homes which fail to appreciate in value as rapidly as the cost of living and inflation; and there are homes which can be a real liability if you find that they need a great deal of work to fix a bad foundation, rot, damage from a natural disaster, and so on. Countless people just abandoned their homes after hurricane Katrina, because of the damage, the unlikelihood of the neighborhood being rebuilt, and the amount of money it would take to do all the work — far in excess of what the property was even worth. Around the country, there are towns that may run out of water, and which may see property values greatly decline. In some places, lakes are becoming weed-choked, to such an extent that water isn't even visible in the "lake" anymore; and homes once considered "lakefront" will drop greatly in value. In yet other areas, overbuilding due to real estate speculation makes it very difficult to sell a home, even if it has value on paper. Remember, the worth of something is what someone else is willing to pay for it.
Many people take it for granted that their home is their main asset, but this is not always the way to have a secure financial future. People say they "own their own home" even when all they have done is made a deposit of five or ten percent. They don't own it until there is no longer a penny of debt on the property. Even then, if they fail to pay property taxes every year, they can lose their home. Oftentimes, it is possible to have investments that return a lot more money than the investment in a home — and they continue to produce income after you retire. Being able to cover your monthly expenses by the income produced by your investments, is a smart way to retire, especially when you have a positive net worth, as well.
6. Building Wealth
In any given society, wealth may be considered the means to be, do, and have what you want in your life. In our society, it represents financial freedom. But, it isn't necessary to be wealthy to be financially free. And, people who have a lot of money and assets are not necessarily wealthy.
How can that be so?
Wealth is a relative term, and in many ways it is entirely arbitrary. In the US, there are hundreds of billionaires, and about a million millionaires. And there are tens of millions of people who live in poverty, and millions more who earn minimum wages. The greatest wealth comes from business and investment, though business far exceeds investment as the means to wealth. To a person on minimum wages, someone who owns a home or who makes a hundred-thousand dollars a year might be considered wealthy. To that person who earns a hundred-thousand dollars a year, and who spends as much as they earn, or is saving for their children's college education, they may not consider themselves wealthy at all. And a billionaire does not think of a millionaire as being wealthy — well off, perhaps, but certainly not wealthy.
To a person in a Third World country, who earns a hundred dollars a month, or who owns one shirt and one pair of pants and one pair of shoes, nearly anyone living in the US might appear wealthy. In Saudi Arabia, the per capita income is 70 million dollars — that's the average income per person per year, due to oil sales, although the vast majority of the money goes to the royal elite rather than the common person.
Wealth is access to, ownership of, or the ability to use and profit from various resources: money, real property, business, investments, natural resources, goods, and services. A wealthy person does not necessarily have a greater appreciation for what they have — often they do not — but they have the means to have what they want. And they generally hold income-producing assets, including investments, property, and business interests.
The building blocks of society are the building blocks of business and wealth. But, most of us do not have ownership of natural resources, such as oil, gas, timber, coal, and so on. Additional resources which produce wealth include information, investment, and business — we can own a stake in some resource that does have value or generate income. In fact, nearly all wealth today relies heavily upon information, and information relies upon understanding in order to be of any value. The basic elements you have to work with, to gain wealth, are information, understanding, knowledge, education, experience, awareness, and inner knowingness.
People sometimes inherit money that makes them wealthy, but do not necessarily know how to create wealth themselves, or even how to manage the money they get from others. Creating wealth — and managing properly — always come down to you, your own awareness, your ability to draw upon your inner resources of creativity and intelligence. Without that, wealth can dissipate. Every day people lose fortunes, intelligent people, people who make decisions that don't work out for them. Some people make and lose fortunes a number of times in their lives. Realize, wealth is not something which, once created, always stays around — at least, not with the person or entity which created it. Wealth, like money, goes around and comes around.
Still, the system is set up to keep wealth in the hands of those who have it — the haves — and to keep it out of the hands of those who don't, the have nots. There are tax advantages that accrue to the rich, and to business and investment, which protect the wealth of the rich.
If you wish to create more wealth, you need to learn to use your awareness, your ability to think for your self, your creativity, your inner-directedness, and your ability to make decisions. You don't even have to own something, or own it for very long, to profit from it. A great deal of wealth is created by middlemen, who do not produce anything of any real value, but who arrange for the sale of things between those who produce them and those who want them. They merely arrange for deals to be made, and take a part of the profits. Often, however, if you wish to create wealth, you will need to make some sort of real contribution to society — or at least some segment of society which will pay for what you offer. And, you'll have to come up with that product or service that you have to offer.
Wealth is the result of taking something intangible — an idea, information, or other resource — and making it real in the world. It all begins with an idea. This is the main approach to wealth creation which we will pursue here; for most people, this is a lot more practical and freeing than going out and gathering natural resources in the environment. You need to use your own creative ideas.
In Third World countries, people gather up used magazines and newspapers to package goods, especially food. In the US, gathering materials on a very large scale, and recycling them, is also a good business. Sometimes, all that is different between subsistence and wealth is the scale of the operation, or the size of the idea. Big ideas create wealth, though they often start out as little ideas, one step at a time. At some point you realize that you can take bigger steps. You learn how, you get more resources, and you begin to operate on a higher level. That's business.
7. Business
Business is an opportunity to take what you believe in, and promote it in the "real world."
We will pursue business in much greater depth, to see what it is, how it works, and how wealth is created as a result. Once again, as with all things related to money, nothing is guaranteed, especially in business. The vast majority of new businesses fail. Understand that, before you assume that just having a good idea is enough to succeed in business. Businesses that have good ideas, good products, and good customers, still fail, every day.
The simplest form of business is being self-employed. All different categories of business have different legal and tax requirements. Those are areas which you will need to explore on your own, if you wish to start a business of your own. A sole proprietorship is simply a one-person owned business, which is generally formed as a company (for example a limited liability company). Then there are partnerships (which can also be limited liability companies) and corporations, for companies that have multiple owners. Ask your legal, tax, or accounting professional for help in setting up and meeting the various ongoing requirements of any business.
What we are going to consider here, is how a business may make sense as an investment of a person's time, energy, money, and other resources. Some people are suited to having a business, others are not. It takes a lot of time and energy, an ability to solve problems, get information and help, make decisions, know when to do things yourself and when to have others do them, and a willingness to persevere. It also takes a kind of "business sense," and financial literacy. If you don't understand the accounting and financial aspects of business, you will have to rely upon someone you trust who does. And, almost every business can make good use of the services of a business lawyer.
Business takes money. And then it uses that money to produce more money. Sounds simple. But, it can get very complicated. Some businesses do so well, that they fail. That's right. They make so much money, so fast, and have so many customers and so many orders, that they are unable to satisfy demand. They fail because they grow too quickly. That isn't something that people see coming, not if they aren't financially literate and have real control over their business — and its growth. It is often necessary to limit the growth, or rate of growth, of a business, to keep it manageable and healthy.
What is good about business is that it has a potential to continue to generate revenue — and income — after you no longer are involved in the daily operation, for example, when you retire. That doesn't happen when you retire from a job in which you work for someone else. A business, in this perspective, needs to be something that continues after you are no longer involved; a "business" which is simply a company formed for the services of a single owner, such as a professional, obviously does not continue after that person leaves the business, and ceases to produce revenues.
There are only two things which continue to produce income when you are no longer working: a business and investments. We will discuss investments, later. But, with this perspective, it is possible to see that a business is an investment. And, like most investments, you can both gain and lose money. You need to know how to actually make money; a business doesn't do that on its own, not often, unless perhaps it is a proven franchise in a workable location; even then there is no guarantee.
If you consider business, and what it really is, you may come to realize that there is nothing essentially good, ethical, or right about any given business, or even an industry as a whole. Many businesses and industries make a lot of money by catering to people's lowest instincts, and their most self-destructive tendencies, for example, the alcoholic beverage business has produced billionaires; then there are the tobacco business, the pornography industry, the obsessively violent video game industry, and so on, all multi-billion dollar businesses. Is any of that for the social good? Not really. The tobacco business kills more people than all illegal drugs. There are nearly twenty million alcoholics of all ages in the US. People are giving up their health and their lives, paying for their illusions. The fact is, a person who is addicted to or dependent upon something is a reliable repeat customer.
You need to make some very basic choices about what businesses you may wish to be involved in — which depend upon your own values and ethics, your own morality and conscience, your appreciation of the highest good of all. Business is, by definition, about making money. It is only concerned with profit; it has no inherent morality or goodness. That is entirely your responsibility.
In everything you do, whether it is business, employment, career, or the simple spending of money, you need to ask your self what is right, good, and true for you. That is how to have a proper relationship with business, finance, money, and your own self. And, if you do choose to be involved in a business, realize this is what you need to do at every step: you need to be aware, look within yourself for answers, seek intuitive guidance or perspective, and listen to your conscience. All you can do, is to do what you feel to be right, good, and true, at each step, as best you can. Beyond that, there are factors outside you, in the world at large, which can and do shape the future of a business.
8. Innovation
Things change.
If you aren't innovating — or at least keeping up with the accelerating changes of our time — you could be falling behind. Microsoft, a multi-billion dollar company, had hundreds of PhD-types looking for future trends and opportunities, and never saw the Internet coming. They had to try to play catch up, in the typical way, by driving their competitors out of business. Companies with thousands of highly paid scientists and engineers cannot seem to come up with any real innovation. Microsoft recently spent five years and billions of dollars, with ten thousand people working on the project, to make yet another version of Windows. It's a little prettier.
So, how do you stay ahead of change, or keep from falling behind? You need inspiration and innovation, creativity and the ability to think for your self. Those who accept the status quo, who accept things the way they are as they way they should be — which is the majority — lack creative vision. They are effectively closed to creative change and the greatest opportunities. Opportunity begins with awareness, what you can see, what you can see to make better.
You have your own unique vision of the world, your own perspective, understanding, insight, interest, or purposes. In your view, even in things as mundane as your daily life, what could be better?
In our society, a very small percentage of people is asked to be creative, to invent, to come up with new ideas, to break away from the way things are done. More often, we are paid to continue doing things exactly they way they have been done for a long time, and those who question the status quo are not always welcomed in organizational environments, including big business. This is why the global automotive industry shifted away from the US — along with massive plant closings and layoffs — and new players will take the lead.
Good enough is no longer good enough. We have to do better than that, or we will fall more and more behind, in all areas. It seems that most of the creativity in America is going into entertainment these days — to entertain people in their illusions that everything is okay, while quality of life decreases daily, in reality.
Traditionalists and reactionaries see change as a threat to the way things are. They fear change, the unknown, and anything foreign to them or progressive. This shapes their very perceptions, and actually makes them unable to see how things could be better, or understand or learn something more.
In what ways are you stuck in the past, or committed to the past rather than the future? What might you do if you had the courage to change? What if you promoted new ideas, by making people aware of their benefits, long before they were "popular"? Do you have the courage to innovate, to step out of the pack, to lead?
There are many highly educated people, many highly intelligent people, who never have a creative thought in their entire lives. They are well versed in — loyal to, and programmed by — the thinking of others. It takes an effort, and it takes courage, to break away from the way everyone else thinks. It takes creativity, a willingness to risk, tolerance to be disapproved of, and belief in one's self. All too often, this essential belief in oneself — and the ability to think differently — is precisely what is eradicated by formal education, in its efforts to conform us to society. This is why many so-called "uneducated" people have made many great innovations.
It is a mistake to think that a business can have a few people, or one person, with creative vision or the willingness to innovate, and succeed in the long term; not unless they are a monopoly. The entire company needs to be innovative. In other words, the creativity and intellectual capital of each person needs to be recognized and appreciated. In the US, the model is all too often one in which the person in charge has an enormous ego, and everyone else is considered just another worker ant.
Opportunity is ever-present. It takes some true creativity, and a willingness to risk change. The bigger the company, the less willing it is to risk change. This why there is always opportunity for the little guy, even in the global economy. You are not burdened by all that inertia from the past.
9. Real Estate
Real estate may be a good investment either or both in terms of a home you occupy, as well as property that you have for the purpose of generating income (which may appreciate in value, too). Real estate is perhaps the most common way to build wealth in our society. The value of real estate is largely determined by location, but many other factors enter into play. As with any investment, it is the ability to resell it that matters most. But, in addition, it is possible to make money while you own an investment rental property.
Usually, real estate wealth is built by buying properties and holding on to them, including multi-family dwellings or apartment houses. The owner receives rent — in excess of the mortgage payments. This creates positive cash flow each month. Multiply this by a number of income producing properties, and it is possible to build a lot of wealth.
Real estate, though it is real property — tangible and physical — only has as much value as someone else will pay for it. The things that make real estate expensive have to do with abstract human concepts such as "curb appeal" or emotional appeal, "desirable location," "scenic view," "charm"," authenticity of a restoration, and the use of certain materials such as granite counter tops in the kitchen. Which raises the question: why does anyone need granite on their kitchen counters? And why does that seem to add so much "value" and "desirability" to a house?
Clearly, real estate — especially single family homes — is largely about the illusions people have as to what is of real value, what matters in life, and what caters to their egos and popular conditioning. Often, people pay for the illusion that they are living a rich life. Fifty years ago, houses were much smaller, rooms were smaller, furnishings were not as extravagant. Today, a family would feel terribly deprived if they did not have a big house, with big rooms for the children, play rooms, game rooms, big-screen TV, and so on. The illusion of what we "need" has changed.
The same amount of money will buy a small apartment in New York or an expensive mansion in countless smaller towns. So, it isn't the actual home, or the materials used to build it, that matter most. What matters is: where it is, and how many other people would like to live there, to drive up the price of real estate. Factors include access to medical care, schools, entertainment, sports, cultural events, recreation, the crime index, job market, and so on. Build quality, materials, and size also matter, but, we are merely pointing out how much of what we buy — the "worth" — is entirely in the eye of the beholder.
As with all investments, there are potential rewards and potential losses, and not all of them are within your control. There is the old saying that "God isn't creating any more real estate," and so people expect their property to increase in value, since there seem to be more people all the time. But, things change. There can be mass migration from one part of a country to another, due to changes in industry, manufacturing, weather patterns, retirement patterns, and so on.
There are many towns in which buying a house is a losing proposition, because of any or all of these factors. If young people do not see any future in an area, particularly a small town, and head for the "big city" to go to school and get a job, then property values not only decline but disappear entirely. In another area, retirees may flock because of the warm weather, and property values go up. The small town may be stable and secure, while the retirement community may be subject to hurricanes, but people buy where they believe their future will be most rewarding.
When it comes to buying a property, you need to get a very local perspective, see how prices have fared in recent years, see the worth of other properties in the immediate area, see if there is a potential for appreciation in value, and what the quality of life might be like there. If it's a house in which you intend to live, be sure to visit the neighborhood at different times, and perhaps on a weekend. Look for what might really annoy you, now, or over time, such as really loud music, parties, houses with many barking dogs, chain sawing of wood, cruising cars, and so on. See how well kept the other homes are, especially their yards. It shows if people are protecting their investment, or ignoring it.
If you wish to buy a home — especially if it is for you and your family — stick to the basics:
- a good location
- a property that is not the most expensive in the neighborhood
- design and landscaping that makes the property attractive to others ("curb appeal")
- features that potential buyers will demand, such as enough bathrooms, and
- find out what other properties sell for in the neighborhood (what Realtors call "comps").
Be sure to walk through any property you consider purchasing. You would be amazed how different properties feel. Some have a light and easy feeling, and positive energy; others feel very troubled, disharmonious, or full of negative energy. Some spaces can be renovated or cleared, and feel better; others may not. Remember that people buy based upon feel, more than anything else. In general, money spent on improving a home — especially kitchens, bathrooms, and painting — tends to increase value, and make it easier to resell, too. People have to walk in and feel as if they could live there, and be able to picture themselves living there.
Be wary of get-rich-quick schemes. "Flipping" properties — buying them at a discount, or when they first come up for sale, and then reselling them quickly at a profit — can make money in certain markets, for someone who really knows what they are doing, and can lose money for those who do not. Most flipping involves renovation of a house, on the theory that putting in money to make the property more sound and appealing, will return that money and a lot more. Sometimes it works; often it doesn't. In a downturned housing market, fewer people are buying homes, and a properly purchased as in investment can remain unsold for a long time, leaving a flipper hoping for a quick sale before mortgage and holding costs add up, and take away the profit.
Similarly, the theory of buying properties at foreclosure — believing they will be offered at a great discount — is not applicable at this time. Banks are not discounting their foreclosed homes; they are seeking all of the money due, which, in this market, is often even more than the actual value of the home. Dozens of people may go to a foreclosure sale, with many properties on offer, and not make a bid on any, because none is a good deal.
The idea of buying properties and renting them means becoming a landlord, or hiring a property management company to do that for you (at a fee). Realize, this is a business, not just a real estate purchase, and you need to see if you have the temperament for it, the resources (in case your tenants trash your property), and the willingness to hold properties for a considerable period of time. As long as you have a positive cash flow — more money coming in on rent than you have going out on mortgage, property insurance, maintenance, and so on — and the property is not deteriorating or losing value over the years, this can be a good investment. There is always risk, with any property, such as flooding, wildfires, and so on. All of this needs to be considered.
Another way of investing in real estate is to invest in an REIT, a real estate investment fund. This is a portfolio of properties purchased by professionals — investors don't have to know much about real estate, or go looking for properties; they merely buy shares. Like any investment, this type can go up or down in value over time.
10. Advisors
In the past, people often relied upon advisors for financial decisions, including certified public accountants, lawyers, stockbrokers, certified financial planners, and so on. There was much more limited information — or financial expertise — for any given investor. Even today, it is often a good practice to seek the opinion of a trusted CPA, lawyer, or financial advisor, before putting much of your money into any kind of investment, including a business.
Of course, today is very different from the past. The Internet allows the ordinary person to get an enormous amount of information about all kinds of investments. It is becoming more and more common for people to rely upon their own understanding and information, in building wealth.
Why would an ordinary person need a financial advisor? Aren't they already making all the financial decisions in their life? Are you? How is that working for you?
Most people believe that they are capable of making decisions for themselves. Yet, nowhere is it more obvious than in the realm of finance, that the decisions people make in their daily lives — which they believe are working for them — are not.
We each have a different perspective — even when we are looking at the same thing, we see it differently. Having a support team (or even one trusted advisor) can significantly broaden your perspective. They can see things that you cannot. And the more you see and know, the better your decisions may be.
The fact is, even if you do take advantage of the services of a professional advisor, you need to realize you may be given different advice, perspective, or information by different advisors. They all have their own perspective, understanding, knowledge, biases, and involvement. You are still, in the largest sense, on your own. You have to take what they say, evaluate it, and decide what role — if any — it will have in your decision-making process. That is, and always will be, your own personal responsibility.
That being said, it is still a good idea to have a support system in place for your financial decisions, and people to learn from. You can learn a lot from a good financial advisor; you learn how they approach a financial decision, the factors they consider, the information they require, the research they need to do, the larger perspective they have, and the insight they have.
The more money you have, the more deals may find their way to you. You see opportunities simply because you have the resources to act on them — or you can raise the resources. We began by saying that you are ultimately on your own, but that doesn't mean you cannot rely upon others for their perspective, or partner with others.
Building wealth is an iterative process; you take steps and make corrections along the way. The idea is to generally steer the right course, and only make minor course corrections, rather than drastic sea changes.
Still, opportunities tend to be fleeting. If you don't see the opportunity, someone else will. Establish a relationship with a trusted financial advisor, and you will be able to get their perspective when you need it. Some people leave their money in their investments, and prefer not to look at them very often. Others have a hard time getting a good night's sleep if they don't know how their investments are doing.
The basic guideline is to not invest in anything that causes you to lose sleep at night. And, have an advisory system that lets you know of any significant changes in the investments you have. If you wish to build wealth, then be sure you are not losing money over the long-term. The goal is to have money when you need it in the future; if there are minor retreats in your investments in the short term, that is usually less important than the likelihood of long-term gain. But, in any case, see what your advisor says. And listen to what you feel is right for you, within you. Deals that are "too good to be true," usually are.
Watch out for any financial advisor who has a personal investment — a financial investment — in the choices you make and the investments you purchase. They may be in the role of selling investments or managing funds, and their income depends upon sales or trading rather than how appropriate an investment is for you. Be sure your financial advisor has true objectivity, rather than a financial investment, or find one that does.
Remember: it isn't how much you earn that matters as much as what you keep, especially as you near retirement (and in estate planning). Do not assume that everything will go well, if you have not planned for the unexpected (and the expected). Find a financial advisor who understands how to help you keep your money or wealth in old age, and transfer it as you truly wish when you die. Death and taxes are said to be the two certainties in life, but taxes are not a certainty unless you fail to plan properly. The government is more than happy to take whatever you leave behind — even before your heirs or beneficiaries ever get one penny — via estate taxes and income taxes. Both of those can entirely drain any money you leave to others, before they get anything. Find an advisor who knows how to not only draft a will or set up an IRA, but how to ensure that your money actually gets to your heirs (most advisors do not really do this, even if you have a will).
Finally, do some good with your money before you leave this world. Otherwise, what was the point of getting all of it in the first place? Provide for your immediate family, and then see how you can help others. You'll be surprised how good you feel when you use money for good purposes, helping those who do not expect it.