Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's. - Earl Wilson
Mary and John are an American couple. They are in their early twenties, and their goal is to achieve the American dream. They want to own a nice home, cars, and money for their children if they decide to have them. They both work at jobs that are less than desirable: John works at a local telemarketing firm, and Mary works at a department store. Both of them barely make enough money to get by. They live in a one bedroom apartment that is $800 per month, and this does not include their cell phone bills, leased car, food, power, and other expenses. They both have separate cell phones, so their bills are $100 each, which comes to a total of $200. They have leased a brand new automobile, and they are making payments of $260 per month at 7% interest. The car has a value of about $17,500, and it will take them a bit more than five years to pay the lease off.
Like most Americans, John and Mary also enjoy watching cable television. Their cable television bill runs at approximately $45 per month, and their Internet access is about the same price. So this comes to a grand total of $90. Since the price of food has continued to increase, John and Mary are spending approximately $260 per month on food. Since electricity is not included in their rent, they must pay for it separately, and this comes to about $100 per month. All together, the basic expenses of this couple, excluding miscellaneous items, are as follows:
Rent: $800 (In NY or LA this would be much higher)
Car Payment: $260
Cell Phones: $120
Cable: $45
Internet: $45
Power: $100
Food: $260
Altogether, this couple pays $1,630 per month for their basic living expenses. As you read this, you may be thinking that your expenses are a lot higher than this amount. However, this is the typical young couple that is working at dead end jobs. John makes about $9.73 per hour working at the telemarketing firm, and Mary makes only about $8.50 per hour working at the department store. They both are equally responsible for the car, since they co-signed for it. Their total living expenses each year is $19,560. By himself, John only makes $1,556 per month, while Mary only makes $1,360 per month. As you can see, neither John nor Mary makes enough by themselves to pay for their "basic" living expenses. What this also means is that neither of them can save much money at this level of income and expenses. But there are even bigger problems on the horizon.
Both John and Mary are sick and tired of their jobs. They know that they have to get better paying jobs in order to become successful, but because both of them are working 40 hour weeks at their jobs, they don't have much time to pursue a higher education. John's situation is trickier than Mary's: Because his parents make a high income each year, he is not even allowed to get financial aid, despite the fact that his parents are not interested in paying for his education because of disputes they've had about his future. I should also note that both department store jobs and telemarketing firms have high turnovers. Most people quit within the first six months. Mary has already gone through at least three jobs in the last two years, and the situation with John is the same. To make matters worse, both John and Mary have made the mistake of using credit cards to pay for various items. They now carry a balance of $700 since they decided to buy their own washer/dryer, and they are having a difficult time making the monthly payments for it. In fact, their income has only allowed them to make the minimum payments, and at this rate, it will take them years to pay it off. The pressure is starting to have an effect on both of them, and fights are not an uncommon occurrence in their home. Over 80 percent of the time, these fights involve money, and while the couple was happy at first, their relationship has slowly deteriorated over time. Unfortunately, this illustration I just gave you occurs far too often in the United States. Many people are caught in a vicious cycle where they feel they can’t get out. To add fuel to the fire, many of them make the mistake of borrowing money from credit card companies, banks, or car dealers. There are a number of things this couple could have done differently to avoid the trap they got caught in. Also, it is not too late for them to make the necessary changes to get out of the trap and achieve financial freedom.
The Problems
First off, they should have never leased the automobile. When you pay $260 per month on a car that is valued at $17,500 at an interest rate of 7%, you will always pay back more to the dealer than the car was actually worth. While the original cost of the car is $17,500, Mary and John actually paid more for it. At 7% interest, they will pay a grand total of $18, 725, and if the dealer is using compound interest, the total payment will be even higher. Once the car is paid off, it will not be worth $17,500. Cars tend to depreciate in value, and it will be worth well under $10,000 by the time the couple has paid it off. Even if they choose to sell the car once they own the title, they will never get back what they originally paid. The car dealer and bank are the masters. They got back more than they originally paid by charging the couple interest, and they received monthly payments of $260 for five years.
A much smarter course of action would have been for the couple to save money to buy a used car instead of leasing one. Until they had enough for it, they could have used public transportation systems such as a bus or subway. They would have stayed out of debt, and they could have saved $260 per month instead of giving it to a car dealership. After 12 months, they would have saved $3,120, more than enough to purchase a quality used vehicle which they would own outright. Instead of getting separate cell phones, the couple could have shared one phone. While it would have been difficult and sometimes inconvenient, they could have split the bill at $30 each, allowing them both to save $30 per month. Multiplied by twelve months, that extra $30 could have allowed them to each save $360 annually. As far as cable television, they could have sacrificed it in favor of renting videos or using the Internet instead. This would have saved them an additional $45 per month, which would come to $540 per year. Instead of paying $800 per month to live in an apartment, they could have simply found one that was a bit cheaper, but still in a safe area. If they could do this, they could save hundreds of dollars per month, which would turn into thousands of dollars over the course of a year. Instead of purchasing a washer or dryer on a credit card, like the car, they could have purchased it used at a fraction of the cost. By applying the techniques I just discussed in the last paragraph, Mary and John could have saved thousands of dollars per year. They could have focused on increasing their education, or they could have worked towards starting their own home based business.
Either way, doing this would put them on the road towards financial independence. Taking on too much debt has put them in a dire situation. While it is still possible for them to get out of this scenario, prevention is much easier than finding a cure once the problem has manifested itself. A number of studies show that the typical American makes approximately $33,000 per year. This book will show you how to take as much of that $33,000 as possible, and put it in your bank account, while living comfortably at the same time. This extra money you can now use to invest and make your money work for you. Could you live on $10,000, or even less? Could you live on $15,000, saving $18,000 per year?
If the answer to that question is "yes," you have just found the true secret to wealth. If you are uncertain of whether or not you can do this, this book will show you the secrets. While some of these things may sound like common sense, others are quite elaborate. There are a few people right here in the United States who are able to live on less than $10,000 per year. I have had people tell me that it is impossible to live on less than a thousand dollars per month. Imagine if you are able to minimize your expenses and debts, live on $10,000 or $20,000 per year and make $50,000 or $100,000 that same year. The money you have to invest will be significant at the end of the first year and you can begin investing in projects wisely to increase your net wealth.
Even if you are not making $33,000 per year, this book will teach you how to save 30 to 50% of whatever you are making. The first secret, which really isn't a secret, is to save your money. When I say "save your money," I'm not talking about just putting away a couple hundred dollars per month. This is not enough to put you on the path of financial independence. Saving money using the techniques discussed in this book requires you save a minimum of 30 to 50% of your total income. If you can, you will want to try to save more than 60 percent. Once you have achieved this, you will put yourself on the path of being a millionaire, or even a billionaire. However, it is important for you to realize that you will not be able to gain financial independence by saving money alone. You must also invest your money in smart projects where your money will work for you.
There are plenty of books written on investing your money, and I don't want to focus on the topic in this book. My goal is to give you the foundation that will allow you to invest your savings. What good is learning the best investment secrets in the world if you don't know how to save money to invest? There are a number of ways that you can save between 30 to 50% of your income. The very first method is to avoid borrowing money at all costs. Never borrow more than you have saved up, and never borrow more money than you bring in per year. The typical American has far too many credit cards. Studies indicate that most self made millionaires only have a single credit card. If you have more than one credit card, cut them all up, call the credit card company to cancel them, and start using only one.......for emergencies. Never use credit cards frequently to pay for everyday items. You will find yourself owing a great deal of money within a short period of time. Don't fall into the enticements credit card companies use to get you to spend including points, rewards and other incentives. These rewards and incentives come at a big cost. Once you begin applying the lessons taught in this book, you will find that using a credit card is completely unnecessary.
To save more than 50% of your income, you must avoid borrowing money. Do not lease cars, get student loans, or acquire mortgages. Practically everything that you've been taught by mainstream financial experts is inaccurate and will lead you to a life of servitude. To survive and prosper, you must turn everything you've been taught on its head. Most so called investment advisers do not have your best interests in mind. I have a friend who is in the lower level executive ranks as a banker and the pressure to make money far outweighs any benefits to existing customers. There is enormous pressure to lock individuals and businesses in loans with healthy interest rates for the banks overall benefit. Again, these long term revenue streams account for generations of multi-million even billion dollar returns for the bank executives. Don't get caught up in the various slogans like “Helping you gain your financial freedom”, when the moment you take that loan you will be working for the next 30 years to pay the bank. How are you financially free?
Credit card companies and most lenders are NOT in position to help you. They are in position to make exorbitant amounts of money from you. They loan you money and then charge you interest to use it. You always pay back more than you originally borrowed, and if you decide not to, there will be severe consequences. Your credit can be ruined, your possessions repossessed, and you may find it hard to get an apartment, house, or even a job. By using your own money, you will not have to borrow the money
of others. You will be independent, instead of being interdependent. You will be the master of your own destiny, and it is you that will gain financial independence. If you are using payday loans, credit cards, or other instruments of debt, you must stop now. If you do not, your purchase of this book was a waste of your time and money. Avoiding debt is the single most important step of building wealth. The next most important step of saving 30 to 50% of your income is to get rid of any bills that you do not need. When I use the term "do not need," I'm referring to things that you won't die or be extremely uncomfortable if you give them up. Things that you "need" are food, shelter, and clothing. A bit of entertainment is also necessary, but you must make sacrifices at this point. Remember the goal is to set you financially free where you are able to do the things you want to do, but you must sacrifice to get there. No great gain comes without great sacrifice. Reserve a set amount each month for entertainment related expenses, and never go beyond it. If you want something that costs more than you have, save for it instead of borrowing money. Get rid of magazine subscriptions, cable television, or other bills that you could do without. Call your cell phone company and find out if they can give you a better deal monthly. If they can't, look for another company that can.
Many companies, especially those in the telecommunications industry, are now placing their customers on one or two year contracts where they are forced to pay a set amount each month. This places you in a bad situation, because it means you will not be able to cancel your payments if you find out their service quality is poor. On top of this, many families have multiple mobile phones for their children as well as a home line. The home line can cost upwards of $50-$75/month. There are a number of creative ways around this. I know that we live in an age of communication, and you need to have a phone so that you can use it when needed. But you do not need to have both a home phone and a mobile phone. Choose one or the other. The mobile phone may be the phone of choice because of the mobility and convenience however a home phone may be cheaper. There are even better ways of having a home phone further explained below. Additionally, many people are manipulated into buying expensive cell phones from companies that do not offer a high level of service. When was the last time you or someone you know got a high phone bill, and the company was reluctant to explain it to you when you called them about it? Or, perhaps they did explain why the bill was so high, but nothing they said made sense. If this has not happened to you, you should consider yourself fortunate. It has happened to me, and I can think of at least two people off the top of my head that have also had to deal with the same problem. There are a number of alternatives to paying for a standard monthly cell phone or home phone bill. The first option is called VoIP, or Voice Over Internet Protocol. This is a little known technology that is likely to change the face of communications in the next few years. VoIP allows you to make phone calls over the Internet without using traditional phone lines or cell phone towers. Your voice is digitized before it is transmitted, and it can be sent to any location in the world, for a fraction of the cost you would normally pay. I've seen VoIP companies that are charging well under $20 per month for unlimited local and long distance calls, and you will find many of them on the Internet. In fact www.skype.com costs just $2.95 each month to make unlimited local and long distance calls. Additionally, for $30 for the year you can get a personalized number where you can receive calls direct to your computer. This service comes standard with all of the extras including call waiting, voicemail, conference calling etc.
The advent of VoIP has weakened the dominance that many telecommunications companies have had for decades, and many of them are scared. For the first time in history, small businesses can compete with the telecommunications giants. It should be noted that many countries with state run telephone services have banned VoIP, and Mexico is one good example. As of this writing, you have to be connected to the Internet, which means VoIP is not yet fully portable. However, it is a low cost alternative to using a cell phone or home phone. It is up to you to decide whether or not you're willing to make the sacrifice. If you are constantly making important phone calls while you're out and about, VoIP will not be for you. If you are not using it frequently, you must decide whether you would rather support a small business and save money, or continue to support telecommunications companies that arepractically monopolies. Our entire corporate office phone system is wired through Skype saving us thousands each year and we never loose productivity.
As you read through this, you may have noticed that the highest bills you have are those that you need in order to survive. Think about it. Which one costs more, cable television or your monthly rent or mortgage payment? Do you spend more money on Internet access each month, or do you spend more for food and electricity? This is all by design. To be quite frank, we live in a society that is designed to keep you broke. The prices for the basic living expenses continue to increase, forcing people to struggle in order to pay for them. Communication is a necessary expense. Not only is it convenient, not having it can put your life in danger. The telecommunications companies are well aware of this fact. They know that most people will continue to pay high prices for poor service because they need a phone in order to communicate. However, the Internet has opened new doors for everyone. Rapid advances in technology have continued to weaken the dominance of these Fortune 1000 companies, and many of
them are fighting vehemently to get rid of it. Another phenomenon prevalent in our society is one that I will call the "nickel and dime" factor. Put quite simply, there are many institutions that are making tens of millions of dollars each year for simply charging you small amounts for things you shouldn't have to pay for. Because the amounts are so small, many Americans do not notice them. This works in the favor of the companies that perpetuate it, since they are making tremendous amounts of money, often without the knowledge of the people who pay them.
An example of the "nickel and dime" phenomenon is ATM machines and some debit card machines. Since many people are now using their debit cards or credit cards to pay for expenses, many businesses are now charging you a small fee in order to use them. Some fast food restaurants will charge you an extra dollar to buy food with your debit card, and while ATM machines only cost 50 to 70 cents to use back in the 1970s, many of them are now charging more than $1.50 just to take out money that belongs to you. My advice to you is to avoid them at all costs. Pay with cash whenever you can, and you should only use ATM machines from your own bank. Most will not charge you a fee to use their ATMs, and if they do, you should switch to another bank.
"Beware of little expenses; a small leak will sink a great ship"- Benjamin Franklin
To save 50% of your income, you must be frugal. When you start applying the things I talk about in this book, many people that know you will begin calling you "cheap." I always take offense to this. When people tell you this, what they are really saying is that "you have chosen not to be broke and in debt like them." Frugal and cheap are two different words that mean two very different things. To understand the difference between the two, I will give you an example. A man who buys a low cost shirt from a clothing store because he doesn't have any money is cheap. A wealthy man who buys a shirt from the same store, who has enough money to buy something more expensive, is frugal. He shops at the store because he wants to, not because he has to. Do you understand the difference now?
Bill Gates, currently the wealthiest man in the world, has been known to buy low cost shirts at department stores. Li Ka Shing, the wealthiest man in East Asia, has been known to purchase and wear plastic watches. Both of these men have more money than many celebrities combined, and despite the fact that these celebrities wear much more expensive clothes than them; they don't even have a fraction of their wealth. Bill Gates is worth over $40 billion, and Li Ka Shing has in excess of $18 billion. If they wear low cost items, why shouldn't you? The next time someone criticizes you about saving money, just tell them that both Bill Gates and Li Ka Shing are "cheap," and look how much money they have.
As you read this book, and compare it to the information you're given by the mass media, you will find that there is a weave of deception going around. I have talked to wealthy financial analysts, and they are all saying the same thing. Americans are in the dark about their personal finances, and many of them are going to die in poverty, when they could have lived out their life in luxury. Are you willing to make the necessary sacrifices to avoid this fate? Or are you so determined to have the latest gadgets, clothes, cars, and other useless items that are worth little after you buy them? That is a decision that you will have to make. I cannot make it for you.
Even if you never obtain the wealth of either Bill Gates or Li Ka Shing, by following the rules that I have laid down in this book, you will put yourself on the path of building a great deal of wealth. Most Americans dream about having a million dollars, and many of them fail to realize that they will make more than a million dollars over the course of their lifetime! Think about it. If the average American makes $33,000 per year, by the time they retire at the age of 65, they would have made more than $1.5 million and that's just from that salary. If that same American saves a large portion of his salary and then makes wise investments that 1.5 million could be exponentially higher.
Unfortunately, most of Americans only have a fraction of this amount by the time they retire, if they have any money at all. It should also be noted that the amount I listed above only considers the fact that you saved that exact amount, which won't happen, since you will have some expenses to pay for. However, by saving and investing a significant percentage of this, you can become extremely wealthy, perhaps even reaching the status of a billionaire. As we near the end of this chapter, we transition into the primary rules you must take away from this common example and follow to build your wealth and attain financial security.
With so many people living in financial uncertainty you can change your situation. You have to want it and you have to stay focused as you achieve it.