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The 9 STEPS TO FINANCIAL FREEDOM
Practical and Spiritual Steps So You Can Stop Worrying


Suze Orman

STEP 1: HOW YOUR PAST HOLDS THE KEY TO YOUR FINANCIAL FUTURE


The first step to achieving financial freedom involves going back to when you were a child where you started to form your first impressions of what money is all about.


SUZANNE'S STORY: Suzanne's father would always be on the move in order to get better paying jobs. They often moved once or twice a year and it meant that Suzanne had difficulty making and keeping friends. Today Suzanne lives like she is ready at any time to get up and leave. She rents a furnished house and leases her car. She has no savings or financial commitments of any kind.


ANDY'S STORY: When Andy was eight years old his mother gave him the big responsibility of going all of the way to the bakery by himself to get some bread. On the way he lost the money. Andy was so traumatised by the loss that today he still avoids being in control of his money.


What you learnt as a child about money affects how you view and handle it today. Go back over your childhood memories and remember all you can about what you thought about money. Find the one memory that seems really important and write it all down.


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STEP 2: FACING YOUR FEARS AND CREATING NEW TRUTHS
Now we are going to examine our fears and see how they're connected to those memories.


SHEILA'S STORY: Sheila's biggest fear is that she would loose everything. Her memory is of breaking her grandmother's prized lobster platter.


MARK'S STORY: Mark was not able to trust his wife with his money or even a joint bank account. Mark's fear went back to when he was a boy and saving for a trampoline when he discovered that a sister had been stealing his money.


What are you afraid of? I want you to write down your fears with money.
You can probably see a connection between your memory and your fear.


When I became s stockbroker with Merrill Lynch I felt completely out of place. I had gone from being a waitress to a high-pressure job advising people what to do with their money. When everyone one in the firm went out to a fancy restaurant I went to Taco Bell, because it was the only place I felt accepted.


Every morning before I went to work I wrote down at least 25 times, "I am young, powerful, and successful; producing at least $10,000 a month". I was replacing my fear with a new reality. 


Now I want you to come up with your own saying or slogan to overcome your fear that you can repeat to yourself during the day. Make sure it is short and in the present tense, such as "I am in control of my finances". Do whatever you can to create your new truth.


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STEP 3: BEING HONEST WITH YOURSELF


In today's world it is very easy to distance ourselves from money as we replace cash with plastic, electronic transfers, and the like. We need to be more in touch with our money.


KAREN'S STORY: Karen's partner inherited $25,000 from his mother and wanted to invest it. The financial planner they saw asked them to fill in some forms about their present financial condition. Karen couldn't bring herself to fill in the forms because she had heavily spent on credit and was afraid that Richie would find out. Six months later the money was down to $22,000.


What does it cost you to live each month? Write down your answer. After working with hundreds of people I will bet that it costs you $1,000 to $1,500 more than what you have estimated. Why? There are many annual expenses that come up only once a year, such as insurance and gifts that we don't factor into our calculations.


An exercise: how much do you spend?


Go back over all of your old bills and bank/credit card statements for the last two years and work out exactly what it has been costing you to live. Make up categories for your spending such as electricity, babysitting, yoga fees, petrol, holidays etc.


By adding up all of the categories and dividing them by 24 (for the 2 years) you can find out what your average total cost of living is per month. Some months you'll spend more and others you'll spend less but overall this is the amount you are spending. 


Next, work out how much money is coming in each month. You may find there's more going out then coming in.


What do you do? Decide how much money you want to spend in each category. Now is the time for some trimming of the budget. Maybe you can get your haircut every nine weeks instead of every eight, go to the movies three times a month instead of four. Get creative.  A single mother client I had went shopping every eight days rather than once a week.


Write down a total of what you are going to spend per year in each category and then keep a track of what you have been spending. If you use up the money in one category early you might want to supplement it by borrowing from another category.


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Step 4: BEING RESPONSIBLE TO THOSE YOU LOVE


If you haven't got a will then now is the time to make one. If you get sick or die your family will have enough to cope with as it is without having to sort out your financial situation. 


WILLS: You can get a will drawn up by a solicitor, purchase a will kit, use a computer program or you can do it yourself.


If you don't have a will when you die the Supreme Court will appoint an administrator to distribute your estate. The guideline by which the court distributes the estate varies from state to state and it may mean that the people you care about the most will miss out.


LIFE INSURANCE: You need to work out how your family will manage without your income if you die. As a general rule you will need $100,000 worth of insurance for every $500 worth of monthly expenses that your income covers. So if you have monthly expenses of $3,000 you'll require $600,000 worth of insurance. This is the amount of money you will need to invest at a conservative interest rate to generate $3,000 a month.


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STEP 5: BEING RESPECTFUL OF YOURSELF AND YOUR MONEY


LAW OF MONEY: Respect attracts money - disrespect repels money. Look at all the ways that you respect and disrespect your money. When you disrespect your money you are bound to loose it in many different ways. Check if your money is neatly in your wallet or all screwed up in your pocket. Do you spend more on others than you do on yourself? Forget to return things you've borrowed from friends? Get your taxes in late?


PAYING YOUR BILLS TO YOURSELF: I was asked to council a group of employees who were offered early retirement. Nearly all the people had either $400,000 in retirement funds or around $150,000. The difference was that those who had more had put the maximum in while they were working.
 
LAW OF FINANCIAL FREEDOM: The more money you make, the more you spend.
The less you think you make, the less you will spend.


If you put more money into a retirement fund or investments you will automatically spend less. I once saw a couple with two children and the husband on a salary of $35,000. They owned their own house and had sizable investments. They had money automatically deducted from his pay check for investments, the children's education etc. Their approach was that they only spent what was left over.


LAW OF FINANCIAL FREEDOM:                                             It's not what you make - it's what you get to keep.


When you make extra payments into your retirement fund through salary sacrifice that money is taxed at a much lower rate then it would be if it was going into your pocket. Also by respecting and nurturing your money you are giving your money due respect which will attract money to you in other ways. If you don't think you can afford it today imagine what your future will be like when you have no income.


TIME CREATES MONEY: The sooner you start the more you'll have. This is due to compounding, interest being paid on interest. For example, if you are 25 and put $100 a month into an account that earns 10% interest, at the age of 65 you'll have $555,454. If you start when you are 45 you'll only have $71,880.


Suzie wanted to take $20,000 out of savings and spend a year travelling around Europe. Once she realised that in 20 years that money would be worth $135,000 (or $75,000 when taking inflation into account) she was less keen.


DOLLAR COST AVERAGING: Dollar cost averaging is a safe way to invest. It means putting aside some money into an investment each month, regardless of what the market is doing. 


Michael started to invest in a managed fund. When he put in his third contribution the market had dropped and his earlier payments were worth less than the cash amount he had contributed. 


Michael didn't understand dollar cost averaging. Sometimes the market is up and other times it is down. The thing to do is to keep investing. When the market goes down that means that you can purchase more of your funds shares at a cheaper price. Later the market will go up again and your shares will be worth more. If Michael had of invested in a variety of stocks on the day that the stock market crashed in 1987 and fell a total of 25%, and if he had kept with his strategy, after 10 years he would have made more money than you could make by any other investment strategy.
 
DEBT: Credit card companies are very smart at getting you to spend money. Once you get sucked in your credit limit starts going up automatically and it becomes very difficult to pay off debt. You know you're in trouble if you can't afford to pay off all of your cards today. The debt will slowly erode your financial basis and be a huge burden.


CARYNS STORY: I had $15,000 worth of debt, which was very hard to pay off. I tried to pay more off but noticed that sometimes the monthly charges were bigger than the amount I was paying off. I decided to shop around for the best deal. The credit card companies are very sneaky and would offer all sorts of tricks to get you to use them. They might offer you a grace period on repayments but you then find that there are exclusions that preclude you from getting it.


GETTING OUT OF DEBT: List all your debts on a piece of paper along with the interest rate and the minimum monthly repayment. Make sure that you also put down any personal loans you may have.


In order to get out of debt you need to pay off more than the minimum each month. Firstly, work out what is the largest amount you can pay off each month towards your debt (eg: $600 a month). Now add $10 to the minimum repayment of each debt and total it. Let's imagine that for all of your credit cards it comes to $400 a month. After you have paid this money take the extra $200 and pay it towards the card with the highest interest rate. When you have paid off the first card use the same method to work on the card with the next highest interest, and so on, until you have cleared your debt.


FOUND MONEY: If you were walking along the street and saw some money on the street you'll bend down to pick it up, right? If you look at your finances you'll also be able to find money that you are not taking advantage of.


ROBS STORY: Rob's work is seasonal. He works in landscape design and usually busy during spring and summer but his businesses slows to a halt over winter. He keeps his money to live on and for his taxes in the bank. At the end of the year he might have $10,000 in there which he knows could be earning more than 2% interest.


You owe it to yourself to find the best interest rates for your money. Looking at Rob's bank statements I found that there were months when he had $45,000 sitting is his cheque account. Rob was throwing away thousands of dollars a year by not making his money work for him. I've had other clients who have sizeable tax returns or bonuses who just let their money waste away in a savings account.


My question is, where could you be putting your money so that it can be earning you more interested or charging you less fees.


OTHER FOUND MONEY


PAY OFF YOUR 30 YR MORTGAGE IN 15 YEARS. If you make extra repayments on your mortgage you can save yourself a lot in interest over the course of the loan. For instance, if you have a loan of $150,000 at 8% fixed and you paid an extra $330 a month on top of your $1095 repayment you would save yourself $137,290 in interest over the live of the loan.


DON'T GET A TAX REFUND AT THE END OF THE YEAR. When you get a tax refund basically means that you have been lending the government that amount interest free over year. If you get a $3,000 or $4,000 tax refund from the government each year that is an awful lot to be lending the government tax free over your working life. If you have a negatively geared property make sure you get the paperwork done to have your tax reviewed.


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STEP 6: TRUSTING YOURSELF MORE THAN YOU TRUST OTHERS.


When I was a stockbroker I noticed that the people who would loose money were always the same ones. If they bought stocks for $85 and the stock dropped to $40 they would ring me up and get me to sell. After the sale the stocks went miraculously back up to $120 a piece. Or they would buy some stocks at $6 which rose to $12. I would suggest they sell but they would insist on holding on. Next thing you knew the stock would be back down to $4. Then I realised that these clients had another thing in common apart from the ability to loose money on good stocks, they felt nervous about investing in the stock market and didn't listen to their inner voice.


LAW OF FINANCIAL FREEDOM:                                                        Inner trust first, then outward action.


FEELING YOUR FINANCIAL PULSE: Jane felt good. She had just called a discount broker and asked to buy 1,000 $4 shares in Atari. When she told all of her friends they thought she was crazy. In two weeks they went up to $8 her friends and adviser started buying shares as well. Jane now thought it was time to sell but everyone said don't worry, they'll keep going up, but they didn't they went back down to $4. Jane now regrets listening to her friends. If her friends and broker had listened to their gut instincts they wouldn't have lost money either.


TRUSTING YOURSELF: The best way to learn how to trust yourself is to make a note of all the decisions that you take. Write down what the decision was, what your gut instinct told you to do and the action you actually took. Later you'll be able to see how the decisions have played themselves out.


HOW IT FEELS TO BE A STOCKBROKER: Stockbrokers don't have any special powers to look into the future. They don't want to loose your money, although that can happen. There is a high amount of pressure to meet quotas. Sometimes stockbrokers get the jitters, where the stress and pressure takes over the decision making process.


THE LANGUAGE OF MONEY: The more money you can invest the better off you will be. Most people have the ability to invest themselves and if you trust yourself you can do well.



WHAT IS A MANAGED FUND?:  A managed fund is where a group of investors gets together and pools it's resources. Managed funds are good ways to obtain diversification in the stock, property, or bond market. When you purchase into a traditional managed fund you are basically putting your money in the care of the fund manager who will buy and sell shares and/or other securities on your behalf. What you have to make sure is that you have a good fund manager who has a proven track record (ie don't just look at the performance of the fund itself, as the person who made it so great may have moved on and left it in someone else's charge).


INDEX FUNDS: An index fund a type of managed fund that attempts to track an index such as the Dow Jones by purchasing a representative sample of the stocks of that index. If the Dow Jones goes up 20 points then theoretically your fund will go up 20 points.


One advantage of index funds is that they usually have much lower Management Expense Ratios (MER) then traditional managed funds. If your fund has a MER of 2% and the fund goes up by 10% then you'll get 8% in your pocket. One of my favourite Index funds has an MER of only 0.2%.  Also, there is a good likelihood that an index fund will outperform a traditional managed fund, as often these funds don't perform as well as the market. An index fund will normally ride the market up and down in a fairly consistent manner. 


Entry and exit fees: Another thing you need to consider when buying into a managed fund is the entry and exit fees. They can be anywhere from 2% to 6%. If you invest in a fund with 5% entry fees then your money will have to go up by 5% for you to break even. Make sure that you fully understand the exit fees before you invest. You could easily end up paying an additional 1% or so for every year you are in the fund.


It is a good idea when you invest to make sure that you do so through a discount broker who will rebate your entry fees and commissions. 


GETTING STARTED: If you have a lump sum to invest don't just plunge in and put it all into something. Take a small proportion and invest that over the year using the dollar costs averaging method. If you feel good about what is happening at the end of the year then you can invest the rest.


If you don't have a lump sum you should put away some money each month, but make sure it is not money you are planning to use (say for a property purchase etc) for at least the next 10 years.


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STEP 7: BEING OPEN TO RECEIVE ALL THAT YOU ARE MEANT TO HAVE.


Money has an energy of its own. If you are feeling bad about it, or worrying about it then it won't hang around. This is much the same as you might find if you are feeling depressed and all of a sudden none of your friends seem to ring. But as soon as you start feeling better all of a sudden you have more invitations to go out then you can handle. The same is true of money. Once you feel good about it, it starts flowing in.


MY STORY: I was working on commission so I never knew when I was going to make any money. I knew that when I was depressed I couldn't sell no matter how hard I tried. So one day, rather then going into work I stayed home and watched a telethon and ended up pledging $300. The next day I was in a good mood and back to earning more money.


I realised that in order to give up ones anxiety about money you give it away. I looked at my clients; the wealthy ones were those who donated regularly. If you were sceptical you could say that they were giving money because they were already wealthy, so in order to really test the concept I divided my new clients into ones who were receptive to the idea of donating and those who weren't. Then I tracked their financial progress and those with a giving spirit grew financially faster then those who didn't.


Being cheap has nothing to do with how much money you have. It has to do with how much you guard it, hoard it or let it stagnate. People who are generous let their money flow. So decide on an amount to give each month and make giving a donation a priority. You'll find you'll be well rewarded.


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STEP 8: UNDERSTANDING THE EBB AND FLOW OF THE MONEY CYCLE.


Money, like life comes and goes in cycles. There will be ups and downs but you need to take the long-term view of your financiers.


My dad had a chicken shop that burnt to the ground and as it was uninsured we were penniless. Then one day a meatpacking company gave my dad some money to get back into business and it was really successful. Then the local school was going to expand and dad had to find a new location. The new store was also a great success, but two years later it burnt down again. So my dad looked for a new place and the University of Chicago asked him to open up on campus. His old landlord also fixed up his old place and now he had two great businesses and the money was flowing in beyond my father's wildest dreams. If some of these setbacks didn't happen he would never have achieved the same level as success.




Coaching can help you address your beliefs around money and financial management that may be letting you down. Call now to speak with a coach.

 

 

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@Lindy Asimus 2014 |  Business Coaching, Social Media Marketing | Newcastle NSW Australia 0403 365 855