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.
STEP 2: FACING YOUR FEARS AND CREATING NEW TRUTHS
Now we are going to examine our fears and see how they're connected to
SHEILA'S STORY: Sheila's biggest fear is that she would loose
everything. Her memory is of breaking her grandmother's prized lobster
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.
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
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.
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.
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
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
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
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
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.
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
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
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
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
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.
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
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
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.
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
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
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.