Chapter 3 / The Formula for Riches / The Difference Between Rich and Poor / by Dr. Hannes Dreyer.
Chapter 3
Why do People Stay Poor?
According to the USA’s Bureau for Labor Statistics, of every 100 people who start working at the age of 25, by the age of 65:
According to the USA’s Bureau for Labor Statistics, of every 100 people who start working at the age of 25, by the age of 65:
Less than 5% of the population will be financially independent and less than 1% will be financially rich at the age of 65! Most people are not rich, why is that?
As a financial planner, I diligently applied everything that I had learned from the financial institutions and my studies at university. The only thing I achieved was the privilege of working longer and harder hours. I made a lot more money and at the same time my standard of living increased accordingly.
I fell into the “success” trap, expanding my business, appointing more people, with the idea of making my job easier. But it had the opposite effect! I worked even harder, had more responsibility, and spent even more time managing personnel. I think this is a scenario that will be familiar to many professional and self-employed people.
Then one day in 1987 the light went on.
It happened one night as I drove home after spending a long day working on financial planning with clients.
I was evaluating the day’s work when I realized that all three of the clients I had seen that day were making exactly the same mistakes. I thought how strange it was that anyone in their right mind would do something that would harm them financially, and would continue to do so, after being told the truth.
It then dawned on me that I was making the same mistakes that they were making. My first reaction was denial. How could this be possible? How on earth could someone with a financial degree do something so stupid?
I must tell you, it was an unpleasant moment when I saw the truth. But I am so glad I did. If I had carried on living a lie, I would never have become free. Instead, seeing and facing the truth was the first and most important step on my journey to find out where I was going wrong.
I came to the conclusion that I was a highly paid slave. I was making millions for the companies I so diligently supported. They wanted me to believe that I was creating financial wealth for myself and that I would be able to retire financially independent. This did not stand up to scrutiny. The statistics and the figures did not support it.
They were relying on me (and their policyholders) to never seriously question their promises.
Most of the time, this approach works, because most people do not ask the right questions, follow their doubts, or believe in themselves against the authority of the institutions.
But this time, it did not work. As the saying goes, you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.
I was fooled for a while, but in the end, I saw the truth and began searching for an alternative. This search led me to the discovery of the principles behind The Formula For Riches which I want to share with as many people as I possibly can! My aim is to see an end to the struggle and suffering and stress and strain and waste of human potential.
I thought I was rich, but when I did my own financial planning, I realized that although I was in the top 0.1% in the world in my profession, all it meant was that I was a well-paid slave. If I had to lose my income-generating ability, I would have to cut my standard of living, and I was definitely not rich!
I wanted to solve this problem in my own life and as a direct result, I formulated The Formula For Riches. I wanted to be rich. I wanted a proven and tested system to test and manage all financial decisions in order to make informed decisions.
Poor and financially stressed people are trapped by a system that does not benefit them, and most of the time they do not even know that they are trapped. They feel trapped, yes, but they think “that’s life” or “that’s how it is for the little guy” and they assume there is no alternative.
The reason why the system does not work for them is that in general they have never been taught and are not inclined to take the responsibility to take control of their own financial destiny. They have been taught to leave it to the ‘experts”.
They have been taught to hate learning and to avoid it forever as soon as they leave school or university. This means the only financial education they get is the kind that comes to them via the media and consultants.
What we all need to do is to learn how to play the game instead of watching others play. They play with our money and they take the real profits, giving us pathetic growth. When the game is over it is too late to complain, it is usually then that we read the small print which gives no guarantees.
Life, investments, and business are about taking responsibility. You need to understand that this is why the poor stay poor and the rich get richer.
The moment that you know how to control your own financial destiny, you can take control and responsibility for your own financial future. The moment you do that you are no longer a victim.
So what are those common mistakes which keep people poor?
Mistake 1: They trust the experts.
The biggest financial mistake you can make is to blindly trust an “expert” or financial institution when it comes to your money and future.
Not only is the expert almost certainly falling for the same myths and making the same mistakes in his own personal finances, but in addition, he/she is working for an income that is hourly based or even worse for commission. This means their incentive is to stretch the work or sell a product or service.
Consciously or unconsciously, they do not want a speedy resolution to the issue, because then they are out of work. That is, to my mind, one of the main problems.
Another is that someone who understands The Formula For Riches is no longer a slave to billable hours, but the “expert” is. So how much does he/she really know about financial freedom?
There are people who understand this and still sell their time by the hour, but you will pay ten times or more for their time. Before you agree to this, firstly you need to understand the value which you get for that extra money, and you need to know how to measure it.
Secondly, you need to know that you could easily be led astray if you do not know how to assess the value, or if there is no comeback or guarantee.
What does this mean? It means that the less you pay someone for his/her time, the less value there probably (not definitely) is in it. The ultimate example is the “free” financial planning appointment, which ends up costing thousands of dollars in hidden fees and commissions for the average policy you buy through a financial institution.
Then there is the issue of trust. Experts give advice but they have no risk of losing anything. They have no risk, as long as they obey the rules and regulations within their profession and their code of conduct.
Why, well, think about it. Who tells you about this wonderful code?
All of these are mouthpieces for the financial institution. Another way to make sure we believe their version.
The investor always takes the risk. If the investment does not grow or perform according to projections, there is nothing you can do. You lose, period.
Why then do so many people transfer the management of their money to financial institutions?
It is because they have been conditioned to do it. The training starts at a very young age. It starts with our educational systems.
Why is it that by following the system we can obtain degrees and jobs but not learn the basics of how to become financially independent?
I have seen how educated employees can manage millions when they handle their employers’ financial affairs but when it comes to their own personal affairs they are totally out of control?
Education trains people to work in specific professions.
People work in a profession in order to make a living. If you have to work for your money you are a slave to your profession and therefore a slave of the system. You cannot say you are financially free when you have no means to maintain your standard of living when you stop working.
Our educational system first and foremost teaches us that mistakes are punished. Consequence: We are trained not to try something different because mistakes are not tolerated. It is best to do nothing, sit still, do your work and listen to the teacher.
Our educational system also frowns on students who think for themselves. Consequence: when we sense that something is wrong with the system, we do not know how to think it through and come up with answers.
Why do you think so many entrepreneurs were school dropouts? The school system could not beat independent thought out of them.
Not only is our educational system part of the wider system which keeps us in our place – but it also bores us to death and puts us off learning for life. Consequence: after formal education, many people never touch a book again and everything they learn after that comes from the media.
This is the scariest part of all. Contrary to what they say, the media’s job is not to inform you, it is to get on with the business of selling newspapers.
If the journalists and editors don’t do this, they lose advertising revenue. The cover price of a newspaper is nothing – it’s the advertising which makes them the real money. What does that say about their priorities? Do you see now where sensational headlines come from? It is so simple when you “follow the money”.
In spite of those warm, feel-good adverts, the motive and the purpose of any business organization is to make money.
So if you take a minute to think about it, you see that the experts are not there to educate you either! Not only is the expert almost certainly falling for the same myths, and making the same mistakes you make, in their own personal finances, in addition, they are trained to sell certain products or services for the financial institutions.
If not – no income, no commission, no bonuses, no rewards.
When a person is paid by the hour then consciously or unconsciously, they do not want a speedy resolution to the issue, because then they’re out of work.
The ultimate example is the “free” financial planning appointment. It can end up costing thousands of dollars in hidden fees and commissions for the average policy you buy through a financial institution. Then you won’t know whether that is the best product for you in your circumstances or whether it is the product that pays the highest commission.
Experts give advice but they have no risk of losing anything, as long as they obey the rules and regulations of their profession and adhere to their code of conduct, a code of conduct structured to protect the financial institutions first and foremost, and then the "expert", and finally, the client. The client is led to believe that he is protected.
With all this conditioning it is not difficult to see how you get clients to believe that the product or service is the best option even if it is structured in such a way that there are no guarantees.
This is the system that is creating a poor society where less than 1% of the population will be financially wealthy when they retire at the age of 65.
Add to this that we have become professional blamers. We blame the financial institutions, we blame the experts, we blame the government, we blame our employer and the insurance companies if we cannot retire.
There is a solution. Take responsibility, educate yourself and take control.
We are in the financial situation that we find ourselves in because we are masters of our own destiny. Our past financial decisions determine what our financial position looks like today.
The bottom line is if you do not take full responsibility for your own life and financial future, no one will. It is a very sad fact that the only loser in the game of financial wealth creation is the ignorant person who does not want to take responsibility for his or her own life.
People are afraid to get out of their comfort zones, to learn how money works, to take the responsibility of applying what they have learned, to get their money to work for them.
Now that you know and understand it, how can you overcome this problem?
The first thing you need to do is to learn how to take responsibility. Learn The Formula For Riches. Learn how to minimize risk. Learn how to get your money to work for you. Learn how wealth creation works.
The only way to learn and master any activity is to learn how it works and then to apply what you have learned. Start small, get the experience. See what works and what does not work. Build on whatever works and learn from what does not work.
My first law is “Invest in yourself before you invest in any investment or business.”
Make sure you can tell the difference between a salesperson and an expert. Some salespeople talk like experts but in essence, they are highly trained, very effective salespeople.
Mistake 2: They have a scarcity mentality.
The theory stating that there are limited resources originated from the work of Tomas Malthus, an English economist in the early 1800’s.
He believed that: Natural rates of human reproduction, when unchecked, would lead to geometric increases in population: population would grow in a ratio of 2, 4, 8, 16, 32, 64, and so on.
However, he believed that food production increased only in arithmetic progression: 2, 4, 6, 8, 10. It seemed obvious to him that something had to keep the population in check to prevent wholesale starvation.
He said that there were two general kinds of checks that limited population growth: preventative checks and positive checks. Preventative checks reduced the birth rate; positive checks increased the death rate.
Moral restraint, vice, and birth control were the primary preventative checks. Moral restraint was the means by which the higher ranks of humans limited their family size in order not to dissipate their wealth among larger numbers of heirs.
For the lower ranks of humans, vice and birth control were the means by which their numbers could be limited - but Malthus believed that these were insufficient to limit the vast numbers of the poor.
The positive checks were famine, misery, plague, and war; because preventative checks had not limited the numbers of the poor. Malthus thought that positive checks were essential to do that job.
If positive checks were unsuccessful, then inevitably (he said), famine would be the resulting way of keeping the population down. Before starvation set in, Malthus advised that steps be taken to help the positive checks to do their work.
He wrote:
“It is an evident truth that whatever may be the rate of increase in the means of subsistence, the increase in population must be limited by it, at least after the food has been divided into the smallest shares that will support life.
All the children born, beyond what would be required to keep up the population to this level, must necessarily perish unless the room is made for them by the deaths of grown persons.
To act consistently, therefore, we should facilitate, instead of foolishly and vainly endeavoring to impede, the operation of nature in producing this mortality, and if we dread the too frequent visitation of the horrid form of famine, we should seriously encourage the other forms of destruction, which we compel nature to use”.
Instead of recommending cleanliness to the poor, we should encourage contrary habits. In our towns, we should make the streets narrower, crowd more people into the houses, and court the return of the plague.
In the country, we should build our villages near stagnant pools, and particularly encourage settlements in all marshy and unwholesome situations. But above all, we should reprobate specific remedies for ravaging diseases: and those benevolent, but many mistaken men, who have thought they were doing a service to mankind by projecting schemes for the total extirpation of particular disorders.
If by these and similar means the annual mortality were increased ... we might probably every one of us marry at the age of puberty and yet few be absolutely starved”.
In Malthus' opinion, the masses were incapable of exercising moral restraint, which was the only real remedy for the population problem. They were therefore doomed to live always at a bare subsistence level.
If all income and wealth were distributed amongst them, it would be totally wasted within one generation because of profligate behavior and population growth, and they would be as poor and destitute as ever.
Paternalistic attempts to help the poor were therefore highly likely to fail. Also, they were a positive evil because they drained wealth and income from the higher (and therefore more moral) ranks of society.
These people according to Malthus were responsible - either in person or through patronage - for all the great achievements of society: art, music, philosophy, literature, and so on owed their existence to the good taste and generosity of these people. Taking money from them to help the poor would deprive the world of culture. https://www.victorianweb.org/economics/essay.html
Malthus studied the quantities of natural resources and then compared them to the world population. Based on this limited information he concluded that there were too many people for the limited resources.
He then defined economics as the allocation of scarce resources.
Today most of the Western world still accepts this concept as the truth even if it is an outdated module.
I remember in 1976 I studied Economics at the University of Pretoria and the Professor concluded that studies have proven that before the year 2000 there would be no oil reserves left in the world.
I think it is because professors and people with “education” spread this as gospel, that there is generally a feeling of scarcity. Many people grew up poor, with parents or grandparents coming out of the World Wars or having gone through the Great Depression. Most of them believed and taught their children that we lived in a world of natural scarcity.
They believed that there is not enough food, money, etc. and they were very careful about how they spent it. They wasted nothing.
The attitudes those parents conveyed to their children are still firmly entrenched. It is a good thing not to waste, but it is not helpful to believe that there is a scarcity of money – this assumes that if you accumulate money, you are in fact taking it away from someone else because there is only so much money in the world.
People with this perception usually believe that they only want enough to survive – if they have enough they will be happy. In effect, they set their sights very low, which results in them never achieving the level of sufficiency which they desire.
Wealthy people believe that there is plenty of money to go around and that they will never stop accumulating, they will never have enough. They set their goals very high and even if they don’t actually achieve their targets, they still get more than the pessimists.
They believe the more money they make the more money will ‘go around’, and many of them are motivated by a desire to help make the world a better place – so they make money with the aim of giving a lot back to charity.
Contrary to what Malthus preached we have seen from experience that it is possible to uplift the poor by teaching them to take responsibility. It is possible for any person to become rich by becoming informed. But people need guidance.
The same principle applies when it comes to Wealth Creation. Unless we teach people how to create financial wealth they will never be in a position to help others. They are simply too busy surviving.
Mistake 3: They have negative thoughts.
Many people have negative associations with money; most of us have grown up with the attitude that we will have to work harder and longer in order to become financially independent.
We have all been exposed to many negative connotations regarding money:
Let’s analyze the last statement. You still have to work. That implies that you have to work for your money. Unless you can unlearn this way of thinking and behaving, the end result will always be the same. People stay poor.
If you carefully analyze the above reasons that people give for not becoming wealthy it is clear that Malthus has a bigger impact on the modern economy than he is given credit for.
Mistake 4: They think education spells financial success.
Again, this belief is related to history. The world saw a huge increase in prosperity beginning in the 1950s and really hitting its stride in the 1970s.
Many people who grew up then learned that they could come from humble backgrounds, but by getting a good education they got a passport to wealth and prosperity. And this strong perception is still dominant.
People think you have to study and earn a degree, and then you will make good money. The perception that education is wealth will make you enroll for more degrees and qualifications. There is nothing wrong with formal education – but it is definitely not a ticket to wealth.
It may have been, thirty years ago, when a doctor or lawyer’s degree meant affluence, but not today. However, the perception is still very powerful.
Usually, only two parties automatically get wealthy from formal education, the academic institution and the company which may have sponsored the studies.
If your studies are paid for by a company then you are obliged to work for them – and they make more money than they pay you, otherwise, they would not do it in the first place!
Also, you will remember what we have already said about education and corporates. And so you will know that they are part of the problem, not the solution, for reasons already discussed.
An observation that I have made is that most of the financially successful people that I worked with do not have a degree or they do not use their degree in their current business or investments.
People confuse formal education with life skills. I have heard that parents say to their children "get a degree then you will have something to fall back on". In real life, I have seen how this statement has caused people with all the talent in the world to fail because of the belief system they have that if things go wrong they can fall back on their degree and get a cozy and high-paying job.
If they had a different attitude they would have made a success of whatever they were doing but when the going gets tough the ones with degrees try to find the easy way out.
The easy way does not lead to wealth, it leads to slavery. I have also seen that the more learned a person becomes in general, the more they are conditioned to accept whatever the system will tell them to believe.
Think about it – if you disagree with the teacher or the lecturer, you are more likely to fail. A formal education turns you into a good conformist.
There are always exceptions to the rule but in general, education only trains a person to become a better slave because they do not have to take responsibility.
The last observation that I want to share regarding formal education is that when the educators have to practice what they teach, most of them are not able to make it in the real world. Which is fascinating as one would think that with all the knowledge and degrees they would be successful?
The fact is they do not know how to manage risk and growth. They do not know that there is a Universal Formula For Riches. This means that what they are teaching other people cannot be so great if it does not work when it is put to the test by the teachers themselves.
By applying The Formula For Riches, it is possible to develop successful entrepreneurs and investors in much less time than formal education could ever do.
Please do not get me wrong. Formal education can be a wonderful tool but it does not automatically spell success.
Mistake 5: They get emotionally involved.
Most of the financial investments today are sold on emotion and not on facts. This is not surprising when you think about it, because the facts are usually rather unimpressive, whereas the ability to influence people through their emotions is extremely impressive!
Especially as most people haven’t the faintest idea that their emotions are being used against their own better interests!
They are sold on promises. Projected values are promises. No guarantees! People do not know how investments work and they believe whatever the financial “experts” tell them.
What is the antidote to this?
Firstly, realize that even when we think we are being objective and rational, we are emotional beings. We cannot even get out of bed in the morning unless we have an emotional reason, some sense of reward, promise, hope, and purpose.
Secondly, realize that everyone with something to sell appeals to your emotions, and until you know-how, you are vulnerable to their manipulations. Watch what they do. Take note of the words which they choose.
Thirdly, control your emotions. Do not get emotionally involved with any investment until you have done your homework. This is very hard to do because we are emotional beings, but luckily, if you have a proven system that cuts out the emotion, and you know how to use it (e.g. my Property Pro Investment Program, and The Formula For Riches) stick to it, this can be done!
Fourthly, do not buy into hype and advertising, the only way to make a good decision is to do a calculated assessment of any investment or business before you sign anything.
Don’t look for charm, look for value. Unless you can determine the risk as well as the growth involved in any investment or business, be very careful before you get involved.
If someone sells you an investment the chances are great that the product, service, or investment will help him or her get rich – not you!
Mistake 6: They make it complex to become wealthy.
Many people believe that making money (and keeping it for that matter) is too complex; they believe you need an expert to handle their money for them.
They rely on other people because then they do not have to take responsibility for their own actions or their own money. They trust the bank but remember that a bank is also a business. Rather become an expert yourself, it is your money after all. If you do not take control of your own finances, someone else will.
One of the reasons why people believe that it is too complex to become wealthy stems from the "trust the expert" syndrome, people are conditioned to believe that the experts have “the know-how” and that they themselves don’t.
The way that most “experts” make their money is to sell their time. They want to make sure that the client will come back to them to use their expertise again. If you do not know what and how to do something then you will pay someone else to do it. But - to become wealthy is not difficult!
Mistake 7: They have negative belief systems.
‘You need to have money to make money, ‘Money does not grow on trees’ and ‘Money is the root of all evil’ These are attitudes and beliefs that are firmly entrenched in many people’s minds, and again it stems from the Malthus principle.
Whether they are right or wrong is sometimes a matter of religious belief, but I am not going to argue with what people believe is right or wrong.
I will merely point out that the rich do not believe that money is evil, or that you need to have money to make money. If you know how to apply The Formula For Riches you can generate enough capital and income without having any capital to start with.
I would also like to mention that I myself have a strong religious belief and that I also know that you do not successfully make or keep wealth if your ethics are bad. And by wealth I mean life in abundance, fulfilling relationships, happy families, a calm, centered, meaningful spiritual life, physical health ... and money!
What you need to learn is how to become a Wealth Creator.
By applying The Formula For Riches you do not need to become an entrepreneur, you also become an investor. Later in the book, I will explain the difference between the two.
Mistake 8: They do not believe in economic alchemy.
Poor people do not believe that they have the ability to take something that has little or no value and convert it into something of significantly greater value.
Many people don’t believe that it is legal or moral to take something with one value (price) and sell it at a much greater value.
Why not? Sand is not in itself as expensive as raw material, yet with some ingenuity, it can be made into beautiful and expensive artwork in the form of a glass platter or dish. All it takes is conversion, and the same applies to any other object, including investments and businesses.
The value of something for one person could (with the addition of something small – an additive) become something of great value to the next person.
As an entrepreneur and investor, you must learn how to become an alchemist or you will never be successful as an investor or entrepreneur.
My definition of an entrepreneur is a person who has the ability to take nothing (or very little) and to convert that into as much income and/or capital as they want. The moment you possess this quality you are an entrepreneur.
The same can be said for a truly successful investor. They take very little capital and convert that into as much as they like by applying the same principles.
Mistake 9: They do not believe it is possible to become wealthy.
All wealth begins in the mind. Everything begins with an idea. Get your mindset right. If you do not believe it, it won’t happen. The minute you picture it, it starts getting closer to reality.
What most people do is dream about becoming successful or wealthy but they do not believe it can come true. Therefore it stays a daydream. You must instruct your mind that you can become wealthy otherwise your mind will see it as an impossibility.
You must want to become rich.
Unless you instruct your mind and you’re unconscious it will be extremely difficult to apply The Formula For Riches. You will be in a constant battle with yourself with the result that many people sabotage themselves emotionally in their efforts to become financially wealthy.
If you do not accept the fact that you can become wealthy you can try as hard as you want but you will never make it. Unless the mind believes it is possible to become wealthy it cannot conceive wealth-creating energy. This is because of certain natural, Universal Laws that I discuss in my Powermorphing? and Kaizen Challenge? courses.
Again as a result of traditional thinking, most people believe that the higher the risk, the higher the growth of the investment will be. But herein lays the irony. People do not know how to calculate the risk.
If you cannot calculate the risk in an investment or business, how can you make an informed decision, and on what do they base this belief?
领英推荐
Perhaps on the fact that some years after taking out policies and retirement plans, you may assess their growth, find that they are not doing well enough to give you a good retirement, and so you ask your consultant about this.
What does he say? “If you want more growth you need to put away more money every month”, in other words, the higher the risk, the greater the reward.
Another strategy traditional investment institutions follow is to dictate what growth or interest rate you will receive on your investment. This growth is then benchmarked against inflation. If their investment outperforms the inflation rate they will say it is a good investment.
Because all financial institutions do this we are conditioned to think that if any investment outperforms the inflation rate it must be a good investment. It may be a good investment compared to the inflation rate but it can still be a poor investment if you compare it to what you will need in order to become wealthy. So our expectations have been trained to stay too low for success.
Mistake 10: They do not have a plan, system, or strategy.
Most people want to be wealthy, but they have no plan. The majority of people spend more time and effort planning a single vacation than they do planning their financial future.
There must be some benchmark against which you can judge whether an investment is good or bad – in other words, there must be an objective set of measures against which to judge a deal or venture.
The measure is “will it bring you closer to your objectives?” and if this cannot be answered then there is no plan.
Would you take a deal offering a 2% return? Why not? Would you take 20%? Would you take 120%? If you don’t know, and can’t say exactly why you have no plan therefore you have no goal because you cannot measure the result.
Unless you have a financial objective that states how much money or how many assets or investments you want to have over what period of time you cannot really answer these questions. Your plan has to exist and has to be written down clearly and in detail. Plans are made in the workplace and in any other venture – even sportsmen have objectives, why is this then not true with wealth creation?
Let me ask another question. Is there any other aspect of your life that does not have an objective? Is it successful? Could it be more successful? How do you know if it is successful if it does not have written objectives or goals? You cannot manage anything (wealth, growth, risk, responsibility, effort, or time) if you cannot measure it.
With Wealth Creation there are a couple of factors to take into account. They are time, the amount of money that you have for the investment, the amount of risk which you are prepared to accept, the growth that you want or need on your investment or initial capital outlay, the amount of responsibility, and the amount of personal effort that you are willing to put into it. All of these will have an effect on the outcome of your investment or business.
What you need to do is to determine before you start with your investment what is needed and what must happen in order to achieve your objective.
If you have $1000 per month available for an investment and you need $5,000,000 in seven years’ time but you can get a growth rate of only 15% on your investment then it is not a good investment. Why not? This is because growth of 15% on $1,000 per month will only give you $148,968 in seven years.
Even if 15% sounds good compared with other investments it will not help you to achieve your goal because by calculating what growth you need you will find that this investment strategy will not help you to achieve your goal.
If you calculate the growth rate you need, working from what you have, to what you need you will see that the only variable that you can change in order to get to your goal is to change the growth on your investment to get a growth rate of 87.31% and unless you can get it you will not be able to achieve your goal.
Once you have determined what growth you must get on your investment in order to achieve your goal you have to find the investment strategy and vehicle to achieve the growth.
Mistake 11: They do not follow through.
Failure to follow through consistently in financial planning is asking for failure. Perseverance is required; it takes effort, discipline, and consistency.
In order to become wealthy, you have to almost treat your wealth creation like a "job" – if you don’t get up and do it every day – you’ll be fired!
If you don’t manage your investment your investment will manage you.
Yes, there is work involved. But compare it with the treadmill you’re on, plus the fears of retrenchment, the way you feel having to take orders, the fact that you work like a dog for a salary that only goes up a few percentage points a year ... and then decide if it’s worth it to be free.
Mistake 12: They are financially complacent.
I have seen time and time again that as soon as people become financially successful they sit back and relax, or they take it easy or they enjoy what they have achieved and forget to manage their money.
Even if you achieve your goals, you need to adjust them higher to take into account factors like inflation, increased life expectancy, unforeseen circumstances, political changes and changes in tax laws.
Even financial freedom or wealth is not the end – you have to remain alert to changes. The only time when you have ‘arrived’ is when you die.
You are already aware of the fact that there are different stages to wealth. The first stage is financial independence, then freedom, then being rich, super-rich, and mega-rich.
This way of financial planning is not taught at schools, universities, or in the financial professions because it is difficult enough to become financially independent by using the wrong strategy. And the wrong strategy is what they teach.
It is not practical to teach us that by changing our strategies we can accumulate as much financial wealth as we want because then most of the prehistoric textbooks must be rewritten.
Mistake 13: They are financially illiterate.
Most people lack financial ‘education’. People do not learn about budgeting and cash flow, they learn about the theories and not the practical matter.
People learn about saving, but they do not learn how to invest. Most people do not know the difference between saving and investing.
Later on, in the book, I will teach you the difference between the two and why it is not possible for a person to use the saving strategy to become rich. You can only become rich if you learn how to invest according to The Formula For Riches. There is no other way.
They don’t learn how to get their money to work for them or how to improve their cash- flow without spending more money.
They do not know the difference between unproductive debt and productive debt.
They do not know how to turn unproductive debt into productive debt.
They do not know that the taxman can either work for you and subsidize your investment or work against you, in which case you will not get any subsidies. And guess what? If you do not take the time and trouble to work out your tax, you’ll be doing the subsidizing, rather than getting subsidies.
There is a difference between a financial planner, an auditor, an attorney, and a Wealth Creator. Make sure that you understand the differences in the terminology. If you want to learn how to become financially wealthy you must learn how to become a Wealth Creator.
Educate yourself so as to become a Wealth Creator if you want to become wealthy, then read and learn about conversion costs, assets, and liabilities, cash-flow, risk, growth, good and bad debt, etc.
Most people do not understand the difference between returns and investments. They want to see immediate results on their investments. They do not know that the growth or technique is more important than the amount of money which you invest.
They do not want to wait and work to become wealthy. They want a quick fix solution and in the process, they ignore the basics. The most basic requirement of any investment is to get your money to work for you.
How do you know how hard your money is working for you? You must be able to measure the growth of your investment - that is all.
So the idea is to have the maximum growth on what we have available for investment (also called surplus).
It is not the amount of money that is important but rather the growth that you will get on the investment. This is contrary to what they teach us - that you must have money to make money.
Mistake 14: They confuse information with knowledge and knowledge with wisdom.
Information is useless unless you know how to use it. By learning to apply what you know you change the information into applied knowledge. Once you are competent enough to incorporate different fields of knowledge with different applications you have gained wisdom.
Life is a growing process, slowly but surely we must grow or we will stagnate and die.
People seldom give away wisdom for free. So be careful if someone gives you free advice – if it is community information, then fine, but otherwise, it has very little value.
The Internet is full of information, but not full of knowledge or wisdom – that is why it is free! And don’t be fooled into thinking that you will be able to differentiate between good and bad information unless you have educated yourself and you have a system or a formula to help you.
Let us take the following hypothetical scenario.
The free advice is that this product will solve your problem. The product costs $1,000 per month. The allocation amount is 90% and the cost factor is 5%. You will get a projected growth of 12% on your investment and the maturity value in 20 years will be $840,867.06. Over the 20 years, you have paid $240,000 on the investment and your profit is $600,867.06.
This is the information most people will take and based on this they will make a financial decision as to buy (invest) or not to buy an investment.
If you do have the knowledge you will calculate that the actual growth on your investment is only 10.78% and not 12% as per the projection because the costs will be deducted from the initial investment before the money is invested on your behalf. You will also know that only $850 per month in this scenario is invested on your behalf.
Furthermore, you will know that the maturity value is only projected and there may be a great possibility that it will be less.
If you have the wisdom then your perceptions will change again. With wisdom, you will know that the investment will be made with after-tax money.
Do you begin to see the bigger picture? In other words, if you are in a 40% marginal tax rate then in order to invest $1,000 per month you must earn $1,666.67. You will also know that the cost now becomes $666.67 Plus $150 = $ 816.67.
Furthermore, you will notice that the growth in your investment is only 6.74%. Because you have experience (wisdom) and you know how to get 30% growth on your investment, you can calculate that the maturity value will be $24,915,864.33.
In other words, the real cost at maturity date is $24,074,997.27 on this investment.
Mistake 15: They do not know how to calculate the growth of their investment.
People blindly trust the experts because they are conditioned to do so. As you have seen in the previous example there is a difference between what the financial institutions want you to believe and reality.
But how do you calculate the growth of your investment? There are different formulae to use. The most general formula is the compounded interest rate or growth on your investment.
In order to use this calculation, you need at least three but not more than four variables. You need the input (either monthly or yearly investment or a once-off investment) you need to know the term (monthly or yearly and you need to know if the investment is made at the beginning or end of the period) and you need the maturity value. The intervals between the investments must be the same.
If these conditions are met you can make use of any financial calculator in order to calculate the projected growth of the investment.
You can use this method to calculate the growth on all of your paper assets classes of investments like pension funds, mutual funds, life and endowment policies, stocks, fixed deposits, etc. But what will happen if there are more than four variables or if these variables change on a month-to-month basis?
Suddenly the compounded interest method does not work anymore. In other words, if any investment does not conform to the financial intuition’s method of calculating the growth on the investment, it becomes "impossible" to calculate the growth on the investment unless you are an informed investor and know how to do it.
From personal experience and observation in my Property Investment Workshops, more than 99% of all students (and that includes financial planners, auditors, engineers, professors, economists, and actuaries) cannot calculate the growth on a property investment or the growth on a business. The reason is not difficult to find.
To begin with, residential property has twenty-seven different variables and most of these variables vary from month to month. In other words, they are not constant.
Now if you cannot calculate the growth on your investment, for instance, a residential property, then how can you compare different investments with one another? It is as a result of ignorance, outdated belief systems, the blind trust of experts, and bombardment with useless information presented and accepted as the truth, that the masses stay poor.
Mistake 16: They do not know how to calculate the risk in an investment or business.
It is the risk and not the lack of growth that ruins people financially.
If I receive 100% growth it may look wonderful, but unless I can determine the risk I will not invest. Why not? This is because it is the risk that ruins an investor financially.
Let me explain. What is the point of investing at 100% growth if I know for sure that I will lose everything that I have invested and gained over a period of time?
People buy furniture, houses, cars, and investments based on emotion because they want it and they want it now, but they cannot determine the risk or the growth of what they are buying.
Unless you can identify and manage the risk of investment I would say it is not good to continue with the investment.
People cannot determine the risk. Most financial decisions are based on emotion. People cannot determine the risk of their investment. Emotion and Wealth Creation are not good partners when it comes to assessing and measuring growth and risk.
Mistake 17: They get discouraged.
Because people do not understand investments, they get discouraged when they do not see immediate results. They do not want to wait - they want to get rich quickly. This does not work if you want to sustain your financial wealth.
Poor people allow a financial crisis to turn into financial ruin. Making a mistake is not the end of the world – we have been ‘trained’ for too long to perceive mistakes as failures. Rather see a mistake as a learning opportunity.
Analyze the mistake to avoid it in the future, and then it is not a mistake but a lesson. With business and investments, you will make mistakes - that is a guarantee. There are going to be heartaches with your investments or businesses, things can and will go wrong, but see it as an ‘educational investment’ to teach you how to avoid repetition.
Even if you lose all your money and all your possessions, you cannot lose your experience or your knowledge. The best way not to get discouraged is not to be in a position where you feel overwhelmed by the negative outcome of a bad investment or business decision.
The only way to overcome that is to become a Wealth Creator and know that you cannot separate the risk from responsibility. If you want to take risks, you must be able to manage them. If you are not prepared to do that, you cannot become a Wealth Creator and you will never be financially rich.
Mistake 18: They do not know how to manage their investment.
Because they trust the experts they have never learned how to manage their own investments, someone else is always managing it on their behalf. How do you manage an investment? First, you have to determine the growth as well as the risk potential in any investment or business venture.
Once you have determined the risk and growth potential you must manage it. That means you must actively be involved in implementing different strategies in order to protect, manage and grow your investment or business.
Any investment or business has a life of its own. If you neglect it, it is going to die on you. By applying different strategies to your investment you can change the risk as well as the growth potential of the investment. Unless you can determine the risk and growth you will not be able to see the difference in growth and risk if you apply different management strategies.
The best way to manage any investment is to lower the risk and at the same time to improve the growth.
This is totally contradictory to what we are taught traditionally. We were taught that the higher the growth the higher the risk of the investment.
This is true when it comes to paper assets, but it is false when it comes to property or non-conventional businesses. And I will prove it to you in this book.
Mistake 19: They do not know how to secure their investments.
How do you secure investment or a business? How do you make sure that if something goes wrong with your investment or business it will not affect you personally or the rest of your investments or businesses?
Most people do not pay attention to protecting their investments from outside attacks of creditors. In fact, most investors make no attempt to protect themselves and their assets. In the process, they do not become wealthy and they cannot understand why not. I will show you that it is important to learn how to protect your wealth.
Mistake 20: They do not know how to accelerate their investments.
Again, because of a lack of understanding that the masses are not aware that you can, in fact, accelerate your investments by applying different strategies to give you a better return at a much faster rate, than relying on one method of investing.
There are only three different vehicles that one can use in order to invest: paper assets, tangible assets, and business assets.
In order to get the most out of the investment, you need to understand how to use the synergy between the different investment vehicles and intellectual capital in order to get ultra-high returns on the investment.
What do I classify as intellectual capital? It is your gifts and talents which you use in order to build up knowledge that is based on experience (also called wisdom).
To receive optimal growth of the investment you need to know the basics of how the investment works, the implications of tax, the option of different financial entities and which one is best to use at the time, and how to use different strategies to lower your financial risk and increase your growth on the investment.
You also need to know what your talents and gifts are. The moment that you can match your talents and gifts to any of the different assets classes, you will get an exponential explosion in your investment.
There are four asset classes:
? Paper assets
? Tangible assets
? Business assets