CHAPTER 1
Laying a Foundation
"Financial success is reserved for those whoaggressively seek financial knowledge and thenapply that knowledge to create a prosperous life."
Aaron Campbell
Have you ever wondered why some people are successful and whysome people are not? Maybe you know someone who was raisedalmost identically to you, had the same educational background,and made a similar amount of money. Yet they may have achieveda much higher level of financial success than you. Is it because theygot lucky? Is it because they worked harder than you? Is it becausethey were smarter than you?
I have found that success often has nothing to do with ability levelor desire. Most people seem to have the desire to do better and mosthave the ability to achieve more, so what is the secret? What is therecipe for financial success?
To get started, you must lay a foundation that will be wide enoughand strong enough on which to build your personal financial empire.I have found that there are seven simple steps to building a strongfinancial foundation that will support a life of financial freedom.
Seven Simple Steps to Building a Strong FinancialFoundation
1. Educate yourself about how money works.
2. Pay yourself before you pay any other person or company.
3. Do not spend more than you make.
4. Pay off debt as quickly as possible.
5. Invest the money you pay yourself so it will provide afuture income and will not be lost.
6. Buy insurance to protect the things you cannot afford tolose.
7. Trust yourself to make a good decision.
1. Educate Yourself
It is absolutely astounding that most of our children are not taughtin school about finance or how money works. Isn't the ability to earnmore money and be more financially secure one of the main reasonswe go to school in the first place? Yet most Americans end up usingthe trial and error method when making financial decisions.
I know it can be intimidating with all the financial mumbo jumboout there. It can also be intimidating to go to a financial advisor orfinancial person that may look at you as if you are a second-classcitizen if you do not have a million dollars to invest. However,educating yourself about how money works is probably the mostprofitable investment of time and effort you will ever make. So in thischapter I want to talk in simple, straightforward terms and providesimple, easy-to-understand truths that apply to almost everyone. Ialso hope to provide some good financial education along the way.
2. Pay Yourself First
The second key and probably one of the most basic ideas is to simplypay yourself before you pay anyone else. What I mean by payingyourself first is simply saving a portion of whatever you make rightoff the top before you pay anyone else. The money you pay yourselfshould be invested with the purpose of providing a future incomethat will ultimately replace the income you make by working. Thinkabout some of the people and companies you could pay before youpay yourself:
• Mortgage company
• Electric company
• Gas company
• Phone company
• Grocery store
• Clothing store
• Car finance companies
• Restaurant
• Movie theater
• Cafe
• And others
I realize we have to spend money to live; we must purchase goods andservices. But there is no company or person that is more importantto pay than yourself. If you never pay yourself, how will you everhave anything? Many people tell me that they don't have any extramoney to pay themselves every month. My reply is, "Baloney!" Youmust pay yourself first, and if you don't have enough money left atthe end of the month, consider reducing your expenses or find a wayto make more money.
It has been said that most good things in life require some type ofsacrifice and some level of discipline. This is what typically separatesthose who have financial success and those who don't. If you askedtwo people who worked for the same company, made the sameamount of money, and worked the same hours if they felt they couldafford to save money before they paid their bills, their answer mightbe, "No." Yet one of those employees may have five children and theother may be single with no children. Wouldn't you think that thesingle person would have a much better chance of saving money thanthe person with five children? People tend to spend whatever theymake. That's why it is absolutely crucial to pay yourself before anyother person or company.
3. Do Not Spend More Than You Make
I know this sounds like common sense, but it is very difficult for mostpeople. Not spending more than you make means just that: do notspend more than you make. That means you pay yourself at least fiveto ten percent right off the top. Then you will use ninety to ninety-fivepercent of the rest of your income to establish your lifestyle.
Today too many people want to live lifestyles that require moremoney than they actually bring in each month. That is a recipe fordisaster. Consider this saying: "Successful and prosperous people arewilling to live a temporary lifestyle that most will not so someday theycan enjoy a lifestyle that most cannot."
4. Pay Off Debt As Quickly As You Can
If you owe money to a company or another person, you will probablyhave to pay interest for the privilege of using the borrowed money.Though I understand it is sometimes necessary to borrow money,perhaps to buy a house or a car, I have found that most successfulpeople have paid off debt as soon as possible. That way the interestthey were paying to make someone else rich goes back in theirpockets to build their own wealth.
There are many calculations that can be made to determine whetheror not it is a good idea to pay off a mortgage or other debt early.However, in almost every situation, if you choose to pay off debt asfast as you can, you will not only be happier, but you will end uphaving more money.
Now, there are exceptions to this rule that I cannot ignore. Forexample, my best friend has never made very much money fromemployment. He had four children,...
