Wealth Psychology

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miami house

Many of us are slaving away our youth in return for the early retirement; hoping that we can put our feet up before we see the first sign of a grey hair. But what if you could have it all now? What if you had a powerful flow of income coming in month after month regardless of what you do with your time?

Your Activity

Close your eyes (I’ll still be here when you open them), take 2 minutes and imagine what you would do each day if you had the time, the freedom and the money?

A Reality Check?

If you’ve tried the above exercise, it may come as a surprise that this concept is much harder to visualise than you might think.

We are often restricted in that society preaches the importance of realistic goals. Dreaming of being an astronaut when I was eight was a harmless feat but sharing the same notion with my colleagues today could evoke a very different response. Why? Ambition scares people. Peers may feel jealous or threatened by your ambitious ideas and with this it doesn’t take us too long to convince ourselves that we’re not worthy of living such a magnificent dream.

But maybe, just maybe we should start to visualize these ‘unrealistic’ dreams; put pen to paper and work out what it would actually cost us to live them out. What would you need to do to work remotely from a coffee shop on the Tenerife coast? What would it take for you to quit your job so that you could spend more time with your kids? How much would you need to build your own home or take your family on the holiday of their dreams?

I Challenge You to Design Your Dream Life

Sometimes we are so good at thinking outside the box that all we can see in the road ahead is a slightly modified version of what we have now. So here’s my challenge, take it or leave it. You’re going to design your perfect lifestyle that you’d love to lead in 24 month’s time. And then… we’re going to add a little math.

Step One – Dare to Dream

Write down each of your material wants, the places you’d like to go and the activities you’d take in the life you would love to lead. Be detailed, be extensive, be specific, be generous to yourself, but don’t you dare be realistic! Which model of Ferrari? How many weeks in Peru? You’re the architect here, put some measurements on your blueprint.

Step Two – Calculate

Take the above list and price it up – don’t be lazy, it’s your life! For anything that can be bought on finance, give a monthly cost. For anything that needs to be bought outright; list the full price. Here are some examples:

Full Price Items

  • The down-payment on your dream house
  • The total cost to take the entire family to the Caribbean for two weeks

Note: The total of these items will create your Target Capital

Monthly Items

  • The mortgage repayments on your dream house
  • The finance on the car of your dreams
  • Estimated living expenses

Note: The total of these items will create your Target Monthly Income

Step Three – Compare

Take a breath, this won’t hurt a bit.

Let’s say by some ‘miracle’ we’ll be living our dream lifestyle in 24 months. Divide your Target Capital by 24 to get a Monthly Savings Goal.

If you plan on working for yourself, creating passive income or doing a lot of travelling in this dream life, I’d like you to deduct your working salary from your total monthly income. This will create your Sustainable Monthly IncomeIf you’re planning to continue working a salaried job in your blueprint lifestyle; no need to deduct!

Finally work out the following:

Target Monthly Income + Monthly Savings GoalSustainable Monthly Income = The Gap

This figure you’re left with is the gap. The gap between you and your  dream life. Now it’s up to you to close this gap; will your current income strategy take you close to this figure in the near future? If not, maybe it’s time to think outside the box and take things back to the drawing board. Don’t just wait for that 5% pay rise in twelve month’s time. Search for ways to create passive income; invent and invest!

If any of you have ever read the ‘4 Hour Work Week‘ you’ll understand why I’ve written this post. What would you do if time and money were no object?

Stocks
FEATURED: The Balanced Investor - Creating & Enjoying Wealth

The wealthy man spends less than he earns and invests the difference. The investments make more money and that money is reinvested. All is well as long as temptation doesn’t kick in; you consistently avoid buying luxuries, don’t buy a liability like a new car and steer clear of any unwise mortgages.

But the reality is there will always be a point in your life when you are tempted to ‘invest’ in luxuries or purchase something now that you should wait for. This is where you might consider the way of the balanced investor.

The balanced investor understands the need for savings and security, he understands the potential for big gains from high risk investments. The balanced investor also wants to enjoy the time and the money that he access to right now.

Asset Allocation

You’ve cut down on your expenses, increased your income, you have filled your emergency fund and now you are spending less than you earn. Congratulations – you can now set aside a percentage of your earnings each month to save and invest. The question you should be asking yourself now is, where do you allocate these savings? The balanced investor allocates his assets into three buckets…

1. The Security Bucket

Your security bucket is very important for the long term growth of your wealth. Your security budget grows slowly and steadily over time. This can be in bonds, cash ISAs and savings accounts. Investments into your security bucket provide an almost certain return on investment at a specified period of time. For example, if you put money into a bond you can lock it away for a set number of years and gain around 4% each year. You have a fixed rate of interest and a fixed period of time. This is a slow incline but it is safe and guaranteed.

2.The Growth Bucket

Your growth bucket is your allowance to invest money into higher risk investments for a greater and faster rate of return. This can be in stocks or shares. You could even decide to invest in real estate or into business ventures. Decisions made in the growth bucket should be tactical, calculated and well researched due to the risk of loss; you should be prepared to lose money here and you should be even more prepared to learn some lessons along the way. Ensure you can utilise compounding growth here by reinvesting any earnings back into your growth bucket.

3. The Dream Bucket

This is the exciting bucket; the treat bucket, the ‘do I deserve it?’ bucket. You can put money aside each month to save for a vacation, a meal at your favorite restaurant, a new car, a holiday home or a private jet. You can put as much or as little in your dream bucket; by placing money in here you are highlighting that this is money you will enjoy and will enjoy and will not regret spending.

So there you have it, this is the asset allocation of a balanced investor. Depending on your age, your goals and your financial awareness you can decide to allocate as much or as little to each bucket. The important consideration is that you are active in learning to benefit from growth investments whilst protecting yourself with an ever-increasing security fund. To hear a little more about asset allocation, check out Tony Robbins’ talk on Financial Freedom.

How are you currently allocating your savings? Do you feel guilty enjoying your money?

Choices
FEATURED: Which Venture will Make You the Most Money?

Choices

There are thousands of ways to make money in today’s economy; you can make money by dressing up as a hotdog, giving out leaflets, running admin tasks from the comfort of your bed or by starting your own business selling personalised cupcakes! Once you’ve chosen a good (and legal) idea, there’s virtually nothing stopping you from making a living from it. But the hard part is knowing which venture deserves your hard work and time.

 

To succeed in business, you have to be in business. Anon

 

The truth is that if you really want to make good money from a venture and you immerse yourself in the industry and invest all of your time and hard work into it, it is very likely that you will succeed. Sounds great right? Yes! Now what happens when another great idea comes along and you decide that you’ll spend half of your time on that and half your time on your original idea? Logic dictates that you will have half of the success from each of these… Tricky. And I don’t like to think about what happens when that next idea comes along; a third of the success from each. Is that acceptable? Am I maximising my revenue?

Cleansing Your Idea Stash

I have always been an entrepreneur at heart; I used to make and sell various items at school, take on various jobs whilst earning a side income from coaching. I’m a restless soul and If there’s one thing I’ve learnt in these years it’s that I’m never short of ideas but I am always short on time. From being a dedicated multi-tasker I’ve always managed to be just one or two steps away from success in my field of choice. So here’s my plan; I’m going to go through an ideas cleanse over these next few weeks. I have listed all of the commitments that are taking a large proportion of my time and am beginning to strip out ventures or projects that have the lowest long term value for me. For example; I have recently set up a copywriting gig on Fiverr that is becoming quite successful, however, it is clear to me that I can earn more from my time by using it for more important ventures so have decided to shut the gig down. But how can you decide which ventures to keep and which ones to let go of?

How to Choose The Right Venture

Anthony Robbins often says that you need to “ask the right questions to get best answers”. So to decide which venture will hold the most value to you, you should find the venture that provides the highest hourly pay and then ask yourself the following questions:

  • Is this side hustle/venture making you more or less than your hourly wage?

If you can make more money doing something else with your time then it may be worth reevaluating your priorities. You can always get your money back but you can never get your time back! This point is very important unless you can answer “YES” to the next two questions…

  • Is the side hustle / venture scalable? Is there potential to earn a lot more in the future?

If your idea can be molded into a profitable business then it may be worth putting in those hard extra hours in order to prosper in the future. A great example of this is a blog; the more work that you put into a blog the more value it creates. Your hourly wage will increase from there if you persist in adding more value each time you work on it.

  • Do you enjoy doing your venture? Can you see yourself doing the same thing in two years time?

If it is a scalable idea then rest assured that it will require hours and hours of your time every week. Estimate how many hours a week you will need to commit, then double it! With that in mind, you need to really enjoy the work in order to become financially independent. Could you see yourself doing the same work as now in two years? It may take that long before your venture starts to take off, you have to work hard and be patient!

Do you have more ideas than you have time? How do you decide on which opportunities to take up?

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With so many distractions, choices and opportunities around us it is often difficult to decide on the best use of our time.

It is said that if you ask someone stuck in a dead end job how much they earn they will quote their annual salary and conversely if you ask a successful entrepreneur they will quote an hourly rate. Here’s why:

They Know that Time is Precious

No matter your profession, net worth, assets or income; we all have one thing in common. We are all given the same 24 hours in a day, the same 7 days in a week and 52 weeks in a year. It’s what we do with that time that matters. By thinking about your income in terms of hourly rate you can ask yourself the question:

“Was that hour of my time worth £XY to my employer/business?”

Ask yourself that question a few times each day or if you’re feeling brave every working hour! Keep a time diary of one or two of your working days to find out more about your habits. When you are that aware of where your time is going you will become much more productive than the worker who thinks:

“Was that entire year of my life worth £WXYZ to my employer/business?”

The ultimate goal in increasing your income is producing more value for the same time; increasing your hourly rate. This is the key to your next promotion or your new business’ success. Do the work that you need to be doing and delegate the rest.

 How can you do your work more efficiently and to a higher standard? Can you work in batches or create a new process? You tell me…

Long Term Goals

Another important principle in optimising your time is having a clear set of long term goals. The 80/20 principle illustrates that just 20% of your time spent working could equate to 100% of your success. Being clear on your long term goals will ensure that you spend your time on the important tasks and not waste time working on something that might not even need to be done! The average office worker wastes over 2 hours in a day and completes over 20 tasks whilst they are only being measured on around 3 (Brian Tracy).

What are your long term goals and what do you need to do to achieve them? Write it down!

Time is what we want most, but what we use worst.
William Penn

Evaluating My Time – A Case Study

I have recently received a wonderful opportunity whereby I can work from home and get paid overtime hours (paid at time and a third). This presents a very useful dilemma whereby I can look back on my time and think:

“I could have earnt an extra £XY from overtime with that wasted hour”

It is also useful tool to use against my side hustle ideas whilst; it is now very clear that I should only spend time on my side hustles if either:

  1. I will be making more than my hourly overtime rate
  2. I am confident that this time spent will provide a greater return in the future

Waste your money and you’re only out of money, but waste your time and you’ve lost a part of your life. Michael LeBoeuf

Are you a diligent timekeeper or a competent procrastinator? If you don’t know it already, calculate your hourly rate.

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