Becoming A Financial Champion
| December 4, 2009 | Posted by Roshawn Watson under Uncategorized |
Last week, I was counseling a college student about building a firm financial foundation. As we spoke, I began to reflect on my own journey towards getting out of the rat race and the many financial lessons I have learned over the last few years. Here are three nuggets that profoundly changed my financial life.
Avoid and Eliminate Debt
Perhaps one of the biggest obstacles to becoming a financial champion is debt. Eliminating consumer debt removes one of the biggest constraints to your cash flow. Debt avoidance and elimination is one of the fastest ways to position yourself to build wealth because you are no longer robbing tomorrow’s prosperity. In other words, $60,000 per year can go a lot further if you don’t have to pay Sallie Mae, Visa, and Chase Auto every month. Don’t take my word for it.
According to the 400 richest Americans (Forbes 400), 75% believe “the best way
to build wealth is to become and stay debt-free.”
In other words, the “pain of paying” cash serves as an effective deterrent against overspending.
Realize That Money Is Important
I personally believe that your view towards money can be a barrier to your becoming a financial champion. I had a friend over last month, and somehow we got on the topic of the place of money in our lives. She believes money is not that important, which always baffles me. After all, she is the one who constantly talks about going on vacation and retiring early. I explained to her that money will be required for many things she wants to do. She retorted “money isn’t everything.”
Look, I’m not saying to deify money but merely to respect it. The law of attraction has bearing here: what you respect, you attract. What you don’t respect moves away from you. Unfortunately, my friend is careless with her money, and I believe it stems from her lack of respect for money. The Millionaire Next Door by Thomas Stanley sheds light on this subject in contrasting high income earners who are prodigious accumulators of wealth versus those who were under accumulators of wealth. A hallmark of under accumulators of wealth is their lackadaisical attitude towards money: they are likely to say that “money is your most easily renewable resource,” and their behavior reflects this belief. As a result, they accumulate an average of 4 times less wealth than prodigious accumulators of wealth.
Reshape Your View of Millionaires
A warped view of the spending habits of “those with money” can also prevent you from becoming a financial champion. Hollywood and the media have so distorted our society’s view of millionaires. We are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.” Like many, I used to imagine Barbie and Ken with the big home, matching BMWs, vacation home(s), and luxurious yacht. I assumed that Barbie and Ken were the very portrait of success. However, a closer look revealed that my vision was distorted. That mortgage payment is over 50% of Barbie and Ken’s gross income, and the BMW is leased. That boat was financed too. Once I realized that Barbie and Ken likely had plenty of credit cards and student loan payments too, I had a profound revelation. Barbie and Ken are broke!
Most millionaires don’t care much about conspicuous spending. In fact, many people who display a high-consumption lifestyle have little to no investments, appreciable assets, income-producing assets, common stocks, bonds, etc. Instead millionaires live on less than 7% of their wealth and still choose to invest at least 15% of their earned income. They typically have more than 6.5 times the level of wealth of their non-millionaire neighbors, who outnumber them by 3 to 1.
Becoming a financial champion will enable you to be a real blessing to others. Don’t sacrifice that destiny for the latest Prada bag. It’s just not worth it. Remember, you don’t have to keep up with the Joneses because they’ve been faking it anyway, and your family’s financial destiny is far too important to waste on frivolous spending. If you can truly afford it (i.e. pay cash), then it is okay to buy some stuff. However, you still need to act your wage, for that’s what most millionaires really do.
Image Credit: Rumanía mi país
Spot on My Friend! This article was short, but very powerful. With the economy in the tank like it has been, I wouldn't be alive financially if I didn't live by the principals you mention in this article. Thanks for the great read!
Jerry,I am so happy that you get my point. In the middle of a recession you can live in financial peace. During periods of economic boom, you are propsering like the best of them. Building a strong financial foundation will change your life because all the rest begins to fall into place. You can build some real wealth and can afford to buy stuff that you want and need.
Hey Shawn. Great article! I hate consumer debt as much as anyone, but I found it very interesting that only 75% of the Forbes 400 list think debt-free is the way to go. I'm assuming the other 25% believe in leveraging up. Is borrowing to get rich really so bad? Donald Trump wouldn't be on that list at all if he didn't owe billions of dollars. What do you think?
Hey Jon (thanks 4 the discussion),debt equals risk, and for every success story such as Donald Trump and Robert Kiyosaki that you find where someone used debt to get rich, you will find a ton of others who failed. Their debt only accelerated their failures. I believe Trump and Kiyosaki types are the exception not the norm, and notice they have both been bankrupted. Cash flow problems are the number one reason businesses fail, and the major cause of these problems is debt.Jon, I am personally cautious and slow about these things. I would rather expand slower and buy within my limits but stay out of debt rather than leverage and get into trouble. I know this means that some people will get there faster, but I really don't care as long as I get there.
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