Wealth Building 101: Manage your emotion
When it comes to wealth building, emotion is not your friend! A perfect example of this is the roller coaster ride the stock market has been on the last few weeks. One day the news is good so people buy, the next day the news is bad so people sell. Did the companies being bought and sold really gain or lose value in those few hours? Of course not but people are reacting to emotions rather than logic.
What about your everyday spending habits? Do you spend money when you feel like you want something even if the item is not in your budget? Do you have a budget? Do you save when you are fearful about the recession economy and then start spending freely again when the economic news improves?
How about your work habits? Do you stay focused on your business even when your friends are headed to the lake? Do you set goals and plan out the action steps needed to reach them?
Before I was introduced to the Kiyosaki financial education principles I made all of my wealth building decisions based on emotion. Actually, it has only been in the last few years that I have developed the discipline to manage my emotion when it comes to wealth building. I am a very impulsive person and I love excitement. Believe me when I say I have had to sit on my hands during the recent stock market churning. I have a plan for my investments but it has been so tempting to bail on some holdings to add to others only to watch the fortunes reverse for each in a matter of hours or days.
Same with my everyday spending. On my farm I have so many projects I want to do but I have to stay focused on priorities. In the past I would have simply done the projects and put to cost on credit cards. Now, thanks to my Kiyosaki, richdad education, I avoid credit card debt like the plague. I have to look at the importance of a shelter for the horses first even though my emotion is that I want a round pen more.
Same with business. It is Friday afternoon and I am so tempted to call it a week and quit early but writing this blog is the action step that is needed to achieve my long term business goals. Now that I am writing this blog my emotion has shifted from bored to excited.
Emotions are like that. They are fickle and can shift on a dime. That is why wealth building is about managing emotion.
Here are a few tips that help manage emotion:
Keep a journal so you can see where your emotions go from day to day
Keep a balance sheet for your business so you can see where your money goes
Track business and personal assets and expenses
Understand what your net worth is
Watch your cash flow monthly
Study all you can about wealth building. Hint – all the experts say make a plan and stick to it. Boring but true.
Schedule time for fun and keep a little cash on hand for impulse spending
Celebrate and reward yourself for managing your emotion
Madalyn
Like this post: Check out Hope is not a strategy or
Why you need a coach
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Money Smart Skill: Patience
I got a very late start with my financial education but I have been working hard to catch up. My favorite mentor is Robert Kiyosaki of RichDadPoorDad fame. Kiyosaki created a board game called cashflow to help teach people his financial strategies. In the game you draw a card that has a profession on it and you get a list of expenses and your cash flow monthly. The goal is to escape the rat race board and graduate to the fast track.
After playing the rich dad financial education game, cashflow, many times I have found the way to consistently get out of the rat race in less than 2 hours. I always draw the doctor card even if I am not trying to. I think God is wanting to make a point. The doctor card is one of the most challenging cards because it carries the highest cash flow monthly.
Right, I said the highest income. It also carries the highest monthly expenses and the object of the game is to get your passive cash flow monthly higher than your expenses. You might think a big monthly paycheck would be the ticket to building passive income but that is not necessarily the case. Passive income is money that comes through businesses, rental income or other investments. In the rich dad financial education game, cashflow, you must build up a portfolio of investments until your passive cash flow monthly exceeds expenses.
In the cashflow game you have expenses that are fixed and you have debt that you can pay off to lower your monthly expenses. Like the game I have fixed expenses such as malpractice and liability insurance, home insurance, license and association membership fees as well as mandatory continuing education. In the game you have fixed child expenses and they are higher for the doctor card. I have 4 legged children and they have significant expenses associated with them that are not negotiable.
When I first started playing cashflow I was so frustrated to see other players, who drew the truck driver or mechanic card, breeze out of the rat race once they got the hang of the game. Despite all my money making efforts I was always the last to make it. This cost me a few sleepless nights.
So what is the secret I finally discovered about getting out of the rat race? Patience! This has not been an easy lesson for me. When I first played the game I tried to save my money so I could invest in some big deals. This never worked. Then I tried to borrow money to make big deals. This did not work either. I resisted the reality of my situation and was sure I could make one big deal and change my financial situation quickly.
Finally I resigned myself to being the last one in the game to get out of the rat race and low and behold I started having success. I learned to follow a boring plan of paying off as many of my high expenses as possible. While other players were able to invest and buy real estate I did best when I stayed with my plan. Get a paycheck, pay down debt was my life for 75% of the game. My action oriented temperament fought against this strategy but I persisted.
As my expenses went down I began to have a little extra to invest if I was careful. When I stopped trying so hard to get ahead and focused instead on the basic principles of paying down debt and investing in good deals when they presented themselves I made headway.
The cashflow game has been such a powerful learning experience for me. Based on my experience playing the game, when I decided to make my move to Fischer I took on my high expenses with open eyes. I knew I would be challenged but I also understood that I could work smarter to lower my debt and build my passive income at the same time, SLOWLY.
The path I have taken in not what is recommended in most financial education books. I did not start saving when I was 20 and I don’t have a big retirement account. I chose to live above my means and continue to work smart to get my means up to speed. I avoid consumer debt but sometimes I have to use short term credit which I pay off as quickly as possible. I understand that high, non fixed interest payments on credit cards make it very hard to get ahead financially.
Even though I got a late start with my financial education, I do have some savings and I am continuing to add to my passive income from several businesses. I love being a veterinarian and an entrepreneur. I am looking forward to having even more time to spend with my animals but I am not wanting to retire early.
Some months or even years are tight and I don’t get to do all the improvements I want to on my property but I know I am on the right path. I am learning to be patient and let time work for me as my debt gets steadily lower and my cash flow monthly gets higher. I am so glad to have the financial education to understand about money and have a plan and watch it unfold over time. Every day I am more appreciative of the gifts God has given me. Like patience. Madalyn
Did you get started late? Not sure how to get your cash flow monthly up? I would love to have a conversation. Contact me.
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Money Smart Skill: Do you know your money model?
Do you know your money model? By this I mean how do you earn and spend your money. Is your model to earn a salary and spend less than you learn? Is your money model to build a business and live off the proceeds of this business? It is a very important money smart skill to know your money model then to ask the very important question – is this model working in your life?
How do you know if your money model is working? Well, are you able to pay all your bills each month and have money to set aside for investment and retirement? Is your quality of life what you want? Are you able to tithe and help others? If you answered no to any of these questions then your money model is not working for you.
Back in 2000 I had to look at my money model. My model of working harder so I would have enough money to pay my bills, invest and still have time to enjoy my horses was not working. Luckily Robert Kiyosaki gave me a new model via his RichDad education books.
Changing models or paradigms is not something one does easily, especially if the model is one that has been in place for a long time. A great book to read about understanding models is Personal Career and Financial Security by Richard J. Maybury. Maybury emphasizes that for you to be successful you have to base your decisions on a sound model.
Personal Career and Financial Security is only the first in a series of books to help you understand models, history, economics and politics. I am finding these books fascinating. They are helping me understand that just because I changed my model does not mean I will be instantly successful in life and finance.
My money model now is based on the money smart skills of:
1. Decrease bad debt
2. Increase my cash flow monthly
3. Invest in assets
This is not an easy model but it is a sound one. One month may get me 2 steps forward and the next 1 step back but I am gaining. How about you? Is your money model working? Madalyn
Want to find out what I am doing to increase my cash flow monthly? This cash flow model is not for everyone but if you are interested in finding out what I am up to get in touch.
Money Smart Skill: Where does your money go?
I am retiring another checkbook cover. I opened this business account in 1986 and I have written over 13,000 checks on it. Even at averaging a modest $200 per check, a lot of money has passed through this account. Where did all that money go? Knowing where your money goes is an important money smart skill.
I went into business with a very poor financial education. Most of my cash flow monthly went to paying bills. I was not introduced to the Kiyosaki, RichDad financial education program until I read his first book in 2000. After a brief period of total shock at how little I understood about finances, I set about figuring out what was happening to my money.
In the year 2000, despite having a thriving veterinary practice, I had no assets. Kiyosaki stressed the importance of looking at profit and loss statements to determine where your money is going. When I started tracking my money it was clear that paying interest on consumer loans was where much of my money went. What a shock to find that a simple thing like not planning for consumer purchases was keeping me broke. Tracking my money was a money smart skill I had to develop if I wanted to change my future.
According to Kiyosaki, it is not only important to determine where your money actually goes but also to plan for where you want it to go. The Kiyosaki, RichDad education program teaches you how to invest in assets that will pay you and then you can use that money to buy things you want. This way you keep your original money or principle intact. What an amazing concept.
Tracking your money, budgeting your money and investing your money are all critical in controlling where your money goes. If you don’t take control of your money it will take control of you. Madalyn
Three money smart actions:
1. Reduce bad debt – consumer loans, loans with variable rate interest
2. Increase cash flow monthly – increase income or reduce expenses
3. Invest in assets – investments which bring in positive cash flow monthly
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Money Smart Skill: Is refinancing a mortgage right in this recession economy?
Robert Kiyosaki often says that being able to gain experience from solving problems is an important money smart skill. In this recession economy, I am having lots of learning opportunities. I made a bad real estate investment by purchasing a rental property close to the height of the real estate boom and keeping the property rented and the negative cash flow monthly covered has been a challenge.
One benefit of the recession economy is that lenders are lowering their standards on refinancing but not all deals pay in the long run. It is a money smart skill to be able to sort through all the hidden costs of a refinance deal to determine if it is worth the lowered payment. I recently got all excited about a deal I thought I was getting but reading the fine print quickly burst my bubble.
I had heard that refinancing usually costs between 3 to 6% of your outstanding mortgage principle so I was thrilled when my agent told me my closing costs would only be $1300 hundred dollars to lower my monthly payment by $200. Luckily I did not break out the champagne. When I read over the papers the trade off for decreasing my negative cash flow monthly was not only the $1300 at closing but an additional $6200 in fees added on to my loan and a new 30 year mortgage rather than the 24 years I currently had remaining. Not a good deal!
Refinancing can be a good idea if these criteria apply:
You will be living in your home long enough to recover the refinancing costs, usually 5 to 7 years
Your new loan is for less than 80% of the current value of your home
Your new loan balance does not exceed the total amount of your existing mortgage
Your credit rating is equal to or higher than when you took out your original loan
You have an adjustable rate mortgage(ARM) and you expect a significant increase in rates before you plan to sell your home
I am not blaming my loan agent for not being totally clear about all the costs. It is my responsibility to get my money smart skill level up to speed. I learned a lot by going through the process even though I did not decide to do the refinance. I also looked into making my payments twice a month instead of once and found that this would not give me additional benefit over making 1 extra principle payment each year. I am not losing faith. This recession economy may be around for a while and I may have another opportunity to refinance at lower rates. In the meantime, I am smarter now. Madalyn
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Money Smart Skill: How to resist impulse spending
Perhaps the most overlooked and under appreciated money smart skill is patience. Patience is required to resist impulse spending. My Kiyosaki, Rich Dad education has taught me about how to be patient in waiting for my businesses to grow into income producing assets but gaining long term financial freedom also requires the ability to resist impulse spending.
Impulse spending has been a huge challenge for me in past years so I have to put safeguards in place to help me resist. For instance, I really, really want a yard fence. My goats and horses are constantly knocking over my stuff, eating out of the bird feeder and pooping in my yard area. I would love to have an animal free zone around my house. Before I would not have hesitated to spend this money even if it meant putting the expense on my credit card. I did not worry about having credit card debt because I knew I could just work a little harder to pay it off.
Thanks to my Kiyosaki, Rich Dad education, I have come to realize what a disaster credit card debt is and how it holds me hostage from realizing my long term financial freedom. This past year my focus has been on developing the money smart skill of patience to resist impulse spending. I can’t do this with willpower alone so I have some built in systems to help me.
Steps to help you prevent impulse spending:
Have a short term budget and long term financial plan in place and stick to it
Have your monthly expenses automatically withdrawn from your bank account
If you have any non fixed credit debt, have a set payment withdrawn from your account every month until this debt is retired
When you shop, make a list and bring only enough cash with you to cover your list
Keep a set amount of cash on hand to reward yourself for resisting impulse spending
So, my yard fence will have to wait. I am paying down some credit card debt and the payment is being withdrawn from my account each month. Skipping one payment would cover my yard fence but it is easier for me to resist since I would have to stop the auto payment. By waiting the extra 9 months to pay off this card debt I will be able to build my yard fence and have a clear conscious that I am sticking to my long term plan.
I know myself well enough to realize that if I have money in my accounts I tend to spend it. I have learned to have money automatically transferred out of my main account and into an investment account that is not to be touched except in an emergency. Unfortunately, my yard fence does not constitute an emergency. I do keep a little cash slush fund for occasional shopping sprees as a reward for resisting big impulse spending.
I also listen to and trust my spirit to guide me where and how to spend money. Sometimes deals appear that justify deviating from my plan. For instance, a great deal on hay comes along that will save me money in the long run. Even with these kind of deals I ask for guidance before I make a decision. Over the years I have learned that some impulse spending can look good at the time but not end up working out. If I listen and trust guidance from my spirit things work out well. Madalyn
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Money Smart Skill: How to raise your monthly gross income without working more hours
Raising your monthly gross income without killing yourself overworking is a valuable money smart skill. I was raised with the belief that if I wanted more money the only way to have it was to work more hours. This is the classic time for money trap that can lead to overwork.
The person who is an employee or is self employed understands well the concept of working more hours to make more money. The challenge is when you run out of hours you can work and you still need to increase your monthly gross income to make ends meet or enjoy the lifestyle you desire?
To increase your monthly gross income without working more hours you have to master the money smart skill of generating passive income. When I was growing up I never heard the term passive income so I did not even know such a thing existed. The first time I read the Robert Kiyosaki book, Rich Dad Poor Dad, light bulbs started going off like fireworks in my head. The whole concept of having money come to me that I did not directly trade my time for was mind boggling.
First, I want to say that the term passive income can be a bit deceptive. It kinda sounds like you don’t actually have to do anything to earn the income and nothing could be further from the truth. Building a passive income producing asset is hard work. The secret to passive income is doing the hard work up front and then reaping the rewards for your efforts on an ongoing basis.
For example, I have been working of building an internet product sales site into my veterinary website for over 5 years. My goal has been to provide holistic products to my customers and generate passive income from repeat sales. Sounds easy but in reality it has been a huge challenge and learning experience. After 5 years of effort, my partners and I are beginning to see an increase in our monthly gross income and for the most part we are not having to put significant time in. If someone were to look at our current business they might conclude that we were making profits without working for them but in reality we have worked very hard for those profits through past effort.
So, what I am saying is to raise your monthly gross income without working more hours initially you have to work more hours. You also have to learn new money smart skills and stay focused on your goals even when you do not have a boss or customer breathing down your neck.
A few possibilities for raising your monthly gross income without working more hours indefinitely include:
Build an internet marketing business
Write and market a book
Invest in rental property
Grow a stock portfolio that focuses on raising your monthly cash flow
Join a network marketing company and build a network of customers who order monthly
Of all these options, network marketing is by far the most accessible to someone who does not have significant money to invest. A company that offers a solid product, business plan and long term vision will save you years of time and learning curves. Raising your monthly gross income without working more hours is a money smart skill that will serve you for the future and allow you to live your dreams. Madalyn
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Interested in starting a home business: Contact me
Rich Dad Education: Where does your cash flow monthly come from?
One of the most important money smart skills a Rich Dad education teaches is to know where your cash flow monthly comes from. When I first began studying the financial education of Robert Kiyosaki, I learned to understand the cash flow quadrants.
The cash flow quadrants are:
E for employee
S for self employed
B for business owner
I for investor
The E and S categories are on the left side of the quadrant and the B and I are on the right.
In the E Rich Dad education quadrant your cash flow monthly comes from your salary. Salary is the money you get by trading your time for dollars. Assuming your salary covers your monthly expenses then you maintain a positive cash flow but should your expenses increase for any reason you have little ability to increase your salary to meet the extra need. Money shortage is often a concern for those in the E quadrant.
In the S quadrant your positive cash flow monthly is based on the profit you generate over and above the operating expenses of your business. If your business does not generate a profit then your cash flow monthly is negative. In the S quadrant, which includes many storefront business or professionals such as doctors, you work in your business. To raise your profit level to generate positive cash flow monthly often means working more hours so you give up time freedom. Time freedom is often the concern for those in the S quadrant.
In the B and I quadrants your cash flow monthly comes from passive income. Passive income is based on previous effort and it comes in monthly without the ongoing time for money trade. A B quadrant leverages the time of employees and works off a proven system rather than the individual effort of the owner. In the I quadrant, passive income flows in the form of stock dividends or options, interest payments or real estate rental income. In the B and I quadrant you have money and time freedom.
To summarize, cash flow monthly can come from:
Salary from the E quadrant
Profit from the S quadrant
passive income from the B or I quadrant
I was frustrated in my life because I wanted money and time freedom but could not understand how to have both. My Robert Kiyosaki, Rich Dad education taught me first to understand where my cash flow monthly came from and how to move from the left side of the quadrant to the right side. This simple concept has changed my life immensely. Madalyn
For a similar topic, check out: Money in your mailbox
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Wealth Building 101: Principle verses preference
My Kiyosaki, Rich Dad education coach has been teaching me about the difference between a principle and preference. He has helped me understand that there are certain common sense principles about financial education but people have different preferences as to how to put these principles into action. For example;
Sound financial education principles:
Have a budget and plan for saving for a rainy day
Get out of bad debt
Invest in assets
Use the cash flow generated by your assets to make purchases
Unsound financial principles:
Having no plan
Making impulse purchases using credit cards
Investing in liabilities such as a fancy car or house without adequate cash flow monthly in place
Spending your income on what you want now rather than waiting for the cash flow monthly from your assets to buy you what you want
Financial preferences:
Saving in the form of precious metal rather than cash
Paying one credit card off at a time or consolidating debt into one lump payment
Investing in real estate verses the stock market as an asset class or building a home based business to generate cash flow monthly
Buying a big home, new car or other material good verses using cash flow monthly to work fewer hours and have more free time
The point is the sound financial education principles don’t change. A person’s preferences determine what is the best fit for them. Not everyone is cut out to build a home based business but for others this is a perfect path to financial and time freedom. Any preference is fine as long as it fits within the sound principles of good financial education.
Just so you know. I have violated many of the sound financial principles in my life and paid the price. Most successful people I know have made similar mistakes and overcome them by refocusing on sound financial principles. Now I am learning through my Kiyosaki Rich Dad education coaching how to apply these principles consistently in my life.
For me, a home based business in addition to my professional skills has worked well to generate cash flow monthly. Some of my partners prefer to work at their own pace to build a consistent $500 cash flow monthly. Other partners prefer to work quickly and build towards much larger cash flow. Either preference is fine with me. Madalyn
To see if what I am doing is a fit for you contact me
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Money Smart Skills – restoring cash flow monthly
The last few months have been interesting. I was riding high in early April thinking I was close to having my debt from extra house building expenses almost paid off. I was dreaming of all the money smart plans I had for that extra $1300 I had been paying each month for 2 years to clear this debt.
From this positive place I decided to invest in my future money smart skills by signing up for the Kiyosaki Rich Dad education coaching course. The charge for this year long coaching class was $8000 which did not seem that high to me based on what I usually spend each year for my veterinary continuing education.
No sooner had the ink dried on the check when my financial utopia evaporated. First a call from my property manager said my renter had skipped out. Then my income tax bill came in twice what I had budgeted for and if that was not enough I had some major unexpected car repairs.
I am so blessed to have been exposed to some good financial training so I could deal with these setbacks. Instead of burying my head in the sand I set out to raise my cash flow monthly and cut expenses.
Here are the steps I took:
I took some extra veterinary work which brought is some extra cash flow monthly
I increased my prospecting efforts in my network marketing business
I cut back my direct TV channels
I had the needed repairs done on my car and sold it and started driving my truck full time
Since the car was sold, I was able to cancel the insurance on it
I was able to do a loan conversion to drop my mortgage by .5 point which saves me $120 a month in my payment
My webmaster worked with me to shift some of her work to an apprentice who charges less and can do the less skilled tasks. This is saving me about $200 a month.
I consolidated all my remaining credit card debt onto my bank credit line at a short term 3.3% interest
With all these efforts I am still $19,000 in debt but, with my lower monthly expenses and increased cash flow monthly, I have a plan to pay this off within 1 year.
My rental property now has a new tenant. My network marketing business is growing and I am getting a good education in my Kiyosaki Rich Dad education course. I am so blessed to have several sources of income and control over my cash flow monthly as well as financial mentors to turn to. Madalyn
Check out this post: Cash flow monthly verses a pay check
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