Last week we defined “the rat race” and for the last week you have been meditating upon what it would feel like to be “financially free. Today, I present some rules for getting out of the rat race and enjoying financial freedom. Platinum rule: annualise expenditures. I will explain what this means with an example: imagine you want to hire a cleaner at the cost of c. MWK20,000 a month. It does not sound like very much in isolation but there are 12 months in a year which means that the cleaner would cost MWK240,000 per annum. If you are getting a cleaner to release time to run a business, this is fine but you probably just want extra leisure time to watch more TV or for social gatherings – not fine. You can annualise anything – beer money, eating out money, “entertainment” money and so on. Annualising can help you to rein in expenditure. Golden rule: borrow only to invest, at all costs avoid borrowing for consumption. Don’t wait for a slump in the property market before you buy a home. Why would you do that? If you buy a house today for a MWK10,000,000 and next year the value falls to MWK8,000,000 (possible but improbable), if you bought the house as a home and not just as an investment, in the long run it really doesn’t matter. At some point, prices will pick up and/or you will finish paying of any debt incurred to buy the house. Once the debt is paid off, you have a home and income from work and investments only needs to pay the bills. This golden rule can be a little tricky. If you have MWK1,000,000 and want to buy a car worth MWK800,000, should you buy cash? Well, if you have an investment opportunity that will give you a good yield, borrow to buy the car and invest the cash you have. If your car loan costs less than the investment yield, it’s a wise decision. Moreover, even if you lose money on an investment, you won’t have lost the lesson. Most other types of debt are bad: pay off all consumer loans as fast as possible. Silver rule: do not make other people’s problems your own. If someone asks to borrow money, understand why they need the money, what they will use it for and how and when they intend to pay it back. Frequently, we feel pressured to lend to friends and family when, deep down we don’t trust that credit exposure – just say no. It can be hard and you may lose a “friend” but you probably won’t regret your decision. If you can, just share them what money you can afford to give. There’s nothing wrong with helping a friend in need. Bronze rule: learn and educate. Educate yourself because it opens up opportunities. Educate your children so they too can gain independence at some point. That’s all from me. If you follow just the golden rule combined with a sprinkling of foresight and burning desire to be financially free you will be fine! “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” Suze Orman For inspirational quotes follow @Getting2Wealthy on twitter.
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First of all, what is the dictionary definition of the rat race? I found several definitions on the web: “a mad scramble or intense competitive struggle, such as in the business world”; “an exhausting routine that leaves no time for relaxation”; “a Rat Race is a term used for an endless, self-defeating or pointless pursuit. It conjures up the image of the futile efforts of a lab rat trying to escape whilst running around a maze or in a wheel”...that race does not end, unless the rat jumps off the wheel. Who is in the rat race? The vast majority of us. Most of us are rats in our own unique maze, timing the run from the shower to the bus or train station; learning the timetables and the best position on the platform or indeed the best bus stop to speed up the transfer between different destinations; saving up for a mortgage to jump onto the property ladder or perhaps for a car; then saving up for an even bigger place because we have outgrown our present property; going to work to pay bills and so the list continues. Basically, if you are not in a position to quit your job right now and live off your investments until you die...you are in the rat race. My main aim in life since I started working is to jump out of the rat race and to become financially free. I have a strong / volcanic / burning desire not to be in the rat race. This does not mean I will quit working the moment I am in a position to live off my investments, however, because I actually enjoy my job and working in general. The very thought that I could leave would give me insurmountable pleasure. I enjoy life and always make sure I treat myself when I can afford to but I save all the rest and invest it in whatever seems sensible so that at some point soon (I hope) I can gain financial freedom. A position very few manage to reach. In my favour is that although I like to be comfortable and have the finer things in life – like most of us do – I am not extravagant and I don’t care about impressing the masses – most people love to show-off either with their “rims” or expensive designer clothing or crystal and lavish restaurants but it is these unnecessary pursuits that keep them in the rat race. People that take this approach or shall I say, attitude, are going to be running and they are probably going to be running for a long time, leaving in their wake, a host of regrets. One of my favourite quotes is “If your outgoings exceed your income, your upkeep will be your downfall”. God-willing, I will achieve my goal of financial freedom. What advice can I give to my friends and peers? We will cover that next week. For this week I just want you to meditate upon what it would feel like to be “financially free”, what it would feel like to go to work simply because you wanted to not because you need the money – the very thought is incredible, isn’t it? “It's a rare moment when we take a break from the tribulations of the daily rat race to reflect on assumptions and values that we casually accept as gospel.” Graydon Carter For inspirational quotes follow @Getting2Wealthy on twitter. I am currently re-reading Brainfluence by Roger Dooley. It is hands-down the best neuro-marketing book I have ever read and all other books simply don't math up. Anyway, on a second read or watch of something you always learn something new and on this occasion one theory really caught my attention. The theory is technically called "neuroplasticity" and was first proposed by Sigmund Freud then was later elaborated upon by a Canadian psychologist called Donald Hebb; it was finally summarised in six words by the neuroscientist Carla Shatz as: “Neurons that fire together wire together.” This theory just helped me understand some of the things I have observed in my life but never really understood. From a marketing perspective, what does this mean? If you create a brand that has multi-level sensory appeal, that is, it has a look, a feel, a smell, a tag-line or even a jingle, even when one or several of those elements are absent people are reminded of your brand. And if they like it, they want it. A McDonald’s fanatic merely has to hear the McDonald’s whistle to start craving a Big Mac. The theory of neuroplasticity is not limited to marketing - reading between the lines I realised that it applies to learning things in general. For instance, when I first went to high school in 1995 I found school a bit of a challenge. I wasn't failing, far from it, but I was a borderline B/A student. When I first arrived at my boarding school I was three weeks late because I had started off at another school before my parents decided they preferred this one. To cut a long story short, friends had been made and penetrating the existing cliques was a task I could not be bothered with. Being in the middle of nowhere I set myself up with a rigorous study schedule (for an 11 year-old) which resulted in me reading and doing homework for at least four hours every single day from the beginning of term. Lessons finished at 3pm and I was in the library 3.30 to 5.30pm as standard and then I went to dinner. Prep time was 6.30-8.30pm and I studied then too. I started doing homework during break time and lunch time so all four hours could be spent studying. At first I used to find recall a little challenging but the more I studied, the easier it got and the more I enjoyed it. With maths, I quickly learnt that when you practice the problems in preparation for an exam instead of just reading the solutions sets in the book you really came to understand the topic so that's what I did. I became so good at memorising that I didn't even realise the point at which I stopped memorising and started understanding things. It appeared that the more I knew the more I could relate seemingly unrelated topics especially in maths. By the time I got to university I didn't think learning was hard anymore - in fact - by comparison, I can say I found the University of Cambridge easier than high school! But this is where it gets interesting. Throughout my life I have taken an interest in being coached and having a mentor and I think this theory of neuroplasticity applies to coaching very well. I am not into feel-good motivational coaching that makes you feel good about yourself without any practical steps. Feeling good about myself is not something I have a problem with and the few times that I might have that issue, I can just call one of my doting younger sisters. When it comes to practical action-based coaching you learn so much information in such a short space of and with that synaptic impulses must be flying all over the place in your brain. By being coached and learning from someone else's experience you cut the learning time and get to your goals a lot faster than if you had to make every mistake by yourself because having all the knowledge sitting in your brain creates a multiplier effect. It’s a case of 1 + 1 = 3. A lot of people don't take much interest in coaching and learning once they leave the formal education system but I think those that do achieve a lot more, faster. The first step in educating yourself is in reading books that feed your brain. The next step is to either take courses with like-minded people or form voluntary groups and societies with people that you know you will learn from. In doing so you will achieve any goal, financial or otherwise, more rapidly than taking the trial and error route. "I never cease to be amazed at the power of the coaching process to draw out the skills or talent that was previously hidden within an individual, and which invariably finds a way to solve a problem previously thought unsolvable." John Russell For inspirational quotes follow @Getting2Wealthy on twitter. I recall one random day when I was a young teenager chilling in the living room with my dad he told me, “Money is never enough!” By this he meant that if there are things you want to do for other people or for charity you shouldn’t kid yourself by saying you will do it when you have “x” amount of money or when “you get rich”; because the fact is, regardless of how much money you have, your plans and ambitions will always grow faster than the rate at which your money grows. Think about it. These are difficult times for Malawi so literally everyone is feeling the pinch but if you look at the trend of your life over the last five years you may agree that your need for money has only grown. Even if you have less now, if you were equally rich today as you were five years ago you would be grossly dissatisfied. When you first start working you’re likely to feel the richest; you have money but no responsibilities. Then you get married or have children or both and all your money seems to have been spent before it even reaches your bank account. Even when you children leave home you soon realize you’re not getting younger and you don’t have enough funds to retire or even semi-retire and that stops many from giving. The more money you have the bigger and more ambitious your plans. You will never stop and think I have enough. For this reason there is no point in holding back charitable plans until “that day”, do the little you can now. Charity doesn’t have to come in the form of giving money away; I think it’s even better to give someone a job and pay them a fair wage. If you have projects going on and people are doing tasks for you then compensate to motivate. People that are well paid will work harder for you. My mother is the most charitable person I know. She gives even when she knows in so doing she will have nothing left herself (frankly that baffles me); she says in over 50 years of being alive she’s learnt that things always come back. Some would call it God, others karma but it’s the same thing. Doing good creates good fortune. As the cash gate scandal has gone on in Malawi we have all been shocked at the greed that lies amongst us. Such unbridled, self-serving behaviour will have put the country back many years in the process of development. I personally don’t know how you can observe extreme poverty day in, day out and still manage to steal from those very poor people; however, I am hopeful that it is not a sign of a society that has completely lost its way. In summary, I want you to stop and acknowledge that money will never, ever be enough. However, with what little you have you must do good. A charitable heart creates good will not only for you but also for those that associate with you and your progeny. “We, the People, recognize that we have responsibilities as well as rights; that our destinies are bound together; that a freedom which only asks what's in it for me, a freedom without a commitment to others, a freedom without love or charity or duty or patriotism, is unworthy of our founding ideals, and those who died in their defense.” Barack Obama For inspirational quotes follow @Getting2Wealthy on twitter. |
For 2 years until early 2014 I wrote a weekly personal finance and business column for Malawi's leading media house, The Times Group. The target is middle-class, working African women.
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