Clear, practical steps to build wealth, protect it and get your freedom back sooner than you think.
In my Financial Independence journey, I started by wanting to get to a position, so that I didn’t have to work again. As time went on this changed so that Financial Independence, to me is the state where I only work on the things I want to. A subtle difference but the distinction is that now I say don’t stop working.
Have you or are you about to come into some windfall money? Do you know what you are going to do with it? Here is a guide of what to do with windfall money.
If you are like me, you didn’t learn about personal finance at school. Your parents hopefully gave you a few nuggets of good advice around living below your means and saving for a rainy day. Everything else you may have learned about money you may have picked up from society and the media.
As you are reading this blog, you are obviously searching for answers to life’s questions as I was – and still am. Books remain, the best source of advice along with trusted mentors and coaches. Over the years I’ve read thousands of books on personal development, finance, sales and business. Out of all the books I’ve read on personal finance here the ten which I believe are the best to start you on your quest.
Hill wrote Think and Grow Rich in the early 20th century and it remains a classic guide to getting the right mindset around earning money by providing some kind of service.
The author was asked to draft the book by his mentor, the great industrialist Andrew Carnegie. Hill then spent the next 20 years studying the great wealth producers of the time. He then distilled all he learned into this book.
The introduction starts with the teaser, that the secret to riches is mentioned in every chapter. You are asked to read and reread the book, to let its messages sink in.
20 years after I first read this book, I still make sure I reread it every year.
Rich Dad, Poor Dad was the second book I read on money, shortly after reading Think and Grow Rich. The first reading of the book made me angry. Yes, I was furious. Not because of Kiyosaki’s style but because he made me realise that what society tells you about money is incorrect and in some cases very damaging.
The book is semi-autobiographical in that it shows how a young Robert first learns that his friend Mike’s dad is very wealthy and has a completely different philosophy around money compared to his real dad. Robert loved his real Dad but stated that he had followed the traditional route of Education – Job- Pension. When Real Dad realised his pension wasn’t going to support him, he belatedly looked at business as an option. Unfortunately, he was lacking in the skills after spending his career working for local government.
This book really changed my outlook on therefore my habits. From paying yourself first to producing your own monthly cashflow statements, these habits have helped me get to a point of financial independence.
My big takeaway from this is that you should take responsibility for your own financial education as early as possible. Get a job to gain knowledge and experience, so you can eventually start your own business.
The Cashflow Quadrant expands on the themes in Rich Dad Poor Dad and is a more practical ‘How to’ book. It introduces the four quadrants of financial outlook:
E – Employee. The place where most people start (and usually stay). You get a job, earn a wage and hopefully save enough for retirement, without getting downsized.
S – Self-employed. Here the technician goes it alone. They are master of their own destiny and have the benefit from a tax point of view. The downside is they are still tied to the business. I.e. if they don’t work, they don’t earn.
B-Business owner. People in the B quadrant have learned the art of leverage. They have set up systems and teams of employees who do the work. The measure of how successful the business owner is, is how long they can stay away from the business without it falling apart. They work On the business, not In the business.
I-Investor. A person in the I quadrant invests in other businesses. They may have been a successful Business owner who sold their holdings and now reinvests their profits for higher returns.
The premise of Your Money or Your Life is that every pound you have in your net worth represents an amount of time you don’t need to work. Using the rule of 4% Ie take 4% of your net worth and this is the amount you can live off per year which will ensure your nest egg doesn’t deplete and keeps pace with inflation. This is providing you invest it in the appropriate vehicles – the book describes what these are.
Conversely, every pound you do spend is a pound you don’t add to this savings pot and therefore is time you must keep working. For instance, say you spend £1,000 per year on your annual holiday. That would equate to £25,000 you need extra in your financial independence pot to be able to pay for this every year. (£1,000 is 4% of £25,000). Let’s say you earn £25 pounds per hour. That means you will have to work an additional 1,000 hours in your life to afford to take a £1,000 holiday per year. (More if you consider tax).
You should therefore question your spending and ask if each item or service you receive is worth the amount of extra time you would need to work. Let’s look at our holiday example again. For you, it might be non-negotiable that you want an annual holiday every year and so those extra hours work would be worth it.
If you go through this exercise with all your expenses, you will get a feel for what things in life, you buy, that give you true value.
As I approached Financial Independence and studied more on the subject, I came across the FIRE movement. FIRE or Financial Independence Retire Early, says that once you build up a net worth, of which a 4% withdrawal rate is enough to life on, you are free to retire (see no. 4) . The Early part of the equation states that you can cut your expenses to such a level that your net worth number doesn’t need to be as high as you think.
Jacob Lund Fisker’s book describes how you can take this to an extreme level. It goes beyond frugality and doing simple DIY tasks to cut costs. This is a way of life. For me it goes too far, but for many people it can be a way out of the rat race.
The Millionaire Next Door isn’t a practical book as such, but is the result of an exhaustive survey on several thousand millionaires in the US. It breaks down how real millionaires live their lives, such as what they spend their money on. Do they invest? And in what? It even looks at trends such as when they met their spouse, to even whether they repaired old shoes or bought new.
The premise really is that you wouldn’t be able to spot a millionaire in the street as they don’t look stereotypical. They wear ordinary clothes, usually unbranded and they drive sensible utilitarian cars. The lesson is that if you are an aspiring millionaire, do you do what real millionaires do? If so, you too can join them.
The Richest Man in Babylon is a short book of fables about some characters in ancient Babylon, who have the same worries and aspirations around money as we do today. For instance, why certain people get rich, whilst others struggle month to month. Is there such thing as luck or are lucky people doing certain things to get in the way of opportunity.
It describes how these characters learn, from a rich man, some simple rich habits, that we too can start today. These include paying yourself first – allocate 10% of your earnings before you spend on anything else and put this away to save. Once this savings nest egg reaches a certain level, you can then invest it for further growth. The book warns us though to take advice off trusted and experienced experts before investing.
The Millionaire Fastlane goes against the grain of most personal finance books. Demarco is quite disparaging of the get-rich-slow school of thought. He shows us how he himself escaped the rat race by creating a business, rather than saving and investing.
I thought the NECST model of business, that Demarco advises, is particularly useful to evaluate potential business ideas. The NECST model asks us to analyse our opportunity to see if:
N – there is a Need. Will people buy what you’re selling.
E- how easy is to Enter this business? Ie the easier it is, the more competition there will be.
C- how much Control do you have? E.g. Do you rely on one platform owned by another company? Think Amazon, Google etc.
S- can you Scale your business? The more you can scale the wealthier you will be. Think McDonalds vs a single restaurant.
T – can you take your Time out of the business. How reliant on you is the business? Can you take a month’s holiday and the business will still be running when you get back.
Failsafe investing introduced me to the Asset Allocation called the Permanent Portfolio. Here Browne advises splitting your assets into four classes of equal amounts – Gold, Cash, Bonds and Equities. At the end of the first year your whole portfolio should have grown, but each class will have grown at different rates, fallen or stayed static. You would then adjust your asset allocation so that all four are at parity again.
Then just repeat this process every year and you will, Browne assures us, match the markets.
In effect this model ensures that you sell assets high and buy low. As each type of asset class performs differently in different markets, your overall portfolio should grow regardless of whether we are in high/low inflation or bull/bear markets,
Becoming Rich takes a magical stance on money management. I particularly found useful the money buckets system, which I’ve seen elsewhere but this one resonated with me.
Every time you receive money, whether it’s a salary payment, windfall or sale of an item you split it into 5 buckets with a ratio of 10:10:10:10:60
The key to this system and why it is magic (psychological) is that you are earning money for others as well as yourself. This seems to take away some of the guilt some people can have around earning money. Often, we have negative baggage around money, from things we picked up in childhood. If we can eliminate these negative beliefs, we open ourselves up to receive more.
Becoming Rich advises us to remove 10% of the money you receive and put it into a separate account for gifting. We can then use this money to give to worthy causes that we believe in. It shouldn’t feel like an obligation but if we can find a cause or causes that we emotionally resonate with, then we will feel positive about gifting.
Tithing has been practiced ever since money has been around. People have noticed that as you gift money, you receive even more. I’m not sure how this works but try it out for yourself.
Guilt around money is not the only negative emotion around money. Worry must be the second emotion to eliminate. Often, we worry that we don’t have enough or that we may be met by some financial emergency in the future. Setting up a separate savings fund is really an entry-level personal finance habit, but in this method, you remove 10% of the money on the day you receive it. Then put this into the savings account. It should be automatic and we should never dip into it for treats etc.
Use this fund as a buffer against the worry of future mishaps.
Another negative trait that blocks our abundance is the fear of losing what we have. By having a fun fund, we can spend money on ourselves guilt free. Here you have a finite amount of money you can do anything with. It’s a specific amount you know you can blow. On the other side, though, it will force yourself to feel good about spending some money. After all what’s the point of earning money if you can’t enjoy it now.
The Other fund can be for things like a debt repayment plan, investment plan, saving for a specific big-ticket item or whatever. You are free to decide.
You’ve allocated 40% of you income into specific buckets so you will need to live off the rest. This may be a challenge at first, but you can start off with smaller than 10% buckets and work up to it. What is important are the habits this process creates.
So, there are my 10 favourite personal finance books. Have you read any of them? Do you agree? What books have made an impact on your finances?
If you are just starting on your personal finance journey, I would recommend starting with the three that have had the most impact on my life:
Think and Grow Rich
The Richest Man in Babylon
Rich Dad, Poor Dad.
Investing in property is a fantastic way of building your wealth and providing a sound base for financial independence. Unless you are planning to flip the property, that is buying and reselling for immediate profits, you will need to find a tenant to rent your property for regular rental income.
In this post I describe the steps to successfully get a tenant in your rental property. All this assumes that you have completed the purchase and you own the property legally.
Continue reading “How to get a tenant to rent your property”
I decided to set up a Limited Company to buy property investments. I had two rental properties in my own name and when I worked out my profits after tax, I was horrified to see that I just about broke even.
Continue reading “Setting up a Limited Company to buy property in the UK.”
Have you ever stopped a regime of good habits, or fallen off the wagon? Whatever that wagon is for you. How do you get back on track? Here is how I got back on track.
I’ve read lot’s of books on the art of communication as I’ve had a career in sales. Sometimes, though, real life is the best teacher.
“It’s your posture”, she told me.
“That’s what’s causing your bad back”.
These were the fateful words uttered to me, by my G.P. on that fateful day in November 2003.
What follows is a sorry tale of misunderstanding and woe; A modern fable on communication. It’s something only Count Arthur Strong could better.
By telling you this I merely wish to caution you on the importance of listening carefully. You see, my friend, the truth is stranger than fiction.
My Doctor went on to explain that I needed to improve my posture. She then proceeded to refer me to a Physiotherapist, to show me how and to give me some exercises to do.
She then slid the piece of paper, she had been scribbling on, across the desk in a way only G.P.s do.
Nadine, Physiotherapist
Whitefield NHS Clinic
Friday 4th November 9.15AM
I picked up the chitty and carefully folding it and slipping it into my pocket, I offered my sincere thanks. With that, my fate was sealed, the dye was cast.
At precisely 9.14AM, on November 4th 2003, I launched into Whitefield clinic only to find the receptionist on the phone, deep in communication with another patient.
I waited for eye contact.
9.15AM
“Come on” I whispered to myself.
She’s still gabbing on the phone.
There was a bell on the counter, like the one in Faulty Towers.
Should I ring it, whilst she’s there in front of me?
9.16AM and finally eye contact.
The receptionist finished the phone call.
“Michael Holden, to see Nadine the Physiotherapist – 9.15”, I announced.
“Ok, I’ll let her know. Please take a seat, she’ll be out shortly.”
9.17AM – I sit down in the waiting area. Not long now.
I browsed idly through some back issues of Country Life, as you do.
It was 10.03AM that I realised there might be problem.
“Is there a problem?” I asked. “Only I’ve been waiting over three quarters of an hour and I’ve not been called.”
The receptionist said she would check for me.
Just then Nadine come out of her surgery and quickly looked me up and down, with a puzzled look on her face.
“What time did you think you should have been here?”
“9.15 today”.
“But we’ve no record of your appointment. I’ll tell you what, I’m free now for an initial consultation if you ‘d like?”
“Let’s go then” I rebounded. As I followed her to the surgery.
Now let me tell you, this was the strangest physiotherapy surgery, I’d seen, even though I’d been in precisely zero before this day. There was a couch, though and Nadine indicated to me to sit down on it.
As I sat down, I noticed a statue of a head on the shelf. You know the ones which show the regions of the brain on it. I thought the NHS must be looking into using the mind to control back pain. Enlightened.
Then in all innocence I asked Nadine if I should take my shirt off now. She recoiled in shock, but quickly regained her composure.
“Do you feel you need to undress?”
“Well, I did at my GPs, she had a look at my back and then sent me to you.”
“Well I think you better stay dressed. What seems to be on your mind then?”
What a strange question for a physiotherapist to ask. It was at that precise moment that there was a knock at the door, which opened, and a uniformed lady popped her head round it.
“Excuse me Nadine” she said politely.
“Oh, hi Nadine, what can I do for you?” replied the first Nadine.
“Well, I seem to have lost one of my patients and Margery on the front desk said he might be in here. Mr Holden, I presume?”
Then as I sheepishly got up to follow Nadine no. 2 to her surgery, my eye caught the sign on the door.
PYSCHOTHERAPIST
What are the chances of that happening? Me living in a sitcom.
See if you can spot each example of poor communication in the above. Let me know in the comments.
What time is it? What do you do when someone asks you that question? Chances are you look at your watch or phone. Why is that? How did time get there? Well, I’m going to tell you. 3 or 4 minutes in the future (if you keep reading) you will be able to identify the key milestones in the history of time.
First, lets go back in time. Way, way back, into prehistory. Imagine if you had asked someone then the same question. What would be the answer?
When should we sow, when should we reap? The seasons gave us the answer. So, the answer would be, for instance, Harvest Time. Or it would’ve been whatever season depending on the orbit of the earth around the sun – the year. Although to be fair, from their perspective the sun travelled round the Earth.
That other celestial orb that travelled around the earth was useful too. The moon waxed and waned a tad over 12 times a year. Now we could separate the year even further and become more successful at hunting, gathering and then later farming.
So, about 12 thousand years ago, we could now cultivate crops and grow them exactly where we wanted, soil and climate permitting. Now we could settle down. We formed our first static communities. Villages became towns, which became cities. Eventually kingdoms formed, with kings to rule over them. These rulers needed to control their subjects and how they worked, to ensure the work got done. The carrot and the stick were both used and a new form of time came about. Work and rest days.
Festivals divided up time, into when you could eat drink and be merry, provided you worked to the bone in between. The week of 7 days also arrive with each day give a special name. Oh, and you could rest on the seventh. You’re welcome.
The day is an obvious unit of time, but it wasn’t until the Ancient Egyptians, that we measured the time of day. Sundials were used to track the sun across the sky. The Greeks were the first to divide the day up into 12 divisions or hours. One slight problem. Daytime changed in length every day, due to the tilt of the Earth on it’s axis. The length of daytime and nighttime is only the same twice a year, at the equinoxes.
This problem ticked on until the 14th Century when a bright spark had the audacity to invent the clockwork mechanism. Now we could really tell the time. We had proper hours, minutes and seconds. Punctuality and being on time were good traits to have.
Next, we have the industrial revolution. Mass travel and the railways caused another problem. You see, back then we had local time. The time was different in Manchester than it was in London. The position of the sun at its highest point, determined at what point noon was and that is very different depending on where you are. That’s fine if it takes you a week to commute between two cities, but it’s a huge problem when you have train timetables.
This prompted another great leap forward – standardised time or Greenwich Meantime here in the UK. Now you could ask anyone in Britain what time it was and they could give you the same answer.
So, there you have it, job done. Now you can answer the question with certainty – what time is it? Or can you?
When NASA started sending satellites into space, they quickly realised that they had to reset the onboard clocks continuously. This is because time slows down in space. Now that would eventually really screw your Satnavs up. So, time is different where you are in the universe.
Well, here we are 3 or 4 minutes into the future (thanks for reading fellow time traveller). Now you can identify the major events on time’s timeline. But are you any more certain than our ancestors in the fields 12,000 years ago, when I ask?
What time is it?
A few years ago there was a short film about living in the present, that was doing the rounds on social media. I watched it and logged out of ‘the matrix’ for the rest of that day. I will tell you what happened to me Continue reading “Living in the now – my present to you”