While success is in the eye of the beholder, I heard an interesting fact recently about intelligence and financial independence. And that fact was that the vast majority of financially independent people have average or below average intelligence. We are talking here about raw intellectual capability. This would seem counter intuitive to everything we are taught to believe in school, the corporate world and life. That we have to be ‘smart’ to accumulate financial advantage. Turns out the opposite is true and social researchers put it down to one simple thing:
“People of average intelligence are not overly impressed with how clever they are.”
Sounds like a silly thing to say, but it gives average people like you and me a big advantage. It means that we know we have to work hard, and maybe even a bit harder. And it also means that we don’t think we know everything already and so we have on open mind to learn new things and methods.
Turns out that some of the key factors in the success equation are about being average.
In terms of financial wealth there is an equation which determines the amount money people acquire over their lifetime. And while monetary wealth is only a small part of living a life of great wealth (I prefer the 12 enduring riches) it is certainly worth knowing this equation and applying it to our daily economics. In a modern society a financial existence is unavoidable, and so it make sense to keep tis equation in mind. So here is the Wealth Equation:
(Income – Expenses) x Investment = Wealth
When we look at it like this in such simple terms, it reveal the current path we are on in the most immediate way. We know if we are spending too much. We know if we are not investing at all or in great enough quantity. What’s interesting is that the first element in the equation ‘income’ is not nearly as important as the second two. When we invest in a startup we are sacrificing the size of first number to go big on the investment multiple. Higher risk and higher reward. There are also many examples of people who became rich with low incomes, frugal spending habits and consistent long term investing. It’s all a game of risk tolerance, time and desired reward. One thing for sure is that wealth is impossible when expenses are greater than income. The important thing to know is which path we are chasing before we being the journey.
It’s good to remind ourselves of what we already know. One of these things is the really important stuff which our financial position has no influence on. Here’s my top 10 list.
- Being a good family member: Integrity, love, caring, effort, understanding and being able to listen have no price.
- Our fitness levels: Having a gym membership, or exercise equipment is not a requirement. Walk, run, push up. Move.
- Eating health foods: The healthiest foods are the cheapest. Fruit, vegetables, raw oats, milk, water.
- Being happy: We’ll be as happy as we chose to be, right now. I know plenty of rich miserable people.
- Education: Library cards are free, all libraries have internet access. University courses are now free.
- Enjoying who we work with: If we don’t like who we work with, we can leave. We are not trees. Our roots are not fixed in the ground. Walk on.
- Giving: Sharing what we are lucky enough to already have costs nothing. Whether it is a physical good, advice, or knowledge. At the time of giving there is no price.
- Friendship: The to and fro of sharing life with a friend is a pure gift.
- Faith: Not necessarily the religious type, but the ability to believe in something, anything which makes the future a place worth arriving at.
- Work: The joy that comes from doing. The willingness to put in effort now, because it’s worth doing, not because of the reward.
Why did I decide to write this blog post? Well, last friday I had lunch with a friend who I hadn’t seen in a while. During the lunch I got to thinking about how there was nowhere I’d rather be at that moment. That no amount of wealth would change how enjoyable it was, or create a desire to be elsewhere. That moment was in itself one which existed outside of our financial construct. Turns out, that most of the important things do.
… want to get rich so they don’t have to care about the company they work for, or the crappy project they are doing. Once they make bank they can do what really turns them on.
I used to be that guy.
Now I just do what really turns me on, and all of a sudden I don’t care so much about how many zeros are in my bank account.
My father once told me; “Regardless of how rich you are Steve, you can only eat 3 meals a day, lay your head on one pillow and enjoy the company of those around you. Money is an illusion. The art of becoming wealthy is actually knowing what it means.”
Needless to say my dad is the richest man I know.
So what we ought do, is not let the Industrial Complex redefine wealth on our behalf and make us live a life of postponing what we care about. Because once we can feed ourselves and have somewhere warm to live, the rest is in our minds.
Our view on success depends largely on our reference points. If we look up we see some of what we might hope for. If we look down, we see that our lot in life is not that bad.
There real danger is only looking one way. If we focus just on those above us, we may never be satisfied. We could turn into workalohics, forget to appreciate what we have achieved, or even worse, we could become jaded and jealous. If we focus just on those below us, we become satisfied, lazy, or simply accepting of our status quo.
If we look both ways it helps us to stay balanced and have perspective on what we have, versus what we’d like. And the last important thing to remember is to define ‘up’ carefully, and make sure it focuses on riches beyond the financial type.
There are a bunch of ways to increase our incomes. Whether we are business owners, startups or employees the principals are the same. So here’s a list of 10 things we can do (starting tomorrow) to boost the income we receive from whatever we do.
- Learn or improve our public speaking skills - Our ability to sell ourselves and anything verbally is still the number skill in business. Anyone who can speak in private, can speak in public – it just takes practice. There are tricks we can learn and if we learn them what we earn will increase dramatically.
- Write a blog – If we write a blog on what you do it has a wondrous way of increasing our knowledge bank, our reputation and builds a verifiable asset we can use to sell our credentials. All I can say is that of all the things I’ve done in my life, blogging has created more economic benefit for me than anything else. You’ll only know how this happens if you have faith and do it.
- Keep your body in good shape - I believe it has two important ways it impacts our earning potential. Firstly a fit body has a brain that works better. This is a medical fact. Secondly, people subconsciously judge us on what we look like. If we are in good shape people increase their trust levels of us. Because we look after ourselves, they believe we can look after them and their business. I know this is almost cultural heresy, but I do think it is true.
- Groom & dress well – As per the second point above. How we look is an asset. It doesn’t mean we need to wear expensive clothes or look like a movie star, but have pride in our own human existence. Never be afraid to invest money in nice clothing.
- Work harder on yourself than you do on your job – People buy us as they asset, both in startup land and employment land. So we must invest in self development more than developing the business. If we do the former, that latter happens automatically.
- Leverage the wood chips – Every job has some kind of ‘off cut’ or left over which is part of the process of being productive. This is often a great asset which can be leveraged. Know what your wood chips are, and take them to market. This not only invents revenue, but displays vision. People will notice.
- Help others grow – Help friends and colleagues achieve their goals. Help them with what you know and inspire them to be all they can. Do it without desire for any repayment. It will inspire you and karma will return the benefits.
- Save 30 percent – Keep 30 percent of your income to be invested. Do this before any expenditure occurs at all. Put 10% into active capital (your own entrepreneurial ideas). Put 10% into passive capital (shares, interest bearing deposits, other peoples business ventures) and put 10% back into society – this should be defined by yourself. It takes far less than people think for the compound benefits of such a simple financial strategy to accrue.
- Spend 10% on your income on self education – No matter what we earn we must ensure we allocate 10% of this to re-educating ourselves. In a world of rapid change this is not a choice but a must. This is the ingredient to continued self worth and value. It pays for itself many times over. Just ask any millionaire.
By the way this list is ‘non-exhaustive’ – but a set of activities I have learned and used. Maybe you’ve got some additional tactics you can share in the comments.
A startup blog regular – Josh Moore has been asking for as post on Property Investing. Which like anything can be treated like a startup. It’s a big topic with a million books on it. But I have had a side interest in it for some time. So here are some tips on stuff that I think is worth knowing when investing in property. A bit of a 101 guide:
- Property returns on average about 10%. Which is quite similar to the share market on.
- Banks will lend much more money for property investments due to lower volatility than shares.
- You should buy investment properties that you, yourself would like to live in.
- Land goes up in value. Concrete and air does not increase in value.
- Period buildings (unique styles, historical) have higher capital growth than the average property.
- Rental returns are usually below 5% per annum.
- Property investment can be a quicker path to wealth than shares due to leverage (borrowing money).
- Getting someone to manage a property costs about 7% of the rent per week. (so you wont have to fix toilets)
- You should always allow for 6 weeks a year vacancy on rental properties.
- High capital growth properties & areas, tend to have lower rental yields.
- High yield properties tend to have low capital growth.
- Areas going through gentrification usually have greater capital growth.
- A rental guarantee is a lie – the rent for the guarantee period is usually built into the selling price.
- Auctions are invented by real estate agents who want it to sell quick to get their money.
- Homes on busy roads have a higher turnover of renters and reduced yield.
- Homes near water (river, beach, lake) grow faster and fetch a premium.
- Tax benefits of property investment in Australia are a significant advantage.
- You can draw out profits (capital gain) from a property that has grown in value and not pay tax on it
- You can buy insurance against tenants in case they damage your house (Landlord Insurance).
- Investors should choose between yield or capital growth when investing.
- Capital gains tax on selling is 50% lower if you’ve held the property for over 12 months.
- Property investing is very dependent on government policy, technological change, and infrastructure.
- The key to investing is compound growth. Trading removes the power of compounding.
- Trading properties & developing, is not investing, they are more like running businesses.
- Trading properties is expensive – acquisition usually costs between 6-9% of market value.
- Disposing of property usually costs around 3-5% of market value.
- The property market can go through long periods of sustained stagnation, 10% returns is 100 year+ average.
- Buying properties off the plan is risky. The saving in stamp duty can be a false friend.
- Mortgage insurance is for the bank, not the mortgage holder.
- The word mortgage is French, meaning; An engagement until death.
- I believe that property is a get rich slow category
- The biggest land holder on earth is ‘The Catholic Church’
I was interested in reading an article in this weekends Australia Financial Review which was titled ‘What worries the rich?’ – Firstly, who cares? Not me. Not because they are rich, just that it is an irrelevant question. We all have worries, and the worries of a particular demographic are no more important than any other demographic. However, in reading one particular persons comments I was astounded at the irony.
The rich person in question was Bruce Mathieson, who has a net wealth of over $1 billion. He said:
“I’d hate to think that I had a lot of money but my family and everyone around me were unhappy. That would be an absolute disaster.”
For anyone who doesn’t know, Bruce made the majority of his wealth via Poker Machines. Here is a guy who “sells hope, and provides misery” – claiming he’d hate to make anyone unhappy. Is he serious?
Poker machines provide nothing good to society. The only thing that poker machines are good at, is redistributing wealth from the poor to the rich. And governments falsely believe the tax revenue outweighs the cost of the social ills they create.
You might think this is slightly off topic for startup blog. But for me it sent me a clear message about what business is all about. Creating value for all those who participate in the value chain – not one sided value. If the cost of being wealthy, was creating heart ache for people, I’d rather be poor. In addition, I like to think we are entering an age where wealth creation is more often a result of creating value for society, not by tricking people.
There is no point being a successful entrepreneur, or selling a startup if we have no idea how to handle the money we get. So here is my top 10 financial life hacks.
- Spend less than you earn, no matter what that amount is. The net result is happiness.
- Allocate cash to savings & investments before anything the day you get your profits, pay or dividends.
- Never go into debt for anything which does not appreciate in value.
- The real definition of an Asset: Anything that puts money in your pocket. The accounting definition of an asset is flawed.
- Do not trade stocks. Trading makes the broker and tax man rich and you poor.
- The greatest financial instrument is ‘compounding’. It only happens when we hold assets, not by trading them.
- If you can’t afford a consumer product in cash, you can’t afford it.
- There is no such thing as ‘financial engineering’. It was invented by Wall street to trick you.
- The best type of share investment is an Index Fund. They are investments in civilization. If that fails, we have bigger worries than our money.
- Invest more in education than entertainment & ‘things’ and you will outdo society financially.
With great wealth comes great responsibility. The key word I’d use to describe this is ‘legacy’. When entrepreneurs become successful financially, then I think it makes sense to leave a legacy which creates pride beyond money. Often this comes in the form of the business that has been built. A footprint of good stuff the business created – which is the source of the original monetary rewards. Great entrepreneurs go beyond their business and create value for society.
What successful people do after they are financially rewarded is more important than what they did in order to arrive.
So let’s consider the tale of two billionaires. One from Australia and one from the USA. Granted the USA version is much wealthier, but when we are talking billions, I think it matters not.
Billionaire 1 from the USA: Bill Gates. No introduction needed. Gates has made The Giving Pledge to donate over half of his wealth to charity. He has given more than $28 billion to charity and focuses the majority of his efforts fighting poverty and disease in 3rd world countries.
Billionaire 2 from Australia: Gerry Harvey. Retailing magnate known for having strong opinions and doing his own voice overs for his radio and TV advertising. Sure his industry is changing (Just like Microsoft is under siege from web based software platforms) but rather than being happy he’s a billionaire and doing some good, he’s investing his wealth and energy into lobbying the government to change GST tax law thwart his competitive threats.
Despite the fact the GST is not the reason people are taking their shopping on line, Gerry has really lacked the decorum and perspective that should accompany a billionaire. Sure, Bill has had his fair share of questionable tactics in business, but he has never cried poor. In some ways, it makes me embarrassed to be Australian when our business stalwarts are showing such a lack of leadership in society.
I’d be happy to hear your thoughts, but I can’t help but think that it comes down to responsible leadership and legacy. If I’m ever fortunate enough to make one….(a fortune that is)… please remind me of this blog post.