The Attitudes of the Wealthy Series: 13 - 15

As you know, one of the most important keys to creating wealth is the right attitude. That is why I decided to share with you in a series of articles the Attitudes of the Wealthy. This is the fifth article of that series.

Attitudes of the Wealthy #13: Treat Yourself Like You Matter

We are going to start this article in the series today talking about how to treat yourself like you matter by paying yourself first.

After two divorces and a failure in the art gallery business I was broke at age 50 and felt I only had 15 years to plan for retirement. While I no longer use the word retire (instead I talk about creating complete financial choice), we will use that word for the wealthy series emails and blog post.

I was self-employed, had no IRA or pension plan, did not have government benefits like social security to lean on, and with only 15 years to gather money for retirement I had to take some massive action and calculated risks. Either I was going to be eating cat food instead of tuna, live on the streets, or I was going have to save or invest enough money to have a somewhat decent retirement.

I might have to watch my pennies, but at least I would have some pennies to watch!

In my gut I understood that I had to build a net worth even though I had thousands of dollars of credit card debt. So, what I did was use a concept that is 5000 years old called pay yourself first. Not enough people properly understand and USE this concept.

When I ask an audience to explain this concept to me, I have had people say, “That means I pay my rent first.” Or, “I buy groceries first.” That is NOT treating yourself like you matter and paying YOURSELF first. That is treating the landlord or grocer first, not you.

When you pay yourself first you take some money from what you receive and immediately put some amount of it aside. It can be from a pay check, a commission, a coaching or consulting fee, a rental payment or any other form of income. It can be 5%, 10%, 20% or more that you set aside FIRST, before you pay anyone else or your bills.

Like training for a marathon, you don’t start by running 26 miles. You start where ever you start. For me, I started my marathon training by running two blocks. When I started to pay myself first, I started at 10% and built it up to 26% (which also included the income taxes I would have to pay).

As I mentioned, this concept is 5000 years old. It has withstood the test of time. It will still be working when you and I are dust. It has allowed people to become secure and wealthy.

In my case when I had saved $18,000, I was able to partner with my last, final and best wife and her Realtor partner to buy a three-unit apartment building. That was the beginning of my real estate investments and ultimately created a multi-million-dollar net worth.

In the next article of this series we will talk about how the wealthy focus on building their net worth versus paying down debt.
Starting today treat yourself like you matter. Pay yourself first before you pay others. Take the action that shows you deserve to own some of the money you are working for. And start now.

Attitudes of the Wealthy #14: Net Worth versus Pay Down Debt

Next we will talk about how the wealthy focus on building their net worth versus paying down debt.

As I previously mentioned, after two divorces and a failure in the art gallery business I was broke at age 50 and felt I only had 15 years to plan for retirement. While I no longer use the word retire (instead I talk about creating complete financial choice), we will use that word for the wealthy series emails and articles.

In my gut I understood that I had to build a net worth even though I had thousands of dollars of credit card debt. So what I did was use a concept that is 5000 years old called pay yourself first.

In my Wealth On Any Income book I have a chart that shows if you focus on eliminating a $6,000 debt BEFORE you begin to invest, it can cost you about $200,000 in lost investment earnings over a 30 year time frame. And that is only if you are investing $300 per month, or $10 per day! (check it out on my website at https://wealthonanyincome.com/book)

Wouldn’t you agree that giving up $200,000 to get rid of a $6,000 debt is not a wise thing to do?

While I felt this is my gut, while I put this down in my book, I was still haunted by carrying the debt while I was saving and investing. However, after a few years I was able to see and feel the wisdom of this approach.

After about three or four years, I do not remember exactly when, the income from the apartment buildings we were buying was able to provide some extra income to pay down the credit card debt. In a few more years I was able to pay off my credit card balances in full every month from the income from our investments.

I will admit it was an emotional, and sometimes financial, struggle in the early years of investing, but the payoff has been huge. It does not matter if a credit card bill comes in at $2,000 or $20,000, it gets paid off in full when the bill arrives. There is no way I would be in this situation if I focused on paying off debt instead of building my net worth.

And it will work the same way for you too if you commit to the process.

Attitudes of the Wealthy #15: Credit Cards vs Mortgages

To wrap up this article in the series we will talk about how the wealthy understand good debt versus bad debt and how they use good debt to become millionaires.

In the previous attitudes you saw how combining paying yourself first with a focus on building your net worth instead of paying off debt can lead to financial success. Now, using good debt multiplies the wealth you can create.
First, let’s define bad debt. This is the debt you created from purchases you consumed, like groceries, meals, travel, or a vacation, but carry the balance from month to month on a credit card and pay interest on it.

As an example of good debt, let’s say you were to purchase a house, an apartment building, or any other real estate investment for cash. We will use a property valued at $100,000. In this example I will also omit any rental income from the property, or sales commissions, or other expenses and only focus on the appreciation.

If the property grows in value by 3% you could sell it for about $103,000. Your profit is $3,000, or 3%.

If instead of paying all cash for the property, let’s say you only invest $30,000 and borrowed the rest. To keep things simple, I will ignore loan payments. Here is how it at the end of the year with the same 3% growth factor:

You also sell it for $103,000, but you only put down $30,000 to buy the property. Now your profit is $3000 from a $30,000 investment or 10%.

AND, now you have $70,000 left over to purchase two more properties!

But beware: The debt can cut you down as well. In 2008 when real estate values plummeted, people lost their properties because they were over leveraged. The loan was too high of a percentage to the value of the property, and the value became less than the amount owed.

This can also happen when stocks are purchased on margin and the value of the stock drops dramatically.

We have been conservative about the debt to value ratio when we purchased apartment buildings and it had virtually no impact on us in 2008. The rents were stable, the loans were all paid, and we were fine.

Hopefully you can now see how the wealthy use debt to multiply their riches and how I was able to go from broke at age 50 to a multi-millionaire in just a few years.

If you would like to learn more, you can watch my Masterclass “How to Spend Your Way to Wealth and Abundance”, a recording is available from my home page at www.WealthOnAnyIncome.com

To your prosperity,

Rennie