03/ 07/ 2002
A Special Challenge for the Self Employed
As much as we would all like to win the lottery, or strike it rich overnight in our business, in all likelihood our financial growth will be incremental, with our personal net worth increasing steadily over time. In today's Workshop, Jeffrey Moses discusses the writings of three well-known financial gurus, showing the specific steps that self-employed persons should take to assure their own financial security.
There are four vital steps to personal financial security:
- Pay yourself first. This is an absolute must for self-employed individuals, for owners of small businesses, and for anyone not covered by a company retirement plan. When you're self employed, a vast array of financial temptations face you every time you get a check as payment for work completed. But if you don't take some out for yourself and put it into a retirement fund, no one else will do it for you. The principle of Pay Yourself First is explained wonderfully in the financial classic, "The Richest Man in Babylon," by George C. Clason. For more information about this important concept, please see the former Workshop article, Pay Yourself First.
- Buy assets, not liabilities. Asset means: something that will put money in your pocket over time. Liability means: something that will cost you money over time. When you have money burning a hole in your pocket, it's all too easy to buy something that you "think" you need: a luxury car, a new sound system, a flashy watch. But think about it: if you buy a $50,000 car, in ten years it will be worth practically nothing. If you buy a $25,000 car, however, and put the remaining $25,000 in a sound investment, in ten years the $25,000 could easily become $50,000 or more. Disciplining yourself to act this way over the course of a working career will make all the difference when it comes to financial security. This principle and others vital to wealth are discussed at length in the best-selling book, "Rich Dad, Poor Dad," by Robert T. Kiyosaki, with Sharon L. Lechter, C.P.A.
- Save first, and buy luxuries only when you've achieved wealth. The best-selling book, "The Millionaire Next Door," by Thomas J. Stanley, Ph.D., and William D. Danko, Ph.D., conclusively shows that most millionaires are quite conservative in what they buy. This habit is what enables them to become wealthy in the first place, but even after they have achieved financial security they tend to appreciate the value of saving (and buying assets), rather than purchasing luxuries. The book's research discovered that many people who buy expensive watches, clothing, cars and homes are, in fact, not yet wealthy. Rather, they want to appear wealthy. By spending money on items that do not produce income (liabilities), wealth remains elusive for most of these individuals.
- Continually put your emphasis on "learning how to earn." Most schools teach skill-based information, not investment or overall financial know-how. Today's economy demands a constant upgrading of skills, and a general overall knowledge of investing.
Putting these four steps together can assure steady and rapid progress toward your financial goals. Financial security is within everyone's reach.
