Read an Excerpt
By Michael Masterson
John Wiley & SonsISBN: 0-471-71027-X
Chapter OneSTEP 1
RECOGNIZING OGNIZING REALITY
In this chapter, we're going to look at your personal financial situation-where you're at right now. We'll figure out what wealth means to you, look at some hard facts about the economy, and come to a realistic conclusion about what you need to do to put yourself on a path that will allow you to live well and retire comfortably.
But first, let me tell you how I got started on my own road to wealth ...
THE DAY I DECIDED TO GET RICH
It doesn't take a genius to get rich. Nor are special talents required. You don't need to be lucky. And you certainly don't need to be privileged. You do, however, have to make getting rich a priority in your life-and be willing to focus the majority of your time and energy on doing what it takes to build real wealth.
I discovered this early on in my career.
It was 1982. I had just been hired as editorial director for a fledgling newsletter-publishing company in South Florida. Because I had to give the occasional speech, I enrolled myself in a Dale Carnegie course on public speaking. Somehow, though, I ended up in the Carnegie basic success course instead.
The How to Win Friends and Influence People program is a 14-week course in which you are asked to focus on a certain character-changing task each week and then report on your progress the following week.
I was the worst student in theclass. Cynical and suspicious, I despised what I took to be the silly, do-goodish prattle of the teachers. But I'd paid good money to be there, so I grudgingly went along with the program-and I'm very glad I did.
The assignment for week 4 was to come up with a single goal that you would pursue for the remaining 10 weeks of the program. The idea was that by concentrating on only one goal, you could make much more progress than you would with a wider scope of objectives.
Sure enough, I had a hell of a time with that lesson. For me, it was by far the most difficult of the 14.
When I first started listing my goals, I could think of only two or three. But as I put more thought into it, the list began to expand ... first to half a dozen ... then to 10 ... and then 20 ... and on and on. Narrowing down the list was torture. Among other things, I wanted to be a great writer, a wise teacher, an admirable dad and husband, a linguist, a wine connoisseur, an athlete, and more. I was paralyzed. I simply couldn't tolerate the idea of giving up any one of those goals.
Finally, driving to the class at which I was to publicly announce my one main goal, I had a breakthrough. I realized that all my hard work and ambition had amounted to nothing because I had been spreading myself so thin.
Then I had an idea: "Why not make making money my number one goal?" I thought. "If I achieve that goal, I'll have all the money I need to pursue my other interests."
At the time, I knew nothing about making money. I had come from a family of teachers who didn't care much about money or the things it can buy. But I focused on that one goal and made it my priority. And it worked. Big time.
My income started to climb. I had been making $36,000 at the time, and it doubled in 12 months ... and then tripled the year after ... and then kept on multiplying. I developed an interest not only in how money is made, but also in how it is lost and what it can do for you.
I began reading about it, talking about it, asking about it-trying to unlock its secrets. At the same time, the publishing company I was working for was changing its focus from providing information about business and travel to financial planning and investing. And I was fortunate enough to get to know some very smart people who seemed to truly understand how money works and some very successful businesspeople who had demonstrated how wealth is actually made.
This experience completely changed my ideas about wealth. Before my conversion, I felt that money was, at best, a necessary evil. But after I took the time to learn about it, I decided that wealth is actually a pretty good thing-not the most important thing in life, but a good thing that can make it easier to find time for the other, more important things.
THE REAL MEANING OF WEALTH
I remember when my income first broke through the $150,000 mark. Louis, my accountant at the time, was amused by my innocent astonishment at making so much money.
"Welcome to the world of the rich," he told me.
"Come on, Louis," I said. "I'm making barely more than one and a half grand."
"Think of it this way," he told me. "When you have a family income of less than $50,000, it's a struggle. When you make between $50,000 and $150,000, you have everything you need and some of what you want. But when you make more than $150,000, life is good. You can live in a beautiful house in a safe neighborhood, drive nice cars, go out to dinner once or twice a week, and do some traveling."
"But what about the mansions, yachts, and private jets?" I asked. "I still can't afford those."
"Those are just toys," he said. "$150,000 per year is all you really need to live a full, rich life. And here's the interesting thing: This doesn't change in any meaningful way when your income passes $200,000, $300,000, or $400,000. In fact, it doesn't really change until you are making more than a million dollars."
Back then, I only half understood what Louis was trying to tell me. Now, I think I get it completely.
There are four basic income levels:
1. If you have a family income of less than $50,000, it's tough to make ends meet.
2. If you earn between $50,000 and $150,000, you are getting by. Your bills are paid and you can afford some small luxuries, but you have to be careful.
3. When your family income exceeds $150,000, you are living well and want for nothing (unless you have 10 children).
4. When your family income exceeds $1 million, you can spend money without much thinking. You don't need a budget. You can be extravagant.
But making a million dollars does not increase the quality of your life-and it does not, in itself, guarantee that you will have financial security till the end of your days. What it does do is make saving infinitely easier. Because unless you are completely out of control, you will be able to save most if not all of your after-tax income that exceeds the million. And saving is key to jump-starting the Automatic Wealth program.
So if you can get your income above a million, you can get rich, relatively quickly, merely by saving. And that may happen simply by following the advice I'll be giving you in Step 3.
But if your primary income doesn't grow so dramatically, don't despair. You can still achieve financial independence in a relatively short period of time (less than 15 years, certainly; probably less than 7) by developing additional streams of income. I'll tell you how to do that, too.
BEING RICH IS NOT JUST ABOUT HAVING MONEY IN THE BANK
One of the most active discussions that ever appeared on the online forum for ETR, my daily e-zine, was in response to the simple question "What is wealth?" This question prompted a deluge of interesting answers, from the mundane to the pragmatic to the philosophically problematic. Answers like these:
A million dollars in the bank
Having everything you want
The power to command results
Being loved by your family and friends
Having tangible assets sufficient to meet the physical needs of yourself and your loved ones
Having a balanced life
Inner peace and spiritual enlightenment
Excellent health and immunity from disease
This is just a small sampling of what our readers had to say, but it gives you an idea about how varied and sometimes vague our thinking about wealth can be. And although I recognize the sense in many of these definitions, I find it impossible to talk to people about wealth unless I can get them to agree on some basic terms. So let's do that now.
I suggest that we start with this definition: Wealth is a store of something valuable.
I like that definition because it is simple and because, no matter what it is that you value, it emphasizes something essential about wealth: the idea of storage. Having the things you desire-say, a big house and fancy cars-does not make you materially wealthy if you don't have the wherewithal to keep those goods over a protracted period of time. Nor are you wealthy in friendship if the many friends you have now would abandon you if your fortune changed.
The point I'm making here may be too obvious to mention: that wealth is only sometimes about money. Understanding wealth in a broader sense, with implications that go beyond dollars and cents, is essential.
Yes, the main purpose of this book is to help you become financially independent. But you want financial independence for specific reasons:
You want more freedom in your life. You want more choice about where you live, how you live, how much you work, and so on.
You want more leisure in your life. You don't want to feel compelled to work 8 or 10 hours every day, or five and six days every week.
You want more tranquility in your life. You would like an end to the stress that the lack of money sometimes causes. You want to be able to sleep easily at night and enjoy your days without worry.
These goals are wrapped up very tightly in your desire for wealth-and as a result, they are a fundamental part of every step in my Automatic Wealth program.
Let's push a little further along this path and delve a little deeper into the way you think about your life and the things you value.
INTERESTING FACT: Only about one-half of 1 percent of U.S. households have a net worth of $5 million or more, excluding primary residences, according to the Spectrem Group, a consulting firm specializing in affluent and retirement markets. And only 0.2 percent of U.S. households have a net worth of $15 million or more, including their homes, according to the Federal Reserve.
PLAN TO BE WEALTHY IN EVERY IMPORTANT WAY
I'm hoping that money is not the most important thing in your life.
Nevertheless, material wealth does matter. It gives you the ability to help your friends, provide for your family, pursue intellectual and artistic interests, and become an inspirational role model for members of your community.
Plus, if you don't have an income sufficient to meet your needs, you'll spend a good deal of time fretting about it-and when you spend time fretting about money, you can't enjoy the things you truly care about.
This is a truth that more and more baby boomers (including a few of my friends and family members) have recently discovered. Stumbling into middle age with lifetimes of educational, social, and recreational experiences, yesterday's hippies are hitting their 50s with the depressing realization that they are working harder than ever to maintain a lifestyle that is not much better than the one they had in college.
I've had the good fortune to be able to help dozens of such people work themselves out of this sort of bog, regain solid ground, and go on to achieve financial independence. It took some time and it wasn't always easy, but it always began with a revelation-a revelation that was especially bracing for some of the smartest of them-that becoming financially independent is a good thing, something all good people should aspire to.
Having enough money can liberate you from a thankless job, free you to follow dreams, and allow you to take care of your loved ones.
That's the reason you're reading this book.
But never forget that the desire for money can also corrupt you. If, in pursuing wealth, you begin to believe that the accumulation of money is an end in itself-well, that's a bad thing.
This book will help you make money. And if you follow my suggestions faithfully for a reasonable period of time, you'll some day-probably sooner than any of your friends or colleagues-discover that you are wealthy.
But when that day comes, I'm hoping the greed bug will not have infected you. I hope you won't have become addicted to the idea of making the money pile grow. I hope you won't have forgotten what you know now-that there are many things more important than money. (We'll talk much more about this in Step 3.)
FOLLOW POPULAR FINANCIAL GURUS AND STAY POOR
You won't find anything in this book that will give you instant wealth. I have no advice about making a fortune through buying hot stocks, day trading, or playing the lottery. But you don't want that kind of money anyway. Studies show that people who get rich rapidly blow it all quickly on things that have no lasting value.
My six-step wealth-building program is fast-realistically fast. Depending on your age, skills, and current income, I'll get you from where you are today to wealthy in 7 to 15 years. That's not tomorrow, but it's a lot better than you'll do by following most of the financial advice that's out there. Open a magazine or turn on the TV and you'll see that the majority of it falls into the category of financial planning, that is, ways to scrimp and save. Advisers who promote this concept assume you need to crawl toward retirement, clutching pennies until your fingers turn green.
But what about the quality of your life in the meantime? And when you're living paycheck to paycheck, how do you wring a nickel out of your budget for retirement, much less the $5 or $10 per day that these financial gurus recommend?
Getting wealthy is not a matter of scrimping and cutting corners. To make a lot of money, you must spend most of your working time doing the things I'm going to tell you about in this book-things that generate extra cash now that you can use to generate automatic streams of income in the near future. Yes, it is important to be careful about the way you spend your money-but if that's the main part of your wealth-building program, you probably won't get rich. And even if you do, you won't feel rich.
The problem is, most of those doing the preaching-those who would convince you that they understand wealth and can teach you how to get it-have never actually made significant money by following their own recommendations. Their great moneymaking skill is in selling people on buying their ideas.
During my years as an insider in the world of investment publishing, I saw
Financial planning experts who were broke
Stock gurus who never followed their own advice
Brokers who talked about their clients with contempt
Marketers who never checked their facts
Business consultants whose businesses hardly worked
Get-wealthy authors who made their money by talking about making money, not by actually earning it in business
Though it's true that some of my wealth has come from teaching others how to attain it, the vast majority is the result of my actual experience working in the trenches, learning from my mistakes, and capitalizing on my successes.
HOW MUCH WEALTH DO YOU NEED?
Most books on the subject of wealth answer this important question in terms of a concept called retirement. And in today's world, you need a lot of money to retire well. Even people who had their retirement money safely tucked away in the stock market and thought they could look forward to a secure future are now in trouble.
Take Martha Parry, for example. The New York woman sold her insurance company and thought she had it made. According to a Time magazine cover story, she had $1 million in the stock market and was looking forward to a retirement of golf, travel, and good times.
Then the stock market crashed. And now, at 65, she has only $600,000 in her retirement account. And instead of playing golf and traveling, she's still at the office earning her living. And she's one of the lucky ones.
Another woman that I read about had to be put on medication for severe depression because a year after being downsized from her job, she learned her nest egg had plummeted from $1 million to $250,000.
And many victims of the stock market crash have been left in even worse shape.
Tim and Kay Plumlee saw their retirement fund plunge to a mere $60,000 after a broker recommended they put their life savings into a variable annuity-an investment that seemed like a profitable, risk-free opportunity at the time.
Excerpted from Automatic Wealth by Michael Masterson Excerpted by permission.
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