Read an Excerpt
The Six-Day Financial Makeover
Transform Your Financial Life in Less Than a Week
By Robert Pagliarini
St. Martin's Press Copyright © 2006 Robert Pagliarini
All rights reserved.
Do You Need a Financial Makeover?
Do you want more from life? Are you working harder and putting in longer hours but don't feel financially secure or satisfied with your progress? Many of us are making more money but we still don't feel that we've made it What do you think about when you're alone? When the phones aren't ringing and the television is off, what occupies your thoughts? What questions or concerns do you have just before falling asleep at night? In those quiet moments when you are able to reflect, are you satisfied with your financial situation or do you yearn for more?
Regardless of your present situation, you can achieve the life you've always dreamed of. It doesn't matter who you are or where you live. It doesn't matter if you had a privileged childhood of abundance or one of hardship and scarcity. With this book, you can improve your life and chart your own destiny in six short days.
This chapter is your wake-up call. Do you feel that you are maximizing your potential? Do you feel that you are living the life that you've always wanted? If you are financially frustrated, insecure, or just plain scared, you can feel financially secure and realize all of your dreams with a financial makeover.
Should I read this chapter?
1. I thought I would have a more fulfilled life
than I do right now.  
2. I think making money is the most important
goal to have.  
3. I don't know what it would take to have a
balanced life.  
4. I don't know why financial independence is a
worthwhile goal.  
5. I'd like to learn about the incredible opportunity I
have to improve my finances and my life through a
financial makeover.  
If you answered any of these questions TRUE, you should read this chapter.
What Is a Financial Makeover?
Maybe you're not sure what to expect from a financial makeover. That's fair. It's good to be a little skeptical. If you're familiar with fashion makeover, you know the successful ones don't stop with a facial or a new wardrobe. Successful makeovers require a total transformation — from head to toe and inside and out. Likewise, your financial makeover won't stop with just a budget or an investment plan. Your financial transformation will include all of the critical areas of your financial life — creating a spending and savings plan, protecting assets, investing wisely, risk management, insurance, estate planning, and much, much more.
Over the next six days, your financial makeover will strip away everything that is not working — maybe you're spending too much, sabotaging your own success, taking too much risk, not investing wisely, or leaving yourself and your loved ones financially exposed — and replace it with a solid foundation from which you can immediately start to see success and feel a sense of confidence. Your financial makeover will also maximize what you're already doing well. If you have powerful and inspiring goals, are saving diligently, and investing well, your Six-Day Financial Makeover will help you maximize and optimize your strengths.
I will walk with you, step by step, throughout the six-day transformation. Together we will turn the complexities of budgeting, investing, insurance, and estate planning into something understandable and practical. We're going to take the 'pie-in-the-sky" theories and turn them into bite-sized pieces that you can implement in your life immediately.
Do You Need a Financial Makeover?
Maybe you're not convinced you need a financial makeover. Are you nervous, frustrated, unsure, concerned, or just plain scared of your financial situation? Are you tired of feeling sick every time you think about investing, retirement planning, life insurance, estate planning, and paying the bills? What if I said you don't have to feel that way anymore? No, you won't get rich or magically accomplish all of your goals in six days, but The Six-Day Financial Makeover will help you feel better and more confident about your financial situation and provide practical steps that are easy to understand and will make a dramatic and immediate impact on your life. If you're still not convinced you need a financial makeover, take the short quiz below or online at www.SixDayFinancialMakeover.com to quickly determine how well you're really doing.
Financial Satisfaction Quiz
Circle the number that corresponds to how you feel today.
I feel negative and pessimistic about my future. 1 2 3 4 5 I feel extremely positive and optimistic
about my future.
I am not sure what I want to achieve or 1 2 3 4 5 I know exactly what I want out of life.
obtain in life.
I have no idea what it would take to 1 2 3 4 5 I have made plans and have developed
become financially independent. strategies to become financially
I feel that no matter what I do I won't be 1 2 3 4 5 I feel completely in charge of my success
able to get ahead. and my destiny.
I do not have a system in place to 1 2 3 4 5 I have a system in place to consistently save
consistently save and invest money each and invest money each month.
I have never invested before, or if I have, I 1 2 3 4 5 I know the subtleties of investing and have
make decisions without having an overall an overall strategy for all of my
investment strategy. investments.
I am not sure if I would lose all of my 1 2 3 4 5 I feel confident that if I was involved in a
assets if I was sued. lawsuit my assets would be protected as
much as possible.
I am not satisfied with the amount of 1 2 3 4 5 I am satisfied with the amount of money
money that I save and invest on a regular that I save and invest on a regular basis.
I have heard of identity theft but am not 1 2 3 4 5 I have taken all of the necessary steps to
sure how to protect myself. protect myself from identity theft.
I am not sure where my assets will go when 1 2 3 4 5 I know exactly where my assets will go
I pass away. when I pass away.
I think I may be taking too much risk with 1 2 3 4 5 I am taking an appropriate amount of risk
my investments and do not think that my and am extremely comfortable that my
investment portfolio is properly diversified. investment portfolio is properly diversified.
I have not taken any steps to ensure my 1 2 3 4 5 In the event of a tragedy, I know that I have
family's well-being in the event of a taken the proper steps to ensure my
tragedy. family's well-being.
Scoring the Financial Satisfaction Quiz
Add your scores to see how you've done:
Score 12-34=Overall, you're not satisfied with your current financial situation. By completing the Six-Day Financial Makeover, you will see the greatest improvement. At the end of the six days, you will feel more confident and secure — you will experience a financial transformation!
Score 35-47=You're doing some things right, but there is a lot more you can do. Maybe you've got a great handle on investing but are neglecting other areas of your financial life. Whatever the case, there is significant room for improvement. You can and will feel energized and on top of your financial situation at the end of your financial makeover!
Score 48-60=You're doing a lot of things right. You've got a good handle on many aspects of your financial situation. Now it's a matter of optimizing what you're already doing well and making sure you've covered all of the bases.
Take the quiz online at www.SixDayFinancialMakeover.com if you haven't done so already.
The Importance of Financial Independence
Financial independence is a phrase that gets tossed around too often and usually without any understanding of what it really means — often by salespeople on late-night infomercials hocking 'get rich quick" real estate schemes, home-based businesses, or investment trading programs. My goal is to take the mystery out of financial independence and to show you exactly what it is and what it provides and to explain what financial independence is not. Financial independence should be your primary financial goal, and here's why.
At the root of financial independence is the freedom to choose. The ability to choose between several options puts you in control of your finances and your life. It allows you to shape your life rather than being at the mercy of someone else's vision of your future. It takes you out of life's passenger seat and puts you behind the wheel. Suddenly you can choose the kind of work that stimulates and inspires you without worrying about how much money you will earn. It also allows you to pursue your hobbies without regard to their cost or time commitment. For many, financial independence allows them to volunteer their time and money to worthy causes.
Financial independence also provides security. How would you feel if you could live the lifestyle of your dreams without worrying about being downsized, having to work two jobs, or sacrificing time with your family? When you become financially independent, your sense of security comes from having control over your life and your future. Without financial independence, your life is dictated by someone else — usually your employer. Your security is in the hands and at the whim of an organization or an individual with their own best interests at heart — not yours.
What Is Financial Independence?
Financial independence means different things to different people. To some, it means being able to pay the bills. For others, it means being able to eat out every night. Yet for some, it means being able to have three vacation homes and a yacht. I define financial independence as being able to support the lifestyle you desire without having to work.
There are two important pieces to this definition. First, you need to differentiate the lifestyle you desire from your current lifestyle. This is a signficant distinction. Too often, we reduce our lifestyle to fit within our means. Financial independence is not about limiting or reducing your lifestyle, but about living the life you want and having the means to support it.
Don't Let This Happen to You
Josh grew up with his three sisters and one brother in a home that barely had enough resources to support two children, let alone five. There was never quite enough to go around. The family never took vacations or had enough for the 'extras" other families could afford. Josh used his childhood experience to fuel his growing ambition. He vowed that he would never go without again and that his family would have everything they wanted. He didn't want his kids to suffer the ridicule he experienced growing up.
Josh's ambition and drive helped him climb the corporate ladder. When the new line of BMWs came out, he upgraded. His twenty-five-foot boat was replaced with a larger, faster version when his golfing buddy purchased a better one. From the outside, it appeared that Josh and his family had it all — a large house, two luxury cars, an expensive boat, plus they frequently took cruises and family vacations.
On the inside, it was a much darker picture. Josh was borrowing against his future to support the extravagant lifestyle he chose to live today. He racked up credit card debt and borrowed against his home. His monthly expenses greatly exceeded his income. Even with a big promotion and year-end bonus, he couldn't continue at this pace. When creditors began calling him at his office, he knew his choices were limited.
The bankruptcy was hard on his family and placed stress on his seven-year marriage. His wife was not upset that they lost nearly everything, but she was horrified that Josh — who managed all of their finances — could have let it get so out of control.
Second, financial independence means you don't need to work to support your lifestyle. This just means that the income generated by your assets can fully support your expenses.
Income from labor is earned income. It requires your participation, effort, and energy. If you decide to take a year off, your earned income ceases. Earned income is how most of us receive money. Our alarm clock wakes us in the morning, we have our cup of coffee, we take a shower and get dressed, and we drive to work. We put in our day and drive home. Every couple of weeks, we get a paycheck. This is the earned income cycle.
Earned income is an exchange of time for money. Through education and experience, we can increase the value of our time and be compensated accordingly. Even high-powered attorneys or surgeons who make hundreds or thousands of dollars an hour still exchange their time for a paycheck. The minute they stop this exchange, they stop earning income. Financial independence breaks this cycle. It replaces earned income with passive income. Passive income includes the following sources of income:
Investment income (e.g., dividends, interest, capital gains)
Rental real estate income
Partnership and business income (if you don't have to work or manage anything to receive it)
Social Security and pension income
Passive income is the Holy Grail of personal finance. Why? You don't have to trade your time for it. Passive income gives you the freedom to do what you want. Earned income is a chain that restricts what you can do and when you can do it. Passive income liberates us from nine-to-five jobs and two-week vacation limitations.
Contrary to its name, accumulating passive income is not a passive endeavor! Accumulating the assets to generate passive income requires skill, education, and diligence. You can't expect to sit back and have massive amounts of passive income deposited into your bank account every month. Generating passive income from dividends and interest requires you to select and to monitor the appropriate investments. Rental income requires purchasing and maintaining commercial or residential real estate. Royalties and licenses require the development and sale of a product. Partnership and business passive income, like investments, requires the careful selection of investments and monitoring them diligently.
There are two important advantages to passive income. First, passive income doesn't take as much effort to maintain. To earn a salary, you typically have to put in forty or more hours of work a week. Maintaining the same amount of passive income takes a fraction of the time.
Second, you can outsource what little time it takes to maintain passive income to somebody else. You can hire a financial advisor to select and monitor your investments, an accountant to monitor your royalty and license fees, and a property management company to collect rent and fill vacancies. This is an advantage that just doesn't exist with earned income. Can you imagine hiring a temp to take your place at work?
Financial independence does not mean that you can't work; it simply gives you the option of working. Most of us want to continue working — our contribution to the world provides a sense of accomplishment and esteem.
Are You Financially Independent?
Now that you know what financial independence is and why it is important, it is just as important to understand what it is not. Financial independence is not about being 'rich." To be rich, you only need to have a lot of money. This definition ignores a critical part of the equation — expenses.
Financial Independence Versus Retirement
Financial independence is about having enough investments so you don't have to work another day in your life. Basically, it gives you the option of retiring early. Retirement, on the other hand, usually is what happens after working for more than forty years. In a recent survey by the Vanguard Center for Retirement Research, two-thirds of respondents admitted that they were not saving enough for retirement. Retirement doesn't guarantee financial security, but financial independence can!
Financial independence involves earning enough passive income to support the kind of lifestyle you desire. As a result, there is no 'magic" amount of passive income that is required — it is entirely dependent on your expenses. If you earn $100,000 in annual passive income and have expenses of $85,000 per year, you are financially independent. If you have $500,000 in annual passive income but have $750,000 in expenses per year, you are not financially independent. Expenses are an equally important part of the equation. Take the quiz below to find out if you are financially independent!
Determine Your Independence Factor Financial Independence Quiz
(You can also take this quiz online at www.SixDayFinancialMakeover.com.)
Scoring the Financial Independence Quiz
Your Independence Factor represents the number of days per month you could survive with your current lifestyle without working. In other words, if you stopped working tomorrow, your Independence Factor tells you how many days you could live off of your passive income. If your goal is to have the freedom and flexibility of financial independence, you need to make sure you have enough passive income to last you through the whole month.
Independence Factor 0-7=A score in this range means that if you stopped working tomorrow, the income you generate from your passive investments wouldn't cover you for more than a week every month. Life would be good for those first few days. You could sit back, spend time with the family, maybe enjoy a round of golf. But before you know it, your passive income would run out. What would you eat the rest of the month? Where would you live? Don't worry if you fall into this category. It just means you need to increase your passive income, reduce your expenses, or both. You have some work to do, but the good news is that you will quickly see results from your financial makeover.
Independence Factor 8-23 = Keep up the good work — you're not quite there but the finish line is in your sights. By controlling your expenses, setting up automatic savings plans, and investing with a purpose, you will be able to last two weeks a month, then three, then the entire month.
Independence Factor 24-30 =You're well on your way to becoming financially independent. By saving a little more and investing wisely, you will soon experience the joy of financial independence.
Independence Factor 31+=Congratulations! You are financially independent. If you stopped earning a paycheck you'd be just fine. You'd be able to pay your mortgage, your gas bill, and still have money left over for food and entertainment. You could pay for all of this from the passive income you generate — month after month, year after year.
Check your Independence Factor every six months or so, especially if your expenses increase and/or your income or assets decrease.
How Do I Increase My Independence Factor?
If your Independence Factor isn't quite as high as you'd like, don't worry, you've come to the right place. The chapters that follow will provide you with step-by-step instructions and guidance to help you increase your Independence Factor!
What Financial Independence Doesn't Guarantee
We've all heard the saying, 'Money doesn't buy happiness." Well, it's true — money doesn't buy happiness, and financial independence doesn't guarantee happiness, either. Personal income in the United States has almost tripled since 1956, but the number of Americans who claim to be 'very happy" hasn't increased — it has remained at about 30 percent year after year.
Income is up, yet the level of happiness is flat. Why? While there are thousands of factors that contribute to happiness or unhappiness, it appears that simply earning more money isn't enough to ensure happiness.
Academic research suggests that our current actions are based on predictions of future emotional consequences. Our decision to order a double bacon cheeseburger, compete in a marathon, work late nights and weekends, or purchase a larger house, is based on how we think we will feel once we've accomplished these things.
If we were good predictors of our emotional reactions to these events, this wouldn't be a problem. According to Harvard psychology professor Daniel Gilbert, we do a poor job of determining how we will feel as a result of something — we tend to overestimate the future positive effect of an action and how long we are going to feel good. We think the brand-new car will make us feel much happier and for a longer period than it actually will. In other words, we overestimate those things that we think will make us happy. Gilbert's research tells us that whatever we think will make us happy won't make us as happy as much as we estimate or for as long as we estimate.
Does this make financial independence an unworthy goal? Absolutely not. It means that financial independence is a means to an end, a tool. Financial independence alone will not make you happy. It's what you do once you become financially independent that determines your level of happiness.
Most people know what they should want to make them happy. Our brain is powerful beyond comprehension, but it is constantly trying to make things easier for us. As a result, we simplify and streamline what we think will make us happier. We are susceptible to ads that promise excitement and satisfaction without thinking critically about whether the product really will or not. If we did, I would venture to say jeans ads with scantily dressed models (nor even wearing the jeans being advertised!) — just oozing sex appeal — would not be as effective.
Excerpted from The Six-Day Financial Makeover by Robert Pagliarini. Copyright © 2006 Robert Pagliarini. Excerpted by permission of St. Martin's Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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