Does Your Personal Finance Suffer Because Of A Poverty Mentality?

I come from a family that got by, but the biscuits had to be rationed, there was only fresh fruit for the first few days after pay day and I almost always wore hand-me-downs. Now don’t get me wrong – I was always thrilled to see what treasures there were in the garbage bag filled with this cousin or that other relatives clothes that no longer fit them.  And by many standards we we’re doing OK. There’s always someone you can think of who’s got less than you.

 

But I can’t help wonder what kind of beliefs I took on board as a young child that are still with me now. I’ve heard that your beliefs are set by the time you are seven years old. Seven! In fact I wondered about it so much that I had to look into it further. After all, I was intelligent, worked hard, was determined, but many opportunities that I tried to use to created a secure future either failed altogether or were mildly successful. Even financial windfalls would be absorbed by some other circumstance which meant that I had to use the funds in that direction rather than moving forward financially.

 

So I started researching about belief systems and the power of the sub-conscious mind (where our beliefs reside). Beliefs are formed by the time we are about seven years old. That’s OK when you’re surrounded by people during that time that have empowering beliefs. But if you have people in authority (usually parents and grandparents) around you who have a poverty mentality you will also take on those beliefs.

So what is a “poverty mentality”? It just means that you believe there’s not enough to go round. It’s also called a scarcity mentality. There can’t be enough for everyone to have some. You might recognise some of these phrases that people with a scarcity or poverty mentality will say. They include:

“I just can’t afford it right now”

“We can’t take that trip – it’s just too expensive”

“No, you can’t have that. Do you think I’m made of money”?

“I can’t go out for lunch this time, I’m broke”

And the time aged classic – “Money doesn’t grow on trees”

 

Language of people with a poverty mentality constantly revolves around lack – not having enough. And that’s just what comes out of their mouths. What’s going on in their mind is far worse. They are constantly thinking about their lack of money… about how they will pay the next bill, or how they are getting deeper and deeper into credit card debt. Unfortunately, by harbouring these constant thoughts of not having enough, they are creating a self-fulfilling prophecy.

 

Do you recognise this in your thought patterns or language? It could be what’s holding you back from creating abundance in your personal finances. Don’t despair – there are many ways to clear out these negative beliefs about money and replace them with positive and empowering beliefs. The first step is to recognise that you have them.

 

I’ll be giving some steps to take to turn around the poverty mentality in my next few posts. Then you can work on being abundant, have good things continually coming to you and greatly improve your personal finances.

July 4, 2011 | Posted in: Action Steps, Money Beliefs | No Comments »

The Amazing Benefits Of Compound Interest

Have you heard of Compound Interest? Do you know how much you can increase your net financial worth(over time) by using compounding interest? If you’ve never seen this before it will really get you excited – particularly if you have time on your side.

OK, so just in case you don’t know what compound interest is, it is basically interested added onto the savings you already have at a regular given time(usually annually). For it to work you need to be dedicated to saving a set amount every month and must never dip into it. For example, let’s say you’re 20 years old and you have no lump sum to start off with. But you are willing to contribute $50 a week because you are looking at this sacrifice of cash as your retirement plan. Let’s face it – when you retire there’s not likely to be a pension of any kind and you don’t want to rely on some superannuation fund. You invest this $50 a week into a financial vehicle that pays 10% annually compounding interest. This is what your investment looks like in 10 years…

So in 10 years your $200 a month with annually compounded interest has now grown to $40,000. Not bad. Now if you had done the same thing, but just let your money sit in a normal ‘savings’ account you would have roughly $25,000 assuming an annual interest rate of 5%, which can be difficult to get from a bank starting out with a small amount of money. Do you see the difference compounding interest can make?

OK, so let’s see what happens after 20 years with the same details: no initial savings, still contributing $200 a month and earning 10% compounding interest.

Wow! Do you see that? It hasn’t just doubled in twice the amount of time, but it’s actually three and a half times the amount. Are you excited yet?

OK, let’s stretch it out now over the period of an average working life – so 40 years. If you started at 20 years old this would make you 60 years old when you get to this point.

Now this really blows my mind. This is 27.5 times greater than the amount you accumulated after 10 years. Yes, I know it takes a long time to get there, but if it’s not that big a sacrifice to put away $50 each week, isn’t it worth it? You tell me. And after the first few years $50 won’t seem as painful as it first was. In fact, if you’re committed to this strategy you won’t even have to think about it – just get it automatically transferred from the account your wages goes in. I highly encourage you to pay yourself first and that’s exactly what this strategy does. It pays YOU before your expenses and other spending. Teach your children this as soon as they are old enough to understand it and they will prosper.

Now to make it even more exciting, image if you did start out with a lump sum, or if you could put away more than $50 a week or you found ways to invest your money at more than 10% compounding….

to your success,

June 16, 2011 | Posted in: Action Steps, Financial Strategies | No Comments »

Simple Steps For Personal Finance Planning

Taking control of your personal finances and deciding to take responsibility for your own financial future is a big step for most people. Unfortunately being responsible means that if you get it wrong there’s no-one else to blame. So let’s look at the most likely outcomes.

Firstly, no-one else is going to care about what happens to your money more than you do, right?

Secondly, there is an amazing feeling that comes with reaching your financial goals and objectives when you’ve planned and implemented everything yourself.

Thirdly, to reach a point where you have gained financial independence means that you have had to educate yourself, do things outside your comfort zone, make mistakes and have exhilarating wins – all of which add to your personal development.

Fourthly, becoming independently wealthy gives you time to do the things you want to do, with the people you love, whenever you want to. Many financially independent people become very philanthropic both with their time and their money – a great feeling!

That being said you really don’t need to spend vast amounts of money getting advice from a financial planner if you want to be independently wealthy. Let’s just define what that means. To gain financial independence means that you no longer depend on a JOB (Just Over Broke) to provide your desired income. Your assets and investments provide for your lifestyle on an ongoing basis.

The next step is to make your income passive. In other words, your assets and investments keep paying you even if you’re not around – you don’t have to do anything (except oversee) to have the money continue to come in and grow. Now this may seem like a dream to most people, but it can be done. It’s just that it does take dedication and disciple in the beginning to get things moving in a positive direction. The hardest part is making a firm (set in concrete) decision to become a wealthy person. Then all you have to do is remind yourself of your commitment.

That is why I say you don’t need hand over a lot of money to a financial planner. For one thing, they can’t make that decision for you. And secondly, if you want to become independently wealthy why would you take advice from someone on a salary? Are they independently wealthy? Are they financially free? I don’t think so. Find yourself a mentor – someone who has achieved the things that you want to achieve. Then find out all you can about them and start doing what they do.

You also need to take a hard and clear look at your current financial position.

What debt do you have? Now there’s good debt – debt on assets that go up in value and/or produce positive cashflow eg. Property, shares etc. and there is bad debt – debt on items that go down in value and create negative cashflow, such as cars, furniture, credit cards etc.

What income do you have? This can be from a job or assets. Can it be increased?

What outgoings do you have? What money is going out each month and can it be reduced?

If you’re serious about creating a personal finance plan for yourself and your ultimate goal is to be independently wealthy you need to always be absolutely honest with your figures and estimation. You also need to get all your information into a spreadsheet and update it monthly. There’s nothing better for keeping on track with your goals than seeing some positive movement, even if it is small.

To summarize, the first simple action steps you need to take with your personal finance planning are:

  1. Make a decision to become financially independent and give your word to yourself*
  2. Accurately assess your current financial situation and get it on a spreadsheet
  3. Find a mentor who has achieved what you want to achieve

When you have taken these simple steps you will feel like you are taking steps in the right direction, and they really are an accomplishment in themselves. Now if you’re serious about it you will either go ahead and take these simple action steps right now or you will mark in a time in your diary to do do it and then do them at that time. Yes, we’re all busy, everyone’s busy. The difference between the busy people that become independently wealthy and the busy people that don’t is that independently wealthy people create plans, commit to themselves* and take action.

*my word is my bond!

to your financial success…

June 15, 2011 | Posted in: Action Steps | No Comments »