Five lessons

For one of my classes we have to read a book called The Five Lesson a Millionaire Taught Me About Life and Wealth. A rather lengthy title I know, however, the lessons are quite amazing. It is by Richard Paul Evans. I'm going to write out the lessons as I have to do for my book report, sort of as a rough draft, even though I'm writing out the lessons I still recommend getting a copy of the book and reading it. There are some excelent points in the book and some really fun quotes and stories that I'm not really going to touch on. Read it for yourself, follow the lessons and learn how to be a self made millionaire.

The lessons are as follows:

1. The first lesson starts off by saying, “Decide to be wealthy”. Many of the people in the world wish that they were wealthy, but they don’t ever decide to be wealthy. To decide to be wealthy one must first decide what it means to them to be wealthy. To me, wealthy means I don’t have to worry about money. I wouldn’t have to worry that my check may not pay all of this months bills, and in fact I would never worry that it wouldn’t. To me, wealthy means that when my car has a problem and requires a whole lot of work to be fixed, I am not worried about how I am going to pay for it, because I have money that I have set aside for such problems. That to me means wealthy. To me opulence doesn’t mean wealth. Comfort and peace of mind means wealth.

2. The second lesson teaches you to take responsibility for your money. Manage your money, don’t let it manage you. You manage your money by knowing how much you have, where your money comes from, where your money is going, and what your money is doing. These can all be done by following simple steps. Know your net worth, know your cash flow, budget your money, calculate all the costs of an expense before buying it, and take the time to calculate interest rates, and organize your finances so you know what all your investments are doing.

3. The third lesson is to keep a portion of everything you earn. This is an important principle in becoming wealthy. Remember to pay yourself. Save at least 10% of your average salary, and 90-100% of any additional income. Build a nest egg. That Nest Egg is kind of like your retirement fund. You don’t touch it for anything. It is always building, and a person who truly understands this lesson will enjoy watching it grow so much that the idea of withdrawing from it comes with a sense of dread, and consternation, as well as a decision to not withdraw funds from the nest egg. The nest egg is not the place to get funding for risky ventures, and when invested should only be invested in the safest of investments.

4. The fourth lesson is to win in the margins. This means you find additional ways to add to the growing nest egg, through cutting costs, and making extra on the side. It is important to remember is the idea of keep your day job to support your family and provide insurance, but find other ways to win in the margins. The book gives examples of waiting tables on the weekend, training dogs, turning your hobbies into jobs etc. This section in the book was especially interesting to me because he talks about all these places that we can cut costs. The most important way he mentions to cut costs is to keep the millionaire mentality. The millionaire mentality requires its own set of explanations. There are four ideas in the millionaire mentality(i-iv).

i. First, carefully consider each expenditure. Ask yourself is this expenditure necessary? Is it possible to get the same personal effect without using money or by using less of it? This can be done in several ways, when purchasing something, especially something expensive, ask the salesperson, “Is that the best you can do?” Before going to look at an item in a store take some time to do some research. Look things up online, so you can have a better idea of what is a good price for an item. When at the store or on the show room floor, continue to ask “Is that the best you can do, until the salesperson says, “I am sorry, that is the best we can do.” Don’t spend more than you have to on any item. Another way to consider expenditures is to ask “Is this expenditure contributing to my wealth or taking from it.” Wise wealthy people invest their money in their house, which usually appreciates, not in their cars, which almost always depreciate. Also ask yourself, is this an impulse purchase, or a planned purchase? Am I being pressured to make an expenditure I am not sure about? The important thing here is to learn how to say no. “This offer is too good to refuse, you won’t get another opportunity like this one…” the answer should be no. Offers are rarely too good to refuse, and another opportunity may come along and be even better if you hold out, and keep an eye out. Take time to think over a purchase. Leave the store, and go and do something else. You may come back several times before you decide the expenditure is worth it, or not worth it. Also, never want anything so bad, you’ll give anything to get it.

ii. Second, believe that freedom and power are better than momentary pleasure. This means, delay gratification. Take into account how much the interest will cost you, before you make a purchase. Needs are different from wants, and wants can always be delayed. For example, if you rent an appliance rather than waiting to buy it, then a $60 appliance can cost you a couple hundred over time, because of the fees. Calculate it out, and don’t ever buy on impulse or because of being pressured by a sales person.

iii. Third, don’t equate money with happiness. Be grateful for what you have, because if you aren’t happy with what you have, more won’t make you any happier. In fact, more will only cause less happiness because of the increased load on the finances that purchasing more will place.

iv. Fourth, protect your nest egg. Purchase proper insurance. Purchase health insurance, home insurance, car insurance and life insurance. Make sure the plans are comprehensive and cover all health, and home problems. Hint, when buying home insurance, only insure the house. The ground it sits on shouldn’t be going anywhere. Those are all the millionaire mentality lessons. Following those mentality lessons helps to save in the margins.

5. The fifth and final lesson is probably the most important lesson of all. That is to give back. The wise wealthy man lives modestly, meets the needs of the family, gives regularly to worthy causes, and helps those who are less fortunate. It is important that this step not only be done when you finally achieve wealth, but is followed the entire time you are working your way to wealth. We are to love our brethren, and service, through sharing our wealth and our time, is love manifested.