Managing wealth starts with managing the pennies in your pocket

I recently attended an investor meeting that was organized by some of the real estate investment team members I work with, and while I always seem to come across people with an increasing amount of money, I also hear about people who have very high debt levels that is putting a huge strain on many aspects of their lives. I can fully understand the weight of such debt as I have been in a similar situation with significant debt due to school and blatant spending. Here, I would like to talk about the things I used to eliminate the debt, and push myself into a positive cash reserve position.

I came upon this strategy while reading T. Harv Eker’s “Secrets of the Millionaire Mind” and have found that this similar strategy has been used elsewhere (Bob Proctor’s “You were Born Rich“, and George Classon’s “The Richest Man in Babylon”) to help generate great wealth for a lot of people over the centuries. The essence of the strategy is to not only help you eliminate debt and move into positive cash reserves, but also to help fund personal development and charities, while at the same time having enough to carry out your monthly obligations for yourself or your family.

Before I get into the steps however, I would like to point out that you can start by working with very small numbers, and resolve to gradually increase those numbers over the course of 30 days or 60 days to accelerate your results. By that I mean you can start with the pennies in your pocket and gradually work towards building your fortune. Keep in mind, this may require a little sacrifice on your part in the way of letting go of pointless expenditures (when considered in the long term view) and substitute it with something else like reading books (wisdom of the world at your fingertips).

Consider your current income as a full pie. Now as your income flows in, the people/companies you owe money to (bills) take pieces of the pie over the course of a month, and you’re left with a few crumbs.

Add to that any other expenses you may have (clothes, entertainment, food) and you’re dealing with negative crumbs – this is what created a cycle of debt for me, and many other people I knew at the time. So how do you break the cycle and get out of this rat race? Simple, you open up a couple of free accounts. Now what I’m about to suggest worked for me, and it may work for you, but hey, no guarantees right? Let’s get to it.

ING Direct provides free Investment Savings Accounts (ISA). So taking the recommendations provided in “Secrets of the Millionaire Mind” I did the following:

1. Opened up 4 ISAs with ING Direct namely:

a. Financial Freedom Account (FFA): 10% of my income (as it came into my bank account) would go directly here. I set this up in such a way that 10% was automatically debited every 2 weeks from my chequing account. This money never gets touched for spending and is intended to be invested to earn higher returns. I used the money in this account to purchase gold and silver bullion to earn a greater return than what ING was providing.

b. Debt Retirement Account (DBA): 20% of my income would go here automatically, and this was used to gradually pay down my debts.

c. Play Account (PA): 5% of my income would be directed into this account. This one was a motivating factor for me because I would allow money to build up in this account every month, and then at the end of the month, I would blow every penny in here as a reward for sticking with the system. If I was careless or was not satisfied with myself at the end of the month, I would use this money to pay off more debt instead.

d. Charity Account (CA): 5% of my income.

2. This left me with 60% of my income to pay off my bills, car, insurance, food, utilities, etc. Needless to say, it required tightening the belt, and dealing with simpler foods and left overs, less entertainment costs, etc. Instead of partying every weekend, I used the extra time to read books as you can see here: Books and Resources.

As a reward for sticking with this behaviour, I was able to quickly pay off my debt, and focus instead on growing my cash base, in other words, I started looking for ways to make my money work hard for me. Now these may look like big numbers when you consider your current take-home income, and rightfully so. That’s why the common recommendation is to start small, and build your way up. Start with one dollar for each week for the first month. This is how it will work out:

1. Week 1: 60 cents into the chequing account; 10 cents into FFA; 20 cents into DBA; 5 cents into PA; and 5 cents into CA

2. At the end of Week 4 you will have a total of $2.40 in the chequing account; 40 cents in FFA; 80 cents in DBA; 20 cents in PA; and 20 cents in CA.

Laughably small as these numbers may seem at this time, focus on doubling those numbers in the second month, and doubling again in the fourth month. Very soon, you will have a decent sum of money directed into each of these accounts and ING will pay you interest for saving.

Good luck.

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