I want you to do a quick exercise. I want you to work out how much money you have earnt for your entire life. Adding your income for the last year, back to what you earned when you were 14 years old. Add it all together. (You can log onto IRD to get a summary of earnings for the last few years.)
Now, don’t count your investment returns, just your salary or income.
Add it all up and work out how much income has gone through your accounts. Whatever it is, $120,000 or $8,000,000- just work out how much you have earnt.
Now, work out how much money you have left today- add up your savings, your investments- basically what is your net worth?
Compare your lifetime earnings to your net-worth. What per cent of what you have earned over your life do you still have? Do you still have 10% of what you’re earnt? Does this percentage make you happy, or is it a wake-up call?
If you don’t have a lot of money left, you might need to learn how to play the money game.
Money is just a game
Yes, Money is just a game. It’s a game that you play every single day. It has its own rules on how to play. And to win the game of money- you need to learn the rules of money. Now, remember that no matter what game it is, if you play it long enough you will get better at it.
The More you play the game, the better you get at it!
Now, I don’t know all the rules of money- and it’s best that you do your own research from books and other web resources. But some rules that will help you win at the game of money are;
- Don’t focus on how to make more money, focus on adding more value. Adding more value to what you do will result in more money flowing your way. People only pay for what they value. Not what you think you are deserved to be paid.
- It’s not how much money you make, its how much money you keep. Go back and work out how much money you have earnt and how much you still have. The more money you have kept the better you are at the money game.
- Money doesn’t stay constant. It either goes up in value or it goes down in value through inflation. you either work to increase it, or you let inflation devalue it over time. This is why you need to learn how to invest.
- Never play the game you don’t understand. Don’t invest in anything you don’t fully understand. You wouldn’t work at a job you don’t understand, you learn how to do that job and add value. So don’t invest in something you don’t understand- learn about it first.
- If you can’t measure it you can’t manage it. This goes with everything in your life. If you are trying to lose weight you need to manage your food intake and your exercise regime. This is the same as managing your income and your expenses. You need to track both. Have a look at the free web-app, Pocketsmith, if you want an NZ finance tracking product.
Don’t Hate Money
Do you hear things like money doesn’t grow on trees, or that people are jealous of the ultra-wealthy? Or simply people stating that they hate money. Well, this is the wrong mindset.
Don’t hate on Money
There are many reasons people hate money. People often hate money because they don’t have enough of it, or that they don’t understand how it works. You might think that talking about money is awkward and so you avoid talking about it. And money can cause stress in your life.
These are all valid reasons why you could hate money. Don’t hate the game, become a better player. If you hate money, money will hate you. You need to learn to play the game. You need to realise that money is just a tool that you can use to your advantage.
Money’s a game of Doubles
The entire long term strategy of the money game is to learn how to double your money. Think about it. If you have $10,000 to invest today, you are only 7 doubles away from turning that into $1 million dollars. That’s it, that’s the entire game.
So the game now becomes how soon can you double your money?
How do you double your money?- By using the power of compound interest and investing. The rule of 72 can quickly work out how long it takes to double your money. It’s a method of estimating the amount of time it takes to double your money. Take 72 and divide it by the interest percentage per year will give you the approximate number of years to double your money.
Say you are receiving a 10% return per year. The time it takes to double your money is 72/10 which gives you 7.2 years. And since it takes around 7 doubles to get your $10,000 to $1 million, it will take you 50 years.
How do you play the doubles game? Set an investment goal, work out your risk tolerance and how many years you have to invest. Then you can work out how much capital you need to get to your goal.
It’s generally easiest to increase the capital you have to invest, rather than trying to find riskier investments. And to increase your investment capital you need to work out where you can save more money. So you need to track your expenses.
Only Play your game
Only play your game and don’t focus on others game. Don’t compare yourself to others. Don’t worry about what others are doing.
If you’re looking at your friend who is also playing the doubles game is on step 7 with 1.28 million, and you are only on step 3 with $80,000, you aren’t playing the same game. You can’t compare what they are doing to what you are doing.
If you try to focus on someone that is ahead of you in the game and you are wanting to catch up you will look for more riskier investment to try and bridge the gap. The problem with focusing on someone who is ahead of you int eh game is that you might end up losing doubles and going back a step. That is not the money game. You want to always gain doubles and avoid losing doubles.
So, stay focused on your game and not anyone else game.
Everyone can become good at the money game. You just need to learn how to play and play for yourself.
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