There is a fundamental difference between ‘becoming rich’ and ‘amassing money’. Of course, money allows you to make major changes to your lifestyle, but wanting to be rich should never be synonymous with greed, to the point where you neglect other values that are also an integral part of life, such as love, friendship, health, spontaneity and joy in life…You should maintain a certain balance between money and your own values. Most millionaires know the difference between needing something and wanting something. Many people would have a less restricted budget if they didn’t give in to their compulsive whims. That doesn’t mean that you can buy expensive things, when the investment is worth making – for example, a lovely pair of shoes will surely give you more than cheap sandals.
Your financial objectives
Most people associate the feeling of being rich with having a certain amount of money. And that’s what this Chapter is about: you can become as rich as you want to be, but first you must decide the level of wealth that you want to obtain. And the only way to do that is by drawing up a financial plan. This plan is fundamental, which is why I keep coming back to it so regularly. Very few people consciously prepare themselves to become wealthy (particularly in so far as concerns having the right inner attitude). Most never ask themselves from what amount of money they will consider themselves rich. If you press them on the subject, they generally mention a massively exaggerated figure, so much more than they have that it seems totally out of their reach. And this stops them from ever trying to get that amount of money. Moreover it’s an ongoing process: if you set yourself a high objective, you have to ask yourself first if you can achieve a less ambitious goal. And in both cases, success is unlikely if you don’t understand the mysteries of financial management.
The starting point for financial success is deciding on one hand how much money you will need to consider yourself rich (according to your own criteria, your own values) and on the other hand, how much time you will need to obtain it. You don’t want it to take so long that you don’t have much time left to enjoy it, nor do you want to plan your objectives over too short a timescale at the risk neglecting other important areas of your life…or even have it turn out to be completely impossible. Be ambitious, but stay realistic! In any case, when you really start to plan out exactly what your objectives are, you will find the right attitude to take.
What would you have to do, for example, to have one million euros after six years? Set yourself an objective of 31,250 euros at the end of the first year then double that amount each year to reach the one million euros five years later. But if six years isn’t enough, you could stretch it to seven years, with an objective of 15,625 euros the first year, or eight years with an objective of 7,812 euros the first year. The important thing about this example is that you have to get a specific amount of money within a specific timescale. Also, you won’t know how you are going to double your capital every year, you should just know that you are going to be able to do it: the ‘how’ will come later.
Getting rich requires careful planning, efficiency and a feeling of responsibility. You should take stock of your current financial situation while keeping in mind the objective you are seeking and what you need to do change to achieve it.
What I am suggesting is a simple programme, with reasonable and accessible objectives. It can be adapted to your needs but it is based on regular income. I use this programme myself and it enabled me to become financially independent while I was still young. And others have obtained success comparable to mine using the same plan. Your outgoings increase in proportion to your income: the more money you have, the more you spend. This plan estimates your needs (or your wants) and is organised around three simple objectives: financial security, financial independence and financial freedom.
Financial security
Financial security means having enough money to provide for your needs, even if you lose your job or suffer a major financial setback. The objective is to guarantee your standard of living for a certain amount of time (one year for example), by setting aside a sum of money, until you can get back your stability. You need to be able to access this money immediately in the event of an emergency (so you can’t put it in high-risk investments that may eat into your savings). I recommend a current account, an investment account, or government bonds or ordinary bonds. With this type of investment, which is almost risk-free, you can set aside enough money to cover your basic needs. Do the calculations and start saving now.
These savings constitute a ‘safety net’ even if they don’t earn a particularly high interest rate. You will be able to sleep easy at night, knowing that you are protected from dire situations such as having to move to a smaller house or sell your car to sort out your money problems. Investments paying a high rate of interest come in the next stage.
Financial independence
Once you have assured your financial security, you can then start concentrating on financial independence. In theory, this is acquired from the time when you have enough money to stop working. So you have to calculate the income you would need to spend the rest of your life in financial security. When making this calculation, don’t confuse needs and wants – for example, the place to live you need and the house of your dreams…Consider the different areas: clothing, studies, holidays, leisure, etc. Estimate the amount of money you need to maintain the lifestyle that suits you. Of course you could spend all your income, but this would mean sacrificing the chance to build your fortune.
To help you work out your needs and wants, consider your current lifestyle: if you are satisfied with it then you probably have everything you need. Now think about the possibilities for cutting back, for example, saving on your utility bills (electricity, heating, water, etc.), your leisure activities (there are probably some things you can do more cheaply), etc. If on the contrary you are not satisfied with your lifestyle, calculate the minimum it would cost you to live in an acceptable manner. Calculate the monthly outgoings necessary for the standard of living you think appropriate and then work out how much you would need to have saved in order for the monthly interest to cover these costs. For example, if 30,000 euros per year would be enough for you, you would need 300,000 euros, invested at a rate of 10 %, to be financially independent. So there’s your next objective.
Knowing the amount of money that would give you financial independence gives you a great deal of strength. Of course, 300,000 euros is a lot of money, but it’s a significantly less overwhelming figure than the millions that many people imagine they would need to be financial independent. It’s an amount of money that you can reasonably set yourself as an objective, and I am going to show you how to achieve this objective. With the right mental attitude and the right information, you can attain financial independence, and maybe even more!
Financial freedom
The third stage in the organisation of your financial freedom consists in working out how much money you would need to achieve financial freedom, which is a state that can be described as follows: having enough money in different investments to accrue sufficient interest to pay for you to do everything you want to do. Think of all the things that you have always dreamed of doing, things you enjoy, things that fascinate you or make you happy. How much would all that cost? Write down how much each of your dreams would cost and add them up. There’s your financial objective.
To achieve this objective, you need to build a portfolio of investments that guarantee optimum returns. At this stage, you can put your money in more ‘daring’ investments, than when you were saving for your financial independence, but avoiding high-risk strategies, such as games of chance. Financial freedom is more than financial security and financial independence, because it requires an income that is constantly increasing. I remember reading that Microsoft increases its wealth by 240 million dollars every day; Bill Gates probably now has more money than he knows what to do with. When you achieve that freedom, you will be totally free of all financial cares. You will then be able to set your energy to improving your standard of living and that of those around you, you will be able to make all your dreams a reality…Allow this feeling of financial liberty to sink in: it will keep your spirits up while you are reading this book, and while you are pursuing your objective of wealth and prosperity.
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