The Three Prerequisites for Wealth

The three prerequisites for wealth I am about to share with you are not “secrets” to wealth. They are not a shortcut—or even a path—to wealth. But without them, all the secrets to wealth are of no use. These prerequisite are so simple, you may dismiss them as unimportant. But understand this, if you do not practice these three prerequisites you will either never become wealthy or you will eventually loose what you already have.

Prerequisite #1: Spend less than you make. It sounds simple, but it is very powerful. Actually it is the definition of wealth: a store of money. Everyday you spend less than you make, you are to that degree, wealthy. It does not matter how much you make either, the definition is the same. If you make $45 dollars a day, spend $40 and save the remaining five, that day you are wealthy. Contrast that to the behavior of the famous ‘90s rapper MC Hammer. Just one of his albums, Please Hammer, Don’t Hurt ‘Em, generated over $30 million. But a few years later he had to file for bankruptcy. Why? He spent more than he made. You can make a lot of money, and if you spend more than you make, you will end up not wealthy.

Prerequisite #2: Learn to sell. Knowing how much most people hate even the thought of having to sell something, this probably turned you off. But the kind of selling I am talking about is not used car sales, boiler room telemarketing or door-to-door selling. (Although if you are good at any of those, it certainly does not hurt.) What I am referring to is learning to sell yourself.  If you are to be a successful entrepreneur, you are going to have to sell your goods or services. And if you are to be a successful employee, you are going to have so sell yourself to an employer (whether for a job or a promotion).

The good news is there are many different ways to sell today. Perhaps you are uncomfortable with direct sales. Maybe you prefer in-person networking, or online networking, or social media marketing, or e-mail marketing. Great. It does not matter, but plan on mastering one of them if you desire to be wealthy.

Prerequisite #3: Know the value of things. Not only is this a prerequisite for wealth, it can also be a path to wealth. More than one fortune has been made by someone purchasing undervalued real estate, art, stocks or even a business. If you do not know the value of things, you will constantly be paying too much for what you purchase and receiving too little for what you sell, and that includes yourself to an employer.

Of all the prerequisite to wealth, this one more, than the other two, requires some education. Whether taking a class in accounting, researching the best mutual funds for retirement, or studying the value of businesses to purchase, the more you understand value, the better the deal you will make for yourself and the easier will be the road to wealth. And the less you understand value, the longer and harder that road will be.

There you have it: the three prerequisites for wealth. Two cost nothing and the other is extremely expensive not to have.

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Are You Kidding Me! These Guys Should Know Better

If you do any online business at all, you know about the importance of having strong passwords to protect your accounts. Some of the top minds in the security industry now suggest you actually use a pass phrase, implying a really long password comprised of multiple parts. And to make it super strong, the pass phrase should include a combination of numbers, upper and lower case letters AND special characters (e.g., @, $).

It’s simple mathematics really: the longer and more complex the password, the longer it takes to hack, and most hackers want fast results, not slow tedious results.

Trick question: who would you think has the strongest password policies on the Internet? I bet you said banks (or other financial fiduciaries). You would think that firms that have the most to protect–gobs and gobs of money–would have the best, most stringent password policies on the Internet. And you would be dead wrong.

Here is just a sampling of some of the password policy limitations of some well known organizations:

Chase: cannot include special characters.

Chase Password Policy

Union Bank: cannot include special characters.

Union Bank Password Policy

Vanguard Mutual Funds: a maximum of 10 characters–are you kidding me.

Vangaurd Passwrod Policy

 American Funds: passwords are not case sensitive–are you kidding me.

American Funds Password Policy

SIT Mutual Funds: a maximum of 10 characters.

SIT Password Policy

And just so you don’t think this is limited to just the financial industry, I present…

Verizon Wireless: no special characters. Verizon Wireless
I could go on but you get the point. How long has the commercial Internet been around? Thirty years. I just find this all too perplexing for words (and yet I managed to blog about it).

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Wow! This is Trippy

I was directed to Amazon to read a book by Harry Browne called Fail Safe Investing. It is a book about how to protect yourself financially when you have no idea what the future holds, like today.

As is my usual practice, I read one or two of the reviews: a five star and a one star. In this case there were no one star reviews, so I just read the first five star review. I took a screenshot of it that you can see it (you may have to click on it to enlarge it).

Fail Safe InvestingThe reviewer is discussing Harry Browne’s point that a fail safe portfolio should contain gold. And then he utters something unbelievably prophetic: “So what if gold is in the dumps for a decade or two? When that disaster we can’t even conceive of wrecks the economy…”

Two things to note:

1] The price of gold the day of that review was $275.60. Today the price of gold is $1695, 97

2] It was posted 29 day before 9/11.

That’s trippy.

 

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How to Get a Stellar Credit Rating

You will never be as good as you are as when you are broke. ~ Carl Weisman

I recently went to purchase some bedroom furniture from one of the national retail chains. They had a deal that was too good to turn down. The deal was, if I applied for their in-store credit card and put my purchase on that card, I could take up to one year to pay it back, interest free.

I did not need to the put the purchase on credit, I could have paid cash. And I certainly did not need another credit card, but several thousand dollars interest free for a year, I would be crazy not to, so I did. Of course before I could get the credit, I had to give the sales clerk my social security number and she had to run a credit worthiness check on me—you know, the FICO score.

The score came back 845 or some such number. I did not pay particular attention to the number. But I do recall the sales clerk telling my that my credit score put me in the hundred percentile. Basically, I was as good a credit risk as there is.

Now with a score like that you might think I had the wealth of Bill Gates. Regrettably I don’t. Which just goes to show you that it is not you wealth that gets you a high credit score, but your (historically derived) trustworthiness.

What is interesting is not that my credit score is so high. What is interesting is that I “earned” that score during the worst financial period of my life. I had little to no income and owed thousands of dollars to the IRS and a few credit cards. It was how I chose to deal with those debts that created my “trustworthiness.”

At the time of my deep indebtedness, it was during a period, like now, with low interest rates. There were a lot of credit cards that offered twelve month teaser rates on balance transfers. Some offered 1.99%, but others offered 0%. Now there was almost always a transfer fee of $50 or so, but when you owe five or ten thousand dollars on a credit card, paying $50 for 0% interest is a steal. So that is what I did, year after year. Always transferring the balance to a new card just as the old card’s teaser rate was about to expire. And all the time paying whatever I could, usually a couple hundred dollars, month after month. During all those years it took to pay off my debts, the very last thing on my mind was my credit score. I was trying to get out of debt, not take on more. It just so happened that a byproduct of my financial gymnastics displayed to the financial gods my trustworthiness and boosted the heck out of my credit score.

I never expect to be in that financial condition again, but it taught me a lot. If I owed $50,000 to fifty different creditors and all I had in my checking account was $50, I would send each of them a buck toward my debt. It may not save my credit rating, but it would let them know I am alive, I have not forgotten them, I care about what I owe them and that I can be trusted to pay them back, eventually. After all, credit worthiness is not about money, it’s about trust.

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A Different Way to Look at Five Bucks

If you think it is hard to learn to manage your own finances, imagine how hard it will be to work until you are eighty because you’re broke. ~ Carl Weisman

Take a look at a five dollar bill. What do you see? Your answer depends on whether your are rich or poor. When poor people look at a five dollar bill they see a latte, a six pack of cheap beer or maybe Happy Meal™. It does not buy much and it is quickly spent. The rich see something completely different.

Imagine you are a young person, 21 years old, working at a minimum wage job (selling Happy Meals™?). Perhaps your daily take-home pay, after taxes is $45. You spend $40 to get by, leaving you with five dollars. That unspent five dollars is not just five dollars. Do you know what the rich call that five dollars? Wealth. It’s wealth. Not a lot of wealth, but wealth nonetheless. That is the definition of wealth: a store of money. My definition of rich and poor is very simple: the rich have a store of money (wealth) and the poor have none.

You may not think saving five dollars a day makes you rich. But it can. Imagine as that young person you intelligently invest that five dollars everyday. At the end of the first year you will have over $1,245. And at age 70? Ignoring inflation, your five dollar a day habit would result in over $1.3 million.

Admittedly, rich and poor is a matter of degree. There is rich and then there is super-rich. There is also poor and extremely poor. But the degree of rich and poor does not change its definition. Everyday you have a store of money, you are rich. And everyday you add to that store, you get richer. And when you learn to put your money to work, so that your store of money begins to make its own money, you are on you way to becoming super-rich. That is my definition of super-rich: when your store of money makes so much money on its own that you no longer need to work.

Can you live off of five dollars a day less than you make? If you can, not only can you become rich, but you are already rich. Everyday you make more money than you spend you are rich. Just having that unspent five dollars, and investing it intelligently, puts you in the same category as the multimillionaires. You both have accumulated wealth. And you will never look at five bucks the same way again.

 

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