By Tiffany Markman, copywriter, editor and mom to an almost-three-year-old, who tries to balance her workaholism with cuddles, books, caffeine & reining in her intrinsic kugelry. Follow her on twitter.
It was with no small measure of trepidation that I rsvp’ed for Dr John Demartini’s talk on achieving financial freedom.
For one thing, it was in the evening – ruling out my involvement, after a long day’s work, in bath-time and bed-time. For another, Demartini looks exactly like one of those twangy Texan quacks motivational speakers who are always being caricatured in TV comedies. And for a third, I anticipated a roomful of Joburg’s financial down-and-outs – hardly scintillating sunset company.
Turns out I have a thing or two to learn about financial independence. Turns out Demartini is Texan and twangy, but not what I expected. And – yes – events after 6pm are shit if there isn’t wine. (There wasn’t.)
But because I’m a good person, I’m going to share with you the 10 key things I learned about creating a financial legacy for my daughter:
1. When we think about the kind of money that would give us the kind of lifestyle we dream of, we don’t think in real numbers. We fantasise. Which explains why less than 1% of people in the world achieve financial independence.
2. Financial freedom is only possible when your passive income (money that comes in without any effort from you) exceeds your active income (money you work to earn). What those numbers are, obviously, depends on you.
3. Real goals have a higher probability of being achieved. So if you apply a concrete figure to your net worth (assets minus liabilities), and then deduct that figure from the Rand amount you’d need (considering interest and inflation) to exceed your active income, you have something to work with. A ‘magic number’, if you will. (Mine’s so big it makes me weak to think of it.)
4. Forget the lottery: 78% of lottery winners meet a really nasty end.
5. Inflation is a real bastard – but he’s a bastard you’d better get to know and understand. According to the Law of 72, the cost of living doubles every 9 years. If you don’t factor that into your planning, you’re stuffed. (Demartini used another, more colourful word, which I’ll refrain from repeating here.)
6. Never borrow money to buy anything that costs you more than it generates.
7. The reason the rich get richer is that money goes where it’s appreciated and respected. So if you’re serious about generating wealth, read everything you can, talk to people who are knowledgeable and study the tricks and techniques of the successfully rich. This self-study is a full-time hobby. Note: I promised myself, as a first step, that I’d tidy my wallet. I haven’t done so yet.
8. Save more than you think you can afford, and add 10% to that every month or, at least, every three months. Forever. Demartini says that every time you increase your savings, your income expands to accommodate it. (The habit of saving is actually more important than how much you save – but you still need to up the amount regularly to make that ‘liquid cash cushion’ grow.)
As an aside: Demartini calls this the FAST: Forced Accelerated Saving Technique. Which is only one of a litany of incredibly cheesy phrases he uses to make varied points: ‘make stressings into blessings’; ‘turn your piggy bank into a biggie bank’; and so on. At first I was skeptical, but the man is American – so let’s excuse him his trite little homilies and look to the substance, shall we?
9. Once your cushion is sufficiently large (Demartini recommends six months worth of income in liquid cash), it’s time to invest. But don’t necessarily run straight to the experts with your moolla. Educate yourself instead.
10. And once you’re in the market, stay there long enough to leverage the ‘mean’ – i.e. the average that applies over the long term, irrespective of ups and downs. Demartini says that, if you do this, ‘You’ll be rewarded by the habit, not by being a genius.’ And I guess he would know since, if he’s to be believed, he has exceptional homes all over the world, millions upon millions of dollars and a rep for having cracked his magic number in his 30s.
So, there you have it folks. My version of what I understood from Dr D last night. Use it; don’t use it. But whatever you do, remember this little adage: ‘If you live in a fantasy world financially, you’re in for a nightmare.’ Is this guy metaphorical or what?