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DR JOHN DEMARTINI - Updated 1 month ago
There is a statistic that is often quoted that less than 1% of the world's population ever achieves true financial independence. While the definition of what it means to be financially independent can vary – there is no doubt that the percentage remains incredibly small.
Over the past 52 years in my work as a human behavior specialist, I've observed tens of thousands of people at various seminars and workshops say that they would love to achieve financial independence yet admit that their lives show little evidence of that becoming a reality. So, if the majority of people would love to achieve financial achievement yet the majority of those same people don’t achieve it, this raises the all-important question:
Why do some people become wealthy, financially free, and have money work for them, while others struggle their entire lives, working for money and paying an endless cycle of bills?
Let’s take a step back and begin with an interesting principle of life and physics:
- If you don’t fill your day with high-priority actions that inspire you, your day will fill up with low-priority distractions that don’t.
- If you don’t fill your day with challenges that inspire you, it will likely fill up with challenges you don’t want.
This is a concept in thermodynamics called ENTROPY, which is the tendency to go from order to disorder over time unless information and energy is put into maintaining that order. In other words, if you don't bring order to your life, it will most likely descend into disorder. And, if you don’t manage your money carefully, financial "disorder" or problems can arise.
If you don't invest your money in assets that APPRECIATE in value and instead choose to keep buying consumables that DEPRECIATE, you’ll likely end up needing to work for money instead of having money work for you.
As such, you will likely spend your whole life trying to earn enough money to cover your bills instead of becoming financially independent or free. And, I have yet to meet a single individual who says that they’re inspired to earn money for the rest of their lives just so they can cover their monthly bills.
If you work for a company and pay social security taxes or other forms of taxes there, it’s worth noting that you’re probably going to work the hardest, end up with the least, and be told what you are worth. And, while some of those taxes may come back to you later in the form of social security, the amount will be minimal.
In this instance, developing a habit of saving, even a small amount, and then investing in appreciating or productive assets like companies or real estate can make a significant difference.
You may perceive that you can’t afford to do that right now, especially if your unique hierarchy of values reflects that you have a higher value on buying consumables and living beyond your means, in which case you’re likely keeping yourself in debt and are highly unlikely to ever significantly save or invest.
However, if you choose to take a portion of your discretionary income, no matter how small, and invest it in assets, you’ll immediately begin to accumulate wealth.
A note here, that if you don't pay this investment first and instead pay it last if/when you have money left at the end of the month, my experience is that you'll tend to have a harder time building wealth and having your money work for you.
It is wiser to pay these investments FIRST.
As such, I recommend automating this process. Take a portion of whatever you earn each week or each month, invest it in buying productive assets, and automate your payment of this investment each time you are paid.
For example, you can start by opening a money market account and automating the process of transferring funds from your bank into that account. The next step could be investing in something like the S&P 500 in the USA (or an equivalent index in your country) - buying shares of companies that have proven themselves to be quality businesses that serve ever greater numbers of people.
Even if you can only invest in very small increments to begin with, the key is to do it consistently so that it accumulates over time.
It is also wise to commit to not touching this money so that compound interest - capital gains, and reinvested dividends can build and grow.
This practice, habit and discipline also means that you’ll end up paying less in taxes over time. Let me be clear that I'm not opposed to paying taxes, but by holding onto your investments and letting them grow, you can effectively MINIMIZE the taxes you pay each month. Not only is this practice completely legal, but it is also supported by most governments because people becoming financially independent effectively helps to reduce the country’s burden on social security systems.
I've been doing this for 42 years, and I can say with certainty that it's worth it. It’s also a lot simpler and more straightforward than you may think. In fact, you can have such a process set up in 15 minutes. It is worth noting that many people in the financial industry may try to give you the impression that it’s a highly complex process that you need help with but this is mostly so they can manage your money and take a percentage of it.
As an example, you can approach a discount broker like Schwab or Vanguard, and say, "I'd like to open a money market account and set up an automatic investment into an S&P 500 equivalent." You’ll need to sign about two documents and provide them with your banking details, and then it's all set up. After that, money will automatically be transferred - your job is simply to focus on your work and earn an income, while the process of saving and investing continues automatically in the background.
To sum up so far: When you pay yourself first, preferably by automating the process, investing becomes more effortless and mostly a case of out of sight, out of mind. Over time, these investments accumulate - the key is to avoid touching them and letting any temporary emergencies derail your progress.
The wisest approach is to make saving and investing a habit, and to be mindful that it’s not the AMOUNT you save that matters the most, but the CONSISTENCY.
Over time, you can choose to increase the amount you set aside, which is what I did. I actually set myself a goal of increasing my savings every quarter, which became a substantial amount over the years.
I also found that when I managed my money wisely, I received more money to manage. And, the more I valued myself, the more others valued me, and the more opportunities and ways to earn an income came my way.
As your wealth accumulates, so too will your anxiety about finances begin to subside.
This is because the shift from a survival mindset (that activates your two amygdala – or subcortical nuclei of your brain) to a creative mindset (that activates your executive function in the cortical part of your brain) allows you to become more inspired by your work instead of feeling obligated to work so you can earn and income.
By paying yourself first, you also avoid financial entropy that can show up as unexpected bills. I often advise people to calculate their average monthly unexpected expenses and put that amount into savings and investments. When you do this, you'll notice that those unexpected expenses tend to decrease. It's fascinating how bringing order to your finances reduces disorder.
In essence, those unexpected bills are basically symptoms and FEEDBACK to let you know how much money you could be saving and investing each month. In fact, they serve to help you bring order to your finances so you can have less disorder.
When you focus on building wealth, you are far more likely to become a master of your money instead of its slave, while also freeing yourself from unnecessary and unexpected financial stress. This helps to create stability in both your business and life.
Think of it this way: as your liquid savings cushion and investment wealth grows, the volatility in your finances tends to decrease. As such, you’ll tend to attract more opportunities and higher quality professional associations, and find that you have more creative ideas for generating more income. Plus, the more you save and invest, the higher the socioeconomic standard of people you’ll tend to associate with, and these connections can often offer valuable insights into growing your wealth.
Many people say they can't afford to save and invest because they have so many bills and other expenses.
My response is that you can’t afford NOT to save and invest!
I recommend doing a thorough inventory of your spending so you can make sure that what you’re spending your hard-earned money on is truly a priority and not a quick dopamine “feel-good” impulse or fix. If you don’t take the time to work through this process, you are more likely to end up working for money your entire life.
Even with a very small budget, most people can find a little extra to set aside to pay off their debt, place in savings, or invest in productive assets. I've seen people from all walks of life finding a way to make it happen, including a remarkable (and very memorable) young boy that I met in South Africa who earned just 60 cents a day stacking mud bricks, yet managed to save 15 cents a day - 25% of his income. So, it's not about how much you earn; it's about how you MANAGE what you earn.
I am certain that you can find a way to save, even if it's just a small amount.
I often hear people say that they'll start saving once they have extra money, which is mostly a fantasy instead of a goal.
My advice is to start saving now because the extra will more likely follow. (You can read more about the difference between a fantasy and a goal here.)
Remember that banks thrive on getting people into long-term commitments like mortgages, car loans, and credit card debt – they make money by helping you create a cycle of short-term pleasure followed by long-term pain. This is a trap that most people fall into and end up helping the banks make money instead of themselves. My advice is that if you don't pay off your credit card in full each month, it's wise to consider not using it.
In fact, if you ask any smart investors for some tips on achieving financial success, they will likely tell you that they avoid unwise, unproductive debt where possible, live within their means, and pay themselves (their investments) first.
The key is DEFERRED GRATIFICATION, which is more likely to build wealth, while IMMEDIATE GRATIFICATION most likely destroys it.
To Sum Up
It may help to think of your financial situation this way: people who don’t prioritize their actions and expenditures and allow immediate gratification to run their lives often let their IMPULSES dictate their financial decisions. This often leads to significant debt and the resulting long-term stress.
However, if you choose instead to pay yourself first by investing even a small amount of money each week or month, you are more likely to reach your goal of becoming financially independent. You will also tend to benefit more from tax advantages, and have the security of knowing that your investments will help to provide you with an inspiring future that aligns with your highest values.
The wealthy pay themselves first, while the poor pay themselves last. By prioritizing your savings and investments, and living within your means, you give yourself a greater opportunity to allow your financial wealth to grow. Only then is it wise to consider incrementally enhancing your lifestyle instead of living a lifestyle you can’t afford, and getting more and more into debt as the years pass.
As they get older, many people end up downsizing and relying on government support to get through each month, or end up becoming a financial burden on their families because they didn't prioritize savings. To avoid this, it is wise to begin with what you now know and let what you know grow. In other words, pay yourself first and begin building wealth today regardless of how small your initial investments are.
Ultimately, it's about choosing to put your money where it will GROW, with minimal entropy and maximum return.
If you're serious about wealth building, you'll also tend to seek out the wisest and proven knowledge and pass it on to others, helping to expand the percentage of people who achieve financial independence. This is a powerful way you can serve others.
This is one of the many reasons why I teach my signature 2-day Breakthrough Experience program almost every week. In it, I guide people like you how to value yourself, dissolve emotional baggage, clear shame and guilt that can block your wealth-building potential, and prioritize your life and financial destiny.
The Breakthrough Experience is the starting point for learning to master your money instead of being a slave to it – so, if you are inspired to transform your life from the inside out, this 2-day program may be the wisest investment you can make to get you started.
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If you’re seriously committed to your own growth, if you’re ready to make a change now and you’d love some help doing so, then click on the LIVE chat button bottom right of your screen and chat to us now.
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In 2 days you’ll learn how to solve any issue you are facing and reset the course of your life for greater achievement and fulfillment.
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