Money Mindset to create Wealth
- Why Financial Freedom or building Wealth?
- Inventory of your Financial Situation
- Define your Goals
- Create a Plan
- Implement habits
- Iteration and Adjustment
- Optimizing your current state: Minimalism vs. Frugalism
Why Financial Freedom or building Wealth?
Behind the desire to reach financial freedom there is often the motivation to improve your own life or to have a more carefree existence. Due to the fact that we’re living in a capital oriented society, money has the potential to provide some degrees of freedom for us. Therefore, it is a great idea to remind yourself why you want to start your journey to financial freedom. Typical reasons:
- Independence, e.g. of an annoying job or boss,
- freedom: to omit the things you don’t want to do,
- status: the feeling of being untouchable,
- taking care of yourself and/or your family.
- stress reduced, bills should’t bother you anymore
Financial freedom can be part of your life’s concept - for anyone at every stage of your life. In the following, I’d like to present some inspirations that can basically be applied to any goal you want to reach. Here, your own individual desires determine the way and you should find out what works for you individually.
Inventory of your Financial Situation
You will start wherever you’re standing - in this very moment in your life. Therefore it is a good idea to realize what you have build so far and what you really desire. The following questions may be of help:
- How many income streams do I have?
- How much monthly cashflow do I have?
- How much income and how many expenses do I have?
- Is my financial literacy mature?
- How much risk am I willing to take?
- How long is my preferred investment period?
- Do I enjoy building a business?
You want to analyze your current financial situation and find out your personal current mindset concerning investing and building or running a business. There really is no right or wrong answer to the question what might be the right or wrong path, because every person is unique and has different preferences. Your own time resource plays a vital role as well, since you will need some time to build new income streams, to learn new skills and to take care of your finances.
If you have a hard time to answer the above questions, you’re obviously missing the proper measuring methods. If you don’t know, how much money you spend per month, then recording your expenses using a budget plan may help. Here you can write down your expenses by category and see at a glance, where and how much you spend each month. Sounds pretty old school, but it really is effective. Can be done with a modern app as well, if you don’t like writing in an analog budgeting book. The important part is to know exactly where your money is going and coming from, so that you have a base to make informed decisions for your way to financial freedom. Not knowing your numbers means you are completely in the dark and unable to navigate.
At this point, you do not judge or revaluate your expenses or your income, you just take a good look at it so that you know where you’re standing. Whatever the situation, it’s yours and it’s fine. This is now the moment where your first step on your your journey to financial freedom is completed.
Define your Goals
Now that you know were you stand, it is time to define where you want to go.
- Supplementing income: do you just want a second financial income stream?
- Financial independence: do you want to set yourself monthly budgets and live from your passive income within these budgets?
- Financial Freedom: do you want to live from your passive income without worrying about how much you spend?
In every case, you should define how much money you actually need for your financial goals. This is relatively easy, provided you created an inventory of your financial situation as suggested at the beginning of this article. At this point, we only want to work with your current situation to avoid getting false ideas of your financial future. I’ll come back to optimizing your current situation at the end of this article.
Create a Plan
How do you get from your current situation to your goals? You will need a clear plan with defined steps. If you have difficulties in picturing a clear plan or path, then you might pause at this point and start defining more fundamentally who you are, where you want to go and what you want to represent. This might turn into a deeper psychological journey and there are a lot of books filling this topic. However, that said, there are always a lot of different possibilities to create active or passive income right now. Rental properties are one possibility, which come to mind, since you are already on an real-estate focused site. For instance, if you want to plan and control your own rental properties portfolio, our investment analyzer may be of help.
The most important part are your own desires and needs, how much time you want to spend on your financial endeavors and how much effort are you willing to put into learning new things. Especially when building new income streams focus is one of the most important factors: if you came up with several ideas for new income streams, it may be a good idea to concentrate on the most efficient ones. Once an income stream is creating income, you can start building the next. Over time you create several income streams and have a solid base of diversified income.
On the internet you can find a lot of talk about the easy implementation of passive income. Well, it’s not created out of thin air and you have to put some work in it. Usually you invest your time and maybe some money to perform research and to build up your infrastructure. Only once you have build your infrastructure and are reasonably familiar with it, the income becomes passive. This means, that you can earn money even though you’re not investing your time to do so. This is earning money in your sleep if you like that phrase. Therefore, you don’t trade your time for money as you normally do with a 9 to 5 job, but rather you created a system that earns money for you. An example for this is your website: the technical realization costs time and money. Writing content and kickstarting the traffic requires actual work. But when this system is up and running, and you have strategically placed ads or even managed to create your own digital tool or ebooks, the website can make money while you are happily gardening, or hiking for that matter.
„Habit is either the best of servants or the worst of masters.“ - Nathaniel Emmons
Our habits are responsible for us performing the same procedures over and over again without much effort. Surprisingly, you will reap the logical consequence of your actions. Eating fast food every day while being a couch potato? At some point, you’ll get obese and sick - how could this happen? Excercising every day and eating healthy food? Surprisingly you’ll get a fit and healthy feeling of your life - so much luck! Before you make an action a habit, you should ask yourself, if you actually want the logical consequence of your actions. Nathaniel Emmons summed this up with the above quote quite nicely.
After having created a precise plan, it’s time to make it a reality. The human brain is made in a way, that performing habits takes little energy. Therefore it is a good idea to think about how the steps of your plan should be performed and how they could become easy to perform habits. You could reserve a certain time at certain days to make sure you are constantly working towards your goals. If you manage to do this daily, it becomes harder to not work on your goals after approximately three weeks, since this would mean you break your habit - which your brain doesn’t like. However, the implementation of new habits requires quite some energy and taking one step at a time - or rather one habit at a time - is the way to go. Implement the first new routine and when this one is up and running, create the next. Else you’ll become overwhelmed quickly and will likely quit.
"Winners never quit and Quitters never win" - Vince Lombardi, bzw. Napoleon Hill
Tenacity or perseverance is essential when it comes to reaching your goals and should ideally be your habit in whatever you do. Whatever you’re trying to achieve, there will be obstacles on the way. No matter how well you planned everything, when the plan gets confronted with reality, gaps in your plan will appear. But there is one universal truth: if you quit, you won’t reach your goal. If you continue and turn obstacles into chances, you will succeed. And how do you transform your plan into reality? Step by step. The trick is to always concentrate on the current step and execute this step conscientiously. Then modify or replace the actions in the step in case they don’t produce the desired result. This is iteration and adjustment or simply evolution.
If or how?
Asking, If you are able to reach your goals is pretty destructive. Your brain will come up with lots of possible and impossible scenarios. This is a safe way in draining your energy and you will likely quit or even refuse to start your endeavor, being full of doubt and fear. Not very nice and far from constructive. One of the most important habits you can have while you’re improving your financials and your life’s quality is to always ask: How can I do it ?How can I modify it? Your brain will immediately start flooding creative, possible and even impossible solutions. This process will use your energy in an effective and constructive way while providing motivation for your plan as well.
Eliminate negative basic Assumptions
One more important habit to implement is overriding negative basic assumptions with positive ones the moment they appear. Otherwise your nicest and brightest plans can only be transformed into reality against high inner resistance. Positive basic assumptions on the other hand act like a turbocharger, that accelerates your way to financial freedom and to a better life.
Iteration and Adjustment
Iteration means using a feedback loop:
- define a goal
- make a step towards your goal
- analyze this step: did I reach the desired result? Or do I have to correct the method?
- if you need to adjust your method: did the corrected method bring the desired result? If not: touch the method up again, else take the next step.
Evolution vs. Society
This is iteration and adjustment, or simply evolution. Unfortunately, in most schools and colleges this natural way of achieving your goals is driven out of children successfully and almost completely. Here, the opposite is taught: you’ll get one shot (the exam) and if you blow it - well, than you’re labeled not capable and get a bad grade. Personally, I think this procedure is highly toxic and undermines growth and personal improvement. When you’re a grown up, however, you get the opportunity to override this toxic program. That way, you can rediscover essential life components - like the pleasure of trying new things out without pressure, but with curiosity and self-reliant growth.
On your way to financial freedom or while you’re building more income streams, iteration is key. Not everything will work out when you try it for the first time. When investing in financial markets, you can be quite sure of set backs. When you’re building your own website obstacles will appear that you never even heard of before. When reselling products you could be wrong and end up with lots of shelf warmers. The important part is to always continue and use the feedback loop. What went wrong and why? What can I do to improve the situation so that this won’t happen again?
How to implement Iteration in your Life
We're delighted to feature the following paragraph of the insightful Inimitable Path - make sure to check out their website. They share their thoughts on implementing the power of iteration in your life.
Iteration - Making Progress in Strides
Often, the jobs and responsibilities laid before us can seem overwhelming. Long time horizons, layered complexities, or the resulting impact on our day to-day can make it difficult to even know where to start. If we attempt to solve everything at once, we might end up with nothing. Instead, we can focus on the basic requirements and strive to reach them in the most direct way possible. We can then build upon this success by tapping into the power of iteration.
When you don’t know how to approach a new project or change, try to strip it down to only what is required in order to accomplish the need. You can then take any time left over and iterate on that solution. You can benefit from your initial progress while you continue to refine and improve.
Let’s look at an iterative approach to cutting one of our weekly expenses:
Problem - Looking at our monthly expenses, we see we spend a significant amount on a morning latte each weekday on the way to work. Goal - Cut down on our weekly latte budget
Iteration 1: Starting Small
- Fearing we will miss our morning latte, we decide to start small and cut out one day each week.
- After a month, we realize we don’t even notice the day we skip the latte
We have saved a bit of money and have an early success to build on.
Iteration 2: Cold Turkey
- In our exuberance, we decide to cut out lattes from our daily routine entirely.
- By Wed we discover we are less focused throughout the day as our mind keeps wondering to how good a latte would taste
We saved money, but at the expense of ourselves and lost performance in the back half of the week.
Iteration 3: Striking a Balance
- We treat ourselves to a latte on Wednesday morning. Taking this as an opportunity to reward ourselves for all we have accomplished this week and to create a game plan for what we will still accomplish before the weekend.
We have cut weekly latte our expense by 80%, while turning what was formally a routine into a mid week moment of reflection and motivation.
Idea for future iteration - set up a direct transfer to move the money saved into an investment account at the end of each month.
Iteration allows us to focus on the requirement without giving up on the ideal. It allows us to test solutions that might have been too risky in a single deliverable approach. By achieving a baseline quickly and then iterating you always have a fallback, and can abandon what is not working without having to start from scratch.
Iteration can unfortunately deprive us of the wow factor, the grand reveal. By achieving results in layered stages, the changes from one milestone to another can be easier to take for granted. The cycle can also become addicting as you continuously find things you can iterate on and improve. It remains critical to have a defined end point and be able to move on. That said, often the result will be far better than you could have imagined had you attempt it all at once.
Optimizing your current state: Minimalism vs. Frugalism
Taking inventory of your financial situation in the first step surely revealed the potential for optimization. Even if you think you only have a few expenses, you can usually cut out even more without losing life quality, often you can even gain life quality by this. It’s all about your own attitude towards life and the focus on the really important things in life. Life will become easier and feels lighter, when you remove unnecessary things from it. Unnecessary things could be:
- unuseful and unloved stuff and clutter
- unpleasant people
- activities, that rob you of your energy
The new buzzwords for this are minimalism and frugalism. These are concepts, that already popped up in the last century from time to time (e.g. 70s capsule wardrobe, turn of the century arts and crafts movement, that critized mass production). Whatever you want to call it, it’s about focussing on the essentials, on the things, that are most important to you personally. For this, you need to know your own desires and get to know yourself better. Which might be quite a nice encounter.