Knowing how to care for, nurture, and increase your cash flow is essential for lifetime financial success. New York Times best selling author Robert Allen recently shared his insights on money live on my radio show, The Mike Litman Show.
Mike Litman: Let's stay here. You talked about the decision you need to make. You talked about the difference between the transition from security to freedom.
Let's briefly talk about, Robert, the 7 essential money skills. Briefly share those with my listeners.
Robert Allen : Well, if you wanna be good at money, you're going to have to be good at 7 things:
#1 is you have to be good at valuing every dollar bill, because every dollar bill is a money seed. It grows if you plant it and you fertilize it and you weed it and you hoe it. It becomes a money tree. That money tree generates money for you for the rest of your life. It's on automatic pilot.
Most people don't value the dollar bill. Therefore they throw it away. They destroy it and they don't put that money away so it can grow into a half a million, or 5 million or 10 million or whatever.
So you have to value the money. #2, the second skill you have to learn is how to control it. You have to have a system for having the money flow into your life.
The most important fundamental is, do you save money every single month? The money that flows into your life and the money that flows out of your life, is there a surplus every month? No matter what your living expenses are, no matter what your income is, there's got to be a surplus left over. It may be the hardest thing to do but is absolutely critical for long-term wealth.
The third skill is to save the money. Not only to have money left over at the end of month but you have to save, save it.
A friend of mine quit smoking the other day and she said to me, she bragged to me, "Bob I saved $50 this last month." I said, "well, where's the money? Where is it? Show it to me."
She didn't have it.
It went into her budget and she just lost it and it was gone. She should have taken that $50, pulled it out of your life and saved it, you wouldn't even have missed it! You just quit smoking.
So the point is, skill #3 is you've got to save, save it. You not only gotta save it but you have to get it out of your life.
The fourth skill is you've got to learn how to invest your money. We were talking about that when it came to high rates of return. You gotta get your money growing at 10% or more.
If it's not growing at 10% or more, you're never going to get rich. You have to have high rates of return. That means more risk and it means more knowledge on your part.
You've got to do some studying. You've got to do some mentoring with people who really know what they're doing and you have to increase your rates of return in things like the stock market and bonds and investments etc. etc.
The fifth skill is what we call "making it", how to make money. This is different than investing.
To invest it is a very passive thing. I can sit behind my computer screen. I don't have to know who's on the other side of that computer screen. I don't have to persuade anybody. I don't have to sell anything in terms of a product or a service. I just push a few buttons, click here, click there, I buy, I sell, I can do it in my undershorts in the middle of the night.
I don't have to talk to anybody. I can be a complete recluse, but if it comes to making serious money in terms of a living and making a living and making some real chunks of cash, you're either going to do it in real estate or you're going to do it by owning a business.
Both of those are going to require different skills. It's going to require some more kinds of risk, it's going to require some more persuasion ability, it's going to require some more knowledge.
That's why it's a different, separate skill than just investing your money. Making it is different. I say, "there's 10 ways to make it in the world. 10 different kinds of ways to make some serious money," which hopefully we will get to.
The sixth skill is to learn how to shield your money. Because hey, you can make a lot of money, but if you haven't shielded it from the dangers of this world, then it's going to get lost.
You have to set yourself up and today it's more difficult to protect yourself with corporations and limited family trusts and LLCs and various different secret things that you do, nothing that's illegal, nothing that's immoral, but you know if you would ask me today, well ask me, Mike, ask me if I'm a millionaire.
Are you a millionaire, Robert?
Absolutely not. And I wouldn't want to be. Now, I know where the money is and I live like a millionaire, but I do not want to be one.
I don't want to have my financial statement display to anybody to show them that I have anything. I don't want them to know where it is. I don't want them to know who owns it. I drive a nice car and I live in a beautiful home and I have beautiful things and I might travel anywhere I want, but it's all paid for by all different operations and entities because it's a dangerous world out there and you have to play that game.
You have to set yourself up before you get a lot of money because you need to plan for that eventuality.
A final skill is to share it. You've got to share your money. Frankly, for me, I pay my sharing first.
Out of every dollar I get in, and out of every net profit that I get in, I pay 10% right off the top. It's the first money that I spend and then I live on the rest and I save the next 10%, then I spend the rest on taxes and shelter and cars and whatever else.
-- Mike Litman
Mike Litman is the author of the #1 Best-Selling book, Conversations With Millionaires. In the book 9 Millionaires share their strategies for becoming wealthy.
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