Becoming a Money Master image

Becoming a Money Master

How the rich use self-discipline to make money work for them

A friend of mine has a son who likes to spend money. At just 16, he already wanted his own car because "all his other friends are getting cars." He asked his dad if he could dip into his college savings for the downpayment.

My friend came to me and asked if he should let his son buy the car. "It might relieve the pressure in the short term," I said, "but what would you teach him in the long term? Can you use this desire to own a car and inspire your son to learn something?"

Two months later, I ran into my friend and asked for an update.

"I gave him $3,000 for the car," he said. "I told him to use that money instead of his college savings...but there was a hitch."

"What was the hitch?" I asked.

"A little financial education," he said. "We played CASHFLOW® together and had a long discussion about money and how it works. I then gave him a subscription to The Wall Street Journal and a few books on the stock market. The hitch was that he had to use the $3,000 to buy and sell stocks. Once he made $6,000, he could use $3,000 to buy the car and put the other $3,000 back in his college savings account."

"What happened?" I asked.

"He got lucky early but then started losing ground. He's probably down about $2,000 right now, but the amazing thing is he seems to have forgotten about the car and is engrossed in his trading activities. He's got $1,000 left, and he knows that if he loses that, he's walking for two more years. He doesn't seem to care. He loves the game of investing."

"What happens if he loses all his money?" I asked.

"We'll cross that bridge when it comes," my friend said. "I'd rather have him lose everything now rather than do it when he's our age. This is the best $3,000 I've ever spent. The financial education is worth it. He is learning lessons that will serve him for life, and he seems to have gained a new respect for the power of money."

It takes self-discipline to get rich

My friend's son is learning the power of self-discipline. As I've written about before, if you can't learn to master self-discipline, you'll never get rich.

Developing cash flow from the asset column seems easy in theory, but in practice it takes mental fortitude to direct money to the correct use. In today's world, it's much easier to simply blow money in the expense column than direct it in the asset column.

When you have no self-discipline, your money will flow through the path of least resistance. That is the cause for most people's financial struggles.

The 4% Rule

The following is an example of the 4% rule.

If we give 100 people $10,000 at the start of the year, I believe that at the end of the year:

  • 80 would have nothing left. In fact, they probably would have more debt by using the money for a downpayment on a new car or some other fun toy.
  • 16 would probably have increased that money by about 5-10 percent.
  • 4 would have increased it to $20,000...or more.

Most people go to school to learn a profession so they can work for money. It's my opinion that it's just as important to learn how money works for you. Only about 4% of the population gets it...and they're rich because of it. You want to be in the 4%.

Buy luxuries with cash flow

Another valuable lesson my friend's son is learning in conjunction with the power of self-discipline is the power of using assets to purchase luxuries.

I love my luxuries as much as the next person. The difference is I don't buy them on credit like most do. That's the keep-up-with-the-Jonses trap. When I want something nice, I focus on generating enough income in the asset column to cover it.

The rich, as a habit, use their desires to consume as inspiration and motivation to invest. They focus on creating money for toys rather than borrowing money for them. That takes self-discipline, but it's more than worth it.

Become a master

The earlier you can train yourself and those you love to be masters of money, the better. Money is a powerful force. Unfortunately, people use the power of money against themselves.

To be a master of money, you need to be financially intelligent. This starts with financial education and self-discipline, just like with my friend's son, and ends with knowing how to make money work for you, i.e., using assets to purchase liabilities.

Begin the path to making money work for you today, not the other way around. Check out Rich Dad’s free, financial education community here for more information.

Original publish date: March 05, 2013

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