Saturday, November 28, 2009

This Is The Introductory Chapter To My Book "Young Money"

This book has been written for one simple reason: the education system does not prepare students for financial success after graduation.

People do not learn anything about personal finance, budgeting, saving, investing, stock markets, real estate, debt, interest rates, inflation, taxation, rates of return and other financial formulas and ratios. Even students studying economics, accounting and business do not learn anything about how the various concepts they learn in the classroom apply to their personal finances, or how they can use them to succeed financially.

People go to school with the hope of getting jobs which will provide them with income in the form of salaries and wages. All the decisions they will make every day after school will be determined by the amount of money they have. What they eat, what they wear, where they go, and where they live, will all depend on the amount of money they earn or have, and what they do with it.

It is therefore really unfortunate that school is silent on this vital area of life. It educates by providing students with information with which they will hopefully get salaried jobs, but does not empower them with the information and skills they need to succeed financially. The result is that young people leave the school system academically literate and qualified but financially illiterate.

Academically bright people therefore become so messed up in their financial lives, spending more than they earn, living in habitual debt, chasing fast money through all forms of gambling, and hanging onto their jobs as the only source of life, slaving for others all their productive lives.

We used to live in a duplex in one of Port Moresby’s suburbs in the late 1980s. In the next flat lived a financial controller with a major oil company and his family. The man was highly educated and highly paid, but was obviously having financial problems. Most of the afternoons he would come home drunk. His wife would sell ice blocks and betel nuts to raise money for their daily food. We witnessed him complaining about the food, beating the wife and chasing her and the children out of the house on a regular basis.

Here was a highly educated person who knew how to look after his employer’s money as he had learnt in school, but could not even manage his own finances. Could the reason for this be that he never learnt anything about personal finance in school?
The main premise of this book is that academic excellence and professional success does not automatically guarantee financial success.

Most people think otherwise. They assume that bright students will do well in life. Students think that because they do well in school, they will get high-paying jobs and earn high salaries, and therefore succeed financially. This may be true in some instances, but not in most cases.

Most students who do well academically find that the world is different from the classroom. In the classroom, bright students may be held in high esteem by their teachers and other students who are not so bright. They may have an advantage over others in getting jobs too. But getting jobs and succeeding financially are completely different matters altogether.

The sad fact is that many people who did well in school are not necessarily successful later in life. The story of the financial controller related above is probably typical of many highly educated people all over the world. They are academically bright and smart in their professions, but fail miserably when it comes to managing their own finances and succeeding. They know how to manage other peoples’ money but not their own. They are academic and professional successes, but financial failures.

The contrary is true as well. Many people who did not do well in school are more successful than their mates who were bright and academically more qualified. I know of several of my school mates who dropped out of high school who today are successful businessmen, earning more than most working class people and employing those who are more educated than themselves.

Some people have even never been to high school but are wealthy and financially successful. I can think of 2 men in my town who dropped out of primary school who are now millionaires in their own right. One owns several coffee plantations, two hotels and many properties which he rents out, while the other owns a chain of retail shops, a hotel, several lodges and even an airline. I have also heard rumours that they have properties in Australia.

Most people also think that people who are successful in their professions are financially successful as well. They think that if a person is successful in their job, they must know how to manage their money, and therefore they have a lot of money.

This is a mistaken belief. My experience is that most seemingly successful employees actually struggle financially. They are highly indebted to banks, finance companies and informal money lenders. They do not have their own houses. They cannot afford to buy their own vehicles and so depend on public transport all their working lives. Most do not have any savings. And most are one or two fortnights away from bankruptcy.

To be academically qualified and professionally successful does not equate to financial success. This fact really comes to light when people approach their banks for financial assistance. Banks do not ask to see peoples’ academic transcripts, for instance. They do not care whether you possess a degree, diploma or a certificate, which educational institution you attended, and what position you hold in an organisation. They do not even want to know whether you are educated at all.

The first thing that banks want to establish is how much you earn, what you spend your money on, and what assets and liabilities you have. In other words, your personal financial statement and net worth are what the bank wants to know, not your academic qualifications or professional standing. Your credit worthiness is what the bank wants to establish. You might have been a straight “A” student in school and a high-flyer in your profession, but an “F” person as far as your finances is concerned.

The book is set out as follows. Chapter 1 discusses your salary and other terms and conditions of employment, and the impact of income tax and other deductions on how much you take home on a fortnightly basis. The chapter highlights the fact that personal income tax is one of the largest single expenses faced by workers in the country. It alerts you not to be fooled by the seemingly attractive employment packages which employers offer. What matters is what you take home at the end of each fortnight, and whether you succeed or fail financially depends on what you do with that money.

Chapters 2 and 3 focus on budgeting and cashflow management. Most people do not make budgets and so end up spending their money anyhow. These chapters encourage you to make budgeting a habit, so that you can control the flow of money coming in and going out of your life. Budgeting is about having a plan for your money. If you don’t, your money will fall into other peoples’ plans. Cashflow management is about taking control of the money that falls into your hands and applying it purposefully.

Chapter 4 discusses your personal financial statement. The important point on the discussion is that whereas grades are important in school and when it comes to getting jobs, they are not even considered when it comes to determining how financially successful you are. Your financial statement is really your report card after school, and this is what banks look at when assessing your creditworthiness.

Chapter 5 should be read closely, because it discusses the differences between needs and wants, and assets and liabilities. Most people fail financially because they fail to distinguish between these four things. Therefore they buy wants instead of needs, and liabilities thinking they are assets. The inability to distinguish between needs, wants, assets and liabilities has been identified as the main reason the majority of working people fail financially all over the world.

Three ways of living are discussed in Chapter 6: living above, below and within your means. Readers are urged to form the habit of living below their means if they want to succeed financially.

Most working people fail financially not because they do not earn enough, but because they have bad money habits. Six of the most common bad spending habits are discussed in Chapter 7. If you want to succeed financially, you must avoid these habits.

The importance of saving is discussed in Chapter 8. You are introduced to the concept of “paying yourself first.” You are urged to make saving a habit in life, and to save for investment purposes, not for consumption. You also read about two important concepts in finance: the time value of money and the power of compound interest.

In Chapter 9, the book discusses the 4 different types of income people earn: earned income, passive income, portfolio income and residual income. You are encouraged to invest your take-home pay or earned income so that you can earn passive and portfolio income, which require little if any physical effort. Investing is presented as a way of taming or harnessing money and making it become your servant or employee.

Most people tend to think that in order to succeed financially, they must hold back as much as possible. This is not so. According to the law of sowing and reaping, giving is in fact one of the most powerful ways to experience financial success. So in Chapter 10 you are encouraged to give, but with discretion.

The next chapter discusses lending, and how you can operate like a bank and lend to banks, the government, businesses and other people. It is another way of making money become your employee. What you lend goes out and returns to you with more money.
Chapter 12 looks at the issue of debt, and the difference between good debt and bad debt. The point is that contrary to popular thinking, not all debt is bad. It discusses the causes and effects of bad debt, and encourages readers to use good debt to get ahead financially.

Gambling is covered in Chapter 13. This is an important chapter, because Papua New Guineans spend at least K100 million every year on poker machines alone, not taking into account lottery tickets, horse racing and other forms of gambling. It also discusses fast money scams, and encourages you to avoid gambling as if you would avoid a plague.

Chapters 14 and 15 are very important. While Chapter 14 encourages you to act daily with your financial destiny in the long term in mind, Chapter 15 encourages you to put into practice the principles and ideas contained in this book if you want to succeed financially. Reading and knowing is one thing. Actually doing what you know is another. The point is that knowledge only has potential power; utilised knowledge is powerful.

Here are 6 main ways people have become rich throughout the ages all over the world:

• By inheriting wealth and riches from parents or other benefactors;
• By getting married to rich people;
• By gambling and becoming lucky;
• By getting compensated for misfortune or the acquisition of their possessions for public purposes;
• By stealing through corruption, bribery, white collar crime, drug trafficking, money laundering, extortion, etc; and
• By working hard, saving and investing.

Which way do you think the majority of people followed to become rich? If you said they worked hard, saved consistently and invested their money, you would be right. That is the way you too can become financially successful, wealthy and rich. The basics of what you need to know and do to become successful are contained in this book.

In case you think I have written this book based on things I have read, I want to assure you that I have seen the power of using the information in the book in my own life. Several years ago I was a struggling working class person like most others in the country. I struggled to make ends meet, lived beyond my means, and got into debt regularly. I do not drink, smoke and gamble, but even then I struggled from fortnight to fortnight.

If you have read Success After Graduation, my first book, you would know that I was unemployed for 8 months after I left my last job. It was during this period that I regretted having misused all the money I had received over the years when I was employed. I wished I could find a job again, and if I did, this time I would save my money and invest it instead of squandering it. After unsuccessfully searching for jobs, I decided to become self-employed and work for myself. Having felt what it is like to be without a job and regular pay, I have come to appreciate the importance of saving and investing.
They say that old habits die hard, and that is so true when it comes to money habits. I still struggle with the bad habits I developed when I had salaried jobs, but I have made several attempts to save and invest what I have made from what I do as a self-employed person. I am glad, but not afraid or ashamed, to tell you that even though I am not rich and wealthy yet, I am financially independent today. In other words, I do not need a salaried job to live. I can survive without a job.

In fact, my mentality and attitude to paid jobs has completely changed. To me, a job is a waste of time. I am not saying you should leave your job. But I am saying that for me personally, I can earn more working for myself than waiting for an employer’s fortnightly pay. I can earn more in a day than most people earn in a fortnight.

I am now more imaginative and creative as a self-employed person. I have already written 2 books over the past 12 months, and several more are on their way. I can combine some of these books with seminars and have several streams of income. I would not do these things if I were working for a salary. I would be too busy looking after my employer’s business.
Recently I purchased a house with a big yard in one of the prime residential areas of the town I live in. I know that I would not have been able to buy the house if I had continued my old habits of using money anyhow. I also know that I would definitely not have bought the house if I were working for a fortnightly salary.

When I recall back, I remember that I worked for a fortnightly salary for 12 years and I could not afford to buy a house. I could not even come up with the equity contribution required by the bank. But I could buy the house after only 6 years of being self-employed. This personal story holds lessons which I cover in detail in Be Your Own Boss!, my third book, which is on the subject of self-employment.

Having seen the power of making money work for me through prudent management, saving and investing, my outlook on the future is very positive. My mind is more open than it was before when my only source of livelihood was the employer’s pay cheque. Today I can see many ways of making money. In fact, I see so many of them that sometimes I run out of breath just thinking about the possibilities. It is like living in a different world.

It is my sincere hope that students, young people and even working people reading this book will take the message of this book to heart, and use the information contained in it to become financially successful in life.

As I have stated above, people go to school to get jobs and earn a living. But the school system does not equip them with the knowledge they need to succeed financially. The result is that the majority of people may have been academic successes but are failures as far as their financial lives are concerned.

I hope that this book helps an increasing number of people in Papua New Guinea as well as other parts of the world to become financially successful. It is my prayer that many people who have read this book will testify in future that their lives and destinies changed after they read the book and applied the ideas contained in it.


David Ulg Ketepa said...

Very interesting. I will definitely need a copy when I get home.

God's blessings,


Robert@PNG said...

The 1st paragraph is so true... I remember hearing once that if intelligence is a pre-requisite to becoming rich then our academics would be the wealthiest!


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