Rich Snail

First time here? You may want to read more about Rich Snail or even receive regular updates via a RSS feed reader or by email. Good read!

You finally have a clear road-map to follow. You now need to track your steps, you achievements, your could-be-better. One of the first thing you need to do is to start tracking your expenses on a daily basis. Why is that? By tracking every cent that goes out of your pocket you will really know where you spend your money. I guarantee you will have a few surprise over your first month!

The Starbuck Phenomenon

Let’s imagine you take a coffee every morning on your way to work. Every morning you spend a few dollar to get your dose of caffeine. It may not seem much when you think about it on a daily scale, but if you start changing the scale to a week, a month, or even a year the dollars adds up very quickly. This phenomenon is not unique. It actually comprise most of the small stuff we all buy over a day.

Keep track of all cent

Knowing that small spending can add up pretty quickly, you need to start keeping track of all your expenses on a daily basis. Use a piece of paper, a pocket size memo book or your blackberry phone, but keep track of every single cent you spend. The data collected will then be used to review your progresses and set your budget.

You will find hereafter a sampling of my excel sheet:

I you don’t see the excel sheet, please follow this link

You defined yesterday a list of situation and behaviors where you find happiness. More importantly, you refined it to a short list of value. Those values are extremely important as they define your life; they help you know what you stand for, and go the extra mile when needed. They are sources of inspiration and motivation. You will now start refining those values, and break them down to define specific goals.

Your values become dreams

You need to strip down each value you defined yesterday; ask yourself how you want to it answered in the long term; dream where you want to be regarding those values in 10, 20, or 30 years from now. Do not be afraid to dream big; it does not cost much.
To give you an example, two of my strongest values are Family and Freedom. I really cherish those two. They translate into the following dream: Offer freedom of choice to my family, especially my kids.

Dreams become Goals

A dream is an incredible source of motivation. Unfortunately, they are often very distant and difficult to reach; your motivation can quickly fade out if you don’t see progress towards them. That is why you need to break them down into goals. Those goals ensure you know where you want to go and help you set checkpoints you can refer to. They needs to be defined clearly and be definite; they have to be SMART (Specific, Measurable, Achievable, Realistic, Timed).
To come back to my personal example, here are a few financial-related-goals I have:

• To be able to afford whichever school they decide to attend
• To be able to travel the world to visit our children and grand-children
• To own a big second house where the whole family can gather for Christmas and Hari Raya

Goals turn into Plans

We finally undertake the final step of the refinement process. We need to break those long-term goals into shorter-term ones; they need to become plans of action. You have to ask yourself what you can do to get closer to each goal. Take a piece of paper and ask yourself the following questions:

• Where do I need to be in 5 years?
• Where do I need to be in 1 year?
• What can I do over the next 6 month to get to the 1 year check-point?
• What can I do over the next month to reach the 6 month one?
• What can I do this week?

Once you answered those questions, you finally have a clear road-map to follow; you know how to reach and fulfill your dream!

The road-map will of course evolve. Some goals will be met, some will change, some will not be needed anymore. What is really important is that you see progress toward your final goal!

The first thing to do when you tackle your personal finance situation is to sit down, take a deep breath, and ask yourself what you really want. This is a really personal question, and, fortunately, you are the only one who can answer it. To find true answers you need to look within yourselves.

What makes you happy?

You read well. You first need to know what defines your happiness. This feeling help you uncover some of your main values, and help you see what you want from life. Your values, and their relative importance, are key to a happy and a healthy life. Defining them precisely can be a long and demanding process *. We are not going into a detailed one here; after all, Rich Snail is not a NLP blog! No, we want to simply find out what makes you happy, so as to later define clear & definite SMART goals.

Which behaviors makes you truly happy?

You need to write down all the behaviors and situations where you feel happiness. You may find out that some of them can make you feel guilty and happy at the same time. Do not be afraid, write them down. Once you have your list, review it, and try to uncover new ways to find happiness without guilt for the entangled-feelings-ones. The resulting list will be your guideline.

Extract your values

The list you just wrote down will help you define your core values as every behavior or situation where you find happiness correspond to a value. You need to go through your list and find them. Analyze, decorticate, penetrate each behavior / situation to extract the value(s) answered there. You should end up with a small list of values. Once you wrote the list down, take a minute and congratulate yourself. We can now start defining and refining your goals.

* You can read the following article NLP & Values to discover more on the value topic.

One of my friends recently decided to tackle one of his New Year’s resolutions: get his finances in better shape. He asked for my help, and I am looking forward to helping him the best I can. I started thinking on how to best help him over the week-end. He could of course read the 31 Days To Fix Your Finances series from the The Simple Dollar, or the The Wealthy Barber book; both are great resources and I highly recommend them. But I think a simpler and easier-to-grasp approach will help him a lot more in the beginning. Therefore, preparing for our first “financial-review” tonight, I started laying down a few basics.

The Big Picture

Those basics will help us draw a simple and easy-to-grasp big picture. They will guide us in defining what his goals are, what to work on, and and how to build sound financial foundations. My belief is that money management is not only about dollars and cents; it relates to one’s life goals and how money relates to them. Therefore we need to review where he wants to go and how to reach there.

Killing Two Birds With One Stone

I will post those rudiments over the next week in a series of posts named “The Basics of Personal Finance in 7 Days”. I will write a post per day, each describing a single step. As soon as a post will be live, I will add links to it here; so if you want to save them and have simple access to all of them, just bookmark this post.

Day 1: Assess the situation - Open your eyes
Day 2: Define and refine your goals – Where to go
Day 3: Track your spending - Where did it disappear to?
Day 4: Set up a budget - Your Treasure Map
Day 5: Get out of Debt - Fight for independence
Day 6: Emergency Fund & Insurance - Safety First
Day 7: Invest - House, College, Retirement, etc.

Rich Dad, Poor Dad, by Robert Kiyosaki, for sure is a best seller. It sold millions worldwide. A lot of people recommend it, and it is more often than not a personal finance first read for many. My fiancée recommended it to me for a long time. I finally read it a few years back and the first thing which surprised me was how easy it was to read. Knowing that my English was not as fluent then, it was a good surprise.

Rich Dad Poor Dad advocates financial independence through investing. The reading is easy, the concepts are engaging, yet, there was always a tickling at the back of my head while reading it. I always felt it was too good a story to be true. Why was that?

Mr Kiyosaki’s philosophy is to reach financial freedom by purchasing income-generating assets instead of liabilities. Great idea. Who would not want to be earning money passively. The tickles started when he described a few of his accomplishments. They were too good to be true. The time he bought a property for $20,000 and sold it immediately for $60,000 comes to mind to most people who read the book.

Yet, like every book, there is some good in Rich Dad Poor Dad. It simply defines what an asset is, it advocates the value of passive income, and it reminds us the value of creativity in our lives. All three are important concepts and it is good that such a book help popularize them worldwide.

Is it enough to earn a recommendation? No.
Instead of Rich Dad Poor Dad you should read the following one: The Wealthy Barber. It teaches the same lesson, with the same sound concepts, but without any self-promotion ans salesmanship.

Interesting Reach Dad Poor Dad reviews
If I Were a Rich Dad - Slate
Review: Rich Dad, Poor Dad - The Simple Dollar
John T. Reed’s analysis of Rich Dad, Poor Dad - John T. Reed

I know I react after the war, but here is the kind of story that inspires me : A retired factory worker gives $1 million to Cumberland County College. Mr Navone is now able to do help his community thanks to a lifelong commitment to healthy personal finance. He never earned more than $11 an hour. What an achievement !!

Mr Navone is happy to live a frugal life. He doesn’t own a phone or a television, he buys most of his stuff second hand, and drives an old car. Yet, he does not miss a thing. He is disciplined, and happy to be. His strategy is simple.

“My motto back then without realizing it, and it is now, is that I’ll work for the money, and then I want the money to work for me” -Paul Navone

As Mr Navone wants his money to work for him, he saves a fair share of his income every month. This enables him to invest regularly.

He started by building a steady stream of income from renting out properties; properties he bought with his savings. He then started to invest in the stock market.

His investments always are for the long term. He never acts on impulse, and do not panic when the market are tumultuous.

“Paul has always been the perfect client. He gave me money and never took it out” - R. Douglas Smithson – Broker

Mr Navone is a great example of a simple plan well executed. His strategy is to give his money the time to grow. And it did grow ! He was steady, he was consistent, and he is rewarded with a net worth in the millions.

Mr Navone became a paragon of Personal Finance Strategy in the recent month. Many have discussed his achievements over the past few months. You can follow some of them on the following PF blogs:
Life Well-Lived is Not About the Bling – get rich slowly
Seven steps to wealth – the example of Paul Navone - Lending Club
Case Study: Multi-Millionaire Made on $11/hr Job - Consumerism Commentary