We Were Programmed to Fail from the Moment We Were Born
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
J. M. Keynes
Why is it that money seems to flow to some people like a magnet...and seems to be repelled from others? This question has always intrigued me. And I was determined to discover the answer.
I began to examine my own experiences in creating personal wealth. I talked with dozens of people...poor, well-off, and wealthy. Each person taught me something. I began to notice common threads...patterns. What I discovered was astonishing!
Let me share with you a whole new way of thinking about money and a proven method of acquiring wealth. In the process, I will put to rest (I hope forever!) an astonishing number of myths and misconceptions about what it takes to make -- and keep -- great wealth.
As I will show you, most of what we know about money is based upon false assumptions. As Josh Billings so aptly put it: "The trouble with people is not that they don't know, but that they know so much that just ain't so."
How do people get to know so much misinformation about wealth? They are programmed. Of course, there is really nothing sinister about it. There is no conspiracy afoot to brainwash unsuspecting Americans into thinking "poorly." Actually, much of it is nothing more than the common sense of past generations taken to extremes. These widely held sacred-cow notions about saving, spending, borrowing, and investing are taught by well-intentioned teachers in our finest universities, in our newspapers, on television, from our pulpits, and in our homes. We take them for granted just as people used to assume the world was flat or that the sun revolved around the earth.
As a consequence, only a small percentage of the millions who try ever join the ranks of the wealthy. How can they? They are building on a shaky foundation.
I'll never forget a radio interview I did in Pittsburgh. The host and I spent some time talking about the road to wealth. The host's assistant, a young woman, listened intently. After the interview she questioned me. "Mr. Allen, all of what you say sounds interesting, even feasible. But it goes against everything my parents have always taught me!"
I asked, "How are your parents doing financially?" She replied, "Terribly. They are really strapped for money." Then she laughed at what she had just said. She understood.
Granted, it isn't easy to let go of our programming. There are lessons we feel we have learned from the Great Depression of the '30s, the Great Recession of the '70s, or the Great Stagnation of the '80s. But we don't have to be like the monkeys in a story I heard recently. It seems that in Africa, the natives use an ingenious method for catching monkeys. They hollow out a coconut shell by cutting a small hole at one end. The hole is small enough to barely allow a monkey's hand. Inside the hollowed shell they place a few peanuts. They connect the coconut shell to a thin, strong cord and wait in hiding for the monkeys. When a monkey discovers the nuts inside the shell he reaches in and grasps them in his fist. But the hole is too small to allow the tightly clenched fist to escape. At this precise moment the native pulls on the cord...and the monkey, who won't let go of those peanuts to save his life, is caught.
Too often, we hold tightly to our own peanut ideas for fear that we may lose them...when all the while, it is these very ideas that hold us captive and prevent the freedom we long for.
Well, what are these false assumptions? And how can we learn to let go of them? Let's examine the nine most prevalent faulty assumptions about wealth. As you study them, notice how each one of them contains a grain of truth.
False Assumption #1: Having a Job Is Good and Leads Ultimately to Wealth.
I asked a young telephone receptionist in Columbus, Ohio, to tell me her idea of the most important factor in wealth acquisition. She replied, "A good job, a great job, a fantastic job." I was surprised by how often this same answer was given by those whose income is average and below. Millionaires rarely respond this way.
It is commonly held in our society that finding a good job, working hard, and moving up the ladder to more responsibility will eventually take us to golden retirement years of wealth and happiness. The fact of the matter is that a job merely supports the habits we have (like eating)...but it rarely leads to wealth. As one shrewd observer put it, "Wealth is when small efforts produce large results. Poverty is when large efforts produce small results."
No matter how much you love your job, expecting it to make you wealthy is like looking for gold in a salt mine. If your large efforts are only producing small results you had better check the roadmap. You may be on the road to poverty.
The answer is not to work harder, but to work smarter. A job should be looked upon as a temporary inconvenience. It is a method for generating cash flow for living expenses while you are setting up an automatic pilot (more on this in Chapter 5). Thus, having a job is necessary for a while, but don't forget the other part of the equation. Your ultimate goal is to acquire ownership of a generous source of income which flows to you regardless of your job. Accomplishing that goal is what this book is about.
False Assumption #2: Saving Your Money Is a Good Investment.
How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.
But don't get me wrong. Saving money is good. In fact, it is important to the wealth-building process. It's not the money saved that is important. It is the discipline required to save it. But you can't expect your savings to carry you to wealth. And this is the fact that is so widely misunderstood. Even the seemingly exciting high interest rates paid by the popular money market funds are not enough. Assuming only minimal inflation and taxes, it doesn't take a Ph.D. in finance to realize that any dollar that earns less than about 15% per year is a losing venture. At best it is the slow liquidation of wealth.
"But," you say, "savings accounts and certificates of deposit are safe and the money comes easy." And I reply, "Does it make you feel safe and secure to know that every day you are getting poorer and poorer?"
One of my grandfather's favorite sayings was: "Early to bed/Early to rise/Work like hell/And economize!"
There is nothing wrong with economizing. There is a place for it in the scheme of wealth. However, if your goal is to become wealthy you must learn how to save smart. The money you save is only parked temporarily in liquid, interest-bearing accounts waiting for a better place to invest. This smart money is then shifted into long-range, less-liquid investments (more on this later) which generate wealth-producing rates of return -- rates well in excess of 50% per year. Anything less is tantamount to treading water in the swimming pool on the deck of the Titanic.
False Assumption #3: Debt Is Bad -- Avoid It Like the Plague.
Have you ever heard this before? There is truth to the statement, but it depends on the kind of debt we are talking about. If we are talking about consumer debt, yes. Avoid it like the plague. Avoid borrowing money to buy the "appearances of wealth" which lose value and are often worthless before the debt is repaid.
But investment debt is another story. In fact, self-made wealth never comes without going into debt. I repeat: You can never become wealthy without going into some form of investment debt. And probably a lot of it.
It is true that debt is terrifying to most of us. It signifies bondage. And ironically, the only way we can develop a sizable nest egg and stay out of long-term financial bondage is to go into short-term debt. You can actually borrow your way to wealth. Chapter 9 on leverage shows that the key to wealth is the wise use of investment debt. It will help you understand the importance of debt. Even to love debt.
There is no other way short of theft or inheritance. And that brings us to our next false assumption, which is the reason most of us fear debt in the first place.
False Assumption #4: Security Is Good.
Our entire society is obsessed with security. We demand social security, job security, seniority, and federal deposit insurance. But security is only an illusion. Let me illustrate. A few months ago a fireman friend of mine was called out to fight a large brush fire. He and his cohorts rushed to the closest fire hydrant, connected their water hoses, and ran to the flames. But when they turned the water on at the hydrant, nothing happened! The water lines had not been properly connected by the developer. All they could do was stand there and watch the blaze, helpless.
Those who place too much faith in security often end up trying to put out fires with empty water hoses. Would you feel financially secure if you had to rely on an almost insolvent social security system?
How dangerous it is to assume that security is good! The more you love security the more likely you will avoid risk. And if you avoid risk, you also avoid opportunity, because risk is the price you pay for opportunity. You can't hate risk and hope for freedom.
Risk is an essential part of progress. Learn to view it positively, as an essential step in the road to wealth.
I was driving down a California freeway recently and heard a radio advertisement for a local bank. Their slogan was: "Come in out of the risk."
If I could rewrite this commercial, I would say: "Come out into the risk. For that is where you find the opportunity. There is no such thing as security. There are only varying degrees of risk."
False Assumption #5: Failure Is Bad.
I used to be ashamed of my many failures and mistakes. And I have made plenty of them! I used to have a recurring nightmare: A crew from 60 Minutes is waiting to interview me at my office about my remarkable success in business. But Mike Wallace has uncovered some of my whopping failures along the way and he is getting ready to expose them to the world. What horror!
But as I became more mature I realized that failure is part of success. A very important part. If you develop a positive mental attitude about failure, you can learn a great deal from it. You will develop ingenuity, flexibility, and an ability to create new ways of achieving goals. When you fail for a time to obtain something you really want, you join the ranks of some pretty important people...like Abraham Lincoln and Thomas A. Edison. Do you know of any successful person who has risen to the top of his or her field without some failure?
Herb True once said, "What people don't realize is that successful people often have more failures than failures do. But they keep going." You don't drown by falling in water. You drown by staying there.
Failure is not bad. In fact, one good failure can teach you more about success than four years at the best university. Failure can be the best thing that ever happened to you.
False Assumption #6: Wealth Is Measured in Material Possessions.
Wealth is not money. Money is just the appearance of wealth. The form but not the substance. Wealth is thoughts, not things. You can be wealthy without having lots of money. And you can be rich and not be wealthy.
Now that may be a bit confusing, but it's true. Wealth is a state of mind -- an attitude. Hollis Norton says it well: "Broke is a temporary condition. Poor is a state of mind."
Let's test this hypothesis out. Henry Ford was once asked what he would do if he lost all of his possessions. He replied, "I'd have them all back again in five years." In other words, he might be temporarily broke but he would never be poor. He had a wealth of experience and knowledge to draw upon. And above all, he had a positive attitude about his ability to create wealth and knew that if he had done it once, it would probably be easier the second time.
I have been quoted as saying, "Send me to any city in the United States. Take away my wallet. Give me $100 for living expenses. And in seventy-two hours I'll buy an excellent piece of real estate using none of my own money." How can I do this without any of the trappings of wealth? It is easy when you learn the principles of wealth and are not afraid to use them.
In the next chapter we will talk about developing the wealthy mindset which makes all of this possible.
False Assumption #7: The Government, My Employer, or Someone Else Is Responsible for My Financial Well-Being.
When our forefathers arrived on these shores, there was no welfare system. Each person was responsible for his or her own financial welfare. When the pioneers crossed the plains, there were no unemployment benefits. They had to scratch out their own existence. When thousands of immigrants landed here in the early 1900s, they came seeking only the opportunity to work and to be free. Somewhere between then and now, there has been an almost imperceptible -- and, I think, destructive -- shift in public thinking. People have ceased to assume personal responsibility for their financial well-being and assume that the government is responsible. Today, we expect government to bail out everything from defunct major corporations to insolvent municipalities.
But government is not the answer. The answer lies in us. We alone are responsible for our ultimate financial welfare. The sooner we realize this, the quicker we can start on the road to wealth.
False Assumption #8: The Acquiring of Wealth Is a Win/Lose Game.
Since the beginning of time the acquiring of wealth has been viewed as a win/lose game -- a dirty business in which the acquirer takes advantage of the acquiree (usually in an illegal or immoral way). Many people think that one has to be a greedy SOB to "make it."
ardBut I believe you don't have to be filthy to be filthy rich. I don't have to steal from your pile in order to create a large pile for myself. There is such a thing as creating win/win wealth.
In reality, there is an infinite source of wealth. We just have to learn how to tap into it. When I tap into the infinite source of wealth I don't reduce the possibility of your becoming wealthy. I probably enhance it. We'll discuss this in great detail in later chapters.
False Assumption #9: It Takes Money to Make Money.
My last book, Nothing Down, destroyed this dangerous myth. It does take money to make money -- but it doesn't have to be your own money. In this book I will explore, in more depth, the principles of borrowing and leverage to create personal wealth.
And you can become wealthy starting right from where you are now, in ten years or less.
So there you have them. The nine most dangerous obstacles to the wealth-building process.
Now that you know what they are, I'll show you how to rid your life of them.
Copyright © 1983, 1986 by Robert Allen
Retire in Ten Years Using Allen's Seven Principles
Retire in Ten Years Using Allen's Seven Principles
Programmed to think that saving is good, debt and risk-taking bad, we disqualify ourselves from ever having a chance at big money. The first step in creating wealth is to stop thinking poor. Then you're ready to create your own version of the Allen plan, keyed to integrating real estate with other wealth-generating investments.
These principles and others can start you on the path of financial self-reliance:
* The Automatic Pilot Principle
* Enormous Profits in Discounted Mortgages
* Numismatics: the Secret of the Midas Touch
* Liquid Money and Where to Pour It
* Insulating Your Assets from Liability and Lawyers