11 Secrets to achieving - TRA Professionaltra-professional.ie/wp-content/uploads/2014/05/...Determine your attitude to investments and determine an investment strategy that work for

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Joe Cunnane

11 Secrets to achieving

Financial Freedom



Joe Cunnane

What is Financial Freedom?

What exactly does it mean? Well, Webster's Dictionary defines the terms this way: Financial: Pertaining to the science of managing money. Freedom: The quality or state of being free:

(a) the absence of necessity, coercion, or constraint in choice or action

(b) restraint or from the power of another :independence

(c) being exempt or released usually from something onerous <freedom from care>

So Financial Freedom means you have the ability to manage your money in such a way that you have sufficient funds to live your chosen lifestyle without being constrained or requiring assistance from others. In other words, you have enough money to meet all your needs whether you physically work or not. Notice that this definition doesn't mention amounts of money or the symbols of having money that we often attach to Financial Freedom. To some people Financial Freedom might mean yachts, mansions, and expensive cars. To others it might simply mean never having to worry about bills again — knowing they will always have a comfortable home and the time and resources to enjoy their interests and hobbies. For some maybe just having sufficient income so their spouse could stay home with the children, would constitute Financial Freedom.



Joe Cunnane

What does Financial Freedom mean to you- the importance of Clarity.

Clarity is of vital importance. You need to know what Financial Freedom means to you before you can focus on its achievement. What would it mean to your life? How would your days be better if you knew you had the resources to meet all your financial obligations for the rest of your life? Your Financial Freedom may have some, but ideally, all of the elements listed below

(a) Physical aspects i.e. optimal health and energy.

(b) Emotional aspects i.e. high levels of happiness and joy.

(c) Family, friends & Relationships i.e. how you and those whom you care about most treat each other.

(d) Time i.e. more time to do more of things that really matter to you. Time is one resource we are all given equally whether a prince or a pauper.

(e) Business i.e. do you want your days to spent working, building a career or

helping achieve a worthwhile mission. When you’re truly living your mission and helping to make a difference it makes life more meaningful. Chose doing something meaningful and you will never have to work a day in your life.

(f) Financial i.e. levels of money you need to be Financially Free.

(g) Social Contribution & Celebration i.e. giving back by adding value to other

people’s lives and celebrating your successes. Action Step Identify your destination The easiest way is to begin framing this picture in your mind is to think of a typical day, one that would be filled only with what you'd be doing most days once you've achieved Financial Freedom.



Joe Cunnane

For example:

What time would you wake up?

What would you do first? Second etc

What would be the main activity of your day?

How would you spend the evening?

What would determine when you went to bed?

What would your home look like?

What kind of vehicles would be a part of this typical day?

Spend a few moments daydreaming about a typical day in your Financially Free life. Now document the results My typical day when I am financially free will look as follows:

Be as detailed as possible and include as much of the five senses as possible i.e. what you see, hear, touch, taste and smell.



Joe Cunnane

The Eleven Steps to

Financial Freedom

1. Develop a Net Worth Mindset

Benjamin Franklin described one of the most important principles of personal finance as follows. He said, "There are two ways to increase your wealth. Increase your means or decrease your wants. The best is to do both at the same time." It's easy to get caught up in the amount of information available on personal finance. You can read for hours and still be confused. It's easier to grasp principles. A net worth mindset is a cornerstone principle for those who want to achieve Financial Freedom. Calculating Your Net Worth

Assets

Savings

Non-Retirement

Investments

Cars

Pensions

Property

Anything else that

has value and are

willing to sell

Total A

Liabilities

Credit Cards

Car Loans

Mortgages

Any other debts

Total B

Net Worth A-B



Joe Cunnane

Summary of your starting Point & Destination Please note your starting point every time you sit down to update the sheets. Ideally every month! Make sure you include a date for your destination. Steps 2-11 are to help you get from your starting point to your destination

Starting Point Destination This Months Action

Physical

Emotional

Family, friends

& Relationships

Time

Business

Financial

Social

Contribution &

Celebration



Joe Cunnane

Destination

Current (date)

Assets

Savings

Non-Retirement

Investments

Cars

Pensions

Property

Anything else that

has value and are

willing to sell

Total A

Liabilities

Credit Cards

Car Loans

Mortgages

Any other debts

Total B



Joe Cunnane

2. Prepare a monthly Statement of Cash Flows

Establish an accounting department for your personal finances. Record what comes in AND what goes out There is plenty of free software which can integrate with online banking and credit cards and track incomings and outgoings but a simple excel spread sheet will serve just as well. Cash transactions will need to be inserted manually. Just have a system set up re same i.e. a specific time and day when you go through any cash receipts and payments and enter them on the software/your spread sheet. Budget and compare actual to projected. You can only become Financially Free if you spend less than you earn. If you are not aware of what you spend how can you monitor and control this? Action Step Complete Monthly Cashflow

Allocate a time and date per month

Complete as outlined below

Budgeted Actual Difference

Income

Salary

Business Profits

Dividends

Deposit Interest

Rental Income

Other Income

Total

Expenditure

Mortgages

Other Loans

Food

Clothing

Entertainment

Holiday

Light & heat

Motor

Other Expenses

Total

Overall Total



Joe Cunnane

3. Learn how to "manage" credit.

Focus on paying off your most expensive loans first. Make sure that your credit works for you i.e. you are generating a % return higher that the % rate you are paying for your credit. Be creative with payment of mortgages and long term loans. Tens of thousands of Euros can be saved by making bi-monthly mortgage payments that enable you to pay off the mortgage earlier with significant interest savings. With the bi-monthly mortgage plan each year, one additional mortgage payment is made. That extra payment goes toward the principal of the loan. Since you are reducing the amount of the loan balance quicker, they are also reducing the amount of interest charged over the life of the loan. Here’s an example: A 30 year mortgage for €500,000 at a rate of 5% means a total of €462,269 in interest throughout the life of the loan. With the €500,000 principal for a grand total of €962,269. Making regular bi monthly payments reduces the term of the loan by nearly five years and saves interest of approx. €84k. If this property is someone’s home then this saved interest is from after tax income. Action Steps

i. List out your loans, the balances and the associated interest rates. Focus on

paying off the higher rates first

Loan Analysis

Amount

After tax

Interest

Rate %

Loan



Joe Cunnane

ii. Determine what deposit account your savings will be paid into and what

percentage will be paid in every month

Credit Analysis

After tax % Rate

Investments

1

2

3

Loans

1

2

3

iii. Potential benefits of a bi monthly mortgage plan. This does require more technical

analysis however you must first determine what surplus cash you may have to pay off against your mortgage. This figure will be more evident from the results of your analysis of i and ii above Result



Joe Cunnane

4. Pay yourself first.

You’ve heard it before, no doubt. Start by taking your savings right off the top. 10-15% of your gross is a good start.

Action Steps

iv. Determine your monthly salary

v. Determine what deposit account your savings will be paid into and what percentage will be paid in every month

vi. Set up standing order to make this transfer on a monthly basis



Joe Cunnane

5. Regarding your savings

Determine your attitude to investments and determine an investment strategy that work for you.

Treat your investments as you would your business. Ensure that your investments match your strategy and outlook to risk. If you have the necessary expertise then ensure you block off adequate time each week to devote to your investment strategy. This strategy will have a huge bearing not only on how quickly you attain Financial Freedom but that you remain Financially Free. If you don’t have the necessary expertise pay for it or alternatively move to an area where you are more proficient. Action Steps

What will your investment strategy look like? Be specific regarding the areas you will invest in, your level of expertise and time and potential outside experts you can use

Determine your three “pots” and what percentage will be paid into each one

Measure the performance of your investments

Expected

Return

Actual

Return Difference

Investments

Type

Total

Whoever is looking after your investments should monitor them regularly. You need to know what is not working so you can move to something that is.



Joe Cunnane

6. View tax planning as an ally. Don’t fear having to pay taxes. Just plan for them. It means you are running a profitable business so celebrate the fact. However you just need to ensure that you are, where possible, minimising the taxes you pay.

What is your long term business strategy?

Do you have a tax plan that matches this?

Are your non encumbered assets protected?

Is your business tax healthy?

When was the last tax health check carried out on your business?

Have you a separate tax account set up for Revenue payments? If not why not?



Joe Cunnane

7. Build Assets, Not Liabilities.

This simple principle, as it is borrowed from a chapter of Robert Kiyosaki’s best-selling book, “Rich Dad, Poor Dad”. At first, it doesn’t actually sound that informative or effective. But after it is explained, it can transform the way you look at your future, and in turn, how you plan for it. The best way to explain it is in the form of a table.

Essentially, what separates a “Financially Free person from a “Financially Dependent person” is that the Financially Free person ensures their money works for them. They look at the long term. Assets are wealth-generating machines. The Financially Free individual may have many different income streams but they also manage their time effectively.



Joe Cunnane

Notes

i. What does this diagram mean to you and your life right now.

ii. What actions steps will you take for this month to make you more financially free i.e. to accumulate more assets that produce income. It could be something very simple like getting a better rate on your deposits.

iii. Critically Analyse your current assets to determine what income they are producing. Ask yourself how can this situation be improved? Remember it is what is today. It matters little how much something was worth five years ago. What matters is that you are getting the most out of those assets today.



Joe Cunnane

Income Producing Assets

Income

Provided

Costs

(including

tax) Profit

Assets

Total



Joe Cunnane

8. Be aware of the 80/20 rule.

The 80/20 rule — the Pareto principal — says that 20 percent of your efforts will generate 80 percent of your income. The same principal applies to all other areas also and studies have shown it almost always happens. For example Financial Freedom is influenced more by psychology than technology. Anthony Robbins believes that 80% is based on psychology while the remaining 20% is influenced by technology. Like in sport, the best “financial athletes” have a certain belief, image, internal dialogue and behaviour set. This usually results in a winning outcome or at least leaves the athlete in a better position than they were at the outset. Please note that we understand that may people may be in financial difficulties but this is about how the mind can and does adapt to certain ideas, patterns, false beliefs and negative images that make it difficult to escape financial hardship. Being aware of how this works gives you an added advantage immediately. Putting this into practice will help you develop the mindset of the rich. Be aware of this and how it impacts your life plan.

Action

Answer the questions below Be honest in your answers Answer these three questions about each limiting belief you encounter below. Why do I believe that?

Is it true?

What might I be concerned would happen if I did not believe that?



Joe Cunnane

Possible beliefs

1. Money is the root of all evil. (The actual quote is “The love of money is the root of all evil.”)

2. I don’t deserve to have a lot of money.

3. There is not enough money to go around.

4. If I am successful, people will dislike me or see me as a phoney.

5. If I make a lot of money, I will be betraying my parents who never made much money.

6. The rich get richer and the poor get poorer.

7. Money is hard to get.

8. I can’t have money and free time.

9. Money is not spiritual.

10. You have to do lots of things you don’t like in order to have money.

11. Having money stops you from being happy.

12. If I don’t feel bad about past mistakes and afraid about the future I will make the

same mistakes again.

13. Being very conscious about every single penny is the good, the right thing to do.

14. I have to own my own home to feel secure.

15. Worrying about money is tasteless.

16. If I make money, I might lose it and then feel foolish and not forgive myself.

17. I want to have a lot of money when I get old so people will be nice to me.

18. I don’t want people to know I have money because people are not nice to those with money.

19. If I had lots of money, I could get what I want when I want, relax without worries

and just be happy.

20. It’s not fair that those people have so much more money that I do.



Joe Cunnane

9. Make Money While You Sleep.

And I don’t mean like those gimmicks that you get spammed within your email or on Facebook. Look for opportunities that will generate a little bit of money over a long period of time. Then get a number of vehicles that can do that, and now you’re making a lot of money over a long period of time. These vehicles come in the usual forms pensions, stocks, investment properties, renting out a spare bedroom. Hone your mind to seek opportunity, and opportunity will soon learn to seek you.

Income Producing Opportunities

Projected

After Tax

Income

Actual

After

Tax

Income Difference

Opportunity

Total



Joe Cunnane

10. Believe in abundance and gratitude.

Don’t hate money or think that it’s the root of all evil. Otherwise, it won’t come your way. Think of all the good you can do for others with surplus cash. It is said that gratitude is the secret to wealth! So therefore we have all the resources we need to be wealthy right now

Write down now all the good things you can and will do for others. Be specific whether with regard to your time, names of organisations, level of donations

How much of your annual increase in net assets are you willing to give back to worthwhile causes?

Write down all you are grateful for right now! Get into the habit of doing this on a monthly basis



Joe Cunnane

11. Don’t spend what you don’t have.

Simple advice, yet to ignore it is to dig your way to the opposite of your goal, financial servitude. Don’t buy something if you can’t afford its price AND its maintenance. The worksheet below will help you do a quick analysis of any big ticket items you want to purchase. By doing this quick analysis it will help lessen any impulse buys.

Big Ticket Items

Cost

Ongoing

Maintainence

Available

to Spend Difference

Item

Total



Joe Cunnane

Summary

Note that Financial Freedom differs from Financial Security. Financial Security is the amount of amount of money needed to cover the basics i.e. food, home. Financial Freedom is in essence, not having to work again. This does not mean that you have to retire it just gives you choices. It also gives you the security of knowing that if you had to stop “work” tomorrow how long you would be able survive on your current savings and unearned income.

To become Financially Free

(a) Learn to be grateful for all you have right now

(b) Spend less than you earn.

(c) Invest the difference according to your own investment strategy and be aware of the power of compounded growth.

(d) Have assets which generate the level of income that you require.

You should ideally be investing to generate income as opposed to purely assets. The goal is to get to a point where the income from your investments will be enough to cover your financial security and then eventually your

Financial Freedom



Joe Cunnane

Notes

Documents

11 Secrets to achieving - TRA Professionaltra-professional.ie/wp-content/uploads/2014/05/...Determine your attitude to investments and determine an investment strategy that work for