Lesson Three
How to gain extra income
Extra income can
be earned and losses avoided from the success guidelines in this
lesson about surviving cash spurts and sudden wealth.
How much extra
income would it take to make a difference in your life? Be careful
with your reply because if you have your own business. Wealth
can come in unexpected fast spurts and too much extra income earned
too fast can be dangerous.
Most wealthy people
receive their extra income and capital in spurts.
We saw this process
regularly during the internet craze. Executives left proven fields
to begin bold new startups. Remuneration was more stock options
than cash. These risk takers worked hard, often sixty hours a
week, survived on low pay and hit the big leagues when their firms
went public. Their extra income came when they sold out their
shares.
Sounds great? Most
investors dream of making a big hit. Beware! My experience suggests
that sudden financial success creates disaster as often as not.
Invertors all too
often make one of two mistakes. The first mistake is to believe
when they receive extra income that this will be the only time
there will be such an influx of cash. This tightens a person,
so they can't enjoy spending. They become afraid. Life becomes
filled with paranoia. Unhappiness sets in. If money doesn't make
life better, what's the use? In this case the extra income narrows
our horizons.
The other mistake
is to think that these large chunks of extra income will come
easily again and again without working. This thinking creates
unrealistic lifestyles and work ethics that lead to disaster.
I first observed this ironic fact while living in England. A happy,
financially responsible middle class family won millions in the
lottery. Just a few short years after reaping this spurt of cash
through supposed good luck, the husband and wife were bankrupt,
divorced and no longer speaking to their kids.
I have seen example
after example, of people, who received a sudden chunk of income
made very unhappy by this large inflow of wealth. This is why
the riskiest time for a small business is not when it starts,
but when it begins to really take off. The proud owners with new
found extra income, buy new cars, hire new staff, move into a
bigger home, spend more, work less, and create overhead and debt.
If there is a single reversal, they are wiped out.
How much extra
income is a big anyway? One measure is a ten times increase in
wealth. This normally is enough to make a significant difference
in a person's extra income. For someone with a thousand dollars
in the bank, $10,000 seems like a lot. The extra money can make
a difference. For someone who already has a million dollars, another
million doesn't make such a significant shift. Ten million does.
The reason spurts
of extra income create problems is because they disrupt our discipline.
Money is discipline and our financial affairs have some form of
economic routine, either self imposed or not.
We have a set of
mental standards that says, "I can afford this, but can't have
that, etc." Spurts of extra income and wealth demolish these
standards. Suddenly we can have things we previously could not.
We become, once again, kids in the proverbial candy shop.
Yet much of the
Western world spends their lives trying to become and stay independently
rich. If succeeding in this process of having extra income can
ruin happiness, what can we do?
First we need to
realize that independent, permanent never-ending, fearless extra
income and wealth is a process, (not a state) of a continual series
of reasonable risks, mistakes, refinements, lessons and actions
that culminate in getting it right. When success arrives there
is a huge income (or capital) spurt.
Understand that
this is not the only time you can make a huge wad of cash.
Impose discipline.
Here is a simple formula if you cannot create your own.
The formula begins
by immediately spending ten percent of the new money or extra
income on your dreams. Buy, the Porsche. Take the world cruise.
Build the new eight bedroom house. Do whatever you want that does
not cost more than ten percent.
Second, give ten
percent of the extra income or wealth to a worthy charity. Take
a little time, find a need in this world you feel really should
be filled and truly give the ten percent away. Third invest the
remaining eighty percent very conservatively.
Use the PIEC system.
Hire a good, conservative investment manager such as Jyske Bank
(this is the bank I use - for more details contact Thomas Fischer
at the bank FISCHER@jyskebank.dk
Remember you make
money. Extra income does not make you.
Finally be grateful
every day, not just for the extra income, but for all the important
things in life such as the ideas you gain to gain greater security,
freedom, wealth and fun!
Gary Scott
