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