Buy the book here: Automatic Wealth: The six steps to Financial Independence
A book of the title ‘Automatic Wealth‘ is sure to get interest from many, however the this is no get rich quick with no work book. Some specific advice in the book, revolves around USA, however the basic premises of the book is applicable across countries and markets.
The book breaks down the process of wealth building into six steps:
Six Steps to Automatic Wealth:
Step 1 : Face some hard facts:
Popular advice of saving 10% of your income or traditional method of counting on your pension plan will not be sufficient to create wealth for you.
Get rich slowly schemes work only when you have 35 – 40 years for retirement. It does not work for people who have started the journey to wealth building much later in their life.
Retirement Fund = Pre-tax income needed * 10 (assuming 10% Return on Investments)
To know how to keep a track of your monthly expenses refer here.
Step 2: Plan not just wish to be rich : Make a step by step detailed plan to become rich.
Translate your Core Values into Lifetime Goals. (If you need help with writing your values system refer this post.)
My long term wealth – building goal : To be financially independent, so that I may pursue any of my interests or passion without money being an hindrance.
My long term health goal: To live to the age of 100, active and healthy.
My long term Personal relationship goal: To be remembered as a loving spouse, friend, helpful mentor and a charitable person.
My long term personal growth and development goal: To be a successful entrepreneur and business woman.
Convert the Life time goals into Medium Term Goals – 7 to 15 years.
Eg: Become a published author of three non-fiction books by the age of 36.
Evaluate what you can accomplish in the next year:
This goal should be further broken into monthly, weekly, and daily objectives. to understand the process of goal setting further, check out Pledge.
Daily Planning :
(1) Get your inputs by scanning daily task list
(2) Sort and Prioritize by breaking up tasks into time blocks of 15, 30, 45 , 60 mins
(3) Start with something really important – Accomplish one important but not urgent task
Step 3: Develop wealthy habits:
Michael challenges the new age success guru’s from Napolean Hill to Rhoda Byrne who oversimplify the success mantra by over emphasis on the thinking aspect. Have a bias to Action.
“It is how you act, not what you think, that will determine your success.
It is how you think, not what you do, that will determine your happiness”
Eight Habits of Wealth Builders:
- They work Hard
- They are good at what they do.
- They have multiple streams of income.
- They live in (relatively) inexpensive homes.
- They are moderate in their spending
- They are extra-ordinary in their saving.
- They pay themselves first.
- They count their money.
But don’t deprive yourself when you build wealthy habits.
Step 4: Increase your income radically
Idea 1: Become a Noticeably Better Employee:
Work harder, smarter, Make your boss look good, Promote your work, Put it in Writing.
Transition from being better to Invaluable – Master a financially valuable skill.
Be a top – Earner in your business by constantly upgrading your skills by learning from the best.
Learn how your business generates income. Earn more money for your company.
Three principles to become a Marketing Genius. Know the:
(1) Difference between Wants and needs : Understand consumer Psychology
(2) Difference between Features and Benefits : Why customers use your product
(3) Difference between Benefits and Deeper Benefits :
For eg: Vicks Vapour rub Benefit :Fast relief from cold.
Deeper Benefit : Being a good mother.
Idea 2: Become a Freelance Consultant
Idea 3: Branch out into Direct Marketing by selling your own Products or Services through Direct Mail or Email
10 Suggested Industries – Art Supplies, Audio Cd’s, Diet and weight loss products, E-mail Publishing, Fitness and exercise videos, Gardening seeds and Tools, Hobby and craft products, Natural health products, Newsletters and Pet Supplies.
Idea 4: Buying and Flipping Real Estate
I believe much of the advice in this category is not suitable to India. It is also very high capital investment project, not suitable for most people only beginning to build their wealth.
Step 5: Get Rich Automatically : Paper Assets – Equity Market
Understand your risk profile and own a combination of Equity and Debt instruments according to it. A few guidelines:
(1) Invest in what you know
(2) Limit the size of any individual investment.
(3) Have a plan B in case you are wrong
(4) Invest in both large and small caps
(5) Growth stock consider Efficient customer acquisition, large profit margin, potential of a big back end.
Six sensible rules of stock Investing
(1) If it’s too good to be true, it probably is.
(2) Let your winner run and cut losses short
(3) Invest in appreciating sector
(4) Don’t buy what you don’t understand
(5) Buy and hold works only if you buy solid companies
(6) There’s no such thing as a hot tip. Most hot tips are devious ways to get your money.
Rental Properties : Get properties that have positive cash flow.
Getting Equity in Small Business – This equity could come from consulting, mentoring, Investing, Partnering in the small business.
Rule 1: Start with what you know.
Knowledge of customer:
Who are my buyers?
Where are they located?
How do I reach them?
What do I need to say or do to sell them?
How do I get them to buy more?
Knowledge of Product:
What kind of the product does the customer want today?
What are its necessary features?
What are its possible benefits?
How much should I charge for it?
How can I replicate it?
How can I increase its value?
Consider converting a hobby into a business.
Rule 2: Choose a business that has
- An efficient marketing model
- A substantial profit margin
- A considerable back-end potential
Rule 3: Ensure Active market : Test your idea with your potential customers and gauge interest.
Rule 4: Develop a Unique Selling Proposition
Rule 5: Don’t get into Retail or Glamour business
Rule 6: Sell First, Tweak Your Product Later
Rule 7: Don’t throw good money after Bad
Step 6: Retire Early (if you want to)
One of the important suggestions in this section Michael gives is about why not to completely retire even if you can. The short answer is ‘Pupose’
Define what retirement means to you . Money – Freedom – Time – Purpose.
Define what an ideal retirement would mean to you and take steps to set up a life that you would enjoy in retirement. Get involved in charity work, spend more time with family, travel around the world , get a farm house to do agriculture, your retirement world is for you to define.
If the summary intrigues you, do grab the book here to get more in depth wisdom.
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