CHAPTER THREE
SEEING IS BELIEVING

I've been short-sighted since I was 13 years old. I remember going to the optometrist for the first time and having my eyes tested, and being amazed at just how clear and sharp the letters became as different lenses were trialled. Upon getting my specs, the world jumped into focus. Who knew trees had leaves that weren't blurry blobs?

A lot of people I've met are short-sighted with their finances, meaning that without assistance money is a fuzzy mess. Try as they might, they just can't see straight; their vision is skew-whiff, resulting in a lack of clarity and perception.

Consider budgets, for example. Budgets are like diets: we all know we'd benefit by being on one, but who can be bothered sticking with it once the need for being on it has passed? I put it to you that one reason why people go on a diet is so, after they've lost the weight, they can eat whatever they like guilt free. The consequence of that is that they'll pile on the kilos when they go off the diet, resulting in them needing to go back on the diet soon thereafter. On. Off. On. Off. And so it goes - like trying to drive in a straight line by veering right and left.

Are budgets a waste of time then? Yes, they are, unless .

'Unless what?'

Unless you have a compelling reason to make one and stick to it; otherwise, whatever benefit you gain from budgeting can be easily blown by some errant binge spending.

Finding a compelling long-term vision

I've been teaching wealth creation now for more than two decades. That makes me an 'old timer' in the industry. There aren't too many 'old timers' around because of the tendency for people to sell their reputations and fade into ignominy, and because some methods taught don't stand the test of time and are proven ineffective - promising much, but delivering little.

A while back I was chatting with a fellow old-timer, Brendan Nichols, about why it might be that so many people seem interested in improving, but so few people seem to stick with it and achieve their full wealth potential - perhaps as few as 5 in 100.

We canvassed various possible reasons why people make a start and experience some degree of success, but don't stick with it to achieve their full wealth potential: difficulty of the subject matter, inability to apply the strategy, unrealistic expectations, changing market conditions, and so on.

I had heard Brendan say previously that the enemy of a great life is a good life, meaning that people give up on great because they get comfortable with (and don't want to risk) good. I think there's something profound in that.

'Bren, I think I have it.'

'What?' he replied with a note of curiosity in his voice.

'I believe people give up when the pain of going forwards becomes greater than the pain of going backwards.'

Said differently, if you lack a compelling reason that drives you to make, and keep making, the effort and sacrifices required for sustained success, then you'll plateau out.

Here's the principle: you're likely to spend if you lack a compelling reason to save.

That is, you need to create and maintain personally convincing reasons to make, and keep making, the effort to sacrifice and delay gratification so that the outcome you're working towards tomorrow (by choosing not to spend) remains greater than the reward you'd receive by spending today.

How do you do this? How do you make something compelling to the point of it becoming motivating enough to delay gratification?

First, you need to think it - to give birth to an idea - and then you need to want it in a powerfully irresistible way: to build enough desire so that your idea becomes a must, rather than a maybe.

What's your reason? What makes it compelling?

One option is pleasure: you want the reward of the achievement. The other is pain: you want to avoid the consequences of not changing.

Consider quitting smoking. Some find the motivation they need to quit because they want the benefits of improved health. Others can only quit when they get to the point of receiving the unpleasant ultimatum that they'll die if they don't.

Let's apply this to money and how you can find the motivation to save rather than spend. Two ideas come to mind: things and time.

Things

The first is to set your mind on something you want - a thing - that gives you a reason to go without.

My daughter, Cassie, has a car. To drive it, she needs insurance - and that's expensive. The freedom and flexibility she gets from having the car is the motivator she needs to save rather than consume her cash by purchasing $28 cocktails on Chapel Street in Melbourne. She wants her car more than the cocktails.

Other examples of things people save for include their kids' education, a house, a holiday, and so on.

Time

The problem with saving for things is that you're consuming rather than compounding your money. You may never have thought about it, but money can also be used to 'buy back' the time you'd otherwise have to spend working in a job.

For instance, let's say you get paid the average amount an Australian receives by swapping a year of their adult life for money: $60?000 per annum, a little over $28 per hour. It just so happens that that's the price of a Chapel Street cocktail, so you could say that 1 cocktail = 1 hour of work. Another way you could look at it is that every $224 you save = 8 hours (i.e. $224 ÷ $28) = 1 day you don't have to work.

An even more advanced way to look at the time-money relationship is that if you could save (rather than spend) enough money to buy an investment that provided $224 of weekly recurrent income, then you'd be able to enjoy a permanent long weekend for the rest of your working life without impacting your living standards.

Here's a carrot to contemplate: one sensible property deal can make enough money for you to permanently buy back one day a week that you'd otherwise have to spend working.3

Josh and Shehan

Josh and Shehan are joint-venture partners. They purchased a 1970's-style four-unit site (4 × two-bedroom, one-bathroom units) in regional Victoria. Their strategy was to undertake a cosmetic renovation. Once complete, and including purchase costs, the project 'owed them' $928?550. Soon after they were finished they received an offer of $1?260?000, but they declined that and decided to rent the units out for positive cashflow.

Had they accepted the offer, they would have made a before-tax profit of a little over $300?000 in only six months.

What will it be: things or time? Would you rather have more stuff but have to work for the rest of your life? Or less stuff and the freedom to work when, where, how and however long you want? Maybe you want both? That's fine, but you have to choose which you want first.

Let's return to the question I asked in the previous chapter about how much of a priority a better and brighter financial future is for you right now (on a scale of 1 to 10). The following graph illustrates the relationship between your motivation and your interest in changing.

You'll see that urgency is measured on the vertical axis, and money on the horizontal axis. The scale increases as you go further up, and further left. Motivation is being measured.

Two points are charted:

• Point A indicates a little bit of money and a lot of urgency to act - something has arisen that means you need money in a hurry - and so you are highly motivated to act.
• Point B is where you have more money and less urgency, so your motivation is much lower.

It makes sense, doesn't it? If you're hungry, you're motivated to hunt, but if you're feeling full, why go to the effort?

The shape of the motivation line as shown in the diagram is linear, but in real life it's more likely to be inverse, as drawn in the following diagram.

Point A is being in a highly motivated state, spurred on by an urgent need that you can't resolve with your current resources. Motivation drops off quickly though as you move from uncomfortable to comfortable, which is represented by Point B. It's where Brendan's comment about the enemy of a great life is a good life becomes apparent.

Here's the point: how do you stay motivated after the circumstance(s) that motivated you to act to begin with have eased? That is, how do you stay hungry, even if you're not? How do you keep pushing forward when the pain of doing so is greater than the pain of stopping?

The answer is . a compelling long-term vision. Having a compelling vision will keep you hungry for making...