Money Magnets

I am a Money Magnet! We are Money Magnets!


This article by Dyan Ramos about the secrets of rich people had been circulating in the internet a few months back.  I got a copy from my cousin and I can't believe that I forgot to share it with you guys.  It was sitting on my "to do list" for quite some time now.  I'm glad to finally be posting it here for everyone to read and learn from.  I will be personally reading this article from time to time to remind me of the secrets of the rich!  I hope you guys will pick up a lot of things from this as well.


In summary, Dyan Ramos enumerated the following as the Secrets of the Rich:
1. Rich people believe failures are an essential part of growth and success.
2. Rich people are not the smartest, they just have better money management skills.
3. Rich people value the spirit and culture of sharing.
4. Rich people use the art and science of leverage in business.
5. Rich people think long-term.
6. Rich people prioritize financial education.
7. Rich people find mentors that they could model and learn from.

Read the full article after the jump.

7 Secrets of the Rich

by: Dyan Ramos

The following are list of things that were probably not taught to many of us in childhood. Things that we regret not knowing from the start, yet we will appreciate once we start practising them now. I listed them down based on my experience mingling with businesspeople & experienced financial coaches themselves. Friends, enjoy the "7 Secrets of the Rich' :

1) Rich people believe failures are essential part of growth and success. It is not a few times when we have been conditioned not to make mistakes -- whether at home, school or work. Most of us grew up "afraid to fail" because we're used to have it accompanied by a punishment. The worst is people in our past used these failures and mistakes against us, that made us go for the safer sail. Notice therefore that 90% of Filipinos would go for job security (afraid to take risks) rather than aim for perfection in business . Because we're afraid of the unknown and the unfamiliar, we'd rather not talk about money and instead go on with our mediocre life expecting everyday to be the same at the office. Yet, when you think of the most successful and the wealthiest people on earth, none of them talked about a perfect journey while in the process of getting rich. Nanay Socorro of National Bookstore, Mr Henry Sy & Mr. John Gokongwei Jr. each had his/her own version of downfalls & failures before they made it to the top. The big secret therefore is to strengthen your tolerance to failure, and to get yourself educated to lower the risk especially in doing business and investing. In today's information age, almost all questions about life have their answers somewhere. Take advantage of the information technologies like the internet, wireless communication etc. to get answers and to pacify your doubts.

2) Rich people are not the smartest, they just have better money managemement habits. The wealthiest of men (most of them from childhood) practice proper handling of finances and allocating their income into different purposes (e.g. 50% of income goes to Necessities, 10% goes to Charity or Give Account). The discipline to stick to the habit is already within their being as they have been practising it for many years. They are also skilled in differentiating Assets from Liabilities, and in handling their Financial Statements. They know for instance that Assets are properties that put money INTO their pockets while Liabilities are things that take money OUT of their pockets. A house may be an Asset if it is being rented & you get monthly cashflow from your tenants, while it can also be a Liability if you are living on it & paying monthly dues for its mortgage. Same with a car, if you use it for business, it is an Asset; yet, if you bought it for personal use & leisure it becomes a Liability. The wealthy are skilled in updating their financial statements, means they're taking account of every peso & every centavo. For ordinary Filipinos to have access on how to start writing a financial statement, the rich recommend getting a mentor who can teach you the basics of personal & business finance. You'll discover that it really is just simple math, you don't need to be a wizard in order to become financially successful.

3) Rich people value the spirit & culture of sharing. In a world where most people think scarcity, the rich believe that resources are abundant and that the world is overflowing with opportunities. While the poor practice the infamous "crab mentality" habit (pulling down whoever's on top), the rich like the idea of seeing everyone succeed in business & life. You may have witnessed this among the circles of Chinese businessmen where they push each other to become richer because by then, their own businesses improve as well (i.e. they get more potential investors, people have more purchasing power, the economy gets stronger) . These Chinese businessmen protect themselves by protecting others first. The wealthy recommend an average person to practice sharing everyday -- share information, ideas, opportunities and resources to others so that once wealth is in his hands, he is ready to grow it. If one wants to be successful and truly wealthy, it is crucial that he gives up attachment to money and material wealth. The most valuable factor in your journey to becoming financially free is the mindset. It's not about how much you have now, but how ready you are for future wealth. Share what you have -- be a generous giver and an excellent receiver as well. Feel like you are already wealthy by having the "abundance mentality". The world is full of blessings & opportunities if you just look around & seek for them.

4) Rich people use the art and science of leverage in business. Leverage means using OPR or "Other People's Resouces" (i.e. time, money, talent, skills) to speed up one's growth in business and in life. It is indeed never new to the wealthy to define an authentic business as that with atleast 500 people working for the owner or with the owner as partners. It's just natural (a universal rule), nobody gets successful in life by doing it alone. That's why 90% of small business owners fail in the first 5 years due to mismanagement as backed up by DTI. Small businesses, specifically traditional ones, find it hard to expand with just a few workers because their income reaches a certain limit. The owner of a small business usually runs out of money or energy after a few years of operation. It lacks a system, and the power of leverage. Yet, take a look at what Mark Zuckerberg did with Facebook. As the youngest billionaire quoted by Forbes magazine, he reaches out to billions of Facebook users worldwide and leverage on them & and his system to earn $150 million annually from his advertisers. It means he can leave the business operation to his workers & the system while earning (a great example of "people & system working for him, and NOT him working for the business"). There are thousands and thousands of business ideas being created every hour at different places in the world. Yet, they are not being executed because of lack of knowledge on systems and the use of leverage.

5) Rich people think long-term. While the poor spend for their present lifestyle, the rich think long-term by buying Assets (e.g. real estate properties, businesses) that could generate passive income (income without work) and eventually give them time to enjoy their wealth. The reason most employees remain broke is that they buy Liabilities (e.g. a car, a house under years of mortgage) that take money out of their pocket. While the poor and middle class spend for now, the richest of people believe that the secret to long-term wealth is to "delay gratification". Thus, they add more to their passive income generators (e.g. buy more properties, invest more on paper assets & businesses) so that in the future they could enjoy their wealth. They know for a fact that Financial Freedom means having not only the money but BOTH the money & the time. Lots of people nowadays may find excessive cash is not really that hard to earn, but how many of us can really enjoy these cash? How many can take vacations for the whole year & come back to find their income still flowing or even getting stronger? Not a lot I could guess. Like what my mentors would always say "better work your ass off for the first 5 years & enjoy wealth for the rest of your life THAN work easy all your life without ever having a chance to enjoy what you've worked for." Yet as crazy as it may sound, statistics show that most Filipinos would rather stick to job security than start a business full time. There must be something wrong somewhere with the way we were raised and the values that were instilled in most of us.

6) Rich people prioritize financial education. One of the biggest myths in business believed by many is that a huge capital (let's say, 20 million pesos) should be available before you can do business to enjoy the success of business tycoons like Mr. Henry Sy. Ofcourse capital plays a role in business, but it shouldn't be the first priority. If you talk to any of the wealthy people living today, they will tell you the same thing -- focus on your financial education first. Get yourself educated in matters of business. There are thousands of books written about leadership, success and getting rich (e.g. "Secrets of the Millionaire Mind" by T. Harv Eker & "Rich Dad, Poor Dad" by Robert Kiyosaki are highly recommended). These authors gave us a chance to access the minds of the wealthy & what made them successful. There are also seminars & workshops being held by financial gurus & financial education advocates. Their aim is to make it available for ordinary people the secrets & the values practised by the wealthy. Take advantage of these opportunities. David Bach, an American author once said "financial education needs to become a part of our national curriculum and scoring systems so that it’s not just the rich kids that learn about money... it’s all of us."

7) Rich people find mentors that they could model and learn from. This is perhaps the most important of all the 7 secrets mentioned above. Because without a mentor, somebody won't know where & how to start. If you do not have a "rich dad" to model, the rich recommend that you search for virtual mentors (i.e famous authors & inspirational speakers) or find a group from which you could learn BOTH the mindset and the skill set to be able to make it successful in business. Remember to look for mentors who have the experience and a good track record that prove their success. One of the great things about having mentors & coaches is that you can leverage on their past failures & experiences. Means, you do not have to undergo the same trials & downfalls because what your mentors present to you is already the proven road. Friends, family members & colleagues who aren't experienced in business don't count. Why listen to these people while deciding for something when they haven't even proven to be financially free themselves? This is insane, yet most Filipinos are guilty of this. Environment, no doubt, plays the most influence in a person's decision. If you want to get ahead of the business game & in life, surround yourself with people who can build you up & people you can model. True enough, if you want to learn yoga, you find a yoga coach. And if you want to learn business, you find a business coach. It's pure simple logic.

I was reading the Philippine Daily Inquirer a few days back and I came across this article by Ma. Salve Duplito about how Vandemir Say, Chartered Financial Analysts of the Philippines' new president, used value-style investing which he learned from Warren Buffett. I think this is a good read for these volatile times.

VANDERMIR C.T. SAY started investing when he was 12 years old. That was 22 years ago. He recalls picking stocks the way he would play darts. Not anymore. For the last decade or so, Vandermir has become a Warren Buffett-follower, investing only in good companies at good prices and buying them for the long haul.

In the last couple of months, amid cascading losses in markets all over the world, Buffett’s value investing philosophy has attracted.

The fact that Buffett, the world’s richest man according to Forbes magazine, has emerged as Wall Street’s knight in shining armor after injecting funds into Goldman Sachs and General Electric a week ago has most likely upped the ante significantly on value-style investing.

And if the sale of Buffett’s first and only authorized biography “The Snowball: Warren Buffett and The Business Of Life” written by Alice Schroeder (editor of Berkshire Hathaway’s layman-friendly annual reports) is any indication, the interest is just heating up. Just days after it hit bookstores in Sept. 29, the book has claimed a top spot on Amazon’s best-selling book list.

Say, the Chartered Financial Analysts of the Philippine’s new president, explains that value-style investing is based on very simple principles. “All we look for are good businesses at good prices,” he says.

In this day and age of extremely volatile markets, the value investor is unfazed because he buys and holds for as long as he needs the investment. He is not concerned about fluctuations. His life is relatively simpler and less harried because for him, Wall Street can wallow in its own toxic securities.

Contrast that with an investor who makes money from trading stocks or bonds and who had to watch his portfolio drop more than 20 percent in the last couple of weeks, asking himself every morning, “Is this ever going to end?”

In fact, Say says, some value investors he knows who have the extra cash are now revving up for acquisitions. After all, prices are low and whether in good or bad times, a good business is a good business.

“In general, what is happening is good for us because the crisis is pushing down prices. My job now is to look for good businesses,” Say says.

Whether in stocks and bonds, Say says good opportunities in the market are starting to emerge. He declines to say what are good buys, but gives tips: Look for businesses that are managed by people with high integrity and find companies that respect the rights of minority shareholders. Those two criteria alone will shorten the list of good bargains out there in the market, he says.

“Right now, Buffett can buy almost anything in the market, but look at companies that he is buying. Goldman and GE, companies that are being run very well … Integrity is important, the goodness of a person is important. What if you meet some guy with no integrity but you can probably make $200 million, you should say no. Why go through all that stress? There are better ways to make money,” he adds.

These may sound like dreamy principles in a day and age where everything is measured by money and returns. But it also uncannily explains why Wall Street is tottering like a drunken lunatic in a suit: Greed is the root cause of the subprime mortgage problem. Even more greed by investment bankers and hedge fund managers blew that out of proportion through derivatives instruments disclosed in legalese language very few understood.

“Buffett and Charles Munger (Buffett’s business partner) have attacked derivatives three or more years ago. Munger said comparing derivatives to a sewer is an insult to sewers. Now in this crisis, what is the value of his advice? Multibillion dollars because what are the key to the problems now? Derivatives,” Say explains.

That said, Say doesn’t see the popularity of value investing to stay for long. “It is the flavor of the year, but if you are asking if it will generally be much more popular than before, I would guess not. Buffett learned from Benjamin Graham more than 50 years ago. It is not a secret; it has been around for a long time. But it has never been a popular style,” he says.

Reading annual reports and understanding what makes a business tick takes a lot of patience. It’s based on analysis, and not a quick tip to make a quick buck by flipping a stock or bond. Adhering to those principles and being disciplined is the hardest part, says Say, because old habits die hard.

“There are a number of value investors here in the country. They are in the minority, as well as with any other market, even in the US,” he says.

And do they make more money than the flippers? Say knowingly smiles, and says, yes, they are wealthy.

The 32-year-old investor tries to emulate Buffett not just in investing but also in the way he lives. Buffett, the shy billionaire who is also called the Oracle of Omaha, still lives in his house in Nebraska that he built more than 50 years ago, doesn’t have a driver, is brand loyal, and highly values integrity. Say uses an old model mobile phone and says his passion is helping people live better lives.

“My clients have been calling me about the book (Snowball) when it came out, and they were very excited about it. It’s like our Harry Potter,” he says with childish excitement.

On the Philippine Daily Inquirer's September 8, 2008 issue, Citibank Philippines shared these four investment principles worth knowing especially when you can't tell if the market is going up or going down.

Principle no. 1: There's Never the Perfect Time.

Nobody knows what the future brings, anything can happen at any given time. That is why there really is no perfect time to invest. However, according to Judith Go, Citibank Philippines' Citigold wealth management director, "one thing is sure: Over the long term, markets tend to trend up."

There is no perfect, problem-free time to invest but it is possible to make a gain in spite of whatever situation the economy is in.

Following from the discussion in principle no. 1, we can say that it's not really about perfect timing but more of the amount of time spent in the market. If you can stay in the market for a long time through highs and lows, you will be rewarded with higher profits in the end.

Don't panic over short term trends. It's true that Asian stocks are down lately, but looking at it from a long term view, the truth is, stocks held 20 years ago will most likely be much more valuable now in market price.

Bear markets are not forever, don't panic right away.

Cash deposits, like savings accounts and time deposits, are not really the best places to put all your funds in. Although these investments are safer, it allows you to earn only a minimum amount of interest.

"While you may be a conservative investor, still the principle holds: Don't put all your funds in cash deposits. Venture out a little into stocks, bonds, and pooled funds (mutual funds or UITFs) investing in equities and bonds to have the chance to earn more gains. The higher the risk, the higher the potential gains. And the adage "Don't put your eggs in one basket" holds true. Diversify and watch your money grow."

Have you ever wondered what keeps you upright when riding a bicycle? A bike remain upright when it is steered. Please note, also, that the faster the bike is moving forward, the smaller inputs need to be in order to balance the bike.

Applying sound personal finance is much the same as riding and balancing a bike. In life, we want to get from point A, say a situation where money is scarce, to point B where abundance of money allows us to focus on the more important things in life.

For a safe ride, however, you need to know how to balance your bike in much the same way as you balance your finances. Things like unnecessary spending, low income, poor saving habits, wrong investments, bad advice, greed, and fear can throw us off balance much like the cyclist. It is, therefore, critical to maintain that financial balance.

One way to make it easier to do that is to have forward motion, just like with a bicycle. And what is the most practical way of attaining enough of this forward and sustainable motion? The answer is investing. My apologies to Cebu Pacific for paraphrasing their slogan, "It's time every Juan flies." But indeed, it is high time that every Juan invests as well.

Before we continue, let me make it clear that investing is not all about making money. Investing is all about making the future more affordable, of attaining that forward and sustainable motion. In fact, if you relate investing to corporate activity, no corporation has stated "making money" its mission or vision. The same should be true for the individual.

Suppose you are 40 years old now and you want to enjoy a 20-year retirement period upon reaching the age of 60. Let's assume that your total retirement expenses will amount to Php500,000 per year using today's pesos. With an inflation rate of 6%p.a., the total future value cost of your 20-year retirement would be over P64 million. If you have only P1 million in savings at the present time, you would need to save roughly P263,000 a month for the next 240 months ([60years old-40years] x 12 months in a year) to arrive at your P64 million at age 60. However, if you were to rely solely on your P1 million by investing it now, you would need to make it earn just over 23%p.a. Add P10,000 a month to your investments for the next 240 months and your required return goes down to 18.5%p.a.

Of course, earning 18.5%p.a. is very tough, especially in this current era of low interest rates. This is why investing in non-guaranteed investments like bonds, stocks, and even in your own business makes all the more sense. The risk is higher, but so are the returns. To a certain extent, putting your money in more risky investments becomes a necessity. You may want the safety of ordinary bank products like time deposits. But, if the net return to you of these products is lower than the inflation rate, you are better off consuming than saving or investing.

Yet, how can you mitigate the risks with non-guaranteed investments? Simple. Just observe the following rules of investing:

1. Assess your risk and return preference.

2. Do an inventory of your resources, which include Size of funds, Expertise and Time or what I would call

the SET rule.

3. Search for investments and/or businesses that will match your answers to #s 1 and 2.

4. Form a portfolio of investments and/or businesses (don't just put all your eggs in one basket).

5. Monitor and review your performance regularly.

Just as an added note, if under the SET rule, you may find that you don't have much money to invest, you may opt for pooled funds like mutual funds and unit investment trust funds. With a mutual fund, for example, all you need is P5,000 or $100 to open an account. If you have the money but lack the expertise or the time, you may opt to hire financial advisers. If you have all of the requirements under the SET rule, then you can go straight to the markets and do your investing yourself.

Going back to the humble bicycle, we know that once we learn that skill of riding a bike, it would be difficult to forget it. Similarly, learn personal finance. Once you get the hang of it, you will remember it for the rest of your life. Cheers to you, Juan.