(click on book cover for more details)

Mindsight: The New Science of Personal Transformation

• Published: December 2010
• ISBN-10: 0553386395
• EP Rating: 5 out of 5 (must read)

EP Main Takeaway: Our brain is an anticipation machine that continually prepares itself for the future based on what has happened in the past. We can change our experiences and our brain by directing our attention and creating new neural pathways. Perception is always a blend of what we are sensing now (feeling) and what we've learned previously (shortcut). Understanding what impacts our perception allows us to manage our perceptions and respond as opposed to react to what happens to us.

The post Mindsight by Daniel Siegel appeared first on Embrace Possibility.

So far:

You've learned the starting point for your journey is your current net worth and that measuring your net worth is the only way to track your progress.

You've figured out your destination when you determined your number.

Some of you even took some time to sort through and handle any excess baggage (bad debt) that may slow you down on this trip.

Now all you have to do before you set off is to determine your current pace.

This article will help you answer:

Am I moving in the right direction?

How fast am I travelling?

When will I arrive at my destination?

So how will we do that?

Two words ...

...Income and Expenses.

Many of you shy away from your own finances because you are scared of numbers. This is one of the reasons why you are not financially free. Fortunately, I understand that numbers can be intimidating so I am going to give you a step-by-step process that any elementary school student can follow.

Let's start with income:

Step 1 - Calculate the gross (it just means before taking deductions like taxes, 401K, etc.) monthly income by adding up all the money you receive.

Example:

Gross Salary: $4000

Interest from Savings: $120

Stock Dividends: $230

Rent from Tenant: $1000

Total Gross Monthly Income: $5350

Easy, right?

Now for the expenses:

Step 2 - Calculate monthly expenses by adding up all the money that you spend on average in one month. For expenses that are once a year but recurring (i.e. christmas and/or wedding gifts), just divide the one time expense by 12. Taxes should be included in your expenses as well.

Example:

Rent: $1200

Utilities: $150

Phone: $80

Gym Membership: $20

Gifts: $1200/12 = $100

Income Tax (Federal and State) = $1300

So far so good? Great!

Step 3 - Calculate the difference between the money coming in and the money going out.

To help you with this calculation, click here for an income and expense calculator from frugalvillage.com. All you have to do is input your gross monthly income from step 1 and it will give you your "monthly spendable income" assuming a 33% tax rate. Then you input all your expenses for the month. At the bottom you will get the total left over for the month.

This total will help us answer the 3 questions above:

Am I moving in the right direction?

If your total is positive (you earn more than you spend), you are moving in the right direction. If your total is negative (you spend more than you earn), you are going the wrong way. If you have a negative total, the first thing you need to do is find ways to cut your expenses ... immediately.

How fast am I travelling?

The larger your number. The faster you're travelling. A large negative number means your travelling quickly in the wrong direction.

When will I arrive at my destination?

You will arrive at your destination when your current net worth is equal to your target net worth calculated from Lesson 2. Unless you already own a home, a business or other investments, the money you have in your bank and in your retirement accounts will make up the bulk of your net worth.

The income calculated from this lesson will determine how much you can save. Use this savings calculator from Bankrate.com to see how much you need to save monthly to reach your "number" within a set number of years.

Example using Bankrate's Savings Calculator:

How much do you want to save?  $1,000,000

How many years? Play around with this number to make the "monthly deposit required" = monthly amount leftover 

Interest rate: 6% Daily Compounding

How much money can you spare to start? $1000

Do you wish to skip 2 weeks out of the month? Yes

When do you make your first deposit? Today's date

Starting with $1000 I will save a million dollars ...

in 5 years, if I save $489/day

in 15 years, if I save $117/day

in 30 years, if I save $34/day

So if I started saving when I was 20, I would be a millionaire when I became 50 and all of this assuming a conservative interest rate of 6%. This is the power of compounding interest and the earlier you start saving the better.

If you haven't already, I highly recommend that you calculate the money you have left over each month after you pay all your bills and expenses. If the number is positive, use the savings calculator to see how long it will take you to reach your target "number" if you saved everything that was left over each month.

Once you know your pace, it's time to discuss strategy.

In the next lesson, we're going to answer the question:

What can you do to get to your number faster? 

The post Be Financially Free – Lesson 4 – Current Pace appeared first on Embrace Possibility.

Luckily for us, we came up with a great way to set up our finances that allows us to be both responsible to the family and free to make our own decisions. It has been working so well, I am going to share it with you step-by-step in this article.

I'll first introduce the strategy and then address the common concerns.

Step 1 - Pool together all your assets

This is pretty much everything you own (cash, property, cars, etc.). We kept our retirement accounts separate because it seemed easier that way.

Step 2 - Put all the assets into a joint account

Put everything you can in your joint account but don't cancel your individual accounts. This may be tougher for your retirement accounts. We left ours in our individual names. Ideally it would be great to put everything in the joint account but it is important to be flexible.

Step 3 - Decide together on an appropriate amount for your individual discretionary accounts

Choose an amount that you both are ok with taking out of the joint account and dividing equally into your individual accounts. I highly recommend keeping the bulk of your money in the joint account or else this strategy won't work well. You also want to make sure you fund the individual account with enough money so it makes sense. I would say 3 months of your non-essential expenses (eating out, splurge purchases, gifts, etc.)

Step 4 - Transfer the agreed upon amount to each person's individual account

Make the transfer of equal amounts from the joint account back to each person's individual accounts.

Step 5 - Set up the rules for the joint account

Create rules to govern the joint account. Here are our rules:

• All income goes into the joint account and after all joint expenses are paid (this includes a percentage of money we want to save), we distribute the "profits" into our individual accounts. This ensures that all the important expenses are taken care of and that no individual can put the family in danger with irresponsible spending habits.

• Joint expenses are paid by the joint account and individual expenses are paid by the individual discretionary accounts. Expenses approved by both people will be paid using the joint account:

1. • Mortgage and family vacations gets paid from the joint account
   • My new laptop or my wife's new handbag will be paid from our individual discretionary accounts
   • When I eat out with my friends, it comes out of my discretionary account. If my wife joins us, we use the joint account

• Each person controls their own discretionary account. We never nag each other about how we are spending the discretionary accounts and we don't need to ask each other for permission to spend from our individual accounts. If you happen to spend all the money in your discretionary account, you will have to wait for the next profit-sharing. We found that this was a great way to save and to prevent the scenario where one person feels "cheated" because the other person spends more than they do when they pool their assets together.

• The frugal one in the relationship should manage the joint account (highly recommended).

Step 6 - Adjust the plan to fit changing needs, lifestyles and/or financial goals

This strategy is only a guide for you to use. Our situation is different from yours so it is important to understand the concept but then to adapt it to your own situation. I know we will modify this strategy as we learn more about ourselves and as our situations change but at the current moment, we are happy with this setup.

Here are some Frequently Asked Questions about this strategy:

Can you give me an example?

Here is a hypothetical example:

My spouse and I have $50,000 each in savings before we got married.

After the wedding, we put all our assets in the joint account so now the joint account has $100,000. We decide that we will put $10,000 in each of our discretionary accounts to start.

So now the joint account has $80,000. My wife's account has $10,000. My account has $10,000.

All income goes straight into the joint account. My wife makes $7000/month. I make $3000/month. Our joint monthly expenses are $6000 for mortgage and $1500 for all other expenses in this example month. We first pay off all expenses for the month ($10,000 - $6000 - $1500 = $2500). We decide we want to save 80% of what's left after paying our expenses ($2500 * 0.8 = $2000).

Total left for profit distribution: $500 ($250 to my wife's account and $250 to my account)

So for this month, the joint account has $82,000. My wife's account has $10,250. My account has $10,250. (Assuming we didn't spend anything in our discretionary accounts)

In the months where expenses exceed income (vacation or unforeseen expenses), there is no profit distribution. If you haven't start doing so already, I highly recommend keeping track of your net worth.

What if I make much more than my spouse?

I don't see the point of getting married if you don't intend to share everything with the other person or trust them enough to pool together your money and build up a big joint account. Why shouldn't they have access to your money if you plan to get married? Really think about what you are afraid of or what is "unfair" about the situation. Imagine yourself in your spouse's shoes. If your spouse made a lot more money than you did, would it be unfair then?

What if we don't have enough "profits" left over for our individual accounts? I won't be able to buy what I want?

This strategy is created to help you be responsible while giving both people in the relationship freedom to spend. This is assuming you are making enough for discretionary spending. If there are no "profits", either your expenses are too high or your incomes are too low. In both cases, you would work together and make more money or spend less money.

I think it is a great plan but my spouse won't agree to it. What should I do?

Talk to your spouse and ask why they don't like the strategy. Show them the benefits that you see in this strategy. If they still refuse, there is not much you can do (although refusal to adopt this method may be warning signs of fear or mistrust). Unfortunately, this strategy only works when both partners cooperate and agree to work together.

If you found this article helpful, feel free to send it to anyone else you think might benefit from this strategy. Also, if you have your own financial strategy that works for you, please share in the comments section.

The post How to Prevent Money from Ruining Your Marriage – A Step-by-Step Guide appeared first on Embrace Possibility.

With that "number", you now have a destination as you begin the road to financial freedom.

If you are starting your journey with a negative net worth (click here to learn how to calculate your net worth), you have your work cut out for you. The biggest reason for a negative net worth is usually ...

... DEBT.

It is important to distinguish between Good Debt and Bad Debt.

Good debt is when you borrow money to pay for things you NEED (Home, College Tuition and/or Car Payments) but can't afford up front without using up all your cash and selling out of your investments.

Bad debt is when you borrow money for things you don't NEED (IPad3, Trip to Tahiti, Luxury Goods, etc) and can't afford. Most credit card debt falls under this category.

No matter what type of debt you have, you should work to get out of it as fast as you can.

If you have a spending problem, the very first thing you should do is remove easy access to credit by cutting up all credit cards and closing any lines of credit. For those who only have good debt and can control spending, there is no need to cut up your credit cards.

If you don't have a plan to get out of debt, then most likely you are not going to get out. Fortunately, here is a simple and effective 7 step process that will help you eliminate your debt:

Step 1 - Organize all your debt by creditor, interest rate and minimum payment amount and sort by interest rate from highest to lowest.

Step 2 - If you are late on any payments, IMMEDIATELY call your creditor (personal or institutional) to explain. In many cases, the interest rates and loan terms can be negotiated.

Step 3 - Review your income and determine the LARGEST monthly amount you can use to pay off your debt. Remember to make sure you have an adequate emergency fund (1 year's worth of expenses).

Step 4 - Add $20 to every minimum payment on your list of debts and add up the final total monthly debt payment. You want to always pay more than the minimum if you are serious about getting out of debt.

Step 5 - Subtract the total monthly debt payment from the amount you allocated to pay off debt. If you have extra money, apply that to the debt with the highest interest rate. If you can't make the minimum payments, consider consolidating your debt to lower the minimum payments.

Step 6 - Make your payments according to your plan in Step 5 and adjust if income or situation changes.

Step 7 - Repeat Step 1-6

Although not advisable, you can take out a home equity loan to pay off your debt since the interest is tax-deductible and you can usually get a much lower interest rate than your credit cards. Of course, if you end up spending the money from your home equity loan on a trip to the Maldives and can't pay it back, you can lose your home.

Getting out of debt is never the solution. You must look at the specific habits that got you into trouble. Only by changing those habits can you truly take the next step towards being financially free.

"Think what you do when you run into debt; you give to another power over your liberty"

- Benjamin Franklin

Now that have made arrangements for your debt, let's get back on the journey with our next lesson.

The post Be Financially Free – Lesson 3 – How to Get Out of Debt appeared first on Embrace Possibility.

For those who do agree or would like to become financially free anyway, read on.

Most people are not financially free for one simple reason:

They don't know how to keep score.

People tend to equate financial success with big homes, fast cars and luxurious lifestyles. It is this "consumption thinking" that holds people back from attaining their financial freedom. In Thomas Stanley's two books, The Millionaire Next Door and The Millionaire Mind, most of the millionaires profiled don't drive expensive cars nor lead extravagant lifestyles. They tend to value frugality.

There is only one way to keep score and it is ... (drum roll please)

...keeping track of your net worth.

Net Worth = Total Assets - Total Liabilities

Assets are things of value such as cash, investments (e.g. stocks and bonds) and the value of your home. Liabilities are the obligations that you owe such as credit card debt, student and bank loans and mortgage.

If you already know what your net worth, then all you need to do is make sure it stays positive and keeps going up. The faster it goes up, the better you're doing. In a future post, I will talk about how to decide what your target net worth is.

For those of you who don't know your net worth, get your financial information ready because you should calculate it right now. Stop whatever else you're doing because this is the most important number you'll need to know if you want to be financially free. It won't take too long and all you need to do is plug your numbers into the calculator below:

The post Be Financially Free – Lesson 1 – What is your Net Worth? appeared first on Embrace Possibility.

I thought I was free but really, I'm not.

To be free, I thought it was enough to live in a free country like the United States but it's not.

I thought it was enough to have a loving family but it's not.

I thought as long as I had my health, I'll be free but I'm not.

What I am missing to be truly free is ...

... money and lots of it.

I have come to realize that without financial independence, I don't have any freedom. I am unable to do what I want when I want to so I have begun educating myself on how to become financially independent. I have begun applying some of the most important examples from my research (click here for my recommended reading list, which includes books on financial freedom) and it is working.

The first step that I recommend is to get into a habit of saving at least 10% of your income and putting it into a savings account that you don't dip into until you reach your retirement age (Note: You can retire as soon as you hit your retirement number. No one says your retirement age has to be 65 or over.)

That's it.

That's the first step to freedom.

No matter what happens, take 10% from any income you get.  Automatically deduct it from your paycheck. Trust me, you won't miss it.  You'll be just fine with what you have left to spend.

The post The First Step to Freedom appeared first on Embrace Possibility.