The 17 Principles of Creating Wealth

Chapters 12-13

Set Realistic and Challenging Goals

The idea of setting goals is nothing new and you have probably heard it before.  But do you do it?  Amazingly, less than 3% of the population sets financial goals.

In 1954 an interesting experiment was conducted at Yale University.  The graduating class was surveyed and it was determined that only 3% of the class population had written financial goals.  Twenty years later the resurveyed this same group of people.  The results were astounding.  The 3% that had set financial goals in 1954 had a net worth greater than the combined net worth of the remaining 97% of the class population.

The lack of goals will not guarantee failure, but with numbers like those above, why risk it?  And because I like putting the odds of success in my favor, rather than working against myself and good advice, setting realistic and challenging goals is the twelfth step to financial freedom. If you want to learn how to set goals, read See You at the Top, by Zig Ziglar.

Acquiring assets in itself is not a viable goal towards achieving sustainable wealth. According to the IRS, for people in America with gross assets in excess of $675,000, 32,000 held a negative net worth, 3 million people had a net worth of less than 1 million dollars, and approximately 2.4 million held a net worth above 1 million dollars. Clearly, owning or controlling assets does not equate to net worth. Nearly 1.4 million people had succeeded in acquiring large amounts of assets, but had offsetting liabilities to nullify their wealth positions.

With this in mind, be sure your goals and action plans define how you will generate income, how you will invest and spend this income, and ultimately, how you will define success in your wealth building goals. An important step in this process is to visualize what success and wealth means to you.

After you have established your goals in writing it helps to visualize what the achievement of these goals will bring you.  For example, if you have set a goal of attaining sales commissions of $10,000 per month, imagine what $10,000 a month will do for your investment plans and lifestyle.  Picture yourself standing in line at the bank waiting to cash that big check, or paying cash for a new car.

In Viktor Frankl’s book, “Man’s Search for Meaning,” Frankl discusses many of the misguided myths associated with goal setting. According to Frankl, it is not enough to merely focus on goals, and may in fact be counter-productive. Instead, Frankl suggests you focus on the individual steps necessary to achieve your goal. For example, if you wanted to realize $1,000 per month in automatic pilot type income, it may be more productive to concentrate on first achieving $100 per month in income. Frankl further suggests the goal itself be forgotten, with your energy being better suited towards doing the daily chores and tasks to achieve the goal. In practical terms, if you wanted to own a rental property, saving for the upfront expenses, researching your market, and learning about property management, would al be daily tasks that move you in the direction of successfully owning and operating a rental property.

Frankl’s methodology could also be applied to a weight-loss program. Rather than focus on losing, say 25 pounds, you would be better served to focus on eating the right foods and getting the right amount of exercise—today. Taking it one day at a time, you will lose weight, building on the small successes one day at a time.

For many people wealth means freedom from a boring job, or the ability to jump on an airplane and fly to Europe--just because you want to.  Whatever your dreams, write them down (goals), and then imagine yourself already enjoying them (visualization).  When it comes to achieving a goal, committing yourself to that goal is the first major step towards receiving it, and visualizing your goal is the second step.

Goals and plans are only half the battle, however. General Patton lived by the belief that bold action, however flawed, beats the best of plans with little or no action.  Many of us are guilty of being all plan, and no action--and we're doomed to failure because of it.

Even the best of plans are worthless without action.  If you want to create wealth you must do something different than you've been doing.  Consider what you have accomplished in the past five years.  Does it meet with your approval?  If not, it may be time to change your habits and your thinking.  It may be time to throw out long held opinions and practices and try something else.  One thing is sure, if you continue doing the same things you have been doing, five years from now you will be in the same position you are today.    

Some of the more common excuses for not getting started include one’s age, race, or educational level. However, businesses are successfully owned and operated by Americans of all ages, race, and educational level. According to the U.S. Census Bureau, 67% of all business owners reported their business provided their primary source of income. 24% of business owners claimed they did not have a high school level education at the startup of their business, while 26% claimed some college, and 43% stated they had a college degree. Proving it is never too late to start, 63% of all businesses are owned by people over the age of 45, with many of these being in the over 65 category. Additionally, women are excelling in business today. According to statistics published by the Census Bureau in 2006, “Women owned 6.5 million nonfarm U.S. businesses in 2002, employing 7.1 million persons and generating $940.8 billion in business revenues.”

The next page of this report may well be the most important one of all. We have all read and heard about putting our goals in writing, but this critical step in the wealth building process is often neglected. After learning about Viktor Frankl’s concept of Logotherapy, I relegated the goal setting process to hogwash and wishful thinking. However, Frankl changed my mind about goals by suggesting the goal setter focus less on the overall goal and more on the individual tasks and steps required to stay on track to achieve a goal.

Borrowing from this concept, I developed a Life Plan Worksheet that helped me visualize how my daily activities helped or hindered my progression. Take a few minutes and think about your dreams and how these can be translated into measurable and achievable goals.

Remember, don’t make the mistake of being “all plan and no action.” Stay focused on the daily activities and steps you must take to achieve your goals. The Life Plan Worksheet leads off with Dreams and Goals, but this is only to serve the purpose of helping you identify specific steps and actions required to achieve those goals and realize that big dream. Once you have identified the steps you should take, focus on them, not the overall goal. As Frankl taught us, if the activities contribute towards moving you closer to the goal, then you will reach your goal, without thinking about it.

LIFE PLAN WORKSHEET

Many of us devote more time to planning vacations than we do planning our lives. Use this Life Plan Worksheet to develop specific steps you can take to achieve a goal that will help you and your family achieve the life of your dreams. Life planning all begins with a dream.

DREAM

Write one sentence that best states an ideal lifestyle for you.

I have a dream to. . .

GOAL

Write a one-sentence goal statement that will help you realize your dream. A written goal should be specific, and include numbers and a realistic date of accomplishment.

To live the life of my dreams I will. . .

TASKS

Break your goal statement into 3-5 tasks you must accomplishment to achieve your goal.

To meet my goal I will complete the following tasks within a specified time:

1.

2.

3.

STEPS

Write 3-5 steps you must take to complete each of the above tasks.

List the steps necessary to successfully complete each of the tasks listed above.

Steps 1-3 of first task:

Steps 1-3 of second task:

Steps 1-3 of third task:

Remember Income Limiters

No wealth-building plan is complete without considering taxes and inflation.  Your investment decisions should always be tempered with the question:  How will this investment be affected by taxes and inflation?

The tax man cometh. Therefore, the thirteenth step to financial freedom is to become wise to the tax man’s ways and adjust your investment and business decisions accordingly. Ideally of course, you want to minimize your dependence on employment income (as this is taxed the highest), and build passive and portfolio income.

For example, if you put $10,000 in a savings account at 5% interest, at the end of one year you would have accrued $500 in interest.  If at the same time the economy was enjoying a low inflation rate of 3%, your purchasing power with a nest egg of $10,500 would be around $10,150, a loss of $350.  Also, state and federal income taxes may take an additional $50 to $150 of your profits away from you.

Here are some more inflation facts. $5,000 in 1980 has the same buying power in 2006 as $12,311. That’s more than twice your initial amount. To put it in practical terms, $5,000 would buy about 10,000 gallons of gasoline in 1980, and less than 1,600 gallons in 2006. How about an investment in U.S. Savings bonds? A $1,000 investment will mature at $2,000 in 7 years, which equals about $142 in simple interest each year. Americans are currently experiencing an average of 4.5 % interest, which means the purchasing power of your $1,000 deteriorates by $45 per year. 

Aside from inflation, wealth-builders must be aware of tax the implications inherent to any business success. Taxes are a way of life, and are essential to maintain a stable government. During the year 2003, 19.7 million tax returns were filed for non-farm, sole proprietorship enterprises. Taxes paid from this group equaled more than 230 billion dollars.

Of 88.8 million returns filed with taxes due in 2003, the average income tax payable was $8,412. It is unclear from the IRS tax tables if this includes total federal income tax paid, or just the amount the average filer paid to make up any balance due to the federal government. One thing is certain, however, these figures do not include state and local taxes, property taxes, and sales taxes paid by the individual consumer.

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