MONEY Master the Game: 7 Simple Steps to Financial Freedom (12 page)

How did he do it? Just when Germany was invading Poland in 1939, plunging Europe into World War II and paralyzing the world with fear and despair, he scraped together $10,000 to invest in the New York stock market.
He bought 100 shares of every company trading under $1, including those considered nearly bankrupt. But he knew what so many people forget: that night is not forever. Financial winter is a season, and it’s followed by spring.

After WWII ended in 1945, the US economy surged, and Templeton’s shares exploded into a multibillion-dollar portfolio!
We saw the same kind of growth happen as the stock market soared from the lows of March 2009 to more than 142% growth by the end of 2013. But most people missed it. Why? When things are going down, we think they’re going to go down forever—pessimism takes over.
I’ll show you in chapter 4.4, “Timing Is Everything?,” a system that can help you keep your head and continue to invest when everyone else is afraid. It’s in these short, volatile periods that astronomical returns really become available.

I took those insights to my Platinum Partners, an exclusive mastermind group I’d started to support my foundation, and shared with them some of the potential opportunities in front of them.
Take the Las Vegas Sands Corp. listed on the New York Stock Exchange. On March 9, 2009, its stock price had dropped to $2.28 a share. And today it’s $67.41—a 3,000% return on your money!

That’s the power of learning to invest when everyone else is afraid.

So what can we learn from Sir John Templeton? It’s amazing what research, faith, and action can do if you don’t let everybody else’s fears paralyze you. This is a good lesson to remember if, as you’re reading these pages, we’re going through more tough financial times. History proves that those “down and scary times” are the times of greatest opportunities to invest and win.

He knew if he could set aside half of his meager earnings, he’d stake himself to where he could take full advantage of any investment opportunities. But even more important, he became one of the world’s leading philanthropists, and after he became a British citizen, the Queen of England knighted him for his efforts. Even in death, his legacy of giving continues: each year, the John Templeton Foundation gives away more money in grants “to advance human progress through breakthrough discoveries”—about $70 million—than the Nobel Prize Commission awards in a decade.

And what’s the great takeaway of Theodore Johnson’s story? You don’t have to be a financial genius to be financially free.

The lesson of Oseola McCarty’s life? Even a day laborer can pinch enough pennies to make a meaningful difference.

The lesson of these three wise investors?
By committing to a simple but steady code of savings, by drawing down on your income each pay period and
paying yourself first,
there’s a way to tap the power of compound savings and let it take you to unimaginable heights.

The most difficult thing is the decision to act, the rest is merely tenacity.

–AMELIA EARHART

So how much will you commit to set aside? For Theodore Johnson, that number was 20%. For John Templeton, it was 50%. For Oseola McCarty, it was simply a case of
penny wisdom
: putting those pennies in an interest-bearing account and letting them grow.

What about you? Got a number in mind? Great! It’s time to decide, it’s time to commit.
It’s time to take the first of the 7 Simple Steps to your Financial Freedom! The most important financial decision of your life needs to be made right now! It’s time for you to decide to become an investor, not just a consumer. To do this, you simply have to decide what percentage of your income you will set aside for you and your family and no one else.

Once again, this money is for you. For your family. For your future. It doesn’t go to the Gap or to Kate Spade. It doesn’t go to expensive restaurants or a new car to replace the one that’s still got 50,000 miles to go on the odometer. Try not to think of it in terms of the purchases you’re not making today. Focus instead on the returns you’ll reap tomorrow. Instead of going out for dinner with friends—at a cost, say, of $50—why not order in a couple pizzas and beers and split the cost among your group? Trade one good time for another, save yourself about $40 each time out, and you’ll be way ahead of the game.

What’s that, you say?
Forty dollars doesn’t sound like much?
Well, you’re right about that, but do this once a week, and put those savings to work, and you could take years off your retirement time horizon.
Do the math: you’re not just saving $40 a week, but this one small shift in your spending can save you approximately $2,000 each year
—and with what you now know,
that $2,000 can help to harness the power of compounding and help you to realize big, big gains over time. How big? How about $500,000 big? That’s right:
a half million dollars!
How? If you had Benjamin Franklin’s advisors, they’d tell you to put your money in the market, and if you too generate an 8% compounded return over 40 years, that $40 weekly savings ($2,080 per year) will net you $581,944! More than enough to order an extra pizza—with everything on it!

Are you starting to see how the power of compounding can work for you, even with just a few small, consistent actions?
And what if you found some more aggressive savings than $40 a week? Even $100 could mean a $1 million difference at the time you would need it most!

Remember, you can’t begin to tap into the awesome power of compounding until you commit to this all-important savings piece. After all, you can’t become an investor until you have something to invest! It’s basic: the foundation for creating wealth, the difference between being a wage earner and an investor, and it starts with setting aside a portion of your income that you lock away automatically and keep for yourself and your family.

So what will it be? 10%? 12%? 15%? 20%?

Find your threshold and circle it.

Highlight it.

Click on it.

Commit
to it.

Make it happen.

And automate it!

How do you automate it? You can start by downloading our free app from
www.tonyrobbins.com/masterthegame
.
It’s a great way to begin your journey by setting in place automatic reminders to capture your commitments and make sure you implement your new plan! If you haven’t done it yet, do it now! It will help guide you through the following easy steps:

• If you get a regular paycheck, you’ll most likely be able to set up an automated plan with a call to the human resources department, instructing it to send a specific percentage of your paycheck—that you and you alone choose—directly to your retirement account.

• 
If you already have automatic deductions going into your 401(k), you can increase the amount to the percentage you’ve chosen. (And in the following sections of this book, I’ll show you how to make sure your retirement plan is set up in such a way that you can actually “win” this game, to make sure you’re not paying hidden fees and that your money is free to grow in a compounded environment—ideally, tax-deferred or tax free for maximum growth.)

Got that taken care of? Outstanding!

• But what about if you’re self-employed, or if you own your own business or work on commission? No problem. Just set up an automatic transfer from your checking account.

What if you don’t have a retirement account—a place to put your dedicated savings? Simple: stop right now, jump online, and open up a savings or retirement account with a bank or financial institution. You can check out this link with lots of choices to help you locate one that’s a good fit for you (
www.tdameritrade.com
or
www.schwab.com
), or you can find one on our app. Or, if you’re feeling low-tech and looking to roll up your sleeves and get started in a hands-on way, simply walk down the street and visit your banker.

When’s a good time to get started on this? Would
now
be a good time?

Go ahead, I’ll wait . . .

If you don’t want to work, you have to work to earn enough money so that you won’t have to work.

—OGDEN NASH

Great, you’re back. You got it done. Congratulations! You’ve just made
the most important financial decision of your life
—the first of the 7 Simple Steps to Financial Freedom. Now you’re on your way to converting your dreams into reality.

In the pages ahead, I’ll share with you some of the safest, most certain strategies to grow your money—in a tax-advantaged way! But for now let’s just lock down this basic savings piece,
because your financial future will flow from your ability to save systematically.
Most of you probably know this, on some level. But if you know it, and you’re
still
not doing anything
about it—well, then you just don’t know it.
Contrary to popular wisdom, knowledge is not power—it’s
potential
power. Knowledge is not mastery.
Execution
is mastery. Execution will trump knowledge every day of the week.

I hate losing more than I even want to win.

—BRAD PITT as Oakland A’s general manager Billy Beane in
Moneyball

What if, after everything you’ve just learned, you still haven’t taken that first step to set aside a percentage of your earnings to save for compounded interest? Is there something holding you back? What’s really going on? Could it be that you’re not systematically saving money because it feels like a sacrifice—a loss—instead of a gift to yourself today and in the future? In my search for answers, I met with Shlomo Benartzi of the UCLA Anderson School of Management. He said, “Tony, the problem is people feel like the future is not real. So it’s hard to save for the future.” Benartzi and his colleague, Nobel Prize winner Richard Thaler of the University of Chicago, came up with an amazing solution called Save More Tomorrow (SMarT) with a simple but powerful premise: if it hurts too much to save more money now—just wait until your next pay raise.

How did they come up with it? First, Shlomo told me, they had to address the challenge of immediate gratification, or what scientists call
“present bias.”
He gave me an example: when he asked a group of students whether they wanted a banana or some chocolate for a snack when they met again in two weeks, a full 75% said they wanted a banana. But two weeks later, with the choices in front of them, 80% picked the chocolate!
“Self-control in the future is not a problem,”
said Shlomo. It’s the same with saving, he told me. “We know we should be saving. We know we’ll do it next year. But today we go and spend.”

As a species, we’re not only wired to choose today over tomorrow, but also we hate to feel like we’re losing out on something. To illustrate the point, Shlomo told me about a study in which monkeys—our not-so-distant cousins—were given an apple while scientists measured their physiological responses. Enormous excitement! Then another group of monkeys was given two apples. They also displayed enormous excitement. And then one
change was made: the monkeys that were given two apples had one taken away from them. They still had one apple, but what do you think happened? You guessed it. They were angry as hell! (Scientifically speaking.) Think this happens with people, too? In fact, how often does this happen with the average person? We forget what we already have, don’t we? Remember this study when I tell you the story of a billionaire named Adolf Merckle in the next chapter. You’ll have a flash of insight.

The bottom line is, if we feel like we’re losing something, we avoid it; we won’t do it.
That’s why so many people don’t save and invest. Saving sounds like you’re giving something up, you’re losing something today. But you’re not. It’s giving yourself a gift today of peace of mind, of certainty, of the large fortune in your future.

So how did Benartzi and Thaler get around these challenges?
They came up with a simple system to make saving feel painless. It aligns with our natures. As Shlomo said in a TED Talk, “Save More Tomorrow invites employees to save more maybe next year—sometime in the future when we can imagine ourselves eating bananas, volunteering more in the community, exercising more, and doing all the right things on the planet.”

Here’s how it works: you agree to automatically save a small amount of your salary—10%, 5%, or even as little as 3%. (This is a number so small you won’t even notice the difference!) Then you commit to saving more in the future—but only when you get an increase in pay. With each pay raise, the percentage saved would automatically get a little larger, but you wouldn’t feel it as a loss, because you never had it in the first place!

Benartzi and Thaler first tested the Save More Tomorrow plan almost 20 years ago at a company in the Midwest where the blue-collar workers said they couldn’t afford to squeeze another dime out of their paychecks. But the researchers persuaded them to let their employer automatically divert 3% of their salaries into a retirement account, and then add 3% more every time they got a pay raise. The results were amazing! After just five years and three pay raises, those employees who thought they couldn’t afford to save were setting aside just under a whopping 14% of their paychecks! And 65% of them were actually saving an average of 19% of their salaries.

When you get to 19%, you’re approaching the kinds of numbers that made Theodore Johnson, the UPS man, incredibly wealthy. It’s painless, and it works. It’s been proven time and again.

Let me show you the chart that Shlomo uses to illustrate the impact that each increase in savings will have on an employee’s lifestyle.