Millionaire Habit 4: Delayed Gratification

By Adam Khoo

What keeps most people from becoming rich is the habit of wanting instant gratification. Instant gratification is the habit of always wanting to enjoy now and not having the patience to wait for future benefits. As a result, these people spend a lot more than they invest.

By spending on that new car, new widescreen television set or designer watch they get instant gratification.

When it comes to investing in books, seminars, stocks or insurance products, they will think twice as they have to wait for future benefits.

It is precisely for this reason that whatever money comes into their hands will soon be frittered away and not multiplied.

People who want instant gratification will always look for quick and easy ways of making money rather than building a sustainable business that adds value to (repeat) customers.

They tend to cut corners on quality and deliver shoddy products to save money and boost short term profits. As a result, their profits rarely last and they will soon go out of business.

At the same time, those who desire instant gratification lack the patience to allow their money to grow and compound through investing.

When they don't see huge sums of money in a few weeks, they abandon their investments and never get to reap the benefits. They have no patience to wait for the seeds they sow to grow into huge money trees that bear fruit.

On the other hand, all millionaires adopt the habit of 'delayed gratification.' They have the patience to wait for greater abundance in the future.

Whether in business or in investments, you must have delayed gratification in order to create massive wealth.

People with delayed gratification invest a lot more than they spend. Again, they know that by spending a dollar, they may feel good for an instant, but their future wealth will be destroyed.

When it comes to spending money, they are extremely frugal. However when it comes to investing, they do not think twice about writing a check for a few thousands dollars. They know that through patience, that money will multiply into a future fortune.

Millionaires never take shortcuts in business. They look at always giving the best value to their customers, even if it means earning less at present. They know that by building their reputation, it will lead to huge profit streams in the future.

So, develop the habit of delayed gratification - and spend wisely - and you will see your money multiply.

6 Ways to Massively Reduce Your Expenses & Increase Your Savings

By Adam Khoo

1) Study Your Monthly Expenses

Well it's time to study the expense column very closely and identify where you can cut your expenses.

You will be surprised to know that we can easily do without between 20-30% of our monthly expenses.

'Dispensable expenses' are stuff we buy on impulse to get a ten-minute gratification, and after that it would not make much difference to our lives.

Or in browsing through glossy flyers and advertisements, we get attracted to special offers on stuff we do not really need. But we buy simply because it seems like a good deal.

You must eliminate these expenses as, over the long term, it will cost you millions of future dollars.

You would be amazed at the impact that a few extra hundred dollars in monthly savings will have on your future wealth.

2) Pay Yourself First

Most people adopt the earn-spend-save habit. In other words, when they get their monthly income, they will spend on all their committed and impulse expenditures.

Whatever, they have left at the end of the month is what they save. Even if they set aside a budgeted expenditure, this strategy seldom works.

Why? Somehow, something unexpected might come up that causes people to spend whatever they have, leaving nothing to be saved.

Instead you must adopt the Pay Yourself First habit. Before you pay the grocer, the restaurant, the utility company, the TV repairman, you have to put aside a fix amount into your investment account. Then, spend whatever you have left.

In other words, you must earn-save-spend. The moment you earn your income, you must immediately put aside 10-20% into a separate investment account. Then live off the rest of the 80%!

The best way to do this is to make it automatic! Instruct your bank to automatically transfer 10-20% of your in-come into a separate investment account where the funds are not easily accessible.

This investment account should not have an ATM card where you can draw it out. You should only have a checkbook which you use to pay for investments.

Now, if you have got any form of consumer debt, you must modify this formula a bit. Deduct the first 10% and use it to pay off part of your principal loan. Then take the next 10% and put it into your investment account.

3) Stop Before You Buy & Procrastinate

Before you buy anything, always stop and ask yourself the following questions:

• Do I really need this?
• Will I regret buying this three days later?
• How many hours do I have to work to make back the money?
• How much will this cost me in future dollars?

Then, procrastinate in making a decision on whether to buy or not to buy.

Say to yourself, 'I'll think about it and come back tomorrow.' Eight out of ten times, you will not go back and spend that money as you will probably forget about it.

The best way to stop being a shopaholic is to get yourself so busy in purposeful and fulfilling work - especially meaningful volunteer work -so that you don't go shopping until you really need a particular item.

Many shopaholics admit their weakness is due to spending their free time wandering the shopping malls. So, find a meaningful way to occupy your free time and you will stop wasting your money.

4) Destroy All your Credit Cards but One

This next step will be painful but I guarantee it will shave off at least 15%-20% off your monthly expenses. Cut up all your credit cards but just leave one.

With lots of credit cards, you will have easy access to lots of tempting credit. Just use one card with limited credit for all your expenses...and again, pay the full balance.

5) Plan your Purchases... Only Buy at a Discount

You would easily save another 15-25% if were to plan your purchases, buying only when there is a special discount and buying in bulk.

Remember the example I gave you earlier about Ingvar Kamprad, the founder of IKEA? He would only buy vegetables and fruits in the afternoon, when the prices have dropped significantly.

As a kid, I observed my dad stocking up on toothpaste whenever the supermarket had a special promotion. He would stock enough toothpaste for six months until the next promotion.

I also have friends who buy all their clothes twice a year, during the citywide sale. So plan your purchases with a three to six month horizon in mind and buy in bulk whenever there is a very special promotion.

6) Treat it as a Business Expense

Even if you are a full time employee, you should register a business for income tax reduction purposes. You can use this business entity for internet business purposes or to market your intellectual property.

With a business, you can take certain expenses like transport, entertainment, office supplies etc. and charge them as business expenses. Whenever you do, you get an automatic tax deduction.

The higher your in-come tax bracket, the larger the savings. For example, if you pay 20% in personal in-come taxes, then every time you claim an expense as a business expense, you save 20%!

So there you have it, the six ways to reduce our expenses by 20-30% immediately. Remember it will only happen if you start taking action on it right away!

Only through the combined efforts of increasing your in-come and reducing your expenses can you save the cash necessary for you to invest and earn compound growth wealth that will lead you to financial freedom.

Modeling the World's Greatest Investor

By Adam Khoo

How do you achieve excellence in any area within a short period of time? The key is through modeling.

Modeling is the technique of finding role models who are the best in their field and then studying and distilling the mental models and strategies that make them the best in what they do.

By learning and applying their strategies, you will be able to produce the same phenomenal results they do, or maybe even better.

While the role model may have taken thirty years of trial and error to find the winning formula and perfect his strategy, you will be able to shorten your learning curve considerably by replicating his winning patterns.

In fact, if you study the most successful people in history, they all employed the power of modeling. They believed in standing upon the shoulders of giants rather than to re-invent the wheel.

The Wright Brothers and early flight pioneers got their ideas of aircraft design by modeling the body structure and flight movement of birds.

Ancient Chinese monks developed the art of Kung Fu by observing, modeling and imitating the fighting techniques of animals (tiger, monkey, snake and bear) and insects (praying mantis).

The government of Singapore managed to turn a 'dot' on the world map, basically a trading port, into a first world economy with a GDP (Gross Domestic Product) per capita ranked 18th in the World (World Development Report, 1993) in just 28 years!

This was achieved by modeling the best practices of countries like Switzerland (governance and banking), Israel (warfare), the United States (Commerce) and the United Kingdom (law and education).

As you can see, modeling is not just about copying someone else. It is about distilling the best practices of a whole range of excellent role models, taking the best from each of them and developing an even more powerful strategy.

So if you want to be an excellent investor, who better to model than Warren Buffett, the world's greatest investor?

Warren Buffett is currently the second richest man in the world with a personal fortune of $42 billion (second only to Bill Gates $46 billion).

The amazing thing about Buffett is that he made all his money without making or selling any kind of product or service. He made it entirely by investing in the stock market.

Over the last 49 years, he managed to achieve a 24.7% annual compounding rate of return, which means he made his money double every 2.9 years!

How does he achieve this remarkable feat when 97% of professional fund managers cannot even beat the S&P 500 consistently every year?

That's exactly what got me so excited to study and model this genius a few years ago.

By reading every single book written about Buffett as well as his own personal writings, I found that the beliefs he has about the stock market and the strategies he uses go completely against what mainstream finance teaches and what professional fund managers do.

If you learn and use the same recipe, you are going to produce the same cake.

So, let's get started! Before modeling someone's strategies and techniques, it is first important to understand and model the person's beliefs.

A person's beliefs is what drives their decision-making patterns and the actions they take.

The reason why Buffett is able to make more money than any other investor in the worlds is because he has very different beliefs about how the stock markets acts and how to buy stocks.

If you want to model his success, an important step would be to adopt his beliefs and strategies.