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Dr. Kalinda Rose Stevenson
When Banks Go Broke
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The heart of the economic crisis right now is that the banks are unwilling to make loans. Even though governments are pouring money into the banking system, the banks are hanging onto the money.
The rescue program originally was sold to Congress and the public as a plan to buy mortgage-related loans from financial institutions. The goal was to remove troubled assets from those institutions’ books and inspire them to restart more normal lending operations.
Congress passed the massive and hard-fought legislation, and Bush signed it. The government raised the amount of bank deposits it insured. Billions of dollars of reserves have gone into banking systems in the U.S. and other countries. Yet credit, the economy’s lifeblood, has remained virtually frozen. “IMF warns of global financial meltdown” http://www.msnbc.msn.com/id/27129830/
Why are the banks so unwilling to lend? The heart of the current economic crisis is that banks are going broke. This is very different from the Monopoly Game, which is the most popular board game in the world. In Monopoly, a bank cannot go broke. In Monopoly, if the bank runs out of money, the banker can make more money by the simple act of writing an amount on a piece of paper.
But the global economy is not Monopoly. Banks around the world are going broke and being bought up by other banks. Banks are also being bought by governments, in an effort to stabilize the economic system that cannot function without banks.
Banks are in the middle of the economic system because they control the flow of money between creditors and debtors. At the same time, banks are also creditors and debtors themselves.
The economic system includes several types of banks, including central banks, national banks, commercial banks, and thrifts. These different types of banks have charters to serve different functions within the economic system, but the essential point is that the flow of money is controlled by banks.
The critical point is that the current economic crisis is not a money crisis. It is a credit crisis. Banks are cutting or canceling credit limits for home equity lines of credit. Banks are reducing credit card limits. Banks are extremely reluctant to make real estate mortgages.
But there is more to the credit freeze than the effect on consumers. The real crisis is the credit freeze for the banks themselves. This is a brief introduction to borrowing within the banking system, from No Money Limits For Real Estate Investors.
In the United States, the Fed is the central bank, which controls the amount of money in the economic system. The Fed is a shadowy institution, formerly called the Federal Reserve. The Fed is a strange hybrid of private banks with federal authority, but not really under government control. It operates mostly out of sight, to keep the money flowing between the extremely rich, the financial markets, the banks, and the consumers, all the while responding to political pressures, both nationally and internationally, and demands by the extremely rich to increase their wealth even more. It holds its meetings in private, making decisions that affect the economic well-being of all of us.The Fed has the power to increase or decrease the amount of money available in the economic system. They can do this by raising and lowering interest rates.
……When the Fed wants to increase the money in the money supply, it lowers the interest rates the commercial banks pay for borrowing money. When it wants to decrease the amount of money, it raises interest rates the commercial banks must pay. When there is too much money, the Fed begins to increase interest rates. This shrinks the amount of money in the system, and the shrinkage continues down to the amount of money available for you to borrow for your mortgage.
….
Let’s say that the Fed pumps a billion dollars into the economy through the commercial banks. The commercial banks do what banks do. They loan out that money. By the time the commercial banks get through loaning the billion dollars, the commercial banks have created more money. Let’s say, five billion. And the commercial banks loan out the five billion to the “thrifts,” which are the savings banks, savings and loan banks, corporate banks, and credit unions. The thrifts take those five billion dollars and make loans, creating who knows how many more billion dollars. Chapter 9, “How Banks Use Debt To Create Money,” No Money Limits For Real Estate Investors.
The fact is, the banks don’t trust each other. Recent events have demonstrated how much the banking industry as a whole has thrown much of its traditional bankerly caution to the wind, not only providing credit that has mired millions of consumers in debt, but also plunged banks into massive debt.
For instance, Lehman Brothers failed because it carried a debt ratio of 35:1.
To keep profits growing, Lehman borrowed huge sums relative to its size. Its debts were about 35 times its capital, far higher than its peer group’s ratio. And it plunged heavily into real estate ventures that cratered.
Here’s how leverage works in reverse. When things go well, as they did until last year, Lehman is immensely profitable. If you borrow 35 times your capital and those investments rise only 1%, you’ve made 35% on your money. If, however, things move against you - as they did with Lehman - a 1% or 2% drop in the value of your assets puts your future in doubt. “How Financial Madness Overtook Wall Street”
http://www.time.com/time/business/article/0,8599,1842123-3,00.html
The banks that have failed have been debtors that could not repay their debts. This is why banks are so reluctant to make any loans. The credit squeeze is not primarily about you and me. It is about banks being unwilling to loan to other banks.
The actions being taken by governments around the world are an effort to stabilize the banks and induce the banks to start lending to other banks, as well as consumers.
The International Monetary Fund warned Saturday that debt-ridden banks were pushing the global financial system to the brink of meltdown and rich nations had so far failed to restore confidence. “IMF warns of global financial meltdown ” http://www.msnbc.msn.com/id/27129830/
The critical point is that the first priority of the IMF is to restore confidence in the banks about other banks.
Seized-up credit markets began to see the first small signs of easing Friday, but anxiety over the long-term prospects for recovery is keeping lenders mostly sidelined.
The overnight interbank lending rate, known as Libor, fell by half, suggesting that banks are becoming more willing to lend to each other in the very near term. The longer-term 3-month rate, however, continued to rise, hitting its highest level this year.
When banks show a willingness to lend to each other, it makes it easier for consumers and business to obtain loans. The financial crisis that caused Wall Street to buckle has spread around the globe, pushing panicky investors to sell stocks and sit on their capital.
“There is still an awful lot of fear driving this market and a preference to hoard cash rather than lend it out because you don’t know if you will get it back,” said Kim Rupert, fixed income analyst at Action Economics. “Credit freeze sees small cracks”
http://money.cnn.com/2008/10/10/markets/bondcenter/credit_markets/index.htm?postversion=2008101017
What we have seen so far is that the ”rescue” efforts by governments have involved pouring massive amounts of money into a banking system that is hoarding the money, from lack of confidence in the banking system itself.
Finance leaders from the world’s top economies, the Group of Seven, pledged Friday night to take steps to keep leading institutions afloat, unfreeze credit, ensure banks have enough capital to kick start lending and safeguard depositors’ funds and restart the secondary markets for mortgages and other securitized assets. “Global response” http://money.cnn.com/2008/10/11/news/economy/bush_group_of_seven/index.htm?postversion=2008101114
This credit crisis is by no means resolved, but already we see the direction that resolution will take—more government ownership of banks.
Bush did not mention any specific action that prompted his call. But Ireland recently moved to guarantee all bank deposits, triggering similar actions in Germany and other countries concerned that nervous depositors would move their bank accounts to Ireland.
The president barely referenced a significant new step from his administration - partial nationalization of some banks. After days of speculation this move was coming, Treasury Secretary Henry Paulson announced late Friday night that the government would buy part ownership in an array of American banks. “IMF warns of global financial meltdown” http://www.msnbc.msn.com/id/27129830/
So, at this point, it seems that the “bailout” or “rescue” plan, intended to buy mortgages, will be used to buy the banks themselves.
Dr. Kalinda Rose Stevenson
Find out more about the essential role of banks in the creation of money in No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance.
Award Winner of National Best Books 2007 Awards
Business: Real Estate Category
And Finalist in Business: Personal Finance Category
The Credit Crisis Of 2008: Fear and Panic When The Banks Stop Lending Money
The world is in economic crisis. So far, nothing has stopped the crisis from spreading. It started with subprime mortgages, and has grown into a hydra-headed monster that is creating fear around the world as banks cut off credit.
“With global stock markets continuing their sickening plunge and the credit system all but shut down, efforts by the Federal Reserve, Treasury and global leaders have been overwhelmed by global panic.
The wide-ranging, unprecedented actions to cure the illness may yet prove effective. But until the fever breaks, fear has the upper hand.”
John Schoen, “Fear trumps efforts to solve crisis” http://www.msnbc.msn.com/id/27119159/
In the time of crisis everyone wants to know why. Why did this happen? Who caused it? Was it greed on Wall Street? Lack of regulation that let investment banks get away with shoddy lending practices? Too much regulation that forced banks to lend money to deadbeats? You will hear many explanations, along with many accusations. But the most basic reason has to do with lack of trust in the value of money. This is why every effort to fix the problem increases fear.
When trust in money dies, economic systems go broke, fortunes are destroyed, retirement portfolios are decimated, stock markets fall, and even banks go broke.
What happens when people are afraid that they will not get the full value of their money? They tend to hoard money. People who lost money when banks collapsed in the Great Depression hid their money under their mattresses.
In a very real sense, the banks are also hiding their money under mattresses. This is the real cause of the economic crisis. We don’t have a lack of money. We have a lack of credit. Credit and debt are two sides of the same coin. The banks won’t loan money on credit, which has dried up the amount of money available to borrow.
The following is an excerpt from my book, No Money Limits For Real Estate Investors, in which I use the Monopoly Game as a way to talk about the nature of money.
Now imagine what would happen if every one suddenly became debt free. The entire economic system would collapse. The lifeblood of the economy is borrowed money. Governments depend on borrowed money. Businesses depend on borrowed money. Consumers depend on borrowed money. And with borrowed money, investors can create more money. Debt is the mechanism that has allowed substantial numbers of real estate investors to make fortunes in the real estate market, especially in recent years.
Monopoly teaches a fundamental misunderstanding of the role of debt in our economic system. The Monopoly winner and the Bank continue to take money out of circulation, until there is not enough left for the game to continue.
If the handful of extremely rich people did what the Monopoly winner does, which is to gather almost all of the money in circulation and hang onto it, the result would be the collapse of our economic system.
Chapter 9, No Money Limits For Real Estate Investors
The bankers are unwilling to loan money because they don’t trust that they will be paid back. Considering that the banks have lost billions of dollars, the lack of trust is justified. The banks have made so many bad loans—extended credit to buyers who could not repay the loans-that the banks are awash with bad debts. Some of the largest banks have even collapsed because they had so much bad debt.
So what was the remedy that was supposed to resolve the credit crisis? The $700 bailout for the banks. The expectation behind the bailout was that the government would relieve the banks of the staggering burden of bad debts so that that the banks would have enough trust to start to offer credit again. But so far, the banks are still unwilling to offer credit. Instead, the banks are tightening credit lines and reducing credit limits.
The result is that credit is not flowing freely. Everyone who depends on borrowed money is being squeezed. When credit stops flowing, the money supply shrinks. The cascading effect puts the entire global economy at risk because the whole house of cards depends upon borrowed money.
As the system of credit dries up, the more fear is created, and the more banks and other institutions will treat credit as something to hide under the mattress.
“Right now it’s a measure of trust between the banks,” said James Reed, a money manager at the UMB Scout Stock Fund. “It’s continuing to move up, and that shows less and less trust in the system. That’s what you have to restore, is trust. That’s when you know you have a bottom, and that’s when the (credit) markets finally loosen up a little bit. ”
With so little trust among bankers, the Treasury may ultimately have to move to guarantee all lending between banks. That would help reduce the risk of lending again and help unfreeze the system. John Schoen, “Fear trumps efforts to solve crisis” http://www.msnbc.msn.com/id/27119159/
Every effort to restore the economy is primarily an effort to restore trust in a system that has violated trust. This is the challenge and this is the opportunity. The challenge is to recognize that there is no shortage of money. Money is created by trust and destroyed by lack of trust. We have a shortage of trust that results in a shortage of money.
In 1933, during the economic crisis of the Great Depression, Franklin Delano Roosevelt began his inaugural address with these words about fear.
I am certain that my fellow Americans expect that on my induction into the Presidency I will address them with a candor and a decision which the present situation of our people impel. This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself-nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days. “Only Thing We Have to Fear Is Fear Itself”: FDR’s First Inaugural Address. http://historymatters.gmu.edu/d/5057/
I’ll end by the way I began, by repeating the words of John Schoen.
The wide-ranging, unprecedented actions to cure the illness may yet prove effective. But until the fever breaks, fear has the upper hand.
John Schoen, “Fear trumps efforts to solve crisis” http://www.msnbc.msn.com/id/27119159/
Dr. Kalinda Rose Stevenson
Discover the true nature of money as a belief in value in
Award Winner, National Best Books 2007 Awards
Business: Real Estate Category
And Finalist Business: Personal Finance Category
Is The Monopoly Game Teaching You To Go Broke?
Monopoly is a zero sum game based on competition, based on a limited money supply. Since the money supply cannot increase, the players can win only by taking money from other players.
This fundamental reality of Monopoly is that one player wins while the others lose. This reflects the experience of the Great Depression. Thousands stood in breadlines while a few people became very rich.
Monopoly does not allow players to help each other. The rules forbid partnerships and loans between players.
What is the psychological lesson from such a competitive game? You learn that you are a solo player and you want the other players to fail. You would never want to help another player because that could mean you would lose.
What kind of economic model does Monopoly teach? It teaches that wealth comes to the most competitive. The only way to become wealthy is to take money from others.
This belief is deeply engrained in our shared consciousness about money and success. The game of Monopoly reinforces a common belief that the only way to win is to defeat your competitors.
What kind of success model is this game based on competition for a limited money supply? You don’t have to look any further than the statistic that 96% of the population will reach 65 without enough money to be financially self-sufficient. Instead of congratulating the 4% who somehow manage to create financial freedom for themselves in this economic system, you need to ask: Why do so many lose the money game?
The short answer is that many have to lose in order for a few to create wealth. The economic model of competition for limited resources demands that almost everyone must end the game broke for a few to become rich.
Attempting to create wealth according to the Monopoly model is a lonely struggle in a highly competitive game. There is always a winner in Monopoly. You might be the one to win. It is much more likely that you will be one of the majority of those who lose.
This Depression era game is stuck in the mindset and beliefs of a game that doesn’t create money. The winner takes money from others, but does nothing to create more money through transactions.
Mr. Monopoly had it wrong when he thought that the only way to win was to drive competitors out of business. It’s true that business is full of “black knights” and hostile takeovers from people who still treat business as a game that allows only one winner. But the Great Depression ended more than sixty years ago. It’s time for a new game with a new understanding of money. The fact is, you’ll make more money in transactions than you will in takeovers.
In this era, the most enlightened business people understand that you will make more money in joint ventures with others than you will by competing against them. When you take off the Depression era Mr. Monopoly glasses, you can see a new vision of money and business. Money is not currency. Money is an idea, and the only limits to money are the limits of your vision.
Kalinda Rose Stevenson, Ph.D.
For your new vision of money beyond the zero sum game of Monopoly, be sure to
get the award-winning book, No Money Limits For Real Estate Investors:
Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance,
http://www.nomoneylimits.com/sales/nml-frei-mrm-book.htm
USA Book News Best Books Winner in Business: Real Estate category
and Finalist in Business: Personal Finance category.
No Money Limits For Real Estate Investors is not just for real estate investors, but
for anyone who wants to know how the assumptions of the Monopoly Game keep people struggling needlessly with money limits.
Taking Time Out Of The Money Equation
One essential step toward creating wealth and living an abundant life is to take time out of the money equation and create No Money Limits.
You have heard it many times. “Time is money.”
We have all been taught to measure money by units of time. The only difference between an employee working for an hourly rate and an employee working on salary is the unit of time.
Whether you are paid by the hour, biweekly, or the year, the amount you get paid depends on the amount of time you work.
The truth is, time is not equal to money. Time is far more valuable than money because time comes to us with an inflexible limit.
No matter who you are, where you live, whatever your capacities and resources, you have the same 24 hours each day as everyone else even though the amount of money available to you can fluctuate. You can earn a higher salary, lose your job, get a raise, take a pay cut. Whatever the rate of income you earn, whether it is measured by the hour, day, week, or year, you have only 24 hours day each day and 365 days each year.
Ever since I read Robert Kiyosaki’s Cash Flow Quadrant, I have been fascinated by the mindset difference between entrepreneurs and employees.
Kiyosaki divides people into the four quadrants of Employee, Self-Employed, Business Owner, and Investor.
Employees and Self-Employed are on the left side of the quadrant, and Business Owners and Investors are on the right side of the quadrant. What is the primary mindset shift which allows someone to move from the Employee/Self-Employed side of the quadrant to the Business Owner/Investor side of the quadrant?
In other words, how does someone begin to think with the mind of an entrepreneur?
The mindset shift is to take time out of the money equation. Whether you own a business or work for a wage or a salary, if you trade time for money, you have not made the fundamental entrepreneurial mindset shift of a Business Owner on the right side of the Cash Flow Quadrant. You have not separated time from money.
Employees and Self-Employed people trade their time for money. No matter how much you earn per hour, per month, or per year, the amount of money you can earn is limited by the fact that time is limited.
As a result, no matter how much you get paid per unit of time, your income will always be limited by time.
When you take time out of the equation, money is potentially unlimited.
Discover No Money Limits
Move Your Money Or Lose It
“For to all those who have, more will be given, and they will have an abundance, but from those who have nothing, even what they have will be taken away.” (Matthew 25:25)
Money Has To Flow To Grow
One of my college professors once made a remark that I didn’t understand. He said that very rich people had to work hard to keep their money in circulation. It was one of those passing comments that was a bit off the point of the topic of the class, and so he didn’t explain what he meant. At the time, I wondered why it was so important for the rich to keep their money in circulation. That was when I still thought currency was the same as money and long before I understood what the very rich have always known. Money has to flow in order to grow.
Money flow is much like the flow of breath. You need to breathe in and out. If the flow of air stops in either direction, you are in big trouble. If the flow stops long enough, you die.
It’s the same with money. Money is the oxygen of your life and it needs to flow in and out. When the flow stops in either direction, you will begin to have financial trouble.
You will certainly have financial trouble if you have no inflow of money. Lack of income is an obvious problem. You don’t need me to explain that you need some form of income in your life.
Stopping the Outward Flow Of Money
Although it might not be as obvious, you will also have financial trouble if you stop the outward flow of money.
Why is this a problem? Consider the classic case of hiding money under the mattress. The money under the mattress is no longer in circulation. A strange thing happens to money that is kept out of circulation. It loses value.
Consider someone who put a hundred dollars under the mattress in 1954. Fifty years later, the money hider still has currency with a face value of one hundred dollars-and a very old mattress. The actual worth of the hundred dollars is far less than it was in 1954 because of inflation. To give just one example, in 1954, you could mail a first class letter for three cents. In 2004, it costs thirty-seven cents to mail a first class letter. Just about everything costs many times more than it cost fifty years ago. Those hundred dollars will not buy as much as they did in 1954. By keeping the money out of circulation, the value of the money shrank considerably.
And The Rich Get Richer
In the New Testament, Jesus tells a parable about a rich man who gave money to three of his servants. He distributed five coins to one servant, two coins to the second servant, and one coin to the third servant.
The parable says that the servant with five coins went out, invested his five coins, and had a hundred percent rate of return, giving him five more coins. The second servant took his two coins, invested them, and also had a one hundred percent rate of return, giving him two more coins. The third servant did the equivalent of hiding his coin under the mattress. He buried it in the ground.
The story says that after a long time, the master came back and demanded an accounting of the money. The first servant handed over the ten coins and the second servant handed over the four coins. The master congratulated both for being trustworthy.
When the third servant had to account for his one coin, he explained that he was afraid of the master and so hid his coin in the ground. Within the explanation, the servant also made clear he didn’t approve of the way the master created wealth.
The result of the story is that the master took the one coin away from the servant who hid the money and gave it to the servant with ten coins, with the statement, “For to all those who have, more will be given, and they will have an abundance, but from those who have nothing, even what they have will be taken away” (Matthew 25:25.)
This parable gets to the essence of why the rich get richer and the poor get poorer. The rich know that money has to circulate to grow. The poor think that the way to have money is to save it, which is another way of saying that they keep it out of circulation. By saving it, they end up losing it.
Safe Investments?
You might be saying, “I am not hiding my money under a mattress. I am putting my money into safe investments, such as money market funds and CDs.”
The reality is that such “safe” investments are not much better than hiding money under a mattress. In this era of low interest rates, the interest earned is not keeping up with the rising inflation rates. The longer you let your money sit out of circulation in a safe place, the more value your money loses.
The Power of Compound Interest
Compound interest is the eighth wonder of the world. (Attributed to Benjamin Franklin)
“Compound interest is the world’s greatest discovery.”
(Attributed to Albert Einstein)
“The most powerful force in the universe is compound interest.”
(Attributed to Albert Einstein)
The essential point is that money in circulation can increase in value through the power of compound interest.
The Money Secret of the Rich
The money secret of the rich is to “Move It or Lose It.” Do what the rich do, and keep your money in circulation by investing it at rates of return higher than the rate of inflation.
This article was originally published November 16, 2004.
See the original article at:
http://www.abundantlyalivenow.com/archive/AANN-2004-11-16.htm
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Please visit http://www.abundantlyalivenow.com
Discover how to take the consumer money mindset lid off your real estate investing.
Click here: http://www.nomoneylimits.com
Creating Value
“If you really do put a small value upon yourself, rest assured that the world will not raise your price.”
Anonymous
“Never… ever suggest they don’t have to pay you. What they pay for, they’ll value. What they get for free, they’ll take for granted, and then demand as a right. Hold them up for all the market will bear.”
Lois McMaster Bujold, A Civil Campaign, 1999
How Do You Create Value?
One essential step toward creating unlimited wealth is to stop trading your time for money and to get paid for your value instead of your time.
The question is, “How do you get paid for your value?” The answer is surprisingly easy. You create something of value to sell.
What is essential to understand is that value is directly related to perception. Nothing has any inherent monetary value. Something has value only because people perceive that it has value.
Here’s a powerful example of creating value through perception. Do you know that portobello mushrooms are not a distinct variety of mushrooms?
The portobellos are simply brown crimini mushrooms that are about 4 inches to 6 inches in diameter. I once read a newspaper interview of a produce wholesaler. He said that they used to throw out the crimini mushrooms that were too big. They were considered worthless.
Then some bright marketer had a brilliant idea. Instead of throwing out the overly large crimini mushrooms, the produce marketers starting calling them portobellos.
Mushrooms that were once tossed in the garbage as worthless are now sold as gourmet mushrooms for $5.79 a pound. Portobellos appear often in restaurant menus as the “vegetarian meat.”
I did a search on Google and found more than 50,000 entries for portobello mushrooms. Not bad for something that only recently was considered worthless.
The story of how a worthless mushroom became a gourmet variety sold at premium prices can teach you much about how to create value.
Are You Annoyed?
This story can also demonstrate one of the reasons why so many honest and hard-working people struggle with money. Pay attention to what thoughts enter your mind when you consider how monetary value is artificially created by marketing campaigns. Are you a bit annoyed that what you pay can be so easily manipulated by clever marketing?
Here’s another example. The diamond industry created the tradition of using diamonds as the essential stone for engagement rings. Men who put themselves deeply into debt to buy an impressive rock for their fiancées are responding to the perceived value created by the South African diamond industry.
At the same time, many people are deeply offended that teachers are paid pittances while professional athletes and entertainers are paid multiple millions of dollars.
A truism of marketing is that people will pay for what they want, not for what they need. One of the primary problems of people who are struggling to make the transition from employee or self-employed to entrepreneur is to see the value of what they have to offer. This why Anonymous tells the harsh truth. “If you really do put a small value upon yourself, rest assured that the world will not raise your price.”
The reality of the marketplace is that no one cares how many hours you work. They care about what you have to offer them that they want to buy.
Asking A Different Question
The fundamental difference between employees and the self-employed and entrepreneurs comes down to the questions they ask. Employees and the self-employed people ask, “How much can I get paid for my time?” Entrepreneurs ask, “How can I create value from this?” (whatever “this” is.)
The secret to increasing wealth is to attach value to something other people are willing to buy.
This article was originally published November 2, 2004.
http://www.abundantlyalivenow.com/archive/AANN-2004-11-02.htm
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Please visit http://www.abundantlyalivenow.com
WARNING: BEFORE YOU INVEST IN REAL ESTATE…
FREE “No Money Limits Consumer Guide to Real Estate Investor Training.”
www.nomoneylimits.com
© 2005 Kalinda Rose Stevenson, Ph.D.
Debt or Alive, Inc.
2248 Meridian Blvd. Suite H
Minden, NV 89423
Time Is Not Equal To Money
Taking Time Out of the Money Equation
One essential step toward creating wealth and living an abundant life is to take time out of the money equation.
You have heard it many times. “Time is money.” We have all been taught to measure money by units of time. The only difference between an employee working for an hourly rate and an employee working on salary is the unit of time. Whether you are paid by the hour, biweekly, or the year, the amount you get paid depends on the amount of time you work.
Time Is More Valuable Than Money
The truth is, time is not equal to money. Time is far more valuable than money because time comes to us with an inflexible limit.
No matter who you are, where you live, whatever your capacities and resources, you have the same 24 hours each day as everyone else even though the amount of money available to you can fluctuate. You can earn a higher salary, lose your job, get a raise, take a pay cut. Whatever the rate of income you earn, whether it is measured by the hour, day, week, or year, you have only 24 hours day each day and 365 days each year.
The Entrepreneur’s Mindset Difference
Ever since I read Robert Kiyosaki’s Cash Flow Quadrant, I have been fascinated by the mindset difference between entrepreneurs and employees. Kiyosaki divides people into the four quadrants of Employee, Self-Employed, Business Owner, and Investor. Employees and Self-Employed are on the left side of the quadrant, and Business Owners and Investors are on the right side of the quadrant.
What is the primary mindset shift which allows someone to move from the Employee/Self-Employed side of the quadrant to the Business Owner/Investor side of the quadrant? In other words, how does someone begin to think with the mind of an entrepreneur?
The mindset shift is to take time out of the money equation. Whether you own a business or work for a wage or a salary, if you trade time for money, you have not made the fundamental entrepreneurial mindset shift of a Business Owner on the right side of the Cash Flow Quadrant. You have not separated time from money.
Employees and Self-Employed people trade their time for money. No matter how much you earn per hour, per month, or per year, the amount of money you can earn is limited by the fact that time is limited. As a result, no matter how much you get paid per unit of time, your income will always be limited by time. When you take time out of the equation, money is potentially unlimited.
Get Paid For Your Value Instead Of Your Time
One essential step toward creating unlimited wealth is to stop trading your time for money and to get paid for your value instead of your time.
This article was originally published October 26, 2004.
http://www.abundantlyalivenow.com/archive/AANN-2004-10-26.htm
To Sign Up For This Newsletter
Please visit http://www.abundantlyalivenow.com
WARNING: BEFORE YOU INVEST IN REAL ESTATE…
FREE “No Money Limits Consumer Guide to Real Estate Investor Training.”
www.nomoneylimits.com
© 2005 Kalinda Rose Stevenson, Ph.D.
Debt or Alive, Inc.
2248 Meridian Blvd. Suite H
Minden, NV 89423
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