Money Master the Game: 7 Simple Steps to Financial Freedom
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ISBN-13: 9781476757865
Media Type: Paperback
Publisher: Simon & Schuster
Publication Date: 03-29-2016
Pages: 688
Product Dimensions: 6.00(w) x 9.00(h) x 1.30(d)
Series: Tony Robbins Financial Freedom Series
Tony Robbins is an international entrepreneur, #1 New York Times bestselling author, and philanthropist. Worth magazine recognized Robbins as one of the top 100 most influential people in global finance for two consecutive years. Accenture honored Robbins as one of the “Top 50 Business Intellectuals in the World.” Robbins is a leader called upon by leaders: He’s consulted and coached some of the world’s greatest athletes, entertainers, Fortune 500 CEOs, and four US presidents.
Money Master the Game Read an Excerpt
A journey of a thousand miles begins with a single step.
—LAO-TZU
Tell me something: Have you ever had that experience, you know . . . the completely humiliating experience of playing a video game against a child? Who always wins? The child, of course! But how does she do it? Is she smarter, quicker, stronger?
Here’s how it works. You’re visiting your niece or nephew, and she or he will say, “Come play it with me, Uncle Tony!”
You immediately protest, “No, no, I don’t know this game. You go ahead and play.”
And they say, “C’mon, it’s easy! Just let me just show you.” Then they shoot a few bad guys when they pop up on the screen. You still resist, so they start pleading. “C’mon! C’mon! Please, please, please!” You love this kid, so you give in. Then she says the simple words that tell you you’re being set up: “You go first.”
So you decide you’re gonna make it happen! You’re going to show this kid a thing or two. And then what? Bam! Bam! Bam! In 3.4 seconds, you’re dead. Shot in the side of the head. Smoked.
Then the kid takes the gun, and suddenly it’s bam-bam-bam-bam-bam! The bad guys are dropping from the sky and whizzing around every corner in hyperspeed. The kid is anticipating every move and picking them off—and about 45 minutes later, you get your second turn.
Now you’re ticked off, and even more committed. This time you last a full five seconds. And she goes another 45 minutes. You know the drill.
So why do these kids always win? Is it because they have better reflexes? Is it because they’re faster? No! It’s because they’ve played the game before.
They already have one of the greatest secrets to wealth and success in life: they can anticipate the road ahead.
Remember this: anticipation is the ultimate power. Losers react; leaders anticipate. And in the following pages, you’ll learn to anticipate from the best of the best: the Ray Dalios and the Paul Tudor Joneses and the army of 50 other extraordinary financial leaders who know the road ahead. They’re here to help you anticipate the problems and challenges on the path to financial freedom so you don’t get hurt along the way. Like Ray Dalio says, it’s a jungle out there, full of things that can kill you financially, and you need trusted guides to help you get through it. With their help, we’re going to lay out a plan that will help you anticipate the challenges, avoid unnecessary stress, and arrive at your ideal financial destination.
I want to give a quick overview of where we’re going and how this book is set up, so you can make the best use of it. But before we do that, let’s be clear about our true purpose. This book is committed to one primary outcome: to set you up so you have an income for life without ever having to work again. Real financial freedom! And the good news is, it can be achieved by anyone. Even if you’re starting out in debt, deep in the hole—no exaggeration—with a little bit of time, consistent focus, and the right strategies applied, you can get to financial security or even independence in a few years.
Before we walk through the steps, let’s first take a look at why being financially secure used to seem so simple. What’s changed? And what do we need to do? Let’s start with a little history lesson.
You can be young without money, but you can’t be old without it.
—TENNESSEE WILLIAMS
Everything about your financial life seems so much harder these days, doesn’t it? I’m sure you’ve wondered why it is so difficult to save money and retire comfortably. We’ve come to treat retirement as a given in our society; a sacrosanct stage of life. But let’s not forget that retirement is a relatively new concept. The idea has really served only a generation or two—for most of us, our parents and grandparents. Before their time, folks generally worked until they couldn’t.
Until they died.
Do you remember your history? When was Social Security invented? It was created under Franklin Delano Roosevelt during the Great Depression, when there was no social safety net for old and sick people. And “old” was a different concept back then. The average life expectancy in the United States was 62 years. That’s all! And Social Security retirement benefits were supposed to kick in at age 65, so not everybody was expected to collect, or at least not for very long. In fact, Roosevelt himself didn’t live long enough to cash in on his benefits (not that he would have needed them). He died at the age of 63.
The Social Security Act eased the suffering of millions of Americans during a time of crisis, but it was never intended to become a replacement for retirement savings—just a supplement to cover the most basic needs. And the system wasn’t designed for the world we live in today.
Here’s the new reality:
There’s a 50% chance that, among married couples, at least one spouse will live to the age of 92 and a 25% chance that one will live to 97.
Wow! We are closing in on a life expectancy of age 100 pretty damn quick.
And with longer lives, we expect longer—much longer—years for our retirement. Fifty years ago, the average retirement was 12 years. Someone retiring today at age 65 is expected to live to 85 or longer. That’s 20-plus years of retirement. And that’s the average. Many will live longer and have 30 years of retirement!
It is not realistic to finance a 30-year retirement with 30 years of work. You can’t expect to put 10% of your income aside and then finance a retirement that’s just as long.
—JOHN SHOVEN, Stanford University professor of economics
How long do you expect to live? All the breakthroughs we’re seeing in medical technology might add years to your life—decades, even. From stem cell technology, to 3-D printing of organs, to cellular regeneration, technologies are exploding onto the scene. You’ll hear about them in chapter 7.1, “The Future Is Brighter Than You Think.” It’s a blessing, but are you ready? Many of us are not.
A recent survey conducted by Mass Mutual asked baby boomers to name their number one fear.
What do you think it was? Death? Terrorism? Pestilence?
No, the number one fear of baby boomers was outliving their savings.
(Death, by the way, checked in a distant second.)
The baby boomers have a right to be scared, and so do millennials. According to an Ernst and Young study, 75% of Americans can expect to see their assets disappear before they die. And the Social Security safety net—if it survives into the next generation—won’t provide a reasonable standard of living on its own. The current average benefit is $1,294 per month. How far do you think that will stretch if you live in New York, Los Angeles, Chicago, or Miami? Or how long will the equivalent system work in your country if you live in London, Sydney, Rome, Tokyo, Hong Kong, or New Delhi? No matter where you live, if you don’t have another source of income, you could end up the best-dressed greeter at Wal-Mart.
It’s obvious that we’ll need to stretch our retirement income longer than ever before—smack in the middle of a flat economy at a time when many are struggling to recover lost ground.
How have we responded to this growing emergency? A lot of us find the problem so painful and overwhelming that we just block it out and hope it goes away. According to EBRI, the Employee Benefit Research Institute, 48% of all working Americans haven’t even calculated how much money they’ll need to retire. Yep, 48%! That’s an astounding number: almost half of us have yet to take one of the first steps toward planning for our financial futures—and our time of reckoning is coming.
So what’s the solution? It starts with taking Step 1: make the most important financial decision of your life. By the time you finish this book, you’ll not only have an automated plan for saving and investing, but also you’ll know how to create income without having to work.
Wait a second! That’s too good to be true, you’re thinking. And anything that sounds too good to be true probably is, right?
Yet I’m sure you know there are some exceptions to the rule. What would you say if I told you that today there are financial instruments that will let you make money when the markets go up and not lose a penny when they go down? Twenty years ago, it would have been impossible for ordinary investors to imagine such a thing. But investors using these tools in 2008 didn’t lose a dime or even a night’s sleep. I have this kind of security and freedom for my family. It’s an amazing feeling to know you’ll never run out of income. And I want to make sure you have it for yourself and your family as well. In this book, I will show you how to create a guaranteed lifetime income stream.
A paycheck for life without ever having to work again.
Wouldn’t it be great to open up your mail at the end of the month, and instead of finding a statement with an account balance you’re hoping hasn’t gone down, you find a check in its place? Imagine this happening every month. That’s income for life, and there’s a way to get it.
In section 2, we’ll show you how to build your investments into a sizeable nest egg—what I call a critical mass—that will enable you to make money even while you sleep! With a few simple strategies, you’ll be able to create a guaranteed income stream, allowing you to build, manage, and enjoy your own personal “pension” on your own terms.
It’s probably hard for you to imagine that there’s a structure available today that can deliver for you:
• 100% principal protection, meaning that you can’t lose your investment.
• The returns in your account are directly linked to the upside of the stock market (for example, the S&P 500). So if the stock market goes up, you get to participate in the gains. But if the market goes down, you don’t lose!
• You also have the ability to convert your account balance to a guaranteed income that you’ll never outlive.
You can stop imagining—it’s here! It’s one of the opportunities that’s now available for investors like you. (And you will find out about it in chapter 5.3.)
To be clear, I’m not suggesting here that, even with income for life, you’ll want to stop working when you reach the traditional retirement age. Chances are you won’t. Studies show that the more money you earn, the more likely you are to keep working. It used to be that the goal was to get rich and retire by the age of 40. Now the goal is to get rich and work until you’re 90. Nearly half of all individuals who earn $750,000 per year or more say they will never retire, or if they do, the earliest they would consider it is age 70.
How about the Rolling Stones and Mick Jagger at age 71—still rockin’ the world?
Or think of business moguls like Steve Wynn at 72.
Warren Buffett at 84.
Rupert Murdoch at 83.
Sumner Redstone at 91.
At those ages they were all still running their businesses and crushing it. (Probably still are.) Maybe you will be, too.
But what happens if we can’t work, or don’t want to work anymore? Social Security alone is not going to be much of a cushion for our retirement. With 10,000 baby boomers turning 65 every day and the ratio of old to young getting more and more lopsided, it may not even be around, at least as we know it. In 1950 there were 16.5 workers paying into the Social Security system to support one person getting benefits. Now it’s 2.9 workers per recipient.
Does this ratio sound sustainable to you?
In an article titled “It’s a 401(k) World,” Thomas Friedman, the New York Times columnist and bestselling author, wrote, “If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing. . . . There will be fewer limits, but also fewer guarantees. Your specific contribution will define your specific benefits much more. Just showing up will not cut it.”
As for those sweet employee pensions our parents and grandparents counted on in retirement, they too are going the way of blacksmiths and telephone operators. Only about half of America’s private sector work-force is covered by any kind of retirement plan at all, and most of those are now do-it-yourself, take-all-the-risk models.
If you’re a municipal, state, or federal employee, you might still enjoy a government-backed pension, but with every passing day, there are more folks, like those from Detroit to San Bernardino, wondering if that money will be there when it’s their time to collect.
So what’s your retirement plan? Do you have a pension? A 401(k)? An IRA? Today about 60 million Americans participate in 401(k) plans, totaling over $3.5 trillion. But they can be a bad, even disastrous deal for you if you’re in one of the high-fee plans that dominate the market. That’s why, if you are in a 401(k) plan, you’ve got to read chapter 2.5, “Myth 5: ‘Your Retirement Is Just a 401(k) Away.’” What you’ll learn and the simple changes you can make could transform your life—giving you peace of mind and the certainty you need today—and mean the difference between retiring early and not being able to retire at all.
Not to be outdone by volatile markets (moving faster than the speed of light, literally), exorbitant (and hidden) fees, and an outdated pension system, let’s not forget about our good old friend the tax man. Oh, the tax man. He’ll take up to 50% (or more!), thank you very much—on everything you earn. If you thought hidden fees were the only drag on accumulating wealth, you’ve missed the biggest culprit of all.
We all know the drag of taxes, to some degree, but few realize just how big a bite taxes take from our ability to achieve financial freedom. Sophisticated investors have always known this: it’s not what you earn, it’s what you keep that matters.
The greatest investors in the world understand the importance of tax efficiency. Just how destructive can taxes be when compounded over time?
Let’s try a metaphor: say you’ve got one dollar, and somehow you’re able to double it every year for 20 years. We all know this game. It’s called compounding, right?
After year one, you’ve doubled your dollar to $2.
Year two: $4.
Year three: $8.
Year four: $16.
Year five: $32.
If you had to guess, what do you think your dollar has grown to by year 20?
Don’t cheat and peek ahead. Take a moment and guess.
Through the magic of compounding, in just two decades your dollar turns into (drumroll, please): $1,048,576! That’s the incredible power of compounding!
As investors, we want to tap into this power. But, of course, the game is not that simple. In the real world, Caesar wants to be paid first. The tax man is looking for his piece. So what’s the impact of taxes on the same scenario? Once again, take a guess. If you’re fortunate enough to pay only 33% in taxes per year, what do you think your dollar has now grown to after taxes in 20 years?
Again, take a moment and really guess.
Well, if the tax-free number was $1,048,576 . . . hmmm. With 33% tax, would that be about $750,000? Or even $500,000? Think again, Kemosabe.
Now let’s look at the next column and see the incredible dollar-draining power when we take out money for our taxes each year before compounding—doubling our account. Assuming an annual tax rate of 33%, at the end of those same 20 years, the actual net amount you’ll end up with is just over $28,000!
That’s right, $28,000! A difference of over $1 million—and that doesn’t even account for state taxes! In some states, such as California, New York, and New Jersey, you can expect the total to be significantly smaller still.
Sure, this dollar-doubling, dollar-draining scenario is based on returns you’ll never see in the real world—but it illustrates what can happen when we neglect to consider the impact of taxes in our financial planning.
Given the way things are going in Washington, do you think taxes are going to be higher or lower in the coming years?
(You don’t even have to answer that one!)
In section 5, I’m going to give you the “in” that until now was available only to sophisticated investors or ultra-high-net-worth individuals. I’m going to show you what the smartest investors already do—how to take taxes out of the equation, using what the New York Times calls “the insider’s secret for the affluent.” It’s an IRS-approved method to grow your money tax free, and you don’t have to be rich or famous to take advantage of it. It could literally help you achieve your financial independence 25% to 50% faster, depending upon your tax bracket.
No person is free who is not master of himself.
—EPICTETUS
But plan or no plan, the future is coming on fast. According to the Center for Retirement Research, 53% of American households are “at risk” for not having enough money in retirement to maintain their living standards. That’s more than half! And remember, more than a third of workers have less than $1,000 saved up for retirement (not including pensions and the price of their home), while 60% have less than $25,000.
How can this be? We can’t blame it all on the economy. The savings crisis started long before the recent crash. In 2005 the personal savings rate was 1.5% in the United States. In 2013 it was 2.2% (after topping 5.5% at the height of the meltdown). What’s wrong with this picture? We don’t live in isolation. We know we need to save more and invest. So why don’t we do it? What’s holding us back?
Let’s start by admitting that human beings don’t always act rationally. Some of us spend money on lottery tickets even if we know the odds of winning the Powerball jackpot are 1 in 175 million, and that we are 251 times more likely to be hit by lightning. In fact, here’s a statistic that will blow your mind: the average American household spends $1,000 a year on lotteries. Now, my first reaction when I heard this from my friend Shlomo Benartzi, the celebrated professor of behavioral finance at UCLA, was, “That’s not possible!” In fact, I was recently at a seminar and asked the audience how many had bought a lottery ticket. In a room of 5,000 people, fewer than 50 raised their hands. If only 50 people out of 5,000 are doing it and the average is $1,000, then there are plenty of people buying way more. By the way, the record is held by Singapore, where the average household spends $4,000 a year. Do you have any idea what $1,000, $2,000, $3,000, $4,000 set aside and compounded over time could be worth to you? In the next chapter, you’re going to discover how little money it takes to have a half million to one million dollars or more in retirement that requires almost no time to manage.
So let’s turn to behavioral economics and see if we can’t find some little tricks that could make the difference between poverty and wealth. Behavioral economists try to figure out why we make the financial mistakes we do and how to correct them without even our conscious awareness. Pretty cool, huh?
Dan Ariely, renowned professor of behavioral economics at Duke University, studies how our brains fool us regularly. Human beings evolved to depend on our sight, and a huge part of our brain is dedicated to vision. But how often do our eyes deceive us? Have a look at the two tables below.
If I asked you which table is longer, the narrow one on the left or the fat one on the right, most people would naturally pick the one on the left. And if you were one of them, you’d be wrong. The lengths of both tables are exactly the same (go on, measure them if you don’t believe me). Okay, let’s try it again.
Which table is longer this time? Wouldn’t you bet anything that the one on the left is still longer? You know the answer, and yet your brain continues to deceive you. The one on the left still looks longer. Your eyes haven’t caught up with your brain. “Our intuition is fooling us in a repeatable, predictable, consistent way,” Ariely said at a memorable TED Talk. “And there is almost nothing we can do about it.”
So if we make these mistakes with vision, which in theory we’re decent at, what’s the chance that we don’t make even more mistakes in areas we’re not as good at—financial decision making, for example? Whether or not we think we make good financial decisions, or poor ones, we assume we’re in control of the decisions we do make. Science would suggest we’re not.
Just like the visual illusions we’re susceptible to, Ariely told me later in an interview that he chalks up many of our decision-making mistakes to “cognitive illusions.” A case in point: If you were to walk into your local Department of Motor Vehicles tomorrow and be asked the question “Do you want to donate your organs?” what do you think you would say? Some of us would immediately say yes, and think ourselves selfless and noble. Others might pause or balk or be turned off by the gruesomeness of the question and decline. Or maybe you’d punt and say you need time to think about it. Regardless, you’d assume that your decision is based on free will. You are a competent and capable adult, qualified to determine whether or not to donate your organs to save a life.
But here’s the thing: a lot of it depends on where you live. If you are in Germany, there’s about a one-in-eight chance you’ll donate your organs—about 12% of the population does. Whereas in Austria, Germany’s next-door neighbor, 99% of people donate their organs. In Sweden, 89% donate, but in Denmark, the rate is only 4%. What gives? Why such a disparity?
Could it be about religion, or a fear factor? Is it based on culture? It turns out the answer is none of the above. The huge disparity in donor rates has absolutely nothing to do with you personally or your cultural heritage. It has everything to do with the wording on the form at the DMV.
In countries with the lowest donor rates, like Denmark, there is a small box that says, “Check here if you want to participate in the organ donor program.” In countries with the highest rates, like Sweden, the form says, “Check here if you don’t want to participate in the organ donor program.”
That’s the secret! Nobody likes to check boxes. It’s not that we don’t want to donate our organs. That little bit of inertia makes all the difference in the world!
If a problem is too overwhelming, we tend to just freeze and do nothing. Or we do what’s been decided for us. It’s not our fault. It’s the way we’re wired. The problem with organ donation is not that people don’t care, it’s that they care so much. The decision is difficult and complicated, and many of us don’t know what to do. “And because we have no idea what to do, we just stick with whatever is chosen for us,” says Ariely.
This same sense of inertia, or picking what has been chosen for us, helps explain why only a third of American workers ever take advantage of available retirement plans. It explains why so few of us have made a financial plan for our futures. It seems complicated. We’re not sure what to do, so we punt, or we do nothing at all.
Ariely told me that when it comes to the physical world, we understand our limitations and build around them. We use steps, ramps, and elevators. “But for some reason, when we design things like health care and retirement and stock markets, we somehow forget the idea that we are limited,” he said. “I think that if we understood our cognitive limitations in the same way that we understand our physical limitations, even though they don’t stare us in the face in the same way, we could design a better world.”
Remember what Ray Dalio said about going into the jungle, that the first thing he asked himself was, “What don’t I know?” If you know your limitations, you can adapt and succeed. If you don’t know them, you’re going to get hurt.
My goal in this book is to wake people up and give them the knowledge and the tools to take immediate control of their financial lives. So I’ve created a plan that won’t trip you up because it’s too complex, or too hard, or time intensive. Why? Because, as we’ve seen from those DMV forms, complexity is the enemy of execution. That’s why I’ve divided this plan into 7 Simple Steps and created a powerful new smart phone app, completely free, to guide you through them. You can download it right now by going to www.tonyrobbins.com/masterthegame. You can check off your progress as you go, and celebrate your victories along the way. The app will support you, answer your questions, and even give you a nudge when you need it. Because you’re going to get excited and have the best intentions, and then a few distractions or an attack of inertia can knock you off target. This automated system is designed to prevent that. And guess what? Once you’re done, you’re done. After your plan is in place, you’ll have to spend only an hour or so once or twice a year to make sure you’re on course. So there’s no excuse not to stay on the path to a lifetime of financial security, independence, and freedom—and have plenty of time to enjoy the things that really matter to you!
Hopefully, by now your mind is churning. I know I’ve given you a lot to think about so far, but I’m committed to creating lasting breakthroughs in your financial life, and I want you to get a clear picture of the road ahead. So let’s take a quick walk through the 7 Simple Steps to Financial Freedom.
If you belong to a generation raised on blogs and tweets, my guess is that you’re saying: “Why don’t you just put these 7 Steps—and, for that matter, the whole book!—in one paragraph for me, or even an infographic?” I could do that. But knowing information is not the same as owning it and following through. Information without execution is poverty. Remember: we’re drowning in information, but we’re starving for wisdom.
So I want to prepare your mind for each of the steps that are coming. In this way, you’ll be ready to take the necessary actions that will guarantee that your path to financial freedom is realized.
This book is designed to give you mastery over a subject that torments most people because they’ve never taken the time to master the fundamentals that would set them free. And mastery means going deep. Anyone can read something, remember it, and feel like he or she has learned something. But true mastery requires three levels.
The first is cognitive understanding. It’s your ability to understand the concept. Any of us can get it. And many of us already have a cognitive understanding of personal finance and investing. But that and $3 will almost buy you a cup of coffee at Starbucks! What I mean is that information by itself is not valuable. It’s only the first step.
You start getting real value when you reach the second step: emotional mastery. That’s where you have heard something with enough repetition, and it’s stimulated enough feelings inside you—desires, hungers, fears, concerns—that now you become conscious and capable of consistently using what you’ve learned.
But the ultimate mastery is physical mastery. That means you don’t have to think about what you do; your actions are second nature. And the only way to get it is through consistent repetition. My great teacher, Jim Rohn, taught me that repetition is the mother of skill.
I’ll give you a perfect example of where I fell short in this area. In my early twenties, I decided I wanted to get a black belt in martial arts, and I had the privilege of meeting and becoming dear friends with the grand master Jhoon Rhee. He’s the man who brought Tae Kwon Do to this country and who trained both Bruce Lee and Muhammad Ali in the art. I told him I wanted to gain my black belt in the shortest time in history, and I was willing to do whatever it took in terms of practice, commitment, and discipline to break the record. He agreed to travel on the road with me to complete my training. It was brutal! I’d often finish a seminar and arrive at one o’clock in the morning for my training, and then work with the master for another three or four hours. I would have to get by on four hours of sleep at most.
One night, after a particularly long period of practicing the same exact move at least 300 times, I finally turned to my teacher and asked, “Master, when can we go on to the next move?” He looked at me sternly and said, “Oh, grasshopper, this is the next move. The fact that you can’t tell the difference between the move you made this time and the one you did before shows you are still a dabbler. Those fine distinctions are the difference between a master and an amateur. And mastery requires this level of repetition. With each repetition you must learn more,” he said with a smile.
Do you see my point? This book was not designed for you to skim through in an afternoon.
As you read, you’ll notice that this book is unlike anything you’ve encountered before because it reflects my unique style of teaching. You’ll be asked a lot of questions, and you’ll sometimes see facts and phrases that you’ve read before. There will be a lot of exclamation points! This isn’t an editing mistake! It’s a technique designed to mark out key