Dr. John Demartini: Six ways to build lasting wealth
In the sequel on ‘How to get rich’ Moneybags journalist Angelique Ruzicka interviews author, educator, business consultant and public speaker on human behaviour Dr John Demartini (pictured right) on how to build wealth that will outlive you.
Many people want to be rich, points out Dr John Demartini. “I’ve asked people ‘How many of you want to be financially independent’, and every hand goes up. I [then] asked them if I gave you $10m and you never had to work another day of your life what would you do with your life and the money. Quickly write down.”
As you may expect most people spend the money on things that go down in value such as clothes, houses, cars, a trip and only one percent would take it and invest it and double their money.
“The majority of people are living with the fantasy of a lifestyle that they want instead of learning the art of building wealth. The poor work for money all their life whereas the rich learn how to get money working for them,” explains Dr Demartini.
But what does it mean to be financially independent? Dr Demartini says it boils down to having more money at the end of your life than life at the end of your money.
“Richness means that your passive investment incomes exceeds your active investment incomes so you are not having to work, you work because you love to.”
Sadly, not many people reach that level. “About one percent of the population make complete financial independence. The majority of people put a higher value on buying consumables and depreciables and spending their money more than saving money and buying assets,” says Dr Demartini.
He says the problem is compounded by the fact that not many people know the distinction between a liability and asset. Essentially, a liability is something that you pay for and an asset is something that pays you. “If you don’t fill your finances with assets you won’t have richness or financial independence,” he says.
Surprisingly, Dr Demartini lumps houses into what he defines as a liability. Even though there’s a saying ‘safe as houses’, because house prices generally go up in value, he believes that if managed incorrectly homes can tie and drag you down financially.
“Houses are not investments, they are lifestyles. The majority of people think that a house is an investment – and it’s not. You have costs to pay and, if you have to move, you pay too. The only time you’d turn it into an asset is if you downsize to a smaller place because otherwise you got no equity in it. By the time you have paid it over 10, 20 years you could’ve invested that and made more. So a house is not considered an asset it’s a lifestyle. Rental properties, fine art, commodities and buying companies and shares in companies are an asset.”
Dr Demartini says there are six ways to become wealthy, and in an article that he wrote he says: “I guarantee you that if you do these six things, your wealth potential is going to go up.”
1. Have the dedication to build a business and serve people
“People must have a work ethic and serve people. If you are not serving people then you will have no source of income. There are two ways to build wealth: a non-zero sum game where you go out and come up with a product, a service or idea and you get paid for it. That’s called a transaction that builds wealth.”
He says the other option is buying stocks and shares, and futures which is a zero sum game. However this tactic is akin to gambling and you’re not adding to the economy. Instead it’s where you live off deals in which other people lose money.
“This would not work if everyone did that. We need a good percentage of the people producing for other people for the economy to work. A good economy works through people having a worth ethic and helping people.”
Dr Demartini says it’s not just enough to create a businesses because to create wealth the business also needs to be efficient and make a profit. “In business if you don’t make a profit, there is no wealth. It has to be managed efficiently.”
“You have to save a portion of those profits rather than spending it on consumables so that the money works for you instead. If you keep buying things that go down in value you will never get ahead.”
2. Value your saving
If you never save then you’ll have to work your whole life for money, points our Dr Demartini. “If you begin to save, your money will begin to work for you. People who work for other people, who never save, pay the most taxes and stay broke. People who begin to save, get to a middle class. People who save and then know how to invest and build a fortune, use other people’s money to make the most money and pay the least taxes,” reveals Dr Demartini.
3. Manage your money wisely
Dr Demartini believes that if you manage your money correctly you will get more money to manage. The key is to have a value on money and once you start saving it, it will start growing.
“Every quarter, stop and write down everything that you are doing. Look at how much time you spend and how much your time makes per hour or minute. See if you can’t shed 10, 20, 30, 40 or 50% of that and hire somebody to release the lower priority things that are burdening you, lowering your self-image and get on with doing what is most inspiring to you that you are more masterful at, that produces more income in less time.
“Every time you do that, you increase your savings. If you increase your savings every quarter, when you do that exercise, no less than 1%, preferably 10%, the amount you save, will double every two years, minimum. When you create a bigger demand on yourself because of the savings, you attract a bigger supply to yourself,” advises Dr Demartini.
4. Master the art of investing
Retaining the money you have saved is key. Dr Demartini points to a quote used by famous business magnate Warren Buffet, who advises, “Rule number one with money is don’t lose it. Rule number two: don’t forget rule number one.”
“An investor is somebody who does enough of the math to calculate that it is going to be in their favour. They are not speculating, they are not gambling, they are making sure that numbers work on their behalf. They are patient, waiting for the right investment, not impulsive, not emotional,” says Dr Demartini.
5. Choose an amount of wealth scaled to your vision and dream
If you have a clearly defined goal, then you are more likely to get there, reckons Dr Demartini. “If somebody says I want to live a lifestyle that is worth a million a year and the average return is 6%, that means that they need 16.6 million saved, getting 6% plus five or 6% inflation on top of that to sustain that lifestyle, otherwise it is a fantasy. It is not an arbitrary number; it is a very specific number.
“People who know where they are, who know exactly what their assets and liabilities are and have a clear goal and a strategy on what it would take to get there, are more likely to get there than people who have a fantasy about what it is going to be, who don’t know where they stand and don’t have a strategy or a motive for fulfilling that strategy,” he says.
6. Have a bigger cause
You will accumulate more wealth if you have a bigger cause believes Dr Demartini. “Ask yourself what is the benefit, value and service to me of creating a legacy of wealth, acquiring such a fortune that I live a legacy with it, a contribution back to the world?”
Are these achievements realistic?
As he is a foreigner I wonder if Dr Demartini’s advice is relevant to someone living on the continent of Africa. But he believes everyone has the ability to learn the art of wealth building, no matter where they are in the world.
“Anyone can argue for their limitations and [give] excuses why it won’t work. I’ve done purchases and stocks in different countries and it’s the same thing. There’s more regulation in developed countries so you have a little bit more risk [in underdeveloped countries], but overall if you keep buying index funds even in Johannesburg you will end up with more wealth.
“Any human being that truly has an ambition for wealth-building can do it. It doesn’t matter what it is. It’s all on the internet. There is no reason why you can’t learn it. But if you don’t have a value on it you won’t take time to learn it. Money automatically goes to the person who values it the most. People who don’t value money keep spending it and make it disappear. So that’s why the rich get richer and the poor get poorer.”
For more about Dr John Demartini, click here.
To read our prequel on ‘How to get rich’, click here.