Napoleon Hill's Success Masters

by Napoleon Hill

  For the vast majority of people, spending works the same way, or almost the same way. If we have a $100, we find ways to spend a $100—or maybe $110. We live in a mindset of instant gratification, so as soon as we have the means to gratify ourselves, we do it. But if you can get out of that mindset, it’s actually possible to start building wealth even with a significantly lower income.

  GET OUT OF THE DEBT HOLE

  Before we go any further, it’s important to address an issue that affects millions of Americans. Here’s how one entrepreneur described this issue: “When I learned about passive income, I was immediately eager to get started. But there was a problem. I didn’t have any working capital—and I mean not any. In fact, I had over $20,000 in credit card debt. I knew that, obviously, that was going to make things very difficult. So, the first order of business was to get out of that hole.”

  That hole of consumer debt—credit card debt in particular—can paralyze you financially even if you’re totally up to speed in every other way. You can be motivated, intelligent, creative, and everything else, but if you’re having to service debt every month, you’re not going to have the small initial investment capital you need. You don’t need a lot of assets to create passive income, but you do need some. You can’t afford to be paying credit card bills with money that could be going toward your financial freedom. Passive expenses are just as real as passive income—and credit card debt is the ultimate passive expense. So let’s take a quick look at how to get rid of it.

  The first step is a bit of honest self-assessment. Many people feel so badly about their consumer debt that they actually don’t know how much they have. They’d rather not think about it, so they just pay the bills every month and put it out of their thoughts. That’s not the way to make credit card debt go away, however. Start by determining exactly how much you owe. Frightening as that may seem, you’ll actually feel better once you have a dollars-and-cents figure to deal with. If it’s any consolation, you can be sure there are millions of people who are in exactly the same boat. Well, you’re going to get out of that boat starting today.

  One of the challenges of consumer debt is that it can get started quickly, but getting out of debt can take time. You can put a thousand dollars on your credit card in just a few seconds—then you can be stuck with that debt for months or years. The truth is, beating debt is a gradual process, and it can seem especially slow at the beginning. But have faith. Signs of progress will begin to appear, and gradually they will begin to multiply. And remember: As you get rid of your passive expenses, your options for passive income will start to open up. Even if you don’t realize it at first, you’ll already be closer to the freedom that passive income represents.

  When you’re first beginning to attack your debt, it’s important to eliminate as many unnecessary expenses as possible. In other words, the best way to build passive income when in debt is to get rid of passive expenses. This means eliminating whatever is taking your money each month while you sleep, including interest payments on credit cards, car loans, and any other recurring bills you might have. For the moment, you will want to organize your lifestyle so that your monthly expenses are at the absolute minimum. Think of this as a tactical maneuver, not a permanent condition. Because if you follow this plan, the day will soon come when you’ll get everything back and more—plus, you’ll really be able to afford it.

  We’re not going to spend a lot of time on debt issues, because the facts are pretty straightforward. There aren’t really any secrets, and the solution is just common sense. Cut back or eliminate your credit card purchases, transfer high-interest debt to lower interest accounts, and try to pay at least twice the minimum balances each month—starting with the highest-interest debts. Think of this process as a test of your commitment to success. As your debt shrinks, your working capital will grow. Before you know it—in months, not years—you’ll have the nest egg you need to really build passive income.

  INVEST IN YOUR NEST (EGG)

  If you’d like to have an exact figure of what it will take to get started on building your passive income stream, $5,000 is more than enough. Keep in mind that you can get started with a bit more or a bit less. But $5,000 is a doable initial investment for most (once any debt is out of the way), so let’s run with it. Once you have that amount of money to invest in your initial moves to build passive income, you’re really ready to go. Assuming you’re at that point now, keep in mind the principles we’ve discussed. First, wealth is not based on a dollar amount. Second, we tend to spend everything we have, whether it’s on consumer purchases or consumer debt. These principles affect not only our day-to-day experiences in the retail marketplace, but also our investment behavior. For example, when people start saving for retirement, it’s not unusual for them to set a goal of $1 million. They keep putting money into a 401(k) or some other investment vehicle until they reach the $1 million target. Then, several different things can happen. A certain number of people will think they have so much money that they start spending the principal. They may not spend very much at first, but it adds up. There’s a kind of self-sabotaging mechanism in this. Something similar often afflicts lottery winners, because studies have shown that many winners end up spending their jackpot in two years or less.

  But suppose an individual doesn’t spend the million dollars that’s accrued over the years. Even if they keep it in dividend-producing stocks or treasury bonds, the payout is relatively low. If you choose a conservative strategy, which is what most advisors would recommend, you could expect to earn about 5 percent annually. That’s approximately $4,000 per month. It’s not an inconsiderable sum. It can definitely help achieve the kind of financial freedom we’re talking about. But if all you’ve done during your career is fund your IRA that freedom has probably come at the price of many decades of bondage. In this book, we’re going to show you how to do considerably better than that, and without increasing your risk.

  MANAGE YOUR INCOME—AND EXPECTATIONS

  A key piece of information in passive income is the amount of money you need to live without working. Clearly, there are two factors to consider here: how can you maximize your income, and how can you manage your spending? If you have very extravagant tastes, the amount of money you need will obviously have to be larger. You just need to be aware of that fact. It doesn’t mean you have to live in a cardboard box now to benefit from passive income later, but you shouldn’t expect to be buying private jets, either. Anyone who tells you differently is not being honest with you—and one thing we’re going to be in this book is honest.

  Simply put, the ultimate goal is for your passive income streams to be greater than your expenses. When that happens, you’re free to do anything you want with your time, and your bills will still be paid. Needless to say, you’re also free to keep working in order to become really wealthy if you so choose. But you don’t have to do anything. That’s the objective—and you will achieve it as long as you know how to leverage the income (and other assets, like time) that you already have.

  LEARN ABOUT YOUR LEVERAGE

  In creating passive income, there’s one word you should always keep in mind—leverage. In financial terms, leverage is the ability to multiply an asset without increasing your investment or your risk. This is especially important for people who are building passive income without much capital at the outset.

  There are lots of ways to do this. Let’s consider real estate as an example. which we’ll be discussing in more detail later in the book. Bestselling authors like Robert Kiyosaki and Bob Allen have done great work in showing how passive income can be developed in that area. As they’ve pointed out, it’s possible to buy a $100,000 house with a down payment of only $5,000. That means you can leverage $5,000 into control of a $100,000 asset. If the house appreciates 5 percent per year, you’ll recover your investment after only 12 months, and then you’ll continue to get $5,000 for every year that follows. But that’s not all. There are a number of other variables that can wor
k for you in real estate. Suppose you’re able to buy a single-family rental property for no money down, and you find a tenant who pays enough rent to cover the monthly expenses. You may not make much profit in terms of cash flow, but there’s also a good chance that the house will increase in value—and by the end of a year, you’ll have paid down part of the mortgage. Through the power of leverage, you’ve gained significant assets with no investment except your signature.

  Time can also be leveraged, just like money—and since freeing your time is one of our major goals, knowing how to do this is a key skill. There are several ways that time can be leveraged. For example, you can hire an employee or maybe even more than one.

  Now it may seem like you’ll need to have a real up-and-coming business before you can begin taking on staff, but this isn’t always true. One very successful entrepreneur—let’s call him Richard—had almost nothing in the way of inventory when he began hiring employees and building an income stream. He had no office and no business cards. All he had was a copy of a very old and very charming cookbook that he found at a flea market. Richard took it to a full-service copying center and had some bound copies made. He even added a nicely designed but inexpensive cover. Then Richard ran a very small ad in the newspaper of a local university. The ad said that he was looking for students to work part time doing canvassing work. It also said that there was the potential for very good pay, and that the students could make their own hours. So far his total expenses were about $150.

  Although it was pretty obvious from the ad that there would be some selling involved, Richard had plenty of responses. The selling was so low-key that it really could be called canvassing, and the flexible hours also were attractive to college students. When he met with the applicants, Richard told them that their task would be very simple. Each student would be given a cookbook. They were then instructed to approach as many prospects as they could with the following offer. Each prospect was to be given a copy of the book to keep and use for a week. At the end of the week, the prospect could buy the cookbook outright for $15—but if he or she happened to find two other people who wanted cookbooks for $15, the original prospect could keep the book for free. There really was no selling involved on the part of the college students. They just had to describe the offer to as many people as they could—and then, at the end of the two-week period, they could keep 20 percent of whatever money came in.

  The success of this plan was amazing. Richard was soon moving hundreds of books, and the only work for him was calling the print center to order more books. But he never got them printed until the orders had actually been placed, so there was still no inventory. And the college students, motivated by the high commission fee, were very creative and aggressive. They targeted front-office employees in office buildings, people working in cafes, and some even went door-to-door to meet retired people and stay-at-home parents. Soon, Richard was able to take more employees into outlying areas of the city. He had virtually no out-of-pocket costs, and soon his time was 100 percent leveraged. He didn’t even need to do the initial meeting with new employees. He gave that responsibility to one of his original student workers.

  Richard created a passive income stream by leveraging his time in ways that were very powerful but were also decidedly “low tech.” He hired living, breathing human beings for tasks that required actual leg work. With the possible exception of the copying technology, there is no reason why Richard’s business could not have done just as well 20 years ago or even 50 years ago.

  There are many other low-tech options for leveraging your time and money, but the high-tech options may be even more exciting. For example, when you understand the strategies and tactics of passive income through the internet, you can have dozens of income streams with almost no expense, no employees, and very little time at the keyboard. This will be our focus in Chapter 3. We’ll see how some of the greatest fortunes started out as passive income vehicles on the internet and explore why your success is built on more than imitating those who came before you. It’s built on your enthusiasm for what you love. You’ll explore what really interests you—what you really love—and then you’ll see how it can make money for you online, even while you’re sleeping. But first you need to figure out how to break the cycle of what’s been holding you back from creating your own passive income plan.

  BREAKING YOUR BARRIERS

  There are lots of ways to build passive income, but all of them depend on a conceptual shift you’ll need to make as soon as possible. You’ll need to start thinking in a fundamentally new way about money and how to get it.

  Right now, let’s take a look at exactly what this means by exploring five basic differences between passive income and the traditional time-for-money model. As you read about each one, ask yourself where you stand with respect to each point. There are several different possibilities. For example, you may already feel completely comfortable with the passive income philosophy. Or you may need to get beyond your present mindset, which may require some creative thinking on your part. As you read in the opening chapter, accurate self-assessment is very important. Then, after we’ve looked at the five points in this chapter, we’ll see how they connect to our topic in the next chapter, which is creating passive income online.

  PASSIVE INCOME VS. TIME-FOR-MONEY MODEL

  “But it’s all income!” they say. “Income is income—it all spends the same!” Well, yes and no. First off, if “they” don’t support you and your desire to make a better, richer life for yourself, then get them out of your head. This is your journey, not theirs. And because this is your journey, what you want needs to be front and center of your plan to make passive income work for you. With that in mind, let’s look at the five differences between the two models and how they relate to your goals:

  1. Passive income works best when you focus on what you know and what you love. The traditional model, on the other hand, focuses on what the marketplace wants to buy.

  2. Passive income means that the amount of money you make is not tied to the amount of time you work. In the time-for-money model, if you work six hours, you get paid for six hours. With passive income, your earnings are not directly tied to a time commitment.

  3. Under the traditional model, you should try to work as hard as you can—because in theory, the harder you work, the more money you’ll make. But one of the most important objectives of passive income is to work as little as possible. Since there is no direct connection between your amount of passive income and the time you work, freedom from work itself is a logical goal.

  4. Time for money means there is a limit to the amount of income you can generate. Depending on your line of work, this may be higher or lower, but there’s always a limit. A corporate lawyer might make $300 an hour, but there are still only so many hours in a day. But there is literally no limit to the money that can come from a successful passive income business.

  5. In the traditional time-for-money paradigm, the goal is retirement after an extended working career. It may be 20 years, 30 years, or even longer than that, but the plan is to build up enough capital so you can stop working. The returns from that capital may come to you in the form of a pension or as payments from a retirement fund. But the money that you’ve accumulated is going to be supporting you. With passive income, however, the goal is to stop working as soon as possible, if you so choose. You may want to keep having a full- or part-time job, but you won’t need one in order to meet your expenses. You’ll be supported by the revenue streams you’ve created—not by the fixed income of pensions or retirement funds. In fact, your passive income streams should be the opposite of fixed. Those streams should be growing continually. They should provide not only financial freedom, but also more options and opportunities in every area of your life.

  One of the most interesting things about financial success is the way people have mixed feelings about it—feelings that they might not even know they have. Sure, we all say we’d like to be wealthy, but underneath the de
sire for wealth there’s often a certain degree of subconscious conflict. Do we think rich people are good people? Very often, we don’t—and whether we realize it or not, most of us would rather be good than rich. And if there’s a sense that a person has become rich without having earned that wealth through honest labor, the negative ideas we attach to that wealth become even stronger. Yet here we are talking about how passive income can bring revenue without you doing any work, and what a good thing that is.

  YOUR FINANCIAL BELIEF SYSTEM

  Have you ever really explored your beliefs about money and how to get it? If you’re like the vast majority of people, those beliefs didn’t come to you by choice. Instead, over the course of many years, you absorbed the pre-existing beliefs of our society. One of these, as we’ve mentioned, is the idea that “work is its own reward.” Another is the general scarcity consciousness of “there’s not enough” and or the fear consciousness of “disaster could happen at any moment.” The bottom line is, you may have grown up with the idea that “money is dangerous” or even “money is evil.” If that’s the case, then chances are you’re not going to bring a great deal of money into your life. But no matter what your beliefs are or where they come from, you have the power to create new beliefs to accomplish your financial goals.

  Please don’t misunderstand. You don’t need to work through a moral crisis to feel OK about some extra income. But you should understand how radically different this is from concepts of wealth that are deeply ingrained in our society. Consider the idea that “work is its own reward,” for example. Basically, this means that people benefit from hard work whether or not they make any money from it. This may be very true in terms of an individual’s spiritual development—but work is definitely not its own reward when it comes to someone’s financial standing. With respect to passive income, we can make an even more extreme statement. In mathematical terms, this extreme statement can be made in just a few words: Work and passive income vary indirectly. In other words, if you spend a lot of time working, your passive income is likely to be low. But if you spend very little time working, your passive income is probably high and getting higher. So, for our purposes here, you’ll want to embrace the idea that hard work is not necessarily the way to success.