What attracted me to read this book is the fact that it is aimed at younger people and not some dusty tome that assumes the reader knows something about stock markets or pension options. As financial literacy is not part of basic education it is harder for young people to know how to plan their finances. Especially when the books they have tried reading are aimed at people with existing assets and knowledge on the topic. Yarnway explains that having time is the biggest asset that young people have as money needs time to appreciate and compound the interest. Time is also needed to master the skill of building wealth and the younger you are the more time you have to recover from mistakes that you make along the way.

Yarnway claims that the biggest mistake financial professionals have done is to overcomplicate the process of building and designing one’s wealth. He explains that he realised it, as he was working as a financial advisor in a wealth management and financial planning company, that his clients were looking for help to build their visions of prosperity. They needed advice on creating money management plans that could grow and change as their lives evolved. He then introduces his four-step approach for creating long-term wealth. First step is mastering the mindset, second step is mastering the plan, third step is mastering your income and fourth step is mastering your money drains.

Mastering the mindset

Mastering the mindset step is probably the hardest one because it requires one to change the way they think about different aspects of money and wealth. According to Yarnway it is important to understand that building wealth is a marathon and not a sprint, and as such it is imperative to stay committed to one’s goals and remain consistent with habits that are productive towards the goals. As an example, he discusses a scenario where one wins in the lottery and instead of spending money on all kinds of wants, they use counterintuitive thinking. This means that one takes stock on their current financial circumstances, discovers where they would like to be and how long it might take them to reach there. Then it is a matter of planning a course of actions and following that. Another example of counterintuitive thinking is investing money when the stock market is low. The normal reaction is to avoid using money but to build wealth it is important to learn to not follow one’s emotions and make decisions logically instead.

To help people to master the mindset Yarnway introduces five habits that Master Wealth-Builders have. Master Wealth-Builders are people who have understood and mastered the way of life to build not only financial wealth but higher quality of life. The five habits are focusing on the process, prioritising productivity, emphasising continuous learning, nurturing relationships, and putting oneself in the seat. It is important to focus on the process because it takes time to build wealth and one needs take daily actions that will take toward their goals. One needs to prioritise productivity in order to use their time wisely and change their lifestyle to facilitate progress. Emphasising continuous learning pushes one to look for new knowledge and the ability to adapt one’s plan as times change. Nurturing relationships habit reminds one not to forget the people who are most important to them in their quest for financial wealth. According to Yarnway, it is worth it to help your important people to rise with you as you move forward towards your goals. The last habit of putting oneself in the seat is about envisioning oneself where one wants to be, so envisioning one sitting in the seat one wishes to sit it. This habit helps one not to get stuck between disbelief and action allowing one to follow their plans even when things are difficult.

Mastering the plan

Next step of Yarnway’s four-step plan is mastering the plan. He divides the step into three parts which are financial pitfalls, creating master budget and investing with goal-based approach. There are four financial pitfalls that young people need to avoid while creating and mastering the plan. First one is thinking that one does not have enough money and should wait until they feel like they do. This kind of thinking will lead one to waste time and make it harder to reach their financial goals. The second pitfall is comparing one’s life to their peers as that leads to lifestyle inflation where one spends more than they earn. The more liabilities, such as credit card debt, one has the slower progress towards their goals will be. The third one is thinking one can do all by themselves instead of seeking help from a financial professional. It takes time and effort to learn to research investment options and monitor everything effectively. Using professional’s help allows one to begin taking informed steps towards their goals at the same time as learning more. The fourth, and last, pitfall is being impatient and changing the plan too often in search of instant gratification which is not how wealth-building works. Good financial plans take time to yield the best return of efforts.

Creating master budget is essential to know where one’s incomes come from, what are their expenses and liabilities, what kinds of assets they have currently, how is the cash flow and what are their goals. Master budget contains all inflows and outflows of money that one has on monthly basis and should serve as a blueprint on how to carry out one’s day-to-day habits in order to reach one’s financial goals eventually. It is essential to continually revisit the master budget to make sure one is on the right track.

Investing with goal-based approach allows one to prioritise meeting one goal at a time and then moving onto another. This means that one invests their money in different ways depending on the goals. If the goal is to buy a home, then one needs to know how much cash they have right now, what would be a realistic expectation of the value of the home and how much they would need to save up on a defined schedule. This will show how long it would take to have the necessary down payment for the home to qualify for a loan. One can also have cash flow management goals where their aim is to improve their spending. Another goal can be debt reduction where the aim is to pay off first the debt with highest interest. According to Yarnway, it is important to pay off debts before trying to start building wealth as too much money will be tied down by them. Retirement and investment management are also smart goals to have. The difference between the two are that investment management happens during the time between now and retirement whereas retirement goals are for after retiring. All investment actions should align with your investment goals in defined in your master budget.

Mastering your income

Mastering your income is the third step of Yarnway’s plan. He explains that three most common ways to do so are entrepreneurship, real estate and stock market. Entrepreneurs not only solve problems but also generate revenue and as they do so they also master their plan, budget, incomes and how to handle adversity. These are all activities that one should engage in while building wealth regardless of whether they are entrepreneurs or not. Real estate is an asset that can at the same time be a liability but can be converted into a functional asset. Yarnway describes functional assets as ones that can provide cash flow and minimise expenses. It can also fulfil different functions in your plan for wealth-building as it can be extra income in the form of rental income, long-term investment in the form of home purchase or a short-term investment in the form of flipping houses. Success in the stock market brings income depending on how the assets grow, how they are diversified, the amount of risk taken, the investments that were chosen to do and returns that they generate over a long time. Usually stock market investments are done based on Investment Policy Statement that defines how investing is done and what one is looking for in an investment. It typically also details the asset allocation, so what percentage is invested in stocks, exchange-traded funds or bonds. This could for example be 90 percent stocks and 10 percent bonds.

Mastering your money drains

The fourth, and last, part of Yarnway’s plan is Mastering your money drains. According to Yarnway, there are many money drains that will slow down your progress towards your financial goals and it is best to control the outflow of money. He recommends doing so by knowing what you are spending money on, monitoring your investments effectively, filing taxes correctly, employing contractors when it makes sense and using professional help in legal matters, taxation, financial planning and money management.  The last part seems to be more applicable for companies than personal finances simply because Yarnway focuses largely on taxation and how it could be done in USA to maximise the positive effects of it.

My thoughts

I created my own master budget after I read the book and realised that I have unintentionally taken part in lifestyle inflation in the form either eating out or ordering take away too often. Really looking into my cash flow and identifying expenses that I can remove has convinced me that I too should begin intentionally building wealth. I am in a good situation with my finances in that I do not have large assets, but I also do not have large liabilities either. To me the most interesting learning from the book is that I should run my personal finances like I would a company’s so with clear goals and an action plan on reaching those. I am still in the process of building a habit of checking back on my master budget and working on aligning my spending with it.