Author Says He Can Fix Your Finances in Less Than Week

Jan. 6, 2009 — -- In "The Six-Day Financial Makeover," Robert Pagliarini says he will transform your financial life by cutting through the "jargon" and giving specific advice you can use.

Pagliarini has a quick quiz to determine if you're in the financial danger zone (red zone) or in the safe (green) zone.

If you work in the housing industry, finance, auto or retail, you're in the red zone because more layoffs are expected in those fields. The green zone jobs are everything else.

Contrary to conventional wisdom, if both spouses work Pagliarini considers that the red zone. If two people are struggling to stay above water and pay their bills, and one loses a job there's no one there to help. If only one spouse is working, then the other can jump in and lend a hand by getting a job or pitching in financially some other way.

You're in the green zone if you hit financial trouble and have a strong network of friends and family who can help, whether it's babysitting the kids, giving you a ride to a job interview or lending you money.

You're in the danger zone if you have less than six months of your household expenses saved..

Having monthly fixed expenses puts you in the danger zone. If your monthly expenses are more variable, you can cut back if you need to.

If you have a lot of debt at a variable interest rate, you're in the danger zone. If you have fairly low debt at a fixed rate interest, you're in good shape.

Pagliarini says if you've got more reds than greens, you need to take action. Use fear to motivate you, not to paralyze you. Boost your savings by cutting expenses. Shift from variable interest rate debt to fixed rate and pay it down quickly by getting a part-time job.

Read an excerpt from "The Six-Day Financial Makeover":

What Is a Financial Makeover?

Maybe you're not sure what to expect from a financial makeover. That's fair.It's good to be a little skeptical. If you're familiar with fashion makeover, youknow the successful ones don't stop with a facial or a new wardrobe. Successfulmakeovers require a total transformation—from head to toe and insideand out. Likewise, your financial makeover won't stop with just a budget or aninvestment plan. Your financial transformation will include all of the criticalareas of your financial life—creating a spending and savings plan, protectingassets, investing wisely, risk management, insurance, estate planning, andmuch, much more.

Over the next six days, your financial makeover will strip away every thing that is not working—maybe you're spending too much, sabotagingyour own success, taking too much risk, not investing wisely, or leavingyourself and your loved ones financially exposed—and replace it with asolid foundation from which you can immediately start to see success andfeel a sense of confidence. Your financial makeover will also maximize whatyou're already doing well. If you have powerful and inspiring goals, are savingdiligently, and investing well, your Six-Day Financial Makeover will helpyou maximize and optimize your strengths.

I will walk with you, step by step, throughout the six-day transformation.Together we will turn the complexities of budgeting, investing,insurance, and estate planning into something understandable and practical.We're going to take the "pie-in-the-sky" theories and turn them intobite-sized pieces that you can implement in your life immediately.

The Importance of Financial Independence

Financial independence is a phrase that gets tossed around too oftenand usually without any understanding of what it really means—often bysalespeople on late-night infomercials hocking "get rich quick" real estateschemes, home-based businesses, or investment trading programs. Mygoal is to take the mystery out of financial independence and to show youexactly what it is and what it provides and to explain what financial independenceis not. Financial independence should be your primary financialgoal, and here's why.

At the root of financial independence is the freedom to choose. The abilityto choose between several options puts you in control of your financesand your life. It allows you to shape your life rather than being at the mercyof someone else's vision of your future. It takes you out of life's passengerseat and puts you behind the wheel. Suddenly you can choose the kind ofwork that stimulates and inspires you without worrying about how muchmoney you will earn. It also allows you to pursue your hobbies without regardto their cost or time commitment. For many, financial independenceallows them to volunteer their time and money to worthy causes.

Financial independence also provides security. How would you feel ifyou could live the lifestyle of your dreams without worrying about beingdownsized, having to work two jobs, or sacrificing time with your family?When you become financially independent, your sense of security comesfrom having control over your life and your future. Without financial independence,your life is dictated by someone else—usually your employer.

Your security is in the hands and at the whim of an organization or an individualwith their own best interests at heart—not yours.

What Is Financial Independence?

Financial independence means different things to different people. Tosome, it means being able to pay the bills. For others, it means being able toeat out every night. Yet for some, it means being able to have three vacationhomes and a yacht. I define financial independence as being able to supportthe lifestyle you desire without having to work.

There are two important pieces to this definition. First, you need to differentiatethe lifestyle you desire from your current lifestyle. This is a signficantdistinction. Too often, we reduce our lifestyle to fit within our means.1Financial independence is not about limiting or reducing your lifestyle, butabout living the life you want and having the means to support it.

Second, financial independence means you don't need to work to supportyour lifestyle. This just means that the income generated by your assetscan fully support your expenses.

Income from labor is earned income. It requires your participation, effort,and energy. If you decide to take a year off, your earned incomeceases. Earned income is how most of us receive money. Our alarm clockwakes us in the morning, wre have our cup of coffee, we take a shower andget dressed, and we drive to work. We put in our day and drive home. Everycouple of weeks, we get a paycheck. This is the earned income cycle.

Earned income is an exchange of time for money. Through educationand experience, we can increase the value of our time and be compensatedaccordingly. Even high-powered attorneys or surgeons who makehundreds or thousands of dollars an hour still exchange their time for apaycheck. The minute they stop this exchange, they stop earning income.

Financial independence breaks this cycle. It replaces earned incomewith passive income. Passive income includes the following sources of income:

Investment income (e.g., dividends, interest, capital gains)

Rental real estate income

Royalties

Licenses

Partnership and business income (if you don't have to work or manage anything to receive it)

Social security and pension income

Passive income is the Holy Grail of personal finance. Why? You don't haveto trade your time for it. Passive income gives you the freedom to do whatyou want. Earned income is a chain that restricts what you can do andwhen you can do it. Passive income liberates us from nine-to-five jobs andtwo-week vacation limitations.

Contrary to its name, accumulating passive income is not a passive endeavor!Accumulating the assets to generate passive income requires skill,education, and diligence. You can't expect to sit back and have massiveamounts of passive income deposited into your bank account every month.Generating passive income from dividends and interest requires you to selectand to monitor the appropriate investments. Rental income requirespurchasing and maintaining commercial or residential real estate. Royaltiesand licenses require the development and sale of a product. Partnership andbusiness passive income, like investments, requires the careful selection ofinvestments and monitoring them diligently.

There are two important advantages to passive income. First, passive incomedoesn't take as much effort to maintain. To earn a salary, you typicallyhave to put in forty or more hours of work a week. Maintaining the sameamount of passive income takes a fraction of the time.

Second, you can outsource what little time it takes to maintain passiveincome to somebody else. You can hire a financial advisor to select andmonitor your investments, an accountant to monitor your royalty and licensefees, and a property management company to collect rent and fill vacancies.This is an advantage that just doesn't exist with earned income.

Can you imagine hiring a temp to take your place at work?Financial independence does not mean that you can't work; it simplygives you the option of working. Most of us want to continue working—ourcontribution to the world provides a sense of accomplishment and esteem.

What Financial Independence Doesn't Guarantee

We've all heard the saying, "Money doesn't buy happiness." Well, it's true—money doesn't buy happiness, and financial independence doesn't guaranteehappiness, either. Personal income in the United States has almost tripledsince 1956, but the number of Americans who claim to be "very happy" hasn'tincreased—it has remained at about 30 percent year after year.

Income is up, yet the level of happiness is flat. Why? While there arethousands of factors that contribute to happiness or unhappiness, it appearsthat simply earning more money isn't enough to ensure happiness.Academic research suggests that our current actions are based on predictionsof future emotional consequences. Our decision to order a doublebacon cheeseburger, compete in a marathon, work late nights and weekends,or purchase a larger house, is based on how we think we will feel oncewe've accomplished these things.

If we were good predictors of our emotional reactions to these events, thiswouldn't be a problem. According to Harvard psychology professor DanielGilbert, we do a poor job of determining how we will feel as a result ofsomething—we tend to overestimate the future positive effect of an actionand how long we are going to feel good. We think the brand-new car willmake us feel much happier and for a longer period than it actually will. Inother words, we overestimate those things that we think will make us happyGilbert's research tells us that whatever we think will make us happy won'tmake us as happy as much as we estimate or for as long as we estimate.

Does this make financial independence an unworthy goal? Absolutelynot. It means that financial independence is a means to an end, a tool.Financial independence alone will not make you happy. It's what youdo once you become financially independent that determines your levelof happiness.

Most people know what they should want to make them happy. Ourbrain is powerful beyond comprehension, but it is constantly trying tomake things easier for us. As a result, we simplify and streamline what wethink will make us happier. We are susceptible to ads that promise excitementand satisfaction without thinking critically about whether the productreally will or not. If we did, I would venture to say jeans ads with scantilydressed models (nor even wearing the jeans being advertised!)—just oozingsex appeal—would not be as effective.

As a result of this overly simple approach to happiness, it is no wonderthat we are poor predictors of our happiness. If we stop and honestly evaluatewhat will make our lives richer and more fulfilling, we might experiencehappiness. The next chapter will help you determine what will make youhappy—in effect, it will make you think, maybe for the first time, aboutwhat drives you.

Because of the billions of dollars spent on advertisements and marketingcampaigns, we incorrectly assume that our happiness is linked directly tomaterial possessions. Too often, we set goals about what we want to own.While these things can add to our level of satisfaction, happiness will ultimatelycome from accomplishing goals and growing as people. Advertisementstrick us into thinking that a product will satisfy our needs. AHummer will make us a rebel. A Rolex will make us sophisticated. Chapter2—Design the Life of Your Dreams—will strip away the ads and productsand will help you determine what you truly want to accomplish and whoyou want to be.

Armed with the knowledge of what it will take to enrich our lives andadd excitement, we can use financial independence as a tool to help usachieve our other goals. What's the worst-case scenario? We become financiallyindependent, get the things we want, accomplish what wewant, and become who we want to be—and are no happier than whenwe started. Whoever said, "If I had a choice, I'd rather be rich and unhappythan poor and unhappy," was on the right track! In our pursuit offinancial success, though, it is important not to neglect the other areas ofour lives.

From The Six-Day Financial Makeover by Robert Pagliarini. Copyright © 2006 by Robert Pagliarini. Reprinted by permission of St. Martin's Griffin.