Posts Tagged ‘Tony Robbins’


Lessons from Tony Robbins’ Money Master the Game: 7 Simple Steps to Financial Freedom – Part I

by Ziva Beck in Must Read, Retirement, Saving for Retirement

Is Financial Freedom a possibility for an average American? The short answer is – Yes.

Tony Robbins went on a mission in his latest book Money Master the Game: 7 simple steps to Financial Freedom to show how. Of course I wanted to read it! He interviewed 50 of the most successful investors in the world and compiled the best strategies for all to use. In addition to the technical strategies, Tony also addresses the psychological factors that influence our behavior. The book has close to 700 pages. Here, I would like to share with you my main lessons from the book.

Lesson #1 – Make the most important financial decision – Decide to pay yourself first.
Commit a percentage of your income to your Freedom Fund. Experts recommend saving at least 10% and many recommend 15%. The key to success here is to automate the process through a payroll deduction or automatic transfer to savings account. You can start with a smaller percentage and commit additional percentage when you get your next raise.

Lesson #2 – Determine how much money you need to achieve financial security and financial independence. Financial security means your savings can generate enough income to cover your most basic living expenses. Financial independence means you will have enough money to support you current lifestyle without working. The key to success is to resolve within yourself with the absolute certainty that “I’m going to do this”.

Tony provides an application which will ask you questions and calculate these amounts automatically at

Easy way to calculate savings needed for financial independence, is to multiply your current annual income by 20 (that assumes 5% return on your savings). For example, if your current salary is $100,000 then savings needed for Financial Independence are $2 Million.  If you live on less than what you make than use that number for calculation.

To calculate your amount needed for Financial Security, first add up your monthly basic living expenses. Then, multiply by 12 to calculate your annual expense.  That amount is the total annual income needed after taxes. It is a little trickier to figure out the pre-tax amount. So it’s best to use a gross-up calculator (see link below) and then multiple that amount by 20.  In the example provided below, the monthly amount for basic living expenses is $5,190. The amount needed for Financial Security is $1,418,320.

If you are saving in a Roth IRA your gains are not taxed. In this case you don’t need to be concerned about taxes and pre-tax income and you will be able to reach your savings goals sooner. If your annual expenses are similar to the US average of $34,764, then you will only need to save $695,280 in Roth IRA to reach financial security.

Monthly Basic Living Expenses 2013 U.S. Average for 2 Adults* Example for 2 Adults living in NJ
Housing – rent/mortgage $860 $2,300
Food $549 $549
Utilities – gas, electric, water, phone $319 $390
Transportation – gasoline, repair, insurance, leases, public transportation $791 $750
Healthcare  – insurance, deductibles $378 $1,200
Total Monthly  Expenses $2,897 $5,190
Total Annual  Income Needed After Taxes (=Monthly Expenses *12) $34,764 $62,280 
Total Annual Income Before Taxes (Federal and State) $70,916
Total Savings for Financial Security (=Annual Income *20) $1,418,320

*Based on Table 5. Size of consumer unit: Average annual expenditures and characteristics,
Consumer Expenditure Survey, 2013

Lesson #3 – Have an emergency fund to cover 6 -12 months of expenses.
This is your lifeline in case you get sick or lose your job. My personal preference is 12 months.

Lesson #4 – Make the most important investment decision of your life – Decide what percentage of your portfolio will be in the Security/Peace of Mind bucket and what percentage goes into the Risk/Growth bucket. The Security/Peace of Mind bucket holds money that you cannot lose. Many famous people made a lot of money and lost it all due to risky investments.

This decision is really about your risk tolerance and how much loss you can reasonably tolerate. You need to consider your future earnings potential, how easy it will be to replace the amount that it is lost and when do you need the money. In general, if you are younger and expect to make money for many years and don’t need the money for a long time, you can take a higher risk and invest more in stocks. The key is to remember that the pain of losing is far greater than the joy of winning. Read more about risk tolerance in my post  Surviving the Stock Market Crash in 2008.

Rutgers University has developed an online 20 question quiz to help identify your risk tolerance –

Investments that belong in the Security/Peace of Mind bucket include cash, cash equivalents (i.e. money market funds, bank money market deposit accounts, U.S. Treasury money market fund), bonds, CDs, annuities, structured notes and CDs that guarantee your principal.

I would exercise caution with bonds at this time due to rising interest rates. When interest rates rise, bond prices fall. If you hold an individual bond to maturity, interim changes in price will not affect the price at maturity and you will receive the principal back. In a bond fund, price of the fund will be impacted by rising interest rates and might result in a loss of principal.

Investments that belong in the Risk/Growth category include stocks, stock mutual funds, exchange-traded funds (ETFs), stock index funds, high yield bonds, real estate investments, commodities, currencies, structured notes and CDs that don’t guarantee your principal, and other high risk investments.

For the 20-year period from December 1993 to December 2013, the S&P 500 returned 9.2% annually, but the typical investor averaged just over 2.5%. This is because emotions get in a way and investors tend to sell when the market is low and buy when the market is high. You need to be really comfortable with your allocations for Security/Peace of Mind and Growth/Risk buckets. This way you can ride out major declines in your Growth/Risk bucket and avoid emotional selling.

Lesson #5 – Create a Dream bucket.
Make a list of your dreams. Put them in order of importance, big or small, short-term and long-term. Write down why you must achieve them. The Dream bucket meant to excite you and unleash your creativity. It helps you to find ways to earn more, save more and invest smarter. There are several ways to fund this bucket. You can allocate a portion of your profits in the Growth bucket, use a portion of your bonus, save a set percentage of your income or commit to a percentage of your next raise.

Lesson #6 – Reduce taxes.
401K plans and IRAs allow you to defer tax paying on both contributions and earnings. In Roth IRA your contributions are taxable but your earnings are completely tax free forever.

In regular taxable accounts you can save on taxes by holding stocks for periods longer than 1 year to qualify for the reduced long-term capital gains tax rate. Index funds are also tax efficient because they don’t trade as much as active funds and therefore don’t generate as much capital gains.

Because of the amount of the information in the book, I had to divide this post into two parts. So stay tuned for part II where I write about asset allocation and investments.


USEFUL LINKS – – Living wage calculation for Bergen county, New Jersey. – Complete 2013 average expenditure per consumer unit from U.S. Department of Labor. – Gross up calculator.