The ideas I share in this article are my truth on how to get rich and build wealth, not the truth. Meaning, there is more than one path to achieve your financial goals, these are just what I have personally experienced and learned to be the most impactful for myself and the clients I serve.
1. Wealth is made through concentration, it’s preserved through diversification.
The first thing you need to do is invest in yourself and become really great at something. That will create the riches through active income, that you will use to BUY your freedom. 7 streams of income is a myth. Additional streams come from assets you purchase whether that’s real estate, stocks or businesses you own but do not run. When you look at the wealthiest people in the world, the lions-share of their net worth is tied to the business that they built. Success leaves clues.
2. Cash Flow is more important than accumulation.
Money is a tool, not a pool. The goal isn’t to grow a large sum of money in an investment account and then draw down from it to live on. The goal is to identify how much cash flow you need to live your lifestyle, and create the most efficient path to providing that cash flow. You can get there a lot faster than tucking money away a retirement account for 30 years. So instead of following the 4% rule, you may be better off investing in assets that produce higher yields of cash-flow such as real estate or businesses.
3. Make your money work for you in multiple ways.
When you invest money into a brokerage account, you can leverage your account as collateral to get a portfolio line of credit. This means, your investments remain invested but you get access to capital to buy more investments. You want to do this strategically and carefully so that you aren’t over leveraged but it’s one of the best way to supercharge your wealth.
From there, you’ll use the line of credit to purchase a cash-flowing asset like real estate, and then you can reinvest the cash flow back into your portfolio. That cash flow is also reinvested and grows your account to repeat the cycle all over again.
Your original portfolio is growing, you borrowed against it without selling your investment to buy a real estate property which you also own and is appreciating, then you take the cash flow and reinvest. 3 investments off the original one.
4. Leverage the tax code to explode your wealth.
The strategy I just shared above, works because when you get the line of credit based upon your portfolio, you never had to sell your investments so you avoid capital gains tax. Additionally, the IRS, will give you a tax deduction on the loan interest.
For the real estate property you purchased leveraging the line of credit you received by borrowing against the value of your portfolio, it will produce cash flow from the rental income. Normally, this would be something you’d have to pay taxes on. However, you can perform a cost-segregation study and get a tax deduction that will eliminate all or most of your tax liability of the income the property generates. This is a strategy the worlds wealthiest people have leveraged for years, so you don’t have to take my word for it, you can simply pay attention to what they do.
5. Retirement has nothing to do with age, it has everything to do with assets.
Financial independence is a math equation. Once your investments produce enough income to cover your lifestyle expenses, you’re good. That can happen way faster than age 65 following the strategies I shared thus far. Its important not to anchor your freedom based on this outdated idea that you have to retire at age 65. The goal is to become work-optional as soon as you desire. With the right strategy and intention, this can happen 3 times faster than traditional financial advice.
6. Buying back your time freedom will help you get to financial freedom faster.
Once you become world class at something you’ll make a lot of money doing it (which is why this was the first thing I mentioned in this article. Contrary to popular belief, you shouldn’t take all your surplus and invest it. You should start buying back your time by paying people so do things that take up your time. Like laundry, cleaning, cooking, errands etc. with this time, you will be able to both make more money and begin living the life you would if you were financially free. This is why I hired a house manager and I outsource most things so that I can focus mainly on the things that I can’t outsource or don’t want to, although sometimes I do wish I could outsource eating healthy and working out.
Don’t wait until you hit your financial freedom number to start living more freely. You’d be surprised how much time freedom will give you the space to create more wealth.
7. Wealth is a ratio.
What I mean is, the rate at which you can keep your expenses low and income high, the faster you can become free. I know this sounds simple yet most people don’t realize it. Example: if you make $150,000 a year but can live off $50,000, every year you buy back two years of your life. In 5 years you buy back a decade. This isn’t even factoring in investment returns. This gives you the power to take breaks or mini retirements if you desire. Knowing this makes living below your means a lot more impactful.
8. Rich people do the right things, wealthy people own the right things.
You get rich based upon what you earn with your active income, you get wealthy based on the investments you purchase with that active income. No matter how rich you are if you can no longer generate the income you immediately put yourself in a bind if you don’t have cash flow from assets. This is a mistake many people make. They think they will always be able to make money without disruption and keep putting off investing. Then one day, you get hurt, sick, laid off, get burnt out, experience loss or any circumstance where you need to step away from work, but you can’t. Life catches up to us more than it happens to us. If we were truly honest with ourselves, we have had plenty of time and opportunity to put some type of financial safety net in place, but either due to entitlement, or lack of priorities, we kicked the can down the road until we ran out of road.
9. Make, Manage, Maximize. The big three of financial planning
if you can nail down increasing your income earning potential as much as you can, be a great steward over those resources so you can allocate an adequate amount of that money for financial security and wealth building, and then maximize those resources through investing, you will generally be ok financially. Yes there is more to a financial plan than just these three things, but getting these three right will put you in a much better position than the average American. I call it the “Macros of Money”
10. Follow the Burger King investment strategy.
This is an investment strategy where you’d do what Burger King does when it comes to determining where they put their next location, they put it near McDonald’s. McDonald’s spends millions every year determine the best locations, Burger King knows this and simply takes advantage of their research.
It’s ok to be a copy cat if you copy the right cat.
You can do the same with your investments. Vanguard and other financials institutions spend millions every year researching and analyzing stocks to build ETFs. You can simple own the ETF with a click of a button.
To take it a step further, you can look at the investments inside of the ETF and consider holding 20-30% of your portfolio in some of the top holdings. This will give you the potential to have an outsized return on your portfolio. Ask me how I know.
11. “The value of anything is the amount of life you are willing to trade for it.”
When you take your annual income, divided by the amount of hours you work, that gives you what an hour of your time is worth. When you take how much you spend on anything and divide that by what an hour of your time is worth, that gives you how much of your life you trade for that thing.
So if you make $100,000 a year and you work 2000 hours a year (40 hours a week for 50 weeks, two weeks off) that means an hour of your time is worth $50.00. If you have a luxury car that cost you $1000 a month to maintain (car, gas, insurance etc.) then the real cost is 20 hours of your life each month. Is it worth it? Thats for you to decide. This frame helps you make better decisions about how you spend your money.
12. How you make your money is more important that how much you make.
Time freedom and location freedom are just as important as financial freedom. While there will always be seasons to grind, you should aim to make your money in ways that allow you to have more harmony with a holistic life. If you have to work so much you can’t enjoy the money, what’s the point? Try to align your ambition with your ideal lifestyle. This can be an important starting point when deciding the type of business you want to build. There are plenty of ways to make money and sure, you can make a lot of it, but you must ask yourself at what cost both literally and figuratively.
13. How you descend the mountain is equally as important as how you climb it.
How You accumulate your money is important but, be mindful of the tax implications of how that money will be distributed once its time to use it. Many people are solely focused on decreasing their current tax liability that they don’t factor in the impact of their future tax liability. You want to have a balanced approach when it comes to taxes savings today vs tax deferral tomorrow.
For example: if you are at retirement and want to distribute $100,000 from you IRA, in simple math that may cost you $30,000 a year in taxes. You’ll net out $70,000 in income and over 20 years you’ll pay $600,000 in taxes.
Conversely, if you take that same $100,000 but instead it’s split between a traditional IRA, and a Roth, $50,000 each, you’ll pay $10,000 in taxes on the traditional IRA distribution and no taxes on the Roth. You’ll net out $90,000 which is $20,000 more in income and you’ll pay $200,000 in taxes over 20 years, which is $400,000 less in taxes.
I hope you found these principles that I have learned over the last 13 years helpful to your own financial journey. Always remember that freedom is for sale, if you’re willing to pay the price.
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