Disclaimer 1) First off, I’m not yet what I consider to be wealthy or rich yet (will define them both in a second), so take this post for what it is, a theory/philosophy from someone who has not yet achieved what he is writing about. However, I’ve not come to this philosophy lightly as it has taken me over 13 years of study, experimentation, training, and practical application in the business world to arrive at this viewpoint.
Disclaimer 2) I’m not a financial advisor, nor am I liable for anything you do with the ideas I present in this blog.
I’m a voracious reader of books on building wealth, personal finance, success, business, etc… and have read dozens of authors that speak authoritatively from experience on all these topics. What I’ve discovered is that almost anyone can get to the point where they can retire comfortably if they start planning for it young, live below their means, employ the power of compound interest over decades of time, follow the tried-and-true advice and principals espoused by wonderful people like Dave Ramsey, and read books like “The Millionaire Next Door.” These teachers will show you how to practically and easily retire a millionaire, even if you’re not a high income earner. I recommend starting here if you have no plan at all yet, don’t know how to budget, are deeply in debt, or feel like you’re out of control with money. If that’s you, stop reading now and go pick up “The Total Money Makeover” by Dave Ramsey and consider attending a local Financial Peace University class.
My problem is, I want more than just to retire with a lot of money. I want to enjoy the lifestyle I want, the freedom I want, and make an impact on the world (in ways that require a lot of money) before I’m of retirement age. I want to be able to take my kids all over the world, teach them to fly airplanes (OUR planes), start many world-changing businesses and non-profits, etc… while I’m still in my 30’s and 40’s , not in my 60’s, 70’s, and 80’s. And as someone who has almost died a couple times, I know I’m not even guaranteed to make it till I’m old to enjoy money… so I’ve been really applying myself the last few years into a creating strategy of building wealth young, and this post outlines the strategy I’m taking to get there. If you already have some basic finance stuff down, know how to get rich slow and smart, the proven way, but are interested in seeing if you can fast forward financially a few decades, this post is for you!
First off, some definitions, here’s how I define wealth and riches:
Wealth- I believe someone is wealthy when they have complete control of their time. I believe time is much more valuable than money (what would you rather have $10 dollars and 10 more years to live, or $10 million dollars and 10 more days to live? I’d take the time, every time!) and consider someone wealthy when they can live a lifestyle they are content with (regardless of the cost of their chosen lifestyle) without financial assistance and without having to work another day to earn money if they choose not to.
Riches- I believe someone is rich when they are able to live a life of their highest desired amplitude. As in, the financial ability to do all the things they want to do and own the things they want to own, regardless of price tag.
Both of these are highly subjective, and rightfully so, as people all over the world have vastly different perspectives on what it means to be rich and their desired lifestyles and wants. However, Riches and Wealth are mutually exclusive. A retiree content wth a simple lifestlye with a lifetime government pension of $3,500/month and expenses of $3,000/month is wealthy, but not rich. A high-earning professional like a doctor or lawyer making $25,000/month and living a $25,000 a month lifestyle including a lot of big monthly expenses and debt could be considered rich, but is not wealthy, for if they stopped earning that high income for any reason, they’d be in danger of losing everything if they didn’t instantly reduce their lifestyle.
You can be rich and not wealthy. You can be wealthy and not rich. You can be neither. You can be both. You have to decide if you want one or both, but I’ve never found anyone who didn’t at least want one. I want to be both, and I want to be both while young. This requires a different way of thinking, and bucking conventional wisdom that, at best, will make you wealthy and/or rich when you’re at retirement age if you stick with a consistent plan for many decades.
I said I want to be rich and wealthy, but I honestly don’t care which comes first, so I’m working on both at the same time with a two-pronged strategy:
1) To become wealthy, I constantly seek ways to improve monthly cash flow. I reduce expenses as much as possible (while still living an acceptably comfortable lifestlye keeping the family content and happy) by running a tight ship, good monthly budgeting, pay off debts, and increase monthly passive income.
2) To become rich, I take ‘home run swings’. A home run swing is something I am doing with my time, money, or both, that will result in a large increase of money in a relatively short amount of time (not multiple decades). At this snapshot point of my life I generally think of home runs as things that , if they work out, will make me millions of dollars in 5 or less years of time. For me, that would be ‘hitting one out of the park’. Earlier in my life, a home run might have been making $100K in a year, and later in life it might be $100M on a deal. You have to decide what dollar figure would be a home run for you at this moment of your life.
I do both at the same time. I put most of my working time into home run swings, and any spare money into Cash Flow improvements. Once I achieve passive monthly income (income I don’t have to work for) that exceeds my normal monthly expenses, I’ll be wealthy. And once I hit a home run, I’ll be rich. I don’t know which one will happen first, but one will lead to the other. If I get passive-cashflow-positive first (wealthy), I’ll have complete freedom of my time, and will then exclusively pursue home run swings with every spare dollar and every spare moment of time until I hit one out of the park, then I can upgrade the amplitude of my life and go after the world-changing stuff I want to do. Or, if I hit a home run first (get rich before I’m cashflow wealthy), I’ll be smart and put a chunk of the home run money into boring, consistent, cash flow producing things that will more than pay for my monthly lifestyle expenses, and then continue working on changing the world with the rest. Same result (wealth and riches) regardless of order of achievement.
So yeah, that’s basically it. Here’s some Q&A if you’d like additional details:
Q: Could you get more specific about what you’re actually doing please?
Here are specific things you can do to improve your cash flow on the road to wealth:
- Trying to make as much money in my primary occupation as I can each month.
- Side work; another job, overtime, or extra work when possible for additional income.
- My wife helps by homeschooling our kids (not having to pay for childcare and not much school cost), preparing food for all of us (reducing food costs by not eating out a whole lot, and making sure we have healthy stuff), and she makes wedding cakes as a side business which generates a little extra income.
- Reduce frivolous expenses as much as possible. We don’t have TV (internet and netflix only). We don’t have pets. We competitively shop our insurance and carry high deductibles. Etc…
- Pay off debts and get rid of all monthly debt payments.
- Buy real estate that can be rented and be cash flow positive. (This is the #1 way people become wealthy)
- Buy stocks or paper assets that pay dividends or interest.
- Loan money you get paid back monthly with interest.
- Own stakes in companies that pay you a royalty, dividends, or profit sharing.
- Purchase other cash-producing assets like productive oil wells, etc…
- Own small businesses like franchises that can be managed by others and produce income for you as the owner.
- Sell something that pays you residual income annually or monthly (insurance, etc…) from your customers.
- Blog and monetize it
- Write a book, sell it on Amazon.
- Start a website: a small, highly-automated, niche internet business in your spare time.
Here are examples of Home Run Swings you can take on the road to riches:
- Start a Business (This is the #1 way people become rich). I’m not talking about becoming self-employed, I’m talking about starting a business with the potential to scale it up. Scale can be accomplished many ways including hiring employees, multiple locations, internet efficiences like e-commerce and automation, etc…
- Invest in a Business. Invest in a business by purchasing equity in a business today that you believe has the potential to go big in the future. Make sure it has the three P’s: good people, good product, good plan.
- Real Estate Development or Land Plays. I know several people who made their first millions by getting investors to put up the money to buy a large piece of land, then they split it up and sold it or developed it. Doesn’t require you to be rich already, just takes some knowledge and good people skills.
- Oil Industry, Exploration and other mineral plays. I know several people who have hit their home run in this industry. Right now we’re in a huge oil boom in this country, and there are opportunities all around it. You can make money with the oil, or by doing something needed for the people making the money with the oil. Get it?
- Other leveraged investments like options, etc… Very risky, takes some skill and luck, but there are big winners and losers every day.
- Anything you can do that has the potential to be big, where you can use OPM (other people’s money) to try it. Money will come to good people with good plans. I’ve experienced this personally multiple times.
- Invent something. Patent it. Sell it, or start a business around it.
- Create an app or niche internet solution that has the chance to appeal to millions of people. This is the newest, fastest way to riches.
Q: But doesn’t it, “take money to make money?”
A: No, that’s a lie. The fact is over 80% of millionaires are 1st generation (they did not come from money). I’ve personally raised millions of dollars to start two different home run swing kind of businesses, without having the money personally to do so myself. Again, money is attracted to good people with good products and good plans. It takes skills to make money, not money. You can take someone that has mastered the skillset of an entrepreneur, rob them of all their money, and exile them to a foreign land where they don’t know anyone… and within a couple years they’ll be rich again. It’s what’s between their ears that matters most. That’s why so many rich business people bounce right back after a catastrophic bankruptcy, and why so few athletes and lottery winners ever get rich again if they go bankrupt.
Q: I’m scared to take home run swings because they’re so risky and fly in the face of all financial advice I’ve ever received.
A: Yes, home run swings are risky, but I there are 3 incredible ways to minimize your risk. 1) Figure out how to get paid a living wage while pursuing your home run (I’ve done this twice now), and 2) Figure out how to use OPM (Other People’s Money) for most of your capital on your home run swings (I’ve also done that a few times now). 3) Do every business inside separate LLC’s to limit your liability exposure, and try to avoid any personal guarantees which would put your personal assets (like your home) at risk if at all possible. Everyone I’ve ever seen get wealthy or rich while young had to take some chances. If you want the sure thing, be the tortoise and go listen to Dave Ramsey or any good financial advisor and they’ll show you the proven, sure-thing way. Most people will never make millions while young because they think you need to “get lucky” or win the lottery to do so. But the fact is, if you’re not in the batter’s box taking home run swings, you’ll never hit one, I don’t care how lucky or unlucky you are! (and the lottery doesn’t count, it’s just a tax on the hope of broke people). Two quotes to remember with Home Runs Swings:
- “You miss 100% of the shots you never take.” -Wayne Gretzky
- “Failure doesn’t matter. You only have to be right once.” -Drew Houston, Co-Founder of DropBox
So I say, take as many home run swings as it takes, and make sure you learn from each one. Also, one last thing, we tend to think about Home Run Swings in “best case” and “worst case” scenarios. This makes them scary and exciting. But, you know what? You can swing for a home run and still hit a solid double off the center field wall. My first big business opportunity I tried didn’t make me the millions I wanted, but I made a lot more when I sold my ownership than I would have if I’d stayed in my ‘safe’ job. Solid base hits are possible and great as well. Strikeouts are okay too, just make sure you learn from every at bat.
Q: I feel like I don’t know enough or am not smart enough to do this stuff. How do I learn the things you know?
A: It doesn’t take high intelligence to get wealthy and rich, it only takes the right actions. There are plenty of dumb rich people and brilliant broke people (please don’t make me give you examples, they’re obviously everywhere). I started down this path by reading books. You can learn a TON of good stuff on these topics by books. Two I read this year that I think really influenced my philosophy were “The Millionaire Fastlane” by MJ DeMarco and “Rich Dad’s CASHFLOW Quadrant” by Robert Kiyosaki. Start reading. Start learning the skills you need. Anyone can do it!
Thanks for reading and feel free to comment any questions or additional thoughts to add from your experience.