In my teaching all across the USA, Canada, UK, Singapore and Australia, I always start with the foundation of financial success, the WEALTH WHEEL. It is a simple concept, but it keeps us focused and on track. It does not matter if you start with real estate, a job, stocks or business, the wealth wheel concepts keeps us on the right path.
There are 6 basic steps to the wealth wheel. First, is education and strategy. I believe in education. As one of my mentors Jim Rohn said, “if you work hard on your job you will make a living, if you work hard on yourself, you will make a fortune”! After education or learning strategies (like M2 Matrix), you have to focus on money making skills. We have various choices, cash flow, growth, speculation, leverage, big hits, and even saving strategies. All of which add to wealth over time. So, where do we start? Let me suggest, we ALWAYS, start with CASH FLOW strategies.
CASH FLOW is KING! Many wealth experts say, you must have multiple sources of cash flow. I agree. If you have money coming in from a job, a small business, real estate and stock, then life is not as difficult. All your eggs are not in one basket (like a job). It gives you the choice to work at a job or not. CASH FLOW strategies are a key.
There are other reasons we work on cash flow. As we build our cash flow, it allows us to borrow more money. The ability to borrow money for investment activities only (no consumer debt), leads to another element of the wealth wheel. LEVERAGE. Leverage the ability to borrow money to acquire assets (real estate or business) absolutely is another key to wealth. Therefore, focus on CASH FLOW 1st!
Once we have cash flow, out of the way, let us focus on longer term GROWTH. Making our money grow over time Using time tested, and solid annual returns like Tax Liens (18% a year in Florida). Or other strategies that will earn us at least 15% a year. Minimum! There is are reason for 15%, I will explain later.
As our money grows, we will get a little more speculative, and take some risk. Looking for the those BIG HITS. A WIN FALL. Perhaps that big foreclosure deal, or stock that RUNS long!
LEVERAGE and TAX planning are the remaining keys. We have to leverage our cash, assets, and time.
Tax planning and asset protection are the keys to long term wealth. It is said one third to one half your wealth will come from tax planning. I agree. The average family will earn 2 million dollars in their lives. At 30% that is about 600k in taxes. Anything we can do to lower that rate, or cut a few percentage points. Goes directly in to our pockets.
Strategy: Use the Wealth Wheel
Think of a pie chart with 6 different sections. A piece of the “wheel” is important.
1. Education: Napoleon Hill said it well. Specialized Knowledge is the key to wealth. Spend any amount of money, on getting great mentors, teachers, and coaches in your life. You can BUY your way to success.
2. Cash Flow. Is King! Multiple sources of income. A job is not enough. Build 3 plus sources of cash flow. For example: job, rental property, stock, and small business income.
3. Growth. Long term wealth is appreciation and growth. Use systems like: Canslim, Dogs of the Dow, Seasonal trading, Fundamental Analysis, or Buffet approach.
4. Big Hits. Nothing like a win fall every once and awhile. Look for greater returns.
5. Leverage. All the rich use it. Leverage you cash, assets, credit and intelligence.
6. Asset. One third to one half your wealth will come from tax planning and asset protection. The average American family will earn over 2 million in their life time. How much are you taking home?
Unfortunately, many folks start off with the wrong step or mix up strategies. Example, they invest in stocks for growth, when what they really want is cash flow. Cash flow to augment a job or even replace a job. Everyone should have multiple sources of cash flow (just in case). You need a CASH FLOW strategy in the stock market, not a growth strategy. Most advisors talk about growth strategies, like buy and hold, or fundamental analysis. That does not pay the bills.
There are several cash flow strategies for the stock market. Strategies like: credit spreads, options, covered calls, 3 day pop, best 6 days of the month to invest, 6 week system, daily gap trades, and more. You should check it out. In fact later we will talk about these strategies. They are cool.
Many investors buy real estate for cash flow, and end up with growth (appreciation). When they were expecting to flip the property and make money. There are specific cash flow strategies in real estate and separate growth strategies. You need to know the difference.
Or even worse, folks try real estate, business or stocks without education or a specific plan. The best thing you can do before going on any adventure, is buy a MAP. Know the territory, and path before walking it. Otherwise you get lost and so will your money.