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Working for income VS Working for net worth.

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Kak

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We all talk about business and how much money we make. How big our revenues are. How we get big contracts. Often times how much money we spend. None of that means wealth.

It all comes down to what we do with the golden goose. Money. For those unfamiliar with the old parable, the golden goose lays golden eggs.... For many, the buck stops there. That is their understanding of the parable. So don't kill the goose. There is another step though... Those golden eggs... WTF is an egg? It will eventually be another goose. Another goose that lays golden eggs.

There seem to be two types of people... Income people and people with money. Both require an income, but people that have money take it a step further. They didn't kill the golden goose, they put it up and just took care of it.

Your net worth should always be rising on average. Sure there will be up times and down times, but it should trend up. FOREVER! Make your wealth immortal!

My business partner and RE mentor likes to say this: There are 2 people... One makes a million dollars per year and keeps/invests 100k. For all intents and purposes, he lives within his means. A screw you life! The other guy makes 250k and keeps/invests 150k. Who is really richer?

Sure the income guy goes on nicer trips and has nicer shit... But who thinks net worth? Who will have the final laugh? The difference is pretty staggering. I took it a step further... WITH MATH!

After 20 years of this exact same thing happening every single year and let's say they both just got a measly 8% annual ROI.

A.) Million dollar income guy is liquid $4,908,307

B.) Quarter-million/year investor guy is liquid $7,362,755

Now let's say their business goes under. Both of them. At that same 8%...

A.) Has a declining investment income starting at $392k per year and only goes down from there. On the same trajectory, million dollar income guy will be worth less than $0 in 8 years. How screw you is that? Not very. In 10 years he is 2 million+ in the hole. He is BK. Has to start over.

B.) Has increasing/passive investment income! $589k on the first year! Holy crap! I think he earned a lifestyle upgrade don't you? Let's just triple his lifestyle to 300k per year. Let's set a lambo on fire every year. In 10 years he is liquid $11.5 million without his business. In 10 more years he is liquid $20.6 million.

At 8% now... Old man "B" can burn a $1.5m Bugatti every year until he dies and still grow his net worth. When he dies he leaves his kids a LOT of money, and hopefully his money management skills, and had a ridiculous ability to spend.

Pretty big a$$ delta there. Now, I am not saying this to suggest some Suz Orman or Dave Ramsey slowlane nonsense. Not even close. I am suggesting you BE the bigger income guy AND be someone that protects that golden goose with their life. Start working on minimizing your consumption while maximizing your income. Be a producer NOT a consumer. I will never be rich enough not to want a good deal.

I encourage you to go play with Excel and create your own scenarios. They tell a big story. They scale up and they scale down. Build a flock of geese.
 

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BizyDad

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GoodluckChuck

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For real man! This idea has been one of the biggest mindset transformations I've experienced since the summit.

My goals used to focus on 1 year or less.
"I want to make 100k this year."
"I just made a deal that will allow me to pay my bills for x months."

Creating the 20-10-5-1 year plan has completely flipped the equation. Now I'm thinking "How little can I pay myself and get by and put the rest towards earning more later?"

I'm okay with not making very much money for the next few years so I can make exponentially more later on.

Short term sacrifice --> long term gains.

Short term gains --> long term sacrifice.
 
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The-J

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Now let's say their business goes under. Both of them. At that same 8%...

A.) Has a declining investment income starting at $392k per year and only goes down from there. On the same trajectory, million dollar income guy will be worth less than $0 in 8 years. How screw you is that? Not very. In 10 years he is 2 million+ in the hole. He is BK. Has to start over.

B.) Has increasing/passive investment income! $589k on the first year! Holy crap! I think he earned a lifestyle upgrade don't you? Let's just triple his lifestyle to 300k per year. Let's set a lambo on fire every year. In 10 years he is liquid $11.5 million without his business. In 10 more years he is liquid $20.6 million.
GOLD for this alone. I've literally never thought of it this way. I need to post this somewhere because I have some bad habits that have kept me from my goals thusfar. This is enough to keep my thinking in perspective.
 

Bradley R

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There are 2 people... One makes a million dollars per year and keeps/invests 100k. For all intents and purposes, he lives within his means. A screw you life! The other guy makes 250k and keeps/invests 150k. Who is really richer?

Sure the income guy goes on nicer trips and has nicer shit... But who thinks net worth? Who will have the final laugh? The difference is pretty staggering. I took it a step further... WITH MATH!

After 20 years of this exact same thing happening every single year and let's say they both just got a measly 8% annual ROI.

A.) Million dollar income guy is liquid $4,908,307

B.) Quarter-million/year investor guy is liquid $7,362,755

Now let's say their business goes under. Both of them. At that same 8%...

A.) Has a declining investment income starting at $392k per year and only goes down from there. On the same trajectory, million dollar income guy will be worth less than $0 in 8 years. How screw you is that? Not very. In 10 years he is 2 million+ in the hole. He is BK. Has to start over.

B.) Has increasing/passive investment income! $589k on the first year! Holy crap! I think he earned a lifestyle upgrade don't you? Let's just triple his lifestyle to 300k per year. Let's set a lambo on fire every year. In 10 years he is liquid $11.5 million without his business. In 10 more years he is liquid $20.6 million.

At 8% now... Old man "B" can burn a $1.5m Bugatti every year until he dies and still grow his net worth. When he dies he leaves his kids a LOT of money, and hopefully his money management skills, and had a ridiculous ability to spend.
This exact paragraph should be copy and pasted in all textbooks/business books
 

SteveO

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Thanks for the excellent post.

I definitely worked for net worth. In fact, a divorce happened because my wife at the time did not understand my goals... no matter how I tried to explain. She wanted monthly cashflow. I tried to convince her that a 1M chunk at the end of a 2 year project was better than 40K/year for 2 years.

We had plenty of money to live off of. Could never quite understand her reasoning.

Back to the topic. The apartment rental business has very slim margins. I found over the years that the income was never where the projections were at. Unexpected expenses and capX would eat a lot of the profits.

So, I started purchasing cheap, fixing up, stabilizing the rents, and then sell. That cycle would continue with a larger project each time.

Gave me enough net worth to retire.
 

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@Kak Epic Post.

That post is education that they just don't teach in school.

Most of us work for income, a very few work for outcome, just like most people have dreams, but they don't have a deadline for them.

We don't want to be like most people that go in circles because they cut corners, let's make sure we know the difference between making a good living and making a good life.
Long term.
All the flowers of all the tomorrows are in the seeds we plant today, so we need to plant well.

Thanks for the writeup, friend.
 

Sebastya

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She wanted monthly cashflow. I tried to convince her that a 1M chunk at the end of a 2 year project was better than 40K/year for 2 years.

We had plenty of money to live off of. Could never quite understand her reasoning.
I'd say most people think this way. It's a classic scarcity mentality.
 
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Kak

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steelandchrome

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Good article and pertinent to the discussion.
I agree with a lot of that. I am by no means an expert, but wanted to share a few thoughts.

-I have been burned lending to family members multiple times. DON'T DO IT!! I'm out in the neighborhood of $10k lent to 2 family members that I know will never pay it back and am resentful every time I see them spend money on something frivolous when they haven't made any attempts to pay me back. Worst of the worst is they are in laws and I can't really push the subject like I would consider if they were my blood family.

-I have only bought used cars with 2 exceptions and both times I talked the dealer into used car pricing as to not lose out on deprecation. I've never been too proud to buy used and in fact liked to brag about the deals that I got vs what the car sold for new. (Current car I paid $35k for with a 100k mile warranty included that only had 7500 miles and sold new for $72k 2 years prior). I also put down 50% and got a super low interest loan for the rest so am paying $200 a month for what other people think is a really expensive car. I'll buy something fancy and outrageous someday, but when I do that it will be when I can write a check and pay cash and not bat an eye.

-I have made what I feel are wise decisions on real estate purchases with an eye for equity and investment potential when buying and what I feel it will be worth in 2-5 years more than fitting my current list of wants/needs. I have always bought with the property needing some sort of improvement etc so I knew I could add value. I also always put down 20%+ to avoid PMI and have a low mortgage that I could cover long term regardless of income situation (in that spot right now and just ended up renting my last house for $800 mo cashflow due to a low mortgage).

-I think longer term when making financial decisions and if you have to question too much right now if it is a wise financial decision then you are probably making the wrong call and shouldn't move forward with that purchase/investment/etc..

-I have always lived below my means so that I could put away a large chunk of income into 401k, personal stock accounts, and unfortunately a super low interest bank account to have liquid assets easily accessible. I would live off my salary and all bonuses (40-50% of income) went straight to savings/investments. I also had 12% off the top go right to 401k no matter what so I would build that up asap. I am by no means rich, but I am comfortable with a long term safety net set in place.

-Spend money on experiences vs depreciating assets if you feel the need to splurge. I have always taken the family on at least one real good vacation a year and bargain hunt to keep it around $4-8k. While that is a lot to some (or peanuts to others), we don't run out and buy a new TV every year or new phones, or new computers, or rims for the car, or a new wardrobe, or eat out every single night, or spend thousands a year at a bar, etc... I am much happier to have an experience with the family that they/we will remember forever each year vs spending money on stuff noone cares about after the thrill of buying it fades away.

I currently am in a good spot even though "unemployed" since I have a safety net of "wealth" built up over the past 20 years. I am however looking to build back the "income" in a new venture so I can then move back to wealth creation!
 

Hassan

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This clarity of this example embody the "lifestyle biz" and "legacy business" differences. It also paints a picture of the different types of mindset that fuel them:

Laurel resting comfort , or envelope-pushing growth?

Review your 10-5-1s people. I know this made me adjust mine. Think bigger.
 

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They didn't kill the golden goose, they put it up and just took care of it.
Excellent post, Kak. I understand in theory, you’re supposed to take care of the goose. But in reality, that’s where I, like many others, get confused. How do you actually take care of the goose.

I for one, earn money from my job, and keep it in the bank. (Terrible!) it’s just sitting there, doing nothing (besides the emergency fund). I don’t actually know how I can make my extra money work to grow even bigger (besides reinvesting in the business if you have one).
 

BizyDad

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Excellent post, Kak. I understand in theory, you’re supposed to take care of the goose. But in reality, that’s where I, like many others, get confused. How do you actually take care of the goose.

I for one, earn money from my job, and keep it in the bank. (Terrible!) it’s just sitting there, doing nothing (besides the emergency fund). I don’t actually know how I can make my extra money work to grow even bigger (besides reinvesting in the business if you have one).
The goose is not money. The eggs are money.

The goose is the business. Or, perhaps more accurate, the goose is a "value creating, money generating" enterprise. Write a book. Sell a script. Invent something and licence it. These aren't traditional businesses, but they can be golden geese.

Keeping saving your money to start your business. Don't feel bad that it is sitting there, especially if you don't understand investing. It is doing it's job. You are building and caring for an egg by not putting it at risk.

Next figure out what business you are going to start or buy and how much $$ you need in that account. Keep working towards the goal. Consider getting a better paying job to accelerate the process.

And once you have a business, you'll understand how to take care of the goose better.

Put the eggs of that goose in the bank. Until you have enough to hatch another goose...
 

BizyDad

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resentful every time
I used to have this issue. It's poison. And people would tell me to forgive them, but I would find that incredibly difficult. Maybe even impossible.

Until I hacked my mind.

There is a solution to this. Reset your expectation. Reset your mindset.

Decide, today, to give them the 10K. Decide that they are family and you are giving it to them. And let it go. Expect to never see your money back. The first time you do this is always the hardest.

But for me, it wasn't too hard, because I always wanted to grow up to be the provider.

I always wanted to be the one that my friends and family could turn to when they needed money.

Why? Because I love them. And I want to be generous with them. Even in-laws...

So I don't believe in not lending money to family. But I only lend as much as I am able to not see back. And in my mind, it is always a gift. I always tell them they don't have to pay it back.

One benefit of this mindset is if/when they do pay it back, it becomes a pleasant surprise. Like, wow you're giving me money! It's a great day.

If they need more than I'm able to give, then I tell him I can't. I don't have it.

And I think that's the biggest difference between me and my family. They have a scarcity mindset. I have an abundance mindset.

In my mindset, I don't need the money back.

I can always go out and make more. Often faster than it takes them to pay me back. And that makes me happy too.

Anyways, I hope some part of this helps you be less resentful towards your in-laws.
 

steelandchrome

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I used to have this issue. It's poison. And people would tell me to forgive them, but I would find that incredibly difficult. Maybe even impossible.

Until I hacked my mind.

There is a solution to this. Reset your expectation. Reset your mindset.

Decide, today, to give them the 10K. Decide that they are family and you are giving it to them. And let it go. Expect to never see your money back. The first time you do this is always the hardest.

But for me, it wasn't too hard, because I always wanted to grow up to be the provider.

I always wanted to be the one that my friends and family could turn to when they needed money.

Why? Because I love them. And I want to be generous with them. Even in-laws...

So I don't believe in not lending money to family. But I only lend as much as I am able to not see back. And in my mind, it is always a gift. I always tell them they don't have to pay it back.

One benefit of this mindset is if/when they do pay it back, it becomes a pleasant surprise. Like, wow you're giving me money! It's a great day.

If they need more than I'm able to give, then I tell him I can't. I don't have it.

And I think that's the biggest difference between me and my family. They have a scarcity mindset. I have an abundance mindset.

In my mindset, I don't need the money back.

I can always go out and make more. Often faster than it takes them to pay me back. And that makes me happy too.

Anyways, I hope some part of this helps you be less resentful towards your in-laws.
Yeah, the first time I loaned this specific person I am resentful of it was fully expected to be paid back and was a loan. The second and third times I knew I wasn't getting that money back and when he asked a fourth time we shut him down as he was abusing the ability to get easy money. Why I am resentful (and I know I shouldn't be) is because he goes and posts on social media that he bought a new dirtbike, that he is on his 3rd vacation in the last year, that he got a new tattoo... All of this while telling me when he borrowed money the last two times (within a week of each other) that he was going to sell one of his dirtbikes and my loan was temporary till he could sell it and pay me back but not only did he not sell it, he went out and bought another one :/

I have however given money happily to my mother, brother in law, and two sisters with no expectation of getting it back and I am not resentful of any of them as I knew they were in need and I knew I could easily help (low amounts across all and almost every one I offered vs them asking).
 

MTEE1985

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There seem to be two types of people... Income people and people with money. Both require an income, but people that have money take it a step further. They didn't kill the golden goose, they put it up and just took care of it.
Amen brother.

Our friend Mr. Koch has increased his geese what may seem an insignificant 16% a year but through a lifetime of business that has equated to 662,000%. Enough to turn $21m into $135b.

For those who aren’t starting with a sizable company already, it would mean turning $5,000 into $33,000,000. Certainly enough for the next generation to live however they want and grow the flock for their children and grandchildren.
 
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Kak

Kak

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Excellent post, Kak. I understand in theory, you’re supposed to take care of the goose. But in reality, that’s where I, like many others, get confused. How do you actually take care of the goose.

I for one, earn money from my job, and keep it in the bank. (Terrible!) it’s just sitting there, doing nothing (besides the emergency fund). I don’t actually know how I can make my extra money work to grow even bigger (besides reinvesting in the business if you have one).
It certainly wouldn’t hurt to go park it in a DJIA index right now considering what has happened to the markets. But act quickly this market condition is temporary.

Once you are in, be patient the DOW will hit 29k again. At some point in the relatively near future.

If I had a bunch of idle cash, I would do it too, but I was in before the dump.

You should build a foundation of investment knowledge. Read about the markets, they are very liquid so you can get in and out pretty quickly. Read about real estate as well. Read about precious metals and emerging markets. Read about bonds.

Then after you have a pretty good understanding of how they all work... Start upping that investment game. It is important to note that you might lose sometimes, but the idea is that long term growth eventually pays off.
 

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