November 18 2007 Automatic Wealth

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Automatic Wealth: Wake Up Richer Everyday

It's time to face the hard facts. If you haven't committed to yourself that you are going to build your wealth, made a plan to do so and started working on that plan, then you are probably only building your wealth when you are awake and working. Isn't it better to know that when you sit down to watch t.v. or you close your eyes at night you are still making money?

Passive wealth creation, or being able to wake up richer everyday, is one of the reasons we love investing in real estate. We talked a bit about this in our March issue this year. Of course, there are other reasons why real estate is one of the main ways we've pursued to build our wealth. We've never been as scared of investing in real estate as we have of stocks (we started right around the time that most of our friends and family lost buckets of money in the Nortel stock crash). And we've never found real estate as daunting or as time consuming as creating a business.

This month we're investigating the advice on wealth creation found in Michael Masterson's "Automatic Wealth: The 6 Steps to Financial Independence".

Michael Masterson's "6 Steps to Financial Independence"

by Julie Broad

Recently, Dave and I attended a 4 day marketing bootcamp in Delray Beach, Florida put on by Early to Rise. We each went with different objectives, but we both came out incredibly impressed with Michael Masterson, the keynote speaker of the conference. I think he is best known for his copywriting expertise and affiliation with the American Writers and Artists Institute, but he started with little, held many jobs over the years, and has built his wealth through just about every kind of business imaginable. He's owned businesses for things like pool installations, direct marketing, selling discount jewelry, and has been involved in half a dozen real estate development ventures. This book was a great mental tune up. Masterson offers sound advice in the book from someone who has been there and hasn't lost touch with reality despite his profound wealth and success. He's a guy who wakes up richer every day. I thought some of our readers would enjoy a snapshot of his 6 steps to financial independence.

The Nuts and Bolts of the 6 Steps:

You will make you wealthy...and it won't happen as easily as putting 10% of your income away each month,
You have to plan to be wealthy - wishing won't work,
You must develop rich habits as the rich are different from ordinary people and it's not just because they have more money,
Increase your income radically. He isn't talking about a 3% a year raise here, he is talking about boosting your income by 150% for starters,
Get rich automatically - true wealth is built through the creation of equity,
Retire early, if you want to.

After you have taken stock of your current financial situation, you must plan to become wealthy. As we have said in several issues, "What are your real estate investing goals?". His approach to goal setting asks you to imagine your funeral. What do you want people to say about you? What are the words from your family or close friends? A coworker? A mentor? And someone you didn't know? Based on that, determine your goals in the long term, and then dive in and figure out what the medium and short term looks like. Make them specific and measurable, and write them down.

Plan in hand, it's time to develop wealthy habits. My favourite chapter of the book is "Step 3: Develop Wealthy Habits". Masterson says "Budgeting is like dieting: It's enormously sensible but almost never effective". I have been a budgeter for over 10 years. I have a great understanding of where I spend my money, but I also have a lot of stress about spending money.

Instead of continuing to focus on where I spend my money, as I already have a deep understanding of where my money goes, I'm taking the Masterson approach of doing a personal balance sheet.

Create a spreadsheet that lists all of your assets and all of your debts. Conservatively estimate the value of all of your valuable assets (stocks, bonds, real estate, art) and how much you owe. Then, each time you check your balance sheet, promise yourself (And take the steps necessary to make it a reality) that next time you check you will be wealthier. Before you make a purchase or a decision to do something new, you will find yourself asking "Will this make me richer or poorer?".

Let me skip ahead in his book now, as this is a newsletter about putting the "Rev N You with Real Estate", not about general wealth accumulation and life goals. Step 5: Get Richer While you Sleep is all about investing in real estate, stock investing and investing in businesses to build your wealth. He gets right to the meat of real estate investing as a means to create wealth by saying "While you are building wealth, you should treat your rental real estate portfolio as an equity play. You will want to use leverage (by taking mortgages) to get the maximum appreciation on your cash...As your equity increases in each property, you should consider taking some of that money out of it and reinvesting it in other properties" pg.185.

This has been our strategy, and it's worked very well, especially since the market has been so strong. It hasn't put cash in our pockets (in fact it often feels like our properties take cash out of our pockets) but our balance sheet is better every time we look at it.

He goes into a lot of detail and examples to convince you to invest in real estate. But his bottom line, and we agree, is "If you haven't already begun investing in real estate, start doing so today. If you are a budding real estate tycoon, resolve to add to your empire this year. You'll find that actively investing in real estate can give you much-better-than-the-stock-market returns, and the comfort of knowing your investments can't disappear" page 219. Couldn't have said it better myself Michael! Pick up a copy and check it out for yourself.

Published November 18, 2007