“So what do we do? Anything. Something. So long as we just don’t sit there. If we screw it up, start over. Try something else. If we wait until we’ve satisfied all the uncertainties, it may be too late.”
~ Lee Iacocca
First, let’s be clear about something. Wealth and income are not the same thing. I think many people confuse the two.
Just because someone is making $250,000 a year doesn’t mean they are wealthy. In fact, they often aren’t. They live in a big house with a big mortgage, drive a fancy car, with big payments and take luxurious vacations. They are living the high life but that doesn’t mean they are wealthy. In fact, many people with big incomes are struggling to stay afloat because they feel they have to keep up with the other people around them. They have to live in a certain area of the city, they have to drive a certain type of car, and have a cottage for their family to spend weekends at in the summer. They have a whole bunch of liabilities burning through the big pay cheques they bring in every month. If something happens to that monthly income then their entire lifestyle will crumble before their eyes.
They are not necessarily wealthy.
Income is what you make… the money that is coming in every month. Wealth is what you have built up. It’s what you’re worth.
So how do you create wealth? There are five simple things you can do:
- Learn the difference between assets and liabilities, and then focus your efforts on accumulating assets. And folks, I don’t care what your accountant tells you, your home is not the kind of asset we’re talking about here unless you have a rental suite in the basement that is paying your mortgage. Keith Cunningham says it best when he says “Assets will feed me. Liabilities will eat me.” If you have to make monthly payments out of your own pocket then you haven’t bought yourself the kind of asset that is building your wealth.
- Don’t eat your babies. We partnered with some friends of ours on one of our latest purchases. They were selling their house to purchase a bigger place with a yard and we pleaded with them to not “eat all their babies” when they sold the property. We suggested they send some of their babies out into the world to make more babies. And to this day they continue to report back to us on the babies they’ve eaten or the babies they didn’t eat. The income you earn are your babies. When you invest your money into assets that produce cash flow, like a solid rental property, you’ve effectively sent your babies out into the world to grow up and make more babies for you. So, when you spend that hard earned money, you are effectively eating your babies. When you think of it this way that brand new flat screen t.v. or designer purse doesn’t look as appealing does it? This is also known as paying yourself first and there have been dozens of books written about the subject from the Wealthy Barber to David Bach’s books on the Automatic Millionaire Finish Rich principles. The bottom line is that you can’t spend all your money and expect to become wealthy.
- Do what you have to do to become who you want to be. In other words… if you made a new years resolution to buy $1 Million worth of real estate this year then let’s get to it. Too many people are searching for a magic button to solve all their problems but the real solution lies in yourself. If you want to build wealth you have to do something every day to do that. You have to be so serious about building wealth that you are actually going to DO something about it. If you want financial independence you have to take action to create it. Period.“As you begin to take action toward the fulfillment of your goals and dreams, you must realize that not every action will be perfect. Not every action will produce the desired result. Not every action will work. Making mistakes, getting it almost right, and experimenting to see what happens are all part of the process of eventually getting it right.” ~ Jack Canfield
- Use leverage. When I suggest that you don’t eat your babies, I am not suggesting that instead of eating them you save them. It’s going to take a long time to save your way to rich. And let’s face it … cash is actually worth a little less every year so if you have money sitting in the bank it’s actually shrinking in value. So instead of saving your way to wealth you invest your way to wealth. And… when you invest a dollar use other people’s money to leverage your dollar into many many more dollars. Leverage is the best part of being a real estate investor. For very little money you can control assets worth hundreds of thousands of dollars… and in many cases you barely need any of your own money at all to do this.
- Educate yourself. I cringe every time one of our friends mentions what their financial planner suggested they do. It’s not because they’ve trusted a stranger to invest their money instead of investing in one of our deals (ok… maybe there is a little of that going on but not much!). It’s because the advice of an average financial planner is not really that good. Now… there are excellent financial planners out there. Most of the time they are fee based… so they make money because YOU PAY THEM to evaluate your situation and help advise you on your investments. This is very different than the free financial planners that make money when they do a transaction… and unfortunately while I am sure there are good ones, the advice of these folks is almost always the same. And it’s not usually very good. But it’s easy… and it’s free… and a lot of people will find themselves utilizing the services of a financial planner for that reason. So instead of following the easy and free route take the time, money and effort it requires to educate yourself. If you want to invest in stocks, learn about stocks. And if you want advice pay someone that knows what they are talking about, has made money for themselves and for others. The same things goes for real estate. Don’t just blindly hand over your money… if you want to create real wealth you need to get in the driver seat of your own financial situation and drive. I really don’t think the good things in life come for free … except in the Rev N You newsletter… 🙂
Wealth creation is not something that you can do overnight. It’s not going to be easy but it is relatively simple and if you take these five tips to heart and work them into your plans for 2010 I promise that you will see some very impressive results by the end of the year. And if you don’t, I will give you a full refund for what you spent to read today’s article. 🙂
Published on January 6th, 2010