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How To Force Your Wealth Up, Quickly
I think you guys should be super excited about this episode because we’re going to talk about forcing your wealth up. How does that sound? Doesn’t that sound really fun and exciting? Let’s do this. What if I came out of a show with this? “Wealth takes 40 years to build. It happens really slow. By the time you’re 65, 70, or 75, if you just keep putting a few hundred dollars or a couple thousand dollars a month into an index fund, when you hit 65, you can enjoy your money. At that time, statistically, there’s pretty good probability that you could be dead, or maybe that your health won’t be all that good.” How does that sound? That’s the traditional BS that we’re fed.
I’m here to disrupt your thinking and what mainstream says is the way to invest. We’re going to force your way into a high net worth at a young age. I like it. It’s exciting. First off, I want to tell you what wealth really is. Wealth, monetarily, is net worth. It is multiple streams of income. Kara said, “Jack, we’re doing date nights tomorrow night. We’re going golfing.” I’m like, “You are the best. This is the best way I could possibly get.” She wants to go golf with me on Friday nights. She prefers 9 holes, I like 18, so she’s got out the second nine. Other than that, she watches college football, college basketball. She golfs with me. She’s super-hot. She’s patient with me. I need somebody patient. Then we’re going to go out and have a nice little steak dinner afterwards at this restaurant on one of our favorite courses. This is going to be a great night, so I’m super jazzed up.
Let’s talk about forcing up your financial wealth. There are three ways that we all can have available to us to be able to create wealth. There’s one that requires some lot. There’s one that takes a lot of patience. There’s one that takes aggression. Here’s the first one that takes luck. You can inherit it. That does happen for certain people. Baby Boomers are going to be passing on a huge chunk of wealth over the next several years as they pass on their wealth. They control an enormous amount of the wealth, so that’s got to go somewhere. They can’t take it with them, so it’s going on to their heirs if they have them or wherever they decide that they want it to go. A big chunk of wealth is going to get passed on to the Millennial generation over the next decade. If you’re lucky, great. If you’re not, what else do you do?
Even if you have wealth coming your way, I would much prefer to build my own because as Jim Rohn said, it’s not giving a person $1 million. It’s not all about having the money. It’s the person that you become in building the money. It’s what you have to go through, what you have to learn, the experiences that you have to endure. It’s the person that you become by building a million or a multimillion dollar net worth. It’s not so much the money itself. I think a lot of people would say, “BS, just give me the money. I want the money. I don’t care about the person that I become,” but they’re missing out on the big picture.
The next one, you can do it passively over time by slowly and steadily reducing your expenses, increasing your income, taking that in those investible dollars and buying assets like stocks and crypto that you have no control over, and just steadily plotting, being patient. For the most part, that process for the average person takes multi-decades to be able to do.
Even if you’re an employee who earns $1 million, it’s still not that quick of a process to build wealth because 50% of that is getting taxed. Right away, there’s $500,000 off the top. Out of that, you’re typically going to live a pretty extravagant lifestyle. Even if you had $100,000 to invest, it’s still going to take you some time to get there. Now, you’re going to get there a lot quicker of course, but it’s not that easy of a process no matter what.
The third way is that you can actively and quickly force it up. If option one is out, and you aren’t that patient like me, I’m not patient at all. I don’t want to wait until I’m 65, if you guys caught my drift on that first little rant. Then option three is your best bet.
How do you force your wealth up? There are two ways. There’s Robert Kiyosaki explaining Rich Dad, Poor Dad. You force your wealth up by starting a business and investing all into that. As that business grows its cashflow, your net worth also grows as all businesses are valued based on their earnings. Even stocks, they’re largely valued based on their earnings. What’s earnings? Earnings is essentially net income. Earnings is the money that’s left over after all expenses are paid out.You force your wealth up by starting a business and investing in it. As that business grows, your net worth grows, as all businesses are valued based on earnings. Click To Tweet
A company that makes $1 million in revenue, that’s not their earnings. If they pay out $900,000 in expenses such as employees, cost of goods, advertising, marketing, cost of capital, debt payments, all of those things that factor into that add up as you’re growing a business and operating the business, so they have $100,000 left over after the $1 million in sales, that’s $100,000 in earnings. That’s what their valuation is based on.
How do companies get valued? A a lot of companies, like publicly traded companies, they get valued at a much higher multiple than a private business does. I don’t understand why. I haven’t done a lot of research on that. I know that a lot of them are traded at a 10, 15, some even crazy high multiples like over 20. That means that the valuation of the stock, let’s say in this example, there’s $100,000 in earnings, then it’s a 10 times valuation. Then that stock would be totally worth $1 million. That’s pretty high.
Most private businesses are valued somewhere along the lines of about a three times multiple, maybe up to five, to where you could sell your company, for example in this case, if you have $100,000 in earnings, you could sell it for $300,000. There’s a lot that goes into valuing private businesses. I’m not going to do a deep dive on this now because I don’t think most of us are going to be selling our private business anytime soon.
However, you do have that option, and it does come towards your net worth. If you have $100,000 in this scenario in earnings, if you have a company that is more automated, that it doesn’t really depend on any one person such as you for example, and it’s a lot more of a recurring revenue type business where the money keeps coming in through subscriptions or consumption or automated payments. Then that company typically will get a higher multiple, more like a 5X type multiple. In this case, that company would have a $500,000 value.
If you have $1 million in earnings coming in, you have a 3 to 5 times multiple where your business is worth $3 million to $5 million. That’s pretty exciting. This is why I love taking a business, forcing the value up by my active nature, my aggressive nature, impatient nature, and then I’m in control, and then I’m in the driver’s seat. Then I can force the valuation of my net worth up through aggression, through activism.
Once you got this concept down, now you guys can start thinking a little bit differently about investing back into your own business versus investing into other people’s businesses, AKA stocks. I’m not totally against investing into stocks. I just don’t think that it should be 100% of your portfolio like what most people are recommending that they do. I would take 10%, 20% of your revenues or your earnings, and start putting it into other people’s companies as you start to grow your net worth.
Initially as you’re growing, you want to be all in. You want to be focused in on your own business. Why would you invest into somebody else’s business when your business needs those funds, your business needs that reinvestment, your business needs that capital, your business needs marketing to expand, your business needs maybe a new brick and mortar location? That’s where you’ve got to start thinking, “Where can I redeploy this money to get the fastest return?” Typically, it’s with your own business where you’re in the driver’s seat, you’re in control.
When you give your money up to somebody else and invest into somebody else’s company, you have no control over that outcome. It’s easier to invest in somebody else’s business. It’s a lot slower to make that happen, and that requires a lot of patience. Once your earnings of your private business has grown, and it starts to become substantial, you have options then.
Typically, what you want to consider doing to continue forcing your net value of your net worth up is then you buy properties. You can fix them up or repurpose them, and you force the value up. By forcing your wealth up versus buying and praying, it’s pretty exciting. This is how I build a very large net worth by age 43, even with a ton of mistakes along the way.
What you guys got to also understand is you have to understand what you’re made of. What’s your personality type? I’m not patient at all. I have an aggressive nature. I want to be in the game. I love making deals, I love sales, I love marketing. I love being in the game. Instead of just buying an asset and waiting for it to go up over a long period of time, I buy assets, and through my actions, I force the value up.
For example, my father is a very patient person. He’s not aggressive in nature. He doesn’t want to get involved in any type of business. He was a professional for his entire life. He was great at what he did. He was an arson investigator. He essentially tried to figure out when somebody’s house or business went on fire, whether they did it on purpose or it was accidental. Then they could deny the claim or they could process the claim if it was legit. He was very good and skilled at what he did. He wasn’t a high-earner. He did well, but he wasn’t a high-earner.
For him, his best strategy was investing into other people’s businesses. He is very conservative and frugal. He can steadily plot along patiently, doesn’t really care that much to create wealth early at a young age. We’re two totally different human beings. That’s not my style at all. That’s what you’ve got to also keep in mind is what are you made of? What’s your personality type? What do you think is going to be best for you?
If you’re very conservative, you’re an employee, you’re a decent wage earner but not a high earner, you’re pretty conservative, you don’t like a lot of risk, then that’s probably just dollar cost averaging your way. Over the course of time, market goes up, market goes down, whatever the case, you just continue buying every month over the course of many years. I think undoubtedly, at some point in the future, it could be multi-decades, but you’re going to have some wealth accumulated for sure. It depends how you want to play the game.There is more than one way to build wealth, but if you want to do it at a young age, your best bet is hyper-focusing on your own business. Click To Tweet
Each one works. There’s definitely more than one different way to build wealth. My philosophy and opinion is that if you want to do it at a young age, retire young, to FIRE, which is an acronym for Financial Independence Retire Early. If you want to FIRE, then I think your best bet to do that is building hyper-focusing on your own business, driving that cashflow up and the earnings up, and then taking the excess cashflow and investing into cashflow-producing assets, and forcing those valuations up with your actions.