Step two of my seven-step strategy to build wealth is a doozy. Are you ready for this?
I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep, and grow wealth to enjoy now, and for years to come.
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Accelerate Your Investable Dollars To Hyperdrive Growth
I know of a lot of readers out there who are attempting to build their wealth for the very first time, which is always the most difficult stage by far in the entire process. It goes back to pretty much the only thing I can remember from 7th-grade Science class but as an application to every area of life, including building wealth. It’s the Law of Inertia, which simply means an object wants to stay in rest or motion unless an outside force causes a change. The most amount of energy is taken up at the beginning of any endeavor.
Your bank account wants to stay at zero unless you, the outside force, cause that change. Think about how hard it is sometimes to get to the gym. Once you’re there and you’re moving, you wonder why you had such a hard time starting. Establishing that foothold and getting the wealth energy moving when you don’t have any is a challenge. Let’s debunk the traditional thinking that you can get wealthy by saving 10% of your income. It’s much easier to go fast than slow as success loves speed.It's so much easier to go fast than slow, as success loves speed. Click To Tweet
In this episode, we’re going to talk about the keep part of making, keeping, and growing wealth. I want to help you build wealth as fast as possible so you can enjoy it while you’re young and healthy and not put off the things you want to do until you’re 65 or older. We’ll dive into my thoughts around keeping and expanding your investible dollars, the challenges that you’ll have along the way, and how to accelerate the compounding of your funds to live like no one else so that later, you can live like no one else. If you’re looking to keep and put to work your hard-earned dollars, this show is for you.
I got to follow up with the story where I skipped that church to go play in an illegal underground poker game on Good Friday. Don’t judge me because I did go to church on Sunday, and I did it on the service streaming while I was playing poker. I put the headset on and got it fired up on YouTube. All my buddies that I play with are more like frenemies. We get along, but our goal is to extract as much money from each other as humanly possible. I consider that more friendly.
It’s not illegal. I’m just embellishing this story, so just go with it. Don’t judge me. It makes for a better story. I’m playing the whole time that I’m on the church service app and I’m watching it streaming, I’m like unbeatable. Everything was going my way. I was up $3,000 or something. I don’t think all the guys were serious, but I need that church app. I’m like, “You guys are degenerate gamblers. You need more Jesus in your life. There’s no doubt.” No judgment. Everybody’s got to come to their own conclusion.
I get this incredible win streak for this hour. I’m up three. I’m on top of the world. I’m like, “God’s on my side.” As soon as I log off, shit hits the fan. I go downhill. I lose some money like $3,000 or something. That was a big swing. What I’m going to talk about in a future episode is, “Volatility is the price you got to pay for outsized gains.”
When I play that game, I can make big money quickly and I can also lose money quickly. I can’t wait to share that episode with you. In this episode, we’re going to talk about Step 2 in the 7-Step Strategic Plan. This is the step where you don’t particularly want to read and I understand why. Stay with me. Don’t turn off the seven steps because of this step that you don’t like. This is a critical step to building wealth fast.
Live Below Your Means
Step two is to choose to live well below your means you can save over 60% of your income. Calm down because we’re not talking about it. You’re not going to save 60% of your income where you’re at. I’m sure of that unless you go to ramen noodles, downgrade your house, or sell off your cars. You’re going to have to make some significant lifestyle changes in all likelihood because you’re probably spending about as much as you earn if you’re the typical American.
Saving 10% and earning 10% off the 10% that you saved is a surefire plan to not have any real wealth until you’re at least 65. That’s if you start early like 18, 19, or 20 years old. The sad part about this plan for most people is that they’re heavily invested in mutual funds, which after fees and actual returns only earn 6%. I’m going to do another show where we’re going to dive into average returns that they promote versus actual returns and how this is misrepresented and the numbers do not lie.
In order to get 60% of your income saved and invested, you’re not going to get there by reducing your spending. You could get part way there, but you’re not going to get all the way there. You need to look at the big three. We’re going to talk about them, but the main focus, to reiterate step one, should be increasing your income while simultaneously not increasing your spending.Your main focus should be increasing your income while simultaneously not increasing your spending. Click To Tweet
When you make more money, don’t spend every last dime. In order to prevent yourself from automatically increasing your spending, you need to put some parameters in place to protect yourself from yourself. We all need to protect ourselves from ourselves. We all do stupid shit and spend more than we should. It’s human nature. This is why I have automation set up for my savings, taxes, and charitable giving. When my income goes up, I increase these sweeps. Essentially, the money is swept into these separate accounts. There are taxes, savings, and charitable giving.
When my income goes up, all I do is increase these three automatic sweeps from my bank account. That way, maybe next month when I’m feeling a bit down and I need to go out and buy something to make myself feel better, I can’t. Your brain needs a feel-good dopamine hit quite often. Dopamine is that feel-good chemical. That’s why you check your social media post for likes, comments, and shares. Every time you get likes, comments, and shares, it releases a little bit of dopamine and it feels good. You’re looking for that feel-good emotion.
Why You Do The Things You Do
You do the same thing and go on a buying spree. You can get that dopamine hit if you don’t have self-governing checks in place. If you don’t understand what’s going on, what causes almost all people to go out and spend all their income plus 10% overage, then you’re going to have a hard time controlling yourself when you do get ahold of some new money. In the future episode, we need to talk about the dopamine hit and all the neurotransmitters that go on in your brain and why you do some of the things you do because you’re almost programmed from 10,000 years of recorded human history. There are some survival mechanisms in place that are still with us.
It’s not even remotely possible to save 60% of your income. The burdens of modern American life are pretty immense. You got our home expenses, mortgage insurance, utilities, tax, property taxes, maintenance repairs, auto loan fuel, either gas or electric, which is becoming the rage, insurance, repairs, food, entertainment, Netflix, movies, games, alcohol, marijuana, gambling, concerts, sporting events, and then you got all your healthcare visits and health insurance.
Also, self-care counseling, gym membership, exercise equipment, massages, pedicures, and facials, taking vacations, there’s children’s education, and extracurricular activities. I’m not even talking about all the monthly subscriptions. You probably got automatically Spotify, the App Store, Amazon Prime, Costco, Sam’s Club, and internet porn. I’m not talking about you on that one, but people you know.
You got your Starbucks habit or your $5 latte habit that you got to have. You got all your incidentals and your appliances always break and on and on. You then wonder why you have trouble saving money. You have a very high probability of being pretty broke with that amount of that list. Was there anything on that list that I talked about that you’re not spending money on as an American?
Probably not. Maybe there are a couple of things, marijuana and internet porn, maybe not all of you are doing that, but there are quite a few on there that you’re partying money with every month to function as a normal American. It’s no wonder that you don’t give to charity or tithe to God. You don’t have any clue how you’re going to do it. It’s like, “I can’t squeeze blood out of a proverbial turnip. Investing? That sounds good. I’ll do that later.” No wonder my crypto post on Facebook about taking advantage of an opportunity gets zero responses, but when I post a pic of my puppy, my feed blows up.
I post about, “You got to get into crypto right now. This is a window of opportunity we’re not going to see in our lifetime,” and crickets. I digress. Let’s face it. You don’t need to cut back. You probably do to a certain extent, but you got to increase your income. Your focus should be on providing more value for other human beings. It’s pretty tough when you’re fighting for survival, but that’s your only way out. If we’re being real with ourselves, you had no business buying the $50,000 or $80,000 Escalade when you hit a six-figure earning level for the first time.
Reducing Taxes – The Augusta Rule
You think you deserve and earned it, but in all reality, you own a business you don’t net out that much quite yet. Hone down your ego and desire to prove your status in society and dig in to build responsibility with your money. What’s most important in this particular step is reducing the biggest expense by far over the course of your lifetime, which is your taxes. You’re going to spend more on taxes than any other expense by a huge margin.Calm down your ego and desire to prove your status in society and dig in to build responsibility with your money. Click To Tweet
We need to be strategic and not just rely on our accounts to figure out how to reduce our taxes. A lot of people argue with what I’m about to tell you. When you start hitting over a six-figure income, then you got to start looking at a tech strategy team. People are like, “I have an accountant.” They’re not the same thing.
I’m going to give you a simple quiz. You don’t have to write anything down. Do you know what the Augusta Rule is? Do you know about the pay your kid’s tax deduction? Do you know what the conservation easement tax deduction is? Do you know what the 6,000-pound vehicle deduction is? Do any of those four registers for you? If you say no, then your accountant hasn’t told you about them and they are very legitimate, legal, and moral deductions that you could be taken advantage of. Sometimes they don’t make sense. If you’re not making enough money, a couple of these don’t make sense, but you need to start thinking about the tax strategy team.
I’m going to give you the Augusta Rule. Essentially what this rule says is, “You can utilize your home for business meetings up to twelve times throughout a calendar year, and you’ll be able to deduct these meetings from your corporate taxes.” Essentially, you set up a corporation. The corporation is what you run your business income and expenses through, and then that corporation is going to pay you personally to rent out the use of your home for a business meeting. As you can figure out, the strategy doesn’t work for employees because you don’t own a business. This is why I adamantly encourage everyone on my platform if they truly desire to build wealth to have at least a side business.
What you do is you call local conference centers and get three quotes for renting their conference room for a day. You’ll take the average of the three quotes, and that’s your rental number. You’ll need to have a business meeting and take meeting minutes. For example, you can have a board meeting with your spouse, have your business partners there, do a team strategy session, or even have a business social event or party. Effectively, you’re renting your home out from your business entity. Your business takes the expense deduction and pays you the rent money.
The kicker is that you don’t have to personally claim the rental payment from your corporation’s income. For me, it’s giving me a potential around $10,000 additional tax deduction with no actual money spent from my household. It stays within my house. It just switches accounts. Depending on your tax rate, this could save you up to 5,000 per year in taxes.
If you’d like the exact paperwork that was created and given to me by my tax strategy team, I’m going to give you an ethical bribe. We all bribe our kids unless you’re on the cover of Parent Of The Year Magazine or whatever the magazine is, but I’m not. We used to bribe our kids with treats to get them to do what we want. We bribe our dog with treats. That’s the only way we can get it to come inside sometimes. This is a bribe. I’m being forthcoming with what I’m about to tell you.
I believe that my show is a five-star show. What I’m doing right on this platform, I think it’s good. I’m very highly biased. I’ll be forthcoming about that as well. All you need to do is give me a five-star review on Google, iTunes, and Stitcher, and post a comment. Say how great the show is valuable and what it’s done for you in your own words. I’m not going to tell you what to say there. How’s it impacted you? Send a screenshot of that to [email protected]. We’ll send you all the docs you need for free so you can properly document this deduction.
I’m not a tax attorney or accountant. I’m not licensed in those areas. You need to run this by your accountant or professionals. I’m professional to a certain extent, but not in that capacity. The other thing you guys need to do is to calm down in your cars. I’m not going to tell you what I was making because I’m not going to divulge that on a public platform, but we do our earning powers pretty strong. This was a few years ago, and our earning powers much significantly increased since then.
I was driving a used Mercedes-Benz E350. I drove it all the way up to 135,000 miles and I could have easily got a $100,000 car. No problem. It would’ve been responsible because we had the earning power to do it and it would’ve been a small percentage. However, we didn’t do it. I didn’t want to pillage my investment account. I wanted to use the money that I saved from driving the used car that was paid off and very low maintenance.
Some of those foreign cars like Benz built those two last. I could have driven that. I know I could have gone to 300,000 or 400,000 miles without any problem with that car. I took the money and invested it instead and then the income that those investments generated for me. I used that money to then go out and buy the $100,00 self-driving all the bells and whistles, 0 to 60 in 1 second, or something crazy. That’s like 3.6 seconds or something. I don’t care.
It’s not like I utilize that feature that much. It’s fun when you’re passing people like they’re standing still, but otherwise, it’s not all that useful. Calm yourself down on your car purchase. If you got a car that you’re saddled too expensive, you figure out a way to get rid of that. Go buy one of these used foreign cars that have super hold-up in value and quality. You can drive those things to the moon and back. That’s my suggestion.
The other thing I want to caution you on is your house. I don’t know where the market’s going to go. The market is super saucy. In our area, my buddy Matt, a realtor said, “We put an offer in on a house that was listed for $480,000. We put an offer in for $500,000 and we didn’t get it.” This is happening all across America. It is crazy. The prices are going through the roof.
Bank That Extra Money
Part of that is because the government is holding down interest rates artificially low so people can get loans on much more houses than what they normally could afford because the interest rates are low. I don’t think this is sustainable personally. Why don’t you go and buy something that is real, super affordable and bank that extra money so that you can invest about up to 60% of your income instead of spending it on a house?
I promise you from what I’ve experienced in the house we’re in now, the bigger the house, the costs go up dramatically in terms of heating, cooling, power, and all the bells and whistles, and then shit breaks more. It’s more expensive to fix a roof on a 5,500-square-foot house versus a 1,200 to 6,000-square-foot house. That’s a significant difference. You got to discipline yourself and not try to worry about keeping up with the Joneses. Live like no one else now that you can live like no one else later. You can be financially free and do what you want to do with whom you want to do it when you want to do it. That’s what this is all about.
You got to calm those desires down and make sure that you’re very conscious about the big three. You got to be very conscious and disciplined and understand all that you have at your capability with tax strategies. In the next episode, we’re going to talk to you about debt. What debt should you pay off and what debt should you embrace? What debts are super terrible? Which debts are good for you to build wealth? I’m going to give you a story of how I use debt to take a $12,000 cash investment to over $83,000 in 5 years. I’m going to tell you exactly how I did that. I’ll lay out the numbers. This is going to be quite the education for you in terms of how to grow and build wealth. Thanks for joining us.
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