7 rules for growing slow (but sustainable) wealth

Rule 1: Think net instead of gross. Many get consumed with the
continuous desire to grow their gross income but often forget to
leverage their net income. Increasing your net income by
lowering your taxes is no different than raising your gross
income. Make sure to reassess your net situation often by
leveraging your write-offs early on.
Rule 2: Embrace economic pressure. There will be many times in
the next 10 years where you will identify an opportunity to invest
or be part of something that requires you to be uncomfortable in
your financial position for a set period of time. Just keep in mind
that risk equals reward, and without any type of financial risk,
you are doomed to stay a prisoner of the lower interest rates set
by banks.
Rule 3: Create residual income streams. If you are bound to only
receive one form of income, it is most likely you are living
paycheck to paycheck and very unlikely that you are actually
saving a large chunk of that paycheck. One of the main reasons
people struggle with savings is because they are attempting to
save money they otherwise count on to live and as a result find
themselves in a position that forces them to spend it, even if they
were lucky enough to save it for a short while. Most survive of
their main income and grow with through residual side income .
Examples of side income may include rental income, dividends,
affiliate marketing, and side businesses.
Rule 4: Turn liabilities into assets. While it is true that most of
the spending an ordinary family makes is buying more liabilities,
you can differentiate yourself by investing in assets instead.
Equity is key when making purchases. Let’s use the example of a
car since we all know most cars are liabilities. If you buy a new
car for $26,000, then it is likely that it will lose the majority of its
value in the first three years, but will eventually depreciate to
about 20 percent of its original value by the time you actually pay
off your loan (assuming a five-year loan). You therefore paid
$26,000 and used your car until it was worth close to nothing.
Instead of buying a liability, think of how you can turn the same
item into an asset. The same $26,000 car is available used and
has taken the majority of its depreciation in the first three years,
and therefore can be purchased for 50 percent off that price. In
many cases, it can be purchased with a similar warranty as a
new one, and very low miles. Since you are finding a car with
much lower miles than it should have for 50 percent of its original
value, you simply can use the car until it reaches a normal
mileage point and then sell it within two years at a minimal loss
(usually less than 10 percent from your buying price). As many of
you may not be familiar with the car market, keep in mind that
great low mileage examples of your favorite cars are not hard to
come by and can be found on sites like cars.com,
autotrader.com and ebaymotors.com. A little patience and due
diligence can save you a tremendous amount of money on this
necessary but depreciating asset. Here is a link to a book that
explains this system in detail.
Rule 5: Save for six months of hardship, invest for a lifetime of
prosperity. While savings matter, you only need to save so much.
Instead of creating budgets to save as much as possible, create
budgets to save some and invest the rest. Invest your leftover
capital into long-term sustainable companies and stocks. This by
itself is a savings account with minimal risk that leads to much
better returns than an FDIC-insured account, especially if
considering a long-term approach.
Rule 6: Define your long-term financial strategy early on. Don’t
wait until you reach a certain amount to define the strategy you
should follow in order to accumulate more wealth. You should
set financial benchmarks early on and ensure progression and
diversification occurs as you reach them. By setting financial
goals yearly, you can get much closer to growing rather than
having years gone by only surviving. Think of your goals in
various ways outside of dollar amounts to reach. For example, I
used to set various goals that were financial in nature but not
dollar-driven. It would perhaps be being in less than an 8 percent
tax bracket one year, but the next year it would be to have six
properties for rent instead of two. It’s always about
understanding the financial picture in your head before painting
it.
Rule 7: Scale your financial growth. As I said earlier,
diversification is key to ensuring slower but healthier returns
while minimizing risks . Scaling is a strategy you can use early on
to set forth diversification methods based on the financial picture
you want to paint for yourself as mentioned in Rule 6. Scaling is
your ability to add different types of investments to your portfolio
based on the size of your wealth. Create a guideline as to how to
scale matters. For me, it looked something like this.
Under $100,000 in cash assets – Goal was to lower tax
bracket to 12 percent by leveraging write-offs.
Between $100,000 – $250,000 – Add real estate for rental
income to portfolio.
Between $250,000 – $500,000 – Add high-risk stock
portfolio
Over $500,000 – Look for investments overseas as well
as invest in other businesses or ventures.
Keep in mind that these seven rules are not geared to help you
reach fortunes overnight, but rather help you frame your 10-year
path for sustainable wealth, as it will take discipline and hard
work with a hint of tolerance for financial risk.
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