There’s Nothing Stopping Your From Becoming Rich

Foolish Advice from a Very Smart Man

Recently I read a Facebook post from a friend and colleague who I respect.  He’s a marketing wizard who owns a very successful business.  So he certainly is no dummy, and he’s personally had a ton of financial success.

Over the years I’ve received some great business advice from him that’s made me quite a bit of money as well.  I’ve actually shared some of it with you in these letters over the years.

However, the advice he was giving to his followers the other day was not only stupid, but outright dangerous.  I was so shocked and appalled that I had no choice, but to call him out on it. 

It was important to me that the people following this advice knew how dangerous this was.  But even more importantly I wanted him to know as well.  As he was following this plan in his own life, and I never like to see a friend get hurt.

So what was this terrible advice?  I’ll tell you in just a minute and what you should do instead.  You’ll also hear about the one big thing that was true about his bad really advice…

The one goal we all have, is to get wealthy.  Some of us are already there; some are on our way, while others are just getting started.  We all want to get rich.  I assume that’s why you read this letter each week.

Well, back to my friend and his bad advice…

After a conversation with his son my friend came to the conclusion that you should not save your money.  He felt that you become rich by making more money each year.  Not by saving.

His thoughts were that he would earn income through his business over his career and eventually sell his business when he retires.  Saving was not necessary and money should only be invested in his business.

So that’s when he decided to make a short video and share it with his followers on Facebook.

This had to be the absolutely worst advice I had ever seen given.  Especially for someone who is really smart, and I respect a great deal.

Now I will say this before we go tearing apart this flawed logic… In one way what he said is true.  Earning more money is the way you become wealthy.

If you want to become rich you need to find ways to increase your overall income.  This can come from owning your own business.  It can also come from putting yourself into a position at your current job where you’re income is not dependent on your hours.  This would be something like a sales position or a profit center manager role.

At the end of the day it’s extremely difficult to become wealthy through saving alone if you’re only making $50,000 a year.

So if you do want to become wealthy that is the part of his advice that you absolutely should follow.  Figure out how to earn more money each year.

But here comes the big BUT…

With all of that said, his advice is terrible and extremely dangerous.  Especially from someone with the influence he has.

Saving and investing wisely is by far the best way to not only preserve your wealth, but compound it greatly.  I’ve seen it first hand in my own life and business.

Also, no matter how strong your business is you can’t always count on it to be around forever.  Plus your business needs to be structured in a certain way to become sellable.

I have no delusions about this in my own life.  The League of Power, my main business which you know me from, has been around for nearly 7 years.  I’m very confident we’ll still be around in 10 years.  In 20 years I hope so.  In 30 years who knows.  There’s a lot that can happen in that time.

Also guru driven businesses can very difficult to sell.  It’s dangerous when the main driver of sales and product creation is one person.  People want to buy businesses that are consistent, systematized, and orderly.  They involve buying it, keeping the right people in place, and letting them run.

So while the idea of him selling his business is possible, it’s far from guaranteed.  That’s assuming the business is even around when he decides to retire.

I suspect that life hasn’t knocked him off the pedestal yet.  He’s a hard worker who came from humble beginnings, but you need to be able to survive when you get knocked down.  Savings and having a comfortable nest egg will allow you to do that.

In my long career I’ve made as much as seven figures in a single year and as little as $20,000.  Sure most of my lowest points were as a younger man just starting out.  However, as most of you know life isn’t a purely upward trajectory.  There are peaks and valleys along the way…  Both personally and financially.

So while one year you might make hundreds of thousands of dollars the next year you might make half of that.  This is especially true when you own your own business and are responsible for your own income.

So what have I done to protect my wealth and grow richer every single year?  Well I have 3 rules that I follow when it comes to savings and wealth.

Rule #1 No Debt – This one is where I constantly hear countless excuses from my friends and readers.  They’ll say things like, “Well I have to have a car” or “I need furniture in my house”.  Sure you may need them, but you don’t need to go into debt to get them. 

I’ve never once leased or financed a car.  I’m not saying this to brag… The truth is I’ve had some pretty crappy cars over the years.  Sure they’ve gotten nicer since then, but that was because I had more cash to buy a better car.

The only exceptions to this rule would be to buy an income producing investment property or sometimes your own residence.  I think the first exception is pretty obvious.  Debt can be ok when you’re using it to create income that surpasses what you pay in interest. 

Your own house… Well that’s a little bit trickier.  Yes, it can be good to own your own home.  The key word being… OWN.  Most people don’t actually own a home they have a giant liability. 

If you’re going to use debt to buy your personal residence only do it if…

You’re buying it at a discount to comparable properties, you can make a significant down payment, the mortgage and upkeep will be cheaper than renting, and if you can still afford the payment if you make a lot less money.

Plus even after you do all this you need to make it a priority to pay that debt off as soon as possible.

I always try to look at it this way.  If all my income went away could I still afford my home if I worked in the grocery store?

Rule #2 Save at Least 25% of Your After Tax Income – Some financial experts will say you should save 10% of your income.  Personally I believe this is too low.  Assuming you earn no interest on that money you can save enough to live for one year without working in just 3 years.  Throw in compound interest and time, and there’s no reason why you couldn’t retire comfortably.

Saving 25% of your income isn’t always easy.  It can be very hard.  Especially when you want to enjoy what life has to offer.  However I try to use this as motivation to make more each year.  Instead of looking at it as I can’t spend 25% of my money.  Try to look at it from the point of view of each additional dollar you net gives you 75 cents to spend.  If you make an extra $10,000 this year you get to spend $7,500 of that.  That will pay for a really nice vacation or a nice dinner out every Friday night for a year.

So while hard, depending on your income, this is doable.  You just need to stick with it and adjust your life accordingly.

This also keeps you from overspending with increased income.  Sometimes, when people start making a mid-six-figure income they start spending like drunken sailors.  Sure by all means have fun with your money, you earned it.  Just make sure you’re putting 25% away.

Rule # 3 Put Your Money to Work for You – This one can be a little bit tricky in many ways.  First off, I’ve seen people with exceptional incomes who don’t invest at all.  They simply let their money sit in a savings account or CD collecting a measly 1% interest rate.

The second mistake I see is the reckless uneducated investor.  This person is the type who will throw their money into risky investments they know nothing about.  They’re susceptible to crashes and actually can do a lot more damage than my first example.

To become good at making your money work for you it’s important to educate yourself.  The key things to learn are how to value the investment and the risk.  If you aren’t as well versed in stock investing I’d recommend reading Warren Buffets past annual letters.

Learning how to do a proper valuation of either a stock or an investment property is the key to being successful.  Simply look for value and invest when you find it.  Sitting on cash can be ok if you don’t find value.

Some examples of value in investments are stocks that are trading at less or a small multiple to book value, a bond selling below net asset value (NAV), or a property netting a 12% return on rent.  Those are just guidelines, but it’s important to educate yourself on these matters.

Those are my 3 rules and why I thought my friend’s advice was terrible.  If you learn how to drastically improve your income and follow my 3 rules there’s nothing stopping you from becoming rich.

So what do you think?  Would you follow my advice or my friends?  What are you doing to become wealthier this year?

Be sure to share your thoughts by clicking on the “comment on this article” link below.

Regards,

Mark Patricks

 
 
Copyright 2017 LOP Solutions, LLC.
316 California Ave. #698 Reno, NV. 89509