Five Steps Towards Long-Term Wealth
“Bling bling! Every time I come around your city
Bling bling, Pinky ring worth about fifty
Ah yes, the jewelry, the trips around the world, the new crib, the fat bank accounts, the random overpriced dinners, it's all we hear about from the media – it’s the life many of our idols live, and it’s all we are made to strive for. According to Merriam Webster’s dictionary, the expression Bling-bling is defined as “flashy jewelry worn especially as an indication of wealth; or expensive and ostentatious possessions.” Today, the rapper BG – A.K.A. the man who made the term “bling” so popular in 1999 – is known as one of the music industry’s “one-hit-wonders” and a prime example of a star, who for many years (until he became dead broke) was living the high life we so desire.
We hear about stories like these over and over, and while it’s inspiring to learn about guys like BG who came from nothing, beat the odds, and made it, the reality is that a lot of people lose it all along the way. You see, it’s not about how much money you can make in the end, it's about getting you and your company past the beginning stages, and then finding a way to maintain a continuous stream of income solely from that business. That's the secret to wealth. No gimmicks, no schemes, no $1000 telemarketing programs. That's it.
In my opinion, these are the five things you need to know and do before striving towards wealth:
1. Achieve Financial Independence
Or in other words, not having to go to work because your passive income covers your total cost of living. Do this, and you've made it.
Financial Independence is not making a million dollars, putting a down payment on a crib, buying a car, and then buying a pinky ring worth about fifty. It's about taking that hard earned cash, and finding a way to invest it to secure a constant stream of income. It also means controlling your annual expenses and maintaining your savings. For example if you're entire life costs $100K a year, you'll need $1M in assets pumping out a 10% yield every year, or $500K giving you a 20% annual yield. Is it easy to find a 10%-20% investment vehicle? No. Is it easy to create that $500K-$1M in investable capital? No. Is it possible? One hundred percent.
Start out with $10,000. Think of where you can invest $10,000 and in return get $1,000 per year? I know it doesn’t sounds like much, but even that small extra cash flow each month can help you cover things like cable and Internet bill. It’s steps like this that lead to larger opportunities.
2. Always Know Where Your Money Is
Getting a stable income is a good thing, and nobody can argue with that. However, if you plan on running your own business, you need to start looking at your paycheck a little differently. W-2 employees see top line, taxes, health insurance, 401-K, and then your net income. From the net income you pay your bills. Looking at this right here is very important. How can you change these line items? How much are you saving? How much are you spending? How long will it take you to save up $20k, $50k, $100k, $1M? What is a 1099, and is there any way to generate any additional income for yourself? Is there anything more you can do? If you're not satisfied with your income, work more! It’s simple. I am not going to talk to you about “work-life-balance” and the importance of staying centered (though they are both certainly very important) but instead I want to help you gain financial Independence and long-term wealth.
P.S. As a first step, be sure to read Rich Dad Poor Dad by Robert Kiyosaki
“Just do it!” – Shia LaBeouf
3. Learn Your Tax Strategies
“Dammit! That’s 53% of what I earned last year!!” While work’s been great for many years now, there were a few years in the beginning when I paid over 50% of my taxable income. My advisors and consultants would tell me things like “well, try not to think of it as your money, but more or less money you've owed the government.” or “well that's a good thing, because it means you're making more money.” At this point I've accepted all of these reasons, however, in the years since I’ve been in business, the number of pages in the federal tax code book have grown a ridiculous amount, from 50,000 ten years ago to about 75,000 today. 75,000 pages! At first, I had no idea what any of the paperwork meant, it was all a messy blur to me, but in order to become successful and make the most of my earnings, I had to learn, and so do you. Speak to CPA’s, accountants, tax lawyers, tax specialists and really anyone who can help. Are there special tax deferring vehicles, tax programs, or tax incentives you are unaware of? Find out! That's what I had to do, and still do, today. Year after year I learn something new. Find a tax strategy that works for you and stick with it.
Fun fact: Warren Buffett is worth $64.8B (Forbes 10/2016) but revealed that his adjusted gross income for 2015 was $11.56M, and he paid only $1.85M in taxes. That's only a 16% liability, which is less than his secretary. It's safe to say Warren Buffett has a good tax strategy.
4. Understand Accounting and Financial Statements
I’ll keep this one short. What exact dollar amount did you earn in 2007, 2009 and 2015? Was there growth? What about expenses? Did those grow? What assets and liabilities did you have in those years? What about cash in the bank? How much did that grow in the last 8-9 years? If you have no idea what I'm talking about, and don't have any records, you're going to have to learn. Am I saying that you have to be an accounting wizard? No, but if you can find out the names of the cast and crew of the movie Goonies faster than you can find out how much taxes you paid in 2007, maybe it's time you explored the basic world of financial statements. Learn about profit and loss, and then find a way to access your info at all times. You may have zero ability for accounting, or zero desire to learn – in which case you should seriously think of getting an accountant – but either way you’ll need to understand the process in order to keep track of your earnings, remain financially independent and eventually, achieve long-term wealth.
“Goonies never say die!”
5. Make A Solid Financial Plan
Put all of your ideas, questions, and answers regarding your finances in a single notebook and create a plan that works for you. It can be extremely simple, though if you require additional help, you can always hire a part-time financial planner to do the job and point you in the right direction. Believe me, it's worth the couple hundred bucks.
So that's it folks! It may seem logical and probably a little boring, but this list of pointers is what helped me achieve long-term wealth – I hope it does the same for you.
Bling Bling. Happy money-making!
Article written by Chris Okada, edited by Rosa Sanchez.