Walk or Run Through the Jungle? Part Two Money Series
I bet you know all there is to master the game of money. No need to read on right…..WRONG!!!!! It starts to get really interesting from here and absolutely life changing by Part 6 – the last of the series.
Here is what I wanted you to take away from Part 1: Welcome to the Jungle:
- 95% of investors lose money from investing
- Money is not the goal….the places money can take us, the time and freedom and opportunity money can bring is what we are really after
- We all have a belief or story about money…is it abundance (there is plenty of money) or scarcity (there is never enough)
- We all adopt a growth or a cash flow strategy in investing with more bias to one
- You need to know where you are today in your net worth to progress and grow
Before you go on any further if you don’t have the answer to point 5 then you need to work it out. I don’t want you to merely have your best guestimate or thought about what you think it is!
This needs to be written down.
Write your assets on one side of a spreadsheet and the liabilities you have on another and date it today. Take the liabilities away from the assets and that is your NET WORTH!! Put it somewhere you will be able to access it easily. Know the number and remember it and get excited about it as we are only going to build
The next question I have for you: Why are you reading this article about Money?
The primary reason I personally access economic, business and investment books, articles and newsletters are to help me formulate the best approach to managing my family’s financial position. This is my WHY – because I am responsible for
I suspect this is the primary driver for you. However, we all have different starting points and different appetites for risk. And we are at different stages of life with different investment requirements (more growth, more income or a bit of both). We also have different tax brackets, previous investment experience (wins and losses…remember 95% of investors lose money from investing) and time horizons. And this makeup just some of the various drivers.
We also have confirmation bias...every single one of us. If we believe the world is going to blow up, then you will be drawn to articles and authors who echo your thinking. If we are confident about the future of the world and believe it is only going to keep getting better then we will gravitate towards research that supports the argument for this upside.
Our differences and confirmation biases mean we adopt either a glass half full or a glass half empty approach to investing.
Be open to being challenged. The belief and story you have could be enhanced, but you will have to drop your guard to allow it to happen.
So let’s get back on track….in Part One I shared with you the outline of my investment blueprint. Let’s start with a breakdown of the first rule.
RULE #1 - Build a great business that creates sustainable income
The number one asset you have is your business.
It provides the cash flow for everything that you do...buying your home, living day by day, holidays, investing etc. Without the cash flow from your business, you can’t do any of these, yet we are more interested and focused on investing in other assets like property rather than thinking of what we have to do to protect the cash flow that our businesses
Do whatever you need to do to protect the strength of your business. Get cash reserves, get clear on the goals of the business for the next 2 - 3 years, lock in your key staff and work out what you are good at as the owner and put your energy there. Surround yourself with the right people as you can’t do it alone.
Do you have a business? What I mean is, are you an operator or a real business owner? What’s the difference? Let me explain it through something I call the BUS test!
If you get hit by a bus tomorrow, would the business stop or be so impacted that it would not last long. If YES then you are an OPERATOR….which is 90% of us.
Alternatively, if you get hit by a bus, the business may go backwards for a while and growth may stagger until a replacement for your role was found - then you have a REAL BUSINESS!
The difference is you. If you are the OPERATOR and the business relies on you then you have a choice…either work hard and create a great cash flow and use the cash flow to LIVE + INVEST….or you can choose to invest and build a real business where you can scale it to more than just you. So, you might ask, how do you build a real business? Here it is:
Develop the following 4 things:
- A commercial vision for your business for the next 2-3 years
- A core set of values (expectations and rules of how to act and be)
- A career path for the team
- Open communication with the context of trust, love and responsibility…yes a big word LOVE to stomach but a game changer!
There is no right or wrong. If you are an OPERATOR (more likely than not) then accept it. Understand it and embrace it. Life will be a lot more gratifying. Also, understand if you want to build a real business it will take time (2-3yr time horizon) and sacrifice of profit!!!
RULE #2 - Automate savings from the business to invest
Work out an amount of money you will allocate from the cash flow of the business that you will take first and you will invest. Is it 5%,10%, 20% or more?
Then automate the process!!
Automate the amount of money that you will save and invest each week or month. Don’t leave it for you to do as it won’t
This sounds easy and you think you probably don’t need to do this but you do. Separate the business and your investments. The risk associated with a business is high. Here is a real-life example of a personal friend of mine from the US...worth hundreds of millions in the media game. I have been telling him for years to pull money out of the business and lock it away in the vault. From there he can invest it away from the business in line with the rules you will learn in the money series. Last month he went bankrupt!! Why? He left his wealth in the business, the unexpected happened and he lost it all. He did not anticipate and he did not plan….this is why you are reading this so act on what you read!!
Once you do this then automate the investments so that you are constantly adding to the assets. The power of compounding is a game changer. Effectively, save and put aside money each time you make money- automate it!!
SO how do you work out the amount to put aside? Mmmmm…..WHALA….another “here it is” moment (inspired from the waiters I had on a recent Disney cruise in the Caribbean):
STEP 1 – work out how much money you have coming in from your business. That is, how much profit do you ACTUALLY make (after you take out all personal expenses you claim in your business because you can) and how much of that is cash coming in each month? If you don’t know how much money you bring in from your business and investments then you need to make it your job to find out. And also find out what you are projecting to make for the next 12 months…perfect timing to do it with the new financial year.
STEP 2 – work out how much it costs you to live. As it stands today. Don’t make any changes just yet. Here is a link to the SIDCOR Smart Money Guide which will help you to work out what life costs you currently. It is powerful. Spend 7-8 minutes to complete it. DO IT! DO IT NOW!!!
So now you have two numbers:
- Real profit from your business
- How much it costs you to live (including all the pimp expenses and personal things you put through your business)
Whatever the difference is, is the amount of money you have available to spend. Whether it is more on living or the amount to invest. Work out what % of your total profit this number is.
If your profit in your business before you pay yourself or draw any money out is $200,000 and the amount of money it costs you to live is $150,000 then you have $50,000 to contribute to your lifestyle or to invest.
50000/200000 is 25% profit.
Then work out how much you will automate and draw from the business to invest. Is it 5% of the profit ($10,000 pa), is it 10% ($20,000), or 20% (which is $40,000)? And what if you want to do more than 25%? Then you are going to have to increase your profit in the business and/or cut the amount it costs you to live today. This is the sacrifice.
I will explain in Part 3 of the Money Series how to accelerate your wealth creation strategy and how to speed things up….stay tuned!
Find parts 1-6 of the Money Series here:
- PART 1: WELCOME TO THE JUNGLE
- PART 2: WALK OR RUN THROUGH THE JUNGLE
- PART 3: EAT LIKE A LION IN THE JUNGLE OR MONEY
- PART 4: HOW TO SURVIVE IN THE JUNGLE OF MONEY
- PART 5: THERE IS ALWAYS A TRAP IN THE JUNGLE OF MONEY
- PART 6: THE SECRET OF TRUE WEALTH