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For many people, the financial journey through life goes something like this:
1. Go to school
2. Go to uni/enter an apprenticeship
3. End up with a job
4. Get a credit card
5. Get a car loan
6. Get a home loan
7. Realise in mid 30s-40s that they need to do more
8. Panic slightly and make some average decisions in an attempt to retire sooner.
It should be noted that this occurs whether they are self-employed or not. In fact. Self-employed people often have WORSE financial outcomes due to the lack or requirement to pay oneself superannuation and the inconsistency of their income.
The assumption made in the early years is that ‘everything will turn out ok.’ From the experience of involvement with a lot of personal financial situations, I can certainly say that sometimes this is indeed the case. Other times it’s not. The obvious question is though – are you prepared to leave to chance?
[img_text_aside style=”1″ image=”https://voyagefinancial.com.au/wp-content/uploads/2017/08/Screen-Shot-2017-08-04-at-11.06.56-am.png” image_alignment=”right” headline=”Join%20us%20to%20fix%20your%20finances%20fast!” alignment=”center”]You know how you’ve been meaning to get on top of your finances? We’ve made it easy and fast – click here to join our online workshop and get it done quick!
We have many clients who come to us in stages 7 and 8. They have been earning an ok income. They have a house. They likely have car loan. They sit down with us and once prompted by us to explain where they’re at, disclose all the ideas they have to build their money.
“I want to start investing in shares.”
“My friends have started a property portfolio and it seems to be doing really well.”
“I want to start sub-dividing property”
“I’m trying to start my own business”
If you have think these things – that’s awesome but you’re missing the point. The journey to wealth, independence and freedom is a very specific one and many people don’t know where to start. They see those that are successful but don’t realise:
- Everything they own is mortgaged or loaned. They have made poor choices.
- The price for a ‘successful’ lifestyle is paid in missed birthdays, missed dinners, late nights and lack of connection with significant others.
- High incomes don’t equal financial security. You can earn heaps and get fired/ lose it/ make poor decisions.
- Properly wealthy people and families have advisers who manage their wealth for them and UNDERSTAND the journey that needs to be made.
That’s why the graphic you see is so critically important. If you understand this, you understand wealth and how you need to structure it to create an apparatus that will constrain your (natural) habit to spend money when you have it, enjoy your life now AND drive massive growth by allowing you to dump as much cash into it as you can.
Let’s break it down:
As a first year accounting student, the very first thing they teach is that for businesses, cash and cash flow is king. What they should also explain is that the same is true for individuals.
When asked what one’s most valuable asset is, most people answer along the lines of ‘my house’ or ‘my super.’ This is incorrect. The most valuable quantifiable asset you have is your ability to earn an income. If you are employed, calculating the value of your income is easy (Your annual income x the number of working years you have left. Add an allowance for payrises). If self-employed, the number is a little more difficult to reach, however the principal is the same – your income is worth a HEAP!
Whatever it is, this income should be driven into a structure and system we call your financial foundations. Whether your income is derived by employment, self-employment or other means, ALL income should find its way into your Foundation structure. It’s your financial world’s home base.
Your financial foundations are something that we cover in depth in our online course, showing you how to build it PROPERLY from the ground up. The structure we set up for our clients is remarkable in its ability to rapidly adapt to changes in income or expense. Unlike various forms of budgeting you’ve tried before, this structure doesn’t require counting pennies. Everything is automated and needs minimal maintenance once established. It ensure you can’t overspend.
Your ‘financial base’ gives you a place to live day to day without affecting your overall cash flow or netwealth. It provides protection in case of accident or injury and provides surety of your forecast expenditure (i.e. you can start taking more time off work knowing that everything is sorted, if you want!).
Your income factory can be established with just a few ‘income vehicles,’ or many. The point is to make them diversified. The sole goal of this part of the structure is to provide you the income you need according to your goals and desires.
NOTE: It’s really important to mention here that if you’re a business owner, your business MUST sit outside your Income Factory. Do not confuse the two! Many business owners treat their businesses as income factories. As a result, they never seek to establish income sources from anywhere else. This is a very dangerous game to play as may force you to continue to work in the business beyond it’s (or your) useful working life. Or you may need to keep withdrawing a wage in downturns, eating away the financial base of the business. Relying on a hefty payday on sale isn’t a great idea either. You need to funnel your business income into your Income Factory!
It is unknown to most people, but determining the wealth required to live without requiring work is a very simple calculation. Financial planners and advisers have always known about it. They just like charging high fees to help clients obtain it.
Your Income Factory can start repaying you once you have roughly 20 times the annual income you want. For example –
Say you need an income of $50,000/year.
$50,000 x 20 = $1,000,000.
Simple right! Now, there are tax implications that need to be considered here, but this calculation gives you the figure (NET of any loans etc) that your Income Factory needs to reach.
So, it’s clear that simply starting a business or buying an investment property is not going to establish to the fullest extent what you actually want. After all, making money on an investment is pretty pointless if you aren’t able to capture that wealth in a systematic and sustained way. You need this structure to keep every part of your wealth and financial journey on track.
[img_text_aside style=”1″ image=”https://voyagefinancial.com.au/wp-content/uploads/2017/08/Screen-Shot-2017-08-04-at-11.06.56-am-280×280.png” image_alignment=”right” headline=”Join%20us%20to%20fix%20your%20finances%20fast!” alignment=”center”]You know how you’ve been meaning to get on top of your finances? We’ve made it easy and fast – click here to join our online workshop and get it done quick!