“It’s not your fault if you are born poor. But it is your fault if you die poor”
In the last weekly sauce, we discussed income. Specifically, we spoke about the four different types of income from the cashflow quadrant. Income is great if you know what to do with it that is.
In this sauce, we are going to speak about wealth creation. You know the saying: “the rich get richer and the poor get poorer”? There is a lot of truth to that statement. One of the main reasons for that is based on the choices people that are financially disempowered make with their income. Let me explain…
Why The Poor Get Poorer
The poor get poorer because they buy things and stuff with their income. The rich get richer because they buy income producing assets with their income. It is as simple as that.
Everyone is currently where they are at financially for a reason. Whether we like it or not, our life is the summation of all of the choices and decisions we have made up until this point. So, if we are not where we want to be financially right now, how do we go about changing that?
We build a wealth funnel. This is a very simple concept that if implemented correctly, will without a doubt, change your financial future and lifestyle for eternity. If you have income (I hope you do) then you can implement this today.
What is a wealth funnel? It is a system that influences, directs and controls your finances to accelerate your financial growth exponentially. There are 3 components to the wealth funnel that are vitally important: optimizing Expenses, investing and directing income.
Yes I drew this on Insta stories… lol
Step 1: Expenses
“If you buy things you do not need, soon you will have to sell things you need”
The first step in working towards a financially empowered life is to audit where your money is currently going. You need to tighten the faucet that is leaking all of your income out (shown in the red above).
If we wish to optimize and decrease our expenses, we must first know where our money is going. We can easily do this by downloading an expense tracking app (I like to use mint), linking our bank accounts and credit cards and examining where our money is going. You will likely find that a fair amount of money is going to old subscriptions you do not use, useless things and stuff that does one thing well; clutter your house/apartment.
After we track all of our expenses, it is important to be objective with our current expenses. Make a list and separate your expenses into two categories:
Needs: This is your living Expenses (car payment, housing expenses, anything you NEED to live)
Wants: Entertainment (bars, movies, Netflix, eating out, anything for fun)
Once you separate the two, we can begin to optimize our expenses. Most of the time I see that people can cut around 40%-50% of their expenses on their wants list and around 10%-20% of their needs list. If your numbers are not that high, it is ok. What is important is that you are making steps in the right direction by plugging the holes in your funnel and diverting that income into investments.
Step 2: Investing
“If you can’t find ways to make money while you sleep, you will work until the day you die”
What do you do with all of the money you just saved?
You keep that money in your funnel and invest it into income producing assets (stocks, bonds, REIT’s, real estate, ect).
This is exactly why the wealthy continue to build wealth. They pay themselves first (invest their money wisely into investments that have stood the tale of time) before anything else. Their top priority is to multiply their money before anything else.
And guess what the wealthy do with their income from the new assets they acquired?
They direct that income back into their funnel, purchasing more income producing assets, which creates the compound effect.
According to Warren Buffett, compound interest is the 8th wonder of the world. Buffett attributes his $76 billion dollar net worth to compound interest. Take a look at the growth of Buffets wealth from age 14 to age 83:
Step 3) Income Streams
The average millionaire has 7 streams of income. It is important to have more than one income stream to not only diversify your streams in case of unforeseen issues, but to also further expedite the compounding of your wealth.
When you create multiple income streams that are all pouring into your wealth funnel (shown in blue), along with feeding all investment income (shown in green) into more income producing assets, you have created a machine that will continually grow at increasing rates. Once you have built up a sufficient amount of assets in your portfolio, you will no longer have to work.
Let me explain…
If you can accrue just $500,000 (very doable) and invest it in assets that return 10% per year (very practical) you will have $50,000 dollars each and every year.
For most people, this will more than cover their expenses. When you have all of your expenses covered, you are liberated from trading your time and space for money. You have reached a dangerous level of freedom!
Can you see how liberating this wealth funnel can be?
If you only have one stream of income, work on building another. You will be surprised how easy it is to turn a hobby/passion into a new stream of income.
I promise you can if you drop the excuses, put in the work and get a little creative.
If you cannot think of anything, I advise that you turn a past struggle or problem into an income. If you struggled with it, chances are other people have as well and will pay for a solution.
If you want your life to change, you have to change.
How does change occur?
Take action on this newsletter.
Download the Mint app.
Optimize your expenses by cutting all the garbage out that is draining your hard earned money.
Start investing your money into income producing assets.
Build another income stream.
Funnel as much cash into income producing/appreciating assets as you can.
Reinvest all the proceeds.
Repeat over and over again.
You will thank yourself later.
Remember you, and you only, influence, direct and control your future.
Start acting like it and implement this wealth funnel into your life.
See you next Friday!