DLS 72 | Think Big

 

In this episode, you’ll discover how to be rich at a young age. You’ll also discover the four stages everyone goes through financially. Listen to this episode to discover how to retire rich and get rich at a young age.

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How To Think Big And Grow Rich At A Young Age

It doesn’t matter what you do to earn money. Even when you earn money as an employee or you earn money as a self-employed or as an entrepreneur or as a business owner, we all need to be in one business. We need to be in one business and that is the money management business. It doesn’t matter how you earn your money. You must treat your business like a business. How do you manage your money? Most people, when we go to school, we learn how to get a job or as an entrepreneur we learn how to build a business and we learn how to make money. Very few of us know how to manage money well. How do you manage money? I believe there are two types of people you need to study. The first type is the people who have become successful and they have stayed successful for a long period of time. Don’t go study people who only have succeeded but only last a short period of time. Instead, study people like Warren Buffett or Bill Gates or some of those successful people. They have succeeded but they have stayed successful.

The second type of people that you wanted to study are people who have succeeded at a young age. It’s perfectly fine. You can learn something from everybody. If they succeeded when they are 60 years old or 65 years old or 70 years old, that’s nice. We can all learn something from those examples and stories but it would be nice to study what did people do to study at the age of 30 years old or 35 years old. It didn’t take them 30 years. It took them maybe three years or five years or maybe eight years. What did they do? I could tell you that the way that they think about money, the way they think about wealth or success is a different perspective. In order for you to manage your money when it comes to financial planning, I believe there are four stages that you go through. In life, you go through four stages and when it comes to these four stages, you also need a financial plan for all of these stages.

It doesn't matter what you do to earn money; what matters is how you manage money. Click To Tweet

Number one is a financial plan for survival. Most of the time, people at the survival stage financially, they have no financial plan. Their plan is to spend whatever they earn and that’s it. That’s the financial plan and if they’re lucky, they’re not in debt but most of them are in debt. In the financial plan for survival, what you focus on is simply making enough money that your income exceeds your expense instead of your expenses exceeds your income, which is a big part of the population. Most people spend more than what they earn every single month and that’s why they rack up their credit card debts and all these things. In the United States, they are very common. At the financial plan for survival, earn more than what you spend. That’s all you need.

Then you get to the second stage which is you need a financial plan for security. I’m talking about putting away three months to six months of cash away for the rainy-day emergency fund. The way you budget, the way how you are saving and investing 10% of your money and just putting some money aside. At this stage, you’re focused more on the saving aspect. Not only you are earning more than what you spend but you’re saving some of the money. That’s a financial plan for security. The next stage is you need financial planning for success. You are setting yourself up for comfort or for abundance. Now you’re thinking about as an entrepreneur. Let me give you an example. As an entrepreneur, your profit or your tax planning or your insurance, you have one or even multiple insurance policies and now you are a passive investor. It means you’re putting money aside.

DLS 72 | Think Big

Think Big: Everything gets much more complex because everything has to work together.

 

For some people, it could be a retirement plan account. It could also be your stock portfolio or your mutual fund portfolio, which I don’t have and I’m not an advocate of that. For most people, it is better than nothing. Some plan is better than no plan and they’re putting some money aside. You’re setting yourself up for a comfortable retirement. That’s financial planning for success and there are different levels when it comes to that at a higher level. At the beginning of my career, I had nothing and then I make a little bit of money. I put some money aside and go through this stage of financial planning for comfort and for security.

Put some money aside and put some savings and then once you accumulate enough money, then you can put it into more modest or conservative investments. Once you do enough of that and once you have more money coming in, the game changes. When you become an accredited investor or when you become a more sophisticated investor, the investment world opens up to you where you’re not investing in things that most people invest in. You have access to investments that most people don’t have access to. You also would start putting together a team which evolves into the fourth stage which is financial planning for significance. That’s when you have so much money. How are you going to allocate some of that to charity? How can you look at that to pass onto the next generation? After you passed away, how are you going to minimize the tax that you pay? It gets more complex. In my life with financial planning, I talk to my accountant so I have my financial planner. Your financial planner, they are experts in their own field. They can give you a lot of technical advice but most of the time they are not wealthy.

You can take their advice, but you still need to process and filter out. Just because they tell you to do A, B, C, D, it doesn’t mean you have to do A, B, C, D. Maybe it’s just do B or just do A. It’s perfectly fine but as a CEO of your money management business, you have to know how your money works and how you want to allocate your money and your resources capital. In my case, I could have a meeting with a group of them where I have the accountant. I have the bookkeeper but then I also have my tax strategist and expert. I talk to my real estate broker about what investments to make next and how the money would flow through at the same time with my financial planner or with my insurance person on how that would work. Maybe I need to buy more insurance to have revenue flow through that to minimize my tax.

Some plan is better than no plan. Click To Tweet

Everything gets much more complex because everything has to work together. It’s not so linear about this. They need to talk to each other. That’s a very different level of financial planning. You may not be there yet but I will say start somewhere. It depends on which stage you’re at. Maybe you’re just at a survival stage so you have to make more money and develop your high-income skill. If you’re now making more money, then save some money. You’ve got to save some money so you can invest. Saving money just for the sake of saving it, you save the money and then you can invest and move onto stage three so you have some financial plan.

One of the things I don’t want to do is to give you certain tips like, “You should invest in this. You shouldn’t invest in that.” What you invest in depends on your risk tolerance and it also depends on what you like and what’s your expertise. Most importantly, it also depends on what’s your goal. What kind of return are you looking for? How much more capital are you going to have? This is all the money that you have. Are you an entrepreneur or you’re a successful CEO that you have money coming in constantly? You need to think about how the revenue and how the income would flow. That’s the answer. That’s financial planning and that’s how you can retire comfortably and how you can retire young and retire rich. Until next time.