#21: Wealth Building Part 1: A Framework For Financial Freedom

Before we dive into this episode here today, I think it’s important that you know from the get-go that I’m not qualified to give you financial advice. Everything that I’m sharing in this episode, just like every episode of The Growth Booth, is based on my own experience and my own story, and I always recommend that you seek your own guidance and counsel before making any kind of investment or business decision. With that said, let’s dive into today’s episode…

Welcome to episode number 21 of The Growth Booth, where today we're talking about wealth building. We're talking about the wealth building blueprint that I've built over the past 20 years or so and how hopefully you can use different parts of it to do better financially yourself.

Now, this is the first in a trilogy of episodes where I'm going to be talking about wealth building. Today, I'm going to share the 10,000-foot overview, and in next week's session, The GrowthBooth Episode number 22, we're going to be diving into property investment. I'm going to have my property advisor on the line, and then the following week, we're going to be talking about stock investments. I'm going to have my stock portfolio manager on the line with us.

We will be able to cover some really good ground there, but today I want to talk about the 10,000-foot overview and to share some of the principles and the blueprint that I've used in my own life for wealth building.

Now, the first thing that I want to share with you is my definition of wealth. My definition of wealth is when you've got money coming in that's sufficient to cover your lifestyle costs to fund your lifestyle costs, whether you are working or not.

Another way of saying this is you've got enough money coming in from passive investments whereby you no longer have to work ever again in your life. I believe that someone could be truly wealthy if they've got $10,000 of passive income coming in per month. That might vary depending on where you are in the world.

Some places you might need more than that, other places you might need less. Obviously, it depends on what your hobbies are, the family that you've got and so on and so forth. But the point is that I believe that you're wealthy. If you've got passive income, enough passive income coming in that can cover your lifestyle living costs. Someone can be rich by having hundreds of thousands of dollars in the bank. But if when that money runs out, they're going to have to go back to producing something like working in a day job or working in their business, then I don't consider that person to be truly wealthy.

What we need to focus on, in my opinion, is sustainable freedom. In other words, wealth that is going to be with you in perpetuity forever. That's what my wealth building blueprint is all about, and that's what I've been focused on over the past 15 years or so.

Now, this episode is a little bit different from most episodes that we do, because if you're watching the video version of this, which you can find on YouTube by going to YouTube and just searching for ‘The Growth Booth’ and then finding episode number 21, or if you're watching the video version on TheGrowthBooth.com, then you're going to be able to see that I'm sharing my screen as well, and I'm going to be working through an infographic that I put together for you, which you can also download by going to TheGrowthBooth.com, episode number 21. If you're not watching the video version, if you are tuning in on audio, that's absolutely fine. Just make sure that you head over to episode number 21 on TheGrowthBooth.com to access the infographic that accompanies everything that I'm talking about here.

Now, I believe that anyone with the right recipe, with the right perseverance, and the right time span or enough time span can become truly, genuinely wealthy. I think, however, a lot of people make mistakes along the way and they end up missing out on the opportunity to be wealthy just because they either get too greedy or make silly decisions.

What I'm going to be sharing with you here in my wealth blueprint is a way that you can get started with investing. It doesn't matter how much money you've got if you've got a lot of money or you've got a little bit of money. The blueprint that I use will cater to you, and I want to show you how I think about diversifying my risk and diversifying my assets and building a really strong framework around all of this as well.

Now, at the heart of everything that we do with wealth building, we need access to money. We need a way of having an income. I refer to this as the Mint, and the Mint is different things to different people. For me, it's the income that I get through online businesses. For other people, it might be a day job income or a side hustle or an inheritance or some savings, but you need money to be able to make more money from investments.

The Mint is at the heart of all of that. And then surrounding the Mint, we've got the Piggy Bank, which is what I'm going to talk about in just a moment. This is where I invest the vast majority of my money, the casino, which is a higher risk, higher return investment vehicle. And, I'll talk more about this shortly, the Parachute, which you can use to really safeguard everything that you're doing, and then the foundation to support it all, which is divided up into five different elements.

I'll share what they are a little bit later in this episode. Starting out at the Mint though, this is the place where you make money and you need money to be able to invest so that that investment can then make you more money. The more money that you have in the system, the faster your money is going to grow.

But you don't need to have huge amounts of money to start with. I mean, everyone starts off in a different place, whatever that place is for you, that's fine. Just embrace it, get started, and get investing so that you can then start to leverage compounding. Compounding is what Warren Buffett refers to as the 8th wonder of the world. It's so amazing because that's where your money can work for you. The nature of compounding is the more time you've got, the more the impact you'll see from compounding. Compounding is where you can invest money in an investment and then that investment will make you more and more and more money back. Whereas if you've got money just sitting in a bank account that pays you very little interest, then you're not going to be able to cash in on much of that compounding at all.

There really are two key ingredients to investing and building wealth. The first is money and the second is compounding. Where do you get your money from? Does it come from a day job? Does it come from a business that you may have started a side gig, inheritance, savings? Or maybe it's a whole combination of these things. My Mint is my set of online businesses. It's things like FloatHosting.com, it's things like Cartzy.com software, products that I own. It's also education. I've spoken in the past about how I own and provide consulting through theBluePrintAcademy.com and you can go and check that out if you're interested in getting some consulting or physical products that I own. We sell physical products in tens of thousands of shops offline all around the world and we do huge amounts of sales online as well in different types of business models.

We sell our own products, we dropship other people's products. Affiliate marketing is another thing that we do. We have as part of our business. All of these things bring me money. All of these things are my main revenue drivers. That's why I refer to them as my Mint. I'm a big believer that online business is the single best way to build an income because you can do it quickly and you can scale it and you can do it on a shoestring budget without many resources whatsoever.

There's so much more that you can learn about this by going and checking out some of the other episodes at TheGrowthBooth.com, but to give you a few ideas, you've got things like drop shipping, where you sell other people's products through your own e-commerce store. You've got selling your own brand or physical product that you could get manufactured under your own brand name and sell that on your own store and through the likes of Amazon.com. You could be selling other people's affiliate products and making a commission. You could be providing online marketing services to local businesses. You could create your own digital products. 

There are so many things that you can do to make money online, I do think it's a great place to get started if you want to be able to generate more money to then pour into an investment strategy. Sometimes people ask me ‘how much money do I need to start investing?’. With the blueprint that I'm sharing with you today, you don't actually need much money at all.

In fact, if you've got $100 a month, that would be enough to get the ball rolling and to start seeing some wins from your investment. In saying this, the more money that you can put in the system, the better. If you're someone who earns six figures and can put $20,000 a year into your investment, then in a very short space of time, you're going to be able to see significant amounts of passive income coming into your life.

The piggy bank is where I keep 90% of my investments. This is where 90% of my disposable investment funds go. It's got two main objectives. The first is to give me an income stream, and the second is to allow for asset appreciation. That's especially important in times like what we're going through now where we're in an inflationary environment. I've got assets that are appreciating in value, it just offsets some of the risks. We'll talk more about that over the next couple of episodes.

Now, the piggy bank investments have a couple of different rules. The first is that your piggy bank investments should never be a time suck. Generally speaking, your time is best spent on generating money in the month. This is normally the place for most people where they're going to be able to make the most ‘bang for their buck’ with the time that they've got. That's the first rule, that your piggy bank investments shouldn't be something that ends up taking up all of your time.

The second rule is really an extension of this first one, in that your piggy bank investments should be automated. They should be set and forget and as hands-off as possible. My wealth building plan and what I've done over the past 15 or 20 years is pour 90% of my disposable investment capital into property investments and stock investments of that 100% pull, 45% goes into property investment, 45% goes into stock investment, and the other 10% goes into something called the casino, which I'll talk about in just a couple of moments here with property investments.

What I'm looking for is passive income. I'm looking for appreciation of the assets. I'm looking to diversify the different types of properties that I've got. In my case, I've got quite a range of different properties. I've got high end condos in Manhattan. I've got farmland in New Zealand. I've got homes in Argentina and New Zealand as well. I've got car parks. I've got student accommodation, professional accommodation as well in New Zealand.

That's deliberate diversification of a property portfolio. And again, you can ‘get started small’ doing this. The first property that I ever purchased cost me $32,000, and that was in Buenos Aires in 2006, and that was a great investment. You don't have to spend a huge amount of money to invest in property.

There are a lot of different ways that you can do property investment these days. We'll talk more about property investment on the next episode of The Growth Booth, which will be episode number 22.

If 45% of my funds go into property investment, the other 45% or the next 45% goes into stock investments. And the way that I do it is I don't try to beat the market. I don't pick individual stocks like I don't go and say "I'm going to buy Apple." I just buy the entire market, and I can do this using index funds.

Now, I'm not going to get into too much detail about exactly what index funds are because we're going to cover that in episode number 23 of The Growth Booth when I'm joined by my stock portfolio manager. However, what you're doing when you're buying index funds is you are essentially buying the entire market. This protects you because it means that you can piggyback on the stocks that shoot up. It also protects you because if some stocks lose a lot of value, then they're only a small portion of your portfolio.

Now, the thing about the stock market is that it can go up or down one day to the next. It can go up or down one year to the next. But overall, over the past 130 years, the stock market has been growing in value. Now the thing that I like about buying index funds is that they allow me to diversify my risk and just to buy the entire stock market, essentially without needing to worry about buying an individual stock, which has probably got a 50/50 chance of making money or losing money over a period of time.

By buying the entire stock market, I'm able to mitigate risks and almost lock-in that upside. Now, nothing is ever guaranteed. But if you're doing this for a long period of time and not looking to make money from one day to the next, it's about as safe as you can get in the world of investing. A few tips for you, and then I'll move on because I really want to cover stock investments in episode number 23, but if you are going to invest in stock, it pays to get good council. Even if you've got a small amount of money to invest, I would recommend looking at wealth management firms, looking at stock managers who can take care of your portfolio for you. Even if you're getting started with a very small amount of money, there's still benefit in doing that, because someone who lives and breathes stock investment every single day is going to be able to allocate your funds in ways that are beneficial to you. They're going to be able to diversify your investments into different types of equities and potentially bonds as well and build out a customized plan. Whereas if you're trying to do it yourself and you're not an expert, then you're unlikely to be able to do these kinds of things, let alone other things such as rebalancing the portfolio and many of the other things that we'll talk about on episode number 23 of The Growth Booth in a couple of weeks time.

There are a few pointers. But the takeaway there is that I put 90% of my disposable investment capital into piggy bank investments, which are made up of property and stocks. The other 10% is where it gets really exciting because this is the roller coaster. This is the higher risk, but also the higher reward type of investment that you can make.  This is where you're really swinging for a home run.

This is the kind of investment which is going to fail more times than it succeeds. And even if you've only got a 20% success rate with this kind of investment, the wind that you can have will be sufficient to more than compensate for the losses. In my business or in my world, my casino investments are really betting on myself. I've got my own online business. I'm an entrepreneur. I built software. I build different websites, e-commerce websites, I launch brands and do lots of different things like this. I like to put 10% of my disposable investment income into those types of projects because we've seen over time that the wind can be absolutely huge.

I'll give you a few examples of this. Shopify was started in 2008. Fast forward today, it's a $100 billion company. Seal Software was acquired by DocuSign for $188,000,000. AdEspresso was a smaller one, but was acquired by Hootsuite for $20 million. These are projects that may have objectively had a low chance of succeeding when they started, but they went on to be home runs and made their investors huge amounts of money.

Now, if you're not an entrepreneur, if you don't have a project of your own that could potentially fall into the casino category, then speak to a stockbroker, because there are lots of different types of stocks or investments that you could do that are higher risk, higher return.

The one thing I'll say though is at least in my mind, this 10% of money that I'm sort of putting into the casino-style investments is money that I'm willing to lose if I don't make a return on it year after year after year. That's okay. I know it's high risk and it's money, like I say, that I'm willing to lose. If you don't want to lose any money at all, then you should stick to the piggy bank-style investments. And even then, you could still lose money depending on what the markets are doing.

Talking about losing money, obviously you want to mitigate this and you want to mitigate a financial disaster in your life. That's where the parachute comes in. This is what I like to think of as the financial safety net. It's got five main parts to it. The first is to simply not borrow too much. We've seen over and over again that people that get into the most financial difficulties are people that are over-leveraged.

I think it's smart to deliberately build an under-leveraged portfolio. The second point there is to maintain low overheads. And this is just common sense. You need to make sure that your burn rate is well below your earn rate. Otherwise, you're not going to have any money at all to be able to invest. Don't keep money-sucking liabilities that can't be easily eliminated. Things that you can easily burn money on, fast cars, expensive toys, whatever they may be, traveling, and all this is good and well, and I think it's got a place, but you need to be able to be in a position to be able to fund it.

If you're not, then you should think twice about actually doing it. And side note, if you want to learn about using sports cars as an investment, then you should talk to my business partner, Steve Clayton, because he knows quite a lot about that. He's got a few different sports cars and he's seen a huge appreciation of sports cars in value over the past few years. Potentially a hybrid investment strategy for you there.

The third part of the parachute is to diversify your passive income. Diversification is the key to maintaining your wealth. If your wealth is going to be made through investments in the piggy bank, through the casino, and even to make money in the Mint, then the way that you keep that wealth, the way that you maintain it, is by diversification and looking to get passive income from different sources because that's what gives you stability. I'll talk more about diversification in terms of asset diversification in just a second. 

The fourth part of the parachute is to get insurance. Now, don't be Pennywise and pound foolish. If you've got a house that's worth several hundred thousand dollars or more, you'd be smart to have some insurance in case natural disaster strikes. For whatever reason, your house crumbles to the ground in some way. You want to make sure that your most valuable assets are protected.

Insurance is an easy way to do this. It can sometimes be one of those costs that you just think maybe I could just do without that. I sort of feel like that every time we go on vacation and rent a car or something, the insurance costs always seem disproportionately high, but it's just smart. You never know when disaster is going to strike. If you can sort of mitigate the risks and eliminate the risks of disaster, then you're smart to do that.

The fifth part is to diversify your assets. Diversify across different asset classes. Not all property, but maybe property and stocks and then also diversify within those asset classes. I mentioned a few moments ago how we've got different types of property in different parts of the world. We're geographically diversified in that asset class, but also the type of property that we've got is different as well. We've got a farmland, we've got parking garages, parking spots, we've got student accommodation, we've got high-end professional accommodation, we've got family homes, and so on and so forth. I'll share a little bit more about the importance of diversification with a visual graphic in just a moment, which you'll be able to see if you're watching the video and if you're listening to the audio, then make sure you go to TheGrowthBooth.com episode number 21 to download the infographic, which has got this graphic on it.

But the important point here is about diversifying your assets. This is essentially making sure all of your eggs are not in one basket. Now on the graphic that I'm going to share with you here, and if you can't see this, don't worry, because I'm going to summarize what the key point is, is that each year the performance of different asset classes changes. One year you could have something like precious metals being the number one performer. That's what we saw in 2020. In 2018, though, precious metals were one of the worst performers. We see this with real estate. In 2020, real estate was one of the worst performers, the worst kinds of asset classes to be in. But in 2021, it was one of the best. 

There's no patent to this.  There's no way of predicting which is going to be the best asset class to have. It pays to be diversified so that you've got your wealth spread around different areas. And that way, if something goes down a little bit, it's probably going to be compensated by something else gaining in value. 

Now, all of this wealth building blueprint and all this investment strategy needs to have a foundation, and this is the glue that holds everything together. There are five key things that I like to think of when I'm thinking about the foundation. One is the business structure, another is asset protection. You've got accounting and taxes, legal considerations, and then general admin. Now, the good news is that you'll have a far less complicated business structure when you're just getting started, because it's probably not going to make much difference how you're holding your assets. If you don't have many assets when you start accumulating more and more assets, though, then asset protection is probably going to be something that you're more worried about and optimizing your tax strategy, and your accounting is going to be something that you become more worried about. Making sure that you've got legal protection is going to be something that you're more worried about. But when you don't own any assets or you don't have many assets, these are less of a concern.

What I would recommend, though, is that you look to get some local advice around the different types of business structures that exist. For example, if you're building an online business, there are different companies out there that can help you structure that, and make sure that we share a link to one of the ones that we use in the show notes for this episode number 21 here, but speak to someone local about how to protect your assets and how to optimize your taxes and accounting. I think it's just a no-brainer. If you can optimize that side of things and save even just 5% or 10% and pour that money back into your investments, then you're going to be able to grow so much faster because you're going to be able to get more money into the pot and leverage the compounding factor so much more.

As your wealth grows, you're going to evolve your foundation. It's going to happen little by little. It doesn't have to happen all at once. Don't get hung up on having the perfect tax structure or the perfect asset protection structure on day one. This is something that you can build towards over a period of years, so putting theory into practice. 

Let's talk a little bit now about putting theory into practice. The first thing you're going to have to do is make some money and set an investment goal, figure out how you're going to fund your investment. Do you have money already or do you need to go and actually make some and then consider starting an online business? This is one of the best ways to quickly earn extra money without taking on all that much risk or even any risk at all.

I'll make sure that we share a couple of links in the show notes on the ways that you could start an online business and then decide on a yearly investment goal, the amount of money that you're going to inject into your piggy bank and potentially into your casino in year one, year two, year three, and so on. Once you've done that planning, the next thing you want to think about is making your first investment and just getting in the game as soon as you can buy an investment property if you can afford one, and if you can leverage low-interest rates for the mortgage, or consider working with a local property coach or mentor to get some coaching and guidance around that.

When I started out buying property in New Zealand, one of the smartest things that I did was to hire a property coach who I actually found through the mortgage company that I was working with. That guy saved me tens of thousands, maybe even hundreds of thousands of dollars, and I think I paid like $400 or something. Consider getting into property investment. Consider working with an adviser locally if you want to get into a local property, or alternatively, invest in stocks and bonds.

I'm a big fan of buying index funds, and we'll talk about this in episode number 23. By the way, in the very next episode of TheGrowthBooth, we are going to be talking about property in much, much more detail. Make sure you tune into that if you're interested in property investment. If you are looking to get started in stocks, then also make sure you tune into episode number 23. But you can seek help from a reputable wealth management company and you can find one just by doing a Google search for a wealth management company in your state, ‘wealth management company in Australia’, ‘wealth management company in Kansas’, whatever it might be. You'll find different results that can help you move towards your goal. Remember, the two investment objectives are income and appreciation. They are what your investments should give you in my opinion. 

Then step number three is to keep working [on] the plan. The fastest way to grow your wealth is to have more money working for you. You can achieve this by pouring more money into the system. Are there ways that you can make more money? Can you build a business on the side like an online business? Or is there a job that can pay you a higher amount of money? Maybe it's time to go back to the job market and look for something that can earn you an extra ten or $20,000 a year.

Now once your Mint and piggy bank are set up and running - and just to recap, your Mint is how you make your money and your piggy bank is how you grow your money with those low-risk assets - then you're going to hopefully be confident that you can continue to pour money into the piggy bank and your investments and continue to generate more and more money and maybe even put some of your money, a small portion of your money. I put about 10% into the casino projects. 

Now some valuable lessons to wrap this up. First and foremost, you can't get truly wealthy working for someone else, but you can use a day job to build a nice passive income. Most high earners overcomplicate their investment strategy or plan or they just don't have one. My advice to you and say tip number two would be to keep it simple. Tip number three, when it comes to investment, magic bullets really don't exist. If something sounds too good to be true, it probably is. 

Slow and steady wins the race almost every time. Accumulating small wins adds up big, especially when compounding is added into the equation. 

You can't time the market, and by this I mean it's impossible to predict the perfect time to get in and out of the stock market or the property market or any other kind of market. People that tell you that you can time the market have either got a hidden motive or they just don't know what they're talking about. 

The best time to get started was yesterday. The next best time is today. Educate yourself continuously. There are so many smart people out there who share lifetimes of investment know-how in books that you can pick up for a few bucks. 

Reward yourself, stop to acknowledge the wins even when they're small and be patient. Good things take time. Results can be fast, but most likely they will be slow.

Stay motivated to implement and stick to a plan like this. You need a strong reason why. Figure out what that is. Figure out why you're doing this, what motivates you, and remind yourself of that often and then focus on your mindset. Mindset is so critical to investing and succeeding in life in general. I think it's something that everyone can do well by focusing more on. 

I'm going to leave you with a big list of links for different books and things that you can check out to learn more about investing at TheGrowthBooth.com Episode number 21. Remember this is the first in a trilogy of episodes that we're going to be running where we're talking about wealth building and investing. 

If you like what you've picked up in this one, then make sure you tune in to the next one where we're going to be talking about property investing and I'm going to have my good friend and property mentor on the call with me, and then in Episode Number 23 we will be talking about stock market investing and I'll have my wealth manager and stock portfolio manager on the call with me.

That's a wrap for this episode.

Thanks for being here.

Great to have you with us and I will see you on the next episode of TheGrowthBooth.