When I express that the traditional education system fails in the financial literacy arena, that’s not news to you. Young people are still graduating lacking simple financial knowledge like budgeting, balancing a checking account, and understanding credit.
So, it’s no surprise when we collectively share that most of us grew up in middle-class homes with parents that didn’t know how to generate cash flow beyond their day job earnings, utterly unaware of the benefits of investing in real estate syndications or the concept of becoming their own bank.
Investing in real estate syndications is quite the magical solution to creating cash flow and is a crucial component to ensuring your money is working as hard as possible for you. However, when paired with big-picture financial strategies, the wealth-building machine becomes even more powerful.
The Four Pillars of Wealth
Most people focus on getting an education, getting a job, and earning money to fund their lifestyle. A smaller percentage of the population takes it a step forward and invests in IRAs, 401Ks, and similar retirement plans for their future. But very few people take this a step further, fully implementing the power of financial strategy using asset collateralization to supercharge your wealth-building machine.
M.C.Laubscher from Cashflow Ninja teaches the concept of the four pillars: Cash Creation, Cash Capture, Cashflow Creation, and Cash Control.
The first pillar, Cash Creation, seems simple enough – your knowledge, your skills, and the relationships you nurture are your greatest assets. You pursue an education, learn a high-income earning skillset, create your own business, and solve problems for others, earning an income. This is imperative to all of the other pillars.
Cash Capture is where you create a gap between the amount of cash you earn (income) and the amount that funds your lifestyle (spend). This might be done through budgeting, saving, reducing expenses and liabilities, and continually focusing on increasing your income. The surplus found within that gap is what you’ll use to invest, purchase assets, save, and “fund your own bank.” Your interest investing in real estate syndications may be a result of recognizing that excess and leaning into the desire to grow it.
The third pillar, Cashflow Creation, is where you’re probably at now, pursuing, expressing interest in, and learning about how to use the excess cash you’ve saved to generate additional cash flow, earn interest, and ultimately generate wealth. This is the critical stage at which you leverage your earnings to invest in real estate syndications, diversify into or out of the stock market, buy life insurance policies, and find ways to pay less interest and earn tax-advantaged dividends.
Finally, Cash Control, which isn’t so much the fourth step, but an overall, underlying strategy to protect and refine your financial life toward your goals. This involves estate planning, life and disability insurances, legally protecting your assets from creditors, taxes, lawsuits, and more.
Becoming conscious of these four pillars, identifying actions you can take within each, and setting goals within each is key to moving toward making your money work as hard as possible for you.
Becoming Your Own Bank
A strategy of the very wealthy, captured in a concept referred to as “private family banking strategy,” is where you collateralize your assets so that you are the lender, the borrower, and the beneficiary all at once.
The simplest way to break this down is with an example using a theoretical whole life insurance policy and a real estate syndication investment, one way to supercharge your wealth-building power.
In this example, you’d use your cash surplus created between pillars one and two to purchase a dividend whole life insurance policy from a mutual insurance company. These types of products allow you to fully fund them quickly and then borrow a high percentage of the cash value available within the first year.
Taking a loan against the policy and reinvesting it into a real estate syndication, in this example, generate cash flow that can quickly pay back the loan, pad your pocket, and further fund your whole life policy with tax-advantaged income.
We won’t dive into the details here. Still, there are tax advantages to the earnings inside the insurance policy and the income, not to mention the overall benefits of the automated cash-creating machine you just implemented to build wealth. This is only one way to structure your assets so they’re working hardest for you.
Fast Track By Buying Time
Some common advice from the wealthiest, smartest, most strategic people in the world is to find people doing what you wish you could be doing and then find ways to infuse their lives with value. In other words, help them, find ways to support them, and use what you already know to further develop a relationship with them.
This will give you the “in” and allow you access to knowledge, perspective, and tactics that you’d otherwise not have access to simply because of your intentionally formed mentor/mentee relationship. Your access to higher-level concepts and do-this-not-that advice from people 10 steps ahead of you will allow you to implement wealth-building strategies and tactics faster and with fewer mistakes.
Another more commonly used and more straightforward method of “buying time” is to use your cash to buy things and services that free up your time and mental load. Some examples are: a housekeeper, an assistant, contractors, employees, and service providers within your business. Hiring others to take on tasks frees up your time so you can spend it with family, researching your next deal, and strategizing toward making your money work as hard as possible for you.
Two Imperative Concepts
There are two concepts I want to leave you with. One is that you have to break Parkinson’s law (the more money you make, the more you spend) first, to achieve the level of savings you can invest, of course. But you also have to remain conscious of it and continue to break it again and again throughout each stage of growth as you continue to uplevel your investment strategy and build wealth.
The second concept further supports the argument toward seeking out mentors and masterminds. You’ve likely heard the quote, “You are the average of the five people you spend the most time with.” by Jim Rohn. However, newer research shows you’re influenced by those peoples’ friends and their friends’ friends beyond what you could fathom.
Imagine a spiderweb with you in the center, your five closest friends and mentors surrounding you along the innermost circle of the web, and then a continuously growing circle of influencers (other people) lining each concentric circle.
At Goodegg, we’re focused on presenting you the best real estate syndication investment deals available, of course, but it’s also one of our core values to form and nurture real relationships with our investors, colleagues, and partners. We cordially invite you to join the crew and commit to the ongoing pursuit of knowledge toward making your money work as hard as possible.