Welcome to the first lesson in our new 4-part mini-course on The Map to Economic Independence!
Economic Independence is when you have enough cash inflows to support the lifestyle you want, without having to actively work…
So you can spend your time however you want, with whomever you want, and swing for the fences when pursuing your passions.
Now, we all know that if you want to go somewhere, you start with a map. You identify points A and B, and chart the most efficient course.
In this case, Economic Independence is Point B, your destination.
Everyone’s dream of Economic Independence is different. The components are the same, however… and they’re dead simple:
Your cash flow must be greater than your living expenses. And that cash flow can’t depend on you showing up to work every day.
Everyone’s Point A, or starting point, is also different based on your unique financial situation, skills, and experience.
This means that your personal course to get from where you are today to your dream of Economic Independence is uncharted.
When a course is uncharted, you have to actually make the map.
So, in the next 3 lessons (plus a special live Q&A webinar that’ll tie everything together to accelerate your progress and make your journey 10x easier) we’ll show you…
How To Chart Your Path To Economic Independence
This is not hard as long as you have a map (but very hard if you don’t) — and believe it or not, you can get there a lot quicker than most people think.
Why? Most solutions to Financial Freedom are one-dimensional.
As if investing in real estate is just going to magically give you freedom.
It doesn’t work because they’re focusing on just ONE component of Economic Independence.
So a lot of people get stuck and frustrated and then their progress stalls to a complete standstill, even if they’re making more money.
It’s like they’re stuck on one of those metropolitan highway loops, circling around and around, but never progressing to their desired destination.
That’s why we start by getting the entire path mapped out. That way you’ll see the big picture, and be able to avoid all the costly detours or ‘scenic routes’ that only delay you from arriving at your goal.
With this plan, you can make reaching Economic Independence inevitable. And do it in a few short years instead of waiting decades.
Best of all, YOU can do this regardless of where you are today — because you don’t have to drastically change your lifestyle, don’t have to be a slave to a budget — and you don’t even have to earn more money.
You just need an open mind and the ability to follow the step-by-step process.
Sound fair?
Ok great, let’s dive into your first lesson.
Lesson 1: Beginning On Your Path to Economic Independence
Each of the four lessons in this free mini-course covers specific teaching points and action steps so you can start putting them into practice in your life now, and shave years – or even decades – off your journey to Economic Independence.
Key Teaching Points for Lesson 1:
Key #1: Start With The End In Mind
Key #2: Focus on Cash Flow… Not Accumulation
Key #3: Stop Budgeting and Do This Instead…
Key #4: Get Clear on Your Vision
Key #5: Master Your Personal Value Equation
Highlights:
- You want to create more abundance to build a life you love. Otherwise, what’s it all for?
- STOP scrimping, saving, and delaying for “one day, some day”
- Fine-tune your philosophy to focus on cash flow instead of accumulation
- START using mindful cash management instead of budgeting
- Shift your mindset from scarcity to abundance
- Vision is the rarest commodity in the world. Invest the time to get quiet and create yours
- Master our own personal “value equation” to multiply your income and opportunities
- Tap into relationship capital (reach out to someone haven’t spoken to in a long time)
Action Steps are listed at the bottom of this lesson.
Key #1: Start With The End In Mind
“Wealth is not his that has it, but his that enjoys it.”
-Benjamin Franklin
Wealth only exists for those who live it.
So in defining our “Point B” – or exactly what Economic Independence looks like – it’s not just about having a million dollars or some specific number in your bank account.
It’s about enjoying life and living wealthy, because your greatest asset is you.
It’s not a stock. It’s not a bond. It’s not a piece of real estate.
Your greatest asset is your ability to produce, to create value, to solve problems, and to serve other people.
In order to do that, you need a complete picture.
Not only of how you’re going to:
- Build a strong financial foundation
- Secure it against taxes, economic downturns, and financial predators
- Grow your wealth consistently over time and leave a legacy
Yes, we’re going to do all that.
But in order to have true wealth, you must also have your health. Great relationships. And you’ve gotta enjoy life!
Travel. Enjoy your hobbies. Grow as a person. Live!
And that’s the real formula.
Imagine… right now… that you’re Economically Independent.
Your monthly bills are all paid for by your assets.
You don’t have to spend more than 5 or 10 hours a month to manage everything.
You have all the time in the world.
What does your day-to-day life look like? Who are you spending time with? Where are you traveling? How are you contributing to causes you’re passionate about and leaving a legacy?
Allow that inspiration and excitement to bubble up… enjoy it as you get clear. This picture of “living wealthy” is the key to starting with your end in mind.
Key #2: Focus on Cash Flow… Not Accumulation
This whole formula and notion that somehow if you just save enough money, that you’ll be okay, has proven to be an absolute failure.
It’s called the accumulation philosophy, and it creates a mentality of “one day, some day” you’ll have enough money to finally enjoy life. To finally do the things you love.
The idea of “Accumulation” has been sold to you by financial industry marketers for decades… because guess what? They want as much of your money as possible now, as often as possible, for as long as possible!
We’re now starting to see the terrible effects of this failed retirement strategy. People are having to continue to work as they get older – well past when they wanted to retire – because they don’t have enough savings to live off… and they don’t have cash flow continuing to come in.
Yes, building your net worth is important.
BUT it’s not budgeting and saving as much as possible that paves the path to Economic Independence… It’s Cash Flow.
When your cash flow exceeds your monthly expenses… technically, you’re retired! You could stop working and sit on the beach with a drink until the day you die. But after a couple weeks, or months, or years… you’d get bored!
Cash flow empowers you to retire into doing what you love. Into living a life you love.
So… how well do your current investments cash flow?
The key to finding out and optimizing them is the…
Investment Cash Flow Index = $ Invested / Monthly Cash Flow $
A score of 50 and below indicates an efficient investment. The lower the number, the more efficient.
Some Common Cash Flow Examples
So let’s take a look at some typical example investments and calculate the Investment Cash Flow Index for each:
Mutual Fund:
Invested: $100,000
Asset Value: $105,000
Monthly Cash Flow: $0
Investment Cash Flow Index: ∞ INFINITY ($100,000 ÷ $0)
Important note: An “investment” that doesn’t produce any cash flow has an Investment Cash Flow Index of infinity, which means it’s speculation. Even if you have an unrealized capital gain, that does nothing for your cash flow.
Now you may have reasons to hang on to speculative investments. But our general rule is that if an investment doesn’t cash flow, it is a dead asset and should be open to consideration for cashing it out. Then that money can be redeployed in a more efficient, predictable way.
Dividend Stock:
Invested: $35,000 (1000 shares paying $0.24 per share quarterly)
Asset Value: $34,000
Monthly Cash Flow: $80
Investment Cash Flow Index: 437.5 ($35,000 ÷ $80)
Rental Property:
Invested: $50,000 (down payment, financed the remainder)
Asset Value: $200,000
Monthly Cash Flow: $1000
Investment Cash Flow Index: 50 ($50,000 ÷ $1000)
Small Business (or practice):
Invested: $1,000,000
Asset Value: $1,250,000
Monthly Cash Flow: $50,000
Investment Cash Flow Index: 20 ($1,000,000 ÷ $50,000)
As you can see, the business has the lowest number. This isn’t always the case, but in many cases it is. Which is why we often suggest that investing in your own business is your best investment ever.
The rental property is also fairly efficient at 50 — so even if you are not a business owner, you can still find efficient, cash flow investments outside the stock market.
The dividend stock is not very efficient, but at least it cash flows (and to be fair, it can become much more efficient over time, especially if you reinvest dividends at first).
But the mutual fund with no cash flow is ultimately a dead asset. You are speculating that it will make some capital gains. Maybe it will. Maybe it won’t. The problem is you have no certainty and no way to plan ahead.
So what can you do?
Creating Cash Flow Out of a Lazy Asset
In many cases, it may make sense to cash out highly inefficient investments (with a high index) and use the proceeds to pay off or pay down inefficient loans (those with a low index).
Most people chafe at this idea. They like the “security” of seeing a big positive number in that investment account.
But a cash flow focus tells us that overall, an underperforming asset is an inefficient use of our money.
Let’s go back to the example above.
Let’s say you cash out the $100K in a mutual fund that hasn’t been earning any cash flow.
Instead, you could then use it to immediately pay off inefficient loans.
Imagine you had an inefficient credit card debt that is costing you a perpetual $500 a month just to keep treading water.
By paying that off immediately with a dead asset, the $500 monthly amount you had been paying is now freed up as new cash flow.
You can use that extra cash flow to pay down the other loans more quickly.
Or, if your remaining loans are already efficient, you could instead use that $500 per month to buy new cash flow investments. Or build your wealth account. Or reinvest it in your business (or whatever current investment has your lowest Investment Cash Flow Index).
This is just a small example, but these kinds of efficiencies have a multiplying effect on your wealth over time.
There’s a lot more we can say about this, and these are the types of scenarios our Accredited Network providers help our top clients with on a 1-on-1 basis.
CAUTION: Cashing out an investment to pay off a loan can be very efficient, but may have other effects on your overall financial architecture, including unintended tax consequences. It’s best to consult a Cash Flow specialist or your own wealth team to make sure you understand all the implications.
Fortunately, the math is so simple that you can run these numbers yourself just to get an idea of how efficient your existing loans and investments are beforehand and then take the numbers to your financial team.
Key #3: Stop Budgeting and Do This Instead
When most people think of a plan for spending their money, they think of the word “budget.”
But a budget is a plan for restricting your spending, and that doesn’t mix with a philosophy of living wealthy today.
If you want to know exactly how we feel about it here at Wealth Factory, just ask our founder – he wrote an entire book on it:
By spending your money in a mindful, deliberate way, you can live wealthy now while at the same time contributing towards a wealthy future.
We call it a mindful cash management plan. To create your own, you’ll want to think about expenses differently.
The first step is to stop thinking of “expenses” as a negative word. The truth is, there are four types of expenses, and only one of them is worth avoiding.
Let’s start with the first, and worst, expense.
Destructive Expenses.
In our opinion, the only type of expense that’s worthy of a negative feeling is the destructive expense.
Overdraft fees, using credit to consume, spending on vices, or products or services you don’t use or that don’t add value to your life are all expenses that you most likely want to cut out entirely.
If they’re wasteful and don’t add to your life, get rid of them.
Rainmaking (Productive) Expenses.
Productive or rainmaking expenses, however, are how you make money. Spending more money on the right employee, the right equipment, the right marketing campaign or the right mastermind group can pay for itself over and over again.
If spending $1 on a rainmaking expense makes you $2, then we wouldn’t stop spending until that well runs dry.
Other rainmaking expenses are those that keep you functioning at peak performance. For example, the food that you eat, your gym membership, etc.
Education can be one of the greatest rainmaking expenses, too. But be careful, if you don’t use the education, then it was wasteful and destructive rather than productive.
Protective expenses.
Protective expenses are how you safeguard your family, your productivity and your way of life. A good example is putting money away into a separate account until you have at least six months of savings.
More examples are life insurance, disability insurance, medical insurance, plus auto and home insurance, too. Then there’s emergency preparedness, like having an extra food supply, or paying for someone to develop a fire evacuation plan for your home.
These are all expenses we wouldn’t skimp on.
For example, many people get the minimum amount of auto insurance legally allowed so that it’s cheaper. But if they injure someone in a car accident, they may not have enough liability coverage to protect them in case of a lawsuit.
That means, with one expensive judgment against them, all their years of hard work saving and growing wealth are gone in an instant.
One last thought: a hidden feature of protective expenses is that they help you to be more productive. When your mind is free from the worry and stress that comes with uncertainty, there is more room for productive thoughts.
And over time, those extra productive thoughts will increase your cash flow and your wealth exponentially.
Lifestyle Expenses.
Lastly, lifestyle expenses are important, too, and not something to avoid. Vacations, dining out, the latest iPhone or gadget, special experiences with your family, these have the power to rejuvenate your spirit and help you to enjoy life along the way. They’re also the reason you work so hard in the first place.
The only caveat is that a lifestyle expense must be managed well, which means it’s best to pay in cash, and do all you can to avoid using credit.
Your Mindful Cash Management Plan.
They say it’s easier to change your diet and lose weight when you concentrate on the foods you can eat, rather than the foods you can’t. Likewise, if you focus on the three out of four types of expenses that add to your productivity and peace of mind, it’s easier to cut out destructive expenses.
And the result is your own Mindful Cash Management Plan.
Key #4: Get Clear on Your Vision
This sounds simple, but it’s not easy. And it may evolve over the years as you grow.
Ultimately, it comes down to:
- Where are you heading?
- How are you spending your time?
There are plenty of people who could have stopped working a long time ago. Do Elon Musk or Bill Gates still need to work?
No, but they choose to because they’re engaged in something that matters to them.
If you do a good job creating and following the Map to Economic Independence we’re building here, there will come a day when what you do is no longer about money.
It’s about meaning.
The clearer you can get about this now — today — the more enjoyable and smooth your journey will be, because you won’t get distracted by opportunities that don’t align with your vision.
Everyone’s vision is different. But here’s the secret to finding your true, authentic vision:
Create space, and get quiet so you can listen to your inmost wants and desires for your life.
For some, this involves meditation and journaling.
Others might go for long hikes, and connect with nature.
You can supplement with reading books, attending events, getting a mentor, and even therapy.
If you ask a truly wealthy person — someone who doesn’t just have nice cars and private planes…
But someone who is healthy, joyful, and doing what they love (and with strong relationships, which is something many “wealthy” people sacrifice)…
They’ll probably tell you they’ve done most of these things.
What’s one thing you can do in the next week to get quiet, listen to your soul, and start to get clear on your vision?
Key #5: Master Your Personal Value Equation
Your Value Equation is the key to unlocking your unique superpowers, so you can accomplish your dreams… and ultimately reach Economic Independence much faster.
This is about identifying, aligning with, and bringing forth the best of you into the fullest expression possible.
It looks like this:
Financial Capital = Mental Capital x Relationship Capital
Mental Capital is what you know. It includes your skill sets, your education, experiences and insights. It almost always involves specialization (no one can be an expert on every topic).
Relationship Capital is who you know. It comes from having a connection mindset where you’re actively looking to connect and deepen relationships at every opportunity.
During tough times, most people’s Mental Capital gets decimated as they think only about survival. All vision goes away, and productivity declines. However, if you already have strong Mental Capital, you’ll be poised to grow while others shrink.
If you also have great Relationship Capital during a recession, you’re going to get access to the best “off market” opportunities and investments that other people will struggle to find.
Start with an assessment of your Mental Capital. Ask yourself:
- What interests me the most?
- Where do I have unique skill sets and experience?
- What are the biggest problems in the world today that I would be great at solving?
There are so many opportunities out there to help people that have big payoffs… it’s about finding what best aligns with your skills, experience, values, and passions.
Next, assess your Relationship Capital. Ask yourself:
- Who are the people I could add massive value to?
- Who do I know who is a “catalyst” that could promote me to their community or make a key introduction?
- Who is someone that always energizes me and stimulates great ideas? How can I set up regular times on the calendar to hang out with people like this?
- Who do I need to invest some time to build better relationships with?
We’re only 1 idea or relationship away from a new level of prosperity. The bridge to get there has to do with value and service to others.
You DO NOT need more money to make more money. You need to play the game better.
Your hidden capital, which most people don’t realize they have, is your Mental Capital (what you know) and Relationship Capital (who you know.)
The better you are at discovering and utilizing this capital in the world, the wealthier you become (both monetarily and in your enjoyment of life.)
Coming Next: Lesson 2 on “The Roadmap to Real Wealth”
Now that we’ve covered the importance of charting your own path to Economic Independence…
And we’ve gone through 5 keys to getting there quickly and easily… focused on YOU – because you are your greatest asset…
It’s time to dig into the specific financial keys to building a strong foundation, protecting it against taxes and financial predators, and growing generational wealth.
That’s what’s coming next in Lesson 2.
In the meantime, here are some questions to reflect on, as well as action steps to start implementing this lesson in your life.
You don’t have to do them all today. In fact, we suggest you don’t.
Rather, pick just one question and one action step to focus on first. Maybe it’s something that inspired you. Or, maybe it’s something you’ve been putting off… that if you dealt with would free up a huge amount of mental space and energy?
Only you know what’s best… and only you can chart your unique map to Economic Independence. But you can bet we’ll be here every step of the way to help guide and support you.
Questions
- How well do my current investments cash flow?
- Where am I stuck in scarcity thinking and behavior today?
- How can I flip the switch from scarcity to abundance?
- Where do I have untapped relationship capital?
- What’s my vision? What would I do if money were no issue?
Action Steps
- Throughout the day, start to notice where you’re stuck in scarcity, and where you feel abundant. Awareness is the first step towards meaningful growth.
- Run all of your investments through the “investment cash flow calculator”. What changes would you like to make to create more cash flow?
- Create your own mindful cash management plan by listing out and labeling the 4 types of expenses. Which ones can you eliminate? Which ones would benefit you to invest more in?
- Tap into your relationship capital – reach out to someone you haven’t talked to in a long time. See what they’re up to, ask how you can add value, and share what you’re working on.
- Do 1 thing in the next week to get quiet, listen to your soul, and start to get clear on your vision?
- Make a list of your Mental Capital and Relationship Capital. What can you lean into more or make better use of? What can you cultivate with more effort?
