Avoid Dead Money
If you have cash just sitting in a bank account somewhere, it’s dead money. It’s not doing you any good. The way to wealth is to make significant amounts of money and then use it in a way that produces a good return. That requires you to shift from leveraging your time to leveraging your money.
So, let’s discuss the importance of moving from being an employee or self-employed to owning a business or system. The former exchange their time for money, which means their ability to earn is limited. Business/system owners, on the other hand, leverage other people’s time (OPT) and other people’s money (OPM), thereby removing the limits on their earnings.
Robert Kiyosaki is one of my favourite authors. He’s really good at explaining how people make money. There are four types of cash flow, which he describes in terms of quadrants. (EBSI)
To build wealth, you need to move from the left quadrants to the right quadrants. Robert’s recommendation in his books—and he keeps repeatedly talking about how people misinterpret it—is that you use a two-step process to build wealth. First, you build a business that generates income. Then you form a growth pattern by investing that money in real estate or stocks.
What happens to amateur entrepreneurs is they try investing tiny amounts of income and pray they’ll build wealth, or they have no income, coach/mentors, or skills to create a high income but rush into a startup anyway. Here’s the problem: when times get tough (like in the USA in 2008), these amateurs went under—they got smashed, they got destroyed.
One of my favourite things to say to entrepreneurs that usually rattles the room and shakes people up is that advertising and praying isn’t a business, nor is being self-employed. It’s a terrible idea. A professional entrepreneur I met years ago said to me, “If you have less than $100,000 cash in the bank, you’re redlining it. You’re in the danger zone.” I believe that if you don’t have the skills to make yourself 100K right now with no team around you, your strategy—I don’t care who you are—should be to invest in your skills and hustle with a mentor or coach until you have at least that much to sit on and 8.3K per month in cash flow.
Business is an expensive game. If things go wrong, you need to be prepared for a lot of negative cash flow and be able to get down in the trenches with your skills to pull you up and out. 100K per year is also the minimum you should hit before you stop investing in yourself and begin investing in a team and stocks, real estate, or cryptocurrency.
So, as a professional entrepreneur, you have to:
(A) generate cash through your business by leveraging skills
(B) invest the profits to keep the profits.
As Robert says in his books, “It’s not about how much money you make or how much cash you generate. It’s about how much money you keep.”
Investing in yourself is the recipe for success. Mastering the skills you learn forms the ingredients you need to construct your meal. Leveraging your skills to build the business becomes your bread and butter. Hustling out 100K gives you the meat and potatoes. And taking putting a percentage of your 100K cash flow into stocks, real estate, or other investments rounds out your meal.
As an advanced entrepreneur, you’re going to generate cash in three main areas:
• Your skills (S Quadrant)
• Your business (B Quadrant)
• Your investments (I Quadrant)
The default mode for most entrepreneurs is to earn money in the E Quadrant, leverage it to build a sole proprietorship (S Quadrant), then when the S works, quit their E and stop. That’s a bad strategy, and these are the people who get wiped out—because they pay too much tax, aren’t protected from downturns, and don’t own any systems. Also, it’s impossible to scale on your own.
You can’t be everything, so if you want to get ahead in life, you need people to help you and money to invest. I’ve had many team members, coaches, owned systems, and invested capital. I always need more, and the business still requires me in one form or another. If I didn’t have the skills, systems, and knowledge to keep my business going and build long-term wealth, I’d be toast. So, to drive this home, I’ll lay it out this way...
Start as an employee and build out as self-employed until you can mint 100K/year. Then, take a percentage of your 100K to invest in high yield investments that pay you and another percentage to build out your business with systems and employees. The goal is to become a full-time manager/investor who also has the skills to go back to scale your business or pull yourself out of the trenches to save the day.
