In the Eyes Wide Shut article, I described the games people play with their finances. The purpose was to make people aware of the financial path we are all on and to help readers determine what path they want to be on. I highlighted the difference between a default financial future and an intended financial future. This article is for readers who want to commit to an intended financial future and are ready to take the next step.
I want to pause here for an important aside: I had intended to explain the rules and tactics used to master the financial “games” of Wealth, Financial Freedom, and Retirement (which I’ll collectively refer to here as “Wealth”). But I realized that the first play in the playbook isn’t learning the strategies—it’s how to shape a winner’s mindset. That includes understanding the rules, acquiring the right knowledge, forming the right wealth team, and committing to the practice. So this article will cover that first play.
Understanding the Rules
Rule #1: There are four wealth strategies: (1) business ownership, (2) real estate investing, (3) financial instruments (e.g., stocks, bonds, commodities), and (4) intellectual property (e.g., books, music, inventions, movie scripts).
Rule #2: There is no one right way to play the wealth game. You can work full time and participate in one of these wealth strategies. Say you choose business ownership; you might analyze businesses on your days off and buy stock in a company going public. The key to holding down a job while being an active investor is KNOWLEDGE—learning enough about your chosen wealth strategy to distinguish a good opportunity from a bad one.
Rule #3: Don’t gamble. Most people GAMBLE away their life savings, kids’ education fund and homes on a tip or a hunch for a single “investment.” But people committed to wealth never gamble. Their investments are strategic and well researched, and their risks are mitigated. They don’t always win. Failure and mistakes are an expected aspect of the practice. Those committed to wealth fail small and recover big.
Acquiring the Right Knowledge
Knowledge is acquired through active study and experience. It means learning the financial aspects of your wealth strategy so you can evaluate future profitability, calculate expected return on investment, know how to hedge your risks, understand the legal and tax implications of the specific investment tools chosen for your strategy, know the right time to enter and exit the market or strategy, and understand the leadership qualities required to fulfill the strategy.
The technical term for this discovery process is called “due diligence.” Due diligence may require you to be able to: (1) read and evaluate the business financials and business leadership of the company you want to invest in or buy, (2) analyze the market of a real estate development deal, (3) assess the political and economic drivers that affect Fed rates and the future value of the commodities you’ve chosen to invest in, or (4) understand the distribution and marketing channels of a book you want to publish. Once you’ve done your due diligence, you’re ready to form your “Olympic Financial” team.
Forming the Right Wealth Team
Your wealth team (especially if you’re playing at the “Olympic” level, i.e., aiming to become a millionaire), should include attorneys, tax professionals, accountants, bankers, insurance professionals, financial planners, a coach, mentors, a spiritual leader and strategy experts. (It should not include your neighbor’s brother-in-law who just made a fortune selling his house.) The professionals on your team must act as a responsible sounding board, helping you get beyond your emotions about a project, and telling you when to nix a bad deal.
Committing to the Practice of Wealth
Playing at the Olympic level requires discipline in training, knowledge, time, energy and financial resources. Will you eat, breathe and sleep this vision? Will you sacrifice and/or stake everything for this dream? There is a reason why only 1% of the population ever achieves true wealth. If your actions and commitments are consistent with your declared future at this level, you can play and win.
Let me highlight a committed level of active play in the real estate investor game. There is pee-wee ball (buying a house to live in), high school ball (buying an investment property), college ball (partnering with people to work on a large real estate project), pro ball (owning a chain of commercial buildings), and the Olympics (being THE local real estate developer in your market).
You may not need an entire entourage on your wealth team, but you’ll need one or two key people, even when playing high school ball. Don’t enter the “Financial Olympics” ready to invest your life savings with perhaps just a little pee-wee ball under your belt, and without having learned the fundamentals of your wealth strategy.
In the real estate game, the fundamentals might include understanding that there are over 20 different real estate strategies (not just buy and hold or “flip that house”), how the unemployment rate affects the cap rate on local multi-unit buildings, the zoning laws in your region, knowing you must drive by the property before buying at auction to ensure it hasn’t burned down, or understanding your state’s eviction laws and tenants rights for rental properties.
The Winner’s Mindset
Vision. An Olympic track star will describe her vision of her race and her victory in vivid imagery. She’ll take you with her onto the podium, and you’ll feel as if you are bowing to receive the heavy gold metal on a ribbon around your neck. Olympic athletes know why they train every day, even when they’re tired, sick, or don’t feel like it. They want that gold medal. Figure out WHY you want to be wealthy.
Commitment. If your commitment is smaller than the obstacles in your way, you will not find a way over or around them. If your commitment is greater than the obstacles, you will find a way over, under, through or around them—in time. You will be unstoppable. Even though it may not be apparent at first, there is always a way.
Responsibility. What I mean by responsibility is that you are the captain of the ship. People can guide you, light your path; even push you at times. But only you can steer the ship and say where it’s headed. No one will care more about your financial health than you.
Action. If you are committed to wealth, you must take action consistent with that commitment. You don’t need to see the last mile at the starting point—you need to see the first mile. Don’t wait to take action until you’ve mapped out the entire route. By that time, you may be too old or too something to go on the journey. Know where you are, where you’re going, and the actions that will get you to the first pit stop.
Consistency. Wealth is a lifestyle. Put money aside from every paycheck. Make learning a lifelong endeavor. Meet with a professional on your wealth team at least every quarter. Don’t use your life savings until you have extensive experience in the game, are not driven by emotion, can spot a truly good opportunity and can ignore an attractive opportunity that doesn’t fit your game plan. Before you reach this point, practice with disposable income you aren’t afraid to lose. This isn’t something you do once and obtain one outcome; it’s a muscle you build over time.
Mindset is 80% of the game. We are our greatest barriers to success. Our fears, doubts and worries determine the paths we take or don’t. There is no shortage of people working hard, dreaming big and getting in the game. There is a shortage of people willing to expand themselves and their human potential.
My last piece of coaching advice is this: After reading this article, go to the personal finance section of a bookstore or the library, pick up any book that speaks to you, and start reading. Choose a wealth strategy that most interests you. One is not better than another in terms of opportunity to achieve wealth.
After you’ve read a few books, research the terminology in your chosen strategy online. Subscribe to trade magazines in your strategy. Learn where the local experts/successful practitioners hang out. Find ways to be of service to them so you can in turn learn from them. Start to build your wealth team. Find a class, a mentor, and a financial professional willing to educate you in the areas of money you don’t understand. Do something—anything—that will bring you closer to your intended financial future.
by Mayumi Young, CPA