Save your way to a fortune? I don't think so …

You’ve read the blogs … you’ve bought the books … you’ve talked to your financial advisor (your wife).

They’ve all told you that you need to pay yourself first! So you are … 10% of your gross salary !

You’re putting some aside in your 401k (with some employer match) and you have a little change going into the cookie jar next to your bed.

Great!

You’re already doing two-and-a-half times better than what CBS News calls ‘most people who only save 4% of their salary”.

But …

… it won’t make you rich!

It will stop you from being poor and may even fund a retirement if you start early enough and are willing to take a 30% pay cut.

The problem is, you can’t just save yourself to the retirement of your dreams on the average salary … you have to at least earn more and save most of the extra.

Look at it this way … the amount you can save is limited …

… limited to less than 100% of your salary, and for most people, limited to something between 0% and 20% of their salary.

But, the amount you can earn is only limited by your imagination and your capacity for hard work.

Here are some examples of ways that you can increase your income:

– Change jobs (maybe)

– Work longer shifts (yuk)

– Ask for a payrise (why not?)

– Take on a second (third?) job (horrible)

– Join an MLM ‘opportunity’ (do your homework carefully!)

– Renovate some houses (now may be the time to get back in)

Start trading some stocks (better know what you’re doing?!)

Start a business ‘on the side’ (my favorite!!!)

Whatever you choose: Start Small … Finish Big!

The point is not how YOU should do it, the point is you CAN do it … if you are prepared for some hard work and sacrifice now for a better future. Are you?

If you keep paying yourself first at only 10% of your current salary in your day job, and 50% of the additional money that you earn (after paying off debts), THEN …

… you just may retire RICH!

Let me know if you think this can/can’t work for you …

How much should you take out of your business?

This is one of the most difficult questions if you are a business owner and, like most business owners, it is your primary source of income.

You might say, of course it’s your primary source of income .. that’s why I’m in business! But, that is the fallacy that we will be exploring in upcoming posts.

For now, let me tell you about a conversation that I had with a friend over dinner last night:

My friend said that he had a friend who owned a payday lending business – sounds a bit unsavoury to me, but generates mountains of cash for him.

My friend’s point was that this guy would admit that he’s not very smart, but has a very simple system for dealing with the $3 mill. that his business spins off every year:

1. He gives $1 mill. to Uncle Sam

2. He invests $1 mill. (my friend didn’t ask where or how)

3. He spends $1 mill.

Simple!

But, it’s also wrong …

What would happen if the business had to close down tomorrow (e.g. change in government regulation)?

Unless this guy had managed to save $20 mill. to $40 mill. he wouldn’t be able to keep up a $1 mill. lifestyle (common wisdom says that you should only withdraw 4% from your portfolio every year … I say about half that) …

I believe that it is 10 times HARDER to go backwards in your life (in the event of a financial disaster like if this guy’s business had to close down) than taking a slower run-up in lifestyle in the first place.

This is what I did:

I always drew a minimal salary and tried to live at the median level of the circles that I moved in (for me, this was upper-middle-class college educated professionals).

When my businesses started throwing off more money than that, I invested EVERY penny of the rest, in my case mainly into: (a) reinvesting in the business to expand it, and (b) opening new businesses (3 more), and (c) passive real estate investments.

As I built up equity in (c) – I ignored the ‘value’ of any business until I sold it – I used my ‘divide by 20 – 40 rule’ to decide how much I could spend each year.

Maybe my friend’s friend should have given $1 mill. to Uncle Sam, spent $250k a year to start off with, and invested the rest?

Maybe, after a few years, if financial disaster struck it wouldn’t matter any more what happens to his business …