If you take nothing else from my site, my only hope is that you learn this because it is the cornerstone to the financial freedom structure. The majority of Americans believe a myth about wealth building and the way to get rich. Bringing down this myth is one of the main reasons I built this site, and the focal concept of what I want to teach here. If you can understand this now, it will pay HUGE dividends later (Literally).
The average person envisions a wealthy millionaire as something like this: The alarm clock goes off early in the morning, and its time for a new to day of making money. They get up next to their trophy spouse, put on thousand dollar suits, and don’t forget the five hundred dollar tie. Walk down the grand marble staircase, into a kitchen the size of your entire 1200 square foot home. The chef has whipped up an amazing dish of eggs benedict, with a side of fresh fruit and truffle sauce. The butler comes around the corner and says, “Good morning sir, which Rolex will you be wearing today? (In a British accent of corse) He opens a velvet box that displays a multitude of Rolex, Cartier, and Fossil, watches that sit upon a velvet red pillow. (Everyone reading just made the rudest face at their screen and said “FOSSIL!?”) Okay, maybe not Fossil. The watch is chosen, and breakfast is finished, so he walks out his 10-foot front door, to the paver laid driveway. He steps into his waxed, red, Ferrari which already has the engine warmed up, and takes off towards the automatic opening steel gates, that have his initials in gold on them. He heads downtown where his skyscraper awaits his arrival. He steps into the elevator, obviously pushing the top floor button and it opens to an office with a 360-degree view of the city. He then is bombarded by secretaries and assistants who brief him on his daily schedule (shedyou’ll.. It’s British) and the day begins. His evenings are filled with expensive dinners at the finest restaurants, spa visits, and champagne baths. Then the camera does a close up of his face, as he is sitting in a hot tub with a bunch of celebrities, and he begins to laugh, then they all laugh in a unified manner (It’s a villain laugh). Fade back to real life..
That may be a little extreme, but I guarantee that most people have a partial, if not a full vision, of that being what a wealthy person looks like. We are all consumed by consumerism. Who can blame us? Everywhere we turn we are marketed another product or told our entire life is incomplete without the newest gadget. Without any knowledge on how wealth is really built consumers have no chance. I want to help change that, and if I only help one person, that will be well worth it, because understanding this can change someone’s entire life. It’s such a simple concept, yet so complex because a large portion of this is your psychology and how you think about money. The numbers don’t lie (I hate that cliché’) but understanding the science behind it is equally as important.
Many people will teach you that cash flow is the only and best way to become wealthy. (Cash Flowww… I need it on time. (Everybody!) I’m talking bank rollll, my money, my money, my money.) Cash is king is something I hear people say all the time, and yes it is very important, but there is something that is much more powerful.. Your STASH FLOW. I’m not talking about the sweet mustaches you see in the cowboy/western movie tombstone, or the stache my Dad rocked in the late 80’s early 90’s. I’m talking about about how much money you can save (stash) over a long period of time. This is the true key to wealth building for the majority of human beings. You spend less than you make, then invest the rest wisely. How much you save will determine the timeframe you have to reach those goals, but no matter what the best time to start is now (Call JG Wentworth 877 STASH NOW). The sooner you start, the sooner your money will start working for you, and you will reap the benefits of compound interest. Albert Einstein had two amazing quotes on compound interest that can boil down the importance of in a few sentences: (I cant confirm he said them but the internet said so, which makes it true)
“Compound interest is the eighth wonder of the world. He who understands it, earns it.. he who doesn’t pays it”.
“The greatest invention of mankind is compound interest”.
The amazing thing about your stash flow is you don’t need a big paycheck to make it grow. Anyone can achieve financial freedom based off his or her savings rate. Lets look at Tom and Jerry:
Tom is a doctor, who has been practicing for 30 years. Tom has a large home, the latest new gadgets, and buys a new car every 3 years. Tom is a member of the newest country club, and his children go to the finest private schools in the area. He bought a vacation home in the mountains and a vacation home on the beach because his income exceeded his spending so he could “afford it”. Tom is the epitome of the word consumer. He has always made a 6-figure income, but has never put much away, only when it was convenient, but never had much of a plan. He didn’t think much about maxing his retirement accounts and didn’t care much for the loser’s game of the stock market. When he did save cash he put it in a savings account and reaped the 1% interest. Tom’s savings account did not give him much interest like the old days but he didn’t care because he had always made so much money. He could still buy the things he wanted and what else really mattered. Tom never read any financial literature or even attempted to further his knowledge about the markets. When he did invest he would enter the stock market when there was a boom and prices were high and exit the market during a recession when the prices were low. This is why Tom thinks investors are suckers, and that everyone should keep their money in cash. Toms stash flow is very low, maybe 5% of his income, if that. He thinks he can retire anytime he wants, not realizing that if he did, his current lifestyle would drive him five years into retirement. Tom is an example of the sad truth of how most people live their lives.
Jerry is a plumber, who has owned his own plumbing business for 20 years. Jerry has a modest home, drives a 9-year-old truck, and 2 children. Jerry was never into buying the newest gadgets but always like to find the best deal. He determined what he thought something was worth and what he needed before he went shopping and never made impulse buys. He enjoyed playing golf with his buddies and the local public course and his kids went to public schools. He has lived in his home for twenty years, as he “hasn’t needed upgrade his lifestyle”. He has bought a second home, and a third, and a fourth, but all are investment properties that give Jerry a second flow of income. Jerry has always maxed out his retirement accounts and been an avid saver. He’s saved over a large portion of his income, some years up to 60%, because he “Had all he needed”. He loved to invest his Stash Flow and had a diversified portfolio that reaped average of 8% interest rate. Since Jerry has saved so much and been smart with his investments, Jerry has a net worth 2.3 million dollars and it is still growing. He can retire at any point he wants and will have plenty of money left over when he dies with his current lifestyle. He has plans to travel the world and experience cultures unknown, as experiences are more important to Jerry than things. Jerry is a true millionaire next door.
I highly recommend The Millionaire Next Door to anyone who has not read it. This was the book that changed my life financially in terms of how I viewed money. Not as something that will buy me things, but as something that will buy me freedom in the future. Freedom to do what I want, visit the places unknown, and enjoy the work I do each day. Who wouldn’t want that? Jerry is a great example of someone who makes a much lower salary than Tom, but is much farther ahead in his financial life.
I just read a story the other day about a Janitor who saved and invested his money into blue chip, dividend-paying stocks. When he died he was worth over 4 million dollars. His friends, family, and children had no idea he had that much money. It was the power of compound interest and a high savings rate that got him there. Are you going to be the Doctor or the Plumber?
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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