10 Tips to Build Your Wealth Independent of Your Business
August 27th, 2014 10:35 pm
Thomas Stanley and William Danko in their bestselling book, The Millionaire Next Door, shared their research that business owners make up less than 20 percent of the workforce in the United States but account for 2/3’s of its millionaires.
Combine the above insight with the following facts:
- According to CNNMoney there are 8.2 million households in the United States with net worths over $1 million.
- There are just 66,000 households in the United States with net worths of $20 million or more.
I want to share with you 10 tips to leverage your business to build wealth independent of your company or companies.
These tips come from my extensive relationship with hundreds of business owners in my CPA practice, Bassett and Byers PLC, which focuses on working with high net worth business owners and corporate clients. Further, they come out of my work as an advisor at the annual Maui Mastermind Wealth Summit held each year in Maui.
Tip One: Commit to creating massive wealth. Those business owners whom I’ve observed be build the most wealth are all very intentional about their desire to create financial abundance. They come into their office each day looking not to put in hours, but rather to create real economic value. Do the same thing. Don’t play half way; dive in with both feet.
Tip Two: Understand that creating wealth is not a selfish motivation nor does it make you a bad person. Most of the exceptionally wealthy business people I know are also the most generous. They give of their time, their talents, and their fortunes to do great good in the world. Plus, it is my deep held belief that the value your company creates as you scale and grow it does great good in the world. There is nothing bad, wrong, or wicked about being rich.
Tip Three: Don’t believe your own press clippings. Just because you have successfully scaled your company doesn’t mean that you will have a golden touch with every investment move you make. In fact, I’ve observed that many business owners who enjoy a liquidity event like selling their company risk making a horrible investment move(s) as they never paid their dues to master a new domain – investing. Sure they were savvy business people, but there is a whole new body of knowledge they need to aid them as an investor. Commit to learning that new domain – bit by bit over time.
Tip Four: Beware of chasing yield. As entrepreneurs many of us are hardwired to go after bright, shiny objects. This served us as a business owner, but it doesn’t serve us the manager of our net worth. For most business owners, your company is your greatest growth asset. This means that the investment portfolio you build outside of your company doesn’t need to generate the double or triple digit growth rate your business has.
Tip Five: Leverage compound earnings. As Albert Einstein once said, “Compound interest is the greatest mathematical discovery of all time.” So start now to invest outside of your business, even if the growth rates are lower. It will help you create a small hedge against an ill turn in your company, and begin to prepare you as an investor who one day may just sell his or her company for a very large wire transfer. By starting now, and reinvesting your earnings along the way, you’ll harness the multiplying impact of compounded earning. Plus, you’ll compound your learning along the way so that when you do have a major liquidity event like selling your company, you’ll be skilled and able to intelligently manage your windfall wisely.
Tip Six: With your investments outside your core business, use intelligent and intentional asset allocation to reduce your risk and increase your long term returns. If you don’t understand how to do this, or if you won’t rebalance your portfolio on an annual basis, then I encourage you to work with a talented professional to help you do this.
Tip Seven: Build your business so that it can be sold for top dollar. This means reducing its reliance on you, incorporating stable and scalable systems and controls, and building a management team along the way. It also means have a stable financial structure that you consistently maintain as you grow.
Tip Eight: Pay down loans (amortization). It is a great way to actively contribute to your net worth. Whether your paying down your loan on your commercial building, or your line of credit, remember that the principal portion of your payments is you actively contributing to your net worth.
Tip Nine: Consistently pull money from your business as you go. Even if you can only pull small amounts out in the early years, make sure you build the habit of actively contributing to your net worth outside your company. This could be funding your retirement account, or using insurance products to accelerate your wealth building. The key is not to wait until the end of your business life to start this. Not only will you lose out on the compound effect, but you’ll also run the risk of not maturing as an investor who is ready to manage your net worth when you sell your company.
Tip Ten: The rules of the financial elite can be learned. They are not magic. It is just that the higher you go up the financial pyramid to people with larger net worths, the more you’ll find the intentional way that the financial elite play the game. Commit to learn how to successfully play that game. I assure you that these skills can be learned.