Read an Excerpt
BILLIONAIRE IN TRAINING
By BRADLEY J. SUGARS
The McGraw-Hill Companies, Inc.Copyright © 2006 Bradley J. Sugars
All rights reserved.
Part 1 Getting Rich
Getting rich is much simpler than most would realize. In fact, we really need to define the word "rich" before we go on, so you can see what I see as we go through this book.
Most people's only relationship with money is of never having enough. Most people live a "paycheck-to-paycheck" existence, and use this month's paycheck to pay off last month's bills.
A paycheck, no matter how big, cannot be defined as wealth or riches. So often people seem to mistake getting a bigger paycheck or salary for getting richer. Nothing could be further from the truth for more than 95 percent of the population. As you well know, most people spend every dollar they earn, and then some.
The first stage in your quest for riches is to get yourself to a stage where you've made enough investments over time to give you what I call a passive income rather than a paycheck existence. In other words, your investments and businesses make money whether you get out of bed or not.
At this stage I won't get into the details of where to invest—we'll be doing that shortly—but suffice to say this level of passive income is your first goal. To put this into perspective, this goal takes most people their entire working lives to achieve. The only time they have passive income is in their retirement at age 65 or older.
However, if you know what you're doing and you're diligent in your desire to create riches, this goal of having $2000, $5000, or even $10,000 a month in passive income can be achieved in about three years if you're quick, five if you're not, seven if you want to take it a little slower, and maybe a year or two longer if you're currently deeply in debt.
Waiting until you're 65 is crazy when, if you follow even just a few of the simple steps I'll show you, you can easily reach this goal in three to seven years or, as I did, by the age of 25.
Now, I know most people I've met would be extremely happy with just this level of wealth. If you are, then that's great, but you're about to get a very rude shock when I show you how easy it is to move to the levels above this.
The next stage in your financial growth is what I call wealthy. In today's world a millionaire is merely wealthy, not rich. Becoming wealthy in the traditional way takes far too long. It's a very slow process that involves investing a modest percentage of your income over a long period of time. Wealth comes when you not only have passive income, but also assets to back it up. Wealth comes when you've truly cemented your long-term passive income with the steadiness of physical asset growth.
Most people go about this the wrong way and try to build assets before they build passive income. They think they should invest in real estate before they have developed passive income. They think they can jump steps and wonder why they stumble. The only vehicle you can use to get passive income is business, and you don't do it by running a business, but by selling businesses.
By understanding the Five Levels of Entrepreneurs, you'll quickly see why building assets before passive income slows your path to riches.
Wealth is all about physical assets. And the number one physical asset you can have is property. But let's first consider what I believe an asset to be. This may come as something of a shock to you.
Assets must have both capital growth and income. If they don't, then they are not assets.
Don't buy property first if you want to become wealthy. Build passive income. Otherwise you're likely to become asset rich and cash poor.
Beyond wealthy lies rich.
Rich usually comes through only one thing: paper assets. I want you to truly understand one simple fact: the richer you are, the less you pay for.
To be rich, you need to have two things that will allow you to produce the third. You need a rather large cashflow (in a moment I'll share with you my strategies for this), and a solid physical asset base (I will also show you how I achieve this in a moment).
These two things combined allow you to create the third part of getting rich: paper assets.
What then are paper assets? They are things like shares, contracts, licenses, royalties, and franchise documentation. Share floats are one of the best paper assets because you get to choose how many shares you get to keep.
And what is your cost for a paper asset? Generally zero. That's the beauty of it—it usually costs you nothing.
Let me give you an example. I recently sold ActionCOACH's Master Franchise for London for a lot of money. Yet the cost to me was zero. But you need to understand that if I hadn't taken things one step at a time and achieved passive income first, then wealth, I wouldn't have been able to do this because I wouldn't have had the knowledge.
Now, I know that most people would be happy to be just wealthy, you know, lots of passive income and lots of assets, but trust me when I say that the next step, the step to Level 5 of my Five Levels of Entrepreneurs, is the truly rewarding one.
I'll get into a lot more details shortly, but for now, let's examine cashflow.
Most people rely solely on their jobs for their cashflow. Notice I don't use the word income. You see income seems to imply some level of work or activity involved, and one of the central themes of everything you'll learn from me is that one of the keys to riches is actually having others do the work for you. By the way, job is just an acronym for "Just Over Broke."
Having a normal job, whether it's in your own business or someone else's, severely limits your cashflow capabilities. Here's why. It's possible to work only so many hours per day and make so many dollars per hour for your own personal labor. Thus a paycheck can be only for the number of hours you've worked multiplied by your hourly rate.
Yes, I know there are a handful of people on the planet who take home million- dollar-plus pay packets, but they've almost always already served 20 or so years at normal wage levels, and secondly, if they stopped working tomorrow, the paycheck stops.
Thus, we need to look for another method of bringing in massive amounts of cashflow.
There is only one tool I recommend that you use for creating cashflow in your life—your own business.
It is by far and away the best tool for creating massive cashflow and having someone else do the work. Business is also, as you'll see later, one of the best ways to develop a large pool of capital with which you can invest in assets.
By the way, am I saying that everyone should quit their jobs and buy her own businesses? To put it bluntly, yes.
Let me make one point very clear: Having a job definitely serves a purpose, in fact two purposes we'll go through in just a moment, but suffice to say you may not have to quit your job just yet.
So, why business as our cashflow generator?
Several reasons. First and most importantly to me, it's fun. I love to play the game. I love the challenge of marketing, team building, sales, accounting, and cashflow management. I love doing deals. I love making decisions and I love being a leader. I also love the fact that I get to deal with so many different things as well as so many of the same things. You'll fall in love with it too when you see the results it can get for you.
Second, where else can you get all of the tax benefits a business brings? Depending on your tax jurisdiction these will vary, but globally the tax system certainly favors those of us in business.
Third, the revenue stream can jump massively in a couple of weeks, days, or hours. And, very often, a 10 percent increase in income will double or triple the profits, thus doubling or tripling the paper value of the company.
Fourth, a little bit of knowledge goes a long way. It doesn't take much to outperform your competitors in business. Like it or not, most business owners do a very poor job of running their businesses. So, I only need to do some basic, commonsense things to totally win in the minds of my customers.
Fifth, you can get 30 days' credit.
Sixth, you can employ others.
Seventh, once you've written the system, you've written the system.
The list goes on and on.
In case you hadn't guessed it, I love business. But most importantly, I love business because it meets my investment rules.
It grows in capital value, and it throws off passive cashflow while still allowing me to draw a wage (if it makes economic and taxation sense).
So, let's look at some other options for cashflow generation that I do not want to focus on.
SHARE TRADING AND DAY TRADING
This is a full-time job with little to no chance of building an asset you can sell later. While it can be proven that it is substantially skills-based rather than just "making a bet," you not only have to work almost full-time and have no business as an asset to sell later on, but you have two other drawbacks that remove me from wanting to do it.
First, you have to use your own money. Yes, I know you can leverage some shares up to as much as 70 percent of their value these days, but the returns on leveraged shares are extremely average. And yes, I know you can option trade so there is a level of leverage, but does the fact that it's a full-time job and you still have to invest at least a sizable amount of your own cash mean it should be our primary focus? I think not.
Second, it doesn't meet my criteria to even qualify as an investment. That is, an investment must both grow in capital value and give off passive cashflow.
This brings me to the second option I do not want to concentrate on. It also happens to be one that more and more people are choosing as their cashflow generator.
Now, let me be clear. I love property, but not as a cashflow tool. A lot of people are training you to hunt high and low for cashflow properties. Believe me, they're out there in abundance, but rarely will it produce anywhere near the cashflow a business can.
Property is great because the cashflow pays for the property, the tax deductions help you save on the money you make in business, and what's more, the bank helps you buy most of it.
However, to me property doesn't belong in the discussion about how to generate cashflow. It belongs in the next part of our wealth discussion where we look at assets.
Remember, you can choose another tool for cashflow generation, but in my opinion, none will give you the returns in both capital growth and cashflow generation that a business will, particularly once you have learned the strategies and ideas I teach.
So, let's take a closer look at assets.
I make my money (cashflow) in business. And I keep my money (assets) growing in property. I love property for so many reasons, but let me be clear that the focus of this book is not property (for more on this, read my book The Real Estate Coach); its focus is business. I'll keep that focus because one thing has become blatantly obvious to me when watching people going about wealth creation.
Buying property is easy. In fact, there are literally hundreds of companies waiting to show you what you should invest in (we'll cover that in just a moment) and thousands of great books on the subject. However, most people have a major problem with their ability to invest in a property or two every month.
They don't have the cashflow.
Their jobs only really allow them to buy another property every few years. To get rich, and to get rich fast, you need more cashflow. More, so you can buy more assets at a much faster pace.
The cashflow gives you your deposit, it gives you your ability to get loans, and what's more, it gives you the ability to stay cash rich as well as asset rich.
One of the biggest challenges faced by wage earners who are trying to get rich through property is the amount of time, measured in years, which it takes to get their first few properties. They buy their own home, then about seven years later their first investment property. It takes another four or five years to get the equity to a level where they can borrow for another. It then starts to speed up, but by this time they're in their mid-forties. Thus, time hasn't had its effect by the time they're ready to retire, so many end up asset rich and cash poor.
Others may lose money on a house they'd bought. The story spreads, leading many to become scared and avoid investing in property altogether.
That said, here are just a few of the many reasons I love property so much:
You can buy it for much less than it's truly worth. For any one of a dozen reasons, people will sell you a house for much less than it's worth at the time. They just can't, or don't want to, wait for a reasonable price.
You can easily add value to a property with a few simple and cost-effective renovation and cleanup techniques.
You can get a tenant to pay for the majority of your purchase.
A bank will lend you the majority of the money to buy it.
You can get insurance for almost everything.
The government thanks you with substantial tax deductions for providing housing for the population.
You can reborrow against the value of the house at a later date to collect tax-free money. Remember, selling may incur tax, but reborrowing never will.
They're not making any more land.
It just sits there and does very little except grow in value over the long term (I'll deal with comparisons to the stock market shortly).
And there's one other reason I absolutely love property. It helps me to get into debt.
Get into Debt
That's right, debt is good, especially when it's paid for by someone else, and when it's buying me an appreciable asset. Debt for stuff is bad. In fact, if you keep buying stuff all your life, you can easily guess what you end up with: STUFF.
A simple aside here: Land appreciates in value and buildings depreciate in value. Thus, invest in the dirt more than the building. That's why I don't like units, unless I own the whole block.
So, why is debt good?
Put very simply, it's this: If you invest $20,000 cash into a $100,000 property, you borrow $80,000 and we assume with the rental income and tax benefits, your mortgage (generally interest only for at least the first three to five years) and other expenses should balance out.
By the way, we haven't assumed you bought a house worth $120,000 for $100,000 by shopping around and negotiating well.
Let's assume the property only grows by 5 percent this year. That's a $5000 return on a $20,000 investment, thus 25 percent. Now, it's hard to find a property that will return only such small amounts (traditionally it's been about 10 percent globally), but I'm sure if you walk around with your eyes closed, you'll find some.
These are just a few of the reasons I love property. To read more about investing in property, read my book The Real Estate Coach.
However, there are a few problems with what most people have been taught about money and property investing.
Lies, Lies, and More Lies
Let's start with an oldie but a goodie.
Pay off your own home first. This has got to be one of the most insane pieces of advice I have ever come across. Let's take a look back in history to find out why.
Back in 1929 when the stock market started to tumble, several things all came together to cause a new paradigm around owning your own home outright.
I'll make this overly simplistic to illustrate the point.
The markets tumbled by approximately 30 percent in just one day. This wasn't such a bad thing in and of itself, but the majority of investors had borrowed about 90 percent of their investment funds.
As a result, they now owed more than their stocks were worth. Their lenders made what is referred to as a "margin call" and asked for more cash to secure their investments. This in turn led to a run on the banks for cash.
You guessed it; the banks ran dry.
At the time the average house was priced around $4000 or $5000, and a common clause in mortgage documents gave the banks the right to demand full and final payment at any time. So, when the banks needed cash to give to borrowers who needed to pay for their shares, they called in the home loans.
But, as is the case today, most of us don't have the price of our house sitting around in cash. The writing was on the wall.
Excerpted from BILLIONAIRE IN TRAINING by BRADLEY J. SUGARS. Copyright © 2006 by Bradley J. Sugars. Excerpted by permission of The McGraw-Hill Companies, Inc..
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