Can You Really Become a Millionaire in 10 Years?

18:44Brian Preston:Imagine if you were trying to flip during those times. And that's what that's there's another point that I think that it's not even we're talking about the you have to be worried about the downturn. But I want people who can actually see the visual here to notice also look at what happens with the returns. We talk about how what's great is that rate of return is because you're getting the lever this return where you turn 3 % into 12 % just because you have debt on it. Look at how uneven these rates of returns really. if you think about the fact that of the big run-up, 65 % of the appreciation of real estate in the last five years has come up from the pandemic.

19:20Because we had this huge inflation thing that happened. And that's why I don't know that you can always count that it's going to come out in these perfect periods where you hit it right and you get that run-up where it happens overnight and you're an instant success.

19:33Brian Preston:Now, don't mishear us. What we're not saying is don't invest in real estate. We actually love real estate and we're proponents for real estate investing. However, before you buy real estate, there are some things that you want to make sure you do. There are some boxes you want to make sure you check. And one of those is real estate has some phantom costs. There are other things you need to account for when it comes to purchasing real estate other than just the purchase price or the sales price of the real estate you're buying. Yeah. I mean, you've got to have a lot of assets underneath you. There's a reason when we talk about the financial order of operations.

20:08Besides outside of house hacking, really, I want all other type of real estate investing to be a step eight because it allows you to have the financial foundation of steps one through seven underneath you. So you actually have the ability to handle whatever real estate comes your way. If you think about Graham Stephan, great real estate investor, but even Graham admits when he started his real estate journey, he had over$200 ,000 saved up, including a portfolio of investments and index funds. He had a foundation. And that's why, something that blows my mind and people use stats, you always have to be careful of statistics in some ways.

20:45How often do you hear the quote about real estate where 90 % of wealth was created? This is Dale Carnegie who supposedly said 90 % of wealth was created through real estate. And they always say, yeah, if you look at wealthy people, they have real estate. But what came first, the chicken or the egg? And I always remind people, real estate, yes, is even wealthy people will have real estate. But if you look at it, it's a time and a place. We want you to have real estate in your portfolio from a diversifier standpoint. But don't make it the whole way. Don't make it your entry point because what your risk with real estate is, is because of that levered debt, you're taking on additional risk that you got to make sure you're funded up enough to cover when the music stops.

21:26That's the biggest thing we're trying to protect you from.

21:29Brian Preston:Another thing is when you become a real estate investor, we really want you to be in it for the long term. And everything we laid out right here was doing this inside of this very consolidated inside a 10-year time window. But realistically, there's a good chance that you're not going to see all of the benefits from real estate investing until after that 10-year mark. Because think about it. If you're trying to scale tons of real estate, it's going to take tons of capital. It's is a long-term process. It's not a get-rich-quick scheme. If you're trying to get rich quick in real estate, there's a really good chance you're setting yourself up for failure.

22:06You're amplifying the risk because if you're doing levered debt products and you go by scale, do more and more, you really do run the risk that if any hiccups happen, where if the economy goes down or anything and you quit getting rent payments coming in, you're left. You have to not only cover the rent, you have to cover the maintenance, you have to cover and your own living expenses. You can quickly see where people get caught very easily. And by the way, real estate, when we talk about market recoveries, real estate can drag the bottom. All you have to do is go ask anybody from that period, from really 2007 all the way to 2011, real estate kind of struggled through that great recession period.

22:49If you weren't well healed enough to survive, you got yourself in a pickle of a situation. This is why, and here's what's crazy, and this is why wealth building is so mean but awesome in its own way. If you're well-heeled, it not only lets you survive, but it also lets you prosper because you took advantage of all those people who lost the real estate. You got the best deals of your lifetime by the people who gave up real estate during that exact same bus cycle.

23:18Brian Preston:Yeah, if you're only in it for the money, that's a great example of being that if you're only in it for the money, there's a really good chance that you're not going to have the staying power because real estate is not often a truly passive endeavor. It does take work and it's not always necessarily a positive thing. So you want to make sure if you're getting into this, there are reasons why you're doing it besides just the money. Because if you are someone who's just in it for the money, when things get hard, there's a good chance you're going to be one of those investors that is dumping property at the world's worst time and the people that Brian are talking about are the ones sitting in the wings ready to take advantage of the mistake that you made.

23:56All right. We've covered chasing the hot dot. We've covered real estate. Bo, how about the wonderful world of entrepreneurs? This episode is brought to you by

24:06Brian Preston:Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

24:50Brian Preston:Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Reneworship. Yeah, this is a big one. You know, starting a business is a pretty exciting thing. I mean, here's what the brochure tells you. It says you'll never be wealthy. You're never going to be able to reach financial independence. You're never going to be able to have all the things you want financially if you're working for someone else. If you're showing up to a 9 to 5, it's not going to be possible. By the way, I hate to ruin it because we're going to give you some of the flaws here.

25:27But we have an entire wealth management firm, not all, but a large portion of our clients. W-2 employees. 9 to 5 jobs. So that is a, I'll just go ahead and ruin it right there. So let's kind of jump into the flaws because this is the part, and I love entrepreneurship. It's amazing. We resemble this, but it's just a lot of people just don't know what they're getting into. And the stats, if you look at what the Small Business Administration, the SBA, says about this, realize 20 % of new businesses fell in the year that they start. If that doesn't scare you, how about the fact that half of businesses fell in the first five years And then typically over a 10-year period, only 35 % of those small businesses are actually still in existence a decade in the future.

26:15So very quickly you realize some of this reward is built upon that there's extreme risk in this process.

26:21Brian Preston:And it's one of those things that just because you have an idea and start a business, it doesn't mean that starting tomorrow you're going to be profitable. Most small businesses take somewhere between two to five years before they even become profitable. and profitable, meaning I have more money coming into my business than I have flowing out of my business. So a lot of folks, because they don't prepare and don't plan, it is difficult to weather that storm of getting there. I mean, that's Brian, your experience was it wasn't something that just took off right overnight. Yeah, this is something that I think a lot of businesses fail because people don't realize how much capital it's going to take or cash to make it through that three to five year valley that you have to make it through.

27:02You really are going through the gauntlet that if you you could be have the most talent in the world you could have the passion in the world but if you ain't got the capital the cash to actually pay the bills to cover your living expenses cover the the business as you're building up trying to build this thing it will fail and a lot of i think that's why those small business stats are out there and they show that for myself i i saved for over a year built up a large pot of cash and i used every bit of that cash in the first three years bridging it and i've even looking back i'm just telling you my own journey, and this is why it's so much more just to not think I want to do this for the money.

27:38It's got to be a passion. It's got to be driven, a conviction that you have to make success. As I look back and you wouldn't even see that I had a successful business until I was probably in year 12. So we've already blown up the premise that the best path to building a million dollars in 10 years, I'm not so sure that a lot of businesses show that in year 10. I think it's probably you get the exponential dividends of success probably in years 12 and beyond.

28:05Brian Preston:And then even the idea of starting a business takes time and planning. At least the successful ones take time and planning. Scaling isn't as easy as, okay, I'm just going to sell a$5 ,000 product 200 times. You actually have to go design and build and come up with a$5 ,000 product. Then you have to figure out, how do I create that? How do I manufacture that? How do I provide that service in a cost-effective manner? Then how do I do that over and over and over again? Having an idea is one thing, but being able to actually turn that idea into a reality that you can market and go out and put out in the economic environment is a totally different thing.

28:44Now, I feel like we've thrown enough cold water. Let's actually tell people how to do this right. because we would be hypocrites if we didn't tell you all this negative stuff, but then tell you it's also awesome because you build something yourself. And then when you get to the graduation point, what I love is all the employees we have. I love how many babies come out of our employees growing the houses they buy, the cars. It can be awesome. But here's the first thing you need to do if you want to start a business. Put on your 3D glasses. A lot of people daydream, meaning they put together the plan of the dream plan that they're going to be rich by doing this, hence the show it being here, you're going to make a million dollars in the first 10 years.

29:21That's your dream. The reality is that you're going to have the down-to-earth plan. This is what you think is going to happen. So create that business plan, create the spreadsheet that actually shows this is what you think is going to happen with some good stuff happening, but also some negatives. And do not, I repeat, do not skip the doo-doo plan. This is the plan that when everything goes the opposite of what you're hoping, because what I want you to do is be able to address that on paper, versus in reality. So you got to do a little preparation.

29:49Brian Preston:Another thing to do when you start a business is come up with your minimum viable product, your minimum viable service, and actually test it out. Make sure that this idea you have is something that the world actually wants to buy and actually wants to consume for you. I see so often someone come up with this amazing idea and they've got the idea. And before they sell the first product, before they provide the first service, they go build the slogan and they work on the logo and they build the website. They do all this other stuff. before they've actually tested to see if it is a true, real, viable business.

30:19Brian Preston:You want to make sure that this thing has some staying power before you dump a lot of resources into the stuff that doesn't matter a ton at the beginning. And then I've mentioned this, but it's worth an echo for sure, is have the savings set aside. If it's going to take you three to five years to get back to where you started, know that on the front end so you can actually fill in that chasm of money with cash savings so that you give your business that much better of an opportunity of being successful. And then make sure that you do have some larger purpose. Make sure there's a why behind the reason that you're doing this because it's often not going to be good.

30:54Brian Preston:It's not going to be fun. It's not going to be easy. You want to have that purpose drive behind you to keep you on that path when everything's not all rainbows and butterflies. Oh, I love that we've set this up. We've had some good and we've had some bad. Like chasing the hot dot, I think that's bad. Not bad. I mean, not good. Real estate entrepreneurship, there's a lot of good. It's just risky. So that's why hopefully we laid that out. This last one, we've tried to put it on autopilot or the easy street as much as possible. And you guys can probably see what we're setting up. How about the wonderful world of investing through index investing?

31:28Brian Preston:I love it. This is the idea that I can make my money work harder than I can. And I can make some small decisions today. And if I do that over a certain amount of time, it will have a big payoff. Well, we don't have all the time in the world. Again, our goal here is we want to become a millionaire inside of a decade. So what would that take? What would be required in order for me to be a millionaire inside of 10 years if I'm just going to go invest in index funds? Well, here's the way the math plays out. If you could start today and you could save$4 ,882 every month over the course of the next 10 years, and your investments could earn 10 % on average over that time period, then after 10 years, you would have a million ducks.

32:15Brian Preston:You would have a million bucks. That means that you saved about$585 ,000, but the rest of that million dollars is all from earnings and all from growth. You just had to save a little under $5 ,000 a month. Now, look, we're going to give you the flaws, but I think when I see this, and Now, if you're somebody, now we're going to probably put this into highlights or so forth, but I'm recalling if I was thinking about buying a primary residence and trying to get a million dollars, the carry costs on a piece of real estate was over$11 ,000 a month. When I see that, now look, this is a big bite of the apple.

32:49To save close to$5 ,000 a month is not easy, but man, does it sound so much more approachable than what you would have to buy and pay in a mortgage to do this from a primary resident. So in that way, it seems very approachable to me to save close to$5 ,000 a month. And by the way, you don't have to do this all at once. Now we're going to use it in the example for 10 years because that's what we're trying to do for this show. But your journey, you're going to get addicted to this. It might start off at$100 a month and then you're going to celebrate when you get to$1 ,000 a month and you start having success.

33:20Eventually, at some point in your career, you probably will be saving something like 5 ,000 potentially a month, but it doesn't have to be that way.

33:27Brian Preston:But doing this inside of 10 years, there are some flaws. One of the very first flaws is that assuming a 10 % annual rate of return. Now, look, obviously we know that over a long time horizon, the S &P 500 has delivered somewhere between 9 % to 11 % rates of return. So it's not unrealistic, but there are periods. If you look at the early 2000s where returns might not be that frothy. So if you're basing your strategy on financial independence, strictly and solely on rate of return, you may be doing it wrong. That's one of the flaws inside of this assessment. The second one, we've kind of alluded to this, but your yearly investment is close to 60 grand.

34:04Very few people starting out or even 10, 15 years in the future are not going to have the income to do that. And that's okay. I'm just telling you, we did this as a very back end of the math for a 10-year millionaire. The good news for you, You don't have to do it this fast, but it's worth sharing that$60 ,000 is a lot of money to save.

34:22Brian Preston:Well, yeah, if you're doing what we say and you're saving 25 % of your gross income, that means your annual income would need to be$234 ,000 in order to save that$60 ,000 a year. Now, obviously, yeah, you could have a lower income and save more, but that's going to cause or that's going to require you to ratchet up that discipline, which is a pretty difficult thing to do. Now, this was how to become a millionaire in 10 years. I think for most folks, it's not absolutely necessary to be a millionaire inside of 10 years. So there are some things that we want you to think about even before you start investing.

34:57Yeah, what I like about this, because we heard a lot of the brochures that they seem very active to me, meaning there's nothing passive about real estate investing, definitely not passive about starting an entrepreneur endeavor or even a buy-sell speculative process. but this truthfully index investing is probably the most passive where you can if you can decide how much you need to save and then automate that process you're probably setting yourself up for the most automatic way to get to your your goals and build these assets up another thing that we

35:29Brian Preston:want you to think about before we invest is fill out figure out what a realistic rate of return is if you go into your investing journey say you know what i'm going to go make 20 per year every year there's a good chance that you're going to be let down because that's not the way that the real world works. That's not the way that the market works. So make sure you set realistic expectations so that you have the staying power to stick with it. One of the things that breaks my heart the most is when I finally convince a friend to max out their Roth IRA. And they do it one year, and it just happens to be the year before a downturn.

36:01Brian Preston:It just happens to be the year before the market goes down. And in their mind, they thought they were going to make 10%, but the market ended up down 3%. They didn't actually have a realistic understanding of how market returns work. So before you start investing, make sure you understand what it actually is you're going to see inside of your portfolio. And really, you're setting it up is that you do need to expect those downturns. It's because one of the reasons we do this premise that you're going to build this million dollars in 10 years, but the reality is for most people, you don't see the exponential value of an army of dollars until years 15 plus.

36:35There's a lot of quit in that first 10 years because when you compare and contrast the amount of your contributions versus the market value of your assets after 10 years, you're going to see that, yes, there is some compounding growth, but it's only 10 years worth, so it's not overwhelming. It's really once you get to years 20, 25, years 30, that you all of a sudden say, whoa, can you believe 90 % plus of my account value is actually the growth of these portfolio assets, not just my contribution? that's not in the first 10 years. So just don't quit during those downturns. I know a lot of you will see the brochure.

37:11You'll get excited about this content. And just like Bo said, don't quit just because the market goes down 20 % or 25%. Take that financial mutant perspective to where you're saying, yes, it's down, but I'm going to buy more at these lower prices and treat it as a mutant opportunity to get more value instead of quitting.

37:30Brian Preston:So if I want to be a successful investor and I want to go down that path, and I want that to be one of the ways that I build wealth, what are the key things I need to think about? Or what are the things that I need to do to impact that? It's pretty simple. The first is figure out ways to increase your income. The bigger your shovel is, the more useful your shovel can be. So what are things I can be doing at work to be as valuable as possible? What are things I can do to actually have a career and not just a job? Are there ways that I can go out there and side hustle or do side gigs or figure out other ways to create income?

38:05Brian Preston:How can I make myself as valuable as I can be so that my shovel can be as big as it can be? And then also make sure that if you're increasing your income, you're spending less. I actually want you to turn that into investments. I mean, one of the things that breaks my heart is I see people who maybe are disciplined and actually make more income. They live on less they make. But if you never actually put that money to work and put it into investments, it doesn't actually unleash the power of your army of dollars. I grew up in a household where CDs were our investments. That is not the way to unleash it.

38:37It might be a part of it with your cash and your emergency reserves, but make sure you understand the power of investing and actually putting that money to work.

38:44Brian Preston:And then maybe the most important thing is make sure that you are patient when it comes to investing. We know that a lot of millionaires, that takes them about 28 years of saving investing before they actually get their first million. But do you realize if you just get to that level, if you just get there and you can invest those dollars for an additional seven years, that 1 million can turn into 2 million. What took you 28 years to do on the front end might only take you seven years on the back without having to save another dollar. The bigger the numbers get, the bigger the numbers get, but you actually have to give it time to get there.

39:21Well, Bo, I mean, you even, let's amplify this another, to go from 2 million to 3 million only takes a little over four years. So I mean, this thing, that's why when all my trolls, my inflation trolls come out and go, million dollars is nothing. I'm telling you, if you get to the first million, the second million comes that much easier, the third million even faster. So how do we get here? Let's talk about the reality of becoming a millionaire. And Bo's already kind of unloaded on it and shared that for the typical, this is typical. You don't have to be typical because you're a financial mutant.

39:50You don't have to be average, but it takes 28 years. 80 % say they were part of their employer retirement plan. The average crossing age is around 49 years of age and 69%. Now look, we do an annual survey of our millionaire clients. 69 % of our clients said that they reached a million dollars through steady saving and investing. Look, if you look at that 28 years and that turns you off because you're part of this fire movement or you just want to be able to have more flexibility that much sooner, you can do it faster. You control that through how are you the field general of your army of dollar bills to maximize this moment.

40:26Brian Preston:Building wealth does not have to be incredibly complicated. While yes, there are ways and there are methods you can do it inside of 10 years, they're not easy. But if you have a long time horizon and you give yourself the time to actually build wealth, it's not an incredibly difficult process. So if you do what we've said when it comes to index investing and staying consistent and exercising those three ingredients of wealth creation, discipline, money, and time, there's a great chance you can set yourself up for big-time financial success. So a lot of you are probably watching this going, man, I like that passive path.

41:02It just seems like I set it, forget it, and this thing goes to unlock my future opportunities, go to moneyguy.com slash resources. We have Wealth Multiplier. We have all kinds of research opportunities for you to figure out how you can maximize your army of dollar bills because we do believe there's a better way to do money. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.

41:25Brian Preston:The Money Guy show is hosted by Brian Preston and Bo Hanson. Brian and Bo are partners with Abound Wealth Management. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through The Money Guy Show. The information provided is for informational purposes only, may not be suitable for all investors, and does not constitute financial, tax, investment, or legal advice.

41:55Brian Preston:All investments involve a degree of risk, including the risk of loss. I'm not giving up. I am selling the building. The final season of FX is the bear. The restaurant is flooded. Everything's either going to be okay. No. Or not. We are outgunned. And we are outmanned. But we have each other. FX is the bear. The final season. All episodes now streaming on Disney+.