The Wealth Flywheel: How to Systematically Grow Your Income (Fast!)

23:00I could reface the entire thing. I could restore the interior of these units and I could add a ton of value to these units. Then what I'm going to do is I'm going to get new customers to start renting these storage units. and all of a sudden I have increased the value of this unit. So now if you renovated it, got new tenants in there and you can see real cashflow has increased in these storage units, all of a sudden you have increased the value dramatically. Well, you can go back to the bank and you can say to the bank, hey, Mr. Bank, I just increased the value of this storage unit. Here's how much I'm making every single month.

23:31And let's say you took it from$5 ,000 every single month to$15 ,000 every single month. Well, now that storage unit is worth much more and you can pull the equity out of the unit. And so this is something where a lot of folks within the self-storage unit community and within the commercial community all do things like this to extract value out of some of these properties. And I think it's really, really important to note that you can do that. You can do this with mobile home parks as well. Same thing. So you can go to mobile home parks, reinvest the cash flow. Mobile home parks have very high cash flow typically because you can rent the land and the unit.

24:03And so these are another different way that you can reinvest some of that cash flow into flywheels. Another different way, again, is commercial. So you can look at commercial warehouses or commercial buildings, find some underperforming commercial units, renovate those units, get tenants in at higher rates and pull the equity and the cash back out and then do it again. And you can do this over and over and over. And this is a really, really powerful way to develop your own flywheel where it's producing cash flow for you. You're building equity over time. You are getting tax breaks. There are so many huge benefits to real estate as a flywheel as a whole.

24:38It's just finding the right deal. And it's making sure that you know how to run the numbers and find the right deal. Maybe in your area, you live in New York or you live in California and you can't find a deal that is worth diddly. Well, if that's the case, then you need to possibly look in other areas across the country and become a long distance investor. And so that is something where a lot of people don't think that they'll be able to do that, but you were absolutely able to do that. And so many real estate investors do it. Now, what about land? Can you turn land into a flywheel? There are a few ways that you could turn land into a flywheel.

25:08So one is, and we've had an episode on this in the past, but you can do something like buy pieces of land, sell it to someone else on notes. And so the way that this works is that you can find land that maybe is backed on taxes or land that someone just really doesn't want to own anymore. Maybe they inherited it. So you go to that owner and you send them letters or you can write them, you know, try to get on the phone with them, whatever else. And you say to them, hey, you've got this piece of land here. I'll buy it from you if you don't want it anymore. And so you try to buy it at a discounted rate.

25:37And then you go and flip the land. Now, when you flip the land, you're trying to sell it to a buyer who is interested. And you can sell it one of two ways. You can sell it for cash and or you can sell it on a note with an interest rate. And so typically, people will come in, they'll buy the land from you, you are now the bank, meaning you are holding the note on that land, and they're paying you an 8 % interest rate for owning that land. Then you take those profits, reinvest them, do it again. And so all of a sudden, you can have 10 different parcels over time when you're reinvesting these profits that are all paying you on a monthly basis at an 8 % rate of return.

26:10And so this is a way that you could, over time, turn land into a flywheel. Another way is to lease out to solar or cell towers or parking. Parking is a huge way to turn land into a flywheel. The problem is you got to find the right spots or an RV park or hunting land. All those different things are ways to do it. And so even land can be turned into a flywheel. So that is real estate. That is the first step in looking into a flywheel is that you can reinvest the cashflow from your real estate to buy more real estate. It is a very powerful time tested millions of people have done it. It has produced so many millionaires.

26:48It is absolutely incredible. So that is the first flywheel I want to talk through. Next, we're going to get into different businesses. One thing I've learned as a business owner is your CPA should not just show up once a year. The best tax strategy happens all year long, not just when you're scrambling to file your tax return. And that's what I like about Gelt. See, Gelt is a modern tax strategy firm built for business owners, high earners, and entrepreneurs. They pair dedicated CPAs with modern technology to help make taxes part of your business plan instead of just another deadline. Now, what really stands out to me is that they don't just prepare your taxes.

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28:03Just mention the show name Personal Finance Podcast on your intake form. My relationship with money has changed a lot over the years. Early on, I thought building wealth was about making more money. Now, I know it's really about having clarity. When you know exactly where your money is going and whether you're on track, you make better decisions. That's one of the reasons I love Monarch. It's the personal finance app that tracks everything from your accounts and investments to your savings goals and spending. So you can see your entire financial picture in one place. One habit that's made a huge difference for me is my five minute drill every single morning.

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29:43with 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. 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. All right. So flywheel two is we're going to look at businesses because businesses can be a really rapidly growing flywheel if you do it the right way.

30:25And so let's look at this for a second when we talk about buying businesses. So buying businesses is one of the biggest opportunities out there. Any long-term listener knows that I absolutely love the concept of buying businesses. It is what I currently am doing right now. I have bought businesses. I have sold businesses. And it is something I am really, really bullish on. Why? Because there is a huge, massive population of business owners called the baby boomer generation who owns over 50 % of the businesses who are now looking to retire. And so there is going to be a huge influx of small business that you can go out and buy.

30:58And so here's how this works. Let's say, for example, you want to go out and you want to buy your first business. And maybe it is a plumbing company. Okay. And you're looking for a plumbing company that is just a small one that you can choose to operate. And you find one, you find a plumbing company. It has three different plumbers on payroll and you buy it for a million dollars. Okay. Now you may be saying to yourself a million dollars. That's absolutely crazy. Well, the cool thing about in the business world is that you can get something called an SBA loan. Now this is issued by the small business administration, which will loan you 90 % of the value of a business.

31:31So if you have a hundred thousand in cash, you can buy a$1 million business with an SBA loan. This is a government backed loan. Okay. And so this is something where you need to understand how business works first. You need to understand everything about that business before you go and buy it. But here's a cool thing. Let's say for example, so you go out and you have a hundred thousand dollars in cash and you go and buy a business and you go buy this small plumbing business that's out there. Plumbing is just an example. There's a bunch of different things that you can go look for. And you buy this plumbing business.

31:59It has three employees and it has a net profit every single year of$200 ,000. So it does a million dollars in revenue after all the expenses for paying the plumbers, playing the vehicle fees, all the other insurances, all the other extra expenses, the advertising, you know, it's going to net all the way down to$200 ,000. You have 20 % margins on this business. Okay. If that's the case, you have$200 ,000 per year and you can do one of two things. You can fund your lifestyle and, or you can take that and turn it into a flywheel, okay? So let's say, okay, the first year you produce$200 ,000 and maybe you still have your day job, but you're operating this business day to day and you have flexibility, okay?

32:40Well, after year one, you have$200 ,000. Now you have two options. You can go out and look for another plumbing business and try to work a deal, or you can wait until you have more cash to buy an even bigger one. And let's say, for example, you go out and buy another plumbing business for a million dollars and you seller finance this one. So you say, okay, I'm going to give you$200 ,000 in cash, and you're going to hold a note for me for the other$800 ,000. So now you have two plumbing businesses. You can rebrand them into the same name, or you can hold them under a holding company. And so you have both of these, and now you're producing$400 ,000 per year.

33:11Well, this is a really fast way, as you can see, to all of a sudden begin to start reinvesting in another plumbing company. And so now you're rolling up into three of them and four of them. And all of a sudden, you have these plumbing companies put together. Now, you may be saying to yourself, this is ridiculous. How would that even happen? If you run the numbers, it can happen. And so this is how a lot of people who start to buy small businesses get very wealthy very quickly is because they understand these metrics. But you have to be a good operator. You have to understand that running a business when you buy a business is way harder than anybody ever thinks.

33:42It is very, very difficult. I'm not going to deny that whatsoever. It takes a lot of time, energy, effort, sleepless nights, a lot of thoughts about how am I going to fund this or how am I going to do that? owning a business is not for everyone, but it is for some of you. So overall, this is going to be something that you can absolutely systematize and run. If you stabilize businesses and if you can systematize and increase those margins and then reinvest those margins into more businesses, it can really scale up the amount of money that you have. Now, the second way is maybe you're like, I don't want to try to figure out these systems of these small businesses.

34:16That sounds risky. Why are they even selling these small businesses in the first place? There's got to be some other reason. And all of that sounds crazy to you. Well, number two, your second option is franchise ownership. So franchise ownership is, and we're going to have some franchise owners on the podcast coming up and we're going to bring them into master money Academy as well, because I want to talk through this a little more with people. Uh, like when I was a teenager, I always wanted to own franchises because I thought it was such a cool concept that you could buy into an already existing business that had a brand name, and then you could start to profit off it.

34:45Now the problem with franchises is the margins are much lower than some of these small businesses. once you start to figure it out because you have to follow their model, you have to pay them a certain amount, and they also have the franchising fee. And so because of this, you can work backwards with your numbers. And typically with franchises, you want to have a couple of them at least in order to become profitable. Let's use Crumble Cookie as an example, okay? Crumble Cookie is a very hot franchise right now that a lot of people have opened. And people think they're really easy to open, they're not.

35:11But for what I've read as of recent, you can open a Crumble Cookie and the franchise fee is something like$70 ,000. But then in addition, you have to fund all the build-out. And so you find a location, you fund all the build out. Now you have personal guarantees on that lease. There's a lot of risk involved with this franchise. Okay. So then what you're doing is you have all this build out done for$500 ,000 or something like that. You're going to have to allow a lot more cash when you're going to franchise route or you get a loan. And so because of this, you have the build out done for this crumble cookie.

35:40Now it's in place. Okay. And so what you can expect to produce is about a hundred thousand dollars per year in net profit. And so you have this successful location, you get$100 ,000 per year, and then a couple of years down the line, you save up the cash and you do it again. Now you have two crumble locations, okay? A couple of years down the line, you save up the cash, you do it again. Now you have three, now you have five, now you have seven. And so over time, you can get to a point where it's spitting off enough cash where you don't have to work anymore, depending on where you wanna go. And so this is a very powerful way to work backwards and figure out, okay, I only need three of these locations in order to be financially independent.

36:17Or I need five of these locations to be financially independent because I want to have an operations manager running them for me. And so I need those two extra locations to pay for the operations manager. All of these are different scenarios that you can run in your head and figure out how to get to the point in time where you are financially independent. Another way to do this is with a holding company. So let's say, for example, you're like, yeah, that sounds awesome. Maybe I want to do a little bit of both. I want to own some plumbing companies. I want to own some franchises. I want to own some laundromats.

36:46I want to own some car washers. I want to get all different types of things to see what I like. Well, you could open a Holdco. And so the way that works is that you can have multiple different businesses under one umbrella. And within that Holdco, you can do a lot of cool things. There's some really big ones out there. I like to look at Holdco sometimes in the home services industry, because you'll see them owning things like garbage companies and pest control companies and window washing companies and all these different companies that are growing at rapid rates. and they will buy out different brands.

37:14And these companies are huge and they just fly under the radar. Nobody even knows about them, but they own all these different brands in one place. That's what a hold co is. So an example of this would be Procter & Gamble. So Procter & Gamble, if you don't know, owns an insane amount of different companies. And so if you look at Procter & Gamble, they own Loves and Pampers and Bounce and Downey and Gain and Tide and Bounty and Charmin and Puffs and Always and Tampax and Braun and Gillette and Venus. and Head & Shoulders, and Aussie, and Pantene, and Old Spice, and Cascade, and Mr. Clean, and Swiffer.

37:49And so they own all these different brands. The list goes on and on and on and on. You know, Olay, and Secret, and Safeguard. And there's just, it goes on and on and on, and they keep buying more and more companies. Well, this is a huge umbrella of holding companies. But you can do the same thing as a small scale. So like, let's say, for example, you want to be in home services. And so first, you buy a sprinkler repair company. Then you buy a plumbing company. Then you buy an electric company. And all of a sudden, you can do all these different things for a homeowner anytime they want a specific service.

38:17And so you can build a brand around that as well. And this is another flywheel that you can just think through. Well, you can do this on small scale or a larger scale. And so business is a great way to build a flywheel. It is a very hard and difficult way, but it is a simple concept that you can do. It's simple, but it's not easy. It's not for everyone, but for some of you, it could be. And I think it's a flywheel that some people should consider once they understand this. Now, if you want to learn more about buying businesses, there's two books I would recommend. One is Buy Then Build by Walker Dival.

38:46We had an entire episode with him on this podcast. And the second one is Main Street Millionaire by Cody Sanchez. She has also been on this podcast. Both of those are fantastic for looking into how to buy businesses. And then we'll talk a little more about that here on this podcast as well, because it is something I am very passionate about as well. So that is the second option is buying a business. But let's talk more next about financial assets. So let's look at index funds, dividend investing, those types of things. All right, the last one is going to be talking about financial assets. Now, index funds and ETFs are what we talk about a ton here.

39:19If you think about this, index funds and ETFs don't produce a ton of cash flow up front, meaning what you have to do is those stocks or those assets have to appreciate over time. And once they start to appreciate, then you're going to see large gains and large swings. So you can see people who have multi-million dollar portfolios and index funds and ETFs, and they're making hundreds of thousands of dollars a quarter because those assets are growing so quickly over time. But in the early stages, index funds and ETFs, they do produce a dividend, but it's usually not a very large dividend. It's usually somewhere around 2%.

39:49Like what is the S &P 500 right now? Let's look at the dividend right now for the S &P 500. So if we look up VOO and we look up the dividend of VOO, it is going to be low. So currently, if you go on the Vanguard website and you look at the 30-day SEC yield, it is 1.17 % for VIOA. And so because of this, it's not like we can take dividends and reinvest them really quickly. But instead, what we want to do is see appreciation when it comes to index funds and ETFs. Now, there are some with higher dividend rates, obviously like SCHD, which is a dividend ETF or something that has a higher yield. But typically, when you're looking at index funds and ETFs, you want to take the dividend, you want to just automatically reinvest it.

40:29We teach this in Index Fund Pro. And then once you automatically reinvest those dividends, just turn that on. You just kind of let it run and let it run wild as time goes on. But your goal in index funds and ETFs is try to get as much cash in them as early as possible so that you can reap the benefits of those index funds and ETFs growing over time. But let's look at another option. OK, number two is dividend growth stocks. So we have an entire episode also on dividend growth investing and how it works. And if you have never looked further into dividend growth investing, the best book on this is called The Single Best Investment.

41:01And in that book, it kind of goes through dividend investing, how it works, and why people may want to consider it. Now, if you look at the historic data of dividend investing in comparison to things like index funds and ETFs, the S &P 500 has historically outperformed the majority of dividend portfolios. portfolios. But dividend portfolios are typically something where you're buying big blue chip companies that have been around for a long time that have produced a dividend for a very long period of time. And what you're trying to do is get 3 % to 4 % every single year from that dividend portfolio that you can live on.

41:34So you're trying to get it to produce enough cash flow so that you can live on that dividend portfolio because each of these companies is going to spit off dividends. And so you want to make sure that you can live on that portfolio. So let's say, for example, you have a million dollar portfolio where you can, and it spits off 3 % every single year. That means you'd have$30 ,000 per year in dividends. These are really round numbers. We're just doing this for easy math. If you have a 2 million portfolio, 60 ,000, 3 million portfolio, 90 ,000. And there's obviously a ton of things involved here, but that shows you this is a real true compounding flywheel because when it comes to dividends, what most people will start doing is they start to reinvest their dividends.

42:11And it's really cool to see the bloggers who talk about their dividend investments in their portfolios. One is dividend diplomats, for example, because when you see these people early on and they start these dividend portfolios, you know, they got five bucks or 10 bucks or 15 bucks that they're reinvesting in their portfolio. But then you check in with them a couple of years later and all of a sudden, wow, they're reinvesting a couple hundred dollars. And then you check in with them a couple years later and every single month, they're reinvesting thousands of dollars. And it's because this flywheel is starting to compound.

42:38It's starting to grow faster and faster over time. Jason Fiber is another great example. So this is a guy who started really, really poor. He lived in Detroit. I need to get him on the show. And he started really poor and started to live really frugally. And over time was able, over the course of a decade, to be able to retire with a dividend portfolio because he kept his lifestyle expenses low and was able to take those extra dollars and put them towards dividends. I mean, he was a mechanic. He was riding the bus to work every single day just so he could save enough money to fulfill his dividend portfolio.

43:10And he actually got to a small enough dividend portfolio where he could live off that portfolio. He moved to Thailand to reduce his expenses. And now he's financially independent over there in Thailand and is happy as a clam last time I checked. So this is something where you can definitely do it, work the numbers backwards and see a really, really powerful result because of that. Another one is notes. So real estate notes are not something I am super interested in pursuing. I think there's a lot of risks there, but you can also turn those into a flywheel, meaning people are paying you every single month for you lending the money.

43:41So let's say, for example, someone wants to flip a house and your friend wants to flip a house and you decide to give them money and they have to pay you like a hard money loan. So they have to pay you 12, 13, 14 % on that money, but they're going to pay you back in six months once they sell the house. That is an example of something that you turn into a flywheel, but also there's just higher risk involved in that. I would rather own the asset or I would rather own an index fund or ETF than doing something like that. And that's just me personally, but some people are very good at investing in notes, then they have figured out the formula.

44:09And if that's you, great, more power to you. Another one is REITs. So REITs produce a higher dividend rate than would an index fund or an ETF. And so because of that, you can really grow a portfolio faster with cash flow because of REITs. Now, REITs stand for Real Estate Investment Trust. They trade like a stock, they are on the stock market, and you can go out and buy them. And really what you're trying to buy is more dividend growth because they spit out a dividend. They're actually required to send you 90 % of their taxable income to shareholders. And so because of that, they have to send you a dividend.

44:38Now, there are some REITs that will actually give you a monthly dividend, like O, for example, which is net realty income, which at the time of recording this, they send 22 cents per share out every single month. So it's a$200 REIT at the time of recording this. So if you buy it, every$200 you invest, you get 22 cents back every month. And so that is something where you can see an interesting breakdown over time. And you can actually see it as a, it's actually a dividend aristocrat, which that is something we talk about in the episode, what is a dividend aristocrat and all that kind of stuff. And so that is another option is to look into REITs or real estate investment trusts and going that route.

45:12Now, before we wrap this episode up, I want to talk about stacking flywheels, because this is something I think that over time, people who understand this concept can do this in a bunch of various ways. I have personally stacked flywheels. I have done all of these different things. So I have had flywheels in real estate, I have them in businesses, and I have them in financial assets. And those three areas, if you can stack those three areas, it is so powerful what you can do over time. And so I hope this episode is inspirational to you. I hope you work this framework backwards and don't forget to go ahead and get the guide down below so that you can see some of these examples that we give inside of the Wealth Flywheel.

45:48Because I think this is a very, very powerful concept that most people need to understand. Because if you reverse engineer your very own Wealth Flywheel, you can devise a plan for you to be able to retire at a faster pace. And so I want you to look at this as a way to systematically grow your income fast. And I want you to think about this in a way that makes sense for you. And so next, I'm going to give you the tactical steps before we wrap this episode up. All right. So lastly, I'm going to show you tactically step-by-step how to build your own flywheel. And again, the free guide down below is going to show you exactly how to do this as well.

46:22But number one is to define your finish line. How much do you need every single month. If you need$10 ,000 per month, well, that means we need to produce enough cash flow to cover that$10 ,000 per month. And so we're going to work backwards towards that number. And so let's say we utilize that example that you need$10 ,000 per month. And we use our real estate example, where every single house we buy is$500 per month. Well, that means you need 20 properties in order to produce$10 ,000 per month in cash flow. And so this is going to be one of those things where you can work backwards and estimate those passive income needs.

46:53Then I want you to decide what your investment vehicle is going to be. Start with index funds or ETFs, or you can look at real estate to start with, or you can look at business ownership to start with, but choose one of those paths that makes the most sense to you. And then decide how much you can actually save towards that target, because this is going to tell you how fast you can do it. For some of you with really high incomes, if you do this, you could be financially independent in 10 years or less. For some of you who may not have as high of an income, but want to do this over time, you could do this over the course of 25 years and have some real assets that are producing a massive amount of cash flow for you.

47:23So determining your annual target is going to be really, really important. And then you look at your gap. So look at the gap between your income and expenses. And you could say to yourself, okay, I have an extra thousand dollars per month I can put towards well flywheels. And that's going to make a ton of sense. And then start to automate the system. So start to automatically save for some of these flywheels. If you're going to invest in real estate or start to automatically invest, if you're looking at dividend stocks or index funds and ETFs so that this becomes so much easier and then continue to reinvest over time.

47:53And so we laid out all the steps here in the free guide. So make sure you check that out down below. And if you have any questions on these, please let me know. Listen, thank you guys so much for being here today. I truly appreciate each and every single one of you investing in yourself because that's exactly what you're doing when you listen to this podcast is you are investing your time and your energy in yourself. And I truly appreciate every single one of you being here. I hope you have a wonderful rest of your week, and we'll see you on the next episode.

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