The Missing Piece for Entrepreneurs With Income But Little Wealth
Welcome to the 100th edition of the Inkosi Wealth Scoop!
In this episode, I’m going to talk about a cohort of business owners who have great income but have had little to no interest in investing till now.
The challenge that I feel this particular group of entrepreneurs face is that they aren’t necessarily attracted to passive income or maybe they’re a little bit delayed in recognising the importance and then feel that they’ve left it too late.
- The Challenge These Entrepreneurs Face
- Client Case Study
- The Difference Between Being Rich Vs Looking Rich
- What Entrepreneurs Are Really Seeking
- The Benefits of Investments That Deliver Passive Income
- Expand your Income to a Lesser-Known Asset Class
If you’re an entrepreneur who wants to learn more about that missing piece for business people like you with income but little wealth, you’ll want to listen to this episode!
00:00:55 The Challenge These Entrepreneurs Face
00:02:04 Client Case Study
00:06:49 The Difference Between Being Rich Vs Looking Rich
00:08:18 What Entrepreneurs Are Really Seeking
00:09:09 The Benefits of Investments That Deliver Passive Income
00:11:15 Expand your Income to a Lesser-Known Asset Class
00:13:05 Final Thoughts
Hey guys, welcome back to the podcast. In today’s episode, I want to talk about a cohort of business owners who have great income but have had little to no interest in investing till now.Read More
The Challenge These Entrepreneurs Face
The challenge that I feel this particular group of entrepreneurs face is that they aren’t necessarily attracted to passive income or maybe they’re a little bit delayed in recognising the importance and then feel that they’ve left it too late. For this particular group of business owners or entrepreneurs, what they’re really seeking when they suddenly click that passive income could actually be super valuable is the freedom to choose.
What I would say is that for a lot of people, the idea of passive income never seems all that urgent while you are in the throes of running a very successful business. Maybe income comes very easily, maybe you have that ability or the choice of selling or not selling at some stage, maybe you think your business is either super valuable or not valuable at all.
But either way, you’re in that category of person who feels that maybe the gravy train or the cash cow is just so lucrative and so valuable, that the wealth piece will sort itself out at some point.
Client Case Study
In the last four weeks, I’ve spoken to one entrepreneur in particular who really edifies the profile of the business owner that I’m speaking of and they’re approaching 50.
They are someone who has consistently earned eight-figure incomes for at least the last 20 years. So I am talking super successful in their space.
And for one reason or another part, a sense of lack of urgency, but also partly maybe not being part of a group of friends or a cohort where the emphasis or value of passive income was talked about.
But either way, they’ve reached this point, age 50, where there’s suddenly a dawning that they don’t necessarily want to continue operating their businesses at the intensity that they have been.
They’re starting to look around. They realised that maybe they have a home, maybe there’s a little bit of equity in the home, maybe there’s a bit of cash in the bank. But beyond that everything has been done with phantom fairly minimal emphasis or impact.
Often, these people have very conservative accountants who see their role as merely completing the tax return and not necessarily to value add in the context of, “You have all this income, maybe you could be growing your wealth in the background.”
So this particular guy that I’m thinking of is someone who had a killer income.
In the language that he used with me initially, it’s like he knows he should build wealth. He thinks it’s a good idea, but he’s got no idea where to start and the opportunities that he feels have been in front of him and talked about that are probably widely understood, would be to go and buy a share portfolio or work with a financial planner of some variety, who could put some combination of managed products, bonds, and shares and help him effectively to some degree, save his way to wealth.
Now, as an entrepreneur, I can understand why that particular strategy doesn’t appeal in many cases. What those financial planners are doing is creating a complex and basic savings plan that will hopefully compound over time.
Now for the majority of people, saving your way to wealth is one of the slowest and most excruciating ideas and I certainly subscribe to that perspective. But also the idea of accumulating a portfolio of assets that grow in value, but doesn’t necessarily deliver income can also be off-putting.
So I think when I started to delve a bit deeper into what was really the motivation for this particular guy to actually create wealth, to create passive income if you went beyond the idea of him just recognising intellectually, that it was a good idea, really what he was seeking was that freedom to choose.
He had a very specific business that was built off the back of IP. It was like technical IP and a really clever skillset, so great at diagnosing business problems and then coming up with very creative solutions that would result in big gains for his clients.
So one of the problems with those sorts of businesses is that the business relies heavily on the genius of the person. At the reins is that it’s, number one, it’s sometimes difficult to scale. But number two, it makes it very difficult unless you can duplicate yourself or duplicate your skillset in another person to replicate that to the degree that the business itself can necessarily be valuable as a saleable asset.
Now, that’s not to say that can’t happen. It’s just obvious if you are the life and the blood and the soul of your business and you’re not there anymore, it’s not rocket science for an investor to recognise that and suggest that, your business has little value.
And so what I’ve seen a lot over the last 20 years is business and entrepreneurs who are in that boat sell for peanuts, or not sell at all, just close up shop and that’s partly because their brand and their name and their reputation are completely dependent on them and therefore their business has very little value.
The Difference Between Being Rich Vs Looking Rich
So I don’t really so much want to talk about the ins and outs of selling your business. But what I do want to flag, for those of you who are listening is that if you are smart, as an entrepreneur, you should recognise that giving yourself enough of a runway to create an off-ramp, if you like from your business, regardless of whether you sell just makes common sense.
When I think about what is the missing piece for entrepreneurs who have amazing income but very little wealth behind them is this kind of disconnect between understanding the difference between being rich and looking rich and wealth, where wealth is really that extension of how long could you afford to live if you had no income.
Now, I’m not invalidating the idea or the strategy of trying to build a super high net worth that you just sell down in order to fuel not working or not having another income.
But I don’t think it’s the smartest strategy. I think a much smarter strategy is about building a portfolio of investments that delivers you predictable and reliable income so that you do not have to eat the cow or sell down assets in order to sustain your life beyond business or in another form of business or whatever that looks like for you. I tried really hard not to use the word retirement because I know that’s a dirty word for many of you.
What Entrepreneurs Are Really Seeking
But when I talk to a lot of entrepreneurs about earning more income, it’s not actually what they’re after. In fact, a lot of the guys that I have spoken to would describe themselves as being able to live off relatively low sums of money, even if they earn eight figures.
They’re really living off, I would say a very modest percentage of that. Where the rest of it goes is an audit or a process of diagnosis later on.
But I think what a lot of these guys (when I say guys, I’m referring to guys and girls) are really seeking is the freedom to choose.
I think the idea of passive income is very, very sexy but it’s not really the root of what people want. What people want is peace of mind, the freedom to choose, and the ability to support the people and the causes that they care about.
The Benefits of Investments That Deliver Passive Income
One of the most phenomenal features or benefits of having investments that deliver passive income is that it’s the ultimate insurance policy.
It’s the ultimate sleep at night factor. If you know that you don’t have to get up out of bed in order for your family to survive, in order for the causes that you care about to be supported by you then passive income is really the game plan.
I think more and more people are starting to cotton on to the floor in the traditional wealth model, which is just working for 45-50 years, accumulating as much money and assets as you can regardless of how much income they deliver you.
And I think if more people were introduced to the idea of how to go about building passive income over 10-15 years and let’s talk about a realistic timeframe, then I think the game of wealth-building would be very different.
The missing piece for a lot of entrepreneurs is that the thread of dialogue that goes on in 99% of conversations about wealth around the world, is how to accumulate assets that grow in value very slowly over time and hope that one day you can squeeze out enough income from that mammoth net worth in order to survive not working or not having that juicy income from your business.
The quieter conversations that are going on behind closed doors that I like to tune into are really about tapping into those investments and this is after you have a capital base to play with.
So please go back and listen to my other podcasts where I talk about the three parts to the wealth game once you’ve accumulated some capital to play with. The game of taking a small percentage of that and putting it into investments that deliver predictable cash flow is life-changing.
Expand your Income to a Lesser-Known Asset Class
So for this particular guy, if I revert back, this guy with the killer income, who wasn’t really sure about why he should build wealth. When I started to talk to him about, “What if you didn’t have to do it the traditional way? What if you didn’t have to spend the next 25 years buying assets and investments that would grow your net worth from where it was?” And instead, you just took a small fraction of your premium income each year and put it into assets that deliver you predictable cash flow, which he could see immediately and this is not rocket science.
I have a very simple calculator, which you’re welcome to go and grab from my website. It’s a basic compound calculator and it shows you that if you allocate a certain dollar amount of income towards investments that deliver you a certain rate of cash flow, within a very short space of time, you can actually replace your baseline living costs.
I think if more entrepreneurs understood this, they would certainly get started a little sooner. So I’m inviting those of you who have maybe not left the runway late, but who feel that they should have put more effort into wealth building or that they want to put more effort into wealth building but the idea of being exposed to say, for example, the share market where there is high volatility to the property market, which is expensive and requires all the headaches of dealing with the banks and tenants and toilets and all of that to start opening your mind to a lesser-known asset class which delivers you cash flow.
So, guys, I don’t really want to leave you with anything other than the idea that there’s no shame in having left your energy and your time and your headspace around wealth till a little later in life.
It makes it harder, absolutely. But it doesn’t mean that you can’t still get a meaningful outcome in a relatively short space of time without taking on any unnecessary risks.
But if you think that that’s you and you want to make up for lost ground, then please start to tune into other episodes of my podcast.
If you want to talk about your specific situation, please reach out. This idea that it needs to take 30-40 years is really a misconception. I really care and I’m passionate about trying to help those business owners and entrepreneurs who are really open to the idea of changing their trajectory today.
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