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Leverage to Lift Your Profits

November 7, 2014 by  
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Today I’m going to continue talking about making those huge returns that I touched on last week. Remember, with only a $30k salary and saving just 10% for only 5 years, you can bring in as much as $21 million dollars by age 70! How is it done?  It’s done by using two different types of leverage.

No. 1: Financial leverage. This is Other People’s Money (OPM) as in mortgage loans, personal loans, signature loans, loans from family or friends, or even through having family and friends as partners.

No. 2: Labor Leverage. This is Other People’s Efforts (OPE). You bring on other people, including employees, part time contract labor, day laborers, contractors and the like, to do the fix up work that will create added value in an asset.

Basically what these two types of leverage can do for you is help lift something that is bigger than you can take on yourself. To paraphrase what Archimedes said, give me a long enough lever and a place to stand and I could by myself lift the earth.

Using these two levers is exactly how it is very possible to receive a return of 15% or 20% or even more, turning a meager income of $30,000 into $21 million! The math is pretty simple. As I said in my July 25th blog, if you go out and buy a $500,000 dirt bag type property, one that needs some fixing up, and do this with a $100,000 down payment (a down payment that itself may be borrowed) and then go out and use some OPE and improve the value by $50,000, that gives you a 50% return on your money,

But of course it will have cost you something to fix it up. Let’s say it cost $30,000 in material and labor to fix it up. That puts you at a 20% return. Now keep doing that on additional properties and you’re looking at a cool 21 million by the time you hit 70 years old. Let me emphasis that you can only do this if you control your own money and do the work or have others do the heavy physical work.

Anytime someone comes along and offers you a 20% or 30% return on your money without you doing a thing, grab your wallet and check book and run away as fast as you can.  These very high returns are possible but, for the most part, only with your efforts or the efforts of other people that you control.

Think of it this way … if you are making 30% or more on most every deal you do, why would you go tell others about it? Wouldn’t you just borrow more money at 5% or 6% and take home the difference? You certainly wouldn’t give someone else a big fat return of 20% or 30% in passive income for not doing a thing to help.

I’m not saying these returns are easy and take no effort and there are other details such as income tax that will eat into that profit (although there is a way–see the IRS 1031 section of the tax code to help delay some taxes) so these numbers aren’t exact. But what I am saying is that it doesn’t take as much savings capital as most people think.  In fact it takes relatively little savings to reach some very big financial levels.

By the way, I’ve had more than a few deals that have topped the 100% return level. Compound that for a few years and your eyes will pop out! That’s the potential. Now, doesn’t that get you motivated?

 

The Magic 10%

October 31, 2014 by  
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Last week I wrote about the basic and beginning key to great wealth for those of us who start out with nothing, like I did. That key is ‘savings’. A couple days after I posted last week’s blog I saw a great summary on ways to save money in the USA Weekend Publication. Its suggestions included things like buying a used car rather than a new car, always shop for better bargains, set spending goals and budgets, refinance your house at today’s lower interest rates and more. These are things I’ve always preached. It comes down to buying only what you need vs. what you want and mistake for things you need.

It might be easier to put away that savings if you take a look at the huge potential in that 10% you are putting aside. I know it seems simple to put aside 10% but for most people it’s not that easy. In my book The Next Step to Waking Up the Financial Genius Inside You I talk about how to save that 10%. Many years ago when I was making a starvation wage of $600 dollars a month, I was faithfully saving $60 dollars each and every month and then when I got a $40 dollar raise I decided to add the entire raise to the $60 dollars–so I was saving $100 dollars out of $640 or 15.6% of my monthly income. Yes it hurt sometimes because I had to go without things I wanted, but was it ever worth it in the long run.

You would do all of this if you truly wanted to be very wealthy rather than just being like everyone else who lives paycheck to paycheck. But now let me reveal to you a little fact that may entice you, shock you, and motivate you to do the ‘savings thing’.

Back when I wrote the third chapter entitled “Action Two, Saving the Magic 10 Percent” I had a friend who was paying a 10% tithing to his church and when I pointed out to him what he was really giving up he was shocked to the core. Please don’t get me wrong. I am not against charity but the thing is, if you want to be independently wealthy, you must pay yourself first. What I told him was that If you start at age 25 saving 10% of your wage, and assuming you only make $30,000 dollars a year and (get this … you stop saving at age 30) you will have over 7 million dollars when you hit age 70! And believe me, that big 70 comes much faster than you think!

Granted those numbers all depend on you investing your savings with an annual compounded return of 15% but wait before you jump to conclusions and think 15% is unrealistic and can’t be done, because it can. If you work harder and find the right deals you could even push that rate of return up to 20% which would be an astounding 47 million dollars by age 70. Amazing, isn’t it? Next week I will show you exactly how to do that. I’ve gone over this before but its well worth repeating.

A Great Evening with Richard Paul Evans

March 7, 2014 by  
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My good friend and fellow author Richard Paul Evans (who, having sold over 17 million of his 31 great books, is a bit more successful as an author than I am) invited me to join him as he made a great presentation to about 150 people last week.  His subject was based on his book The 5 Lessons a Millionaire Taught Me.  My wife Kimberly and I very much enjoyed both Rick’s motivating and informative remarks and the wonderful people we met afterwards.  I totally agreed with Rick’s view on money, on what it is and what it is not.

Among other things he said, “Life isn’t about money.”  He explained that life is about love and family but without money “life is thrown out of balance. To the financially enslaved, life becomes all about money; too many are missing the opportunities and abundance life has to offer”.

Of Ricks’ 5 Lessons, the first two I find to be so very important: that you must decide that you are going to become wealthy and that wealth is about saving money through either earning more or spending less.   I certainly agreed with those two first lessons, in part because that’s exactly what I’ve been preaching for many years and it certainly has served me well. It transformed a poor, struggling guy into a multi-millionaire. And my path didn’t come from being brilliant, as my C- grade average can attest.

Many years ago I noticed that most people’s spending rises at the same rate as their income when it increases. Too often it rises even faster, creating a debt loaded and stressed out person.  So if that sounds familiar and you want to be wealthy, or at least be way ahead in the money game, set a goal right now to start spending less than you are earning. Without any savings it will obviously be hard to proceed with the next step of investing wisely.

It really is up to you to either allow yourself to be controlled by money or be the one in control of it.  But always remember, life isn’t about money but with enough of it your life can be filled with abundance and opportunity.

Spending the winters in Kauai and being able to do things like take my kids and grand-kids to Europe for a Disney cruise to celebrate my 70th birthday certainly doesn’t make my life perfect. However, giving others those types of grand experiences that stick with them for life certainly does incredible and wondrous things to my brain and my level of satisfaction, and without money I couldn’t do these things.  So I encourage you to set the goals, follow the formulas for wealth and use that wealth wisely to enhance your life and those around you. You won’t be sorry that you did it.

If you need more information on a good financial formula go to my book, The Next Step of Waking the Financial Genius Inside You. I also strongly urge you to go to Rick’s website and sign up for his notices, giveaways and special offers atwww.richardpaulevans.com.