The Three Disciplines for Financial Freedom
s the facilitator and owner of Freedom Founders,
I have the opportunity to have many conversations with other hard working colleagues from our peer group.
These are professionals who have been dedicated to the cause, went through school, paid the price, then went out into practices of their own and took on all of the risks and liabilities associated with that. They have taken on all of that responsibility and find themselves wondering, “When do I get to have real freedom, real choices, and real options in my life?”
We should not have to wait until “retirement” to feel like we have finally put in enough work to start enjoying life. I believe that’s the wrong model to follow, but most people follow that belief. Why? Because of uncertainty—a lack of a plan.
Wall Street doesn’t help people develop plans with milestones or specific benchmarks by which they can feel confident that their assets will be able to support them after their active income years end. That’s the big problem.
People often ask me, “What are the keys to getting to that freedom point sooner, or at least seeing the milestones and having the certainty of getting there sooner?” In Freedom Founders, we have people getting to their Freedom Number in their thirties now! Of course, we also have the more conventional people in their forties or fifties who have worked hard all their life and accumulated assets. We help them redeploy that capital into alternative assets that will produce the sustainable cash flow they need to sustain their lifestyle through retirement.
We all know that setting yourself up for financial independence takes discipline, but do you have the discipline in the right model?
There are different types of discipline. One can be disciplined at working hard. Saving money is another discipline. What about the discipline to invest your money? What do you do with your money, and where do you put it? That’s where it goes off the rails.
Maybe you hand it over to third-party money managers or 401(k) administrators. These places are where you lose control of your money and financial future. Is that discipline in the right model?
Let’s get right down to it:
Discipline #1: Keeping a lid on your personal lifestyle.
This can be a hard one for a lot of people to do, particularly when you and your spouse have gone through school together and paid the price of living modestly like students have to do. Then when you come out with your license and degree and start making way more money than you could before, you want to live a little bit. And everybody else around you is doing the same.
This is easy to do because credit is relatively accessible today, so you can upgrade your home, apartment, or car and you can take vacations pretty easily. There can be a lot of desire to do things like that.
I understand that desire. Although I did get to upgrade my apartment, I didn’t go crazy by spending money on other things when I got out of school. Instead, I started buying assets.
I got my first real asset in dental school with my dad. Together we bought a rental property that was not only producing cash flow that I didn’t have to actively earn, but was also building equity for me. When we sold it, I took my half of the capital gain profit, $25,000, and I parlayed that into other real estate assets.
Right out of the gate, I was buying assets. I didn’t even buy our first home to live in until years later. I was able to negotiate a very cheap lease option for our house on the water; that is another way you can control an asset without paying the full retail price.
Instead of letting your lifestyle elevate simply because you have the income and credit to afford it, why not apply that income toward investing in real assets that will provide sustainable, predictable income for you? Then you can let that passive income sow back into upgrading your lifestyle without you having to work for it!
That’s the way to do it. As long as you own a capital asset like real estate, it will continue to produce consistent income that you can do whatever you want with. It’s extra income that you can use to pay for your lifestyle expenses or even to buy more assets. If you do it that way, you can compound your assets and grow your wealth quicker. Either way is fine; it’s ok to live a little.
So if you want to increase your lifestyle, first invest in assets that can pay for it for you.
Discipline #2: Keeping an eye on the numbers that really matter in your business: Cash flow margin and cash on hand.
In your business, make sure you have solid cash flow margins and enough cash on hand to survive downturns.
We will have a market downturn in the near future. Do you have enough liquidity in your business to get through that? Or are you in an expansion mode right now because the economy seems good?
The economy seems strong right now because consumers have a lot of money in their pockets that they couldn’t spend while the economy was shut down last year, but that’s going to come to an end. When that happens and a market correction comes on top of that, where is your business going to be?
You’ve got to have a business that can weather the storm. Make sure your overhead is in check, so you have the cash flow margins to weather any storm. Avoid expanding without being intentional and taking on an unsustainable amount of debt to do it.
People think that debt is no big deal today because interest rates are low and money is cheap. That is a myth – you must be careful of debt.
It’s not just about your P/L for a month or two. You need to have cash flow projections. You need to be able to make decisions based on real numbers.
Maintain the discipline to stay focused on the numbers that really matter in your business.
Discipline #3: Knowing where and how to invest your money.
Many people don’t know what to do with their money. The big mistake many people make is putting it in the wrong place. So where can you put your money?
First of all, you can put your money back into your business. If you know what you’re doing there, that’s probably the best investment you can make. Absolutely.
Beyond that, where else can you put your money?
Again—you know I’m biased—real estate and alternative investments are the absolute best way to go. However, in order to be successful in real estate, you have to know something about it. You need to learn. You need the connections.
You can't just call up a broker or money manager and say, “Put me in real estate.” It doesn't work that way. Those types of people don’t offer real estate because they don’t make money off of it.
Instead, you have to be focused on educating yourself or getting with people who can help educate you about how to make your money work as hard for you as you worked for it.
That’s when you start to learn about investment hedging: Knowing how to hedge the markets with the right asset classes. Most people don't have a clue how to do that. They just hand off their money to the Wall Street money managers and, with their fingers crossed, hope for the best.
Hoping for the best is not a plan. That approach will not get you ahead in this next decade at all.
It's up to you to be your best financial advocate. It's up to you to take charge of your and your family’s financial future and the legacy that you want to leave behind, whatever you want that to look like.
Right now, you've got to govern yourself accordingly. Do not put your head in the sand and expect that it’s all going to work out just because you’re a hard worker. That’s only the first step on the path to financial freedom.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with My Team:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then schedule a call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to attend one of our upcoming member events as a guest. www.freedomfounders.com/schedule
2. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Go to www.FreedomFounders.com/Scorecard to take the 3 minute assessment and get your scorecard.
3. Ready to Step Away?
“How Much is Enough?” This simple question keeps hard-working professionals at the hamster wheel of active income far longer than they need to be. Watch this free training, and discover a proven model for determining how much you really need before hanging up the handpiece! www.freedomfounders.com/training