EP198: Rich But Broke? Avoid These 5 Mistakes
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Do you ever feel envy towards the financial stability of people who earn seven figures or more?
Well don’t, because believe it or not, someone earning a big paycheck may not be living a life of luxury.
In fact, far from that, you might be killing it in your career but failing financially. 😣😣
In today’s episode, we are going to discover some of the surprising mistakes even the highest-income earners and high-level entrepreneurs make.
Not only that, we are going to discuss critical safeguards they overlook.
By the end of this episode, you’ll not only understand what those are, but you’ll also be prepared to dodge those same pitfalls.
In order to do this, we are going to play some hoops. 🏀
👉 Do you guys remember former NBA player Antoine Walker?
Despite earning more than 💵 $110 million throughout his successful basketball career, he shockingly filed for bankruptcy just two years after retiring.
It’s a sobering example that a hefty paycheck doesn’t necessarily ensure financial security.
So how did someone like Walker, with such substantial income, find themselves in financial ruin?
Assumption of Perpetual High Income
Ever notice how high-level entrepreneurs can still end up in money trouble?
It’s kinda like getting roses on Valentine’s Day. ❤️
On day one, they’re all fresh and pretty. But by day three or four, they start looking rough.
Even though we know they’ll wilt, it’s still a bummer when they do. 🙁🙁
The same goes for folks with big paychecks – they can still get hit with financial curveballs.
Our first pearl of wisdom for you today is that this is actually your fault.
Just kidding – but for real, the heart of the issue here really boils down to assumptions.
You, us, the average person, probably assumes that high-income earners are crushing it in every aspect of life.
Similarly, those like Antonio Walker assume a false sense of security and believe their substantial earnings will continue indefinitely.
Which obviously just isn’t true.
There’s also a not-so-fun fact that we have to share with you, which is that there is a natural cap on your income growth once you reach a certain age.
Look, there’s no need to panic here and no magic number that you hit when all your trajectory of success suddenly comes to an end. But think about it logically, this just makes sense.
You can only keep climbing the corporate ladder or whatever 🪜 ladder of success you are on for so long before you reach the top of your ladder. Whether that ladder is 9 feet or 40 feet, eventually you reach the top.
And that’s not totally a bad thing, it just means that at some point your ability to compound your income the old fashioned way is going to cap out.
The US Bureau of Labor Statics found that you typically reach your peak income somewhere in your 40’s to 50’s.
But you know what?
It’s not just about age.
There’s a whole lot more to it. A bunch of other factors can come into play that affect your chances of boosting your income, and guess what? Most of them are completely beyond your control.
We’re talking about things like the rollercoaster of the economy and the ever-shifting trends within your industry.
For those of you who’ve been following our journey for some time, you’re probably aware that this is a topic very close to our hearts, and it brings back some painful memories.
We went through a tough period when our fashion business unexpectedly crumbled.
It wasn’t due to anything we did wrong; instead, the client had employed some less-than-stellar business practices, which led to the abrupt shutdown of all their stores.
Unfortunately, this translated to a staggering 95% income loss overnight—a truly distressing experience we sincerely wish you never have to endure. ☹️☹️
While this is an extreme example, it can happen, and we want you to be prepared.
Not only that but there’s a multitude of other factors that can affect your income that you might not think about. These are things like your mental health, sudden illness, burnout, family illness or death, or even stress.
Just last year, CNBC discovered that 56% of Americans can’t cover a $1,000 emergency expense with their savings.
Can you imagine if that included a sudden severe illness and hundreds of thousands of dollars of medical expenses?
Even if you’re not dealing with some major health scare, your mental well-being can still do a number on your income.
The pressure of always needing to be at your best can really mess with your head, leading to headaches, some extra pounds you didn’t sign up for, and even vision problems.
That workaholic attitude and hustle that’s keeping the cash flowing might end up backfiring, leaving you worse off than when you started. At this point, you’ve got stopped being the asset. 👀
Something’s gotta change, so it’s time to start owning the assets.
Lifestyle Inflation
Imagine your income as a hot air balloon. 🎈
As it fills with air (or in this case, money), it begins to rise higher and higher. But instead of just floating upwards, there’s a catch: you start loading it with fancy baskets and heavier equipment.
This is lifestyle inflation in action.
The more money you make, the heavier your balloon gets with lavish extras.
The crazy thing about high-income earners and high-level entrepreneurs is that while you might think they are saving hefty sums every year, the reality of the matter is that when your income grows, so does your lifestyle.
You might not want to admit it, but deep down you know that this is true and you’ve probably experienced it on some level.
Whether that means getting a new car with your recent promotion or upgrading to a house with more square footage, your lifestyle is likely to elevate proportionally to your income, increasing your financial obligations but not necessarily increasing your savings.
Think 💭 on this for a second – once you get all these shiny new toys, you become trapped in your high-income job because all of a sudden your expenses demand that same income level.
So even if you wanted to quit, you can’t.
Before you know it, you have no savings, a massive mortgage, boatloads of debt, and no way out of the situation other than to keep grinding day in and day out!
Poor Investment Decisions
Fun fact: I (Palm 👋) captained our high school’s league championship basketball team.
One day, the volleyball 🏐 coach asked if I’d consider trying out.
Riding high on confidence, I figured, ‘I’m great at basketball, so why not volleyball too?’
Turns out, that tryout was a humbling experience; I didn’t make the cut. Just because I shined in one sport didn’t mean I’d ace them all. Similarly, just because someone is great at their active income doesn’t automatically make them a whiz at investing.
We’ve talked about a lot so far, but by far, the biggest high-earning mistake you could make is simply failing to invest.
Look, we totally get it, you spent 10+ years studying, putting in grueling hours, and exerting literal blood sweat and tears to become an expert in your field.
Whether that means you are a corporate executive, a lawyer, a dentist, or some other professional, the hours you’ve spent consumed by your craft naturally means that you won’t also be an expert in finance.
And that’s okay! 🤓🤓
Being an expert in your field also doesn’t mean that you know how to keep your money multiplying.
So what can you do to keep that money in the bank and also keep it growing?
This is what you’ve been waiting for – and it might surprise you.
Before you spend one penny on expenses, you need to pay yourself first.
This might seem backward, but when we talk about paying yourself, we mean putting the first 10% of your earnings directly into an investment budget.
So what matters most to you?
➡️ Is it cash flow, liquidity, or income growth?
If you like living on the edge and riding the roller coaster of the stock market and have a ton of spare time, then maybe that’s a good fit for you. But if you value the three T’s of time, team, and tools, then assets like multifamily might be just the ticket.
For us, it’s our bread and butter, and we wouldn’t be here telling you about it if we didn’t think it could work for you too.
It’s so easy to get caught up in shiny object syndrome.
Maybe your friend or co-worker has been bragging about their success with crypto, futures, or options trading. Or maybe your fiance bro friends seem to have all the answers and you find yourself with a major case of FOMO. 😍😍
Even worse, your old college roommate started a pyramid scheme and is convinced that it’s their and maybe your key to success.
The thing is, no matter what you invest in, you absolutely have to educate yourself on what you are investing in.
This might seem so basic that it’s almost insulting, but you would be surprised by the number of people who get caught up in a moment or feeling and all of a sudden have squandered their life savings.
You know, there are always people out there eager to dish out their “get rich quick” schemes, but the reality is, that many of them lack the necessary knowledge and expertise to provide sound advice.
You also don’t want to overcomplicate your investment strategy.
Like anything in life, you don’t want to spread yourself or your assets too thin. Trial and error is a technique that works well for some things, but not finances. At one point in our journey, we tried investing in gold, crypto, and stock, all of which resulted in big losses. It was only once we narrowed our focus to 🏢 multi-family real estate that everything changed.
You see, when it comes to money matters, those with a hefty income can sometimes get caught up in the complexities of the financial world and the temptation of all sorts of investment options.
This can end up making a financial situation more complicated than it needs to be.
And we hate to say it, but you may even get advice that’s more about padding the advisor’s pockets than truly looking out for your best interests.
The great news is that real estate is actually a very easy business when you think about it.
What it really boils down to is increasing your income and reducing expenses.
Sounds like some pretty basic math! ➗✖️
You also don’t have to worry about currency exchange rates or technology shifts.
This lasting asset class fulfills the basic human need for shelter, and it’s here to stay.
Protect and Plan
While you might know that you want to invest and earn more, you might not think about how important adequate planning is during this process.
We aren’t just talking about tax planning here, you also have to think about securing the proper insurance so that you’re protected in the case of an unforeseen health issue or life event that we talked about earlier.
It’s also worth mentioning that even if your profit is the same on paper from 〽️ stock investments versus multifamily, that income is going to be taxed very differently.
Not all asset profits, income, and capital gains are treated the sam The other asset classes don’t benefit from the multifamily advantage of bonus depreciation, which can substantially lower your tax bills.
Take this example: if you’re a 👩⚕️👨⚕️ surgeon, and you average over $750,000 a year in salary over 25 years or so, it’s pretty safe to say that you have lived a VERY comfortable life and won’t have many financial woes.
But you might still be raking in this salary and have only a few million in investments due to poor tax planning.
If you had all your money distributed when you got paid, with only a budgeted amount to spend and a dedicated amount to invest, it would be a totally different story. Trust us, it will hurt less in the long run to just set the money aside now, and you will most definitely thank yourself later.
401(k) Dependent
Another trap that we see people fall into is the mindset that you have to dump all your extra money into retirement accounts.
The caveat here is that you might feel like you can retire early based on the amount you have saved, but you can’t actually touch that money until you reach 55 or whatever your retirement plan stipulates.
So even if you have a net worth of $2-3 million, if you can’t access that money, is it really benefiting you?
At the end of the day, you want access to your 💰 hard-earned money, and you want to be able to access your passive income cash flow as quickly as possible so that you aren’t reliant on active income. Let your money work harder for you, not the other way around!
Well, Cashflow Multipliers, that’s for today! Remember, every journey to wealth begins with avoiding these 5 mistakes!
Until next time, dream big, and keep making those dreams a reality! 😌😌
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