I’m on the other end of the questions in this week’s episode! Rick Mulready of The Art of Online Business podcast, asks me questions about the fundamentals of the four pillars of wealth that you need to focus on if you want to have success in building wealth at any level of income especially if you’re coming to wealth building late in the game.
Rick is an absolute legend in the digital marketing space. He’s been around for a long time and he’s someone who’s really growing his knowledge and interest in how to convert some of his premium income into wealth.
Connect with Rick:
Q: What is your background? What do you do and who do you specifically help and how?
- My background is actually as an accountant. I jokingly say I’m a reformed accountant, but it’s been a fantastic foundation to really leapfrog into investing.
- At the moment, my passion and what I do is I work with business owners who are looking to replace either a portion of or all of their lifestyle income so that they have the freedom to choose whether or not they continue to run their business or retire.
- We try to do that within a time frame of 2 to 5 years and predominantly through alternative investments.
Q: What are some of the things that we can think of as entrepreneurs and business owners about wealth building?
- One of the traps that people who love the idea of business and growth often fall into is thinking that income is wealth and the only KPI that matters is the measurement of income, revenue, and profit.
- The challenge that I’ve witnessed over the last 20 years is that as people’s businesses become more successful as their profit grows, what tends to happen is that there’s this kind of mental justification of, “I’ve earned this so I need to enjoy the fruits of my labour.”
- Sometimes, people will focus on trying to invest some of their money in assets that grow over time and end up in a situation where they’ve got a reasonably good net worth.
- But good net worth to some degree is a vanity metric because assets that sit there and underperform or don’t generate income are fairly useless to you unless your strategy is to sell those assets to survive in the years when you don’t want to run your business or you want to take the foot off the gas.
- I think the shift that entrepreneurs really need to make is to play both the short game and the long game. Short term game is the main game where you definitely build your income but you also need to think about the sphere outside of that which is the long game. It’s where legacy lives and where you’re focusing on wealth building outside of the business.
- The short game of business building is just as important as the long game but I think a lot of business owners don’t make it till the runway becomes very short.
Q: A lot of teenagers who aren’t at the level of being ready to invest reach out to you to ask questions about types of investments. What can we as online entrepreneurs who have a successful business or are on a path to a successful business learn from the types of questions that teenagers are asking about this subject that we can incorporate into our businesses and our lives?
- This is really interesting because I think if everybody understood the mechanics of wealth-building when they were a teenager, it would be game over from a financial perspective much sooner.
- I see so many entrepreneurs who are outwardly really killing it in their businesses. But if you pull back the curtain, there’s very little else to support them outside of the business.
- The thing with teenagers is they’re almost as close to a clean slate so giving them some understanding of the mechanics of wealth building is absolutely life-changing for them.
- The principles that I share with teens have come from 20-plus years of observing habits that adults have.
- I’m really passionate about this kind of education for teens around wealth building because I think schools do a pretty terrible job of doing it.
- When someone works with me for the first time and they show me their numbers, the accountant in me comes to the forefront.
- Numbers really tell a story. They can give you a sense of the decisions that people have, how effective they’ve been at converting income into wealth, how much it matters to them, and more. I’ve identified that people have one Achilles hell or one vulnerability.
- I say that there are four pillars of wealth-building that are the same things I teach teens.
- It’s a mindset, how you relate to investment. Effectiveness, how good are you at selecting investments. Then there’s knowledge which is education and wisdom combined. Then the final piece is network and how you grow and sustain your wealth.
- One of the things I’ve noticed is that you can be this amazing entrepreneur who intellectually understands the thinking behind wealth building but choose a whole series of dud investments because your investment effectiveness is really, really poor.
- Stewardship is really important around these four pillars.
- If you earn a lot of money, you waste a lot of money, but you still have money left over, it just means that you’re not firing on all cylinders. You’re falling short of what’s possible for you.
- The same with teenagers, when I’m auditing and looking at someone’s perspective I say, “These are the four pillars that you’ve got to strengthen.”
- You’ve got to really get your stewardship in order. You’ve got to be good at choosing investments. You’ve got to have investing rules.
- These concepts are universal. They’re not unique to adults and they certainly can be applied by kids as well.
Q: So when you said the mechanics of wealth building, are we referring to the same thing here when we talk about the pillars?
- I think there are too many people out there talking about wealth building as if it’s formulaic. My view is it’s more of an art than anything else.
- Your thoughts and your actions are what give you your results.
- If you don’t have your head right, if you don’t have the right knowledge, if you don’t look after the money stewardship when it comes into your world, if you’re not good at choosing investments, if you don’t get those four pieces right, it’s like running you’re with one hand tied behind your back or whatever the metaphor is. You’re not firing as well as you could be.
Q: With traditional thinking, we are giving control over how our money is being managed or invested by other people. Where what you’re talking about here is taking that control back like educating ourselves, getting the right mindset, etc. Do I have that right?
- Absolutely. No one cares about your money as much as you do. One of the evolutions over the last 20 years is the evolution of the wealth industry that spouts the idea that you should trust them, that you should give your money to them, that they’ll know what to do with it, and that wealth-building is incredibly complex where in fact, it doesn’t have to be.
- Everyone I know that follows the path of abdication always falls short of where they want to be.
Q: We have a great business. We’re generating good revenue. The profit margin is healthy. But we’re not building wealth in terms of what we’re talking about here. Where do we go from? How do we get that mindset, if you will? How do we start this process?
- As a pre-frame, I would say part of the reason why so many entrepreneurs don’t put as much effort into wealth-building as they should is there’s a perception that as entrepreneurs, you are often stretched to the limit. There’s a feeling of overwhelm at the idea of taking on another activity.
- So people put it on the back burner because there’s a perception that it’s going to take a lot of bandwidth and a lot of energy.
- But the pre-frame I have for people is it’s really important to remember that the cadence around wealth creation is very different to the cadence and energy required to run a business.
- The cadence around wealth building is much slower so it means that it doesn’t necessarily have to be as time-intensive as people think.
- I think the world is just awash with information overload and so the challenge is how do you discern which bits of information are important and which ones are marketing or media or news or sensationalism.
- That’s the big challenge that prevents a lot of business owners from giving wealth-building that little bit of attention that it needs.
- I think the starting point has to be really a basic examination of what do you want?
- When it comes to the definition of financial freedom, other people say “Well, I’ll play golf on a Friday and then I’d be able to do this on a Wednesday and I wouldn’t get up till ten in the morning.” That’s maybe a description of how life would look.
- But the definition of financial freedom should be almost like a formula; when A plus B plus C is in place, that is financial freedom for me.
- It could be something like when I have X amount of passive income coming in, when I’m mortgage free, and when my kids are through university. That is the definition of financial freedom.
- Everyone’s going to be different but the problem that most people are very guilty of is moving the goalposts.
- As I said earlier, a lot of people hold net worth up as being the holy grail but I tend to say net worth is one metric. There are so many others that are more useful and probably more meaningful from a life point of view.
- I think the starting point is defining what does financial freedom mean to you in a very concrete way? Then the next piece is doing a stocktake of, Where am I now?” and really asking yourself the question, “How good have I been to this point in time at converting my premium income into wealth?”
- There’s a fabulous 5-year-old book called The Millionaire Next Door that contains a formula they created after interviewing hundreds of high-net-worth individuals that was very simple.
- It was the average household age multiplied by your gross household income before tax. In the case of an entrepreneur, it’s your earnings or your profit divided by ten.
- That number is theoretically meant to be what your net worth should be for the income that you’re on and it takes into consideration that your income grows over time.
- So if the average household age is 50 and then you multiply that by, let’s say you make a million dollars in profit a year and then divide by ten, that should be your net worth.
- Now, if you are above that number, you’re doing well. If you’re below that number, you’re not doing so well.
- I would even say just because of the way that the world has gone over the last 25 years, instead of dividing by ten, I would divide by five and that should be your network now.
- All that is an example of a barometer for how good have you been at converting income into wealth.
- So my point is that you got to be able to look at where are you now and ask yourself, “Have I actually done a good job of being a steward of the money that I’ve had? Have I allocated money carefully to investments? Have I been playing the long game and the short game?”
- Ask those questions to really evaluate where you’re at and then you can start to engineer like, “What do I need to get from where I am today to where I want to be in a particular time frame?”
- I highly recommend the five-year time frame. I think it’s more meaningful than a ten, twenty, or thirty, time frame because it’s hard to stay focused and motivated for that length of time.
Q: What we’re talking about is the kind of income I can create that’s coming as a result of the investments that I’m making. We’re investing our capital so that we can create revenue coming in say five years down the road, whether we’re working or not. Am I right?
- Absolutely, and I would say to you, just to clarify, if you think of all investments as sitting on a spectrum where at one end of the spectrum you’ve got super active investments, meaning let’s say you buy the house next door and then you’re the landlord and you’ve got to do the maintenance and you’ve got like that’s super active developments.
- Then down the other end of the spectrum, you have completely passive where you do not have to manage the investment and you don’t have to look after that asset day to day.
- So most assets will sit anywhere on that spectrum. But typically, entrepreneurs are looking for more of a passive investment opportunity. They’re not interested in running another business.
Q: So let’s start to define what is an alternative investment. I know there are different areas of it. So let’s start to break that down exactly what that means.
- I think it might be useful for people to understand by sharing my backstory. When I started to really put my head into investing about 20 years ago, I tried everything.
- I was doing real estate. I was doing share trading. I was doing futures. I was doing options. I really put my head in everything and I fell in love with real estate very early on because I could see by applying leverage, you could just make these enormous gains.
- It was in about 2009, in the midst of one of the worst recessions ever, that I started to look at our numbers. At that time we had a large property portfolio and we redlined our finances to get there.
- We’ve always had relatively modest income and we just hustled, tried everything we could, and bent the rules as much as possible to get to that point.
- But from an accounting perspective, at that time, I started to future pace. I was thinking, “Okay, we’re here now. We have an enviable property portfolio. So when am I going to hit the income goals that we have?”
- And I realized at that time I was still at least 25 years away from generating the kind of income that I wanted and that’s what led me to go, “This is terrible that we’ve done all of this. We had a great net worth on paper, but we weren’t where we want it to be.”
- When I started to look at, “Okay, what else?”, that’s when I came across alternative and it was totally like a light bulb moment.
- The thing to make mention of the word alternative investments conjures up all sorts of scary things.
- Again, if I think of it on a spectrum, down one end, you’ve got things like venture capital, seed, start-up capital, maybe even blockchain, all those things, high risk, high return. Those are the hair-raising stuff that you hear people make and break their fortunes on.
- Down the other end of the spectrum are alternative investments, which are investments backed by real property. This is the space where I like to play.
- I am a super conservative person. I am looking for investments that have amazing downside protection, which lack volatility, where I can get predictable income, and where it doesn’t matter which way the market moves.
- If the market moves up, I make money. If the market moves down, I make money. If the market goes sideways, I make money.
- The problem with all others as much as I love real estate, is that they bank on a rising market and that’s the way that most traditional real estate deals are.
- I still have quite a large property portfolio, but I hate the tenants and toilets piece. They are irritating to me.
- So from my journey, my husband and I still both run businesses. That’s the fun A-game. We’re both part-time in the businesses and it’s more of a mission-based thing now.
- Then underneath that is the alternative investments that generate really strong, predictable cash flow. You don’t need much money per deal so I love that you’ve got that true diversification.
- Different strategies, different geographies, different deal makers and then underneath that is my property portfolio.
- Then underneath that is all my retirement funds, which we were yawning about the returns that we get in those.
- But it’s creating multiple safety nets because there are no guarantees that there won’t be some catastrophic event. But I love the idea that you’re thinking in terms of layers of safety.
Q: So you kind of touched on it there. But within alternative investments, if I’m not mistaken, there are five buckets you need to focus on, right?
- Yes. There are five things I love, things like syndications where a group of investors work with a single deal maker and secure a single asset. You know what the asset is and you have direct ownership of the asset.
- It might be like an apartment complex, it might be self-storage, or it could be any number of different styles of assets.
- But the idea is that you are purchasing an asset that’s potentially already cash flowing, that’s maybe just underperforming and underutilized.
- The skill set of the deal maker is to acquire it at a price that allows them to create some forced appreciation and potentially improve the cash flow. But the idea is it’s a single asset. That’s what the definition of syndication is.
- Then you have these small private funds where a bunch of individual investors work with a deal maker or a team of deal makers and they acquire multiple assets.
- They can be very narrow in their focus. It could be like bridging finance on high-end real estate through to self-storage multiple. It could be diversified into lots of different kinds of assets.
- But again, you’re participating at the highest level of control, but you don’t engage in any of the day-to-day.
- The third category is what I call joint ventures. This is a really fun one where you partner with a deal maker who’s got boots on the ground that runs the deals for you.
- So an example of that might be, I might put $20,000 into a joint venture deal and my partner will run the deal.
- They’ll buy a single piece of real estate. They already control the asset and they might renovate and cashflow it.
- They’re going to pay me say, 11% per annum for a couple of years and at the end of two years or 12 months, they’re going to sell that asset and give me 10% of the profit.
- So my average return for those two years might be 15% to 19%. It’s a cash flow return and a capital return.
- The fourth category is lending opportunities where you get to be the bank and it’s not that you’ve got to go out there and do any due diligence on any potential borrower.
- But you participate with someone who’s a deal maker that has that experience and structures the deals for you. So you’re participating in someone who’s the lender.
- Then the fifth category is what we call turnkey real estate. That’s probably where it’s the closest to owning direct property. But the idea is that somebody else manages it.
- If there’s a broken toilet, somebody else is handling it. Often you’re buying at under-market value, but you’re predominantly buying for strong cash flow rather than appreciation.
- So there are the five buckets.
Q: These types of investments are not available to most people because of the lack of knowledge and lack of network. Am I describing it correctly?
- You’re 100% right. When I stumbled across alternative, I realized it was in itself a secret playground.
- I had made all the rookie mistakes like investing with the wrong people, the wrong strategies, the wrong geographies, and not really understanding the mechanics of the deals.
- So I feel well qualified to talk about it because I made a lot of mistakes and waste hundreds of thousands of dollars.
- But where I feel I’ve got to is, as you start to meet good people, they then introduce you to good people and you start to ratchet your way into better and better networks.
- I also realized that wherever there’s an opportunity, you’ll find sharks for sure. So part of the journey is around bypassing all of that and finding the people who are not famous, not celebrities, and terrible marketers but they are really good at what they do and they love what they do.
- Most of the guys I deal with are all financially independent, but there’s a real passion for the play of these strategies.
- I align with people who in my mind are some of the best investors in the world and who will share their exceptional skills and deals with me.
- They have their ear on the ground. They know what’s coming long before the news hits the market. It’s like legal insider trading. We talk about inflation and things happening in the economy.
- These guys invest heavily in their own masterminds. They understand the impact of what’s happening economically long before the mainstream.
- So I think of it as a very conservative investment and I know that sounds bizarre.
- I think the really important thing is to understand there’s a huge difference between something being unfamiliar and something being risky, and knowledge and education are how you de-risk it.
- Then when you understand and can contrast some of these alternative investments with mainstream investments where you are hoping and praying the market goes up so that you make money, that’s when you start to go, “Hang on a sec. These alternative investments are actually much lower risk.”
- They’ve got multiple exit strategies. They’re cash flowing. They’re predictable today before I even do any work. I’ve bought at below market. I’m at the highest seat in terms of power and control. I’m not abdicating my decision-making to anyone. It’s all those elements that we’ve already spoken about.
Q: You mentioned the multiple exit strategies. When you say multiple exit strategies and downside protection, what are we referring to here?
- What I like about the deals that I invest in now is the dealmakers understand that they’ve got to manage risk.
- So what that looks like is they have plans A, B, C and D often around how they’re going to dispose of or manage an asset if the market crashes.
- In most cases, the worst-case scenario is you often just have to keep the asset a little longer and keep the cash flow coming in.
- You don’t necessarily recognize that liquidity event where you sell the asset to the market. But there could be a refinance. There could be an asset sale. There are multiple levels.
- Downside protection just means simply if everything turns to custard, if the market falls apart, what kind of protection do we have in this deal?
- For example, if you own a share in a major bank on the share market and the market collapses, there’s no downside protection at all unless maybe you’ve shorted the market or something like that.
- But in these real estate-based deals, there’s often good downside protection.
- I started investing in the States back in 2009 and what was fascinating to me is that a lot of markets were just completely annihilated. People were selling property at cents in the dollar.
- But what happened to rents and income was absolutely nothing and in some cases, the rental market really strengthened because people were more renters. The market collapsed, but rents just flatlined like nothing happened.
- People need a place to live, there’s no question and if you can stay in that affordable housing sector of the markets, if you think of the bell curve, you neither want to be a slumlord nor do you want to be only dealing with blue-chip.
- You want to be in that area of the bell curve or the market where that’s where most people want to live, where most people want to buy, and where most people want to rent.
- If you stay near that midline you’re much more likely to navigate economic challenges better than if you’re at the extreme of total high and blue-chip or slumlord.
Q: Just to clarify, I probably should have mentioned this early on when you said that when you are teaching alternative investing, it’s not just in Australia, but the majority of it, if I’m not mistaken, is here in the States, is that correct?
- Yes. I do have alternative opportunities that I share with my mastermind here in Australia, but funnily enough, even my Australian clients lean more towards the US opportunities when they’re educated on how the opportunities work and who the dealmakers are.
- Who the dealmakers are is probably the highest risk component of the whole thing. You really need to know like and trust the people that you operate with.
- Where I made all of my mistakes early on is aligning with the wrong people.
- I think there are opportunities in alternative real estate all over the world, but it’s really about trying to work out, “Do the numbers work? What legal system do I have to protect me? What are the mechanics? Who are the people? Can I get access?”
- What people often think about when they’re investing is, “How do I just find that next deal?”
- What I’m trying to encourage people to do is think about building a pipeline of deals. If you can build the right network that can supply you with a pipeline of great deals when you need it, then money will never burn a hole in your pocket.
- You can be proactively thinking about, “Okay, I have this money that I know I’m going to earn next quarter. Where’s that surplus going to go?” You’re not chasing deals.
- What’s happening in the world right now is real estate prices, the share market, and everything else has gone crazy over the last two years because people have more disposable income and the market is super frothy.
- People are investing from a place of FOMO, the fear of missing out. Real estate prices are getting pushed up. People up paying over-market prices just to get their foot in the door. That’s a really unhealthy place to start your investing journey from.
- It’s almost like you’re just trying to get get in because you’re worried about missing out on future growth.
- There’s a whole cohort of investors that I think have come into the market may be in the last two years who’ve maybe done very well over the last two-year block but potentially, with the uncertainty, volatility, and rocky times that we might be facing could find themselves in hot water if they’ve overextended or overleveraged.
Q: One thing that you mentioned earlier too is about the ability to diversify. Let’s say I have $100,000 to invest. I’m going to put $20,000 over here. I’m going to put $40,000 over here. I’m going to put $10,000 over here in the different types of deals. For me personally, that’s very appealing because I get to spread it out into different types of things. Is that what you see most people doing in terms of alternative investments?
- Yeah. What I love about the way that this particular asset class works is you can take small bites of lots of cherries.
- Instead of having to go out, with or without leverage, and purchase an asset that’s worth hundreds of thousands of dollars, what you can do is put a little bit of money here, a little bit of money there, and participate in a way.
- In many deals, if leverage is appropriate, the deal maker will organize the leverage so you don’t have to deal with the banks as well, which can be very painful and they will apply in some cases.
- They’ll apply a fairly conservative level of leverage, if at all. It’s really important to craft your investing rules and understand how to ask the right questions. That again is part of the education piece.
Q: I know the question so many people that are listening right now is, “Okay, I get it. I’m interested more but how do I get access to this type of network of people to be able to do these types of deals?” This is really what you facilitate in your business in terms of your program so can you talk about what you do in your program and how that works? As you said, you’ve done all the vetting and you make it easy for people. So can you talk a little bit about that?
- I reflected long and hard over my last 12-year block in terms of all of the experiences I had and there are very few environments where people can share their wisdom and create a GPS for you of, “How do I bypass the mistakes and just get to a very simple, elegant solution? That was the thought that I had in starting the mastermind that I run.
- What I’m trying to do is work privately with business owners and entrepreneurs who are looking to set up a portfolio of high-performance investments so they can hit their goals in anywhere from 2 to 5 years.
- I like the idea that it’s curated deal flow. People will come in and they’ll say, “Salena, are you going to tell me where to put my money?” And my response to that is, “It’s going to take a little bit of time to get your head around this new environment. But by the time you get to the starting gate, you won’t even want my opinion. You just know which strategies feel like they’re in alignment with you. You’ll know whose particular methodology you like. You’ll just fall in love with who these dealmakers are.”
- It’s fascinating to me that no two investors pick the same subset of dealmakers to work with. Yes, I’ve done some due diligence and the underwriting, but I genuinely have great affection for the guys and girls that are part of my dealmaker network. They’re really good human beings. They really care. They’re ethical.
- I’m ambivalent about which deals people do. My job is to be the guide to make sure you understand what you’re doing, that you stay safe, that you don’t get any cuts and bruises the way that I did, and that the solution is really simple.
- I think as a profession, accountants are definitely guilty of overcomplicating things and making things seem messy.
- The ROI that I’m able to show people is a tangible one for sure, which is they’re going to invest this much money and they’re going to get this return. That’s the tangible return that they get.
- But there’s an incredible intangible return, which is to do with their levelling up. I mean, they’re really becoming professional investors. They’re thinking differently. There’s a lot of peace of mind around the wealth piece, which maybe they hadn’t had before.
- I feel that wealth-building has to be holistic. Even though our focus is predominantly on the alternative, it’s like, “Well, what else have you got in play that’s supporting your journey? Are you looking after your retirement? Are you thinking about financial legacy? Do you have a family investment charter? Do you have thoughts on how your kids are going to participate in wealth-building?”
- The starting point in the journey is, “How do I get out of survival mode and into wealth-building mode?”
- Then the next piece is, “Okay, let’s start building that passive income. Then let’s start to turn those into annuities” which can be as active or as passive as you want. Then there’s the legacy piece. There’s really a journey and it takes time.
Q: What’s the name of your mastermind and where can people learn about that? What’s the name of your podcast? Please also share about the amazing calculator you created that you shared with me.
- The mastermind is actually my flagship program called Freedom Warrior and you can find it on my website, which is inkosiwealth.com.
- For reference to why it’s called Inkosi, Inkosi is the Zulu word for tribal leader and the number one KPI that we all tracked inside of my program is actually what percentage of your passive income goal have you achieved?
- It means that people can share that really freely without having to share all their private numbers. You could be at 20%, 50%, 90% or whatever.
- That’s so that’s where Inkosi comes from because we’re all trying to be leaders in our tribe.
- The calculator is just there on the website. You can just get it, it’s called the Freedom Mapper calculator.
- The podcast is called the Alternative Investing Podcast and it’s become a passion project in a way.
- I’m trying to be quite a contrarian and interrupt people’s beliefs and thoughts about what they think they know about wealth.
- Just in reference to what you said a minute ago, I really want to address that. Being hard on yourself I think is human nature. But my genuine thought is it’s never too late.
- I talk to people who are as old as in their seventies and they’re just starting to think about it now. They thought that it was too late but it’s never too late to change your trajectory.