Nearly everyone dreams of some day retiring and being able to realize this dream. Very few make it! Most people get up, get dressed and rush off to a job that provides them with a living, knowing the whole time that there is something missing. But what? Why do they work so hard at a job that all too often leaves them coming to the end of the money before they get to the end of the month?
I think it’s because the vast majority of people lack the knowledge and one or more of the three “Ds” required to live the “Lifestyle of Success.” They never learn that knowledge combined with Discipline, Dedication and Desire can enable them to retire early and be financially secure. Living this lifestyle requires an understanding of two different types of income, “earned income,” or what you work for, and “unearned income” which comes from investments.
Before you can truly retire, you must have enough “unearned income” to support your lifestyle without having to rely on “earned income.” It took me a long time to understand that actually living the “Lifestyle of Success” required actions that seemed counter to its ultimate goal. I learned that you have to live a standard of living that is temporarily below what you could afford if you spent your whole paycheck, and then invest the difference. Otherwise, you will never build a stream of unearned income.
Most of us make enough money, we just spend too much of it too soon and don’t give it a chance to earn. Living the “Lifestyle of Success” requires you to first set aside an investment for your future and then adjust your standard of living to fit what income remains. When you get a pay raise or a better job, your “earned income” grows, which enables you to gradually increase your standard of living. However, if you want to ultimately live the “Lifestyle of Success” you have to have the discipline to invest part of your increases as well.
“But, I hardly make enough to live on now,” you say. “I don’t want to live in a smaller house, drive a smaller or older car or take fewer vacations. I want to have some fun in life.”
That’s understandable, but let’s look at it from different perspective. If you break each day down into three eight-hour blocks of time, a week has twenty-one of these eight-hour time blocks. (3 x 7 = 21) If you’re like most people, you spend five of these time blocks working on your job. That leaves sixteen, of which you will probably spend seven of these sleeping. What are you doing with the other nine eight-hour time blocks? That’s seventy-two hours of time to be filled doing something.
With nearly twice as much free time as work time, can you see how tempting it can be to spend too much of your earned income entertaining yourself during that time and fall short of investing enough to take care of the future? Sure, we all want to have fun, but at what cost? Let me plant this seed. There’s a definite cost involved with getting from birth to death. We pay this cost during our working years. One of the fascinating things I learned about life is that by investing a day’s income early in my working career and leaving it to earn and compound, it would grow enough to pay for three or four or five days at the end of my career. In other words, by investing a day’s earnings while I was young, I could pay for several days when I got older without having to work. In other words I could retire early! Are you willing to invest a few hours of your spare time to insure a better future?
I don’t know how I learned this, but I think it was rooted in some advice I was given at age 19 that turned out to be the best advice I was ever given in my whole life. A man I greatly respected invited me into his office one day and with one sentence changed my life forever. He said, “Mike, if you’ll read an hour a day about something you don’t know anything about, in five years you’ll be amazed at what will happen in your life.”
I was young, impressionable and eager to learn so I took this advice to heart. It started me down the road to a “Lifestyle of Success.” Within five years, I had set goals to become a millionaire by age thirty and retire by age fifty, both of which I reached right on time.
Within five years, I was no longer working in a plant; I was working for myself and reading an hour a day every day had developed into a habit that I’m proud to say I still enjoy. I read everything from the Bible to the Enquirer and it was through reading that I learned about one of the greatest knowledge building tools of all…audiocassettes. I found that I could turn my car into a mobile university where instead of killing time flipping channels trying to dodge commercials, I could learn about virtually any subject imaginable.
I started listening to programs on investing and financial planning and soon convinced myself that living the “Lifestyle of Success” was simple, but not necessarily easy. Temptations can wreck your best-laid plans, but if you maintain the Discipline to live a more frugal lifestyle in the beginning, the Dedication to stick with it over the long haul and the Desire for a better life, your “unearned income” will grow and become a significant part of your overall earnings. Eventually, it will surpass your “earned income,” you will have the freedom to stop working without reducing your standard of living. This is when you get to start enjoying the “Good Life” and stop being consumed with work. That’s what I did at age fifty.
But, let’s take a closer look at this “Lifestyle of Success.” As I said, it’s simple, but not necessarily easy. It involves living on less than what you make, investing the difference and leaving this invested capital to compound over time.
Most people toil on the 40-50-40 treadmill of life and never get to enjoy the “Good Life.” They work 40 hours a week, 50 weeks a year, for 40 years, and have little more to show for it than a worn out body and a Social Security check. Not a very pleasant thought, is it? Little do they realize that if they had conditioned themselves to live on 80% of their “earned income” and invested the other 20% they could have retired 10 to 15 years earlier with no loss of income and possibly even a higher standard of living than they had while they were working.
I use this 80/20 ratio as merely an example; it’s by no means a hard and fast rule. Any reasonable ratio will work; but naturally the more you invest the quicker you’ll get there. I found it very easy to convert a few of those 72 hours of spare time, into extraordinarily productive time. I started listening to audio programs in my car going to and from work, and I split my reading into two time blocks. One for thirty minutes just after I woke up in the morning and the other for thirty minutes just before I went to sleep at night. This learning time inspired me and allowed me to convert this otherwise dead time into some of my most educational and productive time. It gave me the knowledge I needed to convert a few hours of my weekend time into millions of dollars of passive income.
About now, you’re probably thinking, “Well, if it’s that simple, why isn’t everyone living the “Lifestyle of Success?””
It’s sad to say, but many people actually live a “Lifestyle of Failure.” They live for the moment. They want to have everything NOW! They live above their means, spending all their “earned income” and borrowing more to live better today. Sound familiar? These are the people who try so hard to “Keep up with the Joneses” that they actually live a standard of living above their earned income and save nothing. They buy things on credit as long as they can afford the monthly payments. What they fail to realize is that the monthly payments keep coming thereby reducing the amount they have to live on the next month. This causes them to have to borrow more the next month to do the same things they did this month and it starts a destructive spiral that eventually leads to bankruptcy. Not a good thing!
Only a very small percentage of people ever reap the rewards of the “Lifestyle of Success.” Most of them spend all their working years on that 40-50-40 treadmill and then settle for a Social Security check. Why?
The reason is simple; most people live a “Lifestyle of Average.” They are good people…solid citizens. They have cash reserves, handle their bills impeccably, have excellent credit, and by all reasonable standards they appear to be doing quite well. They think they are living the “Lifestyle of Success.” They believe it! They will even show you the investment accounts that support their belief.
So what do these people do differently that causes them to live a “Lifestyle of Average?” They make two mistakes. They spend too much entertaining themselves during their spare time and they don’t segregate their funds. They take too many trips, eat out too often, play too much golf, and they don’t separate their retirement funds from the money they are saving for new cars, kid’s college and other big-ticket items. This creates a false sense of security that often results in poor or impulsive buying decisions. They don’t have a plan for the future, so when their savings begin to build up, they make those periodic large purchases too soon and this causes them to dip into their retirement funds.
They buy that new car that causes them to stretch a bit financially or move into a more expensive home when they can barely afford to make the payments. Then they scold themselves and resolve not to do it again. Sound familiar?
When this happens, retirement savings decline and much of the compounding effect is lost. People living this “Lifestyle of Average” watch their savings go up and down and up and down, until one day, they wake up and realize they’re never going to be able to retire unless they leave the retirement investments alone. Average people take so long to come to this realization, that the amount they need to set aside for retirement becomes so burdensome, they are either unable or unwilling to do it. As a result, death or Social Security arrives before their “unearned income”
allows them to retire and they become another casualty of the 40-50-40 treadmill of life and slip quietly into the “Lifestyle of Average” retirement.
Wouldn’t it be nice if you could invest a tiny bit of your spare time is a way that would get other people contributing to your retirement? I know that sounds far fetched, but believe me, it’s not only possible; I’ve been doing it for over a quarter century by investing in real estate.
In the beginning, I was like everyone else; I was spending almost all of my “earned income” and saving very little. I thought I would either have to lower my standard of living or earn more before I could begin investing, but then I discovered real estate. I found that I could invest time as well as money. I started using some of my spare time to look for good deals on properties I could rent to produce the income I needed to invest. I then took this money and used it to pay for the investment properties.
That’s when I learned the most amazing thing about real estate investing. If I used my time to put deals together, other people – my tenants -- would use their time – working a job -- to earn money to pay for my properties. Wow! It doesn’t get much better than this. I could actually enjoy the full standard of living my entire “earned income” could provide, yet still have the benefit of “The Lifestyle of Success” because other people were making deposits into my retirement account in the form of payments on my properties. It was truly the best of both worlds.
I learned that no investment offers the income potential and equity growth that income producing real estate does. As the retail magnate Marshall Field once said, “Real estate is not only the best and quickest way to make you wealthy, for the average person, it is truly the only way.” It’s the only safe and sound investment I know that allows you to leverage the efforts of other people to insure your own retirement. Each time someone pays you rent, they are making a deposit into your retirement account. That’s why over a quarter century of buying rental properties has allowed me to retire early and enjoy “The Lifestyle of Success.” Are you planning for retirement or are you plodding along on the 40-50-40 treadmill of life.
