Guest Post on Your Financial Freedom by Stephanie O’Brien. Stephanie is a content marketing copywriter and group program design specialist and a Member of Liberty Group and Liberty Digital Marketing Services.
Creating lasting financial freedom takes more than just hard work. It takes knowledge, strategy, and three key components that enable you to make money even when you’re asleep. This allows you to spend your time doing what you WANT to instead of what you HAVE to. Today, I’m going to explain these three vital elements of your financial freedom strategy: your business, your real estate, and your personal bank.
When I say “business”, I’m not simply talking about owning a company. If you own the company, but it can’t make money unless you’re working, you are self-employed. But you don’t have a business that will bring you financial freedom. To create freedom through your business, you need to have a few key items in place:
1. A way to make money even when you aren’t working.
This could include employees or subcontractors who use a system you created to serve your clients for you, or a physical or information product that can be sold and either shipped or downloaded without your active involvement. For example, if you’re a business coach, you could create a pre-recorded curriculum with which to teach your clients, and train other coaches to handle the one-on-one coaching and answer your clients’ questions for you.
Or, if you’re a dentist, you could hire associate dentists to do the clinical work for you, while you take a percentage of their fees. This isn’t to say you can’t serve any of your clients directly. If that’s what you love doing, by all means, do it! But for you to be financially free, you need to have a way to make money when you aren’t actively working, so you get to CHOOSE whether, when, and how much you want to work.
2. A duplicatable system.
For your business to run smoothly without you, so you can take a vacation or even sell the company without everything falling apart, it needs to have a clear and repeatable system that exists somewhere other than inside your head. If you have a specific way you want things to be done, best practices, procedures that you know work, sales scripts that are proven to convert, or any other information about how to run your business and its various functions, write it down.
Create a procedure manual that the people who work for you can follow and that anyone who buys the company from you can use to keep it running as smoothly as it did when you were actively working in it. This manual is the difference between a system in your head that dies with you, and a valuable asset that can be sold or passed on to your heirs, and outlive you as a lasting legacy.
This is especially important if you have a brick-and-mortar office. If you’re paying rent to a third party, you get no return on that investment. You aren’t creating or growing an asset; you’re just pouring money into a bottomless pit. But when you own the real estate, the equity you build through your mortgage payments becomes an asset that makes your business far more valuable.
How big a difference can owning your business’ real estate make?
My JV network, Liberty Group, recently interviewed several dentists who owned the real estate their office sat on, and others who did not. The difference in their financial situation speaks for itself. One dentist reported that when he and a group of other dentists started a practice together twenty years ago, they bought an office building. He recently sold his practice for $3 million. By contrast, the building sold for $18 million! And that wasn’t all the money they made from that building.
When they factored in the tax losses generated by depreciation, as well as the additional income they received in rents and reimbursement for other expenses that were paid by the dentists and other tenants during the time they owned the building. That came to an additional $2 million, for a total of over $20 million. That’s almost seven times as much as the value of the dental practice he sold!
In another example, two dentists sold their practice for the same selling price: $600,000.
One of them owned the real estate his office rested on. The other did not. $600,000 isn’t enough to retire on, so the dentist who sold his practice and had no real estate to sell will need to continue working. He might even have to work as an employee of the practice he used to own. And he could end up working for the rest of his life. If his new employer has quotas he’s required to meet, he might even end up working harder than he did when he owned the practice!
By contrast, the one who DID own the real estate sold it for an additional $600,000. He then invested his money in his personal banking system and doubled it twice over the next ten years. As a result, this second dentist now has over $4 million. That’s enough to live on comfortably for the rest of his life. As you can see, owning your real estate instead of paying rent can be the difference between financial freedom and being unable to retire.
In the section above, I mentioned that one of the dentists who achieved financial freedom did so by growing his money via his personal banking system. In this section, I’ll explain how this system works, and how it differs from a traditional bank.
Here’s how a traditional bank works:
When you put money in a traditional bank, you’re effectively “lending” your money to that bank. In return, you get a low rate of interest – usually 2% or less. That means when you take out a loan, such as a mortgage or a car loan, your bank effectively loans your own money back to you. But it charges you more interest than it’s paying you.
For example, if you’re getting a 2% interest rate on your savings, and you have a mortgage that charges you 5%, the 3% difference is the “spread”, or the bank’s profit – and it’s your loss. The good news is, a personal banking system enables you to use the same strategy the bank does to create residual income.
Here’s how your personal bank works:
In order to get a positive return on your savings, you need to keep your money in a place where you earn a high rate of interest. All while paying a low rate on your loans. For example, you can use a high cash value life insurance account, combined with an investment vehicle that has a high rate of return. Most people already pay for life insurance anyway, so you might as well turn those payments into an asset.
Here’s an example of how you can use this strategy to get returns as high as 18% on your investment:
Step 1: Start by using a life insurance policy that grows your cash value by 5% per year.
As you pay your premiums, the cash value in your policy grows.
Step 2: Once you’ve accrued some cash value in the policy, borrow against it at a rate of 5% interest.
For this strategy to work, it’s important to choose a policy that allows you to borrow against your cash value. Use the money in your policy as collateral without actually removing any of it, as opposed to simply withdrawing money. If your cash value is growing at a rate of 5%, and the interest on the loan is 5%, you break even instead of losing money on interest payments.
Step 3: Invest the money you’ve borrowed in a high-return investment vehicle, such as a hedge fund.
Choose a hedge fund that gives a high rate of return. For example, Liberty Group currently works with a fund that aims to give its investors a 15% return on investment, or ROI. If you get a 15% ROI from your investment in the fund, minus the 5% interest you’re paying on the loan, that’s a 10% profit. Add the 5% growth on the cash value in your account, and your ROI is 15%. On top of that, the growth of your cash value is tax-free, and 5% tax-free growth is equivalent to approximately 8% taxed. When you take that into account, your effective return is closer to 18%.
You can also use your personal bank for strategies other than investing.
If making an important purchase is a higher priority than growing your savings, you can also borrow money from your personal banking system for that purpose. You can pay it back on far more flexible terms than you’d get from a traditional bank. As long as your policy is active and you’re paying your premiums, you can repay the loan at your own pace. And you won’t have to worry about fees or foreclosures if you have to skip a payment.
Do you want to learn more and create a personalized path to financial freedom?
If you want to learn more about this system and get personalized guidance for every step of your journey to financial freedom, please visit our website and book a consultation. While some aspects of our Financial Freedom Formula are specifically tailored to dentists, many of the key elements can be applied to any business. We’ll be happy to help you determine whether this is a good fit for you.