It’s Time to Start Building Your Own Financial Ark

You only know what you know. You only know what you’ve been taught. And you can’t teach something you don’t know.

So who teaches us? Our parents, when we’re little … our teachers in elementary and high school … then our professors in college.

But they can only teach us what they know. And the only thing they know is this mantra that was drummed into my head from day one:

“Stay in school. Study hard, get good grades so you can graduate and get a good job. Work hard, save your money, retire and live the good life.”

Does that sound familiar, or am I the only one who heard it growing up as a kid?

It’s a prescription for disaster, but it’s all most people know because they’ve spent their entire life working for somebody else.

If you’re working for somebody else, you have no control over your paycheck. And if your paycheck represents your security, you have no control over your security. All your eggs are in one basket – and somebody else is holding it!

Like Noah before the flood, it’s time to start building your own financial ark.

When it comes to making money you have only four choices – you can be an employee, self-employed, an investor or a business owner. Employees and self-employed people work Plan A. Investors and Business Owners work Plan B. They all work hard, but they get vastly different results.

Plan A (as in Arc-less): The Financial Strategy of the Poor and Middle Class

Plan A people are either employees – like cops, firemen, teachers, college professors, engineers, scientists – or they are self-employed – like doctors, attorneys and CPAs. They make up 95% of the population, yet they only make 5% of all the money made in America

They all exchange hours for dollars. Employees are paid by the hour. Self-employed people bill by the hour. Which means that the income in Plan A is limited. The most you can ever be paid for is 24 hours in a day, 168 hours in a week.

To make matters worse, the income is temporary. You work, you get paid. You stop working, the money stops. And if you can be hired, you can be fired.

It’s not much better for the self-employed. If the doctor decides he wants to play golf today, guess what? He doesn’t make any money today. He’s paid to see patients. He can’t bill for providing medical services if he’s chasing a little white ball around a golf course somewhere.

Thirdly, the money is all performance based. You have to be there to do the work. So the only way you can make more money is to work more hours. Which mean you have less time to spend with those you care the most about, and less time to do the things you really want to do.

But that’s what 95% of the population does – for 45 years. And they still have a 95% chance of ending up dead, disabled or broke by age 65, because they can’t save enough money to fund their retirement.

Here’s another statistic. In order to retire on just $3,000 per month – and that doesn’t buy a whole lot of lifestyle today – you would have to have $900,000 sitting in your 401K or in the bank paying you interest.

How are you doing?

Most people will never be able to put that much away. The fact of the matter is the average American is forced to retire on a third to a half of what he/she couldn’t live on anyway. So they make the conscious decision to work until they die. It’s so common today, the news media has given this phenomenon a name. It’s called “A Second Career.”

Welcome to Wal-Mart. Would you like fries with that? Paper or plastic?

Plan B (as in Boat Builders): The Financial Strategy of the Rich and Famous

People in Plan B are either investors or business owners. Investors put their money into income producing assets. An asset is something that puts money in your pocket. Successful investing requires a couple of things – money to invest (remember, $900,000 invested to earn a $3,000 monthly return) and specific knowledge. Most people have neither.

Here’s what I mean by specific knowledge – in the early 1990s you could have bought 100 shares of a little known company called America Online for around $1000. Most people didn’t because nobody knew how big the Internet was going to be – and that included most stockbrokers. Here’s a question for you – If your stockbroker or financial planner is so smart, why is he still working?

Do you know how much that little $1,000 investment would be worth today? About $500,000. How many shares of AOL did you buy in the early 1990s?

The fact of the matter is most people don’t make a lot of money in the markets because they don’t have specific knowledge. It’s just not that easy to find.

In Plan B, business owners develop businesses that pay them passive income. Passive income is money that comes in whether you are doing anything or not because the business runs without you.

The difference between a business owner and a self-employed person is the answer to this question: If you stop working does the money stop? If the money stops, you’re self-employed and still stuck in Plan A. If the money keeps on coming in, you’re a business owner.

In Plan B the money, is permanent – you own your own business or you own the assets.

The money is unlimited. The bigger your business gets, the more money you make. The more products and services your business sells, the more money you make. The more assets you own, the more money you make.

And best of all, the income is not performance based – if you structure your business properly, you don’t have to be there to do the work. The business continues to generate passive income whether you’re doing anything or not.

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Published: August 4, 2009

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