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Automatic wealth The 6 steps to financial independence - Masreson M.

Masreson M. Automatic wealth The 6 steps to financial independence - Wiley & sons , 2005. - 291 p.
ISBN 0-471-71027
Download (direct link): automaticwealththesixstepsto2005.pdf
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Iíve mentored several friends and relatives in starting up small businesses. The first years were always a struggle, because they were trying to find ways to efficiently bring in new customers. Once a way was found, things got much easier. Developing a back end (i.e., selling other, usually more-expensive products to existing customers) is relatively easy, as is refining operations.
A typical business start-up of this kind will break even or lose a little money in year one, make a decent salary for the owner in year two, and provide a substantial bonusóin addition to a good, armís-length management salaryóin year three. After that, itís usually straight uphill.
You can invest a small amount of money (and a lot of hard work and well-spent time) in a small business and see it grow into a business that is worth a million in seven years. Iíve done it many times. Iíve coached people who have done it. Stories are published in magazines every month about people who have done it.
But letís be frank. With only $18,000 to $25,000 to invest, it wonít be easy. Thatís why I like to encourage Early to Rise readers who are at this first wealth-building stage to focus most of their time and efforts on building their income. Doubling your income in a year or two is entirely possible if you follow the advice I gave you in Chapter 4. And if you double your income and donít double your lifestyle, youíll have a lot more money left over to ensure the success of your small side business.
Here are five things I recommend if you are in this situation:
1. Find a way to radically increase your salary by making yourself radically more valuable at work.
2. Resist the temptation to spend more money as your income rises.
3. Put some of your savings down on an undervalued, small, single-family house, fix it up fast, and sell it for a profit.
4. Reinvest that original capital plus the profit in another buy-and-fip deal. Keep doing this until it becomes a very pleasant habit.
5. Invest another portion of your savings in a part-time, weekend business. Sell a product or service you know and understand. Make sure you are not a pioneer. Unless there are others actively selling the same thing, you donít want to be in the
market. The idea is to enter an active market with a better/ cleverer/cheaper version of what others are selling. Sell only by direct responseóprint, mail, and Internet. Go carefully and learn from your mistakes.
Stage Two: What to Invest in When You Have between $25,000 and $100,000
When you get to the next stageóthat is, when you have between $25,000 and $100,000 to investóyou can take a multilayered approach to your investing. I like the following simple five-part formula.
1. Cash. The first money you save should be marked for emergencies. This needs to be put someplace that is secure but easy to access, such as a home safe or a safe-deposit box. The amount you should keep for emergencies depends on your personal situation:how much you typically spend, how reliable your income is, and so on. As a rule of thumb, though, Iíd recommend about 10 percent of your investable net worth. If you have $100,000, that would be $10,000.
2. Income-generating real estate. I recommend buying and flipping real estate for everyone, even beginners. If you start when you have less than $25,000 to invest and make a few deals, by the time your investable net worth hits $100,000, you should have a pretty active, nicely profitable second stream of income.
3. Side business(es). If you didnít want to get involved in a side business when you had less than $25,000 to invest, you should consider it at this stage. You donít have to risk a ton of money. Invest $10,000 conservatively in a business you understand and see where that takes you.
You could, for example, create a side business selling a skill you currently have (accounting, legal, writing, editing, purchasing, etc.) or could develop (graphic design, copywriting, resume writing, etc.). Or you could turn a hobby or passion (stamp collecting, gardening, pets) into a profitable, Internet-based direct-marketing business.
As your side business grows, it will require that you reinvest some of the profits into creating new products, hiring employees, and developing new advertising campaigns. You should
Step 6: Retire Early 247
allow for growth, but limit it to avoid growing so fast that you end up losing control and getting into trouble.
4. Equity-building real estate. Buying equity-building real estate means buying rental properties. The trick to making this work for you at this second stage of wealth is to buy conservativelyó that is, to make sure that the rent youíll get will at least meet (but should really exceed) your cost of maintaining the property. I recommend duplexes, triplexes, and quadruplexes to start. Theyíll give you the best chance to achieve zero or positive monthly cash flow. How much equity-building real estate should you develop? If you have a net worth of $100,000, Iíd recommend a little more than half. Letís say $60,000.
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