A Framework For Multiplying Wealth

My name is Brian Scribonia, and on this episode of the Common Sense Financial Podcast, everything really, if you think about it, has rhythm. In relationships, there is a rhythm of communication and connection and health, there is a rhythm of physical fitness and diet. In business, there's a rhythm of systems and processes. The rhythm is really like a formula for getting to a result. And building wealth has a rhythm. Accumulate money, build assets, create passive income, then repeat. But if the rhythm is off, it doesn't produce the same result.

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Opportunities are still there. The attempt at passing down wealth from generation to generation. Consider the outcome, not just popular opinion and the whole teaching there is about preparedness and being ready. There's a difference between what's real and what's true. You're listening to the Common Sense Financial Podcast. I'm your host, Brian Scribonian. Thanks for tuning in and let's get into today's topic. I routinely hear from people who find themselves at a fork in the road, needing to make important decisions about their future and seeking insight into what to do. I love this because when people reach this point, I know they have the opportunity to improve their situation, both financially and mentally, and it can be a real game changer. People arrive at this point at different times in their lives. Some reach it when approaching retirement, while others encounter it when they are just getting started with their money. Unfortunately, some never reach this point and miss out on leveling up their financial lives. But the sooner you recognize there is an actual fork in the road, the sooner you can benefit from forging that new path. When I speak with people who have already accumulated a lot of wealth, they often reveal to me that they wish they would have done a few things differently. It's not that they weren't successful, but when they reflect on their decisions, they recognize that they could have been more strategic in their thinking. And this can Be quite a humbling experience to run after a goal and when it is obtained, realize that it really isn't what you thought it would be. I have experienced that on numerous occasions, and it's at those moments that you see the fork in the road. One path is sticking with what you've always done. Using the same mindset and way of thinking that got you to where you are, or choosing a different path and adopting a new way of thinking. That is what excites me. It's being able to see money in a new light, in a new way that could impact the trajectory of your life and the life of your family. And here's the best part. You're not having to figure this out on your own. There has been many people like myself who have taken a different path and are willing to share experiences. And the benefit of learning from other people's experiences collapses time and helps to avoid problems that they've already experienced. I believe this is incredibly valuable because while the Internet is a fire hose of information without knowledge about how to effectively use what you've learned amounts to really nothing more than dinner conversation. One thing I have observed with successful people is that they are eager to learn and they really, truly have a desire to uncover their own blind spots. But here's where the confusion can be for some people, because the goal isn't about becoming an expert in something. The goal is to learn enough to know what the potential is and then finding and delegating that responsibility of getting it done to somebody who already knows how to do it. Dan Sullivan and Dr. Benjamin Hardy wrote a book, who, Not How. And in this book they drill deep into this concept of knowing what needs to be done and then finding somebody else to do it. This is the unique benefit I have in what I do. I have worked closely with thousands of people building financial plans, connected with top professionals in their fields, and have formed a network of many successful people. And that ecosystem I operate in allows me to lean on not only my own experiences and research, but also the experiences and research of an entire network of people. And in some cases, I am the who for my clients, tapping into my ecosystem. And other times I'm tapping into the ecosystem of others. So today I want to share a process for helping to multiply wealth. It is a framework that I've used to build my business. And with the right coaching, I believe that it is transferable to you, whether you are just getting started or have already accumulated assets and are just looking for that new idea, new step, new in the right direction. With retirement and planning out the rest of your life. My kids are all very talented musicians who have and still do play in bands and they lead music. As they grew up, I would hear them playing and singing in the house and then I would watch them on stage as they performed. It's quite a gift that they have. I enjoy music, but I am not a musician. And you don't have to be a musician to know that there is a rhythm to music that makes it emotionally engaging and enjoyable. Everything really, if you think about it, has rhythm. In relationships there is a rhythm of communication and connection. In health, there is a rhythm of physical fitness and diet. In business, there's a rhythm of systems and processes. The rhythm is really like a formula for getting to a result and building wealth has a rhythm. Accumulate money, build assets, create passive income, then repeat. But if the rhythm is off, it doesn't produce the same result. For instance, if a song is played out of rhythm, it's just noise that can be sometimes painful to hear. If you've ever heard a live performance when a microphone screeches or a musician falls behind in the beat, you know what I mean? I believe that many people waste a lot of time and a lot of effort trying to find the rhythm to get their desired result. They google search something and they learn a few things, but they are out of tune, they're offbeat and they have no cadence to what they are doing. It's like funding a 401k, ignoring the tax implications of decisions, focusing on paying off debt, holding too much cash in the bank or spending down assets to make purchases. They often do things they hear should be done and that think they are right. But the rhythm still seems off. So they continue searching for more information in an effort to find that missing piece. Well, through my experiences I have come to believe that there is a rhythm and a cadence to multiplying wealth and can be best explained comparing the financial journeys of two fictitious characters, we'll call them Mark and Luke. Mark adheres to a traditional approach to money focusing on compounding. While Luke employs an out of the box strategy emphasizing multiplication to build his wealth. And Mark believes in the tried and true method of using compounding to grow his money. He saves diligently, investing 2,000 per month into the stock market. With an average annual return of about 6%, Mark's investments grow steadily over time. After 25 years, Mark's investments total approximately $1.35 million, at which time he decides to begin drawing an income from his investment. He deploys the idea of the 4% rule and withdraws $81,000 per year. This strategy, he believes, is the best approach because he's relying on the eighth winner of the world, compounding interest, and bases everything on the theory that the money should last for 30 years once he begins making withdrawals. Luke, on the other hand, takes a little bit of a different route. He uses the same $2,000 per month, but he purchases a specially designed life insurance policy and he funds that for seven years of his 25 year journey. At the end of the seventh year, Luke begins leveraging the policy to acquire income producing assets. Focusing on that multiplication strategy, he takes advantage of the loan provision of the policy and takes a $150,000 policy loan. And then he takes this loan, purchases three rental properties, each worth $200,000 by applying $50,000 as a down payment on each and $150,000 mortgage on each. The rental income from those properties covers all the expenses. But Luke now owns $600,000 in real estate assets along with the $170,000 paid up life insurance cash value that he has in his policy. These assets all have uninterrupted growth because the asset appreciates regardless of the loans. He believes that using leverage is good when it can help present opportunities for growth that would not otherwise be available to him without acquiring the debt. So over the next seven years, Luke redirects the 2,000 per month to repay the policy loan. And by year 14, he has repaid the loan and then takes a new $200,000 loan to buy three more rental properties, each valued at $250,000. With $62,000 down payment from the policy loan and $188,000 mortgage for each property. The rental income from the properties again covers his expenses. And at this point, Luke's real estate portfolio is valued at 1.56 million with $240,000 in policy cash value. Over the following seven years, Luke's real estate assets grow to 2.2 million and his life policy has a cash value of 314,000, bringing his total assets valued to 2.5 million by year 21. Finally, during the last four years of his 25 year journey, Luke's real estate is valued at 2.6 million. With his life policy valued at 372. The rental income reaches $267,000 annually. With all mortgages now paid in full. Luke's approach of leveraging assets for multiplication resulted in a 229% more income than Mark's compounding strategy, along with significant tax advantages from the life Policy and Real Estate Depreciation Now, I know there's a lot of numbers here and for those interested, you can follow the link in the show notes for all those details. But even if you don't want to perform a diagnostic test of the numbers, you should recognize that while Mark's traditional method relies on steady growth through compounding, Luke's multiplication strategy demonstrates the potential of using leverage of real assets to create wealth. Investing is really all about taking advantage of opportunities as they are presented. This isn't about real estate, it is about understanding that building wealth is not simply investing in the stock market and retiring isn't just crossing your fingers and hoping for the best. Whether you are someone prepping for retirement or you're just getting started, both present a form in the fork in the road that requires some thought and careful planning. Regardless of where you are now, we all want the same things. We want our money to grow, we want passive income to add to our cash flow, we want tax mitigation strategies, we want access to cash when it's needed, and we really do want a sense of cash flow confidence. Now a quick disclaimer here. I mentioned that all investments involve risk and none of what I'm discussing here is guaranteed by any stretch of the imagination. The examples here are for illustrative purposes, not to suggest the results would be exactly as I presented them. The stock market can experience losses, real estate can lose value, rental income can drop and the claims paying ability of the insurance company could diminish. Just know there are inherent risks with investing that need to be understood before choosing a path. I have illustrated there are two schools of thought about money lateral compounding growth and exponential growth through multiplication. The sooner you understand the differences, the faster you can choose your path with confidence and move forward. The reason the approach of buying real estate has the potential of a greater outcome is because of the multiplication of the growth. When you invest in the stock market it is your money at work and when you spend money it is your money being spent which reduces the amount of money you have invested. The idea of buying real assets such as real estate or specially designed life insurance policies, the assets value can be collateralized to borrow money than to create additional assets. And regardless of the loans you acquire, those assets will experience uninterrupted compounding growth. As I wrap this up, I want you to realize that what I just went through with you is not actually about rental properties at all. As I mentioned, the point is is to emphasize the benefits of having multiple appreciating assets and how to generate passive income for retirement. If you miss this point, you run the risk of tuning out on the message. Because I know that many people do not want to own rental properties and that's completely okay. Just know that there is more than one way to accomplish what I'm describing now. I do want to add one more thought before we wrap up to help underscore the point and clear up any confusion. To do this, I will stick with the house example since most people understand the terminology. When you think of a house, you should understand that it appreciates regardless of whether there is a mortgage. If a home is valued at 200,000, it is valued the same whether or not it has a mortgage. You own the entire house either way. You get all the tax benefits, all the appreciation and rent payments because the property is yours. You're not sharing the ownership of the property with the bank. It is uninterrupted appreciation of the home whether you have a mortgage or not, using the same line of thinking, especially designed life insurance policies. Cash value will grow the same whether you use loans against the contract or not. It is too an uninterrupted growth as the same as the house. That is the benefit of incorporating real assets into your strategy and helps make the multiplication work. You can have growth of the asset itself and through the use of the loan you can have cash to purchase additional assets that grow and that is the multiplication you continue to stack income producing assets. You can think of it as having internal and external growth using the same money. Of course, this isn't magic. It is simply taking advantage of the characteristics of certain types of assets and applying strategic thinking. For many people listening right now, the fork in the road is likely the multiplication route and if you're wanting help, you can visit my website@scriboniafinancial.com and just schedule a time to talk for those few listening who can't seem to silence that voice in your head saying to use cash for everything and avoid leverage. I'll share a couple more thoughts to help you join the rest of us pursuing that multiplication route. The problem with using an all cash, no leverage mindset is it doesn't distinguish between an asset that appreciates versus an asset that depreciates and there's no consideration for cash flow or opportunity cost. A loan really needs to be evaluated by how much income it generates. Here's an example of what I'm talking about. Let's assume you want to buy a car. We have been told to pay cash for cars for Various reasons, primarily because of the interest on the loan. So someone following this line of thinking will build cash in a bank account, then spend the money to make the purchase. The problem from a multiplication standpoint is that there's no multiplication happening here. There is actually subtraction occurring, which is never a good thing when you're discussing money. When the car is purchased with cash, there's an asset of cash used to buy, a depreciating asset that is guaranteed to be worth less at any point in the future. I know the talking point here is that you saved all the interest by not using a loan. That statement is true. But the problem with that line of thinking is that there's no consideration for the cash flow or opportunity cost. Because, let's be honest, regardless of how long you drive that car, the vehicle will have to be replaced at some point. And when you make that next purchase, you must use new assets to make the next purchase, because the assets from the first purchase are gone. No matter how many times you do this and how much interest you saved, there's no wealth being created here. Nothing to show for all the money that flowed through your fingers to purchase that depreciating car. Now, thinking like a multiplier, let's assume you buy the car with a loan and accept the idea that you're going to pay interest. You use the cash that would otherwise be spent to make the purchase and create a plan that creates passive income streams that's used to make the loan payment. The benefit of this approach is that when the loan's paid off, you still have your income producing asset. You still have your money and can reuse that same asset repeatedly to make other purchases. At the end, you never spend your own money. Only the cash flow from your money is used to make the payments. And then it's simply rinse, wash, repeat. Here's another example. Let's assume you have a house with a mortgage and you want to pay off that mortgage. If your home is valued at $200,000 with a mortgage of 100,000, you have an asset valued at $200,000. And to pay off that mortgage, you must transfer a different asset valued at 100,000 to fund the payoff. So we have assets of a total of 300,000 in motion and $100,000 mortgage following the money you find. What happens is you consolidate two assets into one and by doing so go from having $300,000 in assets down to 200. Remember that the loan has nothing to do with the value of the house or the appreciation of the asset. The house is the asset and will appreciate the same whether it has a loan or not. This isn't a new concept. There isn't magic in the math. Some of the wealthiest people in the world have made their wealth using other people's money in real estate and in business. In both the car purchase and the mortgage example, you're simply using other people's money for the transaction and figuring out ways to keep your own money in motion. That concludes today's show. My name is Brian Scribonia. Thank you so much for listening to the Common Sense Financial Podcast. Thanks for listening to today's show. If you liked what you heard, be sure to subscribe on YouTube and Spotify so that you can receive notifications when we release new episodes. I'm Brian Scribonia and this is the Common Sense Financial Podcast.

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