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Recently we've been reading The Last Lecture, by Randy Pausch, and it has stirred a lot of reflection.
If you haven't heard about the book it's the last message a man dying from cancer leaves for his family. He pasted away this past July (2008).
It's a fantastic book and a heart warming story.
And it really got me thinking.
I have a six your old son and a two year old daughter. After reading this book I started formalizing some messages that I would want to make sure were passed along to them.
Now listen up!
I'm not dying and I plan on being here for a very long time so don't get the wrong idea! But what this book did was make me formalize some messages.
Some of them are very private and I may share them down the road, however, because we're here to talk about real estate and wealth strategies I want to share one of the messages with you because it directly applies to this theme.
It's this:
You will have much more freedom in your life if you always work for "Future Value" instead of "Now Value".
Let me explain with a story...
A very good friend of mine is accumulating some very big wealth in his life.
He was recently telling me how he was confused after speaking to a Senior Vice President in a software company. This VP was making an exceptionally high salary but had no freedom and was living "paycheck to paycheck" (we've all heard this before, I know...but hang with me).
This friend of mine started from nothing six years ago and is now on track to have millions (yes, millions, plural) of dollars in equity and very strong cash flow in his life.
He doesn't have a higher education, no university, no college. He doesn't have all the "right" connections. And he didn't have a helping hand in creating his wealth. If anything, I think he had some hurdles that most people don't have (maybe that's a topic for another time).
But he did have a strong work ethic. Very strong.
And he is able to magically handle any problem thrown his way.
Literally, anything. Nothing is a problem for him.
He just continues moving forward. It's jaw dropping and inspiring.
So he was confused by this VP because growing up in his working class family he figured if you were a Vice President of a company you wouldn't be living paycheck to paycheck. And you would have a big mansion with gates and maids and stuff!
He had always assumed that people with advanced degrees and big job titles had it made. And because he didn't have a fancy degree or hang out in the right social circles he worked terribly hard.
And now over the next 24 months his income and wealth is set to explode. Massively.
And you know why?
Most people work on things that have a "now value". He always worked on things that had a "future value".
This is the biggest lesson I want to pass on to my children.
So what do I mean by this?
When you are working at your job everything you do has a "now value".
You work and you get paid.
There's no future benefit for you.
Nothing.
Even if you are in sales at a big software company and work 2 years to "land that big account" and earn a mega commission check it's still just "now value". There's no recurring revenue and there's no built up equity in anything for you.
You've spent two years of your life to create income at one point in time. If that big account comes back to buy more stuff in a few years the commission or benefit of this will go to the company. You may be long gone.
But if you work to create "future value" then the benefits begin to multiply.
For example, if you work to create your own business you create cash flow and create equity in the business for yourself.
You are creating "now value" and "future value".
Now starting your own business has its risks of course, so lets look at what my friend did and still does.
For the last six years he has been working of his real estate portfolio. He was buying houses, working on those houses and then selling them for a profit. He was also buying houses and getting tenants to rent the houses from him. He was doing all this "on the side" while maintaining his primary income source.
He was creating "future value". And he didn't even know it.
Because when you start out everything seems difficult. The light at the end of the tunnel seems so far away. It's hard to see the "big picture".
But because the type of work he chose to focus on has a future value built into it he was set to benefit massively from his efforts.
Now all the work he has been doing over the last six years is coming back to him in multiples.
The equity in his real estate portfolio has grown dramatically (we're talking big dollars) AND he has positive cash flow from his rental properties.
So he worked once and he is getting paid multiple times.
It turns out that the work he was doing on the side, for "future value", is going to serve him much much better than his "now value" income has.
With some of the real estate he generated income by selling it, he gets appreciation from the real estate he has kept, he gets cash flow from his rental properties, he gets tax advantages that allow him to pay less in taxes and his equity in the real estate continues to build and compound.
And after accumulating a bunch of real estate things start taking off.
For example, if you went out and picked up 4 small income properties for a grand total of $1,000,000 and then the market goes up 5% your net worth goes up $50,000. You didn't work any harder for that. Your asset base of real estate delivered it to you.
And if the market goes up the next year your net worth goes up again, compounded. You didn't have to do anything else. You worked to acquire the properties once and you are reaping the future rewards. And the whole time the properties are producing positive cash flow for you.
This doesn't all happen in a straight line. The market moves sideways sometimes but if you are getting positive cash flow from your properties its no big deal.
Positive cash flow properties are easy to hang on to in any economic climate. Obvious, but true.
In bad economic times positive cash flow real estate pays for itself. It's like a mini little business working away for you.
So back to this VP....
I mean no disrespect to him. None at all. I worked in software sales myself so I understand his mentally because I once thought the same way....work hard, get raise, make more money.
I'm just pointing out that when you focus all the productive hours of your day on work that pays you only once you are not leveraging yourself. That VP can easily continue doing what he does and start working on some "future value" on side.
Perhaps a little side business selling a product on-line or some cash flow real estate.
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Little aside...
I may upset people with this but what the heck...saving 10% of your income in an index fund or ETF doesn't get the job done. I don't know anyone who has created time freedom in their life by doing this. I'm sure there's an exception to this but I really don't know anyone who has create a substantial asset base saving 10% of their salary. I don't, sorry. I'm not saying is a bad thing, it's just not the "future value" I'm talking about here. Maybe in another 30 years some people I know will achieve wealth this way but who wants to wait that long? After you've created a pool of wealth if you want to park it in some of these things that may be OK - but to create your wealth, don't think so.
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When you focus on putting your efforts on work that has "future value" the benefits multiple.
You earn income today and you will earn income again from the same work in the future as a bonus. You don't actually have to put in much effort to gain the future value.
If you are reading this blog and these posts then you're in the middle of some "future value" of my own.
This posts can be used again and again (as articles on our website, in our email newsletter, as guest posts). We're creating this once and it will be used many times. And hopefully my children will find this and read it and take action from it (that's some cool future value!).
Focus on future value in everything you do.
Or at least ask yourself where the "future value" in your current opportunity exists. Then work on growing it.
"Now Value" is a quick fix. But like everything that is a quick fix, it's likely not worth it in the long run.
So the message to my children is this:
Do what makes you excited. Life is obviously too short for anything else.
And to really leverage your efforts, to really create some personal freedom, build some "future value" into the work you do.
What "future value" work are you doing these days?
To your success!
Tom & Nick Karadza
Income For Life Toronto
www.TheRealEstateRenegades.com
Tom & Nick..
Never have I wished that I was someone else's brother until now...you guys are awesome!
I have watched "The Last Lecture" by Randy Pausch 6 different times either on 20/20 or Youtube...it has probably motivated me more than anything since I saw Jimmy Valvano's last speech (Don't ever give up!) and I personally feel that it should be mandatory that any new father should be made to watch before leaving the hospital with their newborn child!
Life is short..your message to your kids is perfect and will live in their memory long after you are gone..which makes your "future value" to them, just like the advice that Randy Pausch left.....priceless!
Even though I have carried a "Tigger" in my pocket every day since I first saw "The Last Lecture" thanks for the reminder!
I appreciate you,
Bobby Wallace
Charleston, SC
Posted by: Bobby Wallace | September 08, 2008 at 05:54 PM