Ep 590: How Entrepreneurs Should REALLY Think About Wealth | Jim & Mimi Dew Recap
[00:00:00] Can we stop confusing wealth and revenue [00:00:05] together for just a second? And that’s kinda, I wanna start there. There’s a difference [00:00:10] between wealth and revenue and what our job is in this conversation is to stop [00:00:15] talking about the two, like they’re the same. Making money is not the [00:00:20] same.
[00:00:20] Is building wealth, and if you’re an entrepreneur, the way you think about [00:00:25] money needs to be completely different. So let’s actually talk about how to build wealth, [00:00:30] not just chase cash flow, right? So there are three different [00:00:35] categories of things that I wanna talk about in the next five to seven minutes that I think can drastically help you make [00:00:40] these very simple distinctions between wealth and money in your life.
[00:00:44] Number [00:00:45] one is the mindset shift between income versus wealth. Here’s what most [00:00:50] entrepreneurs tend to get wrong, is that you think more clients equal more money. [00:00:55] Equals more freedom. But wealth is not about how much money you make, it’s about how much you [00:01:00] get to keep, how much you get to grow, and how you multiply that, right?
[00:01:04] [00:01:05] That is the difference between money and wealth, right? And you don’t build [00:01:10] wealth from your income usually, and you build it from your decisions. [00:01:15] Okay. Most wealth is built not because you made a lot of money, is that you [00:01:20] made the necessary decisions in how to keep, grow and multiply that money over the [00:01:25] course of time.
[00:01:25] This is a, an emotional component of how we treat and think [00:01:30] about money. Okay? So key points here. Wealth is not [00:01:35] directly connected to revenue or income. I know plenty of wealthy people who do [00:01:40] not even make six figures. But they have made decisions about how to [00:01:45] deploy their money into ways that grow over the course of time.
[00:01:48] Number two [00:01:50] money is a tool, not a goal, right? I don’t set money goals [00:01:55] right now. Do we have financial budgets and do we have growth objectives? Absolutely. But [00:02:00] income, money is a tool. It’s not a goal. And wealth is a [00:02:05] strategy, not a result. Right. Wealth happens through incremental decisions [00:02:10] over the course of a lifetime.
[00:02:11] Not some results, some destination that we end [00:02:15] at haphazardly. Second thing I wanna talk about. There [00:02:20] are three buckets of entrepreneurial wealth, and now I’m using the term [00:02:25] entrepreneur a lot. But this could be a small business owner, it could be a solopreneur. This could be [00:02:30] anyone who is trying to figure out how do I grow and build?
[00:02:34] [00:02:35] My wealth. So think about it in three buckets. Number one, you have your active income. That’s your [00:02:40] business, right? That’s the money that you’re generating through your business. Number two, you have passive income, right? [00:02:45] Those are things that you’re investing into, right? And that could be anything from [00:02:50] retirement accounts to real estate to.
[00:02:53] A plethora of other [00:02:55] things that I won’t even take the time to mention here, but it’s where you’re investing your money. So [00:03:00] active is where you’re making your money. It’s your business. Then you’ve got passive. That’s what you’re investing [00:03:05] into. And then you have your protected income. So you have active, you have passive, then you [00:03:10] have protected income, and that is what you’re setting aside in savings and [00:03:15] you’re shielding for later.
[00:03:16] Right? And that could be later. Post working years. [00:03:20] That could be in the case of an emergency. It could be again for a plethora of different things. [00:03:25] But you have active, that’s company currently. You have passive that’s happening right behind the [00:03:30] scenes ’cause of your investments. And then you have protected IE savings, right?
[00:03:34] And the, a [00:03:35] variety of different savings accounts as well. But bucket number one, your active income [00:03:40] that’s what pays for your current lifestyle, right? That’s what pays for your bills. Bucket number two, your [00:03:45] investments, that’s where you’re growing your money, right? So you’re, you’re deploying the money that you have right [00:03:50] now into investments that’s hopefully earning a, a percentage of interest [00:03:55] beyond inflation that will grow over the course of time.
[00:03:58] And if as long as you leave your money [00:04:00] in historically speaking, that will always happen, right? But we’re looking for [00:04:05] returns that are greater than the rate of inflation. But the key to that is longevity. [00:04:10] Right. So the earlier you put it in and the longer you let it sit, the rollercoaster that we’ve [00:04:15] experienced in the last decade or so it all levels out over the course of time, [00:04:20] historically speaking.
[00:04:20] And then bucket number three, which is what we’re calling your protected IE your [00:04:25] savings money. That’s for retirement. It’s insurance, it’s emergency [00:04:30] funds. It’s all the things that may happen that are unexpected. [00:04:35] Right. And that’s the protected income. And I think a big part of this conversation [00:04:40] is again, it’s separating what is income versus what is wealth.
[00:04:44] [00:04:45] And you’re not wealthy typically because of what you earn for most of us, right? We’re not talking [00:04:50] about the Warren Buffetts of the world. Even though there was a time that Warren Buffett. Was not Warren [00:04:55] Buffet, right? There was a time where he was deploying these exact same strategies. [00:05:00] He just did it successfully enough and long enough to get to where he is [00:05:05] today.
[00:05:05] And I’m not saying all of us are striving to be Warren Buffett’s and with billions of dollars [00:05:10] that’s not what ~I’m saying, ~I’m saying, but we can deploy the same strategies, the same tactics in our own lives [00:05:15] to make sure that ~we, ~we have the life~ that we can, ~that’s at our disposal. ~Right. ~That doesn’t mean that we’re [00:05:20] all going to be buying yachts and flying private jets.
[00:05:22] Most of us probably don’t even want that. [00:05:25] But there is also some things that we can pull out ~and, ~[00:05:30] and apply to how we think and treat money that will help us do things [00:05:35] and ways that will set us up for success in the future. But I’m gonna say it again. It’s like you’re not wealthy because of what you [00:05:40] earn.
[00:05:40] You’re typically wealthy because of what you own. Right. And I wanna say that’s not just [00:05:45] material assets, right? This isn’t about earning, this is about owning. Now, I [00:05:50] think a lot of ~that ~that is underestimated when I talk about this, is also your knowledge, your [00:05:55] education, your expertise, right? If you have a skillset that is [00:06:00] transferrable, then there is always an opportunity for you to earn more somewhere else [00:06:05] later.
[00:06:05] Right. But that is owning your intellectual property. It’s owning your education [00:06:10] experience and expertise. It is owning that you’re in charge of learning how to [00:06:15] be the best at what you do. Now, owning can also be real estate. Owning can [00:06:20] also be investments. Owning can. Lend itself in a lot of different categories, [00:06:25] but most people’s wealth didn’t come from their earnings.
[00:06:28] It came from [00:06:30] what they owned, their earnings. And that is also just as much up here in your [00:06:35] head as it is in real estate or investments or any of the other [00:06:40] vehicles that you can do ~to, ~to earn outside of your ordinary income. I just wanted to put a heavy [00:06:45] emphasis on what’s underestimated when we talk about this.
[00:06:48] Is owning your intellectual [00:06:50] property, owning your skill sets, owning your expertise, investing into yourself, investing [00:06:55] into your education. That is something that no one can take away, right? No natural disaster can [00:07:00] take out that property. No one can remove that from you. You own it. It is [00:07:05] yours. Right.
[00:07:05] That is knowledge and education and information and skills that you have developed that can [00:07:10] be deployed anywhere at any time. Do not underestimate the [00:07:15] importance of investing into yourself as a part of becoming wealthy. [00:07:20] Now last, but certainly not least I wanna also talk about what you can start doing right [00:07:25] now to build wealth regardless of how much money you’re making.
[00:07:29] Doesn’t matter if you’re [00:07:30] making $40,000 a year or you’re making $4 million a year, what you make top line [00:07:35] has nothing to do with how wealthy you are, right? So let’s talk about some of those things. [00:07:40] This is in the entrepreneurial category, of course. Number one, make sure you pay yourself a [00:07:45] set salary, right?
[00:07:46] Revenue does not always mean income. ~I. ~And most business [00:07:50] owners most entrepreneurs pay themselves last, right? But make sure that you give yourself a set [00:07:55] salary. Number two, make sure that you’re setting aside 15 to 30% [00:08:00] in taxes and savings, right? You need that for emergency accounts. You need that to pay the [00:08:05] government but you also need that for your own ~s ~nest egg.
[00:08:07] Number three make sure that you talk to [00:08:10] financial advisors that actually work with business owners. Not all financial advisors [00:08:15] are equal. Not all tax strategies are equal, so make sure that you were [00:08:20] talking to people who specialize in actually working with entrepreneurs and business [00:08:25] owners. Those are different conversations for different types of people.
[00:08:28] So make sure that you’re talking to [00:08:30] people who cater and specialize in your unique realm as an entrepreneur or business owner. [00:08:35] And then last and certainly not least, and there’s a time and a place for everything, [00:08:40] but make sure you’re investing outside of your business. Even if it’s just $50 a month.
[00:08:44] And that could [00:08:45] be in simple IRAs, could be in Roth IRAs, it could be in a [00:08:50] 401k plan. It could be making sure that you have the necessary insurance in place. ~It could be in those but ~it could be in [00:08:55] other things, right? It could be in different mutual funds. But make sure that [00:09:00] you are using some of the money you have to deploy so that it’s working outside of your business.
[00:09:04] So [00:09:05] I could spend. Hours more talking about this. But I just wanna leave you with [00:09:10] this. You don’t have to be rich to build wealth, you have to be disciplined and [00:09:15] intentional to build wealth. And this is about freedom, not a flash. This [00:09:20] is about building something that allows you to do the things that you want to do [00:09:25] in this life, in this world, not something that is gonna be fleeting [00:09:30] and non-essential in the current day.
[00:09:32] So all of this has to do with [00:09:35] building wealth. And that is separate from your income and you do not have to be [00:09:40] rich in order to be wealthy.