• 01:30:08 am on March 26, 2009 | 23
    Tags: , , , , , , ,

    7 Millionaire In-Training! Review

    The diagram is mine, but the healthy financial ‘picture’ is all Scott’s … the poster child of the high-income earner / high-saver. Let’s hope that he also knows how to also have fun, but I guess a hobby farm with horses has got to provide a fair chunk of happiness?! Scott also has a ‘built in’ Income and Net Worth kicker when the contract surrounding the other half of the practice that he is in ‘kicks in’ …

    What do you think Scott needs to do from here?

    __________________

    picture-1This next post provides a bit of a summary of where we are financially at the moment. You’ve gotten bits and pieces of where we currently are along the way, via several different posts and you’ve hopefully gotten a good picture of where we all want to be. Hopefully you’ve gotten a good idea of the various plans of action that each of us 7MIT need to take if we want to achieve our required annual compound growth rate, and hence our Number by our Date.

    I know i’ve learned a lot myself so far since being a part of this site and this grand experiment. Among the lessons i’ve learned is that wealth creation can be broken down into 3 distinct categories; Money Making 101, 201 and 301. I’ve learned the 20% rule regarding equity in your home, the 25% rule regarding your monthly home payment and the 5% rule regarding other “stuff” so that you may have 75% of your net worth invested at all times while you are building your wealth along Money Making 201. I’ve also learned that the right kind of debt can be a good thing, as long as you have a low, fixed interest rate. This ‘good debt’ can allow you to develop your wealth faster by increasing your annual compound growth rate. This as well as the financial rules regarding your home will allow you to continue to expand your portfolio exponentially and reach your number the fastest. I’ve also learned that it is first important to do the utmost soul searching and discover your life’s purpose before you do any of this. Discovering your life’s purpose is the “Why?” associated to getting rich. Then you must calculate the “How Much?”, meaning just how much money do you NEED in order for you to live out your life’s purpose and then “When?” do you need it by. Once you figure out these things, you get a clearer picture of your life, a better focus and both excitement and fear under your wheels to get you there on time! I’ve learned about the debt avalanche and other Money Making 101 techniques.

    Speaking of fear, there’s nothing like learning about how inflation can nip at your heels and chew away at your wealth. Not only are good money preservation skills important to learn to use in Money Making 301, but you must fully understand the power of inflation and what it means to your number, or in other words, just how much bigger your number must be to account for this inflation that will inevitably occur between now and your “Date”!ย  These are extremely important mathematical factors that must be considered when designing your plan to launch.

    Hmm, what else have I learned….Oh, I’ve confirmed my earlier suspicion that traditional retirement plans such as 401K’s, Roth IRA’s and the like are not only not the ‘only’ way to retirement and reducing taxs burdens, but they are not necessarily the best! That’s right. Robert Kiyosaki didn’t just explain this in his books to use up pages, he meant it. The wealthy didn’t get wealthy by saving money in tax-advantaged retirement accounts and the wealthy pay less taxes than everyone else.

    Not only that, but if you’ve learned anything about life and how to accomplish your goals, you’ve learned that the truth is this: You get what you focus on, especially when you’ve trained your brain to see no other way. Focus your energy on safe, ‘governmentally designed’ fall backs and you’ll stay focused on a cushy, comfy ‘job’ with good benefits and retirement plan to work on for the next 30-40 years. While you make the owner of that business wealthier. Do you think that owner logs on to his/her ‘retirement account’ and get all giddy about it. No, they think about how many buildings they own, how much the individual stocks they buy are growing, how much they are going to sell their business for and how many other businesses do they want to develop. Focus on your Number, your Date and the required means to get you there, like there’s no other way available to you in the world and you’ll get there! You get what you focus on. Just like Warren Buffet and other incredibly successful investors and entrepreneurs have done and are continuing to do. Don’t ‘diversify’ your focus, don’t ‘diversify’ your energy and don’t diversify how you invest. That is, if you want to be wealthy rather quickly. After all, these blogs have to do with making 7 million in 7 years, not 2 million in 40 years, right?

    I know i’ve learned an incredible amount more too, but I believe those are some of the most important lessons. I can’t think of many specifics that I’m struggling with so far concerning my life’s purpose, or what to do at this very moment concerning my networth status or this phase of my journey. I’m pretty much in the flight of Money Making 201 with my destination and my time tables in place. I’m just focusing on clear, easy weather and a smooth flight! But I know the flight will get bumpy. That’s life, but just like anything else i’ve accomplished, i’ll navigate around and through all the storms to get there.

    I believe an income statement is in order for this post, so I’ll give a run down of our current numbers. My wife is currently unemployed due to layoffs and has been that way for the better part of the past 9 months. I run a successful practice that I currently own 50% of, so naturally i’m only entitled to half of the profits that I am currently generating. As such, my income varies of course, but it appears that if I take my average over the past few months, i’m averaging somewhere between 170-180k before taxes. That’s usually between 14k and 15k per month of which 5k per month is my base pay and doesn’t change. The rest is a distribution income based on the monthly profits, hence why it changes. Tax is deducted from my monthly base, so I take home right at 3,800.00/month from that and I pay taxes off my monthly distribution quarterly. What we’ve been doing is just setting the quarterly estimations aside and paying them out quarterly. I deduct as much as possible from my personal vehicle, down to business lunches, continuing ed seminars, right down to the shoes I wear in the clinic and have to replace. This all reduces my tax liability, as well as any depreciations I deduct with my rental property business. Speaking of the rental property income, I’m only cash flowing 50 bucks per month on the rental at this very moment, but get a nice tax deduction from it on my income.

    All in all, after tax, we are depositing around 11k per month on average into our checking, of which we are living on exactly half of. 5,500.00 per month for our basic living cost and ‘lifestyle’ if you will and $1000.00 per month goes to “home improvement” for the farm we bought last year that we are taking our time finishing renovations on. This provides us an average of about 4500.00 per month to invest. If you watch our networth profile carefully over this year, you’ll see our “cash” section going up by this much per month on average. You’ll then see this cash disappear some or lessen as we purchase assets such as real-estate, other businesses, invest in my current business to make it grow, spin off more cash itself, or increase in value, etc…Some months that monthly cash savings may go up by twice the amount due to me producing a really good month and some months, you may see it be a bit less during slower times.

    Currently in the “Other” category on my networthiq profile, https://www.networthiq.com/people/abundantlife, this is where we’ll keep business assets or rather their current market re-sale values. This currently includes my personal shares of my practice and may in the near future include the value of any other businesses that I start or acquire. In a little over 2 1/2 years. The end of 2010 to be exact, I’ll become 100% owner of my practice, so you’ll see that current number probably double. My income should pretty much double as well which will help to further fuel my required annual compound growth rate.

    I guess that’s pretty much it as far as my networthiq profile. Personal property includes my valuable guitars, guns, my wife’s jewelery, any antique furniture that we have that could be sold for something. Lawn tractor and basic farm upkeep equipment, horses, etc..

    The ‘other real-estate’ category currently includes the value of our rental and will include the total values of course of any other real-estate properties that we acquire.ย  “Other mortgage” is where we’ll keep the total of all investment real-estate mortgages owed.

    The student loan is consolidated and fixed on a 30 year at 2.85%, the mortgage on our primary residence is fixed on a 30 year at 6.25%. Oh yeah, that reminds me, one of our plans is to refinance our rental. We were suckers for a crappy mortgage on that house when we first bought it nearly 3 1/2 years ago(it was our first home) and we want to refi to get a low fixed rate. Currently the mortgage on that property is an 80/20 with a 5 year interest only on the big one and a 20 year balloon on the small one. Man we were so dumb and gullable a few years ago compared to now. It currently averages around 8.5% as it is, with obviously very little payment going to principle, but if we get that property refinanced to a low fixed rate for 30 years, we’ll be cash flow positive by a couple hundred dollars per month as well as enjoy the tax deductions, so that is a goal of ours. Other than that, we don’t really have any questions about anything else that I can think of.

     

Comments

  • Building a better retirement account … « How to Make 7 Million in 7 Yearsโ„ข 1:31 am on March 26, 2009 | #

    […] and, since you are one of the 7 Millionaires … In Training! I will show you exactly how to do it … and, anybody who wants to be a fly on the wall (better yet, participate in the open […]

  • Josh 8:01 am on March 26, 2009 | #

    Scott, great post. My question is, do you use some kind of software to keep track of all your tax deductions or is there some kind of system you use?

  • Scott 8:43 am on March 26, 2009 | #

    Josh – We’ve been using quicken to keep track of everything. We don’t get crazy with it, but it seems to have a lot of useful features to it that will keep track of practically everything you need. We keep a file in the filing cabinet and just throw receipts in there as we get them, then pulled them out at tax time. I know we have so much to learn on this regard and will get better at it with time as well. Hopefully I can plug into Adrian’s brain like the Matrix and get all the knowledge! ๐Ÿ˜‰

  • Scott 8:56 am on March 26, 2009 | #

    Adrian – If it were totally up to me, we would be living on even less in order to get to our number faster, but my wife keeps me in check ๐Ÿ˜‰ I figure living on half of our income is a good compromise at 5.5k per month. The extra 1k per month that goes to “home improvement” bugs me, but the way I see it I guess, is that it is increasing our home value and we’ll just refi the home as our equity goes above 20% and simply use this money in our investment pool and have a nicer looking home with time to boot.

  • Moneymonk 12:32 pm on March 26, 2009 | #

    “Do you think that owner logs on to his/her โ€˜retirement accountโ€™ and get all giddy about it. No, they think about how many buildings they own, how much the individual stocks they buy are growing, how much they are going to sell their business for and how many other businesses do they want to develop”

    Love it.

    I must say I do both, save for retirement and have a business. So, I am always of ahead of the game in some way.

    There are two people inside of me.

    I have a job with benefits and stability (I owe my family at least that) and I have a risk taker side, I own a business and I dedicate part time hours in growing it. I always take advantage of ipo’s and other forms of investing

  • Scott 1:34 pm on March 26, 2009 | #

    @ Moneymonk – I think as we all continue to move up and grow financially or mentally as it pertains to finances, that ‘business owner, entrepreneur and investor side of us’ takes over and squashes the side that wants benefits, security and a steady paycheck. Good work and good luck!

  • Adrian 6:52 pm on March 26, 2009 | #

    @ MoneyMonk – I think that you are on the right track, certainly the ideal way to lay the foundations to a solid financial future …

    … although, I do tend to agree with Scott: at some point, one or the other (i.e. job+savings OR business+investing) will probably become all-consuming [ AJC: emphasis on ‘probably’ as I’m not the bleedin’ Oracle ๐Ÿ˜‰ ]

    @ Scott – You might be surprised to hear that I’m NOT encouraging you to save more, you are already in the May Issue of Doctors Weekly listed as one of the 10 Most Frugal Medico’s In The USA …

    … on the other hand, I’m not saying to save LESS either ๐Ÿ˜‰

    What I want you to look at is outcome v targets:

    You have worked hard and saved hard (and, I’m sure, enjoyed a nice balance between saving and enjoyment) for …. drum roll please …. a total Net Worth of $170k.

    Nice, but hardly a deposit on your Number …

    This is not an issue as you already know this, and have plans, but the point that I am trying to make is to other high-income-high-savers: the road to becoming rich(er) quick(er) is neither in earning more nor is it in saving more, it’s in what you do with it all.

    OK, time for you to play with some numbers:

    – presumably, when you get the other half of the practice, your “other” category in your NWiQ statement [ https://www.networthiq.com/people/abundantlife ] doubles to approx. $300k … virtually doubling your Net Worth in the process (to $320k)

    – Your income should also jump to about $25k a month, which (if you DON’T increase your spending rate) should add close to $14k a MONTH to your rate of savings.

    What does that mean to your ultimate Net Worth if you continue the earn/save path?

    By my reckoning, this rate of savings (start with $300k and add $20k a month, indexed for inflation) gets you to $5 Mill. in 12 or 13 years and $20 Mill. in around 25 years.

    So, the key for you is not to increase spending and you can pretty much cruise to your Number IF you are willing to wait another 5 or so years (and, if the markets can actually deliver an 8% after fees return).

    Alternatively, you can invest in more practices and more commercial real-estate, but there’s no guarantee that these will kick in enough over 10 years (to cover acquisition costs, etc.) to make your Number, either.

    We will need to explore these further; in the meantime, you’re going to have to think about how many practices that are worth $300k each (that’s all that you’re telling me that you current practice is worth) that you will need to amass $10 Mill. in 10 years?

    And, what are the commercial properties that sit under these practices likely to cost you today – and, what are they likely to be worth in 10 years?

    For a guy who seems to be cruising to his Number, we have an awful lot still to talk about … are the rest of you getting nervous? ๐Ÿ˜‰

  • Scott 7:23 pm on March 26, 2009 | #

    Oh yeah, listen, I still worry myself to death over this! lol. Even at the rate I’m saving, if I don’t turn up any good returns on my investments, I’m still a long shot away from reaching my number by my date. I’ve got to really study up on my investment purchases and maybe even be a little ‘lucky’ on how well they return.

    I’ve got to make great decisions from this point forward, because I can’t just save my way to my number.

    Incidentally, my partner called me today and asked if I was ready to put an associate in my current practice to run it and go in 50/50 with him in starting up another practice – soon….

  • Adrian 7:41 pm on March 26, 2009 | #

    @ Scott – I think you downwardly-revised your Number to $5 Mill.? If so, you can definitely cruise … PROVIDED that you don’t increase spending! Kids? Schools? Trips?

    And, if you want to shoot for the $10 Mill. (and/or increase spending over time), then we will have plenty to talk about, but I think you don’t need to stress as you already have a solid foundation in Practice 1 and (definitely) Practice 2 … what’s in it for your boss/partner if he’s giving you the other half of Practice 1 in a year or so, anyway?

  • Mark 8:06 pm on March 26, 2009 | #

    This is a great post, Scott. You have definitely saving a lot compared to others in similar positions. Your post reminds me to stay focus and not too try too many things at once.

  • Scott 4:41 am on March 27, 2009 | #

    @ Adrian – Unlike our country, at home we definitely have no increased spending plans on the horizon. We have one child and no plans to have any more, no school change plans and as far as trips, that’s part of our life’s purpose to be able to travel extensively, so that is one of the motivators to reach the number! ๐Ÿ˜‰

    As far as my partner, he wants to know if I’ll run the new practice he wants to open and he wants to split the profits with me 50/50 just as we are doing with my current office. My current one will still go to me 100%(I’ll just have a new associate running it for me, that I pay based on profit %’s). The “new” office would be in an extremely valuable, high-profile area that he has been dreaming about and wanting for quite some time and he knows what I can generate in patient volume with my work and abilities. This move is a double edged sword because on one hand, it prevents me from growing on my own, making my own ventures, but on the other hand, it could double my income in the next year(instead of in 2 1/2 years), THEN the year after that, I’ll own practice #1 outright and my income will increase once again…

  • Adrian 5:53 am on March 27, 2009 | #

    @ Scott – I’m still not sure why he is giving you one business outright (Practice # 1) to run, own, sell as you please only to have you work with him on Practice # 2? From your comments it sounds as though he just wants a change of scenery?

    I presume that in a year or so, you will own 100% of Practice # 1 and 0% of Practice # 2 (but, share 50% of profits)?

    BTW: what’s your ‘exit plan’ for Practice # 2, or do you just leave if something better comes up, and he will continue to own?

  • Scott 9:46 am on March 27, 2009 | #

    @ Adrian – What’s attractive about opening the new office for him is that he wants me to run it, not him. He gets 50% monthly profits of a new practice that he doesn’t have to run. I will still own 50% of my current practice (#1)(that will be run by a new associate coming in at new associate income, not 50% of profits). Then I’ll still own it 100% outright in a little over 2.5 years, but would also be earning 50% of profits from this ‘new’ practice(#2) on top of it.

    I’m running the numbers on it to see if it makes sense for me to do this. It definitely makes sense for him.

    I think the key that you may be misunderstanding is that he is not running these clinics, he’s receiving passive income to the tune of 50% of profits on these clinics. Some of the clinics he owns, he earns 80% of profits,passively. It may have been an office being run by a 1st or 2nd year associate that is getting a base pay and a 20% bonus on profit, etc..

    He basically ‘works’ as a director of these clinics, directing marketing, meetings, coaching, teaching etc…Imagine yourself being kind of a coach to 4 or 5 doctors while they run 4 or 5 clinics that you receive large chunks of passive income from. Some associate doctors leave after a few years, some stay and want to continue being ‘associates’ for relatively small bonus percentages(they are E’s in Robert Kiyosaki’s books, and have no interest having the ownership responibilities) and some like me grow out of their pants quickly and want to do what he’s doing and move to being S’s or cross over completely and be B’s, then eventually I’s, lol. So in their case(my case), he eventually just turns a clinic over to them(after earning great profits on it for a while of course).

    This is pretty much the method he started on himself out of school and acquired his first practice with and learned to expand himself with. Now for me, i’m doing the same thing.

    So you see, I ran one of his clinics(and turned it into the busiest, highest profit clinic) while I made 60k in income the first year, then creeped up to just over 6 figs by the second and third year. So he’s paying me back by giving me practice #1, albeit, slowly, over a couple of years so he still profits passively for it a while longer, but I still advance faster than I would out of school trying to reinvent the wheel.

    Most new docs coming out of school have 200k in debt or more, limited clinical experience, absolutely no business experience and bankers fall out of their chair laughing when you walk in to see them asking to borrow money to open ‘brand new’ office, or even to buy an existing office. They see you as all risk and no experience to thrive yet. Most bankers are ready to talk to you after you’ve had a few years as an associate in a successful clinic, paid down a lot of debt, showed clinical, business and financial aptitude. And even then, you would have to take out a business loan with interest(keeping your overhead much higher for 5-10 years or so) and start fresh(making no income until you get the practice profitable, or living off of 2-3k of your ‘business loan’ until profitable).

    We would have to negotiate going into this new deal regarding what happens to total ownership of practice #2. I think it would only makes sense for me to do it if I retain some share of ownership in that new office, indefinitely. My assumption though, is that he is going to want to retain it 100%. So that’s where I have to run the numbers to see if it is worth my time and effort. I think where it might make sense for me is that I would increase my income substantially over the next year once I made it profitable(more income sooner, but probably for a short period of time). I would be earning at least 10k/month passively(remember I would be paying an associate a beginner’s salary to run it)from practice #1, as well as probably earning another 15k/month from practice #2(about what i’m earning myself from running practice #1 currently).

    Where the numbers concern me is the time period between when I begin to pay an associate to run practice #1 and I don’t have practice #2 profitable. That’s the time table where I may actually be earning either the same or possibly a bit less income. But as soon as I get practice #2 built up to where practice #1 is, I’m more than likely earning 25k total per month instead of 15k per month. Then when I own practice #1 100%, I’ll probably be earning around 35k per month (15k actively and 20k passively).

    If I did nothing but stayed in practice #1, I would continue to average about 15k per month for a little over 2.5 years, then at that time, would be earning by all estimations 25-30k per month, but 100% active income. I could at that time of course, higher an associate to run practice #1, while I go and use 100-150k of my own money to open my very own practice #2 of which I would of course own 100% from the get go, but that would require 100-150k in startup capital, up to a year to become profitable, loan or personal investment payback, etc.. etc…, but when all the dust would be settled, I would own 2 clinics free and clear, 100%. I could run one by myself and earn 25-30k/month actively, while my other clinic earns me 15k/month or so passively and continue this until I decide to stop, or hire an associate to run it for salary + bonuses too, or reach my number.

    Is this confusing enough for ya yet? LoL

    Hopefully the super long comment sheds a little more light on the situation though.

  • Adrian 4:20 pm on March 27, 2009 | #

    @ Scott – I’d say that you and the Nice Mr Doctor Benefactor are about to part company …

    … but, we’ll discuss the whys, the whens and wherefores in the next post ๐Ÿ˜‰

  • Scott 5:42 pm on March 27, 2009 | #

    Yeah, I ran the numbers earlier myself and realized it’s not in my best interest.

  • Scott 5:44 pm on March 27, 2009 | #

    @ Mark – Thanks for the comment earlier Mark. I think one finds their best success sometimes when focusing their efforts.

  • Adrian 2:10 am on March 28, 2009 | #

    @ Scott – the numbers – for our other readers’ benefit – seem pretty simple; from your earlier comment, it seems:

    1. That 50% of the Practice # 2 profits = $10k p.m.

    2. Practice # 2 would cost about $100k – $150k to start up and get to self-sustainability stage

    If these numbers are anywhere near correct, you could start you own practice for, say, $150k that would generate $240k per year?

    If my estimate is ANYWHERE NEAR correct:

    Stage 1 is when you ask yourself: why waste your time working for him, when you could do this yourself?

    Stage 2 is when you BECOME him ๐Ÿ™‚

    But, Stage 3 is when you leap-frog him, because there’s a flaw in his formula ๐Ÿ˜‰

  • Scott 7:27 am on March 28, 2009 | #

    Yep, you’ve got it. It’s actually a bit more income per clinic than 240k, because there’s enough generated per year to pay yourself (or split) 60-80k of base pay. I’ve estimated the potential(based on the cashflow i’ve produced) to produce the owner around 360k/year. That will be my approximate personal income after I own practice #1 completely. This is a combination of my base pay + distribution.

  • Adrian 3:57 pm on March 28, 2009 | #

    @ Scott – Just make sure that you leave a note, just like the dolphins did when they finally left the earth:

    “So Long, and Thanks for All the Fish”

    http://en.wikipedia.org/wiki/So_Long,_and_Thanks_for_All_the_Fish

  • Scott 4:36 pm on March 28, 2009 | #

    LoL

  • Jeff 10:39 pm on March 28, 2009 | #

    Scott/Adrian – You guys have my head swimming…no drowning in numbers. ๐Ÿ™‚

    What’s the layman’s conclusion here? Are we saying that it makes more financial sense for Scott to pursue clinic #2 on his own at a later date rather than an earlier joint venture with his current partner?

    Scott, is there a path to 100% ownership of clinic #2 with your current partner? (i.e. a similar deal to what you have with clinic #1)

    If so, that sounds like a way to continually “buy” new clinics at half price.

    However, I have to admit that I don’t fully understand the details of the analysis on this one.

    Either way, it sounds like you’re on the path you need to be on. Congrats.

  • Jeff 10:43 pm on March 28, 2009 | #

    @ Adrian – I loved the Hitchhiker’s Guide to the Galaxy series.

    I read them all as a kid and look forward to sharing them with my son when he gets a little bit older. Thanks for the walk down memory lane. ๐Ÿ™‚

  • Adrian 3:42 am on March 29, 2009 | #

    @ Jeff – I think that Scott is simply saying that it would only take a year or two for a new clinic (costing about $150k to set up and run to break-even) to start generating $360k per year in net profits (~$100k less if Scott has to hire a doctor to run it).

    To my mind this is an astounding rate of return … however, your idea of Scott pitching a repeat of the current arrangement with his boss for Practice # 2 is a good one. Costs Scott nothing but a couple of years …


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