Hi this is Diane Kennedy. Today is Day 7 of the 30-day Coundown to the release of my new book, The Maui Millionaires™ that I co-wrote the book with David Finkel. The book is scheduled to be released on November 3, 2006, and from now until then I’ll be checking in every day with a Wealth Tip excerpt from the book, written either by myself or by my co-author, David Finkel.
Wealth Tip 7: Level Three Wealth Building – Converting Net Worth Into Passive, Residual Cash Flow
As you build your net worth there will reach a point in time when you need to transition a healthy portion of your focus away from investing or business building for massive equity growth to instead creating passive, residual cash flow. Rarely will you find a business or investment vehicle that gives you forced appreciation, great cash flow, and takes very little of your time. Usually as a Level Two wealth builder you focus on investments and businesses that give you the first two—forced appreciation and cash flow—but take time and effort on your part.
But once you have the financial strength that a large net worth gives you, it’s time to focus some or all (depending on your real goals) to convert that net worth into passive residual cash flow. This could be done by turning an active business into a true Level Three business. A Level Three business is one which has the team, systems, and outsourced solutions that are capable of having that business thrive without you the owner actively participating in that business.
Or your could make the shift to creating passive, residual income by changing your investment focus to capitalize on the many great cash flow creating investment choices. For me I’ve made this shift in my own personal wealth building by passively investing in commercial real estate. I also am building my two current businesses so that over the next 36 months I can turn them into a true Level Three business. What will I do then? Probably take a few months off and build another business. I can’t help it, I love building businesses that make a positive difference in the world and I don’t think I’d like to “retire” in the traditional sense.
The key to your later stage wealth building is to make this transition and not to rely on the cash flow from active businesses as the source of your financial freedom. This is the topic of Wealth Tip #8, which will be published tomorrow.
For more on Level Three wealth building see The Maui Millionaires™ pp. xix-xx, pp.186-189.