The Four Pillars
The Four Pillars
Today’s episode is a deep dive into the second wealth lens in the Financial Freedom Formula. We are taking a look at the four pillars. The four pillars allow you to go fast in your investment strategy.
To earn a higher rate of return and systematically reduce your risk you must utilize the four pillars. Brad, Ryan, and Jimmy dedicate the entire episode today to do just that. Every game plan needs a framework to succeed. In every investment, there are four possible ways to make money. To understand what your possible outcomes are, you need to align those decisions against the possibilities.
If you can just focus on the pillars that work then you expedite the speed of your investments. Stay tuned to find out how you can skyrocket in your plan!
The Four Pillars: Appreciation
The beauty of the four pillars is that it is the fast track to achieving unusual results. The first pillar is appreciation. It is the one people are most familiar with. When defining appreciation we can summarize it to the desire of having the thing we bought today be worth more tomorrow.
The qualification is that the asset must be sold to see the desired return. The majority of the investments made out there are solely focused on this pillar. We assume that every asset should have a trajectory toward appreciation.
“In every investment there are four possible ways to make money.”- Bradley Gibb
The problem with this misconception is that it offers very little control. Even if you invest in an asset that is guaranteed to appreciate, you are still stuck. How long will it take to get that desired return? If you can’t answer that then you have no gauge on where you are in your financial plan.
At Cashflow Tactics, our goal isn’t just to increase your net worth. We don’t have a goal to just increase the amount that’s in your account. Rather, we aim to give you a very definite time frame regarding your financial plan. That’s how we determine freedom.
To summarize, it is essentially the seen vs. the unseen.
The Four Pillars: Cash Flow
This is hands down the most important pillar of the four. Though, we must preface by clarifying what circumstances of cash flow are beneficial. For it to propel your game plan forward, it must cash flow and allow you to retain ownership of the asset.
Cash flow is not transacting to put more money in your bank account. We consider that to be a disguised way of taking advantage of appreciation.
An example would be, actively trading options over a very short period of time, and once they started to appreciate and then sold it would look like cash flow. But as soon the active activity of trading was stopped so would the cash flow. In this case, the only way to increase the number in your bank account is to sell the asset each time.
This is where people tend to get confused and fall back on the traditional methods of the stock market. They believe that something like a dividend coming out of a company is cash flow. The truth is, if you’re removing an asset from your portfolio then it is decreasing the value of that portfolio. But if you transfer this asset into something like real estate then that asset class typically goes up in value.
The Four Pillars: Taxes
“A dollar pre-tax is very different from a dollar after tax.”- Bradley Gibb
This is the pillar that is most commonly avoided. Take this as an example, if you can make two alternate investments but one produces a return that taxes have to be paid on and the other does not then they are not equal investments. The single greatest destroyer of wealth is the rate by which you have to pay taxes.
We focus on investments that you don’t have to pay taxes on. The key is looking for investments that reduce or eliminate taxes.
“The IRS uses the tax code to encourage the economy to do certain things.”- Ryan D. Lee
That’s why it can be beneficial to know and understand the tax code. It is a map that can help you avoid paying taxes when you don’t need to. When we are talking about tax deductions, it offers the opportunity to utilize your assets so you don’t have to pay on them.
Remember, you still have to get tax benefits while allowing that cash flow to come to you. Don’t take tax incentives that aren’t within the timeframe that you want to be financially free. Essentially, don’t defer. It is in your best interest to act actively.
The Four Pillars: Leverage
“Leverage is not only financial.” -Bradley Gibb
Leverage is the most powerful pillar. No one has ever been financially free without it. Though, it’s so important to understand that leverage by itself does not produce a return. It only amplifies the return you’re getting from the other three pillars. Leverage by itself has no direction.
It is often misunderstood. Most people use leverage as a consumer. This means they are trading their time for that leverage. When using it as an investor where you’re focused on an asset that generates cash flow then leverage can work to your favor. You get to use a small amount of money and buy an asset that generates enough cash flow to pay the leverage and still have money leftover.
It is the only way to go fast and reach financial freedom in ten years or less. Also, anything can be leveraged. It comes in multiple facets that we must learn how to identify, understand, and control.
In future episodes we will dive deeper into each element of the four pillars. To truly fast track your way to financial freedom, it takes a keen understanding of how they each operate independently and together.
If you’re looking to find out how you can incorporate the four pillars, CashFlow Tactics is inviting you to take a free 5-day challenge. Ryan, Jimmy, and Brad will guide you to create a personalized financial freedom plan and help you jump-start your journey to financial freedom in 10 years or less.