How to achieve financial independence without worrying (too much) about your net worth
Find out how to achieve financial independence by building sweat equity instead of personal equity.
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I’ve been a big fan of watching my net worth grow. But, my tendency to check it never seems to end. It’s actually kind of sickening. I check it daily and obsess over it. But should I?
As I continue my journey as a financial freedom blogger specializing in investing, I’m starting to realize that I shouldn’t really care so much. And, I owe that realization to my work in investment banking.
Instead of obsessing over your net worth, focus your attention on other things that might be more productive, which I will outline below.
And remember: It’s not about making money instantly. It’s more about making money sustainably.
Why net worth (might) not matter in financial freedom
Building my career in investment banking, I was fortunate enough to work closely with entrepreneurs, CEOs, and owners of family-owned business. These people all tracked their net worth, but a common theme among them was that they didn’t seem overly concerned.
They loved their businesses. I’d usually get staffed on the deal to help them finally sell their business. Given the nature of my firm, this was likely their first (and last) time selling a business.
A significant sum of their paper gains would get realized in one transaction.
Their net worth was embedded in their business from the inception of their business idea. These entrepreneurs were well aware of their net worth embedded in their business through tools like Personal Capital, Mint, etc.
But, their focus was dedicated toward creating a viable business.
Most of these businesses that I sold were not the next Facebook, Twitter or Instagram. These were straightforward businesses.
I helped one gentleman sell his copier equipment dealership for $70 million! The best part was they didn’t need to sell at all.
In fact, they could live perfectly fine by retiring and still owning the
entire company. Net worth (might) not matter at all in your pursuit of financial freedom with a consistent flow of income.
The creation of something can take you on a path of next-level financial freedom. Let’s get into what I mean by this…
Supplanting net worth for income
What if you didn’t need net worth?
There are ways that enable you to build a portfolio of income streams to live completely free. You should focus on creating something from scratch that will provide income for the foreseeable future.
Not just any income, but self-sustaining income.
I am talking about the type of income where you could turn off the lights and it will continue to run…With or without you. A well-oiled machine.
What options do you have to increase income?
I’m not talking about selling the next mediocre Kindle self-published eBook or renting your house out on Airbnb.
I’m all for making an additional buck or mailbox money, but what we need to achieve next-level financial freedom is income that can fully replace our current income forever.
There’s plenty of ways to do that without eating less food or house hacking your way to living on a couch of your own house.
The hard ways to increase your income:
- Work hard at your day job to get a raise every year.
- Get a better bank account…Yawn. Extra $30 per year! Yay!
- Put your capital to work overtime in yield-based assets…it's proven, but it takes a lot of waiting around.
- Trade your off-time for side hustle service income. Yeah, that is awesome. Only do it if you treat it like a business. Otherwise, you are just trading precious finite time for a few extra bucks.
The hard ways to increase your income that have a significant upside:
- Create a ‘side hustle’ that you treat like a business from day one.
- Create a brand and business from scratch. Something simple preferably that can start generating income right away. But, be realistic, too. For example, we don’t have the capital to front an exploratory venture to be the next Facebook or Twitter.
- Buy a business, fix it up and boost its earnings over time. That takes some capital, but if you do #1 and #2 maybe you can do this down the road.
How do we find that income?
Good question. I like the second grouping mentioned above. The hard ways to increase your income that have everlasting benefits with a residual sale value.
What if you could create net worth within a business? Remember other businesses and investors pay multiples for earnings on a business.
I don’t know an investor that will pay that on your personal cash flow. Maybe lenders?
Create something just like one of my previous clients. Something simple but proven. Something with cash flow from day one (okay maybe day 24 even).
How does that work? Let’s give an example.
Think of a content provider. There are very few startup costs required and a lot of market share for the taking. You’re not taking market share from other bloggers. You are taking market share from some of the biggest content providers in the world.
You can start making some money (not much) from day one through advertising. Over time, and through hard work, build that income through reinvestment of earnings to grow your presence AND earnings.
In time, you should move up your value chain and have others help you with your content. This will help you put your content creation on auto-pilot and thus, building your ‘net worth’ through your business.
But… content creation is a bit tougher and a longer-term story.
Let’s look at another example. You develop a side hustle offering web design services to a few clients.
After a few clients, you earn some decent income.
You reinvest it to create a website and brand about your web design services, which allows for you to land more clients. You earn more income!
However, you are so busy that you have trouble getting everything done.
Thus, you need to hire more people to help albeit at a lower rate of pay than that for your time. You use a freelance website to help find new staff to scale your work.
Yay! You can start taking on more work. You earn even more income!
From there, you have more time to focus on marketing and landing more clients. You create a few targeted paid ads to land more clients. This leads to a strong return on investment and you continue to scale.
Then, you hire more people to help with your work while you simply oversee it. This continues into a viciously positive cycle. You automate your business with limited oversight where you solely collect the income.
Your wealth is built inherently within your web design services business AND you earn income from it with some work involved.
Ultimately, you are ready to turn that inherent wealth built in the business to your own personal net worth. You can sell your business!
Typical multiples for online businesses is 20-40x your monthly profit. I could never get that type of value off from my personal income.
Why not formalize it a bit more by reinvesting a few dollars along the way?
With every willing buyer, there is a willing seller. If you have some dry powder in your account, you can take an alternative approach and buy a business that has limited ongoing requirements.
People buy real estate all the time for income and wealth building. Why can’t websites or service-based business serve the same purpose?
They can. It will take a little more work and there may be additional work. With the risk and work comes significant upside.
Build sweat equity not personal equity
Whatever the way you want to build a business or sustainable cash flow for financial freedom, start early. Work hard on it. Stay focused because it will have ups and downs, but it’s worth it.
The entrepreneurial journey to financial freedom is not for everyone.
Some people need to have a predictable job and predictable income. Building income (and eventually wealth) can be done by everyone in some manner, though.
If you can’t focus all of your time doing it, at least have some exposure to sweat equity by building an online business or even a traditional business.
No one’s job (working for someone else) is ever 100% guaranteed. Unless…
You OWN the business.
How about some more examples?
Nathan – Sweat Equity Enthusiast
- Nathan makes $50,000 in personal income, but he spends all of his time (weekends and nights) building a business online that will eventually earn $10,000 per month in profit.
- Nathan achieves $10,000 per month in profit after 3 years.
- After 3 years, Nathan can sell his business for around $300,000 or automate his business and collect $8,500 of monthly profit (I take an additional $1,500 out for additional hires for automation)
Jennifer – Net Worth and Personal Capital Addict
- Jennifer make $100,000 in personal income, but spends most of her time finding way to save money and spend less. She also saves a lot of money each month.
- Jennifer has to save for at least 10 years before she can even consider living solely off her saved assets into perpetuity.
What path will you decide?
A builder? A long-term, get rich slowly method? Or a mix of both?
I’m not saying one is significantly better than the other. However, one should consider a sweat equity route. If you do, it’s not about making money for doing nothing.
It’s hard work. It pays off.
Why net worth (might) not matter
Net worth is fantastic. It gives you the flexibility to live a lifestyle how you want to live. There are ways around it, though. We live in a world that is connected with a few clicks of a button.
You can create a business for very little startup costs and start earning income. In fact, there’s many around the financial freedom community focused on increasing their net worth through side hustles.
Take the leap and make it into a full-blown business.
Other companies and investors will pay multiples for cash flow of any given business. They will never pay a multiple for your personal income. The gratitude of creating your own business from scratch will take your net worth and wisdom to ‘next-level’ satisfaction.
I’ve seen people outright buy lifestyle businesses that produce strong, robust cash flow. They end up never working another day in their life. This has very similar parallels to real estate.
You can take the slow and safe route by using a calculator to determine your profitable investing. What are you going to do to build your income through sustainable cash flow?
Please let me know in the comments below. I’d love to hear from all of you.
About the Author: Millionaire Mob is where people come together to find the best travel deals and financial advice. We specialize in dividend growth investing, passive income and travel hacking. Our advice has helped thousands of people travel the world and achieve financial freedom. Millionaire Mob provides the best advice to help you learn and grow along the way. Follow us on Instagram, Twitter and/or Facebook for all the latest updates.