2885: How to Create an Owner Mindset by Paula Pant of Afford Anything on Financial Advice

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[00:00:39] This is Optimal Finance Daily, How to Create an Owner Mindset by Paula Pant of AffordAnything.com

[00:00:48] and I'm your host and personal finance enthusiast, Diana Merriam.

[00:00:52] Now let's get right to today's post and start optimizing your life.

[00:01:01] How to Create an Owner Mindset by Paula Pant of AffordAnything.com

[00:01:08] When I started freelancing, I thought I'd reached the pinnacle of worker freedom.

[00:01:14] Every morning, I pour a cup of coffee, pull on a warm fuzzy pair of slippers,

[00:01:20] and plod into my home office. I watch commuters battle the busy streets while I wear pajamas at

[00:01:27] my desk. I thought this was the goal, but it's only the starting line. Sure, I work for myself,

[00:01:35] but I still trade my time for money. I write for magazines and websites. I don't own those

[00:01:42] magazines or websites. Freelancers enjoy freedom. People with traditional jobs enjoy security and

[00:01:49] benefits. Yet we share a common shortcoming. We aren't the owners. We have income, but no assets.

[00:01:58] At least not yet. This idea has been kicking around in my head for a few months,

[00:02:04] but it gelled this week after I read Cash Flow Quadrant by Robert Kiyosaki,

[00:02:10] the best-selling author of the Rich Dad Poor Dad series. It's an old school book. At several points,

[00:02:18] the author advises people to listen to cassette tapes. But if you can overlook the obvious 1990s

[00:02:25] references, the wisdom in this book is classic. Kiyosaki classifies people into four groups.

[00:02:33] Employees, the self-employed, business owners, and investors. Listen to a person's words, he says,

[00:02:41] and you'll have a window into which mindset they hold.

[00:02:45] The employee says, I'm looking for a job with good pay and excellent benefits.

[00:02:51] The self-employed says, my rate is $35 an hour, or I charge a 6% commission.

[00:03:00] The business owner says, I need to hire a president who will run my company.

[00:03:05] The investor says, my team will study the valuation of that company.

[00:03:11] Loads of people, myself included, operate in multiple roles. Most of my income comes from

[00:03:18] my self-employment, but I play the role of an investor as I foray into real estate.

[00:03:24] Your mindset matters more than the current source of your income.

[00:03:28] What kind of mentality do you have? An employee mindset or an entrepreneur mindset?

[00:03:34] That's why none of Kiyosaki's books contain how-to information. Instead,

[00:03:40] they're conceptual guides on the psychology of ownership, freedom, and wealth.

[00:03:46] What is wealth anyway? In this book, Kiyosaki defines wealth as the number of days you can

[00:03:53] survive without working and still maintain your standard of living. Wealth is measured in time,

[00:04:00] not dollars, he says. If your expenses are $2,000 per month and you have savings of $10,000,

[00:04:07] your wealth amounts to five months. Your goal, therefore, is to create a lifetime

[00:04:13] of self-sustaining wealth. Seven levels of investors.

[00:04:18] Since many people benefit from self-exploration, Kiyosaki outlines the seven levels of investors.

[00:04:26] Which one are you? Level 0, you have nothing to invest because you spend everything you earn.

[00:04:34] Level 1, you borrow money to afford your lifestyle. If you invest, you do it with

[00:04:40] borrowed money. Many outwardly rich people fall into this category.

[00:04:46] Level 2, you're a saver. You put money into safe vehicles like savings accounts,

[00:04:52] CDs, and money market accounts. You save for the sake of later consumption,

[00:04:58] such as saving for a vacation or a house rather than saving to invest.

[00:05:05] Level 3, you participate in the company 401k plan and you might even have a non-retirement mutual

[00:05:11] fund or two. But you also say things like, I don't have time to learn about investing,

[00:05:16] or I'll leave it to a professional. Some level 3 investors read the Wall Street Journal,

[00:05:24] buy a stock based on a hot tip and think that they're a player in the game.

[00:05:29] They name drop, my brother at Merrill Lynch says, so they can feel like a bigger player.

[00:05:35] But deep down, they're following the crowd. Level 4, you have a long-term plan or idea.

[00:05:43] You invest in tax advantaged ways and take advantage of dollar cost averaging.

[00:05:48] You have minimal debt and admire Warren Buffett. According to the Millionaire Next Door by Thomas

[00:05:55] Stanley and William Danko, most self-made millionaires are level 4 investors. They own

[00:06:01] a business, drive a used car and invest in tax advantaged ways for the longterm.

[00:06:07] Level 5, you have a solid financial foundation. So now you pursue bigger,

[00:06:13] more aggressive investments. You focus your investments in a few areas in which you're

[00:06:18] highly knowledgeable. Perhaps you own a shopping center or a 40 unit condo building.

[00:06:24] You have a formal or informal team of coaches, mentors and advisors that you use as a sounding

[00:06:32] board. And level 6, you're among the Kennedys, Rockefellers, Fords, Gettys and Perot's.

[00:06:41] You create the stocks that other investors buy. What does this mean? This leads to one conclusion.

[00:06:50] Self-employment is great, but not needing employment, self or otherwise, is the true goal.

[00:06:57] Freedom isn't being your own boss. It's the ability to fire any boss, including yourself.

[00:07:03] You can choose to work, but you're not forced to trade time for dollars. Work is optional.

[00:07:10] You create this through owning investments such as stocks, real estate or businesses.

[00:07:16] These investments should generate cash flow or passive income that you can live on.

[00:07:22] The asset or principle stays untouched. You live on the dividends and income.

[00:07:28] Challenge accepted. You just listened to the post titled,

[00:07:36] How to Create an Owner Mindset by Paula Pant of affordanything.com. And I'll be right back with

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[00:08:46] Dare I say that after reaching a certain amount of financial freedom,

[00:08:51] more of us can move past traditional W-2 employment? I'm not talking about the kind of

[00:08:57] self-employment or entrepreneurship where you trade 40 hours of working for someone else so

[00:09:03] you can spend 80 hours working for yourself. I'm talking about getting to the financial position

[00:09:09] where your decisions around what you work on, how much you work and who you work with are not driven

[00:09:17] by financial need. Even if you reach financial independence and have no need at all for an income,

[00:09:24] there are plenty of reasons to start a hobby business. First of all, the tax code favors

[00:09:30] business owners. So from the perspective of tax optimization, there is some financial efficiency here.

[00:09:38] But also being productive and using our time in a meaningful way is important for our mental health.

[00:09:45] I believe it's possible to right size the role work and productivity plays in our lives by simply

[00:09:52] working less. And you can control this much more when you're self-employed or start your own business.

[00:10:00] Here's an analogy that might be helpful. We can all agree that three meals a day is an

[00:10:06] appropriate amount of food. But what if the social norm switched to six meals a day,

[00:10:13] supplied by a corporation with an overlord standing over you making sure you eat it all?

[00:10:20] Some might push back on this in a way that says, fine, I won't eat at all then. This is the

[00:10:27] equivalent of retiring early and never participating in any activity that looks like work.

[00:10:33] Or we could simply excuse ourselves from the overlord and happily eat three meals per day

[00:10:39] that we prepare ourselves. And that should do it for another edition of Optimal Finance Daily.

[00:10:45] I'll be back tomorrow as usual. So I'll see you there for the Wednesday show,

[00:10:50] where your optimal life awaits.