Whether you are an investor, an entrepreneur, a professional, or a W2 employee looking into other sources of income, we are all in the business of earning money and finding ways to grow it. Many go into real estate investing to generate passive income while others invest in stocks, bonds, or mutual funds, all offering returns on money over the long term. We may not give it much thought, but the process of building wealth follows a certain framework that can guide us to be more purposeful in achieving our financial goals.
This framework for growing money or multiplying capital was the subject of my recent conversation with M.C. Laubscher, president and chief wealth and investment strategist of Producers Wealth and founder of Cashflow Ninja. In this blog, I am pleased to share some key strategies from M.C. Laubscher’s framework and offer you a fresh perspective on the business of multiplying capital. As an entrepreneur and investor, he has experienced firsthand the challenges that wealth creators face and thus, helps others to create, protect and multiply wealth. You can listen to the full podcast here.
What is “The Business of Multiplying Capital”?
“From two decades of studying and interviewing over 500 multi-millionaires, billionaires, successful investors, and business owners, I’ve put together a framework, a set of ideas, and a process of building wealth. I call this framework, ‘The Business of Multiplying Capital’,” shares M.C. From this wealth of information, M.C. identified common strategies used by successful wealth creators and came up with the four fundamental pillars of growing wealth. This offers an opportunity to think about our wealth-creating strategies and improve them.
“It’s ‘The Business of Multiplying Capital’ because, in the end, that’s essentially what we’re doing. Regardless if we’re business owners or real estate investors, we’re multiplying capital to get into the real estate game,” says M.C. while emphasizing that ‘capital’ also includes intellectual and social or relationship capital.
The Four Pillars of Multiplying Capital
M.C. explains that multiplying capital in the most basic sense means leveraging your abilities and resources to multiply what you already have. “The framework creates a solid foundation to build up from—if one pillar were out of place, or missing altogether, the structure would eventually crumble. Learn to apply the pillars and soon you’ll be multiplying capital like you never have before,” says M.C.
Pillar 1: Cash Creation
Cash creation is making money. An individual generates money by earning income in exchange for delivering value. There are many ways in which we deliver value and create cash. Employees are paid for the services they render. Some, like surgeons or lawyers, have high-income skill sets that enable them to create substantial income when their services are used. Others come up with products and creative ideas that they sell to those who find them valuable and they become business owners. This pillar refers to a person’s ability to produce and create value through products, services, or unique abilities. M.C. identifies two elements that help a person’s ability to produce value: intellectual capital and social capital.
“I like to think of income as proportionate to your ability to solve problems. The more people you serve and the more problems you solve, the more money you can make. When you can take those special traits and fill a gap in the marketplace, you have almost limitless potential,” asserts M.C., pointing out that constant upskilling is crucial in forming a cash creation strategy. He further advises asking these questions to start a path to building intellectual capital – what do you have to study, what do you have to read, what podcasts do you have to listen to, what skill sets do you need to develop, what courses do you need to take, and how can you learn certain things?
In addition to using intellectual capital, relationship or social capital plays a vital part in cash creation. Building relationships expands your network of social connections from which you may find a business partner, a mentor, or a coach – people that can complement your strengths, balance your weaknesses, and improve your overall capital. “Who are the folks that you need to be around? Who do you need to meet? Can you go and find them in meet-up groups? Are there events you can attend? Learning how to navigate the marketplace with your skills will serve you well,” advises M.C.
Pillar 2: Cash Capture
The second pillar is cash capture. It’s more than just having a savings account, because it entails figuring out sustainable strategies to manage your money and make it earn more. “You can leverage and collateralize your money in order to create assets. That’s where we’re ‘capturing’ the value that we’ve generated and positioning it efficiently,” says M.C. He further explains that efficient positioning of capital allows one’s money to serve different functions, such as investing in real estate, overfunded whole life insurance contracts or self-directed IRA’s.
“Positioning capital efficiently means protecting your money from all of the wealth destroyers – taxes, inflation, fees, and so forth – and then also, helping it escape the big opportunity cost,” says M.C., highlighting the advantage of placing money in sound investments rather than losing its value by doing nothing.
M.C. also recommends the strategy of collateralizing to combat opportunity cost by using one asset to purchase another. “For example, we park money in insurance contracts, then collateralize the cash value to invest in real estate. So, we have life insurance and real estate investment. We’ve used one asset (insurance contract) to purchase another one (real estate),” he explains. Citing another example of efficient capital positioning, he talks of business owners collateralizing their business receivables and assets to receive a loan from the bank and to buy buildings for business operations.
“Get creative. Maybe you have resources (certificates of deposit, cryptocurrency, etc.) already in your personal or business economy that if positioned correctly will give you more capital to invest in a cash-flowing asset such as real estate,” advises M.C.
Pillar 3: Cash Flow Creation
The third pillar is cash flow creation. The extra capital captured in pillar 2 starts to create opportunities to invest which, in turn, creates more opportunities to invest, and so on. “This pillar has quite a lot to do with the capture pillar because the investment vehicle you choose will largely aid in putting the “flow” in Cash Flow,” explains M.C.
Depending on personal interests, strengths, and risk appetite, there are plenty of asset classes and vehicles that you can invest in. At this stage, the relationship capital would also be relevant as social connections can put you in touch with people that could influence investing decisions. “You might know a great operator or you know folks that have a track record, someone who knows what he’s doing so you’ll choose to invest within the real estate space,” cites M.C., adding that doing due diligence and studying the pros and cons can help determine the best fit for your investing profile.
“Cashflow creation is a game-changer. As fresh cash starts flowing, it creates synergy. As long as you’re there to guide it, it will be self-sustaining. You’re no longer at a stage where you depend on your business to put food on the table, which gives you a sense of true freedom,” claims M.C.
Pillar 4: Cash Control
Cash control is the fourth pillar, the protection stage – albeit the most neglected part according to M.C. This means protecting what you produce in the cash creation stage, where you position the capital in the cash capture and the assets that you’ve invested in cash flow creation. “Once you have the wealth, you want to make sure that no matter what happens to you, your vision for your wealth stays intact. This includes insurance, estate planning, and tax strategies. This is the wall you put around what you’ve created, what you’ve captured, and what you’ve deployed to create cashflow,” explains M.C.
Estate planning is one effective strategy that will allow control of money even when the owner is not around anymore. M.C. suggests the following options: having a will in place to ensure assets are divided according to the owner’s interests, whole life insurance to protect your wealth and make sure that it goes to your beneficiaries (and not creditors), placing money into trusts for legacy planning, and insurance to protect your real estate and other assets.
Another important layer of protection is tax strategy. M.C. tags taxes as one of the biggest wealth destroyers, making it crucial to be educated about tax provisions that can legally and permanently reduce taxes and enjoy tax benefits that you can reinvest.
“Just think about the ability of taxes to destroy wealth. Think of the ability of lawsuits to destroy wealth. Without estate planning, think how much money is lost and destroyed just from transferring money from one generation to another. It is enormous if you look at some of the statistics,” cautions M.C., emphasizing the importance of wealth protection.
The path to financial freedom looks different for everyone but, guided by this framework, purposeful steps can lead to success. Let’s use this framework, along with our own unique strengths, to create actionable steps toward our goals.
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