Abridged Business Philosophy

This is my take on business and wealth creation, an ‘abridged’ version of my business philosophy…

If you can live the lifestyle you want without having to work at all, then you are wealthy. Investments provide passive income, and as such can make their owners truly wealthy. So, one must manage income such that provisions are available to spend on investments that provide passive income.

Income can initially come from two places- a job or a business. If you have a job, then you need to allocate a significant portion of your monthly salary to buying investments. If you own a business, you need the business to churn out cash for you to invest. Of these options, I recommend starting a business: Your time is limited to 24 hours a day in a job, so your income is capped to whatever you can do in 24 hours. If you own a business, however, your time is unlimited, as you can employ others and start multiple businesses to work for you. The key is to recognize that your salary, or profit that your business generates, is not for you to spend! The money your job or business makes is the resource that can be used to generate wealth, and so needs to be allocated wisely.

Saving is the starting point. The minute you receive any income, take a fixed proportion of it and put it in a savings account. If you can only afford to save a small portion of your total income, that is fine, provided you only spend what is left after saving, rather than saving what is left after spending (as per Warren Buffet’s popular maxim). When plausible, make investments with your savings. Turn cash into return-generating assets such as property, stocks and bonds. Over time, you will build up a portfolio of investments that generate returns in the form of cashflows into your bank account. Because this is income, a portion should be set aside in a savings account and earmarked for investment, as above, which in turn builds your investment portfolio even further. The rest is your ‘disposable’ income, to be spent on living life.

It is only when the cashflows from your investment portfolio are large enough and frequent enough to finance your desired lifestyle that you can consider yourself truly wealthy. Of course, there are many more things to consider when following this philosophy on wealth creation, such as what investments to buy, what the most efficient way is to invest and how to build cash-generating businesses. Each of these topics is a discussion on its own, and I will touch on them in posts to come. The bottom line is that one needs to find a job or build a business that generates as much income as possible, then save more of this income than spend, and finally turn savings into cash-generating assets, commonly known as investments. The income generated from assets should also be allocated between both savings and spending, as this helps to grow passive income even faster.

My suggestion is to start by doing the following:

Educate yourself. Read books and papers, and do research. Learn the language of finance. Teach yourself how to start and build businesses to generate income. Discover the world of investing, and learn how to make good, cash-generating investments. Learn how to read financial statements, and do away with any fears you may have of money. Money can do good just as well as it can do harm, and understanding it is key to doing good with it.

Save. Use what you have learned to start a business, which should be treated to all extents and purposes as a cash-generating machine, or start saving a good proportion of your salary. Be sure to never touch your savings, as this is your window to investing and becoming wealthy.