Derick Van Ness
My pleasure, Kirk. Really appreciate you guys having me here and I'm excited, right? I'm really passionate about helping people to turn your income into real long-lasting wealth. I think too many people struggle with that. And we're going to be talking about the wealth gap today. And the wealth gap is really the difference between where you are now and where you want to end up. And I'm going to be honest with you guys. We're going to get real about what it looks like to cross that gap. It's not that hard. And I'm going to, if I'm straight with you, we're probably going to scare you a little bit in the beginning.
And then we're going to show you the way through this thing because it's not that difficult, especially if you are a high-income earner like most of you here. So we're going to, we're going to jump right into it. Before I get too far into this, I want to say I am a part owner in a CPA firm. I'm not a CPA. I am also a partner in a registered investment advisory, but I am not your investment advisor. I don't know your situation. So please don't take this as tax or financial advice. Talk to a professional because everybody's situation is a little bit different. But my hope is that I'm going to open your eyes to what's possible.
And I'm going to show you how to accomplish the things that you really want in life. But I'm not your CPA. I'm not your financial professional. So please work with someone who knows your situation. So let's talk about you. As I'm talking through this, sometimes I'll reference high-income earners. Sometimes I'll talk about business owner. As a high-income earner, I know a lot of you are W-2 earners, medical professionals, as well as business owners. When I talk about business, we're talking about you and your wealth and how you earn. So it's going to be a little different for everybody, but the concept is the same. We really want to turn business income, personal income, into lasting wealth.
And that's going to be the main conversation today. So if I say business owner, if I say high-income earner, those are synonymous for today's conversation. Okay? So how many of you have ever had this happen? You've had your best year ever, and you still felt broke. Anybody ever have that experience? I do this for a living and I know, right? So, and that's why I'm passionate about this because it is, having worked with over 2,500 business owners and professionals, it is a common theme. And that's not something new. There is a way to solve this, but we have to be honest with ourselves that this happens to almost everybody.
So I want to tell you a quick story. How many of you recognize this guy? At one point, he was more well-known than Michael Jordan in the eighties. If you can imagine that, had his own video game, the whole thing, right? This is Mike Tyson. And Mike Tyson earned over $300 million in the ring. What's crazy is if you take his Toyota promotions, his Pepsi promotions, his Nintendo promotions, and all the other stuff, he actually earned over $650 million during the prime of his career. And his final fight as a professional was in 2002. Just one year later, in 2003, he filed for bankruptcy. So what does that tell us?
Earning money isn't enough, right? I see this same thing happen to high income earners and business owners every single week. They make a ton of money and it all disappears. I don't want that to happen to you. And that's going to be the main topic today, right? Now, before I get into this little about me, I am a tax and wealth strategist. I work with CPAs all the time. We have a firm. I work with investment advisors all the time. We have a firm. I work with all kinds of professionals. But I have helped people save over $50 million in taxes and turn that into wealth.
I worked with thousands of business owners. And I want to tell you why I'm passionate about this. I had a client probably eight years ago. And he was the perfect example of why I do what I do. He's a dentist, very successful in California, making a bunch of money. And when we started working together, he's like, hey, Derick, I'm making all this money. But like, where's it all going? I got to figure this out. So we started working together. One of the things amongst many, we teach people how to do build their own banking system. And he was applying for a life insurance policy. His medicals came back.
For some reason, he got declined. He was very surprised by this. Come to find out the reason he got declined is he has cancer. Here was the problem. When I called him back and found out that's what was going on, because obviously HIPAA, they didn't call me and tell me that, but he did. His conversation with me was not about the legacy he was going to leave for his family, not how they were going to do. It was about how he had to file bankruptcy, had to take all the debt, had to divorce his wife so that she wouldn't be stuck with all the debt because he couldn't sell his practice for what he owed for it.
That hit me so hard that here's a successful, hardworking person. You guys know how much schooling goes into that. Been in business for 10 years. Something catastrophic happens to his family. And in spite of all of his efforts, his conversations weren't about how do I spend time with my family and my kids and all of that. They were how do I not stick my family with debt? What a terrible way, in my opinion, to have to spend your last days. Right. And I don't say this to bring you down. I want you guys to understand what's at stake here. This is your life and the decisions you make have real impact.
I know you realize that in your work because you help save lives every single day. But your financial wherewithal has a huge impact on how you get to live your life. So I want you guys to understand. I'm so passionate about this because I don't want those kinds of things to happen to you. I want you to be in a position to live the life that you love, to leave a legacy with your family and to really spend time doing things that matter to you with your life. So what you're going to learn today is we're going to talk about the wealth gap between where you are now and where you want to go.
And we're going to get really granular. You're going to know this down to the dollar. If you haven't downloaded the worksheet already, there's a in the chat, there's a link you can download. It's just a one page worksheet, but we are going to get really dialed in on that. Exactly. We're going to talk about how to turn business income into personal wealth. And we're going to do it creating systems. And the reason systems are important is they work on a regular basis. They're not inconsistent. And a lot of us struggle with inconsistency. And the last thing is we're going to talk about what nobody tells you about building wealth as a high income earner.
And you're going to walk away with a much clearer picture. I'd love to tell you that you're going to know everything about everything. You aren't, but you will know so much more than the average high income earner. By the time we're done today, it's going to blow your mind. So I'm excited to be a part of that. Okay, so here's the truth that nobody tells you when you're earning a lot. Your wealth is not determined by how much you earn. I know a lot of us think I have this high income. That's great for me. But the reality is it's more about the financial systems you build around what you earn.
What you earn. So it's not just what you make. It's what you keep and what you do with it that actually matters long term. Otherwise, you end up like Mike Tyson. Right? So we're going to take a step back before we get into the numbers. And I want to be I want you to be honest with yourself. We need to figure out what do you actually want from your life? Now, I know this might sound a little woo and a little bit big, but here's the thing. If you don't know where you want to go, how can you get there? And I think a lot of us get stuck in the.
Oh, if I made X amount of dollars a year, I'm going to be fine. But we need to understand why does that money either matter even matter? Right. And so the way that we reverse engineer anything is X plus Y inputs. Give us a specific output. And whether you realize it or not, the Z that you're getting right now is the sum combined total of everything that you do with your life. Your life is perfectly optimized to get the outcomes that you're getting right now. And if you don't like the outcomes you're getting, you got to change the inputs. But the way we really want to do it is not think about the inputs first.
We want to think about what's the output. What's the outcome that you want to get so that we can actually change the X and Y to get the Z. Right. So I'm going to have you actually, if you don't have a pen and paper, grab one real quick or pull up a notepad on your screen. Or pull up a notepad on your computer or whatever. We're not going to write something crazy, but you a couple of things here. We want to write down what you really want. Right. And so I'm going to give you a statement that you can use as fill in the blank.
When I ask people, what do you really want? Like their brain explodes. It's a little bit too big of a question. But I want to, we're going to dial this in a little bit on the financial side is I want X income. By Y date. And what conditions you want to be earning that. Maybe I don't work my job at all. Maybe it's all passive income. Maybe I'm working a certain amount of hours. Maybe I'm work Monday, Wednesday, Friday. How do, what are the conditions you want in a perfect world? Cause let's be honest, most of us are hardworking people and we don't want to just sit around on the couch and watch Netflix all day.
We want to be productive. We want to contribute to the world, but what kind of income would be your ideal income? And here's what I want you to think about. If you had that income, why is that your number? Did you get this from some study group you're in with a bunch of other doctors or providers or surgeons or whatever you are? Or is this your number? Because you know that when I get to X amount of money, my life changes. I can now do things or be a part of things that I couldn't before. Right? So let me give you an example. I want $600,000 a year of income by September of 2028.
So basically two years from now. And I want to be working less than 15 hours a week. Now, please don't steal my answers. This isn't a test. I want you to do what's right for you. And I want you, here's, here's the litmus test of if you got this in a way that's true to you. I want you to be able to tell me why. What happens if 600,000 working 15 hours a week was your number? What does that allow you to do? Does that allow you to go to your kids baseball or dance recitals? Does that allow you to spend more time with your spouse?
Does that allow you to work with charity or your church or something that's important to you? Why do you pick that number? What is the reason? And, and this is important because if it's just numbers on paper, when things are hard, you won't persevere. There needs to be meaning behind it. And I know, honestly, medical professionals get this because you guys went into that profession. It can pay well, but you have to be passionate about it. It's hard. It's a ton of work, right? It takes its toll. If you got into that with a why, I want to know your why now of almost all of you, if not all of you are in these in this group because you want to invest in passive income, right?
You're trying to create income outside of your work. Why? What do you want that for? And I want you to be able to think about that. I want to say that because everything we're about to do is to help you get to this, to this why, right? I'll be honest with you guys. I live in Salt Lake City. I love Salt Lake. I have a 5,000 square foot house here. I can see the mountains and it's beautiful. And I really want a second home in San Diego because my wife's family there is there and it's her favorite place in the world. And I want a sailboat.
I love to sail. I love to race sailboats. I'm all into it. I have figured out that my number is $1.2 million a year. When I make that much money, I can keep both houses comfortably. I can have a sailboat and all the crazy expenses that come with maintaining a huge boat. And I can travel and do the things that I want to do. I know that for me, $1.2 million a year working less than 15 hours a week is my number. And that's why. Because at that point I can sail. I can travel. I have a home where I want to be, whether that's where my family is or where her family is.
And we can really have the freedom that we want. And my wife doesn't have to work at that number. So what's your number? What's your why? Please write it down. Okay. I'm going to assume, because I can't see you all, that you're doing that. And if you have questions, please let me know. But the key to this is people who have a clear vision are exponentially more successful at achieving that outcome. Right? If you don't know where you are and where you need to go, how are you going to know if you need to turn left or right? Like I sometimes joke and say, it's like when you're at the mall and you go to the kiosk and you're trying to find Bloomingdale's or whatever.
And what's on there, you can push the button and it shows you, oh, here's Bloomingdale's up in this corner of the mall. But what's the other thing it shows you? Where I am right now. You have to know where you are and where you want to go to know when I come to an intersection or a choice in my life, do I turn left or do I turn right? If you have a clear understanding of your destination, the decisions are pretty easy. And if you don't, they're really hard. Right? And so that's why I wanted you to get clear about this or at least clearer than you were, because it's going to help you make better decisions.
So, and if you don't have a plan or a system, you're just running your personal finances by accident. Like I said, I love boats. It's kind of like getting in a boat saying, hey, I want to go on a trip and you start the motor and you just don't steer the boat because you don't know where you want to go. Well, what happens in that case? The boat just kind of stumbles around and maybe doesn't even make it out of the bay and you never get to where you want to go. So, a lot of people on this call might actually be in the place where you had a super clear vision to become a doctor, a surgeon, a nurse, whatever you are.
And then once you got that job, you got unclear about what you want. And then now you're just kind of trying to figure it out. This is your chance to get really clear so you can make decisions that will take you where you want to go. So, honest question for you. And this is why this is important because if you don't get it figured out, you might be in the first category here, which is how many of you want to rely on your kids for income when you retire? Please raise your hands. I hope nobody's raising their hand. I joke about this, but a lot of people end up there.
Right? Versus how many of you would rather that you were leaving something for your kids versus the other way around. Right? Most doctors I talk to, most professionals I talk to who earn a lot, they really want to leave something behind. But you got to do this right in order to do that. So, that's what's on the line here. And you're going to model this behavior for your kids whether you realize it or not. So, first thing, I want you to rank yourself in three different categories. How good are you at making money on a scale of one to ten? My guess is most of you on the call, you're pretty good at that.
Right? Second category, how good are you at keeping money on a scale of one to ten? Right? So, this is tax strategy. This is not wasting money, financial organization, those kinds of things. Third thing is, how good are you at growing and protecting your assets? We were talking before we got on the call. And there are some investments out there in the world that are on life support right now. They're really struggling. Right? It's not just about growing your assets but protecting what you build. That's a big part of the conversation. And if you don't you can get wiped out. I got my butt kicked in 08.
I was a house flipper. I had done a couple hundred houses in Los Angeles. And when the 08 crisis came along, I managed to get hit by a snowmobile while snowboarding. So, I was laying in the hospital but the market crashed. And I lost two and a half million dollars in my early 30s. And it was because I didn't know how to protect it. So, how good are you at growing and protecting your assets? Right? And then ask yourself, how do you like your answers? Most people are not going to be a 10 in all three. So, we're going to talk about how to address that today.
Right? Okay. So, now that you know what you want, let's figure out the wealth gap. What is it going to take you to get there? Okay? So, if you haven't already, please go to this thing. There shouldn't be an opt-in or anything. It's just a PDF you're going to download. It's biglifefinancial.com forward slash your dash number. Okay? I'm going to give you guys just a sec. But you're going to download this worksheet. We're going to fill it out together. And it's going to help you know exactly what you need to get where you want to go for retirement. Okay? So, I'm going to give you guys about 10 or 15 seconds to do that.
If anybody gets stuck, I'm sure someone can help you. But it should be pretty straightforward. It should just take you right into a PDF. I would say download the PDF. And then you can open it up. That way, if you fill it out, you can save it. Otherwise, you'll be able to save or fill it out online. But then you may not be able to save it. And I'd like for you to have this number figured out. Okay? So, when we do this might be the scary part for a lot of people when we make these numbers real. Okay? But it's important. You've got to deal in reality.
Okay. First thing here. If you don't know these numbers to the penny, it's okay. Do your best guess. We're going to do some rough math here, even if it's not perfect. So, fill these first three things in. The first one is, what is your net worth? But do not include your home. You need a place to live in retirement and everything anyway. So, I don't want you to think of that as like an asset that way. It's just going to be a place to live. So, what do you have in cash? Retirement accounts, investments, real estate. And then subtract out any loans or credit cards if you had to pay those off.
Not your home loan, once again. But I want you to figure out your approximate net worth. And that's not including if you are a business owner, your business. So, let's say it's $500,000. Okay? That you've got out there in investable assets. Then we want to look at if you are a business owner, what's your business worth? And if you don't know what your business is worth, do that. Take this number. What was your income last year from your business? And multiply that by three. So, if it was $500,000, it would be, let's call it a million five. We'll get into why I'm coming up with that number.
But that's an easy formula. How much did you make last year? Multiply it times three. Okay? Because someone, if you do it right, will probably pay you that for it. So, let's say in this case, it was $850,000. Add those two together. Your total, where you're at right now number, is you've got a million three fifty in assets. Okay? Net worth, business worth. This is how much money, if you sold your business, sold out of everything, this is how much cash you would have to create income. Make sense? Anybody need any more time? I think that's pretty straightforward, right? And once again, if you don't know the exact numbers, it's okay.
So, a million three fifty is where you are now. Now, let's talk about what you want in the future. Right? So, I want you to think about when you get to retirement. Or, or when you want to stop working. What do you want your ideal lifestyle to be like? And we're going to figure it out in today's income. Because listen, inflation is a thing. We're going to factor for that in just a minute. But if you're, if you're not, if you're confused by all that, just think about how much money if I retired today, would I need to live the life that I want to live?
So, I'm not saying bare bones. And I'm also not saying travel the world all day, every day, unless that really is in your heart. But come up with a number that you say, if I had an X after taxes to spend, this is how many dollars I want. I'm going to go to the inflation part in just a minute. Okay? So, let's say for you that's $350,000. I want, after taxes, $350,000 that I can spend and live on. Okay? Pretty straightforward. Now, what you're going to do is, if you're getting investment income, you're going to probably be somewhere in the 25% tax rate. To get, to account for the taxes, we're going to take this number, $350,000.
You got to pull out your calculator. Most of you have it on your phone or your computer. And we're going to multiply it by 1.33. Right? So, $350,000 times 1.33 gives me $465,000. So, I need to make $465,000 to, after taxes, keep and be able to spend $350,000. I hope that all makes sense. Right? And then we're going to do a quick multiple here. We're going to take $465,000. And depending on how far you are from retirement. So, if you're five years from retirement, we're factoring in 3.5% inflation here. Right? If you're five years from retirement, multiply this number times 1.18. If you're 10 years, 1.41.
15 years, 1.67. You guys are smart people. You can do the rest. Right? But we're going to do, what would 15 years look like? So, we're going to multiply 465. So, that's like, I'm 52 right now. So, if I was going to retire in 15 years at 67, I would use this 1.67 number. And that's going to give me $777,000 in future money that I need to earn each year to have the same spending power as I have for $350,000 today after taxes. Does that all make sense? Now, this is the part where it gets a little scary, right? Because you're like, holy cow, $777,000.
That's a lot of money. Remember, this is in future dollars. So, those dollars are worth less. But, it's still, it's a little bit of an understanding of like, this is what happens over time. Dollars are worth less. We have to account for that as part of the equation. Anybody got any major questions or are we doing okay? Okay. All right. Cool. Thank you for the thumbs up. Okay. Now, this is where we have to get into something really important called distribution rate. Nobody ever talks about this. They all talk about how to grow your money. They don't talk about how to turn it into income.
So, if you have, and this is something I have to talk to you about. If you have money in the stock market and that's your primary vehicle you've been using. Now, I realize most of you who are here are diversifying outside of that, right? You're looking at real estate. You're looking at other things. But, if you have all your money in the market, the statistics say that you can only withdraw. So, these are withdrawal rates. If you withdraw in the market 3% per year, you've got about a 95% chance that over 35 years, you're not going to run out of money. If you take 4% from a stock market portfolio every year, you can see your chances of success go down to about 75%.
So, three out of four times, you make it 35 years and you're okay. If you take 5%, you can see you're below 50%. And 6%, 7%, 8% pretty much assures you're going to run out of money, right? So, why do I bring this up? Because how much money you can take out of an investment is really important once you get to retirement. Most people talk about growing your money, but they don't talk about how much money can you take from an investment and turn it into income each year to live on. Because, listen, if I have a billion-dollar piece of land, but I can't sell it to anybody and I can't rent it out or get any income out of it, what good does it do me in retirement?
My net worth says I got a billion dollars, but I have no income. I could starve to death with that, right? So, it's really about income and retirement. And so, when we're doing these numbers I'm about to show you, like if we go here with the stock market, if I'm here, people pretty readily agree you can pull 3% to 4% out sustainably. So, let's say you can take 4% out of your stock market portfolio. That means we want to take this 777,000 number we had times 25 and that will give us how much income we need if you're taking 4% out of your stock market portfolio.
This is where people get scared. They're like, holy smokes, $19 million. Like, that crap is insane, right? But, I want you to see, like once again, this is future dollars. In today's dollars, this is probably $10 or $12 million. But, the point I really want to make here, and this plays into why you're in this group, if you have all your money in one asset class, you're probably going to get a lower distribution rate. In other words, because of the volatility, the ups and downs of something like the market, if that's where all your money is, you have to be really conservative. You can't turn it into nearly as much income.
So, let's look at what if you did a little bit more strategy, you got a little more diversified, you did a little better job, and you could pull 6% out of your investments. Now, we want to take 777, and we're going to multiply it times 17, right? So, if you can pull 6% out of your investments, you only need 13 million. I say only, right? Only 13 million to turn that into the income that you need. Once again, future dollars, right? But, in today's dollars, that's probably still worth $7 million, $8 million, right? So, still pretty substantial. But, you can see it's a huge difference if you can turn your money into more income safely.
And then, if you did a little better job, and you could pull 8% instead of 6%, multiply your 777 number, whatever that is for you, multiply that by 12.5%. And that's what's going to get us that number. So, in this case, $9.7 million. And in today's dollars, that's probably closer to $5 million, $4.5 million, right? Much more doable. But, still a good chunk. But, do you see why this is so important to understand? How the rate or the amount of income you can take out of your nest egg really matters. And the way that it's structured is what's going to allow you to do that, right?
And we'll talk in just a minute about how you solve that problem. What puts you closer to the 8% or maybe even 10% side versus the 4% side? Big difference. It's not how much money you have. It's how much income it creates. Right? So, in this case, your independence number is going to be between your low and your high, right? And you're going to fill that in. But, remember, like I said, this $9.7 million, this is an inflation calculator I used. In 15 years, it's the equivalent of $5.8 million in today's dollars. Okay? So, I want to make sure that these numbers don't give you a heart attack.
But, also, I want you to understand what you're shooting for in the future. Okay. So, you got your low, which is $9.7 million. Your high, $19 million. Now, you've got a range of what you need for the high end and the low end, depending on how you set your stuff up here. Okay? Okay. So, now, if you take where you were, this $1.3 million, and you subtract it from your high end, you end up with, in this case, $18 million. Right? So, take what your original, how much net worth you had, and subtract that out of what you need. That'll give you the difference. That's how much ground you need to cover.
And then, of course, the low end here. If we take this $9.7 million, take out the $1.3 million, we end up with $8 million. Am I going too fast for you guys, or is this okay? We're doing okay? All right. I know you guys are smart, but I don't know how many of you are math smart versus people smart. So, okay. All right. So, now you have a number, and now your heart's probably beating a little faster. Now that I've scared you, are you ready for some good news? How are we going to get there? Right? And that's what you guys are here for. The wealth gap is actually smaller than you think, partially because of inflation.
But a lot of it is because people don't understand opportunity cost. So, what's opportunity cost? If you haven't heard this term before, opportunity cost is, if I spend a dollar, what could I have done with that dollar that would have been better? So, if I go and spend a dollar, and now I have no dollars, what could I have done with that dollar? What would it turn into if I invested that dollar? Right? What would that be worth in five, 10, 15, 30 years from now? And people don't always think about money in that regard. Right? But you guys are investors, so I'm assuming you're leaning that direction.
But when you have time on your side, you do have opportunity cost. And something that I have run the math on is, if you take a dollar and you just invest a dollar every single year for the next 30 years, $1 a year, at 7%, it'll turn into $100. Right? So, if we do that, even just $50,000 a year, if you saved, and I'm going to show you exactly how to do all this, just so you know. If you saved $50,000 a year, every year for the next 30 years, you'd end up with that real close to that $5 million of that money. Right? Now, most of you make a lot of money, and I think you're going to be able to save a lot more than this.
But even this, you can see that you put in $1.5 million here. But the interest, the opportunity cost, the compounding of that, even at just 7%, is $3.5 million of the $5 million. But you can see, if I can figure out how do I earn, keep, or more effectively grow $50,000 a year, I can get there, or I can get $5 million just out of that one piece. Right? And for a lot of you, that's only 10% of your income. So, that's not a huge deal. That's not a huge deal. And I'm going to show you how to do it without having to give up lattes or whatever else they tell you to do on TikTok.
Okay? So, all right. So, what's the solution to this? First one is, effort is not enough. Just working harder isn't going to get you there. Right? I'm going to talk about why. But it's not about working harder. So, you can take that off your shoulders. Because if you thought I was going to tell you need to work nights and Saturdays, that's not the case. Right? But nothing great is ever done by accident. Building wealth is a mountain to climb. There are just no two ways around it. If you make a lot of money right now, you want to have a lot of money in retirement, which means you've got to climb that mountain.
Right? You've got a bigger mountain than a guy who makes $35,000 and is just trying to replace that kind of income. But proportionally, it's the same. And it just takes time. So, we're going to get into that. Right? But you can't just have the goal. You need to have a system. And here's what I mean. If we look at any sport, there's a biker on the screen right now. But if we look at football, right? Football is big in America. Every single team at the beginning of the season, what's their goal? We want to win a championship. 32 teams have the same goal, but only one team wins the championship.
So, is it really about the goal? Is that why that one team won it? Because they had a different goal than everyone else? It's not. It's not about the goal. It's about the system. So, the teams that win the NFL championship, or in this case, the Tour de France or anything else, it's about the system. How do they train? How do they work out? How do they eat? How do they sleep? What's their mindset? They've got systems for every one of these, right? We've all seen the Nike videos or sports commercials where the people are doing weird workouts and exercises and training and all these different things.
And some of you on here probably even help people do that stuff. The truth is, it's a system. And that's what makes each team better than the others is their systems, not because they have a goal. Does that make sense, the difference of what I'm saying? Just because you say you want to do something won't get you there. It is having a plan that is consistently executed. And a system does that because people just aren't consistent without a system. So, any of you that are on here that are incredibly fit have an eating system. You have a sleeping system. You have an exercise system. Whether you realize that or not, those of you who don't have a system you're probably got a dad bod or struggling a little bit, right?
Even though you know all about the science, if you don't have a system, you're not going to execute, right? And that's what we want to do is come up with a system that makes this whole thing easy. Okay. Now, this is the thing I see with high income earners. You guys think that you just need to make more money. I'm going to tell you why that's wrong. Right? Because I talk to people and I'm like, well, how are you going to get there? And they're like, I'll just make more money. Here's the problem. You're already making as much money as you know how to make, or you'd be making more.
You actually have what's called a leaky bucket problem. See, if we take this bucket and this bucket is your wealth, all the money that you make and all the money you have made and invested, most of you have a ton of holes. And as you're putting money into the bucket, it's falling out the bottom over and over and over again. And here's the problem. No amount of money or in this case, water will fix the holes. So putting more, like if you have a bucket with holes in it doesn't matter how much water you put in. If you just give it a little time, it all goes, it all falls out.
Right? So you have to do something different than just putting money into the bucket. That's where the systems come in is they fix the holes because that's the biggest problem I see, especially with medical people. You make enough money that you can do a ton of things wrong and still live the life you want to live. But the second you stop earning, all that dries up and it gets real, really fast. I have a ton of clients who are in their 60s. They're like, I make all this money, but where did it all go? And I've realized the second I stop and my 500,000, 700,000 million dollar a year income goes away, I'm in big trouble because they have a leaky bucket.
Right? So that's what we're here to fix today. We don't want to make a bigger treadmill for you. We want to find a way off of it. Right? Not work harder. How do we start moving instead of just running in place? And this is the, we call this a financial operating system. Right? And really it's just your business or your career is successful. Right? If you work for a hospital or if you have your own business, you've got ways that you do everything that you do. It's all documented. It's all regimented. That's why it works. There's a plan. You know exactly what to do, when to do it, how to do it.
But in your personal wealth, most of you don't. You know what most of your plan is? You guys tell me if I'm wrong here. You talk to your CPA in December or maybe April and they tell you how much you owe on taxes. I mean, that's a tax system. It's just a really bad one. Right? Your investing system is, well, we try and save money when we can. And at the end of the month, if there's money left over, we set it aside, which there almost never is because there's no plan. And then you wonder why you can't ever get together the money to invest.
Right? You don't have a system. So we're going to talk about how to do that. So there are actually five pillars to what we're going to talk about today, the financial operating system. The first one is for high income earners, probably the most important in my mind, tax strategy. You guys, depending on the state you live in, probably pay between 37 and 51% of every dollar that you make, which I have another client out in California. He has three clinics. He made a million to he paid over $600,000 in taxes. Is that crazy? Like after all the work, all the headache, all the risk, all the employees, all the patients, he got to keep half.
That is not a good tax system. Just so you know. Right? But ask yourself, how much time did you spend keeping money last month? I know you spent a lot of time making it. Did you spend any time keeping the money that you make? Most people I talked to, the answer is very little or no, I didn't spend any time at all. Right? And so that's a wake up call. If you didn't spend even, you have to spend tons of time on this. I think an hour a month can massively move the needle with tax planning. But if you haven't, if you weren't looking at that, especially this time of year, that's going to be a problem.
Right? So let me show you. Exactly what this looks like. This is a tax calendar. Right? We have January over here, February, March, April, May, June, July, and then back to December. How most people tax plan is this. They finish eating turkey on Thanksgiving and they go, my gosh, I'm going to be ahead of the game this year. I'm going to tax plan in December. They think that's being early. Right? Here's the problem. That does not compute. It's not good enough for people at your level. If you made 50,000 bucks a year. Okay. Maybe. You don't have that much of a tax problem for people who are on this call.
This is not good enough. Because most of the time you think, well, go, I'm going to set up a thing. And you meet with your tax guy, December 15th. And then he's going on vacation on the 18th for the rest of the year. Because he wants to spend time with his family. That's not enough time for people at your level. I'll tell you what's worse than that. People who tax plan in March. Right? They think, oh, well, I mean, I can fund my IRA or I can fund my SEP after the first of the year. And that's my tax plan. I mean, it's better than nothing.
But it's not very good. Right? So let's talk about what is a real good, what does a real tax planning look like for you guys? And this obviously goes much deeper. But in an hour, I can't break down the whole world for you guys. But I want you to get a good picture of it. So January, February, you're actually doing what's called forecasting. Most people don't really know what forecasting is. But it's looking into the future and saying, well, how much am I going to earn this year? If I do, how much do I need for taxes? How much do I want to save or invest?
And actually having a plan so that as you get paid, that money gets set aside. And you are putting money where it needs to go. Now, if you're a W-2, a lot of this money is getting set aside for you and paid with your payroll. If you're a business owner, you're only paying taxes on your W-2. So you have to save for the rest of your taxes. Now, there could be some planning here if you get sophisticated to where you're like, you know what? We're going to take extra deductions and I'm going to keep more of my own money instead of it all going out on my W-2.
And we're going to put that money to work later and pay less taxes. But you've got to have a plan. Then we want to do a check in halfway through the year, maybe June, July. Am I on track? Am I making the money I want to make? Are things going the way that I want to go? And if they're not, we can adjust. Oh, I'm making more than I thought. I need to be saving more or make a different plan. If I'm making less than I thought or I changed jobs or whatever, then that would be a factor. And I would say this is the least important piece of the whole thing.
But the most important is right now. Late August, September, early October. In my mind, this is deep tax planning season. And here's why. You're nine months through the year. You have a really good idea of how much money you're going to end up with by the time you get over here to December 31st. Right. But you also still have about three months to execute, which is enough time to actually get something done. And a lot of the things that you can do both as a W-2 and as a business owner, they take a little bit of time. And they're going to be some different kinds of things.
And I'll mention a few of those in a second here. But you actually have three months to do it. And so right now, if you haven't done this, you should be, in my opinion, meeting with your tax pro. And you should say, hey, based on how much money I've made so far, where am I going to be by the end of the year? How much have I paid in taxes? And how much am I going to be on the hook for? Or how do I reduce my taxes? If you haven't had that conversation this quarter, I would say you're missing an opportunity. Right. And then the last quarter of the year is just really taking this tax plan and executing it.
Right. And sometimes you've got to do a couple of layers. Okay, we're going to do this move. It's going to save me a bunch of money that puts me in this spot. Let's do this move, too. And you can do a bunch of different things. Right. So this is what real tax planning looks like. Can you see how this would probably get a better result than just trying to do it after Thanksgiving? Right. Okay. So here's the problem for most of you. If you're relying on your tax pro or your CPA, this isn't how they operate. They're probably a tax recorder, not a strategist. They're looking in the rear view mirror.
But to actually do well with taxes, you have to look through the windshield where you're driving, where you're going. Right. You can control that at your income. Generally, one person probably isn't enough. You probably want to have a strategist and a CPA or depending on if you run businesses and stuff, maybe even a tax attorney. We do research and development credits for a lot of business owners, which is a huge opportunity. Maybe a specialty firm that does that cost segregation. You guys know all about that, right? Having a cost segregation specialist or a real estate specialist who understands how to do 1031s. They understand cost segregation.
They understand accelerated depreciation strategies like bonus depreciation. All of that stuff matters. And so a lot of times it's not just one person. If you're just relying on a tax pro or your tax filer, you could be missing the boat. And honestly, there's a ton of tax advantaged investments out there that you can put money into besides real estate that will create big tax breaks for you. And you probably need an investment advisor who understands how those things work. Right. And here's the biggest myth. Myth. Most people think their CPA is a tax is trying to save you taxes. CPAs are not trained to do that.
First off, CPAs are generally CFOs for companies and auditors. A CPA certification isn't actually a tax designation. These are a lot of times really smart financial people, but not necessarily tax experts. And they're focused on compliance. In other words, they want to do your taxes accurately and they want to do them on time. They are not focused on saving you money. I'm sorry if I shattered your belief that that's what they sat at home and did. That's not what they're doing. I'm telling you, there's a reason they're not calling you saying, hey, we should be doing tax planning. In their mind, their job is to file accurately and on time.
And it is. You don't want your taxes late and you don't want to wrong. But the level that you need at your income level is someone who's proactive. And most of these guys simply are not trained to be that way. It's not their fault. It's just not how they're wired. It's not how they're wired. It's not how they're educated. Okay. So you need someone who's focused on saving you money, not compliance. Okay. So what's the difference if you have someone on your team? If you have a team and people who are doing this, they'll be showing you things like tax smart investments. Like real estate can totally fall into that category.
It's got huge tax benefits. And especially if you have a spouse that's not working and you do enough of it, they could probably become a real estate certified real estate professional. And if they're a real estate professional, they can take all that all that passive losses you take with like bonus depreciation and cost segregation. You can apply that against active income under normal circumstances. You can't do that. But if you have someone on your team and it applies to you, maybe that's a win, right? But you got to know that you can do that with investments. And there's things like oil and gas and opportunity zones and a ton of other things that create these tax breaks for you.
Accelerated depreciation. We've already talked about cost segregation, but also if you own a business or if you're have a side hustle with equipment, you can depreciate all of that in one year. So understanding how to do that. And there are some really interesting investment strategies that utilize accelerated depreciation to create income and give you huge tax breaks. Strategic donation structures. There are ways to do investments that you actually put money in and rather than selling the investment and making money, you actually donate the investment at retail when you bought it at wholesale. And it can massively like you can cut your taxes by 30% doing some of these properly.
I won't go into the details today, but this is the kind of thing that's out there. Entity and income structures. If you own a business, how you pay yourself, how you run your money through using C corporations salary versus dividends, a ton of other things, even paying family members. There's a ton of things you can do here to massively reduce taxes and incentives and credits. There's a bunch of different things out there. The biggest one I see, if you're a business owner, you have to turn your ears on research and development credits. We have done this for so many doctors and dentists. It doesn't mean you qualify, but a lot of you do.
If you're doing cutting edge, innovative things, if you're buying new upgraded equipment so you can do better procedures, have better diagnostics, improve wound healing, a million other things, then you probably are qualifying for these. I routinely have doctors and dentists saving 30, 40, $50,000 a year just by filing these credits. I mean, and it probably takes two hours a year of your time. And where I come from, like 30 grand for two hours, I get a pretty good wage. Right. So, and I'm going to give you a chance to get one of those estimates for free at the end of the call here. So don't, don't sweat that, but incentives and credits can be really big and those apply to all kinds of businesses, but tons of medical businesses.
And if you're a W-2, unfortunately, that probably doesn't work for you, but kid like the child tax credit, ADA credits, there's a ton of other stuff. Just so you guys know, when we do a tax review and we do these quite often, we typically find the most, like the average number is $57,000 that people are overpaying in taxes per year. Now, remember what I showed you that $50,000 turns into over 30 years, right? So this is five or $6 million of retirement nest egg that people are just giving up because they don't know. And there's a lot of people. And for the record, that's per year.
There's a lot of people. I had a guy just last year, not a huge income earner he earned six, $700,000. He was basically able to offset his whole tax bill. So he saved over $175,000 when we did it for him last year, using a combination of seven different strategies. But, and we do have clients that have saved quarter million plus, but they're they're earning $2 million or whatever, but there's a lot of opportunity here. The more money you make, the more money there is in tax strategy. So I don't want to over exaggerate this stuff, but I do want to be honest with you. Like if you think of tax planning as an additional income stream and you just give it two hours a month, you can probably add 10, 20, 25% to your bottom line of what you get to keep just with good tax planning.
That's how valuable it is. So, okay. I don't have time to go through all the tax strategies. If you guys want, I wrote this book. It's got 17 tax strategies. You can use the QR code here and opt in and get that really quick. I'm going to leave this up for maybe 20 seconds. Cause I know it takes a second to scan these things, but the books really easy. It's designed to make it so that you can quickly look through. Not every single strategy applies to every single person, but I mean, if you can find, I guarantee there's for anybody, there's $25,000 in tax savings in there.
So it's a, it's pretty significant. So, but I don't have time. A lot of times I just do a four hour talk just on tax strategy when I presented a lot of associations and stuff. So this is, this is some of that information. All right. I'll let you guys go on that. Okay. Second strategy. Your second pillar after tax strategies, you've got to have a growth and cashflow plan, right? We just talked about cashflow being the key when you get to retirement, but you've got to be a growth plan. You get to retirement, but you've got to be able to grow your money along the way.
Now as a high income earner or investor, you do have different needs than the mom and pop who earn $50,000 a year on main street, right? You guys need more liquidity. You got to have access to cash to do this stuff. So you need strategies for how do I store and grow my cash? We talked about the family banking system, just like one second. That is something that can help you create liquidity and grow your money tax-free at the same time. Right? Higher tax efficiency. Like we talked about, and that should be part of your investment plan. If your investment people are not factoring in taxes to the equation, it's a problem, right?
Because if you make a ton of money investing, and then you have to give a third or half of it to the government that cuts down on the ROI. So it's a huge factor. And there are a lot of advanced things. So I think most of you probably know this, but it's worth talking about. If you become an accredited investor, that means you earn $300,000 a year as a married couple or more, or you have a million dollar net worth, not including your home. You're an accredited investor, whether you realize it or not. And you have access to a lot of additional investments that are out there.
There are a lot of advanced strategies in a million different ways, but you need access to those. And I know that's why you're part of this group, right? Is to get deal flow, get things in front of you, but you have to have that. If you don't, it just takes too much of your own time and your time is too valuable to go out and try and find this stuff. And really think a good important thing to know here is everybody here is going to end up as a professional investor. So you have to learn this skill set doing things like some of the syndications that I've seen, right?
And some of the apartment buildings and investments, multifamily there. There are a lot of things like that. You have to learn this skill set and the way you learn it is you practice, right? Just like you have a practice with your, with your medical practice. You have to have practice as a business owner to learn what types of investments am I good at? What do I like? What creates growth? What creates cashflow? What gives me tax breaks? It's a different skill set. And if you don't learn it, let's say you retire with $10 million and you don't know what you're doing. How well do you think that's going to go?
Or you build up your practice and you sell it for $10 million and you don't know how to invest the money effectively. How well do you think that's going to go? I like to joke that when that happens, and I hear this with all the time with people who exit, sell their business. It's kind of like that's that song from Jaws that starts off. All the sharks start circling, right? They can smell blood in the water. They're like, this guy has $10 million and he doesn't know what he's doing. And your brother-in-law shows up and he says, hey, man, we should start a brewery. And you look at him and you go, do you know how to brew beer?
And he's like, no, but I love to drink it. We should totally do that. Right. Not gonna lie. I see it happen with doctors and dentists more than anyone else because they didn't learn the skill set. And they're really smart people. So they figure they can figure it out. I can tell you that running most businesses takes a know-how, right? So you have to know how to invest your money. And if you don't, you're going to be in trouble because you will end up as a professional investor as soon as you stop working, whether you realize it or not.
Derick Van Ness
And if you guys don't, I can always email a copy of the book to everyone. I know that you guys have the emails of who registered. Happy to send that out give it to you guys and we can send it out. I don't want some technical difficulty to create a problem because that would be a bummer. And you guys need to save that money. Okay. So like we talked about, the game isn't how much you have. It's how much income you can create. So let's talk about how do you create more income safely, right? This is how the smartest people in the world do. This is how professional investors think.
So we really like the idea. Like how many of you know who Ray Dalio is? Or if you've read Tony Robbins most recent book. It's, it's a model called the endowment model, more or less. Ray Dalio calls it the all-weather portfolio. And I don't know if the big universities like Harvard and Yale and Stanford copied him or he copied them. But these are the smartest people in the world managing money. And this is how they think about it. They want to get eight to 12, maybe 16 non correlated asset classes. So I know that's some 25 cent words. What that really means is things that don't go up and down together.
If the market's down, you want to have some money in things that probably go up when the market goes down, maybe gold or silver or commodities. I'm not saying that's what you should do, but that's an idea. Maybe you've got an investment, a private investment in an avocado farm in Panama. Does it care if the stock markets up or down? No, does not. Right. Conversely, if a hurricane hits the avocado farm in Panama, does the stock market care? No, they're in their own silos. Right. And the way that they do this is everything has its ups and down, up and down years. They all have their own cycles.
But if you layer enough of them over each other where they don't correspond together, then you end up with a much more stable curve. Right. And this might be why you guys are looking at real estate, because real estate is a huge part of that. And in this particular example, they have 13% of their assets in real estate. Right. And and don't get caught so much in like what these exact numbers are. These kinds of things do change over time. But the concept of having asset classes that are not tied to one another is the key to take from this. Right. Now, a lot of people used to get this from the stock market.
If we look at Yale and their target allocations from 85 through 2016, I say this because it hasn't changed as much since 2016. If we look at this blue thing right here is called U.S. Equities. That's the stock market. OK, American stock market. You can see they used to have about 70% of their money in the U.S. Stock market in the 80s. This was pre day traders. And this is when IBM went up and down on its own based on its income and revenue. Same thing with Coca-Cola. Same thing with Procter and Gamble. They were all separate from one another. So as we got day traders and it got more speculative here into the 90s, you can see the smart money said, hey, we need to stop being just in the stock market.
It's getting less diverse. We have to start going out here and getting some of these other asset classes. Suddenly they started investing in private equity, which is a similar idea. It's in private companies. But those private companies aren't being publicly traded. Right. And then you can see here we started getting absolute return, which was a hedge against the stock market and a lot of things. And in the 90s, all of a sudden now we're at 25% in the stock market. And then as algorithmic trading ETFs, index funds and all of that came along, you can see now a very small percentage of their money is in the in the stock market.
And they're diversified across a lot more asset classes. What they're really trying to get here is the diversification they used to get from the market. Right. You guys know this. Almost everybody buys index funds and they so it all goes up and down. So it's almost like one big stock. And that's why we can't just have all of our money in one place, whether it's all real estate or all the stock market. This is an investment advice for you because I don't know your situation, but this is what the smart money does. Right. They've diversified this over time. And when you do this, you can take a lot more than that.
4%. You can take six, maybe take eight, depending on your portfolio. And you can create a lot more income with the same amount of money. Okay. So without going like there's a whole deep dive and a million things we could talk about there, but I want you to just get the high level concepts. These are the five levers I think as a business owner, you need. Right. You do need like we talked about a diversified growth portfolio. You got to grow your money. And ideally do that in a protected way. You want to have liquidity, especially if you're a business owner, you got to buy equipment.
You got to do expansion. You've got to do a lot of things, but also liquidity allows you to take advantage of opportunities and to avert disaster when emergencies come along. So you need to have a certain amount of that. You need to overlay tax strategy on your portfolio. So you're creating tax efficiency. Customization and control is really important for your mindset. A huge part of this game isn't just making more money. It's actually enjoying your life along the way. Right. I know that sounds ridiculous, but if you do an investment or something and it makes it keeps you up at night and makes you stressed out, just don't do that investment.
I don't care how much money it makes you. Your quality of life is hurting and quality of life is the real game. If making more money means your quality of life comes down, that's a bad trade. The real game is quality of life, not how much money you make. Right. So having control and customizing it to what works for you is important. And then having things in there that have guaranteed rates of return. Some people like bond ladders or T bills, life insurance. Life insurance. There's a bunch of things that have guaranteed rates of return. If you don't know the bond market is the highest it's been in a very long time for some guaranteed rates of return.
I'm not saying that's what you should do with your money, but having some guarantees in there for a lot of people creates confidence and helps them feel very safe. And when you put all these together, the reason they look like pulleys is it allows you to create a lot more money than if you were to do any single one together. Coordination matters. Right. So that's, you gotta have a system for that if you don't. And I think you guys get this. I'm trying to tease you with what's possible. We haven't had a chance. We just don't have time to get into all the weeds today.
Right. So as much as we can, we want systems rhythms and automation. How do we make this easy for you guys? Your business works or the business you work for works because it has good systems. People know what to do, when to do it, how to do it. Most people don't have that on their personal side. So what are these systems look like? The biggest system you're missing for most people. And this is where this comes up a lot is how do you systematically extract money from your business? Now, if you're a W two, how do you systematically take money from your income and put it to work?
And you want to automate this system. What I see happen all the time is people create income and it goes round and round and gets spent. Right. But they don't have any system for getting that over here to building personal wealth. The system's missing. So we want to have systems. This can be, and I'm going to go through a bunch of examples here, but if you have systems, this personal wealth gets built automatically. You're focused on your job. You're focused on running your business. And in the background is taking chips off the table as you win over and over. And suddenly when a new apartment building comes up or some other opportunity, you're like, well, yeah, I am sitting on 200 or 200,000 bucks.
I guess I can invest. Right. If you have to write a $200,000 check for a lot of people, that's hard spur of the moment. If you're systematically saving money and putting it aside, the money's there and it's easy. Right. It's much easier for most of my business owners to save $2,000 a pay period, $5,000 a pay period, whatever than it is to write a 50, 100, $200,000 check at the end of the year. So we want to be doing this systematically in the background. Now, the most powerful thing you could do is automate. So you want to automate savings. Now, savings isn't the sexiest thing to talk about.
But if you never learn how to save, you'll never have enough money to invest. So savings, I joke about this, but savings is the gateway drug to investing. Right. You got to do it first. It's the thing that leads the way. Automate transfers between accounts. We all know how to do this. Most people don't. This is the easiest way to automate savings, putting money to work, investments, et cetera. You want to automate as much as you can automate investing everything you possibly can. And with today's world with software, we use something called sequence.io. It'll transfer money through accounts to do all kinds of things for you.
There's tons of things that can help you to do this. And you want to build your life such that if you did nothing special, nothing extra, everything you want is accomplished. You've saved for taxes. You've saved for savings and emergencies. You've saved for growth. You put money away for your kids college. All that stuff is happening in the background while you're while you're just working. Right. That's the whole game is just setting it up. So the you've thought about what you want to accomplish. You've set up the transfers and now you just get back to work and this thing happens in the background. Okay. This is an example of somebody had a business income, automatic payments to the real estate they own, which automatically goes into the family wealth account, automatically saving for taxes, automatically saving for a sinking fund.
If you don't know what a sinking fund is, it's the idea. Like if you have a car you're going to, your tires are going to wear out. You need to be saving for the tires along the way so that when the tires wear out and you got to buy new ones, the money's there. Or if you need new equipment or you need to hire new people and expand the business, the money's there. Money automatically transferred from the business into the family wealth account, which automatically goes into investments. It saves up for tax strategy, goes into family banking, right? All of these different things can be automated.
And all you focus on is making money and all this stuff happens in the background. And then when you need it, the money's there. Make sense. Very good. Okay. So the most important thing you can do for wealth is say it with me, automate it. I'm telling you guys, this is the magic. If you just do this one thing, it will change your life. I have a client. So we were talking about, we were doing tax strategy. He's a very successful dentist practice does like $5 million a year. And he's making really good money. And he, when we started working together a couple of years ago, he was like, Hey, I owed the IRS a bunch of money.
I had no money saved for it. I was in big trouble. Here we are two years later. He's like the IRS owes me a hundred thousand dollars because of the tax strategy we did last year. They're counting that toward my taxes for 2026. So I don't have to pay quarterlies the last two quarters of the year. I've got over a quarter million dollars saved. I've been saving on autopilot and I'm not even going to need any of it for taxes. So I guess I can just take that money and invest it. In two years, he went from, I'm a couple hundred thousand behind and don't know how much I owe to now he knows exactly how much he's going to owe next year.
He's already got the money saved and the IRS owes his, him money. So he can take a lot of that and go turn it into assets. That's the difference that automation does. All of this happened because he just set up automatic transfers as he got paid and the money got set aside. It's a game changer. Okay. Last thing here, protections and safeguards. I bring this one up because what good is it to have gold in the treasury if there's no castle to protect it? Okay. The reality is life happens. You guys work in healthcare and you see it every single day. People get hurt. People get sick.
Weird stuff happens. So what would happen in your family? Just ask yourself if you or your partner passed away. This could be business partner or life partner. What if you became disabled or chronically ill? You guys see it every day, right? Happens all the time. God, are you prepared for that? What if you went through a divorce? Do you have things like buy sell agreements in place with business partners? Or what would happen with your assets? Do you guys have a plan for that? What if you lost a key employee like an office manager or one of your key providers? Right. What if you, if you're a business owner and you, if your CRM or your merchant processing gets hacked, we see this all the time where people only have one merchant process.
We have one merchant processing account and they get hacked and now they can't take payment. For like weeks, what would you do? Right. You've got to have a plan. And then of course you always have to have cash reserves and insurance in place, whether that's health insurance, life insurance, got to have cash for emergencies. These are all things that happen to everybody. And the problem is if you don't have the cash, the whole thing can cascade. You can have to be, you can be forced to sell out of an investment early. So you lose a lot of your money, a million different things. Preparation matters because everybody gets a few curve balls in life.
How you handle them makes all the difference. Right. I had health insurance. You guys probably know the price better than I do. When I was snowboarding, like I said, I broke a femur back in 2006. And by the time I was done, it cost about a quarter million dollars. Thank goodness. I had good health insurance. I paid about 7500 bucks. A quarter million dollars would have really put me in a bad place. 7500 bucks. Totally manageable because I had the right insurance in place. Right. Makes a huge difference if you're prepared. And this is something that I don't, there's a ton of strategies here and I won't go super deep into them.
But I have to acknowledge this because everybody's going to get hit with something. A relationship thing, a health thing, a life thing. It happens. Now this last category is for the business owner. If you're not a business owner, I think it's probably worth listening because who knows, many of you may start your own thing. Right. Most business owners don't know what their business is worth. And that's part of why I said, just take your income and multiply it by three because people don't know how to figure it out. But it's not just what it's worth to you. If you go to sell your business, you're going to sell it to somebody else.
So the question is, what's your business worth to someone else? People don't think about this. Right. If you're running a practice and you're a solo practitioner and it's just you, that's going to be hard to sell because there's no business. You're the business. Right. So buyers who buy want a money machine. When they buy your practice, a lot of these groups, these private equity groups or these people who buy practices, they're buying a money machine. They're not buying a job. They aren't interested in being the provider. They are trying to buy income. So what's the difference? A business is something that works without you. Now, this is really hard.
You went to medical school. You want to be the center of the whole thing. Ego. It feels good for people to need you. But the truth is a business that works without you sells for a lot more. If not, you have a job and a job requires your time and energy. And I like to say the business that needs you owns you. It feels really good to be needed, to be important, to be in charge. But I'm telling you, if you're a business owner and that's how you're building your practice, you're going to struggle to sell it and it's going to suck. Right. So you really want to build it so it doesn't need you.
So quick self-assessment. How well would your business run if you left for 30 days? Right. If you're a W-2, you want to ask yourself, how well would your finances take care of themselves if you weren't working for 30 days? What does that look like? That starts to wake you up. What if I get fired? What if I can't work? What if a family thing happens? You want to have a good sense of that. Right. So how do you know what your business is worth? This is going to be a super quick lesson in business. How many of you know what EBITDA is? Anybody? EBITDA is earnings.
Well, I have the thing here. Earnings before interest, depreciation, taxes and amortization. That's a fancy way to say when you take out all the tax breaks, how much money did you make? Right. Some people call it seller's discretionary income. So if you're selling the business, how much income did this business create for you? And it's a multiple of EBITDA one times, two times, five times, 10 times. So the thing that determines the multiple is what we call intangible capitals. Right. We're getting into a little bit of the business weeds. So hang with me here. But here's the difference. If you have maybe one location, it might sell for two and a half.
If it totally depends on depends on you versus four and a half. If you've got some providers and you could walk away and it mostly runs on its own. If you own a couple of practices, it might go from three and a half to six and a half. So you actually get more with a small group. And the key is if you lose a key provider, you can pull from another location and pull them over. You get you get efficiency by only needing one marketing team to run three, four or five, six group offices. Right. A lot of things start to happen as you get bigger.
And when you get into a larger group, you can get between five and a half, even up to 10X on your EBITDA. So all of a sudden, that's a huge difference. So what is it? What determines those differences is the human capital. How good is your team? Right. Do you have a good office manager? Do you have good providers? Do you have good people who are taking care of things for you? So if you walked away, it runs and doesn't miss a beat. If you do, you're on the high end of the multiple. If you don't, you're on the low end. Same thing with your structural.
This is your systems. How good are the systems that you have? Who are your customers? In medical, you guys don't have to worry quite as much. You don't end up having like one huge customer. But let's say all your business came from one hospital. If that were to or one referral source. If that relationship were to break down, your business is worth a lot less. People don't want to buy a business like that or they're going to pay less for it. So you want to be aware of that. And then social capital. This is your reputation, your Google reviews, all of that stuff. The better that is, the more the business is worth.
Right. If you have a bad reputation specifically, it can really hurt you. And this can determine up to 60, 70% of the, of your business value. It is the difference. The low end versus the high end is significantly different. And I just want to share with you guys when private equity buy stuff, this is how they do it. This is kind of a bonus. So what they actually do is they buy your single location for, let's say somewhere in the middle here, three or four times value, but they add it to their larger group. So let's say they, your business earned $500,000. And so they pay you a million five for it three times EBITDA.
As soon as it comes into their group. Now that $500,000 is worth 10X. And all of a sudden that same practice instead of be worth a million five is worth $5 million. They just created that. And this is, this is where, what they do. They buy it for 4X and they sell it 10X. Cause they put together 30 of them that they bought it for 4X. And now they get so much more. So if you're ever wondering how people do these a hundred million dollar exits, this is it. They just, they figure out the formula, they start buying up practices. And we have a whole guy, a guy on our team that that's all he does.
He worked for private equity for 30 years and he's done about 35 of these for people. Some of them into the billions of dollars. But like, if you're wondering how people make huge money, this is it. Okay. So building your business and your finances takes a team, right? Got to have a goal. Like we talked about when the championship, but you got to have a plan for how you're going to do that systems to execute. And you do need key people on your team. Even financially, that could be your investment person, your insurance person, your tax person, your estate planning person, your attorney. If you don't have a coordinated team, you're going to struggle, right?
These are a bunch of the guys that I work with that are on my team. Yeah. Private equity guy, business coach. He's our tax specialist. And then we do a lot of the speaking and he's also a tax and wealth strategist. Right. But you got to have a team. So I want everybody to quickly look at this list. Who do you have on your team that's in these roles? Do you have a tax strategist, which is different than your CPA and compliance person, but this is person looking for tax breaks. This is your tax recorder. Do you have a good bookkeeper? If you don't have good books, it's very difficult to know how to make good decisions.
An attorney. Wealth strategist. So someone who's looking at how to build your money and grow it and build that diversified portfolio. An insurance specialist. There could be several of these. You could have a life insurance, a health insurance, all of those, as well as property and casualty umbrella policies. If you don't have them, all of that. And then a banker. If you own a business, a banker can be a huge piece. Right. But take note of anything that you're missing here. And if you're missing someone that you need, make it a point to find those people. Having a team that will talk to each other is really important.
So by having these five components in place, right? Tax strategy, growth and cash flow plan, systems and automation, protection plan, and how to build business independence or financial independence. That's the system that turns your income into lasting wealth. Right. And it kind of flows through here and comes out the other side. And that's what we're trying to create here. So let me give you an example of how do we come up with the money for you to get to that 9 million to 19 million dollar number. Right. Okay. Let's just go on the really low end. Let's say you're saving 20 to $50,000 a year in taxes, which, like I said, the business owners just R&D credits will probably do this.
But for the rest of you, there's tons of things you can do here to save that money. Let's say you start using automation like I talked about. You set aside to $2,000 a pay period. Right. Let's say you're running your office or you just go through and just cancel some subscriptions and you save 500 bucks a week to be more efficient in your business or your personal expenses just by being more aware. Let's say you invest in a safer and more effective, efficient way like we talked about building a better, more robust, diversified portfolio. That's over $100,000 extra each year. You'll notice none of this came from save saving more money that you than you were already saving.
This is just money you created from nothing. Right. So what you were already saving would be on top of this. So you created an extra $100,000 a year without having to give up your lattes or tighten your belt or have that talk with your spouse where it's like, honey, this month, we're not going to do anything. And everything that's left at the end of the month, we're going to we're going to save. This is just efficiency. This is just plugging the holes in the bucket. It's not working harder. It's not staying late. It's none of that other stuff. This is just keeping more of what you make and being smarter with it.
If you take that for 30 years, that $100,000 a year is an extra $10 million in your pocket extra on top of what you're already saving. Right. Same thing here. $100,000 over 30 years turns into $10 million. Right. That's what's on the table here. Yeah. And this is more money than most business owners ever build up. Right. And I think we can all relate. You guys are here because you're trying to grow. It takes time. It really does. So none of this requires you to be a rocket scientist. Some of you are probably smart enough to be right, but you don't have to be. It's just easy to put it off.
I will do that after the new year. I will do that after taxes, whatever. Don't fall into that trap. You really you're already doing the hard part. You guys work a lot of hours. You went to the school. You incurred all of the costs and the student loans, which I'm sure are just an absolute treat. It's time to reap the rewards. You're doing the hard part. You're making the money. Now it's just time to keep it and turn it into something. So you kind of have two choices. You can keep doing the same thing and getting the same result because I promise nothing changes until something changes.
Right. Or you can take action and you can change the trajectory of your life, whether that's working with a group like mine or going out and building your own team or working with Dr. Kirk, whatever it is. You got to figure this out. You've got to do something different if you want a different result. I know that's cliche, but it's true. And that's why we offer for people who are interested a free wealth gap analysis. We will help you to look at where you're at now, where you want to go. But most importantly, how do you put this stuff in place so that it actually moves the needle for you? Right. And Addie, if you want to double check and make sure my QR code's working.
