The Power of 6 Book

HOW A BILLIONAIRE'S BASIC PLAN TO
COMPOUND WEALTH CAN UNLOCK

YOUR RETIREMENT
ANDY TANNER
The Power of 6
How a Billionaire's Basic Plan to Compound Wealth Can
Unlock Your Retirement
By Andy Tanner, Founder of The Cash Flow Academy
This publication is designed to provide competent and reliable information regarding the subject
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Copyright © 2022 by The Cash Flow Academy. All rights reserved. Except as permitted under
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Table of Contents
Chapter 1: Stop Settling for Less, Start Dreaming Big 1
Your Retirement Starts With You 2
When Will You Retire? 3
What Is A Retirement Blueprint? 4
Gaining Peace of Mind 5
Those Pesky Bills 5
How Do You WANT to Live Your Retirement? 6
Leaving a Legacy 7
The Importance of Attitude 7
Chapter 2: The Power of 6 9

Everyone has a financial statement 11
The Power of 6: The six numbers that will change your life 12
Your financial blueprint 14
Chapter 3: How Money Flows 16

How Much Does Retirement Cost? 18
Income & Expenses 18
Your Assets & Liabilities 20
Chapter 4: Cash Flow Patterns 23

1. New Money Cash Flow Pattern 23
2. Old Money Cash Flow Pattern 24
3. Borrowed Money Cash Flow Pattern 25
4. Wealth Cash Flow Pattern 26
Chapter 5: Common Retirement Income Sources 30

Government Reliance 30
Viability of Social Security 31
Pension Plan Reliance 32
Contribution Plan Reliance 33
Downsides to the Contribution Plan 34
A Better Way 35
Chapter 6: Aim To Be Atypical 37

Don’t be typical 37
Compounding Assets 40
Separating Price from Earnings 40
When asset price becomes irrelevant 44
What would it feel like to have the stress of risk and price fluctuation disappear? 46
Exchanging value for money 49
Have a quality operation 52
Leverage the law of the farm 53
What kind of Cash Flow Jack-In-The-Box do you want? 54
Retaining Assets 55
Chapter 7: Compounding For Real Wealth 57

Money, Rate, and Time 57
How Much Money Should You Start With? 57
What Rate Should You Aim For? 58
When Should You Start? 59
Setting Your Retirement Income Targets 59
Consistent Investing to Maximize Compounding 60
Finding your own rate to success 61
Pie in the Sky Dreaming? 62
Chapter 8: Leverage For The Average Person 64

For the Late Starters 64
Rate and Risk 65
Real Estate Leveraging in Action 66
Can You Really Invest With No Money? 68
Using Leverage in the Stock Market 69
New Cash Flow from Options 71
Compounding by Splitting 72
Compounding Through Business Leverage 73
Importance of Education 74
Chapter 9: Assembling Your Blueprint 76

It Won’t Happen Without Work 76
The Six Numbers Needed For Your Blueprint 76
Identifying Your Asset Targets 78
Putting It All Together 79
Final Thoughts 81
Chapter 1: Stop Settling for Less, Start Dreaming Big
A solid retirement blueprint can make all the difference between living our retirement years in
abundance or scarcity. Some folks give retirement little thought. Their daily lives are filled with
so many urgent tasks that demand present attention in the here and now. For these people,
there seems to be no feeling of urgency for future planning because retirement seems distant.
But there is a harsh reality in store for people who spend more time on their holiday gift list than
time investing for retirement: the need for funds during those golden years is a day that comes
sooner than expected.
I'd like to believe that it's never too late to start working on a solid blueprint, but it's tough to
argue against the realities of time – the most precious resource we possess in life. The formula
of compound interest presents life-changing opportunities. There is no argument against the
truth that sooner is better.
Some of us do much better in giving retirement planning our attention, but still lack an effective
blueprint. Unlike those who procrastinate retirement preparations, there are those who desire to
start preparation at the get-go. Since you and I have found our way into this book together, I’d
wager that you and I are part of a group of people that likes the feeling of being prepared.
From the day we start working, our minds become occupied with thinking about and planning for
retirement. We heard our parents talking and preparing for it, the news outlets constantly sound
the alarm, warning us about coming up short, and employers might have retirement investing
plans to offer us. And as every year goes by, that ultimate retirement date creeps closer and
closer.
With all the societal attention on the finish line of our working years, it’s no wonder so many
people are now becoming fixated on retirement – for good or bad.
Then in the latter years of our working career, we inevitably fantasize about how wonderful
retirement could be: sitting on a beach, bicycling along a wooded path, traveling the world, and
all those other lovely visions. This should be a tantalizing reward for our years of labor – all
those times we've stayed late at the office and put off more enjoyable activities to focus on
putting away money for retirement.
Yet there’s a difficult truth facing all of us: it is becoming increasingly difficult to achieve that
dream retirement. You might have already discovered that things are very different compared to
the past few generations before us.
We’re now experiencing pension plans disappearing, the instability of Social Security, growing
inflation, and under-performing 401(k) plans. All these factors are taking their toll on anyone
© The Cash Flow Academy • www.TheCashFlowAcademy.com

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thinking about retiring someday. However, this doesn’t mean we can’t enjoy our ideal retirement
– it simply means that we need a more effective road map, and seize the opportunity to educate
ourselves and do some strategic planning if we’re going to make it work for us. We need a plan
– a blueprint – that can get us to our ultimate goal. And the earlier we get started, the more we
can actually live our dreams.
Your Retirement Starts With You
For the past few generations, most people approaching retirement have looked to others to
provide their retirement income. Specifically, they have looked to their employers to provide
pensions, and to the governments for Social Security. That’s likely how your parents, and
probably even your grandparents, were able to enjoy some type of retirement between their last
day of work and when they died.
As we’ll see in the coming chapters, reliance on these and other outside sources is quickly
turning into a sobering shortfall of income. The end result has become clear: depending on
others for your retirement is now one of the riskiest things you can do.
This is the reason why I am an advocate of taking personal responsibility for your retirement
income. And my guess is, you are feeling that same sense of responsibility if you are reading
this book. As we’ll explore in these pages, I believe you will discover it’s also LESS risky than
relying on others for your dream retirement.
You may be able to recall a time in your life when you felt totally self sufficient in one way or
another. It's a great feeling. There's a sense of freedom and control that comes with any sort of
personal responsibility. Because when you are able to control more and more of each part of
your life, you automatically gain more control of where your life goes and how you spend your
time. And if you have a goal in life to enjoy a happy retirement, there’s no better feeling than to
make that happen with planning and implementing your own blueprint.
Further, financial independence means that there is no necessity for the government, no
necessity for an employer, and no necessity to rely on external factors for your success.
Because, at the end of the day, we have little to no control over these outside entities. Yet we do
have full control over ourselves, our desires, our plans, and our actions.
In my view, freedom and responsibility are indivisible. This is one of the primary reasons why I
have spent my life learning and working to be financially independent for myself, and then
teaching others how to do the same for themselves. I believe in freedom. And while some may
say that I’m overly idealistic about personal freedom, I argue that it’s the ideal value that can
truly bring us lasting satisfaction.

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Perhaps the best thing about achieving personal financial independence is that it’s practical to
our lives, and it’s possible to achieve for nearly everyone. Yes, it takes time and effort. Yet, it’s a
journey that provides a valuable opportunity for us to become financially educated. Warren
Buffett, the legendary investor, is an ideal example of the spirit of independence. Over the years
he has guided his company, Berkshire Hathaway, to generate hundreds of billions of dollars in
revenue annually. While still a boy, he told his sister that he would become a millionaire by the
age of thirty. This was a very big number in 1960, yet he delivered on that promise and much
more. How? By creating a vision, learning principles that would help him get there, and then
working to make it happen.
Nearly six decades ago, Buffett developed a personal responsibility mindset. Regardless of
changes in the government, he has stayed the course with a personal blueprint that does not
depend on others. As he told CNBC:
“Probably half the time [in] my adult life, I’ve had a president other than the one I voted for,” he
said. “But that’s never taken me out of stocks.”
As we progress through this book and show you how to develop your own wealth-building and
retirement blueprint, keep Buffett’s devotion to personal responsibility in mind. While it’s not a
guarantee of riches and success, it’s the only path I know of that allows one the opportunity to
live on their own terms without limits.
When Will You Retire?
If you work for an employer with a pension plan, the rules of when you can begin receiving your
pension benefits will probably dictate when you can even begin thinking about retiring. The
same goes for receiving Social Security benefits. In either case, your employer and the
government will try to entice you to continue working as long as possible by dangling a carrot of
higher monthly benefits if you choose to delay when you’ll start receiving payments. You don’t
have to take this bait that drags your working years into extra innings.
For many people, the decision of when to retire is essentially made for them by these employers
and government rules they must live by. This reliance on others for their retirement is perhaps
the number one reason most people barely strategize for their retirement until they get closer to
age sixty-five. At that point, they look at their expenses, look at how much they can get from a
pension and/or Social Security, and then make a decision: “Well, looks like I better keep working
for another five years when those payments will be high enough to cover the bills.”

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Yes, we all start our careers hoping we’ll be among the lucky ones who will get out of the rat
race as early as possible. But all it takes is a quick look around at your local retails stores or fast
food restaurants to see that it doesn’t always work out that way. It’s heartbreaking to see, time
and again, that older Americans are increasingly being forced to continue working late into what
should be their retirement years. Why? Because they didn’t have a blueprint to guide their
actions along the way. Instead, they chose to let life happen to them and were therefore forced
to live by the consequences.
With that in mind, experiment with the idea that retirement is less about reaching a certain age,
and more about financially achieving a sustainable lifestyle. In other words, we can quit the rat
race when we have a system to pay our bills and expenses with passive income and not
through actively working for a paycheck. Some discover how to do this in their twenties and
thirties, while others never get it figured out.
So as we work toward creating a retirement blueprint, keep in mind that our goal is to create a
system of income that relies on smart investing instead of working longer into our golden years.
Ultimately, the timing of when you can retire will depend on the blueprint you create and your
commitment to making it happen.
What Is A Retirement Blueprint?
Building a house requires a lot of vital elements: a strong foundation, solid walls, a watertight
roof, and more. But if we simply show up at the building site and start pouring concrete into a
hole we find, and pounding nails into some lumber that was laying around, the house will be a
disaster. Everyone makes mistakes, but having to start over from scratch wastes precious time,
and a blueprint can help us avoid such disasters. Before we take action and start building, we
need a blueprint that shows us what to do, what materials to use, and how to put it all together
and transform it into a home.
It’s no different when we decide to design and build our ideal retirement. When we educate
ourselves about what it takes to get there, and understand the different tools and materials we
have to work with, it becomes much easier to construct a retirement that can achieve our
dreams. There is a great feeling of confidence and reassurance that comes when we know we
have started out with a solid plan, and we can see how each piece will come together
beforehand.
Yet most people never get to feel this confidence. People without a blueprint think they’re doing
fine by saving a little bit of money here and there, or allocating a little more of their paycheck to
their 401(k) each month. While perhaps doing something is better than doing nothing, without

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that blueprint they’re really shooting in the dark. And without milestones along the way, they
have no way to gauge whether or not they’re on schedule to make those dreams come true.
Gaining Peace of Mind
You’ll see that we spend the bulk of this book discussing financial matters. Yet it’s vital to
recognize the power your blueprint can have to improve your overall mental well-being. That’s
because of the peace of mind you’ll experience knowing that you are building a foundation of
success for your retirement. So instead of suffering the financial stresses in your golden years
that are felt by so many, you’ll be able to relax more and enjoy the fruit of your labors.
This peace of mind should not be underestimated. It’s difficult to imagine, but far too many
retirees experience stress almost daily as they struggle to find the money to cover their
mortgage or rent, the heating bill, electricity, food, clothing, medical expenses, and more. Living
on a fixed income that is simply not enough can often feel more like a prison sentence than a
happy retirement.
With this in mind, you might already notice a desire to take greater control and accept the
personal responsibility of your retirement finances now so you can create that blueprint for
yourself, work to make it happen, and then enjoy living free of the financial stress that burdens
far too many retirees. There is no doubt that making things happen feels better than hoping
things happen.
Those Pesky Bills
Though no two retirement blueprints are alike, one thing is inescapable for all of us: BILLS.
That’s why the first step of creating your blueprint is to anticipate and plan for all the different
bills and expenses you’ll face during retirement. Some people begin to feel overwhelmed at this
stage, because all those bills can certainly seem daunting. After all, inflation will increase the
amount that is due and will literally stare us in the face each month. Moreover, healthcare needs
will only become more frequent as we age. It seems like a daunting task because it is a very
real problem to be solved. But remember that it’s the people who run away from reality that are
ultimately destined to feel its full wrath. And those who accept reality can intelligently plan for it.
So at this stage, think of this process as a detective game where your goal is to uncover every
possible expense you’ll be facing in the future. A good method to start is by placing the
expenses into one of these two categories:
● Essential Expenses

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● Dream Expenses
Essential expenses are those basic things that are needed to sustain your life. This might
include housing, food, transportation, communications, medical care, etc. Remember, these are
not optional things you might choose to improve the quality of your life. These are the basics
you need to survive.
Dream expenses, on the other hand, are those things beyond the essentials that can transform
your life from mere survival to thriving. This might include travel, entertainment, recreational
activities and equipment, health and fitness, etc. These are the expenses you’ll want to plan for
in order to achieve that dream retirement.
How Do You WANT to Live Your Retirement?
First, understand that there is no such thing as a perfect one-size-fits-all retirement for
everyone. Your ideal retirement blueprint is unique to you. For some it means fishing at the lake
five days a week – maybe six. For others it’s a steady stream of adventures traveling the world.
Or serving as a mentor with a local non-profit organization. No two lives are alike, and neither
are their retirement blueprints.
With the newfound abundance of time that wasn’t possible during their working careers, new
retirees find themselves available to do anything they want. At the same time, they know that life
is inevitably ticking away and that every moment becomes more precious. The only question is
will they have the financial resources to make those desires come to life.
That’s why now is the time to dream big and fill up that bucket list with everything you want to do
before it’s too late. There is also no need to settle for a small bucket. Your bucket list can be as
big as you want it to be. You might be curious to discover how it would feel to pull out all the
stops. When you discover the power of a solid blueprint, you might realize that the sky's the
limit. Write it all down so you don’t forget. Whether it’s playing the best golf courses in the world,
scuba diving the Great Barrier Reef, going on an archaeological dig, or visiting all fifty states,
put it on the list! Because if you don’t plan for it, chances are you won’t do it. But when the
activity and the associated costs are part of your blueprint, your opportunity of making it come
true is instantly brought closer to becoming reality. Why? Because you now have a project that
is finite. You have something that is defined and workable. The word “realistic” is a great word to
ponder. When a dream is marked with a clear price tag, a plan to buy it can now be built. At that
moment, almost anything becomes realistic.
Moving beyond ‘essentials’ to ‘dreams’ may seem extravagant to some, but in my experience
most people want to enjoy life to the fullest during retirement. They don’t want to scrimp and

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save just to get by. They want to savor the time they have left to the utmost. To them, achieving
those bucket list items can be equally as important as the necessities of life. And to make that
happen, you want a blueprint to give you the financial resources necessary to bring them to life.
That's some serious power, because it places more and more within your reach.
Leaving a Legacy
Planning for retirement is the perfect time to also consider whether or not you want to leave a
legacy. And if so, what you want it to look like.
For many people it’s important to leave some kind of legacy to bless the lives of family members
you care deeply about. They see it as a way of having their dreams live on after they are gone.
Legacy gives us true power beyond the grave. And with the right plan in place, many can also
achieve this loftier goal. Yet without a plan, there is often nothing left at the end of life to bless
others the way they hope to.
Another way to leave a legacy is to plan for charitable causes you may be passionate about.
Like planning for legacy gifts to family, charitable gifts can also be achieved if planned for as
part of the blueprint.
You might already have sufficient clarity of your retirement vision to begin defining specifically
what kind of financial resources you will want. If you desire additional help, you can visit us at
www.TheCashFlowAcademy.com. We have a variety of resources designed to help you get on
the path and achieve your investing goals.
The Importance of Attitude
It’s a common saying that each of us are the average of the five people we spend the most time
with. We tend to adopt the same values and ways of thinking of those around us. I learned this
many years ago, and have since actively sought to surround myself with people who expect big
things from themselves and from life. In my experience, I’ve found that if you don't expect
anything from life, then how can you expect to achieve anything big? As a teacher, I’m fortunate
to be in a position to choose who I teach. My heart goes out to those teaching in the public
school system because they don't have that luxury. I learned early on that working with anyone
with a poor attitude is a waste of time. Time is our most precious resource and it’s spent by
giving our attention. I refuse to give my attention to those with a poor attitude because it is an
irrecoverable waste of time and attention. Remember that waste has no place in your blueprint.

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Additionally, let’s face the fact that life isn't always fair. No matter how much we expect to be
dealt an equal or reasonable hand, it simply doesn’t happen. Everyone at some point has been
a victim of inequity or misfortune. We can’t avoid obstacles, they will inevitably stand between
you and any goal you may have. It’s simply part of life.
In my opinion, though, obstacles can help us grow stronger as we discover how to push them
out of the way. And problems are there to be solved. They tend to sift out people who are willing
to push forward toward their goals and leave others behind.
It’s easy to think of a million reasons why you couldn’t create a blueprint for a dream retirement.
Yet by maintaining your healthy attitude, you'll soon discover a million reasons why you can. But
you don’t need a million reasons that say you can do it. A discussion on why someone can or
cannot achieve a goal might take attention from another important point– the reasons WHY you
want your goal. When a person becomes crystal clear on why they want something, that person
gains the power of determination. A person who is clear on why they want their goal can
become unstoppable. If you and I had the chance to sit down together for an hour, our
conversation on why you want to achieve your goals would be more powerful than a
conversation on how to achieve them. When you are clear on the why, the how can be
designed. The good news is that you’re most likely not necessarily trying to become a billionaire
tycoon. Instead, you just need a way to create sufficient retirement income beyond a pension or
Social Security. You know it’s possible, because the world is full of people who have done this
very thing.
I can't emphasize enough just how important attitude is in every aspect of life, in addition to
building your dream retirement. Years ago, when we founded The Cash Flow Academy, our
standard was to only attract students who were self-motivated and willing to push beyond their
natural boundaries to succeed. We have found great success in keeping that standard, and by
allocating our resources toward people with attitudes of achievement to help guide them to
accomplish more than they thought possible. Over the years we’ve been very fortunate to attract
the very best teachers and students who are dedicated to achievement.
People who possess or develop this attitude of achievement are the most enjoyable for us to
teach. Equally, these are the people who will derive the most value from this book, and from life
itself.

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Chapter 2: The Power of 6
In this book I'm going to share with you the most important lessons I have learned as a student
of investing during the past 30 years. These lessons have helped shape me as an investor, and
are the foundation of my own retirement blueprint. My goal is to present these lessons to you in
a simple way to ensure that anyone can understand them.
Some of the most important lessons I have learned and am passing on to you have come from
people I’ve admired from afar, such as Charlie Munger and his partner Warren Buffett. Other
equally important lessons have come from teachers I've studied with personally, such as Robert
and Kim Kiyosaki. Buffett has not only been an example of investing genius but he has also
been an invaluable example of discipline and temperament, whose strategies for compounding
and cash flow have become the cornerstone of my approach.
Robert Kiyosaki helped nurture my gift for teaching, and Kim Kiyosaki gave me the
encouragement to become a teacher based on my efforts from being a student. Robert’s
best-selling book Rich Dad Poor Dad is full of valuable lessons for anyone who wants to
improve their financial situation. In my opinion, the greatest lesson in that book is about finding
people in your life who can share their financial wisdom with you. After reading the book
together several years ago, my wife and I became determined to find our own Rich Dads to help
us.
Another lesson of Rich Dad Poor Dad that transformed our thinking is a simple illustration that
shows the cash flow pattern of the rich:

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The genius of this drawing is its simplicity. For the first time in my life I got a glimpse of the key
to creating wealth and financial independence. I was never taught how to view and understand
a basic financial statement in school, yet it has now become a life-changing concept for me and
countless others. As I learned more about this simple cash flow pattern, it gave me new insights
and the ability to understand how money works and how wealth is created.
When I first saw that little drawing, I had absolutely no idea that just a few years later Robert
Kiyosaki would invite me to write a book on paper assets in his Rich Dad Advisor series. That
invitation brought tremendous fear, trepidation, and humility. At the same time, it was an
opportunity for me to continue to learn by organizing what I studied in the stock market arena
and then to distill those lessons down and teach them in a clear and simple way. That effort
refined my Four Pillars of Investing approach to acquiring assets, which are the four principles
that I use to make investment decisions in any asset class.
I certainly haven't been mistake-free, and my Four Pillars approach is far from bulletproof. The
Four Pillars don't eliminate risk, but they do offer keys to help investors navigate and better
manage risk. The first pillar helps people learn how to analyze their investments and make a
judgment as to their likelihood of producing cash flow indefinitely. In the investing world, there
are specific fundamental criteria that are routinely observed in a company's financial statement.
Much like a doctor will evaluate a human being by gathering intel regarding their vital signs in
order to glean a basic understanding of their fundamental health, the financial statements serve
the same purpose for any entity.
Everyone has a financial statement
Every person is in need. Perhaps you've heard of Maslow's hierarchy from your school days,
which is a way to prioritize human needs. Some of the most basic needs are food, clothing,
shelter, and medicine. None of these things are free, and are available at a cost to each person.
The cost of these things are the bills and expenses we have in life. Money leaks out of every
household, government, and company in the form of expenses.
Of course, there are always two sides to every coin – and a financial statement is no exception.
In order to pay for the expenses we have, we need to produce income to cover those expenses.
Our decisions on how to strike a balance between expenses and income is perhaps the main
financial choice we will ever confront. These two necessities, income and expenses, are
accounted for in the income statement. Whether we recognize it or not, every household has an
income statement. So does every business, every government, non-profit organization, and
church. The income statement is simply how we track money coming in and money going out.

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Every person also has a balance sheet that accounts for all the assets we own and the
outstanding liabilities we have. Even if a person has no debt and owns nothing, that balance
sheet can be filled in with zeros. It’s another snapshot of where you are at.
The purpose of showing all your income and expenses in the same statement is to show net
income, which is how much free money you have available at the end of the month after taking
care of all expenses.
And the purpose of showing all your assets and liabilities on the balance sheet is to show net
worth. This is how much an individual or an organization is worth at any given time.
These numbers are valuable because they transcend borders and languages, and they can be
used to evaluate any size of entity, large or small.
For many people, this is the beginning of their financial education. It might seem overly
simplified, but the truth of the matter is that a person who makes the decision to study these six
numbers will have a strong foundation of financial education. With these six numbers, a person
can evaluate the basic financial health of their own financial situation, or even the health of a
nation or a business. The most important financial statement in your life is your own. It doesn't
matter how much a government might spend themselves into dire straits or create currency out
of nothing. And it doesn't matter much if the company you work for is doing extremely well or is
having difficulty. Because at the end of the day, the only financial statement you have full control
over is your own. And how you approach your own financial statement will determine your
lifestyle now and in the future.
Furthermore, building your retirement blueprint around these six numbers will give you power.
You will have the power to compound assets more efficiently, make positive adjustments along
your investing path, and to see through the fluff and hype of fake assets to find the ones that
can truly help you achieve your goals. With this new knowledge, you will have greater clarity to
see things as they really are, rather than what promoters claim them to be.
As you learn more about these six numbers, you will also gain the power to understand financial
jargon that seemed like a foreign language before. Financial news articles and broadcast
programs will be easier to understand. The numbers that help us evaluate assets will make
more sense to you. The six numbers become a light to help us make better decisions, better
comparisons of opportunity, and most importantly, set achievable personal goals.
The Power of 6: The six numbers that will change your life

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A complete financial statement includes the income statement, the balance sheet, and the
statement of cash flows. The statement of cash flows should not be ignored, but for the
purposes of this book we will save that discussion for another day. Besides, only when a person
understands the first six numbers does the statement of cash flows make sense. So for now
we'll concentrate on the six numbers that will change your life:
1. Income
2. Expenses
3. Net income or cash flow
4. Assets
5. Liabilities
6. Equity or net worth
As you go through this book, you will discover that these six numbers will help you improve your
life by:
● Allow for more detailed goal-setting for your dream retirement, and
● How to achieve those goals by creating a blueprint that is atypical – in other words, not
what you will usually read or hear, and why that’s a good thing
Don’t be alarmed when I tell you that to accomplish this This will take incredible amounts of
work and learning on your part. If it were easy, then everyone would do it. Some people quit
almost immediately when they see how difficult it is to change these numbers. Others begin
strong, but they lack stamina and eventually fade away because of a lack of personal

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development. I get irritated by those get rich quick books that try to convince you how easy it
supposedly is to invest. Let's be clear that simple and easy are not the same thing. I have two
sons who are both teenagers now, and I would never teach them that investing is easy. Nor
would I ever teach them that entrepreneurship is easy. And I would never teach them that
serving as many people as possible is easy. But I can simplify all of these things for them. In
these pages I’m going to simplify it for you, too.
In this book you're going to learn about:
● Different kinds of income and expenses – especially in retirement
● See where you are now, and how to envision where you want to be in the future
● How to set goals for acquiring assets, and even the right kind of liabilities if you are in
need of leverage and the use of debt
● Analyzing these numbers unemotionally.
● Removing stereotypes such as income is good and expenses are bad, and assets are
good and liabilities are evil
Picture and imagine a weekly meeting that includes all the leaders of your household, even if it’s
just you. What if you were to build a blueprint, part of which was to meet once a week and give
an accounting for each of these six numbers and discuss what activities will be done in that
week to tweak each number to one that is more towards your goals. That's a very real life
change. Our greatest asset in life is our time, and how we spend it with our attention is vital.
Having a blueprint that focuses on the six numbers and how they will change will demand you
put your attention in places that are atypical.
Throughout this book I'll remind you of the importance of attitude. People with a poor attitude
cannot be taught nor pleased, and I've learned how to shift those people out of my life and out
of my classroom. The idea of being open to being atypical is one of the foundational lessons of
this book. The problem with suggesting an atypical approach is that people will criticize you for
not being average. Time and again, I'll remind you of these types of voices and what they sound
like – "the average person can't do that here in this country," or “this is not the type of returns
that an average person can expect to get.” We will seek returns that are atypical, no question
about it. That means we will need to manage more risk than the typical person, and that we will
want to be smarter than the typical person. I apologize in advance for reminding you of this in
nearly every chapter, but I do it because it's central to your success.

13
Some people don't want to work harder, and that's their choice to remain mediocre. Other
people are more than willing to work harder, but they simply don't know what that kind of work
looks like. It is the latter of those two individuals that I tend to attract as fellow students.
Your financial blueprint
Your financial blueprint is not a recipe. Recipes do not need to change because they're usually
put together in a stable environment. When I was a kid I loved to take control of the kitchen and
make chocolate chip cookies carefully following the recipe printed on the chocolate chip
package. There's a wonderful feeling of independence I felt, knowing that I could duplicate this
recipe anytime I felt like it, and get results that were as good as my mom or grandma.
Many people take the same approach with investing. They're trying to find a recipe developed
by someone they don’t know, hoping it can be duplicated to give them the same results as
someone else. Rather than employing specific actions over and over again like an exact recipe,
we will be applying certain principles over and over again to keep us pointing in the right
direction. There's a big difference. A good blueprint allows us to adjust the specifics of our plan
when conditions in the field change. We have to recognize that investing can be different than
cooking in a kitchen, where conditions are typically consistent to make cookies. Financial
markets, real estate markets, cryptocurrency markets, and every other investing arena cannot
be set at a certain temperature in the same way we preheat the oven to bake the cookies.
That’s why we need to learn and understand, instead of just following someone else’s steps.
Recently I made some extensive renovations to our home. There's no way this could've
happened and turned out as beautiful as it did without a blueprint. It was also true that the
blueprint had to be adjusted many times to accommodate what was happening in the actual
project. So understand that your blueprint will be a living document that will need to be adjusted
and improved based on what happens in the environment.
What will not change, however, are your bedrock principles of financial education and discipline.
As we close this chapter I'll circle back to the purpose of this book and what motivated me to
write it. I feel a great sense of gratitude for the many teachers and mentors who have helped
me, and have a desire to pass on some lessons I've learned during my thirty years as a student
of investing. Fueling this desire even more is the state of the world in which we currently live.
Some say that it’s a world gone mad, where the bedrock principles of delivering value in
exchange for wealth are being abandoned and systemic risk looms larger than I’ve ever seen. In
this atmosphere of financial chaos, knowledge and discipline are essential for success.

14
As both a student and an investor, I've accepted that there are no guarantees in life. Despite the
countless ‘gurus’ who tout that they've never had a loss or that their system is bulletproof, that
certainly hasn't been the case for me. I've had losses in every single asset class I've invested in.
And I didn't become a teacher because I beat Warren Buffett in an investing contest. Instead, I
became a teacher because I have a skill for simplification. Amazingly, through all of the ups and
downs, the wins and losses, and the mistakes and lessons, we've been fortunate to accumulate
a number of assets as my wife and I continue to build and implement our own financial
blueprint.
These are the lessons I want to share with my children, close friends, and students. Considering
the times in which we live, this book has an important role to play in society, and that my efforts
to now share some of these bedrock principles with you will bear fruit.
In the following chapters you come to know the power of these six numbers. I will say time and
again that they are life-changing. So let's get started!
Chapter 3: How Money Flows
After taking the time to imagine what you want your dream retirement to look like, the next step
is to create a direct connection between your desired lifestyle and the cash that flows in and out
of your household on a monthly basis. Looking into the future towards retirement gives us our
dream, but the numbers on our financial statement is our reality. In order to achieve the dream,
we've got to connect that dream to the reality of our financial statement.
This is where I part ways with many of the so-called popular financial gurus. First of all, I hear a
lot of hot air about living smaller today so that one can survive tomorrow. Many of today's most
popular gurus preach a doctrine of hyper frugality that mislabels normal purchases as guilty
pleasures – as if buying a premium coffee was overly frivolous or irresponsible. Don't get me
wrong, the principles of thrift and delayed gratification most certainly have their rightful place in
a solid blueprint, but these gurus are unimaginative in my view. It takes no creativity or skill to

15
pull out a napkin and simply write a two word plan that says ‘spend less”. Frugality can only
decrease spending to increase savings. It cannot increase income to improve lifestyle. Shaming
or guilting people into hyper frugality lacks creativity. Let me repeat, frugality alone does not
increase income. A true blueprint is about creating income, not reducing lifestyle.
I say this because often people approach the financial statement in terms of what is good and
what is bad rather than what will work and what will not. It seems as if it's almost pre-determined
that a person is going to try to reduce their expenses. But in reality, the plan for most people will
be to increase their expenses because expenses relate to our lifestyle. Vacations traveling in
first class as opposed to coach demands a goal to increase expenses. Organic foods cost more
than heavily processed foods. The best restaurants cost more than the lower level national
chains.
Time is our most precious asset and so it doesn't make sense to me to reduce lifestyle at any
point in time. The dogma of having to choose between living a good life now in order to go to
live a good life later is not the only choice we have. The idea of skimping until one day we can
finally live in abundance isn't really how a person needs to grow into retirement. In fact a person
could very well see an increase in cash flow that occurs in the proximate future, not just the
distant future. If we build our plan based on increasing cash flow, we should see increases in
income up to and including the day of retirement, rather than just a quantum leap at age 65.
Secondly, many gurus treat debt as if it were a plague or sinfully evil. They are dead wrong.
Debt is merely a tool. A good metaphor might be fire. In the wilderness fire can be
indispensable, providing light, heat, protection, and a hot meal. Of course, fire also has the
power to burn and cause injury. But to ban fire would not be an act of nobility that grows out of
an abundance of caution, but an act of utter stupidity because of all the good it can do. Such is
the case with debt. If a person has gotten along and their years are not having properly planned
for retirement at a young age, some form of leverage is definitely going to be part of their
blueprint if they want to hold true to their desired retirement date. As with so many powerful
things, it is better to respect power and become educated so that we can harness it, rather than
be afraid of it.
Expenses and debt are just two examples of where a person might likely depart from the boiler
plate advice of spending less money and getting out of debt as chief goals in trying to save for
retirement. I appreciate the importance of discipline, but in isolation it cannot match the power of
creativity. Ideally, a blueprint has both. Discipline where it makes sense, and creativity to give it
power.
Having a firm grasp on how the money is flowing will help you in two ways:
1. To see where you might want to improve your spending habits

2. To see how you might increase your income.

16
To walk you through this process of seeing how and where your cash is flowing, let’s start with a
simple financial statement. Don’t worry if you’re not a numbers person, because we’re going to
illustrate how money flows by drawing pictures to make it easy for anyone to follow along.
In fact, understanding how cash flows in and out of your life is probably second nature to you.
We’re all very sensitive to how much money we have, because we all have bills and obligations
that must be taken care of. So whether or not we’re good at it, we know that it’s all about
tracking what comes in and what goes out. The biggest difference is that when we’re planning
for retirement, we want to be accurate and honest with our situation so we can design a
blueprint that will truly help you live the lifestyle you want.
One goal in this chapter is to help you understand a few of the most common patterns of how
cash can flow in and out of our accounts to help you get a sense of which ones might be right to
help you reach your goals. Later, you’ll see how different cash flow patterns can even be
combined into your own custom retirement blueprint. Your blueprint will provide you with specific
achievable steps to follow, and become a bright path to where you want to be.
How Much Does Retirement Cost?
Remember, the big problem we’re trying to solve in retirement is our expenses. So let’s take a
closer look at typical expenses so we understand the nature of this problem we’re trying to
solve.
For our purposes here, let’s focus on the basics that everyone experiences such as food,
clothing, housing, etc. There’s a wealth of data available on these from the Bureau of Labor.
Here’s an overview on the average amount spent on these different categories each year:
When we look closer at the Bureau of Labor’s data, we see how inflation takes its toll on
expenses. For example, in 2021 the average American household spent an average of $66,928
on basic expenditures. That’s a huge increase of more than 9% over the previous year. For
most people, those are the same bills and expenses that will continue through retirement. Many
households are now experiencing even higher expenses as I write this.
Of course there are differences in the circumstances of every household, so those numbers
won’t be accurate for everyone. But if we take $5,000 - $6,000 as an average for our discussion
here, it will help us understand the situation as we develop a blueprint to solve the problem.

17
We’ve all heard the stories of retirees cutting corners just to survive during retirement. Yet
cutting corners on minimal retirement income isn’t what most people dream of. That’s why it’s
essential that we face this significant gap between what the average person will earn and spend
during retirement.
Income & Expenses
I always recommend that my students begin this process of creating their own financial
statements by tracking their income and expenses. This part of your personal financial
statement provides a big picture overview of your current financial position. You’ll be able to
quickly see whether your household is operating at a profit or a loss.
Here’s what a basic statement looks like to visualize how money flows into and out of your
household:
If you are still working in a job, it’s likely that your income is coming from your paycheck each
month. As the paycheck flows into your account, you also have money flowing out of your
account as you pay your bills and other life expenses.
When you are in your earning years working at your job, it may seem fine to cut it close or even
operate with a slight loss. Those who live like this typically use credit card debt to supplement
their lifestyle. They often think it’s okay to spend a little bit too much this month because it can
always be made up next month or with a little extra overtime at work. However, to create a solid
retirement blueprint it requires a little more rigorous financial honesty, planning, and action.

18
Retirement definitely brings a new chapter to your life with big hopes and dreams. But the one
thing you will never escape in retirement are your bills. You still need to maintain your housing,
keep the lights on, stay warm and/or cool, put gas in the car, stock the cabinet with medications,
and have food on the table. These are just some of the necessities you’ll need to account for as
we plan.
These types of bills never completely go away, so they must be dealt with every single month.
As we start accounting for your future necessary expenses, it becomes the backbone of your
successful retirement blueprint. It’s the bare minimum amount of income you need to generate
just to stay alive.
To pay for those bills each month in retirement you need to have income. As we’ll see in the
coming chapters, this income can come from various sources:
* Employer pensions
* Government retirement funds
* Savings
* Income-producing assets
As you determine your different expenses and sources of income, you simply put those
numbers into your Profit & Loss Income statement. If your expected income is greater than your
expected expenses, that’s a good start. And if it’s the other way around, then we have some
work to do. But without this information, it’s like driving in the dark without a map or headlights
hoping you make it to your destination.

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Your Assets & Liabilities
The next part of our financial statement helps us identify all of our assets and liabilities. In
simple terms, an asset is something that puts money into our account while a liability is
something that takes money from our account.
For the purposes of these financial statements to help us understand cash flow, we will only be
entering assets that produce income for you. This could include rental properties, dividend
stocks, business ownership, and more. So unless you rent out your car and your primary living
residence, don’t add them to your statement. At this point, not everyone will have assets that
can be listed here. But knowing this is where you will put those assets is helpful to understand
as you create your blueprint.
After listing all your income-producing assets, it’s time to identify all of your liabilities. As we
stated earlier, these are things that take money from your account such as debt and other
obligations made to other people or companies.
Common liabilities that need to be paid regularly are credit cards, student loans, car loans, and
home mortgages. Liabilities are not inherently good or bad, but need to be fully understood and
accounted for as part of our blueprint foundation, so be sure to list them all.
For the purposes of our blueprint I recommend segregating assets into categories. First are
income-producing assets. These are assets that produce cash on a regular basis. For example,
a rental house can produce income each month. Stock dividends can produce income every

20
quarter. Second, are assets that are designed to hedge or protect. For example, a gold bar does
not produce income, but it can give some peace of mind in case the value of a U.S. dollar falls.
People also might have assets they use for speculation hoping the price goes up such as with
Bitcoin or a growth stock. You might find in making this list of your assets that some things you
own might not be part of your retirement plan. There might be things that you own that an
accountant or a financial planner might have you list among your assets. Expensive items such
as a grand piano, a car, or diamond earrings. Listing these items might help to boost your net
worth, but it's unlikely a person wants to sell these types of things as part of their retirement
plan. For me I prefer to list assets that can produce income such as rental property and stocks.
Some people like to build their own financial statement with a simple pencil and paper. Others
use a favorite software or app on their phone.
Knowing where you stand with your assets and liabilities is essential to understanding your big
picture. You’ll see a little later how this plays into creating your own retirement blueprint.

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Chapter 4: Cash Flow Patterns
With a basic understanding of what a financial statement looks like, let’s examine three of the
most common ways income can flow to us during retirement. We’ll then introduce you to another
way we can create and receive income called the Wealth Cash Flow Pattern. This is a good
way for anyone to visualize the various ways to solve the problem of paying for expenses
throughout life and in retirement.
1. New Money Cash Flow Pattern
The first cash flow pattern is the most common way nearly everyone in the world gets money.
They work at a job in exchange for a paycheck. The new money earned every month comes in,
and then is spent to cover the monthly expenses. If there is something left over, it may be used
for spending, savings, or to buy investments. But when the next month begins, the game starts
over again. You need another paycheck to cover the bills.
We call this “new money” because it didn’t exist for you last month. You must do something to
earn it. In retirement years, many people are forced to continue generating new money at a job
because they have few other means to pay their bills. But as we’ll see, there are other ways this
can be accomplished.
The source of new money is very important with this cash flow pattern because if the money
were to ever stop coming in, it would be difficult for that person to cover their bills and expenses.
For example, jobs produce new income, but if we want to retire that paycheck would cease to
be earned. A pension provides new money each month, but we must be certain the source of
that pension money is solvent and determine whether or not it can keep up with inflation. Our
blueprint should provide new income that we can depend on.

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2. Old Money Cash Flow Pattern
When someone is able to save money over the years, it can then be withdrawn during
retirement and used as income to pay those monthly bills. Since this is money we have saved in
the past, we’ll call it “old money” to understand the difference. If we have old money in our asset
column, we can calculate how long it will last if we use it to cover our monthly expenses.
For example, let’s suppose we have saved $100,000 over the years and will use that money
exclusively to pay our bills and expenses of $4,000 per month. We can calculate how many
months of living expenses that $100,000 of old money can provide for us:
$100,000 ÷ $4,000 = 25 months
So in this example, that $100,000 of old money will cover our living expenses for two years and
one month.
If we’re honest and intelligent when we calculate our financial needs in retirement, we can
quickly determine whether or not our nest egg of old money is large enough to cover ourselves

23
for the rest of our life. If we rely only on this Old Money Cash Flow Pattern, you can see that the
key is to be frugal in order to make this finite amount of money last for the duration.
This cash flow pattern generalizes how common contribution retirement plans, such as 401(k)
plans, might operate. It almost goes without saying that there's a sort of hourglass effect where
the money will only last so long. According to Vanguard in their 2022 report How America
Saves, persons aged 55 to 64 have a median balance of less than $90,000. That means that if
their financial retirement blueprint depends entirely on that 401(k) they will likely run out of
money very quickly.
3. Borrowed Money Cash Flow Pattern
Although not ideal in most situations, and definitely not advocated by most retirement planners,
it’s possible to generate money to pay our bills by taking on debt. To make this happen, of
course, we need to have enough credit worthiness to convince someone to lend us the money
we need. Without any means to ever pay this money back, however, it may be very difficult to
obtain this money.
Borrowing money may be a viable plan if you’re a major corporation, government, or even a
high net-worth individual, because money could then be borrowed almost endlessly. It would be
nice to borrow money with no consequences, but most of us are not in that privileged position.
As we’ll soon see, though, there may be a place for debt in a new kind of cash flow pattern you
may not have considered.

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4. Wealth Cash Flow Pattern
Now let’s imagine what might happen if we find a way to use all four boxes of our financial
statement to create a new kind of cash flow pattern. Even better, let’s see if – in theory – there
might be a way to create a cash flow pattern that can sustain us almost indefinitely during our
lives. In this approach, let’s imagine a pattern like this:
1. We use debt (via a loan) to buy assets
2. With the income generated by those assets we pay our bills
3. If we can generate enough income to cover all of our expenses, including the payments
on that debt, then we could unlock the door to a very satisfying retirement

25
This is the cash flow pattern we will be exploring in the coming chapters of this book. Along this
journey, you will begin to understand the different elements and strategies that can become
important parts of your own blueprint.
With even minimal financial education, it's not hard to see these various cash flow patterns
every day. For most, a dream retirement will involve money that enters their financial statement
by way of some kind of leverage in order to get the compounding power needed to achieve the
goal. Managing debt is a skill and it has its risks, but the other alternative is to have money enter
the financial statement from a paycheck and often takes a longer amount of time. Borrowing is
faster than earning, and if we want to acquire many assets in less time, an understating of debt
and other forms of leverage will be vital.

26
An important aspect of this cash flow pattern is its ability to compress a time frame. There are
probably some pretty stubborn limits on what a person may earn at a job, and therefore they
might be relegated to saving for retirement over many many years. But if a person is open and
willing to learn how to manage leverage as part of their blueprint, the rate at which assets can
be acquired is much faster – and a goal of retiring at a specific age may be preserved.
Moreover, even if a person is young, the opportunity to incorporate some kind of leverage into
their retirement blueprint provides them the opportunity to exit the rat race far ahead of
schedule.
I think it was Winston Churchill who said the only thing we have to fear is fear itself. Forms of
leverage do not need to cause fear, because with the right education those risks can be
managed. However, if a person is close-minded because of something they may have heard in
the past, the price for that mindset is the loss of leverage as a great accelerator.

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Understanding different cash flow patterns is a big part of your financial education. If you would
like to learn even more about various cash flow patterns in a free online web class that shares
even more detail about this, you can visit us at www.TheCashFlowAcademy.com.
So keep this in mind as we now take a quick look at the way people are currently trying to solve
the problem of bills and expenses, and compare that with a Wealth Cash Flow Pattern with
Warren Buffett as our model.

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Chapter 5: Common Retirement Income Sources
Now that we understand some of the basic cash flow patterns, we’re ready to examine some
real-world retirement plans available to many people right now. We’ll learn the common names
for these plans, examine where the money comes from, identify the benefits and risks to
recipients, and even ask some important questions.
The foundation of any blueprint we create is preparation. So digging in to understand these

different plans helps us avoid unpleasant surprises later.
While there are certainly other retirement models being used by individuals, the plans presented
here are the most common ones available for the vast majority of people reading this book. Our
goal is to understand them, see how they will fit in with our overall blueprint, and maximize what
they can offer us.
Government Reliance
Perhaps the most commonly recognized retirement plan we're discussing is a government
safety net plan known in the United States as Social Security. Other countries have their own
local names for this social retirement approach.
This model involves two phases. The first phase is when you pay into the system over many
years of working, paying taxes, and being a valuable part of the economy. If you remember from
Chapter 3, this is the phase of life when the paycheck you earn each month goes into your
financial statement as new money used to pay your bills.
The second phase of this plan comes when you are eligible to receive the financial benefits of
the plan. Based on the amounts you earned over the years, the number of years you worked,
your marital status, your age when you start drawing benefit payments, and other variables, the
Social Security Administration will tell you how much you will receive each month.
Assuming that the Social Security Administration will remain solvent and has the ability to
continue sending you these monthly payments, you can add this expected amount to the
income box of your financial statement. Will it be enough by itself to cover all of your bills and
expenses in retirement? Maybe, but for most people it’s not nearly enough. In fact, this income
is just above the poverty line level. Retirement income from Social Security is helpful, yet
typically insufficient to fund what most people dream of a comfortable retirement.

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Viability of Social Security
When Social Security was first developed, it was never intended to be the sole source of income
during retirement. Instead, it was devised as an important supplemental benefit. Yet for many
people who lived and worked without a retirement blueprint to guide their path, Social Security is
often the only income they receive.
As a government benefit, many people see Social Security as a solid and reliable source of
retirement income. Delving into the solvency problems of Social Security is beyond the scope of
this book. But it’s safe to say that the government isn’t renowned for using our tax dollars
responsibly. What the government gives can easily be taken away. For example, if supporting
the program becomes financially impossible for the government to maintain, it’s possible they
will look for ways to cut and eventually curtail Social Security. So the certainty of receiving
Social Security benefits for the duration of your retirement years is hoped for, but for the
purposes of creating a solid blueprint the system may not be as bulletproof as it appears.
Additionally, inflation is another major factor that can affect Social Security benefit payments.
This applies in any economic climate, but it is a particularly pressing situation today as we face
official inflation rates between 9% and 10%. This not only means that the value of the money
you have saved (old money) is diminishing, but also that what you potentially receive from
Social Security will decrease in value over time. Even though they give regular cost of living
adjustments to a retiree’s benefits, it’s typically not enough to keep up with real inflation rates.
If we look closer at the various government programs that require taxpayer funding, it’s easier to
understand the difficulty of coming up with the money required to fund programs that were
promised by politicians many decades ago. For example, the healthcare budget of the U.S.
government is $1.5 trillion annually. This is just a little more than the amount needed to fund
Social Security, which currently comes in at around $1.2 trillion annually.
Add to this the $694.4 billion of interest payments on the money borrowed by the government
to pay for healthcare and Social Security, and already it’s at $3 trillion each year of the overall
government budget before any other spending is even considered. It’s no wonder, then, that the
Congressional Budget Office and Government Accountability Office consider the current
situation to be completely unsustainable.
These entitlement programs are a major reason why the U.S. government is borrowing
inordinate amounts of money to supplement the revenue it generates through taxes. At the time
of writing this book, the U.S. national debt stands at over $30 trillion and is rising steadily every
single day. In fact, the unsustainable long-term funding of Social Security was recognized
twenty years ago by the Social Security Board of Trustees in its 2003 Annual Report to
Congress. Yet the funding problem has only grown since then, and the overall viability of
government finances is extremely unstable. This is a can that has been repeatedly kicked down

30
the road by Congress, and, frankly, no one is quite sure what the solution or consequences will
be in the long-term.
Additionally, the government recognizes that as Social Security continues to be paid out, the
more likely it is that inflation will continue to steadily rise. As can be expected, this opens a
completely different set of financial problems for the government. And retirees who place a
heavy dependence on Social Security for their retirement income may be in for a surprise at
some point. Yet most people still place a heavy reliance on Social Security as an expected
component of their retirement income, and if you want you can include it in our blueprint
creation. As always, though, it’s important to be aware of the risks and plan where possible.
Pension Plan Reliance
Although defined benefit plans, commonly known as pensions, are quickly going extinct, some
employees working today are still covered by these plans to some degree. Pensions are paid
out in a similar fashion to Social Security: the employers have calculations that generate the
expected monthly benefit payments based on salary, years of service, age at which you can
begin collecting, job movement, and other variables they choose to include.
All these rules are individualized for each company, so for someone nearing retirement it’s
important to go straight to the human resources department and get all the details. It’s their job
to answer your questions and help you understand how the pension plan applies to you.
Pension plans have been around for a long time, dating back to the 1890s. To attract good
employees, other companies across the country quickly adopted pension plans. Soon,
employees grew to depend on the reliable pension income in retirement to enjoy some rest and
relaxation after a long career of hard work.
Over time, companies offering pension plans realized that – like Social Security – pension plans
often become unsustainable. As the pool of eligible retired employees grew, so did their
expected life span. What began as a marketing gimmick to hire more people quickly
transformed into a giant financial mess. They promised employees a pension after so many
years of service, and they were obligated to pay it.
Unlike the government, however, a business focused on generating a profit does not want to
borrow money against future revenue to pay their obligations. To get rid of their legacy pension
plans, many companies have declared bankruptcy to get out from under the unbearable weight
of those pensions. From United Airlines, to General Motors Company, to The Kentucky
Teachers’ Fund and so many others, it’s becoming more and more common for organizations to
try and eliminate their pension problems. And with a swing of the gavel, judges have helped

31
numerous companies eliminate their pension plans overnight. The result has been widespread
financial pain and suffering for those retirees who were promised a pension the company is no
longer obligated to provide.
If you’re fortunate enough to still be covered by a pension, congratulations. But just as we saw
with Social Security, the security of that pension may not be as safe as people think. And if your
pension does indeed survive, you still need to determine if your benefit payments are adjusted
over time for inflation, or if it will be diminished each year as inflation continues to eat away at
your money. Again, these are questions to be answered by the human resources department.
It’s critical to get these answers in order to fully understand the details of the benefits you’ll
receive.
The average payout for private pensions is around $9,000 per year, which is $750 per month. If
you're employed by state or local government, then it's typically a little better, reaching $22,000
per year or $1,833 per month. Federal government employees receive pensions in the region of
$30,000 per year, or $2,500 per month. Other industries have their own payout scales, such as
railroad workers who can expect to receive a pension in the region of $24,000 per year or
$2,000 per month.
Yet even with a pension the problem is the same: it’s not enough to cover even your most basic
needs in retirement. Even when added to Social Security benefits, it’s doubtful you’ll be able to
live your dream retirement from these two income sources. The need for additional income is
still necessary.
Contribution Plan Reliance
As companies found success in the courts to get rid of their legacy pension programs, a new
retirement plan arrived on the scene for employees. These are called contribution plans,
because they are funded primarily by contributions from an employee’s paycheck. Most people
know these as 401(k) plans.
There are various ways an employer can provide a 401(k) plan to its employees, but this is a
fairly representative view of what a typical plan looks like:
1. An employee agrees to contribute a certain percentage of their pre-tax paycheck each

month to automatically fund their personal 401(k) account;
2. The employer can agree to match the employee’s contribution up to a predetermined

percentage of their paycheck;

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3. These two contribution amounts flow to the Wall Street firm that is contracted to manage
and invest the funds on behalf of the employer;
4. In retirement, the employee can begin withdrawing funds from this account based on the
government’s rules and guidelines, and must also pay tax on the funds at that time. The
withdrawn funds can then be used to help pay for bills and expenses.
While it looks extremely generous for employers to match a portion of an employee’s

contribution to fund their 401(k), it’s actually both less expensive and less risky for an employer
to sponsor this new type of plan versus a traditional pension. From that viewpoint, it’s a major
win for a company to offer a 401(k)-type plan instead of a pension. And it’s a massive win for the
Wall Street firms that manage these retirement accounts due to the various fees – including
ones hidden from common view – that reap huge profits for them. And for most employees who
utilize these plans without fully understanding them, they typically think that they are receiving
free money from their employer and utilizing Wall Street management will put them in a great
position. Yet the profits that trickle into the employee’s account are only a fraction of the total
profits earned, while the lion’s share of these profits is legally kept by the Wall Street
management firms.
(NOTE: If you’re interested in learning more about this topic, you may want to refer to my book
401(k)aos. It’s an in-depth exposé on how the entire 401(k) system has been designed to
benefit Wall Street at the expense of the workers they are supposed to be helping. You can
receive a free digital copy at www.401kaos.com.)
Downsides to the Contribution Plan
● A mistake that many people make when they think about their 401(k) account is that it’s
a certain amount of money in an account somewhere that is magically growing over
time. It never occurs to them that the Wall Street firms managing their retirement money
are putting it into the stock market via mutual funds. This is their plan to grow your
valuable retirement money. As an investment, it certainly can’t guarantee any level of
profits, so the results can be unpredictable and vary widely. Ultimately, you are the one
at risk from these investments, not your employer or the management firm.
● People with 401(k) accounts must also recognize that it will not create an endless supply
of money for you in retirement. Instead, what you will have is an hourglass of money that
will trickle out every month when you start withdrawing it. At some point, it will probably
run out while participants are still alive, leaving them again with the problem of bills and
expenses. Compared to a legacy pension that would pay you $2,000 per month no
matter how long you live, a 401(k) account of $200,000 would give you 100 months – or

33
8 years and 4 months – of income. (Perhaps a little longer if the stock market moves
upward over that time, or even a shorter period if the market drops.)
● Since money contributed to a 401(k) is not taxed going in (known as tax-deferred), at

some point the government will demand their money. So they tax it when you take
withdrawals during your retirement years. As a result, the amount you actually receive to
help pay your bills and expenses is reduced yet again. Your money doesn't go as far as
you believe it will. And this means you end up working longer or making compromises
during retirement.
● If you consider the 2008 financial crash, and how it seems we go through major stock
market drops more and more frequently, relying on hands-off mutual fund investing via
these Wall Street management firms actually exposes the average person to more risk
instead of less.
● According to the 2021 report from Vanguard (a huge player in this industry with almost
$2 trillion of investor assets), the median value of its plans for employees aged 65 and
over is around $89,000. The median account is literally the one in the middle of the
entire group, representing the typical person on the street. If we divide that $89,000
account size by twenty years of remaining life expectancy, we get just $4,450 per year
from the typical 401(k) – or just $371 per month. Remember, this means that half of the
65+ population will have LESS than this amount to help them. And it is further reduced
as the government takes their portion in taxes. Clearly, the 401(k) experiment is leaving
employees wondering where all the money went. Based on this data, reliance on these
contribution plans again leaves a massive financial shortfall for retirees to figure out.
A Better Way
Now that we have briefly explained the most commonly available retirement plans for the
average person, let’s look at something entirely different to help broaden our thinking about
what is possible in retirement. I have long admired the way Warren Buffett thinks and operates
as an investor. And this approach will guide our path through the remainder of this book.
I'm not saying that it's been authored or endorsed by Mr. Buffett himself, or that it's guaranteed
to bring the billions that it's brought him. But what it does mean is that his actions can give us a
definitive pattern of how he acquired wealth by using the power of compound interest and
keeping a sound temperament. There's no question that traditional cash flow patterns are a far
cry from what Warren Buffett and his longtime partner Charlie Munger have applied.

34
As we’ve looked at the three previous retirement plan approaches – Government, Pension, and
Contribution dependence – we can see that each of these will leave us well short of our
retirement income target. Even when we add all three together, it’s difficult to generate enough
income to fund the ideal retirement lifestyle.
By contrast, this blueprint shows us how we can use financial education and focused action to
generate perpetual income we can rely on now and in the future. We’ll illustrate how the
expense problem can be tackled and conquered with this approach.
Most people will readily say they dislike the rat race of life that requires them to work and pay
bills in a seemingly endless cycle. Everyone seems to want a way off the spinning wheel. Yet
even with the evidence shown in this chapter about the shortfalls and pitfalls of the most
common retirement plans, many people will turn away from this investing approach. They
simply don’t have the attitude to try something new, even if it’s in their best interest.
Yes, these ideas may push you out of your comfort zone. But as you will learn, these ideas are
not weird or new – they are the backbone of wealth-building used by some of the smartest and
most successful people on earth. We are simply showing you how these financial strategies can
work for the average person to build your own personalized retirement blueprint. Whether or not
you implement these ideas is entirely up to you.
What you’ll find to be really compelling about this blueprint is that it allows someone to entirely
bypass the rat race if they choose. All of the other plans we discussed require that you work
inside the rat race at a job to get your eventual retirement reward.
Our approach, on the other hand, relies on using financial intelligence and a willingness to act to
achieve our goals. Achieving this doesn’t depend on your age or years of service. Accordingly, it
will reward anyone who follows the steps – even those who are in their twenties or thirties.
At my company, The Cash Flow Academy, we dedicate ourselves to helping average people
gain this intelligence for themselves by providing them with the foundation to construct a plan
based on these principles. Again, these ideas may seem foreign and even a little daunting at
first; but don’t be dissuaded from your goal. Although it certainly takes work to achieve, this can
be the easiest blueprint to create because it enables you to decide at what age you're going to
retire, and then ultimately work towards this goal.

35
Chapter 6: Aim To Be Atypical
Warren Buffett is far from typical. But this book is not about him, it's about you. In this chapter,
you will be given an important question to think about. Do you want to be typical? From time to
time, I receive a bit of criticism because the things I teach are not typical: “You can’t do that in
this country” or “The typical person does not have the financial education to understand stocks,
options, real estate, debt, or taxes.” Strangely, some folks complain about the status quo and
desire to achieve something outside the box. Yet at the same time, when they are presented
with something truly outside the box, they complain because it's not what most people do.
In this chapter you will learn about ideas that are definitely outside the box, which will provide
you with a choice to make that feels right for you.
So let's begin with what is typical and do a quick review of what the average person might
expect to receive from typical sources of retirement income:
• Social Security income: $1,500/month

• Pension: $2,000/month or 401(k): $300/month
When we compare that meager income to the typical household requirement of $5,000 - $6,000
per month of expenses, we can see the shortfall facing many retired people. If most people use
a conventional approach to retirement, they will usually face two life-changing decisions:
• Continue to work more years than they desire, or

• Reduce their expenses
Ideally, we want to avoid both of these undesirable options. That means you might need a
solution different from what is typical.
Don’t be typical
My invitation to you is to remain open to big ideas and big goals. Our opportunity is to be
atypical.
• That means spending more time creating our blueprint than the typical retiree spends
• That means engaging in greater personal development than the typical retiree
engages in
• That means bringing more value to the world than the typical retiree brings
• And of course it means accumulating more assets than the typical retiree
accumulates

36
As a thirty-year student of investing, I've had many mentors and teachers. I've had the benefit of
studying first-hand with some of the greatest personal finance teachers on the planet. I've
interviewed dozens upon dozens of experts and PhDs on my podcast, and I’ve learned from the
books they have written. While these mentors and teachers have certainly been valuable for my
development, I’ve never had the opportunity to personally meet the two people who have had by
far the most influence on how I think as an investor. They might be the most atypical investors
on the planet: Warren Buffett and his partner Charlie Munger.
Each year, their company, Berkshire Hathaway, releases a letter to its shareholders where
Warren Buffett gives commentary on the current state of affairs, and also shares lessons and
philosophies he has learned. These letters are posted on their website, and I’ve found them to
be as valuable as any book I've read on investing. In addition, I have tried to follow what they
actually do as investors in order to learn from them.
Here's a handful of observations that have stood out to me from their teachings:
Compounding – Compounding is among the most powerful investing tools you can find. The
keys to compounding are very simple. Start early and be consistent. Those two keys have much
more to do with a person’s temperament and discipline than any kind of financial wizardry. This
type of discipline is atypical and presents a huge opportunity to be different from the masses.
Risk Management – I mention in some of my other writings that there are many approaches to
risk. Some people are risk takers. These are emotional investors held hostage by greed. The
rewards are large enough that they can't resist taking risks. Others are risk-averse or avoid risk.
These risk avoiders are also emotional people that no matter the reward available, they can't
stomach the fear of losing. The third category is risk managers. These people recognize the
reality that there is a correlation between risk and reward, but rather than rolling the dice like a
risk taker, or running for cover like a risk avoider, they have effective systems and tools to
address and manage risk. This is also atypical of most investors.
Diversification – Diversification as it's widely used makes no sense. As of this writing, about
40% of the money Warren Buffett has invested in the stock market is in a single company called
Apple. Typically, mutual funds spread money around many stocks and seek a more even
distribution among sectors. Warren Buffett is atypical, in that he invests heavily in the
companies he sees as being the best. Warren Buffett is a business picker and invests based on
the merits of the business. Diversification is not his goal.
Business Ownership – Buffett and Munger believe in owning businesses rather than trading
stocks. In this chapter we will delve deeply into the difference between a focus on the price of a
stock and a focus on the earnings of a company. One is a function of net worth and the other is
a function of cash flow. Typically people think about stock prices going up and making people
rich. But Warren Buffett is atypical because he considers the profits flowing from the business to
be most important. Another way one might view this, is that his priority is to deliver value to his
customers. This is called earning money.
Derivatives – Warren Buffett has used warrants and option contracts as part of his wealth plan.
Later on we will see a short introduction to these types of instruments and make them simple.
Granted, warrants are typically not available to the common retail investor, and Buffett is

37
certainly an insider when it comes to the use of warrants. Option contracts however, are
available to the common investor. But their use is certainly atypical. They offer a kind of
leverage that is different from traditional debt. Some of Buffett’s shrewdest moves involve these
types of derivatives that give him the ability to control his interests in stocks.
Wall Street – A typical investor places money in the hands of a Wall Street firm or other entity to
manage their money. Warren Buffett knows that the fees charged by these types of institutions
"subtract value from what the layman can do himself.”
Crashes – Buffett loves a good stock market crash. This is extremely atypical. The very nature
of a bear market is the mass selling of stock shares. As price’s plummet, Buffett sees this as a
sale on good companies. As the masses sell, he looks to buy.
Personal Development – While there are many aspects to personal development, there are two
aspects that I feel are at the top of the list. First is education. This is atypical of most investors.
Very few people study investing. Second is performance. A person that has the discipline and
temperament to match their behavior with their knowledge is a highly developed person. Buffett
spends most of his time learning. A good portion of his day is spent reading and gathering
information. He enrolled at Columbia University specifically to learn from his mentor Benjamin
Graham. As a young man he enrolled in a Dale Carnegie course to learn public speaking and
increase confidence. Buffett believes that we've been given one brain and one body with which
to navigate our lives. Taking care of those two things is paramount because they are the
machinery we have to build our blueprint and turn it into a reality.
Optimism – Buffett is a patriot. He believes in American business. He believes that morning will
follow the night, the sunshine will follow the rain, and the spring will follow the winter. He
believes deeply that the entrepreneurs of the world will always work hard to bring better value at
lower prices to the world. He believes in constructive capitalism, but also humanitarianism. He's
proud of the products that he offers to customers. And he believes that producing is better than
consuming. It is typical for people to have just a few sources of income that come from
production, yet many sources of expenses that come from consumption. For example it is
typical to have one or two jobs per household to produce income, but there are numerous ways
that money leaves the household. Buffett is the opposite. He owns a company, Duracell, that will
produce more batteries than he will ever consume. Dairy Queen, another company he owns, will
produce more ice cream than he will ever consume. And Fruit of the Loom, yet another
company of his, will produce more underwear than he will ever consume. His optimism is that
entrepreneurs will always be motivated to innovate and work very hard to deliver better value at
lower prices in an effort to beat the competition.
If we make a sincere effort to mimic Warren Buffett and infuse many of these principles in our
own wealth plans, it will go a long way to help us avoid having to work longer than we desire or
to curtail our lifestyle in retirement. Each of us has the opportunity to design our future income
based on the retirement lifestyle goals we desire.
Compounding Assets

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The principle of compounding is simple. It is simply re-investment. In other words, when we earn
money, we look to reinvest that money in new assets. That’s it.
Compounding can create a powerful context that improves the way we see money. A typical
person sees money as a way to pay expenses. A worker bee generally earns a paycheck for
one reason: to pay bills. The bigger the paycheck, the more bills he can pay in the form of a
fancier car or a larger house.
Warren Buffett sees money as a tool to produce more money, because his context is about
earning and reinvesting to buy more assets to create more earnings, which allows him to buy
more assets to create more earnings, and so forth. This takes discipline and consistency.
Separating Price from Earnings
My students at The Cash Flow Academy have become accustomed to my classes and books,
where I illustrate lessons with simple drawings or stick figures. At times, I've worried about such
simplicity being seen as condescending, because many of my students are college graduates
with advanced degrees. Happily, this unique simplicity has been extremely well received by both
new investors and experienced investors alike. One of my common drawings is what I call the
"Cash Flow Jack-In-The-Box”. It’s a quick illustration that symbolizes the real value of an asset
quite beautifully. As with all metaphors, this approach also has its limits. Yet a person can
understand the main principles very quickly from these simple pictures. My students have
learned that when I pull up my whiteboard and draw a “Cash Flow Jack-In-The-Box”, a valuable
lesson is about to be given.
This little drawing makes it easy to separate the price of an asset from its earnings. It’s pretty
obvious that when we buy an investment we're hoping that it can create constant cash flow. If

39
it's a rental house, we will receive monthly income from the rent. If it's a business, we hope to
receive a regular income from the operations. So basic compounding is simple – when we
receive some cash flow from our investments, we have an important choice to make. We can
take that cash and go buy some new doodad – a new car, a new boat, a dream vacation, or
some designer shoes. There may be a time and place for doodads, but right now we are
focused on acquiring assets to help us reach our goals. Which is exactly what makes Warren
Buffett so atypical – he is relentless in his efforts to reinvest earnings into new assets. Time and
again he sees the purpose of his Cash Flow Jack-In-The-Box as creating money to buy yet
another Cash Flow Jack-In-The-Box.
There came a point earlier in his career when Buffett's first wife, Susie, felt that he had so much
money he should be giving more to charity. But Buffett was very clear in his vision of the power
of compounding. By maintaining his stance of constant reinvestment, he knew that ultimately
the gifts he would be able to give to humanity would inevitably be larger – by orders of
magnitude – over what they would have been had he curtailed his compounding efforts earlier in
his investing career.
This principle of compounding for reinvestment accelerates wealth accumulation by its very
nature. In other words, the velocity at which wealth grows increases exponentially.
Discipline and patience play a large role in a person's wealth blueprint early on because it can
initially take some time for one asset to earn enough money to buy another.

40
But it takes half the time for two assets to buy the third asset…
And even less time for the first three assets to buy the fourth asset.
This is one simple way to see the beginning of the exponential power of compounding. In later
chapters we will discover much more about the rate at which you'll choose to compound. As you
can imagine, rates and risk are going to vary based on many factors.
People with jobs often live in a paradigm of consistency and security, so they want to know
beforehand exactly what rate they can expect from their investments. They are often
uncomfortable with the thought that the rate at which their assets grow might vary from year to
year. This is a very normal mindset for a beginning investor. I’ll often joke with new investors
about what type of return they should look for: "You'll probably find yourself somewhere between
an infinite return and losing everything you have!”

41
We'll have plenty of time to hammer out what your goals for return will be in your blueprint. For
the time being, I like to determine how long an asset will take to pay for itself. I’ve found this to
be a beneficial practice because it helps me focus on the true value of the investment instead of
the price.
When asset price becomes irrelevant
In this section we’ll explore the differences between the typical capital gain investor and atypical
cash flow investors. This discussion will help us see how investing for cash flow can be easier,
less stressful, and ultimately more profitable.
Cash Flow Investors: Capital Gain Investors:

● Focus on earnings from serving ● Focus on asset price growth
customers ● Strive to create wealth by buying
● Strive to create wealth by buying assets with the potential of price
assets that feed the income statement increase
● Love a surplus and hate a deficit ● They love a high net worth
● Their retirement blueprint is a function ● Their retirement blueprint is a function
of the income statement of the balance sheet

42
Let’s look at the differences of these two investing approaches with the simplicity of our Cash
Flow Jack-In-The-Box:
Beginning investors tend to focus on the price of an asset, and have a difficult time seeing
beyond that. The current and future price of an asset are very difficult for an investor to control.
House flippers begin with a goal of forcing the price higher. Stock traders begin with a goal of
catching trends. Yet neither the house flipper nor the stock trader has an interest in serving

43
customers over the long term. They want to get rich by buying and selling pieces of paper such
as a deed or a stock certificate.
Cash flow investors, on the other hand, want to earn their money by providing value over the
long term. Therefore, they care about the health of a business and its long-term prospects.
As a result, it’s easier for a cash flow investor to avoid being overly concerned about the risk of
a falling asset price. This is key for you to understand. If I have confidence that a business can
return my entire investment by way of the cash flow that it will give me, then I need not concern
myself about the price. This is why I encourage students to get in the habit of calculating how
long it will take for the asset to pay for itself. The goal is to recoup your investment amount so
that you eventually have none of your own original money in the deal.
What would it feel like to have the stress of risk and price fluctuation disappear?
Consider two different scenarios of owning the same stock, and what it looks like from a risk
perspective:
1. I offer to give someone a share of stock, totally free. They take no risk whatsoever, because
the purchase price of the stock doesn’t come out of their bank account. They will receive this
asset, and all of the cash flow it will produce, for the rest of their life. There’s just one catch: they
have to wait ten years before they can receive the asset.
2. Someone can purchase that same share of stock today with their own money, and can
receive all the cash flow it produces for the rest of their life. The risk is the purchase price of the
stock.
Scenario 1 might look like the most attractive approach, because there is no risk for the
recipient. The only drawback is the amount of time they must wait to receive this free stock.
After that, all the dividend income from the company’s earnings will be theirs to keep, free and
clear.
Scenario 2 might seem risky because there is real money on the line. But as we’ll see, when an
investor chooses a solid company to invest in, the money spent to buy the stock can be
recouped to the point where the dividend comes from an asset that has been entirely paid for –
just like in Scenario 1.
To illustrate this, let’s use an oversimplified example with a couple of assumptions to make it
easier to visualize:
● An asset can be purchased for $10 today
● That asset produces $1 in income every year

44
In this simple comparison, we can see something new and interesting: after the purchase of the
asset for $10, these two scenarios look very similar. That’s because the income is able to
reduce the amount the person invested every year by $1. So when they invest in a solid asset
with a high likelihood of continued income distribution, the fear of losing money because of a
falling price can virtually disappear. Why? Because the blueprint is built on income rather than
price. With a steady stream of income, now we can see that there’s no real reason to worry
about whether the price of the asset is going up or down over time. Because with an
income-based asset strategy, asset price fluctuations don’t matter anymore.
There is an epiphany for many people that comes when they realize they can compound their
wealth and income without having to rely on the asset price going up. It’s a totally different
mindset that frees them to focus on quality assets that they want to own for the long haul,
instead of hoping to find ones that might go up in price.
There’s a feeling of confidence knowing that as long as the assets continue to earn money, it is
only a matter of time before the assets return all the capital invested. In both scenarios above,
we have none of our own money in the deal after 10 years, because even in Scenario 2 it has
all been paid back to us through dividend income.
It’s a travesty that this concept is absent in our school systems, because if a person learns how
to start at a young age a typical return can bring massive results over time. Instead of Wall
Street institutions owning most of the vast assets of the world, people living in Omaha,
Nebraska could own these assets – the way Warren Buffett does.
I think companies like that will likely be around for many decades. Will my grandchildren likely
enjoy a Coca-Cola? Will my great grandchildren likely put Heinz ketchup on their french fries?
The company stock price might go up and down, but if I focus on owning shares of quality
businesses I can release myself from that worry and concentrate on the company's ability to
generate money.
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In the cash flow context of compounding, the only price that will matter is your purchase price.
As long as the purchase price is low enough, and the asset’s’s earning power is high enough,
an investor is going to get their money back. In fact, the price of the asset can even fall without
having any impact on the blueprint so long as the cash flow remains intact.
Think of real estate. If we build a blueprint around consistent rents, we will have an income
throughout retirement. Yes, our net worth will also likely grow because of the appreciation of the
property itself. But the ups and downs of housing prices will not concern us because our
blueprint doesn't depend on net worth.
Think of stock ownership. If we build a blueprint around consistent dividends, we will have an
income throughout retirement. Yes, the stock prices will likely appreciate as the overall market
goes up over time. But like a real estate example, our blueprint won't depend on net worth. And
if a person needs a greater rate of return than its dividend provides right now, we can
supercharge our stock ownership with some ideas we will give in Chapter 6.
When looking at the above oversimplified example, I can already hear some people saying, “But
Andy, your example of a 10% return from an asset is totally unrealistic!” That kind of response is
good, because it means they’re paying attention. It’s also natural, because our minds can
sometimes bypass the bigger lesson of a metaphor and search for whether or not it makes
sense. So keep that part of your brain in check for a few minutes and focus on the big picture of
how an asset can pay for itself– because in the following chapters you'll likely be pleasantly
surprised.
For now let's identify the important lesson of this example that will be helpful as we get further
along in our journey. With stocks, our focus is on the money earned by the business and not the
stock price. With real estate, our money is earned from the rents received, not the home price.
Our ultimate goal is to make the price of the stock completely irrelevant. When we have an
investing system that eliminates the need to worry about price, we've now eliminated much of
the fear that typical investors feel.
Another advantage of focusing on earned business income instead of just the asset price is that
it allows us to calculate how long it will take for you to get your original investment back.
Because when you are able to get all your original money back, it feels very much like the
scenario where I give you an asset for free. In both cases, that asset generates perpetual cash
flow beyond those ten years. Where the price goes after that initial purchase is irrelevant to us if
we can generate steady income from it.
So the difference is simple. A stock trader sees opportunity only through the movement of a
price. If the price drops, the only way to grow his money is if the price increases above the
original purchase price. Business owners see that the recuperation of their initial investment
comes from CASH FLOW from the business, which puts them in an entirely different risk
mindset.
Remember that the previous example used a timeline with a ten year rate of return as an
illustration. We can design a blueprint that gives a rate of return that is faster or slower
depending on someone's individual timeline.

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Exchanging value for money
One of the lessons I'm teaching my two young sons is that everything you receive will be a
reflection of what you give. The piano will give back based on what you put into it. The game of
basketball will give back based on what you put into it. Your marriage will give you back what
you put into it.
The concept of investing is about putting things in. It's unfortunate that people lose sight of that
fact. The idea of serving others to receive what you want should be part of your blueprint.
Without that mindset an investor can become detached from his investments very quickly. In my
business our efforts focus on the customer and what we can give them. Most of our time is
spent trying to deliver value to those who seek our help. Just as your blueprint should apply the
law of compound interest, you will do well to also employ what might be called the law of
exchange.
When I draw a Cash Flow Jack-In-The-Box I always take time to draw three important elements:
● A price tag
● An earnings dispenser
● A hand crank
The hand crank represents work. I would never teach my sons anything that would devalue the
opportunity to work hard. There might be some people who seek a work-free financial blueprint.
Our primal nature loves the notion of getting something for nothing. But if we discount the
opportunity of work by looking at it as a burden rather than an opportunity we lose a huge
advantage.
As a basketball player, I learned early the value of maximal effort. Although I grew fairly tall, I
didn't have the natural athletic ability of most Division One college players. My secret weapon
became work and effort because I saw it as an opportunity to achieve what I truly wanted. The
opportunity to work and achieve will always be there for the taking when we can learn to
overcome our desire to get something for nothing.

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And here’s another important secret: hard work doesn't have to be miserable. I've encouraged
my sons to participate in sports because it gives an opportunity to experience what a supreme
effort actually feels like. There's a joy in maximum effort when we are engaged in something we
care about.
A person that goes to the Berkshire Hathaway yearly event will see tremendous pride shown in
the products that are produced by the various companies they own for the benefit of consumers.
In short, the hand crank represents the work we're going to do to bring value to the world.
Some folks berate the wealthy. That is their choice. That is their right. Personally, I'm grateful to
people like Steve Jobs for all they have given me in my life. The iPhones, the iPads, the
MacBook Air, and the Mac Pro. These tools have brought much more to my life than the money
I gave Apple in exchange. These things have been life-changing for my family. It takes a lot of
work to invent and then build three hundred million iPads. I think Jobs gave a lot more than he
took, and when we look at Warren Buffett's philanthropy, he has earned billions more than you
and I will likely earn, but he's also given away billions more than you and I will likely ever give.
One of the major downfalls of retirement is that people tend to lose the ability to serve others as
they become consumers rather than producers. After a person spends their career working and
then retires, they are no longer bringing value to their employer. As a result, their cash flow from
a paycheck dries up. Investing in businesses or real estate allows us to continue to deliver value
to others beyond our working years, and continues the inflow of money in exchange for that
value.
Few of us have the grand scale of investing that Warren Buffett commands. He’s able to
completely buy many of these Cash Flow Jack-in-the-Box companies entirely, such as Duracell,
See's Candies, Fruit of the Loom, Geico Insurance, and more. Yet on a smaller scale, most
people can seek to entirely own a small business or franchises as part of their wealth plan.
Another approach to owning a business is with a group of people, such as with shares of stock
or real estate syndication. There are many advantages to this kind of shared ownership. It
allows the little guy to become involved in opportunities that they could never have been
involved with on their own. When most people think of leverage, they think of debt. But in reality
there is also leverage available to us when we come together with other people. Public

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companies that issue shares or real estate investors that offer syndications make use of such
leverage in group synergy.
In the world of real estate syndication, the earnings of a property such as a multi-unit apartment
building are distributed among the investors who are LLC members. This can provide valuable
monthly or quarterly income.
In the world of stocks and public offerings, the earnings of a company such as Apple are divided
among the shareholders and typically given quarterly as dividends.

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As we'll see in chapter 6 each asset has different advantages. We will see how to employ
leverage in real estate to get wonderful rates of return, but there will always be a limited upside.
Stocks don't have the same leverage in terms of debt, but their upside is much greater. Good
companies can scale globally in a very short amount of time and bring in vast amounts of cash
as they serve more and more people.
Have a quality operation
The word operation is important because it means things are happening. That's the hand crank
of the Cash Flow Jack-In-The-Box. The quality of the operation determines its cash flow. Its
ability to innovate determines its longevity. There is nothing more important in the operations
than its ability to serve people. Because the company’s operations are moving that crank, it
means you don't have to do it yourself. There’s a system in place to keep that crank moving
even while you sleep. That’s one of the benefits you receive as an investor, the ability to
continue serving people even in retirement.
This brings us to one of the most important terms an investor can learn: "operating earnings.”
Simply said, it is the money we receive because of the service our assets provide for their
corresponding customers.
In a recent letter to Berkshire Hathaway shareholders, Warren Buffett was clear about the
importance of operating earnings as he evaluates his assets. As he studies the financial
statements prepared by the accountants using generally accepted accounting principles
(GAAP), he shows that he primarily cares about a quality operation and the earnings it
produces. That's why he doesn't have to diversify, because he selects quality businesses to
start with:
“Operating earnings are what count most, even during periods when they are not the
largest item in our GAAP total. Our focus at Berkshire is both to increase this segment of
our income and to acquire large and favorably-situated businesses. (2020)”
Think of a golden goose. I would never think of selling a golden goose because the price went
down. In fact, why would I ever sell something so valuable for so little money? No, the only
reason we would sell a golden goose is if it stopped producing golden eggs. Ideally, we can pick
up a golden goose on the cheap. Because we know that we'll get our money back via the
golden eggs it produces, why would we ever care about the price of the goose after we
purchased it?
Like Buffett, we can also look at market crashes as a tremendous opportunity to accelerate our
blueprint. These are amazing opportunities to pick up assets at a discount that can be easily
paid for by their earnings. Once again, Warren Buffett reveals in his shareholder letter that
stocks offer some excellent advantages to investors:
I make many mistakes. Consequently, our extensive collection of businesses includes

some enterprises that have truly extraordinary economics, many others that enjoy good
economic characteristics, and a few that are marginal. One advantage of our
common-stock segment is that – on occasion – it becomes easy to buy pieces of
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wonderful businesses at wonderful prices. That shooting-fish-in-a-barrel experience is
very rare in negotiated transactions and never occurs en masse. It is also far easier to
exit from a mistake when it has been made in the marketable arena. (2021)
The focus is always on getting a wonderful business at a wonderful price. And the price is
wonderful when it allows the earnings to give us a return of our money much quicker. We
reinvest earnings to compound and that happens when we serve the customer over decades of
time.
Since we’re using Warren Buffett’s investing strategies as our model in this process, ask
yourself how you can transfer these principles from these shareholder letters into your investing
blueprint.
If you have a typical pension plan, or Social Security, does it fit the following criteria? If we want
to be atypical, at a minimum we want to add these priorities to our own financial blueprint:
• Operational earnings is what comes to us from our money box when we provide value to
the world in the form of goods and services.
• Focusing our investing on favorably-situated businesses which provide that value is the
key to reaping cash flow now and in the long term.
• The price fluctuations of a stock are virtually meaningless if we’re acquiring stock in
businesses with strong earnings.
• We can compound our wealth in those companies by reinvesting the dividends we

receive from their profitability back into the purchase of additional stock.
• It’s possible for anyone to own a portion of the most successful companies in the world,
such as Apple, American Express, Heinz, and others that distribute a portion of their
profits to shareholders as dividends so you can use as new cash flow.
• As these companies continue to grow, your wealth continues to compound based on

their efforts on your behalf.
So if we were to imitate Warren Buffett’s approach to investing in stocks which produce cash
flow in the form of dividend distributions to shareholders, we can make a quick calculation to
see how many shares of stock we would need to cover our basic expenses.
Leverage the law of the farm
When I'm asked to speak to groups of young people on the topic of investing, I often begin with
the example of the farmer. Farmers put seeds in the ground as an investment and they work to
take care of them. The bounty can be exponential.
The same is true for the rancher. They have learned to work in harmony with the laws of nature
rather than fighting against them. If you want a herd of cattle, you start by buying a few bulls and
cows. During the year, you feed and care for them. As they breed and give birth to new calves,
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your herd begins to grow. You may choose to buy a few more to speed up the process, but now
you know what must be done to keep that healthy herd growing. You will set a goal as to how
soon you will get it to where you desire. The plan is clear. You may lose a few to wolves or
disease, but the momentum keeps you on track. You may choose to sell a few of your young
bulls to buy more cows for breeding. Adjustments are needed along the way, but the plan
always guides you to the ultimate goal.
When you realize one day that you’ve become a wealthy rancher, you think back and
understand that it happened through work and dedication to the blueprint you started with all
those years ago. At any point you could have sold the herd and bought a boat or a bigger
house. But your blueprint guided your every move. Now you see that your herd can provide you
with an endless supply of income as you sell just enough to meet your needs, and then watch
as the herd replenishes itself year after year.
While your blueprint probably won’t involve growing a herd of cattle, it will almost certainly
include growing a collection of assets such as stocks and real estate. And when you learn how
to grow those assets through smart buying, and then compound those assets through smart
management, they can reward you with ongoing income to achieve your retirement lifestyle
goals.
For our purposes here, compounding is the process of increasing the number of assets we own,
and then leveraging those assets to generate new money. We can then use that new money
any way we like. During the years we’re building our plan, you will use this new money to
acquire additional assets and grow that part of the financial statement. The goal of this strategy
of acquiring and compounding assets is to enjoy the stream of ongoing new money generated
by those assets to spend and enjoy for the remainder of our lives. Selling the assets is like
killing the golden goose in the fairy tale. Once the assets are gone, the stream of golden eggs
will disappear with them.
What kind of Cash Flow Jack-In-The-Box do you want?
The question is, where can you buy a box like this that gives you money as you give value to
the world? How do you want to serve others? Are there businesses that you're passionate
about? For example, your box might look like a piece of real estate that provides value by giving
people shelter. You then receive money for this exchange of value in the form of rent payments.
Or it could be a business that sells products wanted by customers, and they happily give you
money in exchange. Think of companies such as Coca-Cola selling soft drinks, or Apple selling
popular electronic goods and services. When you think of all the businesses there are in the
world, the scope is truly incredible when you consider how entrepreneurs and experienced
business people are finding ways to continue offering value to the world. In exchange,
customers shower these businesses with money.
Notice that in these examples, the money is always earned through an exchange. It’s not a gift
or an inheritance. It’s an exchange of value. And when those profits roll in, that’s what turns the
crank on our Cash Flow Jack-In-The-Box that can push money into our account.

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Retaining Assets
Now imagine having one of these boxes in the asset column of your financial statement
cranking out money for you every quarter or every month like clockwork. That’s the value of a
real asset that generates income for you. That is the backbone of The Wealth Plan we are
hoping to build: find assets that crank out money whether or not you choose to work. In a
nutshell, that is how wealth is built for you now and in retirement.
Next, look into the future when you have a variety of income-producing assets. At that point you
have the luxury of evaluating your assets to see if they are measuring up to your expectation. If
the amount of income is less than you think it should be generating, you are then in a position to
sell it and buy another asset that performs better.
At this point, the two most common questions people ask are:
1. How do you find these profitable and reliable stocks?

2. And how do you generate cash flow from these stocks?
There are many approaches we can use to search for stocks. To make this process simple for
beginners and experienced investors alike, we have condensed this knowledge into what we
call The Four Pillars of Investing. These four pillars guide us to find strong companies we want
to own through stock shares, help us know when to buy, how we can generate regular income
from the stocks (not just capital gains), and how to manage our risk every step of the way to
avoid irreparably hurting our account.
I’ve found it’s much easier to work toward a plan when buying assets instead of randomly
buying mutual funds that someone else chooses for you. And as you see your plan working in
your favor and your goals getting closer, your level of motivation to complete it also grows.
As a brief recap to what I covered in my previous book, 401 (k)aos, here are the most common
ways for the average person to receive free cash flow from their investments:
Real Estate – No matter if the value of a property goes up or down, the owner can continue to
receive rental income as long as they hold the property. This provides a stable and reliable
income source in retirement. And the owner’s wealth compounds even more as the value of the
property goes up over time,
Stock Ownership – With dividends and other cash flow strategies available to stock investors,
it’s possible to plan for and receive a steady stream of income from your shares. Like real
estate, as the stock price goes up over time the investor’s wealth is also compounded.
Business Ownership – When done successfully, owning a business provides both income and
increasing value over time. This is perhaps the most time-consuming asset opportunity, while
also providing the possibility of the fastest and greatest growth.
If a person has big dreams in retirement they'll find that part of their blueprint will include
personal development. New education, new skills, and new levels of involvement. Very few of
the boilerplate hands off style retirement plans given out by corporations or governments have
the horsepower to achieve big dreams. Most of them require the person to tell their dreams
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because there's no plan to increase one's capacity to serve others or give a greater amount of
value to the world which can return to an investor and entrepreneur 100 fold.
In my experience the person is either open or closed. People who are closed to the idea of
personal development will in turn have to accept some of the subpar or supplemental retirement
solutions we mentioned earlier in the book. Other people are very open and feel in electricity
and an excitement about the idea of becoming more educated, more powerful, more involved,
and unlimited freedom in creating a financial statement that can deliver on big dreams.In
summary, the basis of The Buffett Wealth Plan is to buy assets that compound over time, and
use this compounding characteristic to build our overall net worth. Additionally, we want these
assets to generate free cash flow for us to use throughout our retirement without having to sell
the underlying assets. With these reliable sources of income, we’ll be able to rest easy knowing
that our bills and expenses are covered without having to work at another job.

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Chapter 7: Compounding For Real Wealth
Now that we understand the importance of compounding, it’s time to take a closer look at how
someone can actually implement the power of compounding to benefit their retirement.
Specifically, we’ll look at the three important elements we need to consider when planning how
to compound our assets for growth and income.
Since many people feel they’re working with very small amounts of excess income to save and
invest now, we’ll also look at ways to use leverage to give you access to more buying power to
acquire assets. The goal is to help everyone reading this book realize there are ways for
virtually everyone to achieve their investing goals for retirement. Yes, it takes learning and effort,
but so does everything worthwhile in life. So let’s dig in and see how compounding can
accelerate your ability to retire when and how you desire.
Money, Rate, and Time
The concept of compounding is really very simple:
Money – How much money you have available to buy an asset now, plus how much you will be
regularly adding to acquire more assets from now until retirement.
Rate – The amount of return your money can earn from a specific asset, presented as a
percentage. For example, if you invest $100 and receive $10 during the year from that
investment your rate of return is 10% ($10 ÷ $100).
Time – The amount of time from now until your desired retirement date.
How Much Money Should You Start With?
Many people become discouraged with the idea of planning and investing for their retirement
because they don’t think they have enough to start with. When people ask me how much money
they need to get started, I jokingly reply that $1 billion is a great place to start. But the truth is
the only place we can start is exactly where we are. Remember, Rome wasn’t built in a day and
neither will your retirement account. So it’s more important to be realistic about where you are
and plan accordingly, instead of lamenting that you have too little and giving up before you even
start.
We’ll walk through how this can be done, because the concept of compounding is vital to
achieve your objectives – especially if you have very little to work with.

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What Rate Should You Aim For?
Like money and time, the simple answer is the bigger rate of return, the better. But we live in a
world of realities, so we need to understand how rates of return work to help us achieve our
targets. In our current situation when this book is being written, interest rates for basic bank
savings accounts are anywhere between 0.05% and 1.0% per year. With rates that low, it’s
difficult to consider using a savings account as a tool to compound your money. Real estate
investors often target 5% - 10% and more as their desired base rate of return. With stock
dividends, it’s possible to get anywhere from 2% - 4%, and occasionally more.
Entrepreneurs often seek triple digit returns. I've been able to teach my sons the secret to
infinite return. Infinite return can occur when a person has none of their own money in an
investment. This can happen by using debt, but it can also happen using other forms of
leverage that don't require debt. What infinite returns do require is a sophisticated financial
education. But in my opinion it's well worth the effort.
Will be doing some simple math later on to determine what type of rate you'll need to achieve
your dreams. This will essentially fall into two categories. A growth rate where you're in
acquisition mode. You're going to want to grow your asset column and paste that allows you to
retire on your target date. The second rate will be your income rate. If you like me you'll
probably continue many of the investing activities you enjoy in your retirement years so you're
ready to be income might be similar to your rate of growth.
Others may not want to be as active in their investing and they'll simply want to create a
machine they can walk away from. If a person is no longer going to be engaged in investing
activities in retirement, they will still need to retain a certain rate of income from their assets in
order to produce the desired income. For now, understand that rate can be a function of the
amount of risk one will take , but also risk can be reduced by the level of financial education and
self discipline one develops.
As you continue your investing education you’ll discover that rate and risk tend to go hand in
hand. If you want a low-risk investment, you’ll need to settle for a low rate of return on your
money. And if you want a high rate of return, you’ll need to accept a higher level of risk to
accomplish that. When you continually add to your financial education, you’ll learn ways to
manage that risk to reduce the chance of getting hurt if the investment goes against you. For
example, those who learn about stock investing will typically achieve better returns than those
who choose to remain ignorant.The same goes for real estate investing. A common adage goes
like this: “The more you learn, the more you earn.”

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When Should You Start?
There’s no doubt about it, planning and committing money to investing for retirement is a big
commitment. That’s why so many people put it off until next year, and then the next year, and
the next. It’s easy to kick the can down the road while hoping the money in your retirement
account magically grows without any planning or effort. Sadly, it doesn’t work that way.
Yes, the best time to start with your retirement planning and investing is when you are twenty
years old. The second best time is today. As you inch closer to your desired retirement age, the
compounding power of time is reduced every single day. We’ll look at specific examples of the
power of time below.
Here’s an important fact to remember: all three of these factors of money, rate, and time are
unique to each person. We all start from different financial positions, have different amounts of
time until retirement, and thus different rates of return we need to achieve. That’s why actually
LEARNING these principles instead of just following someone else’s plan is mandatory to be
successful. And when you create your own blueprint to follow, you feel a sense of ownership
and pride as you move along and achieve your own success.
Through many years of teaching others from around the world at The Cash Flow Academy, we
have found that the key factor in determining whether a student will become a successful
investor is their commitment to personal development. Because with that desire to improve,
anyone can become better educated, and develop better temperament, discipline, and ability.
Further, those who follow The Buffett Wealth Plan to accelerate their compounding and success
have a major advantage over those who go a different way.
Setting Your Retirement Income Targets
At this point, we’re all wishing we could jump in a time machine and go back to when we were
twenty-two years old to get started on the right foot from the beginning. In my own mind, I use
my oldest son as the typical young person who is interested in getting on this track. He’s sixteen
years old right now, and I’ve already been teaching him how to invest for a few years – an
advantage I didn’t have at his age. Now he’s able to invest his own money to begin his
compounding journey. So if you think that’s too young to start, it’s absolutely not.
So let’s quickly lay out some income targets to enjoy a rich, full retirement. Then we’ll develop a
blueprint to make it happen for someone who is starting young and has enough time to
maximize the compounding power of their investing. Then in the next chapter we’ll see how we
can accomplish these same retirement goals for someone who is starting later in life.
Basic Retirement Needs: $48,000 per year / $4,000 per month

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Luxury Wants: $20,000 per year / $1,666 per month
Travel: $30,000 per year / $2,500 per month
TOTAL: $98,000 per year / $8,166 per month
Now that we’ve identified the dollar amount in 2022 dollars, we can use an inflation calculator to
show us, based on expected inflation rates, that in the year 2060 we’ll need to generate an
annual income of $225,000 to live the same lifestyle that $98,000 can buy us today.
With that target in our sights, now we need to start building the blueprint that will help us get
there over the next several decades. There are a lot of questions to be answered:
● What sort of assets will we need in order to generate $225,000 each year?
● Can we generate that much free cash flow without selling any of these assets?
● What rate of return will we need, and how much will we need to invest from our
paycheck every month to get there?
Consistent Investing to Maximize Compounding
So let's go back to our twenty-two year old selves and imagine jumping into our first job straight
out of college. Suppose we studied to be an engineer and land a job that pays $80,000 per year.
As we look at our expenses and our future retirement goals, we decide to commit ourselves fully
to put away $1,500 per month for investing purposes. That leaves us with $62,000 per year to
cover our living expenses, with $18,000 per year going to our retirement fund. By dedicating that
money for investing, it will reduce the temptation to expand our lifestyle and spend it on other
things.
Let’s suppose we didn’t have a financial education during that time and decided to put that
money under our mattress for forty years instead of investing it. If we stick with the plan and put
$1,500 under the mattress each and every month for forty years, the total dollar amount we will
have saved and invested is $720,000. That’s a lot of money, right? But when you compare it
with our need of $225,000 per year, it barely covers two years of living expenses.
This example shows us that even if we have an abundance of money and time, if we have no
rate of return our money stagnates and actually loses value. When there is no rate, there is no
compounding. It’s that simple.
But let’s see what happens when we are able to compound that money with various rates of
return:

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0% = $720,000
1% = $885,574
2% = $1,103,489
3% = $1,392,562
4% = $1,778,852
5% = $2,298,568
6% = $3,002,172
7% = $3,960,187
8% = $5,271,422
This, my friend, demonstrates the power of compounding. It’s a simple illustration that shows
how regular, consistent investing can grow your money in a very big way. And don’t be fooled
into thinking that this type of compounding is only available to the rich. We teach our students
every day how to invest and achieve the rate of return that matches their blueprint. For this
example, our goal is to compound at 7% for 40 years to allow our assets to grow to about the $4
million mark.
Finding your own rate to success
Successful blueprint will aim for an exact amount of money that it must produce. We also need
to build a rate that is powerful enough to achieve our goal in the time Frame we have chosen.
This rate will be unique to you and your goals. I wouldn't worry so much about whether you think
your rate is a realistic one or not. I've never been one to compare myself to others.
I remember growing up I had a dream to play college basketball. Many people told me that my
chances of making an elite team in college were practically zero. After being cut from the team
in high school the naysayers howled even louder that I wasn't being realistic about what I
wanted to do. As I got older I was running out of time. There's no guarantee you would beat
those odds without believing that I could never would've happened. So even if your rate seems
unrealistic compared to others, keep in mind that your blueprint can be made to match your
goal. It may not be easy. There will definitely be work involved. But I firmly believe there is a
blueprint out there for everyone that can bring them the rate of return that they desire to achieve
their dreams.
Yet compounding to grow our money is only half of our blueprint. We also need to determine
what amount of money we need to achieve at the time of retirement, and what rate of return is
then needed to generate $225,000 in free cash flow each month from our assets without
spending away those assets. This is how we can create a legacy to pass on to our heirs and
teach them how to do the same thing going forward.
Here’s how we calculate the rate of return we need each year to pull $225,000 from our $4
million worth of assets:

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$225,000 ÷ $4,000,000 = 0.05 = 5%
So when we reach retirement age, we need to then find a way for our assets to produce a 5%
return each year to generate that $225,000 each year as new income. This will give us enough
to cover our bills and expenses, while also preserving our assets.
For investors, the ability to achieve a 5% annual return on your assets is a very achievable goal.
With real estate, 5% is a baseline rate that can produce steady free cash flow for investors in
this arena. With stocks, it’s also a very achievable rate when you combine dividend income and
other safe cash flow strategies.
The big lesson I want you to learn here is two-fold. First, consistent investing over time is the
secret to compounding your assets to a level that can sustain your dream retirement lifestyle.
And second, when that level of asset growth is achieved, it only requires a basic level of 5% free
cash flow to keep that income rolling in without diminishing the value of your assets.
Pie in the Sky Dreaming?
You’ve probably noticed that this example we just walked through is based on someone who
follows all the right steps:
● Starts very young, right out of college

● Invests consistently every single month
● Possesses financial intelligence to guide every step
Some might think this is pie in the sky dreaming. Or is it the result of gaining a little financial
education and having the confidence to put into action? Remember, these are not crazy ideas
we’re pulling out of thin air. These are real-world strategies used by Warren Buffett and
countless other intelligent investors who follow the same basic wealth-building blueprint.
If you’re feeling a little overwhelmed and nervous at this point, it’s completely understandable. If
you’re feeling this way, it’s probably due to one of the following reasons:
● You’re not twenty-two years old, and possibly much older

● The value of your current assets isn’t where it should be to reach your retirement goals
● You can’t save $1,500 each month to build your asset column
● You’re not sure how to invest that money even if you had it
For many people, this can lead to feelings of hopelessness and futility. The idea of having a $4
million nest egg of assets seems virtually impossible to achieve. As a result, the thought of
giving up and accepting something far less than you dreamed of seems like your inevitable
reward.

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Don’t give up hope!
There is an answer to all of these problems. There is a way to catch up if you start late. There is
a way to compound a small amount of savings into a nest egg that can enrich your life.
More than two thousand years ago, the Greek mathematician Archimedes recognized the power
of solving big problems with leverage when he said, “Give me a lever long enough and a
fulcrum on which to place it, and I shall move the world.”
That’s exactly what you’ll discover for yourself in the next chapter. You’ll see how a little financial
education can help anyone leverage their investments to overcome the problems of time and
money. With this leverage, it’s possible to start from a very humble starting point to still achieve
those seemingly massive numbers needed for your retirement.

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Chapter 8: Leverage For The Average Person
At this point, we’ve seen the incredible power of compounding over time and what it offers a
person who starts early and invests with consistency. The rewards can be truly remarkable.
That’s what The Buffett Wealth Plan is all about.
But sometimes compounding at standard run of the mill rates isn’t enough. When there’s not
enough time or not enough money being invested, it’s difficult to achieve the asset levels your
plan requires. That’s where the power of leverage can help – and the concept of infinite return
makes what might have seemed impossible, possible. I never apologize for repeating over and
over again that “possible” doesn't mean “work free”. Blueprints by nature define a scope of work
and the bigger the structure the bigger the blueprint, and the more work needs to be done.
This chapter will help you understand how leverage can make up for lost time and smaller
investment levels. You’ll see how leverage gives you the power to play catch-up. This is the
process of fast-tracking retirement, making up for lost time, or plugging a gap in your finances.
For the Late Starters
As we mentioned before, there’s only one place from which anyone can start their retirement
planning journey, and that’s exactly where they are right now. Whether you’re short on time or
short on money, let’s examine how you can maximize your situation and improve your
retirement income. If you’ve only ever thought you could have a bare minimum existence in
retirement from Social Security and a little bit of 401(k) income, let’s see how we can transform
that into something much more enjoyable.
For example, let’s suppose someone is ten years away from retirement and wants to see if
there’s any way they can boost their retirement income. They’re able to scrape together $1,000
as a starting point for their investing, and can consistently add $150 per month to help
compound their assets over the next ten years.
Compared to our ideal scenario we saw in the last chapter, it’s easy for anyone to see that these
numbers aren’t going to produce a spectacular retirement. At the 8% level we used for our
calculations in that ideal situation, saving $150 per month on top of that $1,000 initial investment
gives us $29,351 when we get to retirement. Not bad growth for that scenario, but not enough to
make a real difference for an ideal retirement. Even a 10% rate of return only boosts the overall
asset value to $32,812 over those ten years.
But let’s see what happens if we’re able to drastically improve the rate of return:
20% rate = $57,838

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30% rate = $102,468
40% rate = $180,420
50% rate = $313,494
You can see how quickly an asset value can escalate when you’re able to push the rate of
return up higher. It’s a powerful illustration of what can be achieved with compounding and
leveraging – if you get the process right.
Since most people are only exposed to modest interest rates available from banks and mutual
funds, it’s easy to dismiss these higher rates as unachievable. But we’re going to show you that
not only are they achievable, but it can be done by virtually anyone who learns the processes
and works to put them into action.
The most important thing anyone can do is to start immediately, because time is the most
difficult obstacle we face. You may not be in the ideal situation, but you can only start where
you’re at. The sooner that you begin compounding and leveraging, the sooner your assets can
start building for your retirement.
Rate and Risk
Think of rate as the reward you are given for putting your money to work. If the work is easy and
poses little risk, the reward is small. But if the work is difficult and risky, the reward is greater.
As the owner of your money, it’s up to you to decide how much risk you are willing to accept in
order to gain a greater rate of return. When we talk about investing risk, we’re not talking about
your tolerance for the chance to win at gambling in Vegas. Instead, we are talking about
calculated risk that is influenced by your financial knowledge, your discipline, and your
temperament.
Calculating the rate of return on an investment is very straightforward and can be done with a
simple calculator. There are only two numbers needed: the current value of your investment and
the initial value you invested. Here’s what the calculation looks like:
Rate of Return % = [(Current Value – Initial Value) / Initial Value] x 100
Note that when we multiply by 100 it transforms the decimal result into a percentage that is
easier to understand.
Here’s an example with real numbers. Let’s say we initially invest $100, and after a year the
value of the investment has grown to $130. We can calculate the rate of return like this:
[($130 - $100) / $100] x 100 = 30% rate of return

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This simple calculation helps us understand that there are two basic levers we can manipulate
to improve the rate of return of any investment.
1. Increase the Current Value – Find a way to reap a higher reward from the money we
invest, or
2. Decrease the Initial Value – Put less of our own money into the investment while reaping
the same reward
Most people seek to move the first lever by hoping an investment explodes in value. But that is
usually out of the investors control. Savvy investors choose the second lever almost every time.
Savvy investors reduce the initial investment by using leverage.. For our purposes, the idea is to
get maximum returns using the lowest possible amount of our own money. The question is, how
can we increase the leverage on an investment to accomplish this?
In real estate investing, we can use leverage with debt. By using less of our own money and
more of the bank’s money, we can push that initial investment number down lower.
In stock investing, we can gain leverage using an instrument called an option.
As I've mentioned previously, leveraging also involves risk. This is especially present when
using options in the stock market. So reducing and managing that risk is an important part of the
process, because our goal is not to be a Vegas gambler, but an intelligent and successful
investor.
Real Estate Leveraging in Action
Imagine that you have found a house that would make an excellent rental property to place in
your asset column. It’s available for $100,000. Before buying the house you do your homework
and find that not only can you collect $10,000 per year in rent, but the house is actually worth
$110,000. Excited at the possibility, you have two methods to purchase the house:
● You can pay $100,000 cash for the investment property, or
● You can pay $20,000 as a down payment and use a bank loan for the remaining $80,000
If we keep the house and collect $10,000 in annual rent, here’s what our rate of return looks like
for each purchase method:
Pay Cash Method: Rent Rate of Return

$10,000 ÷ $100,000 = 0.10 = 10% rate of return
Bank Loan Method: Rent Rate of Return

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$10,000 ÷ $20,000 = 0.50 = 50% rate of return
If we hang on to the house as an asset, we will get a 50% rate of return year after year. In fact,
as time goes by and the rent increases, our rate of return will also increase. And as the value of
the house increases during that time, our overall asset value and net worth grow along with it.
And if we decide to sell the house for $110,000 and capture the profit after paying off the
$80,000 bank loan, here’s what the rate of return looks like:
Pay Cash Method Sale Rate of Return

[($110,000 - $100,000) / $100,000] x 100 = 10% rate of return
Bank Loan Method Sale Rate of Return

[($30,000 - $20,000) / $20,000] x 100 = 50% rate of return
Again, you can see that by using just a small amount of our own money alongside the bank’s
money, we can gain a huge increase in our rate of return percentage.
Is it possible to achieve an even higher rate of return?
I have friends and mentors who started with essentially nothing and have built up huge real
estate empires. Here is a strategy they shared with me: First, they attract private investors to
raise the initial amount of money needed to make the purchase of a property. With that money in
hand, they then borrow the remainder from a bank. For this effort, they keep a percentage of the
rents and the proceeds when the property either gets refinanced or is sold. For their effort and
skill in putting the deal together, they receive what is called sponsorship equity – typically
around 20%. As a sponsor, he may or may not choose to use any of his own money for
financing. Private investors give the down payment and the bank finances the rest.
Today, investors like this might raise hundreds of millions of dollars. But the amount is not the
point. The leverage is the point. A simple picture might help.
By sponsoring the deal they get 20% of the ownership, which also means 20% of the profits. So
if a project turns a profit of say $20,000, and he has none of his own money in the deal, the
percent return on that investment is infinite.

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[(Profit - $0) / $20,000] x 100 = ∞% rate of return = INFINITE
When you plug any equation into a calculator that divides by zero, it will probably give you an
error because you cannot divide by zero. In reality, though, what this means is that the answer is
infinity. For example, how many times can the number zero go into the number one? Infinity.
So in this scenario with an investment, if you put NONE of your own money in at the beginning
and get SOME money out of the investment, you have achieved an INFINITE rate of return.
Congratulations!
The amount might be small, but the rate itself is infinite. And if you have invested no money to
get this return, why not do it again? And again, and again? As you accumulate multiple
properties like my friends, before you know it you have accumulated a vast amount of wealth.
Of course we must recognize that there is some amount of risk that accompanies those
investments. Each property has a loan that must be paid on. But the potential returns from these
leveraged properties are massive. In real estate, this is how leverage can help anyone – not just
wealthy investors – begin to grow and amass a strong collection of assets.
Will some people be unwilling to accept the risk that goes along with these types of investments,
or be unwilling to try a new kind of investing that is out of their comfort zone? Absolutely yes.
But for someone who is coming in late to plan and prepare for their ideal retirement, learning
how to leverage can be one of the most powerful tools you can use. Leverage enables you to
execute a lot of achievements in a short period of time.
Can You Really Invest With No Money?
One of the most important lessons to learn about leveraging is that this is how the wealthy
continue to compound their wealth. They have learned the ability and the power of investing
with no money. Yes, they can afford to invest more of their own money, but they prefer to use
leverage if possible because they know it works. When someone learns how to receive an
infinite return, common sense tells us that the path to wealth is now open before them. And
when that person compounds their infinite returns across multiple investments, the need for a
paycheck disappears.
The method of doing this isn’t that difficult. Anyone can learn how to raise capital, acquire
private money, and borrow from lending institutions. It really isn't that difficult. And the math
involved isn't complicated either. The thing that holds people back is fear and unwillingness.
With typical investments, you are mostly limited by the amount of money you have to commit to
the investment. But with infinite return investments, you can do an unlimited number of deals.
The only limitation is your time, willingness, ability to locate opportunities, and ability to attract

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credit. Once you demonstrate to financial institutions that you're a viable creditor, you will
increase your credit rating, and your ability to acquire money will escalate rapidly.
Here’s some more good news. In addition to real estate, there are many other opportunities for
someone to make money with zero investment. For example, dropshipping is a popular
business in which you can make money from consignments. Software programs cost nothing to
duplicate or download, so it’s possible to grow fast with little initial investment. As you look
around, it’s not that unusual to discover successful businesses that can be started with little to
no initial investment money.
This concept is so important that we have created an entire course called How The Rich Invest
With No Money at The Cash Flow Academy. It’s a fascinating overview on how to leverage
partners and how to start a business with zero income and zero savings. (For full details, go to:
http://howtoinvestwithnomoney.com)
There are plenty of naysayers who think this approach to investing is impossible, to which I say
baloney. I have followed these strategies in my own life. For example, I have written another
book called 401(k)aos that I’ve sold in digital format and costs nothing to produce. Any money
we receive from this product gives us an infinite return on investment. When you start
investigating this path of infinite return, you’ll see that the opportunities are tremendous.
Using Leverage in the Stock Market
Another way to leverage your investments for greater return is in the stock market. Some people
prefer stocks to real estate because it’s much easier to get up and running. No properties to
find, no banks to deal with, no partners or investors to attract, and no attorneys. It’s just you
deciding which great company you want to own a part of. And the good news is, there are ways
you can leverage your stock purchases to accelerate your compounding and push yourself
toward infinite returns.
It always puzzles me when people think of the stock market as gambling. In my opinion, it’s only
gambling if you don’t know what you’re doing. I much prefer to look at the stock market for what
it provides me as an individual investor – it’s a big shopping mall where I can find and purchase
shares of the best companies in the world. Apple is the most valuable company in the world,
way out of anyone’s range to purchase the entire company. But with a couple clicks I can buy
anywhere from a single share of Apple to as many as I can afford. It’s the same for all the great
companies available in the world that are publicly traded. You can buy any of these great assets
and use their cash generating power for your own good.
With real estate we saw how to use debt as leverage. But how can we gain leverage with
stocks? Remember, our goal with leverage is to make profit from little to no initial money. So
let's see how we can do this with a stock such as Kraft Heinz, the massive food conglomerate. I

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like this stock because food is obviously one of the necessities of life, so by investing in Kraft
Heinz we can own part of this vital company that provides necessities to millions of people.
If you remember, Warren Buffett never started a business other than his investing firm,
Berkshire Hathaway. He acquired all the businesses he owns by purchasing their stock. Some
companies he bought all the stock and owns them outright, while others he’s happy to be a
fellow shareholder with people like you and me. Even today, Berkshire Hathaway is a
conglomerate that is invested in a wide range of industrial concerns.
As you saw with real estate, we can earn free cash flow from the rent collected from tenants.
With stocks, we can earn free cash flow from dividends we receive from the company as they
share profits with shareholders.
For this example, let’s say we purchase one share of stock for $30, and it gives us a dividend of
$1.60 per year. This is a 5.3% return on our money that we can receive every year as income -
not to mention that with inflation and the continued success of the business, dividends can
increase. For example, ExxonMobil has maintained or increased their dividend almost every
year since 1940.
Any new money created from investments is a good thing, but as you can see, this 5.3% return
is well below our target of an infinite return. Dividends, however, have a built-in compounding
accelerator that allows you to reinvest your dividends into that stock, thus multiplying your
shares. It may seem like a small amount, but we saw earlier that the power of compounding is
the best way to accelerate your wealth creation.
Here’s another way to think of how dividends help you achieve an infinite return. Every time you
receive a dividend and put it in your pocket, you are effectively lowering the initial cost of the
stock you purchased. In the example of buying our shares of Kraft Heinz, we originally spent
$30 for the share, and then received $1.60 in dividends during the first year, giving us a net
amount of $28.40 we spent for the stock ($30 - $1.60 = $28.40). If the dividend payout remains
the same every year, we will have all of our initial investment returned to us in nineteen years. If
the dividend increases, that time span will be shorter. When all of our initial amount invested is
returned via dividends, then our return on future dividends becomes infinite.
Depending on where a person is in their investing journey, it’s possible that they might be able
to achieve their retirement goal within their desired timeline based solely on earning dividends.
This is particularly true with young people such as my sons. Others might be starting their
serious blueprint planning later in life and will need to generate even more income beyond their
dividends. It’s surprising that so few people are aware that using stock options can actually
provide this type of additional cash flow which can be added to their dividend income.
Furthermore, this cash flow can be achieved very conservatively. In fact, many of these
strategies are so conservative that they are allowed to be executed inside of an Individual
Retirement Account (IRA). Our option classes are among the most popular ones we offer at The

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Cash Flow Academy because more and more investors are realizing how options can be such
an effective accelerator.
In addition, remember that you can compound your assets every time you receive this $1.60
dividend because it can be deployed elsewhere. As we explained above, you can choose to use
it to buy more stock of that company, or invest in other stocks or ventures. Wealthy investors
know how to multiply their free cash flow by finding more and more investments. And the stock
market provides smart investors with an endless supply of investing opportunities.
New Cash Flow from Options
As we’ve seen, dividends are useful because they give us a way to generate new income that
can steadily improve our return on that stock until we arrive at the level of infinite return. But
what if there was a way to accelerate that return growth? What if there was a way to generate
additional new income from the stock you already own in addition to your dividends?
Fortunately, stocks do offer us another leverage tool called options. There are numerous ways,
both beginning and advanced, for stock investors to utilize options and accelerate their returns.
(At The Cash Flow Academy we have created multiple courses devoted to helping investors
learn how to use options to their advantage.) Using our Kraft Heinz stock example we can see
how an investor can earn additional income simply by owning the stock.
Before we begin, remember that the stock market consists of millions of investors looking for
opportunities to buy good stocks at a good price. Many of these investors are also looking for
safety. They are willing to buy assurances in order to reach their own investing goals or to keep
their portfolio as safe as possible. With options, we are able to both buy and sell these options
to either insure our own positions or help others insure their positions. When we sell options to
help others, we receive what is called option premium. It’s the money someone gives us when
we sell an option to them. Simply put, we are selling them a promise. In the case of our Kraft
Heinz stock that we own, it’s a promise to sell the stock to the other person if the share price
reaches a certain amount. In exchange for that promise, we receive the premium as free cash
flow.
What if the share price of our Kraft Heinz stock reaches the level where we promised to sell? At
that point, we will sell the share at the promised price. But then we have that full share sales
amount to either reinvest in Kraft Heinz now, or wait for the price to go where we would really
like to buy again. We also have the ability to take the proceeds of the sale and buy another
stock or a different investment altogether. If you don’t want to sell your stock, there are also
safeguards you can use and ways to analyze the situation to put the odds in your favor so you
never have to sell. Either way, you still keep the option premium for yourself as new cash flow.

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Compounding by Splitting
When you buy a stock that gives regular dividends to shareholders, you are able to analyze
these dividends as a part of your investing analysis. And when you use options to generate
additional cash flow from premiums, you are in total control of every aspect of those decisions.
There’s also another little-known way to compound your stock holdings is through stock splits.
This type of compounding is out of your control as an investor, but it can be an incredible bonus
to help accelerate your wealth over the years. A stock can be “split” based on a company’s
decision to break its outstanding shares into even more shares.
There are various business decisions why they might choose to do a split, but we’ll just focus on
the value of splitting for investors. Splitting does nothing to the underlying value of the company,
but it provides many advantages for those who want to profit from its shares. When a stock
goes through a 2-for-1 split, that means that every previous share now becomes two shares.
And if the share value before the split was $100, it is now $50. In that sense, it makes the stock
more affordable for more people.
What I really like about stock splits is that they typically outperform the overall stock market over
the three year period following a split. That is how splits can be beneficial for your compounding
goals.
Here’s a real-world example of how one single share of stock can be compounded over time
solely through splits. Suppose that back in 1919 when the Coca-Cola company first offered
stock to the public, we were savvy enough to buy a single share for the $40 asking price. Then
we tucked that share away and watched it grow through stock splits for the next ninety-three
years. Here’s what that single share would have grown into today:

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As of the writing of this book in 2022, the price of a single share of Coca-Cola stock is $56.40 –
not too different from the price back in 1919. But with the series of splits that occurred over that
century, we would now own 9,216 shares of Coca-Cola worth a tidy $519,966.72. That’s a good
return on that original $40. Even better, those 9,216 shares are giving us an infinite return with
dividend income of $16,220 each year.
For most investors who own a few great stocks, they may only split a few times over your years
of investing. But as we know, every little bit helps to fill our asset column with more and more
income-producing assets. And if you want to think longer-term, stock splits are a fantastic tool to
grow your legacy of assets that can be handed down through generations.
Compounding Through Business Leverage

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We’ve seen a few examples of how someone can accelerate the compounding of their returns in
real estate and the stock market. The good news is that similar approaches can be used with
businesses to seek infinite returns. I’ll use two of my own close friends as examples of how this
can be done in very different industries.
The first example is my friend “Jim” who earned a pharmacy degree in school. After working for
a short time and earning good money, he learned of an opportunity that would eventually
transform his life from good money to wealth. He met a pharmacy owner who was getting older
and had no children to take over his business. Jim could have backed away from the
opportunity thinking it might be too risky or difficult. Instead, he decided to go for it. First, he
made a deal with the aging pharmacy owner to buy the pharmacy for a certain amount down
and the remainder being financed by the owner himself. In other words, he would make him
payments for several years. And to come up with the down payment, Jim found some investors
interested in becoming part-owners of successful small businesses. In the end, Jim put in
virtually none of his own money yet now owns a very profitable business that generates free
cash flow for him every year.
Another friend named “Bob” was able to buy a steel company using the same approach. He met
an elderly owner who didn't have anyone to pass the company on to, so Bob was able to
purchase this considerable business by using investor financing and a seller financing from the
owner.
Both of these friends were able to use their abilities to build the businesses and increase the
cash flows. Yet they barely invested any of their own money to gain these businesses and the
wealth they have given them. That’s how the power of compounding and infinite returns can be
accomplished with a business.
Importance of Education
Many who read this book will be seeing these compounding and leveraging techniques for the
very first time. Others may know of them, but are unsure how to implement them in the real
world of investing. The most important message I can convey to you is that everything you are
learning in these pages is real and achievable. The only thing standing between you and these
asset-growing strategies is your lack of knowledge.
The education you receive in public schools can be helpful for some things, but you’ve probably
noticed that other than basic math skills to do the calculations, none of these things are given to
students to help build their financial foundation of knowledge. It’s no wonder that most people
come out of school – even college in many cases – in a state of financial illiteracy.
The good news is that these things can be learned. It’s entirely possible for everyone reading
this to develop their own retirement blueprint that can help them live a better life than they

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dreamed of. Only two things are required from you to make this happen: your willingness to
learn this information and to then act on it.
You know it can be done, because you’ve seen others who have succeeded. You’ve seen others
come from similar backgrounds and situations as you, and then transform their lives. It’s not
magic, it’s education and practice. We choose to follow The Buffett Wealth Plan because it is
based on sound principles that work.
It’s often said that when the student is ready, the teacher appears. I hope this is the case for
you. Your willingness to get this book and begin learning these strategies for yourself can be the
beginning of your path. Because, as anyone who has taken control of their own financial future
will tell you, it is a lifelong pursuit. No one will care for your situation and well-being like you will.
No one cares about the growth and safety of your hard-earned money like you will. This is your
game to win.

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Chapter 9: Assembling Your Blueprint
Without a plan, ideas and concepts are just dreams. Which is why this chapter shows you how
to take everything you’ve learned throughout this book and put it together into your own
personal blueprint. You’ll also see how your blueprint is a living document that can be adjusted
over time to continue meeting your evolving financial situation.
It Won’t Happen Without Work
No matter how many ads or infomercials that say otherwise, investing success doesn’t happen
overnight. As I’ve shown you throughout this book, real success is the result of time and effort.
When you have a clear plan in place, hard work takes on a new meaning. Instead of just being
more time in the rat race, the effort becomes the price you pay to get what you truly desire: a
happy, comfortable, fulfilling retirement.
Another common obstacle people face on this journey is fear. They’re afraid that they might not
actually achieve the goals they set for themselves, so instead of working hard and making it
80% there, they decide to stop. Remember, any headway you make toward your goals will be a
direct result of your effort. And 80% is always better than 0%.
Remember, everything we’ve covered in this book is something you can learn and do. Every
single day there are people buying shares of stock for the first time, obtaining their first rental
property, or starting a new business. You are not alone on this journey. In fact, when you open
your eyes to the resources available, you’ll see that there is a mountain of information ready for
you to learn from.
So grab this opportunity and break out of your comfort zone. It’s your time to learn things you
always thought were for other people. Again, it will take work and creative thinking. It will require
a little math. And it may even motivate you to get a part-time job to fund your retirement
investing. But with your blueprint in hand to guide the way, you’ll be on the right path to make it
happen.
The Six Numbers Needed For Your Blueprint
In the previous chapters we introduced a lot of different numbers and calculations you can make
with your retirement numbers. In this section, we’re focusing on just the six numbers you need
to build your retirement blueprint.

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Below is a brief explanation of each number you’ll calculate for your own blueprint. To help
make this easier, we have created a simple online calculator that makes these calculations for
you.
You can access the calculator here: www.TheCashFlowAcademy.com/Powerof6
1. Your Retirement Expenses. Remember back when we started talking about creating
your dream retirement? That’s the first of your six numbers you’ll create for your
blueprint. List out everything you desire in retirement: how much you want to spend on
food and dining out, your clothing, housing, the travel experiences you want to enjoy –
start by listing all those things to determine the cost of your retirement. By listing all
these items and planning for them, it will transform your retirement from a fuzzy vision to
a finite project you can work toward. When you have this first number in hand, you can
then move on to the next number.
2. Your Income Rate Goal. This is the rate of return you think your investments can
continue earning during your retirement. There are several factors that should be
considered, such as whether you want to continue working in some capacity or running a
small business during retirement, or do you want all of your income to come from your
assets? If you want a safe, risk-free way for your investments to grow during retirement
then the amount they can earn will be lower. If you take the time now to gain more
financial education, you may be able to earn higher rates.
3. Assets Needed in Retirement. When you hit retirement age, this is the value of your
asset portfolio. As you’ve worked and invested over the years, this is where you see a
very tangible result for all that effort and focus. Ideally, we want this asset portfolio value
to generate all the free cash flow we need without ever having to dip into the portfolio
itself. If we can accomplish this, we will have a never-ending resource that can even be
passed on as a legacy asset.
4. Time to Retirement. Remember, this number is unique to you and involves multiple
variables. For example, do you want to retire at the same time as your spouse or earlier
(or even later)? Do you want to wait until you can receive your Social Security, pension,
or 401(k) benefits? Is it a specific age you are aiming for? I often encourage students to
dream big about when they want to retire, and then balance it with the variables unique
to your own situation.
5. Current Assets. To help in your calculations, how much money do you have available
right now that can be invested in assets? This is typically how much excess money you
have in the bank that can be invested. If you plan on selling some of your personal items
or other assets to add to this beginning asset pool, include that number here.
6. Required Asset Growth Rate. After developing all the previous numbers, we can now
reverse engineer our growth rate target that will help make all of your retirement goals a

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reality. Remember, whatever number you calculate is neither good nor bad. Instead, it’s
a black-and-white representation of the amount of work you will need to do to make it
come true. Lower growth rate targets are typically easier to achieve and offer the luxury
of using several different asset categories. Higher growth rate targets are more difficult,
and may focus your efforts on just one or two asset categories. Either way, this number
completes your six numbers needed to define your personal retirement blueprint.
Identifying Your Asset Targets
Now that we have calculated our six numbers, the final piece of the blueprint we need to figure
out is how are we actually going to achieve what our plan is asking for?
Remember, every person and situation is unique. And there’s no such thing as good or bad
numbers. Anything can be solved if we are creative and willing to do the work to get there.
If you find your required rates of returns are in the single digits, you may be able to achieve
your dream retirement goals by choosing stocks, real estate, or businesses in a typical fashion.
This might include dividend stocks, a few rental properties, or a small business you mostly
manage yourself.
And if you end up with a low double digit number, then you are probably in a situation where you
will want additional investing education to accelerate your learning about how to make this
happen. That’s because you’ll likely need to look at atypical investments with additional risk, so
you’ll want to learn how to enter those types of investments and manage that risk to work in
your favor. This type of learning might include covered calls on stocks, real estate syndications,
or maybe owning a franchise to achieve the aggressive returns you will need.

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Finally, if your numbers are in the high double digits to triple digits, or higher, your blueprint
might then require that you look at advanced investing strategies such as advanced stock
options, becoming a real estate syndication sponsor, creating a large business, or others. These
approaches are all doable, but require new education, mentorship, and skills development to
implement the strategies.
Putting It All Together
To show you what it looks like to calculate these numbers, let’s walk through an example for a
woman named Jane who is sitting down for the first time to really get serious about planning for
her retirement. We’ll see how she assembles the pieces of her blueprint to see how easy it can
be.
Jane is 45 years old and works as a medical assistant in an office. Her employer doesn’t offer a
pension plan, but there is a 401(k) that she has consistently contributed to for eleven years.
Jane is committed to continue her 401(k) contributions until she reaches sixty-two years of age,
which is when she hopes to retire. Currently, Jane is eligible to receive early Social Security
benefits at age sixty-two. Even though she could receive higher monthly payments if she waits
until age sixty-five, and even higher at age seventy, she wants to enjoy more of her life in
retirement so she has decided on age sixty-two as her target retirement age.
With that information we have Jane’s first number, which is (1) seventeen years until retirement.

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Jane is a pretty good saver, and has $15,000 in savings that she can commit to her new
retirement investing. Since she is committed to continuing her 401(k) contributions, she doesn’t
have much left over to add to her investing goals each month. But she has found a part-time job
that will add $500 per month to her investing, and is happy to do it to reach her goals.
Now we have Jane’s second number, which is (2) $15,000 for new retirement investing.
For her next step, Jane is planning on a comfortable retirement with some travel and luxury
experiences. This is how she foresees her monthly retirement expenses:
Basic needs: $4,000

Travel: $2,000
Lifestyle: $2,000
TOTAL: $8,000
And since she is planning on receiving both Social Security and 401(k) income beginning at age
sixty-two, we can also account for that in our calculation.
Social Security income: $1,200

401(k) income: $500
TOTAL: $1,700
When we subtract her expected income from her expected expenses, we see that our third
number is (3) the income shortfall of $6,300 per month, or $75,600 per year.
After doing her homework about different types of assets available, Jane has decided that when
she hits retirement age she will move her money into dividend-producing stocks and use options
as needed to achieve a target return rate of 6%. This will take skill and learning, but she plans
on using her time until retirement to continue growing her financial intelligence so she can
achieve this.
Now we have Jane’s fourth number, her (4) target return of 6% on her assets during retirement.
At this point, Jane has the information she needs to calculate the asset portfolio size she’ll need
at retirement in order to generate her income shortfall of $75,600 per year:
Asset Portfolio Value = $75,600 ÷ .06 = $1,260,000
This gives us Jane’s fifth number, (5) the asset portfolio size of $1,260,000 she needs to
achieve.
At first, Jane was a little shocked when she saw the size of this number. How on earth could she
ever get there with her modest income? Instead of giving up, Jane was committed to making

78
this happen – even if it seemed daunting. So she took a deep breath and plugged the numbers
into her calculator.
As the calculator displayed her sixth and final number, Jane saw that she would need to find a
way to (6) generate a 23.9% return on her investments over the next seventeen years to
achieve her dream retirement. That is most certainly an atypical rate of return, and as we have
said many times throughout this book, this blueprint will require much more than just continuing
to dump cash into a 401(k). To have a chance at rates of return that are atypical, some kind of
leverage will likely be part of the blueprint. So while returns of this kind are not what the average
person strives for, they are possible with education, personal development, and work.
Even though she was nervous and uncertain about how she was going to get there, Jane knew
at this point she had the beginnings of a blueprint to follow. She also felt happy and free
because she finally felt in control of her direction.
At this point, she was ready to get busy and explore what kinds of assets she would be most
interested in learning about and using to achieve those returns and get to her goals.
Final Thoughts
At the beginning of this book, the very first thought I gave you was: A solid retirement blueprint
can make all the difference between living our retirement years in abundance or scarcity.
Through each chapter, we’ve shown you how compounding is a powerful way for anyone to
reach their investing goals. And having a blueprint will guide you along the way and serve as a
measuring stick to see how you are progressing.
Mark Twain once wrote, “Twenty years from now you will be more disappointed by the things
that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the
safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”
This applies to everything in life, including your retirement planning. Now is the time to get
started so you can catch those trade winds in your investing sails.
But it doesn’t happen on its own. I encourage you to pull out a pad of paper to start dreaming
big to live your dream retirement. Then start following the steps in this book to let the Power of 6
guide your journey by coming up with your own six numbers for a dream lifestyle. It can happen,
but it requires work and attention.
And if you’re looking for additional ideas on how stock investing can play a part in your process,
please visit us at www.TheCashFlowAcademy.com for free web classes and other resources.
To your success!

79
Andy Tanner

80
About The Author
The Cash Flow Academy was founded by Andy Tanner and Mike Denison in 2011. Based on
Andy’s experience teaching hundreds of thousands of people around the world, he understood
the goals and frustrations of these investors. They wanted to take control of their investing, but
were confused with the jargon and complexities of stock investing. And with so much hype built
up around making money, we knew there was a better way to help our students. Instead of
giving people advice we focus on building knowledge, skills, and confidence.
Over the years, Andy has developed teaching techniques to demystify stock investing to make it
easy for anyone to understand. This teaching style resonated with all types of investors who
began asking for more help.
For more information about the training and resources available through The Cash Flow
Academy, go to www.TheCashFlowAcademy.com.

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HOW A BILLIONAIRE'S BASIC PLAN TO

COMPOUND WEALTH CAN UNLOCK

Visit our website for contact information: www.TheCashFlowAcademy.com

Chapter 2: The Power of 6 9

Chapter 3: How Money Flows 16

Chapter 4: Cash Flow Patterns 23

Chapter 5: Common Retirement Income Sources 30

Chapter 6: Aim To Be Atypical 37

Chapter 7: Compounding For Real Wealth 57

Chapter 8: Leverage For The Average Person 64

Chapter 9: Assembling Your Blueprint 76

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Your Retirement Starts With You

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When Will You Retire?

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What Is A Retirement Blueprint?

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Gaining Peace of Mind

Those Pesky Bills

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How Do You WANT to Live Your Retirement?

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The Importance of Attitude

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© The Cash Flow Academy • www.TheCashFlowAcademy.com

© The Cash Flow Academy • www.TheCashFlowAcademy.com

Everyone has a financial statement

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© The Cash Flow Academy • www.TheCashFlowAcademy.com

© The Cash Flow Academy • www.TheCashFlowAcademy.com

In this book you're going to learn about:

● Different kinds of income and expenses – especially in retirement

● Analyzing these numbers unemotionally.

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Your financial blueprint

© The Cash Flow Academy • www.TheCashFlowAcademy.com

Chapter 3: How Money Flows

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1. To see where you might want to improve your spending habits

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How Much Does Retirement Cost?

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Income & Expenses

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© The Cash Flow Academy • www.TheCashFlowAcademy.com

© The Cash Flow Academy • www.TheCashFlowAcademy.com

© The Cash Flow Academy • www.TheCashFlowAcademy.com

1. New Money Cash Flow Pattern

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$100,000 ÷ $4,000 = 25 months

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3. Borrowed Money Cash Flow Pattern

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1. We use debt (via a loan) to buy assets

2. With the income generated by those assets we pay our bills

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© The Cash Flow Academy • www.TheCashFlowAcademy.com