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"All the Things I Wish I Knew When I Was 22":
Wealth vs. Lifestyle by Stephen Oliver
Let's start with a few basic definitions:
Revenue or Gross Revenue: How much total cash comes through
your business on a monthly, quarterly, or yearly basis.
Income or Net Income: How
much you have available to you personally after ALL of the regular
business expenses have been paid.
Wealth: How much in REAL
assets you have accumulated. This includes: Equity in Real Estate;
Stocks and Bonds Cash on Hand And, other truly valuable assets.
Lifestyle: The quality of
your life now. This includes factors such as leisure time, travel,
where you live, the quality of the furnishings, what you drive,
have much real enjoyment do you get our of life.
Now lets talk about reality.
School owners love to brag about
1) Number of students,
2) Size of their School, and
3) their GROSS revenue.
It's really interesting to watch.
Get 10 school owners together and watch them talk about themselves
- and, let the lying begin. Student active counts are the most
exaggerated number of them all. But that being said - all of
these numbers give you a small piece of the picture of their
school and their business but really none of them individually
are of much interest to me.
Example: I have on close friend. His
claim to fame was 1,000 students. But guess what. He was grossing
in the range of $35,000 per month (scary huh?) and had a huge
rent, payroll and other expense numbers. Many of these
students as well were not really very solid - they just kind
of came when they pleased and got rolled into the active count
for show. My friend worked 8 am - 10 pm daily, weekends,
and had a huge renewal and retail push on Thanksgiving day.
Example #2. Another friend told
me he had 450 active. Most were kickboxing students on
punch-cards. They attended sporadically - and as long as
they came in at least monthly they were considered an active
student. He grossed about $7,500 per month in an 8,000
square foot facility.
Example #3. I walked into a very
small school - owned by an acquaintance. Asked what the active
count was - he said they had enrolled 1,400. When I asked for
clarification - that turned out to be the number of enrollments
that the school had done in the 12 years it had been open. I
asked how many ACTIVE students they have. The owner replied
that they had 450 students "on programs" - upon further questioning
- I learned that that meant that anyone who's program had not
expired (ie. I signed them to Black Belt 3 years ago - they paid
in full - dropped out two months later - and, have 1 year to
go before their program "expires) counted. I then asked how many
were actively attending - they had no idea!
Example #4 A very successful
friend - with multiple schools - with several locations grossing
$35,000 to $40,000 each and I compared financials. In 5
schools I grossed what he did in 3 - HOWEVER - my average rent
was $2,700 his $6,500. My average school had 2 full-time
employees and 2 part-time. His average school had 5 full-time
employees. Well the bottom line was - well my bottom line was
really good - he had to put $45,000 into his operation to keep
it operating smoothly.
Example #5. A friend runs
a nice little - somewhat mundane operation. His gross is always
OKAY - not spectacular - his school only enrolls about 8 new
students per month and, his curriculum frankly boars me. However,
he built his own building several years ago - and, started making
double payments. He owns it outright now. Ie. No rent,
no mortgage payment, and LOTS of equity. His nice little school
runs at close to 50% net. Enough for a new Mercedes every
couple of years - a few really nice vacations - and, he really
likes $300 shoes - so he buys them whenever he wants - and, don't
forget the net-worth he has built!.
Don't let impressive numbers - or,
an impressive facility fool you.
You know what I'd like to hear about?
1. What's the quality
of your life-style? Do you enjoy life - are you doing
what you enjoy - and, do you take time for hobbies, travel,
family and entertainment? If you don't have time
for these things because of your incredibly long-hours - then
really what good is the money? It's easy to get caught
up in working and striving for more and more money - but really
money is only good for two things:
FIRST, insuring that you can
do and have the things you want RIGHT NOW; Are you
able to afford those "Toys" that are important to you? Do
you refrain from spending money on things that won't contribute
substantially to the quality of your life. Do you have
expensive STUFF to impress others - or, because you appreciate
SECOND, so that you can build security
for your future - and, I don't necessarily just mean for your
retirement. What if your school has a down-turn (remember all
kinds of unexpected things can happen) are you financially strong
enough to weather the storm? What if one of your kids has
unexpected medical expenses - or, if you have a medical emergency.
2. What's your NET Income?
How much money do you have left over from your business after
EVERYONE ELSE gets paid? If your expenses are in line and your
gross is adequate or excellent - you could have 15%, 25%, or
maybe even 45% or 50% left over. Do $30,000 per month - with
$15,000 left over and I'll think you are incredible. Do
$180,000 per month with $3,000 left over - well nothing personal
- but who cares?.
3. How much Net Worth have
you built - and, how much do you save? Do you have
equity in your home? Equity in the building that houses your
school? How's your IRA, savings, and investments? Does
your SCHWAB account grow every month - or, are you living week
to week? Forget about the guy who boasts a huge student
base - I want to be like a friend of mine who bought the building
that houses his school - and, ended up owning the whole city
block - with positive cash-flow from rental income and huge
equity. Not very glamorous in the "bragging rights" pool at
the next karate tournament or business convention - but hey
he paid HIMSELF first!.
4. How much have you learned
this week, month, year? If you are constantly learning
- you will always be about to recover from set-backs as well
as capitalize on new opportunities.
Your day to day life style expenses
must really be determined by - what is really going to
add enjoyment to your life - relative to the costs.
A personal example:
Many years ago - many friends and
employees laughed at me (remember when they laugh it's your money
not theirs.) Why did they laugh? Well once a year I would
have a Christmas party at my house - which is huge, beautiful,
is in one of the most expensive neighborhoods in the Denver metro
area, and has tremendous views overlooking the city. At
the same time - on a day to day basis I drove an Audi 4000 which
was at about 150,000 miles (and, I finally traded it when it
failed the emissions inspection, got hail damage, and needed
more repairs than it was worth.) During this period - my
house appreciated over $300,000 and my car basically went from
the $20,000 I paid for it new to a value of $0.
Often we are tempted to buy things
based upon the image we hope to project to friends, neighbors,
business associates and others.
If you really want that expensive
toy - because it enhances your enjoyment on a day by day basis
then by all means - get it - enjoy it. Just decide on a
daily basis - not because of the "image" you hope to project
or because of an attempt to impress your friends.
Remember about the only thing that
you can buy for yourself - that has any real value after you
buy it is your home.
Everything else - with very few
exceptions - begin to depreciate - or, really have minimal value
right after you've spent the money.
Cars - NEVER buy one new. Guess
what happens - the minute you drive it off the lot it loses at
least 20 to 25% of it's value. Want to have fun with your
car - what's the difference between brand new - and, a couple
of years old and 10,000 - 20,000 or even 30,000 miles? I'll
tell you the difference - on a Jaguar I bought recently about
Furniture - just try selling that
$2,000 or $3,000 sofa or table. Guess what - you might
just be able to get 10% of what you paid.
Art & Jewelry - people fool
themselves into thinking that these items have value. Certainly
if you are a serious investor - buy at wholesale - and, have
access to quality channels of resale then you might come out
okay on some of these things. Reality is almost any ring, watch,
or painting you buy is going to immediately have close to zero
Electronics, computers, stereos,
etc. - Here again, buy what you will truly enjoy - plan on these
items having no value once you have purchased them.
When you start reviewing your assets
and computing your net worth your real estate, stocks, bonds,
and other assets have real investment value. Home furnishings,
art and jewelry - probably have only utilitarian value or sentimental
value - once you've left the store. Cars. They begin to
depreciate the minute you drive off the lot. Remember this
when deciding on that new luxury car - or, whether to invest
in a nicer home.
A book that should be required reading
is "The Millionaire Next Door." This book teaches some great
lessons in wealth accumulation.
"The Millionaire Next Door" Dr. Thomas Stanley
"Financial Self Defense" Charles Givens
(c) copyright 2001
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the Things I Wish I Knew When I Was 22" Part 1
the Things I Wish I Knew When I Was 22": Part 2
Everything is Negotiable
Much Can You Spend to Generate Enrollment?
and other Diversions