Are you an investor or just invested?

Apr 25, 2023

Before we got financially educated, we were “INVESTED”, but not “INVESTORS”!  At the time, we didn’t know the difference, but now that we understand what it means to be an investor, we make much better decisions when it comes to growing our wealth and creating passive income.

Whether you’re a seasoned veteran or just getting started on your wealth creation journey, understanding the difference between being an investor and just being invested can be incredibly helpful in guiding your thoughts and actions.  It has made all the difference for us.

We use the mnemonic “INVEST” to help us keep the investor mindset at the forefront of our minds.  It also helps us guide others on what THEY can do to take charge of their financial future.

Taking inventory means creating and keeping close track of your personal income statement (aka budget) and balance sheet (aka personal financial statement). These two tools are critical to becoming a true investor.

Before becoming financially educated, I was invested (in a 401k, stocks, and mutual funds), but didn’t keep close track of my expenses, I didn’t have a target or how much to invest each year, and I didn’t see any value in creating a balance sheet.

Now that we know better, we do better!  Our income statement and balance sheet is now our strategic planner and our scorecard!  Our income statement shows us what portion of our income goes to the government, what portion goes toward expenses, and what portion goes to investing. Our goal is to minimize what goes to the government and maximize what goes to investing while having a reasonable (but not wasteful or extravagant) lifestyle.  We look at our income statement and make adjustments regularly.

Our balance sheet shows us what portion of our net worth is in cash-flowing assets (those that provide passive income – e.g. real estate), what portion is in “lazy assets” (those that might increase in value over time but don’t provide cash flow – e.g. 401k, mutual funds), and what portion is in “dead assets” (those that don’t provide cash flow and don’t increase in value – e.g. cars, boats, home equity).

Our goal is to get the maximum amount of our net worth into cash-flowing assets in order to maximize our passive income.

Without knowing and focusing on your income statement, you can’t be purposeful with your investing.  And as it’s been said before, “Vague goals = vague results!”  That was certainly us several years ago!

Investors know their numbers, those that are just invested don’t.

Your freedom number is the amount of money you need to invest in order to create enough passive income.

To calculate your freedom number, our original wealth coach suggested we assume a conservative 5% return on investment.  To calculate your freedom number, you divide your current annual expenses by 0.05.  This will give you the amount you need to get invested in cash-flowing assets.  This is also called the “rule of 20’s”, as dividing by 0.05 is the same thing as multiplying by 20.

Knowing these numbers gives you excitement, and more importantly, a specific target for how much you need to get invested into cash-flowing assets.

Once you’ve calculated your freedom number, you can go back to your income statement to figure out how to maximize your annual investments to get there quicker!

In our old life, we weren’t knowledgeable or focused on any particular investment vehicle.  We left it all to our financial advisor and ended up in a smattering of traditional financial vehicles (e.g. retirement funds, mutual funds, annuities) that didn’t provide cash flow OR tax benefits..

We also dabbled in speculative investments that we knew nothing about (as do many physicians and other busy professionals).  We often experienced F.O.M.O. (fear of missing out) when others were talking about a new and great investment opportunity and got into a few investments that we shouldn’t have.

True investors have F.O.C.U.S. (Follow On Course Until Successful). They become experts in one particular investment vehicle and they focus most of their investing energy (and money) on that vehicle.

We now focus on multifamily apartments as our main investment vehicle, as it provides cash flow, capital gains, and tax savings.

When we were invested (but not investors),  we spent no time getting or staying financially educated.  We relied on our financial advisors to plot our course and get our money invested.  We didn’t have time or motivation to dig into investing – we thought we just needed to earn the money and that our financial advisors would make sure it all turned out ok.

We now understand that a true investor takes an active role in their financial outcome.  A true investor is always learning, as the market is always moving, the economy is always changing, and the tax laws are always changing.  What worked best the past five years may not work the next five years.

A true investor also understands that the money is not the end goal, rather it is a means to a more important end – wellness!

Wellness encompasses your physical health, your mental health, your relationships, your purpose, and generally flourishing in life!  We know too many busy professionals who earn a big paycheck, but yet are bankrupt in all these wellness categories, and WE were on that same path several years ago!  It’s somehow not obvious to us, and we all have a tendency to get focused on earning a big income and lose track of what’s really important.

True investor creates passive income so they can focus more on the things that matter most in life.  This is the motivation and fuel behind why WE are so passionate about investing – it has allowed us to get control of our time, and that has allowed us to improve our physical and mental health, to spend more time with people that matter most, and to enjoy life in a way we never could when we were “W2 zombies” and just trying to survive each week.

Before becoming true investors, we had no real plan other than work to earn a paycheck, follow the advice of our financial planner, and hope that we’d have enough saved once we got to retirement.  We were invested, but not investors.

True investors have a specific plan on how they will maximize their annual investable income AND how they will maximize the returns on the money they do invest – we call these your “internal strategy” and your “external strategy”.

Your internal strategy is about finding money in your income statement and balance sheet to invest.

For your income statement, this includes cutting unnecessary expenses, finding ways to reduce your tax bill, and being purposeful about increasing the amount you have to invest each year.

For your balance sheet, this means holding as much of your net worth as possible in cash-flowing assets.  For example, having significant equity in your home may feel good, but that equity earns no return and is what we call  “dead equity”.    Once we figured this out and understood the strategy, we got the equity out of our home and got it invested in cash-flowing assets.

An investor’s “external strategy” is about HOW they use the money they do have to maximize their return and minimize their risk.   This includes whether they will be a passive or active investor, how much they will put in cash-flowing vs speculative investments, how much to hold back for emergencies, and whether they will invest in traditional or alternative investments.  It also includes using leverage, tax strategies, and arbitrage to maximize their return.

Most Americans are “invested” in 401k’s, IRAs, and other retirement plans because they want to defer their taxes as long as possible. They see taxes as inevitable and are simply trying to “kick the can down the road” until they get to retirement.  They don’t realize that there are ways to actually reduce your taxes (rather than just deferring your taxes) – that was the US!!

True investors realize that the IRS code is not a penalty, but rather a set of incentives to get people to do things the government deems valuable.  Right or wrong, the government will lower your taxes if you do the things they want you to do.  That target is always moving, but real estate has consistently been a tax-reducing investment vehicle. Although some of the benefits will phase out over the next four years, real estate still offers tremendous tax savings through bonus depreciation and accelerated depreciation.

Finally, a true investor has a TEAM and doesn’t try to do everything themselves.  Those that are invested (but not true investors) often don’t realize the value that expert team members bring.    Since becoming financially educated, we now see our expert CPA and asset attorney as an investment rather than an expense.  We pay a little more than we used to, but our new team members are experts in real estate taxes and asset protection of our real estate holdings.  If you decide to be an active investor in real estate, you’ll also need an expert mortgage broker, property broker, insurance agent, contractor, and legal team.

In summary, true investors are purposeful,  focused, and they do more than just invest their money.  They create, populate, and track their Income statement and balance sheet and they know their freedom Number.  True investors also become very knowledgable in the Vehicle they invest in, they continually Educate, they understand the ultimate end goal of money is their Elite wealth and wellness and life experience!  True investors have both an internal and external Strategy, they focus on Tax-advantaged assets and strategies, and the develop an expert Team to assist them in their journey.


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When you’re ready to get on the path to financial freedom and are looking for education, access to investment opportunities, and a network of like-minded people, look no further than Elite Wealth and Wellness. We specialize in helping others achieve and integrate a life of financial freedom with a life of optimal wellness.

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