December 1, 2022

JF3010: How to Reverse Engineer Your Goals | Passive Investor Tips ft. Travis Watts

Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.


When most people set a goal, they tend to work toward achieving that goal in a linear fashion — from start to finish. In this episode, Travis explains how to make your goals more attainable by starting with the end in mind using a strategy called reverse engineering.

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Travis Watts: Welcome back, Best Ever listeners, to another episode of Passive Investor Tips. I'm your host, Travis watts. I've got a really exciting strategy to share with you in today's episode; it's on how to reverse-engineer your goals. And I guess before we get started, a couple of disclaimers as always: not financial advice, not telling you or anyone else what to do. Please seek licensed advice. This is for educational purposes only.

With that out of the way, how to reverse-engineer your goals? Why is this important? Well, let me tell you something - most people, when they set a goal, let's just start with if they set a goal, they move toward that goal in just a linear fashion, from beginning to end. So what we're going to talk about is how to make the achievableness - that's probably not a word - more achievable. So how to make your goals more attainable, let's put it that way.

So the problem with setting a goal in the beginning and moving towards it in a linear fashion is that it's a little bit unclear; it can seem overwhelming or daunting. Let's just use a health example... You want to lose 30 pounds in 12 months. Well, 30 pounds, if that's all you're thinking about day to day, is a daunting goal to have. So most people, what happens is they lose track, they steer off-course, the holidays roll around, and all of a sudden they forget about their goal, or they never achieve it. So this is the power of reverse-engineering those goals.

So let's use that goal as an example, 30 pounds in 12 months. So what I would do is I would start with the end in mind - 30 pounds, that's your goal. Okay, let's divide by 12, and that gives you 2.5 pounds per month. Now it seems a lot more achievable. At least you have a metric to go by that keeps you on track month by month, and then you can see the light at the end of the tunnel. You know clearly at the six month mark where you are, how much further you have to go, and what the results have been so far.

So let's use a couple of financial goals instead. So let's use a business owner goal. And you've got this really ambitious goal, it's make a million dollars per year in gross revenue. Well, again, just to think, "Oh, I need to make a million dollars this year. How am I going to do it?", that's a little overwhelming. So let's break it down, and let's reverse-engineer. The end goal is a million; let's divide by 12, and that gives you 83,000 per month, I believe. So what if you said instead, "Okay, I need to get 30 clients this year that are paying me $2,800 per month." That actually gets you to the goal. And you see how that's -- I shouldn't say it's much more easily achievable, but it's much more clear on how you can actually do that. Now, there's lots of ways to go about a million dollars a year in revenue. That's just a simple example, depending on your business. Or, to the theme of the show, let's break it down to being a passive investor, and you say, "Well, I want $100,000 per year in passive income." Well do the math - divide it by 12, start with the end in mind... That's $8,300 per month. So what if you looked at it like this - I could have 30 diversified investments that all pay me cashflow at approximately $280 per month. It seems a lot more achievable, right?

Now, if you take this reverse-engineering strategy and concept and you couple it with finding a mentor, someone who's actually achieving the goals you want to achieve or who specializes in helping people achieve those goals, it can be even more easy and attainable. So for example, with the health goal, you'd find a fitness coach, or someone like that, that specializes in getting people fit, in shape, and losing weight. Or in the example of the business owner, you would find a business owner who's currently making a million dollars plus in gross revenue, and pick their brain, get to know what strategies they're implementing. Or in the goal of the passive investor, find another passive investor who is making $100,000 plus a year through passive income; get to know them, get to know how they do it, and this can really cut the learning curve.

And I just want to say real quick, as a caveat, that this is not just theory; the show is not about theory. I use this strategy all the time. I've used this strategy on my health goals, and I've gotten results out of it. I've used it on passive investing. I've shared the story before, but in 2015 is where I found my first two mentors that were full-time passive investors. They were business owners who had sold their companies in the mid-1990s, and ever since, they just became full-time investors. And the only difference was, these guys were making $8 million a year in passive income. But that didn't discourage me from making them my mentors, because all I did was mimic their strategy and mimic their philosophy, and I ended up getting the same results. Now, I'm not saying $8 million a year; I didn't have 800 million to start with. But I built up enough passive income to live on, and I did the same things they were doing, at a smaller scale.

And speaking of scale, this is how I'm helping my nephews right now. I have four nephews, they are of ages between 15 and 21. So every year, for their birthday, and for Christmas, and for one-off events, I'm giving them 100 bucks, or maybe a little bit more... And I'm helping them, I'm mentoring them on how to invest. So for them, what it is - they're not accredited investors, they are not high net worth, high income, but we're using the same strategy that I use as a full time passive investor; we're doing it with them through their brokerage accounts, because you don't have to be accredited, they're free to open, these days it's pretty much free trades on every platform... So what we're finding right now are publicly-traded REITs, Real Estate Investment Trusts, so that I can teach them about real estate in the process... And we're finding them distressed, because this year the stock market is down 20%, 30%. Some of these REITs are down 40%. So we're finding distressed REITs that have healthy financials, they've just been bogged down by the overall broader market, and they pay monthly distributions. And I would say, at this point, they have equity upside, because when the stock market recovers, whether that's in a year, two years, five years - I don't know, I can't predict that stuff, but basically, they have equity upside, meaning that a potential for that stock to recover to its previous highs.

So at the end of the day, aren't they really doing the same thing that I'm doing in real estate private placements? We're buying a distressed property, or an old or outdated property, we're fixing it up, we're doing a value-add plan, so then we have monthly cash flow for three to five years, and then we have potential equity upside when we go to sell. It's the same thing that they're mimicking, and they're getting the same types of results, but again, on a smaller scale, because they don't have the kind of liquidity and capital that I have to work with, so they're working with a couple thousand bucks.

So if they're able to stay disciplined and stay focused year after year, there's a good chance they could actually retire early if they so choose, in their 30s, or maybe even in their 40s, depending on how aggressive they want to get.

Break: [00:08:06.26]

Travis Watts: Now, if I just started with that goal, and I said, "Here's the deal - we're opening a brokerage account, and you're going to retire in your 30s, okay?" they can't comprehend that kind of goal, and that hence why reverse-engineering the goals can really be a big help, and it's helped them too, and I'll explain how we do it. So let's use that example, and let's reverse-engineer it. So the goal is $100,000 per year by age 35. We'll pick a middle number between their ages, we'll say that they're 18 today, they're starting with zero... How do we do it? So if they're 18 years old today, and the goal is to retire off passive income at age 35, we would start with the end goal being $100,000. Now, the question is, how much capital do you need in order to generate $100,000 per year?

So to paint this example, I'll use a 10% annualized return, keeping in mind that a portion of that 10% is not just cashflow, it's going to be the equity upside piece. Hopefully, their returns are going to exceed this, but I want to be conservative... So the math would be $1 million times 10% a year equals $100,000 per year. So the goal really, in this case, is how do I get to a million dollars?

And I'll show you this example here on the screen, if you're tuning in on YouTube, in just a minute... But I want to start by saying, the cool thing about passive income, one of the primary reasons I invest for passive income, specifically monthly cash flow in passive income, is because each year, it gets a little bit easier to contribute to your goals, right? So in year one, by the end of the year, you're netting $1,000 in cash flow - well, that's $1,000 you don't have to contribute the next year. And then you'll have $2000, then $3000, then $5,000. So in my opinion, it gets easier and easier, the longer you stick with it.

So let me put the numbers up for you on the screen. If you're tuning in on audio, I will do my best to articulate what's being shown here on the screen. So what I did is I went to, and they have a compound interest calculator. And what I said is we're going to start with $0, and we're going to contribute $1,880 per month for 17 years. A little bit of a caveat there in a minute... And then a 10% return that's compounded monthly, because they're receiving distributions on a monthly basis. So obviously, this is for example purposes only. The caveat is, since they're 18 years old, they may not be able to put $1,880 a month into their accounts right now, or until they get into a career, but perhaps down the road, their working career, maybe their high-income at that point, they might be able to put much more than $1,880 and make up for it. But again, this is just for example purposes only.

So if we scroll down here to the end of this calculation, you can see that they would effectively have over a million dollars invested at this point over a 17-year timeframe. But I want to zoom out a minute, and I want to talk about a couple key points of what I'm showing you that are quite profound. The first thing is we're talking about someone being a millionaire by age 35, which is pretty impressive if you look at the stats on where most people are at at age 35.

Number two is they could live a work-optional lifestyle, if they chose to do so. They would, after all, have $100,000 a year at their disposal to either live on or keep it compounding. At the very least, what this income could provide is just more options in life, a little bit less stress, a little bit less worry; maybe they get laid off from their career, or they have to pivot careers and they go six months without income, or they have an unexpected medical cost come up, or whatever... They at least have the $100,000 a year at their disposal.

And the third thing is let's say that they didn't want to retire early at 35. After all, that's pretty young, and let's say they're in a profession that they really enjoy. Let's say one of my nephews becomes a doctor, and he's really good at it, and he makes great income, and he's happy, and he loves his lifestyle - great. You don't have to live on it. So let's say he continues contributing the $1,880 per month until age 65, where he feels like "Now I want to retire." Well, at that point, if you keep running the math, 10% returns for that many more years, he would effectively be at a net worth around $24 million. So it's pretty astounding... Again, it gets easier and easier every year. And even if he didn't continue contributing the $1,880 and just let it ride, I'm sure it would be over $10 million, or something crazy.

So there's a lot of benefit to reverse-engineering is the bottom line. As I always like to say, it's simple, but not easy. Statistically speaking, when people hit three failures or three embarrassing moments, they stop and they give up. It's like 99% of people. So it takes a little self discipline, a little perseverance, and a little bit of goal-setting... But hopefully that's encouraging and inspiring in some form. I hope you've found some value in this episode.

I truly want to thank you guys for being here. I do a lot of stuff out there for investor education, and speaking on stage, and I work with Joe Fairless at Ashcroft Capital investor relations, and webinars, and I do all this stuff... But I've gotta tell you, this series that I'm doing right now, this Passive Investor Tips is truly the most beneficial thing that I think I do; and I don't mean that like from a personal standpoint. You guys reaching out on social media, on LinkedIn, on Bigger Pockets, having these conversations, you guys hopping on Zoom calls with me... I absolutely love it. It's the most rewarding thing that I get to do with my time, and it's give my time back. And the reason I can do that is because of passive income. So hopefully that's a bit of an inspiration.

So, thank you guys so much for tuning in. Have a best ever week, and we will see you next week on another episode of Passive Investor Tips. Take care!

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