The Wealth Equation (The And Asset For Canadians 1 of 3)

You go spend your dollar and go buy a, you know, soda or something, that dollar will never able to be controlled by you or earned for you ever again. So there's a cost to everything that we do. Every decision we make has a consequence. At the end of the day, if you get one thing, it's know why you do what you do. Commit to efficiency, understand efficiency is really opportunity costs. And to truly understand opportunity costs, you need to think long term and short term.

Today's a pretty special day and I'm just privileged to be here with Caleb Williams, the CEO, the founder of Better wealth, and an amazing colleague and friend and brother in faith and just an all around amazing guy. And the purpose of us recording this, what will be chalked into a series of videos. You've arrived at AndAsset CA and you may already have a copy of the book the and Asset for Canadians, which is a sister book, a companion book to the original, the end asset. And this content is meant to serve you. It's meant to help you in your journey of learning. As you're reading the book, you may have heard the expression, watch and learn. Some people love to read and learn and a lot of people love to watch and learn. Some people love to listen and learn.

And so people like to taste and learn.

Yeah, yeah.

You can't offer that virtually, but you.

Know, this information is tasty and if you have smell o vision, just go ahead. The key is, is that people want to consume content in the way that they learn best. And so the idea came up to say, why don't we have an expanded discussion around the three key elements of the book and let's jam, let's talk about it and give people a ton of value so that when they're reading through that particular part of the book, they go, oh, wow, okay. This additional video content was really helpful for me. And so Caleb, welcome. It's, of course, it's a pleasure. We had a great discussion before hitting the record button today, as we always do, but a warm welcome from all of us here in Canada.

It is a pleasure to be on here. I've been looking forward to this time. I love what you guys are about, I love your team and I am so excited to share what's a concept that has changed both of our family's lives. And it's something that we have so much gratitude. You and I can't take any credit for any of these concepts and yet we have a moral obligation to share this, package it up in a way that resonates that Translates. And I know that we have hundreds of stories, both in the States and in Canada, of people that have taken this concept and. And it's changed their family, it's changed the way that they think. It's changed their life. And I'm not just saying that to say that. It's like, you want to know why we're so passionate and writing and creating content? It's because we have a moral obligation to share this. And so pardon how passionate I get about this, but I'm pumped to be here. And we'll hold nothing back from giving value to your audience and anybody watching this video.

I love it. And for all of you who are watching and I'm speaking to you now, if at any time during these videos you find yourself thinking, okay, what's my next step and where do I go from here? Be sure to get your copy of the book, the End Asset for Canadians. So there's a link on this page that you can click on. And we will either electronically deliver the book to you or we'll get a copy couriered to wherever you'd like it to go in the country.

And.

And you'll also have an opportunity to be connected with the right person on my team to have an expanded discussion around how to accelerate your own financial independence by embracing this process and implementing it in your life. And so with that, let's dive right in. So, Caleb, what I loved most about when I first read the original version of the End Asset was how you simplified by saying, look, this book is broken up into three sections. The first section is the wealth equation. The second section is compounding and control, and the third is the controlled compounding strategy. And so let's begin video number one. Let's begin with the wealth equation and what you intended to get across in those first few chapters of the book.

I really appreciate just you teeing this up. And anyone that knows me knows that I think in frameworks, I bother people to death. I'll say, because I just want to know the underlying framework of how things work. And for me, if you understand the framework, it's the foundation that you can build the skyscraper on. So very much the purpose of this whole book is the criticism will be. Just get to the point already. Well, I want to share with you why we think the way that we think. And so you can skip to the end if you want the secret, but I just want to teach people necessarily there's a reason I'm so passionate about this. And I could tell you this, but at the end of the day I want to explain why it's important. So I'm actually going to start with the introduction. And the introduction is actually before any of these sections because I believe it's the most important thing. And it really talks about the importance of your why. And if you don't have something clear that you're living for, whether it's your family, whether it's your faith, whether it's something bigger than just money in a bank account.

I'm afraid that this book is just not going to have the impact that it could have. And I say that trying to be as authentic as I can. But no financial product or strategy will impact your life. Like you taking time and thinking, why does it matter? And when you can start articulating what financial freedom looks like to you. If you can articulate what would I do if money wasn't an issue? And you can start thinking like, what does it. What really matters to you right now? We talk about this as your ROR statement, your return on results statement, not your rate of return. Because rate of return is a metric that you can't spend. And it's used to seduce so many people to do anything with their money. Like, they're not really thoughtful because it's the rate of return that should tell you what to do. But if you get really clear on the results and you're intentionally saying, I am putting my money in intentionally into XYZ for this result, and that result is what you would answer on what's important to you, your why you are wealthy. I don't care if you have $10,000 to your name or $10 trillion to your name. If you're a trillionaire on paper and not living intentionally, I'm afraid that you're not wealthy. So I want to just. That is like the ultimate filter and framework. And I never want us to lose focus of that. Cause we're going to be talking about compounding and control and frameworks and we're going to talk about the power of life insurance. And all that stuff is powerful and is secondary to knowing why you do what you do.

Absolutely. And whenever you define, for example, looking ahead to this new year. So today's January 26th, in 2022, as you and I are recording this. And prior to the new year, I had hosted a webinar on how to achieve your goals and how to set goals in 2022 and actually achieve them. And one of the elements was to define why you're seeking the result that you've defined. So if you have a Very specific financial objective. Why are you seeking to achieve that? And the way that you describe this in the book is so powerful because it sets the stage for how a person needs to, to recognize that we have to change the way that we think so important. And you ask a question, the very, very first part of this book, you ask a question that's so powerful. If money wasn't an issue, what would you be doing with your life? And I'd invite you watching this video just to take a moment and think, if money wasn't an issue, what would you be doing with your life? And the fact of the matter is, is that most people are chasing what you described. What product is going to give me the best rate of return? What product is going to give me the best growth on my money, et cetera. You and I both know very wealthy people who have a lot of money but are miserable. And then you meet someone who has a lot of money and who is thinking in abundance, acting in abundance, who's living intentionally, who is happy. And when you get to the substance of it, they are crystal clear on the why. And the money is just a byproduct of realizing their why.

We say all the time, especially as it relates to this process, that when you have a life insurance policy or a system of policies and you begin to embrace this process without having clearly defined your why, then all you're going to remember is what you purchased.

Yeah.

Right. And so let's continue the discussion. Where does the book go from here? Where does it lead the reader from here?

Right. A couple other things that just piggyback into and then we can transfer onto the next segment is one question that I ask on all my podcast is if this was your last day on earth and you're with the people that you love the most, you can't give them anything other than a conversation, what are you going to be talking about? That's another way to figure out what your underlying core values are. And ultimately that should be the filter on why we decide what we decide. So all in all, I really appreciate just being able to speak upon on that. And so then when we think about wealth, when we think about, okay, what is the underlying framework that we need to be successful when it comes to the goals that we're trying to accomplish. And you know, when you ask a typical financial planner, they're going to talk about, you know, accumulation, your portfolio, make sure that you have diversification, rate of return, and those are all things that are important. I would say that they, they don't Necessarily, they're not the most important. And as doing, in just doing research, I was like, man, this word efficiency, like, I love it. Like, it's just so, it's so amazing. And the definition, my Caleb version of Google definition of efficiency is removing any friction that you have to get to a desired result. So it's essentially eliminating time and money and energy and anything that's getting in the way to help you getting your desired results. So number one, if you don't know where you want to go, well, I can't help you. But if you can articulate where you want to go, then efficiency says, I'm going to look at anything that's getting in the way, any friction. And to be efficient, I'm essentially going to limit that as much as possible so that I can get to where I want to go. I use this example as if I wanted to get to you, I know where I want to go. I could walk to you, I could drive to you, or I could fly to you. And there's one that's efficient and superior. And it comes down to just looking at the resources and time and making.

The best decision and the pathway. Right. If you're 38,000ft in the air, you don't have much to worry about in the way of traffic signals and traffic jams. So it's going to be a very efficient method of getting from point A to point B and it's equipped with the right engines and the thrust to get you there. And we talk about how our purpose, our reason for doing what we do is to accelerate the financial independence of Canadians coast to coast. And to make sure, as the title of the book articulates, we want people to actually picture a day. So when you're thinking about your why, we want you to picture a day when financial control is actually in your hands. Not the bank, not the government, not some temperamental stock market, but in your hands. Clearly that's where the control should be.

Absolutely.

And the two words, financial freedom, those words are used so often and I think it really just, it's like water off a duck's back for most people. Because for most people they've had such bad experience of handing control of their money over to someone else and all they end up with is the experience someone else ends up with all their money. And so they have this distrust when they hear the words financial freedom. Well, what is it that you're seeking freedom from? And what do you want freedom to and freedom of? You want freedom of money, freedom of time, freedom of relationship, Freedom of purpose, all those things. It's not just about money, right? Financial freedom is just one, one element of your overall life journey and your overall well being.

And that very much goes into the beginning when we were talking about figuring out what you actually want and the destination. And it's like again, I love how you talk about it's freedom from, freedom to. And again, if you don't have a powerful from to, it's not going to be as enhanced. But one of the things is, okay, that's great to talk about. I think one of the reasons why people are so tired of financial freedom or financial independence is it just feels like a word that people throw out and it doesn't mean anything. And I'll be the first to say I overuse it. So the reason for this equation, it's E equals MC squared. For those science nerds out there, you would think, man, that's a Einstein equation. And Caleb, you may be smart, but you don't hold a fraction a candle to Einstein. And so yes, I'll give him a ton of credit. He, he's paving the way for humanity and all the technology. I just took his framework and said, what about if we just applied money to this whole thing? So I talk about efficiency and efficiency is super important. It's a removing friction. I believe that if you get really clear on where you want to go, we should really be focused on efficiency rather than any other metric because efficiency essentially gets what you want the best way. And by the way, better wealth. We're not very creative in the States, but it's just like that just resonated with me. And so what is the equation of efficiency? Now there's a lot of different equations, so I'm not telling you that this is the only equation. And in fact I've enhanced the message and amplified the message after writing this. But I think this framework is really powerful. So it says E equals efficiency. I think I've already talked about why efficiency is so important. Equals M and M stands for money. And this is really when we're talking about financial framework, I'm talking about your money. When it comes to efficiency, E equals MC squared. So the C, what are the two Cs? Well, really there's a C that stands for compounding this idea of our money, the future value of what our money could be over our lifetime, which is powerful. And Einstein's quoted for saying, he never said this, but he's quoted for saying that compound interest is the eighth one of the world. And he who understands it will Earn it. And he who doesn't will pay it. And so it's this thing that people again, don't really understand. And so I want to unpack what compounding actually is. But it's like, oh yeah, I want to compound my money. So One of the Cs is just understanding that every decision we make, every decision you make will have a ripple effect not just in your lifetime, but.

In generations, every generation that comes after you.

If, if I disrespect the value of a dollar, and I know this could be a Canadian dollar, but this is an American dollar, it does not matter if I disrespect it, I lose that dollar, but I lose more than just that dollar. I lose what that dollar could have earned me the rest of my life.

That is a powerful statement.

Powerful.

And we'll let that sit with you.

And when we're thinking about efficiency, one of the questions that we must ask is what time frame are we measuring? So often we want to measure to retirement, whatever that word means, where we want to measure what's efficient this year. But really one of the things that I want to encourage everybody is make sure your measurements are long term. R. Nelson Nash, long term thinking. And if you're not willing to think long term, then the and asset strategy may or may not be the right fit for you. If you're thinking long term, it is the foundational asset that you must have in your life if you want to be efficient.

And you'll find this formula, this equation on page 20, by the way, page 20 of the end asset for Canadians. And if you don't yet have a copy of the book, click the link. We'll either electronically deliver it to you or we'll send a copy wherever you'd like it to go. Page 20 is the wealth equation that Caleb is currently describing.

So just going back to The E equals MC squared efficiency is the goal equals your money. Number one. One of the Cs is compounding. We have to think with the end in mind. And this idea of compounding is your, your money, your, your principal and interest is continuing to grow. It's, it's growing upon growing and it's powerful. But if we're just talking about compounding, jlo, you and I both would be like, okay, we're like everybody else. My investment, my mutual fund, my widget, my machine compound's better than yours. And then it's kind of like a, it's a contest that I don't want to be a part of. But the other C that resonated with me in a more powerful way. And I believe it resonated with you in a more powerful way is the sea of control.

Absolutely.

And control is a lot harder to measure because what is the value of a basketball? For me, not much. Okay. For Michael Jordan it's made him quite a bit of money and opened up a lot of doors. The same with a golf club. What's the rate of return? What's the value of a golf club? Well, it depends on how you use it. So use and control go hand in hand. And so control really asks the question is what are you going to do with your life, with your skillset, with your time, with your resources? I can't tell you. Control for many people could actually be a negative thing. And there's, I'm not going to apologize for that. I feel bad for that. But at the end of the day it's just a problem. But if you're somebody that, that seeks control, says if I had control of my time, if I had control of my resources, if I had control, if I could use my time or money in some way, would that be valuable? And if you're someone that says I want control over my money and that's valuable, this strategy's for you. And so you're efficient when you can maximize both control and compounding. So someone's efficient when they're money is not just thinking long term, that's compounding, but they're also not giving up the short term control. And so for me, again, this is not like the end all, be all equation. But whenever I'm thinking about investing and saving my money and all this stuff, I'm constantly thinking and it bothers everyone on my team and my spouse, but I'm constantly thinking about, okay, what is this going to affect me 30 years from now? And what, what am I giving up today by doing this decision? And what I find is the most efficient decisions is I'm giving up very little today. And it's increasing control as I go throughout my life. And long term there's a benefit.

And you have to ask yourself how would you feel being in a position of total and absolute control? What advantage would that represent for you? What would change in your life? What would change in the way that you think? Because working from a place of total control is much more peaceful and stress free than an absence of control. And this is manifested in what we've been dealing with globally with this COVID 19 pandemic. And the absence of control has manifested itself in fear. It's manifested itself in anger because that's a typical response when you feel like you don't have control. You'll either be in fear or you'll be in anger. And so if you want to be in stress free and in peaceful way of being, then being in a position of total control is the foundation that you need in order to achieve that. And so I love how you expanded on this, you know, because again, when people read a book, the more you read it, the more you'll see you didn't see. But it's always good to get the author's perspective of why did I create this equation and what is the additional substance behind it. So really well explained.

I want to unpack two other things for section one. So E efficiency equals your money maximize by compounding and control. So that's cute and that's awesome, but I want to unpack compounding and control a little bit more.

Sounds good.

Compounding. We've all heard the penny example. Whereas I could give you a million dollars today, Jason. Or, or I could double a penny for 30 days. And since you know the story you.

Would choose, I would be doubling the penny.

You'd be doubling the penny. But I'm a savvy business person and we're doubling the penny. But there was a couple things that I didn't tell you about that scenario. You have to pay taxes. In that scenario there's going to be fees and there's going to be two times where you're not going to double your penny. So it's going to be an equivalent of like losing your money, you know. And what's interesting is in the example of doubling your penny for 30 days, you have over $5 million. It's an amazing example of the power of compounding. And most people just stop there. They're like, see, compound interest is an amazing thing. And again, what frustrates me is like you're teaching people a tagline, but they're not understanding the true value of, of lifetime uninterrupted compounding than just what Wall street or Bay street throws out there by saying compound your money. The problem is it's not very powerful when you include what I call wealth eroders, things that literally erode your ability to compound over your life. So let's look at three Commonwealth eroders. Losing your money. That's like universal across the board. Losing your money via fee, losing your money via risk, and losing your money the tax. Those are the, those are the three. Yeah. And so when you start looking at, you know, Factoring in one, and we write this in the book, so I would encourage people to go check it out. You take your 5 million plus nest egg and you're, you're so south of a million dollars, it's not even, it's not even funny. It's why is because when you incorporate wealth eroders like fees and taxes and losses, it's very, very damaging. The point that we're trying to make is compounding is amazing, awesome. It's good to know the equation of compound interest. The problem is people know what compounding is, but their money's not actually compounding, truly uninterrupted throughout their life. And so the first thing that I want to lay is, yes, compounding control. Really important. Let's actually understand how compound interest works and let's understand the wealth erosion that happens when we're not committed to a lifetime compounding without any of those factors.

And in addition to what you just described, what's so important for people to understand a fundamental truth financially, that if your commercial bank or the mutual fund company or whatever that deposit taking institution is that wants your money, if they're espousing how great compounding is, they've left out the word uninterrupted compounding. And you're handing control of your money and the motion of that money, the real true compounding factor, you're transferring all of that to someone else. And so uninterrupted compounding is great when you're the one that's in a position of total and absolute control. And it's actually, if you picture this, if you close your eyes and picture this, you have an aquarium that's filling up with capital money. So you're well capitalized. And that aquarium is never depleted, it just keeps rising, it just keeps expanding. And.

In order for compounding to actually happen, truthfully, if you think about it, when you hand money over to a commercial bank and you park it in a savings account or a guaranteed investment certificate, or a certificate of deposit as you would refer to it in the United States, you're transferring all of the earning power, all of the earning power to someone else. And then you get a share of what they earned on that money in the form of a guaranteed interest rate. And then when you need money to go do something, you've got to withdraw it from the same institution that you handed control over to, spend it, so that whomever you bought the thing from is going to take that very same amount of money and put it right back into the banking system. Transferring control and uninterrupted compounding, just killing the compounding factor and transferring it away to someone else. You do not have to go through life financially doing that. There's a better way.

There's a better way. And the last thing that I'll say is, in section one we talk about opportunity cost. And opportunity cost is everything. And the true understanding of opportunity cost, you have to understand long term value of your dollar, that is compounding. And you also have to factor in control. A lot of these people that just look at opportunity costs, they're usually only factoring in compound interest. So they're putting a total devaluation on anything control related, which is really important. So if you're working with someone that's not talking about control, not helping you incorporate that into your financial life strategy, plan, whatever you want to call it, start asking questions because it's so important. So opportunity cost essentially goes like this. Every decision you make, if you're watching me right now, you're not able to do 10 other things, there's a cost to that. If you go spend a dollar, poor dollar, by the way, this thing gets wrinkled up for every example, you go spend your dollar and go buy soda or something, that dollar will never able to be controlled by you or earned for you ever again. So there's a cost to everything that we do. Every decision we make has a consequence. I don't share this to frighten you or to make you not take action. I'm just saying that every decision you make has a consequence. Let's understand how opportunity cost works. Let's make sure to measure that and know that when we're thinking about where to put our money, where to save our money, how to spend our money, understand that that has a short term consequence, that is control. And that has a long term consequence, that is compounding and going back to efficiency. Because I'm a broken record. When you can factor in efficiency, it's really being ultra aware of, of the opportunity cost that's happening in our life every day, every minute. And for the person that can incorporate that in their life and their financial life, that is the equation. Now in the next two sections, we're going to unpack more of the book. But at the end of the day, if you get one thing, it's know why you do what you do, commit to efficiency, understand efficiency is really opportunity costs. And to truly understand opportunity costs, you need to think long term and short term. And strangely enough, when you can value both of those, you can start making decisions and you can understand that every decision you make has a short term and long term benefit and consequence. And that's the true way to analyze anything financially. And so that's what I would say in section one.

That's amazing. And what we're describing here folks is section one of the book titled the and Asset for Canadians. And if you do not yet have a copy, just ease on over to AndAsset CA. Again, that's AndAsset CA. And when you get there, just click on the button to receive either an electronic version of the book or you can purchase a copy and we'll courier it to wherever it needs to go in Canada. One additional item that I wanted to include in the discussion around this first section is when we talk about, and people may have read about this or watched this elsewhere, but when we talk about actual return versus average return. And there's such a powerful example on page 37 of the book when we describe, you used an example where you show, okay, you have an opening balance of $100 and then you gain 100. Well now you have $200 and let's presume that it's invested somewhere. So the control over the use and liquidity of that money is with someone else. So what you're looking at is just an account value. You're just looking in your online banking or you've got a paper statement that says your account value began at 100.

It'S now $200,000, which would be 100%.

Growth, which would be. Yeah, great point. So that's 100% growth. That's much like talking about the equity in your home. What's my home valued at? Well, I bought it for $300,000. It's now valued at $600,000. But who's got the highest margin of safety in the deal, you or the bank?

It depends on the deal.

Right, like who's controlling? Yeah, the equity is a number, it's a value. And so going back to your example on page 37, in the second year we get bad news. Our account value now has decreased from 200 back to 100. And so what would that be in terms of a reduction in value expressed as a percentage?

Yeah, the way that I share the story is who wants a 25% rate of return on your money? Two hands. Can I double fist this? I do, I do. And the very over exaggerated story is I'll show you a way to get 25% on your money and the actual rate of return is zero. And we just walk through that is you have a hundred dollars, first year, 100%. I mean, that's amazing. Some people have seen that in other markets. Your $100 goes to 200. Congratulations, you just made 100% on your money. The next year, though, it drops by 50%. So your 200 drops down to 100. You lost 50%. Now, on paper, I can tell you that you earned 25%, which is true, because I take 100 minus 50 divided by 2, that's 25%. That's math. But.

Why did we not earn anything? It's because averages and math can lie. And the principle is every time you lose a dollar, it really affects you much greater than gaining. Because now you just lost a, a person, a soldier, whatever example that you want to use, tool that could start be working for you. And so we have to be very, very aware of any time we are losing money because it can affect you far greater than the gains. And this is just a perfect example of very extreme example of an average rate or return of 25% that gets you an actual rate of return of zero.

And thinking that what do you believe is easier? Do you believe it's easier to gain the hundred or to lose it?

If you just stop and think about that for a moment? Because who's in control?

And that's where it goes back to is people can debate us all day long. I'm glad you're feeling confident in whatever you're doing. You probably sleep way better at night than I would in your scenario. Majority of people have their entire life, financial life, in control of some other person that has zero cares in the world about you and your family.

Definitely. And when you develop an even deeper understanding of how this all works, and then you get to page 44 and the recommendation that's been made is to ask your investment advisor, am I paying fees on just the gains or my entire account value? So you invest capital.

Your account value increases. Are you paying fees just on the gain or the entire account value? And so when you have a conversation about fees, you have to make sure that the person you're talking to is actually sitting down just in case.

Just in case they fall over. But again, this is the noise that's in the marketplace. I want the lowest management expense ratio, I'd like the lowest fees. I want the most control. That's what I want. And if you're not controlling, and you know this, Caleb, extremely well, if you're not controlling the banking function as it relates to your needs, you can't get a better rate of return doing anything.

I think we could have a bonus episode on the YouTube or on this page where we talk about how you and I have taken control and blown an 8% mutual fund out of the water.

Yeah. All day long.

And I think it's. But. But again, to be fair, I know people that have controlled and they're worse off because they. They didn't. They didn't. They, number one, were delusional or they didn't manage risk or. So it's not. It's one of those things where it's like in Spider man, great responsibility or what great power comes with great responsibility. It comes. It's very much like control doesn't equal or automatic success. I would much rather live in a world where I had control versus not. And this resonates with a large majority of people, but some people it doesn't. And if control doesn't resonate with you, the and asset will be good for you to read because you'll learn about principles, but it may not be something that you want to do. If you resonate with this concept of control, you have a moral obligation to have this at the foundation of your life.

Absolutely. And one of my coaches, Dan Sullivan, a strategic coach who's incredible, he made the statement that resonated with me so much because it's so true that everyone is already 100% disciplined in their own set of habits. So you are already disciplined. You're disciplined in your own set of habits. And so in order to achieve a different outcome, after you're clear on your why and you set out on this journey to achieve these objectives in your life, you have to change the way that you think. And when you change the way that you think, you'll change the way that you act. And when you change the way that you act, you'll develop a new pattern. You'll interrupt the old pattern of habits, and you'll develop a new pattern of habits, and then you can become disciplined in your new pattern of habits. And.

That was an amazing discussion, Caleb, about section one of the book, the wealth Equation.