You’re Using Credit Completely Wrong (Do This Instead)

Okay. So number 1, we want to start with our consumption rules. And so we want to think about this. Now I'm putting some suggestions to help you think here, but like, this is sort of up to you. I'm also just going to remind you again, everything we do builds on top of the next. So if you were here for the live event, you know this, but like when we get to next week or week 3 or week 6, I'm going to say, go back and get the numbers or go get back what you had in that point and bring it forward. So if you haven't done the work, then like it makes hard, it makes it really hard to move forward. But so the consumption rules are, are again, the constraints that we're putting in place. So for example, what will you not do? Now, I told you my story, like in 2008, how I made a bunch of money. I sold my businesses. I put in all the real estate. I got smacked down. I lost, I lost everything. I had to rebuild it. And so when I was rebuilding my wealth, I had to think through what just happened to me. How do I make sure that never happens to me again? So what are my rules moving forward with my new investment life? So some of these are like, you're afraid of something happening to you, and so you need a rule for that, but they may not be a rule for me. Let me give you an example. I use surfing a lot. So going in the ocean is dangerous, especially if you don't know how to swim. Even if you know how to swim, it could be dangerous if you don't know how to manage waves. It could still be dangerous even if you know how to manage waves, if the waves are too big. So for example, I could go out in the ocean. You may be able to swim really good. Well, let's just say you don't know how to swim. I know how to swim. I know how to surf. So for me, I don't have a rule about going in the ocean. My rule is I won't go out in waves over 30 feet. But for you, your rule is I will only go in the pool or go in the water if I have a life jacket on. You see what I'm saying? So like our rules are just gonna be different for us. So I wanna help you think through that. Your rule about going in the water is make sure you have a life jacket on. My rule is don't go in, in the water if with waves over 30 feet, unless I have a life jacket on. So again, back to after I was rebuilding things after 2008, I had rules that would prevent me from getting back into the same trouble I had gotten into before. So for example, um, what got me into trouble is that I had invested into a lot of projects that, um, I didn't have the cash flow the liquidity to cover the payments. I became a forced seller. I sold it the first— I sold the worst time. I was forced to sell at the bottom of the market. I couldn't wait for it to come back up. So, um, why didn't I have the income? Well, number one, I didn't build up liquidity pools. Number two, I had sold my business from revenue. Number three, the properties didn't produce any income or didn't produce enough income to cover. So as I started building my real estate portfolio again, I would never invest into a property that couldn't at least cover my expenses. That's rule number 1. Number 2, I would never, I would never invest into a property that I wouldn't want to own for at least the next 10 years. And this was important. If you remember my story, I told you when I first started going, I was so gun-shy about using credit. I didn't use credit for a long time. It stunted my, my road back to building wealth. Um, so what I did is I started loaning money for real estate. I didn't borrow money for real estate. I became the bank. So I was loaning hard money. Um, and I would do it like 65% LTV. So I was very protected, but my rule was I would not loan on a piece of property that I wouldn't want to own. Cause I knew worst case scenario, I have to take the property back, which I did many times and I may end up owning the property. So even though I wasn't using a bank, I wasn't buying the property I was loaning. I still put a rule in place. I won't loan on a property that I don't want to own. These may not apply to you. I'm trying to give you the thinking here. So, uh, what are you allowed to buy? What are you allowed to finance? What are you allowed to spend on? Warren Buffett would never invest into a company that didn't fit his deal box. So maybe you're only allowed to buy investments in real estate because that's all you know. For me, I'm pretty much in business, real estate, and Bitcoin. I kind of just stick to those three. I know them all very well. But also, what about the consumption? What else can I buy and finance? So I would never pay cash for something I could finance. Why would I ever do that? That's for me. I would never pay cash for something I could finance. I would always rather use somebody else's money than my own. But I would never finance something that I don't have the cash flow to cover. I have some examples there on the screen. I would never want to pay cash, especially for something I could finance. And I would never want to pay cash for a depreciating asset. Why would I go pay cash for a car and spend $50,000 on a car that's going to lose 30% of the value when I drive off the lot? When I can just use the dealership's money for 5%? Uh, I will never borrow to fund lifestyle inflation. So what happens is, as I talk about, like, the poor and the middle-class mentality, the mindset— it's not the money, but the mindset— is that I work to pay for my life. And then after I've paid for my life, my rent, my car, my food, whatever money I have left, I invest. Whereas the wealthy, they earn money to buy assets and then use the assets to pay for their life. And the reason why the middle, the poor middle class use credit is typically to increase their life. I want the bigger house. Like, man, like I'm doing better now. Like, can I get a bigger house so my kids can have their own bedrooms? Or I need the bigger car now, or whatever it may be. So maybe it's, I'll never borrow to fund the lifestyle inflation. My lifestyle will only grow— the bigger house, the bigger car— it will only grow once I have the assets that can afford to pay for that, right? That'd be a way to do it. I will never let consumption force me to sell productive assets. I told you, uh, my story, uh, my good friend in Mexico, his grandfather died. He's sort of taken over the business, the grandkid, but the kids, his parents, and his aunts and uncles are fighting over everything. And they're trying to, they're trying to split everything up so they can sell it off so they can have money. For what? So they can go on vacations and get a bigger house. And like, they wanna sell productive assets to fund their lifestyle. Those are, those are consumption rules. How will I use money to fund my life? I really wanted to get this new car. So I know that my grandfather just died and left me this money. So I'm gonna use that money to get this new car I always wanted, or to take my wife on that vacation I promised, or to put that new addition into the house. That's consumption. Why would I sell an asset to fund consumption? I wouldn't do that. These are consumption rules. So maybe John, that helps. Like, we're not talking about everything in life. This is not like our risk management policy. This is just like, how do we think about consumption? I'm not gonna pay cash for something that I could finance.