#1 Financial Trap That Keeps People Poor

Alright, good morning everybody. We are headed another Wednesday morning meeting at the team shop. And if you haven't seen one of these before, it is just a meeting that is completely. They don't have to come to it, it's just optional. We talk about leadership, finances, personal and business. And so I wanted to record that for you all to see this morning we're talking about depreciating assets, so we'll see where that conversation goes. It's like 10 or 15 minutes that we talked in the morning and usually about five or six of the team will show up and kind of wanted to further improve them and learn some stuff that's new. So that's where we're headed this morning. So I know I've said this to a few of you before, but it's something that I think about all the time. So basically depreciation means something's going down in value. Appreciation basically means it's going up in value, right? And so for example, I buy a house, you say someone, someone's like, hey, it appreciated a value and I sold it for $100,000 more five years later. Or I appreciate, you know, stock price appreciates in value, buy it for 10 dol, becomes $15 in a few years. Whatever, it appreciates the value. Depreciation is something that you actually hear most of the time having to do with depreciating.

Do you put the thing on the back of the door?

Oh, it'll lock. Depreciation is actually something you hear most of the time having to do with businesses. For example, if I buy a trailer out there, what happens from a tax standpoint is you depreciate that over time. So most equipment is five years, like a truck or a trailer. So this part doesn't really matter having to deal with what we're talking about today. But when most people think about depreciation from a business standpoint, like when he said depreciation to me, I'm thinking about like taxes in terms of taking an asset like a truck and then depreciating over five years, which allows you on your taxes to manipulate some numbers. So anyway, that's different. Depreciation in general though just means value going down, right? That's just how for today's concept, that's all we gotta think about. So appreciation, you know, over time you got your value.

Basically you're looking like as time goes on, value goes down, right? So when it comes to tax, this would be depreciation when it comes to tax, usually over the course of five years is when you Hit zero. And this would be the value of that piece of equipment, for example, over time on your taxes. Right? But all we really care about is it's going down in value. And so when it comes to personal finances, I think about basically everything I buy as either an appreciating asset or a depreciating or an appreciating asset. And I go a little extreme on it, but it just kind of helped me a lot. And that is like, for example, everything has, has a lifespan. So for example, the IRS gives my truck a five year lifespan that I can write it off on. Right.

I look at everything that I consume as kind of the same way. So it's just not five years. So for example, if I buy a Subway sandwich, $10, it's a depreciating asset. It's going to last me 20 minutes and it's going to $10 to $0. And so I'm buying. Everything you buy is an asset of some sort. Right. A lot of things go down in value or they last five minutes or two minutes or they last 20 years, but like they're either going up in that book or down in value. Right. And so basically in my mind, the easiest way to think about building wealth is buy things that go up in value. Really simple. It's gonna be like real estate. It's going to be stocks, it's going to be anything that over time goes up and down. And sometimes you'll make a mistake when you start off doing those things. And you'll buy an asset that may stalls for several years or goes down a little bit like stocks or you buy a real estate deal like my first one, mess the thing up to wazoo over improved it. When I finished it, I was probably underwater like 20 grand on the mortgage because I just put too much money into it. Didn't know what I was doing on the reconstruction. But if it's an appreciating asset over time it'll be fine. It will eventually catch up. So I always. People usually get nervous when they start getting into other stocks or real estate or buying their own house or something like that because they're like, oh man, what if I make a mistake? We got to remember, if you're buying an appreciating asset, it'll usually cover your mistake over time. And I'm just more involved in someone getting involved in that game of appreciating assets instead of just constantly spending their whole life on depreciating assets. Because that's what 99% of the population does. And that's why most people live paycheck to PayCheck in their 50s, 60s, 70s and beyond is because they've spent their whole life buying assets that are pretty, you know, car depreciates, it's going to last you five to 10 years, maybe 15 if you're a good mechanic or whatever. But it is going down in value and at the end of the day, it costs you money to get to keep that asset. The best type of asset is the asset that as you keep it, it actually pays you. So not only is it going up in value, but it's paying you as it is sitting around. So things like real estate or dividend stocks. A dividend stock is, you keep it, it's going up in value, hopefully if it's a good stock. But they're gonna every single quarter to keep that stock.

So those are some things I think about. Can I keep an asset that's actually making me money? So for example, what's really crazy about real estate, and you'll hear this down the road, is like, we'll talk more about real estate specifically, but is not only is it appreciating generally over time going up in value, but the IRS allow you to depreciate it, which means you get a tax write off every single year. And they say that the lifespan is 27 and a half years for a resident house. So if I buy a house for, let's say $100,000, means that every single year I get a write off or take a deduction of a little over $3,000 every single year while the house is actually appreciating. Alright? So the house might go up $5,000 in value and I also get a tax deduction of $3,000. So that is the thing, like the person who is rewarded in life and financially is going to be the person who invests most their paycheck into an asset that is appreciating instead of depreciating. And the biggest takeaway from a personal finance standpoint is the depreciating asset part. And that is the stuff that you buy, is it going up, is it going down in value? And I'm talking like you can go really overboard with it. But like when you do your laundry, for example, and you go to laundromat, you spend $3, it's a depreciation. You bought the value of the water, you bought the value of that machine. And it lasts, you know what, an hour or two hours, Whatever those things you have to, it's important to do those things it's not like you can get away with like, oh, I'm not gonna eat. No, you have to do that. It's just, where is the money that you could otherwise, like the discretionary income, Is that going towards more of that junk or is it going towards something that can actually appreciate value? And my biggest thing is people get really nervous about getting involved in appreciating assets because it seems like really daunting. I could lose money. Well, if you go spend that money on a weekend here and partying here, doing this there, that's a guaranteed in a matter of a weekend or a day or an hour to go to nothing, right? So don't be afraid of getting involved in it and realize you will make some mistakes down the road. And this might be in a year until you start getting some stocks or you get into a real estate thing.

It's called an FHA loan. And you can get a real estate deal for 3 to 5% down. So if you want to buy a house that's $400,000 or even $300,000, maybe a fixer upper out on the outskirts.

You need $15,000, $20,000 to kind of get involved in that game. And that's something that, again, if you bought a property, for example, that was a little bit run down, you start working on it. All that money you spend into working on that property, you're investing in an appreciating asset. Over time, that value of the property will go up, not only because of just values, but also now you're actually putting sweat equity into it and building the value that way. And so that's something I think about all the time. And it's only been recently that I actually have been able in like, more stuff outside of the business. The business has always been the asset I always invest in. Right. I have always seen the business as an asset. So I don't make cash flow from it, but it's like everything I get, I'm putting back into it from investing in an asset. Right.

More recently is when I've gotten involved in real estate and stocks, but it's been a long, long time of just growing to the point where you have the confidence to get that point. I wish I would have done it like three or five years ago, because now it would have been. They would have been appreciated. Right? And that's what everyone gets. Everyone, everyone always says those assets are expensive and they learn a bubble and all the rest of it. And in 10 years, you look back and you sick. I wish I would have Bought in then, Right. Five years ago, everyone said Apple stock was crazy. Well, it's double what it was. Right. If not more. So go ahead.

I just heard, like, a quote. I was listening to a podcast and the guy was like, have you ever driven around town with your parents and seen them look at a property and be like, man, I wish I didn't buy that 20 years ago. And they're always like, man, I wish I'd pull the trigger on that. Or I had an opportunity to buy that. And it's like, at that time, it seemed like, inflated or like, whatever, but like, you could think in 20 years, you're like, man, that was killer. Price just keeps going up.

Yeah. In general. And rarely do you see someone driving around town like, man, I would have showed up, bought that new F150 10 years ago. Like, it's worth way less now. Right. And so in general, like I said, like, right now, economic climate we're in. Most appreciating assets do seem inflated in price. Stock market is like the highest it's ever been. Yesterday, hitting records.

Home values through the roof. I just paid $17,000 above asking price for a property. Like, it's crazy. And six bidders on the same day. It's because the appreciating assets, in time of uncertainty, when, like, the dollar is weak, things like that, inflation's happening, people run to assets. Right. That's why the stock market's going up. It's not because it's worth more, because people are looking for safety outside of cash. Right. So, yeah, good question.

So you said you wish you had invested like three or four years ago when you were investing in the business. So, like, how'd you do both?

Yeah, it's because the business takes a lot of time, effort. The thing about stocks and real estate, especially real estate, it doesn't take your time. And so I wish I would have just started doing more of it like I did. I did a little bit, but I was afraid because you always hear, oh, we're in a bubble. And like, it's always overpriced. And maybe we were. Maybe we would have crashed and I would have lost of money. But like, learning, like, how. How the market works, not just like, oh, I think the stock's gonna go up, boom, but actually learn what a PE ratio is, like, price to earnings ratio, and, like, why that is going up on technology versus Walmart, like, knowing those things would have been. I would have done it more 10 years ago if I would have had some skin in the game. The thing about putting some money in stocks. You all of a sudden start listening to stock podcasts. You're like, man, I want to know about, like, dividend stock and what is, you know, all these ratios that they talk about, and maybe you don't know all of them. It doesn't all make sense. It doesn't to me. I'm like, I'm not like a stock trader at all. But it's good to get involved in the game, start learning. That's my thing.

I have a question. So in Nick's case, though, he's kind of where you were back then, so wouldn't he want to put 100% into the business to get it started at least?

Yeah, like that. That's the thing, right? Like, would we be here if I was, like, trying to do three things?

Yeah, exactly.

Probably not. So, like, I've always said, like, focus on your pillar and make the pillar really strong and divest into other stuff. So for me, that was the same case, like, all in on the business. It's only recently, it's like, okay, now I need to, like, figure out more supporting and kind of like, kind of divest my interest otherware otherwise. But like, yeah, I get where you're coming from. Make one. The main thing is make something your pillar. Don't be like, oh, I'll do a little bit of real estate. I'm doing a little bit of stocks and I have a little business on the side. I have like three businesses on the side. And have a job at night. Like, focus on something to where, like, it might take five or 10 years, but when it starts making consistent profit, then you can go figure something else out, right? And that's what I would say.

So, like, when he has some people working full, running all the jobs during the day, that he can leave for.

A little bit to go look at.

Properties or see a banker. Like, when you're all in 14, 16 hours a day, you don't really have time.

Yeah, you gotta build the pillar. You gotta build the pillar. Most people, when they get in like this sort of conversation, like, oh, yeah, I'm gonna, like, do this and I'm gonna start my own business. And it's like, you gotta focus on one thing. And like, for me, I guess it was six years of Augusta to make it the pillar before about something else, right? So, yeah, you gotta make your pillar strong. And especially people who are entrepreneurial or like, business, they'll like, have this business and then this business and this business, like, you know, focus on one, make it profitable. And then you'll have the money to go figure out other stuff or play even, you know, if you want to.

So you couldn't have invested even though you said you wish you had?

Well, this is the thing. You don't need to invest tons of money. Right. Like I invested significantly this past spring when the market crashed. And then that money has allowed me to go into real estate now. Right. But I would never have had that much money to even throw in the market if I hadn't been built for the past six years. Right. So no, yeah, you gotta stay focused. And I would have done a little.

Bit, like if he had budgeted some.

I would've done a few thousand dollars. I would have, you know, played with some different types of things. And just to learn more, like I learned a lot about the market when I was like 8 and 9. Cause I thought I was gonna become a financial advisor.

So like I would stock bonds and all that sort of thing.

I still wish I would have like five years ago, just a little bit in to learn what I have in the past year or two.

So that when you actually start investing more, you're confident it's not so much.

The money you make, it's the learning. Right. If I would invest $1,000 five years ago, maybe it'd be a couple hundred dollars worth more now. It was not about a couple hundred dollars. It's about the learning. And the education would have forced me into. Like when you start thinking about buying real estate. Yeah, I went out and like got courses and was like all night doing comps and like figuring things out. So that's the part that's the most, especially at our ages, it's not the money, it's the educational learning. And a lot of times when you have some skin in the game, you make sure you learn. If you buy an appreciating asset, it's the same thing. If you buy an F150, you're like on every Facebook group and you're trying to figure it out and all your parts and what it looks like and all the rest of it. Same thing with real assets that go up in value.

Do you think in general, over whatever course of time a home value will go up eventually or because you said you over invested fixing yours up. So are you just waiting for that to go up?

Well, that one's now. Okay, it's been three years and it's already like worked significantly more. But if you look at history. Yeah, you have to say that the market goes up. Like, do I say that? In the short term, no. Like, I think in the next year, housing prices will probably have to go down a little bit, like 10%. But do I. Does that prevent me from buying? No, because I said the same thing five years years ago. Like, there's always shoulda, woulda, coulda, and I'm not gonna get involved in that. Right. I'd rather invest and know that, like, look, if it's a solid investment, if it's gonna cash flow, it's going to. If it's going to be a safe investment. Like, do I think that all the real. Hey. Just like gets crumbled tomorrow? No. Could that happen in stocks? Yeah. I actually feel like for going from stocks to real estate, yeah. The returns are a little bit less in the short term, but in the long term, like in 10 years, do I know beyond the shadow of a doubt that Apple will be around? Not really. Right. Like IBM 10 years ago was a whole lot bigger. Intel whole lot bigger. Right. And now they're gone. Whereas with real estate, at least I know it's gonna be there. Right. And so just a different way of looking at it. But in general, if you look at history, you have to say, like the s and P500, you know, the stock market, that real estate goes up in value over the course of say 10 years. You have to say that historically. Does that guarantee it? No. In 10 years you have another recession and it happens to be lower. But if going to like the government wants inflation to happen around 2% a year, which means that the prices of everything goes up about 2% in general, unless you have like hyperinflation where go like 5%, which some people think because of all this money that's coming to the system we're going to have in the next year. But you also have to look at people not spending as much money right now. People are saving their stimulus checks. That doesn't allow inflation to happen.

And so, yeah, it's interesting. It's all very. All those things. Things are governed by macroeconomics, which is like inflation and politics and stuff like that.

Cool. Anything else you want to talk about today?

Did you buy that apartment complex?

Yeah, about the sixth there. And then we on Tuesday night.

Monday night.

Monday night got a duplex in Bellingham. So we're in escrow in both of those. Yeah. So it's a little. It is risk, not risky. It's a little unnerving, like moving that. I moved everything over, right, from stocks into real estate. Basically, I'll build up slowly over time and put quite Like, I'll look at stocks in my bank account. Basically, that's how I'm looking at it. Like, if you're gonna use the stock market as your bank account, you better make sure you're investing in, like, solid companies. Do not go invest in, like an ipo, a new company on the stock market. Don't invest in, like, little, like $300 million companies like, invest for companies you know will be around in five, 10 years. Yeah. If you're gonna look at. That's how I'm looking at it right now. Where are the apartment complex? There's six in six apartments in Ferndale and then the two in Bellingham. So it's actually three duplexes. And they're all three bedroom, two and a half baths. So a little bit of fixer uppers. They won't cash flow a whole lot.

But I know that just by raising the rents to where we want them, the value of the property will go significantly. People are going to keep moving here. So especially with Seattle being essentially moved closer with that schedule, real way coming year, sitting in the green probably 10 years. And in general, Seattle people are going to be meeting. I see Seattle. They will move to Mount Vernon. They will move to Burlington eventually. Bellingham. Bellingham's already in the rental crunch. So people are moving to places like Ferndale. So I'm pretty confident have the location too. We'll talk about real estate, though, again some other time. Cool. Have a great day, guys. Thanks so much.