How To Not Blow $250,000 In Your 20's Like Me

How you define wealth is the amount of time you can sustain without doing anything different in your lifestyle before you run out of money. If I understood this one thing, it would have helped me. Basically, it would have eliminated a lot of pain, a lot of frustration when I was getting started, and I'm about to draw it out for you here. If I would have known this, what I'm about to teach you here, I would have saved myself hundreds of thousands of dollars in my early 20s. You see, the problem with most young entrepreneurs, at least it was the case for me, and even still is the case, and I've heard Alex Formosi and other people talk about this, is that we're always so excited with that next opportunity. You kinda have to be to be an entrepreneur. You have to take advantage of Moments in time where there is an arbitrage or a potential to create something great. But that same advantage that you have that gets you to take action is exactly what can also derail you and keep you from being successful in your first business or when you're trying to get started. So, you know, you can refer to this, people refer to this as like, "Hey, the sexy woman in the red dress over here that's distracting you from your main business." But if I understood this one thing, it would have helped me, basically it would have eliminated a lot of pain, a lot of frustration when I was getting started. And I learned this from a dear mentor of mine and friend who I'm not gonna disclose his identity because he's a very private person, but his net worth is significant, in the 9-figure range, just to give you guys some context. And after I'd made some really, really bad decisions and investments in my early to mid-20s, I came to him completely vulnerable, kind of naked and afraid and said, dude, what have I done wrong? What do I need to do differently? And how can I tee myself up for success so that I can be like you someday? And he essentially said, Tanner, what I'm about to tell you is probably not what you want to hear, but if you follow this process, I can guarantee you that you're going to become wealthy. Now let's define what wealth is. There's a difference between being rich and wealthy. A lot of people are rich, a lot of people can make a lot of money. Typically being rich is tied to your ability to create and generate income. But being rich doesn't last. You can be rich for a day, you can be rich for a year, you can be rich for a decade. But if you don't have the right lifestyle and the right mindset, when you make income and make money, then guess what? It's gonna have an expiration date. And this was exactly where I was struggling, right? I'd made a lot of money, I'd done pretty well for myself, I was getting my business is going, but I would make lifestyle choices and decisions in my business and in my life that would completely derail from my ability to be rich or become wealthy. So for example, you can be rich if you make $1 million in a year, but what happens if you don't realize that, hey, well, I didn't really plan for my taxes appropriately, I really didn't set myself up in a position well, and I went and spent and blew a bunch of money, and then, oh crap, now my tax bill comes back from the IRS and I owe like $300,000 in taxes, Well, I maybe don't have that money to cover that. Okay, well you were rich for a time, and because you made certain choices, you're not wealthy. So how you define wealth is the amount of time you can sustain without doing anything different in your lifestyle before you run out of money. So you can be rich for a period of time, but if your lifestyle and choices cause that money to run out, then guess what? You're not wealthy, you're just rich. Right? Every single entrepreneur should have the goal of becoming wealthy. Being wealthy means I could essentially not do anything different, not make any lifestyle changes. I could keep my, my life status quo, and if I didn't make any other money, I could sustain that. So when people are wealthy, you think to yourself, how long could you go right now in your life if you didn't make any extra income? How long could you survive? If the answer is 6 months, then you're 6 months wealthy. If your answer is a year, you're 1 year wealthy. True wealth is built when your assets are able to support and sustain you without you having to do anything. Now, sometimes people call this passive income. The reality is that, yeah, you can look at it like that, but not all passive income creates wealth. For example, you might have a passive income asset that generates you $1,000 a month, but if your lifestyle is $10,000 a month, then guess what? You can only— you can only support 10% of your lifestyle without generating other income, you're not really wealthy. So you wanna have enough passive income, enough assets to support not just 10%, but over 100% more in surplus of what your actual monthly burn is. So ultimately, it's called the pyramid method. And no, this is not a pyramid scheme, I'm not about to pitch you some MLM bullcrap. This is genuinely how he described it, and I'm about to draw it out for you here. So here's essentially what the, pyramid scheme is, okay? Let's draw a little pyramid right here. He said the pyramid is significant in its shape, right? A lot of times when people are talking about finances or wealth, people are drawing circles or squares. He said the pyramid is important because you can't get to the next step of the pyramid or ascend the pyramid until you have the previous layer built and stable. So at the very base of the pyramid right here, right, I'm gonna draw a line. This The base of the pyramid represents your business. Now here's the reason why business, and my mentor walked me through here, as the number one most important piece of this pyramid. It's because you can control what happens in your business better than anything else. So to go back to my example, my story is I had a little agency, things were going well, I was making some money, and when I started to get excess money, right, I started thinking to myself, hey, what investments could I do? I wanted to maybe make some more money and I was getting maybe burned out with my business. I felt like, hey, you know, making money is really hard. Imagine if I could just park my money somewhere else and generate a ton of income. That'd be pretty great. The problem with that mindset is, guess what? That comes later on as we move up the pyramid. That's the type of investments you got to be focusing and controlling everything you can right down here in the business because it's the component that you can control the most of. You don't do any of these other layers of the pyramid or put money into any other asset class until you have a a business that can literally cash flow and scale and build and grow. So I'll go, you know, give you some scenarios here. I have some friends of mine, buddies of mine, that make, you know, high W-2 income. And they're always thinking, how can I invest in other asset classes, other things to try to diversify and create more money? And they're thinking about it the wrong way. The mindset should be, how can I essentially go start a business, get off of the W-2 treadmill of working for somebody else, and instead of putting all this money into speculative investments that may or may not pan out for them, that might be a 10, 20, 50-year play, why don't you just instead invest in yourself? So ultimately, that's the advice my mentor gave me. As your business starts to generate cash, you should have a home. Now I know that Grant Cardone, all these other guys talk about, oh, houses are a waste of time, homes are, you should rent, you should do this. He's a family man. My mentor's a family man, and I'm also a family man. Family's incredibly important to me. So he said it's always a good idea to— the first thing that you really start to do is to buy a home somewhere where you're actually established roots, grow a family, build a family, and raise a family. Because guess what? There's an ROI there with a home that you're not going to get just moving your family all around the place. So if you're single, this might not be the case for you. You might be able to get away with just renting, you know, a cheap condo, a cheap apartment. But if you have a family I think that it is valuable to have a home. Now the way that you invest in your home is very important. He said, as you start making money here, right, you want to keep pumping money back into the business and scaling and growing your business as much as you possibly can. That's the largest flywheel of all of it. Create enough cash where you could literally pay off your home in one fell swoop. Now he didn't say, this is also a strategy he told me, I said, so are you basically just paying down your principal? You're making accelerated payments, you're doing bimonthly or even 3 payments a month on your home? What does that look like? He said, no, you're essentially investing all of this excess money here from your business into a really safe, you know, ETF or some sort of money market account where you just know that you're not going to really ever lose that money unless a black swan or catastrophic event happens. But you want to have enough money in whatever account that is that you could literally in one day decide, I'm gonna move it, I'm gonna cut a check, and I'm gonna pay my my house off. And you should probably do that, especially when you factor in how much interest you're paying, right? For example, if you have like a $600,000 home, I think the average home in Utah is like $500,000 now. Over the life of a 30-year amortized loan, you're probably gonna end up paying somewhere near $1 million, $1.2 million in total money paid, even though your mortgage is only on a 20% down payment. $400,000. So, you know, you don't want to try to— you want to try to make the payments and pay off your home as fast as you can so you're not eating into that interest. Okay, the next layer up on the pyramid is going to be what are called AAA municipal bonds. Now, if you know anything about AAA municipal bonds, you essentially— here's a quick breakdown of what they are. And listen, I'm not some investment guru or investment genius here. This is just a lesson that was super helpful for me. That I wish I would've known literally 15 years ago. But AAA municipal bonds are essentially local municipalities that are rated at AAA, which means they are the lowest risk asset municipal class there is. So they have really, they're typically run in conservative states where there's not a deficit budget. They're running zero-based budgeting and accounting that they are operating at in a surplus, and they've got zero to very little risk of defaulting on these municipal bonds. Now, what's great about municipal bonds is that, uh, they are typically— they're always going to be tax-free, and it's as close as you're probably going to get to a guaranteed return as possible. And you can typically expect anywhere from 3 to 7% of your money back year over year. They typically pay out over 6-month periods. So he said, listen, my goal, my thought process with investing in AAA municipal bonds at this point in time was that I'm still putting a ton of money and pumping a ton of money back into my business. I've also got my home paid for, so I've also got my cars paid for. I don't have really any debt. My goal now is I wanna park my money into a place that is really safe where I'm not gonna have the fear of losing it. After all, I've put so much work and attention here in my business, I can't afford to lose this money yet. And his goal would be to do the following. You should aim to have $1 to $5 million in AAA municipal bonds before you do anything else. Now if you do the math on that, that might be anywhere, let's just call it 5%, simple math. 5% on a million bucks tax-free is $50,000 that you're gonna be making every single year, which if you were to think about maybe taxable income, That's going to be close to $75,000, maybe even $80,000 that you would probably have to make the equivalent of to have $50,000 left over after taxes. What's great is if you've got $5 million, do the math on that. That's $250,000 that you would have post-tax. Realistically, if you're keeping your lifestyle expenditures low, you're being really judicious with your budgeting and with what you're spending money on. $50,000 to $250,000 where you're essentially not touching this principal, I mean, that's kind of like retirement, right? This is kind of like a guaranteed retirement route. So I mean, this for me was eye-opening because I'd never really heard of AAA municipal bonds before. And, you know, I thought to myself, well, hang on a second, like, why wouldn't you try to get more for your money? I mean, you're outpacing inflation here. And he simply told me this: it's not about trying to outpace inflation at this point in time. Keep in mind, I've got businesses down here. I'm outpacing inflation with my businesses. I'm simply trying to build legacy with my AAA municipal bonds and essentially set myself up to where if something catastrophic were to happen with my businesses, I could essentially have my lifestyle paid for. So already you can see if wealth is truly the goal here, you know, you're already starting to build significant wealth at this point in time with the AAA municipal bonds. Now the next step up, He calls this real estate. And the beautiful thing, if you do this correctly, is at this point in time, real estate is going to be really easy to, you know, dominate with. And the reason why is because there's something called an SBA 504 loan, which I'm going to type in right here, which the government allows certain businesses to get a small business loan, an SBA loan, to fund real estate or to fund heavy machinery or equipment for the operations of your business. So there are some requirements on this, and once again, I'm not a financial expert guru, but the beautiful thing is if you have cash flowing businesses here, you can get SBA 504 loans. You have to owner occupy 51% or more of the building. What's great about this is if you do owner occupy 51% or more of the building, you could actually now have what is called the triple leverage position where you have, uh, the appreciation of the real estate investment itself. Before I get into that, let me talk about the benefits of an SBA 504 loan. Traditionally, if you don't have an SBA 504 loan, you're going to have to— you're going to have to be responsible to put down 20 to 25% or more on a commercial real estate property. The beautiful thing about an SBA 504 loan is that underwriters will allow you to put a minimum of 10% down. And the great thing about that is like, let's say you're wanting to get into a million-dollar, $2 million property. Now you just have to put 10% of that down. What ends up happening is the SBA loan will cover 40 to 50% of that, and then you can get a— another traditional bank to cover 40, 50%. So it's kind of cool how this ends up working together. But the requirements on SBA 504 loans are the following: you have to owner-occupy 51% or more of the building. But if you do this, you're getting what's called like a triple position of advantages here. You're getting the appreciation of the building, 'Kay? Because obviously depending on your area where you're living, most commercial real estate can appreciate between 2% and 5% a year. So, uh, you're also able to owner-occupy 51%. You can actually have your cash-flowing businesses down here pay yourself back as the landlord on the actual property. Plus you can rent out 49% of the building to another type of a business. So you're having your cash-flowing business that you actually are owner-occupying, plus the tenant paying for your loan, aka your mortgage, and helping to subsidize that on a monthly basis. And a lot of times you could probably even cash flow on it. And what happens is you're also getting the depreciation on your taxes. So you can do a cost segregation analysis and you can actually, uh, start to depreciate and save yourself on a massive tax liability as you start to build and grow in cash flow these businesses. Businesses. This is exactly what my mentor did. Cash flowing businesses, owned his home, was living debt free. He essentially put a ton of money into his AAA municipal bonds, started getting a guaranteed amount, was essentially living off of that, not really life— creeping up his lifestyle. And then he started to just roll and parlay a ton of his businesses and his other cash into real estate deals, which allowed him this kind of triple advantage, if you will. Now the next piece up is where you start getting into stocks. Now this was really eye-opening for me. I said, why did you wait so long to get into stocks? You know, why would you not like really invest heavily into that? And he said, well, simple. Can you control what happens in the stock market? No. Okay, that's exactly why. I can control exactly what happens in my business. If I put a dollar in, I reinvest back into that, I'm responsible for responsible for the success. I can own and control it. I can also really control and get a pretty guaranteed rate of return. Here's my AAA municipal bonds. Even when it comes to real estate, commercial real estate, I'm really in control of exactly what happens there. I can do different things. I can make tenant improvements. I can rent out to certain people. I can play around with what's happening in my businesses. I can move and shuffle money around. I can also do cash-out refinance deals and parlay it in other properties. I'm still really in control here with real estate. And for me, this was one of the main takeaways. You can notice here that at this point in time, you know, these first 4 layers of the pyramid, you're basically gonna be completely wealthy. I mean, you're gonna be able to live off this. I mean, maybe your lifestyle's not what you want it to be. Maybe you don't have the exotic cars, but if you actually can do this, I mean, you're not gonna really ever hurt for cash ever again before you're ever parking it in stocks. And what's interesting here, is the final top of this, two pieces of this pyramid. The next one is gonna be other people's businesses, so OPBs. So, you know, other people's businesses that you're not owning and controlling but you're investing in. And then up here, this is what he calls gambling. Literally, this is the equivalent of highly speculative, very risky investments. And he likened this piece to crypto. These are moonshots. These are things that have a 99% chance of failure, but on the one rare-off chance, 1% of it hitting, you know, you could, you could hit big. But what's crazy is if you take this pyramid and you actually flip it upside down, right? Here's exactly how I was trying to build and grow my wealth. So I actually had businesses here. Which was good, right? I really was feeling good about that. I was creating some real leverage and some real income there. I might have even been rich to some standards, but I wasn't wealthy yet. And the reason why is because rather than trying to put my money into a home, stable, you know, asset that I could kind of raise my family into, I went straight to crypto. Why? Crypto is the sexy girl in the sexy red dress. That everyone is making all this money with, and boom, it was, you know, inevitable that I was going to hit a home run with. Once again, completely not in control. And I put, um, what was it, about $150,000 into crypto, not having any idea of what the market would do, not having any understanding of what that would have, you know, what, what, who was running the projects, who was even in control of it. The other thing here is I went straight to other people's businesses. So I had, uh, you know, some connections I made. And, you know, one guy kind of hit me up on this deal, thought it would be a great opportunity to go and set up a bunch of gyms in North Carolina. Once again, I don't live in North Carolina. I don't even know this guy from Adam. You know, do I, do I really trust him? But once again, everything sounded great on paper. I put $105,000 into this deal. And what happened was crypto fell off of a cliff. My $150K essentially became worth— my $150K essentially became worth $25K. And this deal of $105K, I never saw a cent of it back. So this actually went to zero, zero dollars. So you really think about this, right? If I would have simply just put this money and followed the process, reinvested it back into my business at the time, my businesses would have been in a much better position. And if I would have followed that pyramid, it would have saved me a ton of money. The other thing here that I tried to do was actually put money into stocks. Why not? Robinhood, is easy. So Robinhood and other, you know, index funds slash risky stocks, penny stocks. And ultimately I put, you know, I'd call another $50,000 or so into different stocks. And the crazy thing about this is when I walked through the pyramid, my stocks were actually-ish okay, like they really hadn't gone down a ton. But ultimately You think about exactly what my mentor was saying. Why would you invest in this type of a strategy, right? Why would you try to do this until you've really got the base of the pyramid all figured out? Having gone through this, you saw exactly what I did in my mid-20s that was an absolute disaster. I lost $125,000 on crypto. I lost $105,000 in another person's business. Venture that I didn't control. And I really, you know, parked $50,000 into stocks that went down to about $40,000 by the time I ended up pulling it out. So you can see here with the time value of money, $240,000 that I basically just flushed right down the toilet. Now this was a really painful lesson for me to learn. Luckily though, I learned it. Luckily, I learned this in my late 20s. Now in my early 30s, I'm rebuilding. But the beautiful thing is, and the main takeaway is that you need to go and do this right here. You need to get a business, you need to learn a skill, you need to sink in. You can't expect anyone else to make you rich. You can't expect to go hit that moonshot. It's not going to work. It doesn't happen. You have to learn how to create businesses that cash flow. And if you do that, you will become wealthy.