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Why Most High-Income Families Stay Broke: The Cash Flow Problem Nobody Talks About · The Practical Wealth Show

0:16
(Transcribed by TurboScribe. Go Unlimited to remove this message.) Hey, and today we're going to talk about,
0:19
okay, cashflow management.
0:22
And a guest today is a young gentleman
0:26
who has actually been crushing.
0:27
I think I've known for five, six years,
0:31
probably about five, six years.
0:34
His father, Trent, this is Brock Fortner, first
0:37
of all, his father, Trent is actually my
0:39
coach.
0:40
And so I'm excited.
0:42
He's become a really, really, really strong advisor
0:46
in his own right, crushing it.
0:48
And then, so for y'all young people
0:50
looking at a career stuff, he is proof
0:52
positive that you can come in looking like
0:56
you're 15 when you first come, he looks
0:59
better than that, you know, he looks older
1:00
than that now, just a tad, but it's
1:03
still crushing it.
1:05
It's a few things that I think impress
1:07
me.
1:07
He's the youngest, or he might not still
1:09
be youngest, but he's the youngest person.
1:11
There's a great podcast called the Lifestyle Investor,
1:14
and he was the youngest person to join
1:17
that.
1:18
And now as a fixture in that community
1:21
with Justin Doll, I highly recommend checking out
1:24
that show.
1:25
And so Brock, tell them about yourself, tell
1:28
them what I didn't tell them, and then
1:29
let's help these people get control of their
1:32
money.
1:32
Thanks for having me on, Curtis.
1:34
I would say that you covered it pretty
1:36
well.
1:37
Yes, I've been in the industry for 10
1:40
years now, come September, which is crazy.
1:42
But I mainly work with families, business owners
1:46
who are making over 450 grand in a
1:49
couple of different areas, cashflow protection, and then
1:51
growth, and making sure that we align everything
1:55
so that as we build your wealth, you
1:58
can enjoy retirement or your distribution years, and
2:02
be able to spend and enjoy all of
2:04
your money without the fear that you're going
2:05
to run out of money, and then be
2:06
able to pass that on to the next
2:07
generation, up to 100% to who you
2:10
want, how you want to, and when you
2:12
want to.
2:13
And so I work all across the country
2:15
in a virtual practise, and I'm in Nashville,
2:19
by the way.
2:20
Yeah, I'm in Nashville.
2:21
I know you love Nashville.
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I love Nashville.
2:25
So any excuse I get to go there,
2:26
Copperhead's there, it's like, all right, if I
2:29
can get there, I'm there.
2:30
That's right.
2:31
Brock will take me down there.
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Broadway.
2:33
Broadway.
2:34
That's right.
2:36
Usually, I stay out longer.
2:38
I say, all right, let me go.
2:38
I can get back.
2:40
That's right.
2:41
That's right.
2:41
But now, I just moved closer to the
2:43
city, so who knows what might happen now?
2:45
All right.
2:46
We'll know.
2:47
I'm coming back.
2:48
So I want to kind of tee you
2:50
up and start this off.
2:52
So most advisors talk about investments, rates of
2:57
return, and retirement, but you say all wealth
3:02
stems from free cash flow.
3:04
That's right.
3:05
Wow.
3:06
Tell me, elaborate on that a little bit,
3:08
so I want them to get the frame
3:09
of where you're coming from.
3:10
Great question.
3:11
So I always say all wealth is created
3:13
through free cash flow, because if you took
3:16
everything out of wealth and just boiled it
3:18
down to one equation, it would be inflow
3:22
minus outflow equals free cash flow, right?
3:26
So income coming in, income minus expenses equals
3:31
free cash flow, whatever's left over, right?
3:33
And if you don't have any free cash
3:35
flow, no wealth is being created.
3:37
It doesn't matter what you look at, right?
3:38
If a business spends as much as they
3:41
make, there's really no business.
3:44
There's no wealth that's being created.
3:45
If you buy a mutual fund and the
3:48
return doesn't outpace the fees, there's no wealth
3:52
being created.
3:53
If you win the lottery and you spend
3:55
the lottery, there's no wealth created, right?
3:58
And so in our own financial lives, I
4:01
always talk about the fact that at the
4:02
end of the day, it all boils down
4:04
to inflows minus outflows equals free cash flow.
4:07
And what does that mean to you and
4:10
how does it show up in your own
4:11
financial life?
4:13
What's the difference between being wealthy and simply
4:17
having high income?
4:19
I think that's a great question.
4:21
So first, when I talk about wealth, I
4:24
think my definition of being wealthy is your
4:27
ability to be present.
4:29
Right?
4:29
I'm glad you brought that up, your ability
4:32
to be present.
4:33
Yep.
4:34
How present can you actually be in a
4:37
moment with the things in life that you
4:39
actually enjoy the most, right?
4:40
And so a high income doesn't always mean
4:44
you're rich or doesn't mean that you're wealthy,
4:46
right?
4:47
A high income just means you've got a
4:49
lot of money coming in, but if you're
4:50
spending all that money, that just means you
4:53
don't have nothing, right?
4:54
Because I know people, I work with families
4:56
that just this week, the family, it's a
5:00
husband and wife, they don't have any kids
5:02
yet, but they make just north of $50
5:06
,000 a year and they save, let's see,
5:11
$28,000 a year.
5:12
They save a lot.
5:14
Now, they live in a part of America
5:15
that doesn't cost that much to live, but
5:20
I also work with a doctor who makes
5:22
$1.4 million a year and they don't
5:25
save that much, right?
5:28
And it's not because they live in New
5:30
York City and have to pay all this
5:32
money to taxes and all the things.
5:34
No, it's because car payments, eating out, all
5:37
the things that add up over time to
5:39
where, hey, we had this thing called lifestyle
5:42
creep show up and every time our income
5:43
increased, our expenses increased and a luxury once
5:46
enjoyed became a necessity and now they have
5:50
a high income, but they're not rich and
5:52
neither are they wealthy.
5:54
That's a good idea of being present.
5:56
I like that too.
5:58
If I go away, if I'm still need
6:02
to feel me to talk to the office
6:04
or I'm thinking about, you know, instead of
6:06
playing in the beach with my kids, I'm
6:07
worrying about this thing over here, I'm not
6:10
present, right?
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That's my whole, and I'm better, but I'm
6:16
still that way a little bit.
6:18
And I, you know, my goal in working
6:20
and working with our clients is to help
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you be present, you know?
6:24
And so that's the thing.
6:26
If I took away someone's pay cheque for six
6:29
months, the question is, I'm starting to ask
6:32
is would your financial system survive?
6:37
And most times it...
6:38
No, not at all.
6:39
That's a good question.
6:40
So they're not wealthy.
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What does Robert Kiyosaki say?
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Wealthy is how long you can maintain your
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standard of living with no income coming in.
6:46
That's well, so if you got a month,
6:48
you're one month wealthy.
6:49
That's right.
6:50
That's right.
6:50
Yeah, I think it is him that says
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that.
6:53
So let me ask you a question.
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So why do so many six-figure earners
6:57
still feel financially stressed and sometimes even insecure
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in your opinion, based upon your, you know,
7:03
your work?
7:04
Oh, you're asking some incredible questions, Curtis, wow.
7:08
So the way that I think about this
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is...
7:09
I'm a bad man.
7:10
Yeah, you are.
7:11
So when you think about it, right, I
7:14
always talk about, and I think I actually
7:15
got this from you.
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I may have gotten it from somebody else,
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but what you become aware of, you can
7:20
measure, you can track.
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And what you can track, you can improve.
7:23
The reality is most people aren't aware of
7:25
what's going on.
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Because if you ask most people, right, oh,
7:29
you know, how much money is coming in
7:31
your door?
7:32
They'll tell you what salary is, their gross
7:34
salary, and what they signed up for.
7:36
They say, oh, well, I make, you know,
7:37
$200,000 a year.
7:39
But what actually hits their account might be
7:41
$140,000 a year.
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But if you're living a $200,000 lifestyle
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and $140,000 of income, we have a
7:47
problem.
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And so when I think about this, right,
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the way that most people have their cash
7:53
flow structured is when they get their pay cheque,
7:56
they receive their pay cheque, it gets deposited into
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their checking account.
8:01
Now that checking account is the account they
8:04
pay all of their expenses from, they pay
8:06
their credit cards from.
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And then, you know, if we labelled that,
8:12
it's an expense account.
8:13
It's not to hold money.
8:14
It's not to do really anything other than
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pay for expenses.
8:18
And so as you go through life, you
8:21
might say, oh, okay, well, you know, I
8:23
need to save some money.
8:24
So in that checking account, you'll do some
8:26
mental calculations, you'll move the money from your
8:28
checking into your savings account, life happens, and
8:31
then you move the money back from your
8:32
savings into your checking account.
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And you're living in this world of unconscious
8:36
consumption while trying to manually save.
8:39
Now this, back to, you know, you'd have
8:42
to think about this a little bit, but
8:43
it goes back to your childhood days, right?
8:46
If I look at my childhood, I remember
8:49
I would go to the bowling alley or
8:51
a field trip or the ballpark or somewhere
8:53
and my parents would hand me money and
8:55
they'd say, hey, this is your spending money,
8:57
right?
8:58
$5, $10, $20, this is your spending money
9:01
for the day, for the weekend, whatever it
9:03
is.
9:03
So in our brain, we knew, hey, this
9:07
is meant to spend, this is meant to
9:10
take care of the things that I need.
9:12
And it didn't happen one time in our
9:14
life, it actually happened like multiple times over
9:17
and over and over and over again in
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our most developmental years of our life.
9:22
And so in our brain, you can think
9:24
of it as like a little ski slope
9:25
over and over again, we built this ski
9:27
slope in our head that says when money
9:29
is handed to us, we're supposed to spend
9:32
it.
9:33
And so as we got older, all we
9:34
did was we just went from parents to
9:36
payroll and now what's happening is our payroll
9:39
is handing us that same money at a
9:41
bigger rate.
9:42
And so as our brain sees it show
9:43
up in our expense account, our brain registers,
9:46
hey, we can spend this.
9:49
So most six-figure earners, when they started
9:54
off, they didn't have a six-figure income,
9:55
they started off with a low income and
9:57
it built over the years, but as it
9:59
built over the years and it went into
10:00
their checking account, so did their expenses.
10:03
And now their expenses are rising to the
10:05
same level as their income.
10:07
And because they're not aware of it, that's
10:09
where a bunch of the stress comes in.
10:11
But once you actually get to take a
10:12
step back and say, I know how much
10:14
money is actually hitting my account, I know
10:16
how much money is leaving my account, it
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becomes a lot less stressful.
10:23
I saw this quote, I'll say from I'll
10:26
give the who I got from Myron Golding,
10:28
he says, if your outflow exceeds your inflow,
10:33
then your upkeep becomes your downfall.
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That's right.
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And people don't track it, we don't like
10:40
budgeting, but if you're running a household, like
10:43
I always tell people, you're the CEO of
10:45
your life.
10:46
And if you're not a good, what business
10:48
you know that doesn't track what comes in
10:51
and what goes out, how long are they
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going to be in business?
10:55
And what's the difference between them and you?
10:57
Nothing.
10:58
And you can't tell.
11:00
Listen, when we talk about, we'll go back
11:02
into it, I'll come back to that because
11:04
I, well, let me ask you this.
11:05
So do you think in terms of their
11:09
gross revenue and you say, all right, well,
11:12
we model, one of the models he works
11:15
with is about saving 15% of your
11:17
income.
11:18
Do you do that on gross or net?
11:21
Gross.
11:22
Okay.
11:22
I do that too.
11:23
I was making sure I was thinking in
11:24
the right way.
11:25
All right.
11:26
And what, as we both kind of rail
11:29
again, I don't know if I should say
11:30
that, I'll say, you know, kind of go
11:32
against a little counter intuitive to traditional financial
11:36
planning.
11:37
And, um, what do you think the biggest
11:39
mistakes traditional financial planning makes with, with, with
11:44
a lot of the clients that might be
11:45
hearing this, if they don't work with us
11:47
already?
11:48
Great question.
11:48
They only have two solutions.
11:50
They might have three.
11:51
Right.
11:52
So when I, whenever look at traditional or
11:54
typical, I like to say typical, typical financial
11:57
planning, right.
11:59
You're going to go in and you're going
12:00
to figure out how old are you today?
12:01
When do you want to retire?
12:02
How much do you want to retire on?
12:04
And how much do you currently have that
12:06
way?
12:06
They could plug it into their calculator, future
12:08
value calculator, grow it out and then say
12:10
at that age, here's how much you need
12:12
to support the lifestyle you think you want.
12:15
And then how much you need to save
12:16
current.
12:18
And every single time it's going to say,
12:19
oh man, you are off.
12:21
Right.
12:22
So we, as a team needs a budget,
12:26
cut a bunch of expenses out of your
12:28
life so that you can save more, or
12:31
we could take on more risk.
12:34
So for typical financial planning, those are really
12:36
the only two, right?
12:39
Budget, cut your expenses, sacrifice today.
12:41
So you can save more and maybe hopefully
12:43
have more later.
12:44
Or, Hey, we need to increase your return,
12:47
your risk and get a higher return some
12:49
way.
12:50
Right.
12:50
They might also throw in there every once
12:52
in a while.
12:52
I could do it for cheaper.
12:54
Or they might say, Hey, you just need
12:56
to grow your income.
12:58
Right.
12:58
Well, if you grow your income and you
12:59
don't have the right structure in place, we
13:01
already see how that's worked out.
13:02
You're then going to have more expenses.
13:05
Right.
13:06
If you look at most people's financial lives
13:08
today, right?
13:10
Let's say that you're an average American and
13:12
you save 4%.
13:13
And I'm not making that up.
13:14
You can look it up.
13:15
Average American saves 4% of their income.
13:17
If you look at somebody that is making
13:20
a hundred grand and they're saving 4%, that's
13:23
96 grand.
13:25
Right.
13:25
If they want to save 15% of
13:27
their income, they have to go from 96
13:30
% to 85.
13:31
Sorry, 96,000.
13:34
Right.
13:35
That's $9,000.
13:36
Just, I mean, I don't know too many
13:39
people that could just be like, boom, that's
13:41
easy.
13:41
$9,000.
13:42
I can cut that out of my lifestyle
13:43
right now.
13:44
Right.
13:45
Yeah.
13:47
Budgeting is only good up to an extent.
13:50
And what's funny, typical financial planning, like everybody
13:53
wants to talk about certified financial planner, CFPs.
13:56
This is kind of funny.
13:57
Total side tangent here.
13:59
Budgeting used to be a part of their
14:01
curriculum for the CFP.
14:02
Guess what's not a part of the curriculum
14:04
anymore?
14:05
Budgeting.
14:05
Because it doesn't work.
14:06
It's proven like it does not work.
14:08
It's a good exercise.
14:09
It just doesn't work.
14:10
So they actually took it out.
14:11
So when I think about typical planning, that's
14:16
the only thing that they can do is
14:18
budget, which doesn't work, or increase your rate
14:22
of return.
14:22
So all of it always comes back down
14:24
to- Which LOA do that's to take
14:26
more risk.
14:27
That's right.
14:28
And all they can talk about is product.
14:30
And we view risk as probability of loss.
14:33
It doesn't mean that you're going to make
14:34
money.
14:35
It means you're just taking more risk, which
14:36
means you're more apt to do it.
14:38
All he talked about there, in our system,
14:40
we call it the accumulation theory, which is
14:43
based on- We tell people, look, we're
14:47
not in the lifestyle reduction business.
14:49
So I'm not here to tell you can't
14:50
go to Starbucks or whatever.
14:53
So the segment I'm calling it, these are
14:55
the questions I'm asking why I call the
14:56
wealth lie.
15:00
This is a variation on the first question,
15:02
but can someone have a million dollar net
15:04
worth and still be financially fragile?
15:06
Ask me that one more time.
15:07
Someone have a million dollar- Net worth
15:09
and still be financially fragile.
15:14
100%.
15:14
Because you think about it, right?
15:16
Everybody wants to talk to you about your
15:19
net worth.
15:20
That's the goal.
15:21
How do you have a nest egg, a
15:22
net worth at retirement of a million dollars,
15:25
right?
15:26
So let's say that you make 100 grand
15:30
today, you spend the 96,000, right?
15:33
But on average, let's say that your income
15:35
grows at 4% and your expenses grow
15:38
at 4% over that 20, 30 year
15:41
period.
15:41
Well, if you save up and you end
15:43
up at retirement with a million dollars, but
15:45
you spend $150,000, that money is not
15:50
going to last in your retirement for more
15:53
than 10 years, even if you're earning a
15:56
rate of return, right?
15:57
Which most people try not to take more
16:00
risk when they get to retirement because they
16:01
need that money to last.
16:02
Right?
16:04
And so, yeah, you can absolutely be financially
16:07
fragile with a million dollar net worth because
16:10
if your income stops and you need to
16:13
start spending that net worth, how long is
16:14
that net worth going to be around for
16:16
you?
16:16
Is it going to last as long as
16:17
you do?
16:18
Or are you going to run out of
16:19
money before life?
16:20
Right.
16:21
Right.
16:21
I always say you can't eat equity.
16:23
Can't eat equity.
16:24
That's right.
16:25
Can't eat equity.
16:25
And so let me, so the last, I
16:28
put these into my mind.
16:30
So why do real estate investors, what do
16:33
you, in your opinion, understand about cashflow than
16:36
most families don't?
16:39
What do they get than regular people?
16:41
You know, they get that.
16:43
They own what we call cashflow engines, right?
16:46
Things that produce income taxed more efficiently than
16:49
your pay cheque.
16:50
Well, for a real estate investor to have
16:52
income, their rents, their inflows on their property
16:55
have to be more than their outflows, mortgage
16:59
and expenses, right?
17:00
So they know, like, they can't support their
17:03
lifestyle or they can't create the income that
17:05
they want unless their rents are higher than
17:07
all their expenses.
17:08
Right.
17:09
So I think that's kind of the one
17:11
of the- From our, like, I always
17:15
tell people, this is what I've heard.
17:16
Like, if you're buying and hoping it goes
17:19
up, you're just speculating.
17:21
You're not a good investor.
17:23
You're hoping for appreciation.
17:24
That's what amateurs do.
17:25
And you need the cashflow from the get
17:28
-go.
17:28
If it doesn't, it is a pencil out
17:30
from the door for you even.
17:31
I know investors that look at it will
17:33
run the numbers and pass because they can't
17:36
zero pencil out.
17:37
And so this is for my investors out
17:39
there.
17:39
Cashflow is everything.
17:40
Cashflow is everything.
17:41
And I think when it comes to investing,
17:43
side danger, we'll get back on it.
17:44
But we talk about in my group, the
17:47
Lifestyle Investor Group, that you want to have
17:50
JOMO a whole lot more than FOMO.
17:54
So JOMO is the joy of missing out,
17:56
while FOMO is the fear of missing out.
17:58
It is a whole lot better to miss
18:01
out on a thousand good deals than it
18:02
is to get stuck in a bad deal.
18:05
That's a bar there, guys.
18:07
I hope y'all don't replay that one.
18:09
That's a bar.
18:11
I see, because I'll take people through a
18:15
whole cashflow, and we call it economic model.
18:19
And one time I was speaking at a
18:21
real estate conference, like in last fall.
18:23
And I was in between a hard money
18:25
guy and a guy that helps people get
18:27
business credit.
18:29
And so it's a clip ID somewhere, or
18:32
I think my wife recorded me.
18:33
And I said, you know, I want you
18:36
to get business credit, but you should have
18:39
your own bank.
18:40
When I say your own bank, just a
18:42
pool of capital that you control.
18:43
So you have the choice.
18:45
Do I want to use my money or
18:46
their money?
18:46
Because here's what I see.
18:48
With I'm getting all this business credit, I
18:50
am the one.
18:50
This is how I said it.
18:51
So I'm going to say, like I said,
18:52
in the meeting.
18:53
I'm out here, back here, cleaning all this
18:55
shit up, right?
18:56
Meaning that I'm looking at your financials.
18:59
And I see $100,000 of the business
19:02
debt, but no business, no business revenue.
19:05
You know, so now you're, you've got no
19:08
cashflow engine.
19:09
And then you're, you might have a job,
19:11
but now you're paying for your personal debt.
19:13
And you're, the business day where you didn't
19:16
get any business with it, you know.
19:18
And I see that day after day after
19:21
day, crazy.
19:21
Cause you, I typically get your financial advice
19:24
from TikTok, you know, from ID.
19:27
Correct.
19:28
You cannot, that, that is a recipe disaster.
19:31
Disaster.
19:32
Right.
19:32
So less about now and I want to
19:34
get out and spend a few cashflow control
19:37
and, um, we kind of hit this.
19:40
So, but there's a difference between, I don't
19:44
think people know the difference.
19:45
I think they're the same thing between budgeting
19:47
and cashflow management.
19:50
What is that difference to you?
19:51
I think that budgeting is looking at the,
19:55
is when I think, right, that is a
19:58
lot more of like, let me report what
20:00
I've done.
20:01
Right.
20:03
Cashflow management is the actual structure and the
20:06
reality of how your money moved.
20:09
Right.
20:10
So what I talk a lot about is
20:11
like, most people put their budgets on Excel
20:12
spreadsheet.
20:13
Yeah.
20:14
Budgets live on spreadsheets while cashflow management brings
20:18
that spreadsheet to life.
20:20
I love that.
20:21
Okay.
20:22
What does it mean?
20:23
So this will get into what we, we,
20:26
uh, it's kind of de facto mentor on,
20:28
on a tool we call occurrence, but what
20:30
does it mean to not the fact that
20:32
I don't know why I said that, but
20:33
they, uh, what does it mean to disconnect
20:35
and why is it important to disconnect spending
20:39
from income?
20:41
Great question.
20:42
And I think that goes back to the
20:43
financial treadmill that I talked about a little
20:46
bit earlier, where your income is deposited into
20:48
your checking account, where all your expenses come
20:50
out of, and you're unconsciously spending while trying
20:53
to manually save, like it shouldn't be lost
20:55
on us that corporations, financial institutions in the
20:58
government literally spend billions of dollars a year
21:00
on marketing just to figure out how do
21:03
you, you can spend money better.
21:04
Like you don't, you don't think that Apple
21:07
was talking to all these other corporations to
21:11
say, all you have to do, we're going
21:13
to put this on the iPhone.
21:14
All you have to do is double click
21:15
the side of your phone and, and you're
21:16
good to go.
21:17
Like they all know the best thing to
21:21
do is make it easier to spend your
21:23
money, right?
21:24
Because most people, when you look at their
21:26
life, all the friction is on saving money
21:29
for you to save money.
21:31
If you don't have the right structure in
21:32
place, you have to do the mental calculation
21:34
to figure out what you need to save.
21:36
Then you need to log into your bank
21:38
account.
21:38
So open your phone, look at your phone,
21:41
open your phone, find the app, open the
21:44
app, log into the app, go to the
21:46
right bank account, figure out again, how much
21:48
you're mentally going to save.
21:50
Then go to the move money tab, then
21:53
transfer the money to whatever account you think
21:55
that you want to transfer it to type
21:57
in the number, mentally justify it again, and
22:00
then finally hit the transfer button.
22:03
Whereas spending, you walk into the store, you
22:06
pick this thing up, you double click, and
22:09
then you're good to go.
22:10
Thank you for your service.
22:11
We'll see you tomorrow.
22:13
Right?
22:13
So much friction is on saving money rather
22:17
than spending money.
22:19
And so the reason we want to disconnect
22:21
spending from your pay cheque is it's the first,
22:27
I would say the first key component of
22:29
an optimal cashflow structure.
22:31
But the reason we want to do that
22:32
is so that the friction point now is
22:34
on spending rather than saving.
22:37
And if we can put more friction on
22:38
spending than saving, we can get to financial
22:41
freedom a whole lot faster.
22:42
I love it.
22:44
What happens when income gets centralised instead of
22:48
scattered across accounts?
22:51
So when you talk about that, so like,
22:54
let's talk about, you know, are we talking
22:57
about a husband and a wife?
22:58
Are we talking about a bunch of different
22:59
assets?
22:59
All right.
23:00
So let's two things.
23:01
You brought up another thing, right?
23:02
So I was thinking reservoir concept, but before
23:08
we go there, this is another issue I
23:10
have.
23:10
Well, this is my money and this is
23:13
her money and never the twain shall meet.
23:16
And it's, I get, I'm getting, I, you
23:19
know, sometimes I don't know how to deal
23:22
with that.
23:23
It's tough.
23:23
It's tough.
23:24
Yeah.
23:25
Let's first talk about the structure, like the
23:27
optimal.
23:27
Yeah.
23:28
So when I think about an optimal cashflow
23:30
structure, there's three things that I'm looking for.
23:32
Number one is separation of income from expenses.
23:35
And we do this by setting up what
23:37
we call a cashflow reservoir.
23:39
Okay.
23:39
And we, we label it.
23:42
We that because what you don't label, you
23:44
can't change it.
23:45
So we label your account, your cashflow reservoir.
23:48
So now number one, separation of income income
23:52
is separation of income expenses.
23:54
Your income is deposited into your cashflow reservoir.
23:57
And then we only put in your checking
24:00
account the money you need to spend out
24:02
of your reservoir.
24:03
Okay.
24:04
So money flows in money flows, income number
24:07
one, key component number two, key component is
24:09
automation and the right automations, not the wrong
24:12
ones.
24:13
You don't want the wrong automation.
24:14
Do you want the right automations?
24:15
Okay.
24:15
We want to automate the money coming into
24:17
your reservoir and we want to automate a
24:19
fixed dollar amount, leaving your reservoir to go
24:22
to your checking account for spending.
24:24
And then third is we want a feedback
24:26
loop.
24:26
That's the third key component is a feedback
24:28
loop to tell us three things.
24:31
Number one, how close to or above are
24:35
we to our emergency fund or our reservoir
24:39
target, right?
24:40
Three months of expenses is a good goal.
24:43
The second is how much free cashflow do
24:46
we have on an ongoing basis?
24:48
Are we positive?
24:49
Are we neutral?
24:50
Are we negative?
24:51
If it's negative, we've got a problem.
24:53
If it's positive, are we close to our
24:55
15% goal?
24:57
Right.
24:57
The next is, I think the most important
25:01
is deviations.
25:03
Okay.
25:03
We have a regular baseline spending that most
25:06
people operate on each month, right?
25:09
A regular baseline to allow you to live
25:12
the life that you're living right now.
25:13
And when you spend over and above that
25:16
baseline, that is what we would call a
25:18
deviation.
25:19
Now you need to know on this deviation,
25:21
was this a one-time deviation?
25:23
Like the washer and dryer went out and
25:24
I got to pay for that, right?
25:26
Or is this an ongoing deviation?
25:29
Because we just looked and we realised, man,
25:31
we've been spending $250 more than our baseline
25:35
for the last three months.
25:36
And we need to adjust.
25:37
We either need to realise like that's our
25:40
new normal and we spend that.
25:41
So we need to adjust our baseline or
25:43
we got to cut this out.
25:46
Like we got to rein in and get
25:48
back on track to what we actually want
25:49
to do.
25:50
And so that's the most optimal cashflow structure.
25:54
Separation of income and expenses, having the right
25:57
automations, and then having a real-time feedback
26:00
loop.
26:01
I love that.
26:02
Okay.
26:02
Can you tell me, I follow Brock on
26:06
LinkedIn, writes some great articles about a client
26:08
or two that were making good money, but
26:11
was constantly wondering where it all went.
26:14
And I say that because I have a,
26:16
we haven't got, hopefully, no, it will be
26:18
done this month.
26:18
Right.
26:19
But then the topic, the title is, where
26:22
did my money go?
26:23
Because when I run into people, I don't
26:26
care if they make $50,000 a year
26:30
or a half a million dollars a year.
26:32
That's the, I don't know where money goes.
26:34
Right.
26:34
Which is why we both think cash key
26:37
is cashflow control.
26:38
You know, all money is a result of
26:39
all wealth as a result of cashflow.
26:41
Do you have a few people that come
26:43
to mind examples of this?
26:46
Do I have a few?
26:47
Yes.
26:48
Majority of people, right?
26:50
It is so common.
26:51
So common.
26:52
Funny as I was watching a training video
26:54
from the early, it was either the early
26:56
2000s or late 90s where this training video
27:01
was with a client, an advisor and a
27:02
client.
27:03
And the client said, you know, they were
27:06
walking him through like, what does he do
27:08
for work and all these things?
27:09
And he was a pilot.
27:11
And he said, man, you know, I thought
27:13
that when I would make this money one
27:16
day, all my problems would be gone and
27:18
I'd be good to go.
27:20
Like all my money worries would be fine.
27:21
But where I'm at, I'm finding that I
27:24
feel like I have more money problems and
27:26
I don't know where more of my money
27:28
is at.
27:28
And I see that over and over and
27:30
over again.
27:31
Nowadays, where you, you know, you, you can
27:34
do up to where you thought all your
27:36
money worries would be gone.
27:37
And you thought, man, life is going to
27:40
be good.
27:41
But no money, no problems.
27:43
That's right.
27:44
Right.
27:45
And they have no idea where their money
27:47
is at.
27:48
Right.
27:49
Because they aren't aware of it.
27:50
They haven't been tracking it.
27:51
They haven't been measuring it so they can
27:53
improve it.
27:54
And as that income continues to increase, and
27:56
I say that I feel like I say
27:57
this way too much to people, but as
27:59
your income increases, your expenses will increase if
28:02
you do not have the right structure in
28:03
place.
28:04
So I love that.
28:05
So the, um, let me segue into.
28:11
So we both talk.
28:13
Well, so I first, first, one of the
28:16
things I talk about, you tell me, I
28:17
think you do the same thing.
28:18
Probably say it differently, but you got to,
28:20
you know, you got to say, say 15
28:21
% or more of your, of your, of
28:23
your gross revenue.
28:24
And then we talk about, okay, well, if
28:26
you're going to save it, you know, I
28:28
got this, but this question from Kim Butler,
28:30
where do you store your cash?
28:31
And then where's the best place to store
28:34
the majority of your cash?
28:36
So now, you know, in, in your process,
28:39
we did, you've helped identify free cashflow.
28:44
What's comes next?
28:45
Well, if I'm thinking about from an engineer
28:49
perspective, right.
28:50
If I'm building a building, I need to
28:52
have a building with structural integrity.
28:54
If I'm building a financial model, I need
28:56
to have economic integrity, right?
28:57
I got to have a plan that's going
28:59
to work under any and all circumstances.
29:00
So in my head, I roll through a
29:02
rules, right?
29:04
So rule number one is, can I save
29:05
15% of my income?
29:07
Right.
29:07
That's my goal is just save some income,
29:10
right?
29:11
But my goal is 15%.
29:12
The next is, do I have three to
29:14
six months of expenses?
29:16
The next is maximum protection in all areas,
29:19
mainly against the three catastrophic risks of life.
29:23
Lawsuits, disability, and death.
29:25
The next is I'll go to my debt.
29:27
Do I have bad debt?
29:29
If I have bad debt, can I make
29:31
it to no debt?
29:32
Because I have the cash to support that.
29:34
Can I make it no debt?
29:34
If I can't get no debt, how do
29:37
I restructure, refinance, or renegotiate so that it
29:39
becomes good debt, right?
29:40
And to me, when I think about good
29:42
debt and bad debt, bad debt is rates,
29:45
short pay periods, and not deductible.
29:48
Whereas good debt is long pay periods, small
29:51
interest, and it is deductible.
29:54
Right?
29:54
So those are the things that I want
29:55
to roll through and get into with some.