The Playbook of the Wealthy
The rich and wealthy think about money differently than everyone else
I talk a lot about the importance and value of traditions… this Christmas holiday was no exception.
I LOVE playing hockey during the Christmas holidays so we always rent the ice.
With the boys now 17 years old, we can have a really fun game of shinny hockey with the boys, their friends, and a few of my buddies.
I hope everyone had an amazing Christmas and holiday filled with traditions, deep rest and new experiences.
I love having the time and money to be able to do these things, to live the life I’ve dreamed of.
Time is ticking, we need to get on with our Bigger Things.
Our TIME is the ultimate SCARCITY.
I hate when people say “I don’t care about money” or “money isn’t important to me”, blah blah.
MONEY is actually an abstraction of our TIME and ENERGY. 🤔
Do you care about your time and energy?
Of course you do! Of course you care about your time and energy, we all do.
Which brings me to why so much of my writing is focused on helping you with your time and energy… i.e. focused on “money”.
It’s hard to achieve our Bigger Things when our time and energy is continually being stolen from us.
I’m focused on providing the information and tools to be able to take back our time and energy, to live the lives we dream of, to achieve our Bigger Things.
The Playbook of the Wealthy
I’m in a phase where I seem to be rereading a lot of books. In some cases, I’m reading books now for the 5th and even the 10th time.
Perhaps I’m just a slow learner perhaps? 🤣
In 2000 I received an amazing Christmas gift - the book Rich Dad Poor Dad by Robert Kiyosaki. I devoured the book that Christmas holiday and I am rereading it now.
25 years after first reading it, I’m blown away by how much “Rich Dad’s” lessons impacted my life. Let me explain…
It taught me that the way the rich and wealthy think about and managing money is completely different than the poor and middle class.
Here’s how I’ve seen that play out over the past 25 years…
#1 Accept the Fact that Incomes Are NOT Keeping Pace With Inflation
Our incomes are not keeping pace with M2 money printing and true inflation (looking at something like the Chapwood Index that provides the unadjusted actual cost and price fluctuation of the top 150 items on which Americans spend their after-tax dollars)… therefore we need to have another strategy.
Nick from Rockstar Real Estate explains it in a single chart and this 2 minute video. Nick shows how real estate prices, as well as every other scarce desirable good, are going up in direct correlation to the money printing while over the same period, starting in 1971, there is virtually no income growth 🤯🤯…
So step one is accepting the fact that our incomes are not and will not keep up with true inflation.
The wealthy understand this and have another strategy…
#2 - The Wealthy Have Money Work For Them
The wealthy have another strategy to make money and grow and protect wealth.
“Lesson 1: The rich don’t work for money - The poor and the middle class work for money. The rich have money work for them.” - Rich Dad in Rich Dad Poor Dad
The wealthy buy and build assets.
Quality, hard, scarce assets will generally go up by the amount of money printing M2 expansion in any given year.
So having $1M in good, scarce assets, assuming M2 money printing is inline with historical norms, the $1M of assets will go up by 7% and be worth $1,070,000 in a year’s time.
That means that you make $70,000 next year, regardless of whether or not you get up and go to work or do anything at all.
If we can amass $5M in assets, that number goes to $350,000 per year.
At $10M in assets, it goes to $700,000 per year.
“Assets over Income - Buying or building assets that deliver cash flow is putting your money to work for you. High-paying jobs mean two things: you’re working for money and the taxes you pay will probably increase. I’ve learned to put my money to work for me and enjoy the benefits of generating income that doesn’t come from a pay check.” - Rich Dad in Rich Dad Poor Dad
The wealthy buy and build assets.
#3 - “Playing it Safe” is the Road to Serfdom
Playing it “safe” means that we are going to wake up in 20 years in a world where asset price appreciation has far outstretched our income and savings. Many people are unfortunately waking up to this fact right now.
We need to stop “playing it safe”. Because it turns out that safe is not safe at all
Playing it safe means that our children won’t ever be able to afford homes.
Playing it safe means never being able to retire.
Playing it safe means that if we have a major life or family emergency, we don’t have the time or money to be able to deal with it.
It’s scary to take some risk but as I said last week - most people overestimate risk and underestimate opportunities.
Playing it safe is the “road to serfdom”, as Michael Saylor puts it. Where you find yourself working exponentially harder for a currency growing exponentially weaker. Many already feel this today.
Avoid the road to serfdom.
#4 - How to Actually Accumulate Assets
With incomes already not keeping pace, how on earth do we accumulate assets?
There is no easy answer to this.
It all starts in the beginning by SPENDING LESS THAN YOU MAKE. Put away 10% of your earnings, etc.
The other answer is using smart leverage (debt).
I’m not talking about consumer debt to buy a bunch of crap we don’t need.
I’m talking about using debt to your advantage to buy scarce, desirable assets.
The wealthy strategically use debt financing extensively to buy quality assets.
This is an advanced strategy and needs to used with EXTREME CAUTION. The structure and duration of the debt is critical as well as the quality of the asset being purchased.
The amount of debt in relation to the value of the asset and your other assets needs to be considered.
Debt is generally thought to be good for real estate and I would suggest generally bad for buying something super volatile like Bitcoin.
The old school convention was have no debt, pay everything off Dave Ramsey style.
While I totally agree with that in terms of consumer debt, debt should be considered for purchasing quality assets.
With a depreciating currency due to money printing - the math says that you should be “short” (borrow) the depreciating thing (fiat dollars) and be long (own) the appreciating thing (real estate, Bitcoin, etc.).
Here is the quick math on a cash flowing real estate investment using debt:
Buy a duplex for $600,000
Quality asset that is “cashflowing” so no new capital needs to be added
Real estate appreciates equal to the money printing of 7%, therefore equity gain of $42,000 annually
Scenario 1: Buy with no debt and therefore the asset the ROI is $42,000/$600,000 = 7%
Scenario 2: Buy with 80% loan-to-value (LTV) and therefore 20% downpayment of $120,000. The appreciation is the same but now the ROI is $42,000/$120,000 = 35%
The wealthy understand this math and is why, even if they can afford to pay off real estate entirely, generally never do.
The wealthy will let the asset go to 40% to 65% LTV to derisk and then continue to refinance and pull money out over the years to leave the LTV in that range.
#5 - How the Wealthy Access Money in Tax Advantaged Way
Candace likes to remind me that “you can’t eat equity”. True enough.
But you can refinance it. 😉😘
When the wealthy need money, they don’t sell the assets, they refinance them. The wealthy rarely sell anything. Selling would trigger capital gains tax.
The wealthy refinance their assets and borrow a small part of the equity to finance the next thing they want or are investing in.
This is majorly tax advantaged as there is no tax due on the amount borrowed and the interest on the money borrowed is very likely a tax deductible expense.
#6 - Combine Assets to Maximize Gains and Minimize Risks
Knowing all of this, today as we head into 2025, I believe it actually represents an amazing opportunity.
I couldn’t be more optimistic for what is to come.
Headed into 2025 my investment strategy to maximize gains and minimize risk is:
Be long (own) good quality, hard, scarce, uncorrelated assets and short (borrow) depreciating fiat.
For me that means owning a private company, real estate and Bitcoin (and by Bitcoin I mean all Bitcoin proxies like ETFs, MicroStrategy stock, Bitcoin mining stocks and related derivatives).
My strategy creates a virtuous cycle:
Owning a private company allows me to take bigger risk in real estate.
Owning real estate allows me to take bigger risk in Bitcoin.
Owning Bitcoin allows me to take bigger risks in my operating company.
I have wealthy friends who prefer owning the Magnificent 7, trading stock options, owning gold and collectables.
You choose, but just have a strategy.
#7 Take Stock
As we conclude the year, one thing that I highly recommend doing is to take stock of how effective your investing strategy was this year and complete a networth statement.
Your personal networth statement is your personal or family’s balance sheet.
Start by completing an inventory of your family’s assets and liabilities. I’ve provide a template for free download:
The “inventory” provides the raw material for creation of a networth statement.
Your networth statement provides the complete picture of all of your assets and liabilities, where:
YOUR NETWORTH = TOTAL ASSETS - TOTAL LIABILITIES
I’ve provided a networth statement template below that you can download for free:
It is good practice to complete an updated networth statement at the end of each quarter, or at a minimum at the end of each year.
Your networth statement tells the truth as to whether our strategy is working or not.
Enjoy the Christmas holidays, spend some time with friends and family and watch some World Junior Hockey!
May you accumulate some quality assets and achieve your Bigger Things in 2025!
Happy New Year!
Brad 💕👊
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Amazing wisdom!!!! Thanks Brad.
Great article packed with useful reminders at the perfect time. Thanks Brad.