Transcription
Most people get paid and they do this. They pay their bills, they maybe hopefully set aside some for taxes, they save what's left, and then maybe they invest some of the small scraps. But, the problem with that is that's how you stay broke for 40 years.
Now, I do the exact opposite. Every time money hits my account, and it's the reason why my assets pay for my life instead of the other way around. Now, in order to do this, there's five steps. It's going to take about 10 minutes. Let me give you the routine.
All right, so let me give you the system that you can follow to do the exact same thing. Now, it varies a little bit, so I'm going to give you some some variables here. So, obviously, if you're a W-2 employee versus a 1099 employee or a business owner, it could could vary a little bit. But, the key behind all this, what we're trying to do here, is I want to decide in advance, intentionally, where my money's going. So, I know that if I get this much money, I'm going to get, you know, $10,000 a month, I want to know exactly where that money is going before I get the money. I don't want to wonder at the end of the month where all my money went. I want to decide in advance where it's supposed to go.
And so, that's hard work. It takes a lot of time. There's a lot of decisions and thinking. And so, once I've thought through that and I've decided that, then I want to put that into a set of rules that can run on autopilot. The reason why is it takes all the emotion out of my money. It allows me to build towards long-term goals that I have, and most importantly, it removes all the time and the energy of me having to think about it all the time. So, that's the big why.
How do we make this work? So, the first thing we want to do is we want to be intentional. When I receive money, what do I want to do? More specifically, what do I want my life to look like? If I want to retire one day and my goal to retire is to have rental properties, and I need to save up money to buy the rental property, then I should make that a rule. I should pull money out of every check to go into an account that can save up money to buy a rental property one day. If I'm a business owner, I should probably pull money out to put into my operating expenses. I should probably put money set aside for taxes. Maybe money set aside to buy another business or do M&A, something like that.
Let me break down five accounts that I think most people could use right away. So, number one, when money comes in, it should go into one account, but you never spend from that account, okay? The money comes in and it's only used. That account's only used for distribution. Now, I would set up five accounts. Really, I go up to 10 accounts, but let me just give you the first five.
So, the first thing is I want to have money transferred to an operating expense account. So, I do have to pay bills. If I have a business, I have to pay my pay my workers, my contractors, my employees. I need to set aside that for my rent, my electricity, my internet bills, all that. Operating expenses. So, what per percentage of my income should cover operating expenses? This is a key piece. You see, what happens is most people spend that money and then they deal with what's left over. But, I want to do it the opposite. What percentage do I think do I want to have of my income go to my operating expenses? That money goes in there. Now, I'm forced to deal with that constraint. Number one.
Number two, I should be growing my business, so I should certainly have some sort of marketing budget going on. What percentage of my revenue should go towards marketing? I should predefine that and I should transfer that money automatically. Now, ultimately, as a business owner, I also want to have some profit. If you're an employee, this might be a long-term savings account that you want to, you know, put into a real estate property or something like that. And I want to pull that. What percentage should I pull off the top for myself? 10%? 20%? What can I afford? I want to put that so, each one of these accounts that I need are predetermined with an amount, with a percentage. And so, as soon as that money hits my account, it automatically makes transfers. No manual work needed.
Now, there's a bunch of ways that you could do this. You can just go down to your bank with a piece of paper and say, "Open up these five accounts and then set up automatic bill pay with these accounts." That's That's easy way to do it. Of course, you could do it manually every month. I don't recommend that. Um you could use a software like Get Sequence, for example, that you can set it up all automated. But, don't let technology be a barrier. The key piece is to think through where my money should go in advance to make sure I get what I want out of life. That's the only true sign of intelligence. Can you get what you want?
Now, couple other accounts that I like to use would be, for example, do you like to take vacations? Do you think vacations are important for you, for your family? Okay, if so, how many vacations should you have? One per year? Okay, how much should you spend? $5,000? Okay, great. What you can do is an automatically, every time money hits your account, start to fund the vacation account. That way, when it's time to take a vacation, your kids are on summer break, the money's there. We can go. If you don't start planning for these things, these things are hopes or dreams, but they never become reality.
What else do you want in your life? Let's say that you want um do you like to drive a new car? Every 3 years I want a new car. Great. What kind of car would you buy? What would your down payment be? So then, I take that down payment, amortize that over 3 years, and I can put that money into an account every single month to make sure that I'm getting what I want out of life. If you don't put this down, if you don't make a rule, if you don't make this automated, it's a hope, it's a dream. And what they say about hopes and dreams is that if you don't sacrifice today, take the time to do this. If you don't sacrifice today to achieve your hopes and dreams, then those dreams become the sacrifice. So, it's up to you what you want to do.
All right, so after you get this set up and running, now you have all these accounts with all this money, but what do you do with it there? Because you certainly don't want to just leave it there doing nothing. Now, before I break into that, I do want to let you know real quick, if you like these videos, but you want to see this live, you want to see it with real numbers on a real screen, I am running a live workshop pretty soon. If you click on the link right here down in the description, or there's a QR code on the screen right here, you can come join me live. We'll go through this. There's not many seats left, but if you if you get in, we can discuss this live. You can ask all your questions to me live. It's going to sell out though, so go ahead and grab your spot before it's too late. But, let's go ahead and talk about now. We have the accounts, the money is there, and what are we going to do about it?
So, you've heard that, you know, cash is like a melting ice cube. Cash is trash. Like, my money's losing purchasing power. So, you've been taught that you don't want to leave money sitting there. And now you're saying, "Mark, but um you're saying that I should leave money going into a like a car account for 3 years, or a vacation account to sit there for 1 year, or for a tax account it's going there for 1 year earning nothing? How can I afford to do that?"
Well, the way that we want to think about deploying capital is on duration. You've ever heard, you know, time is money, money is time. Well, it's time. So, we want to think about the capital, the amount of capital, but the duration or the time of the money. So, for example, money that I need to deploy sooner, I need less volatility. Money that I can deploy later, I can hold for longer, I can have more volatility. So, for example, if I'm putting money away that I don't need for 5 years or 10 years, that goes into Bitcoin. Bitcoin's volatile, but in 5 or 10 years it's going to be much higher than it is today. If I need the money in 6 months from now or 3 months from now, I wouldn't want to put it into something volatile like Bitcoin cuz I don't know what the price of Bitcoin's going to be in 3 months.
If I need money short-term, in within months or a year, I want to put it in something with low volatility. So, for example, we have cash and cash equivalents. So, if I want zero volatility, I might want it to go into like US Treasury bills. I might want to go in money market accounts. And so, there I have like almost no volatility and I might 3, 4, 5% return. If I want a little bit more volatility, I can go into some other types of assets. And then again, if it's deploying for a long time.
So, what I do then is as that money moves into those accounts and those accounts are filling up, depending on what those accounts are, if it's buying a rental property in 5 years versus if it's going on vacation in 4 months, I treat that money differently. But just because the money is in that bucket doesn't mean it's not earning yield. It's not earning a return. So, for example, if I'm putting that money into buy a rental property in 5 years, that could be sitting in Bitcoin, but it's segregated, it's accounted for, and it's automatic. If it's going into a vacation fund that I want to deploy in 6 months from now, it might be in money market funds or in something like Stretch or Stata where it pays me at 11, 12, 13%.
Now, something that might be helpful is to move beyond just like facts and tell you a personal story here. You see, I didn't just invent this out of thin air. As a matter of fact, it came because of necessity. I had a problem. My business made a a of money and then sometimes it didn't. Income was going up and down. At the end of the day though, even though the business was making a lot of money, I didn't feel like I was getting enough money out of there. And that's because I hadn't intentionally thought through what the money coming in is doing and where it's supposed to go.
I read a book called Profit First. Now, Profit First is basically teaching you a system to do what the book says, which is you should take your profit first. So, how much profit do I want to extract from this business? Now, most people approach this completely different. They say, "Well, whatever money's left is what I get." They might say, "Well, if I take my profit out first, what do how do I know if the company has enough money to pay that?" Well, it's a good question. The reason why is because I am supposed to be driving my business. I'm not supposed to be a passive passenger, and we'll see what happens at the end. No, no, no. I need to set constraints. All of life is about setting constraints. Time management is I have to accomplish this task. Here's how much time I'm allotting for it, so I make sure I get it done in that time. And running your business, setting up these accounts, paying yourself profit is the same way. I set constraints. I will spend X% on marketing. I will spend X% on operating expenses. I will take X% of profit. And when you do it that way, you force yourself to get creative. You force yourself to hold yourself accountable. And so, if you want to know more about this entire system, go ahead and read the book Profit First. But, that's the that's the thinking behind it. That's how I discovered it personally.
Now, this video has been about what I do with money when it comes into my account. How do I automate I take all my emotion, thought process, all the time, effort, energy out of that to make sure I'm guaranteed to achieve my goals. But, if you want to know about the entire wealth operating system that this is only just one piece of, you might want to go watch this video right here to build a system that pays you forever. It's on the screen right here. I'll see you over there.