my honest advice to someone who wants financial freedom

Summary

financial freedom for me isn’t a number. it’s the absence of money stress in my head when I’m trying to build. you cannot create, lead, or take risks well when you’re worried about how to pay the mortgage.

three rules I run on, learned the hard way:

1. never finance luxury. if you can’t pay cash, you can’t afford it. cars, watches, vacations. cash or nothing. luxury financed becomes anxiety in installments.
2. net worth above mortgage. the day your assets exceed your debt is the day you start sleeping better. before that, you’re a leveraged bet. after that, you have margin.
3. cash flow above debt payments. monthly income must cover monthly obligations with room. without room, every bad month is a crisis. with room, every bad month is a story.

the trap most entrepreneurs fall into is lifestyle creep. business grows, expenses grow with it, financial pressure stays constant. discipline on the spending side is what turns business growth into actual freedom.

build the moat first. then take swings.

Transcript

why financial anxiety crushes entrepreneurs

If you want financial freedom as an entrepreneur, you have to follow some simple rules because we as entrepreneurs are playing a different game than everyone else. So if you follow these rules that I’m going to give you today, you will be much further along. Look, I have been in all sorts of different financial mindsets over the years.

I have been incredibly scarcity mindset based when it comes to finances, just always thinking there’s never enough. I’ve been in a situation where it didn’t matter how much I earned. I felt like it wasn’t actually enough. We were spending too much. I’ve been in that situation. I’ve been in mountains of debt.

I’ve been in the situation where I’m constantly stressed and anxious about money. And I know a lot of people are in this situation. But when you get in this situation as an entrepreneur, it’s not just bad financially. It’s bad because it starts to limit your brain space for being creative, for taking risk and for really building the business you truly want.

So you want to move away from this scarcity, stress, anxiety standpoint and really move towards financial freedom as fast as you possibly can. So let’s go over the three rules I followed today to make sure that I’m not stressed. I don’t feel like I am always going to need more money. And ultimately, I’m building a financial safety net, a moat around my family.

And I think you should know that before we dive into the rules that my goals financially might be a little bit different than other people out there. Some people are trying to buy a new building for their business, or maybe they want a luxury supercar, or they are just looking to spend more and acquire more things.

rule #1: never finance luxury

That’s not really my goal. I’m a father. I am a husband. I have three kids. My goal is to build a safety net around my family, a moat, so they don’t have to stress about money. I don’t have to stress about money. And really, I can be in the best possible position mentally to create and build the business I truly want.

So let’s get into the rules. The first rule is do not finance luxury. Let me say that one more time. Do not finance luxury. So what do I mean by this? Well, I mentioned a lot of different things, right? I mentioned you could be in the market for supercars or getting a private airplane or all these different things.

You do not want to go into debt for luxury items. Now, while no debt is awesome, that would be the ultimate goal, I realize that it’s not immediately possible for most people. Okay, so I’m not going to say get out of debt is your first rule. But there is one thing that you can absolutely avoid, and that is do not go into debt for any kind of luxury item.

If you can’t afford a luxury item, don’t buy it. If you want the Bentley, wait until you have enough cash to be able to buy it. Just because you can get a loan for something doesn’t mean that you should have it. Okay, do not finance luxury. My wife and I have dabbled a lot in luxury real estate. So she does a lot of design work and has done design work for luxury homes.

We’ve built luxury homes. We’ve sold luxury homes. And this is all kind of behind-the-scenes real estate stuff that I do. But having said that and been in this game, been in the market, know the people who buy and sell these properties, they are buying them in cash. I’d say 80% to 90% of the transactions I’ve seen where they’re multimillion-dollar homes, luxury-based homes, they’re buying these things in cash.

They’re not getting loans for them. And so if you think that just because you can afford some sort of loan or some sort of big car payment that you can get it, you shouldn’t. You have to realize you’re not playing the game rich people actually play when you go and get a loan for these luxury items.

And all it does is going to further stress you out because now you have this big whatever $2,000 car payment for a luxury car when ultimately you should have never had it in the first place. If you can’t buy cash for luxury items, don’t get them. Now, I’m not saying if you want to buy a house, you should have to pay all cash.

Or if you want to get a car, you should have to pay all cash. Again, that would be awesome. If you can do that, do it. But if you can’t, I’m just saying don’t get the luxury version of whatever you’re trying to get through debt. It’s not going to help you out. It’s not going to move you further along in your financial journey, and it’s not going to help you achieve financial freedom as an entrepreneur.

Okay, let’s dive into the second rule, which is make sure that your net worth is greater than your mortgage. Now, this is a pretty simple rule, and I’ll talk about why I think that this should be a goal. So making your net worth, which is how much you’re actually worth, if you were to take all of your assets and subtract your liabilities, that’s your net worth.

rule #2: net worth > mortgage

So if you have a $500,000 home and it’s worth $500,000 and you have a $300,000 mortgage, that’s $200,000 worth of equity. That would be your net worth, not including any other assets, just so we’re all clear on how to calculate net worth. Take your assets, subtract your liabilities. Most people have a negative net worth.

In all honesty, that is not the goal. But why am I specifically saying your net worth should be greater than your mortgage? Again, if you go back to my goals and what I’m looking to do is build a safety net around my family. And one thing that I think is really important is making sure that we have one thing locked in, and that is where we are going to live.

And I like to make sure that we have that option. And so one thing I like to make sure is that if I had to collapse my assets, if I had to sell off rental properties, or if I had to sell a business, or if I had to sell other assets, I want that to be greater than the mortgage that I have on a property that I live in.

Okay, so making sure your net worth is greater than your mortgage gives you a lot of financial freedom, and it also gives you a lot of brain space knowing like, hey, worst case scenario, if things got tight and I had to basically eliminate my mortgage payment, I could because I could sell assets in order to cover the mortgage completely and pay it off in cash.

This is easier said than done. I understand that. But you have to realize something. Like I said at the beginning, as an entrepreneur, we are playing a different game than everyone else. So your business might actually be your greatest asset. A lot of entrepreneurs don’t consider it an asset, but most businesses are sellable.

They’re sellable assets. Someone out there would buy it. And it might be smart to get a valuation or figure out how much your business is worth. Now, I’m not saying go sell your business. But when you’re calculating your net worth as a business owner, as an entrepreneur, that’s part of your net worth.

What is your business worth? And so that is part of your net worth. And then you can add up any other assets, the equity you have in your homes, if you have any other investments, all of that. But this is another one, another step, another rule I follow to make sure my net worth is always greater than my mortgage.

If you see, we’re backing ourselves into a position where we’re just safe, right? We’re safe. And it’s not just the safety net of knowing, hey, financially, I’m going to be OK. Like I’m talking about over and over again, it’s the brain space, the brain space that it creates as an entrepreneur. When you are stressed out, when you are anxious, when you are constantly worried about how much money is coming in this month, you cannot be the best version of you as a human, you know, as day to day, as a husband, as a father.

I know I can’t be the best version of those things if I’m constantly stressed out about money. But if I’m not stressed out about money, I can be a better business owner. I can create better ideas. I can do more things because my brain is not being taken up by the stress and anxiety that is being worried about money all the time.

And that brings me to the last rule. Rule number three, make sure that your cash flow is greater than your debt payments. OK. And I’ve talked about this in previous podcast episodes, and that is making sure that you are buying income. That is the goal as an entrepreneur. You want to buy income. What does that mean?

rule #3: cash flow beats debt

Well, some people do this in the stock market. Stock markets are stocks that pay dividends, so they have some passive income. Me personally, I do it through single family homes. So if I have a home that’s cash flowing $1,000 or $2,000, I’m buying that income. Now, I never want my debt payments to be greater than my cash flow from my assets.

So just to give you an example of that, just say I took all of my debt payments. And I’ll be honest with you, I don’t have a lot of debt payments. That’s something my wife and I work really hard on, paying off all of our debt. And now we have very, very minimal debt. And it’s very strategic in nature, the debt that we do have.

It’s to leverage other investments. But what I like to make sure, that gives me a ton of just reassurance and that safety feeling to move away from anxious anxiety version, scarcity version of the financial side of me where I have been, is I make sure that my cash flow is greater than my debt. So again, going down to an example, say all of my debt payments, if I added up, if I had a car payment, like the car payment plus the mortgage payment plus whatever else, all of these debt payments.

I make sure that I own assets that can cover those debt payments. Now some people out there would be like, just sell everything and get rid of the debt. But I don’t necessarily think that’s the best idea. I would rather have things that cash flow and can cover those debt payments. So anything I make as an entrepreneur can then just be for my lifestyle or for reinvesting in the business.

Okay, so if my cash flow is greater than my debt, I’m feeling really safe again. So if I have $3,000 a month worth of cash flow and $2,000 a month worth of debt payments, that’s it. That’s perfect. Now anything I do as a business owner after that is all gravy, and that’s the position you really want to be.

So what I think I have to stress to people and ultimately what these rules are centered around is do not let your increased income walk you into that lifestyle creep. That, oh, we added in $1,000 a month here, $1,000 a month there, and so you’re five years out and you’ve added $7,000 a month worth of mandatory debt payments or things.

You don’t want to go down that road. And I’m not just talking about smart financial sense so you can retire early and all that crap. What I’m talking about is you as an entrepreneur. If you have this lifestyle creep, let’s say you get to the point where your business is making $50,000 a month, and when you started, $50,000 a month would have been like home run, hit it out of the park.

You’re so over the top. I can’t believe I’m making $50,000 a month. Well, if you’re making $50,000 a month as an entrepreneur, and then $20,000 of that is like realistically business expenses. And so, okay, now we’re down to $30,000 that you could take out of the business, and the $20,000 is just mandatory business expenses.

It’s like, okay, well, now we have this $30,000 that I could take out, but my mandatory amount that I spend each month is $25,000 a month. And if I spend $25,000 a month between all of my debt payments, the financed luxury I shouldn’t have done, my high-end mortgage, all this crap, now we only have $5,000 left.

how lifestyle creep strangles growth

And that might sound like a lot of money, but we haven’t invested anything. We haven’t done anything else. And to be honest, you’re not growing the business anymore. And that is the worst thing that I see happen is people start pulling too much money out of the business, and then their business just kind of flatlines.

And it flatlines because they’re either too stressed financially, they’ve built up a lifestyle that’s too expensive, too extravagant, and so they can’t actually make the decisions they want anymore. They can’t invest in courses. They can’t invest in mentorships anymore. They can’t invest in marketing, and they start cutting all the wrong things.

Those are the things that people start to cut. They cut their marketing budget. They cut their coaches. They cut their community programs. They cut all these other things, and they’re like, no, no, no, I just got to live my life. I got to pay these bills. It’s like you had plenty of money to do that.

If you wouldn’t have let your lifestyle get out of hand, you would still be in this growth mode. And most entrepreneurs can’t stomach this delayed gratification, and so they spend too much money, and then it cripples their business. So I’m talking specifically about your business. I personally want that safety net.

I want that financial moat around my family so they’re protected. I’m protected, not stressed out. I can make good decisions. I can create. But at the same time, I also have plenty of money to be able to invest so when someone comes to me with a great idea to invest in a new company or if there’s some sort of coach that I really want to invest in, I’m not going to hesitate about taking those actions because the money is there.

I have not crippled my business by building a lifestyle that I shouldn’t have built in the first place. So if you can follow these three rules, if you don’t finance luxury, if your cash flow is greater than your debt, and you ultimately have a net worth that is greater than your mortgage, you will be making so much more progress.

And the reason you’ll be making progress is not just because you’ve made smart financial decisions. It’s because you will have not crippled your business. You will be the guy or girl who is ready to take on new opportunities when they come, and you’ll have the cash to do it. None of these things are easy.

build your financial moat, try harder

Not a single one I’m talking about is easy. It’s taking me years and years to achieve these things in my own personal finances. But if you try hard, you will be able to get it done.