- Hey guys, Toby Mathis here and today, we're going to go over
me being a tax attorney, for the last 25 plus years. What I've seen are the five main things, that are keeping people poor, money habits that are keeping them poor. So let's jump on in right
away into number one. And I'm just going to use this
as probably the most obvious, and misunderstood explanations
of why people can't seem to figure out how to get
themselves out of their own way, and why they end up in debt and suffering, and feeling like almost like
somebody's choking them. Like when we start
thinking of the adjectives, when I think of, what is your debt, or what is your financial
situation doing to you? And if I say give me adjectives
on how you feel at night, and whether it's keeping you up, whether you're feeling like this malaise, whether you're like
you don't want to know, you almost want to stay willfully blind. Or sometimes it's constricting. I feel like there's a weight on my chest, or does it feel like it's uplifting? Hey, it's allowing me to
do the things I want to do. It's the difference between
getting over to those things, oftentimes is this first rule, which is they don't know their numbers. I shouldn't say rule, it's
the first money habit, that keeps people poor is
not knowing their numbers, not being willing to
actually take account, and do an account of the money coming in, the money going out. So the first two that I'm going
to focus on is your income. How much income is actually
coming in, after taxes? What kind of income is coming in, after you have to pay the tax man, because individuals earn money,
they are taxed on that money and they get to spend the leftovers. And if you don't manage to get your head around that little tax number, you're going to be in
for a nasty surprise. I've seen many, many
people who are wealthy, not address that issue
and they don't put aside the money for the tax man. As an employee, oftentimes
you don't even have a choice. Somebody's putting aside for you, but they're not doing an honest account. They may be saying, I'm
making $10,000 a month, which may net you 7,500, but in their mind they're
always telling themselves, they're making $10,000
a month and they end up overspending because of the second area, which is the expenses. In other words, if I got it, I spend it. If that is you, you're
in for a world of hurt, and it's going to be a
not so much a nice world, unless you are really fortunate
and you jam that income up and you don't spend it all. But this is what I've
seen over and over again, is people do not do an honest assessment of what their income is and
as a result they overspend. What you look at, I'm just going to give
you a simple equation, is you take your income after taxes, minus your expenses
and that will give you, your income spread. And that might be a monthly income spread, where you're saying, here's
the difference between what I have coming in
and what is going out. And that is the amount that
you should be investing, or saving or paying off debt. I use a real simple rule,
I use the 70 30 rule. I try to live off of 70% of my income. I try to give 10%, I try to
invest the remaining portion, the remaining 20%. Or if you have debt, then you invest 10% and
you pay off as additional, pay down a principle
10% towards your debts. You want to wipe out that debt. It's the worst thing that
you can have in your life. And I'm not talking about
leverage on an asset, I'm talking about debt that you are using just to pay for stuff. It's going to cause
you pain and suffering, if you accumulate it. There's this old rule, you've probably heard this before, that he who understands
compound interest earns it. He who doesn't, pays it. So the people that get those credit cards, and they don't understand
compounding interest, and how devastating it is
are the ones that end up just getting lit up for
it and you feel like you can never get out,
you never get ahead. Simple rules is figure
out what your income is, figure out what your expenses are, and use that spread to attack your debt. Use that spread to start
building up savings. Use that spread to create an
emergency fund for yourself. And I'll give you guys some
simple rules to follow. So that's number one. Income minus expenses is
equal to your income spread. You want to do yourself a huge favor, work on increasing that income, and decreasing those
expenses at the same time, 'cause even if you mess up,
even if you get one out of two, you're still going to be happy, 'cause you're going to create
a larger income spread. And that's really the rule
is you could go out there, and you could get a side gig. If you want to increase
that, that amount of income, and keep those expenses
the same, that's fine too. If you want to get yourself in a better, better financial position,
that's what you do. And that is as simple as it gets, income minus expenses
equal your income spread. Now for net worth, this
is an even easier concept to understand but it's
when people screw up. But assets minus liabilities
equal your net worth. The problem we have is we have
a bad definition of assets, 'cause a lot of times think, a lot of people think
your home is an asset, your cars is an asset. Your RV, your boats, all
your toys are assets. When in all reality, they're a liability. And here's a simple rule,
assets put money in your pocket, liabilities take it out. If you have something
that's costing you money, chances are it's a liability, and I don't want to hear
about but they go up in value. But there's appreciation. Can't live off of appreciation, sorry. In some cases if you
learn how to leverage, like a stock account or real estate, you can borrow and you
could do some of that. But that's, unless you have that income, coming in off that assets,
even that's not going to work. You can't just sit there
and hope something goes up in value and borrow against it. It has to have an income component, which is why when we get to
our money habits of investing, we're going to focus in on
two specific asset classes, 'cause it's so, so obvious. Once you realize that
we're talking about assets, that put money in your pocket, there's so few of 'em out there. that you don't fall for
all the nonsense out there, that's being shelled on
TV and on Wall Street. All right, so we look at
our net worth and we say, here's our assets minus our liabilities, that's our net worth. You could be a millionaire
and still be suffering because you have a spending
issue because at first, the income minus the
expenses is all out of whack. You have too many expenses
and all of a sudden, it's eating way into your net worth. You have a high net worth but
you're having to incur more and more debt just to
pay for all that that, 'cause you have a negative income spread, 'cause you're spending too much. And those are the people
that we always see. They're usually 45 to 55. Their kids are going to
college and they realize, that they don't have any savings, and that then that
they're basically living paycheck to paycheck even
though it's a large paycheck, and they're not too happy. And a lot of times they end up downsizing, and trying to make a better model. If you address it right away, you never get into that point
because you're very honest with yourself and you're
looking for a positive income spread from day one and saying, this is how much I'm going to be saving. And you're starting to invest
in assets that feed you, instead of liabilities that bleed you, and you end up being better off. Now here's an advance one, and I'm just going to articulate
this, in a simple way. If you lost your job, if you lost your ability to
create income from your time, and you had to rely on just your assets, how long would you be able to live? How long before you've worked through your entire net worth, right? How many days is that? If it's not an infinite amount of time, hey, if it's not, hey,
I could leave my job, and I would still be able to live, because my assets are feeding me. They provide enough income
that it covers all my expenses. If that is not you, then we have work to do, my friend, right? We have to be honest with ourselves. How many days could I
survive if I quit my job, and all I did was burn
all the assets I have? If there is a number of days, even if it's 10,000 days,
or even if it's 20,000 days, that's still a finite amount of time, and we want to get to infinite, which means we're focusing
on investing on assets, that cover our expenses. We'll get to that. Number two, the big
money habit that I see, that keeps people poor is not recognizing that emergencies happen
and not being prepared for that emergency. In fact, there's stats all
over the place that more than half the United States could not cover a $400 emergency expense. That is frightening. Probably it's a small
percentage that could actually do something that's $10,000 or above. You got to be prepared for emergencies. The number one reason for
bankruptcies in this country, is unknown health expenses. Or unexpected that come
out and they take you out. And because you've lost your
ability to create income, or had it restricted
or maybe you're caring for a loved one and you just
have lots more expenses, they end up piling up and
it ends up putting you in a situation where your
liabilities are greater than your assets and you
end up going bankrupt. And we don't want that. One of the simplest things you could do, is see whether a health savings
account is available to you. This will save you money on taxes. You'll have tax free growth
and that money could be used at any time for health
expenses throughout your life, and you do not have to
pay any tax ever again, even if you spend the
money that has grown. So like I could open up
a health savings account, get a deduction, it's
over $7,000 for a family. There's some qualifications, a high deductible plan
and some things like that. But you look and see, is
this something I could do? You put your money in there. If that's not you, then maybe
you're looking at putting it into an IRA or better yet a Roth IRA. Especially if you're
in your earlier years, and you're not making a ton of money. The Roth IRA is a
fantastic savings vehicle, because I can always take
the money I put in it, back out tax free and I
did not misstate that. There's no penalty. If I put money into a Roth, let's say that I'm putting
$5,000 a year into a Roth, you can actually put more, but let's just say I'm
putting $5,000 a year, and I do that for five years. I can take out that $25,000 that I put in the 5,000 times five years. I can always take that
out without penalty. So it's a great savings vehicle. But if that $25,000 that I
seeded grows to be a hundred, $150,000, 200,000,
300,000, whatever it is, what if it grows when I retire? I don't have to pay any tax on that. That ends up being great money. So either one of those vehicles, a health savings account or a Roth IRA, or please just put it
in a savings account, but you're putting money
aside for an emergency. Again, I always suggest that
you're putting 10% at least, into your investment
account and of that money that you're put in an investment account. I have a real simple rule. I want 10% into cash or cash equivalence. And the first $50,000 that I save up, I want in dividend producing stocks, which are very, very liquid. If you follow that advice,
you'll be able to get to money if you have an emergency and
you won't become a statistic. Again, it's pretty logical
when you think about it, but for whatever reason, bad money habits is we don't address it. We pretend it doesn't exist. We put our heads in the stand
and we do someday island. Someday I'll get to it. And we take a big vacation
on someday island, and we never address it. Number three, money
habit that keeps us poor, is we're using too much debt, and we confuse it with leverage. Now, debt is is a liability
that I owe somebody else. And I mentioned the old adage
about compounding interest. If you are using credit card debt, and you are not paying
that credit card off, you are going to be in for some suffering. You pay that down. In fact, you find the debt that you have, that is bleeding you the worst. This is no different
than let's say that I had a stick in my eye and I
busted my shin, right? The first thing I'm going to
address is the stick in my eye, because it's going to obscure my
vision and it's probably going to be way more worse for me than
if I just skin my shin, right? I need to attack the credit card, that are the stick in the eye. The high interest credit
cards, which credit cards in the United States
average about 20% right now, if you have a 20% credit card, that is a stick in your eye. You need to remove it, you need to address that
before you do anything else. No, we don't pay that off,
and the skinned shin, no, we ignore the skin shin until we get the stick out of the eye. When you are dealing with debt, you are going to attack your
high interest debt first, and you're going to get rid of it. That is the one that's
causing you the most pain and suffering, and that's
what we want to address it. If you end up with so much liability, so much credit card
debt, that it bleeds you, it will kill your financial body. And that's when you
end up into bankruptcy. That's when you end up
having health problems, because of your financial
situation and your suffering. It's going to articulate, it's going to manifest
itself in all sorts of ways. So we get rid of the high
interest rates first. We attack it just like we
would logically if you had a stick in your eye versus
a ding on your shin. Now there is a difference
between debt and leverage. I'm going to give that to you. I don't say never have debt. I don't like personal debt for stuff. I don't like personal debt for cars. I don't even like
personal debt for houses. I understand people are going
to go out and get mortgages, but I always say make sure
that it makes economic sense. I have other videos on
that versus renting. Should you buy a house versus rent? There's plenty of stuff out there. I use a 5% rule, but that's me. And I look at it very, very pragmatically, and I'm saying, hey, I
understand that there's a certain amount that you're going to pay, to have a house over your head. And that is fine if it's
going towards a mortgage, but that is such the exception. Everything else is levering an asset. In other words, the asset feeds you enough that not only does it
pay for the leverage, the cost of that debt, but there's some leftover that's
called cash flow positive. And we see that mostly in real estate. But you can do that in
the stock market as well. It's called a security
back line of credit. And quite often what you'll
have is a dividend stock portfolio that over the years
that dividend increases, increases and I borrow against it, and the dividends are such
that they pay off any debt that I use and any of
that debt I can go out, and buy another asset that's
producing even more income. And so asset number one
is paying off the debt. Asset number two is gravy
plus any growth on asset number one is gravy, that's okay. That's called using leverage. And it's very, very different
than just having debt, that's a liability. Like having a credit card that
I went on nice vacation with and I put it on a credit
card and now I'm paying 20%. That is a pure bloody liability. I am bleeding profusely. I need to fix that and
I want to make sure, that I'm doing that. Number four, the poor money habit, that is just a absolutely devastating. It's not recognizing that
you are a lifelong student, you don't invest in yourself. And there's a few different ways that you can invest in yourself, and I'm going to give 'em to you straight. Number one, you are a taxpayer, and our largest expense is taxes. You need to learn about taxes, invest in learning about taxes, invest in learning about some
ways to shelter some income, from tax liabilities,
learn about 401Ks, IRAs, Roth IRAs, learn about HSAs. Spend some time on my channel, that God knows there's
enough content on taxes, that you could just spend a ton of time, but invest in yourself. That is the big one that
we ignore for some reason. We say once we're out of
school, I'm done learning. You are a lifelong student of this world. And put taxes up there on your list, 'cause there are thousands
of pages of tax code, millions of pages of interpretation. You don't have to know it all. You just need to know
what's relevant to you. And you get a few gold nuggets, and it'll pay off handsomely
over your lifetime. If you learn some just basic things, the realizing for example,
that capital gains, long-term capital gains could be taxed, at zero depending on your income. And you can be making money
and not paying any taxes on things like dividends
from qualified dividends, from like publicly traded
companies in the United States. You don't have to pay tax on those, depending on how much money you make, it's a very good tax treatment. Or hey, borrowing money is not, not going to be subject to taxation. So if I lever an asset that
pays for that liability, or that that pays for that
interest or something, I could actually live on it. And rich people always joke. They buy assets, they borrow against it, and then they pass away and it steps up and pays and they pay no tax. That is a true scenario that
actually works itself out, in the favor of taxpayers all the time. And you could either say,
man, I'm mad about that. And those people, those rich
people, they take advantage. Yes, the tax code is
there to incentivize you, and you can do it too. So spend some time learning about taxes. Number two, spend some time
learning about the stock market. Doesn't mean you need to learn everything, but you're going to need
to learn the the basics of, if I invest in a company, it should at least be
paying me for my investment. There's companies out
there that pay you nothing. They're called growth
companies and they're like, oh, I hope the stock goes up. Do not invest in those as your
primary investment vehicle. If you are investing in the stock market, make sure that it is
paying you for your money. I am putting money into it
and it should be paying me, plus I should be getting growth. And so there's dividend stocks out there. Learn about 'em, learn
about dividend kings, dividend aristocrats. Learn about covered calls. Learn about things that you
can do to generate income, off your asset, but learn
about the stock market. At a minimum, you should
be buying just simple ETFs. I like Devo, I like SPY, I like things where I'm going to get paid, and I'm going to do well over time. Statistically, historically, I do fantastic if I
invest in those things, but learn about the stock market. And number two, learn about real estate. Do not put your head in the sand and say, I'm only going to do one thing. Diversify yourself. The goal of the game is to
have multiple streams of income because then I'm not susceptible to any area of the economy going down. I can sit back and that's
what the rich folks do, is they have multiple streams of income. On average, it's more than four, and they never are sitting
there crying because the chances of all four being restricted at the same time are very, very slim. And if you're diversified, then it spreads your risk
out so that you have these nice income streams coming in. And if this is confusing to you, this is another reason why
you need to pay attention to rule number four, invest in yourself. That's the biggest failure,
is the failure to learn, about taxes, stocks, and real estate. Again, my channel is just
chockfull of this stuff. Please spend some time learning it, and making sure that that, you are spending some
time feeding that brain. The fifth one, the fifth money habit, that causes people to be poor, is failing to invest in assets. I use a very simple rule
called 30 30 30 10, ready? This is so simple. Anybody could do it, but if you do this, it is really tough to screw it up. Now, number one, we went all the way back, to the the first rule, which
is knowing your numbers, failing to know your numbers, know what your income spread is, and then invest it consistently
over time, every month, every quarter, every year,
whatever the period is, invest that amount of money into assets, and you're going to spread
it out, 30, 30, 30, 10. We're going to start with the first 30%, which is income producing stocks. That's the most liquid,
easiest thing to invest in. You could invest in dividend stocks, with as little as 10 bucks. And you could start
building up an investment. You can do fractional shares, you could do all sorts of things. You can open up a Robin
Hood account or either Toro, there's a bunch of free ones, Fidelity, TD Ameritrade, Schwab, open up an account that's
free and start buying shares. Even if it's just the SPY,
it doesn't matter to me. Just invest it into assets. Put 10% aside in cash or cash equivalents, and the rest into those
dividend producing stocks, until you hit your first
50,000 bucks, that's it. We're going to call that our first 10%, and we're filling our first 30% bucket. The second 30% bucket is real estate, or real estate equivalence. A lot of you guys get nervous saying, but I don't want to go buy
a bunch of real estate. I don't have enough money. You can buy real estate in the form of something called a real
estate investment trust. Again, it's traded just like stock, and you could absolutely invest in it, and start generating
income off of real estate, or real estate equivalence,
I just call it that. And then as you build that up, as soon as you get to $50,000, so I have $50,000 in my dividend stocks, and my emergency fund, I have $50,000 in my real
estate and my emergency fund. And now I go to my last
category, which is managed money, which is something that
you are not in control of. So it might be that you're buying indexes, and these are called ETFs, and you're buying into these indexes, SPY, or you're having somebody
else manage your money, or you're mirroring a portfolio. You could go pull up old Warren Buffett, and Berkshire Hathaway and say,
what are they investing in? And spread it out over that. Or you could use a site like
ours, InfinityInvesting.com, where you could go in there
and you could see what we're investing in and you could
just allocate it across. All you're doing is saying,
it's not me deciding. I'm going to use somebody
else's expertise, and I'm going to allocate it. And then once you do
that, we did 50,000 here, 50,000 there, 50,000 there. If you're already over, $150,000, then you're just spreading it out. 50 50 or 30, 30, 30, 10, 10% in cash or cash equivalents,
which is US dollars, gold, silver, crypto. These are not assets that
are producing income. And I know all you crypto folks, always want to argue with me about that. No crypto, you could stake it. I get it, you're making some interest, but the asset itself is
not producing income. Nobody's renting it from you, right? But stocks, you're getting
income off of the dividends. You'd be doing covered calls, you're getting the growth real estate, you're renting, it's cashflow real estate. I'm not just buying
land and sitting on it. It has to be something
that's producing income. I could do REITs, I could
do different things. I could be doing public storage, I could be doing shared housing, I could be doing single family, I could be doing multi-family. There's so many, I could
be doing industrial, I could be doing commercial, which is going to be on sale
here pretty soon, right? There's all these different areas, but I'm going to be
investing in real estate, and then I'm going to
be doing managed money, which could be syndications, it could be managed portfolio, giving somebody assets
to manage on my behalf, but it's me not making the decision. It's me utilizing somebody
else's decision making, so that it's not all on me. And if I do that, it's
really tough to screw it up. But failing to invest in
assets was number five. So I just went over five money habits, that are keeping us poor,
and I hope I gave you some simple solutions
to fix it right away. I think I'll just go back
through 'em real quick, again, knowing your numbers,
no plan for an emergency. Too much debt, not enough leverage. Failing to invest in yourself, and failing to invest in assets. You fix those, you're going to
be on your way to prosperity, and you're going to
have a much better life, than not fixing those
issues and continuing to have those five money failures. I hope that you learn something. If you think somebody
could benefit from this, please share it. Until next time, good luck, and I hope you have great
success in your new investing.
