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A classic employee mistake is you look at all the revenue and you say,

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oh, that must be the owners, that must be Alex's.

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And every business owner who's watching this is laughing themselves because they know

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that it's so far from the truth that it's hilarious.

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But people still make that logical fallacy.

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The wealthiest people in the world see business as a game.

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This podcast, the game, is my attempt at documenting the lessons I've learned

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on my way to building acquisition.com into a billion dollar portfolio.

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My hope is that you use the lessons to bring your business and maybe someday soon

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partner with us to get $200 million in beyond.

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I hope you share and enjoy.

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What I want to do is show you some of the lessons that we have learned along the way.

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So volatility and risk, I had a conversation with somebody on my team and it was such a good

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conversation. I wish I had recorded it. And so this is going to be my attempt to break this down

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for you. If you are an entrepreneur and you have a sales team, you can send this to your sales team.

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If you are kind of still in the selling mode, this will apply to you.

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And if you're an employee and you're looking at making more money and you want to become wealthy,

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this will also apply to you too. All right. So the employee question came to me and they

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requested like a 15 minute time, which I knew is something important because it doesn't happen

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very often. And so I was kind of looking for it. I was like, hey, what's up, man? And what was

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interesting in the first, you know, four to five minutes of the call, the person was just like,

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I just really want to pick your brain on like the direction of my life. And I was like, well,

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that's a really big amorphous topic. Like what problem are we solving, right? Which is always,

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if you ever talk to me, it's usually like what problem we're solving, right? Because then we

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can start tackling it. And I don't think they knew what the problem that they were solving was,

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because what it was is in reality, they had family members who were saying, hey, you shouldn't

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be in this job. You need something that's more secure. All right. And so as I dug deeper into this

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conversation, there were so many nuggets that came out of it that I think I've wrote them all

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down on a list that I'm going to try and hit as many if I can. All right. And so the first thing was

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this person in particular is on our sales team. We've a lot of, you know, of 20 plus sales people.

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And their family said you should get out of sales. You need something that is less risky. All right.

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And so the first thing I asked was, do these people who are giving you this advice make more money

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than you? And he said, no. And I was like, rule number one, do not listen to people poorer than you

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about advice on money. So for everyone who has family or friends or parents who make less money

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than you or make the same amount of money than you at an at an older age, don't listen to them.

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All right. Listen to people who make far, far, far more money. I don't even think you should listen

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to millionaires. Listen to billionaires. Number two, they had a must understanding of volatility and

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risk. All right. This is a classic poor person thing. All right. So I'm going to break this down

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for you with an example. Let's say I own an insurance company. Okay. And I know statistically that

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every nine years, there's going to be a super catastrophe. There's going to be a hurricane,

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Katrina, a hurricane Maria, something that's going to destroy everything. And I'm going to lose a

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butt load. Okay. Now that means that one out of nine years, I'm going to get destroyed. But the other

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eight years, I'm probably going to make a lot of money. So the question is, is my insurance

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business risky? The answer is no. And I'm going to make the assumptions that I have a sound

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business model and I margins and all that stuff. But the reality is that my insurance business is

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not risky. It is volatile. Those are not the same things. All right. If you flatten out the curve

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over the nine years and look at the growth that's going to occur in my business based on those metrics,

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I will be far better off than something that might be less volatile, less up and down, but not

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grow as quickly. All right. Sales is an example of a highly volatile profession that still

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is low risk. And let me explain why. Who do you think is the most secure in the company?

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Somebody who generates revenue or someone who costs overhead, someone who generates revenue.

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So salespeople are by definition people who generate revenue, which means they are the lowest

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risk in a company. Now for them, they may have more volatility from paycheck to paycheck,

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but in general, people in sales make more money than people who are not in sales. All right.

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And if you're good at sales, even more so, which this individual is. Right. And so with the concept

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of volatility versus risk, I said, what you should do if you want to decrease the volatility in your

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life and get the upside benefit of your position is you need to decrease your expenses to your salary.

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All right. So his salary. And I said, now your salary is what you need to assume is all you're

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are going to make. Now I'm not saying live on your salary. I'm saying you should be saving off

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of your salary. Now think about this. Let's say this individual is living as it has a salary of

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let's say $40,000 a year. All right. Now if I can get them to live on 25K, right. A year,

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then that delta can be invested in the S&P 500. And within 20 years, they're top 1%. Crazy. I know.

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And if you split where you live with other people and you really try and live down, you can do

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that faster. Right. But the ground is that this isn't all the person's going to make. But you should

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plan like it is because then what happens is all of this becomes gravy. And even if you have a bad

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month, which there's no salesperson in our company that would not that would not make any sales.

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It just doesn't even make sense. Right. But even if you had a bad month, this person would still

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feel like they're making progress towards their wealth, freedom, and independence goals. All right.

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But the reality is that they would probably make, you know, another 100K per year on top of that.

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But now they've set up their lifestyle such that their expense income ratio is so favorable

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that they can save so much of their money and they get to their goal faster, which is the next

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point, which is wealth. And I've said this before and I will say it again, is not a number. And

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this was one of the things that I did I did tease out in this conversation. Wealth is a ratio.

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It's a ratio between how much you spend versus how much you make. It's inflow versus outflow.

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Not I need to make X to be free. Now if you want to have a crazy lifestyle, the reality is it's

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a not that fun, not definitely not fulfilling. And I'll tell you what is way more fulfilling.

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Having the freedom and the peace of mind, which is actually what people want,

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knowing that you're going to be set up for life. And the way to do that is to have a strong

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income to expense ratio. And so this individual, if he's making 140,000 and he lives on 25,

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he's making nine times more or whatever the math is there, whatever six times, six times more,

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he's making six times more than he's spending. That's a great income to expense ratio. His wealth

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is going to build very, very quickly. And with that, that extra money will more than cover

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his 25,000 was a year. The 115 that he's saving in this example, every year in pure cash,

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he's already saving four and a half years of income every year. Now let alone the fact that if

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he's just gaining at 10%, S&P's nine, but just for math, let's just say 10, that he's going to be

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generating self compounding growth, which means that in two years, two years will be at 230,

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he would technically be able to retire on his current income. Think about that. Now,

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if you want to spend more, then fine. But literally, there's a 24-month way of saving your way

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to wealth. Now, would I want to retire in 230,000? No. But if he worked for a decade, by the end

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of that period of time, he'd have to two point something. And at that point, he can totally just

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retire. And not only that, if he keeps his expense ratio at 25,000, maybe even bumps himself to

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40 or 50,000, which for most people is a really comfortable living. As long as you're not doing

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anything crazy. And if you do it that way, life will be better. Now, the next point that came up

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was he was like, OK, well, I've got some debt. So what should I do? He's like, so I've got student

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loan debt. I've got credit card debt. That's about, I can't remember. I think it was 20 grand,

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between both of those. And I was like, OK, your student loans have super, super, super low interest.

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So let's not worry about those. Let's worry about your credit card because the credit card has

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16% compounding. And so if you think about that, it's like a negative investment, right? You've

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got something that's compounding against you versus something that's compounding for you.

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So the way to guarantee a 16% compounding rate of return is to take away the drags that are at

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negative 16%. All right. So if you're in this situation, the first thing you do is you pay off

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your credit card debt. All right. Number one, after that, you're going to have your student loans

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and then your investments. The reality is the student loans, the interest, because the government

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is setting them, you know, have set them up. It's the cost of you learning this however long ago.

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I think it's horribly unethical that they do student loans. I think I'm so wildly against

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student loans in general. In what world would someone ever give an 18 year old access to $200,000

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who has no skills whatsoever to then get something that has no return more than what their

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current earning potential is? It makes no sense. And if you can't even bankrupt your way out of it,

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it is purely a scheme by banks to make more money. Purely. It makes you a slave to the bank for

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the rest of your life. But there's no interest on it. And so I'm not going to think about that for

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right now. All right. So credit card loans first and then you stack into investments. Now me

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personally, I just don't like having any debt. And so if you want to, it's a personal choice.

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It doesn't even make mathematical sense. It makes emotional sense. You can pay off the student loans

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and then everything else gets plowed into the S&P 500. The reason I say that is because Warren

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Buffett, the advice that he's given the people who are managing his will is that he just wants

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everything put in the S&P 500. It's the smartest investor of all time. That's what he's doing. So

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I think it is worthwhile advice and very easy to follow.

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Amos and Asian quick break just to let you know that we've been starting to post on LinkedIn

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and want to connect with you. All right. So send me a connection request and note letting me know

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that you listen to the show and I will accept it. There's anyone you think that we should be

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connected with, tag them in one of my or Layless posts and I will give you all the love in the world.

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All right. So let's get back to the show.

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Next one. And you do this every month. It's called dollar cost averaging. So that even when it's

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goes down and goes up, you're going to participate at all times. So when it's overpriced,

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you're still buying and when it's underpriced, you're still buying. Don't try and time it.

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So just dollar cost average in and then get rid of any of the anxiety around getting a good deal.

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All right. Next one. So he's like, okay, I want to know how I can grow. All right. So this is for

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anyone who's in any company. The closer you can tie yourself to an acquisition channel,

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the more valuable are the company because you're driving revenue, right? And so what I what I

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explained to him was I said, listen, you've gone through all my trainings. You know the different

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ways of getting clients. Pick a channel that we're not currently using. And in your off time,

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try and figure that channel out. And we pay more for leads or for sales that someone goes and

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brings in on their own compared to stuff that comes in from a marketing, right? I was like, so you're

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going to get disproportionately paid for those off the bat. And then as soon as you figure out that

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system, I said, come to me and say, Hey, Alex, I figured out the system. I figured out this

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process is getting us more clients. I want to build a team. And I think that I can show five

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other guys how to do this and generate revenue. And I just would like a piece of all of their

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sales. And I would say, absolutely. And so if he does this, he would be able to two or three

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X's income as a result of that, right? And so that is a way of figuring out how to provide more

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value. Now, the next thing was, I think this came up from the family too, was going off on your

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own, right? Now, obviously, as the owner of the business, you would think that my incentive is to

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keep everyone. And over time, my incentive has shifted. My incentive is I want to be the best

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human I possibly can be. And if that means that this, it's time for that person to go and spread

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their wings, then that's fine. And I encourage them. And I wish them the absolute best. And I mean

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that genuinely, because I never want to be the person who holds them back from accomplishing their

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dreams. That being said, understanding risk is important. So many, many, many, many, many people,

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many, many, many of my salespeople make more than many entrepreneurs do. In fact, it probably

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go up the stats. I think the average small business owner makes like $78,000 a year, all right? So

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if my salespeople make $150,000 or $200,000 a year, and if he does all this thing, he could make

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five times with the average small business owner makes five times, five times. And that's income,

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right? That's what's important. And so sometimes you can see the alert, and this is a classic employee

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mistake, is you look at all the revenue and you say, oh, that must be the owners, that must be

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Alex's. And every business owner who's watching this is laughing themselves because they know that

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is so far from the truth, it is hilarious. But people still make that logical fallacy. And so

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for perspective, if you are a $200,000 a year salesperson, you own in my mind a million-dollar

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business because if you're running a 20% net margin after everything that, and the thing is,

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it's not just profit in the business, but it's net free cash flows. The amount of money that you

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as an owner can take out after reinvesting in the business, right? And so if you're a salesperson,

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and you're making $200,000 a year, it's the same as you owning a million-dollar business. And so

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many times, and in this instance, depending on your skill set, you may not want to deal with HR

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and finance and figuring out fulfillment and generating leads on your own and all the other aspects that

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come with owning a business, legal, and all the other crap, right? And so I'm not saying don't be

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an entrepreneur, obviously, I'm an entrepreneur, but I'm saying understand, adequately understand

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the risk. And I think that if I adequately understand the risk, and I'm being very, very honest with

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everyone here, I don't know if I would have become an entrepreneur. I really don't know because

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I'm pretty risk-averse, believe it or not. And I think I've told you I had a really good paying

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job before I quit. And it was because I was so miserable that I decided to do something else.

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But I did not have the table entrepreneur story of like, I was always bad at school and I knew

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I had to do my, like, I didn't have that at all. I was good at school. I got a good job and I just,

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I was miserable. So I did something else. Anyways, next point, I'll give you another saying to work

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off of. Track? Don't slack. All right? Easy to remember. And so one of the easiest things that you

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can do to increase your net worth is start by tracking it. All right, this is one of the easiest

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things. So right now, every week I get, I get an email that has every single one of my assets,

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every single one of my bank accounts, all of my portfolios, and it has one number at the bottom.

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And so I know every week how I'm doing and whether I'm going up and up. Now you might be like,

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well, man, isn't the market volatile? Sure. But I also have other investments too, etc. But the point

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is, especially the earlier on you are, you can decrease that cycle. Now you can do that every quarter.

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I'm just, I tend to be obsessive about it and I like looking at it because I like making

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progress. If right now you are the sole provider in your household or you're a solo business owner

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or an entrepreneur or even, you know, you have a seven or a figure business, right? But you haven't,

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like your actual net worth hasn't surpassed, you know, a million, five million. Tracking every

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day, the cumulative amount of your bank accounts is one of the single greatest things that I ever did,

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ever, like ever, ever, ever. And so it became this habit that first thing in the morning, I would

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open up my chase app. I would, and the nice things, if you have one of the big commercial banks,

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they give you dashboards, you could pull all your accounts in together. So if you have two business

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accounts and then you have a savings unit, checking personal and then you maybe have like a portfolio,

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all of that stuff you can have in one place. So it's actually pretty cool. But anyways,

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I had an Excel sheet that had all my assets on them, all my bank accounts, all my investments

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and everything. And I would take five minutes in the morning and I would update it. And I did it

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daily. So I saw it every single day and I could just scroll over time and watch my bottom number,

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continue to go up. And here's what's magical about this is that when you look at your bank accounts

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every day, you start to get a pulse on the flow of money. You start to get a feeling for, oh yeah,

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two days is when this goes out. Oh yeah, on the first of the week of the month, this is when this

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goes out. But then what happens is all of a sudden you're like, hey, I went down by 200 bucks.

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Let me examine, let me investigate. And you look in there and you're like, holy crap, I've been

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using this software for however long. Cancel, right? And so as soon as you start doing this, you'll

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start decreasing, you'll plug the holes, you'll decrease the outflows of money in your life

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because you're tracking and not slacking. So as long as you're not a slacker, become a tracker,

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track your net worth. And so for this individual, the action plan that I made for him so that he

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could create the wealth that he wanted was this kind of recap for you. All right. Number one,

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track don't slack. You have to track your net worth if you wanted to improve. So how can you even

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track? How can you prove something? You don't even know what it is. Track don't slack. Now your

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debt should also be on there. So if he's paying down debt, his net worth will go up because right now,

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he's got $20,000 net. So his net worth is negative 20,000 compared to his cash, right? Boom,

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track don't slack. Next, pay off high interest credit cards or high interest loan debt first. Next,

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dollar cost average, all of the money that you make an excess of your expenses into the S&P. Mind

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you, this is not investment advice. I'll probably post the legal disclaimer, do whatever the hell you

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want. Investment has risks. There's no guaranteed returns. Life is risky. You know, no one comes out

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alive. Okay. Back to the main point. So dollar cost average to the S&P and actively decrease your

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expenses as much as seemingly possible. If you have a salary with variable compensation on top of it,

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try and save off of living off your salary. And if that sounds crazy, cool. Don't be ordinary.

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Be extraordinary. Do things different because the average person literally retires with nothing.

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Don't be like them. You can be different. And the thing is, all these things we aspire for,

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private jets, exotic cars, penthouses, expensive clothing, fancy restaurants, I can tell you first

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hand, they're not what they're cracked up to be. I like BJs and chillies more than I like Ruth

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Chris. I really like my cheap jorts more than any of the fancy pants that are out of fancy pants.

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I can tell you that when I lived in a $1200 a month apartment in Albuquerque, New Mexico,

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which is your really nice place, I was happy as can be. My happiness is in no way change having

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the place that I have now. I regret the exotic car that I have. And private jets are wildly

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expensive and you can get anywhere you want on spirit for way less. So decrease your expenses.

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In terms of increasing the income, tie yourself to an acquisition channel. Try and find a new way

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of acquiring customers at the business that you're currently in is not doing. Do that and then build

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a team underneath of you that can do the thing that you just learned how to do. Because then you

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will be closer to what I call a rain maker. And rain makers are always paid the most in every

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business and understand that when you do that, getting to $200,000 a year, you own a million

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dollar business. It's the same thing. Except you have way less risk. Because if you want a

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million dollar business, you can work your ass off two months in a row and become poorer. Whereas

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if you work your ass off for two months in a row in a business, you're going to get richer.

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All right. And that's the difference between being an entrepreneur and employees that a lot of

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people don't adequately monitor the risk. All right. And finally, understand the disorienting

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volatility and risk overall. Something that goes up and down a lot is not necessarily risky.

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It's just volatile. And if you can understand that words matter and how you describe things matter

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and understanding the definition of words, you can put better concepts and frameworks around your

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thought process and make better quality decisions. So anyways, I hope you found this valuable.

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This was a great conversation. I wish I had recorded it. But hopefully you got the nuggets

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from that. You can apply to your own life and business. Keeping awesome. Leave a comment and

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I'll catch you guys next. Bye!