Episode Transcript
[00:00:00] Speaker A: SA welcome to Power CEOs the truth behind the business. I'm Jen Goday, your fearless host, investor, entrepreneur and business strategist. Why are we here? Because iron sharpens iron. And when we bring industry leaders and disruptors, we are all able to learn and grow. As a result, our businesses grow and the ripple effect impacts not only ourselves, our teams and their families, but also our communities and our world. You are in for a treat. Today we are going to dive into one of the most misunderstood concepts in entrepreneurship, building wealth through business.
Joining me is Mark Murphy, advisor, wealth strategist, bestselling author. Mark believes that your business should be your most powerful wealth engine, not just a paycheck. Mark, welcome to the show.
[00:01:16] Speaker B: Thank you for having me, Jen. I'm excited to be here.
[00:01:19] Speaker A: Same. Let's dive right in. So entrepreneurs often treat their business as a job or a source of income or cash flow rather than the true investment that can generate long term worth.
By shifting to that investor mindset, leaders can unlock the power of all of the three wealth engines that you speak of. The business, real estate and private deals.
So let's start there. You've businesses, investments, what most entrepreneurs get wrong about how they view their business financially.
[00:01:53] Speaker B: Yeah, I think most people think they own a business, think they're entrepreneurs. And I would say very few, very few business owners are entrepreneurs. And the way I sort of describe that is business owners get paid for what they do, entrepreneurs get paid for what they know, just, just flat out and simple. And I think most people have very high, you know, you can have a, you can have a business that's very high paying. That still doesn't mean you're an entrepreneur. You're still trading time for dollars. I think the two golden rules I would say of entrepreneurship are one, your money must be working while you sleep. And the second is your business must be creating revenue without you doing the. Do you know if the only time your business generates cash flow is when you're running it?
That's a business. That's not an entrepreneurial idea.
[00:02:44] Speaker A: I completely agree with you. And a lot of times we're really good at making a lot of business owners. I'm going to distinguish between business owners because I agree with you.
A lot of business owners are really good at what we do and we are really good at generating income or revenue. But where we miss the mark is in building wealth, actually setting our business up like a business that someone else can come in that we could exit from and truly see asset as it is.
And so I want to Kind of take this out even further and talk about generating wealth. Because this is a major point where people kind of miss the boat. And you talk about the three wealth engines. Let's dive into that really briefly so that we zoom out into what we're looking at long term and then we'll bring it back in and get a little bit more vertical with.
So what are those wealth engines? How should entrepreneurs prioritize those?
Especially during both high growth phases and also when we're in a plateau phase in our business because that happens in all of our businesses.
[00:03:56] Speaker B: I think one of the great things with folks is the best investments that entrepreneurs make is when they, is when they invest in themselves.
So if I always tell people if they had only $1 to invest and only $1, the first place I'd look would be to invest it in their money machine, which for most people is their business. And I have a very simple rule. If you're an expense, you're always on the chopping block. But if you're an investment, as long as you can get a minimum of a 4 or 5 to 1 return on your money or more, you should have an unlimited appetite for investment.
And that's the first place I look. That's the first engine. The second engine you sort of alluded to was real estate. I find people have created multi generational wealth with real estate. And the third is financing deals. Maybe another word for that would be private equity or investing in other companies. You know, I'm the CEO of Northeast Private Client Group and so I Sequoia Private Client Group, but I founded or co founded seven other companies which I'm on the board of. I have CEOs, I have a C suite executives, I run it from a board position, but I've already got a full time day job. And so the idea is that ultimately you can do that. Now there's great deals of risk with that. But I think, I think an awful lot of people, the mistakes you heard, I heard in your question something about the mistakes people made. The first thing is a lot of people with businesses treat their business like it's a paycheck and they'll sit back and whatever they get, they bring their revenue and they pay their expenses and then they take everything out and they create a lifestyle with that.
And I think for folks like that, that's not a recipe for success. Because the number one reason why businesses fail or they don't reach their full potential because of true liquidity or cash confidence. And so the idea is those people that live at their means or above their means, never have the critical capital reinvest. And I think probably you would agree because I've heard you speak about it before. But I don't care if you're making seven figures or multi seven figures on a W2, after you pay the taxes on it and pay your lifestyle, it's pretty hard to create wealth. You may be able to create a comfortable lifestyle after 20 or 30 or 40 years, but generational wealth is probably beyond most of you.
[00:06:06] Speaker A: Yeah, you know, Mark, I'd really like to dive a little bit into that because now what you're talking about is personal financial literacy, really financial literacy in general. And one of the things that I run into a lot with entrepreneurs is exactly this. When we make more money, our lifestyle grows because we believe that we've earned it rather than putting our money to things that are going to grow our, our wealth that will afford us that lifestyle regardless and pay for that lifestyle, quite frankly, without us having to trade time for, for dollars. So can you, can you share for the audience what does it look like when somebody is over investing in their lifestyle? Whether they're making a hundred thousand dollars, a million dollars or $10 million versus under investing in their business, like what does that look like? What are the symptoms that they might see?
[00:06:55] Speaker B: They see, they see credit card balances growing, they see lines of credit being stretched. They're making poor business decisions because they don't have the stamina or the staying power to continue invest in their vision or their business. They're cutting corners in every place and not building a real foundation for long term growth and wealth.
I just think to me that the reason why you have to live underneath your means. Here's what I think. Everyone in this world, I think almost universally has two businesses. And the first business is a cash flow business. So when most people started their business, they just have to make enough money to pay their expenses.
And then the higher level of cash flow is, well then you have a lifestyle, you have a mortgage or rent, you have cars to pay, you have expenses to live and people get to cash flow. But what I spend most of my time on is helping people create a second business. And, and I call that this is the business I wish I had, this is the life I wish I had business.
And so you need to go into that, that realm. And so I mentioned a couple of minutes ago that if you only had $1 to invest, I would invest in my money machine.
But if your money machine has enough capital or you have a second place to Invest it.
I believe that the next concept should be a concept we call paychecks and playchecks. Maybe another word for it for your viewers might be income replacement.
But I think that we want to help people set up a series of assets where they can, that are, that are highly reliable or guaranteed to replace their income in their business. I'll call those paychecks. And then I want another series of assets where you can spend it, you can save it, you can give it away, but the important thing is it will not be responsible for producing income for your family. So if you have both paychecks and playchecks, you have financial freedom, then you can go to work because you choose to go to work, not because your lifestyle depends on it. But there's still one more level on the wealth creation hierarchy. And I think that is what I call ebitda. You know, everybody knows you want, you know, earnings before, you know, you know, interest and taxes and appreciate our depreciation.
But I think ultimately with ebitda, if you have, if for instance, if you have a business that throws off a million dollars of EBITDA and that's after you have somebody to replace you, let's call it as the CEO or the owner of the company, that's like having $20 million in the bank earning 5%.
If you have $10 million of EBA, that's like having $2,200,000,000 in the bank earning 5%. And so ultimately many people can have generational businesses if they've got cash flow because ultimately they can, they can get other folks to do the jobs that they often did early in the business life and can replace them and pay them very good salaries to do that job. But the business is profitable enough that it's much more both tax efficient and wealth creation efficient to actually maintain the business for many generations rather than to sell it because you're at retirement age.
[00:09:53] Speaker A: You know, you're preaching to the choir here. And so I'm going to shift the lens just a moment because we only have a brief amount of time before commercial, right?
But let's talk about breaking that self employed trap. You know, it sounds great when we hear it in theory, but one of the biggest challenges I see founders face is the ability to go. So we both work with business owners who are stuck in that operator seat. What, what are the early signs they've built that high paying job and how can they start to let go and trust someone else to do the doing to create this next level business?
[00:10:30] Speaker B: You know, I think that people that are control freaks or people that don't have vision. I think they're, they're going to be stuck. They're going to hit that ceiling of complexity. I mean, there's a reason why 98% of the businesses never leverage and scale and never go to the second generation.
And I think it starts with me. I try to keep it as simple as possible and dumb it down. And I say there's really three things that people do. There's stuff that you're crappy at or terrible at, there's stuff you're either good or at least competent in, and then there's your unique ability.
And the idea is, I think what I try to encourage entrepreneurs do is it's generally pretty easy to get people to get rid of things they're poor at or terrible at.
But I think the hard part comes is that when you have those stuff that ties up your everyday that's good or you're competent at, it gets harder to get rid of that. But I then try to encourage folks to sort of shed as many of those things and hire people that that's their unique ability so that you could focus most of your time in your unique ability. You know, there was a time in my business 40 years ago, Jen, where I did everything, but I haven't driven a car during the week in probably 30 years. You know, I haven't, I haven't written a check or paid a bill. That doesn't mean I don't meet with my CFO and I don't meet with my accountant once a month to go through everything because I need to know what's going on in my business. But I'm not in the operational side of finance at this point.
You know, I am, you know, I don't think I've opened a piece of mail. I, you know, I, I mean, I could go on and on and on. And I think one of the simple kind of tools or techniques I would, I would tell your viewers to say is I like about every six months or so to get a piece of paper out and put a line down the middle and a T at the top. And on the left side I write all the things I hate about my business.
And on the right side, I write all the things that I'd be doing in retirement that I'm not doing now.
And what I try to do is I try to get rid of something on the left hand side and I try to add something on the right side with the theory why wait to retirement age to retire? Why don't you retire today because if you're doing all the things you want to do and not doing the things you don't want to do, who retires from that?
And so the idea is, I think that, that ultimately there's a few people that can just take that massive or quantum leap to be able to do that. But so many people need to take baby steps to do there. And I think, you know, one of the things I think it's so great about what you do in your business is the fact that you help those people create a path. I mean, you create both direction and some creativity and some companionship to help them get from there to where they want to be, which is why you've been so successful.
[00:13:04] Speaker A: Yes. Thank you for that. We do have to take a brief break, but for those who are watching and listening, Mark just gave you pure gold. You've heard it before. I've talked about the stop doing list. He just made it a little bit more real for you. Take that piece of paper.
Your action right now, maybe even while we're on break, is to take the people on the right, the things that you want to be doing in retirement that you're not doing now, and let go of one of the things on the left side in order to move to what you want to be doing. I think that's an excellent action step for you to start today and for you to start thinking about this, that you can truly create the business that you want and you desire. We will be right next to right right back after the important messages.
[00:14:12] Speaker B: Foreign.
[00:14:19] Speaker A: Welcome Back to Power CEOs want more of what you're watching? Stay connected to power CEOs and all of your favorite Now Media TV shows are on demand anytime, anywhere. Download the free Now Media TV app on Roku or iOS and unlock nonstop bilingual programming on the move. You can always catch the podcast version right from our website at www.nowmedia.tv around the clock. We are ready whenever you are.
If markets crash tomorrow, the entrepreneurs who survive won't be the ones with the best spreadsheets. They're going to be the ones with the strongest mindset. So I'm here with Mark Murphy, one of the nation's top financial security professionals. In our first segment today, we explored how entrepreneurs can view their business as their ultimate wealth building tool. Now we're going to shift to keep leaders strong through disruption, confidence, resilience, building a legacy that lasts.
Mark, you often, often say that emotional fitness is as critical as financial fitness. Can you share a moment when you've been Able to protect your clients confidence. Maybe it's cash confidence, maybe it's their mindset and that has made the difference between growth and collapse.
[00:15:30] Speaker B: Yeah, I mean, I think, I think first of all, I think, I think true liquidity and cash confidence are the things to over overcome those things. But I think in general with a strong business, what I decided about 35 years ago is I wanted to be a hero to entrepreneurs and entrepreneurial thinking people.
And basically all I've done is built a business around collaborating with people that wanted to be a hero to the same group where we're instantly, instantly that you know in your. Whether in someone's business, whether it's a client, a patient, a customer, where that customer, client or patient immediately saw that value creation. Because I always believe if you can create more value than anybody else, the world beats a path to your door. And those market disruptions, economy disruptions, life disruptions, don't affect those people who build those strong businesses. Because I don't really believe in competition, Jen. I believe in differentiation. And I think that's the way we've differentiated ourself, by collaborating with people, you know, that wanted to be hero to the same group we do. And I think that, you know, one of my favorite books of all time is a book called who not how.
And the genesis of the book is that people are asked five questions probably 10,000 times. I'm sure you've been asked that. It's how do I grow my income? How do I grow my business? How do I grow my freedom of time? How do I grow my freedom of relationship? How do I grow my freedom of purpose? One of the five freedoms. And you're one person. I'm one person. Everyone watching this is one person. It's pretty daunting.
So I always thought that was the wrong question. I thought the right question was who do we need to collaborate with to grow our business, our money, our income, our freedom of time, relationship and purpose. And so it was creating who's in your world and then creating value. In fact, when I was a young advisor, probably, you know, you know, in my, in my early 20s, everybody was networking. And I sort of said to myself, well, if everybody else is networking, why do I just want to be another guy taking the networking lane?
And so we always try to do is we try to be net weavers.
And what I mean by networking. Let me define what I mean by networking. Networking was I come to an event, I come to some, a call, I come to whatever hoping to get something from somebody else. I'M hoping that somebody will give me something.
I think networking, net weaving is the exact opposite. You want to come to a meeting, giving something, trying to be able to differentiate yourself from other people because you're coming with your giving hand, trying to make a difference in their lives.
And sometimes it's even off putting to people because people are ready for the sale, they're ready for the sale. They kind of almost kind of recoil back, but quickly they realize that you're a person of your word and that they want to have a relationship with you. Because quite frankly, I don't do transactional relationships very well. We only do transformational relationships. And they understand you walk the walk and talk the talk and that they believe that you can provide more value than anybody else.
[00:18:25] Speaker A: You know, I couldn't agree more with this. And truthfully, I call this relationship capital. And for those of you who are watching, it's sort of like an atm, right? You can have a bank account, but if you don't put into the ATM first, how can you expect for money to come out when you go and put your card into that atm? And so net weaving is kind of the same principle. It's how can I add value to the person or persons that are in front of me and being that person of value? And I completely concur with you, Mark. When we are. When we come from that value first and we create value, the money always follows. I truly believe that money is a lagging indicator. Our revenue is a score. It's a score of how well we're developing the value to the people that we're serving. So I really love that you said this. And if you're watching for everybody who's watching, how can you become that net weaver? Because it's so true. We've all been to those meetings or met those people, and they've come and they've said, hey, here's my business card. Here's my business card. Give me business, give me referrals. And I hand those into the trash. Frankly, most of the time I say, you can keep your card. And I don't even have business cards because the real money is in relationship.
So, Mark, let me ask the next question, because you talked about differentiation and you talked about adding value as a differentiator. However, there's also resilience in volatile times that comes from product and service differentiation. So for the people who are watching, how do you articulate that? Or how would you. What would you encourage our viewers, no matter whether they're a startup or whether they're scaling or looking at exiting.
How would you recommend they view their product or service differentiation when they're having this kind of a conversation?
[00:20:10] Speaker B: Well, I agree with you. It's lead behavior, lag results. But I think what I try to aspire to do every year is put last year's company out of business.
I think you always kind of have to be innovating because the world is changing. You know, you used to, when we first started, you would come up with a new concept or a new idea, and you could probably run pretty hard on that for maybe three to five years.
If you take a look at artificial intelligence right now, I'm not sure you have three to five weeks before it's, it's, it's the next gen. And I think so if you're not always on, you know, innovating, you're not in creation fascination mode all time. I think you have a, you have a better chance of being disrupted.
But I also think it goes back to, in most businesses, not every business, but generally or universally for most.
I think most people, when they come to you and they say, I want to grow my business, I don't think you really grow a business. I think you grow people.
And so to me, it was always my secret has always been acquiring great talent and then training them and trying to win the war for talent.
And the way that, the way that we tried to do that always was, I want to pay very competitively, but I don't want to pay the most because if, if you'll come to me for money, Jen, you'll leave me for money too. I don't want somebody that's a mercenary, but I want to pay you very, very competitively. But I think there's two other things that are more important.
One is you got to create great culture. And I'll talk about that in a minute. But I always think, also think that if people are learning and growing, they don't leave, they don't get complacent, they're excited about coming to their job. So in our organization, if you're a newbie, we want you to just get great at your job in the first two years.
But after the first two years, we want those people to mentor our newbies.
Because I always say the best way to learn a subject is to teach it to somebody else. And then after you're with us for four or five years, I want you to be a subject matter expert for something in our firm. It could be very technical, it could be a soft skill, it could be something. But I want you in your career long term to own something in our business.
And I will say, to say, to say to. I find myself being one of the great delegators of all time.
But having said that, the one thing no CEO can delegate is culture.
That's the one thing that the CEO must be responsible for taking a culture that becomes a great place to work.
And, you know, I, you know that, you know, so many times I would think when people are hiring you, they're coming and they're going to, hey, you know what? You got to fix my team, Jen. You got to fix my team. And I'm thinking to myself, it's almost like going to marriage counseling where both parties go because they want a third party to say, I need somebody else to straighten you out, to tell you that I'm right and you're wrong. And pretty quickly, in marriage counseling, you realize that the only person you can change is yourself. And I think my advice to CEOs is that I believe everybody should have a coach, and there's none better than you. But what I would say to that is it's not about that. The first person that has to change is you.
And it's amazing once you change and you become a better leader, you know, the good ones tell, the great ones ask, and good leaders create followers. But great leaders create other great leaders. So how do you hire somebody like yourself to help create more great leaders in our organization?
That, to me, is the essence of how that you create a defense against disruption.
There's no perfect solution, but if you keep doing all of the hard work going forward, you're a lot less vulnerable than your competitors.
[00:23:35] Speaker A: You know, Mark, you've really hit that nail.
Not really executive officer. It's the chief experience officer. What is the experience?
Every shareholder, whether it's on our investors or clients, our customers, our teams. And the other thing that if you're watching folks, Mark just gave you a masterclass. Hire amazing people and pour into them. Invest in your people and in your teams. Because when you hire great people, you pay them competitively and you pour into them. They're always learning and growing, and they take ownership of their role in the job, and they see that and they take ownership of the company. You want those? I call them intrapreneurs. They're entrepreneurial minds taking ownership of their roles or their part of the system set. The business will grow because when we take care of our people, our people take care of our clients. And by nature of the beast, the business will grow. And that's how we're able to exit our roles as well. We put those amazing people in. So, Mark, we are drawing towards the end of our time together. Is there any other thing that you really want to impress upon our viewers today and then share how they can reach out to you as well?
[00:24:44] Speaker B: The first thing I would just say is I just want to do three things every day.
I want to help as many people as I can.
I want to create as much wealth and abundance in the world as I can and I want to have fun every day. And if I could do all three, that's a great day. And I think that that's the reason I got into business. That's the reason I am so excited after all these years to keep doing it. And that's what I want to do. And you know, I would love, you know that if anybody would love to continue the discussion, you know, please meet, reach out to me@northeast privateclientgroup.com we're in Florham Park, New Jersey is our corporate headquarters, although we have some other locations. And I look forward to continuing the discussion not only with them, but with you. And thank you, Mark.
[00:25:23] Speaker A: Your insights have been invaluable. You've really helped entrepreneurs to build extraordinary wealth.
And you know everybody is watching. I encourage you to reach out, follow Mark, visit his website because he truly is walking the talk and he, he is a perfect example of what it looks like to be successful in business and to create that generational wealth that you want. So thank you so much for time, Mark. I really appreciate everything that you've done for us and I hope to have you on again soon.
[00:25:52] Speaker B: Thank you, my friend.
[00:25:53] Speaker A: And for each and every one of you, please think about how you are building your business. It's not just a job. It's, it's an investment that can create that multi generational for you. So I want you to be thinking about that in the break. We do have to take a brief break, but consider what do you have? Take action as we talked about today. And we will be right back after these important messages.
Foreign welcome Back to power CEOs today. We've been diving into the conversation about every that every entrepreneur needs to hear, how to move beyond simply earning income and start building wealth that works for you. I have another guest today who's going to dive into that as well. This guest walked away from a $200,000 salary not because he had to, but because he figured out something most entrepreneurs never do, how to turn income into actual wealth. Bronson Hill is a general partner with over 2,500 units, has raised over 45 million for income producing assets and is the host of the Mailbox Money show. We're excited to dive into this topic. It's a pleasure to have you on Bronson. Welcome to the show, Jen.
[00:27:27] Speaker C: I'm excited to be here. I love talking about wealth and helping executives and entrepreneurs actually become financially free.
[00:27:35] Speaker A: So why don't we start with this? When did you first realize that income wasn't enough? And what was the mindset shift that had to happen to, to actually begin building wealth? Because we talk a lot about mindset on this show with regards to building a business and letting go and exiting roles. But let's start with that mindset shift because it's not the same. Making money is not the same as well. So what was that for you and what was that shift?
[00:28:01] Speaker C: Yeah, so I was, for 10 years, I was a medical device sales representative. So I'd go in, I ended up in heart surgery. So I had some very interesting physicians and procedures I worked with. I'd wear scrubs and I'd go to heart surgery and advise physicians on how to use their equipment. And it was very interesting. And I learned it was, it was awesome. But the thing I didn't have is I didn't have control over my time. And a lot of people will say I want financial freedom, but really what we want is time freedom. And so for a lot of us, it really, we don't become free until we actually are free. We can take a Tuesday off or we can go mid morning or go on a trip, you know, take more trips. I mean, last year I was able to travel six times internationally, which was amazing. But it really came from this conversation, basically from Warren Buffett. You know, his quote is, unless you learn how to make money while you sleep, you'll work until you die. And so a lot of us, we hustle, we work hard, we make money in our business, we make money as a professional. A lot of people I'm sure listening, even in our business, we work a ton of hours and then we realize we're actually not free. And so there is something that we actually can do where there's something, you know, there's a lot of misnomers around passive investing, what it actually is. But it's not, you know, buying rental houses or starting an online business. It's actually investing with someone else who actually runs things for you. And then that money does work for you, so you don't have to work for it.
[00:29:14] Speaker A: Yeah. So let's talk a Little bit about that, because there's a lot of fear in a lot of founders and entrepreneurs and even in executives about doing exactly that. How do you find the right partner? What happens if I lose money on the deal? And I know that you've shared publicly, you've lost money trading options, you've lost money in the investment as well, while you were learning your process. So how did those failures earlier on help shape your current approach? And what advice do you have for those people who are sitting on the sidelines going, yeah, but what if I lose that money? I've worked hard for it, so share kind of your learnings and then like what, what the takeaway is for our audience.
[00:29:51] Speaker C: Yeah. So I think one of the challenges, it's interesting, the employee mindset really is, you know, if I'm an employee, when I was an employee, I can make mistakes. If I made too many mistakes, I get fired. Right. As an entrepreneur, which anybody who owns a business wants to own a business, or as an investor, you have to be willing to try new things. You've got to be willing to branch out and do things you've never done. And when you make a mistake, it's not failure, it's learning, it's information. You have to reframe everything to reframe something so that you actually get something out of it. So the day I lost $70,000 trading options, that was over a third of my net worth at the time. And I was doing my medical job. Remember I'm sitting in my car and I had my scrubs on. I remember the market closed. I was like, oh my gosh, I just lost like a third of my money. And it was so hard. You imagine the feelings, the shame, all those things that happen. But at the end of it, I realized, okay, I, I'm not a great options trader. I can find something else that works really well for me. And I went from, you know, a six figure net worth to a multiple seven figure net worth in about four years. And how I did is I just had to keep growing my skills, I had to keep learning. And I had realized that everything is information. And so what we tell people, you know, we do investments, other groups that do private investments like this. My book, Fire Yourself. I actually wrote this book. And it was, it's basically, it's an Amazon number one bestseller. And it's basically, what's this process?
I've had now over 3,000 calls with high net worth investors. And a lot of them are scared. What do I do? And so this kind of gives you step one, two, three, how do you actually look at it? Alternative asset investing. And a lot of people just think you're crazy when you do it, but it actually has much higher returns. When you look at what the ultra wealthy do, they invest in private equity, they're investing in real estate.
[00:31:18] Speaker A: You're absolutely right. I mean, I do the same. We talk about it on the show quite, quite frequently. The biggest, the biggest is going from the hustle to going through, going into these asset classes and learning. So you've done this, you, you did the hustle, you did medical device sales, you've, you've had your fair share of learnings.
Talk to me about these asset classes as wealth engines as opposed to more work in disguise. You sort of alluded to it earlier. You said hire that like partner with the operator. But really what makes these asset classes wealth engines and how do we prevent it from being more work and, you know, more work in disguise, quite frankly?
[00:31:59] Speaker C: Yeah. A good test, I call it kind of the passive test. Is it really passive or not? Because people will say, oh, I have a rental house, or I've got a vacation home, or I've got an online business, or I've got these things that I do. And the question really is, can you 10x the amount of investment you have in there? If you have three rental houses, can you very quickly go to 30 or is that going to become another job for you? And that's where a lot of people kind of say they do something and they make money, but they realize later like, oh my gosh, this is not actually scalable. So nothing. There's actually a saying that nothing is actually passive when investing. And I think there's some truth to that. You can't just fully give your money to someone, expect it to go well, so you've got to really invest in yourself and the learning. But there are investments that are more passive where there are things like, you know, fund of funds or syndications and different assets. We've done real estate, we've done multifamily, we've done development, we've done oil and gas, we've done a lot of things lately. They're producing cash flow. A lot of real estate deals these days, because of higher interest rates are not producing cash flow, whether they're single family or larger multifamily deals. But I think you have to look at it again like it's all learning and it's all growth. And I have a, in my book, I have this thing called the deal funnel where you start with the market, whatever the, the product is, whether it's a multifamily, is it in, you know, Dallas, Texas? What's the market for, you know, multifamily properties in that part of Dallas, Texas? And you look and see what does that look like. And then you look at the specific sponsor and you say, what's their experience? Is this a rinse and repeat kind of deal? Do they have similar values? And then you get down to the deal, which is, does this deal actually help me meet my goals? A lot of people aren't very clear on what those goals are. So it's important to say, you know, one of the best things that can help you if you do want to fire yourself, if you do want to leave your job, comes down to cash flow. You've got to find ways to develop cash flow, right? So if it doesn't cash flow, what does it do for you? Does it reduce taxes? Oil and gas actually reduces ordinary income taxes. It's kind of a silver bullet. So there are investments that do unique things. You just got to understand what your goals are and how to evaluate deals in every asset class.
[00:33:50] Speaker A: You know, that's a whole lot of learning that, that, that takes. So what we're talking about is we're talking about challenging norms, folks. Like, stop thinking what you've heard on traditional media or all along. What we're talking about right now is we have, we have to look at this through a different lens and we have to do due diligence. But first it starts with us and know thyself. What is it that we want and what is it we are trying to accomplish that because as what Brunson just said, you have different goals. We all have different investing goals. And that informs what deals. We're going to look at how we're going to move forward.
So let's, let's talk about 401 case. Because traditionally speaking, whether people are executives working in a company and they have 401ks and stock options, or, you know, we're dealing with IRAs and, or self, self employed, 401ks, etc. And you talk about them being overrated.
You also talk about rental properties as being jobs with a roof.
That's not what everyone else is saying. So what do you wish that every entrepreneur or executive who's watching knew about building wealth that they're not reading about in the Wall Street Journal, for example?
[00:35:00] Speaker C: Yeah, it's really amazing. There was the act called the ERISA act, which was in the early 1980s, and it was basically the employee Retirement Security act, you know, I messed up the acronym. But basically it went from having a direct, like a pension, right? You have a pension, to actually they're just putting a certain amount in there. So at that point, it became kind of a stock account for employees to help manage themselves. Now, Tony Robbins, who I follow a bit, motivational guy, amazing guy, he wrote a book called Money Master the Game. And he said that of the average mutual fund, and these are funds that, you know, people have the Vanguard, Fidelity, these different ones, they'll say the fees are 1.2% per year. But you actually look at hidden fees fees such as administrative fee, marketing fee, exchange fee. What are these fees? They're BS fees. It's around 3.2%. The people selling these don't know that they're actually there. And so you're getting charged extra fees inside of some sort of retirement account. And then if you have, like a lot of people are saying, well, you know, that are wealthier are business people. They say, I have a money person. I have a money guy. Or somebody manages my finances at a large Wall street group, well, they're taking an extra 2% on top. So if you do have a money person and you're doing retirement, you've got them kind of outsourced doing this. It's. I mean, you're looking at over 5% per year. That's coming out of that. And if you look at the highs and lows of the stock market, it's around 6 to 9% per year if you conclude the debt, if you include the down years. So basically, they're taking most of your money. So people don't realize. And I know this because I feel like from the movie the wizard of Oz, where the guy sees behind the curtain and sees the wizard of Oz and sees that he's actually just some little man. He's not this big scary thing, whatever. That's kind of why he gets with Wall street, is that Wall street finds a way to line their pockets. I used to be a, what's called a Registered Investment Advisor, or ria. So I was an advisor and now I call myself an ria, A Recovering Investment advisor. Right. So I'm not licensed anymore, but I've kind of seen the other side. But when you look at, you know, the people that are worth over $20 million, there's a group called Tiger 21. You have to be worth over 20 million net worth to be a part of this. They publish their asset allocation percentages each quarter. And over 50% is private equity. Or real estate. So people are doing they're very little in equities, they're very little in stocks.
So the returns, when you look at alternative assets, things that are not stocks, typically are about 2 to 1 of what you'd get by being just an average and index fund in the stock market. So a lot of people don't realize you can play that game, but you're playing a game many other people are playing. And Wall street has huge advantages and they will always win even when you're losing.
[00:37:15] Speaker A: That's exactly right. The bank always wins, folks. The bank always wins, whether it's an investment bank or Wall street, whatever you're looking at. That's exactly right. We do have to take a brief break, but if you're watching, I want you to start thinking about a couple things I want you to think about where are you investing your money and where are you investing your time right now? And then start to research one alternative vehicle that you heard about today. Whether it's oil and gas or multifamily, whatever you heard today so far, think about one that you're going to choose to start learning about and that's going to be your action item from this from this segment we will be right back up to these important messages.
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So we're going to dive right back in with Bronson Hill, passive investing expert who helps leaders diversify their wealth and create financial freedom. In the first segment with him, we explored how to move beyond income into true wealth building. And now we're going to tackle another challenge that every entrepreneur faces. How do we protect our wealth from taxes and set up a lasting legacy for the next generation?
So Bronson, let's dive into this. You say it's possible to pay nearly zero in taxes legally. What are the biggest missed opportunities for high earning entrepreneurs right now?
[00:39:26] Speaker C: Yeah. So quick disclaimer. I'm not giving any specific tax advice. We've got to say that. So obviously this is just educational. But you know, I was able to reduce my taxable bill from 25% down to 1% and it was basically by using these loopholes or we call incentives that the government provides. And you'd say, well, why, you know, why do people use or how do people qualify for these special loopholes? And the reason why is because you think of it, the government has incentives, right? They actually want to provide affordable housing. So how they do it is they say, okay, well if we provide affordable housing, what is government housing typically known for, right? It's open up for the projects in the hood, right? So they don't want to provide that. So if you as an entrepreneur or as an investor invest in a project that provides housing or is a multifamily project, you can get some amazing tax benefits, right? There's also one called oil and gas drilling investing where been around for many years, the technology has improved substantially. There used to be 20, 30 years ago, a lot of dry holes. Now with some of the 3D modeling and some of the electrodes and things they can put in the ground and create a graph of actually what it looks like down below, it's less than 5% that there's a dry hole. And so they've realized. So what happens with this type of investment is that typically around 80 or 90% of the year, one investment can actually reduce ordinary income. Now obviously everybody's situation is different. So for example, let's say I make $500,000 a year. I'd be paying taxes on 500,000 a year. But if I take 100,000 of that and I put it into an oil and gas drilling fund or you know, that does oil and gas drilling, it shows my income now is only 410 to 420,000 a year. So I get taxed on a substantially less amount per year. So it's kind of an amazing thing. You can use it for business income, you can use it for W2 income. So there's kind of, there's things like that that most people, I mean when you, you look at, it doesn't even seem real. But this has been around for over 100 years in the tax code. So we don't look at the tax code as a way, here's how you pay more taxes. We look at it as a guide to align with government incentives like energy and housing of how do I partner with the government to create a win win so we can create more energy and more housing for people. And also I can pay less in taxes.
[00:41:29] Speaker A: You know, it really isn't a win win because we know that as in private, in private industry, we're able to actually be more effect times and things that we done so it's a great way for government and entrepreneurial minded people to, to align and then for us to invest. So let's, let's talk about the cash flow versus net worth conversation because this is a very hot topic right now. There's a lot of entrepreneurs who are nearing their retirement age thinking about wanting to exit their business, but.
Or they're looking at building their business so that it can be saleable. But almost all of their net worth is locked up in their asset. So they're asset rich and cash poor.
So if we're asset rich and cash poor and we're still paying taxes, how is it that we can look at this differently or we can flip that script so that we can improve our current cash flow, our current scenario, as well as looking down the road as we look to exit or build that we can increase our assets as well.
[00:42:33] Speaker C: Yeah, this is kind of the question everybody has, right? If I, okay, if I sell my business, I might have a couple million dollars or a few million dollars, whatever the amount is, I'll pay taxes on whatever. But then how do you actually live, how do you create cash when you're not working? And so I look at this, this is like a muscle. It's like when you do a really good workout and you're soaring in a muscle in an area like, of your body you didn't even know was there, right? You're like, oh, now I know it's there because I'm sore. I did this weird repetitive movement or something. And so it's very similar to that. It's a muscle that you develop over time.
People I know, people that are worth over $500 million, they love cash flow because what it allows you to do is it allows you to basically, you know, get money coming in each month on the money that you have. So that's something that's super powerful for somebody that's looking to retire or has funds available. It's like, well, here's I can actually put money in and get a return, whether that's 5, 10, 15% per year, that can be incredibly powerful. And there are investments that do all of those. And so I think that just understanding and learning what's out there and learning, okay, how do I evaluate risk and how do I look at these things in a way to where I can grow my wealth over time? It's very powerful. But most people, you know, we're not taught this in school. We're basically, the educational system teaches us to become great employees, to be great job seekers. Right. But when as you get older, you really, you realize you're managing your own wealth, you're really. You can't trust just your advisor. You can't just trust kind of what someone says to you because their interests are not aligned with yours. They actually did a study and they found that people that manage large funds of over $100 million, over 50% of them had $0 invested in the fund that they were managing. Right. So incredible misalignment of interest. So you have to really look at it that your best investment is in your own education. How can I generate cash flow? How can I find investments? That's really what we do in our community is we have educate people on how to grow. Because this stuff is not taught a lot of places, and you've got to learn it on your own.
[00:44:20] Speaker A: You're right. And, you know, a lot of, A lot of what I find happening now, and I'm actually in a mastermind about this in a couple of weeks, is founders sell their business and they don't know what to do with the capital. So how do founders become funders, if you will, what should they be thinking about before the exit? And how can alternative investments become maybe a launchpad rather than a landing zone for them?
[00:44:42] Speaker C: You talked about masterminds. We have a mastermind called the Wealth Forum. And we've, I've realized this, having spoken with so many investors, that we'll find someone who's, you know, worth over $10 million, and they're in a small town somewhere. And, like, who can you actually talk to about money? Right? You talk to anybody in finance, myself included, or other operators, and we're all biased. We all want you to do our deals because we all think they're great. But the most transformational relationship is another passive investor. Most people you talk to family, it's awkward about money. You talk to friends, they're like, why don't you have your money person doing stocks and bonds? But if you actually want to really do well for yourself, you'll get in the room with other people that are a lot like you asking these hard questions. How do I reduce taxes? How do I raise my kids in a way they're not spoiled? How do I leave a legacy? How do I, you know, these are all great questions. And so seeing somebody who is in the same spot as you, who is a business owner, maybe they've been doing it for 10 years, maybe they sold a business 10 years ago, and they're just trying to figure out, hey, I've worked with these guys for years. They're amazing. I'm looking for other sponsors. These guys over here. I've never used them again. And so it's just, it's. Again, it's sharing information. So that's why we create a place that's a pay to play, you pay to be in the room. But it really creates this incredible opportunity to really learn from peers that are not trying to sell you anything.
[00:45:51] Speaker A: Yeah, I think that's incredibly important. And, you know, we talk a lot, a lot with our, with our founders about fiduciary. And a lot of times those wealth people are not really, truly. They don't really, truly have your fiduciary interest in mind because they're selling products or pushing products. And there's always, there's always something. Even when we're supposed to do. There's always a little bit of a conflict there because we're making money off of a product that we're selling. For example, in that. In that example.
So let's, let's talk about the mindset shift, and then I'd like to hear how you can. How people can reach out to you. So how about the mindset shift that an entrepreneur or a founder or a business owner needs to adopt if they're going to go from operator to capital allocator? Because it's a completely different skill set.
[00:46:36] Speaker C: Yeah. So I think the biggest thing you have to do is it's a shift from, you know, me doing the work in my business or in the job. I was great at medical sales. I won awards four out of the eight years I was eligible and win trips and all kinds of things. But I realized I had to actually learn to trust other people. And there's people that I've met that they said, oh, my dad was a real estate person. He did really well, but he worked like all the time, worked 80 hours a week, whatever. I just don't. I've never loved that model. So I think at some point you've got to figure out a way to trust other people. And so there's a process. There's networking, there's, you know, those kind of things you learn. How do you actually vet. And it's a skill set. It's a skill set to learn how to basically hire someone to work with your investments. Now, it's not like you're actually hiring them to do one specific project, but you're learning who you should align with. Right. And so I think that's a skill set a lot of people don't have. So I think, again, being in the room, the right rooms with people talking to people that have been doing it longer than you is huge. But I think the mindset shift really is you have to go from I, I'm doing everything to like, I'm building a team so they can do the work.
[00:47:33] Speaker A: You know, that's one of the hardest things for most entrepreneurs and founders to do. Actually, we talked about that earlier in the show. So, Bronson, your story is a masterclass in financial leadership for all our listeners. If you're still trading time for money or you're overpaying Uncle Sam, maybe it's time to rethink your strategy and to start meeting with people who have been where you are and are a little further along in your journey. So how can people reach out to you, Bronson, if they'd like to learn more or. And I believe you shared, you have a freebie for our audience as well.
[00:48:02] Speaker C: Yeah, I have a free gift just for your audience. I love that you're able to reach this bilingual community. I'm actually working on my Spanish. I'm on day 240 of Duolingo. So hablo poquito espanol. Working on it. But we have a free gift. It's basically how to use inflation to your advantage. So everything costs more, but how do you get on the other side of the equation where things just don't cost more and they're more painful? So if you text the word inflation to the number 33777. So you just text the word inflation to 33777, it will ask for your, your name, your email. We'll send that over to you. And then you hear about our future stuff that we're working on. And we'd love to connect with you.
[00:48:36] Speaker A: Thank you so much for that. I mean, it's been really a pleasure having you on. Thank you for joining us today and your insights. I appreciate you. Real pleasure.
[00:48:43] Speaker C: Thank you so much.
[00:48:44] Speaker A: And you. Yes, you. I am talking to you. All good things do come to an end, including this show, but you have real actionable items to, to look at. Text 33777 and get that, that free gift from Bronson. Remember to do your, your sheet that Mark was talking about with. What are the things you hate about your business today? What are things you want to be doing in retirement tomorrow? And moving one off of that left list in favor of the rights that you can live your ideal life today. Let's take those actions today because that's what's going to move our needle, move our business forward. So that we can see our businesses grow, see our net worth grow, and really maximize the impact that we want to have. So, without further ado, remember to follow me on LinkedIn and and Facebook. Join the Power CEO's Facebook group. We'll share the key takeaways from today. And until then, win today, Win, win this week. And we'll see you same time, same station next week. Have an amazing rest of your day.
