TMBA 196 (LBP162) – A 21st Century Financial Script

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TMBA 196 (LBP162) – A 21st Century Financial Script post image

After spending some time back in the States, both Dan and Ian have been experiencing some different viewpoints on personal finance.  Many of which are based on 20th century circumstances and have survived the turn of the century in our society and our mindsets.

This episode is dedicated to showing you some base level shifts in your personal finance mentality that will prepare you for success in entrepreneurship.  Dan and Ian both share their viewpoints on upgrading their working class American financial influences to set themselves up to reap the benefits of small business ownership.

I Deserve It, But Can I Afford It?

  • The American home ownership fettish and why this isn’t optimal for you as an entrepreneur.
  • The Mark Cuban Warchest Theory and how that will give you optionality and buying power when it matters.
  • Your mindset on spending, personal belongings and how you can extend your business’ runway.
  • Why calculating luxury expenses by a percentage of your net worth can be an incredibly potent exercise.

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Episode length: 29:04

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Published on 06.27.13
  • Becca Niederkrom

    Awesomesauce interview that I can really resonate with you guys. I think this is a really important topic. With your references to Vanilla Ice and wearing a Donny button from New Kids on the Block on your jean jacket . . . oh wait, the Donny button was just me, I am guessing we are about the same age. Thankfully, my parents are old school and instilled some pretty strict guidelines about living below your means and ignoring banks that tell you that you could be approved for so much more. As a lifelong entrepreneur, I look at every dollar, it could go take you closer to your goal or further away. I think our celebrity culture encourages us to be ballers but man, we have to keep our eye on the prize. Great stuff guys.

  • http://www.internationalrealestatelistings.com/ Taylor White

    Hey Guys,

    Having been intimately involved in “buying” and selling real estate the last 12 years since the age of 22 this podcast hit close to home for me.

    I would like to point out however, that you missed the most crucial part of this – what I call the home ownership myth. It might be the greatest marketing campaign ever done in World’s history to push a product.

    If you take out a mortgage on a house to acquire it – you in fact don’t own the house at all – whomever the lender is does.

    So, if you buy a $200,000 house in Arizona and get a mortgage loan from JP Morgan Chase for any part of it, and you don’t make your payments, what happens? Well, they take it back.

    You are in fact paying them an agreed upon payment every month to use it. If you don’t make that agreed upon payment, they have the right to go through the proper steps to take it back.

    If you then want to take it a step further, if you fail to pay local, state, federal property taxes, local assessments, etc — the ultimate owner would be the government.

    To put this another way – if you walk into the shoe store and buy a pair of shoes with cash…you own those. You don’t pay a local shoe tax to anyone.

    I have bought and sold properties in several different countries and I can tell you from personal experience its about the least friendly investment you would want to make if you value being location independent.

    If you place a sizable portion of your net worth in a property in Peru, as an example, with the idea to flip it – you better love Peru as you will need to be there until you do.

    You will need to be on the ground finding buyers, dealing with sales agents, sitting down with lawyers, doing negotiations, etc. The idea that you can simply give Power of Attorney to someone and expect this to get done as you sip a Chang beer in Bangkok in nonsense.

    No doubt there are exceptions (it’s a small portion of your net worth, you have extensive local knowledge and contacts, it’s a rental property and you have a great rental company, etc) but for the most part it’s been my experience and those whom I know invest regularly.

    Just my 2 cents.

    TW

  • http://productivityjunkies.com Darin Persinger

    Isn’t it that way with anything you don’t pay cash for?

  • http://productivityjunkies.com Darin Persinger

    Owning real estate has given me more freedom.

    I’ve had friends that are in a lease that have to “wait” before they can move or take advantage of that opportunity.

    I find a renter for my property and move on to the next. I still own 2 properties in Wisconsin… made a move out to Seattle, currently own one here and just got an accepted offer on another with a bit more space so we can start a family.

    I agree with you that the mindset and perspective matters though.

    I would just argue that you don’t have to have the mindset of just because you have a mortgage means you have to stay living in that house.

  • http://www.internationalrealestatelistings.com/ Taylor White

    Sorry playboy, you don’t “own” them – hence my point. You control them which is different than owning outright – in regards to your mortgage payment comment. The post was in reference to the “American Home Ownership Fetish” and I was clarifying that the millions of people who believe they “own” their house don’t.

    You are stuck in the Robert G Allen mindset, or Carlton Sheets, its cute. Been there and done that. When your over leveraged game gets ruined by interest rate spikes or a few non paying tenants you will better understand.

    I am not talking about using leverage to your advantage, or using other peoples money, or any other common and very basic real estate terms…I am talking about ownership.

    You are the epitome of what this post is about – confused.

    TW

  • http://www.tropicalmba.com Dan

    Cheers Becca! Thanks for the shout. Not hot on the Donny button here, probably because I was so down with Vanilla Ice.

    Agreed RE: Celeb culture, I grew up thinkin’ spending was ballin’

  • http://www.tropicalmba.com Dan

    I agree with that generally. In particular if you’ve got cash reserves and are dropping big down payments, I’d roll like that too. We are commenting on people who are up their eyebrows in mortgage and are counting on everything to work out just so.

  • http://digitalscrapbookinghq.com/ Melissa Shanhun

    Hey guys, if only you could get a BMW for $40 000 in Perth LOL!

    Thankfully we’ve come from families who never took out car loans, so neither did we. A few years back we sold our car for an excellent price and it funded our move to a new town (our home was close to the train line). Honestly, I thought my husband was a bit mad for getting rid of it – but I have no regrets now.

  • http://supremacyseo.com/ Travis Jamison

    Really loved this episode, as well as all of the “big picture” financial episodes thus far.

    This one in particular is a much better organized version of what I’ve been preaching for years. The opportunity cost is just too high for a young, single, 20-something entrepreneur like myself. I don’t even think that the interest was mentioned either. By the time it’s all said and done that interest from a mortgage will add up to insane amounts of cash lost.

    Gained equity is not even guaranteed in todays world. How many people lost their ass with the housing drop? Debt = chains.

    Last but not least, a Mark Cuban video that I know Dan loves as well:

    https://www.youtube.com/watch?v=8G4Mq8cfeso

  • http://www.lifestylebusinesspodcast.com/ Ian

    Agreed on the interest payments of a 30 year mortgage potentially outpacing the value of your house when it’s all said and done.

  • Noah_Everton

    Such playboy advice, for sure

  • Adrian

    Even if you own your home, try not paying the taxes and see what happens.

  • Stephan7

    Hi Guys! Thanks for another great episode! I still remember where I was when I got your first episode. You asked for any recommendations (books etc.):

    “The Richest Man in Babylon”
    http://www.amazon.com/The-Richest-Man-Babylon-Bestselling/dp/1615890343/ref=sr_1_1?ie=UTF8&qid=1373003885&sr=8-1&keywords=the+richest+man+in+babylon

    It sounds (and is) pretty old school, I picked it up in a hostel in Australia and some of the thoughts sticked with me ever since. There are some abstracts online on it, too.

    Cheers!

    Stephan

  • http://www.thesearchengineshop.com/ Brendan Tully

    Disagree – I’ve owned a house for 7 years and have just sold it and haven’t felt this free in a long time. Even in Australia with negative gearing which makes investment properties more attractive its still shitty investment at 5-10% return PA

    For me, ploughing that money into a biz should easily return 20-50% PA. Obviously not for everyone but if you have biznass chops, you can make money/capital work much harder for you in a business venture than you can in realestate particularly as the world becomes more web enabled which gives you an even bigger buffer against local market fluctuations

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