He Lost $100M (And You Could, Too)

Everyone knows the name Mike Tyson. True. He had $300 million and he was broke. Every great business uses a cash flow report like it's the Bible. Why don't people do it? Why do they ignore it when the best companies in the world use a cash flow statement? This isn't just for rich people. This is everybody. Cash flow is the circulatory system of your financial life. The consumer is saddled with more debt than ever before. One of the greatest stressors that we know of is finance. Yeah. These simple back to basics can change your financial outcome in a huge way.

Welcome back to another episode of We're Talking Money. Today we're asking a question that messes with a lot of people's heads, and that is, how can someone earn millions and still end up broke?

It's a good question, Spell. It's a relevant question, and it's relevant all the time because it happens all the time. It does. But look, you want to bring it to a place where everybody can understand it. Sure. Everyone knows the name Mike Tyson, one of the greatest boxers of our lifetime. True. He had $300 million and he was broke. Not too many years after he had, when he hit his peak, he blew it. He blew it. $300 million, and all of a sudden he faced a day when he would have to say, "I'm broke."

It's interesting that you bring up Mike Tyson, and 300 million's a big number. But we hear about this all the time. And it's why we're talking about it today, particularly with these million-dollar earners or multi-million dollar earners who end up with absolutely nothing. We see it particularly with folks who are in the professional sporting world. And I just wonder, why is that? They've gotten so good at what they do. There are few people on the planet who can do what they do, but when it comes to managing the money, it's gone.

Well, you just nailed it. They're disciplined for sure. They're at the peak of whatever it is they do. Boxing, football, baseball, whatever it is. And these are specimens. These people are the best of the best. Truly disciplined at a high level. You played soccer. You know what that's all about. Discipline. Yeah. But that has nothing to do with managing money. It's true.

And so, as disciplined as they are at their sport, they're going to make a lot. Doesn't mean they're going to know how to manage it. Really, at the end of the day, Spell, what matters is it's not just about how much you make. It's how you manage it. That is what determines if you'll have anything left or if you'll be like Mike Tyson, who had to rebuild it way late in his career. Unfortunately for him, his brand was still worth a lot and he was able to put himself back in a pretty good spot. But not everybody's like that, because not everybody has the name Mike Tyson.

That's right. Mike Tyson's name's synonymous with all things tough, powerful, get the job done. Had he not owned that brand, I don't know if he could have come back. It been tough. Yep.

So, Phil, today we're going to talk about cash flow. And you are an expert when it comes to cash flow. You know a lot about it. There's a ton of nuance to cash flow. So, we're going to go through six elements of cash flow today. Why don't you just start by telling me what it is when you hear cash flow. What do you think about?

Well, first thing I think about is cash flow is the circulatory system of your financial life. You don't have a cash flow report, you really don't know what's going on. You guess at it. Yeah. You don't really know. I say this to people all the time. You say it to people, Spell. Look, we know that every great business uses a cash flow report like it's the Bible. True. It's true.

The businesses that use it, they know how important it is to their everyday business, but also to the long-term efficacy of that business and what it really means. Why don't we do that? Why don't people do it? Why do they ignore it when the best companies in the world use a cash flow statement? Why do we think we're so good as an individual that we don't need it?

It's a good question. I don't know. It might be why Mike Tyson went through 300 million.

Well, I'm pretty confident that's why Mike Tyson went through 300 million, because he was just living the life. Now, when you have 300 million, you can live a really grandiose life. True. And it doesn't feel like you're spending through it. Yeah. What turns out to be the case, however, or what is the truth, is that you begin to realize how quickly it can go away. Yeah. When you're not watching the inflow versus the outflow. That is the very essence of cash flow, or a profit and loss statement, so to speak.

What would you say is the biggest misunderstanding that people have about cash flow?

Well, I think the biggest problem is people hear that and they think, "Oh, you're going to put me on a budget." And nobody wants to hear that. No one wants to live on a budget. I don't want to live on a budget. No one does. Yeah. But I think that misunderstanding is what takes people down the path of, okay, well, I've got this, I'm making notes. I balance my checkbook, or I look at my online account and I know I've got money in the bank. Mhm.

Every dollar that comes in should be allocated as a dollar that goes out. Yeah. So even if the money stays in a savings account, it should still be allocated to that, so that you know exactly what's coming in, what's going out, and the two balance at the end of that exercise. They should balance. Okay. People don't do that.

This isn't just for rich people. Yeah. And it's not just about smart people. This is everybody. And you don't have to be smart or dumb or anything in between to make these mistakes. Anyone can make these mistakes if you're not using a system that helps you understand your inflow and outflow. Cash flow is a critical element. And if it's not understood and used, might end up like Mike Tyson, might not be at the same level. Yeah. But you're going to end up with some problems because you're not monitoring what's happening.

Cash flow makes the world go around. We might coin a new phrase today.

Seems like it, certainly. Circulatory system to your financial life, right? You think about it. It's the heartbeat, and if it's not working well... Look, I hate to say this, I hate to bring this up. Look at the national debt. True. Look at the US debt and look at what it takes every year for us to service that debt. Mhm. We overspend in this country by $2.5 trillion every year. Yeah. Every 12 months. That means we're borrowing $2.5 trillion, or we're stacking it on the debt. We're borrowing $2.5 trillion to make ends meet. Yeah.

That's what happens with people when they're not paying attention to their cash flow. They bring in enough, they think, but then their eyes get larger than their wallet and they start buying things, and guess what? The credit card rolls out. Debt begins to mount. Before you know it, they're forced to change lifestyle. Y but they don't want to, and they'll do anything they can to avoid that. And so that means debt mounts. All of a sudden, life gets more expensive when it didn't have to, and before you know it, you're in a real problem, or you have a real problem.

So, Phil, you've been at this for over three decades now, and I've been part of OmniStar for going on three and a half years. Yep. I've heard a lot of stories through you in that short three and a half year span. One of the things that has struck me, and I've heard you talk about it more than once across multiple examples, are super high earners. People making four, five, $600,000 every year, yet they have nothing in their savings. How does that happen? That to me, I just don't understand how you can be at that level and have nothing to show for it.

People listening to this show, there will be listeners who earn 400,000 a year. Maybe some that earn a million. There will be some that, maybe some that earn 50,000 or 100. Yep. The effect of all of this is the same. Doesn't really matter what you earn. It's the same. Yeah.

I believe, Spell, and you're right, you hear me talk about it a lot, I believe that your ability to earn, your ability to earn income, that's your greatest asset. Got it. Your greatest asset has to be protected. So you got to protect yourself, and then you have to protect what self is able to do. So if you can earn all this money, then you've got to be able to make that money do all the things you want it to do.

I think the reason, and this is what I see consistently when people are earning two, three, four, 500,000 a year and they sit down with me for an initial consult. Mhm. And they say to me, "Phil, I just don't have any money left at the end of each month." And I'm thinking, "Wait a minute. You're earning 30 to $35,000 a month and you don't have any money left?" Right? That is the first sign that these people either live beyond their means or they have what's called lifestyle creep.

So every time they make more money, they've already got a way to spend it. And it could be the kids, it could be travel sports, it could be I need a new pool. I want new cars all the time. I got to upgrade this. And one of the culprits to all of that is the lifestyle they want to lead sometimes is not because they want it necessarily. It's because of what they hang around. Yeah. And it can trickle from a friend who just got something new. They say, "Oh, we want that as well. I think we'd really like that."

There's a phrase that describes that, I think, perfectly. Something about the Jones, right? Something about them.

Keeping up with the Jones has wrecked a lot of people's financial life. Yeah. And so I think cash flow is so important, and it's so important to recognize that your life, that's your life, and you need to build it based on what you really want, not what everybody around you wants. But if you're not track, bottom line, if you're not tracking this income and outflow, forget about it. You're going to have a problem.

You mentioned protecting your ability to earn. Yeah. And you also mentioned sitting with people for an initial consult and going through their financial situation, going back and forth, doing some questions. What do you say to somebody who chalks things up to, well, Phil, my job's secure? What do you say to that person?

Yeah, I think this example that you were giving, someone earning 400,000, is something that I write about, and here's this family, they're earning 400,000 a year. Yeah. And they felt like, this is a real case, one that we worked on, and they feel like, gosh, everything's great. Listen, everybody runs the risk of losing their ability to earn an income or being fired. Nobody is indispensable. True.

And so I think people have to recognize that things can be going along just perfect. Yep. And all of a sudden, Yep. And so I think because of that, you've got to have emergency funds in place. You've got to save enough. Meaning, you can't spend everything that you make. You've got to save. That should be an allocated amount on your profit and loss statement or on your cash flow statement.

So money's coming in, you should have an allocated amount to a line item that's called either emergency funds or a rainy day fund, whatever you want to call it. But that needs to be funded, and you need six months to sometimes nine months, no less than three. Yep. Something goes wrong, you better have some funds on the side, or on the sidelines, for those rainy days.

If you don't, the first thing that happens is credit cards come out and you begin to live on those. And this is the unfortunate part of that, is the minute that you do it, you begin to create a new habit. Yeah. So even when you land the new job or you get back on your feet, you're now used to pulling that credit card, and sometimes that's a hard habit to break, and that can exacerbate what has become a problem, and before you know it, things get out of control. Yeah, for sure. Yeah. See, we've seen it happen. Oh yeah, we've definitely seen it happen. There's no doubt about that.

You just said something again that I want to make sure that we talk about. Expense management. This is a real world statistic. 60% of six figure earners live paycheck to paycheck. That's true. What? That's true. Yeah. Come on. That's hard to believe, isn't it? Yeah, it is hard to believe.

Now, we can blame that on inflation. We can say, "Oh gosh, it's just so expensive to live." Those are choices, however. When someone's making six figures, 100,000, 150, 200,000, and a lot of the people we work with, as you well know, Spell, they make great money for sure. Yeah. That's a wonderful income. They make plenty of money. There's no reason to be broke. No. When you're making that much money, but everything is built around choice.

And this is where that lifestyle creep comes in. And sometimes you don't know what's happening. Yeah. Right. You just all of a sudden you say, "Well, I'll do this or I'll buy that. We've got plenty of extra money in the bank and we'll do this this one time." And somehow we always justify these expenses.

Yeah. People do it all the time. I got a raise. Got a raise. I can afford it. Well, wait a minute. Wait a minute. I've got that bonus coming in November. I know it's only July, but I know it's coming. I've already been guaranteed I'm going to get it. So, let's go ahead and buy this furniture that we want out by the pool. The new bedroom suit. Let's get the new bedroom suit.

Yeah, that's what happens. People want it so quickly and they forget. We want to wait until the bonus is here because what else might happen between now and bonus time. Yeah. That is unfortunately a part of lifestyle creep that bites people. Yeah. And usually as it happens you don't really see it. Yeah. You don't really feel it. And when it's felt a lot of times it's just too late.

Phil, I ask myself a question all the time when I want something new or I see the new flashy object. Is it in the budget? Did you budget for that item? And most of the time when I answer no, well, that might have to go on a budget for another time.

Well, it goes on. So it's still a desire. You still want it. Sure. But you might have to allocate differently in order to get it. Got it. And if you just put that in front of everything else, then you're going to shortchange yourself on something, right? Even if you think you have a solution worked out, and by the way, particularly Americans, we are brilliant at working things out in our head. Yeah. So that we get the answer that we need that allows us to spend to do what we want to do. That's just who we are as, that's just human nature.

And we want it and we're conditioned to believe that if we want something, we ought to be able to get it. In fact, I hear pastors all the time talking about, "Oh, God wants you to have all this stuff." That unfortunately is just bad teaching, right? The Bible never tells us that, but that's what you hear a lot. And I think that conditions people to make mistakes. No, I think you're seeing it the right way.

Okay. All right. Don't change that. I'll keep asking the same question to myself then, for sure. Even though my wife might not always like that. Well, hey, it's okay. That's called balance. Yeah. That's what a marriage is all about. That's right. Pendulum swings equilibrium. Yeah, that's right. For sure.

All right, let's go on to something, Phil, that I think ties into what we were just talking about, and that is savings and emergency funds. We've already touched on it briefly, but I think that particularly when we talk about savings, people can be overwhelmed with this thought of, "Oh my goodness, I have to put away a certain percentage of what I'm earning and it needs to go here and it needs to go there." What do you say to people? What do you say to that executive who's making a great income on an annual basis that has nothing in savings? What do you tell that person?

Yeah, great question. So, we just experienced this with a client say in the last 12, maybe in the last 24 months. Okay. Well-paid executive had been in their role for 20 years. Mhm. The last person that would believe their job would be lost was that person, right? They're not the person sitting around thinking, gosh, I hope I don't lose my job. 20 years. That's right. And good at what they did. Yeah. Lost their job.

Fortunately, they had savings. Nice. Fortunately, the spouse was working. Their debt load was small. Nice. They could work through it. And today, that executive is back at it. New role, better role. Because she had the flexibility to sit back, think about what her next move might be, go back to school a little bit, do what she needed to do, and today much better position. That might not be the case were it not for an emergency reserve account. Got it. Because they could live on the severance package and their emergency funds. They were just in a great position.

Yeah, people don't often land in that position. That takes effort. Yep. You have to make that a priority in order to land in that position. That doesn't happen by luck. Got it. So that person, I would argue, and I don't know exactly who you're talking about, but they automated their savings, I would imagine, throughout that 20 year career that you mentioned.

Not only was it automated at the 401k level, it was automated at the lifestyle level. They knew this is what we can spend and they did a really good job of saving it. And it was impressive to see someone who was that diligent about the way they lived and that disciplined I should say about how they lived and that they were going to save. Yeah. That is also being taught to their children. Yeah. Which is so important because the kids will follow that when the parents get into a position of weakness financially. It's being taught to the children and so unfortunately you take bad behavior and you create more bad behavior because your kids learn from mom and dad.

Yeah. You see you do it, they're going to do it. Monkey see, monkey do. 100%. And why not? That's their role model. Yeah, that's who they're supposed to look out, unless their role model is Mike Tyson and then it's even worse. They still learn the bad habits, but you get the point. So these people fortunately had a good ending. Good. And they're on track now and life looks really really good for them. So it's perfect. It's great. Yep. Perfect.

One more thing, actually a few more things. Okay. We'll stay in the same bubble, if you will, in terms of that individual or that family. You mentioned that their debt load was really small. So, I want to talk about debt management for just a second and pick your brain on what you mean by someone's debt load being small. What does that mean?

Yeah, great question. Everybody's is a little different. It has to be. Surely, it has to be. Based on your income, based on lifestyle, all those things factor into this part of the equation as well. But it's no different than going to a bank, for example, what I'm about to say. If you go to a bank and you want to qualify for a mortgage, the bank's going to look for a certain debt to income ratio, right? And if your debt to income ratio is above a certain amount, generally about 35%, the banker's probably not going to really like the idea of underwriting you, and you probably won't get the loan. And if you do, it's going to come with a much higher rate of interest, right? There are going to be things that make it less attractive.

This is the old risk versus reward. People don't realize that and people will get frustrated even when they get declined when they go to the bank and apply for a mortgage, or the interest rate comes back and it's twice what they thought it was going to be. Yeah. That bank has to, they're taking a risk on the recapturing of their money. That's right. And they have to be paid for taking that risk. Am I getting that right?

No, you're 100%. That is right. And so the bank has every right to say that, or every reason to believe this probably not a good risk, Russell will pass. Well, it's no different with personal debt management. So if you have, let's say, a 100,000 of income, and your debt payments exceed half of your income, yeah, you probably are going to be feeling that pinch sooner rather than later. And if you go through any difficult situation, you're going to really feel it.

So, I'm not saying that you have to follow the banker's rules, but what I can tell you is that a good rule of thumb is you need to be saving 20% at a minimum if you ever want to reach retirement. And do it in such a way that you can retire with style, or in style. Mhm. You need to be saving at le... You hear people all the time say, "Well, save at least 10%." And they'll say, "Save five and get five from your employer and so there's 10, so you're good." I'd say that's pretty low out the window. That math doesn't work. As a good friend of mine loves to say, that dog doesn't hunt.

And I agree with that. Yeah. Really, when you run the numbers, depending on a person's desired lifestyle at retirement, you really need to be saving more like 20%. Yep. And then you need to allocate a certain percentage for say your required expenses and then whatever's left that can be in the desired column. You blow all that that you want as long as you've got the savings bucket dialed in. Got it. And you've got the required expenses dialed in. Then the rest of it you do whatever you want, that's your discretionary. You go burn it for all I care. But if you've got the other things funded. Yeah. If you don't, then your debt management's going to catch up to you and it can sink a ship very quickly.

You know what else can sink a ship very quickly that you mentioned earlier? Lifestyle creep. So, let me relate a couple of things here. I'm going to do my best. Lifestyle creep is that old family that starts with the J. Keeping up with them. Yeah. Not such a good idea. Yeah. We've talked a little bit about debt. There's good debt and then there's bad debt. And then what I would say is there's really bad debt. I would take it to that extreme. Yep.

Phil, I study the economy a lot. And I know you do. You keep up with this stuff as good as anybody. But the consumer is saddled with more debt than ever before. True. And most of it is what I would call extremely bad debt. There's really two categories. It's revolving debt, so it's credit cards, and student debt is a big part, at least for a large part of the population right now, at least certain age groups. Yeah. If you're around 22 years old to about 30, you're toing a large amount of student debt. Yep.

There's about 1.7 trillion dollars of student debt right now. There's another 1 almost4 trillion of revolving debt, credit card debt. And who knows what else is sitting out there that they might be carrying. We won't talk about that, but just those two, those are large amounts of debt. Big time.

And those things can hinder a lot of a person's success story. They can hinder getting a good loan for a home. Yeah, they can hinder being able to afford lifestyle at a certain level, it can cause them to make decisions that ordinarily they wouldn't have to make. And so just adding all of that debt, it eventually comes home to roost and it can bite you and then you're forced to make decisions. And I told a client just early today on a call, you never want to be forced into making changes with your lifestyle because you'll typically make mistakes when you do it or you'll lean on more debt. Yeah. Which is, and eventually the debt stops because you're not going to be able to get debt once your payments are so large. You cross that line. No one's going to give you credit. Yeah. And then what do you do?

Well, the people who, we hear it a lot, is I'll just put it on the credit card. Yep. And that doesn't necessarily work. It can for emergencies and smaller things so long as you can pay that credit card off at the end of the month and then you don't accrue interest. But what about these people who constantly put things on credit and they're accruing this pretty massive interest payment?

Yeah. Average interest rate on a credit card is 22 and a half% right now. That is way high. You think about that. If you don't get that debt paid off every four years, you've just about doubled it. Yeah. And so I think that by itself ought to scare people to death. Now, I feel for the people that have to live on a credit card or need it to make ends meet. Yeah. I give kudos to those people who are working two and three jobs to make ends meet. I say God bless them because those are in my opinion the people that make this country go round and I'm glad that we have those kind of people, but then we have plenty of others who are not willing to do that and they're just living on credit cards and that's going to bite them.

Yeah. That kind of debt is awful. And I'll go back to one of the things you started alluding to is good debt versus bad debt. Sure. That there is both. Oh yeah. Not all debt is bad debt.

We need debt in order to appreciably grow assets. You need debt. A mortgage. You need a mortgage.

Yeah. Most people need a mortgage. Dave Ramsey says all the time, "Oh, don't have a mortgage." Well, I'm sorry, Dave Ramsey. Most people can't write a check and pay for a home, and most people can't just pay it off in record time. I like what he says in a lot of ways, but that's just not normal. And you can do both. You can have a mortgage, do it right, and you can invest at the same time, so you can grow your wealth. I think he misses that point.

So I think good debt, bad debt. And then he talks about snowball versus avalanche. I think the way he describes paying off debt, it's take the card with the smallest balance so you feel like you're accomplishing something. Well, that's great, but what if the card that has a 6% interest rate happens to be the smallest and the largest one's at 22%? By the time you pay off the small one, you might have added 25 more% or 50% to the larger balance. You're in worse position. I think his advice on that is terrible.

Yeah. You just need the discipline. You need to stop bellyaching about it and pay off the cards with the highest debt or the highest interest rate first. 22 and a half% is a, man, that is what you call a noose.

Yeah. That is tight around your neck.

For sure. Yep.

Cash flow and balancing all of these things can be tricky.

It definitely can be tricky.

And I think that there's something here that we ought to really consider, and that is sort of on the other side of the coin, if you will. So, we've been talking about people who are, I'm just going to put it on the credit card and I'm going to live beyond my means and I'm going to have a $400,000 salary and not have anything to show for it.

Yeah.

Let's turn the page and talk about how do I know when I should be investing more.

Yeah. Well, the only way you can know that is when you can track what is considered to be leftover money each month or excess dollars. So money that doesn't have to go to an expense. And if you're using a cash flow properly, a cash flow analysis properly, or a P&L, if you're doing that and you have places where all that money gets allocated, and I shouldn't call it a P&L. We'll stick to cash flow. So a cash flow statement would show you everything coming in, everything going out.

Yeah.

And so if you had a column that says this is the money I'm going to save, then you've already committed. So that's sort of an automated savings. So you've already committed to that. Now, when you have discretionary money at the end of the month or however often you're running your cash flow, then you know you've got excess dollars. If it's not allocated to something, allocate it to savings. That means you've covered everything else. Allocated to savings. Now you got more to invest.

If you're not doing that, then it's a guessing game.

Yeah. You're hoping that you have that extra money to invest. But chances are, Spell, you won't have the extra money to invest because if you're not tracking it, you'll spend everything.

Yeah, that's the reality. That's true. What gets managed gets allocated appropriately.

100%. If you don't manage it, you're going to miss it.

Yeah.

So, I think the cash flow statement is so important. If you get things there, if you get the inflows recorded, understand what your outflows happen to be. This isn't a budget, by the way, right? People love to call it that. Oh man, you're going to restrict me.

Cash is not budget.

No way. And actually it takes the restrictor plate off of the consumer because now you know where the money's going. You know why it's going there and you know what is left.

Yep.

You know what you can do or you know how much you will be able to spend without it affecting your goals, objectives that you're trying to accomplish.

What you just said, and we talk about it a lot here at OmniStar, is it leans into something that is in line with our vision and our mission, and that is stress-free. Not knowing can cause stress.

100%.

Knowing, that's right, can absolutely eliminate stress. So I like that. I like that a lot. I think that it's certainly sage advice.

One of the greatest stressors that we know of is finance, right? And finance is going well, there's no stress. But the minute that it's not, people go off the cliff. They get stressed, they make bad decisions, and usually one bad decision tends to lead to another.

100%.

So, I think you get your financial house in order, you will have a lot less stress. You'll live a better life.

Yeah.

I think you'll find opportunity when you're less focused on, when your focus isn't on how are you going to make ends meet. You can make a lot of really good decisions.

That's true. That's very true. Phil, as I mentioned, you've been at this for a long time. And I know that you have some tips about cash flow that you want to give to our viewers. So, I think you have five of them and they're quick.

They're quick. They're quick and we've already said them really.

Yeah.

So, I think we just put them in order here. So, first you got to track and analyze your expenses.

Okay.

Income and expense. This isn't one or the other. Know your income.

Mhm.

Know your expenses. They need to be on the same page. And then you take that and you break that further into required and desired. So your required expenses, you can't get around those.

Yeah.

Right. You can't get away from those. Those are required. That could be the mortgage. That could be your food bill.

Utilities, it could be utilities.

But how much utilities are costing you is up to you. For example, maybe you don't need that super duper internet plan. Maybe you don't need all of the extras that you're buy. Maybe, and this is not a utility, but maybe you don't need a $200 a month Spectrum bill, right? Maybe you don't need all the channels.

What about all of these subscription and streaming platforms? That could be $200 easily.

We talk about that in the new book that's coming, but people forget subscriptions all the time.

All the time. You'll be shocked.

Oh, it's unbelievable. You'd be shocked at the rate, or rather at the amount, or the number of people that forget subscriptions and they no longer use them and those things are just clicking away on their debit card or on a credit card. They don't even pay attention.

Sometimes studies tell us that people will go years without noticing a subscription and it can be costing them thousands of dollars.

Spell, we talked about automated savings. That's automated spending.

It's automated spending and it's working against you.

Happens all the time. So, track and analyze both income and outflow.

Got it.

Spending plan. You've got to create a spending plan. Everybody, I don't care how much you make. I'm at the peak of my career and I still know exactly what comes in. I know exactly what goes out. It doesn't mean that I don't have wants.

Sure.

Doesn't mean that there are, that there's nothing on my goal list for a big purchase.

Last time I checked, Phil, you're human.

I'm human. We all want things, but I need to know what's coming in, what's going out.

Yep.

And that helps me stay focused on what's most important, and it keeps me from going into a place where the stress starts to set in. So, I know what I have. I know where I'm going. I know if I'm funding the buckets correctly and then I know what I have left and if I have plenty left then my wife and I will do what we want to do, right? If we don't then we know we got to wait a month, whatever that looks like for, and everybody's is a little different.

So create a spending plan. Got to have a spending plan. If you, that's the P&L, by the way. That's the profit and loss. And remember I said at the beginning of the show, every great company, every small company, large company, they all use a cash flow statement and they all use a profit and loss statement. They can't operate the business without them. And if they do, Spell, business probably isn't going to last long. I can tell you that's an unequivocal fact.

Yeah.

Now the next one is automating savings. You've talked about it plenty. You talk about it a lot with our clients. Automating your savings. Not automating your spending. That's okay. But if you stop that expense or you want to stop that expense or you no longer use that, whatever that thing is you're buying, stop that automated expense.

No kidding.

Audit that. You should be looking at that every month.

Yep.

But automate savings. How much do you need to be saving for retirement? Figure that out. And if you don't know, get with someone who can help you figure out what your savings rate ought to be for a successful retirement.

That's good advice.

Automate it. 401k, your IRA, savings to your regular account or your brokerage account, automate it. If automation puts a system in place where you don't think about it anymore and boom, there it is. And you'll start to see those dollars accumulate. And what a great feeling that is. That puts you in the driver's seat. You have full control when that's happening. And you do it without even knowing it. It becomes habit. Easy to keep doing it once it's habit. Automate savings.

Got it.

The fourth one, this might be the most important, but it's the one I talk about more probably than anything. It's lifestyle creep. Everybody goes through this. I've been through it.

Silent killer.

It's a silent killer. I've been through it, Spell. So, I can speak from experience, not just with clients, but I can speak on behalf of me having gone through stages in life where income was growing and getting around people that had certain things. And I thought, well, gosh, I deserve those things. I think I need those things.

Yeah.

And all of a sudden I end up with a lot of stuff only to find out I don't have time to use it. Doesn't really bring me a lot of joy, if any. In fact, it brings me frustration because I have one more thing to keep in good working order or to pay for in terms of upkeep. It doesn't really bring anything except status.

Yeah.

And I got to tell you, status is way overrated.

So status can be expensive.

Can it? Status is expensive. And so I think that one is underestimated, but lifestyle creep, if it gets a hold of you and you don't suppress it, it can wreck your finances in short order.

The last one, it's tax efficiency. We didn't talk about that much today, but, Spell, cash flow is so important, but if cash flow is not being managed alongside tax efficiency, your cash flow could be weaker than it needs to be or should be. Right? If you're spending too much on taxes, whether that's sales tax, meaning you might have lifestyle creep because you're spending for a lot of stuff, that's one to think about.

Yep.

Income tax, both federal and state. You have a lot of taxes in this country, but taxes in this country are relatively cheap and you can control them.

Yeah.

In a huge way. But it starts with a good cash flow statement to know really where that tax efficiency could be.

Yep.

And if you don't know how to do that, then you need to work with a professional who understands the tax game. The tax, we'll talk about this in another show, but there's really five elements inside of our tax environment, or five environments, I should say. And knowing how to use each of those environments absolutely is critical to success with wealth building.

Wonderful. I wonder if Mike Tyson knew about the five areas of tax.

I'll tell you what Mike Tyson knew about. It wasn't five environments of tax. What he knew about was how to knock your block off and he was the best in the business at it. And he knew how to make millions upon millions of dollars every fight that he got in or every endorsement that he signed. The guy was a money making machine.

Yeah.

And he loved what he did. He was so good at it. Most, one of the most powerful boxers we've ever seen.

Sure.

But because he didn't have a cash, he didn't have the people advising him on cash flow.

Yeah.

He ran out of money.

Yeah.

So, all right. So, there you go. There's my five tips.

Your five tips. So, the first, track and analyze income and expenses. Second, create a spending plan. The third, automate your savings, not your spending. The fourth, avoid lifestyle creep. And the fifth, work with a pro for tax efficiency or work with a pro to talk about your cash flow. Yeah, it seems pretty easy when you just put it into bullets.

It's five simple steps.

Yeah, five things.

If you do those things, you're way ahead of the game, you're going to be more successful than you imagine. And it doesn't matter again what your income level is. If you make 50,000, 100,000, 500,000, a million, these simple back to basics, yeah, can change your financial outcome in a huge way. It's the difference between being okay wealthy and being wealthy where you can live the life you want to live and make a difference to all those around you.

What a great place to be.

And these are the five things that will help get you on that track. If you do them consistently, you'll be amazed at what it does for you.

No doubt. Phil, thank you for your advice. That's very helpful. I think our listeners will find it to be helpful.

Thank you for watching. Click or tap the screen to see the next video about how Phil escaped the rat race and how you can, too. Thanks for watching.