Next Level Pros - #38: Financial Discipline and the Road to Millionaire Status

Episode Date: September 28, 2023

In this episode of The Founder Podcast with Chris Lee, Chris shares his personal journey to becoming a millionaire by the age of 33, long before his massive success with his business.  He delves into financial strategies and principles that helped him achieve this milestone. Chris emphasizes the importance of discipline, delayed gratification, and smart financial choices, including leveraging real estate as a wealth-building tool.  He breaks down the five ways to make money in real estate, from cash flow to principal buydown, depreciation, interest savings, and appreciation.  Tune in for valuable insights on building wealth and achieving financial freedom!  HIGHLIGHTS  "You only buy luxuries with Level Three income... A luxury is something you don't need to survive." "Always look for opportunities to experience pain and discipline in the moment because when you do so, I promise you the real fruit is so much sweeter." "Your personal home is not an asset... It's got to be viewed as a money pit." TIMESTAMPS 00:00: Introduction  04:37: Smart Financial Habits  09:46: Saving & Investing 14:29: Real Estate Investments  19:08: Strategies & Returns 24:05: Tax Savings 🚀 Join my community - Founder Acceleration https://www.founderacceleration.com 🤯 Apply for our next Mastermind https://www.thefoundermastermind.com ⛳️ Golf with Chris https://www.golfwithchris.com 🎤 Watch my latest Podcast Apple - https://podcasts.apple.com/us/podcast/the-founder-podcast/id1687030281 Spotify - https://open.spotify.com/show/1e0cL2vI1JAtQrojSOA7D2?si=dc252f8540ee4b05 YouTube - https://www.youtube.com/@thefounderspodcast

We were meant to experience pain. Anybody that believes that there's no such thing as no pain doesn't understand life. You have no choice on whether there's pain or not. You either get pain now with real fruit afterwards, or you get fake fruit right now, like short term, right? I want it now, I get it. But then you have really long pain later, right? If I spend all my money now, the long pain later is that I got to work for the rest of my life. I never actually get to experience time freedom, financial freedom, any of these different things. Oh, baby, welcome to a bonus episode. I wasn't planning on recording this one today, but you know what? I felt like I had a message that needed to get out to the world.

And so today we are going to be talking about some of the financial strategies that I utilized before I had my massive success with my business that I went and ended up exiting at a nine figure valuation. So let's rewind a little bit. So some of you guys have had the opportunity to listen to my story a little bit. So episode one, two, and three tell the launched SoulGen Power, and I achieved something that I had gone and sought after for a very long time. I became a millionaire, right? So a millionaire, a lot of us, we fantasize about these things since we're little. Here's kind of some interesting facts about becoming a millionaire. One, being a millionaire isn't quite what it always used to be. Growing up in the 90s, being a millionaire was like the dream, the goal. Everybody wants to do it. Granted, I'm not trying to take away from anybody

that's still going after that status or trying to achieve that. It's cool. It just doesn't carry the same clout that it once did many years ago. Here's some interesting stats. In 1991, the top 1% of population made $100,000 or more. So we had this infatuation with making six figures back in the early 90s. That's when I was raised up. And my parents, right? That was the goal that we were all going after. Today, fast forward, it was in, I believe I looked at the stat and it was either in 2018 or 2019, the top 1% of the population in the United States of America, instead of making 100,000 plus, was then making $373,000 plus every single year. So a drastic increase in a timeframe of about 27 years. And so while being a millionaire is very cool, like I said, it's not quite what it used to be.

But at age 33, I was able to achieve something that was on my bucket list I wanted to go and accomplish. In fact, I had this mental lid about it. Like once I break through, like what else is there to go and achieve? And what you'll realize as you're going after goals in your life is that when it's all based off of the fruit, right, an end result or whatnot, it's not that fulfilling, right? When you achieve, they're like, holy smokes, my life isn't any different. It's the same as it was yesterday. Woke up in the same bed, driving the same car, doing the same, married to the same woman, have the same kids, right?

Nothing changes, but it was a cool little thing. And so what I want to share with you guys is how I was able to become a millionaire well before I had my massive success with running businesses while just doing little side hustles, working for other people, doing those different types of things, I was able to achieve this millionaire status. And it goes back to a few guiding principles of finance. Now we live in the United States of America where it is preached to be a consumer, right? Just go and consume, consume, consume, consume, right. Make 10, spend 11.

In fact, I forget what book I read this in, but it talks about the different savings rates of the different nations. And I think we spend in the United States, it's like 101% of our income. That means we go into debt 1% of our income every single year. Well, places like China have a 50% savings rate. We go into debt 1% of our income every single year. Well, places like China have a 50% savings rate. They put away 50%. So one, we suck at saving.

We suck at producing. We are just consumers. And so I'm not going to sit here and be Dave Ramsey to you and tell you that you need to save your way or cut your way to prosperity. But I am telling you, you need to be smart with your finances. So Dave Ramsey is interesting because he speaks really well to the poor and middle class. He helps people graduate from that poor to that middle class. But from going from the middle class to the upper class, there's a few different principles that you have to live by in order to get there. And I want to share with you a few things that I was able to do as an employee working for somebody else to ultimately achieve that millionaire status at the age of 33. And a couple of them

goes back to just, like I said, a few guiding principles. One, understanding that luxuries are not for me. And what I mean by that is that things that I don't need aren't for me right now. And most of us hate to sacrifice for the future, right? We want it now. We live in the McDonald's generation, pull up to one window, swipe a card, get the paper bag full of food at the next. And so we want it now. And Casey Ball in one of the previous episodes talked about this, how a lot of people we feel like, well, now I'm making good income. I deserve the new car, the new house, the new this, that, or the other. So the principle number one, I'm going to share this with you. And I promise you, this will make you richer than you

will ever imagine if you will have the discipline. Now, it's not fun, but if you have this discipline, this will make you wealthy. And it is that you only buy luxuries with level three income. And this is what I mean by that. First of all, define what a luxury is. A luxury is something that you just don't need to survive. There's only very few things that you need to survive. Basic food, basic shelter, basic communication, and probably basic travel, right? You don't need the fancy new car. You don't need the car payment. You don't need all the healthiest, craziest new foods. You don't need all the gym memberships. You can go out and you can work out outside, right? You don't need a luxurious home. You don't need any of these

things. And just understanding that these things have to be purchased with level three income and below. And this is what I mean. Level one income is what you do on a day-to-day basis. What is your job? How do you make that regular paycheck? Whether you're a W-2 employee, a business owner, a 1099 contractor that makes commission, this is your level one income and put that away so that you can create little servants that are going to work for you. And you never want to kill those servants. You want those servants to reproduce and continue to produce for you because that's really the ultimate goal is to become wealthy. Now, here's the interesting thing. The definition of wealth isn't a certain number that applies to every single one, every single person. Wealth applies to you personally and you only. Wealth is defined by how long you

can survive without working. Now, if your lifestyle, which is extra expenses, whether you live in a tent or you live in a mansion, whether you have a car payment, you don't have a car payment, whatever it is, what does it take to cover that single nut every month? And how long will your wealth, your current money take care of that? Okay. Now, if you make more money without working, so you have passive investments, whether it's real estate, whether it's stocks and bonds, paying dividends, whatever it may be, if that pays your expenses every single month, you have infinite wealth. You are wealthy. You no longer have to work. And once again, it is defined by the amount

of expense, right? So somebody that only makes $60,000 a year passively can be wealthy if they spend less than $60,000 a year because they can live forever. If you can only live for one month, six months, one year, six years, like that is the definition of what your wealth is. Okay. So one, you got to understand in order to be wealthy, I have to one, have control over exactly what my expenses and two, I have to build passive income. Okay. So level one income is what I do every single day. Level two income is derived from in here. For those that are watching here on YouTube, I'm going to draw this up for you a little bit right here. Okay. So level one, level one, two, and three. Okay. So level one, this is what I am going to be making from my day-to-day job. Level two income is money invested from level one down to level two. Okay. So say I make

a hundred thousand dollars a year and I put $10,000 a year into level two. The income I make off that $10,000 is now my level two income. So if I invest $10,000 and I make a 10% return, I now make $1,000 a year. Okay. Now the goal is you don't want to spend any of that income. You only, so use level one to cover your nuts and then save as much as that as you possibly can move it down to level two and anything you make a level two, then reinvest and put it down. And now that's what's called your level three income. So if I make a hundred thousand dollars from my job, I save 10,000 that makes 10%. I now make a thousand dollars at level two and I save that thousand dollars and, or invest that thousand dollars that now makes 10%. I now have $100 of level three income. And so my rule is that I only buy luxuries, things like really nice watches, super dope shoes, autograph your guns or whatever, right? Like these things that

I really want. I really want that nice car, that nice house or whatnot. I only buy that with level three income and below. And usually I try to keep it to level four. If you can live this one rule, it will make you beyond wealthy. And the reason is because it requires discipline. It requires investing and it requires a slow game of the compound effect, right? Because if I'm making a hundred thousand dollars a year and I only have a hundred dollars a year that I can spend on luxuries, life doesn't seem like fun, right? I'm only covering the basic food. I'm only covering the basic essentials. But if I get more discipline, if I reduce my expenses to 50 grand and I'm able to put away, including my tithing and everything else, right? And I take my 50 grand and I invest it. Now I have $5,000 of level

two income and I reinvest that. Now I have $500 of level three income. So now I have 500 bucks. But as I do that year in and year out and I continue to roll it and then I make better investments. So instead of making five or 10% return, maybe I'm making 20 or 30% return. Now my level three income begins to build up. And so this was the slow game that I played for many years. And while other people weren't seeing it, right, I was driving, you know, junkier cars. I was driving things like a Prius, you know, not the most beautiful, but definitely economical, a lot more cheap than anything else. I was driving

my Range Rover that I won, right? I wasn't spending money on these different things. In fact, I ended up, as I shared on my previous episode, I sold that Range Rover, invested the money into real estate that now continues to pay me every single day. And so the beauty, so this rule, guys, like if you can figure this out, I am telling you, this is the ultimate discipline. And it seems slow at first and it's, and it, and it's tedious and it hurts and it's painful. Well, heck we were meant to experience pain. Anybody that believes that there's no such thing as no pain doesn't understand life.

You have no choice on whether there's no such thing as no pain doesn't understand life. You have no choice on whether there's pain or not. You either get pain now with real fruit afterwards, or you get fake fruit right now, like short term, right? I want it now. I get it. But then you have really long pain later, right? If I spend all my money now, the long pain later is that I got to work for the rest of my life.

I never actually get to experience time freedom, financial freedom, any of these different things. Once again, there is no such thing as no pain. It's either pain now with real fruit later or fake fruit now with real pain later. And let me give you another example, like in terms of weight loss or my physique, my fitness. One thing I'll talk about is association of spirituality, economic, and physique, right? Like my physique, if I experience the fake fruit now, right? I eat the 12 cookies when they're in front of me because it feels good. I get that fake fruit.

Man, the real pain later is when I weigh 300 to 400 pounds. And when I don't show up to the gym and experience the pain now, I experience that real pain later. Always, always, always look for opportunities to experience pain and discipline in the moment. Because when you do so, I promise you the real fruit is so much sweeter. And it is a principle that applies to everything. Association, spirituality, economics, and physique. If a principle is real, it applies to all four of those areas. And I can guarantee you that you can find examples of this over and over again.

Experience and choose pain now. So once again, as you guys choose to do this, as you guys begin to experience this principle of putting off luxuries to level three and level four income, you'll really start to be able to experience real freedom. And once again, people that you think are rich, nine times out of town, they're just faking it. The real wealthy people that I've hung out with, and they have gone through this. They have been disciplined in the moment. You may see those big, beautiful things. If you guys pay attention to the Grant Cardone episode, he talks about how his cars, he just sells them. He's only used them as marketing pieces. They are tools. It's never to have the luxury of the really nice car or whatever it may be.

The other thing is you have to understand that your personal home is not an asset. One thing that's always helped me is like, look, I love ownership and I love having my own personal home, but I can never view it as my best investment or an asset. It's got to be viewed as a money pit. As long as I look at it as a money pit, that I will continue to dump money into this thing, to make it beautiful, to maintain it, to build it up, to create and do all these things, then I will always make better financial decisions outside of my house, like investing in outside real estate, investing in the stock market, investing in startups and private equity and those type of things because I'm not like, oh, I'm building up my asset here at my house. And so for me,

I just got to understand that the only reason I own a home is for the emotional tie, the fact that I can put roots down, I can take care of my wife. I can create really cool and beautiful things that are lasting that literally you can't put a dollar amount on. That's how I view my house. And so that money pit will never, ever, ever be used to go and make additional money. It's just going to continue to suck it up. So I think that's one of the most important things. And then last but not least is just understanding the relationship of real estate. Real estate has continued to build my wealth.

In fact, I built a ton of my wealth, my actual net worth through real estate because it just compounds and has so many different ways to impact. And I would highly recommend that any one of you that are listening to this get into real estate as soon as you possibly can. If I could go back and slap my 24-year-old self

that bought my very first house, I would tell myself, hey, don't go buy a single family home. It's one of the stupidest things that you can do. Go and buy a duplex or a fourplex because FHA has put together this really cool loan for three and a half percent down. You can go and own an investment property while living in it. The beauty of a fourplex is literally you can live in one of the units, two to two and a half of the units will

pay the mortgage. And then you make money on that half to third unit. And then you essentially live for free. It's like one of the most beautiful hacks there is. And depending on where you live in the country, you can get a fourplex for anywhere from 400,000 to one and a half million bucks. And so, you know, you're literally talking about anywhere from like $15,000 upwards of $50,000 as a town payment, which anybody can go work hard for and sacrifice and save and do so in a year. And then go and buy that fourplex that is going to make you wealthy for the rest of your life. So then when you do choose to move out of that fourth unit, now you have that one and a half to two units making you that real cashflow. And that is one

of the best advice I could ever give you is like, go get into real estate as soon as you possibly can. Partake of that cool, really cool loan, that FHA loan where they allow you to get up to four units. I wish I could give that advice. And once again, this is advice to 24 year old me, not necessarily to you. Anything I say here is not financial advice. This is just advice to Chris Lee, the 24-year-old, wink, wink. But real estate has been one of the most beautiful ways to be able to build my wealth. And there are five ways in which you make real estate. A lot of people don't realize this, but my average return with real estate is anywhere from

30% to 35% annually. And I'll explain how that works. So you, for example, if I go and I buy an apartment complex or I go and I buy, we'll just say a duplex on the low end, right? And I put money down. My return is based on that amount of money that I put down. Okay. And so the goal is I want 30 to 35% of whatever I put. So say I have a million dollar property and I put 25% down. So I put $250,000 down. I'm going to use this as an example, because once you flip that first fourplex that I'm telling you that you might want to invest in, you will have a large down payment that you can go and put into a million dollar property, believe it or not. And so when you flip it up into that property,

you're going to put $250,000. And so the return is based off of your investment of $250,000. So you're 30 to 35%, which means every just north of two years, you're going to double that $250,000 of investment. And let me back up. I'm going to tell you one other cool trick. It's called the law of 72. The law of 72 is this, whatever the percentage of return annually is, whatever that divides into 72, that's how many years it will take to double your money. So if you get a 36% a year return, you will literally double your money every two years. If you get a 12% return every single year, you will double your money every six years. So 72 divided by 12 equals six, 72 divided by 36 equals two and so on and so forth. And the reason for that is because it's

compounding, right? You get that 36% return on 250 and then that grows and then you get 36% return on that amount, which grows and doubles your overall money. And so there's five ways in which you make money investing in real estate. One is the basic, which a lot of people think is the only way that they make money is the cashflow. Okay. So if I go and I have a mortgage, say it's $2,000 and I'm getting $2,500 in rent and I have no expenses, no maintenance or anything, then my $500 would be my cashflow. And there's a lot of people who are like, well, so what? Or maybe they're only making a hundred dollars in cashflow. And it's like, why would I go for all that work to only make a hundred dollars extra a month? Well, number one, any added money on top of your normal income

is money that you didn't have. Say maybe you're spending a hundred percent of what you make, that extra a hundred bucks is money you can now invest. Or say you're saving a hundred dollars of everything you make. Now you just doubled what you can save. And so additional income is always beautiful. But two, understanding that it's way outside of cashflow is where your real return is. So usually I'm going to make anywhere from four to 6% on my money in cashflow, which is cool, but not that cool. There's four other ways in which you're going to make money in what I like to call sticks and bricks. I love real estate, sticks and bricks, baby. Let's go. So one, you have cashflow. Two

is principal buy down. I am always going to leverage real estate. I never want to pay for things cash. And here's why. You will not take advantage of these other four aspects that I'm going to tell you about unless you have used leverage. Now I'm not advocating for three and a half percent down only for your first loan FHA. I like to have anywhere between a 25% and a 40% position on the property, which means I'm going to do is since I'm levered, I'm going to be paying down a loan. And a loan has a principal. So on a million dollar property, I have $750,000 worth of principal on the loan that I got to pay down. So every single month when those renters, say that fourplex, are making their payment, paying the mortgage, they are buying down the principal, which is real money that is being put into a bank account, a piggy bank for you,

that one day when you sell it, instead of only $750,000, you owe $650,000. You just got to take advantage of that $100,000 that was sitting in your piggy bank because of principal buy-down, which is option number two or way number two that you make money on real estate. Way number three and four is depreciation and interest. Okay. Depreciation takes the total value of the property of the building and you get to depreciate. And I believe it's like 26 and a half or 27 and a half years. I forget what it is. So you take the total value, you divide it by 27 and a half percent or 27 and a half years. You get to depreciate that amount this year, which is real tax savings. Okay. So if you took $750,000 divided by 27 and a half, that amount, you would be able to reduce

your taxes. So I think you reduce your taxing, taxable income, let's call it $25,000. Okay. And so that's real savings. Say you're in a 35% tax bracket, you're saving $7,000, $8,000, $9,000 on your taxes that you would have had to pay to Uncle Sam that you are no longer paying. That is real money that you were making from real estate. The same thing goes for interest. Anything that you are paying every single month on that interest for a year's time, you get to reduce your total tax liability. So say it's another 20 to 25,000. And the beauty of it is the interest payment and the principal buy-down, that's being done by your renters. This is not being paid by you because this is no longer your primary residence. With your primary residence, sure, it's cool to get interest

savings, but you made the payment. The renter is making the payment for you with real estate. And so then you're going to get another $7,000 to $9,000 just from interest savings that you would have paid in taxes, which is crazy. And so this is the secret. This is the reason why Trump never wanted to show his tax returns because he didn't want to show people that, look, I literally pay nothing in taxes because I have all this depreciation, all this interest savings on all my different properties and all my different tax strategies that I'm running. It is the biggest no to mankind. Then of course, my favorite, which is just a cherry on top and that you should never make an investment based off of is appreciation, which means the total value of the property is going up. So if you have a million dollar property and on average, real estate for the last forever on average is increased by three and a half percent a year.

Okay. Three and a half percent. And now some years it's 20%, other years it's negative 1% or whatnot, but if you take any 10-year average, you're going to be 3.5%. You can look at this historically here in the United States or whatnot, 3.5%. What does that mean? You get the appreciation on the million dollars, not the initial quarter million dollars that you invested. So on a million bucks, three and a half percent, that's $35,000, which is legitimately 14% just in appreciation on your money. If you paid it all cash, you would have only made a three and a half percent return versus a 14% return. This is the power of leverage and using other people's money. Once again, I do not, I do not promote using lines of credit, credit cards,

or anything for consumables, for luxuries, or any of these things. That is absolutely ludicrous and ridiculous. But if you can use the bank's money to be able to get somebody else to pay the bank for you, which is real estate, I want as much of that crap as I possibly can get. And literally that is what is all about folks, ladies and gentlemen. This is how I became a millionaire at the age of 33, well before I ever launched SoulGen and had this other massive success. And the beauty of it is I've always looked at my businesses, my door knocking, my anything that I have ever done as ways to be able to funnel more and more money into real estate, reducing my taxable income, increasing my actual income, putting away money in the piggy bank. And the

beauty of all of this is when you go to sell that property, typically, if you went and sold that property and you made money, like all the money from the principal buy down, depreciation, everything like, and it appreciated, right? It went up to a million and a half dollars and you go to sell it. You'd have to make, pay money on that half a million plus the other stuff. You have this beautiful tax code called the 1031 exchange, which allows you to take what you sold and the profit you make and roll that into a higher value property. And for me, I'm always looking for 1031 exchange every three to five years, because what happens is my position in that loan goes from 25% up higher. Sometimes it gets up to 40, 50, 60% because of appreciation or whatever. Now that money isn't making me nearly the same amount of

money. So I wanted to get it to work in a different property. So I'm going to go and sell it. I'm going to 1031 exchange that. I have 90 days to identify the property and I have six months to be able to close on that property and be able to pay a whole whopping $0 in taxes on all the increased value that I had. Guys, this is the game of cashflow. This is the game that Robert Kiyosaki with Rich Dad, Poor Dad, Grant Cardone, or any of these savants or whatnot that are in the real estate space, this is the game that they're playing. And this is the cheat code that each one of you have to get into. If you're not in real estate, if you're not invested, if you do not have a golden goose that is producing golden eggs, do it today. Exercise a little discipline on those expenses. Give up the luxuries. Give up the nights out and the restaurants and the nice purses and the clothes and the shoes and everything else.

Make the sacrifices. Do not buy luxuries with level one income. Let me just slap you. Do not do it. I promise you. Guys, so these are just a few of the tips and tricks that have literally changed my life. And I hope that some of the things that I shared with you today will be applied. And I'm going to continue to share like some of these bonus episodes in between some of the drops. I have some really cool guests that we're going to be recording next week and the week after. You've got to just like stay tuned because you're going to love this stuff. It is going to continue to be absolutely wild as we continue to share and interview and be with the best founders throughout the world i can promise you that happy friday have an incredible weekend