The Game with Alex Hormozi - How The Ultra Wealthy Get Paid First [Money Ladder] | Ep 293

Episode Date: April 22, 2021

The way you view money, matters. Today, Alex (@AlexHormozi) talks about the money ladder graph he’s created, what it’s all about, what happens in each factor of the money ladder, and the importance of understanding this model in order to become wealthier.Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:41) - Money Ladder: order people get paid, changes money flow.(3:50) - Money flow through banks: capital stack, preferred creditor, etc.(4:33) - Insurance companies: get paid upfront, appreciate over time.(7:39) - Top of ladder: God gets 10% for life, summary factors.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

What's going on, everyone? It's Alex Mose here. And if you're new to the channel, built three companies that did $110 million in sales and continue to do so. Now we invest in other companies as well. And one of the talks I want to talk to you about today is the money ladder. And so this was actually came up during a conversation I was having with Layla, my wife. And she was like, you should make a podcast about this.

She was like, because, you know, a lot of people don't know how this works. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer than the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. So right now I'm writing a handful of books around A, one of them is kind of wealth beliefs that that changed my life. And then I've got a bunch of books on acquisition stuff that's coming out. So what's the money ladder. That's what I'm calling it.

But basically, it's the order in which people get paid. And a lot of times, like one of the biggest beliefs in my life that changed as I got wealthier and that changed before I got wealthy that caused me to become more wealthy, was how I viewed the flow of money. All right? So what I mean by that is if you look at who gets paid when, right? when money flows, you can see typically where and who is making, who is the most control on who's making the money. So think about it from a concept of work and payment. So at the bottom here, you have an employee in general. And there's nothing wrong with this, right?

I was an employee too. So it's not that there's anything wrong. It's more so that you just have to understand how it works from a hierarchy standpoint. What happens with an employee is that they work first. right, they work first, and then they get paid two weeks later. So they front their labor, they front their time, and then they get paid two weeks later, right? Or four weeks later, depending on what the job is, right? So that is, if you look at the money flow, they have cost of time, cost of effort that goes out,

and then delay, and then they get paid, right? Now, if you have got somebody who's self-employed, this is kind of like a lot of contractors, vendors, gig, economy, et cetera, these people typically, they're trying to choose scenarios here. One is, and you can see because these people are a little bit more flexible, you'll see them kind of move on this money ladder.

So on the total, I'd say, worst side of the equation, the lowest side of the equation, they basically model the same thing that an employee would, that a normal employee would set up, which is they front the work and then they get paid later, right? Later, you know, if they get better and better and they become truly more independent contractor type things, then they might get paid half up front and then half upon delivery, right?

So it's kind of like 50-50, right? And then later, right, then they start moving up this ladder. Some of them will get paid up front or as they work, et cetera, right? So the next one is paid first, right? So think about this. If you go to a doctor, right, they don't do the surgery and then they get paid. They get paid and then they do the surgery, right? And so if you think about your work like that or your business like that, you get paid first, right?

Now, this is where like payment plans and things like that, like the more someone pays up front, and then I would say like in full, right? That's another kind of mini variable here, right? Are they paying somewhat up front or they paying all up front or whatever? Getting paid first is another level of kind of wealth and kind of control and power. All right. Now, but notice if you're looking at this from the video, we're still got, we still got a little little ways to go up here, right? So above this, right, this is kind of, like this is kind of where I

see people ending and then you kind of get into like the business side of it, right? So above this, you'd have like banks, right? So what do banks get? So banks have something called a capital stack. So this is, what I mean by that is when you, when you buy your house, right? you're actually the bank's really buying your house and then you're paying the bank back the bank is a preferred creditor what that means is if if you know you know she hits the fan they get paid first and then whatever's left over is yours right that's how it works that's why you repay your mortgage when you sell your house and then whatever's left over the scraps go to you right banks get paid first they're preferred creditors

and so when you're thinking about like money in general look at Where the exchange flows, right, is who's fronting time and then getting paid or who's splitting it up front or who gets paid in full, right? And then if shit goes bad, who's the one who gets paid out first and who's left with the scraps. Now, I'd say that there's one thing above banks here, which I would say is insurance. This is really interesting. I've learned a lot about interns over the last year. So insurance is fascinating. insurance gets paid far before they ever have to do anything.

Think about that. Hey, Mozenation, quick break just to let you know that we've been starting to post on LinkedIn and want to connect with you. All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. There's anyone you think that we should be connected with, tag them in one of my or laylist posts, and I will give you all the love in the world. All right, so let's get back to the show.

You pay your insurance for 20 years before they have to fulfill. what they are due. And they also can not end up having to fulfill anything and you just get paid. They just get paid for 20 years for truly doing nothing, right? If you really think about how the money flows, like really think about it for a second. Imagine you have a business. Imagine I started signing people up for an insurance business, you know, Alex Hormosey, you know, insurance. And I just start going around saying, hey, I'll insure your life. Hey, I'll insure your life. Hey, I'll insure your life. Hey, I'll insure your life. Right. And people just start saying, sure, I'll sign up. And they start paying me $1,000 a month. And I've got a

families, 500 families who start paying me $1,000, $2,000 a month. I'm doing a million dollars a month, and I do that for decades, right? And then, as people, you know, come to term, because of how I wrote the contracts or whatever, this is obviously a shitty way of doing it, but candidly, it does happen. You know, they might not qualify, or they can no longer afford the fees because I increase the fees as they become higher and higher risk, right, of actually me needing to fulfill this stuff. So the point is that if you look at insurance, it's basically the opposite of a depreciating asset.

So when you depreciate a building, so you buy something and then you depreciate it in your tax, a lot of people see that as a good thing. It's like, oh, yeah, well, we can depreciate it. It's only a good thing in your mind because of the tax code, not because it's actually good that things get old and become outdated. Right? Think about it. So insurance is the reverse of that. So instead of putting all your capital up front and then having depreciate something over time, insurance companies get all the money up front and then they get to appreciate the money over time

and then pay you off of that right and there's a reason that insurance companies the oldest companies in the world the oldest ones are you know 180 200 300 years old and it's because that is a business model that is unreal they even pre i mean they predate the tax code they don't even have to pay taxes so um interesting so when i think about this stuff um this was uh this was uh hopefully this is valuable to be valuable for you when you think about and you know actually I'll put I'll put one level above this all the top level I'll say God and franchisors obviously I'm not saying franchisors or God it's kind of just being funny don't get personal all right and so the last level above this is that God gets 10% off the top period for life and so that's where you can see the money ladder right

all the way at the bottom people front their time front their effort front their labor they delay and then they get paid they move up to self-employed they front their time or they split you know they get half now half later and as they move up this ladder they get paid more up front right a lot of that's because of demand because of how good you are right you're a doctor you get paid first before you do your surgery right if you're if you're a professional you're a great consultant something like that you get paid up front right beyond that you've got banks to, they get paid first and they leave people to scraps afterwards.

So that's when there's a defined pot of money. Above that, you've got insurance companies who get paid the whole time and then may or may not ever have to fulfill on their work, right? So there they get money guaranteed, but the work that they have to fulfill on is not guaranteed. Think about that, right? And then above that, you've got God, who gets 10% off top line of what you make. So I hope this is value before you.

This is the money ladder as I see wealth. And as I've thought of these things, as time has gone on, I shifted my views around it. I changed the way we did agreements, all that kind of stuff. And so hopefully you find some value in it. So this is one of the beliefs that changed my life that made me a lot while here, is watching where the money flows, watching where it goes, watching who gets paid when. Keep being awesome. Bye!