The Game with Alex Hormozi - Money Talk - How to Retire by The Age of 40 | Ep 279

Episode Date: February 23, 2021

You don't need to make a million dollars a year to be in the top 1%. Today, Alex (@AlexHormozi) discusses wealth, the tactics you can use in order to retire by the age of 40, and the reason why most people cannot achieve this milestone in their lifetime.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:(0:44) - Desire to be in the top 1% of wealth bracket(2:15) - People outliving their means is a common mistake(4:44) - Alex explains his "1% pyramid" model(10:45) - Consider income and time to save thousands monthly(13:48) - Alex's simple retirement calculator for your use(14:34) - Percentage of income spent determines how quickly you earnFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

We were pulling up in a Prius that had a crack across the windshield and a dent in the side door. And this car was probably a $6,000 car, tops, right? And the thing is, at that moment, I was a millionaire. Like, I had a million dollars in cash, right? Sitting in my big account after taxes. And yet, I was driving a $6,000 car. 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, and the many failures and lessons we have learned along the way.

I hope you enjoy and subscribe. What's going on, everyone? I've got a special presentation for you guys today. This has been on my mind for probably about half a week now. And it's going to be about money. All right, everybody's favorite topic. And it's probably not going to be what you think it's going to be, but it's going to be really good, promise.

So one of the things of this top of mind is that I get a lot of conversations from entrepreneurs who are like, I just want to be in the top 1%. I want to, and the thing is, is the people who are in the top 1% percent live a different way, and they also don't live now the way they did to get here. all right and so i'll tell you a quick story and then i'm going to show you what i mean with this beautiful pyramid and if you're listening then i'll try and explain it visually or audio-wise so when i was

very early on in my career um or earlier than now right uh i was showing up to a mastermind event that i was the first mastermind event um i think we had 28 people who were showing up and all these people were paying 40 000 a year and i remember pulling up to our event it was in albuquerque New Mexico, and they were walking into the hotel as I was pulling up, right? And I was like nervous and excited and all that stuff. And one of the girls, Monica Vittar, was like, as we're getting out of the car, she was like, I thought you guys were supposed to be rich. And she literally said that.

And I still remember it to this day because it was like such a moment for me. I don't even know if she remembers it. But we were pulling up in a Prius that had a crack across the windshield and a double. dent in the side door. And this car was probably a $6,000 car, tops, right? And the thing is, at that moment, I was a millionaire. Like, I had a million dollars in cash, right? Sitting in my bank account after taxes.

And yet I was driving a $6,000 car. And so one of the things that I consistently see is people outliving their means. And that's not a new message, but for some reason, it still doesn't resonate with people. And so I'm going to level up this conversation a little bit because you're like, but wait, Alex, I thought you now have a Bentley, which I totally regret, by the way, but I do have a Bentley. And we have a very nice home. The thing is, is a Bentley, for me, relative to my income, is less than one week's income for me. Income. And so one of the important things to understand is the relative cost of anything that you have. And so I have always used

this back of napkin math to justify expenses. All right. And so as a result of that, that I always have lived on less than 5% once I started making money, less than 5% of what I made, which pretty much meant that until I was making a million dollars a year or more, I lived on $30,000 a year, right? Which is, if you've heard my other story about once Layla and I made our first $100,000, I told her, this is awesome, that means that we have three years of living if we make no more money. All right, because we knew that on $1,500 a month, we could live, right? Decently comfortably. And I'll tell you this, comfort's nice, but there's not that much more enjoyment you get out of like driving E Bentley versus a normal car. Now, sure, there's car people who are like whatever, but I'll tell you that the incremental gain that I have in my life is not worth the money.

So it's probably the last expensive car I'll ever have is also the first really expensive car that we ever got. But what I wanted to do, though, and kind of shift the conversation is not just talk about, you know, making or spending a lot less than you make. Because I saw somebody recently who was one of our clients. They graduated from the program, and then they went on to start. an online business, they were gym owner. And I saw the expenses that they were incurring, and I was like, man, like, that worries me. You know what I mean? It just worries me because I see a lack of judgment because you don't know how things are

going to change. I mean, I think of the last year for anyone, you can say that things can change quickly. And I want to have tons of dry powder, tons of reserves to pull on if I need them. And so for me, I get more anxiety by having expenses. And so for me, to actually lower my anxieties, I lower how much I spend. And so if that's something that you can associate for yourself, as in the less money I spend, the more relaxed I am, then I would encourage you do it. Because for me, it's been one of my kind of secret sauces of successes.

Just like, just don't spend a ton of money, especially relative to what you make. And so what I want to do for the rest of this is kind of first talk about what it looks like to get in the top 1%. And then how to get there. All right? So right here, you've got a pyramid. and if you're listening, then you can listen along. But there's four layers to this pyramid.

And this is kind of the top 1% pyramid. The bottom layer of this is people who have, these are considered high net worth individuals. That means you have $1 to $5 million in assets. All right. Now, this may surprise you, but the people at this level, and I've got my notes here,

so I'm going along with this, in the United States, it's one in 69. So, one in 69 people has between $1 and $5 million. So being over a million is not even top 1% anymore. I mean, it sort of is, but like it technically, it's a little bit, like if you actually had $1 million, you wouldn't be in the 1%. But I find that, but that's in assets, not income, right?

That's in assets, not income. You don't need to make a million dollars a year to be in the top 1%, right? And what's crazy to me is that the top 1% income, is 400,000 a year, but the top 1% in assets is only a million or a million and a half bucks. How nuts is that? It means people spend all their money. That's what that means.

So if you have a top 1% income, you should be way above the top 1% in assets. But it doesn't work that way because people always want to show off. And people can't think long term. And the only thing that I've been continually reading about, because I've been really pouring a lot into really reading a lot about Munger, and Buffett. So Warren Buffett and Charlie Munger, who are founders of Berkshire Hathaway,

is how they live and how they think in terms of long term. And so I'm going to transition to talking about how to get there, but I'm going to finish this little chart for you. So this is the top 1.5% roughly of the U.S. is 1 to 5 million in assets, and that's 1 in 69. So for me, I like the 1 in personally. It makes it more real for me. So 1 in 69 people, all right?

Now, in the U.S., the next level is very high net worth. So you go high net worth to very high net worth individual. For this, it's 0.3% of people. That's crazy. Now, here's what it is in math. That's one in 338. So one in 338 people is worth between $5 and $30 million. That's what they have in investable assets.

$5 and $30 million. I'm purposely putting this out there, to hopefully counter the Instagram culture of flexing in front of a Lamborghini or Bentley, right? Whatever, because most people are broke. Like most people are poor. And I think that I'm gonna lay out a plan for you that's very simple to get you above this

to really just be in the top 1%. And the thing is, is, like I said, the top 1% income earners over 420,000 or 440,000 a year, depending on where you're looking. that's per year. So for you to get over $5 million, you just need to live on a lot less than you make.

If you're in the top 1% income earners, you should be in this $5 to $30 million within not a ton of time, right? And then the level above that is ultra high net worth individuals, which is one in 1383, and that's, what is that, that's 0.0.0.000.

0.07%. All right. 0.07%. All right. And then finally, I'll just finish this little chart out. Billionaires is one in 468,000. All right. And the percentage there is 0.000.

4 zeros? 3 zeros. 3 zeros. 2%. All right. Now, the reason that the jump between the third stage and the fourth stage is so large as that, the range is between 3rd stage. 30 and a billion. So everyone that's got between 30 and a billion is in the next level,

and then billionaire is the fourth category. So these are kind of like the four layers above the 1%. The very first layer kind of gets you into the top 1%, more or less, right? And then above that, you have the varying categories. The thing is, is that in order for you to get to above $5 million, so not even top 1%, but top 0.3%, right? One in 338. So you walk into it, there's, there's 3008 people, you're probably the richest person in the room. All right. Hey, Mosin, nation, 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 layless posts, and I will give you all the love in the world. All right, so let's get back to the show. For you to do that, you got to save like 15 grand a year for 30 years. That's it. And that's assuming just 9% returns, which is just the stock market. I just put it in the S&P 500 and don't do anything with it. Right? That's not doing crypto. That's not, that's not learning how to, like, it's literally just save a, you know, $1,200 a month and put it into the S&P and do it every month.

That's it. If you make $400,000 a year, so you're making $35,000 a month, right? If you live on five, you can put $10,000 and you'll be at the, you'll be at the, you'll be at the, top end of this, right? But everyone just spends so much money. And so I just, when I see this, it's both incredibly encouraging to me and it also incredibly saddening. It's encouraging to me because I feel like genuinely everyone can get to the top 1%, which doesn't make math, mathematical sense, but it makes, it makes realistic sense. And you feel like, but Alex, how do I save $1,200 a month? So it's two things. It's income and time, right? And,

net income being like minus your expenses. So it means it's make more money, spend less money. The easiest thing most people do is they just spend too much money. Right. And I know that sometimes you can, like, it's sometimes apparent, depending if you like follow my Instagram or whatever. But like, Layla and I, I think I was asking for her to give me the numbers from last year, but we live on less than 5% of what we make.

All right. And you're like, well, sure, that's because you make a lot. Yeah, but I lived on that when I made nothing. Right. And so I think most people, like, you should live on 30 grand, 40 grand a year. and the thing is that you already know in your heart that spending more of the money is not going to make you happier.

I'll tell you right now, it's not. And if the point of spending the money is to make you happier, I'm telling you, it's not. Sure. Like, I have this studio. I can justify it as a business expense, but I did this mostly because I enjoy it. And to me, from a percentage of income,

it's negligible, right? And so I got this fancy setup only after I had already crossed three of these levels. Right? I'm saying this because it just frustrates me because I really believe anyone can do it. I really do. You should have to live on a lot less than you make.

And so anyways, to finish this out, right, what do you do? Most times you're going to want to have to sell something, right? Either you're selling someone else's product or you're selling your own product. Either way, but I say product, I mean product, service, whatever, right? But either one of those categories. And if you make $100,000 a year, dollars a year 100,000 dollars a year and you live on 30, you can do this.

Not only can you get into this bottom, quote, bottom level, the top 1%, but you can get the top 0.3%. Right? Now, if part of you is like, well, you know, then what's the point of living? It really depends on what you value. If like, and this is kind of backwards because it's like the type of person who wants to have more money wants to spend the money they have, then I can understand it. But then at that point, just don't yearn for more. That makes sense. So like don't be dissatisfied that you haven't achieved your goal. For me, what I'm looking at is like, how can I get into this category by the time I die? And use that to impact humanity, like in a way that's meaningful.

That's what I'm trying to do. Right. And so anyways, I told you the Priya story to illustrate a point, which is I was a millionaire and living on less than $3,000 a month. Right. I owned my car. Our rent was $1,200 bucks. And Layla and I lived on, we bought food. the grocery store. You know what I mean? Like we went out once a week. Like it wasn't, it's like,

you can do that and live a normal life, like a comfortable life. And that was when we were making a lot of money. And that's because I always have a fear or had a fear that I would, I was like, what happens if we stop making money? I don't, I just don't want to lose everything. And so I think if you can be satisfied and decrease your anxiety or make the amount that you spend, decrease your anxiety, you will be happier. So I'm going to leave you with this one piece as a final note on this, the simple retirement calculator, all right? World's simplest retirement calculator. So, if you live, let's say,

let's say that you are currently 30 years old, all right? So you're currently 30. And you want to retire. All right? So let's say you want to retire soon. Let's say you want to retire by the time you're 40. All right, crazy shit. You're going to try and retire by your 40.

Okay, cool. I dig it. So if you want to retire, let's say retire, but realistically you're going to work because you like working. but let's just say that you don't want to have to work. You just want to work on the stuff you like working on after you're 40.

Cool, no problem. The percentage of your income that you spend is going to be the thing that dictates how quickly you can retire, not how much you make. So, for example, if you make $400,000 a year, like I said, right, and you save 10%, right, versus making $100,000 a year and you saving, let's say, 80% is what you save, then what you're, every year you're adding four years of retirement because it means that you're spending 20 and saving 80K. That's great. That means for every year, you're getting four years back, which means if in 10 years, at this point, you'd have 40 more years, right? Once you hit 40, because you had 10 years of stockpiling for each year, right,

you'd have 40 years of living. Now, mind you, that's assuming at your current level and that the money that you now have saved up at this point, because you should have 800,000, right? And that's assuming that none of the money you had made any money. So it'd probably be closer to like 1.2, right? Million by the end of that decade. That's really conservatives, though, maybe even two million. Right? At that point, that this money isn't even making you money. That's just literally assuming a straight decrease in how much you spend, right? That every year it would just go down, which isn't even realistic, right? But if you did that, then you'd get there. And that's on $100,000 a year. Right? That's it. On the flip side, if you're at this 10% guy,

then every year he gets one-tenth of a year, right? Because he's saving $40, and it costs him $400 to do a year, which means that this guy is never really going to be able to retire, right? And he's always going to be stressed, or she's always going to be stressed. And so I say that only to illustrate one point, which is you have to spend less than you make. It's sometimes a simple shit that people don't want to do. And it means that you can either have your ego and how you look to everyone, or you can have your ego based on the freedom that you feel. And I know that the vast majority of people will never do that. I get messages every day from people who are like, you know, they've been trying for 10 years to make a million dollars a year rather than maybe trying

to make $100,000 first. Right. And the thing is, is to be in this top 1%, you don't need to make a million dollars a year. Not even close. You're not even close. You don't even need to make close to a million dollars a year to be in the top one percent, right? If you just add a little bit of time, you can get in the top one percent just being reasonable, right? You can get in the top 0.3 percent by also being, you know, unreasonable compared to everyone else, right? Just because the thing is, is most people are insane in terms of they're irrational with their behavior and their expenditures. They are stressed about the amount of money they spend, and yet they are in complete control of how much they spend.

Just spend less, and you'll be less stressed. So anyways, that is my money message for everyone today. We still continue to less on, live on 5%, maybe 10% of what we make. I don't think we live on 10%. We live on 5% of what we make. And the thing is, at that point, if you live on 5% or 10% of what you make, then it means that literally one year,

if you like walk with me for a second. If you live on 10% of what you make and your money grows at 10%, then in one year you could retire. Assuming you have a stable income from the savings that you had on the other 90, right? Figitively, one year, 15 months, whatever. But you get the idea, right?

Does that make sense to everybody? Like, if you live on 10% of what you make or you live on, like, but man, that's like poverty levels. It's like, yes, but it's poverty levels in your mind based on your perception, not based on reality of the fact that you're going to be stockpiling money that will continue to feed you forever what long you want. Right. And so the moral of the story is spend less than you make. The greater you can create that disparity, the faster you can retire or get to a point where you choose to work on the things

that only you want to work on. Right. And getting into the top 1% is literally a matter of saving a thousand, 1,500 bucks a month and putting in the S&P 500. It's about it. It's all there. I mean, like, that's, that's it. That's all there is to it. And the thing is, is it's so simple, no one will do it. And that's okay. But you're a smart cookie and you're going to do it because you think that simple things are usually the keys to the universe, which I agree with you. So keep being awesome, lots of love. And I'll catch you guys on the website. Bye.