The Game with Alex Hormozi - When to Decide to Start Spending Money | Ep 407

Episode Date: July 12, 2022

What does value mean to you? Today, Alex (@AlexHormozi) talks about how he was able to live on $0 Income for 3 years growing my business through a framework that kept him grounded and being able to spend on things that you value rather than meet society’s expectations.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: (2:01) - Sleeping on gym floor, learning income-to-expense ratios(4:59) - Business expansion, marriage, setting expense priorities(10:51) - Cashing money, de-risking, goal of material wealthFollow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

It's really about playing the game. And I think that that has been, I think the goal, if I have for Mosy Nation is that everyone can get to a point where they're just playing the game for the love of the game. 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. I was talking to an entrepreneur the other day and we were talking about living expenses.

And one of the things that a lot of our portfolio companies struggle with is when to decide to start spending money, right? It's very difficult because we, a lot of times as entrepreneurs, especially those that grow their businesses, many times they've been taught not to spend money, which I think is the right lesson overall to get to get started, right, if you define that as like the optimal and for material wealth. And, you know, on the flip side, there's also some people who struggle to ever get ahead and they're always living paycheck to paycheck, even when they have a lot of money. And I know I have some friends who, you know, they're in their 50s and have always made very, very high incomes and have spent virtually every dollar and now they regret it. And so I don't think

there's anything wrong with spending all the money that you have. I do think that it is not ideal for material wealth accumulation if that is the goal. But you may enjoy your life that way. So it's really, I think, a balancing act between those things. And so I thought it might be fun to make a video about how my living expenses changed from, you know, dollar zero to now we do, you know, over $100 million a year at acquisition.com. And if you're new to the channel, I make these because I want to help. And I hope that these things can help you get to three million dollars more so potentially partner with your business and how you get to 30 and beyond. Okay, so let's dive in. So, you know, season one here was Alex quitting his job and sleeping on the

floor. All right. And so I tried to write out each of these phases or seasons of my life, kind of like the outcome, the income, and kind of the expenses I was incurring at the time. All right. So I slept on the gym floor, so I had no rent besides my business rent, but I had no personal rent. My car payment was not existing because I had my car in cash. And I actually only lived exclusively on the cash sales from the business. That was actually my living money, which for me was a combination of eating in and out and Chipotle, and that was it. My accountant actually told me that I did done over 500 transactions at Chipotle that first year. And he was like, that's insane. I was like, well, I don't buy groceries and I don't cook. So I just, I ate out always. And that worked out for me.

So it was actually for me cheaper than all the time. And I just stayed at work and I slept there. And that was kind of it. Right. And so anyways, even during that time, I was able to increase my income to about $15,000 a month. But I tend to be very security driven. And I've noticed that about myself. So I like to make a lot more than I'm spending. All right. And the reason I'm making this video too is that like some people will see us, you know, fly private or they'll see us eat out, you know, many, many, many, or every night of the week and saying, oh, that's what I should do now. I should emulate that. And that's, I think I wanted to actually show kind of the come up of what kind of expenses, you know, expense to income ratio look like for me over the last 10 years to hopefully,

you know, provide some clarity for those of you who at least are trying to emulate the path. And if you're not, then don't emulate this path. But this is what works for me. Okay. Now, at this point, I had two partners into the scene and we stopped taking dividends and we started investing in the growth of the of the business overall. That's when I went from, you know, one to six gyms. And I really took no dividends in that period of time. And I had saved this up for about six months. So I had about $70,000 total saved up after taxes from that first, you know, six to nine months of doing business. And at that point, that was it. And I lived on that for three years. That cash lasted me for three years, which is, again, probably why I'm so security driven because I know what it's like to live on nothing.

And so my car was still in cash, so I had no car payments. And I did up my lifestyle to renting a room. And it wasn't actually me running a room for context. I actually had a true roommate. So it was a house. There were seven people lived in the house. And I split one room. And so this was in Southern California.

And my rent was, I think it was $700 a month. It might have been $400. It was $400 to $700 in there. And it was a house in Costa Mesa. And I literally had another guy who slept in there with me and we split it. All right. So mind you, like, I'm reinvesting all my cash in growing these in this business, but my personal expenses were virtually zero. The only thing I spent money on was going out to each Poli. And that was it. That was literally all I spent money on and I had this shared room.

Okay. Now, I did that for three years. All right. So like, there's like this, there's this scene. I can say three years really easily, but it took three years of my life of this little season here. Now, the next season that happened was I bought a condo. And I bought a condo because I really liked the condo. I thought it was, you know, well priced and whatnot. And I lived there for a very short period of time. And then I realized that I could rent it for $3,500 a month. So that's what I ended up renting the condo for. And then that's when Layla and I started doing gym turnarounds.

So you used to fly around and do these launches, right? And so these launches at that time from a business perspective got us to about $200,000 a month. Now that was revenue. My income was still very, very low. And that's because, again, I didn't take distributions because I didn't learn that lesson yet. All right. So for those of you who were like, taking notes at home, there's multiple periods of those

you who know my story, I've lost everything in between here multiple times. And so that is why I'm so big on taking distributions as you grow, because at the end of the day, risk is a real thing. And I had spent years of my life building something only to lose it. And I didn't want to make that mistake again. And so this was yet again, another one of those mistakes where I did. And I did these turnarouts. And I lived at the Extendants Day here for $1,800 a month. All right. So my rent expense was $1,800 a month. We had a car that we owned in cash, which was the Prius during this period of time. And that was it. That was the only expenses was the, was the extended stay. And then us eating, you know, Chipotle and stuff. And Layla was kind enough to deal with me eating Chipotle

during this entire period of time. And so we got the business about $20,000, $10,000 a month. There was a bunch of logistical issues with the business. It was low margin. There was a lot of operational complexity. I was learning, right? So then from there, we said, you know what? Maybe we should settle down. And that's when we switched to having sales teams fly out and do this stuff on our behalf and do the gym turnouts and we could stay central. So that's where we moved to Albuquerque because we had friends in Albuquerque that we wanted to learn from. And our rent there was $1,200 a month. Okay. The car we owned in cash, which was Prius, aka hashtag Mosymobiles, those of you who are, you know, valuing your business over your personal expenditures. And we ate out out once a week.

And this is actually when we switched to meal prepping. Excuse me. So Layla started cooking because we had a kitchen that was like regular and it wasn't just like an extended state kitchen. So she started cooking, which was awesome. And we ate out once a week. for like a date night because that's what we believed what we had to do then was have a date night, which we have since changed the way we do things. But at that time, that was the one kind of big expense of the week as we would eat out. Car was in cash, $1,200 a month was our rent. And here's what's crazy. During this period of time, the business went from the turnaround business at $300,000 a month to $1.5 million a month. All right. And these are my living expenses. So I was saving,

and this is really saving. I was adding a million dollars to my personal bank out every month. all right, and by I mean we. All right. And so this is when we started to really create a lot of wealth very quickly. And mind you, like, we didn't live on a lot of money still, right? And I think when we had about, I want to say we had four to six million saved up after taxes at this point. And that's when in cash, we bought a $1.8 million house. We bought the $1.8 million house in cash in Austin, which was a really good deal at the time for that, for that particular.

house. We still split one car, which she owned in cash, and this car now got upgraded. It was an I8, which was a gift from ClickFunnels for being an affiliate. So I got the car for free. And they basically paid us to buy the car. It doesn't matter. But the point is, I didn't have car payments for the car. And this time, we still ate out actually less frequently than in Albuquer because we were like super intense in work mode. This is where we over indexed on trying to build the enterprise and build the business during that period of time. And I don't want to say I regret that. I think it was a necessary lesson. I think we did not have nearly as much fun as we probably could have. But Layla and I were so afraid of losing what we had built. And so, you know, it was just like,

we just didn't want to mess it up. And so we just wanted to work all the time because we were just so afraid. It was very fear-driven still. Hey, guys, real quick, if you're new to the podcast, I have a book on Amazon. It's called $100 million offers at over 8,000 five-star reviews. It has almost a perfect score. You can get it for 99 cents on Kindle. The reason I bring it up is that I put over a thousand hours into writing that book. And it's my biggest gift to our community. So it's my very shameless way of trying to get you to like me more and ultimately make more dollars so that later on in your business career, I can potentially partner with you. So that's my give.

Go check it out. Amazon and back to the show. Now, you know, two or three years in at this point, we bought an additional car, which is a Bentley. I talked to Bradley and I talked to Burkastillo, friends of ours, and they were like, dude, you got to spend some money. And I was like, all right. So we bought a fancy car. And I realized quickly that we didn't care.

And so we sold it within six months. We lost money on the car and we were happier for it. And so it's just we realized it just didn't matter to us. It just sat in the driveway and getting an expensive car fixed. We had a teenager ding the bumper and it was in the shop for three months of the six. And it was ultimately just a pain in the ass. Now, that being said, still during this period of time, you know, the Bentley was the only really expensive thing we bought. The house was in cash, so I had no house payment.

The car was in cash, so I had no car payment. And the only real expenses we had it at that period of time was eating out one to two times a month. that was literally it. All right. And during that time, our revenue increased from 1.5 million a month to over 4 million a month in that period of time and our wealth continued to grow because everything that was in excess from the income perspective just poured straight into our savings. All right.

So that was for context. During that period of time, I think we accumulated around, I want to say, $30 million after taxes in cash and assets or cash equivalence, things like that. And so it was really just savings, right? We didn't sell anything at that point. That's kind of where we were at that chapter. All right. Now, at that point, now, mind you, this was like cash stuff. There's the equities in the business that obviously were worth more than that, but that was just straight dividends. And I think an important part there is like, I learned to take dividends because I realized that I was giving myself an excuse by reinvesting every dollar of cash flow into the business, which a lot of times meant that I just wasn't really focused on profitability. And I think that sometimes that's a business strategy, it's very rarely the right one. And a lot of times, just having a sustainable growth path where you can de-risk yourself by taking cash off the table. Because let's say COVID happened, for example, and our companies had gone down, which they did.

Thankfully, we had very strong businesses that were able to sustain that, even though they were in heavily hit industries. This gave us a very good piece of mind to know that we could cash for the company if we needed to and we could keep everything alive for as long as it lasted. We thought it was going to be 12 weeks and then it was two years, right? And so that's why I'm a big fan of derisking and living cheap. Now, you're like, well, that's not living cheap, Alex. The thing is that relative to my income and this is why I wanted to make this video is for

context, right? Yes, we lived in a $1.8 million house, and yes, we sold the house for $4 million, two and a half years later. So it was an expensive. It was a nice house in a nice neighborhood, but we could buy our house in cash every month off of our income. All right? So like, this is what I feel like is lost sometimes in the podcasts and interviews that I talk about. And sometimes they're like, oh, you eat out, you, out, oh, you eat private. And it's like, yes, but like, I'm so security driven. And I just want to convey that. I'm not saying you have to be. I'm saying this is work for me. All right? And so we were able to accumulate about 30 million bucks in cash. between like real estate and stocks. I would say like non-business equities or non-public market equities

during that period of time. Now after that, some of you know, is that in 2021, we sold everything. So we sold our three businesses. We sold two cars. We sold the house. We sold everything. Actually, we sold one car. We were going to sell the other car. And I think we kept it. So excuse that. So that should just be one. We were planning on selling two. We sold one, which was the belly. All right. So we sold everything. So we had no personal assets. All right. We had business assets and investment assets. We had no personal assets at that time. And so then we started renting a condo, the one that we were currently in, for 15 grand a month. We spend about $15,000 a month on food and eating out.

We don't cook much, and that's just from a time perspective. And it's also for us, the end of the day is kind of like where we unwind. And so we work from pretty early morning until about 4 or 5 o'clock. Then we got to dinner at 6. We give back home at 7.30. Layla and I probably watch a show, and then we go to bed and we do it all over again. And so that's our day. That's what we do.

I might be like, that's really boring. Yeah, probably. I don't know. We like it. And so that's what we do. So we spent 15 grand a month on food, probably $15,000 a month on travel. I will say this. We flew private more during this season than we do now.

And that's because we found something that I think gives us, confers from a benefit to cost ratio, many of the advantages of private, but it's public. So we actually fly JSX now for anything that is on the West Coast, which is basically like semi-private travel. It's cool. It's like, you know, you can have like three to, you know, 15 other people on the plane with you. And it has all the same benefits private, which is you roll up straight to the plane 10 minutes before it takes off.

You literally get right into the plane and then it lands and then you walk straight to a car. So it just saves so much time. And it's marginally more expensive than a normal ticket. I think some of the tickets are like $200 to $400. It's not expensive. And so we stopped flying private because spending $50,000 on a plane flight, if I can get basically the same benefit for $400 is worth it. And so again, this is one of those like, we flew private because it saved us time and it turned travel from a negative into a positive. But JSX, I think, accomplishes all that.

And I never cared about having other people on the plane. I just cared about getting places faster and not having to get hassled. And JISX accomplishes that. So, I mean, we pretty much always fly those now everywhere we go. And almost, if anything, we try and fly places where they go, which is wonderful. And, you know, during this period of time where we're currently at, you know, acquisition.com, I say in the videos, you know, we're doing over $100 million a year. But right now we're over $150.

But just for sake of, you know, not making the number change every time the businesses grow. We grew from about $7 million a month to $13 million a month between the portfolio companies in that period of time. And so I show this to show that, you know, I don't think our lifestyles have increased at the proportion that our income has. And I think that's because Laylor are both very security driven as individuals. And that works for us. And I want to have kind of one final point that I'll make here that hopefully you can take away from this is that if the goal is material wealth accumulation, then the lower your personal expenses, the more you will accumulate, right? And your peace of mind will be predicated on the ratio between your income and your expenses. If you can make enough in a month or a year

to give yourself another multiple years of living, then you go towards your FU number as fast as possible. So, you know, there's two variables there, how much you make and how much you spend. Now, at some point, people are like, well, I'd like to increase my expenditures. I think that's natural and I think that's normal. And I think the thing that I would push against, which is why we had a hashtag that went pretty viral, which is Mosey Mobiles. We'll probably have Mosey Mansions, too. I'll probably start that one. Maybe I'll show an image of what our $1,200 apartment looked like. But it's really less about living cheap and more about spending money on the things that you value rather than what society has told us to value. Right. And so for me, the equity growth in my businesses, I valued more than having a Lambeau or

having a Bentley. And for me, I just don't get a lot of value from it. Now, some people might, and that's okay. I just think that it's really good to think consciously, am I buying this because I want status from other people or because I really think that this thing converts value, right? Same thing with flying private. For example, at least for us, the decision calculus has changed recently, just because I just discovered this. For the last few months, we've been flying JSX and honestly, I love it. It's great. The benefits of value ratio has diminished now that I have an alternative that is, you know, one one hundredth of the price of private and confers almost all the benefits that I enjoyed. And so I say this to say, I am all about wealth. And wealth is the ratio of being,

income and expenses and peace of mind that you have from knowing that you have enough. And so for me, my goal was to get to enough as fast as possible so that I could feel that peace of mind. Everything we do now is just for love of the game, which is why the podcast is called the game, which is why I make these videos. And just to see like, what would it look like to get to a billion? Because that sounds really exciting and epic and fun. And at the same time as I'm super invested and motivated to get there, I have very little, I'm okay if we never do. And I don't even want to say that because I do 100% believe that we're going to get there. But it's really about playing the game. And I think that that has been, I think the goal, if I have for Mosey Nation

is that everyone can get to a point where they're just playing the game for the love of the game, not for the Lambo or for the mansion or for the whatever, because I can tell you that those are moments and those are fleeting. And so I think it's much more of a process of becoming rather than obtaining. And I think that if we can make that switch, we get to experience a lot of the benefits of the wealth because wealth occurs or you become wealthy the moment you decide you are because you will realize at some point that money will buy you freedom, it will not buy you happiness. And so if the goal is, you know, first the goal is freedom short, but then you're free to experience the feelings that you have, then you'll realize that it was not that thing. But it can

absolutely decrease pain and inconvenience in your life. And so I can, obviously, I'm somebody who's gone after material wealth accumulation in my life. So I don't want to say that like, it's not something that I find interesting, fun and stimulating. I don't even know what I would do if this game didn't exist. But it's really just to take pause and think, like, are these things that I'm buying really adding more value than the price that I'm incurring to purchase them? And I think many times people purchase things without taking that extra second to pause and say, like, am I really getting $500 of value from this shoe? Am I really getting $2,000 from this belt? Am I really getting X, Y, Z? Now, you can do this relative to your income, right?

Like, it's not unreasonable to live on a million dollars a year if you make $15 million year, right? It's not. It's actually less. And here's what's crazy. It's less to live on a million dollars a year when you make $15 than it is to live on $100 when you make $400. right it's about the ratio between income and expenses and so we can control our expenses and also we can control our income based on getting more skills which is why i've been a very loud advocate for spending as much of your extra dollars on acquiring more skills so that you can increase your capacity to earn and when you do that you can accelerate towards that wealth uh discrepancy between income and expenses at a faster rate and then ultimately achieve the peace of mind that i think most of us are after

anyways mosey nation i love you guys i appreciate you. I don't deserve this audience that you guys have come together. You guys are amazing. And I just, I'm so grateful that this channel and the other, you know, social media accounts and things like that, thank you guys for all the support. You guys are just, just awesome. I just didn't even know so many of people like, you know, me existed out there. And it definitely makes me feel less alone. So appreciate you guys. Keep being awesome. Bye.