Income Avalanche | 411

Hello, my fellow Ripplers! This is Chris Miles. Your Cash Flow Expert and Anti-Financial Advisor. And we welcome you guys for a wonderful show. A show that’s for you and about you. Those are that work so hard for your money, and you’re ready for your money to start working harder for you. Now! You want that freedom. You want that cash flow. You want the prosperity. Today. Not 30 or 40 years from now, if you’re lucky, but right now, right? So you can have that freedom to be able to do what you love with those you love. And whenever you want to do it. And you get to work because you want to. Not because you have to. You get to work by choice. You get to have an empowered life. And that’s exactly what we’re here to do. But on top of that, it’s not just for your own prosperity, but this is something for you to create a ripple effect in the lives of others. To be a blessing in the lives of those around you, whether it’s your family, your community, or across the world.

And guys that is the ripple effect. I am here to create in your lives. And thank you so much for your part of it. Thank you for downloading and bingeing and doing everything you guys do. Like I love watching us grow all the time. And that is in large part to you guys. And thank you so much for living the example, not just being here is the word, but doers as well.

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So today, guys, I want to talk about, you know, really a concept that I’ve referred to on the show, and I’m just kinda throwing out a little sound bites of it. But I want to go in depth of what it really looks like because there’s two really big prevailing mentalities when it comes to money. There’s the accumulation mentality, which is almost what everybody teaches you to do, right? It’s all about net worth is about building up your savings and compounding over time, you know, using that stuff. And I’ll tell you that it doesn’t work. I mean, most of the conventional things are out there. Don’t work. I mean, for example, I mean the stuff I teach is not conventional, right? This is not mainstream. Hey, I’ve been telling you guys to take out key locks. I just had a client thanking me because we actually talked in the beginning of March saying, Hey, you want to get access to that home equity now. And guess what COVID hit, you know, of course it was already hitting by that point. But I said, do you want to get access now? He did it. Then a month, he got the cash out and then he was laid off.

And of course people would think, why would you go into debt and get laid off? Right now, you know what he’s doing? He’s emotionally saying, wow! I never thought it feels so good to know, how did we get 120 grand out of my house that now sitting in savings. And even though he’s got some unemployment coming in, that’s great and they’re doing fine. He’s like, I got this extra cushion of money that is there for whatever, you know, in case something was wrong or even better yet I can invest it and make it work for me. And guys, that’s a very different mentality. And how many are telling you, “Go into debt”, which I’m not telling you, by the way, I’m just saying, Hey, the equity, the assets you have available, let’s leverage it. Right? And so when I talk about money, it’s about acceleration, not accumulation.

It’s not about building up money and saving over time and going the long, hard path that really may or may not get you there because whatever money you do have, you gambled in the stock market, right? I’m not telling you to do that. I’m saying go for things that have real assets, especially create cash flow. I’m about acceleration. Acceleration of using cash flow to keep building. And the constant we talk about today is that Income Avalanche, right? You got the debt snowball method that you hear people talk about. Well, this is the opposite, but it’s income instead. It’s like, how do we get cash flow to keep building upon itself to keep growing exponentially getting bigger and bigger as time goes on. That is what I’m going to talk about today. And so I want to illustrate that. So first let me explain the concept.

What is this that you’ve got a certain amount of assets or money, whatever it might be. Now, some of you guys are in the beginning stages. Some of you might just be at a point where you say, Hey, I need to start building up an emergency fund. Great! Do that. You know, I would recommend going back to the wealth building step-by-step podcast, I did just recently. A great step-by-step showing the order of how you should be doing these things, right? So maybe you’re needing to start out, but I know many of you that are listening are already at the point you have savings. You actually have more savings. The fact you say, Hey, I’ve got money coming in. What do I do with it? Right? What’s next? And so I actually want to bring up an example of someone I just talked to recently, one of you, in fact that had reached out, I was actually connected to them through a turnkey real estate investment company that said, Hey, you’re looking for a financial advisor?

We know a guy who’s not a financial advisor, but will help you do the things that you had hoped a financial advisor would do. And so they referred him to me and in very cool situation. And cause it’s fresh in my mind. I want to use this an example of how this looks, because ultimately what it is, it’s like this exponential curve, your cash flow, your income, your passive income, you know, starts at year one, but it doesn’t just take time to get there. It does take time, but it grows steadily more and more each year until you eventually hit your cash flow goal. And this could feel daunting for some of you because some of you might say, okay, Chris, my goal is 10,000 a month. That’s my cash flow goal. That’s the passive income I want to create. So I work because I want to, not because I have to. But I’m only at 2000 a month or maybe with what I have right now, I could create 2000 a month. We go from 2000 to 10,000. That’s a big gap. How do I get there?

Good news. This is where this comes in.

It does require discipline like anything, right? But I want to show you what my mindset’s like and how I see it differently. Because when they came to me, they said, Hey, we’re starting to get some money in here. You know, more savings than we’ve had for a little while. And what do we do with it? What do we do to make it work for us? And they’ve went to every other financial advisor says, well, you could put it in these mutual funds or maybe put into an annuity. You know, that kind of basic stuff that they’ve told them, right? I said, you know what, what’s your goal? And they said, our goal is 2000 a month. I said, Hey, watch this.

So here’s their situation. They have about 50,000 savings. They are able to cash out somebody from his 401k. He was actually laid off from work or furloughed, right? So as a result, he might get hired back anyways. But as a result because the cares act, you can access up to a hundred thousand dollars of your IRAs or 401k’s without the 10% early withdrawal penalty. So even if you’re not 59 and a half, and these guys are in their late thirties, if you’re not 59 and a half, you can access up to a hundred thousand dollars, without that 10% penalty. You will pay taxes, but at least you’ll avoid the penalty. So as long as you’ve been affected by COVID in some way, shape or form, you know, even if it means you didn’t get the bonuses you usually get, or your income changes or your hours change or something changed, or you got furloughed, that’s the easy one, all those things, right?

So anyways, I say, all right, you got about 50,000 savings. You got some money from your 401k. That’s what you have right now. 401ks that are currently still in them. They’ve got about 284,000. So over 280,000, they just started a Roth IRA with 9,000 in that. They have a rental property. They actually bought a ramp which is probably through this company that referred me. A company I’ve actually had on the show before. In fact, a couple times. That’s cash flowing them 350 a month. By the way, mazing returns, when you consider their out of pocket costs with the down payment and everything, was only 16 grand, but they’re making 350 a month. Guys. That’s like a 26% return. I told them, I was like, Hey, that was a golden property you bought last year. Don’t expect that every time. I just tell people, if you can make 12% return on your money, cash on cash return.

That’s good. So anyways, We make it 350 a month on the property. Cool thing is they don’t have any real extra cash flow because they’re not making as much money, but they’re not in the hole either. They’re actually doing okay. They do get an extra gift of 15,000 a year that they get from family too. That comes from a grandparent’s estate. So that’s kind of cool. Cause that adds to building this income snowball, this income avalanche, right? Now they have credit cards. You see that one here, They’ve got like 8,500 credit cards. They’ve got some student loan, they got an SBA loan. They have a mortgage. I told them all their loans are great, but I would pay off. And this is number one. So I talk about strategy. Again, their cash flow goal is 2000 a month, right? So what the resource they have, they’re thinking, okay, we know it will be awhile before we hit 2000 a month.

You know, we know we’ll be several years down the road. So maybe we’ll just invest, you know, pay the 401k back, keep the money in the 401k, let it grow. You know, we’ll build a Roth and he put a property inside of it. That was kind of their, their thinking, right? And that their cool thing is they’re looking at these creative strategies. I was like, wow, they’re really thinking outside of the box more. And then I saw their situation. I said, you know, but I wouldn’t do any of that. And I said, Hey, this is not a recommendation, by the way, for you guys, anybody looking at this, just cause you see this here, this does not mean this is the recommendation. I said, here’s what I see. I said, first and foremost, with the cash savings you have, I would pay off that credit card because the 8,500 it’s payment is $218 a month.

And they said it was only 10% interest. It’s not a bad interest rate for a credit card. But I said that 218 a month, like if my goal is to make 1% a month on my money. So if I have 8,500 bucks, I would want it to pay me. If I invested, I want to pay me at least $85 a month. So you just drop off the two zeros. If you have 20,000, you want it to pay you 200 a month. If it’s 30,000, pay you 300 a month. If it’s 55,000 pay 550 a month. That’s my goal, right? When I look at investments. But when I look at debt, if I know that I can beat that well, beat that number, you know, 8,500, you’re hoping to maybe make 85 to a hundred bucks in an investment. But if they pay off the credit card, it’s guaranteed 218 bucks a month.

I say, guys, that’s a no brainer. You would want to pay off the credit card. But the rest of the loans, I would leave it alone. They’re actually not that bad. Their monthly payments are pretty low compared to the balance. If you remember my cash flow index formula, I talked about, right? Very good cash flow indexes. They’re high. And so we don’t want to pay those off necessarily. So they just keep paying those like normal. Here’s the other thing and I get, this was not a recommendation, but I said, here’s an option you have, you already started to do it. What if you cashed out your Roth, you know, the 9,000 and then they just barely put it in. So it wouldn’t be a big deal. And if they gained some money, you know, maybe they keep the gains and they have Roth and leave it there. But they could access the 9,000 for the Roth and the 401k.

They’ve got about 284,000. So that’s about $290,000 that they can potentially use. Now in their minds because they’ve been trained like everybody else, don’t touch that money. Right? Don’t touch that 401k. Don’t touch anything. And I said, well, you’re in a position you could potentially touch, you know, access that money. And so I’d say with both of you guys and they have both, you know, either they got furloughed or they quit their jobs recently. So these were 401ks that were accessible. If you work for a company, you may not be able to access your 401k, maybe through a loan, but not often through cashing out. That’s pretty rare you can do. What’s called an inservice distribution. So in their case, they’re both old 401ks, 401ks with old companies that they worked for. So I said, Hey, you could cash that out. Now they have up to $150,000.

They could do total between the two of them. Cause there’s 200,000, you can access without the 10% penalty. So I said, if you do do that, that’s 150,000 and maybe they pull out a little bit more, you know, maybe they pull out the full amount. Maybe they don’t pull out the full amount, right? Maybe they only pull out 240,000 more. You know, maybe they leave 50,000 and whatever, it doesn’t matter. I just told him like, Hey, if you bought 290,000, here’s the thing. You will have about $70,000 in taxes based on their tax brackets and everything. Now companies will likely withhold probably almost 60,000 of it. But I said, Hey, either way, you’re gonna need about 70,000 withholding from tax. That leaves only about 220,000 right? Now, 20,000. That needs to be set aside for emergency fund. Now they already have 50,000 savings. They already got that there.

So of the total, they got, you know, 220,000 plus the 50,000, right? That’s 270, make sure 20,000 is left in their emergency fund. You know, that sort of thing. Now the rest I said, you know, only invest 230. And by the way, this is some stuff. This is easily going deeper than even I told them, I think, at this specific, but I want to illustrate this for you guys as an example. So we took 230,000 of that money. Now, granted, I know actually doing the math currently. We could probably do a little bit more, but Hey, may could be able to do 250,000, but I think 230 is a good conservative number because it leaves a good amount of money in their pockets about 40,000 bucks in their pockets there. And who knows? I said, even with emergency savings, maybe some of that goes into infinite banking policy, right?

Maybe we diversify their savings. At least it’s earning better than point, nothing percent with the bank. Right? So anyways, investing 230,000 for cashflow at 10% is 23,000 a year. We bumped that up to 240, great! Now they’re making 24,000 a year. Now, remember what is this cashflow goal? 2000 month or 24,000 a year. So he could basically do it here. So I get, I just took 230 and making 23,000 a year. I think that’s a good conservative number. There’s several places they could do that. They do real estate. It could be even more, but even if it’s just, you know, like AHP fund, right, the AHP fund that here we talk about, they pay 10% a year. Cool. That’s 23,000 a year. Now, I go to number five on the strategy list here. I say, reinvest this 23,000 of cash flow. So that cash flow they’re getting rather than consuming it, keep it, you know, build up that savings.

And again, it could be put into life insurance or whatever else, but either way, 23,000 plus the 15,000 gifts that they get each year, that’s $38,000. So in their second year they got $38,000. They can now invest again. So with cash flow and everything, investing that, whether it’s, again, AHP, it could be real estate or whatever conservative number adds about $4,000 a year. So now they’re 23,000 becomes 27,000. Right? Now they do it again the next year they take the 27,000 and take the 15,000, from the family gift. This could be true for you guys. Maybe you don’t get a family gift, but maybe you’d get extra cash flow you’ve been saving, putting way. It could’ve been money you put into your 401ks, maybe money that you just have leftover each month. That bigger, that number is the faster this grows, by the way. So anyways, they’re taking that 27,000 plus the 15.

Now that’s $42,000. They have to work with. So that makes 4,500 a year. Again, I think these numbers are very conservative compared to the options that are available. And I even did this in case they couldn’t quite do the real estate options we wanted. I want to make sure this was realistic. Well now their total in year three, jumps up to 31,500. So remember they started at 23,000. Now they’re at 31,500 of cash flow a year. By the way, if you want 31,500 from mutual funds, that means you can’t be pulling out more than about 3% a year. This would mean that the equivalent of this would be like having over a million dollars sitting in a mutual fund that you’re pulling out 3% because we have a million dollars at 3%, you’re pulling out 30,000 a year. They’re already by year three at 31,500, not waiting for age 59 and a half, which is over 20 years away for them. Right?

That’s another thing that’s crazy. Why invest in vehicles that don’t match your objective? You know, why put money in a 401k if you want to retire before 59 and a half, that’s ridiculous. That’s like throwing money away from you. It’s locking up in prison and saying, Oh, sorry. I guess it can’t work for me after all, right? You don’t want that. You want your money working for you. They want them out of prison doing their thing. So already by year three, that’s 31,500. Well guess what? 31,500 plus another 15,000. That’s over 46,000. Maybe now they’re making over 5,000 a year and you could see how this keeps building. You know, that we keep adding more and more on this cash flow side, you know, that keeps growing and adding up, right? Like, so what happens? You keep buying bigger and bigger assets that keeps going, and we’re not talking about selling and repositioning out of properties to buy more because equity growth and everything else that’s beneath the surface.

We’re not talking about the fact that their mortgages are getting paid down too. So what’s happening is we’re taking about, you know, 300,000 or so of their money total, right? In total. Even after paying the tax, a big chunk of that to taxes. And still now it’s got way more cash flow coming in. Then if they had waited however many decades for their money to turn into over a million dollars inside of a 401k. You see what’s happening here? Like this is just speeding up everything. Now it might sound amazing or it might sound too good to be true to some of you. But the truth is that this is something that happens every day. And in many cases, these numbers are better. Again, they can be more conservative, depends on the situation of life, right? And what’s going on, you know, I’ve lately with everything going on with people being furloughed like I’ve had, we’ve had to get pretty creative on finding different investments that are secure for them, but also providing good cash flow.

In fact, even helping provide some income when they don’t have the income coming in, or it’s not the full amount of income they’re used to. And so this is the cool thing, is that even a situation like this really within the first year, and this is what I told them, I said, really, within the first year, guys, you can actually hit your 2000 month goal. They’re like, how? How’s it possible? Well, it’s about finding the resource. Figuring out where the money is. Again, they never really considered that they could use that money elsewhere because you know, everybody does a great job marketing to you telling you don’t touch your 401k money. Don’t touch the equity in your home. Don’t touch these different assets that you have that really could be used to accelerate and even create good, steady streams of income for you.

And just like everything. Cash flow is the real path of freedom. When you have more income coming in than expenses going out, that is true freedom. What happens though is that many of us are taught that it’s about accumulating and compounding and not, you know, not doing anything with your money, you know, just letting other people manage it and try to make money for you. And the truth is that does not happen. You know, first off, most of those managers are, have their hands tied on what they can and can’t do, even though they know better with their funds, they can’t always buy and sell the way they think they should. So they have to think in a very different perspective. And if, again, if you’re lucky, you can take all these high risks in the market to maybe average what, 6% maybe 7%, if you’re really lucky. Longterm, because remember the real rate of return of the S and P 500 last 30 years has been seven and a half percent, not 10 or 12, seven and a half, right?

So you’re taking all this high risk of all these ups and downs and try to be in it for the long haul and delaying your gratification, delaying any real life, especially when you’re alive, right? All the stuff that’s happening and what’s can actually happen in truth is not an accumulation type of model. That’s been proven to take way too many years for your life to make it really truly work in a good way to create freedom. And then instead do an acceleration model, which is about cash flow. Passive income now.

So guys, that’s the thing I want to share with you is that, this the stuff I see day in and day out, this is the stuff that oftentimes people can consider. Maybe their mind starts to play with it. And then they retract again because it’s uncomfortable or it’s unknown. And they don’t know where to go.

Guys. There is places you can find good returns. You can actually take control of your financial life, not turn it over to somebody else and hope and pray. They do something with it, but have real control of your money. Take less risks. Get regular, stable, steady income from your money, get your money working for you now. So you work because you want to not because you have to. That’s what this is really all about, right? It’s about creating that legacy, creating that ability to create a ripple effect through the lives of others. And imagine what you could do for your family and what you can create for generations beyond you. Even it’s changing their mindset, how their lives can be so much better than your own by doing and teaching and living by example, this very thing.

Guys, this is the reason why I’m teaching you this stuff. This is why it’s so exciting for me. This is why I left being a financial advisor because when I saw what was possible, being a financial advisor sounded stupid. This is why I couldn’t do that anymore. That’s why I had to leave the industry in 2006. And I’m telling you the last 14 years, man, there are some amazing ways to create good solid cash flow. But it does require patience. Requires discipline. It requires you to do everything we can to minimize that risk. So anyways, guys, this is something that you think is good for you. You can always shoot me an email, Chris@MoneyRipples.com and say, Chris, how’s this apply in my life? But right now, guys, I hope this just expands your mind to realize this income avalanche can become something amazing and truly profitable for you. I hope we make it a wonderful and prosperous week and we’ll see you later.