December 30, 2021

JF2676: One Secret To Successful Investing - How The Rich Get Richer | Actively Passive Investing Show with Travis Watts

In Travis Watt’s experience coaching and mentoring others in passive investing, he finds that there is one fundamental piece of advice that many investors fail to follow. In this episode, Travis shares his personal philosophy combined with Robert Kiyosaki’s method from Rich Dad Poor Dad for approaching asset and liability management.

Want more? We think you’ll like this episode: JF2468: Following the Cash in Asset Management with Dave Sherbal

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Travis Watts:  Hey, everybody. Welcome back to another episode of The Actively Passive Investing Show. I’m your host, Travis Watts. Just like last week, I am shooting a video on the fly on one of my walks around the neighborhood. I should call these segments Walks About Real Estate, or Real Estate Talk with Travis, I don’t know; some Mr. Rogers kind of crap. But anyway, sometimes I get these moments of clarity when I’m exercising or walking and that’s what happened today, just like last week.

I was thinking about a fundamental piece of the puzzle when it comes to investing. A lot of my friends and family have reached out over the years saying, “Hey, what is it you do? I want to get involved. I want to do what you do. How do I get to where you are?” Whatever it is, I’m always happy to share, I’m always happy to help, to coach, to support, encourage, and educate, all these things. But the reality is, after doing so, I find that the majority of folks have one thing backward, and that’s what we’re talking about today – is what that foundational piece to the puzzle is that a lot of people seem to miss for whatever reason. And I don’t want you to make the same mistake. So that’s what we’re talking about in today’s episode.

I will tell you right up front, this is a combination of Robert Kiyosaki… I refer to him a lot in these episodes. The author of Rich Dad Poor Dad, the founder of the Rich Dad company. It is part of Robert’s philosophy, but it is also part of my own philosophy that we’re talking about. So it’s kind of a mash, a merge.

You’re not going to find this content quite like this stated anywhere else. So with that — I’ll sit down over here, so I don’t get too out of breath. I’m not the most in-shape person. Let me sit down and talk to you about this just for a minute. Here’s the thing – Robert Kiyosaki, I learned this years ago from him, a great message… He’s great about teaching the fundamentals of investing and finance and this kind of education. He said, basically, buy assets to pay for your liabilities. To me, trying to think back and remember off all the things I read, there wasn’t a lot of great extraction from that, there wasn’t a lot of “Here’s exactly what I mean by that message, a, b, c, d.” That’s what I’m doing for you here today, is trying to break that down in a more simplified and understandable way.

Break: [00:02:53][00:04:32]

Travis Watts:  This is how I approach liabilities and assets in my own life, and what’s worked for me, and what I think is very powerful that I want to share with you. Let’s say, for example purposes, that you want to buy a new car. Generally speaking, if you’re going to buy a new car, there are three ways to do it. You pay all cash, you lease a car, or you make a down payment, you finance the car, and then you make payments every month, which is much like a lease. Let’s break down my interpretation of what Robert Kiyosaki was trying to say and what I’d do personally in those three scenarios. Here’s how I look at it.

If I want to buy a new car and — and just for example purposes and simple math because I’m bad at math– $50,000 is the car purchase price. So if I’m going to pay all cash, this is my rule to myself – I have to have an investment in my portfolio that I am selling this year, this year that we’re talking about, whether it’s 2021 or 2022, that I can sell right now, like stocks, bonds, and mutual funds that are liquid, or that is selling, like a syndication or something, where I’m going to get at least $50,000 in a long-term capital gain or short-term capital gain to pay for the liability. So the investment was made first, it already did what it did, and now I have to be able to extract a gain to offset 100% of the purchase price of my liability, which is the car. Now, that may be a pretty big ladder for some people, to come up on the fly with $50,000 or whatever to buy a car.

Let’s say I want to finance the car. So I’m going to make a small down payment and then I’m going to have monthly payments thereafter. The same principle for the down payment, but see, it’s going to be a far less hurdle. Let’s say the same car 50 grand, I need to put $10,000 down; that’s 20%. So now I just needed an investment where I can extract $10,000. And then for the payment that I’ll have every month – again for simple math because I’m bad at it – the payment is going to be $500 per month. Then I need an investment in my portfolio that produces cash flow, positive passive income on a monthly basis that covers the $500 payment that I’m going to have. What would that look like?

Let’s use real estate as an example, because it’s a real estate show that we’re on. So if I put $75,000, if I go invest that amount of money into a piece of real estate – single-family, multifamily, syndication, do it yourself, whatever – I need to have at least $500 per month. That would be what? 8% return on an annualized basis, 75,000 times 8% I think is $500. Again, I’m bad at math; just bear with me in this example. That’s what I would have to do in order to make my payment every month.

Break: [00:07:31][00:10:28]

Travis Watts:  So the last example is leasing the vehicle. We’ll say that the payment is $500 per month, same example, same concept. I need an investment — in this case, it doesn’t have to have any kind of gain. I need no kind of capital gain at this point. I just need to first take my money and invest it in something that produces cash flow or passive income, that on a monthly basis will give me more than $500, so that I can make the payment for my liability, and I don’t have to eat away or sacrifice my principal.

These family members, these friends, whoever it is that’s saying “I want to do what you do, blah, blah, blah” and I educate and I share what I can to help, and then the next thing I know they’re rolling up in some brand-new car or they’re on some exotic luxury vacation, and I say “Hey man, amazing car. It looks great. How was that vacation? It looked like fun. How’s the investing stuff going?” “Oh, yeah. I just don’t have the money to do it right now. But eventually, I will. At that point, I’ll reach out to you.” Nine times out of ten, that’s kind of the answer that I get back.

You and I both know the reality is they’re never going to get the money together to do it, until they get serious about the fundamentals of assets and liabilities.

Robert Kiyosaki says an asset is anything that puts money in your pocket every month, and a liability is something that takes money out of your pocket every month. So know the difference, know that as a fundamental investing key. Hopefully, you guys found some insights in this little message here today. I know it’s a really short episode, but I wanted to get right to the point, share that with you in a way I’ve never shared that with anybody, and help clarify what that message is all about. And at least, if nothing else, it gives you something to think about.

The whole idea – my fundamental philosophy, is using passive income and cash flow to enhance or pay for your lifestyle. It all comes down to that fundamental; so know the fundamentals. We’ll see you next week on The Actively Passive Investing Show. Thank you, guys, so much for tuning in.

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