The 4 Sources of Cash (and why I bought a $10M building) | Ep 842

Wanna scale your business? Click here. 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 and will learn on his path from $100M to $1B in net worth. Follow Alex Hormozi’s Socials: LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

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• 0:02Alex Hormozi?

  The richest people I know, that is the behavior that they typically use. They're like, "I want this thing, and so I'm gonna go make the money to buy the thing." "I'm not gonna use my existing income, I'm not gonna use my existing resources, "I'm not gonna use my savings, I'm not gonna go into debt unless I know that I'm gonna pay it off "in a year and I have no prepayment penalty, I have a clear plan of how I'm gonna do it." They have a clear plan of how they're gonna make the money on a very defined time period, and it's from doing above and beyond.

• 0:30Alex Hormozi?

  What's going on? Welcome back. I've been stockpiling some ideas and I had a free morning and I slept well, so I figured I would just unload them. And for those of you who are, who've got some time between, between sales calls, between customer calls, maybe you're in your lunch break, whatever it is, maybe I'll give you a little something. A lot of people talk about money beliefs. I tend to not like it. I prefer thinking of things in behaviors. So what do I change about what I do? I think that if you think in terms of behaviors, then there are behaviors that people who have money do, that people who do not have money don't do. And there's also the reverse. Behaviors that poor people do, that rich people don't do. And so I wanna talk about one very specific one that served me exceptionally well, and I can try and break this down as well as I can imagine.

• 1:13Alex Hormozi?

  I'll give you a few tactical examples as we go through. So right now, I'm in a studio that probably cost me some of the neighbors about like $500,000, which is egregious, but it cost me about $500,000 to build this thing. And it's sitting inside of a building that cost me, I think, $9.1 million, something like that. I think I put like $2 or $3 million on this building. So call it a $10 million building, conservatively. I paid for it in cash. And the reason I bring this up is because I think that I've noticed different spending habits between rich and poor. And that seems obvious, but I wanna dive a little bit deeper. So not that long ago, I overheard somebody say, "Go buy that motorcycle, because you could always make money in the future." And I kind of like hated that.

• 1:57Alex Hormozi?

  And I thought about where are the sources of money that I tend to draw from in order to make a purchase? Now, the reason that I bring up this building being a significant purchase is it was less that the price was a significant purchase and more so that I didn't need this building at the time. I just wanted to have a place to have a home gym that would be more than like, be like a commercial gym. And I wanted to have a place for meetups and things like that. And I could come up with a rational explanation that between all the portfolio companies, we were spending about $4 million a year in event spaces. And I was like, well, if I had a big enough space for all of them to do their, their internal meetings, their quarterlies, fly out their staff and their team and have a venue, then I could probably save that and it would pay for the building. But I remember Leila was like, hey, you know, we should, maybe, maybe we should just get like a 5,000 square foot building.

• 2:42Alex Hormozi?

  So this building is about 36,000 square feet, much bigger. I remember hearing this and I was like, that's appropriately sized for where we're at now. But it's not the size building that I would want it to be for where I want to go. And so I remember telling her, I said, I promise if we buy this building, I will make sure that it makes us more money than it has cost us. And so this goes to the sources of cash. And so there are basically four. And you can pretty much determine how wealthy someone is by where they're spending from. And so let me walk you through it. You've got what I would consider past money. So that would be savings. So that's earnings that you had in the past and that's money that you put away. The next money is you have income money. So this is the money that you make every single month. You can spend this money rather than touching your savings.

• 3:27Alex Hormozi?

  This makes sense. Then you've got debt money, which is basically future earnings. Like this is money, I'm going to take debt and I'm going to pay with future money, right? And I'm going to have to pay this debt off. And then finally is the category that I like to have, which is, and I'll call it new money. Now you're like, what does that even mean? That's what I'll explain. So I've noticed amongst the friends that I have that are the best with money, that are wealthiest with money, they're okay buying things that are big grandios, right? Now, some of them buy big houses, some of them they buy big cars and buy big yachts, big, big buildings, whatever it is, right? I had a business owner who came here and he was like, hey, I'm choosing between two offices. I've got basically a sensible office and I've got a much bigger office that I'm really excited about.

• 4:09Alex Hormozi?

  He said, which one do you think I should take? And I said, which one do you want? And he said, the big one. And this guy was a very good salesman. And I said, okay, here's the deal. You can buy the big one. It was two and a half times the size, or at least two and a half times the price. And it was a little bit nicer, whatever. I said, but the deal is you gotta pay it off in a year. He was like, I can do that. And I was like, right, then don't worry about it. And so the thing is, is that I would say they're, these are kind of almost like different personality types in terms of where people are taking the money from. And I would say that a behavior that has served me extraordinarily well is looking at new money. Meaning if I buy this building, can I find something that will pay off the building? Now, of course, I had the expenses on the portfolio side. We could have just saved the $4 million a year that we're spending in venues and all that stuff. Sure.

• 4:50Alex Hormozi?

  But I was like, I'll bet you there's something that we can do with our existing resources. And this is the key part, is that it's sawdust money. It's money using your existing resources that you're currently under utilizing to generate new money for a specific project. And so my favorite way of doing this is like, hey, if Daniel wants to buy, wants to buy a boat or wants to buy a car. I love the idea of him being like, so I'm just gonna work one extra day per week over the next year and then I'm gonna buy it. Hey guys, as always, this podcast only exists because of one person and that's you, you who's listening to this, you who's watching this. And first off, thank you. Second, the behavior that continues to grow this is you sharing it. And so that's you posting on Instagram, DMing this to a friend or slacking this to your team.

• 5:35Alex Hormozi?

  This has been the only source of growth for the podcast and it continues to grow month after month. So I should say thank you. And if you think this is valuable to somebody else, please share. And the richest people I know, that is the behavior that they typically use is they're like, I want this thing. And so I'm gonna go make the money to buy the thing. I'm not gonna use my existing income. I'm not gonna use my existing resources. I'm not gonna use my savings to buy it. I'm not gonna go into debt unless I know that I'm gonna pay it off within a year. And I have no prepayment penalty. I have a clear plan of how I'm gonna do it.

• 6:08Alex Hormozi?

  They have a clear plan of how they're gonna make the money on a very defined time period. And it's from doing above and beyond. It's looking at all the stuff you got. And the reason that I like this is I was talking to a good friend of mine, Sharon Cervantes. He's a president of Reel. Uh, actually just became a board member, excuse me. And he said, oh, you just want to write yourself a swimming pool. And I was like, what does that mean? He said, so Paul McCartney, the Beatles, used to say he wanted a swimming pool. Everyone's like, well, what do you like? How are you gonna pay for it? Now, obviously he has the money for a swimming pool. But he didn't want to use his savings. He didn't want to use his income and his royalties. He didn't want to go into debt for it. And so what'd he do? He was like, I'm just gonna go write a song. And so he writes a song and he writes himself a swimming pool from the money that he collects from selling the song. Right?

• 6:52Alex Hormozi?

  And so I think about this a lot because I think it's, it's a different way of thinking about money. It's like, I want this thing. And so I don't want to limit that thing. If anything, I want to use that thing to motivate me to find other resources. So what I'm being is resourceful rather than draining resources I have. I'm finding new resources by utilizing existing assets that are currently under my control. And so this is fundamentally like, people are like, well, you know, you could Airbnb one of the rooms out. And it's like, okay, that's one of the things I'm gonna do, but I also have some time. So it's like, maybe I'll drive Uber. There was one of my, one of my favorite customers ever at my gym. She was a mom of four, single mom. And she didn't have the money for the gym membership. She was like, well, I could drive Uber one day a week and that I would be able to afford it. And I was like, great, then do that. And so that's what she did. And she was one of my longest standing members, lost a hundred pounds.

• 7:37Alex Hormozi?

  And it's like, there's a, there's a shift that happens when you decide to do it that way. And I think there's something to be said about creating a vacuum, about creating space. I've heard the saying like, make yourself poor, right? Of the idea of like, how do I, how do I create this deprivation? How do I create this threshold that all of a sudden increases my demand for money? Cause everybody has a demand for money. Like you have a certain lifestyle that you have grown accustomed to. And so that's your minimum threshold. That's your minimum requirement for living. Now everyone's is different. The real wealth comes from being able to continue to jack this up while keeping this low, of course. But in those instances, when you do want to buy the sweet ride, cause I'm not like, people think of me as, as an aesthetic. And I am to a large degree.

• 8:20Alex Hormozi?

  But if I want to buy a sick ass home gym, which I do have, I would rather that money come from new stuff. And so either you can do extra stuff to get the thing. Or I think the 201 version of this is how do I use the thing to make even more money? And so part of the reason we spun up the advisory services was actually like me fulfilling a promise to Leila of like, okay, we'll find a way to use the building to generate income to cover the building. Cause I do want to have this sick home gym, which will be a complete and other waste of space. Besides the fact that I think it's dope and why have money if you can't spend it? And you can't take it with you anyways. And so this may seem like a wild departure from some of the content that I make. But this is obviously targeted at somebody who probably has a little bit more, is a little bit further along. All right, if you are broke, don't do that. If you're broke, just focus on the new money stuff, right?

• 9:05Alex Hormozi?

  But if you have some, I think that you stay ahead of your spending by not increasing your lifestyle relative to your income. But by increasing the new money relative to the new purchase, which typically are defined. And so it doesn't have to be forever. So if you're like, well, I don't want to work overtime all the time, fine. Then you can just work overtime for a year, work overtime for six months, work overtime for a month. So that you can afford the thing. When you think about it like that is I have to take, I have to add this on top. I don't, I don't touch my flows, right? I don't touch my income flow and I don't want to create a liability with the debt. And savings is like, that's my nut, right? I don't want to, I don't want to, you know, use up my, my nest egg. So I gotta go make it. And if this has just been this behavior that I've observed from the people that I know that are the wealthiest and the people who enjoy their money the most.

• 9:49Alex Hormozi?

  And I think that's the thing is like, it's one thing to be money, to have money. Cause I know there's plenty of people who, who obviously have money, but some of them, I don't think they enjoy their money. And it's because they're always, if they're like afraid, and there's some of this whole idea of like, you have to be abundant and all that stuff. I know tons of people who are super scarcity mindset and have a lot of money because they just don't like spending it. And so like, there's something to be said for that. But that's if you make money the goal. And if you make money the goal, then by all means, don't spend it because then money is the goal. So fine. But if money isn't your goal, then the people that I've seen that are the happiest, that I think spend money well. They use money like a tool is they use an expense or use something that they know they're going to consume. They know it's not a good investment and they say, fine, I know it's not a good investment. So I'm not going to use my income to buy it.

• 10:30Alex Hormozi?

  I'm going to use something that I already have that I'm under utilizing, which might be just your time. You might take on a new client. Project, you might take on some one on one services that you wouldn't normally take on. Those types of things can be defined period because you're like, well, it's not going to increase the enterprise value of the business. It's not going to be some sellable asset, but I do want this thing and I don't want to touch. How my existing infrastructure functions. And so it's just one behavior and I think many of you, if you're like me, like I don't like spending money. And I've tried to learn my way out of it, which is I don't like spending money. That's like my main money. It's like my core money is the money comes in from businesses, distributions. That's my main thing. But if I want to buy something crazy, then I'm just got to be willing to do something crazy for it. And the weirdest thing happens is that I get almost more excited about making that money.

• 11:15Alex Hormozi?

  Then the money that I make every single day, because I know that that money is going to towards the specific thing. So I'm like, I'm building a home gym right now. I'm buying equipment right now. Like as I'm doing this, I'm almost like more joyful. About doing the work because I know exactly what it's going towards. And so just a little behavior that I picked up over the years, something that I've observed in other people that I've used myself. That has been wildly valuable. And if you have that, you know, if you've got two machines that you could buy for your business. And one's a little bit sweeter than the other, and you can't really justify the expense. Then just take the delta and be like, I'm gonna go make that myself because I think it's sicker. And I have never been disappointed by doing that. Not once have I done that and been like, this was a mistake. And the thing is, is that I bought, I bought plenty of things that I, I thought were expensive. I can minimize my regret by saying I'm not using money that I otherwise want to use somewhere else.

• 12:00Alex Hormozi?

  And so that's my little money behavior that has served me very well, and I hope it serves you well.