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This business coaching lesson provides vital information that individuals need to know in order to live financially free.

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Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Lesson Nugget: The principle of gaining financial freedom is to buy assets, not liabilities.
  • Lesson Nugget: Simply, an asset makes you money, a liability takes money from you.
  • Lesson Nugget: A car is always depreciating in value. If you owe more on the car than what it is currently worth, the car is a liability.
  • Did you know? According to CNN, Americans move on average every five years.
  • Lesson Nugget: Most people move every three to five years. Which is also the time period of which you are paying almost all interest on your mortgage payment, meaning you never really put a dent in the amount of money you actually owe on your house.
  • Lesson Nugget: Formal education is only an asset when the work that you do requires that degree/accreditation.
  • Amortization Schedule: An amortization schedule is a table detailing each periodic payment on an amortization loan (typically a mortgage), as generated by an amortization calculator. Amortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments.

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[SOUND EFFECTS PLAYING]

[MUSIC PLAYING]

-So Braxton, as far as the Principal Number 9 in this business eudcation training, buying assets and avoiding liabilities, can you explain to me from your perspective what is the difference between an "asset" and a "liability."

-An "asset" makes you money. A "liability" takes it from you. Very simply.

-So let's just say that I don't really fully grasp-- because I know. within my family, there's people that disagree with me on this subject as well. And they're usually people that have a ton of debt.

-Yep.

-So-- but anyway. We'll just throw out that example-- anecdotal examples. Here we go.

Asset versus a liability. Let's go-- a car. Is a car an asset or a liability and why?

-A car for the average person is a liability. Unless you're in the car business and you're making money, you're buying cars low and selling them for more, or fixing them up, selling them for more, but car-- for most people-- it's a liability because it decreases in value. And most people owe more than what the market value of the car is, and it's a liability.

-But when you work with people who are looking to buy a house-- you've been in real estate for years.

-Right.

-Usually, you work with people who are trying to buy a commercial property. They will put down their car as an asset.

Yup.

And then you'll have to almost point out to them like, hey, your car actually is not going to work well for you on the balance sheet. Why do most people think a car is an asset?

-Well, I mean, the only way a car would be an asset for them technically-- on like a balance sheet-- if they're looking at it as, well, I own it free and clear and the car's worth $20,000. If I sold it today, I could sell it for $20,000. And technically, that could be considered an asset.

But really, it's not making them money. A car, for most people, they owe money on. And so technically, they're going to sell it for 20,000, but they're going to have to pay the people that really own the loan for 22,000.

-Hmm.

-So it's a liability.

-And what about the house? I mean, a lot of people say the house. People have said the house is the best investment you can ever make.

A house, it's really where you want to put your money. A house is-- you want to get a 30-year mortgage on that beast, and you just-- that's the best investment you can make. Is that a asset or a liability?

-Well, under that scenario, I mean, it's a liability because you're going to pay for that house at least twice with a 30-year mortgage. And that value of the house is not going to go up that much. I mean, a house, a property, real estate should increase in value.

But for most part, people they move every three or four or five years. And so they put-- if you've never done this, go into Excel or some other program like it. Look up amortization schedule.

[MUSIC PLAYING]

[MUSIC PLAYING]

-And type in the value of the house that you're buying and the interest rate and the term of your mortgage, and you'll find out very quickly that you're going to spend most of your money in the first three or four or five years on interest. And so it's definitely not a liability.

-I want to throw this out real--

-I'm sorry. It's definitely not an asset.

-I want to throw this out real quick because-- just an example, if somebody were to buy a house right now and they bought a house for $300,000, you're saying that they would pay for the house times two?

-Yeah. At least.

-So times two. And this is crazy. I did mortgage consulting just years ago, and I was working with a company.

And we found, like what you said, the average person in America lives in a house three years at the maximum. That's like the average max-- the average maximum was three. Now, you talk about people who are like old school, like the baby boomers, they tend to live in a house like 10 years.

-Mm-hmm.

-But the first-- like you're saying, you have a 30-year mortgage, even a 15-year mortgage, those first three, four, five years are almost all interest.

-That's right.

[MUSIC PLAYING]

[MUSIC PLAYING]

-So when you buy a house-- and then also you have what? Closing costs.

-Closing costs and commissions. You might think, if you bought a house for, say, $280,000, and now you're selling it for $300,000, and you're thinking, "Oh, I'm going to make money," but really you've got to think about the closing costs and the commissions that you're going to pay whenever you sell that house. And 9 times out of 10, you're going to come out having to pay money at closing even if the value-- even if what you bought it for is less than what you're selling it for.

-OK. So we're going into the lightning round here. I'm going to throw out a whole bunch of ones for you.

-Yeah.

-In your mind, is formal education an asset or a liability?

[SIREN SOUNDING]

--Well, in my mind, it's a liability. I mean, most people leave formal education and go, "I owe $100,000 plus." And so is that value really worth it? Now, let me--

-Now, let's say that you're like a architect or a doctor.

-Yeah.

-Or an attorney or somewhere where you had to have a degree--

-Yeah.

---to make that increased income--

-Yeah.

-Like I say, if I was running around town going, "I'm a doctor. I know some things about some stuff. You want me to operate?" it probably wouldn't be a good deal. Right? But then if I'm-- like, I have--

-Yeah.

---an accreditation I could maybe--

-Yeah. That's an asset for you.

-So it's an asset-- well, you can say it's an asset if it's like maybe a actual profession.

-It's a trade profession. Yeah.

-A trade profession. OK. So if it's a trade profession, then that's going to be an asset. But if it's-- a liability would be like if it's a general degree like communications.

-Yeah.

-Or--

-Yeah. Yeah. I mean, or if you have a psychology degree but you don't have a master's and you don't have a Ph.D. in that, then that's going to be a liability for you because you owe money on something that you're not using.

[SOUND EFFECTS PLAYING]

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Featured Coaching Excerpt - Notes & Transcript, Part 2
  • Did you know? According to Demos.org, seniors aged 65-69 have an average debt of $5,844.
  • According to USA today, 52% of Americans don't feel inspired at work.
  • Lesson Nugget: Resist temptations to get a new car with monthly payments and purchase a car that you can afford to pay cash for.

[MUSIC PLAYING]

-And now let's go into another one here. What about my monthly expenses on furniture and clothing? Like, I just bought-- I got a great deal, I got a screaming deal on a sleigh bed. You know, I got half off on a sleigh bed, beautiful furniture. I got this ornamental elephant looking nightstand sort of deal.

-I mean, is it putting money in your pocket? That's the way I look at it. Is your sleigh bed making you money?

-People have offered to pay to look at the sleigh bed.

OK, so you're saying that my furniture is a loss?

-Yes.

CLAY CLARK: OK. A couple more just so we can kind of get here furniture. And I write in Spanglish for the folks at home are universally confused. That's why I choose to write like that.

Now what about lottery tickets? I mean, if I'm saying, man. I really feel like I could win. I'm a winner. I smell like a winner. I know I'm a winner. I'm going to buy this ticket. I'm going to win, lottery ticket.

-Yeah. Well I mean, it's an asset if it's a winner. But it's most likely not going to be a winner. So of course it's a liability.

CLAY CLARK: So the casino or the lottery, as a general rule, is a liability.

-That's correct.

-Now what are some things that we can put over here in the asset column that everybody watching this could do? Some things that we could put into the asset column-- because right now, let's just say we're talking about Joan here. And Joan, if you're watching this and you're offended, I apologize. But we respect you as a person.

But say Joan makes $50,000 a year. And Joan has a car, and a house, and a formal education, and a student loan, and some furniture. And she goes to the casino a little bit. We're telling Joan right now, Joan, Joan, Joan, you are buying a lot of liabilities.

So what are some assets that Joan could buy? Or how can Joan because you-- how old are you now?

-I'm 35.

-At the age of 35 have kind of achieved this state of financial freedom where you don't have a house payment. You don't wake up every day being like, oh man, I have to work 70 hours this week just to pay the bills. You're basically kind of financially free. Where a lot of people--

I read a stat this week that was blowing my mind. And as you guys edit this, maybe we can put the siding on this. But it's over 90% of Americans, when they turn 69 years old, have a negative net worth at the time of retirement.

And also, theres' an article that came out that showed that over half of Americans don't like their jobs. So it means that over half of Americans are spending 5/7 of their week working at a job they don't like for nothing. Because when they actually retire, they have more money they owe than what they had to start with.

So it means if you graduate from high school right now, if you're in high school right now and you have $0 in the bank, you are ahead of the average 69-year-old after their entire lifetime of earnings. So what can I do to start to move from here to here?

-Well I mean technically an asset-- although I don't recommend this for very long-- but cash in the bank is an asset.

-Cash. OK, so cash is an asset. So let's just say that I'm Joan. And I have a car payment, a house payment, a formal education payment. What can I do to start to transition from here to here?

-Well, for something like a car, sell that car that you owe money on, and buy yourself a car that gets you places that is reasonable, and something that you can pay cash for.

CLAY CLARK: Have you ever had a car payment?

-I've never had a car payment, and never will I have a car payment.

-This just in from our home office off the coast of Delaware-- no car payment ever. I also have never had a car payment. And I will tell you that I have researched-- I'm going to make up a number here-- but probably 100 millionaires at some point my lifetime, a hundred or more. Also there's a book called The Millionaire Next Door. And I have discovered that every single one of the millionaires that I've interviewed has never-- and I repeat-- never, ever had a car payment. And it's important. If you have one right now, sell that beast.

Now how do you do it? I drove a 1984 Chevy brown van up until 2000, I think, nine. And my homeowners association made me sell it. You drove--

-I have four kids. So we have to have a Suburban. And Suburbans are expensive. And the feeling or the temptation can be hey, I deserve to go out and buy myself a brand new Suburban for $45,000. But I resist that temptation. I've always been able to find nice, good Suburbans that are in good shape that are less than $10,000. And I do that--

CLAY CLARK: Less than $10,000? What?

-Yeah. You can do it. It takes a little bit of work. But if I'm going to drive down the road with my four kids-- and I love my kids-- but whether it's $45,000 or $10,000, they're going to trash that car within the first hour or so.

And regardless, even if that wasn't the case, I'd figure out a car that fits me that's going to be something that I can pay cash for. Because it's just not worth spending monthly on that car.

-I found that kids will look for the most important feature in the car, like the DVD, and they'll be like, I wonder if I took a marker and wrote on that screen what would happen dad? And they'd be-- or I threw up there on that thing, what would happen? And they just kind of destroy all things of value.

-And the great thing about that is whenever that rock hits your windshield, your stress level is not nearly as high with a $10,000 car versus a $45,000 cat.

-Yeah, one thing I like to do is buy a car that's already been keyed. That way if you key it, I don't care.

Featured Coaching Excerpt - Notes & Transcript, Part 3
  • Lesson Nugget: You want to have a vehicle that is paid for.
  • "Be greedy when the market is fearful." - Warren Buffett
  • Lesson Nugget: Find people that are losing money on a house, and make them an offer that benefits both you and them. You can save money this way, and they will be happy not to have that debt piling up.
  • Lesson Nugget: When it comes to a house, you may have to rent for a while or add some value to the house (fix it up); do whatever you can to try and change that liability into an asset.

[MUSIC PLAYING]

-Now. Now, again I'm just trying to give examples specifically if you're watching this. Because some of you are like whatever, you rich jerk, I'm coming from a different place. Well listen here. I had a 1989 Ford Escort that got-- bam-- a big dent there on the driver's side, left side, driver's side. Bam. And I drove that vehicle, bought it for $1,500 cash.

And my transmission was a manual, went out, so I climbed underneath it. And I-- this is a little automotive tip-- I took a cell phone, you know, the clip that keeps yourself cell phone-- back to the old school when everyone wore cell phone on their belt-- I took that clip and I put it in. And that's what held my transmission together between the years of-- hey, don't give me that crazy look cameraman-- between 1999 and 2001. The cellphone clip-- bam-- from the hip.

So, but, you've always driven a car that's paid for.

-Yeah and if you're thinking, I'm not going to drive myself a Chevy brown van 1984, you can find-- I found a number of years ago, before we had kids, I found like a 1992 Forerunner that was in great shape for like $2,000. And it ran well, and it worked really well for me my family at that time.

-In an attempt to argue with my friend here on camera, if we can look at this over here, I want to show you this collection of luxury vehicles.

[MUSIC PLAYING]

-Everything we bought here because even though you could spend-- like how much was it-- was $2,000 for a nice vehicle? For like $1,000, you can get a complete pile of dung that you can drive.

And here we go, this was a red truck. I bought that for $500 from a dude. I don't know what his name was. I paid him cash. And I never got the whole state license thing. I never got that. OK.

Then we have this vehicle. This vehicle was a conversion van I bought from a guy named Russ, who had an aviation business that went out of business and he started selling cars.

I bought this vehicle also from Russ. Russ Habiib. Russ Habiib, if you're watching, I love you, brother. Then we have this vehicle, this vehicle, this vehicle, this one. I had a total a fle-- look at this, look at that. Bam. That brown van. Woo! I had a total, I had a fleet of 1, 2 3, 4, 5, 6, 7, 8 9, 10, 11 cars and this big $700,000 house. And I bought all of the 11 cars for a total of $12,000. Yes! So, the thing is, if you need to get-- the car is just to get you from A to B. It is not for you to look awesome. Right?

-That's right.

CLAY CLARK: you're saying to have a little bit of pride, maybe spend a little bit more.

-Maybe. Maybe unless you have a business where you need those cars, maybe take the $12,000 and buy one pretty nice looking car.

-He and I might forever disagree, but the point is, you want to have a vehicle that's paid for. Right?

BRAXTON FEARS: Yes. That's correct.

CLAY CLARK: OK. Now the house, if I'm in a house right now, and I have a payment-- I'm paying like $3,000 a month on a mortgage, $2,500 a month on a mortgage-- and I think I'm getting ahead, but I'm actually not, because I'm not actually going to ever pay the principal in the first three years. How can I go ahead and get rid of the house payment to move over here into the asset column?

-Well, I mean, this might sound a little extreme, but if you're at a point where you're paying a house payment, I mean, I would go ahead and-- I'm a real estate guy-- but I would say go ahead and sell that house. Try to get as much as you can for it. And rent for a little while and build up some cash and, you know, ultimately if you can pay cash for a house, fix it up, do a little something, add some equity to it. And you know, man, I bought this house for $115,000 and I can sell it for $150,000.

There you've got an asset and you're not paying monthly with interest. And you might be like, man, I don't know if I'll ever get to that point. Well, you're not ever going to get to that point unless you take some action on something else. And having a house payment where you're paying a 30-year mortgage is not going to get you ahead.

CLAY CLARK: Now, Warren Buffett, my main man, he said be greedy when the market is fearful. So here's kind of my move that I did. I have chosen to not have a house payment, because I just think it's stupid. And I know my wife, as soon as I get almost-- as soon as we start to like really get into a house where we like it, my wife will say, can we redecorate?

Now perhaps, maybe you're a woman watching watch this and you're offended. Or you're a man and you're offended by that statement. But the point is, whoever it is, you're going to eventually want to move. Unless you defy all odds, you're going to want to move at some point.

So what I do, is I call builders who are in a bind. I just got call.

[DIALING]

I call and I say, do you have any houses that won't sell? And they're like, who's calling? And they usually get offended. But if you call about 20, I'll find two or three that are like, yeah, I do. I have one house I'm stuck on. It's at the entry of the neighborhood. And I've done this three times. It's the first house on the left when you drive the neighborhood.

They'll say, yeah, it won't, it can't sell. I just built it and I can't find a buyer. And I'll say, well here's the deal, whatever your construction loan is on that, I'll just pay a lease payment of that plus $500 for three years. And they'll say, really? I'm like, yep! And I pay first month upfront, last month upfront, and I move in.

This is my move. So I always live in houses of luxury with no house payment and no obligation. I could move tomorrow, and I seriously have to just tell the dude, dude, I'm moving tomorrow and then I'm good.

-Yeah and your move is really good because you're not in real estate business. You have no interest in fixing up stuff. My move's a little bit different because I like to fix up houses. I like to find those kind of things.

So my move is I find as cheap of a property as possible in an area that I'm comfortable with. We found a house in a private three acres that was just basically a structure. And I bought it for super cheap and--

CLAY CLARK: Beautiful wooded. Wooded.

---wooded area. We bought it for super cheap. I lived in the $300,000 house, and in Tulsa, that's quite a bit for Tulsa. You know, so I had a mortgage and all that. And I decided, you know what, I'm in the real estate business. This doesn't make sense and I have some cash. I'm going to go pay cash for a house that I can fix up. Fix it up.

And now, I have a house that I've put about 100,000 in and I know it's worth $175,000. So, that is an asset. And that's one other way of going about it. But if you're not that kind of person-- or you're not a handyman, or you're not a person that likes to do that kind of thing-- your move is better here.

-The big thing I want to make sure we're clarifying is that you do not want a house payment.

BRAXTON FEARS: Yes.

-OK. Now, that's huge. Now, Thrive is all about getting you from surviving to thriving, that's the whole idea. And so financially, you're going to need capital to invest in your own ideas. And so you're going to have to have cash available.

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