What School Never Told You About Money (Ex-Goldman Sachs)

We've been taught to get a job, avoid debt, and save for retirement. But if that is actually true, why are over 63% of Americans living paycheck to paycheck? And that is because of one reason. We've been taught how to make money, but not what to actually do with it, how to grow it. And if we can't find a way to help money make more money, then we will work until the day we die. I learned a lot of this while I was a banker at Goldman Sachs. And the key part is I want to share with you the four laws of money that I learned that can actually help you create real wealth by doing these four very simple things. And the first law of money is that every money goal needs a money plan. Well, what does that mean? If you actually have a very specific money goal, if you want to have a $10 million net worth in the next 10 years, well, that needs to have a money plan. So a $10 million goal just can't be, well, I'm just going to put more money in my 401k. Like, you are not going to have a $10 million net worth in the next 10 years. But when you think about every money goal needing a money plan, I think that the thing that I want you to remember is how do you think about risk? And the thing that comes to mind is the first job of every money goal having a money plan requires protecting the downside. And how you protect the downside is you do not risk the empire for a pot of gold. Now, you may not have hundreds of millions of dollars yet, but what you have, you have, and you don't want to risk that. So what can you do to ensure that you don't risk the empire for a pot of gold? I'll give you a crazy story. One of my friends, he is a pastor, and he's been serving his community, his church community, for 17, 18 plus years. And over that time, him and his wife had saved close to $650,000, $700,000. Which was their entire nest egg. And he told me how he, one of his friends, built this amazing oil and natural gas deal. And his friend was invested in it, and he told him about it. And he showed him how that over five years, that number could go double or triple and give them insane tax advantages. So what did he do? He took his entire nest egg, and he invested in this oil and natural gas deal. Now, you may say, well, that seems risky. Well, yeah. It seems risky. It seems risky, but not when your friend is telling you that he's invested in it. Not when they're showing you this plan that almost feels like it's a no-brainer. When someone actually has, someone that you know, someone that you trust, gives you this picture, like, of course that makes sense, especially if you're invested in it. But he risked the empire for a pot of gold. He had risked 17 years of working of $650,000, $700,000. Which was his entire nest egg. He risked all of it in that investment. And it's so sad for me to tell you that that investment went to zero. They realized that that company was a multi-level marketing scheme, and it was a scam. And all those kind of principles went to jail, and he is now stuck holding the bag. And 17 years of how much it served the parish and the community is all gone, all down to zero. Now, you may say, well, Sharon, okay, how do you avoid something like this? How do you avoid something like that? Well, let me give you something that I learned called the investment x-ray. And if you just learn this one framework, it will change your life forever. This one single framework allowed me to figure out how to invest in anything. And I learned it when I was a banker at Goldman Sachs. In fact, Goldman didn't teach me this. One of my clients at Goldman actually alluded of this framework to me. And I actually put the framework together, and I've been using it ever since. This framework is called the investment x-ray, and it has four parts. Capital preservation, tax efficiency, yield, which is cash flow, and growth. Well, what does each of these mean? Anytime you look at an investment, I want you to not just think about who's pitching it to you or what kind of return it can give. Everybody wants the next hot stock tip, but how do you evaluate which is right? The way you think about it is run it through this filter of, first, capital preservation. If I say it's a $100,000 investment, if I was giving you $100,000, what is the chance that I'm going to get this $100,000 back? If the chance is high, capital preservation is good. If the chance is low, capital preservation is not good. And there are some investments where you may risk your capital to get a significantly higher gain. So it's not the fact that you need capital preservation to be good all the time, but at least you know you're able to evaluate capital preservation. So number one, capital preservation. Number two is tax efficiency. We know that taxes are the number one drag on wealth creation. If we can't actually have a plan for how this investment is going to be treated from a tax perspective, then we are being irresponsible. So we should at least know what the tax consequences are overall. And if there is a tax efficiency, that is a major plus. The second is tax efficiency. The third is yield. Yield is a, essentially it means cash flow. When you make this investment, are you going to expect any cash flow or are you not? If you're going to expect cash flow, you check the box. If you're not, you're not. You're not going to evaluate it. And the fourth is growth. When you put this money in today, and you wait for it over a certain period of time, is this money actually going to grow? The reason I use these four buckets is it very quickly helps you understand what these four pieces are. And you may say, "Well, Sean, you gave me these four buckets. How do I actually put this into play?" Well, I want you to give each of these buckets a 24, 25 point score. So 25 times four is 100. So capital preservation, 25, tax efficiency, 25, yield or cash flow, 25, growth, 25. Now, let's actually make this come to life. Let's take cash in your mattress, right? Let's say you have $100,000 in cash, and let's put it through this matrix. What is capital preservation when it comes to cash? 100, like 25 out of 25. You get to keep it. That's good. What is tax efficiency when it comes to cash? Nothing. Zero, right? You're not getting any tax breaks to do it. What is yield when it comes to cash or cash flow? Well, at the bank, you're getting 0.1%, which is essentially nothing. So I'm going to give you that. I'll give you a score of five on that one. And what is growth? Zero. It's not growing. It's always going to stay at 100,000, right? So now you have a 30, 25 plus five, 30 out of 100 score for cash. Now, let's see if we can do a little better. Let's say you're going to invest in a stock called, say, Apple. Well, what is the capital preservation of Apple? Well, not perfect. It could go down. It could go up. But over the last 20 years, Apple's gone up. So I'm not going to give it 25. I'm going to give it 20 out of 25. What is the tax efficiency of Apple? Well, not much. You may get some capital gains treatment. So not bad if you hold onto it to give it another five, if you will. What is the cash flow or yield? Well, let's say I'm not, I don't have it at the top of my head, but let's say Apple pays a dividend. Well, maybe you get a 3% to 5% dividend on Apple. So that's good. So you get some cash flow to it. Give it another 10. So you got 25, 10, so you're at 40 right now. And then growth. Well, over the last 20 years, Apple's had massive growth. It was the first trillion dollar company in the history. In the history of mankind. So you've seen the growth happen. So now you have a, I don't know, a 65 point score. So we know that as you're evaluating this, Apple's probably a more interesting investment with the score of 65 compared to cash and 30. Now let's take this oil and natural gas deal that my friend actually invested in. What was the capital preservation associated with it? Well, it was tough. There was no capital preservation. He was unsure of it, but he took the risk anyway. Okay, good. What is the tax efficiency associated? Well, it was 25 because he was got, he got a hundred percent dollar. Dollar for dollar tax deduction on that day. So good. That was 25, right? What was the yield or cashflow associated with it? Well, it was supposed to pay decent yield. So that was another 25. And what was the growth? The growth was supposed to be high as well, right? So he got hoodwinked because when you see capital preservation is zero and you see everything else go up, you know that you're actually dealing with more risk. That is no different than if you were a crypto investor and thinking about Bitcoin. So if you think about Bitcoin, everybody wants to get into Bitcoin. Now I'll tell you how much Bitcoin I have invested in just a second, but let me actually tell you how you invest in Bitcoin. Let's put it to the same framework. What is the capital preservation of Bitcoin? Well, I don't know. It could go to zero tomorrow. What is the tax efficiency of Bitcoin? Well, unless you're doing some staking and something else, it's probably not much, but I'll give you a tip on that in a second. What is the cashflow of Bitcoin? Not much. What is the growth of Bitcoin? Everything. So you have a zero on three out of four. So you know it's a little risky asset, which is why everybody considers it to be a risky asset. By the way, I have FOMO as well, FOMO, fear of missing out. I have FOMO as well, and I know nothing about Bitcoin. I realized I put it through this matrix and I said, well, maybe I'm not going to get the same results as everyone else, but I want some kind of exposure. In 10 years, Bitcoin totally takes off and I'm not invested in it. I'm going to feel terrible. So what did I do? I bought one Bitcoin for my daughter and one Bitcoin for my son and that's it. So I own two Bitcoin right now and I am super happy owning those two Bitcoin because in 10 years, if they do great, my son and daughter have one Bitcoin each. If they don't, they don't and that's okay with me. But I want to give you a super pro tip. The single most valuable tax strategy if you invest in crypto is to understand that Bitcoin at this point is not subject to wash sale rules. Meaning let's say you own Bitcoin and you paid $100,000 for it and let's say it dropped $100,000. Now it's worth $80,000. Well, what you should do is you should sell the Bitcoin. capture the $20,000 loss and then buy the Bitcoin back. Now you still own one Bitcoin, but you have $20,000 in losses. Let's say that 80,000 goes up higher. Now you still own the one Bitcoin, but you have 20,000 losses. Let's say then drops again by $50,000. Well, you sell the Bitcoin, you capture the loss and you buy the Bitcoin back. The reason this is applicable to Bitcoin and not any other security is that most other securities, especially like a stock or a bond or a mutual fund or an ETF is subject to wash sale rules. They don't want people gaming the market. So you have to, you can't, so if you owned Tesla stock and Tesla stock dropped by $10, you can't sell Tesla stock, capture the loss and then buy Tesla stock back. You can't do that. That's called a wash sale. You have to wait 30 plus days to do that because they're disincentivizing that behavior for you to trade in and out just to capture the loss. But there's, since Bitcoin is a new security, there's not a lot of regulation around it. So you still have a little bit of time to actually capture the losses. So every month I open my Bitcoin app. I look at my wallet. I look at how much Bitcoin has dropped. If it has dropped, I sell all of it, all of it, capture the loss and then buy it all back. So you should consider doing that as well. So that is the first thing, which is every money goal needs a money plan, protect the downside first, because you don't want to risk the empire for a pot of gold. And the way you actually look at an investment is the investment x-ray. Always think about capital preservation, tax efficiency, yield and growth. And then while the numbers are not perfect, it allows you to actually diagnose this investment well. Let me give you another pro tip. If anybody is ever pitching you an investment and you don't know how to evaluate that investment, ask these four questions. First, ask about capital preservation. Does the investment actually have some kind of guarantee or protects the capital in some way? Second, ask about the tax efficiency or the tax kind of, consequences of it. Then ask about the yield or cashflow that would come from it and what happens. And then ask about growth and have them explain growth. This way, whenever your friend is explaining a startup or when someone is pitching you a real estate deal, you now have a framework for how to actually ask the questions related to evaluating that investment. All right, let me give you the second law of money. The second big lesson that I learned is cashflow keeps you alive, makes you free. It's really, cashflow is good. We need to manage cashflow first and because without the cashflow, we can't actually live our lives. But if you don't actually grow your equity, it gets very difficult. I'll give you an example. You probably have eaten at the McDonald's in the last, I don't know, 20 years. If you have not, you should try. I have children and they love the chicken McNugget on the drive-thru. But did you know that all of McDonald's cashflow comes from the burger business? It comes from the stores, but the growth of the company and the equity entirely comes from owning the real estate that is underneath it. The reason why McDonald's has grown as this business is because they own the underlying real estate over and above the actual store business. In fact, it is to the, from the last time I checked, the amount of value that the real estate actually created for McDonald's was three to four times that of the actual burger business, which is insane. So now you may say, all right, Sharan, well, I'm just an average person. I'm working really hard. I've started a business or I have a great job. And how do I actually own equity? How do I get equity? I can't go out and buy significant pieces of real estate. How can I do that? I can't go out and start my own company. How can I do that? How do I get, I understand that cashflow sets me free, but I'm working for the cash. How do I get this equity? Well, to do this, you have to understand something. And that is called the golden stairways. There's two, there are two very clear ways to create massive wealth in the modern world. And that is either through real estate or through ownership in companies. And there's a foundational reason for that. And that is because both the real estate and companies have the component of equity. When you have ownership and the, and the business grows or the real estate value increases your ownership value, your equity increases with it. The problem is, is that most people can't actually go out and, and buy $20 million worth of real estate on day one or start a company or just buy a company. But there is another way. There is a way for you to get access to growing real estate and growing companies because you don't have to do it in a massive scale. You can do it in a small scale, exactly where you and I sitting in our living rooms on our apps can do that. And that is to own a piece of these businesses through ETFs. My son, he's 14 years old, and I've been teaching him this concept of the golden stairways. And he does not have the money as of today to buy a piece of real estate or buy, start and buy a private company. But he's already started investing in two specific ETFs. The first one is the, VOO. VOO is the broad market index from Vanguard. It's the, called the broad S&P 500. And you now own a piece of all the companies in all the largest 500 biggest companies in the, in the US. The second is he owns this ETF called VNQ, which is an ETF, a fund that can, that owns real estate in North America without actually owning the underlying real estate or without actually having to get a loan or without actually having to become, uh, a real estate investor or a stock market investor or a, or a private equity investor. He has started to already capture, uh, the golden stairways, both exposure in real estate and exposure in the companies, because we know that cashflow keeps you alive, but equity sets you free. So that was rule number two of three rules or lesson number two. Here's lesson number three, which is money loves speed, but wealth loves time. And I actually had to learn it to learn this the hard way. Uh, when I was running this business called Telus properties in Los Angeles, we had, you know, uh, 650 real estate agents up and down the California coast. And all of these agents would bring me their best deals. And I was a deal junkie, meaning a real estate agent would come to me and say, Hey, Sharon, I got this deal before I put it on the market. I think you should invest in it. It's a fix and flip. So what I would do is I put all my liquidity. In fact, I borrowed money to actually invest in these deals where I would buy a property, because it was off market. I would, uh, upgrade it in some way. I would make a, I would rehab it. And then I would put it back on the market and sell it. I ended up doing over a three year period, 50 flips a year. I was doing one flip a week. You have no idea how stressful that was. I was on job sites trying to figure out how to get these flips done. And this wasn't even my full-time job. And I will tell you that I made decent money. It was good, but sometimes we would not have priced the property well. Sometimes the construction costs would actually run up. And I was optimizing for speed. I was optimizing for cash because we know that money loves speed, but wealth loves time. And I didn't know any different. So I just thought, man, I would just do more and more flips. That way I'll make more and more money. And if I made more and more money, I would, I would be wealthy. But the crazy part was every time I did a flip and I made some money, I took that same money and put it in the next flip. Then I took that same money and put it in the next flip. And then if I lost money on that flip, I would be down. I realized that having done over 150 flips in three years, I'd done a good job. But at the same time, in the same period, my friend did something very different. He first bought a duplex in LA and a duplex is just a two unit. He lived in one and he rented the other. Essentially the other unit that he rented paid for the mortgage of the entire building. So he was living rent free and someone else was paying the mortgage. Well, the market went up and he was able to refi, which is take money out of, equity of that flip. And then he upgraded from two, a two unit to a four unit. That means he bought a fourplex and he still lived in one of those and he rented the other three. And now not only were a couple of people paying for the rent of all of it, they were also giving him more money and more surplus. So that is his kind of cashflow was increasing, but then the market went up again while I was making money with the flips, the market went up again. And he then resold that and refied out of that. And he bought a 12 unit and it is 12 unit apartment complex. He still lived in one and he rented out of that. And he sold that and he bought a 12 unit apartment complex. He still lived in one and he rented out the other 11 units. The crazy part was in that, in a three to five year period, he had only done three deals. Yes, the market had gone up, but he'd only done three deals. And his net worth, I realized at the end of that period was over five times greater than mine, five times. And that's when I realized that money loves speed and wealth loves time because you can optimize for cash because we've only been taught that if you just made more cash, you feel richer, you feel wealthier. But at the end of the day, think about my friend. He still had a place to live. He had someone else pay his mortgage. And he, at that point, after me stressing out about 50 deals a year for three years, 150 flips, he made more than I did. He had a better net worth than I did and a better lifestyle than I did. And I'm much more less stressed than I did all because he trusted one thing, which is he partnered with time because time is your best partner in wealth creation. If you find the right vehicle and you can actually get the time associated with it, you will start to realize that money loves speed, but wealth loves time. Those are the three big lessons that I learned. But the thing I wanted to tell you was that we've all been taught to work for money but as soon as you start teaching the money to work for you you'll start to realize that it is a completely new different infinite game that you play because if you don't get your money to work for you you will work until the day you die