First Lesson My $3.4B Mentor Taught Me…
Summary
- Understanding the money ladder helps to determine who controls the money flow and thus who has power.
- An employee typically works first, fronts their labor and time, then gets paid later, meaning they have delayed payment.
- A self-employed person can be like an employee, fronting work and getting paid later, but as they gain independence, they might receive partial payment upfront, improving their position on the money ladder.
- Moving up the ladder, professionals like doctors tend to get paid before performing a service, reflecting a higher level of control and wealth.
- Banks sit above most professions because they have a capital stack, getting paid first in any event because of their preferred creditor status.
- Insurance companies take an even more advanced position on the ladder since they receive payments for years without necessarily having to provide a service in return.
- Appreciating assets is key, and insurance models demonstrate this by collecting funds upfront and investing over time, possibly without a payout required.
- The ultimate level of the money ladder is symbolic, where entities like religious organizations get a percentage from the top line regularly.
- The position on the money ladder is influenced by demand and the value of services provided; the higher the demand and value, the more likely payment is received upfront.
- Adjusting the approach to agreements based on this understanding can significantly contribute to wealth creation.
- Observing the flow of money and who gets paid when has been instrumental in changing my beliefs and increasing my wealth.
Video
How To Take Action
I would suggest looking at where you fall on the money ladder. Start by understanding who gets paid first and has the most control. For employees, front your time and effort but get a delayed payment. If you're self-employed, try shifting towards getting partial payment upfront. This small change can move you higher on the ladder.
A good way of doing better is following the professional model. Like doctors, aim to be paid before you provide a service. This increases your control over the money flow. As you gain more demand for your services, leverage that to negotiate upfront payments.
Moving up the ladder, consider how banks and insurance companies operate. They get paid first, reflecting their power. Think about how you can adjust your own business model to collect money earlier. Maybe you can offer services that require ongoing payments, like subscriptions, which can bring in consistent revenue before the service is fully delivered.
Lastly, learn from higher levels of the ladder like insurance companies. They collect payments for years and might not even provide a service in return. While it's not about not delivering, the key point is they appreciate assets by getting money upfront and investing it over time.
Adjust your approach. When you make agreements or sell services, push for better terms that allow you to be paid earlier. Observing the flow of money and understanding the money ladder can significantly help increase your wealth just as it has changed my beliefs and helped me grow financially.
Quotes by Alex Hormozi
"One of the biggest beliefs in my life that changed as I got wealthier was how I viewed the flow of money"
– Alex Hormozi
"Think about it from a concept of work and payment"
– Alex Hormozi
"If you look at who gets paid when… you can see typically where who has the most control and who's making the money"
– Alex Hormozi
"You get paid first, now… getting paid first is another level of wealth and kind of control and power"
– Alex Hormozi
"Insurance companies… get all the money up front and then they get to appreciate the money over time"
– Alex Hormozi
Full Transcript
what's going on everyone it's alex and moses here and if you're new to the channel um built three companies that did 110 million dollars in sales and continued to do so now we invest in other companies as well um and one of the talks i want to talk about today is the money ladder uh and so this was actually came up during a conversation i was having with layla my wife um and she was like you should make a podcast about this she's like because you know a lot of people don't know how this works and um so right now i'm writing a handful of books around a one of them is kind of wealth beliefs that that changed my life um and then i've got a bunch of books on acquisition stuff that's coming out so what's the money ladder that's what i'm calling it but basically it's the order in which people get paid and a lot of times like one of the biggest beliefs in my life that changed as i got wealthier and that changed before i got wealthy that caused me to become more wealthy was how i viewed the flow of money all right so what i mean by that is if you look at who gets paid when right when money flows you can see typically where where and who is making who has the most control and who's making the money all right so think about it from a concept of work and payment all right so at the bottom here you have an employee in general all right and there's nothing wrong with this right ever like i was an employee too so like it's not that there's anything wrong it's more so that like this you just have to understand how it works from a hierarchy standpoint what happens with an employee is that they work first right they work first and then they get paid two weeks later so they front their labor they front their time and then they get paid two weeks later right or four weeks later depending on what the job is right so that is if you look at the money flow they have cost of time cost of effort that goes out and then delay and then they get paid right now if you've got somebody who's self-employed this is kind of like a lot of contractors vendors gig economy etc these people typically there's they're trying to choose scenarios here one is and and you can see because these people are a little bit more flexible you'll see them kind of move on this money ladder so on one on the total i'd say worst side of the equation the lowest side of the equation they basically model the same thing that an employee would um that a normal employee would set up which is they front the work and they get paid later right um later you know if they get better and better and they become truly more independent contractor type things then they might get paid half up front and then half upon delivery right so it's kind of like 50 50 right um and then later right then they start moving up this ladder some of them will get paid up front or as they as they work etc right so the next one is paid first right so think about this if you if you go to a doctor right they don't do the surgery and then they get paid they get paid and then they do the surgery right and so if you think about your work like that or your business like that you get paid first right now um this is where like payment plans and things like that like the more someone pays upfront and then i would say like in full right that's another kind of mini variable here right are they paying somewhat a front are they paying all upfront or whatever um getting paid first is another level of kind of wealth and and kind of control and power all right now but notice if you're looking at this from the video we've still got we still got a little bit of ways to go up here right so then about above this right this is kind of like this is kind of where i see people ending and then you kind of get into like the business side of it right so um above this you'd have like banks right so what do what do banks get so banks have something called a capital stack so this is what i mean by that is when you when you buy your house right you're actually the bank's really buying your house and then you're paying the bank back the bank is a preferred creditor what that means is if you know hits the fan they get paid first and then whatever is left over is yours right that's how it works that's why you repay your mortgage when you sell your house and then whatever's left over the scraps go to you right banks get paid first they're preferred creditors and so when you're thinking about like money in general look at where the exchange flows right is who's fronting time and then getting paid or who's splitting it up up front or who gets paid in full right and then if goes bad who's the one who gets paid out first and who's left with the scraps now i'd say that there's one one thing above banks here which i would say is insurance this is really interesting i've learned a lot about interns over last year so insurance is fascinating insurance gets paid far before they ever have to do anything think about that you pay your insurance for 20 years before they have to fulfill what they are do and they also can not end up having to fulfill anything and you just get paid they just get paid for 20 years for truly doing nothing right if you really think about how the money flows like really think about it for a second imagine you have a business imagine i started signing people up for an insurance business you know alex hormozy you know insurance um and i just started going around saying hey i'll ensure your life hey i'll enter your life hey you enter your life right and people just start saying sure i'll sign up and they start paying me a thousand dollars a month and i've got 100 families 500 families who start paying me a thousand dollars 2 000 a month i'm doing a million dollars a month and i do that for decades right and then as people you know come to term because of how i wrote the contracts or whatever this is obviously a shitty way of doing it but candidly it does happen um you know they might not qualify or they can no longer afford the fees because i increase the fees as they become higher and higher risk right of actually me needing to fulfill this stuff so the point is is that if you look at insurance it's basically the opposite of a depreciating asset so when you when you depreciate a building so you buy something and then you depreciate in your tax a lot of people see that as a good thing it's like oh yeah we can depreciate it that it's only a good thing because in your mind because the tax code not because it's actually good that things get old and become outdated right think about it so insurance is the reverse of that so instead of putting all your capital up front and then having depreciate something over time insurance companies get all the money up front and then they get to appreciate the money over time and then pay you off of that right and there's a reason that insurance companies the oldest companies in the world the oldest ones are you know 180 200 300 years old and it's because that is a business model that is unreal they even i mean they predate the tax code they don't have to pay taxes so um interesting so when i think about this stuff um this was uh this was uh hopefully this is valid to be valuable for you when you think about um and you know actually i'll put i'll put one level above this the top level i'll say god and franchisors um obviously i'm not saying franchise words are god it's kind of just being funny don't get personal all right and so the last level above this is that god gets 10 off the top period for life and so that's how you can see the money ladder right all the way at the bottom people front their time from their effort from their labor they delay and then they get paid they move up to self-employed they front their time or they split you know they get half now half later um and as they move up this ladder they get paid more up front right a lot of that's because of demand because of how good you are right you're a doctor you get paid first before you do your surgery right if you're if you're a professional you're a great consultant something like that you get paid up front right beyond that you've got banks who uh they get paid first and they they leave people to scraps afterwards so that's when there's a defined pot of money above that you've got insurance companies who get paid the whole time and then may or may not ever have to fulfill on their their work right so them there they get money guaranteed but the work that they have to fulfill on is not guaranteed think about that right and then above that you've got god um who gets 10 off top line of what you make so um i hope this was valuable for you this is the money ladder as i see wealth and as i've as i've thought of these things as time has gone on um i shifted my views around it i changed the way we did agreements all that kind of stuff um and so hopefully you find some value in it so this is one of the beliefs that changed my life that um that made me a lot wealthier is watching where the money flows watching where it goes and watching who gets paid when keeping awesome bye