Never Split the Difference by Chris Voss and Tahl Raz

Never Split the Difference: Negotiating As If Your Life Depended On It

Chris Voss and Tahl Raz

“I’m sorry, Robert, how do I know he’s even alive?” I said, using an apology and his first name, seeding more warmth into the interaction in order to complicate his gambit to bulldoze me. “I really am sorry, but how can I get you any money right now, much less one million dollars, if I don’t even know he’s alive?”

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I was employing what had become one of the FBI’s most potent negotiating tools: the open-ended question.

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The Black Swan Group, we call this tactic calibrated questions: queries that the other side can respond to but that have no fixed answers. It buys you time. It gives your counterpart the illusion of control—they are the one with the answers and power after all—and it does all that without giving them any idea of how constrained they are by it.

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the frame of the conversation had shifted from how I’d respond to the threat of my son’s murder to how the professor would deal with the logistical issues involved in getting the money.

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How he would solve my problems. To

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Andy would throw out an offer and give a rationally airtight explanation for why it was a good one—an inescapable logic trap—and I’d answer with some variation of “How am I supposed to do that?”

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While I wasn’t actually saying “No,” the questions I kept asking sounded like it. They seemed to insinuate that the other side was being dishonest and unfair. And that was enough to make them falter and negotiate with themselves.

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“I’m just asking questions,” I said. “It’s a passive-aggressive approach. I just ask the same three or four open-ended questions over and over and over and over. They get worn out answering and give me everything I want.”

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authoritative acronyms like BATNA and ZOPA, rational notions of value, and a moral concept of what was fair and what was not. And

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Getting to Yes,2 a groundbreaking treatise on negotiation that totally

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Their core assumption was that the emotional brain—that animalistic, unreliable, and irrational beast—could be overcome through a more rational, joint problem-solving mindset.

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One, separate the person—the emotion—from the problem; two, don’t get wrapped up in the other side’s position (what they’re asking for) but instead focus on their interests (why they’re asking for it) so that you can find what they really want; three, work cooperatively to generate win-win options; and, four, establish mutually agreed-upon standards for evaluating those possible solutions.

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the Framing Effect, which demonstrates that people respond differently to the same choice depending on how it is framed (people place greater value on moving from 90 percent to 100 percent—high probability to certainty—than from 45 percent to 55 percent, even though they’re both ten percentage points).

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Loss Aversion, which shows how people are statistically more likely to act to avert a loss than to achieve an equal gain. Kahneman later codified his research in the 2011 bestseller Thinking, Fast and Slow.3 Man, he wrote, has two systems of thought: System 1, our animal mind, is fast, instinctive, and emotional; System 2 is slow, deliberative, and logical. And System 1 is far more influential. In fact, it guides and steers our rational thoughts. System 1’s inchoate beliefs, feelings, and impressions are the main sources of the explicit beliefs and deliberate choices of System 2. They’re the spring that feeds the river. We react emotionally (System 1) to a suggestion or question. Then that System 1 reaction informs and in effect creates the System 2 answer.

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From that moment onward, our emphasis would have to be not on training in quid pro quo bargaining and problem solving, but on education in the psychological skills needed in crisis intervention situations. Emotions and emotional intelligence would have to be central to effective negotiation, not things to be overcome. What were needed were simple psychological tactics and strategies that worked in the field to calm people down, establish rapport, gain trust, elicit the verbalization of needs, and persuade the other guy of our empathy. We needed something easy to teach, easy to learn, and easy to execute.

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It all starts with the universally applicable premise that people want to be understood and accepted. Listening is the cheapest, yet most effective concession we can make to get there. By listening intensely, a negotiator demonstrates empathy and shows a sincere desire to better understand what the other side is experiencing.

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Psychotherapy research shows that when individuals feel listened to, they tend to listen to themselves more carefully and to openly evaluate and clarify their own thoughts and feelings. In addition, they tend to become less defensive and oppositional and more willing to listen to other points of view, which gets them to the calm and logical place where they can be good Getting to Yes problem solvers.

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Tactical Empathy. This is listening as a martial art, balancing the subtle behaviors of emotional intelligence and the assertive skills of influence, to gain access to the mind of another person. Contrary to popular opinion, listening is not a passive activity. It is the most active thing you can do.

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Negotiation serves two distinct, vital life functions—information gathering and behavior influencing—and includes almost any interaction where each party wants something from the other side. Your career, your finances, your reputation, your love life, even the fate of your kids—at some point all of these hinge on your ability to negotiate.

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Effective negotiation is applied people smarts, a psychological edge in every domain of life: how to size someone up, how to influence their sizing up of you, and how to use that knowledge to get what you want. But beware: this is not

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No. A successful hostage negotiator has to get everything he asks for, without giving anything back of substance, and do so in a way that leaves the adversaries feeling as if they have a great relationship.

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Great negotiators are able to question the assumptions that the rest of the involved players accept on faith or in arrogance, and thus remain more emotionally open to all possibilities, and more intellectually agile to a fluid situation.

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I hadn’t yet learned to be aware of a counterpart’s overuse of personal pronouns—we/they or me/I. The less important he makes himself, the more important he probably is (and vice versa).

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We are easily distracted. We engage in selective listening, hearing only what we want to hear, our minds acting on a cognitive bias for consistency rather than truth. And that’s just the start. Most people approach a negotiation so preoccupied by the arguments that support their position that they are unable to listen attentively. In one of the most cited research papers in psychology,1 George A. Miller persuasively put forth the idea that we can process only about seven pieces of information in our conscious mind at any given moment. In other words, we are easily overwhelmed.

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Instead of prioritizing your argument—in fact, instead of doing any thinking at all in the early goings about what you’re going to say—make your sole and all-encompassing focus the other person and what they have to say. In that mode of true active listening—aided by the tactics you’ll learn in the following chapters—you’ll disarm your counterpart. You’ll make them feel safe.

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The goal is to identify what your counterparts actually need (monetarily, emotionally, or otherwise) and get them feeling safe enough to talk and talk and talk some more about what they want.

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Going too fast is one of the mistakes all negotiators are prone to making. If we’re too much in a hurry, people can feel as if they’re not being heard and we risk undermining the rapport and trust we’ve built. There’s plenty of research that now validates the passage of time as one of the most important tools for a negotiator. When you slow the process down, you also calm it down.

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I didn’t put it like a question. I made a downward-inflecting statement, in a downward-inflecting tone of voice. The best way to describe the late-night FM DJ’s voice is as the voice of calm and reason. When deliberating on a negotiating strategy or approach, people tend to focus all their energies on what to say or do, but it’s how we are (our general demeanor and delivery) that is both the easiest thing to enact and the most immediately effective mode of influence.

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When we radiate warmth and acceptance, conversations just seem to flow. When we enter a room with a level of comfort and enthusiasm, we attract people toward us. Smile at someone on the street, and as a reflex they’ll smile back. Understanding that reflex and putting it into practice is critical to the success of just about every negotiating skill there is to learn.

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When people are in a positive frame of mind, they think more quickly, and are more likely to collaborate and problem-solve (instead of fight and resist). It applies to the smile-er as much as to the smile-ee: a smile on your face, and in your voice, will increase your own mental agility.

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You can be very direct and to the point as long as you create safety by a tone of voice that says I’m okay, you’re okay, let’s figure things out.

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Mirroring, also called isopraxism, is essentially imitation. It’s another neurobehavior humans (and other animals) display in which we copy each other to comfort each other. It can be done with speech patterns, body language, vocabulary, tempo, and tone of voice. It’s generally an unconscious behavior—we are rarely aware of it when it’s happening—but it’s a sign that people are bonding, in sync, and establishing the kind of rapport that leads to trust. It’s a phenomenon (and now technique) that follows a very basic but profound biological principle: We fear what’s different and are drawn to what’s similar.

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It’s almost laughably simple: for the FBI, a “mirror” is when you repeat the last three words (or the critical one to three words) of what someone has just said. Of the entirety of the FBI’s hostage negotiation skill set, mirroring is the closest one gets to a Jedi mind trick. Simple, and yet uncannily effective. By

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The results were stunning: the average tip of the waiters who mirrored was 70 percent more than of those who used positive reinforcement.

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If you take a pit bull approach with another pit bull, you generally end up with a messy scene and lots of bruised feelings and resentment. Luckily, there’s another way without all the mess. It’s just four simple steps: 1. Use the late-night FM DJ voice. 2. Start with “I’m sorry . . .” 3. Mirror. 4. Silence. At least four seconds, to let the mirror work its magic on your counterpart. 5. Repeat.

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“I’m sorry, two copies?” she mirrored in response, remembering not only the DJ voice, but to deliver the mirror in an inquisitive tone. The intention behind most mirrors should be “Please, help me understand.” Every time you mirror someone, they will reword what they’ve said. They will never say it exactly the same way they said it the first time. Ask someone, “What do you mean by that?” and you’re likely to incite irritation or defensiveness. A mirror, however, will get you the clarity you want while signaling respect and concern for what the other person is saying. “Yes,” her boss responded, “one for us and one for the customer.” “I’m sorry, so you are saying that the client is asking for a copy and we need a copy for internal use?” “Actually, I’ll check with the client—they haven’t asked for anything. But I definitely want a copy. That’s just how I do business.” “Absolutely,” she responded. “Thanks for checking with the customer. Where would you like to store the in-house copy? There’s no more space in the file room here.” “It’s fine. You can store it anywhere,” he said, slightly perturbed now. “Anywhere?” she mirrored again, with calm concern. When another person’s tone of voice or body language is inconsistent with his words, a good mirror can be particularly useful. In this case, it caused her boss to take a nice, long pause—something he did not often do. My student sat silent. “As a matter of fact, you can put them in my office,” he said, with more composure than he’d had the whole conversation. “I’ll get the new assistant to print it for me after the project is done. For now, just create two digital backups.” A day later her boss emailed and wrote simply, “The two digital backups will be fine.”

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The language of negotiation is primarily a language of conversation and rapport: a way of quickly establishing relationships and getting people to talk and think together.

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good negotiator prepares, going in, to be ready for possible surprises; a great negotiator aims to use her skills to reveal the surprises she is certain to find. ■ Don’t commit to assumptions; instead, view them as hypotheses and use the negotiation to test them rigorously.

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People who view negotiation as a battle of arguments become overwhelmed by the voices in their head. Negotiation is not an act of battle; it’s a process of discovery. The goal is to uncover as much information as possible. ■ To quiet the voices in your head, make your sole and all-encompassing focus the other person and what they have to say. ■ Slow. It. Down. Going too fast is one of the mistakes all negotiators are prone to making. If we’re too much in a hurry, people can feel as if they’re not being heard. You risk undermining the rapport and trust you’ve built.

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■ Put a smile on your face. When people are in a positive frame of mind, they think more quickly, and are more likely to collaborate and problem-solve (instead of fight and resist). Positivity creates mental agility in both you and your counterpart.

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But think about that: How can you separate people from the problem when their emotions are the problem?

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Emotions are one of the main things that derail communication. Once people get upset at one another, rational thinking goes out the window. That’s why, instead of denying or ignoring emotions, good negotiators identify and influence them.

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You can learn almost everything you need—and a lot more than other people would like you to know—simply by watching and listening, keeping your eyes peeled and your ears open, and your mouth shut.

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Think about the therapist’s couch as you read the following sections. You’ll see how a soothing voice, close listening, and a calm repetition of the words of your “patient” can get you a lot further than a cold, rational argument.

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Instead, I imagined myself in their place. “It looks like you don’t want to come out,” I said repeatedly. “It seems like you worry that if you open the door, we’ll come in with guns blazing. It looks like you don’t want to go back to jail.”

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In my negotiating course, I tell my students that empathy is “the ability to recognize the perspective of a counterpart, and the vocalization of that recognition.” That’s an academic way of saying that empathy is paying attention to another human being, asking what they are feeling, and making a commitment to understanding their world.

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Most of us enter verbal combat unlikely to persuade anyone of anything because we only know and care about our own goals and perspective.

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We didn’t just put ourselves in the fugitives’ shoes. We spotted their feelings, turned them into words, and then very calmly and respectfully repeated their emotions back to them. In a negotiation, that’s called labeling. Labeling is a way of validating someone’s emotion by acknowledging it. Give someone’s emotion a name and you show you identify with how that person feels.

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Think of labeling as a shortcut to intimacy, a time-saving emotional hack.

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For most people, it’s one of the most awkward negotiating tools to use. Before they try it the first time, my students almost always tell me they expect their counterpart to jump up and shout, “Don’t you dare tell me how I feel!” Let me let you in on a secret: people never even notice.

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Once you’ve spotted an emotion you want to highlight, the next step is to label it aloud. Labels can be phrased as statements or questions. The only difference is whether you end the sentence with a downward or upward inflection. But no matter how they end, labels almost always begin with roughly the same words: It seems like . . . It sounds like . . . It looks like . . . Notice we said “It sounds like . . .” and not “I’m hearing that . . .” That’s because the word “I” gets people’s guard up. When you say “I,” it says you’re more interested in yourself than the other person, and it makes you take personal responsibility for the words that follow—and the offense they might cause. But when you phrase a label as a neutral statement of understanding, it encourages your counterpart to be responsive.

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The last rule of labeling is silence. Once you’ve thrown out a label, be quiet and listen. We all have a tendency to expand on what we’ve said, to finish, “It seems like you like the way that shirt looks,” with a specific question like “Where did you get it?” But a label’s power is that it invites the other person to reveal himself.

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Imagine a grandfather who’s grumbly at a family holiday dinner: the presenting behavior is that he’s cranky, but the underlying emotion is a sad sense of loneliness from his family never seeing him. What good negotiators do when labeling is address those underlying emotions. Labeling negatives diffuses them (or defuses them, in extreme cases); labeling positives reinforces them.

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As an emotion, anger is rarely productive—in you or the person you’re negotiating with. It releases stress hormones and neurochemicals that disrupt your ability to properly evaluate and respond to situations. And it blinds you to the fact that you’re angry in the first place, which gives you a false sense of confidence. That’s not to say that negative feelings should be ignored. That can be just as damaging. Instead, they should be teased out. Labeling is a helpful tactic in de-escalating angry confrontations, because it makes the person acknowledge their feelings rather than continuing to act out.

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Try this the next time you have to apologize for a bone-headed mistake. Go right at it. The fastest and most efficient means of establishing a quick working relationship is to acknowledge the negative and diffuse it. Whenever

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And when I make a mistake—something that happens a lot—I always acknowledge the other person’s anger. I’ve found the phrase “Look, I’m an asshole” to be an amazingly effective way to make problems go away.

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Research shows that the best way to deal with negativity is to observe it, without reaction and without judgment. Then consciously label each negative feeling and replace it with positive, compassionate, and solution-based thoughts. One

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“I wanted to inform you,” it read, “that in order to receive your tickets for the upcoming season opener against the New York Giants, you will need to pay your outstanding balance in full prior to September 10.” It was the stupidly aggressive, impersonal, tone-deaf style of communication that is the default for most business. It was all “me, me, me” from TJ, with no acknowledgment of the ticket holder’s situation. No empathy. No connection. Just give me the money. Maybe I don’t need to say it, but the script didn’t work. TJ left messages; no one called back.

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the faster we can interrupt the amygdala’s reaction to real or imaginary threats, the faster we can clear the road of obstacles, and the quicker we can generate feelings of safety, well-being, and trust. We do that by labeling the fears. These labels are so powerful because they bathe the fears in sunlight, bleaching them of their power and showing our counterpart that we understand.

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By digging beneath what seems like a mountain of quibbles, details, and logistics, labels help to uncover and identify the primary emotion driving almost all of your counterpart’s behavior, the emotion that, once acknowledged, seems to miraculously solve everything else. DO AN ACCUSATION AUDIT On

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I always end up with more volunteers than I need. Now, look at what I did: I prefaced the conversation by labeling my audience’s fears; how much worse can something be than “horrible”? I defuse them and wait, letting it sink in and thereby making the unreasonable seem less forbidding.

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The first step of doing so is listing every terrible thing your counterpart could say about you, in what I call an accusation audit.

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Anna opened by acknowledging ABC’s biggest gripes. “We understand that we brought you on board with the shared goal of having you lead this work,” she said. “You may feel like we have treated you unfairly, and that we changed the deal significantly since then. We acknowledge that you believe you were promised this work.”

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“What else is there you feel is important to add to this?” By labeling the fears and asking for input, Anna was able to elicit an important fact about ABC’s fears, namely that ABC was expecting this to be a high-profit contract because it thought Anna’s firm was doing quite well from the deal.

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Watch what they do closely, as it’s brilliant: they acknowledge ABC’s situation while simultaneously shifting the onus of offering a solution to the smaller company. “It sounds like you have a great handle on how the government contract should work,” Anna said, labeling Angela’s expertise. “Yes—but I know that’s not how it always goes,” Angela answered, proud to have her experience acknowledged. Anna then asked Angela how she would amend the contract so that everyone made some money, which pushed Angela to admit that she saw no way to do so without cutting ABC’s worker count.

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To start, watch how Ryan turns that heated exchange to his advantage. Following on the heels of an argument is a great position for a negotiator, because your counterpart is desperate for an empathetic connection. Smile, and you’re already an improvement. “Hi, Wendy, I’m Ryan. It seems like they were pretty upset.” This labels the negative and establishes a rapport based on empathy. This in turn encourages Wendy to elaborate on her situation, words Ryan then mirrors to invite her to go further. “Yeah. They missed their connection. We’ve had a fair amount of delays because of the weather.”

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After Wendy explains how the delays in the Northeast had rippled through the system, Ryan again labels the negative and then mirrors her answer to encourage her to delve further. “It seems like it’s been a hectic day.” “There’ve been a lot of ‘irate consumers,’ you know? I mean, I get it, even though I don’t like to be yelled at. A lot of people are trying to get to Austin for the big game.” “The big game?” “UT is playing Ole Miss football and every flight into Austin has been booked solid.” “Booked solid?” Now let’s pause. Up to this point, Ryan has been using labels and mirrors to build a relationship with Wendy. To her it must seem like idle chatter, though, because he hasn’t asked for anything. Unlike the angry couple, Ryan is acknowledging her situation. His words ping-pong between “What’s that?” and “I hear you,” both of which invite her to elaborate. Now that the empathy has been built, she lets slip a piece of information he can use. “Yeah, all through the weekend.

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Here’s where Ryan finally swoops in with an ask. But notice how he acts: not assertive or coldly logical, but with empathy and labeling that acknowledges her situation and tacitly puts them in the same boat. “Well, it seems like you’ve been handling the rough day pretty well,” he says. “I was also affected by the weather delays and missed my connecting flight. It seems like this flight is likely booked solid, but with what you said, maybe someone affected by the weather might miss this connection. Is there any possibility a seat will be open?” Listen to that riff: Label, tactical empathy, label. And only then a request.

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As you try to insert the tools of tactical empathy into your daily life, I encourage you to think of them as extensions of natural human interactions and not artificial conversational tics.

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Imagine yourself in your counterpart’s situation. The beauty of empathy is that it doesn’t demand that you agree with the other person’s ideas (you may well find them crazy). But by acknowledging the other person’s situation, you immediately convey that you are listening. And once they know that you are listening, they may tell you something that you can use. ■ The reasons why a counterpart will not make an agreement with you are often more powerful than why they will make a deal, so focus first on clearing the barriers to agreement. Denying barriers or negative influences gives them credence; get them into the open.

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Pause. After you label a barrier or mirror a statement, let it sink in. Don’t worry, the other party will fill the silence. ■ Label your counterpart’s fears to diffuse their power. We all want to talk about the happy stuff, but remember, the faster you interrupt action in your counterpart’s amygdala, the part of the brain that generates fear, the faster you can generate feelings of safety, well-being, and trust. ■ List the worst things that the other party could say about you and say them before the other person can. Performing an accusation audit in advance prepares you to head off negative dynamics before they take root. And because these accusations often sound exaggerated when said aloud, speaking them will encourage the other person to claim that quite the opposite is true. ■ Remember you’re dealing with a person who wants to be appreciated and understood. So use labels to reinforce and encourage positive perceptions and dynamics.

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“Yes” and “Maybe” are often worthless. But “No” always alters the conversation.

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all related to negotiation?” “No.” “Looks like you answered your own question,” she said. “No. Now go away.” “Go away?” I protested. “Really?” “Yep. As in, ‘Leave me alone.’ Everybody wants to be a hostage negotiator, and you have no résumé, experience, or skills. So what would you say in my position? You got it: ‘No.’” I paused in front of her, thinking, This is not how my negotiating career ends. I had stared down terrorists; I wasn’t going to just leave. “Come on,” I said. “There has to be something I can do.” Amy shook her head and gave one of those ironic laughs that mean the person doesn’t think you’ve got a snowball’s chance in hell. “I’ll tell you what. Yes, there is something you can do: Volunteer at a suicide hotline. Then come talk to me. No guarantees, got it?” she said. “Now, seriously, go away.”

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started to see that while people played the game of conversation, it was in the game beneath the game, where few played, that all the leverage lived. In our chat, I saw how the word “No”—so apparently clear and direct—really wasn’t so simple. Over the years, I’ve thought back repeatedly to that conversation, replaying how Amy so quickly turned me down, again and again. But her “No’s” were just the gateway to “Yes.” They gave her—and me—time to pivot, adjust, and reexamine, and actually created the environment for the one “Yes” that mattered.

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At first, I thought that sort of automated response signaled a failure of imagination. But then I realized I did the same thing with my teenage son, and that after I’d said “No” to him, I often found that I was open to hearing what he had to say. That’s because having protected myself, I could relax and more easily…

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Jim Camp, in his excellent book, Start with NO,1 counsels the reader to give their adversary (his word for counterpart) permission to say “No” from the outset of a negotiation. He calls it “the right to veto.” He observes that people will fight to the death to preserve their right to say “No,” so give them that right and the…

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When I read Camp’s book, I realized this was something we’d known as hostage negotiators for years. We’d learned that the quickest way to get a hostage-taker out was to take the time to talk them out, as opposed to “demanding” their surrender. Demanding their surrender, “telling” them to come out, always ended up…

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It comes down to the deep and universal human need for autonomy. People need to feel in control. When you preserve a person’s autonomy by clearly giving them permission to say “No” to your ideas, the emotions calm, the effectiveness of the decisions go up, and the other party can really look at your proposal. They’re allowed to hold it in their hands, to turn it around. And it gives you time to elaborate or pivot in order to convince your counterpart that the change you’re proposing is more…

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Politely saying “No” to your opponent (we’ll go into this in more depth in Chapter 9), calmly hearing “No,” and just letting the other side know that they are welcome to say “No” has a positive impact on any negotiation. In fact, your invitation for the other side to say “No” has an…

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Then, after pausing, ask solution-based questions or simply label their effect: “What about this doesn’t work for you?” “What would you need to make it work?” “It seems like there’s something here that bothers you.” People have a need to say, “No.” So don’t just hope to hear it at some point; get them to say it early.

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His negotiation style is all me, me, me, ego, ego, ego. And when the people on the other side of the table pick up those signals, they’re going to decide that it’s best to politely, even furtively, ignore this Superman . . . by saying “Yes”! “Huh?” you say. Sure, the word they’ll say right off is “Yes,” but that word is only a tool to get this blowhard to go away. They’ll weasel out later, claiming changing conditions, budget issues, the weather. For now, they just want to be released because Joe isn’t convincing them of anything; he’s only convincing himself. I’ll let you in on a secret. There are actually three kinds of “Yes”: Counterfeit, Confirmation, and Commitment. A counterfeit “yes” is one in which your counterpart plans on saying “no” but either feels “yes” is an easier escape route or just wants to disingenuously keep the conversation going to obtain more information or some other kind of edge. A confirmation “yes” is generally innocent, a reflexive response to a black-or-white question; it’s sometimes used to lay a trap but mostly it’s just simple affirmation with no promise of action. And a commitment “yes” is the real deal; it’s a true agreement that leads to action, a “yes” at the table that ends with a signature on the contract. The commitment “yes” is what you want, but the three types sound almost the same so you have to learn how to recognize which one is being used.

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the only way to get these callers to take action was to have them own the conversation, to believe that they were coming to these conclusions, to these necessary next steps, and that the voice at the other end was simply a medium for those realizations. Using all your skills to create rapport, agreement, and connection with a counterpart is useful, but ultimately that connection is useless unless the other person feels that they are equally as responsible, if not solely responsible, for creating the connection and the new ideas they have.

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Got it, you say. It’s not about me. We need to persuade from their perspective, not ours. But how? By starting with their most basic wants. In every negotiation, in every agreement, the result comes from someone else’s decision. And sadly, if we believe that we can control or manage others’ decisions with compromise and logic, we’re leaving millions on the table. But while we can’t control others’ decisions, we can influence them by inhabiting their world and seeing and hearing exactly what they want. Though the intensity may differ from person to person, you can be sure that everyone you meet is driven by two primal urges: the need to feel safe and secure, and the need to feel in control. If you satisfy those drives, you’re in the door. As we saw with my chat with Daryl, you’re not going to logically

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convince them that they’re safe, secure, or in control. Primal needs are urgent and illogical, so arguing them into a corner is just going to push your counterpart to flee with a counterfeit “Yes.”

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Good negotiators welcome—even invite—a solid “No” to start, as a sign that the other party is engaged and thinking.

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That’s why I tell my students that, if you’re trying to sell something, don’t start with “Do you have a few minutes to talk?” Instead ask, “Is now a bad time to talk?” Either you get “Yes, it is a bad time” followed by a good time or a request to go away, or you get “No, it’s not” and total focus.

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by the time she sat down with him, she had picked one of the most strongly worded “No”-oriented setup questions I have ever heard. “Do you want the FBI to be embarrassed?” she said. “No,” he answered. “What do you want me to do?” she responded. He leaned back in his chair, one of those 1950s faux-leather numbers that squeak meaningfully when the sitter shifts. He stared at her over his glasses and then nodded ever so slightly. He was in control. “Look, you can keep the position,” he said. “Just go back out there and don’t let it interfere with your other duties.” And a minute later Marti walked out with her job intact.

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When I heard Marti do that, I was like, “Bang!” By pushing for a “No,” Marti nudged her supervisor into a zone where he was making the decisions. And then she furthered his feelings of safety and power with a question inviting him to define her next move. The important thing here is that Marti not only accepted the “No”; she searched it out and embraced it. At a recent sales conference, I asked the participants for the one word they all dread. The entire group yelled, “No!” To them—and to almost everyone—“No” means one thing: end of discussion. But that’s not what it means. “No” is not failure. Used strategically it’s an answer that opens the path forward.

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Getting to the point where you’re no longer horrified by the word “No” is a liberating moment that every negotiator needs to reach. Because if your biggest fear is “No,” you can’t negotiate. You’re the hostage of “Yes.” You’re handcuffed. You’re done. So

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As you can see, “No” has a lot of skills. ■ “No” allows the real issues to be brought forth; ■ “No” protects people from making—and lets them correct—ineffective decisions; ■ “No” slows things down so that people can freely embrace their decisions and the agreements they enter into; ■ “No” helps people feel safe, secure, emotionally comfortable, and in control of their decisions; ■ “No” moves everyone’s efforts forward.

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The problem, in reality, was that the “Yes pattern” scripts had been giving poor rates of return for years. All the steps were “Yes,” but the final answer was invariably “No.” Then Ben read Jim Camp’s book Start with NO in my class and began to wonder if “No” could be a tool to boost donations.

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Sometimes, if you’re talking to somebody who is just not listening, the only way you can crack their cranium is to antagonize them into “No.” One great way to do this is to mislabel one of the other party’s emotions or desires. You say something that you know is totally wrong, like “So it seems that you really are eager to leave your job” when they clearly want to stay. That forces them to listen and makes them comfortable correcting you by saying, “No, that’s not it. This is it.”

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you send a polite follow-up and they stonewall you again. So what do you do? You provoke a “No” with this one-sentence email. Have you given up on this project? The point is that this one-sentence email encapsulates the best of “No”-oriented questions and plays on your counterpart’s natural human aversion to loss. The “No” answer the email demands offers the other party the feeling of safety and the illusion of control while encouraging them to define their position and explain it to you.

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We’ve instrumentalized niceness as a way of greasing the social wheels, yet it’s often a ruse. We’re polite and we don’t disagree to get through daily existence with the least degree of friction. But by turning niceness into a lubricant, we’ve leeched it of meaning. A smile and a nod might signify “Get me out of here!” as much as it means “Nice to meet you.” That’s death for a good negotiator, who gains their power by understanding their counterpart’s situation and extracting information about their counterpart’s desires and needs. Extracting that information means getting the other party to feel safe and in control. And while it may sound contradictory, the way to get there is by getting the other party to disagree, to draw their own boundaries, to define their desires as a function of what they do not want.

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■ Break the habit of attempting to get people to say “yes.” Being pushed for “yes” makes people defensive. Our love of hearing “yes” makes us blind to the defensiveness we ourselves feel when someone is pushing us to say it. ■ “No” is not a failure. We have learned that “No” is the anti-“Yes” and therefore a word to be avoided at all costs. But it really often just means “Wait” or “I’m not comfortable with that.” Learn how to hear it calmly. It is not the end of the negotiation, but the beginning. ■ “Yes” is the final goal of a negotiation, but don’t aim for it at the start. Asking someone for “Yes” too quickly in a conversation—“Do you like to drink water, Mr. Smith?”—gets his guard up and paints you as an untrustworthy salesman. ■ Saying “No” makes the speaker feel safe, secure, and in control, so trigger it. By saying what they don’t want, your counterpart defines their space and gains the confidence and comfort to listen to you. That’s why “Is now a bad time to talk?” is always better than “Do you have a few minutes to talk?” ■ Sometimes the only way to get your counterpart to listen and engage with you is by forcing them into a “No.” That means intentionally mislabeling one of their emotions or desires or asking a ridiculous question—like, “It seems like you want this project to fail”—that can only be answered negatively. ■ Negotiate in their world. Persuasion is not about how bright or smooth or forceful you are. It’s about the other party convincing themselves that the solution you want is their own idea. So don’t beat

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them with logic or brute force. Ask them questions that open paths to your goals. It’s not about you. ■ If a potential business partner is ignoring you, contact them with a clear and concise “No”-oriented question that suggests that you are ready to walk away. “Have you given up on this project?” works wonders.

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CNU developed what is a powerful staple in the high-stakes world of crisis negotiation, the Behavioral Change Stairway Model (BCSM). The model proposes five stages—active listening, empathy, rapport, influence, and behavioral change—that take any negotiator from listening to influencing behavior.

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Before you convince them to see what you’re trying to accomplish, you have to say the things to them that will get them to say, “That’s right.” The “that’s right” breakthrough usually doesn’t come at the beginning of a negotiation. It’s invisible to the counterpart when it occurs, and they embrace what you’ve said. To them, it’s a subtle epiphany.

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page document that instructed Benjie to change course. We were going to use nearly every tactic in the active listening arsenal: 1. Effective Pauses: Silence is powerful. We told Benjie to use it for emphasis, to encourage Sabaya to keep talking until eventually, like clearing out a swamp, the emotions were drained from the dialogue. 2. Minimal Encouragers: Besides silence, we instructed using simple phrases, such as “Yes,” “OK,” “Uh-huh,” or “I see,” to effectively convey that Benjie was now paying full attention to Sabaya and all he had to say. 3. Mirroring: Rather than argue with Sabaya and try to separate Schilling from the “war damages,” Benjie would listen and repeat back what Sabaya said. 4. Labeling: Benjie should give Sabaya’s feelings a name and identify with how he felt. “It all seems so tragically unfair, I can now see why you sound so angry.” 5. Paraphrase: Benjie should repeat what Sabaya is saying back to him in Benjie’s own words. This, we told him, would powerfully show him you really do understand and aren’t merely parroting his concerns. 6. Summarize: A good summary is the combination of rearticulating the meaning of what is said plus the acknowledgment of the emotions underlying that meaning (paraphrasing + labeling = summary). We told Benjie he needed to listen and repeat the “world according to Abu Sabaya.” He needed to fully and completely summarize all the nonsense that Sabaya had come up with about war damages and fishing rights and five hundred years of oppression. And once he did that fully and completely, the only possible response for Sabaya, and anyone faced with a good summary, would be “that’s right.”

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It works every time. Tell people “you’re right” and they get a happy smile on their face and leave you alone for at least twenty-four hours. But you haven’t agreed to their position. You have used “you’re right” to get them to quit bothering you.

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The power of getting to that understanding, and not to some simple “yes,” is revelatory in the art of negotiation. The moment you’ve convinced someone that you truly understand her dreams and feelings (the whole world that she inhabits), mental and behavioral change becomes possible, and the foundation for a breakthrough has been laid.

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Use these lessons to lay that foundation: ■ Creating unconditional positive regard opens the door to changing thoughts and behaviors. Humans have an innate urge toward socially constructive behavior. The more a person feels understood, and positively affirmed in that understanding, the more likely that urge for constructive behavior will take hold. ■ “That’s right” is better than “yes.” Strive for it. Reaching “that’s right” in a negotiation creates breakthroughs. ■ Use a summary to trigger a “that’s right.” The building blocks of a good summary are a label combined with paraphrasing. Identify, rearticulate, and emotionally affirm “the world according to . .

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when you get a call from brutal criminals who say they’ll kill your aunt unless you pay them immediately, it seems impossible to find leverage in the situation. So you pay the ransom and they release your relative, right? Wrong. There’s always leverage. Negotiation is never a linear formula: add X to Y to get Z. We all have irrational blind spots, hidden needs, and undeveloped notions.

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Once you understand that subterranean world of unspoken needs and thoughts, you’ll discover a universe of variables that can be leveraged to change your counterpart’s needs and expectations. From using some people’s fear of deadlines and the mysterious power of odd numbers, to our misunderstood relationship to fairness, there are always ways to bend our counterpart’s reality so it conforms to what we ultimately want to give them, not to what they initially think they deserve.

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We’re always taught to look for the win-win solution, to accommodate, to be reasonable. So what’s the win-win here? What’s the compromise? The traditional negotiating logic that’s drilled into us from an early age, the kind that exalts compromises, says, “Let’s just split the difference and offer them $75,000. Then everyone’s happy.” No. Just, simply, no. The win-win mindset pushed by so many negotiation experts is usually ineffective and often disastrous. At best, it satisfies…

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Of course, as we’ve noted previously, you need to keep the cooperative, rapport-building, empathetic approach, the kind that creates a dynamic in which deals can be made. But you have to get rid of that naïveté. Because compromise—“splitting the difference”—can lead to terrible outcomes. Compromise is often a “bad deal” and a key theme we’ll hit in this chapter is that “no deal is better than a bad…

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To make my point on compromise, let me paint you an example: A woman wants her husband to wear black shoes with his suit. But her husband doesn’t want to; he prefers brown shoes. So what do they do? They compromise, they…

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one brown shoe. Is this the best outcome? No! In fact, that’s the worst possible outcome. Either of the two other outcomes—black or brown—would be better than the compromise. Next time you want to compromise, remind yourself of those mismatched shoes. So why are we so infatuated with the notion of compromise if it often leads to poor results? The real problem with compromise is that it has come to be known as this great concept, in…

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I’m here to call bullshit on compromise right now. We don’t compromise because it’s right; we compromise because it is easy and because it saves face. We compromise in order to say that at least we got half the pie. Distilled to its essence, we compromise to be safe. Most people in a negotiation are driven by…

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So don’t settle and—here’s a simple rule—never split the difference. Creative solutions are almost always preceded by some degree of risk, annoyance, confusion, and conflict. Accommodation and compromise produce none of that. You’ve got to embrace the hard stuff.…

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Time is one of the most crucial variables in any negotiation. The simple passing of time and its sharper cousin, the deadline, are the screw that pressures every deal to a conclusion. Whether your deadline is real and absolute or merely a line in the sand, it can trick you into believing that doing a deal now is more important than getting a good deal. Deadlines regularly make people say and do impulsive things that…

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Deadlines are often arbitrary, almost always flexible, and hardly ever trigger the consequences we think—or are told—they will. Deadlines are the bogeymen of negotiation, almost exclusively self-inflicted figments of our imagination, unnecessarily unsettling us for no good reason. The mantra we coach our clients on is, “No deal is better than a bad deal.”

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How close we were getting to their self-imposed deadline would be indicated by how specific the threats were that they issued. “Give us the money or your aunt is going to die” is an early stage threat, as the time isn’t specified. Increasing specificity on threats in any type of negotiations indicates getting closer to real consequences at a real specified time.

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Car dealers are prone to give you the best price near the end of the month, when their transactions are assessed. And corporate salespeople work on a quarterly basis and are most vulnerable as the quarter comes to a close.

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Now, knowing how negotiators use their counterpart’s deadlines to gain leverage would seem to suggest that it’s best to keep your own deadlines secret.

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Allow me to let you in on a little secret: Cohen, and the herd of negotiation “experts” who follow his lead, are wrong. Deadlines cut both ways. Cohen may well have been nervous about what his boss would say if he left Japan without an agreement. But it’s also true that Cohen’s counterparts wouldn’t have won if he’d left without a deal. That’s the key: When the negotiation is over for one side, it’s over for the other too.

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Business at the University of California, Berkeley, says that hiding a deadline actually puts the negotiator in the worst possible position. In his research, he’s found that hiding your deadlines dramatically increases the risk of an impasse. That’s because having a deadline pushes you to speed up your concessions, but the other side, thinking that it has time, will just hold out for more.

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In that sense, hiding a deadline means you’re negotiating with yourself, and you always lose when you do so.

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First, by revealing your cutoff you reduce the risk of impasse. And second, when an opponent knows your deadline, he’ll get to the real deal- and concession-making more quickly.

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NO SUCH THING AS FAIR In the third week of my negotiations class, we play my favorite type of game, that is, the kind that shows my students how much they don’t understand themselves (I know—I’m cruel). It’s called the Ultimatum Game, and it goes like this: After the students split into pairs of a “proposer” and an “accepter,” I give each proposer $10. The proposer then has to offer the accepter a round number of dollars. If the accepter agrees he or she receives what’s been offered and the proposer gets the rest. If the accepter refuses the offer, though, they both get nothing and the $10 goes back to me.

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Then I lay out how they’re wrong. First, how could they all be using reason if so many have made different offers? That’s the point: They didn’t. They assumed the other guy would reason just like them. “If you approach a negotiation thinking that the other guy thinks like you, you’re wrong,” I say. “That’s not empathy; that’s projection.”

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The most powerful word in negotiations is “Fair.” As human beings, we’re mightily swayed by how much we feel we have been respected. People comply with agreements if they feel they’ve been treated fairly and lash out if they don’t.

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Most people make an irrational choice to let the dollar slip through their fingers rather than to accept a derisory offer, because the negative emotional value of unfairness outweighs the positive rational value of the money. This irrational reaction to unfairness extends all the way to serious economic deals.

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In fact, of the three ways that people drop this F-bomb, only one is positive. The most common use is a judo-like defensive move that destabilizes the other side. This manipulation usually takes the form of something like, “We just want what’s fair.” Think back to the last time someone made this implicit accusation of unfairness to you, and I bet you’ll have to admit that it immediately triggered feelings of defensiveness and discomfort. These feelings are often subconscious and often lead to an irrational concession.

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The second use of the F-bomb is more nefarious. In this one, your counterpart will basically accuse you of being dense or dishonest by saying, “We’ve given you a fair offer.” It’s a terrible little jab meant to distract your attention and manipulate you into giving in. Whenever someone tries this on me, I think back to the last NFL lockout. Negotiations were getting down to the wire and the NFL Players Association (NFLPA) said that before they agreed to a final deal they wanted the owners to open their books. The owners’ answer? “We’ve given the players a fair offer.” Notice the horrible genius of this: instead of opening their books or declining to do so, the owners shifted the focus to the NFLPA’s supposed lack of understanding of fairness. If you find yourself in this situation, the best reaction is to simply mirror the “F” that has just been lobbed at you. “Fair?” you’d respond, pausing to let the word’s power do to them as it was intended to do to you. Follow that with a label: “It seems like you’re ready to provide the evidence that supports that,” which alludes to opening their books or otherwise handing over information that will either contradict their claim to fairness or give you more data to work with than you had previously. Right away, you declaw the attack.

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The last use of the F-word is my favorite because it’s positive and constructive. It sets the stage for honest and empathetic negotiation. Here’s how I use it: Early on in a negotiation, I say, “I want you to feel like you are being treated fairly at all times. So please stop me at any time if you feel I’m being unfair, and we’ll address it.” It’s simple and clear and sets me up as an honest dealer.

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If you can get the other party to reveal their problems, pain, and unmet objectives—if you can get at what people are really buying—then you can sell them a vision of their problem that leaves your proposal as the perfect solution.

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Know the emotional drivers and you can frame the benefits of any deal in language that will resonate.

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Or imagine that I offer you $20 to run a three-minute errand and get me a cup of coffee. You’re going to think to yourself that $20 for three minutes is $400 an hour. You’re going to be thrilled. What if then you find out that by getting you to run that errand I made a million dollars. You’d go from being ecstatic for making $400 an hour to being angry because you got ripped off. The value of the $20, just like the value of the coffee mug, didn’t change. But your perspective of it did. Just by how I position the $20, I can make you happy or disgusted by it.

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By far the best theory for describing the principles of our irrational decisions is something called Prospect Theory. Created in 1979 by the psychologists Daniel Kahneman and Amos Tversky, prospect theory describes how people choose between options that involve risk, like in a negotiation. The theory argues that people are drawn to sure things over probabilities, even when the probability is a better choice. That’s called the Certainty Effect. And people will take greater risks to avoid losses than to achieve gains. That’s called Loss Aversion. That’s why people who statistically have no need for insurance buy it. Or consider this: a person who’s told he has a 95 percent chance of receiving $10,000 or a 100 percent chance of getting $9,499 will usually avoid risk and take the 100 percent certain safe choice, while the same person who’s told he has a 95 percent chance of losing $10,000 or a 100 percent chance of losing $9,499 will make the opposite choice, risking the bigger 95 percent option to avoid the loss. The chance for loss incites more risk than the possibility of an equal gain.

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To get real leverage, you have to persuade them that they have something concrete to lose if the deal falls through. 1. ANCHOR THEIR EMOTIONS

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To bend your counterpart’s reality, you have to start with the basics of empathy. So start out with an accusation audit acknowledging all of their fears. By anchoring their emotions in preparation for a loss, you inflame the other side’s loss aversion so that they’ll jump at the chance to avoid it. On my

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“I got a lousy proposition for you,” I said, and paused until each asked me to go on. “By the time we get off the phone, you’re going to think I’m a lousy businessman. You’re going to think I can’t budget or plan. You’re going to think Chris Voss is a big talker. His first big project ever out of the FBI, he screws it up completely. He doesn’t know how to run an operation. And he might even have lied to me.” And then, once I’d anchored their emotions in a minefield of low expectations, I played on their loss aversion. “Still, I wanted to bring this opportunity to you before I took it to someone else,” I said. Suddenly, their call wasn’t about being cut from $2,000 to $500 but how not to lose $500 to some other guy.

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2. LET THE OTHER GUY GO FIRST . . . MOST OF THE TIME.

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had a student named Jerry who royally screwed up his salary negotiation by going first (let me say that this happened before he was my student). In an interview at a New York financial firm, he demanded $110,000, in large part because it represented a 30 percent raise. It was only after he started that he realized that the firm had started everybody else in his program at $125,000. That’s why I suggest you let the other side anchor monetary negotiations.

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That’s not to say, “Never open.” Rules like that are easy to remember, but, like most simplistic approaches, they are not always good advice. If you’re dealing with a rookie counterpart, you might be tempted to be the shark and throw out an extreme anchor.

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3. ESTABLISH A RANGE While going first rarely helps, there is one way to seem to make an offer and bend their reality in the process. That is, by alluding to a range.

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this: When confronted with naming your terms or price, counter by recalling a similar deal which establishes your “ballpark,”

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In a recent study,4 Columbia Business School psychologists found that job applicants who named a range received significantly higher overall salaries than those who offered a number, especially if their range was a “bolstering range,” in which the low number in the range was what they actually wanted.

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They had to put something on the cover anyway, so it had zero cost to them and I gave them a steep discount on my fee. I constantly use that as an example in my negotiations now when I name a price. I want to stimulate my counterpart’s brainstorming to see what valuable nonmonetary gems they might have that are cheap to them but valuable to me. 5. WHEN YOU DO TALK NUMBERS, USE ODD ONES Every number has a psychological significance that goes beyond its value. And I’m not just talking about how you love 17 because you think it’s lucky. What I mean is that, in terms of negotiation, some numbers appear more immovable than others. The biggest thing to remember is that numbers that end in 0 inevitably feel like temporary placeholders, guesstimates that you can easily be negotiated off of. But anything you throw out that sounds less rounded—say, $37,263—feels like a figure that you came to as a result of thoughtful calculation. Such numbers feel serious and permanent to your counterpart, so use them to fortify your offers.

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6. SURPRISE WITH A GIFT You can get your counterpart into a mood of generosity by staking an extreme anchor and then, after their inevitable first rejection, offering them a wholly unrelated surprise gift.

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Unexpected conciliatory gestures like this are hugely effective because they introduce a dynamic called reciprocity; the other party feels the need to answer your generosity in kind. They will suddenly come up on their offer, or they’ll look to repay your kindness in the future. People feel obliged to repay debts of kindness.

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“How am I supposed to do that?” he asked in the next call.

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The kidnapper made another general threat against the aunt and again demanded the cash. That’s when I had the nephew subtly question the kidnapper’s fairness. “I’m sorry,” the nephew responded, “but how are we supposed to pay if you’re going to hurt her?”

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HOW TO NEGOTIATE A BETTER SALARY

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BE PLEASANTLY PERSISTENT ON NONSALARY TERMS

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an extra week of vacation

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SALARY TERMS WITHOUT SUCCESS TERMS IS RUSSIAN ROULETTE Once you’ve negotiated a salary, make sure to define success for your position—as well as metrics for your next raise. That’s meaningful for you and free for your boss,

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SPARK THEIR INTEREST IN YOUR SUCCESS AND GAIN AN UNOFFICIAL MENTOR Remember the idea of figuring what the other side is really buying? Well, when you are selling yourself to a manager, sell yourself as more than a body for a job; sell yourself, and your success, as a way they can validate their own intelligence and broadcast it to the rest of the company.

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Ask: “What does it take to be successful here?”

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“$134.5k—$143k.” In that one little move, Angel weaved together a bunch of the lessons from this chapter. The odd numbers gave them the weight of thoughtful calculation. The numbers were high too, which exploited his boss’s natural tendency to go directly to his price limit when faced by an extreme anchor. And they were a range, which made Angel seem less aggressive and the lower end more reasonable in comparison.

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filled ways. Using that knowledge is only, well, rational. As you work these tools into your daily life, remember the following powerful lessons: ■ All negotiations are defined by a network of subterranean desires and needs. Don’t let yourself be fooled by the surface. Once you know that the Haitian kidnappers just want party money, you will be miles better prepared. ■ Splitting the difference is wearing one black and one brown shoe, so don’t compromise. Meeting halfway often leads to bad deals for both sides. ■ Approaching deadlines entice people to rush the negotiating process and do impulsive things that are against their best interests.

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■ The F-word—“Fair”—is an emotional term people usually exploit to put the other side on the defensive and gain concessions. When your counterpart drops the F-bomb, don’t get suckered into a concession. Instead, ask them to explain how you’re mistreating them. ■ You can bend your counterpart’s reality by anchoring his starting point. Before you make an offer, emotionally anchor them by saying how bad it will be. When you get to numbers, set an extreme anchor to make your “real” offer seem reasonable, or use a range to seem less aggressive. The real value of anything depends on what vantage point you’re looking at it from. ■ People will take more risks to avoid a loss than to realize a gain. Make sure your counterpart sees that there is something to lose by inaction.

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Most important, we learned that successful negotiation involved getting your counterpart to do the work for you and suggest your solution himself. It involved giving him the illusion of control while you, in fact, were the one defining the conversation.

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The tool we developed is something I call the calibrated, or open-ended, question. What it does is remove aggression from conversations by acknowledging the other side openly, without resistance. In doing so, it lets you introduce ideas and requests without sounding pushy. It allows you to nudge.

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I’ll explain it in depth later on, but for now let me say that it’s really as simple as removing the hostility from the statement “You can’t leave” and turning it into a question. “What do you hope to achieve by going?”

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And all negotiation, done well, should be an information-gathering process that vests your counterpart in an outcome that serves you.

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That’s when I had my “Holy shit!” moment and realized that this is the technique I’d been waiting for. Instead of asking some closed-ended question with a single correct answer, he’d asked an open-ended, yet calibrated one that forced the other guy to pause and actually think about how to solve the problem.

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It’s a “how” question, and “how” engages because “how” asks for help.

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Best of all, he doesn’t owe the kidnapper a damn thing. The guy volunteers to put the girlfriend on the phone: he thinks it’s his idea. The guy who just offered to put the girlfriend on the line thinks he’s in control. And the secret to gaining the upper hand in a negotiation is giving the other side the illusion of control.

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The genius of this technique is really well explained by something that the psychologist Kevin Dutton says in his book Split-Second Persuasion.1 He talks about what he calls “unbelief,” which is active resistance to what the other side is saying, complete rejection. That’s where the two parties in a negotiation usually start.

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If you don’t ever get off that dynamic, you end up having showdowns, as each side tries to impose its point of view. You get two hard skulls banging against each other, like in Dos Palmas. But if you can get the other side to drop their unbelief, you can slowly work them to your point of view on the back of their energy, just like the drug dealer’s question got the kidnapper to volunteer to do what the drug dealer wanted.

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Our job as persuaders is easier than we think. It’s not to get others believing what we say. It’s just to stop them unbelieving. Once we achieve that, the game’s half-won. “Unbelief is the friction that keeps persuasion in check,” Dutton says. “Without it, there’d be no limits.”

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What’s so powerful about the senior doctor’s technique is that he took what was a showdown—“I’m going to leave” versus “You can’t leave”—and asked questions that led the patient to solve his own problem . . . in the way the doctor wanted. It was still a kind of showdown, of course, but the doctor took the confrontation and bravado out of it by giving the patient the illusion of control.

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you can just say the price is a bit more than you budgeted and ask for help with one of the greatest-of-all-time calibrated questions: “How am I supposed to do that?” The critical part of this approach is that you really are asking for help and your delivery must convey that.

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My advice for her was simple: I told her to engage them in a conversation where she summarized the situation and then asked, “How am I supposed to do that?”

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Now, think about how my client’s question worked: without accusing them of anything, it pushed the big company to understand her problem and offer the solution she wanted. That in a nutshell is the whole point of open-ended questions that are calibrated for a specific effect.

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Like the softening words and phrases “perhaps,” “maybe,” “I think,” and “it seems,” the calibrated open-ended question takes the aggression out of a confrontational statement or close-ended request that might otherwise anger your counterpart. What makes them work is that they are subject to interpretation by your counterpart instead of being rigidly defined. They allow you to introduce ideas and requests without sounding overbearing or pushy. And that’s the difference between “You’re screwing me out of money, and it has to stop” and “How am I supposed to do that?”

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But calibrated questions are not just random requests for comment. They have a direction: once you figure out where you want a conversation to go, you have to design the questions that will ease the conversation in that direction while…

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First off, calibrated questions avoid verbs or words like “can,” “is,” “are,” “do,” or “does.” These are closed-ended questions that can be answered with a simple “yes” or a “no.” Instead, they start with a list of words people know as reporter’s questions: “who,” “what,” “when,” “where,” “why,” and “…

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But let me cut the list even further: it’s best to start with “what,” “how,” and sometimes “why.” Nothing else. “Who,” “when,” and “where” will often just get your counterpart to share a fact without thinking. And “why” can backfire. Regardless of what language the word “why” is translated into,…

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The only time you can use “why” successfully is when the defensiveness that is created supports the change you are trying to get them to see. “Why would you ever change from the way you’ve always done things and try my approach?” is an example. “Why would your company ever change from your long-standing vendor and choose our…

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don’t touch it. Having just two words to start with might not seem like a lot of ammunition, but trust me, you can use “what” and “how” to calibrate nearly any question. “Does this look like something you would like?” can become “How does this look to you?” or “What about this works for you?” You can even ask, “What about this doesn’t work for…

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You should use calibrated questions early and often, and there are a few that you will find that you will use in the beginning of nearly every negotiation. “What is the biggest challenge you face?” is one of those questions. It just gets the other side to teach you something about themselves, which is critical to any negotiation because all negotiation is an information-gathering process. Here are some other great standbys that I use in almost every negotiation, depending on the situation: ■ What about this is important to you? ■ How can I help to make this better for us? ■ How would you like me to proceed? ■ What is it that brought us into this situation? ■ How can we solve this problem? ■ What’s the objective? / What are we trying to accomplish here? ■ How am I supposed to do that? The implication of any well-designed calibrated question is that you want what the other guy wants but you need his intelligence to overcome the problem. This really appeals to very aggressive or egotistical counterparts. You’ve not only implicitly asked for help—triggering goodwill and less defensiveness—but you’ve engineered a…

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Let’s pause for a minute here, because there’s one vitally important thing you have to remember when you enter a negotiation armed with your list of calibrated questions. That is, all of this is great, but there’s a rub: without self-control and emotional regulation, it doesn’t work. The very first thing I talk about when I’m training new negotiators is the critical importance of self-control. If you can’t control your own emotions, how can you expect to influence the emotions of another party?

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The script we came up with hit all the best practices of negotiation we’ve talked about so far. Here it is by steps: 1. A “No”-oriented email question to reinitiate contact: “Have you given up on settling this amicably?”

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2. A statement that leaves only the answer of “That’s right” to form a dynamic of agreement: “It seems that you feel my bill is not justified.” 3. Calibrated questions about the problem to get him to reveal his thinking: “How does this bill violate our agreement?” 4. More “No”-oriented questions to remove unspoken barriers: “Are you saying I misled you?” “Are you saying I didn’t do as you asked?” “Are you saying I reneged on our agreement?” or “Are you saying I failed you?” 5. Labeling and mirroring the essence of his answers if they are not acceptable so he has to consider them again: “It seems like you feel my work was subpar.” Or “. . . my work was subpar?” 6. A calibrated question in reply to any offer other than full payment, in order to get him to offer a solution: “How am I supposed to accept that?” 7. If none of this gets an offer of full payment, a label that flatters his sense of control and power: “It seems like you are the type of person who prides himself on the way he does business—rightfully so—and has a knack for not only expanding the pie but making the ship run more efficiently.” 8. A long pause and then one more “No”-oriented question: “Do you want to be known as someone who doesn’t fulfill agreements?”

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Even with all the best techniques and strategy, you need to regulate your emotions if you want to have any hope of coming out on top.

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But you have to keep away from knee-jerk, passionate reactions. Pause. Think. Let the passion dissipate. That allows you to collect your thoughts and be more circumspect in what you say. It also lowers your chance of saying more than you want to.

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Who has control in a conversation, the guy listening or the guy talking? The listener, of course. That’s because the talker is revealing information while the listener, if he’s trained well, is directing the conversation toward his own goals. He’s harnessing the talker’s energy for his own ends. When you try to work the skills from this chapter into your daily life, remember that these are listener’s tools. They are not about strong-arming your opponent into submission. Rather, they’re about using the counterpart’s power to get to your objective. They’re listener’s judo.

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Don’t try to force your opponent to admit that you are right. Aggressive confrontation is the enemy of constructive negotiation. ■ Avoid questions that can be answered with “Yes” or tiny pieces of information. These require little thought and inspire the human need for reciprocity; you will be expected to give something back. ■ Ask calibrated questions that start with the words “How” or “What.” By implicitly asking the other party for help, these questions will give your counterpart an illusion of control and will inspire them to speak at length, revealing important information. ■ Don’t ask questions that start with “Why” unless you want your counterpart to defend a goal that serves you. “Why” is always an accusation, in any language. ■ Calibrate your questions to point your counterpart toward solving your problem. This will encourage them to expend their energy on devising a solution. ■ Bite your tongue. When you’re attacked in a negotiation, pause and avoid angry emotional reactions. Instead, ask your counterpart a calibrated question. ■ There is always a team on the other side. If you are not influencing those behind the table, you are vulnerable.

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Calibrated “How” questions are a surefire way to keep negotiations going. They put the pressure on your counterpart to come up with answers, and to contemplate your problems when making their demands.

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With enough of the right “How” questions you can read and shape the negotiating environment in such a way that you’ll eventually get to the answer you want to hear. You just have to have an idea of where you want the conversation to go when you’re devising your questions. The trick to “How” questions is that, correctly used, they are gentle and graceful ways to say “No” and guide your counterpart to develop a better solution—your solution. A gentle How/No invites collaboration and leaves your counterpart with a feeling of having been treated with respect.

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As Julie did, the first and most common “No” question you’ll use is some version of “How am I supposed to do that?” (for example, “How can we raise that much?”). Your tone of voice is critical as this phrase can be delivered as either an accusation or a request for assistance. So pay attention to your voice.

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This question tends to have the positive effect of making the other side take a good look at your situation. This positive dynamic is what I refer to as “forced empathy,” and it’s especially effective if leading up to it you’ve already been empathic with your counterpart. This engages the dynamic of reciprocity to lead them to do something for you. Starting with José’s kidnapping, “How am I supposed to do that?” became our primary response to a kidnapper demanding a ransom. And we never had it backfire.

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Besides saying “No,” the other key benefit of asking “How?” is, quite literally, that it forces your counterpart to consider and explain how a deal will be implemented. A deal is nothing without good implementation. Poor implementation is the cancer that eats your profits. By making your counterparts articulate implementation in their own words, your carefully calibrated “How” questions will convince them that the final solution is their idea. And that’s crucial. People always make more effort to implement a solution when they think it’s theirs. That is simply human nature. That’s why negotiation is often called “the art of letting someone else have your way.” There are two key questions you can ask to push your counterparts to think they are defining success their way: “How will we know we’re on track?” and “How will we address things if we find we’re off track?” When they answer, you summarize their answers until you get a “That’s right.” Then you’ll know they’ve bought in.

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As I’ve noted, when they say, “You’re right,” it’s often a good indicator they are not vested in what is being discussed. And when you push for implementation and they say, “I’ll try,” you should get a sinking feeling in your stomach. Because this really means, “I plan to fail.”

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When you hear either of these, dive back in with calibrated “How” questions until they define the terms of successful implementation in their own voice. Follow up by summarizing what they have said to get a “That’s right.”

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It turns out that the head of the division that needed the training killed the deal. Maybe this guy felt threatened, slighted, or otherwise somehow personally injured by the notion that he and his people “needed” any training at all. (A surprisingly high percentage of negotiations hinge on something outside dollars and cents, often having more to do with self-esteem, status, and other nonfinancial needs.) We’ll never know now.

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We could have avoided all that had we asked a few calibrated questions, like: How does this affect everybody else? How on board is the rest of your team? How do we make sure that we deliver the right material to the right people? How do we ensure the managers of those we’re training are fully on board?

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I instructed him to keep peppering the violent jerk with “How?” How am I supposed to . . . ? How do we know . . . ? How can we . . . ? There is great power in treating jerks with deference. It gives you the ability to be extremely assertive—to say “No”—in a hidden fashion. “How do we know if we pay you that you won’t hurt Alastair?” Aaron asked. In the Chinese martial art of tai chi, the goal is to use your opponent’s aggressiveness against him—to turn his offense into your way to defeat him. That’s the approach we took with Alastair’s kidnapper: we wanted to absorb his threats and wear him down. We made sure that even scheduling a call with us was complex. We delayed making email responses. Through all these tactics, we gained the upper hand while giving the kidnapper the illusion of control. He thought he was solving Aaron’s problems while we were just reading him and wasting his time. You see, it’s best not to go chin to chin with aggressiveness like that of Alastair’s kidnapper; rather, default to using “what” and “how” questions to avoid making bids or adjusting your own negotiating position. Dodge and weave.

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There are plenty of other tactics, tools, and methods for using subtle verbal and nonverbal forms of communication to understand and modify the mental states of your counterpart. As I run through some of them here, I want you to take a moment to internalize each one. These are the kind of tools that can help observant negotiators hit home runs. THE 7-38-55 PERCENT RULE

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In two famous studies on what makes us like or dislike somebody,1 UCLA psychology professor Albert Mehrabian created the 7-38-55 rule. That is, only 7 percent of a message is based on the words while 38 percent comes from the tone of voice and 55 percent from the speaker’s body language and face.

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This happens because there are actually three kinds of “Yes”: Commitment, Confirmation, and Counterfeit. As we discussed in Chapter 5, so many pushy salesman try to trap their clients into the Commitment “Yes” that many people get very good at the Counterfeit “Yes. “ One great tool for avoiding this trap is the Rule of Three. The Rule of Three is simply getting the other guy to agree to the same thing three times in the same conversation. It’s tripling the strength of whatever dynamic you’re trying to drill into at the moment. In doing so, it uncovers problems before they happen. It’s really hard to repeatedly lie or fake conviction.

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When I first learned this skill, my biggest fear was how to avoid sounding like a broken record or coming off as really pushy. The answer, I learned, is to vary your tactics. The first time they agree to something or give you a commitment, that’s No. 1. For No. 2 you might label or summarize what they said so they answer, “That’s right.” And No. 3 could be a calibrated “How” or “What” question about implementation that asks them to explain what will constitute success, something like “What do we do if we get off track?”

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In a study of the components of lying,2 Harvard Business School professor Deepak Malhotra and his coauthors found that, on average, liars use more words than truth tellers and use far more third-person pronouns. They start talking about him, her, it, one, they, and their rather than I, in order to put some distance between themselves and the lie.

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And they discovered that liars tend to speak in more complex sentences in an attempt to win over their suspicious counterparts. It’s what W. C. Fields meant when he talked about baffling someone with bullshit. The researchers dubbed this the Pinocchio Effect because, just like Pinocchio’s nose, the number of words grew along with the lie.

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PAY ATTENTION TO THEIR USAGE OF PRONOUNS The use of pronouns by a counterpart can also help give you a feel for their actual importance in the decision and implementation chains on the other side of the table. The more in love they are with “I,” “me,” and “my” the less important they are. Conversely, the harder it is to get a first person pronoun out of a negotiator’s mouth, the more important they are. Just like in the Malhotra study where the liar is distancing himself from the lie, in a negotiation, smart decision makers don’t want to be cornered at the table into making a decision. They will defer to the people away from the table to keep from getting pinned down.

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outlet mall a few months after the Kansas experience and I picked out some shirts in one of the stores. At the front counter the young lady asked me if I wanted to join their frequent buyer program. I asked her if I got a discount for joining and she said, “No.” So I decided to try another angle. I said in a friendly manner, “My name is Chris. What’s the Chris discount?” She looked from the register, met my eyes, and gave a little laugh. “I’ll have to ask my manager, Kathy,” she said and turned to the woman who’d been standing next to her. Kathy, who’d heard the whole exchange, said, “The best I can do is ten percent.” Humanize yourself. Use your name to introduce yourself. Say it in a fun, friendly way. Let them enjoy the interaction, too. And get your own special price. HOW TO GET YOUR COUNTERPARTS TO BID AGAINST THEMSELVES

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the best way to get your counterparts to lower their demands is to say “No” using “How” questions. These indirect ways of saying “No” won’t shut down your counterpart the way a blunt, pride-piercing “No” would. In fact, these responses will sound so much like counterbids that your counterparts will often keep bidding against themselves. We’ve found that you can usually express “No” four times before actually saying the word. The first step in the “No” series is the old standby: “How am I supposed to do that?” You have to deliver it in a deferential way, so it becomes a request for help. Properly delivered, it invites the other side to participate in your dilemma and solve it with a better offer. After that, some version of “Your offer is very generous, I’m sorry, that just doesn’t work for me” is an elegant second way to say “No.”

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always signs of weakness.) Then you can use something like “I’m sorry but I’m afraid I just can’t do that.” It’s a little more direct, and the “can’t do that” does great double duty. By expressing an inability to perform, it can trigger the other side’s empathy toward you. “I’m sorry, no” is a slightly more succinct version for the fourth “No.” If delivered gently, it barely sounds negative at all. If you have to go further, of course, “No” is the last and most direct way. Verbally, it should be delivered with a downward inflection and a tone of regard; it’s not meant to be “NO!”

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The price you offered is very fair, and I certainly wish that I could afford it. Bruno has worked very hard for this business, and he deserves to be compensated appropriately. I am very sorry, but wish you the best of luck. Notice how they made no counteroffer and said “No” without using the word? Joaquin was shocked when the following day he received an email from the advisor lowering the price to €28,346. Joaquin and Jesus then crafted their second gentle “No”: Thank you for your offer. You were generous to reduce the price, which I greatly appreciate. I really wish that I could pay you this amount, but I am sincere in that I cannot afford this amount at this time. As you know, I am in the middle of a divorce and I just cannot come up with that type of money. Again, I wish you the best of luck.

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■ Ask calibrated “How” questions, and ask them again and again. Asking “How” keeps your counterparts engaged but off balance. Answering the questions will give them the illusion of control. It will also lead them to contemplate your problems when making their demands. ■ Use “How” questions to shape the negotiating environment. You do this by using “How can I do that?” as a gentle version of “No.” This will subtly push your counterpart to search for other solutions—your solutions. And very often it will get them to bid against themselves. ■ Don’t just pay attention to the people you’re negotiating with directly; always identify the motivations of the players “behind the table.” You can do so by asking how a deal will affect everybody else and how on board they are. ■ Follow the 7-38-55 Percent Rule by paying close attention to tone of voice and body language. Incongruence between the words and nonverbal signs will show when your counterpart is lying or uncomfortable with a deal. ■ Is the “Yes” real or counterfeit? Test it with the Rule of Three: use calibrated questions, summaries, and labels to get your counterpart to reaffirm their agreement at least three times. It’s really hard to repeatedly lie or fake conviction. ■ A person’s use of pronouns offers deep insights into his or her relative authority. If you’re hearing a lot of “I,” “me,” and “my,” the real power to decide probably lies elsewhere. Picking up a lot of “we,” “they,” and “them,” it’s more likely you’re dealing directly with a savvy decision maker keeping his options open. ■ Use your own name to make yourself a real person to the other side and even get your own personal discount. Humor and humanity are the best ways to break the ice and remove roadblocks.

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I gave him an understanding nod and pursed my lips. The key to beginning a haggle is to rattle the other guy ever so gently. You do it in the nicest way possible. If I could thread that needle, I had a good chance at getting my price. “I can pay $30,000,” I said. “And I can pay it up front, all cash. I’ll write a check today for the full amount. I’m sorry, I’m afraid I just can’t pay any more.” His smile flickered a little bit at the edges, as if it were losing focus. But he tightened it down and shook his head. “I’m sure you can understand we can’t do that. The sticker price is $36,000, after all.” “How am I supposed to do that?” I asked deferentially. “I’m sure,” he said, then paused as if he wasn’t sure what he’d meant to say. “I’m sure we can figure something out with financing the $36,000.” “It’s a beautiful truck. Really amazing. I can’t tell you how much I’d love to have it. It’s worth more than what I’m offering. I’m sorry, this is really embarrassing. I just can’t do that price.” He stared at me in silence, a little befuddled now. Then he stood and went into the back for what seemed like an eternity. He was gone so long that I remember saying to myself, “Damn! I should have come in lower! They’re going to come all the way down.” Any response that’s not an outright rejection of your offer means you have the edge. He returned and told me like it was Christmas that his boss had okayed a new price: $34,000. “Wow, your offer is very generous and this is the car of my dreams,” I said. “I really wish I could do that. I really do. This is so embarrassing. I simply can’t.”

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He dropped into silence and I didn’t take the bait. I let the silence linger. And then with a sigh he trudged off again. He returned after another eternity. “You win,” he said. “My manager okayed $32,500.” He pushed a paper across the desk that even said “YOU WIN” in big letters. The words were even surrounded with smiley faces. “I am so grateful. You’ve been very generous, and I can’t thank you enough. The truck is no doubt worth more than my price,” I said. “I’m sorry, I just can’t do that.” Up he stood again. No smile now. Still befuddled. After a few seconds, he walked back to his manager and I leaned back. I could taste victory. A minute later—no eternity this time—he returned and sat. “We can do that,” he said. Two days later, I drove off in my Salsa Red Pearl Toyota 4Runner—for $30,000. God I love that truck. Still drive it today.

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A study of American lawyer-negotiators1 found that 65 percent of attorneys from two major U.S. cities used a cooperative style while only 24 percent were truly assertive. And when these lawyers were graded for effectiveness, more than 75 percent of the effective group came from the cooperative type; only 12 percent were Assertive. So if you’re not Assertive, don’t despair. Blunt assertion is actually counterproductive most of the time. And

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ANALYST Analysts are methodical and diligent. They are not in a big rush. Instead, they believe that as long as they are working toward the best result in a thorough and systematic way, time is of little consequence. Their self-image is linked to minimizing mistakes. Their motto: As much time as it takes to get it right.

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ACCOMMODATOR The most important thing to this type of negotiator is the time spent building the relationship. Accommodators think as long as there is a free-flowing continuous exchange of information time is being well spent. As long as they’re communicating, they’re happy. Their goal is to be on great terms with their counterpart. They love the win-win. Of the three types, they are most likely to build great rapport without actually accomplishing anything. Accommodators want to remain friends with their counterpart even if they can’t reach an agreement. They are very easy to talk to, extremely friendly, and have pleasant voices. They will yield a concession to appease or acquiesce and hope the other side reciprocates.

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If you have identified yourself as an Accommodator, stick to your ability to be very likable, but do not sacrifice your objections. Not only do the other two types need to hear your point of view; if you are dealing with another Accommodator they will welcome it. Also be conscious of excess chitchat: the other two types have no use for it, and if you’re sitting across the table from someone like yourself you will be prone to interactions where nothing gets done.

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ASSERTIVE The Assertive type believes time is money; every wasted minute is a wasted dollar. Their self-image is linked to how many things they can get accomplished in a period of time. For them, getting the solution perfect isn’t as important as getting it done.

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If you are an Assertive, be particularly conscious of your tone. You will not intend to be overly harsh but you will often come off that way. Intentionally soften your tone and work to make it more pleasant. Use calibrated questions and labels with your counterpart since that will also make you more approachable and increase the chances for collaboration.

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Like the great ear-biting pugilist Mike Tyson once said, “Everybody has a plan until they get punched in the mouth.”

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As a well-prepared negotiator who seeks information and gathers it relentlessly, you’re actually going to want the other guy to name a price first, because you want to see his hand. You’re going to welcome the extreme anchor. But extreme anchoring is powerful and you’re human: your emotions may well up. If they do there are ways to weather the storm without bidding against yourself or responding with anger. Once you learn these tactics, you’ll be prepared to withstand the hit and counter with panache.

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First, deflect the punch in a way that opens up your counterpart. Successful negotiators often say “No” in one of the many ways we’ve talked about (“How am I supposed to accept that?”) or deflect the anchor with questions like “What are we trying to accomplish here?” Responses like these are great ways to refocus your counterpart when you feel you’re being pulled into the compromise trap.

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You can also respond to a punch-in-the-face anchor by simply pivoting to terms. What I mean by this is that when you feel you’re being dragged into a haggle you can detour the conversation to the nonmonetary issues that make any final price work.

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And if the other side pushes you to go first, wriggle from his grip. Instead of naming a price, allude to an incredibly high number that someone else might charge. Once when a hospital chain wanted me to name a price first, I said, “Well, if you go to Harvard Business School, they’re going to charge you $2,500 a day per student.” No matter what happens, the point here is to sponge up information from your counterpart. Letting your counterpart anchor first will give you a tremendous feel for him. All you need to learn is how to take the first punch.

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But only as calculated acts, never a personal attack. In any bare-knuckle bargaining session, the most vital principle to keep in mind is never to look at your counterpart as an enemy. The person across the table is never the problem. The unsolved issue is. So focus on the issue. This is one of the most basic tactics for avoiding emotional escalations.

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Taking a positive, constructive approach to conflict involves understanding that the bond is fundamental to any resolution. Never create an enemy.

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The Ackerman model is an offer-counteroffer method, at least on the surface. But it is a very effective system for beating the usual lackluster bargaining dynamic, which has the predictable result of meeting in the middle. The systematized and easy-to-remember process has only four steps: 1. Set your target price (your goal). 2. Set your first offer at 65 percent of your target price. 3. Calculate three raises of decreasing increments (to 85, 95, and 100 percent). 4. Use lots of empathy and different ways of saying “No” to get the other side to counter before you increase your offer. 5. When calculating the final amount, use precise, nonround numbers like, say, $37,893 rather than $38,000. It gives the number credibility and weight. 6. On your final number, throw in a nonmonetary item (that they probably don’t want) to show you’re at your limit. The genius of this system is that it incorporates the psychological tactics we’ve discussed—reciprocity, extreme anchors, loss aversion, and so on—without you needing to think about them.

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too. Just like people are more likely to send Christmas cards to people who first send cards to them, they are more likely to make bargaining concessions to those who have made compromises in their direction. Second, the diminishing size of the increases—notice that they decrease by half each time—convinces your counterpart that he’s squeezing you to the point of breaking. By the time they get to the last one, they’ll feel that they’ve really gotten every last drop.

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Identify your counterpart’s negotiating style. Once you know whether they are Accommodator, Assertive, or Analyst, you’ll know the correct way to approach them. ■ Prepare, prepare, prepare. When the pressure is on, you don’t rise to the occasion; you fall to your highest level of preparation. So design an ambitious but legitimate goal and then game out the labels, calibrated questions, and responses you’ll use to get there. That way, once you’re at the bargaining table, you won’t have to wing it. ■ Get ready to take a punch. Kick-ass negotiators usually lead with an extreme anchor to knock you off your game. If you’re not ready, you’ll flee to your maximum without a fight. So prepare your dodging tactics to avoid getting sucked into the compromise trap. ■ Set boundaries, and learn to take a punch or punch back, without anger. The guy across the table is not the problem; the situation is. ■ Prepare an Ackerman plan. Before you head into the weeds of bargaining, you’ll need a plan of extreme anchor, calibrated questions, and well-defined offers. Remember: 65, 85, 95, 100 percent. Decreasing raises and ending on nonround numbers will get your counterpart to believe that he’s squeezing you for all you’re worth when you’re really getting to the number you want.

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Every case is new. We must let what we know—our known knowns—guide us but not blind us to what we do not know; we must remain flexible and adaptable to any situation; we must always retain a beginner’s mind; and we must never overvalue our experience or undervalue the informational and emotional realities served up moment by moment in whatever situation we face.

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I began to hypothesize that in every negotiation each side is in possession of at least three Black Swans, three pieces of information that, were they to be discovered by the other side, would change everything. My experience since has proven this to be true.

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This is why my company changed its format for preparing and engaging in a negotiation. No matter how much research our team has done prior to the interaction, we always ask ourselves, “Why are they communicating what they are communicating right now?” Remember, negotiation is more like walking on a tightrope than competing against an opponent. Focusing so much on the end objective will only distract you from the next step, and that can cause you to fall off the rope. Concentrate on the next step because the rope will lead you to the end as long as all the steps are completed.

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techniques for uncovering Black Swans, but first I’d like to examine what makes them so useful. The answer is leverage. Black Swans are leverage multipliers. They give you the upper hand.

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POSITIVE LEVERAGE Positive leverage is quite simply your ability as a negotiator to provide—or withhold—things that your counterpart wants. Whenever the other side says, “I want . . .” as in, “I want to buy your car,” you have positive leverage.

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NEGATIVE LEVERAGE Negative leverage is what most civilians picture when they hear the word “leverage.” It’s a negotiator’s ability to make his counterpart suffer. And it is based on threats: you have negative leverage if you can tell your counterpart, “If you don’t fulfill your commitment/pay your bill/etc., I will destroy your reputation.”

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That said, a word of warning: I do not believe in making direct threats and am extremely careful with even subtle ones. Threats can be like nuclear bombs. There will be a toxic residue that will be difficult to clean up. You have to handle the potential of negative consequences with care, or you will hurt yourself and poison or blow up the whole process. If you shove your negative leverage down your counterpart’s throat, it might be perceived as you taking away their autonomy. People will often sooner die than give up their autonomy. They’ll at least act irrationally and shut off the negotiation.

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NORMATIVE LEVERAGE Every person has a set of rules and a moral framework. Normative leverage is using the other party’s norms and standards to advance your position. If you can show inconsistencies between their beliefs and their actions, you have normative leverage. No one likes to look like a hypocrite.

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Access to this hidden space very often comes through understanding the other side’s worldview, their reason for being, their religion. Indeed, digging into your counterpart’s “religion” (sometimes involving God but not always) inherently implies moving beyond the negotiating table and into the life, emotional and otherwise, of your counterpart. Once you’ve understood your counterpart’s worldview, you can build influence. That’s

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and expect that to work. The reason for that is something called the “paradox of power”—namely, the harder we push the more likely we are to be met with resistance. That’s why you have to use negative leverage sparingly.

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Research studies have shown that people respond favorably to requests made in a reasonable tone of voice and followed with a “because” reason.

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But the moment when we’re most ready to throw our hands up and declare “They’re crazy!” is often the best moment for discovering Black Swans that transform a negotiation. It is when we hear or see something that doesn’t make sense—something “crazy”—that a crucial fork in the road is presented: push forward, even more forcefully, into that which we initially can’t process; or take the other path, the one to guaranteed failure, in which we tell ourselves that negotiating was useless anyway. In their great book Negotiation Genius,4 Harvard Business School professors Deepak Malhotra and Max H. Bazerman provide a look at the common reasons negotiators mistakenly call their counterparts crazy. I’d like to talk through them here.

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MISTAKE #1: THEY ARE ILL-INFORMED Often the other side is acting on bad information, and when people have bad information they make bad choices. There’s a great computer industry term for this: GIGO—Garbage In, Garbage Out.

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that the problem was not craziness, but a lack of information and trust. So the executive had an outside accounting firm audit the numbers and send the results to the employee. The result? The employee dropped the suit. The clear point here is that people operating with incomplete information appear crazy to those who have different information. Your job when faced with someone like this in a negotiation is to discover what they do not know and supply that information.

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MISTAKE #2: THEY ARE CONSTRAINED In any negotiation where your counterpart is acting wobbly, there exists a distinct possibility that they have things they can’t do but aren’t eager to reveal. Such constraints can make the sanest counterpart seem irrational. The other side might not be able to do something because of legal advice, or because of promises already made, or even to avoid setting a precedent. Or they may just not have the power to close the deal.

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MISTAKE #3: THEY HAVE OTHER INTERESTS

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Here are a few ways to unearth these powerful Black Swans: GET FACE TIME

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“You got to get him to dinner. You’re going to say, ‘Would it be a bad idea for me to take you to your favorite steak house and we just have a few laughs, and we don’t talk business?’” The idea was that no matter the reason—whether the contact was embarrassed, or didn’t like my client, or just didn’t want to discuss the situation—the only way the process was going to move forward was through direct human interaction. So

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OBSERVE UNGUARDED MOMENTS While you have to get face time, formal business meetings, structured encounters, and planned negotiating sessions are often the least revealing kinds of face time because these are the moments when people are at their most guarded.

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Also pay close attention to your counterpart during interruptions, odd exchanges, or anything that interrupts the flow. When someone breaks ranks, people’s façades crack just a little. Simply noticing whose cracks and how others respond verbally and nonverbally can reveal a gold mine.

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Students often ask me whether Black Swans are specific kinds of information or any kind that helps. I always answer that they are anything that you don’t know that changes things.

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“If he or she is selling such a cash cow, it seems like the seller must have doubts about future market fundamentals,” he said.

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People generally fear conflict, so they avoid useful arguments out of fear that the tone will escalate into personal attacks they cannot handle. People in close relationships often avoid making their own interests known and instead compromise across the board to avoid being perceived as greedy or self-interested.

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You’re going to have to embrace regular, thoughtful conflict as the basis of effective negotiation—and of life. Please remember that our emphasis throughout the book is that the adversary is the situation and that the person that you appear to be in conflict with is actually your partner. More than a little research has shown that genuine, honest conflict between people over their goals actually helps energize the problem-solving process in a collaborative way. Skilled negotiators have a talent for using conflict to keep the negotiation going without stumbling into a personal battle.

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Here are some of the best techniques for flushing out the Black Swans—and exploiting them. Remember, your counterpart might not even know how important the information is, or even that they shouldn’t reveal it. So keep pushing, probing, and gathering information. ■ Let what you know—your known knowns—guide you but not blind you. Every case is new, so remain flexible and adaptable. Remember the Griffin bank crisis: no hostage-taker had killed a hostage on deadline, until he did. ■ Black Swans are leverage multipliers. Remember the three types of leverage: positive (the ability to give someone what they want); negative (the ability to hurt someone); and normative (using your counterpart’s norms to bring them around). ■ Work to understand the other side’s “religion.” Digging into worldviews inherently implies moving beyond the negotiating table and into the life, emotional and otherwise, of your counterpart. That’s where Black Swans live. ■ Review everything you hear from your counterpart. You will not hear everything the first time, so double-check. Compare notes with team members. Use backup listeners whose job is to listen between the lines. They will hear things you miss. ■ Exploit the similarity principle. People are more apt to concede to someone they share a cultural similarity with, so dig for what makes them tick and show that you share common ground. ■ When someone seems irrational or crazy, they most likely aren’t. Faced with this situation, search for constraints, hidden desires, and bad information. ■ Get face time with your counterpart. Ten minutes of face time often reveals more than days of research. Pay special attention to your counterpart’s verbal and nonverbal communication at unguarded moments—at the beginning and the end of the session or when someone says something out of line.

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Negotiation is a psychological investigation. You can gain a measure of confidence going into such an investigation with a simple preparatory exercise we advise all our clients to do. Basically, it’s a list of the primary tools you anticipate using, such as labels and calibrated questions, customized to the particular negotiation.

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Think through best/worst-case scenarios but only write down a specific goal that represents the best case.

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Say you’re on a car lot trying to sell your old BMW 3-series. If you already have another dealer who’s given you a written offer for $10,000, that’s your BATNA. The problem is that BATNA tricks negotiators into aiming low. Researchers have found that humans have a limited capacity for keeping focus in complex, stressful situations like negotiations. And so, once a negotiation is under way, we tend to gravitate toward the focus point that has the most psychological significance for us.

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I tell my clients that as part of their preparation they should think about the outcome extremes: best and worst. If you’ve got both ends covered, you’ll be ready for anything. So know what you cannot accept and have an idea about the best-case outcome, but keep in mind that since there’s information yet to be acquired from the other side, it’s quite possible that best case might be even better than you know.

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There are fill-in-the-blank labels that can be used in nearly every situation to extract information from your counterpart, or defuse an accusation: It seems like _________ is valuable to you. It seems like you don’t like _________. It seems like you value __________. It seems like _________ makes it easier. It seems like you’re reluctant to _________. As an example, if you’re trying to renegotiate an apartment lease to allow subletters and you know the landlord is opposed to them, your prepared labels would be on the lines of “It seems as though you’re not a fan of subletters” or “It seems like you want stability with your tenants.”

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Prepare three to five calibrated questions to reveal value to you and your counterpart and identify and overcome potential deal killers.

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Most of us tend to assume that the needs of the other side conflict with our own. We tend to limit our field of vision to our issues and problems, and forget that the other side has its own unique issues based on its own unique worldview. Great negotiators get past these blinders by being relentlessly curious about what is really motivating the other side.

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There will be a small group of “What” and “How” questions that you will find yourself using in nearly every situation. Here are a few of them: What are we trying to accomplish? How is that worthwhile? What’s the core issue here? How does that affect things? What’s the biggest challenge you face? How does this fit into what the objective is? QUESTIONS TO IDENTIFY BEHIND-THE-TABLE DEAL KILLERS When implementation happens by committee, the support of that committee is key. You’ll want to tailor your calibrated questions to identify and unearth the motivations of those behind the table, including: How does this affect the rest of your team? How on board are the people not on this call? What do your colleagues see as their main challenges in this area?

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You’ll be tempted to concentrate on money, but put that aside for now. A surprisingly high percentage of negotiations hinge on something outside dollars and cents. Often they have more to do with self-esteem, status, autonomy, and other nonfinancial needs.

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SECTION V: NONCASH OFFERS Prepare a list of noncash items possessed by your counterpart that would be valuable. Ask yourself: “What could they give that would almost get us to do it for free?” Think of the anecdote I told a few chapters ago about my work for the lawyers’ association: My counterpart’s interest was to pay me as little cash as possible in order to look good in front of his board.

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Long Distance Real Estate Investing by David Greene

comfortable.

People feel uncomfortable buying a property they can’t see.  You aren’t buying a home, you are buying a small business. An investment.  Investors focus on numbers; consumers focus on feelings.

Investing is about finding deals, plain and simple.  You make your money when you buy.  Go where the deals are.  Use price-to-rent ratios.

Real estate investing is a get rich slow game.  Most production isn’t right out of the gate, but isn’t until years later, when rents have risen, inflation has lifted the property’s value and created significant equity.  You don’t want to buy a job, you want to own an investment.  Understanding the headache factor of an area is crucial.

Understanding different areas, emerging markets and price-to-rent ratios is a crucial aspect to real estate investing.  

Property Taxes - You can access property tax records directly from the Internet.  Property taxes are one of the bigger expenses in real estate investing and they really do matter.

School Rankings - The worse a property’s school rank, the less chance of seeing a good long-term appreciation.

Crime - Use Trulia’s crime map.

Rent prices - Use rentometer.com or craigslist.

Permitting / Upgrades - Can look online on city or county records to make sure work to the house was permitted.

Mortgage Calculator Plus - App shows you full amortization schedule over the life of the loan and equity in the property.

1% Rule - A house that rents for 1% of the purchase price should make its money.  $1,750 per month should be purchased for $175,000.

70% Rule - Used for quickly determining a price to pay for a potential flip property.  If you multiply the ARV (After Repair Value) - the price of a home is expected to sell for once it’s ready to hit the market - by .80 and then subtract estimated repair costs, you can come up with a consercative number to offer for the property. (ARV x 0.70) - Rehab Costs = Offer Price

Capital Gains Exclusion - If you live in a property for any 2-5 year period, you are likely eligible to sell the property for a profit without having to declare it to the IRS for taxes.

---How to find deals --- as you grow as an investor, stop looking for deals and start looking for the people who have / know the deals.  Leveraging relationships and building on a foundation already laid is much more efficient than trying to start from scratch.

Robert Kiyosaki - “The richest people in the world look for and build networks; everyone else looks for work.”

-when looking for agents:

Note you are an investor who understands real estate

What specifically you are looking for

How you intend to purchase

How you heard about the agent (zillow agent finder - for example)

Does the agent own any rental properties themselves?

What additional support can the agent provide?  Who do they know?

How do they intend to find you properties?

Sample email on page 71

The ones who win are the ones who create win-win scenarios that meet everybody’s goals, not just their own.

Supercharging Equity Growth - 

When extra payments are made toward the principal, it changes the formula that determines how much of the next payment goes toward interest and how much toward principal.  If you continuously make extra payments toward the principal of the loan, you not only pay the principal down faster through the extra payments, but you also ensure a larger percentage of your next payment goes toward the principal.

One common way people take advantage of this phenomena is by making half of their monthly payment every two weeks as opposed to one payment a month.

Another way is to round payments up.  If you round a payment up from $1,422.94 to $1,500 per month, this reduces total interest on the loan by $31,140 and reduces the loan from 360 payments to 319.

Return on Equity - 

ROE is determined by taking the amount of money your property makes you a year and dividing it by the amount of equity you have, not the amount of money you originally invested.  It is a much more accurate way of determining how your property is performing than simple ROI.

“I bought a property in 2009 for $195,000.  I put $48,750 down.  As of today, this property cash-flows $685 a month after all expenses and the mortgage are paid.  This is effectively an ROI of 16.86 percent ($8,220 a year divided by $48,750).  However, this property has appreciated to a value of approximately $380,000.  My current loan balance is about $130,000.  This gives me approximately $250,000.  Assuming I would have to pay a Realtor’s commission to sell the house.  I would likely walk away with about $225,000 left over…

My ROE would be:

Yearly income ($685 cash flow x 12 = $8,220) divided by equity ($225,000) = 0.036.

The return on my equity is 3.6%  NOT quite as impressive as the nearly 17% I was making on my ROI.  If I were to sell this house and buy somewhere I could achieve a much more modest 12% ROI, my cash flow would jump to $2,250 a month.”

When you invest in different markets, you can take the properties that have appreciated a good amount, sell them, and move the money into a market that is primed for a good run.  If I were to sell my property with approximately $225,000, I could buy five new properties with $45,000 down on each.  If each of these new properties eventually increased by $50,000 (or I forced dthat equity with solid buy prices and skillful rehab work), I would have grown my initial equity from $225,000 to $475,000.

The same concept works for cash flow.  If I were to take my initial cash flow of $685 and move the $225,000 in equity into five different properties that each cash-flowed at 12% ($45,000 down on each), I would end up with the $2,250 a month I mentioned earlier.  This is more than a 325% increase in my monthly cash flow.

Picking an Investment Market - 

Some states have much, much friendlier landlord laws than others.  Tenants know this and won’t cause trouble, because they know they will likely lose in court.

In some areas there is a higher pride of ownership and certain cultural elements where it is socially unacceptable to let your house get trashed.

Some areas are better known for having businesses that want to retain their employees.

Ensuring Projects Finish On Time-

When it comes to a rehab, there are two things that tend to go wrong.

1.  The cost of the rehab goes up

2. The time of the rehab runs too long.

Projects go over projected timeline costs in several ways:

1. Any hard money costs associated with the project are extended.

2. Your vacancy periods are extended for a rental.

3. Your holding costs are extended for a flip.

4. Your velocity of money is slowed.

5. Your opportunity cost increases as you miss out on other deals before you can reinvest.

6. The people managing your projects get worn down the longer the project lasts.

Psychologists have found that negative reinforcement is much more powerful than positive reinforcement.  People respond more strongly to the removal of adverse stimuli than they do to the addition of pleasant stimuli.

Offer contractors a bonus if they finish early and a penalty if they finish late.  5% bonus or 5% penalty - for example.

Make sure bids include time frames.

Create accountability for the contractor by letting them know you have connections, referrals may happen and pictures will be shared on the internet.

Pay for Materials Yourself-

One of the easiest ways to handle this is by choosing and paying for your own materials outside the contract.

Collect receipts - tax write-offs.  Also you can return extra materials.  Credit card purchases offer cash back.  Also if you have contractor accounts, you can finance projects for a time.

Another benefit is you will learn a lot more about construction, materials, and design when you take the burden on yourself to pick the materials.

Look for the best, discounted materials you can get for your money.  Including upgrades like tile floors and granite counter tops.  Make the property as aesthetically pleasing as possible. 

Ask for free delivery to the jobsite.  Customer service reps usually have permission to make these types of calls with repeat orders or larger orders.

It never hurts to ask for a discount or reduction in the price, the worst they can tell you is no.

Paying Contractors-

Use AIAs and hold retainage until work is checked.  Have this in the contracts.

Keep and store all contractor photos.

Make sure your money is safe with someone you don’t know well yet and make sure the contractor is motivated to do great work quickly.

Check online reviews and how long the contractor has been in business.

View contractors as team members, make the partners, not employees. 

Know what you need permits for and what you don’t need permits for.

How to Decorate / Renovate Interrior-

Use websites like Houzz, Pintrest and Tumbler for ideas… they usually show the items too, or you can call a supply house to ask them for similar products based on photos you like.

Ask friends, family members and people on social media what they like better when trying to decide what to purchase for the home.

Post before and after photos and videos.

Don’t overdue the rehab, don’t be the champagne house in the beer bottle neighborhood.  Point of diminishing returns.

Upgrades / Where to Invest-

New flooring, stainless steel appliances, new vanities, granite countertops…

NEEDS:

-Roof

-Cabinets (can paint up cabinets and replace fixtures or doors to make them look new)

-Appliances

-Flooring (a great hack is to change floors in small spaces like bathrooms, floors are per SF price)

-Paint (paint is almost always the biggest bang for your buck)... choose two-tones and neutral colors.

-Countertops (granite and quartz is now cheaper and worth replacing in many cases).

-Windows

-Showers (people love showers even though they are pretty inexpensive in the whole home to upgrade - small area)

-Vanities/Bathroom cabinets

-Lighting

-Fences

-Screens on windows

-Blinds

-Sinks

-Toilets

-Doors

---Kitchens and bathrooms make houses / values go up.

EXTRAS:

-Outside Fixtures

-Built-in Fixtures

-Accent Walls

-Upgraded Mirrors

-Kitchen Backsplashes

-Upgraded baseboards or crown moldings

-Alarm systems

-Landscaping upgrades

-Skylights

-Heated Floors

The primary goal of a renovation is to make sure money is going toward projects that add value to the property.

Upgrade Hacking-

When you upgrade an item you already have to replace anyway.

Four Factors to Determine Value-

1. What is the location?

2. How many SF?

3. How many bedrooms and bathrooms?

4. Is it upgraded?

Homepath.com-

Can find REO houses / foreclosures.

Agents-

If you don’t have an agent, you can try to leverage the selling agent for a better deal by using them as a transaction broker.

Provides additional incentive for the selling agent to close the deal.

Give your agent additional incentive, by providing a finder’s fee for finding deals and let their people / other agents know. 

Can't Hurt Me by David Goggins

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So I sought out pain, fell in love with suffering, and eventually transformed myself from the weakest piece of shit on the planet into the hardest man God ever created, or so I tell myself. 

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the story of my fucked-up life, will illuminate a proven path to self-mastery and empower you to face reality, 

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hold yourself accountable, push past pain, learn to love what you fear, relish failure, live to your fullest potential, and find out who you really are. 

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If you look in the mirror and you see a fat person, don’t tell yourself that you need to lose a couple of pounds. Tell the truth. You’re fucking fat! It’s okay. Just say you’re fat if you’re fat. The dirty mirror that you see every day is going to tell you the truth every time, so why are you still lying to yourself? So you can feel better for a few minutes and stay the fucking same? If you’re fat you need to change the fact that you’re fat because it’s very fucking unhealthy. I know because I’ve been there. If you have worked for thirty years doing the same shit you’ve hated day in and day out because you were afraid to quit and take a risk, you’ve been living like a pussy. Period, point blank. Tell yourself the truth! That you’ve wasted enough time, and that you have other dreams that will take courage to realize, so you don’t die a fucking pussy. Call yourself out! 

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If any of that shit is stopping you from excelling in life, I’ve got some news. You are stopping you! You are giving up instead of getting hard! Tell the truth about the real reasons for your limitations and you will turn that negativity, which is real, into jet fuel. Those odds stacked against you will become a damn runway! 

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From then on, I brainwashed myself into craving discomfort. If it was raining, I would go run. Whenever it started snowing, my mind would say, Get your fucking running shoes on. Sometimes I wussed out and had to deal with it at the Accountability Mirror. But facing that mirror, facing myself, motivated me to fight through uncomfortable experiences, and, as a result, I became tougher. And being tough and resilient helped me meet my goals. 

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By the time I graduated, I knew that the confidence I’d managed to develop didn’t come from a perfect family or God-given talent. It came from personal accountability which brought me self respect, and self respect will always light a way forward. 

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Write all your insecurities, dreams, and goals on Post-Its and tag up your mirror. If you need more education, remind yourself that you need to start working your ass off because you aren’t smart enough! Period, point blank. If you look in the mirror and see someone who is obviously overweight, that means you’re fucking fat! Own it! It’s okay to be unkind with yourself in these moments because we need thicker skin to improve in life. 

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Whatever your goal, you’ll need to hold yourself accountable for the small steps it will take to get there. Self-improvement takes dedication and self- discipline. 

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“In a society where mediocrity is too often the standard and too often rewarded,” he said, “there is intense fascination with men who detest mediocrity, who refuse to define themselves in conventional terms, and who seek to transcend traditionally recognized human capabilities. 

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I turned off the television and thought about my own life. It was a life devoid of any drive and passion, but I knew if I continued to surrender to my fear and my feelings of inadequacy, I would be allowing them to dictate my future forever. My only other choice was to try to find the power in the emotions that had laid me low, harness and use them to empower me to rise up, which is exactly what I did. 

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When depression smothers you, it blots out all light and leaves you with nothing to cling onto for hope. All you see is negativity. For me, the only way to make it through that was to feed off my depression. I had to flip it and convince myself that all that self-doubt and anxiety was confirmation that I was no longer living an aimless life. My task may turn out to be impossible but at least I was back on a motherfucking mission. 

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“You cut corners and you are not gonna fucking make it,” I said, out loud, as I drove back to the gym. “There are no shortcuts for you, Goggins!” I did my entire pull-up workout over again. One missed pull-up cost me an extra 250, 

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Whenever I cut a run or swim short because I was hungry or tired, I’d always go back and beat myself down even harder. That was the only way I could manage the demons in my mind. Either way there would be suffering. I had to choose between physical suffering in the moment, and the mental anguish of wondering if that one missed pull-up, that last lap in the pool, the quarter mile I skipped on the road or trail, would end up costing me an opportunity of a lifetime. It was an easy choice. 

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The first step on the journey toward a calloused mind is stepping outside your comfort zone on a regular basis. Dig out your journal again and write down all the things you don’t like to do or that make you uncomfortable. Especially those things you know are good for you. Now go do one of them, and do it again. 

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Everything in life is a mind game! Whenever we get swept under by life’s dramas, large and small, we are forgetting that no matter how bad the pain gets, no matter how harrowing the torture, all bad things end. 

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Taking Souls is a ticket to finding your own reserve power and riding a second wind. It’s the tool you can call upon to win any competition or overcome every life obstacle. You can utilize it to win a chess match, or conquer an adversary in a game of office politics. It can help you rock a job interview or excel at school. And yes, it can be used to conquer all manner of physical challenges, but remember, this is a game you are playing within yourself. Unless you’re engaged in physical competition, I’m not suggesting that you try to dominate someone or crush their spirit. In fact, they never even need to know you’re playing this game. This is a tactic for you to be your best when duty calls. It’s a mind game you’re playing on yourself. Taking someone’s soul means you’ve gained a tactical advantage. Life is all about looking for tactical advantages, which is why we stole the Hell Week schedule, why we nipped Psycho’s heels on that run, and why I made a show of myself in the surf, humming the Platoon theme song. Each of those incidents was an act of defiance that empowered us. But defiance isn’t always the best way to take someone’s soul. It all depends upon your terrain. During BUD/S, the instructors didn’t mind if you looked for advantages like that. They respected it as long as you were also kicking ass. You must do your own homework. Know the terrain you’re operating in, when and where you can push boundaries, and when you should fall in line. 

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If you can think two or three moves ahead, you will commandeer their thought process, and if you do that, you’ve taken their damn soul without them even realizing it. 

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And never forget that all emotional and physical anguish is finite! It all ends eventually. Smile at pain and watch it fade for at least a second or two. 

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the ticket to victory often comes down to bringing your very best when you feel your worst. 

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Until you experience hardships like abuse and bullying, failures and disappointments, your mind will remain soft and exposed. Life experience, especially negative experiences, help callous the mind. 

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When you indulge in negative self-talk, the gifts of a sympathetic response will remain out of reach. However, if you can manage those moments of pain that come with maximum effort, by remembering what you’ve been through to get to that point in your life, you will be in a better position to persevere and choose fight over flight. That will allow you to use the adrenaline that comes with a sympathetic response to go even harder. 

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The reason it’s important to push hardest when you want to quit the most is because it helps you callous your mind. It’s the same reason why you have to do your best work when you are the least motivated. That’s 

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To develop an armored mind—a mindset so calloused and hard that it becomes bulletproof—you need to go to the source of all your fears and insecurities. 

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If you aren’t prepared in advance, if you allow your mind to remain undisciplined in an environment of intense suffering (it won’t feel like it, but it is very much a choice you are making), the only answer you are likely to find is the one that will make it stop as fast as possible. 

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I’m talking about utilizing past successes to fuel you to new and bigger ones. Because in the heat of battle, when shit gets real, we need to draw inspiration to push through our own exhaustion, depression, pain, and misery. We need to spark a bunch of small fires to become the motherfucking inferno. 

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What am I capable of? I couldn’t answer that question, but as I looked around the finish line that day and considered what I’d accomplished, it became clear that we are all leaving a lot of money on the table without realizing it. We habitually settle for less than our best; at work, in school, in our relationships, and on the playing field or race course. We settle as individuals, and we teach our children to settle for less than their best, and all of that ripples out, merges, and multiplies within our communities and society as a whole. We’re not talking some bad weekend in Vegas, no more cash at the ATM kind of loss either. In that moment, the cost of missing out on so much excellence in this eternally fucked-up world felt incalculable to me, and it still does. I haven’t stopped thinking about it since. 

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that it’s only when I push beyond pain and suffering, past my perceived limitations, that I’m capable of accomplishing more, physically and mentally— in endurance races but also in life as a whole. 

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Unlike the governor in an engine, ours can’t stop us unless we buy into its bullshit and agree to quit. Sadly, most of us give up when we’ve only given around 40 percent of our maximum effort. Even when we feel like we’ve reached our absolute limit, we still have 60 percent more to give! That’s the governor in action! Once you know that to be true, it’s simply a matter of stretching your pain tolerance, letting go of your identity and all your self- limiting stories, so you can get to 60 percent, then 80 percent and beyond without giving up. 

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the only way to move beyond your 40 percent is to callous your mind, day after day. Which means you’ll have to chase pain like it’s your damn job! 

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I knew that staying in the fight is always the hardest, and most rewarding, first step. 

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Maybe it would be at mile fifty or sixty, maybe later, but there would be a time when I’d want to quit, and I had to be able to slay the one-second decisions in order to stay in the game and access my untapped 60 percent. 

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Our culture has become hooked on the quick-fix, the life hack, efficiency. Everyone is on the hunt for that simple action algorithm that nets maximum profit with the least amount of effort. There’s no denying this attitude may get you some of the trappings of success, if you’re lucky, but it will not lead to a calloused mind or self-mastery. If you want to master the mind and remove your governor, you’ll have to become addicted to hard work. Because passion and obsession, even talent, are only useful tools if you have the work ethic to back them up. 

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2/29/2020 Kindle: Your Notes and Highlights 

Each hour of his week is dedicated to a particular task and when that hour shows up in real time, he focuses 100 percent on that task. That’s how I do it too, because that is the only way to minimize wasted hours. 

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Evaluate your life in its totality! We all waste so much time doing meaningless bullshit. We burn hours on social media and watching television, which by the end of the year would add up to entire days and weeks if you tabulated time like you do your taxes. You should, because if you knew the truth you’d deactivate your Facebook account STAT, and cut your cable. When you find yourself having frivolous conversations or becoming ensnared in activities that don’t better you in any way, move the fuck on! 

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For years I’ve lived like a monk. I don’t see or spend time with a lot of people. My circle is very tight. I post on social media once or twice a week and I never check anybody else’s feeds because I don’t follow anyone. That’s just me. 

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Block everything into windows of time, and once your day is scheduled out, you’ll know how much flexibility you have to exercise on a given day and how to maximize it. 

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The point is not to allow a setback to shatter our focus, or our detours to dictate our mindset. Always be ready to adjust, recalibrate, and stay after it to become better, somehow. 

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It’s about thinking of everybody else before yourself and developing your own code of ethics that sets you apart from others. One of those ethics is the drive to turn every negative into a positive, and then when shit starts flying, being prepared to lead from the front. 

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2/29/2020 Kindle: Your Notes and Highlights 

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A true leader stays exhausted, abhors arrogance, and never looks down on the weakest link. He fights for his men and leads by example. That’s what it meant to be uncommon among uncommon. It meant being one of the best and helping your men find their best too. 

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Starting at zero is a mindset that says my refrigerator is never full, and it never will be. We can always become stronger and more agile, mentally and physically. We can always become more capable and more reliable. Since that’s the case we should never feel that our work is done. There is always more to do. 

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Are you an experienced scuba diver? Great, shed your gear, take a deep breath and become a one-hundred-foot free diver. Are you a badass triathlete? Cool, learn how to rock climb. Are you enjoying a wildly successful career? Wonderful, learn a new language or skill. Get a second degree. Always be willing to embrace ignorance and become the dumb fuck in the classroom again, because that is the only way to expand your body of knowledge and body of work. It’s the only way to expand your mind. 

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Instead of getting angry that your colleagues can’t keep up, help pick your colleagues up and bring them with you! We are all fighting the same battle. All of us are torn between comfort and performance, between settling for mediocrity or being willing to suffer in order to become our best self, all the damn time. We make those kinds of decisions a dozen or more times each day. My job as head of PT wasn’t to demand that my guys live up to the Navy SEAL legend I loved, it was to help them become the best version of themselves. But I never listened, and I didn’t lead. Instead, I got angry and showed up my teammates. 

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You can’t let a simple failure derail your mission, or let it worm so far up your ass it takes over your brain and sabotages your relationships with people who are close to you. Everyone fails sometimes and life isn’t supposed to be fair, much less bend to your every whim. 

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We all have eyeballs on us. Our family and friends are watching, and even if you’re surrounded by positive people, they will have ideas about who you are, what you’re good at, and how you should focus your energy. That shit is just human nature, and if you try to break out of their box you’ll get some unsolicited advice that has a way of smothering your aspirations if you let it. Often our people don’t mean any harm. Nobody who cares about us actually wants us to get hurt. They want us to be safe, comfortable, and happy, and not to have to stare at the floor in a dungeon sifting through shards of our broken dreams. Too bad. There’s a lot of potential in those moments of pain. 

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In my mind I’m that racehorse always chasing a carrot I’ll never catch, forever trying to prove myself to myself. And when you live that way and attain a goal, success feels anti-climactic. 

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Karl didn’t run like that. He moved like a goat, bouncing on his toes and running along the edges of the trail. As soon as his toes hit the ground he fired his legs into the air. That’s why he looked like he was floating. By design, he barely touched the ground, while his head and core remained stable and engaged. From that moment onward, his movements were permanently etched in my brain like a cave painting. I visualized them all the time and put his techniques into practice during training runs. They say it takes sixty-six days to build a habit. For me it takes a hell of a lot longer than that, but I eventually get there, 

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we try to spend as little time as possible doing the tasks we fucking loathe, and that makes us soft. We live a life defined by the limits we imagine and desire for ourselves because it’s comfortable as hell in that box. Not just for us, but for 

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2/29/2020 Kindle: Your Notes and Highlights 

our closest family and friends. The limits we create and accept become the lens through which they see us. Through which they love and appreciate us. But for some, those limits start to feel like bondage, and when we least expect it, our imagination jumps those walls and hunts down dreams that in the immediate aftermath feel attainable. Because most dreams are. We are inspired to make changes little by little, and it hurts. Breaking the shackles and stretching beyond our own perceived limits takes hard fucking work—oftentimes 

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What if is an exquisite fuck-you to anyone who has ever doubted your greatness or stood in your way. It silences negativity. It’s a reminder that you don’t really know what you’re capable of until you put everything you’ve got on the line. It 

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We live in a world with a lot of insecure, jealous people. Some of them are our best friends. They are blood relatives. Failure terrifies them. So does our success. Because when we transcend what we once thought possible, push our limits, and become more, our light reflects off all the walls they’ve built up around them. Your light enables them to see the contours of their own prison, their own self-limitations

Be Prepared: A Practical Handbook for New Dads by Gary Greenberg & Jeannie Hayden

at some point your baby will poop in the tub. Maybe it’s a defense mechanism, like a squid inking. It’s a disgusting and frustrating occurrence, but it’s one of those parental rites of passage that officially confirm you as a dad. In order to decontaminate the tub, you’ll need to: pull the baby out, wrap her in the towel, and place her on a secure surface, quickly drain the tub, rinse it out with soap and water, and thLet’s face it: when you’re spending time with your newborn, you’ve got to find ways to make your own fun. Conducting a field test of his reflexes is a perfect way to do just that. You’ll come away with a greater appreciation of his skills, and you’ll have some cool party tricks to pull out at the next family gathering.

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But before you hand over the baby, here are some things to keep in mind: All holders need to wash their hands. Viruses such as colds are transferred through physical contact. So if anyone shakes hands with a cold sufferer and then touches your baby, you’ll find yourself standing in the shower at 3 a.m. trying to decongest his sinuses. Tell them to relax. Babies, like wild animals, have the ability to pick up on nerves, so the less tense the holder is, the better chance the baby will feel comfortable. If you or the receiver are at all uncomfortable, have them sit down and cross their arms above their lap (see below), and gently place the baby in the crook of their arm. Make sure they support the head. This position is particularly good for children.

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Tips for Taking Great Baby Video Don’t save taping for birthdays and holidays. Everyday moments are often the most compelling. Watching a baby knock over a tower of blocks is more exciting than watching his baptism.

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But have no fear. If the healing goes smoothly, she’ll be shedding those sweats and resuming personal hygiene by around three weeks A.B. (after birth). Below you’ll find some of the more common birth-related afflictions.

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Mother’s Birth Recovery   Winner: Breast milk Nursing helps her uterus shrink back to its original size (sorry you had to read that) and helps her shed excess pregnancy weight (but aren’t you glad you read it till the end?).

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Conclusion: If your partner is able to breastfeed, it’s probably a good idea to do so. If not, don’t worry. Almost everyone born in the 1950s through the 1970s was formula-fed, and now these people are running our country! On second thought, you should do whatever you possibly can to breastfeed.

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From the moment your partner starts nursing, her breasts are off-limits to you. The property rights have officially transferred to the baby. At some point you may be offered a time-share opportunity, but in the meanwhile, just go about your business and disregard the parade of mammaries flouncing by your face day and night. And don’t even consider the irony that at the very moment they become forbidden, her breasts are bigger and firmer than they’ve ever been before (and will ever be again).

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It’s a good idea to burp twice during a feeding, mid-meal and post-meal. The mid-meal burp will give the baby room for the second course.

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Procedure: Lift the baby’s legs off the table using the ankle hold (thumb around one leg, forefinger between the legs, and the rest of fingers around other leg). Place a clean diaper under the dirty one, just in case the baby decides to let loose mid-change. Unfasten the tabs of the dirty diaper and stick them back onto themselves, as you don’t want them to stick to the baby. Using the ankle hold, remove the diaper, revealing the clean one underneath. Wipe the baby thoroughly. For boys, immediately put a washcloth over the crotch to prevent squirts. For girls, wipe front to back, to prevent vaginal infection. Fold the bottom of the new diaper up between the baby’s legs and fasten both sides using the tabs. If you can’t fit two fingers between the baby’s skin and the diaper, then it’s too tight. Never leave the baby unattended on the changing table.

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Vision Newborns’ eyes can focus best on objects ten to twelve inches away from their faces, and they can’t see colors. Clubs and Spades Get a deck of cards, separate out the clubs and spades, and hold them in front of your baby’s face. Slowly fan them out, bring them back in, and fan them out again.

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Hearing Hearing is fully developed in newborns, and they seem to prefer high-pitched voices to low ones, which is presumably why people use baby talk. Sound Tracking On one side of the baby, crinkle a bag, shake a can of nuts, and jingle your keys until he turns his head to the sound, then do the same on the other side.

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Touch Touch is the first sense that starts developing in the womb, and by birth is well developed. Some areas are more responsive than others, with the palms of the hands, the bottoms of the feet, and the area around the mouth being the most sensitive. The Texture Buffet Gently rub different areas of your baby’s skin with objects of varying textures. You can use a clean damp sponge, a silk tie, the fur lining of a glove, and a bicycle pump to blow air on him.

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Smell Newborns have a keen sense of smell, and within the first couple of days show a distinct preference for the scent of their mothers’ milk. Fridge Inventory Take a bunch of odoriferous foods out of the fridge—cheese, onions, pickles, and fish are good choices—and hold them up to your newborn’s nose.

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For the first couple of weeks post-baby, you may feel anxious, depressed, and lonely, and why shouldn’t you? You’re completely at the mercy of a relentless little dictator, and there is no relief in sight. But as you’re wallowing, it’s important to remember that you are not alone. Fathers the world over, from Copenhagen to Cape Town, from captains of industry to ditch diggers, have all gone through this rough patch. For the majority of dads, this phase lasts somewhere between eight and twelve weeks, at which point you switch into the “I might as well make the best of it” phase. Several factors combine to help lift the dark clouds from your head, including: The baby is sleeping longer hours. You’re feeling more adept at handling and troubleshooting her. She’s finally smiling at you (the baby, not your partner).

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Affecting three out of four new moms, this condition is often referred to as the Post-Partum Blues or Baby Blues, but the word “blues” does not do it justice. Plainly speaking, your partner will be all over the map, so expect the unexpected. One minute she’ll scream at you for putting on a diaper incorrectly and the next minute she’ll accuse you of not helping out. She may banish you to the basement, then criticize you for not being romantic. Try to think of it as your penance for not having gone through labor.

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Policy #1: Ears Open, Mouth Closed Guys tend to be fixers by nature. You see a problem, and you find the solution. Of course it’s logical, but in this case it may backfire. Your partner may need comfort, not a ten-point plan of action. Policy #2: Strike It from the Record Think of all of the belligerent things that you’ve said after four or five beers. Now consider that she’s under the influence of chemicals far more mind-altering than Budweiser. Six months from now, she may not even remember some of the names that she called you. (You should write them down though, just in case.) Policy #3: Be an Army of One Don’t expect much from your partner these first weeks. You may need to do everything short of breastfeeding, so be prepared to carry the load. Enlist the help of relatives and order plenty of take-out. Policy #4: Take Her Out Isolation is a big contributor to PPMS, so the sooner she gets a change of scenery, the quicker she may come around. Remember that newborns are very portable, so grab her and the baby and take a stroll around the block. The exercise will help her get back into shape, and it releases endorphins that can lighten her mood.

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Post-Partum Depression This condition is far more serious than PPMS and affects about 10% of new moms. If your partner’s emotional state is seriously impeding her ability to function, or her symptoms last longer than a month, suggest that she consult her obstetrician. If she resists, you can bring up the fact that her condition is very treatable, and that every day she waits is one less day she’ll be able to enjoy the tot.

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long. Bathe her every other day, or as much as seems necessary, but if her skin starts to dry out, you’ll have to cut back.

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Don’t give the bath until the umbilical stump falls off and, if you’ve got a boy, the circumcision has healed. Before then just sponge your baby down.

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Bathing Equipment Checklist A baby tub or other bathing apparatus A large plastic bucket A plastic cup Baby soap and shampoo Two or three washcloths A dry, folded towel next to the tub in which to wrap baby upon completion

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Just make sure that you point the faucet away from the baby at all times.

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Bathing Procedure Pour warm water into the tub and bucket. The water should be nice and warm, but not hot. Test it with your elbow. If it feels hot to you, then it’s definitely too hot for the baby. You only need 3-4 inches in the tub. Undress the baby and place her in the tub. To keep her from becoming cold and whiny, lay a washcloth across her chest and keep pouring warm water from the bucket over her. But always have one hand holding her in place. Using a clean washcloth, wipe the eyes from the bridge of the nose out. Then move on to the rest of the face, outer ears, and neck. The baby’s neck folds are surprisingly cavernous, providing ample storage space for dirt, lint, fermenting spit-up, and maybe even spare change. If left unwashed, they can become infected. Move onto the arms, legs, and torso. The armpits, belly button, leg folds are perfect nooks for dirt grime to gather. Use soap on the body a few times a week, and just water the rest of the time, but you can soap the diaper area every time. Rinse off the soap with cups of clean water from the bucket. Wash the hair. Because babies lose much of their heat through their heads, do this last. Use a couple of drops of baby shampoo several times a week. Place the baby on the towel and pat her dry. A large, printable version of the Bathing Procedure list is available at www.beprepared.net. Tape it to the wall next to the bathing location for reference.

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The Sock Glove A clean cotton sweat sock can stick to baby’s skin better than your bare hands. Cut out a thumbhole so you can maintain hand functionality.

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Aen refill it, get another clean towel for post-bath wrapping, put the baby back in, and start over. As far as urine in the tub goes, most new dads don’t change the water, for these reasons: It’s really hard to tell if a baby has peed in the tub. Urine is mostly water anyway. Most dads have relieved themselves in the shower for all these years, and their feet have never fallen off.

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Newborns come equipped with something called the Diving Reflex, an automatic response that prevents them from breathing in water should they go under. In the few seconds it would take you to pull your baby back up, chances are great there would be no harm done to her. This reflex lasts for a few months and then disappears. Obviously you shouldn’t take this as a cue to become lax about tub safety.

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Contoured bath pad This pad cradles your baby and elevates her head above the water. The pad is placed in your bathtub, and absorbs bath water to keep the baby warm. A popular model is called The Safer Bather.

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Not every baby cries exactly the same way, but there are six basic crying patterns that are common among babies worldwide. Hunger A pattern of low-pitched, rhythmic moans, growing more and more insistent. Short cry, pause, louder cry, pause, even louder cry.

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Fatigue A soft, breathy blubbering. If you listen closely, you may hear vibrato.

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Pain A high-pitched cry that comes out of nowhere. It’s as if somebody triggered a car alarm. Discomfort A consistent pattern of forceful sobs, which can break into a full-scale wail if not attended to.

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Boredom A low-volume whimper that stops and starts irregularly.

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Colic A burst of urgent high-pitched screaming that can go on for hours. Each wail can last for four or five seconds, taking the baby’s breath away. A lengthy pause follows while the baby catches her wind, then it starts all over again.

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Gently rocking your baby on a beach ball or an exercise ball just might cure what ails her.

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Gas Relief Gas bubbles can cause havoc in the newborn digestive system. Lay the baby on her back and bicycle her legs back and forth or bring both knees up to her chest and back down and repeat. This pressure on the stomach frequently causes a gas expulsion. Go into your home office and sit down on your swivel chair. Place the baby facedown on your lap, and swivel the chair back and forth while gently patting her back. Try using gripe water or colic drops, all-natural over-the-counter potions designed to reduce infant gas. And if your partner is breastfeeding, suggest she avoid gassy foods like beans, cabbage, and broccoli. Tell her that you and the baby will both appreciate it. Change of Scenery Giving the scamp a new perspective may calm her down. Hold her in front of a mirror. She may be mesmerized by the new kid, or your reflected face watching her. Climbing up and down stairs with her in your arms combines interesting visuals with exciting motion. Or you can put her in the stroller and roam up and down the hallway. Or try driving around the block a couple of times. Don’t be too proud to pass the baton to your partner. The baby may respond to her new smell, voice, and touch, and you’ll get some time to decompress, at least until she returns the favor. Startling

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Re-creating the Womb Some babies long for their former residence. Try any one or a combination of these techniques: Put her in the car seat carrier, grab the handle, and gently swing her back and forth. This can approximate the closeness and motion she felt in the womb. You can also buy an electronic swing to replicate this movement. Many babies suck their fingers in the womb. You can either use a pacifier or let the baby suck on your freshly washed pinky finger. Make sure the finger is palm side up so it won’t scratch the roof of her mouth. A warm bath with white noise in the background can help her regain the feeling of being enveloped. Immobilize her with a swaddle.

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Swaddling Swaddling mimics the closeness of the womb. Though many babies are comforted by this miniature straitjacket, others would rather not revisit the womb experience, thank you, and will quickly tell you so. Follow the step-by-step instructions below. A square blanket may hold better than a rectangular one, but either can be used.

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Some time between 5:00 and 8:00 p.m., a baby’s brain hits maximum capacity and goes into cry mode.

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Unhappy hour affects more than 75% of all babies. This pattern should stop at around twelve weeks. Letting the baby cry in her crib for a couple of minutes in between comforting attempts won’t traumatize her, and just may be a welcome break for the both of you.

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The term “colic” refers to prolonged periods of crying, usually several hours or more.

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The Popeye Hold Stand with your arm bent at the elbow and your palm facing upward. Sit the baby on your palm, facing you. Gently lay her down on your forearm, so her head rests on the inside of your elbow. Rock her from side to side while stroking her back. Your forearm is exerting gentle pressure on her abdomen, which, in combination with the rocking, may soothe her.

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STORING PUMPED MILK Short-Term Storage—Detach the container from the pump, seal it up, and write the date on a piece of tape and stick it to the bottle. Milk can last five days in the fridge. Long-Term Storage—You can purchase generic disposable bottle bags for easy milk storage. Or, as an alternative, you can pour the milk into clean, sterile ice cube trays, put the trays in freezer bags, and place them in the freezer. The milk will last at least two months. When you are ready to use it, pop an ice cube from the tray, put it in a plastic baggie, and heat it under warm water. When it’s liquefied, transfer it to a bottle. Each cube equals approximately two ounces of milk.

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Engorgement— Common during the first weeks of breastfeeding, engorgement occurs when breasts are filled to capacity, often causing discomfort. Remedies include immediate feeding, pumping, and warm compresses.

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If your partner is nursing, introduce the bottle when the baby is around one month old. Any earlier and the little squirt may still be figuring out the breast, any later and she may be too set in her nursing ways. Don’t be discouraged if she doesn’t take to it immediately. Keep trying with different nipple shapes and sizes, and with milk at various temperatures. Almost all babies eventually catch on. Give the bottle once a day but not more. You don’t want her to reject the breast. Administer these first feedings without your partner in the room. The baby may look at her and get confused. And your partner may start sobbing, seeing the bottle as an early symbol that your baby is leaving the nest.

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1. Warm Run the bottle under hot water. Never use a microwave, because it destroys enzymes in breast milk, and the milk heats unevenly. 2. Test Temperature Squirt a few milk droplets onto the underside of your wrist. The bottle should be no hotter than body temperature. 3. Bait the Hook Right before inserting, smear some milk around the outside of the nipple. 4. Commence Docking Maneuvers Sit with the baby lying in the crook of your arm. Elevate her head. If you lie her flat, she is more susceptible to choking and ear infections. Activate the rooting reflex insert the bottle. 5. Feed To prevent gas pains, tilt the bottle at such an angle that milk completely fills the nipple. Never prop up the bottle and leave the baby alone during feedings. In the beginning, you may have to periodically remove the bottle to let her catch up. 6. Burp Burp after every two ounces or whenever she gets fussy during feedings.

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White noise is an amazing sleep inducer. Not only does it mask unwanted outside noises, rendering the baby oblivious to ringing phones, creaking doors, and barking dogs, but it also mimics the sound of the rushing fluids and shifting body weight that your baby heard in the womb. In one study, young babies were three times as likely to fall asleep while listening to white noise as those not exposed.

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Pace Studies have shown that the most effective rocking mimics the mother’s walking pattern, which is approximately sixty rocks a minute (rocking to the left and then to the right equals two rocks). This is a brisk pace compared to the slow, gentle rocking you might picture in your head, but let your baby be the judge. She’ll let you know if you are going too fast. Music Many babies are comforted by strong, methodical beats. Some parents use metronomes to put their babies to sleep, but in lieu of that, try reggae music. The beat is solid and steady, and it’s got a natural buoyancy that will complement your rocking. And best of all, most reggae music cycles at around sixty to seventy beats per minute, tailor-made to your baby’s needs. (Bob Marley’s “Buffalo Soldier” is almost a perfect sixty b.p.m.)

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The Sleep Test Before you lay the baby down, you’ve got to make sure that she’s entered into a good, sound slumber. To test her level of sleepiness, lift one of her arms a couple of inches and then let it fall. If she offers any resistance, then you need to do some more rocking.

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Put the baby to sleep on her back. Use a firm mattress and a thin fitted sheet under the baby. Since research into SIDS is ongoing, consult your pediatrician for the latest facts. Avoid overheating your baby. Keep stuffed animals, pillows, comforters, or heavy blankets out of the baby’s sleep space. If you need a blanket, it’s best to use the sleep sack wearable blanket (see pg. 84).

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Treat your baby like a vampire for the first six months, keeping her out of direct sunlight as much as possible.

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There are eight basic items that belong in your gear bag: Diapers—at least two more than you think you’ll need. Wipes—for everything from fluid containment to toy sterilization. Plastic Bags—to deposit used diapers, wipes, and soiled clothes in. Changing Pad—to put down under the baby during changes. Bottles—Breast milk can be stored in bottles along with cold packs in a small bottle bag. Powdered formula can be put in a zipper bag and poured into bottles full of water. Burp Cloth—so you won’t walk around smelling like spit-up. Clothes—for you and baby—a complete outfit for him and an extra shirt for you just in case. Toys—Age-appropriate toys provide stimulation or distraction to head off a crying jag.

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Because you ought to be prepared for everything, you may want to take along the following additional materials: Multi-Tool—Pocket tools like the Leatherman are useful for everything from opening formula to stroller repairs. Duct Tape—Good for stroller and carrier repair, emergency diaper fastening, etc. Extra Pacifiers—Even if you have one tethered to his shirt, it’s always good to have an extra three or four.

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Escalators Riding up and down escalators helps with his growing sense of depth perception and object tracking, and he’ll be sure to get smiles and waves from everyone coming the other way. (But NEVER use the stroller on an escalator.)

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Before introducing solids, read the following: Wait until your baby is at least four months old. Very young babies have a tongue-thrust reflex that prevents them from choking, but also makes it almost impossible to get solid food to the back of the throat. Also, young babies’

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To make sure he doesn’t have food allergies, introduce one food for three consecutive days before moving on to the next one. If your baby has a reaction, you’ll know which food is the culprit. Useful

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Plan a Strategy. Some people start with vegetables, because they figure that once the baby tastes the sugars in fruit, he won’t settle for anything else. Others feel that it’s best to start off with a food that has a high likelihood of success. You make the call.

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Try a Naked Lunch. Strip the baby down to his diaper before meals, and let him get as messy as he wants. When he’s finished, just put him in the tub. Or better yet, feed him in the tub. Let him make his own soup.

LOCATION: 1142

Some good choices for first foods are: Rice cereal Barley cereal Oat cereal Squash Sweet potato Carrots Green beans Peas Sweet peas Avocado Yogurt Applesauce Bananas Prunes Apricots Peaches Pears

LOCATION: 1150

1. Become a Drill Sergeant. If you work during the day and your partner stays home, chances are you’ll be in charge of bedtime routine. Many dads find this annoying, because after eight hours away from her, your natural instinct is to rile her up with some impromptu baby wrestling. But the bedtime shift can be fun, in a mellow, Mr. Rogers—like sense. It doesn’t really matter what activities you choose for your nightly routine, as long as they meet these three criteria: They are soothing. You stick with the same activities in the same order every night. You save the most sleep-inducing activities such as giving the bottle, for last. Remember that babies, like senior citizens, thrive on routine.

LOCATION: 1228

Once your baby is six months old, you can give this method the good old college try. Here’s what you have to do: Put your baby in the crib when she is drowsy but not yet asleep. Leave the room. No matter how hard she cries, wait five minutes. Enter the room, but don’t pick her up. You can put a hand on her chest or talk softly to her for thirty seconds. Reassure her that you’re not Dad’s evil twin. Leave the room. Wait five minutes. Repeat this pattern until she has fallen asleep. The next night do the same thing, but add another five minutes to your response time. Within 3-5 days your baby should be able to fall asleep by herself and get herself back to sleep when she wakes up in the middle of the night.

LOCATION: 1259

When your baby’s cry wakes you up from a sound sleep, what do you do? If you’re like most dads, you’ll pretend not to hear it, hoping that your partner will respond. Your partner no doubt is employing the same tactic. And believe if or not, both of you are doing the right thing. The best way to deal with a crying seven-to nine-month-old in the middle of the night is to wait and see if she can fall back to sleep on her own.

LOCATION: 1273

As soon as your baby becomes mobile, you come to the realization that she doesn’t possess the greatest survival instincts. If anything, it seems like she’s bent on self-destruction. If there is a staircase, she will attempt to fling herself down it; if there is an outlet, she will try to stick something into it; and if there’s an inch of water anywhere, she will try to lie in it, facedown. It’s like she’s auditioning for some baby version of Jackass.

LOCATION: 1302

Secure a pad and a pencil; get down on your hands and your knees; and crawl around your house, thinking of all the ways you could possibly hurt, yourself along the way and writing them down. Don’t be lazy. Crawl under tables and behind the drapes, or you could miss things like exposed nails, loose change, and latches that could close on your baby’s fingers.

LOCATION: 1307

TV is bad for a baby’s eyes. There are no studies to prove this, and, as a matter of fact, some pediatricians have actually recommended television, and specifically sports, for the development of a baby’s eye muscles. Because sports broadcasts tend to use the camera to follow a moving object—a ball, a car, a person running—they can strengthen a baby’s ocular tracking muscles. (Next time your partner tells you to turn off the game, mention this fact.)

LOCATION: 1403

SKILL BUILDERS 7-9 Months Three-Cup Monte This is a baby-friendly version of the old street scam. Start off with three large cups and a ball or small stuffed animal. You’re the “tosser” and the baby is your “mark.” Lift all of the cups so she can see where the object is, and then lower them all. If she chooses the right cup, she wins. And when she starts becoming consistent, slowly jockey the cups around. Builds visual memory, problem-solving skills, and helps develop the concept of object permanence—the fact that objects exist even though she can’t see them.

LOCATION: 1447

On average, babies say their first words somewhere between 7 and 11 months. Your imp has probably started babbling, and may have even said “dada,” much to your partner’s chagrin. Don’t tell your partner this, but “dada” is one of the most common babbling syllable combos, and is just as likely to be directed at the family dog as your face. In order for it to be considered a true first word, it needs to be said in context three times. So unless she’s said “dada” three times while looking at you or your picture, it’s not official. And don’t be alarmed if she soon starts to refer to all men as “dada.” Babies learn in categories.

LOCATION: 1472

Spark Dialogue When you hear your baby babbling, join in as if you knew what she was talking about. After she finishes a spurt of random syllables, say, “Yeeees, that’s true, but how will that affect the overseas markets?” And then wait for a response. Pretty soon she’ll start to figure out the back and forth nature of true conversation. Remember to always praise her utterances, no matter how economically unsound.

LOCATION: 1481

Label Everything As an everyday ritual, walk around the house with the baby, naming everything as you go. You can use it as a passive-aggressive exercise. “See? This is a guitar, Guitar. Daddy used to play this guitar every day, before you came along. And these are Rollerblades. Rol-ler-blades. Daddy used to Rollerblade all over town, before you came along.” As long as you keep smiling, baby will be none the wiser. When labeling, try not to be too general or specific. A guitar is a guitar, not an instrument (too general) or a Fender Strat-o-Caster (too specific).

LOCATION: 1484

EATING Like a Person When you started your baby on solids, did you stop and think about how unsolid those foods were? Everything is pretty much the same consistency—mush. Well, by 10-12 months many babies rebel against the mush and start craving finger foods more and more.

LOCATION: 1585

Have patience. It will take time to figure out the culinary particulars of your squirt. Let him experiment with a wide variety of flavors and textures, and see which ones he gravitates toward. It may take up to ten exposures for him to decide if something gets the green light. Put it in piles. A good way to serve finger foods is to cut up the little pieces and put them in piles on his high chair tray. If each food is in its own individual pile, he can easily access the stuff he likes and ignore the rest. Babies need to eat less than you think. At this stage, a baby should be eating between 4 and 8 tablespoons of fruits and vegetables, 2-4 tablespoons of protein, and 8 tablespoons of rice, cereal, potatoes, or pasta (or half a slice of bread) per day. Of course, this is all supplemented by milk. Give milk after food. At least 50% of your baby’s nutrition is still coming from formula or breast milk. You’ll have much more success with finger foods if you hold off on the milk until after you give him the solid stuff.

LOCATION: 1601

Veggie Booty is carried in select supermarkets and health food stores. You can also order it online at www.robscape.com. As a snack food, they are a much better choice than pork rinds.

LOCATION: 1623

A List of Finger Foods for Your Baby to Eat and Throw Cottage cheese Ricotta cheese Soft, steamed carrots Cooked poultry Peaches Toasted whole wheat bread (without nuts) Bagel Cream cheese on crackers Avocado Bananas Boiled yolks (but no whites until after a year) Dry cereal Well-cooked pasta (spirals or shell shapes) Yogurt Pancakes Breadsticks French fries Graham crackers Pickles (cut extra small) Macaroni and cheese Ground beef Tofu Sweet potatoes Be sure to keep the pieces no bigger than a Cheerio. Eleven Foods You Should Never Give Your Baby The following foods have been known to cause allergic reactions or health problems, or are choking hazards, and should be avoided: Honey Cow’s milk Egg whites Citrus fruits and juice Peanut butter Whole grapes All seeds and nuts Blueberries Popcorn Raw vegetables Hot dogs Also, limit foods high in saturated fat, salt, or added sugar and foods that contain artificial sweeteners.

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Bring activities. Toys and books will help get him through the meal. If you forget toys, the resourceful dad can use whatever he has on hand.

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tactics to pacify him in transit: 1. Choose your seats wisely. When booking a flight, keep in mind the following: If you don’t want to buy a seat for your baby, you and your partner should reserve the window and aisle seats in the same row, leaving the middle seat open. Middles always fill up last, and even if someone has reserved it, as soon as they see the baby they’ll beg the flight attendant for reassignment.

LOCATION: 1813

The only supplies you’ll need are electrical tape (easier to remove than duct tape) and pipe cleaners.

LOCATION: 1878

Before you let the baby crawl around the room, sweep the floor for hazardous items like paper clips and loose change. Place the coffeemaker, hair dryer, and iron out of reach. Use electrical tape to cover up outlets and tape drawers shut, and secure the minibar. To protect your baby’s head from sharp corners, bring along extra baby socks, fold them in half, and tape them over all furniture corners that are at the baby’s height or below. Tape a big X across the sliding glass doors leading to the balcony to let the baby know that he can’t go straight through the doorway. And make sure those doors are locked. Use pipe cleaners to wrangle all drape and blind cords, and also to gather lamp cords. Secure closet doors by wrapping a pipe cleaner around both knobs and twisting. It’s a good idea to keep the bathroom door closed and off-limits at all times. If your baby has figured out how to open doors, put one of your socks over the bathroom doorknob. He will have a tough time getting enough traction to open it.

LOCATION: 1881

The best solution is to bury the scat and then put the diaper in a small plastic bag before putting it into the double-layered bag. When burying scat, you must dig a hole at least 6 inches deep and at least 100 feet from a water source.

LOCATION: 1926

The Happiest Baby On The Block by Harvey Karp

• Introduction:

  • Babies cry because they are born three months too soon.

  • Rhythmic, womb like sound, motion and tough triggers an automatic calm reflex.

  • Five Simple Steps (Five S’s):

    • Swaddling - snug, precise wrapping

    • Side / Stomach Position - never for sleep

    • Shushing - white noise

    • Swinging - tiny rhythmic, jiggly motions (1 inch back and forth)

    • Sucking = sucking a nipple or pacifier

• Four principles of Baby Soothing:

  • The Missing fourth trimester

  • The Calming Reflex

  • The 5 S’s (do 3, 4 or 5 at the same time)

  • The Cuddle Cure

• Botswanan moms carry infants in leather sacks for 24 hours per day, cuddling and bouncing as they walk.  Nurse infants 50-100 times per day. No crying.

• !Kung carry their babies in leather slings all day and sleep with them all night, breast-feed around the clock and respond to cries immediately- not much crying.

• In Bali, babies don’t leave mom’s arms for first 4 months - used to being carried in womb for 24 hours, not just 12 hours.  - 4th trimester experience, means no crying.

• Each baby is an individual, with different preferences, but with practice you can discover the perfect mix and intensity of the 5 S’s your baby likes best.

• By 4 months, your baby will be better at calming itself with cooing, moving and finger sucking.

• Crying - Baby’s ancient survival tool:

  • Your baby’s cry makes you want to help.

  • At 3 months, baby will have different types of noises, but during first months only 3 simple sounds.

    • Whimper - A request.  Mild unhappiness.

    • Cry - Good strong yelp summons attention.  Distress.

    • Shriek - Emergency, like a smoke alarm.  Could be from hunger, too cold, too hot or in pain.

• Colic - baby cries for hours a day.

  • Baby average - 2.5 hours of crying per day at 2 months old.

  • Baby average - less than 1 hour at 3 months old.

  • Colic - 3 hours per day, 3 days per week for 3 weeks.

  • Do your best to soothe upsets - leaving baby to cry doesn’t work anymore.  Actually, predictable repetition of your loving response is the key to building baby’s confidence.  Including at night time.

  • Five possible causes of Colic:

    • Tummy ache

    • Bad bacteria or food allergy

    • Maternal Anxiety (fear or worry sensed from mom)

    • Brain Immaturity (over stimulation)

    • Challenging Temperment (over reactions)

  • Colic starts at 2 weeks, peaks at 8 weeks, ends at 3 months.

  • Colic worst at night - witching hour.

  • Colic often stops from vigorous rocking, holding, strong white noise (like car ride or vacuum cleaner).

• Solving Tummy Troubles

  • Recommended to vigorously burp, give tummy massages, provide soothing teas for fussy babies… also nursing moms should avoid gassy foods.

  • Feed your baby sitting up.

  • Allow baby to stop meal and burp, they might over eat.

  • Use a good burping position.

  • Loosen bubbles when feeding by bouncing baby on lap and thump the back.

  • Help babies poop with bicycle motions, could be constipated.

  • Most common baby food allergies are cow’s milk and soy.

• How Mom’s Anxiety can cause baby to cry:

  • Anxiety reduces breast milk supply

  • Distraught moms too distracted and emotionally spent to comfort infants

  • Mom’s lacking confidence to comfort baby with 5 S’s

  • Nervous moms impatiently jump from one calming method to another doing none successfully or fully.

• Baby stimuli:

  • Baby doesn’t want peace and quiet, but babies love monotonous repetition.

  • Too much stillness drives babies more nuts than overstimulation.

  • Babies subjected to daily chaos of life, in the absence of calming rhythms are easily driven past their tolerance point, however.

  • May get overwhelmed (depending on temperament) by both chaos and unnatural stillness - need a balance.  Hold, rock and suckle to provide repetitive, but not boring experiences that duplication sensations from the womb and trigger calming reflex.

Colic = (overstimulation + total stillness) - Rhythmic Calming / Temperament + Brain Maturity

• Breast milk helps boost immunity, protects against obesity, reduces SIDS and even lowers a woman’s risk of breast and ovarian cancer.

• Babies need 8-12 feedings per day in early weeks, but does not need to be every 2 hours all through the night.  You need to preserve your health and sleep to help the baby. Go 4-5 hours without feeding at night, feed once, then sleep again.

• Baby Reflexes:

  • Rooting - touch baby’s cheek, their head turns to find nipple when hungry.  If they don’t respond, they aren’t hungry.

  • Stepping - Hold baby under armpits and let feet touch the floor, helps them shift position to prevent pressure sores.

  • Grasp - Press fingers into baby’s palm, helps them learn to grasp and hold things.

  • Moro - Feeling of falling when on your back.

  • Calming - Requires womb simulation… jiggling, swinging, shushing, tightness - 5 S’s.

• 10 ways to impersonate Uterus:

  • Holding baby

  • Dancing

  • Rocking

  • Swinging

  • Swaddling

  • Feeding

  • White Noise

  • Singing

  • Pacifiers

  • Smart Sleepers

• 1st S:  Swaddling

  • Wrapping imitates the continuous touch and snug cuddling of the womb.  Skin-to-skin is also great for soothing babies.

  • Baby struggling doesn’t mean baby needs or wants hands free, they will fight the swaddling at first.

  • 1st 10 times you practice, do it when baby is calm or asleep, not when thrashing about.

  • Touch is our most ancient calming sense.

  • Wrapping does not quiet fussing, it prepares the baby for soothing with the other S’s, but alone rarely turns on the calming reflex.

  • SIDS prevention recommends swaddling for up to first 6 months.

  • Must always be done correctly to avoid overheating, stomach sleeping, loose blankets and tightness around hips.

  • Keep baby’s room at 68-72 degrees.  

  • No hats, they slip over the face and can overheat or suffocate.

  • Hip-healthy swaddling holds the arms sung, but allows the knees to bend and hips to flex and open.

• 2nd S:  Side/Stomach

  • Back position can set of Moro Reflex - give baby panicky feeling of falling.  Back sleeping necessary for sleeping still.

• 3rd S:  Shushing

  • Sounds like womb.  White noise.

• 4th S:  Swinging

  • Motion may need to be vigorous at first (fast, tiny jiggles… no more than 1” back and forth), then move to gentle rocking.

  • Bouncy seats, car rides, swings, slings good too.

• 5th S:  Sucking

• DUDU Wrap (Down, Up, Down, Up):

  • 1.  Place a light cotton blanket on your bed (44” x 44”) and orient it like a diamond, with a point at the top.

  • 2.  Fold the top corner down.  The top point should end up near the center of the blanket.

  • 3.  Place your baby on the blanket, her neck right above the edge of the top fold.

  • 4.  Hold the baby’s right arm straight at the side.

  • 5.  DOWN - Pull the blanket snuggly down and across the baby’s body.  Tuck it under the baby’s left buttock. It will look like ½ of a V-neck sweater.  

    • Next, grab the free blanket beside her left shoulder.  Tug it firmly away from her body to remove any slack.

    • The baby’s right arm should now be straight and snug by the baby’s side.  This first DOWN is key to swaddling, do it snuggly or the whole wrap will unravel.

  • 6.  UP - Hold the left arm down at the baby’s side, bring the bottom point of the blanket straight up and place it at the baby’s left shoulder.  Tuck the blanket snugly around the left arm.

    • Grab the blanket next to the left shoulder and pull it straight out away from the body to remove any slack.

    • NOTE:  The blanket should be loose around the legs, but the arms should be very snug and straight.

  • 7.  DOWN - Grab the blanket a few inches from the left shoulder and pull it down, just a smidge.  The small flap should come down to the upper chest to form the other half of the V-neck.

    • Lightly press the smidge against the breastbone, like you’re holding down a ribbon while making a bow.

  • 8.  UP - Holding the smidge on the chest, grab the last free blanket corner and pull it straight out away from the body to remove any slack.  Then in one smooth motion, lift that corner up and straight across the baby’s forearms like a belt. The blanket should be big enough to go around the body, then, snug it and tuck it into the front of the belt, going up and across the left shoulder.

  • Note:  Don’t let the blanket touch the baby’s cheek - or it can make the rooting reflex.  

  • Note;  By four or five months, your baby will be able to smile, push themselves up, roll over and will no longer need swaddling to stay calm.

• Side/Stomach:

  • TECHNIQUES:

    • Place the baby’s cheek in your palm, roll the baby to rest the chest and stomach against your forearm, then jiggle the baby up and down like a car going over cobblestones.

      • Always place baby on back when not in your arms.

      • Carrying babies for 3 hours per day (in mom’s arms or a sling) reduces fussing by 43%.

      • Make sure slings are not too deep, you need to be able to see the baby’s face so they don’t suffocate.

    • Reverse Breast-Feeding Hold:

      • 1. With your baby lying on his back (swaddled is best), place your palm on the front of his diaper.

      • 2. Roll him on to your forearm, so his stomach rests against your arm and bring him into your chest.

    • Football Hold:

      • With your baby lying on her back (swaddled if fussy), place your hand on her chin - your thumb on one cheek and your other fingers cradled against her other cheek and temple - supporting the head like a chin strap.

      • Gently roll onto your forearm, snugly cushioning her chest and stomach against your arm.  Let her rest in the palm of your hand and outstretched fingers, her groin will be near your elbow while her legs will dangle, straddled over your arm.

    • Over-the-Shoulder Hold:

      • Simply lifting a baby to an upright position can have a strong, soothing effect.

      • Hoist your fussy baby up onto your shoulder.

      • Let the weight of his body press his stomach against your shoulder.

    • Note:  Don’t let baby side sleep when bed-sharing.  High risk of SIDS.

• SHHHHH

  • Place mouth next to ear and SHHHH to match volume of baby’s cries.

  • Note:  Don’t use white noise all day long.  Baby needs to hear home sounds for many hours per day to help them master the nuances of all interesting sounds around them, such as speech, music and so forth.

  • All white noise sounds - wave, rain, nature sounds - work equally well.

    • Continuous sounds like hair dryers or rain are more effective.

  • Use sound for all naps, all nights, for at least the first year to help your baby sleep longer and better.

• Swinging

  • LIfe was so rich in the womb, when mother moves, you swing with the movement.

  • Even adults are lulled by the hypnotic motion of a swing, hammock or train.

  • Top 10 Swinging Movements:

    • Baby Slings

    • Dancing with baby, quick little moves

    • Rhythmic pats on the back or bottom

    • Bouncing on the edge of the bed

    • Rocking in a chair

    • Car rides

    • Infant swings

    • Bouncing on an exercise ball

    • Brisk Walks

    • Jiggly smart sleepers

    • Bonus 11:  The Milk Shake - Sit with baby on lap.  Place one hand under baby’s chin like helmet strap.  Lean baby forward and lift, then bound up and down like mixing a milk shake.  

    • Bonus 12:  Jell-o Head - Place on lap, SHHH, wiggle knees back and forth to make the head quiver between loosely cupped hands.

    • Bonus 13:  Windshield Wiper - Swaddle.  Feet flat on floor. Place baby on the side and groove between the legs.  His cheek and head will be in your palm. Slide your other hand under his head so your two hands overlap and his head is cradled in a loose, open grasp.  Now swing knees side-to-side like a windshield wiper, faster if crying. Give pacifier. Motion comes from the feet, not the shoulders or hips.

  • 3 Keys to Swinging:

    • 1.  Start out fast and jiggly, small trembly moves - 1-2 inches.

    • 2.  Let the head jiggle more than the body.

    • 3.  Follow your baby’s lead.

  • Note:  Never shake or jiggle your baby when you are angry, out of patience or super tired.

  • Tricks for the swing:

    • Don’t put baby in when they are screaming.

    • Swaddle.

    • Recline the seat as much as possible.

    • Use white noise.

    • Use the fast speed.

    • Ask doctor first if baby is old enough.

    • Jiggle the back seat if baby is fussy.  1” back and forth.

  • Always support the head and neck.

• Sucking:

  • New babies grow so fast they need a milky meal 8-12 times per day.

  • Like meditation, paci sucking lowers the heart rate, blood pressure and stress levels.  Can also lower risk of SIDs.

  • Don’t push paci into mouth when baby is already crying, calm first, then give pacifier.

  • Baby will drop pacifier until you build sucking strength.

    • Lightly tug it back away from baby as if you’re trying to take it out.  After a few times, your baby will resist these little pulls and suck harder.

  • Rinse it when it falls on the floor.

  • If you remove the binky, baby will likely move to the thumb, which is more likely to cause serious orthodontic and speech problems.

  • Avoid all bottles and pacifiers until breast feeding is going well.

  • Once breast feedin gis going well, give only one bottle per day - need to do this to help baby learn to take a bottle from another caregiver.

  • If you wait longer than 4 weeks to introduce the bottle, the baby will reject the bottle.  Don’t skip more than 1-2 bottle days.

  • Moms who gave newborns a pacifier were more successful at breast feeding.

  • Wean this habit around 6-7 months.  Never allow them to have it past 9 months.

  • Increasing number of babies suffocate when sleeping in parents bed.

  • When baby roots - offer feeding.

• Most babies need more than two S’s to calm.  3-4 for cranky kids.

• If feeding, holding and skin-to-skin don’t calm, go to the 5 S’s.

• Two great soothing techniques are massage and walks outside.

  • Massaged babies have higher IQs than those who just had normal handling.

  • Babies massaged for 15 mins per day cried less, gain weight better and were more alert / socially engaged.

  • Outside walks lull babies, provide new sensations, offer multisensory sound.  Can help lift you and your baby’s spirit and provide a sense of peace. Some babies fuss, because they are bored at home.

• 90% of colic is due to food issues.

• If constipated dilute organic adult prune juice into formula 1-2 times per day.

• Also use bicycle legs and massage booty to help avoid constipation.

• Call a doctor if no poop in 3 days.

• Chamomile, peppermint, dill and fennel tea can help soothe a baby’s tummy troubles.

• Babies average 16 hours per day of sleep, broken into snippets in first months.

• Nurse your baby 10-12 times per day.

• Always wake a sleeping baby:

  • Wake the baby for 5-10 seconds with a slight jostle or tickle, to teach them to self-soothe themselves back to sleep.

• Letting your baby scream themselves to sleep is like ignoring your car alarm until the battery dies.

• 75% of babies fall asleep from nursing.

• Weaning babies from the 5 S’s:

  • Swinging:  3-4 months.  Move to non-swinging bassinet or crib.

  • Swaddling:  4-5 months. First do 1 arm out, much easier to wean swaddling with white noise on.

  • Sucking:  6-7 months.

  • Same room sleeping:  6 months (start using nursery for naps at 5 months, then transition to full night sleep in nursery at 6 months).

  • No shared bed for first 9-12 months.

  • SHHH:  12 months, or later.  Adults use white noise.

• Night Time Feeding:

  • Wake baby for a dream feed between 10 PM - Midnight.

  • Respond to nighttime cries with a few minutes of holding or a diaper change before feeding.

• Play, then eat, then sleep - cycle.

• At 1 month, carry baby during the day to help him learn difference between day and night.

• Feed during the day every 90 - 120 minutes.

• Wake if napping for 2 hours, then play and feed.

• Feed in a quiet room to avoid distractions.

• Then turn on white noise after feeding, turn lights down…. 20 minutes before naps and bedtime to show baby sleepy time is coming.  Helps baby learn to self-soothe.

  • Low lights, soft white noise, toasty baths, loving massages with warm oil, yummy milk, cozy swaddle and soft lullaby.

• NOTE:  Don’t nurse abies on a couch or arm chair, 50% of moms will fall asleep and can drop baby or baby can suffocate.  Baby must sleep on back.

• NOTE:  Breastfeeding reduces SIDS by 50%.

• Keep house at 68-72 degrees.

• No hats or overdressing.

• No pillows, toys, stuffed animals, loose bedding or thick blankets under the baby.

• Practice supervised tummy time.

• Don’t let your baby sit up in a car seat.

• 2 weeks of 6 hours of sleep or less is the same as being legally drunk.  NEED TO SLEEP

• No bed sharing with animals.

• Put ointment on baby’s bottom at bedtime to protect skin from middle of night pee or poop.

• If ears are warm or red, baby is too hot.

• Always make sure you can see baby’s face.

• 10 Key Tips for New Parents:

  • 1.  Trust yourself

  • 2.  Lower expectations

  • 3.  Accept all the help you can get

  • 4.  Get your priorities straight (tell people you just had a baby and are swamped - they will get it)... take naps.

  • 5.  Be flexible - or die!

  • 6.  Know yourself - if you are in a bad mood, be careful with baby.

  • 7.  Don’t rock the cradle too hard - watch yourself for frustration with baby.

    • Lighten your workload if near breaking point.

    • Get help from family.

    • Do something physical to vent energy.

  • 8.  Keep your sense of humor

  • 9.  Take care of your spouse

    • Don’t take your partner for granted and never go to bed angry.

    • Have some fun together, go on dates.

    • Spousal support is best predictor of breast feeding success and avoiding depression

  • 10.  Don’t ignore depression

    • Can be made worse from sleep deprivation

    • Depression is a medical illness and affects up to 50% of moms (please reach out for help!)

Watch Your Junk and Other Advice for Expectant Fathers by Benjamin Wallace

You’re going to have to change the kitty litter, man. I know how you feel. This would have been the one deal breaker for me too, but no one told us that a woman with child could not be around kitty litter until after my wife was pregnant. I realize that this sounds like something women made up to get out of changing the litter, but the fact is that cat poop and even kitty litter dust contains a chemical that could cause Toxoplasmosis. And you know that’s bad because the word starts with toxo which is Latin for “this shit’ll kill your baby.”

LOCATION: 107

Even if you have photographic evidence of the exact time and date of conception, you pervert. It doesn’t matter to them. The first day after the last period is the day your child was conceived.

LOCATION: 142

A quick note about nine months; it’s really ten. Yeah, I know, it’s the one thing you thought you knew about having a baby. You knew how they were made and, once you were done with that part, you knew that nine months later you would have a baby. The gestational term for human babies is forty weeks. That’s ten months—even if February is doing something weird that year.

LOCATION: 151

Traditionally, people advise that you wait about three months before announcing the pregnancy. Unfortunately, many pregnancies end in a miscarriage before this time and the advice is based on not letting the cat out of the bag before the baby is out of the woods.

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The moment your wife tells you she’s pregnant, you lose the right to complain. You’ll get it back eventually but any grumblings you have for the next nine months to three years should be kept to yourself. That’s not to say that you won’t have things to complain about. Over the course of her pregnancy you’ll be doing the bulk of the work and the deeper into it she gets, the heavier things seem to get.

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I don’t care if you’re feeling neglected, had a bad day at work or been shot in the ass with an errant crossbow bolt. If you say anything, it will be considered insensitive. She’s having your baby. She’s sacrificing her body to bring life into this world and you’re bitching about being shot? What’s wrong with you?

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Once that child is visible on the screen, you cease to exist. It’s not a slow fade like your existence has been undone due to some tampering with the space-time continuum; it’s very sudden. The doctor will know it. Your wife will know it. Recent studies show that the fetus, who is only a few cells at this point, knows it. It just may not be very evident to you. You’ll try to speak and no one will hear you. You’ll have thoughts and no one will care. If you start to mess with the equipment in the room, like say picking up the sonogram wand and making ray gun noises, they will notice and tell you to quit. But as soon as you put the wand down, you’ll go back to not existing. It’s nothing you did. The doctor’s primary concern from here on out is your wife and baby’s safety and health.

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You will start to notice your new non-role slowly. Your wife and the doctor will begin to talk in a language that you don’t understand. You’ll notice that they never really turn to you anymore. No one will ask how you’re feeling. No one cares if you’ve been eating right. No one cares if you’re doing your Kegels.

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And while most of them are used for good instead of evil, there is also the 3D sonogram. This horrific upgrade is usually optional and costs extra. I’m no doctor. I don’t know if the image is helpful to the baby doctor, but I do know this: the people with the machine will try to sell you on it by telling you that you will get a picture of what your baby really looks like. You’ll see facial features, ears, eyes etcetera ... Imagine, a real picture of how your pride and joy will actually look. How could you resist? Resist. Don’t do it. Please don’t do it. Because you’ll think your baby is going to look just like a Garbage Pail Kid. I’ve never seen one 3D sonogram that didn’t give me nightmares.

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A lot of information will be flying at you, but this is the only thing you need to get—how to swaddle a baby. Some call it the baby burrito. I don’t care what you call it, that shit will save your sanity. Pay attention to that and you’ll be okay.

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Aside from swaddling, there are a couple of other things you’ll learn in baby class. First of all, cats will try to murder your baby. It’s true. They asked who had dogs; my wife and I raised our hands. The baby teacher said that was great; dogs are very protective of the baby and may even sleep underneath the crib to stay close and guard them. Then she asked who had cats. My wife raised her hand; I pointed to my wife. The baby teacher said those with cats would have to be really careful because cats are attracted to the soft breath of an infant and will climb into the crib and smother them. To death. Until they die.

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When you leave the baby class you’ll get a shopping checklist for newborns. Your first fight will occur in Babies R Us, somewhere between the baby proofing section and the diaper rags. (Not the diapers. The diaper rags. Big difference. There is no sound reasoning behind the similar names.)

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Honestly, did you know that cats were fur-bearing murder machines made of an evil so foul that even their shit carried fetus-killing poison? Of

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That is the shopping list you’re handed. It is so overwhelming that you have little choice but to trust it. After all, no one would try and bilk you when you’re having a baby, right? And what kind of parent would you be if you didn’t get the best of every item? Don’t you want the best for your child? Don’t you want them to be safe? Don’t you love them?

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With every new thing you put in the cart, the pit in your stomach/wallet will grow. You’ll start to wonder if you really need all that stuff and even though you know nothing, you’ll begin to figure out what you don’t need. You’ll start to voice your opinion and this is where the argument will start. Frustration will build as you try to grapple with the different items, their purpose and their cost. The swearing will probably start when you find out that there are diapers (for butts) and diaper rags (for faces) and you begin to scream to no one that they shouldn’t be given such similar names.

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And there is no one involved with the list that doesn’t have a vested interest in you buying everything on it. Here’s the real list:

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A Small Phillips Head Screwdriver

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Apparently the greatest threat to an infant’s life outside of cats is that he or she will suddenly learn to crawl, open a battery cover and ingest the Energizers inside. A neat trick for a newborn really. Now, I've never seen or heard of it happening but it must have happened a ton in the 70s and 80s.

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These contractions are nothing to worry about, but what do you know? You’ve never had a baby before. But, you have heard all these stories about contractions, so when your wife feels contractions, you would assume that she’s having a baby. Braxton Hicks make you worry because you don’t know any better. They play on your ignorance like a total bastard. 

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The nightly room rate is what tells me they’ve never stayed at a hotel.

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There’s no thermostat in the room so the only thing you can do is pack a sweater or two. Yes, even in the summer. In Texas. And a blanket. It may seem like overkill, but there is good reason.

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Being a father still won’t seem real at this point. The fact that they actually let you leave the hospital with the child still confounds you. What kind of irresponsible institution would do that? Even once you get home, the bafflement will continue. You’ll walk in with the child in your arms, delivering him or her to their new home for the first time. You may even give the baby a tour of the house. After that, you won’t have a clue what to do. Do you put it in the swing? Seems a little soon. The pack and play? Already? You can’t just hold it forever. There’s stuff in the car that needs to be brought in. There is only one solution here. It will come to you quickly and it’s a very crucial lesson: when you don’t know what to do with a baby, give it to Mommy. Congratulations,

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Now that you are home with the baby, your life will revolve around poop. Color, consistency, frequency, odor—your life is now all about ass management. I’ll tell you right now that the best day of a father’s life is not when the child speaks your name, or walks, or gets accepted to Harvard, it’s when that child wipes his or her own ass. But, that’s a ways off so let’s get back to managing your child’s ass.

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Talk of poop will fill conversation with your wife. Catching up at the end of the day will be about the baby’s crap. You’ll get home and hug and kiss. You’ll ask about each other’s day. Each other’s day will involve stories of crap. They’ll seem natural at first, but after a few months you’ll come to the realization that you talk about poop more than you ever thought you would. Also, don’t ever get comfortable with the idea of poop always being in a diaper. It will be everywhere. You’re going to want to start adjusting to the idea of having it all over your hands, clothes and face. Yes, face. I don’t know how it gets there. Science doesn’t know how it gets there. It just gets there.

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Just a quick note on sleeping like a baby. Babies don’t sleep very well. The phrase is the most ass-backward idiom ever. But, now that you have a baby you’ll know that when someone tells you they slept like a baby what they really mean is that they woke up every hour or so, drooled and crapped themselves with regular frequency.

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child. I’m telling you, change the diapers and collect the points. This is a game you want to win. And here’s how you cheat: All diapers

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You may not get out of changing diapers but you can get out of everything else. That newborn little baby is a get-out-of-anything-you-don’t-want-to-do-card/poop generator. You’re not going to have to do anything you don’t want to for at least a year.

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I know. You still want to use the microwave and me saying you can’t isn’t a good enough reason not to. The reason you can’t use the microwave is because it will obliterate all of the nutrients in the formula.

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Once the kid has emptied the bottle and spit up the food you just tried to feed it, you’ll need to clean the bottle. This will require several specially designed brushes and pieces of equipment including a nipple brush.

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Once they have been soaked, soaped and scrubbed thoroughly you’ll have to steam them because even a board of pediatricians knows that you suck at washing dishes.

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If your wife plans on breastfeeding you’ve probably figured that bottles won’t be a part of your life as she’ll be keeping all the food in her boobs. Well congratulations, your deductive reasoning skills have brought you to exactly the wrong conclusion. A woman’s boobs are among the most amazing things on Earth, but they don’t know when a kid is sleeping and they can’t always be where the kid happens to be. Due to this lack of awareness, the boobs will continue to make breast milk even when the kid is not around. So it must be pumped and stored in bottles and little bags that cost too much and, naturally, can’t be reused. These bags will eventually fill your freezer and it’s important to remember that no matter how tired you are when you look in there, they are not really surprise ice cream cones.

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But, not in the microwave. That kills nutrients. Better warm up the water, clever guy who thought breastfeeding would mean less work.

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In fact, when your newborn is sleeping, you need to raise hell. Turn up that action movie in the living room. Vacuum. Start a band called the Din and play only the opening to We Will Rock You over and over again outside the nursery door. This will get your child used to sleeping through the normal noises of every day. Once it is a little older, it will sleep through anything and you won’t have to be a jerk to everybody who calls the house unless that’s who you truly are.

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She’s been home with the kid every day since it was born and can barely find the energy to shower much less clean the house. She spends all day wondering if she can even handle raising a kid without going insane and you just spent an entire day showing her up. Of course it wasn’t your plan to psychologically destroy your wife. It just happened that way. So here’s my advice. Never clean. It’s for her benefit.

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If you had hobbies before you had the child, chances are you have not found time for them lately. Don’t let them go. You’re not betraying your family by getting away for a few hours every now and then and your sanity is going to need it.

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I personally don’t approve of baby talk or using funny voices when speaking to a child of any age. I think it’s condescending and makes kids grow up stupid. This is one of the many issues I have with Elmo.

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For the first couple of months your child’s eyes will look just like your stoner buddy’s from college. Their eyes dart around the room as if they’re taking everything in but in reality they can’t see more than a few inches in front of their face. Within a few months, this focus improves greatly and their ability to see everything will lead you to ask, “Is my child ready for TV?” Yes. It is never really too young to open your child to the world of great entertainment. There is also a narrow window of opportunity to show them awesome movies before they can actually comprehend what is happening and you’re forced to watch only kids programming.

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baby cranium to the bridge of your nose. And the spasms don’t come one at a time. Two more quick kicks of those developing legs and you’re hit in the chin and eye socket. Your little baby has now beaten you up. A baby’s ability to kick your ass is tremendously underestimated

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Every child should come with a cup because your junk is in mortal danger from the minute they arrive. Once a baby has tried and failed to kill you using the head butt/baby rocket method, they will resort to destroying your ability to reproduce. This means constant strikes, steps and stomps to your manhood.

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You fall into the tiny embrace and then the kid sinks his teeth into your neck. This is pain. Pain you can’t really describe. Physically it’s blinding like being stabbed with a standard screwdriver by Sampson before he got his bangs trimmed. Emotionally, the pain is worse. Betrayal, treason, turned on by your own blood. A thousand emotions run through your head as your pride and joy attempts to rend the flesh from your shoulder.

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You’ve got to get the cabinet latches to keep them out of the cleaning supplies. You’ve got to get the outlet covers to keep their fingers out of the electricity. But, do you really need the toilet seat lock?

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Baby manufacturers make it very easy for you to go overboard here. When couples buy into all of the fear, their home becomes baby Alcatraz and appears more like a soft-sided fortress than a loving environment.

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Honestly it would be best if you just sell all of your furniture. You’ll never use it and they’ll just find a way to either hurt themselves on it or ruin it for everyone.

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Living with poop has become second nature by now. You’ve grown accustomed. Complacent. That’s just what the poop is counting on. As soon as you underestimate poop, it turns on you.

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In no class or book did it ever mention that my child might one day dig the crap out of their diaper and rub it in their hair and on the walls like some deranged Picasso. We were totally unprepared for it.

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what worked for us was cutting the feet off of the pajamas and putting them on the child backwards after making more room in the collar. The crappy art stopped but we still opened the door with apprehension every single morning. While holding our noses. Just in case.

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As cool as it is to realize that your kids are listening, it’s terrifying to realize that your kids are listening. Because, now you have to watch your mouth. I have what some would call a fucking potty mouth, so I’ll tell you what I did. I figured out that the word monkey replaced almost any swear word and was just as much fun to say. If someone cut me off in traffic that person was a dumb monkey. If I ran into heavy traffic, I’d declare son of a monkey. When I wanted to demonstrate how little I cared, I would tell someone that I didn’t give a monkey.

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I did not, however, foresee the great new swear words it would create. The plan went off the rails when I messed up and replaced mother with monkey instead of the bad word. I called a driver a monkey fucker. It was accidental, but very satisfying. It was the beauty of monkey combined with the visceral sensation of dropping the f-bomb. This mistake opened up a whole new world of insults. Ass monkey. Monkey bastard. Monkey loving motherfucker. So, needless to say, I have no helpful advice here. Just a warning: the baby is listening so watch your fucking mouth.

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What Every Real Estate Investor Needs To Know About Cash Flow by Frank Gallinelli

You'll find in both Parts I and II a number of useful forms, as well as spreadsheet templates that you can download from my company's Web site at www.realdata.com/book. These will simplify many of the calculations in this book.

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You'll also find "Rules of Thumb" throughout the book. I have taken the liberty of using these sections to offer my personal insights and opinions—and to separate clearly my opinions from facts. It may be a fact when I tell you how to calculate a gross rent multiplier, but it's an opinion when I tell you what values would seem unreasonable to me. Some of these "rules" may not fit a particular place and time so I encourage you to test them against the realities of your market. I offer them as a guide, not as laws of nature.

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the true investor treats the physical property as a secondary issue. He or she is not so much interested in buying the property but in buying the property's anticipated economic benefits—what is called the income stream. Rule of Thumb: Don't make a decision to buy, hold, or sell based on emotional factors. In particular, don't buy a building because you've fallen in love with it; and don't hold because of a sentimental attachment when you really ought to sell. If you need that warm and fuzzy feeling, get a puppy. To the extent that some

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the ways you make money with income property. You can call these elements the four basic returns: 1. Cash Flow 2. Appreciation 3. Loan Amortization 4. Tax Shelter

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Not all properties generate a meaningful cash flow, however, and for those that don't, the next most important of the four basic returns is appreciation.

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Changing market conditions may make the property more attractive. An area that was once marginal may become fashionable, and consequently, the balance of supply and demand shifts.

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You may not enjoy the benefit of appreciation until you sell, but when you do sell, the value of this benefit can be substantial.

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It's really nice when someone else pays your bills. In effect, that's what happens when you use a mortgage loan to help you purchase an income property. Consider a $1 million office building. You could write a check for the full amount but, sadly, that would almost clean out your bank account. On the other hand, you could write a check for just $300,000 and get a loan for $700,000. That would leave you with enough money to buy two more similar buildings and still have change leftover.

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The last of the four basic returns is tax shelter. An income-property investment can shelter some of its own income from taxation and occasionally shelter income received from other investment sources as well.

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As owner of an investment property, you take in taxable rental income and pay out tax-deductible operating expenses like insurance and repairs (see Part I, Chapter 2 and Part II,

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leaving you with a "net operating income" (NOI) on which you would expect to pay taxes. However, to promote the general economic benefits that tend to flow from real estate development (e.g., the creation of office and retail space, multi-family housing, etc.), the tax code permits further deductions. The first of these deductions is for mortgage interest. Interest

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The second source of tax shelter is through the depreciation deduction, which is now called cost recovery in the tax code, but is still usually called depreciation by real flesh-and-blood investors.

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taxation. If the depreciation deduction is large enough, it can even exceed the amount needed to shelter the property's own income and provide shelter for other investment income as well. In that case, the deduction creates what is effectively a cash yield of its own by reducing your other tax liabilities. To anyone who has ever attempted to fill out a tax form, it should come as no surprise that you cannot find a nice simple formula for the tax shelter component of a real estate investment. Nonetheless, you can at least get a feel for the concept by following this path: Income less Operating Expenses = Net Operating Income Then, Net Operating Income less Mortgage Interest less Depreciation (Cost Recovery) = Taxable Income

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If you're considering the purchase of an income property, the information you receive will probably come either directly from the seller or indirectly, through the seller's agent.

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Ask to See the Leases There are a lot of good reasons to do this. For one, if you buy the property, you are going to be subject to the terms of those leases, so it's a very good idea to know what they say. More to the immediate point, however, is the question of the rental rates. Do the leases agree with the seller's representations? How long does each lease run? Do tenants have options to renew, and at what rates? The

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Look at the Property Tax Bill That's one way to confirm the accuracy of this expense; but also look to see if the current owner has received some sort of tax abatement (perhaps a development incentive) that may expire or may not apply at all to a new owner.

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Spot-check Utility Bills Most gas, electric, and water companies will give you usage information if you call.

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Ask to See the Appropriate Sections of the Seller's Tax Return You'll have to cover your ears when you try this, because the screaming can be painful. When the din subsides, point out that you don't need to see anything unrelated to the property.

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the income and expense information probably appears on Schedule E, and he or she can show you just that form.

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The owner may own the property as a limited liability company (LLC) or some other form of partnership, in which case the property has its own tax return.

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Recite the Representations about the Leases and the Schedule of Rent Income in the Offer to Purchase Check with an attorney about the proper language, but put into the offer to purchase something along the lines of, "The Seller warrants and represents that as of the date of this agreement, the leases are for such and such amounts and the expiration dates and renewal options are whatever." Then ask the lawyer about adding, "...and that these warranties will survive the delivery of the deed."

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Market-Related Data Investigate Comparable Sales If you were contemplating the purchase of a home, you would want to know how much other homes in the neighborhood had sold for.

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Your search might be a bit more productive if you look at some additional factors in regard to these comparables. Total square footage is one.

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examine the selling prices per square foot to see if you can discern a trend. You could also consider each property's gross rent. Dividing the selling price by the gross rent gives you something called the gross rent multiplier

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Look for Lease Rates and Operating Expense Data

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Find Out about Local Capitalization Rates

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www.realtyrates.com as a current source of such data.

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Gross scheduled income is the total annual rent value of all units in the property. This amount includes the actual rent generated by occupied units, as well as the potential rent from vacant units.

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Vacancy allowance is usually expressed as a percentage of the gross scheduled income. As its name suggests, it is an estimate of the amount of potential income that will be lost due to vacancy. Some investors prefer to call this category "vacancy and credit loss" so that it also accounts for uncollectable rent.

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Gross operating income (GOI) is the gross scheduled income, less the vacancy allowance. It is also known as effective gross income. In short, it is the amount you actually collect.

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Operating expenses are items such as property insurance and taxes, repairs, utilities, and management fees. Operating expenses include any costs that are necessary to keep the revenue stream flowing. Mortgage payments and depreciation are not considered operating expenses, nor are capital improvements.

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Net operating income (NOI) is the gross operating income, less the operating expenses. In other words, it is what is left of your total potential income after all vacancy and expense items have been subtracted. Again, mortgage payments and capital expenditures have no impact on the NOI.

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Annual property operating data (APOD) is the real estate equivalent of an income-and-expense statement. You'll use the terms APOD and income-and-expense interchangeably.

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Your vacancy allowance is an estimate, as it almost always will be. Ideally, you should base this estimate on your knowledge of market conditions and of comparable properties in the area.

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Rule of Thumb: In the absence of usable market data, many investors like to use a vacancy allowance in the range of 3% to 6%. An exception to this rule of thumb usually occurs in the case of a newly built project that is being leased for the first time. Vacancy during the initial lease-up period can be much higher. Conventional wisdom also has it that a property whose actual vacancy history is close to zero has probably been rented at less than market rates. In other words, if you don't experience some vacancy, you're just not charging enough.

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What you really want here is the ability to compare your data to some kind of norms. Your expense percentages may not tell you very much in an isolated example, but they might shed a good deal of light if you could compare them to some reasonable expectations.

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it is quite typical for a commercial tenant to be responsible for its own utilities and interior repairs, and often for any increase in property taxes.

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you might be wise to allow yourself a bit larger vacancy allowance than you do with your residential properties, since an empty store can often take a lot longer to rent than an empty apartment.

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It's always a good practice for you to get a quote on insurance from your own agent rather than relying on the current cost. After all, it's your own agent's bill that you'll have to pay. In

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you should always verify heating and other utility costs by contacting the utility suppliers directly. If the costs are higher than you might expect, as they are here, you want to know why. Is the condition of the heating system suspect? Where are the thermostats? Who controls their setting? Can you correct certain deficiencies and cut your costs? You can answer many of these questions with a careful inspection.

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Investors call this phenomenon "deferred mainte­nance," a polite term that means the owner is letting the property go to the dogs and someone is going to have to pay for the repairs sooner or later. Unfortunately, the longer those repairs are postponed, the higher the cost and the greater the likelihood of management problems and lost income. A building that has uncommonly low repair costs must be scrutinized

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You may focus so intently on the information that is provided that you may easily forget to notice the information that is missing. It's not enough just to evaluate the expense figures, as you did in analyzing Property B. You must always remember to ask yourself, "When you own this property, what else are you going to have to spend money on?" If

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The Annual Property Operating Data Form Let's get used to working with an APOD form similar to what an experienced investor might use.

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If you prefer, you can also go to www.realdata.com/book and download a spreadsheet of this form. The spreadsheet will calculate totals and percentages for you.

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you might even be bold enough to ask to see a copy of Schedule E of his previous year's income tax return, which will show you how much he claimed as taxable income and deductible expenses on this property.

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The owner may have enjoyed low repair costs last year, but he paid for that privilege with his remodeling expenses. You should count on something more realistic for repairs and maintenance for next year, perhaps 6%, which would be the low end of your typical range.

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FV is not the only one of the four variables you can calculate. If you know any three of the variables, you can calculate the fourth. Why do you care? Because sometimes you may want to estimate how long it will take a piece of property to grow from its original purchase price to a targeted resale price at a given rate of growth. In that case, you'll start off knowing the PV, FV, and periodic rate, and will want to figure out the number of periods. Or maybe you're looking at a piece of property that was bought some years ago and sold recently for a higher price. You'll want to know what the annual growth rate was for that property.

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To pose the same question mathematically, you know the PV ($100,000), the FV ($200,000), and the periodic rate (3%). You need to calculate the number of periods, given the other three variables.

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FIGURE 3.1 Excel functions. 3. In the left-hand pane, you'll see function categories. Choose "Financial." Excel has a financial function called NPER for calculating the number of periods in a lot of different investment scenarios. Select that function in the right-hand pane and click "OK." 4. You will next see a window where you can enter amounts for each

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www.realdata.com/book. These Excel sheets make it easy not only to perform the calculations, but also to visualize the examples.

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The time value of money plays a critical role when you consider just how valuable your property's cash flows really are. Timing is everything. Cash you receive sooner is more valuable than cash you receive later because the sooner you have it, the sooner you can put it to work earning more cash.

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The dollar will typically lose buying power each year, so you can't expect in five years to purchase goods and services with a current value of $100,000. Perhaps more importantly, if you don't have the cash in hand today, you can't put it to work for you.

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Discounting is a way of measuring the loss of value caused by the deferral of a return. In the typical real estate venture, you expect some kind of return each year that you operate the property, and an additional benefit from the eventual sale. Each of these returns will have its own timing, and therefore, will require its own discounting.

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If you sum the PVs of each of these cash flows, you get $105,856.47. Assuming your discount rate of 10% is reasonable, you can think of this sum as the value today of this property's expected future benefits.

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Keep in mind that the PV represents the present worth of all future benefits. If that's so, then you should compare the PV to what it cost you, namely the cash required to purchase the property. You find that the value of what you expect to receive ($105,856.47) is greater than that of what you had to invest ($90,000) to get it. As a successful developer once said to this writer, you can't lose money making a profit.

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The difference between these two is called the net present value (NPV). In this case, the NPV is $15,856.47. Rule of Thumb: Whenever the NPV is greater than zero, it means that the discounted value of the future cash flows is greater than your original cash investment. Translation: Your real rate of return is actually higher than the discount rate you used.

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The easy way is to use a spreadsheet like the one called "NPV," available for download. The model uses a built-in Excel function called @NPV. This function allows you to specify a periodic discount rate and a range of spreadsheet locations for the cash flows.

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Keep in mind the theme of this chapter: the time value of money. As the owner of a property, you may be able to seal the deal with a tenant by agreeing to a lease that provides for a small rent increase each year rather than just one, much larger increase that kicks in at a later time. A quick discounted cash flow analysis of the lease payments may be able to show you that the concession that convinces the tenant to sign on the dotted line really costs you little or nothing in discounted dollars.

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impractical. One decision you may face with a small commercial property concerns terms for a tenant who has just started in business. Do you begin at a low rent to give the tenant a chance to get established and then escalate quickly to make up for lost time? Or do you start off high, assuming that you'd better collect as much as you can while the tenant is still solvent, and not worry about a long term that may never occur? You can use a basic Excel model (See www.realdata.com/book for "Present Value of a Lease") to analyze such a situation. The model treats each monthly payment as a periodic cash flow. Since lease payments are made at the beginning rather than at the end of each period, it leaves the first payment undiscounted and applies Excel's NPV function to the remaining payments. It also divides the discount rate by 12, so that it's applying a monthly rate to the monthly payments.

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First, turn to the Appendix in the back of the book where you will find the first page of a table called, "Monthly Mortgage Payment per $1." The rest of the table can be found at www.realdata.com/book. The chart runs from 1% to 14.375%, and from 1 to 30 years in one-year increments.

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if you know three of the mortgage variables, you can calculate the fourth. Let's use

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As you can see, you have the four variables: N, the number of payment periods; %i, the interest rate per period; Pmt, the payment per period; and PV, the present value.

LOCATION: 1060

Now suppose you want to know how your situation might improve if you succeeded in negotiating this loan at 8% instead of 9%. You can simply change the %i figure to .0067 (8% annually divided by 12 months) and view the results immediately. The change in the interest rate lowers the monthly payment from $839.20 to $771.82. As a final consideration, let's say that you want to consider a 30-year term. Change N to 360 (the number of months in 30 years) and note that your payment now drops to $733.76.

LOCATION: 1071

a house is worth what someone is willing to pay for it. Income-producing property, however, is different. Value is determined by the numbers. The owner of the Yankees may admire a batter's graceful swing, but he pays for that player's batting average. Let's begin this discussion

LOCATION: 1117

(NOI) represents a minor variation on this theme and has a very specific meaning. You might think of NOI as the number of dollars a property returns in a given year if the property is purchased for all cash and if there is no consideration of income taxes or depreciation. By more formal definition, it is a property's gross operating income less the sum of all operating expenses.

LOCATION: 1123

Gross Scheduled Income less Vacancy and Credit Loss = Gross Operating Income

LOCATION: 1130

To be considered a real estate operating expense, an item must be necessary to maintain a piece of a property and to ensure its ability to continue to produce income. Loan payments, depreciation, and capital expenditures are not considered operating expenses.

LOCATION: 1132

Repairs and maintenance are operating expenses, but improvements and additions are not—they are capital expenditures. Property tax is an operating expense, but your personal income tax liability generated by owning the property is not. Your mortgage interest may be a deductible expense, but it is not an operating expense. You may need a mortgage to afford the property, but not to operate it.

LOCATION: 1135

Gross Operating Income less Operating Expenses = Net Operating Income

LOCATION: 1139

Investors don't decide to buy properties; they decide to buy the income streams of the properties.

LOCATION: 1145

The NOI represents a return on the purchase price of the property, and the cap rate is the rate of that return. Hence, a property with a $1,000,000 purchase price and a $100,000 NOI has a 10% capitalization rate. However, the investor will purchase that property for $1,000,000 only if he or she judges 10% to be a satisfactory rate of return.

LOCATION: 1153

Apply the 12% cap rate (PV = NOI / Cap Rate), and now the investor is willing to pay about $833,000.

LOCATION: 1157

you can depreciate a residential income property over 27.5 years, and a nonresidential property over 39 years.

LOCATION: 1191

taxable income is not quite so real. It's whatever the tax code du jour says it is. If tomorrow the House of Representatives should decide that the useful life of commercial real estate ought to be 100 years instead of 39, then your property's taxable income will rise without your experiencing a single additional dollar in rental income. Why?

LOCATION: 1224

Up until now, we have been discussing cash flow before taxes (CFBT), but a more meaningful bottom line to you as an investor may be cash flow after taxes (CFAT).

LOCATION: 1234

From your NOI, you subtract anything that is tax-deductible. Mortgage interest falls into that category, so you subtract the interest from each of the three mortgages. Depreciation, even though it is not cash out of pocket, is also deductible. Similarly, you can deduct a portion of the points you paid to obtain each mortgage. If you had income that was not from rent—typically interest earned on the property's bank or escrow accounts—that interest needs to be added in as additional income.

LOCATION: 1274

NET OPERATING INCOME – Debt Service, 1st Mortgage – Debt Service, 2nd Mortgage – Debt Service, 3rd Mortgage – Capital Additions + Interest Earned CASH FLOW BEFORE TAXES

LOCATION: 1311

In subsequent years, the debt service remains constant, but your NOI increases, so you forecast that your cash flow will increase every year.

LOCATION: 1321

In short, if you achieve your projected year 2006 CFBT of $71,037, you'll have a tax liability of $19,890, leaving a CFAT of $52,501.

LOCATION: 1329

Note that you expect to pay more tax each year because the property earns more taxable income each year. However, your CFBT is growing faster than your tax liability, so your bottom line—the CFAT—becomes greater each year.

LOCATION: 1331

Rule of Thumb: Recite this mantra whenever you consider purchasing an income property: If it's not worth selling, then it's not worth buying.

LOCATION: 1350

It pays, therefore, to run tomorrow's numbers today and to see just what this investment will look like to a future buyer.

LOCATION: 1354

It is common for a buyer to estimate value by capitalizing the current year's NOI, and for a seller to capitalize next year's expected NOI. The buyer often takes the position, "I am buying the income stream that just happened, and the property's value is based on that income stream. If the income goes up next year when I own the property, that's my business." The seller, as a rule, will assert, "You didn't own the building last year. You're buying next year's higher income stream. The value of what you're buying should be based on that."

LOCATION: 1366

PROJECTED SELLING PRICE – Costs of Sale – 1st Mortgage Payoff – 2nd Mortgage Payoff – 3rd Mortgage Payoff BEFORE-TAX SALE PROCEEDS

LOCATION: 1413

Rule of Thumb: 7% of the selling price is an estimate of cost of sale that has traditionally been popular among income-property investors. This amount would presumably be sufficient to cover the legal and brokerage costs of a typical transaction. Before you assume that such a percentage is always sufficient, keep in mind that not all transactions are typical. Stir in a little contaminated ground water and add a dash of environmental liability insurance and you may be serving up an altogether different deal.

LOCATION: 1419

That's what you pay your accountant to do. To figure the tax on the sale of income property, you must first figure the gain. The gain is the difference between the selling price the property's "adjusted basis."

LOCATION: 1432

Adjusted basis is the property's original cost, plus capital improvements, plus closing costs and other costs of sale, less accumulated depreciation. Essentially, the adjusted basis is what you spent to purchase, improve, and sell the property, less the amount you have already written off. If you sell the property for more than this amount, you have a taxable gain.

LOCATION: 1435

If you have an unamortized balance on any of these items, you can deduct it when you sell.

LOCATION: 1451

One of the oldest and simplest measures is the payback period. You can define this as the length of time required to recover your initial cash investment. Let's say you invest $100,000 in cash to purchase a $500,000 property. The balance, of course, is financed. The property generates a positive cash flow of $20,000 per year. Hence, the payback period is five years.

LOCATION: 1478

To achieve a quick payback, your property must have a strong positive cash flow. The sooner you get your investment back, the sooner you can begin to "make" money.

LOCATION: 1481

The payback period has been known colloquially as the "bingo year," presumably because that is what the savvy and sophisticated investor would exclaim upon seeing the return of the Prodigal Down Payment.

LOCATION: 1483

One weakness of this method is that it does not take into account the time value of money. It treats a dollar received at some future date as being just as valuable as a dollar received—or invested—today. Looking again at the preceding example, if the property had no cash flow at all for 4 years and then $100,000 in year 5, it would still represent a five-year payback. However, you would have missed the chance to collect and reinvest $20,000 per year for the first four years. Even if you had reinvested the early cash flows at money market rates, you would certainly have accumulated some interest by the end of year 5. One five-year payback of $100,000 is not necessarily as good as another.

LOCATION: 1485

"cash-on-cash return." With this approach, you look at the cash flow (usually before taxes) from a particular year of a property's operation and compare it to the cash you invested to purchase that property. You express the result as a percentage, so if you have a $10,000 cash flow this year from a property in which you initially invested $100,000 of your own cash, you would have a 10% cash-on-cash return.

LOCATION: 1491

Cash-on-Cash Return = Cash Flow before Taxes / Cash Investment Cash-on-Cash Return = 10,000 / 100,000 Cash-on-Cash Return = 10%

LOCATION: 1494

The cash-on-cash return is perhaps even less illuminating than the payback period because it considers a property's performance over just a single year. Nonetheless, it has typically been a very popular measure, probably because it expresses its result as a simple rate of return. It is easy to look at such a number and say, "10% is better than the rate I can get on a T-Bill. I like that."

LOCATION: 1496

Deferring maintenance or improvements can prop up a sagging cash flow, at least for the short-term, and give the appearance of a higher cash-on-cash return. The very actions that might increase the apparent return would, at the same time, make the property less attractive and ultimately less valuable.

LOCATION: 1503

A cousin to the cash flow measures is the gross rent multiplier (GRM). GRM is a method of estimating or expressing a property's value as a multiple of its gross rental income. Gross Rent Multiplier = Market Value / Gross Scheduled Income (annual)

LOCATION: 1512

By using comparable sales and establishing a rent multiplier based on a number of other properties, GRM essentially establishes by default a typical level of annual expenses and improvements for this group of properties.

LOCATION: 1526

An investment measure that remains widely used is the debt coverage ratio. This is the ratio between the annual net operating income and the annual debt service. Debt Coverage Ratio = Net Operating Income / Annual Debt Service

LOCATION: 1531

A property with a 1.20 debt coverage ratio has income before debt service that is 1.20 times as much as the debt service—in other words, the property generates 20% more net income than it needs to make its mortgage payments. Rule of Thumb: Most lenders require a debt coverage ratio of at least 1.20 in order to finance an income property. This ratio is not going to tell you if you'll meet your own investment goals with this property, but it will tell the lender if you are likely to be able to meet the mortgage payments. A presentation that's designed to seek financing for an income property should always include the anticipated debt coverage ratio, preferably over a period of several years.

LOCATION: 1533

Capitalization Rate = NOI / Value You recall that a property's NOI is its gross scheduled income, less vacancy and credit loss, and less operating expenses. Gross Scheduled Rent Income less Vacancy and Credit Loss less Operating Expenses = Net Operating Income

LOCATION: 1550

Operating expenses include insurance, utilities, maintenance, and similar items, but do not include mortgage payments, depreciation, or income taxes. Hence, the NOI is the net income before debt service and before income taxes. Like GRM, cap rate

LOCATION: 1553

It is perhaps the easiest to calculate of the useful measures, and is a good tool to compare a property's current performance to that of similar properties. Other

LOCATION: 1560

The downside to the capitalization rate, however, is the same as with most of the others we've considered so far. It looks at the property at a point in time (usually the current year), without regard to the property's expected performance over your entire holding period.

LOCATION: 1565

Perhaps the simplest and most elegant definition of an investment is that it is the present worth of an anticipated future income stream. If you parse this definition, you reveal both the strengths and weaknesses of yet another measure, called discounted cash flow analysis (DCF): Present worth implies that there is a time value to money that you must take into account. Anticipated hints at an element of uncertainty. You are going to have to make projections regarding events (i.e., cash flows, resale) that have not yet occurred. Future income stream suggests that you will be looking at more than just a single point in time. You expect to experience not just one, but a series of cash flows whose timing and magnitude will affect the success of your investment.

LOCATION: 1572

According to the venerable "Show Me the Money" principle, you would prefer to have a dollar in the hand today, rather than the same dollar tomorrow or next year. The reason for your impatience is that the passage of time imposes what is called an "opportunity cost." If you receive the dollar today, you can invest it and earn some return during the next year. If you receive the dollar a year from now instead, that delay has cost you the opportunity to invest, and hence, has cost you the return that that opportunity represents.

LOCATION: 1581

Internal rate of return (IRR) holds a dubious distinction in the panoply of investment measures. It is the most widely used and oft-quoted rate of return for real estate, and at the same time, the least understood.

LOCATION: 1649

We defined an investment as an expected stream of income, and we defined the PV of that investment as the sum of the discounted values of each of the future cash flows.

LOCATION: 1655

To put it less technically: Each year, the investment throws off some sort of cash flow—positive, you hope, but negative perhaps. In the year that you dispose of your investment property, you realize one extra cash flow—the proceeds of sale. The longer you have to wait to collect your money, the less "PV" it has today. As you've seen repeatedly throughout this book, there is a time value to money.

LOCATION: 1656

You also believe you should discount future cash flows by 11%. What that really means is that you think if you had this $25,000 in hand today, you could invest it for an average return of 11% per year over the next five years. You think this is true because you discover that other property investments of similar kind and risk are currently returning about 11% to their owners. You assume that for every year you don't have one of those cash flows in hand, you're going to lose a potential return of 11%, so that's how much of a discount you should apply to each.

LOCATION: 1668

Add these all up and you get not the $25,000 face value, but $15,564.92. That is the sum of the present worth of each of the expected future cash flows, including the resale. If you have made accurate projections of these cash flows and have selected an appropriate discount rate, then it is reasonable to say that the future economic benefit that you will derive from the property is worth about $15,565 today.

LOCATION: 1674

Given these cash flows occurring at these points in time, $15,565 is how much cash you, as an investor seeking an 11% return, would be willing to invest.

LOCATION: 1680

if you buy a property for all cash, then the sum of the discounted cash flows equals the value of the property, because that is how much cash you invest. If you finance the purchase, then the sum of the discounted cash flows represents the value of just your cash outlay.

LOCATION: 1683

If I know or can project the future cash flows and the proper discount rate, I can calculate the PV of my cash investment. If I know or can project the future cash flows and the PV (i.e., the amount) of my cash investment, I can calculate the discount rate, which I will then call the IRR.

LOCATION: 1698

Financial calculators can do this and so can Microsoft Excel. We provide a basic Excel model that you can download at www.realdata.com/book. You can also avail yourself of easy-to-use income-property analysis software, such as that provided by RealData.)

LOCATION: 1704

IRR is superior to most other measures of investment quality because it takes into account both the magnitude and the timing of every cash flow. A difficult concept to grasp at first, it is elegantly direct. Discount all future cash flows from the point in time when they occur back to the present using a single discount rate. When you find the unique rate that makes the sum of these discounted cash flows equal to the initial cash investment, you have found the IRR.

LOCATION: 1707

The Subtle Art of Not Giving a F*ck by Mark Manson

This set of notes, like Set for Life, is via kindle highlighting.

all the positive and happy self-help stuff we hear all the time—is actually fixating on what you lack. It lasers in on what you perceive your personal shortcomings and failures to already be, and then emphasizes them for you. You learn about the best ways to make money because you feel you don’t have enough money already. You stand in front of the mirror and repeat affirmations 

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“The smallest dog barks the loudest.” A confident man doesn’t feel a need to prove that he’s confident. A rich woman doesn’t feel a need to convince anybody that she’s rich. Either you are or you are not. 

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And if you’re dreaming of something all the time, then you’re reinforcing the same unconscious reality over and over: that you are not that. Everyone and their TV commercial wants 

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the problem is that giving too many fucks is bad for your mental health. It causes you to become overly attached to the superficial and fake, to dedicate your life to chasing a mirage of happiness and satisfaction. The key to a good life is not giving a fuck about more; it’s giving a fuck about less, giving a fuck about only what is true and immediate and important. 

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But now? Now if you feel like shit for even five minutes, you’re bombarded with 350 images of people totally happy and having amazing fucking lives, and it’s impossible to not feel like there’s something wrong with you. 

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We feel bad about feeling bad. We feel guilty for feeling guilty. We get angry about getting angry. We get anxious about feeling anxious. What is wrong with me? This is why not giving a fuck is so key. This 

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it’s going to save it by accepting that the world is totally fucked and that’s all right, because it’s always been that way, and always will be. 

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By not giving a fuck that you feel bad, you short-circuit the Feedback Loop from Hell; you say to yourself, “I feel like shit, but who gives a fuck?” And then, as if sprinkled by magic fuck-giving fairy 

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dust, you stop hating yourself for feeling so bad. George Orwell said that to see what’s in front of 

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We have so much fucking stuff and so many opportunities that we don’t even know what to give a fuck about anymore. 

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Because there’s an infinite amount of things we can now see or know, there are also an infinite number of ways we can discover that we don’t measure up, that we’re not good enough, that things aren’t as great as they could be. And this rips us apart inside. Because here’s the thing that’s wrong with 

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The desire for more positive experience is itself a negative experience. And, paradoxically, the acceptance of one’s negative experience is itself a positive experience. This is a total mind-fuck. 

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“You will never be happy if you continue to search for what happiness consists of. You will never live if you are looking for the meaning of life.” Or put more simply: Don’t try. Now, I know what you’re saying: “Mark, this is making my nipples all hard, but what about the Camaro I’ve been saving up for? 

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Notice how sometimes when you stop giving a fuck, everything seems to fall into place? What’s with that? What’s interesting about 

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The pain you pursue in the gym results in better all-around health and energy. The failures in business are what lead to a better understanding of what’s necessary to be successful. Being open with your insecurities 

paradoxically makes you more confident and charismatic around others. The pain of honest confrontation is what generates the greatest trust and respect in your relationships. Suffering through your fears and anxieties is what allows you to build courage and perseverance. 

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Everything worthwhile in life is won through surmounting the associated negative experience. 

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The avoidance of suffering is a form of suffering. The avoidance of struggle is a struggle. The denial of failure is a failure. Hiding what is shameful is itself a form of shame. 

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contrast, if you’re able to not give a fuck about the pain, you become unstoppable. 

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Same with deciding to sell most of my possessions and move to South America. Fucks given? None. Just went and did it. 

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While not giving a fuck may seem simple on the surface, it’s a whole new bag of burritos under the hood. I don’t even know what that sentence means, but I don’t give a fuck. A bag of burritos sounds awesome, so let’s just go with it. 

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Most of us struggle throughout our lives by giving too many fucks in situations where fucks do not deserve to be given. We give too many fucks about the rude gas station attendant who gave us our change in nickels. We give too many fucks when a show we liked was canceled on TV. We give too many fucks when our coworkers don’t bother asking us about our awesome weekend. Meanwhile, our credit cards are maxed out, our dog hates us, and Junior is snorting meth in the bathroom, yet we’re getting pissed off about nickels and Everybody Loves Raymond. Look, this is how it works. You’re going to 

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in the short amount of time between here and there, you have a limited amount of fucks to give. Very few, in fact. And if you go around giving a fuck about everything and everyone without conscious thought or choice— well, then you’re going to get fucked. There is a subtle art to not giving a fuck. 

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Subtlety #1: Not giving a fuck does not mean being indifferent; it means being comfortable with being different. 

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Let’s be clear. There’s absolutely nothing admirable or confident about indifference. People who are indifferent are lame and scared. They’re couch potatoes and Internet trolls. 

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indifferent because in reality they give way too many fucks. They 

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Indifferent people are afraid of the world and the repercussions of their own choices. That’s why they don’t make any meaningful choices. They hide in a gray, emotionless pit of their own making, self-absorbed 

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The question, then, is, What do we give a fuck about? What are we choosing to give a fuck about? And how can we not give a fuck about what ultimately does not matter? My mother was recently screwed out of 

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This is what is so admirable. No, not me, dumbass—the overcoming adversity stuff, the willingness to be different, an outcast, a pariah, all for the sake of one’s own values. The willingness to stare failure in the face and shove your middle finger back at it. The 

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because they reserve their fucks for only the big things that matter, people give a fuck about them in return. 

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You can’t be an important and life-changing presence for some people without also being a joke and an embarrassment to others. 

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No matter where you go, there’s a five-hundred-pound load of shit waiting for you. And that’s perfectly fine. The point isn’t to get away from the shit. The point is to find the shit you enjoy dealing with. Subtlety #2: To not give a fuck about adversity, you must first give a fuck about something more important than adversity. 

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if you don’t find that meaningful something, your fucks will be given to meaningless and frivolous causes. Subtlety #3: Whether you realize it or not, you are always choosing what to give a fuck about. 

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when we believe that it’s not okay for things to suck sometimes, then we unconsciously start blaming ourselves. We start to feel as though something is inherently wrong with us, which drives us to all sorts of overcompensation, 

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practical enlightenment as becoming comfortable with the idea that some suffering is always inevitable—that no matter what you do, life is comprised of failures, loss, regrets, and even death. Because once you become comfortable with all the shit that life throws at you (and it will throw a lot of shit, trust me), you become invincible in a sort of low-level spiritual way. After all, the only way to overcome pain is to first learn how to bear it. 

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We suffer for the simple reason that suffering is biologically useful. It is nature’s preferred agent for inspiring change. We 

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We are wired to become dissatisfied with whatever we have and satisfied by only what we do not have. This constant dissatisfaction has kept our species fighting and striving, building and conquering. So no—our own pain and misery aren’t a bug of human evolution; they’re a feature. Pain, in all of its forms, is our body’s most effective means of spurring action. 

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indication of something out of equilibrium, some limitation that has been exceeded. And like our physical pain, our psychological pain is not necessarily always bad or even undesirable. In some cases, experiencing emotional or psychological pain can be healthy or necessary. Just like stubbing our toe teaches us to walk into fewer tables, 

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problems never fucking go away, he said—they just improve. Warren Buffett’s got money problems; the drunk hobo down at Kwik-E Mart’s got money problems. Buffett’s just got better money problems than the hobo. All of life is like this. “Life is essentially an endless series of problems, Mark,” the panda told me. He sipped his drink and adjusted the little pink umbrella. “The solution to one problem is merely the creation of the next one.” 

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“Don’t hope for a life without problems,” the panda said. “There’s no such thing. Instead, hope 

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for a life full of good problems.” 

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Happiness Comes from Solving Problems 

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Problems never stop; they merely get exchanged and/or upgraded. Happiness comes from solving problems. The keyword here is “solving.” If you’re avoiding your problems or feel like you don’t have any problems, then you’re going to make yourself miserable. 

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solve. Happiness is therefore a form of action; it’s an activity, not something that is passively bestowed upon you, not something that you magically discover in a top-ten article on the Huffington Post or from any specific guru or teacher. It doesn’t magically appear when you finally make enough money to add on that extra room to the house. You don’t find it waiting for you in a place, an idea, a job—or even a book, for that matter. 

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Happiness is a constant work-in-progress, because solving problems is a constant work-in-progress—the solutions to today’s problems will lay the foundation for tomorrow’s problems, and so on. True happiness occurs only when you find the 

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problems you enjoy having and enjoy solving. 

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1. Denial. Some people deny that their problems exist in the first place. And because they deny reality, they must constantly delude or distract themselves from reality. This may make them feel good in the short term, but it leads to a life of insecurity, neuroticism, and emotional repression. 2. Victim Mentality. Some choose to believe that there is nothing they can do to solve their problems, even when they in fact could. Victims seek to blame others for their problems or blame outside circumstances. This may make them feel better in the short term, but it leads to a life of anger, helplessness, and despair. 

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Remember, nobody who is actually happy has to stand in front of a mirror and tell himself that he’s happy. Highs also generate addiction. The more you rely on them to feel better about your underlying problems, the more you will seek them out. 

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A fixation on happiness inevitably amounts to a never-ending pursuit of “something else”—a new house, a new relationship, another child, another pay raise. And despite all of our sweat and strain, we end up feeling eerily similar to how we started: inadequate. Psychologists sometimes refer to this concept as the “hedonic treadmill”: the idea that we’re always working hard to change our life situation, but we actually never feel very different. This is why our problems are recursive 

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We like the idea that there’s some form of ultimate happiness that can be attained. We like the idea that we can alleviate all of our suffering permanently. We like the idea that we can feel fulfilled and satisfied with our lives forever. But we cannot. 

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the solution lies in the acceptance and active engagement of that negative experience—not 

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People want to start their own business. But you don’t end up a successful entrepreneur unless you find a way to appreciate the risk, the uncertainty, the repeated failures, the insane hours devoted to something that may earn absolutely nothing. 

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The more interesting question is the pain. What is the pain that you want to sustain? That’s the hard question that matters, the question that will actually get you somewhere. It’s the question that can change a perspective, a life. It’s what makes me, me, and you, you. It’s what defines us and separates us and ultimately brings us together. For most of my adolescence and young adulthood, 

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it took me a long time and a lot of struggle to finally figure out why: I didn’t actually want it. I was in love with the result—the image of me on stage, people cheering, me rocking out, pouring my heart into what I was playing —but I wasn’t in love with the process. And because of that, I failed at it. Repeatedly. Hell, I didn’t even try hard enough to fail at it. I hardly tried at all. The 

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See: it’s a never-ending upward spiral. And if you think at any point you’re allowed to stop climbing, I’m afraid you’re missing the point. Because the joy is in the climb itself. 

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Jimmy is entitled. That is, he feels as though he deserves good things without actually earning them. He believes he should be able to be rich without actually working for it. He believes he should be liked and well-connected without actually helping anyone. He believes he should have an amazing lifestyle without actually sacrificing anything. 

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Entitled people exude a delusional degree of self-confidence. This confidence can be alluring to others, at least for a little while. In some instances, the entitled person’s delusional level of confidence can become contagious and help the people around the entitled person feel more confident in themselves too. Despite all of Jimmy’s shenanigans, I have to admit that it was fun hanging out with him sometimes. You felt indestructible around him. But the problem with entitlement is that it makes people need to feel good about themselves all the time, even at the expense of those around them. And because entitled people always need to feel good about themselves, they end up spending most of their time thinking about themselves. After all, it takes a lot of energy and work to convince yourself that your shit doesn’t stink, especially 

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it’s extremely hard to break them out of it. Any attempt to reason with them is seen as simply another “threat” to their superiority by another person who “can’t handle” how smart/talented/good-looking/successful they are. 

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The true measurement of self-worth is not how a person feels about her positive experiences, but rather how she feels about her negative experiences. A person like Jimmy hides from his problems by making up imagined successes for himself at every turn. And because he can’t face his problems, no matter how good he feels about himself, he is weak. A person who actually has a high self-worth is able to look at the negative parts of his character frankly—“Yes, sometimes I’m irresponsible with money,” “Yes, sometimes I exaggerate my own successes,” “Yes, I rely too much on others to support me and should be more self-reliant”—and then acts to improve upon them. 

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happen. If we have problems that are unsolvable, our unconscious figures that we’re either uniquely special or uniquely defective in some way. That we’re somehow unlike everyone else and that the rules must be different for us. Put simply: we become entitled. 

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Because construing everything in life so as to make yourself out to be constantly victimized requires just as much selfishness as the opposite. It takes just as much energy and delusional self-aggrandizement to maintain the belief that one has insurmountable problems as that one has no problems at all. 

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The more freedom we’re given to express ourselves, the more we want to be free of having to deal with anyone who may disagree with us or upset us. The more exposed we are to opposing viewpoints, the more we seem to get upset that those other viewpoints exist. The easier and more problem-free our lives become, the more we seem to feel entitled for them to get even better. The benefits of the Internet and social media are 

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To become truly great at something, you have to dedicate shit-tons of time and energy to it. And because we all have limited time and energy, few of us ever become truly exceptional at more than one thing, if anything at all. 

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We’re all, for the most part, pretty average people. But it’s the extremes that get all of the publicity. We 

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All day, every day, we are flooded with the truly extraordinary. The best of the best. The worst of the worst. The greatest physical feats. The funniest jokes. The most upsetting news. The scariest threats. Nonstop. Our lives today are filled with information from the extremes of the bell curve of human experience, because in the media business that’s what gets eyeballs, and eyeballs bring dollars. 

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The ticket to emotional health, like that to physical health, comes from eating your veggies—that is, accepting the bland and mundane truths of life: truths such as “Your actions actually don’t matter that much in the grand scheme of things” and “The vast majority of your life will be boring and not noteworthy, and that’s okay.” 

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the knowledge and acceptance of your own mundane existence will actually free you to accomplish what you truly wish to accomplish, without judgment or lofty expectations. You will have a growing appreciation for life’s basic experiences: the pleasures of simple friendship, creating something, helping a person in need, reading a good book, laughing with someone you care about. Sounds boring, doesn’t it? That’s because these things are ordinary. But maybe they’re ordinary for a reason: because they are what actually matters. CHAPTER 4 The Value of Suffering In the closing months of 1944, after almost a decade of war, the tide was turning against Japan. 

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Values underlie everything we are and do. If what we value is unhelpful, if what we consider success/failure is poorly chosen, then everything based upon those values—the thoughts, the emotions, the day-to-day feelings— will all be out of whack. Everything we 

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think and feel about a situation ultimately comes back to how valuable we perceive it to be. Most people are horrible at 

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Most self-help gurus ignore this deeper level of self-awareness as well. They take people who are miserable because they want to be rich, and then give them all sorts of advice on how to make more money, all the while ignoring important values-based questions: Why do they feel such a need to be rich in the first place? How are they choosing to measure success/failure for themselves? Is it not perhaps some particular value that’s the root cause of their unhappiness, and not the fact that they don’t drive a Bentley yet? 

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Our values determine the metrics by which we measure ourselves and everyone else. Onoda’s value of loyalty to the Japanese empire 

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If you want to change how you see your problems, you have to change what you value and/or how you measure failure/success. 

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Shitty Values There are a handful of common values that create really poor problems for people—problems that can hardly be solved. So let’s go over some of them quickly: 1. Pleasure. Pleasure is great, but it’s a horrible value to prioritize your life around. Ask any drug addict how his pursuit of pleasure turned out. 

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2. Material Success. Many people measure their self-worth based on how much money they make or what kind of car they drive or whether their front lawn is greener and prettier than the next-door neighbor’s. Research shows that once one is able 

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3. Always Being Right. Our brains are inefficient machines. We consistently make poor assumptions, misjudge probabilities, misremember facts, give in to cognitive biases, and make decisions based on our emotional whims. As humans, we’re wrong pretty much constantly, 

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Denying negative emotions leads to experiencing deeper and more prolonged negative emotions and to emotional dysfunction. Constant positivity is a form of avoidance, not a valid solution to life’s problems— problems 

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Negative emotions are a necessary component of emotional health. To deny that negativity is to perpetuate problems rather than solve them. The trick with negative emotions is to 1) express them in a socially acceptable and healthy manner and 2) express them in a way that aligns with your values. Simple 

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Problems add a sense of meaning and importance to our life. Thus to duck our problems is to lead a meaningless (even if supposedly pleasant) existence. 

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telling our grandkids about them. As Freud once said, “One day, in retrospect, the years of struggle will strike you as the most beautiful.” 

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Some of the greatest moments of one’s life are not pleasant, not successful, not known, and not positive. The point is to nail down some 

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people who are terrified of what others think about them are actually terrified of all the shitty things they think about themselves being reflected back at them.) 

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Some examples of good, healthy values: honesty, innovation, vulnerability, standing up for oneself, standing up for others, self-respect, curiosity, charity, humility, creativity. 

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This, in a nutshell, is what “self-improvement” is really about: prioritizing better values, choosing better things to give a fuck about. Because when you give better fucks, you get better problems. And when you get better problems, you get a better life. 

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The first, which we’ll look at in the next chapter, is a radical form of responsibility: taking responsibility for everything that occurs in your life, regardless of who’s at fault. The second is uncertainty: the acknowledgement of your own ignorance and the cultivation of constant doubt in your own beliefs. The next is failure: the willingness to discover your own flaws and mistakes so that they may be improved upon. The fourth is rejection: the ability to both say and hear no, thus clearly defining what you will and will not accept in your life. The final value is the contemplation of one’s own mortality; this one is crucial, because paying vigilant attention to one’s own death is perhaps the only thing capable of helping us keep all our other values in proper perspective. CHAPTER 5 You Are Always Choosing Imagine that somebody puts a gun to your head and tells you that you have to run 26.2 miles in under five hours, or else he’ll kill you and your entire family. 

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Often the only difference between a problem being painful or being powerful is a sense that we chose it, and that we are responsible for it. If you’re miserable in your current situation, 

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When we feel that we’re choosing our problems, we feel empowered. When we feel that our problems are being forced upon us against our will, we feel victimized and miserable. 

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This is the realization that we, individually, are responsible for everything in our lives, no matter the external 

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circumstances. We don’t always control 

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what happens to us. But we always control how we interpret what happens to us, as well as how we respond. 

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Don’t trust your conception of positive/negative experiences. All that we know for certain is what hurts in the moment and what doesn’t. And that’s not worth much. Just as we look back 

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We are biased toward the meaning our mind has made, and we don’t want to let go of it. Even if we see evidence that contradicts the meaning we created, we often ignore it and keep on believing anyway. The comedian 

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Many or even most of our values are products of events that are not representative of the world at large, or are the result of a totally misconceived past. 

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Evil people never believe that they are evil; rather, they believe that everyone else is evil. In controversial experiments, now 

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The problem here is that not only is certainty unattainable, but the pursuit of certainty often breeds more (and worse) insecurity. 

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Parkinson’s law: “Work expands so as to fill up the time available for its completion.” 

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The more something threatens your identity, the more you will avoid it. That means the more something threatens to change how you view yourself, how successful/unsuccessful you believe yourself to be, how well you see yourself living up to your values, the more you will avoid ever getting around to doing it. 

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There’s a certain comfort that comes with knowing how you fit in the world. Anything that shakes up that comfort—even if it could potentially make your life better—is inherently scary. 

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This is why people are often so afraid of success—for the exact same reason they’re afraid of failure: it threatens who they believe themselves to be. You avoid writing that screenplay you’ve always dreamed of because doing so would call into question your identity as a practical insurance adjuster. 

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These are good, important opportunities that we consistently pass up because they threaten to change how we view and feel about ourselves. They threaten the values that we’ve chosen and have learned to live up to. I had a friend who, for the longest 

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In this way, “knowing yourself” or “finding yourself” can be dangerous. It can cement you into a strict role and saddle you with unnecessary expectations. It can close you off to inner potential and outer opportunities. I say don’t find yourself. I say never know who you are. Because that’s what keeps you striving and discovering. And it forces you to remain humble in your judgments and accepting of the differences in others. 

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Buddhism argues that your idea of who “you” are is an arbitrary mental construction and that you should let go of the idea that “you” exist at all; that the arbitrary metrics by which you define yourself actually trap you, and thus you’re better off letting go of everything. In a sense, you could say that Buddhism encourages you to not give a fuck. 

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Choose to measure yourself not as a rising star or an undiscovered genius. Choose to measure yourself not as some horrible victim or dismal failure. Instead, measure yourself by more mundane identities: a student, a partner, a friend, a creator. The narrower and 

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Here are some questions that will help you breed a little more uncertainty in your life. 

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Question #1: What if I’m wrong? 

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Question #2: What would it mean if I were wrong? 

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Aristotle wrote, “It is the mark of an educated mind to be able to entertain a thought without accepting it.” Being able to look at and evaluate different values without necessarily adopting them is perhaps the central skill required in changing one’s own life in a meaningful way. 

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Question #3: Would being wrong create a better or a worse problem than my current problem, for both myself and others? This is the litmus test for determining whether we’ve got some pretty solid values going on, or we’re totally neurotic fuckwads taking our fucks out on everyone, including ourselves. The goal here is to look at which problem is better. 

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I try to live with few rules, but one that I’ve adopted over the years is this: if it’s down to me being screwed up, or everybody else being screwed up, it is far, far, far more likely that I’m the one who’s screwed up. I have learned this from experience. 

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That’s simply reality: if it feels like it’s you versus the world, chances are it’s really just you versus yourself. 

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You could make plenty of money and be miserable, just as you could be broke and be pretty happy. Therefore, why use money as a means to measure my self-worth? 

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With this value, to not pursue my own projects became the failure—not a lack of money, not sleeping on friends’ and family’s couches (which I continued to do for most of the next two years), and not an empty résumé. 

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the magnitude of your success is based on how many times you’ve failed at something. If someone is better than you at something, then it’s likely because she has failed at it more than you have. 

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If you think about a young child trying to learn to walk, that child will fall down and hurt itself hundreds of times. But at no point does that child ever stop and think, “Oh, I guess walking just isn’t for me. I’m not good at it.” Avoiding failure is something we learn at some later point in life. I’m 

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At some point, most of us reach a place where we’re afraid to fail, where we instinctively avoid failure and stick only to what is placed in front of us or only what we’re already good at. This confines us and stifles us. We can be truly successful only at something we’re willing to fail at. If we’re unwilling to fail, then we’re unwilling to succeed. A lot of this fear of failure comes from having chosen shitty values. For 

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If your metric for the value “success by worldly standards” is “Buy a house and a nice car,” and you spend twenty years working your ass off to achieve it, once it’s achieved the metric has nothing left to give you. Then say hello to your midlife crisis, because the problem that drove you your entire adult life was just taken away from you. There are no other opportunities to keep growing and improving, and yet it’s growth that generates happiness, not a long list of arbitrary achievements. 

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In this sense, goals, as they are conventionally defined—graduate from college, buy a lake house, lose fifteen pounds—are limited in the amount of happiness they can produce in our lives. They may be helpful when pursuing quick, short-term benefits, but as guides for the overall trajectory of our life, they suck. 

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For many of us, our proudest achievements come in the face of the greatest adversity. Our pain often makes us stronger, more resilient, more grounded. 

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Dabrowski argued that fear and anxiety and sadness are not necessarily always undesirable or unhelpful states of mind; rather, they are often representative of the necessary pain of psychological growth. And to deny that pain is to deny our own potential. Just as one must suffer physical pain to build stronger bone and muscle, one must suffer emotional pain to develop greater emotional resilience, a stronger sense of self, increased compassion, and a generally happier life. Our most radical changes in perspective often happen at the tail end of our worst moments. It’s only when we feel intense pain that we’re willing to look at our values and question why they seem to be failing us. We need some sort of existential crisis to take an objective look at how we’ve been deriving meaning in our life, and then consider changing course. You could call it “hitting bottom” or “having an existential crisis.” I prefer to call it “weathering the shitstorm.” Choose what suits you. 

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can’t stress this enough, but pain is part of the process. It’s important to feel it. Because if you just chase after highs to cover up the pain, if you continue to indulge in entitlement and delusional positive thinking, if you continue to overindulge in various substances or activities, then you’ll never generate the requisite motivation to actually change. When I was young, any time my family got 

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Life is about not knowing and then doing something anyway. All of life is like this. It never changes. Even when you’re happy. Even when you’re farting fairy dust. Even when you win the lottery and buy a small fleet of Jet Skis, you still won’t know what the hell you’re doing. Don’t ever forget that. And don’t ever be afraid of that. 

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Action isn’t just the effect of motivation; it’s also the cause of it. Most of us commit to action only if we feel a certain level of motivation. And we feel motivation only when we feel enough emotional inspiration. We assume that these steps occur in a sort of chain reaction, like this: Emotional inspiration → Motivation → Desirable action 

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The thing about motivation is that it’s not only a three-part chain, but an endless loop: Inspiration → Motivation → Action → Inspiration → Motivation → Action → Etc. Your actions create further emotional reactions and inspirations and move on to motivate your future actions. Taking advantage of this knowledge, we can actually reorient our mindset in the following way: Action → Inspiration → Motivation 

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If we follow the “do something” principle, failure feels unimportant. When the standard of success becomes merely acting—when any result is regarded as progress and important, when inspiration is seen as a reward rather than a prerequisite—we propel ourselves ahead. We feel free to fail, and that failure moves us forward. The “do something” principle not only helps us overcome procrastination, but it’s also the process by which we adopt new values. 

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There’s a bluntness to Russian culture that generally rubs Westerners the wrong way. Gone are the fake niceties and verbal webs of politeness. You don’t smile at strangers or pretend to like anything you don’t. In Russia, if something is stupid, you say it’s stupid. If someone is being an asshole, you tell him he’s being an asshole. If you really like someone and are having a great time, you tell her that you like her and are having a great time. It doesn’t matter if this person is your friend, a stranger, or someone you met five minutes ago on the street. The first week I found all of this really uncomfortable. 

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The downside of this is that you never know, in the West, if you can completely trust the person you’re talking to. Sometimes this is the case even among good friends or family members. There is such pressure in the West to be likable that people often reconfigure their entire personality depending on the person they’re dealing with. 

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To truly appreciate something, you must confine yourself to it. There’s a certain level of joy and meaning that you reach in life only when you’ve spent decades investing in a single relationship, a single craft, a single career. And you cannot achieve those decades of investment without rejecting the alternatives. The act of choosing a value 

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for yourself requires rejecting alternative values. If 

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The point is this: we all must give a fuck about something, in order to value something. And to value something, we must reject what is not that something. To value X, we must reject non-X. 

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The desire to avoid rejection at all costs, to avoid confrontation and conflict, the desire to attempt to accept everything equally and to make everything cohere and harmonize, is a deep and subtle form of entitlement. Entitled people, because they feel as though they deserve to feel great all the time, avoid rejecting anything because doing so might make them or someone else feel bad. And because they refuse to reject anything, they live a valueless, pleasure-driven, and self-absorbed life. All they give a fuck about is sustaining the high a little bit longer, to avoid the inevitable failures of their life, to pretend the suffering away. Rejection is an important and crucial life skill. Nobody wants to be stuck in a relationship that isn’t making them happy. Nobody wants to be stuck in a business doing work they hate and don’t believe in. Nobody wants to feel that they can’t say what they really mean.

The AirBnB Expert's Playbook by Scott Shatford

Rental Arbitrage - The strategy of renting high end apartments or houses long term (1 year or more) and then re-renting on AirBnB at a higher rate.

EX:  Rent an apartment for $3,000 per month for 1 year ($36,000 per year).  Get AirBnB insurance ($2k - $3k per year) and some furniture (about $1,500 per room… 1 room with living area and 1 bath = $5,000).  Re-rent the same apartment at $250 per night (nice hotel cost in a city) at a 90% occupancy rate for a total of $6,750 ($81,000 per year).

$81,000 (income)

-$2,430 (3% AirBnB service fee)

-$36,000 (rent)

-$3,000 (AirBnB renters / liability insurance)

-$7,000 (furniture… $1,500 BR, $250 BA, $2,750 living, $1,500 kitchen)

= $32,570 profit

Even with a low 65% occupancy rate the income is $59,300 for a $10,870 profit annually.  Plus furniture is only a one time expense and should last 3-5 years.

Find a successful AirBnB property and replicate it using AirDnA as a baseline.

Biggest problem with Rental Arbitrage is that most apartments won’t let you sublease… how to find ones that do:

• Approach smaller PMs or mom and pop landlords.

• Outsource the landlord duties to the PM for a profit per booking.

• Be professional and treat this as a business - not a side hustle or hobby.

• Live-in the apartment and sublease one room, instead of the entire place.

• Offer a longer lease option 2-3 years instead of 1 year.  Option-lease contracts...

Only use AirBnB and FlipKey… VRBO charges an annual fee.  So does Homeaway and Vacation Rentals.

VRBO and HomeAway are better for longer stays (like 2 weeks, 1 month, 3 months, etc.) or for high value homes, because it’s a set annual fee rather than a service fee.

AirBnB offers more value / less work for your time.  Automatic easy bookings, auto price fluctuations, best marketing / SEO, most popular, best review system,  etc. 

***Strategy:  Travel out of your town in peak season or during an annual event and when you are gone, rent out your place for a lot of money.

Need good, bright photos.  Nice smiling profile photos.  Highlight property location with specifics EX:  WATERFRONT 1 mile from beach with INDOOR POOL

Make sure your property is unique!  If it doesn’t have a luxury location or feature - make the place quirky or comical and use this in your headline.

Four Elements of an effective AirBnB listing:

1. Eye Catching Headline

2. Punchy Descriptions

   1. What are the 5 best selling points in 50 words - bullet points.

   2. Add more detail later - make appliances appear high end by using their brand names.

   3. Offer items unique to the area (ie: kayaks, paddle boards, bikes, etc. for an extra fee)

   4. Create a sense of urgency with a call to action.

3. Beautiful Photos

   1. Single most important selling tool of your property.

      1. Bright and airy rooms.

      2. Use a wide angle lens from the corner of the room.

      3. Close up arranged / staged shots.

      4. Incredible views or amenities.

      5. Air BnB will send a photographer for a free session.

   2. Air BnB allows three main / profile photos.

      1. Use your biggest room or eye catcher first (indoor pool).

      2. Second photo should be master bedroom.

      3. Cool outdoor space, awesome kitchen, fire pit, pool, awesome view, etc. for third.  Something unique.

         1. Following photos should be presented in order of front door to back, to show guests a sequential walk around of the house.

         2. Don’t take multiple photos of the same room with different angles, less is more.

         3. 12 photos or less.

         4. Use colorful accents (glass of wine, flowers, cheese plate, nicely folded towels, etc. - beautiful photos are key)

4. Effective Personal Profiles.

   1. Your profile photo should exude personality, reliability, professionalism and honesty.

Six Tricks to Boost your AirBnB search results:

1. Respond quickly to every inquiry - link your airbnb inbox to your phone, because you must respond within an hour to be a first page “Superhost”... even if response is just, “let me get back to you shortly”

2. Re-price and keep your calculator up to date on a weekly basis.

3. Enable “instant book”... you can vet individuals after they book if they look like they might trash your house.

4. Link your social media accounts.

5. Optimize listings for google search (SEO friendly headline).

   1. Must be location and accommodation specific (not “Bungalow in Paradise”

6. Share your listing on social media and websites.

How to Price your AirBnB

• Use AirDnA

• Use another algorithm like Elliotandme

• Do your own CMA:

  • Pick 5 similar properties to yours on AirBnB (make sure all have at least 10 reviews)

  • Check their calendar to see what their forward occupancy rates are.

  • Do they increase pricing on weekends?

  • What is the daily rate / weekly rate / monthly rate?

  • What are the peak seasons?

  • Create a comparison spreadsheet comparing mid-week vs. weekend pricing and comparing peak season to off-season.

• Don’t trust AirBnB’s suggested rate right away. You need to undercut the competition to get some reviews when first starting out… suggestion to start at 75% what you expect to rent for until reviews come in - also the suggested rate is inaccurate.

How to find your daily rates for maximum occupancy / profit:

***TIP:  IF you have 25% or more booked more than 3 months out, you need to raise your prices.

AirBnB notes price deductions and improves a listing’s visibility in response.  Reducing listings by just 5 dollars per week can make a big impact. - Actively manage your pricing.

Researching hotel prices is another great way to match your property up against the competition.

Suggested Cleaning Fees:

Private Room:  $30 - $50

1 Bedroom:  $60 - $80

2 Bedrooms:  $80 - $100

3 Bedrooms:  $100 - $140

4+ Bedrooms:  $140 - $200

Minimum Stay Requirements:

Generally only allow 1 or 2 night stays on short notice (within 30 days)

3-4 day minimums are better more than 30 days in advance.

Security Deposit:Don’t charge one, you have insurance.  Creates a barrier to entry / booking.

Additional Guests:

Don’t charge an additional guest fee, but do have a maximum number of guests allowed.

TIPS:Get a calendar of local events in your area and jack up the prices for these events.

You can set different minimum night requirements during different seasons or during events (recommended min. 5 nights in peak season or during events).

Make your base rate your lowest acceptable rate (about 25% of your average rate).  Users who don’t specify a date range when searching will see this “base rate.” A little bait and switch doesn’t hurt on AirBnB.

Don’t accept reservations more than 12 months in advance.  Try to keep them longer than 3 days and make sure to boost weekend pricing.

DECORATIONS

Select an authentic theme… appeal to the greatest number of people at the lowest cost.  Use neutral colors or a themed color throughout the house.  

Always have a futon or sleeper sofa in the living room to fit more people.  Always use king sized beds, unless you have a kids room, then use twin beds.  Think of a cot or blow up mattress (or murphy bed). Always maximize your guest space.

Add potpurri near the entrance to make the place smell better.  Have a doormat. Have extra outlets on hand.

Put away personal belongings and keep the property anonymous.

Use Ikea, Amazon, Costco, Urbanhome and Court for furniture.   

Don’t use cable, just get an Apple TV and hook it up to the smart TV.

Don’t let people host parties or filming sessions.

Create a sense of urgency when people email about an opening by saying something like, “It is open at the moment.  I’ve been communicating with someone else today who is interested, but hasn’t confirmed their reservation yet.”

Don’t give discounts - stay steadfast on your price, if anything discount the cleaning fee.

AirBnB tries to stop you from providing personal contact info - for phone numbers in messages put 636 and 345 and 0418 or $636 $345 $0418 if you need to contact them, don’t contract them outside of the system…

Or tell the user to search your property name and find your website… don’t use word “google”

Try to get and give guest info. When they sign in (sign-in book) in and give contact info. For repeat business.

REFUNDS

Go with a strict refund policy on AirBnB (50% refund up to a week prior to arrival, excluding service fees).

Offer refund options if the cancellation is beyond the client’s control:

Option 1:  Refund on days booked by another renter or offer a significant discount if they re-book with you at a later date.

If you need to cancel as the landlord, make sure you have a good reason and can tell the resolution center (ie:  Sewage issue, hurricane damage, etc.)

Reviews:

Six Review Critera on AirBnB (Accuracy, Cleanliness, Communication, Location, Value, Check-In)

Reviews are not made public until both parties leave a review.  Only review people you expect to receive 5 star reviews from. Review 10 days or so after departure.

Never write negative reviews, if you don’t have anything good to say - say nothing.  If it was a bad experience, never be the first person to leave a review.

Reach out to your guest within a couple hours of their check-in and ask something like, “How are you settling in?  Let me know if there is anything I can assist you with.”

Send a personal note just after check-out thanking them for their cleanliness and wishing them well in their travels.  In this note ask them if there is anyway you can improve and emphasize the impact of positive reviews on their business… give a discount for return visitors who leave positive reviews.

“Thanks for staying with me, and please let me know if there was anything missing or that can be improved upon.  I’m alway making an effort to improve my guests’ experience. Your review on Airbnb has a tremendous impact on my ability to continue on Airbnb.  If you would please let me know any areas of improvement - privately - I will ensure it is taken care of for future guests.”

Biggest concerns for most people are cleanliness and the ease of the check-in process.

PROPERTY MANAGEMENT TIPS

Sync Airbnb calendar to Google Calendar - then you can share all of your booking details directly to your support. (cleaners, handymen, etc.)

Leave a bowl of fruit or some granola bars on the counter with a nice card and a bottle of wine for every host.

Hire a cleaner who will replace shampoo bottles, trash bags etc. with new.

Create a guest book telling how to operate the TV, the thermostat, where the trash is located, where to put recyclables, the wifi password (first page), nearby grocery stores, pharmacies and good restaurants, bars, etc.

REPLACE EVERY SIX MONTHS:  Linens, towels, waste baskets, hair dryers (if over used).

Entrance devices:  Lockitron and Kwikset are good.

INSURANCE:

Need Property Insurance, Landlord Insurance and Renters Insurance… There are comprehensive airbnb insurance policies.

TAX WRITE-OFFS:Rent, Utilities, Cleaning Supplies, Cleaning Fees, New Furnishings (50% first year), Home Office Space, Local Travel (gas and vehicle expenses), Interest on mortgage or CCs, Depreciation, Repairs, Insurance, Legal and Professional Services

Airbnb will provide you a 1099 at the end of the year.

Set up your own bank account and business (LLC - taxed as an S Corp) prior to renting

Retire Young Retire Rich by Robert Kiyosaki

The Million Dollar Question:

• How can I do what I do for more people with less work and for a better price?

• How to come up with business ideas:

  • How can I become rich by working for free?

  • How can I build, buy and create assets?

• Wealth Ratio:

  • Monthly Passive Income + Monthly Portfolio Income / Total Monthly Expenses

    • Once you reach 1+, you are out of the rat race.

• Debt / Equity Ratio:

  • You want to see this number shrink.

• Metcalfe’s Law:

  • Economic Power is the square root of the number of the network:

    • Ex:  Number of franchises:

      • 2 franchises doubles the power and earnings of the company.

• Employee Interviews:

  • Don’t ask about benefits, if people do - stay clear.

  • Good candidates - ask how they can help the business grow.

• How to pay out your business:

  • Who gets paid first and most:

    • 1.  Asset (business or investment)

    • 2.  Employees

    • 3.  Specialists

    • 4.  Investors

    • 5.  Business Owner

  • Work to build the asset, not to make money.

• Things you NEED to do to become rich:

  • 1.  Hire a bookkeeper:

    • Financial statements are necessary to receive large loans / bonds.

    • Owner should review financials at least once per month.

  • 2.  Create a winning team:

    • Don’t keep money problems or plans a secret, discuss them openly with your team.

    • Borrow money at low interest rates and invest it at a higher return (real estate).

  • 3.  Constantly expand your context and content.

  • 4.  Keep Growing Up:

    • Take care of yourself, don’t assume other will.

    • Don’t assume the market will stay bull.

  • 5.  Be willing to fail more:

    • Destroy fear by thinking of the things you want.

• Stock Market Advice:

  • Have an Entrance and an Exit Strategy when investing in the stock market.

    • Only a loser stays forever losing everything, instead of knowing when to take a loss and walking away from a bad investment.

  • Investor - buys to hold

  • Trader - buys to sell

    • “An investor buys a cow for milk and for calves; a trader buys a cow to slaughter.”

  • Fundamental Investor:  Follows a company, management team, business potential and finances.

  • Technical Investor:  Follows market trends and charts.

  • Notes:

    • Keep your money moving - don’t buy and hold in stocks.

    • Be your own market - follow market trends.

      • Buy low and sell high.

    • Use saddles - hedge your investments to protect from losses.

    • Place a 10-15% stop loss on your stocks.

      • Don’t leave your stocks naked to a bear market or recession / depression.

    • Large Cap:  Take 25% of your original investment out of stocks when they are up 25% from the original investment.

      • Cramer says to do this when stock doubles.

    • Small Cap:  Take 50% out to recoup original investment when up 50%.

• OPTIONS:

  • Allow you to make more money with less at risk.

    • The rich do NOT want to own anything - they only want to CONTROL.

  • Call Options:

    • If you expect the market to rise.

  • Put Options:

    • If you expect the market to fall or want to stop risk of losing.

      • Lock your price in at the right to sell at the current market rate for a small fee.  If the market goes down use the option to sell, then re-buy your stock at the lower rate - you keep the difference.

  • Straddles / Collars:

    • Using both a call and a put option on a stock to protect an investment both ways.

    • Can straddle a short of a $50 stock buy using a call option for $51 and sell the call option and short at different times. - Make money no matter what this way.

  • SOPHISTICATED INVESTORS:  Prefer to trade options rather than stocks.

    • Faster money and less risk (one option is for 100 shares)

  • Shorts are NOT options.

    • Shorts:  Trading / Selling stock you do NOT own.

    • When to short a stock?

      • If you feel a stock is overvalued and about to drop - short.

    • Borrow someone’s stock, sell it, then re-buy it at the lower point - pocket the difference.  

    • “Covering the short position”

      • Re-buying the stock.

  • Naked Put Options:

    • A naked put option at $40, current price is $45.

      • You get $5 per share covered, but have to buy all the shares at $45 it the naked put drops to $40.

      • If the put option does not drop to $40, you get to keep the $5 per option (remember options are contracts for 100 shares) as it expires within a certain time frame.

      • 85% of naked put options expire without being exercised.

        • Make sure you have the money to cover, just in case.

        • Make sure you like the stock, in case you have to cover.

  • “Naked” - you do not own the stocks you are optioning.

  • “Covered” - you do own the stocks you are optioning.

• Real Estate:

  • Your profit is made when you buy, not when you sell.

  • Use a home equity loan or reverse mortgage to your advantage.

    • Use this when a house appreciates, to extract money for more investments.

  • RATIOS:  See 100 properties, make an offer on 10 properties, have 3 sellers say yes and buy one.

  • Browse even when you don’t have money - keep learning.  Know the market.

  • Don’t invest in a place with an HOA - not enough control of your investment.

  • Use Price to Rent ratios to find good markets.

• Rule of 72:

  • 72 / Interest Rate = Annual Growth %

    • How long it takes an investment to double.

• Marine List of Priorities:

  • Mission

  • Team

  • Individual

• Believe you will be rich and tell yourself everyday.

• 11 TIPS TO BECOME RICH:

  • 1.  Decide:

    •  to be rich and expand your context of reality.

  • 2.  Friends and Family:

    • Surround yourself with only supportive and positive people - no critics.

  • 3.  Team:

    • Build a successful team of assets.

      • People can be assets or liabilities too.

  • 4.  Set a Retirement Date:

    • Discuss with loved ones and advisors - have a plan.

    • Do this meeting quarterly.

  • 5.  Plan:

    • Create a plan - on paper.

      • Update and review the plan as you progress.

  • 6.  Plan your early Retirement Party:

    • Motivation.

  • 7.  Look at One Deal per Day:

    • Read articles about money.

    • Look at stock / options shopping.

    • Look at properties.

    • Got to investment seminars.

    • Boost financial IQ.

  • 8.  Follow Market Trends:

    • Invest with the trend, not for the “long haul.”

      • Better use of funds, strategies base on trends.

      • Money is just an idea.

  • 9.  Words / Vocab is Free:

    • To be rich, must understand the vocab associated with investing.

  • 10.  Talk about Money:

  • 11.  Make a Million Out of Nothing or Virtually Nothing:

    • An entrepreneur can make money out of nothing.

      • Loans

      • Math to make money

      • More work

      • Less expensive

Buying Real Estate without Cash or Credit by Peter Conti & David Finkel

• There is no safety in playing life safe - really playing it safe is the most risky investment strategy of all.

  • The first months before you make your first deal are the hardest.

    • The first thing you have to do is convince yourself, you are an investor.

    • Too many wannabe investors spend their lives avoiding taking action that will make them money in real estate, because they are afraid of failure.

• Winning Deal Formula

  • 10% Property and Location

  • 30% Financing (Price and Terms)

    • You make your profit when you buy (not when you sell) - then harvest the profit when you sell.

  • 60% Seller Motivation (why is the seller selling the property?)

    • Foundation of all great Real Estate deals.

  • KEY #1:  Find a seller who has strong motivation to sell.

    • The single greatest time waster in real estate is trying to make a deal with a non-motivated seller.

    • Having a motivated seller creates the motivation and situation for a win-win deal.

      • Motivation - Compelling reason to sell and a time crunch.

      • Situation - Seller has a lot of equity or doesn’t need to cash out immediately.

        • Enough equity allows them to provide a discount.

        • If they don’t need all cash, they can participate in financing with a terms deal.

        • Ex:  Is a deal for a new house contingent on selling the old house?  Do they need the cash for their next down payment or house?

• Financing:

  • To make money on a deal, you need to either purchase the property at a steep cash discount or get great financing terms.

    • The right price / terms and financing guarantees you a profit.

• Dialing:

  • Recommends dialing direct to the home owner (FSBO) to find deals with motivated sellers - find out the seller’s motivation.

  • On an average of 20 dials:

    • 10 go to the owner.

    • 2-3 pass the Quickcheck - see book for questions / scripts (P. 29)

    • 1-2 are motivated sellers (5-10%)

  • Let the seller know you are a buyer - but don’t sound too smooth on the phone, you don’t want the seller to think you are taking advantage of them.

• Five fastest ways to find Real Estate Deals:

  • 1.  Dials

    • 100 calls each week for 90 days (use scripts - P. 42)... 20 calls at a time.

  • 2.  “I buy houses” signs with phone number and email.  

    • Put in areas of interest.

  • 3.  “I buy houses” ad in classifides (paper, zillow, websites, craigslist)

  • 4.  Post Card Campaign (mailers)

    • To people who own properties - or use a probate list.

    • Use google voice

  • 5.  Ask friends for referrals.

• How to get over the “I”m not an investor” self negging:

  • Buy business cards

  • Put signs on your car

• 3 Steps to Any Real Estate Deal:

  • 1.  Find a Motivated Seller - 

    • You bring value to the deal by helping the seller solve a pressing real estate problem.

  • 2.  Meet with the Seller to Structure the Deal - 

    • Must meet the seller’s most important needs and have a conservative profit for you (the buyer)

  • 3.  Execute your Exit Strategy for the Property - 

    • Sell to a new buyer or begin renting the property out. (buy and hold)

• Cash Deal - No more than 70% of its “as is” value.  (NOTE: Many say ARV - After Repair Value).

  • “As is” value - ARV - the cost to get the house in 8/10 (B) condition.

  • Is the seller receiving all of their money at closing?  - if yes, then it’s a “Cash Deal.”

• Terms Deal - Property must pay for itself and have profit built in from day 1 (don’t depend on appreciation… appreciation should be icing on the cake, not built into profit formula).

• Buying With Cash:

  • Money can be yours or borrowed from a third party (family / friend / bank).

  • Cash deals are more risky than terms deals - because you get a lot of money tied up into the property.

  • Smart investors never speculate, they buy intelligently, so they make money no matter what happens.

  • Ideally, a deal for cash should be 60% or less the value of the house “as is.”

    • Must factor in holding costs for the property and closing costs to buy and sell the property (if flipping).

      • Figure 3-6 months holding costs

    • Estimate Trick:  Closing costs + holding costs + selling/holding costs = ARV x 10%.

  • Don’t buy an investment property straight up with your own cash unless you are getting the house under 50% of its “as is” value.

• How to get Investing Money?

  • Money is NOT an issue.

    • Other sources of funding exist.

    • If the deal is good - money will find you.

    • Begin negotiations at 50-60% “as is” value.

      • This will kill many deals quickly - this is good, eliminates time wasting.  NO money in these deals anyway.

• Terms Deals:

  • In most terms deals, you will be hanging onto the property for some time.

    • Rent the property out for higher rate than monthly terms payments.

  • Terms deals are more generous on price to the seller.

    • Should have little to no money down, since the seller is motivated.

  • TERMS DEAL RULE #1:

    • The property must be able to pay for itself.  (cash on cash return).

    • Minimum profit should be 10% CoC.

      • Higher if the property is in a good area that is strongly appreciating, a closer to breakeven deal might be OK.

  • TERMS DEAL RULE #2:

    • Don’t take on domino debt.

      • Non-recourse debt is one of two criteria of good debt because it isolates and partitions off your risk.

      • Buy on terms where each property is isolated and a distinct deal (be careful of portfolio buys where one property is a bad deal or has clouds).

  • Seller Financing is ideal - so you don’t need to personally guarantee the loan through conventional bank financing.

• THREE MOST IMPORTANT TERM DEAL ACQUISITION STRATEGIES:

  • ***Learn to buy without using your own money or using a conventional loan, it makes you a much more savvy investor.

  • STRATEGY #1:  LEASE OPTION:

    • Long term lease plus agreed upon option price.

      • Control possession of the property, including the option to sublease (fixed rate rent).

      • Option Portion:  Locks in fixed price at which you can buy property exclusively at a specific period of the lease term.

  • STRATEGY #2:  BUYING SUBJECT TO EXISTING FINANCING:

    • Seller deeds you the house and you make payment every month on the existing loan in the seller’s name.

    • You get all benefits of the loan, but no risk or downpayment.

    • If the owner is in financial trouble, behind on mortgage, or owns little equity - this can be a great option.

  • STRATEGY #3:  OWNER-CARRY FINANCING:

    • Seller accepts a promissory note for some or all of the money owed to them.

    • A good option if the property is owned free and clear, or if the owner has a large amount of equity.. Or if the owner is an older investor with multiple properties and might like a monthly check.

    • Structure the deal with the purchase price, downpayment and deal with very low interest rate where the balance is financed by the owner.

    • This is a good strategy if you want to hold the property (or live there) for some time.

    • Benefits:

      • No seller fees

      • Below market interest rates

      • No recourse on the loan

    • The best place to fund a deal is within the existing financing.

• For flips:

  • Tell the seller you will pay all closing costs, if he waits 6 months to receive the down payment.

  • This way you can fix the house within the 6 months and wholesale the deal to someone new.  ASSIGN THE DEAL

• SIX BEST SOURCES TO FUND DEALS

  • Ranked from First to Worst:

    • 1.  The Seller - Lease Option Deals, using the seller’s existing financing (give seller mortgage payment).

    • 2.  The Buyer - Use who you are flipping the house to - to fund the payments on a quick flip… ASSIGN THE DEAL.

      • Simultaneous closing - slow close from the seller, aggressively market the new property for a higher price - use the buyer’s money to pay the seller.

      • Receive cash for the rights you negotiated for the property.

    • 3.  Private Money - Find someone looking for an investment and offer them a rate of return on their investment or a percentage of the profit for funding the deal… friends, family, investors.

      • Or take out a loan with them and give them a decent APR on the investment.

    • 4.  Your Own Cash or Credit - Use your own liquid assets, 401 K, credit.

      • Only do this if the value of the deal warrants the risk.

      • Best way to use your own money is to find a foreclosure or pre-foreclosure, then cashout the seller and make their back payments. 

    • 5.  Hard Money Lender

    • 6.  Equity Money Parter - Someone loans you money for a percent return on the deal.

• FIVE MOST IMPORTANT EXIT STRATEGIES

  • 1.  Retail the Property - Sell for the highest price you can.

    • If you use a real estate agent, find a good one - interview at least 3.

    • FSBO - Sell without listing on MLS.

      • DOWNSIDES:

        • 1.  Competition in the area lowers the selling point.

        • 2.  Must pay agent commissions.

        • 3.  Takes a lot of time to sell in a buyers market.

        • 4.  Bank as a lender doesn’t net you as high a profit as if you are the lender (exit strategy #5).

  • 2.  Flip the Deal - Sell your contract to another buyer or investor for “fast cash.”

    • Only do this when you first start out and never flip your best properties.

  • 3.  Buy and Hold

    • A lot of long-term benefits, hire someone to do the regular maintenance (handyman - on call) and don’t hire a property manager (waste of money).

    • Renter turnover expense is a large problem - always look for long-term leases or make a lease-to-own contract.

  • 4.  Offer on a “Rent-to-Own” basis

    • 2-3 year lease with an option agreement at a locked in price to purchase the property at any time during the lease.

    • For the fixed option, the tenant buyer will provide an option payment 3% to 5% (non-refundable) of total value of the option price.

    • Also, higher than market rent.

    • Tenant buyers must take care of the HOA, day-to-day maint. And keep the property in better shape than normal renters - bc they might buy it.

    • Only 2-5% of properties sell under these terms.

    • Saves the 5-6% agent commission.

    • Faster sale, less options for buyers looking for this type of home arrangement.

    • You can have the buyer split the mortgage, so they will have an easier time acquiring financing.  (ie: one mortgage with you, the seller and a second with the bank.)

  • 5.  Sell with Owner Financing

    • You get two down payments (second mortgage) for financing the property for the new owner.

      • You pay the bank on old financing terms and set up new financing terms with the new owner who can’t get the loan from the bank at a higher interest rate. 

• REAL ESTATE MARKETS:

  • Differ by local markets and trends.

  • THREE TYPES OF MARKETS:

    • 1.  Hot Market - Prices keep going up.  (Seller’s Market)

      • Demand for homes rises above the supply of available homes.

      • Best time to acquire investment properties.

        • Buy subject to the seller’s existing loan.

        • Buy on a long-term lease option.

    • 2.  Medium Market - When the supply and demand of the market have reached a relative equilibrium.

    • 3.  Mild Market - (Buyer’s Market)

      • Supply of homes for sale is much higher than the demand for homes.

      • Biggest investing mistake is buying too many properties at the same time in a buyer’s market.

• FIVE STEP NEGOTIATION SYSTEM:

  • 1.  Build Rapport with the Seller:

    • Key:  Listen to the seller’s needs and do your best to achieve them by winning for yourself too.

    • Act as a consultant here to solve their problems.

    • Don’t be overly aggressive.

    • Bridge Q:  “Thank you for inviting me over, can you show me around?”

      • Build a relationship with the seller, see how you can help them.

      • Only share positives about the owner and the house out loud.

  • 2.  Get the Seller to make an Upfront Agreement:

    • Where you get a yes or no answer and aren’t left hanging.

    • Bridge Q:  “Where’s a good place for us to sit and talk this thing through?

  • 3.  Discover Motivation:

    • Help the seller emotionally connect with his reasons for needing to sell and his limited time to do it.

    • Key Q:  “So what were you hoping I could do for you here today?”

      • Help the seller connect why he needs to sell.

      • Eliminate the seller’s other options.

      • Find out the seller’s timeline.

    • Always be a reluctant buyer.

      • Force the seller to sell you and convince them they don’t want to lose you as a buyer.

      • “I don’t know if I can do this…”

      • Remain skeptical.

    • Seller’s are more motivated by loss than they are by the desire to make a profit when selling a house (the house is often most people’s greatest “asset.”)

      • Negative phrasing works well to convince the seller they are not doing very well.

      • Ask them how the selling is going, but do it in a way that makes you sound naive or optimistic instead of sarcastic, “has that been working well?”

        • Put the seller at ease by playing dumb / naive… if you are too intellectual, they might feel they are being “played.”

        • When a seller comes to their own negative conclusions of their property out loud, use selective hearing to make them restate their point.

    • KEY:  Have the seller self-realize their motivation before discussing money.

  • 4.  Money:

    • Bridge Q:  “So what was it you were asking for the property again?”

    • Goal:  Gather financial details to craft a win-win scenario with the seller and also lower the seller’s expectations.

    • Use the “Three R’s (below) to dramatically lower the price.

  • 5.  What If Step:

    • Guide the seller through various solutions (where you win) to help him pick a way to sell the property to you.

    • This turns the solution into the seller’s idea - and you accept their offer.

    • Bridge Q: “I don’t know if I could do this or not, but what if I were to make you payments for a period of time and at some point down the road I completely bought you out of the property?  Is that something you might be interested in?

• Three R’s to Lower Price:

  • 1.  Range Technique:

    • Investor:  “How much were you asking?”

    • Seller:  “$350,000”

    • Investor:  “Oh, okay… you were asking in the $340,000 to $350,000 range… got it.”

  • 2.  Realistic Technique:

    • Seller:  “$350,000”

    • Investor:  “What did you realistically expect to get?”

    • Seller:  “at least $340,000…”

  • 3.  Real Estate Agent Technique:

    • Create a hypothetical agent and say, “If they could sell the house in 30 days for $340,000 would you do it?”

    • This lower price by 6% if you buy it for this price w/o agent - no closing costs.

  • Use all three techniquest together.

• Three Real Estate Investor Levels:

  • 1.  Prove Real Estate Investing Work:

    • Make profit / cash flow on a few deals.

  • 2.  Master the five core investing skills and build a real estate business.

    • Build a business with positive cash flow - driving the business yourself. (day-to-day)

    • FIVE CORE SKILLS:

      • 1.  Create a deal finding machine.

      • 2.  Deal analysis - Know you are getting good deals.

      • 3.  Structure Win-Win Deals for all parties

      • 4.  Negotiation - Get the other side to say YES

      • 5.  Contracts and Agreements - understand the language of real estate.

    • Positive cash flow of $5,000 - $50,000 per month.

  • 3.  Put Investing on Auto-Pilot:

    • Passive cash flow with minimum to no work.

    • Less than 10 hours of work per month.

    • Can do big real estate deals on commercial real estate.

• SEVEN CRITICAL WEALTH SKILLS OF THE SUPER SUCCESSFUL

  • 1.  Learn to generate massive pay days of cash and equity.

  • 2.  Convert cash and equity into passive streams of cash flow.

  • 3.  Recruit and direct a core team of business and money professionals to aid you in wealth management.

  • 4.  Learn to feel worthy of your wealth.

  • 5.  Learn to make intuitive, accurate and prompt decisions.

  • 6.  Create a peer group of friends and associates who push you to be the best you are capable of being.

  • 7.  Learn how to intelligently share your wealth to the world.

• THREE WAYS TO OVERCOME FEAR

  • 1.  Take action right away - Just do it!

  • 2.  Don’t wait until you know it all!

    • You will never know it all - too much info. Out there!

  • 3.  Facing fear and accepting it is a good thing.

    • Makes you better and stronger.

    • Learn to act in the presence of your fears.

    • Don’t choose known failure.

      • “In essence you would be choosing to fail comfortably than have a great chance to succeed, but experience fear while doing it.”

    • Don’t freeze at the edge of the cliff - commit to jumping and taking a chance.

OTHER NOTES:

• If a property has multiple owners - make sure all are there when you meet them.

  • Tell them you are more comfortable this way.

• Remember - Find motivation to sell before discussing money.

• Keep a log of your appointments:

  • List the good and bad things that happen so you can self-correct.

• Always remember not to be overeager.  Let the seller become the overeager party.

  • Try to be seen as reluctant.

• A tenant buyer is a better option than a regular renter.  It’s a big time win-win.

  • Higher AAV rent

  • Option payment (3-5% of the property value)

  • Daily maint. Must be kept

  • Tenants stay for a longer period of time.

  • Property is treated with more care.

  • Do this unless the property has good holding value and low maintenance.

• Most Value:

  • 1.  Cash 

    • At most only use $1 of your cash for every $4 of equity.

  • 2.  Non-recourse financing (seller financing)

  • 3.  Recourse financing (traditional lender)

  • 4.  Equity of the property

The Book on Rental Property Investing by Brandon Turner

Reserves cash - keep 6 months of expenses for each unit. Ex: $800 per month expense unit, save $4,800 in reserves.

Your real estate business should bring in 3x off your living expenses before you should quit your job. 1x to survive, 1x for unexpected expenses, 1x to reinvest

ROI for retirement formula

Annual cash flow desired / Interest rate returned = cash invested

$100k per year / 10% return = $1,000,000 in cash invested

Five Keys to Rental Property Success:

1. Think the right thoughts

-A. the 10x rule, 10x your goal and it will help you take massive action to accomplish your original goal.

-whatever your mind can believe, it can achieve.

B. You are who you associate with

• you are the average of the 5 people you spend the most time with

• Network, look for people with similar interests

C. Change your “I can’t” to “how can I?”

2.) Study the Right Source

FOCUS - overcome analysis paralysis

Stop reading and start doing

Books:

BiggerPockets.com/BestBooks

3.) Picking the Right Plan

-What is the end goal?

-What kind of strategy do you want to use?

-What won’t you do?

-What kind of properties do you want to buy?

-How often will you buy properties?

-How will you finance?

4.) Acquire the Right Asset

5.) Manage the Right Metrics

***set aside (if living in)

5% vacancy

5% repairs

5% cap ex (big ticket items)

***set aside (if pm - not living in)

10% vacancy

10% repairs

5% cap ex

11% property mgmt fees

*How to Make $1 mil in rental properties (multi family strategy)

-quadplexes and 24 unit apartment complexes

-cash flow $200 per unit, per month

-buy at 70-80% value

-must have at least 10% value add opportunity (paint, landscape, adding rooms)

-must be in a good, appreciating neighborhood

-Year 1

-buy 4 plex (save cash flow)

-Year 2

-nothing

-Year 3

-buy 2nd 4 plex with cash flow

-Year 4

-buy 3rd 4 plex with cash flow

-Year 5

-1031 exchange (sell quad plexes for a 24+ unit apartment complex - should have 55-60% value in equity plus cash flow of all 3 quads to trade for a 20% downpayment of apartment complex)

-Year 6

-Nothing

-Year 7

-Nothing

-Year 8

-1031 exchange (trade up to a 75+ unit apartment complex)

***build a road map, like this^^

*How to get $5,000 per month cash flow (single family strategy)

-Year 1

-save $20k ($1,000 per month plus $8k from savings)

-Year 2

-buy a 3/2 single family at 80% value ($100k blue collar 1970s house), property brings in $300 per month after expenses ($100 per bedroom)... $370 before income taxes

-now save $1,100 per month (plus $300 is $16,800 saved)

-Year 3

-buy similar house as Year 2

-now save $1,200 per month (plus $600 from two houses = $21,600 saved)

-Year 4

-buy similar house again (third one)

-now save $1,300 per month (plus $900 from three houses = $26,400 saved)

-Year 5

-buy similar house again (fourth one)

-now save $1,400 per month (plus $1,200 from four houses = $31,200 saved)

-Year 6

-buy similar house again (fifth one)

-now save $1,500 per month (plus $1,500 from five houses = $36,000 saved - enough for two houses)

-Year 7

Buy two similar houses (7 total)

-save $1,600 per month (plus $2,100 from seven houses = $44,400)

-Year 8

Buy two similar houses (9 total)

-save $1,700 per month (plus $2,700 from nine houses = $52,800 - enough for 3 houses)

-Year 9

Buy three similar houses (12 total)

-save $1,800 per month (plus $3,600 from 12 houses = $64,800 - enough for 4 houses)

-Year 10

Buy four similar houses (16 total)

-save $1,900 per month (plus $4,800 from 16 houses = $80,400 - enough for 5 houses)

-Year 11

Buy five similar houses (21 total)

-save $2,000 per month (plus $6,300 from 21 houses = $99,600 - enough for 6 houses)

*House hacking strategy

Buy a triplex or quad plex and live in it for free living with a 3.5% FHA loan

*Make $100K per year with the BRRRR strategy (fixer uppers)

Buy, Rehab, Rent, Refinance, Repeat

70% rule, 70% ARV

must be in a good neighborhood

The key to rehabbing a BRRRR property is to make the property as tenant proof as possible, use materials that will last a long time.

To make $100k per year on BRRRRs:

Buy 2 properties per year (get money back out of each with refi)

In year 5, sell the first two properties

Rinse and repeat every year (over 5 years, the property should gain $50k each in value.)

How to find potential mentor:

1. Ask friends who rent if they have a good landlord.

2. Ask a real estate agent if they know any big time investors they can introduce you to.

3. Bigger pockets

**key: offer more value than you are getting

Team:

1. Spouse (Amber)

2. Mentor

3. Real Estate Agent (Tim and Andy)

4. Lenders (Adam & Brandon)

5. Contractors / Handymen (Perkins & Dejan)

6. Bookkeeper (Tim)

7. CPA (Brett)

8. Lawyer (need real estate attorney)

9. Insurance Agent (Frank P or Jeff L.)

10. Property Manager (Tim, Dean)

How to determine fair market rent:

-scan Craigslist rentals section, Zillow, MLS

-check out local PM websites

-talk to other landlords (network - REIA, real estate investors association)

-start with a high rent and bump down as needed

-too many people rush to your property, raise the rent

Real Estate Rental Expenses:

-mortgage

-taxes (can find online - local tax assessment)

-insurance (call your insurance agent for a quote)

-vacancy (usually 5-10% depending on the area - ask your local real estate agent)

-repairs (5-15% depending on age and condition of the property)

-capital expenditures***

-HOA

-water (call local water dept.)

-sewage (“”)

-garbage (“”)

-gas (“”)

-electricity (“”)

-landscaping (get quote from local company or pm)

-property management (figure 11% unless in house - in which case still budget 11% but pay yourself for working)

***cap ex items:

-make a chart of replacement cost and lifespan to come up with a monthly cost:

-roof (total replacement cost / Lifespan / Cost per year / Coat per month)

-water heater (10 years)

-appliances (10 years)

-driveway / parking lot (50 years)

-HVAC (20 years)

-Flooring (6 years)

-Plumbing (30 years)

-Windows (50 years)

-Paint (5 years)

-Cabinets / Counters (20 years)

-Structure / Framing (50 years)

-Components (ie front door, garage door, etc.) (10 years)

-Landscaping / trees / plants (10 years)

Totals will depend on size of house, style, etc.

Analyzing a Deal:

1. Figure out Total Project Costs (purchase price, closing costs, holding costs, est. repairs)

2. Figure out financing total out of pocket (down payment)

3. Calculate monthly mortgage (non-owner occupied)

4. Determine monthly rental income (include extras like extra parking and laundry)

Remember cash on cash return doesn’t include benefits like appreciation (average 2-3% annual or tax benefits)

****

Analyze 2 deals per day = 60 deals per month

Offer on 10%

10% of those accepted

You can find one deal every two months

Area classifications

Class A Property - rich, luxury, upper class

Class B Property - upper middle class (10-20 years old)

Class C Property - lower middle class, blue collar, paycheck to paycheck (30 years old)

Class D Property - ghetto, hood, war zone

Brandon looks for class c properties in class b areas

Greatschools.com

Crimereports.com

City-data.com

USA.com/rank

Nrighborhoodscout.com

Zillow.com/research/data/

^can find price/rent ratios for specific zip codes, median sale prices and media rent prices

ask local cops about area crime

Ask local property managers or realtors about area vacancy rates

Keys to finding investment properties on the MLS:

1. Find a great agent (could be you)

2. Set up auto alerts

3. Screen out duds

4. Be faster than the rest

5. Look for hidden value-add opportunities

6. Make a lot of offers and fail often

7. Look for old listings

8. Focus on distressed

9. Keep your offer clean (limit contingencies)

10. Work when nobody is working (make offers on Fridays and Holliday’s - less competition)

How to find deals:

1. MLS

2. Direct mail (try FB ads now? Use absentee lists - list source.com or melissadata.com)

3. Driving for dollars (look up driving for dollars bible posts)

4. Eviction records - target landlords who just evicted someone.

5. Bigger pockets market place

6. Craigslist (search sellers, post as a buyer, directly contact landlords to see if anyone is selling)

Eight problems to look for when real estate shopping:

1. The Bigfoot smell: usually due to rotten food in cupboards, per urine in the carpet, smoke residue in walls, mildew. Get rid of this by changing carpet and deep cleaning. Unless smell is from busted sewer lines.

2. Hidden third bedroom.

3. Ugly countertops and cabinets - kitchens and baths sell houses

4. Bad roofs - low to no competition

5. Mold - clean and fix roof

6. Compartmentalized configuration - knock down some walls to open it up.

7. Jungle landscaping

8. Hoarding, clustering junk.

Three problems to avoid:

1. Bad neighborhood

2. Foundation issues

3. Shared driveways

Two most common contract contingencies:

1. Inspection (10 Day inspection contingency)

2. Financing (make sure financing doesn’t fall through)

What does an offer include:

1. Who is making the offer to whom

2. What is being bought and for what amount

3. Where are the funds coming from

4. When is the closing date

5. Why would either party back at from the offer?

6. How is it all coming together (fine print)

**the more offers you make, the more deals you will close and the faster you can reach financial independence.

16 tips to getting your offer accepted:

1. Work fast - be the first to offer, have auto alerts set up with realtor.

2. Best offer up front

3. Submit a letter with offer (with photo)

4. Discover the sellers true motivation - try to solve a problem for them

5. Feel uncomfortable- if you submit an offer and it doesn’t make you blush, you offered too much

6. All cash if possible - more attractive offer

7. Waive the financing contingency

8. Waive the inspection contingency

9. Close faster

10. Give two offers - one lower cash offer, one higher with financing

11. More earnest money - show you mean business

12. Provide pre-approval letter

13. Include escalation clause - if someone bids higher automatically add $500 to my offer until X point

14. Offer to clean out the property

15. Pay seller closing costs

16. Offer again, even if turned down

negotiation tactics:

1. Be prepared to walk away

2. Always get last concession - if the person you are negotiating with realizes every time they ask for something they have to give up something else, they will likely ask for less

3. Find true motivation

4. Use a red herring (ie: ask for low price and grandmas China - China becomes red herring and they agree to low price)

5. Penalize them when they ask for concession (delay - have to send to lawyer or whatever)

6. Stick to your numbers - no emotion

7. Don’t get offended, don’t insult them

8. Use data and numbers in your negotiation

9. Sell yourself as a good buyer

10. Ask for the lowest price, then go lower, use “would this be unreasonable? - nobody wants to appear unreasonable

Leverage and refinancing a property is much better than buying cash or owning a property free and clear - better to keep refinancing - plus, decreases liability - when you own free and clear you pay more taxes and it decreases liability for any potential lawsuit

Conventional Loan:

1. Shop - ask about available loans and get pre approved, talk to 3-4 people - let them know the loan is for real estate investment

Pros: lower rates, longer terms, professionals

Cons: slow process, max of 10 loans, property condition - sometimes hard to get loans on fixer uppers, some conventional lenders don’t like entities- better to buy the property in the name of your master LLC

Portfolio Lenders:

-small banks or credit unions

Pros: more than 10 loans, will loan to businesses

-cons: shorter terms, higher rates

Private Lenders:

-can be better than portfolio lenders

-good idea to get 1 year private loan for BRRR strategy, then refi with conventional loans - likely a 6-12% rate (less risky than stock market - property lien if default on loan)... investing in notes is very passive

How to find private lenders?

-go to a forum or club where they might be (or ask realtor), build your brand, ask them their rates

If you use a partner or private lender - make sure everything is in writing, in a contract

-can only have 1 FHA loan at any given time (house hacking - maybe Amber and I should house hack in Wilton area?)

BRRRR -

Use private money to get rehab property

Then once rented, get a conventional mortgage - refinance out

Typical LTV for investment properties is 70-80% (or buyer / refi needs 20-30% Equity)

Debt to income (DTI)

28% front end (monthly payment / monthly income)

36% back end (total monthly debt / monthly income)

Credit karma (free) - 600 or better score

Docs needed for a loan:

-2 year tax returns and W-2

-2 months of pay stubs

-personal financial statement

-purchase and sale docs for property

-description of properties

***put in nice packet for loan officer

***ask for the following:

-Make sure to ask for seller disclosure (what’s wrong with property) and tax returns / existing and former rental contracts

-Also, title company should only cost around $1,000 including title insurance

-current rent roll

-estoppel certificate for current tenants

-recent utility bills (make sure all are paid)

-insurance records

-security deposits

-maintenance logs

-contractor warranties

-HOA docs

From podcast:

-look for separate meters

-don’t shop for a yield, find a building you want to own and make the yield work for you

-need to source off-market deals, MLS is already filtered post investor

-don’t always focus on the deal - look long term, look at proper management and look and finding a good lender

Insurance:

-a replacement cost policy is the preferred option.

-if you are more than 20% under market value, may be subject to a coinsurance penalty - only get paid back for whatever equity portion of the house you own.

-make sure you have liability insurance on the home, go high on it.

-require renters to carry their own renters insurance.

-don’t let tenants have pets - can destroy property and also dogs can be nasty for insurance if they bite.

Set up a separate bank act. With checking and savings

Use savings accounts only for tenant safety deposits, the checking account will be for income and expenses

Necessary docs:

-rental application

-rental min. Qualifications form

-month-to-month lease

-annual limeade

-3 day notice to pay or quit

-a deposit to hold agreement

-property rules and regulations

-adverse action notice (why someone was turned down)

-notice for landlords or maint. To enter unit

-ten day notice to comply

-20-30 day notice to end tenancy

-move out packet

-cleaning expectations

-new tenant checklist

-move in and move out condition report (check list)

-new owner announcement form

-pet addendum

-tenant reference questionnaire

-disposition of deposit

Mold and mildew form

Download samples at:

Www.biggerpockets.com/landlordbookbonus

Buy QB online for accounting or use google sheets until we have a bigger business

Cant use LLC for loan with most lenders - need to check on this at pre approval or get permission to transfer your loan to the LLC before you close

Might not be worth opening a separate LLC until 10 plus doors risk/reward.

Use insurance and leverage as primary protection, LLC secondary

Plan the rehab and set timelines with contractors while you wait for closing

Land lording (chapter 17):

PM responsibilities

-advertising vacant units

-screening applicants

-approving tenants and signing leases

-handling phone calls from tenants

-scheduling maint. Related appointments

-issuing late notices

-filing evictions, if needed

-keeping a record of income and expenses

-pay property bills

Down side to PM:

-nobody will care like you

-still need to manage manager - not 100% passive

-most PMs suck

PM interview questions:

-what are your mgmt fees?

-How do you communicate with owners? How frequently? What about?

-How many properties do you manage,

-How long have you been a property manager?

-Am I locked into a management contract with you? How does that work?

-How many evictions do you have each month?

-What kind of reserves does your company require?

-How long does a typical tenant stay in a property?

-How long do properties stay vacant before being rented?

-How do you screen tenants?

-Do you accept people who have had an eviction on their record?

-How do you handle maintenance requests?

-Is there a min. Charge for maint. Visits?

-How do you market vacant properties?

-managing tenants isn’t difficult if you treat property management as a business.

-create office hours (use google voice for phone)

-have parking systems in place

-collect rent automatically

-issue legal notices the day after tenant is late

-kick out bad tenants

-move in great tenants

-raise the rent regularly

-hire the right maint. Ppl

-work less, make more $

-bad tenants are the only ones attracted to bad properties

-fix up property first, then rent out

-How to find tenants:

1. Sign in yard - include rental price, security deposit amount, # of rooms, phone number and min. Qualification standards ($20 on vista print for custom sign)... warning, may invite vandalism

2. Craigslist - don’t include address on this ad.

3. MLS - main driver in cities

4. Existing tenants / networking

Min. Qualifications

-gross monthly income must be 3x monthly rent

-600 or higher credit score

-verifiable source of income

-good references

-max. 2 occupants per BR

-only non smokers

-no pets

-no prior felonies

-no prior evictions

-no bankruptcy

To combat no-show appointments

1. Give them address and schedule drive by first

2. Batch showings all at same time (5:00-5:30) even if multiple interested parties

Application process

-give application to all applicants, encourage to fill out on spot ($35 charge)

-include:

-name

-DoB

-SS

-phone

-email

-current employer info

-past employer info (last 5 years)

-current landlord

-past landlords (last 5 years)

-emergency contact info

-release of info statement

-signature

-don’t bother running background or credit check if other criteria fails

What to ask old landlords?:

-How long did they rent?

-Monthly rent amount?

-Proper notice when vacating given?

-Did tenant receive security deposit back and leave property in good condition?

-would you let tenant rent from you again?

-denying a tenant:

-always document why and send a written notice

-require a security deposit to hold the property (due in 24 hours)

-also require first and last months rent

-have two copies of “deposit to hold agreement”

-Schedule move in within 2 weeks at most (after vacancy of current tenant)

-have lease signed at your office, at property or at attorneys office

-walk tenant thru lease step-by-step

-consider having tenant initial next to each item

-only accept rent payments in money order, not personal check or cash

Forms:

-make sure FL state laws

EZlandlordforms.com

USlegalforms.com

-Staples / Office Depot

-future rent payments:

-Dwolla

-QB merchant services

-Venmo

Investing software:

-QB online

-Buildium

-VerticalRent

10 most common repairs you’ll encounter

1. fridge/stove/dishwasher not working

2. Water leak in ceiling or under window

3. Water leak under sink

4. Water drip from faucet

5. No hot water - likely hot water heater

6. Bugs / rodents

7. Garbage disposals

8. Running toilet - can costs hundreds in water bill

9. Clogged toilet - not your responsibility

10. Furnace repairs (north)

***not all repairs are the responsibility of the landlord - job is to provide a safe, habitable environment up to code.

-do not need to fix tenant caused damages

-do need to fix smoke detectors, heaters, appliances and plumbing.

***get a state landlord tenant laws guide and read thoroughly

-have a handy man perform annual maintenance at all your properties (see list):

1. Change furnace filters

2. Vacuum dust from fridge coils

3. Clean a/c lines out

4. Replace smoke detector batteries

5. Check carbon monoxide detectors

6. Sweep fireplace

7. Remove dryer lint

8. Flush water heater

9. Check exp. date of fire extinguisher

10. Repair any broken grout or caulk in bathroom and kitchen

11. Tighten any handles, knobs or racks

12. Remove shower heads and clean sediment

13. Check weatherstripping on all doors and windows - repair as needed

14. Clean gutters

15. Check sump pump

16. Test garage door

17. Check window screens and repair as needed

18. Look for signs of termites or pests

19. Check trees for overgrowth and cut

20. Recaulk doors and windows as needed

21. Trim landscaping

22. Inspect attic and or crawl space for water leaks or bugs

23. Touch up paint as needed

24. Fertilize lawn as needed

25. Check water valves

Five most common tenant problems

1. Late rent - serve notice of 3-5 days to pay or vacate first day overdue. Don’t be nice landlord. Amount of late fee should be in lease. Sometimes cheaper to pay tenant to leave than to evict, Keys for cash (eviction can cost $5k). Make sure they leave before you give the cash. Use an attorney for evictions.

2. Neighbor conflicts - set neighborhood rules, and stick to them. Otherwise, don’t get involved. Be direct if contract is being violated. 10% of tenants cause 90% of problems, fire them.

3. Unapproved pets or people - must approve all people who live there, need to fill out application and pay for screening. Don’t let tenants move people or pets in. Never allow pets in multi family. Okay for single family of small dog or cat and they are a great reference. Charge pet fee and make sure shots are kept up.

4. Breaking a lease

5. Drugs - don’t let drug dealers live in your place, but don’t confront them about drug dealing. Cash for keys.

If you plan to hold until death, make sure you consult with expert estate lawyers to set up trusts etc.

advantages of seller financing:

1. Possibly higher sale price

2. Lower tax bill (only taxed on what comes in)

3. Ongoing passive income

1031 exchange rules:

1. Like-kind stipulation

2. Value of new property must be higher or taxed for “boot” income made (the difference)

3. 45-day identification window - only 45 days to find new property after sale (can officially identify up to 3 properties for purchase)... important to start looking for new property prior to sale going thru, extend closing if necessary. The identification must be documented in writing with 1031 professional.

4. 180 day closing window

5. Necessity of an intermediary - can’t touch the profit from the sale, must go into a third party intermediary account. Use a qualified intermediary. Can’t be someone you know or work with.

1031 is a big time savings, rather than selling per norm

Pass Estate to heirs after death, if you sell before death capital gains are based on purchase price.

If you sell after death, tax basis bumps up to current market value.

To make investing more passive, can 1031 into syndicated deals (like shopping malls) or into NNN commercial investments.

-don’t rent units below market value price

-how to save money:

-transfer utilities to tenant

-bigger garbage canister

-negotiate lower rates with vendors

-switch to energy efficient appliances

-switching to low flow toilets, saving water

-negotiate better insurance

-TAKE ACTION!!!

Getting Back to Even by Jim Cramer

Getting Back To Even notes:

Invest in dividend stocks in bear markets, use the yield as an indicator for if the stock is a good buy, yield over 4 is a good buy, historically high yield is also a good sign, it means the stock is cheap bc the price on the stock is down from normal rates

Dividend stocks are best when interest rates are low

Look for accidental high yielders

Rule of 72: divide 72 by the dividend yield to find out how many years until you get your money back

Coverage ratio should be 2 or over to make sure company has the expected earnings to cover its annual ratio

Beware of dividends that are too high... make sure you use coverage ratio if buying dividend stocks

CAT, MMM, VFC & V

Stock replacement strategy of option calls. Make deep in the money calls to balance the price of admission for the call with the going rate of the stock. Example $70 Exxon price... buy stock at $65 with $7.50 call price... then once stock goes over $72.50 you are in the money. Cramer’s rule is to not let the balance go more than $5 over the going rate. Also go at least two months out on your call option, but never way longer. One month is not enough time.

A call option is for 100 shares so you have to take the price times 100, that’s the price of admission for the right to control the 100 shares until your time is up... can roll over a call, but costs extra.

Put options work like calls, but capture the downside (like a short). So a reverse call. Use only deep in the money puts.

Technical: Cramer loves the strategy of shorting common stock against the call. Eliminates the risk involved in shorting a stock.

2 accounts

Act 1: Call Option (100 shares) of stock deep in the money... wait until you hit a favorable gain. Say your call option is for $65 on a $70 stock and after trade you make money at $72.50...

Act 2: short 100 shares at $72.50 to lock in your profit... not at $70.

...This hedges your short, in the case the stock skyrockets up to infinity.

^^^complicated... need to play around with the math on calls and shorts for fun to see what works

BONUS: When you short (sell) the stock, the money actually appears in your account.

***make sure broker gives you short interest rebate (interest on the short money in your act)

Beware of large buy backs, increasing dividends are a much better way to reward share holders

The Intelligent Investor

Intelligent Investor Notes

2-5% in gold or precious metals

Buy REITs when older as a defense against inflation (10% is good, treat as bonds - bonds are bad unless in Roth IRA bc you will get taxed when inflation rises, since bonds / TIPs March inflation)

Average S&P p/e over 100 years is 20.8

Around 10 or below means good gains in future

Above the average (22 or so) means prepare for a pullback

Value investors don’t buy growth stock or any stock that has a p/e of 20 or more over the last 12 months

Average common stock returns 6% (30 year average), 4% after annual inflation - 2% earnings, 2% dividend

Portfolio should always be at least 50% stocks, never more than 50% bonds

No more than 10% of portfolio should be used as “mad money” on high risk growth stocks

...75% stock, 25% bond when younger (start acquiring bonds at 40ish)

... when older / retired 50/50 split.

Google how to use the rule of 72 when investing

Zweig says the best defensive portfolio is to put 60% into an S&P 500 index, 20% into a bond index and 20% in an international stock index

Never buy IPOs, always a bad investment

Base p/e on last 7 years, not just latest or next (future) year

Primarily invest in large cap companies (S&P - especially DJIA stocks - top 30)

Dogs of the Dow approach (google this and see if it has working lately)

It is oft times better to not know the current market price during bear markets and if you own a good company, don’t sell even if the price is down. As long as earnings, cash and underlying business are still promising

You don’t win or lose until you sell

Use the “owner earnings” formula to value the long term growth of the company

Forward p/e is garbage.

Multiply the P/E ratio x price-to-book ratio and see if it’s lower than 22.5

How do you find the price to book ratio per share

How to find current assets - liabilities per share

ROIC is more important than earnings per share. 10% is A+, 6-7% at a good company is a B, anything lower is inadvisable

Convertible bonds are better than bonds and give the option too trade to a stock in a bull market, generally a bad choice compared to normal bonds in a high interest Bear market

“Stocks for chickens”

Perform 83% historically of the S&P 500 index

^ need at least $100,000 to diversify accordingly in convertible bonds

Don’t invest in a company that buys a bigger company than it (minnow swallows a whale).... use assets and revenues as a guideline, not price per share.

Or

Don’t invest in serial buyers.

There is no such thing as a good stock, only good stock prices

Earning power can be calculated by dividing 1 from the P/E ratio. (Ie a company with an 11 p/e would have a 9% earning power rate year over year)

Use Margin of Safety when searching for safe stocks:

Actual or Projected Sales - Break Even Sales = MOS

MOS / Actual or Projected Sales for MOS%

Warren Buffet waits sometimes for a 50% MOS to buy a stock

The Four-Hour Work Week by Tim Ferris

• Reality is negotiable

• DEAL

  • D- Definition:  Explains the new rich recipe (NR) and lifestyle design (LD).

  • E- Elimination:  Eliminate obsolete time management tools.

    • Cultivate selective ignorance.

      • Ignore the unimportant.

    • Time is greater than money.

  • A- Automation:  Passive income - cash flow on autopilot.

  • L- Liberation:  Mini-retirements

    • Global mobility - work from anywhere.

    • Retirement is worst case scenario insurance.

      • The concept of full retirement is flawed - who wants to sit around doing nothing.

• “Someday” is a disease that will take your dreams to the grave with you.

• Rules that change the rules:

  • 1. Retirement is the worst case scenario.

  • 2.  Interest and Energy are cyclical.

    • Mini-vacations / retirements

      • 2 months work, 1 month live abroad or intense training.

  • 3.  Less is not laziness (work hours).

  • 4.  The timing is never right.

  • 5.  Ask for forgiveness, not permission.

  • 6.  Emphasize strengths, don’t fix weakness.

  • 7.  Things in excess become their opposite.

  • 8.  Money alone is not the solution to finding happiness.

  • 9.  Relative income (the money you make per hour) is more important than gross income.

  • 10.  Distress = bad, Eustress = good.

    • Eustress:

      • Pushing mental and physical limits / risk taking.

• NR - It’s not about what you own, but what experiences you own.

  • Becoming part of the NR is about building systems to replace yourself.

• 80/20 principle… 20% of causes create 80% of problems… 20% of sources create 80% of happiness… etc.

  • 20% of people waste 80% of your time.

• Practice the art of not finishing (bad things):  ie: don’t finish bad movies, books or articles - saves time.

• “Don’t suffer fools, or you’ll become one.”

• Just because you can do things better than your employees, it doesn’t mean that’s how you should be using your time.

• Ask people when you need something from them, “ is this reasonable.”

  • People don’t want to seem unreasonable.  

• Automation must be applied to efficient operations.

  • Set up email auto responders.

  • Hire virtual assistants (VA) from India - outsource - simple, time-consuming tasks.

    • When you delegate, make sure the tasks are well-defined.

      • Web research.

      • Follow up with clients.

      • Make payments.

      • Website maintenance / development.

      • Market research.

      • SEO.

  • Only check email once per day at a certain time.

• Eliminate unimportant tasks before you delegate them.

• Test markets before you build a business (your muse).

  • You should be able to describe your product in one sentence.

  • “How is it different and why should I buy it?”

  • 8 x 10 times markup on costs, or not worth it.

  • $50 - $200 for a product is the prime price range.

    • Subscription model is even better (monthly or annual fees).

• How to find your muse?

  • 1.  Product Re-Selling:

    • Buy product wholesale (40% off) and re-sell in a better medium (nice website - do it better).

  • 2.  License a Product:

    • Take someone’s already invented product and build a company out of it.

  • 3.  Create a Product:

    • Information is great - only cost is time - niche blog.

    • What skills are you interested in that you can teach others?

      • Interview experts.

      • Consider problems you have overcome.

• Steps of the NR

  • 1. Market Selection:

    • Choose something you are or want to be an expert in.

  • 2.  Product Brainstorm:

    • Re-sell product.

    • Buy license for a product.

    • Create a new product, make something better.

  • 3.  Micro-Testing:

    • Test to see if there is a market and demand for the product and what price to come in at.

    • Keep a small inventory.

  • 4.  Rollout and Automation:

    • Streamline the business and set for automation.

    • Auto-orders

    • Auto-payments

    • Outsourcing, etc.

• Big Problems:

  • 1.  One or two purchase options only.

    • Basic v Premium

    • Giving customers too many options - Keep things simple.

  • 2.  Only one shipping Option:

    • 1 fast method with premium price.

  • 3.  Do not offer Overnight Shipping:

    • Too much work.

  • 4.  Online orders only.

  • 5.  No international shipping.

• Not all customers are created equal.

  • Look at customers as an equal trading partner.

  • Thin the herd on bad customers.

  • If you offer an excellent product at an acceptable price, it’s an equal trade.

  • Make your customer base an exclusive club.

• Great people create their lives actively, while everyone else is created by their lives - passively seeing where life takes them next.

• Need a systems dependent business, not a people dependent business - franchise!

• E-Myth:  Work on your business, not in it or for it.

Rich Dad's Guide to Investing by Robert Kiyosaki

• Invest from different quadrants.

  • Most tax loopholes through being a business owner.

• People don’t get rich because they get set in their ways and think there is only one way to do something.

  • Must have a flexible mindset and will to be more than average.

• Three E’s to Becoming a Sophisticated Investor:

  • 1.  Education

  • 2.  Experience

  • 3.  Excess Cash

• Becoming an investor is like riding a bike.

  • Requires risk, trial and error and proper guidance.

• Don’t worry about money, if we do the right things, money will come.

• Investments are cheaper if you buy them through a business, rather than buying as an individual.

• More Security = more scarcity

• Need a financial plan for not having enough money, how to get more money and what to do when you have too much money.

• Investing is a very personal plan you must make, not a product or procedure.

• Think of investments as vehicles - a tool to take you from point A (where you are financially) to point B (where you want to be financially).

  • Have a plan with multiple options / different vehicles (stocks / real estate).

• Don’t fall in love with the stocks or real estate you use to invest in - use them merely as vehicles to get from point A to point B.

  • Don’t invest without a plan.

• Lean one new financial word / vocab per week.

• Make a simple plan and stick to it, trust your process and don’t chase money.

• Set realistic goals and improve upon them.

  • Alway walk before you run.

• Take your time, don’t let others influence you.

  • Find people who have done what you want to do and ask for advice.

  • Learn how to ask for help.

• Create a financial Team:

  • Banker

  • Accountant

  • Lawyer

  • Broker

  • Book Keeper

  • Insurance Agent

  • Mentor

    • Have lunch meetings with them on a regular basis.

• Do not let people with limiting beliefs sway you in regards to money.  

• Time > money.  Don’t short change trading your time for money.

• Cash doesn’t have a tangible value, exchange cash for investments with real value.

  • Many poor people have a lot of money (like my mom and dad) and cling to it like it’s magical, then trade cash for trash.

  • The rich do not value money, but value what money can bring them.

  • Don’t be cheap (wasting time coupon cutting).

• Invest the time to learn & study about how to mind your own business.

  • Make time for your business, more important than your “job.”

    • Invest time to learn about investing.

    • Make and follow a plan.

    • Have money work for you.

• The best deals are made by legal insider investing.

  • The more people you know.. The more knowledge there is available.

  • “If you want to be rich, you have to be closer to the inside than the most professional traders to whom most people entrust their money.”

• Come up with security and comfort plans first.  Don’t invest before planning.

• RULE #1:  Always know what kind of income you are working for (3 types):

  • 1.  Ordinary Earned (paycheck)

  • 2.  Portfolio (stocks)

  • 3.  Passive (real estate)

• RULE #2:  Always convert earned income into portfolio or passive income as efficiently as possible.

  • Don’t let it sit or waste it on trash.

    • Due to inflation - saving money is a liability, not an asset.

    • The poor and middle class struggle because they value money more than assets.

• RULE #3:  Keep ordinary earned income secure by using it to purchase a security you hope converts earned income into passive / portfolio income.

  • Security - An investment that will keep your money secure… not all assets are securities.

    • Asset - Puts money in your pocket.

    • Liability - Takes money out of your pocket.

• RULE #4:  The investor is the asset or liability.

  • Best investors follow behind bad investors (sharks), because that is where the best deals are found.  Buy low from bad investors who bought high and are selling low.

    • Bargains are found where the tails of woe and misery are - look for the captain of the Titanic.

    • Find securities that are liabilities and turn them into assets.

      • But only if it is something that could be in high demand.

      • An investment isn’t risky, an unprepared investor is risky.

      • Be prepared for whatever happens:

        • The bull climbs up the stairs, the bear dives out the window.

      • Don’t make emotional predictions, be mathematical.

  • If you are prepared and find a good deal, the money will find you or you will find the money.  A good deal will attract partner investors / cash.

• In any investment, the key is to evaluate risk / reward with accuracy.

• Keep It Simple Stupid (KISS):

  • You should be able to explain your investments at a 10-year-old level.

    • If you can’t; you don’t understand it well enough to invest.

  • If you let the ups and downs of the market run your life, you should not be an investor.  A true investor will make money either way.

    • Use logic, not emotion.

• STEP 1:  Have a plan for security and a plan for comfort.

• STEP 2:  Learn the skills of a successful business owner - then you will know what to look for in successful businesses - stocks.

  • The best way to become rich is through business building.

    • Business owners know to trade excess cash for investments.

      • Passive and Portfolio income.

    • Never stop growing / learning!!!

• Don’t base your financial decisions on the opinions / expectations of others - Don’t follow the averages!

• Don’t fear making mistakes - “The biggest failures I know are people who have never failed.”

• When making an investment, look at the business / investment financial statement, then match it with your own to make sure it fits.  Include any debt for borrowed investing money.

  • The best investment opportunities are found:

    • Understanding accounting, tax codes, business law and corporate law.

  • A key to becoming wealthy is to keep an updated personal financial statement (balance) and read financial statements on a regular basis.

• 90/10 investor question - Focus on creating your own assets for the asset column, rather than buying assets.

  • Not just creating companies, but content that brings in money (books, internet, etc.)

  • Your real job is to create assets.

• Ten Investor Controls:

  • 1.  Yourself

  • 2.  Income / Expense, Asset / Liability Ratios

  • 3.  Management of Investment

  • 4.  Taxes

  • 5.  When you Buy / Sell

  • 6.  Brokerage Transactions

  • 7.  ETC (Entity, Timing, Characteristics)

  • 8.  Terms and Conditions of Agreement

  • 9.  Access to Information

  • 10.  Giving money / knowledge back to the community

• Levels of Investing:

  • 1.  Accredited Investor - Earns a lot of money or has a high net worth.

  • 2.  Qualified Investor - Knows fundamental and technical investing.

  • 3.  Sophisticated Investor - Understands investing and the law.

  • 4.  Inside Investor - Creates the investment.  Invests in his/her own company.

  • 5.  Ultimate Investor - Becomes selling shareholder.

• Anyone can start as an inside investor, by building your own business - you can create your own assets.

  • IPO - Initial Public Offering - A great way to get rich, first by opening a company and opening bidding on stakes / shares of the company.

• Two Types of Investing:

  • 1.  Fundamental Investing - Seek value and growth by looking at financials of the company… future earning potential is what you look for.

    • ie:  Warren Buffet - Track economy / industry of company.

    • Study financial statements and balance sheets.

  • 2.  Technical Investing - Invests on the emotions of the market and with insurance from catastrophic loss.

    • Studies patterns of supply / demand of company stock and fluctuations of the stock market. (market trends and stock prices).

    • One day the stick is in the news, next it isn’t.

• All markets go up and all markets come down.

  • Don’t invest heavily into a bull market while it’s hot.  Keep cash reserves for when the market comes crashing down.  Markets are cyclical.

  • Bull climbs up the stairs, the bear falls out the window.

  • Never invest in stocks with borrowed money.

• Use a stop loss when investing, better safe than sorry.

• Have an exit strategy in every investment.

  • Learn investment terminology (one word per day).

    • Short sales, call options, put options, straddle.

• Study P/E of the current year and compare with P/E of the past years to track growth… EPS CAGR.

• The Sophisticated Investor:

  • Familiar with tax law, corporate law and securities law.

  • Investments based just as much on the law, as on investment product and potential returns.

  • ETC - Entity (control over choice of business - never form partnerships), Timing (control when you pay your taxes… ie: C-corp can pay taxes at any month of the year - extensions) and Character.

• Business Structures:

  • C-Corporation:

    • Non-Professional (no doctors, architects, dentists, etc.) has a 15% tax rate… professional is 35% tax rate.

    • Operate from the B “business” quadrant, not the E “employee” quadrant.

    • Own your own business, the E quadrant gets screwed by taxes.

    • C-Corp benefits of S-Corp or partnership - those things are an extension of yourself.  The C-Corp is a different entity than yourself - better protection / liability.

    • If you want to be rich, your private citizen should be poor and penniless on paper.  Assets in the name of your companies.

    • Don’t own assets or liabilities in your name, or you become a target for thieves and lawyers - have the corporation own everything.

    • Do not strive to own things, but to control them through a corporation.

    • Make sure you have a team for your business (lawyer, accountant, etc.)

    • Passive and portfolio income are not subject to mediocre or social security taxes.

    • The purpose of a business is to buy assets.

      • McDonalds is a real estate company - has the most valuable real estate in the world.

• The rich pay for things through their company using pre-tax dollars.

  • Buy assets first, pay taxes later.

  • Employees pay taxes first, then buy assets last.

  • Most big companies start as part-time businesses.

• Don’t quit your day job, keep it and use extra time to start your own part-time business.

• Don’t bother with making a great product - buy one from someone else and build better systems.

• Don’t concentrate on one business, build many businesses - develop, then sell them.

• Must have the entrepreneurial spirit - you are the business, not the product.

  • Build a successful business and sell it, then build another one.

  • Don’t settle.  Don’t let yourself become your hardest working employee.

• Six Priceless Skills For Building Your Own Business:

  • 1.  Communication Skills

  • 2.  Leadership Skills

  • 3.  Team-Building Skills

  • 4.  Tax Law

  • 5.  Corporate Law

  • 6.  Securities Law

• Three Reasons to Create a Business Other Than to Simply Create an Asset

  • 1.  To provide excess cash flow

  • 2.  To sell the business for profit

  • 3.  To build a business and take it public

• Traits of a Successful Entreprenuer:

  • Vision

  • Courage

  • Creativity

  • Ability to Withstand Criticism

  • Ability to Delay Gratification

B-I Triangle

***Keys to Business Success

• #1 Mission:

  • Every business needs a spiritual and a business mission to be successful - no matter how big a company gets it can’t forget it’s mission.

    • “To make money” is not a good enough mission.

    • The mission of a business should fill a need that customers want.

  • Ex:  Perkins Roofing - A trustworthy, efficient, reliable roofing contractor who is personable, has the client’s interest at heart and responds quickly.

  • Spiritual and business missions need to be strong and alligned.

    • Ex:  Perkins Roofing -  “Provide jobs and livelihoods for hard working, blue collar guys and their families.”

  • The entrepreneur must believe the mission for the duration of the life of the business.

    • When the entrepreneur forgets the mission, the company must be sold or dies.

      • Steve Jobs example:  Apple went downhill until they brought Steve Jobs back.

    • Invest with and in the spirit of a company and the entrepreneur. 

    • Focus of the company must be on the mission - this mission must serve customer’s needs.

• #2 Team:

  • Business and Investing are team sports.

    • Team of Investors, every investor needs a team working for them:

      • Accountants

      • Attorneys

      • Brokers

      • Financial Advisors

      • Insurance Agents

      • Bankers

    • Dream of Success - not of money, of things you want.

    • How could someone minding other people’s business completely focusing on their own business?

    • Prioritize on building your successful team.

      • As an outside investor, look at the team behind the business.

        • Don’t invest in a company where those running it pay themselves fat salaries.

        • It shows their focus isn’t in growing the business, but in paying themselves.

          • Look for experience, passion and commitment.

• Tetrahedron of Business:

  • This is a stable business structure, without any of these - the business can NOT work.

    • 1.  Business Owners

    • 2.  Employees

    • 3.  Investors

    • 4.  Specialists

• #3.  Leadership:

  • Need leadership skills - more teams / businesses fail from the inside than from the outside.

  • Five Essential Building Blocks to a strong business:

    • 1. Cash Flow

    • 2.  Communication

    • 3.  Systems

    • 4.  Legal

    • 5.  Product

  • The ability to run a business from financial statements is the difference between a small business owner and a big business owner.

  • Do not make a purchase without a justifiable rise in sales.

• CASH FLOW TIPS:

  • Cash flow is the life blood of the company.

    • In the development phase do NOT take a salary or keep salary low.

    • Start your business part-time, keep your full-time job.

    • Invoice quickly

    • Require payments up front.

    • Require credit applications - if needed.

    • Establish late payment penalties and ENFORCE them.

    • Keep OH to a minimum.

    • Have an investment plan for cash on hand to maximize earning potential (personally and as a business).

    • Review cash position, funding needs and expenses daily.

• COMMUNICATION MANAGEMENT

  • The better at communications you are and the more people you communicate with / to, the better your cash flow will be.

  • Listen - To what clients want.

  • Internal and external communications are directly related to cash flow.

  • Raising capital is the most important job of an entrepreneur - keep cash flowing in until a stable structure / system is built.

  • Sales skills are insanely important, as an entrepreneur.  Also, being an extrovert with no fear of rejection.

• Defeat your fears and your world will open up, give in and your world will shrink every year.

• TWO most important skills for the B quadrant:

  • 1.  Sales - overcome the fear of rejection.

  • 2.  Public Speaking - “toast masters”

    • Must dress the part - only one chance to make a first impression.

• Marketing - Selling through a system.

  • 3 Ingredients to Marketing / Sales:

    • 1.  Identify a need.

    • 2.  Provide a solution.

    • 3.  Communicate a sense of urgency to customers, “What’s in it for me?” and special offers.

• SYSTEMS MANAGEMENT:

  • Many small businesses fail because the operator has too many systems to monitor - delegate tasks.  Spread management duties out to responsible managers.

  • Real estate is the best investment to start with - fairly stable market.

  • Banks loan money for business if you have a stable system and can demonstrate the money will be paid back.

    • Look at McDonalds - run by teens all over the world, but it’s still successful because of the superior system.

  • Systems are the business, without proper systems, a business can NOT be successful.

  • The more you can formulate and define the specifics and systems of your business, the more efficient it will become - and the more of a saleable business asset the business will become.

• Inside of the B-I Triangle from most important to least important:

  • Cash Flow

  • Communications

  • Systems

  • Legal

  • Product

• Most investors thing the product is the most important aspect of the business, but it’s not.  A product can also be a service.

  • “Most of us can cook a better burger than McDonalds, but few have a better business system.”

• “True happiness is not attained through self-gratification, but through fidelity to a worthy purchase.”

• If your company and B-I triangle (systems) are successful, the company should be able to operate without you or your hard work and make more money.

  • Being too “hands on” keeps you poor.

    • The success of business is through building systems, not keeping busy.

    • If one part of the triangle is weak or falters, the entire company can falter.

• Before you build a business, have a solid plan on what you want to get out of the business and how to get out - sell it?  IPO?

  • The key to keeping your wealth is to constantly evolve - don’t be an old stubborn dog.  Stay ahead of the curve and learn new tricks.

  • You don’t need new ideas to become rich, just need to improve on old ideas and have a better B-I triangle.

• Always challenge your own business and ideas.

  • Old ideas don’t make money - continually refresh your business plan.

• If you don’t risk failure - you will never succeed.

Set for Life by Scott Trench

This is a long one, because rather than notes, it’s based on kindle highlights direct from the book to PDF. Enjoy!

This book will teach you how to make wage income irrelevant to your financial picture in just a few years. In this book, you will learn how to redesign your lifestyle, restart your career, and rebuild your financial position. In this book, you will save your money, earn more money, and use the cash you accumulate to purchase freedom and the ability to design your day­to­day life without the need for wage­paying work. This book is designed for someone with a specific set of circumstances. It is designed for the full­ time median (around $50,000 per year) wage earner who has little to no initial savings but wants early financial freedom. 

This book offers a simple, three ­step approach to gaining early financial freedom. 

financial runway—the number of years that one can maintain their lifestyle without the need for wage­paying work. 

Part I teaches readers how to make the necessary changes to go from little to no savings to preserving over 50 percent of one’s middle class income. It teaches readers how to live well on less than $2000 per month and how to use the savings to pay down debt and extend their financial runway to a year or more. Executing 

Part II of this book takes readers from $25,000 to $100,000 in personal wealth. It takes readers from one year of financial runway to a position in which they could survive for three to five years or more without earning a paycheck. While continuing to live efficient lifestyles, readers will further reduce their living expenses by purchasing a primary residence that allows them to live for free. They will also learn how to earn significantly more income by changing careers and how to develop habits tied to success. 

Part III of this book takes readers from $100,000 to early financial freedom. It takes them from several years of financial runway to a lifetime of permanent financial abundance. Readers will continue to scale their income and live efficiently, but our focus shifts to the purchase and creation of income ­producing assets. Readers are exposed to an advanced discussion on the concept of financial freedom and taught investment philosophy. They learn what types of wealth count toward financial freedom, and what types don’t. 

accumulating a lifetime of wealth in a short period of time involves making personal decisions in major areas of your life that are different from the norm. 

it involves a change of perspective that may be sharply at odds from that of your family, friends, and colleagues. Examples of the perspective you’re about to discover include: You should start by saving the next $1000, not earning the next $1000. A new car is totally unnecessary. You should spend more, not less, on entertainment and fun. Student loan debt is rarely worth it. Buying a home (or worse, a condo) in the best part of town will slow you down on your path to early financial freedom. Stocks are less risky than bonds. You need to spend less money to earn more money. Developing a specialty is far more risky than being a jack­of­all­trades. A few good options are better than too many options. Contribute less, not more, to your retirement accounts—and be ready to withdraw from them early. 

You may not be able to retire forever on one year of savings, but you can certainly introduce yourself to a wealth of choice—the ability to take advantage of opportunities unavailable to those with weaker financial positions. 

Remember, the goal is to build out a yearlong financial runway. Retirement savings, home equity, cars, and other false assets aren’t useful to the individual who wishes to work toward early financial freedom. The fellow with $20,000 in retirement savings and $40,000 in home equity, but who spends $3000 per month and has just $7000 in the bank, has no financial runway. If he leaves his job, he runs out of cash in three months. Compare this to the guy with $25,000 in cold hard cash and a $2000 per month lifestyle. He can leave his job for a year or longer and be just fine. 

The latter has no real wealth that he can deploy in the short term and is locked into working his current job or one very much like it to cover the mortgage. 

must start designing a long­term lifestyle that costs as little as practical, given their priorities. For 

The hard truth is that the first step in the process to escape the rat race is (and always has been) to begin preserving capital. Frugality. Savings. Penny pinching. Living on less. 

the individual seeking early financial freedom must do three things to achieve their goal: They must accumulate real assets that produce income and increase in value. They must constantly seek to invest their capital efficiently. They must design a lifestyle that costs as little as practical, such that passively generated income can pay for it. 

If you can easily get by on significantly less income than you currently earn, you open yourself up to an entire world of possibilities or opportunities. Some people call this luck—and only the financially prepared are in position to get lucky. Those possibilities absolutely include jobs and entrepreneurial pursuits that require short­ term sacrifice for the opportunity to pursue huge long ­term gains. 

In Summary The preservation of capital should be the primary starting focus for financially ambitious nine ­to ­five employees for three main reasons: Frugality exposes the saver to opportunity. Frugality is noninvasive to one’s lifestyle relative to moonlighting or building businesses. A penny saved is better than a penny earned because it is after ­tax wealth. This is not to discredit the importance of scaling your income and increasing your investment returns. This is just to point out that it’s less effective to attempt to earn more money or invest efficiently when you can have far more impact by taking control of your spending. 

The strategy outlined in this book relies heavily on your level of emotional motivation. 

The strength of your desire to become financially free early in life is paramount to your success. But, you must also learn to control your emotions and moods in the short term. It’s called being disciplined. Do not allow shallow, short­ term emotions to prevent you from achieving your bigger goals. 

ask yourself the following question: Is that event/trip/item so important that I’m willing to delay my financial freedom in order to purchase it? There’s nothing wrong with saying “yes!” occasionally to the above question; nothing wrong with having fun and buying things that are awesome with your hard ­earned money. But, always understand the implications of those purchases. 

You should become very uncomfortable spending money unnecessarily, because wanton spending delays your freedom. 

If you consistently prioritize your early financial freedom the way it deserves to be prioritized, then many spending decisions are easy. For instance, you won’t set aside any money for clothing, meals out, or gas. Instead, you will make decisions on a case­by­case basis, erring toward the lowest cost option to fulfill your needs and desires wherever reasonable. 

That desire will force you to make decisions logically based on an emotional desire, with or without a monthly budget. 

Your long­ term motivation needs to be stronger than the vast majority of your short­ term urges. 

Instead, attempt at first to do things yourself. Develop an understanding of the scope of work involved and the potential risks to look out for. Then, make a decision about hiring out the work. Do not hire out tasks unless one of the following is true: There are potentially catastrophic consequences of misdiagnosing the problem. Think of this like a broken bone, suspicious lump, or other chronic health issue that doesn’t go away after a few nights of sound sleep and a few intense exercise sessions. It is unlikely the job can be completed in less than one full business day, and the job needs to be done as soon as possible. There are issues with completing the work that might create unreasonable liability (for example, it may be unwise to do electrical work on a rental property, because insurance might not cover any problems associated with that work). You’ve previously performed similar work, can safely say that you 

particularly detest the work, and can pay someone else to do the work for less than $25 per hour. 

If you are reliant on people with titles, degrees, and certifications to handle the basic stuff ordinary people deal with all the time you’re helpless. You’re throwing away money on problems that can be researched in just a few hours of applied effort. Hire a specialist only in select and truly unique situations, or after you’ve done exhaustive research and know exactly what you need done, and how you want it done. Now the folks who play in the 

If you take the position that you’re responsible for all of the outcomes in your life, you will find the cost savings to be in the tens of thousands or hundreds of thousands of dollars over the next decade or so. Yes, you will make mistakes, and yes, you should consult with these professionals from time to time. But, only after you have a reasonable understanding of what it is you are trying to do, and what success looks like. 

This is not about being cheap. It is about wanting early financial freedom so badly that the choice not to spend is an easy one. Take pride in the fact that you live efficiently and don’t blow your money on outlandish toys that destroy wealth. Far from being something to aspire to, ostentatious displays of wealth should offend your sensibilities as they so obviously delay financial freedom for a short­lived material pleasure. The guy at the stoplight with the shiny new jacked­up pickup truck should look like a fool to you, not as someone to be admired and emulated. 

Remember that every dollar you spend is after­tax, and every dollar you earn is pre­tax. 

This chapter clearly spells out the actions that a median wage­earner can take to drive total spending down to below $2000 per month within a year. While at least some of these tactics will apply to virtually all Americans, others will not apply to folks in specific circumstances and in specific parts of the country. 

The real issue is not your clothing budget. The problem is your rent or mortgage. The problem is your commute and driving costs. The problem is you are likely eating out too much and not eating reasonably healthy food from reasonable grocery stores. Those 

The categories that typically include fixed costs from the pie chart shown earlier are housing, transportation, personal insurance and pensions, healthcare, and education. On the other hand, things like Joe’s dining out budget might be called a variable expense. Joe can decide to bring a sandwich to work tomorrow instead of buying fast food or going to a restaurant. The spending categories that frequently include variable costs include food, entertainment, apparel and services, cash contributions, and miscellaneous. 

there’s no need to eradicate the small pleasures in life that you truly enjoy on a day­to­day basis if you are willing to do the big things right instead. Don’t sacrifice the little things. Change the big things. 

Find an apartment that can be affordably rented, make sure it’s as close to work as practical, and try to split the costs with a roommate or two. That’s it. 

Single individuals pursuing early financial freedom should understand that living alone costs nearly double what it costs to split an apartment a few ways by sharing the space and cost with a roommate. Families pursuing early financial 

freedom will, of course, make up for the inability to split housing costs by having two income earners. 

Living in a cheap apartment convenient to the workplace is the single most important thing you can do to start saving money. 

After housing, the largest fixed expense in Average Joe’s life is that of his commute. The American commute is an incredible expense that destroys billions of dollars in wealth, hurts the planet, and leaves good people with, literally, years of life spent risking their lives daily behind the wheel. In spite of his bitter resistance to this claim, 

Average Joe commutes about twenty­six minutes and sixteen miles to work, each way, each day.2 The government suggests that it costs $0.54 per mile to operate a vehicle. Average Joe earns $50,000 per year—or $25 per hour. Driving to work in this circumstance will cost Joe the following: $17.28 in driving costs per day and $21.67 in time lost per day. 

Compounded over the course of a 260­day work year, this leads to $4492.80 in costs directly associated with driving, and $5633.33 in lost time. That’s $10,126.13 per year! And that’s just in driving to work. 

This isn’t to mention all of the other costs that go with a long commute. Folks with long commutes have higher blood pressure than folks without. They are less likely to be happy than folks without long commutes. They are less fit than their peers without long commutes.3 They have higher levels of stress and anxiety than their peers without commutes. Therefore, folks with a long commute tend to be poorer, fatter, more anxious, less happy, and let’s speculate—less productive. 

moniker Mr. Money Mustache, or MMM. If you get a chance, read his article titled “The True Cost of Commuting” 

If these numbers [the costs associated with commuting] sound ridiculous, it’s because they are. It is ridiculous to commute by car to work if you realize how expensive it is to drive, and if you value your time at anything close to what you get paid. I did these calculations long before getting my first job, and because of them, I have never been willing to live anywhere that required me to drive myself to work. It’s just too expensive, and there is always another option when choosing a job and a house if you make it a priority. And making that easy choice is probably the biggest single boost that will get the average person from poverty to financial independence over a reasonable period of time. I would say that biking more and driving less was the trigger in my own life that started a chain reaction of savings and happy lifestyle changes that led my wife and I to retirement in our early thirties. 

Costs of debt. In 2013, Average Joe’s new car was $33,560.4 Joe typically gets a loan on his car purchase, and typically puts down an average of less than 5 percent.5 If it’s a $33,560 car, then Joe will put down $1678. This amount in many cases is not even enough to cover the taxes and fees associated with a car purchase. If that’s the case Joe will often end up with a loan balance that is more than the car’s value new. Assuming that Joe ends up with a loan of $33,560 financed at 4.5 percent interest for five years, he will pay about $1400 in interest alone in the first year. Over the life of the loan, he will pay almost $4000 in interest. Depreciation. According to Carfax, cars depreciate 10 percent the moment they’re driven off the lot, and then depreciate an additional 10 percent after the first year. After five years, a new car will have lost 60 percent of its value. Here’s the timeline of value for that new car: Lot price: $33,560 Value after driving away: $30,204 Value after year 1: $26,848 Value after year 5: $13,424 Total loss in value: $20,136 

There is little excuse for the aspiring early retiree to buy anything other than a small economy car. Only a tiny fraction of the population truly needs the excess seating, power, off­road utility, or cargo space offered by other types of vehicles. And, on the rare occasions that additional power or seating is needed, it’s often possible to rent a car or borrow one to come out way ahead financially. Whatever car you purchase, 

Every single person who has a long commute has made the combinatorial choice to live where they live and work where they work. It is a personal choice made at the individual level, and the decision to buy or rent a home and take a job in locations that are far apart from one another keeps middle class Americans middle class and Average Joe average. 

They think their jobs or their homes are special. They are not. This applies to everyone. Too often, Average Joe dismisses his commute as a part of life, as a fixed expense that cannot be changed in his circumstance. 

Amazingly, it’s well within Joe’s power to eliminate much of his eating out budget and instead feed himself delicious, self­prepared food for less than $300 per month per person. 

The secret Joe missed is that he needs to prepare most of his food, most of the time, with healthy purchases from reasonable (that means: not Whole Foods) grocery stores. 

Always have the ready option for a delicious and healthy meal Forgo truly unhealthy and horrible fast food entirely Enjoy meals out with friends and family when opportunity arises and makes sense Never go out to eat because he 

doesn’t have anything prepared Always be prepared with healthy snacks like fruits, nuts, and vegetables 

If you have a large box or bag of healthy nuts at your desk or in your lunch box at work, and the next best option is chips or candy from the vending machine, you are highly likely to snack on what’s within reach. If you don’t have snacks, then your dollars will flow into the vending machine, and fat will flow to your stomach. 

The primary purpose of insurance should be to eliminate distractions from your other life and financial pursuits. Proper insurance should allow you to go about your day without making decisions based on fear. You shouldn’t be afraid to drive around and get in an accident, or have a sickness unduly devastate your life. You also shouldn’t fear for your family, heirs, or the affairs of others if you pass away. 

Typically, the best way to reduce insurance premiums is to increase deductibles. Average Joe lives basically paycheck to paycheck, and even a $3000 expense is an emergency he can’t handle. Those aspiring to financial freedom will quickly save $5000, $10,000 or more, and manage their money and investments such that they have ready access to funds. Therefore, a $3000 deductible is no big deal. Make 

If you have high deductible auto insurance you may save hundreds of dollars per year. But, when a hailstorm damages your car, you might have to shell out $3000 as part of a high­deductible plan. This is a long­term win for you however, as you are likely to more than recoup the expense in lower premiums over time. 

For those who accumulate large war chests and are well on their way to financial freedom, high­deductible insurance makes more sense than its low deductible 

counterpart. For Average Joe, a $5000 financial hit is a life changing amount of money he cannot withstand. 

From this financial position, high deductible insurance policies can be a smart way to play the odds.

the simple practice of regular and intense exercise. Exercise adds years to one’s life. Those who exercise become more productive, think more clearly, and are better looking than when they fail to exercise consistently. These advantages directly tie to income­generation and the ability to live a healthier, happier, and wealthier life. 

Pay TV is a waste of money, not to mention time. Cut the cord and do something better with your life. 

Watch out for any subscription billing. In fact, go ahead and cancel any subscription that renews automatically on a monthly or annual basis as soon as you can. 

Avoid unnecessary waste, and purchase clothing you like and that’s reasonably priced. If new clothes are your thing, and this category is still less than 5 percent of your budget, go for it. 

Do not overestimate the value of an expensive degree, especially an advanced degree as it pertains to attaining early financial freedom. Do not underestimate the power of self­education and the knowledge that is readily available from books, seminars, and mentors. 

Saving 15 percent of your income will not make you rich. It 

You need to save 50 percent of your income. Or more. You need to cut out anything that does not bring you happiness from your spending—including much of what middle class America purchases. You need to take pride in living frugally, in handling your own problems, and in making choices that save you tens of thousands of dollars each year and result in a healthier, happier, wealthier, and more exciting life. 

might retire at fifty­five, instead of sixty­five. You are only making real progress when you don’t buy the car at all. When you bike to work. When you take on no consumer debt. When you take pride in your ability to enjoy your favorite pastimes for free. 

There are three initial steps that should be completed, in order, for the seeker of early financial freedom to build up that one ­year stockpile. These three steps are (1) to build up an emergency fund of $1000 to $2000; (2) to pay off all “bad debts” (we define this term below) and build strong credit; and then (3) to build up one year of financial runway in the form of cash or equivalents 

Bad debts include debts financed at high (10 percent or more) interest rates, that incur late fees, or that impact your credit score. 

Some examples of bad debts include: Credit card debt (often charge high interest) Fines and parking tickets (often incur late fees) Any delinquent or high interest consumer debts Payday loans (ugh) 

If you have bad debt, don’t buy luxuries. Don’t go out for dinner. Instead, stop wasting money and pay off those debts as quickly as possible. It’s foolish and dangerous to pursue investments, consider buying property, or otherwise make large financial decisions with bad debts looming overhead. 

Method 1: The Debt Snowball. Championed by personal finance and anti­debt guru Dave Ramsey, this concept involves paying off the smallest debt first, then moving to the next smallest, and proceeding so on and so forth. The advantage to this method is it offers the debtor the chance to score some easy wins with smaller debts to get them in the mindset and habit of paying down their debt completely. The disadvantage is it’s not technically the most efficient way to pay down debt. It’s a more efficient utilization of your money to pay down debts via the second method. Method 2: Pay the highest interest rate debt first. This is a more efficient method than the Debt Snowball approach because it involves paying down the most expensive debt first, and will result in a more efficient deployment of savings. The downside is that those with large high­interest debt may find themselves paying their debt for months or years before eliminating any single debt from their records. 

Two Quick Notes on Paying Down Debt Note 1: Try negotiation. Hospital debt, credit card debt, or other similar high­interest debt, can often be negotiated. This is especially true of delinquent debt that’s several years old. It’s amazing to watch folks with delinquent five­figure hospital debt negotiate their way down to just a few thousand or even a few hundred dollars with a single phone call. If you decide to negotiate your debt down, here are some tips for when you call your creditor: Understand that many delinquent debts are never paid, so the collector wins when you agree to pay even a fraction of the total amount owed. Keep in mind that a long call might be necessary—but even two straight hours is worth it if you can negotiate the bill down by hundreds or thousands of dollars. Be polite, but make it clear you’re willing to take as long as it takes on the phone to bring down your debt amount. Your creditor has every right to refuse to reduce what you owe, so don’t count on getting it lowered. 

In addition to bad debts, there are so called “good” debts. These debts can include things like: Home mortgages Student loans Car loans Personal loans Any other debt that is current and financed at low interest rates These debts are commonly referred to as “good” debts, but that’s a fallacy.

Improving one’s credit score is simple and straightforward. The first step is to go check your credit score by getting a free copy of your report from one of the three major credit bureaus or by accessing the information through a third­party website like Credit Karma. 

simply get current on your debts and begin making your payments on time. Look at your debts and set up automatic payments for them. In some cases, you might have to call the person holding your debt to find out how to begin making payments on it. The third step is to begin aggressively paying down your debt. The less you owe, the more your score will improve. 

To maintain good credit, pay your bills on time, and don’t take on more debt than you can easily repay. Ever. 

Once you’ve accomplished these three milestones, you will have the opportunity to pursue a more scalable career, house hack, or even take a six­month to one year shot at starting a business full­time. If you’re not interested in making those changes, then excess cash will be used to acquire income­producing assets until early financial freedom is achieved. 

That $25,000 is what you will use to turn your home into an income­producing asset. That $25,000 is what you will use to buy your way into a scalable income. 

Over thirty years, Joe’s model tells him that this decision’s financial impact is almost beyond belief. Living as a house hacker will result in about $1.5 million more wealth than renting, and about $850,000 more wealth than buying an equivalent single family home. 

Yes, not losing wealth can be counted as building wealth in the case of housing, which for most people is one of those “fixed” expenses we discussed in chapter 2. Interestingly, Joe notes that becoming a homeowner is a losing investment. That’s contrary to what most Americans think. True, it’s less bad to own a home than to rent in scenarios like this one. But Joe will still lose close to $300,000 in wealth over thirty years just by living in his nice single­family residence. Plus, look at his cash outlays! His bank account will look way worse as a homeowner (less cash in the bank, more tied up in equity in his home) than if he were to just keep renting for the next twenty­five years! Even so, the results are clear: house hacking is so far and away the financial winner that it isn’t even a comparison. 

In fact, as a finance nerd, Joe will probably end up spending less time managing his property than he does attempting to pick winning stocks. There is just so clearly nothing else he can do with his money that’s even remotely close to having as large a financial impact as house hacking 

If we extrapolate that every available dollar over and above what the SFR homebuyer will have available, is invested immediately in the stock market at 10 percent long­term returns, the picture changes in an interesting way. The renter actually has a leg­up on the homeowner from a cash position and has more cash to invest in the stock market. This lessens the true wealth gap between the renter, the house hacker, and the homeowner, and suggests that given the transaction costs of homeownership, it may be better to rent than to buy in the short­medium term. The homeowner has the least amount of cash available, since most of his wealth is tied up in equity in his property. This results in less opportunity to invest and makes owning a home even less favorable. 

Only in rare circumstances will house hacking prove to be less financially beneficial than renting. 

It’s an incredibly powerful way to eradicate one of the largest expenses in your life and replace wealth destruction with wealth creation.

freedom. Those who fail to house hack are missing out on perhaps the most powerful wealth­building tool available to ordinary Americans. 

These folks are getting a little smarter and a little more creative with their housing purchases relative to ways one and two. In this type of purchase, the prospective purchasers put in time and research commensurate with the significance of a large financial decision. They are also thinking, “What’s next?” as a part of their decision­making process. While they intend to live in the area for at least a few more years, they understand preferences change. 

The person buying solidly in this category will know their market, understand the math behind renting versus buying, intend to live in the property for several years, and have contingency plans for selling the property or renting it out in the event their life plans change down the line. This is a reasonably smart way to go about buying property. If you are buying property with this kind of thought­process in mind, it’s likely that your home won’t cause you undue financial stress, and that you’ll be able to move on with your career and life on your terms. 

A home is not an asset, unless it generates income or is expected to produce reliable appreciation. 

Way #4: Buying a Live­in Flip This way of purchase involves buying a property with a lot of “value­add” opportunities (read this as “in need of fixing”). The buyer intends to go in and take the home from a state of disrepair to a property in excellent condition. 

Every two to three years, they buy a run­down property in a good location, move in, and begin fixing it up on their nights and weekends. Over the course of the first year in each property they turn the somewhat dilapidated structures into a luxury home, and enjoy their handiwork for the next few years before selling it and moving on to another similar home. 

Benefitting from improvements that have created hundreds of thousands of dollars in additional home value, Ashley and her husband then sell their homes largely tax­free. They put the profits from each sale partially toward another property, and partially toward the things they really want in life. It’s like having an extra salary, in exchange for some weekend and evening work on the property. After just two or three such transactions, they accumulate almost $500,000 in after­tax gains, solidly cementing their financial futures. This type of strategy is often called a “live­in flip.” The obvious downside is that in order to be successful, the homebuyers will either have to fix the property up themselves, or manage contractors to do the same while living there. This means doing work, and sometimes a lot of work, to add value. The advantage, of course, is that the homebuyer is no longer dependent on the value of properties in the local area going up to make their profit. If they understand what the property will be worth after all the repairs are made, the homebuyer can, at reasonably low risk, go into the purchase with the expectation of a profitable exit down the line. They can also take as little or as much time as desired to fix the property up, and can do so at their convenience, so long as the property is habitable upon the purchase and can be lived in reasonable comfort during the improvement phase. Furthermore, when live­in flippers go to sell their properties, they can often exclude most of the capital gains on their primary residence from taxation, a nifty loophole as part of the Taxpayer Relief Act of 1997 that makes this strategy extremely advantageous. 

Way #5: Buying a House Hack House hacking is the most advantageous way to buy a first or next property. It involves purchasing an investment property that would make immediate sense as a rental, but living in one of the units or bedrooms. It allows the owner to live for free or at exceptionally low cost, while others pay rents covering her mortgage payment. This is the way to turn one’s housing expenses into a wealth creation tool. 

House hacking is the optimal financial decision for most first­time buyers. As Joe showed us in the last chapter, house hacking entails buying a piece of investment real estate with the intention of living in it, while renting portion(s) of the property to cover the mortgage payments. 

a house hack should make sense as an investment property at the time of purchase. You put yourself in an advantageous position if you buy 

Furthermore, house hacking can be combined with the live­in­flip strategy discussed earlier. It’s quite feasible to buy an investment property that needs some work, fix it up, increasing both the value of the property and the rent that it can command. This offers the purchaser an advantageous situation! The house hacker even gets the added benefit of choosing his neighbors! In many cases, folks moving into new areas are cautious about the types of people in their neighborhoods. As long as you aren’t discriminating illegally, you can choose the kindest, quietest neighbors who apply and kick out (either by evicting or refusing to renew a lease) the ones you don’t like. It’s just like owning a townhome, except with the ability to pick your neighbors, and with the bonus of being able to use the rent you collect to cover the mortgage payment. 

There are four questions that savvy first­time house hackers should ask themselves prior to buying a home or house hack: Is the property affordable with conventional financing? Are you willing to live in the property? Will the property cash flow? Is there a reasonable chance at appreciation? 

As a live­in house hacker—because of a special tax law that benefits owner­ occupiers—appreciation can produce a more powerful financial impact for you than it can for a traditional investor. Assuming you live in the property for more than two years, when you sell the property, much of the capital gains are tax­free. 

A job without opportunity for rapid salary advancement doesn’t offer the opportunity for the rapid attainment of financial freedom. 

Instead, this chapter is written purposefully for the young, ambitious employee (or soon to be college graduate) who feels their talents may be underutilized and underpaid. This is written for the fellow who doesn’t find particular joy in his career or line of work.  

Therefore, the wage earner who wishes to rapidly increase their income must carefully analyze how they make use of their time to ensure they are spending it as efficiently as possible in the pursuit of more income. If they are not spending their time improving their financial positions, then they had better be enjoying it or serving others. Otherwise, they are wasting time. 

Wage­earning employees learn, through years or decades of experience not to try too hard. They learn to do their jobs, not ask too many hard questions, put on a polite and pleasant appearance each day in the office, complete the tasks they’ve been assigned within the timelines provided, and go home. 

Coupled with a personal finance outlook seeking to spend every penny they earn, a startling pattern emerges. A surprisingly large number of Americans become unmotivated, specialized, unhealthy, and dependent on their current jobs to make it through the short­term future. They learn to passively accept the workday, and are too tired and unmotivated from their week to do anything other than watch a little bit of TV and go on the occasional weekend trip to visit the in­laws. What a terrible way to approach a career. But, does it sound familiar? This slow drain of enthusiasm and ambition confines your hunger for achievement to little wins one can earn from the cubicle. March Madness bracket becomes exceedingly important. Fantasy football becomes a central part of the workday banter. People jockey for the corporate tickets to the ball game. Wearing the stupidest tie in the office on Wednesdays is something of a weekly contest. Folks plan out ways to sneakily be the first one out of the parking lot at 4:00 p.m. on the dot on Friday. They apply their best creative efforts to these things—and it’s because creativity is slowly suffocated in a salaried job! Living out a professional life over decades in this manner is a terrible fate that those who achieve early financial freedom can avoid easily. 

The guys who are starting businesses, building empires, growing portfolios, traveling the world, and succeeding by all conventional measures of success aren’t doing so by being smarter than the average person. They are winning because they are playing a game where the possibility of success actually exists! It’s a game where they have at least a little control over their workday and productivity! Play that game! Not the one where winning means making your boss laugh. 

Those looking to earn more money, like those looking to save more money, are going to have to do some things that may be uncomfortable or new. They are going to have to make changes and perform actions that may not pay off for months or even years. They are going to have to make some big changes to their lifestyle and to their careers. Regular folks without the goal of early financial freedom will not understand these actions, or the reasons behind them. None of this should be a surprise, and the 

If your industry or career does not offer you the ability to take control of your income, you need to find a way to change—that is, if you want to move from an average income to an extraordinary one. 

The benefit to performance­based pay is that earnings can theoretically be unlimited. There are many downsides, however. One downside is that those who do not deliver against their metrics receive little or no pay. Another disadvantage is that many commissioned salespersons, contractors, or similarly paid workers do not receive the cushy benefits packages offered by large corporations to their employees that earn large salaries. Finally, salespersons and commissioned consultants or contractors typically will have to spend months or even years developing expertise and a sales pipeline to begin producing results that can out­ scale salaried income. So, if you make 

If you want to have a shot at earning way more money or at achieving financial freedom early in life, you will likely have to give up a regular salary in a traditional career to attain it. 

They include work that directly uses her professional skillset and that give her the chance to gain more experience while earning large amounts of money per hour. If you want to have a good shot at succeeding, choose to go down paths that are synergistic with your current life circumstances and career! 

Pursue a career that is in more demand with your professional full­time efforts. This decision is made in college for millions of Americans. Don’t go through a four­year degree and spend tens of thousands of dollars to educate yourself on a subject with little commercial value. Why bother going to college at all when you can learn for fun and for free on your own time? Instead, pursue a degree that places you at some advantage in the marketplace. Understand that degrees that are unlikely to provide value in the marketplace are a sunk cost—you will have to start from scratch and learn something truly profitable if you desire to earn more income. Pursue your passion professionally if, and only if, it is marketable, or 

It is the combination of high income and a strong savings rate that will truly expedite early financial freedom. 

She realized that the reason other people don’t quit their jobs—even those with obviously lousy prospects—is the same reason they don’t take advantage of the free money in the Employee Stock Purchase Plan. They are either scared to try something new, unable to handle even a temporary reduction in cash flow, or too lazy to bother to educate themselves. These problems afflict millions of people in this country. Folks who would otherwise rationally pursue financial independence and greater income opportunities hold themselves back and instead follow the herd. The problem isn’t that people are stupid. Ellie’s coworkers were smart, hard­working people. The problem is that people who work really hard for money put almost no thought into managing it once they earn it. People don’t manage their money because their peers and associates don’t manage their money. It’s not “normal” to try to live life intentionally, doing what you want, when you want to do it. It’s some of the best analysts in the world fail to see the obvious problem preventing them from escaping the rat race and living the life they choose, instead of one chosen by a middle manager. Smart people utterly, bafflingly fail to see that their job/career is the reason they earn so little. And that it’s the most important thing to change 

Benefits are amazingly effective at keeping great people in middling roles at companies for years and years. Many people don’t like their jobs. When asked why they stay, they say things like, “I’m waiting for my promotion in March,” or “In two more years I’ll be fully­vested!” These folks are literally working a job they despise, for years in exchange for petty amounts of unrealized benefits or promises. 

Don’t be enslaved by benefits. Understand they pale in comparison to the ability to scale objectively against a metric, the ability to scale with the company’s production, and the ability to work or not work on your terms. Do not ignore their value entirely—obviously benefits do have value, but understand that benefits should be distant considerations compared to perceived opportunity. 

It’s really quite simple, you only have a few choices if you want to increase your income, and have no capital with which to invest in income­producing assets: Go out and develop a new skill that’s worth hundreds of thousands of dollars per year. Get a job that rewards performance with unlimited upside. Start a business. Freelance or start a side hustle. Get creative and synergize your income­ producing pursuits. 

Put yourself in financial position where you are unafraid to pursue opportunity. Put yourself in financial position where the cushy benefits of a dull job with little potential can’t hold you back. Don’t be one of the millions of smart, talented people who are too lazy, afraid, or financially incapable of challenging the status quo to pursue their dreams. 

Five Tactics To Help You Earn More Money Put yourself in a high achieving environment. Read and self­educate forever. Focus on continual improvement. Instantly make trivial decisions. Put yourself in position to get lucky. 

surround yourself with the very best people possible. Potential is stifled when ambitious young stars go into a company where there is an entrenched hierarchy, and a set path for advancement. 

Working in cramped conditions surrounded by folks who like to chitchat will not help you be productive. Instead, design a work environment that provides you the physical space and amenities that you need to be able to concentrate on important work for long periods of time. Furthermore, you should have access to the tools you need to get the job done right. 

“One hour per day of study will put you at the top of your field within three years. Within five years you’ll be a national authority. In seven years, you can be one of the best people in the world at what you do.” A book a week roughly translates into about an hour of study a day. This is what it takes to attain an income in the top 1 percent of all Americans. (The threshold to be in the top 1 percent was $389,436 per year, according to an Economic Policy Institute Study in 2013.1) In other words, reading and taking to heart one book per week, fifty books per year, will make you one of the best­educated, smartest, most­capable, and highest­ paid professionals in your field. 

The vast majority of decisions that are made on a day­to­day basis are fairly trivial. Yet, sometimes these small decisions can take up a tremendous amount of time. When it comes to trivial decisions, what matters isn’t necessarily making the best choice, but making one that’s good enough and putting that decision behind you. 

more important in the workplace and in business. A trivial decision doesn’t have a lasting impact. A trivial decision will not significantly change your life for better or for worse. Do not waste time on trivial decisions. 

you can improve your chances of getting lucky. You can do this in three ways: Learn to recognize luck. Put yourself in position to get lucky. Give others the chance to make you lucky. 

If you don’t have a clear goal, then you will probably not be getting lucky, 

If you don’t have any goals and aren’t sure what you want to do with your life, how on earth are you going to even know if you are getting lucky? You have no chance at good fortune because you don’t even know what good fortune looks like! 

Jenna meets many key connections by spending time at networking events, meeting with local friends who share her goals and interests, and even spends her time online interacting with people in her industry on popular websites. On the other hand, Jenna makes fewer such connections at the bar at 1:00 a.m. or while watching Say Yes to the Dress. Shocking, right? 

Jason tells everyone he knows he is looking to build his real estate portfolio and wants to learn as much as possible. He talks about it at real estate networking events, to friends, to family, and to random strangers he meets while out and about. He even discusses it with people who aren’t even remotely close to being in a position to buy real estate or help him with buying real estate. Is this annoying? Probably. But it also brings him opportunity. Jason has met multimillionaire real estate investors who are connected to him in unexpected ways because of his tendency to tell others about his goals early and often in conversation. One 

Where income inequality becomes a real problem is when it’s combined with wealth inequality. Income is usually (but not always) based on merit and natural ability. Income can be taken away and can come and go. Wealth, on the other hand, is a function of knowledge and time. Wealth in the right hands is much harder to lose, and in many cases, increases forever. 

Financial freedom is a state in which one has enough income from return on assets that they no longer need wage paying work to permanently sustain their lifestyle. There are an infinite number of ways to achieve financial freedom, but the principle always remains the same. The financial freedom equation is as follows: Assets x Return > Lifestyle Where “Assets x Return” is equal to the usable cash flow (in dollars per month) generated by your assets and “Lifestyle” is equal to your cost of living per month. Once assets generate returns in excess of the spending needed to fund your lifestyle, then the financial freedom equation is satisfied. 

While it is safe to say that money isn’t necessarily a source of happiness, those who build wealth and attain financial freedom generally have more choices in life and more opportunities to seek that happiness than those who do not. 

The Four Levels of Finance Level #1: Cash Flow Negative Level of Freedom: Lowest A cash flow negative life is one in which an individual or family spends more than they earn. 

Level #2: Cash Flow Neutral Level of Freedom: Modest Long term, a cash flow neutral life is one that’s reliant on either a paycheck, or in the case of the self­ employed, a small set of customers. Large life decisions are heavily dependent on the whims of a boss or are based on the changes and limited opportunities in one’s chosen field. 

The cash flow neutral category includes all lives that routinely save less than 15 percent of their total take­home pay. Mortgage payments and home equity do not count as savings, nor do retirement account contributions, since these assets are not usable in the short­term and do not generate usable cash flow. 

Level #3: Cash Flow Positive Level of Freedom: High Cash flow positive folks live well below their means and accumulate assets at a high rate relative to their earned income. These folks are able to work jobs of their choosing and are able to make major life decisions with thought given to their overall well­being first. They also have sufficient leeway in their lives to take risks with their careers and passions, should opportunity come a­knocking. The difference between a cash flow neutral person and a cash flow positive person can be hard to spot. 

Cash flow positive lives result in ever­decreasing dependence on others and lower tolerance for boring/ineffective work. They desire and seek out rewarding and engaging challenges in life. 

Level #4: Financially Free Level of Freedom: Highest Financial Freedom is achieved when cash flow that requires no work (or minimal active work) safely and consistently surpasses total lifestyle expenses. It seems like a lot of folks fantasize that financially free individuals lead a life of leisure. They’ll envision a nice beach, frequent traveling, massages, and other luxuries. While some folks do treat themselves to these types of lavish lifestyles, as a practical matter, the financially free folks are often some of the hardest workers and most frugal people around. The reason these people work so hard is because they no longer need to work for money. They work to solve a problem they are passionate about, master a hobby they enjoy, or to build a business empire that will last for multiple lifetimes. Because they have total control over how they spend their time, they only participate in projects that are truly interesting and engaging to them. This part of the book will move you toward early financial freedom. 

What is an asset? In this book, an asset is something that produces income (or reduces expenses) or appreciates in value. An asset should ideally produce financial benefit for use in the near future to support one’s lifestyle prior to retirement age. Investment or business income produced by these assets should require far less effort to maintain than the forty­plus hours per week that most full­ time jobs demand. If it doesn’t produce income, doesn’t reduce your living expenses, or isn’t increasing in value faster than inflation, it’s not a real asset. 

Bonus “False Asset:”: The Cash­flow Negative Spouse You’ll know this one when you see it. This is the husband who is too lazy to get a job and hits up the bar every night, or the stay­at­home mom who spends thousands on designer clothes and jewelry and expects a fancy dinner out at a nice restaurant every week. It is imperative that both partners contribute to the family’s bottom line either by contributing income or enforcing a budget and financial discipline. A lack of alignment can result in devastating consequences that not only leave couples in dire financial straits, it can potentially ruin the relationship. 

intentionally build wealth in a readily accessible form, and accumulate assets that are likely to produce excellent results that provide benefits immediately. 

Do not save money for the sake of saving money. Save money to invest it, and generate cash flow and appreciation. 

If Bryan has a stockpile of $1000, and doubles that money in the stock market, his life won’t change much. Sure, he has an extra thousand dollars, but he cannot quit his job, cannot move and sustain significantly higher rent or mortgage payments, and cannot change material aspects of his transportation or other daily activities over the long run. Same thing with $10,000. But, if Bryan can take $100,000 and invest it efficiently, earning steady 10 to 15 percent returns, all of a sudden he may experience a real impact on his life. 

On the other hand, portfolios with a certain scale (often $100,000 or more) can often produce annual returns of $10,000, $20,000, or much more by creative and successful investors. All of a sudden, this becomes an effort that’s actually rewarding. Regardless of current portfolio size, it’s always valuable to self­ educate on the fundamentals of investing and wealth management. 

Those just starting out with little to invest, however, would be well served to focus the bulk of their efforts on earning more money instead of attempting to eke out large percentage returns on fledgling portfolios. 

The safe withdrawal rate (SWR), expressed as a percentage, determines what percent of usable net worth (“real” assets) that can be withdrawn each year, such that your assets are not depleted. 

SWR is defined as the quantity of money, expressed as a percentage of the initial investment, which can be withdrawn per year for a given quantity of time, including adjustments for inflation, and not lead to portfolio failure. You can use the safe withdrawal rate to answer the question: “How much wealth do I need to accumulate to become financially free with little to no risk?” 

A conservative person might assume a safe withdrawal rate of 1 to 2 percent. This means that if this person wants an annual income of $50,000, he should accumulate $2.5M to $5M in assets. 

The more streamlined your personal spending and lifestyle, the less you spend keeping afloat month to month, the easier it will be to achieve early financial freedom. Think carefully about each part of your budget, and constantly prune unnecessary expenses. Your spending is likely to be the single greatest barrier between you and early financial freedom. And remember, once you achieve early financial 

To achieve early financial freedom, you will need to transform your financial position from one with little to no real assets or one dominated by false assets to one in which you have a large amount of real wealth that generates income and appreciates in value forever. This all starts with lifestyle. Those living a low­cost lifestyle need fewer real assets and can earn lower returns on those assets to sustain early financial freedom. A low­cost lifestyle enables the saver to accumulate cash and income producing assets faster. 

Do not begin making large investments if you have outstanding bad debts remaining.

Note that those who have completed parts I and II of this book may also find themselves in excellent position to take on entrepreneurial pursuits, including starting and buying small businesses. 

You are enabled to pursue entrepreneurship in part due to your continually lengthening financial runway. The guy with over $100,000 in real net worth has a four­year financial runway on a $25,000 per year lifestyle. That means he can work on a new business for years before running out of capital and needing to return to wage­paying work. 

These are the seven core tenets of investing. Violate these tenets, and you risk slowing your journey to early financial freedom. After that, we will explore key investing concepts that will help you frame your investment ideology. 

This index, called the Consumer Price Index, suggests that the inflation rate averages out to about 3.2 percent per year over the past several decades. 

Because of inflation, the value of cash decreases over time, as it will purchase fewer and fewer goods and services. 

The Seven Core Tenets of Investing To kick things off, here’s the list: Tenet #1: Never spend the principal Tenet #2: Reinvest most investment returns Tenet #3: To invest, one must have capital Tenet #4: Effort correlates with return only if you are in control of the investment Tenet #5: Investment returns are impacted by knowledge Tenet #6: Do not confuse volatility with risk Tenet #7: The best investments are specific to the investor’s personal situation 

To sum up the key to wealth preservation in one phrase: Never, ever spend the principal. Abide by this rule and you, your children, and your children’s children will be taken care of financially until the end of time. 

When you decide to invest a dollar, you need to think of that dollar as gone. Out of your life. Forever. You never get to spend that dollar. You never use it to buy coffee, purchase a primary residence, pay for Junior’s college, spend on retirement expenses, or anything else. Instead that dollar is to be put to work generating returns, forever. 

It is acceptable to spend the returns generated by an investment though, whenever they materialize. But it’s not acceptable to spend the original dollar if your goal is to sustain a perpetual state of financial freedom. 

The physical exertions and time spent actually working on the investment— individual efforts—can be almost entirely outsourced to property managers, handymen, and contractors, and as investors grow wealthy, this effort should be hired out. However, without knowledge so much can go wrong for those who seek to invest and build businesses. Knowledge decreases the risk of an investment in which an investor has control. 

Now, stocks as a group are more volatile than bonds. However, it’s important to make the distinction between risk and volatility, a distinction many investors fail to adequately understand. While stocks are more volatile than bonds, they are not more risky. The most noticeable feature of this graph is that treasury bonds produced far less total return than stocks over the time period studied. This same scenario plays out across virtually every thirty­year period in modern history. 

Investors, attempting to permanently build sustainable sources of life changing passive income, understand the core concept of investing. The first and most important core tenet: Never, ever spend the principal. 

They care only that an investment helps them build the most total wealth over time, relative to its alternatives. Stocks, over every long period of time, have historically produced more wealth than bonds, and with increasing statistical certainty the longer the time horizon! It is therefore quite costly to allow the secondary point—that stock values will fluctuate with more volatility than bonds, to supersede the most important point! In the short run, yes, investors will likely suffer some big drops in the market value of stock portfolios. But, since they are investing forever, and never spend the principal, they accept that volatility with the understanding that they are clearly likely to build more wealth over time investing in stocks versus bonds! Another way of putting this is to say that bonds are more risky than stocks, because investors are at a far higher risk of having less long­ term wealth by investing in bonds than in stocks. This is because investors in the game for the long term sensibly define “risk” as “the probability of having less wealth over time.” With this more appropriate definition, bonds are statistically more risky over the long run than stocks. Stocks may be more volatile in the short­run—stocks may have more ups and downs—but over virtually every thirty­ year period in history, equity markets outperform debt markets! 

Most people, especially amateur investors, fail to understand that great investment returns do not come from typical investments made in the stock market, bond markets, or even in real estate. Instead, the greatest investments are often in things that reduce monthly personal expenses. Yes, reducing monthly cash outflows counts as an increase in wealth and can be considered to be an investment return. 

Too few people give investments that save money the respect they deserve. They become very excited about owning popular companies like Facebook or Amazon, but refuse to believe purchases that substantially reduce their monthly expenses are investments. In many cases, they can earn far greater returns 

Five Concepts for the Savvy Investor If you follow the core tenets, you will be off to a good start in developing a strategic investment plan, 

These five concepts are: Speculation versus Investment Opportunity Cost Diversification Passive Income Materiality vs. ROI 

First, over the period from 1928 to 2015, the geometric mean return of the S&P 500 was 9.5 percent, which is very close to this 10 percent return rate. 

In the language of finance, 10 percent per year is our cost of capital. If we assume that we could earn 10 percent returns on $10,000, then the cost of capital (the cost of failing to invest) is $1000 per year. Here are some takeaways from the discussion of opportunity cost: There is a very real cost to not taking action. There is a very real cost to not investing our available excess funds. The cost of an investment that loses money is greater than just the money lost, since all the returns that could have been achieved in another investment are lost as well! 

risk isn’t defined as probability of a loss in value in the short­term, but as the probability of an investment producing less long­term wealth than another investment or set of investments. Given the goal of early financial freedom, the concept of diversification, as many traditional financial advisors define it, doesn’t apply. Let’s illustrate an example of traditional diversification. Joe is worth exactly $1M dollars. His net worth is divided as follows: $250,000 is in real estate equity $250,000 is in stocks $250,000 is in bonds $250,000 is in cash In this example, Joe is diversified, with his wealth split evenly among four asset classes. 

the ideal way to manage assets is to focus exclusively on that asset class he or she feels is likely to produce the largest and most accessible long­term returns, and to invest in that asset class consistently until the desired amount of wealth is accumulated. The goal in this book is to rapidly attain a state of financial freedom as early in life as possible, not to preserve a small amount of wealth. 

First, diversification assumes that protection of principal is the most important goal. While protection of principal is important, remember that as investors, we abide first and foremost by Tenet #1: Investors never spend the principal. Protection of the principal isn’t the most important goal, especially for someone just getting started in a career or in building wealth. Rapid accumulation and expansion of capital, within reasonable limits, is far more important, given the goals of readers of this book. It is almost certainly much more efficient to build net worth, for example, by house hacking (discussed in chapter 4) for a few years than to try to build up an equivalent equity position in stocks. 

Diversification is extremely important to certain investors: The very wealthy and those near retirement in particular. 

Dollar cost averaging is the practice of consistently buying a fixed amount of an investment over time. For example, if you plan to purchase $1000 of an index fund each month for many years, you would be dollar cost averaging. 

The objective is to sustain a system of wealth creation, not to time the markets perfectly. As long as you consistently purchase an asset class that’s capable of sustaining long­term returns and are comfortable with your choice, you are likely to build wealth regardless of market highs and lows. 

There is plenty of time to diversify once you have a net worth exceeding $100,000, $200,000, $500,000, or even $1,000,000. But, if your goal is to give yourself the best odds at achieving financial freedom early in life, diversifying your first $25,000 in stocks, bonds, gold, and whatever else is unlikely get you there quickly. 

If you are truly passionate or committed to attaining early financial freedom so quickly that real estate investing and index fund investing are simply too slow, then you will need to find means of investing that are more aggressive and more suited to your personal situation. Here are some examples of other ways that individuals have built wealth and achieved early financial freedom: Invest with options Create or buy a blog Buy a small business Write a book Lend with peer­ to­peer lending Create YouTube videos Become an angel investor Rent out a home out through Airbnb Build an app Build an online course Gamble (no, this isn’t recommended) Become an Internet entrepreneur 

Never spend the principal, reinvest the majority of your investment returns, and build wealth forever. The informed investor, who develops a sound philosophy, will reap the rewards of this study in increasing amounts throughout her life. 

There are lots of choices; don’t be timid about exploring them. And be proactive in your quest for early financial freedom. 

While average returns will not speed you on your way to early financial freedom, the fact that average returns can be achieved with essentially no effort will enable you to apply your efforts elsewhere in pursuit of earning more money or designing an ever more efficient lifestyle. 

Read on below to understand the two major reasons why attempting to invest in individual stocks is likely to be a waste of time that produces no excess wealth for the average investor with little to no starting wealth. 

Reason #1: The Competition Is Out of Your League One of the reasons that attempting to pick individual winning stocks is so difficult is many other investors are also trying to do exactly that. 

They are often highly paid, have excellent access to information and company management, and have years of experience in their markets. 

You aren’t competing with other people like you, who are investing in stocks part time while making a living from a day job. You are competing with Matt. Matt moves tens or hundreds of millions of dollars into and out of companies. Average investors move hundreds or thousands of dollars into and out of companies. 

Reason #2: The Alpha Isn’t Worth It 

really, hard. It’s probably all three. Let’s suppose things had gone differently. Let’s suppose he was a stock­picking prodigy like Matt or a legendary investor capable of sustaining long­term returns like Warren Buffet. Let’s suppose that instead of losing money, he earned a 25 percent return on his $5000 investment and brought home a cool $1250 in 2014. Let’s also suppose that he was able to produce this incredible result, beating full­time investors like Matt and legendary greats like Buffet on just ten hours of research per week in his spare time. In this scenario, he would have beaten the market’s return of 11.4 percent by 13.6 percent. That additional 13.6 percent return (which again, is extraordinary as an investing achievement) is what investors like to call alpha—here defined as the return you generate in excess of the market average. On a $5000 investment, David’s alpha in this scenario equates to just $680. Over 500 hours (fifty weeks at ten hours per week in this example) of research went into that alpha. That’s roughly $1.36 per hour. Selling water bottles outside the stadium is starting to look a little better, huh? 

$13.60 per hour! Realistically, the best of the best only dare to hope for 1 to 2 percent above­market returns over the long run. In order to earn a median salary of $50,000 per year, you’d need to have $2.5M to $5M in the bank to justify putting in a real full­time effort to pick stocks. And if you are picking them in your free time? Well, best of luck. 

The trouble with it all, however, is that as individuals have proven, picking winning stocks can be done. It’s just a game where the odds of winning are stacked against you, where more variables than you can count are in play, and where knowledge and hard work often has no bearing on one’s success. That’s a fool’s game. 

If you invest in stocks, invest with index funds. One example of an index fund is the Vanguard 500 Index Fund (Ticker Symbol VOO). This fund buys a stock in each of the companies in the Standard & Poor’s (S&P) 500, and like most index funds, it’s a weighted fund. This means that if a company is growing fast, it’s larger market value is reflected by increasing weight in the investor’s portfolio, and companies that are declining become smaller and smaller pieces of the portfolio. 

First, it ensures that the collapse of one company cannot wipe out an entire portfolio. Second, it exposes the investor to many different companies, enabling the fast growing ones to contribute to their portfolio with increasing weight. Third, and very important, the costs of running index funds are cheap, and as a result index funds have lower fees than actively managed mutual funds. 

Five Reasons to Invest in Real Estate Reason #1: Rental Properties Build Wealth in Multiple Ways Rental properties help investors build wealth in three ways: Income Appreciation Loan Amortization 

An investor can look for deals that are undervalued or in an up and coming area to get a shot at excellent appreciation. This kind of speculation may be a great idea for investors looking to take advantage of trends in their local market, so long as the property is an income­ appreciating asset regardless of whether the local market improves. 

These advantages to rental property investing are further compounded by special tax advantages that real estate investors enjoy. For example, phantom expenses like depreciation can offset rental property income. This increases your after­tax cash flow relative to some other types of investments. 

Reason #2: Rental Properties Allow the Investor Control Real estate investors have much more control over their investments than folks who invest in the stock market or with other publicly traded securities. They can find creative ways to reduce expenses, take over when things get out of hand, and mitigate problems. 

Countless people have inherited rentals, kept former homes after they’ve moved out, bought real estate without any prior education, or otherwise gone into landlording without prior preparation. This offers opportunity to the investor looking to run their rental property business seriously—as opposed to someone who manages a former home they couldn’t sell or who inherited a rental. A savvy investor can build a system to deal with problems, fix up the property himself or hiring it out as makes sense in his personal situation. There is plenty of opportunity to compete effectively in the marketplace for the investor willing to commit to the business for the long term and put in effort upfront. 

Reason #3: Rental Properties Allow the Investor to Benefit from Leverage Leveraging (buying real estate with a loan) allows the investor to control more property with less money and offers opportunities for smart investors to more rapidly build wealth and move toward financial freedom. With a 20 percent down payment, an investor can purchase a property roughly five times higher value than if they were to buy a property for cash. This has the effect of immediately compounding the rewards and risks of real estate fivefold. 

unleveraged real estate (the diamond line) performs worse than the stock market (the square line) over time, on average. Leveraged real estate, on the other hand, typically produces larger returns for investors than the stock market over the first decade, and then produces lower than average returns after that as the portfolio deleverages and the debt is paid down. 

Real estate investors that use leverage effectively are presented with a good problem after a few years. On the one hand, they are paying off their loans and getting some great passive cash flow from their investments. On the other hand, they’d actually be better off from a return perspective if they just sold their de­ leveraging properties and invested in the stock market, or better yet, re­leveraged by selling off their old properties and buying newer, bigger, and better ones! 

The key points here are these: Leveraged real estate produces greater returns on average than unleveraged real estate. Leveraged real estate produces less initial cash flow than unleveraged real estate or even dividends from the stock market on average. Every year, as you pay down the loan, and as the property appreciates in value, your investments will on average deleverage, decreasing your return on equity, but likely increasing your cash flow. 

Reason #4: Real Estate Investors Can Trade Up 

Reason #5: Real Estate Is Manageable While Working a Full­time Job Every real estate property purchase involves hard work, discipline, and tests a variety of traits, both in acquisition and management. 

Real estate investors have but to sustain a few basic principles to give themselves a high probability of success: They run frugal lives and businesses, relative to generated income. They keep plenty of cash on hand to handle large unexpected repairs and maintenance. They buy reasonable properties that will obviously produce cash flow after financing and operational expenses. They buy in locations that are desirable or that a reasonable person would expect to become more desirable over time. They treat their tenants, and those they do business with, honestly and fairly. They act consistently, with a long­term outlook. 

Real estate investing works best when investors purchase properties during times when they are well capitalized and in a stable life position. Investors with tens of thousands of dollars in the bank set aside for the next purchase, who are pre­ approved or extremely well­qualified for financing, or who have other sources of money ready to go are in excellent position to purchase real estate with good odds for success. 

People tend to succeed in the long term only at those endeavors on which they focus, and inspect regularly. In order to become successful financially, and otherwise, it’s imperative you have an understanding of your results on an ongoing basis, and use that understanding to make changes where applicable. It’s important you track and measure your efforts when it comes to time and money. No one is perfect. Everyone 

Two Internet products that have emerged as leaders in this industry at the time of this writing are Mint and Personal Capital. 

The First Financial Metric: Net Worth One’s net worth is simply the number of assets one owns, minus the debts one owes. 

Retirement accounts may only be considered part of this equation if they can be accessed far in advance of retirement age, or are a meaningful part of the current financial decision­making process. While it’s not bad to have the retirement account, it’s not useful to one whose goal is to secure early financial freedom. 

Calculating Real Net Worth We’ve already demonstrated commonly calculated net worth for Sam. Here’s how Sam would calculate his real net worth: Sam has the following real assets to his name: $7000 in cash Total usable assets: $7000 Sam also has the following debts: A car loan of $17,000 on the Honda A mortgage for $240,000 on his home $4000 in credit card debts $30,000 in student loans Total liabilities: $291,000 Sam’s usable net worth is negative $284,000. How did this happen? Well, Sam made several key mistakes that far too many middle­class Americans make: He bought a financed car. He bought a luxury home with a huge mortgage. He got himself a financed degree. He failed to build any significant wealth outside of a retirement account. Folks, this is likely what most of America considers a strong financial position, and it’s absurd. A lifetime of “smart” decisions and Sam is in a $284,000 financial hole. Another 

The Second Financial Metric: Spending 

a budget (a detailed outline of what you plan to spend in the next week or month) isn’t necessary for those serious about pursuing early financial freedom. If you agree with the basic premise of this book, then it will be clear to you that every time you spend money, you are by definition prioritizing that purchase over the more rapid attainment of financial freedom. Spending decisions are made and avoided in the moment, and every purchase is a penalty that delays your freedom. While there are transactions that are worth delaying financial freedom, the pattern that works for you should become clear very quickly. If that’s your 

The Third Financial Metric: Income 

The Fourth Financial Metric: Time Most people have no idea how they spend their time. 

Most people have no idea if their actions tend toward their goals (in fact, most people don’t have goals). Early financial freedom is your goal. 

You should be able to go from a standing start with few assets to well over $100,000 in real net worth within three to five years. Your annual goals should be set up to accelerate through the stages of wealth creation outlined in parts I, II, and III. There is no reason you, as a median wage earner, cannot surpass the $100,000 mark in three years if you follow the advice in this book and act intelligently in pursuit of your goals. 

Optimal daily planning and tracking comes down to being very intentional about the most important things in your day, and setting aside several hours of dedicated quiet time toward the completion of that task. However, you also cannot systematize your interaction with truly important people in your day, and will need to set aside not time blocks, but action blocks with regards to reaching out and meeting with other people and helping them. Make sure you are prioritizing 

Many people understand what they need to do to become wealthy. It’s straightforward: save; earn; aggressively invest the difference. Repeat and scale until early financial freedom is achieved. All it takes is consistency, intelligent effort, and time. However, progress can be drastically slowed and financially freedom needlessly delayed due to small mistakes and bad habits that compound over time. 

Cut These Ten Habits Out of Your Life Habit #1: TV/Netflix Netflix and 99.9 percent of television programming have absolutely nothing to offer in terms of steering you toward the things you really want in life. They are a distraction, a waste of time, and worst of all, an opportunity cost. 

Habit #2: Sports Entertainment Professional, college, and amateur sports are a distraction. You could be doing something better with that time in almost every situation. 

Habit #3: A Luxury Residence Far from Work 

Luxury living is often expensive to maintain and furnish, and encourages other behaviors (such as TV, sports, eating out, nightlife, and shopping) that further detract from goals. Many folks who choose such living situations also purchase an expensive automobile to compensate for their long commute and match the high standard of living embodied by their personal home. 

Habit #4: Eating Out There are occasions when meeting someone for lunch makes sense. Catching up with a friend, family member, potential business associate, or coworker over lunch or a beer can be a great use of time. Using reasonable restaurants this way isn’t a bad thing. If you meet potential connections, mentors, or other people who are likely to help you move toward your goals, then do that regularly, every single day, if you can. On the other hand, if going out to lunch, dinner, or worse, breakfast by yourself or with the same small group is your go­to move, then it’s likely eating your dreams. Bring a lunch instead. 

Eating out regularly has the following drawbacks: It’s expensive. It’s time­ consuming. It’s unhealthy. 

Habit #5: Social Media Facebook, LinkedIn, Twitter, Instagram, Pinterest, and other major social media channels are now part of everyday business vernacular. 

Habit #6: Music at Work Ah, I can hear the shouts of disapproval already. Music in and of itself is a wonderful thing and is a wonderful way to entertain yourself. If you need a few minutes of your favorite song in the morning or like classical music while you work or need a few amped­up songs to get pumped for your workout, obviously it would be a mistake to cut that out. But music is not helping you achieve your goals 

Music doesn’t directly take away from your ability to do other things, but it could be replaced with something that will actually help move you toward your goals, and it’s a distraction. Over a long time period, such as a year, the person who forgoes music for self­education and development audio will have a massive advantage over the music listener. Typically popular music has no place 

Habit #7: Nightlife Occasionally, you will meet someone so deluded that they argue that getting drunk and stumbling around bars is productive. 

Habit #8: Shopping There are some items in your life that can make a serious difference in your productivity, and there are some items that will last much longer than others. For example, it’s quite reasonable to spend a large amount of time selecting a new mattress, investment property, computer, or insurance policy, as that might significantly improve the quality of your life, your ability to produce effectively on a day to day basis, your peace of mind, and your financial position. 

Like many of the other habits on this list, shopping aimlessly is a waste of time and money, 

Habit #9: The Snooze Button The snooze button is the ambitious person’s greatest ally. It keeps the competition in bed, where they can’t compete! Better yet, it makes them groggy, unproductive, and way worse off than if they had just gotten out of bed in the first place. When that snooze button 

Habit #10: The “I Want to Try to Do Everything” Mentality Millennials, for their part, have been widely documented as valuing such experiences over other types of consumption. There’s nothing wrong with this mindset, and indeed, one of the benefits of early financial freedom comes in the ability to have significantly more unique experiences than peers that work forty hours per week with three weeks vacation. However, taken to the extreme, this mindset results in the following outcome: They have a ton of shallow experiences in a large number of areas, thus becoming fairly lousy at a lot of different things. 

Too many people seem to prioritize having, as wide as possible, a breadth of life experiences, but fail to prioritize having a deep level of expertise or passion about hobbies in a more narrow range. This isn’t to say you shouldn’t 

Replace the time eaten up by these habits with time spent doing things you truly love and things that will move you toward your goals. 

The hardest part of the journey is going from a standing start (little to no net worth) to approximately $100,000. It takes sacrifice to accumulate the first $25,000, hustle to scale that income, and intelligence, knowledge, and creativity to turn accumulated capital into income producing investments that increase in value. Progress seems painfully slow at first, but once you get the ball rolling, it will never stop. Assets continue to grow and snowball, and more and more income is generated with less and less effort. The first step on the journey toward early 

Focus on making financial progress such that you could survive for a year without employment. Then five years. Then forever. It doesn’t matter how early financial freedom 

find a list of five strategies that can be used to transform retirement accounts from false assets to real ones. 

Strategy #1: Use Your 401(k) Balance as a Hedge Against Your Current Savings Plan If you have a comfortable, high paying job, at or above that $100,000 per year mark, and plan to have multiple years of lower income after retirement, then maxing out your 401(k) contributions now, while earning income in a high marginal tax bracket, is a simple way to build net worth that you can use to provide a large cushion to secure your financial position in old age. While it will not help you achieve early financial freedom, it may be nice to know you have some steadily growing funds that will be available later in life. This is because the 401(k) will lower your tax payments today, and you can allow the gains to compound tax­deferred. 

Strategy #2: Roth Conversion The Roth conversion strategy is a great option for those with money in a 401(k) or other pre­tax retirement account looking to access that money early. It works well in years after early financial freedom is achieved, where one earns very little income or is in a lower tax bracket. For example, suppose that an individual earned a high income of over $100,000, contributed money to a 401(k), and then left wage paying work. 

advantageous to do this in a year where you are in a lower tax bracket, so those conversion taxes are minimized. At this 

you can withdraw Roth IRA contributions immediately (but not gains). Please note, however, that if you take advantage of this Roth IRA “conversion” loophole, you generally need to wait five years to withdraw contributions penalty free. 

Strategy #3: Maximize a Roth IRA Roth IRA’s are great for two primary reasons. First, the gains are tax­free. Second, you can withdraw contributions (but not gains) penalty free. It can be a great idea to make the maximum annual contribution to a Roth IRA if you are eligible—assuming you intend to withdraw your contributions to fund early financial freedom. The negligible downside to a Roth IRA is that you can’t withdraw investment gains tax and penalty free until you turn fifty­nine and a half. 

Strategy #4: Roll Over Your IRA into a Self­directed Plan As an additional option, there are self­directed IRA options that allow folks to invest in stocks, bonds, and mutual funds, but also things like real estate, private notes, private investments, and other types of alternative investments. The obvious advantage to this approach is you get to take much more control over your investments, and that you get to use your money to perhaps invest in things that you are little bit more familiar with or have more control over. 

a self­directed IRA isn’t a good bet for someone without a large 401(k) who just wants to invest in index funds, as you can probably invest in those index funds using a more traditional IRA company to do so at lower total cost. Using a self­ directed IRA may make sense if you want to invest in alternative investments using retirement funds, 

Strategy #5: Substantially Equal Periodic Payments It’s possible to access the money in an IRA penalty­free before retirement, if the money is taken in the form of a substantially equal periodic payment (SEPP). 

If you have money in an IRA and want to access it before retirement age, you can take a portion out every year. Although the distributions are generally still taxable, the SEPP is designed to protect you from early distribution penalties.

The Personal MBA by Josh Kaufman

Personal MBA Notes:

Definition of a business:

Every successful business creates or provides something of value that other people want or need at a price they’re willing to pay, in a way that satisfies the purchasers needs and expectations and provides the business sufficient revenue to make it worthwhile for the owners to continue operation.

At the core, every business is a collection of processes that can be reliably repeated to produce a particular result.

A business is a repeatable process that makes money. Everything else is a hobby.

1. Value Creation: discover what people want and create it.

2. Marketing: attracting attention and demand for what you created.

3. Sales: turning prospective customers into paying customers.

4. Value delivery: satisfying customer experience.

5. Finance: bringing in enough money to keep the business going and going and worth while.

ERG theory of needs:

Existence (safety, hunger, shelter)

Relationships (love, bonds, friends)

Growth (learning, betterment, more stuff)

5 core Drives (value creation):

1. The drive to acquire

2. The drive to bond

3. The drive to learn

4. The drive to defend

5. The dive to feel (excitement)

Page 45: exercise to see if your business idea is good

12 forms of value:

1. Product

2. Service

3. Shared resource - durable asset that can be used by many people and charged for access.

4. Subscription

5. Resale

6. Lease

7. Agency

8. Audience aggregation - get attention from a lot of people and sell this attention in the form of advertising (TV commercials)

9. Loan

10. Option

11. Insurance

12. Capital

If you can find ways to offer clients more flexibility in any field, you can find a value gold mine either with ability to charge higher prices or ability to offer a better service than what previously existed (Amazon, flex to shop from home)

Iteration Cycle (small improvements)

1. Watch - what works, what doesn’t?

2. Ideate - what can you improve?

3. Guess - what will make the biggest impact?

4. Which? - decide which change to make.

5. Act - do it.

6. Measure - what happened to see next step to improve.

Feedback:

-get from potential customers, not friends/family

-ask open ended questions

-keep calm, stoicism (don’t get defensive)

-take what you hear with a grain of salt

Shadow test, give customers the chance to pre order

Economic Values (how people think when making a decision to purchase)

1. Efficacy - How well does it work?

2. Speed - how quickly does it work?

3. Reliability - can I depend on it?

4. Ease of use - how much effort does it require?

5. Flexibility - how many things does it do?

6. Status - how does this affect the way others perceive me?

7. Aesthetic appeal - how attractive or pleasing is it?

8. Emotion - how does it make me feel?

9. Cost - how much do I have to give up to get this?

Three forms of currency:

1. Resources - physical items

2. Time -

3. Flexibility - while you are working, you are giving up the flexibility to do something else.

Don’t chase sales or clients, rather frame the situation in a way that encourages the prospect to feel like they are chasing you. If your prospect feels like they need to justify why they’re good enough to work with you, you are in a very strong position to make a deal on favorable terms.

Choose to innovate in your industry (like Apple) than to compete with other companies. “Don’t compete with rivals, make them irrelevant”

Find or invent force multipliers (tools that enhance performance)

Read:

Financial Intelligence for Entrepreneurs

Balance Sheet is a snapshot of what a business owns at a particular moment in time.

***

Assets - Liabilities = Owners Equity

Balancing the Balance Sheet:

Assets = Liabilities + Owners Equity

Eliminate the inner conflicts that compel your to move away from potential threats (risk - ie: leaving job to start own biz) and you’ll find yourself experiencing a feeling of motivation to move toward what you really want.

Use contrast in pricing:

ie: In American Eagle a $50 shirt sounds expensive.

The same shirt in Men’s Warehouse with suits all over sounds like a bargain.

Use scarcity to compel a sale:

1. Limited Quantities: X # of jobs/units

2. Price Increases - price will go up in near future

3. Price Decreases - discount will end soon

4. Deadlines - price only good for certain amount of time

Write book or podcast in short blurbs, avg. attention span is 10 mins, max for motivated ppl is 30 mins

Use the 5 fold why and 5 fold how techniques to peel back the layers and find out how to get what you want or why you may want something in the first place.

Golden Tricecta: treat everyone with..

1. Appreciation

2. Courtesy

3. Respect

The Pygmalion effect:

Give others a great reputation to live up to, have high expectations of people and sing their praises

Sustainable Growth Cycle

1. Expansion

2. Maintenance

3. Consolidation

4. ***need all 3 stages, otherwise expansion will outgrow the existing systems - biz will grow too fast

“The people who experience the most success in this world are the people who accept the Uncertainty and fear as best they can, learn from their experiences and keep trying new things.”

Cashflow Quadrant by Robert Kiyosaki

• “The path is the goal.”

  • Search your heart to find your place in life - not always easy to see.

• Traditional education is not the place for a person who wants to be an entrepreneur (B and I quadrants), but is the place for people who want to be in the E (employee) or S (self-employed) quadrant.

• Personal Development:

  • Starts with spiritual goals.

  • Emotional

  • Mental

  • Physical

    • “I mention emotional and spiritual development, because that is what it takes to make a permanent change in life.

    • A person may be highly educated mentally, but if they are not educated emotionally, their fear will often stop their body from doing what it must do.

      • Don’t get stuck in “analysis paralysis.”

        • This is caused by the educational system punishing students for making mistakes.

        • Making mistakes is human.

        • It took Edison 1,014 tries to create the light bulb.

• The CashFlow Quadrant:

  • E - Employee

  • S - Self-Employed or Small Business

  • B - Big Business

  • I - Investor

    • E and S on the left side of the quadrant (motivated by security - not freedom).

      • Successful E’s need to become successful I’s to secure their retirement.

      • The left quadrant provides a more secure, but less free career.

        • E quadrant:  Secure - used in response to fear.

      • An E works for the system.

      • S quadrant:  People who want to be their own boss… working in their business, not on their business.  Work hard for themselves.

        • S also stands for specialist - doctors, lawyers, dentists, etc.

        • Have a hard time hiring other people.

      • An S is the system.

    • B and I on the right side of the quadrant.

      • B and I help you reach your financial goals faster.

      • B and I quadrants have many tax advantages.

      • Provide more free time, the more successful you get.

      • The right quadrant is more risky, but provides more freedom.

      • B quadrant:  Why do it yourself when you can hire someone else to do it better.  Surround yourself with smart people who work for you.

        • Leadership is bringing out the best in people.

        • Systems run the business, not the person - like an “S” company.

      • A B creates, owns and controls the system.

      • I quadrant:  Don’t have to work - money is working for them.

      • Can get rich quickly, because you can avoid paying taxes legally.

        • Debt and taxes stop most people from achieving financial freedom.

        • The path to security or freedom is found on the right side of the Quadrant.

          • Must go beyond job security to find financial freedom.

      • An I invests money into the system.

• Poor Dad Advice - Go to schools so you can get a good job.

• Rich Dad Advice - Go to school, graduate, build businesses and become a successful investor.

• What does it take to become financially free?

  • A dream, a lot of determination, a willingness to learn quickly, and the ability to use your God-given assets properly.

• Changing quadrants is often a change at the core of who you are.

• Secrets to Great Wealth:

  • OPT - Other People’s Time

  • OPM - Other People’s Money

• Being Rich vs Being Wealthy:

  • Being Rich - How much money you make.

  • Being Wealthy - How long you can survive without working.

• Investing in the Stock Market:

  • 1. Concentrate your efforts only in the best stocks - more risky.

  • 2. Don’t only invest in blue chip stocks. 

  • 3. Don’t invest in mutual funds.

  • ***Learn to manage risk.

    • People who take risks, change the world.

• Many of us are conditioned from our earliest days to think about job security, rather than financial security and financial freedom.

• Financial Intelligence determined, not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you can keep it.

• No matter how much money people make, they feel more secure if they operate in more than one quadrant.

  • Financial security is having a secure footing on both sides of the quadrant.

• The game and rules are different in all of the quadrants.  Having two quadrants gives you greater stability in the world of financial freedom.

• True investors make their money in bad markets when the non-investors are panicking and selling, when they should be buying.

• The only difference between a rich person and a poor person is what they do in their spare time.

  • What you do after work with your paycheck and your spare time will determine your future.

• Invest in the B Quadrant before the I:  Unless you have a ton of money and abundance of time.

  • B quadrant provides experience and education.

    • You’ll be better able to identify other good B’s.

  • A business up and successfully running should support the ups and downs of the I quadrant market cycles.

• As a B, your goal is to own a system and have people work that system for you.

• Three recommended business systems:

  • Traditional C Corporations - develop your own system

  • Franchises - buy and existing system

    • NO shame in buying franchises or selling the rights to your own system as a franchise.

  • Network Marketing - Where you buy into and become part of an existing system.

• Success is a poor teacher, we learn the most about ourselves when we fail, so don’t be afraid of failing.  Failing is part of the process of success. You can’t have success without failure.

• Three Ways to make it to the B side Quickly:

  • 1.  Find a mentor:

    • Be careful of the advice you take.  While you must keep your mind open, always be aware of which quadrant the advice is coming from.

    • Many people will give advice from the E or S quadrant.

    • Be a leader, not a manager of systems.  Leaders must find people to work for them who are often smarter than them.

    • Creating your own system requires a lot of trial and error, up-front costs and paperwork.

  • 2.  Buy a Franchise:

    • Can focus on developing your people, because the systems are already in place.

    • Easy to get a loan for a franchise, much easier than a start-up loan.

  • 3.  Get Involved in Network Marketing (also called multi-level marketing or direct distribution systems).

    • Sales - pyramid scheme type business.

      • Helps you learn how to be rejected.

      • What you think of me is none of my business, what is most important is what I think about myself.

      • Can learn how to be a leader.

      • Too many people look at the product, instead of the business system.

• Warren Buffett said, “Wall Street is the only place that people ride to in a Rolls Royce, to get advice from those who take the subway.” - about financial “experts.”

• Why you shouldn’t put all of your money in a 401 K:

  • Long term capital gains… 401 K gains are taxed as earned income (35%) not capital gains (15%).

  • No asset class diversification - stock and bond market only.

• Only amateurs park their money in long positions.  Keep your money moving - velocity of money.

• Five Different Levels of Investors:

  • Level 1:  The Zero-Financial Intelligence Level

    • Over 50% of America is at the bottom of the I quadrant, investing nothing.

    • Makes bad investments in false assets.

  • Level 2:  The Savers are Losers Level:

    • People who save money - money loses value.  Money is no longer backed by the gold standard, now it suffers from inflation.

    • Four types of bonds:

      • US Treasury Bonds

      • Corporate Bonds

      • Municipal Bonds - IOUs issued by states, cities, hospitals, schools and other public institutions.  Many are tax-free income, but bonds are not risk free.

      • Junk Bonds

  • Level 3:  The I’m Too Busy Level:

    • Invest mostly in 401K and IRA.

    • Let other people manage their money - mutual funds.  

  • Level 4:  The I’m a Professional Level:

    • The do-it yourself investor from the S quadrant.

    • Buys and sells stocks.  No formal financial education - learned themselves.

    • Can climb from level 4 to level 5 investors.  

  • Level 5:  The Capitalist Level:

    • A business owner from the B quadrant investing in the I quadrant.

    • Uses OPM (Other People’s Money) to invest - leverage, rather than your own money.  IE: real estate investments.

    • Invests with a team of support.

    • Raising capital from other people for investments.. Real estate investment syndications.

    • Franchises… etc.

    • B owners can sell shares of their company to raise funds for additional investments.  

    • Level 5 investors find level 2 and level 3 investors to pool money together for larger investments like apartment complexes.  

• Invest using numbers and logic, not based on emotions.

• The value of your home is not considered an asset, because it does not generate cash flow.

  • Even when paid off, still not an asset, because you have maintenance costs.

• The deal must make sense the day you make the deal, don’t hope and pray for appreciation or government assistance.

• Research investing in tax lien certificates.

  • If homeowners don’t pay their property taxes, the gov. Charges them interest on taxes owed at rates from 10 - 50%.

  • Investing in tax lien certificates mean you pay the gov. The taxes for the defaulting homeowner and the homeowner must pay you back plus interest.

  • If the defaulting homeowner doesn’t pay you back fast enough, you get to take their house just for the money that was put up to pay the property taxes.  

  • Great rates and backed by real estate - can’t go to zero like a stock.

• The more people you’re indebted to, the poorer you are and the more people you have indebted to you, the wealthier you are.  That’s the game.

• If you take on risk and debt, make sure you get paid for it.

• If you become addicted to money, it’s hard to break that addiction.

  • If you receive money as an employee, then you get accustomed to that way of acquiring it.

• The struggle between who you no longer are and who you want to become is the problem.

  • The part of you that still seeks security is in a war with that part of you wants that freedom.  Only you can decide which will win.

• Security is a myth.

• The irony is that life is actually more secure on the right side of the CASHFLOW Quadrant.

  • For example, if you have a secure system that produces more and more money with less and less work, then you really don’t need a job or need to worry about losing your job.

    • To make more money, simply expand the system and hire more people.

• People who are high-level investors aren’t concerned about the market going up or down because their knowledge allows them to make money either way.

  • If there is a market crash and/or a depression in the next 30 years, many baby boomers will panic and lose much of the money they had set aside for retirement.

  • Professional investors are people who risk little of their own money and yet still make the highest returns.

    • Having financial visions lowers your risk.  Numbers tell you the facts.

• How to get rich - Play Monopoly.

  • When the real estate market was really bad, we bought as many small houses as we could with the limited money we had.

    • When the market improved, we traded in the four green houses and bough a large red hotel.

      • Or if you don’t like real estate, all you have to do is make hamburgers, build a business around that hamburger and franchise it.

  • If you want to be rich, you need to think independently rather than go along with the crowd.

    • Think differently than everyone else.  If you do what everyone else does, you’ll wind up having what everyone else has - and for most people, what they have is years of hard work, unfair taxes, and a lifetime of debt.

• Be, Do, Have:

  • Goals are the ‘have’ part.

  • You must be, before you do and do to have.

  • Strengthen your thoughts (being) so that you can take the action (doing) that will enable you to become financially free (having).

• People who seek out the E quadrant greatly value security

• People have a hard time moving from the S quadrant to the right side, because they have the do-it-yourself mentality.

  • The greatest cause of human financial struggle is the fear of losing money.  Because of this fear, people often operate too safely, or with too much personal control, or they just give their money to someone they think is an expert and hope and pray that the money will be there when they need it.

    • People who take risks, make mistakes and recover often do better than people who learned not to make mistakes and are afraid of risk.

    • To be financially free, we need to learn how to make mistakes and manage risk.

    • If people spend their lives terrified of losing money, afraid of doing things differently from what the crowd does, then getting rich is almost impossible, even if it is as simple as buying four green houses and trading them in for one large red hotel.

• When emotions are in high gear, they are 24 times stronger than the rational mind.

  • One way to know if you’re thinking emotionally instead of rationally is when you use the word “feel” in conversation.

  • Going from financial security to financial freedom is primarily a process of changing your thinking.

  • If you can keep your emotions in check and go for what you know to be logical, you have a good chance of making the journey.  Ignore outside influences. The most important conversation is the one you are having with yourself.

  • Failure is part of the process of success.

    • You can always quit.  So why quit now?

    • The main reason so many people struggle financially isn’t because they lack a good education or are not hardworking.  It is because they are afraid of losing. If the fear of losing stops them, they’ve already lost.

  • Most people suffer financially because their emotions are in control of their thoughts.

    • The key to being a great investor is to be neutral to winning and losing.  Then you don’t have emotionally driven thoughts, such as fear and greed, doing your thinking for you.

  • When emotions are high, people panic and financial intelligence disappears.

    • Financial markets are driven by two human emotions:  Greed and fear.

• How to Play the Bank:

  • 1. When real estate prices are low - mortgage payments were far lower than the fair market rent for most properties.

  • 2. Banks will give a loan on real estate, but not stocks.

  • 3. Tax Advantages:  Can 1031 profits and depreciate the assets.

• Shelter Your Assets:

  • The rich don’t own anything in their own names, but hold assets in trusts and corporations.

  • Pass the income stream from assets through your own corporation to shelter from taxes.

  • Employees:  Earn, tax, spend

  • Corporation  Earn, spend, tax

• It would take the average reader 23,000 years to read the entire IRS code.

  • Understanding the laws and market forces is vital for financial success.

  • BUT - never do business or investing for tax reasons only.

• If you take on debt and risk, then you should be paid.

  • The process of going through a small deal is the same as going through a larger deal.

    • Once a person gains experience and a good reputation, it takes less and less money to create bigger and bigger investments.

  • Take Action - but begin with baby steps.

  • How people born into poverty eventually become wealthy:

    • 1. They maintain a long-term vision and plan.

    • 2. They believe in delayed gratification.

    • 3.  They use the power of compounding in their favor.

• Rich Dad Formula:

  • Build a business and by real estate - make a lot of money via C corporations, and shelter the income through real estates.

  • Develop the thought pattern of thinking only in assets and income in the form of capital gains, dividends, rental income, and residual income from businesses and royalties.

• Cash Flow Patterns:

  • Poor:  Income ---> Expenses

  • Middle Class:  Income ---> Liabilities ---> Expenses

  • Rich:  Assets ---> Income

• Seven Steps to Finding Your Financial Fast Track:

  • 1.  It’s time to mind your own business

    • Fill out your own personal financial statement.

    • Set financial goals.

    • One-year financial goals

    • Five-year financial goals (increase passive income)

  • 2.  Take Control of your Cash Flow

    • More money will not solve the problem if cash-flow management is the problem.

    • Every time you owe someone money, you become an employee of their money.

      • Good debt is debt someone else pays for you.

        • Rental properties:  Bank gives you a loan, but the tenant pays for it.

      • Bad debt is debt that you paid with your own sweat and blood.

    • Pay yourself first and focus on reducing debt.

      • Do not incur long-term bad debt.

  • 3.  Know the Difference Between Risk and Risky

  • 4.  Decide What Kind of Investor You Want to Be

    • Three different types of investors:

      • 1.  Type A:  Investors who seek problems. (experts)

      • 2.  Type B:  Investors who seek answers. (know who to ask for help)

      • 3.  Type C:  Investors who seek and “expert” to tell them what to do.

  • 5.  Seek Mentors

    • Choose your mentors wisely.  Be careful from whom you take advice.  If you want to go somewhere, it is best to find someone who has already taken the journey.

    • You are the average of the 5 people you spend the most time with.  (could be co-workers, spouse, children, friends).

      • What quadrant do they operate out of?

      • If you strive to operate out of a different quadrant, need to find people with similar interests and identities.

      • What investor level are they?

  • 6.  Make Disappointment Your Strength

    • Only fools expect everything to go the way they want.

    • Expecting to be disappointed is a way of mentally and emotionally preparing yourself to be ready for surprises that you may not want.

      • By being emotionally prepared, you can be calms and dignified when things do not go your way. 

      • When you are calm, you think better.

    • Business owners and investors may wait years to see cash flow from a business or investment, but they go into it with the knowledge that success may take time.

    • Many people will not head down the street until all the lights are green.  That is why they don’t go anywhere..

    • The size of your success is measured by the strength of your desire, the size of your dream, and how you handles disappointment along the way.

  • 7.  The Power of Faith

Extreme Ownership by Jocko Willink and Leif Babin

Preface:

• There can be no leadership where there is no team.

• Leadership requires belief in the mission and unyielding perseverance to achieve victory, particularly when doubters question whether victory is even possible.

Introduction:

• Relax, look around, make a call.

• The Laws of Combat (via Jocko):

  • Cover and Move - Team Work

  • Simple

  • Prioritize and Execute

  • Decentralized Command

• These are the keys not just to surviving, but to thriving and dominating.

• Plan simply and stick to it.

• Establish clear guidance for operators.

• Every leader and every team at some point or time will fail and must confront that failure.

  • Often our mistakes provided the greatest lessons, humbled us, and enabled us to grow and become better.  For leaders, the humility to admit and own mistakes and develop a plan to overcome them is essential to success.

  • The best leaders are not driven by ego or personal agendas.  They are simply focused on the mission and how best to accomplish it.

• Team members must believe in the cause for which they are fighting.  They must believe in the plan they are asked to execute, and most important, they must believe in and trust the leader they are asked to follow.

• Leadership requires getting a diverse team of people in various groups to execute highly complex missions in order to achieve strategic goals.

• Extreme Ownership.

  • Leaders must own everything in their world.  There is no one else to blame.

Chapter 1:  Extreme Ownership

• “As we debriefed, it was obvious there were some serious mistakes made by many individuals both during the planning phase and on the battlefield during execution.  Plans were altered but notifications weren’t sent”

• “Despite all failures of individuals, units and leaders, and despite the myriad of mistakes that had been made, there was only one person to blame for everything that had gone wrong on the operation:  me. I hadn’t been with our sniper team when they engaged the Iraqi soldier. I hadn’t been controlling the rogue element of Iraqi soldiers. I hadn’t been controlling the rogue element of Iraqis that entered the compound.  But that didn’t matter. As the SEAL task unit commander, the senior leader on the ground in charge of the mission, I was responsible for everything in Task Unit Bruiser. I had to take complete ownership of what went wrong.  That is what a leader does---even if it means getting fired.”

• It was a heavy burden to bear.  But it was absolutely true. I was the leader.  I was in charge and I was responsible. Thus, I had to take ownership of everything that went wrong.  Despite the tremendous blow to my reputation and to my ego, it was the right thing to do.

  • Looking back, it is clear that, despite what happened, the full ownership I took of the situation actually increased the trust my commanding officer and master chief had in me.

• The leader is truly and ultimately responsible for everything.

  • That is Extreme Ownership, the fundamental core of what constitutes an effective leader.

    • The leader must own everything in his or her world.  No one else is to blame. The leader must acknowledge mistakes and admit failures, take ownership of them and develop a plan to win.

      • The best leaders don’t just take responsibility for their job.  They take Extreme Ownership of everything that impacts their mission.

    • When subordinates aren’t doing what they should, leaders that exercise Extreme Ownership cannot blame the subordinates.  They must first look in the mirror at themselves.

      • The leader bears full responsibility for explaining the strategic mission, developing the tactics, and securing the training and resources to enable the team to properly and successfully execute.

      • If an individual on the team is not performing at the level required for the team to succeed, the leader must train and mentor that underperformer.

        • But if the underperformer continually fails - a leader who exercises Extreme Ownership must be loyal to the team and the mission above any individual.

        • If underperformers cannot improve, the leader must make the tough call to terminate them and hire others who can get the job done.  It is all on the leader.

      • As individuals, we often attribute the success of others to luck or circumstances and make excuses for our own failures and the failures of our team.  We blame our own poor performance on bad luck, circumstances beyond our control, or poorly performing subordinates - anyone but ourselves.

      • With Extreme Ownership, junior leaders take charge of their smaller teams and their piece of the mission.

        • The direct responsibility of a leader included getting people to listen, support and execute plans.

          • You can’t make people do those things - you have to lead them.

        • As a group, they try to figure out how to fix their problems - instead of trying to figure out how to blame.

      • Take personal responsibility for the failures.  You will come out the other side stronger than ever before.

Chapter 2:  No Bad Teams, Only Bad Leaders

• When it comes to standards, as a leader, it’s not what you preach, it’s what you tolerate.  When setting expectations, no matter what has been said or written, if substandard performance is accepted and no one is held accountable - if there are no consequences - that poor performance becomes the new standard.  Therefore, leaders must enforce standards.

• Leaders must push the standards in a way that encourage and enables the team to utilize Extreme Ownership.

• Every team must have junior leaders ready to step up and temporarily take on roles and responsibilities of their immediate bosses to carry on the team’s mission and get the job done.

• Leaders should never be satisfied.  They must always strive to improve, and they must build that mind-set into the team.

• When boat Crew Six was failing under their original leader, that leader didn’t seem to think it was possible for them to perform any better, and he certainly didn’t think they could win.  This negative attitude infected his entire boat crew.

  • In his mind, the other boat crews were outperforming his own only because those leaders had been lucky enough to be assigned better crews.  His attitude reflected victimization: life dealt him and his boat crew members a disadvantage, which justified poor performance.

• Working under poor leadership and an unending cycle of blame, the team constantly failed.  No one took ownership, assumed responsibility, or adopted a winning attitude.

• You must believe winning is possible.

  • In a boat crew where winning seemed so far beyond reach, the belief that the team actually could improve and win was essential.  

Chapter 3:  Believe

• The leader must believe in the greater cause.

• When a leader’s confidence breaks, those who are supposed to follow him or her see this and begin to question their own belief in the mission.

• Junior leaders must ask questions and also provide feedback up the chain so that senior leaders can fully understand the ramifications of how strategic plans affect execution on the ground.

  • The leader must explain not just what to do, but why.

Chapter 4:  Check the Ego

• We were confident and perhaps even a little cocky.  But I tried to temper that confidence by instilling a culture within our task unit to never be satisfied; we pushed ourselves harder to continuously improve our performance.

• We would all need to check our egos and work together.

• Discipline created vigilance and operational readiness, which translated to high performance and success on the battlefield.

  • Treat people with professionalism and respect and they will return that respect - forming a bond.

• Ego clouds and disrupts everything:  The planning process, the ability to take good advice, and the ability to accept constructive criticism.

  • Often the most difficult ego to deal with is your own.

  • Ego drives the most successful people in life - but when ego clouds our judgment and prevents us from seeing the world as it is, then ego becomes destructive.

    • When personal agendas become more important than the team and the overarching mission’s success, performance suffers and failure ensues.

  • Implementing Extreme Ownership requires checking your ego and operating with a high degree of humility.  

    • Admitting mistakes, taking ownership, and developing a plan to overcome challenges are integral to any successful team.

    • Strive to be confident, not cocky.

  • As a leader, it is up to you to explain the bigger picture to him - and to all your front line leaders.

    • This is a critical component of leadership - dealing with people’s egos.

    • Remember - it’s not about you - it’s about the mission and how best to accomplish it.

Chapter 5:  Cover and Move

• It’s foolish not to worth together as a team.

  • Even when working in small teams with some distance between departments - you are all working to try to accomplish the same mission.

  • Utilize every strength and tactical advantage possible.

  • The most important tactical advantage you have is working together as a team and supporting each other.

  • Cover and Move - all teams working together in support of one another.

    • If a team forsakes this principle and operates independently or work against each other, the results can be catastrophic to the overall team’s performance.

    • Often, when smaller teams within the team get so focused on their immediate tasks, they forget about what others are doing or how they depend on other teams.  They start to complete with one another, and when there are obstacles, animosity and blame develops.

  • If the overall team fails, everyone fails, even if a specific member or an element within the team did their job successfully.

  • A manager must be willing to take a step back and see how his team’s mission fits into the overall plan.

    • A manager can’t become so focused on his own department and its immediate tasks that he couldn’t see how his mission aligned with the rest of the corporation and supporting assets, all striving to accomplish the same strategic mission.

Chapter 6:  Simple

• The Iraq soldier squadron leader outlined a path that snaked through the treacherous city, two miles deep in hostile territory in roads that have not been swept for IEDs and the battle space was owned by different American units (Army, Marines, etc.)

  • Plan was too complex.

• Jocko said to go with a more simple, shorter plan.

• They ran into a battle, the airwaves were communicated with clear, calm voices - despite the chaos of the situation, just like they had trained.

• Simplifying as much as possible is crucial to success.  When plans and orders are too complicated, people may not understand them.

  • And when things go wrong, and they inevitably do go wrong, complexity compounds issues that can spiral out of control into total disaster.

    • Plans must be communicated in a manner that is simple, clear and concise.

• If your team doesn’t get the plan, you have not keep things simple and you have failed.

  • It is critical that the operating relationship facilitate the ability of the frontline troops to ask questions that clarify when they do not understand the mission or key tasks to be performed.

• Don’t fall in love with your plans.

  • The business was so close to the bonus plan, so emotional and passionate about it, that they didn’t recognize the vast complexity of it.  They didn’t see their own “fatal fault” in the confusing and elaborate scheme they had concocted, one that no one in the team understood.

Chapter 7:  Prioritize and Execute

• The SEAL team was surrounded by enemies on an open rooftop with no cover, an IED charge was about to explode, a full head count was needed to make sure everyone was out and one of the SEALs fell through a tarp off the roof… the massive pressure of the situation overwhelmed Lief for a quick period of time.

  • Prioritize and Execute:

    • Remain calm, step back from the situation emotionally and determine the greatest priority for the team.  Then rapidly direct the team to attack that priority.

    • Relax, look around, make a call.

• Countless problems compound in a snowball effect, every challenge complex in its own right, each demanding attention.  But a leader must remain calm and make the best decision possible.  

  • Even the most competent leaders can be overwhelmed if they try to tackle multiple problems or a number of tasks simultaneously.

    • The team will likely fail at each of those tasks.

    • Leaders must determine the highest priority task and execute.

• Stay at least a step or two ahead of real-time problems.

  • Contingency planning can map out effective responses to challenges before they happen.

    • If the team has been briefed and understands what actions to take through such likely contingencies, the team can then rapidly execute when those problems arise, even without specific direction.

• It is crucial, particularly for leaders at the top of the organization, to “pull themselves off the firing line,’ step back, and maintain the strategic picture.

• A leader must…

  • Evaluate the highest priority problem.

  • Lay out in simple, clear and concise terms the highest priority effort for your team.

  • Develop and determine a solution, seek input from key leaders and from the team where possible.

  • Direct the execution of that solution, focusing all efforts and resources toward this priority task.

  • Move on to the next highest priority problem.  Repeat.

  • When priorities shift within the team, pass situational awareness both up and down the chain.

  • Don’t let the focus on one priority cause target fixation.  Maintain the ability to see other problems developing and rapidly shift as needed.

Chapter 8:  Decentralized Command

• Jocko expects his subordinate leaders to lead - he groomed and trained them for this, to make decisions.

  • “I trusted that their assessment of the situations they were in and their decisions would be aggressive in pursuit of mission accomplishment.

  • They had earned that trust through may months of training, of getting it wrong and learning from their mistakes.

• For any leader, placing full faith and trust in junior leaders with less experience and allowing them to manage their teams is a difficult thing.

  • Front line leaders must also have trust and confidence in their senior leaders to know that they are empowered to make decisions and that their senior leaders will back them up.

• No person has the cognitive capacity, the physical presence or the knowledge of everything happening across a complex battlefield to effectively lead in such a manor.  Instead, my leaders learned they must rely on their subordinate leaders to take charge of their smaller teams within the team and allow them to execute based on a good understanding for the broader mission (known as Commander’s Intent), and standard operating procedures.

  • Small teams of four to six are best.

    • Each platoon chief and leading petty officer only had to control their fire team chiefs, who controlled four SEALs each.  Jocko then commanded the two platoon chiefs.

    • Jocko had to make sure everyone understood the overall intent of the mission.

• Decentralized Command - Leaders did not call him and ask what they should do - instead they told Jocko what they would do and Jocko trusted them to make adjustments and adapt the plan to unforeseen circumstances.

  • If you are too close to the situation as the supreme leader, you may miss other events unfolding.

• Human beings are generally not capable of managing more than six to ten people.

  • Teams must be broken down into manageable elements of four to five operators with a clearly designated leader.

    • Those leaders must understand the overall mission, and the ultimate goal of that mission.

    • Junior leaders must be empowered to make decisions, to accomplish the mission in the most effective and efficient manner possible.

      • Must understand not just what to do, but why they are doing it.

      • Junior leaders must fully understand what is within their decision-making authority - must communicate with senior leaders to recommend decisions outside their authority and pass critical information up the chain.

  • Sometimes the officer gets so far forward - gets sucked into every room.  He gets focused on the minutia and loses situational awareness, no longer providing effective command and control.

  • Other times the officer gets stuck in the back of the train and is too far in the rear to know what is happening.

• Simple is a large part of Decentralized Command.

  • “Couldn’t things get confused like an old game of telephone?”

  • Proper Decentralized Command requires simple, clear, concise orders that can be understood easily by everyone.

• With clear guidance and established boundaries for decision making that your subordinate leaders understand, they can then act independently toward your unified goal.

• Situations require that the boss sometimes walk away from a problem and let junior leaders solve it - even if the boss knows he can do it more efficiently.  

  • It’s more important junior leaders feel empowered to make decisions and supported, even if the decisions they make don’t work out.

Chapter 9:  Plan

• You could never assume that such hazards weren’t waiting for you on a target.

  • You had to assume they were, and you had to plan for them on every operation and mitigate the risk of those threats as much as possible.

    • To assume otherwise was a failure of leadership.

      • That was what mission planning was all about, never taking anything for granted, preparing for likely contingencies, and maximizing the chance of mission success while minimizing the risk to the troops executing the operation.

• Planning begins with mission analysis.  Leaders must identify clear directives for the team.

  • A broad and ambiguous mission results in lack of focus, ineffective execution and mission creep.

    • The mission must explain the overall purpose and desire result.

• Leaders must delegate the planning process down the chain as much as possible to key subordinate leaders.

  • Giving the frontline troops ownership of even a small piece of the plan gives them buy-in.

• Detailed contingency plans help manage risk - junior leaders must have SOPs in case obstacles arise and things go wrong.

  • The best teams employ constant analysis of their tactics and measure their effectiveness so that they can adapt their methods and implement lessons learned for future missions.

• A leader’s checklist for planning should include the following:

  • Analyze the mission.

  • Understand the Commander’s Intent and goals.

  • Decentralize the planning process - empower key junior leaders within the team to plan their own missions.

  • Plan for contingencies to mitigate risk.

  • Conduct post-operational briefs.

• The true test for a good brief is not whether the senior officers are impressed.  It’s whether or not the troops that are going to execute the operation actually understand it.

Chapter 10:  Leading Up and Down the Chain of Command

• “Though I had been directly involved in the planning of almost all of these missions, had been on the ground leading a team, and written detailed reports of what happened after each mission, I still had not linked them all together nor considered the strategic impact they had.”

  • Immersed in the details of the tactical operations, I had not fully appreciated or understood how those operations so directly contributed to the strategic mission.

  • Walked into mission briefs wondering:  What are we doing next?

    • No context for why we were doing the operation or how the next tactical mission fit into the bigger picture.

    • Those who suffered the worst attitudes and most fatigue had the least ownership of planning the operation.

• Any good leader is immersed in the planning and execution of tasks, projects and operations to move the team toward a strategic goal - does not automatically translate to junior leaders (they are focused on their specific job).

  • Critical to understand everyone’s role in the company.

  • Enables the team to understand why they are doing what they are doing.

• The CO has to approve every mission.  If we want to operate, we need to put him in his comfort zone so that he approves them and we can execute.

  • Typically, the frontline troops wanted senior leaders as far away as possible, so as not to micromanage.

• “We are here.  We are on the ground.  We need to push situational awareness up the chain… If they have questions, it is our fault for not properly communicating the information they need.  We have to lead them.”

  • LEADERSHIP DOES NOT JOST FLOW DOWN THE CHAIN OF COMMAND, BUT UP AS WELL

• If your boss isn’t making a decision in a timely manner or providing necessary support for you and your team, don’t blame the boss.  First, blame yourself. Examine what you can do to better convey the critical information for decisions to be made and support allocated.

  • Requires tactful engagement with the immediate boss - takes more savy to lead up.

  • One of the most important jobs of any leader is to support your own boss.

• If you don’t understand why decisions are being made, ask questions up the chain.

  • Take responsibility for leading everyone in your world.

  • If someone isn’t doing what you want or need them to do, look in the mirror first to see how you can better enable this.

  • Don’t ask your leader what you should do, tell them what you are going to do.

  • Invite senior leaders out into the field.

Chapter 11:  Decisiveness Amid Uncertainty

• Leaders cannot be paralyzed by fear.  That results in inaction.

• It is critical for leaders to act decisively amid uncertainty; to make the best decisions they can based on only the immediate information available.

• There is no 100 percent right solution.  The picture is never complete. 

  • Leaders must be comfortable with this and be able to make decisions promptly.

  • Outcomes are never certain; success never guaranteed.

    • Business leaders must be comfortable in the chaos and act decisively amid such uncertainty.

      • How do you want to be perceived?  Do you want to be seen as someone who can be held hostage by the demands - the threats - they are making?

        • Do you want to be seen as indecisive?

      • The outcome may be uncertain, but you have enough understanding and need to make a decision (even when decisions are tough).

  • COMMAND LOYALTY - junior leaders are replaceable - there are always people who want to step up.

Chapter 12:  Discipline Equals Freedom - The Dichotomy of Leadership

• The SEAL teams had been ransacking buildings when searching for evidence.

  • A simple and systematic method was then used to enhance effectiveness at searching for evidence.

    • Specific individuals were responsible for specific tasks.

    • Developed a better SOP - with discipline and training, it would enhance effectivity.

      • Of course there was grumbling.

  • Exercise discipline, it translates to more substantial elements of your life.

  • Disciplined SOPs = freedom to practice Decentralized Command.

• Every leader must walk a fine line to find the dichotomy between one extreme and another.

  • Just as discipline and freedom are opposing forces that must be balanced, leadership requires finding the equilibrium.

    • A leader must be aggressive, but not overbearing.

      • Encourage new ideas and opposing views.

    • A leader must be calm, but not robotic.

      • The team must understand their leader cares about them.

      • Leaders who lose their temper also lose respect.

    • A leader must be competitive, but also gracious losers.

    • A leader must act with professionalism and recognize others for their contributions.

    • A leader must be attentive to details, but not obsessed by them.

    • The best leaders understand the motivations of their team members and know their people.

      • But a leader must never grow so close to subordinates that one member of the team is more important than another or the mission.

    • Leaders must never get so close the team forgets who is in charge.

    • Leaders must earn respect.

      • Every member of the team must develop the trust and confidence that their leader will exercise good judgment, remain calm and make the right decisions.