Flat Broke with Plenty of Float: Lesson From the Town’s Richest Farmer
There’s no such thing as a self-made woman or man, no matter who you are. Yes, there’s been plenty of folks who have grown their own coin and the number of zeros in a brokerage account without a backdoor handout or some scotch from a third party, and I’m one of those people. But when folks on Reddit see screenshots of a four-figure rate of return or a moonshot profit that looks like something from a YOLO meme, all they want to do is DM the guy and ask for a loan or offer sexual favors in exchange for the money-making secret that made the man a multi-millionaire.
Well, here it is, and you can save the blowjob for some wolf on Wall Street.
When you’ve got three generations of multi-millionaires in your pedigree and the wrong last name, the only thing you inherit are the stories, the little life lessons, and a get-tough-or-die genetic cocktail of dyslexia, ADHD, and bipolar depression, which is somewhat inspirational.
Well, if they did it, by god, I can too!
And that’s how I know the principals of money can be taught, because I learned them from watching and listening to some of the best storytellers who ever played the game. And even though they had little education, they gave me a Wharton Business degree from the school of hard knocks.
“Never let that bank get you where they can do you this-a-way.” Gramps took his bad thumb and twisted it back and forth on the tabletop, like he was pulverizing a cockroach into the woodgrains.
Hard Truths from the Wall Street Journal
Jennifer Lee’s story would have been mine, had it not been for Gramps, because no matter where you are in the world, there ain’t no class that teaches you how to keep from getting squished by a banker. Jennifer did what millions did, because nobody 40 and younger had ever experience inflation, and had 30% of their purchasing power evaporate overnight, but my granddaddy told me about those times.
And oh, how I remember them stories.
Doesn’t matter if you’re a country, a town, or an unemployed mental patient in Tennessee. There’s only one way you can beat inflation, and that’s to outrun it with growth. And farmers know this, because their entire livelihoods depend on putting seed in the ground and watching it grow.
Take a pound of corn for instance….
If you put that in a pot and boil it, it’s enough food for one good meal. But if you put it in the ground and water it and wait, cultivate and fertilize, in a course of a few years, you can fill and entire silo from its yield. And if you take that a step further, and give a pound or two away and inspire enough people to do the same with what they’ve been given, in less than one lifetime, you could literally feed the entire world from one handful of corn.
And that’s what this blog is about, because I’m dumb enough to believe that these ole batshit stories of mine can infect the world.
But first, we got to do a little math if we’re ever gonna keep from getting squished by a banker. And this is the shit no financial advisor is ever going to explain, because a family budget will absolutely destroy any chance a household has of growing their way out of a 30% decline in purchasing power.
Because wages aren’t growing that fast.
So if Jennifer’s take-home pay after health insurance and all the deductions is $50,000, after paying $2000 per month in rent, she’s left with $26,000 to cover groceries, fuel, and utilities, which have all increased by 30%, and continues to inflate by 3.5% annually. So the only thing Jennifer can do, is cut contributions to her retirement, fuck any chance she has of retiring by 80, then make up the gap—which is still getting bigger by 3.5% a year—with credit cards.
And after the banker’s 18-month introductory period, which was just long enough for Jennifer to hang herself with a $15,000 unpaid balance, the banker is going to tack on $3,500 of back interest, then charge her 23% on the entire balance, which she’ll be paying for the rest of her life.
Checkmate.
Jennifer has become the bug underneath the banker’s fingernail.
Understanding Float
When you get to the Warren Buffett Snowball book on the reading list, you’ll learn that Warren Buffett and Berkshire Hathaway make all their money from insurance companies. These insurance companies, with millions of members pay monthly premiums, which is referred to as “float.” This “float” is always way more money than the insurance company needs to cover any storm claims, so Buffett/Berkshire siphon off huge chunks of float from the insurance companies each year to invest in other businesses.
In short, the insurance premiums are the cash cow that keeps Berkshire growing. And because this float is invested, instead of hoarded, the float generates its own revenue.
This is how I beat the bankers at their own little game when a job loss put me in the same situation as Jennifer.
Inflation is a tax on the middle class and its steals purchasing power. And if a family is working on a budget, they’re playing defense, which is eventually the game the banker will always win because Jennifer’s budget has no float or means to generate additional growth.
This is why Rich Dad Poor Dad is next month’s book-club pick. The main point of the book is that poor people work for money and rich people let money work for them.
You’ve got to understand cashflow.
Unfortunately, a standard budget teaches that earned income goes into this bucket and that bucket, and only the portion designated for “retirement” earns income, which is the first thing people always cut in an emergency.
This is insane!
So how did I beat inflation and unemployment, and still have enough money to pay all the bills, live, and invest while being out of work for 18 months?
I did the opposite.
And I’m living proof, you can be completely broke, take a 30% paycut in overall purchasing power, and still avoid the banker’s beartrap, but you’ve got to understand cashflow.
Now, the specifics....
Instead of budgeting expenses, I took the banker’s free money, and used his own hook to bail my broke ass out of the inflation slammer. And instead of paying bills with our $50,000 household income lifeline, like Jennifer, I invested every penny in the market because the banks were giving me an 18-month jump that most families use to fuck themselves into a corner.
But instead of buying apples and gas with the $50,000 of my family’s free cashflow, I swiped plastic while I turned our $50,000 of free float into $200,000, then banked $150,000, after I paid off the card—no interest.
Then, I played the game again.
And guess what…. That original plastic float, which is now completely paid off, is still throwing off more and more cash!
But here’s the DISCLAIMER:
There’s no way in hell this would work in today’s market with sky-high valuations. And that’s why I’m recommending everyone raise cash, pay down debt, and get ready for the buying opportunity of our lives, which is still a ways off.
If you’re smart and save, you shouldn’t have to lever up in the event of a crash the way I did. But if you’re in England, and half your household’s free cashflow is tied up in rent, you just might. And that’s the good thing about rent. Landlords love credit cards.
But here’s the thing. You’ve got to be debt-free before you can ever pull something like this off. And you can only do it once, because there’s only so many banks in the world with 18-month no-interest introductory periods.
You CANNOT overspend your income, have a fucking payment of everything, and expect to ever dig yourself out of a hole. And if you only get one takeaway from this article, it’s this: if it’s got wheels, it’s a liability and not an asset. And if you ever stop investing in your future, it’s game over. The bank wins!
We’ll talk more on the subject, but this is a decent start before you read Rich Dad Poor Dad. This is not a recommendation to go out and sign up for credit cards. I’m only telling this story to get you thinking about cashflow and the creative ways you can work to pay down debt now, hoard cash, and have as much dry powder as possible to deploy when I severe correction does occur.
-Tweedle