Summary
Highlights
Toby Mathis begins by defining assets as items that put money in your pocket and liabilities as those that take money out. He gives practical examples, such as cars and RVs being liabilities, and explains that a rental property's classification depends on its cash flow. Mathis also introduces five 'infinity income types': rents, royalties, dividends, interest, and short-term capital gains from covered calls, which are the focus for passive income generation.
The first step is the '70/30 rule.' This means living off 70% of your take-home pay and allocating the remaining 30% as follows: 10% for charity/giving (time or money), 10% for debt reduction, and 10% for investment. Mathis emphasizes the importance of giving back, paying off personal debt (which he notes is a common trait among the ultra-wealthy), and consistently investing. He advises making cuts in spending or increasing income to adhere to this rule, stressing that consistency leads to phenomenal results over time.
The second step involves diversifying investments using the '30/30/30/10 rule.' This strategy allocates 30% of funds to income-producing stocks (like dividend kings and aristocrats), 30% to real estate (initially through REITs), 30% to managed money (e.g., ETFs, private placements), and 10% to cash or cash equivalents. Mathis explains that income-producing stocks and REITs offer tax-advantaged dividends/rents, providing continuous cash flow. He suggests starting with stocks due to their accessibility and building up to other categories once certain thresholds are met.
The third step is to 'lever' assets rather than selling them. Mathis highlights that wealthy individuals often borrow against their appreciated assets (like stock portfolios or real estate) to acquire more assets or luxury items without incurring taxes on the growth of the original assets. This strategy, known as 'buy, borrow, die,' allows the assets themselves to pay off the loans, creating a perpetual, tax-efficient income machine. The key is to avoid selling unless there's a significant negative change in the investment, ensuring the income stream continues for generations.