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Visit yamava.com/palms to discover more. - Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets, I'm your host, and today I want to talk about some useful personal finance rules to protect yourself from financial collapse.

And in this case, when I use the term, I mean it. I'm not talking about a broad-scale collapse of an entire economy or a country, et cetera, but I'm talking about the collapse of an institution. And today's commentary is sparked by the ongoing collapse of the large cryptocurrency exchange called FTX.

I would imagine that most listeners of the show are aware of what is happening, and so I'll just give you a quick overview of where we are right now, because my comments aren't specific to FTX. Rather, I'm using this as an opportunity for us to learn and for us to think about good practices to protect ourselves in general on a good defensive position.

About 30 seconds on the background, FTX is a huge cryptocurrency exchange. And how do you even summarize the situation? It's a rapidly developing situation. As I record this particular podcast just now, the founder and CEO of FTX is releasing new details on Twitter. Basically, my summary is simply that FTX is getting completely demolished because of a number of unwise decisions, and many, many customers, if not all of the customers, at least on the international FTX company, are positioned now to lose huge amounts, if not all of the funds and assets that they had held on the FTX exchange.

What we are watching in real time is the seemingly almost instantaneous collapse of a huge institution, and we are watching billions, I believe I should use the word with a B, a huge amount, hundreds and hundreds of millions, billions of dollars, of US fiat dollars, of value wiped out like that.

And people are hurting. Many, many people are hurting. And it's a horrific situation. I need to record a separate show basically saying, "Don't kill yourself over money, and here's why you shouldn't. We'll deal with that on another time." But right now, many, many people are hurting, had their trading accounts wiped out, their savings wiped out, etc.

So that's what I want to say right now. If you're interested, just go and read a little bit about the situation, but it's absolutely catastrophic. Here's what I want to emphasize. I want to emphasize what are the rules and the things that you can do from a personal finance perspective to minimize the chance of your getting wiped out.

Now, a couple of these are obvious, and they are related to cryptocurrency management in general. First, obviously, when you are investing in cryptocurrencies, it makes a massive difference what you invest in, or at least I think it makes a big difference what you invest in. Some people don't see any functional difference between Bitcoin and the FTX token or Bitcoin and anything else that they lump them all in.

I'm not so convinced of that myself. I think there is a fundamental difference, and it has to do with the fundamental nature of a decentralized algorithm like Bitcoin versus some of the other approaches that people are taking towards cryptocurrency. So I think it matters what you invest in. I myself am, I wouldn't call myself a Bitcoin maximalist, but I think that it certainly has a better argument than some of the other coins.

And if you're getting involved in other coins, you should know your market and pay attention and follow your strategies. Number two, with all of your computer coins, if you do not hold the keys, you do not own them. In the Bitcoin privacy course that we have at bitcoinprivacycourse.com, one of the first things we teach you is how to hold your keys.

And if you do not hold the keys to all of your computer coins, you do not own them. Your computer coins that are held on an exchange are not yours. They are held by the exchange. That's not to say there's not a use for buying and selling and owning coins on an exchange, but they are not yours.

And the parallel analogy or metaphor, or just comparison, not metaphor, but comparison I would give for this, has to do with ownership of something like gold and silver. You do not own gold or silver unless you control it, unless you control the physical substance, be it coins, necklaces, watches, or bricks of gold.

You do not own it unless you physically control it. That's not to say that there's not a place for paper gold and paper silver, but buying shares in a gold or silver ETF is not the same as owning physical gold coins or physical silver coins or physical something. If you own the physical product, then you can be certain of what's happening to it.

You know who controls it. You know that if I have 100 ounces of silver sitting in my safe, that there are indeed 100 ounces of silver. And of course you would verify the authenticity of that, have properly assayed assets, but you know that 100 ounces of gold or silver is sitting there.

It's not lent out. It's not owned by someone else. It's not being multiplied. It is just sitting there. That comes with major advantages and some disadvantages. The fact that it is sitting there renders it useless. It's not being traded. It's not being loaned against. It's not making money. It's not making interest.

It's just a lump of metal sitting there in your safe. But you know it is there. On the other hand, if you own shares in an ETF, you don't actually know what is happening with the gold and silver that you allegedly own. You have to trust the intermediary institution to do its job.

Now there are institutions of varying quality. At the most limited end, you can go to your buddy and you can say to him, "Hey, listen. Go ahead and buy 100 ounces of silver for me." And your buddy can say, "Okay, I got 100 ounces of your silver sitting here in my safe." And that may or may not be appropriate.

Or you can go up to a very well-respected, audited, publicly transparent company and you can purchase shares. And they can say, "Look, here's where the gold is." The point is if you don't own it or control it, you don't actually have the asset. And it's the same with your computer coins.

If you don't hold the keys to those coins, you, then you can't actually be confident of what is happening with them. And so if you have money on the exchanges, unless you are using that money actively for some purpose, do not hold the money there. And again, there are good reasons to hold money, computer coins, on exchanges.

Just like there are good reasons to trade ETFs of gold and silver. If you want to speculate on something like gold or silver, then you speculate on the directional price much more inexpensively and with much less friction than using an ETF than you do with trying to buy and sell gold and silver coins.

Physical gold and silver coins are horrible for speculation because the friction of buying them and selling them and all the costs involved makes it so that it's very hard to eke out a profit in that scenario. So trading paper gold and paper silver is the way to trade the markets in a much more low-cost way than owning the stuff.

And so I think that's an appropriate way to think about your computer coins. The coins that you own must not ever be on an exchange. You must hold the keys and that way you can be confident that you own them. But if you're dealing with a trading scenario, then it may in many cases be simpler for you to use an exchange.

So that's why lesson 101 that we teach at BitcoinPrivacyCourse.com is make sure that you hold the keys and here's how you do it. It's not difficult to do. It just requires you to actually take the steps to do it. Now let's move out of specific cryptocurrency-related commentary and let's talk about good, sound, fundamental financial planning.

I'm going to give you a few rules. I haven't talked much about these publicly. I've shared these with private clients along the way, but I think that these are useful rules. When you're involved, first, anytime you get involved in an investment, it's important that you understand what your goals are for that investment in order to make an intelligent choice with how to be involved in it.

And this is something where we repeat these fundamentals over and over and over again, and yet it's so easy for us to get caught up in the emotions of the moment. And I don't know what the percentage of investors who get involved emotionally is, but it sure seems like the percentage of investors who get involved emotionally is very, very high compared to the percentage of investors who get involved based upon a strategic plan.

The only thing that makes an investment right or wrong for you has to do with whether or not that investment can meet your goals. So in order for you to know if an investment is right for you, you need to begin with what are your investment goals. And if you are clear on your investment goals, then you can go to your chosen investment or your prospective investment and you can identify whether this is an appropriate investment for you or not.

If you need big wins, then you're going to focus on speculative, very risky investments. If you don't need big wins, there's no reason to go for risk. And you need to carefully assess what you actually need for you to win. This will relate to your cash flow, the amount of money that you have coming in, your expenses, how much excess money you have.

This will relate to your position in life, etc. There are a number of good rules of thumb that I think are very well worth considering. Some of the most commonly discussed rules I don't know how to apply. For example, Warren Buffett famously, rule number one of investing, don't lose money.

Rule number two is, if you do lose money, see rule number one or whatever his various syntax is. The point is, I don't know how to say don't lose money. I think that's more of a useful heuristic for you to keep in mind to say, I'm going to make sure, I'm going to try very hard to make sure I understand enough to not lose money.

But when you actually say to somebody, don't lose money, that's hard to put into play. On the other hand, there is a very useful rule of don't invest any money that you can't afford to lose. And I think that's a very useful one. It has its own difficulty of application because how much can you afford to lose?

I don't want to lose any of it. So you're back to kind of the rule of don't lose money. But it is important for you to recognize how much of this can I not afford to lose? What if I did lose it all? What would happen to me and to my financial situation?

Now, in order for you to assess this, you need to ask yourself, what would I do if I lost it all? This is why people's risk profile changes, especially as they age. I have been one who has lodged my share of criticism at the idea that older people should just automatically become more conservative investors as they grow older.

And I've been vocal in that. I don't think that older investors should just automatically put everything into treasuries because they don't have any time. But there is a real truth to the fact that older investors have a much harder time if they lose money than a younger investor does.

So, let's do two scenarios. If you are 25 years old and you're working a job earning $75,000 a year and your annual expenses are $35,000 a year and you're saving all the rest of the money and you're investing it aggressively into computer coins and you find yourself in a situation where you wind up losing all of your money and you are completely wiped out, you're not going to, other than the emotional risk of you losing all your money and having to deal with that psychology, you're not going to, you're not dead.

You still have a job, you're still young, you still have plenty of income, you can recover from that situation. On the other hand, if you're 85 years old and you have $35,000 a year of expenses and you have $20,000 a year of Social Security income and you have a $300,000 portfolio and you lose all of your $300,000 in a bad investment, it's very, very difficult for you to know how to survive.

You're left with nothing. You're unemployable in that situation and you're basically going to be depending on the charity of others in that scenario. And so the risk, the loss for someone who is older, who is unemployed, is a much higher risk than for somebody who is younger and has more time.

And so always ask yourself, what would I do if I got wiped out on this investment? And the secret to being able to make more aggressive investments, to take greater amounts of risk, is to be more conservative in your personal overview of life. What I mean is, this is why having low expenses is so helpful.

If your expenses are very low, then you can make it even if your income falls apart. This is why it's useful to avoid debt, because if your debt payments are very low, you can make it even if everything falls apart. This is why it's so exceedingly useful to have cash savings, to have money set aside that is not in any way exposed to risk, so that if the worst case scenario happens, you have time and margin for you to figure out your next move.

This is why it's so useful to have income, even if it's not strictly necessary because it allows you the confidence of knowing I can still support myself, my family, etc. And so you want to make sure that, especially if you're going for aggressive, high-risk investments, you want to make sure that your fundamentals are in excellent shape and that you have secured your foundation in a very strong way.

That allows you to be more comfortable with taking larger risks. How much money should you invest? This one is a hard question to answer. There are some useful rules of thumb that I think are well worth considering, but most of them don't apply to people who are just starting out.

So, for example, one rule of thumb that I appreciate, that I think has a lot of wisdom, is don't ever put more than 10% of your net worth into any particular venture. Is it a perfect rule? No, and I'll explain why not in a moment, but it's a very useful rule.

Let's use an example. It's my understanding, by the public news reports and previous partnerships and whatnot, that the NFL football star Tom Brady had allied himself with the FTX Exchange and had invested into the company and had taken some of his compensation, perhaps in the form of ownership of some kind, in the company, was partnering with the company.

Let's assume that FTX has a value of zero and he loses all of his investments. There was a headline floating around Twitter yesterday indicating how, "Wow, Tom Brady is broke." Guarantee you Tom Brady is not broke. But imagine you're in a situation of a guy like Tom Brady. You're close to the end of your actively earned income career.

Obviously, his brand still has massive amounts of equity. He'll make plenty of money in the years to come. But you're in the twilight of your earned income from practicing your primary sport, in his case, obviously, football. Imagine yourself if he really did have, say, 70% of his wealth tied up in one particular business that went bust.

Imagine how devastating that would be to him. Now, imagine that he had no more than 10% of his income tied up in any one particular venture. A 10% loss? You can stomach that. You can continue forward. It doesn't wipe you out. It hurts, obviously, to lose 10% of your net worth, but it doesn't wipe you out.

Now, in his case, obviously, we don't know how much of his net worth, but I would imagine it's far less than 10%, but I'm just speculating, just like anyone else is. The point is simply use a public name, use a current example of an absolute wipeout of a company almost overnight, and imagine that happening in your investments, in your portfolio.

Try to minimize your exposure to any one particular thing to 10% or less. Now, I said this is an imperfect scenario. The reason I said it's an imperfect scenario is that most of us can't start with this rule. So if we use a stereotypical example of a young person graduated from college, gets a job, that young person can be wiped out because 100% of their money is coming from one single job.

You can't start by saying, "I'm not going to put more than 10% of my money "into any one thing," and there are always levels of risk, right? That young person who has saved $100,000 working in the United States has risk because $100,000 of their money is all in U.S.

dollars. What if U.S. dollars decline in value? It's funny. When you think about the collapse of FTX, it just makes me think of bank collapses over the years. In our modern era, we feel very, very insulated from bank collapses because, especially for those of us who live in the United States, Great Britain, Canada, etc., we just feel very, very insulated from these things.

Our banks are highly regulated. We feel a significant degree of confidence in our currency. We believe it feels fairly bulletproof. But at its core, recognize that throughout history, banks have continually collapsed. That's why we have the whole concept of a bank run. It's immortalized throughout history. You go back to the history of any country, you'll find constant series of financial crises and bank runs and bank collapses and bankruptcies, etc., across the board.

That's a very normal thing. And at its core, while we have a much more robust system in the modern day with government insurance, the backing of the Federal Reserve, etc., I don't think that this fundamentally makes banking or currencies stronger. What it does is it increases the public confidence and all of banking lives or dies based upon confidence.

It's all a con game. It's all a confidence game. That if people believe in the strength and power of the US dollar, then the US dollar has strength and power. If people stop believing in the power and the strength of the US dollar, the US dollar loses its power and strength.

And so it's all a con game, all of it. I was explaining recently to my 9-year-old how banking works and it blew his mind, the concept of fractional reserve banking. It's like, yeah, you take your money to the bank, put it in there, they lend it out. It's like, but you can't get it out?

And it was funny trying to explain to an elementary student how modern banking works. And the point is like, but then everybody can't get their money. And I explained, yeah, it's all a confidence game. People are confident in the bank, everything is going, it's good. And so what you see in the collapse of an institution like FTX is you see what has happened so many times in the world of banking the way that we understand it today.

Now, because of the many decades of history and the many bank failures, etc., we've developed these new forms of insurance, these new things to basically shore up the value and confidence in the banks. But go back and read a couple of the books on the 2008 banking crisis in the United States, the Lehman Brothers bailout, etc.

And what you will discover is that the private conversations that the Federal Reserve personnel were having and the politicians and the president and whatnot, basically they were scared of exactly what happened to FTX happening across the entire institution, all of the institutions in the United States. A fundamental collapse, a fundamental instantaneous collapse.

And the bankers had gotten so far out over the tips of their skis with their lending practices that if the Federal Reserve had not stepped in and basically bolstered the entire system and put in liquidity, then it probably would have happened. Now, you can choose your argument as to what's happened since then, but I'll skip that.

The point is it was this close in your and my lifetime of the entire financial system unraveling. I don't think it's unhealthy, by the way. I think that collapse is healthy because it gets rid of the dead weight. And depending on your perspective, I find the arguments that because the US government didn't allow the dead weight to disappear, didn't allow the natural bankruptcy process to take its course, that there's good reason to think that things are not better, but time will tell.

My argument is simply that don't look at FTX and poke your fingers and say, "Ha ha, those stupid people who invested in cryptocurrency, I'm so much smarter over here." Don't think that it can't happen here. The risks, the systemic risks on a global basis are not better. They're different, but they're not better.

And we really were this close to having that kind of event happen in 2008, 2009. And there's no fundamental reason why it can't, won't, or shouldn't happen in the future. It all depends on public confidence. It's a con game, all of it. So there's no other choice other than to play the con game.

There's no really reasonable alternative. You can argue, "Okay, Bitcoin," but even that, obviously, nothing's for sure. So we need to develop new systems, and banking has had a significant ongoing evolutionary process. The best situation that we have-- the situation we have today is a result of hundreds of years of history, of thousands and thousands of bank runs and bank failures and bankruptcies and collapses of currencies, reissuing of currencies.

The U.S. dollar has been reissued multiple times, has collapsed three or four key times. The U.S. national banks in the short couple hundred-year history of the United States has collapsed a couple of times and has been reinstituted and put in place again, and we're just living through the current wave of it.

But financial contagion, financial panic, financial collapse will happen again. It always does. But every time we look at it, we try to come up with a new and better system and make it stronger and more robust. Back to the 10%. In the beginning of life, you can't really apply these rules.

You're 100% committed to the salary from one company, and you get fired, and there goes 100% of your income. It's hugely risky, and yet there's really few other solutions in the beginning. But as your wealth grows, as your business grows, then you can start to spread out your risk, and you can say, "I'm not going to have any one particular job "or any one particular client responsible for more than 10% of my income," and you can build a more robust portfolio.

In the beginning of your life, let's say you have $10,000 saved. You might have $1,000 of physical currency and $9,000 in the bank, but it's all going to be in one institution. There's no benefit of you taking $10,000 and spreading it across 10 institutions. It's too unwieldy, too expensive.

It doesn't make sense. So you can't apply that in the beginning. But fast forward, if you find yourself having $500,000 in savings, then having all of that in one bank is unwise, and so you want to spread it out and diversify it. You probably still can't follow a 10% rule.

Having 10 different accounts with $50,000 in them is too many accounts. It's too unwieldy. It's too difficult to manage. But your money certainly should not all be in one account. The reason, even if you're not worried about a bank collapse, you say, "Well, I have a bank that's covered by FDIC insurance, and it's a very stable banking country, etc." Yeah, but banks have problems, and sometimes your money gets shut off for a few days.

Or the regulators come in, and they show up, and they put the bank into receivership, and it takes them a few days before they get things going again. Or things simply as mundane as you get flagged because you're trying to make an international debit card transaction, and now your bank shuts down your debit card and forces you to come back to the country and walk into a bank office in order to prove your identity.

So this is why you have to have multiple banks, multiple debit cards, etc., and keep that infrastructure going. But again, you probably can't do 10, 10, 10, 10 on those scenarios. And so the 10% rule is not a perfect rule, but it's a valuable reminder to say that don't invest to a point of wiping you out.

The next concept I want to convey to you is simply the concept of ratcheting. My example here is I think about the old show of "Who Wants to Be a Millionaire?" And the great thing about that show was it had these ratchet points. I think it was $1,000 and $64,000 and $1 million, something like that.

But you knew at various points that if you were playing and you lost, you wouldn't go below the number that you were ratcheted up to. In life, I think there are a number of these ratchet points that are worth paying attention to and considering. I don't know exactly what they are.

I can't identify the specific number. But I would encourage you to think about your own life. What amount of money do you never want to go below no matter what? In the past, I did a show on $1,000, $10,000, $100,000. That was primarily dedicated to people who were saving.

And the point was that if you're poor and you can get $1,000 scraped together, you're no longer poor because now you have enough wiggle room to handle most of the expenses of life. You're not dependent on payday loans. You're not dependent on running around scraping, etc. With $10,000, which is an accessible savings target for just about anybody in a year or so, at really any level, you can pretty much free yourself from most of the needs.

You can be your own bank for most things. You don't need to rely on credit. You can make first, last, and security on an apartment. You can go get a new job. You can handle two months out of income, etc. Then my argument on $100,000 was that if you save $100,000 in the beginning of life, that you're positioned to where all of your decisions that you want to make are open to you.

Again, you can move across the country. You can move across the world. You can start almost any business. You can do all these things with having that amount of money. You're not addicted to the month-to-month living of paycheck-to-paycheck that keeps people stuck in a job. But none of those things make you wealthy.

When you get too wealthy, then things start to change. I think that basically the next ratchet up between $100,000 is basically kind of a modest-- it's almost like an initial level of financial independence. If you think of somebody who has--let's use the 4% rule. You think of somebody who has $1 million in the bank and can withdraw $40,000 a year of income.

That's not a high-level lifestyle, but you can live on $40,000 a year. In most places of the world, you can have an apartment that is safe and that is comfortable and that is not rat-infested and roach-infested. You can feed yourself high-quality food. You can cover your basic living expenses.

You can live in most cities of the world, or at least all states and countries of the world, on $40,000. Maybe not in Luxembourg or Liechtenstein or Switzerland or Singapore, but you can live in many, many places on that. But it's not a great lifestyle. So you think about what your great lifestyle is.

Maybe it's $3 million where you have $10,000 a month of income using a 4% rule. That's a very strong middle-class lifestyle in most of the world. So maybe you would just say, "I would never want to go below $3 million." My point in using these numbers is at $500,000, the difference between $100,000 saved and $2 million saved is massive in terms of a ratcheting effect.

You can't live on the income from $500,000. $500,000 is just a bigger emergency fund, basically. It's not financial independence yet. But you can live on the income from $2 million. You're not living big time, but you're living comfortably, fine enough with plenty of time. So maybe your ratchet number is $100,000 and $2 million.

Then after $2 million, the question is, "All right, what's the next ratchet number?" There's not a huge difference in lifestyle between $2 million and $3 million, but there is a huge difference in lifestyle between $2 million and $10 million. So maybe your ratchet number is then the next one is $10 million.

These numbers are all personalized. What I encourage you to do to figure out your numbers is to choose an arbitrary number and then say, "If I had this amount of money saved, what would this allow me to do? What could I do? How could I live? How would I spend the income from this?" and clarify it in terms of a lifestyle.

I've watched over the years many people who had, say, $3 million saved, a number that for their lifestyle would have been perfectly adequate to secure their financial freedom, and yet they just had this idea that, "I have to go, I have to go, I have to go." So they would risk the $3 million, and by risk here I'm thinking especially of bringing in leverage, too much leverage, too much risk, and they wind up shooting for $10,000, and they wind up dropping back to $200,000 or $500,000 or something like that, and now they're in a mess, and they've lost that initial stability of financial independence.

I don't care what your numbers are, but think carefully about them. And as you reach a ratchet point, ask yourself, "Can I ensure that I don't go below this number again? Can I pull the risk off the table and then go for the next ratchet point in some way that's going to ensure that I never go below this current number?

And how can I ensure and protect this current number?" There are many people who have been become-- had hundreds of millions of dollars who then took another roll of the dice and went in something where they faced government regulation, they faced fraud accusations, they faced lawsuits, etc., and if those people didn't have something set aside in an insurance fund, then being totally wiped out is not fun.

But if you have something set aside in an insurance fund, then you can be very well protected. Let's talk about insurance funds. The way that you insure your assets, again, is very personalized. At one level it might just be saying, "You know what? I'm going to make sure that I take $10,000 of cash out of the bank so that I always have money and I'm going to put it in my buddy's gun safe where I know I can get at it." At another level, your insurance fund might be saying, "I'm going to pay off my house.

And because my house has-- I live in Florida or Texas and my house is completely exempt from the claims of creditors, I've got homestead protection on my house, I'm going to make sure that I just pay off my house even though I could leverage it and go more, and that way I'll always be able to sell a piece of real estate and I'll always have the money in this house." Or, "I'm going to make sure that I fully fund my IRA or my 401(k) every year because that money in my 401(k) is protected from the claims of my creditors and I'm going to invest that money into traditional mutual funds that are going to do fine.

I'm just never going to play with that. I'm not going to do some crazy strategy in my 401(k). This is my insurance fund." At another level, it may be, "I'm going to take $5 million out of my portfolio. I'm going to put this $5 million into a trust that is there to make sure that it's out of my estate, it's transferred out, it's going to be away and it's going to be protected from the claims of creditors.

And my family members and I, we may not be able to live great on the $5 million, but by moving it offshore, moving it into an asset protection trust, etc., at least if we lose everything, we'll still have that money. And then I'm going to go over here and I'm going to roll my dice on the other projects that I have going on." If you imagine yourself as Sam What's-His-Name, the founder of FTX, and here you are and one day you're a multi-billionaire and then a week later there's a good chance that not only do you have no money, but you wind up in a situation where you're going to face massive lawsuits and potentially have any personal assets that you have wiped out, you see the point.

Or imagine you're Alex Jones and one day you're doing well, business is good, you've got millions of dollars flying in all over the place, and then a few years later you're facing a billion dollars of court costs and judgments against you. So think of yourself in these situations and recognize that none of these guys imagined that this was going to happen.

If you had talked to Alex Jones 10 years ago, he would never have thought that the situation he's facing in would come to fruition. Or if you'd talked to the founder of FTX, he would never have thought that he'd be in this situation. But all of a sudden you're there.

And so this is why in point four of the radical personal finance framework for wealth, we talk about avoid catastrophe. Is that you need to regularly-- Remember number one is increase income, two, decrease expenses, three, invest wisely, four is avoid catastrophe, and five is optimize lifestyle. When you're avoiding catastrophe, you take off your rose-colored glasses and you put on your disaster glasses and you say, "What are all the bad things that could happen to me?" And you do that and you say, "I should have an emergency fund," or "There might be a global famine and I should have three months of food in the house," or "I might get sued and all of a sudden I had $20 million but now I'm wiped out and I've got a billion-dollar lawsuit against me," or "I wind up owing a creditor hundreds of millions of dollars." And you have to do this on a regular consistent basis and then put in place the solutions way ahead of time for more than what you need.

I've talked about asset protection planning. And the secret with asset protection planning, the rule is once an event happens that gives rise to claims against you, it is too late. All of the money moves that you make at that point in time can be undone by the judge and basically even to the point of taking away your freedom, your physical freedom, locking you in prison.

But the stuff that happens long before that happens can be very well positioned. You put aside money for your five-year-old daughter, your five-year-old son, and you set up a family trust that is going to benefit your five-year-old daughter, your family son. Fast forward 20 years, your child gets married, then gets divorced.

Well, the money that was in the trust can be positioned to be completely exempt from the divorce claims, and your child can continue to be wealthy regardless of what the judge says in the divorce case. But if you gave the money to your child at 20-something years old and it was never in the trust, and then the divorce happens, well, kiss off the money.

It's gone. So you have to be proactive. You have to look at when disaster strikes other people and then ask yourself, "What will I do if disaster strikes me?" And I believe that this thinking is extremely valuable, and it's deeply underrepresented. And so all of the little stuff matters.

How many smoke detectors do you have in your house? Have you checked the batteries? Do you have a ladder so that your children can get out of the second-floor window down to the first-floor window in case of a fire without breaking their legs? Have you prepared in advance a family meeting spot?

If something happens, we meet here. All of the humdrum daily stuff is a big deal. Do you have the ability to flag down EMS when you have a heart attack? Is your driveway clearly labeled so that if you call 911 when having a heart attack, then you can get someone there quickly?

And at every level, as your wealth increases, you have to think about more and more of these things, and you want to bring them in. What are those things, the defibrillation machines? An example would be that if somebody is completely broke, then having--the name completely went to me--the things that you put on your heart, those things save lives.

That's why you see them in so many commercial locations. But when you get to a point with your wealth, you should have one of those in your own home so that if it comes down to you need one of those-- and again, I'm not medical enough to do it.

I don't have one yet anyway. But it's the kind of thing where you look at it and say, "Okay, I'm going to go ahead and get this because who knows, it might pay off someday." Same way I talk about bunkers, like nuclear fallout bunkers and bomb bunkers, etc. I think it's silly for somebody who is broke to worry about setting up a nuclear radiation fallout shelter.

The risk of needing a nuclear radiation fallout shelter is so low that there's no point in somebody who is broke doing that. But if you're a multimillionaire and you don't have some form of nuclear fallout shelter prepared, then why are you not paying attention to these small things that could happen?

Or a better example would be a tornado shelter. I don't think it's dumb. If you live in Tornado Alley, obviously you go and invest in a tornado shelter. But people just ignore it until the storm comes through. So when the tornadoes tear up the state next to you or when the guys get blown up on the FTX exchange, look at that and then go back to your own portfolio and say, "What could wipe me out?" And then think about what ratcheting points you don't want to go below.

So if you're going to take a risk in some kind of aggressive investment, how much should you invest into that? This is one of those things that I'll give you the best answer that I've come up with over the years. You want to invest enough of your money so that if the investment hits, it will make a substantial difference to your life.

But you don't want to invest so much so that if the investment gets wiped out, that it destroys your whole life. And here's the point. Let's imagine you've got a net worth of $5 million. And you think to yourself, "You know what? I'm going to go and I'm going to get involved.

There's this fancy new project that I want to get involved in or I'm going to put my money in Bitcoin." And you say, "What's the best opportunity? I think this investment could 100x. So I'm going to take $5,000 and I'm going to invest $5,000 in this investment." So you invest $5,000.

And imagine your investment 100x, which is, of course, horrifically difficult to do. So you go from $5,000 to $500,000. Did that change your financial future in any meaningful way? Well, if you've got a $5 million net worth, it doesn't do anything for you. You don't do a thing differently.

If you all of a sudden wake up and now your balance sheet shows that you've got $5,500,000 to your name instead of $5 million, you don't do anything differently. You could go buy a car to celebrate, but you could have bought a car anyway. It's just meaningless. So clearly, even if you had a 100x investment on your $5,000, clearly that wasn't enough money at risk to make any kind of difference in your financial situation.

Now, let's play with another number. What if you invested $50,000? You have a $5 million net worth, $50,000. And let's assume this magical investment 100xs. Well, now all of a sudden you've got $5 million. And that does fundamentally change your overall lifestyle. To go from $5 million to $10 million in a short period of time with your magical investment that 100xed, that changes it.

It still doesn't change it massively. You don't go all of a sudden to flying on private jets. So $50,000 is probably too little still. And so you run these numbers, right? What if you put $150,000 into your 100x investment? 150,000 times 100 is 15 million. Well, now you just fundamentally changed everything.

To go from $5 million to $20 million in net worth is a ratchet up point. At $5 million, you can live well. At $20 million, you quickly move into a whole different style of living. And there's a big lifestyle benefit to that. So you run the numbers. And I used 100x, right?

Obviously, 100x is virtually impossible to achieve in any reasonable investment. But let's say that you think it's 100x. You've got to invest enough to where the 100x return is going to make a difference. What about the downside? You've got $5 million and you lose $5,000? Doesn't matter to you.

Lose $50,000? No one likes to lose $50,000. But remember, at $5 million of assets, your net worth is going to be bouncing around half a million dollars, a million dollars a year regardless, just with normal investment market fluctuations. $150,000? You're very much in the range of where it still is not a big deal.

To lose $150,000 is not a big deal. And so you play with these numbers and you say, "What's the maximum upside I could ever engage in and you choose a number that's going to allow you to have enough of an impact to where it's going to make a difference in your life?" Now remember, most investments, virtually all investments will never 100x.

So maybe you say, "My big speculation is to 10x." Man, if we could 10x investments, that would be awesome. But now go back to those numbers. You put $150,000 into an investment and it 10xs? Well, that's $1.5 million, but now it just doesn't make that, you know, $5 million to $6.5 million.

I mean, you're richer, but it's not lifestyle changing. And so on the other hand, if you lose $150,000, it's not lifestyle changing as well. And so you play with your expected returns and your expected losses and assume your investment goes to zero and then try to figure out where do you want to be?

Like, what do you do? And that's the only way I know how to do it, is choose a number where on the upside it makes enough sense to where you're actually excited about taking the huge risk with a speculative investment, and on the downside where it doesn't wipe you out and you can stomach the risk of losing it all.

The numbers will be different depending on your income, depending on your assets, depending on your other investment portfolio, your insurance plans, what your personal ratchet numbers are. But that's the thinking process, the bracketing process that you go through in order to arrive at the right number for you. Now what if you've made it?

What if you've been a big winner in a space and you have a big investment that has actually won for you? What do you do then? I've been fortunate over the years to have quite a lot of crypto millionaires in my audience, and I've worked with a lot of them in private consulting.

And here's the advice that I have given. And here's what's so astonishing about crypto millionaires is that in many cases over the last decade, their wins have come exceedingly quickly, and yet they have come based upon market forces that they can't control. So there's a huge amount of insecurity and uncertainty around this suddenly grown fortune that is generally not there when people have a business.

If you build your wealth in a business, then you can analyze it very differently than if you've built your wealth in a financial speculation. When you have a business, you have cash flow, you have customers. These are real assets that you can use then to value your business. And you can say, "My business is worth this because we have this amount of cash flow." But with financial speculations, such as big cryptocurrency wins, you wind up facing the reality that you can't value it.

It's all--there's no cash flow. The value is based upon market demand. And how do you control market demand? You can't. You can only just ride with it. And in many cases, the wins have come so quickly that now what do I do? How do I approach this? And so the advice that I have given has always been to go back to these concepts that I've said, the concept of a ratcheting concept and the concept of what changes your life in the future versus where you are today.

If you come from nothing and you wind up as a suddenly newly minted millionaire, losing millionaire status is not an attractive idea because what you've bought for yourself is freedom. If you've got $2 million in the bank, no debts, modest cash flow requirements, et cetera, for the rest of your life, you don't ever have to do anything you don't want to do.

You don't ever have to take a job you don't want to have. You don't have to do anything that you don't want to do. And that's really, really valuable. And so what I've always counseled is choose the number that you don't ever want to go below again in your life and get that out of the speculative asset and get it into a good financial plan that has a better track record, a better history, a longer run history, et cetera.

And there are various ways that you can do that. On the other hand, if you still want to play, then you've got to make sure that you're playing enough to go big. And so it's that same measurement. Okay, let's assume we go to zero. How much does that hurt?

Let's assume we go to 100x. How much does that win for you? And each person, based upon his own risk tolerance, his own lifestyle ambitions and goals, et cetera, will have a different number. But you can get at the right number. When you have investments that go up, take your winnings.

Always remember, profits that are not taken off the table are not actual profits. Paper profits are not real profits. Money that is up but you don't take it off the table is not actually profits. For me, I grew of age during the dot-com boom. And I just remember so much.

A friend of a friend, kind of a middle-aged guy, he started some online business, and all of a sudden he was driving a Porsche. This is the dot-com boom, 2000. I was in high school. He's driving a Porsche. He's just making it big. And then six months later, the Porsche was sold.

And he was back living in his parents' house, totally broke. When you win, no matter how confident you are in the future, go back to your ratchet mechanism and say, "If I can take profits and I can set them aside into cash, then I can fundamentally change the rest of my life." So don't play hot and heavy if you haven't ensured the downside.

Take your winnings. Take your profits. If you double an investment, take money off the table. If you 5x an investment, take more money off the table. If you 10x an investment, take huge amounts of money off the table. Why do I say that? Earlier I used the example of 100x, right?

Because it's fun to think about. And many people, in the massive increase in Bitcoin and other cryptocurrency values, have 100x their investment. But you cannot 100x something for long at all. You can't even go at a 3% growth for long at all. And what I mean is, just run the numbers.

The power of compound interest is always there. Some months ago, somebody had gotten involved in some scheme. They came to me and promised extraordinary gains. And I just immediately said, "This is a scam." How do I know it's a scam? Because based upon the numbers that somebody is promising you, of an increase in your investment, within a very short time, all the money in the world sucked up.

You have to run the math. And so, if you ever got one 100x growth in your life, that's it. You're very unlikely to ever get that again. And so, recognize. Don't think, "This is normal. I can just keep doing this." You can't. You won't. Doubling up, you can do it a few times.

There are enough assets that if you have enough time, can double up. 5x something, could you do that once or twice in your life? If you can do it more, you'll be in the hallmark, the hall of the heroes. You'll be up there with Elon and Warren and all the great investors.

Life doesn't work that way. There are physical constraints that hold back these assets. Any asset. Stock prices, value of the dollar, value of Bitcoin, etc. So, when you increase, take your winnings, take some of your winnings and deploy them. Do it on a ratcheting scale. Again, you can decide the numbers, but don't be stupid and keep everything going in something that has gone well.

Recognize that booms are almost always followed by busts. And busts are often followed by booms. So, if you're booming, I want to be Mr. Negative and say, "The bust is coming." If you're busting, I want to be Mr. Encouragement to say, "Hey, the boom may come." But booms are always followed by busts.

That's the fundamental nature of humanity. We're emotionally driven creatures that get irrationally exuberant when times are good and irrationally despondent when times are bad. So, I think that's what I wanted to share. There are more rules that could be applied to investing. I guess the final one I would say is this.

If you can't explain it to a child, don't do it. This came up on the Friday Q&A show where somebody was talking about how-- somebody was talking about-- I just slipped my mind, excuse me-- oh, advice from an attorney. The attorney was saying, "Well, you can do this kind of trust or this kind of trust," and he couldn't explain it to me.

My comment is, "That's the attorney's job. If you can't explain to me why the attorney is saying to do it, there's a good chance you're being swindled." Now, go back to the attorney, give another chance, say, "Maybe I'm just dense and I didn't understand. Can you try this again?" But if a financial expert can't explain something simple enough so that you clearly understand what it is and why you would want to do it or not want to do it, then that person is, in my opinion, not doing 101 of his job.

Flip it to an investment. If you can't explain to your child, your elementary school child, or your niece, or your nephew, or a random child that you walk up to on the street, if you can't explain the basic value proposition of your business or of this company you want to invest in, or of this computer coin you want to buy, or what you're trying to do, then the emperor might just have no clothes.

There might just not be any usefulness to it. It's easy to say that when everything is crashing. And you're like, "Now, of course, if I just stuck to it, that would be great." It's harder to say that when it seems like everyone is winning. But at its core, if you can't fundamentally explain the value of this to someone else, then you probably shouldn't get involved.

It's a sign that it may have no value, or you just don't understand it well enough. I'm trying to be cautious here, because one of the things that's interesting over the years with my involvement in Bitcoin and my Bitcoin education, people say, "Well, if I just understand Bitcoin more, then I'll invest in it." And they go on, "I can't understand it, understand it, understand it." And they never understand it, they never invest in it, or they never buy coins.

But what's funny is that I actually have a very hard time explaining something like a dollar. I try to explain it to my children. I have a master's degree in financial planning. I've been paying attention to finance for 20 years. I've read hundreds, if not, let's just say hundreds and hundreds of books on money.

If you ask me today, off the cuff, to explain how money is created, it is such a convoluted, ridiculous system that it's exceedingly difficult for me to do. Now, there may be a lesson in that. Maybe that's the fundamental truth of the fakeness of money. Money really is fake.

And so I can explain it as long as I just focus on the utility of money, the fact that it has value because everybody wants it, and when everybody doesn't want it, it no longer has value. I can explain that. When you try to explain how a dollar is magically created out of thin air, it's remarkably difficult to explain.

So you've got to be careful, because sometimes that can go too far. But at its core, you should have some concept of how to explain this. If I explain Bitcoin to somebody, I can do it simply in about a minute to the point where you say, "Okay, if that works, and if people like how that works, I can understand what the utility of that is." Or some coins.

But then there are other ones where it's just so obviously difficult, you're involved in a scam. So that's all I have to say. I'll close with this because I don't know if I'll actually make the other show or not. If you are in the midst of collapse, if your trading account on FTX is wiped out, if you've lost half your net worth, et cetera, what I beg of you is do not become despondent.

Do not--in fact, I'm going to go for just a couple more minutes because I need to say this. This is important. It could save lives. I've been wanting to do a show on "Don't kill yourself over something so stupid that it's going to kill you for a while." But we'll just start with this comment.

It was on Twitter this morning. And there was a crypto guy who was saying, "The last few days in the crypto world have sucked a lot." And a random person says, "I've lost almost everything. I don't know what to do." Here's my answer. Number one, cry. Have a good cry.

Be angry. Embrace the emotions of the moment. Acknowledge the emotions. I'm sure you've gotten past it. It may take a day. It may take five days. For me, usually one or two nights of sleep can change things. There are times where something happens, my emotions are so upset that I feel sick to my stomach.

I get a tingly feeling all over my body. Usually if I can get one night's sleep, then I can see everything clear. Everything's clear in the morning. So cry, be angry, be upset, get a night's sleep, and then with a calm head, come back and study your options and see if anything can be recovered.

Can you get your money out? Can you hedge your bets in some way? Can you minimize your risk on the rest of your portfolio? Study your options. Then the most important thing is exercise and sunlight and relationships. Go for a walk. Go in the sunshine. Get sunlight. Get exercise and get relationships.

And be with other people. Don't be alone. I know what it's like to be in a dark place mentally. In fact, interestingly, the last months of my life have been some of the darkest of my life. And it's not because anything is wrong. It's just emotionally you get into those black periods.

And so you've got to start with what you can start with. And so exercise, sunlight, relationships, friendships, being with other people, et cetera. Then in terms of money, the situation is easy. If you don't have a job, you go get a job. If you don't have a job, you go get a job.

You start earning money. Once you're earning money, you can figure out how much you can afford to live on. You can start saving money. You can start the process over again. But you simply need a job. You need work. And then some people, you might have to sell a house.

You might have to dump some stuff. You might have to stop paying bills. You might have to go through bankruptcy. But the point is in our modern day, one of the things that we're very, very fortunate is you're not going to die from a financial mistake unless you literally choose to kill yourself, which is stupid because it's just money.

Recognize it's all fake. It was always fake. It is always fake. Money is fake. It's made up out of thin air. It doesn't exist. It's an imaginary concept that we use to try to organize society. If you lose all your money, it was all fake in the beginning. And you can press forward.

And you can make it all back. Most millionaires have gone completely broke at least a couple times. And because money is fake, in the same way that it can go quickly, it can come quickly. You can mint another fortune quickly. It may take 10 years, but 10 years of work puts you in a dramatically different place, and it's worth it.

The only thing that ends your life is literally if you end your life. Don't do it. It's stupid. Stupid causes irreparable harm to you and to everyone around you. It's only money. Number one, just stop paying bills if you need to. The entire system can collapse around you, meaning the personal system, people.

We all take risks when we lend money to people, et cetera. I had somebody--I lent someone a lot of money. Did it going in--last couple years, did it going in, knowing that it may not be returned. It wasn't returned. Write it off. You can declare bankruptcy. Bankruptcy will end most of your financial obligations.

You can dig into the various kinds of bankruptcy and choose one that's right for you. But bankruptcy can control your creditors in a powerful way, and you can start over again. There's nobody who can't start over again. So recognize it's only money. Most people go broke a couple times before they make it.

You'll learn your lessons, and you'll press on. It's all fake. It's all fake, the money stuff. So I guess my plea with you is if you're in a dark place, don't do the things that are irreparable. Don't end your life. Take a few days, and then just get back.

Sunshine, exercise, a job, social contact, work steadily. I hope these rules help some of you to avoid the catastrophe that many people are facing right now. I hope that FTX can recover in some way and make whole the people who have depended upon it in some way. I wish you a great day.

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