Lydia explains how it is fine to thin out your mud to achieve the desired consistency for your project, and that adding water is the best way to thin out the mud. However, she talks about how adding other substances like soap can cause bonding, painting, and sanding issues. While there is a limit to how thin the mud should be - as it can become too runny and difficult to work with - adding more compound can help adjust the consistency if you thin it out too much. It is important to store the mud in a suitable environment to prevent product failures, such as avoiding freezing or extreme heat. Overall, don't be afraid to experiment with different consistencies to find what works best for your specific needs.