Financial Simplicity: Why Most People Need Less Complexity – Episode 629

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We’re gonna be talking about financial simplicity. This is the tagline, why most people need less complexity, not more products. For all of you engineers, just hold on. Listen, there’s some wisdom in here. And I know I said that and Kim, you laughed because you understand. Well, it is so interesting to learn about people’s finances in the rapid fire way that I do because I’ve got a perspective of 30 years of helping people. I know about five questions that need to get asked to get a handle on somebody’s personal financial realm on the money side, and then about two questions on the legal side, like wills and trusts

[00:53] and family limited partnerships and that kind of thing. And maybe one question on the accounting side, if they’re a business owner or something like that. And so it’s very simple, right? And yet I hear story upon story, and I have done this myself, of layers upon layers of complexity that get put into our personal financial realm and our personal legal structure, so wills and trusts and family LLCs, et cetera, that is just flat out not necessary. I was just sharing with our young adult family members recently, they’re going to get an updated trust because they’re married now, so they each had separate wills, but now they’ll go get a family living trust, a revocable living trust, this is the first step.

[01:42] And they were asking about all kinds of other fancy things that we could get. And one of them did a little bit of digging and found a video that I would not ever put in public, but if you wanna go look for it, then you certainly can. And it’s from Ips, like the rapper, right? And he talks about all of this complex legal mumbo jumbo, rapid fire, and then says, literally on the video, sometimes I wish I just went back to the simple way when all I had was my whole life insurance policy. And he says it much quicker than that, but it is hilarious because there are so many good things that we can do with our personal finances, right? We can have IRAs and 401Ks and get deductions today. We can have the legal structures that we need to have,

[02:39] like the uber important ones, like wills and trusts. But then frankly, it often should just stop there because the foundation of somebody’s personal finances in a certainty way where we absolutely, positively know it’s gonna work is that whole life insurance policy. And so people are naturally gonna have their retirement plans, that’s fine, but frankly, that money is all locked up until you’re 59 and a half. And people are going to have their legal documents, that’s fine, and they should, but that isn’t gonna help today. Those legal documents are for tomorrow. And so if you will support your personal finances with that very foundational, very boring, very effective whole life insurance policy

[03:25] and policies on all the family members, then everything else will sort itself out over time. And these complex family limited partnerships, of which I have one, and these complex second and third and fourth layer legal structures are just not necessary. And we as a family have wasted probably $50,000 over the last 30 years in putting in place legal structures that were for tomorrow that were supposedly gonna be helpful, that frankly, we really haven’t been able to use. And that’s sad. And I would like to keep other family members from making that same mistake. Absolutely. There’s a financial cost you mentioned, maybe somewhere in the neighborhood of $50,000 for you guys. And there’s the time.

[04:21] And not only the time that you have to actively be putting it together, but there’s a time of it sitting in your brain and taking up space and taking up the emotions. You’re nodding like, oh yes, okay, we need to know why, tell us about that. Well, it’s the space that you give to it mentally while you’re trying to learn about it. Then it’s the space that you give to it mentally while you’re trying to get the document done, which is usually six to 12 months. Then there’s the space that you give to it mentally while you’re trying to actually implement it, like put the assets in the thing or make the other account opening that needs to happen and the other transfers that must occur for this legal document to actually do the good

[05:08] that it is supposed to do. And so all of that mental space, it could literally be two years. All of it could potentially be a waste if you’re basically getting ahead of yourselves. And so I would say that under $5 million of net worth, have a revocable living trust, that is sufficient. You’re each gonna have wills, your family members need to have wills as soon as they turn 18 because as soon as they turn 18, they are an adult and with a will usually comes a medical power of attorney, which is absolutely paramount to have so that if your child is in an accident, your adult child and they are in a hospital, for you to be able to come in and be involved in their care at all, you must have that medical power of attorney

[05:59] and stop there. Spend that extra time either learning about the simple boring things that you can do to get to the $5 million or with your family. You could literally be better spent with your family and helping your family develop the financial competency that you’re seeking yourself because you can start teaching financial competency to a three year old. And so that is so much better time spent than developing, fleshing out, finalizing, paying for and implementing any kind of fancy legal structure that is over and above that revocable living trust, which is the foundational piece on the legal side, just like your life insurance is the foundational piece on the financial side. Yeah, from your guidance,

[07:01] we implemented our medical power of attorney once our son turned 18. And it was one of those things like I knew we had, once you said it, I was like, I know we have to do this. From our previous episode and for listeners, if you haven’t heard it, one of our previous episodes, we were talking about preparing ourselves and having some of those documents. You can get those documents created, make sure you have it, it has to get notarized and taken care of, upload it to the cloud. Now you have it, you can reference it because if you’re in a situation, you’re not gonna go dig through a filing cabinet, you’re gonna want it quickly accessible. You also mentioned in this episode, we’re kind of going through the important pieces here,

[07:46] the simplicity versus the complexity and what’s happening. You’re talking about these families that get ahead of themselves. And I’ve seen it happen in a related industry, meaning related I can, as an example, farmers. Now, there’s many of them that are turning back to the old equipment because the new equipment got too complex and they had to bring in special mechanics. You’re probably seeing this in the industry is you coach people and as you guide them, they went too complex and you’re saying, let’s get back to the basics. Back to the basics is such a valuable thing to do. It doesn’t matter if it’s about our health or eating. I watched over the last weekend, the amount of money spent on drinks

[08:38] and I’m not talking alcohol drinks, I’m talking the energy drinks and the vitamin water and fill in the blank, just mind boggling. Last I checked, straight old ice water was, or not ice water, I like my water warm, right? Was the best thing for you. It’s just so interesting how us humans can get so interested in fanciness and how really unnecessary it is. Yeah, yeah, that’s true. That doesn’t help us at all. Just getting back to those basics. Kim, we always enjoy hearing the stories that you have and the guidance. I’ve seen it happen so many times because I like to learn just like you do and I hear some of these complex situations. I trust, like some of the ones on YouTube that I see, they’ll talk about all of these trusts

[09:40] and this trust owns this trust and this corporation and you go, wow, this feels James Bond-ish almost in a way and then you look at it and you go, oh, I’d have to hire another person just to manage that. Now it makes my life worse, I’m not gonna do that. What is the first step that you often help people that they could take before they meet with you? What’s the first step they could take in reducing that complexity so that they can on-ramp to you? Have a list of your assets and with balances and if you have debt, a list of your debt balances with interest rates and thankfully that’s not my specialty. I don’t help people typically that have a lot of credit card debt and that kind of thing. So back to the assets, it’s still mind-boggling to me

[10:36] how many people don’t know just some basic things. How much is in your retirement plan? How much are you adding to your retirement plan? And then also the life insurance. People don’t know and I get it. I don’t know that I would know off the top of my head but if I was having a meeting with a personal financial person, I might take a moment to look it up. Their work benefits, right? Somebody told me the other day, oh, I have life insurance at work. It was one times their salary and this person had young children. One times their salary is not going to help their family if death occurs and so they were shocked by that. I don’t know what they assumed they had but it was a lot more than what they had.

[11:22] And so checking out this type of thing and I know it’s not fun to dig in there but thankfully with online capabilities and sometimes a quick phone call, talk about back to basics, pick up the phone and call your human resource department if you don’t know how much life insurance you have, what disability coverage you have. These are basic foundational things that are helpful to me that when I speak with someone, I can ask those five or maybe seven very important personal financial questions. And then just because I have been in this space for so long, I typically know exactly what the next steps are and I share that on the very first meeting because with nuances that are going to come into play

[12:09] and make slight adjustments at the very first meeting at the high level, we can get very clear on what the first steps are to be taking. Absolutely, that’s great. I think the similarity is between going to a general practitioner and someone just hunting around and maybe giving an idea, probably wasting a lot of time and wasting a lot of energy versus talking with a specialist that has been around for a long time. They know the expertise, they know the right questions to ask. Kim, super helpful, really good. For all of you listeners, you know the first step. Get things in order. It’ll help out a ton. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you,

[12:58] visit ProsperityThinkers.com.