Control and Optimization – Episode 641

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. We are going to be talking about control, but there’s two other elements, which is optimization and flourishing. It’s all going to come together. First, Kim, tell us about control and let’s start wiggling into this conversation. Is that my cue to talk about Pepperdawg, the new puppy that we have and some training and control? It is for all of our listeners and viewers. Right as soon as we hit the record button, I heard a scratching sound. I said, what is that? Why is the microphone all messed up? So context about Pepperdawg. Pepperdawg is a five month old Great Dane puppy. Our family has had Great Danes for decades and as you know, they tend to only live around a decade.

[00:57] So many of you know, Emma dog, our previous Great Dane, and she’s gone. And now we have Pepper and we love her. And we had a hard time with her the first little bit because she was completely uncontrollable. And I’m one of those people that’s really into discipline. And I like a calm dog and a puppy is not a calm dog. And so we had to go through that. And holy cow, I mean, you absolutely feel completely out of control. And I have a lot of control in my life. And obviously, we all know there’s many things that we cannot control. And one of those is not only the puppy itself, but the training process that you go through to get the puppy to be control of bowl and also calm. Thankfully, Great Dane puppies go through puppy stage way faster than most dogs.

[02:01] They grow through the growth stage much faster than the dogs. Yes, somebody asked us, well, why did you pick that dog? And Todd said color and cost. So we’re really into the particular blue harlequin look, which is kind of that Holstein cow thing, but it’s more gray, if you will. And Emma was that at about 50 50, like half white, half black. Pepper’s a little darker. I’m sure you’ll see some pictures on social media at some point. And we did not want to pay a retail price for a Great Dane because they’ve become kind of a popular breed of late and they’re ridiculously expensive. And so we found a breeder that’s like you can have this female, but no breeding, no papers, no registration, you know, none of the fancy stuff,

[02:48] none of which mattered to us. And so that’s an element of control, right? You choose what’s important to you. And nobody gets to say that that’s right or wrong. And this is the element of control around your personal finances. You spend money on things that are important to you. And it is a joy to be able to do that and to have a sense of control around personal finances, because when you get into a space of your life that is not controllable, and sometimes we’ll use the word certain and uncertain, especially around money and the fluctuation of money. But obviously control is that higher level aspect of controlling your mindset, which then controls your actions, which then can control certain things that you do,

[03:40] whether it’s with a dog or your money, and that enables you to have such a sense of peace of mind. Then when a part of your life is out of control, like said dog and the draining of a puppy, holy cow, does it make you appreciate the other areas of your life that you have under control. Yeah, I really like that. We’ve talked on the podcast about a business leader, Naval Ravicon, and he has a quote that I often reference. It’s actually one that we use in our family all the time, which is, if you can’t define it or control it, don’t worry about it. Let’s go back into control of this, because one, you’ve got the pieces of finance, areas that we can control, some things that we will think about before,

[04:31] some things that happen after how we react, and then the umbrella that sits on top of that is our mindset of how we react to all of it, either proactively or reactively. Let’s start to work through those little nuances, because as people sit in their car or working out or whatever they may be doing listening to this episode, they’re probably saying, okay, I’m coming in here because this is the Prosperity Podcast. It’s helping me to think a different way. I don’t want to be a control freak, but I also proactively and reactively want to put myself in the right position. Well, I love the distinction between focusing on what you can control and not focusing on what you cannot control, because you just can get into such a space of the weeds

[05:23] if you’re trying to focus on things you cannot control. I love your use of the word umbrella. We talk about umbrella as an overarching concept, like your mindset and that kind of thing, and then we all know what an actual umbrella does. And there are things like umbrella liability policies that are so valuable and protect against so many areas of liability. And I don’t sell these policies, but a lot of people don’t even know that they exist. So if you are unaware of this space, I’ll just bunny rabbit trail on it quickly, you want to have a liability umbrella policy of an amount approximately equal to your gross worth, not your net worth, gross worth. And you get that from your car and home insurance agent.

[06:15] So nothing else needs to be said about that except please go get one. And if you have a $5 million gross worth, you may not be able to get a $5 million liability umbrella right away. You have to kind of go through the stages of maybe it’s $1 million and then $3 million, what have you. But it’s a very important element because so much of what we think about, so back to mindset, right, are things that are absolutely controllable, especially if we have insurance with them, right? I talk to these young families. I love helping families that are in their 20s, they’re getting into their personal finances, and they’ll always say, well, I’m worried about if something happens to me. Well, get specific.

[06:56] Are you worried about dying? Okay, there’s insurance for that. Are you worrying about becoming disabled? Okay, there’s insurance for that. And so pick the things that you are worried about. Do something about them. At least do enough research to say, I’m making a specific choice here. Like I’m aware of a particular person that has chosen not to get health insurance. Okay, now to the outside world, that’s incredibly risky. It doesn’t matter. That’s their choice. So you make a choice around disability insurance, around death insurance, around the other areas of life that you can control, make that choice, and then cross it off the list. It’s the same as the emergency fund we talk about all the time.

[07:43] Figure out what your emergency fund number is, fund it, and then stop thinking about emergencies. It’s so valuable. I love that. You know, I’m going to circle in something that I recently read, I thought was interesting. I was talking with an old timer yesterday, old timer, early 80s. Okay, so not that old because we’re all going to live longer in life. Yep. But he was an adventurous man, and he was telling me about some travel and hiking and other things. And then I read this story, and it was just one little paragraph, an excerpt that had me think. And this comes back to the control, which he said this, It was a hiker talking about doing the Pacific Northwest Trail. And for any of our hikers and people out there,

[08:32] it’s Canada to New Mexico, long trail. It’s amazing. So he says, he goes, life living on the trail is difficult, but life is easy. Off the trail, living is easy. Life is hard. So you just talked about just like the emergency fund. Once you’ve hit that, cross it off. Don’t think about it. Let’s get into that mindset because our listeners, people are sitting there going, my life’s complicated. I’m looking for some peace, looking for some certainty, looking for the things that I can control. Just jump down that trail. Absolutely. So especially in a married couple’s life, it is critical that each spouse gets to identify their emergency fund number. So let’s say, and it doesn’t have anything to do with men and women,

[09:39] but let’s just say the husband has a $100,000 number in his head that he’s just always felt like, if I could have that, I would feel so much more in control. I would feel so much more confident. I would feel like we could solve all the emergencies. And the wife may have 20 grand in her head. Doesn’t matter. The number for the family is a hundred grand. And so make it happen. Do whatever it takes to get to that hundred grand. And then like I said, cross it off your list. Now you want to keep building. You want to keep saving. Now you’re creating for opportunities. So maybe your opportunity fund goal is 500,000 or whatever the number is, but the importance of identifying for your family. Now a young kid,

[10:23] 22 first job apartment, their emergency fund could be five grand. Great. It may take them six to 12 months to get it funded. Great. Make it happen. Now maybe they’ve had an inheritance or they got some money from, you know, graduation gift or whatever. Awesome. But set that line, draw that line in the sand. If you utilize our currents cashflow control structure, we literally have a target number. That’s just a line in the sand. You can move it that we set for families. And when you get married, if you’re the 22 year old five grand kid and you get married and now the number is 20 grand. Great. We adjust the target and it’s just a way to be able to see on the app. Every single time I sign in my emergencies are

[11:12] handleable. I think it’s a Dan Sullivan quote. If you have a problem and you can write a check, then you don’t have a problem. And that’s what we want for our emergency fund. So, so very true. So that’s the part of control that, that I think your message is unique that people can see. It’s a different type. It’s a tangible, very tangible control on there. The second word that we let out with at the very beginning of this episode was the word optimization. And I know we just want to touch on that because the control itself, that line in the sand, that taking care of it, the optimization call it is the longer path, something you’re doing. Let’s hit on that for just a moment. Sure. So most typical financial planners say that they want to help people

[12:01] get to maximum wealth. And I absolutely want to see what maximum wealth is. I mean, we actually have a calculator that’s called maximum financial potential. And yet once we really start to dive in and we buy products and we engage strategies or we implement strategies because strategies are things that we do, whereas products are things that we buy. Our goal, our overarching goal should be optimization. It’s actually an economic term. And what optimization means is to make most efficient, to take with what you have and get it as much as possible. But it’s not this huge, unbelievable number that might seek to be set as a goal. It’s more about taking each transaction today, each product that we buy,

[12:52] each strategy that we do and optimizing it and every little step along the way optimize. And again, economically what it means is to make most efficient. If you take every single product that you buy and every single strategy that you use and you optimize it, then you are going to get to your optimum wealth. And that’s a much better approach, a much more sustainable approach than trying to set this big, huge number in the future. Two million, three million, 300 billion. Like, you know, it’s all relative, right? Whatever your numbers are and then work backwards and try to get there. That’s what typical financial planning does. That’s what typical assets under management people do is try to set that

[13:37] number in the future, work backwards so much easier to just optimize every product that you buy, every strategy that you use going forward every day, year by year, and you will end up in your old timer space with your optimum wealth. Okay. So when you’re coaching people through this, because you’ve had decades of seeing people that had very little and they end up with a lot, you’ve also had conversations with people that had a lot and they didn’t apply the right principles and they end up with very little. Yep. What are the overarching, call it guidelines, bumpers you can set up and then what is something someone can do to be able to, you know, take a next step to learn deeper. Yeah. I’ll give a great storyline example because it’ll just bring it home for

[14:34] almost everybody. Think about the mutual funds that you buy. Now I’m not talking about the ones in the 401ks and the IRAs. This is after tax money. You put it in, you’re on your E trade account, your betterment account, like whatever it is doesn’t matter. Fidelity, Vanguard, you’ve got your mutual funds. That’s the product that you’ve bought. The strategy that you would consider using for optimization is to take the short-term dividends and the short-term capital gains out every single year. Now you can leave your long-term capital gains in. Most people are pretty surprised. There’s not a lot of long-term capital gains in the mutual fund space. Those money managers are moving that money within that fund a lot more

[15:20] than we’re aware of. So dividends and short-term capital gains come out. Well, what that does is it gets money to move. And we know that in the seven principles of prosperity, the movement of money is principle number six. We also know that principle number seven is to multiply. Well, if you can move the money, then you can multiply it in your early years. You might do something as simple as use the dividends and short-term capital gains to pay for your car insurance, but it doesn’t matter. You’ve got a cashflow engine moving money, which then enabled you to multiply that money. Now your literal car and maybe home insurance is paid for by your mutual funds. Okay. That means that your own earned income isn’t responsible for it anymore.

[16:05] That’s one turn, if you will, one movement of the money. So again, take dividends and short-term capital gains out. Well, now just so you’re aware, your banker, your broker, you know, the web, they don’t want you to do that. They want you to compound, right? They want you to leave that money in and get it to continue to grow. But every time that account grows, it creates a tax. I sat down with a couple in time that had so much money earned by their inheritance. So their inheritance itself wasn’t taxed, but they had so much money earned by their inheritance. They couldn’t pay the tax. Now, you know, they’re in a lose situation whereby if they took that money out, they would stop the tax going forward.

[16:53] Obviously they’re still going to have to pay that tax that year, but then they can go put those dollars in something like life insurance that will never be taxed again, assuming it’s whole life and the dollars stay in there. In other words, the policy stays in place. So that’s two examples there of a product. And then a strategy, a little tiny one. If you just have a little bit of money, a little bit more money, and these are things that you can do to optimize that also put you back in more control. I’m going to inject one piece into your story. I’m not changing your story. I’m just going to inject one piece in, which is reading between the lines. And it’s this for all of you listeners or anyone that’s

[17:34] disciplined. So going back to the very beginning of this episode, Kim being disciplined at helping train and raise this new dog pepper. So discipline there. So any of you listeners that are investing your money, saving your money, whatever word you want to use that you’re doing that has resulted in something that throws off more money. Unless you have conversations, you’re going to create a future problem for your family. Unless you’ve architected correctly, optimized correctly, you’re creating a problem. And what I see it happen time and time again, that someone was so disciplined years, decades ago, and then they harm the individuals in the future because the individuals didn’t learn the principles.

[18:26] So for all of you listeners, if you’re in the situation where you’ve shown the discipline, but you need the roadmap, there’s a special email for that. It’s hello at prosperity thinkers.com goes directly to Kim. It’s incredibly valuable to have a future roadmap there. And if you are not disciplined and don’t have it yet, then you can figure out what your line in the sand is. So those are, that’s the injection that I have for this conversation. Great addition. Thank you. Yes. Thank you, Kim. So for listeners, again, we’ll put that email inside of the show notes. Hello at prosperity thinkers.com. Appreciate you listening to the episode with us. Thank you for listening to the prosperity podcast to take

[19:16] control of your money and have it work for you. Visit prosperity thinkers.com.