Kim vs AI: A 25 Year Old Couple with $50k – Episode 540

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity Fakers, welcome to the podcast. Previously, we talked about using AI and chat GPT to follow the principles of prosperity. We went through the scenario of a 60-year-old couple with a net worth of $2 million. Now we’re attacking the scenario of a 25-year-old couple with a net worth of $50,000. $50,000 is, again, what Google says is a net worth, normal. So, Kim, are you ready to try this part too? Absolutely. I had so much fun last time. Let’s go. Okay, excellent. Number one, emergency fund. Build an emergency fund that covers three to six months of living expenses. This provides a financial cushion in case of unexpected expenses. Okay. It works. I reserve the right to change the order,

[01:01] and I’m going to say more like six to 12 months would be more appropriate. Okay, perfect. Number two, invest in retirement. I know you’re not watching the video or if you are watching the video, you probably saw Kim go, no, why did you use that R word? We’re not supposed to use that on the podcast, but I get it. I get it. Okay, invest in retirement. Start contributing to retirement accounts such as a 401k or IRA. Take advantage of employer matching contributions. No, no, no, no, with a maybe when there’s employer match, and I absolutely positively reserve the right to change the order. Okay, perfect. Number three, educate themselves. Invest in their financial education. Read books, take courses,

[01:51] and seek advice from financial professionals to enhance their understanding. I like it. Invest in yourself. Invest in your education of all sorts. That one really works. Yeah, that’s pretty good. Okay, still reserve the right to change the order. All right. Number four, diversify investments. Begin building a diversified investment portfolio. Consider low cost index funds or ETFs. So the word diversify is interesting. The second part I can go with, which was build a diversified portfolio, but I have a big issue with the definition of diversify, which most people take into consideration only the stock market, and they want things like a value fund or a growth fund or maybe an international or something like that, but it’s just stock market, stock market, stock market.

[02:46] So since we don’t know, although it did say index funds and ETFs, which is pretty much stock market, stock market, stock market. I’m going to say that that word needs to be expanded out drastically. While at the same time, some people say that really what that word means is de-worsify, de-worsify. So I’m going to hang out until we hear number five before I comment further. OK, number five, set financial goals, establish clear financial goals for the short, medium and long term. Create a budget and savings plan to help achieve these goals and then regularly review. I’m trying to be positive. There was one word in there that I liked, financial. Yeah. Hey, review. That’s a good thing. Like we go through and review stuff.

[03:41] Yeah, review can work. I’m in agreement with that. So this may surprise people, but setting a financial goal when you are a 25 year old or frankly a 30, 35 or 40 year old is an exercise in futility and has, while possibly mathematically correct, absolutely no relevancy to your life. So what do I mean by that? Well, first of all, it did say short, medium and long. So if you want to set a short term financial goal, I’m OK with that. But in terms of medium or long, absolutely not. I mean, Peter Diamandis says you don’t even do business plans that are greater than a year to maybe five years max. One to three is really better. So if that’s what they’re talking about is short term, like six, 12 months,

[04:38] maybe one or two years, that’s fine. Beyond that, you know what a goal does to you? Let’s hear it. It’s actually limiting because as a 25 year old, especially if you said, oh, my gosh, I mean, what’s the lexicon these years, right? I want to be a millionaire. What the heck does that mean? OK, let’s even go to I want to have a net worth of, say, $10 million. Well, what if you could have gotten to 12? Like setting a goal that far out in the future is actually limiting and or it’s just a dream and there’s nothing wrong with dreaming. But let’s get clear that goals need to be. And we’ve all heard this very smart, right? Very specific, measurable, achievable, realistic and with a time frame. Well, first of all, what if you could do more?

[05:30] What if it’s less? I mean, it’s just it’s ludicrous. I remember sitting down with my mom when she was probably about 50 or maybe 55 years old, and I asked her some longer term questions. Longer term, right? Like maybe 15, 20 years. And she said, I don’t know. I have absolutely no idea. And this was before the Internet. I said, well, OK, but just give me a number. I need a number because I can’t run my little computer program on my little tiny brand new laptop, which was like the newest thing in computers at the time, unless you give me a number. And she gave us like, I don’t know, I can’t give you that number. So this world of financial planning tries to do things like set financial goals and figure out the age at which you’re going to

[06:24] retire and then even worse, try to figure out how much income you want to retirement for a 25 year old. That is the biggest waste of time I can think of. I’ll get off my soapbox now. Oh, OK. So what I interpret from this where I’m taking the language is that we’re not just taking chats language, but you’re analyzing the words, meaning we go through and the word plan that actually has meaning to it. The word retirement has meaning to it. You don’t throw that word around. So let’s hear the sequence and maybe even scratching things out and adding them. Yeah, for sure. Love it. OK, so I will say that emergency fund is first, but I really want that out there are six to 12 months and only if it is very

[07:21] closely followed by the entire protection arena. And what I mean by the entire protection arena. So you could even just call this like 1.5 since the other one had six. This one probably will, too, is protecting everything that is important to us. And some of it is legally required. Things like car insurance, renters insurance and or home insurance if you own a home at that point. But then also your ability to move about as a human being, which is typically called health insurance, your ability to get up and go to work every day, which is typically called disability insurance. And then your ability to earn an income for the rest of your life. These are the things that we’re protecting, which is typically

[08:15] called life insurance. So car home. I didn’t bring up liability umbrella, but we might as well throw that in. That’s part of the protection arena. Health, disability and life, six things that absolutely positively must be protected as quickly, frankly, as you turn 18. But we’re going with 25 year olds here. OK. So the protection piece now, just to make sure that we’re very clear in communication, is emergency fund before the protection or are you using wise judgment to decide the timing between those two? Well, I would really like them done at exactly the same time. OK, we’ll go with that. Then what’s number two? Cool. OK, so number two, I’m going to go with educating ourselves and investing in our financial education.

[09:14] But I would like to broaden that and just say that we need to be educating ourselves and investing in our education for the rest of our lives. So this looks like mastermind groups, online courses you might add. Heck, go back to school if that’s really what you want to do. But holy cow, I mean, there’s so much in the online world today that we can learn from. Educating, learning, those need to be lifelong endeavors. And as my sister Tammy Brennan and I like to say, if you’re not having a midlife crisis about every 10 years, you’re dead. So education enables us to get past those. Education enables us to shift the landscape. And if we tend to have some type of midlife crisis, well, then great.

[09:56] Scrap that part of your life and redo what needs to be redone. So I’m liking the idea of the education of ourselves financially, mentally, spiritually, emotionally, and in however many other L.Y. words we can think of to be what we’re essentially going to call number three. Oh, I love that. You know, as you mentioned that, I started to think about something. You’re saying midlife crisis every 10 years. I’m taking that in and I quickly thought, what did the world look like 10 years ago? And then I had to jump a little bit further and say 15. We didn’t have YouTube 15 years ago. That is the education platform that we can currently use right now. I don’t know what it will be 10, 15 years in the

[10:53] future. However, there’s a lot of people. The last book they read was the last time they were in college or in high school. That’s sad. So again, this podcast is free education in the car, at the gym, at the house, wherever you are, and tons of material, books for any of you that are, you know, again, if you’re a visual or you want to read, go to ProsperityThinkers.com. Sign up. You’ll get a sequence of emails, really helpful stuff. So anyways, let’s hear the next one. What’s the next step? Fun, fun. Thank you. So I believe that I need to address number two and say where I’ll put it in the list so that we keep track of where we are. So number two was retirement and it addressed the idea of employer match.

[11:46] I don’t think that a 22 to even possibly up to 30-year-old person really has any business locking money up until they’re 59 and a half. Now I would acquiesce and say that if they got a really good employer match, then that’s fine. There’s no harm in putting a little bit of money, whatever amount of money would get you the full employer match into this thing called a retirement fund. Nevertheless, I believe that that really should get moved down to probably number four and we’re going to have six. So that’s just where I’m going to put it. And I know my own adult children who are in their mid twenties took advantage of that kind of thinking. And one of them particular is so incredibly grateful because he

[12:41] ended up leaving his 22-year-old job that he started right out of college at about age 24 or 25. I can’t remember exactly. And he went on to create some amazing business capability that he could not have done if all that money was locked up in a retirement plan. So, and he forgo, he forwent, I think is the actual proper English term, the match that was from his employer was not large. So it was pretty easy to forgo. And that really worked out well for him. And I know there’s tons of information about, oh my gosh, you got to start early, et cetera, et cetera. No, you don’t. And locking up money until you’re 59 and a half, which that age could change any day of the week is really, really risky.

[13:27] So the formula, the math formula that I was looking in my head, as you explained that in the parts of that equation is control and return. And when we think of that situation again, what typically happens, you get out of college, you’re starting lots of ambition. You’re starting your career. You’re giving up the control for a predictable yet again, as you’ve mentioned in the previous episode, limited amount of return because you’re taking yourself right now and you’re not thinking of that real future. So excellent. Next one. What’s the next on the list? All right. So next on the list was diversify. And I’ve already commented that a lot of times, especially when you’re young and you don’t have that much

[14:13] to work with. I mean, you said these people have a $50,000 net worth. Now what we don’t know is how much savings capability they have every month. Yet it is uber critical that. The dollars that they have are after invested in learning and after invested in the emergency fund and that kind of thing, which we wouldn’t really call that an investment. Are used carefully. And so spreading them out about a whole bunch of different things, which is normally what diversification is. It’s not going to be super valuable. I don’t think because it just really isn’t going to get the learning done because the dollars are going to be so small. So I’m almost going to say that if I really had to pick what’s essentially going to be number five right now.

[14:59] That dollars get saved to build an opportunity fund. So that’s separate from the emergency fund that we already addressed. Opportunity fund is what you want. And typically opportunity funds are liquid. Now they could be stored in something like cash value for life. Nevertheless, they are capable of. Going and doing other things. That’s a whole definition of an opportunity is money ready to go do money ready to go invest. So I’m going to put opportunity fund is number four. That’s going to be a liquid account. If you don’t like the life insurance idea, you can always just use a savings account or a money market, or if you wanted to do I bonds or T bills or treasury securities or something like that, that would be fine.

[15:45] Opportunity fund. And then the question is how high is up? Yes, yes, yes. I love that. Touch one second on the correlation between emergency and opportunity just so that we can cement and because those two absolutely go hand in hand. I love it. Yeah, thank you. And I used to talk about them together all the time. A lot of people don’t know how to do that. So I don’t want to go into that. I don’t want to go into that. I don’t want to go into that. I don’t want to go into that. I don’t want to go into that. So I think that’s a very important part of an emergency slash opportunity fund. But I think that does get confusing. So an emergency fund really should be 12 months of expenses. Let’s just go with that.

[16:25] I, you know, I said six to 12 earlier, but they really should be 12 months of expenses. Not 12 months of income, 12 months of expenses. So it’s going to take your typical 22 year old out of school. Cross that off your list, like that’s done, at least for a while. Now we know expenses change, so your emergency number is going to change. And of course, it’s going to change if you end up with family and kids and other reasons to have an even higher emergency fund. But let’s just go with the status quo for a minute. Then you want to start to build the opportunity fund, which is what you will use to invest in the future. Now, invest does not just mean the stock market. Invest could be real estate.

[17:04] It could be businesses. It could be all kinds of different things. That’s what opportunity monies are for is to invest. And many times investments, the good ones require lump sums. You can’t do them at a 500 a month or whatever your savings ability is. You’re going to save as a verb into the opportunity fund, which will then go towards being invested, maybe as a lump sum, maybe not. Nevertheless, that is what an opportunity fund is for. So good, because now what we’ve done is we’ve pieced these together because I think I’ve I’ve seen at least as I talk with other younger professionals or business owners, they want to skip the emergency and go straight to the opportunity. Oh, they create the disaster and then they never, yep.

[18:00] No, I shouldn’t say never. Oftentimes they don’t recover from that. Right. Okay. What’s next on the list? You got it. Next on the list was the one that talked about set financial goals. And after I got over not feeling very good because not only did it mention the medium and long-term goals, it also mentioned budgeting. And that is something that I’ve known my entire adult life has not worked. And now I finally have proof that it doesn’t work. Number one and number two, and even better solution. So I’m going to, I might need to adjust my order here, but so that we don’t get confused as I keep looking at my notes on the podcast, let’s just go with, in my opinion, the next two things that we need to

[18:56] talk about, which may end up having a different order. Are the estate planning realm of getting a will and maybe a living trust. We didn’t really talk about that in the protection component on number two. And so that that could be number five or it could be number two and having a way to implement cashflow control. It’s not a budget. It’s a way or a structure or a method or an approach to make sure that cashflow control happens. And so as we finish up here on this conversation, that is what is my call to action for people. If you have a way to have cashflow control, more power to you. Like seriously, congrats. If you don’t, I would like you to email hello at prosperity thinkers.com. Now, before you do that, make sure that you have an emergency fund.

[20:02] Like if, if you don’t have cashflow control and you also don’t have an emergency fund, then that absolutely positively is the first thing that you must do if you have an emergency fund and you would like some guidance on cashflow control, then email hello at prosperity thinkers.com. Love it. I’m going to add in one piece here, which is I’m going to edit the goals section. And so, uh, from me as a person, I like to have targets, things that I’m working on doesn’t necessarily, sometimes it’ll be goal many times it can just be habit, but what those timelines can look like is I want the emergency fund, you know, situation to 25 year old. I want the emergency fund to, it could be completed by this time

[20:51] or opportunity fund, which really means like, I want to take action at having my dollars do something by this date, because even if it’s small, I see it so often with younger entrepreneurs or people, they’re waiting for the perfect thing and the perfect thing means movement. It’s one of the principles of prosperity, just doing something, something small, and then it happens. So well said. Yep. And it’s tough as human beings to get results because we are fearful and we have all kinds of opinions coming in and we don’t always know what to do. And frankly, our parents don’t always know what to do for us or what to suggest and so you are so on it, just taking a baby step, taking some action, setting a date, taking some action, set another date, take some

[21:44] more action, very valuable. Perfect. Listeners, thank you for being a part of the chem and AI feedback and and seeing the value of an advisor and someone coaching through these pieces for any follow-up questions. If you happen to be in that 25 year old category or know someone that has sent an email to hello at prosperity thinkers.com. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit prosperity thinkers.com.