Personal Finance – Episode 455

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today, we’re going to be talking about personal finance. That is such a big term. So what I’m actually going to do is ask you what personal finance means, and then we’ll dive off of wherever that is. Isn’t that a great question? I mean, holy cow, that means so many different things to so many people. And I think for a lot of people, it means budgeting. And I just want to go on record right here at the beginning and say that budgeting doesn’t work in lives. It may work mathematically on an envelope or in your mint.com or you need a capital or, or you need to whatever all those various personal capital, you need a budget.

[00:47] I was combining those two. There are so many apps out there that propose to help you with your personal finances in a budgeting space is just completely the wrong focus to go on. Well, okay. So then what is personal finance? And I believe that it is best defined as taking all of the business and economic knowledge that we have and bringing it down to your own life. So economics, blah, right? Business stuff. Some people like that. Some people don’t. And yet really, when you look at it, the people that get good results in their personal finances, learn and pay attention to how a business runs its personal finances, and they bring that down into their own personal lives. And they look at economics, not the economy per se, but economic laws.

[01:48] And they bring that down into their own personal life. So I know we need to distill those two things because they’re huge, big topics, but I’m just curious, how would you define personal finance? I would look at personal finance as the capital that flows through our family and how that capital is saved, managed, and invested. So I guess saved it or managed. We’ll just use that term. Yeah. Yeah. Beautiful definition of personal finance. And it’s so cool because your 10 year old daughter is benefiting from learning about personal finance. She started learning about personal finance when she was probably three or four, right? And so to me, that makes personal finance a super fun discussion because it can be had at all levels of the game, all different

[02:45] aspects of the family environment. And while I absolutely believe that money is not everything, money affects everything that is important to us and that we’re working on in our lives. So it’s very, very critical that we get a handle on this space. And there’s so much information out there today about educating people in the personal finance space. You know, the term financial literacy is thrown around left, right, and center. And it always cracks me up learning what some people consider financial literacy. So you do the definition this time for Spencer. What would you define as financial literacy? Ooh, that’s a good one. I love putting others on the spot, but I’ll take myself. So financial literacy is having the knowledge of the components

[03:38] around the investments and the financial tools that you’re using. I use the word knowledge on purpose because there’s a difference between having knowledge and there’s a difference of having wisdom. So I will say that my definition of financial literacy is going to be to take the, what I’m going to break down as five major components of personal finance and have at least a high level surface knowledge. So we’ll pick up on that thing here in a minute of each of those five areas. And then to come back around and try to add in the wisdom, which is really, really hard because until you’ve lived quite a while on this earth, dealing with personal finances, wisdom is not necessarily something that you

[04:31] can just check a box and get, but thankfully through the reading of books, the listening of podcasts, the watching of YouTube’s and et cetera, you can gain a lot of wisdom and pick up experiences and knowledge, which then you can up level to wisdom by hearing about others’ experiences, both positive and negative. Yes, absolutely. So with, with personal finance and us going through this, where are you helping clients take the first steps so that they can incorporate this into their life, the prosperity thinking? Yes, yes. And as we know, mindset and thinking is so important. This is definitely an area you really want to turn your brain on. So I want to identify those five things and we actually have a

[05:21] report on each of the five. So we’ll maybe talk about later how we can include a link for these areas because the report lays out what people want to be thinking about in each of the five. And so the first is protection and that is car insurance. That’s normally the first financial product that people buy. It includes obviously all of the other types of insurance protection. So disability and health insurance and life insurance and all of those things. The second is what is typically called savings. So savings is a verb, savings is a noun, the habit of putting money away, the habit of storing money, all of that space. The third is often, and this is not my preference for third, but the third

[06:10] one that is most often brought up is retirement. So this could be like 401k plans, 403b plans, the idea of saving for retirement, the idea of having money set aside that you can then use for retirement, so protection, savings, retirement. Then there is an entire space of debt. So car insurance, sorry, not car insurance debt, car debt, right? Auto loan, any type of student loan, any type of mortgage. Holy cow. There’s so much that needs to be learned around the space of debt. So protection, savings, retirement debt. And then the fifth one is investments. And it really is often looked at first and it really shouldn’t be, not saying that it should necessarily be fifth, but investments, the whole huge

[07:01] world, right? Tons and tons and tons of information to learn about, definitely the fun and sexy stuff to learn about because as human beings just, unfortunately want something for nothing. And a lot of times that’s how people look at investments. You know, how much little can I put in and get a lot for it and love the learning around investments, all things in that space. And yet those other four are equally important as it relates to personal finance and the things that you need to know about personal finance. So how often do people skip the steps and come to you and say, okay, hey, great, I’ve got the insurance taken care of. Yeah, I get it. You’re going to help me set up a great life insurance policy.

[07:45] And I’ve got some savings. Let’s just skip and go to investments. I would imagine that happens all the time. So walk me through that. Let’s say I’m going to say that I’m the one, Hey Kim, I’ve got this all taken care of, let’s just get me going and make me as much money as possible. Yeah. I think it’s again, just human nature. I mean, it’s the sexier stuff to talk about and it’s the something for nothing, you know, we would all love to be able to eat what we want every single day and be thin and healthy and strong, you know, we would all love to be able to lift all the things that we need to lift and not have to do our weight workouts, you know, building muscles, such a critical thing. So it is funny how often people do want to go straight there.

[08:33] And my first question is great. Happy to help you. And where do you store your cash? Like the cool thing now, at least a lot of the alternative investment space requires $150,000 of liquidity before you get into their alternative investment. Now, I don’t know where they came up with 150,000, but that’s just a number that I see a lot when I’m out there in the marketplace, learning about things is requirements of 150K liquid in addition to accredited investors and, you know, all the other requirements that they have. And so, okay, even your basic 22 year old kid that’s just out of college or getting their first job, whether they went to college or not, not really relevant, they’re forced into skipping over steps and

[09:24] going straight into retirement plans. It’s the silliest thing in the world. And again, it’s just a construct that our society is under because we still think age 65 is a relevant age and it’s not, it should be age 87 and we do understand the compound interest curve. So the fact that we want to get going on savings is good, but unfortunately we don’t get going on savings. We jump over that and get going straight on investing when there are so many things that should be taken care of first, you know, I meet people with literally a $250 car insurance deductible because that’s what they started when they were 22 ish and first out in the marketplace and didn’t have any money. And now it’s 10 years later and they have thousands saved and they’re

[10:12] still paying so much extra money to the car insurance company because they never looked at their car insurance deductible again. So there’s a lot of times when the personal finance space has looked at a vacuum and it’s one of our seven principles of prosperity, right? To see the big picture S E E that’s one of the biggest mistakes people make is they don’t look at everything holistically. They want to compartmentalize. They want to put particular things in a vacuum and they don’t want to deal with four fifths of the vacuum and they just want to go straight to the investments. They really do. You know, I’m going to relate a story that’ll be relevant that is in the personal finance world, but not necessarily with life insurance.

[11:02] So recently I was looking at getting a couple of different credit cards because I wanted some additional travel benefits and you know, full disclaimer, I’ve got, you know, one of my favorite cards is the chase Sapphire reserve. It’s one of the visa infinite cards and what’s cool is you get, you know, lounge access and you get a ton of points. So it’s great. And so I was looking for additional cards and there’s a YouTube channel that I follow and so I follow this YouTuber. His name is ask Sebi. He’s got a great channel and he said, Hey, email me with any questions you have. So I said, Hey, here’s my situation. It filled out a form, explained some rough things. And he came back and gave me wisdom.

[11:47] Very much like what we’re doing here. And he said, Hey, from the, the markup that you have, this would be the best personal card for you. And this would be some of the best business cards. And he explained it in a way that demystified a lot of the personal finance muck, because it would have taken me, I don’t know how many hours or blonde search. Yeah. Exactly. And so it was incredibly helpful to find someone like that. And I think that’s a reason why A I’m on this podcast as a cohost, but B learning and asking questions and taking, you know, questions that have been from listeners because you’re the shortcut in many ways on this personal finance, you’ve broken it down. So can you share how, how you’ve had these little insights recently?

[12:35] Maybe there’s one insight and how it’s affected you in your teaching of clients. Well, you know, I brought up the example with the car insurance. I think that’s a critical one. Everybody should go look at their car insurance deductible and make sure that it’s as high as you can handle. So a thousand dollars, I think is the maximum for most car insurances. And as long as you have at least a couple thousand in savings, you will save money for the rest of your driving life. Now who knows, maybe that’s as long as we used to think, but they’ll save money on your car insurance and that money can go to do other things. So that’s definitely a tip to go check out. The other thing that I see people doing a lot, which is just so detrimental

[13:19] and always makes me so sad when I see it and yet I used to do it too. And that is pre-paying mortgages. So whether people are adding, you know, an extra a hundred bucks or whatever, rounding up, making a 13th payment every single year, trying to pay extra principal when they get bonuses, all of those types of things are pre-paying mortgages. And it’s the literally the categorically worst thing that you could do with your money. Yes, absolutely. And we’ve had episodes about that. So what’s wonderful about it is you’ve said that it was something that you used to do. That’s where wisdom has come in. And you mentioned a report that would be helpful for our listeners. If you don’t have the link offhand, what we’ll do is we’ll put that

[14:13] inside of this episode’s description. Is it on a certain website that you know of, or do we just put it inside the description? Let’s just include it in the description and it may require an email in the short term, because I don’t know that it’s on a website yet, but I know the reports there and I’m always happy to help people on email. And I think that’s a great way to start a relationship, right? Because people have questions and they like to know that they’re getting specific answers. And so I would welcome that at helloatprosperitythinkers.com. Special just for our podcast community. Ooh, that’s super. Well, Kim, thank you for explaining more about personal finance, breaking it down and to get your report, make sure you send that

[14:55] email to helloatprosperitythinkers.com. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.