Why Financial Simplicity Beats Complexity Every Time – Episode 621

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, we’re going to be talking about why financial simplicity beats complexity every time. Let’s start with that sentence. Do you find that to be true or false? 100% true. And I am laughing because there is a YouTube video, I want to say it’s by, it doesn’t matter. It’s a rapper who most people would know. I didn’t know, but he portrays himself this very funny litany of attorneys and accountants and trusts and documents and cross collateralization and all this cool stuff that you can and he has done with his finances. And then he literally says at the end, scrap all that, he uses some very colorful which is why we will not link to this video and buy life insurance.

[01:03] That’s literally what he says at the end of his YouTube video. So yeah, simplicity is so valuable and I have seen some amazingly complex structures and I have had them myself and sometimes had to unwind them, legal and accounting structures that just made a lot of money for the attorneys and the accountants. Yes, yes, so true. When you spoke about that, had me think about a project that my son is doing because he’s got some online websites and he’s getting into the online business world and I’m winding the clock back a few months ago and he’s telling me about this idea and he’s like, oh yeah, and I can automate this and I’ll put some AI in here and all these things. And I said to him, I said, well, why don’t you just send a message to the user and see what they want?

[02:06] And it cut through, I can’t tell you how many hours of work, all of this because it was the simple approach. So when you’re talking with families, I imagine that a good chunk of them come in with complexity and you have to play, you know, coach and pull away the complexity. Where do you start stripping complexity away? Well, it’s interesting because the typical family does not come in with legal and accounting complexity, like trusts and LLCs and that kind of thing. They come in with account complexity, meaning they have three or four 401Ks and IRAs and 403Bs and Roths or five or ten, literally, just call it retirement plans. I’m talking young families, right? They’ve already got each spouse has a Roth and each has a 401K or 403B

[03:07] and then they’ve got this other thing from their first job because people move jobs so much and then potentially even worse is they have numerous savings accounts and I’m using that word generically, could be a credit union, could be a money market, could be a checking account. But they have all these various savings accounts because they’ve been chasing interest rates. So they’re getting like 11 and 12 1099s at the end of the year because of course, these are taxable savings accounts from this little interest on this small account that I held for a month or two and then this little interest on this small account that I held for a month or two before I chased this other interest rate over here.

[03:52] It’s crazy. Well, that sounds like a nightmare, like an absolute nightmare. So you you take the complexity of accounts called we’re going to lump it and we’re going to say investment accounts and then we have savings accounts and operational accounts. You have to put all that into to the the prospering machine, throw it in. Where does cash flow come into play when you’re dealing with complexity and simplicity? Well, as we know, cash flow is everything, right? The money coming in and the money going out of our lives on a monthly basis drives everything. And cash flow issues don’t go away, they just get bigger zeros on them. So if we earn more money, doesn’t necessarily solve the cash flow issue, it just creates more zeros.

[04:40] And what is very difficult is to monitor our cash flow when we typically are paid twice a month and our bills are typically once a month. And then we have some of these months that are 28 days, some are 30, some are 31. And so when you look at the financial landscape over the course of a year, 12 months and 365 days, and some of them are Saturdays and Sundays, right? When essentially banking doesn’t occur, you have a mismatch and there’s a very easy solution. And it is a structure that drives cash flow control. And it is literally the most important thing for people to do, to set up and to automate. And that’s your savings system, the system that you use to get people to centralize everything.

[05:42] They’re saving first, they’re going through it. Can you give a snapshot of how that operates? Absolutely. So it’s savings as a verb as well as savings as a noun, right? Savings as a verb is the act of very consistently, ideally monthly, putting money away. Savings as a verb. And then the savings as a noun is the storage of savings. And we’ve talked lots on this podcast about you have to have your emergency opportunity fund and you want to have your emergency fund solved. So you can check that off the list and stop thinking about emergencies. Well, the structure that we recommend is by invitation only. And it is for people that are going to get serious about their cash flow. They may not be good savers yet.

[06:26] However, we can with this structure, this cash flow control structure, help them generate the environment which will take those 365 days. And the fact that there’s different months and the fact that there’s three months out of the year, for example, that people get three paychecks. But that third paycheck gets lost because their monthly bills, which are typically divided into two, are only two times. And then you have your upper income families that might phase out of Social Security payments or they might phase out of 401k contributions. That money gets lost too because they don’t have a structure. So I have one specific suggestion for people that want to do it themselves and don’t want the accountability and don’t want the help.

[07:21] But I have a question for you first, Spencer. OK, let’s hear it. What would you guess our, so not just mine, but my husband’s and all the advisors that we are intimately aware of this huge community that utilizes this structure, what would you guess our savings rate is? In other words, the percent of income that is saved. What would you guess that rate is? Percent of income saved. I’m going to say I’m going to be ambitious and say 15 to 20 percent. Twenty three point five were the numbers for March. And I don’t have the numbers for April yet. Twenty three point five percent of income is the average percent of income that people on this structure are savings are saving. And many of them started with basically zero.

[08:27] There are high income earners, you know, I’m not talking ridiculous amounts, but, you know, one hundred and fifty, two hundred and fifty thousand a year families that have come to us and basically have no savings. And they say we live paycheck to paycheck. We we can’t save. And the average of that community is gotten and it usually takes about three to six months, gotten up to a twenty three point five percent savings rate. I mean, even if we’re talking about average, you know, let’s say not even a high income earning family. We’re just going to say household income, hundred grand a year, because that’s the easiest math that I can do while I’m here live without a calculator. Exactly. That’s this twenty three thousand dollars a year extra into the account.

[09:14] And again, it depends on the family’s expenses. But when I think of savings numbers, I imagine in my mind a runway. I always imagine the runway because that’s that’s how I operate. I go, OK, let’s get this runway as long as possible so that we can handle whatever that is. And then the runway is built. Then we go to other things. Yes. And the peace of mind that it comes from defining your own family’s emergency fund. Like for some families, maybe they don’t have kids. It’s ten thousand dollars for others. Maybe it’s fifty thousand or a hundred thousand. Oprah Winfrey’s seven million. It really doesn’t matter what the zeros are. But defining that runway, your own family’s emergency fund, and then having it funded is the most beneficial,

[10:10] peace of mind oriented thing that I can think of in personal finance for a family to do. And nobody’s talking about it. Why? Because financial advisors do not earn money on your emergency fund. We don’t earn money on this invitation only structure that we help people set up. That’s not where our companies earn their income. This is by invitation only. So we know that people are serious. We have other ways where we earn our income. But this is the reason that this is not talked about out in the marketplace. Savings are boring. Robert Kiyosaki is even known to say savers are losers. Well, he means your opportunity fund. So you want to save for your emergency fund, and then you’re going to build your opportunity fund.

[11:00] You’re not going to leave it in the savings account. Nevertheless, that’s where that confusion comes in. Right. So this act of savings is a verb storing savings is a noun to get to your emergency fund is paramount. And then once that’s done, the peace of mind is there. You can start to build that opportunity fund and you now just continue to extend the runway. But now you also get to level up to the next step, which is a whole nother podcast. But let’s come back to my promised DIY environment. So reach out to us if you want to be serious about it and you want to be invited in. We have an email in the show notes for that. But if you just want the DIY method, it is one single thing. Don’t put your earned income into the checking account

[11:56] where you pay your bills. That simple behavior. OK. So you’re you’re saying this YouTube video that I watched where I can deposit it all into the line of credit and then I can pull it out from there and I can just kidding. Yes, we’ve seen that video and I can’t I can’t even tell you how I got dumb and it was done with the video. And I’m like, I am dumber from watching this. It’s so appealing, though, because what they’re doing is something my husband picked up on, and it’s a word called poultry. And I think it’s only been in our lexicon since 2006 or something. They’re stating facts that are true, but they’re partial as if they actually have meaning and are doing something. But they don’t. And so these facts are causing us to be distracted

[12:52] by this basically fun fact information that has nothing to do with the financial decision at hand. And it is scary how really good thinkers can be swayed by that. And that’s what’s going on. They have been poltered. That’s a good one. Poltered. They kind of act like dumb chickens, like poultry themselves. There you go. OK, sorry, I just had to do that. So one thing we did in here, complexity, simplicity. The most simple form of saving is not having it in the checking account. To have a good system and operation, you can get the invitation. Hello, Prosperity Thinkers dot com. And you can see that work there. Outside of that, what has to happen is take the information you have, simplify it, understand what it is,

[13:45] get a snapshot of your cash flow and then manage it from there. You got it. That sounds pretty simple. I can handle that. Kim, thanks for sharing these things on this episode. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit Prosperity Thinkers dot com.