How To Simplify Your Personal Finances

keep it simple Sam or Sally that's right the KISS principle how do you kiss your complicated financial life goodbye it's Brian Preston the bloody guy you nailed it I'm gonna be honest I thought you did pretty good I wasn't expecting like the same or Sally thing cuz the way that I would know that popular here's what you need now I have young I have a child that if we use these keep it simple than the word that typically is there right that's a cuss word in our house oh and I have a Pharisee that lives in my house that anything that is inappropriate or anything she does she tell she's gonna listen know that like I've always told her anything I produce you can watch honey and I didn't want her to watch this video and see the St upid word and get upset I liked it so we don't know spelling I'm so glad cuz I was nervous you know anion says I might have to put like explicit lyrics if you were to said that so we're gonna leave that all on the up-and-up and good yeah so what the goal of today's show is is we want to tell you guys how you can kiss your complicated financial situation goodbye this all comes about I can tell you guys I came out of college back in the mid nineties so so I used to daydream about how great it would be as I was preparing this tax return of what it like be like to be a sophisticated financial person okay what's the sophisticated financial and I wanted to have all the the trappings of what success to 23 year old brown Preston rose which meant that I had a Schedule B with lots of interest from the different banks I wanted to have a Schedule D with a bunch of capital transactions where I'd been buying and selling stuff and making money okay I wanted to have a Schedule II where you know all my business K ones were flow through maybe some private placement stuff a rental property I wanted this thing because I was like man this guy who's got all this sophisticated stuff going on their tax return he's got to be rich try to feel great to just have all this going on the problem is be careful what you wish for because you fast forward and you realize oh my goodness how did I get to this place I am this complicated and now you start daydreaming is this what's supposed to happen and I want to talk about kind of human nature I think a lot of people here is the other good thing that you guys don't know I went this weekend down to back to Georgia for my mother-in-law's 80th birthday oh that's awesome it was actually it was really awesome and I took several books that I was behind on caught up did a ton of reading cuz she has a beautiful screened-in back porch under a lot of really old trees just an awesome thing and I started you know one of the things I've been noticing I've been reading books for years and especially in personal finance motivation all the things that we try to you know tell the money got family right now and what I've noticed is everything starts running together on the theme is in terms of like what they share and the information that are in the books but that's so counterintuitive to the way human nature and behavior is is because we're always trying to build a better mousetrap so there's always new books coming out there's always people trying to tell you they got a better system but the truth of the matter is if you want to know real good financial management the concepts are timeless and I got a case in point Warren Buffett does his annual shareholder letter to Berkshire shareholders right um and Berkshire Hathaway shareholders if you read his letter to shareholders every year you're gonna notice lauren starts repeating himself I mean he literally does I mean this is there's common themes like one year I think he did this two or three years ago he had an irrational next-door neighbor farmer he talks about a farm that he had and he had this irrational neighbor who what if he started throwing out prices every day and some days some days the prices are way overpriced some days the prices are way under price you could sit there and cherry-pick that's his analogy and that's the way the stock market is trying to talk about how irrational in the shortly rising is the pricing is and why you need to know intrinsic value if you go and read his shareholder letter maybe 7 8 10 15 years ago he's gonna be talking about an unbalanced business owner who is constantly feeling like he oughta sells businesses giving prices these are the same concepts he's just packaging reading it in the same way and it's because it's a timeless thing if you know intrinsic value if you know what some things were you can figure out if you should be in something or be out of some strength and I start thinking about it we do the same thing weight loss human nature is and now I'm not talking about the medical conditions take that out because that sounds cold if you do our people have medical but if you just think about the condition of I'm in my 40s now so I've started putting on a little more weight than I'd want it really has caused and I think finance is working this binary fashion to if you want to lose weight you know it's it's either you have to exercise more or you have to consume less calories or at least eat better maybe not even less calories but you got to eat better but at the end of the day it all comes down to how much your you're putting in the machine and how much it's burning and how efficiently so you have to either work more to get the machine all revved up that's the exercise right or you have to put more less in the machine so it doesn't gain weight that's weight loss it's the same thing with personal finances the personal finances if you Bowl it down are so simple in the fact that you either can make more money or you can spend or spend more efficiently with what you have coming in I mean it really is coming down to those type of things and that sounds so simple and I think that we all feel like and it's kind of like staff accountant Brian thinking that to be successful I had to walk through these complexities so that the world would have perceived me as successful right I can tell you as a guy who's now you know I graduated mid nineties so I'm 23 24 years removed from college I have a growing business cumulative we're getting into our you know close to 35 years of experience that is a it's a mirage it just is not what you want because you're gonna get to the age of success that you go I just want it to be easy I'm just tired of all this complexity in my life what can I do to boil it down so that's kind of what we wanted to cover today was I want to give you the three rules to live by this is so simple and it ties in to what I was just talking about is you live below your means meaning that you go defer a portion of today so yourself tomorrow in the future could have a better life that deferred gratification concept you're going to be successful if you can use debt cautiously meaning that if you're using debt and you're not scared of the debt you're doing it right that's number two and then number three is spin for value we talked about this this is where you want to be build memories not buying stuff because the stuff is not going to help you and if you can do that you'll know that simple is actually better yeah talk to me you know I'm sitting there thinking the same thing because I think as young people we said that would look out to the people that we perceive to be wealth and you hear about how Warren Buffett the example you gave I think I read one time that like his tax return is something like eighty six thousand pages long there's some like ridiculous number like that and it reminds me I just think about a very simple real-life example when we're young looking out to what we think financial success financial independence looks like it's like the dog that's chasing the car chasing the car chasing the car eventually the car comes to stop signing you wake up and you're the dog and you've got the card I do with it and we feel like I feel like we talk to clients all the time that are in that situation their life has gotten so complicated there are so many different parts and now they're like alright I've got it what do I do with it and so one of the things I want to talk about is how you can get rid of some of that noise and get back to the basic really those three things that you just laid out about spending less than you make defer and using that cautiously and then spending for value making sure you're focusing on the thing that's really matter and think about there's an entire industry of people are trying to push products on you because they think that that's what you perceive that you need these whole sexy deals that are out there how often and how much of our job is personal financial planners is unspinning the heads of people who go out there and somebody supposedly is showing them the better mousetrap yeah black box investment that's going to make their life better and it's all smoke and mirrors I mean we have seen that with retirement products we've seen it with strategies guys there is something about understanding that simple is going to make you happier now simple because becoming wealthy is unbelievably simple but unfortunately simple does not mean easy that's right and I didn't want to kind of walk through what is the difference between because we believe in simple and smart decisions but if it was easy we have a lot more of the population that would actually be wealthy and be fulfilled with their money but because of all this this cottage industry that's pushing products that's putting us on this this treadmill this and we have this hedonic principle where you know we think that well if we get here we're going to this arrival fallacy that when we get to this point we're going to be happier and more successful as we reach this point but then you're going to get their euros I'm not any happier than I was so we want to kind of walk you through what is simple and what can bring you into things so you're doing it right with your own personal finances I think it's important to mention because there's this entire move and there's a few documentaries on this talking about minimalism right you know how do I do as little as possible and that's not really what we're we're not necessarily talking about minimalism we're talking about simplicity because like the house that you built when you moved up here you absolutely love this house right now but not all the pieces and components you would describe a simple is that a safe safe thing for me to say yeah I definitely think that there's a difference between simple and minimalism and the fact that minimalism is you start shedding things and looking they could be interconnected but I'm a gadget guy I mean I love when Apple comes out with new products I love when you know I have a Tesla Model 3 I love we're getting over-the-air updates I don't know if I qualify as a minimalist sure certainly I do like the thought of understanding how I want every dollar to be purposeful and I want to know I want you to and this is a good point I'm glad you brought this up you the individual have to figure out what is it gives you purpose and what you're passionate about and then make sure that your resources and your efforts go after that right because that's the the hole and I read a column or an article about zest or one of my clients says you got to figure out that spice of life who gives you purpose and fulfillment for me yes I love gadgets but it's also writing joke on tip for the money gosh oh and doing these things and that's why I think I love I do feel stressed out and overwhelmed sometimes because I just have so much I want to get out that's not minimalism right that's just you know being excited passionate but I want to simplify as many things so I can focus on what I think is important which is creating great content but also creating memories of the family and all the other stuff so let's kind of jump into this yes because I here's the categories we broke this into I want to talk about how investing is simple oh okay all right you made me nervous when you make statements like that because we make a living right one of the things that we do in our day job we're not doing the show is we help people do financial planning and come up with strategies for reach to reaching financial independence and a big piece of what we're doing is investing as helping people choose how to do their dollars and what you're saying is whoa investing is simple it's easy it's a piece of cake do you want to know when you have complete confidence in what you do for a living is when you are a lot willing to be not literally nekkid I mean I'm going to keep clothes on around people but I am willing to lay bare what I believe about from my experience of managing money with my own money as well as client's money for going on three decades is that I mean it really is these principles are simple they're easy I don't mind you understanding it because I think you're still going to need me for some of these other things you know you're going to be so successful you're still gonna want somebody looking over your shoulder but you're not gonna have to buy the private placement you're not gonna have to do the hedge fund you're not gonna have to get into venture capital and all these other crazy things that lock up your money or some complicated insurance strategy you don't have to do this stuff so let's kind of jump into what do I mean when I say investing is simple is um you know and and look Bo I know we both this I don't want you guys to think we've always been purists and had this all figured out I know both of us are sitting on residual accounts memories and reminders of bad decision-making so you confess yours and then I was investment yeah so when I when I first was thinking about getting into the cinder industry I was in colleges from my very first investment course where I got to learn about stocks and bonds and mutual funds and how it all worked and after sitting in this this course for about half a semester I was pretty much a genius I knew how to invest so all these folks were out on Wall Street trying to do it they didn't have it figured out I did so I went out and I bought some individual stocks because I had some insight around like some mergers between satellite radio companies and some toy companies that had a recall I had it all figured out so I made the decision I was gonna go buy some individual stocks and it was gonna just go gangbusters well I learned very quickly because when I was buying these stocks was around 2007-2008 timeframe may be a good time to invest maybe not I learned very quickly that what I thought I knew wasn't something I actually knew so I've actually left I have three stocks that I bought that I still own today in very nominal amounts relatives my total portfolio and if I can't I will never sell them to always remind me to never think that I'm smarter than I actually am when it comes to investing so my confession I don't know if to blame you because you are the schemer Noda nobo is this brilliant guy who passed all three parts of the CFA exam first attempt with the last one being a week before his wedding who does that you know where he's scheduled to take all your CFA exams and you don't have any barrier or you know you don't have any buffer right because if you wouldn't have passed that last one oh maybe he'll be married tom was gonna be limited but so beau because he's educated brilliant investment guy and while you were doing all this I think it was while you're doing yourself huh yeah I definitely decided we were going to start doing some option strategies cuz we were smart and and here's the worst thing that can happen to you guys when you start doing complex strategies is to be right the first time and we were so right so what we did is I just put a few thousand bucks in the first time and then we made two option calls we bought some calls on one thing we bought puts on something else so we're betting for one thing we're betting against something else and guys the money doubled I kid you not in less than three weeks us doubled that money in less than three weeks so we were thinking we're all of the south we figured this thing out what are we doing I mean and and I will tell you guys I still keep that hundred and sixty-seven dollar account to show me that you can blow money so quickly in options that it's just not worth it from now look I'm not throwing options completely under the bus because I've done some great strategies for concentrated traditions you can do some some college strategies some hedging strategies are some great things so we were seduced read well that was straight up gambling now is it's even a leg above speculation in the fact that we were totally throwing it up against the wall to see if we could do it so I've had failures but I can tell you after managing money for successful people as well as seeing what does and doesn't work simple is your friend and I want to talk about now what's imports kind of transition here's the first thing number one on what's important how to keep it simple with investments is asset location asset allocation that reflects your age goals and complete risk profile that's what's important I think it's so beautiful the way said that because a lot of folks understand and hear about asset allocation oh okay I know you're gonna go you're talking about diversification I should have stocks and bonds yeah that's part of it that's a big piece of investing but how you spread out your money is is important but equally as important is where you spread out your money the types of accounts that you house and how efficient it is because the unfortunate truth is is two things are certain we always say Ben Franklin said this I don't think you really said it two things are certain death and taxes so you can't get out of taxes but if you're gonna pay them you ought to try to pay as little as possible and we we always talk about this too Brian tax evasion is illegal to get you arrested tax avoidance highly encouraged turn the system is set up to allow you to do that the other thing I always tell people when we're talking about just asset location asset allocation is understand that risk has many components there's risk tolerance which is are you gonna lose your mind if the world if you knowif thing if you start having some volatility but there's also what's called risk capacity and I tell this to my cowboys and cowgirls out there is that you could get to the age and look I love I'm an optimist so I'm always gonna be the person that you know I came out in the mid 90s you came out in 2008 so you're kind of the the pessimist I have the optimist so I actually like having more equities than probably most people but I do think is you get closer to the point where you're living off the assets you gotta understand what's going on with said allocation asset location this is one of the things because we tell people all the time when you're younger and first starting out by those target retirement funds while you're getting the first hundred thousand two hundred thousand but I will tell you it's going you're gonna notice that as you get more assets tax a tax location means something an asset location but keep it simple while you're young less than two hundred thousand by target retirement fund keep it simple so you're going to be okay with that so number two on how do you keep it simple what's actually important with investing can create a consistent savings plan I mean if you can put the money just automatic for the people have the money going in every month half your job is over and it also makes you a contrary and a financial mutant because when the markets getting beaten up you're actually saving a Norma I mean you're getting more money to work for you it's an incredible opportunity when you set up a systematic plan one of the biggest things that breaks my heart Brian's I'll have young folks who will come and ask that say hey I'm ready to start investing and I've got this money I'm ready to put six thousand dollars into my Roth IRA and I say awesome that's great but so often I'll see somebody do that and they'll put six thousand they'll go buy the S&P 500 or they'll go buy a target a retirement fund and maybe they just did it at a bad time where they bought at the height of 2007 and then 2008 having like oh man I hate this investing thing this isn't gonna work for more even worse they say you know what I'm gonna invest this money and that's my retirement fund I'm just gonna put this 5,000 investing is just sort of a store of value and we have money that we want to put to work it is a means to the solution it's not the solution in and of itself until your portfolio gets big enough for it to be the solution yeah so not having it consistent not having money going in all the time I think is setting you up to not be a success at least until you get to the point that you do have that big healthy diversified example I I you know back in the mid nineties I came out of school was working in public accounting but I came across that book the wealthy barber yep read the wealthy barber and then I started giving it out to my buddies you know cuz I with my wording at the time was guys I need you to read this book because I'm gonna have money one day and I'd like to have friends to hang out with so you guys start reading this book too and here's what I think is crazy is a few of them everybody got energized from reading the book and I had a few that actually set up IRAs put the money in but that was it they never did nothing you know it's like but you go to a conference what happens when you leave a conference you're ready to run through a wall when you come back there's a reason Tony Robbins can have people cross walk on fire it's because you go through a conference we could probably get you guys motivated but if you don't create a plan of action that's going to think outside of when you get that initial motivate motivation and excitement it doesn't fulfill with all your desires so that's why I like consistent savings plans is because they let you take that initial burst of energy but it gives it a legacy so that think eat up working even after your excitement might die down I have several clients and I saw you know you guys whenever you get a free tumbler we always have you right mat at a bound welcome mat serves as a secondary on me on one client and every time we have a meeting when I'm like that guy right there is wealthy because I have dragged him across building a savings plan because he's just not wired to be a saver but every time we had our annual meeting I'd be like come on I mean look at your income and look at you got to increase your annual savings and then more you know he's been a clod for over a decade now it may be in 15 years at this point and he's got a great foot for funny because how did we get there I mean if you'll do that with a consistent savings plan it will happen for you so save fifteen to twenty five percent of your gross income that's simple and that's gonna be the thing that is going to change your life you won't miss it if you structure it properly and you can keep that if you can look I understand there's some 26 year olds watching this really 15 to 25 percent not a chance guy right there is clueless on how hard my money is right now I get it but you can go ahead and start with maybe 5% or 7% or at least get the match from your employer yep but then when you get that next pay raise why don't you let at least 30 to 50 percent of that pay raise go towards increasing your savings and before you know it you will be at 20 percent you're gonna be a hyper saver and you're gonna be all your dreams come true I think that's perfectly set the the third thing you know we already mentioned in investing right so you can control what you say if you get to control your behavior you get to minimize your taxes so I'm gonna call that control word you get to control your taxes the other thing that you get to control is what you pay in expenses what you pay in fees and if you want to be a successful investor you have to keep eyes on fees so number three low cost investment choices now this is the part that lays us naked or bare and the fact that I like index funds now a lot of financial advisors a lot of you guys that were working with other advisors you go about index funds my guys says it well I shouldn't do index Islands I should do active management because I got somebody who's watching the stock market at all times here's the dirty little secret and why most financial advisors actually for themselves or buying index funds according to stiva the S&P 500 for the last five years has outperformed 82.1% one 4% of actively managed funds so 8 out of 10 funds under punter are just buying the flat out index that's exactly right so there's a lot of people out there going wait a minute okay if 80 percent are getting beat by the SP that means there are 20% of advisors right and managers and maybe my guy is so good he's buying that 18 to 20 percent I see what you're doing there but here's the thing stiva actually tracks what they call persistence they've got although these twenty percent of these managers that are supposedly outperforming to see what percentage of them continue to outperform on a year-over-year basis listen to this step according to the research only point nine one percent so that's less than one ustus one percent of large cap and no mid cap or small cap funds managed to remain in the top quartile at the end of the five year measured period so if you were good enough and you could select two out of the ten that might have done it in a one-year period you have to select one out of a hundred they could do it inside of a five year period or less happen and here's the other dirty little secret that managers don't like to tell you if you have taxable money meaning taxable account and so any dividends interest capital gains is going to be taxable to index funds because they have very low turnover rates because think about when does it when does a new fund get put in windows a new stock come in to an index fund it's when they turn over the index fund where they kick off the Xerox and then they bring on the Google or whatever I'm just using very simple examples that's the only turnover so there's very few taxable distributions that occur in index funds so a lot of wins and that I know that that lays bare because a lot of financial advisors are still pushing manage products in managed products with big commissions of three to five percent on those a shares I think there's a better alternative so I just went simple is buying those low-cost investment options like I said if you're less than 200,000 maybe even look at those Target Retirement that's great solution rate options out there number 4 understand your investments now this one I think is so funny Brian because I would say that one of the things again what we do for a living we get to help folks make wise financial decisions a lot of what we do is folks will come to us they've had some success maybe they're successful in a different field in their career and they've been sold something or they've bought something that participated something they come to us and they say I don't know what this is I have no idea what I've bought I have no idea why I have this and so what we try to do is we try to make the complex simple and break it down but the question we always have to ask them when we talk to them is ok well why'd you buy this in the first place and you know what the ants were most often get is what I don't know because I don't know it sounded good so that's why I think if really you just heard me pushing telling you that index funds are going to be your friend wah-bah some complicated strategy I have I will tell you coming from a public accounting background I have CPA friends that come to me with all kind of schemes I use the word schemes appropriately forgetting and I'm like there's no way I'm doing this because I've seen too many oil and gas partnership and tax havens go up you know from from other schemes that I'm just not going to do those type of investment the things that are not what I consider straight and narrow that would get me through this and probably do a much better job with a lot less complication a lot less stress and gonna help me reach my financial goals so understand what's going on in your investment oh yeah if you couldn't take what the advisor says to you or what the investment company says to you take that information go and repeat it to your neighbor and be able to talk about it intelligently might not be the best thing for you I've heard you say it in a different way too I always liked it because I thought you were gonna say it cuz I've heard you say that example you say if you can't turn around to somebody in a grocery store line yeah and tell them about your investment it's probably not for you that's actually I always thought that was a great analogy so let's just pivot we just talked about investing is simple but you know what else is simple estate planning is for sure simple that can't be true Brian because in order to do estate planning you have to go see an attorney and I know firsthand that attorneys have to go to school for like a gazillion years and they have to pass like bar exams to be able to even practice law no way can estate planning be simple plus don't you know there's some boogieman Government Accounting Office out there that attacks all your money when you die that's that's what we're kind of pitched yep the world has changed guys you know when I first came out of college and started managing you know working in public accounting and managing money the estate exemption was around six hundred thousand dollars so if you have like a 401k and like your house was paid for as long as he lived in certain parts of country you owned a house you had an estate you really was hiding under your bed at one point in your life but guys hey if you've been paying attention now the estate tax exemption is like eleven million dollars a person over eleven million dollars and if you're a married couple you can actually give the unused portion to your spouse it's amazing so this thing is impacting such a small percentage of people that the estate taxes are not the problems the big things you have to think about think about keeping this simple is does your plan reflect your end-of-life decisions and where the money's actually going because that's the problem I think so many people have in their mind that if they talk about estate planning if they talk about end-of-life things that you're somehow putting a hex on yourself these things could more likely happen I'm telling you just the opposite if you will do these if you'll do this unfortunate scary discussions you're actually going to make your family's life simpler easy and more efficient and you might find out that some conversation you have here saves you a lot of heartache or at least a loved ones heartache years into the future there's you know and what will we say is estate planning is simple what that does not mean is that a state planning can't get complicated bran we have a great story you have a client a family that we just absolutely adore and they came to you because they had recently met with someone who had prepared an estate plan for them correct this family there go a few of them ago here this show but I'll go ahead and make funny I have two brothers that listen to the show successful guys and and I still crack got a crack up about this is that they didn't want to hire me they figured what they do is they push their parents forward and let them be the guinea pig before they both ended up hiring me too but so I thought that was very noble that they pushed the parents you know the family patriarchs forward to make sure that we were good and who we said we were but in full disclosure I will tell you that this this the the parents very successful known right got a hold of a seminar attorney then I didn't love some of the suggestions that were put out I mean it was some very complex supposedly to keep your asset protection and avoiding things it was less than ideal and I think if they wouldn't have had somebody like you know adult children who were very good with their finances as well as a financial adviser telling them hey this is not ideal with this attorneys trying to do to you this attorney would have spun their heads put them into something complex over generated a lot of trust fees a lot of angle of ministry different tax returns just it was just going to be a nightmare to administer this thing while they're alive much less when they couldn't speak anymore and passed away this stuff became permanent so be careful simple state plans do not always have to be complex I had an estate attorney very successful that often told me look try to be even for complex estate strategies try to bowl it down to the lowest factor possible I mean I talk about it later but like fractions there's a reason when you're doing any type of math they don't let you put 64 over 82 you know 82 you've got a bowl the fraction down to the lowest number you can do the same thing with your estate plan there's no reason to create unneeded trusts and other so keep it as simple as you possibly can and I even give this advice because a lot of folks think oh well I'll do the estate planning when I get to that stage we think that you know who should have an estate plan in place it's anybody who either has stuff that you want to have a certain thing happen to when you pass away or people that you want to have taking care of if you're not here and so just like we give you the order of operations we have a financial show we talk about how you should probably wear ties your dollars we even think there's an estate planning order of operations you can think about just starting out very simple if you just have things that you know you want to go certain places yeah sentimental stuff do something as simple as write it down get on your computer type up I want the grandfather clock to go to this kid and I want this to go here and I want this do that print it out sign your name and put it somewhere that's an estate plan it doesn't have to be no to run notarized and all this stuff it's just something simple that states what your wishes are well then say maybe you graduate past that and you have slightly more complexed or you want to have something a little more official there are websites and services where you can go out there and for 199 bucks you can go do your own estate planning smaller plate and then once you get past that stage maybe you have children entering into the equation or you start to have larger assets or more complex assets then you can graduate to actually going to see an attorney that can draft a real document for you to actually have an estate plan customized for your specific situation yeah so you can start slowly ease into the shallow end but is you by the time you get to the deep end of having assets and complexity you'll have a partner that can help you with write an estate attorney but there's no reason this has to be complex for just the sake of being down playing so let's talk about what's important because we had two or three we had three ideas here that we wanted to make sure we share with you number one beneficiary designations this one we've had projects we're actually working on it right yeah we have funded Bo told you sitting in the other room we have the the inaugural class of a bound in turn that's right we're open this will be a long-running legacy where every year we bring on more interns we're working on a brand new project where we did what's an update project we did this probably six years ago we're doing it again where we go over beneficiary designations with our clients just to ensure because realize I think a lot of times people say well once I get my will done I'm done check out yeah well done we got our estate documents no realize that there's a lot of things like life insurance you know your beneficiary designations on your life insurance beneficiary designations on your retirement accounts those things work outside of your wills and estate documents so pay attention to what's going on with your beneficiary designation and did you know this not only do you need to say who the beneficiaries are there even selections you need to make inside of your beneficiary designations like if you have adult children do you want that designation to be per stirpes or per capita if you don't know what those means go look those up because those are pretty important do you want it to be split amongst your remaining children do you want it to go to your grandkids that sort of stuff matter so you want to make sure that you check that this is something that's absolutely terrifying inside the society and culture in which we live it's not uncommon for there to be marriages and divorces and people who pass away and siblings and fall it just because a life change happens like a divorce doesn't mean that your beneficiary designations automatically change or just because you get married it doesn't mean that they automatically change you want to make sure that you update those things to make sure that your accounts and your structure ultimately matches your wishes yeah no doubt especially life big life changes like births divorces deaths update those beneficiary designations number two wills this is important guys and I've said this this is like a broken record and I apologize because a lot of you guys been listening for a number of years but if you think your financial life is going to be complex while you're alive die with kids without leaving behind a will and telling somebody who's going to get these kids because if you think it's complicated with you I can assure you the state that you live in is going to do a much worse much more complicated much more expensive task than you will if you'll just have that comfortable conversation with your loved ones so do it now and we I have some some clients that we're working with right now said oh well our wills are reciprocal they look the exact same so we're just gonna have one will in place for one of the spouses and while it's very common for wills of spouses to look identical you do want to make sure that you have that will for each person because just because the Wills would look the same if one person passes away without a will they pass away intestate without a will which means there are state still has to go through the probate process you can lock up the assets it can slow everything down don't just assume because two spouses have identical wills that you only need one will in place you'd have one for each of the spouses no doubt number three term life insurance guys look we're not insurance salesmen we don't even want you to go buy a ton of insurance but we both have lots of life insurance on ourselves because we realize when you're younger when you have family members that are living off of your income and you have debt obligations you have funding goals like college there's a lot of things that if you left tomorrow and we never know when that bus might throw us you know might get hit yep yeah that's always the thing we say on a Tuesday afternoon it's much better if you'll go ahead while do a term you know a 20-year 30-year figure out how how many you know how many years the kids are gonna be in the house and how many years before the kids graduate from college and how many years before you reach financial independence by term life insurance for that and you know a good rule of thumb is ten times your income plus maybe whatever your mortgage debt is those things are going to help you out and that's going to make your wife of your survivors and your your loved ones much much easier if you're out there listening on iTunes stitcher I Heart Radio any other place of where you just get this content out of via audio audio audio only via audio only I don't know I couldn't get that out one of the great things we do to these logics we just have a live chat going on there were just two great comments that came in I'm tied to this I thought they were beautiful one I'm gonna change what Lee said a little bit but she said hey who you pick as your executor matters yeah because there can be family strife or there can be sibling issues or maybe something has changed that's the person who actually administers you will so even if you our situation has it changed if someone else's situation has changed it might make sense for you to update that and then Danny just threw this out hey even unlike your taxable accounts it might make sense to add a payable on death or transfer for death designation that's a great point thank you guys so much for being in the live stream and making the show better in real time yeah I've done you know trust documents or payable-on-death those things can be great real quick and easy things you can do it's much better I can go and tell you guys think about those type of changes instead of just going down to the local bank and making yourself a joint tenant on your parents or grandparents account because that opens up a whole nother level of complexity with gift tax returns and other things and you probably didn't even realize you just want to have access to make sure the money flowed to the best place possible make sure you measure twice before you go just slap your name on somebody's joint account that is a big no-no that I see people make them all they call Tom so we talked about estate planning as simple and best thing is simple you know what else a simple debt is simple oh so I want you and this is look we've done some debt shows recently and I mean it you need to own your life you're not borrowing your life you need to own your life so this you know renting or pretending to be successful is not usually going to work out well yes it might look great when you're going out to eat Friday night with that you know group of friends that you met in the neighborhood but I promise you when you get to be 50 60 years old when you actually can be laid bare on who's naked in the water and didn't save for retirement like they were supposed to neck neck today's show but it's a it really will show you I used that Warren Buffett analogy as you can always tell who's naked when the tide goes up alright now I'm telling you that happens when you're in your 50s and 60s so go ahead and make sure you own your life because pretending is not going to happy what you want to have happen and then how did we ever get to the point I want to kind of go through some examples of things that are bothering me in society right now they're kind of ticking me off how did we get to the point that cars can be financed for seven days it does it doesn't make any money if we look at the stats and we should have done this oh I need to look up some stats most of I don't even own cars for 78 years do they the average car I don't have how long people have cars but I do know the average car loan as of October 2018 so this is not that old 69 and a half months that's more than five years that's unbelievable you know and by the way I don't know if you guys know this but there are like two types of assets there are appreciable assets they get more valuable over time and then there are depreciable assets they get less valuable over time you know an automobile is it ain't this one it goes down so why on earth would you have 69 month loan on something that gets less and less and less and less and less valuable through time it's much better to sell cars and is the buy cars I can promise you that because when you when you buy cars the dirty secret is is I mean and I had somebody tell me I think the first year you buy a brand-new car it depreciates like thirty percent right in the first year top-ranking disgusting I mean so so pay attention that don't do if you're not doing and let me go ahead you know what I'll save it for what's important let me go ahead on my rant here stop applying for those ten percent off day you know ten percent off coupons that you get for brand new store credit when you're at the checkout line yeah like when you go to the home improvement store or you go to the your favorite retail store where you buy your undershirts and underwear and they say hey would you like I see you have a thirty five dollar bill today would you like to get 10% off that by signing up for one of our store credit cards the answer is no no I don't need to have 350 off my 35 dollars because this will haunt you I can promise you these things will haunt you in that $3.50 will be made up by late fees high interest its predatory so stay away from that this is so Pavlovian uh you know I'm a simple man I'm really easy to read a my wife knows and one of the things that gets me really excited it's like a good deal or saving money on something it's so funny every time we ever go out shopping together we're at the calendar we bring up whatever they're like hey by the way today you can get 25 percent off of your order she always does this to me she always looks at me and she goes you see things I want to be excited about that but we've done that enough now she knows our answers still no even though I've been to rip off that's a really straight over ripoff so let's talk about what's important with debt cuz debt is simple number one the debt you carry should not exceed thirty five percent of your income that's total I mean I'm talking about cars I'm talking about house I'm talking about student loans everything thirty five percent so here's some real easy math go take every debt payment you have between your mortgage car student loans credit cards everything you just said add them all up divide by 0.35 do you make more than that in a month there's your math if you don't we got it we got a proud on that so total mortgage debt this is your housing I want you to count your principal and interest your taxes and your insurance I don't want it to exceed 25 percent I know there's somebody out there on some publication that you read this go tell you can do 28% that's hogwash is 25% because we want you to save that 3% so you actually can go on a vacation that's right some memories with your kids don't run it up to what they tell you you can do you know in the also here's another thing I want you to have that mortgage paid off before you actually retired you're not truly unencumbered and full it truly financially independent unless you have paid off everybody so I know that there's a whole mathematical calculation with the deductibility which is by the way getting less with all the much higher standard deduction but man it would be nice if you could transition into retirement have one less stress that's right on your plate because it's not always about the numbers it's a lot of it's about the numbers but there's something much more powerful to having that debt completely paid for credit card debt what is that it should not exist there is no such thing as credit card debt I love it you know it's true you can have a credit card but you can never ever ever have credit card debt if you let it hang off your credit cards monthly you're doing it completely wrong if you can't pay it off monthly you got to go the the teetotal route of like dave ramsey and others have talked about you just don't even get credit cards because you don't have the discipline to use it number four keep student loans below anticipated first year of salaries and if you're in school right now or you have loved ones in school try to keep those student loans down I did see something it's all over the news right now awesome guy paid off the entire graduating oh yeah that he's a tech you know billionaire what an awesome I mean God bless this guy for paying off that forty million dollars a death I will tell you one thing I've seen nobody talk about in the media that did shock me is it that is a small graduating class how the world do they have forty million dollars a debt yet because what didn't come up like six figures per personal there's like a hundred thousand dollars per student shame on and this is something I think our education institutions need to take responsibility to what are we doing sending out all these students with hundreds of thousands of dollars worth of student loan debt do not let that student loan debt get bigger than your first year of anticipated salary now look there's except exceptions of course for medical doctors or others but you even need to be careful because there's no reason to come out of school where you're so far in debt that you'll never catch up yep to the gentleman that paid off the forty million dollars god bless you awesome I've seen a lot of people that are kind of upsetting I'm like y'all I just say thank you yeah I mean we need more people that just pay it forward and being generous good for him let's keep it moving hey and if you are looking for a financial advisor I know some guys so oh come on we're not though thank you so you know no blank you know we're not soliciting you but we're saying thank you to him number five vehicle loans should follow the 23 eight oh yeah what this means is you go put down when you buy a car now realize this is all non luxury brands all non luxury we're talking about you know Honda Brio to show you a Ford you know the Kia the Hyundai those type of things you need to lease I know you in the beginning when you're in your 30s especially or 20s you can't pay cash yeah I mean I want you to but you just can't do it so you need to put down 20% you need to run your amortization table at three years I'm going to say if you actually take a four year alone but run the payment at three years because that's what I want you to have it paid off you can do the four years because of the flexibility and payment but you need to have it paid off in three years and then that should never the eight is it should not be eight more than eight percent of your total income now look if you're married that eight percent should be for both of your cars that's not eight percent per that's 8% in total so spin it accordingly love it so that's debt debt is simple you know what estate planning is simple investing is simple but you know what else is simple emergency funds are simple yeah they're simple and it gets screwed up a lot I feel like yeah because here's the thing you know what happens this is what people don't understand I was reading something somebody I really think a lot of not going to say his name but I was looking on Twitter and he was saying that once you reach to a level of success do you really need to be liquid do you need to have anything I was like yeah yeah yeah because let me tell you I've been through enough downturns unfortunately things all go bad at the same time it's not like you know the stock market goes down but you know everything else is like you know what who cares International doesn't go you know what America is down right now but that's a great time for us to go know you know in 2008 even bonds we think when we buy bonds they're going to protect you and right on time go look at what the bond marketplace did in 2008 we all in 2008 thought that the Wills were following off the wagon completely the analogy made because I know this has been 10 years everybody has forgotten people were making the analogy back in 2008 is that the system the financial system was so broken that it'd be like you going to McDonald's and you know McDonald's has two windows now they have where you pay it window a and then you drive in window two is where you pick like your food yeah they were saying the banking system was so screwed up in 2008 it'd be like giving your money in window one driving to window two and they're not having your Big Mac for you because the system was that broken so we got to the point where the wheels were falling off that even bonds lost money so this is why I'll tell you emergency funds need to be simple and accessible because when it goes bad you're going to want cash so cash is king when it comes to emergency reserve I'm even gonna throw this out there you know if you want to really do some interesting reading on cash go read what Warren Buffett says about how much cash that Berkshire cuz emergency funds are up for emergencies but they can also be for opportunities he says when it's raining gold reach for a bucket not a thimble you got to have a bucket to go grab so emergency funds are a great place you never know when an opportunity is going to go Reed Warren Buffett's financial disclosures on what he has options to by Bank of America go read what he bought goldman sachs said in 2000 cash is king also for going up there and picking things apart when their intrinsic value is so above what you're buying it pay attention that here's another thing i'm going to tell you i'll resemble this mistake so a lot of my wisdom comes from making mistakes too so i don't want you to think i'm telling you this stuff and don't know how to make mistakes myself because some of this is a learning experience for me home equity lines of credits a lot of you are probably thinking is we're in an appreciating market again a lot of you are probably buying houses you watch that house appreciate in two or three years later you're like voila I don't need cash in the bank because the bank will give me access to this home equity line of credit where I have a checkbook these guys gave me a checkbook how more liquid could you be than a checkbook or a credit card guess what it's not liquid because I can tell you in 2008 we've been here we've seen how this game works when the real estate market gets beaten up the bank will very very politely send you a letter in the mail and say guess what we know you got a checkbook we know you have that credit card that's linked to that home equity line it doesn't work anymore we've shut that down you better pay off the loan that you have because we don't think your house is worth what we originally thought that happens so don't count on your home equity line of credit to get you out of trouble that's not going to be your emergency reserves if all things go bad and that's what what why is it called an emergency Reserve is because it's there for when things are bad so pay attention to that so let's talk about what's important let's give some stats yep what do you think the first threshold is what's the average person who's out there working both it's not retired how much cash and emergency reserves should they have them your goal should be somewhere depending on your job depending on your status somewhere between three to six months of your expenses so go figure out what it costs for you to run your household that's rent mortgage utilities groceries eating out deductibles fill-in-the-blank whatever you spend on a monthly basis you need to have in pure liquid emergency savings three to six months that's a great advice and look if you try to figure out of my three months of my six months really depends on how long do you think you'll be unemployed if you're in a career path where like coming when I was in public accounting I probably could have been three months and how do you been fine but if you're more specialized in some of the tech fields and other things you might need six months so it's how long it's going to take you to replace that income if the rug got ripped out from underneath you if you're retired by the way if you're a person that's actually about to be retired and you're crossing that threshold it's not three to six months for you now it could be very well somewhere between 18 to 36 months that's a very specialized decision you know I can't give you specifics on that but it very well no it could be 18 that's a year and a half to three years the reason is because you don't want to have to go sell something that's get in teeth kicked in when you're making that threshold into retirement because you never know nobody no matter what they tell you knows what the stock market's gonna do next year so you want to go ahead and make sure you bulletproof yourself as much as possible and then the other thing go out there guys do your research go to bank rate.com see what the high-yield FDIC insured online savings banks will pay you because your brick-and-mortar guys are probably paying you less than a quarter of a percent it's very easy to get between two and two and a half percent on FDIC insured cash right now go make that money work is that two percent that's legit yeah that's go buy you some mills that's going to do some other things now put some shoes on the kids so so definitely go pay attention to what's going on with your cash accounts because cash is not just complete trash anymore you can actually get some yield I'm just saying that's we like the marketing slogan for some high-yield bank this will put some shoes on your kids no it's true I mean we've all been in points that's what emergency funds are simple I'm just telling you this money you need to think about every dollar what can it be doing for you because this is your army of dollar bills I want every dollar to have a purpose and I wanted to be as responsible and efficient and functional and successful because you know what happens when this dollar is working good this dollar is working good they start stacking on top of each other before you know it you were at the level that you want to be with financial independence in your successful yep so simple may not be sexy it's now I go turn heads but I can tell you this it's gonna give you some peace of mind it's also gonna put you on a path that puts you head and shoulders above a lot of your peers and look you do these steps now because when you get to 50 when you get to 60 and you want to start living life the way you want to it's going to show that you've got that swagger that you've yeah maybe you didn't get to drive the fancy car or live in the fancy house like some of your friends and neighbors but then one day they wake up go how did they end up with money how is he already retired how much does he have to have in the bank to be able to retire already it's because you made these simple decisions at the right time that's right bo what do we do for a day job yeah if you are someone out there like you meant I love what these guys say I love what I'm hearing I feel like I think about money the same way but man I could use some help my life has gotten complicated I'd love to simplify it or maybe it's just gotten past the point where I feel comfortable every day we try to help people make really good financial decisions I think and I'm a little biased on this I think we have the best financial planning team in the world with our advisors here so if you're curious about taking to the next level if you've either run out of time to do it yourself reach the level of complexity where you're nervous about doing it or the gravity of your decisions is just so big you really want to make sure that you don't screw it up and you have a second set of eyes we would love to hear from you go out to money guide calm you can contact us go to a bound wealth you can contact us and we just appreciate you letting us be here to share the good news of sound financial management becoming wealthy the concepts are simple but somehow it's just not easy the journey is not easy guys thank you for tuning in to the money guy show and becoming part of the money got family we're going to help you continue to make these great decisions complete the abundance cycle where we just come you give you all the free advice we love on you you're going to learn apply and grow those assets until one day this is gonna be who you talk to it abound wealth so reach out to us money guy calm also don't forget subscribe and put the notification hits a bell ring the bell just like you were at your favorite fast-food joint as you're walking out because we want you to get the notifications and become a subscriber on YouTube and then go to our website money guy calm typing your email address zip code because at some point in the next 18 months we do want to start doing some trips and other things we'd love to know where you are and look we do some deliverables from time to time we like to keep you in the loop so go check that out money guy calm I'm your host Brian Preston mr. bohannon will be back soon

Channel: The Money Guy Show

Views: 30,528

Rating: 4.8448977 out of 5

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, How To Simplify Your Personal Finances, money, budgeting, simplicity, simple living, finance, money management tips, simplify, financial planning, money management, how to budget, how to save money, save money, retirement, retirement planning, wealth, happiness, motivation, tips, financial goals

Id: 9QsLbfwfh00

Length: 55min 45sec (3345 seconds)

Published: Fri May 24 2019