Financial Literacy 101

February 15, 2021
"Take Flight" was built on the fundamentals of entrepreneurship. Mindset, Habits, Routines, Rituals, Essentialism, Leverage, and Relationships are all key fundamental components that if used consistently are the foundation for building a predictable and enjoyable business. Last week, I laid out the "30 Things I wish I Knew by 30" which comprised the 30 guiding principles I've learned, tested and implemented into my life and business with great success and now use in my coaching, training and mentoring.  As I was writing that MMPT, I realized that many of the guiding principles that I was writing down had to do with personal finance, a topic that I had never brought into my content in 13 years. I realized last week that there are probably a lot of things that I could say on this topic but for some reason, never did. The more I thought about it, when we answer the questions: "Who do I want to be?" and "How do I want to live?" the responses revolve heavily, if not primarily,  around money and finances.
I am realizing everyday that my experience, created by the downturn of 2008, was my classroom, my laboratory and my canvas. I learned more about what not to do as I did these "financial best practices," that I will introduce to you today. So let's get into that topic that I've never ventured into before -  "Financial Literacy 101" - but, before we start, realize that I am coming to you as your coach. I am not a certified financial planner. I am a 53 year old that just has a little bit more life experience than most of you. My goal here today is to get real with you and to point you in the right direction as to how you should build a financial mindset and financial blueprint for yourself.
I'm going to start with 10 basic truths that have been confirmed. They are basic, not rocket science, not my original ideas, obviously, but vital to your financial health.
  1. Time is your biggest asset. Attach a value to it and protect it, manage to it, and build your business around it. You can always make more money but time is the only thing that you can not replace.
  2. Income: work like crazy in your 20s and 30s. Build a business (using "Take Flight" and "Ninja Selling" principles) that is predictable, enjoyable and creates significant income. In your 40s and 50s, maximize your earnings while starting to put up more defined boundaries around your time. Your quality of life starts with your ability to create income.
  3. Spending: spend less than you make. Simple, but a really hard concept for most to get their arms around. Yes, spend less than you make. In your 20s and 30s "live like a student" and pile up cash and investments before your life responsibilities start to take shape (family). I did the math this weekend and my daughters will cost conservatively $1,000,000 plus each to raise. They are worth every penny and more but you need to understand the financial commitment so you can plan accordingly. These are raw realities no one even wants to discuss.
  4. Hire a Supportive and Talented Financial team:  Every productive broker needs an accountant, financial planner and access to a personal attorney to lead them in the right direction financially. Like I said, I am not a certified financial planner, accountant or attorney, rather just a person that can give you some basic real life advice on the do's and the don'ts.
  5. Pay Estimated Taxes Quarterly:  that money is not yours. Get it out of your account and pay those estimated payments. If you've learned the hard way, you know what I am talking about. Consult your accountant on how much you should pay each quarter. It is so important to have an accountant that will hold you accountable.
  6. Automate: Commissions come in and 40% should immediately go to an account for taxes that is difficult to get to. 40% should go to your operating accounts and 20% should go to savings and investments. The older you get and the more you make, that 40% to live on should move closer to 20% with 40% going to investments. Consult your financial advisor on how to diversify your investments.  "I will Teach You to Be Rich" by Ramit Sethi is a great book on how to automate your finances.
  7. Avoid Credit Cards that are not paid off every month. They should be used as a vehicle to protect your purchases, track spending and run your business. They come with a credit limit, not a credit goal.  Unfortunately, many learn the hard way.
  8. Savings:  As a real estate broker, you should really curb your spending until you have at least 3 months of living expenses set aside. Move that to 6-12 months for pure "so you can sleep at night" reasons. If your real estate career is 25 to 30 years in maturity, you will have 4-5 real estate cycles that are really scary where buyers just stop buying real estate. We had 2008 to 2012 as an example.  For a short period last spring, COVID had us thinking in the worst possible terms between April and June.
  9. Start Early: the biggest regret most have in their 50s and 60s is that they didn't start earlier. Most don't start earlier primarily because they are simply financially uneducated.
  10. The Jones' Could Care Less:  Don't compete. Be You. Nobody cares what you drive, what you wear or where you eat. If they base their friendships on that, they should not be your friends. So many people get in financial trouble because their financial scoreboard is "keeping up with the Jones." The older you get, the one thing you learn is that experiences are what matters, not things. Invest your time experiencing life with those you care the most about.
So those 10 basic principles will save you 90% of your financial "pain and suffering." Once you make a "mistake" in these areas, it's normally too late to pivot and it could take years to claw back.
So next I want to go into some areas that are 'below the surface.' I've learned these concepts over the years and they have proven to be helpful to me. It's advice I've been given through virtual mentors, thought leaders, books and friends. I'll lay them out in no particular order of importance. Use this list as a guide/checklist to do your own research and to ask questions of the proper people.
  1. Hire a Fiduciary: before you hire a financial advisor, make sure they are a fiduciary.  A fiduciary is one that puts your success first and doesn't focus on selling you their company's products. I'll leave it at that but do significant research before you hire a financial advisor. Don't just hire a friend or the first person you meet. This is one of the most important decisions you'll make and could save you lots of money over the life of your career.
  2. Convert to a 15-Year Fixed on your Mortgage: If you own a home, a 15 year fixed is a great tool. It is a form of forced savings where almost 50% of your payment, based on today's rates, goes to paying off your principle. This is one of the smartest financial decisions Amy and I have made over the years. The loan amount just melts off every month.
  3. Diversify: your financial advisor will advise you on this but let me give you some advice I was given by one of the top traders in the bond market. He told me to limit the amount of exposure I have to real estate investments. He said that since all of my income is coming from the real estate industry, that I should be careful having all of my "eggs in one basket." He said that those that see huge financial setbacks are those that don't diversify income from their investments. I have taken that advice to heart. I don't have enough time to take on that risk. If you buy real estate, put a lot of money down. If you want more on buying real estate as an investment, follow Grant Cardone on his social channels.
  4. Compound Interest is real:  just google "Compound Interest Benjamin Franklin." Take 30 minutes and read the top 3 articles on the topic. You'll thank me later. Start investing as early as you can even if it's $500 a month.
  5. Implement Financial Software: I love Quicken because I find it easy to use and I like that it gives me a clear picture on my NET WORTH, the primary scoreboard I am using at this stage of my life.
  6. Budget: Create and stick to a budget. At this stage of my life, high Income, low debt and low expenses is my financial mission statement. You need a budget to plan and track your spending. There is so much financial waste in most people's lives. Convert the waste to investments.
  7. SEP or ROTH IRA: the first question you should ask your "fiduciary" is how much to fund your SEP IRA or ROTH IRA. You need to max out your tax savings through the proper financial instruments.
  8. College Savings: start a 529 plan early when and if you start a family. College today is anywhere from 35K to 100k a year per child.
  9. Buy Quality: Do you have that one pair of jeans that cost you a little bit more but they are all you wear while there is 10 pair underneath them that you don't like the fit. Yep, thought so. Yes, run your wardrobe through your "HELL YES" filter. Purchase better, purchase less.
  10. Quarterly Financial Clean Up:  Businesses love low cost, monthly subscriptions because they find a way to hide.  Do a quarterly, if not monthly cancellation purge of services that don't serve you.
  11. Protect Your Credit Rating: I have had LifeLock for 5+ years to protect my credit rating against fraud. It has saved me several times. Again, do your research but I landed on LifeLock. Also, run your credit at least annually to check your credit worthiness.
  12. Pick Your Partners Well: If you have partners in a side hustle business or investment, please, please, please do not take this lightly. Have your attorney create proper partnership agreements to protect your position.
  13. Invest in Your Self Development: If today's topic is blowing your mind, get real with yourself and learn these financial basics. I will post on on my Instagram and Facebook page several books that have been game changers for me.
  14. Get Aggressive: If you are in a tough place financially, get aggressive. Disappear for 6 months or how ever long it takes, work your tail off, live like a student and pay that debt off. You cannot outrun it.
  15. Review All Financial Documents: there is one term you should become incredibly familiar with and it is "Personal Guarantee."  Before you sign any loans or financial documents, understand what you are signing. Seek legal advice if necessary.
"A Crisis is a Terrible Thing to Waste" - this is the title of Chapter 10 of "The Road Less Stupid" by Keith Cunningham. Run, don't walk, to buy this book. This one chapter has another 7 pages of content on today's topic. He outlines in the book the importance of avoiding mistakes as your most important financial tool. Several bad mistakes can set you back decades. Trust me, I would know. My goal is to help you to be aware and to avoid those same mistakes so you don't have to go through them yourself.
Everyone needs financial literacy. Use this list today as a checklist to guide your self development and research on this incredibly important topic. Everyone's approach and risk tolerance will be different. I have to be fairly conservative financially in my 50s. I can't risk another 2008 because I just don't have that "runway" anymore but these ideas and concepts should hopefully resonate with everyone. If you really want to supercharge your knowledge on this topic, I posted a list of books yesterday on my Instagram (via a photo) and on my From the Desk of Jim Miller Facebook Page.