Ep 277: Advanced Financial BASICS

Well, everybody, welcome to this week's episode.

Today we are talking about some advanced basics.

Yeah, I know that may not make a whole lot of sense, but we're going to talk about some of the basics.

And you'll have to listen to the entire episode to see what that acronym stands for.

What the basics that the high net worth and the mass affluent, who really are the listeners of the weekly wealth podcast, what they should be doing with their money.

So I hope that you enjoy this episode.

Welcome to the weekly wealth podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

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So I've heard it said that success is boring.

It's doing like the repetitive things over and over again.

Sometimes you see documentaries on athletes and how much time they spend on the basics, how much time they spend making sure they don't make the bad mistakes that can cost you the game.

In my former life, I was a tennis player and I remember hearing a quote by Jimmy Connors, who's arguably, you know, he's Probably a top 10 tennis player of all time.

And he was not the greatest athlet.

He wasn't somebody who was physically imposing.

But man, that dude could grind.

And he said in order to be a great tennis player, you have to make almost all of the easy shots and just a few of the highlight shots.

And what most people think, it's the opposite, right?

They think that you need to be on Sports center, need to hit the 150 mile an hour serves or, or if you're in basketball, it's the windmill donks.

But in all reality, a lot of times it is the basics.

It's the free throws, it's the second serves, it's the, the routine ground ball.

In baseball so today I want to talk about some basics.

But these are going to be for people who are building wealth.

These are going to be for people who are already high net worth and the mass affluent.

And some of these will have a little bit of a different spin than what you might expect.

All right, so basics is an acronym.

I love acronyms.

The first, first letter of basics is B, right?

And B stands for budget.

Now we can call it a budget, we can call it a spending plan, we can call it whatever we want.

But when we tend to think about budgets, what we think about is Dave Ramsey or somebody else saying, don't spend.

Make sure you cancel your subscriptions, spend less than you earn all of those things.

And yes, that is true.

We need to spend less, less than we earn until maybe we're later on in life and we have a nice nest egg built.

So when I talk about budget, I'm not necessarily talking about spending less.

Although that might be the case for you, right?

Or it might be the case for some listeners.

But what I am talking about is having an appropriate spending plan for you.

So as you're buying things, as you are consuming some lifestyle items, ask yourself, is this appropriate for me and for my financial situation?

I don't like using the word can I afford this or I can't afford that.

That sounds limiting, but is this appropriate for my current situation?

And then if you listen to last week's episode when we talked about being the richest corpse in the graveyard, sometimes we need a budget and we need a spending plan that helps us to accelerate our spending because we are maybe older and we've accumul at a nest egg and maybe just simply our account values are going up every year from simple growth.

And maybe if we had a plan and if we looked mathematically, we could see that, yes, we can do some of those bucket list items, we can afford them and we would still have a very small chance of ever running out of money.

So the B and basics is budget.

The traditional thought would be that I'm going to lecture you about not spending a lot of money.

And sometimes that may be the case where clients or listeners have to spend less, but sometimes they actually can spend more.

And being purposeful and conscious of the budget can help you to have a more full life.

So the A in basics is allocation.

All right?

And what that means is we have to determine where our money, where our resources should be allocated.

So what are some examples?

Like, yes, we should probably have some money in a checking account.

This is where we're going to pay our bills.

This is where our paychecks or maybe Social Security or pension are being deposited.

And it kind of acts as a conduit.

Money enters a checking account, it leaves to pay bills and buy stuff.

Now, we should have money allocated or resources allocated.

Other places.

You may own some real estate, you might own some rental real estate.

You might have an additional emergency fund.

You might have some money invested in some highly speculative investments, and that may even be appropriate for you if it's an appropriate proportion of your net worth.

You may have a retirement bucket, and you may even, let's say, have a bucket that is designed for a goal that's going to be achieved in the next five to 10 years.

So we have to be purposeful about how our money is allocated.

It needs to make sense, and it needs to be appropriate for us.

Now, as a financial advisor, I often will meet someone and they'll say, well, hey, you know, what's the big, big new stock?

Or should I buy xyz?

I heard there's an IPO coming out.

Should I buy that?

And that really becomes an allocation question that I can't answer for somebody unless I know a lot more about their situation.

So if there's a new hot IPO that's coming out and everybody thinks it's going to go through the roof, and if you ask me, should I allocate some of my money towards it, my answer has to be, I really don't know.

I don't know if you should be investing.

I don't know if you should be paying off debt.

I don't know if you have some other similar holdings to that IPO that's coming out.

So I just don't know.

Now, part of my job as a financial advisor, absolutely, is to help my clients to allocate their money, help my clients to allocate their resources in ways that make sense for them.

And sometimes there is kind of a bell curve, and there are a range of acceptable possibilities.

Then outside of the bell curve may be the things that could cause great damage.

So if you sell, if you mortgage your house and take the proceeds and invest in some highly speculative stock, probably a little bit too risky for just about everybody out there.

And that might be outside of the bell curve.

Okay, so the A in basics is for allocation.

Remember, B was for budget.

A is for allocation.

Now, S. What does S stand for in basics?

Well, these are your financial systems.

Now, it's been said that we don't rise to the level of our goals.

We fall to the level of Our systems, or we might even call them habits.

Alright, so if your goal is to lose weight, but your system is that you go through the drive through three times a day, your systems are not supporting the end goal.

Doesn't mean that you're a bad person.

It just means that you're not doing the things that would likely help you to lose weight.

So what about financial systems?

What are some systems that can help you?

Now I'm going to give you some ideas, but you may have some financial habits and systems that are in your mind that you need to add into your routine.

One might be maybe spouses.

They get together once a week, once a month, couple times a week and are just talking about where they are financially, maybe looking at their financial planning portal and deciding, looking at their updated net worth numbers, looking at if do they need to be putting money aside for some upcoming home repairs, are they pecking away at that debt at the rate that they would like to?

So that's a system, right?

That's a habit.

It's talking about your money.

Maybe some other systems might be.

Every so often you're looking at the checking account or you're looking at the debit card or the credit card and you are looking for some subscriptions that just really aren't needed anymore, right?

So that's, you know, a lot of times we'll sign up for a streaming service and yeah, it's only 20 bucks a month, 30 bucks a month, but we forget to cancel it and then all of a sudden we may have five or six or seven of them and that gets a little bit expensive.

Financial systems might be getting your bills on autopay so you're not forgetting to pay them and you're avoiding late fees.

And financial systems also might be systematic investing, right?

Maybe having on the 15th of every month X amount of money is taken directly from your checking account and going into your brokerage account or towards your ira.

All right?

So think about some systems, think about some things that you can put into place in your life that could help you to move closer to your financial goals and to help you to have a better life by how you handle your money.

Alright, so we've covered B for budget, we've covered A for allocation, we've covered S for systems.

What does I stand for?

Well, I isn't sexy and I isn't that exciting.

I has actually been referred to as a racket, but it is insurance.

So what does insurance do?

At its core, insurance protects your money.

Nothing more, nothing less.

People say, well I have home Insurance to protect my home.

You have home insurance to protect your money.

If your house burns down, either you have to pay to have a new house built.

And hey, if you have enough money to do that, then maybe you would choose to self insure or your insurance policy would protect your money and it would pay for your home to get rebuilt.

All right, so look at all the places where you have some potential losses that insurance can help to protect.

Let's run through a few of them.

So what does life insurance do?

It.

In a lot of cases it replaces an income of a deceased person.

So if there's a breadwinner and that person passes away, not only do you lose your family member that you loved, you also lose their paycheck.

So you might choose to carry a life insurance policy.

And then if something happens to you, there would be a bucket of money and that bucket of money could be used to pay your family's expenses.

Now there are all types of liability policies.

Liability is basically damage that you caused for somebody else.

So on your car insurance you have liability, right?

So if you run a stop sign and if you hit me and if you cause me to have an injury, either you're paying for my injuries or your liability portion of your car insurance will pay for my injuries to get remedied.

Both medical bills, maybe some lost wages, maybe some pain and suffering, things like that.

Your home insurance, your business may have liability coverage that would help to indemnify.

Now there's a cool insurance word, but that basically means to make whole your liability would help to indemnify someone who was damaged due to your negligence.

All right, So I always recommend that you work with a great local independent insurance agent and talk to them about, hey, where are you?

Are my exposures.

There's another insurance word and how can I potentially cover those exposures with insurance?

Sometimes it makes sense to cover it with insurance or transfer it to an insurance company.

Sometimes it makes sense to retain it yourself, but work with an insurance agent who knows these things and make informed decisions.

All right, so the I in basics is insurance.

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Now I said it earlier in the episode and I say it in every episode, and I say it in almost every client meeting.

Meeting, and that's that.

I believe that how we handle our money should positively impact our lives and the lives of those around us.

So the C in basics is caring.

Like, how can you use your money to care for the world?

Now, some of the most obvious ways that you can care for the world with your money is writing a check to a charity, right?

Maybe there's a local cause, maybe the United Way, maybe your church, maybe a children's charity, anything like that.

You can simply write a check.

You can talk to your CPA or your financial advisor and see if you can get a tax deduction on that.

But that's one way.

I have a friend, and he's actually helping to pay for somebody's college.

So he's literally writing a check to the college and helping him with tuition.

Now, this is not a charity, not getting a tax deduction, but he still is happy to do it.

And the kid that he's mentoring is, I'm sure, very, very grateful.

So you can care for the world by being generous.

Now, let's look at some other ways that you might care for the world.

And some of these might not be intuitive, but let's think about it.

So let's imagine a young couple, maybe they're 25, maybe they're 30 years old, and maybe part of their core values, and these may not be your core values, but their core value is they would like for the mother to stay home and raise the children.

But let's also say that earlier, maybe before they got pregnant and had kids, they bought two new cars, they have new car payments.

Maybe they live in a house that's barely on the edge of what they can afford on the upper end.

And maybe they just enjoy going out to eat too much and they spend a little bit more than what is reasonable for them.

Now, can you imagine that they might feel like they're making the world a better place and caring for the world if they got some of those expenses under control, which would be kind of their budget.

And then they were able to fulfill their values and have one of the parents stay home with the kids.

Okay, so think about, are you living out your personal values by how you handle your money?

Super important.

You know, I think we all get.

We get frustrated, and we live in a.

We live in a.

In an unfulfilled state when our values are not reflected by our actions.

So specifically thinking about our actions with regards to money, ask yourself, like, do I handle money that Reflects how what I believe.

You know, if somebody looked at my checkbook, look at my credit card statements, would they know what's important to me?

Would it be obvious that I care for the world and I'm doing things to care for the world?

Or would there be not a whole lot of generosity and maybe a lot of mindless spending?

Those are just food for thought.

I don't have your answer for you, but that would be something great for you to think about.

So C in Basics is caring, and how are you?

How are we using our money to care for the world?

And the last letter of Basics is S. And that stands for support.

Now, one of my favorite books and favorite concepts is who, not how.

Dr. Benjamin Hardy wrote a book, and the premise of the book was, if there's something in your life that needs to be fixed, if there's something in your world that you don't know how to do, oftentimes it's easier and more effective to ask, who in my world can help me with this?

As opposed to, how can I figure out how to do this?

So who do you need in your life to support your financial journey?

Now, an obvious one would be me or a financial advisor, right?

Someone who can give you expertise, someone who can hold you accountable, someone who is unbiased, and someone whose emotions are not directly tied to your financial decisions.

So obviously a financial advisor or financial planner is a great person to potentially support your financial journey.

But there are other people also, obviously your accountant, whoever's handling your taxes and bookkeeping.

Those are great people to have relationships with that can support you and help you make good tax decisions, good accounting decisions.

Attorneys have some support duties with you and your money, and decisions that affect your money.

What about, are you a bigger business?

Maybe you need a fractional cfo, a chief financial officer.

I've done some episodes with chief financial officers, and they can often be worked with on a fractional basis, and they can help you to plan your business money, help you to get your financial statements in order, help you to project cash flow and do all of those things that's really difficult for the owner to do, right?

So maybe a fractional CFO is somebody that you need to support you.

So I'm sure if you think about it, and if you think about some of the challenges that you have in your financial journey, some of the challenges that you have in your business, oftentimes there is somebody, there is a professional in a field that can be that support person for you.

And yes, none of these people will work for Free.

So they'll come with some sort of a price tag.

But oftentimes the return on investment ROI working with professionals grossly outweighs the cost that you incurred or the investment that you incurred up front.

So what do you think?

Basics Budget.

So that's a spending plan, and it doesn't have to be limiting.

In a lot of cases with a lot of my clients.

At the point in life where we're talking about, hey, let's spend more money, there's a very low likelihood that you'll ever run out of money, so let's spend some now while you're still young and healthy enough to enjoy it.

Allocation.

I talk to people all the time, and you say, how are your investments?

And they really don't know where their investments are, what they're allocated in.

So our investments and our resources need to be allocated in a way that makes sense to us.

Okay.

S is systems.

What systems and habits will help bring you towards your financial goals.

It will help you to realize your values by how you act with your money.

I is insurance.

Or we can also refer to it as risk management.

And insurance protects your money.

Nothing more, nothing less.

Work with a great local insurance agent to help you to protect your money with insurance when it makes sense.

C is caring.

Are you using your money to care for the world?

Are you using your money to make your life better, the people around you's life better, and the world a better place?

And then S is support.

Do you have the people, do you have the professionals around you that can provide to you the knowledge and the discipline and the accountability and the expertise that you don't have?

Especially if you're a business owner, you just simply cannot know it all.

Trust me, I've tried to know it all.

It never works out well.

We need support.

I get together once per month with some business owners, and we support each other just on an informal basis.

We.

We talk about some challenges, we talk about some growth opportunities, and we challenge each other to make the difficult decision.

Then we hold each other accountable.

So that's another type of support, which is a mastermind group.

Okay, so what do you think?

I'd love it if you go to www.weeklywealthpodcast.com, go to the microphone icon, leave me a voicemail.

Where do you.

Where are you strong in the basics of finance, finances, and where are you weak?

Where do you need to up your game?

And if any of those areas really jump out at you that you need some help, hey, let's do a vision call right go to www.weeklywealthpodcast.com vision and we can spend 5 or 10 or 15 minutes on a zoom call and we can walk you through one of those areas.

No pitches, no fluff.

It's just a 10 minute call.

All right, everybody, until next time episode.

I wish everybody a blessed week.

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Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions.

And here is your bonus content for this episode and we're going to go to the A for allocation.

Now, the main goal of allocating your resources is not necessarily to get the highest possible rate of return.

All right, so if you, if you're 79 years old and if you have all of your money in something highly speculative and let's say it did get a 40% rate of return, I would make an argument that you just kind of got lucky, but your money should not have been invested there at that point in your life or certainly not all of your money.

Okay?

So in my practice, I will solve for a required rate of return to meet the goal.

So I want to help my clients to meet their goals, taking the least amount of risk possible.

Now, some of my clients want to earn a high rate of return and we can invest their money in a way that has that potential.

Some of my clients are more in a capital preservation mode and our goal is to preserve their money.

Neither one is right, neither one is wrong.

They both have to be appropriate for the individual client.

All right, everybody, have a great week.

We'll see you next time.