Wise Money Tools

Early on in my career, I ran into this family that had one of the worst debt disasters I'd ever seen! 30 years later it still is a top ten worst financial situations I've seen. What can we learn from their mistakes?

Active investing and passive investing each have its strong suit. What is best for you and how do you adjust your investing philosophy to maximize your wealth? Hello everyone and happy fourth of July to you, you know aren't you glad we are living in a country that is free or we can have opportunities, really the sky is the limit, I know there is a lot of negative talk about America and certainly there is a lot of politician who like to you know maybe sound like we are the worst people in the world but what a great country to live in to be able to really be or do anything that you want to do in life. I mean it is really exciting and I am so grateful for this country. [00:01:04] You know when I listen to some of those patriotic songs, some of them really get to me, one of them that gets to me is America the beautiful world, it talks about the soldiers and it says something to the fact that they love liberty more than life, I mean who are these guys, I mean the life of our soldier who love liberty more than life and willing to give their life for our freedom. I mean those guys are just amazing to me and I am really grateful for them and I hope today, independent day, hope you just take a second and look at all the wonderful things that we have in our country and then take advantage of it. [00:01:58] So anyway have a great fourth of July and enjoy the fireworks. You know today I want to talk about the difference between active and passive investing, what I don't think a lot of even financial advisor understand is really what that means. When you look at active portfolio manager, basically what they are trying to do, active being the keyword here, they are trying to actively beat the market or a specific index which is called the SNP 500. [00:02:34] Active portfolio management is all about moving money, trading, getting in and out of things, riding the wave up, getting out before it heads back down and trying to actively manage that money so that it outperforms the index or a benchmarks or the market as a whole. [00:02:53] Passive portfolio management, what it tries to do is mimic the investment or the index, so try to just do as well as the index. And although those might be accurate description of active and passive portfolio management, it is just not what we like to do when it comes to active or passive management. The reason is this, I think both those things are really different to achieve, now certainly if you want to just be a passive investor, go by the index, get it as cheap as you possibly can, don't pay fees, don't pay advisors, don't pay a broker, just get a least expensive ETF or portfolio of the index and just leave it, then you are probably going to do pretty close to the index. [00:03:57] But don't ever expect that you would do better than the index and for some that might be okay. Active portfolio management is much tougher to be able to think that you are going to jump in and jump out of things and actively manage that money and then eventually outperforms the index after the fees and the cost and commission that goes along with active portfolio management, that is a little bit more difficult to do. [00:04:23] what I like is what I call being actively passive, active in the sense that you know what is going on, active in the sense that you know what you have invested in, active in the sense that you know why you invested in it and active in the sense that you are following along and making sure that the investment that you put your money into is still doing what you thought it would do. [00:04:53] let me give you an example, let just presume I want to own a particular stock, we are just for fun we will call it Apple, so what I first want to do is really understand Apple and I want to make sure I am capable of understanding that. You know Charlie Monger who is Warren Buffet partner, he talks about this pretty succinctly, the first and foremost thing that you should do is make sure you have the capacity to understand investment. [00:05:26] so let's just assume I understand Apple, I use Apple and I am very comfortable with Apple. Now, we won't talk about price at this juncture because there is a difference between price and value, price is what you pay and value is what is worth and some of those sometimes those things there could be quite a spread in those prices. So we won't talk about that but let's say I am into Apple at a price that I am comfortable with, there is value there, now I want to stay active in the sense that I kind of want to read news about Apple, I want to know what is going on, I certainly want to read the annual shareholder report, I probably want to watch anything that the CEO is talking about. [00:06:15] I definitely want to see what is going on in the new product launches and how those are accepted, so I want to stay active in the sense that I know what is going on with Apple but I want to be passive in the sense that I don't want to trade it in and out, up and down with charts looking at moving averages, I want to eventually hold that as long as I possibly can for life maybe, certainly for the next ten years. [00:06:47] You know Warren Buffet said he won't own a stock for ten minutes that he wasn't willing to own for 10 years. So in that regard we want to be extremely passive, we'd like to just get in and hold that thing forever and as long as the company is still doing what we thought it was supposed to do, as long as the company is still good management, the different things that will go a long way to helping that company grow. Then we want to stay involved but we want to be actively passive. [00:07:22] so that is a big difference between what happened when you have access to a capital, when it is time to invest, you certainly going to want to invest when price and value and at least that parity or hopefully prices below value, that is even better. And then again we just want to stay active in terms of understanding and knowing what is going on in the world. [00:07:49] so those are big differences, when you walk into a traditional financial planning firm and they throw out to you a bunch of mutual funds, they are hoping that you will stay passive and not really know what is going on but yet the mutual fund managers are very active, so that is what I call passively active, you are passive, you are doing nothing to learn, you are doing nothing to understand, you don't have any idea what these mutual funds are buying and why they are buying them. [00:08:21] yet the mutual fund over here is very active, I mean the turnover ratio in mutual fund sometimes getting to the 100, you know when they are turning over that portfolio, you know 100% of a time in a given year and maybe even much higher. So they are very active and that is maybe not so good for you, maybe not so good for the fund but that is how most mutual funds are built. There are some that do more of a buy and hold strategy but for the most part, they are very active in and out of stuff and when they hear just even the slightest bit of news that might be negative, they are out of that thing and because they can't afford to have a bad quarter. [00:09:04] Every time you get your mutual fund statement don't you expect it to go up and if it is not at least going up a little bit or staying flat, you are wondering what is going on and it could be easy for you to be swayed to pull your money. Yeah, you are very passive and I am not saying you, I am saying most traditional financial planning company's clients are very passive, they don't know what they have, they don't know why they have five or six or eight different funds, they just know that you know it is just diversify and that their financial advisors is taking care of them. [00:09:37] so they are very passive, they are not reading about the stocks that they own and they are not keeping up on the company news and new launches and products and as a result that is a dangerous place to be in, first and foremost you are going to be the type that panics quickly when market starts to crash because you don't know what you have and why you have it, you just know that your advisor picked a lousy fund. [00:10:03] and meanwhile that manager over there in the fund is moving and try to sell out and keep your profit as best he can. As a result, mutual funds typically way underperform the index over time, there might be a year or two where they beat the index but after you add in fees, commissions, all the trading course and then eventually taxes, you are lucky for mutual fund can even come close to just passively investing in the index. [00:10:33] so that is kind of a good snapshot of the difference between active and passive investors. Now you got to ask yourself what type of investor are you, what type of investor do you want to be? You know you don't have to be full time, all addict, everyday 24/7 to be a good investor, all you have to do is you have to have capital and that is where cash value often times comes in then you just have to be able to understand what you are investing in, why are you investing in it and whether or not price is at least equal to value at the time you get involved. [00:11:14] now this is real estate, this is gold, this is oil and gas, this is stock, this is the corner business that you might be interested in, this is any kind of investment. Here we do a lot of real estate right now and it is actively passive, we are certainly active and making sure that we are going to the right location, that the subdivision looks like it is going to be you know marketable, that it is in a good area. They say location, location, location. [00:11:47] so all that is very active then we, because we are very active, because we are the builder as well, our building companies then take a vertical but investors who are with us, they are very active in the beginning and then they are a little bit more passive while everything is going vertical. In the meantime, they might be reading everything from what is going on with mortgages and interest rate to the community that has been built in. [00:12:16] I mean they might want to be much more active and just understanding what is going on. So again whether it is real estate, individual stock, businesses, whatever your interest is, you want to be actively passive, you want to be very active in understanding what is all about and then very passive in trading it, getting it out and trying to get the next thing on board. And this has been proven, you don't have to go out and try to say, well is Dan right on this, all you had to do is look at guys like Warren Buffet and Charlie Monger and Charlie Icon, [00:12:51] I mean these guys all have very similar philosophy. [00:12:56] Warren Buffet just killing them all in this actively passive perspective. So alright there you go, that is it for this week, again go out and have a great holiday and thank a soldier if you see one, be grateful you live in this country and then take sometimes and just really understand and be involved in your investment and the things that you are interested in, that is it means, that is first and foremost, only invest in things that you are interested in and then understand it and you are going to be just fine and you are going do so much better than those who sit down were traditional financial advisors and buy an array of mutual funds and then crush your finger and hope your market goes up. [00:13:45] you will never know what is going on you will always be in the panic mode if things are correct. So any question that you have always reach out [email protected] and I will be happy to answer them just as quick as I can and in the meantime make sure you subscribe to the videos, to the podcast, don't miss an episode and we will try to do this together. Alright till next week, take care.

Here are the charts talked about in the podcast.

What are the major diffences between a ROTH and Traditional IRA? Is one better than the other? What are the tax consequences when it's all said and done? Let's talk about the differences in this podcast.

Well, hi everyone it is Dan Thompson again with another wealthy and wise Wednesday, hope everything is going great for you? We are just about this expect some puppies around our house, I am really excited about that, we got a beautiful golden Doodle and she is going to deliver some pups in the next probably week or week and half. Somewhere there, so I will definitely bring them on the video and show you them when we have them. [00:00:33] You know we have seen the last few podcast and video, we have talked a lot about the economy and market and so forth and I kind of wanted to follow that up with probably one of another potential disaster that we are facing. That is not talked about very often and fortunately people kind of put the blinders on and that is the 401K. [00:00:56] Now there are several things we can talk about and I might end up having to put this on to several different videos and podcasts because there are so much. But let just see how far we get today. [00:01:10] First thing I want to talk about is this notion that everyone should have a 401K. Now we all get told the tax deferral-tax deferral- tax deferral is the greatest thing that ever happened, it is the nicest thing our government have ever provided for us but there are some caveats to that. [00:01:31] For instance I was just recently talking to this 26 years old young guy, young, married, couple of kids, working at a big corporation, a tech company and doing pretty good but he is 26 years old. Now, just based on what you might know out there and what you think out there. Just raise your hand if you think that these 26 years old might be making more money in the future. You think so? [00:02:05] Yeah, there is a good chance that he is going to be making more money in the future especially if he is aggressive and he climbs the corporate ladder or maybe he decides to open up his own business or whatever. He is going to become more valuable employee as the time goes on as well. [00:02:22] Well, my question to him is why are you doing a 401K and he really don't know, he just said he walked in and HR grabbed him and said you should be doing a 401K. No one explained to him that he was probably in the lowest tax bracket he was ever going to be in because as he progressed up the corporate ladder, made more money, his tax bracket is going to go up with him as well. [00:02:47] And as a result he maybe again in the lowest tax bracket that he will ever be in, so why are you deferring the tax, why defer a tax at 15% just so you can pay it later at 25 or 30%. That makes no sense but it is never talked about, it is just hey, you got a new job, 401K is part of the benefit you should do it and it is never looked at in the term of where is my tax bracket right now and where might it be in the future. [00:03:19] So that is one thing, the next thing and this is probably going to be the most dangerous of everything. Is that they are not doing very well for us. Okay, Fidelity who happens to be one of the biggest mutual fund management companies out there which also has you know probably millions or different 401K participants in their mutual funds. [00:03:48] So they get a pretty good statistical record and data as to what is going on out there. Well, they said that at the end of 2017, the average 401K had $97000 in it. Okay, so that was an average, so we got young and old in there. But unfortunately it wasn't much better for those who were either a few years before retirement or a few years after. [00:04:16] So people from age 60-69, they had an average 401K balance of %167,000. Now, I know most of you aren't financial geniuses, maybe some of you are. Congratulations, but it does not take a financial genius to realize that if your retirement is going to be 25 or 30 years, that $167,000 is going to be plenty for you to live off. [00:04:46] Now, of course you can say they got social security, maybe some has pensions, maybe some have a [00:04:52] benefits, who knows? But still $167,000 could be eaten up so fast in retirement. It is not even close to what we need; you will always talk in terms of a million dollars. [00:05:07] A million dollars used to be a million dollars, it just doesn't feel like a million dollars anymore and it just doesn't do what a million dollar used to do in the past and so it is just not even hardly enough to retire on. [00:05:19] So if the average out there is a $167,000, people are going to be going through their money quickly and it is going to be pretty sad. Well, fortune magazine went on to report that there are roughly thirteen million 401K managed account by Fidelity. [00:05:44] So that is the number we are talking about little bit earlier. They are literally millions, 13 million accounts managed by Fidelity and again with that average about you know $70-90000 let's just say. And only less than 1.06% had a bounce of more than million bucks. [00:06:07] Okay, .06%, so out of 13 million, that means only 1100 people had balances of more than a million bucks. And out of those very few of them made less than $150,000. In other words, if you make less than a $150,000 a year and you have a million dollars in your 401K, you have done something incredible, exceptional, got lucky, something of that effect because very few accounts have a million dollars in it if you made less than a $150,000 a year. [00:06:49] However, the other accounts that had more than a million dollars in it or at least a million. These people made $350,000 or more per year. So really the only people who had a million or more in their 401K were people who made over $350,000 in a year. [00:07:14] So it is a very small percentage of people who really had a million dollars in their 401Ks at retirement and again a million dollar still isn't probably going to get you the income to sustain this kind of lifestyle that you want. [00:07:29] Wow, this seems really depressing, doesn't it? Well, the point is that the 401K is kind of letting us down. The really unfortunate part is that there are so many people who believed that as long as they are maxing out their 401K, that is all they need to do. That they are going to have plenty of money because that is how the government set it up, that if you max out your 401K and it gives this whopping rate of return and it is managing mutual funds then you are going to be just fine and handy. [00:07:59] well folks, I hope you are listening loud and clear because it is just not the case and if hopefully you are 25 years from retirement and you can put a breaks on and you can figure out a better way as quick as possible because if you are pushing into that 60 years range, 60-65 years, you may be faced with a host new problems that you didn't know were coming. [00:08:21] Now, there is not many things you can do about what is going on in the 401K, there is not many things you can do period because of the fact that lot of people are kind of maximizing their savings anyway, that the amount they are putting in 401K might be all that they can do. [00:08:39] I am just here to tell you; it is not all you should do because it is not going get you where you want to be ultimately. So these are just a couple things going on in the 401K, now we add to that a [00:08:56] study. Now what is a [00:08:58] study [00:09:00] analysis mutual funds, real returns and what they do is that they compare that to an index. Now what is an index? Index is like the S and P 500 or the [00:09:11] industrial average or the Russel 5000, these indexes are made up of so many different stock companies and as a whole they calculate what they have grown to dividends reinvested and so forth and we get this index average rate of return. [00:09:28] once again has proven that not only our mutual funds support to the index but that those people who buy mutual funds tend to not be a very good investor as well and here is what happens in over 30 years. Now think about what is going on in the last 30 years. [00:09:50] we have had a couple dips, about for instance like the last 10 years, these has been some pretty good years. Obviously they came off of substantial recession and a fairly hefty market drop of 50% but since then we have actually had some pretty good years. [00:10:09] well in that period of time the indexes have been just under 10% but the average investor out there investing in the mutual fund has done less than 7, okay? And let me just tell you when most advisors sit down with you, they are always projecting and you hear this on a radio from this radio guy as well. [00:10:33] they are always projecting that you are going to get 10-12%. Well, I am here to tell you and [00:10:39] is here to tell you that over this last thirty years, that is not happening. So you are not going to get your 10 or 12% that you are planning on. [00:10:49] so don't take out your future value calculators and calculate how much you are going to have based on 10- 12% because it is just not happening. By the way, that does not include fees, that does not include taxes, that does not include if your 401K also has administrative or fiduciary fees. [00:11:12] On top of that, it is not uncommon to see a 401K have anywhere between 2 and 4% in fees every year. So think about that, you do 7 fees or 3, you are going to net somewhere around 4 and you still get to pay the taxes on it. [00:11:29] Long story short folks. You can hear in my voice, you can see where we are going, 401K has not been what it was chalked up to be, it is letting us down, we have got to find better ways, we got to take more control, we have got to find investments and opportunity that are going to outpace what a 401K has been able to do. [00:11:54] And it tells you, come to that realization there is a good chance you are going to find yourself come retirement time with a 160, 180, maybe a couple hundred thousand dollars and wondering how is this going to stretch for my life expectancy over the next 20, 25, 30-year retirement these days. [00:12:14] Lot of people are living into their '90s and money that runs out too soon can just make for a miserable retirement and I am not trying to disparage anybody but really I don't think most people want to be Walmart [00:12:29] but that is where they end up if they haven't prepared financially and put themselves in the driver seat. [00:12:40] you know that is how we really like to talk about this, is making sure that you understand investments that you invest in opportunities that you control your ship and unfortunately just dropping the money to a 401K isn't quite the answer. [00:12:55] so there are better ways and of course we talk about these better ways on our podcast, on our videos, in my book, make sure you subscribe to all these so you can stay informed and make sure that you don't fall into this category. [00:13:12] Okay, that is it for this week, good to talk to you. Please reach out with any question and again if you don't have our books and our podcast and our videos, get on it so that you can always be an informed and very wise investor, so that is it for this week, look forward to talking to you next wealthy and wise Wednesday until then take care.

Hi everyone, welcome to another wealthy and wise Wednesday hope you are doing great this week, we just got a couple of more days until the weekend and hope you might be having some good times, summertime out there, nice and sunny, ready to go. I got a little bit of exciting news to share with you today, we are going to start something that I think is going to be really unique and very helpful, I call it the three-minute money mastery. [00:00:48] And what we are going to do, we are going to make very short videos three minutes or less, they are going to be both in podcast form and in video. We are going to take all sort of subjects, we are going to talk about them and a very quick and concise manner. The reason is this, you know it is great if you are driving around or you have got sometime and you can listen to a 15 or 20 minutes' podcast or watch a 15 or 20 minutes' video and I certainly encourage you guys to do that. But there are times where you might just like a little bit of information, just a small education on a particular subject and that is where this three minutes to money mastery is going to all be about, just quick, precise, concise, to the point and we are just going to hit these things. I hope we are going to have a ton of them. [00:01:45] So I would love your feedback on what kind of ideas and topics you would like to hit on that subject, it can be anything, anything that has to do with money, with debt or investing or banking or whatever might be interesting to you. So I am really excited about that and watch for that, I think probably about the time this podcast comes out, we might have our first one and what I am going to do is I am going to start each one of them or head each one of them with three minutes and that way you can kind of know that that is a short video, so we will call it three minutes to and then we will have out topic. Three minutes to understanding 401k, three minutes to understanding what a rough IRA is or whatever the subject might be. [00:02:40] So watch for those, make sure you are always subscribing to both the podcast and the video to have the one works best for you so that you won't miss those and I think that they are going to be really good, really informative. [00:02:56] So what about this week, this week podcast, I want to talk about a few different things, one is kind of an add on to the economy that we talked about a couple of weeks ago. You know this economy is ripping and roaring, I think there is a lot of reasons for it and I think there are somethings that we got to be at least understanding what is going on but it has been kind of exciting to say the least and we have seen a lot of money chasing after this types of investment, I will use real estate as an example, there is so much money out there looking for real estate and driving prices up. Obviously it is what usually happens, part of it and at least the best part of it is we are not back into the old days of 2006 and 2007 where everything was subprime and that is what was driving the market. [00:04:01] Subprime if you remember, this is people who really couldn't qualify for a mortgage so what they did is they just jacked up the interest rate, put them in a subprime which you can get in to a house oftentimes with no money down and even after you closed you could pull money out of a home equity line, I mean it was just crazy what was happening. But the worst part again is that most, not most but in a subprime situation, these people were not qualified to make those [00:04:35] payment. [00:04:37] Another part of it was how the interest was structured. Some had [00:04:43] interest rate so that every year it went up, some moved up with interest rate indicators like the Libo or prime and it prime or libo plus one or two, so if interest rate started to go up then so would your mortgage payment. So all these factors were part of what drove the crash of the real estate market in a week in '09 because people cannot afford these mortgages and so now all of a sudden where things get a little tight, foreclosures, bankruptcies, all those kind of things came in. [00:05:23] Well at least not going down that part again, someone have pretty much have to qualify for a home mortgage and that is good because we want people in there that eventually can end up paying off their mortgage and living there and can afford their mortgage but part of what is that there are some many people looking for home in many part of the country that home suppliers down and as a result you can't build a home as fast enough and so contractors are out there looking for subs to help build more houses faster. The subs are so busy that they can almost name their price anymore and so they are charging more, plumbers gone up, labors gone up, so house and prices continue to escalate in many part of the country too. [00:06:25] And again that is not necessarily all that bad but at some point you got to think that this thing can't just keep going on forever and depending on your community, what is happening, are they getting influx of people, is it just people trading houses, you want to really analyze what is going on to you know determine if getting into real estate right now is a great place. [00:06:53] I think we have got, you know I don't see any real looming indicators that say that you know it is a bad thing right now, other than like I say it is just a lot of money chasing after fewer pieces of property and that can typically help drive up the prices as well when something goes for sale and it can't even stay on a multiple listing service for more than a few days then you know you have got a pretty robust market. [00:07:30] Okay, so we have got that, then we have got the stock market as well, it is just pushing all-time highs all the time. However, one thing that you can help justify that a little bit is at least companies out there are having at least meeting or shielding a little bit the earnings that they projected. And look with any stock, with any business actually it all comes down to this one thing, if I am going to invest the dollar, what kind of return can I expect off that dollar from the company's profit, cash flow or what you like to look at is free cash flow then you can calculate their percentages whether the risk is there or not and if you can justify the price that you are paying for the cash flow that you might be getting, well that is why this thing continues to go up because companies are presenting some decent cash flow and free cash flows and so people are willing to pay a little bit more per share for the stock. [00:08:39] Well again that gets to a point where there is a lot of money chasing after that cash flow and driving up prices and pretty soon you think wow is it worth paying that cash for the amount of cash flow I am going to get. And that is where we start to stumble and fall and then the company misses their earnings by a penny or a fraction of a pennies sometimes and everybody panics. The big sell off comes and then one after another you say well oh mhen I got to hurry up and get out before this guy and this guy and then I will say we have a pretty decent sell off and maybe for no other reason and just a company or two missed some of their earnings projections. [00:09:28] The other thing that can be an empathic to that is interest rate, mhen the feds would love to raise interest rate right now, it kind of slow things down a little bit but that is exactly what happens if you start raising interest rate, it slows thing down. You know it is really just another risk, a suspense, if fixed interest rate are high enough that you are comfortable with that return, there is no need to take the risk in the market. So as interest rate come up and the profits of companies maybe come down or stay stagnant, more people move to fix the investment. [00:10:08] The other side of the coin is that we have got a whole baby boomer generation who at some point, probably going to start taking some money out of risk and put it into the more fixed investment because they can't afford to have an 8 or 10 years waiting period for a market to correct and that could just be an empathics to starting a market correction as well. So again we are moving pretty good, market doing good, real estate doing well, I mean there is a lot of good out there, we have been given some extra money through a tax break from congress to reduce our taxes, we have got businesses bringing back money into the United States to help build other businesses and then there is repatriating of money brings in a pretty good chunk of dough to build new business or build current business or start new ones or to buy businesses and I mean there is a lot of money out there just floating around and looking for a place to land. [00:11:23] And if you look at what is happening in Canada in real estate, so in real estate you look at what is called cap rate, basically [00:11:32] way to return for an easier way to say it. In Canada they are willing to accept very low cap rate, 1 or 2% cap rate, just basically means if I bought a million dollar or let's just say a one hundred thousand dollars' piece of property, I might only get one or two percent a year of that in the cap rate or in cash flow. That is horrible by the way, just for prospective, we typically like to have an 8 plus cap rate, 10 is almost like you know starting point. I mean depending on what is going on, you might accept a little lower cap rate based on some equity participation on the other side. [00:12:18] So that is what is happening in Canada with the real estate, investors are going in and saying hey, I got to put my money somewhere, I will be happy with a one or two percent cap rate and hope the equity play on the other side will help boost the overall return. So anyway just kind of thought would follow up with our conversation on the economy last week I believe it was or maybe two weeks ago because I didn't want to paint this picture of gloom and doom, I just want to paint a picture of being aware of what is going on, why it might be going on and then being prepared if and where that time comes in the near future or year from now, who knows where you want to start pulling back and maybe raining in some of your risky investment. [00:13:06] So that is it for this week, just another talks about the economy but I want to remind you, just watch for those three minutes' money mastery podcast and videos, I think they are going to really take off and I think it is going to be really exciting, you know share them with your friends, share them with your family and we will try to just talk about all kind of different subject in a very quick and concise manner. In the meantime, if you have any questions or thoughts, comment, you want to you know discus something, send those to [email protected] answer them just quickly as we can, other than that, I hope you have a great week, talk to you next week, take care.

Hi everyone and welcome to another wealthy and wise Wednesday, hope everything is going good in your world and welcome, I am glad you can join us today. You know every once in a while I get the thinking about the economy, actually not every once in a while, almost every day and I am sure you do too because some of the things that are going on in the economy directly affects you and certainly affects what is going on in your future and especially if you are getting to the point where retirement is on arising. So I thought that it would be a good idea to talk about economic cycles and hopefully not put you in a sleep but to give you some a really good basis as to what you know what we look for and what we are looking at and watching closely because economic cycles are bound to happen in your lifetime and typically a cycle probably goes you know about every ten years. In fact, I remember reading Warren Buffet saying that you can pretty much expect the economic cycle about ten years. [00:01:20] So what is a cycle, what is an economic cycle? Well it consists of basically four things, you have expansion, you have contraction, you have troughs and you have peaks and you know those as they make up the graph, expansion and contraction and troughs and expansion to peaks and those kind of things continually cycle as you go along and in between there, there might be some recessions and luckily since 1929 anyway and 1930, we haven't seen a depression but those things are certainly possible in the economic cycle as well. You know it is really interesting about dealing with gloomers. I certainly try to look at things objectively and I try not have a too much of a rose color glasses when looking at the economy and cycle as so forth but there are some that are just gloom and doom, I mean they just always predicting the absolute worst. [00:02:36] Way back in the 70s there was a guy, he might still be out there maybe I shouldn't mention his name, HR was his initials and this guy was predicting. This is the 70s, keep in mind, this guy was predicting the longest and the most devastating depression that was ever going to hit the United States and for a while my mom at the time, every once in a while she did some typing and some secretary works for him and so she would come home and talk about the upcoming newsletter that was going on and because I am just a teenager but already I am interested in the financial world and more curious what this guy was saying and the whole premise was we had interest going to through the roof, way double digits pushing 20%, with inflation right alongside going up double digit and he was pushing into that 20% range as well. And he had all these kind of collapsing because of low unemployment and I can't remember everything about his number because obviously that was a long time ago but the point is he was just a doom and gloomer and everything he wrote about was the big crash and it sold. [00:04:20] I think he did really well, I remember going to his house, he happened to life near my hometown in California and I remember going to his home, huge home, he wasn't living like a recession or a depression was coming along, he lives pretty well. But his newsletter sold like crazy, so he had a huge falling. Well what happened in the 80s, you can give some credit to Ronald Reagan, I don't know whoever you want to give the credit but things just turned around in the 80s were a boom. So my point is this, even though we want to keep an eye on the economy and we want to see some of this indicator, we don't necessarily want to buy into gloom and doom, I kind of like Warren Buffet philosophy on our country, that is it is pretty pro country and pretty positive that even if recession and things like that hit us that we are going to come back ahead and I feel the same way. I am very pro America and the technology and the innovation and all that we have going for us. [00:05:31] But as we look through the economy cycle, we have got the expansion which I think it is important to understand what is happening in there, basically we have had GDP growing every quarter. Now what is GDP? It is gross domestic products, that is taking everything sold in the country and adding all together. That is adding our gross domestic product and as long as that is moving forward, that is an expansion phase. As we start to slow then we start a little bit of contraction but we are not in the recession until we have had two negative quarters. So basically 6 months where we have had two quarters that have gone backward in GDP then we are technically in recession, now recession average is somewhere between 6 and 18 months historically and during that period, we see a slow in the economy, we see unemployment maybe down, we see interest rate. Sometimes the reason for this is because interest rate is reason, so we might see interest rate start to fall. We are in a real awkward situation right now because if we did go into recession, it will be really difficult to drop interest rate much lower than they are so that could be unique if that ever happened. [00:06:57] Some of the more solid indicators of recession start with asset prices declining, things like stocks and real estate as they start to soften and start to go backward, that is a good indicator. We might also see unemployment when unemployment starts to rise, that means companies, manufacturers and jobs are not expanding and that might show a recession to a certain extent. And also in inverted yield curve. Now what does that means? You know if you look at a yield curve on a graph, you are going to see long-term interest rate and you are going to see short-term interest rate and the inverted yield curve is when the long-term interest rates are lower than the short-term interest rate. In other word, you can go put money in the saving account and get a better rate return than a ten-year treasury bond for instance and that means we have got an inverted yield curve and most likely somewhat of a recession that we are in. As I have mention the depression, we have only had one of them, hopefully you will never and I will never see one in our lifetime but that is a 10% decline in GDP, so 10% is huge by the way. You think about GDP on an annual basis, they love it to grow somewhere between 2 or 4% but a decline of GDP drop in 10% well that is huge, that is like you know five years of growth wiped out in a single moment so to speak. [00:08:32] Back in the 1930, we saw unemployment touch on 25% unemployment. I mean that is huge, you look around your neighborhood and one out of 4 people aren't even working, you can imagine what happens to home and foreclosure and oh it can get ugly. So hopefully we don't see one of those depressions but we certainly are going to see contractions, we might even see recession, in all those period of time, we have about since probably 1945, there has been about 10 expansion and contraction period or we just call them economic cycle. And again a 10, 12 years' period of time is pretty normal for an economic cycle and if we look since 09, we have been pretty much on expansion, so we need to start looking at some things and to make sure that we are eyes wide open in what is going on here and when I think about that, I go back to some of these ratios and graphs and chart that we have to look at. [00:09:45] One of them being the [00:09:46] PE and they know we have looked at this before because it is a great indicator and right now it says 32.44 and it has only been higher one other time in history, that was just before the crash of 2000 which we saw the [00:10:06] at that point drop 50%. So we are definitely into high territory and so we want to watch that for sure, that is a great indicator. Another really good indicator is GDP to market capitalization, this is if we can define this really easy. There is an index out there called the [00:10:27] 5000, it is basically 5000 and if you use that as a kind of a barometer of the entire market, we can just call it market capitalization of this 5000 stocks and we will define that with the GDP that grows domestic product, we come up with a ratio and that ratio right now is a 142.1. Now what is good, you can sit by this chart but this chart shows GDP or this ratio in that 70-80% area where 141 or 142 and again the highest it has ever been 2000 just before that massive sell-off and recession that we hit right after the turn of the century. [00:11:24] So those are two indicators that we need to look at, you know that indicator that GDP to market is to send that 151 right now as you can see if you are looking at the chart, so 151 is pretty high. Again not being doom and gloom, not trying to say oh watch out, here comes recession. But if you have any kind of worry, if you have got money in the market, maybe you have got this 401k that has just packed to the hill with equity and you are a few years away from retirement, it is probably time to talk to somebody and really see if there is something that, some moves that you could be making especially if you are going to start using that for income. So as we look at the economic cycle, we see the expansion, we see the contraction, we see the trough and we ultimately see the peak which is kind of where we might be right now, it is those time where we just want to be smart and look at things. There is time to be aggressive and that is going to be down in the trough when things are looking not so pretty but we can buy things on sale and we can pick up asset that have soften and fallen back in value quite a bit. [00:12:45] So that is the whole economic cycle kind of in a nutshell and I think it is wise especially at this point in time to really look where the cycle is, where you are, where your investments are, how they are doing and then eventually you might even run what is called the stress test to see what would happen if the market took a 30, 40, 50% hit, what would that do, how would that look in your portfolio? And then again like we talked about in our last podcast and video was then we start preparing for opportunities, we look for those times where we can get involved when markets are soaring and we are getting in some good prices. So okay that is it, the economic cycle in 15 minutes or less, please let me know if you have any questions, send them to [email protected], I will answer them just as quickly as I can. Thanks for listening, always remember to subscribe to both the podcast and the videos, never miss a bit and we will try to keep you inform, alright till next week, take care.

Hi, welcome to another wealthy and wise Wednesday and as usual, I hope you are having a good week and that you have got something productive going on. Hope you are enjoying this podcast, I sure enjoy looking around and reading all the different things I want to talk about, I have got a list of [00:00:21] long of all the things that I can throw into a podcast and I am really, I would really love to hear your suggestions too. So if you have any thoughts or ideas or things that you would like to hear and discuss on this podcast, please reach out, you can always just send those suggestions to [email protected] because obviously this podcast is for your benefit and we want to make sure they are productive for you, so if you have anything that you'd like to discuss or you discuss, please reach out. [00:00:59] So as I am reading this week, I come across this comment that Charlie Monger said, now Charlie Monger is Warren Buffet essentially his partner, they work together, with both chart halfway, then Warren does stuff on his own and Charlie Monger does stuff on his own but Charlie said something interesting, I think he said this years ago because I know I have heard it many times over the years, they are just kind of stuck with me this time. It is something that we probably have to talk about and he says that I would rather be prepared and not have an opportunity than to have an opportunity and not be prepared. Okay, so let's break that down just a little bit, what is he really saying here, and what is an opportunity? From his world, an opportunity is some sort of investment, something they can buy, something they feel it's on sale and it is going to increase in value over time. This could be an entire business, this might be some stock, this might be real estate, anything that they can really get involved in that looks like it is a good opportunity to get into. So what does he mean by prepared? [00:02:19] Well, the only thing that it could mean is that they are prepared financially to take advantage of the opportunity, so what does that mean in our case? Well, that is where this whole entire building your capital and banking system comes in to play because this has become your story facility for that preparation, for building up your capital so that when the opportunities come along, you can take advantage of them. So often in life, you can probably think back in your life when something occurred, some of it happened when you ran into some kind of a situation where you just say huh, if I just had the money or if I would [00:03:06] those are the famous wishes that we all have. I remember thinking back where I grew up in California, there was this part of town that hadn't been developed there and I lived on the South side of the development and my best friend lived on the north side of the development and I always had to drive this, oh it was probably a three or four miles stretch of really just nothing but some empty fields, maybe there were some trees, maybe there was some orchards or some sort. But I remember and this is [00:03:48] 16, 17, 18 years old. I know where I live, I know where he lived and I know in between someday that is going get built up. [00:03:59] Now, I am 16 years old, not a lot of capital at my disposal but I do remember thinking if someone just or whoever owns that land someday is going to turn this all into residential or commercial properties and be very wealthy. I happen to know some other real estate guys and some investment guys that my dad was friends with and don't get me wrong, we grow up very almost poor, my dad worked really hard but he just did not have anything to his name financially. A paycheck to paycheck kind of guy but we lived in this area where there were some associations where he knew some very wealthy people and I got to kind of [00:04:55] associated with them and certainly their kids over the years and learn a little bit more about them. I had a friend whose dad was a real estate developer and a friend whose dad also was a big-time investor and so I would pick up little bits and pieces and just because of the fact that I had learned enough about what a real estate developer needed to do, that is what sparks my curiosity about this land between where I lived and where my best friend lived. [00:05:29] Well lo and behold, fast forward the number years, I don't know who owned the property, I don't know how it changed hand and who actually developed it but somebody developed all that property and it has most likely made them a [00:05:45] load of money. So what does that have to do with a little quote here, I'd rather be prepared about not have an opportunity than have an opportunity and not be prepared. The ideas, there are times where you might be prepared, you have built up this capital, you might have been waiting for 3, 4, 5, 8, 10 years to deploy this capital into something, but you have been very patient, you have waited for that opportunity to expose itself. You have taken the time to understand the number and the predictability of the outcome and there are times where you just think wow, I am prepared, I have got nothing in front of me. I remember for years not really making any investment decisions because things just weren't very attractive. [00:06:38] Market at all-time high, real estate market going crazy, I remember about pre 2008, everybody was getting into real estate, some [00:06:49] mortgages and there were some writings on the wall that you could just tell that these things couldn't last forever and obviously it didn't. But we were somewhat prepared, somewhat involved but the big time opportunity hadn't quite come along yet and that is really what you are trying to do, you are just trying to prepare for that opportunity, better to miss out or not having an opportunity but have the capital because when that opportunity comes along and you can now do Warren Buffet says when it is raining gold, you go out with a washtub and catch all the gold you can. And those are the times where you just want to have already taken the time to prepare. So I guess the moral of the story is don't be discouraged that you are saving and putting away and storing all that capital up, you are like the squirrel in the summer time getting ready for winter and having the access to that capital when that right opportunity comes along. It is going to be extremely beneficial to you. [00:08:01] The other thing that I was thinking about is the capital itself and specifically when it comes to taking income, there is a saying that you don't eat the goose that lays the golden eggs but it is okay to eat the eggs. Okay, what does that essentially means? Your golden goose is your capital and that capital produces income, it produces return and it produces some sort of growth and you don't ever want to lose or invade or spend that capital. We don't want to eat that golden goose but that golden goose sends out some eggs, sends off income, sends off growths and we can take that and that could be used as an investment or income stream that we can live on. And eventually that is what we all want to be in retirement, we want to have access that are producing assets and so we can leave our capitals alone, keep it about status quo and take the income and earnings off that capital. Take the eggs from the golden goose and that is okay. [00:09:19] While we are building our wealth, it is always wise to take the eggs and reinvest them and now that becomes more capital and more capital so that eventually we have this very nice nesting, so that we can produce income in retirement. Now here is the problem, we under think retirement. You know it used to be a million bucks was a lot of money, it is just not that much for 25 or 30 years' retirement any longer. Think about this, we are living longer, you may be retired longer than your productive working years were and so you have got to plan for at least a 25, a 35-year retirement is not out of the question any longer. So a million bucks stretching out 35 years, I mean that is a lot of task for that million dollars. I often say that you probably have to be thinking of at least 2 million dollars just to have a decent lifestyle and 2 million dollars is 10 or 15 or 20 years from now, obviously with inflation and purchasing power still isn't going to feel like two million dollars of today. So we have got to let that golden goose, our capital grow and reinvest and grow and reinvest but we have got to do it patiently, we have got to wait for the right opportunities. [00:10:55] This traditional financial planning approach of taking your money every month by month just doesn't work, it is just speculation. What we want to do is build and build and have capital and when those opportunities come along, we were out there with a wash tube picking up all the gold we can. This happened often times in market cycle, it happens often times in just events that might occur, it happens just in your specific community whether be real estate or a business opportunity, so the idea always being always be prepared, build that capital, keep the capital, let the capital work for you, don't spend the capital and then eventually let that capital or the golden goose sends out that golden eggs for retirement. This might sound more complicated than it is, it is really not that complicated and it is really not that hard, the problem is wall street and financial advisers want use jogging and all these things and talk about diversification and asset allocation and [00:12:09] and betas and alphas and just get you confused so that you feel like you have to have them manage your money or you are never going to get anywhere and that couldn't be further from the truth. You want to manage your money, you want to be in control of your financial shift and using that banking system that we teach, where you can build up that capital and ultimately take advantage of opportunity, that is a very sound strategy that is going to help build your wealth more so than anything and then eventually talk about the golden goose, one of the best retirement income streams that you can have comes off this banking system and tax free, so it becomes a very nice golden goose. [00:12:57] Alright, I hope that was at least thought-provoking, something to talk about with your family and your spouse, think about what you are doing and why you are doing it, build that capital, I mean just save and put away as much as you possibly can because when that opportunity comes along, you want to go, we will say all in. I mean when Warren Buffet, Charlie Monger, these great investors have an opportunity, they are not buying few shares here and there, I mean they go all in and you can have that same opportunity. It is going to happen, it happens in everybody lifetime, might only happen three or four times in your lifetime but if you are prepared, if you have the capital and when the opportunity comes along, you can take advantage of it. But again it is better to be prepared and not have an opportunity than to see that opportunity comes along and you are just cracking yourself against your head saying oh, if only I would have saved my capital, this opportunity is so awesome, I wish I can take advantage of it. So there you go, hope this was again beneficial, thought-provoking and more importantly hope it just put you on that path, that just packs away your capital, don't spend your capital, let your capital continue to lay those golden eggs. [00:14:26] Alright that is it for this week, if you have any questions, again thought, comments and suggestions, send those to [email protected] and we will respond as quickly as we can. Other than that, you go out and have a great week, take care.

In this podcast we talk about how to:

Think like an entrepreneur

Talk about money

Share in the decision-making

Welcome to another wealthy and wise Wednesday, I hope you and your family have been doing great and had a productive week and speaking of family, let's talk to us a little bit about family and how those dynamics work. You know I probably in some respects [00:00:19] my kids and what I mean by that is I really encourage them to find their own paths and to be productive, more entrepreneurial maybe I guess it is the way to say it. They never see me with a we will call it an 85 real job so to speak and as a result, I have tried to encourage them to you know learn and grow and build your own businesses and your own path. So there is a good and bad to all that but each one of our kids now have their own businesses and in different various fields, they have got really good at marketing and they have got really good in education and they have got really good at. not just you know building businesses and then selling them and again for many of these might be a curse because there is a lot of people who just wants that stability of a paycheck every week, knowing what is going to happen and build a plan for those kinds of things. [00:01:40] As we talk about the different things we do as financial advisor so to speak, obviously the banking system being one of them, I really will like you think more like an entrepreneur. And that doesn't mean you need to run out and open up a business and do all that stuff but there is a way entrepreneurs think that I think it's really critical in helping to build your wealth. One of them is they just kind of break with current philosophy or current traditions and they are always looking for a new way to do things, they like new approaches, they accept a little bit of risks when looking at this new approaches. I often think of Shark tanks, have you ever watched Shark tanks on TV, so here we got a bunch of entrepreneurs, business owners, people who have kind of built themselves from scratch but the risk they take isn't just flipping, it is very calculative. If you watch them run these people who come into shark tanks, if you watch and run them through their paces, the financials, the productivity, what is their product solving? I mean they just get to the nitty-gritty. I have actually read some articles that talk about how I mean it is much more extensive than we see on TV. The number, the statements, the financials, the [00:03:19] all the different things they have to bring in to prove their company's worth and numbers. [00:03:29] Very in depth and as a result when you watch these guys, the sharks on TV, we know that they are entrepreneurs, we know that they take measured risks but you will see that they just don't throw money at everything. I don't know what the statistics are but it seems like on a particular show, they turned down maybe four and accept one. So about a 20% acceptance rate maybe I don't know. I don't know what the real numbers are overall. But the idea is they really understand, they run the numbers and again take some measured risk and we all need to do that as well. The banking system is awesome and it builds a nice foundation and a great capital base but we also want to take some advantage and look at some opportunities as they come along and so we are going to talk a lot more about this. In fact, I am building another course on just the opportunities/investment side of things. [00:04:35] But I guess what I want to encourage you to do is think more entrepreneurially, that is a good word, hard to say. And try to think of things that would have a new approach or where you can see opportunity. Maybe you do want to open a business, maybe you do want to do something kind of exciting like that, maybe it is just what in your sphere at work, just looking at how the business run and maybe you have got some good ideas and some ways to do things better. So again just kind of think more entrepreneurially. The only thing that I would encourage you to do is talk about money and maybe even to family in extended family. Talking about money, there is a lot of things that you learn, the expectations, you know if I look at our kids, we have five kids and each one of them has a little bit different risk tolerance with money and each of them wants to take on different challenges and you know I will be the first to admit sometimes when we talk about business and money and ways to do things and also can cause a little bit of contention because we have a lot of chiefs and not enough Indians, I don't know if that is a politically correct way of saying things these days but the idea is we have a lot of bosses and not enough workers and which is great and it is fine and I enjoy but what we end up doing sometimes is we have very strong opinions and it can get quite exciting. In fact it is so exciting that I am contemplating on doing a podcast with our kids and bringing each one of them in at different times, talking about what they are doing and everything because and again not that we are the model family in the whole world but it might give you a sense of some of the things we talked about and why some kids are just more prone to wanting to run their own shows, make their own way so to speak and others are more content and just being you know part of a good productive system. [00:06:53] So anyway the idea is talking about money a lot, it talks about the expectations, you know how to be financial successful, you might proactively talk about lessons that you have learned mistakes. I get teased a lot because of some of the mistakes that we made on investments, maybe being a little too aggressive or reading into something that was going to be you know much greater than it was and getting caught in the wrong market cycles and so my kids never let me forget those lessons learned but they are a good lesson to learn I feel because it has made me a much better investor, much more sharkish if you will. Where we really now run numbers and get down to the nitty gritty before we make any kind of an investment decisions. That is what you should be doing as well and this shouldn't be a time where you know, you pound and preach, and you know all that good stuff, all you really trying to do is open up a wonderful conversation about you know money and business, investing and again how you find success and what is success. [00:08:14] You know for some, success might be just hey all I want to do is own a home, have no bills, have no debts and have enough income to enjoy life. Other successes, I want to build this big business, I wanted to affect and help million people. So there is different avenues and different definitions of success, it will be fun for you I think to learn and to talk about these things with families, with extended families, spouse and just you know talk about money. The other thing you might consider doing is, I don't want to say democratize decision making but basically talking about decisions with more than immediate family. I don't know how far out you want to go with that but talk about you know collaborative ways that you can be much thoughtful, more unbiased and more you know just making these financial decisions together if you will and especially when it comes to some of the bigger investments and decisions that you want to make that might affect not only you and your current generations but even future generations. I remember when I was a teenager, I had this really good friend and her dad actually went to all the kids and he said essentially this, he said look we have got this little pile of money here and this is to be used for your college education, it is kind of used for an emergency fund and so on and so forth. [00:10:03] But he said and wow I think they had six or seven kids, it was big family at the time, not a lot of money, I think he was a CPA, so he was fairly conservative. But anyway, he sits all the kids down and he said that here is the deal, I am really interested in making this investment in one of the Southern states, I want to say was Texas and I want to make this investment in this, it was essentially a medical office building complex and he said here is how it is going to go down. This is either going to be a very successful venture or we are going to be eating beans and rice and your college education is gone and so this kind of at least of good example of making a decision as a family because he put it and these kids were teenagers, the youngest one is probably 11 or 12 and the oldest one might have being 18 or 19 but kind of laid it on the table, we are going to make this investment decisions and if it goes well we are going to be in really good shape and if it goes south well you are going to have to figure out how to go to college on your own and together collectively they made a decision to make the investment and it turned out wonderful. I mean it made this family a very wealthy family. [00:11:44] Not suggesting you roll the dice, I am not suggesting you come in and find this one thing that is going to take you to [00:11:52] what I am suggesting is maybe some of these financial decisions could be done more of a financial basis. So that is kind of my thoughts for this week on this podcast, so think like an entrepreneur, look around, see if there is a new approach, are there some measured risk that you can take if you do the shark tank kind of philosophy which by the way is Warren Buffet philosophy, the Charlie Monger philosophy, our philosophy where you really understand investments, it is a predictable investment and so on and so forth. But think entrepreneurially because as you build up your capital depending on your age and what you are trying to do in life, there might be some opportunities you want to take advantage and second thing again talk about money, talk about business, talk about opportunities and all that good stuff and then maybe finally make some decision making more extended with your family so that they feel involved and that you all learned some good lessons together. [00:12:56] I got to say one more thing on that, for the most part, my wife always let me make those financial decisions in those times when it would have been very wise for me to talk more about these financial decisions with her and even her kids because they got very involved in business and money and so forth very young and I remember one time. Sorry little one more thing real quick for the podcast things but I remember this particular time, it was in the 90s, the .com boom and we have being participating in some of these great returns of companies that are no longer here and it was just a feeding frenzy for .com but we have just I mean quadruple money, it is just easy to make money. And I remember telling her one day, hey, you know did you know we take this much money and now it is worth this much money and she said wow, that is pretty good, why don't you just sell a good portion of it or all of it and let's just you know be financially set for life? And I you know the all-knowing kind of laughed at her and said what do you mean this is going to be worth even more ten years from now and lo and behold it was literally the peak of the .com era and had we sold out of that, we would have maximized the absolute best day of the total .com run and it did nothing but go down from there and we were lucky to get out with our original investment. [00:14:44] So, sometimes it would have been really good to make this financial decisions on a more family basis, so anyway try a little of those things, it might be fun to sit down at dinner and talk about money and business and what kid want to do and see if they have got an entrepreneurial flare and I think you really enjoy, I know we do even though like I said sometimes it get a little bit more than what we all bargained for but it is a lot of fun and I know the kids are learning and growing from there. So that is it for the podcast, hope you have a good productive week, I will talk to you next week and until then if you have any question, you can always reach out at [email protected] and we will answer them just as quick as we can. That is about it, talk to you soon, take care.

Hi everyone, welcome to another wealthy and wise Wednesday, glad you can join me, hope your weeks are going well, you know I am always reading about something in the financial world, I seem to have a lot of alerts and text and pop ups that come to me, I mean whether it is another podcast or an article or something because I just feel like you need to always be financially aware and what is going on and especially in my line of work obviously I want to make sure staying on top of things. I ran across this thing that was kind of interesting and it was more or less about how your family is functioning so to speak more on the financial side, not on how you are raising your kids but it was really kind of like interesting, a kind of quiz if you will and it is just kind of ten questions and it talked about some other things you might consider if you are not doing and see how well you are doing in other areas. [00:01:36] so let's just kind of go through these ten questions, talk about them for just a seconds, let's see how you are doing, alright. First one is pretty simple it is, do you pay your bills on time? Now that sometimes is not all that critical but it puts you in a very good habit, in fact, you might even pick a day, we do that in our building systems, we pick a day where we know those bills are going to get out and that way we are in a very consistent mode, so give yourself a little check mark, a little bonus, a little pat on the back if you are paying your bills on time and a little extra bonus if you are paying them consistently on the same day each month to have that again, that consistency in your life. [00:02:31] The second one, now this is a big one and it is an important one and the question is, do you save 10% or more of your income each month? Now the reason why that is a huge one is because most Americans aren't and I go back to the early 80s when I read the book the richest man in Babylon and basically say the first thing you do is pay 10% to church, charity, God, and the other, the next thing you do is you pay 10% to yourself and if you do that, you are just going to almost naturally by default have enough wealth to sustain your life. But more importantly, you are working all these hours, I mean day in, day out, you are putting in the time and if you are not paying yourself, if you are not ending up with something at the end of the month, so that you can you know either contain, either build your wealth and eventually someday retire. I mean that is a lot of work for nothing, so you should eventually get to 20%, that gets a little tough but certainly 10%. And then if you just start this out, I mean day one of your marriage, just start plugging away that 10%, you will never miss it, you will be amazed where that would grow to. So some profits and some [00:04:02] and some bonus points if you are saving at least 10 percent and if you are closer to 20 were all good on you. [00:04:10] Okay, the third question if do you have at least three months of income saved for the raining day funds, the emergency fund, whatever you want to call it, so that if something happens to you, you could live at least the next three months without having to worry about income. That might be a job loss, that might be some sort of a short-term disability and injury and surgery, who knows what can come up but you definitely need that. We put a heavy emphasis on that in our course and talk about how to do that, why you should do that and then we kind of compares them in different places where you can put your rainy day fund and see what makes the most sense, from a growth perspective, from a tax perspective and access perspective. So you might want to check that out but again few point part on the back if you have got at least three months on your rainy day slash emergency fund. [00:05:14] Number four, is do you plan ahead or save for large expenses? Now, a lot of times we call this major purchases. Let me define that really quick; a major purchase is any purchase that you can't pay for in one-month discretionary income, and what does that mean? It means at the end of the month, you have got a few bucks left and you have saved, you have paid your bills, you have got your groceries, you have bought the cloths for the kids, whatever you need for that month and if you have some money left over, what that does is if you have got enough to pay for an expense then that is really not a major purchase. A major purchase is if you don't have enough money at the end of the month to pay for that, now let's just use a couple of examples, maybe you need a new battery for your car. Alright, well hopefully you have got enough at the end of the month that is not a major or large expense but what if you need a new washer or dryer or a new roof on the house, something like that. Those definitely will be major expenses, so the question is, do you plan ahead or are you saving for those. A lot of people say that this is my emergency fund or my rainy day fund, it is not. This is your capital savings fund or the money that you set aside or you have designated for these large purchases. It might be for a car, it might be for some sort of a toy like a boat or RV and motorcycle. Those things that you save for. [00:06:56] Now of course, we don't want you saving for those things and then go and pay cash. That is just you know taking a pile of money and getting rid of it, taking a pile of money and getting rid of it, we don't want to do that. So we have got special ways to do that especially through the banking system that we teach and again that is talked about quite a bit in our course. But the main thing is no matter how you end up paying for it, you definitely want to save for those large purchases, it is how you made that purchase in the end that is important. Alright so few points if you are saving for your large purchases or you have made your expenses. [00:07:35] The next one is, do you set and keep financial goals for yourself? Now, I have never really been a good goal setter, especially financial goals because I don't know why, they kind of drive me crazy. I certainly keep goals in my mind but I am not very good at just setting them on a regular basis but those that do find tremendous success. I have always been the one that just says look I know what I am going to be and I am going to get there and I just work for that but it is not bad to set some financial goals, we want to save this much, we want to invest this much, we want to be you know financially free at this stage in our life. So it is good if you can identify those things and set those goals and then stick to it, that is probably the hardest part. [00:08:31] The next is do you follow a budget each month? Again, this is probably one of my weaknesses, I have never been a good budgeter because I have always been buying and spending the least amount of money I can. My wife might actually refer to me as cheap or penny pincher. So budgeting has never been all that difficult because I am not a spender, I much rather save and invest and build additional wealth but many people need that, we need that, that says okay, I have got x number of dollars for cloths, for eating out and those kind of things and those are good to have because otherwise you can get a little bit out of control but the nice part is when you budgeted money for let's say eating out, you don't have to feel guilty, it was budgeted. It came after you put away some money, you put away your 10%, you have got all your bills paid, this is some fund money, I mean some reward money for all the work that you do. So there is nothing wrong with that if it is budgeted and that is where you spend it for a great. [00:09:43] What you don't want to do, oh I have got all this money and you go crazy and you buy things that you later going to regret. Alright the next one is do you shop around and compare prices before you make a major purchase? So how do you do on that if you are looking for a car, of you are looking something quite expensive, how far would you drive or compare prices before you make that major purchase and it is funny because you think about let's just take a $500 item, video camera, I don't know something. If you want to buy some of this $500 and across town you can save $50. Well that is a pretty good savings right, that is 10% off the price. But maybe you are buying something for $10 and it is selling for $9, that is still 10% off but at times, often times you think well that is just a buck. Whereas the other one is oh wow, that is $50. So I don't want to get you too worked up on making purchases but certainly when you are making those major purchases, well it is a significant amount of money, it is good to shop around and nowadays with online, boy you really shop and make sure that you are getting the best prices. [00:11:18] Did you know that there are some sites that I won't name but it is a big site, you can even put on some sort of alarm that if it hits, the thing you are trying to purchase hits a specific price you will be notifies. So, some ways to really save when making those major purchases. Okay, number A is, do you regularly check your credit report and you want to make sure you are checking your credit report, [00:11:57] that is easier to check but credit report is where you can go and see exactly what is being reported to the credit agencies, you probably had to check that, you know aggressively one to month and probably once or quarter, maybe every you know six month or so but go through it and see that you are getting credited when you make those payments because credit reports are often not wrong and you can write to the credit report correctly and get a lot of those things corrected and then of course had to eventually reflect your credit score. [00:12:37] Okay number nine, are you looking at your check-in account statement each month, are you reconciling, do you know where your money is going? I mean if you don't know where your money is going it is going to be really hard to track it. So make sure that those account statement are matching up with the bills and the cheques that you wrote or the payment that you made if you have done it all online. So at least at the end of the month, go jump online nowadays, you can just look at your account, look at your statement and see how you are doing. [00:13:09] And the last one which kind of brings me back to the first thing I said is are you trying to become more financially aware and educated on regular basis. Books, podcasts, videos, whatever that might be. You are listening to this podcast, that is awesome, becoming more financially aware, more control. You know we live in kind of a do it yourself culture, where you really can be your best financial advisers and it is critical that you understand this stuff so no other financial adviser who doesn't know what you are doing can take advantage of you because you know what is going on. You know what investments are, you know how they look, you know what fees do, all that good stuff. So be very financially aware and take some time, there are some great books out there, one day, I am going to make a list of some of the ones that I have read that really made an impact on my financial outlook. So those are the ten questions, how did you do, hopefully, you did at least fairly well, of each one of those were a point, that would be ten points total if you did everything perfectly. I would love to see you in the seventh to nine range at least on these things, so figure out what you can do better, what you can do in your family to have these principles put into practice so that you become more financially savvy that you become wealthy almost by accident through your savings. [00:14:43] Okay that's it, hope this was helpful, it is kind of fun to talk about. Don't get too depressed, implement what you can and take it from there. Alright, I will talk to you next week, any questions reach out to me [email protected]. Talk to you next week, take care.