Personal finance, investing, taxes, etc. is made out to be way more complicated than it needs to be.
My role is to simplify it and help people accomplish their goals.
So this week, I want to share 10 critical lessons that I wish everyone understand about personal finance.
Let's get into it:
1. Your income is your most important resource
People spend so much time talking about budgeting and lowering your expenses. And I get it, this can be somewhat impactful. You need to have your spending in check and you need to spend less than you make, but everyone has to spend money to live. There is only so much room to cut.
Your income though...that can be increased. Most of my recent clients are making well over $1mil a year and most of them were making only 10-20% of that 3-5 years ago.
How did they get there?
They put their head down, they grinded, they improved their skillset, and they grew their income exponentially from there.
This is more impactful at the end of the day than almost anything else.
Become really, really good at one thing and your finances will thank you later!
2. The next most important thing is building equity
The wealthiest people I work with got there in 1 of 2 ways:
Both work extremely well as those companies can grow rapidly. If you do not have either of these options, you are going to need to:
Regardless, investing is the most important thing you can do and the earlier you start, the better. Compounding starts slow then becomes incredibly impactful. Do not stop compounding!
3. Risk and concentration build wealth
I just somewhat hit on this, but traditional financial advice says to never own 10% or more of your wealth in one asset.
Ask any wealthy person...they will tell you they got there from concentration. Concentration brings on risk and can set you back a long time if that investment goes to $0.
However, it also can make you extremely wealthy. You need to understand this and make sure you are being wise.
But remember... concentration builds wealth, diversification preserves it.
4. Your wealth can be destroyed quickly
Most people think that they are safe once they build up some wealth, but this is not true.
Whether it’s from a car accident, liability claim against you, an investment going to $0, your business failing, etc. you can lose wealth. And you can lose it very quickly. You need to have the right protection pieces in place to ensure this never happens. Think auto, homeowners, umbrella, utilizing LLCs, etc.
5. Your income can go away quickly
I know a lot of people, and I mean a lot, who rapidly grew their income. My entire client base is filled with these types of people. Some have managed this well, and others, not so much.
For many, as their income grew, their expenses also grew just as fast, if not faster.
The problem?
The expense growth came from a home, car, private school, etc. All of these are fixed expenses.
Then... the worst thing happened to them. Their income dropped by 50%+ in a couple years and they were stuck. They had to make really tough decisions on selling their house, car, etc.
And selling a house now and moving to a lower cost house at these interest rates is a HUGE step backwards.
This is a situation you never want to find yourself in. And here's how you can avoid it. Don't raise your expenses right even with your income. Do it a couple years behind so you do not get caught up in this situation.
6. Simplicity wins
So many people get caught up doing the “complex thing.” They buy products they do not understand, get involved in investments that are extremely risky, and they try and get to 7 revenue streams cause they hears that is what millionaires do.
You do not need to do this!
So many of my people get pushed into a complex financial life before working with us. This leads to so many problems. It not only brings headaches but it also takes a lot of time and attention away from what you do best, earning!
Your energy is best spent in your business, your job, or whatever drives your primary income where you can really make serious money Do not worry about other revenue streams until you have built 1 great one.
7. You have to invest in financial knowledge
After working with extremely wealthy people, I have realized that there is not correlation between wealth and financial knowledge.
Wealthy people oftentimes know as little about money as someone with no wealth. The difference is they earn a really great income.
I cannot harp on this one enough. You have to spend time learning about personal finance and making sure you do the right things. This can be through reading, podcasts, blogs, courses and other independent research.
Or... you can hire someone like me to help educate you and make sure everything gets done on a yearly basis. You have to pick one of them if you want to have financial success.
8. Tax planning is incredibly impactful and controllable
For any high income/high net worth individuals, tax planning will get your the largest alpha. Investments are important, but you have way less control there as the markets are uncertain.
But tax planning, that is controllable.
The tax code exists and you can take advantage of all the best moves out there. There are so many business owners that come us and have never done any real tax planning. Just by doing things like:
They can and have saved $50k-$100k+ in taxes per year for people we work with.
It’s insane! Invest in good tax planning.
9. Understand money is just a tool
The people I have worked with who only focus on money and wealth are never happy. They always want more and the goalposts always move. Remember... money is just a tool. And it one that can improve your life, if you use it well.
The most successful people I know are doing things they love/interest them and they get the benefit of making a lot of money. This is a way better area to be in than just making a ton of money and being miserable till your retire.
Life is too short for it to be like that!
10. Learn how to spend money now
Many of the high net worth people we work with grew up in households were frugality was preached. It is usually because their family did not have a lot of income. This has made it really hard for them to spend money today even though they make so much.
At the end of the day, the goal is not to die with as much money as possible. So many believe that once they get older they will just flip a switch and spend more. I can promise yo this is not true. Most end up spending less as they are worried about running out of money. You need to spend time learning how to eliminate that guilt.
How do we help people do that?
We carve out the right amount of dollars for saving and investing then allocate the rest to spending. You can even set up accounts for travel, shopping, a new car, experiences, etc. and put the funds there monthly or annually.
This helps you spend because you see the money is there for that use case specifically.
But what if you are the opposite and you are not a good spender, meaning you spend too much?
Then you need to set up systems to ensure this does not happen. I have worked with plenty of people who no matter how much they make, they will spend every last dollar. Hard to be successful financially if this is you. Create a system where you save and invest right away, not at the end of the month!
These are 10 really important concepts that I think everyone needs to learn!
Financial Advisor