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Four Challenges to Building Wealth: Rules of Financial Institutions

In continuing our exploration of the four challenges to building wealth, we’re looking into the rules of financial institutions today. We’ve written at length before about how financial institutions operate to get and keep more of your money. Take the time to educate yourself on these behaviors and how they get hold of your money and keep your finances operating in their ecosystem. These are definite hurdles for your wealth, but these principles can be adapted so you can grow your own personal finance.

Treat Your Finance Like a Bank

One way you can apply the rules of financial institutions to your own wealth growth is to remove some of the “personal” from your thinking about personal finance. Think of your funds as though you are a bank:

You want your money

  • Banks want you in their ecosystem. They want you to keep your funds with them, as much as possible. Work to hold onto your money with the same dogged determination. Eliminate high-interest debts and reduce what bills you can.

You want your money systematically

  • Sure, automatic deposits are convenient and secure, but that systematic deposit is more fuel for the bank to use while they hold your funds. Use these systems to your advantage, but keep track of your automatic payments and deposits. Cancel those you don’t use and keep your money systematically storing away for the future.

You want to hold your cash for a long time

  • Your balance year-over-year should be a gradual march upwards. Holding onto your funds and committing to the security of that growth will provide your life the security and abundance you deserve.

You want to give as little away as possible.

  • You never know when you’re going to need your emergency fund. You never know when the opportunity to invest in your dreams will arrive. Keep your funds around for when lighting strikes- good or bad.

Know All of the Details

Do you know your accounts’ rate of return? What about the annual percentage rate? Do you know if your mortgage or other loans have a prepayment penalty? Banks and other financial institutions don’t enter into a financial agreement or partnership without knowing every detail, and neither should you.

The details you don’t know can be what leads to financial disaster. Take the time to read, know, and clarify the details that the banks love to hide in the small print – it can be eye-opening.

Make Your Money Do Multiple Things at a Time

Sticking all of your savings in one account doesn’t make sense. In today’s uncertain world, you need to use a diversified strategy to make your money work harder for you. Other methods of saving your money include:

  • An Emergency Fund: This should be kept separate from your main checking and savings account. Keep the funds hard to access to prevent impulsive use and take advantage of automatic transfers to keep it juiced up. Most experts recommend that you have 3-6 minimum of living expenses in your emergency fund.
  • Investment Accounts: Exchange traded funds and mutual funds are ways to invest your money in shares of companies’ stock. You’re buying a piece of their business, in the hopes that the performance improves and more value is generated for your account over time.  
  • Retirement Accounts: 401Ks, the now-rare pension, and IRAs are types of deferred-income retirement accounts. Different types have different tax-incentives, and each offer crucial ways to build your nest egg for eventual retirement.

If you can find ways to accomplish more than one thing with a dollar, you’re hitting the big leagues alongside those institutions that are too big to fail. Spreading your investments out amongst these different accounts helps shield you from market volatility that can eat your returns, as well as providing vehicles to achieve different goals with your money.

Don’t Accept the Status Quo

The real secret to making your personal finance work as hard for you as the banks’ treasury does? Arm yourself with ambition and an abundance mindset. Know that there is always another option to explore that can benefit you in different ways. Don’t accept the current situation or enter into lopsided agreements that offer no benefit to you. If you are not growing or improving in your current financial situation, or career, or hobby, or workout routine why stay there? The world is full of alternatives worth exploring until you find something that works best for you.  

Ready to conquer the traditionally lopsided relationships between individuals and institutions? Learn more about personal finance with us at JB Wealthfit.

3 Ways Successful People Think Differently About Life

Have you ever found yourself thinking:

I wish I could be as lucky as other people, and not have to struggle so much in life.

I wish my life was as easy as other people’s, and that I didn’t have so many problems.

I wish I had the opportunities other people have, then I could be much better off.

Reading them here now, would you say that you agree or disagree with them?

We’ve all been there – in those moments where we’re not happy with the spot we’re at in life. It’s easy to let these thoughts creep into your mind and overrun it. But, if you agreed with any of the statements above, or find yourself thinking similar thoughts regularly, then you are not thinking like a successful person.

You’re not thinking with an abundance mindset. Instead, you’re thinking with – and living trapped in – a scarcity mindset.

To see how a successful person would think about life, let’s break down each of the above statements from their point of view.

1. Scarcity Mindset: I wish I could be as lucky as other people, and not have to struggle so much in life.

Abundance Mindset: My mindset creates my  attitude, creates my behavior, creates my life.

Stephen Hawking was diagnosed with an extremely rare, slow-progressing form of ALS at the age of 21. He’s been bound to a wheelchair for most of his life. Since 1985, he’s had to speak through his computer system, and requires around-the-clock care. But, he didn’t let these setbacks stop him from becoming a world renowned theoretical physicist, and one of the brightest scientific minds of this century.

Helen Keller was born blind and deaf. She went on to become a teacher, author, and the first deaf-blind person to earn a bachelor of arts degree. Clearly, she wasn’t going to let her struggles hold her back.

Hawking and Keller overcame their struggles, because like all successful people, they understand that everything starts with your mindset. Your mindset creates your attitude, creates your behavior, creates your results, creates your life. It’s that simple. That’s why you have to change your mindset, to start thinking about your daily choices as either inching you closer to success or failure. Then, you can master how successful people think.

2. Scarcity Mindset: I wish my life was as easy as other people’s, and that I didn’t have so many problems.

Abundance Mindset: View obstacles as opportunities for success, and a chance to better yourself.

When I was younger, I used to look at successful people and think that they just got lucky. They never had to struggle through all the hardships and obstacles that I did. Life and success just magically came easy to them.

Successful people understand that some of your best learned life lessons come from your struggles. Instead of wishing for things to be easier, learn how to view every obstacle you encounter as an opportunity for success. Learn how to view your struggles as opportunities to learn something, and become better.

It’s important to remember that whatever you’re focused on in life is what will grow. So, rather than focusing only on your problems, you have to focus on the solutions. The only way to do that is to face your problems head on. Successful people are willing to do this – they don’t spend their time letting problems defeat them. They don’t spend their time waiting for luck to come find them.

3. Scarcity Mindset: I wish I had the opportunities other people have, then I could be much better off.

Abundance Mindset: You can create your own environment rather than being a product of your environment.

We’re taught to believe that we are destined to be a product of our environment. What we’re not taught to believe – and what took a long time to learn through my own journey – is that you can create your own environment.

The truth is, there are only two ways to change your life, 1) You take action and create a new environment that fosters your most important goals, or 2) You spend your time waiting for something new to come to you without working at it.

Nothing in your life will change until you take action. Every journey starts with taking a step – not thinking about taking a step. Successful people don’t wait for new circumstances to come find them. They don’t let themselves become a product of their environment. Instead, successful people make their environment a product of them.

Why Does it Matter to You?

The way you think about life, and what you do as a result, matters. If you have an abundance mindset, you will live and behave accordingly. If you have a scarcity mindset, you will live and behave accordingly.

You’ll either live the life you want, or you’ll settle for less.

Successful people think differently about life. They do things that seem to make no difference at the time, but yield big results after they compound over time. They write their problems down on paper, and treat them like equations they must solve. They keep trying, until they succeed.

If there are no problems, struggles, or obstacles in your life, you’re not growing. And if you’re not growing, you’re dying. You can’t give in to defeat. You can’t spend your time wishing things were easier, that you were luckier. Instead, spend your time determined to make yourself better. Refuse to let a scarcity mindset defeat you, so that you can live the life you want.

10 Tips That Will Help You Get (and Stay) Financially Fit

While swimsuit season may be ending, financial fitness stays trending year-round. According to a recent study, “save more and spend less” was the top New Year’s resolution for 2017. In fact, financial resolutions have cracked the top five year over year, and hold steady behind losing weight.

So, why aren’t we all walking around with smaller waist lines and larger wallets?

Well, because maintaining financial health requires a lifestyle change – just like maintaining your physical health. The changes you make to get yourself on the right path need to become positive lifetime habits that are part of your daily routine.

10 Tips That Will Help You Get (and Stay) Financially Fit

Here are 10 tips to help you get started living the life you want:

1. Know your “why” behind money. Your specific reasons for working, investing, spending, and saving. If you don’t have that figured out, you don’t have anything to fight for. You can’t live intentionally with your money, because there’s nothing guiding your behavior.

2. Set goals and assess them regularly. Three years from now, what has to have happened for you to feel successful, both personally and professionally? From your answers, pull out your top five goals – and write them down! Categorize them into short, medium and long-term goals. You can also use the SMART method to help you define your goals further:

  • Specific – Don’t set broad goals.
  • Measurable – Track your progress.
  • Assignable – Take personal accountability.
  • Realistic – Only do what you know you can do.
  • Timeline – Give yourself a deadline.

Related: 5 Goal Hacks to Help You Achieve More

3. Know your expenses. Between lifestyle creep and fixed expenses, most people don’t fully grasp how much they’re spending. Every year, you should sit down and reevaluate your expenses versus your income – no matter how much money you make. That way, you can gauge your spending habits, and see where your money is being allocated. This can help keep your net worth out of the red.

Related: Why High-Income Earners Are Living Paycheck to Paycheck

4. Know your current financial position. To be able to get where you want to go, you have to understand where you are today. You then have to be able to optimize your current financial position as your information changes. Without being able to see your entire financial life in one place, and evaluating how everything is working together, you may not end up living the life you want.

5. Avoid drastic changes. Crash diets aren’t solutions for long-term success. Rather, slow and steady wins the race. Identify all the changes you’ll need to make to reach your goals, and work through them gradually. This way, your focus is on creating lifetime good habits – not clicking the instant button.

LIFE HACK: Saving 1% more of your income each year is a small change that can produce big results down the road.

6. Tune out the noise. There is more financial noise than ever in our media today. That’s why you need to adhere to a disciplined, rules-based approach to your financial life, based on your most important values. Like Warren Buffett said, “Market forecasters will fill your ear, but never your wallet.”

Related: Investment Noise: Know It and Forget It

7. Make sure your financial strategies align with your most important values. The only constant in life is change. As your life changes, your strategies should then be updated based on what matters to you most at this moment in time.

Related: Do Your Financial Actions Support Your Most Important Values?

8. Know the difference between risk and volatility. Risk simply means the probability that your investment will lose money. It has no direct effect on your returns. Volatility is the amount of fluctuation a portfolio can experience. The higher the volatility, the more erratic your compound returns can be. Volatility is one of the biggest wealth eroding factors you’ll encounter. That’s why you have to mitigate it.

Related: Volatility Gremlins Are Killing Your Bottom Line

9. Practice cost and tax management. Investing costs and taxes matter – they can erode your returns just as much as volatility. Your strategy should work to lower the cost of expense ratios and be tax efficient. Remember that a good advisor can be worth a reasonable fee. Just be sure they’re providing you with value-based solutions, not selling you products.

10. Create an Investment Policy Statement. Even the best investors can get nervous when the market moves. But when the market moves, you need something that reminds you why you’re invested a certain way – that reminds you of your most important values, and stops you from making poor decisions. That’s when you pull out your IPS. If an investment decision doesn’t meet this criterion, you shouldn’t invest in it.

Related: The Best Way to Guide Your Investment Decisions

Why Does It Matter to You?

Being able to live the life you want is the ultimate goal. But, let’s take that one step further – being able to life the life you want, at every stage of life, is the ultimate goal. That’s why maintaining your financial health is so critical. Not only will it ensure that you remain optimally positioned for success today, but it can increase your chances of success in the future.

Compound Interest – Myth or 8th Wonder of the World?

Einstein is credited with saying compound interest is the 8th wonder of the world. While I’m nowhere near as smart as Einstein, I have good reason to believe there is only partial truth in his statement. Specifically because of two myths surrounding compound interest that we will discuss here.

Myth #1: I will earn 7% consistently.

Mathematically, the power of compound interest is incredible. The financial industry consistently tells you to save early, save often, save (then invest) as much as you can. At an annual growth rate of 7%, you will be a millionaire at retirement. You’ve seen the graph. Just save a little each pay period, and it will growth exponentially. And they’re right…to a point.

To maximize the effects of compounding interest, two elements must exist: 1) Time. 2) Consistency.

To get the exponential growth Einstein was referring to takes years. How many years? Most likely 20+. If you are in your 20’s and methodically saving for retirement, compounding works in your favor. If you are 55 and want to retire in 10 years, it won’t help you. Most people don’t realize this until it’s too late.

Another big problem with compound growth is figuring out where you’ll get that consistent return. Interest rates are near zero and bonds aren’t returning anywhere near 7%. The stock market is the only place to achieve an annual growth rate of 7%. At least that’s what the market has delivered over the past 20 years. But does that mean you’ll get a 7% compounded return? Probably not…but, why?

The type of compounded return from the market is only seen over very long periods, at least 20 years or more. So, for long-term savings like a 401k, you can expect to achieve this type of growth as long as you leave it there. The problem is when you have to take distributions on that account. You never know what the market will be doing at that time. If it’s in a bear market, you better have another source of funds to draw from, otherwise you’ll start eating principle. This is called sequence of returns risk. You can see the grand fluctuations in the chart below.

Myth #2: It’s easy to withstand wild market fluctuations.

The other problem is whether you have the stomach to weather large drawdowns. Large, and even not-so-large, market drawdowns have a direct impact on your ability to compound returns. In the early 2000s it took several years just to get back to even. In 2008 there was such a drop that many investors sold out, just in time to lock in big losses. Withstanding wild fluctuations over a 20-year plus period is hard, very hard. You have to be true to yourself to know if you can handle it. Otherwise you’ll never see compounded returns from the market.

Why Does It Matter to You?

These are big issues for our clients. Many of whom are entrepreneurs or business owners who’ve made great sums in their businesses. While they still want to grow their investments, the overriding goal is Warren Buffet’s two rules of investing: 1) Don’t lose money. 2) Never forget rule #1.

To help our clients accomplish this we use rules-based trend following strategies. Our strategies use trends to capture upside momentum, as well as trying to limit drawdowns. This provides downside risk management with upside market potential. By providing a smoother investment ride, our investors are more likely to stick with the strategy long-term. That’s when they have a better chance to capture impressive compounded returns. That’s when they have a better chance of reaching their full financial potential.

Why High-Income Earners Are Living Paycheck to Paycheck

A six-figure income can go a long way in easing financial stress. But unfortunately, it doesn’t eliminate the risk of living paycheck to paycheck.

It’s easy to associate those who make a modest salary or work in a low-paying job with a “paycheck to paycheck” lifestyle. But, a study from Nielsen Global Consumer Insights is changing the game. The study found that one in four families making $150,000 or more are living a similar lifestyle.

Lifestyle Inflation: The Rich Man’s Kryptonite

There’s a concept that even some wealthy people have trouble understanding – it’s not how much you make that matters, but how much you spend that matters.

If you make $500,000 a year, but your annual expenses total $450,000, you’re completely maxing out your lifestyle. Doing this means that you will never reach your full financial potential. That’s because you’re eroding 90% of your money just as fast as you’re making it.

High-income earners routinely suffer from lifestyle inflation. I’ve seen it happen more times than I can count – people start earning more money, and in turn, slowly start upgrading their lifestyle. Before they know it, lifestyle “creep” has sprinted out of control and has them completely handcuffed.

Lifestyle inflation generally goes toward things that don’t bring much value to your family’s financial life, either. This means things like expensive homes, cars, traveling, and just plain old foolish spending. It’s great to have and do all these things, but what’s not great is winding up house poor and car poor.

A better use for that excess money would be to invest in yourself, or in your most important financial goals.

Related: The 12 Boring Secrets to Getting – and Staying – Rich That Millionaires Won’t Tell You

Wealth Erosion Overload

Buying “things” are only the start of lifestyle inflation. They’re the roots that sprout all the other eroding factors.

For example, say you buy a home worth $1.2 million. Pile on top of just that the mortgage, property taxes, utilities, and general upkeep, and you could easily add another $50,000 to your annual expenses. Expensive items aren’t only expensive to buy, they’re expensive to own.

Owning expensive things is an easy way to erode your income. Then, consider all the other eroding factors on top of this that you’ll encounter – economic inflation, taxes, lost opportunity cost, planned obsolescence, and more.

Related: 3 Dangers of Ignoring Your True Cost of Living

Be Reasonable, Not Lavish

So, how can you avoid finding yourself in this very situation?

Simple – live reasonably, not lavishly.

This is something that I try to instill in all my clients, even the wealthy entrepreneurs that I work with. Actually, this mantra is probably more important for them than anyone, because they have the most to lose.

Now, I’m not saying that I expect you to live in a tiny home, drive an old, beat-up car, never take a vacation, and never purchase something that you want. There’s absolutely no shame in indulging – I’m all about working hard, playing hard, and being able to enjoy the finer things in life.

After all, the goal is to be able to live the life you want.

But to do that, you have to abide by some simple rules to ensure that happens. These include spending less than you make, paying for things in cash rather than financing everything you own to make a purchase, not racking up high-interest debt, saving at least 15% of your income, protecting yourself and your assets, and remembering that slow and steady wins the race.

Related: 15 Common Sense Money Principles That Will Change Your Life

There’s something very important that I’ve learned from coaching clients over the last 14 years – the ones who understand that it’s the simple, boring disciplines that hold the secrets for getting and staying wealthy, are the ones who reach their full financial potential.

Why Does It Matter to You?

Living paycheck to paycheck is a possibility for anyone – whether you make $50,000 or $5 million. That’s why, as your income grows, you have to control lifestyle inflation before it controls you.

Living the life you want requires a balancing act between growing your wealth and smart wealth management. You should always be thinking with an abundance mindset, but in the right way. It’s not about how you can use your money to buy lots of things. It’s about how you can use your money to create opportunities that allow you to grow, to help you live intentionally with your money, and that put your resources to work for you. That’s how you reach your full financial potential.

20 Life Lessons from Byron Wien That Will Make You a Better Person

Byron Wien has a career that spans decades on Wall Street, and has built himself a prestigious reputation in the process. Born in the Depression era, Wien became a teenage orphan when both of his parents died before he was 14. But, he didn’t let life’s bad breaks defeat him. Wien would go on to attend Harvard University, where he graduated with a Master’s Degree.

He first entered the financial industry by working for Morgan Stanley in 1984, and eventually became the company’s top investment strategist. Today, he is the Vice Chairman of Blackstone Advisory Partners.

So, who better to take some life lessons from? I read the original article a few years ago when Blackstone first published it. I came back across it recently, and it resonated with me just as much as all the other times I’ve read it. The wisdom Wien provides in the article is simple, but invaluable. That’s why I wanted to share it with you.

Here are Byron Wien’s 20 life lessons he’s learned in his 80+ years:

1. Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it.  What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end.  If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time.

2. Network intensely. Luck plays a big role in life, and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books, and emails to people to show you’re thinking about them.  Write op-eds and thought pieces for major publications.  Organize discussion groups to bring your thoughtful friends together.

3. Treat new people like old friends. Assume he or she is a winner and will become a positive force in your life. Most people wait for others to prove their value. Give them the benefit of the doubt from the start. Occasionally you will be disappointed, but your network will broaden rapidly if you follow this path.

4. Read all the time. Don’t just do it because you’re curious about something, read actively. Have a point of view before you start a book or article and see if what you think is confirmed or refuted by the author.  If you do that, you will read faster and comprehend more.

5. Get enough sleep. Seven hours will do until you’re sixty, eight from sixty to seventy, nine thereafter, which might include eight hours at night and a one-hour afternoon nap.

6. Evolve. Try to think of your life in phases so you can avoid a burn-out. Do the numbers crunching in the early phase of your career.  Try developing concepts later.  Stay at risk throughout the process.

7. Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life.  See them when you return to a place.

8. When you meet someone new, find out a formative experience that occurred in their life before they were 17. It is my belief that some important event in everyone’s youth has an influence on everything that occurs afterwards.

9. Use philanthropy to relieve pain rather spread joy. Music, theatre, and art museums have many affluent supporters, give the best parties and can add to your social luster in a community. They don’t need you. Social service, hospitals and educational institutions can make the world a better place and help the disadvantaged make their way toward the American dream.

10. Younger people are naturally insecure and tend to overplay their accomplishments. Most people don’t become comfortable with who they are until they’re in their 40’s. By that time they can underplay their achievements and become a nicer, more likeable person.  Try to get to that point as soon as you can.

11. Take the time to give those who work for you a pat on the back when they do good work. Most people are so focused on the next challenge that they fail to thank the people who support them. It is important to do this.  It motivates and inspires people and encourages them to perform at a higher level.

12. When someone extends a kindness to you write them a handwritten note, not an e-mail. Handwritten notes make an impact and are not quickly forgotten.

13. At the beginning of every year, think of ways you can do your job better than you have ever done it before. Write them down and look at what you have set out for yourself when the year is over.

14. The hard way is always the right way. Never take shortcuts, except when driving home from the Hamptons. Short-cuts can be construed as sloppiness, a career killer.

15. Don’t try to be better than your competitors, try to be different. There is always going to be someone smarter than you, but there may not be someone who is more imaginative.

16. Always take the job that looks like it will be the most enjoyable. If it pays the most, you’re lucky. If it doesn’t, take it anyway, I took a severe pay cut to take each of the two best jobs I’ve ever had, and they both turned out to be exceptionally rewarding financially.

17. There is a perfect job out there for everyone. Most people never find it. Keep looking.  The goal of life is to be a happy person and the right job is essential to that.

18. Always find someone younger to mentor. It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process.

19. Every year, try doing something you have never done before that is totally out of your comfort zone. It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone. This will add to the essential process of self-discovery.

20. Never retire.  If you work forever, you can live forever.  I know there is an abundance of biological evidence against this theory, but I’m going with it anyway.

Should You Invest or Pay Down Debt?

Have you ever found yourself asking this very question, wondering what to do next, and what the best option is for your financial success? Don’t be embarrassed if you have. I would dare say that you’re in good company, given the fact that Americans collectively owe $1 trillion in credit card debt. In fact, the question of whether to invest or pay down debt is one that I’m asked frequently by clients.

Logic is Always 20/20

Trying to tackle debt while still trying to save and invest can be tricky. But, when you think in terms of pure numbers, pure logic, the answer to this question is actually pretty simple. Ask yourself which number is greater, the return on your investment or the interest you’re paying on your debt. If you’re paying more interest than you’re earning, paying off your debt is the smarter choice.

Here’s one way I explain this to people when they ask me whether they should invest or pay down debt:

If you eliminate debt that you’re paying 15% interest on, that’s a guaranteed 15% return in your pocket. If you invest, you may have the possibility of earning 10%. So, what’s better for you to capture right now – a guaranteed 15% return, or a possible 10% return?

Numbers and logic make this a no-brainer. But it’s not always that simple, because money is emotional.

The possibility of earning big will usually tug at your heartstrings harder than paying off your debt. Plus, saving into your investment account gives you a sense of future security and accomplishment. Paying bills is stressful and not what you “want” to do with your money.

Related: The 6 Most Common Bad Investing Behaviors to Avoid

Good Debt vs. Bad Debt

To be able to truly answer the question of whether you should invest or pay down debt, you have to understand all of its components.

That includes categorizing your debt into good debt and bad debt, and understanding how they affect you. This is the first step in creating a debt strategy that works for you.

Here’s a basic guide to help you discern what portion of your debt is good and what portion is bad:

Bad Debt (credit cards, car loans, unsecured loans, etc.):

  1. It has high interest rates.
  2. It’s not tax deductible.
  3. It’s not attached to appreciating assets.

Good Debt (mortgage):

  1. It has low interest rates.
  2. It’s tax deductible.
  3. It’s attached to appreciating assets.

Good debt is an interesting topic. It’s worth pointing out that most private equity and real estate firms build their empires by leveraging almost everything they have. People do this in a similar way. Why wouldn’t they, given that the market and other appreciating assets are out-earning the current interest rates?

For instance, the ticker SPY for the S&P 500 has returned 7% for the last 20 years. In comparison, our all-equity ETF portfolio has an average back-tested return of a little more than 9%. That means in 20 years, $10,0000 becomes $58,474.

Related: Protecting Your Portfolio Against Market Downturns

Your 4-Step Action Plan

Given all the factors we’ve discussed here, there’s probably one thing you’re thinking right about now – Great, but where do I start?

You should start with the following four-step action plan. We use this with our clients, and strive to approach their financial life in the following way:

1. Build core liquidity. You should have a minimum of 3-6 months in liquid cash. It would even be wise to have 6-12 months of near-liquid assets on hand as well.

2. Eliminate bad debt. Again, that would be any substantial amount of short-term debt that may have high interest rates.

3. Save 15% of your salary. With $1 trillion in credit card debt weighing on Americans, it’s no wonder that the average savings rate has plummeted to just under 6%. But if you can’t save, everything else has to work harder to pick up the slack. A healthy savings rate of at least 15% is critical to reaching your full financial potential.

4. Invest. Investing is critical to your success, but should only be done when you’re in the right position to do so.

5. BONUS! Have an ideal mortgage to income ratio. Your mortgage payment should be no more than 15% of your gross income. Otherwise, you may wind up house-poor down the road.

This action plan takes a “priority and combination” approach to your financial life. Put simply, this approach focuses on securing your liquid safety net first, paying off bad debt, and finally investing. Once you have your core liquidity built up, you can then use your 15% savings to accelerate your debt pay off. I recommend this approach because it allows you to pay off your debt, and eventually invest, while still being able to adapt to life’s changes.

In other words, you’re not completely sacrificing one important element (i.e. savings) just to take care of another (i.e. paying off debt).

Related: 15 Common Sense Money Principles That Will Change Your Life

Why Does It Matter to You?

Numbers make the answer to whether you should invest or pay down debt pretty simple – if you’re paying out more than you’re earning, investing may be an act in futility for you right now. But as we’ve shown here, that’s not all this question asks you to consider.
This question is about more than just numbers – it’s about prioritizing your financial life in a way that makes your money work for you. A way that makes your money work as efficiently as possible. That means having six months of liquid cash built up, paying off any substantial bad debt, and then investing. There’s no one-size-fits-all timeline for the action plan we’ve outlined here, either. However, it’s important to remember that the longer you delay investing and compounding your savings, the less time your money has to grow. That can mean a diminished lifestyle in retirement.

When you look at the big picture, debt directly affects your ability to save, invest, and ultimately live the life you want. Start tackling it now, and you can find yourself much better off in the future.

7 Principles That Will Protect Your Finances From “Life”

There are only two things that we can know with absolute certainty in the world of finance – your current financial position, and that your life will change. That’s it. Anyone who tries to tell you any different is lying. Despite your best efforts, you can’t predict, or even “plan,” for an unknown future. All you can do is take what you know, and use it to your advantage.

The Problem With Planning

Traditional planning is based on the premise that your life, your future, is linear. It then uses stagnant inputs and assumptions about tomorrow, to try and formulate a bullet-proof plan for success.

Here’s the bad news – your life isn’t linear. It’s not stagnant. If you plotted your life up until this point on a graph, it more than likely won’t yield a beautifully straight line. That’s because stuff happens, and when it does, it can cause your life to swing one way or the other. Your life is always in motion – it evolves through time. It’s dynamic, and therefore can’t be addressed by a static plan.

A static plan has little wiggle room when your life “chart” experiences fluctuations. But, your life will swing, I can promise you that. It won’t always be linear.

That’s precisely why traditional planning is flawed.

Life Events That Can Change Your Financial Situation

Here’s a quick-list of those big milestones that can cause your life to fluctuate:

1. Marriage.

2. Having a child.

3. Changing jobs.

4. Job loss.

5. Divorce.

6. Death of a spouse.

These events have different implications – some of them positive, some of them negative. Unfortunately, the negative ones can hit you out of nowhere. It’s usually not until this happens that you realize just how vulnerable your life’s work was. At this point, there’s typically little you can do about it other than stomach the blows.

On the other hand, you want to be able to take advantage of opportunities when they present themselves. These include things that can advance your life or make it more complete, like a new and better job, getting married, having children, or starting your own business.

To do both, to mitigate the financial heartache from the negative swings and capitalize on the good from the positive swings, you have to be optimally positioned to effectively react to your life as it evolves.

7 Principles That Will Protect Your Finances From “Life”

So, how do you do that? How do ensure that you can handle “life” when it happens to you? You adhere to these seven principles:

1. Practice financial positioning. This is the overarching principle to apply to your financial life. The others are gravy on top – but still extremely important. If planning is broken, you need something else. Financial positioning focuses on optimizing your current financial position. It manages your changing information as your life evolves, stress testing your current strategies against it. You can then keep yourself positioned to effectively react and adapt to life’s curve balls – whether positive or negative. The result? An increased ability to live the life you want.

2. Be engaged. You should regularly review your financial strategies, and be instrumental in implementing them. Make sure you understand what is being done on your behalf, and that you know what you have and where it is.

3. Align your financial strategies/behaviors with your most important values. Values should play the same role in your financial life that they play in your daily life – they should guide your decisions making. This keeps what is most important to you at the heart of your financial strategy.

4. Define your “why” behind money. What’s your reason for working, investing, doing everything you do? What does money mean to you? What does it enable you to do? Until you define this, you have nothing to fight for. Your “why” will guide your decision making, and help you live intentionally with your money.

5. Protect your life’s work. Your life’s work means nothing if it’s not protected from everything that can destroy it. You must protect yourself for your full economic value – this includes material assets like your home, and your most important asset, you.

6. Save at least 15% of your income. If you can’t save your money, everything else in your financial life will have to work harder to pick up the slack. Maintaining core liquidity is key to reaching your full financial potential.

7. Create an investment policy statement. This document puts your investment philosophy and strategy on paper. Essentially, it helps you understand where your money is, what it’s doing, and why it’s where it is and doing what it’s doing. Every time markets rattle you, pull out your IPS and remind yourself why it’s important to stay disciplined. If an investment doesn’t meet the criteria stipulated here, you shouldn’t invest in it.

Why Does it Matter to You?

Being able to effectively prepare for and respond to “life” is of the utmost importance.

Your success isn’t dependent on how much money you have. You can have all the money in the world, but it doesn’t mean anything if it can be wiped out should your life change. Rather, your success is dependent on your ability to effectively react to life as it happens around you – on whether your strategies can adapt to your current financial position as it continues to evolve.

Which brings us back to financial positioning – the principle that encompasses all the others. This method takes a comprehensive view of your financial life, from your assets and liabilities, to your protection and cash flow. Once you have that real-time picture of your current financial position, you optimize it based on new information, as your life evolves. This is the approach we take with our clients.

Life is messy and unpredictable. You can’t plan for a future you know nothing about. Therefore, you need a dynamic method for reaching your full financial potential that uses these facts to your advantage.

How to Create Super Effective Meetings in 6 Easy Steps

Maybe you know the feeling – you wake up on Monday morning, energized and ready to take on the week. You roll into the office with a little pep in your step and favorite coffee in your hand. Then, at 9:00, you find yourself in the most boring, monotonous meeting possible. Your energy is instantly drained, your eyes glaze over, and your brain tries to be anywhere else but in that room. Your attitude for a super-productive Monday just got crushed. All thanks to an inefficient meeting.

This was exactly my experience every single Monday morning during our team meeting.

We had the same problems that so many companies do when running meetings. Our team meeting wasn’t structured in a condensed format, we weren’t reviewing only hot topic items, reporting was lackluster, there was constant conversation of who was owning what tasks, and they drug on and on. Sometimes for more than two hours.

After that, I was completely checked out. My employees could see it in my eyes, and I could see it in theirs – we were in a Monday morning meeting rut. We had to get out of it – fast.

A New Method: The Level-10 Meeting

I began researching methods that could help us, and came across this video. It explained the Level-10 Meeting methodology, created by the Entrepreneurial Operating System (EOS).

EOS would ask the entrepreneurs and owners in their group to rate the effectiveness of their current meetings. On average, they would rate them a 4. I probably would’ve rated ours right around there as well.

So, EOS developed a formula for creating a Level-10 Meeting – a meeting that you would rate as a 10 on the effectiveness scale.

This method has turned out to be our company’s saving grace. If you’re in a leadership position and find yourself struggling to get the results you want from your meetings, this method could be yours as well.

Our meetings now take less time and are more productive than they have been in the last decade. So, I want to tell you more about it, in the hopes it may help you implement your own Level-10 Meeting.

The Pulse of an Effective Meeting

The Level-10 Meeting methodology teaches you the importance of time management. You learn how to be the most efficient in the shortest amount of time, so that you’re never sacrificing quality.

To do this, you have to understand and adhere to the pulse of an effective meeting:

  • Same day.
  • Same time.
  • Same agenda.
  • Start on time.
  • End on time.

Every meeting should have this exact pulse, every time. This is the first step on your journey toward a Level-10 Meeting.

The 6 Components of Your Level-10 Meeting Agenda

The structure of EOS’s Level-10 Meeting will be the foundation for your own meeting agenda. This should be a document that one person on your team manages, and brings to every meeting.

Your agenda will be made up of six different parts:

1. Start on time. All involved team members should be in the meeting room five minutes prior to the scheduled start time. This has been key for us in making sure our meetings actually start at 9:00 sharp.

2. Positive focus. We always start our team meetings with positive focus. Each person in the meeting shares their big positive from last week. I encourage my employees to share both a professional and personal positive focus. This is what brings the human element to our meetings, and helps us grow closer as a team. It’s a great way to start your meeting on a positive note – get it?

TIME ALLOTED: 5 minutes.

3. Reporting mode. This is the part of the meeting where you make sure that everything in your business is on track. You’ll use the following three reports to examine your numbers, priorities, and people:

  • Scorecard. These are the hard numbers in your business. For us, we use our scorecard to track our assets under management and life insurance. This gives us a clear vision of exactly how much new business we’ve closed, and what’s in our pipeline.
  • ROCK review. Your ROCKS are your company’s top goals for the year. In this report, you’ll review these ROCKS, and evaluate whether your current numbers have you on track to meet them.
  • Customer and employee headlines. Knowing what’s going on with your customers or clients is important. We like to send piggy banks to new parents, congratulate our clients on big accomplishments they make, and send cards or gifts for newlyweds, retirees, etc. This is also a great time to give recognition to an employee’s hard work.

During the reporting section, you’ll come across items that warrant further discussion. Write them down and save them for the next portion of the meeting. This section should be pure reporting – no discussion allowed!

TIME ALLOTED: 15 minutes (5 minutes for each report).

4. Review last week’s to do list. This list should be part of the meeting agenda itself. Your to do list items are seven day action items. Every week, things should be going on and coming off, with 90% of the to dos coming off every week.

TIME ALLOTED: 5 minutes.

5. Identify, Discuss, Solve (IDS). This should be the longest part of your meeting. Here, you expand on all those things that came up in the reporting part of the meeting. Prioritize the issues you wrote down in order of importance. Then decide what the real issue is. For instance, if internal communication is a sore spot for you, is it really that no one is talking to each other? Or could it be that people aren’t utilizing your CRM correctly?

Once you identify the issue, discuss it openly. Garner feedback from key team members who are affected by the issue.

Finally, solve the issue. Once a resolution has been agreed upon, it then goes on the to-do list and a task is created for it.

TIME ALLOTED: 60 minutes.

6. End the meeting. By now, it should be right around 10:25, and you should start wrapping up your meeting. Take five minutes to recap your new to-do list, and assign tasks. Also, have everyone rate the meeting. Your minimum goal is to be consistently rating your meetings at a level 8, with the ultimate goal being a level 10.

Then, end your meeting at 10:30 sharp.

Why Does It Matter to You?

As a business owner, running effective team meetings was one of my biggest challenges. I feel like it’s a big challenge for anyone in a leadership position.

How many times do you leave a meeting thinking, “What was the point of that?”, or “Why couldn’t you have just emailed that to me?” Most of the time, your team has one day out of the week where they can all come together. So, you need to make that 90-minute window as productive as possible.

No longer do Monday morning team meetings crush my attitude for the day, for the week. Now, they help add a little extra energy. I walk out of them feeling like I have a clear vision of exactly where our company stands, and I may have only added one or two quick things to my plate. I don’t feel overly burdened.

Following the Level-10 methodology has worked wonders for our team. Be sure to watch the video and start creating yours.

9 Things Successful People do Before 8:00 AM

Successful people are a rare breed. They’re willing to do what others are not, and they know the importance of practicing good habits daily. In fact, they’re almost obsessive about it. While you may think they’re crazy, they know adhering to these simple daily disciplines is what makes their day super productive. For most successful people, one of their most important daily disciplines is their morning routine.

The morning is one of the most important times of your day. I don’t know about you, but I’m much sharper at 7:30 in the morning than I am at 3:30 in the afternoon. That’s my time before swimming through a flooded email inbox, putting out fires, meeting with dozens of clients, and running a company.

That’s why it’s so important to make the most of your morning. You need to craft a routine that sets you up for successful day – that gets you motivated, energized, and feeling like you’ve accomplished something before you even step foot in the office. Otherwise, how is your attitude going to be for the rest of the day?

Supercharge Your Morning Routine: 9 Things Successful People do Before 8:00 AM

I took the time to perfect my morning routine. I learned what other successful people did with their mornings, and modified them to fit my lifestyle. This is the one daily discipline I try to stick to as much as possible. Although sometimes, “life” does get in the way. But I’ve realized that on the mornings I follow it, my day is much more productive.

To help you find inspiration for crafting your ultimate morning routine, I want to share mine with you. Here are nine things that successful people do before 8:00 am:

1. Get up. A common denominator among successful people is that they’re early risers. Forming this habit can be hard at first, but if you stick with it, it will become second nature. Waking up early ensures that you’ll maximize your morning routine, because you’ll have more time to do it. You’ll have more “you” time, which after all, is the whole point of your morning routine. However, it’s important not to sacrifice your sleep simply to wake up early. Make sure you get at least 7 hours of sleep at night. Not only is it important for your health, but it makes getting up early easier to do.

2. Learn something new. It’s easy to forget about this important ingredient in the formula for success. Luckily, the morning is the perfect setting in which to work on your personal development. Mornings can bring peace and quiet, before the kids wake up and the noise from the daily grind starts. Take advantage of your morning by using it to read 15 pages of a good book, catch up on your favorite blog, or read the latest article written by one of your mentors. (LIFE HACK – If you exercise on a stationary machine like a bike, treadmill, or elliptical, reading is a great way to make the time go faster.)

3. Exercise. If you’re like me, when I come home, I’m in family mode. The kids have activities to get to and homework to do, and I want to spend time with my wife. The last thing I want to do – let alone have time to do – is exercise. That’s why the morning is one of the most ideal times to get your work-out checked off your list. Not only that, but exercise is proven to boost your mental functioning, energy and improve your mood. A morning workout can mean more energy and clarity during the day. Plus, your health is important – make it a priority, even if you can only spare 20 minutes.

4. Prioritize your tasks/goals for the day. Think about what you have on the agenda for the day. What are your important “must dos?” One of the first things I do in the morning is write down my priority actions for the day. I know that even if I only get those things done, I still had a productive day. This helps you walk into your day with a game plan, and prevents you from getting lost in things that can detract from your productivity.

5. Write down one thing you’re grateful for. Keeping a positive outlook on life, being successful, it all starts with gratitude. It’s easy to get caught up in the negative – to only see the problems, or what could be when you look at your life. It’s important to consciously stop and remind yourself of all the good things you have in your life. Keep a gratitude journal, and every morning, write down one thing that you’re grateful for. It doesn’t need to be complicated. Then at the end of the year, you’ll have identified 365 things that you’re grateful for. Sounds like the foundation for a happy life to me.

6. Don’t look at your phone. One of the biggest mistakes you can make in the morning is waking up and immediately looking at your phone. Checking emails, looking at social media, are things that can throw off your morning routine. Remember, this is your “you” time – it’s okay to shut the rest of the world out for a few hours. But if you’re one of those people who just can’t resist the glow of your screen, try to modify when you check it. Set yourself a time limit, and say that you’re not going to check your phone until 7:30.

7. Eat breakfast. Breakfast is the most important meal of the day – in case you haven’t heard that before. I’ll be the first to admit I always struggle with this one. But, making sure that you eat breakfast is almost like working out. It can boost mental functioning, energy and focus throughout the day. It’s also proven that people who eat breakfast eat less during the day, and tend to weigh less than people who don’t. Even if it’s a quick protein shake or breakfast smoothie, try and squeeze it in.

8. Cross one thing off your personal to-do list. Sometimes, finding the right work life balance can be difficult. This is another instance where your morning can be useful. Take this time to try and cross one thing off your personal to-do list – whether it’s to get that week-old laundry put away, spend time with your spouse, take out the trash, or empty the dishwasher. Knowing that you can go home at the end of the day without a million things to do around the house can be great for productivity.

9. Finally, get to work. Now, it’s 8:00. It’s time to work – to step out into the world, answer emails, take phone calls, and grind.

Why Does it Matter to You?

Sticking to a morning routine means you’ll be practicing habits that foster good health, higher productivity, and the ability to handle situations thrown your way during the day.

By no means is the routine I’ve laid out here the end all be all solution. These are simply common denominators I’ve found in the morning routines of other successful people I admire. I then built a routine I could apply to my life.

Your morning routine will be unique to you. Maybe nighttime is the best part of the day for you to exercise. Maybe you like to start working at 7:30. Maybe you read on your lunch break. Whatever your simple disciplines may look like, the point is to make a morning routine that fits with your lifestyle, and that you can stick to. That ensures you’re practicing good habits from the moment you wake up, and that your day will be as productive as possible. It may take a few attempts to find what will work best for you, but once you find your groove, the positive impact it can have on your entire day is incredible.

15 Common Sense Money Principles That Will Change Your Life

The game of reaching your full financial potential is 70% behavior. Successful people practice good habits, every day, for their entire life. They’re willing to do what others are not. Successful people also live intentionally with their money – meaning they use their money to live life on their terms and conditions.

That’s really what the secret “formula” boils down to. How you behave, and the choices that you make every day. Those choices are what determine your success.

You see, how to find financial success isn’t some huge secret or algorithm that takes expert-level knowledge to crack. If you were to ask a wealthy person how they got there, you would probably be shocked at how simple their answers are. You’d probably leave the conversation thinking, “Heck, even I can do that.”

And you absolutely can. That’s because much of what successful people do when it comes to money is simply abide by common sense principles – many of which I’m about to share with you here.

Here are 15 common sense money principles that will change your life:

1. Spend less than you make. The is probably the most important common sense principle you can apply to your financial life. If you are constantly overspending and maxing out your lifestyle, you’ll never reach your full financial potential.

2. If you can’t pay for it in cash, you can’t afford it. This mantra is the best way to avoid drowning yourself in credit card debt. Waiting to make large purchases until you have the money will always pay off more than spending money you don’t have.

3.Forget about the Jones’s. Living up to society’s definition of “rich” can be costly. Wealthy people know what their definition of financial success is – and that’s the only one that matters. They would gladly defy societal standards, rather than living a deceptively poor lifestyle just to keep up appearances in the eyes of their peers.

4. Protect yourself. Stuff happens. And when it does, your financial foundation can quickly crumble if the proper defenses aren’t in place. You should seek to protect every aspect of your life’s work – from material assets like your home to your most important asset, you.

5. Pay your credit bills in full every month. If you want the second fool-proof way to avoid going into credit card debt, don’t charge more on them than you can afford to pay off every month.

6. Money doesn’t buy happiness. Having money doesn’t mean anything. It’s how you use your money that creates your emotional response. There’s plenty of research to prove you derive the highest degree of happiness when you spend your money on experiences, not things.

7. Slow and steady wins the race. No one becomes financially successful overnight. It’s a long road of practicing good habits and staying disciplined. If you keep searching for the instant button, or speculating and gambling with your money, you’ll never reach your full financial potential.

8. Get comfortable with being uncomfortable. Investing is one of the most unnatural things you’ll do in your life. But you have to be okay with that – you have to be okay with the fact that markets rise and fall. Staying disciplined according to your Investment Policy Statement is the best way to find investing success.

9. Time is your most valuable resource. Stop thinking that you have time to catch up. Not only does your money need time to grow, but it needs time to bounce back from drawdowns. The longer your money is invested, the better your chances of financial success. Investing early and investing smart are crucial.

10. Out of sight, out of mind. If you’re like me, it’s easy to find a home for the money you see sitting in your checking account. One of the best ways to curb unnecessary spending and boost savings is to set up automatic deposits from every paycheck to go straight to your savings or investments.

11. Costs matter – a lot. Costs from taxes, expense ratios, and advisor fees add up. They directly impact your bottom line. Over the long-term, they can eat a large portion of your wealth. Be sure you know how much your investments are costing you, practice tax management, and work with an advisor who is transparent on the fees you pay directly to them.

12. Money is like a kid. It’s incapable of managing itself – think of how your kids would’ve turned out had you let them make their own decisions, without any guidance or discipline from you. Money is the same way. You have to apply structure and discipline to how its managed, and you have to tend to it on a regular basis.

13. Your most important values must align with your financial actions. If your financial actions aren’t furthering your most important values, you’re probably not going to accomplish the goals you set for yourself. Values should play the same role in your financial life as they play in your daily life – they should guide your financial actions and priorities.

14. Be debt free. Or at least bad-debt (i.e. credit card, other high interest debt) free. Carrying substantial amounts of high-interest debt directly affects your ability to save and invest for your future. It makes everything else in your financial life have to work that much harder to pick up the slack.

15. Live the life you want. Wealthy people know their “why” behind money – you need to know yours too. Why do you work, why do you invest, why do you do any of it? Your answers will be specific to you, but it ultimately comes down to being able to live the life you want. That’s the real goal – to have your money work for you, so that you can reach your full financial potential. But you have to start with “why.” Otherwise, you don’t have anything to fight for. You can’t live intentionally with your money, because there’s nothing guiding your behavior.