The Personal Finance Podcast - The 7 Things to Focus on that YOU can control (With Your Money!)

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Starting point is 00:01:26 What's up, everybody, and welcome to the podcast. I'm your host, Andrew founder of mastermoney.com. And today on the personal finance podcast, we're going to talk about how to focus on the things that you can control. If you have any questions, hit me up on Instagram at Master Money Co. And follow us on TikTok as well at Master Money Co. We'll be answering a bunch of questions over there. And if you ask a Q&A question, we may even answer you via video. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify.

Starting point is 00:02:09 And don't forget to check us out on YouTube as well at Master Money on YouTube. So today we're going to talk about seven different things. that you can focus on with your money that you have absolute control over. Because when it comes to your money, the biggest thing to focus on are the things that you can control. A lot of people focus on things that they can't control. But you want to be focusing laser focused on the things that you can control. And a lot of times you haven't been taught to think about money this way. Because in life, what controls your money?

Starting point is 00:02:39 A lot of times for a lot of people is your bills or whatever responsibilities you have. And that's flip-flop from the way that we teach it here. And if this is how you think it's not your fault, because maybe growing up you were told money doesn't grow on trees, or you were taught to think with a scarcity mindset instead of an abundance mindset. So I'm here to tell you something that may change the way you see money. Because guess what? You have power over money. And once you realize that you can take control over money and you learn how to control money,

Starting point is 00:03:07 that is where your wealth journey starts. You don't have to stress out about money forever. You don't have to worry about retirement. You don't have to be in debt your entire life. You can own a house. You can become a millionaire and build wealth. But it all starts with focusing on the things that you can control. And part of what can distract you with your money is things like stress and anxiety.

Starting point is 00:03:29 So getting control of your money will absolutely change your life. Money is not there to increase your stress and increase your anxiety. Money is a tool to reduce your stress, reduce your anxiety. money is self-care for that reason. So getting control over your money is going to make your life that much better. Now, if you're already good with money and you don't do all of these,

Starting point is 00:03:54 then choose one and start working on it. Because if you can get 1% better every single day with your money, if you can get 1% better every single day, think about how much better you could be in a year from now. This is why taking control of your money is absolutely life-changing. So if that's something you're into,

Starting point is 00:04:08 let's get into it. So the first one is, educating yourself and building skills. Now let's break each one of these down a little bit here because having knowledge is incredibly powerful when it comes to building wealth. And this is how you actually empower yourself with wealth. You listening to this podcast is building up knowledge so that you can empower yourself with your money. And not only will you have the wisdom to make the right decisions with your money, but there's also something that is just as powerful, if not more powerful. Because on this podcast all the time, we talk about building generational wealth.

Starting point is 00:04:41 Well, the best way to start building generational wealth is to teach the future generations how to handle their money. Because we can't rely on the school system to teach that. They haven't taught anybody that. So it's up to us to teach the future generations how to use their money. This is one of the coolest pieces to educating yourself is you can pass that wisdom down to your children or your children's friends. Rich Dad, Poor Dad, which was written by Robert Kiyosaki, is one of the most famous finance and investing books out there. And the cool thing about rich dad, poor dad, was it was actually his friend's dad who taught him about money. So educating yourself about how money works is going to be beneficial to every single person around you.

Starting point is 00:05:20 What's that saying? Give a person a fish and they'll go hungry in an hour. But if you teach a person to fish, they'll never go hungry. And that's the same thing with your financial education. So some of the best ways to get a financial education, especially if you're just starting out building wealth, is to start reading books. Now, you don't have to read 50 books a year, but you can start reading one book, a month or one book every other month so that you're able to start growing your knowledge. And we did this on the 75 day challenge, which is still going on right now.

Starting point is 00:05:48 And you can join you any time of the year. I'll link it up in the show notes as well. But we started that and said, hey, start to read personal finance books every single day for 75 days and you're going to be so much farther ahead than everybody else going forward. The second way is podcast like we just talked about. Listening to this podcast, listening to other personal finance podcasts is going to help you tremendously with your money. You could take courses.

Starting point is 00:06:11 Courses are a fast track to learning a specific subject. I take courses all the time because for me, I don't have time to go find all the information, compile it together, take hours and hours and hours. I'd rather just have it right in front of me.

Starting point is 00:06:23 So I take courses all the time where it's just lined up perfectly right in the order that I need to learn it. And then lastly, you can also hire a coach. So coaching is tremendously beneficial if you're really trying to hit that fast track because you can check in, make sure that you're on the right track,

Starting point is 00:06:37 or just do a one-off coaching call just to make sure that you're starting off on the right foot. All of these are amazing ways to start getting a financial education so that you can pass it down to future generations. We have a YouTube video. I'll link it up in the show notes so that you could check it out. We talk about additional ways that you can further your financial education as well through mentorship and other things like that. The other part of this one is skills.

Starting point is 00:07:01 Now building up skills is extremely important because building skills increases your income. That's the bottom line. That's what we want to build skills because it increases your income. And some of the top skills out there are things like sales, online marketing, trade skills. Like if you're a nurse,

Starting point is 00:07:17 furthering your education within that field is extremely important. Copywriting, project management. There's so many different skills that you can learn and utilize and bring more value to wherever you work so that you can increase your income. So always be learning,

Starting point is 00:07:32 always try to further yourself in this way, because you're going to earn more money over the long run. The next one is learning how to minimize your tax liability. Now, what do I mean by that? A lot of people don't understand that if you can maximize the tax code, you can save hundreds of thousands of dollars over the course of your career. See, the tax code is actually 70,000 pages. See, wealthy people understand that the majority of the tax code

Starting point is 00:07:57 actually tells people how to avoid taxes. Now, we have an episode talking about this, exact subject and all the best ways to legally avoid paying taxes. So check that out. I'll link it up in the show notes as well below. But make sure you check that out if you're really interested in that subject. Now, a couple of ways we'll talk about here are retirement accounts. Retirement accounts are one of the best ways to get started with sheltering your money from taxes. Things like the Roth IRA or the Roth 401K. Both of those are absolutely fantastic ways to shelter from taxes. Or the 401K, the IRA, the SEP IRA, the SEPI, RA, the SLO 401K, TSPs, all of those things are amazing. And then HSAs as

Starting point is 00:08:34 well are great ways to shelter your money from taxes. Some other awesome ways is making sure you're utilizing your available tax credits. So there are things like if you donate money to a charity, you don't have to pay taxes on that money, or you get child tax credits. So if you spend money on daycare or your child goes to private school, you can get child tax credits where you want to pay tax on that money. Or student loan interest. If you have student loans, you don't have to pay money on the interest that you had to pay. And there's a ton of them. There's a huge list of them. We talked about it in that episode as well. But making sure you utilize your available tax credits is another way to shelter from taxes. Or you can do it through investments. You can invest in things

Starting point is 00:09:13 like real estate. This is why so many millionaires put their money in real estate because there's amazing tax shelters that you can utilize from deductions, things like taxes or insurance or interest or repairs. You can also shelter your money through real estate with depreciation, where you can write off the property's lost in value over time. There's so many different things that you can do in real estate, that it's an amazing tax shelter as well. The third thing to focus on is making sure you invest your money. Now, we talk about investing all the time in this podcast because it's incredibly important to shelter you from a number of different things.

Starting point is 00:09:47 But let me put this out there so you understand this. You cannot retire unless you invest your money. So if you're not investing your money, retirement is going to be out of the question for you. You either have to invest in a number of different things that we'll talk about here in a second, but you have to invest your money to be able to retire. You can see the inflation rate as it's been going for the last couple of years, and it's been accelerating every single year. So if you don't invest your money, your buying power is getting eaten away every single year. If you stuff your money in a mattress or put in a safe somewhere or safety deposit

Starting point is 00:10:18 box, that money is losing value every single day. But if you invest those dollars, investing has historically outperformed inflation. And so this is incredibly important to understand because you have to invest your money or you will not be able to retire. Now, where do you invest your money? Our favorite way to start off is index funds. Now, we have an episode called Index Funds are king, where we're talking about exactly how to do this. And we're going to be coming out with an index fund course very soon.

Starting point is 00:10:45 So stay tuned. Make sure you're subscribed to this podcast. So you can see when that comes out as well, because we're going to walk you through step by step exactly how to invest in index funds. Now, if you don't know what an index fund is, it's a very low cost way to invest your dollars where you're just buying the entire stock market, or you're just buying an index.

Starting point is 00:11:01 So it could be the S&P 500. You could buy a NASDAQ. You could buy one with a compilation of a bunch of different tech stocks, for example. There's a bunch of different indexes to invest in, but investing in index funds and ETFs is incredibly important, especially if you're just starting off.

Starting point is 00:11:15 It's a way that you can invest and not have to think about investing. And historically, index funds have returned 10% to investors, especially if you're investing in something like the S&P 500. Another way to invest is in real estate. So in real estate, we talked about It's in an episode called 20 ways to invest in real estate. I'll link it up with the show notes as well.

Starting point is 00:11:33 But with real estate, you can grow your money as well. There's a number of different ways that you can become a millionaire with real estate. And if you want to do rental properties, you want to loan out money, or you want to do multi-unit properties, or you want to do Airbnb. It doesn't matter what you want to do. Real estate is a fantastic way to start investing those dollars. Another way is business buying. Now, we have a guest coming up who's going to be talking about

Starting point is 00:11:57 how to do this, how to start buying businesses, how to buy boring businesses, things like laundromats, car washes, all those different types of things, because this is something that has a tremendous opportunity. There's a lot of baby boomers who are retiring and there's an opportunity where they want to sell their business and usually it's at a very good deal. And then you can also invest in individual stocks like growth stocks or dividend stocks, but you have to invest your money so that you can be able to retire. Number four, this is a big one, is to focus. on your savings rate. So early on, the first thing that you can do with your money when you're trying to turn your money around is focus on your savings rate. Now, I've heard way too many money gurus out there saying that you need to save 10% of your income. And I hate to be the bearer of bad news here, but a savings rate of 10% of your income is absolutely not going to cut it. What you need to do is focus on how long you want to work and how much is enough using the 4% rule. So what is the 4% rule? It's based on a study called the Trinity study. And basically what the Trinity study, was that you can draw down 4% of your invested portfolio and preserve that wealth throughout your

Starting point is 00:13:04 retirement. So what we did is we have a savings rate chart that we always talk about here on the personal finance podcast. So what we did is I actually adjusted that a little bit because that savings rate chart is at a 5% rate of return. So I adjusted it up to an 8% rate of return with a 4% safe withdrawal rate, the 4% rule. So what I'm going to do here is I'm going to go through a couple of these and show you how long you would have to work based on your savings rate.

Starting point is 00:13:29 So if you save 5% of your money, you'd have to work for 47 years. If you save 10% of your money, which is what all the gurus say to start with, you'd have to work for 38 years to be able to retire. Now, I don't know about you, but I don't want to work at a job I don't like for 38 years. And if you don't like your job,

Starting point is 00:13:45 then you have to make a change. That's why we teach financial independence so much on this podcast, because a lot of people are getting false information about their savings rate, thinking they're accomplishing their goal when in fact they're going to have to work for 40 years of their life now if you want to work less time let me show you how to do that because if your savings rate is at 15 percent you cut it down to 32 years if it's at 20 percent 28 years so 20 percent is

Starting point is 00:14:11 at least 20 percent and then you want to bump it up over time 25 percent is 25 years 30 percent is 22 years so now we're getting into where you can start to return very fast at a younger age if you have a higher savings rate. 35% is 20 years. 40% is 18 years. 50% is 14 years. So if you can save half of your income, you can retire in 14 years. So say, for example, you and your partner both work.

Starting point is 00:14:41 So you have two incomes coming in. If you can live off one of those incomes and save half of your income, then you may be able to retire in 14 years. 60%? 11 years. And if you want to retire in less than 10 years, then 65% of your income is less than 10 years. So if you want to check out this chart, I will link it up in the show notes as well,

Starting point is 00:14:59 so you can check out the savings rate chart, and I'll throw it up on Instagram and TikTok as well, so you can check that out because it's incredibly motivating to look at. And it's also something where if you see this, you could say, hey, if I increase my savings rate to this point, then I can retire that much faster. And it's incredibly important to do this, and then you can tick it up over time.

Starting point is 00:15:20 Now, if you're starting off and you're saying, I can't save 20% of my income, am I supposed to do that? We'll save as much as you possibly can. And then what you want to do is work towards the higher number. So increasing your savings rate by 1% a month or 1% every other month means that you're not going to feel it. And if you do 1% a month, that means you're going to increase your savings rate 12% a year. So if you do it slowly like this, it's not as painful as if you try to do it all at once and have a shock wave and then you quit and you don't want to do that. So making sure that you slowly tick it up over time is incredibly important. Every time you get a raise,

Starting point is 00:15:53 put it towards your savings rate. Every time you get a bonus, put it towards your savings rate. Why? Because the more dollars you put to work, the closer you're getting to freedom. You're shoveling coal into the fire. You're fueling the fire. And as that fire grows, eventually you're not going to have to work anymore. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building.

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Starting point is 00:19:07 your family, and your dreams. Get financial advice that puts you at the center. Find your advisor at IG Private Wealth, The fifth thing that you can control are fees. So fees are absolute wealth killers. And they matter way more than most know. So you may think to yourself, hey, a 1% fee is not that big of a deal. But you have to understand that a 1% fee can cost you hundreds of thousands of dollars

Starting point is 00:19:33 over the course of your investing career. So imagine for a second that you had $100,000 invested. And if that $100,000 earned 6%, which is very conservative a year, for the next 25 years and had no costs or fees, you'd end up with about $430,000. That's with no fees at all. $100,000 invested. You didn't put any more money in there,

Starting point is 00:19:53 and it earned 6% every single year, you'd have $430,000. But if on the other hand you pay 2% in fees, after 25 years, you'd only have $260,000. So the power to this is a 2% fee wiped out almost 40% of your portfolio just because you paid a fee to an advisor or mutual fund fees.

Starting point is 00:20:12 So 2% doesn't say, sound so small, does it? Now, we have an episode talking about how fees are killers, and I'll leave it in the show notes below, but here's how much they actually kill you. Let's just say, for example, a 1% fee. $100,000 would be $1,000 a year that you pay in fees with 1%. $300,000,000,000 would be $3,750,000, would be $7,500. And if you had a million dollar portfolio, you'd pay $10,000 a year in fees with a 1% fee. If you had a $2 million portfolio, you'd be $20,000 per year in fees. $5 million is $50 grand per year in fees. That's absolutely massive.

Starting point is 00:20:48 And here's the thing to think about. It's not just paying the fee. It's not just paying the $10, $15,000, $20,000 in fees. You're also losing out on the opportunity cost that money could be providing you, meaning you can invest those dollars and it could be fueling the fire and growing your portfolio even more. So really, you're losing out on even more money, which is closer to a million dollars over time. That is how impactful fees can be. The next thing to focus on is your credit.

Starting point is 00:21:13 credit score. Now, your credit score is also a six-figure differential if you have a bad credit score or if you have a good credit score. So let's take a $300,000 mortgage, for example. Let's say you want to go buy a house and you start house shopping and you get to the point where you find one you want and you start to apply for mortgages. Now, when you get to applying for a mortgage, a 1% interest rate differential is a massive difference over the course of 30 years. Let me show you. So a $300,000 house with a three and a half percent interest rate over the course of 30 years, a standard mortgage is 30 years. Now, you can also do a 15-year mortgage as well, but we ran the numbers for 30 years, means that at a 3.5 interest rate, you'd pay $184,000 in interest over the course of 30 years.

Starting point is 00:21:55 Now, if you just increased that interest rate 1%, just 1% on the same exact house, you'd pay $247,000. So if you have a worse credit score, your interest rates on loans like this go up. So making sure that you have a good credit score is incredibly important when it comes to getting a mortgage, getting a car loan, all of those things. Because if you have a 1% differential between you and somebody else, then all of a sudden, you're going to be paying well over six figures over the course of your lifetime just because you didn't focus on your credit score. Now, this is incredibly important to understand. Now, what impacts your credit score? There's five factors that we'll talk about here. So payment history is number one.

Starting point is 00:22:38 That's 35% of your credit score. so making sure you're paying things on time is incredibly important. And then 30% of your credit score is your credit utilization ratio. So what the credit utilization ratio is, is figuring out how much of your credit you're actually using. The lower this number, the better. So for example, let's say you have a credit card and you're allowed to spend $10,000 on that credit card.

Starting point is 00:23:02 If you spend $1,000 on that credit card, then you're spending 10% of your credit utilization ratio. So if you look at studies, studies have been done showing that people with credit scores above 750 all use 7% or less of their credit utilization. Your credit history length is the third one, and that's 15% of your credit score. So making sure that you start your credit history early on is incredibly important. Credit mix is another one, and that's 10% of your credit score, meaning do you have a bunch of diverse different credit accounts?

Starting point is 00:23:35 Things like do you have a car loan and a credit card and a student loan, all these different things? Credit mix is another one. And then new credit is another one as well. But payment history and your credit utilization ratio are the two to focus on because that is 65% of your credit score. If you want to 80-20 this thing, you focus on those two plus your credit history length. And those are the ones you really want to focus on to bring your credit score up. And then lastly, the last thing you can focus on is staying away from bad debt.

Starting point is 00:24:01 So you're going to hear a lot of people talk about good debt and bad debt. And we're going to have an episode coming up on this podcast talking about the major differences between the two and why good debt is not a bad thing. But I'm going to give you a quick run down here. So good debt is any debt that is utilized to buy an asset that actually cash flows. Now, if we're going to buy an asset that doesn't cash flow, I wouldn't consider that good debt in my personal book. So you can think of things like using debt to buy a business, using debt to buy a rental

Starting point is 00:24:26 property, using debt for all of these different things where they increase in value over time. Now, bad debt would be things like credit card debt that has a high interest rate. It'd be things like high interest student loans, personal loans. All of these would be considered bad debt. Now, what do I consider bad debt? Pretty much anything above a 5% interest rate, you're starting to get closer to where you want to pay that bad boy off. So if you're trying to decide, should I pay off this or should I invest my dollars,

Starting point is 00:24:52 just look at your interest rates on your debt. If your debt is over 5%, if you have something like a student loan that has a 7% interest rate on the debt, then I would go ahead and try to pay that off. But if your student loan is like 2%, or your mortgage is 3%, then I would focus those dollars on investing those dollars instead, because mathematically you're going to come out ahead. But as it starts to tick up above a 5% interest rate, then I would go ahead and get rid of that debt

Starting point is 00:25:15 because that's something that's going to turn into bad debt over time. So listen, I hope you guys enjoyed this episode, and you learned a lot. If you have any questions, hit me up on Instagram or TikTok at Master MoneyCo, and follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast to. And if you want to hop out the show, leave a five-star rating and review on Apple Podcasts.

Starting point is 00:25:39 And don't forget to check us out on YouTube as well at Master Money on YouTube. Thank you guys so much for listening to this episode. I appreciate each and every single one of you, and we will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Play-O-Jo.

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The Personal Finance Podcast - The 7 Things to Focus on that YOU can control (With Your Money!)

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