What Personal Finance Experts Won’t Tell You

So let’s talk a little bit about what personal finance experts won’t tell you about money. I as a personal finance expert, so to speak, at briefly, I have been a financial professional since 2001. It’s literally been the only job that I’ve ever had. And I’ve done all kinds of different things within personal finance, do I really consider myself to be an expert? No, I don’t necessarily. But from the outside looking in, you probably say that I was a personal finance expert, I’ve been named to lists of the top 100 financial advisors in the United States, many years running. I run a personal financial, or financial planning firm, I operate a financial wellness company, I do a podcast where I interview lots of financial folks. And so I’ve been immersed in the field for a long time. And I love I love I love talking about and beating up on the financial services industry, because I do think that there is a lot of BS, and a lot of extraneous layers of stuff going on. That is sort of middle people, middlemen, middle ladies, men or women that are there just to charge fees. And a lot of it is unnecessary, and just there to soak up money. And whenever we are paying somebody something, if there’s value, then that’s great. That the you know, cost is what you pay value is what you get kind of a thing. But I am very cost sensitive. So if there’s opportunities to do things ourselves, well, then by all means, I think that we should do them. And I also know that over the course of doing the podcast, over the past six years and almost 2000 episodes, that my faith in the financial industry has greatly been restored. I’ve talked to so many great financial advisors and financial coaches and financial counselors, who, whose head is not only in the right place, but also their hearts are in the right place. So I see immense value in working with the right financial professional, because we as human beings have so many biases and blind spots. And we’re not necessarily interested in thinking about money all the time. So working with somebody that you understand what they’re doing, and you understand how much they’re charging and getting paid. And you feel like you are and are getting a lot of value, well, then I’m all for that I see I see a lot of value in it. And, and there’s a lot of BS out there, too. So what I want to do is really talk about three things today, that a lot of personal finance experts don’t necessarily want you to know, and personal finance experts. That’s a pretty broad term, but folks who are working in money and who are interested in helping you with certain aspects of it. So Daniel Kahneman, very famous author, very famous psychologist who won the Nobel Nobel Prize in Economics. He wrote this book called Thinking Fast and Slow, and what are the big takeaways was that we make a lot of decisions emotionally. And he made a very damning statement about the financial services industry that it’s an entire industry built on the illusion of skill, I remember reading that I was like, oh, Zheng, that that, that’s going to sting a lot of people. So I think it’s true, that there is just an immense, it’s like, do not look but pay no attention to the man behind the curtain. Because there is a lot of BS that is going on. And these days, we have access to all the information in the world. And that’s not necessarily a good thing. Because too much information. Too much anything is too much. But we have access to information on whatever it is you’re interested in learning, you can literally do most of it yourself, and you can do most of it for free. So number one, number one thing that I want you to know is that there is no such thing as a perfect financial plan. No such thing great illustrate this is if you were to ask 100 financial advisors, how to design an individual, the optimal individuals retirement income. So person is 65 years old, they say I’m ready to retire, I’ve got $2 million. How do I design my retirement income picture so that the money is going to be there for as long as I need it to be there? You would literally get 100 different answers. So that right there kind of tells you that if there’s no right way to do this, sir, also no wrong way to do it. There might be wrong ways to do it. And in fact, there’s probably a lot of wrong wrong ways to do things. But there’s not a right way, which means there’s not a perfect way to do it. More importantly, I don’t think that, that there is no secret knowledge that somebody has. There’s no secret knowledge, there’s no way to get rich quick, there’s really no shortcuts to wealth, unfortunately. And anybody who’s trying to sell you that you should turn around and move in the other direction as quickly as possible. So no such thing as a perfect plan. There are wrong ways to do everything, certainly. And there’s definitely no secret knowledge. And we’ll get to a little bit more of that in just a second. Number two, passive as best. So have you heard about active investing versus passive investing? It’s something that’s been really talked about now for however many years Vanguard has been a round. So founder of Vanguard, a gentleman named Jack Bogle. He was the pioneer when it comes to low cost, passive investing, just really quickly. passive investing seeks to give investors you and I the same return that the stock market gets. So if you are looking at the stock market, a lot of people think when they think about the stock market, they think about the s&p 500. And I think that that’s a great way to think about the stock market. And that is, you’re tracking the 500 biggest companies on the stock exchange, okay. So, if, on January 1, if I told you at December 31, you can have the same return as the entire stock market, would you take it? Now, if the answer is yes, then a passive investing approach is the right one for you. So, Jack Bogle, founder of Vanguard, he, his whole premise and theory was that, you will get better rates of return a lot more consistently, for a lot less money. Taking this passive approach, the flip side of that coin is if you are an active money manager, or somebody wants to be an active investor, that means that you are attempting to get a better return than the stock market gets. So same example, if on January 1, pass, or an active investor says on December 31, I will have a better return over the last 12 months than the stock market will have gotten. So yep, that’s what I want. It’s great. And obviously, who wouldn’t want that? I want that too. Thing is very, very, very, very few people can actually get that. And when they do get it, it’s really hard to consistently get that, then there’s been a lot of research, which is done over the past 25 years. And the verdict is in that 80% of the time, if not higher, passive investing is the better way to go. Again, 80% of time, if not higher, passive investing is the way to go. And this is over that 20 to 25 year period of time. So that’s, that, to me is a good, a good amount of time and evidence that shows you that passive is probably better. Just to give an idea of how much money are we really talking about, that’s going to really, really vary. But again, going back to that s&p 500, you can buy the s&p 500 in the form of a mutual fund, or the form of an ETF or exchange traded fund. And you can get that in a lot of places at literally no cost. Or for very, very, very, very inexpensive. So, okay, so for all intensive purposes, you can invest in the s&p 500 for free. Or you can invest in an active mutual fund, which can be half a percent, a full percentage every year, and sometimes higher. So how do you know how much you’re paying? Well, there is something called a prospectus, which you can obtain, which will show you the actual cost of your investment every year, we’re talking about mutual funds, or exchange traded funds, you can look and see what the expense ratio on your mutual fund or your ETF is. So just look for the expense ratio, and it will tell you or show you in the form of what percentage, how much you’re actually paying. So am I saying that it’s impossible to beat the stock market? No, it’s not. But it’s kind of like this. Could I become a professional golfer and pay at play on the PGA Tour? Yeah, I totally could. That’s absolutely possible for me to do it. But it’s really, really, really, really improbable. Or you could say, Well, can I play in the NFL? It’s possible. I’m a human being I can run a walk. I’m mildly athletic, highly improbable at this point, certainly. Maybe 20 Some years ago.

it’d be 45 this year, so 25 years ago, may have been possible. Today, not necessarily impossible, but highly improbable. Let’s take it another way. There’s 1000 human beings that play in the NFL. So we know that it’s possible other human beings are playing in the NFL right now, is it possible for you to do that? Maybe it is just not very probable? Are you going to put in the amount of work that it takes? Are you going to do the exercise and practice and dedicate yourself to doing it? Same thing goes for investing? Could you beat the stock market? Yeah, you absolutely could, it is possible for you to do it. But are you going to put in the work and learn everything that you need to know to be able to do that, and then to be able to do it consistently, year in year out? I don’t know if you are not. Again, looking back. And you can just research active versus passive last 25 years, you will see all the results. And I will link some of that in the in the notes. So you can take you could check it out for yourself. So anyway, number three is that you can do it yourself. You can absolutely DIY your own financial plan. And here are the steps we’re going through that it’s I think it’s pretty straightforward. But what’s most important is that you can 100% do it, you can put together your own financial plan. Number one, you need to figure out what it is that you want, and find a saying the only way to live how you want is to know how you want to live. So you just need to figure out what your financial goals are common ones, get out of debt, get an emergency fund, begin saving and investing, buy a home, help children with college, be able to travel, go on vacations, be able to give money to people eventually be able to retire, step away from work, leave a legacy for your kids. Those are amazing goals. Every single one of those you can put together on your own financial plan, just let the complexity of the entire industry, it’s way overblown. It is very, very possible. In fact, you already make a lot of financial plans. When you put together your grocery list. If that’s something you do when you budget, when you make financial decisions, as you are trying to figure out what you’re going on vacation this year. That’s an absolute financial plan. You think about where it is you’re going to go? How are you going to get there, where are you going to stay what you’re going to eat, what you’re going to do while you’re there. Those are absolute financial plans that you’re putting together. So figure out what it is that you want. And then the next thing is there, it’s a little trickier to figure out what your beliefs are about money, because we all have some limiting beliefs. And when you have a limiting financial belief, it will limit your ultimate potential, which is the whole thing about limiting beliefs. So figuring out what blind spots you have, and if you do in fact have negative or limiting beliefs about your ultimate financial potential, if you don’t think that you are going to be financially successful, then you’re probably never going to be financially successful. So it’s really important to figure that out. And then finally, it’s your habits, it’s your behaviors are your current behaviors, going to get you to where you want to go. You can have the greatest goals in the world, greatest aspirations, the most wonderful, accentuating beliefs. But if your behaviors are taking you in an opposite direction, you’re not gonna, you’re never going to end up where it is that you want to be. So step number one is figure out what it is that you want. Step number two, figure out how long your time horizon is when you need that. So if you want to get your debt paid off, give yourself three years, okay, that’s easy, then we can sort of back into, here’s how much debt I have, I’ve got three years to pay it off. Here’s how much I can or here’s how much I need to be dedicating towards that repayment over the next three years on a monthly basis. And then you’ll figure it out, that’s a financial plan for talking about saving for the down payment on a home similar kind of a thing, I need to have 50 grand saved up, I’ve got five years to do it, I need to save $10,000 a year over the next five years, I’ll be in good position to do it talking about retirement. You know, commonly it’s very, very abstract, but just need to peg some kind of a date, age 65 arbitrary, but why not. So if you’re 40 years old, if you’re 30 years old, you’ve got 35 years to be saving, so you need to figure out how much money you want to have. And when you retire. And that can be a lump sum. So I need to have a million dollars saved up. Or I want to have you know $50,000 coming in from age 65 to age 95. So I need 30 years worth of income at $50,000 a year and obviously inflation, which we now know is a very real thing. I need to factor that in. And before I start I keep talking and get you thinking well how in the world am I going to figure all this stuff out? Every single company that you will open an account with to save for your retirement specifically will give you the tools that you need to be able to model how much money you need to be saving. So for example, if you because the next step is You need to figure out the right account. And let’s stick with retirement planning, you can open up an individual retirement account or IRA. And you can do that at any wonderful different financial institution that is out there. And or you can open up or enroll. If you’re working with a company that has offers you a 401 K plan, you can simply enroll in the 401 K plan and your company. And each one of these companies, if it’s fidelity, or Vanguard, or Schwab, or XYZ company will be able to help you on the website within your account, be able to give you wonderful financial calculators or information based on your age, you’ll enter in how much money you’re making enter, and when you want to retire how much you’re going to be saving. And it’ll tell you, you’re saving too much, which nobody really ever thinks that, but you’re not saving quite enough. So in order to reach your goals, you need to increase your contributions or get a higher rate of return. But again, the company that your 401 K or your IRA is with will be able to help you to do that. And then it’s a fun a matter of making sure we’re investing in the right vehicle to get you to where you want to go. Oftentimes within a 401k or within an IRA for retirement plans, we’re going to be investing in a mutual fund or an exchange traded fund, which I touched on a couple of minutes ago when talking about Vanguard and the s&p 500. And again, you’ll be able to your financial institution will be able to help you determine the right risk tolerance for you, which is just how comfortable you are with the stock market going up and down. And then it’ll be based on how old you are, what your temperament is what you’re comfortable with. And that’ll match you up with the appropriate with the appropriate option the appropriate mutual fund, the appropriate exchange traded fund or ETF. And then it’s a matter of putting that plan into action, and then consistently reviewing it. So what I want you to do is to create a habit around once a month, doing just a monthly meeting or a monthly money meeting or a money date, however it is that you want to refer to it as it’s my spouse and my or my partner and eyes, money date this month, or it’s our we are the CFOs of our lives. And it’s our it’s our financial update. But I really encourage you to review all the different accounts, look at the different vehicles, review your goals, review your budget, review your cash flow, all of these things, you can do that within 30 minutes, and you will be on top of everything. To give you some more resources and some more tools, which all of them I will link in the in the notes. M one, finance is a wonderful, wonderful company that offers a lot of resources again, for free, you can get professional, a professional robo advisor, which is like a computer enhanced and artificial intelligence machine learning enhanced money manager is a great company called Betterment that I like a lot. There’s a company called trust, and well that can help you with wills, and trusts just as it sounds. There’s a great website called Life happens.org that will help you with all of your insurance needs. So figuring out how much life insurance you need long term care insurance, disability insurance, stuff like that. And then there’s a great company or a great website, it’s largest financial website in the world called Investopedia. That would be able to give you resources on literally any kind of financial question that you can imagine, if got like 4 million articles or something like that on the site. So check out all check out all that stuff. And then finally, if you’re interested in digging a little bit deeper into my work, or what I’ve been talking about, we offer three free courses, we offer a gold course for free of values course for free. And then we have a course called Get out debt, which is also free. And you can take advantage of those. And that’ll help you get started and get moving in the right direction if you need additional help. We offer financial coaching and financial advising, and all that stuff, too. But again, you’re an intelligent person, you find your way to my video. So that definitely says something says a lot actually. But you’re perfectly capable of doing this. But you need to be honest with yourself. Also, if you’re not going to be interested enough to do this stuff. Well then you need to find somebody else who is going to help you to do it. Because when he’s time sensitive, so the longer you wait, the harder it becomes to actually get to where you want to go. All right. Remember, do your part by doing your best

Transcribed by https://otter.ai