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🏆 Spend Planning! | Holly Morphew on Why Spend Planning Beats Budgeting 💰
728 Plays7 months ago
Watch this episode and subscribe on YouTube
🌟 Join Holly Morphew in this transformative video as she unveils the power of Spend Planning to not only manage your finances but to achieve long-term financial freedom and wealth building.
Enjoy Holly's expert insights on transitioning from traditional budgeting to the more dynamic Spend Planning approach and learn how to leverage it for your financial success.
📊 In this detailed guide, Holly will cover everything from the basics of Spend Planning to mastering cash flow management and overcoming common challenges. Whether you're a beginner looking to understand the fundamentals or an experienced planner aiming for financial independence, this video has something for everyone.
🔗 Chapters:
0:00 - Introduction
1:41 - Spend Planning vs. Budgeting
5:46 - Real-Life Transformations
11:18 - Initiating Your Spend Plan
26:15 - Practical Steps for Planning
33:58 - Mastering Cash Flow
38:18 - Overcoming Spend Plan Challenges
40:48 - Five Key Steps Recap
43:18 - Cash Flow Strategies for Early Retirement
43:44 - Final Thoughts on Spend Planning
🛠️ 5 Steps of Spend Planning:
1. Financial Awareness: Start by creating a net worth statement to get a clear overview of your financial health.
2. Track Spending Using an App: Holly recommends using the Tiller App [https://www.tillerhq.com/?via=holly] to keep an accurate record of your finances.
3. Refine Your Net Worth Statement: Continuously update your financial statement as you track your expenses over the next 3-6 months.
4. Calculate Your Impact Number: Identify the surplus money that can be used to reduce debt or invest in assets.
5. Invest in the Highest and Best Use of Your Dollars: Strategically use your impact number to maximize your financial growth.
🔗 Connect with Holly Morphew:
Holly's Book: [https://a.co/d/aI2hcZF]
Holly's Freebies: [https://financialimpact.com/freebies/]
Facebook: [https://www.facebook.com/HollyMorph]
Instagram: [https://www.instagram.com/hollymorph/]
LinkedIn: [https://www.linkedin.com/in/hollymorph/]
Twitter: [https://twitter.com/HollyMorph]
Holly's Facebook Group: [https://www.facebook.com/FinancialImpactSystem]
💡 Whether you're planning for retirement, looking to become debt-free, or aiming to enhance your wealth, Spend Planning can be your pathway to success. Don't forget to subscribe for more financial insights and strategies from Holly Morphew!
#SpendPlanning #FinancialFreedom #HollyMorphew #DebtFreeJourney #WealthBuilding #FinancialCoaching #MoneyManagement #Investing #RetirementPlanning #FinancialIndependence
👍 Like, Comment, and Share if you found this video helpful, and don't forget to subscribe for more valuable financial tips and strategies!
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Transcript
Introduction and Holly's Background
00:00:00
Speaker
Today, coach and author Holly Morphew shares how to implement and execute a spending plan to climb out of debt and achieve your financial goals. Here we go.
00:00:12
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today we have Holly Morphew, founder and CEO of Financial Impact. She coaches people towards financial independence, she speaks about financial independence, and she writes about financial independence.
00:00:30
Speaker
as she is the author of Simple Wealth, The Practical Guide to Transform Your Relationship with Money and Live in Abundance. That'll be in the show notes.
Motivation for Financial Independence
00:00:42
Speaker
Don't take a look. Click the link. Welcome, Holly. Thank you, David. Very excited to be here. It's been a minute since we've talked, but you continue to do great things. What are you up to lately? Oh, man. Well, what am I up to?
00:00:57
Speaker
been doing a lot of coaching. Of course, I have my life, right? So what has driven me to learn about money, talk about money, and create early financial independence for myself is because one of my core values is simplicity.
00:01:16
Speaker
So I do a lot of playing. I live in Colorado. I live on a lake. I camp, I bike, I hike, I lift weights. You know, I have multiple streams of income. So I'm tending to a few of those on a daily basis. And I'm a financial coach. It sounds like you're very busy, but you got a great smile on your face. And that means that you're probably living a life well lived. So congrats to you. Thank you, David.
Budget vs Spending Plan
00:01:44
Speaker
Today we're going to talk about a spending plan versus budgeting. Holly, could you start by explaining the differences between a budget and a spending plan? Oh, I love this topic. I, first of all, I love that we're having this conversation, David, because I have been a financial coach for 18 years. I, you know, I started teaching personal finance as a service project with Rotary International and
00:02:11
Speaker
One of the things that I learned early on is that when it comes to wealth building, reaching early financial independence, or just simple money management,
00:02:25
Speaker
What really matters are the systems that you have in place. A lot of people don't have any systems in place, which is the reason that many people struggle when it comes to money. So what is the difference between a budget and a spend plan? And I feel like this is something that I made up, but we were chatting early on before our conversation, before you hit record, that
00:02:49
Speaker
I said spin planning is something that I feel like came from my intuition or my gut or my experience working with people, is that most people are not going to take the time to reconcile their accounts to the dollar every single month. That is just the reality of life today. A big part of what I do as a coach is teach people how they can
00:03:18
Speaker
Make their personal finances flow with how they're living their life so it's not something that i have to have a money date or. Oh this takes so much time no this should be fun it should be empowering it should be something that you get excited to do because money just does what we tell it to do.
00:03:36
Speaker
So, kind of going back to, you know, what is a budget? Well, in traditional personal finance teachings, you might have a coach or a teacher say, okay, I'm starting out the month of May with, you know, $6,000 of income and my expenses are, you know, call it four grand all in.
00:04:01
Speaker
The truth is that most expenses are periodic and unexpected. And that's just on the expenses side. And on the income side, income is inconsistent. Because if you're an employee, you know, maybe you get two paychecks in a month, maybe you get three paychecks in a month. If you're an entrepreneur, you get cash infusions.
00:04:26
Speaker
And so it's really important for me, at least this is what I learned when I was creating personal wealth for myself, is how can I look at my money in a way that works for me? So when I talk about spend planning, there's only two kinds of expenses, bills and spending. That's it. Forget what's essential, forget what's non-essential, forget what's a want and forget what's a need. We don't care, because we want what we want.
00:04:55
Speaker
And what's really important is what do I need leftover on a monthly basis, on an every 30-day basis?
00:05:07
Speaker
to reach the financial goals that I have. And if you start to spend plan, I usually tell people it takes about 12 months to get a really clear picture of what your average income is and your monthly bills and monthly spending to really get an idea of how much do you have leftover on average each month to put to its highest and best use.
00:05:29
Speaker
because, and that's where I'm coming from. And it might be a different perspective than most coaches, but I look at personal finance as we're here to build wealth. And that's what we're doing on our way to financial independence. Financial independence is the goal, but you know, in personal finance we have the goal and then we work backwards. So spend planning is a big part of that.
00:05:49
Speaker
So can you give an example of a client, a hypothetical client, and they might be familiar with budget and then discuss how that person shifts their way of thinking and why they would do that?
00:05:59
Speaker
Yes, yes. Well, like I said, most people think
Common Financial Struggles and Solutions
00:06:04
Speaker
about, so here's how it starts, right? Someone has a challenge. I'm not able to save or I have debt or I want to reach early financial independence. You know, it always starts with a challenge. And then usually as the individual who's struggling financially for various reasons, right? We all struggle for different reasons when it comes to money.
00:06:26
Speaker
It usually starts with, how am I managing the money that I have? And starting to get a sense of, okay, I'm spending more money than I earn. Well, the only way that we can identify that is happening is A, if you're carrying a balance on credit cards, that tells you that you're spending more money than you earn.
00:06:54
Speaker
Or B, you're always struggling to pay last month's credit card bill or you just don't have any money left over each month. And that's a really scary place to be, right? So what we are trying to do with spend planning
00:07:11
Speaker
Is write it down that is the very first step and so i don't i don't provide like a traditional budget to my clients like here's what may is gonna look like in june and july because we don't know what may june and july are gonna look like we have an idea.
00:07:27
Speaker
And so we start with getting a good sense of what is my average income? What was it last year in the month of May? What do I think it's going to be this year in the month of May? We don't always get it right. And this is the thing about personal finance is it's art.
00:07:45
Speaker
It's not science. There's nothing black or white about personal finance. I mean, numbers, yes, black and white. I always loved math and science when I was in school because there was always an answer there. But the thing that I love about personal finance and wealth building and money in general is that
00:08:02
Speaker
It's philosophical. What we're doing with spin planning and getting out of that mindset of budgeting is every 30 days, I call it a money date. You have a money date with yourself. You're looking back at where did my money actually go?
00:08:18
Speaker
And the only way, I mean, I say the only way, but there are really two ways to determine where your money actually went. One is to get out every single credit card statement, checking account statement, you know, look at your investment accounts, retirement estate, like all of the accounts and add it up. But who's going to do that? No one. Or to use a spend tracker. And Tiller is my favorite. So I use Tiller to tell me where my money went last month.
00:08:48
Speaker
So that's one part of it. The other part of it is looking forward. And what I use for that, I call a wealth strategy. And all it is is an Excel spreadsheet. I mean, I've refined it over the years to show my clients
00:09:05
Speaker
how they can build wealth and what goals they can work on and what levers they can pull. This is what's cool about spend planning is because with the wealth strategy, you can see where, well, if I normally spend $600 on food,
00:09:19
Speaker
But this month, I choose to spend $500 on food and put that extra $100 into debt elimination, savings, retirement, whatever. Then you can start to see with that wealth strategy how much faster you can reach your financial goals.
00:09:36
Speaker
I've built in some cool formulas and just things that empower you. That's really what Spin Planning is about, is when we look back, we can ask ourselves, when I make those same choices again? Now I know that I went over my, I call it an allowance. Every single week, I have a transfer from my personal checking account,
00:10:00
Speaker
into my Chime account, which is like a preloaded debit card. I call this a spend strategy. This is what makes this system work. I can never, ever, ever overspend because the only thing that I swipe with is my Chime preloaded debit card. Once that money is gone, it's gone. I have to wait for it to reload the next week.
00:10:22
Speaker
So if I spend too much on clothing, for example, well, then I have less for gas, groceries, that doctor copay, anything that we swipe for is a spending expense. So it's a system that helps us, it's fail-proof so that we never ever overspend. But a big part of it is getting really clear through those every 30-day money dates with yourself, looking back at where your money actually went,
00:10:51
Speaker
looking forward to where you want it to go because of your financial goals and kind of marrying those two things together. And that's why I say personal finance is an art because spend planning is very much it's a plan. It's an intention. We might not make it, but you don't have to beat yourself up because you spent more on, you know, hiking gear. It's okay. You just get back on track.
00:11:12
Speaker
If someone was familiar with budgeting and let's say a client came to you, say, I know what a budget is, I'm all in on the spending plan. I like some of the psychological advantages that it has because budgeting just isn't working for me. Based on what you just said, it seems that there's some steps involved. Like you said you use tiller and then you use chime. Is that something that you, if that is something that you use yourself,
00:11:37
Speaker
Is that like a step one, two, three that you tell your clients? And if, what are the five steps, if you could put it in five steps to, if you were to sit down with a client in 15 minutes and say, here's your first five steps of how to initiate and execute a spending plan, what would those
Creating a Spending Plan: Steps and Tools
00:11:59
Speaker
five steps be?
00:12:00
Speaker
Yeah, that's a great question, David. So it starts with awareness because awareness is the seed of transformation. Most people feel out of control with their money because they're not looking at it because they're afraid to look at it. They're ashamed. They feel like they can't do it, but that's only because we're not teaching this in school. We really should. That's a conversation for another day, right? That's why we're here. So the first step is to write it down.
00:12:30
Speaker
And managing your money and building wealth for that matter, and as you know very well, reaching financial independence, it is an active process. It doesn't happen passively. But we know that money is a tool and it just does what we tell it to do. So step one is to write it down.
00:12:52
Speaker
And what I will share with those who are watching and listening is give yourself some time and some grace to do this because you're not going to know off the top of your head where all your money goes and that so-and-so is paying you back for this loan and, you know, oh, you're going to sell or consign, you know, something and, you know, like we don't know what's going to happen ahead. We have an idea of it. But history is the best indicator of what's going to happen in the future.
00:13:23
Speaker
When you say awareness, write it down. What is the individual writing down? You're writing down your income and you're writing down your expenses. Okay, so a normal net worth statement, a general net worth statement. Yep, yep. Okay.
00:13:36
Speaker
And I use the wealth strategy. It's on my website. It's in my freebies. I give away a ton of freebies because I want people to understand the system and how they can use it for themselves. So you grab that wealth strategy. It's set up so you can put in your income. And we're just looking for average. What's your average monthly income? And then the next step is enter your assets. What assets do you have? Maybe there are some that you need.
00:14:04
Speaker
but one of the golden rules of money is pay yourself first. So we want income to come in, then it flows into your assets, and then we start listing out your expenses. So you just start typing in, you know, I think on average I spend, you know, like I said, 600 bucks a month on food, but do you really know that? So step two,
00:14:24
Speaker
is to grab a spend tracker. And there are lots of good ones out there. Mint used to be the one that I recommended because it was free and fairly robust, but we know that Mint's gone away now. And I think it's a good use of your money if you are wanting to build wealth or reach early financial independence to go ahead and spend the 80 to 100 or whatever bucks it costs for annual subscription to a spend tracker. And like I said, I love Tiller. There's a link for Tiller on my website.
00:14:53
Speaker
But yes, yeah, get a sense of where your money is actually going because this is where a lot of people get tripped up when it comes to traditional budgeting because they don't know. We don't know where money is actually going unless we're actually tracking it. Okay, so once you've got
00:15:09
Speaker
you've written down your net worth statement. So you know if you're negative and you got to work your way back up to zero to begin developing that positive net worth, or, and you've at least attempted to know where money's coming from and where it's going out. The next step, step two would be to begin tracking exactly what's going out, what you're spending money on. And you can do that through Tiller or what you recommend or another app. Correct.
00:15:37
Speaker
And then what would happen after that? Say, do you go back and refine your net worth statement over time? Is that the next step or is there something else? Yeah, so I would say step three is to start, again, this is off the top of your head, right? What do I think I'm going, this is the looking forward. I think that I'm gonna need new car tires in June. Or I know that, for example, I buy new car tires every three years.
00:16:05
Speaker
And what I, what I love about the wealth strategy is that there's a column in it for your annual expenses, you know, like car registration or your annual doctor visit to have your blood tested or whatnot. And you have a copay for that. I, I've been doing this for so long that, you know, my wealth strategy is super refined, but I have an idea every single month of my average income and my average expenses. So I know how much average income I need to support the lifestyle
00:16:35
Speaker
That i'm living so like for example if you want to take a nice vacation every year that costs i don't know four thousand dollars. With everything you put four thousand dollars in the annual column divided by twelve that's how much you need on a monthly basis to support a lifestyle where you take that vacation every year.
00:16:55
Speaker
So that's tracking the spending aspect up. And I think of like consuming, I think of consuming and then investing when it was as far as like cash outflow. Where, at what point do you start worrying about investments? Do you think of it as the same line of effort as far as like spending? Or do you think of it into like two different lines of effort, which is spending consumer lifestyle and then the investing standpoint and this,
00:17:19
Speaker
when you start adjusting or really honing in on the growth of the investing aspect of this? So let's make that step four, right? Because we've been talking about awareness. So first we're creating awareness. Are we positive or negative? Now we're in a position because we know where our money's going. We know kind of what's coming up ahead.
00:17:42
Speaker
to calculate what I call your impact number. And your impact number is the most important number in your personal finances. And it is where all wealth building begins. And what your impact number is, is income minus expenses every 30 days.
00:17:59
Speaker
whatever is left over.
Calculating the Impact Number for Financial Goals
00:18:02
Speaker
And of course, the higher that number is, the faster we can eliminate debt, build wealth, reach financial independence. So in this step, let's say that your impact number is $100.
00:18:17
Speaker
Well, now we want to do something with that $100, because again, I have three golden rules of money. And I always say, if everyone followed these golden rules, everyone would build wealth. Number one, earn more than you spend. Number two, pay yourself first. And number three, give every dollar a purpose.
00:18:38
Speaker
So now we know I've got a hundred bucks left over on average every single month. That's what we use to build wealth. Now, I want to say that again, kind of going back to personal finance is gray. It's an art. Really what we want to do is we want income to come in and we want money to go into assets. And then we build our lifestyle around that.
00:19:05
Speaker
Unfortunately, most people don't start there. We start with the reality, which is like, oh my God, I need more money in savings. I'm not on track for retirement. What can I do? So you start with where you are. So that's why step four is, okay, my impact number is only a hundred bucks. Well, I need it to be a thousand because I want to reach five when I'm 50. And that's another thing the wealth strategy will do is calculate your financial independence number.
00:19:32
Speaker
So then you can start to look at if I've got six grand coming in, I want you to know where all 6,000 of those dollars are going before the month even starts because every dollar needs to do something for you. There's no reason to leave money in a checking account, right? Like we want to deploy your, I call them the little dollars if you're at the beginning of this journey. And of course,
00:19:59
Speaker
If you've read my book, or you're going to read my book, or even if you get on my website, financialimpact.com, you know my story. And I started my wealth journey with $67,000 of credit card debt, living paycheck to paycheck. So I have done this work. And it started with reducing or eliminating expenses, but then I realized I can get to fi so much faster if I create additional income streams.
00:20:22
Speaker
So again, like you're starting to get the idea of like, wow, this is, spend planning is really an empowering way and a proactive way to look at your money. So you just mentioned that, let's say this client now has, it's been however long it takes, three to six months, maybe eight months for them to get really locked in on what they're spending, they're tracking.
00:20:49
Speaker
Every month they're having a money date with themselves and their spouse as if there's a significant other and their finances are intertwined. And now they're at the point of deciding, they know their impact number and then they know that the number, I'm going to assume that they now know what their financial independence number is, their magic independence number, where it's like the total number of assets that you need to provide income for your lifestyle without the necessity of work.
00:21:16
Speaker
And now they want to know what can I, what assets can I invest in to get me there?
00:21:24
Speaker
in a reasonable amount of time, which there's a lot of factors that go into that, but they're ready. So you also, you mentioned multiple sources of income or multiple streams of income. I know in the traditional sense of financial independence, we just want to pour into index funds, broad market, low cost index funds and call it good for the most part. That's kind of like the foundational. Now people go on to do real estate. People go on to start entrepreneurial endeavors that also provide some source of income. Where do you personally believe on
00:21:53
Speaker
And the philosophy of that when you're working with clients, does age come into play? Does, for example, if you have a 23 year old client and they've got the first professional job and they have a pretty good income, say between 70 and $110,000.
00:22:10
Speaker
a year and they don't have a ton of debt, whatever it is, their projections are looking pretty positive. Would you advocate that person to just put in the index funds and then let time do what's magic? Or in addition to that, are you encouraging them to start side hustles or additional streams of income? And if so, why and what are those? Yeah. So the answer is yes, all of the above.
00:22:35
Speaker
And I love that you wove the word philosophy in there, philosophical, I feel like I heard you say that. Because again, so a couple of things are coming into play at this point. And I would say now we're at step five. What are we doing with that impact number? And how do we decide what actually is the highest and best use?
00:22:54
Speaker
So, of course, the highest and best use of your dollars when you're early in the game, it's always debt elimination first, not because it's bad, but because it's expensive. Then we save, and we don't want to over save because yields on savings accounts are, I mean, they're high right now, high fours, low fives, which is great, but we don't want to over save. Why? Because there's an opportunity cost to that.
00:23:18
Speaker
And once we start taking some risk by putting money into tax-advantaged retirement accounts, which is investing, and or putting money into investment accounts. So that's really the hierarchy, first elimination, then savings accounts, then retirement accounts, then investments.
00:23:36
Speaker
For savings accounts, you're referring to emergency savings or at this point, is that's when you would develop an emergency savings, which is three to six months of spending and then you go to investing? Yes. Emergencies, I call it a lighthouse fund because it's your guiding light, it's your safety, it's what you can always
00:23:55
Speaker
go home to and feel safe and secure. And there is some psychology behind having a fully funded lighthouse fund. And yes, I think three to six months of expenses. Again, don't worry about what's essential. Just three to six months of expenses saved in a high yield savings account in case you get laid off or you have to take time off to care for someone you love or you need a mental health break or you have an accident, whatever it is. It's gonna happen at some point in our lives, we're human. So that can be really powerful for someone. But we also need another
00:24:24
Speaker
high yield savings account. And I call that a goal getter account. You might have also heard it referred to as sinking funds and what this account is for.
00:24:37
Speaker
is one to three year money. This is money that you know you're going to spend in one to three years on new appliances, those new car tires, maybe you want to go on a vacation. So now, and again, because we want to deploy our money every month into interest bearing or, you know,
00:24:57
Speaker
savings accounts that can pay us to put our money in it. So don't leave it in a checking account, move it into a high yield savings account. Then when you want to take that vacation, sure, swipe your card, get those points, great. But where does that money come from when it's time to pay the credit card? From your high yield savings account, which you've been kind of juicing up for the past one to two years with those high yields, and then you pay that credit card off. So those are the two savings accounts that I recommend.
00:25:24
Speaker
Now that we're in step five of determining the highest and best use of the money, you've mentioned an emergency fund that you call the lighthouse fund, as well as the goal getter or the sinking fund, sinking spending fund, I'm not sure exactly the terminology. Sinking funds, that's what some people call it.
00:25:46
Speaker
Both of those terms are new to me, I've never heard those. So I'm learning something today, thank you. Now, these are just the first of a number of actions that the client is gonna take. Are you doing this? You did talk about prioritizing a high interest debt pay down first and then saving and then investing. After the debt pay down, are you saving into these funds and investing concurrently or in parallel or are you doing them in series or one right after the other?
00:26:15
Speaker
You are asking all the right questions. So is it concurrent? Again, we go back to we're human. We're having this human experience. So if all of your impact number, you know, again, let's go back to that $100. If you're just throwing that at debt and you don't have money in savings and then all of a sudden you have to go to the emergency room and it's a $500 copay or whatever. Now you're putting that on credit cards. We don't want that.
00:26:43
Speaker
So what we're doing, I like to use the 80-20 rule, where, again, I'm just for simplicity. If your impact number is 100 bucks, 80 bucks is going into your high interest rate debt until it's gone. In the meantime, that $20, probably better that you go ahead and get that into your high yield savings accounts. Maybe you're putting some into retirement accounts, maybe, again, a little bit into investments.
00:27:12
Speaker
just to capture that time value of money because there is a time component to investments. And I am going to answer your question when we get to it about how do we get to FII and what are we actually investing in. But this process takes time. So it could take, like it took me three years to eliminate my credit card debt.
00:27:37
Speaker
And I followed that 80-20 rule. 80 bucks was going, I used the debt avalanche method to pay off my debt. And in the meantime, 20 bucks was going to my savings accounts, which really did serve me because there's going to be a time when you need cash. And then once my, and so then of course the debts paid off, my impact number went way, way up. So I could super like much faster build my savings accounts. So when I was on that pillar of wealth,
00:28:06
Speaker
80 bucks of my impact number going into savings accounts, 20 bucks going into retirement and investment.
00:28:12
Speaker
Probably just retirement, because again, they're tax-advantaged accounts if you have a Roth IRA. I know I'm getting into the weeds, but why not max that out? Why not take advantage of that?
Investment Strategies for Young Investors
00:28:24
Speaker
So I would say investing, if you have debt and you don't have savings and you're just starting to... Don't even worry about investing right now. Don't even worry about investing until you've got the debt paid off and the savings funded.
00:28:41
Speaker
but do, and you can do this concurrently, each pillar, in theory, we want to build them one at a time. But in reality, life is happening. So it's good to have a little bit of cushion and to be flowing some portion, maybe 20% of your impact number into those other asset accounts.
00:29:00
Speaker
Okay, so when you talk about those other asset accounts, we're talking about, again, for the example of the 23 or 25 year old who's got access to a 401k and a Roth IRA, assuming they don't exceed the annual limits to contribute to a Roth, the order that would be in would be 401k to the match. And if you disagree, jump in, 401k to the match. No, I agree with that, get that match.
00:29:24
Speaker
get over to the Roth, maximize that, get back over to the 401k, and try to max that out if you can. Now at this point, you're up at $30,000-ish, close to $25,000, between $25,000 and $30,000 in investing. I imagine that
00:29:41
Speaker
If you've got a good job, 70 to 100, you're probably not in a low cost of living area. So it's probably gonna cost you some money to live. So I don't know if there's gonna be any additional, even if the individual is gonna be able to even meet that amount of investing. But let's assume they do, or they've got help from mom or dad, or whatever it is that they're in a good financial situation, and they have additional money. What do you do after that, after you've maxed the contributions to the 401k, and after you've maxed contributions to the Roth?
00:30:10
Speaker
Is this where you get into additional streams of income or maybe refundling that to like a side hustle in an entrepreneurial endeavor or is there another option that you would recommend at this point?
00:30:20
Speaker
You know, potentially you get into those things, but here's where I would start because you can go, you can invest in real estate. You can invest in index funds. You can invest in starting a business, right? These are all ways that we can invest. I go back to what kind of time do you have? What are your personal interests?
00:30:46
Speaker
And what are your current resources? And I'll use myself as an example. When I was starting this process, I still worked in corporate America and I worked in real estate for a home builder.
00:31:00
Speaker
And I did not have a lot of time. So I chose to create another stream of income with a plug and play direct sales company. That was like my first foray into entrepreneurship, if you will, and working for myself. Also, I come from a family of real estate investors. So I'm very comfortable and knowledgeable about investing in property.
00:31:28
Speaker
So because I have some experience and a little bit of expertise in that, my next step was to invest in real estate. I did not start investing in the market in index funds until about 2018. So I waited a long time to start investing in the market until I felt like I really understood it and could trust
00:31:51
Speaker
that that money would still be there for me when I want to use it. I only put money in my index fund account that I want to use when I'm past age 65 really. It's long-term investing from my perspective. That's just because of the experience that I had during the recession of 2008 where I watched my 401k
00:32:15
Speaker
drop in value by a third to 50%. And I started thinking, well, gosh, if I get to five, I'm 67 years old and I've saved, you know, $3 million and my 3 million turns into two. Well, I'm not going to feel very good about that. So that's what inspired me to go a different route with my impact number.
00:32:38
Speaker
And that's just the financial piece of it. The other piece of it, again, is how much time do you have? And do you really want to build a business? Because it's a commitment. So I'll leave it at that. It's personal.
00:32:49
Speaker
Yeah, thanks for sharing that as far as how the 2007-2008 affected not only just your psychology of it, but it affected the next decade of what you did with your money and how you spent your time. So I think that's very interesting. Since 2018, you've educated yourself on index funds.
00:33:09
Speaker
Do you think differently now because of that education since 2018 and what you've been doing with your money since, do you think if you could go back to you at 2005, 2006 and advise yourself, would you say, do everything you did or would you say it's gonna be okay, just keep going this route and try to stomach the market? You know, would I change? To tell you the truth, the only thing that I would change is I would spend less money.
00:33:40
Speaker
and invest more. What I love about investing in index funds is you're just pushing buttons. If you have the discipline to stay within your allowance that you give yourself and spend what you say you're going to spend, all you have to do is just have a monthly automated transfer. It's so easy.
00:34:00
Speaker
Real estate, on the other hand, it is a tough game. People make money in real estate because they work for it. I was in a podcast a few months ago and he said, toilets and tenants, Holly. And I said, yes.
00:34:17
Speaker
Yes, and you and I both have experience in real estate. So, you know, all the smiles and we understand like all the challenges that we both have dealt with over the years. And I have to say, like, if I were to give myself now, no, I don't think you can't predict what the market's going to do. And of course, over the last decade, we'd have the we've had the biggest bull run in history. So of course, hindsight's 2020.
00:34:39
Speaker
But even so, I think if I could go back and tell myself, you know, the 2005 David, just stick with it, just pour as much as you can into index funds and automate and every six months just increase whatever that is, just increase it. Whatever it is you're automating, increase it and just straight index funds and just let it go.
00:34:59
Speaker
Because while I have also benefited from the real estate market going up over the last decade, the trade-offs, I think that the difference between the market returns and the amount of effort that goes into real estate versus what the market did provide, when I say market, the stock market, what the stock market provided over that same time,
00:35:19
Speaker
I think the stock market still wins by handily. And my mindset or my mental bandwidth also wins because you're not dealing with phone calls on Saturday, you're not dealing with tenants who sob stories, all those things, or trying to manage at a distance, which I am. I was military, so I was traveling a lot. My homes are in Warner Robins, Georgia, and index investing is just easy. And going back to the example of the 23 to 25-year-old professional,
00:35:45
Speaker
One thing they have, and we also had then that we don't have now necessarily, is time. And I think time is a huge factor in that too. So you could say, and if you've never heard of compound interest, and I can't imagine you being listening to this podcast or watching this video and haven't, but if you haven't, please understand the power of compound interest.
00:36:07
Speaker
if you just put money in an index fund and get market returns eight to 10% a year, it's amazing of what that does. Even over a 20 year span, it's amazing what it does. It's mind boggling. And then if you can do that, you'll have someone as far as, and that's really is truly passive investing. That is passive. There's no additional work other than the initial setup of your account and going in, making sure the automations are happening or that you're making your adjustments over time. Yes.
00:36:34
Speaker
And you can live your life. You don't have to worry about any of this other stuff. You can just live your life whatever you're genuinely passionate about. But if you're 23 or 25, I think I would probably lean towards saying just try to maximize those accounts that we talked about, the 401k or 403b or whatever it is you have available to you in your line of work, Roth. And then rather than doing real estate, and I know people are gonna, David, you do real estate, why don't you endorse it? Maybe that's why you probably should listen to this.
00:37:00
Speaker
I would say just start another brokerage account. Because at this point you're, and invest in the same fund that you're investing in in your, you know, low cost broad market index fund. Start a normal brokerage account with Fidelity or Vanguard or Schwab or whoever. Pick a smart broad market index fund and just funnel it just like you're doing everything else. And then if you decide that you now have the time and the desire and the want to pursue another line of
00:37:29
Speaker
not necessarily work, but if you want to do an entrepreneurial endeavor in addition to your current nine to five, now you can just use that brokerage money to seed that if you'd like or not. But I do think that if you're in your twenties, the simpler is the way to go, live your life a little bit, be smart with your money, but don't add more work because I imagine I know my twenties, I was working a ton and I didn't really
00:37:52
Speaker
have the energy or wherewithal probably to spend too much time doing other things that are, that may or may not work out as far as whatever the top 10 side hustles I just saw on a blog online that I want to try to pursue. I would just, so if you're listening to this and you're young, I would do it that way because it's the least amount of mental bandwidth used and you can focus on your primary job, being good at that. And then when you're not at your work, you live in your life.
00:38:19
Speaker
Yeah, I think you just raised a really good point, David, because we in all of the
00:38:27
Speaker
the jargon and the hype and the stuff that we see online, which you can tell I have no patience for it. There's just so much looking down on having a job, a J-O-B as Robert Kiyosaki calls it, just over broke, but I totally disagree with that. I think that earning a steady paycheck with benefits is powerful.
00:38:55
Speaker
And if you went to school and you got an education or you joined the military or you apprenticed and you're getting paid to go do a job for another company and you get to go home at night and put your feet up or play with your kids or make dinner with your partner or go for a hike, that's a good life. Compared to the entrepreneurial life, which we were just talking about before we came on,
00:39:17
Speaker
where you might be sitting at your computer all day long, you're getting emails or at least the need or the desire to check your email, like at one o'clock in the morning when you happen to wake up, you're like, oh, I wonder if so. So, you know, your mind never really turns off. So I think that's something that, and some people are wired for that and they love it. But it's definitely a push-pull when it comes to lifestyle balance and work balance. Yes, yes.
00:39:42
Speaker
And your clients, what are some of the challenges that you've seen with spending planning?
Real Estate Success Story
00:39:49
Speaker
Well, first of all, that they're not looking at their money. So they're not even budgeting. Most people come to me because they say, Holly, I tried budgeting. I tried all the apps. Nothing worked for me. I'm hopeless. It's like, you're not hopeless. You just need a system that works for you and your life.
00:40:07
Speaker
Again, so the five steps, we're gonna review the five steps. Number one, awareness. Number two, I wish I could read my writing, use a spend tracker. Yeah, look at where your money actually went. Number three, refine the net worth.
00:40:22
Speaker
statement so that you begin, you're practicing it, you're experiencing your spending, you're getting more granularity and fidelity on where your money's going, and you're updating that net worth statement. Number four, calculate your impact number, which is the difference between income and expenses every 30 days. And then the money left over is, what was the word? Your impact number.
00:40:47
Speaker
impact number. Yes, impact number. And number five, determine your highest and best use for that impact number. And then we've just talked about a number of options that your clients or anybody who's listening to this can use. I'm trying to think what would come next. Just enjoy the fruits of your labor. Yeah. Keep doing it over and over again. Rinse, repeat, live life.
00:41:11
Speaker
Can you give an example of like the biggest success story that one of your clients have had with spending plan or just your financial coaching in general?
00:41:21
Speaker
Oh my gosh. My clients are amazing, David. My clients are doing so many cool things that it blows my mind, especially having worked with people four or five years ago to see where their life is today and where their businesses are today because I also do business mentoring and business coaching. But I'll just use an example from last week. I had a client who's a real estate investor.
00:41:47
Speaker
and was doing a mix of short-term and mid-term rentals. And just again, no checks and balances, no tracking at all, just fly by the seat of her pants, the money's always going to come in, I got nine properties, they're all going to make money somewhere. But then she fell out of control and it's like when you start feeling the pinch or when you're starting to carry a balance on credit cards, that's how you know something's not working.
00:42:11
Speaker
I created a wealth strategy for her, did a bunch of market research on each of her properties, looked at the potential that they could bring in if we shifted to a long-term strategy, which would then offset the cost of carrying the houses from an overhead standpoint. Literally, we went from her being... Because she just did her taxes, so she has her numbers.
00:42:32
Speaker
you know, very precise right now. She was actually losing money to the tune of a negative $3,000 a month, which that can eat you alive depending on, you know, how much wealth you've built. Um, and we shifted to a new plan to positive $13,000 a month. So we're talking a 16 K a month swing in the positive direction, plus cashflow for life.
00:43:01
Speaker
And for me, that's the most exciting thing. And that's how I reached early financial independence was I created cashflow in excess of my expenses. I didn't save my phi number, but I'm working on that.
00:43:19
Speaker
No, I think you bring up another good point and maybe we should have another episode about that, the importance of cashflow in particular for those people who want to achieve early retirement. And then I don't want to say I bashed on real estate, but I was pro index funds in this conversation, but real estate is one way that you can get that cashflow and reduce the timeline. Holly, thank you so much. Is there anything more that you want to add? Well, this has really been a pleasure, David. I like to say,
00:43:49
Speaker
Every day you're either building wealth or you're not and it doesn't matter how much money you make, what matters is how much you keep and what you do with it. Thank you very much for being here and thank you all for watching and listening.