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Boosting Your Financial IQ
Boosting Your Financial IQ
131: The 6 Drivers of Financial Fitness
In this episode, Steve discusses the key strategies for boosting financial success, including innovative investment ideas, smart savings tips, and effective debt management techniques. Tune in to learn practical advice for improving your financial health and achieving long-term wealth.
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Pay yourself first, like make it automatic, an automatic transfer Every time you get paid, bam. It goes right into your savings or in your investment account and then just spend whatever's left over. That's one way to control your spending. This is Boosting your Financial IQ, where I help business professionals with financial responsibility to elevate their careers and run profitable companies. My hope is that you'll apply these lessons to achieve your greatest ambitions. Cheers and enjoy.
Speaker 1:Let's talk about the six drivers of financial fitness. I talk about these drivers in my book. It's called Reframing Rich. Anyways, you don't need to read the book necessarily, because I'm going to give you them right now. All right, that was me dropping the book, by the way. Okay, no need to be alarmed.
Speaker 1:Number one let's talk about planning. This is the first financial fitness driver. When it comes to planning, whether we're talking about your personal life or your business life, you need to have a strategy. All right, you have to have a strategy. You have to define where are you gonna compete, how are you gonna compete and how are you gonna win? In other words, how are you going to compete, how are you going to compete and how are you going to win? In other words, how are you going to position yourself, whether personally or professionally, what type of activities are you going to pursue? And then, what's going to allow you to win, to differentiate yourself, right, to be a standout in the marketplace? So, in order to get your financial fitness going, you have to have a plan.
Speaker 1:Trust me, I walked around in life aimless for years, even though I set goals all the time, ever since as a kid, I've always had this goal book and I'd write down my goals. But then there's this period of time in life where I was like, oh my gosh, I don't know where I'm going, I don't know what my purpose is. I had no plan and I was just lost. So having a plan for your life, for your business, is really critical, because then you're going to have clarity on where you're heading. Now, look, you don't have to have a crystal ball, nor do you have to try to pretend like you know what's going to happen in the next five years. There's that saying like we make plans and then God laughs, and I think that's so true. A lot of the things that have happened to me that are great, like becoming a CFO or running multiple businesses I had no clue that those things were in my future. They were nowhere in my goal book, they just came about. But because I had a plan and I was following that plan, those opportunities presented themselves.
Speaker 1:Imagine this let's say I'm like I don't know. I don't know where I want to go. I want to go somewhere in the US and I just get in my car and I start driving. And I start driving north and then I head south. Oh, that's interesting. Look at this pretty bird. Oh, here's this Grand Canyon. And I'm driving all over the place.
Speaker 1:I'm going to waste so much time. I mean, maybe that's valuable for some people to meander and just discover as you go. But if I said, I may make little detours here and there, but I know what my direction is. And that's the same thing with life. You don't have to have everything figured out, especially if you're just starting out. You're not going to have everything figured out.
Speaker 1:You may be 20 years old listening to this and you may think, oh my gosh, I have to have life figured out. Well, guess what? You don't. I'm 45.
Speaker 1:I've made a lot of pivots in my life, but having some type of plan in place for your personal life or your business is really critical. And that's the first financial fitness driver. Number two is earning getting your earning right, and this starts with your plan. So if you have a plan, you know okay. What kind of education do I need? What are my skillsets? What's my unique ability? What differentiates myself out there in the world? Here's my plan. Okay, now this is going to tie into my earning potential. That's going to make a big difference and that's why earning is such an important fitness driver. Now, in my ecclesiastical responsibilities, I've had the unique opportunity to work with some individuals who are struggling financially, and usually what I do is I sit down with them and I say okay, we need to create a financial plan for you, like a budget. We need to understand what's your monthly nut, how much do you need to make in order to cover this fixed expense base?
Speaker 1:More times than not and I know there's always exceptions I would say most people have an earning problem compared to a spending problem. I know there are some caveats here, but usually it's an earning problem. Let me explain, just to live in my part of town. I live in a suburb of Denver, colorado. You have to make at least $100,000 a year, either by yourself or through your combined household. Maybe you live in an apartment. But even if you live in an apartment in Denver, it's like two grand a month, right. And if you just look at two grand a month and then you look at that and you multiply it by three, right, so that's six grand. Well, that's after taxes, right, you have to look at that after taxes. So it's like dang, you have to make at least $8,300 a month just to like barely survive.
Speaker 1:Now, I don't say that to discount people who are making less money than that. I'm just talking about the facts. Like it's expensive to live, right? So oftentimes we don't have the skill sets, we don't have the capabilities, we don't have the education, we don't have the ability to drive value in the companies that we work for and therefore we tend to have an earning problem. Also, you know, I could tell you there are people in my family and it frustrates me so much because they are so smart, they're so capable, but they're so afraid of going to their boss and saying, hey, look, I deserve more money. I've been working here for 15 years or whatever it may be. So being able to ask for more because you have the skills to back it up is really critical, but figuring out ways to expand your earning potential is really, really important.
Speaker 1:Let me get a little personal here with you. Recently I went through a divorce and as part of that divorce I have to pay alimony and child support. Now, I'm not trying to play the victim here my ex-wife. She deserves everything that she gets right and then some right. But instead of being a baby about it and saying, oh, I got to pay this and woe is me, I said to myself I'm going to figure out a way to expand my earning potential to make that amount seem smaller. Right, so we could do the same thing. I just use that as an example. You know, oftentimes it's like, okay, I need to cut this, I need to cut that. We're gonna stop eating out, you know, once a month we're gonna turn off all the lights. We're gonna crank our thermometer down in the winter to like 50 degrees and wear jackets inside so we can save on our gas bill. I'm not saying those are bad strategies, but I think the biggest upside is increasing our earning potential. All right, so that's enough on that.
Speaker 1:Number three is spending. Okay, so I just said that most people have an earning problem. Some people have a spending problem. Years ago I had somebody reach out from the BYFIQ community and she said to me look, steve, I make all this money, I have all this money in my account, and then I like sabotage myself. I spend all the money because maybe I believe that I'm not worth it, like I'm not worthy enough to have this money, and therefore I spend it all and then I go into debt. What the heck's wrong with me? I'm like nothing is wrong with you. We all have messed up relationships sometimes when it comes to money. So no shame there, don't worry about it if this is you, but sometimes we need to get our spending under control.
Speaker 1:Now, I've talked about this before. There's good debt and there's bad debt. I'm going to get into that in a minute. But sometimes we buy stuff and we borrow money and it's like what the heck are we doing? We like buy a bunch of stupid stuff I can't tell you how many things I've bought and then I find myself years later where I thought that was like so critical to have. I find myself filling a box and taking it to goodwill. I'm like what the heck? You know? That's like two grand there that I spent on the stuff that now I'm giving away.
Speaker 1:So getting our spending under control is really critical, and there's there are all types of hacks. I'm not like a financial advisor or personal finance coach, but I'll just share a few things. Number one pay yourself first. That's really critical, like pay yourself first, like make it automatic and automatic transfer Every time you get paid, bam, it goes right into your savings or in your investment account and then just spend whatever's left over. That's one way to control your spending. It's like if you overspend, it's like you know there's a problem. Right Really quickly. Also, you can maybe carry around cash or you can do these other hacks, like I said.
Speaker 1:I'm not going to get into it, but spending can definitely be a problem when it comes to achieving financial freedom. Think about this. I'll say one more thing. I work with clients and they make a million bucks a year or more. But I know people that make a million bucks a year and they spend $1.1 million a year and I'm like that's crazy, right. I was working with the CEO once and he's negotiating a salary with the board and he said I have to make 500 grand a year just to break even and I was like dang. That means that, let's say you have $1.5 million in savings, you're like I'm great, well, that'll last you three years. Well, imagine if you live off a hundred grand a year. That'll last you 15 years, right? So how much you spend does matter. Okay, enough on that, but spending is an important part of your financial fitness.
Speaker 1:Let's move on to number four. Fitness driver number four is borrowing and, like I alluded to earlier, there's good debt, there's bad debt. Here's the difference. Not all debt is bad. It's just how you look at it. There's debt that you assume to acquire income, producing assets. Then there's debt that you assume to acquire liabilities. Here's the difference. If you use debt to buy a business and then that business generates income and then you pay down the debt, that's good debt. Or you buy an investment property, for example. So you lever up with debt and then you service that debt with the rental income that you're getting. Well, okay, that's good debt. Or maybe you buy a vehicle. You buy a vehicle and then you turn it into a plumbing truck or a truck that provides electrical services. So now the debt on the truck is now being paid down from the income that you are earning on your business. All right, that's good debt.
Speaker 1:Bad debt, conversely, is buying a vehicle and saying, hey, I'm gonna go buy this bling, bling Porsche that I can't afford. I'm gonna lever up on debt, I'm gonna have a huge monthly payment and I'm going to assume liabilities, and liabilities create expenses and they hurt your cashflow right. So that's good debt versus bad debt. There's an argument about your house, whether your house is your greatest asset or your greatest liability. I'm not going to get into that, but just know that when you're taking that vacation and you're swiping that credit card because you don't have the money to do it, you're assuming liabilities. That's bad debt. You go buy that shirt, you go buy those shoes and I can tell you it sounds great. Oh, these shoes, I need these shoes. I'm going to swipe my credit card, but then later on you regret it. You feel like crap, you feel guilty, like you see your money dwindling. You become a slave to debt. So just try to avoid it if you can. I've been there before. It's terrible, all right. So that's what I'm gonna talk about with.
Speaker 1:Borrowing is just good debt, bad debt. If you're in debt and you wanna pay down, there's the snowball effect, there's the avalanche method. I'm not gonna get into the details. You could Google it yourself. But just know there are ways to pay down your debt quickly. I would say if you have high interest bearing debt let's say it's 5% more or 7% or more then maybe you want to pay that off. But maybe you have debt that's like 3%, for example, your mortgage. Maybe you refinanced back in the day and you got a 3% mortgage. Well, maybe paying off your house isn't the smartest investment. I'm not saying it is or it isn't. This isn't Steve's financial advice to you, so don't hold me accountable for anything. I'm just pointing it is or it isn't. This isn't Steve's financial advice to you, or I said. Don't hold me accountable for anything. I'm just pointing out different things. But if your borrowing is out of control and you're investing in liability-based debt, it's gonna be super painful to get out of in the future, so try to avoid it as much as possible.
Speaker 1:Last thing I'll say when it comes to a business in debt if you are taking on debt just to cover operating losses and you have no plan in place, no strategy to get out of this trap, you're going to put yourself in a terrible situation. When I go into businesses to turn them around, sometimes they're using their line of credit to make payroll Immediately. We look for ways to free up cash to stop this behavior right. So if you're in this situation, you need my help. Reach out to me at cultivarcom and we can talk about a strategy for this. But I could tell you, if you are in this position, you're just covering operating losses with debt. It's a very bad path.
Speaker 1:If you're using debt in your business to invest in innovation or to expand the business or to dump into sales and marketing and you have the right LTV to CAC your lifetime value to CAC ratio, say it's at least three to one then you could pour money into your business and you could use debt borrowing in order to maximize your returns. But just differentiate between those two good debt and bad debt. That's all I'll say with borrowing. But that's fitness driver. Numero cuatro that's a white boy trying to speak Spanish. All right. Number five is investing. That's a white boy trying to speak Spanish. All right. Number five is investing. All right, I'm not a financial advisor. We're not getting it into retirement or which assets you should invest in.
Speaker 1:But let me just say this pay yourself first. Like I said, take 10%, 20% of your income, whatever is. Put it aside immediately, put it in your savings account or in your brokerage account and just invest that treated as gone. That's what I do Every time I get paid. Money goes immediately in my brokerage account. I invest in financial assets and I just consider them done. I'm not a day trader. I invest for the long term, all right. So that's number one.
Speaker 1:Number two, where you invest your money, makes a massive difference. I don't know the exact numbers off the top of my head. You can look this and over 30 years you decide to invest it in cash, bonds, real estate, stocks and business and let's say you earn a 1% return. If you take 100 grand and put it in cash and earn 1% over 30 years, you have like 134 grand. It's nothing. You barely have any growth. You barely keep up with inflation, if at all. If you keep up with inflation, if you put it in bonds instead and you earn a 5% return, it's something like $440,000. I'm rounding here, okay, just going off my memory, you have about $440,000 after 30 years. So it's about four times what you'd have in cash. So it's better. If you put it in real estate at 7%, you have something like $800,000 in cash, right? So that's 8x compared to cash. If you put it in equities, in stock, and let's say you earn a 9% return, you'll have like $1.7 million, I think it is. And then if you put it in business and you take 100 grand, you start a business and you grow the business and let's say you just earn a 15% return Sometimes it can be 20, 30% return on your invested capital Then you'll have like 8 point something million dollars, like 8x what you would have just by investing in stocks. That's why I'm so bullish on financial literacy, because when you can understand the story behind the numbers, you drive tremendous value in business.
Speaker 1:All right, the last fitness driver that I'll talk about is giving all right Giving, giving to yourself, giving to others. Let's talk about yourself first. I believe money is a vehicle to bless the lives of others. That includes bless my life and bless the lives of my immediate family members and those surrounding me. So giving is an important part of my life. You know I give 10% of my income to my church because I believe that my money is not all my money, it's God's money. So I'm just giving back 10% of what's not even mine in the first place. That's just me, right, I'm not trying to get religious on you. I'm just sharing with you what I do.
Speaker 1:Now. There are other things that I give to, but we could give our time to people if you don't have money, but in order to give your time, you have to have all these other fitness drivers in place so you could actually do that. So oftentimes I'll come across people and they're like, look, life's not all about money. I just want to help other people in other ways and I'm like, yeah, you could do that, but you can't be broke and then go serve some mission to bless the lives of all these people. I mean, sure you can. I guess some people have done it, like maybe mother Teresa or whatever but it's going to be really difficult to help other people if you're living check to check and you're struggling, all right.
Speaker 1:So getting your financial fitness drivers in shape right, like getting them working well so you could give of yourself and give of your money is incredible. I could tell you that's what it comes down to. I'm able to produce this content, I'm able to help organizations, I'm able to mentor people. I'm able to do all this stuff because I've achieved this freedom in my life. But this wouldn't have been possible without investing in these other five financial fitness drivers and, to be frank, investing in my financial skills, which has allowed me to turn around and grow companies All right. So these are the six financial drivers that I wanted to focus on today.
Speaker 1:Maybe you have one or two or three, maybe you have all six that you need to work on. Whatever it may be, maybe you have multiple ones. I would just focus on the one with the biggest upside. Maybe you have debt and it's like, yeah, you could pay down debt, but maybe the biggest upside is in fixing your earning potential. Yeah, you could pay down debt, but maybe the biggest upside is in fixing your earning potential, because then you could 3X, 10x your income and then pay down your debt faster. So, whatever it is for you, you just have to figure out which financial driver is most important and is gonna have the biggest impact on your life and then go after that and then, once you tackle that, work on the next one.
Speaker 1:Try not to do all six at once. It's going to become super overwhelming. I wish you all the best. I want you to have a great financial life. I mean that seriously, from my heart. I really mean that I want you to be successful and hopefully you can hear that through my messages and my content that I put out there to you to help you do so. All right, that's all I have for today. I wish you all the best. Take care of yourself, be sure to share and subscribe and until next time, take care of yourself. Cheers.
