2 – IMPACT Your Net Worth

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Episode Overview:

On this week’s episode of Net Worth Hacks, Ken Kaufman recounts his journey into the world of finance and net worth. Then Ken introduces you to the 6 key principles that act as the guidepost to achieving net worth success. Learn about these six principles using the acronym IMPACT: Iterate, Maximize, Prioritize, Align, Cultivate, Terminate.

Transcriptions are auto-generated, please excuse grammar/spelling!

Happy Day to you. This is Ken Kaufman and I am thrilled you’re here for Episode number 2, IMPACT Your Net Worth.

Today’s theme is really going to be about introductions, I’ll start with an introduction of me and some of my background, and then go into an introduction of the IMPACT your net worth model.

It was really in high school, when somebody from the financial services industry came and visited a class that I was in and talked about what they did every day and how they interacted with clients and things to do with the stock market and investing and insurance and all of the elements that were with that, and I was captured.

When I went to college, my very first semester I took a financial planning class, the basics of investing and doing financial planning because I was interested in it and had been since that time in high school. I went on a two year mission, and I came home and quickly got a job as a brokerage trader and worked at Fidelity Investments and another wholly owned broker dealer of a bank. After graduating from college I decided I would take a run at a financial planning business on my own, did not go well, I’ve got a future episode where I’m going to talk about my failure there, what went wrong, and the key lessons that I learned that have actually helped me get to where I am now. So I’ll save that one for another day.

But I ended up getting involved with a high growth business, went and did an MBA degree, and since 2004 have held a Chief Financial Officer position of small companies up to lower middle market size companies until now.

Along the way I met a beautiful woman, married her. We have been married for 20 years, and we have eight children. Yes, I put a pause there on purpose, let that sink in. We have eight kids, each of them are amazing, and so grateful. They’re so different and so unique, and just a huge blessing to our lives.

Now, my second introduction is the IMPACT your net worth model.

The last episode I actually laid down some of the core reasons why net worth is so critical to know and to build if you want to succeed financially. The math formula for net worth is so easy assets minus liabilities equals net worth.

Yet it is not intuitive like tracking income and expenses and budgeting around those transactions. And it’s that point that makes net worth complex and nuanced. And let me jump over the business side of finance and see if this makes sense. In business, we talk about a profit and loss statement and what is the net income of a business. There’s a lot of focus spent on the activity of generating the revenue that comes into a business and, after all the expenses, what’s left is net income. with all of the fascination there, you do not hear many people in business talk about the balance sheet which, believe it or not, it is actually a statement of net worth for that business. It is the assets of the business minus the liabilities of the business, or the debt. And that equals what’s called equity or the equivalent of net worth.

What I learned early on in my career is that the balance sheet is actually what drives the accuracy of everything that happens on the profit and loss statement. And it also drives the accuracy of what’s called the cash flow statement.

Now in business, valuations of businesses are generally determined based on their ability to generate cash flow into some perpetuity in the future. And the value of that businesses get usually far exceed what the net worth is on a balance sheet.

But I think that this is part of the nuance that makes net worth so difficult for some to understand, and why it just doesn’t come intuitively is in business, it’s something that’s passed over and looked beyond because valuations and true equity value ends up being something not connected to the balance sheet, or net worth, even though the balance sheet drives the accuracy of everything that’s going on. In our personal financial situation, the net worth that shows up on our personal balance sheet, our assets minus our liabilities equals our net worth, that is where the magic happens when it comes to creating network personally and true economic value personally and succeeding financially on a personal level.

I want to introduce you to a model that I’ve been working on and developing, sometimes I didn’t even know I was working on it and developing it, over the last many years. It’s been my fascination even though my day to day work has not been in financial services and personal financial planning. I have continued to work on this and create a model that has helped me be successful and is my motivation to actually launch this entire podcast to share some of these ideas.

So the model is based on six key principles that reduce this complexity and nuance of net worth into easy understand guideposts of success. Each is dependent on the other other to create the best net worth outcome. Everything that I talk about in this podcast and that I share is going to tie back to at least one of these principles. And so I will continue to relate these and talk about how the things we talked about in the podcast relate to least one of these six principles.

So to make them easy to remember, I actually use the word IMPACT as an acronym to remember them. Hence, my reference to IMPACT your net worth comes back to these core elements and has deep meaning representing that the IMPACT acronym will help all of us to build net worth. So I’m going to introduce you to the key elements of the IMPACT acronym now and then in the future, I’m going to dedicate at least one episode to each of them, so that we can do a deep deeper dive and set a foundation for a lot of the things that are going to come in the future on the podcast.

So starting with word IMPACT, the letter I stands for Iterate, M stands for Maximize, P stands for Prioritize, A stands for Align. C stands for Cultivate, and T stands for Terminate.

Now, I’ll take just a minute to give you a brief introduction to each of these six elements of this IMPACT acronym, or the IMPACT your net worth model as I’ve described it. And that will set the basis for really the next six episodes of the podcast.

First, the word Iterate, somebody who’s iterating is trying to learn and grow and develop and get better with time. Knowing that the first time you try something isn’t going to be right. But directionally, you’re going to get a lot of information from that effort to know what to do next. And then what to do next.

We have to take this mindset when we talk about personal finance, because we make mistakes, we have money trauma from the past, because of some of these mistakes, or perhaps experiences we’ve had or things people have taught us or maybe even the way our parents handled money, or we’ve seen other people have money issues in their lives. We have to be able to iterate to a new mindset and continue to make those adjustments, iterate our process for building net worth. And then as life changes, be willing to iterate what our goals and our purposes and our objectives are.

So that’s iterate, the second letter in IMPACT is M for Maximize. And there’s two things that we want to maximize. The first one is income, and there are two types of income/. There’s active income, which is you’re actively doing work, you have to be engaged in something to generate the income.

And then there’s passive income. And passive income is whether you work on something or not the income comes in. You don’t have to go to work, you don’t have to check in with anyone, you don’t have to clock your time in and out, that income flows in on a passive basis.

The second part of maximizing is to maximize our fulfillment, our happiness and our joy in life. Money is a means to an end, it is not an end in and of itself. And so this income that’s coming in, we need to not just try to maximize it but maximize the enjoyment of the process of getting it and then how we’re going to use it. Again, much more to come on that.

The third element of the IMPACT model is P for prioritize. I specifically reference this as prioritizing the waterfall. I’ll save all of this for a future episode. But the waterfall is something you do not want to miss, definitely don’t want to miss that episode. When I share this concept with people, it just blows their mind, in terms of its simplicity, as well as its application to helping them be successful.

The fourth letter in IMPACT is A which is Align, focused on aligning with two things – your partner and your priorities. It’s so often that we describe what matters most to us, what our priorities are, only to find that when we look at how we spend our resources, our money, it is clear that our day-to-day actions are not aligned with what we profess our priorities are. So we have to align with our priorities.

And the second thing is to align with our partner. Money continues to be the most argued about thing and marriages. In fact, it’s higher in the millennial generation than any other generation that’s been measured. And I’ll talk about some of the statistics and those things when we get to that.

Money continues to be a major cause of divorce. I believe that when we take this IMPACT model, and we apply appropriately, appropriately, it gives couples the best chance to find their common ground and create alignment.

C in the IMPACT model stands for Cultivate, and specifically to cultivate assets, denoting that we are trying to nurture and build and grow them into being more than what they are today. Whether they’re small or large, we can put effort in and help to build and grow those.

T stands for terminate, specifically to terminate our debt. We want to pay that down or even potentially pay it off. Over time, as we do that it will have a direct impact on making our net worth increase.

Well, there it is. That is the IMPACT your net worth model, each letter of IMPACT representing one of the six key principles to truly increasing and building net worth over time. We will be spending time on each of the six episodes discussing these principles, one episode per principle.

This might actually be a good time to subscribe to the podcast so that you don’t miss the deeper dive that we take into each one of them. Many, many thanks to you for joining today. This is a wrap for Episode Two. Happy Day.

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About the Podcast

Join Chief Financial Officer Ken Kaufman as he helps you track and hack your net worth. For those seeking financial independence, your net worth is one of the most significant measurements of success. Using his two decades of financial experience, Ken Kaufman helps you overcome your financial obstacles and look onward towards a better, brighter financial future.

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