7 – Cultivate Assets

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Episode Overview:

Ken discusses how the first four letters in IMPACT set you up for the last two: Cultivating your Assets (letter C), Terminating your Debt (letter T) or both simultaneously. Then Ken goes on to discuss cultivating your assets. First and foremost, it is important to understand that your first asset is yourself. You must be willing to invest in yourself such as going beck to school or growing your skill sets. Moving from there it’s important to look to all aspects of your life and determine what exactly are your assets? Could be things such as your savings or even your car. Ken discusses ways to cultivate these assets, whether it be by doing it yourself or relying on others. Finally, Ken discusses how it’s critical you understand the risk of any investment and finding that balance between growth and risk exposure.

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 seven, cultivate assets.

We are working our way through this impact your network model, using impact as an acronym. And each letter identifies one of the six key principles for building net worth and getting ahead financially.

And as a quick reminder, I want to go through them and break down these first four that we’ve gone through that they’re setting us up for the last two, which is the formula for net worth.

So starting out with I for iterate mindset and process, we’re laying the groundwork for how to think and how to create processes around us so that we can build net worth.

The M is for maximize income and joy. And this is about driving enough dollars down to the end of that pipe so that there is an ability to build our net worth from this residual leftover of our income.

P is for prioritizing the waterfall, which is where we start to understand that we need to put certain things first that come out of a bank or bank account, and then second, and third and fourth.

And then this fourth letter A is for a line with partner and waterfall. This is where we take our spouse or whoever we partner with and share finances with. And we get alignment with how we are spending that money. And we are staying aligned with our waterfall or in essence, if we go and look at your bank account statement, your credit card statement or the dollars being spent in a way that is consistent with how you have prioritized.

Today is cultivate assets, the letter C and impact for cultivate assets. And next episode, we’re going to cover T which is for terminate debt. The first four set us up to talk about cultivating and terminating, because assets minus debt is net worth.

This is where the real impact is on, are we able to build net worth? Are we able to cultivate and build assets? Or are we able to terminate debt, or do both at the same time, and as we do, then we will see our net worth go up into the right. So I’m excited that we’ve gotten through the first four because there’s a lot of mindset and a lot of things that we need to do to get ourselves ready for this. And now we can start having this conversation about cultivating assets, and then ultimately terminating debt.

Now as I think about an example from my life of something I cultivated, I brought up my passion for baseball in a prior episode. And I thought about something that I worked really hard to cultivate. And that was this baseball card collection that I had, I received an allowance every week, and it was just enough to go to the corner grocery store and buy two packs of baseball cards. And then I inherited some from my father’s collection when he was young. And he came across all of that as he was cleaning out his parents home and gave me a whole bunch of really old baseball cards. And I started to build or to cultivate and nurture and take care of these assets. And these baseball cards, I needed to protect them so they can remain in mint condition. I subscribed to a magazine at the time, that shared pricing and values for different types of cards based on how old they were, how good the players were, what condition the cards are in. And there’s a level of how rare the card is, or you know, how many are in print.

And I started to learn these metrics and numbers and then started to trade with friends and built up this asset that I was continuing to try to cultivate. And it was just something I enjoyed. And I liked to try to understand the players and the numbers and everything that went with it.

So with that as a background, when we approach cultivating assets, we need to approach it in a way that allows us to properly grow and nurture, but also protect at the same time, there’s a level of stewardship with these assets. And so the thought process of just trying to grow them without some controls in place, and without some ways to protect ourselves. It’s critical. And that’s why I use this word cultivate, when it comes to how we look at and treat our assets. It’s about nurturing and growing them but being careful with them and protecting them, but also giving them that opportunity to grow. And not being satiated if they’re not growing, at least over the long haul.

So as I thought through this part, and prepared for this podcast, I started to think about really the greatest asset that you have is yourself and your immediate family. And so when we think about cultivating assets, cultivating you as a person, your ability to add value to the world and your ability ultimately to create income for yourself and for your family.

And so I want to tell you, this would be considered a non tangible asset, it wouldn’t be like having money in the bank account or a nice stock portfolio at one of the brokers online.

This is a place where you can invest in yourself. And it gives you this ability to create income, perhaps it’s an education or its training, or its seminars that give you perspective to be able to go and do what you need to do. So I think the first asset is we have to be willing to invest in ourselves.

And when I went back and did an MBA degree after working professionally for almost five full years, it was a big sacrifice. And it was a big investment that my wife and I collectively decided to make.

And looking back on that investment now, over 15 years ago, we both would say it was very worth it, and perhaps in a future episode I can talk more about that.

The next place that we need to look to invest our actual income sources. And do we have an opportunity to increase those income sources, perhaps it means we’re invested in ourselves or if we own a business, maybe their investments we can make in that business to grow and build it, Because that business is ultimately an asset, especially for those that are building it beyond themselves.

For those that are self employed, very important to have the skill set to be able to go out and market your skills. And for those who are building more of an enterprise with lots of employees, a lot of times their net worth is tied up inside that business and the value of that business. And so the ability to grow that overtime is very important.

We also have our primary residence, if you have purchased it that becomes an investment or an asset that we have to think about and how do we take care of it and and improve it and keep it in good repair.

We also have vehicles that are viewed as assets, although they’re not the best kind because they depreciate as soon as you drive it brand new off the lot we know it depreciates in value and it just appreciate over time. However, those vehicles are important that we take care of them and keep them in good repair. And they are actually assets that we own. And they help us so that we can go out and create an income and do the things that bring us happiness and joy in life and allow us to drive our kids to school and really to function within society and to be successful. And so we do need to think of those as assets as well.

And then this last bucket for cultivating assets, I would call these now our discretionary assets.

And they could be something like cash in our bank account, that we may need to pay our bills in the next few months. Or perhaps if a little bit of an emergency fund is built up that we might need, or we could use for the next three to six months to cover all of our living expenses.

And I’ll mention here that if you currently have five or $10,000 saved up, or possibly more in cash saved for the short term type needs, you really should consider high yield savings accounts that have become become very popular. And in fact, right now there are several online banks that are 2% or greater interest. And that’s FDIC insured. And just to be clear, I’m not giving investment advice, if I was to try to, I would need to know a lot of things about each one of you individually and your financial situation. So I would not even attempt to do that. Nor am I a licensed professional to do that. I have done that in the past. And so just want to be super clear. But there are these high yield savings accounts out there plenty of places that you could be earning 2% or better on your money. So if you had $5,000, that would equate to roughly an extra hundred dollars a year that you could be earning an interest versus what you might be in a lower account.

Then the next bucket to think about is things you’re saving for that might be 1-3 years away. And then another bucket would be things that are maybe three to five years away, and then five to 10 years away. And then saving first things that are 10 years away and longer, including, if you’re that far away from retirement, your 401k, IRA, 403(b), 529s, all those retirement accounts that may be out there.

And then of course saving for college or you can go down the list, perhaps you’re saving for marriages that are going to happen at some point in the future. For my children, we save specifically for them to be able to serve missions for our church similar to what I did shortly after I graduated from high school. So we have all of these kind of timeline buckets. And then when we’re cultivating assets, we also need to think about what risk tolerance we’re comfortable with, and really what we’re passionate about when it comes to this or perhaps not passionate at all.

And I would say that I really put this into three main buckets in terms of how you are going to cultivate assets. The first one is you want to be a do it yourselfer, which is great. You want to understand stocks and bonds and real estate, international things, just investments overall, where you can go and take and you can cultivate your assets.

And that’s great. So there’s the do it yourselfers. And if you fit in that category, that’s great. And in the future, I’ll be sharing a bunch of resources about how to learn about the best ways to invest and to take those things on. that are, you know, folks that have written books about it, and articles and have great websites and even have some great tools on their websites to be able to model some things and think through some things.

The second are a new class, if you will, of advisors, they’re called robo advisors. And for a very, really nominal fee, it’s not very expensive at all. You can have your money invested in a way that is very what almost you take perfect nationally managed, they follow what the people in education and all the empirical evidence talks about and it goes back to Harry Markowitz, and people have won Nobel prizes for the research that they’ve done. And they take all that and build up portfolios, that somebody who wants to put $50 a month or $100 a month into an account, or less or more, you can do that. And again, for a very small fee, they take that on and they’re called robo advisors, because it’s not that you necessarily have a person that’s right there working with you and talking to you about every detail, but they can gather enough information about you that they can get your portfolio allocated in a way that would be suitable for your situation.

And then the next step would be an actual professional financial advisor, or a fiduciary advisor. And this would be somebody who has received the proper licensing and credentials, they would sit down, take the time, get to know your situation. And then they would make specific recommendations about how you should cultivate your assets and what types of things you should be thinking about being invested in and how you should allocate those assets amongst different potential asset classes and different investment opportunities.

So again, we have you do it yourselfers, we have this robo advisor category, and then we have the full fledged, personal financial planners, financial advisors, and folks that are in the financial services industry in general. My only recommendation in this area is you figure out which one you are in which one you’re comfortable being.

If you go the financial advisor route, you want to make sure that their function is a fiduciary, which means they’re going to have a legal obligation to look after your individual best interest once they get to know you and know enough about your situation to be able to do that. And that they have the right licenses or credentials that allow them to do that.

In addition, make sure that you’re clear on how they are paid. And so that you you’re just clear that there’s no financial incentive for them to do something other than what is in your best interest.

One last piece as we talked about cultivating assets, and we’ll talk about this as well in the future, but there are tax implications of having assets and cultivating them over time.

And so as your assets build, that can become more and more of a concern. So making sure that you get the right advice and right perspective about minimizing your taxes is perfect. And at the end of the day, when we’re cultivating assets, we want to be confident that our assets are invested in a way that is going to help us get the best possible return while minimizing our risk. I’m going to say this, again, we want to try to get the best possible return while minimizing risk.

So as you are looking at potential ways to cultivate assets and where you might put those things you want to understand from anyone who’s helping you or if you’re do it yourself, are there tools out there that you can go and do this. But you want to understand what is the risk exposure of any investment or any place that you put your money? And is there the possibility that you could lose the money completely? or How much could that investment based on historical evidence and data? How much could that investment go down? In a year? Or in two years? And how long might it take to come back up? Or will it ever come back up?

Now, these are all questions that we don’t know the future and anybody that you work that’s a professional in financial services and investing would tell you that they can’t project the future, but they can look back and they can see what’s happened in the past. And they can give you some good parameters to understand what type of risk is involved with any of this cultivating your assets within the impact your network model.

And so again, you’ve got to think through and be clear about what these risks are and that you’re comfortable taking those risks. And you want to make sure that when you do take the risk that you’re minimizing or mitigating those risks as much as you can, while giving yourself the opportunity for those assets to grow. And this is the balance of cultivating this is I want my assets to grow. But I don’t want to be overexposed to risk or overexposed opportunities for loss at least more than is necessary in order to try to make my assets grow.

Similar to my baseball card collection, I can go back to that analogy or example, you know, if there was a horrible flood, I would have lost everything. Or maybe even if my younger sibling got into it and started ripping them up, that would be another potential risk. And so there were things I could do to minimize, I had these plastic sheets that I would put each card in so that you could look at them. But they were protected.

So I’m just going to ask this question as we close for you to think about how confident are you that your assets are being cultivated in a way that allows them to grow the most effectively? Based on the goal or priority that you have for that asset while you are exposed to the least amount of risk possible in doing so. So how confident you are?

How confident are you about that?

That’s something for you to think about. And it’s a topic that will continue to cover in this podcast into perpetuity probably because it continues to be what everybody is seeking for when they work to cultivate their assets.

Well, there it is. Cultivate your assets from the impact your net worth model. In our next episode, we’ll get into the sixth letter in the impact acronym which is T for terminate debt.

Make sure to subscribe to the podcast so you don’t miss that and all the other following episodes. And if you feel so inclined, feel free to leave a review. I would love to hear your feedback about the content that I’m providing.

Many, many thanks to you for joining today. This is a wrap for Episode Seven. Happy Day.

Transcribed by https://otter.ai

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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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