32 – Asset Cultivation Roadmap

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Episode Overview:

We made it. Our journey is at an end, having touched every point of Ken’s Cultivation Roadmap. Ken reviews in brief, every stop along the way, along with the corresponding podcast episode number. If you are brand new to the Net Worth Hacks Podcast, this episode is great for jumping in. If you hear of a topic that interests you, or maybe you decided that you haven’t fully grasped a concept, you are encouraged to go back and listen to the episodes referred in this episode. This episode also shows you the bigger picture with regards to asset cultivation, and shows you just how many ways there are to grow your net worth.

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 32, where we summarize the asset cultivation roadmap. Over the last 10 or so episodes, we’ve been talking about several concepts around how to cultivate assets as part of the impact or network model. And as I go through this, I’m going to list each episode number so that if this is your first time listening to this podcast, you can go back and listen to any of these episodes if anything sticks out to you, or you want more information about them. Or maybe you’ve listened to these episodes, but there’s something that sticks out to you here that you like to go back and just double check on or get some more detail on. I do invite you to do that, and that’s really the design of this is to give a nice, rounded out summary and you can go find more details if you’d like.

Episode 21, I focused on talking about the two things you should do first when you’re ready to start cultivating assets, and this is before you get into any type of aggressive debt pay down mode or anything else. And this ultimately replaces the need for an emergency fund. The first one is, get yourself out of credit card float. The way you do that is you set aside the money that you spend on your credit card. Each time you have a transaction and you buy something with your credit card., you set that cash aside. So, it’s there waiting to pay the bill, when it’s ready to be paid. And that cash is just piling up ready, that bill comes, it can be paid. The second one is, start living on last month’s income. Or in other words, the money you’re spending this month should be the money that you earned or came into your bank account last month. I talked in the episode about how you need a budget is great at tracking both of these things because it can be a little tricky to track this in a spreadsheet or in some other format. You just wanna get out of that credit card float, get yourself to where you’re living on last month’s income and all of a sudden you have a pretty decent emergency fund of cash that’s built up in your bank account. Now, I wouldn’t get in…that’s episode 21, if you want to go back and hear some details on that.

Episode 22, I talked about the next step as been saving for non-routine and non-recurring expenses. And there’s basically three categories here. The first one is, you’re saving for some unpredictable costs in the future. The two examples I used are house repairs and auto maintenance. We don’t know when we’re going to need to repair things or when they’re gonna break. We don’t know when our car might break down or any of those sorts of things. But we can start saving a little bit of money every month, and that balance just builds up over time. And again, you need a budget software, it’s really good at rolling that balance over. It’s money sitting in your bank account, and it’s set aside for that specific purpose. So that first one is saving for unpredictable costs. The second one is saving so that you have a specific amount saved by a certain period in time. So, Christmas is a great example here or a life insurance policy premium that needs to be paid annually. So, you can be saving every month to make sure that by November you’ve got all your Christmas saved up so you can start shopping on Black Friday or anytime in November or maybe it’s October when you like to start your shopping, whenever that is.

And then the third bucket that we put these non-recurring, non-routine expenses into is, saving an amount that you may or will need in the future. And the example I always use here is if you have health insurance and let’s say you have a $3,000 deductible, so that if you have a major medical issue or emergency come up and you breakthrough that $3,000 deductible, then the insurance kicks in and starts paying and you may not have to pay out too much more above that.

Saving up a balance. You don’t know when you might need it but having a goal to set up to save that full deductible is very, very valuable and very settling in terms of you know you’re ready to handle any medical emergency when it comes. Anyway, there’s a lot of other examples. You can jump back to episode 22 to listen to that. Again, saving for these non-routine and non-recurring expenses.

Jumping into episode 23. We started to talk now about how those first three actions of saving for the non-routine, non-recurring, the process of living on last month’s income and the process of getting out of the credit card float. Those are all short term savings, and you’ll see your bank account just start to go up as you’re successfully doing those things. Now, we need to talk seriously about medium and long term savings. Where your short term savings preservation of capital, making sure you don’t lose that money is the most important thing. So, it’s there when you need it. And it’s that safety net for you. But when you start to think longer term, well, now we’ve got to think about how do we make sure our money isn’t eroded by inflation? How do we try to earn a return on that money so that it’s worth at least what it was today, then whenever it is that we need it. And maybe even more and can we leverage taking some risk relative to a few different factors. Episode 23 jumps into all of that.

And the three factors that drive how you should think about investing your medium and long term savings come down to three things. One is, what is your investment objective? The second is your tolerance for risk. And the third is your time horizon, meaning the period of time that you have to invest it before you’re going to need that money or you anticipate starting to tap into it and use it for its devised purpose. Again, that’s episode 23, feel free to jump back to that one and take a look.

Episode 24, we went further into how this medium and long term savings plan. The first thing we’ve got to do, once we determine our investment objective tolerance for risk and time horizon is we need to figure out our asset allocation. And this is if we’re going to go into the stock market or the traditional financial markets, it’s not if we’re going to buy investment real estate assets, that could be a very legitimate investment or we’re going to invest in a privately held business, that could be a very legitimate business. This is if we’re going to go into the stock market, mutual fund, ETF, that place in that market. And when we do this, the first thing we have to do is figure out our asset allocation, which on a very general level is what percentage of what you’re investing should be in stocks and in bonds and then in cash or in, you know, capital preservation tools like money markets and those sorts of things. That’s episode 24. If you wanna learn anything more about the concept of asset allocation and how you come to that, feel free to jump back to that episode. There’s some great content there and some great links in that one as well.

Episode 25 is where we then talked about diversification. When we’re saving money for the long term, putting all of our money in, say, one piece of real estate or in one individually held business or privately held business, although that has a potential for a great return. Being diversified or in essence, not putting all your eggs in one basket, it’s very critical to succeeding when we’re trying to earn a good return on our money that we have set aside for medium and long term purposes. That’s episode 25. Feel free to go and update yourself on that if needed.

Episode 26. I went into an entire monologue because I’m a big believer around some of the concepts in this one about the differences between active and passive management, and which one ultimately is the way almost every single one of us should be thinking about investing in the market. The spoiler alert here, I am a big passive investment believer, I’ve even worked in the stock markets and I have seen way too many things and I know way too many things. Index investing is my preferred way to invest. That’s episode 26. You can hear all about active versus passive management.

Episode 27 is where we talk about expenses. When we make investments, there are fees that managers and platforms and other parties are going to be wanting to come in and pull parts of our money out to compensate themselves. Having a good understanding of what fees are associated with each investment option, or product, or financial product is super critical to being successful with cultivating your assets for the long term, which and ultimately building your net worth. So there’s some good information there. Feel free to jump back to episode 27 if you have some interest to dive into that a little bit further.

The next episode, episode 28 is the Cultivate Through Buy and Hold. I cannot stress this enough if we’re investing for the medium to long term. Their research shows that the more actively we are trading because we’re hearing news and listening to things that are happening in the market, and politically, and in the economy, and throughout the world, as we get stressed about those things, they can cause us to start to want to sell or change our strategy, our asset allocation, or our diversification plan, or how we’ve organized things. It is so critical. The research proves and shows very clearly that the people who lose when they’re investing for the medium to long term are the ones who keep switching strategies back and forth, and can’t just settle in and buy and hold. The way to win, when investing in this way is a buy and hold strategy. Stick with your strategy. And it needs to be well-vetted and if you need an adviser or somebody to help you get it squared away and right, then please do that. And I would encourage that, of course. But getting it right and holding is so critical to your success until you get on a glide path and you need to maybe start to shift some of your investments to be more conservative as you’re getting closer and closer to a place where you might need to start using them or tapping into them.

Episode 29 is about managing your emotions and behaviors. We are hard-wired to make all the wrong decisions when it comes to investing. We have to overcome that, and sometimes never look at it. Don’t look at the statements, just don’t pay attention. I have my automated investment program working, pulling out of my bank account, getting allocated where I told it to, and not looking. Others like to engage and be involved. But the one thing I’ll tell you is, and there’s lots of research and studies around this, generally speaking, our gut is to think to be overconfident and think that we can guess what’s gonna happen with the market. And ultimately, when we follow those emotions and we give in to some of our fears, we usually sell when things are low and buy when we’re high. And that is the exact opposite of what you’re supposed to do. We should be striving to buy low and sell high. And ultimately, trying to time the market is going to be very, very ineffective. That’s why we go back to the buy and hold strategy. So, if you wanna hear more about managing those emotions and behaviors, which can be very hard, and I’ve seen a lot of people be overcome by that, make a lot of really bad decisions and hurt themselves significantly when they can’t get control of that. So, it’s really important. It’s episode 29.

And then episode 31 is where I talked about dollar cost averaging. If you have a lump sum of money, you should put it in the investment and get going and make it start working. Dollar cost averaging is designed only for those who have a certain amount that they want to put away every month, maybe your 401(k)would be a good example that you have money coming out of your check. And money’s getting invested for you every two weeks or every month depending on your payroll cycle and when that gets deposited. And dollar cost averaging is so powerful, you won’t end up with the return. So, if I’m investing, say, $100 each month throughout a year, whatever the stated return for that ETF or mutual fund or that investment is at the end of the year, I won’t have that return because I was buying it all different prices throughout the years, the markets going up and down and up and down. You won’t have the stated return, but it’s a very effective way to get yourself in the market and to make yourself successful.

So there it is, that’s the summary of the roadmap to cultivating your assets. This is so critical to understand. There’s so many details and principles here that can make or break whether or not you’re successful in your medium to long term savings. And so again, recommend the content and if any of you have questions or anything, feel free to send them my way. It’s ken@networthhacks.com. I’d be happy to try to answer them or at least point you in a direction that you can educate yourself and get further along the road in terms of understanding all of it. Many, many thanks to you for joining today. This is a wrap for episode 32. 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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