Welcome to Sidekick Sessions, part of the BEATS WORKING family, where we gather the team responsible for producing the podcast and talk with a previous guest on the show. This month, we’ve brought back entrepreneur and podcaster Paul Adams for a free-for-all on money and investing with the WORKP2P sidekicks.
Paul is the founder and CEO of Sound Financial Group and host of the “Sound Financial Group” podcast. If you have money questions, Paul has almost 300 episodes in the vault on all kinds of topics.
The sidekicks had a blast talking with Paul, and we came away with great advice and answers to some of our biggest financial questions. We discussed how to teach and empower our kids when it comes to money (and why a simple savings account is a great start), solid tips for 20-somethings on the very first step to getting started on the path to financial independence, how we can shift from a just-pay-the-bills mindset to a wealth-creation mindset, and how to calculate how much money we’ll need when work “becomes optional.” (Paul hates the word retirement.)
The best part of our conversation? We discovered talking about money doesn’t have to be hard or awkward.
Resources from the episode:
- Listen to Paul’s BEATS WORKING episode, “Securing Your Financial Future,” here.
- Click here to listen to the Sound Financial Group podcast episode that Paul mentions when talking about wealth coordination during Sidekick Sessions.
- Paul offered up his favorite books about money in this episode. Here are links to “Stop Acting Rich: And Start Living Like a Real Millionaire,” “The Richest Man in Babylon,” and “The Psychology of Money.”
- Learn more about the work that Adams is doing and find tips to build a better financial life here.
- Listen to Adams’ podcast, Sound Financial Group, on Apple Podcasts or YouTube.
- Schedule time with Adams to find out how he can help you build your wealth here.
- Connect with Adams on LinkedIn.
- Learn more about BEATS WORKING and our mission to redeem work here.
- Get to know our Sidekicks and find ways to connect with them here.
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Transcript
The following transcript is not certified. Although the transcription is largely accurate, in some cases it is incomplete or inaccurate due to inaudible passages or transcription errors. The information contained within this document is for general information purposes only.
Speakers: Paul Adams, Mark Wright, Tamar Medford, Libby Sundgren, and Elan Olsen
PAUL ADAMS 00:00
How much income do you want in your old age? Divide that number by 0.04. That’s how much capital it’s going to take because there’s, you can take out about 4% a year. So you figure out how much your net present value is and just the same way that you were so diligent about paying down your debt. Now you’ve got a debt, but it’s to a creditor that you actually like.
MARK WRIGHT 00:25
This is the BEATS WORKING Show. We’re on a mission to redeem work, the word, the place, and the way. I’m your host, Mark Wright. Join us at winning the game of work. Welcome to Sidekick Sessions, part of the BEATS WORKING podcast family. This month, we’ve brought back entrepreneur and podcaster, Paul Adams, for a free-for-all all on money and investing with the WORKP2P Sidekicks, my coworker. In Sidekick Sessions, we gathered the team responsible for producing the podcast, and we talked with a previous guest on the show. Paul is the founder and CEO of Sound Financial Group and host of the Sound Financial Group podcast. The Sidekicks and I really had a blast talking with Paul, and we came away with a lot of great advice on things like how to teach and empower our kids when it comes to money and why a simple savings account is a great start. Paul has solid tips for 20-somethings on the very first step to get started on the path to financial independence. He also addresses how we can shift from a just-pay-the-bills mindset to a wealth creation mindset. Paul also teaches us how to calculate exactly how much money we’ll need when work becomes optional. He hates the word retirement, by the way. And the best part, we discovered talking about money doesn’t have to be hard or awkward. Enjoy. All right, so let’s set the stage. Paul Adams is an entrepreneur and he happens to make a living in the financial services industry. He’s a money guy. He helps people plan with their money and hopefully get to a point where we can retire at some point. Um, I’d love to introduce the WORKP2P team. These are the folks that help in getting the podcast, the BEATS WORKING podcast on the air every week. Libby Sundgren, who you are, what you do.
LIBBY SUNDGREN 02:17
Hey Mark, I am in content development here at BEATS WORKING and WORKP2P. I do a lot of T-crossing, I-dotting, and Paul, I loved, uh, listening to your episode and also, um, reading the transcription. So, I feel like I got a double dose, um, so I’m excited to have you here today.
PAUL ADAMS 02:38
Nice. So good to be here.
MARK WRIGHT 02:40
All right, Tamar.
TAMAR MEDFORD 02:41
It’s so good to be here again. I just love these Sidekick Sessions. My name’s Tamar Medford and I’m the producer of the BEATS WORKING podcast. So, I always get the sneak preview and also get to hear it again in editing. So, Paul, I’m super stoked that you’re here again.
MARK WRIGHT 02:56
Alrighty, Elan.
ELAN OLSEN 02:57
Hi, I’m Elan Olsen. I am the creative sidekick for WORKP2P and for the BEATS WORKING show. Uh, so I do some visual management. Um, Paul, I loved what you said in your episode about legacy and how legacy is what happens after you, you know, when you’re walking out the door. I just thought that was so powerful and such a gold nugget from the episode. So, I’m excited to ask you questions today.
PAUL ADAMS 03:24
That would be great.
MARK WRIGHT 03:26
Awesome. This is so much fun, you guys. Um, and I thought what, you know, the title of, of this show is going to be everything you wanted to ask about finances, but were afraid to ask. I feel like as a society, we really stink at talking about money. Uh, we don’t want to deal with money and Paul you and I talked about this; if you guys listening haven’t heard the original episode with Paul Adams, it’s super filled with, with information but I thought it would be fun just to open the floodgates and, and let the team kind of drive the discussion today Paul and just really get, get the answers to their financial questions because it seems like if it’s on you know your mind it’s on the mind of so many other people so who wants to start us out I’d love to just open up the floor to the team to uh to talk to Paul Adams.
ELAN OLSEN 04:13
I have a question um, well after listening to your episode. I just, I realized about myself that I hadn’t really shifted my mindset from a more juvenile understanding and appreciation and the way I think about money and finances and the word for me was wealth. I haven’t thought about building wealth for myself. I’ve really just thought about budgeting and making sure that I could pay my bills. So, um, I’m 29. Uh, I am a new homeowner. I just got married. So, for somebody in my time of life, and especially for the people who are entering the workforce, Gen Z and Gen A, um, what, what advice do you have around shifting mindsets about building wealth and where can I start? That might be a really loaded question.
PAUL ADAMS 05:09
It is loaded, but it’s loaded with goodness. So, where I would start is, uh, maybe first in that process is, uh, you shouldn’t trust financial institutions. And what I mean by that is, uh, it’s not, we have to use financial institutions. But just know that every product or every strategy they create, it involves us giving them our money, doing so on a consistent, ongoing basis, leaving it there as long as possible, and when they do give it back, giving it back as slowly as possible over the longest possible horizon of time. So, when they give us a product that we should buy, we need to first look at our own personal aims. And I think I talked about this a little bit in the episode that if you start with this is what my life, what I want my life to look like. Now people sometimes have goals like I want to take this trip in three years, or I want to get a new car. But to really write out an ambition of here is what I want my life to look like in say, one year, three years, five years, and ten years. Maybe just a little half-page narrative. My house looks like this. I’m working this much time. My spouse and I get a chance to vacation this many times a year. Whatever that is. Then, and then put together, what is that future lifestyle going to cost? And, what you also have to think about is whatever that future lifestyle is going to cost, you have to fund it twice. Because you have to save enough money to fund it when you’re no longer working. But then what most people don’t do is what I just laid out, which is set out the future you want and then figure out what it’ll cost before you make your next career or financial decision, period. Because otherwise, we make a decision that seems like it makes sense in the moment, and we might even buy a wonderful financial tool. But if that financial tool isn’t coordinated with the rest of the things in our financial life, it won’t make a difference. So how we coordinate what are the right tools and strategies is by first knowing where we want to end up. Because if we know where we want to end up, then that helps with each selection of an asset that you would acquire on the path of building wealth. Um, and then the very tact, so that was philosophical, let me give you the tactical one. Set up a separate bank account when you label it on the website, call it your wealth coordination account. There’s a whole episode on my podcast about it where you can go into the Sound Financial Group podcast, see “What a Wealth Coordination Account Is,” but its main purpose is to be a break point between you and the institutions you deal with. So that you are saving up money, setting it into the account to buy assets, and then selecting what asset to the extent you can, you don’t just want to say, oh, I’m going to put 50 bucks a month in this mutual fund or this life insurance policy or whatever crypto. And it’s just automatically drafting out of my account. And now it’s no longer a part of our strategy. But if we put in our money first toward the strategy that hasn’t been selected yet, we will be more selective about the strategy. Especially if we have our future aims in mind.
ELAN OLSEN 08:19
Gold. That was really good. Thank you. Could you say the name of the episode you mentioned again?
PAUL ADAMS 08:24
Uh, I’m not even going to get you the episode number here in just a minute.
ELAN OLSEN 08:27
Fantastic. Yeah, maybe we can add that in the show notes because I’d love to go listen to that.
PAUL ADAMS 08:32
“Wealth Coordination Account” is what somebody would want to search for on the Sound Financial Group Channel.
ELAN OLSEN 08:36
Awesome. Thank you for that answer, Paul.
PAUL ADAMS 08:39
Yeah, you’re welcome. That’s a great question. Well, and by the way, so, speaking of conversations, I also have a really cool tip for all of you and your audience. And that is the next time you’re thinking of going and buy something, a car is a great example, you’re going to go buy, you’re going to be smart, you’re going to get a used car, slightly used at a good price point, but you go in and they try to sell you a more expensive car, they try to get you on the payments or whatever it is, and all you do is when it’s outside of your price range, do not say I cannot afford it, because as soon as you say the word afford, you are on their field of play, they know how to help you think you can afford it. So instead, what you do, see, I would, ah, man, that does look like a great car. Or if your friends are inviting you on a nice vacation, oh my gosh, that vacation sounds wonderful. But it would break my strategy. Now if I tell you it’s going to break my strategy, what’s the next question you have to ask me? Welcome to my field of play. I get to set the rules. I get to draw the chalk outline and I get to say this is what, how we play this game, and why it’s important to me, and now it’s no longer a contest of afford because there’s a lot of things I can afford that affording them would be inappropriate stewardship to the rest of my balance sheet.
ELAN OLSEN 09:56
Wow. Nice. Love that.
MARK WRIGHT 10:01
That’s good stuff. It, who else, uh, who else on the team wants to jump in? This is good stuff. These are great questions and answers.
TAMAR MEDFORD 10:08
I’ll jump in. Um, I, you know, I had taught, I have my own advisor that’s separate from a financial institution and I’ve been set up with an account, uh, separate from my financial institution, which I love that advice. Um, you know, for myself, I’m 47 years old now, we’re renting. And I’m back investing into my, um, up in Canada, we call them TFSA, Tax-Free Savings Account. And at tax time, I will move those over to my RRSP, which I believe is similar to your 401k. Now for us, our rent is fairly cheap right now. And of course, the real estate market is really high and to get into something would be substantial right now. Would you recommend, you know, because I can get typically, you know, four to six percent on my investments, and I’ve heard the term before, house rich, cash poor. And at my age, at 47, is it a good idea to get into the market still? Because we, of course, have different, uh, terms. We don’t have, you know, the 30-year terms like you guys have down there. We have five-year terms. Is it a good idea to get into it at this age, or do I continue to invest my money?
PAUL ADAMS 11:27
So, and the, and the choice point is between going down the path of buying a home or investing in the market. It’s a great question. Uh, one, when you think about investing in any market, what we have to think about is our investment lifetime. And what financial institutions have convinced us of for years is that, uh, what they would call retiring well. I don’t believe in the word retirement. I think it’s a four-letter word. Uh, it’s that we want to build financial independence for the sake of a work-optional lifestyle, which orients a little bit differently than retiring. I don’t exactly want to work toward a future where I’m not useful to people anymore in a monetary fashion. I just want to choose not to do it. So now we got to think about our investing lifetime because it’s not to age 65. It’s to, well, if you and your spouse plan on being healthy at age 65. Mortality, for the two of you, meaning the second one passing, is age 93. That’s today’s medical technology. Now, if you think about that, the second death means the money needs to last that long, and mortality means that’s the date when half the people are dead. Now that may surprise you because we often see, like, some mortality thing from the government saying, oh, the average man dies at 78, average woman dies at age 82, but that’s average. That’s the healthy, the sick, the rich, the poor, and the already dead that are included in that we’re not part of the already dead or some of the other bunches. So if we’re healthy, when we reach age 65, we’re going to basically live a really long time. So your investment time horizon could be 40 years easily. So if our investment time horizon is 40 years, then whether we’re investing in the real estate market, or we’re investing in the stock market. They’re both appropriate over that period of time. Now having been said I had a woman who worked for me many, many years ago in Southern California and she thought she was destined forever to rent but as her career progressed and her husband and her were able to work remote, uh, my family and I just got back from visiting their 10 acres that they bought in Idaho. And beautiful property, multiple structures, you know, they’re just happier than pig and slop and that, and they wouldn’t have even pictured that as possible 10 years ago. That’s one of the financial stewardship opens up, is you don’t know what future opportunities are coming. Um, but it’s amazing that just by being able to at first save, like take money out of your earned income consistently to acquire assets and whatever assets you acquire, even if they’re market-based assets, they will assist you in being able to acquire the home that you want if you want to own a home yourself, and there’s some great YouTube videos out there. We haven’t done one yet of like, the real math between renting and owning and frankly, with maintenance and everything else. They’re actually quite close in a lot of situations over a 20, 30-year period if what you didn’t put into the house also got saved or invested. So, I know that’s not a full answer, but it’s a, it’s a big philosophy to be able to think you’re kind of your husband and you to think it through.
TAMAR MEDFORD 14:42
That’s great. Thank you.
LIBBY SUNDGREN 14:44
So, Paul, I have two young boys, six and two. And when I was listening to your episode, a lot of the information that you talked about, I just wish that I would have had that knowledge, you know, going into college or just, you know, when you make that transition from being with your parents to kind of being on your own, even though technically in college, I was not self-reliant. Um, what do you have recommendations on you know, teaching these kinds of things to my kids, with me not being the expert. Like, how do you share this kind of information with kids or what kind of resources do you point parents to, to make sure that their kids are going out into the world feeling like they are, you know, have the knowledge that they need to, to start, you know, building their wealth at a young age instead of when they’re, you know, like me, like 40 and thinking about what’s going to happen in 25 years.
PAUL ADAMS 15:44
So usually on our podcast, my business partner is with me, so I don’t say offensive things. So, I should have started with an apology for the offensive things I was going to say. But the good news is if I offer something that offends you, it’s only because it’s something you haven’t heard before. If it’s something you already agreed with, it would be no problem. So, this could be offensive to a lot of people. I don’t think to you Libby, uh, but I heard it said a guy by the name, I hope I get his name right, Conor Boyack, who wrote the Tuttle Twins series. And, uh, I was seeing him speak live and one of the things he discussed is he had people come back to him. And say, you know, my, for them, like, it’s libertarian education like that, uh, for kids are what the Tuttle Twins books are, uh, basic economics education like that. And they’re like, we send our kids off to school and they, they adopt all these political philosophies we don’t agree with and, and et cetera, et cetera. And what, what did we do wrong? And what he said was, it wasn’t that you did anything wrong. It’s that you didn’t do anything. And he admonished the audience for the fact that so many of them say held certain beliefs like it’s good to be an entrepreneur, small government’s a good idea, whatever the parents held that, but they never discussed it with their kids. So that primacy of being first in information, that the first time all those things get discussed, like money, the first time most kids get it discussed is when it’s something being offered on sale. That’s their first introduction to money. Or their first introduction to money is their credit card offer while they’re in college. Or the next introduction to money is their friend that was recruited as an intern to Northwestern Mutual Life. And they teach them how to sell things to their college friends. Like, that’s where they’re going to get the education if we don’t bring it, so my, uh, what I would commend every parent to do is to increase their own financial knowledge and just openly talk about what you’re reading. Some great books, Millionaire, uh, uh, “Millionaire Next Door” is great. Um, I actually like his second book, unfortunately, he died before he wrote a third, uh, he died in 2017, Dr. Thomas Stanley, who wrote “The Millionaire Next Door.” But the better book, better researched, better distinctions, it’s just a very offensive title. It’s called “Stop Acting Rich and Start Living Like a Real Millionaire.” But you can’t exactly recommend somebody, they should read “Stop Acting Rich…,” uh, just sounds terrible. Uh, and then the last one is “The Richest Man in Babylon.” So, uh, or no, second to last one is “Richest Man in Babylon.” That one’s very translatable to kids, but the best book for an adult to read, to understand economics in the sense of how it works in your personal finances is, uh, “The Psychology Of Money” by Morgan Housel. Brilliant, brilliant book, teaches people tons of basics and will give you some new mental frameworks. Pour into yourself because the same way that if you pour into your faith life by going to church, by reading the Bible or whatever your faith life is, you, you will naturally have what you put in is naturally going to pour out into your children. And as long as you take away taboos around talking, talking about money, and we talk about money openly and freely in our household. And frankly, I don’t know what my parents were so afraid of. You know, none of my kids have gone out and told any of their friends who don’t, those families don’t always earn what we earn as business owners and entrepreneurs. And they’re not running around talking about what I make or the stories I’ve told them. And if they did, I would look at the parents and say, well, are you talking to your kids about money? And if you’re not, I’m sorry for your discomfort, but I’m teaching my kid about the threats to their future, and one of them is knowing their money. So, pour into yourself, it will outpour into your children, and there will be great stories in some of those books. And last but not least, uh, there are, uh, real economics learning for kids. Um, the Tuttle Twins is pretty good, but there is a series called “The Uncle Eric Books.” If I remember right, it’s like nine or twelve books, uh, they’re all written for, like, age fourteen, very translatable to kids, and teach enormous economic concepts like whatever happened to penny candy? Why isn’t candy a penny anymore? And teaches kids basic concepts about inflation, or, uh, one called the Clipper Ship Strategy is the idea of being able to make, make money. In a place where you have low cost of living from a place that has high cost of living. And that’s what they do with the Clipper Ships. They could sail them quickly around the Horn of Africa, and it was the speed with which they could transport from one end to the other of our continent that really made the clipper ships super wealthy and how you could do that in your thinking about your career. And I, I read all of those when I was in my early 20s, and I sure wish I had them when I was 14.
LIBBY SUNDGREN 20:40
That’s awesome. Thank you. That’s helpful.
PAUL ADAMS 20:43
Yeah, you’re welcome. So, I’m going to give you a silly story that’ll probably tell you a little bit about what I’ve spent dumb money on. And it wasn’t long after I moved up here and there was a particular handgun made by Sig Sauer that I always liked. And I just was at the gun range and they had this unbelievable deal, this gun that’d normally be nine hundred some dollars was on sale for 650. It was carried by a police officer for years. They send it back to the manufacturer and they replace any parts that could have even possibly seen wear. They just replace them anyway because police officers, uh, don’t practice enough so they don’t put enough wear and tear on their weapons. And the whole time, I’m thinking, gosh, I should pull the trigger on this. I mean, I’m going to save $300 and it was $950, and then, but so first thing I did is, I said,” I will not pull the trigger now. I’m going to wait one week”. Which meant it could have sold and just while I processed for that week what showed up for me was I was playing the game of save, saving the $300 that’s the difference between the $950 previous price in $650 now. But the real game was to save the $650. Was to save the money by not making the purchase at all which no one celebrates but it’s really the big win. So that’s one philosophical one. Uh, not buying Starbucks probably isn’t going to retire anybody. There’s that book, the latte factor, but it’s just not enough. Like, we all need to get to the point where we’re setting aside 20% of our gross income. I’m going to say that twice, 20% of our gross income. You’ve heard people say, ah, save 10%. I don’t know where that came from. If it was sort of like, well, I tithe 10% to church and, uh, I guess I’ll tie 10% of my retirement. It used to work back when we all had pensions. Now we don’t. Because we don’t, it’s 20% and I can walk people through that math all day long. It doesn’t matter when you start at the minimum always kind of ends up at 20, sometimes it’s higher later. So you have to set aside a sufficient amount of money because we owe the future us. Right now we’re all walking around with the net present value of a future retirement debt that we owe the older version of us. And let’s just say it’s age 65 older version of us. Well, one day I’m going to meet the older version of me, I’m going to shake their hand, and I will either have the millions of dollars that I owe them so that they can live the rest of their life with independence, or I don’t. If you’ve ever had anybody owe money to you, or you’ve owed money to somebody and you couldn’t pay it, it’s deeply embarrassing, it’s hard to live with, it’s hard to be in a relationship, except the problem is that it’ll be me and I gotta live with me for the rest of my life. So that’s a second philosophical, like, psychological way to work on yourself. So do that math. How much income do you want in your old age? Divide that number by 0.04, that’s how much capital it’s going to take. Because there’s, you can take out about 4% a year. So, you figure out how much your net present value is, and just the same way that you were so diligent about paying down your debt, now you’ve got a debt, but it’s to a creditor that you actually like you. That you owe the money to. So that’s the last of the philosophical. For the quick stuff, waiting to do it. Second, have that ambition, the aims for the next year, three years, five years, ten years out there and ahead of you, and often times you’ll find it’s like, oh gosh, I’d really like to have that thing. It actually doesn’t play into any of my aims. It’s just going to feel good to, you know, have it in my closet or have it in my gun rack or whatever people’s different They, you know, in my garage, some people, it’s cars. And if you just build the discipline of saying no sometimes, because that’s where the stopping Starbucks gets valuable, where it’s always easy to go by Starbucks. And then you go, you know what? I’m just going to get coffee at the office today. It’s not important that you save the money on the Starbucks. What’s important is you built a little muscle, a little bigger. And the little muscle that got a little bigger was your discernment and ability to allay that instant gratification that really isn’t a problem. You can afford it as we talked about earlier, but it does break strategy. So if the muscle built at avoiding the Starbucks is the same muscle that keeps us From spending 10,000 more on a car than we should or the same muscle that says I just go ahead and whip up something I don’t need to spend $50 on DoorDash times You know, three times a week, which gets pretty pricey. So just by building muscles, say no to little things that are habitually easy to do, actually build a muscle for you to naturally be able to decline things that are much, much more expensive and much more hazardous to our financial future. Translate okay, I hope.
MARK WRIGHT 25:24
Wow, Paul, when you were, oh my gosh, when you had us picture our future selves, uh, I just, I, I had an emotion that I don’t think I’ve ever felt before and that was uh, immediate compassion. I mean, I shouldn’t say I’ve never felt compassion before, but compassion for myself is, is uh, I just had this flash that, oh my God, that, that is going to be me someday and, and, I need to be, I need to, I need to look out.
PAUL ADAMS 25:55
For the rest of your life.
MARK WRIGHT 25:56
Yeah, and I need to be looking out for that future version of me, fiercely looking out for that, that future version of me, man, that’s a great exercise. Oh.
PAUL ADAMS 26:06
Uh, and the, so you’re right, that compassion for the older you, the person that you got to live with for the rest of your life, whether you funded their lifestyle or not. Um, and I love that idea of compassion for them, being able to think about yourself in their shoes but I think it does something else for us. If you ever heard the statistics about even people who had an organ transplant and in that organ transplant, they have to take this medication. And the compliance with medication that will save their life 50%. All of the medications they have to take, but you take someone else who’s responsible for somebody like a child or a spouse that can’t handle the medication themselves. Compliance is almost 100% because you’re caring for somebody else. So, if you put yourself in that mindset, just like you’re talking about Markup, I’ve got to take care of that future person I’ve not met yet. Your compliance will be through the roof with whatever tactics are required for your strategy. Then if you think of it as just you, because we don’t take that good care of ourselves. If you, if your dog needs to take medication, does the dog ever miss the medication? No. But I think we’ve all missed very important, like that, you know, the antibiotic that you took and then it’s like, oh, you’re feeling good by day five and you forget to take days six and seven that, but that would never happen with something as simple as a dog cause it’s not us. And we will take better care of not us, than we take care of ourselves.
MARK WRIGHT 27:38
So, Paul, if somebody took, let’s say somebody started in their 20s like Elan, if she just took 20% of her gross pay and put it into an S&P 500 fund, uh, and that’s all she did, do you, what, what, what, I, do you think we would be surprised at how much she would be worth when she’s 65, 70 years old?
PAUL ADAMS 28:01
I bet you would be. Why don’t I, I’ll just pick, I’ll pick some assumptions so I won’t put you on the spot. So, let’s say we have somebody who’s setting aside, uh, 20% and they’re making a hundred grand a year. So, they’re going to set aside $20,000 a year. I’m going to give it an 8% rate of return for 40 years. Uh, and by the way, I’m not, I’m also not increasing their income at all over this 40 years. I’m just saying it’s $20,000 a year for 40 years. These numbers get much bigger if we also added inflation. To the savings amount as they save, as they earn more, they saved a commensurate amount of the additional earnings. Anybody have a rough guess of what that comes to? After 40 years? It’s, uh, let me go back to my calculator, 5.1 million dollars. Now here’s the funny thing about that. So, 5.1 million would create about $200,000 a year of income. But I’m willing to bet if we did the math and played it all out, the way it usually works if I get super so tied about it is if we added inflation, everything else, it ends up being just about enough to replace what the after tax and after savings consumption amount that the person had, if they start in their late twenties and they go for 40 years, there is some then every year you’re longer and your net worth hasn’t kept up with this imaginary line, which is also talked about in the book, stop acting rich. Then you have to set aside more or you have to get lucky with returns. The financial services industry, uh, like loves that people are looking for quote-unquote high returns to save them because that allows them to sell all kinds of products people wouldn’t buy otherwise. Cause if you’re saving enough money, you’ve actually earned the right to be more conservative than the people that need to play the lotto in the stock market, like buying a stock they hope will be the pandemic stock that goes to the moon or crypto or commodities. And the reason they’re looking for the high return is they actually didn’t do the, the very controllable work of choosing not to spend money and putting it into an asset. So the dumbest thing I’ve ever seen anybody do is they’re meeting with me. This is the mid-two-thousands. The client wanted to be able to get into additional real estate investment. So I’m not for people like over leveraging themselves, increasing their payments, et cetera, but they just had like an old loan, an old mortgage that they were paying whatever they were paying every month. But with the new rates and by re-amortizing, they could keep their payments the same and take out like $250,000 from their home, giving them a really nice side fund to be able to protect their real estate investments and to be able to get a couple of rental properties for sure and do so safely. After they close, they were closing the day they came in for one meeting. They were closing the next day. On the refinance, they came back in two weeks later and they said, we bought a quarter-million-dollar RV. They had taken all the equity out of their house. It was sitting in the bank. They weren’t rigorous enough on their strategy and they bought a quarter million dollar depreciating asset. And the only thing that was a little bit beneficial that is they then took a little bit of money they had left over. And got tickets at the Las Vegas International Speedway up on the hill where only the RVs can be and they invited me out. Uh, but it was much to their own financial demise, but it was an amazing RV.
MARK WRIGHT 31:50
So, you talked a little bit about real estate, Paul. If we start to get, I mean, I’ve, my wife and I’ve been thinking about getting into, you know, buying another property because our, our 26-year-old son who just got married. You know, it would be nice to get like a duplex or a triplex and have them live in part of it. Is real estate investing so complicated that I should probably have a CPA manage that if, if we end up going down that road, or is there enough information out there that people who get into it can make smart decisions because I don’t know how to do depreciation and all that good stuff.
PAUL ADAMS 32:23
Yeah. Well, I think doing the annual tax return for a lot of reasons when you have any kind of Anything other than a W2 income, often a CPA’s advice can be valuable, or at least an accounting professional that has experience in working with business owners of real estate, like an EA, could be perfectly sufficient. Uh, that having been said, there’s some things in real estate that are, uh, that are a little different now than they were a few years ago. I’ll give you one for instance. Uh, you may remember, Mark, from our younger days, there was something called assumable loans. It was very normal. You’d often buy somebody’s home, and you would just take over their mortgage. Well, we haven’t thought of that most of the rest of the call, who’s quite a bit younger than us, wouldn’t have experienced it because for the last 15 years, interest rates just kept dropping, basically. So, there would be no reason to take, if I was buying Mark’s house, he’s 10 years into a mortgage, he’s got a 4% interest, I can get a 4% interest, but I get 30 years of payments, I don’t want his mortgage, so it just fell out of everybody’s radar. But now think about a home that was bought about two years ago. And that home that was bought about two years ago, I’m looking out the window of my studio to my house and it’s financed at 2.875. There’s been some appreciation since two years ago, but if I had to sell my house, I’m marketing that loan. Because the mortgage on it is FHA conforming, so we had to put more down, so we qualified for that. But it’s at 2.875 for 30 years, and I could sell it to somebody else, and what I’m going to do, I’m going to sell it for a premium because of that interest rate. Because paying 7.5% on 750, 000 is going to cost you a pretty penny. So, I’m going to charge more, but most people don’t know this. Most people have no idea you can assume an FHA or VA loan. As long as the person assuming it fully qualifies, it releases the prior owner entirely. So now you look around you on Zillow for the homes that sold two to three years ago. They’re going to have some appreciation, but they may have an appreciation that’s enough that you would have enough cash to buy out their equity and then just take over their home. Their, their loan that they have now at 2.875 or whatever they have. So that’s one opportunity in real estate that people are just not talking about enough right now. Uh, second, the ability to maybe back him up because not only could you get into duplex and probably have it be profitable, but if as an example, he buys one side of the duplex, qualifies. If he’s able to qualify for the loan, he’s able to qualify with it being like a primary residence, which gives you way better interest rates because he’s living on site. But he may not have the down payment that you and your wife can help with. So, it can actually become more financially viable with that. But what I’d suggest is a book, this one’s a little bit dated, it’s 2017. It’s that I think most people consider buying into real estate without the proper amount of consideration that the costs haven’t been fully counted. Uh, and it’s because when you buy a piece of real estate, you are not buying an investment. Like, people relate to buying real estate to be like, well I’m buying a CD or I’m buying a mutual fund. It is a little business and requires due diligence like a little business. That’s why all of our clients that are successful buying real estate end up looking at a hundred plus deals online, in person, 10 to 20 deals in person before making a single offer. And one of my most effective clients at doing it once had a four year period. He purchased nothing. Because the cash flows weren’t appropriate. Now, when you think of it that way, it’s like buying a business. Like, I need to look at a lot of them, I need to understand them, I need to vet them out because your duplex has at least two customers. It has overhead. It has the ability to, you could change the business. It’s currently a long-term rental. You could make it an Airbnb, try to increase cash flow. That’s not a, if you own Tesla shares, you can’t change what they do. You just wait around and see what happens. This is a business just like opening up a Baskin Robbins. It’s just one at a time. And it’s somewhat systematic, but the book that I think gives people the greatest ability to assess it before they go into it is called Long Distance Real Estate Investing by David Green and uh, written in 2017, but gives you a great initial assessment of this is the kind of team that you need to put together to own real estate like a business and not lose your tail in it. And, and after reading that book, we have a lot of clients that go, nope, I’m going to. I’m not going to do that. If I’m going to do that, I’m going to open up a franchise if I’m going to have that kind of work.
MARK WRIGHT 37:10
Yeah, you talked about in our, in our podcast episode, I think, uh, Paul, you talked about how if you’re going to go down that road, you need to have some liquid, some, some cash or something that can be turned into cash. Because what if the furnace goes out? What if, uh, you know, something happens and you’re right. We’ve seen those periods in real estate history where, everybody buys, everybody leverages, and then when things go south, a ton of people lose their shirts, right?
PAUL ADAMS 37:39
Yeah, and, and all it takes is just coordinating the real estate investments with some of the other things you have going on like your other investment accounts. But too often we’re offered micro advice, the no offense to Edward Jones, but the person at Edward Jones doesn’t know how your real estate works. And a real estate agent has no idea what you got at Edward Jones, a mortgage person, like, so there’s very few unless somebody really has what we would call an advisor coach that’s looking at everything and offering advice on the thing. We offer advice on things we don’t execute. We’re not going to go look at real estate with somebody, but most advisors don’t do that unless they’re throwing out opinions, they’re not really planning it. And so that’s one of our unique attributes is like, as you mentioned, like making sure you have the, the investment cash coordinated with the real estate money. Because if your investment cash was all inside retirement accounts, you’re not going to save your real estate deals very effectively with that. You better have enough outside of retirement accounts.
MARK WRIGHT 38:35
I feel like Paul, we should wrap things up with, I mean, getting started. Um, another one of our podcast guests on the BEATS WORKING podcast. His advice was you don’t need the energy to start and finish everything you need to change in your life. You just need the energy to start. I think it was Dr. James Bryant, and that was such great advice. I mean, I’d love some advice from you, Paul. It’s so overwhelming to think about where we are today and where we want to be down the road. Um, give us some inspiration, Paul, and some advice on just those first couple of steps.
PAUL ADAMS 39:09
Uh, first step I would do, um, I did look up the episode. It’s episode 258. Just set up a wealth coordination account. You could listen to the episode of 258 on the Sound Financial Group podcast, or just take this advice that you set up a separate account that you put money into before you choose to invest in anything. So, your decision of taking money out of your earned income is a separate decision from where am I going to deploy that? Now, what that changes almost immediately. Is your only focus really needs to be for this first step is, I need to get like, this river going by of all my paychecks. And I need to scoop enough out of that river to throw in the bucket called my Wealth Coordination account. I don’t care if it’s $25 a month. If you feel like you can’t save it all, put $25 in the Wealth Coordination account and eat ramen twice more this month. Like, whatever you have to do, get something in there and do it monthly. The reason that’s the first small step that makes a big difference is even our clients doing things automated. What people aren’t thinking about is when you get beyond age 65 or whenever you have financial independence, you are a full-time cash flow and investment manager. But if you’ve never had to manually manage your cash flow, like manually take money and move it from this account to this account, everything was just automatic and 401ks, et cetera, we won’t be capable to handle our money in old age, that muscle needs to be built. And so it would be, start building muscle of taking money from your cash flow, putting it into a Wealth Coordination account, just an account at your bank that you say, if money comes out of this, it’s only buying assets. And then you’ll naturally look for assets differently. And the first ones you choose will probably be awful. But then you learn and you choose less awful assets. And then you’ll go, wow, it’s really expensive for me to learn this on my own. I’m going to read some books and you’re going to read some books and go, this is really complicated and God willing, you’ll one day end up with an advisor coach and not a financial product salesperson. First step Wealth Coordination account to get some money consistently every month out of your paycheck because once you start taking an action for future you on a monthly basis, you will naturally think of them more.
ELAN OLSEN 41:24
Thank you so much Paul, you’ve been so generous and open-handed with your expertise and I feel very vulnerable around finances and money. I think it’s, it’s the throwback to what you were talking about before is, parents didn’t talk about money or it wasn’t something we should know about, you know, don’t ask questions. So, I really appreciate this conversation and I appreciate your caring way of explaining things. I don’t feel stupid after hearing a lot of things that I’d never heard before. So, I thank you so much. I really appreciate it.
PAUL ADAMS 41:58
You’re welcome. And a word of encouragement when you’re afraid of something, whatever, it’s just a tool. Think about, uh, think about if you went to a Seahawks game, how many police officers are walking around with a gun? Nobody, like, everybody’s fine. It’s a tool that’s being appropriately used. But if they came over to the loudspeaker and they said there is a ten-year-old with a revolver, only six rounds, there’s 70,000 of us or whatever that stadium holds, we would all be losing our mind in fear. And so, it’s the difference is capability and handling it. So, we spend the rest of our lives getting more capable at handling this tool. And then not only should we not be afraid as we build our capabilities, but then the people around us don’t have to be either.
MARK WRIGHT 42:42
Paul, before we wrap things up, I’d love to ask about, uh, parents out there who may have young ones like Libby does now, um, can you do these, uh, debit cards that have like, you know, set amount of, of money in the debit cards and get them for your kids and, and have them start to manage that? Uh, is that something that you recommend as a good way to get our kids to understand how all this works?
PAUL ADAMS 43:07
Uh, I think a good first step for kids, if you want them to see it, understand like compounding of interest, et cetera. Yeah. Uh, you can go to BECU and I mean, now 5% interest isn’t that big of a deal, but it used to be. And uh, what they do is up to the first $500, they pay five or six percent on that savings account, even for kids. And so, it really gives them a chance to see, you put $500 in there, but then they get a chance to see it. So then when they would earn money, they’d go to the ATM and deposit it and they can take it out and they could take their interest and do something with it if they want to. But it’s like a first blush at being able to do that. Now, my son is 13 now, so, uh, and my kids are 13, 12, 11 by the end of this year anyway. And so, I’m going to have him and my two girls will get their first actual investment accounts this year. Um, but the biggest part of it is I just want to talk about what things cost, like getting straight with them. I’m like, here’s the average income in our country. And this is the multiple we make of that. And it’s a big multiple. And so, part of our education with money for the kids is to build some humility in them. Because even if you’re the average income in this country, $45,000, you are in the top like 0.1% of world wealth, 0.1%. If $45,000 a year in this country, you are living a better lifestyle than some of the richest people in the world 200 years ago. They would need a staff of like a hundred plus people to do the simple things we do now with a mobile device, air conditioning, hot and cold running water, the basic necessities of our country that even a very, very average income could achieve. And it’s so much better than what it used to be. And people are too often not granted, grounded in that or grounded in the fact that lots of people are living in an environment that’s a lot like a hundred years ago today. And we have so much more than them. And by building in that humility, then automatically builds in this stewardship. So I think getting a little something like an account like that, but then also openly talking about money, you know, like I just remember us not having it when I was a kid and we didn’t talk about it. And now we talk with our kids about what’s made. And if you guys really want to have an exciting one with your kids, uh, it takes a little savings to do this. Pull out your entire monthly income for your household gross, and then have it all in twenties and those little bundles. Uh, you need to call ahead. The bank does not have, if you try to go withdraw $15,000 without your household income, it’s not easy. Call ahead. You got to make an appointment.
MARK WRIGHT 45:38
You might call the police.
PAUL ADAMS 45:39
Uh, and you got to give them a reason too. Like it’s real weird. Uh, when you pull out a lot of cash, it gets, you know, show up with a duffel bag. It’ll get some attention. Uh, so then you just have a yardstick and separate it and say, this is what we had to give the federal government. This is what it took to keep the roof over our head. This is so the house was warm. Let them see it in real terms. Now, it sounds really weird and scary, but I need to overindex to financial education because high schools should have been doing it when I was a kid, and if it weren’t for Mrs. Anderson showing us to balance a checkbook in seventh grade, it wouldn’t have happened because she went against the curriculum. Uh, they won’t get it in college. Some of the highest income occupations in our entire country that require college educations of 8, 9, 10 years – yeah, they’re not getting any. My kids are not going to get it unless I give it to them or what they get is going to be inappropriate and tailored towards some financial institution’s best possible outcomes. So, the more we teach them, even if you’re not doing a good job, you teaching them is going to be far superior to what they’re going to get by default. So, pour into those kids financially, not necessarily with money, but talking about it all the time. And not being afraid of them asking questions, just having a conversation ahead of time. We’re going to talk about money more, but it’s really important you only ask, you know, for me, me and my wife questions. You can’t be asking your friends all that because you know, they, they just don’t, they don’t know. And for some of them, it would be unfortunate, but it might change their relationship with us if they, cause we live radically within our means. So, it’s not obvious that what we make. And so, we take some risk, but like our kids have not betrayed that. By just saying, hey, these are conversations for inside our house, and now our kids are already much more capable than maybe some high school kids around money.
MARK WRIGHT 47:31
Wow, that’s great stuff, Paul. I feel like every time we talk to you, I feel a little less anxious about money and a little more encouraged, you know, about the actions, the actions to take. And I think that’s, that’s your superpower is just, uh, your ability to, to help all of us understand this stuff in a way that, that leads us to a better place. So, thank you so much.
PAUL ADAMS 47:52
That’s the hope. Thank you.
MARK WRIGHT 47:54
All right. Well, this has been another, I, yeah, we don’t have the music and the studio audience, but this has been another edition of Sidekick Sessions where we bring the staff together at WORKP2P. And, uh, we talk with cool people about, uh, past episodes and ideas, and, uh, we’ll put all the show notes in there, so, uh, Paul, so that people can access. You’ve got almost 300 episodes of your podcast, and it’s some great, great topics. So, keep up the great work, and it’s always good to see you.
PAUL ADAMS 48:19
You. too.
MARK WRIGHT 48:21
I’m Mark Wright. Thanks for listening to BEATS WORKING, part of the WORKP2P family. New episodes drop every Monday. And if you’ve enjoyed the conversation, subscribe, rate, and review this podcast. Special thanks to show producer and web editor Tamar Medford. In the coming weeks, you’ll hear from our Contributors Corner and Sidekick Sessions. Join us next week for another episode of BEATS WORKING, where we are winning the game of work.
