Transcripts
1. Introduction: Being comfortable and confident with your money really gives you the freedom to do the things that mean the most to you. My name is Justin Bridges and I am a fashion and lifestyle photographer and a small business owner, based in New York City and today we're hear to talk about managing your money. So it's not often that you get the speak to a photographer about managing your money and you might be wondering, "Why would I take advice from this guy?" Before I got into fashion at all I used to work at an investment bank. I always have this love for finance that I couldn't put away and couldn't put down. So I got back into it and started studying even more so I could figure out how can I use what I learned before photography to really help other people? I've distilled that down into a couple steps that I follow myself. So if you take this class whether you known a lot about money or a little about money. You're going to learn about the vocabulary, you're going to learn about the basic step. You're going to get a framework if you don't have one, to build your financial future and two build your present. You're just going to get a lot of knowledge in a very approachable relatable way that can help make your future a little bit brighter. I'm going to let you guys in on a little secret even somebody like me that's sitting in front of this camera miked up. I'm scared too, honestly money is not easy. Once you get control of your money situation your personal finance story, it's going to allow you to do so much. So I'm pumped and thrilled that you guys are taking the class and I hope everybody has fun of where you can learn a lot.
2. Why Money Matters: So why do you need this class? Well, it's very unfortunate but it's a hard reality that we don't learn a lot of this stuff coming up through the public school system or school in general. Some of our parents teach us a little bit, some of them don't. So my goal hear is to give you the steps that I think are at the core of what you need to know in order to get your financial house in order. I went to school for finance and I was a minor in economics and I got my career start on Wall Street at an investment bank in New York City. I was a trader, so I didn't do a lot with personal finance but I was strongly connected to the markets in the day-to-day happenings. But the reason that I'm super pumped and super excited to teach a class like this is because when I started my career between 2008 and 2010, it was during the last financial crisis. So I saw so many people lose their fortunes and so many people get hurt especially people that were close to retirement and I've always wanted to find a way to give back to people that were in my age range or people that I was friends with or people that were close to me. What better way than to get people prepared for their future, give them the tools that they need to be able to survive in weather storms, and to build their future the way that they want it so that they can have the freedom and the independence to not have to worry about major life changes that they don't have any control over. So we're going to cover a couple of things. We're going to look at your own personal finance snapshot, getting aware of the things that are going on in your life. We're going to take a look at emergency savings, emergency funds. What is that minimum amount of cash that you should put aside so you can weather any storm like a personal emergency or things like that. We're going to take a look at, if you're in debt how do you get out of that? What are the best practices for that? Then, we're going to move on to things like actually taking control of your future and building your net worth, building your investments and your savings, and then we're going to book in this with what happens when you have a big life thing that you want to save for. To tie all these things together throughout the class, and so you have something to relate to and something to understand, I've created two different personalities that help you follow along with all the lessons and teachings and the core principles. So the two people we have Sophia, she's at her second year out of college, she's a freelance graphic designer. We also have Austin, who is our mid to late 30s guy, who's been in his career for a little bit and he's a full-time employee. I've created these two personalities so that hopefully you can seen yourself in one of these two situations and really put these ideas and these principles into practices. One thing I want to say before we get started is, I'm not a licensed financial adviser, I do not know your personal finance situation. It's best to always consult a financial professional or a tax accountant, a CPA, if you have questions that apply directly to your life and you're looking for a definitive answer based on your own situation. This is for educational purposes only but to be fair, these are things that I follow myself in my own life. So use at your own discretion. Now that we're all on the same page, you know what we're going to be covering, let's jump right into it. The first thing we're going to cover is we're going to take a look at your financial snapshot. How do you get a picture for what's going on in your world?
3. Step 1: Your Personal Snapshot: Before we get into doing anything with your money, the first thing you want to do is get a snapshot of what's going on with your money now. So the first step in this process, the first lesson we want to go over is your Personal Snapshot. Your Personal Snapshot is just a great picture of your income, your expenses, your debt, your assets, all those things that are important to your financial picture at one particular point in time. The goal of looking at your personal snapshot is not to make a value judgment about yourself, it's not to beaten yourself up over mistakes or things that you've done wrong with your finances. Well, this is just a good chance for you to take a full assessment of everything going on in your situation so that you know where to go as we start going through the rest of the steps. So just like a snapshot sounds, we want to get a picture for what our financial health looks like. So do I have debt or do I not? Do I spend more of my paycheck then I'm actually earning? Do I have a bunch of subscriptions like Hulu and HBO and Netflix that I can't really afford? We want to see, are we making smart decisions? Are we understanding the decisions we're even making? Are we having enough money at the end of the month to survive, to save? It just getting a picture of all of those things so we known where we want to pour energy into. I'm going to tell you a quick story. So here's the thing. When I started my maybe second or third job in New York, when I was just finding my way to photography, I had a job at a fashion company. I worked for a store in the corporate side and they let us all get credit cards so we could get our employee discount. I spent money on that credit card a lot because I love clothes. That's what fashion people do I guess. There was a point in time where I made a couple of purchases but because I had also enjoyed myself a little too much, going out with friends and stuff like that, I totally forgot or put on the back burner that I had to pay this credit card off every month. So it was the first time in my entire life, as a grown adult too, that I actually missed a payment and I got a ding on my credit report which we will also talk about later, but it was personally embarrassing for me and for somebody who has always felt in control, always felt like he knew a little bit more about money than the average person. That was a very big mistake. When you know more information about your own situation, you can avoid a lot of stupid mistakes like missing a credit card payment or overspending so you don't have enough money at the end of the month to pay for your rent next month and all those other really bad pitfalls that really trip people up and cause them to dig a whole for themselves. But on the flip side, there's also really good things that come out of it too. When you have a sound foundation, your an understanding of where you're at currently, it's a lot easier to chart a path where you want to go. How do we find all these things we need to compile this snapshot? We want to find out, do you have any assets? Are you invested in stocks, or bonds, or anything like that? What is your income? What are your expenses? What are you spending money on? We also want to find out, do you have subscriptions to things? I mean, just everything. Where are my checking accounts? Where's my savings accounts? Basically, what we're doing is we're compiling all the places that you have accounts and we're putting them in one hub. That way, you can just look at it once or just open up the account once and see everything in one place. Now, for things like Hulu, Netflix, and all that stuff, I'm pretty sure you're aware if you're being able to watch something like Game of Thrones, you know you have HBO or you're borrowing somebody else's account, whatever that may be, but finding things like that should be a little bit easier for you. If you want to know how much you're making, you want to go pick up one of your pay stubs if you still getting paid by check or you look at the amount you're getting paid every two weeks or however you're getting paid, you're just going to get all that information and put it in one place. Sometimes it's really good to write things down. I know it's the digital age but sometimes writing things down like here's my income, here's what I spent every month on groceries, here's what I spent, getting all that stuff down on paper is sometimes therapeutic and it also gives you a tactile response that you can memorize these things as you go. Once you have all that down on paper, you're going to have what we call the Personal Snapshot and then we can start talking about what do we do with that? I want to call out one thing to start off because it's going to relate to our next module. What we want to talk about is the difference between net income and gross income. When you get hired for a job or when somebody tells you, "Hey, this is your base salary." That is a gross number. By gross number, I mean nothing is taken out of it, no taxes, no healthcare, no social security, no deductions are coming out of that check. But that's not real life. So how do we get to the real life number when we're giving a gross number like your salary 55,000? We call that net. Your net income is what you get after everybody takes everything that you owe them out. So the government takes their piece, that's Social Security, that's federal, that state, that's local, all that stuff that comes out of the check that hurts every time you see it, that's the numbers that help you get to your net income. So net income is so important to us because if we base our budget on a different number, than we're going to overspend that by the end of the month. But if we base it on our net income, we know exactly what we have to use for all the things we're going to talk about in the rest of the class. So at the top of the Excel sheet, you're going to see the annual income. This is a gross number. So for Sophia for instance, she makes $55,000 a year. So I did some calculations and I just assumed the only thing coming out of her paycheck is going to be just taxes. So for her estimating that her tax rate is 18 percent. Again, don't think too hard about any of this stuff. So I divided her gross income, the top number 55,000, I divided that by 12 because there's 12 months in a year, very simple. But I multiplied it by her tax, how much she should be paying in taxes. I subtracted that out and then you get to how much is she actually getting to use, net income per month. So she is getting a paycheck of $4,500 a month, her taxes per month is 825. So that's a subtraction. Then I'm left with or she's left with $3,700 a month and that is her net number, the number that she can use to bought groceries, pay for her HBO, Uber every once in a while. But that's the important number. That's the number that we got to get you to get to or I got to get you to get to so that you know what you're working with in your budget. You can plug in your own numbers here. If you want to manipulate this worksheet, anywhere it's blue, you can plug in your numbers. Anywhere it's black, don't touch. So you can plug in here numbers. Say you make 70,000, you can type that in the spreadsheet and then you'll come down here and then you'll see what your net number would look like. The important thing is however you get there, whether you want to just use these personalities or do some simple math to get to your own, the important thing is you just know how to get to that net income number so we can use that for the rest of the class. If you are freelance and you want to go ahead and jump ahead and figure out that number so you can feel confident before we move on to the next part, here's an easy way to think about this. If you did your taxes yourself or your accountant did your taxes last year, just found out from him or her or look at your, I don't know if you did the taxes in QuickBooks or something like that, go in and figure out what that gross number was that you made. Usually, it's after the page where you type in all the different 299's that you got and you got an idea for what your total number was, that's your gross. So if you think you're going to make something like that or similar in the next year or this year, you can use that number and plug it in the same exact way. So it's not very hard. You just want to count for whether or not you think you're going to make 10,000 more or you're going to make even. But either way, you can always manipulate the spreadsheet. So if it changes or you're having a great year this year, always can change it, not a big deal. But that's a way that you can get to that number right now so you can feel prepared for the next step. Now that you have a great idea of how to build that personal snapshot, and you now assessed all the things in that snapshot, and you're comfortable, and confident, now you're ready to move on to the next part which is we're going to talk about emergency funds.
4. FAQ: Budgeting: So a big question that comes up is, do I need a budget? I like to answer this in a roundabout way. I think that there are maybe two types of personalities that really matter for the point of this class is there's probably a spendor and a saver. Are you somebody that is in control of your spending? You always check and make sure do I have it? Do I have my saving and I'm spending like are you very conscious about putting money away for yourself? Or are you the type of person that like just votes with their heart? They seen that shoe in the store and they just bought it instantly without thinking about how that's going to apply to their money at the end of the day. So if you're a spendor that doesn't save a lot or you're a saver that doesn't spend a lot, I know that's a little tongue twister, I think that's how you decide whether or not you're the type of person that needs budget because it's the person that needs control that probably needs the most help with the budget. Now, this isn't a budgeting class, so I'm not going to give advice on how to budget or the best ways to do it. We'll provide a couple of links to, or a couple ideas on where to look for that kind of budgeting help. But the main thing that I would say is, if you are the saver type, you're probably hardy on a good habit and you're in a good system. So we're just going to help you increase that and do better with it. If you are a spender, I would suggest learning a little bit more about budgeting. We'll talk about a little bit but we'll give you the resources to find out, because I think that's going to be important to correcting any bade money management habits you might already have, and getting you on the path of being a little bit more responsible with your spending habits.
5. Step 2: Your Emergency Fund: The next lesson I want to talk about is the emergency fund. I know that sounds really scary and honestly I think the emergency fund is probably the most stressful part of all this. The emergency fund is something that we build, It's a fund of cash that we want to stock up on so we can have peace of mind. The reason I think building an emergency fund is so stressful for most people is because let's face it it's really hard to save money as it is. Even I've had problems with this. I haven't always made money, everybody else at the beginning of their career is a lot of ramen noodle nights. I remember never having an emergency fund and whatever savings I did have I remember spending through them and then having to call home to my parents to pay for rent one month but I would say I'll pay them back. But the point is saving up a lot of money that you're not investing in retirement or anything like that is really hard to do at all stages of life. That's something that I want you to focus on and put to the back of your mind. We know it's stressful, I know there's fear attached to it, but how do we just get into it and do it and make it automatic so that you have something. Then when something bad happens you have the peace of mind to say, oh, I've got something for that. The reason all this is so important especially as a steps as we move along the class is because the emergency fund, I couple it with the personal snapshot. Without the emergency fund you don't have that strong ground to stand on. You're always going to be walking around a little bit stress what if and when you have the emergency fund the what if starts getting really, really small and it becomes a little voice instead of a big voice in your head. The average American can't absorb a $400 emergency when it comes up. That sounds very small but it's very scary and it's a lot more people than you'd expect. It might be you, it might be a friend, it might be a family member but the fact is a lot of people are unprepared when these things come up. You want to get in a place where instead of having to turn to a credit card, or a personal loan, or help from somebody else that you're going to have to pay back. That you have the cash set aside to be able to deal with that. Because one of the worst things that you can do for your financial health, your personal snapshot is incur more debt. Let's start off. How do you build this thing and how much do you need? For people that have debt. If you're Sophia or you can relate to Sophia's personality you're going to want to focus on what I like, it's basically the Dave Ramsey method. He likes to say, "Save $1,000 and then focus all your energy on paying the debt." I'm going to prescribed the same thing for you. I think it's more important that you save up a little bit because statistically a lot of life's big things, especially if you're younger are going to be a little bit smaller. That's not to say a big emergency won't happen but the goal is to get down that debt faster than worrying about bidding up the emergency fund first. Now all throughout this course, I'm going to have caveats for whether or not you're full time employee or you're a freelancer. Just stick with me but let's just talk generally about everybody else who doesn't have debt. This applies to people once you pay off your debt, this will be you. So pay attention no matter what. I look at this as two methods if you are a full-time employee I like to recommend having 3-6 months of income or expenses. Those are the two methods you either basis on your income or basis on your expenses. But let's focus first on the month duration. How you're going to calculate that in the first place. If you have a full-time job, the thinking is you have a more stable career, you have a more stable income to pull from. You're going to look at three to six months because three to six months is just enough money say you have to be out of work or you're fired or lose a job or laid off or something like that, you have enough to last you to find that next job and enough to cover any unexpected emergency expenses. If you're a freelancer,this is where it gets a little tricky sometimes I say 6-12 months. Again you don't have to do this all in one year because that's impossible but it's a goal to get to. Now let's talk about how do you figure out what that number is now that you know how many months you're saving four. I like to do it based on income for myself, what do I do? I say let's just pretend I make $5,000 every month. So based on income, I take $5,000 and if I was saving for three months I multiply it by three. If I'm saving for six months I multiply it by six. It's very easy this is just simple mathematics and that's how you get to your number. Now, what does that do for me? If I say $15,000 for three months of say I'm out of work or nobody is hiring me or something like that. You have enough money to take care of the expenses and a little extra just in case something happens in that time range. Now the second method if I base this on expenses, let's just say I make the same amount of money per month, $5,000 but my expenses are say $2500 a month. I would take $2500 that pays for my groceries and my rent all this other stuff and I multiply that by three months or six months or 12 months because I'm a freelance or whatever, that gives me enough money to cover my expenses. So you're going to have to get a little bit skimpy if something does happen and you start spinning through that money because you won't have that buffer between your expenses and your income. You just have enough to cover your monthly expenses so it's less conservative. Pick which method makes most sense for you if you want to start off on just calculating what you need for expenses, because you never really foresee a circumstance where you'll be out of work for too long or you just feel comfortable and it's an easier savings goal to get to. What really matters is that you get yourself in the mindset to save money period, and you get yourself in the mindset to save at least a minimum threshold that it gets you through a rainy day. Let's look at how this looks in action. Let's take a look at Sophia's column on the spreadsheet. Now we're going to finally start getting into the other boxes besides income. If you look under her annual income you'll see two boxes or three boxes, student loan debt, credit card debt, and mortgage debt. If you are like Sophia and have some of this going on in your personal situation then your magic number is $1,000. Now I want to focus on Austin situation and so we can calculate his numbers. Now what I'm going to do is I'm going to do a little basic math on the Excel spreadsheet, so we can actually calculate it based on both situations. If you want to calculate based on income or if you want to calculate based on expenses. Looking at the income method you can either go off your gross income or your net income. Working with your gross income is going to give you a little bit more breathing room, it's going to be more conservative. Going off your net income it's going to be less conservative. Choose whatever makes you feel more comfortable for this time around, I'm going to use the net income number because it's already calculated for us. I'm using the Equal button so I can make a calculation. Then I'm going to scroll down the page and I'm going to look for where we calculated his net income and it's right down here $6,650. Then I'm going to type in the number three because that's three months. You can just run the numbers it's really not that big a deal that he needs to save $20,000. That's going to give him three months of his net income meaning if he loses a job tomorrow, he has three months to survive until he can get another job. Just for fun let's do the gross method just in case you like calculations. We're going to go down and we're going to find where his gross monthly income is because I actually did calculate that as well and it's 8,750 and I'm going to multiply that number times three. Now you'll see right away that there's a big difference between saving $20,000 and $27,000 and $26,000. Now let's take the same situation and look at it from an expensive method. I'm going to do the same thing, I'm going to do equals and then I'm going to scroll down here. I've already taken into account all his monthly expenses which you'll see are in the blue numbers to the side. I'm going to come down here and his monthly expense total is $3,700. I'm rounding up. Just to make this easier I'm going to multiply that by three very basic math and you get 10,000 or $11,000. You see already by just looking to save enough for your monthly expenses you can get to this goal $10,000 faster. Saving $10,000, $20,000 these are all big numbers and honestly these were huge numbers to me as well when I learned that I needed to do this. You might be asking, how long do I have to do this? Do I need to rush out sell all my stuff on Craigslist or eBay or whatever to raise all this money? The answer is no. It's about your time frame, about your comfort level. The honest answer is you want to save this money as fast as possible because you would like to be prepared sooner than later. But the reality is if this takes you a year or year and a half that's you. If you feel comfortable doing that and it's the way that you can get to this goal and not feel stressed out just trying to save money then that's fine. But realistically we are going to talk a little bit about how we can either increase our income or reduce our expenses when we start talking about debt. So even if you don't have debt I still encourage you to listen to that lesson so you can pick up some of those quick tips about how to increase your income or cut some of your expenses.
6. FAQ: Going Freelance: Another question that I'm asked all the time is: How do I known if I'm ready to go freelance? Which is near and dear to my heart because I did it, and I did it before I wasn't ready. So hopefully, I can tell you something that will give you the tools you need to just make a decision that's a little bit smarter and a little bit more prepared. So how do you think about that? It goes right back to the same thinking about the emergency fun, except remember you're not using your emergency fund to fund that period of time that it takes to get your business off the ground. But you still need to think about it the same way. How long is it going to take me to make income from the thing that I'm trying to get involved in? How much do I have to invest in this career in order to start seeing profits and just to be able to do the job? You need to add up those numbers, and then you need to figure out, "Okay, how much money do I have saved and will it cover these things?" So if I say I need $30,000 to one, to cover myself for the three months or the six months I'm going to be out of work, and to cover myself for the basic level of tools or supplies I need to start this business, then I better have $30,000 saved beyond my emergency fund. It's literally that easy. So you just work backwards. I need to save an additional $30,000 on top of my emergency fund. Okay. I can save $1,500 a month. That might mean that you have to wait a little bit longer and delay that gratification of working for yourself. But that means you just got to do it because the worst thing you could possibly do is get a loan. No matter what you seen in the news about people starting startups day in and day out and becoming the next Uber or the next this, there's only a couple of those people that ever become that rich, that wealthy, that successful off of getting a loan to start a company. You are probably not going to be one of those, and those are just hard facts. I'm not saying it's not possible, but it's going to be a lot more comfortable and a lot more safe if you do it the smart way. Save the cash and do it from a position of no debt.
7. Step 3: Dealing with Debt: Let's jump into this. We're going to talk about debt now. My favorite topic. The thing about debt is that when you have it, it's so easy to just pay as you go, pay along the schedule that they give you, pay them minimum per month, because again, most of us don't have a ton of money laying around to get rid of it. The way I believe you should pay off debt, is aggressively. Because like we talked about earlier, when you have debt, it slows down all the other things that are important in your life. Just as a little story, when I left my job on Wall Street, I was so miserable when I left, but I still liked that high-flying lifestyle, but I had no job because I was trying to figure out, what I want to do? Do I want to stay in banking? Do I want to pivot to something that actually gives my life purpose? During that timeframe when I was unemployed and trying to figure all that out, I decided still live the lifestyle I had when I had a higher income, and so I spent through all those savings, especially when I started deciding I wanted to take photos and bought photo equipment, and I just made the bad decisions that lead a lot of people to the wrong calculation in terms of money spending. I ended up going into debt maybe like 15 or $20,000, and this was like I was maybe 27, or 26, something like that, and that's a lot of money to be in debt. It took me a good year and a half to get my head on straight, and decide, "Oh, wait, maybe I'm doing this the wrong way." So if you're in a situation like that, this is the perfect lesson to really start focusing on, how do I change my money behavior? The one thing that I've alluded to earlier in the class, is that having debt gets in the way of building your net worth, and again I know I haven't gotten into what a network is. Well, let's just call it being wealthy for future you. Debt slows you down from that process of building wealth, and providing yourself with a healthy lifestyle, and retirement in your future. So you've got to take care of future you, and present you. Not only does it get in the way of building your net worth, or your future wealth, it also hurt your cashflow. Cashflow meaning, how much money comes in, and how much money is available to actually spend on things that you need to spend it on. When you have payments that are already dedicated to somebody else, meaning, I got this check for $2,000, but somebody else has dibs on 1,500 of it, that's not a very fun way to live. You already have expenses that you can't get rid of. You got to eat, you got to have shelter, you got to have clothes. Those things aren't going anywhere, but you have an option to give yourself more cash by getting rid of debt, by getting rid of that stuff off your plate. Lastly, I think what's really important about managing your money, about being comfortable with your money, it's about emotion. The thing that happens when you pay off debt, is one you break the shackles, but really you get an emotional boost. You don't feel so stressed out and so tied to something else that you can't control. You finally have some freedom to really do with your money what you please, and that's where you want to get. You want to get to a point where emotionally, paying off debt puts you in a way better place. So I have a couple of tips for how you can be more aggressive with your paying off. Even if you don't have debt, these are still great ideas for people that just want to increase their savings rate, how much money they're saving, or just want to free up some ermine their own budget, or make a little bit more money. So there's only so many ways that somebody can pay off something quicker. You can either increase your cash flow by increasing your income, or you can reduce your expenses. A lot of people really focus on the expense side of the equation, because this is so much easier. It's like, okay, I have a subscription to Hulu, Netflix, HBO, do I really need all three. Okay. Let's cut one of them, that gives me an extra $10 a month or whatever. So it's a little bit easier to go through the budget you have now, and sort of trim things where you can. But inevitably, everybody hits a point in time where they're looking at their own budget and go, I don't know where else I could cut. So let's talk about that. For expenses, the easiest part, you're going to look at this budget. Again, we're not focusing on budget, but just as a way to practice this out, just write down everything you spend money on, and then you're going to use this as a checklist to go down and start cutting things. What can you live without, what can you deal without, until you're done with this whole debt cycle. Remember, paying is temporary, like cutting things out of your budget doesn't mean they have to go forever. Ultimately, what's really exciting about cutting expenses and seeing how your life can change when you do it, you'll realize that it actually isn't as painful as you've thought, then on the other side you realize maybe I didn't need all that stuff. Maybe I can find happiness, maybe I can find purpose without having to spend so much money on stuff that is really temporary in itself. On the other side of things, let's talk about income. Nobody ever has enough time in their calendar, like let's just face it, but if you really want to get rid of the debt so you can start building your future, you can take this year or the next year, and just focus on side hustles, figuring out some sort of hot side hustle, even maybe writing a blog, starting a podcast, whatever it is, it has a low barrier to entry won't cost you much money to do, and maybe zero money to do. It just cost you your time, so you can take every available from that side hustle import into this debt pay off. That's how you're gonna get up this aggressive payment schedule a lot faster from going, hey this is going to take me 10 years, or hey this is going to take me three years. So there's opportunities on both sides of the spectrum, and it's just about being smart, being efficient, putting in effort, and sacrificing your time, to get a little bit more money, until you're done paying off this debt. I want to jump back in and look at our personalities, our two friends, just getting a rough idea about how do you estimate how long it should take me to pay off let's just say a credit card debt or any debt, it doesn't really matter. Don't concentrate too much on interest rates, or anything like that. This is just IOX, I can put Y towards it. I can pay off with Y. What is Z, how long will it take me? I'm going to just make a really quick couple buckets here. So I'm going to do how much is owed, so this is really easy, then I'm going to do a bucket for how much can I pay per month, and how long will it take, and now we have three little buckets here. So let's use Sophia because she has the most debt. If we go over here to her data section on the chart, she oh $75,000 worth of student loan debt, she has $5,000 with a credit card debt, so she owes $80,000. Now, how much can she pay? So let's go to her monthly net income. Net income remember is after we take out the taxes that are owed for the moth. So she has about 3,800 bucks, 3,750 leftover, before she starts paying for all of our expenses. So her expenses total is going to be 2,455. Now, this number below the monthly expense total, it just adds up all these blue numbers that are on her monthly expense budget that I'm highlighting right now. So what we want to do, is make another equation next to the 80,000 number that we made before. So we're going to do equals, and we're going to take her monthly net income, highlight it, then do another plus. So we're going to highlight that monthly expense number, and this is going to tell us how much she has before she starts making minimum payments for her credit cards. So we see that she owes $80,000. Now that we see she has $1,300 leftover before she pays for any of her debts, the next thing we're going to do, is remember how much she can pay as a monthly number. So how long will it take her? Let's divide 80,000 by that monthly number, 61 months is how long going to take. Now, how many years? Because that's also an easy way to look at something, puts things in perspective. It will take her about five years to pay off this much debt. Now, how can she pay this off quicker? I am talking about the methods that we talked about before. Firstly, let's look at expenses. What can we chop down? Now, she's paying almost $1,200 on rent. She lives in New York, so that might be as low as she might be able to get. Let's just say she moves in with another roommate, and she can reduce her rent buy $200. So that would take her rent down to 950. What else we want to do? Food and entertainment. She's going out of bed. She's getting drinks at the bar, she maybe doing a dinner or two, here and there. So let's just say she becomes a hermit, and she really wants to bear down and get rid of this debt. Let's say she cuts it down to 250. She has an entertaining more at home and blah blah. You shouldn't do this, but let's just say you either don't watch Netflix, or Hulu, or you borrow your friends, or you go over to their house and watch, because that's a legal way to do it. Let's just get rid of that because it's superfluous, and then let's also say she changes the bulbs in her house. She doesn't run the AC, she just plug in a fan during the summer, whatever, and she was able to get her electric down to let's call it $55. Now we change all the inputs for her monthly expenses. So if you go back to the original sheet, how much what she's spending, $2,500 a month on her monthly expenses, and now she's spending just barely 2,000. So we've freed up about 500 bucks. Now, how does this factor into how long this will take? She still owes $80,000, but now instead of being able to only pay, going back to the original, $1,300 a month, she can pay $1,800 a month. That means she can pay this off in 3.5 years, or 3.6 years, instead of five years. Now it doesn't sound really good to say, I only shaved the year-and-a-half off. But when we talk about compound interests in the lesson coming up and investing and saving, you're going to realize that even a year can impact the difference between where you're going to go with your savings goal. So anything you can shave off on your timeline, is a benefit to your future self. So if you can get more aggressive here, if you can increase your income, like so let's play this game. Now we're down to 3.7 years and 44 months. Let's just say she has been at her company, or for her she's increase her sales, and she's doing a little bit more work, and now she brought in call it $10,000 more this year. She might even incorporate a side hustle, and maybe now instead of 65,000, she's making 65,000 from graphic design, but she's also making a couple of deliveries on post maize or something, and she's bringing in an extra $5,000 a month and she gets her income up to 70,000, and now she can get rid of a student loan that was $75,000, that's a big number, and a credit card debt that was $5,000, she can roughly be done in two years. So there's a lot of power in really channeling and really paying attention really focusing and sacrificing. I think you're going to get a boost from knowing that you don't have to take 30 years to pay off student loan no matter how big it is, there's always an option and always a way out of that level of darkness. So that's it. Now that we've learned a little bit about debt, we get to move on to the fun stuff which is saving for retirement.
8. FAQ: Credit Cards: One thing that I wanted to wait, to talk to you guys about is credit. Because it is a part of this whole debt cycle thing and for a lot of people, it's not a good thing, but there are people that are very responsible with credit and can use it as a tool. Using credit as a tool, using a credit card to pay for purchases and then paying them off immediately, and you don't even need to wait till the end of the month, you can pay them at the end of every week if you wanted to, that's a way to build up miles for your airline travel, for hotels, rental cars, whatever. That's a way to get a bank to pay you to transact on their card, and that's using credit as a tool and not using it as a hindrance to your net worth at the growth in your financial future. The main thing I want to say about this credit before I close the chapter on it is that you should never ever, ever, use credit as a way to afford something in advance of receiving cash. So let's say you have a salary job, you know the money is going to be there in the next pay cycle, you've already budgeted, you already paid rent for the month. So you known this next cheque is just a cheque you use for all your casual expenses like groceries or whatever. Just because you know the cheque is coming, doesn't mean it makes credit okay when you don't have cash. I personally, the way I use credit as a tool, is if I'm going to buy something on credit and it's really expensive like more than I have in my checking account, I do not run any transaction on my credit big or a small. If I don't have the money in my bank account somewhere, in my emergency fund, in my savings account, anywhere to cover, and I even get more strict about this. If you don't have enough money in your savings account or your checking account, then you should not transact on a purchase that you cannot afford, period end of story. If you get into some sort of habit like that, you're going to end up right back in less than two or three about getting out of debt, and I don't want that for you, I want a positive trajectory, positive life growth, positive finance growth. So avoid credit if you don't think you can use it responsibly. If you can, feel free to use it as a tool but just always be cautious and careful.
9. Step 4: Saving for Retirement: A lot of people look at retirement and they stop themselves dead in their tracks because they go,"I don't know how much I'm going to need in retirement and I know whatever that number is it's so big that I'm just going to avoid it altogether." So most people go on autopilot and if they do save money, they're just like, " I'll just save what I feel like I can save and hopefully I'll get to that point someday in the future and be okay." Don't avoid it. Find out what you need to save in the future which I'm going to help you with and work backwards to that number, and that will give you the confidence to know that whatever you're saving now is the right number that gets you to a beautiful and bright future. For this part of the lesson, I want to get your mind in a certain place by asking a couple questions and things you should think about. Start getting those gears turning so you know how to answer those questions when we get into the demo. So one of the first questions you want to ask yourself is how much money do I need in retirement. I know that sounds vague and the rest of the questions will help inform that. But part of that thinking is, "Okay. In retirement, will I need long-term health care? Will I be in a home? Will I be living with family?" Thinking about those things related to your care and your health are one of the first things that help us start building out this plan of what are things going to cost when I get older. Another question that you want to ask yourself is, "Where do I plan the live when I retire?" One thing I want to add is all these questions that I'm throwing out here, you don't have to know the final answer. You just want to have a general idea of where your life is going. So a big difference is like," Oh, do I plan on living in New York City the rest of my life? Or do I want to retire in a place that's warmer and has a lower costs of living? Do I want to go to Florida, Texas, something like that? Or do I want to be in a high cost of living city?" So that's an important question to ask yourself because that's going to change the amount of money you're going to need to pull from your retirement fund in order to survive. The next question you might want to ask yourself is, "What do I want to do in retirement?" Which again that's a hard question. I don't actually see myself ever not working or until I can't get up and do the job. So you might be like that or you might be somebody that just wants to take vacations the rest of your life and spend half the year on the road. But whatever that is you have to have a general sense for what kind of person you might be, because that's going to help you figure out the number too. Then the last question that I think you should ask yourself and it's by no means the end of all the questions but it's a really essential question is, "When do you want to retire?" Once you start answering those questions for yourself and you built yourself a rough sketch, it's important to understand the different ways that you can actually get there. So the first thing we're going to do before we jump ahead and start working on how we get to that number, is we're going to talk about a little vocabulary and concepts. You've probably heard a ton of jargon and vocabulary words and concepts about retirement and savings, but I want to make this more simple and I want to focus on two things just to start off with. The first thing being assets and the second thing being accounts and how these things interplay together so you can use these move along the path and get TO a healthy retirement. Let's picture assets and accounts like a package or like a gift. Where the account is like the wrapping, it's a package, it's the stuff you put stuff into. It's just the thing you're shipping in the mail or handing off to a friend to give them a gift. But what goes inside of that package is going to be the assets. If you're wondering like what is an asset? Think of it as words you've already heard, stocks, bonds, index funds, mutual funds. Those are the things you're going to use to help push yourself towards retirement and they're all going to go into some box called the account. So what this basically comes down to is you're looking for the right mix of assets and accounts that work for you as you plan towards your retirement. So now, regardless of what box and what contents you put in, here are couple maximums that I want you to think about as you start guiding your retirement savings. The Number 1 maxim, the Number 1 rule, the Number 1 thing to always be thinking about is start as early as possible. This sounds just like go, but like we're going to talk about compound interests and you're going to see why that is so important. If you can start at 20, you're going to be better off than somebody that starts at 30 and on and on. The next maxim is all about what we just talked about the accounts, that box. You want to take advantage of any tax advantages that make sense for your personal situation. So using a traditional IRA, or a Roth IRA, things like that. Then also taking advantage of any company matches that your 401(k), might offer, your company might offer through their 401(k). So making sure you're maximizing those things and making sure that they apply to your tax situation and your personal investment strategy. The third thing you want to pay attention to is the diversity of both the boxes that you decide to open up and the things that you put into those boxes. So the reason this is important it goes right back to the last maximum, the last rule we talked about is different tax advantages will yield you a better return by the time you get to retirement. They'll save you money. The other reason is by diversifying the things you put inside the box, you also lower the risk that that box will lose value over time. So I'm going to combine two of my rules because it make sense, they sit next to each other really nicely. One rule is called set it and forget it and the other one is called stay the course. Set and forget basically means, okay I've decided here's my retirement goal, I need to get to x amount and here's what I need to save every single month, every single week. How you decide to save, here's what I need to save in order to get there. What you want to do is pick that amount, figure out what that amount is and then commit to it. So set up an automatic transfer from your checking account to wherever you're saving the money and make sure that happens every single month but basically once you set it up, you should be able to walk away and not even think about it. Stay the course part of that is once you have that automatic system in place, no matter what happens in the market just ignore it. Have a general sense for how the economy is doing. Make sure you're aware of what you're investing in, but you shouldn't be looking at this stuff every day. I know that was a lot of information to take in and I know you're probably going to need to do a little bit of studying, a little bit of homework on your own. But that's okay because now you have a general idea for what things you want to learn more about, what things are still a little cloudy and you get some more details about. I have a couple of different resources that we'll both share in the Class Resources but I'll mention now. I really like sites that are consumer friendly, or like novice friendly, NerdWallet it's a good place. Investopedia is a good place although Investopedia maybe wait until you've done a little reading on your word while you get a little bit more familiar with the vocabulary. So if you heard a word that I use and my definition was too simple or not enough for you, you can always go a little bit deeper by just going on Investopedia and searching that word. The really cool thing to do now is actually go through a demo using a site that I just recommended called NerdWallet. Using their retirement calculator to see like how do you figure out what numbers to put in, what do these numbers mean, how do I get a sense for like how much money I actually need in retirement. I'm going to work you through this calculator. Somebody who's like my age when I plan on retiring, et cetera, so you can see what this all looks like. So the retirement calculators all of them need a certain amount of information from you. So let's start off with, "Okay. I am 35 years old." I'm not. I'm going to type in my age just keep this as real as possible. I'm not going to tell you how much I make so I'm just going to leave it that I make 60,000, that's a pretty standard average in America, 50 to 60. So I make 60,000 pretax. Let's just say I save maybe 5,000 bucks so far. Then it's going ask me so every month how much do I save? So let's use $500, it's already in there and actually the cool thing is $500 is how much you would need to save to max out your IRA. So that's a good place to start anyway. Then we'll go down to this optional section just you get a sense for what's there, monthly retirement spinning. I'm going to highlight this. It says, "A common rule of thumb is living on 70 percent of your current income using savings, investments, Social Security and other sources such as a pension." So essentially, what that's saying is in retirement, certain things do get more expensive but other things drop. So it's assuming at a bare minimum or as a safety floor, what you want to do is aim for at least 70 percent of your income before you retire. I'm going to leave this as it is at 25 percent or $2500 because it's calculating based on the number above anyway. When do you want to retire? Now, this is the part that's hugely going to change the numbers. The average retirement age is usually somewhere between 65 and 70. I'm going to put in here just so you can see, what if I want to retire a couple years earlier than most people? I'm going to type in 60 and then I'm going to drop down to my life expectancy, let's put in 95 just because it's already in there. Let's hope you live a long rich life. So how much do I need to retire at 60? This is saying that I will need about $1.84 million. Again, we're going to do this demo on compound interest. So you don't actually have to save over the course of your working life 1.84 million hard cash, you need to save a certain amount of money that will compound into that number so don't get too scared yet. So now you know how much you need if you are starting at 33, saving $6000 a year and you start with $5000 on savings and you need to retire at 60, 1.84 million gives you about 2700 to spend at retirement. Now, let's hover over this red bar. This red bar is basically telling you that you're not going to make it. I know that's tough but let's see why. It's saying based on your projected savings in your target age, you might have about $700 per month of income in retirement, meaning there's a shortfall between this red bar and this green bar. You need the 1.84 million but you're only going to get half a million based on this saving. Now, before we go down to the rest of section, let's just see how we can change our future a little bit. Let's say instead of saving 500 a month the bare minimum of maxing out your IRA, let's you also save into a 401(k) and you don't even max it out. Let's just add 10,000 for the 401(k) plus the 500 from the per month for the IRA. So 6,000 plus 10,000. So when you divide 16,000 the 10,000 you max or you put in your 401(k) and the 6,000 you're contributing to your IRA. You get about 1,333 what a horrible number to use as an example but we'll still do it. So you get about $1,333 that you're adding to your savings per month. Now, we're going to go right back to the right and see how that bar went from red to yellow. Now, we're estimated to end up with 1.27 million. So just like how we talked about erasing debt and how little changes in your income, little changes in your expenses can have a dramatic effect over time, the same thing is true about investment savings. If you make these tweaks earlier on and plus if you make the tweaks period, it has a huge impact on where you're going to end up at the end of the race. It's a marathon, it's not sexy, it takes time but to get to that 1.27 you just make small tweaks in your day to day. So on the same website, NerdWallet, you can also find a compound interest calculator. Let's just go through bucket by bucket so you can understand what you're putting in and what it's for and all that stuff. So the first thing you need to put in as your initial deposit from our other example it was 5,000 so just let's leave it at 5,000. Then the next question they ask you is, "How much are you contributing?" So $6,000 in contributions do you make annually. Then you want to look at your investment time-span so let's go 30 years out. Then we need to put in an estimated rate of return, in the other example we are using 6 percent so why not stay with that just to make things more simple. The next thing is about compound frequency. Just for simplicity, let's just leave it on the standard thing that they left and if you want to dive deeper and research what is compound frequency mean, you can go deeper later. So let's walk through what this line chart is telling you. The blue lines is the amount of money you've actually saved. Like you've physically put cash into something, that's all you've put in. The green line represents the money that's making over time. By 2034, you've invested a $101,000 and now the interest that is derived from that is $77,800. Go a little bit further as we get closer to your retirement. Let's go to 2045, you've invested 167,000 and now the total interests is $274,000. So let's be more dramatic. Let's just say you now maxed out your 401(k) and on top of that you're saving an extra $10,000 a year because you're a rock star. So you're saving $29,000 annually. By the end of this chart, you have $2.5 million and that is the illustration for the more you save, the more early you save. That's the illustration how you don't have to actually get to that number with cold hard cash. So now that we just wrapped up compound interest, I hope that you're fueled up and excited because I mean I never even pictured my own life ever getting to a million bucks. So like having not even saved a million bucks, the fact that you can be a millionaire one day should get you juiced up and ready to move on to the next lesson which is talking about how do we save for goals that are in between retirement and now.
10. FAQ: Renting vs. Buying: So two things I want to focus on really quickly. One, a lot of people ask me is it better to rent or buy, am I ready to buy? There gets to be this thing where people think to themselves. Oh, when I look on Zillow I see that if I get a mortgage for this house, the rate I'm paying for my rent is exactly the same as my mortgage. I'm not going to go into mortgages at all but I do want to just highlight something and it's something for you to think about as you take away all your lessons from this class, is that the cost of ownership of a house is a lot different than the cost for rent. When you rent something like an apartment, there is a landlord that's responsible for providing these services and all kinds of maintenance things for that apartment, meaning you don't eat that cost, it's baked into your rent. When you buy something, not only do you have to service the debt of that mortgage, you have to pay interests for having to borrow that money to buy the house, but then you have the cost of taking care and maintaining that house. So what if a furnace goes out, a hot water heater, or whatever, the ceiling, the roof needs replaced, you're the one on the hook to pay for those things. Those are big events that that emergency fund is going to kick in. So the cost of ownership should be the cost of maintenance annualized and divided by the 12 months or the time that you're going to own the house and baked into the mortgage so that your mortgage would go from say I rent for 1,500, my mortgage said it would be 1,500 over 30 years. Now, it's going to cost say 2,500 because I have to factor in paying all these things property tax, maintenance for the house, and I have to service the interest for the mortgage. So cost of home ownership is a lot different than just comparing mortgage for rent. That's all I'll say for that.
11. Step 5: Achieving Your Goals: So I feel like we've gotten through so much of the hard stuff. So congratulations on that. As I said earlier in the class, I'm a photographer, and up until now, I haven't had a photography studio. I'm bringing this up because it's important to think about how money can free you up to do things that you really care about. This past year, I opened up my first photo studio, and I wouldn't have been able to do it unless I had my finger on the pulse of my financial snapshot, my personal snapshot. I've eliminated my debt. I've started saving for retirement. I have my emergency fund set and then I started saving for things that really mean the world to me. Having a place to create on my own time, on my own terms was a big deal. This is what I want to talk about. I don't want to talk about what you can do to free yourself up to do things like that, whether it is just paying for something that's a dream or just paying for something that's important to you in your life. This is the section and this is the lesson where we're going to really tackle that and it's possible for everybody. There are a couple common obstacles that are worth thinking about as you start figuring out, like what are some of my life goals? What are things that I want to save for? The first thing is, it's often a lot harder to save for things that are more immediate. You know somewhere off in the future you're going to retire, so you can set it and forget it and put the right amount of money in the account every single month or every year and you're good to go. But after you've taken out your expenses for the month, and after you've taken out the taxes, and after you've subtracted the health care costs and the retirement savings, all that stuff, it depends on how much money you have left over, how fast you can save for that next vacation or how fast you can save for that car or whatever it is that you want to do with your money. On top of that, the second thing I wanted to bring up is that, they're not only hard because of that but they're hard because you have competing goals. Oftentimes in life you have to save to fix a transmission on the car while you're also paying for a kid's summer camp tuition, while you're also taking care of an unexpected cost that came up, right? So there's just so much to be thinking about when you're thinking about lifetime goals, and sometimes they'll get in the way of retirement saving, sometimes they won't. But either way, there's something that's going to be hard to think about, hard to plan for, but I'm going to help you get those tools in place so that it's a little bit easier and a little bit smoother to do. So how you save for long-term goals is a function of multiple things. But first, I want to talk about time frame and where you'd put that money because of that time frame. So let's just say you're saving for something that you need to buy next year. You're going to want to put that money like you did in the emergency fund. You want to put that somewhere safe. You want to put that in another high-yield savings account. You can also just make a note. Okay, my emergency fund is 20,000. I'm adding something on top of it. It's okay to co-mingle this money because it's not daily spending money. So it's fine. If you do have a goal that say 10 years from now, similar to like, "I've got to pay for my kids tuition in another 18 years, another 10 years," that's an opportunity to actually invest the money instead of putting it in the savings account. But again, I want to reiterate, if you don't have 10 years or more to invest the money or at least over five years, I would not invest the money. Remember, investing is a long-term game. It's not even a game. It's a long-term strategy. It's slow, it's not sexy, and you can't use this as an opportunity to say, "I only have to save $10,000 and the compound interests will save me." Compound interest takes time. Investing is just a way to get a little bit more juice for the amount of money you're saving. Don't ever view it as the savior or the replacement for just saving the money. Now I want to talk a little bit about tips and tools and how do you actually do that, how do you think about it. The first thing I want to start off is not necessarily like how do I save but it's more about thinking about you as a person. Don't put pressure on yourself to save for goals in a way that brings you undue stress and pressure because at the end of the day, retirement is required. You need that save money for your future self. Whether you buy a car that's $40,000 or a junker for $5,000 that gets you to point A, that's your decision. You should spin within your means, and don't put pressure on you that's going to just make you stressed out all the time. It's really about deciding what can I afford and how can I still make the things that are absolutely required like retirement happen and prioritizing the secondary goals like kids schooling, the car, the down payment on the house in a way that provides you the most happiness with the least amount of stress but still gets the job done for your life goals. Now, I want to look at a demonstration on how do you save for this life goal and we're going to use our buddy Austin to see, how fast can I save for this goal? How much is it? How do I work backwards? What do I need to do? Since Austin is a little bit of a higher income earner and has a little bit more money off to the side, let's go with a goal. He's always had his eyes on this dream car, because I like some cars, and he's got to save up $50,000 to buy it. But he's under no pressure to save at any speed. He just knows he wants this car at some point in his life so he can enjoy it during his summers. So I'm going to do the same thing we did with the debt. I'm going to start off by putting, how much does he need to save? How much is this dream car of his? Let's just say his dream car is going to cost $50,000. Expensive car, I know. Next, we want to see what's his capacity for saving? In this bucket, I'm going to make it harder for him to save money because if you look at our Excel spreadsheet, we have made no allotment for him saving money for retirement. So what I want to do is just make a very general guess and just say, out of what's left over in his balance every month, he has X amount left. We don't need to think about this too hard. So just checking around and make sure I'm not lying about that. Yeah, we didn't put anything about retirement. So what we're going to do is, we're going to come down to this remaining balance after he's done all his spinning on taxes and expenses and all that stuff. Then we're going to go back up here, hit an equal sign. We're going to highlight the remaining balance that he has left, and then I'm going to take away from him $1,500. Let's just say he saved that per month for retirement. So he doesn't have a ton to play with but he's got some. So his capacity for saving for this dream car of his, he can put an additional 1,500 bucks away per month outside of retirement for this life goal that he's made for himself. So how long will this take him? I'm going to do another equals. I'm going to go to the value of the car. I'm going to divide that by how much Kenny paid per month into hi savings account or whatever way he decides, how much risk he can take to save for this car. So it should take him about three years, which isn't crazy. He's saving up for a dream car. He doesn't need it tomorrow. He doesn't need it at all. So who cares? He pulls aside 1,500 bucks a month so he can get to this dream car thing. Now let's just say he was anxious. This car's on the market now. He doesn't know if these cars are going to go up in value because it's a classic car or whatever. So how can we get him to save for this car a lot faster? It's the same exact motion that you did for debt. Let's go up here and look at his expenses. So where can we take money? Food and entertainment. That's where this guy's really spending the money. He probably entertains guest. He probably has people over for dinners. So let's just pretend he decided, "You know what? I want this car so bad. I'm willing to take away some money for myself and be a little bit of a hermit, drink a little bit more wine on my own balcony by myself." Let's just say he cuts this down to about 400 bucks a month. He's got discipline, guys. Let's also say he's taken away his credit card debt. It's $2,500. He's like, "Let's nip this in the bud." It's gone. So now he's got less money coming out of his debt repayment, and he's got less money coming out of his monthly expenses. Remember, both of these have a multiplier effect. So let's go back down here. Now he has $3,600 left at the end of the month that he can do whatever he wants with. Even though we took out a $1,000 for the retirement saving or 1,500 for the retirement saving, we still were able to shave off a whole year off getting that car. So it's all about balancing and thinking about the trade-offs. Some things are worth it, some things aren't. Sometimes it's all or nothing, sometimes it's throttling those different savings things and deciding, "I can back off it. It's only going to be throttled down for a year or two, and then I'll be right back up to my savings." But it requires discipline, and it requires an awareness of what your numbers are. So always make sure when you're thinking about life goals that you're thinking about the snapshot. You're not just saying, "I think I can just do that. I'll just pay for it. I'll just save this amount." Make sure you're getting a picture of your personal snapshot and looking at the numbers before you make any decisions about your life savings goals so you're not infringing on any of the other things that are required savings for your future. Now that we've talked about saving for life goals, the next thing is really just planning for your future.
12. Building Wealth for Your Future: If you've made it this far, big round of applause, big pat on the back. You should feel really good about yourself because the reality is most people around you aren't this prepared, they're not looking into their financial future, their financial help, as much as you are so, kudos. But now, let's talk about planning for the future. By planning your future, what I'm really talking about is building wealth. I had talked about a little bit about net worth, you probably heard me mention that in earlier lessons, and now is a good time to define it. Net worth is basically, as accountants would say, your assets minus your liabilities. All the assets we put in that box, those things add up for your assets. The liabilities are the debt that you're hopefully now on track to get rid of, and that should be zeros soon, and any other thing that is dragging down, it has a negative value in your life. Assets minus liabilities. So if I have $50,000 saved in a checking account somewhere in an investment account, but I owe $25,000, my net worth is $25,000. There is a difference, a huge difference, and a lot of people mess this up, there's a difference between income and net worth. Income is just a representation of earning puts into just stuff, it's just cash flow that comes in. What you do with that cash flow is what informs your net worth, and what your net worth actually is, is how you really tell whether you're not going to be wealthy, how you're going to decide if you're going to be able to retire on time, it's a really important number. Net worth has a lot of obstacles though, and the biggest obstacle to that is life. You don't know how your future is going to look, no matter how much you plan for it. You don't know if you're going to have kids or not have kids. You don't know if you're going to stay in a city that's high cost of living, or you're going to move to a place where they don't even tax you on the state level, and you can save a lot more of your paycheck. These things change all the time. So don't beat yourself up about not knowing your future, but just know that as you plan growing your net worth, know that there's going to be some obstacles along the way, and don't beat yourself up over it. How do you build your net worth? Well, the good thing about this is you're not about to learn anything new. We've already talked about this in the prior lessons. Part of building that worth is getting rid of debts, so you clear space to save more money. You find ways to be creative and increase your income. Whether that be side hustles, growing your career, all those things, getting bonuses or compensation from different parts of your job. The other way is cutting expenses. These are things that don't add your net worth, but the absolute amount of cash flow you have, and that amount of cash flow that increases, allows you to divert money into your assets. You can put more things into the box, and more things into the box increases that assets versus the liabilities, thus growing your net worth. The next thing is an echo back to what we talked about with investments. You need to stay the course in the face of fear. What I mean by that is, over the course of your investment lifetime. If you say started at 20 and have invested for 40 years to retirement, there is a very strong chance. Not even a chance, almost like a definitive probability, that over the course of that 40 year period, you will experience another thing like you're probably your parents experience if you're younger than 21 or like somebody like in your 30s in experience, a great recession will happen or some sort of major downturn in the market, in your investments, will happen again. It is your job to remain calm, to avoid looking at your account all the time, to avoid freaking out and selling something when the market is low and buying stuff when the market is high, stay the course, ignore the volatility, ignore the news. Once you get in the habit of knowing these things, researching a little bit more, and getting exciting about killing the debt, crushing the debt, we get excited about saving that little bit more from every salary bump. When you start putting all these things into practice, it's not so scary anymore, it just now becomes a way of life. So how do we think about this as we grow our net worth and plan our future? Is that now that you're not scared, you don't have to be scared of looking at the snapshot more often, check and see if you've grown the salary, check and see what your savings balances are, has your investments grown at all? Just go into manner, go into whatever app you're using the get your personal snapshots, and just take your temperature. So again, you don't want to be checking this everyday or monthly. I think if you check in with yourself every six months or if you want to be a little bit more conservative, or a little bit hands-off, you can check every year, but the point of the matter is you just want to have a good idea of where you stand and are you making progress.
13. Closing Thoughts: So that's basically it. We built the personal snapshots so we can see exactly how your personal health looked. We talked about debt and how to get out of it quickly and aggressively. We looked at retirement savings, we looked at life goals and how to save for those and we talked about planning for the future, aka talking about building that net worth and really having a positive outcome for your future you. The biggest thing I want you to walk away with is, that your fear is just gone. You're not going to be perfect tomorrow and you might not be perfect a year from now, but the reality is you've come face to face with your financial picture, something that so many people are afraid to even look at. The other thing is, I want you to be happy that you did this and feel confident in how your future looks no matter how hard it is write now, tomorrow's always going to be better because now you know what you need to do to get everything on track. I would love to see what you guys are thinking in the project gallery, whether that is sharing something personal, maybe an achievement that you've overcome or maybe you got out of debt this year. Share those things, build with the community so that we known what's going on and we can share our stories together. Also, don't be afraid to ask questions. I know personal finance, managing your money is very personal. But this is a community. I'll try to do my best to help in any questions that you have. Get involved, share, let's do this. Thank you guys so much for taking this class. It's been a pleasure to teach. I probably learned a couple of things while teaching it. I hope you get a lot out of this and we'll see you at the next one.
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Justin Bridges, Fashion Photographer, Former Finance Pro
