In the last episode I shared the life changing magic of tidying up.
Links mentioned in the show
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6 Habits Of Financially Successful People
[0:00:11] ST: Welcome Nation to the Financial Rockstar Show. I’m your host, Scott Alan Turner ready to help you get out of debt, save more money and retire early. In the studio with me is Producer Katie who thinks swearing is sometimes necessary. On the show today are 6 habits of financially successful people and I’ll be answering your questions on money, business, and life. If you have a question you want to have answered on the show, visit Goaskscott.com
Last time on the show I shared with you “The Life-Changing Magic of Tidying Up, learn how to declutter your life. It was a book, I gave you a quick book review. If you’ve missed that, please go back and check it out. What are the habits of financially successful people? Well I’ve got six things to share with you. I guess I’ll just get right into them. Number one, they actively manage their finances. They average about 2-3 hours a month tracking, “What’s going on? What’s going on dude?”
It doesn’t mean they’re buying and selling stock every day. They just have a spending plan, they know where their money goes, they know their assets, they know their liabilities, and they invest regularly. You contrast that with somebody who’s living paycheck to paycheck, like I used to, it’s equivalent is burying your head in the sand. Or if you just don’t know any better, you don’t know. So you’re just kind of floating through life.
You know what you’re gonna find and you’re not gonna like it so you ignore it sometimes. Well you do that at your own peril. It’s hard to be active when you think you have nothing. But it’s just money, numbers, and statements. Yup, it’s emotional but that should inspire you to get ahead. You’ve got big debts, you’ve gone through a divorce, you’ve had a medical emergency, a bankruptcy, those are all opportunities to learn, grow, and overcome.
Next, they live frugally. I’m gonna give you a quote: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” This quote is from Will Rogers. Financially successful people, they spend less than they earn, live below their means, and they invested a surplus in the things that appreciate in value. They don’t invest in cars or purses or the latest golf clubs, or watches/jewelry, the latest iPhone, or Grey Goose Vodka. Those are depreciating things that lose value.
Next, they know their values. Now you’re thinking, “These people, are they a bunch of skin flints? Are they all scrooge’s? If they live frugally, that means they have no fun, right? I mean they’re wearing $2 suits and eating at the early bird special restaurant buffet.” No, they still spend money. They just don’t spend things on — that reflect their values rather than things that make them look rich. They don’t order Grey Goose at the bar. Two-Buck Chuck from Trader Joe’s is just as fine compared to an $85 of Delgado.
Now I love Delgado, but ultimately it ends up in the toilet. So the $8 Blackstone Cav from Walmart, fine by me. I pick on Grey Goose a lot because they’re a marketing juggernaut. They take a product where you can’t taste the difference, they double the price and market to people that can’t afford it so they’ll buy it and look and feel rich. Have you ever gone to a bar and have someone say to you, “I can’t believe you’re drinking from the well. I am not your friend anymore,” and they walk off?
No. Never happens. And if it did, good riddance. Order from the well, it tastes the same. If you don’t know what the well is, that’s the cheap brands at the bartending place which they keep below their waist level, that’s the well. I know this from bartending school. Next is they — did you know that I went to bartending school? I’ve talked about that before.
Next is they look on the bright side, they learn from their failures. They learn from their failures and they don’t get down on them. They use them to grow from. Embrace the pain. You got out of bed today, I guess you’re not giving up yet. If you were, you’d probably still be laying there eating a bag of Cheetos and drinking coke at 7AM. If that is you right now, call me, we’ll talk. Next is they set goals. I’m not talking about that, I’ll talk about that in a few episodes again. So let’s move on.
Finally they continue to learn. Those who build wealth and hang onto it only do so by learning how to build wealth and how to hang onto it. You can get started investing in 10 minutes. You can hires someone else to manage your money for you. You can hand it all over to your husband, or your wife, or your financial advisor, or your brother in law, or the 401(k) plan administrator. You can be 100% hands-off.
And when you do, keep in mind, someone else has their hands on. And what happens when you have your hand on a stack of $100 bills? If you’re like me, you grab it, right? Nobody cares more about your money than you. You’ve gotta ask questions about what your money is doing and where it’s going. If you want better answers, then you’ve gotta ask better questions. You can do that through educating yourself.
It doesn’t mean you’ve gotta be an Encyclopedia brainiac, you don’t have to get certified financial planner designation, you just gotta learn. Spend a little time learning and get an education each month, a couple hours. Trust, but verify. Don’t believe anything I or anyone else tells you about money, investing, insurance, loans, without getting a second, third, and fourth opinion sometime so you can make your own informed decision.
My opinions are what is best, are just that. They are my opinion. I try to back them up with facts and studies as much as possible, and based on my own experience, massive quantities of research, my colossal and expensive mistakes that I don’t want you to repeat, and my value system. If you have a question, please send it to me. A topic you want covered, a thought in your mind, a situation you want an opinion on, or a win you want to share with other listeners.
If you don’t have a question, you are a passive listener, and I get that. Sometimes you’re on the plateau, you’re just chugging along. There’s a lot of time we spend in life on the plateaus, just have a plan to start climbing again. Now onto your questions.
[00:06:14] F: “I’m a CPA and tax accountant. I am looking for strategies to share with my clients.”
[00:06:20] ST: So you are gonna pay one third of your income to taxes in your lifetime. Best you know how to pay the minimum required. Not to cheat, but to pay as little as the law with allow. Know the tax law and take every tax deduction to what you can get. If you’re like me, you don’t wanna read 10,000 pages of tax law so you hire a CPA like Felice to file for you.
The more money you make, the more complex your business situation is, the more complex your life situation gets with marriage, and kids, and home, the more valuable it is for you to pay an expert to do your taxes and find all these little things that you might be missing. Tax codes change every year. Don’t try some $25 piece of software to avoid paying $400 to a CPA, it’s not worth it and you’ll come out behind. You’ll lose some of those deductions.
So what are some of the strategies that Felice can use, and anyone who’s paying taxes, which is all of us? First you wanna defer your income until retirement years and pay taxes on that. Putting money in your 401(k), couple reasons for doing that. One, most people are gonna be in a higher tax bracket when they’re working, when they’re younger. When you get to retirement, hopefully you’ll be in a lower tax bracket so you pay less in taxes.
So if you defer your income till later on, hopefully you pay less taxes. Also, use tax deferred retirement accounts, you can invest that money that you would’ve otherwise paid taxes on. That increases your retirement fund. It also works in the shorter term because you’re reducing your income now, which could potentially put you in a lower tax bracket now. So you get a double tax advantage.
You wanna max out your 401(k) if you have access to one of those, or any type of employer plan that you’ve got that’s gonna help you reduce your income for taxes. 401(k), 403(b), 457 plans. If you’re running your own business, you wanna get your own 401(k) for that, you can do a solo 401(k), okay? These are allowed if you’re doing side gigs or moonlighting, you’ve got an extra business on the side.
As long as you’ve got an LLC or some type of company set up, you can get into one of these plans. If you’re getting bonuses at work, other types of earned income, set those aside for investing as well for later on. Other things we can do, give your appreciated assets to charity. If you give to charity on a regular basis and you’ve got this hot stock that’s blown up, you’ve got a lot of gains on it, rather than giving your cash to charity and get that deductions, you can get that hot stock to charity then you don’t have to pay the capital gains on it.
Speaking of charitable deductions, you can include the cash you’ve given to different charities at different times. The Salvation Army, the $20 you throw in the collection plate that goes by in church each week. My wife and I, couple times a year, clean out the closets, make a trip to Goodwill, dumb off all our old clothes or things we’re not using anymore and we get those receipts from Goodwill showing we’ve been there, we document everything and we get that deduction. Easy way to get a tax deduction.
You want to contribute to a health savings account, or if you live in a city that has public transportation, you can contribute to a transportation savings account, that’ll reduce your income. If you take vacation, which is most of us, and you’ve got a small business of you’re travelling somewhere for your job, try to tie in the vacation in the business trip. Go to a convention in Disneyland, bring the whole family.
You can’t deduct the whole thing, but you can deduct at least the business portion of it and save some money. I do this all the time. Been to San Francisco, made a little side trip up to Napa Valley, Chicago, Boston, Philadelphia. Lot’s of places I’ve travelled for conventions, I write the whole thing off cause I’m there for business, and then in the evening I might head out a museum or something, but that’s an opportunity for you to save money and get a trip rolled in at the same time.
Your vehicle expenses, they are also a frequently overlooked thing that you can get at tax break on. You don’t get to deduct your commuting, but if you’re driving as a salesperson to different people you need to see, you can deduct that mileage. Something else, it’s got a wash sale if you’re an investor. I’ll give you an example, let’s say you have some Home Depot stock that’s worth $1,000 and the value of that Home Depot stock drops by $500. You sell the stock, you have a loss, a capital gains loss.
Now you can deduct up to $3,000 in capital gains losses each year on your taxes. What the government doesn’t allow you to do is you can’t sell it for a loss and then buy it right back immediately. So I can’t sell Home Depot on a Monday, take a $500 capital gains loss, and then buy it again on Tuesday. I have to wait 30 days and buy it again. But what if I really like Home Depot? You could buy a similar stock. So I sell my Home Depot, I get the loss, and immediately I buy into Lowes ’cause they’re very similar. You’d expect if Home Depot’s gonna go up, probably Lowes is gonna go up too.
And then after the 30 days, I’d sell the Lowes and get back into the Home Depot. That keeps me in the market. You do this with mutual funds, not necessarily stocks. But if you have an index fund you can get a similar type of index fund, similar type of mutual fund. Sell one for a loss, get into a similar one, hold it for 30 days, if you really like the one you were in, sell the new one, get back into the old one, you get a capital gains loss up to $3,000 per year.
Another thing, if you’re a high income earner, you have what’s called a Backdoor Roth. At a certain income threshold you cannot invest in a Roth IRA, but what you can do is invest in a regular, traditional IRA and then roll it over to a Roth IRA and you get some type of — you can get some tax deductions in there as well. Sometimes it can even out so you don’t have to pay the gains or the taxes on the traditional IRA. So it’s called a Backdoor Roth, something that you can research.
Every deduction you can get reduces your income, saves you money on taxes, more money for you, more money in your pocket. Thanks Felice for the question. If you’d like to have your question answered on the show, visit Goaskscott.com. That’s how you can get in touch with me.[BREAK]
[00:13:20] ST: I’ve got a junk fee warning for you that you may not be paying but you might wanna consider it. If you’ve got a home alarm in your house that rings to a central monitoring station, and the alarm goes off while you’re away and a cop car shows up, chances are you need to have that alarm registered with the county. Now registration fees can vary between $20 up to $50. But if you have that false alarm come in and one of those police units shows up at your place of residence, if you have an unregistered alarm you could be hit with a big fine.
Washington County, Oregon, you could be fined up to $500 if the police show up and you have an alarm that goes off and it hasn’t been registered. That is a big fine. Now it’s easy to get a permit for your alarm, just call up your county, ask them, “Do you have a permitting process? What is the fee going to be?” And it’s something that you’re going to have to pay, every year. But you can avoid those big fines by doing that. $500, that is a steep price to pay if your alarm goes off because the cat has walked across the motion detector. Now more of your questions.
My next question is from Edie, or Eddie — I apologize if I don’t get that right. They write:
[00:14:43] E: “I’ve been baby-stepping my way out of debt for a year now, but I could do it much faster if I could stick to a budget. I just don’t have the time, or discipline, to keep up with everything. I’m a super geek, I’m a perfectionist, it always takes me forever to get the numbers just right. And then I get discouraged and give up when it doesn’t work out the way it’s supposed to. New year new chance, can you help me?”
[00:15:07] ST: The first thing you have to realize is a budget is never ever gonna be perfect. There’s always a little extra, or always a little less. Because, well things like gas. Gas prices fluctuate, utility bills fluctuate, there’s always these little things that we can’t control each month. But you get closer, and closer to perfection by learning over time how to pad some of those categories. Like your gas, or your utility bills so that you will succeed over time.
And that just comes with experience. Doing the budget each month consistently over time, making it a habit and realizing you’re gonna get close, but it’s really hard to get it perfect, down to the penny each month. You mentioned you don’t have time, so what you need is a super simple solution to make your budgeting life easier. Try an online software solution. You can look at Mint or EveryDollar, You Need a Budget it another one which now has auto-import.
I used to not talk about that product because it was, my opinion, too time consuming. You had to manually enter in every transaction. For somebody like myself, you’ve got 150-200 transactions a month. I don’t wanna be spending my time doing that, I want something simple and I know you guys out there that are doing your budgeting, you want something simple too. ‘Cause budgeting, hey, it’s not super exciting, right? With these online solutions I can update my budget in 20 minutes on a Sunday while I’m watching Spartacus on Netflix.
Great show, lots of [noogies] swearing in blood though. But thankfully when somebody’s getting stabbed with sword I can look down at my computer and figure out, “What the heck is this Amazon charge?” And put it in the right category. Budgeting is a habit. It’s kind of like working out. You put it on the schedule, you set a reminder on your smartphone each week to do it, and you just get in the habit and do it.
But if you carve out that time each week where you can do it while you’re watching a favorite TV show, maybe you’re doing it during the commercials, it becomes much easier, much pleasurable to do. And with those online solutions, it doesn’t really take a lot of time. It is a new year, and it is a new you. New finances, new chance to get the ship going in the right direction. You can absolutely do this.
Also, join my Facebook accountability group. Scottalanturner.com/community and you’ll find like minded individuals there to encourage you, help you, and you will learn more ways to save money, get out of debt, and retire early. Thanks for the question.
If you have a question you’d like answered on the show, the website is Goaskscott.com. Quick break, back in 30 seconds. You’re listening to Scott Alan Turner.[BREAK]
[00:18:09] ST: Hey Nation, Scott Alan Turner her. For those of you that are my long time listeners you know I’m not one of those guys on the radio who promotes every product that shows up on their desk. You’re never gonna hear me trying to get you to buy an expensive name brand memory foam mattress cause Novaform from Costco is best. Or recommending you buy New York Style pizza when Chicago style is clearly the best — Lou Malnati’s! No, I have a name to uphold to you, my Rock Star listeners.
But if I were, if I were to recommend something to you, I would tell you about the Dancing Pony Steak House. I can’t get enough of that flour and onion appetizer, and what about that honey wheat bread? So delicious! Forget paleo. And that chocolate volcano for dessert is to die for, the steaks are okay too. The next time you’re hungry and looking for a place to celebrate, visit the Dancing Pony. It’s not only a great place to eat, each location has a tiny inn above if you get stuffed and wanna spend the night. Give them a ring, tell them Scott Alan Turner sent you.[CONTINUED]
[00:19:06] ST: Kyler writes:
[00:19:07] K: “I need help with when I need to buy something versus when I need to save. Often I will go through periods where I can save easily and then other times I just buy out of compulsiveness after seeing something online or something someone else’s got. More often than not, I don’t need it.”
[00:19:27] ST: So Kyler is from the UK. Adding another pin to the map today, the virtual map anyways. My travel map I have up on the wall here in the office, that was a gift from Katie on our anniversary. Now Kyler I thought, “Let me get one of those maps for work that I can track my listeners,” but nope. I did the research on Amazon, $130 for that map I’ve got up there right now. I’m not getting another one of those. I do want one, but I’m gonna wait.
Producer Katie has Skyped me a link. I can get a sticker map for $8, but that sticker map, that’s huge. that covers a whole wall, and there’s no country outline. So I wouldn’t be able to mark off a country. So anyway, moving on. But you see what I did there? I thought through my purchase. In the end I ask, “Do I really want this? Do I really want that new map? Not need, do I want it?” So how can you spend money on stuff you want and not feel bad?
Well first you always wanna make sure you’re tackling your priorities and your needs; electricity, utilities, food, transportation, housing, your needs. You gotta hit those up first with the dollars that come in first. Then you address your savings. Make sure you’re saving enough for retirement, and your short and long term goals, whatever they happen to be.
Also wanna make sure that you’re automating your savings. Then you’re not tempted to spend the money because it’s taken out of your checking account before you even see it. Your income hits, your paycheck, your automatic investments, pull it out. That’s money you never see, you never miss. And then you’ve got the leftovers. Everything that’s leftover after you’ve taken care of your needs and your savings.
What do you do with the leftovers? Whatever, who cares? Blow it. Spend it on whatever you want. If you want to go out and buy a $50 steak and you’ve got the money left over, go and buy a $50 steak. Or if you wanna go buy 10 $5 hamburgers for the next five days, do that. Whatever makes you happy. Just be away you can still end up with a lot of junk. For me when the Amazon boxes arrive and I don’t remember what I ordered — yeah raise your hand if this is you. My hand is up — hey, you’ve got a problem.
But use the 24 hour rule. I’m not gonna remember tomorrow that I wanted this map that we’re talking about. I’m gonna forget about it. I’ve told my wife the past four years, I’d like a globe in my office. One of those fancy office globes. I’ve never found one I liked, I don’t even care about it. But it looks cool every time I see them in the store or magazine. I still don’t have it, but I think about it once a year on Christmas or my birthday when she’s asking what I want.
Then I forget about it and it’s like, “Oh, I guess I didn’t really want that globe,” because I’ve got that rule set up where I don’t buy things right away. Once you’ve got your debts paid down, you’ve automated your savings, you can spend that extra on the things that you love. If it’s an impulse buy and it’s in the budget, it doesn’t matter. Then if you change your mind you can always bring it back.
Unfortunately you cannot bring back food that you eat out, or entertainment. That’s why you wanna make sure you use a predetermined amount each month for how much you’re gonna spend on entertainment because you can’t return the steak that you ate yesterday, or the hamburger you ate yesterday. You spend money on the things you love, you’ll be happy, you won’t have regrets, don’t buy maps and globes. Thanks Kyler for the question.
[00:23:08] D: “How can I raise more capital for income production?”
[00:23:11] ST: So this year, half a million Americans are gonna be starting new businesses. Now why would you wanna start a new business? Freedom for one. Freedom to set your own schedule, your own work hours. Maybe you wanna work from home, take vacation whenever you want to. Not working for the man. You’ve got a passion for doing something. There are a lot of reasons to start your own business. But how are you gonna fund your business? So let’s look at some of the ways.
Friends and family are one way. You get your friends and family to invest. Borrow money from them, tell them you’re gonna pay back an interest rate at some point in the future. A lot of people do this. Not my preference, because your friends and your family then become your lenders and you become a borrower. You no longer have friends and family, you have a business relationship. And a lot of times it goes sour.
Why does it go sour? Well a lot of new businesses fail. Over the course of four to five years, half of small businesses are not gonna be in existence anymore. So you’re running the risk of ruining that relationship by borrowing from your friends and your family. Another option, a small business loan from the Small Business Association. The Government Accountability Office ran a study recently for franchises, if you’re interested in getting a franchise. Maybe you’re not, but it’s good information anyways.
They found that borrows who got an SPA loan defaulted in 28% of all the franchise loans that were approved from the year 2003 to 2012. So it’s a large percent of defaults. Another issue with an SPA loan, you’ve gotta put some collateral to get that loan, and usually you’re signing away your mortgage to do that. So you’ve got a guarantee that loan’s gonna be paid back, you’re doing so by signing your mortgage away. If your business fails, bye-bye house. So that’s not a good situation to be in either.
Angel investors, another option. They’re kind of hard to find. Historically less than 1% of US companies have raised capital from venture capitalists. So that’s not really gonna be an option for most people. Crowdfunding or micro loans, you’ve got sites such as Kickstarter, GoFundMe. They’re allowing entrepreneurs to reach money sources that historically have not been available. And you can do it effectively and inexpensively.
I’ve participated in Kickstarter campaigns. My wife and I ordered some fancy sheets that these two guys in New York were selling. There business was they wanted to sell sheets as good of a quality as you can find in a hotel, but for $300 a set. So they sourced them from over in — oh, where did they get them from? Somewhere over in, I wanna say — Israel, that’s where it was. Source the material from Israel, had it imported, built these sheets. And we’ve got a nice set of sheets like you would find in a hotel.
Kickstarter’s good for movies, people have funded movies on there. Indie movies, authors who wanna write books, musicians who wanna produce albums, all kinds of things that you can get in on on Kickstarter another way. So what is the best way? Well in my opinion it is none of the above. It’s the “do-it-yourself” model. You bootstrap it. You work hard, you work in the evenings and on the weekends. You take money from your day job or your savings — not your retirement savings but your cash savings — money that make from the business, and you reinvest it.
You stay out of debt, you stay out of loans, you avoid those situations where you can lose your house, where you can lose your retirement, where you’re gonna torpedo your retirement. You bootstrap it and you grow little by little over time rather than trying to become this giant massive company in year one. That’s how people go broke and that’s how businesses fail when people are taking on too much debt. Because then you can’t focus on growing the business, you have to focus on paying off the debt and it affects your decision making process in a negative way.
You can’t focus on the customer, the marketing, the sales. You’ve got to figure out, “How am I going to pay this rent this month? What do I gotta do to do that?” You’re not thinking about the big ideas. So by bootstrapping it, going slow, growing slowly, you have much more freedom to grow your business more successfully. One thing you should never do, never take out a 401(k) loan to finance your business. Bad idea. You can build a business without going into debt, it just takes more time. Thank you David for the question.[BREAK]
[00:28:09] ST: If you’re finding it challenging to manage a little, you’re gonna find it even more challenging to manage a lot. Lifestyle creep leaves people making six figure incomes, living paycheck to paycheck into their 40’s and 50’s. If that’s where you are, hit the breaks. One of the keys to success in life is discipline. First you have to realize you need it, then you have to find a way to harness it, then you have to make sure you keep it.
The more discipline you can harness in one area in your life, the stronger your self discipline becomes in all areas of your life because you grow your discipline muscle. To get everything you wanna get out of life, practice first on discipline in one area of your life and then watch how it overflows into other parts of your life. Those are the words.
If you can please help me, if you are benefitting from the show, all I ask is you please take 30 seconds right now and you text or email the link GetFR.com to three people you think would like to save more money, get out of debt, and retire early. I really appreciate you helping me spread the word and grow the show. Next time, this is gonna be epic! Are you afraid of breaking down and zombies getting you?
That’s it for this episode. I’m your host Scott Alan Turner, rockstar Katie is my producer. All the links mentioned in the show are available in the show notes on Scottalanturner.com. The vacuum is running in the background, if you have a question you’d like answered on the show by me, visit Goaskscott.com. Thanks for listening.
[00:29:36] ANNOUNCER: Okay nation, for your free copy of the guide, “How to save $1,000 in one week”, simply subscribe to the podcast right now on iTunes and text “with saving” to the number 33444 to prove that you did it. Subscribe now to get out of debt, save more money and retire early. See you next time.[END] [/mks_toggle]
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