What Sets the Wealthy Apart: The Financial Habits of Wealthy People | Jessica Lawrence (Ep. 430)

bringing that awareness and using the numbers and the data to make better business decisions. And when you're able to do that, you can just make more informed decisions and ultimately it winds up helping you create more profit in your business.

On today's episode, we have Jessica Lawrence. She is an investor and a financial consultant, and what we zoned in on today is what sets the wealthy apart from everyone else when it comes to managing money.

And don't worry, we're going to break down what is really, really important from balance sheets, from P&Ls, from cash flow projections, what you as a real estate investor need to take care of now in order to build a successful business.

Welcome back everyone, this is Liz and this is Andresa. Welcome back to the Real Estate InvestHer her show. Our mission, our passion is to empower women to live a financially free and balanced life. And we do that day in and day out. Been doing that a long time, right, Andresa?

That's right.

Jessica, thank you so much for being on our show. Excited to jump into facing your finances and, and, and what the wealthy do differently when it comes to finance. And I think that's a big topic, especially for the women and men who are listening today. So thank you for being here and thank you for sharing your wisdom with our, our community.

Yeah, Liz, Andresa, thank you guys for having me. Excited to chat a little bit about money and wealth and investing today.

And I think this topic here is so crucial, right? We know as real estate investors, the power of the central point, right, is money and how we deal with money, especially what sets people apart, especially the wealthy. So, you know, you said something very astute on your, you know, in the research we did, you said you've worked a lot with both very wealthy and not so wealthy clients. In your practice. So you've seen kind of firsthand what the wealthy do differently. So what is the most important habit that sets the wealthy apart from others when it comes to managing their finances?

Yeah, absolutely. So I've been in the financial industry for a while now, over 14 years, and, um, you know, you just start to see some trends. And so the biggest thing that I've noticed is that really the awareness around your finances is important. So the thing that I see that the wealthy do differently than the not so wealthy the most when it comes to their businesses, both honestly in their real estate businesses and in other small businesses and large businesses, is really focusing and staying on top of their finances. You know, having the awareness around what is going on with their numbers, really understanding what those numbers are trying to tell them, diving deep, not just into the financial reports at the end of the month, but also doing proactive things to be managing their finances, looking forward, doing some forecasting, doing some budgeting, these things, really just bringing that awareness and using the numbers and the data to make better business decisions. And when you're able to do that, you can just make more informed decisions, and ultimately it winds up, um, helping you create more profit in your business.

I want to dissect this.

Yes, I do too. I was going to fight for that question.

Let me fight it. But I think that when it comes down to real estate investors, right? And so if you're listening to me and if you have rehabbed properties before, you know how much you made on that property really at the end when you sold or when you refinance and you see the less I, item in your spreadsheet on, on your QuickBooks or whatever that is, is your profit. And I think that what you're emphasizing here, Jessica, is like the forecasting. What am I predicting that's going to happen? What's going to happen? And most important, what did I learn from what happened so I can adjust as moving forward? I don't think people make the connection between one thing with another, and they are in silos, meaning this property here is in a silo and I don't utilize the numbers that I'm seeing here for others. Is this like a— we don't learn that in school, right? We don't learn how to forecast in school or anything like that. But, and it sounds daunting many times, right? If you guys look at our cash flow forecast, it's like, oh God, I need to change my glasses here, right? But for the people that are listening to us and they just heard that it might be a blind spot on them, what would be their first step?

Yeah, so really the first step is making sure that you have a handle on your finances, being able to have a profit and loss statement set up, having a balance sheet set up, having a cash flow statement set up, right? So I highly recommend, you know, getting an accounting software. I recommend QuickBooks to do that, to get that first step taken care of. Once you have the financial statements, then we can talk about how do we start budgeting, how do we start forecasting, how do we start adjusting based on what we're learning, right? We need to have a system in place to really be keeping track of our finances on a consistent basis. And then we need to have the tools to be able to be looking at it with a forward-thinking mindset, right? And so when I say forecasting and budgeting, I say these two different words for a specific reason, because oftentimes we hear budgeting and we kind of freak out a little bit, get a little bit scared of that word because you're like, oh, budgeting, restriction. Like, I, you know, I'm not sure what I'm going to have to do for that. All we're doing when we're saying budgeting is we're making a plan for our finances. So once you have those financial statements kind of set up, you can start to see, hey, what do I think is going to happen next month in terms of my expenses? And once you have that, you can set a base case, you can do a worst case, and you can budget to your worst case, right? So if you budget to your worst case, saying, okay, I have a feeling for what my expenses are probably going to be, let's try and stay within that budget of what I think the worst case will be. Then on the forecasting side, that's really the income side. You're trying to forecast what your income is going to be. So you're forecasting, hey, I, again, I have a base case and a worst case. I'm making an educated guess here. That's what forecasting is all about. And so you can look at these previous statements and say, all right, based on this, I'm going to forecast what I think the next month is going to look like. If you have a cyclical business, you know, I have a beach house, so mine is cyclical. Summer and winter are different. So you need to think about that and be able to forecast that. So then when you're forecasting in your budgeting, you're forward-looking at this next month. So then what you can do is say, all right, this was my guess, this was my best guess here. Did it happen? So when your financial statements come for the end of that month, you can compare and then you can adjust and then you can make a decision going forward. Hey, did my income come in higher? Did it come in lower? Why? Did my expenses come in higher, lower? Why? And then you can go from there.

I think this is so important, and I'm really thinking, I've been investing for 17 years, right? When people say, what would you have done differently? Right? Like, because that's a big question, right? You've been doing something for almost 2 decades. Honestly, I forget to say this one, but this is my new one because it is the most important skill and habit to build any business. Whether you're a numbers person or you're not, this is a skill you need to have. And I, and I say that, and I'm someone who is not as detail-oriented, I'm more of a visionary, you know, but this is literally a an entrepreneurial skill that you need to hone in on. Now, whether you're doing all— you, you shouldn't be doing all the bookkeeping. So, so everyone listen, this is critical. And if I had to wave the magic wand, I would've done this. We would've done this better. I fired myself cuz we—

wait a minute, let me clarify this, Liz.

Uh-oh.

What you have done it better though, because when you say skill, what skill are you talking about?

The skill of—

are you talking about the skill of putting all of this together or the skill of interpreting it with You're a bookkeeper and CPA.

Correct.

Yes. Let me clarify. All right.

'Cause I was about to choke you.

No, don't choke me. Don't virtually choke me. That would be bad. So what, what, what I'm gonna say here is that I think so many times, right, women and, and the women listening are the women that have 1 to 5 deals, 10 deals. They're scaling. They know how to acquire property, right? They're doing deals, they're putting deals together. They're most of the time their skillset in managing those properties and saying to them, on 123 Main Street, tell me your P&L and for the next quarter, where do you think you should be investing that money? Do, do, do, do. They won't be able to answer that question. I would say maybe 5 outta 10 will be able to answer that question. That's the skill as a, as a real estate investor that I'm speaking of on Just Exactly. I don't need to put all the numbers and the P&Ls together. I was the bookkeeper for many years until I missed a mortgage payment. That was a big deal and I was fired by my husband.

So, But, but, but we fired you from Investor Two.

You did fire me from Investor Two. But my point in saying this is that so many times women listening right now to Jessica are reluctant on building a team. They're just— so many of the women in our Strive Right mentorship program, Andresa, that are, are wheeling and dealing, doing big deals, development deals, we're like, who's your bookkeeper? Oh, I do that. I manage it with an Excel form. The bottom line here is that if you are not forecasting for the future and making decisions today that are that are going to set you up for success, then you, then you, then that's the skill you need to develop. And that's the bottom line. Um, my, my question to you is, tell, walk me through the first few steps. The first, once you have determined this is a skill that you need to get better with, you get the system up and running. Tell me more. Um, you know, just let's, let's walk through that process because I think this is a blind spot for so many of the people listening. They know they need it, but they don't know how to do it and then they don't do it.

This is such an important part of it. Honestly, you guys leverage technology, right? So QuickBooks is an amazing tool. I highly recommend getting a QuickBooks account and starting with getting in there yourself for your first deal, right? So that you understand what the numbers look like, what the statements look like. And the reason that I go with QuickBooks is because in real estate we have multiple properties. And so you need to be able to use QuickBooks to siphon out your properties.

Okay.

There's, there's ways to filter in there so that you can have multiple properties all under the same business LLC within QuickBooks. So, you know, I've been there where I've been managing it in Excel. This is one of the number one things that I would have done sooner is switch straight over to QuickBooks because it will just, you'll save so much time. You'll save so much frustration. It'll help you understand things so much easier. It's so much, easier to be able to file your taxes at the end of the year, especially when you have contractors, which we almost always do. I don't know anyone who hasn't used a contractor in their real estate business. So it helps with filing that, it helps with being able to identify all of your deductions and apply those directly when you're filing your taxes at the end of the year. Like, it is so important to get a software, use it, Set it up correctly. I mean, because that's a big thing too, like how, right? How do I set it up correctly? That can be challenging. You're like, I'm not sure, I haven't used this tool before. And there are ways that, you know, that you can do that, that, that make it a lot easier. And so once you do have the system in place, you understand your numbers and you're looking at things from a forward-looking basis, like you can hire a bookkeeper to do the actual entries and some of the other like kind of tasks along those lines. But there's this evolution of learning, right? So bookkeeping is the actual task of putting the numbers in. Accounting is actually understanding the numbers that you're looking at. Financial management, business management is taking the numbers and taking action with it, making a business decision and moving forward from there. So these are, these are important steps to take. The first and most important is honestly getting the software because it's not as challenging, you know, as you would think to get in there. I do have a course to help with that. But, you know, that's where I feel like people get stumped because they're like, I just don't know exactly how to set up my chart of accounts and what categories to put things in. And, you know, there's the knowledge out there to learn this system. You know, we're all smart, intelligent women. And at the end of the day, you have to have a handle on your numbers and your finances to know if your business is profiting or not. So it's one that we need to learn.

I'll share with you guys our journey, right? So we went from Excel. I think everybody— well, we went from nothing, right? Like just looking at the bank account at the end of the month. And see, okay, what we have. And then you go from Excel, and then you start like, okay, this is getting a little bit complicated, right? Then, then we go to bookkeeper, where our bookkeeper— I don't know how many years we've been together, forever— uh, the, the bookkeeper talking about the P&L and also the year-to-date and then the forecasting. And I cannot tell you guys The impact and the, how much time do we save? Because we have a strategic call with our CPA every 6 months. Strategically, we're looking what's going on, what we are projecting, uh, how can we deduct a lot of things, what we need to invest, what we need to, okay, based on what's happened next year, this year, all of it. Right. But our call with our CPA is usually what, Liz, an hour? More or less.

He talks fast and I love it.

I love it. Jason, love it.

He talks faster than you do.

You speak my love language. You talk fast, we get shit done and we move forward. But we are only able to do that because Lauren, our bookkeeper, keeps things straight. And then he has access to it every single month to see, okay, here, there. Oh gosh, what happened over here? Now, we're like a new business or we're a new venture that we're getting into it. How would all these points get connected? But we are only able to do that with him because we have done the work throughout the entire year. And I think that, you know, many people might be saying, well, good for you, right? Good for the wealthy people that just, manage or aware of their finances. But how about— this is more like a mindset situation, right? For the folks out there, I want to be real here. For the folks out there that don't want to even look at their bank account, they're like, I don't even want to look at— why would I need to look at it? It's not looking good, right? So I don't want to look at it. Let me just— I'll look at it next month. Easier to do that next year. Or I don't even want to look at it ever because money gives me anxiety.

Or, or, or Andresa, they say, I'm just going to buy more properties.

I'm just going to buy more. Yeah.

I'm just going to solve the problem and I'll solve the problem.

Right. That's where I need to do it. And it will solve by itself from— so for, so for those folks that are listening and they can identify, if you can identify, stop your treadmill, get out and say hi. Right.

And we're with you. We're with you.

You're not alone. You're not alone, but we've been, we've been there. Those situations, right? So, we want to acknowledge and just like, yeah, we've been there, been there, but there is an impact, right? And for those of you that say, well, it will resolve at some point, I challenge that. What is, what have you seen, Jessica? What is the negative impact? What can they expect if they continue not doing what they need to do?

Yeah, this is a great point because I see it so often and I see it both on the business side of finances but also on the personal side of finances. And so we, we have like this fear, right, that once we look at it, it makes it real. And unfortunately, the fact is it is real whether you look at it or not. Those are the numbers. Like, the numbers are the numbers. And I do understand how that can be hard to face. But, you know, at the end of the day, like, it— this is one of those areas where it will not help you, um, to kind of ignore it. And so we have, we have to face it. We have to face the finances. We have to face them on our personal side and our business side, because what most often happens is when you don't, it just gets worse and worse.

Why?

Because the problems that have started out small are going to get bigger and bigger and bigger. And because, you know, I've seen this in the financial world side of things with lots of other businesses, you know, the reality is the end of some of these stories is bankruptcy. The end of some of these stories is losing their homes, is losing, you know, things that are valuable to them. And so I hate to kind of be the bearer of bad news, but ignoring it does not work. You have to face these numbers because that's the only way we can change. That's the only way we can improve is when you know what it looks like, what the situation is. And I know it's a hard one. I really do. I know it's scary to, to kind of really get deep into the numbers and look at your bank account and look at what's happening. But it's so important. It's so crucial because the opposite of not looking at them is it's just going to get worse.

So for the people that are listening, right, it's like, okay, I got it. But give me like one small step that will be okay. I'm making a step forward in order to get this mess resolved or become more aware. What would you say is one thing that they can do today in order to get started on cleaning up? Things?

Yeah, to just start, log into your bank account, take a look at it. The first biggest thing that I recommend that people need to do is ensure that your business finances and your personal finances are separated. So first step, log into your bank account. If this bank account is the same as your personal bank account, create a business bank account. And honestly, I don't even necessarily care if it's truly a business account under an LLC. I just want it to be a separate account.

Why is that?

Because then when you have a separate account, you can truly see how much income is coming in, how much in expenses are going out. You can start managing it from that perspective, right, of, you know, everything going on with that one account in and out. It's not commingling with your personal finances. So now all of a sudden it becomes clear. You can actually see what's happening. When you have that one account, you can then easily attach that one account to your QuickBooks account. Now you really can see even more details of what's going on. But this is the first thing that I just think that so many of us are like, okay, we get started in real estate and we— it can be from different things. You can buy, you know, your first home and it's under your name, and then eventually you turn it into a long-term later, or you turn it into a short-term later. And so you didn't necessarily think about creating that, that separate business account yet. Like, that's common and that's okay, but the first step is recognizing, okay, we do need to separate this, we do need to be looking at this. So like, make sure it's in its own account and then just start looking at it every single week, right?

Just, just looking at it, because ultimately you want to utilize your business account for tax deductibles, you want to apply for a business line of credit, you want to apply for government support in different areas, right? We all seen what happens there. So it's truly like treating your business as a business. And I think that going back to what you're saying, like what makes the wealth— wealthy folks different. Than the not so wealthy is the behavior of looking at it, right? And I think that many of them have faced bankruptcy, many of them multiple times and difficult times. But I think that having the habit of, as you said, it is what it is, the numbers are going to be what it is. And I think creating the habit of looking at it, then you're going to deal with whatever comes comes your way. What would you say is, is a second habit that the wealthy does that regular folks out there don't?

Take action. So consistently taking action, right? So you want to not only be managing your finances, but making sure that when you do see something going on, you take action on it, right? Because information is only so good if you don't do anything about it. So the next step is when they see there's something wrong, they see a pattern, they see something happening, you have to then take that next step to fix it, change it, adjust, whatever needs to happen. Because then, like, these, these little actions add up, right? And so when, when you're consistently managing your finances, when you're consistently taking action and improving, that's when it grows. That's when you have more profit. That's when you can become, you know, acquire another property, become more wealthy, like, because you're doing it also in the right way.

And how do they do that? Have you seen like a pattern of behavior? Because we're trying to get the pattern here, right? What is the pattern of the wealthy folks? Do they rely on themselves? Or do they rely— they're resourceful, Do they— I'm not saying like, oh, they have a huge team, then, then we're okay, cool, right? But how much do they rely on their own experience in order to resolve the problems?

Well, that depends on the person, right? Every single person has different strengths and weaknesses. And so, um, in order to leverage your strengths, you need to identify what they are and you need to know what your weaknesses are. So once you're able to do that, Like they can— what I've seen is that the wealthy have been able to identify what they're best at. They can focus on that and they're able to build a team around them of people who are able to accommodate, like essentially just, you know, buffer them with their weaknesses so they know, hey, I'm really good at this one skill set. This is what I'm going to focus on and I'm going to hire this other person for the thing I'm not so great at, right? So this is— and I know it's about team building, but it's, it's the right way of building a team. Because, you know, the last thing I want to suggest is just like, get a, you know, get a property and then get all these different team members immediately without any knowledge of what your finances look like, how much your property is doing, if you're able to support these other employees that you're hiring, these contractors that you're hiring. It's, it's this, you know, very measured team building so that you have an idea of what's happening with your finances, but you also know where you're strong, where you're weak, and where you need to, to add people to accommodate that.

I, I would also say something that we are navigating is people always look to their business, but their personal finances, right? Getting that, getting that kind of hard, you know, they, they're gonna manage their personal finances to the T and their business. So it shouldn't be the other way around. Sometimes they have all these processes for their business and other people are like, well, how are you doing personally? You know, and they can't answer that question. Um, we have never had a bookkeeper for our personal, and I'm, you know, and I've been handling it, and I'm not sure why I haven't fired myself from that job. So I am firing myself from that job.

You have 3 days.

I have 3 days. Thank you. All right, everyone's listening. But what's— but why I'm doing that, so here's, here's the thinking and the strategy, right? The thinking is that, okay, we sell a building, Now, of course, we have a strategic call with our accountant, but where is that money going? How are we deploying that money? How are we making sure that money works for us? Should we actively invest that money? Should we passively invest that money? Should we reinvest that money into something we're doing ourselves? Right? Those are multiple questions. And so many times women don't do that kind of delineation. These are my 3 options: selling this property. But to have the P&L and to have it in QuickBooks versus, you know, mint.com or just You know, generally what, what's looking at the bank account, um, it's not going to set you up for success. My point is deploy the same strategies for your personal and your business. Um, I think that's critical. And also looking at your personal financial statement, just to, to look at each property and say, why are we holding on to this property? And looking in QuickBooks, of course, but doing that work. So my question to you, Jessica, in all of that, what's the regularity of it? Like if you said, okay, in, on a monthly basis, you should be doing this on a weekly basis as a, as a financial manager, right? Let's, let's assume we're taking the leadership role. We're not doing all three, right? Hopefully they're not doing the bookkeeping and the financial manager, but as an investor, you should be managing your fi— you should be at the helm of making decisions.

That's part of your job.

Absolutely.

Mm-hmm.

To have a pulse though.

Yeah.

To, to, to keep leveling up. And to ensure you're leveling up, what does that look like weekly? What are you doing weekly? What are you doing monthly? What are you doing quarterly? What are you doing yearly?

Also, on the personal finance side of things, I do agree that like we need to have a handle of our personal finances too and treat our personal finances like a business sometimes, like be the CFO of your own finances essentially. And there's no reason you can't delegate those things as well. In terms of timeline, when you're looking at managing your finances, at least monthly, at least monthly, we need to be having our financial reports pulled so that you can see how the previous month did, right? So that's where we're pulling our P&L, our balance sheet, and our cash flow statement. And I want to highlight the cash flow statement, guys, because this is one that people often forget about, right? They're like, oh, I'm looking at my P&L and I have my P&L. But the cash flow statement shows you how liquid you are. Like, this is the, the one that I say I would say is actually the most important because it takes the information from both your P&L and your balance sheet and shows you how liquid you are. And, you know, which is so important in real estate. It's so important. Like, if we don't have a reserve, if we don't have any cash flow, like, and we have a mortgage coming up, like, you know, there's a problem. So, so that's really important. But at a bare minimum, you know, it needs to be happening monthly. Now, that's at least pulling the reports. On a weekly basis though, I think you should be checking in on your bank account. You should be looking just to kind of, like you said earlier, keep a pulse on what's happening with your, with your money. And then I also highly recommend setting up a quarterly review and an annual review, right? Because quarterly, we want to not just be looking at the financial statements, but really be taking that time to be a little bit more strategic to say, okay, this next this is where we can do some really good budgeting and forecasting. Like, how did we do last quarter? How did we do, you know, this quarter of the previous year? So that you're comparing summer to summer, winter to winter, that sort of thing. And really then looking like, did we do better than last year, worse than last year? You know, that's where you can spend some more of that strategic time because I know that there's so many things that we're trying to manage, you know, on a daily, weekly basis. So it's not like we're trying to sit down and do this huge strategy session every single week. Like, just keeping a pulse is good on a weekly basis. Monthly, you need to know what's happening and be looking at it quarterly. Like, take that time to really be strategic, start forward-looking. Annually, we got to figure out all our taxes. We got to make sure we're getting all those deductions. This is one of the best spaces because in real estate you have so many advantages, like with your tax deductions. And when you have everything in QuickBooks or another software, you can track all of these tax deductions so much easier. It makes it so much easier. Like, and there are so many, like, truly, you know, there's these benefits that are meant for you. They're built into the tax code to help you, believe it or not, to actually help you with your business. And so there's a crucial component because if you're making all this money throughout the year and then you don't get to keep any of it, we're back to square one, right? So you want to do what you can to keep that money, to get as much as you can with those tax deductions. So that's like a really important piece on the annual side. And then of course, I also would say annually, you know, you should be looking at it strategically as well. Bigger decisions. Am I buying another property? You know, do I need to get rid of a property? Like, you know, is this one just not performing, you know, no matter all the changes I've made throughout the year, like things like that. So, so really It's all of those time frames, but different things for each one. Yeah.

And that allows you to be proactive, right? Which is, which is the, which is the name of the game. Jessica, this has been great. Where can the ladies listening learn more about you?

My website is jesslawrence.com. So jesslawrence.com. And so you can check that out for, you know, some of my books, my courses. You could see my beach house there and everything as well. So yeah, awesome.

All this information you guys can find on our show notes. Now we're going to transition to our fabulous 3 questions. The first one, Jessica, is what's the most powerful book you ever read?

Let's see. One of my favorites that I highly recommend is Traction. If you guys haven't checked out this book yet, I highly recommend getting Traction. It will help you really start thinking about your real estate properties as a business and how to manage that.

Awesome. Second question: What's the most transformational routine that you do to create a financially free and balanced life? Whatever balance means to you.

What's the most routine thing that I do?

A habit.

Oh, you know, a lot of what we've talked about here today, consistently looking at your finances, But for me, my favorite is I basically on the first of the month, I consider the first of the month Finance Day. So every first of the month I say it's Finance Day, y'all, like it's time. So I set aside that first hour of the day on the first of the month, every single month on my calendar for my finances, personal and business.

I think this is so great because it's easy to remember, right? First day, the first hour, finance day. Yeah, that's, that's how we're going to remember. Simple as that. Last question: which woman, famous or not, has inspired you the most?

I've enjoyed watching Jenna Kutcher's journey, and she's been really inspirational, kind of seeing what she's done, how she's created, um, kind of the life balance that I think some of us are looking for. So awesome.

Jessica, thanks so much for being on our show and sharing your wisdom with our community.

Yeah, absolutely. Thanks for having me, Liz and Andresa.