PART 2: Figure Out Your Finances

Foreign. This is Busy Getting Better, the podcast for women who are committed to prioritizing their own personal growth. I'm your host, Madison J. A mindset and money coach, a first generation wealth builder and a woman on a mission to help you master your finances and live your best life. Money is not all we are covering though, because in order to live your best life, you have to become your best self. So we are diving deep into all things personal development and bringing you the mindset shifts, money tips and inspiration. You need to go out there, be bold and build the life you can't stop daydreaming about. It's time to get busy babe. Busy getting better. What is up my friend? Welcome back to the podcast. I am so excited for today's conversation because we are diving into part two of my three part money series which essentially is covering the three core pillars that I believe you need to make a total transformation with money in your life. So if you are just joining us, go ahead and push pause and go find part one which is all about mastering your money mindset. Because as we discussed in that episode, the logistics which are what we are going to get into today don't really matter if we don't have the mindset to approach our money and make actual long lasting changes if we don't have the mindset in place. So go listen to part one and if you are already done with part one and you're ready to dive in. I'm so excited for the conversation today because this is all about figuring out your finances, actually building a logistical plan for your money so that you can build wealth, achieve financial freedom and build the life that you can't stop daydreaming about. So what we are going to get into today is going to be all the different components of like the actual objective with money. Because having money is cool, getting more money is cool. But that's not what we want it for. We want to be able to utilize money as a tool to go out and build your dream life. Build a life you can't stop daydreaming about. That's the whole objective here. And in order to do that, we've got to know what we're supposed to do with the money when we get it. And if you have tried to figure out your finances before, if you've tried to go down this path and you just felt overwhelmed or you feel like you have tried stuff and it didn't stick or it didn't work, but you never addressed your money mindset, I have good news for you that is likely why it did not stick. Because again, you can have the logistics, you can have the knowledge, you can attempt to do something new. But if you don't have the mindset, if you don't have the conviction, if you don't truly believe that you're going to be able to make the change to make it last, then you're likely going to fall off the bandwagon. Because here's the thing about wealth. Wealth takes time. Wealth is not the short man's game. It is a long term strategy. There is a lot out there nowadays that's all about, you know, like the get rich quick schemes and building all this wealth overnight. And unfortunately that is not what I'm going to be teaching you. There are definitely different strategies that you can utilize to expedite your wealth building and I'll kind of break down all of that for you. But understand that a very big component of actually building wealth and achieving your dream life is going to have a lot of delayed gratification in it. And that is a really big fundamental skill and something that comes along with that mindset shift work. So I feel like this also feels like a really great time just to remind you that I am not a licensed financial advisor. I am a money coach. I have learned everything that I'm about to talk about and everything that I will ever continue to talk with you about through ownership, self education, through copious amounts of research, Google searches, books, podcasts, networking groups, my own coaches, mentorship courses, you name it, I have done it. And that is where all of my education has come from. So this is not financial advice, this is financial education. And this is really just to help you paint a picture of the roadmap to wealth building. And yeah, I think obviously there are pros and cons of working with a financial advisor. My main objective through my money coaching is to help empower you and inspire you to go out and build a plan that is going to get you to where you want to go and to be able to feel like you can do it on your own. Because you can. There are tools that you can learn and integrate into your life where you don't need to pass your money off to give somebody else the power over your finances. The whole purpose behind my mission and my vision between for helping women is to empower you to be able to do this on your own, to give you the tools and resources to go out there and feel in control of your financial future. So that is all I'm going to say on that. So let's Go ahead and dive in. I think a great place to start is let's actually define what I'm talking about when I talk about wealth. Because a lot of times, you know, people might envision wealthy people as just having a lot of money. And having a lot of money is great, but that's not really what we're talking about. You can just be a rich person who has high income and buys a lot of nice shit. And to me, that means you are rich. You're a rich person. If you're making a lot of money and you're buying a lot of stuff and you're living a bougie life, that's great. You're living a rich life. That sounds fun, don't get me wrong. But. But what we're talking about is actually building wealth. Wealth is owning assets. It's owning something that is going to essentially buy back your time, because time is ultimately the most valuable resource that we have in this life. And I think you should spend more time doing what you want. And so the goal of building wealth is to actually have your money work for you so that you do not have to work for money. Wow. What a concept. What a goal to go after. You can actually hit a point where you have invested enough money that you don't need to work anymore. You have now reached a point in your life where work is optional. You get to spend your time working on whatever you want. And I think that is definitely a goal that everybody has at some point in their life. No matter if you want to reach this objective at age 65 and retire with, like, the societal norm path, Cool. You still need to build a plan to be able to retire at 65. You still need to be utilizing these resources and the strategies that we're going to talk about today to be able to retire at 65. But I also have some really good news for you. If you're someone who thinks that is, like, the only retirement plan, did you know that you can actually retire whenever your investments fund your lifestyle and you don't need to work for more income? This was one of the biggest light bulb moments for me when I started down this path, and I was like, I kind of feel like I've, like, been bamboozled a little bit. Like, I just thought you worked until you turned 65, and then magically you got to retire and didn't have to work anymore. Turns out, not the case at all. You again, you actually need a plan to actually still be able to retire at 65, but you can reach it so much sooner. So they call this your financial independence number. Once you have enough money in your investments to live off of, you do not need to work anymore. Guys, people hit this number so young, and obviously there's so much that goes into getting to that number. But I'm just going to give you the easiest mathematical equation that you can run right now to figure it out. You are going to take the annual amount of money that you would like to live off of. So take some time to figure out how much you spend in a month or how much you would like to spend in a month. Factor in your mortgage, your vacations, your donations, your spending money, like all of this stuff, and you are going to take that monthly number and Multiply it by 12 to get your annual number. This is how much money you would like to spend in a year. And then take that number and multiply it by 25. Once you do that, you are going to have your financial independence number. This means that once you have that much money invested, you can essentially remove money every single year and supply your life with those funds and never run out of money. So this is called the 4% rule. And essentially what you're looking at is if you have that much money invested in, let's say the stock market, you can safely remove 4% of that and you will never run out of money because of the power of compound interest. Whoa. What? So, for example, if your annual expenses are 100k, you need to get to 2 and a half million dollars invested for you to be able to stop working. And if you think two and a half million dollars sounds like a lot of money, then I want you to really consider the fact that you're not actually contributing that much money when we're talking about investing. You are actually going to benefit so much from, from the power of compound interest the earlier that you start your investment journey. And that is a very big motivator for me for wanting to help you on this journey, is to start as young as you can. Because the most powerful piece of the wealth building equation is not actually the amount of money that you invest, it is the time that you let it compound. So the earlier that you start, you could invest significantly less than your counterpart who starts 10 years after you, and end up with more money in the bank. That sounds exciting. If that is not a huge reason to start as soon as you possibly can, then I don't know what is. And I'm talking like you could start with really small quantities, but let's go into really the objective of wealth building and essentially what the. The two biggest things are that people are doing to actually build wealth versus just living in the rich world of making money, spending money, and not having any to show for it. So the two biggest things that wealthy people are doing with their money, the first one is diversifying your income streams. So there's this famous saying that what is it that millionaires have on average, seven different streams of income. The biggest reason that you want to do this is because you are. It's really a safety net. If you are just working in a W2 job and something happens like Covid or a recession, or a company gets sold or they downsize, or maybe you're just not that good at that job and you get performance reviewed out, you are kind of shit out of luck. Like that is your only form of income. So wealthy people value having multiple streams of income as a safety net. So if something happens and all of a sudden one of your streams of income is down, you have a safety net. You've got money coming in from other places. And so there are seven main forms of income. And so I'm going to run through them for you really quick. I'm not going to do like a total deep dive into how all of them work, But I just want to get your mind spinning and recognize that if you can just add one additional income stream to your life, that is huge, you are adding in an extra safety net for yourself where you can breathe a little bit easier. So let's talk about them. So number one is earned income. This is what we're talking about. In your W2 job, or if you are a self, you know, a business owner, you have something called earned income. So this is money that you earn through your job. You are trading your time for money. So that is earned income. And this is debatably like the riskiest type of income to have because again, you're trading your time for money. If something happens, let alone something happens to you, if you get sick, if you get injured and you can no longer work and you are reliant on being able to work to make money, it's going to be really, you're going to be in a tough spot. And this is where majority of people live. This is what most people focus on is earned income. So the second one is profit or business income. So this is money you make for selling a product or a service. And this is, you know, something that's like very prevalent in the online space right now because you can make, let's say, a digital product and sell it. Or you can make a physical product and sell it in a store. Something that you're going to be creating that is going to be sold. Number three is royalty income. So this is money you make from making or creating or designing or owning something that is unique when you charge people and businesses for using it. The easiest thing to think about with royalty income, right, is like artists who you can take their music and you get fees or they get income fees from people utilizing their music and things. So royalty income is something like that where you're creating something really unique and people are like, I want to use that and I'm going to pay the fee to use it. Number four is going to be rental income. So this is money that you're going to be making from owning a property and renting it out. And this can be from long term rentals where you have just like a normal tenant in there that leases for, you know, one to two years at a time. This could be income from a short term rental. Airbnbs are very, are very popular. You could do midterm rentals. People will rent to like traveling nurses for, you know, three months at a time. So think about any income that you can make from an investment property that you have that is coming in for, for you additional cash flow. And essentially that is, you know, you have your mortgage, you have your taxes, your insurance and your bills and then maybe you rent it little bit more and you're making the difference. That is going to be rental income. The fifth one is going to be interest income. So this is going to be money that you make from lending out your money. So the easiest example I can make here in a place that you can start today. And honestly, I encourage you to do this if you don't already have one of these is something like a high yield savings account. If you have your money sitting in a high yield savings account, you are collecting interest on that money that every single month. And essentially the banks are paying you money every month to keep your money with them. All you're doing is putting your money into their account and then you get to collect interest on it. So that is interest income. The next one is capital gains income. So this is going to be money you make from buying and selling an asset. So best way to think about capital gains income is going to be either in a home or in the stock market. If you buy something at a price, let's say you buy a home at $100,000. I don't know, I don't know where you live. But let me know where. We're all getting homes for a hundred thousand dollars these days. But if you buy a home for $100,000, maybe this was your parents back in the day, and now they are going to sell the home for $500,000. Whew, we just made 400k. Well, you have to then pay taxes on that money, right? So you have to pay long term capital gains in that situation. But that money that you're making just from buying that asset and holding it and letting it appreciate in value over time and then selling it, and then you are going to make money on the difference. That is what we're talking about when we talk about capital gains income. And then the last one is going to be dividend income. So this is money you make from dividend payouts from a company you have invested in. So when you buy interest in stocks, like when you are buying into the stock market, you are essentially buying little pieces of companies. And what these companies do to incentivize people to invest with them is they pay out dividends to their investors based on the growth of their company. So they'll have different quarterly earnings. And based on their performance of the company, they'll pay out a little piece of money for every stock that you own, for every part of a stock that you own with the company. And you'll make money on that every single quarter or whenever the company decides to pay out their dividends to their stockholders. So, okay, that was all of the seven types of income. And again, your goal is to try and diversify and add different streams of income into your life so that you have more of a safety net, you have more money coming in from different areas. And obviously once you have more money coming into different areas, you can then turn around and invest more money. And so what I want to talk about next is what the heck wealthy people are doing with their money once they get it. What they are doing to build long term wealth is investing in three major places. They are investing in the stock market, they are investing in real estate, and they are investing in businesses. These are the three ways that you are going to be able to build long term wealth. Why? Because these three things are what we consider assets. Wealthy people acquire money and purchase assets. Assets are things that appreciate in value over time. Like that home example I gave where you can buy something, now, hold on to it for a while and then it's going to be worth way more money in the long run. You're going to build equity, you're going to build Capital gains, all of these things from buying assets. And here's the biggest difference between rich people and wealthy people. Rich people get a lot of money and they buy liabilities. Liabilities are essentially just things that cost you money and are not growing your net worth and typically depreciate in value over time. So they are worth less money in the future than what you bought it for. A car is a super example of a depreciating asset that rich people spend a lot of money on so that they look rich, but actually it's a terrible investment. So cars, we know the second you drive them off the lot, they lose like half their value. So that is a terrible store of value. It's a terrible asset. You bought something and you immediately lost value. And it's going to cost you every single money if you finance it, if you having car payments every single month. And so this is the biggest switch to move from a rich mindset to a wealthy mindset is to utilize the money you have to buy appreciating assets so that you can build wealth over time. And so if you are looking to start building wealth and you want to get into these three different categories, I'm going to run you through the best and easiest places to start, as well as kind of, I guess, easiest entry point, highest risk, highest reward, that kind of stuff. So let's talk about the stock market first, because the stock market is hands down the easiest and quickest place that you can start building wealth. You can go and open up an account today. You could go in and start investing in the stock market literally in 30 minutes. You can open up an account and transfer money and hit purchase. It's very easy. Some of the ways that people traditionally get started investing in the stock market is through retirement accounts like a 401k or an IRA. So a 401k is a great place to start. If you work at a W2 and your company sponsors a 401K and they have a company match, a lot of companies will match maybe let's just say 3% of your salary. So let's just say for the sake of easy math, 3% of your salary is $5,000 and you invest $5,000. Now your company is going to go match that and also give you $5,000 for free. So this is the best place to start. If you're looking, go check out your company 401k, match policy and invest whatever they are willing to match because it's literally free money. And what you're doing in your 401k is investing in the, in target index funds, usually in the stock market. So that's a really good place to start. Then you can move over to an ira, which is an individual retirement account. It's very similar, it's for the purpose of retirement and you can invest in the stock market, but it's something that you manage on your own and your employer has nothing to do do with it. So if you don't have a 401k through your employer, your best place to start is the IRA. After you've invested in an IRA in a 401k, you could look at things like an HSA, which is a high yield savings account. You're only going to have access to this if you have a high deductible health plan with your company. So if you have that really great resource, I'm not going to get into like all the pros and cons of all of these because that will probably be an entirely other episode. But I just kind of want to give you the flow. And then after that you could look at a traditional brokerage account. You would want to start with those other three first. I guess I will just say because there's tax advantage strategies, taxes we pay the most in taxes. Like that is a bill you're going to pay for the rest of your life. And this is also a wealthy tip here is that wealthy people try and find all of the legal ways possible to pay the least amount in taxes. And the best place for you to do that is by looking at those retirement accounts because you're going to save money on taxes. After that you're going to look at a normal brokerage account again. You can open this whenever you want and start investing. What I will say about the stock market is it is the lowest risk place for you to build wealth. That also means it's going to take the most time for you to hit your income goals or hit your wealth goals. It's again, low risk, low, lower reward. But you absolutely can, you absolutely can achieve any everything just by utilizing the stock market. So I don't want you to think that it's like, oh, I'm not going to get there because it's slower returns. Like you'll still get there. You can absolutely still get there. And when you go to invest in the stock market, a lot of people think that you are buying individual stocks and trading, doing day trading. That is not what I'm talking about at all. I recommend going out and investing in index funds that track the S&P 500 so you want to do that because again, we love diversification. If you were to just go buy all your stock in PayPal and then PayPal tanks, now all your stock is gone. But if you were to go buy an index fund, you're essentially buying little pieces of all of the top companies and you are mitigating your risk solely just by choosing index funds over individual stocks. So that is what you would want to do. If you want to utilize stock market strategy, the next one is going to be real estate investing. Real estate investing is something that can help you get to your wealth goals faster than the stock market. But it takes a lot more knowledge, a lot more risk, and a lot more time for you to be able to get there. So if real estate investing is something that you're interested in, you get pros of investing in real estate a couple of ways. One of them is through appreciation. We talked about this. With the capital gains, you buy a property like really, how many of us have parents or know people that bought homes forever ago and they're worth so much? Right. That's gonna keep happening. Homes are definitely very expensive right now. It's not the same. It's way harder to get into. But if you can get into real estate, real estate is going to continue to appreciate over time. And so if you buy a home now, in 30 years, when your mortgage is paid off, you're going to have a whole paid off home that absolutely be worth a lot more money than it is right now. On top of that, real estate investing gives you more tax benefits and it also gives you cash flow so you are able to make passive income from your rentals. And again, real estate who in a for the faint of the heart, like it definitely takes time, it takes energy, but you can do it and it can shorten your time. If you get really aggressive with acquiring multiple homes, you can absolutely hit that financial independence, hit that financial freedom cash flow number quickly from this model. Again, just takes more time and more knowledge to get up and running. But I love real estate investments. I think they are a really great strategy. They are definitely something that I am invested in and I'm going to continue to scale my real estate portfolio because I just, I think it's a really great strategy. Okay, and the last one we're going to talk about is businesses who. Businesses are your high risk, high reward avenue for wealth building. They are going to take absolutely the most time, the most energy, the most capital, but could get you to a really crazy wealth goals. Right? You could. You hear stories all the time about people building businesses and selling them for mass amounts of money. What happens when you go in and you create a business? You are finding a problem in the market and you're creating a solution that is so valuable to people that they will pay good money for it. And when you're able to build a sustainable business, when you are able to build something that the market needs and wants and there is a lot of value in people will come and they will pay you good money to either buy you out or, or your business valuation will grow so much that you have so much equity in it that that contributes to your wealth. And so what? And again, the most, the most risk, the most reward, and definitely something that like, you've got to be like, all in on this. If you're looking at the stock market like you just got, you can do a set it and forget it strategy and just like build wealth in the background. If you're going to go business route, you got to be like, all right, I am serious about this and I want to go and I want to experience that life of an entrepreneur and I want to build a business and I want to have an experience of doing that. So those are going to be the three key areas of wealth building. And the objective of all of this is to grow your net worth. Your net worth is what you should be tracking if you want to live a wealthy life. So this is another big difference between rich and wealthy people. Rich people track their income. And let me tell you from personal experience, income don't mean shit if you are not doing anything with it to build wealth. So instead of tracking income, start tracking your net worth. And your net worth on the simplest basis is all of the assets that you own, all those things we just talked about, the value of them, minus all of the liabilities that you own. So liabilities include your car, your loans, your credit cards, your primary home. Your primary home, like the mortgage that you have on it, anything that you owe money on that is going to be a liability for you. And so you're going to subtract all of the value of the assets from all of the value of your liabilities. And that, my friend, is going to give you your net worth. And your net worth is the number that you absolutely want to be tracking you if you want to build wealth. Now who. That was a lot. Don't. I don't want you to leave this episode feeling overwhelmed. I just want to give you like a good high level overview of what the wealth building journey looks like. If you were like, whoa, girl, I am not even to that point yet. That's fine. I just want to paint a picture of where you're at. If you are just trying to figure out how the heck to even manage your finances appropriately, to start talking about wealth building. I got you. Let me run you through a few easy steps to get to the point where you can actually start indulging in the fun side of money, which is building wealth, achieving financial independence, buying back your time, and building a life you can't stop daydreaming about. So let me run you through a quick couple steps to get to this fun side of money. Step one, you're gonna build an aligned spending plan. This means you are going to craft a spending plan that is, is in alignment with all of your goals and all of your dreams, and you are going to essentially be in the driver seat of your money. When you're in the driver's seat of your money, it means you have a plan for your money before you get it. When you get the money, you already know, like it's already spent in your mind because you had you called it out. And I think this is one of the biggest mindset shifts that you can make from having a budget, which is essentially what I'm talking about here. But a line spending plan just sounds, it sounds so much cooler, right? A budget sounds restrictive. Like it's like a diet for your money. And that is not the vibe. The mindset which here is that you are actually in control of your finances, you're in control of your future, and instead of letting consumerism get the best of you, you are actually going to spend your money where you want to spend it to build a life that you want to live. And so you're going to break down your finances into three core areas. This is going to be your needs, everything you need to survive, your wants, everything that makes you happy, and then your savings and your investments, which is everything we are talking about here. So if you can start to put your money into these three different buckets, a really good rule of thumb that most people follow is 50% of your money in your needs and then 30 or 20% in your wants versus your investments. Just kind of depends on how aggressive you want to be with your wealth building strategy. But that's what your goal is, is to start segmenting your money out so that you can have about 20% of your income to start pouring into all the things that we just talked about right now. So that is going to be just a quick way for you to Start figuring out like, how do I start allocating some money to some of this stuff is to just look at how you're spending money now, make some adjustments and make sure that every time you get paid, you have a plan for it and it's going towards all three. Your needs, your wants, and then your savings and your investments. And so that is going to be where you should start if you're trying to figure out how to carve money out to start putting into these different wealth building vehicles. And if you are sitting here and you're like, yeah, okay, but I am in debt. I have so much debt. Girl, I got a good news for you because I recorded an entire episode all about how to get out of debt and how to be grateful while you're doing it. So go and listen to that episode if that is something that's going to resonate with you. But what I also want to leave you with is that you do not and abso absolutely should not wait till you are completely out of debt to build wealth. What you want to prioritize is your high interest credit cards. And once your high interest credit cards are paid off, then we can start the fun. That's when we can start putting money into these different buckets and start to figure out your wealth building plan. So I hope that this can give you a good perspective of the direction of where you're heading with your money, what the overall objectives is, and just know that you don't have to get here alone, you do not have to build all of this by yourself. There is so many components to this. And the thing that is so cool about personal finance is while there is a direction and obviously, you know, a clear path to go, everybody's life is different and everybody's dream life looks different. And so you get to pick and choose what parts of the wealth building strategies make sense for you, excite you and align with what you want to build in this life. And so I just want to leave you with this feeling and this energy that you absolutely can figure this out and it doesn't have to feel so overwhelming and that you, my friend, can absolutely step into your wealthy girl era, which is what I am all about. So please let me know what questions you have. What was a big aha moment for for you from this episode and what is one thing that you are going to do with your finances moving forward to start moving the needle and start building wealth in your life? I hope you have a fabulous rest of your day and you get on out there and you get busy getting better. I'll see you next time, babe. Hey, before you go, I just want to go ahead and say thank you for spending a little bit of your time with me today. And also congratulations for finding a chunk of time to come carve out and focus on you and moving the needle and becoming a better version of yourself. If there is anybody that you think could benefit from this podcast, please share it with a friend, share it with a family member. Feel free to share it on your socials and help me spread the word about busy getting better. Thank you so much and I will see you on the next episode.