back to indexJoshuaSheatz2
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Hi, it's Miles and I'm really old and I love race cars and family adventure podcasts. Goodbye. 00:00:28.600 |
This is Family Adventure Podcast, inspiring families to dream, travel, and accomplish epic adventures. 00:00:41.000 |
Hello folks, welcome back to Family Adventure Podcast. 00:00:47.100 |
And if this is the first time you've come here, then how's it going? 00:00:53.600 |
This is the place where we like to talk about family adventure travel, kind of specializing in nomadic travel. 00:01:01.000 |
Travel families that just take off and go for a year or more and live nomadically all over the globe or all of the United States. 00:01:13.700 |
We don't have a train family yet, but we're looking for one. 00:01:16.000 |
So if you know somebody who's taking a long train ride or trains across countries, we'd love to hear about it. 00:01:22.000 |
So anyways, this week we are finishing our interview with Joshua Sheets. 00:01:25.400 |
Got into a little bit kind of general ideas last week. 00:01:28.600 |
And this week he really dives into a lot of specifics on your budget, how to get a hold of your budget, find out ways you can save money. 00:01:37.600 |
How much you make, how much you spend, and what you do with the difference. 00:01:40.900 |
And financial planning 101 is spend less than you make. 00:01:45.200 |
So there's really only three ways you can tweak it. 00:01:48.200 |
Either you make more money, spend less, or invest better. 00:01:58.700 |
And thanks everybody for listening and for leaving reviews on iTunes. 00:02:03.200 |
And for joining our email list, we've got some exciting stuff coming up. 00:02:07.100 |
We're going to actually start launching a coaching program where we are going to come alongside families and help walk them through the process from start to finish on how to build a plan to get you out of the treadmill onto a traveling life. 00:02:21.100 |
And we're super stoked to announce that in a few weeks. 00:02:24.300 |
But we just wanted to kind of let you know that's coming up. 00:02:34.700 |
Could I add, I prepared a few thoughts that I'd like to share that would be specific to travel. 00:02:41.800 |
And feel free to cut this out or to add it in another show and split it out or something like that. 00:02:47.000 |
But I think it would be helpful to some ideas that would be helpful around family adventure. 00:02:53.700 |
Could because I want to, I don't want to, I want to leave people with some tactics and some exposure to some big picture ideas without getting into like specifics. 00:03:02.500 |
But I want to apply the science of financial planning to the science of goal achievement. 00:03:08.500 |
So first on debt, I wanted to give some tactics that I think would be helpful. 00:03:12.200 |
As far as tactics, here would be some specific suggestions. 00:03:18.300 |
The number one thing that most people do not do is they do not track their money. 00:03:22.600 |
If you do not track your money, then you don't know where it's going. 00:03:26.400 |
And if you don't know where it's going, you can't go back and say, is it going where I want it to go? 00:03:33.200 |
I recommend to people that they start with a way that's very tangible. 00:03:36.600 |
So sometimes just by being, you know, tangible with it, maybe that means a three of a five card in your pocket and a pen. 00:03:47.300 |
Maybe that means, you know, just something where you're actually physically writing it down a notebook every night. 00:03:52.200 |
You take your receipts out and you write it down. 00:03:56.000 |
I try not to say do it this way because some ways work for some people. 00:04:00.100 |
Some people like their smartphone and enter that in. 00:04:04.000 |
I would rather carry a three of a five card and a pen and write it down. 00:04:09.600 |
There are a lot of great electronic solutions for this. 00:04:21.700 |
These are probably two of the prettiest, most popular popularized. 00:04:26.000 |
There are a number of other apps that are more specific, a little bit simpler. 00:04:31.400 |
But I think there's a lot of value in you have to track your money. 00:04:35.500 |
You have to track your money so that you can create what we call a cash flow statement. 00:04:40.900 |
And the key of this, I've got an entire show on it. 00:04:43.200 |
Eric, you can go and find it in the show notes if you want to link to it. 00:04:45.400 |
But I've got an entire show on how to create a cash flow statement. 00:04:48.800 |
Most people, when they're creating a cash flow statement, 00:04:57.800 |
But you want to go and you want to track all of your income from every source before taxes. 00:05:03.900 |
And then you want to write down all of your expenses to every source. 00:05:11.100 |
Instead, what many people do is they just take the net that they get maybe on their paycheck 00:05:15.200 |
and they write that down and they budget off of that. 00:05:17.300 |
The problem is though, that there's 7.65% if you're an employee coming out already 00:05:26.400 |
That would be social security taxes and Medicare taxes. 00:05:29.100 |
Number two is that there's some amount of income tax being withheld and deducted from your check. 00:05:34.200 |
And so I've helped people find tens of thousands of dollars 00:05:37.400 |
that they're spending that we can just save on taxes. 00:05:39.900 |
I did a show recently with a guy, Justin, from a website called Root of Good, 00:05:46.300 |
who retired at 33 and we went through on the interview an example 00:05:49.700 |
of where he was able to pay, he had $150,000 income 00:05:53.900 |
and he paid his three kids and he paid $150 total of income taxes. 00:05:59.300 |
And we worked out that it's possible that somebody could make $150,000 00:06:05.600 |
If you're looking for a travel budget, I just found a $30,000 travel budget with good tax planning. 00:06:10.600 |
So create a cash flow statement and write down all of the pre-tax income 00:06:15.700 |
and then write down what your taxes are, work that out. 00:06:22.800 |
This is another thing that many people don't do. 00:06:24.600 |
Write down everything that you own, exactly what it's worth, 00:06:27.600 |
everything that you owe, exactly what it's worth. 00:06:30.200 |
Then you can look at those things and you can start to say, 00:06:33.400 |
"Am I happy with this? Am I making progress?" 00:06:36.600 |
So those are the two fundamental financial statements that you need to create for yourself. 00:06:40.800 |
That's the first thing that as a financial planner, 00:06:42.800 |
when you come in and you're working with someone, 00:06:44.200 |
the first thing that you do is you create those statements. 00:06:46.800 |
I don't make a big deal about budgeting in the sense of a forward-looking, 00:06:50.800 |
"Here's what I'm going to spend on this month or not." 00:06:53.200 |
For some people, that's really, really helpful. 00:06:55.400 |
For other people, it's really, really discouraging. 00:06:57.400 |
So I would encourage people, if they feel like they're not in control with their money, 00:07:01.800 |
I would encourage them to really figure out a system of budgeting that works for them. 00:07:07.400 |
What's simplest is a legal pad and a pen. Make it simple. 00:07:10.600 |
For some people, they like to use a software solution. 00:07:13.200 |
There may be something built in with the bank, 00:07:15.200 |
but budgeting is forward-looking, tracking is backward-looking. 00:07:18.200 |
Budgeting is what affects how much money you have at the end of the month. 00:07:21.800 |
Backward-looking just simply tells you what you did. 00:07:27.200 |
If you are generally pretty comfortable, it's probably not so necessary. 00:07:34.000 |
I would encourage people to get very tactical with their finance. 00:07:37.800 |
What happens is that it's so easy in today's world to lose touch with your money. 00:07:42.000 |
You've got your credit card registered at Amazon, 00:07:44.800 |
so you just click "Buy with one click" and there's a new $10 e-book. 00:07:47.800 |
You've got your credit card running all of your bills. 00:07:50.000 |
You've got all of these certain... You've got all these different things. 00:07:53.400 |
What I've found when I've been in financial trouble, 00:07:57.800 |
and I've noticed it to help many people as I've worked with them, 00:08:00.800 |
is that I believe both automating your finances 00:08:03.800 |
and un-automating your finances is very valuable. 00:08:06.800 |
If you're a little out of control, you need to pay attention. 00:08:09.400 |
A good way to do that is stop the automatic payments everywhere, 00:08:16.000 |
take a checking account and a checkbook register. 00:08:19.400 |
The checkbook register is still the most valuable cash flow planning tool 00:08:25.400 |
Our grandparents got rich with a checkbook register. 00:08:29.600 |
And I find it incredibly valuable for me to keep a checkbook register. 00:08:33.400 |
Write your bills manually, record the checkbook register, 00:08:37.800 |
That allows you to be in touch with what's going on. 00:08:42.200 |
you're happy with what you're saving, with where you're going, 00:08:44.200 |
how it's working, then you can take that and you can translate that 00:08:49.200 |
and say, "Now I'm going to go ahead and automate things." 00:08:53.600 |
but it's only powerful if you're doing the right thing. 00:08:56.000 |
So you can automate your savings, automate your investments. 00:08:58.400 |
Make sure that you're actually paying yourself first. 00:09:01.400 |
Most of the people all have heard of the idea of paying yourself first, 00:09:10.400 |
doesn't mean that the very first thing you do is save some money 00:09:13.800 |
toward whatever the financial goal is that you have. 00:09:19.000 |
So figure out a way to make sure that you actually do it. 00:09:24.400 |
there are only three things that you can possibly adjust 00:09:28.400 |
To build wealth, and I define wealth whether in a small sense 00:09:32.600 |
toward a specific goal, that may be a family adventure goal, 00:09:35.600 |
or in the larger sense, that may be toward something like financial independence. 00:09:39.200 |
There are only three things that you have control over. 00:09:42.200 |
The number one thing is how much income do you have? 00:09:45.000 |
The number two is how much are your expenses? 00:09:50.000 |
And number three is what do you do with the difference between those two? 00:09:54.600 |
So people who are broke, they don't make very much money, 00:09:58.000 |
they have high expenses, sometimes those expenses exceed their income, 00:10:02.200 |
so they're paying a lot of interest on the difference between those things. 00:10:06.400 |
People who get wealthy have a much higher income than they do have expenses, 00:10:11.000 |
and so they have a higher income, they have lower expenses, 00:10:14.000 |
and they invest the difference between those things wisely. 00:10:22.200 |
It's encouraging because it's simple, it's frustrating 00:10:24.200 |
because you don't know exactly what to do with it. 00:10:26.200 |
So the key is to attack it in different periods of time. 00:10:31.400 |
Is there something that I can or should do to increase my income? 00:10:37.400 |
Most people do not handle their career in an efficient manner. 00:10:40.600 |
They're happy with getting a 3%, 4%, 5% raise, 00:10:44.200 |
when you could find a competitor, if you enhanced your attractiveness 00:10:49.200 |
to an employer, you may find a competitor who will give you a 55% raise. 00:10:52.800 |
And it's far easier to swap out employers every few years 00:10:56.600 |
and climb the ladders of income, very straightforward, 00:10:59.800 |
instead of staying at one place where they're just going to give you 00:11:05.800 |
But in order to do that, you have to become more attractive. 00:11:09.000 |
So you have to focus on building your skills, 00:11:11.000 |
you have to focus on becoming more employable, 00:11:15.200 |
That may mean a formal certification, maybe you need an MBA, 00:11:18.600 |
maybe you don't because a formal certification is not valuable, 00:11:21.600 |
but you need to become much more excellent with leadership. 00:11:27.600 |
you may need to start a blog where you're doing book reviews on your industry. 00:11:30.800 |
So something if you're an employee to increase your income substantially. 00:11:34.400 |
If you're an entrepreneur, you have a tremendous opportunity 00:11:37.800 |
to focus on ways to constantly be increasing your income. 00:11:43.000 |
I think there are a couple of ways that are useful to track expense, to do expenses. 00:11:49.600 |
then I would recommend that you order these expenses 00:11:52.800 |
from highest to lowest and from lowest to highest. 00:11:56.000 |
Many people when they first start to think about saving money, 00:11:59.400 |
they automatically start with the little things. 00:12:01.800 |
So there's a joke in the personal finance world about the latte factors. 00:12:05.400 |
The idea is if you just cut out the expensive coffee, you'll get rich. 00:12:10.600 |
But the reality is that some people really love and value that daily latte. 00:12:14.800 |
So it may be that it's more effective to flip it around and say, 00:12:19.800 |
So you see this a lot of times when people get a travel bug. 00:12:22.400 |
List your expenses in order of highest expenses to lowest expenses. 00:12:26.600 |
For most people, the number one highest expense will be housing. 00:12:33.600 |
what could I do to cut my housing cost by 50% or more 00:12:44.400 |
but by asking a really big question like that, 00:12:46.600 |
you may come up with an alternative idea that will fit your goal. 00:12:54.000 |
There are tons of people who all throughout a period of time have done this. 00:13:01.600 |
but they buy the sailboat and they move in there 00:13:03.800 |
and they cut their expenses by a massive amount while they're still saving. 00:13:07.000 |
That makes the goal be able to achieve much more quickly. 00:13:15.000 |
Write that question at the top of a sheet of paper. 00:13:17.200 |
Write down 30 ideas to activate the creative juices. 00:13:20.400 |
The first 8 may be easy and the last 22 are incredibly difficult. 00:13:27.800 |
I could move into my car, I could move in with my parents, 00:13:32.200 |
I could have a roommate, we could move to Japan. 00:13:35.400 |
I don't know what the answer is, but be wacky, be crazy. 00:13:38.800 |
And then just simply look at those ideas and see, 00:13:43.000 |
If you don't want to do any of them, skip it. 00:13:45.200 |
Do the exercise in a different way and do something. 00:13:47.400 |
But you can come up with solutions that work for your scenario 00:13:55.000 |
There's a common thread in the early retirement community 00:13:57.200 |
that what you do is you buy a house that's either close to your job 00:14:00.400 |
or you rent an apartment that's close to your job. 00:14:03.600 |
Or it can be on a place that you have public transportation to your job. 00:14:08.000 |
So maybe you ride on a bus line or a subway stop that goes directly to your job. 00:14:11.000 |
So you can sell a couple of cars or sell one of the cars. 00:14:14.200 |
Cars are expensive to own and operate, so maybe there's your travel fund. 00:14:17.400 |
That's usually for most people, it's housing, taxes, vehicle expenses 00:14:21.600 |
are often the biggest categories, followed by food. 00:14:24.800 |
So you can say, what can I do to cut my food costs by 50% or more? 00:14:32.200 |
So you would eat rice and beans, you would learn to coupon, 00:14:36.800 |
I don't know the answer, but it's a mental shift. 00:14:42.000 |
And at some point in time, this is not all exercises for one night, 00:14:49.400 |
Flip it on its head and start with little expenses and say, 00:14:54.800 |
I'm spending $60 a month on my cell phone bill. 00:14:57.000 |
My wife and I have iPhone plans that cost $10 a month with Air Voice Wireless. 00:15:00.200 |
So if I can save $50 a month on my cell phone bill, 00:15:06.600 |
So flip it and look through all those little expenses. 00:15:09.800 |
And I like to tell people, optimize one thing every month. 00:15:13.000 |
So pick one category and spend a month on that category. 00:15:16.200 |
Brainstorming, what are my ideas, what could I implement? 00:15:19.400 |
Maybe you need to research cell phone carriers, 00:15:25.800 |
Some people can save $1,000 a year just by shopping their car insurance, 00:15:32.400 |
So if we can do it, and then sitting down and working on it, 00:15:35.400 |
and consistently working on it, we can reduce those expenses. 00:15:38.600 |
And the key is, it's often easier to reduce expenses 00:15:41.800 |
than it is to increase income or increase investment returns. 00:15:45.000 |
Quick rule of thumb, and I know I'm just like spurting everything out, 00:15:48.200 |
but I want to make this show incredibly valuable, 00:15:51.400 |
because I want to see tons of people having family adventures. 00:15:54.600 |
But a quick rule of thumb from the early retirement community 00:16:01.200 |
in terms of a mental model of financial independence. 00:16:04.200 |
So there's a rule of thumb that we use in financial planning, 00:16:07.400 |
that if you're going to live off of a portfolio of investment assets, 00:16:13.800 |
then you can safely spend about 4% of a portfolio per year into perpetuity. 00:16:23.400 |
So what you can do is you can take every single monthly expense 00:16:26.600 |
and you can multiply that monthly expense by 3% 00:16:30.000 |
and that will tell you how much of a portfolio you need to have 00:16:33.000 |
in order to fund yourself on an ongoing basis without needing to work. 00:16:42.600 |
Well a good place to start with a financial goal 00:16:52.200 |
Now this is not the only way to go and travel, 00:17:05.000 |
under that rule of thumb doing this with mutual funds and paper assets. 00:17:08.200 |
So a question would be if I'm looking at a cell phone bill 00:17:14.600 |
and there's a mom and a dad and a couple of kids on a cell phone plan 00:17:21.000 |
In order to pay for that cell phone bill on an ongoing basis, 00:17:27.600 |
And I can look at that and say this person needs to save $45,000 00:17:30.600 |
to be able to fund this cell phone bill into perpetuity. 00:17:33.800 |
Now if I could cut that from $150 a month to $50 a month, 00:17:49.800 |
The question is this, you look at your savings rate 00:17:53.000 |
and you say, "Okay, I'm saving this amount of money on a monthly basis. 00:17:56.400 |
How long will it take me to accumulate $30,000?" 00:17:59.400 |
For many people that's 3, 4, 5, 6 years to be able to accumulate that. 00:18:02.600 |
And a lot of times it's easier to go from $150 a month 00:18:05.800 |
cell phone expense to a $50 a month cell phone expense 00:18:21.800 |
that I use in my mind to evaluate ongoing expenses 00:18:31.400 |
If you recognize that I could save $200 a month on my groceries 00:19:00.200 |
When you think about taking that number and multiplying it times 300 00:19:03.400 |
and really this is what you're going to look at over the long haul, 00:19:13.000 |
That's really grabbing the checkbook by the horns 00:19:16.200 |
and putting it into practical terms, which is fantastic. 00:19:22.800 |
The average person, what maybe 2 out of 100 think like that 00:19:29.000 |
and really evaluate where they are and where they're going. 00:19:45.000 |
I've got a couple more ideas I want to share. 00:19:48.200 |
I want to flip it, especially with the focus on travel, 00:19:51.600 |
which went over is basically some money management. 00:19:54.600 |
So that's focusing a lot on the income and the expense side. 00:19:57.800 |
When it comes down to how can I invest the difference wisely, 00:20:04.200 |
So one of the things that is a very useful mental model, 00:20:07.400 |
some people will look at things from the perspective of 00:20:10.600 |
how can I fund things off of an investment portfolio. 00:20:13.800 |
But if you want to live a family adventure of some kind, 00:20:17.000 |
that doesn't necessarily have to be the only way to fund things. 00:20:23.400 |
So all financial planning is based around cash flow. 00:20:26.600 |
If you and your wife needed $1,400 a month to live on your sailboat 00:20:33.000 |
then all you need to be able to do that is $1,400 a month. 00:20:36.200 |
That $1,400 a month, if you had $14,000 sitting in a bank 00:20:49.200 |
And that's going to be coming from many other sources. 00:20:52.200 |
If you had Social Security income of $1,400 a month, 00:21:01.800 |
I had somebody I worked with actually who was disabled at an early age, 00:21:05.000 |
and they had under $1,000 a month, they lived on a sailboat. 00:21:08.200 |
And they traveled the Caribbean constantly, full-time, 00:21:11.400 |
living on their sailboat, because that was how they could live 00:21:18.000 |
So I encourage people, investing is a really important skill, 00:21:21.000 |
and it's awesome if you can fund an investment, 00:21:24.200 |
if you can fund an adventure based upon investments. 00:21:37.000 |
and your investment portfolio will build that for you. 00:21:43.400 |
So you could have somebody who works occasionally. 00:21:49.800 |
that means for every 6 months you work, and you can save $1,400, 00:21:53.000 |
you can buy 6 more months of not having to work, 00:22:02.600 |
Many people would love to be able to build their income online, 00:22:12.200 |
So this could be a so-called location-independent business, 00:22:21.800 |
But sometimes focusing on a more local brick-and-mortar business 00:22:31.400 |
when you're looking at, and I just recorded a show about this, 00:22:37.800 |
but just kind of talking about the different ways of doing things. 00:22:41.000 |
There are fundamentally 3 different asset classes 00:22:44.400 |
that I'm aware of that big picture can be used. 00:22:47.400 |
And number 1 is entrepreneurship or business ownership, 00:23:00.200 |
if it's appropriate for somebody's personality, 00:23:03.400 |
can often have the highest potential rate of return. 00:23:06.600 |
So if somebody's saying, "OK, I'm able to save some money, 00:23:16.200 |
building a business or an entrepreneurial endeavor of some kind 00:23:22.600 |
because you can multiply the money incredibly massive. 00:23:25.800 |
The right investment in the right marketing program for your business 00:23:29.000 |
may result in a thousands of percent rate of return. 00:23:32.200 |
So it's got opportunities for just massive growths 00:23:38.600 |
It's also got tremendous opportunities for tax advantages. 00:23:42.000 |
One of my personal pet peeves and personal passions 00:23:54.600 |
So instead of the government stealing the money out of your pocket 00:23:57.800 |
and spending it on all the stuff that it spends the money on, 00:24:01.000 |
much of which in my opinion is a total waste, 00:24:04.200 |
then you can spend it on what you want to spend it on. 00:24:07.400 |
People often talk about tax breaks for the rich. 00:24:10.800 |
The trick is, however, there are two different almost segments 00:24:17.000 |
This is not actual, this is more metaphorical. 00:24:20.200 |
There's a personal tax code and there's a business tax code 00:24:23.400 |
and all the good stuff is in the business tax code. 00:24:26.600 |
So if you build out some kind of entrepreneurial endeavor, 00:24:33.000 |
If you are one who is making a legitimate income 00:24:39.600 |
you can avoid the taxes on some portion of those tax expenses. 00:24:42.600 |
It's a very involved process to do it carefully 00:24:49.000 |
where you have good records and you're in good shape. 00:25:01.800 |
because I was attending two business conferences