Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck. Family fun, giveaways, and exciting Kings hockey awaits. Get your tickets now at lakings.com/promotions and create lasting memories with your little ones. Radical Personal Finance, episode 56. A financial planner fights back and lobbies for actually customizing financial plans.

Welcome, welcome, welcome to Monday's show, Radicals. I thank you for being here. Today is Monday, September the 8th, 2014. My name is Joshua Sheets. I am your host and your sherpa today. And yes, the financial planner mentioned in the intro is indeed me, for I am he. And today we're going to talk about why financial plans should actually be customized.

I appreciate your being here. I'm excited about today's show. And today's show is going to build exactly off of Friday's show, which was episode 55. And let me give you a quick background on Friday's show. And then let me encourage you to go listen to it before this one.

And you'll see how they are going to connect together. Friday's show was a Q&A. And there was a reader named, listener named John, who had written me an email. And basically the gist of his email was he said, Joshua, I've got a million dollars basically, and I'm about 35 years old, and I hate my job and I want to retire early.

Can I? And this leader, this listener, excuse me, had gone around and consulted with various financial advisors, had talked with different people and was getting this broad, diverse number of opinions. And they didn't know what to do. And so I sat down and I took the information and I, as part of the show, as a central piece of the show, in addition to kind of pointing out some flaws in his thinking or some, some just kind of fallacies or misunderstandings in his thinking in the emails, I pointed out and I sat down and I wrote out five financial plans, all of which would allow him to retire early today.

And these were five wildly diverse plans. And they actually wound up being six wildly diverse financial plans that I just completely made up. And all six of them worked for him to retire today. But among those six, choosing among them, there was a broad degree of variability. And there was nothing magic about the number six.

I just sat down and I just, I had intended to write five and I wound up writing six. I could have written 26 or 206, because frankly, there is almost an infinite number of plans that I could have created for him. And when I finished that show, I was thinking about it.

And I really, I felt great about that show. And frankly, of all of the shows that I've created now, today is episode 56, I felt better about the work that I did on that show than I have about any of the shows up till now. Well, it'll be interesting to see what the feedback is on it.

I haven't gotten much. The listener, John, wrote me an email and said, "Thank you very much." But as far as comments or other people, so I don't know whether it's other people, but I felt like I did a really great job on that show. So I felt really good about it.

I felt like I was succinct, I was direct, but I was creative and I was illustrating how everything I've talked about on the show up till now ties together. Everything from tax planning, lifestyle planning, retirement accounts, technical knowledge, big picture goal setting, lifestyle design, how everything came together in one example.

So I really enjoyed it. But as I was thinking about it all weekend, I kept on thinking about this question of how plans can be unique. And then I watched some feedback that I try to keep an eye on feedback. And the wonderful thing about the internet is you can see the feedback in public.

And I love getting feedback. And I like to see it on the internet because people are brutally honest when they're not restricted by the social norms and niceties. And they'll say things in public on the internet that they would never say to your face. So if someone's going to compliment me on the show face to face, they'll say, "Joshua, hey, this is so great.

There's a couple of things I'd like to improve." But man, when you go on and start reading the feedback on the internet, it's great because you get tons of feedback. Which by the way, if you ever want to get someone's attention, if you want to get an author's attention, go leave a review for their book on Amazon.

I guarantee they'll see your stuff. Every author is watching their feedback because it's valuable. And I gain a lot from the feedback that I get on the show. And I did an interview late last week with Craig Mathias for his show, which is the Create My Independence show, which by the way, there'll be a link in the show notes.

If you're interested in some of the background a little bit on me and my show that I don't often bring out on, again, on my show, because it's kind of self-serving to talk about yourself all the time, then go listen to that interview. And Craig asked me a few things about my background.

But one of the things that I said in introducing that background, and this will lead into... This is basically what I'm doing is I'm leading in now into the 18 specific things that I came up with as examples that will dramatically affect a financial plan for you. That's the primary of today, but I need to set the stage for it first.

On Craig's show, he asked me a little about my background. I told him how I had gone through this great change, this transformation where I had to learn to set aside most of what I had been taught and most of what I had thought, and I had to learn new things.

And so one of the things that I was joking in the interview and I said, I had to set aside some of the things that I had always thought because when I went and interviewed at Northwestern Mutual, I had always been taught never buy whole life insurance, and I really had a serious moral issue.

And the Northwestern Mutual is a huge provider of whole life insurance in the insurance industry. And I knew that as I was doing my due diligence, I knew, I mean, I was like, look, this company does a tremendous amount of whole life insurance. I don't think I could morally and ethically sell it.

And so that was a big deal for me. So I had to go and do a ton of research on life insurance, on how it works, on all of that to finally convince myself over time before joining the company, okay, I can see how in some financial planning situations that the personal finance books didn't tell me about, this can be a valuable tool.

And we'll get to that at some point. I'll do a whole series on life insurance. I just, I don't want to talk about it anymore because I'm a little bored by it these days. But I'll do all kinds of shows. I'll show you how different topics interplay. Well, I was watching the comments on Craig's site and I was one of the commenters basically made the comment that yes, we all have to justify what we do.

And the insinuation of the comment was that anybody can set aside what their moral hang ups are over time in order to earn a paycheck. And that's what people do. And so now that's a fair comment, very, very credible, fair comment. I could have done that. But as I was thinking back on it over the weekend, I was just considering that assumes that I did that.

What it doesn't assume is that there was a fact pattern. So when I have sold whole life insurance, the assumption inherent in that comment is that there wasn't a fact pattern that would justify that. And frankly, that's ignorant. It's not meaning to be mean, but it's just ignorance. And I thought of an example.

And here's the example where I learned this the most strikingly in my lifetime. And the example was in the McDonald's hot coffee case. Now, I'm sure that you have heard about the court case where a woman spills hot coffee in her lap, it burns her and she sues McDonald's and gets awarded millions of dollars by the lawsuit.

So this case is often presented as this proof for how we have this twisted, horrible legal system that doesn't know how to, justice system that doesn't know how to be fair and equitable towards people. And I often thought that myself. I often said that. And I often would rail against the crazy court system and political debates with my buddies, rail against the court system that would have all these unjust things and justice would not be served until I got to business law in college.

And in business law, we actually read the facts of that case. I was never more humbled, humiliated, frankly, is a better word than I was just because of how wrong I was. So I went and found I didn't I knew the whole facts was going to be too long, but I found the short summary of it and it'll be linked in the notes, but I'm going to read you this short summary of the McDonald's case.

And if you've never researched this stuff out, just consider these facts. And from these are this is from a legal site. This is what is this the the electric law library. And so this is a this is a summary and an excerpt of the fact sheet from the the official fact sheet from the case.

There's a lot of hype about the McDonald's scalding coffee case. No one is in favor of frivolous cases of outlandish results. However, it is important to understand some points that were not reported in most of the stories about the case. McDonald's coffee was not only hot, it was scalding, capable of almost instantaneous destruction of skin, flesh and muscle.

Here's the whole story. Stella Lee back of Albuquerque, New Mexico, was in the passenger seat of her grandson's car when she was severely burned by McDonald's coffee in February 1992. Lee back 79 at the time ordered coffee that was served in a styrofoam cup at the drive through window of a local McDonald's.

After receiving the order, the grandson pulled his car forward and stopped momentarily so that Lee back could add cream and sugar to her coffee. Critics of civil justice who have pounced on this case often charged that Lee back was driving the car or that the vehicle was in motion when she spilled the coffee.

Neither is true. Lee back placed the cup between her knees and attempted to remove the plastic lid from the cup. As she removed the lid, the entire contents of the cup spilled into her lap. The sweatpants Lee back was wearing absorbed the coffee and held it next to her skin.

A vascular surgeon determined that Lee back suffered full thickness burns or third degree burns over 6% of her body, including her inner thighs, perineum, buttocks, and genital and groin areas. She was hospitalized for eight days, during which time she underwent skin grafting. Lee back, who also underwent debridement treatments, sought to settle her claim for $20,000, but McDonald's refused.

During discovery, McDonald's produced documents showing more than 700 claims by people burned by its coffee between 1982 and 1992. Some claims involved third degree burns, substantially similar to Lee back's. This history documented McDonald's knowledge about the extent and nature of this hazard. McDonald's also said during discovery that, based on a consultant's advice, it held its coffee at between 180 and 190 degrees Fahrenheit to maintain optimum taste.

He admitted that he had not evaluated the safety ramifications at this temperature. Other establishments sell coffee at substantially lower temperatures, and coffee served at home is generally 135 to 140 degrees. I'm going to pause for a moment. That was what really struck me. McDonald's held its coffee at 180 to 190 degrees, and home coffee is 135 to 140 degrees, almost a 40 or 50 degree difference.

Further, McDonald's quality assurance manager testified that the company actively enforces a requirement that coffee be held in the pot at 185 degrees plus or minus five degrees. He also testified that a burn hazard exists with any food substance served at 140 degrees or above, and that McDonald's coffee, at the temperature at which it was poured into styrofoam cups, was not fit for consumption because it would burn the mouth and throat.

The quality assurance manager admitted that burns would occur, but testified that McDonald's had no intention of reducing the holding temperature of its coffee. Plaintiff's expert, a scholar in thermodynamics applied to human skin burns, testified that liquids at 180 degrees will cause a full thickness burn to human skin in two to seven seconds.

Other testimony showed that as the temperature decreases toward 155 degrees, the extent of the burn relative to that temperature decreases exponentially. Thus, if Liebeck's spill had involved coffee at 155 degrees, the liquid would have cooled and given her time to avoid a serious burn. McDonald's asserted that customers buy coffee on their way to work or home, intending to consume it there.

However, the company's own research showed that customers intend to consume the coffee immediately while driving. McDonald's also argued that consumers know coffee is hot, and that its customers want it that way. The company admitted its customers were unaware that they could suffer third-degree burns from the coffee, and that a statement on the side of the cup was not a "warning" but a "reminder," since the location of the writing would not warn customers of the hazard.

The jury awarded Liebeck $200,000 in compensatory damages. This amount was reduced to $160,000 because the jury found Liebeck 20% at fault in the spill. The jury also awarded Liebeck $2.7 million in punitive damages, which equals about two days of McDonald's coffee sales. Post-verdict investigation found that the temperature of coffee at the local Albuquerque McDonald's had dropped to 158 degrees Fahrenheit.

The trial court subsequently reduced the punitive award to $480,000, or three times compensatory damages, even though the judge called McDonald's conduct "reckless," "callous," and "willful." No one will ever know the final ending to this case. The parties eventually entered into a secret settlement which has never been revealed to the public, despite the fact that this was a public case, litigated in public, and subjected to extensive media reporting.

Such secret settlements after public trial should not be condoned. That's the end of the article there. I'm going to pause for just a moment. How did you think about that case before I read that fact pattern? And then after the case, what do you think? I tell you, for me, when I was in college, this rocked my world because I thought, "How have I been so ignorant?

How have I been saying, 'People are suing McDonald's for spilling hot coffee?'" And when I read through the facts, and the facts that we read were much more lengthy than those facts, I just thought to myself, "Wow, this seems like a really fair treatment." They awarded her damages for her medical bills.

They found her 20% at fault for her negligence. The $2.7 million of punitive damages, those were later reduced, but you never saw that in the paper. And I thought, "Wow." So this case for me has been a major thought process in my life where I go back and I think to myself, anytime I start judging something, I try to ask myself and say, "Joshua, before you make a judgment here, let's make sure that you fully understand.

Fully understand what's going on. And don't assume that people are stupid. Don't assume that people are unethical. Don't assume that people are ignorant. Start with assuming that they are intelligent, caring people, and try to understand why they would want to do something. Why do they act the way that they do?" Now, are there people who are ignorant and stupid?

Probably. Yes, there are. But it always bothered me when I was working as a financial planner that it's like, "Do you ever consider that a financial planner who knows somebody intimately might actually have some insight into what the person is trying to accomplish?" See, I think we all need a unique plan that is customized to us.

Each of us is a unique person. And for some reason, we are happy to say that as a platitude to, "Yeah, we're all unique. We're all different. We're all unique." But when it comes to our financial plans, they're all supposed to look the same. They can't look the same.

And so, you've got to look at the specific facts and the specific fact pattern of each case, and you've got to apply creative thinking to that case. And you have to say, "What are the goals? What are the desired outcomes? Now, what is a compelling plan for achieving that in a really intelligent way?" And so, as I go through this list that I brainstormed, and this is not intended to be an exhaustive list.

I wrote down 18 things. This is intended to be an illustrative list, is just to show how you can make dramatically different decisions based upon dramatically different facts. And you can do whatever you want, but I would prefer if people would study the facts of each case before making a decision.

If you don't believe that that can matter, go back and listen to 55, episode 55, and just listen to how I can lay out six dramatically different scenarios, all of which on those current facts. And the feedback that I received from John after listening to my show is he said, "I need to go back and do some thinking because you're right.

I'm not clear on what I want." So, here are some things that will make a difference in your answers and the solutions that you implement in a financial plan. The first one is going to be the longest, and the next 17 are fairly short. The first one, I would say, is the phase of life.

Now, that probably strikes you as true because we're so schooled in the idea that, well, as you age, you should adjust your risk tolerance over from stocks to bonds. So, there should be this ideal ratio of what percentage of stocks and bonds we own based upon our age. And I don't have any problem with that.

It's fine. I don't have anything against target date retirement funds. I think they're great. They're perfect for people. I don't have any issue with that. But let's go a little deeper. So, we know that this is true, but how can we go a little deeper? How would you advise somebody differently based upon the simple fact of whether they're a child or whether they're an adult?

And here's what I mean. Where would you recommend to a child that they invest their money? Would you recommend to them that they trot down to Vanguard and buy the lowest expense ratio index fund that they could buy? Maybe. Or would you recommend to them that they buy a tool belt and some carpentry tools and they learn how to swing a hammer and build stuff?

You say, well, the answer would never be between those two things. You're sure it could. So, you obviously see right now, my first example, well, how much money are we talking about? Are we talking about the fact that this child just inherited $4 million or $400,000 or $4,000 or $40?

Would you encourage the child to invest in a trade education or into a college degree? That should immediately set off red flags in your head and say, well, wait a second, what are they suited for? What are their goals? What are their interests? Exactly. Based upon who they are as a person.

Would you recommend to this child that they buy rental houses or that they buy index funds, REIT index funds? That should set off several questions in your mind. You say, wait a second, well, is this child, did they buy the tool belt and the hammer and do they like working on houses or are they kind of bookish and they don't really care about swinging a hammer and they wouldn't enjoy managing a portfolio of rental houses?

Where would you recommend they invest? I would start, if I were advising a child, I would start by saying, how can you, as a child, how can you invest in acquiring character, knowledge, skills and tools? Because your stocks could be stripped away from you in an instant. But if you have character and knowledge and skills and tools, then those things cannot be taken away from you.

How can you invest and build work ethic or character ethics? How can you enhance your literacy, your numeracy? How can you develop your ability to learn? What books, what training courses will give you the knowledge and the skills that you need? What tools do you need? Do you need a hammer and a saw and a tape measure?

Or do you need a financial calculator? Do you need a graphing calculator? Do you need a library? What tools do you need for your situation? So, the phase of life can be, right there, you can open up a gazillion different ways that you would encourage somebody, just for the factor of they're a child or they're an adult.

You say, "Well, Josh, we're that stupid. What child would go, you know, why is it going by index funds?" I don't have any problem with index funds. No problem at all. I think they're wonderful. And for the vast majority of people, they're probably what they should do. Probably, maybe.

But this single-minded focus is what I have a problem with. And we know that because we talk about, "Well, going to college." But take it beyond college and see through what even the go to college or don't go to college advice is getting at the core and look at the individual.

So, that would be one phase of life of child versus adult. What about the phases of an adult? Is an adult just starting out? Are they in an accumulation phase? Are they in a preservation phase? Are they in a distribution phase? If somebody's just starting out, then I would have them focusing on building wages.

So, for example, increasing their skills so that they can command a higher hourly wage. I would focus on acquiring tools. If somebody has tools, whether those are physical tools or skill and ability, the tools of skill and ability, then those tools can be leveraged to gain a higher wage.

If somebody is, I'll keep picking on fast food workers. So, let's say someone's a fast food worker at a minimum wage. If they can acquire some basic carpentry tools or some basic tile setting tools or some basic plumbing tools or some basic electrical tools, they can go from $8 an hour to $18 an hour over the course of probably a couple of years.

So, the investments in that situation would be into tools. And we know that to be the case, but we don't talk about that enough. So, we should talk about that and we should consider that when we're advising somebody. If we look at what capital does somebody have, do they have financial capital when they're just starting off or do they not have financial capital?

What other forms of capital do they have other than financial capital? Look at what college provides. College, for many people, one of the biggest benefits of college is not knowledge. It's social capital in the form of a network of college friends and professors. And it's social capital in the form of this network that they have gone through life with for four years or two years, if it's a master's degree program or some number of years.

They've built these strong relationships and that's the social network, the good old boys network that gets leaned on throughout life. Or what if somebody's in an accumulation phase? Well, now you're going to look at, do they have savings? Do they have reserves? You're going to focus on what's their investment plan to invest their money wisely.

I think if somebody can develop an area of unique skill in investment, that would be ideal. Because if you can apply an area and develop an area of unique skill, you can get unique returns and a higher growth rate on your investments. It is possible. That's what people do every single day is by building unique skills on unique areas that they understand, they know about.

You need to develop an asset allocation plan that's unique to you in accumulation phase. So this needs to go beyond just what percentage of your money in stocks or bonds? What percentage of your money in these different asset classes? If you're a home builder, does it make any sense for you?

Let's say you're a home builder, you're building houses, they're spec houses or whatever. Does it make any sense for you to buy a REIT, a real estate investment trust, a mutual fund that owns real estate? No. But then again, does it make sense for you to have all of your assets in real estate?

Well, it depends on the life stage, right? So I could make a good argument. There are some very wealthy home builders here in West Palm Beach that I know that have developed some huge developments and made massive fortunes. I could make a really good case for the idea that a home builder needs to acquire a certain level.

So if in the beginning, if you're just in the accumulation phase and you're just starting out and you're a home builder and this is where you're going to make your fortune and through the business of real estate and real estate construction, I think it would be a really wise idea to focus on building that capital and building everything in real estate because you can achieve a certain scale that once you reach a certain size, you can build a thousand homes at once and then you can reap those higher profits.

But there does come a point in time at which it's probably not so smart for you to have all of your money in real estate. I know of some people right here in West Palm Beach that when five years ago when we had the real estate crash, got destroyed.

So their financial plan didn't adequately identify and insulate them from the risks of their asset allocation. If you're a coin dealer, does it make a lot of sense for you to keep a personal stash of gold coins and you're safe at home? It's just your personal collection. I would suggest that it might be smarter for you to start buying some rental houses.

What does it help you? You've got a whole inventory at your store. Are you all in on gold? Are you that sure of yourself that gold and silver are your thing that's going to always go up? Now on the other hand, if you work as a mutual fund manager or you work in the investment business, does it make sense for you to have all of your money in publicly traded stocks?

Or does it make sense for you to maybe own a little farmland somewhere, have a condo that you rent out, or have a little business on the side that's a private business that you're an advisor and an investor in? If somebody's in a preservation stage of life, well you need to look at the safety of your assets and various scenarios.

So what are you concerned about? What keeps you up at night? What is it specifically that is causing you the problem and how would different scenarios affect you? How would a Great Depression style 25% unemployment rate affect you and your wealth? If you've built wealth, then you need to protect it.

It's very different to be a bootstrapping entrepreneur at the beginning of his life stage, just starting and getting into that accumulation stage and throwing everything at building out condo communities to make their fortune. That's very different than somebody who's made a fortune and is looking at preserving the assets.

What rate of return do you actually need? It really doesn't make a lot of sense to me to take a lot of risk for excess return if you only need a small amount of return to hit your financial goals. But then that brings in the question of what kind of risk are you concerned about?

You need to think through what is the type of risk that you are concerned about. Are you concerned with market volatility? Are you concerned with currency risk? Are you concerned with repayment risk? Are you concerned with sovereign risk? What's that called? The country that you're living in. If you're in the distribution phase of wealth and you're figuring out whether that's you're working on an estate plan or you're distributing assets to heirs, you've got to look at what are your goals and plans?

What is your tax situation? What do you specifically need? What are the risks that you're concerned about? Maybe, and this is what people often don't get until they've worked with clients, is that maybe the highest return on a portfolio is not the number one goal of all people. It's really not.

It's very rare that a client will say, "My number one goal is the highest rate of return." This is one of the biggest holes in the literature. The literature is being written from an academic perspective saying, "What gives the highest rate of return over a period of time?" But I'm telling you, the highest rate of return is not what all investors are shooting for.

Many people are just simply saying, "I want to minimize volatility." Let me give you an example. Maybe it will help you to understand. I don't know what the answer is for you because it's different for every person. If I were to offer you a guaranteed—what numbers? I need to be careful because I want to use careful numbers and this is a purely hypothetical scenario.

I'm not actually marketing an investment to you. Let's say that I'm going to offer you a guaranteed 6% rate of return every single year going forward, guaranteed, no ifs, ands, or buts. I'm not. This is a thought exercise. I were to offer you a potential return of 8%, but there's also, in any random year, there's a potential that the value of your portfolio could decline by as much as 75%.

I'm not offering that offer to you either. It's just a thought experiment. If you were playing with that example between the two, which would you choose? Now, either one of those you might choose and there would be people who would choose both of them. Many people, however, if they were offered the confidence and the security of knowing that they could get a guaranteed 6%, they would give up the extra 2% of return, even if you run the calculations for the confidence of knowing.

You don't know until you get in the situation and you ask. Depending on where you are in that phase of life, whether you are a child or an adult, are you just starting out, are you in the accumulation phase, or preservation phase, or distribution phase, this will dramatically affect your financial plan.

It should. It's right that it does. But you don't know what somebody should do until you get the fact pattern. You only know what you should do in your fact pattern. Number two is risk tolerance. It may feel like we just talked through risk tolerance, but I'm going to give you a different idea now.

What's your personal risk tolerance in your life? Example, are you very much focused on saying, "I've got to get all my debt paid off, and I don't want to owe any money for anything," or are you comfortable and cool with carrying debt? Big difference between those and how you structure a financial plan.

How about your financial asset risk tolerance? Are you comfortable with owning financial assets over which you don't have any control, or do you want control over your financial assets? Are you willing to invest as a minority shareholder in publicly traded companies, where you basically don't have any control? Are you comfortable enough that the board of directors is being held accountable by the shareholders, and the board of directors is properly supervising the company, and they have your best interests at heart?

Or does that make you just sweat all night long, tossing and turning, and you've got to get out, and you've got to have something where you get control in it? What about your risk tolerance for the portfolio? Are you comfortable with a volatile portfolio, or are you uncomfortable with it?

Volatility and lack of comfort with the volatility of a portfolio destroys investors' returns. It really does. It destroys investors' returns, because what happens is people generally think that they're more comfortable with volatility than they are, but we fear loss, and we feel loss much more than we do the gains and the wins.

What about your personality? Number three. I've talked a lot about entrepreneurship, but I was reminded the other day when I was reading an email from a listener, and I was reminded that I don't think everybody should be an entrepreneur, and I've recognized that maybe I've gone a little too heavy on that with the content I've produced so far.

Many people, who knows, maybe it's the majority of people, I really don't know, many people are entirely content in a traditional employment situation, and that's fine. Some personalities really prefer that. Many personalities really prefer that. They like the stability, and frankly, it's pretty easy. You only have to work 40 hours a week if that's what you work, or 30 or 20 or whatever, and the job stays there.

That has a lot of attraction. So you've got to factor that into your personality. So now, if you are an employment type of person, that leads you in one direction, versus if you're an entrepreneur type of person, that leads you in a dramatically different direction. It's a big deal.

What about your skills? What skills do you specifically have? Do you have mechanical skills? Do you have, I don't know, construction skills? Are you highly literate literacy skills or investing skills? Do you have certain skills? That is going to drive what you do, or it should drive what you do.

What about goals? What are your actual goals? What lifestyle do you actually want? Do you want to live in the country and work on a farm? If you want to live in the country and work on a farm, that's probably going to affect your investment portfolio. Maybe you'll be focusing more on real estate and buying productive cropland in Iowa or Nebraska or Florida.

Maybe you're going to buy attractive timber and equipment. In this situation, investing in a one-ton pickup truck, that could be an incredibly good decision, because that pickup truck may now be a very valuable asset for your personal productivity. Now, to go to the opposite side of the spectrum, maybe you want to travel the world and live out of a backpack.

Well, in this case, you definitely don't want to own any stuff, so that one-ton pickup truck is a massive liability for you. So you probably want to design an income plan and an investment plan that you can manage online. And then your investment plan is going to be driven by what you can do when and how much money you have.

So do you have enough money that you can just buy an index fund and forget about it? Do it. Or if not, what are you going to do to get the money that you need? Are you going to try to learn to trade because you need the excess return?

Do you have the time or the knowledge or the experience to trade, or are you just going to destroy your portfolio balance through bad trades and now you're done? Or maybe you're better off just saying, "I don't know anything about investing. I don't care about investing. I don't have any interest in that, and I've got great graphic design skills.

So now I can take my computer and I can follow my dream of living in a backpack, and I can design brochures or logos or websites for people, and I can do it all on my own." Or maybe you don't have that, so your financial plan is to say, "I'm going to use my language skills and my people skills to teach English." There's nothing wrong with that.

But that's going to dramatically affect what you do. In the one situation, it's like this whole thing about cars. I'm not a fan of owning cars. I don't want to, but I also don't have a lifestyle that needs it. Let's say that you recommend to somebody, "You know what?

You should drive just a Honda Civic. What about the guy that needs to go buy a one-ton pickup truck to pull this big giant trailer that he's going to haul cars across the state with and make his money?" I meet some of those guys. I love to go to truck stops when I'm on the road, and I always meet those guys.

I always talk to them, see how much money they make. I would do that before I do some other things. That would be lower on my list because I wouldn't want to be away from home like those guys are. You go out, you can buy a brand new pickup truck.

You got a $450 a month payment. You buy a trailer, you got a trailer payment, but now you've got something that you can build your business with. Does it come with expenses and costs? Absolutely. But that's where something that... I wouldn't want to go buy a brand new one-ton pickup truck, but that doesn't mean it's stupid for everyone to do it.

Maybe this is obvious to you, but anyway, didn't used to be obvious to me. What are your assets and liabilities? Where are you starting from? What do you have to work with? How are things set up? It's going to be very different if you're designing a financial plan for yourself or for someone else, if they have very high fixed costs with a lot of debt or if they don't.

Consider the example. If you haven't read it, it's worth reading. I assume it's out of print at this point, but years ago, I think Donald Trump's first book was called The Art of the Deal. I remember reading it when I was a kid. I read his book, Art of the Deal, and he tells in that book, The Art of the Deal, he tells the example of how when he was broke and bankrupt, and he was a billion dollars in the hole, a billion dollars in debt.

Everything was crashing down around him. As I remember it, maybe it's become slightly mythological at this point, but as I remember the story from not having read it in at least 15 years, he said that he had this evening where he didn't want to go to a party or something like that, but he knew he had to.

He went to some networking social function that he felt he needed to go to, which is kind of interesting. When some people are $30,000 in debt, they're not living very well if they're $30,000 in credit card debt. Donald Trump is a billion dollars in debt, and he's wearing a black tie and taking a limousine to a social cocktail hour in Manhattan.

I always just chuckled about that. I guess the point was that he went to this event, and he met somebody or something like that, made a connection that made all the difference, and he was able to get his ship turned around. But if you're a billion dollars in the hole, sitting down and lining up your credit cards in order of highest interest rate to lowest interest rate and starting to pay them off based upon your cash flow, it's not going to work.

Sorry. The plan's not going to work. You need to put together some serious deals, and you need to restructure everything, and you need to make some money. Consider what your actual prospects are. If you're starting a company, what are your actual prospects, and what do you deal with? I've worked with a few clients who had tens and tens and tens of thousands of credit card debt.

But the reason they had the credit card debt is because they were funding all of their personal expenses while they were working on businesses with huge growth potential. And the whole time they're just looking at the business opportunity saying, "I'm not really comfortable with this, but this is what I've got to do.

I see that this business has legs. I'm not deluding myself here. I'm not just taking a trip to Europe. I'm consciously making a choice to pursue this path." Guess what? It worked. Business took off. Succeeded. I've read plenty of stories of people I haven't even worked with, and I've worked with people.

And you know what? If they hadn't, you'd have to deal with that at that point in time. But that's the thing is there's this idea of scale that a lot of times people forget about. So consider it. Capital. What capital do you have? The son of an elite banker has very little need for money, not because his father is necessarily wealthy, but because his dad can just make a phone call and make just about anything happen.

So do you have that kind of social capital to work with? Are you the son of an elite banker? Now on the other hand, the son of a poor peasant is likely going to have very little access to money and is really going to need to focus on leveraging their intellectual capital to gain attention.

Unlikely? Probably. Has it happened? Absolutely. So maybe you're leveraging something else and you've got to gain attention. You've got to do something dramatic or go design your plan in a very different way. It's interesting on the topic of capital. I did the interview with Curtis Stone about how he makes a living on a third of an acre.

He makes $80,000 a year farming a third of an acre with no debt. He doesn't even own the land. He just borrows the land from other landowners. I was talking about forms of capital and I saw some comments on the show and people were talking about the permaculture, eight forms of capital.

I'd never even heard of that. So I went and checked it out and it's pretty cool. I guess I wasn't the first one to come up with the other forms of capital. I'd heard people talk about it, but I didn't know that they'd formalized it. So they came up with these eight forms of capital.

Intellectual capital, spiritual capital, social capital, material capital, financial capital, living capital, cultural capital, and experiential capital. That's a show for another day. I thought it was just a fascinating look though at expanding our mind beyond just this idea of my capital is the money that I have in the bank.

What's your needed return? This is something that people often forget about. What return do you need from your financial plan to hit your goals? Very rarely do people sit down and say, "What return do I require from my portfolio?" Because they usually go the other way around and they say, "Well, this is what they say my portfolio can return." Why don't you flip that around and say, "What return do I require from my portfolio?" Now maybe you're going to turn this into pie in the sky type of thing and you're just saying, "Well, I require this percentage rate of return." Well, what that will show, even if you do that, and I wouldn't do that, but even if you do that, that'll show you whether or not your investing plan, because you got to ask the second question, the corollary is, "Does my plan have any hope of succeeding?

Is it possible that I'm going to actually get this rate of return?" Accumulating mega wealth is very different from living simply. I don't have any interest personally in accumulating mega wealth. Don't care a bit. I'm a simple living guy. I'm not interested. When I have enough money to continue my lifestyle in the way that I like it and beyond that, I don't need a hundred million bucks.

Don't even want it. The concepts might apply, but the plan is going to be very different. If you're someone, however, who is very motivated by, "I'm going to have as much money as possible. I need my hundred million dollars. I need my ten million bucks," fine, go for it.

But you're going to have to focus very differently because you need a different rate of return. Your decisions are going to be dramatically affected based upon your perspective of what is likely to happen in the future, your outlook on the future. Do you expect positive global economic growth because freedom is rising around the world and capitalism is spreading and people are coming out of poverty all throughout Africa, all throughout India, all throughout China, all throughout Asia, all throughout the world?

Are you betting on that? That's going to dramatically affect your financial plan. Now, on the other hand, do you expect the total destruction in the living standards in the Western world? If so, how do you protect yourself? If I were betting on the growth of freedom and the growth of prosperity throughout the world, I would be all in on the greatest companies of America and the world because those companies are producing products that are going to be loved.

I would be looking to build a couple of companies of my own. Now, on the other hand, if I expected a complete destruction of the US dollar and we're going to go into war in the streets, man, I'm getting rid of all of that stuff and I'm buying a bunker and a retreat.

I'm not trying to use that as a stupid thing. I'm just saying that your decision between them is based upon your outlook for the future. How do you protect yourself? Now, in either of those situations, are you expecting this to be temporary or permanent? Do you expect that over the long term, growth and freedom is going to expand and capital is going to expand or prosperity can expand, but there may be short terms of economic upheaval?

Or do you say, "Well, there's not going to be short terms of economic upheaval." If you don't expect short-term periods of economic upheaval, it may lead you to an unwise financial plan. But on the flip side, are you expecting just a complete global war for your entire lifetime or are you just expecting that, "Well, there may be some short-term economic hiccups." That's going to dramatically affect your plan.

I'm trying to stay away from giving, "Here's what you would do." What I'm saying is that a good planner should listen to you. If you can find a good planner, great. If not, do it for yourself and sit down and force yourself through this disciplined thinking process and say, "Here's what I am concerned about.

Here's what I am planning for." What about your health or your expected lifespan? Are you healthy? Are you unhealthy? I've had clients in my office and I'm specifically thinking of one client and this client was facing some dramatic health challenges. They'd received some money and I told them, I said, "Dump that investment and go buy better health through going to—we have this place in West Palm Beach here, it's called Hippocrates Health Institute.

From what I understand, it's a pretty famous place for people that have cancer and all these things go from all over the world. I've been there for lunch a few times. It's kind of neat." I said, "Take that money and go spend it at Hippocrates. Go get healthy. What good does it do to you to have this money sitting here if you don't have your health?

If you've got a short lifespan, why are you saving all your money? Go enjoy your money." So your health or your expected lifespan is going to dramatically affect your plans. I expect to live to 100. It always surprises me when people say, "Oh, I live to 80," because they have this family history of people dying at 60.

It always surprises me. All four of my grandparents lived in their late 90s and my grandmother's 100th birthday is in 12 days. I just figure, "Well, I've got to count on at least 100, I hope." But that's going to affect how you think about retirement. What opportunities are available to you?

Where are you? What country do you live in? What state do you live in? What city do you live in? What part of the city do you live in? That's going to dramatically affect what opportunities are available to you. And it may very well be a better investment to get an apartment on the other side of town where you can get out of or to emigrate to another country where you can get out of the situations that you are in.

That very well may be a better investment than what the personal finance book tells you. You've got to think about that. What's your background? I was thinking as I was preparing this one about what opportunities are available. Do you have an opportunity to go and spend time with someone who's extraordinary?

I was reading an essay by Ryan Holiday. He was a guy who, I don't remember, he worked at American Apparel and made some money and wrote a couple books. But he evidently dropped out of college to go work with Robert Greene. And Robert Greene was an author who's written a couple of really cool books.

He wrote a book called The 48 Laws of Power, which is fascinating. And then he wrote a book, I think it was like The 33 Principles of Seduction, or maybe it was 48, I can't remember. And just these fascinating books, this well-respected author, he had an opportunity to go intern with him.

Man, I'd dump college in an instant if a door like that opened up. But that doesn't mean that everyone should dump college. Just you've got to look at your situation. What do you enjoy? What do you enjoy? Are you the kind of person that enjoys working with your hands, working with your brain?

Do you like flying? Do you like languages, travel, fashion, high society, being busy, being not busy, simple life? That's going to dramatically affect your financial plan. Whether you go to Hong Kong and you work as a trader on a desk of Asian investment funds, or whether you move to the country and start a yoga studio, that's going to dramatically affect this.

You're going to need to understand and get tapped into what you enjoy. What's your time perspective? There's a lot of research that's been done on wealth. One of the consistent things seems to be that those with a long time perspective who see that they can control their lives, that people with a long time perspective tend to accumulate more wealth because they're investing for the future.

Is that you or is it not you? Now, I used to think that being a long time perspective person was morally superior, and this was what everyone needed to do. I've since come to appreciate the other side. I think there's a balance here. I've since come to appreciate being more focused on just simply enjoying now.

What's your political persuasion or ideology? What's your religious ideology? These things are going to radically affect where you live. If you are political in one way or the other, it's going to affect where you live, the money you pay, it's going to affect what you invest in, what opportunities you consider.

There's places I just simply wouldn't live because I wouldn't be very comfortable there. There are plenty of things that I would just simply refuse to invest in, no matter how good of an investment they were based upon my own personal political ideology and my own personal religious convictions. That's going to dramatically affect what I do.

What's your economic forecast? Are you predicting inflation? By inflation, are you predicting 3% inflation annually? Are you predicting 20% mass inflation annually? Are you predicting hyperinflation, 120% or 1,000% annually? Are you predicting deflation, stagflation? What's your economic forecast? That's going to affect your financial plan and how you prepare.

Do you have family? These are the last two here. Do you have family? Do you have kids? Do you have dogs? What are your family's goals? It's funny. If it were me, I've got a wife and a son and two dogs. If it were me, I was thinking about it this morning, just talking about it with my wife.

I would live in the country, I think, and I would build a big barn in the country. Or maybe I'd buy a property with a barn already on it. I would park a fifth-wheel RV in that barn. I'd live in the fifth wheel inside the barn because then I got a comfortable bed.

I got a nice place to sit. I got a nice desk. I don't have to deal with a big house. Then that fifth wheel, I can take it wherever I want, but I would live inside the barn so it's a little more comfortable. I can have a little more space outside that's covered.

One of my favorite authors is an author named Clive Kessler. He wrote this series of books. In one of his series of books, his hero was a man named Dirk Pitt. Dirk lived in this old dilapidated airplane hangar on the corner of an airport. When you went into it, it was filled with this classic automobile collection.

He had a small studio apartment built in the top of the hangar. It's just this total quintessential guy thing. It was old and dilapidated from the outside, but when you opened it up, it was gleaming with all these shiny cars, a little studio apartment up top. Then he actually had a train car for his guests to stay in.

Down on his hangar with all of his cars, he had a train car sitting there. That was where he would put his guests, in the train car for their accommodation. I always used to think that was the coolest thing. But whether you have family or kids or dogs, that's going to affect your financial plan.

The fact that I have two dogs makes it more challenging for me to go and rent a studio apartment in a cheap place in town. It's just a cost of life. It's a decision. So if someone is trying to advise me, "Joshua, you should go and rent this cheap apartment," it's going to be tough.

I've got a kid and dogs. That makes it more difficult. Where is your extended family? One of the major factors for people who are retiring is where their kids and grandkids live. It's a major, major factor. So can you plan ahead for that? Is it more intelligent for you to invest in a property that would have accommodation locally and to invest to live in a place where it's more likely that your kids and grandkids are going to want to stay than where they're going to move away and now you have to go and chase them?

Can you plan ahead for that? I think you can. And then lastly, what's your specific alternative use of the dollar? What's your alternative use of the dollar? If you're thinking about, "Should I pay off my mortgage?" What would you do with the money instead? Would you rather put a down payment on a little piece of land out in the country and prepare for a time of economic depression?

Would you rather buy another rental house? Or would you rather own some stocks? Or would you rather buy some shares of a speculative oil and gas limited partnership? Or would you rather simply owe less money on your mortgage? See, what happens a lot of times is we're looking for a sense of certainty from someone else.

We're looking for approval. And so what happens is that we look to an outside expert many times for that sense of certainty. And once we find our expert, we just simply grab onto our expert and say, "Well, this is what the expert says, so this is true." Now, nothing wrong with experts, but an expert, a good expert, should be able to teach you why they believe what they believe and should help you to develop a philosophy that makes sense to you and not just simply say, "This is what you should do." We've got to build that self-confidence.

And when we do, when we build that real deep self-confidence, I believe we'll make much better decisions. Those are my ideas on this topic. I hope that that's helpful to you. I know it's kind of a little bit different, but I just encourage you to think about your situation in unique ways.

Think creatively. I'm doing my best to bring you great content every day with new people who are thinking creatively and with people from all different walks of life solving their problems in all kinds of ways. And I'm intentionally looking for people who have been massively successful, moderately successful, and not at all successful.

I'm intentionally trying to stay away from just bringing high-performing entrepreneurs or multi-millionaires to the rescue. Nothing wrong with that stuff, but sometimes it's hard to learn from those people. So sometimes just an idea will spark from a place that you don't really expect it to be. So I hope that you can take this content and consider how you can apply some creativity to your own situation.

That's it for today's show, Monday show. This week, what I've got coming for you tomorrow, Tuesday, I've got an interview with David Stein. He was a portfolio manager on the institutional side for about 20 years or so, retired in his mid-40s. I think you'll enjoy listening to him. We had a really great conversation.

I'll be playing that interview for you tomorrow. Wednesday, we'll be back to hardcore financial planning. And I'm not sure which of the series we're going to continue forward yet, but I will work on one of them. Thursday is going to be an interview with Ryan from re-craigslist.com. Ryan and his family were deeply in debt.

They grew up more than 25 grand in credit card and unsecured debt, maybe more, I can't remember. And he worked his way out. He has a stay-at-home wife and five kids, and he worked his way out of debt over the course of about four years, making his living entirely on Craigslist.

Self-employed, buying and selling stuff on Craigslist, made his money and paid off all his debt doing that. For Friday, I need a question for Friday. I haven't received any voicemails yet on the voicemail line. So pull up the site, radicalpersonalfinance.com, and head over and leave me a voicemail on your phone or on your computer, and maybe I'll get a voicemail in for Friday or five or 10 of them.

That would be awesome. Thanks for listening, everybody. Be back tomorrow. The holidays start here at Ralph's with a variety of options to celebrate traditions old and new. Whether you're making a traditional roasted turkey or spicy turkey tacos, your go-to shrimp cocktail, or your first Cajun risotto, Ralph's has all the freshest ingredients to embrace your traditions.

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