Get Money Smart Series

You may find that this is the most valuable lesson in the entire course. It’s simple. Deceptively simple, actually. But don’t let that deceive you.

Who knows? You may just look at the world differently at the end of this.

Are you ready for an exciting lesson?!

Don’t you just love these guys who make these books trying to sell something? They’re all hyped up on who knows what and make it seem like whatever junk they are promoting is the greatest thing on the face of the Earth. “I’m so excited! Thank you for coming here! I have this absolutely amazing, game changing, epic, mind blowing product that will radically change your life. I’m so excited about this product! My blood pressure is going through the roof and I’m going into cardiac arrest, but before I do, let me tell you about, uh, let me see what kind of crap I’m selling today. . .”

Pop Quiz! Compound interest, compound fracture, compound fraction – one of these can help you become filthy rich, and another can guarantee you’ll be a slave to debt and broke. Can you guess which is which?

Cash flow. You might be thinking, “Cash flow? My cash doesn’t flow. It trickles.” Whatever your cash does, it’s a good idea to check your cash flow from time to time because it has a big impact on how quickly your net worth goes up.

What do we know about cash flow? It’s good. Okay. My work is complete.

Not quite. What else do we know?

What do you think I should be putting away? What’s a good rule of thumb for how much money I should set aside each month? Is there a right amount I should be saving?

Are you ready for some high level stuff? I think you’re ready for it. I don’t share what I’m about ready to share with just anyone. I reserve it for special people and special occasions. I think you’re the person and this is the occasion.

First things first. What’s a rainy day emergency fund? It’s simply some money you’ve set aside just in case of an unexpected situation where money can help, such as a job layoff, needed medical treatment, or bail (it happens!).

I get this question a lot, and I can understand why. From an outsider’s perspective, someone not in the financial or investment industry, I can only imagine how ridiculous it must look.

As an investor, my guess is a good deal of your portfolio will be in stocks and bonds. These are the two primary types of investments for most investors.

Knowing the differences is critical in your journey to being truly money smart.

You may already have a good grasp of what a stock is, but stick with me for this short lesson, as there might be a nugget or two of new information you’ll learn.

In the last lesson, you learned about stocks, which is ownership in a company. What’s a bond then? Well, it’s not ownership. Instead, it’s an IOU.

Imagine you have a friend who needs to borrow $1,000 from you...

It’s kind of like asking, “What’s better, chocolate or vanilla ice cream?” Both are great for different reasons.

First, why stocks?

You will hear about different types of investments, things like indi- vidual stocks or bonds, mutual funds, exchange traded funds, REITs, and even limited partnerships. They are all a slightly different, so it makes sense to have a little understanding of what these are and how they work.

Let’s start at the beginning...

Your Get Money Smart education would not be complete if we didn’t talk briefly about this next type of investment...

Are you familiar with the dating app Tinder? It lets you view photos of people and slide their photo left or right, depending on if you like them or not.

So how is the stock market like Tinder?

You might hear it on the radio, in a news broadcast, or read it online. The stock market used to be this esoteric industry that only a few people were a part of and even fewer knew anything about.

Okay, so what in the world are they talking about when they call the stock market a bull or a bear?

You’ll hear this a lot, so you should know what it means.

You may hear news commentators say, “The action on Wall Street today was strong, blah, blah, blah.” What do they mean by Wall Street?

Imagine you are an apple farmer, and you have a bunch of acres and thousands of apple trees...

As an investor, you’re bound to hear a lot about asset classes. This is one of those key areas in which you’ll want some level of understand- ing. In other words, you would definitely not be money smart if you didn’t know about asset classes.

So let’s jump in...

We’ve spent several lessons on asset classes and asset allocation, but I’m going to let you in on a dirty little secret in the financial world that no one likes to admit to or talk about. Asset allocation, the process of choosing which asset classes and the amount to invest in, is for losers.

Yeah, you heard me right.

What’s a professional investment manager and a huge meathead at the gym have in common?

Here’s a little story. It’s a story of two seemingly different brothers who share a common job...

Have you seen the $18,000 iPhone? No? Think again. Hold up your smartphone. Are you looking at it? So not only have you seen the $18,000 phone, you bought one. Yup. That sucker you’re holding cost you $18,000.

No, honestly. Good Morning America loved what I’m about to share with you so much, they had me back three times. Why did they like it? Because it’s an easy and painless way to cut your expenses.

All you have to do is PERK. No, I didn’t say twerk. I said PERK.

The problem with credit cards is . . . oh, who am I kidding? Credit cards are awesome! You know it. I know it. You know I know it.

What can I possibly tell you about credit cards you don’t already know?

If you’re going to have a credit card, and really, what are the chances I’ll actually talk you out of having a credit card, then please, at least practice safe charging.

You can avoid most of the dangers of credit cards by thinking about these credit card rules...

I’m going to show you how to make $13 billion a year. Create a product that is irresistible, addictive, and just a little evil. Of course, you know what I’m talking about...

Imagine being just one class away from graduating and having the professor tell you that passing the class all hinges on taking one final exam. “No problem!” you think. You’re good under pressure. But then she tells you that you won’t have any idea what the test will be about. That’s not pressure. That’s insanity!

But fortunately, credit scores are nothing like this.

Houston, we have a problem.

The title for this lesson is, “How Your Credit Score Is Calculated,” but here’s what we don’t know . . . how your score is calculated.

Let’s start with the basics. Debt is when you owe someone for money you have borrowed. Debt is really digging yourself a hole. The more debt you have, the bigger your hole. Instead of paying yourself first and saving for your own goals, you have to pay back the debt you owe. If the goal is to be financially free, independent, and on top of your own personal money mountain, you have to climb yourself out of the debt hole first.

Okay, so debt generally stinks. I think we’ve established that in the last lesson. But sometimes you’ll hear people talk about good debt versus bad debt. Is there really a difference, or is it just a scam?

Firstly, you rock. Listen, I get it. It’s easy to get into debt. Having debt reflects past decisions. Today is a new day. And today, you want to pay it off. Congratulations for coming to that decision!

When you find yourself in a hole, the first step is to stop digging. That means chopping up your credit cards and putting a freeze on them so you can’t charge more.

That’s step one, but what if you have several credit cards, an auto loan, a house mortgage, and some student loans? Where should you start?

Alcohol, crack, and heroin are known to be highly addictive, but can some- thing as innocuous as shopping be addictive?

Your money is threatened by a Trojan horse that comes in the form of a wide grin, a wink, and maybe a hug. This threat is like a computer virus. It runs without your awareness, takes hold of your operating system, and undermines your intentions. This threat affects nearly everyone, myself included.

So I’m 15 minutes into an explanation of what I think is a pretty important and complicated subject when my client stops me mid- sentence. She says, “So basically, don’t kill the chicken.” I pause. I pause some more. She looks at me like I’m an idiot, and I look at her like she’s crazy. Guess who was right?

We have two competing issues. On the one hand, talking about credit reports is mind-numbingly boring. On the other hand, talking about credit reports can save you several hundred thousand dollars.

If you’ve ever thought to yourself, “The hardest thing in the world to understand is income taxes,” you may be a genius!

You’re learning a lot about taxes, but maybe you’re not convinced taxes are a big deal. I feel ya. Maybe you’re right. Maybe taxes aren’t such a big deal.

Let’s run through a quick little example.

Let’s test your tax knowledge. What are the different types of taxes?

A boy getting a cavity filled asks his dentist, “Mr. Dentist, do I need to floss my teeth?” The dentist stops what he’s doing and replies, “No, definitely not. You only need to floss the teeth you want to keep.”

Person A makes $100,000. Person B makes $50,000. Who is going to pay more tax?

Well, obviously the guy making $100,000 is going to pay a lot more tax than the guy making $50,000, right? Guess again!

To understand what capital gains income is, you first need to know what a capital gain is. Don’t worry. You’ll pick this up quickly. Here’s an example...

Some of the wealthiest families in the country know about this, but it requires opening an offshore bank account and funneling money through the Caymans into a wholly owned subsidiary that...

I’ve thought about writing a book called "Everything You Need to Know about Income Tax," but it turns out, someone already did. It’s called the tax code, and it consists of rules, explanations, formulas, and opinions on all things related to the federal income tax. You won’t believe how many pages it is...

You can do it! This is the age of information and access. There has never been a better time to take control of your finances yourself than right now. You don’t need help! You can do it all yourself!

That sure sounds good, doesn’t it? But it’s a bunch of hype and it’s potentially damaging to your finances. Trust me; I’ve seen it many times.

Your job is to get into the mind of the advisor and to imagine how they see the world.