Mindy Jensen: Welcome to the BiggerPockets Money Podcast, show number 313, where we talk to Lynnette Khalfani-Cox, the Money Coach, and get her take on some of your big burning financial questions.
Lynnette Khalfani-Cox: Anybody who’s seriously considering entrepreneurship should absolutely get their personal finances together as best they can first. They should map out what it’s going to be like to potentially draw no salary or to have to spend and/or heavily invest in the business for at least one year. And so I think a lot of times that go versus no-go decision might be better determined based on answering the question, am I truly ready?
Mindy Jensen: Hello, hello, hello. My name is Mindy Jensen, and with me as always is my analytical co-host, Scott Trench.
Scott Trench: And it’s great to be here with my insightful co-host, Mindy Jensen.
Mindy Jensen: Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.
Scott Trench: That’s right. Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.
Mindy Jensen: Scott, I am excited to bring on Lynnette Khalfani-Cox today. She is The Money Coach, a recognized personal finance expert, and we had a bunch of questions from our Facebook group, and she’s here to answer them today. Lynnette Khalfani-Cox is The Money Coach. She’s been talking about money for a very long time, first as a reporter for The Wall Street Journal, and CNBC, and the Associated Press, and a tiny little outfit called the Dow Jones Company. Maybe you’ve heard of what they do. She’s a recognized expert on money and personal finance. She’s written 15 books on our favorite subject, including the New York Times bestseller, Zero Debt: The Ultimate Guide to Financial Freedom. Lynnette Khalfani-Cox, welcome to the BiggerPockets Money Podcast.
Lynnette Khalfani-Cox: Thank you so much for having me. Like I told you guys, I was looking forward to this conversation.
Mindy Jensen: I’m so excited to talk to you, The Money Coach. You have a website called Ask The Money Coach, and that’s exactly what we’re going to do today. We reached out to our Facebook group and we said, hey, we’ve got The Money Coach coming on the show. What do you want to know? And they wanted to know a lot. The first question they wanted to know about has to do with debt. Since you just wrote a book called Zero Debt, let’s talk about debt. We frequently talk to people who have some debt, but they also want to start investing. So what do you say they should do? Should they start investing first or should they start paying down debt first? And sister question, could they do it both at the same time?
Lynnette Khalfani-Cox: So I actually think you absolutely have to do both simultaneously. A lot of folks consider it kind of like an either/or proposition, and that’s really the wrong way to look at getting ahead financially. Let’s be honest, Americans are up to their eyeballs in debt. Student loan debt, credit card debt, big mortgages. Some people have personal loans, business loans, etc. So if you were going to just wait to invest until you paid off all your debt, you might not ever get around to investing. So it’s just like people who ask me, should I save first or pay off my debt? Should I invest first or pay off my debt? You actually should do both simultaneously. It’s in your long-term best interest. You want to give yourself that running start that investing early provides in terms of compounded interest over time. And of course, you want to knock out those high-rate credit obligations, the stuff that might be, say, 16% or so, if you have credit card debt that’s lingering. But chip away at it. Do yourself a favor, prioritize based on what’s most important to you. If growth is most important to you, for example, you might think about doing a little more on the investing side, but split some of those dollars, knock out debt, do it regularly, and invest.
Scott Trench: How do you think about that prioritization? Are there certain things you’d knock out first, like HSA or 401(k) match or these other types of things? How do interest rates play into that? What are the nuances for you in a situation where someone has debts and wants to invest?
Lynnette Khalfani-Cox: So on the debt elimination front, I really tell people to kind of tackle their area of pain first and what bothers them first. Generally speaking, I like to see people get rid of the high-rate consumer debt, the sort of quote unquote bad debt, the stuff like credit cards, as opposed to say student loans, which, you know, we can argue about whether it’s good or bad debt. And I actually think that all forms of debt can be bad debt or can become bad debt if they’re either excessive or if you don’t have a plan for how to pay them off. So sometimes, of course, folks will say mortgages are good debt because you can leverage it and you can build wealth from it. Student loan debt is a form of good debt because you can boost your earnings potential, potentially increase your ability to generate a higher income over time. But credit card debt or that auto loan you might get, as soon as you drive that vehicle off the lot, it’s depreciating in value, right? So in terms of prioritizing the debt elimination, I would go after the credit card debt first, and then things like auto loans, and then things like student loan debt, and lastly mortgages for folks who want to be debt-free and just either buy in cash, or if they’re heading into retirement and they don’t want any mortgages. Then in terms of the investing side of it, I mean, that’s a pretty big question about what people are going to be prioritizing. Obviously, you’re going to be looking at things like your risk tolerance, your goals, your investment time horizon, and what it is that you’re actually investing for, right? So some people are saying, oh my God, I’ve got a five-year-old, thirteen years from now, all of what I’m doing is focused on making sure that she’s going to be good for college in thirteen more years. Some people are totally trying to FIRE out. They’re trying to retire early, and they’re trying to invest as aggressively as they can so they can check out of the workforce. So, of course, a lot of it is dependent upon what your specific goals are. But again, don’t be reluctant to kind of split it a little bit there and to say, okay, I only have X amount, because none of us have an unlimited source of funds. Whatever the number is for you, and let’s just use a round number—let’s say you have $1,000 a month to kind of work with. You might say, it’s really super important for me to be debt-free. I don’t want to owe anybody anything. So maybe you skew towards paying $600 or $700 out of that $1,000 towards debt elimination, and then you put $300 or $400 towards investing as a whole.
Mindy Jensen: I like that—come up with a plan. I think that is going to be incredibly helpful going forward. You can’t just willy-nilly yourself to wealth. You have to have a plan in order to be able to move forward. Otherwise you will just willy-nilly yourself. And I don’t think anybody ever willy-nillied themselves to wealth. Okay, the next super-hot topic in personal finance is I bonds. I don’t know if you know this, but as of today, they pay 9.62%, which sounds fantastic. Ooh, I love a good 9.62% super-safe return. But I think people don’t understand all the rules around I bonds. So let’s talk about those for a minute. What are your thoughts on the I bond? And let’s just make sure that everybody knows all the rules involved in the I bonds.
Lynnette Khalfani-Cox: Sure. So first off, obviously anybody who’s a saver is thinking about yield and about ways to get more return on their cash. And you go to a typical bank—even digital banks and others—most times people are getting under 1%. So the fact that you could get, at least through right now, through October 2022, 9.62% by buying these I bonds is hugely attractive, right? So first off, the first rule is the cap or the limit on how much an individual or an entity can buy, and that’s $10,000. So if you’re married, you can buy $10,000 individually though, and your spouse can buy $10,000 worth of I bonds as well. You have to keep the money in there—you can’t touch it for one year. And then later on when you’re actually trying to cash out, if you pull your money out early, you’ll have to pay about three months worth of interest based on, you know, kind of prevailing rates at the time, if you pull the money out early. So there’s a little penalty involved on the back end if you stop early, but honestly, I think it’s kind of negligible in the scheme of things. But one thing I really want to emphasize to the audience, because a lot of people go, okay, well, yeah, it’s just $10,000, but think about all the ways in which you can purchase I bonds and make that $10,000 go up dramatically. So as I mentioned, your spouse can also buy $10,000 worth of I bonds, but if you have a business, a business can also buy $10,000 worth of I bonds. If you have a trust—and I know a lot of your audience members do, they may have an LLC or a trust in various forms, either related to their real estate holdings or their personal assets, etc.—the trust can also buy I bonds as well. So just kind of think about all of the entities that you might have or have access to, where you can be able to shovel a little bit of cash in there and get that really super-safe, juicy return. And I love something that’s protected by the full faith and credit of the U.S. government. That’s, you know, that we can, despite everything that goes on in Washington, that we can feel pretty good about, that we’re not going to—there’s not going to be a default on it. So I love I bonds.
Mindy Jensen: You just said two things that I didn’t know about before. You said I can buy, and I knew that. And you said my spouse can buy, and I knew that too. So that’s $20,000. You said my business can buy, so that’s $30,000. And my trust can buy, so that’s $40,000 in I bonds that I—and my husband could buy together. That’s a lot more attractive than—and I feel like such an awful person for saying this—than just the $10,000. It isn’t just $10,000. It is $10,000, but it’s, you know, I don’t like it. I don’t like my funds being tied up for a whole year. But $40,000 growing at 9% interest is a lot more attractive. I could, you know, if there’s going to be a bigger payout, tying it up for a year is—I know it sounds counterproductive, but in my mind it works.
Lynnette Khalfani-Cox: No, it’s exactly how it should be. Because think about it, the longer out you go, the more you need to be compensated for tying that money up, or for the risk that you’re taking and the opportunity cost that’s involved, because you could be doing something else with that money. So especially now, of course, if you’re looking at what’s happening in the stock market, it’s like, whoo, kind of getting almost a guaranteed almost 10% over the next almost a year—that’s a pretty attractive return on your money, that’s for sure.
Mindy Jensen: Yes, I’m not getting that in the stock market right now.
Scott Trench: Does the return—is the return guaranteed? Am I going to get that for the next year? Or can it change if the CPI changes six months from now?
Lynnette Khalfani-Cox: So yeah, they do—it does change. So that’s why, right now, the current 9.62% rate is in effect through October 2022.
Scott Trench: Great. So I’m going to earn—I’m going to earn 9.62% through October on six months, and it will change again. It could go down or could go up if CPI continues to remain really high.
Lynnette Khalfani-Cox: And obviously, you know, nobody has a crystal ball. But I mean, geez, look at how much inflation has been raging. We’re seeing inflation at pretty much 40-year highs, right? And so I don’t know of too many people who are saying that, oh, we’re going to go like totally the opposite direction and see this huge drop in this accelerated pricing that’s been in so many areas of everything. The price of everything is going up—homes, cars, food, oil, just you name it. So I think when we start to look at CPI and some of these other measures, things absolutely change. But I feel like this is going to be an area where you’re going to get juicy, healthy returns for some time to come.
Scott Trench: One of the topics that we’ve been noodling on lately has been this concept of the perfect portfolio. What is the perfect portfolio for someone? And it depends on your goals and that kind of stuff. But let’s create a fictional scenario and say, if you’re starting from scratch and you’re handed $1.5 million, how would you design that portfolio, and why would you design it that way?
Lynnette Khalfani-Cox: So, I mean, I hate to sound like a financial advisor or CFP, because I’m neither. I’m a financial educator, but probably they’ve indoctrinated me for so long—for 2+ decades—and I’m probably echoing some of the sentiment here, but it depends. I mean, so who are we talking about? Are we talking about a Gen Xer like myself? Are we talking about somebody who’s a baby boomer? Are we talking about a millennial who’s, you know, 30 years old? Then that portfolio—
Scott Trench: Let’s create a persona. There we go.
Lynnette Khalfani-Cox: Thank you. Help me out here, Scott.
Scott Trench: Bradley’s 35. He’s single. He wants to become financially free. He makes about $110,000 a year, spends about $45,000 a year, would like to be financially independent, and thinks that $1.5 million might just get him over that barrier. How does he invest it for early retirement from that position?
Lynnette Khalfani-Cox: Okay, so that’s great. You said his name is Bradley? That’s our fictional—Bradley.
Scott Trench: Yep, Bradley is our fictional person. Okay, Bradley.
Lynnette Khalfani-Cox: I can work with Bradley. That’s a great one. So, wow, Bradley’s got a lot of advantages. First of all, no kids, okay? And making $110,000 a year is good, given—nationally U.S. household income is about $60,000 or so—and him wanting to target early retirement, let’s say 50, 55-ish years old.
Scott Trench: No, no, he wants to retire right now.
Lynnette Khalfani-Cox: Well, early—like, geez, okay, let me reframe here. I’m sorry, the Gen Xer in me came out and, you know, I forgot—everybody wants to retire like yesterday. So yeah, so 15 years is like, oh my God, are you kidding me? That’s like way too long. So just again, just to be clear, are you saying that he actually has amassed and has an asset base of $1.5 million? How do we construct it?
Scott Trench: He’s got $1.5 million after tax sitting there in the bank account, needs to be allocated for a portfolio that will sustain financial freedom.
Lynnette Khalfani-Cox: Okay, so all right, so you look at things like what his withdrawal rates might be and what is some of his spending. You said he’s going to be spending about $40-something thousand a year, so he can very easily and safely withdraw 4% and cover that and not have a problem at all. I tend to, since he’s quite young, I tend to go heavy on stocks, on the investing side, as well as, if he had an appetite for it, real estate. I’m certainly super bullish on real estate, and I know, of course, a lot of your audience is as well. I won’t say my age—let’s just let the audience pretend they—pretend I’m a millennial. Let’s say pretend I’m 30. I’m 35, but I think if you kind of flipped Bradley’s age, then you’d know what my real age is. Let’s just say that.
Scott Trench: Okay.
Lynnette Khalfani-Cox: My husband and I own and invest in real estate. We have 7 properties. We’re more bullish on real estate, frankly, than we are on the stock market. However, I actually do think that a nice split for somebody who’s, you know, 35-ish would be probably having about 40 to 50% of their assets in the stock market, in either mutual funds or ETFs, exchange-traded funds. And I would be looking more in the growth category for him. You can kind of round it out and look at value plays as well. But because he’s young and potentially could live to be 90 or 100 years old, you absolutely want to make sure that he’s getting good yield over time. And of course, we know historically the stock market has returned about 10% on average every decade on an annualized basis. So I think that for a lot of 35-year-olds, they might be like, yeah, 10%, let me jump into my crypto. Let’s start talking about some of these other things. So don’t worry, I’m gonna get there as well. But I just wanted to say that if somebody did have an appetite for property, I absolutely think that buying earlier is actually better. And I would still, even with rates being on the rise and unfortunately prices being on the rise as well, I would still tell somebody who’s in their 30s to absolutely get into real estate, to pick their markets, to really think about using their capital in smart ways where they could have some rental properties that are going to be throwing off cash. So again, for us, ours is more like 70 to 75% in real estate, and that’s just our own thing. But again, I’m just kind of talking on the fly here to tell you what somebody might do. Honestly, on the fixed income side and then on alternative investments, whether that’s crypto—I’m actually quite bullish on cryptocurrencies. I would stay in what I consider to be a little more solid zone in terms of Bitcoin, Ether, and kind of stay away from some of the altcoins, some of the more speculative plays. I totally recognize that a lot of 30-somethings are like, huh, that’s where the money is, I want 2,000% returns and that kind of thing. Again, sorry, the money coach in me, indoctrinated as I mentioned by the financial advisors, is saying, absolutely take a portion of your money and put it into that. But I think for a 35-year-old, 10%, maybe even 15% if they wanted to be a little more aggressive, 20% in that space would be just fine. So I don’t even know where I am in terms of the math now. I said about 40% in equities. If you’re going to do maybe 40% equally in property or in real estate, anywhere from 10 to 20% in, say, crypto or alternative investments. Again, he doesn’t make $200,000. He’s not an accredited investor or anything like that. The rules are changing around some of that stuff. But increasingly we’re doing private equity and other stuff too. And I’m like, I should have been doing this when I was younger. But I don’t know.
Scott Trench: I don’t know if that answered your question well enough, but I think that’s really helpful. Yeah, I think it’s just fun to hear people think through these portfolios. It sounds like 40% stocks, 40% real estate, 10 to 15% in crypto, maybe the rest in cash or alternatives. Is that kind of it? And I would totally agree with a split like that. That would be exactly what I would kind of be thinking around there. The real estate asset value—the question I always think about is, okay, if I put $500,000 into real estate, I’m really buying $2 million worth of real estate. So my portfolio is inherently overexposed to real estate because I’m leveraged against it, most likely, if I’m buying it. Always something to kind of think about, how that works out. But yeah, I think that makes a lot of sense. I think that would throw off cash, give a lot of growth, some exposure to other things. I’m personally not a big crypto guy, but I think that a lot of folks, a lot of Bradleys, are.
Lynnette Khalfani-Cox: Yeah, and more than Bradleys, I tell you, a lot of Briannas, a lot of Beckys—a lot of folks are. Increasingly across the spectrum, I saw this thing, and I think it was in the Wall Street Journal, and it was talking about, among African American—and I want to say it was either millennials or Gen Xers, I can’t even remember—but it was saying, what do they feel is the number one best thing to invest in for these African American investors? And it was crypto. And I was just like, part of me went, eh, because I know that, first of all, it’s a complicated area. Even though, again, I’m very bullish—I tell people, yes, you should invest in crypto, so it’s not like I’m anti-crypto or anti-Bitcoin or anything like that—but I do recognize that there’s a huge learning curve, and you have to do your homework, and there’s a lot to understand in that marketplace. And frankly, I think the main thing, this is the number one thing, is really, if you’re not going to be trading, and if you haven’t literally taken a lot of time to learn a system to actually trade—and most people aren’t and shouldn’t be trading if they haven’t learned from somebody—then I think you should just be in it for the long haul. And then you have to be willing to weather all of this volatility. So if the stock market feels like a roller coaster for you, geez, spend a day and throw $10,000, $20,000, $50,000, $100,000 into crypto and see how your stomach feels after that. You have to be prepared, because it’s a wild, wild ride. And believe me, I know, because I’m in it.
Mindy Jensen: So that made my whole stomach churn, like I was on an actual roller coaster when you said that. Bradley can tolerate it though.
Lynnette Khalfani-Cox: Bradley can hang. He can, you know.
Mindy Jensen: Bradley can have my share of crypto, because I want none of it. But I am firmly in Gen X, and I don’t understand crypto. And I believe that you don’t have to be in everything. So I would take your 20% crypto and split it 50/50 between real estate and stocks. And that’s actually what I’ve done—I am 50/50 real estate and stocks right now, and that’s what I feel comfortable with. What I wanted to highlight is what you just said: do your research. The crypto market is volatile, and you have to be able to weather the storm. So if the stock market feels super squidgy, you have no idea what squidgy feels like until you get into the crypto market. Just watch it for a week. Pretend you have $100,000 in there and watch what it does. It just goes like this, up and down all the time. For those of you listening and not watching me, I’m just moving my hands.
Lynnette Khalfani-Cox: Yeah, and not only that—you don’t have to just watch it. You can actually trade in a simulator, right? So you can see what it feels like, because it does replicate that feeling. There’s any number of trading simulators that are out there—Investopedia, I believe, has one. There’s also a program you can use to learn how to trade stocks, but you first start off in the class by trading in a simulator. And then you can see what that feeling is like, because you absolutely have to learn how to manage your emotions. One of my books—I wrote a book called Investing Success: How to Conquer 30 Costly Mistakes and Multiply Your Wealth. And one of the biggest mistakes that people make is not having a sell discipline—not knowing when to sell, under what circumstances, why, how to sell in a tax-efficient manner, etc. And so for people who are just like, “Oh my God, this is down 30%, I’m out”—that’s not the way to go. You should kind of have a game plan going in. Absolutely do your homework. And the last thing I’ll say about crypto, and then I guess we can move on: again, my suggestion for a 35-year-old—because I’m looking at the future of where I see mostly blockchain technology, and the extent to which it’s going to underpin the digital finance, the digital economy—that’s part of what gives me much more confidence in, say, Bitcoin, not to mention the scarcity component and, you know, only 21 million coins, etc. But overall, most financial advisors that are kind of tiptoeing over there and starting to embrace—if not embrace, but maybe give a slight hug to crypto, or a passing kiss on the cheek, I don’t know, whatever you want to call it—but they’re usually recommending anywhere from a 1% to about a 5% allocation. Most of them don’t even go much above 5%. I do think that younger folks can afford to be a little more aggressive, but you just have to be willing to ride it out a little bit more. You have to stay in it longer and have a bit of a longer time horizon. And if you look at the data, people just get in and out of positions so fast nowadays—they’re essentially trading more than they’re investing. But for a whole host of reasons, I think the longer-term outlook serves you best.
Mindy Jensen: Yeah, I like that you used the P word again—plan. Have a plan. Okay, so part of my plan has been to save and save and save and save and save for retirement. And now my husband is retired, and we need to start spending, but it’s really hard to transition from your savings mindset to your spending mindset. And we don’t need to spend—you know, now, ooh, now we gotta spend, spend, spend. But it’s really hard to transition from that savings mindset to the spending mindset in retirement and in early retirement. So how can somebody switch that, flip that switch?
Lynnette Khalfani-Cox: So you can’t flip a switch, you really can’t. I mean, listen, you spent a lifetime, practically, your husband has, working, amassing assets, being in the accumulation phase. And now you’re—or he’s—and you are, you know, presumably also able to put your hands on some of that money. Now you’re in the withdrawal phase. And the reality is that so much of personal finance, of course, is personal. It’s the psychological, it’s the emotional, it’s the stuff behind the financial actions, or the numbers on a spreadsheet or on paper. And so I do think that there’s transition time that’s required to—it’s like you have to allow your brain to catch up with the fact that it’s okay for me to spend. And you know what, this was part of the plan. And you might just do it little by little. Some people were like, “Oh, we really didn’t vacation much,” or “we didn’t go out to eat,” or “we never traveled,” you know, to see the grandkids once or twice a year or whatever it is. And so I think that baby steps are actually prudent, because, you know, woe be unto the person who’s like, “Woohoo, I can spend now!” And most people aren’t gonna kind of feel that way, but some actually do. They’re like, “I’m retired, okay, I’m gonna hit this, I’m gonna do everything I always wanted to do.” And that first year, 2, 3, they might have a serious burn rate, and then they might think, “Oh my goodness, I have to slow my roll a little bit here.” So I think it’s better to err on the side of caution and to maintain a little bit of a conservative mindset fiscally, to just know that I’m not going to deplete everything—I still have a long life ahead of me, I hope to live decades more—and to do things incrementally, and to start with categories, and then to start with one or two things, and then to build upon that. So I happen to be a money expert also for AARP. I’ve worked with them since 2010—they’ve been a client—and so I’m very familiar with this transitional phase and how hard it is for people, because we’ve been hammering into their heads, saying save, save, save, invest, invest, invest, don’t spend, don’t spend. And then all of a sudden you’re like, okay, you can go out and spend. And it’s like, wait—sometimes there’s fear of risk, fear of loss, fear of depleting assets, fear of running out of money, a whole host of things. But again, psychologically, the brain needs time to adjust. I was sharing with you, Mindy, before we came on live that—and your audience may see me keep tugging at my earbuds here—that since October, my husband and I have been on a massive health and fitness journey. We’ve each lost over 60 pounds.
Mindy Jensen: Thank you very much. Congratulations, that’s fantastic.
Lynnette Khalfani-Cox: Yeah, yeah. And so, but I cannot tell you how many things I do that I’m like, “Oh, I can do that now,” but my brain has had to catch up with it. Because I’d had a back injury before, everything that I did—when I would sit down, when I would get in and out of the car, in and out of a chair, in and out of bed, etc.—I was compensating and moving my body in certain ways to not trigger a reinjury. But now I’m like, I can just move, I can just do it. But my brain had to catch up with that. And even to see myself the way that other people see me and say, “Oh my God, you’ve lost so much weight,” and blah blah blah. So it’s only just now, 6, 7 months in, starting to go like, “Oh, okay, yeah, I can tell my body to do something and it complies.” So I just draw that analogy to say that, again, we all have to—after you’ve been doing something for so many years a certain way, you’ve got to give your mind, your emotional state, time to catch up. And that’s okay.
Scott Trench: I think a lot of people, when they get excited about financial independence, or just personal finance in general, they kind of go down this rabbit hole and get really excited about it, maybe read a lot about it, maybe obsess over it a little bit, and want to share that with other people. And sometimes I’ve found that can be very annoying—I can be the one annoying other people about that. What is kind of a healthy way to make others in your life aware of financial independence, or good money habits, or whatever, without stepping on the toes of friends, family, relatives, and especially with children—high schoolers or college students—as they’re getting ready to enter the workforce?
Lynnette Khalfani-Cox: Well, that’s a great question. And I have kids in that area as well. So let’s start with the second half, dealing with the kids, because I happen to have a recent college graduate—she graduated a couple of years ago, she’s 24. I have a current college student, he’s 22, he’s a senior at North Carolina State University in Raleigh, graduates this year. And then I have a 16-year-old who’s finishing up 10th grade, so she’s a college-bound teen. So needless to say, I have college on the brain. But my kids, you know, they’ve grown up hearing their mom talk about money all the time, etc. I think that for young people, part of it is about making it fun, relatable, engaging, and not something that just automatically feels like a chore. So my kids absolutely know—we emphasize sort of 5 core values. First, that money is earned, that you’ve got to work for it. Yeah, mom and dad might have money, but you have to get your hustle on too, you gotta work. So first, you earn money. They will inherit money, but we’re teaching them that the way that you accumulate your own wealth is not—you don’t inherit it, you don’t marry into it, you don’t get a sugar daddy or whatever, I don’t know—but you work hard to get it. And then after that, there’s only 4 things you can do with money: you can save it, spend it, invest it, or donate it. And so again, they’ve grown up hearing that mantra. But we try to make it fun also for them. So, like, my son, for example—the 22-year-old—he actually is into cryptocurrencies and trading, so I’ll talk to him about the stuff that is exciting for him. Obviously, there’s certain levels of gamification that are done, whether they’re kind of stock market games, or I mentioned simulators, or things of that nature. The goal, though, is to have less preaching about it and more just engagement in real-life stuff. So if my daughter, who does have a debit card—the 16-year-old now—if she’s talking to us about wanting to go shopping or make spending choices, etc., I am going to remind her about, “Oh, how much have you saved, and what have you put aside, and what are you donating to church?” I’m going to have that conversation, but I am also going to say, “Oh, those are some cute jeans, that’s great. Do you want to go to the mall, or do you want to buy it online and save some money?” So I’m not stopping her fun, and I’m still trying to convey the lessons. But I am trying to hopefully impart values like, “Oh, we comparison shop for ours”—we don’t just buy something because it has a label on it or whatever. So, in a nutshell, I guess for young people I would emphasize making it fun, making it tangible, making it relatable. And you can even do things like—I’m a person who writes about celebrities and money and stuff like that, and I’ll just talk about lessons and what we can all learn from celebrities or whatever. My daughter, who’s constantly on TikTok—she gets all of her life information practically from TikTok.
Scott Trench: What were those 4 or 5 core values that you were mentioning earlier with money? One, that money is earned—I love that. Can we hear the rest of those?
Lynnette Khalfani-Cox: Sure. And then after you actually obtain money by earning it, working for it, you can only do 4 things. You can save it, you can spend it, you can invest it, and you can donate it or give it away. And so really everything you can possibly do with money falls under that umbrella, those 4 things. So even if you’re kind of protecting your assets in some way, you’re spending on, say, life insurance, or you’re creating a trust, or you’re putting a will in place, you’re paying an estate attorney, for example. You’re investing for growth, you’re investing in yourself, you’re investing in a business, you’re investing in, as we’ve said, equities or fixed income securities or property or crypto or anything else. So, the reason I emphasize that is because as parents, honestly, if you really were to look at your behavior and think about, like, from when your children are kids on, what do kids see us doing? Honestly, they see us making transactions. They see us spending. It’s hard for a kid to see us saving. They don’t just see the money being electronically deposited into an account or whatever. So we have to be conscious in our efforts to show kids. If you’re going to say you want your kids to donate, you can say, listen, here’s where we’re diverting some of our money to help this organization, this group, this charity, this faith-based institution, for example. If you’re going to talk about investing, you want it to be goal-based, of course, and you want to show your kid, oh, here, yeah, we’re putting away this money for your college education. And, again, we’re having those conversations, for example, with Alexis, our 16-year-old. So that was that question. And then the first part, remind me, Scott, because I just went on and on here.
Scott Trench: Well, I think you answered it. I was curious about how you teach others about financial independence with that, and especially kids. So I think we completely covered that. And I really liked those 5 core values. Money is earned. And then after that, the other 4 values are you can save it, spend it, invest it, or give it away.
Lynnette Khalfani-Cox: Yeah, that’s right. That’s absolutely right. And again, it kind of simplifies the whole thing around the choices that we all have with money, and because I really emphasize that, especially to adults. I mean, obviously, we teach kids that, but a whole bunch of adults need to learn that lesson about saving, spending, investing, and donating, because if you look at what so many people do, they get money in and the vast majority of it, they’re just spending it. So, if you sit people down and you go, okay, well, how much? What percentage of your money are you investing? What percentage are you saving? What percentage are you giving away? Again, if that’s a core value of yours. And then they might be like, well, I just spend everything. But once you kind of raise their consciousness about it and make them intentional with how they’re allocating their dollars, then they’re like, oh yeah, you know what? I want to really make sure I’m investing this amount. From now on, I’m just going to allocate and put this to the side. I’m not saying it’s a magic bullet when you just have a conversation with somebody. But preaching, no, that’s not going to work. That’s… I mean, the holier-than-thou or the flaunting stuff in their face, none of that is going to work. It’s going to turn them off. What actually does work though, I think, for a lot of adults is modeling good behavior, right? And kind of, as they say, living your best life, just like doing you. And then people are like, geez, how are you able to go on a 6 weeks vacation? And, or how are you able to take off for the quarter? Or whatever it is that you’re doing that they would be like, I would love to do that. Then you’re like, oh well, we really buckle down, we save a lot on this side. Or cars aren’t really important to us. Like I shared with my audience recently how my husband and I sold our second vehicle. And people were like, oh my God, how could you live? How could you, can you live off of one car? And I was like, yeah, you can. We did it. It was a brand new car too. It was a 2020 vehicle, which we bought in December 2019. We bought it brand new. And when I tell you guys, Mindy and Scott, this car had just a ridiculous amount of problems. It got hit twice. Oh my God. One just parked in front of our house. One during the beginning of the pandemic, my husband was coming back from the vet and just parked at a red light, and a guy just bam comes up from behind him and hit him. So, the car was in the shop multiple times, 2 times, multiple months, because of supply chain problems. And of course it was everything under warranty and we had insurance. So, but they were like, we don’t have these parts, sorry. Oh my goodness. So while the car was there for several months, we were like, oh, we’re getting by with just our sedan. We can— it’s just fine. So then they had a recall on the vehicle, a couple of things. So we were just like, this— is this car cursed? Let this car go. So we sold the car back. We wound up getting back almost 10 grand. And because used car prices are through the roof right now. And so, but the point I was making is that, when we told people about this, it made a lot of people go, oh. So I didn’t go tell them, you should do this. Although actually I did. I went on Headline News and I did a segment about it because they told me to come and talk about it. But in general, just to my friends and family and my audience on Facebook and whatnot, I was like, oh hey, this is something that Earl and I did, blah blah blah. Then people were like, oh wow. So again, sometimes just modeling or just doing something, and then people think, that’s a good idea. Let me, maybe I should try that too.
Scott Trench: All right. We have one last question here, which is, and I think this is for some of the folks that are really interested in starting a business, right? And so, how do I make the decision to, when I have to make a trade-off, right? Like I paid off all my debt and do I invest in my 401(k) or my IRAs or something like that? Or do I stash away cash to invest and start a business? How can I know that I’m getting ready to do that? Or that I— or how do I set myself up for that or know when to make that trade-off if I have limited resources there?
Lynnette Khalfani-Cox: So anybody starting a business, generally speaking, is going to have limited resources. I mean, some people may be more fortunate than others and may have parents’ money or be able to have a nice rich uncle or somebody to give them the start. But for the most part, everybody starting out is kind of bootstrapping. So you’re always going to be in that situation. What I would say is anybody who’s seriously considering entrepreneurship should absolutely get their personal finances together as best they can first. They should map out what it’s going to be like to potentially draw no salary or to have to spend and/or heavily invest in the business for at least 1 year. And so I think a lot of times that go versus no-go decision might be better determined based on answering the question, am I truly ready? So it’s just like, are you really ready for home ownership? I’m a huge proponent of homeownership. I’m a big advocate. I have a book called Your First Home: The Smart Way to Get It and Keep It. And another one of my books, Million: The Money Coach’s Guide to Your First Million. I talk about pathways to building wealth, and of course property accumulation is one of those pathways. So I’m totally bullish, but I absolutely say don’t buy a house until you’re ready, until you’re cash ready, until you have proven yourself to be a good saver, until you won’t experience kind of payment shock if you’re going from being a renter to an owner, until again your credit is intact, your DTI, your debt-to-income ratio, is in alignment with what it should be, and yes, until you have a nice cash reserve to deal with all of the unexpected and the stuff that’s absolutely going to come after you close on that property. So by the same token, you should not just venture into entrepreneurship like, okay, I’ve always wanted to do this, just let me go, let me start it, I have the money, let me start. No, that’s an improper way. You’re not giving yourself the best shot at success because we already know that access to capital, literally that’s the number one dilemma for entrepreneurs the whole country over. So what I would suggest is absolutely do your homework. Absolutely leverage your skill set and your background and your network as well, depending on the type of business you want to start and whether or not it involves a product or service, etc. But really evaluate your readiness to succeed in entrepreneurship. And I think that that is probably one of the best things that people can do to figure out, okay, maybe this is not the year for me to start a business. Maybe I would be better served pooling more resources into my retirement accounts or saving up money towards my entrepreneurial goals and understanding that it’s not like I’m going to launch here in 2022. It might be a 2023 call, but along the way I’m doing homework. I’m monitoring my own personal credit. I’m trying to get ready to be able to get business credit. And I’m doing things like benchmarking what my competitors are doing. So, there you go. It’s kind of like prepare yourself before you take that leap.
Scott Trench: It sounds like if you want to get started in business, you need to develop a runway situation, preferably at least a year for your personal and business expenses, probably in cash or something highly liquid. And that may come at the expense of the retirement accounts or these other types of things. And in addition to that, while you’re building towards that position, you need to invest 500 to 1,000 hours learning about the basics of business, reading books, networking, attending seminars, doing whatever you need to do to get ready to feel mentally ready as an entrepreneur as well. Is that a good way of kind of framing what you’re saying?
Lynnette Khalfani-Cox: It absolutely is. And as a whole, another thing I would say, to put a bow around this very quickly, is, look, if you’re an entrepreneur or you have an entrepreneurial mindset, if you’re a property investor, you already are a risk taker. You’re doing what most folks won’t do. However, I believe in calculated risks, smart risks, judicious risks, not just bet the farm kind of risks. So that’s the difference between somebody who’s just gambling and just playing the odds and just going to kind of go at it willy-nilly, versus somebody who’s stacking the deck in their favor to make sure that they have all of the possible chances for success. Because we know the numbers in terms of how many businesses go under the first year, the first 5 years, etc. And you want to be in the latter category of businesses like mine. Where— and I’m not tooting my own horn here, but I’m just saying, 19 years and going. Where’s the wood? Let me knock on it here. And it’s because we’ve been very blessed. We’ve done a lot of things right along the way. We’ve made a ton of mistakes too, but we absolutely take calculated risks and we don’t bet the farm.
Mindy Jensen: I love it. Lynnette, this has been a fantastic show. I really appreciate your time today. Tell us where we can find out more about you.
Lynnette Khalfani-Cox: Sure. So the best place is my free financial advice site, askthemoneycoach.com. I have a video-based learning platform as well called moneycoachuniversity.com. And then of course, I’m all on social, on YouTube, Facebook, Twitter, LinkedIn, Instagram, et cetera. And everything is under The Money Coach, or under my name, Lynnette. This has been so much fun.
Mindy Jensen: Thank you so much for your time today, and we’ll talk to you soon.
Lynnette Khalfani-Cox: Good. Take care, guys. Thank you.
Mindy Jensen: All right. That was Lynnette Khalfani-Cox answering your burning questions. I hope you had as much fun as we did. Scott, what did you think?
Scott Trench: I thought it was great. It was a fun discussion. She has really insightful answers, and I learned a couple of things, especially my biggest tip of the day. I always learn something that I just had no idea about before, and it was the multiple ways to invest in I bonds between your personal name, your spouse’s name, your business, and/or your trust, or maybe multiple businesses or multiple trusts. So really interesting tidbit there that perhaps some folks will be able to apply to their advantage.
Mindy Jensen: I’m definitely going to jump right into these I bonds and I bond education now because that makes it a lot more attractive. So yeah, you’re right. I always learn a little bit from every single show, and this episode was no exception. All right, Scott, should we get out of here?
Scott Trench: Let’s do it.
Mindy Jensen: From episode 313 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying, take off your socks, Mr. Fox.
