The Money Advantage Podcast

The Money Advantage Podcast

Personal Finance for Beginners

June 20, 2022

Here’s a listener question about personal finance for beginners: "What is the foundation or the starting point of wealth building? What are the core things I would want in place to start building wealth?"

You might be asking the same question. Do you have savings you want to do something with? Are you wondering if you are making the best personal finance decisions? Is it time to talk with a financial advisor? What do you need to know to figure out if the plan you create is going to be best for you?

Many people with great money habits realize that it’s time to do some planning when they have a stash of savings. Should you invest? In the stock market? Which stocks? With which company? How much risk should you take? How do you track your performance? Will your plan get you closer to financial freedom?

Let's talk about the 10 things you want to have in place in your personal finance, to make sure you’re headed in the right direction with a plan you feel good about. Tune in now!

Table of contentsWhat is Wealth?Ways to Define WealthOther Ways to Think About WealthWhat is Financial Planning?How Do You Optimize Your Financial Life?Optimize Your Personal Finances: 8 Habits to Have in PlaceConsistent SavingsIncrease Your SavingsSave with Safety, Liquidity, and Growth in Mind15-Minute Money6-12 Months of ReserveThink of Savings as Emergency and Opportunity FundNever Stop SavingLook Into Infinite BankingInvest with Knowledge and Control Start Your Personal Finance JourneyBook A Strategy Call

What is Wealth?

[8:58] Bruce: “The first thing I would say is that you really have to decide what your definition of wealth is for you.”

Bruce elaborates by sharing how, when asked about his Net Worth, he had to unpack the statement. Because typically, Net Worth is someone’s “pile of money.” It’s the culmination of their assets against their liabilities. To some, this may be the most important financial marker. However, Bruce and his wife decided that they valued cash flow more than a pile of money. So for them, Net Worth doesn’t necessarily scratch the surface of what they can do with their money. 

Ways to Define Wealth

There are three fundamental ways people define wealth, which may help you get clearer on your own personal definition of wealth. Net Worth is the first definition, which is viewing your finances like a balance sheet. 

Another way to define wealth is to consider not just your cash flow, but how that cash flow represents your wealth potential. This is more abstract, but consider it for a moment. Say you have $400,000 of cash flow. This is a fraction, or percentage, of your total wealth potential. That total wealth potential represents what your cash flow would be if you saved that money in an account earning, say, 4%. That would make your wealth potential $10 million. If you reverse engineer this, you could theoretically live off of 4% of that same $10 million, which would be the $400,000. 

Finally, many people today consider their time to be their wealth. So this may not be represented by a certain dollar figure, but by how much control you have over your time. Many people today choose to be entrepreneurs for this reason or work in the “gig economy,” so that they have more time. 

The point is not that there is one ideal of wealth, but that you can reach a point on your journey where you feel as though you are wealthy. So, you must define wealth for yourself. Your definition of wealth may include some combination of these aspects or other ones entirely. 

Other Ways to Think About Wealth

In the book “Complete Family Wealth,” the authors define wealth as a family flourishing. They pose the idea that if you’re not happy, healthy, well-connected, and in control (among other things) then you are not truly wealthy. Wealth is not simply about money, but about whether you are living the life you wish to live.