0:00 Who are [music] you? And where are you going? What [music] do you want? Hello and welcome to People Making Money. I'm your host, Kevin Bemel, and I'm here every Wednesday at 10:00 a.m. Pacific time to talk about job hunting, starting and running a business, and building wealth. So all the the three key aspects to our financial lives. So today we're going to be I'm going to be
0:36 talking about uh wealth an aspect of wealth building. Uh and and if you've noticed uh starting this year, I've been rotating uh through the the three subjects, I I find that uh I found that last year I I think I focused too heavily on starting and running a business. Uh I I I think you know because I have in my career for the most part uh had my own businesses except for the time I was in the Navy I I you know default to that subject. Um
1:11 and I and I realized I was uh shortch changing um those of you who uh don't have businesses um but also those of you who are um you know perhaps more interested in uh how do I build wealth? How do I get to the point where uh maybe I don't have to work, right? Um I I don't know if that's the goal. It's not my goal. Um you know, I in in general, although frankly not today, um get get a lot of enjoyment uh out of out of my work. Uh um certainly not all the time. It drives me crazy at times. Uh but uh
1:47 um you know even if I didn't have to, I think I would continue to work uh at least part-time u because it gives me interaction with other people and all of that. But in any event um so today I'm going to be talking about the the the topic that you know I promoted in social media which is wealth is optionality. Okay. and and um th this is something that uh I I've I've talked to people about um in the context of uh you know deciding whether to have uh whether to you know
2:25 work as an employee as a W2 employee or have one one's own business. Uh, and I think a lot of people have um the mistaken idea that they'll make more money having their own business. Um, generally that is not true. Okay. Now, for any individual, they may that individual may make more money than they could make working for someone else. Um but in general uh or or on average um most people would
3:00 actually make more money working for as an employee than they would having their own business. Um there's there's a lot of risk, a lot of expense to having a business and it takes um a skill set beyond whatever um skills, experience, knowledge someone needs to have in order to be able to do the work that the business does, right? So being a business owner means in essence being a good employee for your to yourself but also having the skills to run the business and and so uh especially for
3:38 very high earners. Um often times the payoff from having a business is much lower um than it would be if they worked for someone else um until they go to sell the business and then they get that that big payoff at the sale of the business. Now there's a lot of uh you know you see a lot see a lot in social media these days of you know founders of companies that you know they become unicorns and they sell for a billion or more dollars and that kind of stuff. Keep in mind that those are the
4:13 very very rare exceptions to the rules. Most businesses don't even sell for, you know, hundreds of millions of dollars, let alone, you know, a billion or more dollars. And most businesses sell for very modest sums, maybe a few hundred,000, maybe several million dollars. Um, but you know, the more the the higher the price point, the fewer businesses there are that sell for that. And many businesses actually have no uh little or no sale value um because of the nature
4:50 of the business. So someone who has a real estate practice as a as a broker, as an agent, there probably isn't a whole lot of value in that business because the business is you as a person, right? So the the key advantage or at least one of the key advantages of having one's own business is the flexibility that one gets from having one's own business. Meaning that you can to a much greater degree than when you work for someone else set your own schedule. You
5:27 can decide if and when you're going to take a vacation and for how long. So, um, having this kind of optionality is one of the best, uh, reasons to have your own business versus being a W2 employee. And so, this same concept is true when it comes to wealth building. Not that net worth isn't important. Of course, it is. that that is the the marker by which uh we
6:03 determine how well we are building wealth. We our net worth increases but it is the it it is the optionality that we maintain that gives us the greatest opportunity to build wealth. Okay. And that's what I'm that's really the core of of what I'm going to be talking about today. So, I have I think five or six points uh that I that I want to cover uh six points today um that I want to cover that hopefully will uh broaden this concept for you and also
6:39 help you understand it deeply so you can see how it can work in in your financial life and and and you know perhaps make it a part of of your approach. Okay. So first of all, let's distinguish between net worth and optionality. So net worth is a a snapshot in time. So, one of the things I find funny about using Quickn, which is the software I use to keep track of uh, you know, the finances of my business and for myself personally, is uh when you when you uh create a
7:18 statement of net worth, it asks for a time period, which makes no sense. So, my my net worth today um probably is at least a little bit different than it was yesterday. Uh and that's because um uh I went to the store and bought some large envelopes to mail something to my accountant, right? And so that goes on my credit card uh because I I used a credit card to pay for it. And so the the the uh debt that my business owes went up a little bit as
7:55 of yesterday, right? And so when that uh when that credit card debit posts probably today, right, if I were to check the balance on my credit card, it would be higher and that would reduce the net worth of my business. Okay? So net worth is is literally a snapshot in you know as of a a specific date in time. Yeah. And typically you know we do the we'll do a you know a net worth statement each at the end of each month the last day of each month or maybe the last day of each quarter or at least the
8:31 last day of the year right. Um but in any event it is that snapshot. Optionality is a strategy. It is an aspect of how we approach building net worth. Okay. So, we want to distinguish between how do we um how do we know that our strategy is working? Well, we take this snapshot called net worth. Okay. But the the the the mo the not the more important thing
9:08 but in for for the purposes of today's show the important thing is understanding how to use this strategy. Okay. So uh optionality really looks at starting now what is my position with respect to how I handle things going forward. Okay. Whereas net worth is just this is where I am today. Okay. [snorts] All right. So um you know different people have different sets of investments. So if
9:45 somebody has uh if a lot of a person's net worth is tied up in real estate, okay, [snorts] or maybe it's tied up in a privately held business, a closely held company or restricted stock, right? So all of those are illliquid assets meaning that getting any cash out of them takes time and as a result their choices or well not their choices but their ability to execute on those choices is limited. Okay. as opposed to
10:22 someone who has, let's say, at least some of their wealth in, you know, stocks, bonds, CDs, you know, mutual funds, money markets. So if for someone who has um some significant liquid assets, okay, so their ability to respond to opportunities in the future is less limited because they have the cash to use to execute it or at least they can get it pretty quickly.
10:58 Right now, of course, there are situations where we have stocks and and maybe the market is down and so we're reluctant to sell at the moment because we want the market to come back up. I I got it. Those those are all those are all risks. But the fact of the matter is on every any given day, we can put a sell order in for our stocks and assuming the market is open that sell order can go through and we can get the cash. Whereas if we have uh let's say a small apartment building, okay, we're not going to be able to, you know, put
11:36 it on the market today, right, and get the cash out of it tomorrow. We're not for probably going to be able to contact a lender to get today and get cash and get, you know, funds that get that loan funded tomorrow. Now of course there are hard money lenders who will fund on very short time frames but that's very expensive money okay and so to use that money to take advantage of an you know potential investment um you the investment may not work because we may be in negative leverage
12:12 meaning that because of the cost of the money we've borrowed is so high we're actually getting a lower overall all return um by using that that borrowed money in order to make the investment. And if you have if if you're not familiar with the the concept of leverage, I did a show I did a people u making money show about it six, nine months ago, sometime in that time frame. So I invite you to go to my channel. Just search for that topic uh leverage and and and take a look at that
12:47 show. It's an incredibly important strategy like optionality for for building wealth. Okay. So optionality means that you're preserving your ability to pivot, to invest, to relocate, even to step back when opportunity presents itself or when risk appears. Right? So, if you've been following the the the financial and business news at all over the last few days, right, um there's been a you know, quite a bit of discussion about what's going to happen
13:22 with oil prices and gasoline prices, right? We've seen gasoline prices go up um I think about um 19 20 some odd cents over the last couple of days. Um, so now the uh the uh AAA average is I heard this morning was over $3 a gallon whereas before it was actually under $3 a gallon. At the same time, interestingly enough, the price of a barrel of oil, right, from which gasoline is refined, um, actually dropped a little bit um, as of when I
13:57 was listening to the business news at about 7 a.m. Pacific time, right? So there's there's additional risk um in in the in the market right now um because of the uncertainty that's that that that's caused by the military action uh going on in in Iran and the larger Middle East, right? And so, and I'm not I'm not saying this is what you should do, but you may be thinking, gee, I I need to step back a little bit and and and get my my head around the larger picture before I make any moves, right?
14:34 Well, you know, that may be the right thing to do right now. Okay. Other people though may be saying with all the turmoil uh this is an opportunity to make some strategic investments that will pay off once the dust settles right. Um in in in either case um keeping what they sometimes call dry powder, right? Cash. Um it would it it would you know especially if you're thinking this is the time to make some investments um you know if you don't have cash you don't
15:10 have that option. Okay. So this is where optionality is so important. So really if you think about it, optionality or or maneuverability is really what facilitates wealth building. Okay. Now let me let me hasten to add here that uh and I I was having this conversation with a young man I met yesterday when I was at the store buying the envelopes. We just struck up a conversation waiting uh you know for the cashier. uh I am not one who believes in
15:47 making uh rapid investment decisions in general uh especially if it's in an area of investing where one is not very knowledgeable. Okay, having said that, if taking real estate for example, if you're a knowledgeable real estate investor, right? So, sometimes uh opportunities arise and they can be very fleeting like you've got to be able to grab them right then and there. To hesitate is to lose
16:23 that opportunity. And so this is where optionality or maneuverability becomes so important because we want to be able to take advantage of these, you know, outstanding opportunities. Okay? But if if we have to sell another property or borrow money against it or something like that, we're not going to be able to do so. And indeed you continuing with the real estate example for a moment. While typically we're you know we borrow money uh when we're when we're buying a real estate whether it's our personal
16:59 residence or it's an investment property. Uh there are opportunities that come along where it's it's such a great opportunity. Someone who can pay all cash is is going to grab it. if if if the if you know if our if our offer is going to be one that requires the the seller uh you know to deal with a loan contingency. Okay. So um this is why optionality is one of the reasons why it's so important. Okay. So um so let's
17:35 look at the next issue now. So um liquidity creates the opportunities for leverage without having to borrow money, right? So if we've got cash and liquid investments, okay, so they give us negotiating power. Okay? Um that's true in business, in employment, and in investing. And I just gave an example on the investing side, right? So, in one of the estates that uh that I'm um that I'm
18:11 administrating, so we put a property on the market about 10 days, maybe 11 or 12 days ago. Okay. I' we've already gotten seven I believe it's seven offers on this property. It's it's it's a house. It's a house in a nice nice upand cominging area. It's a nice little house. Um has some nice curb appeal. you know, the landscaping probably needs to be worked on a little bit, but that's not so unusual. Okay, now here's the interesting thing. Uh, two or three of the officers officers, sorry, two or three of the offers have
18:48 an FHA [clears throat] funding contingency. Uh, I think two of them do actually. Three of them have a conventional loan contingency and two of them are straight out cash. Right? [snorts] So if all of them were around the same price, clearly it would be better for me as the administrator of the estate to take an allcash offer because that's a sure bet assuming I have verification that the buyer has the cash funds. So there would
19:25 be no reason for me to accept an offer from someone with a loan contingency because I'm taking the risk that they may not qualify for the loan and therefore the transaction falls through and I have to start marketing the property over again. Okay? So you can see where being an allcash buyer on real estate would give leverage. Now, in the event of this particular example, the the two cash buyers are trying to lowball the price, um they're probably uh actually looking at the names of the inves of the buyers. They're investors. They're, you know, they're probably
20:00 bottom fishing and if they make, you know, a thousand offers hoping to, you know, get one or two of the properties, right, from someone who's desperate. [snorts] But, you know, if if they um if they were offering a similar price to the the offers with loan contingencies, clearly uh I would be better off taking one of those allcash offers. Okay. But leverage uh that comes from having cash and liquid investments comes in other ways. So, for example, um you you may have heard the adage the
20:35 best time to be looking for another job is when you don't need it, right? And one of the reasons why that's the case is first of all, when you, you know, are meeting with hiring managers, you don't come off as, you know, I got to have a job kind of thing, right? But second of all, you can negotiate from a a stronger position because, you know, you're not in a situation where you've got to have an income, right? And so you you will typically have greater leverage in in negotiating
21:14 a compensation package for a job if you've got some cash and liquid investments. Now, you may argue, well, but I don't want to diminish my savings or my liquid investments um you know by by going unemployed and and not having an income. Okay, fine. You know, that's your decision. My my point is not that you have to do do this, but just that you have the option of doing it. Okay, that's what having liquidity um will will give you if if you're looking to
21:51 better your opportunity as an employee. The same thing is true of a business. So, a business that's operating under very constrained cash flow uh is a business that is probably not going to be able to maximize its potential. It doesn't have funds available to make investments in technology, investments in marketing, uh to be able to um take the time to um you know, work to find desirable clients, negotiate reasonable,
22:26 favorable agreements with those clients, you know, because they're cash flow constrained. So, just before I started this broadcast, I had a conversation with uh uh someone I know who, like me, has a small business and and we're looking at, uh working together on one of the estates that I administrate. Um but the estate has no liquidity in it. And so, um she wanted to get going on it right away. And I said, "Wait, wait, wait. before before we move forward, I just need you to know the cash position of the estate because you can do the
23:01 work, but I won't be able to pay you. Um I I I don't know that I'll be able to pay you when the work is done. Um and and here's what else is going on, right? And what I didn't want to do was bring someone into a situation where she didn't understand um you know the the potential uh you know cash flow issues and then put her own business in a cash flow constraint because now you know the estate doesn't have the money to pay her right so I wanted her to have the
23:37 opportunity to make an affirmative decision about her optionality in her business, right? And I think that that's I mean, I think we're we're obligated to do that as reputable people in business or even as reputable people working for another company, right? Um to let those with whom we're going to be doing business know, hey, I just need before we move forward, I need you to know these issues. Okay? So the reality is the ability to say no translates into
24:12 financial strength and the ability to say no to maintain that aspect of optionality comes from having liquidity. Right? So uh it also maintaining liquidity uh means that even during a downturn we can potentially make investments or make decisions from a broader perspective than others who are constrained because now we're in a downturn and they're in a cash flow squeeze. Okay. So it's important to um
24:49 maintain a you know an appropriate cash flow or an appropriate I should say an appropriate liquidity position right so okay and then finally um having financial flexibility it reduces the cognitive load the emotional aspect of decision making under pressure right So if we're cash flow constrained and you know let's say you know our car has to our car you know breaks down take it to the mechanic and
25:26 now we've got this big huge car repair if we're if we are illlquid where is the money going to come from to pay for our car repair and get mobile again okay at least here in you know Southern California where having a car is still important right so uh and and cogn loads don't come just from needing uh money but not or needing liquidity but not having it. It can also come from you know missing out on an opportunity. It's like oh if I had only you know maintained some liquidity there
26:01 was this investment and you know blah blah blah blah blah right and we start you know emotionally kicking ourselves. Okay so liquidity creates opportunities for leverage beyond the strictly financial aspect of leverage. Okay. Next um income diversification really equals strategic freedom. Okay. So when we talk about diversification in investing and wealth building, we tend to think of it from the perspective of
26:36 having investments in a lot of different areas like you know real estate, stocks, bonds, um you know crypto, gold, silver, right? Uh commodities, whatever, right? That's the kind of diversification we think about or diversification in our stock portfolio where we own stocks, we own domestic stocks, large caps, small caps, uh international stocks, right? That's also a type of diversification. Okay? But we should also seek in our financial lives some income
27:11 diversification. Okay? So if we have multiple streams of income, we reduce our dependency on any one stream. Okay. So going back to the topic of of you know having a business versus being an employee. This is one of the key points that I make to people when I talk to them about should you start a business, should you remain an employee? And that is being an employee is essentially like having a business with only one client,
27:46 your employer. Okay? If you lose that one client, meaning you get laid off or fired, your income goes down to zero. when you have your own business and let's say you've got five clients. Okay, but and let's let's make a further assumption. Let's say not all the clients generate an equal amount of revenue. Let's say you've got um one client that generates 40% of your revenue um and the other four generate
28:21 the other 60% or about 15% each. Okay? And let's say you lose one client. Okay, let's say you lose your best client, the one that's generating 40% of your income. Okay, but you still have 60% of your income left. Whereas, when you're an employee, if you lose your one client called your employer, you have 0% of your income left. Okay? So you can see that even if even if your streams of income are all
28:56 coming from the same activity, but you have multiple streams of income doing that same activity, you're reducing your dependency risk. Okay? And that gives you greater strategic freedom. It gives you greater optionality. Okay? Um, now maybe you have diversified income streams. Okay, so maybe you know you have your primary business, but you've got a side hustle or maybe you know you you you've got an
29:31 annuity that was left to you by um, you know, a relative who passed away. Okay. So, you know, even if things aren't, you know, even if you're you take an income hit because you lost your job or maybe your company is asking you to take a pay cut because it's having uh financial problems or whatever. Okay. But you've still got this other income stream. Okay? Or maybe you've decided over a number of years you've accumulated wealth and you decide, hey, I'm going to take some of this wealth. I'm going to buy an annuity to give me an additional
30:07 income stream. Okay. So again, that reduces your dependency risk. So we can diversify our income in terms of having multiple sources of income for doing the same activity or we can have multiple streams of income you know doing different activities or having different sources for that income. Okay. And and so then when you know one stream slows or or even worse ends, so we we have an ability to
30:44 adapt rather than panicking. Oh my gosh, I I just lost my sole source of income. Okay. So, uh you know, if if you whether you're an employee or a business owner, okay, you may you may decide you want to have some kind of side venture. Maybe you want to act as an a consultant uh to other people who do something similar to what you do. Or maybe you can get some kind of board position or advisory board position to a company that that it does something similar to you. Um, but you
31:19 know, maybe they're in a a different segment of the market or something like that where you're not you're not working at odds with yourself, but you're able to put your knowledge uh to to work for yourself and for the benefit of another organization. Um, you know, at the same time that you continue doing what you're doing, maybe you've got some intellectual property, right? So, um, I have uh at least some pieces of intellectual property. these shows right now. It candidly it's it's very difficult to monetize uh this kind
31:54 of uh intellectual property. My audience isn't big enough yet, but it's growing every every day, every week, right? And one of the while it's not the primary reason I do these shows. Um one of the reasons I do them is to potentially develop another income stream or create another asset apart from my primary business. Right? But you may you may have a you know a parent who composed uh popular music right and they have a catalog now maybe it's it's sitting with maybe it's registered with ASCAP and so
32:31 um every time uh one of the songs that your parents that your parent or your relative composed or wrote the lyrics for um plays you you know you get a royalty or something. uh you know there's all kinds of intellectual properties and ways to exploit it meaning monetize it I guess would be a better word um and and create another income stream and maybe there you have some digital assets that also in one way or another create some cash flow okay so all of these increase your optionality
33:06 and again to reemphasize this point uh uh diverse Diversification is not just about returns. It's about maintaining choices. Okay, that's that's where diversification in income versus investments is so important. Okay, let's take a quick break and we'll come back and talk some more. When life brings unexpected changes, managing inherited property shouldn't add to your stress. Magnum Properties
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34:17 Okay. So, uh the the fourth uh idea to uh to share with you on the issue of optionality. So, uh low fixed costs equals greater choice. Okay. So when your your fixed costs both in your business and in your personal life are low that means that for a given amount of income that you generate
34:53 um you will have greater a greater range of choices. Okay. So on the personal side, things like your housing costs, transportation, food, uh insurance, health care, right? All of these things. So, um you know, do you you know, if your if your housing cost currently is, let's say, uh $3,000 a month, right? uh and and you've been doing well and and you know you feel like you could afford to increase your housing cost to five or $6,000 a month. Okay. Now, is it
35:31 the best uh option to increase your fixed expenses by that $2 to $3,000 a month in order to get a nicer place to live? Or is it better from a wealth-b buildinging perspective to continue to live where you are and keep that additional money that you would have spent on a bigger or nicer house or apartment or whatever um and use that in order to have greater options in in in your investing. Now, by the way, um it's
36:08 not a straightforward decision. So, let's say, you know, your current housing cost is $3,000 and you're renting. So, okay, when you pay that $3,000 a month, that's it. There's nothing gained by it. Whereas, let's say maybe by if you were to buy a house, okay, your your monthly housing cost would go up to uh $5,000, but maybe on an after tax basis. um taking into account the fact that mortgage interest uh at least to a certain level is deductible on your
36:43 income tax return. Typically, property taxes and insurance payments are as well. Okay, this is something of course you would you would want to clear with your tax advisor or accountant, but um maybe your after tax cost of buying a place is only $3500, okay, or $4,000, right? So, you're actually not increasing your fixed costs as much as you might think because your after tax position isn't that your your fixed cost position on an
37:18 after tax basis isn't as bad as what it looks like on a pre-tax basis. Okay? So, these are the kinds of things that that that you know we should look at when we consider increasing our fixed costs. But all things being equal, our lower fixed costs give us greater optionality. And this is the trap that a lot of high income uh high high income uh high earners get into is as they earn more and more they keep increasing their fixed costs
37:53 and and thereby limit their optionality. So, I know for myself, usually uh in the fourth quarter of each year, um I look at what's going on with my expenses and I see where I can adjust them down. Uh to give you an example, I just noticed that the cost of my cell phone went up by about uh 25% thereabouts, right? Um don't recall getting any notification that was the case. I think my, you know, my I I,
38:29 you know, I signed a one year, not signed, but I I did a like a one-year agreement uh about a year ago, right? And that agreement probably expired, and so they just bumped it up. Well, so it's time for me to shop for a new cell phone provider. Um I, you know, and and that's part of my strategy. So, I have notes in my reminders, although candidly I thought I had a note for this and and it didn't it didn't pop last month when when it should have. But in any event, um I I know once a year I've got to shop cell phone service to make sure that I'm
39:04 not overpaying. Same with internet service. Uh same with my, you know, Sirius uh XM radio, right? I know each year I need to review them to make sure that I'm getting the lowest price possible or like in the case of Sirius XM consider, you know, getting rid of it if if you know it's become too costly, right? Um I I don't have a lot of streaming services. I actually I don't have any streaming services, but if I did, I'd be doing the same thing with the streaming services because these
39:39 things have a way of building up our fixed costs and and limiting our optionality. So, uh when when we have high fixed costs and there is a a drop in our income, that can create a tempor at least a temporary crisis, right? and and then an opportunity comes along and not only are we in crisis because maybe we can't meet our fixed cost but now we can't take advantage of this opportunity either. Right? So this is why in general
40:16 we want to keep a low fixed cost. Okay. And we should we should understand that financial independence is as much about controlling expenses as it is having a high income and accumulating assets. Okay? Because I I can tell you in my work there are people whose ability to outstrip their income and assets is always greater than the rapidity at which their income and the value of
40:51 their assets are increasing. Okay. So it's it's a kind of a two or three-sided uh coin if you will, right? We need to we want to increase our income. We want to increase our assets our at least our net assets. Um but we also want to control our expenses and that's how we ma maintain you know best optionality. Okay. Next uh human capital is the ultimate option. Okay. So our knowledge, our skills, our
41:30 experience, our reputation, the relationships that we have, these all create sort of evergreen opportunity. It's why if you if you're a regular watcher of this show, you you you you hear me or see me talking about relationships so often. Okay. Um there's very little that we're going to do in the realm of increasing uh net assets and increasing net income that
42:08 doesn't involve other people. Okay? That's just the nature of business and investing today. Okay? It's not like, you know, 200 years ago we could sling our rifle over our shoulder and walk off into the wilderness and, you know, with an axe and, you know, chop down some trees and build us a log cabin and hunt for our food or or, you know, grow some some vegetables and some corn or whatever on a plot of land we clear and and and build wealth largely on our own or maybe with just our family. those those opportunities are not those
42:43 sort of pioneer opportunities don't really exist anymore. Okay. So, uh income, you know, increasing income, increasing the value of our assets, increasing the the scope of our investments, it all takes interacting with other people and that's best done through building relationships. But but from a an employment and business standpoint, it's also important that we maintain our reputation for for uh honest dealings and we look
43:18 continue to look for and actually do increase our knowledge, skills and experience. Okay. By doing so, we make ourselves more adaptable. Okay. And so when there are changes in the marketplace, we can deal with those changes more flexibly, more more uh more quickly. Okay? And and in that way uh maintain our optionality or actually exercise our optionality in this case and better
43:54 maintain our income and our net worth. Okay? uh and and that is much more so than someone whose credentials are static and who isn't out there building relationships. So for for the for if if you're an employee, a W2 employee, it and I talked to a lot of of of people who are employees and they some many of them seem to not think that building relationships in their industry is important. It's not important right up till the time when you realize you need to find another job. Okay? And I talked about
44:30 this uh I think a week or two ago. Uh the best way to find a highinccome job is through pre-existing relationships. Okay? It's not through job boards and all of that. Okay? Again, I invite you to um check out that episode on my YouTube channel if this is something in which you're interested. Okay, relationships are as important for employees as they are for business owners. Okay, because those relationships create optionality
45:05 especially at the time when it's most crucial where we get blindsided with a layoff or or worse get fired. Okay. So, um networks really um they expand uh our opportunity. So, I I'll give you a a a just a little example that recently came up in my own uh life. So, um last week I was looking for um a contractor uh uh in Colorado to help out um a client of mine. And you know, I was
45:41 trying to think, who do I know? Who do I know in uh you know, Colorado? And so I went through my um I keep a listing of my 150 closest relationships, business relationships. Um and I went through it. I just I just did a search for Colorado and several names came up. And one in particular is someone that I've had some business interactions with um over the last several years. actually hadn't touched base with him for a while. I thought, "Hey, I'm gonna give him a call." And, you know, dialed his number and he picked up right away. He's like, "Hey, Kevin, I haven't heard from you
46:17 for a while. What's going on?" Right? And we took, you know, 20, 30 minutes to catch up. And then lo and behold, you he mentioned among the things he mentioned that he was up to was something that, um, I thought perhaps might be an investment that might be right for one of my clients, right? And so, uh, we talked about that and we actually have a meeting later today, uh, to, you know, he's he and his, uh, associates are going to present some information to me and and have an opportunity to talk about it. Well, on Monday, I was talking to another uh, business associate uh,
46:54 that I hadn't talked to in a little while. Um, we were talking about again something unrelated and I happened we started talking about our primary professional uh interests and I happened to mention this to her and she's like, "Oh, that sounds really interesting." And so I said, "Well, if if you like, I'll see if it's okay for me to send you the presentation and and sit in on the meeting." And and the answer to both those was yes. Yes. Right. So here's where relationships are creating opportunity for me potentially for my client for another for another business associate for the business associate that's you
47:30 know that's that's working on the investment right so this is why relationships are so important um but it's why your your network uh really creates opportunity um beyond just kind of your balance sheet your net worth right And so this is another aspect of human capital um that we we always need to be building, right? So investing in yourself typically will generate the long the
48:06 greatest long-term yields um over and above what passive assets alone will generate. Okay. and and part of investing in yourself is creating relationships uh mutually beneficial relationships with others. Okay. Finally, risk management. So, um things like uh uh having proper insurance, having proper estate planning, having the right legal structure to protect your
48:43 business, your assets. And there all of those also protect your optionality, your flexibility, right? So if a casualty happens, god forbid you get in a car accident or or you get sick or you know there's a fire like there was here in Los Angeles a little over a year ago, right? All of those can have a pretty devastating impact on your finances. But if you're properly insured or properly protected, have an estate plan, a proper
49:20 estate plan, that reduces the risks of those casualties. It reduces the financial the potential financial hit and therefore keeps your optionality uh intact. maybe not quite as great as it was before the casualty, but much better than if they hadn't been there. Okay, now I get it. Insurance is expensive these days, right? And that that's why a lot of states uh so for example Florida just went as I as I recall just I was listening to a podcast
49:56 about this they they passed a lot of insurance reform that has helped tame uh the rising cost of insurance and and as if I remember recalling it accurately um it also um has actually caused insurance premiums to drop in in those things. So uh uh you know all of these are um important ways of of um of protecting your optionality. So I have a note here from from Richard. He says, "What advice do you have for someone wanting to
50:32 change their work background going from blue blue collar to white collar environment?" Uh so so that's a great question, Richard. you know, in in the current job environment, I'm not sure I would recommend moving from a blue collar to a white collar environment. um from what I've been um reading and listening to um and actually dealing with in my own practice with with AI, I think, um the impact of AI um on on jobs is going to be far greater
51:08 on white collar jobs than it is on blue collar jobs. Right? So, um, as I'm as I'm, you know, broadcasting this show, there's a fellow here, I don't know if you heard him, walking on my roof, um, to fix the air conditioning unit for my house. Okay? He's not going to get replaced by AI. AI is going to help him do his job more productively. So, it's going to help him earn more money, but it's not going to replace him because no AI can go up on the roof and deal with the air
51:44 conditioning unit up there. Okay. Um, now you might, well, maybe there'll be a robot someday and it'll have it'll be able to like fly up onto my roof and what, like a drone or something. Okay. Maybe that will happen at some point in the future, but I think we're still pretty far away from that. So what I and like when I talk to for example service members who are getting out of the military and they're they maybe I'm thinking maybe they go to college or there's that and a lot of people in the military they actually don't want to sit behind a desk. They want to be out there doing something. So I recommend that
52:20 they look at opportunities like um auto mechanics, plumbing, electric, electrical, HVIC, the kind of building trades. There is a tremendous amount of opportunity in those, you know, um historically bluecollar employment and and I think they've been wrongly maligned as not being some kind of, you know, worthwhile employment. I I couldn't disag I couldn't disagree with that attitude more. These are very worthwhile forms of employment. And today the likelihood that you'll make
52:55 high five to low even mid6 figure incomes in these trades is greater than it's ever been. So my advice is is if you're already in bluecollar work, um unless there's, you know, something perhaps physically you were injured and you you can't do the work any longer, um I would look for ways to enhance your knowledge, skills, and experience in the field that you're already in or in some other kind of field where it would be, you know, reasonably likely that you could move to within the the the the
53:33 trades, the bluecollar realm and and continue in that vein rather than trying to get into white collar work where you know two or three years from from now you could be experiencing what happened at I think it's square who end of last week or the beginning of this week you know me uh notified the markets that they're literally laying off half their workforce and replacing them with with with AI. So, um, a little a little bit of a um, well, not really a tangent.
54:08 This is part of the optionality discussion that we're having, you know, that I'm presenting today. So, you know, as an employee, this is why when I talk about when I I was just talking about human capital a moment ago, you know, you know, working on your knowledge, skills, experience, and reputation, continually upgrading them gives you greater optionality. The other thing I would say just to sort of wrap wrap up my thoughts to you, Richard, is uh look at how you may be able to use AI in the
54:44 work that you're currently doing to enhance your productivity and maybe um show companies, your company or other companies like it, how they can do that to increase the productivity of their workforce. And and in that way you kind of are getting into a white collar environment in the sense that maybe you would start a side gig as a consultant taking the knowledge that you and experience you already have in your bluecollar work marrying it with kind of a white collar
55:20 uh subject matter expert idea of of being an AI implementation consultant and and maybe there's an opportunity there to marry the two that will you know help you move forward more productively with with your career. So okay so and thanks very much for the for the question Richard. So um going back to the issue of of risk management um you know the the idea behind insurance is is to you know prevent or avoid catastrophic losses right because that's
55:55 what preserves your long term your long-term strategic freedom right so uh now know as someone who had a a long a catastrophic loss I won't get into the the specifics of it I don't want to bring you down but you know I'm I'm in that mode where I'm having to rebuild my my finances. Um, you know, in order to regain greater strategic freedom, some catastrophic losses can't be insured against um and and they can't be predicted, right? So,
56:31 we can't, you know, clobber ourselves over the head because we suffered uh, you know, a catastrophic loss. Sometimes that's just the way life is. and then we've got to deal with them going for forward. But where we can mitigate or protect ourselves from those losses through proper planning, insurance, etc., we should. Right. So um the the final issue is um in in terms of risk management and this this kind of marries the last two points human capital and risk management. One of the most important
57:08 riskmanagement tools we can have is building our own resilience. Okay. Our ability to identify an issue, come up with solutions and choose one that we can adopt going forward. Whether it's in our professional lives, whether it's in our investment lives, whether it's in our personal lives, that ability to have and exercise our resilience is a huge key in maintaining our optionality. And it is difficult. Okay.
57:44 As recently as this morning, I was on the phone to a good friend of mine, my friend Bill, um to deal with something that was dropped in my plate professionally yesterday late afternoon that, you know, prevented me from sleeping well last night. Um, and you know, I'm all night long I'm trying to what am I g how should I handle this? D, right? Um, and part of my resiliency strategy is when I'm not feeling sufficiently
58:19 sufficiently resilient to reach out to um a a close friend, you know, a a a close colleague and say, "Hey, can you take can you take a few minutes to help me work my way through this and find, you know, the the the the best response or at least the least worst response. response, right? Resilience isn't just something inside ourselves. It's the processes that we have in place so that when we hit a difficult uh situation,
58:56 when we confront crisis, uh we we we almost automatically do certain things to help us stay on track or to get us back on track. And and this too is why relationships are so important and why they are a crucial aspect of maintaining optionality. When we have people that to whom we can reach out to deal with the vicissitudes of life to help us keep or stay on keep on track or get back on track. Right?
59:31 That's a huge part of maintaining our optionality and staying on the path to building wealth. Right? So, uh I I thank you very much for joining me today. Uh if you have any questions, comments, criticisms, links to my social media uh will be uh you'll find them in the in the show notes on YouTube, Spotify, and Apple Podcast. Okay. Um, this, by the way, my shows post automatically after they after the live broadcast ends. They
60:07 post automatically on YouTube. Sometimes it takes a few minutes um to a few hours before they show up on Spotify and Apple Podcast. Um, but but they but they are there. Um, and so you can you can use those links. Uh, if you want to comment publicly, that's fine. If there's something private, um, my email address will be there as well. you can always email me with the caveat that um I will respond, but if if you're asking me for advice in an area that in which I don't have competence, I'll be happy to help you find someone who does, but but I'm not going to weigh in if I don't if I
60:42 don't feel I have the knowledge or experience uh to do so. So, uh let's see. uh full slate of shows uh next week. Uh Monday at 10 a.m. Pacific, Trust and Estates Weekly, Tuesday at 10 a.m. Pacific time, uh business lessons from the military. Wednesday at 10 a.m. Pacific time, people making money just like today. And then every other Thursday is my show, Jiggers's Place, where we meet, have a cocktail and a schmoo, and talk about things not related to finances. So, uh, looking
61:18 forward to seeing you next broadcast. Thank you so, so much for joining me, Richard. Thanks for the great question. I really appreciate it. And wishing you a wonderful rest of the day. And, uh, signing uh, signing off as I always do. Marie darling, you are my bell. courage and