Michael looks back on the conversations he had this season and shares his thoughts on how you can apply what we learned from our guests.

Click here to listen now. For episode resources and transcripts, visit https://stealtheshow.com/podcast

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

Other episodes of Steal the Show that’ll surprise and delight you…

Is Social Media Still Worth Your Time?

Change is Inevitable. Will you evolve with it?

Partnering With Speakers Bureaus

The post Season 5 Wrap Up and Reflection appeared first on Steal the Show with Michael Port.

Michael talks to Heroic Public Speaking’s Brand and Communications Director, Dylan Gallimore, about how to translate brand values into engaging communications. Dylan shares his approach to writing, and how you can use writing to connect with your audience and communicate who you are as a thought leader. 

Click here to listen now. For episode resources and transcripts, visit https://stealtheshow.com/podcast

How You Can Steal the Show

• Discover why branding is (literally) so much more than meets the eye.
• Make adjustments to your personal or business brand to better connect with your target audience.
• Define (and live) your authentic values to create stronger relationships.
• Discover four seemingly simple but surprisingly important things to consider before you start writing your next project.
• Build one key habit that routinely introduces you to new ideas and sparks inspiration from unlikely sources.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

Other episodes of Steal the Show that’ll surprise and delight you…

Is Social Media Still Worth Your Time?

Steve Drum on Performing in High Stakes Situations

Listender Q&A: How to Get The Gigs You Want

The post S5E08 How to Use Writing as a Thought Leader appeared first on Steal the Show with Michael Port.

Martin Perelmuter is co-founder of Speakers Spotlight. His views on the speaking industry have appeared in numerous media outlets, and have been published in over 60 countries. Martin has been a guest lecturer at several colleges and universities, and was a keynote speaker at the Public Words Speaker Forum at The Center for Public Leadership at Harvard’s Kennedy School in Cambridge.

Most importantly, Martin is a kind and unapologetic optimist. His passion for people, ideas, and bringing transformational speeches to the world shines through in our conversation. And he drops so much wisdom about working with speakers bureaus—you definitely don’t want to miss this episode.

How You Can Steal the Show

• Discover how speakers bureaus make decisions about choosing which speakers to pitch. 
• Gain insight to how location can impact speaker rates.
• Learn what steps you can take to make yourself more appealing to speakers bureaus.
• Understand why having a top-notch, well-produced video is essential—and how to make a stellar video for yourself.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

In this episode…

[Martin Perelmuter] Speakers Spotlight

Other episodes of Steal the Show that’ll surprise and delight you…

Listener Q&A: Gimmick-Free Creativity, Showing vs. Telling, and Recovering When You Bomb

Steve Drum on Performing in High Stakes Situations

Create Transformational Experiences on Video

The post S5E07 Partnering With Speakers Bureaus appeared first on Steal the Show with Michael Port.

Click here to listen now.

How You Can Steal the Show

• Master how to be playful on stage without coming off as gimmicky
• Gain an understanding of why you should make big creative choices as a performer.
• Uncover what authenticity really is in the context of public speaking.
• Learn how to keep audiences engaged by showing data, not telling it.
• Discover the importance of preparation to avoid bombing on stage.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

In this episode…

[Andrew Davis] Meatloaf Bit

Other episodes of Steal the Show that’ll surprise and delight you…

Is social media still worth your time?

Steve Drum on Performing in High Stakes Situations

Listener Q&A: How To Get The Gigs You Want

The post S5E06 Listener Q&A: Gimmick-Free Creativity, Showing vs. Telling, and Recovering When You Bomb appeared first on Steal the Show with Michael Port.

In this episode, Orlando talks to Michael about his story, his work, and his deep commitment to community through his speaking and youth training programs. He also talks openly about race and how being a Black man in an overwhelming white space impacts his approach to performing.

Click here to listen now.

How You Can Steal the Show

• Uncover the true meaning of forgiveness.
• Discover how and why its essential you get off the sidelines of your own life.
• Engage audiences with your personal story.
• Discover how Orlando approaches speaking to adults vs children. 
• Reflect more deeply on what your responsibilities are as a public speaker.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

In this episode…

[Orlando Bowen] Orlando’s Website

Other episodes of Steal the Show that’ll surprise and delight you…

David Meerman Scott on How to Turn Audience Members into Raving Fans

Steve Drum on Performing in High Stakes Situations

Simon T. Bailey on Quitting Your Full-Time Job to be a Pro Speaker

Full transcript coming soon.

The post S5E05 Forgiveness is a High Performance Tool appeared first on Steal the Show with Michael Port.

Click here to listen now.

How You Can Steal the Show

• Understand the right way to approach your efforts to stand out on social media. (And what never to do with a tripod.)
• Discover the most important factor(s) to consider when it comes to creating a world-class social media presence.
• Find new places to look for inspiration for your content.
• Understand how much time you actually need to spend creating and posting social media content.
• Gain a clearer understanding of barriers to entry on social media, so you can start creating quality content more quickly.
• Discover Queena’s Steal the Show-exclusive social media trick that helped her travel the world.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

In this episode…

[INSTAGRAM] Watch Queena Bergen perform her original poetry

[MOVIE] Down To Earth, starring Chris Rock (and featuring a cameo by your humble host, Michael Port)

Other episodes of Steal the Show that’ll surprise and delight you…

Neen James On Systemizing Thoughtfulness, Where To Focus A Personal Brand, And Why Social Media Is Key

Search Engine Optimization for Speakers and Others Who Want Online Visibility with the Author of Duct Tape Marketing, John Jantsch

Simon T. Bailey on Quitting Your Full-Time Job to be a Pro Speaker

Full transcript coming soon.

The post S5E04 Is social media still worth your time? appeared first on Steal the Show with Michael Port.

Luria Petrucci is the founder of Live Streaming Pros. In the past 17 years, Luria has produced over six thousand videos and live streams—generating over a billion views. She’s been called on by CNN, FOX, NBC and other major media outlets to share her wisdom on creating transformational experiences with video.

Michael spoke with Luria about what works in online video, what doesn’t work, and how to think about using online video as your speaking career evolves.

Click here to listen now.

How You Can Steal the Show

• Uncover what makes online audiences fall in love with a livestream host.
• Learn what changes you can make to seamlessly make the jump from the stage to the small screen.
• Stand in your authenticity as a performer. (That might sound counterintuitive. It’s anything but.)
• Discover how consistency is a tool that you can use to build and strengthen your authentic brand.
• Take advantage of the top three ways that meeting planners discover and book speakers.
• Fuel your speaking career with stageside leads, instead of relying solely on marketing.
• Use three key strategies to get live stream audiences engaged—and keep them engaged for your full performance.
• Discover quick, easy changes you can make to make your live stream events more effective and memorable. (For all the right reasons.)

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Get speaking, performance, and thought leadership wisdom and insight delivered straight to your inbox by subscribing https://heroicpublicspeaking.substack.com/. 

In this episode…

[GUEST] Luria Petrucci’s Live Streaming Pros YouTube Channel

[CAMERA] Sony ZVE 10

Mind-blown…or marshmallows? Watch this clip of Luria demonstrating on-screen graphics and see for yourself.

Other episodes of Steal the Show that’ll surprise and delight you…

Search Engine Optimization for Speakers and Others Who Want Online Visibility with the Author of Duct Tape Marketing, John Jantsch

Marcus Sheridan on Leading Interactive Workshops and How He’s Killing It with Video Marketing

Scott Stratten on Harnessing Your Personality for Fun and Profit

Full transcript coming soon.

The post S5E03 Create Transformational Experiences on Video appeared first on Steal the Show with Michael Port.

Click here to listen now.

How You Can Steal The Show

• Uncover how seeing speaking as a craft and a profession can set you on the right path.
• See what goes into crafting a perfect signature bit that can make your performance as memorable as possible.
• Discover the three types of contrast that any effective speaking performance needs to have.
• Develop strategies to recognize and navigate fear, especially in the face of change.
• Learn how to overcome analysis paralysis and make choices, even when you aren’t sure or feel insecure.
• Target your message and your speaking brand to get ahead faster.
• See how clarifying and communicating your goals with event planners can make a huge difference in your speaking career.
• Investigate the “Three Ps” and how they influence your decisions as you evolve and grow in your career.
• Discover the crucial difference between influencers and thought leaders. Which are you striving to be?

Listen to more episodes of Steal the Show at https://stealtheshow.com/podcast/.

Learn more about Heroic Public Speaking at https://heroicpublicspeaking.com/.

Subscribe to Heroic Public Speaking on Substack at https://heroicpublicspeaking.substack.com/. 

Connect and learn more about Judson Laipply at https://www.judsonlaipply.com/. 

In this episode…

[VIDEO] Judson’s iconic video “Evolution of Dance”

[SPEAKER] David Coleman, “The Dating Doctor”

[BOOK] James Clear’s book “Atomic Habits”

[SPEAKER] Brené Brown

[SPEAKER] Mel Robbins

Other episodes of Steal the Show you’ll enjoy:

Dorie Clark on Reinventing Yourself 

Simon T. Bailey on Quitting Your Full-Time Job to Become a Pro-Speaker

Tami Evans On Being Funny on Stage, Managing Isolating Careers, and What It Means To Be A Female Public Speaker

Full episode transcript coming soon.

The post S5E01 Change is inevitable. Will you evolve with it? appeared first on Steal the Show with Michael Port.

On our Season Four finale, we’ve saved the best for last. (Well, not necessarily, but that’s a thing people still say, right?) Either way, this episode is a big one.

On this episode, we get into the weeds on how you can keep more of your money—period. That means breaking down and clarifying some of the most confusing and obscure questions around taxes. (Yes, that’s right, we’re finally getting around to taxes.)

With a whole year between now and Tax Day 2023, it’s the perfect time to dive in. This is one of those episodes you’ll probably want to save and listen to a few times—it’s THAT jam-packed with useful (and frugal) insights.

How You Can Steal The Show

• Understand inside and out what kind of taxes you owe, and when, and to who which entities, and why.
• Soak up a ton of useful information about capital gains, estimates, and safe harbors. 
• Get insight from a Certified Public Accountant (co-host Matt Rzepka) on strategies to thoughtfully, legally reduce your tax burden.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

Thanks for listening to Steal the Show: Speakers with Money. Steal the Show will return.

In this episode…

Payroll System Options:

• Gusto (11:57)
• Payroll Relief (12:59)
• Paychex (12:41)
• ADP (12:42)

Other episodes mentioned:

• [Listen Here] S4E2 How to Speak the Secret Language of Business Jargon (referenced at 36:29 and 40:24)

Transcript

Michael Port (00:00:05):

Hello, and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money and I’m joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I’ve got no conflicts of interest here. I don’t stand to make any money at all from you if you take any of the educational information that’s shared on this podcast and do something with it. None. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does and you are welcome to hire him, but I will not be compensated in any way if you do. I’m doing this purely because I love the topic and most importantly, I think you need it. Everyone in our industry can benefit from learning more about business and personal finance. That’s it.

Michael Port (00:01:31):

Alright today, we’re discussing how to keep more of what you make. So let’s get right to it. Matt Rzepka, I wanna start out today with what might just be the single most exciting, enticing, and invigorating topic we’ve discussed yet. This is a topic that everyone loves to talk about. And now that I think about it, maybe we should have put this right off the bat in episode one, because this is something that really gets people going, gets them leaping outta their seats. Of course, you know what I’m referring to and it’s taxes.

Matt Rzepka (00:02:02):

You know, Michael, uh, you had me going there for a second.

Michael Port (00:02:06):

Really?

Matt Rzepka (00:02:07):

Uh, no.

Michael Port (00:02:09):

Oh, well anyway. Okay. How about this? Today is the day we finally get around to talking about one of the most dreaded, most convoluted, and of course, most important aspects of money. And that’s paying your taxes. Now I know this isn’t something that people love to talk about, but think about it this way. We are finally getting round to talking about taxes, but we saved it for an episode that’s literally called keeping more of what you make. So yes, we’re gonna talk about corporate taxes and capital gains and all that fun stuff. But if you listen all the way through to the end of the episode, we’re gonna talk about how to maximize your savings through tax planning and who doesn’t like savings, especially when it comes to taxes because taxes are your single biggest expense. They are likely the thing you spend the most money on every single year. So, you know, you could save 25 cents if you do price comparison, shopping at the supermarket on a can soup, but maybe you could save $25,000 or $250,000 in taxes by doing appropriate legal, ethical, and even moral tax planning. So Matt, since many of our listeners are entrepreneurs, let’s start with corporate taxes.

Matt Rzepka (00:03:30):

Sounds like a plan to me.

Michael Port (00:03:31):

Okay. So let’s do it. Let’s talk about federal, state, and then of course, local corporate taxes.

Matt Rzepka (00:03:37):

Yeah. So corporate taxes are tax taxes where your business is actually paying taxes directly out of its coffers. It’s not having a direct impact on your personal income taxes. So this is more of an old school approach that has resurfaced with popularity the last several years, because of some recent tax law changes, but corporate taxes, basically your business makes a profit. The corporation has a tax, which right now the C corporation tax is very simple. It’s a flat 21%. So if I have taxable income of a hundred thousand dollars, I have to pay $21,000 in corporate federal tax. Then you go into state and local and it gets a lot more complicated because the rules are different based on those jurisdictions. We won’t go into those details here, but do know you want to learn and understand what your state and what, if any, your local jurisdiction does tax you from a corporate level, but your business pays that tax. You have no personal tax implications on your business profits until you start to take money that you want to earn or spend to live.

Michael Port (00:04:39):

Okay. So let’s briefly just unpack this a little bit more because you know, many folks who start off as speakers or consultants, they often start as a sole proprietor and they may have a limited liability company set up, an LLC, but they’re filing their taxes as a sole proprietor or as an S Corp, which is a pass through entity. So they’re paying all of their business taxes through their personal taxes rather than the business paying separate taxes. Right?

Matt Rzepka (00:05:09):

That is correct.

Michael Port (00:05:11):

And so when the tax laws were changed in, I guess, ’17?

Matt Rzepka (00:05:14):

’18.

Michael Port (00:05:16):

’18. Many small business owners who had pass through tax treatment on their LLC changed and moved over to filing taxes as a C Corp rather than as an S Corp. So they started paying corporate taxes as a result, because if they did good planning, they could end up paying less on their taxes as a result.

Matt Rzepka (00:05:36):

Yes.

Michael Port (00:05:36):

The question here is how do you make sure that you’re not getting tax more than need to be because you run into double taxation where you’re paying it on the corporate level and on the personal level. And so how do you handle this when it comes to working with your clients? And I imagine it’s different for different clients, depending on how much money they’re reporting each year.

Matt Rzepka (00:05:57):

Yeah. It is certainly individualized and different for everyone, but there are some basic factors that will help clarify how it works. The number one thing is just because the corporation is paying taxes, you still can take personal income that’s deductible from that corporation that you would pay personal taxes on. So you need to run some math problems to look at what are my personal tax rates and how much income do I need? What are my corporate tax rates? And the key on the corporate side, if you are spending for personal living, most of the money, your business is making a corporate strategy may become less attractive because you’re not really able to retain those profits and otherwise reinvest them into investments or portfolios or other strategies. You’re just consuming them and it’s gonna force that double taxation to happen now, which wouldn’t be good. So you might wanna stick with an S Corp or sole proprietor or pass through. But as you start to have more and more profits that you can do other investments and other strategies with the C Corp really becomes a dynamic component of your plan to minimize your tax so that you have more money to reinvest and hopefully grow and outpace what some of those initial taxes might be based on your own returns.

Matt Rzepka (00:07:10):

So the strategy right now is to try and balance personal tax and corporate tax to keep you at, or below that 25% level.

Michael Port (00:07:19):

And that’s where the planning comes in. Because if you wait until the end of the year to try to figure out the best way to handle your taxes, then you have fewer options at your disposal. But if you plan in advance, you can make very strategic decisions with respect to how much you’re taking as payroll versus profit versus some other things that will address even in this episode coming up.

Matt Rzepka (00:07:44):

Yeah. Tax planning happens at the end of the year, but what we run into even a lot each and every year is people start thinking about tax planning as we get into the November, December months. Well, if you’re trying to get with a tax planning firm, their plate may already be full and you’re gonna have to wait until next year to get that best advice. So get in and get on their docket so that you’ve got lots of time to plan ahead and start to formulate what those numbers and strategies are gonna look like.

Michael Port (00:08:10):

Yeah. When we meet at the end of the year, we’re doing a full assessment and a wrap up and making strategic decisions with respect to how we file our taxes. But that’s based on the plan that we had made the previous year.

Matt Rzepka (00:08:23):

Yeah.

Michael Port (00:08:23):

And so then at this stage, we also then start doing our planning for next year. Well, what are our estimates gonna be? What our payroll expenses gonna be for us, my wife and I? And that’s all separate from all the business planning that we do with respect to expenses and revenue for the business. We really do keep those pretty separate.

Matt Rzepka (00:08:43):

And when you first start the process, you’re gonna be a lot more active in planning and to-dos and stuff. We have to change and stuff we have to move. But the goal is to get to a 80 to 90% level where it’s then just monitoring what you’ve put into place so that when you do the year end planning, it’s not a long laborious process. It’s just checking the boxes to make sure, Hey, we set this plan. This is what we expected. Have we met those expectations? Do we make any small modifications? And here’s where we’re gonna end up. So that it’s more just continuing to monitor that have to make massive change all at once. So early on, it’s a lot more work, but you want to get it to where that system just runs like clockwork.

Michael Port (00:09:21):

That’s right. In fact, I remarked on that when you were here just a few weeks ago to do our planning and we finished, and I think it was lunch. We started, you know, 9, 9:30, maybe 10. I don’t even remember. And maybe it took us three, four hours total. And that’s because, you know, we really do have it pretty dialed in. And half of that time was talking about what our plans are for next year and also our investment strategies and some thoughts about retirement and other planning needs that we have going forward. So it’s not even just this year’s, you know, personal tax that we’re managing in that particular meeting.

Michael Port (00:09:56):

Okay. So let’s talk about W2 withholdings, federal state, and local personal income taxes. So what are W2 withholdings and who might owe taxes on them?

Matt Rzepka (00:10:07):

Yes. W2 is actually the tax form where all of your wages from a job or from being an employee of your own company get reported. And then the withholdings come out are your social security, your Medicare, your federal tax, and your state tax. And even sometimes some local tax. So all those numbers happen inside of a payroll software all throughout the year. And then that payroll software reports all of that information to the government on a quarterly basis. And then at the end of the year, the software kicks out the W2 form that then reconciles with the government. So that way they know how much you got paid, how much of your paycheck they received from your employer. Your employer is actually a fiduciary of your taxes. A lot of people don’t realize that. They’re taking money from your check and they’re sending it to the government. And if you’re a business owner, you are a fiduciary on those taxes, and that’s not something you wanna mess around with. They do not take that lightly. And if you ever don’t pay those taxes, they come after you with the full fledged power of the government, because they look at it like you’re stealing other people’s money.

Michael Port (00:11:06):

Oh, you shouldn’t do that. That’s frowned upon.

Matt Rzepka (00:11:08):

Not good at all. And it never goes away if you don’t pay those taxes. And we’ve seen situations where people didn’t realize what was going on and they weren’t making proper payroll deposits. That liability will never leave you until it’s paid. Like they come after you because it was your employee’s money.

Michael Port (00:11:24):

Yeah. And the good news is most of the folks who listen to this show are speakers. And, you know, maybe they work for another company and speak, but many of them are working for themselves and speaking so they may be the only employees in their company, or they may not be taking any W2 income. They’re taking everything as a draw. You know, if that’s how they’ve set it up. So there’s a number of different ways you can do it. And a few of them are gonna be like me who have a team and, you know, pay wages. But the good news is if you, you use a reputable payroll system, it’s incredibly easy. They do all the work for you. We use Gusto.

Matt Rzepka (00:11:58):

Yes.

Michael Port (00:11:59):

Gusto is great. We love it. We started with them when it was Zen payroll, I think it was called. And then they merged or were bought by Gusto a really great platform, not expensive. Uh, does most of the work for us and there’s others out there like that. Any others that you particularly like for a small business?

Matt Rzepka (00:12:15):

Lot of great programs out there, this used to be a major problem. The industry from the CPA perspective was, oh, do your own payroll to save on the fee of the payroll software, but then people don’t understand payroll and they weren’t making deposits right. It is the single greatest investment you can make is to make your payroll and happen without anybody having to worry about it. Gusto is a great option. We have a lot of clients who do that. We use a company called Payroll Relief. There’s great companies like Paychex and ADP. It all depends on the personalization you might want or need with your payroll. If you’re running basic payroll, some of the bigger outsource companies are great. If you want more personalization, someone like us or someone like a Gusto, you’re gonna have a rep and you can do some other good things from that perspective.

Michael Port (00:12:58):

Yeah. It’s really remarkable how much filing there is even just with a team of 10 or 15 people. Frankly, the last thing I would ever want to do or ever want our Director of Finance, Juli, to have to do would be to all of that paperwork. There’s enough to worry about without having to worry about payroll taxes, paperwork, and, you know, just let the system do it for you.

Matt Rzepka (00:13:23):

Yes.

Michael Port (00:13:23):

And, uh, you know, keep an eye on it. Make sure it’s everything is kosher.

Matt Rzepka (00:13:26):

I promise you, you do not want to become a payroll expert. No, I promise you. I’ve been down that road and payroll is just not fun.

Michael Port (00:13:33):

No.

Matt Rzepka (00:13:33):

But it’s necessary. It’s a necessary evil.

Michael Port (00:13:36):

Let’s talk about something more fun. Capital gains.

Matt Rzepka (00:13:38):

Yes.

Michael Port (00:13:38):

From investments. So what are capital gains? We definitely define this in an early episode, but let’s do it again now. And then who might owe taxes on these. And even if they’re not taking capital gains out of their portfolio, give a definition of capital gains and then all the different things that applies to, or at least some of the different things that applies to, and then who might owe taxes on these?

Matt Rzepka (00:14:02):

Absolutely. So the simple breakdown of capital gains is there’s short term capital gains and long term capital gains. Short term are anything that happened under 12 months. So if you owned an asset and you sold it and made a profit, but you didn’t own it for at least 12 months, that is a short term capital gain. Anything that you owned for greater than 12 months becomes a long term capital gain. It’s basically the buying and selling of an asset that it went up in value. So that could be a stock. It could be a bond. It could be real estate. It could be a business. There’s a lot of different things that you can buy, even crypto. Crypto’s a new one that gets treated like capital gain. So as crypto has grown and become more popular, the IRS has had to come out and say, okay, here’s how you report and pay tax on the gains that you make from actively participating in crypto.

Michael Port (00:14:50):

Which really makes all the crypto investors thrilled. They’d love to pay taxes.

Matt Rzepka (00:14:54):

Thrilled.

Michael Port (00:14:55):

They’re not interested in just keeping that private to themselves. They really wanna make sure the government is involved in all of their cryptocurrency activity.

Matt Rzepka (00:15:03):

If you find a way to make money, the IRS will find a way to tax you.

Michael Port (00:15:08):

As well they should look. I mean, we have a lot of necessary…

Matt Rzepka (00:15:11):

Yes.

Michael Port (00:15:11):

…expenditures. I am of the mindset that this idea that one shouldn’t have to pay taxes, especially if they’re making a substantial income, is an absolutely ridiculous concept. Unless you literally live on a different planet.

Matt Rzepka (00:15:26):

Yeah.

Michael Port (00:15:27):

Because you are using the services that you’re taxes are paying for. Of course, there’s lots of waste. Of course, there’s senators carving off, you know, this bit for this pet project and their state and these reps doing it in the House also. I mean, everybody’s got their, you know, hand in the till, but nonetheless, I always find it remarkable when, you know, when people are like, I shouldn’t have to pay any taxes. That’s ridiculous. It all is wasteful. I know what to do better with the money you may, but you still use the services unless you wanna opt out of all those things. Like if there’s a way to say I’m opting out of the police, ambulances, roadways.

Matt Rzepka (00:16:06):

Yeah right.

Michael Port (00:16:06):

Any kind of emergency. Like I’m just completely opting out of all of it. There’s just no way to do it. So anyhow Sorry I got on a soapbox about it, but you know, taxes are something that I feel when I pay my taxes as long as we’re, you know, making choices that put us in the best position that we can be in, as long as they’re within the tax code. I feel fine about paying taxes. I think it’s okay.

Matt Rzepka (00:16:27):

Yeah. It’s a fairness question. And you know, who pays what and how much and what percentage, you know, again, right now we actually historically compared to where we are now, we’re actually in a low tax rate environment.

Michael Port (00:16:38):

Yeah.

Matt Rzepka (00:16:38):

And I’ll tell you too, if you’ve not been to a different country or different place that doesn’t have a good tax system or doesn’t have a good infrastructure system that will give you some appreciation for what your taxes go to build, what systems are in place. You know, there couple stories I heard about Puerto Rico, because you can get some great tax breaks moving down to Puerto Rico. Well then a hurricane came through there and you realized how much resource and infrastructure they didn’t have in those emergency situations. And you’re like, okay, I came here to save taxes, but now I’m stuck here for a year because I can’t even make a cell phone call. And it’s some of those things that money does go to infrastructure. So it’s more of a fairness and not paying more than your fair share, which is what we’re talking about today.

Michael Port (00:17:19):

Yeah. And we operate under a progressive tax system. So if you’re in the highest tax bracket, not all of your money is going to be taxed at that particular percentage. It’s progressive, you know, only over a certain amount. So in any event, that’s probably a conversation that people would argue with us about for hours, you know?

Matt Rzepka (00:17:37):

Oh, we could get a whole…we could get a pretty good banter going on. All that.

Michael Port (00:17:41):

I just want the listeners to know. It doesn’t matter what I think about this, it just, the only thing that matters is what the IRS thinks and you gotta make sure you’re working within the structure that they’ve put forth because…

Matt Rzepka (00:17:53):

Yes.

Michael Port (00:17:53):

And look, here’s the other thing, you know, they’ve marketed themselves very well as always, they’re gonna get you no matter what, like they’ve done a great job of marketing as being like the really scary entity that you just cannot cross.

Matt Rzepka (00:18:04):

Yes.

Michael Port (00:18:04):

Which of course I think is clever of them. And to same time, it’s not like there are hundreds of thousands of Jack boot thugs working for the IRS that’re gonna come knocking on your door every single year to give you an audit. They are often woefully underfunded and understaffed. So they’re just doing the best they can too. Like most people, okay, here we go.

Matt Rzepka (00:18:27):

Yep.

Michael Port (00:18:28):

Estimates. We gotta talk about because I’ll tell you when I started my business in 2003, I honestly thought estimates were optional. I thought by meaning you had to pay the taxes, but like you just had to estimate each month how much you were gonna have to pay, but you didn’t actually have to hand it in. I just thought you to estimate them. And then at the end of the year you add them in.

Matt Rzepka (00:18:50):

Lot of people make that mistake the first time. Yeah. A lot of people, all these estimate things and then it’s, then it’s a big slap in the face later when you figure out, whoa, wait a second.

Michael Port (00:18:59):

Yeah. It would’ve been easier if they had called it like required quarterly payments, then it would’ve made more sense. But when they said their estimates, how can you give so many estimates? Because it’s just an estimate. I don’t know if it’s be this.

Matt Rzepka (00:19:11):

Yeah.

Michael Port (00:19:11):

Right. So anyhow, I quickly learned that they are not optional. So talk to us about estimates because some people might be about to go out on their own or just have gone out on their own and still maybe a new concept to them.

Matt Rzepka (00:19:24):

Yeah. Estimates relates to other topics that I talk about on a regular basis, which is something called a Safe Harbor. So first estimates are the quarterly payments you are required to make to the IRS in order to avoid a penalty in addition to your tax. So the government says, Hey, we know you’re making money. We want you to send us our portion of our taxes on this schedule, which is April 15th, June 15th, September 15th and January 15th. And if you don’t send us enough on those dates, we’re not only gonna charge you the tax that you already owe. We’re gonna add penalties and we’re gonna add interest. So that directly ties into then something called a Safe Harbor. So there’s various rules that say, if you pay in a certain amount, you’re gonna be “safe harbored” or covered from penalty or interest. So the most important things when it comes to estimates is knowing the dates and then also understanding what your Safe Harbor is.

Matt Rzepka (00:20:20):

And if the person you’re working with doesn’t know how to answer that question you should find another person because that’s a very basic component of tax and tax planning. And you always want to try and make sure you’re Safe Harbored with the payments you’re making, because you never want to have to pay taxes in a penalty if you can avoid it in additionally, we’ve talked about W2 withholdings already on this show. Those are another form of estimated payment, but it’s automated through payroll. So the IRS likes W2 withholdings way better than estimated payments. So they give you a lot more flexibility when you’re paying your taxes through withholdings compared to estimates. The estimate rules are very specific and you have to follow about one of three different options or they’re gonna charge you penalties and interest.

Michael Port (00:21:03):

Fantastic. So you just mentioned Safe Harbor. Is there anything else that you wanna share about Safe Harbor because Safe Harbor’s used in a number of different ways like the Safe Harbor contribution to our pension plan for the employees. That’s one way that they use that term. The IRS uses it also. Is there anything else we need to understand about it?

Matt Rzepka (00:21:20):

You wanna recognize that terminology and usually you wanna make sure you achieve a afe Harbor, especially when it comes to taxes. So Safe Harbor in some of the retirement spaces are kind of the minimum that an employer has to do to a retirement plan. Here we want to achieve, so the, the simple one that I can easily explain is a hundred percent of last year’s tax. So let’s say my total tax last year was $50,000. If my income’s on under a certain amount, I can pay in a hundred percent of last year’s tax. And if I owe a million dollars the next year they won’t penalize me, they can’t penalize me. And then if I’m over a certain income that Safe Harbor’s 110%. So those are just one of the three options that are pretty basic. But again, every tax preparer should be able to have this conversation with you. The thing I see in the industry that’s frustrating sometimes is people default to the prior year’s Safe Harbor, which could put extra stress on your cashflow if your business is not growing. So that’s why it’s important to understand there’s three different options and ask the question is really what I would recommend.

Michael Port (00:22:24):

Okay. Let’s say you expected a year lower revenues and you expect lower taxes as a result. Can you pay less than what would’ve been considered the Safe Harbor from the previous year, if you do expect lower revenue and profit in the next year?

Matt Rzepka (00:22:43):

Yep. The other two options are actual income or 90% of what you think your income’s gonna be. So if your income is trending down, you can run a calculation to say, okay, my income is down 90% of that expected income is X and that’s the estimate that I need to pay or the actual income method. We use this a lot for real estate developers and even some attorneys who have very variable income, meaning January, February, March, they might just barely get along to pay their bills. And then April, May and June, they have a huge quarter and all of their profits came in in one month. You can calculate how to time that with when your income shows up to meet the actual Safe Harbor method.

Michael Port (00:23:27):

And really, I suppose the government wants these estimates each quarter for cashflow purposes. And because they may be concerned that people will not save throughout the year and have the taxes ready to go at the filing date. Is that why is there any other reason that they would expect estimates?

Matt Rzepka (00:23:47):

Yeah. In general, they don’t trust the taxpayers are gonna be ready to pay their taxes. So they wanna force you to pay those taxes as fast as they can. That’s why the government loves employees because you know, think about all of the employment in the United States. All of those taxes are being administered by businesses and sent to the government often on a weekly or biweekly basis. So those taxpayers, they don’t even have to worry about their taxes. It’s often the refund conversation when someone’s filing their taxes that, Hey, I’m getting a refund. Well, that was your money. They took it from you. And they sent it to the government eight months ago. And you’re just getting it back now.

Michael Port (00:24:23):

Yeah.

Matt Rzepka (00:24:23):

A lot of people don’t necessarily recognize how of that works until it’s broken down for them.

Michael Port (00:24:28):

Which is why many local, state, and certainly the federal government doesn’t love the idea of employees moving to contractor status.

Matt Rzepka (00:24:36):

Yes.

Michael Port (00:24:37):

Because if everybody’s a contractor, they can’t control the payroll taxes in the same way. And they can’t be assured that they’re gonna get it at the same frequency or that they’re gonna get all of it.

Matt Rzepka (00:24:47):

Yeah. They lose a lot of control there. The employee versus contractor discussion is something that they do look at on a regular basis at the IRS level. They want as many people to be employees as possible. So if you’re paying contractors, there’s a 20 point checklist that says, Hey, are you an employee or are you a subcontractor? You want to be for familiar with that checklist and make sure you’re completing that documentation to be a contractor, if that’s how you’re treating somebody.

Michael Port (00:25:12):

So I wanna talk about one more thing before we start to shift gears into keeping more of what you make. We need to do this first to make sure that we’ve outlined the different types of taxes that you will generally have have. And one of the things that often is confusing is multi-state versus state resident taxes. So when you’re a speaker, you may speak in 20 different states or 50 different states or in five states, six times, but different cities each time. And it can get a little bit complex if you have to file in every single state, as well as the state that you reside in. So can you talk a little bit about the difference between paying state taxes in the state that you live versus paying taxes, where you’re actually doing the work and how to manage that and how speaker should approach that?

Matt Rzepka (00:26:09):

Yes, it’s an ever evolving topic right now because again, of really two things, the internet and remote work. And then how expedited remote work became because of COVID. So we have a lot more people that are crossing state lines than ever before. The historical topics around this are like pro athletes. There’s been a lot of tax court cases around pro athletes because they’re making so much money and they’re going and playing sporting events in all these different states. So the states caught onto this and said, Hey, another word for this is multi-state apportionment. How much portions of your income do you have to spread across all of these states? Well, the more money you make, the more aware you need to be of this. Because if you’re making a lot of money and a state gets a hold of your income, they say, Hey, you’re not paying us our share of your, and we want it. And then you’re gonna have to start filing that tax return.

Matt Rzepka (00:27:05):

So initially we tell people, okay, if your resident state is always your home base, start there and then you have to look at how much am I earning in other states, they’re starting to publish different benchmarks to say, okay, if you earn X in this state, but not over, don’t worry about filing with us, like is happening with sales tax right now. Sales tax has led the charge because of Amazon. Amazon has all kinds of people across the world that are buying and selling goods and the states are missing out on their sales tax. So they’ve come out something called the Wayfair Act that says, if you have sales of $10,000 or less in our state, don’t worry about paying us sales tax. But if you have more, more than $10,000, well now you have to register and pay us as well.

Matt Rzepka (00:27:46):

We haven’t seen that in the income space yet, but I think it’s coming down the road because you’ve got so many more people that are crossing state lines, they just don’t have the specific regulations. So we always start at home base in the state that you live. And if a state gets on your radar, then you may have to start filing in that state and your home state. But generally we try to keep your home state as the first order of business. And then we look at how much actual business. We have some guidelines that we can use as well for clients who are facing this issue that says, okay, we look at revenue as a percentage of the state that it came from. And now it’s the state that it came from where you were not this necessarily where your client is either. So that starts to get a little bit more complicated. So this is a big, big topic, a big can of worms per se, about, okay, well, how vast of exposure do you have to where your income is coming from? And then you start to divulge a strategy from there. So that’s kind of the quick dive into how complex that can get.

Michael Port (00:28:44):

Is it safe to say that if somebody is in the early stages of their career as a speaker, and maybe they’re doing 15 gigs over the course of the year in a bunch of different places, maybe some of them are virtual, but they’re hitting maybe 10 different states, but their fees are maybe five grand or 10 grand. They’re not making 40 grand or 60 grand or 150 grand a speech. Do you think it’s reasonable for those folks to pay the taxes at their state level? And then if the business builds and they start working in one of those states or a couple of those states on a regular basis, then they might start to think about filing in that particular state.

Matt Rzepka (00:29:24):

I think you don’t even have to twice about this, unless you’re making half a million dollars or more. And even that might be low because you have to then spread across like most state tax rates, I’ll use Michigan as an example Michigan state tax rate is 4.25%. So let’s say I did two gigs for $10,000 each in Michigan. And I’ve got a $20,000 of income that I have to pay 4.25% tax on. It’s gonna cost me more to file the tax return from a professional than it will in tax that I would have to pay.

Michael Port (00:29:55):

Yeah.

Matt Rzepka (00:29:56):

In like I had a client who messed us up once, way, way back, they were referred to a us, they had all these visions of they were gonna be nationwide and serving all 50 states. And the CFO went out and registered in all 50 states and they hadn’t done business there yet.

Matt Rzepka (00:30:09):

And it was a compliance nightmare because now we have to file zero tax returns in states because we’re registered. So once you’re registered, you’ve gotta deal with that state. So we’re, it’s all this compliance cost. So I always say start at the home base. And as your income goes up, ask the question, have the conversation and start to get data about what income’s coming from where. But generally we always push to the home state first. And then we deal with the outside states as they become significant. And significant can be defined differently by person and by state.

Michael Port (00:30:40):

Okay. Let’s say you live in Michigan, but you are speaking very often in California and California catches on and they say, listen, we want you to file here. And so maybe you made a hundred thousand dollars in California or maybe half a million or a million who knows, but let’s say you made some money in California and they want you to pay state taxes in California even though you live Michigan. Are you getting to deduct that tax payment to California on your Michigan state taxes? So you’re not paying two states the same tax on the same income.

Matt Rzepka (00:31:13):

All states are a little bit different, but yes, you don’t have to double tax the income. That’s where that apportionment word comes in. So if I have $500,000 total, let’s just keep the example real easy. $250,000 in Michigan, $250,000 in California, I’m gonna file two state tax returns showing $250,000 in each state.

Michael Port (00:31:29):

Got it.

Matt Rzepka (00:31:30):

Now again, that’s a really, really simplistic example and California’s probably the worst one to use because they’re the most complicated and most difficult, but from a theoretical perspective, that’s how you would do that. Or you would get credit for taxes paid in that state, back against your state, your home state income. That’s another way that it can happen, but you won’t have to double pay.

Michael Port (00:31:49):

Once you’re on the radar in California, you are on the radar in California.

Matt Rzepka (00:31:54):

Yes, sir.

Michael Port (00:31:54):

California is very good at making sure that people are paying their taxes.

Matt Rzepka (00:31:59):

They are number one in terms of aggression in taxation and number 50 in terms of rules.

Michael Port (00:32:06):

Wow.

Matt Rzepka (00:32:07):

So they’re the worst in rules and they’re the most aggressive, so just keep that in mind.

Michael Port (00:32:11):

Oh wow. Alright. Well, it’s also very high cost of living in most of California. So I think I’ll probably stay where I am for now that too. Plus, this is where my children are. So I don’t think they actually, maybe they do want me going to California, who knows. But Matt, we’ve covered all these different categories now. And I think we’re ready to start talking about how folks can keep more of what they make.

AD BREAK (00:32:32):

But before we do, I need to take a quick break to tell you that this episode of Steal the Show with Michael Port is brought to you by HPS PRO. The two most popular programs at Heroic Public Speaking are HPS CORE and HPS GRAD which we’ve talked about in earlier episodes. Not too many people know about this, but we also have a third training program that’s called HPS PRO. Now, the reason why HPS PRO is a little more secretive because it’s our most exclusive offer. Actually, we’ve never talked about it in public the way I am right now. It is the pinnacle of the HPS experience. It is in fact, the highest value that we can produce for any one speaker. In HPS PRO, our faculty, our team, Amy and I, all work as intimately as possible with accomplished Industry Icons who are ready to take their message to the stage and launch their speaking career. It’s a year long training program with Amy and I serving as your personal directors. When you’re an HPS PRO student, you work with our entire team, our script writers, stylists, photographers, filmmakers, and graphic designers, to make sure that you have a transformational script and performance. A custom speaker site, a fashion guide, a slide deck, a high quality speech reel, high res headshots, and more. Every single element of your speaking career will be best in class. This experience transforms you into a speaker who surprises and delights audiences and generates new leads every time you step on stage. I wanna be clear here, HPS PRO is not for everyone. And because it’s such an immersive program, we can only offer it to no more than three people a year. So if you’re an Industry Icon at the top of your field and you’re ready to become a truly transformational, referable speaker, visit HeroicPublicSpeaking.com/Pro to learn more.

Michael Port (00:34:34):

Okay, Matt, you ready to keep going?

Matt Rzepka (00:34:37):

I’m ready.

Michael Port (00:34:38):

Alright. Now let’s get to the good stuff. Talk to me about how I can keep more of what I make.

Matt Rzepka (00:34:46):

Well, there are essentially three main strategies for keeping more of your money when it comes to taxes. There’s tax deferral, eliminating future taxes, and then reducing your current taxes.

Michael Port (00:34:57):

Okay. And I wanna stress this. Everything that we are about to discuss us is completely legal. At least as far as I know, but I’m not a CPA. We would never, ever in a thousand years, for any reason ever suggest that you do something against the law. Matt is a CPA, however, and a brilliant financial mind. And I trust him. It’s essential that you make your own decisions about your money with people you trust too. And like we say at the beginning of every episode, you are welcome to hire Matt’s firm Valley Oak if you don’t have anyone that you trust now, and there are no kickbacks to me, I have no financial incentive. Okay. So Matt, let’s start with tax deferral. What is tax deferral and how can we defer taxes? And when should we defer taxes?

Matt Rzepka (00:35:44):

Yes. Tax deferral is the simple process of saying, I choose not to pay taxes today in respect for paying taxes at some point in the future. So I have a tax event and I’m gonna take those taxes and say, no, I don’t want to pay you now, Uncle Sam or IRS, I wanna pay you later. So that’s the key. Sometimes people miss that tax deferral actually has an implication later in life. So I like to refer to it as tax postponement because the word deferral sometimes gets overlooked as to what it truly means. You’re postponing those taxes until a date in the future. The most common ways we do this right now are retirement plans. Your IRAs, your 401Ks, your defined benefit plans, your SEPs, things like that. And we had, uh, a lot of detail on definitions around those in an earlier episode.

Michael Port (00:36:34):

Now there’s some other ways that you can postpone taxes. And I love that you reframe that because I do think often when people hear deferral, they think, oh, I don’t have to pay taxes.

Matt Rzepka (00:36:45):

I defer not to pay.

Michael Port (00:36:47):

Yes. And of course you’re gonna pay the man.

Matt Rzepka (00:36:49):

Yes.

Michael Port (00:36:50):

You’re gonna pay the man at some point in some way. Hopefully you are making good decisions so you don’t overpay the man. But what are some other strategies for tax deferral that may be less obvious or less common to people that haven’t studied this?

Matt Rzepka (00:37:07):

Another popular one, if you’ve thought about or read up on real estate at all, would be 1031 or like-kind exchanges where you can sell a piece of real estate and take that gain and roll it into the next purchase and not pay tax on it. Now again, that’s a very complex topic and there’s a lot of things to consider there, but that’s another way to defer taxes. You’re basically saying to the government, I have this gain and I’m willing to buy another property. And the key with the 1031 or the like-kind exchange is you can’t touch the, it has to go to a, what’s called a qualified intermediary and they have to handle all the transactions behind the scenes to buy the next property. So that’s one way.

Matt Rzepka (00:37:47):

Another way, for example, we’ve talked about C corporations and let’s say you have a lot of capital and income from a C corporation and you may temporarily need to use that money for something. You can take a loan and that’s gonna defer taxes on that because loans are not taxable events. So if you needed short term money, you have to treat it like a loan. You have to document it like a loan. You have to have interest. You have to pay the interest, but you don’t have to pay taxes if you take a loan. So it’s another way to defer taxes to a later date and tax deferral is probably one of the most common things in the tax code. Another one would be an installment sale where I’m choosing to take payments over time if I sell an asset in the form of a loan. So you kind of play the bank and you take payments over the next 10 years, let’s say. Well, instead of taking payment all at once, you would pay tax all at once. So if I take payments over 10 years, I’m gonna pay one 10th of that tax over the next 10 years. So it’s a way to defer that tax. And that’s where planning becomes so important. You wanna understand your tax brackets, how much income you’re gonna have how much income you can control. And you want to try and keep those brackets as low as possible.

Michael Port (00:38:59):

Let me ask an important, but what might seem like an obvious question, but I think we should just discuss it a bit. Is why would you want to defer taxes? What’s the value of it? Why would you do it?

Matt Rzepka (00:39:13):

The general rule for deferring taxes is thinking that I’m going to pay less in the future. That’s part one. And part two would be, I think that I can put that money to better use and grow it faster or more than what the tax consequence might be. So for example, on the real estate side, that’s a lot of what the real estate investors are thinking is, Hey, I don’t want to pay this tax now because I can reinvest it in a new, bigger, better property and try and make a bigger return. Now, again, there’s a slippery slope there from a risk perspective that you always want to take into consideration. The tax deferral on retirement accounts, that is more of a tax bracket question typically. Do I think I’m going to be in a larger or smaller tax bracket in the future or the same. And again, there’s no perfect answer to that question because it’s impossible to predict the future. And one thing we know for sure, looking historically, tax laws change and they change frequently. So it’s diversification of tax strategy. So having tax deferred dollars, having tax free dollars, having taxable dollars, having multiple buckets. We’ve referenced a bucket strategy on other episodes. When it comes to taxes, that becomes extremely important as well. So you want to have a strategy around how all this stuff fits together.

Michael Port (00:40:35):

Good. So what about eliminating future taxes? So we pay the tax now, but we eliminate taxes on that money in the future.

Matt Rzepka (00:40:45):

Yes. The analogy here can be paying taxes on the seed or paying taxes on the crop. So this is kind of paying taxes on the seed. I’m gonna pay it today and then I’m gonna try and it as big as possible and, and won’t have to pay it later. So your Roth IRA type accounts, your Roth 401K type of accounts, Roth conversions. A lot of people don’t acknowledge the difference between a Roth 401K and a Roth IRA with a Roth conversion. A Roth conversion is a simple choice by a tax that says, Hey, I have money in this other bucket, the tax deferred bucket. And I want to convert it to the tax free bucket. You can choose at what amount, at least under current law, always the disclosure. You always have to check current law. So whenever you’re listening to this, make sure you just double check the laws haven’t changed. That’s just a good rule of thumb in anything to do with taxes, because things do change frequently. And especially right now, as we’re recording this, they are talking about making changes to Roth-related items. So just double check, if you’re gonna do something with your advisors and your professionals, that the laws haven’t changed and you can and still do that because you don’t want to get caught doing something that’s not allowed because they’re not very friendly in the retirement space when you do something wrong.

Michael Port (00:42:00):

The key concept seems to be here is that you’re paying the taxes now, but then you’re gonna take that money and you’re gonna find a way to make it work for you to invest it, to grow it. This is not paying the taxes now and then buying a jet ski.

Matt Rzepka (00:42:13):

Yes, correct.

Michael Port (00:42:15):

Just paying normal income tax and then you spend the money it’s been consumed and it’s gone. The idea here is okay, let’s pay the tax now and then let’s see if we can grow it so that when I want access to that capital, I’ve received significant gains on it, but I don’t have to pay taxes on those gains because I already paid taxes on when I first made this investment.

Michael Port (00:42:36):

So you mentioned the Roth IRA and you mentioned the Roth 401K, very similar, just different size vehicles. One’s an individual retirement account. The 401K is connected to a business, but it can be a Roth or a traditional.

Matt Rzepka (00:42:51):

Yep.

Michael Port (00:42:51):

Right. Which is a little confusing for people sometimes like, wait, I…so it can be a Roth 401K or a traditional 401K. And a traditional 401K means you are deferring the taxes until later when you access that money.

Matt Rzepka (00:43:03):

Correct.

Michael Port (00:43:04):

At retirement age, but in a Roth 401K, you’re paying the taxes now, money goes in and you don’t have to pay any taxes when you access that money later in life. And you mentioned the Roth conversion, and that’s taking money that was in a 401K or a traditional IRA and then selling it and moving it into a Roth account. Paying the taxes now, but then keeping it invested. So you don’t have to pay in the future. Is that accurate?

Matt Rzepka (00:43:32):

Yes. With one correction, you don’t actually have to sell what’s inside the account always. Sometimes you do. It depends on where you’re moving the account from. But if let’s say you’re at Vanguard and you wanna stay at Vanguard, they’ll let you roll in kind what investments you have inside of that IRA over to the Roth IRA sometimes. So it just depends. But yes, you’re basically moving that money from one tax classification to another.

Michael Port (00:43:57):

And the in kind concept is really important because essentially let’s say you have that money in a total stock market fund at Vanguard. What it sounds like you’re saying is you can move it from the deferred vehicle, which say is a maybe a 401K or an IRA in a traditional sense where you are not paying the taxes upfront. You’re paying it later. You can just take that same exact amount of capital that’s invested in that particular fund. And you’re just moving that in kind, same number of shares of that particular fund to a different type of account, which is a Roth account. You have to pay the taxes on it, but you don’t pay any taxes later on. So you’re not selling it. You’re just moving it in kind into a different type of account. Did I get it?

Matt Rzepka (00:44:41):

Yeah, almost retitling it. You’re just changing the ownership classification from an IRA to a Roth IRA and then on a Roth 401K, one, one thing to remember there, because a lot of people miss this, the Roth IRA you’ll hear a lot. Oh I make too much to contribute to a Roth IRA. So I don’t do a Roth. Well the Roth 401K does not have a income limitation currently, so you can make any amount of income and you can contribute to a Roth 401K. So that’s an important distinction to remember.

Michael Port (00:45:08):

And of course the 401K contribution limits are much higher than an individual retirement account.

Matt Rzepka (00:45:13):

Yes.

Michael Port (00:45:13):

So that’s, you know, obviously something you’d wanna shoot for to try to max out these accounts if possible for most people, not for everybody, but for many people. And so what else, there’s also the Roth backdoor contribution. Is that too complicated to discuss now? Or is that something we should address?

Matt Rzepka (00:45:30):

I can hit it quickly. I mean it is basically if you are not allowed to do a Roth 401K because employer doesn’t offer it and you make too much money to, to do a Roth IRA, there’s a way to do, what’s called a non deductible IRA contribution and convert it to a Roth and get the same treatment. The one thing when you’re doing the backdoor Roth contribution and again, this is something that’s on the chopping block right now. So if you go to do this at some point in the future, just make sure it’s still there. But right now it’s still there. The one thing you have to watch out for you can’t have traditional IRAs. If you’re gonna do a backdoor Roth contribution, because there’s a tax trap there. You’ll end up paying taxes that you didn’t wanna pay. I’m not gonna explain how it works. Just make sure you know, that you don’t have IRAs or ask that question. We’ve had a lot of people that have come to us with, Hey, we did this Roth backdoor thing and was never explained to them how the IRA impact worked. And then they had to pay some tax that they weren’t expecting.

Michael Port (00:46:26):

What if your spouse has IRAs, but you don’t. Can the spouse who doesn’t have them do a Roth backdoor contribution even though their spouse has IRAs?

Matt Rzepka (00:46:38):

Yes. Because the IRAs are individualized. If your spouse does have the IRAs, definitely do not do the backdoor Roth for the spouse, but you yourself with no IRAs could do that with no problem.

Michael Port (00:46:51):

Fantastic. So what about bonds and life insurance? Because those are two additional strategies for eliminating future taxes or reducing future taxes. So can you talk about tax free bonds first

Matt Rzepka (00:47:03):

Tax free bonds. There’s a variety of these available. Municipal bonds is another reference for these. So you can go out and get favorable federal tax treatment by purchasing these specific bonds. So they’re just not subject to tax the interest coupons. So if the interest is paying 3%, 4%, 5%, whatever it is, you do not have to pay tax on that. And it’s just a great way to get some tax free income. The one thing with tax free bonds that is something to keep in the back of your mind is the credit worthiness of the municipality. We have this environment today where we’ve got a lot of debt and money printing going on at the federal level, but state and local governments can’t print their own money so they could get into money problems easier than the federal. So it’s just something to remember if you’re in what I call the muni bonds base. And then life insurance is another way where you have cash values inside of a life insurance contract that grow tax deferred and have access tax free in the form of loans. So that’s another way we talked about loan proceeds before. That loan allows you to have access us to those dollars without having to pay tax on the use or deployment of that capital.

Michael Port (00:48:14):

Alright, fantastic. I love this because this is just so right in your wheelhouse, you could talk about actually you do talk about this all day long. That is actually what you do.

Matt Rzepka (00:48:23):

All day, every day.

Michael Port (00:48:24):

Every day. So let’s talk about reducing current taxes.

Matt Rzepka (00:48:29):

Yes.

Michael Port (00:48:29):

Where should we start? How does this work? What should people do

Matt Rzepka (00:48:34):

Right now with the way the tax law is set up? One of the most common calculations and discussions we look at is does a corporate structure complement to your current business operation make sense? So let’s say I’m running an S corporation for my speaking company, what income level am I at? How many tax brackets have I filled up? And let’s say, I’ve gotten into the 32%, the 35% or the 37% tax bracket. There are ways to set up corporate structures to help compliment and spread out. You could either take your whole company to a corporate structure or you could do a combination structure of an S Corp and a C Corp together to help control that income so that your personal income ,hopefully, is staying at or below the current 24% bracket. And then the remainder income in your C corporation would be at 21%. So we go from being a 30 high, 30% tax bracket range to keeping all of our income taxed in the twenties. That’s a pretty significant improvement. So that’s one of the more popular strategies right now. And then another one is really payroll taxes with the S Corp world and looking at what salaries you have, what salaries are required, what level of payroll taxes you’re paying, and is there some strategies there to reduce some of that exposure?

Michael Port (00:49:52):

So I’m gonna just jump in and highlight the corporate structures strategy because this was a game changer when we started working together. And in fact, I think I mentioned this in an earlier episode, but one of the things that we had been discussing as we were getting to know each other before I contracted with you and we started you actually and working on all of our taxes was this concept of adjusting the entities to take better advantage of the tax code. And I took that idea over to my accountant and presented it to him and he’s like, oh yeah, you could do that. And I said, well, why haven’t you suggested that we do this? He’s like, well, I don’t know. You know, it takes time and it’s, you know, it a little complicated and I was like, okay, that’ll be it for us.

Michael Port (00:50:38):

It’s definitely not me. It’s you? And I’m breaking up with you. And uh, then I called you and I was like, Matt, let’s go. Let’s do it. But it really is important to understand that there are many ways to approach your tax planning and a really good CPA is going to consider your situation specifically. But if you are going to somebody who’s kind of just working through everybody’s taxes, like a factory, or a mill, just sort of trying to run the processes and do everything the same way. Now, then you may not get the kind of individual treatment that you need. And the kind of business owner you are often requires more individual treatment.

Matt Rzepka (00:51:20):

Yeah.

Michael Port (00:51:21):

We are unusual business owners. We’re not like every other business owner. I mean, we’re the same problems that every business owner has and the wins, you know, like there’s a lot of similarities of course, but we are less traditional most of us. And I think that’s why you need somebody who really understands this stuff.

Matt Rzepka (00:51:37):

Yeah. And the expectations are just so backwards from the accountants and CPAs and the client. The client has the expectation that if you have a good idea for me, you’re gonna come tell me about it. And the CPAs and accountants, I always use the 80/20 rule, but 80% of the accountants out there are expecting you to come to them and say, Hey, I wanna do something different. They’re not really bringing you strategies. And if you say, Hey, I heard about this or I can do that. Oh yeah. We can do that or no, no, you can’t do that, but they’re not really proactively. Now this is starting to change in the industry more. But when I first started doing this, you know, I said 80/20 rule. It was like 98% 2%. There was only 2% of the people doing tax planning

Michael Port (00:52:17):

And only the super or the uber wealthy were getting them. I think that’s one of the things that’s really nice.

Matt Rzepka (00:52:24):

Yeah. Super top clients or super wealthy. And now the one thing to be careful of is you have a lot of people getting into the tax planning space that aren’t CPAs.

Michael Port (00:52:32):

Yeah.

Matt Rzepka (00:52:33):

So just be careful and cautious. Not that they’re doing a bad job, but you just wanna make sure that you’re confident in what somebody’s bringing to you because you start hearing about strategies and then everybody wants to try and make it something that it’s not or start doing something that you shouldn’t be. So you have to have a level of, of conservatism around just general questioning. Alright. Does this work for us? And, and does this fit?

Michael Port (00:52:55):

Yeah. It’s one thing to get tax planning advice from an experienced and sophisticated tax attorney. It’s another thing to get advice from a financial advisor around your taxes. They may have some good ideas, but they need to be run through your CPA to make sure that, you know, you’re not doing something that seems kind of sexy, but may actually not be legal or it may be legal but if you don’t cross every T and dot every I you’re gonna be in for a world of pain. And I can speak for myself here. I remember being pitched pretty aggressively a number of years ago, some investments slash tax savings strategies using what’s called a captive insurance company.

Matt Rzepka (00:53:41):

Yep.

Michael Port (00:53:41):

And absolutely a captive insurance company is incredibly useful for companies that need to self-insure in some way. That’s the point of the captive, but they also can be used to shelter a fair amount of income, but only for very certain people only at certain incomes and definitely not the first line of defense. They’re very expensive and they’re very complicated and they can be a red flag to the IRS. Matt, before we go on to some additional strategies for reducing current taxes, I just want you to address some of the things that people may hear, or they may get pitched like a captive when in fact they may not be ready for it. It may not be appropriate for them. And it may even in fact be just a little bit questionable from an IRS standpoint, whether or not they should even be in that in the first place.

Matt Rzepka (00:54:31):

Yes. This is a great item to talk about compliance and what fits and what doesn’t and who’s pitching and who’s managing. Because captives can be completely DIY, do it yourself. If you’re a DIY captive, you better be ready for a world of trouble because there are lots and lots of compliance components to a captive. They are fantastic vehicles. They work great in the right situation. But see what a lot of people do again, especially non CPAs will come out and they’ll sell you on the tax benefits only. It’s a risk tool as well. It has costs, it needs audits. It needs actuaries. It needs all of these different things to happen. And if you’re in a captive and you’re not doing those things, then you wanna reassess. We actually helped someone exit a captive that just scared the Dickens outta me here just this past year, they said, oh, we can put between $50,000 and $2.2 million in our captive. And I said, well, what was your actuarial study? What’s an actuarial study? And, and this isn’t the client. This is the person who was running the captive. Those things make my skin curl, especially in the world of captive, which the IRS watches and administers audits on those on a fairly regular basis. Now an audit isn’t something thing to be scared of if you’re doing it right, but if you’re doing it wrong, it can be pretty ugly.

Michael Port (00:55:52):

So we hit corporate structures for reducing current taxes. Payroll tax reductions. What are some of the other strategies for reducing current taxes that we can employ?

Matt Rzepka (00:56:03):

Yes. I kind of have a trifecta of three here that I like to talk about that I lump together because I really feel like they can apply to a lot of people. So this would be three strategies to think about for yourself. So one would be, you know, family or children strategies and putting family members to work inside your business and making sure you’re maximizing different tax brackets and different ages. Something called the Augusta Rule or the 14 Day Rental Rule is another great one. And I’ll explain these as I get through ’em. And then the third of the trifecta is HSAs or health savings accounts.

Matt Rzepka (00:56:36):

So the family strategies is really hiring your kids, hiring a spouse, hiring a parent. You know, you all have different tax brackets. You all have the ability to fill up tax rates and tax brackets differently. So it can help you disperse work and help the family at the same time. The more common way would probably be hiring your kids. There is a lot of tax legislation around what age you can start doing that, which is usually around age seven. And again, in the tax world, there’s exceptions to every rule. So there are ways you can hire children before age seven, just think about child actors. Child actors get paid before they’re age seven. There’s just a lot of extra hoops to jump through if you’re putting your kids to work in your business before age seven. So just be aware of that. One of the things is the social security administration is gonna pepper your mailbox with mail to make sure nobody’s stolen your child’s identity. That’s the one thing they’re concerned about is that somebody’s trying to take your kid’s social security number and do something with it that isn’t appropriate.

Matt Rzepka (00:57:36):

The Augusta Rule. This is a pretty fun one where you can rent your personal residence or other real estate for up to 14 days and receive rental income and not have to pay tax on that income. So this was actually generated from some congressional leaders back in the seventies who were fans of golf and fans of Green Bay Packer football. So back when the NFL was 14 games and then the, Augusta Golf Tournament is every year in the spring, typically. They said, Hey, all these wealthy professional people are coming to our cities to either watch football or watch golf. How about we be able to rent our house and not have to pay tax on the money? So they put this bill through it got passed and, and here we go. So now those rules exist. And it’s kind of weird how some of that stuff ends up happening.

Michael Port (00:58:22):

I don’t think it’s weird. I just think it’s the world in which we live.

Matt Rzepka (00:58:25):

Yeah.

Michael Port (00:58:26):

One dude is like, Hey, I think I can do something special for my friends around the neighborhood.

Matt Rzepka (00:58:31):

Yes.

Michael Port (00:58:32):

‘Cause I’m important. And then, you know, they get this slipped in there. Nobody else is really paying attention. Nobody cares. They’re like great. And I think the people that are probably benefiting from this are probably very wealthy folks with very big homes on large pieces of property.

Matt Rzepka (00:58:45):

Yeah.

Michael Port (00:58:45):

In that particular area. And uh, most people wouldn’t even know that this was an option.

Matt Rzepka (00:58:51):

Yeah. And with that situation, like, especially in Augusta, Georgia, you know, if you’re using this inside your business and with your personal residence or some other piece of property that you own, you have to be conscious of fair value rental. But if you’re renting to a third party, which what they’re doing, a professional golfer, well, heck I can charge $25,000 for the 14 days. And you know, not $5,000 because $5,000 might be a true fair rental, but a professional might be willing to pay a premium. So again, if you ever were to encounter a situation where you could do that again, there’s a way to make tax free income if that ever becomes something in your wheelhouse.

Michael Port (00:59:27):

Yeah. But the rest of us, you know, we can rent it at a fair market value.

Matt Rzepka (00:59:31):

Yes.

Michael Port (00:59:31):

For those number of days, you could rent it to your own business.

Matt Rzepka (00:59:34):

Correct.

Michael Port (00:59:35):

Then you don’t have to pay taxes on that personal income for the rental of the property.

Michael Port (00:59:39):

Let’s just jump in back to the family and child strategies for a quick sec, because I just wanna give an example of how powerful this can be. This is something that you taught me how to do. We’ve got three kids, two of them work for the business and we’ll do a whole myriad of different things from working at events to labor type activities. You know, using the, our muscles move furniture around. Like this weekend, I’ll take Jake over to HPS HQ because the stage is a foot off the ground and we need to go under it to tighten up some of the legs and some of the screws and things, and Amy can get under there, but she’s not strong enough to actually torque the things enough.

Matt Rzepka (01:00:21):

Ah.

Michael Port (01:00:21):

I’m strong enough to torque the things, but I can’t get under there. But Jake is both. So Jake will come and do that. But Jake gets paid and Ruby gets paid through payroll. And you know, because the individual exemption is up to $12,000, they don’t have to pay taxes on the first $12,000 that they make correct?

Matt Rzepka (01:00:38):

Correct. Yep. That standard deduction.

Michael Port (01:00:40):

Yeah. So what that allows us to do is invest a portion of that money into a Roth IRA.

Matt Rzepka (01:00:48):

Yep.

Michael Port (01:00:48):

Because they are now eligible to invest in a Roth IRA because they have earned income. If you don’t have earned income, you can’t invest in a Roth IRA. Or if you have too much income, then you’re prohibited from investing in a Roth IRA. But for them, this is incredible because they’re in high school. And then because that money’s not taxed on the front end for them because they get the exemption, then they put it into the Roth, the money won’t be taxed on the back end when they take the money out either.

Matt Rzepka (01:01:15):

Correct.

Michael Port (01:01:16):

So it’s a really very effective strategy. And even better is that you can use Roth money for qualified education. If you want to without paying penalties. Now, because if you take money out early of an account, often that’s a retirement account. You gotta pay penalties and taxes. If it’s tax deferred and you don’t pay taxes if it’s in a Roth, but you gotta pay penalties for taking out earlier, unless it’s for qualified education. And I think there are some other strategies that people use to get access to that money earlier. And I think they’re a little bit more complex so we won’t go into that now. You know, if they wanted to retire earlier, there are some ways to get some access to that.

Matt Rzepka (01:01:52):

Yep.

Michael Port (01:01:52):

But this particular strategy is so effective and what it does is it teaches them how to invest.

Matt Rzepka (01:01:59):

Yes.

Michael Port (01:01:59):

So when we sit down and do the budgets with the kids, we also go over their investments, both in their Roth accounts and also their own brokerage accounts because they each have brokerage accounts that they put money into on a regular basis and they love seeing it go…I mean the great thing is, is that the market’s been so helpful for our education process because they’re still young. They’ve been doing this for a number of years, but the years they’ve been doing it, the market has been really on a tear. So it’s not like the, for the last couple years they just see their money going down. They see it going up so that, that’s just lucky that they’re at that age when the market has been really productive. But that strategy is really effective. If you’ve got your own business, and you’ve got kids that are of working age, this is a no brainer.

Matt Rzepka (01:02:42):

Yeah. So much good education. So many good things from using that strategy. Not only financially, but just from life lessons and things they want to know. And they live through the COVID dip too. So they start to get used to what it feels like when the market’s going down, but then they’ve seen how the market comes back up and they start to learn about those cycles. And there’s just, there’s so much good education in putting that strategy to work that I highly recommended if you’re able.

Michael Port (01:03:07):

So let’s talk about the HSA, the health savings account. ‘Cause you mentioned that. What is the health savings account and who is it right for?

Matt Rzepka (01:03:15):

Yes. The health savings account is a component of your medical insurance that if you have a high deductible health plan, you’re allowed to contribute additional dollars to this special account and you get a tax deduction for making a contribution. Then if you spend the dollars in that account on qualified medical expenses, you do not have to pay taxes on those distributions. So I got a tax deduction, I put it in an account and then I spend the money and I don’t have to pay taxes on it. So it’s never taxed money. It’s a really good way to help defray some of your medical costs because most of the other medical deductions that exist in the tax code, most people don’t get to take advantage of because there’s income restrictions that are just kinda silly. So if you’re looking for a way to make your medical cost more efficient, this is a great way to do it.

Matt Rzepka (01:04:05):

And you can take a long term, play with an HSA, make contributions over time and not spend the money. Even though you may have medical expenses happening, you could choose to pay the medical expenses out of pocket. And at any point in the future, you can always reimburse yourself for having paid those medical expenses personally, still on a tax free basis. But if you build that account and can grow and invest it, you can start to get this really big pot of medical funds to help hopefully balance out what medical needs you might have in the future. And then worst case scenario. If you get to a certain age, I believe it’s at least age 65, you can turn it into an IRA and have it be taxed if you don’t end up using it for medical. So there’s a lot of good flexibility built into the HSA right now.

Michael Port (01:04:53):

It’s important to recognize that the health savings account is an account in which you usually invest the money that you put in. But if you’re investing that in either stocks or funds, index funds, mutual funds that are very risky, you might lose some of the money you put in there. But if you’re taking a long term play on it, you should see gains over time. And it’s generally considered typical to have more medical expenses when you are older than you do now. I mean, you may have a life, you know, real serious illness at this point. But for most people when they’re older, eighties, nineties, that’s when all of a sudden you’re starting to see some really big medical bills that might fall outside the scope of Medicare or even if you have a second insurance to back up Medicare. And then that’s a great time to use that money and not have to pay any taxes on it, but you’re just saving it all through these years.

Michael Port (01:05:51):

That means in the meantime, you’d have to pay out of pocket for any additional medical costs that you have, and that might be a substantial amount of money because to use an HSA, you need a high deductible plan. And not even all high deductible plans from my understanding actually allow you to use an HSA. There are some that may not. So you gotta make sure that you’re choosing a plan that is a high deductible plan. It has the HSA option available and that you are willing to pay out of pocket because you’re gonna have to reach that deductible before you start getting coverage and the deductible could be substantial.

Matt Rzepka (01:06:31):

Yeah. You always wanna do, I always say the math problem or the cash flow analysis. Hey, if I have a non HSA type plan and I paying premiums and paying outta pocket X amount, what would it look like if I flipped the switch to an HSA, I saved some taxes, but I’m gonna have some more expenditures? You wanna try and get a net gain there. If you’re gonna switch to an HSA, you always want to have the least out pocket exposure as possible. But if your tax savings can help reduce your exposure, that’s where it might make sense to make that change.

Michael Port (01:07:00):

You also need to be diligent because you’ve gotta keep records of all of your medical expenses. Because if you don’t have records, if you don’t have receipts…

Matt Rzepka (01:07:08):

Yep.

Michael Port (01:07:09):

Then you might go, you know, 10 years from now, you may wanna say, okay, I’m gonna use this money to pay for all of the expenses I’ve had over the last 10 years. Because I think you can do that. You can reimburse yourself for past medical expenses. That’s correct, Matt?

Matt Rzepka (01:07:21):

That is correct. Yep.

Michael Port (01:07:23):

I just don’t wanna say anything that’s you know that’s wrong, but.

Matt Rzepka (01:07:25):

No.

Michael Port (01:07:25):

But if you don’t have the receipts, you’re outta luck.

Matt Rzepka (01:07:29):

Yeah. You really just need to make sure you’ve got proper documentation. If you’re not a good documentation person, then that kind of a strategy might not be best for you, but there’s a lot of great automated tools to get some of that in your files and kept track of so that you can take advantage of this, especially if it’s gonna make financial sense.

Michael Port (01:07:46):

There’s one more thing that I want you to speak to because we did this a couple years ago and it was a really effective strategy. It was when I bought our truck and I called you up, I’ll call you for almost anything. I was like, listen, I’m working on this deal for the car. You think it’s a good deal? Should I do this? Or I should do this. What’s the deal. I’ll be in the parking lot of the dealer and I’ll call Matt, what do you think? You’re like, no, no, that’s not good. Go for this. I’m like, okay. So anyhow, I called you and I was just, we were talking about this particular purchase because we needed a truck and you said, oh, here’s what you do.

Matt Rzepka (01:08:19):

Yeah, it’s this fantastic little loophole that has existed now for quite some time, what we call the SUV loophole. And it is a way to purchase a vehicle that weighs 6,000 pounds or more gross vehicle weight for your business and take an accelerated depreciation deduction on the purchase of that vehicle. So accelerated depreciation. So depreciation is how you take an expense for an asset. So the government says, Hey, this car, it’s not gonna be completely used and worthless after the first year we have wanna make you take that a expense over time. But from a tax perspective, we’re gonna give you special treatment if you elect to take that deduction or that expense all in the first year. So this is, this is pretty popular now. It’s been around for, I think going on about 15 years, it used to be limited to only $25,000 of the purchase price. And then as the depreciation laws have continued to be expanded, this law was also part of that expansion to where then there’s no limit. And then there’s, you can do it on new or used. Now you can do it with bonus depreciation. So there’s all these great things in there. If you’re interested in taking kind of a one time deduction for a business vehicle purchase that’s an SUV. Now with this, there’s always a catch when it comes to depreciation…

Michael Port (01:09:40):

And it needs to be a business purchase, correct?

Matt Rzepka (01:09:42):

Yes. So you want to have a business use percentage of some sort. You always want to have a mileage log if you can, but you have to factor in what the business use versus personal use is. And that’s always part of that equation. And also it depends on how many vehicles you have. If you have a vehicle that could be used for personal, you might be able to have a vehicle that’s just for business. Like I’m personally actually living this right now. I just bought a new vehicle for myself that is 100% business. It’s a vehicle I added to our vehicles for home. So I’m gonna have new drivers in the near future. So I just decided to use a vehicle that I wanted to drive as a way to help increase our fleet for when my daughter starts driving. But I’m driving this vehicle strictly for business. So I’m keeping every mile logged. I’m not doing any trips that aren’t for business and I’m gonna take a hundred percent of the purchase as a write off using this loophole.

Michael Port (01:10:37):

Nice. So Matt, as we start to close up this episode, because we’ve been talking for far too long about taxes, what would you say is fundamental to your philosophy on your approach to taxes?

Matt Rzepka (01:10:51):

Know your numbers and make sure that somebody is looking for opportunity. I’m not sitting here saying you’re gonna pay zero taxes. And again, I don’t know that you should, there are people out there who pay zero taxes, but you have to live a completely different life with risk and loans and stress to do some of that stuff. That, to me, it doesn’t seem worth it. It’s more about systematizing your approach, making sure you understand the tax code and what of it you can take advantage of and then save that money and try to put it to work for you or grow your business or help save for your retirement. Other things of that nature.

Michael Port (01:11:28):

Nice. And the thing I’d like to add is that this is just a bunch of information that you can learn. It’s like anything else you’ve learned over the course of your life, but we generally don’t learn and hold onto things that we don’t need at the moment. That’s why sometimes it can be challenging teaching kids about things like this. Like if you sit down and wanna teach kid about a mortgage, unless it just happened to be somebody who’s fascinated by mortgages, it doesn’t seem relevant to them. So it’s very hard for them to learn it because it’s not important and it’s just not gonna stick. But as things become more important to you, it gets easier to learn about them because you now have real world applications that you can apply the learning to. So you do just in time learning. We only need to learn what we need for the moment and probably the next few days or weeks.

Michael Port (01:12:25):

And that’s wonderful because we can apply the learning quite quickly. It’s really just, I think comes down to how important it is to you. I’m not a math person. I’m comfortable saying that because I’ve really studied math a lot over the years and it just doesn’t come to me particularly easily. But I’ve figured out what I need to know in order to set up the family for what we wanna do now and into the future. If I need help with the math, I ask Amy, and if we both need help with the math, we ask Matt. If I need to spell something, I’ll call my mother, how do I spell this mom? Before the internet. That is exactly what I did. I was in college. I’d call my mom up, say, how do you spell this? I’ve got a paper. I can’t figure out how to spell this word.

Michael Port (01:13:04):

She’s like, have you heard of a dictionary? I was like, yes, but you know you like when I call you to ask for help. She’s like, I know I’d rather you call me. So if you have some people in your life who have experience with this and can help guide you, it really does make a big difference. But what I would recommend avoiding is thinking, oh, I’m gonna find somebody that I can just dump this on because look, I’ve got Matt who I think’s the greatest in the world, but he doesn’t sit down and do my personal budget every weekend. That’s not his job. If I wanted him to manage all the money he would, but I’d still have to understand it and work with him on it on a regular basis. But I do that myself. And so I have to learn about that.

Michael Port (01:13:47):

But when I have questions, I ask Matt. So you gotta have those people in your life, but they’re not gonna do it all for you because they have other things to do. And I just think abdicating this responsibility doesn’t feel good.

Matt Rzepka (01:14:02):

Yeah.

Michael Port (01:14:03):

You can certainly delegate certain aspects of it. Like obviously I delegate all the tax planning to Matt, but we meet on it. We discuss it, do it together. But I’m not gonna learn how to actually file my complicated taxes. There’s no need to do that. The amount of time it would take to learn versus the amount of money it costs to have Matt do it is way outta line.

Matt Rzepka (01:14:24):

Yeah.

Michael Port (01:14:24):

Right? So it’s much cheaper to have that.

Matt Rzepka (01:14:25):

Well, and the Internet’s a great thing. You know, you mentioned internet about spelling words, but when it comes to finance, one of the main roles from whoever you’re talking to or working with, Hey, I found this on the internet and it seems like a great idea. Where’s my third party verification? Like, is this a good idea? Can I do this? Is there any pitfalls? Because again, the writer of that article might be steering you one way for one reason and having a confidant of some sort to bounce stuff like that off of, because again, there is a lot of great information on the internet, but there is also some information that’s maybe not so good.

Michael Port (01:14:57):

Yeah.

Matt Rzepka (01:14:57):

So you wanna just have a way to balance that and say, how does it work or fit for me?

Michael Port (01:15:01):

Yeah. They might be just wrong, not even just, they’re trying to steer you in one way. They might have no conflict of interest, but just maybe dead wrong. Or it really applies to their situation because of this specific thing. And they don’t articulate that. And as a result, it doesn’t actually apply to your situation. So I do think having somebody who you can trust that’s a fiduciary, even if you are paying just for the time you spend with them, it can be incredibly valuable. Because it just makes sure that you stay on your path, but it does start with goals. Where are we going? What do we want to do? How are we gonna get there?

Matt Rzepka (01:15:38):

Yep.

Michael Port (01:15:38):

And then you can start looking at what steps you’re gonna take. So it’s a big topic and we covered a lot. I hope it was helpful for our listeners. Matt. I just thank you so much for spending all of this time. I mean, this is, this is a lot of time. Did you enjoy your time here on the podcast?

Matt Rzepka (01:15:53):

I loved it. It’s truly my honor. And my pleasure to be here. Love always talking these topics with you and getting in the weeds and having a little fun, but also helping people at the same time. So I hope it was helpful for those who are listening. I truly enjoyed my time and happy to help anyway I can.

Michael Port (01:16:08):

Good. And for folks who have questions, uh, don’t send them to me because I’m not gonna give you advice because I’m not accredited. It’s not my job. I’m not a professional in any way, shape or form, but Matt is. So if you need help, go to Matt. And Matt may charge you for it, but you’ll know you get the right advice and it’ll make a big difference for you long term.

Michael Port (01:16:34):

So that’s it. Thank you so much for spending this season with us on Steal the Show with Michael Port brought to you by Heroic Public Speaking. Give us a rating. A high rating would be lovely. Put in the comments, what you found helpful. What did you learn? What did you discover? And in the meantime, keep thinking big about who you are and about what you offer the world. Bye for now.

The post S4E10 Keeping More of What You Make appeared first on Steal the Show with Michael Port.

You work hard. Very hard. You strive to grow your business and build wealth so that you can create financial stability not just for yourself, but your loved ones.  

On this episode, we talk about what it takes to protect the results of all your hard work—and to keep safe the things that matter most in life. We break down the most impactful strategies for protecting your income, family, and estate.

As Michael says in the episode, there are no guarantees in life. But listening to this episode will help clear up some important questions you probably have about planning for your financial future.

How You Can Steal The Show

• Learn what income protection entails and how you can incorporate it into your financial strategy.
• Explore different insurance options so you know which policies are best for you.
• Write a family playbook that sets your loved ones up for financial stability.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

In this episode…

Resources Mentioned:

• Lloyds of London (7:16)
• 1Password (44:22)
• Identity Guard (47:13)

HPS Design

In today’s ad break you heard about HPS Design. For more information you can click here or email questions@heroicpublicspeaking.com and make sure that “Speakers Site” is in the subject line. (P.S. Don’t forget to mention that you came from the Steal the Show podcast!)

Transcript

Michael Port (00:05):

Hello, and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money and I’m joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make money at all from you adopting any of the educational content you hear on this podcast. My company is Heroic Public Speaking. We’re a public speaking institution based in Lambertville, New Jersey, and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt however, does, and you are welcome to hire him. I do. I will not be compensated however, in any way at all, if you do. I’m doing this podcast purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it.

Michael Port (01:20):

Alright, today we’re discussing how to keep your income, your family, and your estate safe and sound. So let’s get to it. Okay. Matt, as an accountant, I have to believe that financial security is something that you thought about at an early age. Now, I could be wrong. You’ll tell me if I am…or maybe earlier than most at least. So when did you start to first seriously think about the concept of financial security and what it means for you and your family?

Matt Rzepka (01:54):

Yeah, I do think I started thinking about that pretty early. You know, it probably first hit home for me is, you know, the college experience and you’re spending all this money on college. I paid for all my own schooling and I’m like, okay, I’m doing this and am I, am I gonna get a job? And am I gonna make enough money? And you know, thankfully that all happened pretty simply for me when that was going on. And it just kind of got me into alright, well, now I’ve done this, I’ve got these student loans and I’ve got a girlfriend who became a fiancé who became a wife. And now I’ve got, and you know, as all those things start happening, your brain starts to think about, okay, well, what happens if I lose my job back when I was working for somebody or what happens if I pass away or, you know, all these things start coming together.

Matt Rzepka (02:37):

And thankfully in the industry I was in, I was able to learn a lot about that as I was having those thoughts and conversations with myself, almost like, alright, well, what am am I gonna do if? And that’s really what I want to focus on a lot this episode is, well, what do we do if is kind of what to think about? You want to think about what could go wrong. Hopefully it never happens. Hopefully you don’t have to deal with those things, but life has its way of throwing you some curve balls. So I think about this a lot. I want to do things in my own personal life that help me sleep good at night and make sure, you know, what, if I’m not here to see something that everything’s gonna hopefully go as best as it can if I were here to see it through. So those are kind of my thoughts and how I got on this track. And I definitely like to help people feel safe and secure.

Michael Port (03:21):

Yeah, it is important, I think, to feel like your money is relatively secure. That your family is as secure as is realistic or reasonable. And that your business is as secure as is possible. There are no guarantees.

Matt Rzepka (03:38):

No.

Michael Port (03:38):

Ever. I mean, we just had to spend, you know, and still are spending hundreds of thousands of dollars that we did not plan on spending this year because we have to outfit an entirely new headquarters for Heroic Public Speaking, because our 10,000 square foot rental space was totally destroyed during Hurricane Ida. And every, everything that we owned was totally destroyed. There was five plus feet of water in our space, and there were maybe two or three things that were salvageable and they just happened to be metal. But anything else? Gone. Done.

Michael Port (04:14):

So, you know, we did have insurance, but they don’t cover you for floods. So none of the insurance covers us. So, you know, that kind of sucked, but because we are fiscally responsible, we are able to manage that situation and to carry on and continue to thrive. With your family you can do everything in your power to help keep them safe, but ultimately kids are gonna be choices kids do. You can’t control everything that they do, even though you’d like to. You can’t always control every aspect of your health and the same thing with your money. You might not always be able to control exactly how much money you make. You might not always be able to control exactly what the market is or isn’t doing, but we wanna do as much as we possibly can to try to create more safety and security for our money, our family, and our businesses. Financial security is just simply a way to protect what you love.

Michael Port (05:12):

So in this episode, we’re gonna talk about a few key steps that you can take toward financial security. But I do think it’s important to note that this will not be an entirely exhaustive discussion, because there are probably hundreds of other things you could do to financially fortify yourself. But just to keep us focused, Matt and I are going to focus on the most common and impactful or important things that you can do to keep your income and your family, and your estate safe and sound. So Matt, let’s start with income protection. How do you define income protection?

Matt Rzepka (05:46):

Income protection is if for some reason you lose the ability to work and make money and earn income. That means you’re gonna have to figure out a different way to pay your bills. What is a short term loss of income earning ability mean? What does a long term loss of income earning ability mean or otherwise referred to as disability? And that’s the industry term that is used out there quite a bit.

Michael Port (06:10):

Yeah. And so both Amy and I have disability policies. If something happens to one of us, we’re either disabled in the short term or worse, disabled in the long term, we need to, at this point in our life, protect the income that we make. Now, there will be a point where we will drop our disability coverage, most likely, because we won’t need it anymore. But for what we get, I think even though most disability insurance is pretty expensive, I think it’s a pretty good deal. I mean, I feel much more secure having this kind of disability policy. And it’s important I think for speakers to know, and maybe we should address this, that they may need to get special policies. It’s not always really easy for underwriters to understand what a professional speaker does or an author who speaks.

Michael Port (07:04):

So for example, when I got my disability policy, it was a long time ago, so it was before really HPS was HPS when I was on the road speaking, et cetera. I had to get insured through Lloyds of London on what is referred to as an Entertainer’s Policy that usually is written for sports figures and artists, well known artists. That was really the only way that I could get the kind of coverage that I needed for the amount of coverage that I needed. But that might not be the case for everybody, Matt. So what about most speakers? Are they gonna need to get policies that are a little bit more specialized or through a company that specializes in those kind of policies? Or do you think some of the typical players would quickly or easily ensure for disability short term and long term speakers like our audience?

Matt Rzepka (07:55):

Depends on specialty. Depends on income. Also depends on, you know, oftentimes there are organizations or groups where you can get group coverage. You know, my personal example on that is with being a CPA. We have CPA societies at both the state and national level where they offer group plans through those societies. So you can get combinations of approaches because a group plan is almost always less expense than a personal plan. But the group plan is very, here are the cut and dry rules and this is the way, and this is the maximum you can get. On a personal plan through a direct carrier, not all Lloyds of London or maybe just a, a standard carrier in the marketplace, you can get a lot more customization. And then if you have a specific additional item that if were to lose your voice as a speaker or some of those things, that’s where really kind of Lloyds comes in to make sure you can get that really extra value out of if that bad thing happens.

Michael Port (08:49):

One of the things that’s interesting, what you just said is that you could combine plans. You could actually have a few different disability plans and each one of them may be smaller than you would need, but in the aggregate they end up covering what you would need if you were in fact to be disabled in some way.

Matt Rzepka (09:08):

Yeah. And really you don’t know exactly. You wanna look at basic expenses. If you’re disabled, you might not be able to live the lifestyle. Different forms of policies can provide different components of that. And then you also may be able to do social security disability through, you know, a government program, but there’s a long waiting list and that can take time. And usually if a disability happens, there’s a lot going on in your life at that moment. So you want to have that short term plan of, okay, how do we get through this in the moment, but then how do we have a consistent income long term if it does end up being over the long period?

Michael Port (09:43):

So Matt, can you just talk about the different tax implications of disability policy because they’re taxed differently or the income that you get from the policy if you make a claim is different. If it’s own personally or it’s owned by the business?

Matt Rzepka (09:58):

Yes. The simple way to think about the tax components of disability is if the benefit you were paying for was tax deductible. The income claim, if you have a claim and receive income is gonna be taxable income. If you took your premiums and you paid them with after-tax dollars, meaning you didn’t take a tax deduction, then that income from a claim is going to be tax exempt. So you wanna understand those decisions when you’re making them, this is a, a big conversation with business owners because oftentimes business owners are wanting as many deductions as possible. But when you look at the true outcome of a disability, you’re likely gonna need every dollar that you can get. So I really try to encourage people to take the after-tax approach. Then if you have a disability and have a disability income claim, you’re gonna get a hundred percent of those dollars to use for whatever you’re needing to pay for at that time.

Michael Port (10:48):

Especially because if you do go on disability and you don’t have income from your business anymore, but you have a large enough policy to really cover all the income that you were making and all the needs that you will have if you’re disabled, because my expectation is that your expenses aren’t necessarily gonna go down. If you’re disabled, you might need a lot of really special care equipment or services, et cetera. And of course your partner or your spouse may need to also care for you, which means that may interfere with their ability to produce income or focus on their work for a period of time. And so what might happen if you have a large claim, it may keep you in a high tax bracket because it’s a little harder to find deductions through the business, because it’s not coming through the business. So it’s really, I think, beneficial to not have to pay taxes on that income, if you are disabled. That’s just my personal preference. I like knowing that that number is what I’m gonna get and is gonna be tax exempt.

Matt Rzepka (11:56):

Yeah. I concur. That’s always the direction I recommend. It’s everyone’s own decision, but you wanna understand that you’re actually statistically more likely to become disabled than you are to pass away prematurely. So again, statistically, you have to remember, alright, what game am I playing?

Michael Port (12:11):

Yeah. Although, you want some really interesting statistics that are incredibly depressing? That a good lead in? Good setup?

Matt Rzepka (12:19):

That’s perfect.

Michael Port (12:19):

I’m sure you’re like, yes please. What are they?

Matt Rzepka (12:21):

Yes, please. More.

Michael Port (12:22):

All right. Well this is from, I think it was the Wall Street Journal today. COVID spurs biggest rise in life insurance payouts in a century.

Matt Rzepka (12:31):

Oh wow.

Michael Port (12:32):

Death benefit payment jumped, get this, 15% last year. The biggest increase since the 1918 flu epidemic.

Matt Rzepka (12:41):

Wow.

Michael Port (12:42):

So do you think that means we’re gonna see higher rates for life insurance in the near term?

Matt Rzepka (12:47):

Most likely.

Michael Port (12:49):

I would think so because you know, they’re not in this for our benefit.

Matt Rzepka (12:52):

Yeah.

Michael Port (12:52):

The life insurance company just need to make up that revenue somehow. And so if, you know, if their tables change and more people are dying, they’re gonna be raising the prices for everybody. So go get your vaccine and don’t die. Okay. Just had to add that in there.

Michael Port (13:07):

Alright. So let’s talk a little bit about family protection. What do you think a typical speaker’s family would need in order to protect the family?

Matt Rzepka (13:17):

Certainly not an all inclusive list here, but a lot of things you can think about from a protection perspective- creditor protection, you’ve got income protection, you’ve got premature death protection, litigation protection, tax protection. What if you do a accumulate a mass amount of wealth and the government wants to reach in your pocket and take some of that from your kids, you know? Understanding what some of those formulas look like. And there’s, there’s a lot of protection things that you have to prioritize to say, okay, how can we do this one at a time? And what are the ones that are most important or that would be the most detrimental if you don’t address them? You know, life insurance, as an example, term life insurance is extremely affordable and premature death is one of the hardest things on a family if you don’t have life insurance. And I tell you, you know, that’s one of my personal goals is to make sure we have that conversation with everyone because I never want to be in a meeting with the survivor or a survivor family and them sitting there not realizing how they’re gonna pay their bills because the income, the breadwinner or the main earner passed away. And now we’ve got a whole different financial situation. That term life insurance, at a minimum, can help you make sure that they are gonna be okay if you’re not there to see it.

Michael Port (14:37):

So that’s one strategy for long term income protection. Short term disability will cover you for short period of time, but you’re still alive. If you have a long term disability, if you have a policy that offers a lump sum payment, when you become long term disabled, that can be helpful. But some of the long term disability policies work like annuities where you’ll get a certain amount of money per month until a certain age or until your death. But term insurance or any other kind of life insurance will produce a lump sum to protect your family because you won’t be able to provide income for them for the rest of their lives because well, you’re not alive. But there will come a point where you won’t really need that kind of life insurance protection because either (A) your kids are out on their own and they’re financially stable and they take care of themselves. And (B) you may have amass enough assets so that if you died, there’s enough left to your partner that they wouldn’t need an additional amount of money from term or any type of other life insurance policy. Do you agree with that?

Matt Rzepka (15:44):

Yeah. There’s a lot of different ways to structure some of those things. The earlier you are in your career and your earning years, the more insurance you may want or need. And it’s kind of a want versus a need. A lot of times there’s a needs analysis, but you’ve really gotta sit down and say, okay, well, what do I want to happen for my family if I’m not here to see it? And then you can game out the timelines. You know, I call it a term ladder. I’m gonna throw out some numbers here. And they may seem like really big numbers, but in as low interest rate environment, we’re in, it’s kind of forced us to get more death benefit protection in my opinion. Because typically a survivor doesn’t necessarily wanna take as much risk with investments in different things as they might have with both spouses alive.

Matt Rzepka (16:27):

Let’s say I had a million dollar term for 20 years. A million dollar for 15 years. And a million dollar term for 10 years. Well that means my term is gonna slowly drop off as time continues to pass. Once I get through those first 10 years, hopefully I’ve been saving at a high rate, earning a good income and building some net worth and nest egg. I might be able to let that term expire if I don’t feel I need it anymore. Or you could always convert it into something else to keep bit, if you wanted to do something like that as well. But there there’s a lot of ways to structure those things and try to keep the cost as low as possible, but protect the income. The insurance companies have a formula if you’re ever curious how much life insurance protection can I buy. They’re not gonna let you buy an unlimited amount.

Matt Rzepka (17:10):

They’re gonna look at your assets. They’re gonna look at your income. They are gonna look at your age and they have a formula. They’re gonna plug all that in and say, okay, your maximum coverage is X. We like to calculate that number for clients because it often surprises them at how big it might be. Especially the younger they are. Because if you’re 35 or 40, they’re counting on at least 25 more years of working income. So 25 years, times income is kind of the bare bones number that you should look at to say, Hey, I want to protect that amount. And then from there it will vary based, on again, individual goals and preferences of the household.

Michael Port (17:44):

Yeah. I mean, that’s a pretty big number. You know, if you just multiplied 25 times, even if you were making, say like $150,000 a year, right? That’s $3.75 million. Right now, if you’re making $300,000 a year, well, now you’re looking at double that. I remember when I started thinking about it, I was surprised at how much was really needed to protect my family long term. But then over the years, I sort of just been shopping it down because we’ve built up more assets. So, you know, we might not have to keep as much life insurance. But since term life insurance is so cheap, the difference between $4 million and $5 million is not usually that big a difference or even five and six, you know. Once you’re buying a policy in a certain category, it seems like the difference between $500,000 and a million dollars is not actually that big of a difference in terms of premium.

Matt Rzepka (18:37):

Yeah, not at all. It typically is very prorated. And the biggest mistake I see here is, oh, I’ll do it later. Health is the most important part when you’re buying term insurance and age. The younger you are, you get a fixed annual premium when you buy a term policy. So if you’re younger, the younger you are, the more likely you are to survive the term. So the insurance company is a lot less costly in pricing your product. I have lots of clients today who wish they could buy term insurance, but no longer can because they had a health event that now disqualifies them. And so you have to remember that, that if you’re putting off life insurance, that’s a big risk if you have a weird health event that doesn’t take you out and you’re still alive, but the insurance companies don’t like it. You could be prevented or could be too costly to buy that insurance going forward.

Michael Port (19:30):

One of the things that I’ve discovered over the past few years is how problematic having incorrect medical information on your record is because, a couple years ago I was having trouble sleeping. Well, I always have trouble sleeping. That’s nothing new. I don’t really sleep that much. We were trying to figure out what was going on and I had been to a couple different doctors and I got false positive test on something that suggested maybe I had an autoimmune issue. And then that came back and turned out it was false positive. So the rheumatologist who I was speaking with said, listen, I’m just, I’m gonna send you to a pulmonologist just to do a sleep study, just to see what’s going on. I did an at-home sleep study and I went in and she said, look, don’t have sleep apnea. I mean, you’re waking up nine times per hour.

Michael Port (20:15):

And you know, normal is like six. So you don’t really have sleep apnea, but you know, I can give you a machine and you can try it. I was like, oh, cool. One of those machines I’ll try it. So I tried it for a week. I could not tolerate it at all. And since I didn’t actually have sleep apnea, I just gave it back. And that was the end of it. Well, I went to renew my disability policy and this came up on my record that I have sleep apnea because apparently she wrote sleep apnea because of the nine versus six. Now people who really have sleep apnea like you, Matt, Wake up. How many times in an hour, what’s typical for you?

Matt Rzepka (20:48):

My study was 41 times an hour.

Michael Port (20:51):

Yeah, there you go. 41 times an hour. That’s legit sleep apnea. But the point is, is that we had to go through all this rigmarole to try to prove to them that I don’t actually have sleep apnea. I couldn’t get the doctor on the phone because she had changed offices and moved out of the state. They office were like, well the other doctor wrote it. So we can’t change… I was like, oh my God.

Matt Rzepka (21:10):

It’s yeah…

Michael Port (21:10):

So they excluded on my disability policy any issues related to sleep. Period. Like they took that whole category out because that was on my record. When in fact I don’t have sleep apnea. I still don’t sleep very well, but I don’t think I should be penalized for having sleep apnea when I don’t. But there wasn’t that much I could do about it unless maybe I wanted to start a letter writing campaign every day for the next six months. But I was like, all right, just exclude it and we’ll move on.

Matt Rzepka (21:36):

Yeah.

Michael Port (21:36):

But the point is is that these things really do make a difference when it comes to all insurance policies. Because if they find anything that they want to avoid covering, they absolutely will.

Matt Rzepka (21:47):

Yeah. You have to pay attention. When you’re at the doctor with that stuff. I had a situation where went in for my annual physical and they started asking me about a prescription that I had. I’m like prescription. I’m not taking any medications right now. Like, whoa. We show here that you’re taking a prescription to help you quit smoking. And I’m like, um, yeah, no, that needs to be removed right away because I knew that was gonna be a, a problem. Especially smoking and insurance is really bad. I don’t smoke. And like, yeah, we gotta get that fixed. And we gotta find out how that was. Thankfully I didn’t have the issue, but we run into that all the time with underwriting, with clients, finding out stuff is in their medical records and then takes a lot of time to try and straighten that stuff out. And a lot of tenacity, because it just is tedious to chase people down and get ’em corrected.

Michael Port (22:30):

Absolutely. Well you talked about a couple different types of protection. You talked about litigation protection and tax protection and creditor protection. But let’s just hit each one of those if we can. Litigation protection.

Matt Rzepka (22:44):

Yes. So as you accumulate more and more assets, you want to understand how those assets are owned. How many entities you have. Whether you should be using trusts. What type of trust to help protect different pieces of your wealth if you were to ever get sued and you know. You’re gonna have personal assets, you’re gonna have personal insurance. One of the things I think everyone should have is umbrella insurance. You know, umbrella insurance is an overlay, like I like to say, of your other insurances. It’s very, very inexpensive, but let’s say, you know, nothing to do with business, you got in a car accident and somebody says it was your fault and they try to sue you. Now again, states are different, but let’s just use this example. Let’s say they sue you for a million dollars, but your auto coverage is only $600,000. Well that other $400,000, if they were to win, you would be personally liable for. Well, if you have a million dollar umbrella policy, it would cover you in that situation to fill the gap. The umbrella is meant to fill that gap if any, if your homeowners is short, your auto insurance is short or other areas as well. So those are some of the quick things on the litigation perspective.

Michael Port (23:49):

Yeah. So the umbrella policy surprised me at how inexpensive it was for the amount of protection that you got. And that tells me that they’re not used as much as say auto insurance, which seems expensive for the amount of coverage you’re getting. But it’s more like you’re going to use that coverage on a regular basis. The umbrella insurance is there just in case. But if you have any means at all and someone sees you as a target, you know, they’re gonna come after you. I have been shocked by the behavior of some people that I’ve met over the years that borders on criminal or fraudulent. That they would go after somebody who has money because they don’t. Like this does happen. You just have to protect yourself and especially if you’re in a field where you are in the public eye. People, they also assume you are much richer than you are when you’re a well known author or speaker.

Michael Port (24:40):

They just have this idea that, oh, you must be worth like hundreds of millions of dollars. And the answer is, I’m not. Now maybe Tony Robbins is, but you know that that’s not the kind of business I have nor do I want. So I just think it’s important to have. It’s a nice layer of protection. It’s pretty inexpensive. And generally, tell me if this is correct, Matt, generally, you’re gonna get that umbrella insurance through the carrier that has your homeowner’s insurance and/or car insurance. Generally the insurers don’t like to sell umbrella insurance to people that they’re not covering in their other policies. Is that accurate? That was my understanding.

Matt Rzepka (25:18):

Yeah.

Michael Port (25:18):

When I talked to USAA about it a long time ago. Yeah.

Matt Rzepka (25:21):

Yep. Definitely accurate. They like to bundle your coverage as they will call it. They even often will give you some discount incentives to bundle all of that coverage together. That way, if you have a claim they’re fully in control of the claim on the big picture of the whole level. So if you have your auto insurance with them and an umbrella policy and you have a lawsuit on your auto, they’re gonna be able to control the dynamic because they they’re worried about minimizing the coverage or the claim that they have to pay. So if they can and control both sides of that, if you actually are in a situation where you’re getting sued, then they’re gonna be able to feel as best as they can about whatever claim gets paid.

Michael Port (25:55):

So what about tax protection? That seems like a big subject.

Matt Rzepka (25:58):

It is. It’s a moving target. This has been a 20 year storyline. So to speak. Estate taxes is really what I’m talking about here. Meaning if you’ve accumulated assets over your life at your death. So when we’re talking about a married couple at the death of the second spouse is when this really comes into play. Because if the first spouse passes away, the surviving spouse gets to inherit all of the assets themselves. So they become a surviving spouse and there’s no estate tax issues at that first passing. It’s the second passing. So you have to add up all your assets and see how much that total is. And if you’re over a certain amount, what they call the estate tax exemption, then they say, well, welcome to the world of estate taxes. And you owe us 40% of the amount over the exemption.

Matt Rzepka (26:43):

The exemption, however has been a constant moving target. Right now the exemption is very, very high compared to where it’s been over the years. So when I first got into the CPA practice world, the exemption was $650,000 total. Right now the exemption is $11 million and change per person. So that means as a married couple, you’re getting $22 million and change, maybe even $23 million of exemption. So if I have $23 million or less, when the second person dies, I don’t have to worry about estate tax. However, as little as five to seven years ago, that number was $3 million. You know? So it it’s been all over map. And then we even had a year back in 2010 where it was unlimited, no exemption whatsoever. And ironically two billionaires passed away. They apparently died of old age from everything I’ve seen, but you might see an expose or a documentary at some point of, uh, whoa, 2010…

Michael Port (27:40):

Two very influential billionaires died. It just so happened. That was the one year there were no federal state tax exemptions. Alright. So since it’s a big topic and it’s a constantly moving topic, what’s something we can do to try to mitigate tax exposure or protect ourselves. You know, we might say right now, like, okay, well this is great. $22 million, you know, maybe someone who’s listen, they say, well, I don’t, we don’t have $22 million right now. So I shouldn’t really think about this right now. But given that the current administration has proposed changing it already, certainly another administration could come in and change it again. What do you think people should do now? Even if they don’t have that size of a net worth. But at some point they’re gonna have a substantial net worth, maybe not $22 million, but could get up there. So what do they do now?

Matt Rzepka (28:32):

Yeah. There’s some really simple ways to protect yourself from this changing, and also these same simple ways. We’ve talked about term insurance already. Life insurance at your passing is includeable in your estate. So if you two or three or 4 million of term insurance and you pass away, well, now that asset is part of your estate. So a simple way to mitigate estate tax exposure is to use a trust. It’s called a irrevocable life insurance trust. And instead of owning that term policy personally, you set up the trust and the trust owns it. And what that allows is it allows that death benefit to be excluded from your estate formula. So it’s not part of that estate tax calculation, which seems simple, but it it’s a big deal and it’s not very difficult to administer. You just wanna make sure you get the logistics right.

Michael Port (29:20):

Yeah. The logistics are important. They’re not difficult, but they’re critically important is my understanding.

Matt Rzepka (29:28):

Yes.

Michael Port (29:28):

When it comes to estate protection, certainly, you know, we need a will. We may need some trusts, either ILITs, irrevocable trusts for insurance policies to keep that money out of your estate. We might want revocable trusts. You wanna talk a little bit about those vehicles, wills and trusts? Just, uh, expand on it a little bit more.

Matt Rzepka (29:47):

Absolutely. A will and a trust are some basic estate planning documents. In addition to powers of attorney. Powers of attorney are extremely important. What powers of attorney allow is someone to act on your behalf if you’re not able to act for yourself, but still living. You want a medical power of attorney and a financial power of attorney. And you want your wishes to be spelled out very clearly in those documents so that people aren’t making decisions for you when you can’t that are contrary to what you would want. And so I highly recommend at least having a will and powers of attorney for everybody so that the state has some direction at your passing as to what’s to happen. Or if you’re incapacitated, again, how do we handle your medical care? How do we handle your money, et cetera.

Matt Rzepka (30:31):

A trust again, a great document. If you have minor children, I highly recommend having a revocable living trust. It is a critical document to not have to deal with a lot of the hoopla of the probate courts and the family law courts if you were to pass away while those kids were under 18. We are very adamant about making sure clients do that. And we have a situation right now where a client didn’t listen to that and the kids are dealing with the ramifications, which are annual court notices, annual fees from the court, annual fees from the attorney, and all that stuff just starts to erode what assets were left over at that point. Plus it’s just extremely tedious and not very fun to deal with. So a revocable living trust allows you to create a directional book or instructions that say, Hey, if I’m not here, here’s what I want to have happen. And then you get to a point a trustee that makes sure those things happen and it keeps it away from the court instead of having to go through that court process,

Michael Port (31:33):

We have a revocable trust while I had one before we Amy and I together, and then we have now another one together. But one thing, you have to fund that trust. That’s really important. A lot of times people forget to actually fund it.

Matt Rzepka (31:43):

Yes.

Michael Port (31:43):

So they make the trust and then they just assume everything they own is automatically in the trust. That’s not necessarily the case, at least from my understanding. I’m not an attorney, but I did play one on TV once. So I think that gives me a little bit of authority here. So it’s gotta be funded, but then also probate is different from state to state. So here in PA, probate’s actually not that big a deal. When I was talking to an estate planning attorney about this many years ago, he was like, yeah, here you just walk in, you do a little thing, you’re done it’s over. But in other states it’s a really big deal. Now I’m not taking for granted the fact that PA is supposed to be a little bit easier. I’m doing it through a trust rather than everything going through probate anyway, because then it’s a public process. Regardless of whether it’s easy or not. I’m a private person there’s no need for my estate to go through a public process of any kind.

Matt Rzepka (32:27):

Yeah. Public is extremely important to remember and funding the trust. You may hear that. And you’re like, okay, what the heck does that mean? It means you actually have to direct your assets to either be owned by the trust or that the trust becomes the beneficiary. Let’s use a bank account as a simple example. If your bank account is in your individual name, you can do one of two things to fund the trust. You can actually have the account become a trust account. And it’ll actually say like, in my case, Matthew Rzepka Trust on my bank account instead of just Matthew Rzepka. Or there’s something called a TOD or transfer on death. I can tell the bank that I want a TOD designation to my trust. So that way, if I die and I have that bank account, it automatically becomes an asset of the trust if I do one of those two things. If I don’t that bank, account’s gonna go through probate and trust. Isn’t gonna do anything with that money until it goes through probate and ends up in the trust. So you funding the trust is critically important and it means making sure the ownership of the asset is somehow currently changed to the trust or pointed to go directly to the trust by matter of law at your death.

Michael Port (33:35):

I have to mention at this point, because I could see somebody listening, going, I, oh, jeez, this is just too much like, uh, I gotta do all this stuff and make sure it’s right. And you know what? It can be a real pain in the neck.

Matt Rzepka (33:46):

Yeah.

Michael Port (33:47):

But when I got interested in, it was when I kind of got really excited about this concept of doing death even better than I lived. I may seem a little bit morbid, but it, I go out and maybe this is my maximizer. I went every and be like, Michael was the best. He was the best. When I go out, I went, you know, my whole family and everybody associated with us to have the easiest time with it, to know just what to do. Everything’s all set up is protected. So they go, you know what, Michael took care of us, even in death, he was responsible.

Michael Port (34:18):

And then I got excited about it. I’m like, ooh is really cool. I won’t be alive to get the praise and approval, but they’ll be giving it to me anyway. So then I got really excited about it. I wanted to start doing more with it. So I created a family playbook. The Port Family Playbook, as well as what I call a checklist in case of Michael’s death. But sometimes people call a Death Book. So I wanna talk about the family we playbook and the death book when we come back, I’m gonna take a quick break. But then when we come back, I’m gonna share the family playbook and the death book. And we’re gonna discuss those documents.

AD BREAK (34:53):

This episode of Steal the Show with Michael Port is brought to you by HPS Branding and Design. In addition to our virtual and in-person public speaker training programs, my company Heroic Public Speaking also creates custom websites for public speakers that transform how event planners and audiences think about them and their message. Because unless you’re famous, and I mean really famous, famous, you can’t afford not to stand out in the industry. So at HPS we build custom speaker sites that put you center stage in event planners’ minds. HPS’s in-house branding and design team blends unparalleled institutional knowledge of the speaking industry with branding and design chops that’ll be right at home at any blue chip marketing agency. When we create a custom speaker site, we bring the full force of our entire branding and design team to bear- our designers, copywriters, and developers. Not to mention my eyes on it every step of the way, making sure that it reflects your brand and business identity from start to finish. We think like marketers craft like artists and communicate with you like, well, professional speakers. Working in direct partnership with you will build an unforgettable custom speaker site that captures your essence, markets your speech, and inspire event planners to get on the phone with you as soon as possible. To learn more about HPS Design offerings, shoot an email with the subject line “Speaker Site” to questions@heroicpublicspeaking.com and make sure you mention this podcast. That’s questions@heroicpublicspeaking.com and put speaker site in the object line and be sure to mention this podcast. Now back to the show.

Michael Port (36:43):

Okay, Matt, let’s talk about the family playbook. Now this isn’t something that everybody needs to do, but I did this crazy thing. I wrote a 50 page playbook. That includes advice for me, from Amy, from my father, my mother, Amy’s mother, Amy’s father, and Amy’s stepmother because this is some generational knowledge and wisdom here. And I thought, why don’t I start writing out what I want to share with my kids so that if I’m not here or even if I am here, but they don’t really want to come and talk to me about it, they can always just open up the playbook and have a look to see if you know we address that and see if that advice is in any way helpful or relevant to them. I’ve sent it to all the three kids already, even though they’re 13, 17, and 18. And they’re completely uninterested in it at the time.

Michael Port (37:35):

Like, you know, I think one of them skimmed it maybe a little bit. Even if they never read it, I just feel better having done it. But I do think that if something did happen to me, I know they’d like to have it. I believe that to my core and hopefully nothing will happen to me. I’ll get another 50 years and I’ll live to be 101. But I think it’s a really important for kids when they’re trying to make big decisions to get your advice without actually having to talk to you because sometimes parents are annoying. Just have to say, you know, as much as we try to help and as much as we love them and they love us, we can be a little bit much. At least I can be a little bit much sometimes. So I know that this is gonna be something that’s helpful for them in the future.

Michael Port (38:16):

So what did I do? I did a book where every section was on something. So the first section was on this guidebook. What the heck is the point of this thing? Then the next one was on family. Then on simplification, status, luck, learning, reading, freedom, greed, trust. I even did one on con men, scams, and conflicts of interest. Jobs, success, enjoying your work, perspective, grit and adversity, marriage. One of the things I said about marriage is please don’t marry anybody that is not financially responsible. Thank you. On changing your mind on approval on guilt versus shame, on money, on buying a home, how it’s not as good an investment as people often think it is, because it’s supposed to be the American dream, but usually it just costs you a lot more money than you’ll ever get out of. It doesn’t mean it’s a bad thing, but it’s something to understand. And then a whole big section on investing. On your savings rate on investing in something you don’t understand, on financial advisors, asset allocation, wealth accumulation, wealth preservation, rebalancing investment companies, on what not to do with your money. A 30-point plan for financial independence and then managing money during retirement. And then there’s another page, I’m not even halfway through. Have you seen people do these kinds of things? Have you done this? Do you think that there’s value in this? Or am I just some kind of crack pot?

Matt Rzepka (39:34):

No, I love it. Not everybody does this. That’s for sure. I think a lot of people have a desire to do this, but probably get frozen in how to execute. So it’s interesting to hear you describe it and maybe it’ll give people some peace of mind to just start with one piece at a time and see how many pieces you can build. Information and knowledge that you can pass along and, and if you’ve got multiple generations still alive, I think first all like if a grandma and grandpa’s still alive, it would be probably the honor of their life to provide some of that information to be even asked. If you’re thinking about having a playbook for your family and you want to go to grandma and grandpa and say, Hey, would you write some things of maybe something you want to tell the kids now while they’re alive and then maybe even put one in there that they don’t get to read until you’re gone. You know, if there’s a way to do that and give them some context from your perspective, I think that’s super powerful. And, and I love it.

Michael Port (40:26):

Sometimes you might have a relative who doesn’t write often and so they might feel a little awkward writing it. So you say, Hey, listen, I’m just gonna ask you some questions. I’m gonna record it and then I’ll write it up for you.

Matt Rzepka (40:37):

Yep.

Michael Port (40:38):

And so you say, so what are your feelings on family? What are your feelings on status? What are your feelings about the jobs you take or the choices you make with respect to work? What are your feelings on investing? What about marriage? You know, et cetera, et cetera. And then they’ll just talk it and you can write it up. Maybe not sleeping helps. This is why I’m able to write this because I do it at like three or four in the morning. I’m like, what should I do? I’m up? Oh, okay. I’ll write a little bit more in the playbook. There we go.

Matt Rzepka (41:01):

Love it.

Michael Port (41:02):

But I also have a death book. I don’t call it a death book. I just call it a checklist in case of Michael’s death. But I think you call it a death book and some other people do as well. I think it’s a cool name, death book too. But I think some people in the death book, they put a lot of this advice type stuff, which I put into the family playbook. But in the checklist, in case of Michael’s death, it’s literally literally a checklist because I’m obsessed with processes and systems. I think if you don’t create processes for the things that you need to do during high stress times, then you’re gonna have a much harder time doing it because you’re gonna have to think of everything step by step by step. But if there’s a process that’s written out, you can follow that process.

Michael Port (41:40):

It’s much easier. And when somebody dies, it is the most difficult time for their family. That’s the last time that you would want them actually having to think about what to do. In that particular case you want them to not have to think about anything, know exactly what to do and can just focus on dealing with the pain that they feel and the anguish that they feel. And of course, you know, you want them to write good eulogies. So they need the time for that.

Matt Rzepka (42:06):

Yes.

Michael Port (42:07):

Let’s talk a little bit about this checklist or this death book and what you might put in there. I’ll throw it over to you. And then I’ll share a little bit about how I did mine. What do you think goes in this type of death book or checklist?

Matt Rzepka (42:18):

A lot of it depends on, you know, who’s doing what in the household and who’s responsible for what. So if you’re responsible for a set of things, I think one of the most important things is, Hey, this is what I’ve been doing because you know, you don’t have an insight onto every intricate thing your spouse might be doing. What bank accounts exist? What passwords get you into online banking? What of all of that stuff? Where do you find passwords? Do you have a password tool? I know people have had issues with social media accounts when someone has passed away unexpectedly and you know, all those little things that you don’t think of until they’re gone would be really nice to just have a document that says, Hey, if I’m not here anymore, this is the first place you wanna look. So I love the checklist approach. You wanna put as many tribal knowledge things in there as you can about what to do or how to get at the most important things. Where are the life insurance policies at? Are they in a safe? Are they in a safe deposit box? How do you get in the safe deposit box? And can you get in the safe deposit box without a power of attorney? You know, all these little things start to pop up that you’re gonna have to deal with. If you don’t have a roadmap and you definitely want to have one.

Michael Port (43:21):

Yeah. And it doesn’t need to be fancy. It just needs to have the information. So for example, mine starts out with just a headline that says preparing for dealing with finances. And then I get a little short paragraph about it. What might be helpful. And then it says all essential documents are in the safe, in my closet for easy access. Here’s the code to the safe. Then I detail look, there are two large according folders that contain important insurance and legal documents. There’s also plastic document storage container that has among other things, ID cards and birth certificates. And in the accordion folders, you’ll find the following documents. Then I list them all out. Last Will and Testament for MP and AP, healthcare proxy, power of attorney for MP and AP, Michael Port living trust own’s the house which transferred, you know, like all of these things, MP and AP prenup, MP AP operating agreement, uh, Last Will and Testament for Amy’s mother, power of attorney for Amy’s mother.

Michael Port (44:10):

So this goes on. You’re just listing all the things that are in there. And then in the plastic folder, you’ll find this birth certificates for the entire family, my, our certificates, passports for the entire family, social security cards for the entire family. Then the next section is an emergency kit about how to access 1password, even though they already know, but it’s here. This is where the emergency kit is stored with like annotated PDFs. And then first action items, contact a funeral home to make arrangements for funeral preparations and payment. Number two, ask the funeral director to help you get 24 certified copies of the death certificate or contact the county clerk’s office. Who would know to do these things? I didn’t know to do these things until I researched it. Why 24? Well, there’s a reason that we would need 24. But the point is, is that are specific and prescriptive you can write this the better. Next action items, contact Katie Commons to begin a review of my will to discuss how this process will work, right? Contact all life insurance policy providers. And then here’s the owner beneficiary of Amy’s policies, owner and beneficiary for Michael’s policy. This just goes on and on and on and on. Not interesting for our listeners to hear all of those to details. But nonetheless, it just gives you a picture of what is in there. Then like every life insurance policy with a policy number, the insurance type who’s insured, who owns it, how much the coverage is, even what the annual premium is just so there’s a record in it of here. And then guess what it says, contact Matt Rzepka or any administrators of investment retirement accounts to begin the process of assigning assets to beneficiaries. So confer with Matt on all financial decisions before cashing out any investments or moving any money, right?

Michael Port (45:39):

Because like I’ve said to you before, and I think I mentioned in an earlier podcast, if something happens to me, you got my back. You’ve always said yes, absolutely. And so I think it’s so critical to have people that you trust like that in your life, because your family’s gonna need help. If something happens to you, even if you’re not the primary one, dealing with all this stuff, there’s still a lot of stuff that you deal with on a regular basis that your partner may not. And certainly your kids may not or not know anything about. So yeah, this is a pretty long document too. This one is about 21 pages.

Matt Rzepka (46:11):

That person that you can reference or trust, unfortunately, the vultures can come out when someone passes away because…

Michael Port (46:17):

Yep.

Matt Rzepka (46:18):

You’re getting life insurance checks and big sums of money and people see it as an opportunity instead of a way to help. And so you wanna make sure you’ve got somebody you can trust to help guide you. Because again, it’s an emotional roller coaster when that happens and you don’t wanna be making any decisions in that moment.

Michael Port (46:34):

Okay. So now that we’ve gone through the family playbook and the death book, we’ve given people lots of exciting morbid concepts to consider. Let’s just do one last thing before we wrap up. Just a little bonus here for credit and identity protection. You have any thoughts about that, Matt?

Matt Rzepka (46:50):

Yeah. This is an extremely important item, especially in today’s world of understanding what your credit report says. Making sure no one gets control of your credit report and that you don’t have any unauthorized access or stealing of your identity. So a lot of free credit monitoring systems today, but you also want to have somebody who’s looking out for your identity. So there are a lot of different programs. Identity Guard is one of them that I’m a big fan of. There’s others, but you want to have somebody watching your digital data to make sure nobody is taking your money or trying to spend money on your behalf.

Michael Port (47:24):

I would not be happy about that. If I woke up and someone was spending my money and I didn’t know who they were, I think I would be a little frustrated that day.

Matt Rzepka (47:33):

Yes, it is not a fun experience. I’ve only been through it on a minimal basis with like credit card theft. That unfortunately happens a lot today, but the credit card companies do help protect you.

Michael Port (47:43):

Yep.

Matt Rzepka (47:44):

But when somebody gets ahold of the lion share of your info, it can get really bad. So you want to have alerts and you want to have dark web protection. That was one of the things about Identity Guard that I liked is it’s scanning the dark web for my information. And it’s alerting me if it’s found so you can do something or change passwords. Two-factor authentication is key. You should have two-factor authentication for logging into accounts on as many accounts as possible. Meaning I put my username and my password in, but they send me a code on my phone. So that way they have to compromise your phone in addition to your password. And from all the tech experts that I’ve talked to about this stuff, they say you’re really foolish if you’re not using two-factor authentication because it’s one of the best ways to help keep your stuff safe.

Michael Port (48:26):

Fantastic. Thank you so much, Matt. Safety is not guaranteed ever, but if we can make really sensible choices and smart choices that give us as much protection as we can get, it is a comforting feeling.

Matt Rzepka (48:45):

Yeah.

Michael Port (48:46):

We never wanna have to use these things that we’re buying to protect us, but you’d much rather have them than not if you did need them.

Matt Rzepka (48:56):

And be informed. You know, you never want, well, I didn’t know. Be informed so that you can try to make the best decision possible.

Michael Port (49:02):

Fantastic. So Matt, what are we gonna talk about next week?

Matt Rzepka (49:07):

Next week we’re gonna talk about how to keep more of what you make.

Michael Port (49:12):

Didn’t we already cover that in savings and efficiency episode?

Matt Rzepka (49:16):

Tip of the iceberg, Michael.

Michael Port (49:18):

Oh, you are full of surprises. Okay. We will see you all next week then. In the meantime, keep thinking big about who you are and about what you all for the world. By for now.

The post S4E9 Keeping Your Income, Your Family, and Your Estate Safe and Sound appeared first on Steal the Show with Michael Port.

On this episode, Michael and Matt explore the concept of portfolio asset allocation—and how to take emotion out of your investment decisions. 

If you’re someone who’s interested in maximizing gains and minimizing losses in the stock market, this episode is for you. Michael and Matt cover what it means to time the market, how to build effective investment strategies, and how to stick to a long-term investment philosophy.

How You Can Steal the Show

• Learn the importance of dollar-cost averaging. 
• Understand what dynamics to consider when thinking about how to allocate your assets.
• Measure and mitigate the degree to which your emotions impact your investment decision-making.
• Anticipate and plan for long-term factors that impact your wealth.
• Think twice before wearing a blazer with a t-shirt that says “Sassy.”

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

In this episode…

• At 23:28, Michael mentioned two of Heroic Public Speaking‘s programs. More information on HPS GRAD can be found here and more information on HPS CORE can be found here. And you can always email questions@heroicpublicspeaking.com if you have any questions about either of those programs.
• At 50:40, Michael mentioned that he is a “maximizer” in this episode. That is one of Michael’s 5 Strengths from Gallup’s CliftonStrengths assessment.
  • You can read more about that here.
  • You can also see the 5 strengths of each team member at HPS, including Michael’s, right here.
• At 1:03:59, Michael mentioned the book, The Simple Path to Wealth by J.L. Collins. You can find that here.

Other episodes of Steal the Show mentioned in this episode are…

• [Listen Here] S4E3 Setting up Your Business Operations, Personal Operations, and Bookkeeping for Financial Success (references at 38:34)
• [Listen Here] S4E4 Increasing Cash Flow Through Savings and Efficiency (Plus, Debt!) (mentioned at 19:22)
• [Listen Here] S4E5 Turning Your Business Into Your Own Family Bank (mentioned at 56:46)
• [Listen Here] S4E6 What To Do With Additional Savings? (mentioned at 19:29)
• [Listen Here] S4E7 Money Advisors: the Good, the Bad, and the Ugly (mentioned at 33:16 and 45:29)

Transcript

Michael Port (00:00:05):

Hello, and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money. I’m joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make any money at all from you adopting any of the educational content you hear on this podcast. My company is Heroic Public Speaking. We’re a public speaking institution based in Lambertville, New Jersey, and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does, and you are welcome to hire him. I do. I will not be compensated however, in any way at all, if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it. Alright, today, we’re discussing asset allocation, so let’s get right to it. Matt, how you doing?

Matt Rzepka (00:01:29):

I’m doing great, sir. Doing great.

Michael Port (00:01:31):

Are you ready to talk about portfolio asset allocation?

Matt Rzepka (00:01:35):

Allocating assets is always a wonderful discussion.

Michael Port (00:01:38):

So let’s do it while we’re sitting on our assets, then having a little chat about portfolio asset allocation.

Matt Rzepka (00:01:45):

Let’s do it.

Michael Port (00:01:45):

You know, I have speaking of ass, I have this funny shirt that says sassy because the very first publication I was ever in was called Sassy Magazine. And the irony is that my high school prophecy was modeling for Tiger Beat Magazine and Tiger Beat Magazine and Sassy Magazine are basically the same type of magazine for teenage girls.

Matt Rzepka (00:02:05):

Nice.

Michael Port (00:02:05):

So that was what people expected of me coming out of high school. Look at me now, mom. So the t-shirts says sassy. And one day I just threw a blazer over the t-shirt And I didn’t look in the mirror after I threw the blazer over the t-shirt and then a couple hours later, someone kind of taps me on the side and says, Hey, Michael, you know, the, the word ass is right in the middle of your chest. I was like, look down. I was like, oh my God, I’m really embarrassed right now. Clearly not so embarrassed that I won’t talk about it on the air for thousands of people to listen to that slightly embarrassing, but hopefully slightly humorous story.

Matt Rzepka (00:02:42):

If we can’t laugh at ourselves, who can we laugh at?

Michael Port (00:02:46):

Yes. Well, actually that’s the problem. I think we laugh at other people more than we should, and we don’t laugh at ourselves enough.

Matt Rzepka (00:02:52):

Yes.

Michael Port (00:02:52):

So that’s what we are doing here. We’re just laughing all the way to the bank.

Matt Rzepka (00:02:56):

Yes.

Michael Port (00:02:57):

So speaking of the bank, what is asset allocation?

Matt Rzepka (00:03:01):

Asset allocation is a very important concept when it comes to investing in the stock market to make sure you can allow yourself to be a good investor in taking emotion out of the equation. So it does a couple things for you. It allows you to get performance from a lot of different categories within the stock market. And then based on that allocation, so let’s say you put 20% in five different categories. You let time pass. Some of those categories are gonna make money. Some of those categories are gonna lose money and you want to find a system to continue to bring them back to that starting allocation. It forces you to be what I call a good investor. So selling high, you wanna sell when you make money and then buy when you’re down. You wanna buy when something’s low. So asset allocation gives you a process to make that happen automatically and taking emotion out of the equation.

Michael Port (00:03:51):

Well, let’s talk about emotion a little bit before we go on. How influential is emotion in somebody’s ability to produce both short and long term gains through any type of investment?

Matt Rzepka (00:04:05):

Emotion plays a gigantic role and often causes you to make bad decisions because emotions and investing are almost always opposite mentalities. Where you’re thinking, you know, when the market’s charging and it’s as high it’s as ever been everybody gets really gung ho about putting in more money and doing more things. And again, there’s no way to know for sure, but it might be the worst time if you’re walking into a bear market. So you have to come up with a strategy and a process that takes as much emotion as possible out of the equation from an investing perspective.

Michael Port (00:04:37):

Yeah. It sounds like you are talking about avoiding market timing in your investment decisions.

Matt Rzepka (00:04:44):

Yes.

Michael Port (00:04:45):

Now, could you give a quick definition of market timing? So people understand what that is if they’re not familiar with it. And then I wanna discuss where and for whom that type of driver is helpful. And where and for whom market timing is actually really problematic and can get in your way of producing long term gains.

Matt Rzepka (00:05:06):

Market timing is simply trying to figure out when the best time to buy or sell in the market is based on how you feel. Because we’ve been doing so well, I think the market’s gonna go down. So I’m gonna sell out and go into a safer asset or cash asset, or, you know, I think the market’s charging and I want to keep charging so I wanna put it in now because now is a good time and it doesn’t take into effect time horizon goals. What your risk tolerance is. It’s just, I’m thinking I’m gonna outsmart the market. There’s research upon research upon research that timing the market is impossible. And yes, you may get it right some of the time, if you continue to do it, you’re gonna get burned by trying to time the market and get in and get out. You want to get into the market, figure out your allocation, figure out your risk, and make it a long term decision.

Michael Port (00:05:53):

We are not making our decisions based on external factors that are outside of our control, that we can’t predict. It’s one thing to say, well, we should buy low and sell high, but of course we don’t really know where low and high is.

Matt Rzepka (00:06:08):

Correct.

Michael Port (00:06:09):

So if we’re not professional investors and we’re investing for long term security for our retirement, as opposed is to trying to make money this week and then live off that money like a day trader might, then we need to make sure that we have a philosophy that supports our investment activities. And also a way of avoiding getting carried away with most recent news or the hot meme stock or whatever it is.

Matt Rzepka (00:06:42):

Buy the dip.

Michael Port (00:06:43):

Yeah.

Matt Rzepka (00:06:43):

That’s the big thing right now, buy the dip, buy the dip. The problem is, is you don’t know how big the dip’s going to be. And it’s worked fairly well the last few years for people that are employing that strategy, but the dip may continue dipping. One time, you try to buy the dip and then it’s gonna work against you. So short term trading short term timing is really, really tough.

Michael Port (00:07:03):

Matt, how about we discuss and first define of course, dollar cost averaging before we get into any more discussion around asset allocation or portfolio design, et cetera. Let’s talk about dollar cost averaging since the concept of market timing just came up. I think that’s an important concept for everybody to understand if they are not yet familiar with it.

Matt Rzepka (00:07:25):

Yes. Dollar cost averaging in by nature- most people are doing dollar cost averaging. If they’re participating in a employer sponsored retirement plan of some sort, and they may not know it. Dollar cost averaging is simply putting systematically certain amounts of money over time into the various investments that you choose. So if let’s say you had a lump sum of cash, a hundred thousand dollars, and you were like, I want to invest this money. You have the choice of putting all $100,000 to work immediately, or say taking five months or four months to put $25,000 at a time strategically into those same investments over time. So that you may benefit hopefully from the volatility or swings in the market over those four months versus taking on the risk a hundred percent right at day one.

Michael Port (00:08:12):

So for most people who are looking at long term investing, and that’s gonna be most of the people who are listening to this show. And in fact, that’s what we’re focused on this season.

Matt Rzepka (00:08:22):

Yes.

Michael Port (00:08:23):

Long term approach to building your wealth and preparing yourself for whatever your version of retirement is. Most people should be doing that. I definitely do that. What if somebody has a big chunk of change that they finished a big contract and they’ve got a big chunk of change, or maybe they just inherited a little bit more money or they sold a property, et cetera. Let’s just say it’s a hundred grand. Should they take that and dollar cost average it out over the course of say a year, which again, would just be an arbitrary amount of time? Or should they take it and contribute to their investment vehicles based on the same philosophy that they would, if they were dollar cost averaging? Do you have a perspective of one over the other?

Matt Rzepka (00:09:05):

The timing of how long you dollar cost average over is a little bit of a personal decision. At a minimum, if you’re gonna dollar cost average, I would do at least three months. The intent of dollar cost averaging is to take the swings of the market and reduce your risk. The correction commentary happens once a year. So people talk about a stock market correction like a birthday. At least once a year, you should expect if you’re in stock market based investments, that you’re gonna see a dip of at least 10%. That’s kind of the way to remember a correction. 10% isn’t necessarily a bear market, it’s just a downturn in the market of 10%. Well, what happens if you put that a hundred thousand in and you walked right into that correction, you’re gonna lose $10,000 immediately. If you took three months to take $33,000 a month and you walked into the correction, well, round two of that investment’s gonna buy at that 10% lesser value to give you better cost on your long term performance. So three months is a minimum. Six months is probably the most common for a length of time for dollar cost averaging. 12 months might be a little long, just depends on the amount of money and the potential downside you want to avoid. So if it’s a bigger pot of money and you’re worried about a 20% or 30% decline, you may want to take more time to do a dollar cost averaging strategy.

Michael Port (00:10:21):

Okay, so I take a slightly different approach because anytime I have a larger sum that I wanna invest, I always put it into the portfolio in the same allocation that I have for everything else to keep balanced in the way that I’ve determined is best for us now going into the future. Because I don’t know what’s gonna happen next month or the month after the month after. It could drop 10% today and go up 11% tomorrow. We don’t usually see those kinds of swings in a broad based index fund, but you certainly would see it in, in a stock and a particular stock.

Matt Rzepka (00:10:53):

Sure.

Michael Port (00:10:54):

But that’s a lot of volatility, you know, for example, small cap stocks, the index, I think is the Russell 2000 just recently over the course of just a few days dropped over 10%. I think it was 11.47% or something like that. And that’s correction territory for one asset class, the total stock market. So I don’t know, is it gonna go down more the next day or the next week, or I’m gonna know if it’s gonna go up. So I just figure, I wanna get in as early as possible and then ride for the long term off into the sunset. Because I don’t wanna even begin to start trying to make assumptions about what might or might not happen with the stock market. I just know that over the long term, and since I’m looking long term horizon, if it drops two days after I put it in, I’ll make that up in a number of years. I’m not looking for the return right away. So what do you think about that particular approach?

Matt Rzepka (00:11:49):

That ties right back to the emotional component of it. And you always have to factor in what you’re gonna think and feel emotionally when you’re making those decisions. You shouldn’t be worried about that short term dip if you’re a long-term investor. But what it does is it tends to spook people. If they make a full investment right away, and the market trends downward right after they did it, then they start to question their long term strategy. And that’s the one thing you don’t want to do. Additionally, we often talk about dollar cost averaging on a month to month basis, but you could also dollar cost average weekly.

Michael Port (00:12:21):

Yeah.

Matt Rzepka (00:12:22):

In recent times we’ve had lots of market volatility movements up movements down. You could get a lot of benefit just doing a weekly dollar cost averaging to say, Hey, every Wednesday, we’re gonna start to deploy a portion of this capital until it’s fully invested into our original intended allocation.

Michael Port (00:12:37):

Yeah.

Matt Rzepka (00:12:37):

That’s the goal is to get to that allocation as quick as possible and let the investments do what they do over the long term.

Michael Port (00:12:43):

Yeah. Plus if I had, let’s say I had a hundred thousand dollars that I wanted to invest. If I don’t put it all in the market right now, and I just sit on the cash, let’s say, I decide to dollar cost average it out over the course of a year. Well, let’s just say it’s $120,000 to make it easy. So if it was, you know, $10,000 a month throughout the whole year, if we keep seeing an environment of high inflation, that money is losing money. That cash is becoming less valuable. You know, if we see another 5% or 10% inflation that cash will have less buying power by the end of that period of dollar cost averaging. So in an environment of high inflation, do you think it makes more sense to make that larger contribution as soon as you have the money?

Matt Rzepka (00:13:23):

I would probably never go over six months on a dollar cost averaging strategy because you might miss the best part of the market. And again, if then you came into a bear market after that happens you’re gonna feel more of that. And it takes a little bit longer to recover. So six months would certainly be my longest. And then again, I would probably opt for a weekly type of strategy inside of a three or six month period.

Michael Port (00:13:45):

Yeah. It seems like many of us do dollar cost averaging in part simply because we don’t have all that money at once. We are getting it on some sort of regular frequency. Either it’s because we take profits from our business every quarter. So you’re getting it quarterly. So every three months. Or you’re getting a paycheck every two weeks. And so, you know, you’re contributing to your retirement accounts or your brokerage accounts every two weeks, because that’s when you get it. Or you get it every two weeks, but then you just do it at the end of the month. You know? So sometimes it’s just by default because we don’t have the money yet.

Matt Rzepka (00:14:20):

Yeah.

Michael Port (00:14:20):

That’s how most of us will approach it. And it’s a reasonable strategy. And I think that it’s just important that we just don’t hold back and hold onto it, worry that the market’s gonna go down right now, if it’s not money that we are gonna use in the short term. And if we do need the money in the short term, we, they shouldn’t be putting it into equities in the stock market. Would you agree?

Matt Rzepka (00:14:40):

Correct. Yeah. You wanna make sure you’ve got your access to capital formula and your long term formula figured out. And if this is money in that long term bucket, you wanna find out how to get it deployed for a long term result, as quick as possible.

Michael Port (00:14:52):

I’m gonna ask you one of those really dumb questions, which is, who should be thinking about asset allocation or portfolio asset allocation? Meaning is this for everyone or is it just for some people?

Matt Rzepka (00:15:05):

It’s really for everyone. And I highly encourage you if you have retirement accounts or other are investment accounts, to make sure you understand what the asset allocation is. Especially in times, you know, as we record here today and where the market’s at currently, what often will happen, or I’ll refer back to say a year 2000 or year 2008 downturn, when asset allocation is so detrimental is after a run up in the stock market and people haven’t been disciplined to go back to their original percentages. So let’s say I only want 60% in stocks. And when I make that initial decision stocks just continue to grow and grow and grow. And my 60% stock allocation becomes, say, 80% or 85% because there’s been so much growth. Well, then we walk into a bear market. It, if you haven’t gone back down to your 60% allocation, now 85% of your money is subject to the stock downturn.

Matt Rzepka (00:15:59):

And that’s what you don’t want. So without doing proper asset allocation, you’re exposing yourself to risk that you may not realize. The other thing we see a lot too, is you do what your friend does or do what your neighbor does. So a lot of, especially retirement plans specifically, they will give you funds that will do some of this asset allocation for you. If you don’t want to get into the weeds and figure it out. But you want to at least know, I have my asset allocation handled and understood in some capacity so that you don’t wake up with a shock if we have a bad bear market.

Michael Port (00:16:28):

Yeah. Actually in my case, I probably should do what my neighbor is doing because my neighbor just sold a business for 30 million dollars.

Matt Rzepka (00:16:35):

Nice.

Michael Port (00:16:35):

So I’m gonna try to do that as well. If anybody would like to offer me 30 million for hero public speaking, I’ll pretend that I don’t wanna sell it, but I’m happy to sell it to you for 30 million.

Matt Rzepka (00:16:44):

Nice.

Michael Port (00:16:45):

But anything less than 30 million, no way. Okay. So you touched on rebalancing actually, when you mentioned, well, if you believe that your portfolio asset allocation should be 80% stocks, 20% bonds, or 75% stocks and 25% bonds, or 60% stocks and 40% bonds. I’m gonna get into that in a minute and then discuss recommended portfolio asset allocation for different types of folks, but before we do, I just want to ask you to touch on the various dynamics of portfolio asset allocation. Because I’ve heard you talk about two different dynamics that we should consider when we’re thinking about portfolio asset allocation.

Matt Rzepka (00:17:28):

Yes. A lot of what we’ve talked about so far is strictly related to the stock market. You also can have asset allocation just as a percentage of your wealth goals and your net worth. What do I have in stocks? What do I have in small business? What do I have in real estate? What do I have in crypto? You know, all these different categories you want to be thinking about those target allocations as well, because as the world gets more connected and more technologically advanced, you wanna understand how to continue to diversify types of assets in case the stock market doesn’t produce at as high of a level going forward. Some other people out there right now are predicting that returns might be less the next 10 years. Well, how, how do you continue to make sure you’re keeping up with inflation? You have other types of assets as well. And those are just a few of the other asset allocation things you can think about from just your personal net worth and other assets beyond the stock market.

Michael Port (00:18:21):

So dynamic, one, would be from a pure stock market investment perspective across all assets that you own in your portfolio that’s exposed to stocks and bonds, I suppose.

Matt Rzepka (00:18:33):

Yeah. Do I have small, medium and large companies? Different variations of bonds? What are my allocations to all of those want to be?

Michael Port (00:18:40):

Yeah.

Matt Rzepka (00:18:40):

And make sure that I start with a number, let them do their thing and then rebalance back to a number.

Michael Port (00:18:45):

Right? So that’s basically stock and bond market investing.

Matt Rzepka (00:18:48):

Yep.

Michael Port (00:18:48):

And we’re gonna to get into a little bit more detail about that shortly. And then the second dynamic sounds like asset allocation on percentages of your net worth. So you’re looking more holistically at your financial position or situation, your estate, your net worth, whichever term helps you see the big picture, the 30,000 foot view. And so you’re taking into account all of the different types of assets you either own outright or own with some liability, you know, some debt associated with it. I use the word liability, because we did an episode on, you know, liabilities versus debts. I take the second approach. I’m assuming you do too.

Matt Rzepka (00:19:29):

Yes. Well, we touched on, on this in a previous episode, but if your personal net worth asset allocation as your primary asset, 80% is your business, and only 20% to other assets. And then you don’t sell your business for what you hope when you’re ready to retire. Your retirement could be very different than you had hoped.

Michael Port (00:19:49):

Yeah.

Matt Rzepka (00:19:49):

And so that’s where that dynamic number two really helps you get a safer ground around, Hey, what if something doesn’t plan out or pan out as I thought? I’ve got other assets to keep me on track with the eventual goal of where I want to be later in life.

Michael Port (00:20:04):

Yeah. Like for example, let’s say somebody invests in real estate, they buy houses and they rent them out. So somebody’s been doing that for a number of years and let’s say they’ve got 7 or 10 properties. Well, they’ve got a lot of their overall portfolio invested in real estate because they’ve put a lot of money into these properties. And then if in their stock market portfolio they bought a lot of REITs, real estate investment trusts, well then they might be really overweighted in real estate. And as a result, if a real estate market correction or crash of some kind occurs, they’re much more exposed because they’re overly weighted in that particular asset class, whether it’s in stocks, you know, in some sort of fund that buys different real estate investments or different real estate company stocks, or whether they just own their own property or multiple properties that they use for business purposes.

Matt Rzepka (00:21:08):

Yeah. I love that example because that’s where you have two very different types of real estate assets, one that’s stock market focused and offered to multiple investors. And then you’re maybe individually investing in real estate. And if you don’t track that, you may realize, Hey, I’m, overweighted there. And I don’t want to be because if something goes wrong in real state, it could hurt me way more than I expect.

Michael Port (00:21:30):

Or another example might be very often, investment advisors will suggest that people hold in their portfolio, a percentage of international stocks. So if they’re recommending, you know, someone buy an index fund and again will get more into this soon, they’re like, we think you should have a portfolio that 60% stocks, 40% bonds. And we want 40% of the stocks to be international stocks. So we’re gonna recommend you buy the, you know, Total World Index Fund or Total International Index Fund. But actually they would own a lot more than 40% of the international or the European market or whichever index they’re buying because most of the top 10 biggest companies in America do sometimes the majority of their business overseas. So even if you’re buying very large US companies, you have exposure to international markets because their revenue, their success is in large part dependent on what’s happening in the European economies that they’re in.

Matt Rzepka (00:22:39):

Yeah. I think when it comes to foreign versus domestic investments today, you’ve gotta really open your eyes around what impact that has on your asset allocation, because it’s a global economy today.

Michael Port (00:22:51):

Yeah.

Matt Rzepka (00:22:51):

Used to be much different even 20, 25 years ago saying I’m allocating to US and I’m allocating to international. We weren’t as connected because the internet wasn’t charging like it is today. And didn’t have all of us doing business so easily as it is done online. So you definitely wanna open your eyes to that for sure.

Michael Port (00:23:08):

Great. And so in a minute, we’re gonna go into the different types of asset classes you could buy in the stock market and in the bond market. And then we are gonna ask Matt about what he recommends for portfolio design for a number of different types of people. Because I think that you’ll see yourself in at least one of those examples.

AD BREAK (00:23:28):

But before we do, I just want to take a quick break to say that this episode of Steal the Show with Michael Port, and I am Michael Port, is brought to you by HPS GRAD, one of the signature programs at my company, Heroic Public Speaking. And I think it’s fair to say HPS GRAD is the most substantial and complete public speaker training in the world. It’s like a graduate program for the world’s most transformational speakers. Now, maybe you’re ready to start delivering more compelling performances every time you step on the stage, or maybe you want to increase your speakers fee, or maybe you need a proven repeatable process for developing and rehearsing your content. In HPS GRAD, our students learn how to do all of that and much, much more. HPS GRAD is an intensive program broken into two terms consisting of both in-person and virtual learning experiences. Students are immersed in rigorous speech writing and performance training, and they get to know us and our team, form long lasting friendships with one another, and completely transform their speaking and performance abilities. Now HPS GRAD is only open to students who’ve previously completed our free training program, HPS CORE. And to learn more about HPS CORE and HPS GRAD, visit HeroicPublicSpeaking.com. If you wanna learn just about GRAD, go to HeroicPublicSpeaking.com/grad-school. That’s HeroicPublicSpeaking.com/grad-school.

Michael Port (00:25:01):

Okay, Matt, let’s talk about different types of asset classes in the stock market and in the bond market. Now we could do that for the next week because you can keep slicing and dicing…

Matt Rzepka (00:25:12):

Yes.

Michael Port (00:25:13):

…into smaller and smaller asset classes, but let’s just hit the general ones. And then let’s talk about some typical effective portfolio design options for our listeners.

Matt Rzepka (00:25:25):

Yes.

Michael Port (00:25:25):

So what are the primary asset classes in the US stock market?

Matt Rzepka (00:25:31):

The primary asset classes there, you’ve got large cap, mid cap, small cap, and then you’ve got a lot of variation inside of there.

Michael Port (00:25:38):

Before we go to the variation on large, mid, and small cap. Let’s define cap.

Matt Rzepka (00:25:42):

Yeah.

Michael Port (00:25:42):

Capitalization capitalized. Because I remember the first time I started looking at the market, I was like, what is all this cap? And now the kids use the word cap. Do you know that?

Matt Rzepka (00:25:51):

I didn’t know that, yeah.

Michael Port (00:25:52):

Yeah. Like if they say something and someone else is like, for real, like really that happened. They’re like, yeah, no cap. I think. Although every time I try to explain one of their expressions that they’ve explained to me, I murder it. I do it terribly. We’re not using it in the way that the kids are using it. What does large, mid, or small cap mean in the US stock market?

Matt Rzepka (00:26:14):

Capitalization represents like what size and how much dollars are represented in the overall marketplace. But you may have heard recently some of the cap goals or cap targets that some of the really big boys have hit, you know, a trillion dollar market capitalization. Meaning between all the shareholders and assets and valuations of the company. I don’t know if it was Apple who was first.

Michael Port (00:26:38):

Yeah, I think it was apple.

Matt Rzepka (00:26:39):

But we hit trillion dollar valuations in terms of market cap. So it represents the size. So large cap is your very big market capitalization. Mid-cap are your mediums. So they’re kind of middle of the road, but certainly sizeable companies, but they don’t really operate in the same categories as the large ones. And then the small ones are the growth ones. The way I like to explain those is they’re trying to become mid and large. They want to get in there. Their whole focus is growth, growth, growth. That’s what small cap is really doing. Hey, we’re starting out. We think we’ve got a great idea and we want to grow as fast as possible.

Michael Port (00:27:11):

Now isn’t that a little tricky though, to use the word growth for the small cap companies. Because when we start slicing down into more sort of segregated asset classes, we have growth versus value in each of the different market capitalization companies. Typically some of the assets that are, that will offer the biggest returns for you over long periods of time are small cap value funds or stocks, individual stocks, because they’re often undervalued. Like the price is lower than it might be for the value that that company is gonna produce. I don’t know if that’s the right way of defining it again. This is not my area of expertise. But I know that we break down these different capitalization companies into growth and value. So how should we think about those types of breakdowns as well when we’re thinking about asset classes?

Matt Rzepka (00:28:00):

Yes. Growth versus value is really thought of, growth pretty self explanatory. I want to see the price or the company grow hopefully as fast as possible. Value is gonna be more of the way I define it, a consistency level. I want to come in, you know, if I’m doing a large cap value, I might be looking for a dividend or steady performance or just, you know, more consistency out of that large company versus a large company that’s trying to grow maybe a lot more volatile up and down. So that’s how I look at growth versus value. And then when you get into the mid and the smalls, you have to really look at again, bargain, shopping. Midcap value, they may be undervalued because maybe everybody doesn’t know about them yet. Or maybe they have a new product that they’re gonna launch and that’s gonna take them into more of a growth category. But consistency versus growth is really how I break those two down.

Michael Port (00:28:53):

Mm. So, okay. Now what about in the bond market? What are the various asset classes or the highest level segmented asset classes in the bond market for fixed income vehicles?

Matt Rzepka (00:29:04):

Fixed income often referred to as bonds. The bond market is just as complex and vast as the stock side of the equation. A bond by definition is just a debt instrument where a company needs to raise some capital. So they offer a bond out to a purchaser and that purchaser gives them the money and in exchange for that money. They give them an interest rate and incomes dream, so to speak. So there’s all different grades of bonds from all different sizes of companies. There’s something you may have heard called junk bonds. You know, you really have to do some research around the types of bonds you may be in. If you’re buying individual bonds, you want to be very aware of what that is. They’re all gonna pay different interest rates. You also have government bonds, municipal bonds. municipal bonds are more local state and government type bonds.

Matt Rzepka (00:29:51):

So very, very complex. Don’t let it overwhelm you. You know, I, I say it’s complex, but don’t let that stop you from learning about how some of those things work. What are the pros and cons? The simplicity of a bond is that it typically pays interest two to four times a year based on how the offering is written. And then the government, you may hear government bonds talked about a lot on TV or in other various internet spaces because a lot of the things we deal with in life are based on government bonds like mortgages, for example. There’s indexes and treasury rates and all these things that govern how much mortgage rates go up and how much mortgage rates go down. That’s all based on the issuance of bonds and people buying those bonds and earning those interest rates.

Michael Port (00:30:33):

Yeah. I’ve always found bonds a bit confusing. You’ve got this yield and then the interest rate. And sometimes when one goes up, the other goes down and it’s confusing, which is which, so I don’t buy any individual bonds period. The only individual bond we own is a $250 bond that my grandmother who passed away at a hundred three years old gave to Jake when he was born.

Matt Rzepka (00:30:54):

Yeah.

Michael Port (00:30:55):

And that just sits in the safe and it has like a gazillion years before maturity. So we’ll see what that does by, you know, I just buy index funds. I buy all the bonds that are out there and we’ll get into that in a minute. The thing that really helped me understand bonds just from like the basic simple, even a five year old could understand it, is that sometimes governments and companies need money to do the stuff they wanna do. And sometimes companies will go to investors to try to raise that money. But you know, governments don’t really go to, Hey, invest in our company. Like it doesn’t work that way. So the federal government state government, when they need money, they’ll issue a bond. We are essentially loaning them the money. And they’re saying, look, I’ll give you this guaranteed interest rate on this loan for a period of time. And same thing with the company. But you know, you have companies that are of different sizes, different strengths. So it’s really tricky when you start buying individual company bonds. Because if you don’t really know what you’re doing, you can end up buying a bond for a company that’s not here in six months.

Matt Rzepka (00:31:58):

Yeah. Credit worthiness and strength of company are extremely important with bonds. You know, so think about COVID for a second and think about the airline industry. You could have gone out and bought some individual bonds from some airline companies that were paying you 8, 9, 10, 11, 12% interest. Really attractive interest rate. But what if they file bankruptcy? Then you gotta worry about, am I gonna get paid at all? Not just my interest, but my original principle. That’s really the risk from a credit worthiness perspective on bonds, that if you’re buying an individual bond, you absolutely want to understand those things. Bond funds and bond indexes help you mitigate some of that risk because you’re pooling lots and lots of different bonds together. So that if one of those bonds goes belly up, or one of those companies goes belly up, you’re not fully taking on that risk to your own assets.

Michael Port (00:32:45):

Perfect transition, Matthew. Thank you so much, because what I wanted to talk about was the different types of vehicles you can invest in. People hear index fund, then they hear mutual fund, then they hear individual stock, individual bond, bond fund.

Matt Rzepka (00:33:03):

ETF.

Michael Port (00:33:04):

Yeah. ETF, right? An exchange traded fund or a fund of funds. Forget about it right now. You’re all over the place. Then they hear hedge fund and they’re like, well, should I be in a hedge fund? The answer is no, unless you’ve got a family office maybe. And then you’re like, I don’t know what to do with this extra 8 billion dollars. Maybe give it to this guy in his fund and see if he can do something. But the rest of us, probably not. So let’s start with the difference between an index fund and a mutual fund.

Matt Rzepka (00:33:34):

Yes. So a mutual fund is probably the longest running fund type of category that you’ve maybe heard of. And a mutual fund is a pool of investments inside of a corporation. This was very popular and started a lot back in the seventies and eighties when you couldn’t buy stocks online. You had to go to a broker. It was very hard to get investments into the stock market without going through the Wall Street channels. And then on top of that, you had to buy individual stocks if you were doing that. And that tended to be very risky for folks because one individual stock can go up and down in value way faster than a pool of stocks together. So this mutual fund concept was born and then you could own many, many different stocks inside of this corporation. And then you as the investor own a share of the corporation or the mutual funds.

Matt Rzepka (00:34:27):

So it’s mutually together and you have a small percentage of the fund. That also is why mutual funds trade in terms of their price at the end of day value from the market. You can’t day trade mutual funds. Mutual funds have a lot of inner workings and reporting and they price out at the end of each day. And then that corporation, like American funds would be one, Vanguard. There’s all kinds of mutual funds out there, but there’s fund managers then buying all those stocks and you’re just buying a share of what that corporation is producing.

Michael Port (00:34:57):

Now we should make a distinction between passively managed index fund.

Matt Rzepka (00:35:02):

Yes.

Michael Port (00:35:02):

And an actively managed mutual fund. It’s a little confusing because an index fund is still a mutual fund. It is a fund made up of many different stocks or bonds depending on what kind of fund it is or both. So can you define a passively managed index fund versus an actively managed mutual fund?

Matt Rzepka (00:35:23):

Absolutely. The passively managed indexed fund is really already using indexes that exist. So groups of companies that are pooled together. So the easiest reference that maybe everyone can relate to is either like the Dow Jones Index or the S&P 500 Index, that’s all predetermined. So the index fund only has to go in and pull those indexes together, which can keep their costs very, very low.

Michael Port (00:35:50):

So for example, Vanguard as well as most other companies, although Vanguard is my favorite company in the world because it’s a not for profit and you know, Vanguard and John Bogle changed the world for individual investors. The reason that most index funds and mutual fund prices have been going down over the years in large part because Vanguard is pushing those prices down for many, many years. And people have had to keep up. So that’s wonderful. But you know, there’s the S&P 500, which is an index. And it’s just saying, look, here are the 500 biggest companies on the US stock exchange. You could put together a fund of those 500 and call it, say the Vanguard S&P 500 fund. And they are only buying the companies for you based on how much you buy into this fund. That are in that index and they distribute your purchase evenly across the index. Is that accurate? Do you think that’s reasonable description?

Matt Rzepka (00:36:46):

Yeah, absolutely.

Michael Port (00:36:47):

And the same thing is true for say the Russell 2000. That is a small cap index and as many more companies than the S&P 500 in it. They may put together an index fund that is a small cap index fund and it buys all the companies that are considered small cap companies in the US stock market. And, you know, they may just say, well, we’re gonna slice that even further and make an index fund that is a small cap value fund. So it’s only buying the companies that are considered value companies versus growth companies. But nobody is picking winners or losers. The managers are only buying the index that they are tracking. You’re not hoping that this one person who manages this fund is gonna have the ability to predict the future and is not buying or selling what’s they think is gonna be winners and losers.

Michael Port (00:37:41):

Instead, you’re just tracking the market, whatever the market gets, you get. Although even people who just buy passively managed index funds, even when they have a reasonable portfolio stock to bond asset allocation ratio, they will often underperform the market because they market time.

Matt Rzepka (00:37:59):

Yeah.

Michael Port (00:37:59):

So they won’t actually get the full performance of the market because they’re buying when they probably shouldn’t be buying and they’re selling when they probably shouldn’t be selling because they’re emotionally driven and they’re getting out when things get a little scary. And they end up selling at a loss or they get in at the wrong time because everybody’s hyping it up. So they buy at a premium and then it takes a lot longer to recover or to earn gains on that because they bought at a premium. So when you’re in index funds, you generally wanna sit and wait it all out until you’re gonna need it. And then we’ll talk more about actual retirement strategies. And we did an episode where we talk about bucket strategies in retirement and what to do with that money that you’ve amassed over the years when it’s time to start actually accessing it. But in this case, I just think it’s important to remember that you still have to get out of your own way even if you’re taking the passively managed index fund route. Now, Matt, can you explain mutual funds, how they work, and also what the track record is for most mutual funds?

Matt Rzepka (00:39:00):

An actively managed mutual fund involves money managers. It involves a main company that’s running the mutual fund and it involves a lot of discretion. So the discretion comes to what stocks and bonds do we buy if it’s buying bonds or for it’s only buying stocks. Like a growth mutual fund might only buy stocks, but you’re leaving all of the decisions up to the money managers. And then on top of that, because the mutual fund has to employ money managers, they have to file a lot more compliance related items. They have income distributions kicking out on an annual basis, whether you want them to or not, especially if it’s in a taxable account. What tends to happen is mutual fund expenses run a lot higher than an index fund or ETFs or other things that are basing them on just a strategy or a system or a process. So that’s then been the trend the last, you know, 20 to 30 years is really examining what are the true cost of a mutual fund and making sure that if you’re going into those mutual funds, they’re delivering you enough return to outweigh the cost that that mutual fund is charging. Or if not, you may want to consider an indexed or a more passive strategy with much lower cost and systematic rebalancing. So that’s the type of analysis you wanna think about.

Michael Port (00:40:16):

Okay, I’ll, I’m gonna hop up on another soapbox, because I have some cynicism about many of the mutual funds that are offered in the US. I’m sure around the world, but I only know this market. I have a lot of friends who are mutual fund managers. So I, you know, no, but I do. I actually, one of my closest friends is an analyst at one of the biggest funds in the world actually. And I was telling him about all my cynicism and why I think most mutual funds are actually created. And he’s like, you know, you’re insulting me and everybody who does what I do. I was like, well, yeah, I guess I am, but I don’t mean to insult you specifically. And I just say that just to preface it. I don’t think all mutual fund managers are bad at their jobs. I think there’s a lot of really smart well-educated people who are in that field. And they’re often good people who, who really do believe that they can beat the market and want to provide a great return for their investors. I think there are many, many people like that. Whether they can, or can’t actually doesn’t matter, meaning they might have the best of intentions, but it doesn’t mean that they’re gonna beat the market. Or if they went to Wharton or Harvard Business School, it doesn’t mean that they’re gonna beat the market. Or if they have a very expensive suit, doesn’t mean they’re gonna beat the market.

Michael Port (00:41:27):

But here’s my cynical theory. I think many mutual funds are established to look sexy and really provide income for the fund managers, the institution that is carrying this fund, through the fees that they charge. Because they earn fees regardless of whether or not the fund does well.

Michael Port (00:41:50):

So I have a friend who is one of partners and founders of a hedge fund. And one of the things that’s cool about is hedge fund is that they only take a small percentage of the return unless it’s above a certain percentage. So the fund has to make a certain percent in annual return for them to get their big money. And at that point you go, okay, great, because there’s some pretty aggressive goals there. But for most funds it doesn’t work like that. John Bogle, one of the things he said and I’ll paraphrase, as he said, the biggest risk to the individual investor is the tyranny of fees. And the more you pay, the less you get. Generally when it comes to stock market and bond market investing. So let’s get into that a little bit. Now, before we talk about recommended portfolio design, because I think it’s important that people understand how they pay for these types of investments and what’s inexpensive and worth it and what’s expensive and not worth it.

Matt Rzepka (00:42:50):

Yeah.

Michael Port (00:42:51):

So Matt, can you just talk a little bit about what the general fees are for say a Vanguard total US stock market fund, which would have all the stocks in the whole us market in one fund or an S&P 500 fund, which is just the top 500. How do the fees generally work for say a Vanguard fund like that?

Matt Rzepka (00:43:09):

Fee warfare has existed for a long time. And now thankfully, it’s just becoming more transparent and people are becoming more aware. And that’s been the warfare on Wall Street. It’s a disclosure game. They’ve had to disclose certain things, but then you can find out more later and it’s just a legal war at that point. So lower fees are always better for your performance. If you’re gonna pay higher fees, you better make sure you’re getting higher performance. But we as Americans and humans, what we typically do when we’re paying a higher fee, we pay the higher fee and then we don’t monitor. We don’t check. We don’t look at it. And then that’s where the fee can erode your return significantly over the long term. So like the hedge fund guys, the, the 2 and 20s, you may have heard that 2% fee and a 20% of profit.

Matt Rzepka (00:43:51):

That’s a pretty big fee. So if you’re paying something like that, you better be getting a return that justifies it, or you’re losing a lot of your money unintentionally. So on the fee side for like Vanguard or indexes, or ETFs, you’re looking at the lowest cost options on the market. You may pay anywhere from, I’m gonna use a basis point reference, five basis points to 15 basis points. So what that means is 0.05% is five basis points or 0.15% is 15 basis points. Those are some of the lowest cost products you can find on the market.

Michael Port (00:44:22):

And, and a basis point. Matt, can you just describe like how many pennies in a hundred dollars is five basis points?

Matt Rzepka (00:44:29):

Yeah. Five pennies, a hundred basis points is 1% or a hundred pennies. Like that’s the way to think about it. If you’ve never dealt in the basis point conversation like that, it gets confusing at the start, but the penny reference is a good one. It’s…

Michael Port (00:44:40):

Yeah.

Matt Rzepka (00:44:41):

It’s basically one penny per basis point. A hundred basis points is 1%. So that’s just how you kind of do that math.

Michael Port (00:44:48):

So think about how this plays out over a lifetime of investing. Say, if you get a total stock market ETF from Vanguard. ETF is an exchange traded fund they’re made up the way index funds are made up on the exchange and you can trade them at any point throughout the day when the market’s open. They’re essentially the same type of investment. So you can get it for 0.04% or even 0.03% if you’re in one of the institutional ones. So that’s three pennies out of every a hundred dollars that you put in there. That’s what you’re paying. Three pennies.

Matt Rzepka (00:45:17):

Yep.

Michael Port (00:45:18):

For every a hundred dollars. Okay. Now imagine it was the same fund, but you were paying say 1.5% To the advisor. Who’s managing it. And we did a whole episode where we talked about advisors, the good, the bad, and the ugly. That sometimes advisors can be really helpful because they can keep you on track. And maybe that money is worth being spent. If it’s spent in a way that’s reasonable. But then in other times where the advisor’s gonna charge you a lot of money and not really pay attention to what’s happening, or actually put you into investments that are, are gonna lose to the market over time.

Matt Rzepka (00:45:50):

And if they’re charging you a fee, what are you supposed to be? Is it just investment management or are there other services in there? You know, make sure you’re clear on that again, ask those questions.

Michael Port (00:45:58):

Yeah. So you’re paying 1.5% to the advisor and that’s 1.5% of all of the assets that they have under management that are yours. So if you give them a million dollars, it’s 1.5% of a million dollars. If then the funds that you are in are another 1% expense ratio, now you’re paying a hundred basis points for the mutual fund and then many mutual funds still have a load at the beginning. A load is a fee that you’re charged when you make an investment into the fund. And many of them have stopped doing that because it’s been harder for them to get away with it, but there are still funds that do it. And so maybe you’re paying 5% on the front end of what you put in.

Michael Port (00:46:40):

Now, let’s just say you didn’t have a load, but there was, uh, 1% expense ratio on a mutual fund. But actually there are additional costs that the mutual fund incurs that are hard to see, that are not particularly transparent, but could add up potentially to another 1%.Iinternal fees, trading fees, document fees, all sorts of things that they will tack on. So now let’s just say you’re spending 2% to be in that mutual fund and you’re giving the advisor 1.5%, so now you’re at 3.5%. That’s coming off the top.

Matt Rzepka (00:47:16):

Yeah.

Michael Port (00:47:17):

So let’s just make it the math easier for me, just make it 3%. So if, if the market returns 10% and your mutual fund returns 10%, you have to pay 3%, 300 basis points, for the privilege of being in that mutual fund, versus say three or four basis points for being in an index fund that’s actually capturing the same amount of growth, but actually you’re getting more value in the return because you get that additional 3% or almost additional 3% that you’ve gotta pay to somebody else to get the same returns. Now it gets worse if the mutual fund underperforms the market. So the market brings 10%. The mutual fund has a return at the end of the year of 7%. And it costs you 3%. Well now you only made 4% and you were in a risky investment where you could have been in a bond that was much more secure making 4%.

Michael Port (00:48:10):

So that’s why I am the biggest fan of passively managed inexpensive index funds. Yes, there is absolute value to actively managed funds for some people in the right circumstances. And there are a few people who over a decade or so continue to produce big results in mutual funds, but we don’t know if they can do it for 30, 50 years,

Matt Rzepka (00:48:34):

Or how involved are you gonna be as the investor in looking at and monitoring your stuff? You know, your example, you just gave that mutual fund has to perform 13% return, 3% higher than the market, just to be on the same level. So if you know, you’re paying those extra fees, you better make sure have the wherewithal to compare it to what a passive index type investment would be and beat that benchmark. And if you’re not beating that benchmark, then you probably shouldn’t be in that fund. Now also you have to take the time to compare it to the benchmark and do…most people don’t get that involved in their finances. So…

Michael Port (00:49:05):

Yeah.

Matt Rzepka (00:49:05):

You, you just want to be aware of what’s gonna work best for you and how involved you’re gonna be. And then how do you compare things easily?

Michael Port (00:49:12):

Yeah. And how do you reduce stress around this? How do you make it as easy as possible, as worry free as possible, so that you know what your long term goal is? You know exactly what you’re paying, you know, how it operates and you can just go about the rest of your life and focus on the stuff that’s really exciting to you. I think that if you’re trying to outperform the market and thinking that you are smarter, or that you’ve picked an investment manager who’s smarter, then you’re always gonna be at risk of being fooled. You’re like, oh, I was wrong. I thought this guy was the best.

Matt Rzepka (00:49:42):

Or changing accounts or advisors on a regular basis. And then you may come out of the market and miss some of the market when you’re making the change. And there’s all those little risks of just not picking a strategy, making it simple, and sticking with it.

Michael Port (00:49:55):

If you start with mutual fund investments or individual stock investments, well, and you do get some gain from them over a number of years, if you realize, oh, I wanna take a different approach and move into index funds, well, you have to sell all those investments, which means you’re gonna incur capital gains taxes most likely. And if they’re short term gains, you’re gonna incur high taxes because you’re not gonna get the long term rate, you’ll get the short term capital gains rate. So I think there’s just a lot more risk in trying to beat the market than get the average returns. Because I think when people hear average, especially the kind of people that listen to our show who are ambitious, who like to be the best at what they do, they think average, I don’t wanna be average. Average is for someone else, I wanna maximize everything.

Michael Port (00:50:38):

Trust me. I am a maximizer. Ask my team. I always want everything to be the best. I want HPS to be the best, like everything. But I realized over time, average means the best for someone like me in the market. Meaning if approximately 85% of mutual funds cannot outperform the market each year, 85% of mutual funds on average do not beat market returns, that means I’d have to be clever enough to pick the only 15% who made returns that year and then know who’s gonna make them the next year and the next year and the next year, because past performance does not equal future performance. Just because someone, you know, did well last year, it doesn’t mean it’s gonna happen the next year.

Matt Rzepka (00:51:26):

And along the lines of performance, the best thing you can do for your retirement is save a lot. People chase performance, because they’re not saving enough. They’re not setting aside. You know, you’ve gotta allocate between saving and investing. But the more money out of your income that you can set aside into your strategy, the more safe and secure you’re likely gonna be long term. People are seen return because they’re not putting enough money aside. They’re spending too much of what they’re earning and that’s the most powerful thing that you can do. And then when you realize that you’re saving and putting money aside at a high rate, then you don’t have to worry about beating the market because you’re giving yourself the best boost that you can.

Michael Port (00:52:03):

Yeah. And you can also continuously buy and keep putting more money into the market to get those gains over time that the market has consistently produced.

Michael Port (00:52:15):

So advisors often talk about what percentage of your income you should be putting aside for quote unquote retirement. And usually they say 10%. But that seems woefully insufficient in this day and age, especially if people are starting late.

Matt Rzepka (00:52:37):

Yeah. The later you start the bigger, the number. The thing about that, I save 10% or set aside 10% of my income to provide a hundred percent of my retirement. How does 10% become a hundred percent? So you want that number to be as big as possible. Now, if you haven’t started saving, you can start at 10%, but try to ramp it up. You wanna ramp up that number you’re setting aside as fast as possible. Get your lifestyle to where you want, but everything you start to earn over and above where your current lifestyle is, don’t let lifestyle creep happen. Let that money go into your save means in investing strategies, because that’s gonna be your most powerful asset.

Michael Port (00:53:13):

I’ve been drilling into my kids, which probably means they won’t listen to me, but I’ve been drilling into my kids for as long as I can remember that as soon as they start earning money, you know, know out of school, I mean, they’re little money now at their jobs and they have investment accounts already. But when they are making an income, that is a full-time income after school, I really hope they put 50% of their income away starting from day one.

Matt Rzepka (00:53:42):

Yeah.

Michael Port (00:53:42):

And you might think that’s a huge number. Like if they get a job, that’s say $50,000 a year, they’re gonna live on $25,000. Yeah. When you’re 21 years old, you can figure out a way to do that. You get a place with a couple friends, you share rides, you know, you don’t buy some fancy souped up car that you can’t afford.

Michael Port (00:54:00):

And then by the time you’re 30, you’ll have enough money in there to be able to choose the kind of jobs you want and pass on the ones you don’t want. It just gives you so much more choice. And I did not do this when I was younger. And I look back and I think holy cow, I mean, when I was an actor, certainly in my early twenties, I didn’t have much money, but I still could have put money away. I mean, I made enough money that I could have put money away instead of, you know, wasting it on some of the things that I did. I think, man, if I had started back then, holy cow, because time is the greatest asset you have when you’re trying to produce returns from almost any asset class in the market.

Michael Port (00:54:39):

So let’s talk about a recommended portfolio as our last section here. For a speaker who, you know, is making a good living, speaking, maybe they’re not super famous yet, so they’re not pulling in crazy fees. But you know, they’re making some money. They’ve got enough to save. Maybe they’re able to put away 15%, 20% in that say that they’re in their forties, maybe late thirties. How do you generally recommend somebody sets up a portfolio for themselves if they’re doing it for long term returns and their retirement needs?

Matt Rzepka (00:55:16):

Yes. At the 30 to 40 range, your time horizon is 10 years plus. My general advice is to try and take as an aggressive of an approach on the portfolio, as you can stomach. And talking through that too is key at the beginning. Let’s use an 80, 20 reference, 80% stocks, 20% bonds. You can go in there and have a small portion of fixed income. What that allows you to do. If you’re not adding large amounts of money to the account, when the market fluctuates up and down, that’s when you have to buy some of the bonds and sell some of the stocks and vice versa when the market’s fluctuating. So an aggressive portfolio at that age is certainly warranted in my opinion, unless they’re gonna make bad emotional decisions. Some of that’s talking through it with the client to say, Hey, what are you gonna do? If the market goes down 30%,

Matt Rzepka (00:56:03):

Having that conversation at the beginning is really the biggest part. That’s where most people make bad emotional decisions is nobody talked about the bear market part of the conversation. Because the bear market is certainly the minimal part. You know, it’s typically 3 outta 10 years where we have bad market cycles. So 7 outta 10 years, it’s pretty easy to manage the account. So you don’t have to worry about that allocation as much from an emotional perspective. But I would say at least 80/20, and then if they are comfortable with that risk, you could even go a hundred percent stocks. And then as you’re adding more money to the account, figure out the allocation as time passes.

Michael Port (00:56:36):

I keep an 80/20 portfolio. 80% stocks and 20% bonds. I also keep a fair bit in cash as well, just in an emergency account, but there’s a difference between emergency savings, savings for a purchase, and investing. We address this in earlier episodes, but it’s important that people first have an emergency account that they can get quick access to cash if they need it for whatever reason.

Matt Rzepka (00:57:04):

Yeah. Access to capital.

Michael Port (00:57:06):

Access to capital. And then you might say, listen, we’re saving for a house. We wanna buy a house. Well, you’re not gonna take that money and plop it into a hundred percent stock market fund because that could drop 30% in a month or so. Then you don’t have access to that capital because you don’t wanna sell it at such a loss. And it’s just kind of tied up. It’s relatively illiquid in that way. So then you might say, okay, we’re gonna save money here for that particular purchase. That’s important to us. But then your investing is going into the market. It’s going into buying real estate if that’s something you want to do. Or it’s going into whatever other type of investment you think is in line with your particular philosophy and your goals.

Michael Port (00:57:49):

So let’s talk about what you buy inside that portfolio allocation and whether it’s 75% or 80% stocks and 20% or 25% bonds or 60% 40%, if you wanted to be more conservative, that’s really not a big deal. If it’s 80% verse 70% better to save and get it in there than obsess on, you know, these small differences in your portfolio. But then you’re just trying to keep it balanced so that it always stays at that particular ratio. So if stocks shoot up and my portfolio changes so that it’s now 85% and it’s 15% bonds, well, I’m gonna do one of two things. Either my next contribution is gonna buy bonds to try to get me to try to increase my share of bonds. So essentially I’m using my contributions to balance the portfolio, or I’m selling some of my stocks and moving it into the bond funds. And I don’t wanna do this in taxable accounts, but I do do that in tax deferred or tax free accounts because there’s no tax implications for selling and keeping it in those accounts. You know, if you’re just moving it from one fund to another inside those accounts.

Michael Port (00:58:57):

But let’s talk about what you buy. For me, I keep it really simple. I buy total US Stock Market Fund at Vanguard and I own all the stocks in the US stock market. I also buy the total US Bond Market Fund, and I own all the bonds that are available to buy. And that’s the majority of our stocks and bond investments. However, I do own some additional tips which are inflation, protected securities. And there were times when I had about 5% of the portfolio, just a small cap index fund. I eventually decided to move it out of that and just put it back in the total stock market, just because I didn’t wanna think about it. I wanted to make it even easier.

Michael Port (00:59:41):

But people don’t even have to go that far, do they, Matt? They could just buy a target date, retirement fund. My expected retirement date is X let’s say it’s 2050. So you buy the 2050 target date fund. And then the fund managers will keep a portfolio asset allocation that is appropriate for that age. And you just go, okay, I’m gonna trust they can handle that. They’re not picking stocks, not picking winners or losers. They’re still buying indexes, but they are taking control of the portfolio asset allocation so you don’t need to do any rebalancing. They do that and it will automatically rebalance and keep track with your age.

Matt Rzepka (01:00:21):

Yeah.

Michael Port (01:00:21):

So what’s your perspective? How do you feel about target date funds? What do you recommend people buy in their retirement portfolios? Do you mix it up a little bit more or do you keep it really simple? What’s your perspective?

Matt Rzepka (01:00:35):

Generally try to keep it pretty simple. There are lots of options out there. We’re big fans of low cost index funds or low cost ETFs. If you get a large enough account, some stocks in there. Stocks don’t have a direct cost other than buying the initial buying. And then the eventual selling. They usually charge you a trading fee, but those fees have come way, way down again with the internet accessibility of stocks. But again, for somebody, if you’re, especially if you’re managing it yourself, I think you want to keep it very simple. I have no problem with target date funds, especially if you’re not gonna be very involved. Because the most important thing is when you get to about five years of when you think you’re gonna retire and start using that money, you don’t want to have an overly risky allocation because if you have bad timing from when you wanna retire and the stock market goes into bear market mode, right as you’re about to start using that money, it can really change your retirement.

Matt Rzepka (01:01:30):

A lot of people learned that lesson the hard way in 2008. Their equity allocations were really high. 70%, 80%, 90%. They were hoping to retire in 2008 or 2009. And then we had a 40% decline. Well that changes everything because when you start to take money from a portfolio, the rules are changed. Everything is different and you have to have a distribution strategy to manage markets, to manage income and manage pensions, manage social security, manage taxes. So within five years of retirement, you want to be very interested in what your allocation is and making sure somebody is monitoring and helping you balance that risk.

Michael Port (01:02:07):

Now I hesitate to add this because it’s a whole other can of worms, but for the cash that I keep on hand, I actually keep it in Stablecoin and I’m not a crypto investor. I think I owned a few Bitcoins a number of years ago, but I don’t anymore. But I do own Stablecoin because I can get a 9% return from Blockfi or you could get it from Gemini Exchange, but I own the Gemini USD coin. There’s some risk involved, but it’s not a volatile cryptocurrency, but it’s giving me a 9% return on my cash while it’s sitting there in a high inflationary environment. And that’s just one element of the overall portfolio that we talked about. And that’s really, really key is all the different things that you either own or are liabilities need to be considered when you’re considering your portfolio. It’s not just what you own in the market that’s important. And as Matt has discussed a number of different times in a number of different episodes, you wanna think about your bucket strategy because you want access to capital in different forms that have different tax implications at retirement so that you are as tax advantaged as you can possibly be when it comes to withdrawing that money or accessing that money.

Michael Port (01:03:25):

So Matt, we gotta wrap up, but we’ve got another episode coming up next week. You know what we’re covering?

Matt Rzepka (01:03:31):

I do. We’re gonna talk about how to keep your income, your family, and your estate safe and sound.

Michael Port (01:03:38):

Well. That sounds nice. I like safety. It is very important.

Matt Rzepka (01:03:43):

It is.

Michael Port (01:03:44):

Okay. That’s it for today. Keep thinking big about who you are and what you offer the world. And one last thing before you go, don’t stress about this stuff. Just learn a little bit at a time. What, what I’m gonna learn next, like, you know, pick up a book that you think might help you. I’ll give you an example, say the Simple Path to Wealth, great book, by J. L. Collins. One of my favorites, really simple. You’re gonna hear what we talked about. You’re gonna hear it in the book and it’s gonna be even more detailed. So that’s a great place to start. But don’t panic. Don’t worry. As my mother says, everything will be fine.

The post S4E8 Asset Allocation appeared first on Steal the Show with Michael Port.

At times, the world of business and finance can seem like the wild west—and when it comes to money advisors, things are no different. You’ve got your white hats, your black hats, and a whole mess of ugliness in between.

On this episode, Michael and Matt saddle up and ride out into the rugged wilderness of financial advisors. They break down what makes a great financial advisor—and all the red flags that you should be on the lookout for so you can tell the good guys from the bandits. This episode can save you some serious time, money, and financial frustration. 

How You Can Steal the Show

• Get an inside look at the financial advice industry from an established finance professional.
• Learn how most financial advisors make their money.
• Figure out what a fiduciary is, and whether or not you should hire one.
• Tell a truly great financial advisor apart from one you should stay away from at all costs. (Pun absolutely, 100% intended.)
• Understand the different ways that different kinds of financial advisors can help—or hurt—your bottom line.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

In this episode…

• [BOOK] Where are the Customer’s Yachts? by Fred Schwed Jr. (2:50)
• [RESOURCE] Money Chimp Compound Interest Calculator (27:40)
• [BOOK] The Referable Speaker by Michael Port and Andrew Davis (44:25)

Other episodes of Steal the Show you may be interested in…

• S4E2 How to Speak the Secret Language of Business Jargon
• Andrew Davis On Obsessively Tracking Your Career, How To Create The Speech People Talk About, And Why You Can Charge More Than You Think With The FEE Model

Transcript

Michael Port (00:00:05):

Hello, and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money. I am joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. Hey, actually didn’t realize that rhymes. I don’t stand to make any money at all from you based on any of the educational material you hear on this podcast. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does, and you are welcome to hire him. I do. But I will not be compensated in any way at all if you do. I’m doing this purely because I love the topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it.

Michael Port (00:01:24):

So today we are talking about, I think my favorite topic, money advisors, the good, the bad, and the ugly. So let’s get right to it. Alright, Matt, before we really get into talking about financial advisors, I want to tell a story.

Matt Rzepka (00:01:45):

Okay.

Michael Port (00:01:46):

Now normally I always tell my students, don’t tell them you’re gonna tell a story before you tell the story. Just tell the story. But in this case, I thought you might kind of think what’s Michael doing? He’s just going off for a while. I don’t know what’s happening here. So yeah. I’m gonna tell you a little story.

Michael Port (00:02:01):

In 1929, there was a Wall Street stockbroker named Fred Schwed, Jr. And yes, that was his real name. Fred Schwed. Say that 10 times fast. Anyway, as you know, 1929 was not exactly an ideal time to be a stockbroker. The Great Depression was just around the corner and Fred, like so many of his fellow stockbrokers, had a lot of money in the market. Then the Wall Street Crash of 1929 happened and he lost it. But this Fred Schwed we’re talking about here, he’s not gonna let some measly market crash crush his dreams. So what does Fred do? He turns to writing and he becomes an author. Much like you and me. Fred publishes two books, a book on Wall Street called, “Where are the Customer’s Yachts?” and a book for children called, “Wacky the Small Boy.”

Michael Port (00:02:56):

Now I’ve not read “Wacky the Small Boy. “And who knows, maybe it’s just packed with sage investment advice, but that’s not the book I wanna talk about. Fred’s other book, “Where are the Customer’s Yachts?” goes on to be very influential. Since it’s publication, it’s been praised by people like Warren Buffet and Jack Bogel who founded Vanguard, one of my heroes. And you can find a copy of it online pretty easily if you’d like to read it as well. So this is what I’m trying to get at. Why did Fred Schwed, Jr. call his book “Where are the Customer’s Yachts?” Well, the title comes from an old story about someone who visited New York City many, many decades ago. As they walked along the water, a guide was showing them all the yachts in the harbor, all of which were owned by finance professionals on Wall Street.

Michael Port (00:03:48):

As they were admiring the boats, they turned to their guide and asked, where are the customer’s yachts? The answer of course was…crickets. The customers don’t have yachts, but their financial advisors do and they’re paying for them. So Matt, I wanted to tell that story because I think it says something important about the money advisor industry. Now, to be clear, I’m not totally anti-money advisors, I’m doing a podcast with one. I love this guy and I also pay him to advise me about money. But when I say that I think people should regard the money advisor profession with a healthy degree of skepticism, I mean it. So often the industry seems set up to confuse us so that we make our advisors a ton of money instead of the other way around. Okay. So now that I’ve fully impugned your line of work, go ahead and defend yourself.

Michael Port (00:04:46):

No, I’m just kidding. You don’t need to defend yourself. You’re not speaking for all advisors. But look, the fact of the matter is, we know that legally, most advisors are not required to give you advice that is in your best interest. They just have to give you advice that is suitable for you. So for example, let’s say the advisor is gonna recommend two different funds or could potentially recommend two different funds. They’re almost identically diversified and they’re both suitable for you. One of them is very low expenses, so it’s gonna cost you almost nothing to be in. The other one has a really high expense ratio and a load every time you put a chunk of money in a percentage comes out, or at least the first time. The advisor doesn’t have to give you the one that is cheaper if they think that they can make more money on the one that is more expensive. As long as that is suitable for you, they, they can do it. Unless of course they’re a fiduciary, which we’ll get into in a bit. But what is your perspective on the overall finance industry? The wealth advisors, the financial advisors, the money makers, the money managers, and brokers are a whole other story altogether, so what’s your perspective?

Matt Rzepka (00:06:06):

Yeah, the industry itself, whether it’s financial, professional, CPA, even attorneys, you always have to go into a situation with your eyes wide open and number one, ask if somebody’s a fiduciary. What are they advising you on and do they have to act in your best interest? So my first designation I achieved was the CPA and that by nature makes me a fiduciary. So everything that I do has to be in the best interest of the client. And again, a lot of that comes down education. If somebody doesn’t want to educate you as to what they’re recommending, I would be very skeptical. And this has been an argument going on for a while in the industry itself. We’re trying to adhere to a fiduciary standard by all which I 100% support. If you’re dealing with someone’s money, you should be a fiduciary to them. You should have to give them an advice and give them direction for what’s best for them. Unfortunately, the industry has not been that way. It’s trying to get that way, but there’s been some roadblocks along the way. And again, usually the financial professional world specifically, they have intention of getting you to do something that’s best for them. They want to create a simple, easy business model where they make a lot of money and you just invest and hope for the best. Yeah. And it’s not necessarily designed to be what you want or making sure you’re achieving your goals.

Michael Port (00:07:26):

Yes. So I wanna tell you one more anecdote from my earlier years, then I wanna talk a little bit more about being a CPA and what that entails. Because I think there are some things that you might be able to share that are actually new to people even though they’ve been using CPAs for many years. But then I wanna go deeper into the fiduciary duties and some more of that. But when I was leaving acting, I was trying to figure out what to do. This was in maybe 2001 or something, at least the late nineties. Trying to figure out what to do. And I had a girlfriend at the time who had a friend whose husband was a financial advisor down on Wall Street- had a firm. He was always very well dressed, very handsome and a really nice car, you know, and was kind of one of those socialite New York guys.

Michael Port (00:08:15):

You know, we spent an afternoon together, out at the Hamptons just because we were there with some couples and friends. And I was telling him I thinking about leaving acting and maybe it’s time. He said, you know, you’re quite charming. I was like, well thank you very much. He said, you’re also quite good looking. I’m like, oh, come on, you’re being no… He said, no, but I’m serious. He said, I think you might do really well working in our firm. I said, oh, are you in the entertainment industry? He said, no, no I’m in the finance industry. I’m a financial advisor. I was like, what does my charm and my looks have to do with that? He’s like, oh, because I think you can sell. And I said, sell what? I mean, I had no idea. I was a kid. Is it financial products? I said, yeah, but what do I, I know about financial products.

Michael Port (00:08:56):

He’s like, don’t worry about it. Come down to the office, look around, we’ll have lunch. We’ll talk. So I went down to his office. As soon as I walked in, I was like, I’m never working here. There’s I don’t care what they do. But I walked in, he introduced me to a lot of men, all guys, you know, preening…

Matt Rzepka (00:09:11):

Yep.

Michael Port (00:09:12):

Kind of thing. And then he took me out for lunch. He explained they would put me through a training program to learn the products. And then my job would be to sell the products. And I said, well, how would I do that? You know, I like to ask really obvious questions because often the answer is not obvious. So I try to ask like the simplest questions, like I wanna be thought of as like, that’s the dumbest guy in the room, because he’s just asking the simplest questions.

Michael Port (00:09:36):

So I said, well, how would I do that? He says, well you would start with all the people you know, and you’d start calling them and telling them about the tips that we have on stocks and the different funds that we’re investing in. And we teach you how to sell those types of products. And I said, how would I make money? He said, well, you’d receive a commission for all of that. I was like, really? I was like, so the better I am at selling them, the more money I’ll make. He said, absolutely. I said, how much do I need to know about finance? He’s like, nah, not that much. I was like, okay, this is a really interesting, very informative conversation. And I was just a kid at the time. And I think that’s one of the big problems with the industry.

Matt Rzepka (00:10:16):

Huge.

Michael Port (00:10:16):

Most people are going into it focused on selling financial products. But just because you can sell something to somebody doesn’t mean it’s worth selling to them.

Matt Rzepka (00:10:26):

Yeah. The analogy I like to give when we talk about this stuff is if you’re a golfer, you go out and buy a new driver because you think it’s gonna fix your golf game, but you should go or swing coach. We don’t wanna go to the financial club rack. We want to go get a swing coach. We want to get specific direction about what we should be doing on the overall process.

Michael Port (00:10:47):

Yeah.

Matt Rzepka (00:10:47):

Not just, Hey, I’ve got the newest, greatest product and it’s gonna save your life.

Michael Port (00:10:52):

Yeah.

Matt Rzepka (00:10:52):

Its not the case.

Michael Port (00:10:53):

Yeah, absolutely. As a CPA, what is it that you do? What’s your focus as a CPA and I’m asking this because I think it’s a focus or a process that would serve any small business owner. And so if our audience understands it, they might even be able to talk to their CPAs and be like, can we do some of this stuff? And if they push back on it, then you probably need to find another. Like I remember I was even before we worked together, we were just having a conversation about changing out some of our entities and creating a slightly different structure for lower tax exposure and higher profit margin potential. And I brought it over to the accountant I was working with at the time. And I was like, what do you think about this? Think this would work? He’s like, oh that would be good. I was like, well, how come you never suggested that? He’s like, I don’t know. I was like, okay, you’re fired. You’re done. That’s it. I’m out. I said, Matt, can I come work with you? So tell me about your process, your perspective as a CPA.

Matt Rzepka (00:11:46):

Yeah. The CPA industry is very historical. They’re often not bringing proactive ideas to the table for you to consider and what we do, we have all kinds of compliance things, all CPAs do that we have to file and take care of and get done. But we bring tax planning to the forefront of what’s going on. So tax planning is really twofold. What is it that you could change today, immediately to have a better impact and a lower tax consequence for you and your business? And then annual tax planning going forward into the future to monitor things as they change. And making sure first and foremost that you understand when you file your taxes and you pay your taxes on April 15th, what is that gonna look like? You know, the surprise game is not a great way to do your taxes. Hey, turn in on my, and I’m gonna sweat bullets until somebody calls me back and says, Hey, I’ve gotta either write a really big fat check or I’m getting money back.

Matt Rzepka (00:12:39):

You want to know that going in so that when you’re doing preparation of taxes, you already know the outcome. Because again, information is power that allows you to make decisions, allows you to start looking at what could we do differently. And the industry has never really been taught from a CPA’s perspective on how to do that. Now you’re seeing it more and more today. It’s evolving over time and it’s definitely happening more. But what you’re also seeing again, this is the money advisor game, a lot of people who aren’t CPAs are getting the tax industry and they’re marketing what CPAs are lacking. If you’re going down that path you just always wanna make sure you know the full story and what you’re getting and making sure that you’re getting accurate and proper advice.

Michael Port (00:13:21):

So you’re a CFP and a CPA.

Matt Rzepka (00:13:23):

Yes.

Michael Port (00:13:23):

A certified public accountant and a certified financial professional. And the CFP is the highest designation that you can earn in your field.

Matt Rzepka (00:13:31):

Yes.

Michael Port (00:13:31):

It’s a very, very rigorous test. I think the majority of people fail it the first few times. So it’s, you know, pretty substantial. But would it be relevant for someone to ask their CPA or a CPA who is both a financial advisor and a CPA, which they were first?

Matt Rzepka (00:13:49):

It could be. Here’s a funny government regulation that we have to deal with on top of the advisor situation. If you’re just a financial professional, financial advisor, you’re technically not allowed by law to talk about taxes. However, virtually everything you do with your money has a tax consequence.

Michael Port (00:14:05):

Right.

Matt Rzepka (00:14:05):

So then you’re forcing the industry to have two professionals involved. Those two industries have not really set up a system for those two professionals to be involved with each other efficiently. And then you start getting conflicting advice and then you, as the client start wondering what the heck is going on and what decision and who do I listen to. And then you’re frozen because you don’t know who’s telling you what and who’s right. What do I listen to? So you just keep trying to save money and make money.

Michael Port (00:14:30):

Yeah.

Matt Rzepka (00:14:30):

And you don’t learn anything. You don’t really know what’s going on and you don’t have a plan.

Michael Port (00:14:34):

Yeah. It really does help that you fill this role for us almost like a CFO in my pocket. Right? So we’re a small company, you know, Juli is our Director of Finance, but we don’t have like a traditional CFO. We’re not large enough to have one person who’s just the CFO and that’s all that they do. And because of the kind of relationship we have where you’re not just doing my taxes, you’re also advising us along the way. Even though we manage our money, I manage the company money and I manage my money. You are advising us along the way. So I feel like not only do we have a CFO who can help direct us in important financial considerations in the business and the tax implications of those choices because they are significant, but also the person who is helping do all the tax planning and strategy, but then also advising on savings and investing and making sure that our buckets are properly filled at the right ratios for what our goals are, et cetera. So you’re able to move through all of three of these areas. And I think that is one of the things that’s really been lovely for me because I think it also makes us closer. Most people don’t have like a close relationship with their accountant cuz they see them once a year if ever, but we talk on a regular basis because it’s not just about filling out the 1040 that’s almost to me almost the least of what you do.

Matt Rzepka (00:16:03):

Yeah. The transactional part of the CPA business is necessary, but it’s not the most important piece. And then additionally, our business models different than a lot of traditional CPAs where we do fixed fee. We actually educate and tell clients that we want you to communicate with us because if you’re trying to figure stuff out on your own, and then you tell us after the fact we can’t provide any advice or value, it says, oh, well maybe think about doing it this way.

Michael Port (00:16:27):

Right.

Matt Rzepka (00:16:28):

When I worked in a public accounting firm before we started the company, that was the thing I saw over and over that I said, Hey, there’s a need here. And that was one of the driving forces to start the company is that we’ve gotta be able to deliver advice differently. So if, if you’re getting charged by the hour or you’re not sure what something’s gonna cost, figure out how to get your current professional in with some sort of planning mantra where you can communicate with them more. And if they’re not willing to do that, then you probably need to look elsewhere.

Michael Port (00:16:54):

Yeah. Amen. So let’s transition into some of the uglier. No look, I think that it’s very, very unlikely that anybody’s gonna end up paying for their CPAs’ yachts. You know, CPAs don’t tend to charge extraordinary fees to individuals or small business owners, but often people in the advising industry are making a lot of money off people’s portfolios, even if the way they have those portfolios managed is not in fact productive and could be quite costly. So let’s talk a little bit about financial advisors. In the earlier episode that we did on terminology, we discussed the fact at financial advisors kind of a made-up term.

Matt Rzepka (00:17:37):

Yeah.

Michael Port (00:17:37):

And there’s lots of different terms that people use wealth advisor. What are some of the other ones? Financial professional.

Matt Rzepka (00:17:47):

Yeah. Even like wealth strategist.

Michael Port (00:17:48):

Wealth strategists.

Matt Rzepka (00:17:50):

I mean, you know, there’s all kinds of, and you have to be aware of what is just words on a paper versus a designation.

Michael Port (00:17:57):

Yeah.

Matt Rzepka (00:17:57):

You know, certified financial planner is the designation. That’s the CFP. CPA again. So you want to be aware of what the true credentials are versus a made-up credential.

Michael Port (00:18:07):

Right.

Matt Rzepka (00:18:07):

There’s a lot of that out there.

Michael Port (00:18:08):

Because if somebody is gonna manage your brokerage account or your retirement accounts, they do have to have some certifications. They have to pass some tests.

Matt Rzepka (00:18:18):

Yeah. Some federal securities licenses are required, but they’re not a required fiduciary.

Michael Port (00:18:23):

Correct. So let’s talk about what the difference is because some of those licensing, like I feel like if I studied for a few months, I could probably pass some of those licensure…

Matt Rzepka (00:18:31):

Absolutely.

Michael Port (00:18:31):

…tests. But if I just studied for a couple months, I could not pass the CFP test. It would take a lot more work.

Matt Rzepka (00:18:39):

Yeah.

Michael Port (00:18:39):

To get to that level. So can you talk a little bit about the difference between a financial advisor who’s just passed their, I don’t know what series they need, 6, 7, 52, 900, I don’t know what they need, but you do, and what a fiduciary is?

Matt Rzepka (00:18:54):

Yes. So the series licenses really allow you to sell different types of products. So you can get just a 6 and 63, which is just gonna really allow you to sell mutual funds and annuities and stuff like that. You can get a 7, which is more individual stocks and other things. And then there’s even four or five other licenses you can get. But none of them require you to be a fiduciary. It just allows you to sell the product. The fiduciary standard is really either given by a company or given by other designations that you have. So the CPA, CFP designations are really my fiduciary standard. And again, when I started that’s one of the benefits of me starting in the CPA world was I learned a lot about the full picture. And again, there’s assumptions there that CPAs are doing a lot in that full picture, some are some aren’t, but it gave me perspective to say, okay, how does this all fit together in a whole 100% puzzle?

Matt Rzepka (00:19:48):

And the licensure, if you just want to change career, you can go take the test, pass the test and start selling products. Similar to how you got pitched when you were thinking about getting out of acting. It just it’s a sales mantra more than anything else. What happens then typically is the financial advisor is successful at selling and then they start to figure out there’s more to this game. Now, some who have a fiduciary mindset then start realizing, Hey, I need to educate. I need to start doing things differently and serving clients differently and upping my game. But unfortunately, a lot don’t because they build up a book of business, so to speak and then just live off the income from that book of business, really irrespective of how the client is doing.

Michael Port (00:20:25):

Right.

Matt Rzepka (00:20:25):

And that’s a lot of the goals, unfortunately, with some financial advisors who aren’t fiduciaries is they just wanna build up a book and take easy street so to speak.

Michael Port (00:20:33):

Yeah. So if someone hears the term money manager, does that actually mean anything?

Matt Rzepka (00:20:37):

A money manager can be separate from a financial professional who is just maybe working for one of the big wirehouses. So they’re managing the day to day activity from the Wall Street trades, not necessarily working with clients. So there’s a lot of steps and pieces in the process where you’re gonna have different parties doing different things.

Michael Port (00:20:56):

So most people wouldn’t work directly with a money manager?

Matt Rzepka (00:20:59):

Typically not.

Michael Port (00:21:00):

Okay. And if someone was a money manager and trying to get them to invest their money with them, that would be odd?

Matt Rzepka (00:21:05):

It could be possible, but you want to make sure they’re basically just taking your money and trying to make money with it and charging you a fee for it.

Michael Port (00:21:13):

Okay.

Matt Rzepka (00:21:13):

They’re not really looking at whether that’s appropriate for you or how the rest of your finances fit together. They’re just taking, if you’re gonna write, ’em a check for a hundred grand, they’re only worried about the a hundred grand.

Michael Port (00:21:23):

Okay, so here’s the thing. Most people who go into the advisor business do so because it can be very lucrative if you are able to secure a lot of high net worth clients, which is why you see sometimes the storefront, it says like wealth something, right? So that’s okay. We want rich people. That’s what they’re saying. Or they’ll say I don’t take anybody who has less than a million dollars in assets, you know, whatever it is because if they have a lot of money under management and they are charging a fee for that service, say, let’s say the fee is 1.5%. Sometimes it’s 1%. Sometimes 1.5%.

Matt Rzepka (00:22:05):

And you have fees from the companies too.

Michael Port (00:22:07):

Correct.

Matt Rzepka (00:22:08):

Yeah.

Michael Port (00:22:08):

So you have this one fee, just assets under management fee, AUM. And if there’s a million dollars of your money that they are managing every year, you’re gonna give them 1% of that. But also they may have you in mutual funds that have very high expense ratios. So it might have an expense ratio of 1.5%, 2.5%, 3.5%. And now say 2.5%, 3.5% of whatever is in that fund is going to that fund manager.

Matt Rzepka (00:22:42):

Yes.

Michael Port (00:22:43):

Okay. So now we’ve got, let’s say it was 2.5% and you had to give 1.5% to the financial advisor. Now that’s 4%. Now there may be a load on the first money you put in. So you move a million dollars over there into this one fund and there’s a 5% load. You may have to pay 5% of that million dollars to that fund and they’ll split it with the salesmen, I guess in some way. They’re just like chop, chop, chop, chop, chop, chop chopping money off where they can.

Michael Port (00:23:11):

And then there might be additional costs of being in the fund, just due to a concept called churn.

Matt Rzepka (00:23:16):

Yeah.

Michael Port (00:23:16):

If they’re buying and selling stocks in that fund regularly, they may be incurring costs for that kind of churn. And there’s also often tax implications associated with that. And so I mentioned this because you don’t have to pay that kind of money to be in the market in a reasonable way. John Bogle, who was the founder of Vanguard said investing, the more you pay, the less you make.

Matt Rzepka (00:23:41):

Yeah.

Michael Port (00:23:42):

It’s kinda the opposite. Like if I’m gonna hire the best carpenter in the world, I’m gonna pay more. If someone’s gonna hire Amy or me to work with them, they’re gonna pay more because of the skill that we bring. But in investing, it’s a little different.

Matt Rzepka (00:23:56):

And technology has evolved and changed and you used to not be able to buy stocks as an individual.

Michael Port (00:24:01):

That’s right.

Matt Rzepka (00:24:02):

But the internet and everything, that’s evolved the last 25 to 30 years has changed the game.

Michael Port (00:24:07):

That’s right. So for example, I could do what a money manager will do because I take a very simple approach to the way that I invest. And it’s what would be considered a Bogle head approach. Fans of John Bogle. Which is I buy everything. I buy the total market. I buy the total bond market. So I buy the total stock market and I have a particular ratio of bonds to stocks that I am comfortable with at this stage. And almost every year I beat the funds that are trying to compete with the various benchmarks in the market. Not because I’m smart, but because I don’t do anything,

Matt Rzepka (00:24:45):

Let the process be the process.

Michael Port (00:24:46):

Yeah. So I, I stand there and do nothing once I’ve got it settled out and straightened out and just focus on producing money to then put into there to hopefully have it grow over long periods of time.

Michael Port (00:24:56):

This is a little bit of a long diatribe, a little bit of a soapbox. I’m not saying that nobody should work with an advisor. Like I think there are people that absolutely should be working with you as an advisor. They may not wanna be as wonky and geek out on this stuff the way I do. I mean, I spend a lot of time learning about this. I’ve enjoyed it. It’s not always been easy. It was harder at the beginning as I was trying to get up to speed. Now it feels easier, but some people may not want to and that’s okay. But if they are going to get someone to help them, that person has to be a fiduciary, has to sign a paper that they’re a fiduciary because sometimes what you’ll see advisors do is they’ll act for one thing as a fiduciary. But this other thing is like really deep into the small print. It says in this particular case, I’m not a fiduciary.

Matt Rzepka (00:25:44):

Yeah.

Michael Port (00:25:44):

And then all of a sudden, and you don’t know, and what they’re giving you is not actually in your best interest. So when do you think it is worth it for someone to work with a financial professional, like a CFP rather than doing it themselves?

Matt Rzepka (00:26:00):

A lot of that comes down to education and decision making ability. Because a lot of things when it comes to investing are opposites.

Michael Port (00:26:07):

Yeah.

Matt Rzepka (00:26:07):

Where you can’t make bad decisions at the wrong time or it could really cost you. No. So the example of that, the easy example is when the market’s going down, the natural reaction to most people is that they should start selling.

Michael Port (00:26:18):

Right.

Matt Rzepka (00:26:19):

And you actually would wanna start buying. And so if you don’t have some of those basic skill sets, you may wanna work with someone that maybe over time, you do start to manage it on own or in a different platform. But being fee conscious, you know, fee compression is real. And any advisor that’s not acknowledging it is likely losing clients. Fees are ways that financial advisors that just do financial advising also can give you advice. But again, you wanna understand that you’re signing up for that at the beginning, that you’re gonna get more than just money management.

Matt Rzepka (00:26:48):

I’m gonna get advice. I’m gonna get planning. We’re gonna talk about estate planning. We’re gonna talk about all kinds of things. We like to work with other professionals. The problem is, is we often run into who’s the head honcho issue. Or we picked up a really big client just based on the fee discussion. We did a review of their accounts and I said, well, what fee do you think you’re paying? And he said, oh I’m paying 1%. I said, okay, well I wanna make sure because it doesn’t look that way on your statements. And we just did some simple math. We was paying 1.75% and was really not happy because it had been a…now the performance of the accounts had been good still. So they were doing proper asset allocation doing some other things, but they didn’t properly disclose all the fees.

Michael Port (00:27:30):

Yeah. And you know, sometimes people don’t realize how significant a small percentage point is because they go, it’s 1%, what’s the big deal. But if you use a compound interest calculator just do a search online for compound there’s calculator. There’s one from Money Chimp that’s a good one. You put in your current principal, put in the amount that you’re gonna save each month or year, depending on, on what the text box asks you for. And then you’ll put in perspective interest rate. So you may say, okay, well I’ll put it in at 9%. If I got 9% percent on average every year for the next 30 years and you put the number of years to grow, what would it be? And then you see your total and you go, wow, that’s amazing. Well just take one percentage point off that, keep everything else the same, take one percentage, point off that.

Michael Port (00:28:16):

And you go, holy shit, that’s like a million dollars.

Matt Rzepka (00:28:18):

Yeah.

Michael Port (00:28:18):

That’s a big number. Now I think I am with you absolutely. That if somebody’s going to risk making mistakes because they are responding to what’s happening in the market or they think they are. And if they’re making very emotional decisions about how they are managing their portfolio, if they don’t have a written documented portfolio plan, meaning this is exactly what I do in this situation. Here’s, here’s what we’re doing for the long haul, et cetera. Then that really may be money well spent because if you go in and outta the market in and outta the market in and outta the market and you’re not optimized, your expense fees are too high, all these things. You may be giving away, way more than the one that you’re gonna give to a good advisor who is also a fiduciary for making sure that you don’t screw it up. I think that’s really reasonable.

Matt Rzepka (00:29:14):

Yeah.

Michael Port (00:29:15):

And then if you, you know, wanna learn more over time, you may say, okay, I’ll do it myself. But I think that for some people that really can make a difference. And if you pick an advisor, who’s a fee only there there’s questions you have, you can pay a fee, an hourly fee and get the advice you need and get more advice when you need it, et cetera.

Matt Rzepka (00:29:33):

Or if your professional doesn’t want you to transition to being more involved, then they might not be in it for the right reason. So somebody said, Hey, you know what? I want to get to a point where I can do this on my own. We would come up with a plan on how to do that. And let’s say they still wanted some advice. We can set up a separate fee agreement that doesn’t have to be a percentage of assets that says, okay, here’s what we’re gonna do now that you’re managing this on your own. So we can be accountable with you to make sure this is going how you want. And if it doesn’t, then we can change it back. But again, it’s about you, the client, not me, the advisor.

Michael Port (00:30:04):

Yeah.

Matt Rzepka (00:30:05):

And so you have to figure out what is gonna be best for you. And if you want to try and go down that path, someone should be there to support you in that.

Michael Port (00:30:11):

So let’s talk a little bit about insurance agents because sometimes advisors also sell insurance products. Sometimes they don’t. Sometimes there are people who sell just insurance products, but they don’t do any kind of money management or investment work. So can you unpack that for us?

Matt Rzepka (00:30:30):

Yeah. So insurance is a totally separate license. It’s a totally separate area of investments. In general. Some of them are not even really referred to as investments they’re referred to more as savings vehicles. You start to bring in annuities into that conversation. It gets very complicated quickly. Now the thing I like to say is there’s no product out there that’s intentionally bad. It’s just used wrong in context. That’s a sales model where, well I’m selling this annuity and I just want you to buy it because that’s how I to put dinner on the table, so to speak. But annuities, a lot of people will talk bad about annuities, and annuities are an insurance product. Annuities are very good when used properly. A lot of people today would say, okay, well I hate annuities, but they sure do love their social security check that shows up every month, you know. Social security is an annuity. And a paycheck type of mentality and retirement. Some role is certainly willing to play. Now you again, have to look at your total assets. That’s why the big picture’s always so important. And when you start talking about the different advisors in the mix, the insurance agent often just plays one piece of the role. So they’re not operating on all the information. Now that’s not is the case, but it’s probably more the norm than not.

Michael Port (00:31:45):

Yeah. If insurance agent quickly recommends a type of product without spending a significant amount of time going through the whole picture of your financial health and goals, would that be a red flag for you?

Matt Rzepka (00:32:01):

Yes.

Michael Port (00:32:01):

Yeah, because there are multiple types of insurance products. So let’s just look at life insurance for a second.

Matt Rzepka (00:32:07):

Yeah.

Michael Port (00:32:07):

So you have term life insurance policies. You get this policy for a certain term, 10 years, 20 years. And you have a premium that is agreed to at the beginning of the term and you pay that premium throughout the term of the policy. Now there are also permanent life insurance policies, but they come in many different forms. So you have a whole life policy. You have a universal life policy. You have a universal index policy. I mean, there might be more names that…

Matt Rzepka (00:32:37):

There are, yeah.

Michael Port (00:32:37):

…I don’t even know. So that can be really confusing, especially because they have been for many, many years, those permanent policies. The variable life, universal life, whole life. They have been pitched as investment vehicles. So they took an insurance product and they supposedly added an investment component that works in this very tax advantaged environment. That is sort of like the end all be all for everyone. And there are absolutely times it seems to me when some of those policies may actually be really effective. But for most people they seem like they’re just losses. Like you’re gonna spend a ton of money the first 10 years before you even start to break even on the policy. You’re not even gonna be able to understand the fees because they’re so confusing and baked into it. So you might be paying higher fees than, you know. So for most people they’re probably not necessary. But who would they actually actually be appropriate for? Who would use them and why?

Matt Rzepka (00:33:43):

The biggest thing when it comes to permanent insurance products is again, the sales process. Oftentimes all the benefits and ideas and here’s how this is gonna help you takes over the conversation. But it doesn’t sit down and look at a budget. It does doesn’t sit down and look at a plan. I don’t look at permanent insurance as investments, they’re savings products. You’re not gonna ever get a huge rate of return in any one of those categories. Like the market, you’re in it for the long haul, right? So the long term result of what’s going on there is really the place to focus. And then again, access to capital. So you have some unique access to capital. In some of those products. You do have some tax benefits. Part of it’s risk tolerance. I personally use some of those products for myself because I want to make sure there’s a portion of my money that doesn’t go backwards.

Matt Rzepka (00:34:35):

So if you’re not comfortable with some of the risk components of how all of your money being in the market would work, that would be one place to look at it. You know it’s such a personalized decision. I use it as my foundation when I started. I was not doing a lot of investing outside of some of those strategies first because I wanted to make sure, Hey, the business is the core asset, generating the income. I wanna make sure that always is moving forward and I’ve got access to money to make sure that’s happening. Then as that foundation grew, that’s when I started bringing in more risk categories, buying more stocks, buying other assets that carry risk to try and grow them faster. So it’s a combination strategy in my opinion, but whatever you do there, if you’re gonna go into one of those products or policies, you don’t want to go in it for the short term. You’re guaranteed to lose money.

Matt Rzepka (00:35:23):

If you do it for 2, 3, 5 years and quit. So don’t go into the process lightly. Then you want to take the time to make sure this is something I want to do. And if you make the decision to do it, you have to stick with it. Now it doesn’t mean you can’t change course. Like let’s say something changes and you need to modify what’s going on. Talk to the person who helped you buy the product. Now here’s the other issue with the good, the bad, and the ugly. A lot of times that person doesn’t exist anymore. So because it’s a sales environment, they didn’t survive the sales world and they weren’t producing enough income for the company, so their job was eliminated. Or they just said, you know what? I’m not good at the sales thing. I’m gonna go do something else. Well now you have a policy. And if you don’t have somebody to talk to that says, Hey, how do I get this back on track? A lot of policies are underfunded. They don’t have enough money in there where you can start to overcome the fees. And so that’s usually when we encounter a client who has a policy. It’s the first we looked at, what’s the funding component? Is there more funding that can get into this policy? We can make it start being more efficient for you.

Michael Port (00:36:24):

Earlier you mentioned, tell me if I got it wrong, but you know something to the effect of like policies aren’t necessarily designed to be bad or to be evil. You didn’t use the word evil, but maybe that’s what I heard. But I, I think so some of them are. Meaning like I’ve seen the way you’ve designed some of these and I understand the design for the most part. And they’re well designed and appropriate for certain people who want to for tax purposes, use that kind of vehicle. I bought two of those policies, not from you, but before we started working together. I bought one right after Jake was born, because that’s typically and people get life insurance. And uh, I don’t know, I met this guy, Jack. I don’t know how I met this guy. Someone introduced me to him or I called and said, Hey, do you have somebody who could get me some insurance?

Michael Port (00:37:07):

He comes to me and he, he never even talked about any other type of policy except this universal life policy. And I didn’t know there were any other types of policies. I was completely clueless. So he said, well, this is what your monthly cost is gonna be for the insurance. And look at this death benefit that you’re gonna get. You can put more into it because then you’ll get a return. You know, all of this stuff. I’d say that’s wonderful. So about eight years later, I needed more insurance. As you get older, often you need more insurance. So I went to get another policy and this woman was someone my mother knew that had helped her out, sold her some insurance. So she sold me a policy that was extraordinarily expensive. And after I bought it, I had this moment of like, wait a second.

Michael Port (00:37:52):

I don’t really understand exactly how this works. This was before the realization and adopted the mantra of if I don’t understand it, I’m not buying it.

Matt Rzepka (00:38:02):

Yeah.

Michael Port (00:38:02):

Simple as that. And then I said, well, how do I figure out if these are any good? I have to figure this out. I mean, maybe I got incredible products here or maybe I got dogs. I went online and I found this guy in Vermont who used to be the commissioner of insurance for the state of Vermont in his retirement. He just evaluates insurance policies for like 125 bucks. That’s it. So I sent them to him. He sent them back. And the one that I had had for a long time, he said, look, it’s the shitty policy, but you’ve had it for so long that you might as well just keep it, just stay in it because you’ve gone through most of the pain you’ve hurt yourself.

Matt Rzepka (00:38:41):

The pain is early.

Michael Port (00:38:42):

Yeah. Right. You already got beaten pretty badly. Now you’re out of the hospital and you still have a limp, but you know, you can walk this other one that you just bought. It is the worst policy I’ve ever seen. Dump it today. And I said, I just paid a $25,000 premium. He’s like, yeah, lose that money today. Because you’re gonna lose more money going forward. I was like, oh my God. This was around the time when I started getting more serious about learning, because I just felt like I was duped. I felt stupid. And I think that happens to a lot of people, but we just cannot give up when that happens.

Matt Rzepka (00:39:14):

And again, the fiduciary component to all this, how do you not have a conflict of interest? If you can design a policy one way and make more money, which is better for you and the insurance company versus designing the same policy a different way, which is better for the client.

Michael Port (00:39:29):

Yeah.

Matt Rzepka (00:39:29):

Unless there’s some other authority that’s trying to hold people accountable, there’s a lot that can go on there. That isn’t best for the client.

Michael Port (00:39:36):

Yeah. So tell me if this is accurate. My understanding is that there are a couple different times when permanent life insurance policies can be helpful. Most people should use term.

Matt Rzepka (00:39:48):

You absolutely want to have death benefit protection with term insurance. I own a lot of term insurance because again, one of my biggest risk is if I were to die, I wanna make sure my family has enough money to do everything I wanted them to do if I was here.

Michael Port (00:40:01):

And it’s cheap for the benefits.

Matt Rzepka (00:40:02):

Yes. Yes.

Michael Port (00:40:03):

And of course insurance is the only product that you hope you never have to use.

Matt Rzepka (00:40:06):

Yes.

Michael Port (00:40:07):

Or you’d like to use it when a hurricane destroys your building, but they won’t give you any of the insurance because they exclude anything from a flood, which is typical on all commercial business policies like that. But when our boat burned down, the insurance company wrote a check two weeks later, I think.

Matt Rzepka (00:40:24):

Yeah.

Michael Port (00:40:24):

Thank God I had insurance at the value of the boat. So it’s an incredibly important thing to have, but it seems like those permanent policies are relevant for two different groups. And tell me this is accurate. And if I’m missing anything. Number one as an actual permanent policy for somebody who may be disabled. Yes? Is that yes?

Matt Rzepka (00:40:44):

Yeah. Yes, absolutely.

Michael Port (00:40:45):

Okay. It could guarantee them a certain insurance that they could never get later in life because their health wouldn’t allow it, but they could get it earlier.

Matt Rzepka (00:40:53):

Yeah. Disability waiver is often a huge part of that to make sure you’ve got a guaranteed benefit access to some other benefits. Absolutely.

Michael Port (00:41:02):

Right. So that can be worth it. And then for people who have enough assets that they’re looking for more places to put their assets to protect it, either from taxes in part, you may not get total protection from taxes, but in part, or to pass the money down to heirs or to use it. I’ve heard this term a lot, but I think it’s abused a bit, but your own personal bank kind of thing is that in line with your thinking?

Matt Rzepka (00:41:28):

And even to the buffer account kind of strategy where in a down market, if I need money, the last thing I want to do is sell an investment. So if I don’t have leverage capability against my account, I may want to have another place to tap some resources, to be access to capital. And then reserve accounts are the way I like to look at. I want to make sure I’ve got enough money in reserve. And when I look at money and reserve, I don’t want it to go backwards. I don’t want it to have risk of loss. And that’s the other place that I really kind of focus in on.

Michael Port (00:42:00):

I think it seems like at the end of the day, the key is what does it cost for that benefit? Because I think sometimes we get into the mindset of any benefit will do. Like if we’re gonna get a benefit from it, I’ll take, it doesn’t matter what it costs. And it ends up costing more than the benefit is actually worth. And that’s the risk. So I still have trouble understanding exactly how those policies work and I’ve really worked on it. So I guess it comes down to, if people are thinking about the policy, number one, as you said before, if you don’t feel that the person who’s creating it or selling it to can explain it so that you can understand it, you probably shouldn’t buy it.

Matt Rzepka (00:42:34):

Yeah.

Michael Port (00:42:34):

‘Cause that means they don’t understand it. And even if they can, but you don’t understand it, you should wait until you have done enough work to actually understand it, to decide whether or not it is gonna be of benefit to you.

Matt Rzepka (00:42:46):

And an official cash flow plan. Like that’s where I’ve seen policies go bad in a hurry is somebody oversells the benefit its of the policy. But they don’t do a cash flow plan to see what the person can actually afford to pay. And then the next thing you know, you’re paying these bigger premiums because permanent policy premiums are substantially more than term and they’re that way intentionally, because you’re supposed to get other benefits from it if it’s designed properly. But if you can’t afford to make the payment and then you have to stop, you’re get guaranteed to lose.

Michael Port (00:43:15):

Yeah.

Matt Rzepka (00:43:15):

So you have to make sure you have a total wealth plan, a cash flow plan ,as to how those premiums are gonna get paid or it could end poorly.

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Michael Port (00:45:43):

So Matt let’s talk about estate attorneys. Who should consider hiring an estate attorney: when and why?

Matt Rzepka (00:45:50):

Yes. Most importantly, the easiest way is if you have minor children, I think it’s extremely critical that you do some estate planning and hire an estate planning attorney because the major risk you’re faced with is if you were to prematurely pass away, you and your spouse, your kids as minors need a lot of protection from your assets, your money, your wealth, as to what happens with those dollars who controls those dollars and or they get those dollars when they turn 18. Typically most parents don’t want a pile of money dropped in someone’s lap the second they turn 18. And without some trusts and some planning, those things are costly. You have to get into, what’s called a conservatorship, where somebody else is managing the money. If you’re in the media at all, Britney Spears had all kinds of hoopla about this stuff. So you could see how it can get outta control if minors have money in accounts and who’s in, in control and what you want to happen. So it’s kind of a roadmap for what you want to happen if you’re no longer here to see it. So I think that’s extremely critical to consider.

Michael Port (00:46:46):

Yeah. I think that one of the things that people often don’t like to talk about, but I think are really helpful to talk about is prenuptial agreements.

Matt Rzepka (00:46:56):

Yes.

Michael Port (00:46:57):

Two things. I will be telling my kids as they get closer to that age. Number one do not marry someone who is financially irresponsible. Number two, do a prenup. Period. Not because you’re going to get divorced. Not because you don’t trust this person, but because when you do a prenup, it forces you to have all the money conversations. It forces you to both talk about what you value. To understand what the other person values. My attorney, and you know him as well, Eliot Wagonheim, he describes a contract, I’m paraphrasing, but he essentially a document to help create really meaningful relationships. Not as something to handcuff somebody else or just protect yourself, but is how do you create something that makes the relationship more meaningful. When Amy and I did ours, we were coming into the marriage in different situations financially with different experiences and so it wasn’t an easy conversation, but it was some of the most important conversations we have.

Michael Port (00:48:02):

I mean I know some people do this in church where they’ll go through a program and then talk about money, et cetera. But doing it where you’ve gotta put it in writing and then sign to it and agree to it. It raises the stakes a bit, puts it at another level. I also think that this estate planning is so critical because I would be mortified if something happened to me and nobody knew what the heck to do with any of the stuff that we have. Like who gets what what’s that? And this people start why want this? And it’s not just about what you do with your stuff. It’s, you know, how do you make sure that you protect your assets going forward? If the inheritance tax structure should change?

Matt Rzepka (00:48:42):

Yeah.

Michael Port (00:48:42):

And it’s likely going to change at some point, because everything changes at some point, you also might wanna put all your life insurance policies into trusts, because it’s better for a number of different reasons, but then you’ve gotta decide, well, how do you distribute the proceeds through this trust?

Michael Port (00:49:00):

And who’s the executor and what’s their responsibility? Who would be the second you have. There’s a lot of things that you need to look at that help you create a stronger, tighter, clearer picture of who your family is and what you’re all about. I love it. I do. I mean it’s tedious. I don’t always love reading the documents because it’s, you know, legalese, but it’s really important. And I think that if, if I was gonna recommend what somebody should look for in an estate planning attorney, I would wanna make sure something really important: that what they’re giving them is not boiler plate. Because any estate, here’s a prenup, here’s an eyelet and trust for insurance policies. Here’s a whatever kind of trust. And they just give you the boiler plate, change a couple things, but that’s i.t as opposed to really understanding your situation, your wants your needs, desires and writing something that is specifically designed only for you and your family.

Matt Rzepka (00:49:56):

Yeah. So critical. And you see a lot of boiler plate stuff and you can get boiler plate stuff online. You can do a lot of it yourself. And any plan is better than no plan. And that’s a way that your assets can get depleted quickly is with no plan because fees and the courts. And everything comes into play and you don’t have any choice at that point. You work so hard to build up and gain all this wealth. You don’t want to see it dissipate quickly if something were to happen to you. And again, just some clarity so that your kids have some direction, you can write some pretty unique things into some trusts in estate planning documents about what you wanted for them or because you’re not there to counsel them anymore. We joke about it, but we call it the Beach Bum Provision where you don’t wanna just have all this money sitting in a trust funding some kid’s lifestyle where he doesn’t have to be a good human or a good citizen and productive. So you put some productivity components into an estate planning document. That’s the customization part that you mentioned that I think are critical.

Michael Port (00:50:52):

I fantasized about being one of those kids when I was younger, because I was not at all. But I do remember thinking, oh wouldn’t it be great to have a trust fund? Trust fund. Yeah, that’d be fantastic. But no, sadly enough, I didn’t. So when is this appropriate? Most of the people who are listening to this are not kids.

Matt Rzepka (00:51:14):

Estate planning is a lot about asset transfer. So you wanna understand what assets you own. A lot of assets we have today are gonna transfer by matter of law. So an IRA or a retirement account has a beneficiary designation on it. Number one, make sure you have a listed beneficiary because otherwise it creates an enormous problem. But if you do have a listed beneficiary, it’s gonna transfer to that person automatically. The law says so. So if you have a lot of assets in your portfolio that are gonna transfer automatically and you don’t have any minor kids, you might not necessarily need a full blown trust, you might be able to get away with a will or some other basic planning documents to make sure you’re covered. But powers of attorney are also extremely critical. Financial powers of attorney and medical powers of attorney to where if you’re not able to make decisions on your own, who is gonna make those decisions for you if you’re still alive?

Michael Port (00:52:05):

Yeah.

Matt Rzepka (00:52:06):

And those are so critical to know and plan to not fun things to think about, but very important things to have covered.

Michael Port (00:52:11):

There’s two other things that I’ve done that you wouldn’t do within a state attorney. You’d just do it by yourself. And it might seem a little bit morbid. You know, I don’t have any kind of death wish, but I have two other documents that I’ve worked on for years. One is called the Port Family Playbook, and that’s about a 60 page document that goes through all different categories of life. And it’s the kind of thing that I would want my kids to know if I wasn’t here to give them that advice. Or if they never actually asked me for the advice, but maybe they’ll just go look in the thing and say, what, what would dad say? I don’t wanna have to listen to him, gimme a lecture about it. But what would he have said in the book? There’s a section on con men in there.

Michael Port (00:52:54):

Like how do you watch out for a conman or a woman? There’s a section on trust and marriage and divorce and family and investing and savings and houses and why buying a house is not actually as good of investment as you might think.

Matt Rzepka (00:53:10):

Yeah.

Michael Port (00:53:10):

If it’s your residence, but it may be worth doing nonetheless. So this is what I do. This is called the Family Playbook and I’ve sent it to all three kids: 18, 16 and a half and 13. And they’re completely uninterested in it at the time. But I’m hoping that, you know, they may come back to it in 10 years, 20 years, 30 years when the section is interesting because they’re going through something like that in their life. And there’s a section from each one of their grandparents in there based on what they’ve learned, because they’ve learned more, because they’re older and have had more experiences.

Michael Port (00:53:41):

And then I also have Michael’s Death Checklist and that’s a really long document too. That is like a checklist of like here’s exactly where everything is, what to do.

Matt Rzepka (00:53:51):

Yeah.

Michael Port (00:53:51):

Codes for this, codes for that. Even the number of death certificates to order.

Matt Rzepka (00:53:55):

Yeah.

Michael Port (00:53:56):

And there’s a section and there’s a line in there. Call Matt Rzepka, tell him what happened, you know? And he will go to work on X, Y, and Z. And I keep that up to date because those things change. We changed the state attorneys last year. So that would change in there. But there’s a lot of stuff in there that like we have a safe in the house and I’m the one who opens it. But Amy needs to know exactly how to open it. So it’s documented.

Matt Rzepka (00:54:21):

Yeah.

Michael Port (00:54:21):

We do it in the business too. We’re very procedural operational. It makes the business better. I think money’s always in the systems and the processes that you design around, visionary ideas, not just the idea itself because you know, ideas are a dime a dozen and I wanna go out better than I came in. So they go, holy shit, look how he took care of everybody. This is pretty cool. That could help. When you lose a loved one, you’re not gonna be in the state to try to figure these things out.

Matt Rzepka (00:54:46):

I’ve seen it a lot. And the more organized an estate is the easier it is for the person dealing with the loss to actually grieve.

Michael Port (00:54:53):

Yeah.

Matt Rzepka (00:54:53):

Instead of having all this other stress around money and finance and well, where is this and how do I even do? I just turns into mess.

Michael Port (00:55:01):

Yeah, I’ve said this to you a couple times. You know, when we’ve had conversations, I was like, Matt, you’re the guy I’m trusting and I on leaning on, you know, if anything ever happens to me, you’re gonna know what to do and know how to help and make sure that everybody’s well taken care of. And having people that are like that in your life, that you really trust in that way, not just to make the right decisions financially, but you trust their intent and their will and their character. And that’s the most important thing. Because even if you made a decision that like wasn’t a decision I might have made, but you made it for what you think were the right reasons, I’d be perfectly fine with that.

Matt Rzepka (00:55:36):

Yeah.

Michael Port (00:55:37):

And I think that’s important and I don’t think family members are always those people because they deal with the loss in a different way.

Matt Rzepka (00:55:43):

Yeah.

Michael Port (00:55:44):

You need some other people around who can come in and help even if they’re hurting from the loss too. It’s a little bit different. So, you know, that’s another reason we’re we’re doing this show is because just to encourage all of our community to think more about the implications of what it might mean for them not to be here anymore for the people that are around them. Because a lot of the work you’re doing is for your family.

Matt Rzepka (00:56:08):

Yeah, yeah.

Michael Port (00:56:08):

And for the growth of that family.

Matt Rzepka (00:56:10):

Those checklists, those documents are great. One thing I’ve done, it’s called the love letter that goes with it. Where it’s kind of alright, if you’re reading this, that means I’m gone.

Michael Port (00:56:19):

Yeah.

Matt Rzepka (00:56:19):

And just kind of reiterating some of the high level things about what was so great about life and being with you and having a family and just a way to, again, help the grieving process start on a high note instead of on a, on a negative note.

Michael Port (00:56:33):

That’s beautiful. That’s really nice. That’s really beautiful. So last topic, I think it’d be a pretty quick topic. Speaking of families.

Matt Rzepka (00:56:40):

Yes.

Michael Port (00:56:40):

You hear this term bandied about often, family office.

Matt Rzepka (00:56:44):

Yes.

Michael Port (00:56:44):

You meet a young entrepreneur who just sold this company and is like, ah, I guess I have a family office now. You’re like, oh you have family office. But yes. So what is a family office? It seems it used to be for the Rockefellers. And now it seems like it’s being sold as a concept to just averagely successful people.

Matt Rzepka (00:57:05):

Yes. The family office concept goes with the multitude of professionals that you have to deal with. So if you’re working with a multitude of professionals and they’re all working with other people too, how do you again know that they’re doing what’s best for you? So if I want to get around that, I want to hire one of those professionals who only works for me. They don’t work for anybody else. Well of ,old you had to have 50 million, a hundred million, 200 million to be able to afford something like that because your CPA would be just your CPA. Your attorney is just your attorney. And that’s what they would call the family office. And the Rockefellers were very well known for developing that concept. And then over time, a lot of people who’ve accumulated major wealth like that have then set-up their own family office. Like everything else that’s been changed by technology, then that service model has also been changed. So what you’re seeing today is a shift to say, okay, someone needs to be at the forefront of all of our financial decisions and then coordinate with the other financial professionals to run a family office style model. And you have to be careful. There are more and more groups trying to do that now. But some people are jumping on the bandwagon from a sales perspective because that concept is great.

Michael Port (00:58:12):

And it also to be fair, I think it’s appealing to some people because it sounds impressive.

Matt Rzepka (00:58:18):

Yes.

Michael Port (00:58:19):

Like, well, I’ve had a point now where I have a family office. You know, it’s like, there’s some of that. And I, I see that in the industry a lot. Yeah, but I guess when I think about it, I certainly don’t have a structured family office, but to a certain degree I do with you leading it.

Matt Rzepka (00:58:36):

Yeah.

Michael Port (00:58:37):

I mean certainly your whole office. There’s a whole team of people who work on different aspects of our work, but you’ll also interact with our estate attorney, you with our other attorney, business attorney, you interact with the pension management company, and you are making sure everybody is making decisions that are in line with our financial objectives. Because that’s the point that we are most focused on and everybody else is working to support those goals. But if you weren’t also a CFP you wouldn’t be able to do it as well.

Matt Rzepka (00:59:09):

Yeah.

Michael Port (00:59:09):

You’re just an accountant. There’d be a whole bunch of things you’d be missing.

Matt Rzepka (00:59:12):

Yeah. A lot of CPAs are assumed to have a lot of training that they don’t. Now somebody may be a CPA and may be able to play that role well, if they’ve sought out additional education. You know, like in our world, we have continuing education that we have to do. Some CPAs look at that as a burden and they just do the minimal to get the requirement to check the box. I spent a lot of time in my early parts of my career. Just learning as many things as possible about all different areas that I could get credit for because again, I saw the need, the clients wanted it and needed those types of services and advice. So somebody leading that charge that can get communication on the same point, I’ve been in more meetings than I can count trying to wrangle down the insurance guy wants to do this. The financial advisor wants to do this. The attorney says this. I’m like, wait a second. This is the goal over here. This is what we’re trying to get to. How are you gonna get there? And it gets complicated. So that’s where that model can certainly help streamline some of that advice.

Michael Port (01:00:07):

Yeah, that’s a great, great point. So I think we are at the end of this episode, Mr. Rzepka, do we have any key takeaways that you’d like to share? Any next steps for our listeners?

Matt Rzepka (01:00:21):

Yeah. When it comes to working with a professional, you wanna work with somebody that you like and are comfortable with because you are gonna have to talk about a lot of things that often are uncomfortable. You even mentioned the uncomfortable part of a prenup. Well, imagine how difficult and uncomfortable it is if you don’t have that conversation and then you get divorced.

Michael Port (01:00:40):

Yeah.

Matt Rzepka (01:00:40):

And the same thing is with a professional. Have the uncomfortable conversations at the start. Make sure everybody’s on the same page, because then you’re gonna get in a situation where you feel like you’re able to give all that you can to the relationship and you’re gonna get the most out of it. And so right now, if you’re not sure what status your advisor relationship is in, start asking some questions. You know, just sit down and say, Hey, I want to get this dialed in. And I want to know that I’m on the right path and I wanna know what you’re doing for me.

Michael Port (01:01:09):

Yeah.

Matt Rzepka (01:01:09):

And if somebody’s hesitant to answer those questions, that that’s usually a red flag.

Michael Port (01:01:12):

That’s a red flag. Yeah. You know, we often don’t wanna make people uncomfortable.

Matt Rzepka (01:01:16):

Yeah.

Michael Port (01:01:16):

The other night we went to my father-in-law’s 80th birthday party. And on the way there, the kids in the back were kind of making fun of all the grownups who do things like, oh my God, you’re so tall since the last time I saw you, I can’t believe it. Oh, so what are you thinking about for college? What do you wanna do? Blah, blah, blah, blah, blah. And they were just, you know, all the lines that we’ve all said, and we’ve all heard. And I said, well, what if you asked them the same question they asked you right away? If someone says, oh, so how old are you now? And you’d say, I’m 16. How old are you?

Michael Port (01:01:48):

They’d be like, um, 74. And then they say, so, um, what are you studying right now? You say, well, I studying all the regular classes you’d take in high school. What are you studying right now? You just keep asking them, they’ll get so confused. But I think if I was going to go into financial advisors office, I’d actually ask them a lot of the questions they ask me. Especially if they’re suggesting something. If they say, well, I’m gonna put you in this vehicle, I would say, so do you also use that vehicle? If so, how? And I would ask as many penetrating questions as I could. Or I might say, well, how many of these have you sold? Uh, can I talk to 10 of those clients?

Matt Rzepka (01:02:23):

Yeah. I actually think you should be able to ask, well, what does your financial statement look like? You’re baring your entire soul to this person.

Michael Port (01:02:31):

Yeah.

Matt Rzepka (01:02:31):

Financially, everything that’s going on with your income, how are they similar or different? And if you’re not aligned, maybe they’re not the right person for you.

Michael Port (01:02:40):

Yeah.

Matt Rzepka (01:02:40):

So they may not be willing to show you all that stuff, but they should be willing to share bits and pieces of what they’re doing, whether they’re doing the same things that they’re advising you to do. That’s critically important to me. If somebody’s gonna give me advice on doing something and they’re not doing it, I’m really gonna question what’s going on. Now there may be a good reason. Like there are certain examples I could come up with where maybe I’m not doing something that I would advise, but I’m maybe not at that part of my life yet.

Michael Port (01:03:05):

Yeah, sure. You may have clients who are older and have companies that are 20 times as big.

Matt Rzepka (01:03:10):

Exactly.

Michael Port (01:03:11):

Yeah. So you might have just a different needs at the time.

Matt Rzepka (01:03:14):

Yeah. But that’s a reasonable answer.

Michael Port (01:03:15):

Yeah.

Matt Rzepka (01:03:16):

But if you’re similar or you’re talking about a concept that you both believe and they’re doing something different than what they’re advising you to do.

Michael Port (01:03:22):

Yeah.

Matt Rzepka (01:03:22):

There might be an underlying motive.

Michael Port (01:03:24):

Yeah, that’s a really good point. What a great way to wrap up this episode. So next week we’re gonna go deep into asset allocation. I think that’s gonna be pretty sexy stuff. Let me tell you. Alright my friend, that’s it for us today. Everybody, thanks for listening. Keep about who you are and what you offer the world. See you next week. Hey Matt, by the way, where’s my yacht?

The post S4E7 Money Advisors: the Good, the Bad, and the Ugly appeared first on Steal the Show with Michael Port.

On this episode, Michael and Matt break out their magnifying glasses and plaid Sherlock Holmes caps as they launch a live investigation into how speakers and entrepreneurs like you should think about additional savings.

This is one of those drinking-water-out-of-a-firehose episodes that’ll make you say, “Oh, wow, there’s so much I didn’t know I needed to know.” Michael and Matt uncover and share a ton of useful information that will open your eyes to new ways to make financial decisions and think about your money.

How you can Steal the Show

• Assess your present position to determine which financial products are best for you.
• Become clear-eyed and confident when interfacing with financial advisors and exploring investment vehicles.
• Anticipate (and price in) the only thing in life that’s certain other and death and taxes.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

Companies, people, and resources mentioned in this episode…

• BlockFi credit card (6:30)
• Clint Pulver (8:10)
• Garrett Gunderson (18:06)
• Trinity Study (20:50)
• Fidelity (40:33)
• Vanguard (40:33)

Related episodes of Steal the Show…

S4E2 How to Speak the Secret Language of Business Jargon

Transcript

Michael Port (00:00:05):

Hello, and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money. I am joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make any money at all from you following any of the advice you hear on this podcast, and you shouldn’t really take it as advice, just take it as an educational experience, and then you make your own choices guided by a financial professional at the appropriate time. But it’s important that you know that my company, Heroic Public Speaking, which I co-founded with my wife, Amy Port, are public speaking institution based in Lambertville, New Jersey. And we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services, Matt, however does, because he’s a professional and you are welcome to hire him. I will not be compensated in any way at all if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it. Alright, today, we are discussing what to do with additional savings. So let’s get right to it. Matt, I wanna approach this episode a little differently.

Matt Rzepka (00:01:48):

Oh boy.

Michael Port (00:01:49):

What’s the problem?

Matt Rzepka (00:01:50):

Well, the last time you said that you called me snooty and tried to buzzer me into silence.

Michael Port (00:01:56):

Yeah, but I was completely justified at the time, but I promised this will be different. No buzzer from me. No snootiness from you. What I want to do is treat this episode like a live investigation.

Matt Rzepka (00:02:09):

Okay.

Michael Port (00:02:09):

So a live investigation into how we should think about additional savings and how we should determine what to do with them. And I’m sure you, of all people know there is an endless variety of investment vehicles and financal products out there and an endless number of so-called experts pedaling them. What I wanna do is investigate which ones are best for whom, because the best for one person is not the best for somebody else. It’s just like relationships. So where would you start, Matt?

Matt Rzepka (00:02:43):

Yes. The individualization of this is so critical, but the best place to start is really with where you are now. What is your, what I would call present position? There are tons of different ideas, investment vehicles, strategies out there. And it’s not that there’s a one size fits all, but we’ll get to that later. You want to investigate what to do with your additional savings. You first have to know where you stand now and what your current savings are.

Michael Port (00:03:11):

So like a full picture.

Matt Rzepka (00:03:12):

Full picture.

Michael Port (00:03:13):

See, I think this makes people a bit anxious. Sometimes

Matt Rzepka (00:03:16):

It does.

Michael Port (00:03:16):

I even just took a deep breath and I love of looking at the full picture. We did it yesterday. We’re actually in-person today, we’re sitting across the table from each other. Matt comes out once a year to do our tax planning for the following year. You know how usually when you do your taxes, you just give your information to an accountant. Then they look at what you did in the previous year. And then they come up with how much you have to pay. Well, Matt does it the opposite way. We sit down at the end of the year and say, alright, what are our plans for next year to put ourselves in the best tax favored position? And then we’ve made our choices in advance and it’s a lovely thing to do. And we moved through it in a couple hours yesterday, because everybody knows what they’re doing at this point. I mean, Matt always knew what he was doing, but now we know what we’re doing too. So I mentioned this because even when I just said, take a look at everything that’s going on, I kinda took a deep breath and I thought maybe other people feel that same way. They get a tightness in their chest.

Matt Rzepka (00:04:12):

For sure.

Michael Port (00:04:12):

Because they may feel some shame around some of the choices they’ve made

Matt Rzepka (00:04:17):

Shame or that judgment’s coming. You know we try to make it a shame-free, judgment-free zone. The best way to take action is to figure out where you’re at.

Matt Rzepka (00:04:26):

Yeah.

Matt Rzepka (00:04:26):

And that usually freezes people. That’s one of the things that stops ’em from taking action and moving forward is not looking at where it’s at. So there’s, there’s nothing wrong. You just have to look at where you’re at and understand why you’re doing what you’re doing.

Michael Port (00:04:39):

Hmm. You know, father sends me funny, not funny jokes all day long over email. Uh, he sent me one day that wasn’t a joke because he also sends me quotes that he likes and it was a Will Rogers quote.

Matt Rzepka (00:04:50):

Okay.

Michael Port (00:04:51):

And I didn’t memorize it because I just saw it earlier today, but I got the gist of it. And if I paraphrase it, it was something like people who have wise judgment do so because of all of the bad judgment they’ve had in the past. So essentially you only learn this stuff because you broke something.

Matt Rzepka (00:05:10):

Yeah.

Michael Port (00:05:10):

And then, okay, now what, I didn’t do it. Right. So how do you do it? Right. And that’s when you start investigating it, it’s the same way you learn how to use a computer. First time I got a tablet or a smartphone or the first time I saw and working on a Windows platform, I’m like, how does this work? And you just kind of go around and break things, go oh, that didn’t work. I gotta try this. That didn’t work. Try to… So that’s the approach that I’ve taken and it helps me feel less shame or blame around the things that I’ve done in the past that I now wish I had done differently because it would of put me, you know, even farther ahead. So we gotta let that go at some point

Matt Rzepka (00:05:45):

You absolutely do. And there’s so many money truths that we think we know are true and sometimes they’re not and you just have to let yourself embrace that process and say, okay, here’s where I’m at. I know I want to do things different and better going forward.

Michael Port (00:05:57):

Yeah, nice. It reminds me of something that we were talking about yesterday, the concept of how money is fungible. So, you know, sometimes we categorize money. Well that’s my party money. That’s my clothes money. And when you’re doing it in a budget, that makes a lot of sense because then you can keep to that budget. You can account for it. You can see, oh, I’m spending like a lot more on takeout than I really would like to because I’m not getting the value from that. But sometimes we do it in weird ways. Like I was looking at this credit card offer from BlockFi, which is a crypto exchange. And they said our credit card gives 2.5% back in crypto. So, you know, if I spent a hundred thousand dollars on the card, I’d get $2,500 worth of Bitcoin. And that could be nothing on that day or it could be a lot.

Michael Port (00:06:46):

And I was thinking, oh, that sounds fun. That’s a fun thing. And of course immediately I realized, oh, well that is the silliest thing in the world. Because if I wouldn’t buy $2,500 worth of crypto, of Bitcoin right now, why on earth would I want a credit card that gives it to me? Because I was thinking about it, let go, it’s free. It’s free money. But why don’t I actually use a credit card that gives me back so that I’m actually spending less money or I’m taking the cash and then I can do whatever I want with that cash. And so if I wouldn’t have put it in there in the first place, I just actually wasted that money.

Matt Rzepka (00:07:16):

Yeah.

Michael Port (00:07:17):

But we sometimes compartmentalize and think of it as different.

Matt Rzepka (00:07:21):

Yeah and everyone has their own process or system for money. And you wanna make sure too that’s where the individualization of everything comes from. You have to not only know where you’re at, what’s your full picture, but what are your tendencies? What have you been doing? And do you want to keep doing that or what is gonna allow you to make good decisions as you move forward with your tendencies?

Michael Port (00:07:40):

Yeah.

Matt Rzepka (00:07:41):

Because decision making is critical to all of this stuff.

Michael Port (00:07:43):

Until you recognize what your patterns of behavior are, it’s hard to stop those patterns. Now I’ll give you another example of when that happened to me. Recently, I was asked to do a keynote it’s pretty big event, but since I’ve quote unquote retired from the traditional keying, the kind that they were asking me to do and instead focus just to my students at HPS, I said, well, let me refer you to a few people that I think would be great for this spot. And then hopefully you’ll pick one of them. So I referred a few people. One of them was Clint Pulver, who is a fantastic speaker. And a couple months after the event, he called me up and he is like, hey, I wanna get you a gift for referring that gig. To me, it was a big gig, I was like, oh, you don’t have to, but please feel free.

Michael Port (00:08:23):

So he said, here’s what I do. There’s a shoe company that I love and I think you’ll love it too. So I want you to go to the website and pick out a pair of shoes, tell me what it is in the size and I’ll get it for you. Like that’s incredible. So I’ve got these really cool blue leather boots now, which I might not have bought it on my own because it’s generally not where I put my money. But the reason I bring this up is because at the same time the shoes that I usually wear when I’m teaching had been washed away in the flood, they were at HQ. So I needed to replace those. And I thought, oh, I should replace those. And then, oh cool. I’ll also have these boots that I could wear too. But then I said, wait a minute, why am I wasting the money on the shoes when I got these? And I thought, well, I got them free. I didn’t pay for them, but what a waste of money to also have bought the other shoes, just because I thought this was free. Even this quote unquote free can add some value to our financial picture by allowing us to save somewhere else.

Matt Rzepka (00:09:20):

Yes.

Michael Port (00:09:21):

I wouldn’t have recognized that, I don’t know, five years ago maybe.

Matt Rzepka (00:09:25):

Yeah. And the same thing I can tell you I’ve experienced with that like credit card points.

Michael Port (00:09:28):

Yeah.

Matt Rzepka (00:09:29):

I can go buy stuff with my Capital One points on Amazon and it’s free using my air quotes, but it’s not free. So you still have to balance out those resources.

Michael Port (00:09:36):

Yeah.

Matt Rzepka (00:09:37):

And again, understand your tendencies and decisions. And once you get some clarity on that, it really puts you in the right direction.

Michael Port (00:09:43):

Yeah. I’m a big fan of the Amazon 5% back on Amazon card. Because we spent a lot of money on Amazon.

Matt Rzepka (00:09:49):

Yes.

Michael Port (00:09:49):

So 5% back is a big number, but don’t use the points they give you to buy any thing on Amazon because you don’t get 5% back when you use points.

Matt Rzepka (00:09:59):

Yep.

Michael Port (00:10:00):

I thought, oh, that’s actually really quite clever. Use them in other ways that actually give you the full value and then use your card to buy those things, to get the cheaper price for it.

Matt Rzepka (00:10:10):

Yep.

Michael Port (00:10:10):

Because money’s fungible. Great. It’s a great example. Okay. So what I’d like to do is create a decision tree that guides your path. Do you think we could do that?

Matt Rzepka (00:10:19):

Absolutely.

Michael Port (00:10:20):

Okay. So what would be first on this decision tree?

Matt Rzepka (00:10:24):

The first is really income dependent choices and decisions. And what do we have for income? What do we need for lifestyle expenses and also what tax bracket are we in and how do all of those things impact what we’re doing with our extra money?

Michael Port (00:10:38):

I was thinking about the tax bracket implication, even before you said it. And I was gonna ask you about that. How does the tax bracket you’re in influence this decision on your path to figuring out what to do with additional savings?

Matt Rzepka (00:10:53):

And this is why the present picture is so critical. What is the present picture look like? And this is where we would come in or somebody that you’re working with would come in and give you a forecast into the future of what will my quote unquote retirement income look like? Because the tax rate that I pay today could be very different from the tax rate that I’m paying then. And the decisions I’m making today are gonna impact what that’s gonna look like.

Michael Port (00:11:15):

Yeah.

Matt Rzepka (00:11:15):

Now a lot of variables whenever you look into the fee future. So you just have to be aware that that’s in a very unknown topic. You’re gonna have to make some assumptions, but you do wanna understand income today, income in the future, and the likelihood of what those tax brackets and tax rates could look like.

Michael Port (00:11:30):

Yeah. And interestingly enough, I don’t want to go down a rabbit hole of future taxes, but I think it’s important to consider because I’ve heard from a lot of people in the industry, this consistent argument that you will need less in retirement than you do now. And I’m not sure that that really jives for me.

Matt Rzepka (00:11:50):

Yeah.

Michael Port (00:11:50):

So I’d love to know why you think that’s problematic in terms of thinking about, well, I don’t need to save that much, because I’ll need less per year than I need now.

Matt Rzepka (00:12:00):

Again, personal decision, I have seen it where people are earning and saving at higher rates today and then definitely retire on a lower, less income. And you’re gonna have a different decision tree and different ideas around what to do with your money. But especially in the entrepreneur space, it seems like you’re always gonna have a lifestyle that you wanna maintain. So planning to live on less income is potentially setting you up for a problem when you get to retirement.

Michael Port (00:12:25):

Yeah.

Matt Rzepka (00:12:26):

Additionally, if you don’t have to live on less income, when you get to retirement, that would be the better plan. Like let’s not plan to reduce our standard of living- only if we are forced to reduce our standard of living. If we’re not going to be able to achieve our goals, then you’re gonna have to recognize that a change will be necessary if you wanna retire at this time or at this age to what you’re doing.

Michael Port (00:12:48):

Yeah. It’s interesting because you have different focuses in different time periods of your life. So first, third of your life, you tend to do a lot of learning. This is something that my father-in-law talks about. Something that he’s thought about a lot that you know, in the second third of your life, you do a lot of earning. And then hopefully in the last third of your life, you really focus on giving. Now obviously these things are happening along the way. I mean, you don’t stop learning after, you know, a third of your life and you don’t stop earning. You can give all the time.

Matt Rzepka (00:13:21):

Yeah.

Michael Port (00:13:22):

But I did think it was interesting because I’m 51, Amy just turned 49. And right now we’re very focused on the continued development of the business. We are very focused on managing our kids in are hopes and dreams and expectations through high school. And now then into college. So we’re about to hit that mark. But once kids are outta college and if we decide we wanna take a step back and start living differently, outside of college expenses, I don’t necessarily think we would spend less money because maybe we want to travel a lot. Maybe we wanna explore things that we haven’t explored before. Not saying we wanna do everything on a luxury type vacation, I’ll go live in the forest for a month just with my wife and the right tools. And…

Matt Rzepka (00:14:05):

Yeah. Yeah.

Michael Port (00:14:05):

You know, as long as I have someone who can come bring me snacks, that would be fine. But you know what I’m saying? It’s like, I just think it’s a little bit dangerous to make that expectation. And we don’t know what healthcare’s a gonna look like going forward. What kind of costs one would have associated with that and yeah, maybe in your nineties, your costs go down a bit because you’re just not moving around as much.

Matt Rzepka (00:14:25):

Yeah.

Michael Port (00:14:26):

So yeah, I get that. But especially for entrepreneurs who maybe don’t wanna retire before the typical of retirement age, standard retirement age, it’s a little bit of a different formula.

Matt Rzepka (00:14:35):

Yeah. You might have a trending down lifestyle expense as you get older, because you’re gonna not have the energy to do as much. Or again, healthcare is the big component. What I’ve seen a lot with baby boomers who are dealing with this now is they may no longer have a mortgage payment, but their healthcare expenses replaced what their mortgage payment was. So the cash outflow hasn’t changed. It’s just going to a different place. So everybody’s gonna have little different perspectives there, but you just want to be ready to try and maintain that standard of living if you can.

Michael Port (00:15:01):

Yeah. So it sounds like what you’re saying is in line with a philosophy at Heroic Public Speaking, which is there is no one way and one size does not fit all.

Matt Rzepka (00:15:10):

That is correct.

Michael Port (00:15:11):

Okay. So number one, some of the choices will be income dependent. So that’s important to consider. So what’s the second point in the decision tree?

Matt Rzepka (00:15:19):

We’ve kind of hit on this a little bit already, but again comes down to tax rates and whether rates stay the same, whether rates go up, some of that’s also age dependent, the younger you are, the more time your money has to compound and grow. You want to be conscious around what tax consequence, where you put your money and your extra savings is gonna have in the long run. If I’m gonna compound and grow my money, I wanna know what the tax results gonna be on the backend or how I want to make, you know, multiple tax decisions with some of those savings.

Michael Port (00:15:47):

Yeah. And you know, you said the second point in the decision tree is rising or falling tax rates, would you think it’d be fair to say that it’s your belief because of course we don’t know. I’ve certainly talked to a lot of insurance salesmen who tell you, I guarantee you taxes will never be this low again. Right?

Matt Rzepka (00:16:04):

Yeah.

Michael Port (00:16:04):

It’s you’re gonna be paying 90% by the time you retire. So you gotta put all your money into this vehicle over here. Right. So nobody knows.

Matt Rzepka (00:16:12):

Correct. Nobody knows. Nobody can predict the future.

Michael Port (00:16:14):

Yeah.

Matt Rzepka (00:16:14):

If you look at the historical tax rates, we are traditionally in a pretty low tax environment right now.

Michael Port (00:16:20):

Yep.

Matt Rzepka (00:16:21):

But the past is not a predictor of the future. You hear that in any investment disclosure that you’re ever gonna see with any investment that you make. You do have to look at the government and what they’re doing. And again, try to form your own belief about what you think.

Michael Port (00:16:33):

The thing that is really key here is to, to not make assumptions by yourself.

Matt Rzepka (00:16:37):

Yes.

Michael Port (00:16:37):

In this area. Like for example, one of the things that Matt and I did yesterday when Amy and Matt and Julianne, who is our finance director, were working on this is Matt started running down some of the proposals that are on the docket in the House or the Senate it right now to be considered from a tax legislation perspective. And we are not gonna make a choice based on something that somebody is talking about yet, because it they’re just talking about it. We don’t know that it’s actually gonna happen. But if you don’t have someone in your life who regularly talks to you about the types of things that may occur in the future, it’s much harder to make well inform decisions. Because even though we can’t predict the future, we can try to do some scenario planning so that if (A) happens, here’s what we would do. If (B) happens, here’s what we would do. If ()C happens, here’s what we would do. And to try to set up the different types of investment in saving vehicles that we use to be able to adapt to those different scenarios, as best as we can

Matt Rzepka (00:17:40):

Creating options. You want to have options to be able to change course or change directive around changes as they come. You know, everybody says death and taxes are the two certain things. Change is also certain. We’re gonna have change in the future and you want your savings and your strategy to be flexible enough to change with those changes.

Michael Port (00:18:00):

Yeah. It’s funny. You mentioned taxes. And I thought back to the comedy show that we went to last night. We went to see Garrett Gunderson do an hour long standup show at the Helium Comedy Club in Philly. And Garrett is a long-term client of mine. I’ve been working with him for, gosh, almost two years now. And I was so proud of him. He just fricking killed it. I mean, he just killed it. Going into comedy professionally at 43 is not something that is typically done. And man, it is impressive that he’s doing it. But he had one joke that was really, really funny. I mean, a lot of jokes are really, really funny, but one of ’em is just a quick one liner. He just threw out there. He’s like, you know, what’s funny about taxes, nothing.

Matt Rzepka (00:18:39):

Nothing.

Michael Port (00:18:40):

Nothing’s funny about taxes. There’s just absolutely nothing funny about taxes and the whole place just roared. It just was a great moment. He just nailed it, you know? Okay. So number one on it’s income dependent, your choice is influenced by your tax bracket, how much income you have coming in and what bracket, you know, that falls into number two, your belief in rising or falling or stagnant tax rates.

Matt Rzepka (00:19:01):

Yep.

Michael Port (00:19:02):

And number three is…

Matt Rzepka (00:19:03):

Your desired or expected income in retirement. So what income or resources are we gonna and a need to create to get you that retirement income that you want?

Michael Port (00:19:13):

Yeah. You know, it’s interesting. I hear a lot of people think about retirement income as a consistent income, like a salary. So they want a certain amount each month. And if you’re trying to live off a portfolio that you have to protect, meaning if you have $800 million in bank and you don’t buying a new yacht every day, you probably don’t have to worry too much about it. But if you have a $2 million portfolio and you’re trying to adhere to the 4% rule, well that would mean you’d have $80,000 a year to work with. And that might feel like that’s less than I would like, but instead of using same amount each month, you know, it scales. So that, for example, if the market’s going down, you say, we cut back on our spending during that time. If the market’s going up, we go, okay, we can spend a little bit more. The way that you spend money, doesn’t have to be the same every month. You could be more frugal for one quarter and then the next quarter you do a lot of traveling. So again, it’s not one size fits all.

Matt Rzepka (00:20:13):

No. And buckets become important in different types of strategies. And even now, as we’re talking about change in the future tax rates, there’s a lot of professionals that are coming out saying the 4% rule is now the 3.3% rule.

Michael Port (00:20:27):

Correct.

Matt Rzepka (00:20:28):

So you do have to be careful with the information that comes off the internet.

Michael Port (00:20:31):

Yeah.

Matt Rzepka (00:20:31):

But have somebody to talk to about it. What are we doing? What’s our strategy with this? What portion of this would the 4% rule apply? Because the number one fear we see is people don’t wanna run outta money and still be alive.

Michael Port (00:20:42):

Yeah.

Matt Rzepka (00:20:42):

That’s not a good scenario.

Michael Port (00:20:43):

Yeah, yeah. In fact, the 4% rule isn’t even a rule. It just was a prediction based on a study called the Trinity Study, it said most people will be able to outlive their portfolios if they take no more than 4% out per year. And there are many people who think that it’s risky over the next decade or so to take that 4% approach and three percent may even be better. So yeah, just even when you hear terms yeah…

Matt Rzepka (00:21:10):

Yeah.

Michael Port (00:21:11):

Oh, that’s not actually a rule because then it gets confusing because required withdrawals, minimum withdrawals, when you get to retirement age from those retirement accounts are in fact 4%.

Matt Rzepka (00:21:21):

Yeah.

Michael Port (00:21:21):

And that is a rule that is a rule. So then you think there is this rule that is associated with the 4% when in fact, yes, the government has a rule. You have to take it out, but there is no rule that your portfolio will outlast you if you take out no more than 4%.

Matt Rzepka (00:21:36):

Correct.

Michael Port (00:21:37):

Yeah. Okay. And then what’s the fourth point in the decision tree?

Matt Rzepka (00:21:41):

The last one is again, really the age at which you plan to retire or start drawing off your assets or resources for income. We have to figure out, okay, how much are we saving? What are we doing with that excess savings? And then when are we gonna have to put that money to work and at what age and at how much? And again, this is, uh, always when do I wanna retire? Well, yesterday is the most common answer, but mostly we have to say, okay, is it a traditional retirement age of 65 or 67? Or is it something before then? And if it’s before then there’s a lot of other factors, especially if you’ve got multiple accounts, like retirement accounts have a 59 and a half restriction age, there are ways around that. But you want to understand what that would look like if you’re gonna access some of those funds pre 59 and a half. So again, retirement age and what resource and income we’re gonna have to start creating is another critical piece.

Michael Port (00:22:29):

So overall we’re addressing, what do you do with additional savings in this episode. And we just went through a decision tree that you can use to start. So, you know, first it’s income independent, right? Your choice will be influenced by your tax bracket. Then your belief in whether taxes are gonna go up or down or stay the same. You’re not gonna know, but you may have some thoughts about that. What your expected or desired retirement income need will be from month to month or year to year. And then fourth, what your expected or desired retirement age is. So we’re not only talking about investing, we’re talking about what do we do with that extra capital or extra cash that’s coming in? Should we talk a little bit about where it goes first? Meaning if you’ve got no money put aside, but you’ve got extra money coming in, should you just take that and start investing it more? Or is there another avenue that should be considered?

Matt Rzepka (00:23:23):

Yeah. That full picture always comes back into play when it comes to your extra savings. And really what should I differently? Well, what if what you’re doing right now is okay? That’s why that full picture is so important. You have to then sit down. What we do is run a forecast. We say, okay, if you change nothing, how is this all gonna work? Now you have to answer our decision tree questions. You have to tell me what my retirement income, what I want it to be, what my retirement age is gonna be. And if we do those things and we use the most conservative growth estimates possible, how long is your money gonna last? You want to know that because if it already lasts to age a hundred, well, then you’re doing pretty good. Now you have to get a little bit more aggressive around what strategically we’re doing with our extra savings because you’re probably enough. The more common answer is people aren’t often saving enough. So we have to then identify what to do with it. And then how do we create more savings?

Michael Port (00:24:12):

Yeah. Should we start with cash savings for emergency purposes?

Matt Rzepka (00:24:17):

I think so. In creating that excess cash flow, making sure the excess cash is starting to accumulate.

Michael Port (00:24:23):

Yeah.

Matt Rzepka (00:24:23):

Because that’s where again you can get off track really quickly with your finances if you think that, okay, well I should be saving $3,000 a month, but I’m only saving a thousand. So I start saving $3,000 and then life happens and then I’ve gotta rob an account.

Michael Port (00:24:38):

Yeah.

New Speaker (00:24:38):

If I go into an account and I put it in the wrong place, then I’m creating chaos very quickly. So systematically creating some process is…

Michael Port (00:24:46):

It’s really interesting to me that you mentioned that robbing an account. I was talking to a guy about this who is pretty well off and has a lot saved. But most of what he has saved is in tax deferred retirement accounts. And he’s under the retirement age, but he said, I don’t keep a lot of cash. You know, he said, we’re in a high inflation period here. So I don’t like cash because my cash just loses value. I said, but what if you need access to cash for some reason, either a business reason or I don’t know, your wife gets kidnapped and you gotta give a half a million dollars to this, you know, kidnapping ring? I mean, who knows? I’ve seen it in the movies.

Matt Rzepka (00:25:22):

Yeah.

Michael Port (00:25:22):

That’s what happens all the time. Or I don’t know if somebody in your family needs something, you know what, if you have a health thing that’s not completely covered. What about access to extra cash? He said, that’s not a problem. I’ll just borrow from my 401K. I was like, well yes, some companies let you do that, but others don’t. And do you know that you can and do you know what the penalties are for that? And the costs associated with that? And like, did you know that if you borrow from your 401K at a company that you work for, and then they fire you for whatever reason or you leave and that loan is still out, that loan is then often, immediately repayable. Maybe they’ll give you 30 days or 60 days or maybe 90 days. But if you borrowed $30,000 or $40,000 from it, that means you don’t have $30,000 to give back in 30, 60 or 90 days.

Matt Rzepka (00:26:08):

Yeah.

Michael Port (00:26:09):

Then you’re now in a situation where all of a sudden you’re underwater in a big way. So we just need to be careful, especially in an environment like now where it seems like everything is going up.

Matt Rzepka (00:26:18):

Yeah.

Michael Port (00:26:19):

You can win everywhere. The market is up 35%. Cryptocurrencies are up 18 gazillion percent. The only place you can’t win is depositing your money in a bank. Right. Basically the bank doesn’t really have anything for you. But yeah, the point is we need to have a strategy say, okay, we always have access to at least this much cash.

Matt Rzepka (00:26:39):

Yeah.

Michael Port (00:26:39):

Like just for whatever reasons, uh, like, you know, keep a certain amount of cash in your safe, at home and a certain amount of cash in a bank account that’s easily accessible.

Matt Rzepka (00:26:48):

Yep.

Michael Port (00:26:48):

You can only pull out $5,000 a day, right. Something like that.

Matt Rzepka (00:26:51):

Yeah.

Michael Port (00:26:51):

You’re like, no, I need the cash now. Just, you know, plan for worst case scenarios.

Matt Rzepka (00:26:56):

Yeah. Access to capital is probably one of the key things that a lot of people overlook. They just don’t think something’s gonna go wrong or that they’re gonna need money for something. And it doesn’t always have to be a problem. It could be an opportunity. If something’s falling apart and somebody needs some help. And one of your goals is to get into some small business investing.

Michael Port (00:27:14):

Yep.

Matt Rzepka (00:27:14):

Usually the people with cash have the first opportunity or they can get their hands on cash quickly. So that decision is gonna be very unique to, it’s gonna be different for everyone as to what access to capital you’re gonna want to have. But you do want to understand what you think and what’s gonna help you feel comfortable and sleep good at night.

Michael Port (00:27:32):

I don’t keep as much cash on hand as I used to. Traditionally, I would keep two years of expenses on hand in cash, but we got to the point where our cash savings was sufficient. Our investments- we were maxing out all of our retirement investments and also contributing to our taxable accounts. And I realized I didn’t need to keep as much cash because once you have enough market exposure, you can borrow against your cash in the market. And as long as you’re doing it in a way that is very safe at an incredibly low interest rate, then you can quickly get access to a fair amount of cash. I wouldn’t recommend this strategy for everybody. We still do keep cash on hand and we even keep some cash in Stablecoin because we’re getting a 9% interest rate. I’m not a big crypto person. I think I own like $20 dollars worth of Bitcoin, something like that. But the point is, there’s so many different ways to do this. There isn’t really one right way, but you’ve gotta do it in a way that makes you feel like you can sleep at night.

Matt Rzepka (00:28:34):

Yes.

Michael Port (00:28:34):

That makes you feel comfortable.

Matt Rzepka (00:28:36):

And really, I think the mistake that gets made here a lot is people are anxious for rate of return. So they deplete their access or savings to capital too quickly and then something goes wrong. So you think about it. Well, I’ve got X amount of money in the bank and I’m not earning anything on that. But in order to be able to earn something on those dollars, you’ve gotta accumulate them. So once you start accumulating the dollars, you’re gonna start to flip that equation to your benefit, but just don’t rush. Don’t be in a hurry to do something for a rate of return only because that could work out to be bad timing. And then you won’t have what you need when you need it.

Michael Port (00:29:13):

Yeah. So you don’t time the market.

Matt Rzepka (00:29:15):

Oh no.

Michael Port (00:29:15):

Don’t time the market. So let’s go into the strategy. I know there are essentially two different phases that I hear you often talk about. You talk about a retirement income bucket strategy and then an investment deployment strategy.

Matt Rzepka (00:29:29):

Yep.

Michael Port (00:29:30):

If I have that, right.

Matt Rzepka (00:29:30):

Yep.

Michael Port (00:29:31):

So tell us what these are. What’s the retirement income bucket strategy and what’s an investment deployment strategy.

Matt Rzepka (00:29:38):

Yes. The retirement income bucket strategy is really, again, starting to have as many different accessible streams of income when you get to retirement. Both that have different investment strategy, but also have different tax strategy so that you can start to create your desired retirement income and engineer that income around what the tax laws are at that time to try and get your net pay as best as it can be for you. Because we want to try and pay the least amount of taxes that we can because in retirement, you actually can control that. Where right now, when you’re working and making money or running a business or, or speaking and getting income that way, you’ve got some decisions you can make, but you’re gonna pay taxes on all your earned income. Where you’re in retirement, the more places you have, your capital saved, you can start to deploy them. And I just use it from a bucket perspective. I’ve got a bucket over here, you know, six to seven buckets is often what we’ll see for different income sources in retirement. So you wanna understand what all of those are and if you’re only using one or two of them understand, okay, maybe that’s okay and that’s gonna work for you, but understand the risks associated with not diversifying those strategies.

Michael Port (00:30:46):

Yeah. I think there’s an assumption for retirees, and again, that means at any age that you’re pulling from your accounts, it doesn’t mean, you know, an old geezer sitting on a stoop, you know, in his rocking chair, which will definitely be me very soon. ‘Cause I don’t understand why we’re not all doing that all day long. ‘Cause that looks like a pretty darn and good life. But the idea you hear is usually okay, take first from the tax free accounts then from the taxable accounts and then from the tax deferred accounts, because you know, you pay the most tax and the tax deferred accounts, then next most on the taxable accounts. And then you pay nothing on the tax free accounts as if that’s the way everybody’s supposed to do it. And we are having a conversation about it. And you’re like, no, that’s not accurate. I mean, it could be that way for some people. But in fact it might not actually be that effective from a tax perspective to approach it from that perspective.

Matt Rzepka (00:31:45):

Yes, it could be short term tax effective and long term tax very inefficient. You know, we’ve already mentioned this on the show earlier about the required distributions, you know, right now current IRS rules require retirement accounts, tax deferred retirement accounts to start forcing distributions at age 72. So if you wait to take money out of that tax deferred account, that means your tax deferred account may be growing substantially and could make a distribution be even bigger than you expected. So let’s say you’re now forced by the IRS to take more money outta the account than you need to live. You don’t have a choice to take the money out. So now you’re paying taxes on money that you don’t even need and you’ve got then figure out how to deploy that differently. And it could really catch you by surprise if you’re not careful.

Michael Port (00:32:29):

Yeah, yeah. I mean, certainly you could reinvest it, but, but yeah, it could catch you by surprise, put you in an entirely different tax bracket as well. So that’s why the advanced planning is so important and it’s for everything. It’s like, whatever you wanna do, if you’re gonna take a road trip around the country, you could just drive and sort of figure out where gas is and hotels and things. And that could be really exciting if you’re 21. But if you wanna go on a trip that you know, you’re gonna be so safe, you know, you’re gonna have a nice place to stay. You’re gonna eat in the restaurants that are worth eating in. You’re not gonna lose your mind driving too long, you know, searching around for a place that is not roach-infested. Well then you probably would plan it in advance.

Matt Rzepka (00:33:11):

Think of your retirement as your dream vacation.

Michael Port (00:33:13):

Ah!

Matt Rzepka (00:33:15):

Plan for your dream vacation.

Michael Port (00:33:16):

Nice.

Matt Rzepka (00:33:17):

It’s your retirement.

Michael Port (00:33:18):

Nice.

Matt Rzepka (00:33:18):

You wanna to do some planning. You wanna understand what you’re gonna have and what the rules of the road look like.

Michael Port (00:33:23):

Nice. So in terms of the retirement income bucket strategy, your goal, it seems, is to try to defer, you know, as much taxes as you can at the beginning, along the way, don’t pay taxes just on money at the end. So you have to have multiple buckets that you’re working with. So you’ll have tax deferred, tax free, some of the accounts you’ll pay capital gains, some of you’ll pay earned income tax. So that’s what you’re talking about, the different buckets. Each of the bucket has a different tax exposure. And then you can pull from the buckets as is appropriate year by year by year.

Matt Rzepka (00:33:58):

Yes. And this is very important to understand when you’re first starting out versus being advanced and already running an existing successful business. One of the most common mistakes I see is a lot of even just employees who are first starting out, they defer tax immediately and they’re young and they’re probably making the least amount of money they’re ever gonna make their income’s only gonna go up. That would be the time to not defer the tax. Pay the tax. Now pay the tax on the seed, not on the harvest.

Michael Port (00:34:25):

Yeah.

Matt Rzepka (00:34:25):

Now when you get into the higher tax brackets, you can get a little bit more strategic with what tax we’re deferring and why, but you want to, again, just be conscious about what’s going on. Why am I deferring or why am I paying taxes? And what’s that gonna mean long term? And time. Time is one of your best friends when you’re talking about long term investing and compounded growth. So if I can compound tax free growth, I always want to try and do that versus anything else. And everybody always wants to be tax free. Well, you know, when we talk about the different buckets, well, I just want to be in the tax free bucket. Well that means you gotta pay a lot of taxes now.

Michael Port (00:34:58):

Yeah.

Matt Rzepka (00:34:58):

In order to get your money into that bucket and you kind of miss that realization.

Michael Port (00:35:01):

And it really is different for business owners and for employees in terms of how you approach this process. So for example, if you’re a business owner and most of our audience is one kind of business owner or another, they may put a lot into tax deferred accounts through a defined benefit plan because they have a C Corp. And any of the money that they’re putting into the plan is now deductible in the business. So they don’t have to pay the tax on that. They’re not paying income tax on it now. And as a result, they’re able to put so much more money away and pay much lower corporate and personal taxes. But that’s not necessarily gonna apply to someone who’s a W2 earner.

Matt Rzepka (00:35:46):

Correct.

Michael Port (00:35:47):

This is why you really gotta make sure that you’re not just trying to learn about finance. You’re trying to learn about what is most relevant and helpful for you, based on where you are now, where you wanna go, who you are, what you do and what life situations you’re in.

Matt Rzepka (00:36:02):

Yeah. If you’re doing something and you don’t know why you’re doing it, you must answer that question. Just that simple principle. Well, why are you doing this? Well, I don’t know. Well, that’s a problem.

Michael Port (00:36:11):

That is a problem.

Matt Rzepka (00:36:11):

We want figure out why we’re doing that and make sure it might be okay, but you want to know the answer. It comes to your money of why you’re doing something. And then you can be intentional about what you either want to keep doing, or if you want to change it.

Michael Port (00:36:23):

And just for the record, if someone says, why are you doing that? And you say, well, my guy told me to do it. That’s an even worse reason. Right? That’s an even worse reason. So if you don’t understand it, you can’t be sure that it’s actually in your best interest.

Matt Rzepka (00:36:38):

Yeah.

Michael Port (00:36:39):

Okay. So can we move into the investment deployment strategy because I also wanna get into investment accounts and all the different types of accounts that we’d use?

Matt Rzepka (00:36:47):

Yes, absolutely. So investment deployment strategy, again, really comes down to what are the goals of the money that you’re deploying, the savings that you’re putting to work? Do I want to have access to it again? Do I want to get cash flow from it or do I just want to try and grow the asset? And that’s really the three things to think about from a deployment perspective is what’s the intention. My personal growth goal with some of my assets is cash flow. I want money to be returned to me as I’m making investments, because I want to use that return cash flow to make additional investments. So you can kind of create your savings on your own. Or you can go into just a long term growth type strategy and, and get that money to grow and compound as fast as possible. You really want to, if you’re not sure, or haven’t gone down this path, just spend a little time getting some education with someone about what the different types could look like.

Michael Port (00:37:37):

Good. So I think Matt, that time has come to talk about the different type of accounts so that people can make a decision about what type of accounts are best for them.

Matt Rzepka (00:37:47):

Yes.

Michael Port (00:37:47):

To be investing in. So again, first we wanna make sure that we’ve got enough cash set aside. If there is a place you can put it where you don’t lose to inflation that’s wonderful. But in the short term, it’s, I think more important to have access to cash than worried about 4% or 5% inflation loss that you may have on that cash.

Matt Rzepka (00:38:08):

Yes. Yeah.

Michael Port (00:38:09):

Do you agree with that?

Matt Rzepka (00:38:10):

I do. Because if something goes wrong, you’re money usually fixes a problem.

Michael Port (00:38:14):

Yeah.

Matt Rzepka (00:38:14):

Or can help you fix a problem. And that can decimate you quickly. If you don’t have access to that cash.

Michael Port (00:38:19):

Good. Now one, you’ve got that set up. Let’s just talk about the different types of accounts. So there are taxable accounts and tax deferred accounts. Can you just quickly define the difference for folks that are new?

Matt Rzepka (00:38:30):

Yeah. Taxable accounts are something that invests and produces an income each calendar year and whatever the result of that income is shows up on your tax return, whether you want it to or not. You have to pay taxes on the performance of that account each and every year. And the key there is you have one of two choices on how you pay those taxes. You can pay the taxes from your budget, your lifestyle, or you can and pay the taxes from the account. You rarely ever see the taxes paid from the account because it would make the investment look worse on paper. You wanna let that money compound and grow in the account, but you do wanna recognize there’s real taxes being paid on that activity. So it shows up on your personal taxes each and every year, that’s the taxable account.

Michael Port (00:39:13):

You’re taxed at the capital gains rate.

Matt Rzepka (00:39:15):

It can be capital gains. So your three types of income from a taxable account are typically interest, dividends, both ordinary or qualified. And I’ll explain what those are. Or capital gains, both short and long term. So short term capital gains or ordinary income, meaning I bought and sold a stock and I didn’t hold it for 12 months or more. Qualified dividends is something that’s been around for quite a while. Now, if you own a stock for 60 days or more, and they pay a dividend, now you get a qualified dividend, which gets capital gains rates. An ordinary dividend is still at your ordinary income tax rate. So you don’t see that as much as you used to, but if you’re churning stocks that pay dividends, like sometimes people will go in and buy a stock before it declares a dividend and then sell it right after they get the dividend. That would be ordinary. So if you’re in the 37% tax bracket, you’re gonna pay 37% on that dividend. Where if it’s a qualified dividend, you’re only gonna pay 23.8% again at the worst that it could be.

Michael Port (00:40:10):

And we did a whole episode on terminology.

Matt Rzepka (00:40:12):

Yeah.

Michael Port (00:40:12):

So if you wanna refresher on any of these terms that Matt used, go back and listen to that because we did as much terminology as you could probably handle in a 60 minute session. Probably did more than you could handle in a 60 minute podcast session. But that episode is there for you at the beginning. And we’ll put the episode number with a link in the show notes as well.

Matt Rzepka (00:40:32):

Perfect.

Michael Port (00:40:33):

Okay. So those are your taxable accounts. That’s a brokerage account at any brokerage like Fidelity or Vanguard,

Matt Rzepka (00:40:41):

CDs…

Michael Port (00:40:42):

CDs.

Matt Rzepka (00:40:42):

Money markets, taxable bonds. Yeah, brokerage accounts, stuff like that.

Michael Port (00:40:46):

Right. Now tax deferred accounts are a little bit different.

Matt Rzepka (00:40:51):

Yes. So tax deferred can really be in one of two ways. You can put after tax money in an account that doesn’t pay taxes on the earnings as it happens until you access the money, often referred to as a tax deferred annuity. So I make a deposit and as long as I don’t touch the account, I don’t have to pay taxes until I touch the account. The other tax deferred, which is the most common is your traditional retirement type of accounts where we’ve got an IRA, a simple IRA, a 401K. We’re making a deposit into those accounts, getting a tax reduction for making that deposit. We’re deferring those taxes to the end. And then whatever happens inside the account while the money’s in there is also not taxable. So growth and loss and gains and dividends all just happen. And you have no tax consequence until the end. And the end usually is when you start taking a distribution. The distribution is the taxable event from a tax deferred retirement account. And it’s an ordinary income taxable event at that point.

Michael Port (00:41:53):

Yeah. And so those are higher tax rates.

Matt Rzepka (00:41:55):

Yeah. You’re subject to whatever the tax brackets are at that time. And if you want to ever do some research, you just Google tax brackets and they’ll show you the history of where the tax brackets have been, what the rates have been, how big the brackets are. And we live in this progressive tax bracket system, where as you make income, you go up the tax bracket rates and you start to make what we call an average rate or an effective rate of tax that you pay.

Michael Port (00:42:18):

Great. And again, those terms are in that earlier episode on terminology. So let’s talk about the types of accounts that fall under tax deferred accounts because there are many.

Matt Rzepka (00:42:28):

Yes.

Michael Port (00:42:28):

They all have funny little acronyms and they can be incredibly similar, but just slightly different or dramatically different.

Matt Rzepka (00:42:38):

Yep.

Michael Port (00:42:38):

And it is I think a little confusing to a lot of folks. And so let’s start with the IRA.

Matt Rzepka (00:42:43):

Individual retirement account. So this is just individuals choosing to put a deposit of their own personal savings or income into a retirement structure. And there’s an annual limit on how much each person can do. And there’s also income restrictions on what each person can do. So if you know an IRA or a Roth IRA…Roth IRA is different tax characterization, but they have the same deduction and contribution limits.

Michael Port (00:43:10):

Now somebody’s paying into a 401K plan at their company and they’re getting a match from their company or not either way they’re still paying into it, can they also have their own individual IRA account separately and max out during that same year?

Matt Rzepka (00:43:24):

Yes. Only if they’re at a certain income or less. And that number changes every year with inflation. So if you’re participating with an employer’s plan and wanting to do an IRA, you just have to make sure you qualify. There’s a rule restriction in anyone who’s, even if it’s TurboTax, doing your own return, it’s gonna walk you through that formula.

Michael Port (00:43:43):

Okay, great. So then what is a simple IRA? Is it for people who are simple?

Matt Rzepka (00:43:49):

Very simple people.

Michael Port (00:43:51):

Like me? I should have the simple one?

Matt Rzepka (00:43:52):

The simple, yeah. You just want no paperwork…

Michael Port (00:43:54):

Is it the non confusing one? That would be great. You could have all different ones. IRA and simple IRA, 401K and simple 401K. If you choose the simple ones, it’s really easy and everything works out great. Choose the other ones. It’s like a punch in the face every day. You have no idea what’s happening. So what is a simple IRA?

Matt Rzepka (00:44:10):

The simple IRA is actually an employer plan that allows you to simplify a retirement’s saving strategy for its employees without a lot of paperwork and without a lot of complexity. So it’s still an IRA type of structure. So it’s an individual basis, but you can contribute a lot more and it all is facilitated through the employer’s payroll. And then the simple IRA presented by the employer also has a matching component. So they’re gonna put some of the company money into your account on your behalf as well.

Michael Port (00:44:39):

So for a professional speaker who doesn’t have employees, maybe they just have a few contractors who help them out with different things, sounds like a simple IRA could be very for them.

Matt Rzepka (00:44:51):

Could be, it depends on how much you have available to save. Really with all of these options we’re going through. If you’re not able to fully fund one that would take you to the next option, then you just stick with that one until you are able to fully fund it. Because an IRA and a simple IRA, you’re not gonna have a lot of costs. But let’s say you were gonna move to a 401K, a traditional 401K, you’re gonna have costs there. So if you’re not gonna maximize what the 401K has to offer, then why pay the costs? So it always reverts back to how much do we have available to save? And then how are we gonna deploy those dollars?

Michael Port (00:45:25):

You mentioned 401K. That’s next on my list. We have 401K and a solo 401K. I mean, think about that. IRA, simple IRA, 401K, solo 401K. Then it’s the SEP-IRA, I mean, come on, this is ridiculous. Like number 1, 2, 3, 4.

Matt Rzepka (00:45:41):

You think they get paid by the acronym or the page to create all this stuff.

Michael Port (00:45:44):

Seriously. Seriously. I think they get paid by the page and then bonuses for the most confusing acronym.

Matt Rzepka (00:45:50):

Yes.

Michael Port (00:45:50):

Whoever can come up with something that will be really hard or really similar to something we already have, but different just to confuse them enough. You get a bonus.

Matt Rzepka (00:45:59):

Yes.

Michael Port (00:46:00):

So what is the 401K and the solo 401K. What’s the difference?

Matt Rzepka (00:46:04):

So that is a step up again, employer plans. So it has to be established by a business and it allows you to start defering a lot more into the plan and a lot more flexible for the employer in terms of what they do or don’t want to contribute. And additionally, about 10 to 12 years ago, I believe it was, they implemented the Roth component to a 401K. We’ll talk about Roth IRAs a little bit more, but I’ll maybe be hit on the Roth 401K then. But right now I believe IRA limits are around $6,000 to $7,000 a year depending on your age. Simple IRAs, you can do $13,500, depending on your age. 401Ks are up to $19,000 or $20,000. So you can see that contribution threshold keeps going up. So again, going back to your savings, if you’ve got enough to start doing some of those things, and maybe you wanna move into that next step. If you’re maxing ’em out, then it’s gonna cover the cost of running that plan.

Matt Rzepka (00:47:00):

And then you can do some really cool things inside of a 401K if you’re trying to create profit sharing or other incentives for your team.

Michael Port (00:47:09):

Yeah.

Matt Rzepka (00:47:09):

Now the solo 401K is for maybe a speaker who doesn’t have any of employees, but wants to try and save a lot of money into retirement plan. That is a very simplified version of the 401K. And it lets you put not only your employee portions that $19,000 to $20,000 number, but then the company can also match up to 25%. So there’s some really cool benefits that you can get and save a lot of money quickly into retirement plan.

Michael Port (00:47:34):

We had a SEP for a while. Maybe it was set up 15 years ago or so, but then we moved to a defined benefit plan as the company grew and as our ability to make larger contributions to the plan grew. And we wanted to design a plan that was very generous to the people who worked at the company. We moved to a defined benefit plan. So can you tell ’em a little bit about a defined benefit plan and maybe they’ve heard of a pension plan, you know, like if you worked at Ford Motor Company for 50 years, you get a pension for the rest of your life based on your salary when you left the company. A certain percentage of it. So what’s a defined benefit plan and who’s it good for?

Matt Rzepka (00:48:12):

So everything we’ve talked about before, this is a defined contribution plan. So that is a good distinction to make because they’re defining what you can contribute into the plan. How much the IRA can get, the simple IRA, the 401K. Defined benefit plan is truly a pension plan where you’re defining a retirement benefit in the future that that employee or that participant is going to be paid out. Now, when it’s a private company, you have a little bit of a quirk with the defined benefit plan because you’re still using the same formulas for a retirement benefit, but you don’t necessarily have to keep it and run it like a pension plan would. If you sell or decide to retire, you can transfer those funds out into your own individual account and manage them like any other investment account. Well, why would that be beneficial? So we talked about a 401K. If you’re under 50, at $19,000 to $20,000, well, a defined benefit, you could put $70K, $80K, $90K, a $100K $150,000. I think the limit right now is like $180,000 or $190,000 per participant into a defined benefit plan. So again, your contribution limits keep going up. So if you have income and free cash flow, you could really look at doing some pretty cool stuff and saving a lot of money quickly with some unique tax benefits.

Michael Port (00:49:27):

And if your partner, your spouse is in the business with you, this can be a really productive plan because, you know, you can even set it up a dollar for dollar. For every dollar you make a dollar contribution goes into the plan on your behalf. So something to look into if you’re at that stage, but I’m so thankful that we put one together and did it the right way.

Matt Rzepka (00:49:51):

And you have a 401K component and you have a profit sharing component.

New Speaker (00:49:55):

That’s right.

Matt Rzepka (00:49:55):

And we’ve got some Roth components.

Michael Port (00:49:56):

Yeah.

Matt Rzepka (00:49:56):

So we’ve got a lot of different pieces based on what our long term goals are. So again, that’s the importance of sitting down and saying, okay, where are we now? What buckets have what balances and where do we wanna start sending the others.

Michael Port (00:50:08):

One of the other reasons that I did this plan was because, especially for our younger employees, you know, a lot of them might not be focused on saving. You can do a match where you say, we’ll match whatever you put in up to this percentage or up to this number. But then, you know, it’s a kind of coercion. And I think it’s valuable to do it. For sure. If you have work somewhere where there’s a match, that’s free fricking money. So you gotta go get that, but we don’t do a match. So they actually don’t have to put money away themselves. We contribute the equivalent of about 10% of their salaries each year to this plan. And there’s even an interest credit on a portion of that that’s guaranteed every year, even if the market goes down. So that when they’re eligible for the plan and they’re vested and they see their balance, they go, holy cow, how did that happen? Well, we kind of did it for them and we still are, of course always encouraging them to do it themselves. What’s the expression: Don’t give someone a fish teach. ’em how to fish.

Matt Rzepka (00:51:08):

Yeah.

Michael Port (00:51:09):

And also sometimes I think it’s nice just to make sure things are well set up for the people that you care for.

Matt Rzepka (00:51:14):

Yeah.

Matt Rzepka (00:51:15):

And they’ll find their own way through the financial jungle, but at least we can get them set up straight.

Matt Rzepka (00:51:20):

Yeah. You know, you played a good role.

Michael Port (00:51:22):

Yeah, exactly. And it’s one of our values. So we want to try to extend it into the team. Okay. We focused first on taxable accounts.

Matt Rzepka (00:51:29):

Yes.

Michael Port (00:51:30):

And we focused on tax deferred accounts.

Matt Rzepka (00:51:32):

Yes.

Michael Port (00:51:32):

And now let’s hit the third type of account, the tax free growth. The after tax investment account.

Matt Rzepka (00:51:39):

Yes. And the two most common here that you hear a lot about, and especially today, if you’re doing any kind of research on your own, you’re hearing a lot about Roth IRA, Roth conversions, Roth 401K. So Roth are your stock based accounts that you put after tax money in, so I’ve gotta make the money today, pay the taxes today, and then what’s left over I can contribute to these accounts. Once I make that contribution to these accounts, then whatever happens in that account is also tax deferred. But when you pull the money out, it’s tax free if you meet some very basic requirements. So again, 59 and a half, the account’s gotta be open for at least five years and the Roth 401K, so similarly to the traditional IRA, the Roth IRA has an income limitation. So if you’re over a certain income, you are not going to be able to contribute to that account.

Matt Rzepka (00:52:31):

The Roth 401K, however, has a higher contribution amount and no income limitation. So if you are seeking Roth type dollars, a Roth 401 is one of the best places to start that conversation. And then lastly, I mentioned, it is Roth conversions. This is where you take a IRA or regular 401K and you move them over to a Roth IRA or a Roth 401K. But when you move them, you have to pay taxes on the amount of money that you move. So if I move $50,000, I’m gonna have an extra $50,000 of income on my personal income tax return. So I wanna be ready for that. And I wanna make sure that it makes sense and that it’s a smart move based on some assumptions. Again, you’re gonna be dealing in a world of assumptions a little bit, but you want to figure out, okay, what are my risks and what do I wanna combat against if something does change in the future?

Michael Port (00:53:21):

That’s fantastic. Thank you, Matt. I mean, this is a lot. We’re already at about an hour and we do have one more section to cover. And so I’d like to power on. You okay?

Matt Rzepka (00:53:30):

I’m good.

Michael Port (00:53:30):

You can hang?

Matt Rzepka (00:53:31):

I can hang.

Michael Port (00:53:32):

Alright. So look, if we’re gonna narrow it down a little bit, you know, most of the people listen to this podcast are speakers, but many of them also have consultancies or other types of companies. Uh, we have one guy who owns a bunch of companies in the Christmas light industry. It’s like the coolest thing. I had no idea. He’s doing very well. So we’ve got a lot of different types of owners and individuals here. So how would we start to evaluate which type of account you know, is right for us if we’re hearing all of these different things, like how what’s the filter we use?

Matt Rzepka (00:54:06):

Yes. Again, that present position or that full picture look to assess what balances you have right now. And balance, if you’re just trying to keep it very simple, if I’ve got taxable accounts, tax deferred accounts, and tax free accounts. Well, if I put one third of my money in each of those without a grand plan, that’s still gonna give me diversification and gonna give me options. So if you’re not ready to do a full forecast and plan, just splitting the money up into thirds where you can is a great place to start. But I do recommend getting somebody who can give you some vision about what that’s gonna look like with what your current allocations are.

Michael Port (00:54:43):

Okay, good. So let’s go into the last section then: asset diversification and savings and investment planning. Now, this is obviously a massive topic, asset diversification alone. There have been many, many books written on it and most of them wrong. There’s an old joke, how can you tell how much BS exists in any one particular field or industry?

Matt Rzepka (00:55:05):

How many books are written on it?

Michael Port (00:55:07):

Exactly. How many books have been written about it. So look at sales. Marketing.

Matt Rzepka (00:55:11):

Yes.

Michael Port (00:55:12):

Personal finance. Investing. Productivity. Et cetera. There’s a lot of BS. We have succumbed to that BS at times ourselves. And we have dished out that BS at times ourselves without meaning to our realizing it. You know, not everybody who is sharing ideas means to be BSing you. They may really believe it. Think it’s absolutely accurate. But then a couple years later they realize, oh, wow, wow. I was wrong about that.

Matt Rzepka (00:55:37):

Yeah. In finance, a lot of times that’s a hiring issue. They’re just hiring a sales force, not really training them. So people selling don’t really know any different because they themselves haven’t been educated.

Michael Port (00:55:47):

Right. Or they were trained 18 years ago.

Matt Rzepka (00:55:50):

Yeah.

Matt Rzepka (00:55:51):

But they don’t have a lot of continuing education because they haven’t taken it for themselves.

Matt Rzepka (00:55:55):

Yeah.

Michael Port (00:55:55):

And as a result, they’re operating in a different time. Really.

Matt Rzepka (00:55:58):

Yeah.

Michael Port (00:55:59):

Okay. So savings and investment planning. How should we think about it?

Matt Rzepka (00:56:04):

This is an area that we’ve kind of lumped together and I like to really keep distinctly separate. So savings is often associated with safe. So that means we think we’re not gonna lose. And then investing is often associated with risk and we have the potential to lose in the risk tanks. So we wanna make sure that we’re not lumping saving and investing together. And again, that goes back to having access to capital, having access to money that we know is not gonna go backwards. As you get more and more comfortable with your safe assets, it allows you to take different approaches on your risk assets to hopefully let those grow and compound to the maximum. So again, just making sure we’re not lumping together saving and investing into one.

Michael Port (00:56:46):

Interesting. I think that concept is gonna come up again in future episodes when we talk about other types of vehicles where they mix purposes yes. And sometimes can be really problematic. So that’s just a little curiosity gap for you for the future episodes. But I know where we’re gonna go with that. So what about asset diversification? That’s really the last thing that we wanna focus on. What is asset diversification? How should folks think about it and you know, what should they do about it?

Matt Rzepka (00:57:14):

There’s many types of asset diversification. You’ve got investing asset diversification and then you’ve got also segment asset diversification. So what I mean by that is, you know, maybe I’m investing in my own business. Small business could be an asset class. Then I’ve got maybe real estate that is related to my business. So real estate could be an asset class. And then the stock market could be an asset class. So there’s a lot of different places you can get different types of investments.

Michael Port (00:57:41):

And then inside the stock market, you have many different asset classes.

Matt Rzepka (00:57:43):

Many. Small, medium, large, foreign, domestic.

Michael Port (00:57:48):

Value. Growth.

Matt Rzepka (00:57:49):

The list gets longer and longer and you can get a little bit lost in the mystification of it. But you wanna understand and know what level of diversification you’re taking and have some strategy to why you’re doing what you’re doing.

Michael Port (00:58:04):

Yeah. You know, it’s interesting when I meet a lot of business owners…and one of the reasons I wanted to do the show is because most of the people I meet are business owners…

Matt Rzepka (00:58:12):

Yeah.

Michael Port (00:58:12):

One of the reasons I love business owners is the same reason I love speakers and actors because they’re often unusual. They don’t often take the same path that everybody takes.

Matt Rzepka (00:58:22):

Yeah.

Michael Port (00:58:22):

And they’re often extremists because they wanna do something so well that it changes the world in some way.

Matt Rzepka (00:58:30):

Yeah.

Michael Port (00:58:31):

I would often when I would just be sitting and chatting, you know, in the green room backstage with other speakers who are doing quite well, authors who were well known around the world. I would just bring up personal finance just for fun because usually they’re talking about, something’s a like really about the industry. I’m like, oh my God, we have this conversation every single time.

Michael Port (00:58:51):

So I think about what could I change the topic to that would make people uncomfortable? Oh, personal finance.

Matt Rzepka (00:58:56):

Yeah.

Michael Port (00:58:56):

Let’s go there. So I often bring it up. And what I have found many times is that many of them say, I don’t really know that much about that, which says a lot. And I really wanted to try to put together a show for a season that would just give people a doorway in. Even if everything we’re talking about right now, doesn’t make sense completely. If you get 20% of this show, that’s a win. Not gonna get all of it I don’t think. I don’t get all of it.

Matt Rzepka (00:59:23):

And you have to personally be invested in your version of it. You can take in somebody else’s personal finance journey, but until you personalize it.

Michael Port (00:59:30):

Correct.

Matt Rzepka (00:59:30):

You’re not gonna take all of it in. You’re never gonna get a hundred percent until you’re really bought into what you want.

Michael Port (00:59:36):

Yeah. I brought that up because when we’re looking at diversification, sometimes I also hear the business owners say, well, I’m not investing now because I’m really putting all my money into the business because that’s where I can get the biggest return. And I’ve heard this a lot pitched from people who sell courses on entrepreneurship.

Matt Rzepka (00:59:52):

Yeah.

Michael Port (00:59:52):

Maybe you’ll get 8% or 10% in the market over a long period of time, but if you just pour all your money into…but you can get like 18,000,000% growth. I don’t know why they have that voice. Apparently that’s the voice they have. Okay. Yeah. You might hit it outta the park. I certainly historically from the start of my business to now have earned more growth than I’ve done in the market, but I wouldn’t put all my eggs in that one basket.

Matt Rzepka (01:00:17):

Well and what if you can’t sell your business?

Michael Port (01:00:21):

Correct.

Matt Rzepka (01:00:21):

You know, your business is maybe an income machine while you’re running it.

Michael Port (01:00:24):

Yeah.

Matt Rzepka (01:00:24):

But if somebody else is running…think about the evolution of technology of Uber.

Michael Port (01:00:30):

Yeah.

New Speaker (01:00:30):

Let’s say I was a taxi cab company and thought I was gonna sell my company for millions of dollars. And then Uber came out and my taxi cab company is gone.

Michael Port (01:00:38):

I mean, there are people who bought medallions in New York City that are bankrupt now.

Matt Rzepka (01:00:41):

Yeah.

Michael Port (01:00:42):

Because they thought they had this asset that would last them a lifetime.

Matt Rzepka (01:00:45):

Yeah.

Michael Port (01:00:46):

I really do think of the small business as a bank to fund our long -erm security. If it covers our short-term needs and funds our long-term security, then it really makes a lot of sense because, yeah, maybe we sell our business. But in our business is pretty unique. I have yet to meet anyone in the world who can do what we do. So if we’re not involved in the business at all, could it work? Yeah. But would it be what it is now? I don’t know. Is there a way to sell it and still be involved in it? Absolutely. That path may be there, but I can’t do it an evaluation of my business to say, well, valuation of my business is, you know, $25 million.

Michael Port (01:01:27):

So I don’t have to worry about saving anything because I’ll be able to sell this business at that time. Like you have this dining room table that you love. I’m gonna put it on Facebook Marketplace and sell it and you don’t understand why nobody wants your table because it’s but. t ugly. And it’s horrible. Nobody wants it, but you love it. You so much invested and this why isn’t anybody buying it?

Matt Rzepka (01:01:45):

Yeah.

Michael Port (01:01:46):

And I think we gotta be really careful about our business from that perspective. Our business is just one vehicle to generate capital, to fuel our lives now and in the future. And hopefully we get to have a great time running this business and it’s meaningful and we’re doing great work. But at the end of the day, if it’s not making money, it’s not a business.

Matt Rzepka (01:02:06):

Make it the cherry on top of a really awesome Sunday. Not the whole Sunday.

Michael Port (01:02:09):

Yeah.

Matt Rzepka (01:02:10):

‘Cause your business value could change. Tax laws could change. There’s so many variables that could make putting all your eggs in just your business basket be very disappointing.

Michael Port (01:02:19):

We’re not saying have a job and have a business or do four businesses. That’s not what we’re saying. We’re just saying, be careful of that mantra that we hear about your business is gonna be your fastest growing asset. So put all your money into that. When I hear about that is when I hear someone who lost their business.

Matt Rzepka (01:02:35):

Yeah.

Michael Port (01:02:36):

They usually say, oh, had everything tied up in my business. You’ve heard that of course a lot, right?

Matt Rzepka (01:02:41):

Whether it’s at retirement, whether it’s something went wrong along the way, and if everything’s in there, then you’re starting from zero and…

Michael Port (01:02:48):

Yeah.

Matt Rzepka (01:02:48):

..things can go wrong. You just gotta be able to recover. And usually it’s reinvesting too much back into the business or consuming too much personal lifestyle from the business saying, I don’t need to save because I’m gonna to sell the business.

Michael Port (01:02:59):

Right.

Matt Rzepka (01:03:00):

And those are slippery slopes.

Michael Port (01:03:02):

Yeah. Okay. So what do you think the key takeaways are? We’ll go into in a different episode, more diversification with respect to actually buying stocks and bonds and things like that. We’re not gonna go deep into that now, but just to understand that considering asset diversification is important and understanding contextually what types of assets you currently have, what you might wanna add in to create a really solid, secure financial picture for yourself.

Matt Rzepka (01:03:35):

The key takeaways to me are knowing what you currently have and what that trajectory looks like if you don’t change. Or if we do make a change, you know, how could that improve the situation? You don’t wanna make changes that aren’t gonna improve where you’re going. And then additionally, something that’s worked great for me is I love my business. I love what I do. And I do invest a lot of time, energy, and resources into the at, but I have also made investments outside the business. So that my thing, if I don’t think it’ll ever happen, but what if they went to a flat tax. There’s things that can change industries. So be eyes wide open about what risks are out there. Don’t let, ’em scare you from taking action, but just be aware that, hey, I want to make sure that no matter what happens, I’m gonna get to the end game goal.

Michael Port (01:04:22):

Yeah. And like something like a pandemic will never happen. So you don’t have to worry about something like that, but just other things. Alright…

Matt Rzepka (01:04:29):

…like a flood, or a hurricane.

Michael Port (01:04:30):

Yeah. Like a flood or a hurricane that totally destroys your headquarters and everything in it and all your video equipment and audio equipment. And oh my gosh. I even just literally unpacked the boom microphones and the mic that Matt is using out of a box that we just ordered because everything has to be reordered. And no insurance does not cover it. So here’s the thing, next week’s topic is gonna be this: money advisors- the good, the bad, and the ugly. I’ve got a lot to say about money advisors and my close, dear friend, who is sitting across the table from me, is a money advisor. But he is one that I trust because I don’t trust most of them. Do you, Matt?

Matt Rzepka (01:05:11):

You have to be very, very careful. Anyone who’s in a hurry, be cautious. So you want somebody who’s gonna work at your side, understand what you want and help you get where you’re going. Don’t be in a rush.

Michael Port (01:05:21):

Yeah. And we’ll dig deep into that next week. But for now that is it. Keep thinking big about who you are, what you offer the world. This is Michael Port with

Matt Rzepka (01:05:33):

Matt Rzepka.

Michael Port (01:05:33):

Signing off for today.

The post S4E6 What To Do With Additional Savings? appeared first on Steal the Show with Michael Port.

Whoa, what’s this? A bonus episode? Huh? Wha?

That’s right. Welcome to the very first episode of Steal the Show: Michael’s Soapbox, our brand new bonus episode series. On this episode, Michael takes on one of the biggest questions that most aspiring speakers grapple with early in their careers: “What if what I’ve done in the past isn’t good enough to get me speaking gigs now?”

The answer? It doesn’t matter what you did before. Drawing on inspiring real world examples and the research he did writing The Referable Speaker, Michael breaks down what meeting planners look for in a speaker—and how YOU can get the gig, even if you don’t think you’re “qualified.”

How You Can Steal The Show

• Think like a meeting planner by learning the four categories that meeting planners pull from when booking speakers for their event.
• Take inspiration from other speakers who’ve built successful careers, despite their personal backgrounds.
• Understand what a professional speaker needs to do for their audience, regardless of the speakers’ resume.

Stay tuned for future bonus episodes of Steal the Show: Michael’s Soapbox, as well as your regularly scheduled Steal the Show content.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/. 

In this episode…

Book & Podcast mentions:

• The Referable Speaker by Michael Port and Andrew Davis (0:59)
• Atomic Habits by James Clear (6:14)
• Never Lose An Employee Again by Joey Coleman (7:19)
• Profit First by Mike Michalowicz (8:14)
• To Sell is Human by Dan Pink (8:28)
• Free Agent Nation by Dan Pink (9:02)
• The E Myth by Michael Gerber (9:12)
• The School of Greatness by Lewis Howes (10:04)

Other episodes of Steal the Show featuring people mentioned in this episode:

• [Andrew Davis] Andrew Davis On Obsessively Tracking Your Career, How To Create The Speech People Talk About, And Why You Can Charge More Than You Think With The FEE Model
• [Joey Coleman] Joey Coleman On Giving An Audience What They Need, The Dangers Of Using Absolutes, and Why Celebrating Accomplishment Is Difficult
• [Joey Coleman] Joey Coleman on Learning Quickly and a Framework for Making your Case
• [Mike Michalowicz] Hacking Your Way into Pro Speaking and Making Big Money Self-Publishing Books – with Mike Michalowicz
• [Mike Michalowicz] Profit First Innovator Mike Michalowicz on Entrepreneurship Simplified in Uncertain Times
• [AJ Harper] AJ Harper on Writing for the Page vs. Writing for the Stage, How to Start a Daily Practice, and the Current State of Self-Publishing

Transcript

INTRO (00:02):

Meeting planners don’t hire credible speakers. They hire transformational speakers. A meeting planner hires you to change the way their audience feels, thinks, and acts.

Michael Port (00:17):

Welcome to Steal the Show with Michael Port. This is Michael. I got some new equipment, so I’m testing it out with a short episode, but an important one. Very often, people who are new to speaking folks who wanna be professional speakers, are anxious that what they’ve done in the past is not important enough to get them speaking gigs now. And that’s a fair concerned because it seems like many of the people who are on the keynote stages have done something of note prior to becoming a speaker. At least some of the keynoters, you know, maybe they ran a big company or maybe they were an athlete or an actor. You know, in The Referable Speaker, Andrew, and illustrated how meeting planners book their anchor speakers. And they have four different buckets from which they pull.

Michael Port (01:10):

The first bucket is filled with athletes, actors, and astronauts. Athletes, actors, and astronauts. But not actors that are, you know, waiting tables while they’re trying to get a couple commercials or guest spot on a TV show. No, no, no. We’re talking about Will Smith type of actors. The kind of folks you pay $500,000 to just to show up and have a 40 minute conversation. Then they get on their private plane and they go home.

Michael Port (01:34):

The second bucket of speakers that the meeting planners select from when they book their anchor speakers is what we call A-list Alternates. A-list Alternates are people whose names you might not immediately recognize, but when you hear the next four to six words after their name, you say, oh yeah, no, of course I know that person. I’d love to hear them. So for example, if you heard the name, Yancy Strickler, that may not ring a bell immediately, but if I said, well, Yancy is the founder of Kickstarter, you’d say, oh yeah know, of course I know who that is. Right now you’re nodding your head going yeah, yeah, okay, I know what Kickstarter is. I mean, the founder of Kickstarter, I’d be interested in hearing them speak.

Michael Port (02:10):

The third bucket of speakers that meeting planners often pull from for their anchor keynote spots is the Industry Icon bucket. You know, the CEO of Domino’s Pizza or somebody who is very well known in their industry, some sort of icon. But the CEO of Domino’s Pizza is not gonna be particularly relevant at a conference for health and wellness, but at a fast food conference, most people are gonna know who that person is and they’re going to hear from them because they may be an Industry Icon. Now it might be a little bit disconcerting because you feel like, well I might not fit in any of those three buckets. So what am I to do? Well, that’s where the fourth bucket comes in.

Michael Port (02:53):

The fourth bucket is filled with Surprise and Delight speakers. These are speakers who the audience doesn’t necessarily know of. They might not have done something in the past that is known or extraordinary by typical measures, but they can deliver a transformational keynote session at the conference. Their session is more entertaining than the speakers from the other buckets. It often is more insightful. So it changes not only the way people feel, but the way they think and then ultimately what they do. So everybody’s really excited to get the picture with the celebrity, but they go home talking about the work that the Surprise and Delight speaker did at the conference. And when a meeting planner finds a Surprise and Delight speaker that they love, they book them regularly. You may book 15 gigs in one year through one meeting planner because they know you are a reliable Surprise and Delight speaker.

Michael Port (03:59):

Now a Surprise and Delight speaker doesn’t have to have some sort of big famous past because what the audience actually cares about most is what you do in that moment when you are on stage. Is the product, meaning your speech, a transformational experience, for the people in the room? That’s what they care about. They’re not evaluating your past. They’re evaluating the moment that exists on stage at that conference. So what you did doesn’t really matter. People really only care about what you are doing now. And I wanna give you some examples because I think this may shine some light on the importance of recognizing that if you put in the work now and you produce something that is best in class, that cannot be denied, well, then you’re gonna work.

Michael Port (04:50):

For example, when Elon Musk started Tesla, was he a car mechanic? Did he know anything about actually building cars? Did he spend his whole life tinkering with cars? No. Was Sara Blakely, a panty hose designer before she started Spanks? The answer is no. Was Michael Jordan, a baseball player before he played professional baseball? No. And as it turns out, he couldn’t do it. So sometimes, sometimes trying something new doesn’t work for a variety of reason, but often it does. And in Jordan’s case, his body was trained for basketball and it would just take too many years to retrain his body for an entirely different sport. But those who do succeed do so because they are able to learn a new skill and quickly adapt physically, intellectually, and emotionally to their new world. And that’s your job. Your job is to turn into a professional speaker. Even if you don’t care about getting paid on the front end. Even if you’re just looking for a business on the back end or brand awareness for your company. Are you able to produce something that is at a level that anyone would look at and say, wow, that’s a professional?

Michael Port (06:01):

So you think what you’ve done in your previous career is most important, but it’s not. What you’re doing now in your current career is what’s most important. Let me give you some examples from people in the industry that you may be familiar with. James Clear, he wrote a book called Atomic Habits, which is a number one New York Times Bestseller. He sold over 5 million copies of that book. And in fact, he was on the New York times bestseller list for an entire year, may still be on the list. But here’s the thing, he had no academic or professional experience in habits before he started his blog, which he did after college. He was actually a failed app builder. The app that James had spent $5,500 on building got only a few downloads and made an entirety of $19 in revenue.

Michael Port (06:53):

In his website and his bio he promotes his prowes as a man who can lift heavy things. You know, he does a lot of body building. I’m not giving James a hard time. James has done incredible work. Now, people care about what he’s doing now, but he actually doesn’t have any bonafides. From what I can tell, I’ve looked all over the internet in habits except what he learns through his study now. And that’s really, really important. And I could go on. Joey Coleman. He just published a book called, Never Lose an Employee Again. He hasn’t had a job in decades and he wasn’t in human resources. He didn’t run big teams. He was a lawyer. He worked for the CIA for a bit. And I think then he worked at a small firm for a bit, maybe a family firm, but I’m not sure. Joey’s an incredible speaker. People love him because of what he does now on the stage. His book is great because of what he does now.

Michael Port (07:43):

He has designed a system that ensures people don’t lose as many employees as they regularly do. And it’s great. It works but it’s what he’s doing now. Eric Wall, another speaker does over a hundred gigs, a year, 40 grand, a speech. He became a graffiti artist to become a speaker. He wasn’t a famous graffiti artist, at least from what I can tell, long before he was a speaker. And that’s fine, that’s great. He developed this skill that he could use in his speaking. And it makes his speeches remarkable. People comment on it. Mike Michalowicz, good friend, and AJ Harper, of course, who is our head writing coach and a dear friend also. They wrote Profit First, which is a book that challenges the status quo in small business accounting and it offers a new approach.

New Speaker (08:28):

Now AJ is a professional writer with no accounting experience. Mike is an entrepreneur who found that the way most businesses do their accounting is flawed. So he rebuilt the system using a new proprietary method, his. But he’s not an accountant and it didn’t matter. Nobody cares. The book has over 5,000 reviews on Amazon and it’s a fantastic book. Dan Pink, another example, he wrote a big book about sales called To Sell is Human. Uh, I don’t think he was ever in sales. He was a writer in the White House, a speech writer. Then he wrote a book called Free Agent Nation just by traveling around the world and talking to free agents, writing about their experience. And then he’s written a few other books. So he studies that particular topic writes a book about it speaks about it. Michael Gerber. He didn’t run a small business, scale it to high heaven. He was a jazz saxophone player before he wrote The E Myth.

Michael Port (09:19):

I was at his house, in fact, when someone asked him, Michael, you know, how’d you come up with The E Myth? He said, oh, I made it up. Literally. He said, I made it up. And it’s great. Marie Forleo. My understanding is she never owned any kind of substantial business before she started teaching people about how to build a business. In fact, I think she was a fitness instructor and she has built an amazing career. People absolutely love her because of what she’s doing now. Matt Church, one of Australia’s best speakers, an amazing human being, incredibly talented, was also an aerobics instructor before he came one of the most respected speaker in Australia and was recognized by his induction into the Australian Speakers Association Hall of Fame.

New Speaker (10:03):

Here’s another one Lewis Howes, no experience in greatness before he started the School of Greatness, at least from my perspective. He was an arena football player with virtually no long term prospects in the sport. Meaning he didn’t have the kind of, that you would need to jump from that sport over to the NFL. Most likely. Could be wrong, but it didn’t happen. So he got hurt and he couldn’t play anymore. Or maybe he could have come back, but just didn’t think it was worth it because his prospects were limited. I don’t know. But my point is he wasn’t Tom Brady. So he started teaching people how to network on LinkedIn, because he figured it out. He was an early adopter. Then he started selling webinar courses teaching people how to sell webinar courses. Then he started a podcast interviewing people who did great things. Wrote a book about it, likely with a ghost writer. A lot of folks do. I don’t know for sure. I’m just guessing. But then he became great because he was the founder of the School of Greatness.

Michael Port (10:57):

So people care about what you’re doing now, not what you did before. Chris Guillebeau, another example, uh, quote from his website still in his early thirties, Chris is on the verge of completing a tour of every country on earth. He’s already visited more than 175 nations, and yet he’s never held a real job or earned a regular paycheck. Rather he has a special genius for turning ideas into income and he uses what he earns both to support his life of adventure and to give back. Quote again, in preparing to write this book, Chris identified 1500 individuals who have built businesses earning $50,000 or more from a modest investment in many cases, a hundred dollars or less. And from that group he’s chosen to focus on 50 of the most intriguing case studies. Nearly all case studies, people with no special skills, discovered aspects of their personal passions that could be et cetera, et cetera, et cetera.

Michael Port (11:46):

You see my point, he’s not writing about his past experience doing this. He’s writing about other people who have done this. He wasn’t, from what I could tell an entrepreneur of any note whatsoever before he started doing this. He’s a great marketer and a great writer and those are compliments. And he built an annual event that was incredibly popular because it was a great event to be at. People loved it. So if you create a great product and people want it, they will come regardless of what you did in the past. And he understands how to connect deeply with people’s fears and their dreams. And that’s his special genius: writing and marketing about these ideas, Mel Robbins, she was an attorney who quit or was fired from almost every job she had. And now according to her website, she’s the number one most popular female speaker in the world.

Michael Port (12:37):

Is she speaking on the law? No. She’s teaching you how to take action again from a woman who couldn’t follow through on her professional commitments in the early stages of her career. So I’m not criticizing her. This is what she says. She’s fully open about this. And I think it is fantastic because what she’s demonstrating, what matters is what you do now. And in fact, she also recently realized she was a terrible boss and fired herself from that job and brought in somebody else to run her company because her special genius is speaking, writing, creating IP, connecting with people. So many people worry that they don’t have enough experience on their topic to be credible as a speaker. And in a few cases, maybe that’s accurate, but most new speakers have more than enough experience or expertise in their field to be considered credible.

New Speaker (13:29):

Meeting planners, don’t hire credible speakers. They hire transformational speakers. A meeting planner hires you to change the way their audience feels, thinks, and acts. Accomplishing this takes craft, substantial skills in content and script development, stagecraft, contextual modeling, development of signature bits, and of course the ability to comport yourself as a professional in the business of professional speaking. So you are no longer whatever it was you did before you became a speaker. You’re now a speaker and you should develop your expertise as a speaker slash performer more than you should be concerned about your expertise on the topic and what you did in the past. You likely have more than enough expertise. A professional speaker, however needs to be able to create an insightful, entertaining, and transformational experience for an audience. And that is separate and apart from your expertise. That requires professional speaking skills. Your level of topic expertise is less important and there’s nothing that obligates you to having any particular experience going into a new field that is governed by market forces, namely supply and demand.

Michael Port (14:41):

I mean, you look, you can’t perform open heart surgery without being a licensed board certified medical doctor. And even then you need special training called Fellowship and surgery, cardiology, cardiac surgery. I have no idea if that’s actually what it’s called, but it’s because the industry is regulated. You would think we wouldn’t need regulation because people would be smart enough not to try open heart surgery on their friend, you know, just like, oh, let’s I can do. I’m like cut your heart open. I’ll put something in there like ply or part and I’ll start working on it. But unfortunately we’re not. But entertaining people while offering insights that help solve problems and or help people feel better or think differently doesn’t require any special degrees. It just requires competency. And competency is easy to evaluate in this industry because you can see it on the stage.

Michael Port (15:32):

Someone is either competent on the stage or they’re not competent on the stage. The audience either loves what you say or they don’t. Their response to your work isn’t based on what you’ve done in the past. It is based on what you can do for them in the moment. And if you think about your work from that perspective, then you will march in to the future with a kick in your step and a lot more love in your heart and a much more anticipation for what is possible. So in the meantime, keep thinking big about who you are and what you offer the world. This is Michael Port and Steal the Show.

The post It Doesn’t Matter What You Did Before (Michael’s Soapbox) appeared first on Steal the Show with Michael Port.

On this episode, we investigate an innovative way to think about your business: as your own, personal family bank.

Any business owner or aspiring entrepreneur can benefit from thinking of their business in these terms. We discuss what that shift in perspective means and the implications it can have for your business and future. Plus—and maybe most importantly—we break down how to actually do it.

You can (and quite possibly should) set up your business as your own personal family bank. This episode gives you the why, when, and how of it all.

How you can Steal the Show

• Understand where you stand financially so you can develop a spending strategy and an accumulation strategy.
• Become aware of the costs of money. (That’s right—money itself has costs.)
• Learn the key differences between the terms “self employed,” “business owner,” and “investor” when thinking about your financial future.
• Discover a system for building a stronger business that functions as your personal family bank.
• Get a glimpse at challenges other business owners have faced and solved, so you can learn from their experiences.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

In this episode…

In this episode Michael and Matt reference starting this process by talking about budgeting. For more information on that area of personal and business finance, listen to this season’s previous episode: S4E3 Setting up Your Business Operations, Personal Operations, and Bookkeeping for Financial Success .

Resources mentioned in this episode…

• Searching for “passive income” on IRS.gov
• Vanguard
• Interactive Brokers

Transcript

Michael Port (00:05):

Hello, and welcome to Steal the Show, a podcast brought to you by Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money. I’m joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We are a public speaking institution based in Lambertville, New Jersey and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does and you are welcome to hire him. I, however, will not be compensated in any way if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it. Okay. Today we’re discussing how you can turn your business into your own family bank. Let’s get right to it.

Michael Port (01:25):

So most people, when they start a business, they have a whole bunch of ideas in mind. I’m gonna get rich, I’m gonna build an empire or maybe something a little more modest like I’m gonna employ myself and be my own boss. Either way, nobody, nobody gets into business thinking, you know what I need, I need a personal bank for my family. Well, maybe the Rockefellers thought that, but most people don’t. It’s just not what people think of when they launch a business or start thinking about launching a business because it’s not something that comes to us naturally.

Michael Port (02:05):

So I wanna take a little time to just break down what we mean by turning your business into your family bank. Because although it’s not the most obvious way to think about your business, I really think it’s the right way to think about your business. Let’s start by addressing what we mean by personal family bank. And then we’ll get into why it’s helpful and important,who it’s for, and finally, how you do it. Matt, what do we mean by turning your business into your family bank?

Matt Rzepka (2:41):

The main thing is we have to have a system for our money and everybody can relate to a bank because that’s where most of your money is held. Or at least it’s held there at the beginning. When you’re in business, it’s held there. If you’re employed, everybody wants to make money like a bank. So if we can take the philosophies behind the banking system and implore them in our own process for how we handle our money, maybe there’s some value and wealth that we can exponentially build by, you know, building on some of these philosophies.

Michael Port (03:12):

Okay. So why is it best to think about our business in these terms?

Matt Rzepka (03:16):

Well, money has a cost, no matter what you do with it. If you are spending it, you’re losing the ability to ever make money on that money in the future. If you’re investing it, you’re trying to achieve some sort of rate of return. And then if you’re borrowing it, it has a cost on what the interest is. And then depending on if you’re borrowing it for personal use or borrowing it for business use, you have to look at what they call the arbitrage or the spread between what you hope to make. Let’s say hope to make 10% and you can borrow that money where you’re gonna make 10% at 5%, there’s a spread or a hopeful profit of a 5% rate of return that is to the good or to the positive if you’re engaging in a transaction like that.

Michael Port (04:01):

Okay. So I’m sure everybody understands this perfectly already.

Matt Rzepka (04:06):

Piece of cake.

Michael Port (04:06):

Yeah right. So before we get deeper into it and before we get into the, how you do this, because I think sometimes when you get into the, how you do this, you’ll start to actually see why it’s also helpful. But let’s talk about who should think about doing this.

Matt Rzepka (04:20):

I believe everyone should look at some sort of system or process for their money and really breaking it down into two categories: the money that we plan to spend and the money that we want or think is excess that we are gonna save or invest. And so you want to have a system for those dollars because what we’ve seen over the years is if your money just stays in a bank account and you don’t have a plan for, it gets into our whole budgeting conversation and what actually giving dollars a job, the money just seems to disappear if you don’t have a plan or a process for what’s happening with your money. So separating the two and having a spending strategy and an accumulation strategy is critical in my opinion.

Michael Port (05:02):

Okay. So we’ll get to how you do this in a moment, but first, how does someone know that it’s time for them to start to thinking this way?

Matt Rzepka (05:10):

Initially it is thinking about whether you know you have excess cash flow yet or not. So one of the key things here is if you’re struggling to handle your cash flow and pay your bills, this might not be the time to implement this strategy, but it could be the goal that you set for yourself to get to this point. So, that hey, alright. I think I have X amount of dollars per month that I don’t need to spend in my lifestyle. Let’s start setting aside those dollars in a systematic way and then come up with a strategy on how we continually add to how much we’re setting aside.

Michael Port (05:43):

Okay, good. So before we get deeper into how we do this, I wanna introduce three different terms that’ll help us draw some important distinctions here. Those terms are self-employed, business owner, and investor. Matt, are you familiar with these terms?

Matt Rzepka (06:01):

I’m a CPA, Michael.

Michael Port (06:03):

Okay. Well, alright then Mr. Smarty Pants, by all means enlighten us. What is self-employed? What does that mean?

Matt Rzepka (06:11):

That means that your business is effectively paying your lifestyle expenses. You’re working as an entrepreneur to provide for your own lifestyle.

Michael Port (06:20):

Okay. What does a business owner mean in this context?

Matt Rzepka (06:24):

A business owner is not only paying for those lifestyle expenses, but you’re also looking to make profits in excess of your lifestyle to accumulate cash, reinvest in other places, or just have true net income that you’re not spending to live.

Michael Port (06:40):

So real cash accumulation.

Matt Rzepka (06:42):

Yes, sir.

Michael Port (06:43):

Okay and number three in investor. In this context, what do we mean by investor?

Matt Rzepka (06:48):

Investor would mean that you’re utilizing money, that you’ve saved in some capacity to invest in another venture or another business. And you’re not needing that income to pay for your lifestyle. You’re just looking for rates of return and growth and wealth building characteristics.

Michael Port (07:06):

So would you say that the capital gains that you are trying to achieve would be produced passively in this context?

Matt Rzepka (07:12):

Yes. Most likely. There’s some specific rules on passive versus non-passive. One of the great resources of anything that we’re ever talking about is actually the IRS website. You can go to IRS.gov and you can and search passive income and it will give you all kinds of information about how that works and what it means to be passive versus active. Just a quick reference.

Michael Port (07:34):

Great. Yeah. When you hear people in this, a info product selling world say you’re gonna make passive income. It’s not technically the definition of passive income. Generally. It’s more of a marketing term that they’re using. So the three terms that we’ve outlined self-employed means your business is paying for your lifestyle expenses. A business owner means that the business is not only paying for your lifestyle expenses, but you are also making a cash profit in excess of those expenses so you have real cash accumulation. And then the investor means that you utilize money that you’ve made to produce passive capital gains or cash flow above and beyond lifestyle needs.

Matt Rzepka (08:15):

Yes.

Michael Port (08:15):

Fair.

Matt Rzepka (08:15):

Absolutely.

Michael Port (08:16):

Okay, good. So why should speakers or anyone in business for themselves think in these terms? What do these terms tell us?

Matt Rzepka (08:25):

These terms are a great benchmark to say, okay, what money system or what money process should I consider having? You know, if I’m self-employed and I took the leap to provide for myself and have more freedom and do some of the things that you do when you first start a business, you might not yet be in a position where you’re gonna have tons of excess cash flow. You’re just trying to get from the corporate world to the self-employed world and survive and get your bills paid and live the way you wanna live. So trying to jump into, you know, investing or other, maybe higher risk things might put you at a disadvantage. So you want to kind of identify where you’re at in those three terms. And if you’re at self-employed, it’s not bad, but you wanna move from self-employed to business owner. Once you start seeing some profits, then you can kind of pat yourself on the back. Alright, I’m from stage one to stage two here. Now I’m a business owner. Now I have to start thinking about this profit that we’re making. What do we want to do with it?

Michael Port (09:20):

Mm, great.

Matt Rzepka (09:21):

And then that also leads directly into the investor to say, okay, well we have excess profits. Not only am I functioning now as a business owner, but I may want to invest. And where and how can I invest and have a system for making those decisions?

Michael Port (09:34):

Okay. So now, now that we’ve got our terms set, I think it is time to talk about how to actually do this. How to actually turn your business into your family bank. Now to do this, you need to develop a consistent reliable system. So Matt, can you walk us through how to create this system to turn your business into your family bank?

Matt Rzepka (9:56):

Absolutely. The best place to start, and this gets into, again, you’ll notice a lot of what we talk about relates to each other, or so the, the budgeting process and having an idea of what you’re spending as a household is a critical first step. I sometimes refer to this as reverse budgeting. So again, if you’re not budgeting or doing anything with your money around what you’re spending, you can start and just say, alright, I think I’m spending X amount of dollars per month. So step one is to take what you think you’re spending each month, isolate it in its own bank account, and then spend your money from that bank account. And if you don’t run outta money, then you know, you have a handle on what you’re spending. If what you transfer to that bank account, doesn’t cover your monthly bills, well, you gotta reexamine.

Matt Rzepka (10:40):

You gotta identify. Alright, I thought I was spending $7,000 a month and I’m outta money and I still have two weeks left in the month. We got a problem. So that first step is to identify those household expenses, those core expenses that we are spending and then isolate funds so the exact amount of money with some extra is going into that account. So the extra is your cushion. Life is not simple. Month to month cash flow is not simple. You’re gonna have ups and downs in your cash flow. So you’re gonna have to figure out some of those things and figure out what cushion you want in your household account.

Michael Port (11:14):

Okay. So you have, you know, variable expenses and you have fixed expenses. Then you have discretionary expenses. And what it sounds like you’re saying, tell me if this is correct, is the that you really wanna try to produce a budget that is as minimalistic as possible so that you have a clear picture of what your fixed expenses are, what your variable expenses are, and then what’s left over after that.

Matt Rzepka (11:40):

Correct.

Michael Port (11:41):

Alright, what’s next? What’s the next step after we do that?

Matt Rzepka (11:44):

So once we get an account set up for our household, we get the money transferring into that household account. Now we want to take what we believe is our extra, and we wanna start sending it to our family bank account. And there’s two ways that you can do that. There’s probably even more than two, but there’s two that I recommend. One is a very simplified, just separate bank account. I have these actually labeled in my own bank as the names. It’s a household bank account. I have my family bank. Mine is an actual LLC, but you can do it as just a regular bank account or as an actual LLC- either is fine. The LLC works more towards the business owner, entrepreneur that maybe is taking advantage of some tax planning. Like we talked about before hiring your kids in your business. If you have a family bank LLC, how you hire your kids becomes very efficient at that point. But you don’t have to take that step if you don’t want to. It’s simply isolating the excess. So if you have a household account for your expenses, what you believe is excess should be then going into a separate bank account and accumulating every month. So if it’s a thousand dollars a month, $2,000 a month, whatever the number is, you wanna make sure that a $1,000 goes in there the first month. It now has grown to $2,000 the second month, $3,000 the third month. And that you’re not having to dip into that bucket. That’s gonna identify what your excess cash flow is.

Michael Port (13:06):

What are the problems that people run into at this stage of the process?

Matt Rzepka (13:10):

Understanding how to automate this a little bit is probably the biggest problem. And that’s where your banking relationship or how many different banks you might be using. Before I was doing this, I had a few banking relationships and the automation of making this happen was a little bit difficult. So I consolidated all of my banking to one bank and then I could set up automatic transfers to make all this thoughtless. Once I set the transfer up, the money just moves how I wanted to move. And the less time consuming, this is the better. So you want to find a system that’s automated and systematic so that just happens once you’ve set it up. And then if you need to change it, you just simply go into that automated transfer and modify the amount until you get it really dialed in and, and it’s working fluidly.

Michael Port (13:59):

It sounds like it’s important that before people start moving money into what would be their family bank account to use for other types of investment purposes, that they make sure that they can afford to do it- that they have the cash flow for it. Do you often see people put the cart before the horse?

Matt Rzepka (14:2):

All the time. And we as a society have really programmed people that they need to invest from day one. And if you don’t have a stable foundation, like even in a house, if your foundation of your house is not good, your house is not gonna stay standing. Same thing is true in finance. You have to have a stable foundation. You want to know your numbers in when you’re investing in even two to separate something that I think has been meshed together in a really bad way. Most people, if you’re asked, well, what are you doing for retirement? Well, I’m saving for my retirement. Well, how am I doing that? I’m doing it in a 401K. Well, technically you’re investing for your retirement. Saving is often associated with safe, meaning I’m not gonna lose money or my account value’s not gonna go down. We have to distinctly separate saving money and investing money because savings should be safe.

Matt Rzepka (15:16):

Investing carries risk. And you want to understand both of those things. And if we’re going to the risk side of the equation too fast or too early, you might be forced to do something from an investor perspective that’s really bad, which is sell at the wrong time. And that’s what we saw a lot of in 2008, 2009, when we had the real estate crisis and the stock market crash. Everybody was over allocated to their risk tank, especially some of the things in the stock market, lost jobs or businesses went sideways and they needed money. And the only place to get the money was from the market or their retirement accounts, which now had lost a bunch of value, which is the worst. It’s a triple whammy. You’re paying a penalty, you’re paying taxes and you’re selling at the bottom. So you wanna avoid those things at all costs. And you want to have a system that lets you make good decisions when things aren’t going well.

Michael Port (16:05):

That’s why we focused on budgeting, right from the get go. Because if you know where every dollar that’s coming in is going, it’s a lot easier to make strategic decisions going forward. And until you’ve got that piece of the puzzle really mastered, I think it’s very easy to get sidetracked, especially when you hear about all the exciting things that some person that you don’t know on Facebook is doing with their money and how they got a 150% return on a meme stock. And you’re thinking, oh my God, if I could just do that, you know, that would solve all the problems. But of course, if you’re very strategic and thoughtful about the way that you approach this and you take a long term view, so you’re always playing the long game, you very rarely will get sidetracked. You very rarely get distracted. And in fact, I think the better understanding you have of just what’s coming in and where it’s going, the less stress you have because you don’t have to worry about it so much.

Michael Port (17:12):

And then that makes your decisions much easier when you are ready to start doing more investing for the long term. I mean, most of us don’t need to do investing for the short term. We are not day traders. We’re not moving in and out of the crypto market on an hour by hour basis. You know, most people who are listening to this show are not focused on that. We’re focused on building a solid financial foundation, employ long term growth strategies, so that either when there’s a dip in opportunity, meaning the gigs aren’t there or something happens in the business, the money’s still there. We still have a really solid cushion.

Michael Port (17:54):

And then when it’s time to start winding down and we don’t wanna work that much anymore, you know, we have money that will take care of us for the rest of our life. That’s what we’re trying to do in our focus on this season of the show is to make sure that we’re covering all of the really boring stuff so that you can get the exciting stuff without being over-stimulated by it.

Matt Rzepka (18:18):

Yeah.

Michael Port (18:19):

We’re not here to pitch the latest craze. We’re really trying to make sure that all of the people we support have both solid, personal and business financials to make better decisions going forward. And if you do, then the decision making process is much easier. If I had somebody come to me for my team, Matt, as you know, I do regular personal finance days where we’ll talk about different things that they’ve got issues with or things they want to know. And sometimes you’ll come in and help with that in the tax area of course. I don’t address that.

Michael Port (18:54):

But somebody else came to me recently because they wanted to buy a house, because typically people think of a house as a very good investment. And when we started looking at their foundation, they realized, oh wow, the last thing I should be buying right now is a house because I’ve gotta get my quote unquote house in order before I can buy a house. Because buying a residential property is generally not a good financial investment. You know, you hear these stories like my grandmother bought her house for $14,000 in 1906 and then she sold it for $1.2 million. Yeah, of course she lived there for, you know, 97 years. But you know, inflation probably eats up most of that gain anyway.

Matt Rzepka (19:38):

Yes.

Michael Port (19:58):

And then the amount of money that went into it all those years to fix it up, new roof, new boiler, etc. So you buy a house often because you don’t want to create something in your own image. That means something to you that you can have for a long time for your family, always has a place to come back. But generally, a house is not a brilliant financial investment. So when I started walking her through just the numbers on it versus renting and what she could do if she rented, but then save money to put it into the market for the very, very long term, she saw, wow, this is like an obvious choice. Yeah. But sometimes the obvious choice is not so obvious because the way the industry or society has set up expectations may actually be misleading.

Matt Rzepka (20:24):

Yes, very much. And the long game is how you should play. But the thing about the long game that usually distracts people early on, is early on it’s not very sexy because the numbers are small. You’re not really seeing anything major because you’re just starting out the savings process. You’re just starting out the investment process. The compounded growth that everyone can show you on paper, what it looks like 40 years later, you have 40 years later it’s great. But you gotta stay the course. And that’s where a lot of people get off track. And with the family bank, it really is critical. I know exactly how much money I’m saving every month. Every month I update my family bank report once a month. I know exactly how much money I have available for a new investment. If one happens to come across my plate and that clarity, just again, lets you make good decisions.

Matt Rzepka (21:16):

And then my personal approach on how I handle the safe funds. So the safe funds in my family bank LLC are the money that’s not going backwards. I never allocate more than 50% of my safe money. And the reason for that is the safe money is there to protect you. It’s there to help you when things go wrong, because if something goes wrong, like a hurricane or a pandemic, or all the things some of us have been dealing with the last 18 to 24 months, usually money helps you solve that problem and come out on the other side just as good or better. And you don’t wanna over leverage that. Or if something goes wrong at the wrong time, you could be in a really bad spot.

Michael Port (21:58):

Yeah. So talk to me a little bit more about how you deploy this concept of a family bank. So like just at a basic level, let’s say if they don’t set up a separate LLC, you know, like I have that because you worked on that with me, the Port Family Bank, but you might just have a bank account that is your family bank and you keep putting money into there trying to stockpile money. And so first you wanna make sure you have enough money in there to cover any emergencies. So you have your emergency supplies. And so that may be six months to a year of living expenses, correct?

Matt Rzepka (22:34):

Correct.

Michael Port (22:35):

Okay. So now you’ve got that in there and then you’ve exceeded that. Now you’re gonna start to decide, well, where do you want to deploy that capital to start to produce investment returns that are more passive. They won’t necessarily be risk free, but there’s a lot of different options. And in later episodes, we’re gonna go deep in into what options are available to people and break them down specifically. But could you talk a little bit more about some of the things that one might do with their family bank, how they may deploy some of those assets?

Matt Rzepka (23:08):

Yes. And one thing I do, I do a little bit of real estate investing and so it’s a cash flow engine first. And then when I do real estate investing, the bank helps fund the deal. So if I have a new deal, I’m gonna use the actual bank lending institution to fund usually around 75% of the purchase. And then I’m gonna use my family bank to fund the other 25% of the purchase. And the goal with that real estate investment is that it produces positive cash flow after it receives the rent, pays the expenses, pays the mortgage to the bank, pays the mortgage to the family bank. There should be some money left over in the whole thought process is that I’m saving into the family bank every month from my business, but I wanna also produce more cash from other investments that adds and compounds the cash flow itself so that that cash flow keeps growing every month, every quarter, every year.

Matt Rzepka (24:04):

So if I’m putting $5,000 a month in the family bank now, I want to do everything that I can to make that $5,000 turn into $6,000, turn into $7,000, turn into $10,000. And you would be shocked as you automate and create a process for your money, how efficiently and quickly you’ll start to accumulate cash because you have a system. It’s like a money machine is the way that I talk about it. Your money just keeps growing each month and you get to decide, alright, what do I to do with it? And real estate is just one of many options. You can do stock market, you can do retirement accounts, you can do all kinds of stuff from the family bank account.

Michael Port (24:40):

So the gains that you are making on your real estate property is going back into the family bank.

Matt Rzepka (24:46):

Yes.

Michael Port (24:46):

It’s interesting. There are a number of different ways to do the family bank. You know, you hear people talk about and it’s become a kind of, I think marketing term, whole life or permanent life insurance policies are often being referred to as a family bank because you put premiums, large premiums into those policies. Those policies then have this cash value component to it. Supposedly making a little bit of interest each year. And then there might be a death benefit associated with it. And then people can borrow from the permanent life insurance policy and use that money for whatever they want and then either return it to the policy or don’t return it to the policy, but then the death benefit makes up for, you know, that pays the loan off essentially when you die. Now, when I’ve heard it marketed like that, it sounds pretty sexy, but there’s some risks associated with that type of family bank. Can you address that, Matt?

Matt Rzepka (25:44):

Absolutely. And I’m very familiar with permanent life insurance products. I have some on myself and own some, but the difference between what we’re about here and some of the marketing strategies that you hear about other family banks, there’s no one asset that’s the holy grail. This is a cash flow system first. So if you follow the process of what permanent life insurance looks like and how it works and want to do that, you would have the choice to do that inside of your family bank. If you don’t, you don’t have to do that. One thing I want to clarify, and this is again, there’s even a book written about whole life that’s not correct, so it’s called “Bank on Yourself,” and it talks about borrowing your own money. And you don’t actually borrow your own money if you own a permanent life insurance policy. What’s going on is you’ve accumulated cash value inside of an account and the insurance company is willing to loan you their money and use your cash as collateral. So that’s the only way that that really works, otherwise the whole system around what that looks like and how the math works, wouldn’t work at all. So you’re borrowing in the insurance company’s money and using your own cash value as collateral.

Matt Rzepka (26:51):

So again, a big topic there, my advice to anybody who is either doing or thinking about permanent life insurance is work with somebody who’s not in a hurry. Because if you’re thinking about that and they’re trying to rush you through a scenario, they’re likely just trying to make a sale, not necessarily design a policy, that’s gonna work for what you’re accomplishing. We all the time, run into people who have policies that aren’t funded properly or that aren’t doing what they’re supposed to be doing. So you want to unpack that first and then figure out if it’s a good fit for you.

Michael Port (27:23):

Yeah. I had purchased a policy in 2000 and I’d like to say 6, that I had for many, many years and it was a dog. It was an absolute dog. But as I got more experienced and as I learned more about personal finance, I was able to dig a little deeper into that particular policy and I realized that I had been losing money every year that I was investing money into it because the expenses were so high. It was such a badly written policy. Not for the salesman. It was very well written for him. And it was very well written for the insurance company, but not for me. So I ended up closing it. It’s just really, really important that we don’t assume somebody knows what they’re doing, just because they’re in the business of doing it.

Matt Rzepka (28:14):

Yeah. The insurance companies, especially, I tell the story all the time, the insurance companies work in what I call the world of large numbers or the rule of large numbers. That’s how insurance works in general. If you have homeowner’s insurance, they know they’re gonna sell a thousand and policies and hopefully only 50 people have a claim. Well, when it comes to their sales force, unfortunately they take the same approach. They hire a thousand agents all well knowing 900 to 950 of them aren’t gonna make it because they aren’t good sales people or can’t get people to buy product, which means they’re just out selling stuff they don’t understand and the client buys it and it doesn’t fit. And it just creates all kinds of issues and animosity around the product. And then the 50 that are doing well are ones that took the time to educate themselves and learn how this stuff works. So speed is a factor in the insurance world. If you’re dealing with life insurance and somebody’s in a hurry, that should be red flag number one.

Michael Port (29:09):

Yeah. There are a number of different ways to utilize this concept. One of the things that I do is most of my investment accounts are with Vanguard. I think Vanguard is the greatest institution on the planet for the individual investor in large part, because it was founded by John Bogle who is considered the godfather of the index fund. Now he actually, wasn’t the very first person to think about the index fund or to even write about the concept, but he’s really the one that popularized it. And Vanguard is a not for profit. So when you invest through Vanguard, you’re technically an owner of the company, like all the other clients. But I have a fair amount of investments in brokerage accounts. So a brokerage account is a taxable account, not a retirement account. So any gains that you make in a brokerage account are subject to capital gains taxes- and we’ve spoken about those on a previous episode. And capital gains taxes for me would be 20%, but I’m still looking at it as a long term investment account. I don’t pull from it. I’ve never pulled from it, sold any of the assets in it.

Michael Port (30:17):

But the reason I moved a fair amount of money out of Vanguard into another brokerage account called Interactive Brokers is because they offered a margin loan at a 1.5% interest rate, which is incredibly low. It’s really the lowest in the industry. Yep. Vanguard will do the same, but I think their interest rate for margin loans is about 7%. Now I don’t buy stocks on margin. If you don’t know what margin loan is, it’s essentially the brokerage account is lending you money to buy more assets.

Matt Rzepka (30:50):

Yeah.

Michael Port (30:50):

And they’re using your investments, your capital as collateral. And they can call in that margin when they want. If the market goes down and they’re concerned that you’re not gonna have the capital left in your account, then they’ll call in that margin. So, but what I do is something a little bit different. I set this account up to be another type of family bank because the interest rate is so low at 1.5%, I can borrow on margin, but take out cash. Instead of buying more stocks, I can take out cash. So for example, let’s say you wanted to buy a house. You know, you could get a mortgage rate for I don’t know what it is now. 3.5%, 3.9%…

Matt Rzepka (31:30):

3%. 3.5%. Somewhere in there still.

Michael Port (31:32):

And it’s going to start to go up as interest rates continue to go up, but still by historical figures, it’s very, very low. But maybe I don’t wanna pay that much. Or maybe I don’t wanna have a mortgage on my credit account. Maybe I just don’t wanna have it on the books anywhere, but I still want it to buy property. Maybe I wanted to buy an investment property. And investment properties the banks are gonna charge you higher interest rates because you’re not living there. So maybe they’ll charge you an extra point or a point and a half because it’s an investment property. But if I wanna borrow money on margin from the Interactive Brokers against the assets that I have in the account, so against my capital, I can do that at such a low interest rate that it’s almost like free money that I’m borrowing for myself. Now the key is you have to be very, very careful because you can’t overextend yourself. If I borrowed 75% on margin of the money that’s in there and I don’t even know if they would let me…

Matt Rzepka (32:32):

They wouldn’t.

Michael Port (32:32):

…but let’s just say I did.

Matt Rzepka (32:33):

Yeah.

Michael Port (32:33):

Hypothetically, and the market dropped by 35%. Boom, all that money’s gonna get wiped out. It’s gonna be a really big problem. I think they let you borrow up to 50% if I recall correctly.

Matt Rzepka (32:46):

Typically, yep.

Michael Port (32:47):

But I have a principle where I won’t borrow on margin from that account more than 20% just to be really conservative and on the safe side. And here’s an example of how I used it in a way that might be surprising. Amy and I had a boat that we decided to put on the market a couple years ago and it was taking a while to sell in part because the manufacturer of the boat introduced another model that was almost the exact same size, but much cheaper. And as a result, it hurt the resale value of my model boat. I wasn’t really happy about that, but that’s what happens.

Michael Port (33:26):

And I had also, when I bought it, only put 15% down rather than 20% down. I had a good relationship with the bank. So they said, yeah, we’ll take only 15%. That’s fine. Instead of 20%. So this way I could keep my money working for me rather than give that money to the bank. But when it came time to sell it, I was underwater on the boat. So I had to put money into the sale to close out the sale. But I didn’t wanna take cash out of my emergency fund. I didn’t wanna sell any of my stocks or bonds. And so what I did was borrow from my brokerage account on margin, the amount that I needed to cover that short fall. But what that allowed me to do was to keep the capital in the margin account, working for me. And fortunately the market has been going up.

Michael Port (34:14):

It just got lucky. And within six months the earnings on that account eclipsed what I had borrowed from it. So I was able to pay it back and ultimately the earnings paid off the boat, none of my principle. So that’s a type of banking on yourself, borrowing from yourself, family bank type of strategy. It’s a sort of a next level or a next step from what we’re talking about here with, you know, keeping a bank account where you’re funneling money in and then deciding where you’re gonna deploy it. But yeah, that worked really, really well for us. You just have to be very careful so you don’t get over extended.

Matt Rzepka (34:49):

Yeah.

Michael Port (34:50):

Unnecessarily or inadvertently.

Matt Rzepka (34:52):

We’re talking about leverage. So you always have to make sure you understand the leverage formula. And really the family bank concept comes down to the principle of access to capital. If I need money or I need capital, where can I get it most efficiently? In your example, that most efficient access to that capital was a 1.5% loan from the brokerage company. No question. Yeah, because if you had to sell any of those investments, do the same thing, not only would’ve you missed out on the market growth, you would’ve had to pay taxes. So all of a sudden your cost to use that money when instead you borrowed against it and saved on all, you had opportunity gains because you left the money invested and you avoided those taxes by just using it as collateral. When you’re borrowing against investment accounts like that, the 20% rule that you have Michael’s great because any fluctuation down the opposite could also happen. And that if you’re gonna do something like this, you want to make sure you understand this.

Matt Rzepka (35:48):

If the market goes down, when you have a loan borrowed against your brokerage account, they may do a margin call. Because 50%, so let’s use a real easy example…if you’ve got $500,000 in your brokerage account, they’re gonna let you borrow up to $250,000. Let’s say you borrowed the full $250,000 for an emergency. And you happened to borrow it when the market was going down and the market went down to $400,000 from $500,000. Well now your 50% formula is out of balance. Your $50,000 overdrawn on the allowable loan. So the brokerage company is gonna tell you, you have two options, deposit $50,000 in five days, or we’re gonna sell securities to pay down your loan. So that’s what would happen if you got out formula on a brokerage loan. Not a bad thing, you just have to be aware if you’re fully drawn on that leverage, that’s how that’s gonna work. So risk assets, you can borrow against those. That’s your access to capital. Safe assets you can borrow against those. That’s your access to capital. Or real estate. Real estate’s the other way you can have access to capital. You can borrow against to help solve whatever problem you have or make an investment in whatever opportunity you have.

Michael Port (36:53):

If you have equity in that real estate.

Matt Rzepka (36:55):

Yes, equity is required.

Michael Port (36:57):

If it’s already leveraged, then there’s nothing you can do about it, right? You can’t leverage it twice.

Matt Rzepka (37:01):

Correct. Your standard formula at the bank. If you’re buying a home is usually 80/20, 80% of the bank’s money, 20% of your money. You could likely re-leverage it up to 90% with a home equity loan. Sometimes that’s gotten a lot tighter in the last 10 to 15 years. So I would say 80% of your home’s value is usually what you can leverage in terms of access to capital.

Michael Port (37:23):

Yeah. One of the things that, you know, people might be thinking and is something Amy asked me when we were talking about this strategy in terms of how to make up the shortfall on the boat. She said, yeah, but what if the market goes down? What if we don’t get the gains? Not that it goes down so much that it would force a margin call because again, I’m only staying below 20% and for the market to go down, as far as it would need to for the call to come in, it would be very unlikely. By the way, I don’t think Interactive Brokers actually does margin calls. They just take the money.

Matt Rzepka (37:52):

Okay.

Michael Port (37:52):

They don’t actually do the call. They just take the money. But what she said is what if we don’t make money? Let’s just say the market stays flat and we have this loan. And my feeling was, and she agreed, was that it’s worth the risk because it’s only 1.5% interest rate. It was such a tiny interest rate. And this is, you know, Interactive Brokers gets a lot of business because people want this really low interest rate. And for me, that was a risk worth taking rather than actually depleting either those accounts or depleting any of our cash savings, which is for emergencies, was a much safer bet to me to take the risk of the account not going up and paying it off for us. But just having to hold that loan longer at 1.5%.

Matt Rzepka (38:36):

Short game versus long game. Because even in a short game where the market’s flat or even goes down, 1.5% cost compared to 40% tax is still a better efficiency. You lose forever 40% if you liquidate the account to solve that same problem that the government now has. And you never have the ability to earn on it.

Michael Port (38:56):

Yeah.

Matt Rzepka (38:57):

So, you know, you’re in that account for the long term if it happened to go down with bad timing, when you happen to take the loan, that’s okay. You’re still in the long game, you work the rest of your finances and all of your flows to make that still balance out over the long term. And that’s just huge.

Michael Port (39:12):

Well, this is another thing you actually taught me when we first met, which was surprising to me and kind of obvious once you pointed it out, was the issue with 529s. Matt, can you define a 529 plan?

Matt Rzepka (39:25):

Yes. A 529 account is a special account that you can put money into that will go towards a child’s college or anyone’s college. And you get special tax treatment on the gains, only the gains, so you put after tax money into the account. Any growth that you get in that account can be used tax free for qualified college expenses.

Michael Port (39:46):

So when Jake was little, I set up a 529 and just was putting money in there and, you know, built up a good size account for him. Just don’t tell him. He doesn’t listen to the show anyway, so it’s fine. But you know, the problem is, is that now that there money’s in that 529, when Jake goes to college and we take the money out to pay for college, all that principle that had been working all these years is now gone.

Matt Rzepka (40:11):

Yeah. The opportunity is gone.

Michael Port (40:13):

Yeah.

Matt Rzepka (40:13):

It’s the pure opposite of how compound interest works long term. The faster and higher you can stack your money and get it growing and compounding, the more the compounding works for your benefit.

Michael Port (40:23):

Correct.

Matt Rzepka (40:24):

So you never want to drain the account or as I say, drain the tank because you’re starting the compounding process back over at zero. So again, the family bank. Banks understand long term compounding. They understand other people’s money. They want the pot to be as big as possible and compounding and growing cuz that’s how they make money, so that’s why you want to act like the bank.

Michael Port (40:44):

Yeah. So that adjusted our strategies for how we saved for college. And we started using Roth accounts because you can use them for qualified education. You don’t have to. We could save them and keep them for other purposes. But also we would just take that money and put it into brokerage accounts. Because if the brokerage accounts are large enough at the time that you need them, you can then borrow just like I was saying against those accounts at very low interest rates and pay for the college that way, if you want, and then see if you can use earnings to then pay yourself back through the earnings. Or you’d pay it back in other ways.

Matt Rzepka (41:22):

Yeah.

Michael Port (41:23):

But you’re not eating into that capital and all the compounding value that you’d produced over time.

Matt Rzepka (41:30):

Yeah. You become the bank for student loans, you manage your resources to grow and compound as big and as fast as possible and the other thing, this is a concept that I think it’s overlooked, you can finance someone’s college education, but you can’t finance your own retirement. So if you don’t put yourself first, yes, it’s great that you want to help your kids and want to help them pay for college and get to college, but be in control of that situation so that you don’t jeopardize your own retirement in lieu of getting them to college. So that’s something I see a lot and we have a lot of discussions about, and it’s a big thing to grasp.

Michael Port (42:05):

Yeah, because thinking that you’re gonna send them to MIT so they can make a fortune and then cover your retirement is a really high risk strategy.

Matt Rzepka (42:14):

Yes, it is.

Michael Port (42:15):

There’s no guarantees on that one. That is for sure. Oh my goodness.

Michael Port (42:20):

Alright, so what do you want folks to take away from this episode? I mean, we covered a lot in this episode, but what do you want people to take away from it?

Matt Rzepka (42:29):

The big takeaway here is systems or process for your money. If you don’t make a plan for where your money’s going and why it’s going there, it’s just gonna disappear because lifestyle will creep if you don’t make a plan. So figure out what you’re spending again, budgeting and all the great things we’ve talked about in previous episodes. If you don’t want to get into the detail, then just pick that reverse budgeting number. Alright, X amount of dollars per month and let’s test ourselves. Are we living on that money? I talk about this with retirees or people that are approaching retirement a lot. Hey, what’s your budget? Oh yeah. We’ve got that dialed in. So what I tell ’em is all right, go for three months and live on that amount of money and come back to me and tell me how it went. And you’d be surprised like, wow, we’re actually spending more than we thought.

Michael Port (43:15):

Yeah.

Matt Rzepka (43:15):

But if you don’t dial that in, it can really throw outta whack your retirement plan and long range planning. So just understanding what you’re spending first and then start sending excess to a separate account. And it’s really rewarding when you actually start seeing those dollars accumulate every single month. And then you get really motivated. Well, I want more money in that account and it just makes the money machine roll. It just gets really exciting at that point

Michael Port (43:40):

Right on. So what’s the next step for you? All of our listeners are in different places, but you, just you, what’s your next step? Is it setting up another bank account so that you can automatically funnel any of your savings into that account and setting a goal for how much you wanna put into that account by a certain date? What is your next step? Because if you just choose one next step after each of these episodes, by the end of the season, you’re gonna be in an entirely different place. You’ll get compound returns from the steps that you take as we move forward. And then in the meantime, go ahead, write a review and share what you are taking away. What did you learn? What did you discover? What was helpful to you? What did you find valuable? Put it into the reviews so that other people can see and also get value from it. And Matt, what are we covering next week? Next week we’re talking about what to do with your additional savings. Alright. That’s it for us today. Thank you for listening. I’ve been Michael Port with Matt Rzepka and we’ll see you next week.

The post S4E5 Turning Your Business Into Your Own Family Bank appeared first on Steal the Show with Michael Port.

Uh oh. There’s that word. “Debt.” It’s a little scary, isn’t it? Well, go ahead and tap the play button, anyway—this episode will help put your mind at ease.

On this episode, we talk about things that you and your business can do right now to start increasing cash flow. (And who doesn’t want to do that?) And yes, we also discuss that dreaded thing known as “debt”…but what we have to say may just help you pick up a few key strategies for paying it down.

You’ll finish this episode feeling a little more reassured and with a few new ideas about how to increase your cash flow and pay off your debts.

How you can Steal the Show

• Learn the meaningful difference between debts and liabilities.
• Better understand taxes and business financing so you can make and keep more of your money.
• Master proven methodologies for paying down debt.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

In this episode…

In this episode Michael and Matt reference starting this process by talking about budgeting. For more information on that area of personal and business finance, listen to this season’s previous episode: S4E3 Setting up Your Business Operations, Personal Operations, and Bookkeeping for Financial Success .

Books mentioned in our Ad Break:

• The Referable Speaker: Your Guide to Building a Sustainable Speaking Career—No Fame Required (Michael Port and Andrew Davis)
• Book Yourself Solid: The Fastest, Easiest, and Most Reliable System for Getting More Clients Than You Can Handle Even if You Hate Marketing and Selling (Michael Port)
• Steal the Show: From Speeches to Job Interviews to Deal-Closing Pitches, How to Guarantee a Standing Ovation for All the Performances in Your Life (Michael Port)

Transcript

Michael Port (00:05):

Hello and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money and I’m joined by my very good friend, Matt Rzepka, the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners when it comes to finance. Now to be crystal clear, I’ve got no conflicts of interest here. I don’t stand to make any money at all from you if you take any of the educational information that shared on this podcast and do something with it. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world-class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does, and you are welcome to hire him, but I will not be compensated in any way if you do. I’m doing this purely because I love the topic and most importantly, I think you need it. Everyone in our industry can benefit from learning more about business and personal finance. That’s it. Alright, today, we’re talking about debt. Specifically, how to reduce bad debt and use leverage to grow your wealth when appropriate of course. So let’s talk about debt. Debt, debt, debt, debt.

Matt Rzepka (01:45):

Let’s do it.

New Speaker (01:45):

I don’t know. I wanna feel like I wanna dress up as a clown and somehow like show it to everybody. It was like not a scary clown, but a really silly, goofy clown that we can kind of take some shots at because when you have debt, it has a lot of power over you. It feels really uncomfortable. It feels scary. It feels like you could be drowning in it. You know, even if it’s not that much, it still could be really heavy. And sometimes you just don’t even know what to do or where to start. And you just sort of sit there paralyzed. And you sit there paralyzed, certainly it’s gonna get worse because if the debt’s not getting paid, those interest payments are just gonna keep adding on to the overall total that you owe. So let’s just make a quick distinction between debt and liabilities before we go into how to resolve or reduce some of our debt. So let’s define debt and let’s define liabilities. Can you do that for us, Matt?

Matt Rzepka (02:42):

Absolutely. And this is an important distinction in my opinion, because it helps again, bring clarity to decisions that you make in the future. Because sometimes we get motivated around the wrong thing because, again, it’s not defined properly. So a debt is where you have a loan and your only ability to repay that loan is from income that you’ve yet to earn. Meaning I don’t have any collateral. I don’t have any assets to help me pay that loan or directly pay that loan. So credit cards, student loans, sometimes car loans. I think there’s a little bit of a looming debt problem that exists in a auto financing today because they let you roll any old balance from a car into a new car purchase, whether it’s new or used. So you might be very upside down, to where if you sold that car, you’d still owe money. So that debt is only gonna get paid back from your income. So when your income is your soul source to pay something back, you’re effectively mortgaging your future income. And that gets very, very dangerous very quickly.

Michael Port (03:40):

The other thing about debt is that it just keeps growing.

Matt Rzepka (03:45):

Yes.

Michael Port (03:45):

It’s like a fungus. If you’re not actually addressing it or paying it down, it just keeps getting bigger.

Matt Rzepka (03:53):

Especially the true debt, like the credit card debt.

Michael Port (03:56):

Yes.

Matt Rzepka (03:56):

Because they don’t force you to amortize your payments in a way where you’re paying it down. You can actually have your credit card balance is growing based on how much you pay. And then also if you’re additionally spending and you’re not paying down that spending, you could go from $2,000 to $5,000 to $15,000 in credit card debt without blinking an eye if you’re not real careful. So yeah, you have to be really careful on the terms and the repayment structures that you pick on those true debts and part of that’s predatory. The credit card companies know they’re trying to get you into those bad interest situations. A lot of times they might have to write that off if it goes really bad for you and you file bankruptcy. But there’s a game there that they’re playing and you wanna play the game to benefit yourself.

Michael Port (04:38):

Very often when it’s the banks, when you wanna buy a car, or you wanna buy a house, or you wanna buy a boat, or an RV, or anything else that you might decide to take out a mortgage for, or the credit card companies who might want to extend credit to you, the way they organize, their marketing is to act as if they’re doing you a favor. But really you’re getting the short end of the stick.

Matt Rzepka (05:08):

It’s part of their sales process unfortunately.

Michael Port (05:11):

Exactly. And so one of the things I think is important is anytime you’re gonna go into any situation where you may be taking on some sort of loan of some kind is, you gotta read every single word in the agreement. And if you don’t understand it, you gotta get in front of an attorney who does understand it because the banks are not doing you any favors anytime they’re offering you any kind of money as a loan or as credit.

Matt Rzepka (05:40):

Well, yeah, and the banks they’re always adding provisions. There’s probably a lot of people who are signing loans for investment real estate right now that don’t know they have what’s called an assignment of rents in their loan agreement. So if something goes sideways, the bank can effectively take over the rental income from your property if you still owe the bank money and then they control the rent and not you. So again, you have to look at all the provisions in there. Now you might not be able to get that bank loan if you don’t sign that agreement, but you at least need to be aware that that could become a change in direction for how that investment property works if something goes south. You just gotta be in the know on what the bank can and can’t do from your perspective.

Michael Port (06:21):

Yeah. And that is true to almost all aspects of the personal finance industry. It’s really important to understand how is the person and/or the organization that is selling this product, being compensated. What are their interests and are those interests in line with yours? And for almost anything that has debt associated with it, generally their interests are not necessarily gonna be in line with your interests. You know, it doesn’t mean that you’re not gonna find good people in those fields, but just understand the business model that you’re engaged in. So any other examples of what we would consider debt? So we got credit cards.

Matt Rzepka (07:03):

Yeah. Credit cards, student loans, personal loan unsecured, something that doesn’t have collateral basically. Or a collateral that is losing value over time, like a car or an RV. So those go down in value. Right now in the RV space, that’s pretty popular thing with the pandemic and with COVID, where people are buying recreational vehicles. Well, you can finance a recreational vehicle over a very long period of time, but that vehicle value is gonna drop significantly faster than how you’re paying your principal on your loan. So again, you can have true debt there pretty quickly because your loan balance is very much higher than what your value of your vehicle is.

Michael Port (07:40):

That’s right. So what would you consider a liability?

Matt Rzepka (07:44):

A liability is the opposite. We have direct collateral and hopefully we have collateral that if we needed to get rid of that liability, we could use the collateral. So, you know, a house is the easiest scenario. Some people say, well, I have a mortgage. So I’m in debt. I say, no, I think you have a liability. Well, why, what do you mean? Well, if you needed to pay that off, you could sell your house. You just have to then figure out a new housing arrangement. So that liability is collateralized by your home. So it’s a liability and not a debt in my opinion.

Michael Port (08:16):

But to be fair, you can get upside down on that kind of liability also.

Matt Rzepka (08:21):

We hadn’t prior to 2008, really envisioned the world where you could be upside down in real estate or in your home or in your mortgage. And certainly we saw that it’s possible. And even with what’s going on in the real estate market right now, I think it could be possible again in the future. Hopefully not to the degree of what happened back then, but you certainly need an awareness of even those more hard assets as I would call them can still lose value and you can still get upside down. But if you make the purchase and have a mortgage payment based on something that you can fit into your budget, doesn’t really matter what the value of that is as long as you can keep making your mortgage payment. It only matters is if you try to sell or you have to sell. Try to sell versus have to sell. Hopefully you never have to sell any of your core assets because that usually means something bad is happening. That’s why all this planning and understanding and education is so important. You want to be in a position of control. So do you choose to sell? Not ever have to sell something.

Michael Port (09:18):

Yeah. So, you know, you may have some business liabilities, you may have borrowed money to expand an operation or produce a new product. And then hopefully the success of that product or operation will allow you to pay that loan back pretty quickly. And so that’s not unusual- pretty typical in business. I really prefer not to have much debt just in general. I haven’t had any kind of credit card debt for almost 20 years. That feels pretty good, but I do have a mortgage on our house. The majority of the house we own, and we still have a small mortgage on it. You and I have been talking about this is, you know, should we pay it off or should we keep the money that we would’ve paid it off with in the market, hoping to benefit from arbitrage of the difference between market gains and the interest rates.

Michael Port (10:07):

Our interest rate is about 3%, 3.1%. And you know, the last year has been very, very strong for the market. Our portfolio overall saw out a 32% increase and that’s a big difference. So that money working in the market is great. But of course, next year we might see a 30% loss. So we’d be upside down in that arbitrage if we were keeping money in the market rather than paying off the house. But one of the things that I was thinking about, I hadn’t really thought about it this way before is that if you are keeping a mortgage, but you are investing in the market rather than paying off the mortgage, that’s essentially leveraged investment money because you are using a mortgage. Let’s say you have a $500,000 mortgage on your house. You’re using your mortgage rather than paying off the debt. So that $500,000 that you have in the market, that’s the same amount as the mortgage that you have. That’s actually leveraged. You’re not free and clear with that $500,000 in the market because you do also have this debt on the house. Either way, it knocks down your net worth by $500,000, because either you pay off the house and that means you have $500,000 less in stocks or keep the mortgage and you have $500,000 more in stocks.

Matt Rzepka (11:22):

Yeah, because if you took the lump sum and paid the mortgage off, in order to get your $500,000 back into the market, you’d have to start making your mortgage payment again into your investment account. So again, it’s lump sum investing versus cash flow stream investing. And then anytime you’re borrowing against your house, there are restrictions and limitations that you have to be aware of. Most places will not let you take cash out mortgage on your home and put it directly into the stock market.

Michael Port (11:46):

That’s actually interesting. I wanna touch on that because…

Matt Rzepka (11:48):

Yeah.

Michael Port (11:48):

…I wasn’t even thinking about the regulations that you just mentioned. I was just thinking, okay, if I had a fully paid off house, my house is worth 1.2 million and it’s fully paid off, would I take a HELOC? Would I take a loan against this house to take that money and put it in the market? And I wouldn’t. I wouldn’t do that. So keeping a mortgage on that property is similar to that.

Matt Rzepka (12:13):

Yeah. Your only difference HELOC versus mortgage is amount of interest. So HELOC is generally gonna be a little bit higher interest rate and the HELOC also has variability in it. So then you add new components of risk to those transactions. The thing I like, especially in today’s world that we’re living in with inflation, about a long term mortgage is you have a guaranteed fixed rate. So that fixed rate cannot go up as interest rates go up in the future. So the example I usually give people just for context again, it’s your decision, you need to understand these measures to then make a good decision for you. But so if I have a mortgage at 3% right now and I choose to pay it off and let’s say I didn’t accumulate all that capital back as quickly. And the next thing I know, mortgage rates go up, interest rates go up and all of a sudden you can get 5% or 6% in a CD, or 7% in an I bond, or whatever it is that you’re out there looking for.

Matt Rzepka (13:10):

The only way to get that money back out of the equity of my home is to remortgage it. Well, they’re gonna remortgage it or HELOC it to you at the current rates. So you’re not gonna be able to have that money available to you to take advantage of those increased rates in the future. So it is a big game, unfortunately, that you have to think about and understand, and you wanna make sure you have the right of amount of risk and the right amount of comfort around what you’re doing. But the interest rate game that’s played there gets complicated in a hurry.

Michael Port (13:40):

Yeah. Before we move on to our next topic, I think I’d just like to say, maybe just recognize and appreciate the fact that the way that our society is designed, is set up, from a systematic perspective, we’re all taught that debt is perfectly fine and normal and that everybody has it. And if you want something, you don’t have the money for it, well, you can borrow for it. And that’s perfectly fine. I mean, you can go to a website now and they’ll let you do three payments for a pair of jeans. It’s built in everywhere and they’re gonna charge you more for those jeans as a result. I think that if you’re borrowing money for consumer purchases, you’re gonna get yourself into trouble. Yes. If you’re borrowing money for well thought out business initiatives, investment purposes, where you feel like the arbitrage works in your favor, you’ve done your research. You know, that’s maybe something to consider, but it’s a totally different category than the kind of consumer debt that most people rack up. In fact, household debt in the U.S. Reached a record $14.6 trillion in 2021 and 340 million people hold that debt of $14.6 trillion dollars.

Matt Rzepka (15:01):

Wow.

Michael Port (15:02):

That’s a pretty big number.

Matt Rzepka (15:03):

That’s a really big number.

Michael Port (15:05):

So we wanna reduce it. So let’s say we do have some debt. Well, we know we started with the budget so we can budget and we can now start to give some of our money a job of paying off this debt, of actively working to reduce this debt. What would you do next? How do you decide how to proceed?

Matt Rzepka (15:21):

Yeah. So there’s a great strategy called a snowball method, but I want to touch on two quick things before I explain what that is. Borrowing money, generally, t’s good to borrow money for leverage if you think what you’re borrowing it for or against is gonna appreciate in value or generate more income for you. If it’s not gonna do one of those two things, it’s more of a consumer borrowing. It’s probably gonna cause more problems than it’s worth. So that’s just a simple way to think about, should I, or shouldn’t I borrow this money? Is the asset gonna go up in value or down? Or can I somehow generate more income for myself by using that leverage? So those are just two basic metrics to think about before making any of those decisions.

Michael Port (16:01):

And also the risk…

Matt Rzepka (16:02):

Yes.

Michael Port (16:02):

…associated with any type of investment must be considered because I’m not gonna go borrow a million dollars today and put it into Dogecoin.

Matt Rzepka (16:11):

No, some people are doing that right now.

Michael Port (16:12):

That’s the problem. Exactly. So when you have these speculative markets or, you know, you see people do this with gambling, I mean, that’s how the gambling circuit works. They have someone stake the gambler, the poker player for however much it costs. And then the poker player gets a little bit of the winnings and the investor gets the big piece of the winnings. But if that gambler loses, well then whoever staked them or backed them, is out of luck.

Matt Rzepka (16:35):

Yep.

Michael Port (16:35):

That’s an underworld thing that happens all the time, but that’s how it works for anything that has risk associated with it.

Matt Rzepka (16:42):

Yep. So if you have debt or you just want to get outta debt in general, there’s something called the snowball method, which is a great simplified way to start tackling this problem and start proving your situation. Simple process of listing out who you owe, how much you owe, what the payment is, and the interest rate isn’t that important, but I would always encourage you to list that as well. So you just create a list of who the loan is to, how much you owe what the payment is and what the interest rate is. And the number one goal to start the snowball method. Once you have all the loans, debts and liabilities listed, is you take the smallest balance and you target that one first. Doesn’t matter the interest rate. Doesn’t matter anything else because the number one goal or gain that you’re trying to get when you’re trying to reduce debt is cash flow.

Matt Rzepka (17:31):

So by getting rid of one of those small loans, now you have a payment. So let’s say you owed $2,000 to a credit card company and the minimum required payment was $300. If you get rid of that $2,000 balance, now you were previously having to pay $300 every month on that credit card, now you have $300 freed up. So what you do is you take that $300 and you add it to the next smallest balance. So if that small balance minimum payment was $350, well now you’re paying $650 on that next balance. And then when that balance is done, you’ve got $650 to roll into the next one and so on and so forth. And that’s how you start to snowball the debt in that situation. And that, if you have credit card debt, I don’t know a better way to get out credit card debt than that. Now you have to do a budget at the same time, or you’re gonna end up back in the same place. But that snowball method combined with some budgeting can really put you on track faster than anything else.

Michael Port (18:30):

This may take some time for some folks.

Matt Rzepka (18:33):

Yes. You’re looking at a process depending on how bad the situation is, that can be anywhere from 3 to even 9 years, 10 years. But if you get your budget dialed in and you make some concessions around, Hey, this is important to us, we need to fix this to get back on track. We can cut in these areas and stay communicating, working together on it, to make sure that we’re living the way we wanna live to fix this issue. You can usually accelerate it in some really exciting ways if you can get that line of communication open

Michael Port (19:04):

For some people it may be quicker. Yeah, but I really love what you’re saying is that if you’re on the same page, if you’re doing your budgeting, you start getting excited about working through that debt. You start making choices. You say, you know, we really don’t need a night of drinks with the Smiths. They’re not even fun to hang out with anyway. So let’s just put that to the credit card. Or you decide to start to change some of the way you do socialize. So instead of going out to a place where they charge you $17 a drink, you have the Smiths over for a glass of wine at your house and you buy a great bottle of wine for $10 or $12 bucks because you don’t need the fanciest wine in the world. Often you get a great $10 or $12 bottle…I don’t actually know anything about wine. I’m just saying…most of the people that I know…

Matt Rzepka (19:50):

It’s more about the people than the wine. That’s the key.

Michael Port (19:52):

Yes. Thank you very much. I don’t know anything about wine.

Matt Rzepka (19:55):

Well, and we said earlier, you know, one of the most powerful things for your future is how much money you can save. So if you do that inventory of your loans and you look at how much monthly payments you’re making right now, and you can fix that, and all of a sudden those monthly payments become monthly saving. That can be exciting and liberating. And it just cause so much positive for your future. If you can get onto a path like that, if you’re in a tough situation. It gives you some clarity and some vision about, Hey, here’s where we’re going.

AD BREAK (20:24):

So, you know what I’d like to do. I’d like to take a quick commercial break because this episode of Steal the Show with Michael Port is brought to you by this podcast’s namesake, my book, Steal the Show. Now Steal the Show wasn’t the book that started it all for me, that was Book Yourself Solid back in 2006. And it isn’t my most recent book, that’s The Referable Speaker. But it is the book that inspired this very podcast and remains a favorite for many. Everyday there are moments when you must persuade, inform, and motivate others effectively. Each of those moments requires you to play a role to heighten the impact of your words and to manage your emotions and nerves. Every interaction requires communication skills. Whether you’re speaking up in a meeting, pitching a client, walking into a job interview, or reading ad copy on a podcast- like I’m doing right this second. Steal the Show will teach you how to make the most of every presentation and interaction. You’ll see how the methods of successful actors can help you connect with inspire and persuade any audience. You’ll learn key strategies for commanding an audience’s attention, including developing a clear focus for every performance. Making sure you engage with your listeners and finding the best role for yourself in order to convey your message with maximum impact. Who knows, maybe it’ll even inspire you to start a podcast about what you love. A Wall Street Journal, USA Today, and Publishers Weekly best seller, Steal the Show is available at Amazon, Barnes and Noble, and wherever else books are sold.

Matt Rzepka (22:10):

Michael, I love that ad and really just wanna make my own comment of our long relationship, our friendship, your amazing company that you and Amy have built at Heroic Public Speaking about persuasion and learning a lot of these techniques. And not only that you teach your students those things, but you teach that it’s not meant for trickery. It’s meant to find your true, authentic self and that when you fully express what you believe and what you’re passionate about, that’s when you can start to make people see and believe the same things that you believe and help them and see them grow and just get great return out of the educational investment. So I just wanted to make sure I specially pulled that out because it was so impactful for me, not only personally, but also to see you teach that on a regular basis to all of your students. I just love it so much.

Michael Port (22:59):

Oh, thank you so much. You know, we get a lot of compliments for having integrity, which always strikes me as odd. I appreciate it. And I always say, I really don’t think that’s something we should get a pat on the back for, to me that should just be par for the course.

Matt Rzepka (23:13):

Should be the norm.

Michael Port (23:14):

Yeah. You know, if you wanna play, that should be the norm. But I understand. Unfortunately it doesn’t always work that way. And certainly doesn’t always feel that way, but I just think it’s much easier to do the right thing because you stay true and straight.

Matt Rzepka (23:29):

Amen.

Michael Port (23:29):

So can we talk a little bit about how we might be able to reduce our mortgage costs? Let’s say we wanna pay off our mortgage more quickly because we wanna save money on the interest that accrues over time. Cuz you know, you might end up paying twice as much for a loan for a house if you pay it out over the full term of the loan, then you would, if you paid it back faster than the term of the loan.

Matt Rzepka (23:57):

Yes. There’s a big topic of discussion around this and this strategy. The one thing we always have to keep sight of is, and we you’ve already hit it a little here today, the opportunity cost other side of that. So if I’m gonna accelerate my payments, what could I have otherwise done with that? But at the end of the day, you have to do what’s right for you. So if you want to accelerate a mortgage payment, there are multiple ways you can do it. You can make extra payments every single month. You can make extra payments more than one time a month. You can make extra principal payments at the end of the year, they’re all gonna have a different component or different impact on the interest calculation. My favorite way to do this is to set up a side fund and put the money in a side fund first.

Matt Rzepka (24:39):

So I call it have a 30 year mortgage that’s paid off in 15 years. And this is less powerful than it used to be because most people today are not itemizing their deductions because of the tax law change from 2018. But when you used to itemize your deductions and your interest was additional tax benefit, you could get the tax deduction of a 30 year mortgage and the payoff of a 15 year mortgage. But you just set that money aside and, and do what I call writing one check. So in the 15th year, if I put the right amount of money in the side fund, I can write one check and pay off my mortgage. Again gives you more control, gives you a safety net. If something goes wrong during that process. That’s the one thing I don’t like about extra payments is once you’ve given that money away, the bank controls, whether you get access to that equity again because you’re truly just improving your equity position for your extra payments that you make. So again, no right or wrong answer here. And there’s a lot of topics and information that you can research on your own out there. My encouragement would be to understand control, understand access to capital, and understand opportunity costs and make the best decision that’s right for you.

Michael Port (25:48):

Now you mentioned you’re increasing your equity, and you mean in the house, because of course a house is not a fixed income unless you’re making money off of it, but it still is in the category of fixed income rather than an equity or a bond position in a portfolio.

Matt Rzepka (26:08):

Yes, in theory, you should have significantly less risk of valuation fluctuations in a home than say a bond or a stock for sure.

Michael Port (26:15):

Typically. So do you include the equity and debt that you have in a house when you’re thinking about the asset allocation for your overall portfolio or do or you keep it, set it aside as if it’s not relevant?

Matt Rzepka (26:32):

I personally set it aside because with housing that you live in personally, your true value, if you go to sell that home, in my opinion, is only what somebody else is willing to pay for it. And you don’t know what the market’s going to be at that time. When you look at investment real estate that has income, you can value a cash flow stream to determine the value of something, but the person who’s buying your personal residence, it’s all based on their assets and their personal income and whether they can afford or not afford to buy your home. So I don’t like to include it in the overall asset allocation. Still an asset, it’s still there, we may use it in some capacity later in life or sell it and downsize. So it’s still part of the conversation, but I use that differently.

Michael Port (27:16):

Mmm. Yeah. It’s interesting. Cuz one could theoretically think of it as part of your overall portfolio and might allow you to reduce your bond holdings and increase your equity holdings with a potential for higher gain over time. You increase the beta, the market risk, cuz you’re gonna have more equities at exposure, but you could, I suppose, theoretically, do that and think about it that way.

Matt Rzepka (27:40):

The other strategy that is kind of one of the thought after dirty words is a reverse mortgage or a home equity conversion mortgage is what they call it now. And this unfortunately is likely gonna be needed by a lot of Americans who plan to retire in the next 5 to 10 to 15 years because savings rates have not been super high historically for our citizens. And that equity that they have in their home, they may have to tap for their retirement. And it actually is a great tool. I am a fan of reverse mortgages of course in the right situation. And one of the reasons I like it is it’s technically a loan. So it’s tax free income and it’s guaranteed by the government. The stigmas that exist around reverse mortgages are not always what people think. So if you’re worried about your retirement, it is something that you have to go through a ton of education to even do a reverse mortgage.

Matt Rzepka (28:32):

So it’s a slow process, but again, just different ways to use that equity. If your kids don’t want your house after you’re gone, I would certainly encourage you to think about how equity and tax-free money from that equity can play a role in your retirement.

Michael Port (28:46):

Yeah.

Matt Rzepka (28:46):

So again, just unique tools in the market that are really cool. That again, every time I bring up that word in a meeting, I can see the facial expressions of, oh my God, what did you just say? And it’s okay. Cuz I just say, look, I’m only here to educate you around this. I don’t sell reverse mortgages. I don’t make any money from reverse mortgages at all. It’s just a tax tool and an income tool that you need to be aware of. Cuz what I wouldn’t want is you to wake up at 70 or 75 and say, why didn’t we do that at 62, which is when you can do a reverse mortgage. Yeah. So again, it’s just information.

Michael Port (29:18):

Yeah, I guess for me, I just don’t like the idea of having to pay so much interest for something if I have the ability to start paying down or paying off and full that loan. Because when you buy a house, you usually think of the sticker price, whatever you end up settling on in the negotiations. You go, oh, that’s what we paid for the house. But only if you’re paying cash.

Matt Rzepka (29:42):

Yes.

Michael Port (29:43):

If it’s a mortgage, I just pulled up a mortgage calculator here and I just made up an original loan amount of $500,000. And I said, the date of first payment is today. And the loan length is 30 years at a 3.0% interest rate, which will not last for long because…

Matt Rzepka (30:00):

No.

Michael Port (30:00):

…we know we’re gonna see a few interest rate increases in 2022. The Fed has just announced it, but I’ll leave it at 3% just for fun. So that principle plus interest is $2,108.02. Now that’s without taxes or insurance, it’s just the loan itself.

Matt Rzepka (30:18):

Principle and interest. Yep.

Michael Port (30:19):

That means that the $500,000 loan over 30 years is gonna cost you $758,887.30.

Matt Rzepka (30:28):

Yes sir.

Michael Port (30:29):

So you’re spending an extra $258,000 on that house in order to pay it off over 30 years rather than, you know, paying it in cash. And most people don’t have that kind of cash to put down on a house. But we really, I do think have been programmed to believe that we should buy houses at the earliest possible moment because that’s the American dream. It’s a great investment. And the fact of the matter is residential homes are generally not a great investment. Even if you get a couple percent return on that house per year, the amount of money that you’ll put in it over time is generally gonna eat into that.

Matt Rzepka (31:01):

Yeah. When you really add up all the costs of owning a personal house, you have to get a pretty significant annual inflationary bump to keep up with those costs. Yeah, because there’s no income component to it. It’s just an asset that you’re dumping money into over time. And when you really factor in that money that you’ve put into it, unless you’re in a super highly appreciating market or some other places where there might be an exception to that. The cost of the house usually barely keeps up with inflation.

Michael Port (31:31):

And most people think they can market time the sale of their house, but they might find that they can’t. They have to sell for some reason and the market is not in their favor, so it can be problematic. So imagine, so you had to pay $250,000 extra dollars, which if you didn’t have to pay to this house, you could buy a second house at a lake somewhere for $250,000. But if I think you don’t have the money for the house, then renting is a perfectly reasonable option. If you wanna buy the house and buy a mortgage. That’s great. But think about, if you could add a little a bit extra to it.

Matt Rzepka (32:04):

You still have the $500,000, 30 year, 3% open, right?

Michael Port (32:07):

Yes I do.

Matt Rzepka (32:08):

What’s the total principal and interest at the end of that 30 years?

Michael Port (32:12):

$758,883.

Matt Rzepka (32:16):

Okay. So that would be, if you financed it at $500,000 made all your payments paid all that interest. Let’s say I had the $500,000 before we do the, your payments. I always like to do this.

Michael Port (32:25):

Yeah.

Matt Rzepka (32:26):

Should I pay cash? Well, I know that it’s gonna cost me that if I finance it. If I think I can get 5% annually over that same 30 years, my $500,000 at 5% growth over 30 years is worth $2.1 million. Now again, risk is always a conversation that has to come into that. But that’s the opportunity cost side of it. And part of this too, which is what we’re talking about here, you have to do what is gonna mentally and emotionally work for you.

Michael Port (32:55):

Yeah.

Matt Rzepka (32:55):

So if you’re saying, look, the house is the number one goal for me and I can’t do anything else because that just feels like too much risk to me. Then you have to do what you’re gonna do well. Don’t try to do something that you’re not gonna be able to stick with. So just a good point to think about.

Michael Port (33:09):

Yeah, absolutely. And of course there’s taxes that one would have to pay on that, on their earnings.

Matt Rzepka (33:15):

Yep.

Michael Port (33:15):

But let’s say you decided you’re gonna pay an extra $1,000 a month. Remember the original payment would’ve been $758,887? With the extra payments, it comes down to $640,398. So instead of an original payoff date of November 2051, now the extra payment date is 2039. If you paid an extra $2,000 a month, well now you’re paying it off January 2034 and it’s only gonna cost you $596,921. So you see how with every little bit that you add to that payment, that’s going to premium, it reduces the size of the interest payment because as the balance gets smaller, the interest payment gets smaller. So your monthly mortgage fee stays the same, but more of it goes to principal because at the beginning of a mortgage, interest is the greater share of your monthly payment. Principal is the smaller share. But as the balance gets smaller, it changes. So that principal is the larger share of your payment and interest is the smaller share of your payment. So if you can kind of fast forward it to a smaller amount, you’re gonna save a lot on interest as a result.

Matt Rzepka (34:29):

And retirement goals, play a pretty big role in what you should do with some of those. If you’re on track with your amount you’re saving out of your income for retirement and you feel comfortable accelerating payments, and that you’re gonna hit your retirement goals, again a lot easier to do something like that. If you’re concerned about retirement and you accelerate the mortgage, the other thing I would encourage people to do is say, okay, well we went from 2051 down to 2035. So we cut half the time off the mortgage. Keep making your mortgage payment now because that money should start going into your retirement saving strategy if you’re not on target, because all it is is a cash flow commitment. So you have to figure out what all of those numbers are gonna look like, how and where you want to commit your cash flow that’s gonna get you to that best end target that you can.

Michael Port (35:15):

Nice. I’m just for fun putting $2,000 in here, just to show again.

Matt Rzepka (35:20):

Sure. While you do that, I always like to talk about the difference between a 15 and a 30 year mortgage too at the bank. And just ask people flat out. Banks are in business to make money, right? They offer you a lower interest rate on a 15 year mortgage than they do on a 30 year mortgage. Well, we all know just by this exercise we’re going through right now, the lower the payment term, the lower the interest, the less interest the bank’s gonna make. So if the bank sole purposes to make money, why do they offer you a 15 year mortgage at lower interest instead just require you to get a 30 year if they’re gonna make the most money from that product?

Michael Port (35:58):

Yeah. They want your money as fast as they can get it.

Matt Rzepka (36:01):

They want the cash flow. The bank is all about cash. Give me your money as fast as I can get it. And they throw this little carrot out there to incentivize you with a lower interest rate

Michael Port (36:10):

So that they can then take it and loan it to somebody else at a higher interest rate.

Matt Rzepka (36:13):

Yep. They’re all about leverage. They want to get that money back and re-leverage it over and over and over.

Michael Port (36:19):

Mmm. Well, Matt, we’re starting to come to the end of this episode and I’m wondering if there are any topics or concepts, issues that we haven’t addressed that you would like to address at time.

Matt Rzepka (36:35):

I think we’ve hit a lot of what is important here. Again, coming up with a plan and understanding your cash flow and your budget first, before deciding to do any of these things is really so critical. Whether it’s attacking debt, bad debt that you might have attacking liabilities. If you want to get those liabilities paid, saving more money for retirement. That’s also an area where I think some people jump in head first instead of feet first. They just say, okay, well I know I need to save for retirement. So I’m gonna put as much, I’m gonna put not 10%, but 20% of my check into the 401K plan. And then they run into a budgetary problem down the road and that money’s trapped in the account and they have a tax consequence or a penalty to fix whatever problem they have. Or they end up borrowing on credit cards at 15% or 20% and it starts to work against them. So follow the process in order, have a budget, have a cash flow plan and then make sure you understand the pieces as they continue to move forward. And what’s your exit strategy or safety strategy if something goes wrong.

Michael Port (37:37):

Yeah, Matt, what are we covering next week?

Matt Rzepka (37:41):

Next week, I am really excited to be talking about how we can turn your business into its own family bank

Michael Port (37:50):

And that’s something people should want to do, correct?

Matt Rzepka (37:53):

That is correct.

Michael Port (37:54):

Yes. It is something that I have done and has worked quite well. So thanks for listening and we’ll see you next week.

The post S4E4 Increasing Cash Flow Through Savings and Efficiency (Plus, Debt!) appeared first on Steal the Show with Michael Port.

On this episode, we take a hard look at a tricky question: “How should I set up my business?”

As speakers and entrepreneurs, we want to make sure we’re doing everything we can to set our businesses up for success. But that doesn’t mean we’re not susceptible to confusion, bad habits, outdated ways of thinking, or just plain old anxiety—we are. And those things can hold us back.

Drawing on our own personal experience as entrepreneurs (plus Matt’s invaluable expertise as a financial services professional), we make sense of some of the most daunting internal challenges small business owners face in this episode. Anybody, anywhere who interacts with money can learn something valuable from this, so whether you employ dozens, just yourself, or nobody at all, this episode will give you a peek behind the curtain at what successful small businesses and businesspeople do to help themselves thrive. 

How you can Steal the Show

• Conquer your fear of the dreaded “b word.” (No, no, not that b word.) (Okay, fine, we’ll tell you: it’s budgeting.)
• Discover what it means (and what it takes) to “give every dollar a job.”
• Think like a successful accountant…with the help of a successful accountant. (His name is Matt and he’s the co-host of the podcast, but you knew that already.)

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

Resources Mentioned in this Episode

Budgeting Tools:

• 14:34 QuickBooks
• 15:35 YNAB (You Need a Budget)
• 18:25 Mint

Receipt Apps:

• 50:38 DEXT (previously Receipt Bank)

Books:

• 29:48 Profit First by Mike Michalowicz

People Mentioned in this Episode Who Have Previously Appeared on Steal the Show with Michael Port:

• Mike Michalowicz – Profit First Innovator Mike Michalowicz on Entrepreneurship Simplified in Uncertain Times

• AJ Harper – AJ Harper on Writing for the Page vs. Writing for the Stage, How to Start a Daily Practice, and the Current State of Self-Publishing

Transcript

Michael Port (00:05):

Hello and welcome to Steal the Show with Michael Port, a podcast from Heroic Public Speaking. I’m your host, Michael Port. This season’s theme is Speakers with Money. I’m joined by my very good friend, Matt Rzepka the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners. when it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make any money at all from you following any of the advice you hear on this podcast. My company is Heroic Public Speaking, which I co-founded with my much better half Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world class training to aspiring and working professional speakers around the world. I don’t sell anything related financial services. Matt, however does, and you are welcome to hire him. I however, will not be compensated in any way at all if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it. And today we’re discussing how you can set up your business operations, personal operations and bookkeeping for financial success, AKA budgeting. So let’s get right to it.

[CASH REGISTER SOUND]

Michael Port (01:35):

I know that you might be feeling a little freaked out right now ’cause I just used the word budgeting. Budget. Budgeting. Ah, that word! It sends shivers down some people’s spines. People fear budgeting because they think it means restriction that if you have a budget, you’re saying no to the things you want. And while that might be true in the very, very short term, in reality, budgeting is actually the way you obtain the things you want. And to obtain them in a way that’s healthy and sustainable for you and your business. Budgeting does not restrict us, it frees us. And if that sounds a little over the top, I have to tell you, I am extremely, extremely passionate about this topic. In your personal life and for your business budget is one of the single most important things you can do. In fact, I’d even go so far as to say that you need a budget, which coincidentally is the name of a really great software program we’ll be talking about in a minute, but first Matt, help us understand why do we need a budget?

Matt Rzekpa (02:43):

Yes. A budget. It’s such an important tool, both for your business and personal finances, because without a budget, you don’t really have a roadmap and things can happen to you instead of having things happen the way that you want. And that budget again is meant to be a guide it’s meant to get you where you want to go and be able to make good decisions around money when you’re trying to figure out how to get from point A to point B.

Michael Port (03:08):

I feel like sometimes when people think about budgeting, they often do it after the fact meaning, you know, they’ll spend all their money throughout the month and then they’ll go back and budget. What did I spend? So it’s kind of in the reverse order rather than budgeting and then spending according to what you’ve budgeted. Do you see the same thing?

Matt Rzekpa (03:27):

Yeah. I see that a lot. You’re always looking in the rear view mirror and unfortunately it just really makes you feel bad when you look back and “oh, I didn’t realize I spent that there. Wow, we should really make a change.” And, and then you’ve already lost that money and not had a plan. Where if you have a way to manage that fluently, as things are happening, at least it gives you some better clarity to make a decision or a change and improve something before it just happens to you.

Michael Port (03:53):

Now, before we go any further, let me ask, should business budgeting and personal budgeting be handled in the same way?

Matt Rzekpa (04:00):

You can do personal budgeting and business budgeting together. You can do it separate. Some of it depends on your organization type, how big you are, how many members are on your team. If you’re a smaller organization from a speaker perspective, you can integrate it into one because it might have a huge impact on your personal finances, what business decisions you’re making. Or if you’ve got a bigger team, you probably wanna separate the two to say, “alright, let’s focus on the business items and business decisions.” And then personally, you can sit with your family or whomever you’re budgeting with personally to figure out how that works for you.

Michael Port (04:33):

Now, hold up a second. If you do your business and personal budgeting together, like in one budget, don’t you run the risk of potentially commingling funds in a way that isn’t appropriate from a tax perspective or compliance perspective, or does it get messy in some way?

Matt Rzekpa (04:50):

It can get a little messy. If you’re not clear on how you’re tracking or accomplishing things or what tools you’re using, but a budget is again, it’s an overlay guide. So what actually happens if you have separate entities from your personal business, you’re still gonna track those things. And we’re gonna talk about accounting of those things later to help bring some clarity. But your budget, the point I would drive home, there is if your business is budgeting a certain profit and that profit isn’t covering your personal income needs, then you’ve got a problem. And if you don’t identify that early on to say, “okay, well, what do we have to change? So that the business is fluently providing enough for my personal financial budget.” You’re gonna end up in credit card debt or some other bad situation in a short amount of time.

Michael Port (05:36):

Okay. So we’re gonna get deeper into that as we progress into the episode, but I just wanna share a personal anecdote about how Amy and I approach our budgeting in our household and in our business. You know, I’ve been in business for 20 years. And when I started, I knew less than nothing about nothing. I mean, I really had no idea how a small business or an individual business owner handled any kind of budgeting or accounting or any of that stuff. I didn’t even really understand what quarterly taxes were. Like my first year in business, I didn’t pay any quarterly taxes. I just got to the end of the year. And I thought I was supposed to do taxes the way you do taxes when you’re a W2 employee. And I was in for rude awakening at the end of that year. Now you were not my accountant at that time clearly, cuz I would’ve done it properly if you were, but we separate out our personal and business budgeting and accounting really almost as if there’s big wall between the two.

Michael Port (06:34):

We have a larger business now and so our accounting is a little bit more complex. It’s not a Google-size complex, but you know, for us it’s more complex than it was even, you know, 10 years ago. But Amy and I also take this budgeting process very seriously. You know how a lot of couples have date night? So like every Wednesday night they’ll go out on a date? We have budgeting mornings. So every weekend morning, sometimes it’s a Saturday. Sometimes it’s a Sunday, but we rarely miss them, we wake up, we have a cup of tea, stretch our legs a bit. And then we sit down and we reconcile our budget for that week. We set the budget at the beginning of the month, but then every week we reconcile and we make adjustments to make sure that going forward, we know exactly how we’re spending our money.

Michael Port (07:23):

And I really did think years ago that if you had a budget, it meant that you were poor. This is how screwed up my mind was. This is how little I knew. I thought that, “oh, if you’re wealthy, then you don’t have to have a budget because you’ve got tons of money.” I always thought the budget meant that you didn’t have a lot of money so that’s why you needed the budget to constrain yourself from spending. But what I discovered is that having a budget allows you to make such better choices with your money, to align your spending with what you value and where you want to go. Because I do think that the way that we express our values in our modern capitalist society is in large part based on what we buy. If you look at somebody’s credit card statements or bank statements, you can get a pretty good sense of what that person values. You don’t know everything about them, of course, but for us, for me, that was a huge mind shift. And now I feel like, “oh, I see I’m gonna be able to get wealthier and wealthier because I do this kind of budgeting.” And it’s really just changed our life and we don’t need date nights because we’ve got budgeting mornings.

Matt Rzekpa (08:34):

That’s so awesome. Most people will be scared of that outta their mind, like “budget mornings, what?” And that’s the other thing with a budget, the fear that you even mentioned, a lot of times people are afraid to lift up the hood and look at the finances because they don’t know what they’re gonna find.

Michael Port (08:48):

Yeah.

Matt Rzekpa (08:48):

And once you get some clarity around that, it just helps you be in more control. You know, the other thing a budget can do from that perspective is help avoid lifestyle creep because you know the wealthy comment, if, well, if I’m wealthy, I don’t need a budget. Well, if you’re wealthy, you can get UNwealthy pretty quickly if all of a sudden you’re just spending, spending, spending, and you wake up with this new lifestyle that now you can’t sustain.

Michael Port (09:09):

Yeah.

Matt Rzekpa (09:09):

And that’s the last thing you want to do.

Michael Port (09:11):

And you know, I think I gotta address the shame associated with money. One of the reasons we often don’t pay attention to it is because we feel shame around the choices that we’ve made in the past. And I think a lot of people experience that. I’ve experienced that, certainly, you know, either bad choices or just selfish choices. I would develop some shame around it. And so Amy and I have this expression that when we’re working on anything related to money, we always say, “no shame, no blame.”

Matt Rzekpa (09:44):

Ah, I love that.

Michael Port (09:45):

So for example, let’s say I went a little over in one of my categories. Amy could see I’m starting to, “well, I really, you know,” I start to sort of babble about it or she goes, “no shame, no blame.” And I go, “right. Okay, good. So here’s what I did. Let’s address it and you know, let’s fix it and just try to keep getting better at it.” And once you get over that feeling of shame and you don’t blame yourself for any mistakes that you may have made and you realize that A it’s a very complicated finance. It’s not a simple thing. Most people are not taught anything about personal finance, certainly not business finance, unless you went to business school, maybe even in business school, I’m not sure they always do a great job of teaching business finance. But you may not have grown up in a household that was focused on this. And so if you never learned it, you can’t blame yourself for not knowing it. If you know, you need to learn it, but aren’t well it may be time to start learning. And that’s really what I did is I said, it’s time to start learning. And you were a big part of that learning. So let’s talk about zero based budgeting Matt, because that’s the philosophy that we ascribe to. So what’s zero based budgeting?

Matt Rzekpa (10:51):

Zero based budgeting is making sure every dollar of income or cash flow that’s running into our business or our personal household has a home- is going somewhere. So it has a job to say. And that way you don’t have any unaccounted for dollars. And this often again happens in the lifestyle creep scenario or like the bank account. If your bank account has extra money in it and the, in that bank account don’t have a home, they often find a way to disappear. So we wanna make sure that we have money going a hundred percent somewhere when we’re done thinking about how to set up our budget.

Michael Port (11:29):

Yeah. And sometimes if you’re not budgeting and you’re not doing zero based budgeting, you may just look at your bank account to evaluate whether or not you can afford something. So you may look at your account and go, “oh, okay. I have X number of dollars in my account. Oh, it’s pretty flush.” However much of that money may already be accounted for. Somebody may be waiting for that. It may be your mortgage. It may be utility bills. It may be, you know, something else that you’ve gotta pay for. But if you just look at a lump sum, you really have no idea how much is available to you. And so that’s usually when people get in trouble because they think they have more available to them than they do because they’re looking at that big number. So when you do zero based budgeting, you actually rarely look at the total amount of money in the account, except to make sure that it’s reconciled with the budgeting tool that you’re using. But you are instead looking at your budget and where you have put that money and what job you’ve given that money. So let’s talk a little bit about budgeting software because I think that it’s very, very difficult to do budgeting without a tool. Now you can just use an Excel spreadsheet, right?

Matt Rzekpa (12:40):

Yeah.

Michael Port (12:41):

You don’t have to use some kind of fancy software.

Matt Rzekpa (12:44):

Excel’s a good start. It’s something. So again, if you’re not doing anything around budgeting right now, I would encourage you to at least jump into Excel and start tracking.

Michael Port (12:53):

And I bet people could probably find budgeting templates that they could get in Excel that are probably free online.

Matt Rzekpa (13:00):

A lot of resources out there.

Michael Port (13:02):

Yeah. There’s a lot of resources out there. So before we get into the more common pieces of software that are used, what do you think people should look for in a budgeting software?

Matt Rzekpa (13:12):

Yeah, I would look for things that maybe are already complementary to other things you’re doing around your finances. Maybe your bank might offer some sort of budgeting tool that would link up with your existing bank accounts? The number one reason I see why people don’t engage the budgeting process is it’s too much work and people already are lacking time. The no shame, no blame is just fantastic. The shame of what am I gonna discover if I go through this budgeting process. So there’s all these things that get them frozen from taking action. So if you’re not taking action yet, try to find a software tool, a free resource or something that’s gonna be complimentary to how you’re already set up. And then if you need to make a major change, you can figure that out once you dig a little bit into the weeds.

Michael Port (14:00):

If you haven’t done this process, you will find things that you didn’t know were there. You know, you may find a recurring subscription of some kind that you’ve been paying for for seven years, but don’t use and don’t even remember signing up for it. But once you do zero based budgeting, that will never happen again.

Matt Rzekpa (14:17):

That’s probably the number one thing that you’re gonna uncover. It’s just free money that you can put back in your bank account so quickly.

Michael Port (14:23):

Yeah. Uh, what are some of the programs that you recommend people use? Which ones are good for business budgeting and which ones are better for personal budgeting?

Matt Rzekpa (14:34):

Yeah, our go-to program for both business and personal now is QuickBooks Online. A lot of our clients are business owners, entrepreneurs so they’re familiar with QuickBooks itself for their businesses. And then the number one thing we run into headway on is, you know, for long range planning, we have to make sure the personal budget, how much money you’re spending to live each month, is accurate. And so we can easily tie in the template of what we’ve done at the business level, with something like QuickBooks and create a personal QuickBooks, that again is more for tracking and budgeting, not necessarily to create P&Ls, other standard accounting type reports. But QuickBooks as our go-to. There are some other great tools out there. A lot of people also just do Excel or a Google Sheet. And so it lives in the cloud and it can be shared cuz again, a lot of times that budget, if you’re not sharing it with either other members of your household or other people on your team, it might not be providing the value that it really could be once you get more input and eyes on the scenario.

Michael Port (15:35):

Earlier in the introduction, I said, “you need a budget,” which is also the name of a software that we’re gonna talk about. And this is a program that Amy and I use for our personal budgeting. We also use it in the business for some of our cash based budgeting. And it’s called YNAB. You need a budget. So YNAB.com. It’s cute. Now here’s the thing. This is a program that was really initially created for personal use because it is only a cash based budgeting system. It doesn’t do any accrual based budgeting. So it’s perfect for personal budgeting. But in our business, we use QuickBooks for our budgeting, our accrual budgeting and our cash based budgeting. But we also use YNAB as a secondary tool to do our budgeting because we find that we are able to look farther out into the future with a clearer picture through YNAB than we do through QuickBooks.

Michael Port (16:32):

It’s not that QuickBooks doesn’t do it, but we just feel more comfortable with the YNAB software,. Julianne, who does all of our business accounting and business finance management, she uses QuickBooks, everything lives in there, but then she’ll also give all of our dollars a job through YNAB and we really love this. It’s been transformational for us. It does take a little while to get up to speed on, I think like many of these programs. It took us I’d say maybe three months or so to feel like we had a good handle on it. And then six months to feel like we were completely proficient. And you might think that’s a long time, and that’s to no fault of YNAB, I think it’s just that we have a lot of moving pieces in our personal lives. And so there’s a lot to do in the program.

Michael Port (17:19):

And I think that if it’s gonna be a tool you might use for 10, 20, 30, 40, 50 years, if it takes you six months to become proficient, that’s actually a drop in the bucket- just a little bit of time. You just need to make the commitment to it. In fact, our budgeting, I think, was the reason that we were able to move through the pandemic so well, because we knew exactly how many months we were set for. We knew exactly “we can go out ’til this day, at this month, if we sold nothing else from here to then.” And if we weren’t as focused on our budgeting, we wouldn’t have been able to do that. And it would’ve caused so much stress. We would’ve run around just trying to sell anything we could possibly, you know, think of, which would take us potentially off of our mission and our focus and I think would ultimately hurt the brand.

Michael Port (18:07):

So we were able to stay true to our brand and what we believe because of the work we’ve done around the personal financing. So you tend to use QuickBooks more because obviously you’re an accounting firm. So most of your clients are gonna be working in there. Do you have any other preferences around these platforms? I mean, there’s also Mint. I can’t stand Mint personally. I’ve tried it many times in the past, but when I go into Mint I realize, oh, I’m not the customer on the product. They just feed you ads throughout.

Matt Rzekpa (18:37):

Yeah.

Michael Port (18:38):

And anytime a platform is filled with ads, you’re the product, not the customer. So I wanna be the customer if I’m gonna be using a platform like that. You have any other preferences?

Matt Rzekpa (18:48):

I do, you know, data is power in this world and that’s what a lot of these companies, they’re just trying to get your data to do that. Just sell you ads. There’s a lot of great budget platforms out there. And again, if you’re not budgeting, now, one of the great places to start was your own software. So, or your own tools that maybe you’re using for your business accounting, they may have some budgeting tools in there that you can use for both your business or your personal. YNAB is a great program. YNAB is a little bit more, if you get excited about budgeting like Michael and Amy had, YNAB is a great program. You wanna learn how to use the tool. And then I think it’ll really be up and running and off to the races after that. Your timeline on how quickly you got that up and running is probably pretty average.

Matt Rzekpa (19:30):

You know, most people who aren’t accountants or aren’t deep in the weeds on numbers are gonna take some time to learn how to do this stuff. But it’s super powerful. If you’re willing to commit to getting it done and getting it in place, it can teach you so much. That pandemic comment, whenever you run into trouble in the world of business or finance, you need information to figure out how to solve the problem. And that budget data is just so critical and can save you so much stress from figuring out, okay, what do we do next? Where do we go? And how do we get back on the right path? Because we know our numbers.

Michael Port (20:03):

Yeah. You mean like when a hurricane puts five feet of water into your headquarters totally destroys it.

Matt Rzekpa (20:10):

Ugh.

Michael Port (20:11):

It knocks down the walls, rips up the floors and worse. Yeah. Yes. That is when you are really happy that you are on top of your books. Now there’s two other things I wanna mention. First of all, you gave that a great new name, the budgeting breakfast. I don’t know if other people use that too, but the budgeting breakfast is great. And what’s really meaningful about it is that we do it together as a couple.

Matt Rzekpa (20:32):

Yes.

Michael Port (20:33):

I can’t speak to anyone else’s relationships or have no expertise in what makes somebody else’s relationship work. But I know for us, what really makes our relationship work is that we are partners in every sense of the word. Now I may handle the investment accounts, but Amy knows everything that I’m doing every step along the way. And when we’re doing the budgeting, there’s nothing that we are uncomfortable about because if something comes up, we get to talk through it. It just makes for a deeper relationship. And so I’m just gonna recommend and encourage people. They may be the one who’s more inclined to do this and like got my partner doesn’t like, it won’t do it. I just think that if they would come on board, they may find that it makes the relationship even deeper and more meaningful. How do you handle that with your clients?

Matt Rzekpa (21:24):

I strongly recommend that open level of communication. You know, I’m not a licensed therapist in any way. I have no degrees around emotional or human connection, but I can tell you the amount of stress and anxiety I can see often between couples because they’re not talking about money and they’re not communicating and they’re not clear on what’s happening and who’s doing what. When can get that on par and on the same page, moving forward, who knows where you could take your relationship from there because that communication channel is open and flowing. So I highly recommend ,again, no shame, no blame. I’m gonna definitely take that. I love that. It’s how do we start somewhere clean? How do we make sure we’re making good decisions moving forward and that we’re sharing what’s going on so that we continue to learn as we unpack some of these directions.

Michael Port (22:15):

Yeah. And when, you know, when you get pushback from your partner, just love them more.

Matt Rzekpa (22:18):

Yes.

Michael Port (22:19):

Right? Just love them more. Every time you get pushback and eventually, hopefully that love will soften their resistance and you can find connection and common ground to work on these things. Now there’s something else that we do with budgeting. We have our kids use YNAB as well. If they want allowance, if they want any money from us, they need to do YNAB with us. So each one of them has a budget in YNAB and we don’t do every week with them because that would kill them. They would hate us if we did that. So we do it once a month with them. And not only do they get their allowance, their allowance weekly is a dollar per year of life. So, you know, if they’re 13, they get $13 a week.

Michael Port (23:05):

That’s how we do their allowance. But we also budget monthly for them in their YNAB for their clothing, for their activities, for their camp. So we’re actually putting a fair amount of money into their budgets each month that they are responsible for managing. And we’ve been doing this for a number of years now. And it really, really makes a difference because they’ve gotta make decisions about what clothes they buy or what activities they do, because you know, if they spend all their clothing money and it comes to the winter and they don’t have a winter jacket, they’re gonna go cold. We’re not gonna, yeah, we’re gonna give you more money for the winter jacket. Now there’s a lot of old jackets around the house. They could probably find one and put it on, but you get my point. They don’t just randomly go and buy stuff because they know that they’re working within this budget. They’ve given every dollar a job in advance and they’re very conscientious about it. And uh, so far so good, it’s been working pretty well. And I hope it continues for them and that it establishes good financial habits going forward. Do you have a particular perspective on how to bring kids into this process?

Matt Rzekpa (24:12):

I love bringing kids into the process. You know, one of the tax planning strategies we talk about with clients is how to hire your kids and how to get them involved at an early age, because you want them to learn a lot of these principles because they’re are not learning it anywhere else, or they might be learning the wrong principles. So the more clarity you can get around that you can help them be more prepared for a lot of the decisions they’re gonna make as to become adults. And even too, your comment about the winter jacket. I have done this with my kids where one kid is a good saver and they don’t overspend. The other one just wants to buy video games at every opportunity. And if you don’t have money for something they need, well, then you gotta talk about how do I get a loan? And it lets you educates them around loans and how loans work and who’s loaning the money. So there’s a really good fun component that can come from getting your kids involved. But also the educational component they gain is gonna put them way head of the pack. For sure.

Michael Port (25:07):

Yeah. Jake was doing some hard money lending to Ruby at one time.

Matt Rzekpa (25:11):

Love it.

Michael Port (25:13):

It was pretty funny. Then Ruby caught on she’s like, this is not a good deal for me. And so she stopped that pretty quickly.

Matt Rzekpa (25:20):

Yeah. When that light bulb goes off, like, wait a second, I gotta rethink what I’m doing here because you start to realize how much pressure that can put on what money you have available.

Michael Port (25:27):

Yeah. This is something that you taught me. So the kids work for the business and they get paid just about a thousand dollars a month. That puts their total income for the year under $12,000, which is the individual exemption. So they don’t have any kind of big tax burden on that. And we have to pay a payroll taxes on it of course- the business does. But then you taught me it allows them to invest in a Roth IRA because they have earned income. Yes. And as a result, they’re able to each year max out that Roth IRA and starting that at a very young age, if that money stay in there until they’re in their sixties, it’s gonna be a substantial amount of money by that time. Additionally, we can choose to use that for college because you can use earnings and principle earnings from a Roth IRA for qualified education. So rather than stocking it all away in a 529, which has some more limitations, we are able to do that as well. So the business is paying them, but they’re not paying income tax on it because it’s below the earned income exemption. Then they’re putting it into a Roth and the gains are not taxed on the Roth because it’s post-tax money that’s going in. So it’s a really extraordinary strategy that we’ve seen yield incredible results in a pretty short period of time.

Matt Rzekpa (26:53):

Yeah. And again, to your comment about allowance versus income and how you’re allocating expenses and why they’re in YNAB, one of the questions we get a lot is well, if I’m paying the child that much money, I don’t want them just spending that money on their own. They’re minors so you still have control over what that money’s going towards. It has to go towards them, but that’s easy to accomplish. And then if you get into the budgeting conversation so they can see, alright, I’m getting paid, but really I’m getting paid for my work, but it’s supporting the household expenses in these ways, they get some real good visibility about how money works and what it costs to live and what it costs to do some of the things they want to do. And that education is just invaluable.

Michael Port (27:33):

Yes. And for example, Ruby went to sleepaway camp last year for the first time she loved it. She wants to go back this year and instead of four weeks, she wants to do six weeks. Well, that’s an additional expense.

Matt Rzekpa (27:43):

Yep.

Michael Port (27:44):

And camp is not cheap. So she then saves in her budget each month for camp. So she’s been saving since camp ended and the money that she earns through the business gets saved and allocated- the zero base budgeting, give every dollar a job. She’s giving a job to those dollars to save for her camp, which you know, will then and be paid for from that money. So it’s a great opportunity for us. It’s a great learning opportunity for the kids. Well, I would not know how to do that if it wasn’t for you. That’s for sure.

Matt Rzekpa (28:14):

Super cool stuff. Love it.

Michael Port (28:15):

Yeah. Alright. So let’s talk about bank account structures because bank account structures influence how you budget. It influences how money flows and it also influences how you save. Most people have a checking account. They might have a savings account. They might have business checking accounts and personal checking accounts. So what are my options when it comes to setting up a bank account for the business and what are my options when it comes to setting up bank accounts for my personal money?

Matt Rzekpa (28:46):

You actually have a lot of different options. Your bank might be the one dictating where you start. So this is the only tricky part when it comes to bank accounts and bank fees and how many different fees a bank may charge based on a number of accounts. I’m a huge, huge fan of multiple bank accounts, both in the business and personal structure. Again, the budgeting concept of giving every dollar a home, again, based on profit first mentality, I want to have bank accounts that have specific jobs and I’m transferring money to those accounts with direct intention of where those monies are gonna go. Because then your money is moving and working for you behind the based on a budget you set up at the beginning of the year. And it’s easy to see if you’re on or off track if you have some of that automation in play. Additionally, the banks often have automatic transfer features for multiple accounts so that you can easily move money to the various accounts that you might need your money to be in. When it comes time to pay, say your taxes.

Michael Port (29:48):

You mentioned Profit First. I just wanna highlight that. So Profit First is a book that’s written by our good friend and great friend of HPS, Mike Michalowicz. He is a dear, dear, dear human. And I think that’s one of the best books I’ve ever seen on accounting. And it’s really quite simple. And his co-author is AJ Harper. Then AJ Harper is our Head Writing Coach. So we’re all very intimately connected here. Tell me a little bit more about the Profit First methodology, as far as you understand it.

Matt Rzekpa (30:20):

Yes. Huge fan. Love what it offers, love, what it teaches. It relates so closely to a lot of business owners who don’t have any background in finance or money and can allow you a system to track things without having to get deep in the weeds as an accountant. And that’s, again, information is power. Whether it’s your information or, or information that others are trying to get from you. If you understand how your flow of funds are working in your business, then you can start to make decisions on how to change something. You know, a common theme for someone who’s starting a business is maybe they’re in a corporate job and they want to go start this company because they don’t want to be in a corporate job anymore. And then they get into this new venture as a small business owner, or sometimes referred to as a self-employed business owner, and it’s not working or functioning how they thought.

Matt Rzekpa (31:10):

And they kind of get lost in where to go next, because business is happening. Duties are there. Responsibilities are there. And the money’s not. And the whole reason for going out on your own and starting a business or taking that leap is to have the extra money and have the freedom. And don’t let that new venture control you. You have to control it. In Profit First, if you’re struggling with any of those things is just such a great roadmap on how to start that process. And then from a budgeting perspective, once you do something like Profit First, you can really put it into overdrive because you’re gonna have visibility on how all of that will work.

Michael Port (31:46):

I’m glad you said that because what it makes me think of is that the Profit First methodology to me is a kind of a macro approach to budgeting for your business. And then when you use a program like QuickBooks or YNAB, then you’re getting into a more micro approach. So for example, in your, your business, you could have one business checking account and then use a program like YNAB to give every dollar a job that’s in that account. But most business owners aren’t doing that kind of micro budgeting. And so what Profit First does is it helps people get really a leg up or a handle on where the money is flowing. So we do both of these things in fact. For example, we have what we call an operating account. That’s where our money flows in. Now you might have a separate account where all the money flows in, then you have money flow into your operating account.

Michael Port (32:36):

That’s not how we do it. Again, there isn’t one way to do it. People can do it different ways, but we call that the operating account. But then immediately money flows out of there into the payroll account because I’ve never missed a payroll in my entire career. I would never make a payroll a day late. There’s one thing you cannot ever do as a business owner is miss payments to the people that are working for you. Full stop. This is just it.

Matt Rzekpa (32:59):

Correct.

Michael Port (32:59):

So we know exactly what our payroll is, each pay period. So that money automatically is siphon out of the operating account, into the payroll account. Then we know how much we’re saving for taxes each month to pay quarterly. So that amount of money is siphon out of the operating account into a tax account. We then also a profit account. So we’re siphon a percentage of money out of that operating account into the profit account. Although profit has been lower since the hurricane took our business and we have to spend so much money to rebuild again. And same thing during COVID. This is why Mike says “profit first.” You gotta make sure that you are first putting money into the profit account, because if you’ve got all this money left over in the operating account, well, you just might use it.

Matt Rzekpa (33:45):

Yeah.

Michael Port (33:45):

But if you take it out, you go, okay, well now this smaller amount is what I have to work with to operate the company. So do I have money to invest in this new initiative or not? And if you don’t know, if you do or not, you might get yourself into trouble. And we have a number of other accounts as well that we use for sort of segregating those funds. I think it’s just a great, simple way to start because you can do it pretty quickly, even before you start setting up any other of these really micro type of budgeting software processes.

Matt Rzekpa (34:14):

Yeah. Taking action is the biggest component of a lot of what we’re talking about here today. Mike does an a amazing job of sharing some of what he has gone through as an entrepreneur and business owner and where he’s been, the highs and lows. And it’s so easy to relate cuz you kind of get stuck in this low and then you don’t take action and Profit First gives you the power and the confidence to do something and do it easily. So it’s not gonna be a long drawn out accounting class and figuring out out how to do this stuff. It’s simple percentages, simple bank accounts. You can pick your structure as to the number of accounts and then some automation starts happening and you have some accountability to see if your profit account actually has profit in it still. And if profit’s the goal, we want money in our profit account.

AD BREAK (34:59):

Fantastic. I think this is a perfect time for a break. This episode of Steal the Show with Michael Port is brought to you by HPS CORE, one of our signature programs at my company, Heroic Public Speaking. My wife, Amy and I have spoken at conferences and events around the world. Even before we started HPS, we’d meet hundreds of speakers and we’d realized that most of them, even the truly great ones, were to a large degree winging it. So we developed HPS CORE to introduce speakers to a dependable, repeatable creative process so that they don’t have to wing it anymore. HPS CORE is a completely free training that we host once a month or so for speakers at our headquarters in Lambertville, New Jersey. We spend two full days with students introducing them to our curriculum and teaching them about performance, stagecraft, storytelling, and content development in a way that they’ve likely never experienced before. Typically HPS CORE is by nomination only, meaning that we only host students who’ve been nominated by HPS Alumni or friends of HPS, but we do allocate 5% of spots in HPS CORE to people who haven’t been nominated, but still deserve to get access to our training for free. Listeners of this podcast can learn more about HPS CORE and apply directly by going to HeroicPublicSpeaking.com/CORE. HeroicPublicSpeaking.com/CORE.

Michael Port (36:33):

Now let’s talk about accounting because accounting and budgeting are not exactly the same things. Are they, Matt?

Matt Rzekpa (36:41):

They are not. The accounting component is then tracking all the stuff that we were hoping was gonna happen. We actually have to see, okay, what actually happened. It used to be a traditional historic look. Okay, it’s now November or October, whatever month it is, we need to look back at the previous month. Accounting is now happening in a more realtime component. And if it’s not, that’s probably the first thing you should look at because data and software and technology today allows accounting to happen realtime. And that’s, what’s gonna help you make better decisions as a business owner if you’ve got relevant data. A lot of the old school of approaches with accounting was alright, well, I just got my financial statements here this month for two months ago. Well, yeah, that’s good information to have, but it’s two months ago and now I’m onto something new. So you wanna get into the more realtime accounting world, if you can, and then your budget is gonna overlay and show you, alright. Our actual performance was X, our budget was Y and how did we do.

Michael Port (37:41):

So do we need to go through accounting software again? I mean, you mentioned QuickBooks earlier as the gold standard for business accounting, at least for small businesses. Is there anything else you wanna add on that before we go into how to do your accounting?

Matt Rzekpa (37:55):

Real quick, add, QuickBooks, isn’t the only option. So again, depending on your size and your budget for accounting software, as we talked about budgeting, you want to know what it’s gonna cost and how much you’re gonna spend. There are other great options out there. My thing would be to focus on something cloud based because that’s where you’re gonna gain efficiencies with the technologies that exist today, for how all the different cloud based companies communicate. That data can be shared and you can gain and save time, which is a big factor of how you keep track of all your accounting.

Michael Port (38:27):

Okay. So let’s talk about cash basis versus accrual basis accounting. There are important differences between the two and I think it’s critical that everybody understands what they are. So can you address both cash basis and accrual basis accounting?

Matt Rzekpa (38:41):

Yes. It is two sets of books. It’s the joke about, oh, I don’t have two sets of books because the government’s gonna come after me. But there are many areas of accounting that you actually track what we call book basis and tax basis. For accrual and cash, it’s really the methodology around what’s happening in your business. Accrual basis is tracking what’s happening month to month based on when something occurred, not when something was paid or received. Accrual basis is very concerned with, alright, I went out and I signed a gig this month for a hundred grand. Well in the accrual basis world that occurred this month, but I haven’t gotten paid yet. I want to track that because that can then go into my budget for all of the gig expenses related to that contract. And that comes into the whole budgeting component and it’s income in the year that I signed the gig or the month that I signed the gig.

Matt Rzekpa (39:36):

On the cash basis though, let’s say I signed that gig in October, but I don’t get paid until February, that’s an extremely important thing to understand and know when working around tax planning because on the cash basis, when I get paid in February, then it is reportable in income. Where when I sign the gig in October, it was reportable on those financial statements then, and there’s a major difference cuz you don’t want to pay taxes on money you haven’t yet received unless you have to. There are a few structures for other outside organizations where accrual basis is required. We won’t get into that here, but do know there’s a lot of complexity between the two. But a basic understanding is accrual is when something occurs, cash is when something is actually paid or actually received.

Michael Port (40:20):

For example, you might have a loss on, say a cash basis, a P&L for a month, but you actually may be in the black on your accrual accounting for that month.

Matt Rzekpa (40:32):

Correct. And that brings up a separate cash flow component to say, okay, we lost money on a cash basis. This is why the budget is so important. You want to know, alright, how much shortfall? Let’s say we had a loss of $20,000. Well, we may have expenses that still need to get paid, but on the accrual basis, we’re waiting on clients to pay us. So we have to figure out, okay, how do we structure and pay our bills? It’s not that we’re not profitable. We’re just waiting for cash to come in the door so we can pay the rest of those bills.

Michael Port (41:03):

So let me see if I can re-articulate what you said. Tell me if this is accurate and if it’s not fix it. So a cash basis, Profit and Loss statement tells me what cash came in and what cash went out. Accurate?

Matt Rzekpa (41:18):

Accurate.

Michael Port (41:19):

Okay. On an accrual basis, Profit and Loss statement, it tells me what revenue I’ve booked and what expenses I have paid that month?

Matt Rzekpa (41:30):

Or what expenses I owe still.

Michael Port (41:33):

Right? Yes.

Matt Rzekpa (41:33):

Could have been paid. So a lot of times the focus is on P&L only, profit loss. Did we make money when you start talking about accrual accounting, it’s irrelevant to look at a P&L without looking at the balance sheet because the balance sheet is gonna tell you a lot of information because you’re reporting it when it’s booked, not necessarily when it’s paid. You may also have booked a bunch of expenses that haven’t been paid, saying, alright, if this gig happens, we know we’re gonna have to have all this money going out the door. And our net profit from that gig is gonna be X. So the P&L and the balance sheet become extremely important tools to each other when we’re talking accrual basis.

Michael Port (42:14):

So for example, one of the things that our students get when they do HPS GRAD with us is a highly produced trailer of their keynote that we shoot with them at the end of their training. And we have to pay our filmmakers for that. But when somebody enrolls in HPS GRAD, it will be about seven or eight months before they actually do those video., You know, before they shoot them.

Matt Rzekpa (42:41):

Yep.

Michael Port (42:42):

So if we are not carving out of each sale, that we’re making a certain amount of money to pay for the making of that video, and saving it, then we’re gonna end up over a rock. When we get there, be like, wait, we need $90,000 right now to pay for this set of Done-for-You videos. But all of those expenses that are to be paid out will get tracked on an accrual basis, correct?

Matt Rzekpa (43:07):

Correct. You’re gonna have an accounts payable listing that shows any bills that aren’t yet paid. And then you’re gonna have an accounts receivable listing that shows any customers who haven’t yet paid. In understanding that relationship for when your customers are gonna pay you and how you turn around and pay those expenses. Hopefully your receivables are always tracking higher than your payables. If they’re not, then there might be a core problem in your pricing for whatever it is that you’re selling or your speaking gigs. So your receivables and payables are gonna give you a lot of information on the accrual basis.

Michael Port (43:39):

Okay. So we mentioned P&L we mentioned balance sheet and we even mentioned cash flow. So I think we should probably dive into those just a little bit more just to make sure that everybody’s clear on what a P&L is, a profit and loss statement, what a balance sheet is and what it’s for, and then of course, what cashflow actually means. So could you go through those three for us?

Matt Rzekpa (43:59):

Absolutely. P&L also referred to as income statement, P&L stands for profit and loss. The main thing to remember for a P&L is it’s for a specific period of time. It can be for a week. It can be for a month. It can be for a quarter. It’s typically not longer than a calendar year or 12 month period. So you’re gonna track what income came in for that period of time. What expenses went out for that period of time and whether or not you had income or loss after those revenues and expenses. That is significantly different than the balance sheet. The balance sheet and P&L interact, however, the balance sheet is only as of a specific date in time. So if you ran a balance sheet as of December 31st, what it’s gonna do is it’s gonna tell you the values in the relative balance sheet accounts, as of that date. Then you could also run a balance sheet for September 30th or June 30th, but you’re never gonna run a balance sheet from June 30th to December 31st, because it’s only a snapshot in time.

Matt Rzekpa (45:03):

And if you think about that from a checking account perspective, if you ran the balance sheet today and your checking account had $10,000 in it, and then you ran a balance sheet three months ago, and your checking account had a hundred thousand dollars in it, the only thing it’s gonna tell you is you have $90,000 less. If you want to track what happened, you’ve gotta look over to the P&L and get into a little bit of the cash flow of what’s going on in the company. But a balance sheet is a snapshot in time. P&L is for a period of time that you select usually not longer in 12 months at a time. And then cash flow is really the secret sauce, so to speak, for where all your cash went. It can get really complicated in the accounting world for a true traditional financial statement.

Matt Rzekpa (45:45):

You’re typically gonna start with your income and then there’s gonna be all of these adjustments that get you down to your net cash that’s left over. In an accrual basis world it’s very possible to have a high amount of profit and not a lot of cash. That’s something business owners that are accrual basis deal with on a regular basis because of timing and how everything gets paid. You just don’t always know where your cash is. So having good accrual procedures is critical, because you need to make sure you’re still profitable. And then cash flow also gets thrown around a lot in terms of the industry. Cash flow from a general perspective is how much actual cash do I have flowing into my accounts. The cash flow statement is a formal report that breaks down all the details and differences between your net profit and your actual cash produced by that profit.

Michael Port (46:34):

I mentioned earlier that Amy and I do our budget breakfasts weekly, which is not necessary. We could do them monthly. We just like doing it weekly for a variety of reasons. And then in the business, our Director of Finance presents me with profit and loss statements, balance sheets, etc, monthly. So what frequency do you generally recommend people report on P&L, review them, report on the balance sheet, review them? What do you think works best?

Matt Rzekpa (47:05):

I’m a fan of monthly. Again, everything will always depend on size and complexity of the organization and consistency for that matter. The more consistent your organization is from its results- how much revenue is coming in each month and what we have in related expenses. If those all stay pretty consistent, you might be able to do a quarterly review because you just wanna make sure nothing has changed substantially. If you have a lot of variability going on in your business, I think the more frequent you can meet to review those reports and your cash and your cash flow, it helps you stay on top of managing that variability successfully.

Michael Port (47:42):

We’re gonna wrap up shortly, but I just wanna get off at the rest stop and try something a little different before we do. I remember at one point you told me that I needed to keep receipts under a certain amount of money. So if we went out to a meal to meet and to write on it, what it was for who was there, etc. And I remember saying, well, yeah, but I got credit card statements. Why do I need to keep this silly piece of paper? Can’t I just use my credit card if I ever get audited? And you said, no!

Matt Rzekpa (48:12):

No.

Michael Port (48:12):

So let’s just take a quick tour down, like, what documents do you need to keep and then how to keep them.

Matt Rzekpa (48:19):

Yes.

Michael Port (48:19):

What receipts do business owners actually need to save? And for how long, etc.

Matt Rzekpa (48:24):

In the world of meals and entertainment, it is extremely critical that you have a receipt that shows what was the activity, what were the details of the activity. So the credit card statement only shows the amount and the vendor name. And some of this has changed. So entertainment a couple years ago, got disallowed for deduction. Meals are still deductible and then meals now because of the pandemic, there’s some special rules where you can get a hundred percent of meals as a deduction to help support restaurants opening back up and all that good stuff. But you always have to have a transaction receipt from the original sale that shows what you bought, not just the amount of what you bought. And then you need to keep track of who it was and why it was business. They wanna make sure you’re not just siphoning personal expenses or personal preferences through a business.

Matt Rzekpa (49:11):

You want to make sure you say, okay, well, this person’s important to me for this reason. And how could it impact my business by buying them dinner or whatever it was that you were there. In general documentation you always want to have a vendor receipt from paying a business expense because there’s a couple auditors out there we’ve encountered their standard rule of operation in an audit, no documentation, no deduction. And it’s that simple for them. They don’t think about anything else. If you don’t have a receipt of what you spent or why you spent it, they’re gonna disallow your deduction. So it’s critical. And digital is okay. So the old shoebox world, I can tell you myself and many other accountants and CPAs I know they don’t like the shoebox.

Michael Port (49:53):

Oh really? I wonder why. Yeah. Right. I love when people gimme a box of a bunch of random pieces of paper and say, you figure it out.

Matt Rzekpa (50:00):

I can count like 10 movies where they make that like the norm. Like, oh, well I have to go see my accountant. So here’s my box of receipts. And like, here, go. It’s not optimal for anybody cuz you’re playing the lottery there. What is result? We don’t even know what our result is there. But yeah, documentation’s extremely important from an auditing perspective. So if you’re in question in today’s world, you can save everything digitally. So just save it. If you determine later, you don’t need it, you can get rid of it.

Michael Port (50:25):

Yeah. It’s great. Are there any apps that you recommend for people to use?

Matt Rzekpa (50:30):

Lots of great apps out there, some that intertwine directly with the financial institutions. American Express is one of those that you can put receipts right in there. We use a great software package called DEXT now. D-E-X-T. It used to be called Receipt Bank. I like that name a lot better, but of course they got bought out. So then they change names. But it interacts directly with QuickBooks. So we can do some cool things to save some time on how to keep track of all the accounting. Again, lots of different apps out there. If you have an online based software, go to their app store and you’ll probably find some great options.

Michael Port (51:02):

Okay. So here’s what I want listeners to do in the review section of the podcast, wherever you’re listening to the podcast. Just go ahead and put, what are your key takeaways from this episode? Like what was helpful for you? What did you like? What did you learn? What did you discover? What was revealed? What do you find valuable? Just go ahead and put it into the review section. Then it helps build some reviews and it enables people to see the value that you’ve been getting from the episodes.

Michael Port (51:27):

So Matt, what are we covering next week?

Matt Rzekpa (51:30):

Next week, we’re gonna be talking about increasing your cash flow through savings and efficiency, also known as keeping more of your money.

Michael Port (51:40):

And that sounds very good to me. Let’s see, we gotta give everybody one thing to do going outta this episode, you know, everybody’s in a different place. Not everybody’s in the exact same place, but what I would recommend is just think about what is the right next step for you? Is it reorganizing your bank accounts? Is it setting up one of these budgeting softwares? Is it learning a little bit more about how to read a P&L? Is it hiring a bookkeeper to help you with these business functions that you’ve been doing, but not doing well? What is the right next step for you? Because if you leave each one of these episodes with the right next step, it’s gonna keep moving you forward on your journey. So thanks for listening and we’ll see you next week.

The post S4E3 Setting up Your Business Operations, Personal Operations, and Bookkeeping for Financial Success appeared first on Steal the Show with Michael Port.

On this episode, we decode the previously impenetrable ancient language known as “business jargon.” Like your own personal Rosetta Stone, we plunge headfirst into the deliberately confusing language of business and break it down for you piece by piece.

This episode is a goldmine of key definitions, financial information, and easy-to-remember interpretations that will make money and business much easier to wrap your head around. (Plus, even if you can’t remember all of it, that’s okay! It’s a podcast, so it’ll always be here for you to come back and listen for a refresher.)

How you can Steal the Show

• Know that business jargon is designed to be confusing…but it doesn’t have to be.
• Recognize that you DO have what it takes to understand business jargon.
• Learn the five most common and essential types of business entities.
• Understand key tax terms and what they mean for your business.
• Make sense of investing accounting and terminology to get a clearer picture of your own finances.

Listen to more episodes of Steal the Show from this season and previous ones at https://stealtheshow.com/podcast/. 

Learn more about Michael’s public speaking training company, Heroic Public Speaking, at https://heroicpublicspeaking.com/.

Learn more about Matt’s specialized financial services firm, Valley Oak, at https://www.valleyoakcpa.com/.

Transcript

Michael Port (00:05):

Hello, and welcome to Steal the Show. I’m your host, Michael Port. This season’s theme is Speakers with Money. I’m joined by my very good friend, Matt Rzepka, the owner and chief wealth strategist at Valley Oak, a specialized financial services firm. Together we’re exploring some of the most common and daunting challenges facing speakers, entrepreneurs, and small business owners When it comes to finance. Now to be crystal clear, I have no conflicts of interest here. I don’t stand to make any money at all from you following any of the advice you hear on this podcast. My company is Heroic Public Speaking, which I co-founded with my wife, Amy Port. We’re a public speaking institution based in Lambertville, New Jersey and we provide world class training to aspiring and working professional speakers around the world. I don’t sell anything related to financial services. Matt, however, does, and you are welcome to hire him. I will not be compensated in any way if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about business and personal finance. That’s it.

Michael Port (01:14):

Today we’re covering one topic that will help you unlock all the others, How to Speak the Secret Language of Business Jargon. Let’s get right to it. So, Matt, what is business jargon?

Matt Rzepka (01:31):

Business jargon is the language that’s intended to confuse you and make you think you don’t know what you’re doing, especially if you don’t have an accounting or finance degree. You know, business owners and entrepreneurs all are really great at what they do. And then they get into finance or money or tax, and they just get deer in the headlights very, very quickly. So the jargon is meant to confuse you. And we’re gonna unpack that here today.

Michael Port (01:53):

Right on. You know, for years I found business jargon to be totally impenetrable. Now I may be an entrepreneur, but I’m a creative artist first and foremost. Aa performer and author. And these things just don’t come naturally to me. And I’m sure that’s the case for many of our listeners. But one day I was talking with a supposed wealth manager and I realized I was nodding my head in agreement as if I understood what he was talking about. And as a result, I was about to give ’em a big chunk of money to manage. And fortunately in that moment I excused myself and I didn’t return. And I think that happens to a lot of people. Do you hear that, Matt?

Matt Rzepka (02:36):

I hear it all the time. Everybody wants to get a plan. Everybody wants to take action and they can get frozen in confusion. So you sit there and you don’t don’t want to say, “Hey, you just said something and I have no idea what you’re talking about. So break it down differently or give me some new language, but I’ve got money here. I want to do something with it and I want understand what’s next for me and how we can take that next step,” instead of just walking out the door and never returning.

Michael Port (03:01):

Yeah. Right on. So what do you wanna start with Matt?

Michael Port (03:04):

Let’s start with an important business fundamental: the different types of business entities when you first decide to go into business. There are five common types of entities you’ll most likely choose from. And today we’re gonna see if Michael can guess all of them. Michael, are you ready?

Michael Port (03:19):

Yeah. Okay. I’m ready.

Matt Rzepka (03:20):

Go for it.

Michael Port (03:21):

Okay. How about mom and pop shop? [BUZZER SOUND]
Sidewalk lemonade stands? [BUZZER SOUND]
OnlyFans? [BUZZER SOUND]
Instagram fitness model? [BUZZER SOUND]
Guy who sends random messages on LinkedIn? [BUZZER SOUND]
Multi-level marketing, pyramid scheme, Ponzi scheme? [BUZZER SOUND] No. So no, those are not what you’re looking for, Matt.?

Matt Rzepka (03:37):

Um, where are you going with this, Michael?

Michael Port (03:40):

Okay. But I actually do know this and I’m gonna give you the correct answers now, I promise. Here you go. Number one, schedule C, which is a sole proprietor. [DING] Number two, LLCs. [DING] Number three, S corporations. [DING] Number four, C corporations. [DING] And number five, partnerships. [DING]

Matt Rzepka (03:59):

Well done there, Michael, I was really getting kind of nervous as to where we were going.

Michael Port (04:04):

You can see I’ve been listening to you all these years, but let’s provide some context on the five types of business entities, why we have to have so many and they have to have sort of similar names, but very different names. I’m not sure we should even get into it because that’s just the way it is. So let’s start with the schedule C ,also known as a sole proprietorship. So what are its characteristics?

Matt Rzepka (04:27):

Schedule C is the simplest way to file your business because it’s just a one to two page form that a accompanies your personal tax return. It can be intermingled with all of your other finances. It’s basically the wild, wild west. You can do whatever, but you have to pick and choose your income and expenses to then report and pay taxes on.

Michael Port (04:46):

So what are its advantages and what are its disadvantages?

Matt Rzepka (04:50):

The advantages of a schedule C are really its simplicity. You really don’t have any rules. Your only rules are to make sure you pick out your income that you’re supposed to report and pay taxes on. And then you pick out your expenses. But again, any checkbook doesn’t matter, you can mix and mingle with your personal finances. It’s basically a free for all. The disadvantages are really how it’s taxed. And then, because it’s a free for all, it’s also one of the most highly audited types of tax forms because they have the ability to come in and open up the whole book. And it gives you a little bit of a disadvantage there.

Michael Port (05:24):

So what about an LLC? What are its characteristics?

Matt Rzepka (05:30):

An LLC is the most interesting of the five because it’s actually a legal structure only. The LLC can take any of the other four forms, so you can be a sole proprietor, you can be a partnership, you can be a corporation and you can be an S corporation all as an LLC. One of those things that a lot of people don’t realize unless somebody breaks it down and explains it for ’em. I always tell a not so funny joke. If you’re walking into a bar and you want to talk about an LLC, you can get people real confused real quick. But an LLC is a legal structure only. And then you, as the taxpayer have to choose, which of those other four structures you want to be.

Michael Port (06:08):

I remember when I learned that I found that so strange and so confusing. You know, when you have an LLC, but it can be taxed as a C Corp, an S Corp, a sole proprietorship. I mean, come on. Like, did they have to make it so confusing?

Matt Rzepka (06:25):

Yeah. I often wonder where and what room did they come up with these names and how they come together and why the legislators even come up with some of this stuff. But the LLC is a great legal vehicle, and then tax wise, you just have to be confused. You have to remember I’m an LLC taxed as, and then know what the answer to that question is.

Michael Port (06:45):

Yeah. So an LLC stands for limited liability corporation. So what are its advantages and what are its disadvantages?

Matt Rzepka (06:54):

The advantages of the LLC we’ve talked about a little bit can take any of the four tax forms that you want with some simple paperwork and filing with the IRS. Additionally, the legal structure of an LLC is designed to be easier to manage. So what do I mean by that? A corporation has to go through and do annual meetings and keep documentation to keep the corporate structure in place where we with an LLC, you don’t have to do that. You are only, it’s an option to do that. So it makes it easier to manage. And then again, the LLC can have all kinds of different structures and rules and setups in what’s called an operating agreement. The operating agreement is just simply the rule book for the company. So you sit down with your attorney and you write the rule book the way that you want, and then you’re off and running once you make your tax structure election.

Michael Port (07:42):

So let’s do the S corporation now.

Matt Rzepka (07:45):

The S corporation, another great vehicle. Again, we can be an LLC tax as an S corporation, or we can be a corporation in the state that you live. So all of this stuff happens by registering with the state in you live. Or if you’re registering outside of your state, there’s some other requirements that come with that. But I would first become a C corporation and then file an S corporation election. Now, if we want to get fancy and talk about internal revenue code, there’s a form number, and we can go down that path, but we’re gonna skip that for now. But the characteristics are, it’s a separate and distinct entity from you as a person or your personal household. You want it to be personal, separate from business because you get some liability protection. And then there’s some tax benefits that come with that as well.

Michael Port (08:33):

And then what about a C corporation? What are its characteristics,

Matt Rzepka (08:36):

Characteristics of a C versus an S are very similar. It’s only that S election that didn’t happen. And also a C corporation pays its own tax. So you don’t have to pay personal income taxes on what happens inside of a C corporation. The corporation itself pays taxes. So that is again, very distinctly different from an S Corp where an S Corp, it files its own return. But the income from that S corporation all flows through to your personal taxes and you have to pay personal income tax on the business income.

Michael Port (09:08):

Mm. People probably have heard the term pass through entity.

Matt Rzepka (09:12):

Yes.

Michael Port (09:13):

An S Corp is a pass through entity. So what are the advantages of a C Corp? And what are the disadvantages? I mean, it seems like you mentioned, well, you gotta pay taxes on the C Corp as well as then of course, taxes on any profit that you make in that corporation. So that seems like it could be a disadvantage. You might be taxed twice, you know, the double taxation issue, but what are the advantages of C Corp

Matt Rzepka (09:35):

As with anything in world of tax, you have to look at the date of these episodes and you have to look at the laws that are applicable at that time. One of the distinct advantages right now with how C corporations can come into play, is it now currently has a flat income tax rate of 21% on all income. It has not always been that way. So prior to that, there was different rules and you don’t have to worry about that, cuz we’re not going back in history, but if you’re ever looking at a C Corp, you wanna make sure you understand what the current rules are and whether or not the government has changed those rules. So that flat 21% is one of the big advantages because it’s lower than the top rate for personal income tax. Personal income is currently at 37%. So there’s some strategy that can come into play from how you have your businesses structured and what taxes you do and don’t have to pay at those different rates.

Michael Port (10:26):

For example, prior to 2017, we filed as an S corporation, but then when the tax code changed, I think it was 2017. We, uh, changed our elective and filed as a C Corp. And, uh, we may change it again in the future if the tax code changes again.

Matt Rzepka (10:43):

Correct. Yes. So the tax laws that changed between 2017 and 2018 is when that rate changed. And we were able to take advantage of how you’re structured to look at that personal to you. You know, that’s the other thing to always remember everything we talk about out here today and on the whole season, you want to get personalized advice. You want to get your goals and your intentions clear, and then you can look at all right, what structure, what entity, how does some of this work for me? Because unfortunately, every situation is a little bit different and you can learn how to take the best of both worlds and make it the best it can be for you.

Michael Port (11:18):

Yeah. There’s a lot that I do myself when it comes to investing. But when it comes to the legal entities and tax filing elective, that’s not something I choose myself. That’s something that I do with you because you do need to rely on somebody who really is an expert and understands all of the implications of the choices you make. I think that’s important. I just generally don’t recommend somebody just hops onto Legal Zoom and sets up their company there, following the prompts. I really do think it’s important to get really substantial advice from somebody who does actually know what they’re doing in this particular area.

Michael Port (11:57):

So let’s look at partnerships, that’s our fifth type of entity. So what are its characteristics?

Matt Rzepka (12:02):

Partnerships, similar to S corps, are what they call pass through entities. So there’s no corporate level federal income tax, typically. And again, in the world of tax code, there’s always exceptions to rules. So you have to be careful on definites to say, well, this is never going to happen. There’s always a certain situation that might be unique to 1% of the population where they might have to file and pay tax at the business level. But generally all partnerships file their own tax return, the income or loss from that tax return passes through to your personal return. And you have to do the calculations at your 1040 level at the personal return.

Michael Port (12:38):

Okay. So what do you think the advantages are and what do you think the disadvantages are?

Matt Rzepka (12:42):

Partnerships depend on the venture in terms of advantages versus disadvantages. What I see a lot is you have an LLC taxed as a partnership that is a real estate venture. That’s the most common use of partnerships that I see. There are certainly other ways to use partnerships. Another common way would be if you have multiple partners or owners outside of your family, in a business, you can use some unique structure there and get some great tax benefits by how you structure it. So it’s really a great way to grow a company and have some unique agreements in place to protect you and what you want to accomplish.

Michael Port (13:19):

Now, if I’m a speaker and like most speakers, I employ only myself, which type of entity and tax filing status is probably right for me?

Matt Rzepka (13:31):

In the professional speaking field, you can start one way and transition to another entity. So if you’re just starting out, you may wanna start as an LLC sole proprietor, because if you think about it, it’s easy. It’s just a schedule on your existing income tax. And there’s not a lot of administrative costs to be an LLC taxed as a sole proprietor. Once you become more profitable, you likely to transition to an S corporation, an LLC taxed, an S corporation or an S corporation directly. And there’s a breakeven point on some of the administrative costs that come into play with a decision like that. So you wanna make sure you understand that because it’s never business smart to spend money on something that isn’t saving you more than it costs.

Michael Port (14:14):

So what circumstances would I need to experience in order to consider a different type of entity? To move from, say that sole proprietorship into another one of the entities, what would have to happen?

Matt Rzepka (14:26):

Income growth is the main thing that’s gonna drive that equation. So if you are doing better in your business, growing your business, having more income, being more profitable, you’re gonna want to run the numbers to say, okay, what happens if I stay sole proprietor, versus if I make a switch to another entity. And again, most of what happens in the tax world is just a simple math problem: comparing one, answer to another. And if somebody’s not willing to run those numbers for you, I would encourage you to talk to someone who would

Michael Port (14:55):

So let’s get deeper into tax terminology. Okay?

Matt Rzepka (14:59):

Sounds great. Let’s flip the script a little bit. I want to quiz you on tax terminology. I’m looking forward to hitting the buzzer if you get it wrong.

Michael Port (15:08):

Okay. I thought you were my friend, Matt, and advisor by the way, but whatever, I’m up for a challenge.

Matt Rzepka (15:15):

I appreciate it. You know, it’s interesting. I always wanna make sure you’re listening to what I’m saying over the years. So this is my chance to quiz the student so to speak.

Michael Port (15:22):

Okay, here we go. Let’s see.

Matt Rzepka (15:24):

Are you ready?

Michael Port (15:26):

Yes. Well, we’ll see.

Matt Rzepka (15:28):

How about effective tax rate?

Michael Port (15:31):

The effective tax rate for a corporation is the, I think average rate at which its pre-tax profits are taxed. [DING]

Matt Rzepka (15:43):

Yes.

Michael Port (15:44):

Yes.

Matt Rzepka (15:46):

I like it. And that’s true for corporations and individuals.

Michael Port (15:50):

Give me another one.

Matt Rzepka (15:51):

How about, to follow up with, that marginal tax rate.

Michael Port (15:55):

This is an easy one. The marginal tax rate is the tax rate that you pay on an additional dollar of income. So in the US, the federal marginal tax rate for individuals increases as income rises. I learned sometime ago that this is known as a progressive taxation policy and it aims to tax people based on their earnings, you know, with low income earners being taxed at a lower rate and high income earners, taxed at a higher rate. [DING] Yes!

Matt Rzepka (16:25):

Two for two. I like it.

Michael Port (16:27):

Okay. Maybe I should quit my day job. Go into this. All right, what else you got? Bring it on.

Matt Rzepka (16:34):

All right, onto the next one. Tax deduction.

Michael Port (16:37):

Oh, this is easy, cuz I love a tax deduction. Although I always find it funny people who don’t have businesses often will say, well, yeah, so what’s the big deal you spent money on that. You can just get a tax deduction. It’s not that when you get a tax deduction means you don’t have to pay for the thing that it’s free. It’s a reduction in the gross amount on which a tax is calculated. So it reduces taxes by the marginal tax rate for the taxpayers income bracket. Yes? [DING]

Matt Rzepka (17:03):

Correct.

Michael Port (17:03):

Nice.

Matt Rzepka (17:04):

Well done.

Michael Port (17:05):

Alright, come on. Let’s go, bring it on. Keep going.

Matt Rzepka (17:07):

All right, here we go. Itemized deduction.

Michael Port (17:11):

An itemized deduction, I believe, is an expense that can be subtracted from adjusted gross income to reduce your tax bill. And I think that itemized deductions are listed on a Schedule A, is that correct? [DING]

Matt Rzepka (17:27):

That is correct.

Michael Port (17:29):

Is it obvious that I have a need for approval? Okay. What’s next? Bring it on. Let’s go.

Matt Rzepka (17:34):

Capital gains.

Michael Port (17:36):

Easy, easy, easy. Taxes that you pay when you live at the nation’s capital. [BUZZER SOUND]

Matt Rzepka (17:41):

Uh…

Michael Port (17:42):

Wait, wait, wait, let me try again. Let me try again. Capital gains tax is a levy on the profit from an investment that is incurred when the investment is sold. [DING]

Matt Rzepka (17:53):

Now we’re talking.

Michael Port (17:53):

Boom. Okay. What else you got?

Matt Rzepka (17:56):

Ordinary income tax.

Michael Port (17:58):

Oh, that’s easy. That’s a tax that is applied to speakers who are just ordinary. [BUZZER SOUND]

Matt Rzepka (18:03):

Michael. You were doing well for a bit there, but I have to disagree.

Michael Port (18:07):

No, No, no. Hold on. I can get this. Ordinary income is any type of income that is earned by an organization or an individual that is taxable at ordinary rates. It includes, but I don’t think it’s limited to wages, salaries, tips, bonuses, royalties, and interest, income and commissions, I think.

Matt Rzepka (18:27):

Correct. You’ve recovered well.

Michael Port (18:30):

Thank you. Okay. What else you got?

Matt Rzepka (18:33):

Earned income.

Michael Port (18:35):

Okay. See, this is why this stuff can be so frustrating to learn because isn’t earned income pretty much the same thing as ordinary income? I understand earned income to include money made from employment. Like I said, wages, salaries, bonuses, commissions, whatever. And so wouldn’t that make earned income and ordinary income the same?

Matt Rzepka (18:56):

You are correct.

New Speaker (18:57):

Yes.

Matt Rzepka (18:58):

And of course like everything in the tax code, there’s exceptions and quirks and new things. So earned income and ordinary income are the same with one exception.

Michael Port (19:09):

I knew there was a, but coming. I knew it. I heard it.

Matt Rzepka (19:11):

Of course.

Michael Port (19:12):

Yeah.

Matt Rzepka (19:12):

Earned income is then the income that you also pay either payroll taxes or what they call self-employment income tax on that income as well because you’re putting your time, effort and energy directly into the activity that is making you money. So you have to pay social security and Medicare taxes in addition to ordinary federal taxes as well. And depending on the state you live in, depends on whether you pay state taxes. So earned income is one of the highest taxed incomes that you can have.

Michael Port (19:42):

Anybody ever tell you that you’re kind of like a tax geek?

Matt Rzepka (19:46):

All the time. And I take pride in that and I also take pride in it’s IRC 7296. I don’t do that kind of stuff. I definitely love this. My brain has always just consumed the data and then I process it and I’m able to talk back in a way that hopefully people can follow. But yeah, I love it. I eat it up. Breakfast, lunch and dinner. That’s my life.

Michael Port (20:09):

Well, you know, I think that’s probably why you have such a big head. You obviously are only hearing Matt right now. If you’ve ever seen him, Matt’s a big guy. Matt was actually a college football player and uh, he’s got a large head and I just think his brain must be humongous in there. And that’s what you need to understand all this tax code, I think.

Michael Port (20:28):

All right. So what’s next? What do you got?

Matt Rzepka (20:30):

Passive income.

Michael Port (20:32):

Oh, that’s my favorite type of income because it’s earnings that are derived from any enterprise in which a person is not actively involved like rental properties or licensing. Absolutely. My favorite type of income. [DING]

Matt Rzepka (20:47):

Correct. You’re doing good.

Michael Port (20:49):

That’s an easy one though.

Matt Rzepka (20:51):

You ready for a tough one?

Michael Port (20:52):

Oh, I don’t know..

Matt Rzepka (20:54):

How about depreciation?

Michael Port (20:57):

Well, I do know this because it always confused me and you taught it to me. So it’s just an accounting method of allocating cost of an asset over its useful life. So it’s used to account for declines and value over time. [DING]

Matt Rzepka (21:13):

Very well done. It is a concept that you hear a lot about, especially in the last 10 years, because the rules for depreciation, you actually have one set of rules for your books, and one set of rules for your tax returns. So they’re different. You know, you hear jokes over the years, about two sets of books. You actually have two sets of depreciation records. One for your books that keep your financial statements and one for your tax returns. So it’s very important to understand the differences between those two. And it’s not something where you’re cooking the books, it’s part of the system and how it works. And then your income tax that you pay is determined by some of the choices you make in that depreciation world. So if you’re not aware of this, make sure you’re asking good questions. So you can be fully informed about how it’s affecting you.

Michael Port (21:58):

Got it.

Matt Rzepka (21:59):

You ready for the next one?

Michael Port (22:01):

Okay. Let’s go.

Matt Rzepka (22:02):

Depreciation recapture.

Michael Port (22:03):

Oy vey. Okay. This, I think I know because we just did a depreciation recapture when our headquarters flooded it’s something to do with having to pay taxes on assets that had been depreciated to offset taxes, right? [DING]

Matt Rzepka (22:19):

Yes. That is correct. You have a new, what they call tax basis, when you depreciate an asset. So your purchase price is one thing. If you’re taking depreciation, it reduces your purchase price over time so that when you either sell or dispose of that asset, the IRS says, Hey, we gave you this great depreciation deduction. Well, we’re gonna grab some of that back in depreciation recapture and tax you a little bit differently. So you have to be prepared for that, or it can be a really big surprise.

Michael Port (22:47):

Okay. What’s next?

Matt Rzepka (22:48):

Tax deferral,

Michael Port (22:50):

Super easy. Income and investment earnings like interest dividends or capital gains that accumulate tax free until the investor takes the profits. So tax deferred investments include things like retirement accounts. [DING]

Matt Rzepka (23:05):

Yes, sir. All right, Michael. Now I’ve got a challenge for you. What is the difference between income tax brackets and corporate tax?

Michael Port (23:14):

Oh, come on. This is way too easy. Well, let’s see. As I mentioned earlier, tax rates rise as income increases. And in fact, I think there are seven federal income tax brackets. Whereas the federal corporate income tax system is flat at 21%, as you mentioned earlier, but companies like Amazon pay no tax due to how our tax system is designed, but feel free to use the highways and bridges and tunnels to deliver our packages. And yes, I still buy most of my things from Amazon. So I guess I’m a total hypocrite, but more importantly, did I get it right?

Matt Rzepka (23:50):

You certainly did. [DING]

Michael Port (23:51):

Thank you very much. Okay. So if listeners can’t remember all this tax info, what’s the most important thing for them to remember from it?

Matt Rzepka (24:00):

You don’t have to worry about knowing everything. I’m the expert. You just wanna walk away from any interaction or any delivery of your tax return, making sure you understand what’s on your form and what tax you paid. One of the favorite questions I ask is, well, why did you do that? And if you don’t know how to answer that question, then you’re not asking enough questions. So you don’t have to remember the terminology, or if somebody gives you terminology, ask for a definition, Hey, I don’t really remember what this is about. You need to give me a little bit more. So I make sure we’re both on the same page, cuz you want to be on the same page with whomever you’re working with.

Michael Port (24:34):

Yeah, absolutely. It’s important to recognize that you may be an expert in your particular area of focus, but it doesn’t mean you have to be an expert in every area of focus. But I do think it’s important to understand what somebody is actually saying so that you can provide context that will help them make better decisions for you. And so you can tell if somebody actually knows what they’re doing or leading you astray. And one of the reasons I wanted to do this podcast is to demystify all of that all in one place. So don’t feel like you have to remember it all right now, just, you know, download the episode, star it, save it, do whatever you need to do so that you’ll always be able to come back and consult it when you need to.

Michael Port (25:16):

So let’s brush up on our accounting terminology. Why does this matter? Can’t I just give all my stuff to an accountant and say, have at it.

Matt Rzepka (25:24):

You certainly can, but you might not get a result that you like. If you’re sweating bullets, after you hand in all your stuff to your account or CPA, that’s usually not gonna deliver results that are gonna be beneficial to you. It just is what it is.

Michael Port (25:39):

Okay. So my brain needs a little bit of a break. So how about I quiz you on accounting terminology? You are after all an accountant.

Matt Rzepka (25:47):

You’re not getting off the hook that easy. How about this? If you get it wrong, I’ll come in and rescue you quickly. Alright Michael, accounting terminology. Are you ready for this one? Cash flow.

Michael Port (25:59):

Oh, that’s easy. When buckets full of money flow right outta my business when our headquarters is totally destroyed by a hurricane and insurance doesn’t cover any of the losses. [BUZZER SOUND]

Matt Rzepka (26:09):

Well sort of, but not exactly. Cash flow is the net flowing of funds in your business that you have available to spend. So you were kind of on the right track, but your situation steered your opinion just a little.

Michael Port (26:25):

Okay. All right. What’s next?

Matt Rzepka (26:27):

EBITDA.

Michael Port (26:29):

Earnings before I tricked the dumb auditor.

Matt Rzepka (26:33):

Close but no cigar. [BUZZER SOUND] Earnings before interest, taxes, depreciation and amortization.

Michael Port (26:41):

That’s Annoying.

Matt Rzepka (26:42):

It is annoying.

Michael Port (26:43):

That’s just an annoying acronym, but okay. What’s next?

Matt Rzepka (26:46):

More annoyance. Adjusted EBITDA.

Michael Port (26:48):

Oh, come on. That’s just an adjusted attempt to trick the dumb auditor. [BUZZER SOUND]

Matt Rzepka (26:53):

Adjusted EBITDA is EB with no ITDA. It’s earnings before the interest, depreciation, taxes and amortization.

Michael Port (27:02):

Alright. That’s fair. I got it.

Matt Rzepka (27:04):

And you wonder why things get confusing in the accounting terminology?

Michael Port (27:08):

Yeah.

Matt Rzepka (27:09):

Gross profit.

Michael Port (27:10):

Oh, that’s when you make so much money that it’s just gross. [BUZZER SOUND]

Matt Rzepka (27:14):

That would be a fun way to define that word. I like that. Gross profit is your revenue minus your direct costs.

Michael Port (27:23):

Okay, no problem. What’s next?

Matt Rzepka (27:25):

Net profit.

Michael Port (27:26):

Oh, that’s easy. A successful tennis player has a lot of net profit.

Matt Rzepka (27:30):

Oh my God. No. Net profit is after you deduct all of your operating expenses from your gross profit.

Michael Port (27:39):

Alright, fine. I’ll try again. What’s next?

Matt Rzepka (27:42):

Income.

Michael Port (27:43):

Oh, come on. That’s another easy one. Really? Matt. These are, I think frankly beneath me, but I’ll humor you nonetheless. Let me put it this way. Most Americans live within their income, even if they have to borrow to do so. [BUZZER SOUND]

Matt Rzepka (27:57):

Michael, this is getting a little embarrassing. Income is the revenue or services or charges from your company that you report at the top of your P & L.

Michael Port (28:08):

Are you sure? I’m not sure about that? But okay, I’ll go with you. What’s next?

Matt Rzepka (28:13):

Gross receipts.

Michael Port (28:14):

Alright, I’ll answer this seriously. I know this one. Gross receipts include amounts received from both operating and non-operating business activities. [DING]

Matt Rzepka (28:24):

Wow. Good job, Michael.

Michael Port (28:26):

Alright.

Matt Rzepka (28:26):

I like it.

Michael Port (28:27):

Good, good, good. I think I’m starting to get the hang of this. Let’s just keep it going cuz I don’t wanna lose this winning streak I think I’m on.

Matt Rzepka (28:32):

Now let’s not get cocky here. I’ve got a tough one for you now. How about the difference between cash basis and accrual basis accounting?

Michael Port (28:41):

Oh, see this I can do, cuz we actually do this. Cash basis accounting recognizes revenues and expenses at the time the cash is received or paid out. And this contrasts with accrual accounting, which recognizes income at the time the revenue is earned and records expenses when liabilities are incurred, regardless of when the cash is received or paid. And at HPS, we do both at the end of each month. Our Director of Finance produces a profit and loss statement for both cash basis and accrual accounting. [DING]

Matt Rzepka (29:16):

Well done. It’s a proud moment for me. We’ve done a lot of time and effort on that. So that was a great answer. Here. You pay taxes on the cash basis typically, but you might report your, your financial statements on the accrual. So you wanna understand those components cuz they impact you immensely. You got another one for you.

Michael Port (29:32):

Okay.

Matt Rzepka (29:33):

Profit margin.

Michael Port (29:35):

Oh well, I can tell you that many of the speeches I’ve seen will only be marginally profitable. [BUZZER SOUND]

Matt Rzepka (29:43):

That was terrible.

Michael Port (29:46):

I agree. It was terrible.

Matt Rzepka (29:48):

Profit margin, similar to gross profit, profit margin can be on an individual product or it can be again your total sales minus your direct cost of producing a product. Not something that speakers are gonna see a lot unless they’re selling goods. In addition to their services. How about accounts receivable?

Michael Port (30:07):

Well, accounts receivable is the amount recorded as being owed by a customer for sales on say credit or on an account. Better? [DING]

Matt Rzepka (30:20):

Yes.

Michael Port (30:22):

Excellent. For extra credit, Can I even do accounts payable?

Matt Rzepka (30:25):

Let’s go for it.

Michael Port (30:27):

It’s the opposite of accounts receivable.

Matt Rzepka (30:29):

Oh man, come on. You can do better than that.

Michael Port (30:33):

Okay. Fine. For real this time. It’s money that is owed by a party, you know, a customer or a partner of some kind and is counted by that party as debt, even though it has not yet been paid. [DING]

Matt Rzepka (30:48):

Correct.

Michael Port (30:49):

Boom.

Matt Rzepka (30:50):

I love throwing all this stuff at you, so much fun.

Michael Port (30:52):

Well, we’ll see how they feel about it. I’m not so sure.

Matt Rzepka (30:56):

Chart of accounts. Can you tell me what the chart of accounts is or does?

Michael Port (31:00):

Yeah, I think so. A chart of accounts is a financial organizational tool that provides a complete listing of every account in the general ledger of a company. And it’s usually broken down into subcategories. [DING]

Matt Rzepka (31:13):

Good job. Well that wraps up this section.

Michael Port (31:16):

Oh, hold on. Not so fast. I’d like to ask you one last question before we move on to investment terminology.

Matt Rzepka (31:23):

Alright. Shoot.

Michael Port (31:24):

What do the IRS, a mugger, and your kids have in common?

Matt Rzepka (31:29):

They all take your money.

Michael Port (31:33):

Yes! Well done.

Matt Rzepka (31:34):

Yes.

Michael Port (31:35):

So Matt, if audiences can’t remember all this tax info, what’s the most important thing for them to remember from it?

Matt Rzepka (31:41):

Remember that you want to have good interaction and communication with whoever you’re working with and if you’re doing it yourself, then you want to do a lot of research. And if you’re finding research that you’re not understanding, try to find a qualified person who can help you understand what it is you’re reading. I highly recommend hiring out regardless of it’s us or someone else, your tax services. With technology and software today, there’s just so much resource that can benefit you in a good open dialogue. And if you hear something you don’t understand, throw your hands up and say, wait a second. I need more information. I wanna understand. Don’t feel embarrassed. And if they make you feel embarrassed than you might have a problem with that relationship.

Michael Port (32:23):

Yeah. And don’t move on until you do understand it.

Matt Rzepka (32:26):

Yes.

Michael Port (32:27):

Okay. Thanks Matt.

AD BREAK (32:30):

At this point, I wanna take a short break and talk about sponsorship. Most podcasts have external sponsors, but this season we wanted to do something different rather than suddenly start reading you ad copy about mattresses or headphones, I wanna tell you a little bit about our company, Heroic Public Speaking and what we do. So this season of Steal the Show will be sponsored by HPS and our program, as well as a few other things I’ve worked on over the years. And this episode in particular is brought to you by Heroic Public Speaking. At HPS, we believe that a speech has the power to change the world and the people in it, including the speaker. My wife, Amy Port, and I founded HPS in 2014. Through our signature programs, HPS CORE, HPS GRAD, and HPS PRO, we teach aspiring and professional speakers how to craft and deliver referable speeches that impress, inspire and transform their audiences. Our students include CEOs and founders, admirals, Navy seals and FBI agents, Olympians, bestselling authors, small business owners, and people leading movements and advance important causes. You might recognize some of our Alumni from earlier episodes of this podcast. We’re located in Lambertville, New Jersey, and we’re considered, by most, to be the premier public speaking training institution in the world. But we just like to call it Hogwarts for speakers. Just like the novice wizards in J.K. Rowling’s classic books, our students come to us with some talent and lots of passion, and we hone their craft so they can perform magic on the stage. You can learn all about HPS, our team, and our events and programming at HeroicPublicSpeaking.com.

Michael Port (34:17):

Alright. So Matt, I think it’s time we a little bit about investment jargon. This is our last topic, so let’s make it a good one.

Matt Rzepka (34:26):

Let’s do it.

Michael Port (34:27):

Okay. Who is investment terminology relevant to?

Matt Rzepka (34:30):

Everybody. Let’s see if we can do this rapid fire because we’re running outta time.

Michael Port (34:34):

Well, not really. I could do this all day and it’s my show, so I get to decide how long it is. I mean, Tim Ferris does like eight hour episodes.

Matt Rzepka (34:43):

Have you ever listened all the way through one of his episodes? Because I haven’t.

Michael Port (34:47):

Good point. Okay, let’s do it.

Matt Rzepka (34:50):

Alright. Here we go. Index fund.

Michael Port (34:53):

A passively managed mutual fund whose portfolio is designed to match the performance of an index of stocker bonds. [DING]

Matt Rzepka (35:00):

Yes. Mutual fund.

Michael Port (35:03):

A form of collective investment in which money from many investors is pooled and invested in stocks or bonds or other securities. Now this money is under the direction of a fund manager and it is something that I never buy. And I’ll explain why in a later episode. [DING]

Matt Rzepka (35:21):

Well, we’re rolling. How about ETF?

Michael Port (35:25):

ETF stands for exchange traded fund and it’s a type of security that tracks an index, a sector, a commodity or other asset, but it can be purchased or sold on a stock exchange The same way a regular stock can. [DING]

Matt Rzepka (35:41):

Correct.

Michael Port (35:42):

I’m feeling pretty good about myself right now.

Matt Rzepka (35:44):

You’re rolling. I love it. I’m keeping you going answer after answer here. Now how about a stock?

Michael Port (35:50):

A stock is a security that represents the ownership of a fraction of a corporation.[DING]

Matt Rzepka (35:56):

Correct. What about a bond?

Michael Port (35:58):

A bond is a fixed income instrument that represents a loan made by an investor to a borrower. It’s typically like a company or a government. [DING]

Matt Rzepka (36:07):

You got it.

Michael Port (36:09):

Oh, I’m good. Okay. What’s next?

Matt Rzepka (36:11):

Asset classes.

Michael Port (36:13):

An asset class is a grouping of investments that exhibit similar characteristics and they are subject to the same laws and regulations. [DING]

Matt Rzepka (36:24):

Correct.

Michael Port (36:25):

Okay. Bring it on. Keep going.

Matt Rzepka (36:27):

All right. Rebalancing.

Michael Port (36:29):

Rebalancing is the process of realigning the weightings of a portfolio of assets. It involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk. [DING]

Matt Rzepka (36:46):

Spot on.

Michael Port (36:47):

Nice.

Matt Rzepka (36:48):

How about the favorite, financial advisor?

Michael Port (36:51):

Well, a financial advisor is an expert. He will know tomorrow why the things he predicted yesterday didn’t happen today. But seriously, it is an unregulated term that doesn’t tell you much about the qualifications of the particular individual. However, registered advisors must pass one or more exams and be properly licensed in order to carry out business with their clients. Now that doesn’t, he or she will have to serve your interests. Generally, a financial advisor is someone who provides advice to clients around money matters, personal finances and investments. And they usually take one to one and a half percent of your assets under management. And financial advisors may work as an independent agent or they may work for a larger financial firm like Fidelity or another big company. [DING]

Matt Rzepka (37:45):

Nicely done. Well put.

Michael Port (37:46):

Thank you.

Matt Rzepka (37:47):

How about the CFP?

Michael Port (37:50):

Okay. CFP stands for certified financial planner. Now this is a person that has received a formal designation from the Certified Financial Planner Board of Standards. I know this because I’ve researched this. CFPs help people in a variety of areas in managing their finances, retirement investing, education, insurance taxes. Now becoming a CFP is one of the most difficult and stringent processes in terms of being a financial advisor. It requires years of experience and successful completion of standardized exams and a demonstration of ethics and a formal education. The most important aspect of a CFP is that they have a fiduciary duty, meaning they must make decisions with their clients’ best interests in mind, Matt, you, my friend are a CFP, correct? [DING, DING]

Matt Rzepka (38:47):

Double ding for that. I certainly am. I’m glad you mentioned fiduciary duty. That was my next question. What is a fiduciary duty?

Michael Port (38:54):

A fiduciary is a person or organization that acts on behalf of another person or persons putting their client’s interests ahead of their own. They have a duty to preserve good faith and trust. Being a fiduciary thus requires being bound both legally and ethically to act in the others best interest. And I think many listeners will be surprised to know, as I mentioned, that most financial advisors are not required to put their client’s interests ahead of their own. Welcome to the upside down world of investment advisors.

Matt Rzepka (39:29):

Well put Michael, well put. [DING] How about brokerage account?

Michael Port (39:34):

Okay. A brokerage account also referred to as a taxable account is simply an account that you set up with a brokerage like Fidelity or Vanguard for investing in index funds, mutual funds, individual stocks, or bonds. And then the gains you earn in this account are taxed at the capital gains rate of either 15 or 20%, depending on your tax bracket at the time of the sale of the assets. [DING]

Matt Rzepka (39:57):

Very nice. I like it.

Michael Port (39:59):

This Is the section that I am most comfortable with. You know, most of the tax planning I leave to you, this is the area that I study the most.

Matt Rzepka (40:06):

It shows you’re doing great.

Michael Port (40:07):

Thank you.

Matt Rzepka (40:07):

Retirement account.

Michael Port (40:08):

Easy. A retirement account is a savings or investment account with tax advantages and you can use it to save and invest long term. [DING]

Matt Rzepka (40:17):

Correct. How about self-directed account?

Michael Port (40:21):

It’s just an investment portfolio in which the account holder has a great deal of control over the investments made in the account. Meaning the account holder has the ability to make investments with the capital in the account because he or she has not delegated the power to an investment advisor. It is my favorite kind of account. And I don’t mean any offense.

Matt Rzepka (40:40):

No, no offense taken, none at all. [DING] Okay. How about IRA?

Michael Port (40:44):

IRA stands for the Irish Republican army, but it also stands for a retirement plan that allows you to contribute a limited yearly sum toward your retirement. Taxes on the interest earned in the account are deferred until you withdraw the money at retirement age. [DING]

Matt Rzepka (41:03):

Correct.

Michael Port (41:04):

Boom.

Matt Rzepka (41:05):

We’re rolling. Roth IRA.

Michael Port (41:08):

A Roth IRA is a special retirement account where you pay taxes on the money going into the account. And then all future withdrawals are tax free. [DING]

Matt Rzepka (41:18):

Correct.

Michael Port (41:19):

I’m on a roll.

Matt Rzepka (41:20):

You are. Now another acronym: SEP. S-E-P.

Michael Port (41:24):

Ah, I used to have a SEP. SEP stands for simplified employee pension. It’s a retirement savings plan established by employers, including self-employed people, for the benefit of their employees and themselves. So employers make tax deductible contributions on behalf of themselves and eligible employees. [DING]

Matt Rzepka (41:45):

Great job. Keep it up. We’re almost through the definitions I want to cover today.

Michael Port (41:50):

Okay. I’ll try. Let’s go.

Matt Rzepka (41:52):

Alright SIMPLE 401K.

Michael Port (41:54):

Simple 401K stands for savings incentive match plan for employees of small employers. So there are individual retirement accounts that can be a boon for small business owners who wanna provide qualified retirement savings benefits to their employees. [DING]

Matt Rzepka (42:12):

That was a mouthful, but you’re killing this round.

Michael Port (42:15):

Well, I might be cheating a little bit.

Matt Rzepka (42:17):

That’s fine. I guess, as long as you never cheat on your taxes. Let’s keep going. How about a defined benefit plan?

Michael Port (42:23):

Ah, yes. A defined benefit plan is an employee sponsored retirement plan where employee benefits are computed using a formula that considers a enough of different factors, length of employment, salary history, age of employee. And we have a defined benefit plan at HPS, and it’s been a game changer for our retirement savings and a huge boon to our employees who stay with the company for a number of years. So I’m a big fan of the defined benefit plan. [DING]

Matt Rzepka (42:53):

Great job. Yes. Great tool. How about in contrary, a defined contribution plan?

Michael Port (42:58):

Yeah. So a defined contribution plan is a retirement plan that’s typically tax deferred, like a 401K or a 403B, in which employees contribute a fixed amount or a percentage of their paychecks to an account that’s intent to fund retirement. Now the sponsor company will at times match a portion of the employee contributions as an added benefit. Now we have a defined contribution plan as part of our defined benefit plan that I just mentioned. So you see sometimes these plans can be combined for maximum benefit. [DING]

Matt Rzepka (43:34):

Awesome. Great job. And a quick point, the 401K had a law changed recently that adds ROTH 401K. So you wanna make sure, you know, as things change that you have different options from inside those plans.

Matt Rzepka (43:47):

So we’ve got two more. Michael, are you ready?

Michael Port (43:49):

Okay.

Matt Rzepka (43:50):

How about dividends? Both qualified and non-qualified.

Michael Port (43:54):

If you just asked dividends, I would’ve done it easily, but now I gotta think about this. Qualified and non-qualified. So a dividend is the distribution of some company’s earnings to, you know, a class of its shareholders. So that’s easy. But a non-qualified dividend is a dividend that falls under ordinary income tax rates and are taxed anywhere from say 10% to 37%, depending on your tax bracket. But by comparison, qualified dividends, are taxed as capital gains at rates of 20% or 15% or even 0%, depending on your tax bracket. [DING, DING]

Matt Rzepka (44:30):

You get two dings for that one. Well done.

Michael Port (44:32):

Nice. Okay.

Matt Rzepka (44:34):

Now the last term, if you’re ready.

Michael Port (44:35):

Matt, I’m a performer and a performer is always ready.

Matt Rzepka (44:40):

Yes. What are basis points?

Michael Port (44:43):

Yeah. I’m not ready for that one. No, it’s a wonky one. We gotta put your beanie on for this one. So a basis point is a standard measure for interest rates and other percentages in finance. And it represents 1/100 of 1%. So the basis point is commonly used for calculating changes in interest rates or equity indexes, or fixed income security yields. Basis points also used when referring to the cost of mutual funds and exchange traded funds. So you might have an index fund that has five basis points or 10 basis points or 30 basis points. You wanna keep your basis points as low as possible when you’re investing. How’d I do?

Matt Rzepka (45:26):

You did great. That is correct. [DING]

Michael Port (45:29):

Actually. So I knew that one in theory, but I did have to pull it definition from the interweb because I couldn’t really explain it clearly without actually writing it down.

Matt Rzepka (45:38):

Well, I don’t expect anyone to memorize any of these definitions. You can always look them up at any time. The key is to have a contextual understanding of the language used in the different industries so that (A) no one can take advantage of you, and (B) you have a firm grasp on your business books and your investment strategies.

Michael Port (45:57):

Yeah. What I mentioned earlier is one of my personal rules is never invest in something that I don’t understand.

Matt Rzepka (46:02):

That’s right. That’s why a large part of my job is to educate clients on all the areas of accounting and finance that they’re involved in.

Michael Port (46:10):

Just like you’ve done with me.

Matt Rzepka (46:11):

That’s right.

Michael Port (46:13):

Okay. So just remember it is okay if you don’t suddenly feel like you’re totally fluent in business jargon or even a little fluent. We went over a lot today, a lot of jargon. And it’s not the most exciting episode that I’ve ever done on the show, but at least now there’s a single place where all these terms are laid out for you. And you’ll always be able to come back to them as we move forward in this podcast and as you move forward in your life and your business. So Matt, what are we covering next week?

The post S4E2 How to Speak the Secret Language of Business Jargon appeared first on Steal the Show with Michael Port.

Welcome to Steal the Show Season 4: Speakers with Money. On this introductory episode, we’re joined by season-long guest co-host Matt Rzepka.

The founder and owner of specialized financial services firm Valley Oak, Matt is a Certified Public Accountant, Certified Financial Planner, entrepreneur, and expert on all things money. This season, we’re teaming up to explore, explain, and demystify the world of finance for speakers, entrepreneurs, small business owners, and anyone else who’s ready to learn more about money.

Now, maybe you’re thinking, “Hmm. Business? Finance? Specialized services firm? Is this for me?”

It is.

We believe everyone can benefit from a better understanding of how money works—and we don’t think it needs to be boring or confusing. To the contrary. In Speakers with Money, we decipher the jargon and break down the big ideas to make finance more accessible for anyone, anywhere. (And we have a really, really good time doing it.) 

Whether you’re a professional speaker, an aspiring speaker, an entrepreneur, or someone who’s simply ready to learn more about money, Speakers with Money will help you get ahead no matter where you are in your journey.

Learn more about Michael’s public speaking training company, Heroic Public Speaking, here: https://heroicpublicspeaking.com/

Learn more about Matt’s specialized financial services firm, Valley Oak, here: https://www.valleyoakcpa.com/

Transcript

Michael Port (00:06):
Hello and welcome to Steal The Show with Michael Port, a podcast from Heroic Public Speaking. I’m Michael Port. This is my fourth season hosting the podcast, and well, a lot has happened since Season Three. I don’t know if you’ve noticed, but there’s been a pandemic, but we seem to be on the tail end of that. And if that wasn’t enough, and it was, our 10,000 square foot headquarters and training facility, HPS HQ, was completely destroyed during Hurricane Ida. Now we’re doing okay. We’re soldiering on. We’ve moved into a new space. But to say that a lot has changed for us since our last episode is kind of an understatement. So we decided that the podcast should reflect that, which brings me to the moment you’ve been waiting for. I think it’s time to finally unveil the theme for this season, which is…

Michael Port (01:01):
Speakers With Money. Huh? What you talking about, Michael? Yep. You heard me this season of Steal The Show is all about speakers with money or more importantly, what to do with the money you make so you don’t have to work for the rest of your freaking life. Look, I get that we all love what we do, but you don’t really wanna have to take that chicken dinner gig at the casino motel two hours from the nearest airport just to pay the mortgage. Why? Why focus on money and personal finance? Well, after two decades of working with speakers and entrepreneurs on their craft and business development, I found that many are all often focused on building their brands and reputations, but put little focus on how to manage their money. So when I ask them about how they handle their personal and business budgeting, insurance products, savings, investments, tax planning, and more, I usually get a blank stare or some mumbling about a guy in a suit that takes care of it, which actually means they have no idea what’s happening with their money.

Michael Port (02:07):
So on this season of Steal The Show, we’re gonna bring you all things related to personal and business finance. Look, when I went into business, there was so much to learn and it took me years to really figure out the financial world for myself. And I’m still learning every day, but now I love it. I can’t get enough of it. Although reading P&Ls and analyzing data is still relatively boring compared to say, working with a talented and creative speaker on their signature bit, but it’s tremendously empowering to understand the language and be able to make smart and effective financial decisions. Mind you, I didn’t learn about personal finance in school. And although my parents are educated professionals, they weren’t able to teach me the ins and outs of money management either. So I had a late start, but I took my financial education from the resources around me over the years and now I wanna give it back to you. No cost. No strings. No catches. No conflict of interest.

Michael Port (03:11):
Now you might be saying, Michael, what are you doing? You can’t do that. You’re not a CPA or a CFP. And you’re right about that. But my guest for this season is, and he’s been waiting very patiently for me to introduce him. And he’ll just have to wait another moment. Now in previous seasons, I typically have a different guest on almost every episode, but this season, since we’re gonna take a deep dive into one big topic, I’ve decided to bring you the same very special guest for every episode. I’ve known him for years and he’s helped Amy and I with our tax planning for years. And although I personally manage our individual and company investment accounts, he’s also helped us set up various insurance policies, company retirement plans and compensation plans, analyzed real estate deals, and even advised me on car purchases.

Michael Port (04:03):
Now I might not always agree with Matt on all aspects of personal finance, but I trust Matt, which is actually saying a lot because I trust very few of the financial professionals I’ve met over the years. And over the course of this season, I’ll share why you probably shouldn’t trust most financial professionals either, but I trust Matt Rzepka, and you can too. Matt is a certified public accountant and certified financial planner. He’s the Owner and Chief Wealth Strategist at Valley Oak, a specialized financial services company focused on small businesses and owners. He’s an alumni of our programming here at Heroic Public Speaking, and he’s become a dear, dear friend of mine. And most importantly, he’s a fiduciary, which I’ll explain in our next episode. Matt, welcome to the show,

Matt Rzepka (04:53):
Michael, thank you so much. It’s truly my honor to be here. Can’t be more excited about this season of the podcast and all the things we’re gonna dive into, and more importantly, how we can help serve others and help them learn and understand more about the financial world. So happy to be here. Can’t wait to get started. Thanks so much.

Michael Port (05:11):
Now we met, oh gosh, could it be 10 plus years ago? But I didn’t meet you under the auspices of working with you. I met you when you came and started to do some work with us. But when I found out what you did, and I just liked you, I just thought you were just a delightful person., we would meet before the day’s event. You know, we’d sit there for an hour and we would talk personal finance and you never tried to pitch me on anything. You never tried to sell me anything. You definitely educated me in our conversations. It just was such a wonderful way to get to know you. And then after you had completed your training with us, I said, “Hey Matt, can you take us on? Can you work with us?” And you said, “no, I don’t think so.” No, you said, “yeah, I’d be happy to, of course.” Now we’re going back many, many years. And of course, many of my friends and colleagues work with you as well. And I just want to thank you for the work you’ve done with us and thank you for the support and education you’re gonna provide for all of the HPS community on the show.

Matt Rzepka (06:15):
Yes. Thank you so much. It’s been an awesome journey. It’s been wonderful getting to know you and the team and the ups and downs, as you’ve mentioned. You know, that’s part of why some of this stuff is also additionally important is life has its way of being life. So you’ve gotta make sure you understand when you get a curve ball, like a hurricane, holy cow, how do we pivot and keep moving forward and not let it sink the ship? And so, yeah, just my pleasure, love the community so much. Your programming and what you guys bring to the table is first class, second to none. It’s helped me so much in my life and my career and just being a better human being as well. Just so awesome. And again, can’t be more grateful to be here.

Michael Port (06:56):
Aw, you’re welcome. Now Matt, it’s still possible at this point, some of our listeners might be thinking finance business, CPAs, CFPs. That’s just too complicated for me or worse. They might be thinking that sounds boring. So what do you think, will it be boring?

Matt Rzepka (07:13):
I don’t think it’ll be boring. I think we can put a little spin on it and have some fun. And also that’s one of the things I talk about a lot in terms of the industries that we deal in. It shouldn’t be complicated. It shouldn’t be boring. You want to be excited about your own success and your own wealth and your own goals. And if somebody isn’t giving you that kind of feedback to help you understand and grow and learn, you might want to change your a relationship cuz you wanna work with somebody who’s gonna energize you around these topics, not make you feel belittled or stupid.

Michael Port (07:45):
Yeah. Look, there’s so much jargon and complexity in the world of personal finance. And frankly, I find it offensive. It pisses me off. It’s like the entire industry is designed to keep regular people from ever being able to understand stand it. And that’s something I really want to challenge with this podcast because I really do believe that business and personal finance do not have to be stuffy, boring or hard to understand topics.

Matt Rzepka (08:12):
Yeah. The industry itself, the government regulations, everybody’s trying to step into finance especially and say, we know what’s best for you. And then the professionals that are in the industry are trying to confuse you around, well, you should do this and you should do that. And then you just get frozen in isolation around what to do next.

Michael Port (08:30):
Yeah. And so that’s what we’re gonna do this season. We’re gonna help make sure that people know what to do regardless of where they are starting. You know, everybody starts this journey in a different place and we’re gonna take some of the biggest and most complex challenges facing speakers and entrepreneurs and small business owners and actually explore them in depth to make them less scary, less complicated and easier to understand. And the way I see my role here is as an advocate for you, the listener. Matt’s the true financial expert here, but together, you and I will be going on a journey to better understand how we can grow and protect our businesses with Matt as our guide. So, you know, no pressure, Matt. Whether you are an established speaker or entrepreneur or you’re just getting started, there’ll be so many moments of insight and clarity along the way.

Michael Port (09:26):
I genuinely believe that anyone anywhere can always learn more about how to take better care of themselves, their businesses and their families from a financial stand point. And that’s what we’re gonna do this season. And before we wrap up, I wanna be crystal clear about something. I have no conflicts of interest here because I don’t sell anything related to financial services, Matt, however does, and you can hire him, but I will not be compensated in any way if you do. I’m doing this purely because I love this topic and I think everyone in our industry can benefit from learning more about it. That’s it. So we’ll start next week with our first topic and we’re gonna start with something really important. Something that I think is gonna give you a decoder ring of sorts to help you really start to unlock the world of personal and business finance, accounting, and investing for you. Until then I’m Michael Port. We’ll see you next time.

The post S4E1 Introduction to Speakers with Money appeared first on Steal the Show with Michael Port.

New ideas. New discussions. New intro music. (Featuring an absolutely screamin’ saxophone.)

Steal the Show is BACK. Check out this teaser episode for a sneak preview of all the good things to come.

Transcript

Michael Port (00:03):
Hi, this is Michael Port. You might have noticed that we’ve been absent from your feed for a while now. In fact, the last episode of Steal The Show was released more than a year and a half ago. But I am very pleased to report to you that today, we here at Heroic Public Speaking, have some exciting news for you. Next week, we’ll be back with the first episode of a brand new season of Steal The Show. And this season we’re gonna be doing something a little different. Whether you are a speaker, an entrepreneur, a small business owner, or someone who’s just ready to take a bigger step forward. Oh, heck no. I’m not even gonna tell you the theme right now for that you’ll have to tune in next week. However, I really think you’re gonna benefit from this season’s shows. So keep an eye out for a brand new episode on Tuesday and I’ll fill you in with all the exciting details then. Bye for now.

The post Season 4 Trailer appeared first on Steal the Show with Michael Port.

Three weeks before the annual LIFT event, Danny Iny had to make a decision: cancel because of growing coronavirus concerns or keep moving forward. He did a little bit of both, which wound up being a million dollar choice.  

Danny Iny is the founder and CEO of Mirasee and best-selling author of nine published books, including Leveraged Learning, Teach and Grow Rich, The Audience Revolution, Engagement from Scratch!, and—most recently—Teach Your Gift. He is the host of the Business Reimagined Podcast and is also the creator of the acclaimed Course Builder’s Laboratory training program, which provides all the instruction, coaching, and support that entrepreneurs need to build and launch a profitable online course.

How You Can Steal the Show

• Manage how to make smart choices that your entire team is comfortable with.
  
• Learn ways to make a virtual training an interactive and personalized experience before, during, and after the event.
  
• Uncover why investing in a chat platform outside of a webinar platform might increase engagement.
  
• See why you might think you’re “not good” at virtual events (and how to overcome that).
  
• Explore how a virtual event can be more physically taxing than an in-person event.
  
• Engage with your audience in a way that they are fully on board with your event adjustments.
  
• Pivot during to create fresh, profitable opportunities out of hard times.
  
• Understand how keynote training is beneficial … even if you’re not a keynoter. 

Learn More 

You can order Danny’s latest book, Teach Your Gift, here.
 
See if attending Danny’s August LIFT in-person business training retreat is right for you.

The post 140 How Danny Iny Pivoted from Hosting an In-Person Event to a Profitable Virtual Event appeared first on Steal the Show with Michael Port.

Welcome to our first recording since social distancing. And if there’s any message we’d want to hug, it’s the words of Mike Michalowicz. From micro- to macro-crises, we cover how to prep your business when the economy is not on your side. This episode is as fun as riding an electric bike indoors.

Mike Michalowicz is the author of Profit First, Clockwork, Surge, The Pumpkin Plan, and his newest release Fix This Next. By his 35th birthday, Mike had founded and sold two companies – one to private equity and another to a Fortune 500. Today he is running his third multi-million dollar venture, Profit First Professionals.

Mike is a former small business columnist for The Wall Street Journal and the former business makeover specialist on MSNBC. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs, and is here today to share the best of what he has learned.

How You Can Steal the Show

• Unpack why we behave the way we behave in micro- and macro-crises.
• Discover the Fix This Next model, considering what your business needs from you now.
• Utilize the one step between action and reaction that your business needs to survive in hard times.
• Understand the importance of communicating in “tangible chunks.”
• Groan at the absolute worst award ceremony idea ever (while laughing at how it promotes empathy).
• Learn Mike’s Business Hierarchy of Needs (and the #1 way for how it differs from Maslow’s Hierarchy of Needs).
• Uncover why our needs as business owners are often out of whack.
• Embrace how running a lean business gives you permission to lean into your company’s values and hierarchy of needs.

Don’t Forget to Fix This Next

You can pre-order Mike’s latest book, Fix This Next, here. 

Want a few early-bird bonuses? You can sign up for them here.

Here is Mike’s Recession Response resource. 

While Mike’s book is great, I bet you’re really here to check out how I organize my lazy Susan with premium tape. The world begs for this:

Editor’s Note: Giving credit where credit is due. Our podcast title is inspired by a line of copy we discussed from Mike’s homepage.

The post 139 Profit First Innovator Mike Michalowicz on Entrepreneurship Simplified in Uncertain Times appeared first on Steal the Show with Michael Port.

Did you know that 19th century thinkers hold the secrets for today’s successful entrepreneurs? We’re talking about the practices and philosophies that help entrepreneurs become self-reliant.

John Jantsch is a marketing consultant, speaker, and author of Duct Tape Marketing, The Referral Engine, Duct Tape Selling, The Commitment Engine, and SEO for Growth. His newest work, The Self-Reliant Entrepreneur: 366 Daily Meditations to Feed Your Soul and Grow Your Business challenges entrepreneurs to be fiercely self-reliant while chasing their own version of success. He is a podcasting pioneer who has interviewed thousands of guests and appeared as a guest hundreds of times.

Stay tuned after this podcast for our latest Alumni Highlight. In this episode, we’ll hear from an HPS alum who started a business and a TV network after taking the world by storm with a new stage name.

How You Can Steal the Show

• Discover why John Jantsch took a departure from writing about marketing to creating a mindset book with a dollop of spirituality.

• Identify the four seasons of an idea and what you need to know to succeed in each one.

• Uncover the one thing that entrepreneurs who succeed possess.

• Learn the definition of a Self-Reliant Entrepreneur and why it’s not necessarily about doing everything alone.

• Discover the skill every entrepreneur needs to find more joy every day.

• Find out about the daily practices John uses to stay centered and how you can implement them in your life.

• Uncover the 19th and early 20th century quotes from famous thinkers that apply to today’s entrepreneurs.

• Identify the secret to effective marketing that few others are doing.

• Discover where you can get breakthrough ideas in a crowded speaking industry (and it’s not in the speaking industry).

• Flip conventional wisdom about time spent at your desk on its head for a healthier mindset.

• Learn the age-old wisdom that will guide you through any transition.

• Find out when winners actually do quit and why it’s okay nowadays to have experiences instead of careers.

• Uncover what you should “Duct Tape or Ditch.”

Happy Happy Game Show” Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 4.0 License
http://creativecommons.org/licenses/by/4.0/

The post 138 Duct Tape Marketer John Jantsch on Becoming a Self-Reliant Entrepreneur appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about how to share emotional topics on stage so that you and the audience both feel safe.

Nora McInerny is the best-selling author of the memoirs, It’s Okay to Laugh (Crying is Cool Too) and No Happy Endings, as well as The Hot Young Widows Club. She hosts the award-winning podcast Terrible, Thanks for Asking, and presented on the TED mainstage. The founder of the non-profit Still Kickin, Nora contributes to publications such as Time, Slate, and Vox. Nora is a master storyteller known for her dedication to bringing heart and levity to the difficult and uncomfortable conversations most of us try to avoid.

How You Can Steal the Show

• Discover the value (and potential traps) of sharing on stage deep personal experiences while you’re still processing them.
• Determine if an audience is “worthy” of your vulnerability.
• Identify the signs that you may not be ready to share your emotionally difficult story in a keynote speech.
• Uncover how to single out the parts of the story you can tell without emotionally “bleeding all over the stage.”
• Tell a story by accessing emotional truth so you perform with honesty and authenticity.
• Learn the truth behind post-traumatic growth and why it’s essential to your speech.
• Process emotions so you don’t rush into the “Phoenix Phase” of your story too soon.
• Uncover the difference between writing about difficult topics for the page vs. the stage.
• Discover Nora’s secrets for content development, customization, and rehearsal.
• Recognize how challenging it is for people to be adjacent to hardship and learn what to do if they say things that hurt you, even if they think they’re helping.
• Learn how Nora covers tough topics in an entertaining way on her podcast, Terrible, Thanks for Asking.

The post 137 Terrible, Thanks for Asking Podcast Host Nora McInerny on Bringing Emotional Truths to Difficult Topics appeared first on Steal the Show with Michael Port.

Is your storytelling tank on empty? No need to call for a tow; we’re talking about how the tenets of journalism fuels transformational content for the stage.

Melanie Deziel is the founder of StoryFuel, which teaches marketers, publishers, creators and companies of all sizes how to tell better brand stories. She’s a keynote speaker, author, award-winning branded content creator, and lifelong storyteller who is on a mission to share the power of compelling and credible content with others. Her new book is The Content Fuel Framework: How to Generate Unlimited Story Ideas.

How You Can Steal the Show

• Unpack when Melanie started teaching brand partners at The New York Times how to tell stories.
• Learn the secret to engaging an audience and what Melanie says many speakers are missing on stage.
• Balance certain elements to serve your audiences best.
• Discover why non-journalists need to find and cite original sources.
• Explore why you should never look for sources to back your claims.
• Gain the mindset you must take to broaden your interests so you don’t get “stale.”
• Uncover why we should all be having “idea sex.”
• Identify how to have a better brainstorm.
• Follow your own path, even if people say you’re crazy.

Alumni Highlights

Discover how Mind Love Podcast host Melissa Monte stepped up her speaking game (even after achieving 1 million downloads on her own).

The post 136 Founding NY Times Branded Content Editor Melanie Deziel on Pumping Content Fuel to Your Speeches appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about using search engine optimization (SEO) to drive conference organizers and meeting planners to your speaker website.

Stephan Spencer is an SEO expert and bestselling author of three books: The Art of SEO, Social eCommerce, and Google Power Search. He has optimized the websites of some of the biggest brands in the world, including Chanel,  Sony, Volvo, and Zappos. He founded the marketing agency Netconcepts, which was acquired in 2010 and now remains a part of a multi-billion dollar ad agency conglomerate. You can listen to Stephan on his two podcasts: Get Yourself Optimized and Marketing Speak.

Special Bonus for Steal the Show Listeners:

Stephan put together a cornucopia of SEO gifts for you, including an SEO hiring blueprint, SEO myths, and chapter 7 of his gargantuan book, The Art of SEO.

How You Can Steal the Show

• Distinguish between organic and paid search engine optimization and what each one means for growing your speaker site’s visibility.
• Discover the value of quality inbound links.
• Scrub the dirty little secret about meta keywords.
• Unpack what Google will reward you for right now.
• Identify the three rules for determining effective keywords in SEO.
• Learn what “pogo sticking” and “dwell time” are, and why they matter for your website’s Google ranking.
• Discover what you need to know about how your target audience searches online.
• Find out how to use SEO to pre-empt the competition.
• Implement the philosophy “go where the fish are” when you’re looking to get people to click through to your site.
• Consider the effects of the “no follow” option on your inbound links.
• Find out who  the “Linkerati” is (and why you should target it).
• Understand why SEO matters when it comes to a referral’s first impressions.
• Discover the best place to post your TEDx talk on your website.
• Find out the number one metric for the number two search engine.

Alumni Highlights

Discover how professional speaker Scott Wintrip receives his coveted high-profile keynote gigs.

The post 135 Stephan Spencer SEO Expert on What it Takes to Make a Top-Ranking Speaker Site appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we dive into launching a successful speaking career at schools, universities, and beyond. Pencils up: you’ll want to take notes like a good speaker student.

Grant Baldwin founded The Speaker Lab, a training company teaching public speakers how to find and book speaking gigs. He delivered nearly one thousand presentations to more than 500,000 people in 47 states. And, Grant keynoted events for audiences as large as 13,000.

Grant’s newest book (co-authored with Jeff Goins) is The Successful Speaker: Five Steps for Booking Gigs, Getting Paid, and Building Your Platform.

How You Can Steal the Show

• Find speaking opportunities at colleges and universities you may not know about. 
• Learn speaking rates for most high schools and colleges.
• Decode Grant’s secret to leveraging speaking gigs, which books more events.
• Write your pitch emails, making meeting organizers reply right away.
• Discover the number one thing event planners and organizers buy when they hire you.
• Entice event planners as the “steak house, and not the buffet.”
• Pick up the five key ingredients of S.P.E.A.K. that will lead to booking better gigs.

The post 134 Grant Baldwin on Speaking on the College Circuit appeared first on Steal the Show with Michael Port.

What does it take to transform from a good speaker to a fascinating one? On today’s episode of Steal the Show, we’re talking to fascination expert and NSA Speaker Hall of Fame inductee Sally Hogshead about that.

At just 24, Sally Hogshead was the most-awarded advertising copywriter in the United States. Sally is the author of New York Times and Wall Street Journal bestselling books; her most recent book is FASCINATE: How to Make Your Brand Impossible to Resist.

After the interview, discover a bestselling author who is taking the stage as a “rookie professional speaker.”

Free Gift from Sally

Take Sally’s free personality assessment. Click here, and use the code heroic.

How You Can Steal the Show

• Follow  Sally’s steps, increasing her speaking fee from $3,000 to $35,000 in just 12 months. 
• Transition into becoming a professional speaker and the marketing “cheat sheet” that can help you position yourself as a speaker, no matter where you are in your career.  
• Discover Sally’s secret weapon that allows her to charge a premium price for her presentations.  
• Explore the mistake Sally made when she started out as a speaker (and how you can avoid it).  
• Identify four types of speakers and how to compete with them.  
• Pinpoint the decision-maker in booking speaking gigs.  
• Break out of cluttered markets and become irreplaceable.
• Understand the heartbreaking realities of speaking before the wrong audience. 
• Create killer marketing materials. 
• And, get your mind blown by Sally’s insurance policy for successful speaking gigs. 

The post 133 Sally Hogshead’s Top-Notch Tips to Fascinate Any Audience appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we uncover how to rely on training, on-stage and off.

Steve Drum is a retired Navy SEAL Master Chief. He helped develop a “Warrior Toughness” training program for the U.S. Navy, ultimately changing the way the military branch prepares young sailors and offices for the acute stress of intense combat operations. A two-time Heroic Public Speaking GRAD alum, Steve is launching his speaking career to share how to handle stress in high-stakes situations.

How You Can Steal the Show

• Discover what the Navy SEALS teach with focusing attention by toggling mindfulness.
  
• Harness how he’s teaches sailors to become tougher … while using words like “mind, body, and soul.”
  
• Uncover which he thinks is tougher training: Navy SEALS or Heroic Public Speaking.
  
• Understand the number one key to success in tough training programs.
• Learn the question you need to ask yourself when your speaking training gets tough. 
• Maintain balance between toughness and holistic reflection.
• Handle stress in high stakes situations.
• Define “Performing on the X” and how speakers can use it to prepare for their performances.
• See what “Thank you for your service” means to him.

The post 132 Steve Drum on Performing in High Stakes Situations appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about “non-obvious” ways to provide more value to meeting planners and organizers, as well as audiences and fans.

Rohit Bhargava is the founder and Chief Trend Curator for the Non-Obvious Company and the bestselling author of six books. His latest book, for the new decade, is Non-Obvious Megatrends. He is widely considered one of the most entertaining and original keynote speakers on business trends and marketing in the world.

How You Can Steal the Show

• The bold choice Rohit made on a SXSW panel that led to a standing ovation and more gigs.
• The deal he made with his employer when he started getting paid speaking gigs.
• Why you should pay attention to “Accelerating Present” if you want to make educated predictions. 
• Why beliefs and behaviors are trends.
• How to name a trend, book, or keynote so it’s clever, yet understandable and memorable. 
• The secret for taking good notes at a conference or keynote.
• How your reputation and value are much more than what you deliver on stage.
• Rohit’s Non-Obvious tips for providing more value to meeting planners and organizers.
• The Haystack Method for identifying and naming trends (and why it will feel familiar to Heroic Public Speaking students).
  
• How to customize your speech so audience members know you understand their industry. 
• The secret to connecting with your audience.
  

You can purchase Rohit’s Non-Obvious book trend series here.

The post 131 Rohit Bhargava on “Non-Obvious” Ways to Become a Better Speaker appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about reinventing yourself as a speaker, author, and thought leader.
Dorie Clark is a self-reinvention and branding expert and the author of  Entrepreneurial You, Reinventing You and the Washington Post bestseller and Forbes Top 10 Business Book of the Year, Stand Out.  She delivers dozens of keynotes per year and has appeared on the TEDx stage three times. Named on the 2019 Thinkers50 list, which identifies leading management thinkers, Dorie shares her secrets for reinventing yourself in business and in life.

How You Can Steal the Show

• Why you might need to create a new peer group to support your reinvention. 
• The top three steps for reinventing yourself. 
• Why “personal brand” is not a dirty word, and why we’re looking for it in the wrong places.
• The mental shift Dorie made to embrace storytelling.
  
• The process she went through to reinvent herself as a thought leader. 
• When numbers matter (and when they don’t) for sharing your message. 
• When Dorie decided to start charging for her speaking gigs. 
• What speakers absolutely must have to succeed when they’re not famous. 
• The “press here” strategy for getting more speaking gigs and more money. 
• The sometimes slow road that a referable speech can make you take—and why that’s okay.

Gifts from Dorie to Help You Reinvent Yourself

Access 40 free articles from Forbes and Harvard Business Review
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The post 130 Dorie Clark on Reinventing Yourself appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about the neuroscience of fandom and how speakers can use it to connect with audiences and build a following.

David Meerman Scott is the author of The New Rules of Marketing and PR, with more than 400,000 copies sold in English and available in 29 languages. His newest book, Fanocracy, co-written with his daughter Reiko, is about turning fans into customers and customers into fans.

How You Can Steal the Show

• Receive the advice David gave himself in college that turned out to be crucial to his career. 
• Figure out the right number of speaking engagements per year. 
• Find out the thing that terrifies him most about speaking. (Hint: it has nothing to do with being on stage.) 
• Determine if you’re delivering the best possible speech for the event. 
• Learn why people become fans and how to keep them coming back for more. 
• Unpack the neuroscience behind fandom and how speakers can use it to connect with audiences and build a following. 
• Discover the real power of the speaker-audience member selfie. 
• Uncover what David wishes he could tell his younger self back when he was first practicing his speaking craft.

Watch David’s NSA talk here. You can purchase a copy of David and Raiko’s new book, Fanocracy, here.

If you enjoyed this show, you may also want to hear:

Episode 126 Scott Stratten on Harnessing Your Personality for Fun and Profit

Episode 125: Simon T. Bailey on Quitting Your Full-Time Job to be a Pro Speaker

Episode 124: Giovanni Marsico on Building Your Tribe

The post 129 David Meerman Scott on How to Turn Audience Members into Raving Fans appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about using the tricks of the journalism trade for producing better storytelling online and on stage. 

Ann Handley is a digital marketing pioneer and the author of the Wall Street Journal bestselling book Everybody Writes and Content Rules. Named by IBM as one of the seven people shaping modern marketing, she has more than 400,000 LinkedIn followers. 

How You Can Steal the Show

• How an introverted storyteller and writer wound up on the big stage (and came to love it). 
• How she uses the skills she learned as a journalist to feel confident and serve her audience while on stage. 
• Her top three secrets for teaching leaders something new.  
• How she uses “pathological empathy” to understand her audiences.  
• Her re-definition of authenticity and why it’s about personality, not what’s personal.  
• Why going for funny is never her goal, but having fun is. 
• Her secret ingredients for humor.  
• Why you should “poke your nose out” in life and on stage, even if you’re not ready yet. 
• What no one tells you about the hat you’ll need to wear after publishing a book.  
• The one thing that every speaker and author must have to succeed (it’s not an enormous social media following, even though she has one.) 
• The key assets meeting planners look for when booking speakers.

Learn more about Ann and subscribe to her newsletter here. You can purchase your copy of Everybody Writes here.

As if she weren’t cool enough already, did you also know Ann met fellow girl boss Tina Fey?

If you enjoyed this show, you may also want to hear:

Episode 115: Amy Port on Writing and Performing a Killer Keynote
Episode 111: AJ Harper on Writing for the Page vs. Writing for the Stage

The post 128 Ann Handley on Serving Your Audience Through Better Storytelling appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about raising your speaking game using sports performance principles. 

Alan Stein, Jr. worked as a performance coach for some of the highest-performing athletes on the planet, including NBA superstar Kevin Durant. He shows us how the lessons he taught top athletes can bring out the best in any performance.

How You Can Steal the Show

• How Alan found his philosophy for a successful life and career on a basketball court. 
• The time-tested secret to making performance easier. 
• The career-crushing mindset every speaker must avoid to perform their best. 
• Why even “the best” in the game needs a good coach. 
• The filter you need to set so you can achieve your dreams. 
• How he made the leap from sports performance coaching to speaking by saying “yes.” 
• How a haircut helped him align himself with the brand he was building.
• What all speakers need to give themselves once they step off stage.

Learn more about Alan here.

You can purchase Alan’s book Raise Your Game: High-Performance Secrets from the Best of the Best here.

If you liked this episode you may also enjoy:

Episode 124: Giovanni Marsico on Building Your Tribe

Episode 125: Simon T. Bailey on Quitting Your Full-Time Job to Be a Pro Speaker

Episode 119: Jay Baer and Daniel Lemin on How to Get People to Talk About You

The post 127 Alan Stein on How a Sports Mindset Can Up-level Your Speaking Career appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about crafting a speaking career that suits your personality and life goals. 

Scott Stratten co-founded UnMarketing and co-hosts UnPodcast with his wife and business partner, Alison Stratten. Together, they’ve published five bestselling business books, and recently released The Jackass Whisperer: How to Deal with the Worst People at Work, at Home and Online—Even When the Jackass is You. Scott shares what he’s learned from delivering upwards of 70 speeches a year.

How You Can Steal the Show

• The role of selling books in your speaking career and vice versa. 
• What to do when you’re surrounded by jackasses. 
• The best point in your speech to deliver a teaching point. 
• Why it matters who’s laughing at your humor on stage—and who’s not. 
• The two ingredients every speaker must have. 
• What Scott’s singular goal is and how he nails it.
• Why a video with 4,000 views was way more impactful that a video with 13 million views. 
• The number one reason speakers get booked. 
• One of the most valuable things he’s learned when negotiating his speaking fee. 
• Scott’s secret for filling downtime between gigs, and why we should all do it.
• The number one mistake speakers make before they even take the stage.
• How Scott went from bankruptcy to booking 30 talks in 10 weeks from just one tweet.

Learn more about Scott here.

And, you can purchase Scott’s latest book: The Jackass Whisperer: How to Deal with the Worst People at Work, at Home and Online—Even When the Jackass is You.

If you enjoyed this show, you may also want to hear:

Episode 123: Drew Tarvin on Selling a Topic Nobody’s Searching For

Episode 122: Phil Jones on Getting the Gigs You Want

Episode 120: Alison Levine on How to Scale Your Story to a Referable Speech

The post 126 Scott Stratten on Harnessing Your Personality for Fun and Profit appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about the value that speakers bring to the stage…and beyond.

Simon T. Bailey is an author and the leader of the SPARK Movement whose purpose is to ignite sustainable transformation in people, systems, and nations. A former Sales Director for the Disney Institute, he shares his secrets for giving audiences not just what they want, but what they need. 

You can learn more about Simon here. And you can purchase a copy of his book here.

How You Can Steal the Show

• Use your day job as R & D for your budding speaking career. 
• Find out where the “money” can be found when you’re developing programs. 
• Hear how Simon got started on writing the right message for himself. 
• Increase your worth by setting yourself apart from a dime-a-dozen pile of speakers. 
• Uncover how vulnerability amped up Simon’s impact on stage and led to a viral video. 
• Rethink the business that speakers are really in. 
• Simon’s #1 tip for success (you can apply it right away). 

If you enjoyed this show, you may also want to hear:

Episode 122: Phil Jones on Getting the Gigs You Want

Episode 120: Alison Levine on How to Scale Your Story to a Referable Speech

Episode 099: Danny Iny on Creating Profitable, Scalable, and Effective Coaching Courses

The post 125 Simon T. Bailey on Quitting Your Full-Time Job to be a Pro Speaker appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about building a community of raving fans.

Giovanni Marsico is the founder of the Archangel Summit, an annual gathering of mission-driven entrepreneurs, leaders, and professionals who want to do well by doing good. He shares with us his vision for creating transformational experiences on stage and behind the scenes.

How You Can Steal the Show

• The 4 things you need to create a memorable experience. 
• The throughline that connects his Archangel community no matter which level they’re working in. 
• How he chooses keynotes speakers for his events. 
• What you should invest in (and it’s not necessarily marketing). 
• The question you should ask to best uplevel your performance. 
• The secret to building and growing a tribe.  
• The million little things that have to happen to pull off large events. 
• Why your focus should be creating transformation, not Facebook ads. 
• The dirty little secret about overnight success. 

Follow Gio on Instagram or like him on Facebook.  And discover how to attend the 2020 Archangel Summit here.

If you enjoyed this show, you may also want to hear:

Episode 119: Jay Baer and Daniel Lemin on how to get people to talk about you

Episode 117: Giovanni Marsico on how to fill an event

Episode 087: Nancy Duarte on how to create and deliver epic performances

The post 124 Giovanni Marsico on Building Your Tribe appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re talking about adding humor to our speeches and our lives.

Drew Tarvin, the world’s first Humor Engineer, with more than 5 million views of his TEDx talk, the “Skill of Humor,” shows us how to infuse the funny into our content and keep on improving despite the haters and the hecklers.

How You Can Steal the Show

• Why structure propels creativity forward. 
• How focusing on the haters does a disservice to your audience … and you. 
• The role of analytics vs. gut feeling in assessing your performance. 
• The secret to getting so good, people can’t ignore you. 
• How to evolve from “staircase wit” to on-the-spot comedic skills. 
• How comedians have become the philosophers of our time. 
• What we can learn from a weekend of Stranger Things. 
• How he used math to sell content about humor in the workplace even if they weren’t searching for it. 
• The simple secret to seeing humor in everyday life. 
• How Drew’s grandma’s texts can change our mindset. 

Learn more about Drew and get his book Humor That Works. You can also watch his TEDx Talk here.

If you enjoyed this show, you may also want to hear:

Episode 122: Phil Jones on getting the gigs you want

Episode 097: How to live a good life onstage and off with Jonathan Fields

Episode 059: You Can Be Funny. Award-winning comedian Ron Tite shares secrets of the comedy masters

The post 123 Drew Tarvin on Selling a Topic No One’s Searching For appeared first on Steal the Show with Michael Port.

With nearly 120 keynotes and workshops a year, Phil M. Jones is one of the busiest public speakers on the circuit. The author of an award-winning business trilogy that started with Exactly What to Say, Phil’s mastered the art of the speaking business by constantly striving to be better and aim higher. Plus, he finds sales fun. He believes that every speaker can find room for play in their sales, content development, and business-building. It starts with asking the right questions and giving yourself permission to grow.

How You Can Steal the Show

• What you need to know to move past the shortlist to getting booked. 
• The right questions to ask if you want to get booked and get paid what you’re worth. 
• The common mistakes public speakers make that prevent them from getting the gigs they want.
• Two simple questions every successful speaker should be able to answer. 
• Things you can ask for when the money on the table is not enough.
• Why a speaker should never negotiate from desperation.
• The reasons we get nervous before gigs and why that’s okay.
• Why every speaker should consider becoming an author and what you should avoid when it comes to selling books at your speaking gigs. 
• How to sell more books (even when no one’s asking for them)

Visit Phil’s website or follow him on LinkedIn.

Listen to Phil’s Audible original of How to Persuade and Get Paid: The Sales Workshop for Everyone. 

The post 122 Phil Jones on Getting the Gigs You Want appeared first on Steal the Show with Michael Port.

On today’s episode of Steal the Show, we’re uncovering why some speakers’ careers plateau and how to fix it or prevent it altogether.

Tim Sanders—former Yahoo! Chief Solutions Officer, bestselling author, and top-rated leadership keynote speaker—shares his best practices for switching from one-off speaking gigs to cultivating a few accounts that hire you again and again.

How You Can Steal the Show

• Turn your public speaking career from feeling like a series of one-night stands to a long-lasting profession.
• Learn how an account-based approach brings you repeat business.
• The 2 reasons why you should say “no” to work that’s outside your throughline.
• Stamp your digital footprint with this instead of that.
• Discover how to deliver your message to multi-faceted audience members with varying needs without confusing anyone.
• Evolve from storytelling to moving audiences to action.
• Uncover the different roles that “butts in seats” and “takeaway” speakers must take to make an event successful.
• Note the 3 things you should supply to your audience after your speech ends to add value and encourage behavioral change.
• Why it’s important to develop humorous bits that don’t “punch down.”
• The 3 must-read books for learning to create memorable experiences on stage.

Learn more about Tim and follow him on social media @sanderssays.

Tim’s Talked About Resources:

• Find Tim’s post-event write up here.
• Dive deeper into Tim’s 3 must-read books.
  • The Experience Economy by Joseph Pines
  • Made to Stick by the Heath Brothers
  • The Hero with a Thousand Faces by Joseph Campbell

If you enjoyed this show, you may also want to hear:

Episode 120: Alison Levine on why it’s your message, not your experience, that matters most on stage.

Episode 110: Andrew Davis on obsessively tracking your career, how to create the speech people talk about, and why you can charge more than you think with the FEE model.

Episode 104: Jordan Harbinger on starting over, building a business from scratch, and what bees can teach us about performance.

The post 121 Former Yahoo! Executive Tim Sanders Talks Building Long-Term Client Relationships appeared first on Steal the Show with Michael Port.

On today’s episode, we talk about how to turn setbacks into wins with Alison Levine: an adventurer, mountaineer, New York Times bestselling author, and public speaker. Alison leveraged her experience climbing seven summits and skiing to both poles into a successful speaking career. Yet, other people have also climbed the world’s highest summits, and, unlike her, they didn’t famously turn back within 100 yards of Mount Everest’s summit. She realized that it wasn’t her life-changing experience as much as her message—that complacency kills and fear can propel you in the right direction—that makes her have a referable speech.

How You Can Steal the Show

• Why you should treat every public speaking opportunity as your next big break, even after you’ve made it.
• How we should view setbacks.
• Connect with this amount of people for large professional impact.
• Discover the value of translating the meaning of your experience for an audience.
• Understand why your message matters more than your experience to book gigs.
• Stand out from other speakers to get booked over and over.
• Add a goal to get your speaker’s bureau (if you have one) more business.
• Why you should be strategic about where you stand off stage.

Learn more about Alison. 

Browse More Episodes of Steal the Show 

Episode 115: Amy Port on Writing and Performing a Killer Keynote

Episode 097: How to live a good life onstage and off with Jonathan Fields

Episode 079: How to make a decision

The post 120 Alison Levine on How to Scale Your Story to a Referable Speech appeared first on Steal the Show with Michael Port.

“Those who have the courage to do something distinctly, purposefully, and strategically different will reap the rewards.” – Jay Baer

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On today’s episode of Steal the Show, we are discussing talk triggers: the things that brands and businesses do that get us telling stories about them to our friends. However, to create one inside our own company is much easier said than done.

That’s why we’re digging into the specific elements required for a talk trigger to be activated. With so much noise in the marketing and advertising spaces, the opportunity to set yourself apart from the competition lies in the customer experience.

Listen to this episode to understand the anatomy of a talk trigger, so you can implement them into your brand experience!

You can order Talk Triggers here

And learn more about Daniel Lemin and Jay Baer

“Talk triggers are all about giving your customers a consistent story to tell.” – Daniel Lemin

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Steal The Points

• Most of those who are good at word-of-mouth are good at it by accident.
• Talk triggers must align with the brand’s positioning and be operationally feasible.
• It is most difficult for companies to operationalize human interaction.
• Look at UberConference’s hold music as an example of a talk trigger.
• Word of mouth is directly responsible for 19% of all purchases, and influences as much as 90%.

The post 119 Jay Baer and Daniel Lemin on How to Get People to Talk About You appeared first on Steal the Show with Michael Port.

“Our job, as performers, is often to break the rules. That’s what an artist does.” – Michael Port

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On today’s episode of Steal the Show, we explore a listener’s question: how do we make the technical appear in technicolor? Well, he doesn’t exactly ask that. But how does a performer compel on a subject matter where the subject matter is dense, slides are expected, and a podium is the norm? Where’s the balance between what’s expected and breaking the rules to create a memorable experience for the audience?

There’s a difference between being a critic and being a performer. One asks you to purely look at things from the top-down, pointing out what is wrong and what needs fixing. The other asks you to build an entirely new experience from scratch, subverting whatever’s wrong with the old by transcending it with something entirely new.

Listen to this episode to hear how to apply these principles to your own high-stakes moments.

“Audience interaction should be proportionate to the amount of trust you have earned.” – Michael Port

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Steal The Points

• Work to music that has the same emotional sensibility you want the work to evoke.
• Break rules by creating an experience that defies expectations.
• Develop unconventional, creative ways to relay the data to the audience.
• Just because something is done a particular way doesn’t mean it’s the most effective way.
• Self-expression is the name of the game, as long as it serves the audience in the room.

The post 118 Listener Q&A: How to Make a Dry and Technical Topic Compelling appeared first on Steal the Show with Michael Port.

“You have to make it easy for other people to communicate the transformation. Not for you to communicate it for other people.” – Giovanni Marsico

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Thanks to social media, we have the opportunity to engage with audiences before, during, and after events. When we do this, the in-person experience becomes something entirely different for the viewer: it’s the beginning of a performance. Because audience members participated in the conversation online, they feel like a contributor to the show—a member of the tribe.

On today’s episode of Steal the Show, Giovanni Marsico speaks to us about how to build a following. Giovanni—a talent scout, curator, and connector of superheroes—is the founder of Archangel: a private membership community of mission-driven entrepreneurs that are making the world a better place through purpose-driven entrepreneurship and philanthropy.

Listen to this episode to hear Giovanni’s insights on keeping focus while building a tribe for your personal speaking brand.

You can attend Giovanni’s Archangel Summit 2018 here

“When you control your body, voice, and mind in high-stakes situations, then you feel powerful and capable.” – Michael Port

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Steal The Points

• Ask yourself how your paradigm would change if you had to deliver results before you got paid.
• Simultaneously build a tribe and solve a problem.
• Keep your eyes on the big picture by maintaining a wide shot on the landscape.
• Focus on the larger movement and mission of the event and how attendees will change the world after attending.
• Be cautious when structuring a company growth strategy under affiliate ma

The post 117 Giovanni Marsico on How to Fill an Event appeared first on Steal the Show with Michael Port.

“In this business, you are not doing anything alone.” – Amy Port

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On today’s episode of Steal The Show, we are joined by Amy Port for Part 2 of our conversation. Amy is the Co-Founder & President of Heroic Public Speaking, and today she unpacks the mechanics behind the keynote we delivered at the National Speakers Association Influence 2018 conference.

Tune in to hear the principles we apply to rehearsal, so you too can deliver the same caliber performance.

Last week’s episode, 115 Amy Port on Writing and Performing a Killer Keynote, can be found here.

“It’s not interesting watching people do easy things. It’s interesting watching people do challenging things.” – Michael Port

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Steal The Points

• Meaning comes from fulfilling commitments beyond what we think is possible.
• Find the line between self-expression and respect for the character.
• Surround yourself with collaborators and helpers to empower you to do more.
• What’s interesting is what’s important. Try to speak and write about that.
• The level of success is directly proportional to how much responsibility the person is willing to endure.

The post 116 Amy Port on Rising Up to The Challenge (Part 2 of 2) appeared first on Steal the Show with Michael Port.

“If you’re having to decide whether you should do A or B with your time—you should just wake up earlier.” – Amy Port

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We’ve all been to the convention, where we spend our days sitting in lectures back-to-back, listening to speakers read from their slides. It’s undeniably forgettable, yet we find most abiding by this template when they’re on stage.

So the question becomes: how do you abandon this formula to make a memorable speech.  

On today’s episode of Steal the Show, Co-Founder & President of Heroic Public Speaking, Amy Port joins the show to deconstruct the keynote we delivered at the National Speakers Association Influence 2018 conference. By exposing the process, we reveal the approach necessary to build a killer keynote speech from the ground up. Or in this case, from the diner table up.  

Listen to this episode to learn how to apply these principles to your next speaking gig, no matter how big or small.

“Every choice we make—right down to what we wear—tells the audience how we want to be seen.” – Amy Port

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Steal The Points

• People lash out in when they feel that their status is questioned.
• Every artistic process has somebody at the helm.
• Write scenes that use contrast and high-stakes to fill the room with energy.
• Stay inside the lane of your strengths when collaborating.
• Find creative challenges to demonstrate to yourself what you’re capable of.

The post 115 Amy Port on Writing and Performing a Killer Keynote (Part 1 of 2) appeared first on Steal the Show with Michael Port.

“If you look at the past decade, I’d be challenged to see another industry as disrupted by technology as speaking.” – Mitch Joel

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Today, most brands and businesses are also trying to be a media company. Selling a product or service is no longer enough. Whether it’s an engaging social media presence or valuable email marketing campaign—this new expectation of content creation provides an unprecedented marketing opportunity for companies all over the world.

However, if we’re not careful, we can fall into the abyss of marketing noise; following templates and sticking to the norms will mask your authentic voice and have you hidden in the crowd.

That’s why on today’s episode of Steal the Show, we are joined by Mitch Joel live at Heroic Public Speaking HQ to discuss content creation. Mitch has been called one of North America’s leading visionaries and the “rockstar of digital marketing” by Strategy Magazine. When brands like Google, Starbucks, Shopify, and GE want to leverage technology to better connect with their customers, they call Mitch.

His first book, Six Pixels of Separation, named after his successful blog and podcast is a business and marketing bestseller. His second book, CTRL ALT Delete was named one of the best business books of 2013 by Amazon.

Listen to this episode to learn the intellectual significance that Mitch brings to the table, and how you can apply Mitch’s wisdom to your brand.

“You have to find the thing that makes you want to create content.”  – Mitch Joel

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Steal The Points

• Create content that is you, rather than what you think the audience wants.
  
• Find a talent agency with speakers who speak on similar topics.
  
• There will always be opportunity to write and speak about what’s next.
  
• Be mindful of when criticizing other work takes the place of working on your own.
  
• Watch the best speakers and read the best authors if you want to speak or write.
  

The post 114 Mitch Joel on How to Create Content That Is Authentically You appeared first on Steal the Show with Michael Port.

Listen Now

“The gift is supposed to represent the value you place on the relationship.” – John Ruhlin

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Why is gift giving such a challenge? We know the people around us; we know their likes, their interests … but when we want to celebrate them, all great gift ideas go out the window. Amazon becomes our search engine. Wine and chocolates are a go-to.

On today’s episode of Steal the Show, we are joined by John Ruhlin to unpack the performance of gift-giving. Yes, gift-giving is a performance–one that has true craft and technique. John is the founder of the Ruhlin Group, a company that develops relationship-building strategies and VIP-gifting programs to increase referrals and strengthen retention with their most important employees, clients, and prospects.

John’s clients include the Chicago Cubs, San Antonio Spurs, DR Horton, Morgan Stanley, St. Louis Blues, and hundreds of other industry leaders and high-end service firms.

His second bestselling book Giftology: The Art and Science of Using Gifts to Cut Through the Noise, Increase Referrals, and Strengthen Client Retention can be found here

Listen to today’s episode to hear John’s insights about gift-giving, and how we can best approach the often difficult task of finding that great gift for the people in our lives.

“In business, we call it marketing. And we don’t realize we’re spending money to damage relationships because we’re making it all about us.” – John Ruhlin

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Steal The Points

• Marketing is typically not gift-giving because we make it about us.
  
• Don’t give gifts with a transactional mindset.
  
• Try to give gifts that people can use every day rather than those that are consumed and disappear.
  
• Treat gift-giving as an opportunity to inspire the recipient, rather than just hand off a possession.
  
• Understand what the recipient wants, and then align the gift with that.
  

The post 112 John Ruhlin on the Performance of How to Give the Perfect Gift appeared first on Steal the Show with Michael Port.

Listen Now

“All that matters is that you are delivering quality content that’s truly transformational and authentic to you.” – AJ Harper

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A book is obviously different than a speech.

But that’s not to say we can’t use the stage to test the ideas for our written work.  When we lean too heavily towards one medium, we corner ourselves to the constraint of that delivery system.

Instead, when we embrace all opportunities and let each speech or article inform what write or say next, we create that artistic synergy that audiences and readers latch onto.

On today’s episode of Steal the Show, we are joined by AJ Harper. AJ is a developmental editor and publishing strategist who has helped hundreds of authors, from newbies to New York Times bestselling authors, write and publish game-changing books, develop significant and loyal followings, and build their brand.

As executive editor for Collaborative Books, AJ has worked with Lisa Nichols, Les Brown, Barbara De Angelis, Dr. George Frazier, and many more.

Listen to today’s episode to hear what AJ has to say about the speaking and writing mediums, so you can thoughtfully utilize each in your advancement as a thought leader.

“Speaking is a very big part of developing the content for a book.” – AJ Harper

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Steal The Points

• Very few people have the skills to implement a message-based speech or book.
• When writing, use the word “you” to connect with the reader.
• Trying to make things clever usually results in things being more complicated.
• Simplicity comes with mastery over time.
• Write every day. It doesn’t matter how much, just keep a consistent habit.
• Use the stage as testing grounds for written content.

The post 111 AJ Harper on Writing for the Page vs. Writing for the Stage, How to Start a Daily Practice, and the Current State of Self-Publishing appeared first on Steal the Show with Michael Port.

Listen Now

“The more systematic you are about it—the faster you can increase fees, get more gigs, and turn this into a real business.” – Andrew Davis

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Between knowing what to charge and handling client relations, a workload can quickly become overwhelming before the actual work even starts.

For the novice speaker, negotiating with event organizers and creating fair but profitable proposals can be a steep learning curve—one that can take serious time away from what the focus should actually be: the performance.

That’s why on today’s episode of Steal The Show, we are joined by Andrew Davis to discuss his systems for bypassing these hurdles. After all, life doesn’t get in the way, it IS the way.

Andrew has many credits to his name, all of which have helped him land big-time public speaking deals. He has written for Charles Kuralt, produced for NBC, and worked for The Muppets and MTV. And as one of the most influential marketers in the world, Andrew has appeared on The Today Show and in The New York Times.

Tune in to today’s episode to learn his method of tracking his speeches and email inquiry, so that you can start to do the same and land stage time at exciting events and conferences.

“Remember your business model isn’t their business model.” – Andrew Davis

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Steal The Points

• Be as systematic as possible with creative endeavors to allow for more creativity.
• Small business owners comprise one of the most engaged audience demographics for public speakers.
• Speeches should come from a place of vision, not “expert-ville.”
• Set fees based on the FEE Model: fame, entertainment, and expertise.
• Track your demand over time by aiming for a high loss-rate over a high close-rate.
• Accept free gigs as a way of testing material to get to that referrable speech faster.

The post 110 Andrew Davis On Obsessively Tracking Your Career, How To Create The Speech People Talk About, And Why You Can Charge More Than You Think With The FEE Model appeared first on Steal the Show with Michael Port.

Listen Now

“Demonstrate the consequences of not adopting the big idea.” – Michael Port

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This week, we answer a listener’s question:

Hi Michael,

Hope you’re well. Just been listening to your Steal the Show podcast and really enjoying it. Started from the beginning again for my kids to listen to it too. They do weekly speeches in school – 2 minutes max – but it would be nice if you had any extra pointers so they can Steal the Show at school. They have been taught to start with a hook, then do introduction, main part, and conclusion, but that’s all I got out of them.

Look forward to hearing from you.

By the way, I know you like boats – we’re lucky enough to live in Sydney, Australia, where I get to catch a ferry on Sydney Harbour to and from work every day.

Cheers,
Paul

And, it might surprise you to hear that the lessons given to adults are the same for kids. On today’s episode of Steal the Show, we discuss the Heroic Public Speaking Foundational Five. From articulating the big idea of a speech to illustrating the rewards the audience will get if the promise is realized, this discussion covers the core pillars of a great speech.

Tune in to today’s episode to collect this knowledge, so you can implement it into your next speech.

“Even if the audience wants to adopt your idea—because it may not be easy for them to adopt it, their natural inclination is to find ways to say no.” – Michael Port

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The post 109 Michael Port On How to Help Kids with Public Speaking appeared first on Steal the Show with Michael Port.

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“It’s very difficult to find what your voice is capable of until you push the emotional buttons.” – Matthew Kimberley

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Product, service, or anything in between, our lives run on the ability to create, market, and sell whatever it is that others deem as valuable.

… And that last step is crucial. If we aren’t able to sell, we get caught in a hamster wheel of effort with no return. Squeak squeak.

On today’s episode of Steal the Show, we are joined by Matthew Kimberley. Matthew is the former head of the Book Yourself Solid School of Coach Training, and is now the founder of The School for Selling. His first book How To Get A Grip sold over 50,000 copies—and every year, Matthew transforms sales teams, business owners, and independent service professionals to get more clients: more consistently and more elegantly.

Tune in to this conversation gather Matthew’s insights, as they relate to performing on stage, selling with transparency, and finding your path. You can learn more about Matthew Kimberley at his website here

“Sophistication doesn’t mean complexity.” – Matthew Kimberley

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Steal the Points

• Inauthenticity comes from lack of knowledge in sales. Be as transparent as possible to prevent this.
• Disarm honesty in sales conversations by saying objectives out loud.
• Be aware that public speaking as a career requires lots of travel.
• Add sophistication by paring something down, not making it more complex.
• Most speakers haven’t learned how to earn the audience’s attention because they haven’t been forced to.
• Oscillate between telling, teaching, and showing when performing on stage. 

And find out more about The League of Heroic Public Speakers here

The post 108 Matthew Kimberley On Finding Your Voice, Transparency In Sales, and Why Showing Is Better Than Telling and Teaching appeared first on Steal the Show with Michael Port.

“If you are really serious about performance, you have to get counsel and direction from people who are qualified to give it you.” – Neen James

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We all have production companies in our pockets.

Today, the smartphone has empowered people to instantly publish content to an audience with a few taps. For public speakers, this creates a unique challenge where they must always be on. The speech no longer ends after the applause; rather, speakers must be open to connection in the lobby, at the airport, or in their hometown because any moment could turn into a tweet or Instagram post.

On today’s episode of Steal the Show, we are joined by Neen James. Neen is the author of 9 books, including Folding Time and her most recent book, Attention Pays. In 2017, she was named one of the Top 30 Leadership Speakers by Global Guru because of her work with companies like Viacom, Comcast, Cisco, and many more. She has received numerous awards as a professional speaker, is a partner in Thought Leaders Global, and is a member of the prestigious league of Heroic Public Speakers.

In this conversation, Neen details many topics: how we can use technology to our advantage, why we should look for unique places to project our personal brand, and much more. Tune in to apply Neen’s insights to your life, career, or passion project.

You can order Neen James’ books here.

“Think about how much we can use social media to engage an audience before we even step on stage.” – Neen James

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How You Can Steal the Show

• How she uses social media to engage and interact with audience members during a performance.
• The time the 4’10 Aussie met basketball player and keynote speaker Magic Johnson.
• How you can personalize each performance to continue to build your personal brand.
• Why those who are only coached by the so-called gurus start to resemble those gurus.
• Discover how to approach public speaking as an artistic expression.
• When speakers embrace their uniqueness, they gain a competitive advantage.
• Seek specific coaching over generalized help.
• Opportunities for personal branding exist in unique places (email auto-responses, voicemails, etc.).
• Creating a process to systemize thoughtfulness.

Like what Neen has to say? Click here to visit her website and sign up for her newsletter.

If you liked this episode, you may also enjoy: 

• 100 Neen James on Creating Contextual Models for Speakers, Authors and Content Creators
• 070 The Business of Speaking for Women, Business Models for Speakers, and much more with Neen James

The post 107 Neen James On Systemizing Thoughtfulness, Where To Focus A Personal Brand, And Why Social Media Is Key appeared first on Steal the Show with Michael Port.

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“I believe the #1 thing we should be doing as speakers is trying to give speeches as often as we can because every single speech is a treasure trove of feedback and information.” – Joey Coleman

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Speakers need to have strong beliefs, lightly held.

Yes, there’s contrast in that statement, but contrast is the beauty of performance. The job of a performer is to deliver a strong message while simultaneously being open to audience feedback. This is the tricky, two-sided nature of the job—one must possess the skills to provide both a powerful experience for the audience and a relatable openness during the socialization that occurs after a speech.

On today’s episode of Steal the Show, we are joined Joey Coleman. For over a decade, Joey has helped organizations retain their best customers and turn them into raving fans through his entertaining and very actionable keynotes, workshops, and consulting projects.

In this conversation, we unpack Joey’s Wall Street Journal bestseller, Never Lose A Customer Again. Joey provides insight for anyone trying to take their career to the next level. From the novice public speaker seeking his/her first paid gig to the amateur writer attempting to finish his/her first book, Joey’s insights will prove to be valuable.

You can order Joey Coleman’s Never Lose A Customer Again here.

“The more we spend looking at other people, the more we realize that often—they’re holding up a mirror. They’re holding up a mirror for us to understand something about ourselves.” – Joey Coleman

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Steal the Points

• Contrary to popular belief, not every relationship needs to be a long-term relationship.
  
• Usually the audience’s expectations are extremely low.
  
• The tactics speakers use to make themselves feel comfortable typically make the audience feel uncomfortable.
  
• Connection happens quicker when the people are at eye-level.
  
• Research shows that humans are afraid of those who are bigger than them.
  
• Figure out what the audience needs before stepping on stage, and deliver that to them.
  
• Listen to all of the speakers to hear what the audience has already heard.
  
• When giving a speech, recognize that it’s difficult to be in the audience.
  
• Many audience members need time to process the speech before asking questions.
  

The post 106 Joey Coleman On Giving An Audience What They Need, The Dangers Of Using Absolutes, and Why Celebrating Accomplishment Is Difficult appeared first on Steal the Show with Michael Port.

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About that big surprise that we mentioned…

“You can’t shortcut feet on the stage. You can’t wish or pay your way to being a better speaker. Speak, speak, speak—that’s the way to get good at speaking.” – Tami Evans

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Public speaking isn’t for everyone.

But before we cross it off our list, we have to make sure we’ve given it a fair shot. That’s because the best public speakers—while they may appear naturally gifted on stage, it is most likely hours and hours of rehearsal driving the performance. In public speaking, there is no such thing as god-given talent or a ‘knack’ for performance. Rather, success on stage boils down to work ethic, rehearsal, and practice.

On today’s episode of Steal the Show, we are joined by the humorous speaker Tami Evans to clear the mystery of performing on stage. With a Master’s in Classical Acting, Tami has been performing in some way, shape, or form for most of her life. She is the former president of the New York chapter of the National Speakers Association, and today works on the public speaking circuit.

In this conversation, we unpack all topics related to public speaking—what makes a great public speaker, why introverts do well on stage, how the public speaking industry is evolving to be more inclusive of diversity, and much more.

Learn more about Tami Evans and her humorous motivational speaking style here.

“When someone looks so effortless, it’s because they have put in so much time and effort to get it that way.” – Tami Evans

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Steal the Points

• Rehearse to the point of clarity where improvisation doesn’t feel intimidating.
• The best way to begin something is to start it.
• Try to have slogans that are easy to understand and remember.
• Join the National Speakers Association (NSA) to make public speaking a less isolating career.
• There is no clear path in the public speaker industry.
• Content creation is a messy process that involves diving into the unknown.
• Being authentic becomes easier through preparation.
• There is becoming more equalization of gender and culture in the public speaker landscape.
• Public speaking is shifting from a stylized, scripted talk into a more conversational delivery.
• Many of the best performers are actually shy and introverted.
• Adjusting on the fly becomes comfortable with more experience.
• Some people are energized by interacting with other people, and others are depleted by it.

The post 105 Tami Evans On Being Funny on Stage, Managing Isolating Careers, and What It Means To Be A Female Public Speaker appeared first on Steal the Show with Michael Port.

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“True professionals rehearse so much that it looks like they didn’t rehearse at all.” – Jordan Harbinger

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Starting over requires channeling frustration into focus.

Instead of thinking of “the past” as a object to cast aside, remembering the struggle can enhance performance—to create something bigger and better.

On today’s episode of Steal the Show, we are joined by Jordan Harbinger to discuss how he recently started over. In 2006, Jordan was one of the first to podcasting, co-founding the very popular show, The Art of Charm. Just last year, Jordan parted ways from that team to start his own venture, The Jordan Harbinger Show. In the 11 weeks it’s been on air, his new podcast has received over 3 million downloads.

In this conversation, we unpack everything from what makes a great public speaker to how working is the best form of recovery during times of crisis. Whether or not you’re starting over, tune in to learn these lessons so you know what to do in case that situation presents itself.

Learn more about Jordan and his new podcast, The Jordan Harbinger Show, here.

“You will drive yourself to the brink of exhaustion, burnout, and craziness if you try to do everything yourself.” – Jordan Harbinger

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Steal the Points

• Emotionally positive people should be key supporters in times of crisis.
• Simultaneously build technical and interpersonal skills; focusing on one will give competition the advantage.
• Ignore the temptation to do everything yourself; instead, outsource tasks to save time.
• Resist the temptation to seek out shortcuts that negatively affect quality.
• Work ethic supersedes talent. The best performers are the ones who rehearse the most.
• Be skeptical of the public speaking classes that don’t deliver results.
• Craft is a mastery of skills, not a formula.
• Transformation is normal when working with a master coach or director.

The post 104 Jordan Harbinger On Starting Over, Building a Business From Scratch, and What Bees Can Teach Us About Performance appeared first on Steal the Show with Michael Port.

Do you need to write a book to achieve success as a Professional Speaker? And what does it take to write a winning book? Listen in to today’s show!

There is not one way to make your way in the world, due to the vast number of options available in this day and age. In this episode, I do my best to answer the question, whether or not you need to have written a book, to make it as a Professional Speaker. I also explain how you can conceive of, then structure and even promote a best-selling book.

In this episode, learn:

• What it takes to write a really good, evergreen book. (3:49)
• The various frameworks that can be used – the Numerical (7:48), the Chronological  (8:35) the Modular ((9:18), the Compare and Contrast (10:05), the Problem and Solution (10:54) Frameworks, as well as the Primary and Secondary Frameworks (11:52) of the book .
• The different ways that you can get your book published. (12:10)
• That as an author, you’re actually in the business of book marketing, not book writing, although writing is part of the process. (13:28)
• Some of the potential pitfalls of self publishing. (15:20)
• Some of the inherent risks and benefits of trade publishing. (18:27)
• What you need to consider about the marketing of your book. (22:00)

The post 103 Should You Write a Book? (If You Answer “Yes,” Here’s How You Do It.) appeared first on Steal the Show with Michael Port.

Do you find that conversations about money are difficult for you? Sometimes the tendency is to avoid the financial aspects that we don’t understand, or maybe aren’t going so well and that we find potentially frustrating. Today’s guest, Preet Banerjee, is here to talk about money, and he’s going to get to the bottom of some common issues relating to our relationship with money.

Press Banerjee is the host of the show Million Dollar Neighborhood. Preet is a personal finance expert and winner of the reality TV show, The Ultimate W Expert Challenge. He writes a personal finance column for The Globe and Mail, and his blog Where Does All My Money Go? was voted Canada’s #1 investment blog in 2010. Preet’s podcast – Mostly Money, Mostly Canadian – is now ranked as one of the most popular financial podcasts on iTunes.

In this episode, learn how:

• Biases affect the way we deal with money, even the financial services industry has figured out how to exploit our biases. (8:04)
• Financial literacy is an important indicator of how you handle your money (and how to improve yours). (13:11)
• Emotions are a driving force behind how we make decisions with our money. (18:23)
• Choosing the right financial advisor is so important, while understanding what to look for and who to trust. (31:45)
• Budgeting isn’t normally a fun activity…but Preet has tips on making it an efficient and productive process. (44:40)
• The “gamblers fallacy” relates to personal finance. (51:04)

Learn more about Preet Banerjee here.

The post 102 Using Simple Behavioral Economics Principles to Make Better Decisions about Money and So Much More with Oprah Network TV Host, Preet Banerjee appeared first on Steal the Show with Michael Port.

If you would like to find out how to successfully negotiate your way towards achieving the outcomes you would prefer in life, listen in to today’s show. Michael’s guest, Chris Voss, used to be the leading International Kidnapping Negotiator for the FBI and learn from the Real Deal.

Chris Voss is the founder, and CEO of Black Swan Group, a consulting firm that teaches Fortune 500 companies how to be better negotiators. Chris has written a book called Never Split The Difference. It’s one of Michael’s favorite books of all time. Prior to 2008, Chris worked for the FBI as their International Kidnapping Negotiator and also as their Hostage Negotiation Representative for the National Security Council’s Hostage Working Group. During his career with the government, Chris represented the US as an expert on kidnapping at two international conferences, which were sponsored by the G8. On today’s show, Chris talks to Michael about his book and how it can help you to develop the skills to negotiate your way to success, in life and in business.

In this episode, we discussed:

• Great negotiators never split the difference and you can learn what they do instead. (6:45)
• How to use calibrated questions rather than basic questions. (9:38)
• Negotiating like a pro by getting people to say ‘no’ first in order to get them to say ‘yes’ later. (13:53)
• Why master negotiators can say ‘no’ and still keep the negotiation going. (18:32)
• The single best question that you can ask to get them to give you a number first. (47:00)
• Hostage negotiation skills work well in business because they give you leverage. (58:03)
• Using specific numbers, and how they can help you close the deal by winning the negotiation. (1:02:45)

Learn more about Chris Voss here.

The post 101 The FBI’s Top Hostage Negotiator, Chris Voss, Shares His Secrets on How to Get Everything You Want (my new favorite episode!) appeared first on Steal the Show with Michael Port.

If you would like to know more about Contextual Models – what they are and how they work – listen in to today’s show, with Michael’s guest, Neen James. Find out from the Energizer Powerhouse herself, how you can perform with excellence and get people to understand and say “yes” to your intellectual property.

Michael describes Neen as a “Force of Nature.” She is the expert and speaker to connect with if you’re aiming for exceptional performance. Recently, both Neen and Michael spoke at an NSA event. Neen blew Michael away with the never-seen-before way that she presented her information. Neen, a published author of eight books, including Folding Time and Secrets Of Super Productivity, often appears in the media, due to her through the roof sales and insightful, growth fueling leadership qualities. Listen in today and learn from the leaders.

In this episode, we discussed:

• Contextual Models will sell your intellectual property – learn the what and why. (2:59)
• Visual models are going to appeal to the person who is very much a left brain person. (13.20)
• Models Neen uses in her public speaking, and how she acts them out with her body. (14:29)
• One trick to give your model some mojo, by using movement. (16:07)
• The value of having people’s attention and your responsibility in that regard. (40:30)

Learn about Mixmax here.

Learn more about Neen James here.

The post 100 Neen James on Creating Contextual Models for Speakers, Authors and Content Creators appeared first on Steal the Show with Michael Port.

Have you ever participated in an online learning course? Better yet, have you ever thought about creating your own course? It’s a daunting task, without a doubt, and that’s exactly why Danny Iny is here. He’s a master at creating online courses – serious online learning with coaching and guaranteed results. Danny is here today to share what it takes to make a course and how to know if you are on the right track with your content, support and pricing.

Danny Iny (@DannyIny) is the founder of Mirasee, host of the Business Reimagined podcast, bestselling author of multiple books including Engagement from Scratch!, The Audience Revolution, and Teach and Grow Rich, and creator of the acclaimed Audience Business Masterclass and Course Builder’s Laboratory training programs, which have together graduated over 5,000 value-driven online entrepreneurs.

In this episode, we discussed:

• Why both online courses and info products can be valuable to your business. (5:30)
• Learn why the transformation from a course is where the magic is. Interaction is just a bonus. (10:39)
• No matter how brilliant you are, there are only so many things you can do well. (16:45)
• Sometimes people are ready to buy your product because it is exactly what they need. This may or may not correspond with a typical sales funnel. (19:15)
• Why a course should be rebuilt from scratch each year. Getting lots of feedback is the key to knowing what to change. (26:36)
• Find out how much content you should have to create a course. The answer will make you uncomfortable. (30:02)

The post 099 Danny Iny On Creating Profitable, Scalable, and Effective Coaching Courses appeared first on Steal the Show with Michael Port.

Understanding your own finances shouldn’t require an advanced degree; today’s podcast episode focuses on how to manage your own financial performance.

David Stein was the Chief Investment Strategist and Chief Portfolio Strategist at Fund Evaluation Group, LLC, a $33 billion investment advisory firm, and spent over 20 years in the financial services industry.

He perfected his teaching style as an investment consultant to numerous not-for-profit institutions where he oversaw billions of dollars in endowment assets. Today he teaches people about money, how it works, how to invest it and how to live without worrying about it. With over 25,000 listens per episode, Money For the Rest of Us is his primary platform for teaching thousands of individuals about money, investing and the economy. The show has been featured in Business Insider, Forbes, and U.S. News & World Report.

In this episode, we discussed:

• David’s early money mistakes. (3:49)
• How much you need to save to retire. (5:55)
• You won’t get rich investing, but you can get rich this way. (7:01)
• How to use your business generated income as a retirement tool. (9:29)
• Invest knowing that no one really knows what’s going to happen. (29:29)
• Health insurance is expensive for everyone. (40:22)
• How to think about money and what to learn from David’s podcast. (51:00)
• If a commission is involved in financial advice, it changes everything. (54:34)

You can learn more about David Stein and his podcast, Money For the Rest of Us here.

You can get David’s reading list here.

You can join David’s Money for the Rest of Us Community here.

The post 098 Money For the Rest of Us with David Stein (how to get it, invest it, and enjoy it) appeared first on Steal the Show with Michael Port.

Are you living a good life, or just simply living? The characteristics of a good life are completely subjective, and that’s kind of the point. Today, Jonathan Fields is on the show to share how to find out what sparks you and what it will take to for you to live a really good life.

Jonathan Fields is an award-winning author, speaker, serial entrepreneur, podcaster and community builder. Jonathan is the author of How to Live a Good Life and he is also the creator of Camp GLP. His podcast, The Good Life Project, airs twice a week and features guests that reveal their keys to living a good life!

In this episode, we discussed:

• The single most vexing question of the human condition and why Jonathan tackled it. (3:30)
• Why being reactionary is destructive to the human condition. (9:45)
• The role that mindfulness and intention play in living a good life. (12:10)
• Why it’s better to live your life imperfectly than to live the life of another, perfectly. (14:45)
• Are you willing and ready to drop the role of expectation, to stand in the role of your true self? (19:03)
• Why you should focus on being helpful, rather than being accepted. (25:29)
• The “Laws of the Bucket” and what it means to you. (41:20)
• How to find out what “sparks” us and the different kinds of sparks. (55:30)

You can learn more about Jonathan Fields and his work here.

The post 097 How to Live a Good Life Onstage and Off with Jonathan Fields appeared first on Steal the Show with Michael Port.

Thinking about creating online courses for your audience? Greg Smith, Co-Founder and CEO at Thinkific, delves into important steps to achieving this goal. A lawyer, instructor, and lifelong student, Greg has taught thousands of students online and helped others create their own online courses.

In this episode, we discussed:

• The most challenging thing about building a business. (3:20)
• A clear brand identity is the key to success. (9:15)
• Branding + online marketing = success in online training. (11:30)
• How content creators can become successful with online courses. (13:02)
• Why you should launch something you may be embarrassed by. (13:44)
• 2 goals of any online learning course. (21:10)
• The best way to plan out your online course. (22:30)
• How and when to use Formative Assessments. (24:47)

Learn more about creating online courses and resources to help you get started.

The post 096 How to Create Online Courses for Fun and Profit with Greg Smith, Founder of Thinkific.com appeared first on Steal the Show with Michael Port.

Want to make 2017 your best year ever? Of course you do. Who doesn’t? With the help of Michael Hyatt, we discuss key ways to achieve all of your goals within a year.

Michael Hyatt is an author, blogger, speaker, and the former chairman and CEO of Thomas Nelson Publishers. He is the author of the book Platform: Get Noticed in a Noisy World, a New York Times, Wall Street Journal and USA Today Best Seller.  He is also the creator of 5 Days To Your Best Year Ever.

In this episode, we discussed:

• The importance of goal setting in all aspects of life. (06:52)
• 3 reasons why people give up on pursuing their goals. (10:00)
• How to stay focused. (16:27)
• Is there a good number of goals to set? (19:26)
• 3 areas of life where we should set goals. (21:07)
• 3 zones for setting goals: comfort zone, discomfort zone, and doubt zone. (30:57)
• The keys to achieving a set goal. (33:45)
• Reap the rewards of reaching your goal with two main ingredients: clarity and confidence. (41:04)

Learn more about Michael Hyatt and his upcoming events.

The post 095 How to Achieve All Your Goals with Michael Hyatt appeared first on Steal the Show with Michael Port.

Learn the art of persuasive speaking while connecting with your audience.

Roger Dooley is an author, international keynote speaker, and consultant. He is a recognized expert in the use of brain and behavior research to improve marketing, sales, and customer experience. You can check out his best-selling book Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing. Roger also writes the popular blog Neuromarketing, as well as the Brainy Marketing column at Forbes.com.

In this episode, we discussed:

• The difference between influence and persuasion and how they work together. (01:47)
• The 7 principles from author Robert Cialdini on how to win someone over with persuasion. (07:32)
  1. Liking – The importance of identifying things that you might have in common with a person. (08:27)
  2. Social Proof – It’s essential to demonstrate to your audience that others like you and your product. (12:01)
  3. Reciprocity – How to persuade someone to do something for you without any expectations. (14:03)
  4. Anchoring – The benefits of influencing your audience with numbers. (17:48)
  5. Flattery – How saying kiwi mastercard casinos nice things about others can positively affect your performance. (19:58)
  6. Unity – How to establish the connection between you and your listeners. (27:18)
  7. Consistency – People will act consistently with you in accordance to the relationship they think they have with you. (33:51)

Learn more about Roger Dooley and his upcoming events.

You can also connect with Roger on Twitter.

Find out more about Robert Cialdini’s 7 Principles of Persuasion in his books Influence and Pre-suasion.

The post 094 The Social Science Behind Public Speaking with the Author of Brainfluence, Roger Dooley appeared first on Steal the Show with Michael Port.

When we suggest to increase your website’s visibility, we don’t mean to use neon colors and the largest fonts possible. With author and entrepreneur John Jantsch, we discuss:

• Understanding today’s search engine optimization (04:37)
• 3 things to know before you build a website. (07:19)
• The 3 elements for building a successful web page: research, structure, and networking (15:25)
• The difference between a landmark theme and a niche theme. (19:45)
• The benefit of linking other website contents to your web page. (25:47)
• How to recognize when you have reached the “critical mass stage”. (33:56)
• Which direction to go in marketing your content. (50:36)

John Jantsch is a speaker and marketing consultant. As the founder of Duct Tape Marketing, John specializes in assisting small businesses to grow by installing predictable, repeatable marketing systems.

John is the author of the following marketing and business books: Duct Tape Marketing, Duct Tape Selling, The Commitment Engine, and most recently, SEO for Growth: The Ultimate Guide for Marketers, Web Designers, and Entrepreneurs.

Find out more about John Jantsch and his upcoming events.

You can also check find out more about John’s Blog and Duct Tape Marketing.

The post 093 Search Engine Optimization for Speakers and Others Who Want Online Visibility with the Author of Duct Tape Marketing, John Jantsch appeared first on Steal the Show with Michael Port.

Learn how to help your customers make the right decision and seal the deal, when price really matters the most, with Ian Altman.

Ian Altman is a multi-bestselling author, strategic advisor, and international keynote speaker. As a successful services and technology CEO for two decades, Ian draws on years of success and research on how customers make decisions.

Ian is also the host of the weekly podcast, Grow My Revenue Business Cart. His latest book, Same Side Selling, gives practical steps to break through sales barriers and turn confrontation into cooperation. In addition to Same Side Selling, Ian also wrote Upside-Down Selling and Same Side Improv.

In this episode, we discussed:

• Making the transition from writing books to speaking professionally . (12:29)
• Common problems that speakers make when trying to deliver value to their audience. (13:20)
• How and when to raise your speaking fees. (18:06)
• Why price matters most when the seller believes that price matters most. (28:52)
• Building a successful online learning center. (38:58)

Find out more about Ian Altman and his upcoming events.

You can also connect with Ian on Twitter.

The post 092 Price Matters Most When the Seller Thinks Price Matters Most with the author of Same Side Selling, Ian Altman appeared first on Steal the Show with Michael Port.