Welcome to episode 208 of Love, your Money! In this episode, we’re diving into The 7 Steps to Wealth, my guide for helping you build a financially healthy life.
There’s no secret to financial success — but there is a blueprint. Anyone who learns, internalizes, and implements all of the 7 Steps can achieve their financial goals and earn their personal and financial freedom.
In this episode, you’ll learn about the importance of reframing your deep-rooted beliefs about money, how to speak about money in a healthy and empowering way, and why common misconceptions about investing are holding you back from financial freedom.
Here’s what you’ll find out in this week’s episode of Love, your Money:
- The promise of The 7 Steps to Wealth
- Deciding to be rich
- Financial health vs. social approval
- Evaluating your money operating system®
- Automating your cash flow
- The societal myth about over-spenders
- What you should stop saying about money
- Expanding your financial possibilities by asking
- Reframing your view of earning money
- How the rich got rich
- The truth about the stock market
- How to protect your wealth
The Money Blueprint® for Business Owners
The Money Blueprint® is profit coaching that puts you in control of your business finances for good. No more Head-in-the-Sand Syndrome. No more fear, stress, or shame. Simply total confidence. Learn more here!
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Hilary Hendershott: Welcome back to Love, your Money with Hilary Hendershott. This is The Seven Steps to Wealth. The framework I’m going to talk about in today’s episode is invaluable. It’s the foundation of almost all the work we do with clients. We follow this framework with our wealth management clients, and we also teach it to our business owner clients. It’s literally the foundation and context of the yearlong training we do to teach business owners everything they need to know about their numbers. I do talk about this framework often, so some of this might feel like a repeat for you if you’ve listened to me before, but it’s worth listening to again and again until you’ve really got it mastered. Having guiding principles is a really powerful way to create reliable results in your life, and I want to give you really elegant and effective ways to internalize the principles of a healthy financial life. If you would like to download the Seven Steps to Wealth guide we put together so you have this on your computer, you have it written, you don’t have to take notes, it comes in a beautiful PDF guide and it has little audible lessons that partner with the written lessons. It’s really quite a stunning resource. Just go right now. You can download it at HendershottWealth.com/7Steps. That’s the number 7 and steps plural. One more time HendershottWealth.com/7Steps.
The title of this episode and framework, The Seven Steps to Wealth, might sound elementary or simple but I promise you this is not going to be a simple conversation. You might need a couple of days to really grapple with this, what it will take to put this to work in your life. That’s the feedback I typically get when I speak live on this topic. Putting this framework to work in your life and learning to follow these seven steps could take a year or more, and it’s absolutely worth every minute you put into it. You’re already engaged in several of these steps too, I’m sure. You’re earning income, you’re saving, or you’re thinking about saving. And I’m quite sure you’ve purchased an insurance policy or two just as an example. These are all part of this framework. If we start to talk about financial failures, every story of financial failure you’ve ever heard was as a result of failure to execute on one or more of these steps. Whether it’s because someone overspent their income and never saved or because they didn’t want to pay for renters insurance and ended up losing everything to theft or a fire, or because they invested in something they shouldn’t have and lost their empire, every one of these types of mistakes is going to be avoided by following the seven steps.
Because the thing about money is that all these seven steps are critical. Not doing just one of them puts all the rest of them at risk. So, remember those old strings of lights? My family put these lights on our Christmas tree every year. If you don’t celebrate Christmas, I’m not sure if you’ve had occasion to see these kinds of lights but if one bulb goes out, the whole string goes out. I believe they’re called circuit strings or circuit lights. If your string of lights goes out, you have to find that one bad bulb because the whole string would be out and you have to replace that one bad bulb, and then a whole string would come back on. So, just like that string of circuit lights, you really do have to keep all the steps to wealth alive and well and functioning so you can create systems so that they’re in the background and running without daily effort from you. We’ll talk about that as we go through these steps. Finally, if you learn and internalize and embody these seven steps, you’ll be totally financially empowered and you’ll achieve financial freedom. That’s a big promise, and I do mean it. So, what are we actually here for? We’re here for financial freedom. I use the terms retirement and financial freedom interchangeably because they’re really the same thing. Financial freedom is when the income from your assets or business interests can replace your earned income for the rest of your life. In other words, that’s when you can stop working or you can work only when you want to. That’s the dream. That’s the goal. Financial success is not mysterious, and it’s not out of reach for you unless you believe that it is. It’s possible for you if you commit to it today and I want to walk you through the seven steps that will enable it.
So, step one is decide. In order to be rich or wealthy, you, of course, need to do the things that will get you there but there are plenty of people who achieve wealth and lose, squander, or spend it. And you could take the position that they feel to preserve their wealth because they subconsciously rejected that wealth like they weren’t ready for it. And you would not be wrong. There’s that adage about how when you decide you want to really create a meaningful and long-term relationship in life, you need to make room for that person to show up. Right? Clear a section of your closet, get rid of the photos of former partners, stop working all weekend so you have space in your calendar for dates. And it’s the same way with money. You have the opportunity to decide to be rich and to do all the things required to get there and do the things required to preserve it once it arrives. And I want to talk about the word rich because many of you are having a reaction to that word. “Rich? Hilary, that’s excessive. That’s too much. That’s a goal I do not desire. There’s nothing in it for me. Also, rich people are greedy.” Like, I’ve heard all these things. So, let’s just talk about that word for a minute. The dictionary definition of rich is having great material wealth. Being rich is simply being surrounded with resources, having lots and lots of resources. And there’s no way that’s a bad thing. The reaction to the word rich comes from old definitions, like societal narratives.
And I think it accomplishes two things. First, if you reject the idea that you want to be rich, you definitely don’t have to do the work. You don’t have to forgo today’s pleasures in order to save. You don’t have to find a high-paying career. You don’t have to pay big tax bills, etcetera. And second, it allows us to continue to demonize rich people. Demonizing rich people is possibly the most effective way to keep money out of your life and ensure you have a dysfunctional relationship with your money for the rest of your life. If you are someone who demonizes rich people, I get it. I get it. Lots of people do it. It’s definitely in the zeitgeist. However, it’s not only false, it’s hurting you. Yes, there are terrible and immoral and criminal rich people, and there are also lovely and contributory and giving rich people. And there are terrible and immoral and criminal poor people. And there are lovely and contributory and giving poor people. The balance of a bank account does not force its owner to behave differently. Not only that, those people are on their journey through this lifetime and this universe, and you’re on your own journey.
So, I invite you to just release all of that thinking. All it’s doing is limiting your possibilities and probably your friendships. You get to write the script, so don’t betray yourself thinking that if you set a goal of achieving wealth, otherwise said being rich, that you’re going to turn into someone you’ve never met. You’re still you. And you can either work your whole life to have no wealth, average wealth, or a lot of wealth, right? You’re going to be working anyway. So, a lot of wealth, riches is really the only logical outcome to target. It is okay, it is safe, it is moral, and it is exciting to decide to be rich. Of course, financial success is better than financial failure, but we get confused about that. There are many people out there with a mindset about money that it’s bad to chase the result of money, or that money is a shallow end. And if you think that, you’re really in conflict with yourself. You’re at odds with yourself. You want financial independence, but there’s cognitive dissonance there. This comes down to your money operating system. I’ll be talking more about that later in this episode, and we really have to get that resolved for you.
But people get stuck because they haven’t decided to actually follow the rules. Yes, there are rules to money. It sounds basic to say it but if you aren’t saving and instead you spend your money on clothes and vacations, I did that too, before I decided. But while you’re doing that, you haven’t decided to be rich. If you’d rather lounge on the couch than look for a job, you haven’t decided to be rich. If you’re spending $2,000 a month on a car payment, but you don’t have any assets earning compound returns yet, you haven’t decided to be rich. If your business is earning $60,000 a year and you’re not investing in yourself to get through that threshold, you haven’t decided to be rich. Let me say a little bit more about what I mean. In my 2013 TED Talk, I told a pivotal story of my own financial disaster. So, I’ll tell it to you now.
There I am, pulling into the gas station to get gas. The tank is empty. I’m in my gorgeous BMW convertible, which is 100% owned by the credit union and rented back to me for a high monthly payment. I put my credit card into the machine and it gets declined. I panic a little. I try another card and another, but they’re all declined also. Now, I’m really panicking. My credit cards are all maxed out and my bank accounts are empty. It was the end of the line. And thinking back to that, I was so embarrassed. I was humiliated. I’m ashamed. And I really, truly see somehow for the first time that things need to change. I was a chronic over-spender, but until that moment, my earning ability had somehow kept up with my spending habit. So, I walked home from the gas station that day in my three-inch high heels, and on that long, painful walk home, I’m talking to myself and I’m saying, “Oh, man, this is a big mess I got myself in,” and my feet are in pain from those heels. I’m getting blisters. And I know that my financial mindset was totally bankrupt at that point in my life. And really, that is what I had to accept that the rules I had been playing by had to change.
So, that was the moment when I said to myself, “I don’t know how, but I’m going to figure this money thing out.” And by the way, if you’re listening to this and you’re thinking to yourself, “Hilary, I can’t decide to be rich because I don’t know how to get there.” I also understand that. I was in the same place. And literally what I said to myself at that moment was, “I don’t know how to do this, but I’m going to figure it out.” I’m smart, I’m educated, I have really good intentions. I just have really bad results. So, I decided to learn more and more about how and why we act the way that we act around money. I decided to become an expert on behavioral finance and money psychology. I read what the experts already know about the difference between people who want financial freedom and never get it and the people who do get it. And I discovered the hole in my financial bucket. Instead of being engaged in the process of becoming financially healthy, I was actually engaged in the project of proving to other people that I was already there. I had the emblems of wealth confused with the reality of wealth, and I was emptying my bank accounts, playing a very destructive financial game.
So, I just got really committed to producing different results. I decided to chase financial health instead of social approval, and I did put what I learned into practice, and I really did turn things around in my financial life. So, at this point in my life, many years later, I’ve rebuilt the bank accounts and the retirement savings. I run this business that I love. I have a great team. I pay them well. My husband and I own homes in Silicon Valley and Puerto Rico. The exit value of my business is multiple seven figures. So, I have changed my financial trajectory. I really, really did it. And you may not see yourself in the troubles of my financial past. Your life might not look like mine. Hopefully, my rock bottom was lower than yours ever will be. But wherever you are financially, you’re listening to this podcast. So, there’s something you want in your money life and it comes down to your core money beliefs. It is something that God installed when you were a child and that core money belief has run everything ever since. It gives birth to all your other money beliefs and money blocks. I call this core money belief your money operating system. It’s a very simple script or statement. It’s something like you have to work hard for money or, “Money is complicated,” or, “I’m just not good at money,” or, “There’s never enough money.”
You’ve heard these sayings before. What you don’t realize is that every one of us is programmed with one of them. “There’s never enough money,” is actually a really popular one. It’s something that was definitely real for me for many years. That was my money operating system. I found I actually had two money operating systems working at the same time, so that could be possible for you as well. And then some people believe there’s always enough money. Yes, some people believe there’s never enough money. Some people believe the exact opposite. And neither of them are right. Another one is money is bad or money is evil. There are a lot of money coaches out there and a lot of experts talk about money blocks kind of like they’re a minefield, right? They’re spread out all over your life and they need to be discovered and dealt with individually. But I want you to just try on this paradigm for the purposes of this podcast or this lesson, just try on this way of thinking.
So, your money operating system is like the seed and all of your other money actions, behaviors, beliefs, and experiences come from that seed. Your money operating system is the core belief, and the others harmonize with it and support it. Your money operating system is a really simple, strongly held belief and it’s at the center of your money life. It’s how money is. It’s what’s true about money to you. It dictates how all money things go. You have lots of things that you believe about money and yourself but this money operating system is the core of it. So, other money coaches tend to refer to all of these beliefs as money blocks. When I hear it taught elsewhere, people talk about them like they’re on the same level but they’re not. Your money operating system actually gives birth to your entire money life, and you’re going to have a very deeply interconnected network of thoughts, behaviors, and actions that are aligned with your core money operating system® because your brain can’t hold contradictory information for more than a few moments, right? That’s cognitive dissonance. Our brains don’t do it. There’s probably dozens, if not hundreds of beliefs that tie in to reinforce and support your core and money operating system®. And at this point, you’ve been doing life for a while, right? So, you’ve produced results and your results all align with your money operating system®. So, you’ve got lots of reinforcement for this whole thing.
Let me give you an example from my life. So, my money operating systems® were there’s never enough money and money gives me value. Almost like money is the measure of my value in the world, right? So, the system of beliefs that supported these operating systems included believing and sometimes saying the following things:
- “I will never earn a high income because I got a Bachelor of Arts in Economics, not a Bachelor of Science.” Yes, I really believed that.
- Also, “Rich people are special and lucky, and I’m neither.”
- “If I don’t have the right car, people will think I’m worthless.”
- “If I pay for dinner for all these people right now, they will like me.”
- “If I try to negotiate for that, he’ll think I’m poor like I can’t afford it and therefore I’m worthless.”
- “I have no idea how to get them to give me a raise.”
- Finally, “Even though I don’t have enough money in my bank to buy this right now, I’m going to buy it anyway just because I need it to feel good and free and liberated.”
So, if you really listen to those money beliefs, those statements that were true for me about money, you can see not only the kind of destructive behavior that they lead to, but you can also see how they all dovetail really nicely with the core beliefs of there’s never enough money because I was always spending all the money I had to prove I wasn’t worthless because I thought money made me valuable. And then one day I just decided I was done. Being stuck in my BMW on empty at a gas station was rock bottom for me. I was sick to death of all the misery, all the nonsense I was causing, and I decided to change things. And it’s a powerful moment when my clients decide that they’re going to have financial health and wealth. It really moves me. So, right now, if you’re listening to this and you’re thinking, “I can’t just decide to be rich because no part of me believes I can be rich now,” you know, that’s only there because you decided something was true about money or you in your past. And now you know that that’s your money operating system. You can actually decide with no evidence. You can fully commit and lean into the commitment of having decided without actually knowing how to get there. And that’s what I invite you to do right now is just decide.
Step two is plan. To be honest with you, most people never accomplish this step. I could call this saving money regularly. I could also call it spending less than you make. But those two things are just two sides of the same coin. Money comes in and it either goes to one of three places: taxes, savings, or spending. What you don’t spend, you save, and vice versa. Whichever one you choose consciously dictates the other. So, most people choose spending first. They save what’s left, which is typically not much, and then they spend their whole lives being dominated by this math. It’s a little bit like being upset about the law of gravity. We let anger or resistance or confusion or subconscious stuff that has nothing to do with money run the show. Most people are stuck either in step one or step two. And that’s why if you read the media about how ill-prepared for retirement Americans are, I mean, this explains that. It’s because they never get through step one and step two. The beginning of having a plan, a wealth plan, is deciding to make the tradeoff between today and tomorrow by putting money into a savings or investment account instead of spending it.
Of course, you know you have to spend less than you make, but it’s not really a step. It’s more of a necessary but not totally sufficient condition to achieving financial success. And there’s not that much I can say about it because you’re either saving or you’re not. And if you’re not sure, you’re probably not. And I know life is expensive and there’s this thing called expense creep or budget creep. Basically, things tend to expand to the size of the space you give them. So, if you allow yourself to spend the entire balance of your checking account, you know you’re getting paid every two weeks and you’re like, “I can spend all that,” then you probably spend your whole paycheck. To solve this problem, I recommend you automate your cash flow through a system of multiple accounts and automated transfers between those accounts. Cash flow is literally the flow of money into and out of your accounts as you earn and spend it. Automation allows you to save automatically for things like vacations and your next car. That way your goals are getting funded without you thinking about it.
This makes managing spending really easy because you save first and then you just spend from one checking account of many, right? You have an ecosystem of many checking accounts, but most of them you don’t spend from. Financial automation totally takes the drama out of your financial life. And I have many, many multi-millionaire clients who swear by this system of managing their cash flow. So, whether you automate or not, you really are the one who configures all the obligations in your life like rent, food, car, tuition for the kids, clothes, travel, gifts. You get to say how big those expenses are. Most people think they have an income problem. Most people think they don’t earn enough money but in reality, most people have a spending problem. People who have a wealth plan spend less and save consistently. It doesn’t have to be every single month, but it probably should be.
For some people, like real estate agents who have very inconsistent income, it can be zero for months and then they get a check for six figures. Automation for folks like that is totally different. If you have lumpy or an inconsistent income like this, you can predetermine what percentage of every check is going to get saved for taxes and long-term savings. And then I found the best thing to do is keep your account where that lumpy income gets deposited at a completely different bank from where your personal spending accounts are. You do not want that account to be visible to you all the time, and you can totally artificially create the experience of consistent personal income by keeping your overhead low and paying yourself irregular, consistent income into your personal accounts. So, that six-figure check might get distributed in smaller equal transfers over four or five or ten months. And that way your bills get paid and you don’t overspend.
What this brings is really a sense of personal accountability, I mean, really being responsible for your results in life and that means not being a victim to the past. That means you look around you and you say, “Look, I have control over this. It’s my decisions that are going to right this ship.” A man named Steve Siebold wrote a book called How Rich People Think. He interviewed a thousand millionaires and his number one conclusion, the number one predictor of wealth was a sense of personal accountability. He said rich people believe they’re responsible for their results, and that is correlated with being financially independent. So, being responsible, taking responsibility for your life can feel like a burden but the really interesting other side of that coin is that taking responsibility is really the only way to get true freedom. I mean, just look, if you’re a business owner or if you’re not, you know a business owner, those people are responsible for everything. Business owners pay the bills. Business owners have to sell. Business owners deliver the service. Business owners have to hire and fire. You do all the things. But on the other side of the coin, you can take two weeks off and you don’t have to ask anybody, right?
So, if right now your situation is you’re spending money, you know you shouldn’t, you really can’t get an alignment with a wealth plan. I invite you to consider that spending, despite knowing you shouldn’t, may not be a willpower thing. It goes back to the money operating system until you identify and begin to change it. Again, your mind is powerful. Think about my story that I shared a few minutes ago. I was spending all my money and then some literally so I could live the life of a rich person. I wanted to look like I was rich, but I missed the point that being rich isn’t about how much you get to spend. It’s really about how much you get to keep. What I had to give up was that my value as a human being was a function of whether other people thought I was already successful and rich. It’s funny in life how sometimes you have to give up your attachment to something in order to really achieve it, right?
I mean, have you ever known someone who really wanted to be admired, but were they actually admired? Probably not, because we admire people who don’t care what we think of them. They’re just living their life, doing their thing that they’re an expert at. They’re in tune with their own principles and values. They’re no longer trying to impress people or look good. And that’s what makes people admirable. Let me tell you about a business owner I know named Erika. Erika runs a successful consulting firm. She takes home about a quarter million dollars a year. And out of that quarter million dollars, she’s saving about $25,000. So, that’s good but it’s not great. She really needed to be saving more, especially since she started late. So, we’re talking to her about it but her experience is she just can’t manage to save more than that. She knew she needed to save more and she’s telling me, “Hilary, I just can’t do it.” She could not figure out where her money was going. It was really emotional for her. She even was carrying some credit card debt, which doesn’t make sense at that level of income or if you’re saving money. I mean, paying credit card interest just doesn’t make sense if you’re having to do that chronically.
And what she eventually saw after we started working on her money operating system together was that she was spending tens of thousands of dollars a year on clothing, trips, and dinners out all by herself. What Erika finally saw was that spending money had become a substitute for companionship and friendship. She felt unloved. She was lonely. So, spending on herself like that was giving her temporary satisfaction, temporary love. Then she started to make efforts to see old friends and make new ones. She went on a few dates and she finally stopped needing to spoil herself so much. And she found she was finally able to pay off the credit card debt and increase her net worth. I tell you this story because there really is a widespread myth in our society that over-spenders are irresponsible or short-sighted, and that just is not always the case. Money can be really, really metaphorical in our lives. Getting back to the idea of planning, for every single one of my firm’s wealth management clients, we have a plan in place for them that we are truing up to on a regular basis inside our partnership.
Charles Schwab recently reported that people with a written financial plan are 60% more likely to increase their savings rate over time and twice as likely to stick to their savings plan than those who don’t write it down. And yet, only 24% of Americans say they have a wealth plan in writing. In fact, more Americans, on average, played the lottery this year than created a wealth plan. That’s not good. You want to be growing your net worth on a consistent basis. There’s a lot more to say about this. For example, you need to work into your plan, your shorter-term goals, like buying a house and paying for the kids to go to college. But for now, let’s just say you need to plan for those things. And if you accomplish deciding that you want to be rich and planning to achieve your goals, my friend, you have achieved more than most people ever will when it comes to their money.
Step three is speak. Unfortunately, we do live in a society where the commonly held belief is that money is a private issue. I know families and friends who absolutely will not talk about it publicly, and I just need to acknowledge that the ability to speak about money may be a function of privilege. Some people live in places and cultures where talking about money is dangerous. It might get you robbed or worse. But if you are safe and you can create relationships with just a few people who are safe, assuming that, talking about money is really critical. I mean, talking is what leads to business deals and romantic relationships and buildings getting built. Talking with other people is what gets you out of your mind and into reality in life. And some of the things you’ll say about money when you’re invited to speak out loud and freely might just surprise you. Here are some examples of things I invite you to stop saying about money. Saying these things leads to bad money results. Here we go:
- “Money is complicated.”
- “Money is overwhelming.”
- “I can’t afford that.”
- “She makes more than me, and I resent that.”
- “My husband’s better at the numbers than I am, so I just let him handle the money.”
- “Money means something about me.”
- “It’s not safe for me to be rich.”
- “It’s not safe for me to want to be rich.”
And here are some empowered things you can say about money to replace those things.
- “I wonder how I can bring more money into my life.”
- “I wonder why money has gone the way it’s gone from me in the past.”
- “I’m not going to put that in my spending plan.”
- “You know, I checked in with myself and if I accept your offer, I will feel well compensated. What can we do about that?”
- “What kind of return is my savings earning right now?”
- And, “Everyone around me has the opportunity to be wealthy, including me.”
The point here is to become aware of and present to you what you’re saying about money. For many of you, this means beginning for the first time to talk out loud about money. So many of us were only talking to ourselves about money, maybe to our partners about money. And it is that dialogue that’s giving rise to your experience of money. It may very well seem like talking about money is a very small piece of your experience but I promise you, I promise you it’s formative. So, I’m inviting you to begin to amass an empowered dialogue about money.
Step four is ask. This is where leverage begins. So, I mean, the kind of asking that comes with the expectation of delivery. There needs to be a pulling for or a calling for increasing money and wealth over time. You could manage this simply by consistently asking for raises, but it’s taking on the view, the desire, the commitment that would have asking for all kinds of things come naturally. You can create a game in your life called the expansion of wealth. It’s not an expectation that the world provides for you without your participation. But we all know in this life that there are the kinds of results that you can produce on your own and then the kinds of results you need the partnership or agreement of other people to accomplish. We all have the same amount of time in the world, right? So, how come some people accomplish so much versus some people accomplish so little? It’s because people who produce incredible results in the world know and have accepted that anything worth giving their life to, anything worth being really proud of takes a partnership, a team, a tribe, a community. It takes other people.
You can do way more in the world when you’re not on your own. The people who produce miracles, lead organizations, efforts, teams, and partnerships who make a difference do that in partnership with other people. So, this step that I call ask is really about you asking for and wanting and expecting your results in life to get better and better over time. Actually, this naturally happens in most people’s lives without them even doing anything about it because our forties and fifties are our highest earning decades. That’s because income tends to go up over time. Not for everybody, but for most people, that’s true. The other kinds of things the ask step includes are asking for a raise, increasing your prices, any form of negotiating, building business partnerships, doing what it takes to increase your technical skill set with the intention of raising your market value, fine-tuning profit to increase the value of your business. These things seem kind of big. Some more micro examples could be creating a nanny share to decrease your household childcare expenses. Instituting an annual, “We buy no stuff this month,” tradition in your family or even buying a Toyota instead of a Lexus.
You probably have a friend who’s always talking about their next opportunity, next investment, next business plan, their next idea. That person is engaged in asking the world for more and more. You know, maybe you should spend more time with them. I mean, assuming their projects are actually fruitful, maybe they’re the kind of person who’s always moving, always in action. They’ve always got a hot, new, bright idea. They’re always looking for the next big thing, but it’s more like a get-rich-quick scheme, right? It never seems to pan out. You want to pay attention to that, too. I mean, everybody has failures, but some people try the same thing over and over again and get bad results every time. They just keep trying. So, you don’t want to emulate them. Also, let’s definitely have it be a win-win. Get yourself to a place where when you ask for something, you’re totally convinced that person will be better off if they do what you want them to do. For example, if you were to take on a business partner and that partnership enabled you to build a company, the two of you, to build a company that’s ten times as big as what you have now, obviously you’re both better off.
And if you had that vision when you spoke to that person about partnering with you and your business, you would be 100% convinced that you’re both going to be better off and that vision you have is going to influence what you say and how you say it. It will increase the chances that person is going to say yes. Negotiating is really important in life and it really mostly only applies when you want me to pay more and I want to pay less. So, if you’re negotiating, often that is inside a zero-sum game. It’s often not a win-win, so negotiation can be distinct from collaboration. Any time you ask someone for something, you want to know what you have to offer and you want to know what you want to get out of it. So, here are some examples of asking:
- Bringing in a business partner.
- Asking someone to mentor you.
- Building an executive team for your company.
- Asking a venture capitalist who invests in your company.
- Asking your uncle to invest in your company.
- Asking your husband where the investment accounts are.
- Asking your friend to make something you can sell at the charity auction.
- Asking someone to refer you business in exchange for an affiliate share commission.
- Asking someone to carpool with you and negotiating the price of your new car.
Remember, asking is conceptual. It’s about always wanting your life to get bigger and better and to expand and improve but it’s also tactical. It’s those conversations you have with other people that create opportunities and projects that expand your possibilities. So, that’s step four.
Step five is earn. Ask comes before earn because you’re going to start working in the world, earning whatever you do, right? You’re already working so you just start wherever you start. And then once you become conscious of the need to leverage and grow by asking, you naturally begin to focus on increasing your earnings. So, like I said before, income tends to go up over time. So, let’s just say there’s this natural trend upward over your life for earnings. If you want to get on a steeper climb and most of you do, you have to take lots of carefully strategized steps to get there. There are an infinite number of conferences, coaches, training programs, and opportunities to learn how to make money. Most business coaches spend 100% of their time coaching just this one step. They dedicate their entire careers to showing people how to earn money. Earning money is exciting. It creates possibilities. But most people who earn high income don’t retain it or grow their wealth because they’re missing the other six steps.
There are a lot of ways to earn money out there. Each of you listening has your own. I could not possibly hope to do a thorough and actionable treatment of what it takes to earn money in a single podcast episode. You’re already engaged in earning money the way you earn money. For some of you, to earn the income you want, you’ll have to change how you earn money. For some of you, you’ll want to look at creating multiple revenue streams. For some of you, as you heal your relationship to money, you’ll naturally just earn more money. Many of my past clients tell me they feel like a magnet for money. That’s a fun thing. And the supply of wealth in the world is infinite. Money is not a zero-sum game. You can attract as much of it to you in this lifetime as you are willing and able. I promise you, it all gets redistributed eventually. And of course, the threat of the money operating system weaves its way through this conversation. I can’t tell you the number of times I’ve said to people, “If you want to make more money, you have to grow your business,” or, “If you want to make more money, you have to leave your job.” And they protest. They give me the reasons I’m wrong or the reasons they’re already trying and they can’t.
So, this tells me a couple of things. First, that person has a big limitation in thinking that comes from their money operating system. And second, they haven’t decided to be rich. There are some occupations where you know, full stop, you’re never going to be wealthy, military, elementary education, social work. We all know these occupations are beautiful and noble, but we also know they’re compensated at a very low rate. There’s just no way around the fact that if you work in one of these occupations or one like it, your only options to grow wealth are pretty much to marry well, inherit, or win the lottery. People who work in these occupations can choose to live in low-cost areas. They can keep their cost of living really low and they can still save and invest and grow their wealth and they can achieve financial independence. It’s just really hard. But in urban areas where the price of rents or cost of homes is very high, it’s almost impossible. And that’s really what I mean is like some of you out there are probably in an occupation or maybe running a business or doing a thing that’s never, ever, ever going to pay you enough. And if that’s the case, you really only have a few paths to take. If you want to plan to earn more, you will need to move on and find some way to expand your financial life. You’ll need to do something else as a way to get compensated.
So, would you like to know how people who are rich got rich? There is data about that. There’s data that tells us how wealthy Americans get wealthy, and it’s split about evenly a third, a third, and a third. So, about a third of wealthy people in the United States inherited their money, a third of wealthy people earn their money as employees of corporations, and a third of wealthy people earn their money as business owners. People get rich working for corporations that offer pensions and also working for private companies that offer good employee stock ownership plans. People also get rich working for companies with lucrative employee stock purchase plans, or they work for companies that go public. Obviously, people get rich working as executives for companies that give them huge compensation plans that are a combination of cash and stock. And finally, people do get very rich working as employees of corporations where either one person has a high income or they both have either medium or high incomes and they just keep their spending really, really low over time.
If you’ve read the book The Millionaire Next Door, it’s these folks that book was about. There’s a lot of dialogue in the entrepreneur community that employees of companies can’t get rich, and that is just not true. So, if getting the financial freedom is getting from Earth to the moon, you need fuel to propel the rocket ship. And income is that fuel. You can earn income working for someone else or as a business owner. Many folks get to the point where they’re earning income from their investments and we’ll talk about that in the next step. Start to think about earnings as some kind of intersection between your choices and your thoughts. So, if you went to law school, the earnings world could look one of a couple of ways. So, if you’re a law professor sitting in your office at law school, it seems like that’s your income capacity. Like, I don’t know, it’s somewhere between $160,000 and $275,000 a year. I am just guessing but I’m probably in the range. But if you change your thought to, “I could actually go start a big law firm,” suddenly your current limitation isn’t your real limitation.
Most people focus on the decisions you make, like what school you went to and your grades and your degree. And some people just focus on mindset. Right? There are the people who are always talking about manifesting and like not much else. They see things like, “Just think a higher number into existence by thinking in a higher vibration and it’ll happen,” which of course does not work. You kind of need a combination of the two. I once interviewed a woman named Katie. She worked for the city government for a decade, so she worked in civil service. There really is not much of a precedent for people whose careers have been in civil service to transition to working in corporate America, is there? But Katie did it. She did it through a combination of changing her choices and changing her thoughts. She decided she was going to make the move. She started speaking about it. She had to talk to a lot of people. She learned the vocabulary that would be required of her in a corporate setting. She set her sights on a role that made sense given her skill set. And she got it. She has quadrupled her income since those days of working for city government, and she’s now got a VP title. And one of the companies she worked for had their initial public offering while she was working there.
Pivots are possible and following this framework works. And we all know the world-famous stories of breakthrough entrepreneurial success. Right? Oprah Winfrey, Mark Zuckerberg, Sara Blakely, Elon Musk. All of these people have very humble beginnings and nobody handed them what they’ve accomplished. So, as long as we live in a free market economy, any level of success is available to you. You can alter your thoughts or your choices, and you can have that. If you’re in a place where there’s no one ambitious like you, you can move or get on the internet. If you don’t have a technical skill, go get one, do an internship, or pay for an online course. Don’t give up until you master the skill. Possibilities are everywhere around you when you start looking for them.
And now for step six, which is invest. You must invest your hard-earned dollars so your money grows and compounds in the background. You have to. But be honest. What’s the first thing that comes to your mind when I mention the stock market? I hear things like, “I don’t understand it. It’s risky. It’s scary. Oh, isn’t that a Ponzi scheme? It’s unpredictable. It’s intangible. It’s not safe.” And these statements represent a very reasonable interpretation of what the stock market is given we are largely educated about the market by the national financial news media. In actuality, the stock market is the greatest creator of wealth in human history. The problem is that you’ve been educated through no fault of your own by CNN, MSN, and Yahoo! Finance. Everywhere you look or listen, all they talk about is what’s wrong with the stock market. They’re always in your ear screaming that something is going very wrong. And we relate to news anchors like they’re good, trustworthy people. Ultimately, though, their job is not to educate you or provide fair and balanced reporting. The media’s business model is advertising, so they exist because they are grabbing you by the lizard brain and scaring you. That’s your amygdala, and those guys know exactly how to trigger it. The human brain experiences the same fear when it watches a stock portfolio fall as it does when being chased by a tiger.
So, I thought what I would do in this section is really to tell you the truth about the stock market, that most people, in my experience, most people never learn this. Is that okay? So, here’s the first association you’ll have to break. The news headlines are always dramatic and they’re usually negative. I’m sure you’ve heard the phrase, “If it bleeds, it leads.” And we’re all pretty much of the opinion that things in the world probably aren’t going that well. And we think the stock market parallels world events. So, if bad things are happening, the stock market is probably going down. If good things are happening, even though that won’t last, the stock market will go up for a short, fleeting period of time. And so, if you ask most people, “Are things more bad than good?” they would say, “Yes, things in the world are more bad than good, therefore, I’m worried about the stock market.” And that is, I think, the general consensus about what actually is, as I said before, the greatest creator of wealth in human history.
In truth, stock market performance is usually almost completely unrelated to what’s happening in the news. And if you really think about it, you don’t actually care what the stock market does. And you shouldn’t care. I don’t care. What you care about is what your money does in the stock market.
Let me make this point first, because this has to have the appropriate impact on you. We have to calculate your investing lifetime. It’s customized to you. So, picture in your mind your expected lifespan, how long you will live? 90 years, 95, 100 years or longer, pick a number. It’s a guess, but of course, we’re living longer and longer. So, let’s just say you pick 100 now. Take your current age and subtract that from 100. And the answer is your investing lifetime. So, if you’re 40, your investing lifetime is 100 minus 40 equals 60. Sixty years. And if you’re 30, it’s 70 years.
So, why did I ask you to calculate this number? Because people often make the mental mistake of thinking they’re done investing at retirement. A 40-year-old who wants to retire at age 60 will say, “Hilary, why are we talking about a century-long history of the stock market? I only have 20 years.” Tick tock, time is running out. But your money has to outlive you, so you need to take the long view.
You’ve probably got 40, 50, or more years to invest. So, if you had invested a dollar in the U.S. Total Stock Market in 1927, here are some of the historical events you would have been invested through and during, ready, starting back in 1929, the Great Depression, the German occupation of Europe and a deadly Cold War, fear of communism and McCarthyism, President Kennedy’s assassination, war and violence in the Middle East, the Cold War with Russia, Black Monday in 1987 which touched off more than 30% market sell-off, the real estate boom and bust, the financial crisis, the COVID pandemic, and a recession two years after that.
It would have surprised you to know that through all of those negative world events, the stock market would have grown your $1 investment to just over $8,400. I bet it does surprise you, and I can translate that for you into something you could probably wrap your arms around. If you had managed to put $100,000 into the U.S. Total Stock Market in 1927, you would now have $841 million. My math is correct. You would have turned $100,000 into $841 million.
And I don’t have 100 years to live. Maybe you don’t think you do either, but either of us would take half that. We’d take half $841 million, right? Write to me if you wouldn’t, definitely. But you’re going to have to convince me. The point here is that while we relate to the stock market, like it’s really scary and unpredictable, it’s actually really reliable if you know what to expect from it. And the days of relying on Wall Street or Jim Cramer to predict stock market gains have to be behind us because all the evidence says that just buying and holding a professionally constructed well-diversified, low-cost index-based portfolio is going to provide those returns we just talked about.
In my firm for our financial planning and wealth management clients, we’re using professionally constructed investment portfolios based on this type of methodology. I’m talking about now. It’s the highest performing methodology we know about. The funds we use, both mutual funds and ETFs, have a couple of features that are additional to index funds. They don’t call them index funds. They’re only available to clients of fee-only advisory firms like mine, and they have slightly higher performance than index funds over the longest time periods. But the point is, I am using the methodology I’m recommending to you in my own investment accounts, as well as the investment accounts of my high-net-worth clients, and that really is step six.
All right. Step seven is protect. Once you’ve earned it, saved it, invested and grown it, yes, you must protect your wealth. It’s unfortunately often overlooked. I can’t tell you how sad it makes me when people sit in my office with tears and tissues telling me about all the things they can’t have because they sent good money after bad. They didn’t want to pay for insurance, failed to be careful, or didn’t follow their advisor’s advice and lost their nest egg. Losing something means it’s gone forever, so don’t do dumb stuff with your money.
The tools to protect your wealth include smart behaviors and the various kinds of insurance policies you should have. I do not sell insurance. I’m not selling you anything. But if you have kids, you should have life insurance. If you drive, you should have auto insurance. If you have a body, you should have health insurance. If you rent, you need renter’s insurance. If you own your home, of course, you need homeowner’s insurance. And most of you should probably have an umbrella policy which protects your assets if someone injures themselves on the sidewalk in front of your house, or if you happen to cause a six-car pileup on the freeway, something like that can add up to millions in damages.
If you own real estate or have significant investment balances, especially after-tax assets, those would be like not in an IRA, not in a 401(k), you should have an estate plan which includes a will and a revocable living trust. You get those from a lawyer. Again, I’m recommending things, I don’t sell. That’s what fiduciary advisors do. Okay? Not going to try to sell you any of this stuff.
Instead of telling you why you should be diligent about estate planning, though, I’m just going to tell you a couple of real life stories. First, a man and a woman that I know got divorced. They have kids together. So, of course, they have life insurance. And in the confusion and upset of the divorce, no one ever reviews their policy beneficiaries. This is something my team and I always do for our clients. But neither of these folks were my client. I just heard this story after the fact.
So, they both get remarried. The woman even has another child with her new husband. Tragically, she is killed in a car accident. The life insurance company says, guess what? Her ex-husband is the beneficiary on the insurance policy. He gets $2 million. The new dad gets nothing. It would have taken 10 minutes to fix that, and nobody ever did it. Okay, it’s a big deal.
Second story, a client of mine lost both her parents in the last several years, her mother first and then her father. And the second death was very unexpected. And she’s totally devastated. She always knew that she would inherit their estate at some point. Her father had even included her in meetings with their family attorney. After her father passed, things got much worse for her when she realized the only copy of the estate plan she could find was unsigned and unnotarized. People always think their attorney keeps a copy of their legal documents, but I find that’s not something you can count on. Attorneys age just like you do. They die. They go out of business, and sometimes, they’re just not good record keepers.
And in this case, she had to have the attorney subpoenaed. That attorney claims she can’t find the documents. And now, my friend is in probate court and it’s really impacted her work because handling this issue is basically a full-time job. I mean, she’s had to become an expert on legal topics. Her parents wanted their estate to be passed directly to her, but it can’t happen because they didn’t get her the right copy of the trust document.
Instead of being able to take control of the money that her parents wanted her to have, she and her husband are out thousands of dollars out of pocket handling expenses. She can’t even get to her parent’s bank account to pay the mortgage or the utilities on the home that they owned for many years. Every time I speak to her, she’s in tears. It’s added massive stress and anxiety to her life.
So, imagine if her parents had dotted their i’s and crossed their t’s and were working with a team of professionals. We literally work with checklists to make sure all these items are kept current. That trust document would have been signed and notarized and everyone involved would have had a copy, including his attorney and advisors. The IRA beneficiaries would have been reviewed and updated and the family home would have been cleanly titled to the trust. So, definitely, definitely, definitely protect your wealth. It is the kindest, most loving thing you can do for your family and loved ones.
Okay, that’s the seven steps to wealth. If you master these seven steps, eventually, you will arrive at your destination, arriving at financial freedom and enjoying the fruits of your labor. The day you stop working is a very, very, very important day. Maybe it’s the most important day in your financial life. On that day, you are betting that your nest egg is going to last longer than you are. And there is a lot riding on that. So, please don’t go it alone. I am here to help and guide you.
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I hope you enjoyed this episode of Love Your Money. And if you want that seven steps to wealth guide I mentioned, download it 100% free at HendershottWealth.com/7steps. That’s HendershottWealth.com/7steps.
Hendershott Wealth Management, LLC and Love, your Money do not make specific investment recommendations on Love, your Money or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of Hilary Hendershott, CFP®, MBA.