Littlejohn Financial

From Riches to Rags: Avoiding Common Financial Mistakes

True Wealth Podcast - Financial Podcast by Financial Advisors

In this episode, we delve into the real stories of celebrities who went from riches to rags and explore the common financial mistakes that led to their downfall. Learn how to avoid lifestyle inflation, poor investment decisions, and inadequate financial planning to protect and grow your wealth. Tune in for essential tips and strategies to help secure your financial future and prevent common pitfalls.

 Episode Highlights:

  • How lifestyle inflation can erode your financial stability.
  • Insights into practical strategies for maintaining and growing your wealth after the accumulation phase.
  • The importance of not overspending and questioning traditional guidelines for housing expenses.
  • Common financial mistakes that high income earners make, especially in terms of tax traps and how to avoid these pitfalls and seize beneficial opportunities to protect your wealth.
  • Tax traps that can erode your wealth.
  • How to manage taxes effectively and avoid costly mistakes.
  • Risks associated with overleveraging– borrowing too much to fund your lifestyle or investments– and how it can lead to financial instability.
  • Significance of diversifying your investments to avoid being over-concentrated in a single asset class or stock. 
  • Tips on how to adjust your financial goals and savings strategies to account for inflation and this includes practical advice like increasing your retirement contributions when you get a raise.

 

 Transcript

 

00:00:00 I mean, maybe you’re not in the accumulation phase of, you know, retirement is, right? You’re, this is more towards, you know, trying to get money out of my estate. I don’t want to pay more taxes than I have to, especially in Oregon, because Oregon is expensive. Right. So taking those steps, and I can’t remember where I read that like 75% of people don’t even have a will.

00:00:00 What’s going on, everybody? This is Matt Dickson and this is The True Wealth Radio Show. Today, I’ve got a… awesome guest speaker in the house. 

00:00:41 If I still consider it a guest? 

00:00:42 Yeah, because you’re not here enough, Justin.

00:00:45 This is Justin Bruggeman. 

00:00:46 Yep, so one of the other advisors at the firm that just so happened to make it onto the radio show today and probably actually will over the next maybe week or two. 

00:00:55 For the next couple of weeks.

00:00:56 Yeah, we’re running this thing and we’re super excited to do it. Justin, I wanna just pick your brain today. I noticed a trend. When we run this radio show, we’re often talking about how do you acquire wealth and what are some of the tactics in order to be able to generate more income or save more money. And so I’m kind of curious to see the opposite of that. So after you’ve already kind of gained your wealth, right? After you’ve already gone through that accumulation phase and you’ve got the money that you’re looking to get, maybe you’ve become wealthy, how do you preserve that wealth and not squander it? And it’s funny because I was talking about this earlier when I was kind of drafting the show up and I was talking to the ladies at the office. And I, they asked, you know, what are you going to do for a show today? And I was talking about, how can, you know, we stay rich instead of squandering our wealth. 

00:02:04 Right. 

00:02:05 And they’re like, oh, well, that’s simple. You know, just don’t spend a lot of money. And I think that’s everyone’s kind of knee jerk reaction, right? It’s like, well, just don’t blow it all. But–

00:02:15 Just spend less than you make. 

00:02:16 Right. But I think there’s a lot more to it than that. Right. Like that’s the easy answer and that is part of it. Right. But I think there’s a lot more than just, don’t blow it because I mean you look at a lot of these pro athletes and all of these people that, you know, start a business and do really well and they grow their net worth oftentimes they fail. 

00:02:39 Right.

00:02:39 And so I want to talk a little bit today about what are some ways that you can preserve the wealth and not squander it? Do you kind of want to head this show off and give us maybe a starting point as to some ideas that maybe you have on ways that we can preserve our wealth? 

00:03:01 It’s almost not even, it’s maintaining wealth and the stepping stones to growing, to where you really want to be long-term. I mean, even take this, your first home purchase that isn’t necessarily intended to be your home forever. It’s a stepping stone to get to where you want to be or where you’re most comfortable and where you can within your budget. 

00:03:29 Okay. 

00:03:31 And then what we’ve kind of talked about kind of prepping for this is the inflation and the lifestyle. 

00:03:39 I mean, just speaking about what you just mentioned, your first house, you know, we kind of together looked at this and said, you know, do the old rules of, you know, what was it, 30 to 40% of–

00:03:53 Yeah, 33 to 36%. 

00:03:56 Yeah, of your income being able to go to housing. 

00:03:58 Right. 

00:03:59 And you and I, I think, are kind of questioning that right now and saying, does that still apply? Because, you know, inflation has really run up the cost of your utilities, your food, all of the other things that are out there that are, you know, requiring you to open up that checkbook. And I think that this is something where, you know, maybe you can’t afford quite as much house. 

00:04:20 Right. 

00:04:21 And we ran the numbers a couple different ways. And just rough numbers said, you know, how much can you actually afford for, kind of generic numbers? I think we came up with like, for, you know, about one hundred and fifty thousand of income. You can afford about a three hundred and fifty thousand dollar house at today’s interest rates. 

00:04:38 Right. 

00:04:39 And that’s, like especially where we live. Right. And where we’re at in Oregon, that doesn’t buy you a ton of house anymore. 

00:04:45 Right.

00:04:46 It would have, five or six years ago, but today, it might be a little bit different of a story. 

00:04:52 And even with the upgrading that people did when it was more affordable, which in stretching it to the end of that, the high 30 mark of 30% of your income goes to housing, when you buy more house, repairs are more. 

00:05:12 It’s true.

00:05:13 The growth on a 1200 square foot house is very different than a rough on a 3500 square foot. 

00:05:20 And I think that’s a good lead into one of the things I wanted to talk about today, which was this concept of lifestyle inflation, right? And it ties into living beyond your means, because that’s what I really want to hammer. How is it that people that have a high net worth that maybe make a lot of money every year aren’t doing well financially? Because we just assume, oh, you make a million dollars a year of income, surely you’re doing well. Maybe that’s not the case. And I think one of those errors that people make is, they… as their income goes up, they kind of inflate their lifestyle to the point to where it matches that income. 

00:06:01 Right. 

00:06:01 And then they become vulnerable. And I saw a really interesting statistic on this. And it was reported that 60% of high-income earners, so people making over $100,000 a year, are living paycheck to paycheck due to lifestyle inflation. 

00:06:18 Right. 

00:06:19 Right? Like you’re not–

00:06:21 That’s crazy. 

00:06:22 Yeah. You’re not buying that cheap bottle of wine. You’re buying the $200 bottle of wine. And so, maybe you went from having a pair of Levi’s to a pair of designer jeans. It’s easy to have that lifestyle creep where what was a $4,000 a month credit card bill is $6,000. 

00:06:42 Right. 

00:06:43 And even though you’re making a lot of money, you’re spending it all. 

00:06:45 Yeah. And it’s just not… Especially when the economy is changing the way it is and everything is fluctuating, the way it has is maybe your income goes up, but it doesn’t mean you adjust your lifestyle just because it goes up. 

00:07:02 Right. 

00:07:03 Because at that point in time, like the adjustment might have been two years ago, but then inflation has caught up quickly where it got way expensive, really quick. 

00:07:15 Right. Like things, a lot of stuff cost 20% more than it did. 

00:07:18 Right.

00:07:19 And so, yeah, you might have got a 20% raise over the last three or four years, but that doesn’t necessarily mean anything right now. 

00:07:28 Exactly. 

00:07:28 You could be living the exact same lifestyle that you were. And I think that’s the trap is people want to have a little bit, maybe more of a glamorous lifestyle. And so, they are thinking, hey, I’m making more, let’s go spend more or let’s go treat ourselves to that brand new camp trailer that we want, not realizing that inflation is kind of stabbing you in the back. 

00:07:52 Right. 

00:07:52 So. 

00:07:53 Well, and it never… the adjustment never is, so say you get a 20% increase in wages over the so-called last two years. 

00:07:59 Sure. 

00:08:01 At the, right now, you’ve adjusted your lifestyle to that new point instead of–

00:08:09 Waiting for inflation. 

00:08:10 Even though there’s a 20%, maybe let’s try to adjust our lifestyle by 10%. And then you have the 10% of access to survive during these situations where stuff is more expensive. 

00:08:24 And here’s one, here’s a tip, right? We can throw this out there. Now, we can’t give specific advice. This is more generalized as a concept. But, you know, maybe if you were doing 8% into your retirement account and you get a pretty good raise. Maybe you consider going from something like 8% to 10% and then paying your future self, right? And so those are kind of the things that I want to talk about today, kind of tips to preserving your wealth and making sure that your future self is in a good spot and you’re not really kind of stealing from yourself. 

00:08:59 And a lot of times what a lot of 401(k)s will have is the option to increase your percentage each year automatically.

00:09:07 Oh.

00:09:08 So… and I’ve seen it. I don’t know how common it is, but I’ve seen it multiple times where that’s a great way to do it is all right, you’re just getting started up. 

00:09:17 Sure. 

00:09:18 Put it at 6 percent. Five years down the road, you’re at 11.

00:09:22 Then you’re doing a lot. Yeah. 

00:09:23 And you’re not even noticing it because, that one percent difference, you’re probably not going to notice as a net result on your paycheck, because that’s coming before all the taxes, Social Security, everything. 

00:09:35 Here’s one I want to talk about, Justin. We talked about lifestyle inflation. This is one I’ve actually seen recently, more often than I would like to admit for various people. Over-leverage. And what does that really mean? Do you want to talk about it or do you want me to talk about it? Because I’ve personally seen this for a lot of people recently. This is kind of a big whoopsie. Do you want to kind of chat about what you–

00:10:04 You know, the underlying concept of it is you’re just… We’ve even talked about this with the mortgages. Your lifestyle changes, so you adjust your lifestyle to the new numbers and then inflation creeps up or some event happens where it shifts it and now you’ve created too much say debt to fund your lifestyle where anything changes. You’re actually skating. 

00:10:33 The domino effect, kind of. Yeah. It’s like, well, you know, things were going really good and then I bought this one thing that I thought was an investment and I did it with leverage, borrowing someone else’s money. But then when it’s time to pay the extra, you know, fees or the extra dues or whatever that is, if there’s any type of hiccup along the way, you can find yourself strapped for cash and unable to make a payment or having to borrow more money in order to make that payment. It’s a really dangerous venture when rates are higher than they historically have been over the last five or six years. 

00:11:13 And even the cost of debt with interest rates has gone up. 

00:11:16 Oh, it has. 

00:11:17 I mean, if you’re running credit card debt, you know, monthly, you might have been seeing, you know, let’s call it 22% interest a few years ago. Now it’s probably 27, 28.

00:11:31 Yeah, and you know, high rates, that’s one thing to think about. I’ve also seen, you know, people over-concentrated, whether that be, oh, my entire portfolio is in real estate or maybe I own just one single stock or a fourth of my net worth is in one single stock. When you concentrate really heavily, that can be an issue too, just because you don’t have as, kind of, you know, as many buckets of money to pull from or different areas to go get money when you need it. And so that can be an issue too. But all right, Justin, I think we’re running long on this segment. So let’s do this. Let’s take a quick profit break. And when we get back, we’re going to talk about some more ways that the wealthy people out there can somehow become poor by making bad mistakes. 

00:12:23 This is Matt Dickson.

00:12:24 And Justin Bruggeman.

00:12:25 You guys are listening to the True Wealth Radio Show on 93.9 FM and 1240 KQEN. All right, everybody, we’re not wasting any time getting back on the air. This is Matt Dickson. 

00:12:35 And Justin Bruggeman. 

00:12:36 And you guys are listening to the True Wealth Radio Show where today we are bringing you some awesome content on how you can preserve your wealth. Justin, in the first segment, we talked about some financial pitfalls for those high income earners. I wanna keep it going actually. I wanna stretch this out into the next segment because there’s so many different ways that you can slip up, make a mistake or just, you know, kind of be ignorant to some of the things that are out there for you. 

00:13:05 Right.

00:13:06 Lead it off. 

00:13:07 I want to talk about taxes. 

00:13:08 That’s a big one. That’s one that’s kind of overlooked. Maybe kind of start us off talking about, you know, ways that, you know, when you’ve got some wealth, you can be tax savvy so that you’re not just handing over an unnecessary amount of money. 

00:13:25 It might not even be that you’re handing it over so that you don’t realize that these events cause taxes. 

00:13:34 Right. 

00:13:34 And then you get a tax bill and you’re like, whoops, what do I do now? Like selling a property and just not understanding that–

00:13:44 There could have been a big gain there that you didn’t realize. 

00:13:47 Right. Yeah. And so which, nobody wants to mess with the IRS. 

00:13:51 No.

00:13:52 I don’t. Nobody I’ve heard of does. And so trying to get, getting all the information because most of the time if you’re either inheriting money or came across money in some way or form or just making a lot more now. 

00:14:07 Making a lot more or maybe you’re making money and accidentally not setting aside all the money that you need to. I know someone who, they started a business, they were doing really, really well. They were making a ton of money in their very first year. They weren’t setting aside quarterly taxes and the IRS at the end of the year was like, um, you should have been handing over–

00:14:34 30% of us should have went somewhere.

00:14:36 Yeah. And they didn’t have enough to pay their taxes. And so they, I think they took a HELOC on their house. Right. And so there was a huge disaster that could have been avoided had they been working, you know, with a good professional to make sure that they were on track in making adjustments to their income to where they were saving some of that back for taxes. 

00:15:05 And it’s just being proactive about taxes instead of reactive. Understanding what you’re getting into when you get into it so you can plan for it. 

00:15:14 Right. And if you’re making a lot more money, your tax bracket could go pretty high, but there are a couple ways that you can effectively lower, you know, how much you’re going to pay in taxes as a percentage. It’s low hanging fruit, right? You could potentially be contributing to a retirement account that deducts how much income you had for the year, because you are putting that in an account that says, hey, I’m going to pay these taxes later, like a traditional IRA or maybe a company 401(k) plan. There’s a lot of different options that are out there. You just got to be savvy enough to know what they are. And if you don’t know, that’s why we exist. Right.

00:16:00 Right. And ask the questions, because if you have tax deferred accounts and then pre-tax accounts as well, and you’re paying too much taxes, there’s limits on 401(k) contributions, but they are pretty high. 

00:16:15 Right. 

00:16:16 So if you want to shelter more income now, because this is your high income years, and then maybe you mean, maybe when you’re getting closer to retirement is, doing some of these things to prepare now because you’re gonna have less taxes later if your income is falling. 

00:16:32 Right. Or maybe you are really passionate about a certain charity, right? And so you’re looking at this and you’re saying, you know, I’ve felt convicted to donate to this multiple times. Maybe this is a good year because you have a ton of income and you can make a charitable donation that could help you out as well. So there’s a lot of different tax planning strategies out there. And I don’t think we have time enough today to cover them all. This could be a CS after class moment. 

00:17:02 Right. 

00:17:02 Right? So you can always give us a call, 541-375-0898. We can talk about this type of things and walk you through it. That’s one of the reasons why we exist, to help our customers and out with this type of stuff. So. 

00:17:17 Right.

00:17:19 What else do you got for me, Justin? 

00:17:20 I mean, another one that can fall into the taxes, just ignoring estate planning. 

00:17:24 Okay. Yeah. Like if you’re just saying I’m going to put the blinders on and not even look at my estate, just let it, let the chips fall where they may. 

00:17:32 Well, I mean, to an extent, it’s not your problem if you’re not here anymore. 

00:17:36 Right. 

00:17:37 But it can be a burden on–

00:17:40 The heirs. 

00:17:41 The heirs. 

00:17:42 Okay. 

00:17:43 You know, you’re setting up, get out of there, your spouse. And understanding just the rules and exemptions that you get as a spouse, and then how you can give the money away if that’s part of your plan. I mean, maybe you’re not in the accumulation phase of retirement, this is more towards trying to get money out of my estate, I don’t wanna pay more taxes than I have to, especially in Oregon, because Oregon’s expensive. 

00:18:13 Right. 

00:18:14 So taking those steps, and I can’t remember where I read that 75% of people don’t even have a will. 

00:18:23 Yeah, I think in the US, it’s about 60% don’t have a will and even fewer had any estate plan at all. 

00:18:34 Right.

00:18:34 Right. And so we look at this and you’re right, people aren’t, they’re not taking care of this stuff. That’s spooky to me. Especially because– 

00:18:44 On probate to divide it the way.

00:18:46 Right, and the probate–

00:18:47 The laws kind of say.

00:18:49 Probate courts have gotten more expensive, right? And the cost hasn’t really gone down. So we look at this and it’s like, you got to think about your heirs because one of the big concepts that we like to talk about is that, generational wealth, right? Like, how do we set it up to where we’re making good decisions for the people that are going to follow us and we’re trying to leave a legacy for? And part of that is being responsible enough to say, do I need a will or do I need a trust because depending on how large your estate is and how things are set up, you could potentially, you know, be costing your estate when you die and your spouse dies, you know, thousands and thousands and thousands of dollars–

00:19:33 When it could have been gift to [the worker].

00:19:34 Because it could have been structured properly and it wasn’t. So we don’t like to see that. And that’s one of the things that I think we do a really good job of internally. This is me bragging about our firm for a second. But I think one of the things we do well is we’re looking at the whole picture, not just what you have today. When we’re saying, how do we not only preserve it for you, the best that we can, but also try and preserve this for your heirs. 

00:20:02 Exactly. Yeah.

00:20:03 It’s a big deal. 

00:20:04 And it’s a big one, is just because to highlight is, if you have… If there has been a recent passing or anything like that, update beneficiaries. Because that is a bad one when it doesn’t get updated. 

00:20:16 Like maybe giving your ex-wife a bunch of assets that you didn’t realize you–

00:20:21 It has happened and I’ve seen it happen. 

00:20:23 Have you really? 

00:20:24 Yes. And that’s never a fun conversation because just update that stuff. Yeah. 

00:20:30 I think [in the way]–

00:20:31 Well, truly there’s ways around it, but that can get pretty expensive, too. 

00:20:34 Yeah. Yeah. You know, another one that really isn’t utilized, I think, nearly enough is gifting. Because sometimes your estate can get quite large. Right. And when, especially in a state like Oregon, where there are sizable state tax.

00:20:54 Lower exemptions,

00:20:55 Right. Yeah. And lower exemption amounts. You know, you say you’ve got a household estate that’s a five million dollar estate. And you, in Oregon, even if you have your trust set up properly and you pass away, the state’s gonna come here in Oregon, they’re gonna come knocking and wanting some taxes, right? And so, I think a big piece of that is saying, hey, we need to be able to gift stuff away now potentially because what if you don’t need the stuff anymore? You’re 95 years old and you’ve got stuff and you don’t need it. Go ahead and give it away and then lower the value of your estate so that when this comes time for the heirs to pay the taxes, they don’t have to give as much of it away. 

00:21:49 Right.

00:21:49 And so that’s a big one. 

00:21:50 And it’s a big topic even just now because at the lower exemptions in Oregon, a million as a million per person, two million per couple, your estate might have not been that high four years ago.

00:22:04 I mean, it’s true. 

00:22:05 And it has creeped. I mean, say you had a, you know, call it a $750,000 home. Maybe it’s worth $1.2 now. And then you start adding everything else up and then you’re above this exemption now and maybe you don’t want to be. 

00:22:20 You know, I’m glad, yeah, I’m glad you brought that up because I’ve seen a lot of people come into the office thinking that they might not have a ton of stuff until you start filling out, you know, some some paperwork and some forms and you’re looking at everything and you’re like, wait a minute, I’ve got three million dollars of assets and they had no clue. 

00:22:43 It’s like when you move.

00:22:45 You find all this stuff. Yeah. 

00:22:46 You realize how much just crap you’ve accumulated over the years and then you move and you’re like, why? Or you’re like, do I have this? Or it’s like, oh, there it is. Haven’t seen it for, you know, 10 years. 

00:22:59 Yeah.

00:23:00 I’m so afraid to move. I don’t want to do it. But–

00:23:02 Well, when we moved, it took me like a year and a half to refine everything because it’s in different places and it’s horrible. But no, you make a good point. You just might not realize all the things that you’ve got and the places that they’re in. Oftentimes, we just look at our bank accounts and we see a number and we’re like, well, that’s our value. And not necessarily the case. 

00:23:29 And it’s even understanding. I mean, you’re putting money in your 401(k) and things like that every single month. Check it. Check and read what it does, because there might be even some matching contributions you’re missing. It may be invested in some way that just auto enrolled you in, and that’s not where you’re at. 

00:23:50 Right.

00:23:51 This lifestyle. So it’s good to just have a… It doesn’t mean every single month you need to go crazy, but once, twice a year, pull it up, take a look at it and see if there’s adjustments. They may even have recommendations. 

00:24:07 One of the other things, we’ve talked a lot about estate planning today, poor investment decisions. That’s another thing that comes to mind. We don’t have to spend a ton of time on this because I know we need to take a break here soon. But chasing high returns, I’ve seen people do this, right. They… their net worth is pretty substantial and then they get greedy. It’s weird, it’s like this effect, like, well, I’ve got this much money, why don’t we try and get to here? And it’s just that casino effect almost in your life. 

00:24:39 It’s the power of more. 

00:24:40 Yeah, the power of more. 

00:24:41 Because I got, I need something more to chase. 

00:24:44 Yeah. And so people start investing in things like maybe a risky startup. Here’s a fun fact for you on that. 50% of startups fail within the first five years. Risky. I mean, there’s a lot of potential for a huge return. But markets are volatile. You need to know the risks that are involved there. 

00:25:07 It doesn’t even mean that you can’t invest in it or you shouldn’t. But it just needs to be of proportion that makes sense. 

00:25:13 Right. 

00:25:14 You’re just talking about, you know, the max, you know, 36 percent on your income should be to mortgage. Well, that’s what puts… it’s a roof over your head. 

00:25:24 Yes. 

00:25:25 It’s an asset. It’s probably accumulating in value. 

00:25:29 Probably don’t put 36% of your net worth into a startup. Right, yeah. 

00:25:34 And so then it’s a shift, and you carve out five, 10% of your portfolio, which can include real estate investments, [retirement]. And sure, have some fun with it. 

00:25:46 Sure, it’s not crazy to take a small holding in that compared to your overall net worth, but the other thing that people do is they get emotional. Right.

00:25:54 Yeah. 

00:25:55 The markets are down 20 percent. And then you start telling yourself it’s the end of the world. And we’ve got to sell and reduce everything. And then you don’t time the market correctly. You don’t get back in at the right time. And you do that maybe a couple, two or three times where you’re in and you’re out at the wrong time. And it’s like, well, you just lost half your money, maybe. 

00:26:14 Right. 

00:26:14 You know, and so emotional investing, not good. Panic selling, not good. But Justin, I know it’s time for us to take a break. So we’ve got a ton more to throw at you guys, but we got to take an unseen profit break. So this is Matt Dickson. 

00:26:31 I’m Justin Bruggeman. 

00:26:32 You guys are listening to the True Wealth Radio Show on 93.9 FM and 1240 KQEN. We will be right back. 

00:26:39 All right, everybody. Welcome back to the True Wealth Radio Show where with me in studio is… 

00:26:47 Justin Bruggeman. 

00:26:48 Awesome, Justin. Thanks for joining the show today. I’m pretty excited about everything that we’ve talked about so far. 

00:26:54 You’re welcome. 

00:26:55 Yeah. You’re doing a great job. You’re crushing it. You know, if you haven’t caught the first half of this radio show, you really should. Go ahead and head to our website tomorrow. It’ll be available, littlejohnfs.com and check out the podcast. We’ve got a lot of cool stuff on our website actually. Whether it’s, you know, some investment calculators, all sorts of stuff. I mean, there’s a plethora of information on there. So feel free to check out all those free tools and all the old shows that we’ve got piled up on there. We have so much content. So if you have questions about stuff or you’re really looking to educate yourself, my goodness, there’s so much on there. Today, Justin, we’re talking about how wealthy people cannot screw up, right? We want to retain wealth, we wanna preserve it. And we’re talking about some of the common mistakes. And when we left off at the break, we were talking about one of those pitfalls is poor investment decisions. And we kind of blew through it. I think we maybe need to take a little bit more time there. We talked about that whole concept of chasing high returns, right? 

00:28:11 Yep.

00:28:12 With that, one of the things I don’t think we really talked about is, and I’ve seen this before, people say, I want a ton of return, but I am unwilling to have any risk involved in my investments. 

00:28:26 Right.

00:28:26 And then I’m like, what fairy tale land do you live in? 

00:28:29 Me, too. 

00:28:30 Right? If that existed, everyone would just park their money there. So there is this trade off of risk reward. If you take no risk, your reward inherently should be a little bit lower. That whole free lunch thing, like that only exists when the government’s printing their money, right? Like, and even then we’re starting to–

00:28:52 It’s existed recently. 

00:28:54 We’re starting to pay the price even for that. 

00:28:55 Free for now. 

00:28:56 Yeah, free for now. The government thinks it’s free and they’re like, oh, we got the printing press. So, kidding back to home base here though. Chasing high returns, it’s a dangerous place to play in, especially if you’re not diversified well. And we talked about that a little bit earlier too. And some people can really think that they’re diversified, right? I own 20 different stocks, but you start looking at the portfolio and you’re like–

00:29:26 They’re all in the same sector.  

00:29:28 Do you realize that 50% of your stocks are all oil companies? Well, I worked in the oil field and I really like these companies and I’m like, that’s cool and all. But what happens if there’s some regulations that get passed and oil goes to $30 a barrel and stays there for the next five years? You know what I mean? Like you’ve really, you know, potentially limited yourself. So diversification is a big one. I know we talk about that. It’s pretty generic. 

00:30:00 Just understanding what you’re investing in, especially if you’re doing it by yourself, that’s great and that’s fine. But understand what you’re doing. Because you might not find all the answers off the Reddit board or whatever news source you’re looking for because you can switch it to different news and it’ll probably say the opposite. 

00:30:22 It’s a dangerous place to be because we tend to want to believe in the stuff that we use personally. 

00:30:29 Right.

00:30:29 Or that, like we find to be interesting, right? So if you’re a huge gun collector, you might wanna just sit there and buy Ruger stock all day long. That doesn’t make it a great investment. 

00:30:40 And that’s not an investment advice, by the way. 

00:30:42 No, you might be a hardcore vegan and you think that Beyond Meat is like the best investment ever. It doesn’t mean that it is, right? And we tend to have biases in investing where we want to buy the thing that we believe in or that we use. And we just have to be cognizant of that and know that that is influencing the decision.

00:31:08 And everybody has biases. 

00:31:10 They do.

00:31:11 You’re just going to have to understand them and understand your shortfalls. 

00:31:16 Right. Because, I mean, have you ever heard someone say, don’t buy Disney stock for me because they’re an ultra woke company and I don’t want to own them? Right. Yeah. We’ve all, I’ve heard that. But does that necessarily mean that Disney is a bad investment? 

00:31:30 Right. 

00:31:30 Right. I mean, and I get morally like opposing to things, but it doesn’t make it in nature a bad investment. It might be a good investment. Who knows? But we have prejudice in our decision making. And we can’t let that cloud-making smart financial decisions. 

00:31:51 And if you, if it is going to, again, a portion [size]. 

00:31:56 Yes. 

00:31:57 Carve out a portion size and do it for a while and try it. 

00:32:02 Yeah. 

00:32:02 Because then you might realize, I don’t want to do this anymore. Or you’re going to realize, all right, let’s try something else. And then you keep trying and then maybe it works out. Maybe it doesn’t. 

00:32:13 All right. So we’ve talked about poor investment decisions, but I want to transition this over into some fun stuff, right? I want to talk about, so maybe some celebrities that are out there that you can think of that have made some poor decisions financially. And I started looking into this and it’s crazy what happens to people when they stumble into large portions of money. 

00:32:44 Right.

00:32:45 Just because you have a lot of money doesn’t necessarily mean that you’re actually wealthy. You can absolutely derail the train. And one of the first people that comes to mind for me, Johnny Depp. Johnny Depp, let’s talk about him a little bit. 

00:33:01 Well, here, let’s quote him first. 

00:33:03 Yeah. 

00:33:05 Money doesn’t change anybody. Money reveals them. I’m still exactly the guy that used to pump gas. 

00:33:12 That’s powerful to me. That’s really powerful. Because it’s like, just because you have a bunch of money doesn’t, it doesn’t change who you are necessarily, right? Like it didn’t make him financially savvy, right?

00:33:27 No.

00:33:27 The guy that was pumping gas, got a… acting job, things blew up real rapidly, millions and millions of dollars. Like, I mean, he said it himself. It didn’t change him at all. It just revealed who his true self is. He’s extravagant.

00:33:40 Right.

00:33:40 He wanted to live like there’s no tomorrow. And we see that in the way that this guy spent money. Justin, let me throw some numbers at you here. So this guy had a very extravagant lifestyle. In 2013, he came out publicly and said he was spending over $2 million per month on expenses. For the average listener, you’re like, man, I’ve got expenses of $4,000 a month or something. No, Johnny Depp, $2 million per month. How did he spend it? Justin, do you want to talk about that a little bit? 

00:34:19 Wine, which that’s… we live in wine country. 

00:34:22 We do. 

00:34:22 $30,000 a month. 

00:34:24 How do you… so I just want to pause right there because I’m looking at this number two and I’m like, how do you spend $30,000 a month on wine? 

00:34:33 A thousand dollar a bottle of wine a day. 

00:34:37 So Johnny must’ve been intoxicated more often than he, or he had a lot of friends to share that bottle with. But yeah, so that’s a replacement, right? Like where the normal person is spending $30 on a bottle of wine, he’s spending 3000. So this goes back to the very start of the show, lifestyle inflation, right? Like you’re making more money, your $30 bottle of wine is now a $3000 bottle of wine. 

00:35:06 Right.

00:35:06 You gotta watch that red flag. Okay, what else? What else?

00:35:11 This one is my favorite because I haven’t decided if it’s bad or it’s good. 

00:35:16 I think what you’re about to say is awesome because I know what’s coming. 

00:35:20 It built a $3 million cannon.

00:35:22 Yeah.

00:35:23 To shoot–

00:35:24 His friend’s ashes. 

00:35:25 Yeah. 

00:35:25 Yeah. The guy was cremated. And he’s like, you know, I know your last wish was to have something extravagant for your kind of last hurrah here. And so what does Johnny Depp do? He hires a bunch of engineers to build like a 150 foot cannon or something. And he gets all of his friends together with all of his wine and they drink their $30,000 of wine for the night and shoot this guy up into the sky with like a couple hundred thousand dollars worth of fireworks. 

00:35:56 It’s a great video. 

00:35:58 Yeah. Go, find that on YouTube. 

00:36:01 Along with 14 residents, 158 foot yacht, 12 storage facilities. 

00:36:07 I know why on that one, by the way, the 12 storage facilities. He’s a hoarder of collectible things. So expensive guitars, artwork. The guy literally had 12 different storage facilities just to hold all of the stuff that had value to him. And 40 full-time employees. He needed round the clock 24/7 security, in his opinion.

00:36:32 He earned over $650 million in his career. 

00:36:35 Yep. But it’s a–

00:36:38 He’s faced financial ruin. 

00:36:39 Yeah. So the guy’s ruined. He made six hundred fifty million dollars. And well, the whole thing with Amber Heard didn’t help either. You look at the court costs on that one. What a disaster. So it goes back to his quote, “Money just reveals who you are. You’re still the same guy.” Right. Very, very interesting stuff to think about. Why are we even talking about it? Because it’s relevant. Right?

00:37:05 Yes.

00:37:05 You have to be smart enough to know, are you the type of person that intrinsically is bad with money? Because you can be bad with money and it doesn’t care if you make $100,000 a year or $100 million a year, if you’re bad with money, you’re going to screw it up, unless what? You learn to–

00:37:30 Understand your downfalls. 

00:37:32 Understand. Yeah. 

00:37:32 Don’t do it on your own. 

00:37:33 Yeah, exactly. I think that’s where it comes back to. It can be really, really helpful to have someone in your corner saying, hey, this isn’t sustainable. You cannot continue on at this rate. Let’s make sure that you’re doing things that build or maintain your net worth so that you’re not sliding backwards and you end up in a bankruptcy court. Right. Like–

00:37:59 Yeah, we don’t want that. 

00:38:01 No, we don’t. There are more examples. 

00:38:04 There is, and there’s, good example. I remember I watched something that Eminem, it was after he had a couple of platinum albums that had already been released, made millions. And so we asked his manager or whatnot if he could buy a Rolex. And they’re like, yeah. 

00:38:24 But that’s… see, that’s the other end of this. This is being smart with your money, right? Like you’re seeking counsel and–

00:38:32 Understanding he doesn’t… farming it out. 

00:38:37 Exactly. 

00:38:37 Getting somebody you trust to help guide him through those times. 

00:38:40 All right. Well, Justin, let’s take a break. But when we get back, let’s talk about Mike Tyson. Are you ready for that? 

00:38:46 There’s going to be a lot of talk about him shortly. 

00:38:47 Oh, there will be. But let’s take a quick little profit break. You guys are listening to the True Wealth Radio Show on 93.9 FM and 1240 KQEN. We’ll be right back. 

00:38:58 All right, everybody, we are back and we are talking here on the True Wealth Radio Show today about kind of losing your wealth because oftentimes, we’re talking about how do you gain it, but rarely do we talk about, how do you ruin the entire thing. So, Justin.

00:39:19 I think we’re going to hear a lot more of these stories with all the NIL stuff. 

00:39:24 Oh, you know, I never actually thought about that. I mean–

00:39:28 And then 18, 19 year old kids, millions of dollars. 

00:39:31 Yeah, it’s like, yeah. 

00:39:34 It makes me nervous. Not for, not that I don’t necessarily think they shouldn’t be getting paid. 

00:39:39 You know, it’s really crazy to me. It’s like, let’s go ahead and open the NIL stuff up and let’s pay these kids millions and millions of dollars to go to school and get their education and play a sport. But let’s not make it any, let’s not include any type of requirement where they have to take a financial literacy–

00:40:01 Right.

00:40:01 Course in order to get this NIL deal. Let’s just give it to them and watch them screw it up. 

00:40:06 It always blows my mind with it because they just went, they just jumped two feet in. Like there’s no guardrails. 

00:40:13 Nope.

00:40:14 There’s no anything. It’s like the wild, wild west. And then they expect it just to work out. And like, no.

00:40:20 At least in other sports, there’s a salary cap. 

00:40:22 Right. 

00:40:23 I would have been so much more thrilled to have the NCAA be like, all right, schools, you know, you’ve got a hundred… hundred million dollar budget for your football team. Go ahead and, you know, pay any of your athletes, whatever you want. So you want to blow–

00:40:36 At first, [in John] quarterback.

00:40:39 Or just say whatever, you know, go ahead and spend 90 million dollars to get your quarterback and you got 10 million for the rest of the team. Like you’re capped out at 100 million, provide proof of the funds or something. It’s like that would be way better off because here’s what it’s doing. If you ask me and granted, I don’t know enough about this to really speak on it, but I’m going to anyway. 

00:41:02 I can’t. I have a microphone. 

00:41:03 Yeah. You look at the actual financial picture of a lot of these major universities. It’s gotten to a point where the sport isn’t bringing in money, right? Like they’re finding all these donors and they’re spending every penny that they have to attract that athlete that’s going to win them the championship because that’s all they care about. We want to win that national championship and they’ll spend any amount of money to do it. And I look at this and I’m like, who is that harming? It’s harming the students and the education system because the schools aren’t focusing on the education, they’re focusing on the sports, because that’s where the money is and that’s where all of their donors are going to be happy. Are you winning titles? Right? And so I look at it and I’m like, we have to say, here’s the ceiling. Here’s where we’re going to cap this thing out at. Otherwise, where does it end? 

00:42:01 I just wish it just had guardrails. 

00:42:03 But yeah, that’s what I’m saying. 

00:42:04 Start somewhere and then we can expand. Let’s see how it goes. ‘Cause it went from nothing to a lot. 

00:42:10 To way too much. 

00:42:11 And it should have been not well, you know.

00:42:13 Yeah. 

00:42:14 Something to where it makes sense. And then, cause then now you’re having all the big shuffle of the TV times and stuff like that. You’re, you know, dissolving conferences. 

00:42:24 Let’s go back to the whole point of college. It’s the education or it should be at least in my opinion. And I look at this and I’m like, if you’re in the transfer portal every single year, what type of education are you really getting when all you’re doing is bouncing from school to school, you’re getting upended. I don’t like it personally. But talking about athletes, while we’re on the subject, we just left off with Johnny Depp. And I really wanted to talk about, kind of, Mike Tyson’s career. 

00:42:52 Yeah.

00:42:54 It’s crazy. This guy earned over $300 million when he was boxing, but he ended up facing bankruptcy because he’s spending a ton of money. He’s got legal issues, poor financial management, this guy ended up in a bad spot. Even though everything on, you know, you look at it, it’s like you got a pet tiger, dude. Like, obviously you gotta be doing pretty well, right? Not necessarily the case. This guy, did you ever see that house that he purchased, by the way? 

00:43:25 No, I didn’t. The Mega Mansion one? 

00:43:27 Yeah, the Mega Mansion. It was in Connecticut. This place was, 52 bedrooms, 21, no, 21 bedrooms, 25 bathrooms, it had a nightclub, an indoor pool, a hot tub, a recording studio, an indoor basketball court, a cinema room. And he just… he wanted the biggest, most flashy house he could purchase. And what I found funny in all of this, and go do the research if you want, but there have been so many people that have owned that house over the years, including names like 50 Cent, right? And all of the people for the most part that have owned this house have at one point gone bankrupt. 

00:44:11 I think that house has the bankruptcy problem. 

00:44:14 Well I look at this and I’m like well. 

00:44:17 What’s the upkeep on it? 

00:44:18 Right. That’s what this comes down to. You can go into something and just because you can afford the payment to, you know, buy it or whatever. And the rent on this place Justin, a hundred. I think they wanted, what was it? Like a hundred thousand dollars a month just rent because they couldn’t even get it to sell. 

00:44:37 Right. 

00:44:39 And when 50 Cent bought it, he bought it, actually from Mike Tyson. And in 2007, before the housing, you know, kind of bust, he had it listed for $18.5 million. He ended up selling it for $2.9 million. 

00:44:58 Yeah. 

00:44:59 And you can just follow the money trail. And it’s like, just because it’s the biggest house in Connecticut and it’s the most flashy thing out there doesn’t mean it’s a store of value.

00:45:10 Right.

00:45:11 Everyone who touched this thing for the most part, lost money and I think there’s this theory that floats around. Well, if I get enough money and I just buy the biggest, most expensive thing and I have the most flashy assets, somehow I’m gonna be rich. 

00:45:28 Right.

00:45:30 But like you said, upkeep insurance costs. 

00:45:33 Yeah.

00:45:33 There are so many hidden things that you don’t see that it can really catch up to you. 

00:45:40 What’s the power bill on a 52-year-old mansion? 

00:45:42 Well, maybe we’ll talk about that next week. Justin, we’re out of time. Thanks for sticking with us.

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